ECO 103-080
EXAM REVIEW SHEETS AND PRACTICE EXAM QUESTIONS
STUDY GUIDE FOR ECO 103-080,
EXAM 1, chapters 1,2, 15, 16, 17 and videos 1, 2, 15,
16, 17.
Make
sure that you know the following before taking exam 1
·
What
does economics deal with?
·
What
are the 3 basic categories of resources?
·
Who
was adam smith?
·
What
are positive and normative economics?
·
What
is a production possibilities curve (ppc)?
·
What
is the law of demand?
·
What
does equilibrium mean?
·
What
is the difference between a change in demand and a change in quantity demanded?
·
What
causes shortages and surpluses?
·
What
is the difference between corporations and unincorporated businesses?
·
What
is a production function?
·
What
is the difference between fixed and variable inputs?
·
What
are the pros and cons of corporations, proprietorships, and partnerships?
·
What
is the law of diminishing marginal returns?
·
What
condition must hold true in order for a firm to minimize costs?
·
What
is utility?
·
What
is the law of diminishing marginal utility?
·
What
condition must hold true in order for a consumer to maximize utility?
·
What
are fixed costs, variable costs, marginal costs?
·
What
are increasing and decreasing returns to scale?
·
What
is the relationship between average cost and marginal cost?
·
What
is opportunity cost?
·
What
is price elasticity of demand?
·
What
determines price elasticity of demand?
·
How
do you calculate price elasticity of demand?
·
What
is meant by elastic and inelastic?
·
What
is the cross-elasticity of demand?
·
What
does cross elasticity tell you about substitutes and complements?
·
What
factors have been involved in the nations farm
problem?
PRACTICE FOR EXAM 1, ECO
103-080
1.
Over
time the American economy has had:
(a)
fluctuations in growth and unemployment.
(b)
full employment without serious inflation.
(c)
continuous growth in output per person.
(d)
persistent deflation.
(e)
steadily increasing unemployment.
2.
Human
wants and desires:
(a)
are rarely influenced by advertising or
cultural factors.
(b)
can be classified into the categories of
land, labor, and capital.
(c)
are more readily satisfied when labor
productivity declines.
(d)
appear to be insatiable in the aggregate.
(e)
fall dramatically as incomes rise in the
economy.
3.
The
concept of scarcity:
(a)
refers to the fact that people only desire what
they cannot have.
(b)
is no longer relevant to the
(c)
creates
the need to choose how to allocate resources.
(d)
emphasizes
the need to conserve free resources.
(e)
means
that every country can produce enough to fully satisfy every citizen’s wants.
4.
If a
graph of two variables shows a downward sloping relationship, that relationship
is considered to be:
(a)
inverse.
(b)
positive.
(c)
normative.
(d)
variable.
(e)
independent.
5.
One
of the four basic tasks any economic system must perform is:
(a)
measuring
the size of its production possibilities curve.
(b)
conducting
a population census.
(c)
eliminating
free resources.
(d)
classifying
economic resources.
(e)
determining
the kinds of goods to be produced and the amount of each.
6.
The
(a)
pragmatic
socialism.
(b)
opportunistic
imperialism.
(c)
militaristic
capitalism.
(d)
pure
capitalism.
(e)
mixed
capitalism.
7.
In
the
(a)
government.
(b)
consumers.
(c)
unions.
(d)
firms.
(e)
nonprofit
organizations.
8.
Increases
in demand are caused by:
(a)
decreases
in price.
(b)
increases
in costs or production.
(c)
decreases
in the prices of substitute goods.
(d)
increases
in income.
(e)
decreases
in the number of consumers in the market.
9.
A
fall in which of the following will increase the demand for large automobiles?
(a)
the
price of small automobiles.
(b)
the
price of gasoline.
(c)
the
price of large automobiles.
(d)
buyers’
incomes.
(e)
consumer
preferences for driving large automobiles.
10.
At
the equilibrium price:
(a)
scarcity
is eliminated.
(b)
everyone
is content.
(c)
there
is no inflation.
(d)
price
equals quantity.
(e)
quantity
demanded equals quantity supplied.
11.
In
free markets, the price system encourages producers to meet consumers’ wants
because:
(a)
it
signals producers as to which goods will be profitable.
(b)
producers
have the public interest in mind.
(c)
it
allows the government to direct firms to the best technique.
(d)
it
rewards consumers for the resources they bring to the marketplace.
(e)
consumers
are generally willing to pay more than the actual price.
12.
Smaller
auto firms such as Studebaker were unable to survive in the post-World War II
era in part because:
(a)
of
Japanese competition.
(b)
of
antitrust actions by the U.S. Department of Justice.
(c)
the
reliability and durability of their cars were unsatisfactory.
(d)
they
were unable to achieve a scale of production which would lower unit costs.
(e)
they
were organized as proprietorships rather than corporations.
13.
Rank
the three basic forms of business organization in order of their frequency:
(a)
proprietorships,
corporations, partnerships.
(b)
corporations,
proprietorships, partnerships.
(c)
partnerships,
proprietorships, corporations.
(d)
proprietorships,
partnerships, corporations.
(e)
corporations,
partnerships, proprietorships.
14.
An
advantage of proprietorship is that the owner is faced with:
(a)
complete
control.
(b)
easy-to-obtain
financing.
(c)
unlimited
liability.
(d)
limited
liability.
(e)
lower
tax rates than those applicable to a partnership.
15.
The
corporate form of business has the major advantage of:
(a)
less
red tape.
(b)
no
double taxation.
(c)
limited
liability.
(d)
unlimited
liability.
(e)
complete
control.
16.
The
standard assumption in economic analysis is that firms attempt to maximize:
(a)
sales.
(b)
profits.
(c)
costs.
(d)
reliability
(e)
production.
17.
The
technical relationship between inputs and outputs is called the:
(a)
balance
sheet.
(b)
income
statement.
(c)
production
function.
(d)
“technostructure”.
(e)
net
worth.
18.
The
distinction between variable and fixed inputs:
(a)
can
only be made in the long run.
(b)
can
be made by calculating the difference between an input’s marginal product and
its average product.
(c)
is
based on the time period under consideration.
(d)
is
that variable inputs are not subject to the law of diminishing returns.
(e)
reflects
the difference between human and nonhuman inputs.
19.
In
the short run:
(a)
all
of the firm’s inputs are fixed.
(b)
at
least one of the firm’s inputs is fixed.
(c)
none
of the firm’s inputs are fixed.
(d)
the
output of the firm is fixed.
(e)
only
things that are broken can be fixed.
20.
The
addition to total output which is due to the addition of the last unit of an
input is the:
(a)
cost
of the input.
(b)
supply
of the input.
(c)
average
product of the input.
(d)
marginal
product of the input.
(e)
combined
product of the input.
21.
One
reason for the appearance of diminishing returns is that:
(a)
each
additional unit of an input will have proportionately less of the other units
with which to work.
(b)
the
fixed inputs cannot produce any more as more units of a variable input are
added.
(c)
whenever
inputs are added to a production process, output will fall because of increased
inefficiency.
