Econ Test 2

40 Questions | Total Attempts: 11

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Economics Quizzes & Trivia

Questions and Answers
  • 1. 
    Which of the following is NOT illustrated by the production possibilities frontier (PPF)?
    • A. 

      Efficiency

    • B. 

      Opportunity cost

    • C. 

      Equity

    • D. 

      All the above

  • 2. 
    Which of the following could be the cause of a country producing “inside its ProductionPossibilities Frontier?
    • A. 

      The country is not producing the good in which it has the comparative advantage

    • B. 

      Discriminatory practices within the country prevent certain types of workers from choosing the employment at which they would be most productive

    • C. 

      The country is not allowing new workers to immigrate and become new workers

    • D. 

      All of the above are possible causes of a country producing “inside its PP

  • 3. 
    Which of the following may explain why the US both produces and imports automobiles
    • A. 

      Demand for automobiles is so great in the US that the demand cannot be met by imports alone

    • B. 

      The US may have the comparative advantage in auto production at low levels even though it may not have the comparative advantage at high levels of production.

    • C. 

      Importing autos produced by other countries allows American consumers more variety in the types of autos they are offered for sale. Greater variety of goods and services is a benefit of trade.

    • D. 

      All of the above

  • 4. 
    If a country is said to be “producing on its Production Possibilities Frontier
    • A. 

      It is using all its resources as efficiently as possible

    • B. 

      It has only small amounts of unemployment

    • C. 

      It is not faced with the problem of scarcity

    • D. 

      All of the above

  • 5. 
    If an economist says that a country has a comparative advantage in the production of a good,he/she is saying that:
    • A. 

      The country can produce the good using fewer absolute resources than can its trading partner

    • B. 

      The country can produce the good at a lower opportunity cost than can its trading partner.

    • C. 

      The country can benefit by restricting imports of the good into the country.

    • D. 

      The country should produce only that good

  • 6. 
    Which of the following statements about free trade is true?
    • A. 

      The US benefits from free trade with other countries only if the US is better at producing all the traded goods and services.

    • B. 

      The US benefits from free trade with other countries only if the US is the exporting country. If the US is the importing country it is hurt by free trade since money flows out of the country.

    • C. 

      Countries engaging in free trade are able to shift out their Production Possibilities Frontiers.

    • D. 

      Countries engaging in free trade are able to shift out their consumption possibilities curves.

  • 7. 
    Refer to figures A and B: In 1968, biologist Paul Ehrlich wrote in “The Population Bomb”,that world-wide famines were sure to hit and hundreds of millions would starve around the worldbecause the world’s population was growing too quickly. His argument was that since the worldhad a limited amount of cropland available and since we were already farming nearly all theavailable cropland, that we would soon reach the limits to the amount of food the world couldproduce. If birth rates didn’t immediately and dramatically decline, famine would ensue. This,however, never happened because of plant pathologist, Norman Borlaug, and a team of scientistsresponsible for the “Green Revolution” of the 1960s. Borlaug and others figured out ways toimprove crops and farming so that crop yields (the amount of food produced per acre of land)could increase. The Green Revolution allowed the world to more than triple the amount of foodit could produce with no increase in cropland. The Green Revolution is an example of:
    • A. 

      An increase in technology, allowing the Production Possibilities Frontier to shift out as shown in figure A.

    • B. 

      An increase in technology, allowing the Production Possibilities Frontier to shift out as shown in figure B.

    • C. 

      A movement from a point inside the Production Possibilities Frontier to a point on the Production Possibilities Frontier.

    • D. 

      A movement from a point inside the Production Possibilities Frontier to a point outside the Production Possibilities Frontier.

  • 8. 
    During the period of 1918-1919, a strain of influenza spread from birds to pigs, mutated andspread to humans in what is known as the Influenza Pandemic of 1918-1919. The first knowncase was recorded in Kansas in March of 1918 and by the end of the pandemic (world-wideepidemic) between 25million and 37 million people around the world had died (only 9 milliondied during the four years of WWI). Based on this information, which of the following would betrue?
    • A. 

      The world’s ability to produce output fell after the pandemic, resulting in a level of production inside the world’s Production Possibilities Frontier.

