AC 2203 Long Exam 1

ANSWER: C
1.
Scarcity:
A. exists because resources are unlimited while human wants are limited.
B. means we are unable to have as much as we would like to have.
C. will likely be eliminated as technology continues to expand.
D. is not an issue addressed in economics.
6.
Economics is the study of how people:
A. vote for political leaders who decide what is to be produced.
B. make choices to produce and consume goods and services.
C. establish social institutions that maximize well-being.
D. develop value systems that affect their consumption choices.

ANSWER: B ANSWER: B

2. 7.
The central question in economics is how to: Someone notices that sunspot activity is high just prior to recessions and
A. deal with the problem of scarcity. concludes that sunspots cause recessions. This person has:
B. change government economic policy. A. confused association and causation.
C. change people's wants to match their needs. B. misunderstood the Ceteris paribus assumption.
D. manage money and become wealthy. C. used normative economics to answer a positive question.
D. built an untestable model.
ANSWER: A
ANSWER: A
3.
Which of the following is included in the study of macroeconomics? 8.
A. Salaries of college professors. Which of the following is a normative economic statement?
B. Computer prices. A. The unemployment rate for the United States is currently 5.4 percent.
C. Unemployment in the nation. B. The inflation rate in the United States is too high.
D. Silver prices. C. An increase in the price of a good will reduce the amount purchased.
D. Higher profits in an industry will attract more entrepreneurs into the industry.
ANSWER: C
ANSWER: B
4.
The Latin expression Ceteris paribus means:
A. everything else being equal. 9.
B. economic model. Complete the following analogy: A criminal is to a police artist's sketch as the
C. economists are partly right. economy is to:
D. partial scarcity is certain. A. money.
B. an economic model.
ANSWER: A C. a resource.
D. Ceteris paribus.
E. scarcity.
5.
Computer programs or software are an example of: ANSWER: B
A. land.
B. labor. 10.
C. capital. "As soon as a mayor announced his/her 'get tough on crime' policy on New Year's
D. none of these. day, criminals got scared and the crime rate went down." Suppose that the lower
crime rate was actually caused by freezing cold temperatures in January⎯it was
just too cold for anybody to be out robbing other people. Which fundamental
hazard of the economic way of thinking did the mayor make?
A. believing that what's good for one person is good for the whole group (the
fallacy of composition)
B. failing to take into account the benefits of crime (the payoff fallacy)
C. believing that association is the same as causation
D. failing to understand the difference between positive and normative economics.

ANSWER: C

11.
Suppose that the alternative uses of an hour of your time in the evening, ranked
from best to worst, are (1) study economics, (2i) watch two half-hour TV sitcoms,
(3) play pool, and (4) jog around town. You can only choose one activity. What is
the opportunity cost of studying economics for one hour, given this information?
A. Jogging around town.
B. Watching two half-hour TV sitcoms.
C. Playing pool.
D. The sum of watching two half-hour TV sitcoms, playing pool, and doing your If the economy represented in Exhibit A is operating at Point W:
laundry. A. no tractor product must be forgone to produce more food in the current period.
B. resources are not fully used.
ANSWER: B C. some tractor production must be forgone to produce more food in the current
period.
12. D. increased food production would be impossible.
The amount of a good that must be given up to produce another good is the
concept of: ANSWER: C
A. scarcity.
B. specialization. 14.
C. trade. The process of accumulating capital is called:
D. efficiency. A. capitalization.
E. opportunity cost. B. loanable funds.
C. investment.
ANSWER: E D. debt management.

13. ANSWER: C
Exhibit A Production possibilities curve
15.
Exhibit B Production possibilities curve data

Consumption Capital
Goods Goods
10 0
  9 1
  7 2
   4 3
  0 4

In Exhibit B, according to the information, the opportunity cost of producing 3 units

of capital is:
A. 3 units of consumption goods.
B. 4 units of consumption goods.
C. 6 units of consumption goods.
D. 7 units of consumption goods.

ANSWER: A

16.
After the terrorist attacks on September 11, 2001, the United States began
devoting substantial resources toward the War on Terrorism, homeland security,
and relief efforts. As long as our resources were being used efficiently, the
production possibilities curve would suggest that:
A. we will have to give up the production of other goods that could have been
produced with these resources. For the economy shown in Exhibit C, which of the following is true when the
B. we will be able to produce the same amount of other goods as before. economy is at point A?
C. the military spending will result in an outward shift in the production possibilities A. More cars are being produced than are needed.
curve but that the relief effort will result in an offsetting inward shift. B. There must be resources that are not being used fully.
D. we will be unable to devote the resources necessary toward these efforts unless C. Some car production must be forgone in order to produce more grain in the
there is an improvement in technology. same period.
D. Increased grain production would be impossible.
ANSWER: A
ANSWER: C

17. 18.
Exhibit C Production possibilities curve Exhibit D Production possibilities curve
In Exhibit D, if the economy decides to locate at point E, then: E. cannot be estimated.
A. this is the best choice for this economy.
B. the maximum number of consumption goods is being produced. ANSWER: C
C. the economy has not achieved full employment.
D. the economy could not survive because no food is being produced.
E. the economy has not achieved maximum efficiency.

