Extremely easy test for anyone with a business/marketing

26 Jun Extremely easy test for anyone with a business/marketing

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PRINCIPLES OF ECONOMICS
Text:

Essentials of Economics
2nd Edition, 2009
ISBN-13: 978-0-13-608623-9

Publisher:

R. Glenn Hubbard and Anthony Patrick OBrien
Pearson/Prentice Hall

925 N. Spurgeon Street, Santa Ana, CA 92701
12/14

Final Examination

Authors:

Phone: 714-547-9625

Fax: 714-547-5777

All rights reserved. No part of this book may be reproduced or transmitted
in any form or by any means, electronic or mechanical, including photocopying,
recording or by any information storage and retrieval system without written
permission from the publisher, except for the inclusion of brief quotation
in review.
Copyright © 2014 by California Coast University

Principles of Economics

Final Examination

Multiple Choice Questions (Enter your answers on the enclosed answer sheet)
1) Every society faces economic tradeoffs. This means
a.
b.
c.
d.

producing more of one good means less of another good can be produced.
not everyone can have enough goods and services to survive.
some people live better than others do.
societys output cannot be made available to all.

2) Which of the following statements is false?
a. Tradeoffs do not apply when consumers purchase a product for which there is
excess supply, such as a stock clearance sale.
b. Every individual, no matter how rich or poor, is faced with making tradeoffs.
c. Anytime you have to decide which action to take you are facing an economic
tradeoff.
d. Economics is a social science that studies the tradeoffs we are forced to
make because of scarcity.
3) Which of the following is not an example of an economic tradeoff that a firm
has to make?
a.
b.
c.
d.

whether it should produce more of its product.
whether it is cheaper to produce with more machines or with more workers.
whether or not consumers will buy its products .
whether to outsource the production of a good or service

4) How are the fundamental economic decisions determined in Cuba?
a. Primarily, the government decides because Cuba is a centrally planned
economy.
b. These decisions are made by the countrys elders who have had much experience in answering these questions.
c. Individuals, firms, and the government interact in a market to make these
economic decisions.
d. The United Nations decides because Cuba is a developing economy.
5) Which of the following correctly describes the relationship between economic
efficiency and economic equity?
a.
b.
c.
d.

They are both automatically achieved in a free market economy.
There is no conflict between the two goals.
There is often a trade-off between the two.
They always call for opposite outcomes.

1

Principles of Economics

Final Examination

6) Which of the following statements best characterizes the disagreements between Paul Samuelson and Jagdish Bhagwati in their debate about outsourcing?
a. Their disagreements are grounded in normative economic analysis. They disagree over how to interpret the relevant economic statistics.
b. Their disagreements are grounded in positive economic analysis. They disagree about the relevant economic statistics used in the model.
c. Their disagreements are grounded in normative economic analysis. They disagree over the types of jobs lost to outsourcing.
d. Their disagreements are grounded in positive economic analysis. They disagree about the model and the assumptions used in the model.
7) Which of the following statements about profit is true?
a.
b.
c.
d.

Profit refers to the revenue received from the sale of a quantity of goods.
Profit is the difference between a firms revenue and its costs.
Profit is calculated by multiplying price per unit by the number of units sold.
The terms accounting profit and economic profit can be used interchangeably.

8) Which of the following is an example of an activity undertaken by an entrepreneur?
a.
b.
c.
d.

holding a position as the president of a liberal arts college
landscape design for your new home
running for the president of the United States
starting your own pet sitting business

9) Suppose when the price of laptops falls, college students buy more laptops.
This implies that
a. there is a negative relationship between laptop prices and quantities purchased by college students.
b. there is a one-to-one relationship between laptop prices and quantities purchased by college students.
c. there is a direct relationship between laptop prices and quantities purchased
by college students.
d. there is a positive relationship between laptop prices and quantities purchased by college students.

2

Principles of Economics

Final Examination

Figure 1-2

10) Refer to Figure 1-2. Calculate the area of the triangle A.
a.
b.
c.
d.

