eco mid-term 1

1. The incidence of a tax pertains to: (Points : 2)

       the degree to which it alters the distribution of income.

       how easy it is to evade the tax.

       who actually bears the burden of a tax.

       the progressiveness or regressiveness of tax rates.

2. The tragedy of the commons is the idea that: (Points : 2)

       society has a tendency to overuse and thus abuse common resources.

       total external costs in society far outweigh total external benefits.

       matter can be transformed to other matter or into energy but can never vanish.

       crime rates typically are higher in public places than where property is privately owned.

3. When entering a building, Sam diverts his path to go through an open door rather than make the physical effort to open the closed door that is directly in his path. This is an example of: (Points : 2)

       irrational behavior.

       a lazy person.

       marginal benefit-marginal cost analysis.

       programmed learning.

4. “Essential” water is cheaper than “nonessential” diamonds because: (Points : 2)

       new industrial uses for diamonds have been discovered.

       the supply of water is great relative to demand and the supply of diamonds is small relative to demand.

       although the total utility of diamonds is greater, their marginal utility is small.

       the supply of diamonds is great relative to demand and the supply of water is small relative to demand.

5. Two major virtues of the market system are that it: (Points : 2)

       allocates resources efficiently and allows economic freedom.

       results in an equitable personal distribution of income and always maintains full employment.

       results in price level stability and a fair personal distribution of income.

       eliminates discrimination and minimizes environmental pollution.

6. The rationing function of prices refers to the: (Points : 2)

       tendency of supply and demand to shift in opposite directions.

       fact that ration coupons are needed to alleviate wartime shortages of goods.

       capacity of a competitive market to equate the quantity demanded and the quantity supplied.

       ability of the market system to generate an equitable distribution of income.

7. The more time consumers have to adjust to a change in price: (Points : 2)

       the smaller will be the price elasticity of demand.

       the greater will be the price elasticity of demand.

       the more likely the product is a normal good.

       the more likely the product is an inferior good.

8. In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market. (Points : 2)

       product; financial

       resource; product

       product; resource

       capital; product

9. Allocative efficiency is concerned with: (Points : 2)

       producing the combination of goods most desired by society.

       achieving the full employment of all available resources.

       producing every good with the least-cost combination of inputs.

       reducing the concavity of the production possibilities curve.

10. Purposeful behavior means that: (Points : 2)

       people are selfish in their decision-making.

       people weigh costs and benefits to make decisions.

       people are immune from emotions affecting their decisions.

       decision-makers do not make mistakes when weighing costs and benefits.

11. The price elasticity of demand coefficient measures: (Points : 2)

       buyer responsiveness to price changes.

       the extent to which a demand curve shifts as incomes change.

       the slope of the demand curve.

       how far business executives can stretch their fixed costs.

12. Productive efficiency refers to: (Points : 2)

       the use of the least-cost method of production.

       the production of the product-mix most wanted by society.

       the full employment of all available resources.

       production at some point inside of the production possibilities curve.

13. The scientific method is: (Points : 2)

       not applicable to economics, because economics deals with human beings.

       also known as the economic perspective.

       analysis that moves from broad generalizations called laws to theories and then to hypotheses.

       used by economists and other social scientists, as well as by physical scientists and life scientists.

14. Nonrivalry and nonexcludability are the main characteristics of: (Points : 2)

       consumption goods.

       capital goods.

       private goods.

       public goods.

15. Assume you are spending your full budget and purchasing such amounts of X and Y that the marginal utility from the last units consumed is 40 and 20 utils respectively. Assume (a) the prices of X and Y are $8 and $4 respectively; (b) it takes 3 hours to consume a unit of X and 1 hour to consume a unit of Y; and (c) your time is worth $2 per hour. In equilibrium, if you included the opportunity cost of time then, you (Points : 2)

       should substitute X for Y until the marginal utility per hour is the same for both products.

       should consume X and Y in the equal amounts.

       should consume less of Y and more of X.

       should consume less of X and more of Y.

16. The economic perspective refers to: (Points : 2)

       macroeconomic phenomena, but not microeconomic phenomena.

       microeconomic phenomena, but not macroeconomic phenomena.

       the making of purposeful decisions in a context of marginal costs and marginal benefits.

       unlimited resources in a context of limited economic wants.

