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PRACTICE ECON 202 EXAM QUESTIONS Exam 1, Douglas 1. The primary emphasis in macroeconomics is on: A) how firms set prices. B) the national economy. C) marginal analysis. D) bits and pieces of the economy. Ans: B Level: E Page: 4 Topic: Introduction 2. Which of the following would be a part of macroeconomics? A) a study of the change in automobile sales due to a change in the price of automobiles B) a study of the impact of a tax reduction on the profits of a business C) a study of recessions D) a study of the unemployment of workers displaced by technological change in the typesetting industry Ans: C Level: E Page: 4 Topic: Introduction 3. The basic concern of economics is: A) to keep business firms from losing money. B) to prove that capitalism is better than socialism. C) to study the choices people make. D) to use unlimited resources to produce goods and services to satisfy limited wants. Ans: C Level: M Page: 6 Topic: Resources Are Scarce 4. Although water is very abundant in most places, it is scarce because: A) it has no alternative uses. B) there is not enough of it to meet all needs. C) it is a free good. D) scarce goods in general are not all that costly. Ans: B Level: M Page: 6 Topic: Resources Are Scarce 5. A resource is: A) anything that can be used in production. B) anything that you pay for. C) anything that is in scarce supply. D) all of the above. Ans: A Level: E Page: 6 6. We have to make choices because: A) we have unlimited income. B) resources are scarce. C) choices involve a trade-off. D) of both b and c. Ans: D Level: E Page: 6 2005

Topic: Resources Are Scarce

Topic: Resources Are Scarce

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PRACTICE ECON 202 EXAM QUESTIONS Exam 1, Douglas 2005 7. A new start-up airline is offering free round-trip tickets to anywhere to the first 600 people who enter the office on the airlines' first day of business. You arrive 24 hours before they are scheduled to open to be sure to get the free tickets and buy food from vendors while waiting in line. The cost of the tickets to you is A) zero. B) just the cost of food while you wait in line. C) the cost of food while you wait in line and the opportunity cost of your time. D) none of the above. Ans: D Level: M Page: 7 Topic: Opportunity Cost 8. A friend comes up to you and offers to give you a free ticket to the local professional team's baseball game that night. You decide to attend the game. It takes five hours to go to the game and costs you $15 for transportation. If you had not attended the game, you would have worked at your part-time job for $8 an hour. What is the cost of you attending the game? A) zeroThe ticket is free. B) $65 C) $40 D) $55 Ans: D Level: M Page: 7 Topic: Opportunity Cost 9. The cost of going to college is: A) tuition and the cost of housing. B) tuition, the cost of housing, and the cost of books. C) tuition, the cost of books, and forgone income. D) forgone income only. Ans: C Level: M Page: 7 Topic: Opportunity Cost 10. For which of the following decisions would marginal analysis be most relevant? A) Should I go to college or work after graduating from high school? B) Should I eat another donut? C) Should I use $20,000 as a down-payment on a house or buy a car? D) Should I get married? Ans: B Level: M Page: 9 Topic: How Much? 1. With trade, a country may: A) consume outside its production possibilities frontier. B) consume inside its production possibilities frontier. C) find its production possibilities frontier will shift outward. D) do none of the above. Ans: A Level: M Page: 23 Topic: Tradeoffs: The Production Possibility Frontier 2. Consider a possible production possibilities frontier for Iraq. If in 2005 Iraq's resources are not being fully utilized, Iraq will be somewhere ______________ of its production possibilities frontier. A) inside B) outside C) near the bottom D) near the top Ans: A Level: M Page: 23 Topic: Tradeoffs: The Production Possibility Frontier

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PRACTICE ECON 202 EXAM QUESTIONS Exam 1, Douglas Use the following to answer the questions: Table: Production Possibilities Schedule 1 Alternatives Consumer goods per period Capital goods per period A 0 30 B 1 28 C 2 24 D 3 18 E 4 10 F 5 0 2005

3. (Table: Production Possibilities Schedule 1) If the economy produces 2 units of consumer goods per period, it also can produce at most _______ units of capital goods per period. A) 30 B) 28 C) 24 D) 18 Ans: C Level: E Page: 23 Topic: Trade-offs: The Production Possibilities Frontier 4. (Table: Production Possibilities Schedule 1) If the economy produces 10 units of capital goods per period, it also can produce at most _______ unit(s) of consumer goods per period. A) 5 B) 4 C) 3 D) 2 Ans: B Level: E Page: 23 Topic: Trade-offs: The Production Possibilities Frontier Use the following to answer the questions: Figure: Guns and Butter