(d)
the
marginal product will continually rise whenever output is increased.
(e)
specialization
becomes impossible as more units of a variable input are added to a fixed
input.
22.
If
for a firm, the price of input A is 4 times the price of input B, costs will be
minimized for a given level of output when the:
(a)
firm
uses 4 times as much input A as input B.
(b)
total
product of input A is 4 times greater than the total product of input B.
(c)
average
product of input A is 4 times greater than the average product of input B.
(d)
marginal
product of input A is 4 times greater than the marginal product of input B.
(e)
total
products of both A and B are equal to 4 times the marginal products of inputs A
and B.
23.
Utility
is a measure of:
(a)
output.
(b)
usefulness.
(c)
satisfaction.
(d)
indifference.
(e)
demand.
24.
If the
marginal utilities from consuming the first 5 units of a commodity are 10, 16,
15, 12, and 9 respectively, then the total utility received from consuming 4
units is:
(a)
12.
(b)
27.
(c)
41.
(d)
53.
(e)
62.
25.
The
law of diminishing marginal utility implies that:
(a)
as
people consume more and more goods their happiness diminishes.
(b)
a
person’s satisfaction declines as more and more of a particular good is
consumed.
(c)
a
person’s satisfaction rises indefinitely as additional units of a commodity are
consumed.
(d)
increases
in a person’s satisfaction will eventually decline as more and more units of a
commodity are consumed.
(e)
as a
person’s income rises, consumption of all commodities falls.
26.
A
consumer buying food and clothing is in equilibrium when:
(a)
the
marginal utilities of food and clothing equal the total utilities of food and
clothing.
(b)
the
marginal utility of the last dollar spent on food equals the marginal utility
of the last dollar spend on clothing.
(c)
the
marginal utilities of both goods are the same.
(d)
the
marginal utilities of both goods are the greatest.
(e)
the
marginal utility of food equals the price of food and the marginal utility of
clothing equals the price of clothing.
27.
If
the marginal utility of food divided by the price of food exceeds the marginal
utility of clothing divided by the price of clothing:
(a)
the
price of food is too high and less food should be purchased.
(b)
the
total utility received from food exceeds the total utility received from
clothing.
(c)
more
should be spent on food and less on clothing.
(d)
more
clothing should be purchased to raise the marginal utility of the last dollar
spent.
(e)
the
price of clothing must exceed the price of food.
28.
(a)
the
variable cost a firm incurs by increasing output one unit.
(b)
the
value of the best alternative use of a firm’s resources.
(c)
the
output opportunities a firm gains when average fixed costs decline.
(d)
another
name for explicit costs.
(e)
the
difference between fixed cost and variable cost.
29.
The
basic difference between explicit and implicit costs is:
(a)
explicit
costs are measurable, implicit costs are not.
(b)
implicit
costs are measurable, explicit costs are not.
(c)
explicit
costs are private costs, implicit costs are social costs.
(d)
explicit
costs are fixed costs, implicit costs are variable costs.
(e)
explicit
costs reflect externally supplied resources, implicit costs reflect
owner-supplied resources.
30.
Short-run
costs which do not change as output increases or decreases are called:
(a)
explicit
costs.
(b)
total
fixed costs.
(c)
empirical
costs.
(d)
marginal
costs.
(e)
primary
costs.
31.
The addition
to total cost resulting from the addition of the last unit of output is called
the:
(a)
total
variable cost.
(b)
average
variable cost.
(c)
fixed
cost.
(d)
implicit
cost.
(e)
marginal
cost.
32.
A
rising marginal cost curve will intersect the:
(a)
average
fixed cost curve at its minimum point.
(b)
total
cost curve at its minimum point.
(c)
production
function at its maximum point.
(d)
average
variable and average total cost curves at their minimum points.
(e)
explicit
and implicit cost curves at their maximum points.
33.
A
possible reason for the existence of increasing returns to scale is:
(a)
the
inability of a firm to increase all inputs proportionately.
(b)
problems
of coordination and control.
(c)
higher
input prices.
(d)
larger
fixed costs with a larger plant size.
(e)
greater
specialization.
34.
Difficulties
in coordinating and transmitting information in a large firm can lead to:
(a)
increasing
returns to scale.
(b)
falling
long run marginal cost curves.
(c)
L-shaped
long run average total cost curves.
(d)
decreasing
returns to scale.
(e)
linear
total cost functions.
35.
A market
demand curve shows:
(a)
what
price will prevail in the marketplace.
(b)
how
much of a commodity will be purchased in a given period of time at various
prices.
(c)
the
rate at which consumption of a commodity will increase as income goes up.
(d)
the
minimum price consumers will have to pay to get a certain quantity.
(e)
that
as price goes up consumers will spend more money on a commodity.
36.
Price
elasticity of demand is defined as the:
(a)
percentage
increase in price induced by a decrease in demand.
(b)
absolute
change in quantity demanded divided by the absolute change in price.
(c)
maximum
amount consumers will pay for increased quantity.
(d)
percentage
amount by which price can change without affecting quantity demanded.
(e)
percentage
change in quantity demanded induced by a one percent change in price.
37.
A
recent sale at a department store advertised 50% price reductions on
clothing. The store’s clothing sales
increased by 200%. The price elasticity
of demand was:
(a)
.25.
(b)
.5.
(c)
1.0.
(d)
2.5.
(e)
4.0.
38.
The important
determinants of the price elasticity of demand are:
(a)
the
number and closeness of available substitutes, importance in consumers’
budgets, and length of the time period.
(b)
the
number of markets, size of buyers’ incomes, and empirical validity.
(c)
the
number of firms, number of variables that must be held constant, and degree
which markets are separable.
(d)
the
scope and method of measurement and calculation and the transitivity of
preferences.
(e)
the
state of technology, size of the firm’s plants, and the size of the absolute
change in input prices and quantity.
39.
If
price elasticity of demand is .3, the demand for the commodity is:
(a)
of
unitary elasticity.
(b)
price
post-elastic.
(c)
price
elastic.
(d)
price
inelastic.
(e)
price
pre-elastic.
40.
The
next 2 questions are based on the following information. On
(a)
.17.
(b)
.30.
(c)
.50.
(d)
1.
(e)
6.
41.
If
the Turnpike Commission is correct in its estimate of the price elasticity of
demand, Turnpike revenue will:
(a)
rise
initially, then fall.
(b)
fall
initially, then rise.
(c)
not
change.
(d)
rise.
(e)
fall.
42.
When
the total amount spent on a commodity remains unchanged as price is raised or
lowered, demand is said to be:
(a)
of
absolute elasticity.
(b)
income
inelastic.
(c)
of
unitary elasticity.
(d)
price
inelastic.
(e)
price
elastic.
43.
One
way to define luxuries (as opposed to necessities) is to say that luxuries are
those goods:
(a)
purchased
by consumers with high incomes.
(b)
with
high prices.
(c)
with
high income elasticities of demand.
(d)
for
which substitutes are readily available.
(e)
for
which substitutes are not readily available.
44.
