Econ Study Guide Test 2
Econ Study Guide Test 2 Econ 224
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This 7 page Study Guide was uploaded by Mackenzie Shapiro on Monday March 21, 2016. The Study Guide belongs to Econ 224 at University of South Carolina taught by Nigam in Spring 2016. Since its upload, it has received 164 views.
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Date Created: 03/21/16
Econ Study Guide – answer key attached 1. What is the equation for consumer surplus? a. Willingness to pay – market price = CS b. Market price – willingness to pay = CS c. Market price/willingness to pay = CS d. Willingness to pay/market price = CS 2. What is the equation for producer surplus? a. Cost – market price = PS b. Market price – cost = PS c. Cost/market price = PS d. Market price/Cost = PS 3. What is the equation for total surplus? a. Consumer surplus – producer surplus b. Producer surplus – consumer surplus c. Consumer surplus/producer surplus d. Consumer surplus + producer surplus 4. It costs a company $50,000 to produce 5000 beach towels. The company’s cost will be 50,009 if it produces an additional beach towel. If the company produces 5,000 beach towels then a. its average cost is greater than its marginal cost. b. its average cost and its marginal cost are equal. c. its average cost is less than its marginal cost. d. there is insufficient information to compute average and marginal costs. 5. One reason we need government, even in a market economy, is that a. there is insufficient market power in the absence of government. b. property rights are too strong in the absence of government. c. the invisible hand is not perfect d. Both a and b are correct. 6. Productivity is defined as the a. amount of goods and services produced from each unit of labor input. b. number of workers required to produce a given amount of goods and services. c. amount of labor that can be saved by replacing workers with machines. d. actual amount of effort workers put into an hour of working time. 7. Inflation is defined as a. a period of rising productivity in the economy. b. a period of rising income in the economy. c. an increase in the overall level of output in the economy. d. an increase in the overall level of prices in the economy. 8. In the circular-flow diagram, a. firms are buyers in the markets for goods and services. b. households are sellers in the markets for the factors of production. c. firms are sellers in the markets for factors of production and in the markets for goods and services. d. dollars that are spent on goods and services flow directly from firms to households. 9. The law of supply states that, other things equal, when the price of a good a. falls, the supply of the good rises. b. rises, the quantity supplied of the good rises. c. rises, the supply of the good falls. d. falls, the quantity supplied of the good rises. 10. Who came up with the “invisible hand”? a. Adam Smith b. John Smith c. Bob Hatchet d. Tina Smith 11. True or False: Decisions of buyers and sellers affect people who are not participants in the market at all 12. True or False: The uncompensated impact of one person’s actions on the wellbeing of a bystander is known as Market Equilibrium 13. A negative externality occurs when A. Impact on the bystander is beneficial B. Impact on the bystander is adverse C. There is no impact on the bystander D. None of the above 14. Which of the following do the Environmental Protection Agency NOT do? a. develop and enforce regulations b. dictates maximum level pollution c. requires that firms adopt a particular technology to reduce emissions a. regulate taxes that may benefit the environment 15. Which of the following defines excludability? a. Property of a good whereby one person’s use diminishes other peoples use b. Property of a good whereby a person can be prevented from using it c. Property of a good whereby a person can not be prevented from using it 16. Which of the following defines rival in consumption? a. Property of a good whereby one person’s use diminishes other peoples use b. Property of a good whereby a person can be prevented from using it c. Property of a good whereby a person can not be prevented from using it 17. Private goods are a. not excludable and not rival in consumption b. excludable and not rival in consumption c. rival in consumption and not excludable d. excludable and rival in consumption 18. Club goods are a. not excludable and not rival in consumption b. excludable and not rival in consumption c. rival in consumption and not excludable d. excludable and rival in consumption 19. Common resources are a. not excludable and not rival in consumption b. excludable and not rival in consumption c. rival in consumption and not excludable d. excludable and rival in consumption 20. Public goods are a. not excludable and not rival in consumption b. excludable and not rival in consumption c. rival in consumption and not excludable d. excludable and rival in consumption 21. Government