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eco mid-term 1

    1.ÿThe incidence of a tax pertains to: (Points : 2)ÿÿÿÿÿÿÿthe degree to which it alters the distribution of income. ÿÿÿÿÿÿÿhow easy it is to evade the tax. ÿÿÿÿÿÿÿwho actually bears the burden of a tax. ÿÿÿÿÿÿÿthe progressiveness or regressiveness of tax rates. 2.ÿThe tragedy of the commons is the idea that: (Points : 2)ÿÿÿÿÿÿÿsociety has a tendency to overuse and thus abuse common resources. ÿÿÿÿÿÿÿtotal external costs in society far outweigh total external benefits. ÿÿÿÿÿÿÿmatter can be transformed to other matter or into energy but can never vanish. ÿÿÿÿÿÿÿcrime rates typically are higher in public places than where property is privately owned. 3.ÿWhen entering a building, Sam diverts his path to go through an open door rather than make the physical effort to open the closed door that is directly in his path. This is an example of: (Points : 2)ÿÿÿÿÿÿÿirrational behavior. ÿÿÿÿÿÿÿa lazy person. ÿÿÿÿÿÿÿmarginal benefit-marginal cost analysis. ÿÿÿÿÿÿÿprogrammed learning. 4.ÿ”Essential” water is cheaper than “nonessential” diamonds because: (Points : 2)ÿÿÿÿÿÿÿnew industrial uses for diamonds have been discovered. ÿÿÿÿÿÿÿthe supply of water is great relative to demand and the supply of diamonds is small relative to demand. ÿÿÿÿÿÿÿalthough the total utility of diamonds is greater, their marginal utility is small. ÿÿÿÿÿÿÿthe supply of diamonds is great relative to demand and the supply of water is small relative to demand. 5.ÿTwo major virtues of the market system are that it: (Points : 2)ÿÿÿÿÿÿÿallocates resources efficiently and allows economic freedom. ÿÿÿÿÿÿÿresults in an equitable personal distribution of income and always maintains full employment. ÿÿÿÿÿÿÿresults in price level stability and a fair personal distribution of income. ÿÿÿÿÿÿÿeliminates discrimination and minimizes environmental pollution. 6.ÿThe rationing function of prices refers to the: (Points : 2)ÿÿÿÿÿÿÿtendency of supply and demand to shift in opposite directions. ÿÿÿÿÿÿÿfact that ration coupons are needed to alleviate wartime shortages of goods. ÿÿÿÿÿÿÿcapacity of a competitive market to equate the quantity demanded and the quantity supplied. ÿÿÿÿÿÿÿability of the market system to generate an equitable distribution of income. 7.ÿThe more time consumers have to adjust to a change in price: (Points : 2)ÿÿÿÿÿÿÿthe smaller will be the price elasticity of demand. ÿÿÿÿÿÿÿthe greater will be the price elasticity of demand. ÿÿÿÿÿÿÿthe more likely the product is a normal good. ÿÿÿÿÿÿÿthe more likely the product is an inferior good. 8.ÿIn terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market. (Points : 2)ÿÿÿÿÿÿÿproduct; financial ÿÿÿÿÿÿÿresource; product ÿÿÿÿÿÿÿproduct; resource ÿÿÿÿÿÿÿcapital; product 9.ÿAllocative efficiency is concerned with: (Points : 2)ÿÿÿÿÿÿÿproducing the combination of goods most desired by society. ÿÿÿÿÿÿÿachieving the full employment of all available resources. ÿÿÿÿÿÿÿproducing every good with the least-cost combination of inputs. ÿÿÿÿÿÿÿreducing the concavity of the production possibilities curve. 10.ÿPurposeful behavior means that: (Points : 2)ÿÿÿÿÿÿÿpeople are selfish in their decision-making. ÿÿÿÿÿÿÿpeople weigh costs and benefits to make decisions. ÿÿÿÿÿÿÿpeople are immune from emotions affecting their decisions. ÿÿÿÿÿÿÿdecision-makers do not make mistakes when weighing costs and benefits. 