Economics Midterm Study Guide
Midterm Questions
- 1.Economics
- A.
Studies human behavior when scarcity exists and choices must be made
- B.
Provides the only reasonable explanation of how people make decisions
- C.
Is better at showing the way things ought to be than the other social sciences are
- D.
Is the only social science that can explain the existence and behavior of public institutions
- 2.Macroeconomics is best described as the study of
- A.
The behavior of large firms in the marketplace
- B.
The economic behavior of individual decision makers
- C.
The behavior of the economy as a whole
- D.
The actions and reactions of the rest of the world
- 3.Which of the following is the best example of a microeconomic topic?
- A.
The impact of aggregate demand on recession.
- B.
The reasons for the increase in the price of a soft drink.
- C.
The effect that money supply has on the interest rate.
- D.
The tradeoff between inflation and unemployment.
- 4.A model is defined as a:
- A.
Description of all variables affecting a situation.
- B.
Positive analysis of all variables affecting an event.
- C.
Simplified description of reality to understand and predict an economic event.
- D.
Prediction based on historical evidence.
- 5.Opportunity cost is defined
- A.
Only in terms of money spent
- B.
As the sum of the values of all alternatives not chosen
- C.
As the value of the best alternative not chosen
- D.
As the difference between the benefits of your choice and the costs of your choice
- 6.If all resources are used efficiently to produce goods and services, a nation will find itself producing
- A.
Inside its production possibilities frontier
- B.
Somewhere on and along its production possibilities frontier
- C.
Outside of its production possibilities frontier
- D.
More of one product with no decrease in the production of any other product
- 7.Gross Domestic Product (GDP) equals the
- A.
Total output of all goods and services
- B.
Market value of final goods and services produced in a nation in a given year
- C.
Value added to the economy by intermediate goods and services minus original cost
- D.
Production by the rest of the world
- 8.Which of the following items is included in the calculation of GDP?
- A.
Purchase of 100 shares of General Motors stock.
- B.
Purchase of a used car.
- C.
Purchase of an intermediate good.
- D.
None of the above would be included.
- 9.All final goods and services that make up GDP can be expressed in the form:
- A.
GDP = C + I - G + X + M.
- B.
GDP = C + I + G + X + M.
- C.
GDP = C + I + G + X - M.
- D.
GDP = C + I + X - M.
- 10.If real GDP increased by 3 percent, then
- A.
The price level has increased by 3 percent
- B.
Real output/production has increased by 3 percent
- C.
The increase might have been caused by an increase in the price level or output, but we cannot tell for sure
- D.
Government spending increased by 3 percent
- 11.National income account (billions of dollars) Personal consumption expenditures (C) $500 Government expenditures (G) 50 Gross private domestic investment (I) 300 Exports (X) 50 Imports (M) 100 As shown in the above exhibit, GDP as calculated by the expenditure approach is
- A.
$500 billion.
- B.
$800 billion.
- C.
$1000 billion.
- D.
$900 billion.
- 12.In order to demand a good, the buyer must
- A.
Want the good very much
- B.
Be both willing and able to pay for it
- C.
Think that the good has significant utility
- D.
Be aware of the opportunity costs
- 13.Which of the following is not true regarding a change in quantity demanded?
- A.
A change in quantity demanded is shown by a movement along a given demand curve.
- B.
The demand curve shifts whenever the quantity demanded changes.
- C.
Quantity demanded is the single response to a price change.
- D.
The lower the price of a product, other things constant, the higher the quantity demanded.
- 14.A demand curve usually has a
- A.
Negative slope because price and quantity demanded are inversely related
- B.
Zero slope because price and quantity demanded are not related
- C.
Positive slope because price and quantity demanded are positively related
- D.
Infinite slope because price and quantity demanded are not related
- 15.If the price of peanut butter increases, other things constant, demand for jelly will
- A.
Increase because the goods are substitutes
- B.
Decrease because the goods are substitutes
- C.
Decrease because the goods are complements
- D.
Increase because the goods are complements
- 16.An improvement in a firm's technology that reduces its production costs will result in a (an):
- A.
Rightward shift of the supply curve.
- B.
Increase in supply.
- C.
Increase in quantity supplied at any given price.
- D.
All of the above are true.
- 17.Economists emphasize the importance of equilibrium in markets because
- A.
Trading in markets can only occur at the equilibrium price and quantity
- B.
The behavior of buyers and sellers will automatically guide the market toward the equilibrium price and quantity
- C.
It represents a compromise between sellers hoping for low prices and buyers searching for high prices
- D.
It is the only price-quantity combination that guarantees that the poorest members of society can purchase the good or service
- 18.If the tea harvest is very good in a particular year, the supply of tea will be
- A.
Higher, its price will be lower, and demand for coffee will go up
- B.
Higher, its price will be higher, and demand for coffee will go up
- C.
Higher, its price will be higher, and demand for coffee will go down
- D.
Higher, its price will be lower, and demand for coffee will go down
- 19.Which of the following statements are true?
- A.
Total utility is the satisfaction from the entire consumption of a good.
- B.
Utility measures the satisfaction obtained from a good.
- C.
Marginal utility is the additional satisfaction from consuming the last unit of a good.
- D.
All of the above are true.
- 20.When the additional satisfaction from a good declines as more of it is consumed, this illustrates the law of
- A.
Declining demand
- B.
Diminishing marginal utility
- C.
Increasing opportunity costs
- D.
Exceptional marginal utility
- 21.If Stimpson University increases tuition in order to increase its revenue, it will:
- A.
Be successful if demand is elastic.
- B.
Be successful if demand is inelastic.
- C.
Be successful if supply is elastic.
- D.
Be successful if supply is inelastic.
- 22.If the quantity of concert tickets sold decreases by 10 percent when the price increases by 5 percent, the price elasticity of demand over this range of the demand curve is:
- A.
Price elastic.
- B.
Price inelastic.
- C.
Unit elastic.
- D.
None of the above
- 23.The short run is a period of time:
- A.
In which the availability of at least one resource is fixed.
- B.
That is long enough to permit changes in the all the firm’s resources.
- C.
In which production occurs within one year.
- D.
In which production occurs within six months.
- 24.Marginal physical product is
- A.
Equal to the average output of a worker
- B.
The additional utility a consumer gets from the last unit of a product
- C.
The additional output from using one more unit of labor
- D.
Equal to the total product of labor
- 25.____ is the situation in which the marginal product of labor is declining as more labor is hired.
- A.
Law of demand
- B.
Diminishing supply
- C.
Diminishing marginal returns
- D.
Returns to scale
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