$6.3 million
$3.15 million
$8.4 million
$2.1 million

11) You explain to your friend Haslina, who runs a catering service called Meals
in a Zip, about an economic theory that asserts that consumers will purchase less of a product at higher price than they will at lower prices. She
contends that the theory is incorrect because over the past two years she has
raised the price of her catered meals and yet has seen a brisk increase
in sales. How would you respond to Haslina?
a. I will explain to her that there are some omitted variables that have contributed to an increase in her sales such as changes in income.
b. Haslina is making the mistake of assuming that correlation implies causation.
c. I will explain to her that she confusing positive economic analysis with normative economic analysis.
d. Haslina is right; she has evidence to back her claim. The theory must be
false.
12) In a production possibilities frontier model, a point inside the frontier is
a.
b.
c.
d.

inefficient. Maximum output is not being obtained from available resources.
allocatively efficient.
allocatively inefficient.
productively efficient

3

Principles of Economics

Final Examination

13) A production possibilities frontier with a bowed outward shape indicates
a.
b.
c.
d.

decreasing opportunity costs as more and more of one good is produced.
constant opportunity costs as more and more of one good is produced.
the possibility of inefficient production.
increasing opportunity costs as more and more of one good is produced.

Figure 2-3

14) Refer to Figure 2-3. Carlos Vanya grows tomatoes and strawberries on his
land. A portion of his land is more suitable for growing tomatoes and the
other portion is better suited for strawberry cultivation. Which of the graphs
in Figure 2-3 represent his production possibilities frontier?
a.
b.
c.
d.
e.

Graph A
Graph B
Graph C
either Graph A or Graph B
either Graph B or Graph C

Figure 2-4

4

Principles of Economics

Final Examination

Figure 2-4 shows various points on three different production possibilities frontiers for a nation.
15) Refer to Figure 2-4. A movement from X to Y
a. is the result of advancements in plastic production technology only, with no
change in food production technology.
b. is the result of advancements in food production technology only, with no
change in the technology for plastic production.
c. could occur because of an influx of immigrant labor.
d. could be due to a change in consumers tastes and preferences.
Figure 2-6

German auto producer BMW currently produces two types of automobiles, sports
utility vehicles (SUVs) and coupes, in its U.S. plant. Since it opened in 1994,
the company has made several strategic production decisions. Figure 2-6 shows
changes to its production possibilities frontier in response to some of these production strategies.
16) Refer to Figure 2-6. Between 1995 and 2003 worker productivity increased
so that the total number of vehicles produced increased as the company
added more machinery and workers and changed the layout of its factory.
This is best represented by the
a.
b.
c.
d.

movement from G to H in Graph B.
movement from L to K in Graph C.
movement from J to H in Graph B.
movement from E to F in Graph A.

Table 2-2
George

Jack

Lawns Mowed

10

6

Gardens Cultivated

5

4

5

Principles of Economics

Final Examination

Table 2-2 shows the output per day of two gardeners, George and Jack. They can
either devote their time to mowing lawns or cultivating gardens.
17) Refer to Table 2-2. What is Georges opportunity cost of cultivating a garden?
a.
b.
c.
d.

two lawns mowed
one and a half lawns mowed
two-thirds of a garden cultivated
one-half of a garden cultivated

Table 2-3
One Digital Camera

Wheat (per pound)

China

100 hours

4 hours

south Korea

60 hours

3 hours

Table 2-3 shows the number of labor hours required to produce a digital camera
and a pound of wheat in China and South Korea.
18) Refer to Table 2-3. What is South Koreas opportunity cost of producing one
digital camera?
a.
b.
c.
d.

25 pounds of wheat
20 pounds of wheat
0.05 pounds of wheat
60 pounds of wheat

19) Refer to Table 2-3. China has a comparative advantage in
a.
b.
c.
d.

both products.
digital camera production.
wheat production.
neither product.

20) Refer to Table 2-3. If the two countries specialize and trade, who should
export digital cameras?
a.
b.
c.
d.

6

South Korea
There is no basis for trade between the two countries.
They should both be importing digital cameras.
China

Principles of Economics

Final Examination

Figure 2-10

21) Refer to Figure 2-10. The segment of the circular flow diagram in the Figure
shows the flow of funds from market F to economic agents G. The funds represent spending on goods and services. What is market F and who are economic agents G?
a.
b.
c.
d.

