PART 1

Short Answer Questions(5 points each)

1. Explain the factors of production and give an example for each one.

2. What is the difference between a normal good and an inferior good? How does this relate to the demand curve?

3. What is the consequence of a positive externality in a market? What is the consequence of a negative externality? Why do those consequences occur?

4. Briefly explain the three tax systems – proportional, progressive and regressive. As you explain each one, also compare the relationship between marginal tax rate and average tax rate as income rises for each one.

Project and Analysis Questions(Points listed by each question)

5. Scans of internal organs using magnetic resonance imaging (MRI). These devices are often covered by subsidized health insurance programs such as Medicare. Consider the following table illustrating hypothetical quantities of individual MRI testing procedures demanded and supplied at various prices. Answer the following 3 questions (4 points)

Price Quantity Demanded

Quantity Supplied

$100 100,000 40,000$300 90,000 60,000$500 80,000 80,000$700 70,000 100,000$900 60,000 120,000

a. In the absence of a government-subsidized health plan, what is the equilibrium price and quantity of MRI tests?

b. Suppose that the government establishes a health plan guaranteeing that all qualified participants can purchase MRI tests at an effective price to the individual of $100 per test. How many MRI tests are now demanded? Is the result in the market a surplus or shortage?

6. The next 3 parts to this question give changes that have occurred in the watermelon market. For each change in a determinant given, draw in the change that would occur

on the supply/demand graph for watermelons that is provided. Be sure and review what causes the curve to shift and what causes a movement along the curve as well as what determinants affect supply and what affect demand. Once you have drawn in your change, write a short explanation for each question discussing what would be the new equilibrium price and quantity levels because of this change. In other words, has equilibrium price or quantity increased, decreased or stayed the same, etc. If P or Q are indeterminate – meaning you cannot tell whether it would have changed or not – be sure and explain that. (To draw in changes on the graph, simply use the Drawing toolbar and use lines or arrows to draw in your shifts or show movement along for supply or demand.) (6 points)

A. A new technology is adopted that allows production of watermelons to be increased substantially.

B. There is a substantial decrease in the price of cantaloupes. Cantaloupes are assumed to be a substitute good for watermelons.

C. Consumer’s income increases (assuming watermelon is a normal good) and the number of sellers producing watermelons increases.

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Watermelon Market

Watermelon Market

7. In MyLabsPlus, go to Economic News. Then View the Latest News Update under Economics in the News. On the left hand menu, select News Archives by Topic. For this unit, select Government Intervention in Markets and then choose “Weakest Monsoon Season since 2009 to Shrink India Rice Harvest.”

Read and review the article and graph provided. Be sure and click on the link to read the full article. Then answer the 3 Thinking Critically Questions provided and provide your answers to those three questions in a short essay.(6 points)

8. Using the historical tables from the Budget of the US government, utilize the following website to determine where the US government allocates its expenditures.(6 points)

The website is http://www.whitehouse.gov/omb/budget/Historicals

Examine Table 3.1 on Outlays by Superfunction and Function. Consider what government functions have been capturing growing shares or declining shares of government spending in recent years.

Select one of the government functions and describe in a brief summary whether it has seen an increase or decrease in government spending over the past 10 to 15 years. For the function you have selected, is it related to the problem of addressing externalities, providing public goods or dealing with other market failures. Does it appear to be related to political functions instead of economic functions?

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Watermelon Market

9. Find an article that identifies a change in supply and/or demand. Use the article to fulfill the following instructions and questions:

(8 points)

A. Copy and paste the article into your homework assignment. Be sure and cite your reference for where the article came from indicating the source, author, title, date, and page for the article you have chosen.

B. Find one example in the article of any one of the following four possible shifts of supply or demand: Leftward shift of the supply curve; Rightward shift of the supply curve.

Leftward shift of the demand curve; Rightward shift of the demand curve.

