Name: 
 

Exam 1/ Principles of Microeconomics/ Spring 2001/ Instructor-James Sondgeroth


Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

1. 
When economists speak of scarcity, they are referring to the
a.
condition in which society is not employing all its resources in an efficient way.
b.
condition in which people's wants outstrip the limited resources available to satisfy those wants.
c.
economic condition that exists in only very poor countries of the world.
d.
condition in which society produces too many frivolous goods and not enough socially desirable goods.
 

2. 
Choice implies
a.
opportunity cost.
b.
efficiency.
c.
inefficiency.
d.
utility.
e.
disutility.
 

3. 
Theory A predicts that on Tuesday and Thursday the stock market will rise, and on Monday, Wednesday, and Friday the stock market will fall. If an economist tests the theory and finds that over a five-month period the theory predicts accurately, he or she would likely say
a.
the theory has been proved correct.
b.
the theory is true.
c.
the evidence supports the theory.
d.
the theory is too ridiculous to take seriously.
 

4. 
An economic theory is tested by
a.
the Testing Committee of the American Economic Association.
b.
examining the realism of its assumptions.
c.
deriving statistical equations.
d.
comparing its predictions with the facts.
e.
all of the above
 

5. 
Which of the following is a microeconomics topic?
a.
the study of how prices are determined in the computer industry
b.
the study of unemployment in the economy
c.
the study of how changes in the nation's money supply affect the nation's output
d.
a and c
e.
b and c
 

6. 
Which of the following is not one of the categories of resources?
a.
labor
b.
government
c.
capital
d.
entrepreneurship
 

7. 
The saying that "There is no such thing as a free lunch" implies that
a.
business lunches are no longer tax deductible.
b.
campaignfinance reform has been passed by Congress.
c.
the food in high school cafeterias is still awful.
d.
there are very few if any things in life that have zero opportunity costs.
 

8. 
A "free good" is any good
a.
for which there is no excess demand.
b.
for which the quantity demanded is less than the quantity supplied at zero price.
c.
for which the quantity supplied is less than the quntity demanded at zero price.
d.
that has a positive price.
 
 
Exhibit 2-5

mc1spring2001_files/i0100000.jpg
 

9. 
Refer to Exhibit 2-5. As more fax machines are produced, the opportunity cost of producing them
a.
increases.
b.
decreases.
c.
remains constant.
d.
first decreases and then increases.
 

10. 
Refer to Exhibit 2-5. The opportunity cost of increasing fax machine output from 20 to 40 thousand a year is the loss of
a.
10 thousand television sets.
b.
15 thousand television sets.
c.
20 thousand television sets.
d.
50 thousand television sets.
e.
70 thousand television sets.
 

11. 
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.
 

12. 
If it is impossible to produce more of one good without getting less of another, then the economy is operating
a.
efficiently.
b.
at less than peak performance.
c.
inefficiently.
d.
at technological inferiority.
 
 
Exhibit 2-3

mc1spring2001_files/i0150000.jpg
 

13. 
Refer to Exhibit 2-3. If PPF1 is the relevant production possibilities frontier, society may move to PPF2 as a result of
a.
an increase in resources.
b.
a decrease in resources.
c.
an improvement in the level of technology.
d.
both a and c
e.
both b and c
 
 
Exhibit 2-6

mc1spring2001_files/i0170000.jpg
 

14. 
Refer to Exhibit 2-6. Which graph depicts a technological breakthrough in the production of good X only?
a.
(1)
b.
(2)
c.
(3)
d.
(4)
e.
none of the above
 

15. 
A socialist thinker believes that private property is economically undesirable because
a.
it cannot provide incentives to its owners.
b.
it often provides unfair political or social power to its owners.
c.
it shields its owners from the incentives provided by price changes.
d.
the government cannot effectively manage property.
 