F = factor markets; G = firms
F = factor markets; G = households
F = product markets; G = firms
F = product markets; G = households

22) Although it is a popular product, Apple makes little profit from each song
downloaded through iTunes. Why does Apple charge only $0.99 to download
a song?
a. Although Apple makes a small amount of profit per song, total profit is large
because the quantity sold is large.
b. The low price makes it more likely that consumers will buy iPods, which are
relatively expensive.
c. Apple plans to increase the price of downloading songs after it sells a large
enough number of iPods.
d. Apple cannot raise the price above $0.99 per song because consumers can
download songs at even lower prices from Apples competitors.
23) The income effect of a price change refers to the impact of a change in
a.
b.
c.
d.

the price of a good on a consumers purchasing power.
income on the price of a good.
demand when income changes.
the quantity demanded when income changes.

7

Principles of Economics

Final Examination

24) The Internet has created a new category in the book selling market, namely,
the barely used book. How does the availability of barely used books affect
the market for new books?
a.
b.
c.
d.

the demand curve for new books shifts to the left
the demand curve for new books shifts to the right
the supply curve for new books shifts to the right
the supply curve for new books shifts to the left

25) A supply schedule
a. is a table that shows the relationship between the price of a product and the
quantity of the product that producers and consumers are willing to exchange.
b. is a table that shows the relationship between the price of a product and the
quantity of the product supplied.
c. is a curve that shows the relationship between the price of a product and the
quantity of the product supplied.
d. is the relationship between the supply of a good and the cost of producing the
good.
26) In October 2005, the U.S. Fish and Wildlife Service banned the importation
of beluga caviar, the most prized of caviars, from the Caspian Sea. What happened in the market for caviar in the U. S.?
a.
b.
c.
d.

The demand curve shifted to the right.
The demand curve shifted to the left.
The supply curve shifted to the right.
The supply curve shifted to the left.

Figure 3-2

8

Principles of Economics

Final Examination

27) Refer to Figure 3-2. If the price is $25,
a.
b.
c.
d.

there would be a shortage of 200 units.
there would be a surplus of 300 units.
there would be a shortage of 300 units
there would be a surplus of 200 units.

28) Assume there is a shortage in the market for digital music players. Which of
the following statements correctly describes this situation?
a. The shortage will cause an increase in the equilibrium price of digital music
players.
b. The price of digital music players will rise in response to the shortage; as the
price rises the quantity demanded will increase and the quantity supplied will
decrease.
c. Some consumers will be unable to obtain digital music players at the market
price and will have an incentive to offer to buy the product at a higher price.
d. The demand for digital music players is greater than the supply of digital
music players.
29) Select the phrase that correctly completed the following statement. A positive change in technology caused an increase in the supply of flat-screen
televisions. As a result
a. the price of flat-screen televisions decreased and the quantity demanded of
flat-screen televisions increased.
b. the price of flat-screen televisions decreased. The lower price caused the
supply of flat-screen televisions to decrease.
c. the equilibrium quantity of flat-screen televisions decreased.
d. the price of flat-screen televisions decreased and the demand for flat-screen
televisions increased.
30) Because apples and oranges are substitutes, an increase in the price of oranges will cause the demand for apples to increase. This initial shift in
demand for apples results in a higher price for apples; this higher price will
cause the demand curve for apples to shift to the right. Which of the following correctly comments on this statement?
a. The statement is false because a change in the price of apples would not
change the demand for apples.
b. The statement is false because one cannot assume that apples and oranges
are substitutes for all consumers.
c. The statement will be true, if consumer tastes for apples and oranges do not
change.
d. The statement is false because oranges are inferior goods; apples are normal
goods.

9

Principles of Economics

Final Examination

31) The demand for lobster is lower in the spring than in the summer. If the
price of lobster is higher in spring than in summer then
a.
b.
c.
d.

there are more substitutes for lobster in summer than there are in spring.
there is a shortage of lobster in spring and a surplus of lobster in summer.
the supply of lobster is greater in summer than in spring.
consumers tastes for lobster are greater in spring than in summer.

32) Suppliers will be willing to supply a product only if
a. the price received is less than the additional cost of producing the product.
b. the price is higher than the average cost of producing the product.
c. the price received is at least equal to the additional cost of producing the
product.
d. the price received is at least double the additional cost of producing the product.
Table 4-3
Hourly Wage
(Dollars)

Quantity of Labor Supplied

Quantity of Labor Demanded

$6.00

350,000

390,000

6.50

360,000

380,000

7.00

370,000

370,000

7.50

380,000

360,000

8.00

390,000

350,000

8.50

400,000

340,000

Table 4-3 shows the demand and supply schedules for the low-skilled labor market in the city of Westover.
33) Refer to Table 4-3. If a minimum wage of $7.50 an hour is mandated, what
is the quantity of labor supplied?
a.
b.
c.
d.

