TEST BANK for Agricultural Economics 3e Evan Drummond John Goodwin

Agricultural Economics 3e Evan Drummond John Goodwin (Test Bank All Chapters, 100% Original Verified, A+ Grade) Answers At The End Of Each Chapter

Chapter 1

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The food industry sector that is closest to the producer sector is the A) food service processors sector B) wholesalers sector C) at-home food processors sector D) retailers sector E) commodity processors sector

1)

2) The producer sector would NOT include a A) horticultural nursery B) Florida orange grove C) meat packing plant D) California wine grower E) none of the above

2)

3) According to the U.S. Department of Agriculture, a "farm" is any establishment that A) has sales (or expected sales) of agricultural commodities of at least $100 B) has sales (or expected sales) of agricultural commodities of at least $1,000 C) has ten or more acres in agricultural production D) has two or more acres in agricultural production

3)

4) Which of the following statements about biofuels is NOT true?

A) Ethanol has fewer BTUs per gallon than gasoline.

B) The use of soy oil in diesel engines began during the past decade.

C) Most ethanol produced in the U.S. is made from corn.

D) Ethanol is more corrosive than gasoline.

E) Ethanol producers in the U.S. receive a substantial federal subsidy for every gallon

4)

5) Food service distributors typically do NOT sell to A) restaurants B) food retailers C) university cafeterias D) fast food outlets E) hospitals

5)

produced.

1

6) Traditionally, market coordination was accomplished using A) management B) market news C) prices D) contracts E) none of the above

6)

7) In terms of number of farms, non-family, corporate farms are what proportion of total farms in

7)

the United States?

A) 10%

B) 60%

C) 2%

D) 20%

E) 90%

8) In terms of sales volume, the largest retail food company in the United States is A) Winn-Dixie B) Wal-Mart C) Kroger D) Safeway E) Piggly-Wiggly

8)

9) The average American farmer produces enough to feed approximately ________ people (both

9)

domestic and exports).

A) 50 B) 250

C) 1,200

D) 150

E) 200

10) Which of the following is NOT one of the major sectors of the food industry?

A) the producer sector B) the farm service sector C) the food sector D) the processor sector E) the marketer sector

10)

11) A commodity processor would sell A) canned chicken noodle soup B) hamburger patties for McDonald's C) a frozen chicken pot pie D) tomato catsup E) soybean meal

11)

12) When American farm operators were asked to identify their primary occupation, the most

12)

common response was A) unemployed

B) non-farm employment C) farming D) retired E) none of the above

2

13) The most globalized food processor is A) Hormel B) Nestlé C) Campbell's D) Hershey Foods E) Tyson Foods

13)

14) Which food industry sector is closest to the final food consumer?

A) the processor sector B) the farm service sector C) the marketer sector D) the producer sector E) the commodity processor sector

14)

15) Which of the following is part of the farm service sector?

A) McDonald's B) Butterball turkeys C) Pepperidge Farms D) John Deere E) none of the above

15)

16) According to the U.S. Department of Agriculture, the number of farms in the United States is

16)

approximately A) 4 million

B) 2 million C) 160,000 D) 840,000 E) 12 million 17) Concentration among processors is a concern because concentrated firms A) gain market power B) are not competitive C) have lower costs D) have higher profits E) none of the above

17)

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

18) Distinguish between commodity processors and food product processors.

18)

19) What is vertical integration in the food industry?

19)

3

20) When farm operators in the United States were asked what their primary occupation was,

20)

21) What are the four major sectors in the food industry?

21)

what was the most frequent response?

4

Answer Key Testname: CH 1

1) E 2) C 3) B 4) B 5) B 6) C 7) C 8) B 9) E 10) C 11) E 12) B 13) B 14) C 15) D 16) B 17) A 18) Commodity processors take raw agricultural products and turn them into food ingredients. Food product processors produce food for direct sale to the consumer. Frequently, one firm will perform both functions.

19) the combination of more than one steps in the food industry under the direction of a single management 20) off-farm employment 21) the farm service, producers, processors, and marketers sectors

5

Chapter 2 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The diamond-water paradox illustrates the principle of A) the substitution effect B) greed C) inflation D) the real balance effect E) scarcity

1)

2) Juan, going 85 miles per hour in his car missed a curve and ran into a tree. This is an example of A) correlation B) the correlation-causation fallacy C) the zero sum game fallacy D) causation E) the fallacy of composition

2)

3) What creates the need for an allocation system?

A) choice B) government C) scarcity D) money E) markets

3)

4) The economic term used to describe the earnings forgone by attending college is A) lost earnings B) phantom earnings C) lost wages D) foregone earnings E) opportunity cost

4)

5) The price system is not very egalitarian in making the A) how to produce decision B) what to produce decision C) when to produce decision D) how much to produce decision E) for whom to produce decision

5)

1

6) Economics is the science of A) capitalism B) allocation C) investing D) money E) none of the above

6)

7) Ceteris paribus means A) assuming prices remain constant B) everything else remains constant C) over time D) nothing changes E) only this is allowed to change

7)

8) Recently Joe bought a used car from Jane. Joe thought he got a very good deal. Therefore, Jane

8)

must have gotten a very bad deal. This is an example of A) the fallacy of composition

B) the post-hoc, ergo propter hoc fallacy C) the fallacy that correlation implies causation D) gender based exploitation E) the zero-sum game fallacy 9) In order to establish a market, which of the following are essential?

1.

2.

3.

4.

9)

a marketplace or location potential buyers an auctioneer potential sellers A) 2 and 4

B) 1, 2, and 4 C) 1, 2, 3, and 4 D) 1 only E) none of the above 10) The statement "A decrease in the price of pizza caused the quantity demanded of pizza to increase" is an example of the A) fallacy of correlation versus causation

B) fallacy of competition C) zero-sum game fallacy D) law of supply E) none of the above

2

10)

11) In the United States, higher education is an example of A) a good for which demand is greater than supply B) a good for which supply is greater than demand C) allocation using a mixed system D) ceteris paribus E) none of the above

11)

12) The market for beef in the U.S. is an example of allocation using the ________ system A) allocative B) command C) mixed D) price E) equilibrium

12)

13) It is prudent for the family to earn more than it spends; therefore, it is prudent for the government

13)

to earn more than it spends. This statement is an example of A) ceteris paribus

B) the fallacy of composition C) the post-hoc, ergo propter hoc fallacy D) the zero-sum game fallacy E) the correlation-causation fallacy 14) To an economist, the term "efficiency" refers to A) returns in relation to costs B) wage rates C) prices D) tractor horsepower E) none of the above

14)

15) In the language of economics, marginal means A) not reputable B) questionable C) quite large D) very small E) additional

15)

16) The allocation of fire protection in Los Angeles is an example of A) the invisible hand of Adam Smith B) microeconomics C) use of the price allocation system D) the command allocation system E) none of the above

16)

3

17) To be certain that there is "a chicken in every pot," we would need A) more chickens B) cheaper chickens C) a price system D) an equilibrium price E) a command system

17)

18) The study of the behavior of an individual firm is part of A) microeconomics B) market economics C) macroeconomics D) supply and demand E) none of the above

18)

19) When a local McDonald's manager hired a third counter worker her sales increased by 22%.

19)

When she hired a fourth counter worker, her sales increased by 12%. This is an example of A) diminishing returns

B) marginal product C) economic efficiency D) opportunity cost E) increasing efficiency 20) In the neoclassical model of markets, buyers are ________ and sellers are ________ A) price makers; price makers B) sovereign; regulated C) price takers; price makers D) price makers; price takers E) price takers; price takers

20)

21) If I eat less it won't hurt the economy, therefore, if everyone eats less it won't hurt the economy.

21)

This statement is an example of A) the fallacy of consumption

B) the post-hoc, ergo propter hoc fallacy C) the zero-sum game fallacy D) the fallacy of composition E) correlation versus causation 22) Economics, as the science of allocation, does NOT depend on A) scarcity B) greed C) money D) choice E) none of the above

4

22)

23) Of the decisions every economic system must make, the command system is more egalitarian than

23)

the price system with regards to the ________ decision.

A) how to

B) how much C) when D) for whom E) what 24) The study of the changes in time, place, form, and possession that occur as a good moves from the

24)

producer to the consumer is called A) production theory

B) consumer behavior C) marketing D) agents of change E) market economics 25) A good example of a mixed price/command allocation system is A) fire protection B) hamburgers at the Burger Barn C) elementary education D) police protection E) higher education

25)

26) The concept of diminishing returns stipulates that eventually the returns to an economic activity A) increase at a decreasing rate B) increase at an increasing rate C) decrease at a decreasing rate D) decrease at an increasing rate E) none of the above

26)

27) The cost of using a good for one purpose is equal to the value that good could have earned in its

27)

best alternative use. This is the concept of A) opportunity cost

B) second best cost C) alternative cost D) alternative value E) none of the above 28) In the language of economics, which of the following is a "resource"?

A) wheat B) pick-up trucks C) water D) labor E) all of the above 5

28)

29) Macroeconomics would NOT deal with A) international trade B) unemployment C) a family farm D) interest rates E) inflation

29)

30) An observer notes that an increase in the price of Pepsi caused the consumption of Pepsi to

30)

decline. This observer is A) correct

B) guilty of the zero-sum game fallacy C) guilty of the causation versus correlation fallacy D) guilty of the fallacy of composition E) guilty of the after this, therefore because of this fallacy

6

Answer Key Testname: CH 2

1) E 2) D 3) C 4) E 5) E 6) B 7) B 8) E 9) A 10) A 11) C 12) D 13) B 14) A 15) E 16) D 17) E 18) A 19) A 20) E 21) D 22) C 23) D 24) C 25) E 26) A 27) A 28) E 29) C 30) C

7

Chapter 3 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) If the price of rutabagas goes up, ceteris paribus, what happens to the demand for rutabagas?

A) shifts upward to the right B) shifts downward to the right C) shifts downward to the left D) shifts upward to the left E) none of the above

1)

2) Which of the following would NOT shift the supply of beef?

A) an increase in the number of beef producers B) a change in taxes on beef producers C) a change in the price of feed for beef D) a change in the price of chicken E) a change in beef production technology

2)

3) Which of the following would NOT cause a shift in the demand for beef?

A) mad cow disease discovered in United States B) a decrease in consumer's incomes C) a decrease in the price of beef D) a decrease in the price of pork E) an increase in the price of chicken

3)

4) Which of the following would NOT cause a shift in the demand for orange juice?

A) research showing OJ increases sexual potency B) a change in the price of grapefruit juice C) a change in the price of apple juice D) a change in the price of OJ E) research showing OJ causes cancer

4)

5) Supply equals demand A) in a long-run equilibrium B) in a perfectly competitive market C) never D) at the equilibrium price E) none of the above

5)

1

6) At prices above the equilibrium price A) the quantity demanded exceeds the quantity supplied B) the market is stable C) a natural tendency to push prices up exists D) a surplus exists E) none of the above

6)

7) On Monday, the equilibrium price of feeder cattle was $56/cwt and the equilibrium quantity

7)

traded was 4,590 cwt. On Tuesday, the price was $64/cwt and the quantity traded was 4,212 cwt.

What must have happened?

A) The supply of feeder cattle shifted inward, ceteris paribus.

B) The supply of feeder cattle shifted outward, ceteris paribus.

C) The demand for feeder cattle shifted outward, ceteris paribus.

D) The demand for feeder cattle shifted inward, ceteris paribus.

E) Supply and demand were unchanged.

8) A shift in the supply of eggs would NOT be caused by a change in A) the price of chicken feed B) subsidies paid to egg producers C) the technology of producing eggs D) the price of eggs E) the number of egg producers

8)

9) If the price of potatoes goes up, ceteris paribus, what happens to the demand for potatoes?

A) It shifts to the left.

B) It decreases.

C) It increases.

D) It shifts to the right.

E) nothing

9)

10) What would cause an inward shift of the demand for ice cream?

