Directions: There is one best answer for each question; read all answers, remembering that a multiple choice question is just a series of T-F questions in which one of the responses is true.
1. The most fundamental assumption of economic theory
of those below is that:
a. There is
no difference between rational and irrational behavior.
b. Individuals
chose those actions, from among the actions available, that they think
will yield them the highest net advantage (CORRECT ANSWER).
c. People
are selfish in the last analysis (Self-interest is not equal to "Selfish").
d. Everyone
is more interested in money than in goods ("money" is of little interest
apart from its use in getting goods).
2. Which of the following will not change
the demand for movie tickets?
a. A change
in the cost of babysitting services.
b. A change
in the price of movie tickets (CORRECT ANSWER--movement along the demand
curve).
c. A change
in the quality of television programs.
d. A change
in the income of moviegoers.
3. If people are willing this year to buy more bottled
water at each and every price than they were willing to buy last year,
the
a. Demand
for bottled water has increased (CORRECT ANSWER).
b. Law of
demand has been violated.
c. Law of
demand has been demonstrated.
d. Cost of
living must have risen.
4. Consider the market for cotton in the U.S., and
suppose that a new chemical is developed that can be added to cotton at
an insignificant cost to make the ironing of cotton shirts unnecessary.
We would expect this to
a. Increase
the quantity supplied of cotton.
b. Increase
the demand for cotton.
c. Increase
the quantity demanded of cotton.
d. Both a)
and b) (CORRECT ANSWER--any demand change results in a change in quantity
supplied).
e. Both a)
and c).
5. People must make choices because of the existence of
a. Poverty.
b. Scarcity
(CORRECT ANSWER--can't have everything we want).
c. Inflation.
d. Unemployment.
6. Compared to high-income families, the lower-income
families consume more of:
a. Complementary
goods.
b. Substitute
goods.
c. Normal
goods.
d. Inferior
goods (CORRECT ANSWER).
7. The area underneath the demand curve, but above the
price paid, is referred to as:
a. The quantity
supplied.
b. The producer
surplus.
c. The shortage.
d. The surplus.
e. The consumer
surplus (CORRECT ANSWER).
8. If the equilibrium rent for a two-bedroom apartment
in Boulder is $1,200/month, and a price ceiling is imposed at $1,500/month,
the result will be
a. A shortage.
b. A surplus.
c. A deadweight
loss.
d. None of
the above (CORRECT ANSWER--there is no impact on the market in this case).
9. If the equilibrium low-skilled wage rate in Boulder
is $6.50/hour, and a minimum wage is imposed at $8.00/hour, the result
will be:
a. A shortage
of low-skilled labor in that market.
b. A surplus
of low-skilled labor in that market.
c. A deadweight
loss.
d. Both b)
and c) would occur (CORRECT ANSWER).
10. A rise in the price of peanut butter, due to a mold
attacking peanut plants, is likely to have which of the following effects
on the market for jelly?
a. A rightward
shift of the demand curve.
b. A leftward
shift of the demand curve (CORRECT ANSWER--PB and jelly are complements).
c. An upward
movement along the demand curve.
d. A downward
movement along the demand curve.
11. A fall in the price of sugar (due, say, to the elimination
of the tariffs on foreign sugar) is likely to have which of the following
effects on the market for cookies?
a. A rightward
shift of the supply curve.
b. A leftward
shift of the supply curve.
c. A downward
movement along the demand curve.
d. Both a)
and c) (CORRECT ANSWER--a change in supply always leads to a change in
quantity demanded).
12. In the preceding example, what would you expect to
happen to the sum of producer and consumer surplus in the cookie market?
a. It would
increase (CORRECT ANSWER--draw graph and look at the areas).
b. It would
decrease.
c. It would
stay the same.
d. It is impossible
to say from the information given.
13. Suppose that a future President increases the marginal
income tax rate to 60% on earnings in excess of $100,000 per year (current
highest marginal income tax rates are about 40%). What would you expect
to happen to total expenditure on large diamonds?
a. Demand
for diamonds will increase, causing price times quantity to decrease.
b. Demand
for diamonds will decrease, causing price times quantity to decrease (CORRECT
ANSWER--graph).
c. The quantity
demanded for diamonds will decrease, hence the diamond price will fall,
leaving the impact on total expenditure on diamonds ambiguous, since people
will buy more diamonds at the lower price.
d. The quantity
demanded for diamonds will increase.
14. What will happen in the market for any inferior good,
say rice or beans, when a recession causes a sharp decrease in income?
a. Price will
rise and quantity exchanged will rise (CORRECT ANSWER--income down implies
demand up for inferior goods).
b. Price will
rise and quantity exchanged will fall.
c. Price will
fall and quantity exchanged will rise.
d. Price will
fall and quantity exchanged will fall.
e. Impossible
to say—we can only know what will happen for the case where income increases.
15. Which of the following is a true statement regarding
demand?
a. The fact
that over time people consume more despite prices that are constantly rising
due to inflation is a violation of the Law of Demand.
b. An increase
in the administered price of Coca-Cola would be expected to shift the demand
curve for Pepsi to the left.
c. An inferior
good is a good that we demand less of when its price falls.
d. Only a
change in a good’s price causes movements along that good’s demand curve;
all other factors relevant to demand shift the demand curve (CORRECT ANSWER).
e. All of
the above are true statements regarding demand.
