Econ Midterm 1

Question 1

Which of the following is considered a microeconomic issue?

Answer 1

The local university decides to raise tuition for online course offerings.

Question 2

Which of the following is considered a macroeconomic topic?

Answer 2

The U.S. labor force participation rate falls.

Question 3

When we assume that consumers want to pay the lowest price possible, we assume that consumers
are:

Answer 3

rational.

Question 4

Scarcity can best be defined as a situation in which

Answer 4

all wants cannot be satisfied due to resource constraints.

Question 5

The problem of having unlimited wants under the constraint of limited resources describes:

Answer 5

scarcity

Question 6

Mimi gets a job twenty miles from her house and purchases a new car to commute. As a result of this
new expense, Mimi decides to sell her season tickets to the local football stadium. Mimi’s situation can
be described as:

Answer 6

a trade-off.

Question 7

Economists assume that people choose to do something when they believe:

Answer 7

the benefits outweigh the costs of the decision.

Question 8

You decide to drive your car on a long road trip of 1,500 miles. The opportunity cost of driving your car:

Answer 8

includes lost wages you could have earned instead of driving.

Question 9

Your sister always brags about how savvy she is as a grocery shopper, claiming she saves lots of
money by using coupons and shopping at multiple stores to get the lowest prices on all goods. Why
might your sister be overestimating her savings?

Answer 9

All of these are correct.

Question 10

Making a decision “on the margin” involves comparing:

Answer 10

additional benefits against additional costs.

Question 11

Jasmin purchases a coffee cup from her local gas station for $5.00 that can be refilled at any time for
$0.50. The marginal cost of her 10th cup of coffee is:

Answer 11

$0.50

Question 12

Aria purchases a coffee cup from her local gas station for $5.00 that can be refilled at any time for
$0.50. Economists would say that the $5.00 she spent on the cup is:

Answer 12

a sunk cost.

Question 13

A college student decides to spend his afternoon watching three movies rented from Redbox. The cost
of each movie is $1. The student was willing to pay $4 to rent each of the first two movies and $2 to
rent the third movie. What was the marginal benefit received by the student when renting the second
movie?

Answer 13

$4

Question 14

After paying $12 to enter an all-you-can-eat buffet, you can eat as much food as you desire. The
marginal cost of an additional plate of food is:

Answer 14

zero dollars.

Question 15

After paying $12 to enter an all-you-can-eat buffet, you can eat as much food as you desire. Which of
the following statements is true?

Answer 15

The marginal benefit of your first plate of food is larger than the marginal benefit of your third
plate of food.

Question 16

An Italian restaurant decreases the price of pizza relative to the price of spaghetti, so customers buy
more pizza. This is an example of responding to:

Answer 16

incentives.

Question 17

A fast-food chain announces a “buy one get one free” offer on breakfast sandwiches bought before
9am. This is an example of

Answer 17

the use of incentives.

Question 18

A university posts a notice that anyone who registers for classes after the deadline will be charged an
additional $30 fee. This is an example of:

Answer 18

a disincentive.

Question 19

Which of the following is an example of a positive incentive?

Answer 19

Discover offers 0 percent balance transfer rates to anyone who opens a new credit card.

Question 20

The idea of efficiency is used to address which of the following questions?

Answer 20

Are resources being allocated in the best way possible?

Question 21

Suppose you have an idea that you believe offers substantial opportunity, but no one has ever
implemented this idea before. What conclusion should you draw?
I. People are irrational.
II. You have come up with a new innovative idea.
III. Your may have misevaluated how people will respond to new incentives.
IV. You are being irrational.

Answer 21

II and III only

Question 22

The idea of efficiency is used to address which of the following questions?

Answer 22

Are resources being allocated in the best way possible?

Question 23

When two variables have been observed to have a tendency to occur at the same time, we can say
there is ______ but not necessarily ______.

Answer 23

correlation; causation

Question 24

The statement “People who drink coffee tend to wake up early” implies that:

Answer 24

drinking coffee is positively correlated with waking up early

Question 25

Your friend comments that “A hair stylist should not have to obtain a cosmetology license.” Her
statement is an example of what kind of statement?

Answer 25

Normative

Question 26

Which of the following is an example of a positive statement?

Answer 26

An increase in the minimum wage results in higher teenage unemployment

Question 27

Which of the following is an example of a positive statement?

Answer 27

Individuals with a bachelor’s degree earn higher average incomes than those with only a high
school diploma

Question 28

Which is not a characteristic of a good economic model?

Answer 28

Utilizes vague assumptions

Question 29

A news article reports that students who take SAT preparation courses tend to have higher test scores.
Which of the following describes an omitted variable that could explain this correlation?
I. Parents with more education are more likely to enroll their children in SAT preparation courses.
II. SAT preparation courses improve students’ test-taking abilities.
III. Students who are more motivated to attend college are more likely to enroll in SAT preparation
courses.

Answer 29

I and III only

Question 30

When the occurrence of one event brings about the other, the relationship between the two events is
best described as:

Answer 30

causation.

Question 31

As corn prices rise, salsa sales tend to fall. This is an example of:

Answer 31

a negative correlation.

Question 32

When the price of milk rises, there is no change in the amount of dog food purchased. This is an
example of:

Answer 32

two items that are uncorrelated

Question 33

The invisible hand refers to the coordination that occurs from:

Answer 33

everyone working in his or her own self-interest.

Question 34

A production possibilities frontier is a line or curve that:

Answer 34

shows all the possible combinations of outputs that can be produced using all available
resources

Question 35

Consider the production possibilities frontier displayed in the figure shown. The fact that the line slopes
downward displays which economic concept?

Answer 35

Trade-offs

Question 36

Consider the production possibilities frontier displayed in the figure shown. Which points are efficient
and attainable with existing resources?

Answer 36

Points I and IV

Question 37

Consider the production possibilities frontier displayed in the figure shown. A society faced with this
curve currently:

Answer 37

cannot obtain point II.

Question 38

Considering the production possibilities frontier displayed in the figure shown, producing at point
______ would be inefficient

Answer 38

III

Question 39

The slope of a production possibilities frontier measures:

Answer 39

the opportunity cost of producing one good in terms of the other.

Question 40

Consider the production possibilities frontier displayed in the figure shown. The opportunity cost of a
bushel of apples is:

Answer 40

1/20 watermelons.

Question 41

Consider the production possibilities frontier displayed in the figure shown. The opportunity cost of one
watermelon is:

Answer 41

20 bushels of apples

Question 42

Consider the production possibilities frontier displayed in the figure shown. If a society with this frontier
chooses to produce 200 bushels of apples, it can produce no more than:

Answer 42

10 watermelons.

Question 43

Consider the production possibilities frontier displayed in the figure shown. The opportunity cost of one
watermelon:

Answer 43

is constant.

Question 44

If we consider the reality that each worker has different skills, then the production possibilities frontier
should

Answer 44

be bowed outward.

Question 45

A realistic production possibilities curve is _____, while a simple production possibilities curve

Answer 45

bowed outward; has constant opportunity costs.

Question 46

Consider the production possibilities frontier in the figure shown. As more and more cars are produced,
the opportunity cost of producing more cars:

Answer 46

increases.