10

370,000
380,000
390,000
340,000

Principles of Economics

Final Examination

Figure 4-7

Figure 4-7 shows the demand and supply curves for the almond market. The
government believes that the equilibrium price is too low and tries to help almond
growers by setting a price floor at Pf.
34) Refer to Figure 4-7. What is the area that represents producer surplus after
the imposition of the price floor?
a.
b.
c.
d.

B+E+F
B+C+D+E
A+B+E
B+E

35) Which of the follow is not a result of imposing a rent ceiling?
a. an increase in the quantity demanded of apartments
b. a reduction in the quantity supplied of apartments
c. the marginal benefit of the last apartment rented is greater than the marginal
cost of supplying it
d. some consumer surplus is converted to producer surplus
36) If your neighbor burns auto tires in the yard and you can smell them and cannot see sunlight because of the black smoke, you are experiencing
a.
b.
c.
d.

a positive externality.
a private benefit.
a private cost.
a negative externality.

11

Principles of Economics

Final Examination

37) Vaccinating people against a communicable disease such as influenza not
only reduces the chances that the person vaccinated will catch the disease
but also reduces the probability that an epidemic of the disease will occur.
Which of the following statements is true?
a. The benefits of the influenza vaccination outweigh the costs.
b. Reducing the chances that the person vaccinated will catch the disease is a
private benefit while reducing the probability of an influenza epidemic is a
social benefit.
c. Vaccinating people against communicable diseases yields private benefits in
excess of social benefits.
d. Reducing the chances that the person vaccinated will catch the disease is
a private cost while reducing the probability of an influenza epidemic is a
social benefit.
38) Which of the following conditions holds in an economically efficient competitive market equilibrium?
a. The marginal benefit of the last unit produced and consumed is maximized.
b. Producer and consumer surplus are exactly equal in size.
c. There are no positive and no negative external effects from consumption and
production.
d. The deadweight loss is positive but at a minimum.
Figure 4-14

Figure 4-14 shows a market with a positive externality.

12

Principles of Economics

Final Examination

39) Refer to Figure 4-14. The deadweight loss due to the externality is represented by the area
a.
b.
c.
d.

msn.
nso.
mso.
mtn.

Figure 4-15

Companies producing toilet paper bleach the paper to make it white. The bleach
is discharged into rivers and lakes and causes substantial environmental damage.
Figure 4-15 illustrates this situation in the toilet paper market.
40) Refer to Figure 4-15. The efficient output is
a.
b.
c.
d.

Q3.
Q1.
Q2.
Q4.

41) How has organizing a successful firm in a market economy changed over the
last century?
a.
b.
c.
d.

There has been no change over the last century.
It has become easier as more and more firms discover how to do it.
As government intervention has decreased, firms now have more freedom.
It has become more difficult to organize an efficient and successful firm.

13

Principles of Economics

Final Examination

42) What is the relationship of the owners of a corporation to the corporation?
a. The personal assets of the owners are part of the corporations assets.
b. The owners of the corporation have a separate legal distinction from the corporation.
c. The owners of the corporation have no separate legal distinction from the
corporation.
d. None of the above describes the relationship.
43) When you buy previously-issued shares of Google stock, this transaction takes
place in the
a.
b.
c.
d.

secondary market.
bond market.
primary market.
bear market.

44) You have a bond that pays $60 per year in coupon payments. Which of the
following would result in an increase in the price of your bond?
a.
b.
c.
d.

The price of a share of stock in the company falls.
The likelihood that the firm issuing your bond will default on debt increases.
Coupon payments on newly-issued bonds fall to $50 per year.
Coupon payments on newly-issued bonds rise to $80 per year.

45) In June 2007 General Motors (GM) posted a price-earnings ratio of 9.84. If
the price of the stock at that time was $36 per share, which of the following
must have been true?
a.
b.
c.
d.

GMs earnings per share was 3.66.
GMs coupon payment was $35 per year.
GMs dividend yield for the year was 26%.
GMs revenues that month were $366 million.

46) In 2007, the dividend yield on General Motors (GM) stock fell from 8.6% to
4.4%. Which of the following would have generated that result?
a.
b.
c.
d.