    • B. 

      The world’s ability to produce output fell after the pandemic, resulting in a decrease in the world’s Production Possibilities Frontier.

    • C. 

      The world’s resources of production became scarcer.

    • D. 

      Both 2 and 3.

  • 9. 
    One explanation for the high rate of economic growth experienced by some countries may bethat:
    • A. 

      Those countries choose to sacrifice current consumption of goods, such as TVs, cars and video games, in order to use more of their scarce resources to produce goods, such as education, factories and machinery, which allow them to become more productive in the future.

    • B. 

      Those countries cut back on current production in order to save their scarce resources for later years, allowing them to produce more in the future.

    • C. 

      Those countries remain self-sufficient by cutting themselves off from trade with the rest of the world, allowing them to become experts at the production of all kinds of goods, which makes them more productive in the future.

    • D. 

      All of the above are possible explanations.

  • 10. 
    When an economy is operating on its Production Possibilities Frontier, it must sacrifice someproduction of one good if it wants to produce more of another good because
    • A. 

      Resources are limited and technology is fixed at any point in time.

    • B. 

      Resources are not identical in production.

    • C. 

      There is always a trade-off between equity and efficiency.

    • D. 

      Some resources become unemployed when production of the first good decreases.

  • 11. 
    If an economist says that a country has a comparative advantage in the production of a good,he/she is saying that:
    • A. 

      The country can produce the good using fewer absolute resources than can its trading partner

    • B. 

      The country can benefit by restricting imports of the good into the country.

    • C. 

      The country can produce the good at a lower opportunity cost than can its trading partner.

    • D. 

      The country should produce only that good.

  • 12. 
    Refer to figures A and B: In 1993, the Midwest was hit by one of the worst periods offlooding to occur in US history. The flooding spread over nine states, resulting in an estimated$12 billion worth of damage to homes, businesses, factories, roads, bridges and cropland. The economic consequences of this period of flooding can best be represented by
    • A. 

      A movement from PPF1 to PPF2, as shown by Figure A.

    • B. 

      A movement from PPF1 to PPF3, as shown by figure B.

    • C. 

      A movement from PPF1 to point a, as shown by Figure A.

    • D. 

      A movement from PPF1 to point b, as shown by Figure B.

  • 13. 
    Refer to figures A and B: If an economy is characterized by a Production PossibilitiesFrontier like PPF1 in Figure B, then to produce at a level represented by point b, it could:
    • A. 

      Try to eliminate unemployment.

    • B. 

      None of the above is a policy that could move an economy from PPF1 to point b.

    • C. 

      Try to get firms to use their production resources more efficiently

    • D. 

      All of the above are policies that could move an economy from PPF1 to point b.

  • 14. 
    Refer to figures A and B: If an economy is known to be producing at a point like point a inFigure A, then we know that
    • A. 

      Discrimination exists in the society, resulting in some workers not being allowed to work at certain jobs or professions simply because of a non-work related characteristic (for example, age, race, sex).

    • B. 

      The economy is experiencing high levels of unemployment.

    • C. 

      All of the above are possible explanations for why an economy would be producing at a point like point a.

    • D. 

      None of the above is a possible explanation for why an economy would be producing at a point like point a.

  • 15. 
    If an economist says that a country has an absolute advantage in the production of a good,he/she is saying that:
    • A. 

      The country can produce the good using fewer resources than can its trading partner.

    • B. 

      The country can benefit by restricting imports of the good into the country.

    • C. 

      The country can produce the good at a lower opportunity cost than can its trading partner.

    • D. 

      The country should produce only that good.

  • 16. 
    When economists use the term "consumer surplus," they are referring to:
    • A. 

      The gain in happiness that consumers get when they are able to buy something for a price below what they were willing and able to pay.

    • B. 

      The area above the supply curve and below the equilibrium price.

    • C. 

      The area below the demand curve and above the supply curve.

    • D. 

      The total amount of utility or happiness or benefit that consumers get from a good or service.

  • 17. 
    When economists use the term "total surplus," they are referring to:
    • A. 

