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1. ECO 365 FINAL EXAMS
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1) An economist who is studying the relationship between the money supply,
interest rates, and the rate of inflation is engaged in
A. microeconomic research
B. macroeconomic research
C. theoretical research, because there is no data on these variables
D. empirical research, because there is no economic theory related to these
variables
2) A basic difference between microeconomics and macroeconomics is that
microeconomics
A. focuses on the choices of individual consumers, while macroeconomics
considers the behaviour of large businesses
B. focuses on financial reporting by individuals, while macroeconomics focuses
on financial reporting by large firms
C. examines the choices made by individual participants in an economy, while
macroeconomics considers the economy's overall performance
D. focuses on national markets, while macroeconomics concentrates on
international markets
3) The distinction between supply and the quantity supplied is best made by
saying that
A. the quantity supplied is represented graphically by a curve and supply as a
point on that curve associated with a particular price

2. B. supply is represented graphically by a curve and the quantity supplied as a
point on that curve associated with a particular price
C. the quantity supplied is in direct relation with prices, whereas supply is in
inverse relation
D. the quantity supplied is in inverse relation with prices, whereas supply is in
direct relation
4) After several years of slow economic growth, world demand for petroleum
began to rise rapidly in the 1990s. Much of the increase in demand was met by
additional supplies from sources outside the Organization of Petroleum Exporting
Countries (OPEC). OPEC, during this time, was unable to restrain output among
members in its effort to lift oil prices. What best describes these events?
A. The rise in demand shifted the demand for oil to the right. OPEC actions
shifted the demand for 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 also rose.
C. The rise in demand shifted the demand for oil to the right. As price rose, the
quantity of oil supplied rose.
D. The rise in demand reflects a movement down along the demand curve as
supply shifted to the 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 good
B. change in the price of a good divided by the change in the quantity of that
good demanded
C. percentage change in price of that good divided by the percentage change in
the quantity of that good demanded

3. D. percentage change in quantity demanded of a good divided by the
percentage change in the price of that good
6) If average movie ticket prices rise by about 5 percent and attendance falls by
about 2 percent, other things being equal, the elasticity of demand for movie
tickets is about:
A. 0.0
B. 0.4
C. 0.6
D. 2.5
7) When labor is the variable input, the average product equals the
A. marginal product divided by the number of workers
B. marginal product multiplied by the number of workers
C. number of workers divided by the quantity of output
D. quantity of output divided by the number of workers
8) The increase in output obtained by hiring an additional worker is known as
A. the average product
B. the marginal product
C. the total product
D. value added
9) 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 robotic equipment to develop a more cost-effective production
technique.

4. B. An automobile manufacturing company is considering whether or not to
expand its existing workforce, while keeping the same factory and equipment.
C. A business consulting firm is considering whether or not to hire interns to
assist with research and data processing.
D. A business consulting firm is considering whether or not to add new
computers while maintaining the same number of employees.
10) Other things being equal, when average productivity falls,
A. average fixed cost must rise
B. marginal cost must rise
C. average total cost must rise
D. average variable cost must rise
11) According to economist Colin Camerer of the California Institute of
Technology, many New York taxi drivers decide when to finish work by setting an
income goal for themselves. If this is true, then on busy days when the effective
hourly wage is higher, taxi drivers will
A. work the same number of hours as they will on slower days
B. work fewer hours than they will on slower days
C. work more hours than they will on slower days
D. not work any hours
12) A firm's demand for labor is derived from the
A. opportunity costs associated with labor and leisure
B. desires and needs of the entrepreneur
C. cost of labor inputs
D. demand for its output

5. 13) Owen runs a delivery business and currently employs three drivers. He owns
three vans that employees use to make deliveries, but he is considering hiring a
fourth driver. If he hires a fourth 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 per day to hire the fourth driver.
The marginal cost per delivery of increasing output beyond 60 deliveries per day.
A. is $0 because Owen does not have to purchase another van
B. is $5
C. is $75
D. cannot be calculated without knowing Owen's total fixed costs
14) Expected economic profit per unit is equal to
A. expected price
B. expected average total cost
C. the difference between expected average price and expected average total
cost
D. the difference between expected total revenue and expected total cost
15) If a firm in a perfectly competitive market experiences a technological
breakthrough,
A. other firms would find out about it eventually
B. other firms would find out about it immediately
C. other firms would not find out about it
D. some firms would find out about it, but others would not
16) A significant difference between monopoly and perfect competition is that

