Multiple Choice - Identify the choice that best completes the

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Multiple Choice - Identify the choice that best completes the

     Final Subjective Examination Review - Honors Economics

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; A business doubled the price of a product in order to increase profits. If the demand for the product is elastic,

    then a dramatic decline in revenues will follow.

    ; A demand schedule shows a listing of the various quantities demanded of a particular product at all prices that

    might prevail in the market.

    ; A market economy does not provide for everyone's basic needs (some people will not make it). ; A popular model used to illustrate the concept of opportunity cost is the production possibilities frontier.

    ; According to John Maynard Keynes's theory of the multiplier-accelerator effect, a decline in investment

    spending will lead to a downward spiral of the economy.

    ; Actions in one part of the country or world that have an economic impact on what happens elsewhere are

    examples of economic interdependence.

    ; All levels of government combined consume about one-third of the nation's output. ; An advantage of a corporation is that owners have limited liability for debt.

    ; An economy at its production possibilities frontier is operating at full potential. ; An example of a market economy is the United States, whereas the Inuit have a traditional economy and North

    Korea and the former Soviet Union are examples of command economies.

    ; An example of mandatory spending (government does not have a choice) is financing for interest payments on

    the federal debt.

    ; An increase in the price of cameras results in a decrease in the demand for film. The two products are


    ; An increase in the price of milk causes a decrease in the demand for cereal. The two products are


    ; Ann earns $10,000 annually and pays a tax of $1,000. Jerome earns $60,000 during the same period and pays

    taxes of $20,000. The tax they both paid was a progressive tax.

    ; Because a modest price increase has little or no effect, the demand for the product is inelastic.

    ; Consumers ultimately determines the products that a free enterprise economy produces. ; Consumers' willingness to replace a costly item with a less costly item is an example of the substitution effect.

    ; Decreases in aggregate supply can be caused by tightening of immigration laws.

    ; Economists think of prices as a “system” because they help buyers and sellers allocate resources between


    ; For most products and services, increased price results in demand for fewer products.

    ; In a general partnership, partners usually draw up legal papers called articles of partnership. ; In a market economy, a high price is a signal for producers to produce more and buyers to buy less, while a

    low price is a signal for producers to produce less and buyers to buy more (the price system!).

    ; In its direct role as an economic organization, American government owns and manages public utilities.

    ; In the short run, an increase in the money supply results in lower interest rates.

    ; Manufactured goods needed to produce other goods and services are called capital goods.

    ; Non-profit organizations may provide goods and services to members.

    ; Rationing is often viewed as unfair, rationing creates high administrative costs, and rationing decreases the

    incentive to work.

    ; Rent payments and property taxes would be counted as fixed costs.

    ; Since the colonial period, the census has revealed a trend toward smaller households.

    ; The “incidence of a tax refers to those who bear the final burden of taxation (who pays for it!). ; The alternative minimum tax requires people to pay a minimum tax of 20 percent.

    ; The benefits of long-term economic growth include an increase in the standard of living, an increase in

    employment, and a boost in economic growth of other nations.

    ; The concept of voluntary exchange means people freely and willingly engage in market transactions. ; The Council of Economic Advisers advises the president on economic developments and strategy.

    ; The dollar value of all final goods and services and the most comprehensive measure of a country's total

    production output is Gross Domestic Product (GDP).

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     Final Subjective Examination Review - Honors Economics

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    ; The Equal Pay Act of 1963, the Civil Rights Act of 1964, and set-aside contracts can be used to establish more

    equal pay between men and women.

    ; The FDIC was established to protect the savings of the American people.

    ; The first federal budget surplus in three decades occurred in 1998.

    ; The first federal legislation to exempt unions from the antitrust laws was the Clayton Antitrust Act.

    ; The government's role in a mixed economy is that it is the regulator charged with preserving competition. ; The incidence of a tax (who pays for it) can more effectively be shifted from the supplier to the consumer if

    the demand curve is inelastic (and consumers will pay for it even if the price is increased due to the tax). ; The invisible barrier that hinders women and minorities from advancement up the corporate ladder is known as

    the glass ceiling.

    ; The largest category of state spending is intergovernmental expenditures.

    ; The level of profit-maximizing output is reached when marginal cost is equal to marginal revenue.

    ; The local chamber of commerce works to promote the welfare of its members and the community.

    ; The minimum wage is an example of a federal law that supports economic equity.

    ; The minimum wage was established by the Fair Labor Standards Act and the first minimum wage was set at

    $0.25/hour in 1939. When adjusted for inflation, the minimum wage had the most purchasing power in 1968. ; The money used to buy the tools and equipment needed for production is known as financial capital.

    ; The nation's monetary policy often comes under attack from politicians.

    ; The problem with Continental dollars (printed by Congress during the revolution) was that so much was

    printed they became nearly worthless.

    ; The Securities and Exchange Commission (SEC) regulates the sale of stock in a corporation.

    ; The sequence for the approval of the federal budget is president to Congress back to president.

    ; The situation in which some necessities have little value while some non-necessities have a much higher value

    is known as paradox of value.

    ; The study of economics is important because it enables us to become better decision makers. ; The Taxpayer Relief Act of 1997 did little to benefit people without children or capital gains. ; The theory that wages are based on the supply and demand for a worker's skills is the traditional theory of


    ; Transfer payments from the government to individuals or other levels of government might be used for Social

    Security, interstate highway construction, or subsidies to farmers.

    ; Unlike a general partnership, in a limited partnership the inactive partner has limited liability for the business's


    ; Unlike many politicians, the Fed (Federal Reserve System) is concerned about the long-run health of the


    ; When a customer's need for a product is not urgent, demand tends to be elastic.

    ; When a manufacturer of pain medication reduced the price of the medication by 30%, profits declined by

    almost exactly 30%. Demand for the product is unit elastic.

    ; When labor and management ask a third party to collect information about a dispute and present non-binding

    recommendations, they are using fact-finding.

    ; Workers with knowledge-based education and managerial skills are professional labor.

“The study of economic theory is not defensible on aesthetic grounds it hardly rivals in elegance the

    mathematics or physics our sophomores learn. The theory is studied only as an aid in solving real problems, and it is good only in the measure that it performs this function.”

    George J. Stigler, "Monopolistic Competition in retrospect," in Five Lectures on Economic Problems,

    London: Longmans, Green and Co., 1949, p. 22.

     According to this author, a good economic theory is one that helps solve real problems.

    Diaguita Indians have lived in this region for generations...We grow beans, corn and potatoes on the mountain slopes. To irrigate these crops, we still use the channels built centuries ago by our ancestors.

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    We also breed llamas...In our community, the more llamas you own, the richer you are.

    In the economic system described in this passage, answers to the basic economic questions would be determined

    by habit and custom.