Miami Dade College
ECO 2013.016 Principles of Macroeconomics – Fall 2014
Practice Test #2
1.
In economics, the concept of surplus:
A. measures the benefit that people receive when they buy something for less than they
would have been willing to pay.
B. measures the benefit that people receive when they sell something for more than they
would have been willing to accept.
C. is the best way to look at the benefits people receive from successful transactions.
D. All of these are true.
2.
A consumer's willingness to pay:
A.
B.
C.
D.
3.
is the maximum price that a buyer would be willing to pay for a good or service.
is the minimum price that a buyer would be willing to pay for a good or service.
is their reserved maximum bid-price.
must always equal the seller's willingness to sell.
A seller's willingness to sell:
A. is the maximum price that a seller is willing to accept in exchange for a good or
service.
B. is the minimum price that a seller is willing to accept in exchange for a good or
service.
C. is their reserved minimum bid-price.
D. must always equal the buyer's willingness to buy.
1
4.
A market has four individuals considering buying a grill for his backyard. Further assume
that grills come in only one size and model. Abe considers himself a grill-master, and
finds a grill a necessity, so he is willing to pay $400 for a grill. Butch is a meat-lover,
honing his grilling skills, and is willing to pay $350 for a grill. Collin just met the girl of
his dreams, and she loves a good grilled steak, so in his effort to impress her he is willing
to pay $320 for a grill. Daniel loves grilled shrimp and thinks it might be cheaper in the
long run if he buys a grill instead of eating out every time he wants grilled shrimp, so he is
willing to pay $200 for a grill.
Given the scenario described, if the market price of grills is $320, who participates in the
market?
A.
B.
C.
D.
5.
Only Abe, Butch, and Collin participate.
Only Collin and Daniel participate.
Only Abe and Butch participate.
Only Daniel participates.
A market has four individuals considering buying a grill for his backyard. Further assume
that grills come in only one size and model. Abe considers himself a grill-master, and
finds a grill a necessity, so he is willing to pay $400 for a grill. Butch is a meat-lover,
honing his grilling skills, and is willing to pay $350 for a grill. Collin just met the girl of
his dreams, and she loves a good grilled steak, so in his effort to impress her he is willing
to pay $320 for a grill. Daniel loves grilled shrimp and thinks it might be cheaper in the
long run if he buys a grill instead of eating out every time he wants grilled shrimp, so he is
willing to pay $200 for a grill.
If the market price of grills increases from $310 to $350, given the scenario described:
A. total consumer surplus would rise.
B. total consumer surplus would fall.
C. Collin and Butch would experience a decrease in consumer surplus, but Abe's
consumer surplus would rise.
D. Collin would experience a decrease in consumer surplus, but Abe and Butch would
experience a rise in consumer surplus.
2
6.
Assume there are three hardware stores in the market for hammers and that all three
markets produce a single, standard model hammer. House Depot is an enormous mass
producer of hammers and can offer a hammer for sale for a minimum of $7. Lace
Hardware is a franchise and can offer the hammer for sale for a minimum of $10. Bob's
Hardware store is a family owned and operated, independent hardware store and can offer
hammers at a minimum price of $13.
Given the scenario described, if the market price of hammers was $13, then total producer
surplus would be:
A.
B.
C.
D.
7.
$9.
$30.
$17.
$7.
Assume there are three hardware stores in the market for hammers and that all three
markets produce a single, standard model hammer. House Depot is an enormous mass
producer of hammers and can offer a hammer for sale for a minimum of $7. Lace
Hardware is a franchise and can offer the hammer for sale for a minimum of $10. Bob's
Hardware store is a family owned and operated, independent hardware store and can offer
hammers at a minimum price of $13.
Given the scenario described, if the market price of hammers decreased from $15 to $13,
which of the following can be said with certainty?
A.
B.
C.
D.
Producer participation in the market would decrease.
Total producer surplus would decrease.
Only Bob's Hardware will experience a drop in producer surplus.
Producer participation in the market will not be affected.
3
8.
