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Midterm

Economics Midterm Review.docx

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Department
Economics
Course Code
ECN 104
Professor
Tsogbadral Galaabaatar

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Chapter 1 1. Which of the following statements is NOT true? Households and economies both a. must allocate scarce resources. b. face many decisions. c. face tradeoffs. d. must have a central decision maker. 2. Which of the following is NOT included in the decisions that every society must make? a. what goods will be produced b. who will produce the goods c. what determines consumer preferences d. who will consume the goods 3. For what reason do both households and societies face many decisions? a. because resources are scarce b. because populations may increase or decrease over time c. because wages for households and therefore society fluctuate with business cycles d. because people, by nature, tend to disagree 4. When does scarcity exist? a. when there is less than an infinite amount of a resource or good b. when society can meet the wants of every individual c. when there is less of a good or resource available than people wish to have d. when the government fails to produce goods 5. Which of the following goods best meets the definition of scarcity? a. air b. water in the ocean c. water in a city d. wood in a forest 6. What does economics study? a. how society manages its scarce resources b. the government's role in society c. how to increase production d. how firms make profits 7. What concept is illustrated by the adage, "There is no such thing as a free lunch"? a. tradeoffs b. scarcity c. productivity d. efficiency 8. Henry decides to spend 2 hours playing golf rather than working at his job which pays $8 per hour. What is Henry's tradeoff? a. the $16 he could have earned working for 2 hours b. nothing, because he enjoys playing golf more than working c. the increase in skill he obtains from playing golf for those 2 hours d. nothing, because he spent $16 for green fees to play golf 2 9. Which of the following best defines efficiency? a. absolute fairness b. equal distribution c. minimum waste d. consumer sovereignty 10. In which of the following situations would economists use the word equity? a. Each member of society has the same income. b. Society is getting the most it can from its scarce resources. c. Those in society who have the least will receive the most. d. The benefits of society's resources are distributed fairly among society's members. 11. When government policies such as the welfare system try to help the neediest members of society, what happens? a. It increases equity and reduces efficiency. b. It reduces charitable contributions in an economy. c. It increases the productivity of the needy in the society. d. It causes market failure to occur. 12. In economics, what is the cost of something? a. the dollar amount of obtaining it b. always measured in units of time given up to get it c. what you give up to get it d. usually higher than people think it will be 13. For most students, what is the largest single cost of a university education? a. the wages given up to attend school b. tuition, fees, and books c. room and board d. transportation, parking, and entertainment 14. Mallory decides to spend 3 hours working overtime rather than watching a video with her friends. She earns $8 an hour. What is her opportunity cost of working? a. the $24 she earns working b. the $24 minus the enjoyment she would have received from watching the video c. the enjoyment she would have received had she watched the video d. nothing, since she would have received less than $24 of enjoyment from the video 15. What do we know about college-age athletes who drop out of college to play professional sports? a. They are not rational decision makers. b. They are well aware that their opportunity cost of attending college is very high. c. They are concerned more about present circumstances than their future. d. They underestimate the value of a college education. 16. How do people make decisions at the margin? a. by following tradition b. by experience c. by calculating dollar costs d. by comparing costs and benefits 3 17. What is a marginal change? a. a long-term trend b. a large, significant adjustment c. a change for the worse, and so is usually short-term d. a small incremental adjustment 18. After much consideration, you have chosen Cancun over Ft. Lauderdale for your Spring Break trip this year. For this decision to change, which of the following must occur? a. The marginal benefit of Cancun must increase. b. The marginal cost of Cancun must decrease. c. The marginal benefit of Ft. Lauderdale must increase. d. The marginal cost of Ft. Lauderdale must increase. 