Econ1: Test 1
Identify the choice that best completes the statement or answers the question.
____A 1. It usually takes less time to buy a six-pack of 7-Up, a loaf of bread, and a half-gallon of ice cream at a small
convenience store (such as a 7-Eleven) than at a large, full-service grocery store. Which of the following
persons is most likely to buy these items at a convenience store?
a. a person with high opportunity cost of time
b. a person with low opportunity cost of time
c. a person who is out of work
d. There is not enough information to answer the question.
____A 2. Scarcity means
a. wants are greater than the limited resources available to satisfy these wants.
b. wants are less than the limited resources available to satisfy these wants.
c. resources are infinite.
d. wants are limited.
e. both c and d
____D 3. Most states have instituted mandatory seatbelt laws to reduce traffic fatalities. An economist may point out
that an unintended effect of these laws is
a. an increase in the price of automobiles, further reducing fatalities.
b. an increase in driving speed, reducing the number of accidents.
c. a decrease in driving speed, further reducing fatalities.
d. an increase in risky driving behavior, increasing fatalities.
___D_ 4. Saying "the marginal costs are greater than the marginal benefits" is the same as saying
a. the average costs are greater than the average benefits.
b. the total costs are greater than the average benefits.
c. the benefits are greater than the costs.
d. the additional costs are greater than the additional benefits.
e. the costs minus the benefits equal the net costs.
e Co MC
2 4 6 8
Time Spent Studying(hours) __C__ 5. Refer to Exhibit 1-1. The student whose study habits are illustrated here will maximize the net benefits of
studying when she has studied
a. 2 hours
b. 4 hours
c. 6 hours
d. 8 hours
__C__ 6. To an economist, utility means:
__B__ 7. Many people buy one newspaper per day, but rarely do they buy two of the same newpapers on the same day.
What is the economic justification for this behavior?
a. The marginal benefit of purchasing the second newspaper exceeds the marginal cost of
purchasing that paper.
b. The marginal cost of purchasing the second newspaper exceeds the marginal benefit of
purchasing that paper.
c. The marginal benefit of purchasing the second newspaper equals the marginal cost of
purchasing that paper.
d. none of the above is an appropriate economic justification for this behavior.
__A__ 8. A PPF is more likely to be a downward-sloping curve that is bowed outward than a downward-sloping
straight line because most resources are
a. better suited for the production of some goods than others.
b. used efficiently.
c. relatively cheap at low levels of output.
d. used to produce consumption goods.
___A_ 9. Refer to Exhibit 2-1. The PPF illustrates
a. constant opportunity costs between guns and butter. b. that guns are more important than butter.
c. increasing opportunity costs between guns and butter.
d. the opportunity cost of one unit of guns is four units of butter.
e. none of the above
___B_10. In the production possibilities framework, economic growth is depicted by the PPF
a. shifting leftward (toward the origin).
b. shifting rightward (away from the origin).
c. becoming a straight line.
d. becoming bowed outward.
__B__11. The PPF is bowed outward as a result of
a. constant opportunity costs.
b. increasing opportunity costs.
c. decreasing opportunity costs.
___D_12. If Sean can bake bread at a lower opportunity cost than Jason, and Jason can produce paintings at a lower
opportunity cost than Sean, it follows that
a. Sean has a comparative advantage in paintings and Jason has a comparative advantage in
b. Both Sean and Jason have a comparative advantage in baking bread.
c. Both Sean and Jason have a comparative disadvantage in producing paintings.
d. Sean has a comparative advantage in baking bread and Jason has a comparative advantage
in producing paintings.
e. There is not enough information to answer the question.
____A13. "Dumping" refers to
a. the sale of goods abroad at a price below their cost and below the price charged in the
b. unloading of foreign goods on domestic docks.
c. government actions to remedy "unfair" trade practices.
d. buying goods at low prices in foreign countries and selling them at high prices in the
___C_14. A tariff is a
a. tax imposed on domestic producers of export goods.
b. legal limit on the amount of a good that can be imported.
c. tax imposed on imported goods.
d. legal limit on the amount of a good that can be produced by foreign owners of a firm
located in a host country.
__C__15. A quota is
a. a tax imposed on imported goods.
b. a legal limit on the amount of a good that can be produced by foreign owners of a firm
located in a host country.
c. a legal limit on the amount of a good that can be imported.
d. an agreement between two countries in which the exporting country voluntarily agrees to
limit its exports to the importing country.
__A__16. The infant industry argument for trade protectionism holds that
a. new industries sometimes need a protective environment in which to grow so that they can compete with older, more established foreign competitors.
b. foreign competitors are often viewed as "infants" by large U.S. firms.
c. tariffs are often preferred to quotas.
d. quotas raise prices more than tariffs raise prices.
e. a and c
___A_17. During a war, governments will sometimes draft people, most of whom are presently employed, into the
army. An economist, computing the real cost of the war, would be sure to include which of the following
a. the value of the civilian goods no longer produced by the new soldiers
b. the cost of feeding and clothing the new soldiers
c. the dollar cost of the payroll
d. the higher prices of civilian goods due to wartime shortages
e. the cost of transporting the soldiers to combat
_B___18. People are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying
a new car than they are to purchase a consumer ratings magazine that reviews pens and pencils before buying
a new pen or pencil. Which of the following best explains this behavior?
a. Because the consumer ratings magazine must have a higher price for the issue reviewing
pens and pencils.
b. Because the value of the information, in terms of avoiding a mistake on the purchase, is
much higher for an automobile than for a pen or pencil, it is more worthwhile to gather
c. Because people generally do not know which products are reviewed by these consumer
d. None of the above explain this behavior.
