Review Of Economics Questions

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ECO/365 Final Exam 26/30 Correct

1. George Davis and Michael Wohlgenant estimate that for every 1 percent increase in the price of Christmas trees, quantity demanded falls by 0.6 percent. The demand for Christmas trees is __________________.

elastic

unit elastic

perfectly inelastic

inelastic

2. A Wall Street Journal headline reads: "Cigar Shortage Draws New Brands into Market." The shortage resulted from a renewed interest in smoking cigars. What best describes the facts behind the headline?

Price is too low, quantity demanded exceeds quantity supplied.

A shift in supply has equilibrated supply and demand.

Price is too low, demand exceeds supply.

The cigar market is in equilibrium.

3. State what type of business combination is occurring in the following scenario: Samsung and Sony become partners in a flat screen manufacturing company.

Joint venture

Vertical merger

Horizontal merger

Conglomerate

4. The price of a ticket to a rock concert is set at $35. All the tickets for the concert sell out 1 hour after they go on sale and there are still 1,000 fans who want to buy tickets. It follows that

the equilibrium price of tickets to the concert is less than $35.

the quantity of tickets demanded is equal to the quantity supplied at the $35 price.

the equilibrium price of tickets to the concert is $35.

the equilibrium price of tickets to the concert is more than $35.

5. According to the text, Microeconomics, Colander (2013), economics is the study of how

governments allocate resources while facing constraints.

human beings coordinate their wants and desires.

government policies can be used to meet individuals' wants and desires.

scarce resources are allocated to their most productive uses.

6. Suppose a firm finds that an additional dollar spent on labor increases output more than does an additional dollar spent on machines. Under these conditions, the firm

is economically efficient

should substitute machines for labor if it wants to increase economic efficiency

is technically efficient

should substitute labor for machines if it wants to increase economic efficiency

7. Which of the following is the best example of a macroeconomic externality?

One person spending more in order to help stimulate the economy

One person saving less without considering the effect on their retirement needs

One person starting a business without knowing whether the goods will sell

Many people saving more without considering the effect on unemployment

8. Refer to the graph shown. The figure shows the demand and supply curves for eggs and shows two equilibrium points, E1 and E2. An increase in demand from D1 to D2 would cause

price to rise from $1.00 to $1.25 a dozen and equilibrium quantity to be 3,000 dozen eggs per week.

price to decline from $1.25 to $1.00 a dozen and a shortage of 2,000 dozen eggs per week.

price to remain at $1.00 a dozen and a shortage of 2,000 dozen eggs per week.

price to rise from $1.00 to $1.25 a dozen and a surplus of 2,000 dozen eggs per week.

9. State what type of business combination is occurring in the following scenario: A tobacco producer buys a carbonated beverage plant.

Vertical merger

Joint venture

Horizontal merger

Conglomerate

10. A resource is said to have a comparative advantage if

it is equally suited to the production of all goods.

its suitability to the production of one good does not change as it produces more of that good.

its suitability to the production of one good changes as it produces more of that good.

it is better suited to the production of one good than to the production of an alternative good.

11. Refer to the graph shown. If hamburger dinners are produced by a perfectly competitive industry with a market demand D:

output will be the same as it would be under monopoly.

price will equal marginal cost.

price will equal $6.

price will be greater than marginal revenue.

12. Oligopoly is characterized by

inability to set price.

low market concentration.

few sellers.

no barriers to entry.

13. Refer to the table shown. Diminishing marginal productivity begins when the

fifth worker is hired.

fourth worker is hired.

third worker is hired.

sixth worker is hired.

14. When Ross Perot ran for president as a third party candidate in 1992, he argued that free trade with Mexico would result in massive job losses in the United States because Mexican wages were so low. Which of the following is the best explanation for why few economists agreed with Perot?

Although economists agreed that in some areas the United States would lose jobs, they expected that the United States would gain jobs in other areas.

Although economists predicted that unemployment would rise, the increased profits of corporations would raise stock prices enough to compensate for the lost jobs.

Economists believed that the U.S. unemployment rate would rise.

Economists did not believe that any jobs would be lost in the United States.

