ECON 205

Question 1

What is the fundamental goal of economics?

Answer 1

Learn to cope with the scarcity of virtually all resources.

Question 2

What does Production possibilities frontier (PPF) illustrates the basic principle of?

Answer 2

If all resources of the economy are employed, more of one good can only be produced only if less of
another is produced.

Question 3

Which of the following can change without shifting the demand curve for a good?

Answer 3

The price of the good itself.

Question 4

In a market economy, the decision regarding allocation of resources is made by:

Answer 4

Automatic forces of supply and demand.

Question 5

We observe that the price of food falls and the quantity purchased rises. This means the?

Answer 5

supply curve shifted to the right.

Question 6

A point lying inside a production possibilities frontier (PPF) indicates that:

Answer 6

More output could be produced with existing resources and Resources are being wasted. (C & D)

Question 7

Price of labor is the wage rate. What happens to the demand for labor if the wage rate increases?

Answer 7

It does not change.

Question 8

Firms often borrow money to expand their capital stock and the price they pay for that borrowed money is the
interest rate. What happens to the quantity demanded of money if the interest rate rises?

Answer 8

It decreases.

Question 9

It might be useful to think of macroeconomics as a study of _____ and microeconomic as a study of _____.

Answer 9

Oceans, fish.

Question 10

Which of the following actions should the Biden administration take if they really wanted to lower the price
of gasoline?

Answer 10

Give tax credits to all people who car pool to work.

Question 11

During an economic downturn when consumer income falls, the demand for chocolate ice cream increases
and the demand for chocolate cheesecake decreases. This implies ice cream

Answer 11

is an inferior good and chocolate cheesecake is a normal good.

Question 12

Consider the following information regarding a person’s decision to go to college: college tuition is $20,000
per year, room and board is $10,000 per year, and books and supplies are $2,000 per year. Suppose that
instead of going to college this person could have earned an yearly income of $18,000 working at WalMart.
An economist would calculate this person’s cost of going to college as:

Answer 12

$50,000.