can remedy the free rider problem a. If total benefits of a public good exceeds its costs b. Provide the public good c. Pay for it with tax revenue d. Make everyone better off e. All of the above 22. How can you decide whether something is a public good? a. Determine who the beneficiaries are b. Determine if they can be excluded from using the good c. Both a and b d. None of the above 23. True or false: the free rider problem exists when you can not exclude anyone from gaining the benefits of the good/service 24. What is the approximate value of a human life? a. $10 million b. $50 million c. $5 million d. $1 million 25. Which of the following represent Gross Domestic Product (GDP)? a. measures the total income of everyone in the economy b. measures the total expenditure on the economy’s output of goods and services c. market value of all final goods and services produced within a country in a given period of time d. all of the above e. none of the above 26. Which of the following statements about GDP is correct? a. GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services. b. Money continuously flows from households to firms and then back to households, and GDP measures this flow of money. c. GDP is generally regarded as the best single measure of a society’s economic well-being. d. All of the above are correct. 27. A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move a. raises GDP. b. decreases GDP. c. doesn't change GDP because gambling is never included in GDP. d. doesn't change GDP because in either case his income is included. 28. George lived in a home that was newly constructed in 2005 for which he paid $200,000. In 2008 he sold the house for $225,000. Which of the following statements is correct regarding the sale of the house? a. The 2008 sale increased 2008 GDP by $225,000 and had no effect on 2005 GDP. b. The 2008 sale increased 2008 GDP by $25,000 and had no effect on 2005 GDP. c. The 2008 sale increased 2008 GDP by $225,000; furthermore, the 2008 sale caused 2005 GDP to be revised upward by $25,000. d. The 2008 sale affected neither 2008 GDP nor 2005 GDP. 29. The CPI is a measure of the overall cost of the goods and services bought by a. a typical consumer, and the CPI is computed and reported by the Department of the Treasury. b. typical consumers and typical business firms, and the CPI is computed and reported by the Department of the Treasury. c. a typical consumer, and the CPI is computed and reported by the Bureau of Labor Statistics. d. typical consumers and typical b 30. What basket of goods and services is used to construct the CPI? a. a random sample of all goods and services produced in the economy b. the goods and services that are typically bought by consumers as determined by government surveys c. only food, clothing, transportation, entertainment, and education d. the least expensive and the most expensive goods and services in each major category of consumer expenditures 31. Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year. In 2002, the basket’s cost was $75.00; in 2004, the basket’s cost was $79.50; and in 2006, the basket’s cost was $85.86. The value of the CPI was a. 100 in 2002. b. 106 in 2004. c. 114.48 in 2006. d. All of the above are correct. 32. Between October 2001 and October 2002, the CPI in Canada rose from 116.5 to 119.8 and the CPI in Mexico rose from 93.2 to 102.3. What were the inflation rates for Canada and Mexico over this one-year period? a. 2.8 percent for Canada and 9.1 percent for Mexico b. 2.8 percent for Canada and 9.8 percent for Mexico c. 3.3 percent for Canada and 9.1 percent for Mexico d. 3.3 percent for Canada and 9.8 percent for Mexico 33. Assume that consumers consider rice and potatoes to be substitutes, so that when the price of rice rises, consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the price of rice, it takes into account a. the increase in the price of rice. b. the decrease in the quantity of rice purchased and the increase in the quantity of potatoes purchased. c. Both (a) and (b) are correct. d. None of the above is correct. 34. When new goods are introduced, consumers have more variety from which to choose. As a result, each dollar is worth a. more, and the cost of living increases. b. more, and the cost of living decreases. c. less, and the cost of living increases. d. less, and the cost of living decreases. 35. Suppose the CPI was 172 in 2013, and the CPI was 46.5 in 1996. If your parents put aside $1,000 for you in 1996, then how much would you have needed in 2013 in order to buy what you could have bought with the $1,000 in 1996? a. $270.35 b. $1,255.00 c. $2,698.92 d. $3,698.92 GOOD LUCK ON YOUR EXAM!!! Answer key below Answer key: 1. a 2. b 3. d 4. a 5. c 6. a 7. d 8. true 9. b 10. a 11. true 12. false (it’s externality) 13. b 14. d 15. b 16. a 17. d 18. b 19. c 20. a 21. e 22. c 23. true 24. a 25. d 26. d 27. a 28. d 29. c 30. b 31. d 32. b 33. a 34. b 35. d
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