Class: Microeconomics, Fall 2004
Exam 1     Exam Date: First class day of Week 5

Read these Instructions carefully! You must follow them exactly!
I)   On your Scantron card you must print three things:
1) Print your full name clearly;
2) Print the day and time of your section (for example MW 1:25);
3) Print 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.
The Industrial Revolution:
A.
undermined the power of serfs and led to the downfall of feudalism.
B.
increased the power of merchants and gave rise to mercantilism.
C.
increased the power of capitalists and gave rise to capitalism.
D.
produced the Great Depression.


2.
(Repeat answer on Scantron lines 26, 27 and 28.) As stated in lecture, if we wish to be completely accurate, the law of demand states that:
A.
sellers supply less of a good when its price increases.
B.
buyers never buy less of a good if its price decreases.
C.
buyers buy less of a good when its price increases even if other demand determinants change at the same time.
D.
buyers buy less of a good when its price increases, provided all shift factors of demand are fixed.
E.
buyers buy less of a good when its price increases only if their income increases at the same time.


3.
According to Adam Smith, trade based on comparative advantage is the result of:
A.
government intervention.
B.
altruism.
C.
self-interest.
D.
communal and familial relationships.


4.
(Repeat answer on Scantron lines 29 and 30.) On which of the following does the federal government spend the smallest amount?
A.
Defense.
B.
Income security.
C.
Interest.
D.
Health and education.


5.
In capitalism, compared to mercantilism:
A.
craft guilds rather than merchants own capital.
B.
the "invisible hand" is more important than the government.
C.
industrialists' views are represented by craft guild organizations.
D.
the state plays a more active role in coordinating economic activity.
E.
two of the other answers are correct.


6.
(Repeat answer on Scantron lines 31 and 32.) A(n) ________ is good which if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual.
A.
private good
B.
public good
C.
external good
D.
internal good


7.
One advantage of a corporation over a sole proprietorship is:
A.
greater accountability.
B.
avoidance of double taxation.
C.
limited liability.
D.
ease of formation.


8.
(Repeat answer on Scantron lines 33, 34 and 35.) An increase in the equilibrium quantity of personal computers and a decrease in their equilibrium price is most likely due to:
A.
improved technology which has caused supply to shift rightward.
B.
improved technology which has caused supply to shift leftward.
C.
greater popularity which has caused demand to shift rightward.
D.
an increase in the number of computer users which has caused demand to shift rightward.


9.
In theory socialism is an economic system
A.
that tries to organize society in the same ways as most families organize, striving to see that individuals get what they need.
B.
based on central planning and government ownership of the means of production.
C.
based on private property rights.
D.
based on markets.


10.
(Repeat answer on Scantron lines 36 and 37.) If there are many buyers and sellers in a market, the existence of a market surplus implies that price is:
A.
above equilibrium and must fall to restore equilibrium.
B.
above equilibrium and must rise to restore equilibrium.
C.
below equilibrium and must fall to restore equilibrium.
D.
below equilibrium and must rise to restore equilibrium.


Reference: Figure 4-10

11.
(Repeat answer on Scantron lines 38 and 39.) Refer to the graph above. The arrow (or arrows) which most likely show a decrease in supply is (are):
A.
C only.
B.
A and C.
C.
D only.
D.
B and D.


12.
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.


13.
(Repeat answer on Scantron line 40.) The ratio of U.S. imports to U.S. GDP is about
A.
3 percent.
B.
14 percent.
C.
30 percent.
D.
60 percent.


14.
(Repeat answer on Scantron line 41.) What form of business is the most common in the United States?
A.
Non-profit businesses.
B.
Corporations.
C.
Sole proprietorships.
D.
Partnerships.


15.
When government attempts to adjust for the effect of decisions on third parties not taken into account by the decision makers, the government is attempting to
A.
provide for a stable set of institutions and rules.
B.
promote effective and workable competition.
C.
provide for public goods and services.
D.
correct for externalities.


16.
(Repeat answer on Scantron lines 42, 43 and 44.) Government's role in a market economy includes all of the following except:
A.
providing a stable set of institutions and rules.
B.
providing public goods.
C.
correcting negative externalities.
D.
limiting competition.


17.
Suppose a single firm gains control of an industry by preventing other firms from entering the industry. As a result, the price charged by the single firm is much higher than the price that would be charged by many different firms producing this product in a competitive market. This situation can best be described as:
A.
a market failure.
B.
a government failure.
C.
an efficient outcome.
D.
a competitive outcome.


18.
(Repeat answer on Scantron line 45.) Which of the following would most likely generate a negative externality?
A.
Education.
B.
A lighthouse.
C.
Cigarette smoke.
D.
Employment.


19.
(Repeat answer on Scantron line 46.) The best example of a merit good or activity is:
A.
excessive consumption of pork.
B.
providing free beer to teenagers.
C.
teaching baseball to boys and girls in the community.
D.
exercising too much.


20.
Under feudalism,
A.
markets rather than the government made the central economic decisions.
B.
tradition determined who produced what.
C.
governments let the market decide what to produce.
D.
governments distributed the rights to produce.


21.
The largest percentage of businesses are:
A.
partnerships.
B.
sole proprietorships.
C.
corporations.
D.
nonprofit companies.


22.
(Repeat answer on Scantron lines 47 and 48.) In the factor market:
A.
businesses supply goods and services to households and government.
B.
government provides income support to households unable to supply factors of production to businesses.
C.
households supply labor and other factors of production to businesses.
D.
households purchase goods and services from businesses.


23.
In principle, __________ have ultimate control over the U.S. economy.
A.
corporations
B.
households
C.
multinationals
D.
politicians


24.
U.S. output represents about what percentage of total world output?
A.
5 percent.
B.
10 percent.
C.
25 percent.
D.
50 percent.


Reference: Figure 4-19

25.
(Repeat answer on Scantron lines 49 and 50.) Referring to the above diagram of an initial market equilibrium, if equilibrium moved to somewhere in area E, we could be sure that:
A.
demand decreased and supply increased.
B.
demand decreased more than supply decreased.
C.
demand increase and supply decreased.
D.
both demand and supply increased.
E.
demand increased more than supply decreased.


Answer Key

1. C
2. B
3. C
4. D
5. B
6. B
7. C
8. A
9. A
10. A
11. C
12. B
13. B
14. C
15. D
16. D
17. A
18. C
19. C
20. B
21. B
22. C
23. B
24. C
25. B