Microeconomics final exam

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The main incentive for business activity is:
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profit
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Adam Smith coined the term “invisible hand” meaning:
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a metaphorical hand that leads individuals to promote social interest by pursuing self interest
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which of the following choices best illustrates the concept of Adam Smiths “invisible hand”
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A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer.
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The opportunity cost of a choice is:
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the value of the next best opportunity foregone.
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In the 2 hours between classes a student can do one of three things, ranking them from most to least desirable as: (1) chat with friends, (2) study economics, or (3) eat lunch. This student’s opportunity cost of chatting with friends is:
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the value of studying economics.
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Susan quits her administrative job, which pays $40,000 a year, to finish her four-year college degree. Her annual college expenses are $8,000 for tuition, $900 for books, and $2,500 for food. The opportunity cost of attending college for the year is:
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$48,900.
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What is thinking on the margin?
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Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity.
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A grocery store is running a “buy-one-get-another-at-one-half-off” promotion on a dozen doughnuts. So the first dozen is $6 and the second would be $3. A person would buy the second dozen if their marginal benefit from the second dozen doughnuts is:
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greater than $3
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One benefit of trade is that it:
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allows for increased specialization and mass-production techniques that lower per unit costs of production.
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The better Martha Stewart is at running her business:
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the higher her opportunity cost of ironing her own shirts.
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The historical rise in living standards of American workers is primarily a result of:
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the rise in American productivity.
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What are the institutions that help foster the appropriate incentives for economic growth?
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a dependable legal system, property rights, and competitive and open markets
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Institutions that support economic growth are the ones that:
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provide incentives for entrepreneurs to take risks and innovate.
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Booms and busts refer to the:
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fluctuations in economic activity over time.
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Which of the following explains why economic booms and busts cannot be avoided?
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The economy is always being struck by unavoidable shocks.
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The Zimbabwean government printed money as fast as it could for years. As a result:
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Zimbabwe experienced inflation at a rate of billions of percent per month
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A policymaker wants to reduce inflation. In order to make an intelligent decision about how to do so, the policymaker:
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needs to know the causes of inflation, for example, the government’s printing of too much money.
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The decisions made by the Federal Reserve Bank sometimes result in negative effects on the economy because:
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too much money or too little money might induce inflation or unemployment due to bad timing of decisions.
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If the central bank creates too much money, _____ is the result. If the central bank doesn’t create enough money, an economic _____ is the result.
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inflation; slowdown
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The average starting salary of economics majors is just behind that of:
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chemical and nuclear engineering majors
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Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella’s guitar.
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Mark must value Ella’s guitar for at least $800, and Ella must value Mark’s drum set for at least $1,000.
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The main reason why specialization can raise productivity is that:
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knowledge in human brains is limited.
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Economies can grow due to:
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the extent to which markets facilitate specialization through trade.
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The relationship between trade and specialization is best characterized as follows:
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Trade increases specialization, which in turn increases the demand for trade.
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Utilizing comparative advantage can best be exemplified as:
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a world-renowned chef hiring someone to cook meals for his family.
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Jesse is good at math and excellent at making friends and Addae is equally good at both. Mathematically and socially challenged Jordan wants to hire tutors to help in each area. Who should tutor Jordan in which area to maximize Jordan’s college experience?
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Jesse should teach how to make friends and Addae should teach math.
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Table: iPhone and iPod Production One iPhone One iPod Canadian labor units 3 4 United States labor units 2 2 According to the table on iPhone and iPod production, the opportunity cost of producing one iPhone is:
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3/4 of one iPod for Canada, and one iPod for the United States.
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Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. If France can trade only with Sweden, then the theory of comparative advantage suggests that:
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France should specialize in producing phones and import computers from Sweden.
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Which of the following statements shows how absolute advantage can be distinguished from comparative advantage?
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Absolute advantage refers to the ability to produce a larger amount of goods with the same number of inputs, whereas comparative advantage refers to the ability to have the lowest opportunity cost of production.
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The theory of comparative advantage is:
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always relevant for identifying whether gains from trade can be obtained.
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Suppose a country without any international trade opens its borders to international trade. After specialization how will its location on its production possibility frontier change?
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The country moves along the PPF toward its comparative advantage.
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On a production possibilities frontier a trade-off can be illustrated as:
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a movement along the frontier itself.
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Table: Production Possibilities for the United States and Mexico Corn (millions of tons) Potatoes (millions of tons) United States corn50 potato 10 Mexico corn40 potato 5 According to the table on production possibilities for the United States and Mexico, Mexico’s opportunity cost of producing each ton of potatoes is ______, while the United States’ opportunity cost of producing each ton of potatoes is ______.