      The gain in happiness or wealth that society experiences when a good or service is produced that is worth more to a consumer than it costs to produce

    • B. 

      The area above the supply curve and below the demand curve up to the quantity produced.

    • C. 

      The gain in utility that consumers and producers jointly experience when a good or service is produced that is worth more to a consumer than it costs to produce

    • D. 

      All of the above

  • 18. 
    Refer to Figure B: Which of the following is an accurate statement regarding Figure D above, which represents the market for some good in which no market failure exists?
    • A. 

      The 1st unit of this good costs $12 to produce

    • B. 

      The 1st unit of this good costs $8 to produce

    • C. 

      The 1st unit of this good costs $6 to produce.

    • D. 

      The 1st unit of this good costs $17 to produce.

  • 19. 
    Refer to Figure B: If the government decided that businesses were only allowed to produce 1 unit of this good, society would be worse-off by:
    • A. 

      $11

    • B. 

      $0

    • C. 

      $33

    • D. 

      None of the above

  • 20. 
    Suppose you are working as an economic consultant for a local construction company and you believe that average household income in Columbia will increase by 10% this year. You advise the construction company to build fewer new apartment buildings this year but to build more single family homes. Based on your advice, you must believe that:
    • A. 

      The demand for apartments will decrease this year because apartments are a normal good and the demand for single family homes will increase this year because single family homes are a luxury good.

    • B. 

      The quantity of apartments demanded will decrease this year because apartments are a normal good and the quantity of single family homes demanded will increase this year because single family homes are a luxury good.

    • C. 

      The demand for apartment will decrease this year because apartments are an inferior good and the demand for single family homes will increase this year because single family homes are a normal good.

    • D. 

      The price of apartment housing will increase, causing a decrease in demand for apartments while the price of single family homes will decrease, causing an increase in demand for single family homes

  • 21. 
    Suppose that the price of good x has just increased, and as a result you observe a decrease in the demand for good y. From this, you would be able to conclude that:
    • A. 

      Good y is a normal good.

    • B. 

      Good y is an inferior good.

    • C. 

      Goods x and y are complements.

    • D. 

      Goods x and y are substitutes.

  • 22. 
    Suppose the income elasticity of demand for good X has been estimated at +3.0. From this information we can conclude that:
    • A. 

      Good X is a normal good

    • B. 

      Good X is a price elastic good.

    • C. 

      Good X is a substitute good.

    • D. 

      All of the above.

  • 23. 
    If the government wants to raise tax revenue in the most equitable way possible, they should tax luxury goods which are much more likely to be purchased by the rich than by the poor. Since the rich have more money, they can better afford to pay the extra tax than can the poor. The problem with this policy, however, is that:
    • A. 

      Consumers of luxury goods are very responsive to price changes and can “get away” from the tax by simply buying less. This means the tax is not likely to raise much tax revenue.

    • B. 

      Consumers of luxury goods are very responsive to price changes and can “get away” from the tax by simply buying less. This means the tax is likely to generate a great deal of market inefficiency

    • C. 

      Consumers of luxury goods are very responsive to price changes and can “get away” from the tax by simply buying less. This means the tax is likely to cause a great deal of resource misallocation.

    • D. 

      All of the above

  • 24. 
    In a recent issue of the Wall Street Journal, a Bush spokesperson argued for lower personal income taxes. His argument was that taxing the work effort of Americans was bad for the US because:
    • A. 

      A tax on workers discourages Americans from working, because it decreases the amount of money they actually get to bring home after paying taxes.

    • B. 

      If workers work fewer hours, less output will be produced and so our society will have less wealth to divide among ourselves

    • C. 

      If there is no market failure in the labor market, then the tax on labor results in a misallocation of labor resources.

    • D. 

      All of the above are possible justifications for his argument.

  • 25. 
    Which of the following is an example of government interference in the market, resulting in price distortion and possible resource misallocation?
    • A. 

      The government increases its advertising campaign in an attempt to recruit additional men and women into the military.

    • B. 

      The government taxes the income of workers in order to raise more tax revenue.

    • C. 

      The government hires a construction company to repair the roads and bridges within the state.

