ECO 2023 Final Practice

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The opportunity cost of an action is
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The opportunity cost of an action is
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Statistical data provided by the U.S. Department of Transportation shows that the median income of individuals traveling on the nation’s bus systems is $18,000 compared to $65,000 for those who normally travel by air. This finding is best explained by which of the following statements?
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Persons with high income are more likely to fly because the opportunity cost of their time is generally higher than those with lesser income.
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Which of the following activities describes the opportunity cost of attending an economics class?
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the value of the highest valued alternative that must be forgone because of attending the class
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Which of the following would be most likely to increase your opportunity cost of attending college?
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receiving a very attractive offer to start a job today that would permit you to earn about 50 percent more than you expected to make after graduation
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To maximize profits, any firm, regardless of whether it is a price-taker, a competitive price searcher, or a monopoly should always produce the level of output where
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marginal revenue equals marginal cost.
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Which of the following is a potential reason discussed in class regarding why it may be important to take more math classes while in college?
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Success in mathematics sends a signal to potential employers about your intelligence and analytical abilities since math is perceived to be harder than many other subjects.
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One key characteristic that is distinctive of an oligopoly market is that
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the decisions of one seller often influence the price of products, the output, and the profits of rival firms.
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Which of the following factors is most likely to be a barrier to entry that limits the entry of potential competitors into a market?
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Having to satisfy an excessive amount of regulatory and licensing requirements in order to operate your business
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The two conflicting tendencies that a firm has in an oligopolistic industry are the incentive to
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cooperate in a collusive agreement to maximize joint profits and the incentive to cheat on the agreement in order to increase the firm’s share of the profit.
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Which of the following accurately describes a major difference between a monopolist and firms in competitive price-searcher markets?
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A monopolist may be able to earn long-run economic profit, but firms in competitive price-searcher markets will not be able to do so.
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Which of the following is true when long-run equilibrium conditions are present in price-taker and competitive price-searcher markets?
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P = ATC in both price-taker and competitive price-searcher markets.
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The process by which new products and methods of production are continuously replacing old ones is known as
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creative destruction.
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Which of the following most closely approximates the conditions of a competitive price-searcher market?
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the shoe industry, which is characterized by firms producing a differentiated product in a market with low entry barriers
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Which of the following is true?
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1. When firms in a price-taker market are earning positive economic profits, new firms will enter the industry causing the market price to fall until the firms in the industry are earning only zero economic profit. 2. When firms in a price-taker market are earning economic losses, some firms will exit the industry causing the market price to rise until the remaining firms are earning zero economic profit.
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The price-taker firm should discontinue production immediately if
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the market price is less than the firm’s average variable costs.
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Which of the following is the best example of a business firm operating in a competitive price-taker market?
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a Kansas wheat farmer
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Which one of the following statements is correct according to the economic way of thinking?
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Government programs can be implemented with good intentions but can lead to undesirable outcomes because of unintended consequences.
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Which of the following is a characteristic of a competitive price-taker market?
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There are many firms in the market, each producing a small share of total market output.
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Economics is primarily the study of
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how individuals make choices because of scarcity.
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Which of the following is a positive economic statement?
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The government imposing a price ceiling on the rent of apartments decreases the number of new apartments constructed
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To say that people make marginal decisions means that
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they weigh the additional costs and additional benefits of various activities before they make a decision
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LeBron James is extremely tall and athletic and, therefore, can clean his house faster than any other one person. However, whenever he spends time cleaning his house he gives up hundreds of thousands of dollars in foregone earnings and so he hires a cleaning service to clean his house for him. Which of the following economic principles does this best reflect?
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the law of comparative advantage.
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Which of the following will most likely occur under a system of clearly defined and enforced private property rights?
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Resource owners will conserve vital resources for the future, particularly if they expect the resource to increase in value.
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Robin decides to buy a dress that Lily has for sale; they agree on a price of $20. Which of the following best describes who gains and who loses from the transaction?
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Both parties expect to gain from this transaction.
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In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time?