Write a short summary addressing the following items:

What shift occurred in either supply or demand. What determinant of demand or supply was changed that caused the

shift. Describe the changes in the determinant that have occurred. Indicate evidence in the article of whether the market is an

international, national, regional, or local market Indicate through whom (buyer or seller) the change in the determinant

of demand or supply initially affects the market to cause the shift.

PART 2

Question 1  "If the United States enters a war in the Middle East, the economy will go into a recession" is an example of

Question 1 options:

A) a positive statement.B) an easy to prove statement.C) a normative statement.D) a factual statement.

SaveQuestion 2 (2 points) Economic analysis is used

Question 2 options:

A) only in economics classrooms.B) only by business people.

C) only by policy makers.D) in all decision making.

SaveQuestion 3 (2 points) Economic models are used to

Question 3 options:

A) simplify reality to predict outcomes.

B) exactly replicate reality.

C) predict all possible outcomes of a study.D) determine the thoughts of individuals.

SaveQuestion 4 (2 points) Economics is called an empirical science because

Question 4 options:

A) economists study real-world evidence to test their models.B) economists use assumptions in their models.

C) economic models have no predictive power.

D) economic analysis is only useful in a capitalistic society.

SaveQuestion 5 (2 points) Economics is the study of

Question 5 options:

A) the allocation of scarce resources to satisfy unlimited wants.B) inflation and unemployment in society.C) making money.D) maximization of profits for a firm.

SaveQuestion 6 (2 points) A relationship between two variables in which one variable increases at the same time as the other decreases is called

Question 6 options:

A) nonlinear.B) constant.C) inverse.D) direct.

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Question 7 (2 points) Which of the following will most likely happen when better technology is used in production?

Question 7 options:

A) an upward movement along the production possibilities curve

B) an outward shift of the production possibilities curveC) an inward shift of the production possibilities curve

D) a downward movement along the production possibilities curve

SaveQuestion 8 (2 points) All points inside the production possibilities curve indicate

Question 8 options:

A) a lack of sufficient supply.

B) inefficiency in production.

C) the law of increasing relative cost.D) the law of decreasing relative cost.

SaveQuestion 9 (2 points) Which factor of production includes water?

Question 9 options:

A) physical capital

B) human capital

C) land

D) entrepreneurship

SaveQuestion 10 (2 points) If Joey goes surfing for four hours instead of earning $10 per hour for those four hours, his opportunity cost is

Question 10 options:

A) the good time spent surfing.B) the cost of gasoline used to get to the beach.C) the travel time to the beach.D) $40.

SaveQuestion 11 (2 points) Physical capital is distinguished from human capital because

Question 11 options:

A) physical capital refers to trained people.

B) physical capital refers to equipment and machinery, whereas human capital refers to trained people.

C) human capital refers only to day laborers.

D) physical capital refers to trained people, whereas human capital refers to equipment and machinery.

SaveQuestion 12 (2 points) Generally, specialization leads to

Question 12 options:

A) constant opportunity costs.B) greater productivity.C) the production of fewer capital goods.D) greater self-reliance.

SaveQuestion 13 (2 points) The value of the best alternative sacrificed to obtain something you want is referred to as

Question 13 options:

A) explicit cost.

B) opportunity cost.

C) marginal cost.D) sunk cost.

SaveQuestion 14 (2 points) 

In the above figure, what is the opportunity cost of one bushel of soybeans?

Question 14 options:

A) 1 bushel of cornB) 0.5 bushels of cornC) 2 bushels of corn

D) unable to determine

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Question 15 (2 points) 

Refer to the above figure. The rightward shift of the curve indicates

Question 15 options:

A) an increase in demand.

B) an increase in supply.

C) a change in quantity demanded.

D) a change in quantity supplied.SaveQuestion 16 (2 points) 

Refer to the above figure. At a price of two cents, the quantity of bubble gum demanded will be

Question 16 options:

A) 3.B) 2.C) 4.D) 5.