5. (Figure: Guns and Butter) On this figure, points A, B, E, and F: A) indicate combinations of guns and butter that society can produce using all of its factors efficiently. B) show that the opportunity cost of more guns increases, but that of more butter decreases. C) indicate that society wants butter more than guns. D) indicate constant costs for guns and increasing costs for butter. Ans: A Level: M Page: 24 Topic: Trade-offs: The Production Possibilities Frontier

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PRACTICE ECON 202 EXAM QUESTIONS Exam 1, Douglas 2005 6. (Figure: Guns and Butter) This production possibilities curve is: A) bowed out from the origin because of increasing opportunity costs. B) bowed in toward the origin because of increasing opportunity costs. C) bowed in toward the origin because of constant cost of guns and butter. D) linear because of constant costs. Ans: A Level: M Page: 24 Topic: Trade-offs: The Production Possibilities Frontier 7. (Figure: Guns and Butter) If the economy were operating at point B, producing 16 units of guns and 12 units of butter per period, a decision to move to point E and produce 18 units of butter: A) indicates you can have more butter and guns simultaneously. B) makes it clear that this economy experiences decreasing opportunity costs. C) involves a loss of 8 units of guns per period. D) involves a loss of 4 units of guns per period. Ans: C Level: M Page: 24 Topic: Trade-offs: The Production Possibilities Frontier 8. (Figure: Guns and Butter) The combination of guns and butter at point H: A) can be obtained, but would cost too much. B) cannot be attained, given the level of technology and the factors of production available. C) has no meaning since it does not relate to the preferences of consumers. D) is attainable but would increase unemployment. Ans: B Level: M Page: 23 Topic: Trade-offs: The Production Possibilities Frontier 9. Roommates Sarah and Zoe are hosting a Halloween party and have to make food for their guests and costumes for themselves. To finish both tasks as quickly as possible, Sarah and Zoe know that each of them should focus on just one task, but they don't know who should do what. To decide which roommate should do the cooking, Sarah and Zoe should determine which roommate: A) has the absolute advantage in cooking. B) has the comparative advantage in cooking. C) has the largest production possibilities frontier in cooking. D) can complete the cooking in the least amount of time Ans: B Level: M Page: 28 Topic: Comparative Advantage and Gains from Trade 10. If the opportunity cost of manufacturing machinery is higher in the United States than in Britain and the opportunity cost of manufacturing sweaters is lower in the United States than in Britain, then the United States will: A) export both sweaters and machinery to Britain. B) import both sweaters and machinery from Britain. C) export sweaters to Britain and import machinery from Britain. D) import sweaters from Britain and export machinery to Britain. Ans: C Level: M Page: 29 Topic: Comparative Advantage and Gains from Trade 11. When a nation experiences economic growth: A) its production possibilities curve shifts outward. B) its production possibilities curve shifts inward. C) it has been able to reach full employment. D) it has moved to a more consumer-oriented position on its production possibilities curve. Ans: A Level: E Page: 29 Topic: Comparative Advantage and Gains from Trade

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PRACTICE ECON 202 EXAM QUESTIONS Exam 1, Douglas 2005 12. The circular-flow diagram illustrates how households _______ goods and services and _______ factors of production. A) buy; sell B) buy; buy C) own; buy D) own; sell Ans: A Level: M Page: 31 Topic: Transactions: The Circular-Flow Diagram 13. An example of a positive statement is: A) The rate of unemployment should be 4 percent. B) A high rate of economic growth is good for the country. C) The federal government spends half of its budget on national defense. D) Everyone in the country needs to be covered by national health insurance. Ans: C Level: E Page: 34 Topic: Positive versus Normative Economics 1. In much of the country, homeowners choose to heat their houses with either natural gas or home heating oil. Which of the following could cause the demand for natural gas to change? A) a change in the price of home-heating oil B) a change in income C) an increase in consumer tastes for natural gas as an energy source D) all of the above Ans: D Level: M Page: 60 Topic: The Demand Curve 2. When the price of gas goes up and the demand for tires goes down, this means tires and gas are: A) substitutes. B) complements. C) both expensive. D) both inexpensive. Ans: B Level: D Page: 61 Topic: The Demand Curve 3. A good is normal if: A) when income increases, demand remains unchanged. B) when income increases, demand decreases. C) when income increases, demand increases. D) none of the above. Ans: C Level: M Page: 62 Topic: The Demand Curve 4. A shift to the left of a supply curve is caused by: A) an increase in the number of sellers. B) a technological improvement. C) an increase in the