BAM 223
Principles of Economic
Final Examination
Multiple Choice Questions(Enter your answers on
the enclosed answer sheet)
1.
An economic ________ is a simplified version of
some aspect of economic life used to analyze an economic issue.
a.
variable
b.
market
c.
model
d.
trade-off
Scenario 1-2
Suppose
a hat manufacturer currently sells 2,000 hats per week and makes a profit of
$5,000 per week. The plant owner observes, “Although the last 300 hats we
produced and sold increased our revenue by $1,000 and our costs by $1,100, we
are still making an overall profit of $5,000 per week so I think we’re on the
right track. We are producing the optimal number of hats.”
2.
Refer to Scenario 1-2. Had the firm not
produced and sold the last 300 hats, would its profit be higher or lower, and
if so by how much?
a.
Its
profit will be $1,100 higher.
b.
Its
profit will be $1,000 lower.
c.
Its
profit will be $100 lower.
d.
Its
profit will be $100 higher.
3.
The
term market in economics refers to:
a.
a
place where money changes hands.
b.
a
legal institution where exchange can take place.
c. a
group of buyers and sellers of a product and the arrangement by which they come
together to trade.
d.
an
organization which sells goods and services.
Scenario 1-3
Suppose
a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a
profit of $10,000 per week. A manager at the plant observes, “Although the last
400 t-shirts we produced and sold increased our revenue by $4,000 and our costs
by $4,800, we are still making an overall profit of $10,000 per week so I think
we’re on the right track. We are producing the optimal number of t-shirts.”
4. Refer
to Scenario 1-3. Using marginal analysis terminology, what is another economic
term for the incremental cost of producing the last 400 t-shirts?
a.
marginal
cost
b.
explicit
cost
c.
operating
cost
d.
Any
of the above terms are correct.
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BAM
223 Principles of Economics
Final Examination
5. Suppose
the U.S. government encouraged new teachers to take jobs in underperforming
schools by paying the new teachers a $20,000 bonus. These teachers would be
exemplifying the economic idea that:
a.
people
respond to economic incentives
b.
people
are rational
c.
optimal
decisions are made at the margin
d.
equity
is more important than efficiency
6. Dr.
Goldfinger decides to invest in companies which he believes can “improve the
productivity and efficiency” of health care services. How can Dr. Goldfinger
strive to achieve this productive efficiency?
a.
by
investing in companies that produce goods and services at the lowest possible
cost
b.
by investing in companies that produce up to
the point where the marginal benefit of the last unit produced is equal to the
marginal cost of producing it.
c.
by
investing in companies that fairly distribute their products and services
d. by
investing in companies that produce goods and services based on consumer
preferences
7.
How
are the fundamental economic decisions determined in Canada?
a.
The
United Nations decides because Canada is a developing economy.
b.
The
government decides because Canada is a centrally planned economy.
c. Individuals,
firms, and the government interact in a market to make these economic
decisions.
d. These
decisions are made by the country’s elders who have had much experience in answering
these questions.
8.
Which
of the following is a macroeconomics question?
a.
How
is the production quantity of snowboards determined?
b.
What
factors determine the price of electronic cigarettes?
c.
What
determines the growth rate of gross domestic product?
d.
What
determines the salaries of Wall Street executives?
9.
Scarcity:
a.
stems
from the incompatibility between limited resources and unlimited wants
b.
can
be overcome by discovering new resources
c.
can
be eliminated by rationing products
d.
is
a bigger problem in market economies than in socialist economies
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BAM
223 Principles of Economics
Final Examination
10. The principle of
opportunity cost is that:
a.
in a market economy, taking advantage of
profitable opportunities involves some money cost
b.
the economic cost of using a factor of
production is the alternative use of that factor that is given up
c.
taking
advantage of investment opportunities involves costs
d.
the
cost of production varies depending on the opportunity for technological
application
11. A production
possibilities frontier with a bowed outward shape indicates:
a.
the
possibility of inefficient production
b.
constant
opportunity costs as more and more of one good is produced
c.
increasing
opportunity costs as more and more of one good is produced
d.
decreasing
opportunity costs as more and more of one good is produced
Figure 2-4
Figure
2-4 shows various points on three different production possibilities frontiers
for a nation.
12. Refer to Figure 2-4.
Consider the following events:
(a) an increase in the
unemployment rate
(b) general technological
advancement
(c) decrease in consumer
wealth
Which of the events listed above could
cause a movement from X to V?