A) a change in a ceteris paribus condition B) an increase in the price of ice cream C) a decrease in the price of ice cream D) a decrease in the quantity demanded of ice cream E) an increase in the quantity demanded of ice cream

10)

11) Which of the following would NOT cause a shift in the demand for Colgate toothpaste?

A) a change in the price of Colgate toothpaste B) a change in consumers' tastes and preferences C) an increase in immigration D) a change in the price of Crest toothpaste E) a change in the price of toothbrushes

11)

2

12) Which of the following would NOT cause a shift in the supply of soybeans?

A) introduction of a higher yielding variety B) a decrease in the price of corn C) an increase in the price of beef D) a new tax credit for soybean producers E) an increase in the price of fertilizer

12)

13) Four events are observed:

13)

1. Price of tires goes down.

2. Price of gasoline goes up.

3. Demand for tires shifts.

4. Quantity of tires purchased goes down.

What is the correct order of causation?

A) 3 causes 2, which causes 4, which causes 1

B) 3 causes 1 and 4, which cause 2 C) 1 and 2 cause 3 and 4 D) 1 causes 3, which causes 2 and 4 E) none of the above 14) Which of the following would NOT cause a shift in the demand for Pepsi?

A) an increase in the price of Pepsi B) an increase in consumers' incomes C) a Surgeon General's report that cola drinks are health risks D) an increase in the price of Coke E) none of the above

14)

15) Which of the following is NOT a demand shifter?

A) price of the good B) tastes and preferences C) prices of substitute goods D) income E) none of the above

15)

16) Which of the following is NOT a characteristic of a perfectly competitive market?

A) entry and exit are unrestricted B) large number of buyers and sellers C) no product differentiation D) buyers and sellers are price takers E) none of the above

16)

3

17) At an equilibrium price A) supply equals demand B) sellers gain while buyers lose C) a market is unstable D) price equals quantity E) none of the above

17)

18) The following events are observed:

18)

1. Price of beef goes up.

2. Demand for beef shifts.

3. Price of chicken goes up.

4. Quantity consumed of beef goes up.

What is the proper sequence of these events?

A) 3 causes 2, which causes 1 and 4

B) 3 causes 2, which causes 1, which causes 4 C) 1 causes 2, which causes 4 and then 3 D) 2 causes 1 and 4, which causes 3 E) 4 causes 1 and 2 causes 3 19) Which of the following would shift the supply of wheat?

A) a change in the price of bread B) a change in the price of Wheaties C) a change in the price of wheat D) a change in the price of fertilizer E) all of the above

19)

20) The following events are observed:

20)

1. The price of hot dog buns falls.

2. The supply of hot dogs shifts inwards.

3. The quantity traded of hot dog buns falls.

4. The demand for hot dog buns shifts.

5. The price of hot dogs goes up.

What is the proper sequence of these events?

A) 2 causes 4, which causes 3, which causes 1, which causes 5

B) 3 and 4 cause 2, which causes 1 and 5 C) 1 and 3 cause 5, which causes 2 and 4 D) 4 causes 2, which causes 3, which causes 1 and 5 E) none of the above

4

21) Which of the following is NOT a shifter of beef demand?

A) price of beef B) consumer income C) price of pork D) tastes and preferences E) expectations of future prices

21)

22) Three events are noted:

22)

1. The price of beef increases.

2. The price of chicken increases.

3. The consumption of beef increases.

What must have happened?

A) The demand for beef shifted inward.

B) The supply of chicken shifted outward.

C) The supply of beef shifted inward.

D) The demand for beef shifted outward.

E) The supply of beef shifted outward.

23) Which of the following is NOT a supply shifter for corn?

A) new, improved corn seed varieties B) more corn farmers C) a change in the demand for corn D) a change in the price of soybeans E) a change in the price of fertilizer

23)

24) If the price of corn increases, ceteris paribus, then the A) supply of corn goes up B) demand for corn goes down C) supply of corn goes down D) supply of corn goes up and the demand for corn goes down E) none of the above

24)

25) Quantity demanded is A) ceteris paribus B) a relationship C) equal to demand D) always equal to quantity supplied E) none of the above

25)

5

26) An increase in the price of cotton, ceteris paribus, will cause the A) cotton supply curve to shift inward B) cotton demand curve to shift outward C) cotton supply curve to shift outward D) cotton demand curve to shift inward E) none of the above

26)

27) In a perfectly competitive market A) sellers are price takers B) there is no product differentiation C) buyers are price takers D) there are a large number of buyers and sellers E) all of the above

27)

28) Movement along a demand curve is caused by a A) change in the quantity demanded B) change in price C) shift of supply D) shift of demand E) none of the above

28)

29) The demand for ________ is relatively elastic.

A) chicken B) insulin C) veterinary services D) petroleum E) food

29)

30) Which of the following would NOT cause a shift in the supply of orange juice?

A) a change in the price of fertilizer B) a freeze C) a medfly or other insect infestation D) a change in the demand for OJ E) an OJ subsidy from the government

30)

31) If the price of corn goes up, then A) the demand for corn will go down B) the supply of corn will go down C) farmers will not be able to sell their corn D) a ceteris paribus condition must have changed E) all of the above

31)

6

32) At an equilibrium price A) there is an upward pressure on price B) there is a downward pressure on price C) the self-interest of consumers is maximized D) supply equals demand E) none of the above

32)

33) Movement along the demand curve for fish would be caused by a A) change in the price of fish B) change in the price of beef C) change in the quantity consumed of fish D) change in the price of shrimp E) shift in fish supply

33)

34) Last week the price of lettuce was $0.45 and the quantity traded was 300. This week the price is

34)

$0.35 and the quantity traded is 500. What happened in this market, ceteris paribus?

A) The supply of lettuce shifted inwards

B) The demand for lettuce shifted outwards.

C) The supply shifted inwards and the demand shifted outwards.

D) The demand for lettuce shifted inwards.

E) The supply of lettuce shifted outwards.

35) Demand is a(n) A) ceteris paribus B) amount C) quantity D) price E) none of the above

35)

36) Which of the following would cause, ceteris paribus, a movement along the supply curve of corn?

A) an increase in consumers' incomes B) a decrease in the price of fertilizer C) more rainfall D) an increase in the price of soybeans E) an increase in corn imports

36)

7

37) Over a period of time, four changes are noted:

37)

1. The price of beer increases.

2. The price of wine increases.

3. The demand for beer shifts.

4. The quantity of beer consumed increases.

What is the appropriate sequential order of these events?

A) 3 causes 1, 2, and 4

B) 1 causes 3 and 4, which cause 2 C) 2 causes 3 and 4, which cause 1 D) 2 causes 3, which causes 1 and 4 E) none of the above 38) Which of the following would NOT cause a shift in the supply of soybeans?

A) a drought B) a change in the price of corn C) a change in the demand for soybeans D) a change in the price of fertilizer E) none of the above

38)

39) Which of the following would NOT cause a change in the demand for corn?

A) a change in the price of soybeans B) a shift in the demand for beef C) a change in the price of corn D) a change in export orders E) a shift in the demand for corn tortillas

39)

40) A shift in demand, ceteris paribus, will NOT cause A) a change in supply B) a change in the equilibrium quantity demanded C) a movement along the supply curve D) the equilibrium price E) none of the above

40)

41) The following events are observed:

41)

1. The quantity demanded of pork increases.

2. The price of beef increases.

3. The price of pork increases.

4. The demand for pork shifts outward.

What is the proper sequence of these events?

A) 4 then 1 then 2 then 3

B) 3 and 4 then 1 and 2 C) 2 and 3 then 1 then 4 D) 3 then 2 then 1 then 4 E) none of the above

8

42) Four events are observed:

42)

1. The supply of wheat shifts outward.

2. The price of wheat falls.

3. The price of fertilizer falls.

4. The quantity of wheat traded increases.

What is the proper sequence of these events?

A) 2 and 4 cause 3 and 1

B) 2 causes 3, which causes 1, which causes 4 C) 3 causes 1, which causes 2 and 4 D) 1 causes 2 and 4, which cause 3 E) 3 causes 2 and 4, which cause 1 43) Last week the price of melons was $3/lb and 45 lbs. were traded. This week the price of melons

43)

was $2/lb and 65 lbs. were traded. What must have happened in the melon market?

A) Supply shifted outward.

B) Demand shifted outward.

C) Supply shifted inward.

D) Demand shifted inward.

E) can't tell based on the information given 44) At a disequilibrium price A) a surplus or shortage must exist B) there are pressures for both supply and demand to shift to a new equilibrium C) there are pressures for supply to shift to a new equilibrium D) there are pressures for demand to shift to a new equilibrium E) none of the above

44)

45) Which of the following is NOT a condition of perfect competition?

A) sellers are price takers B) no taxes or subsidies C) no product differentiation D) large number of buyers E) freedom of entry

45)

46) At a price below the equilibrium price A) a surplus would exist B) producers would earn pure economic profits C) the quantity demanded exceeds the quantity supplied D) automatic forces would try to push price down E) none of the above

46)

9

47) Which of the following would NOT shift the supply of corn?

A) an increase in the price of corn B) imposition of a tax on corn production C) a decrease in the price of fuel D) an increase in the price of fertilizer E) a change in producers' expectations

47)

48) Four events are observed:

48)

1. The price of beef increases.

2. The quantity traded of chicken increases.

3. The price of chicken increases.

4. The demand for chicken shifts.

Place these events in the proper order of causation.

A) 1 then 4 then 3 then 2

B) 4 then 1 then 2 and 3 C) 2 then 3 then 4 then 1 D) 4 then 2 and 3 then 1 E) none of the above 49) Elasticity is a concept that deals with A) market structure B) the "invisible hand" C) market equilibrium D) perfect competition E) price responsiveness

49)

50) Which of the following goods has the most elastic demand?

A) Texaco gasoline B) health care C) insulin D) milk E) cigarettes

50)

51) An observer of the market for olives notes that the price of olives has fallen and consumption has

51)

increased. What must have happened?

A) Demand shifted outward.

B) Supply shifted inward.

C) Supply shifted outward.

D) Demand shifted inward.

E) This cannot be.

10

52) At a price below the equilibrium price A) a shortage exists B) automatic forces press the price up C) quantity demanded exceeds quantity supplied D) there is not a stable equilibrium E) all of the above

52)

53) A produce manager at Winn-Dixie notes that last week he sold 400 cases at $0.39/head. This week

53)

he sold 350 cases at $0.49/head. What happened?

A) Demand shifted upward.

B) Supply shifted outward.

C) Supply shifted inward.

D) Demand shifted downward.

E) none of the above 54) Which of the following goods has the most elastic demand?

A) gasoline B) insulin C) food D) medical services E) new cars

54)

55) Which of the following would cause a movement along the supply curve of corn?

A) a change in the production technology of corn B) a change in the price of beef C) a change in the price of corn D) a change in the price of soybeans E) a change in the price of fertilizer

55)

56) Which of the following could NOT cause the price of ground beef to go up?

A) a supply shift B) a change in one of the ceteris paribus conditions of demand C) a change in one of the ceteris paribus conditions of supply D) a demand shift E) none of the above

56)

57) A shift in the demand for beef would be caused by a A) change in the price of corn B) change in the price of beef C) change in the quantity demanded of beef D) change in the price of chicken E) none of the above

57)

11

58) If the price of chicken goes up, ceteris paribus, what happens in the market for beef?

A) Demand shifts outward.

B) Supply shifts outward.

C) Supply shifts inward.

D) Demand shifts inward.

E) nothing

58)

59) In a competitive market, A) price determines the quantity demanded B) if demand shifts then supply will also shift C) supply is equal to demand in equilibrium D) price and the quantity demanded are correlated E) all of the above

59)

60) Movement along a demand curve for peanuts, ceteris paribus, would be caused by A) a shift in supply of peanuts B) increased exports C) a change in the price of peanuts D) a change in tastes and preferences E) none of the above

60)

61) At the moment, there is a shortage of rutabagas. This suggests that A) automatic pressures will drive the price down B) the supply will shift C) the market price is less than the equilibrium price D) the demand will shift E) none of the above

61)

62) A perfectly competitive market has A) a homogeneous product B) a large number of buyers C) freedom of entry and exit D) a large number of sellers E) all of the above.