SaveQuestion 17 (2 points) Suppose that the demand curve for apples is downward sloping and the price per bushel increases from $6.50 to $7.50. We would then expect

Question 17 options:

A) the demand for apples to decrease.

B) the quantity of apples demanded to fall.C) the demand curve to shift toward the origin.

D) the quantity of apples demanded to increase.

SaveQuestion 18 (2 points) Which of the following will occur as the price of a good decreases?

Question 18 options:

A) The demand curve for that good will shift to the left.B) The demand curve for that good will shift to the right.C) The quantity demanded for that good will increase.D) Demand for that good will increase.

SaveQuestion 19 (2 points) Which of the following would cause an increase in the market supply of mountain bikes?

Question 19 options:

A) a decrease in the demand for mountain bikesB) an increase in taxes levied on mountain bike manufacturers

C) an increase in the cost of components used to assemble mountain bikes

D) an increase in the number of firms making mountain bikesSaveQuestion 20 (2 points) If one day a terrible disease were to wipe out over one-half of the world's lime trees, which of the following would likely result?

Question 20 options:

A) The supply curve of lime juice would shift downward and to the right.B) The supply curve of lime juice would shift upward and to the left.C) The demand curve for lime juice would shift to the right.D) The demand curve for lime juice would shift to the left.

SaveQuestion 21 (2 points) If the price of cotton used in making blue jeans increases, which of the following will occur?

Question 21 options:

A) There will be a movement along an unchanged supply curve for jeans.

B) The supply curve for jeans will shift rightward.C) The supply curve for jeans will shift leftward.

D) There will be a rightward shift in the supply curve for jeans, followed by a movement along the supply curve.

SaveQuestion 22 (2 points)

 Other things being equal, the relationship between price and quantity supplied is

Question 22 options:

A) negative.

B) constant.C) positive.D) non-existent.

SaveQuestion 23 (2 points) Any improvement in overall production technology that permits more output to be produced with the same level of inputs causes

Question 23 options:

A) a movement up the supply curve resulting in both a higher equilibrium price and quantity.

B) a rightward shift of the supply curve so that more is offered at each price.

C) no movement of the supply curve, but a fall in price and a decrease in quantity supplied.

D) a leftward shift of the supply curve so that less is offered for sale at each price.

SaveQuestion 24 (2 points) In economic terminology, a normal good is a good

Question 24 options:

A) on which a monetary value cannot be placed.B) that is liked only by normal people.

C) for which demand increases when price increases.

D) for which demand increases when income increases.

Save

Question 25 (2 points) An example of a black market is

Question 25 options:

A) a retail market.

B) a discount market.

C) scalping.

D) barter.SaveQuestion 26 (2 points) When are black markets likely to arise?

Question 26 options:

A) when the government removes a price floor

B) when the government enforces a price ceiling

C) when there is a surplus of a good

D) when the quantity supplied of a good exceeds the quantity demanded

SaveQuestion 27 (2 points) Price floors

Question 27 options:

A) provide free market incentives for producers.B) create surpluses by setting the price above equilibrium.

C) create shortages by setting the price above equilibrium.

D) are used by advocates of the free market.SaveQuestion 28 (2 points) Which of the following is NOT a voluntary exchange?

Question 28 options:

A) Tom's car is stolen from in front of his house.B) Marie buys groceries.C) Scott pays $10,000 for tuition and fees this semester.

D) Emily buys a $1,000 plane ticket to fly from New York to Dallas on short notice.

SaveQuestion 29 (2 points) Which of the following is most likely to generate a surplus?

Question 29 options:

A) A price floor

B) A price ceiling

C) An illegal marketD) All of these

SaveQuestion 30 (2 points) 

Refer to the above figure. A price support set at P3 will

Question 30 options:

A) lead to a surplus of Q3 minus Q1.B) lead to a shortage of Q3 minus Q1.C) lead to an equilibrium quantity of Q2.

D) be ineffective.

SaveQuestion 31 (2 points) Which of the following will likely occur when price floors in agriculture are implemented?

