ECO/365 Final Examination Study Guide
This study guide prepares you for the Final Examination you
complete in the last week of the course. It contains practice
questions, which are related to each weeks objectives. Highlight
the correct response, and then refer to the answer key at the end
of this Study Guide to check your answers. Use each weeks questions as a self-test at the start of a new
week to reflect on the previous weeks concepts. When you come
across concepts that you are unfamiliar with, refer to the Student
Guide for that particular week.
Week One: Fundamentals of Microeconomics
Objective: Differentiate between macroeconomics and
microeconomics.
1.
Macroeconomics is a. the study of individual choice and
how that choice is influenced by economic forces b. the study of the pricing policies of firms
and the purchasing decisions of households c. the study of aggregate economic
relationships d. an analysis of economic reality that
proceeds from the parts to the whole
2. The invisible
hand theorem comes from a. microeconomics b. macroeconomics c. sociology d. political science
Objective: Analyze the effect of changes in supply and
demand on the equilibrium price and quantity.
3. The law of
demand states that the quantity demanded of a good is inversely
related to the price of that good. Therefore, as the price of a
good goes a. up, the quantity demanded goes up b. up, the quantity demanded goes down c. down, the quantity demanded goes
down d. down, the quantity demanded stays the
same 4. Which of the
following situations best demonstrates the law of demand? a. Moviegoers react to an increase in
the price of a ticket by seeing fewer movies per year. b. Moviegoers see fewer movies per year due to
an overall decrease in the quality of newly released motion
pictures. c. A drought causes a decrease in the
availability of pumpkins, resulting in fewer jack-o-lanterns
displayed on Halloween. d. An increase in the number of people writing
economics textbooks results in a decrease in average textbook
prices.
Objective: Determine how elasticities affect pricing and
purchasing decisions.
5. If quantity
demanded does not change when the price changes, the
demand a. is elastic b. is inelastic c. has unit elasticity d. is perfectly inelastic 6. High gasoline
prices hit commuters who live far from their jobs in areas with
little public transportation hard. With few alternatives, they have
to bear the higher cost. Based on this information, how would you
characterize demand for gasoline by these
commuters? a. Gasoline is a luxury good. b. Gasoline is an inferior good. c. Demand for gasoline is elastic. d. Demand for gasoline is inelastic.
Week Two: Production and Cost Analysis
Objective: Describe the relationship between the number of
inputs and the law of diminishing marginal productivity.
7. Mr. Woodard
has found it necessary to hire more workers. However, he has
observed that doubling the number of workers has less than doubled
his output. What is the likely explanation? a. The law of diminishing marginal
utility b. The law of diminishing marginal
productivity c. The law of supply d. The law of demand
8. Marginal
product eventually a. declines because some inputs are
fixed b. increases because some inputs are fixed c. declines because some inputs are
variable d. increases because some inputs are
variable
Objective: Analyze the relationship between productivity
and the cost of production.
9. Suppose you
operate a factory that produces gadgets. Your current output is
1,000 gadgets. If your fixed cost is $10,000 and your total cost is
$50,000, then the a. average total cost of production is
$500 b. average variable cost of production is
$40 c. average variable cost of production
is $50 d. marginal cost of production is $40,000
10. The average
variable cost curve is a mirror image of the a. total product curve b. marginal product curve c. average product curve d. marginal cost curve
Objective: Analyze the effect of changes in the supply of
and demand for factors of production on the price of
inputs.
11. Suppose wages and
employment decrease. These changes were most likely caused by
a(n) a. decline in immigration b. increase in emigration c. increase in the working age
population d. decline in business activity in the
economy 12. The incentive
effect refers to how much a person will change his or her a. hours worked in response to a change
in the wage rate b. wage rate in response to a change in
productivity c. quantity demanded of a taxed good in
response to a change in the tax rate d. wage rate in response to a change in the
tax rate on earnings
Objective: Analyze the effect of changes in marginal
revenues and costs on a firms profit-making potential.
13. Rachel left her
job as a graphic artist, where she earned $42,000 per year, to open
her own graphic arts firm. Her
explicitcosts for the new business
include a. only the expenses incurred for office
space, equipment, and supplies b. only her foregone salary of $42,000 per
year c. both the expenses incurred for office
space, equipment, and supplies, and her foregone salary of $42,000
per year d. neither the expenses incurred for office
space, equipment, and supplies, nor her foregone salary of $42,000
per year 14. If your company
cell phone bill is either $40 when you use up to 300 minutes per
month or $80 when you use between 300 to 400 minutes per month, the
marginal cost of the 301st minute is a. $0.13 b. $0.27 c. $40 d.
$80
Week Three: Market Structure
Objective: Compare various market structures and their
characteristics.
