Economics Test 1 Macroeconomics
Questions and Answers
- 1.
In a market economy, both parties in a transaction expect to gain from any exchange of goods and services.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Otherwise, why exchange?Rate this question:
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- 2.
If both supply and demand decrease, then the change in equilibrium quantity is indeterminate.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
If both supply and demand decrease, the change in equilibrium quantity can be determined. When both supply and demand decrease, it leads to a decrease in the equilibrium quantity. This is because the decrease in supply reduces the quantity available in the market, while the decrease in demand reduces the quantity that consumers are willing to purchase. As a result, the equilibrium quantity will decrease as both factors work together to reduce the amount of goods or services being exchanged in the market.Rate this question:
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- 3.
If a country has a comparative advantage in the production of a good, it can produce that good with fewer resources than another country.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
This is referring to Absolute Advantage.Rate this question:
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- 4.
By virtue of government controls, command economies can ensure productive efficiency. Market economies have no mechanism to promote such efficiency.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Actually, market economies have competition to help with productive efficiency.Rate this question:
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- 5.
Even if two individuals go to the movies at the same time and pay the same price, they will probably not have the same opportunity cost.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
They are probably both giving up different things to be at the movies.Rate this question:
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- 6.
The demand curve for Good X shifts to the left whenever there is an increase in the price of Good X.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
A change in price moves the point along the curve. It does not cause the curve to shift left or right.Rate this question:
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- 7.
In the absence of trade, a country's PPF determines both what it can produce and what it can consume.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
In the absence of trade, a country's PPF (Production Possibility Frontier) represents the maximum amount of goods and services that it can produce efficiently. Since trade allows countries to specialize in the production of goods in which they have a comparative advantage, it expands the range of goods available for consumption beyond what can be produced domestically. Therefore, without trade, a country's PPF determines both its production and consumption capabilities.Rate this question:
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- 8.
If 2 variables are positively correlated we can say that an increase in one causes an increase in the other.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
A correlation is a predictable pattern but one event does not cause another event.Rate this question:
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- 9.
If a country is producing on its PPF, we can say that it is allocatevely efficient.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
If a country is producing on its PPF, we can say that it is productively efficient.Rate this question:
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- 10.
Scarcity leads to a concave PPF.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Scarcity is responsible for the negative slope.Rate this question:
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- 11.
A "change in quantity demanded" occurs whenever the price of a substitute good increases or decreases.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Whenever the price of a substitute good increases or decreases the demand curve shifts left or right.Rate this question:
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- 12.
A price floor must be placed below the equilibrium price in order to be "effective".
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
A price floor must be placed above the equilibrium price in order to be "effective".Rate this question:
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- 13.
Even if a country is less efficient at producing every good than another country, it can still benefit from trade.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Even if a country is less efficient at producing every good than another country, it can still benefit from trade because trade allows countries to specialize in producing goods that they have a comparative advantage in. This means that even if a country is less efficient at producing a certain good, it can still trade for that good with another country that is more efficient at producing it, leading to overall gains in productivity and economic welfare for both countries involved.Rate this question:
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- 14.
When generating theories from observed data, you engage in the process of deduction.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Induction is the process of generating theories from individual facts.Rate this question:
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- 15.
It is possible for one person to have an absolute advantage in the production of all products.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
It is possible for one person to have an absolute advantage in the production of all products because absolute advantage refers to the ability of an individual, firm, or country to produce a good or service at a lower cost or using fewer resources compared to others. If a person has a higher level of efficiency or expertise in producing all products, they can have an absolute advantage over others in the production process. However, it is unlikely for one person to have an absolute advantage in all products as specialization and division of labor usually lead to different individuals or entities having absolute advantages in different areas.Rate this question:
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- 16.
"A decrease in homework should improve faculty evaluatoion scores." This is a positive statement.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
It is positive because it can be tested.Rate this question:
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- 17.
An effective price ceiling is normally accompanied by a surplus.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
A price ceiling usually reduces surplus.Rate this question:
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- 18.
A stable equilibrium is one that cannot be disturbed.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
A stable equilibrium can be disturbed, but it will eventually go back to equilibrium.Rate this question:
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- 19.
The opportunity cost of any decision is the value of the next best alternative that is not chosen.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The statement is true because opportunity cost refers to the value of the next best alternative that is forgone when making a decision. It represents the benefits that could have been gained from choosing the alternative option. By considering the opportunity cost, individuals or businesses can make more informed decisions by evaluating the trade-offs involved in choosing one option over another.Rate this question:
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- 20.
