Exam 1 Practice Q&A Essay

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Which of the following is a correct statement about production possibilities frontiers?
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An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier.
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If an economy is producing efficiently, then
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there is no way to produce more of one good without producing less of another good.
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Kelly and David are both capable of repairing cars and cooking meals. Which of the following scenarios is not possible?
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Kelly has a comparative advantage in repairing cars and in cooking meals.
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Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 5 bushels of corn or 50 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. If the two countries do not trade, Cornland will produce and consume 400 bushels of corn and 100 bushels of oats, while Oatland will produce and consume 60 bushels of corn and 400 bushels of oats. If each country made the decision to specialize in producing the good in which it has a comparative advantage, then the combined yearly output of the two countries would increase by
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340 bushels of corn and 500 bushels of oats.
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In a market economy, supply and demand are important because they
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– play a critical role in the allocation of the economy’s scarce resources. – determine how much of each good gets produced. – can be used to predict the impact on the economy of various events and policies.
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All market participants are price takers that have no influence over prices in markets that feature
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numerous buyers and numerous sellers.
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Assume the market for pork is perfectly competitive. When one pork buyer exits the market,
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the price of pork does not change.
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The law of demand states that, other things equal,
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when the price of a good falls, the quantity demanded of the good rises.
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Pizza is a normal good if
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the demand for pizza rises when income rises.
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An increase in the number of college scholarships issued by private foundations would
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increase the demand for education.
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The law of supply states that, other things equal,
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when the price of a good rises, the quantity supplied of the good rises.
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Which of the following would not shift the supply curve for mp3 players?
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an increase in the price of mp3 players
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Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the
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supply of bicycles will shift to the left.
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Suppose there is an increase in the price of steel. We would expect the supply curve for steel beams
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to shift leftward.
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Wheat is the main input in the production of flour. If the price of wheat decreases, then we would expect the
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supply of flour to increase.
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If, at the current price, there is a surplus of a good, then
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sellers are producing more than buyers wish to buy.
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When a shortage exists in a market, sellers
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raise price, which decreases quantity demanded and increases quantity supplied, until the shortage is eliminated.
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What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
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Price would fall and the effect on quantity would be ambiguous.
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Which of the following events will definitely cause equilibrium quantity to rise?
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demand and supply both increase
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For a good that is a necessity,
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demand tends to be inelastic.
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The demand for Neapolitan ice cream is likely quite elastic because
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other flavors of ice cream are good substitutes for this particular flavor.
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A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 bagels. Using the midpoint method, the price elasticity of supply for bagels is
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1.63.
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Which of the following statements is valid when supply is perfectly elastic at a price of $4?
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The elasticity of supply approaches infinity.
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A price ceiling is
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a legal maximum on the price at which a good can be sold.
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Which of the following statements about the effects of rent control is correct?
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The short-run effect of rent control is a relatively small shortage of apartments, and the long-run effect of rent control is a larger shortage of apartments.
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To say that a price floor is binding is to say that the price floor
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causes quantity supplied to exceed quantity demanded.
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The term tax incidence refers to
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the distribution of the tax burden between buyers and sellers.
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Suppose that the demand for picture frames is inelastic and the supply of picture frames is elastic. A tax of $1 per frame levied on picture frames will decrease the effective price received by sellers of picture frames by
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less than $0.50.
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Buyers of a good bear the larger share of the tax burden when a tax is placed on a product for which
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the supply is more elastic than the demand.
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Suppose that a tax is placed on books. If the sellers bear most of the burden of the tax, then we know that the
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supply is more inelastic than the demand.
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You can increase your revenue by raising the price of your product only if the demand for your product is
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inelastic
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The minimum wage, if it is binding, lowers the incomes of
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those workers who cannot find jobs.

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