BAM 223 Principles of Economics Unit 1 Examination

BAM 223 Principles of Economics Unit 1 Examination

Subject: Business    / General Business
Question
BAM 223 Principles of Economics Unit 1 Examination Multiple Choice Questions (Enter your answers on the enclosed answer sheet)
Table 1-1
Hours Open Total Revenue
(dollars) 1 $50 2 75 3 95 4 110 5 120 6 125 Lydia runs a small nail salon in the town of New Hope. She is debating whether she should
extend her hours of operation. Lydia figures that her sales revenue will depend on the number
of hours the nail salon is open as shown in the table above. She would have to hire a worker for
those hours at a wage rate of $10 per hour.
1. Refer to Table 1-1. What is Lydia’s marginal benefit if she decides to stay open for two hours
instead of one hour?
a.
b.
c.
d. $25
$50
$75
$125 2. A restaurant sells a large soft drink at a fixed price of $1.79. A term used by economists to
describe the money received from the sale of an additional large soft drink is:
a.
b.
c.
d. marginal revenue
net benefit
gross earnings
pure profit 3. /FX:PSL$JUZ1PMJDFSFDPNNFOEFETUFQTUIFCBOLDPVMEUBLFUPEFUFSSPCCFSJFT
JODMVEJOH
the installation of plastic barriers called “bandit barriers.” The police were surprised the bank
did not take their advice. According to a deputy commissioner of police, “Commerce does very
little of what we recommend. They’ve told our detectives they have no interest in ever putting
in the barriers.” It would seem that Commerce Bank would have a strong incentive to install
“bandit barriers” to deter robberies. Why wouldn’t they do it?
a. The banks probably resent any interference from the police department.
b. The banks are concerned that “bandit barriers” would send the wrong message to
customers—that the bank is unsafe.
c. The banks must have weighed the cost of installing bandit barriers against the benefits and
decided that they have “no interest in ever putting in the barriers.”
d. The banks would rather delay installation of any theft deterring equipment in anticipation
of new lower cost innovations in the security devices market.
52 BAM 223 Principles of Economics Unit 1 Examination 4. How are the fundamental economic questions answered in a market economy?
a. Individuals, firms, and the government interact in markets to decide the answers to these
questions.
b. Households and firms interact in markets to decide the answers to these questions.
c. The government alone decides the answers.
d. Large corporations alone decide the answers. 5. 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 fairly distribute their products and services
c. 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
d. by investing in companies that produce goods and services based on consumer preferences 6. Dr. Goldfinger decides to invest in companies which he believes can “improve the productivity
and efficiency” of health care services. What would Dr. Goldfinger need to do to try to achieve
allocative efficiency?
a. invest in companies
produced is zero
b. invest in companies
c. invest in companies
d. invest in companies that produce up to the point where the marginal cost of the last unit
that produce goods and services based on consumer preferences
that fairly distribute their products and services
that produce goods and services at the lowest possible cost 7. Which of the following is a normative economic statement?
a. Farmers should not be allowed to grow and sell genetically-modified crops.
b. With rising home prices and falling mortgage interest rates, the amount of home
foreclosures has decreased.
c. The federal government is considering increasing regulations on the use of fossil fuels to
promote the use of wind power.
d. Rising corn prices have increased the price of corn-based ethanol. 53 BAM 223 Principles of Economics Unit 1 Examination 8. The economic analysis of minimum wage involves both normative and positive analysis.
Consider the following consequences of a minimum wage:
(a) The minimum wage law causes unemployment.
(b) Unemployment would be lower without a minimum wage law.
(c) Minimum wage laws benefit some workers and harm others.
(d) The minimum wage should be more than $7.25 per hour.
Which of the consequences above are positive statements and which are normative
statements?
a.
b.
c.
d. a, b, and c are positive statements and d is a normative statement
Only a is a positive statement, b, c and d are normative statements
a and c are positive statements, b and d are normative statements
a and b are positive statements, c and d are normative statement Figure 1-1 9. Refer to Figure 1-1. Using the information in the figure above, calculate the percentage
change in sales of alcoholic beverages between 2008 and 2011.
a.
b.
c.
d. 54 23.1%
23.8%
30%
42.9% BAM 223 Principles of Economics Unit 1 Examination 10. The production possibilities frontier model assumes which of the following?
a.
b.
c.
d. Any level of the two products that the economy produces is currently possible.
The level of technology is variable.
The economy produces only two products.
Labor, capital, land and natural resources are unlimited in quantity. Figure 2-8 Figure 2-8 above shows the production possibilities frontier for Vidalia, a nation that produces
two goods, roses and orchids.
11. Refer to Figure 2-8. If Vidalia chooses to produce 80 dozen roses, how many orchids can it
produce to maximize production?
a.
b.
c.
d. 55 24
48
60
74 dozen
dozen
dozen
dozen orchids
orchids
orchids
orchids BAM 223 Principles of Economics Unit 1 Examination Figure 2-13 Figure 2-13 shows the production possibilities frontiers for Tahiti and Bora Bora. Each country
produces two goods, milk and honey.