17. A government subsidy to the producers of a product: (Points : 2)

       reduces product supply.

       increases product supply.

       reduces product demand.

       increases product demand.

18. Which of the following would be most likely to shift the production possibilities curve to the right? (Points : 2)

       a sudden and substantial expansion of consumer wants

       an improvement in the literacy level and general level of education

       a decline in the size of the population and labor force

       shifting resources from the production of capital goods to the production of consumer goods

19. Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences: (Points : 2)

       a consumer surplus of $12 and Nathan experiences a producer surplus of $3.

       a producer surplus of $9 and Nathan experiences a consumer surplus of $3.

       a consumer surplus of $9 and Nathan experiences a producer surplus of $3.

       a producer surplus of $9 and Nathan experiences a producer surplus of $12.

20. Economic models: (Points : 2)

       are of limited use because they cannot be tested empirically.

       are limited to variables that are directly related to one another.

       emphasize basic economic relationships by purposefully simplifying the complexities of the real world.

       are unrealistic and therefore of no practical consequence.

21. A supply curve that is parallel to the horizontal axis suggests that: (Points : 2)

       the industry is organized monopolistically.

       the relationship between price and quantity supplied is inverse.

       a change in demand will change price in the same direction.

       a change in demand will change the equilibrium quantity but not price.

22.  

Refer to the above diagram in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The efficiency loss of the tax is shown by area(s): (Points : 2)

       A + B + C + E + F.

       A + B + C.

       A + B + F.

       E + F.

23. The simple circular flow model shows that: (Points : 2)

       households are on the buying side of both product and resource markets.

       businesses are on the selling side of both product and resource markets.

       households are on the selling side of the resource market and on the buying side of the product market.

       businesses are on the buying side of the product market and on the selling side of the resource market.

24. The efficiency loss of a tax is the idea that: (Points : 2)

       in addition to taking income from the citizenry, taxes also increase the rate of inflation.

       taxes cause a decline in output for which marginal benefit exceeds marginal cost.

       taxes diminish incentives to work.

       government spends dollars less efficiently than do households and businesses.

25. If a product is in surplus supply, its price: (Points : 2)

       is below the equilibrium level.

       is above the equilibrium level.

       will rise in the near future.

       is in equilibrium.

26.  

Refer to the above diagram in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total tax payment to government is shown by area(s): (Points : 2)

       A only.

       A + B + C + E + F.

       A + B + C.

       E + F.

27. The demand for a product is inelastic with respect to price if: (Points : 2)

       consumers are largely unresponsive to a per unit price change.

       the elasticity coefficient is greater than 1.

       a drop in price is accompanied by a decrease in the quantity demanded.

       a drop in price is accompanied by an increase in the quantity demanded.

28. When an economist says that the demand for a product has increased, this means that: (Points : 2)

       consumers are now willing to purchase more of this product at each possible price.

       the product has become particularly scarce for some reason.

       product price has fallen and as a consequence consumers are buying a larger quantity of the product.

       the demand curve has shifted to the left.

29. Where there is asymmetric information between buyers and sellers. (Points : 2)

       product shortages will occur at the equilibrium price.

       product surpluses will occur at the equilibrium price.

       markets can produce inefficient outcomes.

       markets will fail due to the “free-rider problem.”

30. As it applies to insurance, the adverse selection problem is the tendency for: (Points : 2)

       those most likely to collect on insurance to buy it.

       those who buy insurance to take less precaution in avoiding the insured risk.

       sellers to price discriminate.

       sellers to restrict output and charge high prices.

31. Most people do not steal because: (Points : 2)

       the marginal utilities of stolen goods diminish as more of them are obtained.

       the marginal utilities of stolen goods are negative.

       their marginal costs, including guilt costs, are too high.

       stolen goods can be sold only at deep discounts.

32. If you receive a gift whose market price is $20, but you consider it to be worth only $10, then: (Points : 2)

       there is a $10 or 50 percent value gain.

       there may or may not be a value loss.

       there is a $10 or 50 percent value loss.

       you can be relatively certain the giver was a sibling or other close relative.

33. Entry fees at national parks and monuments are an example of: (Points : 2)

       the ability-to-pay principle of taxation.

       the benefits-received principle of taxation.

       government bureaucracy and inefficiency.

       the principle of limited and bundled choice.