11.ÿThe price elasticity of demand coefficient measures: (Points : 2)ÿÿÿÿÿÿÿbuyer responsiveness to price changes. ÿÿÿÿÿÿÿthe extent to which a demand curve shifts as incomes change. ÿÿÿÿÿÿÿthe slope of the demand curve. ÿÿÿÿÿÿÿhow far business executives can stretch their fixed costs. 12.ÿProductive efficiency refers to: (Points : 2)ÿÿÿÿÿÿÿthe use of the least-cost method of production. ÿÿÿÿÿÿÿthe production of the product-mix most wanted by society. ÿÿÿÿÿÿÿthe full employment of all available resources. ÿÿÿÿÿÿÿproduction at some point inside of the production possibilities curve. 13.ÿThe scientific method is: (Points : 2)ÿÿÿÿÿÿÿnot applicable to economics, because economics deals with human beings. ÿÿÿÿÿÿÿalso known as the economic perspective. ÿÿÿÿÿÿÿanalysis that moves from broad generalizations called laws to theories and then to hypotheses. ÿÿÿÿÿÿÿused by economists and other social scientists, as well as by physical scientists and life scientists. 14.ÿNonrivalry and nonexcludability are the main characteristics of: (Points : 2)ÿÿÿÿÿÿÿconsumption goods. ÿÿÿÿÿÿÿcapital goods. ÿÿÿÿÿÿÿprivate goods. ÿÿÿÿÿÿÿpublic goods. 15.ÿAssume you are spending your full budget and purchasing such amounts of X and Y that the marginal utility from the last units consumed is 40 and 20 utils respectively. Assume (a) the prices of X and Y are $8 and $4 respectively; (b) it takes 3 hours to consume a unit of X and 1 hour to consume a unit of Y; and (c) your time is worth $2 per hour. In equilibrium, if you included the opportunity cost of time then, you (Points : 2)ÿÿÿÿÿÿÿshould substitute X for Y until the marginal utility per hour is the same for both products. ÿÿÿÿÿÿÿshould consume X and Y in the equal amounts. ÿÿÿÿÿÿÿshould consume less of Y and more of X. ÿÿÿÿÿÿÿshould consume less of X and more of Y. 16.ÿThe economic perspective refers to: (Points : 2)ÿÿÿÿÿÿÿmacroeconomic phenomena, but not microeconomic phenomena. ÿÿÿÿÿÿÿmicroeconomic phenomena, but not macroeconomic phenomena. ÿÿÿÿÿÿÿthe making of purposeful decisions in a context of marginal costs and marginal benefits. ÿÿÿÿÿÿÿunlimited resources in a context of limited economic wants. 17.ÿA government subsidy to the producers of a product: (Points : 2)ÿÿÿÿÿÿÿreduces product supply. ÿÿÿÿÿÿÿincreases product supply. ÿÿÿÿÿÿÿreduces product demand. ÿÿÿÿÿÿÿincreases product demand. 18.ÿWhich of the following would be most likely to shift the production possibilities curve to the right? (Points : 2)ÿÿÿÿÿÿÿa sudden and substantial expansion of consumer wants ÿÿÿÿÿÿÿan improvement in the literacy level and general level of education ÿÿÿÿÿÿÿa decline in the size of the population and labor force ÿÿÿÿÿÿÿshifting resources from the production of capital goods to the production of consumer goods 19.ÿJennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences: (Points : 2)ÿÿÿÿÿÿÿa consumer surplus of $12 and Nathan experiences a producer surplus of $3. ÿÿÿÿÿÿÿa producer surplus of $9 and Nathan experiences a consumer surplus of $3. ÿÿÿÿÿÿÿa consumer surplus of $9 and Nathan experiences a producer surplus of $3. ÿÿÿÿÿÿÿa producer surplus of $9 and Nathan experiences a producer surplus of $12. 20.