According to the graph shown, total surplus is area:
A.
B.
C.
D.
A + B + C.
B.
A.
A + B.
4
9.
According to the graph shown, producer surplus is:
A.
B.
C.
D.
$10.
$6.
$2.
$20.
5
10.
Assume the market was in equilibrium in the graph shown. If the market price were set to
$12, which of the following is true?
A. For those still interacting in the market, some surplus is transferred from buyer to
seller.
B. For those still interacting in the market, some surplus is transferred from seller to
buyer.
C. Producers gain the surplus of those buyers who dropped out of the market.
D. Consumers gain the surplus of those sellers who dropped out of the market.
11.
Government attempts to lower, raise, or simply stabilize prices can:
A.
B.
C.
D.
backfire.
create unintended side effects.
decrease total surplus.
All of these are true.
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12.
Governments may attempt to raise, lower, or stabilize prices because:
A. the market's equilibrium is not maximizing total surplus.
B. governments changing the price in the market could increase consumer surplus and not
harm producers.
C. market failures occur.
D. doing so will always create a better outcome.
13.
Price ceilings are:
A.
B.
C.
D.
14.
Price floors are:
A.
B.
C.
D.
15.
a legal maximum price.
a legal minimum price.
a legal maximum quantity that can be sold at a particular price.
a legal minimum quantity that can be sold at a particular price.
An effective price ceiling:
A.
B.
C.
D.
16.
a legal maximum price.
a legal minimum price.
a legal maximum quantity that can be sold at a particular price.
a legal minimum quantity that can be sold at a particular price.
must be set above the equilibrium price.
must be set below the equilibrium price.
must be set at the equilibrium price.
can lead more goods to be produced in a market.
An effective price floor:
A.
B.
C.
D.
must be set above the equilibrium price.
must be set below the equilibrium price.
must be set at the equilibrium price.
can result in an increase in the quantity sold.
7
17.
An effective price floor:
A.
B.
C.
D.
will cause quantity demanded to exceed quantity supplied.
will cause quantity supplied to exceed quantity demanded.
will increase total well being.
will set a legal maximum price in a market.
18.
The graph shown best represents:
A.
B.
C.
D.
an effective price ceiling.
an effective price floor.
a missing market.
a market for an inferior good.
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19.
Suppose a tax has been imposed in the graph shown. Which kind of tax is most likely
demonstrated by this graph?
A.
B.
C.
D.
A tax on sellers
A tax on buyers
A tax on big corporations
None of these is true.
9
20.
Suppose a tax on sellers has been imposed in the graph shown. What is the total tax paid
per unit of the good?
A.
B.
C.
D.
21.
Economic growth can:
A.
B.
C.
D.
22.
$10
$31
$37
$15
create jobs.
reduce poverty.
improve standards of living.
All of these statements are true.
The system we use to measure the value of an economy is called:
A.
B.
C.
D.
national income accounting.
national economic valuation.
macroeconomic summation.
national expenditure accounting.
10
23.
GDP uses the market value of goods and services because:
A.
B.
C.
D.
24.
it provides a common valuation that allows us to compare one economy to another.
it provides the opportunity to compare lists of outputs to see who produced more.
it is the only data that can be gathered about goods and services.
None of these statements is true.
GDP counts:
A. only final goods and services, because otherwise certain things would be doublecounted and the GDP would be overestimated.
B. only intermediate goods and services, because those are easier to track.
C. both intermediate and final goods and services because it is important to capture all
values, regardless of which market they take place in.
D. those values that are reported to the government.
25.
Which of the following is not an intermediate good?
A.
B.
C.
D.
26.
Tires purchased by Ford to put on their new Explorers
Tires sold by Goodyear to put on your Explorer
Tomatoes used by Ortega to make their salsa
All of these are intermediate goods.
A Chinese restaurant buys 10 cups rice for $1; soy, fish and oyster sauces for $1 each; and
assorted vegetables for $20. They create 10 meals with these ingredients and sell each one
for $5. How much does this process contribute to GDP?
A.
B.