16. 
Capitalist thinkers believe that prices
a.
are useful in helping to ration goods and services.
b.
convey information to the buyer.
c.
provide incentives.
d.
a and b
e.
a, b and c
 

17. 
In the simple circular economic flow diagram, if goods produced by business firms flow counterclockwise, then the services of labor flow
a.
clockwise and wages flow clockwise.
b.
clockwise and wages flow counterclockwise.
c.
counterclockwise and wages flow clockwise.
d.
counterclockwise and wages flow counterclockwise.
 

18. 
In the simple cirular flow of economic activity, the distribution of output ("to whom") is decided
a.
by government.
b.
by big multinational business firms.
c.
in the money market.
d.
in the factor market.
 
 
Exhibit 33-1

mc1spring2001_files/i0230000.jpg
 

19. 
Refer to Exhibit 33-1. France is the lower opportunity cost producer of
a.
good X.
b.
good Y.
c.
goods X and Y.
d.
neither good X nor good Y.
 

20. 
Refer to Exhibit 33-1. If the United States is to specialize in the production of one of the two goods (and then trade that good to France), which good should it be and why? If France is to specialize in the production of one of the two goods (and then trade that good to the United States), which good should it be and why?
a.
Good X for the United States because the United States is the higher opportunity cost producer of good X; good Y for France because France is the higher opportunity cost producer of good Y.
b.
Good Y for the United States because the United States is the lower opportunity cost producer of good Y; good X for France because France is the lower opportunity cost producer of good X.
c.
Good X for the United States because the United States is the lower opportunity cost producer of good X; good Y for France because France is the lower opportunity cost producer of good Y.
d.
Good Y for the United States because the United States is the higher opportunity cost producer of good Y; good X for France because France is the higher opportunity cost producer of good X.
 

21. 
Money is defined as
a.
the market value of an asset.
b.
the funds one receives during a specified period of time.
c.
any good that is widely accepted in exchange.
d.
both b and c
e.
all of the above
 

22. 
In the evolution of money, what development immediately follows the use of paper money as a medium of exchange?
a.
The introduction of precious metals as money.
b.
The start of fractional reserve banking.
c.
The issuing of fiat money.
d.
Barter.
 

23. 
The law of demand states that price and quantity demanded are
a.
directly related, ceteris paribus.
b.
inversely related, ceteris paribus.
c.
independent.
d.
positively related, ceteris paribus.
 

24. 
If the demand curve for a good shifts leftward,
a.
quantity demanded is less at each price.
b.
quantity demanded remains constant at each price.
c.
quantity demanded is greater at each price.
d.
demand is greater at each price.
 

25. 
The law of supply states that price and quantity supplied are
a.
inversely related, ceteris paribus.
b.
directly related, ceteris paribus.
c.
not related.
d.
fixed.
 

26. 
Which of the following will not shift a supply curve?
a.
a change in the price of relevant resources used as inputs
b.
a change in the good's price
c.
a change in the number of sellers
d.
a change in production technology
 
 
Exhibit 3-4

mc1spring2001_files/i0320000.jpg
 

27. 
Refer to Exhibit 3-4. If this is a competitive market, price and quantity will gravitate toward
a.
$6 and 10 units, respectively.
b.
$6 and 20 units, respectively.
c.
$4 and 15 units, respectively.
d.
$2 and 15 units, respectively.
 

28. 
A market is said to be in disequilibrium if
a.
it exhibits either a surplus of a shortage.
b.
the number of units that individuals are willing to buy exceeds the number of units they can afford.
c.
it is a market for an inferior good.
d.
none of the above.
 

29. 
Which of the following statements is true?
a.
Price ceilings cause shortages.
b.
Shortages cause price ceilings to be imposed.
c.
Neither a price ceiling nor a shortage is the cause of the other.
d.
Price ceilings cannot be imposed for longer than a month.
 

30. 
If a shortage of a good happened to appear in a freely functioning market,
a.
sellers of the good would offer to sell it at a lower price.
b.
there would be no tendency for the shortage to disappear.
c.
buyers who can not purchase the good at the going price would offer to pay more for it.
d.
the government would impose a price ceiling to correct this injustice.
 



 
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