ÿEconomic models: (Points : 2)ÿÿÿÿÿÿÿare of limited use because they cannot be tested empirically. ÿÿÿÿÿÿÿare limited to variables that are directly related to one another. ÿÿÿÿÿÿÿemphasize basic economic relationships by purposefully simplifying the complexities of the real world. ÿÿÿÿÿÿÿare unrealistic and therefore of no practical consequence. 21.ÿA supply curve that is parallel to the horizontal axis suggests that: (Points : 2)ÿÿÿÿÿÿÿthe industry is organized monopolistically. ÿÿÿÿÿÿÿthe relationship between price and quantity supplied is inverse. ÿÿÿÿÿÿÿa change in demand will change price in the same direction. ÿÿÿÿÿÿÿa change in demand will change the equilibrium quantity but not price. 22.ÿÿ Refer to the above diagram in whichÿSÿis the before-tax supply curve andÿStÿis the supply curve after an excise tax is imposed. The efficiency loss of the tax is shown by area(s): (Points : 2)ÿÿÿÿÿÿÿAÿ+ÿBÿ+ÿCÿ+ÿEÿ+ÿF. ÿÿÿÿÿÿÿAÿ+ÿBÿ+ÿC. ÿÿÿÿÿÿÿAÿ+ÿBÿ+ÿF. ÿÿÿÿÿÿÿEÿ+ÿF. 23.ÿThe simple circular flow model shows that: (Points : 2)ÿÿÿÿÿÿÿhouseholds are on the buying side of both product and resource markets. ÿÿÿÿÿÿÿbusinesses are on the selling side of both product and resource markets. ÿÿÿÿÿÿÿhouseholds are on the selling side of the resource market and on the buying side of the product market. ÿÿÿÿÿÿÿbusinesses are on the buying side of the product market and on the selling side of the resource market. 24.ÿThe efficiency loss of a tax is the idea that: (Points : 2)ÿÿÿÿÿÿÿin addition to taking income from the citizenry, taxes also increase the rate of inflation. ÿÿÿÿÿÿÿtaxes cause a decline in output for which marginal benefit exceeds marginal cost. ÿÿÿÿÿÿÿtaxes diminish incentives to work. ÿÿÿÿÿÿÿgovernment spends dollars less efficiently than do households and businesses. 25.ÿIf a product is in surplus supply, its price: (Points : 2)ÿÿÿÿÿÿÿis below the equilibrium level. ÿÿÿÿÿÿÿis above the equilibrium level. ÿÿÿÿÿÿÿwill rise in the near future. ÿÿÿÿÿÿÿis in equilibrium. 26.ÿÿ Refer to the above diagram in whichÿSÿis the before-tax supply curve andÿStÿis the supply curve after an excise tax is imposed. The total tax payment to government is shown by area(s): (Points : 2)ÿÿÿÿÿÿÿAÿonly. ÿÿÿÿÿÿÿAÿ+ÿBÿ+ÿCÿ+ÿEÿ+ÿF. ÿÿÿÿÿÿÿAÿ+ÿBÿ+ÿC. ÿÿÿÿÿÿÿEÿ+ÿF. 27.ÿThe demand for a product is inelastic with respect to price if: (Points : 2)ÿÿÿÿÿÿÿconsumers are largely unresponsive to a per unit price change. ÿÿÿÿÿÿÿthe elasticity coefficient is greater than 1. ÿÿÿÿÿÿÿa drop in price is accompanied by a decrease in the quantity demanded. ÿÿÿÿÿÿÿa drop in price is accompanied by an increase in the quantity demanded. 28.ÿWhen an economist says that the demand for a product has increased, this means that: (Points : 2)ÿÿÿÿÿÿÿconsumers are now willing to purchase more of this product at each possible price. ÿÿÿÿÿÿÿthe product has become particularly scarce for some reason. ÿÿÿÿÿÿÿproduct price has fallen and as a consequence consumers are buying a larger quantity of the product. ÿÿÿÿÿÿÿthe demand curve has shifted to the left. 29.ÿWhere there is asymmetric information between buyers and sellers. (Points : 2)ÿÿÿÿÿÿÿproduct shortages will occur at the equilibrium price. ÿÿÿÿÿÿÿproduct surpluses will occur at the equilibrium price. ÿÿÿÿÿÿÿmarkets can produce inefficient outcomes. ÿÿÿÿÿÿÿmarkets will fail due to the “free-rider problem.” 30.ÿAs it applies to insurance, the adverse selection problem is the tendency for: (Points : 2)ÿÿÿÿÿÿÿthose most likely to collect on insurance to buy it. ÿÿÿÿÿÿÿthose who buy insurance to take less precaution in avoiding the insured risk. ÿÿÿÿÿÿÿsellers to price discriminate. ÿÿÿÿÿÿÿsellers to restrict output and charge high prices. 