- a only
- a and b only
- b and c only
- a, b, and c
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BAM
223 Principles of Economics
Final Examination
13. You have an absolute
advantage whenever you:
a.
are
better educated than someone else
b.
can
produce something at a lower opportunity cost than others
c.
prefer
to do one particular activity
d.
can
produce more of something than others with the same resources
Table 2-5
Production choices for Nadia’s Neckware
|
Choice |
Quantity |
Quantity |
|
Produced |
Produced |
|
|
A |
32 |
0 |
|
B |
24 |
6 |
|
C |
16 |
12 |
|
D |
8 |
18 |
|
E |
0 |
24 |
14. Refer
to Table 2-5. Assume Nadia’s Neckware only produces ascots and bowties. A
combination of 16 ascots and 6 bowties would appear:
a.
along
Nadia’s production possibilities frontier
b.
inside
Nadia’s production possibilities frontier
c.
outside
Nadia’s production possibilities frontier
d.
at
the horizontal intercept of Nadia’s production possibilities frontier
15. If the
best surgeon in town is also the best at cleaning swimming pools, then
according to economic reasoning, this person should:
a.
specialize
in being a surgeon because its opportunity cost is lower
b.
specialize
in cleaning swimming pools because it is more labor-intensive
c.
split
his time evenly between being a surgeon and cleaning swimming pools
d.
should
pursue the activity he enjoys more
8
Final Examination
Figure 2-12
Figure
2-12 shows the production possibilities frontiers for Pakistan and Indonesia.
Each country produces two goods, cotton and cashews.
16. Refer
to Figure 2-12. Which country has a comparative advantage in the production of
cotton?
a.
Pakistan
b.
They
have equal production abilities.
c.
Indonesia
d.
neither
country
17. Refer
to Figure 2-12. Which country has a comparative advantage in the production of
cashews?
a.
They
have equal production abilities.
b.
Pakistan
c.
Indonesia
d.
neither
country
18. If a commercial dairy
farm wants to raise funds to purchase feeding troughs, it does so in the
a.
output
market.
b.
product
market.
c.
factor
market.
d.
dairy
products market.
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BAM
223 Principles of Economics
Final Examination
Figure 2-19
r
to Figure 2-19. Which two arrows in the diagram depict the following
transaction: LaDonna sells 20 pairs of sunglasses at the Oakley store.
a.
J
and G
b.
K
and G
c.
K
and M
d.
J
and M
20. All of the following
countries come close to the free market benchmark except:
a.
Singapore
b.
Canada
c.
North
Korea
d.
Germany
Figure 3-1
. Refer
to Figure 3-1. An increase in the price of a substitute would be represented by
a movement from
a.
A
to B.
b.
B
to A.
c.
D1
to D2.
d.
D2
to D1.
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BAM
223 Principles of Economics
Final Examination
22. In
June, buyers of titanium expect that the price of titanium will fall in July.
What happens in the titanium market in June, holding everything else constant?
a.
The
quantity demanded decreases.
b.
The
demand curve shifts to the left.
c.
The
demand curve shifts to the right.
d.
The
quantity demanded increases.
23. Suppose
that when the price of strawberries decreases, Simone increases her purchase of
whipped cream. To Simone:
a.
strawberries
and whipped cream are substitutes
b.
strawberries
and whipped cream are normal goods
c.
strawberries
are a normal good and whipped cream is an inferior good
d.
strawberries
and whipped cream are complements
24. What is the difference
between an increase in supply and an increase in quantity supplied?
a. There
is no difference between the two terms; they both refer to a shift of the
supply curve.
b. An
increase in supply means the supply curve has shifted to the right while an
increase in quantity supplied refers to a movement along a given supply curve
in response to an increase in price.
c.
An increase in supply means the supply curve
has shifted to the right while an increase in quantity supplied means at any
given price supply has increased.
d. There
is no difference between the two terms; they both refer to a movement along a
given supply curve.
25. Which of the following
is the correct way to describe equilibrium in a market?
a.
At
equilibrium, quantity demanded equals quantity supplied.
b.
At
equilibrium, market forces no longer apply.
c.
At
equilibrium, scarcity is eliminated.
d.
At
equilibrium, demand equals supply.
26. Assume
that the price for swimming pool maintenance services has risen and sales of
these services have fallen. One can conclude that:
a.
the
law of supply has been violated
b.
the
demand for swimming pool maintenance services has increased
c.
the
supply of swimming pool maintenance services has decreased
d.
swimming
pool maintenance services are becoming more technologically advanced
11
BAM
223 Principles of Economics
Final Examination
27. Suppose
a drought resulted in a major reduction in the California lettuce crop. In the
market for lettuce, the:
a.
supply
curve shifted to the left resulting in an increase in the equilibrium price
b.
supply
curve shifted to the left resulting in a decrease in the equilibrium price
c.
demand
curve shifted to the right resulting in an increase in the equilibrium price
d.
demand
curve shifted to the left resulting in a decrease in the equilibrium price
Figure 3-5
28. Refer to Figure 3-5. At
a price of $20, the quantity sold:
a.
is
0 units
b.
is
4 units
c.
is
8 units
d.
cannot
be determined
12
BAM
223 Principles of Economics
Final Examination
Figure 3-8
29. Refer
to Figure 3-8. The graph in this figure illustrates an initial competitive
equilibrium in the market for apples at the intersection of D2 and S2 (point
E). Which of the following changes would cause the equilibrium to change to
point A?
a.
