EC120 Study Guide - Midterm Guide: Normal Good, Economic Equilibrium, Economic Surplus

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6 Apr 2020

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EC120 Full Course Notes

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1) A basic underlying point in economics is that A) people have unlimited wants in the face of limited resources. B) there are unlimited resources. C) governments should satisfy the needs of the people. D) people have limited wants in the face of limited resources. E) governments should never interfere in the workings of a market economy. With a budget of $200 million, the government can choose to purchase 4 helicopters or repair 200 km of highway. Search and Rescue Helicopters 50 100 150 200 Kilometres of Highway Reconstruction FIGURE 1-1

1. Which of the following cannot be determined using a production possibility table?

What combination of outputs can be produced.
How much less of one output can be produced if more of another output is produced.
What combination of outputs is best.
How much output can be produced from a given level of inputs.

2. Internal government debt is:

debt owed by citizens to their government.
debt owed by one government to another government.
government debt owed to citizens.
government debt owed to foreigners.

3. In general, budget deficits should:

never be run since they slow economic growth over the long run.
never be run since they crowd out investment in the short run.
be run on a temporary basis whenever the economy is below potential output.
be run on a permanent basis since they can always be financed over and over again.

4. If taxes and government outlays were constant and did not vary with income, then:

passive deficits would increase.
passive deficits would not exist.
structural deficits would increase.
structural deficits would not exist.

5. If the debt of the federal government increases by $10 billion in one year, then the budget:

deficit in that year must be $10 billion.
surplus in that year must be $10 billion.
deficit in that year decreased by $10 billion.
surplus in that year increased by $10 billion.

6. Which of the following would make the impending Social Security problem worse?

Raising income taxes when the baby boomers begin to retire.
Reducing the age at which one is eligible to receive payments.
Reducing Social Security retirement benefits.
Introducing means testing.

7. The price mechanism is: (Points : 5)

not affected by social and political forces.
affected by social but not political forces.
affected by political but not social forces.
affected by both political and social forces.

8. Social forces:

affect the price mechanism through cultural norms.
affect the price mechanism, but not the legal system.
affect the price mechanism through scarcity.
do not affect the price mechanism.

9. Opportunity cost is the same as marginal cost.

True
False

10. Which of the following is a characteristic of a market economy?

Private property.
Government ownership of the means of production.
Distribution according to need.
Tradition determines the what, how, and for whom decisions.

11. Mexico has a comparative advantage in producing corn:

if its opportunity cost of producing corn is higher than the opportunity cost in other countries.
if its opportunity cost of producing corn is the same as the opportunity cost in other countries.
if its opportunity cost of producing corn is lower than the opportunity cost in other countries.
regardless of the opportunity cost in other countries.

12. The opportunity cost for a student of attending college for a year is best measured by the:

benefit received by the student.
tuition paid for the year.
value of the next-best activity forgone by attending college.
total money outlays associated with attending college.

13. A passive deficit is the portion of the deficit that exists when:

the economy is at potential income.
the economy is beneath potential income.
inflation is not fully anticipated.
inflation is fully anticipated.

14. An important international lending institution is the:

IMF.
The Group of Eight.
EU.
WTO.

15. Private property rights:

are essential elements of a market economies.
do not need to be enforced in market economies.
must be established before a socialist economy can function properly.
ensure an equitable distribution of income in market economies.

16. If a country has a comparative advantage in the production of a good, then its resources are better suited to the production of that good than the resources of other countries.

True
False

17. As the interest rate rises, debt service:

decreases.
does not change, but debt increases.
increases.
does not change and neither does the debt.

18. Your opportunity cost of taking this course is:

the tuition you paid for the course.
the benefit of the activity you would have chosen if you had not taken the course.
the benefit you get from taking this course.
the cost of the activity you would have chosen if you had not taken the course.

19. One advantage of a corporation over a sole proprietorship is:

greater accountability.
avoidance of double taxation.
ease of formation.
greater ability to obtain funds.

20. Maintaining objectivity is easiest in:

positive economics.
the art of economics.
normative economics.
it is just as easy in all of the above

byzantiumimpala567

QUESTION 1

Assume there are two basic goods produced in a nation, consumer goods and capital goods. The production possibilities graph for these two goods is bowed out from the origin. This reason for this shape of the graph is because of:

	A.	the other-things-equal assumption.
	B.	the law of increasing opportunity costs.
	C.	diminishing marginal utility.
	D.	present choices and future possibilities.