Removing a tariff on imported sugar will likely push the demand curve for candy bars out to the right.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Removing a tariff on sugar lowers input cost which shifts the supply curve to the right.Rate this question:
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- 21.
In one week, the Wicked Witch can knit 15 sweaters or bake 480 cookies. The opportunity cost per cookie for the Wicked Witch is:
- A.
$15
- B.
15 sweaters
- C.
32 sweaters
- D.
480 sweaters
- E.
1/32 of a sweater
Correct Answer
E. 1/32 of a sweaterExplanation
15/480 = 1/32Rate this question:
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- 22.
If there is a shortage of convenient parking spaces on campus, economists would argue that it is because:
- A.
There are not enough of these spaces
- B.
The price of these spaces is below equilibrium
- C.
The price of these spaces is above equilibrium
- D.
Economists are simply argumentative
Correct Answer
B. The price of these spaces is below equilibriumExplanation
When the price is above equilibrium there is a surplus. When the price is below equilibrium there is a shortage.Rate this question:
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- 23.
Ruling out the possibility of growth, productive efficiency implies:
- A.
The possibility of gains in one good without losses in thet other
- B.
That more output has been produced
- C.
The impossibility of gains in one good without losses in another
- D.
That prices are stable
- E.
C and d
Correct Answer
C. The impossibility of gains in one good without losses in anotherExplanation
Productive efficiency refers to the situation where goods and services are produced at the lowest possible cost. It means that resources are being utilized in the most efficient way to maximize output. If productive efficiency is achieved, it implies that there can be no gains in the production of one good without incurring losses in the production of another. This is because resources are already being used optimally, and any reallocation would result in a decrease in output in one area to increase it in another. Therefore, the correct answer is "the impossibility of gains in one good without losses in another."Rate this question:
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- 24.
Ann and Bob are business partners. Ann can type a one page letter every 5 minutes or audit one page of accounting every 15 minutes. Bob can either type a one page letter or audit one page of accounting every 10 minutes. Both work until all the office's business is taken care of. Both would also like to get home as soon as possible. Which statement is true?
- A.
Both Bob and Ann should split the typing and auditing equally.
- B.
Bob has a comparative advantage in both activities.
- C.
Bob has an absolute advantage in both activities.
- D.
Ann should do the auditing and Bob should type.
- E.
None of the above is true.
Correct Answer
E. None of the above is true.Explanation
None of the above statements is true because Ann has a comparative advantage in auditing (15 minutes per page) compared to Bob (10 minutes per page), while Bob has a comparative advantage in typing (10 minutes per page) compared to Ann (5 minutes per page). Therefore, it would be more efficient for Ann to focus on auditing and for Bob to focus on typing, rather than splitting the tasks equally.Rate this question:
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- 25.
The "invisible hand" described by Adam Smith refers to the:
- A.
Allocative role of markets and market forces.
- B.
Importance of government intervention and central planning.
- C.
Role of custom in organizing economic behavior.
- D.
Value of religious belief in creating an ideal economy.
Correct Answer
A. Allocative role of markets and market forces.Explanation
The "invisible hand" described by Adam Smith refers to the allocative role of markets and market forces. According to Smith, when individuals pursue their own self-interest in a competitive market, they unintentionally promote the well-being of society as a whole. The "invisible hand" metaphorically represents the way in which market forces, such as supply and demand, guide resources to their most efficient and productive uses, resulting in the optimal allocation of goods and services. This concept highlights the importance of free markets and the limited role of government intervention in achieving economic efficiency.Rate this question:
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- 26.
A tax is placed on the seller of a good. The tax has the effect of shifting the:
- A.
Demand curve to the right.
- B.
Demand curve to the left.
- C.
Supply curve to the left.
- D.
Supply curve to the right.
- E.
Either b or c.
Correct Answer
C. Supply curve to the left.Explanation
This is the same as increasing the price of an input.Rate this question:
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- 27.
Ramon earns $20 an hour, Sam earns $30 an hour, Evan earns $40 and hour, and Tabitha earns $50 an hour. The "price of friendship" is likely highest for which person?
- A.
Ramon
- B.
Sam
- C.
Evan
- D.
Tabitha
Correct Answer
D. TabithaExplanation
The "price of friendship" refers to the cost or value of maintaining a friendship. In this context, it is likely that Tabitha has the highest "price of friendship" because she earns the highest hourly wage among the given individuals. This suggests that Tabitha may have higher expenses or a more demanding lifestyle, which could potentially impact the cost or effort required to maintain a friendship with her.Rate this question:
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- 28.
If good B is a complement to good A, then a drop in the price of B:
- A.
Increases the quantity demanded of A
- B.
