Exam 1 October 1 and 2, 2003
Example
Read these Instructions carefully! You must follow them exactly!
I) On your Scantron card you must print three things:
1) Your full name clearly;
2) The day and time your class meets (for example MWF 1:25);
3) The number I have written in ink on the upper right corner of
your copy of this test. (This number tells me which version of the
test you have. Without it your test cannot be graded properly and
you get no credit for your answers.)
II) Answer on your Scantron card, using a #2 pencil.
III) Warning: SOME QUESTIONS MUST BE ANSWERED SEVERAL
TIMES! Such questions will begin with a phrase such as this:
(Repeat answer on Scantron lines 37, 38 and 39)
Remember to do it!
IV) You must turn in this printed exam along with your Scantron card. Otherwise
your score on this exam is "F".
Questions:
1. Adam Smith believed that laissez-faire was in the interest of:
A) industrialists, whom he regarded as the most dynamic and progressive element in society.
B) the proletariat, who would receive higher wages.
C) the government, which would profit from higher taxes.
D) the general public.
2. (Repeat your answer on Scantron lines 25 and 26.) Decide which of the following statements about "models" are correct, and then choose the best answer from among A) through E) below:
1) Models are "abstract representations of reality", and therefore Picasso was a great model builder, since his paintings are "abstract representations of reality".
2) The best model is the one which gets the correct answer.
3) The best model is the one which is inexpensive and easy to use.
4) Models are used extensively in physics and the other sciences, in economics and the other social sciences, and even in history and english. However, models are not often used in daily life because models are mainly used by intellectuals.
5) Economic models are models which are inexpensive--economical to use.
Choose the best answer:
A) Statement 2 is correct and statement 3 is false.
B) Statement 1 is false and statements 2 and 3 are correct.
C) Statements 2 and 4 are correct.
D) None of the statements 1, 2, 3, 4 or 5 are correct.
E) Statement 5 is correct and none of the others.
3. (Repeat your answer on Scantron lines 27, 28 and 29.) Decide which of the following statements are definitely true or false and then choose the best answer from among A) through E) below. The Fundamental Theorem of Welfare Economics tells us that:
1) Only a fundamentally fair economic system will be politically and economically stable.
2) If certain somewhat techinical conditions are valid, economic systems will be maximally efficient if all markets are competitive and the problems of externalities and public goods have been properly dealt with.
3) As a practical matter, no economic system can hope to be efficient unless government takes an active role in managing the complexities of the modern economy.
4) Welfare is maximized, in the Pareto sense, by appropriate welfare programs which are best undertaken by the federal and local governments rather than by the state governments.
Choose:
A) All statements 1, 2, 3 and 4 are true.
B) Only statements 2 and 3 are true.
C) Only statements 1 and 2 are true.
D) Only statements 3 and 4 are ture.
E) Only statement 2) is true.
4. (Repeat your answer on Scantron line 30.) Suppose the following statements are true: X1) If the price of engine oil drops sharply, the demand for gasoline doesn't rise very much; X2) if the price of gasoline rises sharply, the demand for gasoline declines quite a bit; X3) if the price of gasoline rises sharply, the demand for bicycles doesn't rise very much. Based on the above being true, decide whether each of the following statements is true or false and then choose from answers A) through E) below:
1) the demand for gasoline is elastic with respect to large changes in own price.
2) the demand for gasoline is inelastic with respect to large changes in own price.
3) the demand for bicycles is inelastic with respect to the price of gasoline.
4) the demand for bicycles is elastic with respect to the price of gasoline.
5) the supply of engine oil is inelastic with respect to the price of gasoline.
6) the supply of engine oil is elastic with respect to the price of gasoline.
Choose the best answer:
A) Only statements 1) and 3) are definitely correct.
B) Only statements 2), and 3) are definitely correct.
C) Only statements 1), 3) and 5) are definitely correct.
D) Only statements 5) and 6) are definitely correct.
E) None of the other answers is correct.
5. (Repeat your answer on Scantron lines 31, 32 and 33.) Unlike an increase in the "quantity demanded" of a good, an increase in demand for a good
A) can be caused by a reduction in the price of an input used to produce the good.
B) can be caused by a decline in the "own price" of that good.
C) can be caused by an increase or decrease in the incomes of customers.
D) can be caused by a change in the price of a substitute for the good.
E) both c. and d.
6. (Repeat your answer on Scantron line 34.) By the definition given in lecture, a model is
A) an abstract representation of reality.
B) logical structure and collection of ideas for thinking about a problem or answering a question
C) never good enough, since it must be accurate, timely and inexpensive and easy to use--an impossibility.
D) best if it is as realistic as possible.
E) no other answer is the best one.
