ECO 561 Final Exam

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ECO 561 Week 6 Final Exam - ECO 561 Final Exam

(100% Correct)

1. Suppose that in the clothing market, production costs

have fallen, but the equilibrium price and quantity
purchased have both increased. Based on this
information you can conclude that
A. the supply of clothing has grown faster than the
demand for clothing
B. demand for clothing has grown faster than the
supply of clothing
C. the supply of and demand for clothing have grown by
the same proportion
D. there is no way to determine what has happened to
supply and demand with this information

2. Camille's Creations and Julia's Jewels both sell beads

in a competitive market. If at the market price of $5,
both are running out of beads to sell (they can't keep
up with the quantity demanded at that price), then
we would expect both Camille's and Julia's to:
A. raise their price and reduce their quantity supplied

B. raise their price and increase their quantity supplied

C. lower their price and reduce their quantity supplied
D. lower their price and increase their quantity supplied

3. In which of the following industries are economies of

scale exhausted at relatively low levels of output?
A. Aircraft production
B. Automobile manufacturing
C. Concrete mixing
D. Newspaper printing

4. The average cost curves (AVC and ATC) should be

minimized
A. where MC = ATC and MC = AVC
B. where FC = ATC and FC = AVC
C. where TC starts to increase at a faster rate
D. where ATC = AVC

5. If the wage rate increases,

A. a purely competitive producer will hire less labour, but
an imperfectly competitive producer will not
B. an imperfectly competitive producer will hire less
labour, but a purely competitive producer will not
C. a purely competitive and an imperfectly competitive
producer will both hire less labour
D. an imperfectly competitive producer may find it
profitable to hire either more or less labour

6. The real wage will rise if the nominal wage

A. falls more rapidly than the general price level
B. increases at the same rate as labor productivity
C. increases more rapidly than the general price level

D. falls at the same rate as the general price level

7. Construction workers frequently sponsor political

lobbying in support of greater public spending on
highways and public buildings. One reason they do
this is to
A. restrict the supply of construction workers
B. increase the elasticity of demand for construction
workers
C. increase the demand for construction workers
D. increase the price of substitute inputs

8. Paying an above-equilibrium wage rate might reduce

unit labour costs by
A. permitting the firm to attract lower-quality labour
B. increasing the cost to workers of being fired for shirking
C. increasing voluntary worker turnover
D. increasing the supply of labour

9. A
good
real-world
competition is
A. lawyers
B. gas stations
C. Time Warner Cable
D. groceries store

example

of

monopolistic

10.
An industry comprising a small number of firms,
each of which considers the potential reactions of its
rivals in making price-output decisions, is called
A. monopolistic competition
B. oligopoly
C. pure monopoly

D. pure competition

11.
Price is constant or given to the individual firm
selling in a purely competitive market because
A. the firm's demand curve is downward sloping
B. of product differentiation reinforced by extensive
advertising
C. each seller supplies a negligible fraction of total supply
D. there are no good substitutes for its product

12.
The most important pricing
perfectly competitive firm is
A. minimizing cost
B. maximizing sales
C. product differentiation
D. advertising

strategy

for

13.
Which of the following is a non price barrier of
entry?
A. Huge sunk cost
B. Discounts
C. Product differentiation
D. Advertising

14.
A third-degree price discrimination can be
applied to which of the following market structures?
A. A monopoly
B. An oligopoly
C. A monopolistic competition
D. A perfect competition

15.
Investing in R&D is more likely to occur in
markets where
A. firms have monopoly power protected by regulatory
barriers
B. markets are closely competitive markets with close to
zero economic profits
C. markets are oligopoly markets with strong collusion
agreements
D. markets are monopolistic competitive markets

16.
All economies of scale are achieved at the
minimum of
A. average total cost
B. total cost
C. average variable cost
D. average fixed cost

17.

Inflation is undesirable because it

A. arbitrarily redistributes real income and wealth
B. invariably leads to hyperinflation
C. usually is accompanied by declining real GDP
D. reduces everyones standard of living in the same
proportion

18.
An economys aggregate demand curve shifts
leftward or rightward by more than changes in initial
spending because of the
A. net export effect
B. wealth effect
C. real-balances effect
D. multiplier effect

19.
Suppose productivity rises in a particular
economy, but wages stay the same. Other things
equal,
A. the demand curve will shift leftward
B. the supply curve will shift rightward
C. the supply curve will shift leftward
D. expenditures curve will shift rightward

20.
If personal taxes were decreased and resource
productivity
increased
simultaneously,
the
equilibrium
A. output would rise
B. output would fall
C. price level would necessarily fall
D. price level would necessarily rise

21.

Expansionary fiscal policy is so named because it

A. involves an expansion of the nation's money supply
B. can only be attained by expanding government
consumption
C. is aimed at achieving greater price stability
D. can motivate an expansion of real GDP

22.
Suppose the price level is fixed, the MPC is .5,
and the GDP gap is a negative$100 billion. To achieve
full-employment output (exactly), government should
A. increase government expenditures by $100 billion
B. increase government expenditures by $50 billion
C. reduce taxes by $50 billion
D. reduce taxes by $200 billion

23.
GDP understates the value of output produced
by an economy because it
A. includes transactions that do not take place in
organized markets, such as home cooked meals
B. includes
environmental degradation
caused
by
increased output production
C. excludes value added from the underground economy,
such as tips taken under the table
D. excludes the value of the wages and benefits of
government employee

24.
Other things equal, a decrease in the real
interest rate will
A. shift the investment demand curve to the right
B. shift the investment demand curve to the left
C. move the economy upward along its existing
investment demand curve
D. move the economy downward along its existing
investment demand curve

25.
Other things equal, a decrease in corporate
income taxes will
A. decrease the market price of real capital goods
B. have no effect on the location of the investment
demand curve
C. shift the investment demand curve to the right
D. shift the investment demand curve to the left

26.

Inflation in U.S. prices will cause

A. an increase in the demand for U.S. dollars and an
appreciation in the exchange rate
B. an increase in the supply of U.S. dollars and a
depreciation in the exchange rate

C. a decrease
depreciation
D. a decrease
appreciation

27.

in the demand for U.S. dollars and a

in the exchange rate
in the supply of U.S. dollars and an
in the exchange rate

The quantity theory of money states that

A. the money supply divided by the velocity of money
equals the price level divided by real output
B. the money supply times the velocity of money equals
the price level times real output
C. the money supply times the price level equals real
output divided by the velocity of money
D. the money supply times the price level equals real
output times the velocity of money

28.
Suppose that U.S. prices rise 4% over the next
year while prices in Mexicorise 6%. According to the
purchasing power parity
theory of exchange
rates,what should happen to the exchange rate
between the dollar and the peso?
A. The dollar should depreciate.
B. The peso should appreciate.
C. The peso should depreciate.
D. The dollar will be revalued.

29.
A rise in the domestic interest rate leads to
capital
A. outflows and exchange rate appreciation
B. outflows and exchange rate depreciation
C. inflows and exchange rate depreciation
D. inflows and exchange rate appreciation

30.

A firm under monopolistic competition will earn

A. a positive economic profit as it has some monopoly
power
B. zero economic profit as it sets P = MC
C. zero economic profit as its P = ATC
D. a positive economic profit as it sets MC = MR

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