15. A market structure
in which one firm makes up the entire market is a. a monopoly b. perfect competition c. an oligopoly d. monopolistic competition 16. There are many
restaurants in Raleigh, North Carolina, each one offering food and
services that differ from those of its competitors. There is also
the free entry of sellers into the market, and each seller serves a
small fraction of the total number of meals served each day. The
restaurant industry in Raleigh is best categorized as a. an oligopoly b. monopolistically competitive c. a pure monopoly d. perfectly competitive
Objective: Evaluate the effectiveness of competitive
strategies within market structures.
17. The difference
between a monopolist and a monopolistic competitor is
that a. a monopolist equates marginal revenue
and marginal cost while a monopolistic competitor equates price and
marginal cost b. the average total cost curve of a
monopolistic competitor is tangent to the demand curve in long-run
equilibrium, but the average total cost curve of a monopolist can
be in a position below the price in long-run equilibrium c. the average total cost curve of a
monopolist is tangent to the demand curve in long-run equilibrium,
but the average total cost curve of a monopolistic competitor can
be in a position below the price in long-run equilibrium d. the average total cost curve of a
monopolist is tangent to the demand curve in long-run equilibrium,
but the average total cost curve of a monopolistic competitor can
be in a position above the price in long-run equilibrium 18. If a perfectly
competitive firm finds that price is less than the average variable
cost, it should a. not adjust output if marginal cost
equals price b. shut down immediately c. increase output until price equals
marginal cost d. decrease output until price equals marginal
cost
Objective: Determine profit-maximizing strategies based on
market structure analysis.
19. A perfectly
competitive firm facing a price of $10 decides to produce 100
widgets. If its marginal cost of producing the last widget is $12
and it seeks to maximize profit, the firm should a. produce more widgets b. produce fewer widgets c. continue producing 100 widgets d. shut down 20. If a firm has a
monopoly over the sale of photographic paper and seeks to maximize
profits, it a. adjusts the price of the product
until demand becomes perfectly inelastic b. will set the price of the product equal to
the marginal cost of production c. will set the price of the product
equal to the average total cost of production d. will set the price of the product so its
marginal revenue equals its marginal cost
Week Four: Public Policy in Economics
Objective: Analyze the effect of externalities on market
outcomes.
21. The best example
of a positive externality is a. roller coaster rides b. pollution c. alcoholic beverages d. education 22. The cost of
running an electrical utility includes costs for fuel, labor, and
capital. In addition, there are sometimes costs associated with
pollution from the utility, such as increased health care costs for
people living near the utility. To an economist, the costs
associated with the pollution resulting from additional electricity
are a. marginal private costs b. marginal social costs c. the difference between marginal
social costs and marginal private costs d. the sum of marginal social costs and
marginal private costs
Objective: Differentiate among horizontal, vertical, and
conglomerate mergers.
23. When Turner
Network, producer and owner of movies, bought a local cable
company, it was an example of a a. horizontal merger b. vertical merger c. conglomerate merger d. diagonal merger
24. KMart
®acquired Sears
®so both companies could better compete with Walmart
®. This acquisition is an example of a a. vertical merger b. conglomerate merger c. horizontal merger d. hostile takeover
Objective: Analyze the effect of government interventions,
taxation, and regulations on economic behavior.
25. When government
imposes a per unit tax on a product, the net price producers
receive for the product after all taxes typically a. increases by the amount of the per
unit tax b. increases by less than the amount of the
per unit tax c. decreases by the amount of the per
unit tax d. decreases by less than the amount of the
per unit tax 26. In 1997, the
federal government reinstated a 10% excise tax on airline tickets.
The industry tried to pass on the full 10% ticket tax to consumers,
but was only able to boost the price per plane ticket by 4%. From
this, you can conclude that the a. demand for airline tickets is
perfectly inelastic b. supply of airline tickets is perfectly
inelastic c. demand for airline tickets is price
elastic d. supply elasticity of airline tickets is
less than infinity
Week Five: Global Competition
Objective: Determine the effect of global competition on an
organizations strategies for maximizing profits.
27. Countries can
expect to gain from international trade as long as they a. keep production diversified b. specialize according to their comparative
advantage c. produce only those goods for which
they have a relatively high opportunity cost d. use trade restrictions to reduce
competition for domestic producers 28. Technological
changes in telecommunications have a. reduced the importance of services in
the world economy b. allowed increased foreign trade in many
services c. reduced the need for foreign trade in
many services d. profoundly affected trade in manufactured
goods with little effect on trade in services
Objective: Analyze the effect of global competition on the
relationship between management and labor.
29. In the US, the
outsourcing of service jobs, such as those in call centers, has
become a political issue. How do economists typically view
outsourcing? a. It helps both countries in the long
run. b. It hurts both countries, because the US
loses jobs and the employees of the call center are exploited with
low wages. c. It helps the US, but hurts the
country with the low-cost labor. d. It helps the country getting the jobs, but
hurts the US. 30. When a U.S.
company establishes a call center in India that answers its
customer service calls, the US is a. outsourcing, a form of importing
services b. outsourcing, a form of exporting
services c. insourcing, a form of importing
services d. insourcing, a form of exporting
services
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