EXAM 1Econ 2106 - MicroeconomicsSpring 2002Professor Robert Collins____ 1. Economics is the study of : a) how government policies solve the three coordination problems. b) how human beings develop institutions to distribute limited resources. c) how human beings coordinate their wants and desires given a society's decision-making mechanisms, social customs, and political realities. d) the factors that produce perceived scarcity and how such scarcity can be reduced. ____ 2. Which of the following statements about any economic system is true? a) It can eliminate scarcity. b) It solves the questions what is produced, how it is produced, and for whom it is produced. c) Individuals have no effect on what is produced, how it is produced, and to whom products are distributed. d) It provides equal distribution of well-being among its participants. ____ 3. To engage in economic reasoning, you must compare: a) total cost and total benefit. c) sunk cost and marginal cost. b) marginal cost, sunk cost, and total benefit. d) marginal cost and marginal benefit. ____ 4. The marginal benefit from consuming another unit of a good: a) must equal the marginal cost or the unit will not be consumed. b) must be less than the marginal cost or the unit will not be consumed. c) equals the increase in total benefits from consuming the unit. d) equals the total benefit obtained from the consumption of all prior units. ____ 5. Sunk costs: a) are an essential part of economic reasoning. b) are irrelevant to economic reasoning. c) should be considered, but only when marginal cost is less than marginal benefit. d) should be considered only when there is no information about marginal cost and marginal Benefit. Page 1Use the following to answer questions 6-7:2 3 4 50100200300400500Number of tripsMarginal benefit____ 6. Refer to the graph above. If the marginal cost of each weekend trip this year is $600 no matter how many trips Rodney takes, then assuming he is rational, Rodney will: a) take 3 trips this year. c) take 1 trip this year. b) take 2 trips this year. d) not take any trips this year. ____ 7. Refer to the graph above. If the marginal cost of each weekend trip this year is $299 no matter how many trips Rodney takes, then assuming he is rational, Rodney will: a) take 4 trips this year. c) take 2 trips this year. b) take 3 trips this year. d) take 1 trip this year. ____ 8. The table below shows how the marginal benefit of video tape rentals varies for Carol with the number rented per month.Tapes rented Marginal benefit ofper month renting an additional tape1 $6.002 $5.003 $4.004 $3.005 $2.00The price of each tape rental is reduced from $2.99 to $1.99. Assuming that the price of a rental accurately reflects the marginal cost to Carol and that she is rational: a) she will increase the number of tapes rented per month from 1 to 2. b) she will increase the number of tapes rented per month from 2 to 3. c) she will increase the number of tapes rented per month from 3 to 4. d) she will increase the number of tapes rented per month from 4 to 5. Page 2____ 9. Which of the following best defines rational behavior? a) Analyzing the total gains from a decision. b) Maximizing net gain by pursuing decisions where the marginal benefits exceed the marginal costs. c) Seeking to gain by choosing to undertake actions as long as the marginal costs exceed the associated marginal benefits. d) Seeking to maximize total gain regardless of cost. ____ 10. The extra cost associated with undertaking some action is its: a) marginal benefit. b) marginal cost. c) total net loss. d) total cost. ____ 11. The opportunity cost of undertaking an activity is best defined as: a) the cost foregone by not undertaking another activity. b) the monetary cost of undertaking that activity. c) the benefit you lose by not undertaking the next-best activity. d) the monetary benefit of undertaking that activity. ____ 12. The opportunity cost of obtaining more of a good is: a) most likely zero. b) not likely to influence the amount of it purchased. c) equal to the net benefit sacrificed to obtain it. d) equal to its price. ____ 13. Capitalist economies are based upon: a) private property and individual good will towards others. b) government planning and individual good will towards others. c) government planning and individual self-interest. d) private property and individual planning. ____ 14. Private property rights: a) are an essential element of socialist economies. b) are the product of market forces in capitalist economies. c) must be established before a capitalist economy can function. d) insure an equitable distribution of income in capitalist economies. ____ 15. A capitalist economy: a) requires government coordination. c) expects people to be altruistic. b) allocates according to need. d) expects people to be self-interestedPage 3____ 16. Which of the following is NOT a characteristic of capitalism? a) government ownership of capital. b) private ownership of land. c) freedom of enterprise. d) workers are free to seek the jobs of their choice. ____ 17. In a market economy it is not by the benevolence of the butcher or baker that we expect our dinner, but by: a) their good will. b) their self-interest. c) their kindness. d) their civic mindedness. ____ 18. Markets coordinate economic activity through: a) the price mechanism. c) asking individuals what to do. b) commanding individuals what to do. d) the legal mechanism. ____ 19. Suppose there is a shortage of desirable apartments and that they are being allocated by the market. In order for the market to coordinate the demand for apartments, the price of apartments will have to: a) rise. b) fall. c) stay the same. d) be controlled. ____ 20. Which of the following is a characteristic of socialism in theory? a) Private property. c) Distribution according to need. b) Self-interest. d) Free markets. ____ 21. In principle, socialism is: a) less concerned about fairness than capitalism. b) just as concerned about fairness as capitalism. c) more concerned about fairness than capitalism. d) not concerned about fairness at all. ____ 22. In practice, distribution under socialism is determined by: a) individual altruism and cooperation. c) central planners. b) the ability of each individual to produce. d) market forces of supply and demand. ____ 23. The period 1750-1900, during which technology and machines rapidly modernized production, is general