34. “Pork-barrel” legislation that contains funding for hundreds of separate special products scattered throughout numerous states often reflects: (Points : 2)

       the paradox of voting.

       logrolling.

       the benefits-received principle.

       the Coase theorem.

35. Ben says that “An increase in the tax on beer will raise its price.” Holly argues that “Taxes should be increased on beer because college students drink too much.” We can conclude that: (Points : 2)

       Ben’s statement is normative, but Holly’s is positive.

       Holly’s statement is normative, but Ben’s is positive.

       Both statements are normative.

       Both statements are positive.

36. According to economists, economic self-interest: (Points : 2)

       is a reality that underlies economic behavior.

       has the same meaning as selfishness.

       is more characteristic of men than of women.

       is usually self-defeating.

37. Unlike newspaper dispensing devices, soft drink dispensing machines do not permit people to take more than one can or bottle with each payment. The reason is that the: (Points : 2)

       opportunity cost of additional cans or bottles of soft drink increase very rapidly.

       marginal utility of extra soft drink cans or bottles declines slowly, particularly because they are storable and can be consumed later.

       marginal utility of extra soft drink cans or bottles declines quite rapidly.

       opportunity cost of additional cans or bottles of soft drink increase very slowly.

38. As it applies to insurance, the moral hazard problem is the tendency for: (Points : 2)

       those most likely to collect on insurance to buy it.

       those who buy insurance to take less precaution in avoiding the insured risk.

       sellers to price discriminate.

       sellers to restrict output and charge high prices.

39. “Government failure” is a prominent topic in: (Points : 2)

       public choice theory.

       Keynesian economics.

       socialist theory.

       behavioral economics.

40. For a linear demand curve: (Points : 2)

       elasticity is constant along the curve.

       elasticity is unity at every point on the curve.

       demand is elastic at low prices.

       demand is elastic at high prices.

41. A special-interest issue is one whose passage yields: (Points : 2)

       large private benefits compared to external benefits.

       large external benefits compared to private benefits.

       small economic losses to a small number of people and large economic losses to a large number of people.

       large economic gains to a small number of people and small economic losses to a large number of people.

42. An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that: (Points : 2)

       there are many goods that are substitutes for bicycles.

       there are many goods that are complementary to bicycles.

       there are few goods that are substitutes for bicycles.

       bicycles are normal goods.

43. Producer surplus: (Points : 2)

       is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.

       rises as equilibrium price falls.

       is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.

       is the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept.

44. The median-voter model implies that a political office seeker will: (Points : 2)

       adopt more extreme views when seeking his or her party’s nomination than when running against the other party’s opponent.

       adopt less extreme views when seeking his or her party’s nomination than when running against the other party’s opponent.

       favor extensive government spending because demand curves for public goods are added vertically rather than horizontally.

       favor the private resolution of externality problems rather than governmental intervention.

45. A price floor means that: (Points : 2)

       inflation is severe in this particular market.

       sellers are artificially restricting supply to raise price.

       government is imposing a maximum legal price that is typically below the equilibrium price.

       government is imposing a minimum legal price that is typically above the equilibrium price.

46. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. (Points : 2)

       direct, inverse

       inverse, direct

       inverse, inverse

       direct, direct

47. Which of the following best reflects the ability-to-pay philosophy of taxation? (Points : 2)

       a tax on residential property

       a progressive income tax

       an excise tax on gasoline

       an excise tax on coffee

48. A firm’s supply curve is upsloping because: (Points : 2)

       the expansion of production necessitates the use of qualitatively inferior inputs.

       mass production economies are associated with larger levels of output.

       consumers envision a positive relationship between price and quality.

       beyond some point the production costs of additional units of output will rise.

49. The fact that most medical care purchases are financed through insurance: (Points : 2)

       has no effect on health care consumption because aggregate costs are the same regardless of payment method.

       reduces the amount of health care consumed.

       has decreased health care costs and therefore reduced aggregate health care expenditures.

       increases the amount of health care consumed.

50. In which of the following cases will total revenue increase? (Points : 2)

       price falls and demand is inelastic

       price falls and supply is elastic

       price rises and demand is inelastic

       price rises and demand is elastic