Question 31 options:

A) Quantity supplied will exceed quantity demanded.

B) Quantity demanded will exceed quantity supplied.

C) Farmland will be underutilized.D) Supply will decrease.

SaveQuestion 32 (2 points) Government imposed price controls often lead to

Question 32 options:

A) illegal trades of the good.B) the most efficient use of resources.C) the equilibrium solution in terms of price and quantity.D) maximization of profits.

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Question 33 (2 points) Social Security and Medicare are clear examples of

Question 33 options:

A) capitalism.

B) market-determined services.C) market failures and externalities.D) governmental intervention in the market.

SaveQuestion 34 (2 points) 

In the above figure, market equilibrium at point E yields the quantity X. The quantity X  is the socially optimal quantity. Point E indicates that currently there is

Question 34 options:

A) a negative externality.

B) a positive externality.C) a public good.D) a positive externality with subsidy.

SaveQuestion 35 (2 points) 

Refer to the above figure. Medicare subsidies have increased the price of medical services to Ps. The perceived price on the part of consumers is

Question 35 options:

A) Ps.B) P0.C) Pd.D) undetermined without more information.

SaveQuestion 36 (2 points) The principle feature of private goods is that

Question 36 options:

A) they cannot be rented or purchased.B) consumption by one person reduces the quantity available to others.C) no one can be excluded from consumption of the product.

D) externality problems associated with their production are always negative.

SaveQuestion 37 (2 points) An external cost, such as the cost generated by pollution, is

Question 37 options:

A) a cost paid by consumers of the product.B) a cost paid by producers of the product.C) a cost paid by a third party or by society at large.D) not a true opportunity cost of production.

SaveQuestion 38 (2 points) The U.S. legal system mainly engages in activities that

Question 38 options:

A) are dedicated to producing private goods.

B) focus on income redistribution.C) involve defining and protecting property rights.

D) focus on producing public goods.

SaveQuestion 39 (2 points) When negative externalities exist, the private market equilibrium represents a

Question 39 options:

A) market price which is too low and a market quantity which is too low.

B) market price which is too low and a market quantity which is too high.

C) market price which is too high and a market quantity which is too low.

D) market price which is too high and a market quantity which is too high.

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Question 40 (2 points) Dynamic tax analysis generally predicts

Question 40 options:

A) that the higher the tax rate is, the higher the tax revenue will

continue to be into the future.

B) that the higher tax rates lead to higher revenues only to a point at which revenues will begin to decrease due to a diminishing tax base.

C) that lower tax rates will always and continuously lead to increased tax revenues.

D) that lower tax rates are always going to lead to decreased tax revenues.

SaveQuestion 41 (2 points) The U.S. Social Security tax is an example of a

Question 41 options:

A) progressive tax.B) proportional tax.C) premium tax.D) regressive tax.

SaveQuestion 42 (2 points) Ad valorem taxation

Question 42 options:

A) refers to the personal income tax.B) is used to tax goods but not services.

C) is assessed by charging a tax rate as a fraction of the market price of a good.

D) is a tax that is applied only to cigarettes and alcohol.SaveQuestion 43 (2 points) The tax that brings in the most revenue in the United States is the

Question 43 options:

A) capital gains tax.

B) corporate income tax.

C) Social Security tax.D) personal income tax.

SaveQuestion 44 (2 points) 

Suppose you are making $50,000 per year and paying $5,000 per year in income taxes. You get a $10,000 per year raise and your income taxes are now $6,500 per year. Based on this information, the income tax system is

Question 44 options:

A) proportional.B) progressive.C) regressive.

D) bracketed.

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Question 45 (3 points) How is the equilibrium price determined? What happens if the price is above the equilibrium price? What happens if the price is below the equilibrium price?

Question 46 (3 points) Briefly discuss the determinants of demand other than price.

Question 47 (3 points) What is production? What economic factors are involved in production?

Question 48 (3 points) Distinguish between scarcity and shortages.