7. (Repeat your answer on Scantron lines 35, 36 and 37.) If money did not exist in a modern economy,
A) production would be much lower and the average person would be extremely poor.
B) specialization and the division of labor could be carried to a much higher level, resulting in a much more smoothly functioning economy.
C) the world would not go around.
D) barter would be extremely rare.
E) none of the other answers.
8. (Repeat your answer on Scantron line 38.) An example of "derived demand" is,
A) the demand curve you are able to derive from analysis of the impact of own price on the demand for a product.
B) an increase in the demand for nails because of an increase in the demand for new houses.
C) an increase in the supply of dog food in response to an increase in the number of families who have dogs as pets.
D) none of the other answers.
E) the increased demand for oranges caused by a rise in the price of a substitute such as apples.
9. (Repeat answer on Scantron lines 39 and 40.) Consider each of the following statements about international economics.
1) The exchange rate will tend to equal the trade currency ratios of internationally traded goods and claims.
2) The foreign exchange markets exist because international exporters and importers wish to specialize in either exporting or importing, but not both.
3) Suppose that the trade-currency ratios for internationally traded goods, for internationally traded "claims" (capital flows), and also the exchange rate, all start out equal to 2 Pesos per Lira. Next, suppose the trade-currency ratio for goods rises to 2.2 while the trade-currency ratio for claims falls to 1.8. Based on what we have learned in lecture, the exchange rate will probably rise toward 2.2 rather than decline toward 1.8.
Choose the best answer from the following:
A) Only statements 1 and 2 are true.
B) Statements 1, 2 and 3 all are true.
C) Only statements 1 and 3 are true.
D) Only statements 2 and 3 are true.
E) Only statement 1 is true.
10. (Repeat answer on Scantron lines 41 and 42.) Consider each of the following statements about international economics.
1) Based on lecture, it is very common for a nation to run a balance of payments surplus or deficit.
2) If a country has a trade account surplus, then it also must have a capital account deficit.
3) When claims are being exported by a country, this is called a capital inflow.
Then choose which of the following is most accurate:
A) Statements 1, 2 and 3 are all true.
B) Only statements 1 and 2 are true.
C) Only statements 1 and 3 are true.
D) Only statements 2 and 3 are true.
E) None of statements 1, 2 and 3 are true.
11. (Repeat answer on Scantron line 43.) Consider each of the following statements about international economics.
1) Based on what was said in lecture, if a small country trades with a large country, the small country will capture a larger share of the pareto gains from trade than the large country, because prices change more in the small country.
2) Even if a country is experiencing pareto gains from international trade, this does not mean that everyone in that country is in fact benefiting from the international trade.
3) If some event occurs which causes no changes except that Joe gains $100, Fred loses $50 and Suzy loses $40, then an economist would say the event has created a pareto gain even though more people have lost than have gained.
Consider each of the following statements about international economics.
A) None of the statements 1, 2 or 3 are true.
B) All of statements 1, 2 and 3 are true.
C) Only 2 is true.
D) Only 3 is true.
E) Only 2 and 3 are true.
12. Under mercantilism:
A) merchants played a more important political role than kings.
B) the invisible hand played a more important role than the government.
C) there emerged nation-states ruled by kings who coordinated the economic activity.
D) economic rather than social and political forces made the central economic decisions.
13. Economists argue that:
A) there is an opportunity cost associated with all decisions.
B) there is an opportunity cost associated only with decisions involving money.
C) economic decisions have opportunity costs but other decisions do not.
D) decisions do not have opportunity costs.
14. (Answer here and also on Scantron lines 44 and 45.) Suppose the sunk cost of obtaining your college degree is already $200,000, the marginal opportunity cost is $100,000 and the marginal benefit is $150,000. Then definitely you:
A) should complete your degree.
B) should not complete your degree since the total cost will be $300,000 and the benefit $150,000.
C) should complete your degree only if the marginal cost is equal to or less than $200,000.
D) obtain more information before making a decision.
15. Alan is sitting in a bar drinking beers that cost $2 each. According to the economic decision rule, Alan will quit drinking when:
A) the marginal benefit to him of an additional beer is less than $2.
B) the marginal cost to him of an additional beer is less than the marginal benefit.
C) the marginal cost to him of an additional beer is greater than $2.
D) the marginal benefit to him of an additional beer is zero.
16. Under Soviet-style socialism:
A) markets are relied upon to coordinate most activities, but government intervenes when necessary.
B) individuals tell government their goals and the government decides how best to meet them.
C) government planning boards set goals but rely on markets to achieve them.
D) government planning boards set goals and then give individuals directives as to how to achieve those goals.
17. One purpose of the IMF is to
A) channel low-interest loans to developing countries to foster economic growth.