62)

63) Which of the following would NOT cause a shift in the demand for pork?

A) a change in the price of beef B) advertising that pork is the "other white meat" C) a change in the price of chicken D) a change in consumers' incomes E) a change in the price of pork

63)

12

64) A change in which of the following would NOT cause a shift in the supply of beef?

A) the price of beef B) the price of cattle feed C) cattle production technology D) the tax on beef producers E) cattle producers' expectations

64)

65) The supply of corn will NOT change as a result of a change in the A) price of soybeans B) price of corn C) price of fertilizer D) price of labor E) none of the above

65)

66) An outward shift of a supply curve, ceteris paribus, will cause A) the equilibrium quantity demanded to fall B) the equilibrium price to rise C) the quantity supplied at a given price to fall D) a movement along the demand curve E) a change in demand

66)

67) If the price of chicken increases, ceteris paribus, then the A) demand for chicken goes down B) demand for beef goes up C) demand for beef goes down D) demand for chicken goes up E) none of the above

67)

68) At the equilibrium price in a market A) the quantity demanded is equal to the quantity supplied B) there is a surplus C) there is a shortage D) supply is equal to demand E) none of the above

68)

69) Last week Publix sold 60 cartons of lettuce at $0.49 per head. This week they sold 40 cartons at

69)

$0.79 a head. What changed?

A) an inward shift of the demand curve

B) an outward shift of the supply curve C) an outward shift of the demand curve D) an inward shift of the supply curve E) nothing

13

70) Each of the following is a supply shifter of corn EXCEPT A) the corn target price B) producers' expectations C) the price of corn D) the number of corn farmers E) the price of fertilizer

70)

71) In a perfectly competitive market in long-run equilibrium A) ceteris paribus B) pressure for the price to increase is inevitable C) supply equals demand D) externalities are certain to exist E) none of the above

71)

72) An increase in the price of beef, ceteris paribus, A) will cause a reduction in the demand for beef B) could be caused by a shift in either the demand or the supply of beef C) will cause a shift in the demand for beef D) will cause an increase in the demand for beef E) none of the above

72)

73) Which of the following is NOT a characteristic of perfectly competitive markets?

A) buyers are price takers B) many small sellers C) sellers are price takers D) government subsidies are paid to producers E) many small buyers

73)

74) Adam Smith described markets using this metaphor: A) car without a driver B) invisible hand C) magic machine D) revealed preference E) none of the above

74)

75) In week 1 the market price of lettuce was $0.79 and 120 boxes were sold. In week 2 the market

75)

price was $1.09 and 95 boxes were sold. What must have happened in the market for lettuce?

A) Demand remained the same and supply shifted outward.

B) Demand shifted outward and supply remained the same.

C) Demand remained the same and supply shifted inward.

D) Demand shifted inward and supply remained the same.

E) Neither supply nor demand shifted.

14

76) The market supply of pork would shift as a result of a change in A) consumers' incomes B) the price of corn C) the price of eggs D) the price of pork E) none of the above

76)

77) If in a given market the quantity demanded is 450 units at a price of $4 per unit and the quantity

77)

supplied is 400 units at a price of $4 per unit, then A) supply will shift to establish a new equilibrium

B) the price will fall to establish a new equilibrium C) inventories are falling D) the market is in a stable equilibrium E) none of the above 78) If the government imposed a price above the equilibrium price, what would happen?

A) Supply would shift inward.

B) A surplus would occur.

C) Supply would shift outward.

D) Demand would shift outward.

E) Demand would shift inward.

78)

79) An increase in the price of corn, ceteris paribus, would cause an A) inward shift of the supply curve of soybeans B) inward shift of the demand curve for corn C) outward shift of the supply curve of soybeans D) outward shift of the demand curve for corn E) none of the above

79)

80) A change in which of the following would most definitely NOT cause a change in the demand for

80)

yings?

A) the demand for yang

B) the supply of yings C) tastes and preferences for ying D) the supply of yang E) the price of yang 81) If the price of toothpaste goes up, ceteris paribus, the A) demand for toothbrushes will go up B) supply of toothpaste will go down C) demand for toothpaste will go down D) demand for toothpaste will go up E) none of the above

15

81)

82) Four events occur in the market for potatoes:

82)

1. The price of potatoes goes up.

2. The supply of potatoes shifts inward/upward.

3. A drought hits potato farmers.

4. The quantity traded of potatoes falls.

The proper sequence for these four events is A) 2 causes 3, which causes 4, which causes 1

B) 2 causes 1 and 4, which cause 3 C) 3 causes 2, which causes 1, which causes 4 D) 3 causes 1 and 4, which cause 2 E) 3 causes 2, which causes 1 and 4 83) Which of the following goods would have the most elastic demand?

A) insulin B) emergency medical treatment C) beef D) plywood before a hurricane E) food

83)

84) The following four changes are observed.

84)

1. The price of beef goes up.

2. The price of pork goes up.

3. The demand for beef shifts.

4. The quantity demanded of beef goes up.

What is the correct sequence of causation?

A) 3 causes 1 and 4, which cause 2

B) 1 causes 3 and 4, which cause 2 C) 4 causes 1, which causes 3, which causes 2 D) 2 causes 3, which causes 1 and 4 E) none of the above 85) On Tuesday the price of lettuce was $0.29 and a store sold 245 heads. On Wednesday the price was $0.45 and the store sold 260. What must have happened?

A) Demand shifted inward.

B) Demand shifted outward.

C) Supply shifted inward.

D) Supply shifted outward.

E) none of the above

16

85)

86) Which of the following is NOT a characteristic of perfect competition?

A) many buyers B) differentiated products C) unrestricted entry D) perfect knowledge E) many sellers

86)

87) Which of the following is NOT characteristic of a perfectly competitive market?

A) consumers get what they want B) large number of buyers C) automatic, self-correcting prices D) freedom to enter and exit the market E) equilibrium prices

87)

88) Which of the following is NOT a characteristic of perfect competition?

A) buyers are price takers B) unrestricted entry C) no product differentiation D) many buyers E) sellers are price makers

88)

89) Which of the following will NOT cause a shift in the demand for beef?

A) a change in the price of beef B) a report by UF researchers saying that beef enhances virility C) a change in the price of chicken D) a change in consumers' incomes E) all of the above

89)

90) The demand for hot dogs would NOT be shifted by a A) change in the price of hamburger B) change in consumers' income C) change in tastes and preferences D) change in the price of hot dogs E) change in the price of hot dog buns

90)

91) If the price of chicken goes up, ceteris paribus, what happens to the supply of chicken?

A) It shifts inward.

B) It goes down.

C) It goes up.

D) It shifts outward.

E) nothing

91)

17

92) Which of the following would cause a movement along the demand curve of beef?

A) a change in the price of corn B) a change in consumers' incomes C) a change in the price of pork D) a change in the price of beef E) none of the above

92)

93) An upward shift of the demand for chicken, ceteris paribus, would cause A) no change in the supply of chicken B) an increase in the price of chicken C) a decrease in the quantity of chicken consumed D) an outward shift of the demand for beef E) all of the above

93)

94) Supply is A) how much consumers buy in a given market B) how much consumers sell in a given market C) how much producers sell in a given market D) how much producers buy in a given market E) none of the above

94)

95) If a competitive market is in disequilibrium at the existing price, then A) the quantity demanded is not equal to the quantity supplied B) that price will change as if moved by an "invisible hand" C) supply is not equal to demand D) a return to equilibrium will occur automatically E) all of the above

95)

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

96) What, in general, causes a change in either supply or demand?

96)

97) If the quantity demanded is less than the quantity supplied at a specific price, what will

97)

98) Define: supply

98)

99) Define: quantity supplied

99)

100) Define: quantity demanded

100)

exist in this market and what kind of price pressures will automatically develop?

18

101) If the quantity demanded is more than the quantity supplied at a specific price, what will

101)

102) Define: demand

102)

103) What is the most important characteristic of a perfectly competitive market?

103)

104) What is elasticity a measure of?

104)

exist in this market and what kind of price pressures will automatically develop?

19

Answer Key Testname: CH 3

1) E 2) D 3) C 4) D 5) C 6) D 7) A 8) D 9) E 10) A 11) A 12) C 13) E 14) A 15) A 16) E 17) E 18) A 19) D 20) E 21) A 22) D 23) C 24) E 25) E 26) E 27) E 28) C 29) A 30) D 31) D 32) E 33) E 34) E 35) E 36) A 37) D 38) C 39) C 40) A 41) E 42) C 20

Answer Key Testname: CH 3

43) A 44) A 45) B 46) C 47) A 48) E 49) E 50) A 51) C 52) E 53) C 54) E 55) C 56) E 57) D 58) A 59) D 60) A 61) C 62) E 63) E 64) A 65) B 66) D 67) B 68) A 69) D 70) C 71) E 72) B 73) D 74) B 75) C 76) B 77) C 78) B 79) A 80) B 81) E 82) E 83) C 84) D 21

Answer Key Testname: CH 3

85) B 86) B 87) A 88) E 89) A 90) D 91) E 92) A 93) E 94) E 95) E 96) a change in one of the ceteris paribus conditions 97) There is a surplus in this market that will generate pressure for the price to fall.

98) the quantities of a good that producers are willing to produce at alternative prices, ceteris paribus 99) the quantity of a good that will be produced at a specific price for that good 100) the quantity of a good that will be consumed at a specific price for that good 101) There is a shortage in this market that will generate pressure for the price to rise.

102) the quantities of a good that consumers are willing to consume at alternative prices, ceteris paribus 103) a larger number of buyers and sellers, each of whom is so small relative to the market that their actions will not affect the market

104) price responsiveness

22

Chapter 4 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Which of the following is NOT a condition of perfect competition?

A) homogeneous product B) large number of small producers C) large number of small consumers D) perfect knowledge E) entry and exit are limited

1)

2) Which of the following is NOT a characteristic of a production function?

A) depends on price of the product B) technical C) ceteris paribus D) per unit of time E) short-run

2)

3) Production functions A) illustrate long-run relationships B) shift with a change in technology C) are used to derive the marginal variable input cost curve D) illustrate economic relationships E) all of the above

3)

4) Which of the following is NOT true about production functions?

A) defined ceteris paribus B) law of diminishing returns C) economic relationship D) variable proportions between fixed and variable factors E) they are short run

4)

5) At the initial phase (i.e., at the lowest output levels) of a production function, output A) increases at an increasing rate B) is constant C) decreases at an increasing rate D) increases at a decreasing rate E) decreases at a decreasing rate

5)

1

6) Output per unit of the fixed factor of production is called A) total fixed cost B) average fixed cost C) marginal cost D) total product E) average product

6)

7) Which item would be treated differently in the calculation of economic profits and accounting

7)

profits?

A) farmer's own labor

B) depreciation on barn C) property taxes D) taxes paid E) purchase of a tractor 8) "Opportunity cost" is A) what the resource could earn in the highest paying alternative use B) the potential profit from a new venture C) the amount of profit a firm is losing by not maximizing its profit D) what a resource is being paid in its current use E) none of the above

8)

9) A production function A) is valid in both the short run and the long run B) is an economic relationship C) illustrates variable input proportions D) can only be used in agricultural analyses E) none of the above

9)

10) In the rational range of production, the efficiency of the fixed factor is ________ while that of the

10)

variable factor is ________.

A) decreasing; increasing

B) decreasing; decreasing C) positive; negative D) increasing; increasing E) none of the above

2

11) Farmer Dusty has 200 acres of corn land he plans to plant in the spring. He is trying to decide how

11)

much fertilizer to apply during the growing season.

A) This is an example of short-run decision making.