    • D. 

      All of the above are examples of government interference in the market and would likely result in resource misallocation

  • 26. 
    Which of the following policies might result in less air pollution from automobiles?
    • A. 

      A tax on gasoline purchases.

    • B. 

      A public service campaign aimed at convincing consumers to drive less and take public transportation instead.

    • C. 

      A subsidy provided to purchasers of electric cars.

    • D. 

      All of the above.

  • 27. 
    The burden of a tax:
    • A. 

      Is shared between consumers and producers, with the larger share borne by whichever is most responsive to price changes.

    • B. 

      Is shared between consumers and producers equally.

    • C. 

      Is paid by consumers if the tax is a consumption tax and by producers if the tax is a production tax.

    • D. 

      Is shared between consumers and producers, with the larger share borne by whichever is least responsive to price changes.

  • 28. 
    When economists refer to a tax wedge, they are referring to:
    • A. 

      The amount of inefficiency generated by government taxation of a free market.

    • B. 

      The difference between the amount of money consumers pay and the amount of money producers get to keep when the government imposes a tax on a free market.

    • C. 

      The loss in consumer surplus minus the gain in producer surplus which results from the imposition of a tax on a free market.

    • D. 

      The amount of efficiency generated by the removal of a tax from a free market.

  • 29. 
    Suppose the gasoline market is initially in equilibrium. If both producers and consumers are responsive to price changes and if the government decided to offer a subsidy to gasoline producers, we would expect:
    • A. 

      An increase in the supply of gasoline, resulting in higher gas prices and more gasoline offered for sale.

    • B. 

      An increase in the supply of gasoline, resulting in higher gas prices and less gasoline offered for sale.

    • C. 

      An increase in the supply of gasoline, resulting in lower gas prices and less gasoline offered for sale.

    • D. 

      An increase in the supply of gasoline, resulting in lower gas prices and more gasoline offered for sale.

  • 30. 
    Suppose the gasoline market is initially in equilibrium. If both producers and consumers are responsive to price changes and if the government decided to offer a subsidy to gasoline producers, we would expect:
    • A. 

      Gas prices to fall by less than the amount of the subsidy. Both consumers and producers would share the benefit of this subsidy

    • B. 

      Gas prices to rise by less than the amount of the subsidy. Both consumers and producers would share the benefit of this subsidy.

    • C. 

      Gas prices to stay the same. Producers would be better off by the amount of the subsidy.

    • D. 

      Gas prices to fall by the amount of the subsidy. Consumers would be better off by the amount of the subsidy.

  • 31. 
    Suppose the gasoline market is initially in equilibrium. If both producers and consumers are responsive to price changes and if the government decided to offer a subsidy to gasoline consumers, we would expect:
    • A. 

      An increase in the demand for gasoline, resulting in higher gas prices and more gasoline purchased.

    • B. 

      An increase in the demand for gasoline, resulting in higher gas prices and less gasoline purchased.

    • C. 

      An increase in the demand for gasoline, resulting in lower gas prices and less gasoline purchased

    • D. 

      An increase in the demand for gasoline, resulting in lower gas prices and more gasoline purchased.

  • 32. 
    Suppose the gasoline market is initially in equilibrium. If both producers and consumers are responsive to price changes and if the government decided to offer a subsidy to gasoline consumers, we would expect:
    • A. 

      Gas prices to fall by less than the amount of the subsidy. Both consumers and producers would share the benefit of this subsidy.

    • B. 

      Gas prices to rise by less than the amount of the subsidy. Both consumers and producers would share the benefit of this subsidy.

    • C. 

      Gas prices to stay the same. Producers would be better off by the amount of the subsidy.

    • D. 

      Gas prices to fall by the amount of the subsidy. Consumers would be better off by the amount of the subsidy.

  • 33. 
    If the City of Columbia passed a “Living Wage Provision,” increasing the minimum wage to$15 per hour for all workers in the City, which of the following would be the most likely result?
    • A. 

      The cost of production would go up for firms, so they would produce less and their demand for workers would shift to the left in response the higher price for workers.

    • B. 