1 points

QUESTION 2

From an economic perspective, when a student decides to attend another year of college, the student has concluded that the:

	A.	marginal costs of attending college are reduced by the availability of grants and subsidies.
	B.	marginal benefits of attending college have increased because the future is brighter.
	C.	marginal benefits of attending college are greater than the marginal costs.
	D.	marginal costs of attending college have decreased to make college affordable.

1 points

QUESTION 3

A person observes that as consumer prices fall, economic growth increases. The person concludes that fall consumer prices leads to economic growth. This conclusion would be an example of:

	A.	confusing correlation with causation.
	B.	the fallacy of composition.
	C.	trade-offs among economic goals.
	D.	the other-things-equal assumption.

1 points

QUESTION 4

The problem of unlimited wants and limited income is known as

	A.	the scientific method.
	B.	unequal wealth distribution.
	C.	normative economics.
	D.	the economizing problem.

1 points

QUESTION 5

A point outside the production possibilities curve is:

	A.	unattainable without economic growth.
	B.	attainable and the economy is efficient.
	C.	unattainable without inflation.
	D.	attainable, but the economy is inefficient.

1 points

QUESTION 6

Which one of the following would be an example of loaded terminology?

	A.	market forces
	B.	tentative hypothesis
	C.	entrepreneurial functions
	D.	creeping socialism

1 points

QUESTION 7

Suppose there are two economies, Alpha and Beta, both of which have the same production possibilities curves. If Beta devotes more resources to produce investment goods than consumer goods as compared to Alpha, then in the future:

	A.	Alpha will not be able to achieve full employment.
	B.	Beta will not be able to achieve full employment.
	C.	Alpha will experience greater economic growth than Beta.
	D.	Beta will experience greater economic growth than Alpha.

1 points

QUESTION 8

Macroeconomics, as opposed to microeconomics, is concerned with

	A.	individual businesses.
	B.	new computer technology.
	C.	the stock market.
	D.	the economy as a whole.

1 points

QUESTION 9

Which one of the following is an example of a positive economic statement?

	A.	The size of the Federal government should be reduced.
	B.	Midwest states affected by drought should be given more federal disaster aid.
	C.	Education and income are highly correlated.
	D.	The minimum wage for workers should be raised to help low-income workers.

1 points

QUESTION 10

Economics is primarily concerned with

	A.	interactions between the government and market participants.
	B.	how scarce resources are used.
	C.	the production and distribution of capital goods.
	D.	how income is divided among individuals.

1 points

QUESTION 11

The production possibilities table below shows the hypothetical relationship between the production of guns (national defense) and butter (social goods) in an economy.

A B C D E

Guns 0 4 7 9 10

Butter 4 3 2 1 0

If the economy is producing at alternative C, what is the opportunity cost of producing another unit of butter?

	A.	3 units of guns.
	B.	1 units of guns.
	C.	2 units of guns.
	D.	4 units of guns.

1 points

QUESTION 12

Assume that a consumer can buy only two goods X and Y, and has an income of $120. The price of X is $10 and the price of Y is $20. If the consumer spends all of her money on X and Y, which of the following would be a possible combination:

	A.	4X and 2Y
	B.	5X and 3Y
	C.	6X and 3Y
	D.	8X and 1Y

1 points

QUESTION 13

In the production possibilities model of an economy, when there is full employment of resources

		a nation will be operating at an interior point within its production possibilities curve.
		a nation will be operating on the production possibilities curve.
		the production possibilities curve will shift outward to the right.
		the production possibilies curve will shift inward to the left.

1 points

QUESTION 14

In economics the concept that there is "no free lunch" means

	A.	scarce resources were used to produce these "free" goods so there is an opportunity cost to producing them.
	B.	consumers are irrational when they ask for a free lunch unless they can make the case that the free lunch benefits business.
	C.	the marginal cost of the "lunch" is greater than the marginal benefit.
	D.	businesses could not make a profit if they gave away free goods to consumers.

1 points

QUESTION 15

Assume that a consumer can only purchase two goods with her income. A straight-line budget constraint indicates that the opportunity cost of obtaining an additional unit of one good is:

	A.	negative.
	B.	constant.
	C.	increasing.
	D.	decreasing.

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EC120 Study Guide - Midterm Guide: Normal Good, Economic Equilibrium, Economic Surplus

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