B) His profit maximizing decision will be somewhere within the rational range of the production function.

C) Knowledge of the production function alone is not sufficient information for making the decision.

D) At the profit maximizing level of fertilizer use, both the average product and the marginal product of fertilizer will be declining.

E) all of the above

12) Which of the following is NOT an assumption of perfect competition?

A) ease of entry B) perfect knowledge C) large number of sellers D) differentiated product E) large number of buyers

12)

13) A farmer has cash costs of $1.50/bu for his corn. The opportunity cost of his labor is $0.30/bu and

13)

the opportunity cost of his land (which he owns) is $0.40/bu. If he sells his corn for $2.50/bu, then his economic profits are A) $0.30/bu

B) $2.50/bu C) $1.00/bu D) $0.70/bu E) can't tell based on the information given 14) In the rational range of a production function, as use of the variable input increases, A) average product increases at a decreasing rate B) total product increases at an increasing rate C) marginal product decreases but is positive D) total product decreases E) none of the above.

14)

15) The efficiency of the fixed factor of production is measured by the A) marginal product B) value of the average product C) value of the total product D) average product E) total product

15)

3

16) A production function describes the relationship between units of a variable input used in

16)

combination with a bundle of fixed factors and A) value of the total product

B) marginal cost C) marginal physical product D) total product E) none of the above 17) A difference between economic profits and accounting profits would arise in the case of A) production efficiency B) hired labor C) land rent paid D) taxes paid E) opportunity cost

17)

18) In computing economic profit, A) normal returns to capital and management are not considered B) unpaid resources are valued at their opportunity cost C) revenues equal average total cost D) subtract payments from revenues E) revenues equal price

18)

19) A production function is A) not a relationship B) shifts when prices change C) a short-run relationship D) assumes all factors of production are variable E) is an economic relationship

19)

20) When total physical product is maximized, A) marginal physical product is maximized B) average physical product is equal to marginal physical product C) rational range of production begins D) average physical product is maximized E) marginal physical product is zero

20)

21) A production function A) is a long-run relationship B) assumes that all factors of production are variable C) is an economic relationship D) illustrates maximum technical or physical efficiency of the fixed input at the maximum total

21)

product

E) none of the above

4

22) Which of the following would cause a shift in a production function?

A) a change in fixed costs B) a change in the price of a substitute good C) a change in the price of the product D) a change in the price of the variable input E) none of the above

22)

23) The "law of diminishing marginal product" says that eventually A) output increases at a decreasing rate B) input increases at a decreasing rate C) input increases at an increasing rate D) output increases at an increasing rate E) marginal costs must eventually fall

23)

24) The "law of diminishing marginal product" A) is only valid in the long run B) states that output eventually increases at a decreasing rate C) is what assures decreasing marginal costs D) states that average fixed cost always decreases E) none of the above

24)

25) Output per unit of the fixed input is called A) value of the total product B) total product C) marginal product D) average product E) value of the average product

25)

26) In perfect competition, A) buyers are price takers and sellers are price makers B) buyers and sellers are price makers C) buyers and sellers are price takers D) buyers are price makers and sellers are price takers E) none of the above

26)

27) "Short run" means A) one month or less B) six months or less C) five years or less D) one year or less E) none of the above

27)

5

28) Production functions A) are defined in the short run B) are technical relationships C) illustrate variable proportions D) all of the above E) none of the above

28)

29) Accounting profits and economic profits A) both use the concept of opportunity cost B) are usually the same C) differ with regards to expenditures versus values D) are the same only for firms in perfectly competitive markets E) none of the above

29)

30) Which of the following is NOT characteristic of perfect competition?

A) large number of potential sellers B) large number of potential buyers C) no limits on entry D) homogeneous product E) none of the above

30)

31) Within the rational range of production, A) is the only place where marginal cost equals marginal revenue B) economic profits are always positive C) price of the product is constant for all forms of industry structure D) marginal physical product is always positive E) the efficiency of the variable factor is increasing

31)

32) A short-run relationship emphasizing the variable proportions between fixed and variable factors

32)

is a(n)

A) diminishing marginal productivity B) marginal product curve C) marginal cost curve D) isoquant E) production function

6

Answer Key Testname: CH 4

1) E 2) A 3) B 4) C 5) A 6) D 7) A 8) A 9) C 10) E 11) E 12) D 13) A 14) C 15) E 16) D 17) E 18) B 19) C 20) E 21) D 22) E 23) A 24) B 25) B 26) C 27) E 28) D 29) C 30) E 31) D 32) E

7

Chapter 5 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The marginal revenue curve for the perfectly competitive firm A) is downward sloping like a demand curve B) is a straight, horizontal line C) always is higher than the average revenue curve D) has the familiar bowl or "U" shape E) none of the above

1)

2) If the efficiency of the fixed factor is increasing and the efficiency of the variable is decreasing as

2)

additional units of the variable factor are added to the fixed factor, then the A) firm should use less of the variable factor

B) firm is in the rational range of production C) firm should use less of the fixed factor D) firm should use more of the fixed factor E) firm should use more of the variable factor 3) The rational firm will produce at a loss at any product price A) less than the shut-down price B) in excess of the break-even price C) between the break-even and shut-down prices D) regardless of the level of fixed costs E) none of the above

3)

4) If you take a production function, look at its mirror image, flip it around, and renumber the axis,

4)

then you end up with a A) total variable cost curve

B) fixed cost curve C) total cost curve D) marginal revenue curve E) marginal cost curve 5) The "shut-down" point is at A) maximum output B) minimum marginal cost C) point of diminishing returns D) minimum average total cost E) none of the above

5)

1

6) In the short run, if the price of the product is less than the minimum average variable cost, then

6)

the firm produces ________ and earns ________.

A) at MR = MC; positive profits

B) at minimum AVC; negative profits C) at minimum AVC; positive profits D) at MR = MC; negative profits E) nothing; negative profits 7) At prices above the shut-down price, A) marginal cost = marginal revenue B) the firm will always earn economic profits C) the firm will produce D) the firm will always suffer economic losses E) the firm will shut down

7)

8) A change in the fixed costs of the firm will cause a A) change in average total costs at the profit maximizing output level B) change in the profit maximizing input level C) change in the profit maximizing output level D) change in the value of the marginal product E) none of the above

8)

9) If marginal revenue is above the minimum average total cost, then A) the firm cannot maximize profit B) average fixed cost is zero C) the firm will minimize its losses D) the firm is earning economic profits E) none of the above

9)

10) The total variable cost curve is a transformation of the A) production function B) marginal cost curve C) average fixed cost curve D) marginal revenue curve E) none of the above

10)

11) In order to maximize short-run profit, the perfectly competitive firm should adjust output to that

11)

point at which A) TVC = AVC

B) MR = MC C) AVC = ATC D) MC = AVC E) none of the above

2

12) The "average" in average variable cost and average revenue means A) per unit change of output B) per unit change of the variable input C) per unit of output D) per unit of the variable input E) per unit of the fixed input

12)

13) The rational range of production begins at that level of output at which A) average total costs = marginal costs B) total variable costs = average variable costs C) average variable costs are minimized D) average total costs are minimized E) marginal costs are minimized

13)

14) A profit maximizing firm is producing 40 units of stuff using 10 units of labor. The price of stuff is

14)

$3/unit and the price of labor is $10. What is the average variable cost?

A) $10

B) $5 C) $2.50 D) $3 E) can't be determined with the information provided 15) For a perfectly competitive, profit maximizing firm, an increase in the fixed costs, ceteris paribus,

15)

would cause the A) price of the product to increase

B) firm to increase production to cover the additional costs C) profits of the firm to fall D) firm to reduce its output level E) firm to use less of the variable input 16) In a perfectly competitive industry in which the typical firm has high fixed costs, we would expect to find A) different prices for different firms

B) a high degree of price variability over time C) most firms with economic losses D) that all firms earn economic profits E) none of the above

3

16)

17) A firm produces 30 units of stuff using 10 units of labor. The price of stuff is $45 and the price of

17)

labor is $23. The marginal fixed costs of the firm are A) $45

B) zero C) $1.50 D) $23 E) can't be determined using the information provided 18) The difference between economic profits and accounting profits is A) opportunity costs B) fixed costs C) zero D) that economic profits are always greater than accounting profits E) variable costs

18)

19) The typical, perfectly competitive, corn farmer has no control over each of the following in the

19)

short run EXCEPT A) quantity of fertilizer used

B) price of fertilizer C) the price of corn D) quantity of land used E) the technology used 20) At product prices between the shut-down point and the break-even point, the profit maximizing,

20)

perfectly competitive firm A) is able to cover fixed costs

B) will not produce C) adjusts output to the point where the price of the product is equal to the marginal revenue D) adjusts output so MR = AVC E) earns negative profits 21) At the point of maximum efficiency of the variable input A) the value of the marginal product is zero B) total product is maximized C) average product = marginal product D) is at the point of diminishing marginal returns E) the rational range of production ends

4

21)

22) Which of the following is a constant with respect to output for the perfectly competitive firm?

22)

1. marginal revenue 2. total fixed costs 3. average fixed costs 4. total revenue 5. average revenue A) 1, 2, and 5 only

B) 2, 4, and 5 only C) 1 and 5 only D) all five E) 1 only 23) If the market price of the product is less than the minimum average total cost, the rational,

23)

perfectly competitive firm (in the short run) should A) produce at a loss if possible in the rational range of production

B) increase the price of the product C) continue to produce so long as marginal cost is increasing D) cease production E) none of the above 24) In general, economic profits ________ accounting profits.

A) are less than B) are the same as C) are more than D) because they are calculated by a CPA, are more accurate than E) none of the above

24)

25) The profit maximizing/loss minimizing firm will cease production when the price of the product A) is less than the maximum average fixed cost B) is less than the break-even point C) is less than the minimum average total cost D) is less than minimum average variable cost E) none of the above

25)

26) From the perspective of the firm, the average revenue curve is A) always downward sloping B) always horizontal C) always equal to marginal revenue D) demand E) supply

26)

5

27) A consequence of relatively high fixed costs is A) high profits B) that the output level for which average variable cost is minimized is different than the

27)

output level at which average total cost is minimized

C) marginal costs = marginal revenue D) price variability E) none of the above 28) One is a mirror image of the other.

A) production function and TVC B) MC and MR C) production function and MC D) AFC and AVC E) MC and ATC

28)

29) A change in fixed costs will cause A) the price of the product to change B) the efficiency of the variable input to change C) the profit maximizing level of output to change D) profit to change E) the price of the variable input to change

29)

30) A perfectly competitive firm will continue to produce at a loss (negative profits) so long as A) price of the product is greater than minimum average total cost B) total revenues exceed total variable costs C) average revenue is greater than average total cost D) total revenue is greater than total costs E) none of the above

30)

31) The firm will engage in loss minimizing behavior if the A) market price is less than the minimum average variable cost B) market price is less than the shut-down point C) market price is greater than the shut-down price and less than the break-even price D) market price is greater than the break-even price E) none of the above

31)

32) The calculation of economic profit and accounting profit would not differ for A) use of owned land B) the use of fully depreciated machinery C) the purchase of fertilizer D) use of family labor E) none of the above

32)

6

33) A firm produces 20 units of stuff using 5 units of labor. The value of the total product is $60 and

33)

the total variable input cost is $20. What is the marginal revenue of the firm?

