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Final Examination 925 North Spurgeon Street, Santa Ana, CA 92701 Text: Author(s): Publisher: www.calcoast.edu Phone: 714-547-9625 Fax: 714-547-5777 Essentials of Economics 4th Edition, 2015 ISBN-13: 9780133543391 R. Glenn Hubbard and Anthony Patrick O’Brien Pearson 10/15 BAM 223 Principles of Economics 3 Final Examination BAM 223 Principles of Economics Multiple Choice Questions (Enter your answers on the enclosed answer sheet) 1. An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue. a. variable b. market c. model d. trade-off Scenario 1-2 Suppose a hat manufacturer currently sells 2,000 hats per week and makes a profit of $5,000 per week. The plant owner observes, “Although the last 300 hats we produced and sold increased our revenue by $1,000 and our costs by $1,100, we are still making an overall profit of $5,000 per week so I think we’re on the right track. We are producing the optimal number of hats.” 2. Refer to Scenario 1-2. Had the firm not produced and sold the last 300 hats, would its profit be higher or lower, and if so by how much? a. Its profit will be $1,100 higher. b. Its profit will be $1,000 lower. c. Its profit will be $100 lower. d. Its profit will be $100 higher. 3. The term market in economics refers to: a. a place where money changes hands. b. a legal institution where exchange can take place. c. a group of buyers and sellers of a product and the arrangement by which they come together to trade. d. an organization which sells goods and services. Scenario 1-3 Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, “Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we’re on the right track. We are producing the optimal number of t-shirts.” 4. Refer to Scenario 1-3. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 400 t-shirts? a. marginal cost b. explicit cost c. operating cost d. Any of the above terms are correct. 4 Final Examination BAM 223 Principles of Economics 5. Suppose the U.S. government encouraged new teachers to take jobs in underperforming schools by paying the new teachers a $20,000 bonus. These teachers would be exemplifying the economic idea that: a. people respond to economic incentives b. people are rational c. optimal decisions are made at the margin d. equity is more important than efficiency 6. Dr. Goldfinger decides to invest in companies which he believes can “improve the productivity and efficiency” of health care services. How can Dr. Goldfinger strive to achieve this productive efficiency? a. by investing in companies that produce goods and services at the lowest possible cost b. by investing in companies that produce up to the point where the marginal benefit of the last unit produced is equal to the marginal cost of producing it. c. by investing in companies that fairly distribute their products and services d. by investing in companies that produce goods and services based on consumer preferences 7. How are the fundamental economic decisions determined in Canada? a. The United Nations decides because Canada is a developing economy. b. The government decides because Canada is a centrally planned economy. c. Individuals, firms, and the government interact in a market to make these economic decisions. d. These decisions are made by the country’s elders who have had much experience in answering these questions. 8. Which of the following is a macroeconomics question? a. How is the production quantity of snowboards determined? b. What factors determine the price of electronic cigarettes? c. What determines the growth rate of gross domestic product? d. What determines the salaries of Wall Street executives? 9. Scarcity: a. stems from the incompatibility between limited resources and unlimited wants b. can be overcome by discovering new resources c. can be eliminated by rationing products d. is a bigger problem in market economies than in socialist economies 5 Final Examination BAM 223 Principles of Economics 10. The principle of opportunity cost is that: a. in a market economy, taking advantage of profitable opportunities involves some money cost b. the economic cost of using a factor of production is the alternative use of that factor that is given up c. taking advantage of investment opportunities involves costs d. the cost of production varies depending on the opportunity for technological application 11. A production possibilities frontier with a bowed outward shape indicates: a. the possibility of inefficient production b. constant opportunity costs as more and more of one good is produced c. increasing opportunity costs as more and more of one good is produced d. decreasing opportunity costs as more and more of one good is produced Figure 2-4 Figure 2-4 shows various points on three different production possibilities frontiers for a nation. 12. Refer to Figure 2-4. Consider the following events: (a) an increase in the unemployment rate (b) general technological advancement (c) decrease in consumer wealth Which of the events listed above could cause a movement from X to V? a. a only b. a and b only c. b and c only d. a, b, and c 6 Final Examination BAM 223 Principles of Economics 13. You have an absolute advantage whenever you: a. are better educated than someone else b. can produce something at a lower opportunity cost than others c. prefer to do one particular activity d. can produce more of something than others with the same resources Table 2-5 Production choices for Nadia’s Neckware Choice Quantity of Ascots Produced Quantity of Bowties Produced A 32 0 B 24 6 C 16 12 D 8 18 E 0 24 14. Refer to Table 2-5. Assume Nadia’s Neckware only produces ascots and bowties. A combination of 16 ascots and 6 bowties would appear: a. along Nadia’s production possibilities frontier b. inside Nadia’s production possibilities frontier c. outside Nadia’s production possibilities frontier d. at the horizontal intercept of Nadia’s production possibilities frontier 15. If the best surgeon in town is also the best at cleaning swimming pools, then according to economic reasoning, this person should: a. specialize in being a surgeon because its opportunity cost is lower b. specialize in cleaning swimming pools because it is more labor-intensive c. split his time evenly between being a surgeon and cleaning swimming pools d. should pursue the activity he enjoys more 7 Final Examination BAM 223 Principles of Economics Figure 2-12 Figure 2-12 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. 16. Refer to Figure 2-12. Which country has a comparative advantage in the production of cotton? a. Pakistan b. They have equal production abilities. c. Indonesia d. neither country 17. Refer to Figure 2-12. Which country has a comparative advantage in the production of cashews? a. They have equal production abilities. b. Pakistan c. Indonesia d. neither country 18. If a commercial dairy farm wants to raise funds to purchase feeding troughs, it does so in the a. output market. b. product market. c. factor market. d. dairy products market. 8 Final Examination BAM 223 Principles of Economics Figure 2-19 19.