31.ÿMost people do not steal because: (Points : 2)ÿÿÿÿÿÿÿthe marginal utilities of stolen goods diminish as more of them are obtained. ÿÿÿÿÿÿÿthe marginal utilities of stolen goods are negative. ÿÿÿÿÿÿÿtheir marginal costs, including guilt costs, are too high. ÿÿÿÿÿÿÿstolen goods can be sold only at deep discounts. 32.ÿIf you receive a gift whose market price is $20, but you consider it to be worth only $10, then: (Points : 2)ÿÿÿÿÿÿÿthere is a $10 or 50 percent value gain. ÿÿÿÿÿÿÿthere may or may not be a value loss. ÿÿÿÿÿÿÿthere is a $10 or 50 percent value loss. ÿÿÿÿÿÿÿyou can be relatively certain the giver was a sibling or other close relative. 33.ÿEntry fees at national parks and monuments are an example of: (Points : 2)ÿÿÿÿÿÿÿthe ability-to-pay principle of taxation. ÿÿÿÿÿÿÿthe benefits-received principle of taxation. ÿÿÿÿÿÿÿgovernment bureaucracy and inefficiency. ÿÿÿÿÿÿÿthe principle of limited and bundled choice. 34.ÿ”Pork-barrel” legislation that contains funding for hundreds of separate special products scattered throughout numerous states often reflects: (Points : 2)ÿÿÿÿÿÿÿthe paradox of voting. ÿÿÿÿÿÿÿlogrolling. ÿÿÿÿÿÿÿthe benefits-received principle. ÿÿÿÿÿÿÿthe Coase theorem. 35.ÿBen says that “An increase in the tax on beer will raise its price.” Holly argues that “Taxes should be increased on beer because college students drink too much.” We can conclude that: (Points : 2)ÿÿÿÿÿÿÿBen’s statement is normative, but Holly’s is positive. ÿÿÿÿÿÿÿHolly’s statement is normative, but Ben’s is positive. ÿÿÿÿÿÿÿBoth statements are normative. ÿÿÿÿÿÿÿBoth statements are positive. 36.ÿAccording to economists, economic self-interest: (Points : 2)ÿÿÿÿÿÿÿis a reality that underlies economic behavior. ÿÿÿÿÿÿÿhas the same meaning as selfishness. ÿÿÿÿÿÿÿis more characteristic of men than of women. ÿÿÿÿÿÿÿis usually self-defeating. 37.ÿUnlike newspaper dispensing devices, soft drink dispensing machines do not permit people to take more than one can or bottle with each payment. The reason is that the: (Points : 2)ÿÿÿÿÿÿÿopportunity cost of additional cans or bottles of soft drink increase very rapidly. ÿÿÿÿÿÿÿmarginal utility of extra soft drink cans or bottles declines slowly, particularly because they are storable and can be consumed later. ÿÿÿÿÿÿÿmarginal utility of extra soft drink cans or bottles declines quite rapidly. ÿÿÿÿÿÿÿopportunity cost of additional cans or bottles of soft drink increase very slowly. 38.ÿAs it applies to insurance, the moral hazard problem is the tendency for: (Points : 2)ÿÿÿÿÿÿÿthose most likely to collect on insurance to buy it. ÿÿÿÿÿÿÿthose who buy insurance to take less precaution in avoiding the insured risk. ÿÿÿÿÿÿÿsellers to price discriminate. ÿÿÿÿÿÿÿsellers to restrict output and charge high prices. 39.ÿ”Government failure” is a prominent topic in: (Points : 2)ÿÿÿÿÿÿÿpublic choice theory. ÿÿÿÿÿÿÿKeynesian economics. ÿÿÿÿÿÿÿsocialist theory. ÿÿÿÿÿÿÿbehavioral economics. 40.ÿFor a linear demand curve: (Points : 2)ÿÿÿÿÿÿÿelasticity is constant along the curve. ÿÿÿÿÿÿÿelasticity is unity at every point on the curve. ÿÿÿÿÿÿÿdemand is elastic at low prices. ÿÿÿÿÿÿÿdemand is elastic at high prices. 41.