A) $4

B) $3 C) $60 D) $20 E) can't be determined from the information provided 34) In the trilogy of average, total, and marginal, "total" always means A) per dollar of revenue B) per unit of output C) per unit of the fixed input D) per unit of the variable input

34)

35) The demand curve facing the perfectly competitive firm A) is perfectly inelastic B) is equal to the average variable costs of the firm in the rational range of production C) depends on the cost structure of the firm D) is equal to the average revenue curve of the firm E) none of the above

35)

36) If fixed costs increase, ceteris paribus, then for the profit maximizing firm A) output remains constant B) profits increase C) less of the variable input should be used D) more of the variable input should be used E) none of the above

36)

37) The rational range of production begins at the A) maximum average variable cost B) minimum average total cost C) minimum marginal cost D) break-even point E) shut-down point

37)

38) The loss minimizing firm will adjust production to that point at which A) marginal costs equal marginal revenue B) average variable costs are minimized C) average variable costs are equal to marginal cost D) marginal costs are equal to average total costs E) total revenue is maximized

38)

7

39) By definition, marginal fixed costs A) increase as input increases B) decrease as input increases C) increase as output increases D) decrease as output increases E) none of the above

39)

40) For a firm in perfect competition, at the minimum of the average total cost curve A) MC = ATC B) profits are maximized C) losses are minimized D) is called the shut-down point E) MR = MC

40)

41) By making a few transformations the ________ curve can be transformed into the ________ curve.

A) marginal cost; total product B) total product; total variable cost C) marginal product; total cost D) average variable cost; total variable cost E) total variable cost; average variable cost

41)

42) Profit is maximized when A) total cost = total revenue B) marginal revenue = average total cost C) marginal revenue is maximized D) marginal cost = average total cost E) none of the above

42)

43) Which of the following is constant with respect to output?

A) average fixed cost B) total cost C) marginal cost D) total revenue E) none of the above

43)

44) The firm will cease production when A) marginal revenue is less than average total cost B) it can't cover variable costs C) marginal revenue = marginal cost D) profits are negative E) none of the above

44)

8

45) ________ is a transformation of the ________.

A) Average fixed cost; marginal cost B) Total fixed cost; marginal revenue C) Average variable cost; average fixed cost D) Total variable cost; production function E) Production function; total fixed cost

45)

46) All costs of production per unit of output is A) total cost B) average total cost C) average variable cost D) total variable cost E) none of the above

46)

47) A firm facing a loss minimization situation will A) minimize average total costs B) adjust output such that marginal cost = marginal revenue C) minimize average variable costs D) increase its price E) none of the above

47)

48) Which of the following is a mirror image of the total product?

A) average physical product B) marginal product C) marginal cost D) total variable input cost E) total variable cost

48)

49) Which of the following is NOT characteristic of a perfectly competitive firm?

A) The firm is a price taker.

B) Average total cost is U or bowl shaped.

C) Average revenue decreases as output increases.

D) MR = MC for profit maximization.

E) The point of diminishing marginal product is outside the rational range of production.

49)

50) The word "average" as in average revenue or average total cost means A) for the last unit produced B) for the middle unit produced (i.e., if 20 units are produced, what is the value of the tenth

50)

unit?)

C) per unit of output

D) per unit of variable input E) for the typical firm

9

51) A perfectly competitive firm will produce even though economic profits are negative so long as

51)

the price of the product A) is less than the shut-down point

B) is less than the marginal revenue C) is more than marginal revenue D) is above the break-even point E) none of the above 52) In a short-run, perfectly competitive equilibrium situation, which of the following is NOT equal

52)

to all of the others?

A) average total cost

B) marginal cost C) average variable cost D) marginal revenue E) average revenue 53) At the break-even point A) the economic profits of the firm are zero B) marginal revenue exceeds marginal cost C) marginal cost is equal to average variable cost D) the rational range of production begins E) none of the above

53)

54) At product prices less than the minimum average total costs, the perfectly competitive firm will A) earn positive economic profits B) have to raise prices C) produce nothing D) produce if the price is greater than the minimum average variable cost E) none of the above

54)

55) The total variable cost curve A) is a straight line B) is a mirror image of the production function C) is not clearly defined in Stage III D) is equal to the total revenue curve at profit maximization E) none of the above

55)

56) If the price of the product increases, ceteris paribus, the profit maximizing firm will use ________ of

56)

the variable input and produce ________ of output.

A) more; less

B) less; less C) more; more D) the same amount; the same amount E) none of the above 10

Answer Key Testname: CH 5

1) B 2) B 3) C 4) A 5) E 6) E 7) C 8) A 9) D 10) A 11) B 12) C 13) E 14) C 15) C 16) B 17) B 18) A 19) A 20) E 21) C 22) A 23) A 24) A 25) D 26) D 27) D 28) A 29) D 30) B 31) C 32) C 33) B 34) C 35) D 36) A 37) E 38) A 39) E 40) A 41) B 42) E 11

Answer Key Testname: CH 5

43) E 44) B 45) D 46) B 47) B 48) E 49) C 50) C 51) E 52) C 53) A 54) D 55) B 56) C

12

Chapter 6 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The supply curve of the firm in perfect competition is A) perfectly horizontal B) everywhere continuous C) equal to the marginal cost curve in the rational range of production and zero at lower

1)

output levels.

D) the value marginal product curve of the firm

E) none of the above 2) In long-run equilibrium in perfect competition, each of the following is equal to one another

2)

EXCEPT A) minimum average fixed cost

B) minimum short-run average total cost C) price D) marginal revenue E) marginal cost 3) In a perfectly competitive market, if firms are earning economic profits then A) additional firms will enter the industry, driving the price of the product down B) the government will tax the profits away C) costs of production will increase until profits are equal to zero D) additional firms will enter the industry driving the costs of production up E) none of the above

3)

4) The Florida citrus industry has very high fixed costs relative to variable costs. Therefore, we

4)

expect to see A) low profits

B) lots of bankruptcies among grove owners C) high profits D) high price variability E) chronically low prices 5) The supply curve of the firm is ________ in ________.

A) equal to the shut-down quantity; output levels less than the rational range of production B) increasing; beyond the rational range of production C) decreasing; the rational range of production D) total physical product; the rational range of production E) marginal cost; the rational range of production

1

5)

6) The supply curve of a firm is equal to A) the demand curve of the firm B) the production function C) the average variable cost curve of the firm D) average total cost curve of the firm E) none of the above

6)

7) A change in which of the following would NOT cause a supply shift?

A) price of the product B) a change in technology C) number of firms in the industry D) price of an alternative product that uses the same inputs E) factor prices

7)

8) A change in ________, ceteris paribus, would not cause a shift of the market supply of corn.

A) the price of fertilizer B) the price of farm labor C) technology D) the price of corn E) number of firms in the industry

8)

9) The supply curve of a firm is equal to the A) marginal cost curve above the break-even point B) average total cost curve above the break-even point C) average total cost curve above the shut-down point D) average fixed cost curve E) marginal cost curve above the shut-down point

9)

10) The short-run supply curve of the firm is equal to the A) marginal revenue curve in the rational range of production B) total variable cost curve beyond the inflection point C) average variable cost curve beyond the break-even point D) average total cost curve beyond the break-even point E) none of the above

10)

11) Which of the following is NOT a supply shifter for tomatoes grown in south Florida?

A) the price of tomatoes B) the price of labor C) the price of fertilizer D) productivity of labor E) the price of bell peppers

11)

2

12) The ________, the ________ necessary for short-run market adjustment.

A) higher the marginal revenue; larger the marginal cost B) lower the fixed costs; greater the price change C) lower the average variable costs; smaller the marginal cost D) higher the fixed costs; greater the price change E) none of the above

12)

13) Those firms with relatively high ________ have relatively high ________.

A) variable costs; profits B) fixed costs; price variability C) fixed costs; losses D) costs; profits E) none of the above

13)

14) A change in which of the following would NOT cause a shift in the supply of corn?

A) seed corn germination rates B) the price of corn C) the price of fertilizer D) the price of soybeans E) the number of corn farmers

14)

15) A change in the ________ would NOT cause a shift in the supply of yellow squash.

A) price of labor B) price of fertilizer C) price of yellow squash D) number of squash producers E) price of bell peppers

15)

16) A profit maximizing/loss minimizing perfectly competitive firm A) will produce so long as all variable costs are covered B) will always adjust output to that point where MC = MR C) will cease production when the price of the product is less than the minimum average total

16)

cost D) will price its product at the break-even point

E) none of the above 17) The short-run supply curve of a firm A) is the same thing as the value marginal product B) is equal to the firm's average total cost curve C) is equal to the marginal cost curve of the firm D) shows quantity supplied of zero in at prices below the minimum average variable cost E) none of the above

3

17)

18) An industry in which firms have a relatively high proportion of total costs in fixed costs A) will never reach a long-run equilibrium B) will be an oligopoly C) will be subject to wide price fluctuations D) cannot be perfectly competitive E) none of the above

18)

19) For any firm, the demand facing the firm is A) the marginal revenue curve B) the marginal cost curve C) the average revenue curve D) perfectly inelastic E) none of the above

19)

20) In the short-run, no industry adjustment will occur when A) marginal costs are increasing B) the price of the product is less than the shut-down price C) marginal revenue = marginal cost D) marginal revenue is above the break-even price E) none of the above

20)

21) In a perfectly competitive, long-run equilibrium, the price of the product is equal to the A) minimum average variable cost B) shut-down price C) minimum average total cost D) minimum marginal cost E) none of the above

21)

22) In the short run, the supply curve of the firm is equal to a portion of the firm's A) TVC curve B) MR curve C) AFC curve D) production function E) MC curve

22)

23) In a perfectly competitive market, if the price of the product is greater than the break-even price,

23)

we would expect to see A) a demand shift

B) firms entering the industry C) firms decreasing the price of the product D) firms increasing the price of the product E) firms leaving the industry

4

24) Compared to industries with low average fixed costs, those industries with high average fixed

24)

costs have A) marginal costs that are much higher

B) greater profits C) greater product price variability D) more inelastic demand structures E) none of the above 25) In the widget industry, a high proportion of total costs is fixed costs. In the gadget industry, fixed

25)

costs are a small proportion of total costs. Therefore, A) the average total costs of widgets is greater than for gadgets

B) the price of widgets is greater than the price of gadgets C) a firm producing widgets is a natural monopoly D) a higher degree of price variability is expected in the market for gadgets than for widgets E) none of the above 26) The supply curve of the firm is its A) marginal cost curve above the minimum average variable cost B) average variable cost curve past the minimum point C) average total cost curve past the minimum point D) average revenue curve E) none of the above

26)

27) An industry that experiences wide price swings that are not accompanied by firms entering or

27)

leaving the industry is an industry in which the typical firm A) has high fixed costs

B) has pure economic profits of zero C) has high profits D) is operating below the shut-down point E) none of the above 28) In a perfectly competitive industry in which the typical firm has high fixed costs relative to variable costs, A) the typical firm earns economic profits

B) a high degree of price variability is expected C) firms would readily enter and exit as price changes D) the typical firm produces at the shut-down point E) average total costs of the typical firm are decreasing

5

28)

29) In a perfectly competitive market that is in long-run equilibrium, which of the following is NOT

29)

true?

A) MC = MR B) short-run AVC = short-run ATC C) long-run ATC = short-run ATC D) MR = AR E) price = minimum short-run ATC 30) Higher price variability is expected in those industries with higher A) variable costs B) fixed costs C) technologies D) marginal costs E) government regulations

6

30)

Answer Key Testname: CH 6

1) C 2) A 3) A 4) D 5) E 6) E 7) A 8) D 9) E 10) E 11) A 12) D 13) B 14) B 15) C 16) A 17) D 18) C 19) C 20) E 21) C 22) E 23) B 24) C 25) E 26) A 27) A 28) B 29) B 30) B

7

Chapter 7 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) In an oligopoly market structure, firms are A) interdependent B) profitable C) forced to operate at an output level at which MC = MR D) forced to operate at the break-even point E) none of the above

1)

2) What drives and distinguishes monopolistic competition is A) product differentiation B) uniform prices C) price retaliation D) market expansion E) none of the above

2)

3) In the long-run, the firm is a price maker in

3)

1. perfect competition 2. monopoly 3. monopolistic competition 4. oligopoly A) 2 only

B) 2, 3, and 4 C) 3 and 4 D) 4 only E) all four 4) The market structure in which the typical firm is reactive is A) monopsony B) perfect competition C) monopoly D) oligopoly E) monopolistic competition

4)

5) The product of a monopoly firm must A) have no close substitutes B) have a highly elastic supply C) be homogeneous D) have an upward sloping average variable cost E) have a perfectly inelastic demand

5)

1

6) Unlike a perfectly competitive firm, the monopolistic firm A) will continue to produce even if economic profits are negative so long as variable costs are

6)

covered

B) maximizes profit when marginal cost is equal to marginal revenue C) can earn economic profits in the long run D) has a cost structure in which the rational range of production is always profitable E) none of the above 7) In order for a monopoly to continue to be a monopoly A) there must be no close substitutes B) marginal revenue must equal marginal costs C) the marginal revenue curve must be downward sloping D) average total costs must be decreasing E) none of the above

7)

8) Which of the following statements is true for perfectly competitive firms but NOT true of

8)

monopolistically competitive firms?