Increases the demand for A
- C.
Decreases the demand for A
- D.
Decreases the quantity demanded of A
- E.
Will cause the demand for B to increase
Correct Answer
B. Increases the demand for AExplanation
When two goods are complements, they are typically consumed together. Therefore, a drop in the price of good B would make it more affordable and attractive to consumers, leading to an increase in the demand for good B. Since good B is a complement to good A, an increase in the demand for good B would result in an increase in the demand for good A as well. Thus, a drop in the price of good B increases the demand for good A.Rate this question:
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- 29.
Civics and Cobalts are substitutes. If the price of Cobalts rises, which of the following will happen?
- A.
The demand curve for Cobalts will shift to the left.
- B.
The demand curve for Civics will shift to the right.
- C.
The supply curve for Cobalts will shift to the left.
- D.
The supply curve for Civics will shift to the right.
- E.
None of the above.
Correct Answer
B. The demand curve for Civics will shift to the right.Explanation
When two goods are substitutes, an increase in the price of one good will lead to an increase in the demand for the other good. In this case, since Civics and Cobalts are substitutes, if the price of Cobalts rises, consumers will be less willing to purchase Cobalts and will instead shift their demand towards Civics. Therefore, the demand curve for Civics will shift to the right.Rate this question:
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- 30.
If the quantity demanded for a certain product was relatively unresponsive to a change in price, this would be represented in a supply and demand diagram as:
- A.
A steep slope for the demand curve.
- B.
A flat slope for the demand curve.
- C.
Large outward shifts in the demand curve in response to a change in price.
- D.
Small inward shifts in the demand curve in response to a change in income.
Correct Answer
A. A steep slope for the demand curve.Explanation
A steep slope for the demand curve represents a relatively unresponsive quantity demanded to a change in price. This means that even if there is a significant change in price, the quantity demanded does not change much. A steep slope indicates that consumers are not very sensitive to price changes and are willing to pay a higher price for the product.Rate this question:
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- 31.
Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found to be a cause of cancer,
- A.
The price of aspartame will increase
- B.
The price of sugar will decrease
- C.
The price of saccharin will increase
- D.
The demand curves for aspertame and sugar will shift leftward
- E.
Aspartame and sugar will be complements
Correct Answer
A. The price of aspartame will increaseExplanation
If saccharin is found to be a cause of cancer, it is likely that consumers will start looking for alternative low-calorie substitutes for sugar. As aspartame is another popular low-calorie substitute, the demand for it will increase. With an increase in demand, the price of aspartame will also increase due to the higher level of consumer interest and demand.Rate this question:
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- 32.
Studies at Cornell University indicate that chickens grow 2 percent more weight when a red mitten is placed in their cage and Vivaldi is played in the chicken coop. Estimates of the resulting chicken feed savings are about $60 million a year. How does this show up in the market for chickens.
- A.
The price of chickens will rise as more are sold.
- B.
The quantity of chickens sold will fall.
- C.
The demand curve shifts to the right due to a drop in price.
- D.
The supply curve shifts to the right.
Correct Answer
D. The supply curve shifts to the right.Explanation
The correct answer is that the supply curve shifts to the right. This means that the quantity supplied of chickens will increase at every given price level. The reason for this is that the red mitten and Vivaldi music in the chicken coop result in chickens growing 2 percent more weight, which leads to increased chicken production. As a result, there will be more chickens available in the market, causing the supply curve to shift to the right.Rate this question:
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- 33.
Generally speaking, the PPF does not give us information about which of the following:
- A.
Prices
- B.
Opportunity costs
- C.
Input specialization
- D.
Efficiency
Correct Answer
A. PricesExplanation
The PPF, or Production Possibility Frontier, is a graphical representation of the different combinations of two goods that an economy can produce given its resources and technology. It shows the trade-off between producing one good over another. While the PPF provides information about opportunity costs, input specialization, and efficiency, it does not directly provide information about prices. Prices are determined by the interaction of supply and demand in the market, which is not explicitly represented in the PPF.Rate this question:
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- 34.
We observe that the price of food falls while the quantity purchased rises. This means the
- A.
Supply curve shifted to the left.
- B.
Demand curve shifted to the left.
- C.
Demand curve shifted to the right.
- D.
Supply curve shifted to the right.
Correct Answer
D. Supply curve shifted to the right.Explanation
The given answer is incorrect. According to the information provided, the price of food falls while the quantity purchased rises. This indicates an increase in demand, as consumers are willing to buy more food at a lower price. Therefore, the correct answer should be "demand curve shifted to the right."Rate this question:
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- 35.