14

The price-earnings ratio rose.
GM issued bonds with a coupon rate equal to 8%.
GM announced a decrease in the dividend it would pay per share.
The closing price of GM stock fell.

Principles of Economics

Final Examination

47) Which of the following is an example of an implicit cost a firm might incur?
a.
b.
c.
d.

taxes owed to the state and federal governments
the out-of-pocket expense to hire resources
the revenue a firm generates in using its resources
the rental value of the office space the company owns and uses for itself

48) What is shown on a firms income statement?
a.
b.
c.
d.

profits
revenues
costs
All of these are shown on a firms income statement.

49) In addition to requiring that CEOs personally certify the accuracy of financial
statements, the Sarbanes-Oxley Act of 2002 also requires that
a.
b.
c.
d.

corporations issue financial statements monthly rather than quarterly.
firms raise funds for expansion through the sale of bonds only, not stocks.
auditors disclose any potential conflicts of interest.
CEOs conduct audits of their corporations themselves.

50) Suppose your marginal utility from consuming a third slice of cake is zero,
then your total utility from consuming cake is
a.
b.
c.
d.

increasing.
negative.
decreasing.
maximized.

51) When the price of summer tank tops falls and you buy more them because
they are relatively less expensive, this is called
a.
b.
c.
d.

the elasticity effect.
the deadweight loss effect.
the income effect.
the substitution effect.

52) Most film processing companies have a policy of printing every picture on a
roll of film and allowing customers to request a refund for pictures that were
not clearly developed. The companies do this knowing that most customers
do not ask for refunds. This is an example of consumers
a.
b.
c.
d.

not taking non-monetary opportunity costs into account.
not making themselves aware of the policy regarding refunds.
failing to ignore sunk costs.
being overly optimistic about their future behavior.
15

Principles of Economics

Final Examination

53) If demand is perfectly price elastic, the absolute value of the price elasticity
of demand is
a.
b.
c.
d.

less than one.
more than one.
infinity.
equal to the absolute value of the slope of the demand curve.

54) If the market for a product is broadly defined, then
a. there are many substitutes for the product and the demand for the product is
relatively elastic.
b. the good has many complements.
c. there are few substitutes for the product and the demand for the product is
relatively inelastic.
d. the expenditure on the good is likely to make up a large share of ones budget.
Figure 6-2

55) Refer to Figure 6-2. The inelastic segment of the demand curve
a.
b.
c.
d.

16

lies above the midpoint of the curve.
is coincident with the horizontal axis.
lies below the midpoint of the curve.
is coincident with the vertical axis.

Principles of Economics

Final Examination

Table 6-3
Price per pound
(Dollars)

Quantity Demanded of cheese
(pounds)

$16

3

14

4

12

5

10

6

8

7

6

8

4

9

2

10

56) Refer to Table 6-3. Over what range of prices is the demand price elastic?
a.
b.
c.
d.

over the entire range of prices
between $8 and $16
between $12 and $16
between $2 and $8

57) When a firm changes its price, the change in total revenue
a. depends on the value of the price elasticity of demand and the direction of
the price change.
b. is zero.
c. is negative.
d. is positive.
58) A characteristic of the long run is
a.
b.
c.
d.

there are both fixed and variable inputs
plant capacity cannot be increased or decreased.
all inputs can be varied.
there are fixed inputs.

17

Principles of Economics

Final Examination

59) Academic book publishers hire editors, designers, and production and marketing managers who help prepare books for publication. Because these employees work on several books simultaneously, the number of people the
company hires will not go up and down with the quantity of books the company publishes during any particular year. The salaries and benefits of people
in these job categories will be included in
a.
b.
c.
d.

marginal cost and total cost but not fixed cost.
fixed cost but not variable cost and total cost.
fixed cost and marginal cost but not variable cost.
fixed cost and total cost but not variable cost.

60) If another worker adds 9 units of output to a group of workers who had an
average product of 7 units then the average product of labor
a.
b.
c.
d.

will increase.
will decrease.
will remain the same.
cannot be determined from the information given.

Table 7-1
Number of workers

Mushrooms per day (pounds)

1

12

2

30

3

45

4

50

5

54

6

56

Table 7-1 shows the technology of production at the Matsukos Mushroom Farm
for the month of May 2007.

18

Principles of Economics

Final Examination

61) Refer to Table 7-1. Diminishing returns set in when the ________ worker is
hired.
a.
b.
c.
d.

2nd…