12. Refer to Figure 2-13. What is the opportunity cost of producing one gallon of milk in Bora
Bora?
a.
b.
c.
d. 1.125 gallons of honey
2/3 gallon of honey
0.8 gallon of honey
1.5 gallons of honey Table 2-15
George Jack Lawns Mowed 10 6 Gardens Cultivated 5 4 Table 2-15 shows the output per day of two gardeners, George and Jack. They can either
devote their time to mowing lawns or cultivating gardens.
13. Refer to Table 2-15. Which of the following statements is true?
a.
b.
c.
d. 56 Jack has an absolute advantage in lawn mowing and George in garden cultivating.
Jack has an absolute advantage in both tasks.
Jack has an absolute advantage in garden cultivating and George in lawn mowing.
George has an absolute advantage in both tasks. BAM 223 Principles of Economics Unit 1 Examination Table 2-16
One Cell
Phone Lumber
(per board foot) Estonia 40 hours 8 hours Finland 16 hours 4 hours Table 2-16 shows the number of labor hours required to produce a cell phone and a board foot
of lumber in Estonia and Finland.
14. Refer to Table 2-16. If the two countries specialize and trade, who should export cell phones?
a.
b.
c.
d. Estonia
Finland
They should both be importing cell phones.
There is no basis for trade between the two countries. Figure 2-16 15. Refer to Figure 2-16. One segment of the circular flow diagram in the figure shows the flow of
labor services from Market K to Economic Agents J. What is Market K and who are Economic
Agents J?
a.
b.
c.
d. 57 K
K
K
K =
=
=
= product markets; J = households
factor markets; J = households
product markets; J = firms
factor markets; J = firms BAM 223 Principles of Economics Unit 1 Examination 16. Tomas increased his consumption of potato chips when the price of pistachios increased. For
Tomas, potato chips and pistachios are:
a.
b.
c.
d. substitutes.
complements.
both luxury goods.
both inferior goods. Table 3-3
Kona Coffee
Price per lb.
(dollars) Luke’s
Quantity
Demanded
(lb.) Ravi’s
Quantity
Demanded
(lb.) Rest of Market
Quantity
Demanded
(lb.) $10 3 0 23 8 9 3 32 6 14 7 68 5 18 12 85 4 22 18 110 Market
Quantity
Demanded
(lb.) 17. Refer to Table 3-3. The table above shows the demand schedules for Kona coffee of two
individuals (Luke and Ravi) and the rest of the market. At a price of $6, the quantity
demanded in the market would be
a.
b.
c.
d. 36 lb.
68 lb.
89 lb.
123 lb. 18. Which of the following is evidence of a shortage of walnuts?
a.
b.
c.
d. 58 The price of cashews is lowered in order to make up for the walnut shortage.
The quantity demanded of walnuts is greater than the quantity supplied.
Firms lower the price of walnuts.
The equilibrium price of walnuts falls due to a decrease in demand. BAM 223 Principles of Economics Unit 1 Examination Figure 3-8 The graph in this figure illustrates an initial competitive equilibrium in the market for apples at
the intersection of D1 and S1 (point A).
19. Refer to Figure 3-8. If the price of oranges, a substitute for apples, decreases and the wages of
apple workers increase, how will the equilibrium point change?
a.
b.
c.
d. The
The
The
The equilibrium
equilibrium
equilibrium
equilibrium point will move from A to C.
point will move from A to E.
will first move from A to B, then return to A.
point will move from A to B. 20. Refer to Figure 3-8. If there is a shortage of apples, how will the equilibrium point change?
a.
b.
c.
d. 59 The equilibrium point will move from A to C.
The equilibrium point will move from A to E.
There will be no change in the equilibrium point.
The equilibrium point will move from A to B. BAM 223 Principles of Economics Unit 1 Examination Table 4-4
Consumer Willingness to Pay Curly $50 Moe 30 Larry 15 21. Refer to Table 4-4. The table above lists the highest prices three consumers—Curly, Moe, and
Larry—are willing to pay for a bottle of champagne. If the price of the champagne falls from
$24 to $14:
a.
b.
c.
d. consumer surplus increases from $32 to $53
consumer surplus will increase from $80 to $95
Curly will buy four bottles; Moe will buy two bottles, and Larry will buy one bottle
Larry and Moe will receive more consumer surplus than Curly 22. The additional cost to a firm of producing one more unit of a good or service is the:
a.
b.
c.
d. marginal cost
opportunity cost
total cost
minimum cost Figure 4-8 Figure 4-8 shows the market for apartments in Springfield. Recently, the government
imposed a rent ceiling of $1,000 per month.
23. Refer to Figure 4-8. What is the value of the deadweight loss after the imposition of the
ceiling?
a.
b.
c.
d.
60 $50,000
$125,000
$175,000
$260,000 BAM 223 Principles of Economics Unit 1 Examination 24. Congress passed the ________ in 1996, the purpose of which was to phase out price floors
and return to a free market in agriculture.
a.
b.
c.
d. Farmer’s Act
Freedom to Farm Act
Agribusiness Act
Smoot-Hawley Act 25. Economists ________ that price controls are desirable.
a.
b.
c.
d. 61 are in agreement
never believe
only recently agree
are reluctant to state