___D_19. Which of the following is consistent with the implications of the economic guidepost that information is
costly to acquire?
a. Most people do not know the names of their legislators in the U.S. Congress, but those
same individuals are likely to know the names of all the cast members on a popular TV
b. In considering purchases, people are more likely to purchase a consumer ratings magazine
that reviews new automobiles before buying a car, but are unlikely to purchase a consumer
ratings magazine that reviews pens and pencils before buying a pen or pencil.
c. When shopping for something like a new calculator, people will generally not spend the
time to do price comparisons at all of the stores in town that sell calculators.
d. All of the above are consistent with the economic way of thinking.
___C_20. Economic analysis is based on the premise that
a. people act only out of selfish motives.
b. people are always fully informed when making choices.
c. changes in the personal benefits or costs of an action influence behavior in a predictable
d. most human behavior is unpredictable.
___A_21. The fact that some people love tomatoes while others dislike them illustrates that
a. the value of a good is subjective.
b. the value created by a good does not depend on who consumes it.
c. the value of a tomato cannot be determined by the person consuming it.
d. tomatoes have a value that is determined by their cost of production rather than by the
value to the consumer of the tomatoes. ___C_22. The statement, "Violent crime has decreased in the last five years,"
a. is obviously wrong and, therefore, cannot be a positive statement.
b. is normative since it can be answered by simply looking at the facts.
c. is positive because it is testable.
d. is not very interesting because all normative issues are of little importance.
___B_23. "The standard of living is too low for many individuals in the United States. The government should
implement policies designed to achieve a more equal distribution of income." The preceding statements are
a. positive economic statements based on cause and effect.
b. normative economic statements based on value judgments.
c. based on the fallacy of composition argument.
d. an empirically validated economic principle.
____C24. When economists use the term ceteris paribus, they are indicating that
a. the relationship between two economic variables cannot be determined.
b. the analysis is true for the individual but not for the economy as a whole.
c. all other variables except the ones specified are assumed to be constant.
d. their conclusions are based on normative economics rather than positive economic
__D__25. Which of the following best illustrates the fallacy of composition?
a. If the price of a product rises, the quantity produced will decline.
b. The average wage rate tends to increase at approximately the same rate as inflation; hence,
wage increases must cause inflation.
c. Resources are scarce; therefore, there is no such thing as a free lunch.
d. If Susan had more money she could buy more. If everyone had more money they could
___D_26. Which of the following actions is consistent with the basic economic postulate (the guidepost) that incentives
a. Consumers buy fewer potatoes when the price of potatoes increases.
b. A politician votes against a pay raise for himself because most of his constituents are
strongly opposed to it and would vote against him in the next election.
c. Farmers produce less corn because corn prices have declined.
d. All of the above.
____C27. The expression "There's no such thing as a free lunch" means
a. in an exchange, if one person gains, someone else must lose. –no both win-
b. each person must pay for exactly what he or she receives.
c. the use of resources to meet one need means that those resources can no longer be
used to meet another need. Always opportunity cost. Nothings free
d. in an exchange, if one person gains, someone else must lose and equal amount.
___B_28. The highest valued alternative option that must be given up in order to choose an action is called its
B opportunity cost.
d. ceteris paribus
__A__29. Which of the following is implied by the economic concept of opportunity cost?
a. If the National Football League (NFL) allowed college freshmen and sophomores to be
drafted and play in the NFL, the most talented football players would drop out of school to play professional football.
b. If the demand for computer programmers in the private sector was to rise, salaries for
computer science professors would likely rise as well.
c. The cost of taking time off work to have children is higher for women in high-paying
managerial positions than for women in low-paying clerical jobs.
d. All of the above are true.
__D__30. Which of the following would likely raise your opportunity cost of attending a football game this Saturday
a. On Friday, your history professor unexpectedly announces there will be a midterm exam
on Monday morning worth half of your grade.
b. You are offered double-pay if you work Saturday night at the restaurant where you are
c. A friend calls and offers you free tickets to a Saturday night concert by one of your
d. All of the above would likely raise the opportunity cost of attending the football game.
__B__31. In Figure 2-1, point A is
d. preferable to point B.
Figure 2-2 ____C32. Which of the following would most likely cause the production possibilities curve for breadfruit and fish to
shift outward from AA to BB in Figure 2-2?
a. a decrease in the labor force of the country
b. a sudden change in consumer preferences for more fish and less breadfruit
c. a major technological advance
d. a decrease in the capital stock
__D__33. Keri decided to sleep in today rather than attend her 9 a.m. economics class. According to economic analysis,
her choice was
a. irrational, because economic analysis suggests you should always attend classes that you
have already paid for.
b. irrational, because oversleeping is not in Keri's self-interest.
c. rational if Keri has not missed any other classes.
d. rational if Keri values sleep more highly than the benefit she expects to receive from
attending the class.
__B__34. According to the law of comparative advantage,
a. each producer should strive toward self-sufficiency in order to maximize the total
production of the economy.
b. each product should be produced by the lowest opportunity cost producer in order to
c. one should never compare one's abilities with those of another.
d. each product should be produced by the individual who can produce more of that product
than any other individual.
___A_35. A U.S. trade policy that restricts the sale of foreign goods in the U.S. market will
a. reduce the demand for U.S. export goods since foreigners will be less able to buy our
goods if they cannot sell to us.
b. benefit producers in industries that export goods.