ECON 205 FINAL EXAM STUDY GUIDE   Exam #1   1. A resource is anything that: A)can be used in production. B) you pay for. C) is in scarce supply. D) can be consumed.   2

ECON 205 FINAL EXAM STUDY GUIDE

Exam #1

1. A resource is anything that:

                A)can be used in production.

                B) you pay for.

C) is in scarce supply.

D) can be consumed.

2. Scarcity in economics means:

A)not having sufficient resources to produce all the goods and service we want.

                B) the wants of people are limited.

C) there must be poor people in rich countries.

D) economics are clearly not doing their jobs.

3. Opportunity cost is:

A) about half of the monetary cost of a product.

                B) the dollar payment for a product.

C) the benefit derived from a product.

D)the value of the best alternative forgone in making any choice.

4. Margo spends $10,000 on one year’s college tuition. The opportunity cost of spending one year in college for Margo is:

A) $10,000

                B) whatever she would have purchased with the $10,000 instead.

C) whatever she would have earned had she not been in college.

D)whatever she would have purchased with the $10,000 instead and whatever she would have earned had she not been in college.

5. We are forced to make choices because of:

A) exploitation.

                B) efficiency.

C)scarcity.

D) the margin.

6. A choice made ________ is a choice whether to do a little more or a little less of something.

A) at the fringe

                B) in the beginning

C)at the margin

D) after the fact

7. A production possibility frontier illustrates the ______ facing an economy that ______ only two goods.

A) prices; sells

                B)trade-offs; produces

C) trade-offs; consumes

D) shortages; produces

8. When moving along a production possibility frontier, the opportunity cost to society of getting more of one good:

A) is constant.

                B) is measured in dollar terms.

C)is measured by the amount of the good that must be given up.

D) usually decreases.

Use the following to answer questions 9-11:

Figure: Guns and Butter

9.

(Figure: Guns and Butter) On this figure, points A, B, E,and F:

A)indicate combinations of guns and butter that society can produce using all of its factor efficiently.

B) show that the opportunity cost of more guns increases, but that of more butter decreases.

C) indicate that society wants butter more than it wants guns.

D) indicate constant costs for guns and increasing costs for butter.

10. (Figure: Guns and Butter) This possibility frontier is:

A)bowed out from the origin because of increasing opportunity costs.

                B) bowed in toward the origin because of increasing  opportunity costs.

C) bowed in toward the origin because of constant  costs of guns and butter.

D) linear because of constant costs.

11. (Figure: Guns and Butter) If the economy were operating at point B, producing 16 units of guns and 12 units of butter per period, a decision to move to point E and produce 18 units of butter:

A) indicates you can have more butter and guns simultaneously.

                B) makes it clear that this economy experiences decreasing opportunity costs.

C)involves a loss of 8 units of guns per period.

D) involves a loss of 4 units of guns per period.

12. An economy is said to have a comparative advantage in the production of one good if it:

A) can produce more of all goods than another country.

                B) can produce less of all goods than another country.

C) has the highest opportunity cost for producing a particular good.

D)has the lowest opportunity cost for producing a particular good.

13. In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one hour, Japan can produce 30 tons of steel or 275 automobiles. This information implies that:

A) Japan has a comparative advantage in the production of automobiles.

                B) the Unites States has an absolute advantage in the production of steel.

C) Japan has a comparative advantage in the production of both goods.

D) the United States has a comparative advantage in the production of automobiles.

14. Free trade between countries:

A) should be based on absolute advantage.

                B) will allow wealthy countries to exploit less developed nations.

C) will shift the domestic production possibility frontier to the right.

D)will allow for greater levels of consumption than without trade.

Use the following to answer questions 15-17:

Figure: Comparative Advantage

Eastland and Westland produce only two goods, peaches and oranges, and this figure shows each nation’s production possibility frontier for the two foods.

15. (Figure: Comparative Advantage) The opportunity cost of producing 1 unit of peaches for Westland is:

A) 1 unit of oranges.

                B) ¼ unit of oranges.

