BAM 223 Principles of Economics Unit 2 Examination Multiple Choice Questions (Enter your answers on the enclosed answer sheet)
1. Of the following high-income countries, which has the highest infant mortality rate?
a.
b.
c.
d. Canada
Japan
United Kingdom
United States 2. The health care system in ________ is referred to as a universal health insurance system,
under which every resident is required to enroll in either a private or the government-provided
health insurance program.
a.
b.
c.
d. Canada
Japan
United Kingdom
United States 3. Typically, the ________ in a country, the higher the level of spending per person on health care.
a.
b.
c.
d. larger the population
higher the level of income per person
lower the median age of the population
higher the level of income taxes Figure 5-1 Figure 5-1 represents the market for vaccinations. Vaccinations are considered a benefit to society,
and the figure shows both the marginal private benefit and the marginal social benefit from
vaccinations.
4. Refer to Figure 5-1. The market equilibrium quantity is ________ thousand vaccinations.
a.
b.
c.
d.
111 100
200
300
>300 BAM 223 Principles of Economics Unit 2 Examination 5. What is the term that describes a situation in which one party to an economic transaction has
less information than the other party?
a.
b.
c.
d. inefficient market hypothesis
unequal market structure
asymmetric information
monopsony 6. Economists refer to the actions people take after they have entered into a transaction that
makes the other party to the transaction worse off as:
a.
b.
c.
d. bad faith
economic inefficiency
market failure
moral hazard Figure 5-4 Figure 5-4 represents the market for medical services with and without insurance, and the
effect of a third-party payer system on the demand for medical services.
7. Refer to Figure 5-4. The efficient quantity of medical services is:
a.
b.
c.
d. 200
500
700
>700 8. Because consumers who have insurance provided by their employers usually only pay a
deductible for a visit to the doctor’s office, they ________ of health care services than they
would if they paid a price that better represented the true cost of providing the service.
a.
b.
c.
d.
112 demand a larger quantity
supply a larger quantity
supply a smaller quantity
demand a smaller quantity BAM 223 Principles of Economics Unit 2 Examination 9. Which of the following is not part of the “regulation of health insurance” provision of the
Patient Protection and Affordable Care Act (ACA)?
a. All policies must provide coverage for dependant children up to age 26.
b. Limits on the size of deductibles and on waiting periods before coverage takes effect will
be eliminated.
c. Individuals with pre-existing medical conditions will be able to acquire health insurance.
d. Lifetime dollar maximums on coverage will be prohibited. 10. Which type of business has the least government rules and regulations affecting it?
a.
b.
c.
d. corporation
sole proprietorship
partnership
They all have the same set of rules and regulations affecting them. 11. A firm in a market economy must do all of the following to succeed except:
a. have access to sufficient funds
b. be organized as a corporation
c. produce the goods and services that consumers want at a lower cost than consumers
themselves can produce
d. organize the factors of production into a functioning, efficient unit 12. What is the most common type of business?
a.
b.
c.
d. corporation
sole proprietorship
partnership
They are equally represented because of Federal laws 13. The interest payment on a bond is called:
a.
b.
c.
d. the face value
the interest rate
principal
the coupon payment 14. :PVIBWFBCPOEUIBUQBZTQFSZFBSJODPVQPOQBZNFOUT8IJDIPGUIFGPMMPXJOHXPVME
result in an increase in the price of your bond?
a.
b.
c.
d. 113 Coupon payments on newly-issued bonds rise to $80 per year.
Coupon payments on newly-issued bonds fall to $50 per year.
The likelihood that the firm issuing your bond will default on debt increases.
The price of a share of stock in the company falls. BAM 223 Principles of Economics Unit 2 Examination 15. If a corporation retains all of its profits and distributes none of the profits to owners, how can
owners benefit?
a. Owners will only benefit if some profits are paid out in the form of dividends.
b. If the retained earnings are expected to create future profits, the market price of the firm’s
stock will increase and create a capital gain for stockholders if the stock is sold.
c. Owners will benefit by changing the board of directors.
d. Shares of stock can be converted into bonds so stockholders will be able to earn coupon
payments. 16. If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of
utility from consuming three candy bars, the marginal utility of the third candy bar is:
a.
b.
c.
d. 25 utility units
20 utility units
5 utility units
unknown as more information is needed to determine the answer 17. What is the common feature displayed by the following items?
t eating in a newly opened “fusion” cuisine restaurant
t attending a Red Sox game in Fenway Park
t wearing Lucky Brand designer jeans
a.
b.
c.
d. They are all highly inelastic goods.
The consumption of these goods takes place publicly.
The consumption of these goods takes place privately.
They tend to be consumed by better educated people. 18. Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the
game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have
paid $3,000 for their tickets, and (b) 92 percent of those surveyed would not have sold their
tickets for $3,000. These results are an example of:
a.
b.
c.
d. 114 the endowment effect
the failure to ignore sunk costs
rational consumer behavior
the fallacy of composition BAM 223 Principles of Economics Unit 2 Examination 19. Jenna runs a small boutique in Capitola. She tells one of her suppliers that she is willing to
pay $6 for a pair of wool hand warmers and not a dime more. On the basis of this information,
what can you conclude about her price elasticity of demand for wool hand warmers?
a.
b.
c.
d. It is perfectly inelastic
It is perfectly elastic
The price elasticity coefficient is 0
It is elastic Table 7-9
Price per Pound
(dollars) Quantity of Cheese Demanded
(pounds) $16 3 14 4 12 5 10 6 8 7 6 8 4 9 2 10 20. Refer to Table 7-9. Over what range of prices is the demand elastic?
a.
b.
c.
d. between $2 and $8
between $14 and $16
between $8 and $16
over the entire range of prices 21. A firm has successfully adopted a positive technological change when:
a.
b.
c.
d. it
it
it
it can pay its workers less yet increase its output
sees an increase in worker productivity
produces less pollution in its production process
can produce more output using the same inputs 22. The change in a firm’s total cost from producing one more unit of a good or service is the
firm’s:
a.
b.
c.
d. 115 marginal cost of production
explicit cost of production
average cost of production
implicit cost of production BAM 223 Principles of Economics Unit 2 Examination 23. The long-run average cost curve shows:
a.
b.
c.
d. the lowest average cost of producing every level of output in the long run
the average cost of producing where diminishing returns are not present
the plant size or scale that the firm should build
where the most profitable level of output occurs 24. If a firm doubles all its inputs, its average cost of production increases, then production
displays:
a.
b.
c.
d. diseconomies of scale
diminishing returns
economies of scale
declining fixed costs 25. The president of Toyota’s Georgetown plant was quoted as saying, “Demand for high volumes
saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and
knowledge we painstakingly built up over the years.” Based on this quote, what must be true of
the plant’s average cost of production curve?
a.
b.
c.
d. 116 It
It
It
It is
is
is
is U-shaped.
upward-sloping.
a ray from the origin.
downward-sloping.
