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ECO 365 Final ExamANSWERS ARE HERE 1) An economist who is studying the relationship between the money supply, interest rates, andthe rate of inflation is engaged inA. microeconomic researchB. macroeconomic researchC. theoretical research, because there is no data on these variablesD. empirical research, because there is no economic theory related to these variables2) A basic difference between microeconomics and macroeconomics is that microeconomicsA. focuses on the choices of individual consumers, while macroeconomics considers thebehavior of large businessesB. focuses on financial reporting by individuals, while macroeconomics focuses on financialreporting by large firmsC. examines the choices made by individual participants in an economy, while macroeconomicsconsiders the economys overall performanceD. focuses on national markets, while macroeconomics concentrates on international markets3) The distinction between supply and the quantity supplied is best made by saying thatA. the quantity supplied is represented graphically by a curve and supply as a point on thatcurve associated with a particular priceB. supply is represented graphically by a curve and the quantity supplied as a point on thatcurve associated with a particular priceC. the quantity supplied is in direct relation with prices, whereas supply is in inverse relationD. the quantity supplied is in inverse relation with prices, whereas supply is in direct relation4) After several years of slow economic growth, world demand for petroleum began to riserapidly in the 1990s. Much of the increase in demand was met by additional supplies fromsources outside the Organization of Petroleum Exporting Countries (OPEC). OPEC, during thistime, was unable to restrain output among members in its effort to lift oil prices. What bestdescribes these events?A. The rise in demand shifted the demand for oil to the right. OPEC actions shifted the demandfor oil back to the left.B. The rise in demand shifted the demand for oil to the right. As price rose, the supply of oil alsorose.C. The rise in demand shifted the demand for oil to the right. As price rose, the quantity of oilsupplied rose.D. The rise in demand reflects a movement down along the demand curve as supply shifted tothe right when suppliers produced more oil.5) Price elasticity of demand is the:A. change in the quantity of a good demanded divided by the change in the price of that goodB. change in the price of a good divided by the change in the quantity of that good demandedC. percentage change in price of that good divided by the percentage change in the quantity ofthat good demandedD. percentage change in quantity demanded of a good divided by the percentage change in theprice of that good
6) If average movie ticket prices rise by about 5 percent and attendance falls by about 2percent, other things being equal, the elasticity of demand for movie tickets is about:A. 0.0B. 0.4C. 0.6D. 2.57) When labor is the variable input, the average product equals theA. marginal product divided by the number of workersB. marginal product multiplied by the number of workersC. number of workers divided by the quantity of outputD. quantity of output divided by the number of workers8) The increase in output obtained by hiring an additional worker is known asA. the average productB. the marginal productC. the total productD. value added9) Which of the following is the best example of a long-run decision?A. An automobile manufacturing company is considering whether or not to invest in roboticequipment to develop a more cost-effective production technique.B. An automobile manufacturing company is considering whether or not to expand its existingworkforce, while keeping the same factory and equipment.C. A business consulting firm is considering whether or not to hire interns to assist with researchand data processing.D. A business consulting firm is considering whether or not to add new computers whilemaintaining the same number of employees.10) Other things being equal, when average productivity falls,A. average fixed cost must riseB. marginal cost must riseC. average total cost must riseD. average variable cost must rise11) According to economist Colin Camerer of the California Institute of Technology, many NewYork taxi drivers decide when to finish work by setting an income goal for themselves. If this istrue, then on busy days when the effective hourly wage is higher, taxi drivers willA. work the same number of hours as they will on slower daysB. work fewer hours than they will on slower daysC. work more hours than they will on slower daysD. not work any hours12) A firms demand for labor is derived from theA. opportunity costs associated with labor and leisureB. desires and needs of the entrepreneurC. cost of labor inputsD. demand for its output
13) Owen runs a delivery business and currently employs three drivers. He owns three vansthat employees use to make deliveries, but he is considering hiring a fourth driver. If he hires afourth driver, he can schedule breaks and lunch hours so all three vans are in constant use,allowing him to increase deliveries per day from 60 to 75. This will cost an additional $75 perday to hire the fourth driver. The marginal cost per delivery of increasing output beyond 60deliveries per dayA. is $0 because Owen does not have to purchase another vanB. is $5C. is $75D. cannot be calculated without knowing Owens total fixed costs14) Expected economic profit per unit is equal toA. expected priceB. expected average total costC. the difference between expected average price and expected average total costD. the difference between expected total revenue and expected total cost15) If a firm in a perfectly competitive market experiences a technological breakthrough,A. other firms would find out about it eventuallyB. other firms would find out about it immediatelyC. other firms would not find out about itD. some firms would find out about it, but others would not16) A significant difference between monopoly and perfect competition