ECON 101 FINAL EXAM WITH 30
QUESTIONS AND ANSWERS
1. Continued long-run economic growth requires that economies:
A) continue to increase their investment rates.
B) reach their steady-state levels of capital and output.
C) have high levels of capital stock.
D) have institutions in place that encourage research and development of new ideas. D
3. Stating that TR = TC is equivalent to stating that:
A) MR = MC.
B) P = AC.
C) P = Average fixed cost.
D) MR = P. B
3. Suppose Susan can wash three windows per hour or she can iron six shirts per hour. Paul can wash
two
windows per hour or he can iron five shirts per hour. After specialization, suppose that Susan and Paul
trade with each other and Susan washes 15 windows for Paul. In order for both Susan and Paul to
benefit from trade, Paul must iron at least how many shirts for Susan?
A) 15
B) 75
C) 30
D) 0, because Paul has the comparative advantage in washing windows. C
4. A minimum wage that is set above a market's equilibrium wage will result in
A) an excess supply of labor, that is, unemployment.
B) an excess supply of labor, that is, a shortage of workers.
C) an excess demand for labor, that is, unemployment.
D) an excess demand for labor, that is, a surplus of workers. A
4. At a ski resort located over one hour from the nearest large town, there is only one grocery
store and it charges prices more than 200 percent above the typical retail prices. In the long
run, we would expect that:
A) another store will open that will charge equally high prices since competition is low.
B) the store will continue to earn high profits even in the long run since the size of the
market is small.
C) demand will decrease since people will not want to pay the high prices.
D) another store will open that will charge lower prices. D
4. The average rate of inflation in the United States over the past 10 years has been around 2.4%. If this
trend continues, prices in the United States will double in about _____ years.
A) 29
B) 10
C) 18
D) 39 A
5. Which of the following is NOT a characteristic of a perfectly competitive market?
A) Buyers and sellers are price setters.
B) There are many buyers.
C) There are many sellers.
, D) The good/service is homogeneous A
5. Which of the following is NOT true regarding the natural rate of unemployment?
A) The natural rate of unemployment equals the sum of the frictional and structural rates.
B) If the economy is operating at the natural rate of unemployment, cyclical unemployment is equal to
zero.
C) The natural rate of unemployment correlates positively with the level of GDP growth in an
economy.
D) The actual rate of unemployment varies around the natural rate over time. A
6. Which of the following statements is correct?
A) When the marginal cost curve is above the average cost curve, the average cost curve must be rising.
B) When the marginal cost curve is below the average cost curve, the average cost curve
must be rising.
C) When MR = MC, the average cost curve is at its minimum point.
D) When MR = P, the average cost curve is at its minimum point. A
6. Your professor loves her work, teaching economics. She has been offered other positions in the
corporate world that would increase her income by 25 percent, but she has decided to continue working
as a professor. Her decision would not change unless the marginal
A) benefit of a corporate job decreased.
B) benefit of teaching increased.
C) cost of a corporate job increased.
D) cost of teaching increased. D
7. Because of spillovers, the social benefit of research and development:
A) is greater than the private benefit, therefore the private market produces less than the socially
efficient quantity.
B) is greater than the private benefit, therefore the private market produces more than the socially
efficient quantity.
C) is less than the private benefit, therefore the private market produces more than the socially
efficient quantity.
D) is less than the private benefit, therefore the private market produces less than the socially efficient
quantity. A
7. Generally, a firm is more willing and able to increase quantity supplied in response to a price change
when
A) the firm is experiencing capacity problems.
B) the relevant time period is long rather than short.
C) the relevant time period is short rather than long.
D) supply is inelastic. B
8. Firms in a perfectly competitive industry maximize profits by:
A) eliminating the competition.
B) producing a higher quality good and setting a price higher than the competition.
C) setting a price equal to the market price.
D) setting a price less than the market price and undercutting the competition C
8. In the Solow model, if a country's saving rate increased from 10% to 12% and it was operating at its
steady state before the change, we would expect to see:
A) a decrease in both the capital stock and output.
B) an increase in the capital stock only.
C) an increase in output only.