      The cost of production would go up for firms, so they would produce less and their quantity demanded for workers would decline in response to the higher price for workers.

    • C. 

      The cost of production would go up for firms, so their output supply would shift to the right but their labor demand would shift to the left in response to the higher price for workers.

    • D. 

      All of the above are equally possible since they are saying the same thing.

  • 34. 
    Consumers are hurt by dairy price supports because:
    • A. 

      They have to pay the taxes which are used to purchase all the surplus milk the dairy farmers are producing.

    • B. 

      They have to pay a higher price for their milk as well as for all the other products which are produced with milk.

    • C. 

      They are not able to afford as much milk as they would have bought if the government had not interfered in the market.

    • D. 

      All of the above are true

  • 35. 
    Evaluate the following statement: “Increasing the federal minimum wage is good for workersbecause it helps to fight poverty by putting more money in the pockets of the working poor.”
    • A. 

      This statement is definitely true. The working poor will have more money if we force firms to pay a higher per hour wage. This will result in less poverty.

    • B. 

      This statement is definitely false. The working poor will have less money in their pockets since firms won’t want to hire as many workers if they have to pay a higher wage. This will make poverty worse.

    • C. 

      This statement may or may not be true. It depends on how responsive firms are to wage changes. If firms are very responsive to wage changes, then workers will have more money in their pockets and poverty will decrease.

    • D. 

      This statement may or may not be true. It depends on how responsive firms are to wage changes. If firms are not very responsive to wage changes, then workers will have more money in their pockets and poverty may decrease.

  • 36. 
    Which of the following is a reason why minimum wage legislation may not be very effectiveat reducing poverty in the US?
    • A. 

      Firms may find it easy to substitute machinery and technology for low‐skilled workers, meaning that many workers will be faced with more poverty because of job loss.

    • B. 

      The majority of low‐skill minimum wage workers are teenagers from middle‐class families. Since these workers are not in poverty, forcing firms to pay them a higher wage will not reduce poverty.

    • C. 

      If firms find it too expensive to hire low‐skilled workers in the US, they may simply move their jobs overseas where they don’t have to pay the minimum wage. This will mean fewer jobs for low‐skilled workers in the US.

    • D. 

      All of the above are possible explanations for why the minimum wage is not guaranteed to help reduce poverty in the US.

  • 37. 
    Suppose we want to help low‐income renters and reduce the incidence of homelessness and we are considering a rent control policy and a housing subsidy. Which of the following statements regarding these two competing policies is true?
    • A. 

      A binding rent control policy results in a loss of affordable housing while a housing subsidy results in an increase in affordable housing.

    • B. 

      A binding rent control policy has no direct expense to taxpayers while a subsidy policy requires taxpayers pay more in taxes to finance the subsidy being offered to low‐income renters and/or affordable housing landlords.

    • C. 

      Both policies result in resource misallocation and deadweight loss.

    • D. 

      All of the above.

  • 38. 
    Which policy will be more beneficial to low‐income renters, a $300 per month housing subsidyprovided to renters or a $300 per month housing subsidy provided to landlords?
    • A. 

      It would be better to offer the subsidy directly to the renters so that they pay $300 per month less for their apartment rent.

    • B. 

      T would be better to offer the subsidy directly to the landlords so that they find it more profitable to rent to lower income renters, making more apartments available.

    • C. 

      It doesn’t matter whether we offer it to the renters or to the landlords since it will be shared by renters and landlords according to how responsive each is to price changes.

    • D. 

      It doesn’t matter whether we offer it to the renters or to the landlords since it will always be shared equally between the two.

  • 39. 
    The following rule describes how a subsidy gets shared: Whoever is _____ more responsive to price changes gets _____ of the subsidy.
    • A. 

      More; less

    • B. 

      More; more

    • C. 

      Less; less

    • D. 

      None of the above

  • 40. 
    If we place offer a subsidy to buyers we can expect buyer’s price to be ______ than seller’s price and if we offer a subsidy to sellers we can expect buyer’s price to be _____ than seller’s price.
    • A. 

      Higher; higher

    • B. 

      Higher; lower

    • C. 

      Lower; lower

    • D. 

      Lower; higher