19. The average cost per seat on a bus trip from Montreal to Toronto is $140. Suppose no refreshments are served and 3 seats are empty. How could the bus company increase its profit? a. if it charged no less than $140 for the 3 remaining seats b. if it charged more than $140 for the 3 remaining seats c. if it charged any ticket price above $0 for the remaining seats d. if it left the seats empty 20. According to economists, what do people respond to? a. laws b. incentives c. threats more than rewards d. positives, but not negatives 21. In the former Soviet Union, producers were paid for meeting output targets, not for selling products. Under those circumstances, what were the economic incentives for producers? a. to produce good quality products so that society benefits from the resources used b. to conserve on costs, so as to maintain efficiency in the economy c. to produce enough to meet the output target, without regard for quality or cost d. to produce those products that society desires most 22. Which of the following statements about trade is NOT true? a. Trade increases competition. b. One country wins and one country loses. c. Canada can benefit from trade with any country. d. Trade allows people to buy a greater variety of goods and services at lower cost. 23. How can Canada benefit from trade? a. only with nations that can produce goods Canada cannot produce b. with any nation c. with any nation not in economic competition with Canada d. only with less developed nations 24. Which would NOT be true in a market economy? a. Firms decide whom to hire and what to produce. b. Government policies do not affect the decisions of firms and households. c. Households decide which firms to work for and what to buy with their incomes. d. Profit and self-interest guide the decisions of firms and households. 4 25. In a market economy, what guides economic activity? a. the government b. corporations c. central planners d. prices 26. How do prices direct economic activity in a market economy? a. by influencing the actions of buyers and sellers b. by reducing scarcity of the goods and services produced c. by eliminating the need for government intervention d. by allocating goods and services produced in the most equitable way 27. Which is the most correct statement about the invisible hand? a. The invisible hand always ensures both equity and efficiency. b. The invisible hand cannot ensure either equity or efficiency. c. The invisible hand is more effective at ensuring efficiency than it is at ensuring equity. d. The invisible hand is more effective at ensuring equity than it is at ensuring efficiency. 28. How does a market economy reward people? a. according to their need for goods and services b. according to how willing they are to work c. according to their ability to produce things that other people are willing to pay for d. according to their ability to produce things of cultural importance 29. What is one component necessary for markets to work? a. government intervention b. a benevolent society c. property rights d. abundant resources 30. What does the term market failure refer to? a. a situation in which the market on its own fails to allocate resources efficiently b. an unsuccessful advertising campaign that reduces buyer demand c. a situation in which competition among firms becomes ruthless d. a firm that is forced out of business because of losses 31. What are two causes of market failure? a. externalities and market power b. market power and incorrect forecasts of consumer demand c. externalities and foreign competition d. incorrect forecasts of consumer demand and foreign competition 32. What is an example of market power? a. a fast food restaurant in a university town b. a wheat farmer in Saskatchewan c. the last gas station in Manitoba for 100 miles d. a shoe store in Ontario 5 33. What is an example of an externality? a. the impact of bad weather on the income of farmers b. the impact of the personal income tax on a person's ability to purchase goods and services c. the impact of pollution from a factory on the health of people in the vicinity of the factory d. the impact of increases in health care costs on the health of individuals in society 34. What is market power? a. the power of a single person or group to influence market prices b. the ability of a person or group of people to successfully market new products c. the power of the government to regulate a market d. the relative importance of a market to the overall economy 35. What is the primary determinant of a country's standard of living? a. the ability to reduce foreign competition b. the ability to produce goods and services c. the total supply of money in the economy d. the average age of the country's labour force 36. A typical worker in Italy can produce 24 units of product in an 8 hour day, where a typical worker in Poland produces 25 units of product in a 10 hour day. What can we conclude? a. Worker productivity in Poland is higher than in Italy. b. The standard of living will be higher in Italy than in Poland. c. Productivity for the Polish worker is 3 units per hour and 2 1/2 units per hour for the Italian worker. d. There will be no difference between the standard of living in Italy and Poland. Chapter 2 1. What is meant by scientific method? a. the use of modern electronic testing equipment to understand the world b. the dispassionate development and testing of theories about how the world works c. the use of controlled experiments in understanding the way the world works d. finding evidence to support preconceived theories about how the world works 2. Why is the use of theory and observation more difficult in economics than in sciences such as physics? a. due to the difficulty in evaluating an economic experiment b. due to the lack of the funding for economic experiment c. due to the difficulty in actually performing an experiment in an economic system d. due to the difficulty in collecting sufficient data 3. Why do economists make assumptions? a. to diminish the chance of wrong answers b. to make the world easier to understand c. because all scientists make assumptions d. to make certain that all necessary variables are included 6 4. If an economist develops a theory about international trade based on the assumption that there are only two countries and two goods, what is most likely? a. The theory can be useful only in situations involving two countries and two goods. b. It is a total waste of time, since the actual world has many countries trading many goods. c. The theory can be useful in helping economists understand the complex world of international trade involving many countries and many goods. d. The theory can be useful in the classroom, but has no use in the real world. 