A positive change in the technology used to
produce apples and a decrease in the price of oranges (a substitute for apples)
b. An
increase in the wages of apple workers and a decrease in the price of oranges
(a substitute for apples)
c. An
increase in the number of apple producers and a decrease in the number of apple
trees as a result of disease
d. A
decrease in the wages of apple workers and an increase in the price of oranges
(a substitute for apples)
30. In New
York City, about 1 million apartments are subject to rent control by the local
government. Rent control:
a.
is a government policy which limits apartment
rental to those people whose incomes are less than $50,000 per year
b. only
applies to those apartments which are owned and rented out by the local
government
c.
is
a price floor which sets a minimum rent for apartments
d.
puts
a legal limit on the rent that landlords can charge for an apartment
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BAM
223 Principles of Economics
Final Examination
Table 4-1
|
Consumer |
Willingness |
|
Tom |
$40 |
|
Dick |
30 |
|
Harriet |
25 |
31. Refer
to Table 4-1. The table above lists the highest prices three consumers, Tom,
Dick and Harriet, are willing to pay for a short-sleeved polo shirt. If the
price of the shirts falls from $28 to $20:
a.
Tom
will buy two shirts while Dick and Harriet will each buy one shirt.
b.
consumer
surplus increases from $14 to $35.
c.
consumer
surplus will increase from $70 to $95.
d.
Harriet
will receive more consumer surplus than Tom or Dick.
Figure 4-1
Figure 4-1 shows Arnold’s demand curve for
burritos.
32. Refer to Figure 4-1.
What is the total amount that Arnold is willing to pay for 2 burritos?
a.
$2.00
b.
$4.50
c.
$7.50
d.
$10.00
33. Refer
to Figure 4-1. If the market price is $3.00, what is the maximum number of
burritos that Arnold will buy?
a.
0
b.
2
c.
3
d.
4
14
BAM
223 Principles of Economics
Final Examination
Table 4-6
|
Marko’s Polos |
Marginal Cost |
|
(dollars) |
|
|
1st |
$7 |
|
2nd |
10 |
|
3rd |
15 |
|
4th |
20 |
34. Refer
to Table 4-6. The table above lists the marginal cost of polo shirts by
Marko’s, a firm that specializes in producing men’s clothing. What will happen
if the price of polo shirts decreases from $15 to $10?
a.
there
will be a shortage of polo shirts
b.
the
marginal cost of producing the third polo shirt will increase to $25
c.
consumers
will buy no polo shirts
d.
producer
surplus will fall from $13 to $3
Figure 4-6
Figure
4-6 shows the market for granola. The market is initially in equilibrium at a
price of P1 and a quantity of Q1. Now suppose producers decide to cut output to
Q2 in order to raise the price to P2.
35.
Refer
to Figure 4-6. What area represents consumer surplus at the equilibrium price
of P1?
a.
A
+ B + C + D + E
b.
D
+ E
c.
A
+ B + C
d.
A
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BAM
223 Principles of Economics
Final Examination
36. The sum of consumer
surplus and producer surplus is equal to:
a.
total
profit
b.
the
economic surplus
c.
zero
d.
the
deadweight loss
Figure 4-10
Figure
4-10 shows the market for apartments in Bay City. Recently, the government
imposed a rent ceiling at R0.
37. Refer
to Figure 4-10. Suppose that instead of a price ceiling, the government imposed
a price floor of R1. What is the area representing
producer surplus after the imposition of the price floor?
a.
B
+ D + F
b.
C
+ E
c.
A
d.
B
+ C + D + E + F
38. Assume
that production from an electric utility caused acid rain and that the
government imposed a tax on the utility equal to the cost of the acid rain.
This is an example of:
a.
the
Coase Theorem
b.
a
Pigovian subsidy
c.
a
transaction cost
d.
a
Pigovian tax
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BAM
223 Principles of Economics
Final Examination
39. A
contract under which a buyer agrees to make payments in exchange for the
provider agreeing to pay some or all of the buyer’s medical bills is referred
to as:
a.
a
fee-for-service plan
b.
health
insurance
c.
the
Affordable Care Act
d.
a
deductible
40. In the
United States in 2012, of those companies employing more than 200 workers that
offer health care to those workers, about ________ percent of employees accept
the coverage.
a.
10
b.
36
c.
62
d.