C.
D.
$23
$50
$73
$27
11
27.
Clarence is a Japanese citizen working for Toyota at the manufacturing plant located in
Tennessee. Clarence's work will contribute toward:
A.
B.
C.
D.
28.
U.S. Gross National Product includes:
A.
B.
C.
D.
29.
U.S. GDP since the location of the plant is in the U.S.
Japan's GDP since he's a Japanese citizen.
Japan's GDP since it's a Japanese firm.
both the U.S. and Japan's GDP.
goods produced by foreign firms on U.S. soil.
goods produced by U.S. firms on foreign soil.
goods produced by foreign firms on foreign soil.
None of these statements is true.
Ace has always been a top student, so it was no surprise he won a $1,500 scholarship from
the company where he worked summers to help with college expenses. Ace decides to
spend his scholarship money on a new Apple Macbook before heading off to college in
the fall. How will GDP be affected by Ace's recent purchases?
A.
B.
C.
D.
Consumption will go up by $1,500, because a computer is a durable good.
Investment will go up by $1,500, because a computer is a durable good.
GDP will not be affected, since Ace acquired the computer with scholarship money.
Consumption will go up by $1,500, because a computer is a nondurable good.
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30.
Assume the table has recorded the total output and prices of the only two goods
produced in the country of Mondolia. Looking at the figures in the table, the
GDP deflator in 2003 was:
A.
B.
C.
D.
31.
135.
74.
109.
105.
A dollar:
A.
B.
C.
D.
32.
Which of the following goods is least likely to be in a market basket?
A.
B.
C.
D.
33.
changes in value over time.
can reflect the cost of living in terms of the goods it can purchase.
has no worth itself, but represents goods we can buy with it.
All of these statements are true.
A missile
A gallon of milk
A pair of khaki pants
A tank of heating oil
A price index:
A. measures how much the cost of a market basket has risen or fallen relative to the cost
in a base time period or location.
B. summarizes the changes in the cost of living.
C. allows us to see clearly the changes in the cost of a market basket over time or across
different locations.
D. All of these statements are true.
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34.
According to the table shown, which year is most likely being used for the base year?
A.
B.
C.
D.
2008
2009
2010
2011
35.
According to the table shown, how do we interpret what happened between 2009 and
2012?
A.
B.
C.
D.
The cost of living increased 6 percent.
The cost of living increased 1.06 percent.
The cost of living decreased 2 percent.
The cost of living decreased .98 percent.
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36.
Using the information in the table shown, the rate of inflation from 2008 to 2009 was:
A.
B.
C.
D.
37.
While the CPI focuses on changes to prices for consumers, the PPI:
A.
B.
C.
D.
38.
measures the prices of goods and services purchased by firms.
stands for the producer price index.
looks specifically at the prices changes that affect the typical producer.
All of these statements are true.
Because increases in input prices eventually make it to consumers when they buy the final
product, the PPI:
A.
B.
C.
D.
39.
12.5 percent.
11.1 percent.
13 percent.
17 percent.
is considered a good predictor of future consumer prices.
is a lag variable for inflation.
accounts for inflation before it reaches consumers, adjusting the CPI downward.
accounts for inflation before it reaches consumers, adjusting the CPI upward.
The GDP deflator:
A.
B.
C.
D.
measures price changes for everything produced in the country.
doesn't include goods produced abroad.
is computed using the quantities that are produced in the economy each year.
All of these statements are true.
15
40.
Using the information in the table shown, what is the 2009 value of the salary listed in
1979?
A.
B.
C.
D.
$127,828
$14,643
$57,824
$504,766
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ANSWER KEY
1. D
2. A
3. B
4. A
5. B
6. A
7. B
8. D
9. A
10. A
11. D
12. C
13. A
14. B
15. B
16. A
17. B
18. A
19. A
20. A
21. D
22. A
23. A
24. A
25. B
26. B
27. A
28. B
29. A
30. A
31. D
32. A
33. D
34. B
35. A
36. A
37. D
38. A
39. D
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40. A
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