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Econ 101 Quiz on Practice Econ 2, created by mjheg on 05/05/2013.

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Practice Econ 2

Question 1 of 28

1

Investment is an important determinant of economic growth. Suppose that Congress passes an investment tax credit to encourage firms to spend more on investment. The impact of the investment tax credit would be:

Select one of the following:

  • An increase in the quantity of loanable funds exchanged and an increase in the interest rate

  • An increase in the quantity of loanable funds exchanged and a decrease in the interest rate

  • A decrease in the quantity of loanable funds exchanged and an increase in the interest rate

  • A decrease in the quantity of loanable funds exchanged and a decrease in the interest rate

Explanation

Question 2 of 28

1

In the AD and SRAS model, an increase in the rate of expected inflation causes

Select one of the following:

  • the short-run aggregate supply curve to shift down.

  • the short-run aggregate supply curve to shift up.

  • an upward movement along the short-run aggregate supply curve.

  • a downward movement along the short-run aggregate supply curve.

Explanation

Question 3 of 28

1

An increase in money growth will cause output growth to increase in

Select one of the following:

  • the short run only

  • the long run only

  • the short run and the long run

  • neither the short run nor the long run

Explanation

Question 4 of 28

1

Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem

Select one of the following:

  • an equitable solution can be reached only if property rights are assigned to polluters and not to the victims
    of pollution.

  • government intervention is necessary to reach an efficient and equitable solution.

  • an efficient solution can be reached regardless of the initial assignment of property rights.

  • an efficient solution can be reached only if property rights are assigned to the victims of pollution and not
    the polluters.

Explanation

Question 5 of 28

1

A potential problem with expansionary monetary policy is that banks can

Select one of the following:

  • will create deflation.

  • be unwilling to lend.

  • decide that a recession is best for the economy.

  • All of the above

Explanation

Question 6 of 28

1

At 8 units of production, the marginal cost is $50 per unit, and average cost is $30 per unit. If the price is $50, what is the profit of producing 8 units?

Select one of the following:

  • $160

  • $240

  • $400

  • There is no profit

Explanation

Question 7 of 28

1

Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit-maximizing level of output, her average total cost of production is $7.00 and her average variable cost of production is $6.00.

Select one of the following:

  • Mrs. Smith is earning a loss and should shutdown in the short run.

  • Mrs. Smith is earning a loss but should continue to operate in the short run.

  • Mrs. Smith is earning a profit since the price is above the average variable cost.

  • Without knowing Mrs. Smith's marginal cost we cannot determine whether she should stay in business or shut down.

Explanation

Question 8 of 28

1

If government legislation requires businesses to switch to a different method of production that generates 50% fewer greenhouse gas emissions, compliance to this policy (assuming no other changes) can be illustrated in the Solow model by _____ the aggregate production function that leads to a _____ level of real GDP per person

Select one of the following:

  • a movement to the left on; lower

  • a movement to the right on; higher

  • a shift up of; higher

  • a shift down of; lower

Explanation

Question 9 of 28

1

Which of the following counts towards GDP

Select one of the following:

  • Illegal transactions

  • Used goods

  • Leisure time

  • Intermediate goods

  • Anything within a store's inventory

Explanation

Question 10 of 28

1

Which of the following is not an institution?

Select one of the following:

  • Honest Government

  • Competitive Open Markets

  • Political Stability

  • Secure Property Rights

  • Dependable Legal System

  • Fair Fiscal Policy

Explanation

Question 11 of 28

1

Compared to private goods, the free market would ______ public goods

Select one of the following:

  • sometimes overproduce, but oftentimes under produce

  • under produce

  • over produce

  • efficiently produce

Explanation

Question 12 of 28

1

Why do some economist think that GDP my overestimate the actual level of economic activity in an economy?

Select one of the following:

  • There is no positive adjustment for the underground economy

  • It does not account for the distribution of income in a country

  • There is no negative adjustment for pollution

  • There is no positive adjustment for leisure and well-being

Explanation

Question 13 of 28

1

Marcie quit her job as a preschool teacher, which paid an annual salary of $28,000 and became a street food vendor. She used $8,000 out of her savings account that paid a 4% interest rate to buy a street cart to sell food. In her first year of operations, she spend $10,000 on food and supplies and earned revenue of $45,000. Accounting profit: ____ Economic profit:___

Select one of the following:

  • $35,000 ; -$1,000

  • $35,000 ; $6,680

  • $28,000 ; 20,000

  • $27,000 ; $17,000

Explanation

Question 14 of 28

1

In recent years, real GDP in China has grown

Select one of the following:

  • faster than real GDP in the US in some years, slower than real GDP in the US in other years

  • slower than real GDP in the US

  • at the same rate as real GDP in the US

  • faster than real GDP in the US

Explanation

Question 15 of 28

1

The economy's production function relates __________ to output

Select one of the following:

  • the inflation rate

  • real GDP

  • the unemployment rate

  • the factors of production

Explanation

Question 16 of 28

1

Which of the following statements is FALSE?