C) 4 units of oranges.

D) 10 units of oranges

16. (Figure: Comparative Advantage) Westland has an absolute advantage in producing:

A) oranges only.

                B)peaches only.

C) both oranges and peaches.

D) neither oranges or peaches.

17. (Figure: Comparative Advantage) Eastland has a comparative advantage in producing:

A)oranges only.

                B) peaches only.

C) both oranges and peaches.

D) neither oranges or peaches.

18. The economy’s factors of production are not equally suitable for producing different types of goods. The principle generates:

A) economic growth.

                B) technical efficiency.

C) resource underutilization.

D)the law of increasing opportunity cost.

19. Economists generally believe that a country should specialize in the production of a good or service if:

A) the production possibility frontier is larger than that of any other country.

                B) the production possibility frontier is smaller than that of any other country.

C) the country can produce the product using fewer resources than any other country.

D)the country can produce the product while forgoing fewer alternative products than any other country.

20. The demand curve for videos has shifted to the right. What could have caused it?

A) a fall in the price of videos

                B) an increase in the price of videos

C) an increase in the supply of videos

D)an increase in the incomes of buyers

21. The law of demand states other things equal:

A) as the price increases, the quantity demanded will increase.

                B) as the price decreases, the demand curve will shift to the right.

C) as the price increases, the demand will decrease.

D)as the price increases, the quantity demanded will decrease.

22. A shift of the demand curve for Luis’s Pizza would not be caused by a change in the:

A) buyer’s incomes.

                B)price of Luis’s Pizza.

C) price of Humberto’s Pizza.

D) popularity of Luis’s Pizza.

23. If goods A and B are substitutes, a decrease in the price of good B will:

A) increase the demand for good A.

                B) increase the demand for good B.

C) decrease the demand for good A.

D) increase the demand for good B and decrease the demand for good A.

Use the following to answer questions 24-25:

Figure: Demand for Coconuts

24. (Figure: Demand for Coconuts) If a coconut is a normal good and the price of coconuts increases, then the movement that would take place in the model could be:

A) A to B.

                B) B to A.

C) C to A.

D) E to B.

25. (Figure Demand for Coconuts) If coconuts are considered a normal good and there is an expectation on the part of consumers that the prices of coconuts will rise significantly in the near future, then the movement that would take place in the model could be:

A) C to A.

                B) A to B.

C) B to E.

D)E to B.

26. When the price of gas goes up and the demand for tires goes down, this means tires and gas are:

A) substitutes.

                B)complements.

C) both expensive.

D) both inexpensive.

27. Which of the following would shift the demand curve for new textbook to the right?

A) a decrease in the price of paper

                B) a fall in the price of used textbooks

C)an increase in college enrollments

D) a fall in the price of new textbooks

28. A good is normal if:

A) when income increases, the demand remains unchanged.

                B) when income increases, the demand decreases.

C)when income increases, the demand increases.

D) income and the demand are unrelated.

Exam #2

1. The typical supply curve illustrates that:

A) other things equal, the quantity supplied for a good is inversely related to the price of a good.

                B) other things equal, the supply of the good created its own demand for the good.

C)other things equal, the quantity supplied for a good is positively related to the price of a good.

D)price and quantity supplied are unrelated.

2. Which of the following is not a determinant of supply?

A) expectations regarding future prices

                B) the technology of production

C) the cost of production

D) consumer tastes

Use the following to answer questions 3-5:

Figure: Supply of Coconuts

3. (Figure: Supply of Coconuts) If the price of coconuts decreases, then the movement that would take place in the model could be:

A)A to B

                B) B to A

C) C to A

D) E to B

4. (Figure: Supply of Coconuts) If the prices of inputs (e.g. labor, fertilizer, and fuel) used to produce and transport coconuts are increasing, then the movement in the model could be:

A) A to B

                B) B to A

C)C to A

D) E to B

5. (Figure: Supply of Coconuts)If there is an improvement in the technology used to harvest coconuts (e.g. a faster, less expensive coconut picker), then the movement in the model could be:

A)A to C

                B) B to A

C) C to A

D) Bto E

6. The market for soybeans is initially in equilibrium. Because of “mad cow disease,” cattle feed producers decided to replace bone meal with soybeans in cattle feed. The likely effect is that:

A)the equilibrium price and quantity of soybeans will rise.

