Production possibilities frontier bowed outward whena
ECON 101 – Introduction to Macroeconomics
First Midterm Exam Sample Questions
Chapter One – Ten Principles
ANSWER: b
2. In most societies, resources are allocated by
a. a single central planner.b. a small number of central planners.
c. people respond to incentives.
d. trade can make everyone better off.
ANSWER: a
5. When the government redistributes income from the wealthy to the poor,
a. efficiency is improved, but equality is not.b. equality is improved, but efficiency is not.
c. both efficiency and equality are improved.
d. neither efficiency nor equality are improved.c. Opportunity costs and the idea of trade-offs are not closely related.
d. Rational people should compare various options without considering opportunity costs.
d. transportation, parking, and entertainment.
ANSWER: a
8. For which of the following individuals would the opportunity cost of going to college be highest?10. It costs a meat-processing company $50,000 to produce 5,000 pounds of steak. The company’s cost will be $50,009 if it produces an additional pound of steak. If the company produces 5,001 pounds of steak then
a. its average cost is greater than its marginal cost.b. its average cost and its marginal cost are equal.
a. People face tradeoffs.
b. The cost of something is what you give up to get it. c. Rational people think at the margin.
c. both
d. neitherANSWER: c
have implementedit.
ANSWER: c
15. In a market economy, economic activity is guided by a. the government.
b. central planners.
b. an unsuccessful advertising campaign which reduces demand for a product. c. a situation in which competition among firms becomes ruthless.
d. a firm which is forced out of business because of losses.
18. Large or persistent inflation is almost always caused by a. excessive government spending.
b. excessive growth in the quantity of money.
c. foreign competition.d. Both a and b are correct.
ANSWER: d
a. True
b. FalseANSWER: False
d. All of the above are correct.
ANSWER: d
a. Economists almost always find it easy to conduct experiments in order to test their theories.
b. Economics is not a true science because economists are not usually allowed to conduct experiments to testtheir theories.
c. can be useful in the classroom, but is useless in the real world.
d. can be useful in helping economists understand the complex world of international trade involving manycountries and many goods.
ANSWER: d
27. Which of the following statements about models is correct?
a. One must imagine that the economy operates without money in order to make sense of the diagram.
b. The diagram leaves out details that are not essential for understanding the economic transactions that occurbetween households and firms.
d. stocks and bonds.
ANSWER: b
a. goods
b. services
c. capitald. profit
c. The technology available to firms is given.
d. The quantities of the factors of production that are available are increasing over the relevant time period.
34. Economists believe that production possibilities frontiers are often bowed because a. trade-offs inevitably create unemployment.
b. resources are not completely adaptable.
c. opportunity costs are constant.36. A production possibilities frontier can shift outward
if
a. government increases the amount of money in the economy.Figure 2-4
a. Q, S
b. Q, S, T
c. R, U
d. TANSWER: d
b. true statements and false statements.
c. specific statements and general statements.
d. positive statements and normative statements.42. Which of the following is an example of a positive, as opposed to normative, statement? a. When the minimum wage is increased, unemployment is a predictable consequence. b. The income tax rate should be increased to offset the budget deficit.
c. Increasing government spending is the best way to help the economy move out of a recession.
c. conducting research at the Congressional Budget Office. d. All of these are possible positions that economists hold.
ANSWER: d
45. Economists usually have to make do with whatever data the world happens to give them. a. True
b. FalseANSWER: True
47. When can two countries gain from trading two
goods?
ANSWER: d
48. A production possibilities frontier is bowed outward when
ANSWER: d
Table 3-4
| Minutes Needed to Make 1 | ||
|---|---|---|
| Bushel of Wheat | Pound of Beef | |
| Andrea | 30 | 15 |
| 49. |
|---|
ANSWER: a
50. Refer to Table 3-4. Which of the following combinations of wheat and beef could Andrea produce in one 8-hourday?
51. Refer to Table 3-6. Which of the following represents Zimbabwe’s and Portugal’s production possibilities frontiers when each country has 60 minutes of machine time available?
a. Zimbabwe Portugal
d. Zimbabwe Portugal
b. 5/2 bushels of squash.
c. 2 bushels of squash.
c. Shawn has an absolute advantage in the production of donuts.
d. Sue has an absolute advantage in the production of donuts.
c. Kelly has a comparative advantage in repairing cars and in cooking meals.
d. David has an absolute advantage in repairing cars and in cooking meals.
c. Neither country could gain from trade with each other because neither one has a comparative advantage.
d. Oatland could gain from trade between the two countries, but Cornland definitively would lose.
| Minutes Needed to Make 1 | ||
|---|---|---|
| Bushel of Wheat | Pound of Beef | |
| Brad | 10 | 12 |
| Theresa | 6 | 10 |
a. 5/6 bushel of wheat
b. 6/5 bushels of wheat
c. 3/5 bushels of wheat
d. 5/3 bushels of wheatANSWER: b
b. beef and Theresa has an absolute advantage in the production of wheat.
c. both goods and Theresa has an absolute advantage in the production of neither good. d. neither good and Theresa has an absolute advantage in the production of both goods.
59. Refer to Figure 3-20. Canada’s opportunity cost of one unit of Good Y is a. 1/2 unit of Good X and Mexico’s opportunity cost of one unit of Good Y is 1/2 unit of Good X.
b. 1/2 unit of Good X and Mexico’s opportunity cost of one unit of Good Y is 2 units of Good X.
b. Good Y and Mexico has an absolute advantage in the production of Good X. c. both goods and Mexico has an absolute advantage in the production of neither good. d. neither good and Mexico has an absolute advantage in the production of both goods.
ANSWER: b
ANSWER: False
63. The principle of comparative advantage states that, regardless of the price at which trade takes place, everyone willbenefit from trade if they specialize in the production of the good for which they have a comparative advantage.
ANSWER: True
Chapter Four – Demand and Supply
ANSWER: c
66. A competitive market is a market in which a. an auctioneer helps set prices and arrange sales.
67. Which of the following characteristics is required for a perfectly competitive market? a. The goods offered for sale are exactly the same.
b. There are so many buyers and sellers that no single buyer or seller has any influence over the market price.
b. that prices fall over time.
c. the relationship between income and quantity demanded. d. the law of demand.
ANSWER: c
70. Which of the following is not held constant in a demand schedule?
| Price | Bert’s Quantity Demanded |
Ernie’s Quantity Demanded |
Grover’s Quantity Demanded |
Oscar’s Quantity Demanded |
|---|---|---|---|---|
| $0.00 | 20 | 16 | 4 | 8 |
| $0.50 | 18 | 12 | 6 | 6 |
| $1.00 | 14 | 10 | 2 | 5 |
| $1.50 | 12 | 8 | 0 | 4 |
| $2.00 | 6 | 6 | 0 | 2 |
| $2.50 | 0 | 4 | 0 | 0 |
ANSWER: c
72. Refer to Table 4-3. If these are the only four buyers in the market, then the market quantity demanded at a priceof $1 is
a. 4 units.73. Refer to Table 4-3. If these are the only four buyers in the market, then when the price increases from $1.00 to $1.50, the market quantity demanded a. decreases by 1.75 units.
b. increases by 2 units.
c. curve for soup slopes upward.