A
negative cross elasticity of demand indicates that two commodities are:
(a)
luxuries.
(b)
necessities.
(c)
unrelated.
(d)
substitutes.
(e)
complements.
45.
The
nation’s farm problem follows from:
(a)
a
price inelastic demand curve for farm goods coupled with changes in the supply curve
leading to great variations in price.
(b)
market
demand curves derived by summing across individual demand curves.
(c)
The
lack of good substitutes creating price elastic demand curves.
(d)
Shifts
in the demand curve, which are greater than shifts in the supply curve over
time.
(e)
Too
few farmers to permit the efficient operation of free markets.
Answer
Key for ECO 103-080 Exam 1 Practice Questions
1. a 23. c
2. d 24. d
3. c 25. d
4. a 26. b
5. e 27. c
6. e 28. b
7. d 29. e
8. d 30. b
9. b 31. e
10. e 32. d
11. a 33. e
12. d 34. d
13. a 35. b
14. a 36. e
15. c 37. e
16. b 38. a
17. c 39. d
18. c 40. a
19. b 41. d
20. d 42. c
21. a 43. c
22. d 44. e
45. a
STUDY GUIDE FOR ECO 103-080, EXAM 2
MAKE SURE THAT YOU KNOW THE FOLLOWING BEFORE TAKING EXAM 2.
Chapter 18:
· What Are The Characteristics Of Perfect Competition?
· What are the 4 basic market structures and their characteristics?
· What Kind Of A Demand Curve Is Faced By A Firm In Perfect Competition?
· What Is The Golden Rule Of Output Determination For Perfect Competition?
· When Should A Firm Continue Operating At A Short-Run Loss?
· What Is The Difference Between The Short Run, and the Long Run in perfect competition?
· What are price ceilings and price supports? (see case study 18.1 and the video)
· What Is The Long-Run Equilibrium In Perfect Competition?
Chapter 19
· What Is Monopoly?
· What Is A Natural Monopoly?
· What factors can lead to a firm becoming a monopoly?
· What are network effects?
· What Is Marginal Revenue? How Is It Calculated?
· What Do The Demand And Marginal Revenue Curves Look Like In Monopoly?
· What Is The Golden Rule Of Output Determination For a monopolist?
· How Do The Price Of Output Of A Monopolist Compare With That Of A Firm In Perfect Competition?
· What Are The Arguments Against Monopoly?
· How are monopolies regulated?
· What is marginal cost pricing? What is average cost pricing?
· What is historical or reproduction cost?
· What effect might regulation have on efficiency?
· What was the deregulation movement of the 70’s and 80’s?
· What are some arguments, by Schumpeter and Galbraith, in favor of monopoly power?
Chapter 20
· What Is Monopolistic Competition?
· What Are The Characteristics Of Monopolistic Competition?
· What Is Oligopoly?
· What Are The Characteristics Of Oligopoly?
· What is the difference between pure oligopoly and differentiated oligopoly?
· What do the demand and marginal revenue curves look like in monopolistic competion?
· How does a firm in monopolistic competition choose output and price to maximize profits?
· How does price and output in monopolistic competition compare with monopoly and perfect competition?
· What Are Some Barriers To Entry?
· What Is Collusion?
· What is a cartel?
· What Is The Theory Of Games?
· How Is Game Theory Useful In Studying Oligopoly?
· What Is The Price Leadership Model Of Oligopoly?
· What Are The Antitrust Laws?
·
What Did The
· What Did The Clayton Act Outlaw?
· What is the Federal Trade Commission act?
· What was the rule of reason?
· What is meant by nonprice competition?
Understand The Basic Graphs Used In Perfect Competition And Monopoly.
PRACTICE FOR EXAM 2, ECO 103-080
1. A market consisting of many firms producing homogeneous products having complete knowledge of relevant information, no power over the product’s market price, and low barriers to entry is characteristic of:
(a) perfect competition.
(b) monopoly.
(c) monopolistic competition.
(d) oligopoly.
(e) none of the above markets.
2. A market consisting of many firms, low barriers to entry, some control over price, but considerable nonprice competition is characteristic of:
(a) perfect competition.
(b) monopoly.
(c) monopolistic competition.
(d) oligopoly.
(e) none of the above markets.
3. Which set of characteristics best identifies an oligopoly market?
(a) many firms, homogeneous product, significant barriers to entry, significant nonprice competition, considerable power over price.
(b) few firms, differentiated product, no barriers to entry, the absence of nonprice competition, considerable advertising.
(c) one firm producing a product with no close substitutes, significant barriers to entry, considerable power over price.
(d) many firms, differentiated product, few barriers to entry, nonprice competition.
(e) few firms, differentiated product, significant barriers to entry, significant amounts of nonprice competition.
4. The perfectly competitive firm:
(a) strives to produce at the lowest total cost possible.
(b) is forced to respond to price actions of rival producers.
(c) cannot affect the price of its product because of government regulation.
(d) is a price maker.
(e) is able to sell all it can produce at the prevailing price.
5. A perfectly competitive firm faces a demand curve which is:
(a) downward sloping.
(b) horizontal.
(c) greater than the market price.
(d) equal to the total costs of production for each level of output.
(e) nonexistent.
6. The Golden Rule of Output Determination for a perfectly competitive firm is to:
(a) choose the output rate at which price is greatest.
(b) choose the output rate at which price equals marginal cost.
(c) produce to the point of diminishing marginal returns.
(d) produce until total revenue exceeds total cost.
(e) choose the output rate at which total cost is the lowest.
7. It would not pay a firm to produce anything in the short run if price were:
(a) above average total cost.
(b) equal to marginal cost and above the average variable cost.
(c) equal to total revenue divided by output.
(d) below average variable cost.
(e) below marginal average cost.
8. If a perfectly competitive firm in the short run can sell its output at $2.50 per bushel and it has an average variable cost of $1.75 per bushel and a marginal cost of $0.85 per bushel, it should:
(a) expand output.
(b) raise its price.
(c) cut output to zero.
(d) advertise.
(e) do nothing at all; is to currently maximizing profits.
9. Perfectly competitive firms will have zero economic profits in the long run because:
(a) they all produce slightly different products.
(b) of nonprice competition.
(c) of freedom of entry and exit.
(d) of the outgrowth of advertising expenditures.
(e) of the law of diminishing marginal utility.
10. In the long run, what adjustments take place when a perfectly competitive market in long run equilibrium experiences an increase in demand?
(a) price and profits fall, causing new firms to enter and existing firms to expand.
(b) prices and output remain fixed.
(c) price rises, but output remains unchanged.
(d) price rises and firms expand output by using existing capacity more intensively.
(e) new firms enter and existing firms expand capacity leading to an increase in supply and decline in price.
11.
One of the major long-term effects of rent
controls in
(a) an increase in the average size of an apartment
(b) the creation of above-average profits for landlords
(c) a surplus of affordable housing units
(d)
a rapid increase in the rate of population
growth in
(e) the abandonment of buildings, reducing the number of rental units available to consumers
12. Which of the following would help to establish a monopoly?
(a) possession of patent or copyright privileges.