                B) the equilibrium price and quantity of soybeans will fall.

C) the equilibrium quantity of soybeans will rise, but we can’t determine what will happen to the equilibrium price.

D)the equilibrium price of soybeans will rise, but we can’t determine what will happen to the equilibrium quantity.

7. Excess supply occurs when:

A) the price is above the equilibrium price.

                B) the quantity demanded exceeds the quantity supplied.

C) the price is below equilibrium price.

D) the quantity demanded exceeds the quantity supplied and when the price is below the equilibrium quantity.

8. The market for milk is initially in equilibrium. Milk producers now engage in a costly advertising program to encourage milk drinking. Assume that the advertising campaign succeeds in shifting consumer tastes toward drinking milk and that milk producers provide more milk to the market. More milk producers enter the market. Standard demand and supply analysis tells us that:

A) the equilibrium price and quantity of milk will rise.

B) the equilibrium price and quantity of milk will fall.

C)the equilibrium quantity of milk will rise, but we can’t determine how the equilibrium price will be affected.

D) )the equilibrium price of milk will rise, but we can’t determine how the equilibrium quantity will be affected.

Use the following to answer question 9:

Figure: DVD Market

9. (Figure: DVD Market) At a rental price of $3, there will be

A) equilibrium in the rental market for DVDs.

                B) an increase in demand.

C) an excess supply of 40 DVD rentals.

D)an excess demand of 40 DVD rentals.

10. In the market for corn tortilla chips, what would cause a price increase?

A) Your doctor tells you that you cannot have junk food anymore.

                B) There is a technological advancement in the tortilla chip production process.

C) There is a fungus that kills much of the corn crop in Nebraska.

D) The price of salsa triples.

11. Consumer surplus for an individual buyer is equal to:

A)the consumer’s willingness to pay for the good, minus the marginal cost of producing the good.

                B)the price of the good, minus the marginal cost od producing the good.

C)the consumer’s willingness to pay for the good, minus the price of the good.

D)the marginal cost of the good, minus the consumer’s willingness to pay for the good.

12. Along a given demand curve, an increase in the price of a good will cause consumer surplus to:

A)increase.

                B)decrease.

C)not change.

D)cannot be determined without information about the supply curve.

Use the following to answer questions 13-14:

Figure: Consumer Surplus II

13. (Figure: Consumer Surplus II) At a price of P1, consumer surplus equals the area:

A) ABP2

                B) AFP1

C) BGF

D) P1P2BF

14. (Figure: Consumer Surplus II) If the price rises from P1 to P2, consumer surplus decreases by the area:

A) ABP2

                B) AFP1

C) BGF

D) P1P2BF

15. The price elasticity of demand measures the responsiveness of the change in:

A)quantity demanded to a change in price.

                B)price to a change in quantity demanded.

C)the slope of the demand curve to a change in price.

D)the slope of the demand curve to a change in quantity demanded.

16. Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the overall demand for cheeseburgers is:

A)price elastic.

                B)price inelastic.

C)price unit-elastic.

D)perfectly price inelastic.

Use the following to answer question 17:

Figure: Consumer Surplus III

17. (Figure Consumer Surplus III) If the price of the good is $2, consumer surplus will equal:

A) $30.

                B) $45.

C) $60.

D) $90.

