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.

2. (TCO1) Which of the following is considered to be an entrepreneur? (Points : 4)

Self-employed person

MBA graduate hired by a firm to be its CEO

Production-line worker

Customer of a firm

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

attainable and resources are fully employed.

attainable, but resources are unemployed.

unattainable, but resources are unemployed.

unattainable and resources are fully employed.

4. (TCO1) A basic characteristic of a command system is that (Points : 4)

wages paid to labor are higher.

government owns most economic resources.

free markets are never permitted in a command economy.

government planners play a limited role in deciding what goods will be produced.

5. (TCO 2) Which is consistent with the law of demand? (Points : 4)

A decrease in the price of tacos causes no change in the quantity of tacos demanded.

An increase in the price of pizza causes an increase in the quantity of pizza demanded.

An increase in the price of hamburgers causes a decrease in the quantity of hamburgers demanded.

A decrease in the price of turkey sandwiches causes a decrease in the quantity of turkey sandwiches demanded.

6. (TCO 2) A decrease in supply and a decrease in demand will (Points : 4)

increase price and affect the equilibrium quantity in an indeterminate way.

decrease the equilibrium quantity and decrease price.

increase the equilibrium quantity and affect price in an indeterminate way.

decrease the equilibrium quantity and affect price in an indeterminate way.

7. (TCO 2) You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than one.  To increase total revenues, you should (Points : 4)

increase the price of the software.

decrease the price of the software.

hold the price of the software constant.

increase the supply of the software.

8. (TCO 2) The elasticity of supply for a product will be 2 if: (Points : 4)

A 1 percent decrease in the price causes a 0.2 percent decrease in quantity supplied

A 2 percent decrease in price causes a 1 percent decrease in quantity supplied

A 1 percent decrease in price causes a 2 percent decrease in quantity supplied

A 2 percent decrease in price causes a 2 percent decrease in quantity supplied

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.

10. (TCO 2) Consumers who clip and redeem discount coupons (Points : 4)

exhibit the same price elasticity of demand for a given product than consumers who do not clip and redeem coupons.

exhibit more price elasticity of demand for a given product than consumers who do not clip and redeem coupons.

exhibit less price elasticity of demand for a given product than consumers who do not clip and redeem coupons.

cause total revenue to decrease for firms that issue coupons for their products.

11. (TCO 3) In the kinked demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to (Points : 4)

decrease their prices.

increase their prices.

not change their prices.

reduce their quantity.

12. (TCO 3) The main difference between the short run and the long run is that (Points : 4)

firms earn zero profits in the long run.

the long run always refers to a time period of one year or longer.

in the short run, some inputs are fixed.

in the long run, all inputs are fixed.

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

14. (TCO 4) Official unemployment rate statistics may (Points : 4)

overstate the amount of unemployment by including part-time workers in the calculations.

understate the amount of unemployment by excluding part-time workers in the calculations.

overstate the amount of unemployment because of the presence of “discouraged” workers who are not actively seeking employment.

understate the amount of unemployment because of the presence of “discouraged” workers who are not actively seeking employment.

15. (TCO 4) GDP is the market value of (Points : 4)

resources (land, labor, capita, and entrepreneurship) in an economy in a given year.

all final goods and services produced in an economy in a given year.

consumption and investment spending in an economy in a given year.

all output produced and accumulated over the years.

16. (TCO 4 G) Nominal GDP differs from real DP because (Points : 4)

nominal GDP is based on constant prices.

real GDP is based on current prices.

real GDP is adjusted for changes in the price level.

nominal GDP is adjusted for changes in the price level.

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.

18. (TCO 6) Refer to the graph.  What combination would most likely cause a shift from AD1 to AD2?

Graph Description

(Points : 4)

Increases in taxes and government spending

Decrease in taxes and increase in government spending

Increase in taxes and no change in government spending – not 100% on this one as cannot see graph

Decreases in taxes and government spending

19. (TCO 6) Which of the following serves as an automatic stabilizer in the economy? (Points : 4)

Interest rates

Exchange rates

Inflation rate

Progressive income tax

20. (TCO 6) The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n) (Points : 4)

budget lag.

recognition lag.

operational lag.

administrative lag.