(b) sharply increasing average cost at low rates of output.
(c) minimal industry barriers to entry for new products.
(d) a perfectly elastic demand curve for the product.
(e) the need to buy basic inputs in the world market.
13. A basic characteristic of natural monopoly is:
(a) that the firm has control over the entire supply of a basic input.
(b) that a firm is protected by a government franchise.
(c) patent protection of certain basic processes.
(d) continuously decreasing average costs as the firm expands output.
(e) collusion with other competitors in an attempt to divide up the market.
14. Suppose a firm produces heavy machinery and can sell 10 units per month at a price of $50,000. In order to increase sales to 11 units per month, the firm must cut its price to $46,000. The marginal revenue for selling one extra unit per month is:
(a) $363.
(b) $4,000.
(c) $4,182.
(d) $6,000.
(e) $46,000.
15. Marginal revenue:
(a) generally rises as output increases.
(b) exceeds price under conditions of monopoly.
(c) is the addition to total revenue from the sale of one more unit.
(d) coincides with marginal cost at each level of output.
(e) is another name for profit.
16. When marginal revenue exceeds marginal cost, a monopolist should:
(a) expand output.
(b) discontinue production.
(c) raise price.
(d) reduce demand.
(e) encourage new firms to compete with it.
17. For a monopolist the Golden Rule of Output Determination is to set the output rate at the point where marginal revenue equals:
(a) price.
(b) marginal cost.
(c) profits.
(d) output.
(e) zero.
18. The next 2 questions are based on the following diagram of a monopolist:
$ E
D
C
QUANTITY B
A
To maximize profits the firm will produce an output rate of:
(a) OA.
(b)
(c) OC.
(d) OD.
(e) OE.
19. To maximize profits the firm will charge a price of:
(a) OA.
(b)
(c) OC.
(d) OD.
(e) OE.
20. Compared to a perfectly competitive industry in long-run equilibrium, an industry under monopoly:
(a) may realize economic profits in the long run.
(b) may sustain losses indefinitely and still remain in business.
(c) will actively encourage competitions and thereby increase profits.
(d) will continue to expand until profits are reduced to zero.
(e) can sell at a price below AVC and earn economic profits.
21. A basic problem with public regulation is that:
(a) regulatory agencies exist at the state, but not at the federal level of government and thus lack power.
(b) it is difficult to decide what constitutes a “fair” rate of return.
(c) it inevitably expands so that ultimately all production is nationalized.
(d) regulatory commissions set only minimum prices that regulated firms can charge, thus promoting excessive entry of new firms into regulated markets.
(e) regulation requires that modestly-staffed government agencies make the day-to-day operating decisions of regulated firms.
22. Which of the following firms is the best example of one that has achieved its monopoly advantage because of network externalities?
(a) General Motors
(b) General Electric
(c) Alcoa
(d) Union Pacific Railroad
(e) Microsoft
23. The basic distinction between perfect competition and monopolistic competition is that:
(a) in perfect competition there are many sellers; in monopolistic competition, there are a few.
(b) entry into a market is easy for a new seller in perfect competition while it is difficult in monopolistic competition.
(c) firms in perfect competition must advertise to sell their produce, but since they have a monopoly, monopolistically competitive firms do not.
(d) perfectly competitive firms produce an identical product, but monopolistically competitive firms produce similar products.
(e) a perfectly competitive firm will produce with an excess capacity in the long run; a monopolistically competitive firm will not.
24. Which of the following markets is the best example of differentiated oligopoly?
(a) steel
(b) cement.
(c) automobiles.
(d) electricity.
(e) agriculture.
25. Product differentiation gives the producer only a small amount of monopoly power because:
(a) there can be little or no substitution between product groups.
(b) the monopolistic competitor faces a downward-sloping demand curve.
(c) the presence of excess capacity gives the producer some freedom to vary output.
(d) the product may be unique but close substitutes are available.
(e) the industry is difficult to define and hence cannot be regulated.
26. Monopolistically competitive markets will tend to be characterized by:
(a) excessive economic profits in the long run.
(b) interdependence among sellers.
(c) overcrowding and excess capacity.
(d) perfectly elastic demand curves.
(e) homogeneous products.
27. Which of the following describes oligopolistic interdependence?
(a) each ologopolist makes price and output policies with their effect on other firms in mind.
(b) there are important external diseconomies in an oligopolistic market.
(c) each firm is unable to change the price determined in the marketplace except through advertising.
(d) there is inevitably collusion between producers.
(e) within each product group, each oligopolist’s product is identical.
28. The most frequently found barriers to entry in oligopoly include:
(a) the presence of large numbers of rival firms, firms that are price takers, and the likelihood of normal returns in the long run.
(b) inability to differentiate product, diseconomies of scale, and the need to advertise.
(c) mutual interdependence, collusion, and the likelihood of government regulation.
(d) the ambiguity of product groups and rising long run average costs.
(e) patents, large initial and continuing financial requirements, access to basic inputs.
29. In game theory the outcomes of various strategies for two players can be summarized in a(n):
(a) payoff matrix.
(b) balance sheet.
(c)
income statement.
(d)
T-accent.
(e)
pie chart.
30. When firms get together and agree on prices and output, it is called:
(a) price leadership.
(b) rule of reason.
(c) monopolistic competition.
(d) collusion.
(e) intermediation.
31. The presence of a price leader in an oligopolistic industry:
(a) implies that one firm can consistently charge the highest price.
(b) allows firms to coordinate their behavior short of outright collusion.
(c) decreases the profits of all other firms.
(d) is illegal according to the Sherman Antitrust Act.
(e) leads naturally to the cost-plus pricing by other firms in the industry.
32. Oligopolists prefer to compete through advertising and product differentiation because:
(a) the greater the degree of product differentiation in the mind of the consumer, the greater the degree of interdependence among rivals.
(b) price wars are illegal according to existing antitrust statutes.
(c) advertising and product development enable them to realize greater profits without increasing market share.
(d) rivals may find it easier to respond to a price decrease than a style change or advertising campaign.
(e) it doesn’t pay to raise price when the demand curve is highly price inelastic.
33.
The
(a) outlawed conspiracy in restraint of trade.
(b) outlawed the use of tying contracts.
(c) established the rule of reason.
(d) created the Federal Trade Commission.
(e) all of the above.
34. The law which outlawed unjustified price discrimination and the use of tying contracts and mergers that substantially lessen competition is called the:
(a)
(b) Federal Trade Commission Act.
(c) Clayton Act.
(d) Webb-Pomerene Act.
(e) Celler-Kefauver Act.
35. In the late 1930s with the ALCOA case, the courts changed their former interpretation of antitrust laws to:
(a) reflect the rule of reason.
(b) allow all but over monopoly pricing behavior by a firm.
(c) focus primarily on a firm’s share of the market rather than its market conduct.
(d) find that only those firms that behaved collusively were violating the antitrust laws.
(e) reiterate that mere size was not an offense.