ÿA special-interest issue is one whose passage yields: (Points : 2)ÿÿÿÿÿÿÿlarge private benefits compared to external benefits. ÿÿÿÿÿÿÿlarge external benefits compared to private benefits. ÿÿÿÿÿÿÿsmall economic losses to a small number of people and large economic losses to a large number of people. ÿÿÿÿÿÿÿlarge economic gains to a small number of people and small economic losses to a large number of people. 42.ÿAn economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that: (Points : 2)ÿÿÿÿÿÿÿthere are many goods that are substitutes for bicycles. ÿÿÿÿÿÿÿthere are many goods that are complementary to bicycles. ÿÿÿÿÿÿÿthere are few goods that are substitutes for bicycles. ÿÿÿÿÿÿÿbicycles are normal goods. 43.ÿProducer surplus: (Points : 2)ÿÿÿÿÿÿÿis the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price. ÿÿÿÿÿÿÿrises as equilibrium price falls. ÿÿÿÿÿÿÿis the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price. ÿÿÿÿÿÿÿis the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept. 44.ÿThe median-voter model implies that a political office seeker will: (Points : 2)ÿÿÿÿÿÿÿadopt more extreme views when seeking his or her party’s nomination than when running against the other party’s opponent. ÿÿÿÿÿÿÿadopt less extreme views when seeking his or her party’s nomination than when running against the other party’s opponent. ÿÿÿÿÿÿÿfavor extensive government spending because demand curves for public goods are added vertically rather than horizontally. ÿÿÿÿÿÿÿfavor the private resolution of externality problems rather than governmental intervention. 45.ÿA price floor means that: (Points : 2)ÿÿÿÿÿÿÿinflation is severe in this particular market. ÿÿÿÿÿÿÿsellers are artificially restricting supply to raise price. ÿÿÿÿÿÿÿgovernment is imposing a maximum legal price that is typically below the equilibrium price. ÿÿÿÿÿÿÿgovernment is imposing a minimum legal price that is typically above the equilibrium price. 46.ÿThe relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. (Points : 2)ÿÿÿÿÿÿÿdirect, inverse ÿÿÿÿÿÿÿinverse, direct ÿÿÿÿÿÿÿinverse, inverse ÿÿÿÿÿÿÿdirect, direct 47.ÿWhich of the following best reflects the ability-to-pay philosophy of taxation? (Points : 2)ÿÿÿÿÿÿÿa tax on residential property ÿÿÿÿÿÿÿa progressive income tax ÿÿÿÿÿÿÿan excise tax on gasoline ÿÿÿÿÿÿÿan excise tax on coffee 48.ÿA firm’s supply curve is upsloping because: (Points : 2)ÿÿÿÿÿÿÿthe expansion of production necessitates the use of qualitatively inferior inputs. ÿÿÿÿÿÿÿmass production economies are associated with larger levels of output. ÿÿÿÿÿÿÿconsumers envision a positive relationship between price and quality. ÿÿÿÿÿÿÿbeyond some point the production costs of additional units of output will rise. 49.ÿThe fact that most medical care purchases are financed through insurance: (Points : 2)ÿÿÿÿÿÿÿhas no effect on health care consumption because aggregate costs are the same regardless of payment method. ÿÿÿÿÿÿÿreduces the amount of health care consumed. ÿÿÿÿÿÿÿhas decreased health care costs and therefore reduced aggregate health care expenditures. ÿÿÿÿÿÿÿincreases the amount of health care consumed. 50.ÿIn which of the following cases will total revenue increase? (Points : 2)ÿÿÿÿÿÿÿprice falls and demand is inelastic ÿÿÿÿÿÿÿprice falls and supply is elastic ÿÿÿÿÿÿÿprice rises and demand is inelastic ÿÿÿÿÿÿÿprice rises and demand is elastic

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