ECON 101
SWC
SP04
homework # 1
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
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1. The opportunity cost of attending college is
a. the money one spends on college tuition, books, and so forth.
b. the highest valued alternative one forfeits to attend college.
c. the least valued alternative one forfeits to attend college.
d. equal to the salary one will earn when one graduates from college.
2. George broke a mirror on Tuesday, and for the remainder of the week had a run of bad luck.
George's friend, Michelle, said that the act of physically breaking the mirror caused George's bad
luck. Michelle believes that
a. association is not causation.
b. association is causation.
c. what is good for the individual is good for the group.
d. what is good for the individual is not good for the group.
3. Which of the following is a normative macroeconomics statement?
a. The central bank should increase the nation's money supply.
b. The increase in the nation's money supply helped push the nation's unemployment rate
down in the short run.
c. Ford Motor Company's new advertising campaign ended up hurting General Motors' sales.
d. The local government ought to spend more on recreational facilities.
4. Which of the following is an example of the fallacy of composition?
a. Juan washed his car in the morning and it rained in the afternoon, which means Juan's
washing his car caused it to rain.
b. Ted gets home from work faster by driving through the city streets at 5:00 p.m. rather than
taking the freeway, which means that everyone will get home faster by driving through the
city streets at 5:00 p.m. rather than taking the freeway.
c. Maria hit her head on the cabinet door and now has a lump on her head at the point of
impact, which means the blow to the head caused the lump.
d. Joan wished her brother bad luck during an argument last night and he wrecked his car
today, which means Joan's wishing her brother bad luck caused him to wreck his car.
5. The condition often used in economics to isolate the relationship between two variables is
a. causation.
b. abstraction.
c. ceteris paribus.
d. efficiency.
6. If variable X goes up as variable Y goes down, then X and Y are
a. directly related.
b. inversely related.
c. independent.
d. positively related.
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7. If variable X goes down as variable Y goes down, then X and Y are
a. directly related.
b. negatively related.
c. inversely related.
d. independent.
8. Scarcity is defined as the condition in which
a. both wants and resources are limited.
b. wants are finite and resources infinite.
c. both wants and resources are infinite.
d. wants are infinite and resources finite.
9. Which economist said that economics is "on the one side a study of wealth; and on the other, and
more important side, a part of the study of man."
a. Alfred Marshall
b. John Maynard Keynes
c. Lionel Robbins
d. Milton Friedman
e. none of the above
10. The terms of exchange moved in the buyer's favor. It follows that the price __________ by the
buyer fell and the price __________ by the seller __________.
a. paid, received; increased
b. paid, received; decreased
c. received, paid; decreased
d. paid, received; stayed the same
e. none of the above
11. Inefficiency implies that
a. it is possible to obtain gains in one area without losses in another.
b. it is impossible to obtain gains in one area without losses in another.
c. there are too many resources.
d. there are too few resources.
e. none of the above
Exhibit 2-1
____ 12. Refer to Exhibit 2-1. If the economy is at point C, it follows that
a. more guns and butter can be produced with available resources.
b. only more guns can be produced with available resources.
c. only more butter can be produced with available resources.
d. C is an unattainable point.
____ 13. The PPF is bowed outward as a result of
a. constant costs.
b. increasing costs.
c. decreasing costs.
d. scarcity.
e. choice.
____ 14. An advance in technology commonly refers to the ability to produce
a. the same output with a smaller quantity of resources.
b. more output with a fixed quantity of resources.
c. more output with a greater quantity of resources.
d. both a and b
e. both b and c
Exhibit 2-5
____ 15. Refer to Exhibit 2-5. The economy is currently operating at point F. The opportunity cost of
moving to point E is
a. 35 fax machines.
b. 55 fax machines.
c. zero.
d. not possible to determine.
Exhibit 2-6
____ 16. Refer to Exhibit 2-6. Which graph depicts society's choice to produce more of good X?
a. (1)
b. (2)
c. (3)
d. (4)
e. none of the above
____ 17. If Sean can bake bread at a lower opportunity cost than Jason, and Jason can produce paintings at
a lower opportunity cost than Sean, it follows that
a. Sean has a comparative advantage in paintings and Jason has a comparative advantage in
baking bread.
b. Both Sean and Jason have a comparative advantage in baking bread.
c. Both Sean and Jason have a comparative disadvantage in producing paintings.
d. Sean has a comparative advantage in baking bread and Jason has a comparative advantage
in producing paintings.
e. There is not enough information to answer the question.
____ 18. The price of pizzas rises, and Mei increases her monthly purchases of pizza. Therefore, the law of
demand
a. doesn't hold for any good.
b. doesn't hold during a month.
c. doesn't hold for pizzas.
d. doesn't hold for Mei.
e. none of the above
____ 19. If the demand curve for a good shifts leftward,
a. quantity demanded is less at each price.
b. quantity demanded remains constant at each price.
c. quantity demanded is greater at each price.
d. demand is greater at each price.
____ 20. As the price of good A rises, the demand for good B rises. Therefore, goods A and B are
a. normal goods.
b. inferior goods.
c. substitutes.
d. complements.
e. none of the above
Exhibit 3-1
____ 21. Refer to Exhibit 3-1. Equilibrium price and quantity are
a. $2 and 250 units.
b. $4 and 150 units.
c. $2 and 150 units.
d. $6 and 250 units.
e. none of the above
Exhibit 3-14
____ 22. Refer to Exhibit 3-14. If price P1 is a price ceiling, then
a. there is a surplus in this market.
b. the highest price that can be charged legally in this market is P3.
c. the price at which exchange legally takes place is P2.
d. the price at which exchange legally takes place is P1.
e. both a and b
____ 23. Refer to Exhibit 3-14. If P1 is a price ceiling, the maximum (per-unit) amount buyers are willing
to pay to purchase Q1 units is
a. P1.
b. P2.
c. P3.
d. P1 + P2.
e. P3 - P1.
____ 24. As Jamal's income rises, his demand for video rentals does not change. It follows that, for Jamal,
video rentals are a(n)
a. normal good.
b. inferior good.
c. neutral good.
d. substitute good.
e. complementary good.
____ 25. A __________ is a government-mandated maximum price __________ which legal trades cannot
be made.
a. price floor; above
b. price ceiling; below
c. price ceiling; above
d. price floor; below
e. none of the above
Essay
1. Describe at least four different types of thinking that define how an economist views the world.
2. Discuss the differences between the socialist and capitalist views of the role of prices in the
economy.