Answer Key for ECO 103-080 Exam 2 Practice Questions
1. a
2. c
3. e
4. e
5. b
6. b
7. d
8. a
9. c
10. e
11. e
12. a
13. d
14. d
15. c
16. a
17. b
18. a
19. e
20. a
21. b
22. e
23. d
24. c
25. d
26. c
27. a
28. e
29. a
30. d
31. b
32. d
33. a
34. c
35. c
STUDY GUIDE FOR ECO 103-080, EXAM 3
MAKE SURE THAT YOU UNDERSTAND THE FOLLOWING BEFORE TAKING EXAM 3
· What are external economies and diseconomies?
· What is the major source of air pollution?
· How does the presence of external economies and diseconomies affect production from a social point of view?
· What is the difference between private costs and social costs?
· What types of programs can be used to control pollution, such as direct regulation, effluent fees, transferable emissions permits, and tax credits?
· What are the effects of pollution control programs?
· What happened at the Kyoto Environmental Summit in 1997? (see case study 21.2)
· How can we determine the optimal level of pollution?
· What is global warming and what are its effects? (see cross chapter case, p.507)
· What is cost-benefit analysis?
· What is the price of labor?
· What is the difference between money wages and real wages?
· What is the value of marginal product? How is it calculated?
· What is the profit maximizing quantity of labor?
· What is meant by derived demand?
· What is the backward bending labor supply curve?
· How do labor supply and demand determine the equilibrium price and quantity of labor?
· What happens if the price of labor is not at equilibrium?
· Roughly what percentage of workers belong to unions?
· What are some of the largest unions?
· What is a yellow-dog contract?
· What did the Norris-Laguardia act do?
· What did the Wagner act do?
· What did the Taft-Hartley act do?
· What did the Landrum-Griffin act do?
· When did unions achieve their greatest growth?
· What is featherbedding?
· What ways can unions use to raise wages?
· What is a closed shop? A union shop? An open shop?
· What do right-to-work laws do?
· What is property income?
· What is the rate of interest?
· What is the pure rate of interest?
· How do the demand and supply for loanable funds affect interest rates?
· What functions do interest rates perform?
· What is meant by the capitalization of assets?
· What is meant by present value?
· What is economic rent?
· What is Henry George known for?
· What is the difference between accounting profits and economic profits?
· What are the different theories as to why profits exist? (innovation, uncertainty, and monopoly power?)
· What was Joseph Schumpeters theory of profits?
· What was Marx’s theory of profits?
· What are the major functions that profits perform?
PRACTICE FOR EXAM 3, ECO 103-080
1.
At principal source of air pollution in the
(a) the automobile.
(b) Fertilizers and pesticides.
(c) the steel industry.
(d) nuclear reactors.
(e) Discharges from municipal sewage plants.
2. Suppose a firm dumps pollutants into a stream and thereby renders the water unfit for use by those downstream. This would be an example of:
(a) unfair distribution of income.
(b) an external economy.
(c) an external diseconomy.
(d) a public good.
(e) a transfer payment.
3. When firms do not have to pay the true social costs for resources:
(a) they have an incentive to reduce pollution voluntarily with their excess profits.
(b) the net social benefits are increased.
(c) they will use too little of them from society’s perspective.
(d) no external diseconomies are present.
(e) the public is induced to buy more of that output than they would otherwise buy.
4. Which of the following policies would be least desirable in helping to control pollution?
(a) tax credits for pollution control equipment.
(b) federal grants in aid to municipal and regional agencies for waste cleanup.
(c) zero economic growth.
(d) direct regulation.
(e) effluent fees.
5. The federal agency established in 1970 to establish air and water quality standards and devise rules to achieve these standards is the:
(a) Sierra Club.
(b) Council on Environment Quality.
(c) Council of Economic Advisers.
(d) DDT.
(e) EPA.
6. Pollution control programs can lead to an adverse redistribution of income when:
(a) low income neighborhoods are in close proximity to industrial pollution.
(b) polluting goods and services play a bigger role in the budgets of the poor than of the rich.
(c) such programs result in increased employment opportunities for low income individuals.
(d) the total cost of such programs is paid almost entirely by upper income groups.
(e) the social benefits of control programs fall disproportionately on the poor.
7. A sensible pollution control goal for society is to:
(a) eliminate pollution entirely in the long run.
(b) equate the costs of pollution to the costs of pollution control.
(c) allow pollution if external diseconomies are realized.
(d) allow pollution if the cost of monitoring waste discharge exceeds the effluent fee.
(e) minimize the sum of the costs of pollution and the costs of controlling pollution.
8. The real wage:
(a) equals the amount of goods and services that can be bought with the money wage.
(b) is the amount of money received per unit of time.
(c) unlike the money wage is unaffected by changes in the price level.
(d) will rise faster than the money wage as the price level rises.
(e) is the money wage adjusted for changes in real output.
9. The value of the marginal product is the change in:
(a) output from hiring one more unit of input.
(b) revenue from selling one more unit of output.
(c) cost from hiring one more unit of input.
(d) revenue from one additional dollar of cost.
(e) revenue from hiring one more unit of input.
10. The next 2 questions are based on the following information for a firm under conditions of perfect competition:
Number of workers Marginal product of labor
10 15
11 12
12 10
13 9
14 8
If the price of the product is $5 per unit and the firm must pay $40 per worker employed, how many workers should the firm hire to maximize profits?
(a) 10
(b) 11
(c) 12
(d) 13
(e) 14
11. If the price of labor increases to $50 per worker and the price of the product remains at $5 per unit, how many workers should the firm hire to maximize profits?
(a) 10
(b) 11
(c) 12
(d) 13
(e) 14
12. Which of the following is the best example of derived demand?
(a) advertising creates a demand for a new product.
(b) increased oil prices reduce the demand for large automobiles.
(c) an increase in wages causes firms to substitute capital for labor.
(d) a decrease in the demand for grapes reduced the demand for grape pickers.
(e) the market demand schedule is derived by summing all individual demand curves.
13. Which of the following would most likely face a price-elastic demand for its services? An input which:
(a) has few close substitutes.
(b) has a backward-bending supply curve.
(c) produces a product for which the demand is perfectly elastic.
(d) has a high market price.
(e) has a value of the marginal product curve, which is vertical.
14. The phenomenon of the backward-bending market supply curve for labor:
(a) indicates the declining quality of labor as unemployment decreases.
(b) reflects the policy of labor unions.
(c) results from falling worker productivity as income increases.
(d) results from workers’ increased preference for work as wage rates rise.
(e) indicates a worker’s desire to buy more leisure as income rises.
15.
Approximately what share of nonfarm
workers in the
(a) 1 in 2.
(b) 1 in 4.
(c) 1 in 6.
(d) 1 in 8.
(e) 1 in 10.
16. A yellow-dog contract is an agreement:
(a) by labor not to strike.
(b) by employers not be lockout.
(c) in which a worker agrees not to join a union.
(d) to engage in pattern bargaining.
(e) not to seek injunctions to prevent strikes and lockouts.
17. Efforts by a union representative to organize a union are protected from employer interference by the:
(a) Taft-Hartley Act.