ANSWER: D
21.
19. The "other things being equal" clause in the law of demand does not allow which of
A production possibility graph slopes down because of: the following factors to change?
A. the law of increasing costs. A. Consumer income.
B. nonhomogeneous resources. B. The prices of other goods.
C. inefficiency. C. Consumer tastes and preferences.
D. improper output mix. D. All of these.
E. unemployment.
ANSWER: D
ANSWER: B
22.
20. Other things being equal, the effect of an increase in the price of Coca-Cola would
Exhibit E Production possibilities curve cause a(n):
A. upward movement along the demand curve for Coca-Cola.
B. leftward shift in the demand curve for Coca-Cola.
C. downward movement along the demand curve for Coca-Cola.
D. rightward shift in the demand curve for Coca-Cola.

ANSWER: A

23.
A rightward shift in the demand curve is called a(an):
A. decrease in output.
B. decrease in demand.
C. increase in demand.
D. increase in income.

ANSWER: C

In Exhibit E, to move from U to B, the opportunity cost:
A. would be 4 units of consumption goods.
B. would be 2 units of capital goods.
C. would be zero.
D. would be 5 units of capital goods.
24.
If consumer incomes go up and cars are a normal good, the effect on the demand
for cars ceteris paribus, will be a(n):
A. upward movement along the demand curve for cars.
B. downward movement along the demand curve for cars.
C. rightward shift in the demand curve for cars.
D. leftward shift in the demand curve for cars.
ANSWER: C A. Change in supply.
B. Change in quality.
25. C. Change in income.
Assuming steak and potatoes are complements, other things being equal, an D. Change in product price.
increase in the price of steak, will: E. Change in taste.
A. increase the demand for potatoes.
B. decrease the demand for potatoes. ANSWER: D
C. increase the demand for steak.
D. decrease the demand for steak. 30.
We can find the market demand for pears by:
ANSWER: B A. adding up all the prices people are willing to pay for pears.
B. multiplying the number of people times the price of pears.
26. C. adding up the number of pears that producers are willing to sell.
If the price of hot dogs increases, what will happen in the market for potato chips, a D. multiplying the number of pears by the price of pears.
complementary good? E. adding up all the individual demand curves for pears.
A. Demand will increase.
B. Quantity demanded will increase. ANSWER: E
C. Demand will decrease.
D. Quantity demanded will decrease. 31.
E. Supply will decrease. A rightward shift of a demand curve is called a(n):
A. increase in demand.
ANSWER: C B. decrease in demand.
C. increase in quantity demanded.
27. D. decrease in quantity demanded.
If more people enter medical school, we can expect: E. increase in supply.
A. the demand for doctors to increase.
B. the supply of doctors to increase. ANSWER: A
C. the demand for doctors to decrease.
D. the supply of doctors to decrease. 32.
E. no effect on the supply or demand of doctors⎯just a movement along the Travel by bus and pawn-shop services would be expected to be examples of:
curves. A. normal goods.
B. inferior goods.
ANSWER: B C. substitute goods.
D. complementary goods.
28.
If there is a surplus in the oil market, then the price of oil will: ANSWER: B
A. rise.
B. fall. 33.
C. remain unchanged. Sugar and honey are viewed as substitutes for each other in many cooking
D. react unpredictably. applications. If the price of sugar rises, we would expect the:
A. demand for honey to increase.
ANSWER: B B. demand for honey to decrease.
C. quantity demanded of honey to decrease.
29. D. price of honey to decrease.
Which of the following can bring about a change in the quantity demanded? E. quantity demanded of honey to increase.
 38.
ANSWER: A Three of the four events described below might reasonably be expected to shift the
demand curve for beef to a new position. One would not shift that demand curve.
34. The single exception is a(n):
When economists say the quantity supplied of a product has decreased, they A. change in people's tastes for beef.
mean the: B. increase in the money incomes of beef consumers.
A. supply curve has shifted to the left. C. fall in the price of beef.
B. supply curve has shifted to the right. D. change in the price of a product competitive with beef (e.g. pork).
C. price of the product has risen, and consequently, suppliers are producing more
of it. ANSWER: C
D. price of the product has fallen, and consequently, suppliers are producing less
of it. 39.
Suppose that X and Y are substitute goods. If the price of good X increases, we
ANSWER: D can expect:
A. the demand for good X to shift to the left.
35. B. an upward movement along the demand curve for good Y.
Which of the following would increase the supply of laptop computers? C. the demand curve for good Y to shift to the right.
A. Higher wage rates for the workers that produce laptop computers. D. a downward movement along the demand curve for good Y.
B. A technological improvement that lowers the cost of producing laptop E. the demand curve for good Y to shift to the left.
computers.
C. An increase in the price of computer chips used to produce laptop computers. ANSWER: C
D. All of these.
40.
ANSWER: B Assuming that wheat and corn can both be grown on the same type of land, a
decrease in the price of corn, other things being equal, will cause a(n):
36. A. downward movement along the supply curve for wheat.
Assume Congress passes a new tax of $2.00 per pack on cigarettes. The effect on B. upward movement along the supply curve for wheat.
the supply curve is a(n): C. rightward shift in the supply curve for wheat.
A. decrease in supply. D. leftward shift in the supply curve for wheat.
B. increase in supply.
C. decrease in quantity supplied. ANSWER: C
D. increase in quantity supplied.

ANSWER: A

37.
Which of the following best represents the effects of an increase in the price of
coffee, other things being equal?
A. A leftward shift in the demand curve for coffee.
B. A downward movement along the demand curve for coffee.
C. A rightward shift in the demand curve for coffee.
D. An upward movement along the demand curve for coffee.

ANSWER: D