6. A. free entry and exit is possible in a monopolized industry, but impossible in
a competitive industry
B. competitive firms control market supply, but monopolies do not
C. the monopolist's demand curve is the industry demand curve, while the
competitive firm's demand curve is perfectly elastic
D. profits are driven to zero in a monopolized industry, but may be positive in
a competitive industry.
17) A monopoly firm is different from a competitive firm in that
A. there are many substitutes for a monopolist's product while there are no
substitutes for a competitive firm's product
B. a monopolist's demand curve is perfectly inelastic while a competitive
firm's demand curve is perfectly elastic
C. a monopolist can influence market price while a competitive firm cannot
D. a competitive firm has a U-shaped average cost curve while a monopolist
does not
18) The difference between a perfectly competitive firm and a monopolistically
competitive firm is that a monopolistically competitive firm faces a
A. horizontal demand curve and price equals marginal cost in equilibrium
B. horizontal demand curve and price exceeds marginal cost in equilibrium
C. downward-sloping demand curve and price equals marginal cost in
equilibrium
D. downward-sloping demand curve and price exceeds marginal cost in
equilibrium
19) As long as marginal cost is below marginal revenue, a perfectly competitive
firm should

7. A. increase production
B. hold production constant
C. decrease production
D. reconsider past production decisions
20) Because a monopolistic competitor has some monopoly power, advertising to
increase that monopoly power makes sense as long as the marginal
A. benefit of advertising is positive
B. cost of advertising is positive
C. benefit of advertising exceeds the marginal cost of advertising
D. cost of advertising exceeds the marginal benefit of advertising
21) In the Flint Hills area of Kansas, proposals to build wind turbines to generate
electricity have pitted environmentalist against environmentalist. Members of the
Kansas Sierra Club support the turbines as a way to reduce fossil fuel usage, while
local chapters of the Nature Conservancy say they will befoul the landscape. The
Sierra Club argues that wind turbines
A. are a source of negative externalities
B. reduce negative externalities elsewhere in the economy
C. create a free-rider problem
D. are a way of solving a free-rider problem
22) When negative externalities are present, market failure often occurs because
A. the marginal external cost resulting from the activity is not reflected in the
market price
B. the marginal external cost resulting from the activity is reflected in the
market price

8. C. the existence of imports from foreign countries takes jobs and income away
from U.S. citizens
D. consumers will consume the good at a level where their individual marginal
benefits exceed the marginal costs borne by the firm producing the good
23) A merger between a textile mill and a clothing manufacturing company would
be considered a
A. horizontal merger
B. vertical merger
C. conglomerate merger
D. diagonal merger
24) A merger between a baby food company and a life insurance company would
be considered a
A. horizontal merger
B. vertical merger
C. conglomerate merger
D. diagonal merger
25) From the point of view of consumer and producer surplus, what problem may
be created when a country subsidizes the cost of energy to consumers to help
alleviate the burden of higher 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.

9. D. It has no effect; consumers gain a surplus, but taxpayers lose the same
amount because they must finance the subsidy.
26) Suppose people freely choose to spend 40 percent of their income on health
care, but the government decides to tax 40 percent of a person's income to
provide the same level of coverage as before. What can be said about deadweight
loss in each case?
A. Taxing income results in deadweight loss, while purchasing health care on
one's own does not result in deadweight loss.
B. Taxing income results in less deadweight loss, because government knows
better what health 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 care purchased remains the same.
27) The U.S. textile industry is relatively small because the US imports most of its
clothing. A clear result of the importation of clothing is
A. there is less variety available than there would be without imports
B. the quality of clothing is lower than it would be without imports
C. the price of clothing is higher than it would be without imports
D. the price of clothing is lower than it would be without imports
28) Countries can expect to gain from international trade as long as they
A. keep production diversified
B. specialize according to their comparative advantage
C. produce only those goods for which they have a relatively high opportunity
cost

10. D. use trade restrictions to reduce competition for domestic producers
29) 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 buy the same bundle of goods.
C. Because wages are so much lower in China, eventually all U.S. jobs will be
outsourced to China, leaving the US to import all goods at one price.
D. Because their countries have similar institutions, the price paid for a
computer in Germany and the United States are about the same when converted
into the same currency.
30) The fact those U.S. managers' salaries are substantially greater than those of
comparable managers in Japan may be related to