(b) Landrum-Griffin Act.
(c) Norris-LaGuardia Act.
(d)
(e) Wagner Act.
18. The practice of featherbedding may be viewed as a:
(a) decrease in the wage causing an excess demand for labor.
(b) decrease of the labor demand.
(c) increase in the wage causing an excess supply of labor.
(d) increase of the labor demand curve.
(e) increase of the labor supply curve.
19. In a closed shop, workers:
(a) must be union members before they can be hired.
(b) do not have to be union members to work.
(c) must become union members within a certain period of time once they have been hired.
(d) are not able to strike under any circumstances.
(e) sign yellow-dog contracts before they begin work.
20. Rent, interest, and profit are forms of:
(a) bookkeeping income.
(b) property income.
(c) nonproductive income.
(d) surplus income.
(e) fixed income.
21. The pure rate of interest is the:
(a) rate of interest charged for large, as compared to small, loans.
(b) interest rate minus any administrative costs, such as bookkeeping and collection.
(c) difference between the interest rate charged on a loan with no risk and one with a measurable degree of risk.
(d) prime rate of interest.
(e) interest rate on a riskless loan.
22. Small loans carry higher interest rates than large loans because they are:
(a) less risky.
(b) pure loans.
(c) more productive.
(d) more expensive to administer.
(e) very liquid.
23. The demand curve for loanable funds slopes downward to the right because:
(a) there are more projects which are profitable at low than at high rates of interest.
(b) firms will only borrow money when interest rates are low.
(c) an increase in the supply of loanable funds will generally raise interest rates.
(d) the lower the asset’s rate of return, the higher the interest rate.
(e) money is not as profitable when its price is high.
24. If a surge of new inventions results in many profitable investment opportunities, the demand for loanable funds will:
(a) shift to the left causing the interest rate to fall.
(b) shift to the left causing the interest rate to rise.
(c) shift to the right causing the interest rate to rise.
(d) shift to the right causing the interest rate to fall.
(e) be unaffected, but the supply of loanable funds will rise.
25. The primary function of interest rates is to:
(a) determine the demand for labor.
(b) allocate the supply of loanable funds.
(c) compute the rate of profit.
(d) serve as a price for fixed inputs such as land.
(e) serve as a reward for uncompensated risk.
26. If the pure rate of interest is 5% per year, a riskless asset which guarantees to pay the owner $2,000 per year forever would be worth:
(a) $10,000.
(b) $20,000.
(c) $30,000.
(d) $40,000.
(e) An infinite amount.
27. Economic rent is a:
(a) payment above the minimum necessary to make an input available to the economy.
(b) price of an apartment or other leased building.
(c) tax imposed by the government on property.
(d) payment for “free” resources such as air and water.
(e) payment for an input which has many close substitutes readily available.
28. Henry George is best known for his view that:
(a) profits arise as a result of labor exploitation.
(b) capital budgeting is an important activity for a corporation.
(c) the rate of interest is determined by the liquidity preference theory.
(d) all economic profit is the result of uncertainty.
(e) land rent is unearned income, which should be taxed away.
29. Schumpeter argued that:
(a) rents should be taxed away.
(b) profits result from exploitation of labor.
(c) interest is the reward for bearing risk.
(d) profits are derived from innovation.
(e) interest is best explained by the liquidity preference theory.
30. To Marx, profits were:
(a) a reward for risk bearing.
(b) a measure of capital’s productive activity.
(c) a social dividend arising from the capitalist’s efficiency.
(d) a measure of the surplus value created by capital.
(e) that part of labor’s productivity, which the capitalist retains.
Answer Key for ECO 103-080 Exam 3 Practice Questions
1. a
2. c
3. e
4. c
5. e
6. b
7. e
8. a
9. e
10. e
11. c
12. d
13. c
14. e
15. c
16. c
17. e
18. d
19. a
20. b
21. e
22. d
23. a
24. c
25. b
26. d
27. a
28. e
29. d
30. e
STUDY
GUIDE FOR ECO 103-080, FINAL EXAM
MAKE SURE THAT YOU KNOW THE FOLLOWING
BEFORE TAKING THE FINAL EXAM. (ALSO
STUDY THE REVIEWS FOR THE FIRST 3 EXAMS.)
NOTE:
AT LEAST HALF THE
FINAL EXAM WILL BE FROM CHAPTERS 24,25,26, AND
28. THE REMAINING QUESTIONS WILL BE FROM
EARLIER CHAPTERS.
·
TAX
STRUCTURE, PROGRESSIVE AND REGRESSIVE TAXES, WHAT THEY ARE, AND EXAMPLES OF EACH
·
INCOME
INEQUALITY, REASONS FOR INEQUALITY, THE CASE FOR AND AGAINST INEQUALITY, JOHN
RAWLS ARGUMENTS
·
THE
DEFINITION OF POVERTY, TRENDS IN THE AMOUNT OF POVERTY
·
THE
CAUSES OF POVERTY
·
THE
ROLE OF GOVERNMENT IN DEALING WITH POVERTY
·
SOCIAL
INSURANCE PROGRAMS, PROBLEMS WITH THEM, THE NEGATIVE INCOME TAX PLAN
·
GROWTH: WHAT IS IT?
GROWTH VS. WELFARE
·
GOVERNMENT
AND GROWTH
·
MALTHUS
AND GROWTH
·
THE
CLUB OF
·
RICARDO
AND GROWTH, THE CORN LAWS
·
THE
ERROR MADE BY RICARDO AND MALTHUS, UNDERESTIMATING TECHNOLOGICAL CHANGE
·
SCHUMPETER
AND THE ROLE OF INNOVATION
·
THE
FUNCTIONS OF GOVERNMENT, LIBERAL AND CONSERVATIVE VIEWS
·
WHAT
IS A PUBLIC GOOD? EXAMPLES
·
EXTERNALITIES
·
TAX
PRINCIPLES, BENEFIT AND ABILITY TO PAY, EXAMPLES OF TAXES UNDER THESE
·
MARGINAL
TAX RATE
·
FUNCTIONS
OF TAXES, INCIDENCE OF TAXES
·
EFFICIENCY
OF GOVERNMENT
·
OUR
TAX SYSTEM, FEDERAL, STATE AND LOCAL
·
PROPOSITION
13 IN
·
WHAT IS THE EXCHANGE RATE?
·
WHAT IS THE GOLD STANDARD?
·
HOW DID A GOLD STANDARD BRING ABOUT A
BALANCE OF TRADE?
·
WHAT ARE FLUCTUATING EXCHANGE RATES?
·
WHAT DOES APPRECIATION AND DEPRECIATION
OF CURRENCY MEAN?
·
WHAT DOES DEVALUATION OF CURRENCY MEAN?
·
WHAT ARE THE DETERMINANTS OF EXCHANGE
RATES?
·
WHAT ARE FIXED EXCHANGE RATES?
·
WHAT ARE BALANCE OF PAYMENTS DEFICITS AND
SURPLUSES?
·
THE INTERNATIONAL MONETARY FUND? WHY WAS IT FORMED?