A) Marginal cost equals average total cost at minimum average total cost.

B) Average revenue equals marginal revenue.

C) Marginal cost equals average variable cost at minimum average variable cost.

D) Average revenue is the firm's demand curve.

E) Average revenue equals the price of the product.

9) In an oligopolistic market, the firms are ________ and pricing tends to be ________.

A) interdependent; reactive B) large; controlled by the largest firm C) many; competitive D) small; competitive E) none of the above

9)

10) In long-run equilibrium, A) the perfectly competitive firm earns economic profits B) the perfectly competitive firm is not producing at the lowest possible cost C) the monopolistic competition firm is not producing at the lowest possible cost D) perfect competition and monopolistic competition are alike E) all of the above

10)

11) The monopolistic competition market structure differs from the perfectly competitive market

11)

structure most strongly with regards to which assumption?

A) many firms

B) perfect knowledge C) homogeneous product D) no limits to entry/exit E) mobile resources 2

12) For which of these goods is the oligopoly model most appropriate?

A) retail gasoline B) beer C) shampoo D) orange juice E) breakfast cereal

12)

13) In long-run equilibrium, the profit maximizing firm will produce at the minimum average total

13)

cost if the firm is in a market structure of A) monopolist competition

B) perfect competition C) oligopoly D) monopoly E) all of the above 14) Natural monopolies occur in industries with A) high profits B) high variable costs C) high fixed costs D) low profits E) none of the above

14)

15) A natural monopoly A) is best protected and regulated by the state B) exists for most utilities such as electric, phone, etc.

C) exists when the ATC of the monopolist decreases as output increases D) is not necessarily a "bad" monopoly E) all of the above

15)

16) Oligopolies A) are more profitable than monopolies B) face perfectly elastic demand curves C) have perfectly elastic supply curves D) are interdependent E) maximize profit by adjusting output to that point at which MR = price of the product

16)

17) The monopolistic firm maximizes its profit by A) charging the highest price possible B) adjusting output to that point at which the marginal product is equal to marginal cost C) setting the price equal to the marginal revenue D) minimizing its average total costs E) none of the above

17)

3

18) The automobile industry (Ford, GM, etc.) is an example of A) entopoly B) oligopoly C) monopoly D) perfect competition E) monopolistic competition

18)

19) The distinguishing difference between a perfectly competitive firm and a monopoly firm is A) average revenue B) cost structure C) profit maximizing behavior D) marginal cost E) fixed cost

19)

20) For a monopoly firm, the profit maximizing output is at that level where ________ and the price of

20)

the product is determined from ________.

A) MC = MR; AR

B) AR = MR; AR C) AR = MR; MR D) MC = MR; MR E) none of the above 21) A perfectly competitive firm and a monopoly firm differ with respect to A) revenue structure B) cost structure C) criteria for determining optimal output level D) objective of the firm E) none of the above

21)

22) The distinguishing characteristic of monopolistic competition is A) high fixed costs B) producers are price takers C) difficulty of entry D) interdependence of firms in the industry E) product differentiation

22)

23) The long-run equilibrium for a profit maximizing firm in ________ occurs at the minimum

23)

average total cost.

A) monopolistic competition

B) oligopoly C) perfect competition D) monopoly E) none of the above

4

24) In long-run equilibrium for a monopolistically competitive firm, A) economic profits of the firm are zero B) MR = MC and AR = AVC C) the price is the same that would prevail if the industry were perfectly competitive D) the marginal revenue curve is upward sloping E) none of the above

24)

25) The main difference between the cost structure of the monopoly firm and that of a perfectly

25)

competitive firm is A) the break-even point

B) the shut-down point C) the beginning of the rational range of production D) marginal cost is downward sloping E) none of the above 26) Product differentiation is particularly important in A) perfect competition B) duopoly C) monopoly D) monopolistic competition E) oligopoly

26)

27) The important difference between the cost structure of a perfectly competitive firm and an

27)

oligopoly firm is that for the oligopoly firm A) marginal costs are constant

B) average variable costs and average total costs are the same C) average total costs decrease as output increases D) average fixed costs don't decrease E) none of the above 28) A phrase that distinguishes oligopoly firms from others is A) no close substitutes B) new and improved C) entry blocked D) product differentiation E) reactive

28)

29) The defining characteristic of a monopoly is A) profit maximization does not require MC = MR B) entry is blocked C) a perfectly horizontal demand curve D) they are always profitable E) none of the above

29)

5

30) The primary difference between a perfectly competitive firm and a monopoly firm is A) the cost structure B) profit maximizing behavior C) the demand structure D) the firm's objective E) none of the above

30)

31) Fast food restaurants are a good example of which market structure?

A) monopoly B) oligopoly C) perfect competition D) monopolistic competition E) natural monopoly

31)

32) In monopolistic competition, the firm attempts to acquire a quasi-monopoly position in the

32)

market by A) product differentiation

B) pricing the product below cost C) cutting prices to a level below the prices of competitors D) maintaining market share E) none of the above 33) No close substitutes and entry to the market is blocked are two characteristics of A) monopsony B) monopolistic competition C) oligopoly D) perfect competition E) monopoly

33)

34) Which of the following is dissimilar for the perfectly competitive firm and the monopoly firm?

A) marginal cost B) marginal revenue C) objective of the firm D) average total cost E) fixed cost

34)

35) A firm in a monopolistically competitive industry finds that the additional cost of producing one

35)

additional unit of output is $4 and the additional revenue that could be earned from that additional output is $5. This firm should A) advertise more

B) produce less C) reduce prices D) produce more E) increase costs 6

36) Retail gasoline firms are an example of A) monopolistic competition B) perfect competition C) duopoly D) monopoly E) oligopoly

36)

37) A "natural monopoly" A) is based on a secret process or patent B) will always earn economic profit C) faces a perfectly horizontal demand curve for its product D) experiences decreasing average total costs in the relevant range of production E) none of the above

37)

38) In order to maximize profits, the firm should adjust its output level to that point at which

38)

marginal cost equals average revenue. This statement is true for 1. perfect competition 2. monopoly 3. monopolistic competition 4. oligopoly A) 2, 3, and 4

B) 2 and 3 C) 1 only D) 1 and 3 E) none of them 39) Natural monopolies are usually A) regulated B) firms with increasing costs C) profitable D) unable to cover fixed costs E) facing a very elastic demand for their product

39)

40) In order to maximize profits, the firm in monopolistic competition will adjust output to the point

40)

at which A) marginal revenue equals average revenue

B) variable costs are minimized C) revenue is maximized D) fixed costs are minimized E) none of the above

7

41) Cost structures are the same for

41)

1. perfect competition 2. monopoly 3. monopolistic competition 4. oligopoly A) 1 and 2

B) 1 and 3 C) 1, 3, and 4 D) 3 and 4 E) 1, 2, 3, and 4 42) What characteristic is indicative of oligopolies?

A) few firms B) fairly homogenous product C) low profits D) interdependence of firms E) none of the above

42)

43) Oligopolistic firms are characterized by A) a unique cost structure B) elastic demand C) interdependence D) price discrimination E) product differentiation

43)

44) A profit-maximizing monopolistic firm will adjust its output to the point where A) average revenue = marginal revenue B) marginal revenue = marginal costs C) marginal costs = average revenue D) average revenue = average cost E) average total costs are minimized

44)

45) The distinguishing characteristic of an oligopolistic market is A) interdependence of firms B) many firms C) product differentiation D) few buyers E) profit maximization criteria is not the same as for other market structures

45)

8

Answer Key Testname: CH 7

1) A 2) A 3) A 4) D 5) A 6) C 7) A 8) B 9) A 10) C 11) C 12) A 13) B 14) C 15) E 16) D 17) E 18) B 19) A 20) A 21) A 22) E 23) C 24) A 25) E 26) D 27) E 28) E 29) B 30) C 31) D 32) A 33) E 34) B 35) D 36) E 37) D 38) C 39) A 40) E 41) E 42) D 9

Answer Key Testname: CH 7

43) C 44) B 45) A

10

Chapter 8 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Beef and pork are substitute goods in consumption. Therefore, an increase in the price of pork,

1)

ceteris paribus, would cause a A) demand shift for pork

B) supply shift for beef C) demand shift for beef D) supply shift for pork E) none of the above 2) A budget constraint line intersects the axes for milk and honey at 10 and 15 respectively. As a

2)

result of a change, the new budget constraint line intersects the two axes at 12 and 18 respectively.

What change occurred?

A) an increase in the price of honey

B) a decrease in the price of honey C) an increase in the price of milk D) a decrease in the price of milk E) none of the above 3) Which of the following is NOT a demand curve shifter for Coke?

A) tastes and preferences B) the price of Coke C) the price of Pepsi D) exports E) consumers' incomes

3)

4) As the price of gasoline falls, ceteris paribus, I am able to buy more of it. This is an example of A) marginal substitution B) diminishing marginal productivity C) marginal physical product D) the real income effect E) deflationary expectations

4)

5) If the price of chicken goes up, ceteris paribus, more beef is consumed and hence less chicken is

5)

consumed. This is an illustration of A) the law of supply

B) the real income effect C) comparative advantage D) the substitution effect E) none of the above

1

6) Assume two goods beer and nuts. If the price of beer increases, ceteris paribus, the consumption

6)

of nuts will A) decrease if the substitution effect is stronger than the real income effect

B) increase if the substitution effect is stronger than the real income effect C) decrease D) increase E) none of the above 7) The flatter the indifference curves, ceteris paribus, the greater the ________ of the goods.

A) substitutibility B) marginal utility C) total utility D) total cost E) utility

7)

8) Utility is a measure of consumers' A) tastes and preferences B) elasticity C) greed D) satisfaction E) all of the above

8)

9) At every point on an indifference curve, A) total utility is the same B) marginal utility is the same C) revenue is the same D) costs of consumption are the same E) average costs are the same

9)

10) A consumer consumes two goods Coke and crackers. If the price of Coke goes up, ceteris paribus,

10)

she will consume A) more Coke and crackers is indeterminate

B) less Coke and less crackers C) less Coke and more crackers D) more Coke and more crackers E) none of the above 11) The change in the quantity of one good that is necessary to offset a unit change of another good with total utility remaining constant is A) diminishing marginal utility

B) an indifference curve C) an indifference map D) the marginal rate of substitution E) a budget line 2

11)

12) The demand for fertilizer would not be shifted by a change in A) the price of fertilizer B) technology C) the productivity of fertilizer D) the price of corn E) the price of seed corn

12)

13) A consumer consumes two goods: Pepsi and tacos. After the price of Pepsi increases, ceteris

13)

paribus, the consumer consumes less of BOTH products. Therefore, for this consumer the ________ effect is greater than the ________ effect.

A) complementary; income

B) income; substitution C) substitution; income D) income; complementary E) substitution; complementary 14) An equi-utility curve is a(n) A) indifference curve B) production function C) budget line D) isoquant E) none of the above

14)

15) As additional units of a good are consumed, ceteris paribus, the additional utility gained declines.

