Question BAM 223 Principles of Economics

BAM 223
Principles of Economics
Unit 1 Examination
Multiple Choice Questions (Enter your answers on the enclosed answer sheet)
1) The study of economics arises due to
a. greed.
b. scarcity.
c. resources.
d. money.
2) Economists assume that individuals
a. are rational and respond to incentives.
b. prefer to live in a society that values fairness above all else.
c. will never take actions to help others.
d. behave in unpredictable ways.
3) Your roommate, Serafina, a psychology major, said, “The problem with economics is that it assumes that consumers and firms always make the correct decision. But we know that everyone’s human, and we all make mistakes.” Is Serafina’s criticism accurate?
a. No. If we cannot assume that decisions are correct, then we will not be able to examine the moral implications of these decisions.
b. Yes. One cannot make predictions about economic behavior because in reality people make incorrect choices in many situations.
c. No. Economics assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits of these decisions.
d. Yes. Economic theory should allow for irrational behavior so that we can have more reliable predictions.
4) In Austria a woman can get up to 48 months of pension benefits and is guaranteed a maternity allowance two months before and after she gives birth. Further, the Austrian government gives monthly payouts ranging from $132 to $547, depending on the age of offspring and offers generous tax benefits for families with children. How will these benefits affect a woman’s decision to have children?
a. These incentives will encourage women to have children and increase the birth rate.
b. These incentives will encourage only less educated women to have more children.
c. These incentives will encourage only women with high opportunity costs to have more children.
d. These incentives will have no effect on having children; the decision to have children is a social and psychological decision, not an economic decision.
5) Making “marginal” decisions involves
a. calculating the total benefits of an activity and determining if you are satisfied with that amount.
b. calculating the total costs of an activity and determining if you can afford to incur that expenditure.
c. comparing the additional benefits and the additional costs of an activity.
d. calculating the average benefit and the average cost of an activity to determine if it is worthwhile to undertake that activity.
Scenario 1-1
Suppose a cell-phone manufacturer currently sells 20,000 cell-phones per week and makes a profit of $5,000 per week. A manager at the plant observes, “Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, 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 cell phones.”
6) Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 3,000 cell phones?
a. gross profit
b. marginal revenue
c. gross earnings
d. sales revenue
7) Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars. What fundamental economic question are they addressing by making this range of products?
a. How to produce goods that consumers want?
b. What goods and services will be produced?
c. Who to produce automobiles for?
d. Why produce a variety of automobiles?
8) Which of the following contributes to the efficiency of markets?
a. Markets promote equal standards of living.
b. Markets promote competition and voluntary exchange.
c. Governments play an active role in the day-to-day operations of markets.
d. Markets are able to bring about an equitable distribution of goods and services.
Figure 1-4
9) Refer to Figure 1-4. Which of the following statements is true?
a. The slope of the tangent at E is positive and the slope of the tangent at F is negative.
b. The slope of the tangent at E and the slope of the tangent at F are negative.
c. The slope of the tangent at E is negative and the slope of the tangent at F is positive.
d. The slope of the tangent at E and the slope of the tangent at F are positive.
10) The production possibilities frontier model assumes all of the following except
a. the economy produces only two products.
b. the level of technology is fixed and unchanging.
c. labor, capital, land and natural resources are fixed in quantity.
d. production of goods requires full employment of all resources.
Figure 2-2
Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables.
11) Refer to Figure 2-2. The linear production possibilities frontier in the figure indicates that
a. the tradeoff between meat and vegetables is constant.
b. Mendonca has a comparative advantage in the production of vegetables.
c. it is progressively more expensive to produce meat.
d. Mendonca has a comparative disadvantage in the production of meat.
Table 2-3
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.
12) Refer to Table 2-3. What is South Korea’s opportunity cost of producing one pound of wheat?
a. 20 digital cameras
b. 0.05 units of a digital camera
c. 60 digital cameras
d. 5 digital cameras
13) Which of the following are flows in the circular flow model?
a. the flow of income earned by factors of production and the flow of expenditures on goods and services
b. the flow of goods and the flow of services
c. the flow of costs and the flow of revenue
d. the flow of income received by households and the flow of tax revenues paid by households
14. Which of the following statements about a simple circular flow model is true?
a. Producers are neither buyers nor sellers in the product market.
b. Households are sellers in the product market.
c. Producers are buyers in the factor market.
d. Households are neither buyers nor sellers in the factor market.
One Digital Camera
Wheat (per pound)
China
100 hours
4 hours
South Korea
60 hours
3 hours
15) The term “property rights” refers to
a. the ability to exercise control over one’s own resources within the confines of the law.
b. the government’s right to appropriate land from wealthy individuals to redistribute to low income families.
c. the physical possession of a house or any other property which the owner legally purchased.
d. the right of a business not to have its assets confiscated by the government in the event that the business is accused of committing fraud.

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