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The production possibilities curves for these countries would have shifted inward.
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Suppose the supply of nachos decreases. Ceteris paribus, what will happen to consumer surplus in the market for nachos?
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It decreases.
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The government imposes a tax on the production or orange juice. At the same time, an advertisement announces that the price of orange juice will double next week. Given these two effects, what would happen to the current equilibrium price and quantity of orange juice?
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Equilibrium price will increase, the effect on quantity is ambiguous.
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Please evaluate the following statements (I) “a price gouging law which sets a price ceiling for electric generators above the equilibrium price will create a shortage of generators.” (II) “A minimum wage law which sets a price floor below the equilibrium wage rate will create a surplus of labor, also known as unemployment.”
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Both statements I and II are false.
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If Taylor Swift’s income increases from $60,000 to $80,000 and her tax liability increases from $12,000 to $16,000, which of the following is true?
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Her marginal tax rate is 20 percent in this income range.
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A tax on the buyers of coffee will
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increase the price of coffee paid by buyers, decrease the net price of coffee received by sellers, and decrease the equilibrium quantity of coffee causing deadweight loss.
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The federal government levies a 15.3 percent payroll tax (7.65 percent on both the employer and employee) on the wages of all workers. If the demand for labor is relatively inelastic when compared to the elasticity of the supply of labor, the burden of this tax will
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fall primarily on employers.
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You are trying to convince your state government to reduce its incredibly high business taxes in an effort to promote the economic climate of your state. Your government officials respond by saying that reducing business taxes will cause tax revenue to plummet and the state can’t afford to reduce tax revenue at this time. You point out to the government officials that according to the Laffer curve you studied in economics class,
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when tax rates are high, a rate reduction may lead to an increase in tax revenue as it will encourage more tax paying businesses to locate in the state.
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Economic efficiency indicates that
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it nearly always makes sense to stop an activity well before perfection is achieved.
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A market is unlikely to provide an efficient quantity of public goods because
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the nature of public goods makes it difficult for producers to withhold them from nonpaying consumers, and so free-riders will try to obtain the public good without paying for it.
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Consider two goods–one that generates external benefits (positive externality) and another that generates external costs (negative externality). A competitive market economy would tend to produce
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too little of the good that generates external benefits and too much of the good that generates external costs.
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If a 40 percent increase in income induced a group of consumers to reduce their yearly purchases of potatoes by 10 percent, for these consumers,
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potatoes are an inferior good.
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When comparing goods that more broadly defined (such as all cereal) with goods that are more narrowly defined (such as one type of cereal, like Kellog’s Cornflakes), the goods that are more broadly defined have
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fewer substitutes and so its demand is less elastic
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If the quantity demanded increases by 10 percent in response to a 20 percent decrease in price, The price elasticity of demand for the product is
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0.5, making the demand for this product inelastic.
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Nathan loves Sonny’s BBQ and especially loves their all you can eat pulled-pork special where you pay $12 and eat as much pulled-pork and side dishes as you want. If Nathan goes into Sonny’s and orders the all you can eat pulled-pork special, which of the following will most likely be true?
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The law of diminishing marginal utility will ensure that Nathan’s utility from each additional plate of food will eventually decline all the way down to zero, at which point Nathan will stop eating.
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Which one of the following decisions most clearly reflects a lack of understanding of the economic way of thinking concerning sunk costs?
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When talking to her mother about her boyfriend’s recent marriage proposal, Jennifer says “I’m not really optimistic about my future with him, but we have been together so long that we might as well get married”.
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If a firm has a U-shaped long-run average cost curve,
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it must be exhibiting economies of scale at lower levels of production and, after reaching its cost-minimizing point, it starts to exhibit diseconomies of scale at higher levels of production.
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Peter Griffin quit his job at the toy factory to become a fisherman He gave up his $34,000 salary and invested his retirement fund of $50,000 (which was earning 10 percent interest) in this venture. His fishing boat generated $120,000 in total revenue and had $70,000 in explicit costs. Peter Griffin’s economic profits were
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$11,000.

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