98
41. Typically,
the higher the level of income per person in a country, the higher the level of
spending per person on health care. This relationship between income and
spending indicates that health care is a:
a.
necessity
b.
inferior
good
c.
normal
good
d.
luxury
42. In the United States,
health care spending per person based on income per person is
________
the average for most other countries.
a.
significantly
lower than
b.
slightly
lower than
c.
comparable
to
d.
significantly
higher than
43. Of the
following high-income countries, which has the highest number of CT scanners
per 1 million population?
a.
Canada
b.
Japan
c.
the
United Kingdom
d.
the
United States
17
BAM
223 Principles of Economics
Final Examination
44.
Consumers
usually pay less than the total cost of medical treatment because:
a.
the
federal government pays for most medical procedures
b.
competition
forces doctors and hospitals to charge prices that do not cover their costs
c.
a
third party, usually an employer, often pays most of the bill
d.
a
third party, usually an insurance company, often pays most of the bill
45. Because
consumers who have insurance provided by their employers usually only pay a
deductible for a visit to the doctor’s office:
a.
they demand a larger quantity of health care
services than they would if they paid a price that better represented the true
cost of providing the service
b. the
insurance companies provide a larger quantity of health care services than they
would if the consumer paid a price that better represented the true cost of
providing the service
c.
they demand a smaller quantity of health care
services than they would if they paid a price that better represented the true
cost of providing the service
d. the
doctors supply a smaller quantity of health care services than they would if
the consumer paid a price that better represented the true cost of providing
the service
46.
Basic supply and demand analysis indicates that
having firms rather than the government provide health insurance to workers:
a.
changes
neither the composition of the compensation that firms pay nor its level
b. does
not change the composition of the compensation that firms pay, but does change
its level
c.
changes
both the composition of the compensation that firms pay and its level
d. changes
the composition of the compensation that firms pay, but does not change its
level
47.
Which
type of businesses earns the majority of profits in the United States?
a.
sole
proprietorships
b.
partnerships
c.
corporations
d.
None
of the above.
48.
Economists refer to the conflict between the
interests of shareholders and the interests of top management as:
a.
a
liability problem
b.
a
stock-equity problem
c.
a
principal-agent problem
d.
a
financial intermediary problem
18
BAM
223 Principles of Economics
Final Examination
49. What takes place in the
indirect finance market?
a.
Part
ownership of corporations is sold in the form of stocks.
b.
Corporate
and government bonds are sold to savers.
c.
Government
purchases of buildings and equipment are sold to the highest bidder.
d.
Deposits
of savers are accepted and loans made to borrowers.
50. Southwest
Airlines wants to raise $20 million to finance the renovation of their
corporate offices, and the company wishes to raise the funds through direct
finance. Which of the following methods could it use?
a.
It
could issue $20 million in stocks.
b.
It
could sell $20 million in bonds.
c.
It
could borrow $20 million from a bank.
d.
It
could choose either A or B.
51. Donnie’s
Donuts incurs $450,000 per year in explicit costs and $200,000 in implicit
costs. The bakery earns $800,000 in revenues and has $2 million in net worth.
Based on this information, what is the accounting profit for Donnie’s Donuts?
a.
$350,000
b.
$150,000
c.
$600,000
d.
$1.2
million
52. Jake
sells Star Wars memorabilia on eBay. His annual revenue is $42,000 per year,
the explicit costs of his business are $10,000, and the opportunity costs of
his business are $18,000 per year. What are the implicit costs of his business?
a.
$8,000
b.
$18,000
c.
$24,000
d.
$32,000
53. When
someone takes out a mortgage loan to buy a house, the mortgage lender can take
possession of the house and sell it if the borrower defaults by failing to make
payments on the loan because the house is being pledged as ________ for the
loan.
a.
insurance
b.
collateral
c.
a
liability
d.
goodwill
19
BAM
223 Principles of Economics
Final Examination
54.
Most people would prefer to drive a luxury car
that has all the options, but more people buy less expensive cars even though
they could afford the luxury car. Why?
a.
The marginal utility per dollar spent on the
less expensive car is higher than that spent on luxury cars.
b.
Car
buyers are irrational.
c.
Luxury
cars cost a lot more than non-luxury cars.
d.
The
total utility of less expensive cars is greater than that of luxury cars.
Table 7-2
|
Quantity of Soup |
Total |
Quantity of |
Total |
|
(cups) |
Sandwiches |
||
|
1 |
40 |
1 |
45 |
|
2 |
60 |
2 |
75 |
|
3 |
72 |
3 |
102 |
|
4 |
82 |
4 |
120 |
|
5 |
88 |
5 |
135 |
|
6 |
90 |
6 |
145 |
Table
7-2 above shows Keira’s utility from soup and sandwiches. The price of soup is
$2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these
two goods.
55.
Refer
to Table 7-2. What is Keira’s marginal utility per dollar spent on the third
cup of so
