Final Exam

Question 1

Since air is limited in supply, it is scarce in the economic sense.

Answer 1

F

Question 2

Adam Smith is the Father of Economics.

Answer 2

T

Question 3

Economic resources include labor, capital, natural resources, money, and human capital.

Answer 3

F

Question 4

Voluntary trade between Maria and Alex benefits both individuals, and voluntary trade between Iceland and Ireland benefits both countries, but trade between Iceland and Ireland does not necessarily benefit all individuals in the two countries.

Answer 4

T

Question 5

George has spent a long time on a project, and it now seems that the marginal benefit of completing the project is less than the marginal cost of completing it. Nevertheless, if George is rational, he will complete the project anyway, because he has already spent so much time working on it.

Answer 5

f

Question 6

Market failures include monopoly, public goods, common resources, externalities, and asymmetric information.

Answer 6

T

Question 7

The opportunity cost to Madison of attending Utah State University is her cost of tuition, books, and living expenses.

Answer 7

F

Question 8

The modern Scientific Method is based primarily on inductive logic.

Answer 8

F

Question 9

In order to be useful, assumptions must be true statements about the world.

Answer 9

F

Question 10

In the scientific method, after testing, the researcher either rejects or accepts the hypothesis.

Answer 10

F

Question 11

Economic policy is “positive economics,” while economic science is “normative economics.”

Answer 11

f

Question 12

If Canada has labor that is twice as productive as labor in Bulgaria, then the standard of living in Canada will be about twice as high as the standard of living in Bulgaria.

Answer 12

T

Question 13

Choices are necessary because of scarcity.

Answer 13

T

Question 14

Your friend Marcus says, “I need a new cellphone,” but as an economist you know that he doesn’t need a new cellphone, he only wants one.

Answer 14

T

Question 15

Services are tangible and goods are intangible.

Answer 15

F

Question 16

The opportunity cost of using a resource in one way is the value of the best alternative use of the resource.

Answer 16

T

Question 17

Economists believe that markets are usually a good way to organize economic activity.

Answer 17

T

Question 18

Government can never improve the market outcome.

Answer 18

f

Question 19

The wealth of a nation is primarily determined by the nation’s labor-force participation rate.

Answer 19

F

Question 20

There is a trade-off in the long run between unemployment and inflation, but not in the short run.

Answer 20

F

Question 21

The role of an economic advisor is to determine economic policy.

Answer 21

f

Question 22

David Ricardo proposed the Principle of Absolute Advantage as the determinant of trade patterns, but Adam Smith proposed the more general Principle of Comparative Advantage as the determinant of trade patterns.

Answer 22

F

Question 23

Because Venezuela has experienced rapid inflation, the government must have printed too much money.

Answer 23

T

Question 24

In a market, if you have to pay for something, it must be scarce.

Answer 24

T

Question 25

If Sam can score 16 points and gain 5 rebounds per game, while Neemias can score 18 points and gain 10 rebounds per game, then Neemias has an absolute advantage and a comparative advantage in both scoring and rebounding.

Answer 25

F

Question 26

If Friday can produce 20 palm leaves or 20 coconuts in a day, while Crusoe can produce 15 palm leaves or 30 coconuts in a day, it will pay Friday to produce extra palm leaves and trade them to Crusoe for extra coconuts. If this happens, both Friday and Crusoe can consume more than they can produce without trade.

Answer 26

T

Question 27

If USU wants to achieve its primary goal of excellent teaching, then it must establish incentives that are compatible with that goal.

Answer 27

T

Question 28

The most important determinant of price elasticity of demand is the length of time over which demand is measured.

Answer 28

F

Question 29

The demand for Fredrico’s pizza is more elastic than is the demand for Italian food.

Answer 29

T

Question 30

Price elasticity of supply is defined as the percentage change in quantity supplied divided by the percentage change in price on a supply curve.

Answer 30

T

Question 31

If a linear supply curve intersects the quantity axis, it will have elasticity greater than 1

Answer 31

F

Question 32

A linear supply curve that intersects the origin has E=1.

Answer 32

T

Question 33

The supply of unimproved land in a county has a perfectly inelastic supply curve.

Answer 33

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Question 34

On a linear demand curve, the midpoint has unitary price elasticity (E=1), the bottom half of the curve is inelastic (E<1), and the top half of the curve is elastic (E>1).

Answer 34

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Question 35

Although a supply curve that intersects the price axis is always elastic, the elasticity differs at each point on the supply curve and becomes closer and closer to one as price and quantity increase.

Answer 35

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Question 36

the most important determinant of price elasticity of supply is the time period over which supply is measured.

Answer 36

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Question 37

Binding minimum wage laws achieve the goal of making more higher-paying jobs available for the least-skilled, youngest, least-educated workers in society.

Answer 37

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Question 38

Subsidized wages meet the goal of providing more higher-paying jobs for the lowest-skilled workers without creating deadweight loss for society.

Answer 38

F̵͍͂̅

Question 39

A minimum wage is binding if it is lower than the competitive equilibrium wage rate.

Answer 39

F

Question 40

Binding rent controls make more low-rent housing available to the poorest members of society.

Answer 40

F

Question 41

Subsidized rent achieves the goal of making more affordable housing available to low-income renters, but the subsidy will create a deadweight loss to society.

Answer 41

T

Question 42

Although binding rent controls hurt landlords and the lowest-income renters, it benefits society.