D) an increase in both the capital stock and output. D
QUESTIONS AND ANSWERS
1. Continued long-run economic growth requires that economies:
A) continue to increase their investment rates.
B) reach their steady-state levels of capital and output.
C) have high levels of capital stock.
D) have institutions in place that encourage research and development of new ideas. D
3. Stating that TR = TC is equivalent to stating that:
A) MR = MC.
B) P = AC.
C) P = Average fixed cost.
D) MR = P. B
3. Suppose Susan can wash three windows per hour or she can iron six shirts per hour. Paul can wash
two
windows per hour or he can iron five shirts per hour. After specialization, suppose that Susan and Paul
trade with each other and Susan washes 15 windows for Paul. In order for both Susan and Paul to
benefit from trade, Paul must iron at least how many shirts for Susan?
A) 15
B) 75
C) 30
D) 0, because Paul has the comparative advantage in washing windows. C
4. A minimum wage that is set above a market's equilibrium wage will result in
A) an excess supply of labor, that is, unemployment.
B) an excess supply of labor, that is, a shortage of workers.
C) an excess demand for labor, that is, unemployment.
D) an excess demand for labor, that is, a surplus of workers. A
4. At a ski resort located over one hour from the nearest large town, there is only one grocery
store and it charges prices more than 200 percent above the typical retail prices. In the long
run, we would expect that:
A) another store will open that will charge equally high prices since competition is low.
B) the store will continue to earn high profits even in the long run since the size of the
market is small.
C) demand will decrease since people will not want to pay the high prices.
D) another store will open that will charge lower prices. D
4. The average rate of inflation in the United States over the past 10 years has been around 2.4%. If this
trend continues, prices in the United States will double in about _____ years.
A) 29
B) 10
C) 18
D) 39 A
5. Which of the following is NOT a characteristic of a perfectly competitive market?
A) Buyers and sellers are price setters.
B) There are many buyers.
C) There are many sellers.
, D) The good/service is homogeneous A
5. Which of the following is NOT true regarding the natural rate of unemployment?
A) The natural rate of unemployment equals the sum of the frictional and structural rates.
B) If the economy is operating at the natural rate of unemployment, cyclical unemployment is equal to
zero.
C) The natural rate of unemployment correlates positively with the level of GDP growth in an
economy.
D) The actual rate of unemployment varies around the natural rate over time. A
6. Which of the following statements is correct?
A) When the marginal cost curve is above the average cost curve, the average cost curve must be rising.
B) When the marginal cost curve is below the average cost curve, the average cost curve
must be rising.
C) When MR = MC, the average cost curve is at its minimum point.
D) When MR = P, the average cost curve is at its minimum point. A
6. Your professor loves her work, teaching economics. She has been offered other positions in the
corporate world that would increase her income by 25 percent, but she has decided to continue working
as a professor. Her decision would not change unless the marginal
A) benefit of a corporate job decreased.
B) benefit of teaching increased.
C) cost of a corporate job increased.
D) cost of teaching increased. D
7. Because of spillovers, the social benefit of research and development:
A) is greater than the private benefit, therefore the private market produces less than the socially
efficient quantity.
B) is greater than the private benefit, therefore the private market produces more than the socially
efficient quantity.
C) is less than the private benefit, therefore the private market produces more than the socially
efficient quantity.
D) is less than the private benefit, therefore the private market produces less than the socially efficient
quantity. A
7. Generally, a firm is more willing and able to increase quantity supplied in response to a price change
when
A) the firm is experiencing capacity problems.
B) the relevant time period is long rather than short.
C) the relevant time period is short rather than long.
D) supply is inelastic. B
8. Firms in a perfectly competitive industry maximize profits by:
A) eliminating the competition.
B) producing a higher quality good and setting a price higher than the competition.
C) setting a price equal to the market price.
D) setting a price less than the market price and undercutting the competition C
8. In the Solow model, if a country's saving rate increased from 10% to 12% and it was operating at its
steady state before the change, we would expect to see:
A) a decrease in both the capital stock and output.
B) an increase in the capital stock only.
C) an increase in output only.
D) an increase in both the capital stock and output. D
