CLEP Study

Questions:

1. Economics is generally concerned with (about)
a. the operation of banks and the stock market
b. business management
c. how resources are allocated among alternative uses and goals
d. the right time to start a business

2. Economics is a social science in the sense that it
a. rigorously (systematically) examines human behavior
b. is not as scientific as physics or chemistry
c. relies on historical data instead of mathematics
d. relies on statistics instead of mathematics

3. Some college students think that, because a college degree greatly increases
their earning potential, there is no opportunity cost of attending college. How
would an economist look at the matter?
a. there is no opportunity cost, assuming that future earnings increase as
expected
b. the opportunity cost is much less than it would appear, assuming that
earnings increase
c. those college students are completely right
d. there is still opportunity cost, even if the cost is justified by higher
future earnings.

4. If a decision maker uses marginal analysis, then the relevant costs are
a. the total cost of some particular activity or product
b. the costs which do not change
c. the profit from an activity or product
d. the average costs of a particular activity or product
e. the extra or additional costs of a particular activity or product.

5. Graphs are highly useful in economics because of the way they
a. make easier the interpretation and analysis of data
b. permit a person to easily see relationships between variables
c. show an idea that might otherwise take many words
d. all of the above

6. When variable A rises by 10 units, variable B rises by 15 units. The slope
of the line (curve) describing this relationship is
a. always .67
b. either .67 or 1.5, depending on which variable goes on which axis of the
graph
c. either 1.5 or minus 1.5, depending on which variable goes on which axis
d. always ?1.5

7. A horizontal line always has a slope of one. T F

8. Suppose that a curve has a slope equal to zero at some point A. To the
right of point A, the curve may
a. have a positive slope
b. have a negative slope
c. be a straight line
d. all the above are correct.

9. The tangent at point A on a curve has a positive slope.Therefore
a. the curve has a positive slope at all points
b. the curve has a positive slope at point A
c. the curve has a negative slope at all points
d. the curve has a negative slope at point A

10. Opportunity cost is best defined as the value of
a. all the other possible things that the decision maker could have chosen
b. the alternative that the decision maker would have chosen if more resources
were available
c. what is gained from the alternative that is chosen
d. the next best alternative that the decision forces one to give up.

11. How are the slope of a production possibilities frontier and the
opportunity cost of the goods related?
a. the slope is a graphical picture of the cost of increasing output of both
goods at once
b. the slope is a graphical measure of the growth rate of the economy
c. the slope is a graphical representation of the cost of reducing unemployment
d. the slope is a graphical picture of the rate of trade-off between the goods

12. In terms of the production possibilities diagram, the principle of
_increasing_ (opportunity) cost simply asserts that the frontier is
a. downward sloping
b. bowed outward from the origin
c. upward sloping
d. bowed inward toward the origin

13. Suppose a society produces only guns and butter. When it uses all its
resources for the production of guns and operates efficiently, it can produce
240 guns per year. We also know that its ppf is _bowed out from the origin_. In
order to produce 20 tons of butter, this society must reduce gun production to
200 guns per year. Suppose this society were to increase butter production by
another 20 tons, to 40 tons per year. Then, operating efficiently, it would
produce
a. exactly 160 guns per year
b. less than 160 guns per year
c. more than 160 guns per years
d. still 200 guns per year if it is operating efficiently.

14. In terms of efficiency, any point on an economy's production possibilities
frontier is as good as any other. T F

15. Assuming that productive resources are specialized, the opportunity cost of
an item increases as production of it rises. Therefore, we expect that firms
will produce more if
a. the price increases
b. the price decreases
c. the opportunity cost is greater than the price
d. the income of buyers increases.

16. Only market economies have to answer the questions of what goods to
produce, how to produce them, and for whom to produce them. T F

17. Why does quantity demanded decrease when price increases?
a. people choose to reduce consumption of the item
b. people "drop out" of the market for the item
c. people find and buy substitutes for the item
d. all of the above

18. An upward-sloping supply curve for a product shows that
a. buyers are willing to pay more for a scarce product
b. suppliers are willing to increase production of the product if they can
receive higher prices for it
c. buyers are not affected by sellers' production costs
d. the supply of a product is not influenced by the price buyers are willing to
pay

19. The Red Jacket Mountain View Inn in New Hampshire charges $99 for a room in
the winter ski season and $94 during the summer months. The number of rooms and
operating costs are constant year round. These price differences indicate
a. rightward shifts in the demand curve in the summer
b. rightward shift in demand in the winter
c. leftward shifts in the supply curve in the summer
d. a leftward shift in demand in the winter

20. In early 1996, Congress proposed a law that would greatly reduce price
supports for many farm products. If the bill were to pass, what would most
likely happen to the number of families in farming?
a. it would fall, because farm product prices would be lower
b. it would rise because farm product prices would rise
c. it would rise, because farm product prices would fall
d. it would fall. because farm product prices would rise

21. Economists generally recognize that rent controls cause shortages of
housing, yet rent controls tend to stay in effect. Why does this happen?
a. many people do not understand the effects that rent controls cause
b. landlords are politically unpopular and out numberd by tenants
c. many persons benefit from rent controls
d. all the above are correct

22. The marginal utility of a good X
a. is always greater than the total utility of X
b. is always less than the average utility of X
c. generally depends on how much X the consumer already has
d. is always equal to the price of X.

23. The optimal purchase rule is stated as
a. TU = MU
b. MU = P
c. TU = P
d. MU = 0

24. Consumer's surplus can be written as
a. total expenditure - total utility
b. total utility - total expenditure
c. marginal utility - marginal expenditure
d. marginal expenditure - marginal utility

25. The Wall Street Journal reports that, "hard times aid poultry companies as
people eat cheaper fowl. "In the language of economists this means
a. chicken is an inferior good
b. chicken has a positive income effect
c. people's tastes change during recessions
d. chicken is a normal good