15)

This is an illustration of A) utility maximization

B) diminishing marginal rates of substitution C) diminishing marginal utility D) total utility E) none of the above 16) As the price of a good falls, the consumer is able to buy more it from a given income. This is known as the A) Samuelson effect

B) law of demand C) Keynesian principle of consumption D) diminishing marginal product E) real income effect

3

16)

17) An indifference curve is A) based on the prices of the products B) straight C) equal to the budget line D) an iso-utility curve E) none of the above

17)

18) A change in which of the following would NOT cause a shift in the demand for lettuce?

A) a change in consumers' tastes and preferences B) a change in the price of tomatoes C) a change in consumers' incomes D) a change in lettuce exports E) a change in the price of lettuce

18)

19) A change in each of the following would cause a shift in the demand curve for Pepsi EXCEPT A) the price of Pepsi B) demographics C) the price of Coke D) export demand E) consumers' incomes

19)

20) Which of the following is NOT a demand curve shifter for hamburger?

A) income B) the price of chicken C) health concerns D) the price of hamburger E) the price of hamburger buns

20)

21) For every point on an indifference curve, the amount of ________ is the same.

A) revenue B) marginal utility C) total cost D) utility E) marginal cost

21)

4

22) Assume a consumer consumes two goods wings and pizza and that the consumer has normal

22)

or typical tastes and preferences, then an increase in the price of pizza, ceteris paribus, would cause A) the consumption of pizza to go down and the consumption of wings to go up

B) the consumption of pizza to go down and the consumption of wings to go up if the real income effect is greater than the substitution effect

C) the consumption of pizza to go down if the real income effect is greater than the substitution effect and the consumption of wings to go up

D) the consumption of pizza to go down if the substitution effect is greater than the real income effect and the consumption of wings to go up E) the consumption of pizza to go down and the consumption of wings to go up if the substitution effect is greater than the real income effect

23) When the price of chicken goes up, the quantity consumed of beef goes down. This is an example

23)

of

A) the substitution effect B) diminishing marginal utility C) the real income effect D) diminishing marginal rate of substitution E) none of the above 24) The indifference curves for ying and yang are drawn on a set of axes with ying on the vertical axis

24)

and yang on the horizontal. A parallel outward shift of the budget line would be caused by A) a decrease in the price of yang

B) a decrease in the price of ying C) an increase in the price of yang D) an increase in the price of ying E) none of the above 25) At every point on an isoquant, A) the revenues of the firm are the same B) the variable costs of the firm are the same C) the total costs of the firm are the same D) the amount of each variable used is the same E) the value of the marginal product of each input is the same.

25)

26) A consumer consumes two goods: hamburgers and fries. As a result of a decrease in the price of

26)

hamburgers, ceteris paribus, the quantity consumed of hamburgers rises and the quantity consumed of fries rises. Therefore, A) fries are an inferior good

B) the real income effect is stronger than the substitution effect C) the demand for fries is inelastic D) the demand for hamburgers is elastic E) the substitution effect is stronger than the real income effect

5

27) A change in ________, ceteris paribus, would not shift the demand for tires.

A) the price of tires B) tastes and preferences C) the price of gasoline D) consumers' incomes E) the price of airline tickets

27)

28) As additional slices of pizza are consumed, the additional satisfaction gained from each slice is

28)

less than that of the previous slice, ceteris paribus. This is an example of A) diminishing marginal utility

B) total utility C) diminishing marginal rates of substitution D) diminishing marginal productivity E) value of the marginal product 29) Which of the following is NOT a demand shifter?

A) supply B) price of complements C) price of substitutes D) income E) tastes and preferences

29)

30) Which of the following would NOT cause a shift in the demand for orange juice?

A) a surge in exports B) an announcement that orange juice prevents heart attacks C) an increase in consumers' incomes D) a severe freeze in Florida E) a change in the price of grapefruit juice

30)

31) Joan consumes two goods food and clothes. As the price of food goes up, ceteris paribus, the

31)

quantity consumed of clothes goes up. Therefore, A) the demand for clothes is inelastic

B) the income elasticity of demand for food is greater than 1.0 C) food is an inferior good D) the substitution effect is stronger than the income effect 32) Pepsi and pizza are the only two items in a consumer's budget. As a result of a decrease in the price of pizza, ceteris paribus, the consumption of Pepsi increases. Therefore, A) the substitution effect is weaker than the real income effect

B) the substitution effect is stronger than the real income effect C) pizza is an inferior good D) Pepsi is an inferior good E) none of the above

6

32)

33) As Sam ate potato chips, the additional amount of pleasure he received from each successive chip, ceteris paribus, decreased. This is an example of A) constrained optimization

B) the substitution effect C) total marginal utility D) diminishing marginal utility E) diminishing marginal rate of substitution

7

33)

Answer Key Testname: CH 8

1) C 2) E 3) B 4) D 5) D 6) B 7) A 8) D 9) A 10) E 11) D 12) A 13) B 14) A 15) C 16) E 17) D 18) E 19) A 20) D 21) D 22) E 23) C 24) E 25) A 26) B 27) A 28) A 29) A 30) D 31) D 32) A 33) D

8

Chapter 9 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The most important single factor that influences the elasticity of supply for a commodity is A) the elasticity of demand B) whether it is a necessity C) degree of substitutability D) advertising E) length of run

1)

2) For which of the following goods is demand most inelastic?

A) health care B) cruise ship tickets C) beef D) rock concert tickets E) new cars

2)

3) Given the following information concerning elasticities for bubble gum,

3)

elasticity of demand = -0.2 elasticity of supply = +1.3 income elasticity = +0.2 cross-price elasticity with chewing gum = -1.4, then bubble gun demand is ________ and it is a ________ good.

A) elastic; normal

B) inelastic; inferior C) inelastic; normal D) unitary elastic; inferior E) elastic; inferior 4) Turkey is an example of a good for which A) demand elasticities change at different times of the year B) supply is very inelastic in the long run C) demand is very inelastic in the long run D) all cross-price elasticities are positive E) none of the above

1

4)

5) The size of a movement ALONG a demand curve caused by a shift in supply would be measured

5)

by the A) elasticity of supply

B) cross-price elasticity of demand C) cross-price elasticity of supply D) elasticity of demand E) none of the above 6) Which of the following is most likely to be the demand elasticity coefficient for gasoline?

A) -0.5 B) 0 C) -1.5 D) +0.5 E) +1.5

6)

7) The demand for widgets is inelastic. Therefore, A) the supply of widgets is inelastic B) widget makers do not operate in a perfectly competitive market C) as the price of widgets increases, total receipts of widget makers decreases D) the supply of widgets is elastic E) as the price of widgets increases, total receipts of widget makers increases

7)

8) Cross-price elasticity coefficients are ________ for ________ goods and ________ for ________

8)

goods.

A) positive; normal; negative; complementary

B) negative; normal; positive; inferior C) positive; inferior; negative; substitute D) positive; normal; negative; inferior E) none of the above 9) Which of the following values is most likely to be the elasticity of demand coefficient for insulin?

A) -0.50 B) -0.05 C) -400.00 D) -1.00 E) -100.00

9)

10) An economist at Tyson's Foods is studying the effect of changes in the price of chicken on chicken

10)

and beef consumption. What this economist needs are estimates of the A) cross-price elasticity of demand for beef with respect to the price of chicken and the demand for chicken B) elasticity of demand for beef and the cross-price elasticity of demand for chicken with respect to the price of beef C) elasticity of supply for chicken and the elasticity of supply for beef

D) elasticity of demand for beef and the elasticity of demand for chicken E) cross-price elasticity of demand for beef with respect to the price of chicken and the elasticity of supply of chicken

11) Which of the following is most likely the cross-price elasticity of demand for beef with respect to the price of underwear?

A) +1.2 B) -0.6

C) -1.2

2

D) +0.1

E) +0.6

11)

12) The elasticity of demand for ying with respect to its own price is -0.43 and the elasticity of

12)

demand for yang with respect to its own price is -1.32. The cross-price elasticity of demand for yang with respect to the price of ying is -0.14. Therefore, ying and yang are A) elastic goods B) inelastic goods

C) complementary goods

D) inferior goods

13) The elasticity of demand for clams is -0.45. Therefore an upward (inward) shift of the supply of

13)

clams, ceteris paribus, would result in A) a drop in consumer expenditures for clams

B) higher revenues for clam producers C) a drop in the demand for clams D) increased clam consumption E) lower clam prices 14) A demand elasticity would be used to measure the impact of a(n) A) increase in consumers' income B) change in the price of a substitute good C) demand shift D) supply shift E) cross-price elasticity

14)

15) If the income elasticity of a good is negative, this means the good is A) inelastic B) a complement C) inferior D) elastic E) a substitute

15)

16) The single, most important determinant of the elasticity of supply coefficient is A) consumers' income B) scope of the market C) time D) exports E) prices of substitutes and complements

16)

17) In a given market, an upward (inward) shift of the supply curve, ceteris paribus, results in an

17)

increase of the total revenues of the firm. Therefore, A) demand is elastic

B) supply is elastic C) supply is inelastic D) demand is inelastic E) can't tell anything about elasticity based on the information provided

3

18) The demand elasticity for cheese is -0.25 and the demand elasticity for crackers is -0.50.

18)

Therefore, A) consumers prefer crackers to cheese

B) the cross-price elasticity of demand for cheese with respect to the price of crackers is < 0 C) the supply of crackers is greater than the supply of cheese D) the cross-price elasticity of demand for cheese with respect to the price of crackers is > 0 E) the demand for cheese is more inelastic than the demand for crackers 19) The demand for which of these goods is most inelastic?

A) a Ford pick-up truck B) a holiday cruise C) emergency medical care D) Texaco gas E) chicken

19)

20) The change in the consumption of chicken caused by a change in the price of beef would be

20)

measured using A) an elasticity of supply coefficient

B) an elasticity of demand coefficient C) an income elasticity coefficient D) indifference curves E) a cross-price elasticity coefficient 21) An example of a good for which the demand elasticity changes at different times of the year is A) turkey B) insulin, because there are no close substitutes C) salt, because it is a small part of the family budget D) ground beef E) milk

21)

22) Which of the following is the cross-price elasticity of demand for tires with respect to the price of

22)

gas?

A) -0.9

B) 0.8

C) 0.1

D) -0.1

E) 1.4

23) The elasticity of demand for burgers is -0.45; the income elasticity of burgers is -0.12; and the cross-price elasticity of demand for burgers with respect to the price of hot dogs is -0.78.

Therefore, burgers are a(n) A) elastic, inferior, complementary good

B) inelastic, normal, complementary good C) inelastic, inferior, complementary good D) elastic, inferior, substitute good E) elastic, normal, substitute good

4

23)

24) Which of the following items in a supermarket has the most elastic demand?

A) beer B) impulse items at the checkout C) milk D) coffee E) beef

24)

25) Price discrimination works when the A) firm is a monopoly firm B) firm is operating in the downward sloping segment of the average total cost curve C) demand is inelastic D) demand is elastic E) firm faces two classes of customers with different demand elasticities

25)

26) A demand elasticity coefficient measures the change caused by a A) change in quantity demanded B) shift in demand C) change in price D) shift in supply E) none of the above

26)

27) Price discrimination is appropriate behavior of a firm facing a market in which A) the demand is quite inelastic B) the good is considered to be a necessity C) the demand is quite elastic D) there is imperfect competition E) different market segments have different demand elasticities

27)

28) Which of the following is the demand elasticity coefficient for food in the United States?

A) -0.1 B) 1.2 C) -1.0 D) -1.6 E) 0.3

28)

29) The most important determinant of supply elasticity is A) necessity versus luxury B) importance in the budget C) length of time D) degree of substitutability E) none of the above

29)

5

30) Which of the following goods has the most elastic demand?