15. If MR < MC, a monopolist should:

increase production.

stop producing.

maintain the same level of production.

decrease production.

16. Refer to the graph shown. At which point is elasticity zero?

 D



17. Refer to the table shown. The average product when eight workers are employed is

 4



18. Germany restricts the use of nonrefillable bottles and cans. The European Union argues that the rules aren't just protecting the environment; they also are protecting German beverage makers from competition. The EU sees Germany's environmentalism as _____________________.

a tariff

a regulatory trade restriction

a quota

an embargo

19. Refer to the table shown. At what level of employment is the marginal product of labor seven?

 2



20. The morel is a prized mushroom that is often abundant in the Western United States in years after forest fires. Suppose two companies are buying morels from workers willing to find them. One company offers to pay workers $5.00 per pound, and the other company will pay workers only $4.00 per pound. Economists would say that

the company willing to pay only $4.00 has a comparative advantage in selling morels.

the higher-paying company will attract the more creative and innovative pickers and the lower-paying company will attract the others.

this situation violates the law of one price and is not likely to persist.

the lower-paying company will attract the more creative and innovative pickers and the higher-paying company will attract the others.

21. Economists and laypeople see the pros and cons of international trade in different ways. Which of the following is one of those ways?

Laypeople believe in the law of one price and economists do not.

Laypeople recognize that the United States has a comparative advantage in services.

Laypeople enjoy the benefits of trade in terms of lower consumer prices.

Laypeople tend to think of foreign trade only in terms of manufactured goods.

22. Which of the following statements is true?

There are many production processes that are both technically and economically efficient, but only one of these involves the lowest possible cost.

Many different production processes can be economically efficient, but only the method that involves the lowest possible cost is technically efficient.

Many different production processes can be technically efficient, but only the method that involves the lowest possible cost is economically efficient.

There is only one production process that is technically efficient, and this process is also economically efficient.

23. Because you can only obtain more of one good by giving up some of another good, the shape of a production possibility curve is _______________.

downward-sloping

perfectly vertical

perfectly horizontal

upward-sloping

24. Refer to the graph shown. Initially, the market is in equilibrium with price equal to $3 and quantity equal to 100. Government imposes a tax on suppliers of $1 per unit. The effect of the tax is to

 lower the price sellers keep after paying the tax.



raise the price consumers pay from $3 to $4.



lower the price consumers pay from $3 to $2.



raise the price sellers keep after paying the tax.

25. Refer to the graph shown. If this monopolistically competitive firm maximizes profit, it will

 charge $78 per dress.



shut down because it cannot cover its opportunity costs.



charge $45 per dress.



charge $85 per dress.

26. Suppose the minimum possible price of constructing homes is $50 per square foot. As a result of a sharp drop in the demand for home construction, the equilibrium price of home construction falls to $40 per square foot. Assuming the home construction industry is perfectly competitive and there are no specialized inputs, firms will

exit the industry, and the price will rise above $40 in the long run.

exit the industry, and the price will remain at $40 in the long run.

exit the industry, and the price will fall below $40 in the long run.

enter the industry as the price rises above $40 in the long run.

27. Opponents of government intervention in the economy argue that externalities

should be corrected with regulations rather than subsidies.

do not create problems for the model.

are themselves the inevitable result of government policies.

may not be effectively corrected by the government.

28. State what type of business combination is occurring in the following scenario: IBP meat processing firm buys American Cattle, a very large cattle ranch.

Conglomerate

Vertical merger

Joint venture

Horizontal merger

29. State what type of business combination is occurring in the following scenario: Golf Smith, a golf supply retailer buys its competitor, Vango golf.

Joint venture

Horizontal merger

Vertical merger

Conglomerate

30. Oligopoly is probably the best market for technological change because

pricing within the typical oligopoly tends to be very close to average total cost because of the entry of new rivals if its profits are excessively high.

the typical oligopoly lacks the funds for research and development and therefore will use basic research from universities.

funds for research and development are available in an oligopoly due to innovation, which motivates the need for research and development.

research and development occurs only if government subsidizes such activity, and government tends to subsidize oligopolies.