18. Suppose at a price of $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between the priced of $10 and $8, using the midpoint method, is approximately:

A) 1.17

                B) 1.50

C) 0.85

D) 1.00

19. The publisher of an economics textbook finds that when the book’s price is lowered from $70 to $60, sales rise from 10,000 to 15,000. Using the midpoint method, you can calculate that the price elasticity of demand is:

A) 500

                B) 50%

C) 3.5

D) 2.6

20. If total revenue goes down when price falls, the price elasticity of demand is said to be:

A)price-inelastic

                B)price unit-elastic

C)price-elastic

D)positive

21. To say that two goods are complements, their cross-price elasticity’s of demand should be:

A)less than 0

                B)equal to 0

C)positive, yet almost equal to 0

D)greater than 0

22. A perfectly elastic supply curve is:

A)horizontal

                B)downward-sloping

C)upward-sloping

D)vertical

23. The income elasticity of demand of a normal good is:

A)between 1 and 0

                B)less than 0

C)equal to 0

                D) greater than 0

24. To maximize her grade in economics, Stacey should study until:

A)her marginal cost of studying begins to increase.

                B)her marginal benefit of studying begins to decrease.

C)her marginal benefit of studying equals her marginal cost of studying.

D)her marginal cost of studying reaches zero.

25. According to the optimal output rule, if marginal benefit:

A)exceeds marginal cost, an activity should be reduced.

                B)is less than marginal cost, an activity should be reduced.

C)is equal to marginal cost, an activity should be reduced.

D)exceeds marginal cost, net benefit is maximized.

26. To maximize total net benefit, consumers and firms evaluate each activity at the:

A)average.

                B)top.

C)margin.

D)end.

Use the following to answer question 27:

Figure: Marginal Cost Curve

27. (Figure: Marginal Cost Curve) Using the marginal cost curve in the figure provided, we can determine that the total cost of mowing five lawns is approximately:

A) $68.50

                B) $100

C) $50

D) $10

28. If the marginal benefit received from a good is greater than the marginal cost of production, then:

A)society’s well-being can be improved if production increases.

                B)society’s well-being can be improved if production decreases.

C)society’s well-being cannot be improved by changing production.

D)the market is producing too much of the good.

Exam #3

1. The amount by which an additional unit of a good or service increases a consumer’s total utility, all other things unchanged, is:

A) marginal utility

                B) maximum utility

C) average utility

D) required utility

2. The principle of diminishing marginal utility means that when Sarah eats pizza, her satisfaction from the second slice of pizza is probably:

A) greater than that from the first.

                B) equal to that from the first.

C) less than that from the first.

D) not comparable to that of the first.

3. Assume that the marginal utilities for the first three units of a good consumed are 200,150, and 125, respectively. The total utility when two units are consumed is:

A) 150

                B) 200

C) 350

D) 475

4. Suzy knows she has maximized her utility, because she is on her budget constraint and:

A) consumption of Good X equals consumption of God Y

                B) what is sent on Good X equals what is spent on Good Y

C) MUx/Px = MUy/Py

D) MUx = MUy

5. Joesph consumes pizza and soda. He is currently consuming three units of pizza and two units of soda. The price of pizza is $5 and the price of soda is $1. If he is consuming the optimal consumption bundle and his marginal utility of pizza is 50, then his marginal utility of soda is:

A) 50

                B) 10

C) 5

D) impossible to determine unless you know Joseph’s income.

6. While at the grocery store, Sidney sees that the price of Grape-Nuts is twice that of Cheerios. If Sidney buys both goods, then Sidney must:

A) get twice as much marginal utility from Grape-Nuts as from Cheerios.

                B) get twice as much marginal utility from Cheerios as from Grape-Nuts.

C) not be maximizing her utility.

D) buy twice as much Cheerios.

Use the following to anser questions 7-8:

Figure: Budget Lines for Oranges and Apples

7. (Figure: Budget Lines for Oranges and Apples) For some time, Sylvester has had $5 per month to spend on oranges and apples. The price of an orange is $0.50 and the price of an apple is $.025. Which of the charts shows what will happen to his budget line if his income decreases to $2.50?

A) Chart A

                B) Chart B

C) Chart C

D) Chart D

8. (Figure: Budget Lines for Oranges and Apples) For some time, Sylvester has had $5 per month to spend on oranges and apples. The price of an orange is $0.50 and the price of an apple is $.025. Which of the charts shows what will happen to his budget line if the price of an orange falls to $0.25?