·
WHY WAS THE GOLD STANDARD ADANDONED?
·
·
ECONOMICS
AND SCARCITY
·
SUPPLY
AND DEMAND CURVES; AND SHIFTS IN THEM
·
FIRMS
AND EFFICIENCY
·
THE
MEANING OF EQUILIBRIUM PRICE
·
PROS
AND CONS OF DIFFERENT FORMS OF BUSINESS
·
THE
LAW OF DIMINISHING RETURNS, REASONS FOR IT
·
UTILITY,
THE EQUILIBRIUM CONDITION
·
COSTS,
·
MARKET
DEMAND CURVE, PRICE ELASTICITY OF DEMAND, DETERMINANTS OF ELASTICITY,
ELASTICITY AND TOTAL REVENUE, THE FARM PROBLEM
CH.18
·
CHARACTERISTS
OF PERFECT COMPETITION, TOTAL REVENUE, WHEN TO DROP OUT OF THE MARKET
·
MONOPOLY,
GOLDEN RULE OF OUTPUT DETERMINATION, COMPARISON OF PERFECT COMPETITION AND
MONOPOLY, PROBLEMS IN REGULATION OF MONOPOLY
·
OLIGOPOLY,
CARTELS, RIGID PRICES
·
POLUTION,
EXTERNAL ECONOMIES, GOALS FOR POLLUTION
·
REAL
WAGES, NUMBER OF WORKERS TO HIRE IN PERFECT COMPETITION, SUPPLY AND DEMAND
AFFECTS WAGES AND SALARIES
·
MARKET
INTEREST RATE AND THE SUPPLY AND DEMAND FOR LOANABLE FUNDS, SHIFTS IN THESE
CURVES
PRACTICE FOR FINAL EXAM, ECO 103-080
1. Which of the
following would be least likely to contribute to income inequality in the
(a)
differences in the amount of education and training
people receive.
(b)
perfectly
competitive, homogeneous resource markets
(c)
differences
in inherited wealth
(d)
the possession of unique abilities and
skills.
(e)
monopoly power.
2. To say that a tax
is progressive means that:
(a)
the receipts from the tax are used for
research and development.
(b)
it is a tax on income.
(c)
the tax rate remains constant as income
rises; however, the rich pay more in absolute terms than the poor.
(d)
the poor pay a smaller proportion of their
incomes for the tax than do the rich.
(e)
the tax rate declines with increasing income
levels.
3. Sales taxes are
typically considered to be:
(a)
regressive.
(b)
proportional.
(c)
progressive.
(d)
indirect.
(e)
indivisible.
4. It is difficult to
tell whether the corporate income tax is progressive or regressive because:
(a)
the income of stockholders is generally not
known.
(b)
dividends are often paid out to pension funds.
(c)
the corporation may be able to pass on the
tax by charging a higher price.
(d)
dividends are not taxed.
(e)
it may be offset by the personal income
tax.
5. One reason for
rejecting the argument that inequality of income lessens total consumer
satisfaction (because an extra dollar given to a poor man provides him with
more extra satisfaction than the loss of a dollar taken away from a rich man)
is that:
(a)
the rich and the poor have the same capacity
to gain enjoyment from income.
(b)
interpersonal comparisons of satisfaction do not rest
on scientific grounds.
(c)
poor people spend their income on
consumption, whereas the rich invest theirs in capital.
(d)
arguments based on considerations of positive
economics cannot be used to make ethical judgments.
(e)
the rich are more deserving than the poor.
6. Which of the
following best states John Rawls’s argument for income equality?
(a)
a dollar taken from a rich man and given
to a poor man provides the poor man with more satisfaction than the rich man loses.
(b)
income equality encourages people to take risks
to become more productive. If people were framing a constitution for society
without knowing what their class position would be, they would opt for
equality.
(c)
greater income equality leads to significantly
higher rates of capital formation.
(d)
political freedom and economic equality can only
be achieved with a perfectly equal distribution of income.
(e)
political freedom and economic equality can only
be achieved with a perfectly equal distribution of income.
7. Poverty as defined
by the Social Security Administration means having an income:
(a)
of
less than $2,500
(b)
of less than $5,800.
(c)
in the lowest 10% of the population.
(d)
in the lowest 20% of the population.
(e)
of less than three times the cost of a minimal
nutritionally sound food plan.
8. A major cause of
poverty is that:
(a)
income in the
(b)
most poor people would rather receive public
assistance than work.
(c)
barriers exist in the form of discrimination and
lack of opportunity or access to information about opportunity.
(d)
each year the proportion of people in poverty
steadily increases; thus poverty becomes a self-perpetuating predominant
condition.
(e)
the definition of poverty makes it
impossible ever to eliminate poverty without a completely equal distribution of
income.
9. The role of the
federal government in helping the poor:
(a)
was virtually nonexistent until about 60
years ago.
(b)
is currently limited to old-age insurance
programs.
(c)
is now exercised through a negative income
tax.
(d)
began on a large scale in the late 1800s.
(e)
has declined since the Great Depression.
10. A controversial
element of the Social Security program is that:
(a)
participation is mandatory.
(b)
the Social Security payments are withheld
dollar for dollar.
(c)
to collect any Social Security benefits,
workers must retire at 65.
(d)
it is run strictly like an ordinary
insurance system which ties the level of benefits directly to the amount of an
individual’s contributions.
(e)
the Social Security tax is progressive.
11. Assume a negative
income tax which is structured according to the following formula: T = -$5,000
+ .5Y, where T = tax liability and Y = earned income. The break-even income, when the family
neither receives a tax payment nor pays any income tax, would be:
(a)
$5,000.
(b)
$7,500.
(c)
$10,000.
(d)
$12,500.
(e)
$15,000.
12. Occupational wage
rates tied to a point scale, which weighs different jobs in terms of criteria
such as accountability, knowledge and skills, mental demand, and working
conditions reflects the doctrine of:
(a)
comparative advantage.
(b)
comparable worth.
(c)
crowding out.
(d)
consumer surplus.
(e)
conscious parallelism.
13. Two common
measures of the rate of economic growth are the rates of growth of:
(a)
real GNP and real per capita GNP.
(b)
income and consumption.
(c)
full-time unemployment and prices.
(d)
the money supply and income.
(e)
real population and full-time employment.
14. An element of
economic welfare which is not effectively captured in measurements of real per
capita GDP is:
(a)
population growth.
(b)
output.
(c)
income.
(d)
inflation.
(e)
leisure.
15. A more rapid rate
of growth can often be achieved only if:
(a)
consumers are willing to forego current
consumption.
(b)
the government runs a budget deficit in
perpetuity.
(c)
the level of current investment is
diminished.
(d)
government involvement is eliminated.
(e)
private saving is discouraged.
16. Malthus felt the human population was in danger of
outrunning its food supply because:
(a)
he thought population would increase at a
geometric rate while land remained essentially fixed in supply.
(b)
environmental pollution would eventually decrease the
efficiency of agriculture.
(c)
the expected standard of living grows over
time.
