1. (TCO 1) When a state government chooses to build more roads, the required res

ID: 1180390 • Letter: 1

Question

1. (TCO 1) When a state government chooses to build more roads, the required resources are no longer available for spending on public education. This dilemma illustrates the concept of (Points : 4)

production expenses.

unemployment issues.

unintended consequences.

opportunity cost.

Question 2. 2. (TCO1) Money is not considered to be an economic resource because (Points : 4)

as such, it is not productive.

money is not a free gift of nature.

money is made by man.

idle money balances do not earn interest income.

Question 3. 3. (TCO1) A point outside the production possibilities curve is (Points : 4)

attainable, but there is not full employment.

attainable, but there is not optimal allocation.

unattainable because the economy is inefficient.

unattainable because of limited resources.

Question 4. 4. (TCO1) In a command system (Points : 4)

self-interest guides and commands individuals to pursue actions that lead them toward achieving their goals.

the head of each family decides what to do with the family's resources.

the government makes production and allocation decisions.

market traders command what outputs are produced and how they are allocated.

Question 5. 5. (TCO 2) The rationale for the law of demand can best be understood on the basis of (Points : 4)

diminishing marginal utility.

capitalist markets.

the invisible hand.

the rationing function of price.

Question 6. 6. (TCO 2) What combination of changes in supply and demand would most likely increase the equilibrium quantity? (Points : 4)

When supply increases and demand increases

When supply decreases and demand decreases

When supply decreases and demand increases

When supply increases and demand decreases

Question 7. 7. (TCO 2) When the price of movie tickets in a certain town was reduced, the movie theaters' revenues did not change. This suggests that the demand for movie tickets in that town has a price-elasticity coefficient of (Points : 4)

1.0.

greater than 1.

0.5.

zero.

Question 8. 8. (TCO 2) The price elasticity of demand increases with the length of the period considered because (Points : 4)

consumers' incomes will increase over time.

the demand curve will shift outward as time passes.

all prices will increase over time.

consumers will be better able to find substitutes.

Question 9. 9. (TCO 2) A purely competitive firm's output is such that its marginal cost is $4 and marginal revenue is $5. Hint: remember that MR = P for Pure Competition and the Profit Maximizing rule. Assuming profit maximization, the firm should (Points : 4)

cut its price and raise its output.

raise its price and cut output.

leave price unchanged and raise output.

leave price unchanged and cut output.

Question 10. 10. (TCO 2) Which case below best represents a case of price discrimination? (Points : 4)

An insurance company offers discounts to safe drivers.

A major airline sells tickets to senior citizens at lower prices than to other passengers.

A professional baseball team pays two players with identical batting averages different salaries.

A utility company charges less for electricity used during "off-peak" hours, when it does not have to operate its less-efficient generating plants.

Question 11. 11. (TCO 3) A major reason that firms form a cartel is to (Points : 4)

reduce the elasticity of demand for the product.

enlarge the market share for each producer.

minimize the costs of production.

maximize joint profits.

Question 12. 12. (TCO 3) In the short run, output (Points : 4)

is absolutely fixed.

can vary as the result of using a fixed amount of plant and equipment more or less intensively.

may be altered by varying the size of plant and equipment which now exist in the industry.

can vary as the result of changing the size of existing plants and by new firms entering or leaving the industry.

Question 13. 13.

(TCO 4) Refer to the diagram. The phases of the business cycle from points A to D are, respectively:

Graph Description

(Points : 4)

Peak, recession, expansion, trough

Trough, recovery, expansion, peak

Expansion, recession, trough, peak

Peak, recession, trough, expansion

Question 14. 14. (TCO 4) The unemployed are those people who (Points : 4)

do not have jobs.

are not employed but are seeking work.

are not working.

are not in the workforce.

Question 15. 15. (TCO 4) To avoid multiple counting in national income accounts (Points : 4)

only final goods and services should be counted.

intermediate goods and services should be counted.

both final and intermediate goods and services should be counted.

primary, intermediate, and final goods and services should be counted.

Question 16. 16. (TCO 4) GDP tends to overstate economic well-being because it takes into account (Points : 4)

improvements in product quality over time.

expenditures undertaken to correct pollution.

illegal activities of individuals and businesses.

nonmarket activities, such as the productive work of homemakers.

Question 17. 17. (TCO 6) When the federal government uses taxation and spending actions to stimulate the economy it is conducting (Points : 4)

fiscal policy.

incomes policy.

monetary policy.

employment policy.

Question 18. 18. (TCO 6) Refer to the graph. What combination would most likely cause a shift from AD1 to AD3?

Graph Description (Points : 4)

Increases in taxes and government spending

Decrease in taxes and increase in government spending

Increase in taxes and decrease in government spending

Decreases in taxes and government spending

Question 19. 19. (TCO 6) The American Recovery and Reinvestment Act of 2009 included mostly (Points : 4)

increases in taxes and government spending.

decreases in taxes and government spending.

increases in government spending and decreases in taxes.

decreases in government spending and increases in taxes.

Question 20. 20. (TCO 6) If people expected that a tax cut was temporary, then this fiscal policy's effect on the economy will tend to be (Points : 4)

stronger.

weaker.

the exact opposite of what was intended.

as the multiplier effect would predict.

Explanation / Answer