5. What is the goal of theories? a. to provide an interesting, but not useful, framework of analysis b. to provoke stimulating debate in scientific journals c. to demonstrate that the developer of the theory is capable of logical thinking d. to help scientists understand how the world works 6. What happens when scientists make good assumptions? a. They greatly simplify the problem without substantially affecting the answer. b. They further complicate an already complicated subject. c. They can leave out necessary variables that may result in incorrect answers. d. They may not be able to reach an appropriate conclusion. 7. How do economists begin building an economic model? a. by writing grants for government funding b. by conducting controlled experiments in a lab c. by making assumptions d. by reviewing statistical forecasts 8. Which of the following is NOT true about most economic models? a. They are built using the tools of mathematics. b. They are useful to economists, but not to policymakers. c. They do not include every feature of the economy. d. They are built using assumptions. 9. What is a circular-flow diagram? a. a visual model of how the economy is organized b. a mathematical model of how the economy works c. a model that shows the effects of government on the economy d. a visual model of the relationship among money, prices, and businesses 10. In the simple circular-flow diagram, who are the decision makers? a. firms and government b. households and firms c. households and government d. households, firms, and government 11. According to a simple circular-flow diagram, in how many markets do households and firms interact? a. one type of market b. two types of markets c. three types of markets d. households and firms do not interact 7 12. What are factors of production? a. the mathematical calculations firms make to determine production b. weather and social and political conditions that affect production c. the physical relationships between economic inputs and outputs d. inputs into the production process 13. Which of the following would NOT be considered a factor of production? a. labour b. land c. capital d. money 14. Refer to Figure 2-1. Which arrow shows the flow of goods and services? a. arrow A b. arrow B c. arrow C d. arrow D 15. Refer to Figure 2-1. Which arrow shows the flow of spending by households? a. arrow A b. arrow B c. arrow C d. arrow D 16. In economics, what does capital refer to? a. the finances necessary for firms to produce their products b. buildings and machines used in the production process c. the money households use to purchase firms' output d. the value of stock market shares to investors 17. What is revenue received by firms from sales that is not used to pay for factors of production? a. rent b. wages c. profit d. interest 8 18. What does a point on a country's production possibilities frontier represent? a. a combination of two goods that an economy will never be able to produce. b. a combination of two goods that an economy can produce using all availabe resources and technology. c. a combination of two goods that an economy can produce using some of its resources and technology. d. a combination of two goods that an economy may be able to produce sometime in the future with additional resources and technology. 19. For what reason are production possibilities frontiers usually bowed outward? a. constant opportunity cost b. increasing opportunity cost c. decreasing opportunity cost d. increasing productivity 20. Which of the following is the most accurate statement about production possibilities? a. An economy can produce only on the production possibilities frontier. b. An economy can produce at any point inside or outside a production possibilities frontier. c. An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier. d. An economy can produce at any point inside the production possibilities frontier, but noton or outside the frontier. 21. When is an economic outcome said to be efficient? a. if the economy is using all of the resources it has available b. if the economy is conserving on resources and not using all it has c. if the economy is getting all it can from the scarce resources it has available d. if the economy is able to produce more than its current production without additional resources 22. On a production possibilities frontier, when is production efficient? a. if the production point is on the frontier b. if the production point is outside the frontier c. if the production point is on or inside the frontier d. if the production point is inside the frontier 23. Which of the following concepts is NOT illustrated by the production possibilities frontier? a. efficiency b. opportunity cost c. equity d. tradeoffs 24. When a production possibilities frontier is linear, what does it show? a. a truer picture of real life than a bowed out production possibilities frontier b. an example of constant opportunity cost c. an example of increasing opportunity cost d. an example of decreasing opportunity cost 9 25. Refer to