1 Economics 201 Baker Spring 2015 Review Questions for Exam 1 (KEY) ECONOMICS – THE BASICS 1. What issues does economics address and examine? a) Money, what it is and its role in the economy b) Goods and services provided by the government and how to pay for them c) How goods and services are produced and how they are distributed d) Measuring the standard of living and attempting to alleviate poverty e) Economics addresses all these issues and many, many more 2. Economics primarily addresses the problems associated with a) poverty. b) money. c) scarcity. d) government policies. e) shortages or surpluses. 3. Which of the following are the main ideas of economics? a) Resources used to make goods and services desired by society are scarce. b) Because resources are scarce, we cannot make all the goods and services that society desires. c) Because we cannot make all the goods and services that society desires, individuals must continually face trade-offs and make decisions. d) These decisions should be made in such a way as to stretch the available resources to their fullest and best use. e) All the above represent main ideas of economics. 4. Why can’t we have all the goods and services we want? a) Because humans wants are unlimited. b) Because the resources used to make goods and services are limited. c) Because humans make illogical or impractical decisions. d) All of the above are true. e) Both a and b are true.2 5. Physical capital is used by economists to mean a) man-made goods that are used to help make other goods and services. b) the physical space (warehouse) where production occurs. c) time allocated to producing goods and services. d) the education and training of the workforce. e) financial backing. 6. Human capital is used by economists to mean a) the education of the workforce. b) goods that are used to help make other goods. c) training and on the job experience. d) financial backing. e) Both a and c are correct. 7. Tradeoffs are required in any decision because wants are ____ while resources are ____. a) realistic; plentiful b) scarce; efficient c) unlimited; scarce d) within reason; abundant e) scarce; unlimited 8. Suppose that Ken spends 4 hours playing golf, paying green fees of $50, rather than working at his job that pays $10 hour. What is the economic cost of his decision to play golf? a) $90 b) $60 c) $50 d) $40 e) nothing, since he enjoys golf much more than working anyway. 9. Which of the following issues are concerned with microeconomic issues? a) Whether Home Depot hires 50 or 51 workers per shift. b) How consumers respond to a 5% tax on gasoline. c) How a 5% tax on gasoline affects the market for new cars. d) How a firm responds to new pollution regulations on production. e) All of the above are microeconomic in nature.3 10. Which of the following statements is normative? a) Printing money causes the price level to rise. b) People work harder when the wage rate is higher. c) The government should focus its efforts on the problems faced by the middle class d) In the short run, inflation usually rises when unemployment falls. e) A decrease in the capital gains tax by 5% will cause the economy to grow 1% faster. 11. An economic theory is valuable only if it a) is complex. b) can be tested. c) is proven correct. d) expresses good news. e) is published in an important academic journal. 12. An economic model a) can never be proven wrong b) often omits crucial elements c) must first simplify reality in order to focus on crucial elements d) uses equations to understand normative economic phenomena e) produces poor predictions since they include unrealistic assumptions Consider the following equation for the next three questions: Y = 50 – 3X 13. In the above equation, Y is the ________ and X is the _______. a) independent variable; dependent variable b) dependent variable; independent variable c) intercept variable; dependent variable d) slope; intercept variable e) independent variable; slope 14. From the equation above, we know that a) X and Y are negatively related. b) plotting Y on the vertical axis and X on the horizontal axis yields an upward sloping line. c) the Y intercept is 3. d) the slope of the line is 3. e) Both b and d are correct.4 15. The slope of the equation above a) tells us how much X changes in response to changes in Y. b) says that X and Y are negatively related. c) says that if X increases by 1 unit, Y increases by 3 units. d) says that plotting Y on the vertical axis and X on the horizontal axis yields a downward sloping line. e) b and d are both correct Use the graph below to answer the following questions. 16. From the graph, how are X and Y related? a) negatively related – Y increases when X increases b) positively related – Y increases when X increases c) negatively related – Y decreases when X increases d) positively related – Y decreases when X increases e) X and Y are unrelated 17. What is the slope of the graph above? a) 2 b) -2 c) ½ d) -½ e) 1 10 , 45 20 , 40 30 , 35 40 , 30 0 10 20 30 40 50 60 0 10 20 30 40 50 X5 18. What is the vertical or Y intercept of the graph? a) 0 b) 10 c) 20 d) 40 e) 50 19. What is the appropriate equation that matches the graph above? a) Y = 50 - ½ X b) Y = 50 – 2X c) Y = 50 + 2X d) Y = 10 + 45X e) Y = 30 - ½ X 20. Which of the graphs below shows Y increasing at an increasing rate? C Y X X Y A B X Y C Y D X6 21. Consider the ‘Ice Bucket Challenge’ phenomenon over the summer that helped raise money for ALS awareness and research. Suppose that the challenge lasts 4 weeks. Suppose further that the weekly donations are: Week 1: $10 million; Week 2: $10 million; Week 3: $10 million; Week 4: $10 million If you were to graph the total donations received by ALS (the accumulation) each week, what would it look like? C7 22. Same question as above, however, assume the weekly donations are: Week 1: $10 million; Week 2: $25 million; Week 3: $30 million Week 4: $50 million Again, what does the graph of total donations look like? B 23. Same question as above, however, assume the weekly donations are: Week 1: $40 million; Week 2: $35 million; Week 3: $25 million Week 4: $10