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ECO 365 Final Exam 100% Correct
1) An economistwho is studying the relationship between the moneysupply,interestrates,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 theoryrelated to these variables
2) A basic difference between microeconomics and macroeconomics is thatmicroeconomics
A. focuses on the choices ofindividual consumers,while macroeconomics considers the behavior of large
businesses
B. focuses on financial reporting byindividuals,while macroeconomics focuses on financial reporting bylarge 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 supplyand the quantity supplied is bestmade bysaying that
A. the quantity supplied is represented graphicallyby a curve and supplyas a point on that curve associated with a
particular price
B. supplyis represented graphicallyby a curve and the quantity supplied as a pointon that curve associated with a
particular price
C. the quantity supplied is in directrelation with prices,whereas supplyis in inverse relation
D. the quantity supplied is in inverse relation with prices,whereas supplyis in direct relation
4) After several years of slow economic growth,world demand for petroleum began to rise rapidlyin the 1990s.Much
of the increase in demand was metby additional supplies from sources outside the Organization of Petroleum
Exporting Countries (OPEC).OPEC, during this time,was unable to restrain outputamong 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 demand for oil back to the left.
B. The rise in demand shifted the demand for oil to the right. As price rose,the supplyof 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 movementdown along the demand curve as supplyshifted to the right when
suppliers produced more oil.
5) Price elasticityof demand is the:
A. change in the quantity of a good demanded divided bythe 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
D. percentage change in quantity demanded ofa good divided by the percentage change in the price of that good
6) If average movie ticket prices rise by about5 percentand attendance falls by about2 percent, other things being
equal,the elasticityof demand for movie tickets is about:
A. 0.0
B. 0.4
C. 0.6

2. D. 2.5
7) When labor is the variable input, the average productequals the
A. marginal productdivided by the number ofworkers
B. marginal productmultiplied by the number ofworkers
C. number of workers divided by the quantity of output
D. quantity of output divided by the number of workers
8) The increase in outputobtained 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 bestexample of a long-run decision?
A. An automobile manufacturing companyis considering whether or notto invest in robotic equipmentto develop a
more cost-effective production technique.
B. An automobile manufacturing companyis considering whether or notto expand its existing workforce,while
keeping the same factory and equipment.
C. A business consulting firm is considering whether or notto hire interns to assistwith research and data
processing.
D. A business consulting firm is considering whether or notto add new computers while maintaining the same
number ofemployees.
10) Other things being equal,when average productivity falls,
A. average fixed costmustrise
B. marginal costmustrise
C. average total costmustrise
D. average variable cost mustrise
11) According to economistColin Camerer ofthe California Institute of Technology,many New York taxi drivers
decide when to finish work by setting an income goal for themselves.Ifthis is true, then on busy days when the
effective hourly wage is higher,taxi drivers will
A. work the same number ofhours 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. opportunitycosts associated with labor and leisure
B. desires and needs ofthe entrepreneur
C. cost of labor inputs
D. demand for its output
13) Owen runs a delivery business and currentlyemploys three drivers.He owns three vans that employees use to
make deliveries,buthe 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 constantuse,allowing him to increase deliveries per dayfrom 60 to 75. This will
costan additional $75 per day to hire the fourth driver. The marginal costper delivery of increasing outputbeyond 60
deliveries per day
A. is $0 because Owen does nothave to purchase another van
B. is $5

3. C. is $75
D. cannot be calculated withoutknowing Owen's total fixed costs
14) Expected economic profitper unitis 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 marketexperiences 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 notfind out aboutit
D. some firms would find outaboutit, but others would not
16) A significantdifference between monopolyand perfectcompetition is that
A. free entry and exit is possible in a monopolized industry,but impossible in a competitive industry
B. competitive firms control marketsupply,but monopolies do not
C. the monopolist's demand curve is the industrydemand 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 monopolyfirm is differentfrom a competitive firm in that
A. there are many substitutes for a monopolist's productwhile 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 monopolistcan influence marketprice while a competitive firm cannot
D. a competitive firm has a U-shaped average costcurve while a monopolistdoes not
18) The difference between a perfectly competitive firm and a monopolisticallycompetitive firm is that a
monopolisticallycompetitive firm faces a
A. horizontal demand curve and price equals marginal costin equilibrium
B. horizontal demand curve and price exceeds marginal costin equilibrium
C. downward-sloping demand curve and price equals marginal costin equilibrium
D. downward-sloping demand curve and price exceeds marginal costin equilibrium
19) As long as marginal costis below marginal revenue,a perfectly competitive firm should
A. increase production
B. hold production constant
C. decrease production
D. reconsider pastproduction decisions
20) Because a monopolistic competitor has some monopolypower,advertising to increase thatmonopolypower
makes sense as long as the marginal
A. benefitof advertising is positive
B. costof advertising is positive
C. benefit of advertising exceeds the marginal costofadvertising
D. cost of advertising exceeds the marginal benefitofadvertising
21) In the Flint Hills area of Kansas,proposals to build wind turbines to generate electricityhave pitted
environmentalistagainstenvironmentalist.Members ofthe Kansas Sierra Club supportthe turbines as a way to
reduce fossil fuel usage,while local chapters ofthe Nature Conservancysay they will befoul the landscape.The
Sierra Club argues that wind turbines

4. 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,marketfailure often occurs because
A. the marginal external costresulting from the activity is not reflected in the marketprice
B. the marginal external costresulting from the activity is reflected in the marketprice
C. the existence of imports from foreign countries takes jobs and income awayfrom 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 companywould be considered a
A. horizontal merger
B. vertical merger
C. conglomerate merger
D. diagonal merger
24) A merger between a baby food companyand a life insurance companywould be considered a
A. horizontal merger
B. vertical merger
C. conglomerate merger
D. diagonal merger
25) From the pointof view of consumer and producer surplus,whatproblem maybe created when a country
subsidizes the costof 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 amountthat maximizes consumer surplus.
C. It encourages the consumption oftoo much fuel at the expense of other goods.
D. It has no effect; consumers gain a surplus,buttaxpayers lose the same amountbecause theymustfinance the
subsidy.
26) Suppose people freelychoose to spend 40 percentof their income on health care, but the governmentdecides to
tax 40 percentof a person's income to provide the same level of coverage as before. What can be said about
deadweightloss in each case?
A. Taxing income results in deadweightloss,while purchasing health care on one's own does notresultin
deadweightloss.
B. Taxing income results in less deadweightloss,because governmentknows better whathealth care coverage is
good for society.
C. There is no difference because the goods are purchased in the marketin 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 industryis relatively small because the US imports mostofits clothing.A clear resultof the
importation ofclothing 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 withoutimports
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

5. A. keep production diversified
B. specialize according to their comparative advantage
C. produce only those goods for which they have a relatively high opportunitycost
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 equivalentvalues.For example,one Italian lire equals one U.S. dollar.
B. Because people have essentiallythe 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
importall goods atone price.
D. Because their countries have similar institutions,the price paid for a computer in Germanyand the United States
are aboutthe same when converted into the same currency.
30) The fact that U.S. managers'salaries are substantiallygreater than those of comparable managers in Japan m ay
be related to
A. an increase in the demand for CEOs
B. an increase in the supplyof CEOs
C. the comparatively greater competitive markets in Japan
D. the greater number ofpublic goods provided in the United States