ECON 201 Study Guide for Exam 1
ECON 201 Study Guide for Exam 1 ECON 201
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This 8 page Study Guide was uploaded by AnnMarie on Thursday March 24, 2016. The Study Guide belongs to ECON 201 at Louisiana Tech University taught by Menuka Karki in Spring 2016. Since its upload, it has received 153 views. For similar materials see Economic Principles & in Economcs at Louisiana Tech University.
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Date Created: 03/24/16
Chapter 1 1. Economics is best defined as the study of a. how society manages its scarce resources. b. how to run a business most profitably. c. how to predict inflation, unemployment, and stock prices. d. how the government can stop the harm from unchecked self-interest. 2. Your opportunity cost of going to the fair is a. the price of the ticket. b. the price of the ticket plus the cost of any drinks, food, and merchandise you buy at the theater. c. the total cash expenditure needed to go to the fair plus the value of your time. d. zero, as long as you enjoyed the fair and consider it worthwhile use of time and money. 3.Amarginal change is one that a. is not important for public policy. b. incrementally alters an existing plan. c. makes an outcome inefficient. d. does not influence incentives. 4.Adam Smith's “invisible hand” refers to a. the subtle and often hidden methods that businesses use to profit at consumers' expense. b. the ability of free markets to reach desirable outcomes, despite the self-interest of market participants. c. the ability of government regulations to benefit consumers, even if consumers are unaware of the regulations. d. the way in which producers or consumers in unregulated markets impose costs on innocent bystanders. 5. Governments may intervene in a market economy in order to a. protect property rights. b. correct a market failure due to externalities. c. achieve a more equal distribution of income. d. All the above. 6. If a nation has high and persistent inflation, the most likely explanation is a. the central bank creating excessive amounts of money. b. unions bargaining for excessively high wages. c. the government imposing excessive levels of taxation. d. firms using their monopoly power to enforce excessive price hikes. 7. Which of the following is a normative statement? a. Smoking is the leading cause to lung cancer. b. The government should increase the tax on alcohol. c. Drunk driving is the leading cause of car accident fatalities. d. a and b e. all of the above 8. Which of the following is a positive statement? a. You should ware protective goggles when using a table saw. b. The Tulsa Zoo is a wildlife natural preserve. c. The government should increase the tax on alcohol. d. a and c e. all of the above Chapter 2 9.An economic model is a. a mechanical machine that replicates the functioning of the economy. b. a fully detailed, realistic description of the economy. c. a simplified representation of some aspect of the economy. d. a computer program that predicts the future of the economy. 10. The circular-flow diagram illustrates that, in markets for the factors of production, a. households are sellers, and firms are buyers. b. households are buyers, and firms are sellers. c. households and firms are both buyers. d. households and firms are both sellers. 11. Mariah is a math tutor and John is a mechanic. If Mariah tutors John for his math exam in exchange for John to change the oil for Mariah's car, a. only John is made better off by trade. b. neither Mariah or John are made better off by trade. c. both Mariah and John are made better off by trade. d. only Mariah is made better off by trade. 12. Serena is able to make to 8 bracelets per hour and 9 necklaces per hour. What is the opportunity cost of making 1 necklace? a. 8/9 bracelets b. 9/8 bracelets c. 8 bracelets d. none of the above Illustration 1 13. Refer to Illustration 1. If the economy is currently producing at point C, what is the opportunity cost of moving to pointA? a.8 bushels b. 16 bushels c. 12 bushels d. Zero 14. See Illustration 1 : Which of the following points is not feasible? a. PointA b. Point B c. Point C d. Point D 15. Hannah and Brian need to decide which one of them will take time from work to complete the rather urgent task of changing the brakes on their car. Hannah is pretty good at car repairs; she can change the breaks in 1 hour. Brian is somewhat slow; it takes him 6 hours to change the breaks. Hannah earns $120 per hour as a personal trainer while Brian earns $15 per hour as a clerk. Keeping in mind that either Hannah or Brian must take time off from work to change the breaks, who has the lowest opportunity cost of competing the task? a. Hannah b. Brian c. Both 16. Does the Production Possibilities Frontier illustrate trade-off? a. True b. False 17. Serena is able to make 8 bracelets or 16 earnings in 8 hours. Erica is able to make 9 bracelets or 12 earnings in the same amount of time. Who has the comparative advantage in producing bracelets and who has the comparative advantage in producing earnings? a. Serena has the comparative advantage in producing bracelets and Erica has the comparative advantage in producing earnings. b. Erica has the comparative advantage in producing bracelets and Serena has the comparative advantage in producing earnings. c. Serena has the comparative advantage in producing both bracelets and earnings. d. Erica has the comparative advantage in producing both bra and earnings. 18. In an hour, William can wash 2 cars or mow 1 lawn, and Ron can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing and who has the absolute advantage in lawn mowing? a. William in washing, Ron in mowing. b. Ron in washing, William in mowing. c. William in washing, neither in mowing. d. Ron in washing, neither in mowing. 