A minimum wage that is set below the equilibrium wage rate will:
- A.
Lead to higher wages fo some individuals.
- B.
Lead to lower levels of employment as employess find it more expensive to hire workers.
- C.
Lead to higher levels of employment as more workers are enticed into the labor market by this new wage.
- D.
Do nothing whatsoever.
Correct Answer
D. Do nothing whatsoever.Explanation
If a minimum wage is set below the equilibrium wage rate, it means that it is lower than the market-clearing wage. In this case, the minimum wage would have no effect on the labor market because it is not binding. Employers would still be able to hire workers at the equilibrium wage rate or even lower if they choose to. Therefore, the minimum wage being set below the equilibrium wage rate would do nothing whatsoever.Rate this question:
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- 36.
Comparative advantage
- A.
Exitsts only when one producer can make a product using fewer resources than any other producer.
- B.
Leads to the greatest world output.
- C.
Eliminates the need for specialization.
- D.
Leads to the exploitation of the working classes.
Correct Answer
B. Leads to the greatest world output.Explanation
Comparative advantage refers to the ability of a producer to produce a good or service at a lower opportunity cost compared to other producers. This means that the producer can produce more of a certain product using fewer resources than any other producer. As a result, when countries specialize in producing goods or services in which they have a comparative advantage, it leads to the greatest world output. By focusing on producing what they are relatively more efficient at, countries can maximize their overall production and benefit from trade with other countries that have different comparative advantages.Rate this question:
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- 37.
Suppose Mathilda is considering producing a new product. After doing some market research she suspects that hte supply curve for this good will intersect the vertical axis above the demand curve. If this is the case, which of the following will hold?
- A.
The market price of this good will be quite high.
- B.
A shortage of this good will occur.
- C.
None of this good will be produced or sold.
- D.
A surplus of this good will occur.
- E.
None of the above.
Correct Answer
C. None of this good will be produced or sold.Explanation
If the supply curve for the new product intersects the vertical axis above the demand curve, it means that the price at which suppliers are willing to produce and sell the product is higher than the price at which consumers are willing to buy it. As a result, there will be no equilibrium point where the quantity supplied equals the quantity demanded. Therefore, none of the good will be produced or sold.Rate this question:
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- 38.
If the PPF is linear
- A.
Opportunity costs change as one slides along the frontier.
- B.
The opportunity cost of moving along the frontier is zero.
- C.
The principle of increasing cost holds.
- D.
Specialization of inputs is present.
- E.
None of the above is true.
Correct Answer
E. None of the above is true.Explanation
If the PPF is linear, it means that the opportunity costs remain constant as one moves along the frontier. Therefore, the correct answer is "none of the above is true" because none of the statements accurately describe the characteristics of a linear PPF.Rate this question:
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- 39.
Individuals who buy a good at a known price in one market to sell at a known price in another market are typically known as
- A.
Speculators
- B.
Blackmarketeers
- C.
Profiteers
- D.
Arbitragers
Correct Answer
D. ArbitragersExplanation
Arbitrage - buy low in one market and sell high in another market.Rate this question:
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- 40.
If you ignore extraneous information in order to concentrate on the problem at hand, you are engaged in the process of
- A.
Induction
- B.
Deduction
- C.
Reduction
- D.
Abstraction
- E.
None of the above
Correct Answer
D. AbstractionExplanation
When you ignore extraneous information in order to concentrate on the problem at hand, you are engaged in the process of abstraction. Abstraction involves focusing on the essential aspects or principles of a problem while disregarding unnecessary details. It allows for simplification and generalization, helping to clarify and understand complex concepts or situations. This process is commonly used in various fields, such as mathematics, computer science, and philosophy, to analyze and solve problems effectively.Rate this question:
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- 41.
Steel workers in the U.S. are constantly arguing for curbs on the volume of imported steel. This in fact is to produce a
- A.
Rightward shift int he supply curve.
- B.
Rightward shift in the demand curve of American steel.
- C.
Leftward shift in the supply curve of American steel.
- D.
Leftward shift in the demand curve of American steel.
Correct Answer
B. Rightward shift in the demand curve of American steel.Explanation
Steel workers in the U.S. arguing for curbs on imported steel suggests that they want to reduce the volume of steel being imported into the country. By doing so, they aim to increase the demand for American steel, as consumers would have fewer options for imported steel and would therefore be more likely to purchase domestically produced steel. This would result in a rightward shift in the demand curve of American steel, indicating an increase in demand for the product.Rate this question:
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Mar 20, 2023Quiz Edited by
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Feb 18, 2009Quiz Created by
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