Economics and Real Value

Name: ________________________ Student ID: ___________________ Date: __________

1) Microeconomics is the branch of economics that deals with which of the following topics?
A) The behavior of individual consumers
B) Unemployment and interest rates
C) The behavior of individual firms and investors
D) B and C
E) A and C

2) Economics is about the allocation of scarce resources. Which of the following is NOT an example of economic scarcity?
A) If Steve goes to see the movie Master and Commander on Saturday, he will not be able to afford buying ice cream. B) If Jenny studies for her economics quiz this evening, she will not have time to walk her dog.
C) If General Motors increases its production of SUVs this year, it will have to spend more on advertising.
D) If Borders Books increases the number of titles it carries, it will have to reallocate shelf space accommodate the new titles.

3) Use the following two statements to answer this question:
I. Economic theories are developed to explain observed phenomena by deducing from a set of basic rules and assumptions. II. Economic theories use value judgments to determine which people ought to pay more taxes.
A) Both I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) Both I and II are false.

4) Which of the following is a positive statement?
A) Intermediate microeconomics should be required of all economics majors in order to build a solid foundation in economic theory.
B) The minimum wage should not be increased because this action would increase unemployment.
C) Smoking should be restricted on all airline flights.
D) All automobile passengers should be required to wear seatbelts in order to protect them against injury.
E) none of the above

5) Which of the following is a positive statement?
A) When the price of a good goes up, consumers buy less of it.
B) When the price of a good goes up, firms produce more of it.
C) When the Federal government sells bonds, interest rates rise and private investment is reduced.
D) all of the above
E) none of the above

6) Use the following two statements to answer this question:
I. In order to answer normative questions, it is necessary to make value judgments.
II. In order to conduct positive economic analysis, it is always necessary to use empirical evidence in addition to economic theories.
A) I and II are incorrect.
B) I is correct, II is incorrect.
C) I is incorrect, II is correct.
D) Both I and II are correct.

7) Which of the following statements is NOT true?
A) The trade-offs facing consumers and producers are based on prices.
B) All prices are determined by market interactions between buyers and sellers.
C) Prices serve an important role in microeconomics.
D) Only A and B above false.
E) Only B and C above are false.

8) The trade-offs facing consumers include:
A) how to allocate income across goods and serves.
B) how to allocate income between consumption and savings.
C) both A and B
D) none of the above

9) The trade-offs facing workers include all of the following EXCEPT:
A) decision to work or remain outside the workforce.
B) decision to work or seek additional education.
C) decision to work for a large corporation or a small firm.
D) decision to allocate their time between work and leisure.
E) All of the above are trade-offs facing workers.

10) Firms face trade-offs in production, including decisions related to:
A) which products to produce.
B) how much of a particular product to produce.
C) the best way to produce a given amount of output.
D) all of the above

11) Why is market definition important for economic decision making?
A) A firm is interested in knowing its actual and potential competitors.
B) A firm will define its market in order to maximize revenue.
C) Government regulators are interested in knowing the effect of mergers and acquisitions on competition and prices in a particular market.
D) both A and C
E) both A and B

12) Which of the following is NOT an examples of ways in which microeconomic analysis can help in designing environmental policy?
A) Determining the optimal level of vehicle tailpipe emissions standards
B) Designing laws to provide incentives for firms to implement clean technologies in new vehicles
C) Lobbying consumers and firms to reduce consumption of energy
D) Examining the tradeoffs between ecological benefits of environmental legislation and its impacts on consumersʹ standard of living

13) Suppose the minimum wage was $0.25 per hour in 1938 and the CPI in that year was 11.5. If the CPI in 1990 was 130.7, what is the real value of the 1938 minimum wage in terms of 1990 dollars? The real value of the 1990 minimum wage in terms of 1990 dollars is $4.25. Has the real value of the minimum wage declined since 1938?

14) The reward for the capture of Jesse James was $500.00 in 1881. Suppose the CPI in 1881 was 0.25. What is the real value of the reward in 1990 dollars if the CPI was 130.7 in 1990?

15) The CPI in 1970 was 38.8 and in 1998 the CPI was 163.0. If the real value of a 1970 gallon of milk in terms of 1998 dollars is $0.70, what was the nominal price of milk in 1970?

16) The nominal price of milk was $2.25 in 1998 while the CPI was 163.0 that year. Also, the CPI in 1970 was 38.8. What was the real value of 1998 milk in terms of 1970 dollars?

17) The nominal price of a 1990 laptop was $3,500 and the CPI that year was 130.7. The nominal price of a laptop in 1998 was $1,600 and the CPI that year was 163.0. What is the real price of a 1998 laptop in terms of 1990 dollars? By what percent has the real price of laptops changed?

18) The following is a list of housing costs in five different countries along with their CPI. For which country is the real cost of housing declining? Use year 2 as the base year in your answer.