19. When two individuals produce efficiently and then make a mutually beneficial trade based on comparative advantage, a. they both obtain consumption inside their production possibilities frontier. b. they both obtain consumption outside their production possibilities frontier. c. each individual consumes a point on his own possibilities frontier. d. one individual consumes inside his production possibilities frontier, while the other consumes outside of his. 20. Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor, while producing a shirt takes 4 hours of labor. Will these nations trade? a. China will export aircraft, while the United States will export shirts. b. China will export shirts, while the United States will export aircraft. c. Both nations will export shirts. d. There are no gains from trade in this situation. 21-22. Bill and Jessica are farmers. Each one owns a 20-acre plot of land. The following table shows the amount of corn and rye each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing corn or rye or produce corn on some of their land and rye on the rest. Corn Rye (Bushels per acre) (Bushels per acre) Bill 80 16 Jessica 56 14 21. Who has the absolute advantage in the production of corn and rye? a. Bill has the absolute advantage in the production of both corn and rye. b. Bill had the absolute advantage in the production of corn but Jessica has the absolute advantage in the of production of rye. c. Jessica has the absolute advantage in the production of both corn and rye. d. Jessica had the absolute advantage in the production of corn but Bill has the absolute advantage in production of rye. 22. Bill's opportunity cost of producing 1 bushel of rye is _______ bushels of corn whereas Jessica's opportunity cost of producing 1 bushel of rye is _____ bushels of corn. a. 5 and 4 b. 4 and 5 c. 10 and 8 d. 8 and 10 23. Because Bill has a higher opportunity cost of producing rye than Jessica, who has the comparative advantage in the production of rye, and who has the comparative advantage in the production of rye? a. Jessica has the comparative advantage in the production of rye and Bill has the comparative advantage in the production of corn. b. Bill has the comparative advantage in the production of rye and corn. c. Jessica has the comparative advantage in the production of rye and corn. d. Bill has the comparative advantage in the production of rye and Jessica has the comparative advantage in production of corn. 24. If there is a technological advancement in producing meat what will happen to the production possibilities frontier of potatoes (y-axis) and meat (x-axis)? a. There will be a shift in how much meat can be produced. b. There will be a shift in how much potatoes can be produced. c. There will be no shift. d. a and b 25. Demand is the willingness and ability to sell a good. a. True b. False 26. The law of demand states that a. keeping everything else constant the quantity demanded of a good goes up as the price of that good increases. b. keeping everything else constant the quantity demanded of a good goes down as the price of that good increases. c. keeping everything else constant the quantity of a good supplied goes down as the price of the good increases. d. keeping everything else constant the quantity of a good supplied increases as the price of the good increases. 27. Which of the following causes movement along the demand curve? a. The price of the good. b. The income of the buyer. c. The number of buyers in a market. d. The price of a complement good. 28. Which of the following causes a shift in the demand curve? a. Income. b. Price of relative good. c. Price of the good. d. a and b 29. The law of supply states, keeping everything else constant, as a. the price of a good increases the supply of that good decreases. b. the price of a good increases the supply of that good increases. c. the price of a good increases the demand of that good decreases, d. the price of a good increases the demand of that good increases. 30. Which of the following would cause a shift in the supply curve? a. The price of the good. b. The future price of inputs. c. The number of buyers in the market. d. The income of the buyers in the market. Illustration 2 31. See Illustration 2:An increase in the number of firms in the market would be representative by a movement from: a.Ato B b. B toA c. $1 to $5 d. $5 to $1 32. See Illustration 3: What is the price and quantity at the market equilibrium? a. $50 and 150 units b. $50 and 100 units c. $25 and 150 units d. $100 and 50 units 33. When the government imposes minimum wage, it causes a. the supply curve to shift to the left. b. the demand curve to shift to the right. c. a shortage of the jobs to develop. d. a surplus of the jobs to develop. 34. In a market with a binding price ceiling, an increase in the ceiling will ________ the quantity supplied, ______ the quantity demanded, and reduce the __________. a. increase, decrease, surplus b. decrease, increase, surplus c. increase, decrease, shortage d. decrease, increase shortage 35-39. Arecent study found that the demand and supply schedulers for hula-hoops are as follows: Price per Hula-Hoop Quantity Demanded Quantity Supplied (dollars) (millions) (millions) 11 1 15 10 2 12 9 4 9 8 6 6 7 8 3 6 10 1 35. What is the equilibrium price and quantity of hula-hoops? a. $8, 6 million b. $7, 8 million c. $6, 10 million d. $10, 2 million 36. If the government imposes a price floor of $2 above the equilibrium price what is the new market price? a. $10 b. $8 c. $6 d. $4 37. How many hula-hoops are sold at the new market price? a. 2 million b. 10 million c. 12 million d. 14 million 38. Now, lets say that the government removes the price floor and imposes a price ceiling $1 below the former price floor. What would the new market price be? a. $9 b. $8 c. $7 d. $6 39. How many hula-hoops are sold at the new market price? a. 6 million b. 8 million c. 10 million d. 4 million 40.Aprice ceiling on a good benefits the consumer. a. True b. False
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