Economics Midterm Exam review

A basic underlying point in economics is that (A) people have limited wants in the face of limited resources. (B) there are unlimited resources. (C) governments should never interfere in the workings of a market economy. (D) people have unlimited wants in the face of limited resources. AY. The opportunity cost of producing good is defined to be (A) the money cost of the factors of production used in good . (B) the retail price of good . (C) what must be sacrificed of other goods to get an additional unit of good . (D) the cheapest method of producing good . AY.

In the circular flow of income, the allocation of resources is largely decided by (A) central authorities and firms only. (B) individuals only. (C) central authorities only. (D) firms and households acting independently. AY. A barter system of exchange (A) developed late in history. (B) requires the use of money. (C) involves the trading of goods directly for other goods. (D) is the most efficient form of exchange. AS. Behavior in free-market economies is (A) determined by a central authority. (B) based primarily on custom and habit. (C) mostly directed by self-interest. (D) random and unpredictable. AY.

A positive

statement is one that states (A) what should be but is not. (B) what is, was, or will be. (C) what is and what should be. (D) what is desirable. AY. Economic theories (A) can be used to help explain and predict economic behavior. (B) are not useful because of the unrealistic assumptions they contain. (C) must apply to all economies to be true. (D) cannot help to predict future behavior. Economics Midterm Exam review MANAGE By Dianna Valentine-Dells Santos-Byrne AY. Economists build models that abstract from the complexities of reality because (A) they believe they gain a greater understanding of reality.

B) economists do not understand the real world. (C) the complexities of reality are unimportant. (D) economists are not interested in reality. AY. When it is said that variable depends on variable , then is (A) a function of . (B) a derivative of . (C) independent of . (D) proportional to . AI. Positively related variables change such that as the value of one variable (A) decreases, the value of the other variable decreases. (B) increases, the value of the other variable remains the same. (C) increases, the value of the other variable decreases. (D) decreases, the value of the other variable increases.

AAA. Quantity demanded is the (A) entire relationship between desired purchases and possible prices. (B) total amount of a good that purchasers wish to purchase at a given price during a given period of time. (C) product of advertising, and is unrelated to price. (D) total amount of a good that people wish to buy, regardless of price. AAA. The “law of demand” hypothesizes that, other things being equal, (A) the lower the price, the greater the demand. (B) price and demand vary inversely. (C) the higher the price, the lower the quantity demanded. (D) price and quantity demanded are positive

ly related.

AAA. If tastes change so that a particular style of boots is now considered more appealing, the likely result is (A) a movement down the demand curve. (B) a movement up the demand curve. (C) a shift in the demand curve to the left. (D) a shift in the demand curve to the right. AAA. Excess demand is the same thing as (A) quantity demanded exceeding quantity supplied. (B) the area to the right of the equilibrium price on a supply and demand diagram. (C) the area to the left of the equilibrium price on a supply and demand diagram. (D) quantity supplied exceeding quantity demanded. AY 5.

The demand curve between ( ) and ( ) is elastic (with elasticity ). Bal . (d) Plot all your results in a properly labeled diagram. 82. A country has no trade with the outside world and its automobile market (with downward-sloping demand curve and upward-sloping supply curve) is initially in equilibrium with price and quantity . Suppose an earthquake destroys a significant portion of its automobile production capacity. Use a properly labeled supply-demand diagram of automobiles to help you explain how the adjustment mechanism discussed in class restores market equilibrium.