Answer 42

F

Question 43

A binding minimum wage reduces economic well-being of society because it creates deadweight loss and reduces total output for society.

Answer 43

T

Question 44

Binding rent controls often lead to discrimination against certain classes of potential renters.

Answer 44

T

Question 45

The reduction in available low-rent housing that is created by binding rent control is larger in the long-run than in the short run.

Answer 45

T

Question 46

Subsidized rent helps landlords and low-income tenants, but it hurts taxpayers

Answer 46

T

Question 47

In addition to the short-run costs of the minimum wage, the unemployment that it creates is accompanied by a reduction in the production of new capital goods, leading to long-run costs of lower production forever in the future, ceteris paribus.

Answer 47

T

Question 48

Binding price floors create deadweight loss for society by reducing the market quantity below the competitive equilibrium quantity, and binding price ceilings create deadweight loss for society by increasing the market quantity above the competitive equilibrium quantity.

Answer 48

【F】

Question 49

On a linear demand curve, when the price is 5, the quantity demanded is 50, and when the price is 7, the quantity demanded is 30. The price elasticity of demand between a price of 5 and a price of 7 is 3/2.

Answer 49

T

Question 50

On the demand curve above, the point elasticity of demand is 1 at P=5, 7/3 at P=7, and 3/2 at P=6.

Answer 50

T

Question 51

If income elasticity of demand is positive, the good is “inferior.”

Answer 51

F

Question 52

If income elasticity of demand is greater than one, the good is a luxury, and if income elasticity of demand is between zero and one, the good is a necessity.

Answer 52

T

Question 53

If cross-price elasticity of demand is positive, the goods are complements in consumption, but if the elasticity is negative, the goods are substitutes.

Answer 53

F

Question 54

The seller of Pepsi knows the cross-price elasticity of demand between Pepsi and Coke is 2.0 and the income elasticity of demand for Pepsi is 0.5. If the seller of Pepsi believes that the price of Coke will decrease by 5%, and the income of consumers will increase by 10%, the seller will expect the demand for Pepsi to increase by 5%.

Answer 54

T

Question 55

In order to reduce or prevent the deadweight loss associated with common resources, society should find ways to limit access to the resource.

Answer 55

t

Question 56

The Federal income tax is progressive, but sales taxes are regressive.

Answer 56

t

Question 57

The two principles of taxation are the Benefits Principle and the Ability-to-Pay Principle.

Answer 57

t

Question 58

Barriers to entry in a monopolistic industry include patents, licenses, control of a needed input, and decreasing costs.

Answer 58

t

Question 59

Market failures include externalities, public goods, common resources, asymmetric information, and monopoly.

Answer 59

t

Question 60

Externalities create market failures because the market fails to take into account external costs or benefits to society, and common resources create market failures because no property rights are assigned to the resources.

Answer 60

t

Question 61

Creating markets for tradeable pollution permits has proven to be a good way to deal with the negative externality of pollution.

Answer 61

t

Question 62

Although there were about 5-6 billion passenger pigeons in the eastern part of the United States in 1800, because they were a common resource, they were extinct by World War I.

Answer 62

t

Question 63

At the Federal level, the most important categories of expenditure are national defense, highways, income security, and education.

Answer 63

f

Question 64

At the State and Local levels, the most important category of expenditure is education.

Answer 64

t

Question 65

Subsidized flu shots are a good way of dealing with the positive externality of immunizations.

Answer 65

t

Question 66

Public goods are neither rival nor excludable.

Answer 66

t

Question 67

Public utilities are natural monopolies that are given government licenses to be the sole producers in a region, but the regulatory agency limits the price the monopolist charges by using the marginal-cost pricing rule or the average-cost pricing rule.

Answer 67

t

Question 68

Accounting profit can be found from economic profit by subtracting implicit costs.

Answer 68

f

Question 69

The Total Fixed Cost curve can be derived directly from the Total Product of Labor curve.

Answer 69

f

Question 70

It may pay a restaurant to stay open in the afternoons, even though the revenue earned is not sufficient to cover all of the economic costs for that period of time.

Answer 70

t

Question 71

The first Anti-trust Law was the Clayton Act of 1916.

Answer 71

f

Question 72

Market structures include perfect competition, monopoly, monopolistic competition, and oligopoly.

Answer 72

t

Question 73

A competitive firm is a price setter, while a monopolist is a price-taker.

Answer 73

f

Question 74

The biggest advertisers are homogeneous-product oligopolies.

Answer 74

f

Question 75

A monopolist creates deadweight for society by restricting output below the competitive level and raising prices above the competitive level.

Answer 75

t

Question 76

Profit maximization requires that a firm produce at the level of output where MR = MC.

Answer 76

t

Question 77

A normal economic profit is zero, and a normal accounting profit is 10%.

Answer 77

f

Question 78

The supply curve for a competitive firm is its marginal cost curve above minimum AVC.

Answer 78

t

Question 79

If positive economic profits are being earned by the typical (or marginal) firm in a competitive industry, other firms will enter the industry, increasing supply and lowering the market price.

Answer 79

t

Question 80

If a competitive firm is a profit-maximizer, it will automatically produce the efficient level of output.

Answer 80

t

Question 81

In long-run equilibrium, the typical (or marginal) firm in a competitive industry will earn a zero economic profit and will be technically efficient.

Answer 81

t