Select one of the following:

  • A firm that produces 100 unites at a total cost of $500 has an average cost of $5 per unit

  • Firms will earn positive profits if price exceeds average cost

  • When marginal cost is below average cost, average cost is rising

  • AC= TC/Q

Explanation

Question 17 of 28

1

Why does South Korea have a higher level of physical and human capital than NK?
1) Markets consitute much more of the primary organizations of economic activity in SK than in NK
2)Economic incentives are better in SK
3) SK has a different culture from NK

Select one of the following:

  • 1 only

  • 1 and 2 only

  • 1, 2, and 3

  • 3 only

  • 2 and 3 only

Explanation

Question 18 of 28

1

Which of the following best illustrates a product sold in a perfectly competitive market?

Select one of the following:

  • eggs

  • jeans

  • televisions

  • soft drinks

Explanation

Question 19 of 28

1

Which is always true for monopolies?

Select one of the following:

  • P greater than MR

  • P less than AC

  • TR greater than TC

  • MR greater than D

Explanation

Question 20 of 28

1

After a hurricane, the prices of many items rise. How best might the government help poor people afford to buy goods and services?

Select one of the following:

  • Institute a wage freeze to keep the costs of production from rising too rapidly

  • give poor people debit cards for use in purchasing essential items, while leaving prices unregulated

  • institute price controls at pre-hurricane prices

  • set prices at zero, so consumers can buy what they need without financial distress

Explanation

Question 21 of 28

1

the US can make 50 tons of corn or 10 tons of potatoes. Mexico can make 40 tons of corn and 5 potatoes. Assume each country specializes in the production of the good in which they have a comparative advantage. Which identifies the trade price that both countries should find acceptable?

Select one of the following:

  • 5 corns for 1 potato - trade price - 8 corns for 1 potato

  • .125 potatoes for 1 corn - trade price - 5 potatoes for 1 corn

  • .125 potatoes for 1 corn - trade price- 8 potatoes for 1 corn

  • .2 potatoes for 1 corn - trade price - 8 potatoes for 1 corn

Explanation

Question 22 of 28

1

Which of the following would not lead to a decrease in the price of a domestic automobile?

Select one of the following:

  • an economic recession, which decreases consumer income

  • a decrease in the wages paid to union auto workers

  • an increase in the number of domestic automakers

  • an increase in the price of foreign-made automobiles

Explanation

Question 23 of 28

1

If the conditions of the Coase theorem are met -__- the free market quantity of goods sold will _____.

Select one of the following:

  • well-informed consumers and well-defined property rights; maximize social surplus

  • well-informed consumers and nonexistant property rights; maximize consumer and producer surplus

  • low transaction costs and well-defined property rights; maximize social surplus

  • low transaction costs but nonexistant property rights; maximize consumer and producer surplus

Explanation

Question 24 of 28

1

When a binding price ceiling is in effect, goods and services

Select one of the following:

  • are neight necessarily supplied by their lowest-cost producer nor do they flow to their highest valued use

  • do not necessarily flow to their highest-valued use

  • are still allocated efficiently

  • are not necessarily supplied by their lowest-cost producer

Explanation

Question 25 of 28

1

A new per unit subsidy for almond production in the US increases the world supply of almonds. If almonds are inelastically demanded, what will happen to total revenues from almond production?

Select one of the following:

  • They will change in an indeterminate direction

  • They will rise

  • They will fall

  • They will remain the same

Explanation

Question 26 of 28

1

If the elasticity of supply is 1, and the elasticity of demand is 3, then for a tax of $1 buyers will pay:

Select one of the following:

  • an extra 75 cents, and sellers will receive 25 cents less

  • an extra 50 cents, and sellers will receive 50 cents less

  • nothing extra since this is the special case where demand is unit elastic

  • an extra 25 cents and sellers will receive 75 cents less

Explanation

Question 27 of 28

1

When the opportunity cost of a choice increases:

Select one of the following:

  • the marginal benefits of that choice decrease

  • individuals are more likely to chose that same option

  • individuals are less likely to choose that same option

  • the marginal benefits of that choice increase, as well

Explanation

Question 28 of 28

1

in the case of an external benefit, marginal private benefit is _____ marginal social benefit at all quantity of levels.

Select one of the following:

  • incomparable to

  • greater than

  • equal to

  • less than

Explanation

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