A) Chart A

                B) Chart B

C) Chart C

D) Chart D

Use the following to answer questions 9-10:

Table: Total Product and Marginal Product

9. (Table: Total Product and Marginal Product) The marginal product of the second worker is:

A) 10

                B) 15

C) 20

D) 30

10. (Table: Total Product and Marginal Product) Negative marginal returns begin when the _______ worker is added.

A) fifth

                B) sixth

C) seventh

D) eighth

11. A planning period during which all of a firm’s resources are variable is the:

A) long run

                B) fixed run

C) short run

D) nominal run

Use the following to answer question 15:

Figure: Short-Run Costs

15. (Figure: Short-Run Costs) A is the _______ cost curve.

A) average total

                B) average variable

C) marginal

D) total

16. If marginal cost is greater than average total cost, then:

A) average total cost is increasing.

                B) average total cost is decreasing.

C) average total cost is unchanged.

D) marginal cost is decreasing.

17. A firm’s marginal cost is:

A) the ratio of the change in fixed cost to the change in the quantity of output.

                B) the slope of the total cost curve.

C) the slope of the average variable cost curve.

D) the ratio of the change in total output to the change in the quantity of labor.

18. When an increase in the firm’s output reduces its long-run average total cost, it experiences:

A) economies of scale

                B) diseconomies of scale

C) constant returns to scale

D) variable returns to scale

19. In the model of perfect competition:

A) the consumer is at the mercy of powerful firms that can set prices wherever they prefer.

                B) individual firms can influence the price, but only slightly.

C) no individual or firm has enough power to have any impact on price.

D) the price is determined by how many years are left in the product’s patent.

Use the following to answer question 20:

Figure: Short-Run Costs

20. (Figure: Short-Run Costs) At the given price, the most profitable level of output occurs at quantity:

A) N

                B) P

C) S

D) T

21. In perfect competition, the assumption of easy entry and exit implies that:

A) in the long run all firms in the industry will earn zero economic profits.

                B) in the short run all firms in the industry will earn positive economic profits.

C) in the short run all firms in the industry will earn zero economic profits.

D) in the long run all firms in the industry will earn zero economic profits and in the short run all firms in the industry will earn positive economic profits.

22. If a perfectly competitive firm is producing a quantity that generates P > MC, then profit:

A) is maximized

                B) can be decreased by increasing price.

C) can be increased by decreasing price.

D) can be increased by increasing production.

Use the following to answer question 23:

Figure: A Perfectly Competitive Firm in the Short Run

23. (Figure: A Perfectly Competitive Firm in the Short Run) The firm’s total economic profit at its most profitable level of output is:

A) 0GHB

                B) EFJS

C) EGHS

D) FGLK

24. If it produces, a perfectly competitive firm will maximize profits by producing at the quantity at which:

A) marginal revenue equals marginal cost.

                B) marginal revenue equals price.

C) price equals average total cost.

D) price exceeds marginal cost.

25. Compared to a perfectly competitive market, a monopolist will produce _______ and change a _______ price.

A) less; higher

                B) less; lower

C) more; higher

D) more; lower

Use the following to answer question 26:

Figure: Monopoly Model

26 (Figure: Monopoly Model) The profit maximizing quantity is the one indicated by the distance:

A) W

                B) J

C) K

D) L

27. A natural monopoly exists whenever a single firm:

A) is owned and operated by the federal or local government.

B) is invertor-owned but has been granted the exclusive right by the government to operate in a market.

C) experiences economics of scale over the entire range of production that is relevant to its market.

D)has gained control over a strategic input of an important production process.

28. Compared to perfect competition:

A)monopoly produces more at a lower price.

B)monopoly produces where MR > MC and a perfectly competitively firm produces where P = MC.

C)monopoly may have economic profits in the long run, but in perfect competition in the long run economic profits are zero.

D)perfect competition may have zero economic profits in the long run, but in monopoly the long run economic profits are zero.