16. Which of the following is the reason short-run supply
curves are upward-sloping?
a.Increased
marginal opportunity costs with the production of quantities larger than
the production facility was designed to produce (CORRECT ANSWER).
b. Inflation,
which causes suppliers to be willing to supply more at higher prices.
c. Technological
progress, which increases productivity over time and thus allows for greater
supply in any given time period.
d. Input prices
always increase with quantity produced, increasing marginal costs.
17. Suppose a tax is levied on producers of "Sugar
Buff" chocolate soda, due to excessive tooth decay caused by the University
of Colorado beverage. Which of the following is an expected short-run consequence?
a. The producer
will be no worse off since the tax will be passed entirely to consumers.
b. Since the
producer pays, the demand curve for "Sugar Buff" will shift down.
c. The loss
in consumer and producer surplus at the after-tax quantity consumed measures
the efficiency loss.
d. Quantity
will actually increase, since the higher price due to the tax will cause
producers to supply more.
e. The deadweight
loss (excess burden) resulting from the tax results in inefficiency (CORRECT
ANSWER).
18. Consider a production point that is inside
the boundary of an economy’s production possibilities frontier or curve.
This point:
a. Is a case
where more of the good on the horizontal axis can be produced only by reducing
production of the good on the vertical axis.
b. Is not
feasible with current resources and technology.
c. May only
be attained by greater savings or population growth.
d. Depicts
an economy operating inefficiently (CORRECT ANSWER).
e. Is efficient
and has marginal benefits greater than costs, when compared to all other
points on the production possibilities frontier.
19. What would you expect to happen to price and quantity
of long-distance phone service in the short run if America On-Line (aol)
offers discounts that result in half of U.S. residences "going on-line?"
a. Price and
quantity will both increase.
b. Price and
quantity will both decrease (CORRECT ANSWER--e-mail is a substitute for
long distance phone calls; demand for long distance phone service will
fall).
c. Price will
increase but quantity will decrease.
d. Price will
decrease, which will increase demand, hence quantity is ambiguous.
e. There is
insufficient information to select among the preceding choices.
20. You overhear a student saying, "I have started a food
delivery business to compete with ‘Waiters on Wheels;’ since my car is
already paid for, and they rent theirs, my lower costs should give me an
advantage." This students reasoning
a. Is correct
in all essential respects.
b. Is OK as
far as it goes, but the competitor may respond by buying a car to compete.
c. May be
correct, but we would need more information to be sure.
d. Is incorrect,
showing no understanding of "opportunity costs" (the only appropriate definition
of costs for decision-making) (CORRECT ANSWER--the car could have
been rented out for others' use, hence has a cost, regardless of the fact
that there is no nominal payment).
e. Impossible
to analyze with economic theory, since it deals with the "real world."
21. A heavy winter snowstorm, with continued cold weather,
both destroys many campsites at various KOA (Campgrounds of America) campgrounds
and discourages many potential campers. You expect:
a. The impact
on price is ambiguous, while quantity will decrease (CORRECT ANSWER--D
and S are both lower; graph).
b. The impact
on quantity is ambiguous, which the price will decrease.
c. Impacts
on both price and quantity will be ambiguous.
d. Both price
and quantity will decrease.
e. Both price
and quantity will increase.
22. Select the normative statement among the following
possibilities:
a. The minimum
wage will result in no additional unemployment among the low-skilled.
b. The minimum
wage causes unemployment increases for low-skilled workers.
c. Minimum
wage increases have caused real incomes of those above it to fall.
d. The minimum
wage should be increased to reduce wide wage disparities in the economy
(CORRECT ANSWER).
e. All of
the above are positive statements.
23. If cigarettes, clearly as addictive and harmful as
many other currently illegal drugs, were declared illegal by the FDA and
the DEA began enforcing this new law as it does with existing illegal drugs,
what would you expect to happen to the equilibrium price and quantity of
cigarettes?
a. Price and
quantity will both increase.
b. Price and
quantity will both decrease.
c. Price will
decrease and quantity will increase.
d. Price will
increase and quantity will decrease (CORRECT ANSWER--enforcement efforts
to reduce the supply imply this).
e. Price will
increase and this will lead to greater supply, hence quantity is ambiguous.
24. Considering international trade, the world price will
be lower than the domestic price for ______, and the world price will be
higher than the domestic price for _______.
a. Exports,
imports.
b. Imports,
exports (CORRECT ANSWER--graph).
c. Rich countries,
poor countries.
d. Poor countries,
rich countries.
25. You overhear a student saying that U.S. workers cannot
produce any goods as cheaply as China, since the latter has much lower
wages, hence trade with China cannot make either China or the U.S better
off. This statement is
a. Essentially
true.
b. Erroneous
by failing to recognize that it is productivity that determines wages in
a competitive world.
c. Erroneous
by failing to recognize that it is comparative advantage that matters,
not absolute advantage.
d. False,
because we could trade any of our goods for any of their
goods and make ourselves better off by having access to their less expensively-produced
goods.
e. Both b)
and c) are correct (CORRECT ANSWER).