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eight tons of corn; five tons of corn
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Which of the following explains why someone with an absolute advantage in painting houses may NOT spend their time painting houses?
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They may be relatively better at something else than painting houses.
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Based on these data (USA production possibilities 50 Corn or 10 Potatoes; Mexico production possibilities 40 Corn or 5 Potatoes), the USA and Mexico could agree to trade:
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6 corn from Mexico for 1 Potato from the USA
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High-productivity workers fear trade because they think they cannot compete with workers in low-productivity countries. Low-productivity workers fear trade because they think they cannot compete with workers in high-productivity countries. Which of these fears is justified?
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Neither set of fears is justified.
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Adam Smith said, “It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor.” Which of the following concepts best illustrates Smith’s intent with this statement?
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comparative advantage
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In many universities, graduate students are employed to teach introductory undergraduate courses, even though the full professors at these universities have more experience and could potentially teach these courses better. Which of the following best explains why universities choose to hire graduate students instead of full professors to teach their introductory courses?
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The opportunity cost of teaching an introductory course is higher for full professors than for graduate students.
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Gains from international trade are best characterized as potential gains from:
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both importation and exportation.
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Only a very small portion of people who use microwaves know how they work. This is an example of:
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division of knowledge.
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The ability of one producer to produce one good or service using fewer inputs than another producer is:
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absolute advantage.
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A producer has a comparative advantage over other producers if his production of the good involves:
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a lower opportunity cost.
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Anita is a wonderful baker and can bake 10 cakes in a day, but then has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John can make equally delicious cakes and cookies but can only make seven cakes or 100 cookies in a day. Based on this information, which of the following statements is true?
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Anita should bake cookies and John should bake cakes.
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The principles of comparative advantage, specialization, and trade apply to: I. individuals. II. communities. III. regions. IV. nations.
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I, II, III, and IV
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The demand curve for oil shows:
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the quantity demanded of oil at different oil prices.
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Recall the discussion about the demand for oil in your textbook. Which of the following correctly explains why the demand curve for oil is negatively sloped? As the price of oil rises:
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consumers increasingly use oil only for those purposes without good substitutes.
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Which of the following explains why the demand for oil has a negative slope?
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Oil is not equally valuable in all of its uses
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To economists, the term consumer surplus means:
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the consumer’s gain from trading.
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A decrease in demand refers to:
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a leftward shift of the demand curve
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Which variable is NOT a demand shifter?
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price of raw materials
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Which variable does NOT shift the demand curve?
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price of the good itself
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Fred gets a raise and orders Lone Star Beer, thereafter, instead of Shiner Bock. Joe gets a raise and orders an extra Shiner Bock at Happy Hour. This means that:
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Shiner Bock can be a Normal Good for some people; an inferior good for others.
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Coke and Pepsi are substitute soft drinks. Which of the following would cause the demand curve for Pepsi to shift to the left?
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the price of Coke decreases
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The supply curve for oil shows:
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the quantity of oil supplied at different prices of oil.
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Suppose that Saudi Arabia can produce oil at $4 per barrel, Iran at $10 per barrel, and Canada at $25 per barrel. If the price of oil is $90 per barrel, what is total producer surplus per barrel for world suppliers?
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$231
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A change in which factor would shift the supply curve?
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production technology
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An increase in supply refers to:
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a rightward shift of the supply curve.
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As the price of lead falls (a key input in the production of automobile batteries), the costs of producing batteries decreases, shifting the supply curve of batteries:
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down and to the right.
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If producers form expectations that copper prices will be higher in the future, then this will shift the:
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supply curve of copper to the left.
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In the early 1980s, movie rentals averaged $5 a night; by the early 1990s that average was $1 per night. This is an example of a supply curve shifter based on:
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the entry of new suppliers into the market.
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A firm produces volleyballs and soccer balls. What happens to the supply of soccer balls if the market price of volleyballs increases?
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The opportunity cost of producing soccer balls rises, so the supply curve of soccer balls decreases.
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Joe runs a landscape company and uses one of his home’s bedrooms as a home office. This office could be used to earn rental income from college students. If average rental income in Joe’s neighborhood were to rise:
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Joe’s opportunity cost of using a bedroom as a home office would increase.
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A farmer can grow soy or sorghum. If the price of soy increases, the opportunity cost of growing sorghum ______, shifting the supply curve of sorghum ______.
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increases; up and to the left
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The most important concepts in economics, according to the textbook, are supply, demand, and the:
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idea of equilibrium.
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Which one of the following choices would cause the demand curve for an inferior good to shift to the left?
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a rise in incomes

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