(d)
profits were insufficient to induce farmers to
use their land properly.
(e)
the production possibilities curve shifts
inward as population increases.
17. The Club of Rome
study was primarily concerned with the:
(a)
benefits of growth.
(b)
costs of growth.
(c)
sources of growth.
(d)
limits to growth.
(e)
rates of growth.
18. Malthus and Ricardo both erred in expecting an
eventual termination of economic growth by:
(a)
neglecting the potential for population control.
(b)
believing that the law of diminishing marginal
returns applies solely to land.
(c)
assuming a constant marginal productivity of
labor.
(d)
neglecting the role of the credit system.
(e)
underestimating the extent and impact of technological
change.
19. Expenditures on
education and training that raise per capita output are viewed as:
(a)
conspicuous consumption.
(b)
public and private transfer payments.
(c)
investments in human capital.
(d)
consumer surplus.
(e)
normative expenditures.
20. Once an economy
is at full employment, further growth can only occur by:
(a)
running a budget deficit.
(b)
expanding the money supply.
(c)
promoting slack in labor markets by reducing
employment.
(d)
increasing the capital-output ratio above its full
employment values.
(e)
influencing factors which cause potential output to
expand.
21. With which of the
following would Milton Friedman probably agree?
(a)
All
people should have equal incomes.
(b)
Economic
and political freedoms are likely to be lost if we rely too heavily on
government to solve economic problems.
(c)
The
nation suffers because too little is spent on governmental services such as
transportation, education, and urban renewal.
(d)
The
price system involves substantial coercion and must be supervised carefully.
(e)
Government
tends to be more efficient and to respond more quickly than the market.
22. With which of the
following statements would John Kenneth Galbraith probably agree?
(a)
All
people should have equal income.
(b)
Economic
and political freedoms are likely to be lost if we rely too heavily on the
government to solve economic problems.
(c)
The
nation suffers because too little is spent on education, and urban renewal.
(d)
There
is every reason to be skeptical about government’s ability to solve our social
and economic problems.
(e)
Government
tends to be slow, inefficient, and cumbersome.
23. Income
redistribution programs reflect a belief that:
(a)
the poor are entitled to an income which
accurately reflects their productivity.
(b)
economic resources should be owned and managed by
the government.
(c)
tax structures, which are regressive,
benefit the poor.
(d)
the more affluent should be taxed to allow
others to take more from the nation’s output than they produce.
(e)
poverty is necessary for the rich to practice
altruism.
24. One notable
characteristic of a public good is that:
(a)
its production incurs no economic costs.
(b)
consumers can easily be denied the benefits of the
good.
(c)
it will automatically be produced by the
free market price system.
(d)
its consumption by one person does not
reduce the amount available to others.
(e)
consumers may readily divide it into individual
pieces and distribute it among themselves.
25. Two general
principles of taxation are the:
(a)
income principle and the revenue principle.
(b)
public principle and the private principle.
(c)
Republican
principle and the Democratic principle.
(d)
demand-side principle and the supply-side principle.
(e)
ability-to-pay principle and the benefit principle.
26. Which of the
following taxes can be related to the benefit principle?
(a)
personal income tax.
(b)
estate tax.
(c)
gasoline tax.
(d)
corporate income tax.
(e)
inheritance tax.
27. The major source
of revenue for local governments is:
(a)
personal income taxes.
(b)
sales taxes.
(c)
property taxes.
(d)
inheritance taxes.
(e)
import taxes.
28. The primary
reason for arguing that the sales tax imposes a greater relative burden on the
poor is that:
(a)
the incidence of the sales tax falls
entirely on the consumer.
(b)
sales taxes lower the final prices of the
goods taxed.
(c)
the poor spend a greater percentage of their
income than do the rich.
(d)
poor people have more trouble evading sales
taxes than the rich.
(e)
poor people live primarily in rental
dwellings, whereas rich people own their own houses.
29. Tax incidence
refers to:
(a)
whether the sales tax is collected by sellers or
buyers.
(b)
who bears the ultimate burden of the tax.
(c)
the principle of taxation used—either
benefit or ability-to-pay.
(d)
the classification of a particular act as
tax evasion or tax avoidance.
(e)
the separation of taxation from expenditure
as in revenue sharing.
30. The exchange rate
is the:
(a)
number of units of one currency that exchanges
for a unit of another currency.
(b)
volume of currency that flows internationally
during a year.
(c)
number of ounces of gold annually used in
trade.
(d)
ratio of exports to imports.
(e)
annual turnover rate of the money supply.
31. If the
(a)
one country would eventually run out of
gold.
(b)
both countries would eventually run out of
gold.
(c)
as a country’s gold balance declines, it
would have to import more and more to compensate for the loss.
(d)
changes in the British and American money
supplies brought about by gold flows would cause their respective domestic
price levels to change.
(e)
the country with the positive export balance
would export gold to the country with the negative export balance, causing the
imbalance to disappear.
32. Suppose under the
gold standard the
(a)
rise; rise.
(b)
remain unchanged; rise.
(c)
remain unchanged; fall.
(d)
fall; rise.
(e)
rise; fall.
33. When a country’s
currency becomes less valuable relative to the currency of another country, the
country’s currency is said to have:
(a)
deflated.
(b)
depleted.
(c)
deactivated.
(d)
depreciated.
(e)
debilitated.
34. Under the gold
standard when a country increased the price of gold, it was said to have:
(a)
appreciated its currency.
(b)
devalued its currency.
(c)
accredited its currency.
(d)
releveraged its currency.
(e)
prefabricated its currency.
35. Under which of the following systems will
appreciation and depreciation of a country’s currency occur?
(a)
the
gold standard
(b)
the multinational exchange standard.
(c)
fixed exchange rates.
(d)
flexible exchange rates.
(e)
equation of exchange rates.
36. Under which of
the following systems does a government commit itself to keep fluctuations in
its monetary unit within a narrow range?
(a)
the gold standard.
(b)
the multinational exchange standard.
(c)
fixed exchange rates.
(d)
flexible exchange rates.
(e)
equation of exchange rates.
37. The International
Monetary Fund was established to:
(a)
ensure flexibility of exchange rates.
(b)
maintain a stable system of exchange rates.
(c)
make long-term loans to member countries.
(d)
create an international currency.
(e)
manage the affairs of the International Bank
for Reconstruction and Development.
38. The exchange rate
system which has prevailed since 1973 is best described as:
(a)
fixed.
(b)
flexible.
(c)
indexed.
(d)
pegged.
(e)
gold standard.
Answer Key for ECO 103-080 Final Exam
Practice Questions
1.
b
2.
d
3.
a
4.
c
5.
b
6.
c
7.
e
8.
c
9.
a
10.
e
11.
c
12.
b
13.
a
14.
e
15.
a
16.
a
17.
d
18.
e
19.
c
20.
e
21.
b
22.
c
23.
d
24.
d
25.
e
26.
c
27.
c
28.
c
29.
b
30.
a
31.
d
32.
d
33.
d
34.
b
35.
d
36.
c
37.
b
38.
b