B) work out repayment plans for developing countries with large international debts.
C) promote international economic cooperation among the leading industrial democracies.
D) negotiate trade agreements between nations.
18. (Repeat your answer on Scantron lines 46 and 47.) The supply of leather jackets would be expected to increase as a result of:
A) an decrease in the cost of producing leather jackets.
B) an increase in the price of leather jackets.
C) an increase in the popularity of leather jackets.
D) an increase in the demand for leather jackets.
E) both B) and C) are correct.
19. (Answer here and also on Scantron line 48.) Which of the following would be expected to cause an increase in the supply of fax machines?
A) An increase in the number of business firms demanding fax machines.
B) An increase in the price of fax machines.
C) A decrease in the cost of manufacturing fax machines.
D) Both B and C.
20. A line with infinite slope is:
A) an upward sloping 45-degree line.
B) a downward sloping 45-degree line.
C) vertical.
D) horizontal.
21. A line is horizontal if its slope is:
A) -1.
B) 0.
C) 1.
D) infinite.
Use the following to answer question 22:
Current prices in two countries, Europa and Goofonia
(The money of Goofonia is called the goofus, and the money of Europa is called the euro. Prices in each country are expressed in its local currency.)
Good 1 Good 2 Good 3 Good 4
Europa prices (in euros) 10 1 20 400
Goofonia prices (in goofuses) 20 4 60 400
22. (Repeat your answer on Scantron lines 49 and 50.) The numbers in the table represent current prices of four goods in two different nations, Europa and Goofonia. (If you care (and I hope you don't), each price is expressed in the local currency, which is the "euro" in Europa and the "goofus" in Goofonia.)
A) Europa should definitely import good 4, and Goofonia should definitely import good 2.
B) Europa should definitely export good 3 and Goofonia should definitely export good 1.
C) As trade builds, opportunity costs in the two countries will tend to become more and more equal, and therefor international trade will expand only so far.
D) Both A and B are correct.
E) Both B and C are correct.
23. The factor market is the market in which:
A) businesses buy factors of production from households.
B) households buy factors of production from businesses.
C) businesses produce goods and services and sell them to households.
D) government produces goods and services and supplies them to households.
24. Households derive most of their income from:
A) stock dividends and capital gains.
B) wages and salaries.
C) interest earnings.
D) rental income.
Answer Key -- Ex 1A F03 Initial
1. D the general public.
Origin: Chapter 2: Economic Organization of.......142
2. D None of the statements 1, 2, 3, 4 or 5 are correct.
Origin: GTA Micro Questions....29
3. B Only statements 2 and 3 are true.
Origin: GTA Micro Questions....28
4. A Only statements 1) and 3) are definitely correct.
Origin: GTA Micro Questions....27
5. E both c. and d.
Origin: GTA Micro Questions....12
6. B logical structure and collection of ideas for thinking about a problem or answering a question
Origin: GTA Micro Questions....11
7. A production would be much lower and the average person would be extremely poor.
Origin: GTA Micro Questions....10
8. B an increase in the demand for nails because of an increase in the demand for new houses.
Origin: GTA Micro Questions....9
9. A Only statements 1 and 2 are true.
Origin: GTA Micro Questions....8
10. D Only statements 2 and 3 are true.
Origin: GTA Micro Questions....6
11. B All of statements 1, 2 and 3 are true.
Origin: GTA Micro Questions....7
12. C there emerged nation-states ruled by kings who coordinated the economic activity.
Origin: Chapter 2: Economic Organization of.......138
13. A there is an opportunity cost associated with all decisions.
Origin: Cool Questions Micro For Ex1....40
14. A should complete your degree.
Origin: Cool Questions Micro For Ex1....41
15. A the marginal benefit to him of an additional beer is less than $2.
Origin: Cool Questions Micro For Ex1....42
16. D government planning boards set goals and then give individuals directives as to how to achieve those goals.
Origin: Cool Questions Micro For Ex1....44
17. B work out repayment plans for developing countries with large international debts.
Origin: Cool Questions Micro For Ex1....47
18. A an decrease in the cost of producing leather jackets.
Origin: Cool Questions Micro For Ex1....51
19. C A decrease in the cost of manufacturing fax machines.
Origin: Cool Questions Micro For Ex1....52
20. C vertical.
Origin: Chapter 1: Economics and Economic.......143
21. B 0.
Origin: Chapter 1: Economics and Economic.......142
22. D Both A and B are correct.
Origin: Cool Questions Micro For Ex1....102
23. A businesses buy factors of production from households.
Origin: Chapter 3: U.S. Economy in a Global.......12
24. B wages and salaries.
Origin: Chapter 3: U.S. Economy in a Global.......55