Figure 2-2. At which point or points can the economy NOT produce? a. point A b. point C c. point A, C d. point A, C, D 26. Refer to Figure 2-2. Which point or points are efficient? a. point B, E b. point A, B, E c. point D d. point C 27. What is the opportunity cost of obtaining more of one good as shown on the production possibilities frontier? a. the amount of the other good that must be given up. b. the market price of the additional amount produced. c. the amount of resources that must be devoted to its production. d. the number of dollars that must be spent to produce it. 28. Refer to Table 2-1. What is the opportunity cost to Toyland of increasing the production of dolls from 200 to 300? a. 200 fire trucks b. 150 fire trucks c. 100 fire trucks d. It is impossible to tell what the opportunity cost is since in this example costs are not constant. 10 29. Refer to Table 2-1. Which of the following statements accurately describes the production possibilities for Toyland? a. The opportunity cost of an additional 100 dolls is 50 fire trucks. b. The opportunity cost of an additional 100 dolls is 100 fire trucks. c. Without additional information, it is impossible to determine the opportunity cost of an additional doll. d. The opportunity cost of an additional 100 dolls increases as more dolls are produced. 30. Which is the best statement about the roles of economists? a. Economists are best viewed as policymakers. b. Economists are best viewed as scientists. c. In trying to explain the world, economists are policymakers; in trying to improve the world, they are scientists. d. In trying to explain the world, economists are scientists; in trying to improve the world, hey are policymakers. 31. How do economists view positive statements? a. affirmative, justifying existing economic policy b. optimistic, putting the best possible interpretation on things c. descriptive, making a claim about how the world is d. prescriptive, making a claim about how the world ought to be 32. What type of statement is "Prices rise when the government prints too much money"? a. positive economic statement b. negative economic statement c. normative economic statement d. welfare statement 33. Of what use is a coordinate system? a. to show the flow of income and products in an economic system b. to organize labour and other resources in the production process c. to allow economists to show two variables on a single graph d. to teach economists how to draw graphs consistently 34. What is an ordered pair? a. the process of checking calculations twice before placing them on a graph b. two numbers that can be represented by a single point on a graph c. two numbers that are represented by side-by-side points on a graph d. two points on a graph that are equal distances from the origin 35. What is the ordered pair that represents the origin on a graph? a. (1, 1) b. (0, 0) c. (0, 1) d. (1, 0) 36. How is the slope of a straight line calculated? a. rise divided by run b. run divided by rise c. the average of rise and run. d. rise plus run Chapter 3 1. If there is no trade, which of the following is most likely? a. A country is better off because it will become self-sufficient. b. A country's production possibilities frontier is also its consumption possibilities frontier. c. A country can still benefit from international specialization. d. More product variety is available in a country. 2. If there is trade, which of the following is most likely? a. A country is worse off because it becomes dependent on other countries. b. A country will produce a greater variety of goods and services to trade. c. A country's consumption possibilities frontier can be outside its production possibilities frontier. d. A country will experience a lower unemployment rate. 3. When will a production possibilities frontier be linear and not bowed out? a. If no tradeoffs exist. b. If the tradeoff between the two goods is always at a constant rate. c. If unemployment is zero. d. If resources are allocated efficiently. 4. Which of the following is NOT correct? a. Trade allows for specialization. b. Trade is good for nations. c. Trade is based on absolute advantage. d. Trade allows individuals to consume outside of their individual production possibilities curve. 5. Refer to Table 3-1. What is the opportunity cost of 1 pound of meat for the Farmer? a. 1/4 hour of labour. b. 4 hours of labour. c. 4 kg of potatoes. d. 1/4 kg of potatoes. 6. Refer to Table 3-1. What is the opportunity cost of 1 kg of potatoes for the Rancher? a. 4 hours of labour. b. 5 hours of labour. c. 5/4 kg of meat. d. 4/5 kg of meat. 7. Refer to Table 3-1. Which of the following is correct? a. The Farmer has an absolute advantage in meat, and the Rancher has an absolute advantage in potatoes. b. The Farmer has an absolute advantage in potatoes, and the Rancher has an absolute advantage in meat. c. The Farmer has an absolute advantage in meat, and the Rancher has an absolute advantage in meat. d. The Farmer has an absolute advantage in neither good, and the Rancher has an absolute advantage in both goods. 8. Refer to Table 3-2. What is the opportunity cost of 1 kilogram of meat for the Rancher? a. 4 hours of labour. b. 5 hours of labour. c. 5/4 kilograms of potatoes. d. 4/5 kilogram of potatoes. 9. Refer to Table 3-2. What is the opportunity cost of 1 kilogram of potatoes for the Farmer? a. 8 hours of labour. b. 2 hours of labour. c. 4 kilograms of meat. d. 1/4 kilogram of meat. 10. Refer to Table 3
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