is thatA. free entry and exit is possible in a monopolized industry, but impossible in a competitiveindustryB. competitive firms control market supply, but monopolies do notC. the monopolists demand curve is the industry demand curve, while the competitive firmsdemand curve is perfectly elasticD. profits are driven to zero in a monopolized industry, but may be positive in a competitiveindustry.17) A monopoly firm is different from a competitive firm in thatA. there are many substitutes for a monopolists product while there are no substitutes for acompetitive firms productB. a monopolists demand curve is perfectly inelastic while a competitive firms demand curve isperfectly elasticC. a monopolist can influence market price while a competitive firm cannotD. a competitive firm has a U-shaped average cost curve while a monopolist does not18) The difference between a perfectly competitive firm and a monopolistically competitive firmis that a monopolistically competitive firm faces aA. horizontal demand curve and price equals marginal cost in equilibriumB. horizontal demand curve and price exceeds marginal cost in equilibriumC. downward-sloping demand curve and price equals marginal cost in equilibriumD. downward-sloping demand curve and price exceeds marginal cost in equilibrium19) As long as marginal cost is below marginal revenue, a perfectly competitive firm shouldA. increase productionB. hold production constantC. decrease production
D. reconsider past production decisions20) Because a monopolistic competitor has some monopoly power, advertising to increase thatmonopoly power makes sense as long as the marginalA. benefit of advertising is positiveB. cost of advertising is positiveC. benefit of advertising exceeds the marginal cost of advertisingD. cost of advertising exceeds the marginal benefit of advertising21) In the Flint Hills area of Kansas, proposals to build wind turbines to generate electricity havepitted environmentalist against environmentalist. Members of the Kansas Sierra Club supportthe turbines as a way to reduce fossil fuel usage, while local chapters of the NatureConservancy say they will befoul the landscape. The Sierra Club argues that wind turbinesA. are a source of negative externalitiesB. reduce negative externalities elsewhere in the economyC. create a free-rider problemD. are a way of solving a free-rider problem22) When negative externalities are present, market failure often occurs becauseA. the marginal external cost resulting from the activity is not reflected in the market priceB. the marginal external cost resulting from the activity is reflected in the market priceC. the existence of imports from foreign countries takes jobs and income away from U.S.citizensD. consumers will consume the good at a level where their individual marginal benefits exceedthe marginal costs borne by the firm producing the good23) A merger between a textile mill and a clothing manufacturing company would be consideredaA. horizontal mergerB. vertical mergerC. conglomerate mergerD. diagonal merger24) A merger between a baby food company and a life insurance company would be consideredaA. horizontal mergerB. vertical mergerC. conglomerate mergerD. diagonal merger25) From the point of view of consumer and producer surplus, what problem may be createdwhen a country subsidizes the cost of energy to consumers to help alleviate the burden ofhigher energy costs?A. It hurts the poor and benefits the rich.B. It leads to less fuel being used than the amount that maximizes consumer surplus.C. It encourages the consumption of too much fuel at the expense of other goods.D. It has no effect; consumers gain a surplus, but taxpayers lose the same amount becausethey must finance the subsidy.
26) Suppose people freely choose to spend 40 percent of their income on health care, but thegovernment decides to tax 40 percent of a persons income to provide the same level ofcoverage as before. What can be said about deadweight loss in each case?A. Taxing income results in deadweight loss, while purchasing health care on ones own doesnot result in deadweight loss.B. Taxing income results in less deadweight loss, because government knows better whathealth care coverage is good for society.C. There is no difference because the goods are purchased in the market in either case.D. There is no difference because the total spending remains the same and the health carepurchased remains the same.27) The U.S. textile industry is relatively small because the US imports most of its clothing. Aclear result of the importation of clothing isA. there is less variety available than there would be without importsB. the quality of clothing is lower than it would be without importsC. the price of clothing is higher than it would be without importsD. the price of clothing is lower than it would be without imports28) Countries can expect to gain from international trade as long as theyA. keep production diversifiedB. specialize according to their comparative advantageC. produce only those goods for which they have a relatively high opportunity costD. use trade restrictions to reduce competition for domestic producers29) Which of the following is an example of the law of one price?A. Exchange rates tend to have equivalent values. For example, one Italian lire equals one U.S.dollar.B. Because people have essentially the same basic needs wherever they live, they tend to buythe same bundle of goods.C. Because wages are so much lower in China, eventually all U.S. jobs will be outsourced toChina, leaving the US to import all goods at one price.D. Because their countries have similar institutions, the price paid for a computer in Germanyand the United States are about the same when converted into the same currency.30) The fact that U.S. managers salaries are substantially greater than those of comparablemanagers in Japan may be related toA. an increase in the demand for CEOsB. an increase in the supply of CEOsC. the comparatively greater competitive markets in JapanD. the greater number of public goods provided in theUnited States