Eco 201 Macroeconomics Midterm Exam #1 Due 12 July Put your Exam 1 Answer Sheet in the Exam 1 folder

1. During the Great Depression, consumers and producers in the United States dramatically reduced their spending as compared to the quantity of goods and services available at the time. This statement best represents the economic concept of: A) resources are scarce. B) when markets don't achieve efficiency, government intervention can improve society's welfare. C) overall spending sometimes gets out of line with the economy's productive capacity. D) government policies can change spending. 2. A choice made ________ is a choice whether to do a little more or a little less of something. A) at the fringe B) in the beginning C) at the margin D) after the fact 3. A trade-off between equity and efficiency may exist because of all of the following except: A) allocating resources fairly may cause efficiency. B) an efficient allocation of resources may lead to an outcome that most people consider unfair. C) policies that promote equity often come at a cost of decreased efficiency. D) allocating resources fairly may cause inefficiency. 4. Although for smokers the marginal benefit from smoking may exceed the marginal cost of smoking, the negative effects of second-hand smoke may increase the marginal costs of smoking to society to a point where it exceeds that marginal benefit to society. This is an example of: A) individual actions that have side effects that are not properly taken into account by the market. B) one party preventing mutually beneficial trades from occurring in an attempt to capture a greater share of resources for itself. C) some goods' unsuitability for efficient management by markets. D) unregulated self-interest.

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5. All children have to be immunized against polio, measles, mumps, and other diseases. If you don't have enough money to pay for the immunizations, they will be provided for free at the county health clinic. This statement best represents the economic concept of: A) people usually exploit opportunities to make themselves better off. B) resources should be used as efficiently as possible to achieve society's goals. C) when markets don't achieve efficiency, government intervention can improve society's welfare. D) government policies can change spending. 6. Which of the following is an example of individual choice? A) The government announces plans to ban smoking in all Florida restaurants. B) Lauren spends her allowance on pillows for her bed. C) France decides to withhold funding to rebuild Iraq. D) Africa decides to accept U.S. aid for humanitarian efforts. 7. According to the text, markets usually lead to efficiency. A) True B) False 8. Scarcity exists when: A) a choice must be made among two or more alternatives. B) individuals can have more of any good. C) individuals can have more of one good but only at the expense of another. D) a choice must be made among two or more alternatives and when individuals can have more of one good but only at the expense of another. 9. The concept of comparative advantage is based upon: A) absolute labor productivity. B) relative labor costs. C) dollar prices of labor. D) relative opportunity costs. 10. Economists are generally in support of: A) government restrictions on trade. B) free international trade. C) tariffs to restrict trade. D) subsidizing exports.

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Use the following to answer question 11: Figure: Strawberries and Submarines

11. (Figure: Strawberries and Submarines) Suppose the economy is operating at point G. This implies that: A) the economy can move to a point such as C only if it improves its technology. B) the economy is experiencing unemployment and/or inefficient allocation of resources. C) the economy lacks the resources to achieve a combination such as C. D) people in this economy don't really like strawberries and submarines.

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Use the following to answer question 12: Figure: Seasonally Adjusted Unemployment Rate, 1/19981/2008

Source: Bureau of Labor Statistics, 2008.

12. (Figure: Seasonally Adjusted Unemployment Rate) Using the United States unemployment graph, the unemployment rate was at the minimum in the year ________ and a maximum in the year ________. A) 2003; 2000 B) 2007; 2001 C) 2003; 1999 D) 2000; 2003 Use the following to answer question 13: Figure: Demand and Supply

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13. (Figure: Demand and Supply) The slope of the curve labeled S is: A) 1. B) 0. C) 1. D) 3. 14. If there are two variables that are negatively related, they will always be represented by: A) a line or curve that slopes downward. B) a line that is straight. C) a horizontal line. D) a line or curve that slopes upward. Use the following to answer question 15: Table: The Market for Chocolate-Covered Peanuts

15. (Table: The Market for Chocolate-Covered Peanuts) If the price of chocolate-covered peanuts is $0.80, there is: A) a surplus of 140 bags per month. B) a shortage of 140 bags per month. C) a surplus of 70 bags per month. D) a shortage of 70 bags per month. 16. If Benjamin considers sushi to be a normal good, then this would mean that if his income increases by 20%, his purchases of sushi will: A) decrease by 20%. B) increase. C) decrease. D) not change.

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Use the following to answer question 17: Figure: DVD Market

17. (Figure: DVD Market) At a rental price of $6, there will be: A) equilibrium in the rental market for DVDs. B) a decrease in demand. C) an excess supply of 20 DVD rentals. D) an excess demand of 20 DVD rentals. 18. Economists in general agree that rent controls are: A) an efficient and equitable way to help low-income families. B) an inefficient and ineffective way to help low-income families. C) an efficient method of dealing with the shortages created during price ceilings. D) the only way to solve the problem of poverty. 19. Suppose the government of the oil-rich country of Oiland sets gasoline prices at $0.25 per gallon, when the market price is $1.50. The Oiland government's actions will: A) improve efficiency since the low prices will force producers to find cheaper production methods. B) result in gasoline surpluses even in an oil-rich country. C) cause gasoline shortages even in an oil-rich country. D) improve equality between rich and poor since the poor can now afford gasoline. 20. Price controls encourage black markets because: A) they eliminate opportunity costs. B) individuals can profit by illegal exchanges. C) they create too much efficiency. D) they create too much equity.

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21. When the government removes a binding price floor: A) quantity demanded would decrease and quantity supplied would increase. B) quantity demanded would increase and quantity supplied would decrease. C) an excess demand would develop. D) an excess supply would develop. Use the following to answer question 22: Figure: Market for Roses

22. (Figure: Market for Roses) In the figure, consumer surplus with international trade would be area(s): A) W + X + Y. B) Z. C) W + X + Z. D) W. 23. According to the infant industry argument for import protection, such protection is needed because: A) foreign workers are often paid less than American workers. B) it enables our protected industries to achieve technological efficiency and thus become competitive with mature foreign industries. C) the nation's security depends on a strong industrial base. D) it provides consumers with more and better goods in the long run.

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24. Goods and services purchased from abroad are ________, while goods and services sold abroad are ________. A) exports; imports B) imports; exports C) exports; quotas D) quotas; factors Use the following to answer question 25: Figure: Market for MP3 Players

25. (Figure: Market for MP3 Players) In the market for MP3 players, if the world price equals $100 and there is free trade, consumer surplus ________ and producer surplus ________ compared to autarky. A) increases; decreases B) increases; increases C) decreases; increases D) decreases; decreases

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