A) health care B) gasoline C) food D) Sealtest milk E) tickets to Gator football games

30)

31) A main determinant of the elasticity of demand for a good is A) substitutability B) price C) price of complements D) income E) none of the above

31)

32) If a firm faces two sets of buyers of its one product and one set of buyers has an inelastic demand

32)

while the other has an elastic demand, then the firm should A) charge both buyers a low price

B) charge both buyers a high price C) charge the inelastic buyers a low price and the elastic buyers a high price D) charge the inelastic buyers a high price and the elastic buyers a low price E) none of the above 33) The elasticity of demand for beef is -1.2 and the income elasticity for beef is -0.2. Therefore, beef is A) normal, substitute B) elastic, inferior C) substitute, inferior D) inelastic, substitute E) normal, elastic

33)

34) The demand elasticities for Pepsi and tacos are -0.45 and -1.34 respectively. Therefore, if the price

34)

of both products increases, ceteris paribus, the total revenue of Pepsi producers will ________ and the total revenue of taco producers will ________.

A) decrease; increase

B) increase; increase C) decrease; decrease D) increase; decrease E) can't tell based on the information provided

6

Answer Key Testname: CH 9

1) E 2) A 3) C 4) A 5) D 6) A 7) E 8) E 9) B 10) A 11) D 12) C 13) B 14) D 15) C 16) C 17) D 18) E 19) C 20) E 21) A 22) A 23) C 24) E 25) E 26) D 27) E 28) A 29) C 30) D 31) A 32) D 33) B 34) D

7

Chapter 10 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) M2 is equal to A) M1 plus Treasury bills B) M1 plus near-monies C) M3 minus M1 D) M1 E) none of the above

1)

2) The calculation of M1 does not include A) coins B) traveler's checks C) checking account balances D) credit unions NOW account balances E) money market account balances

2)

3) Our currency in the United States is fiat currency. Fiat means A) it is paper currency B) by order of the federal government C) it is issued by the Fed D) the currency can be converted into gold or silver E) it is issued by the Treasury

3)

4) Which of the following is NOT necessary for money to serve as a medium of exchange?

A) It must bear the name of the country that issued it.

B) It must be easily divisible into small parts.

C) It must have a high value relative to its bulk and weight.

D) It must be generally acceptable.

E) It must be difficult to counterfeit.

4)

5) Which of the following is part of M1?

A) certificates of deposit B) Treasury bills held by the general public C) balances in money market mutual funds D) time deposits E) none of the above

5)

1

6) Which of the following is NOT money?

A) demand deposits B) currency C) checking account D) VISA credit card E) coins

6)

7) M1 does NOT include A) traveler's checks B) currency C) demand deposits D) coin E) none of the above

7)

8) The market for money is like any other market with supply and demand. In this particular market

8)

the equilibrium price is A) unstable

B) called the interest rate C) set by the government D) constant over time E) none of the above 9) What causes money to lose purchasing power?

A) inflation B) discovery of new gold mines C) unemployment D) high interest rates E) falling exchange rates

9)

10) Which of the following is NOT included in M1?

A) coin B) credit card balances C) demand deposits D) currency E) traveler's checks

10)

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

11) What two factors contributed to the bank failures of the 1930s?

11)

12) The government, in the printing of money, declares that currency is legal tender. What

12)

does this mean?

2

13) What causes the purchasing power of money to decline?

13)

14) What is money?

14)

3

Answer Key Testname: CH 10

1) B 2) E 3) B 4) A 5) E 6) D 7) E 8) B 9) A 10) B 11) 1) required reserves were very small; and 2) the value of collateral on most rural loans fell below the amount of the loan leaving the banks insolvent

12) It means that the government has declared that you must accept this currency for payment.

13) inflation of the prices of goods and services 14) anything commonly used and generally accepted as a means of payment

4

Chapter 11 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The basic proposition of the circular flow of income is A) consumers spend all that they earn B) that the system is closed so nothing leaks out C) what comes in goes out D) equal but opposite flows E) none of the above

1)

2) Which of the following is most clearly a final good?

A) soybean meal B) wheat C) rubber D) a hamburger E) high fructose corn sweetener

2)

3) Gross domestic product (GDP) is the A) value of all goods and services produced during a given period of time B) value of all production during a given period of time C) sum of all factor payments during a period of time D) sum of all wages paid during a period of time E) none of the above

3)

4) The gross domestic product A) is equal to the value of all final goods and services produced during a period of time B) is currently increasing in the United States indicating that we are in a period of economic

4)

growth.

C) is conceptually equal to the sum of all factor payments

D) measured on a per capita basis is $15,000-$20,000 for developed countries and less than $500 for the poor countries

E) all of the above 5) The equivalent to GDP measured on the factor side of the circular flow is called A) net factor income B) gross national product C) national income D) gross income E) net national product

1

5)

6) Which of the following is NOT a final good?

A) a Wendy's hamburger B) soybeans C) a haircut D) a watermelon E) a bottle of shampoo

6)

7) The total value of all final and intermediate goods and services produced during a period of time

7)

is called A) gross income product

B) gross national product C) national income D) gross domestic product E) none of the above 8) National income is the A) total value of all goods and services B) total receipts of the federal government C) total value of all final goods and services D) total value of all intermediate goods and services E) total value of all factor payments

8)

9) Which of the following is clearly a final good for the purposes of calculating the GDP? A) wheat B) high fructose corn sweetener C) crude oil D) iron ore E) exported flour

9)

10) Which of the following is not a final good or service?

A) a haircut B) dog food C) pizza D) a newspaper E) none of the above

10)

11) The value of a good in the calculation of the GDP is equal to the A) sum of the values of all intermediate goods B) is equal to the price of the product minus the costs of production C) sum of all factor payments at each stage of production D) price of the product minus the profits of the producers E) none of the above

11)

2

12) The total value of all factor payments during a period of time is called A) gross national product B) gross domestic product C) national income D) aggregate demand E) gross domestic income

12)

13) Expenditures on final goods and services equals factor payments when A) the macroeconomy is in equilibrium B) exports exceed imports C) fiscal stimulus is needed D) unemployment is growing E) the Fed should tighten the money supply

13)

14) Which of the following would NOT be part of the GDP? A) a haircut B) a new pick-up truck C) wheat D) plastic surgery E) toothpaste

14)

15) Gross domestic product is to national income as A) whole is to part B) retail prices are to wholesale prices C) product markets are to factor markets D) fiscal policy is to monetary policy E) father is to son

15)

16) In the circular flow of income, inter-sector transfers A) are facilitated by financial intermediaries B) cause disequilibrium in the system C) are controlled by the government D) are controlled by the Fed E) none of the above

16)

17) The sum of all factor payments during a period of time is called A) national income B) gross domestic product C) flow of funds D) balance of payments E) gross national product

17)

3

18) GDP is A) a curve that lies below the AVC B) equal to the sum of all factor payments C) conceptually equal to the merchandise trade balance D) our largest trading partner in Europe E) offset by the official transactions balance

18)

19) The value of a final good A) is part of the gross domestic product B) is determined in product markets C) includes profits D) is equal to the sum of the factor payments used to produce it E) all of the above

19)

20) In the circular flow of income, the equality between the economic flow and the physical flow is

20)

assured by A) product and factor markets

B) an accounting identity C) gross domestic product is equal to the sum of the factor payments D) gross domestic product is equal to national income E) all of the above 21) In the circular flow of income intersector transfers are facilitated by A) business firms B) monetary policy C) financial intermediaries D) governments E) fiscal policy

21)

22) The sum of all factor payments used to produce a final good is A) called gross domestic product B) called net domestic product C) equal to payment for intermediate goods D) equal to the final value of the good E) none of the above

22)

23) Gross domestic product is A) the value of all goods and services produced during a period of time B) economic goods we don't want like garbage and pollution C) equal to national income in an ideal, leak-free circular flow system D) conceptually the same thing as total expenditures E) all of the above

23)

4

24) The value of a final good or service is A) equal to the sum of the factor payments B) varies inversely with the rate of inflation C) used to compute inflation D) equal to national income E) equal to the gross domestic product

24)

25) The rate of change of the CPI A) is the rate of inflation B) is equal to the rate of change of M1 C) has been negative for most of the past decade D) is equal to the rate of change of the GDP E) all of the above

25)

26) In a simple circular flow of income model, wage rates are determined by A) business firms B) product markets C) households D) factor markets E) value added

26)

27) One reason economic and physical flows in the circular flow of income are equal is A) demand creates its own supply B) supply creates its own demand C) factor markets D) gross domestic product E) none of the above

27)

28) The total value of all final goods and services sold during a period of time is the A) gross domestic product B) national income C) total domestic expenditures D) net national product E) none of the above

28)

29) The gross domestic product A) is the total value of all goods and services produced during a period of time B) is a measure of inflation C) is currently declining in the United States D) does not include intermediate goods E) none of the above

29)

5

30) Which of the following would NOT be included in the calculation of the GDP? A) a bag of burgers at Checker's B) a haircut C) a bushel of soybeans D) a new car E) a doctor's bill for surgery

30)

31) Which of the following is clearly an intermediate good?

A) crude oil B) a Checker's hamburger (with onion) C) an automobile D) a visit to a doctor's office E) bananas

31)

32) Gross domestic product (GDP) is defined as A) the total value of all final goods and services produced during a period of time B) the total value of all goods and services produced during a period of time C) all investment purchases during a period of time D) all consumption expenditures during a period of time E) the total value of all factor payments during a period of time

32)

33) The rate of change of the CPI is a measure of A) inflation B) domestic unemployment C) gross domestic product D) money supply growth rate E) none of the above

33)

34) Gross domestic product is the total value of A) all profits B) all factor services C) all factor payments D) all final goods and services E) all goods and services

34)

6

Answer Key Testname: CH 11

1) D 2) D 3) E 4) E 5) C 6) B 7) E 8) E 9) E 10) E 11) C 12) C 13) A 14) C 15) C 16) A 17) A 18) B 19) E 20) A 21) C 22) D 23) C 24) A 25) A 26) D 27) C 28) A 29) D 30) C 31) A 32) A 33) A 34) D

7

Chapter 12 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Gross domestic product is the total value of A) all factor payments B) all profits C) all final goods and services D) all factor services E) all goods and services

1)

2) The rate of change of the CPI is a measure of A) money supply growth rate B) gross domestic product C) inflation D) domestic unemployment E) none of the above

2)

3) The total value of all final goods and services sold during a period of time is the A) gross domestic product B) total domestic expenditures C) net national product D) national income E) none of the above

3)

4) In the circular flow of income, the equality between the economic flow and the physical flow is

4)

assured by A) gross domestic product is equal to the sum of the factor payments

B) an accounting identity C) product and factor markets D) gross domestic product is equal to national income E) all of the above 5) The gross domestic product A) is conceptually equal to the sum of all factor payments B) is currently increasing in the United States indicating that we are in a period of economic growth.

C) measured on a per capita basis is $15,000-$20,000 for developed countries and less than $500 for the poor countries D) is equal to the value of all final goods and services produced during a period of time

E) all of the above

1

5)

6) Gross domestic product is A) conceptually the same thing as total expenditures B) equal to national income in an ideal, leak-free circular flow system C) the value of all goods and services produced during a period of time D) economic goods we don't want like garbage and pollution E) all of the above

6)

7) The rate of change of the CPI A) has been negative for most of the past decade B) is equal to the rate of change of the GDP C) is equal to the rate of change of M1 D) is the rate of inflation E) all of the above

7)

8) Gross domestic product (GDP) is the A) value of all production during a given period of time B) sum of all factor payments during a period of time C) value of all goods and services produced during a given period of time D) sum of all wages paid during a period of time E) none of the above

8)

9) In the circular flow of income intersector transfers are facilitated by A) monetary policy B) fiscal policy C) governments D) financial intermediaries E) business firms

9)

10) Which of the following is not a final good or service?

A) a newspaper B) pizza C) dog food D) a haircut E) none of the above

10)

11) The sum of all factor payments during a period of time is called A) balance of payments B) national income C) flow of funds D) gross national product E) gross domestic product

11)

2

12) Which of the following is clearly a final good for the purposes of calculating the GDP? A) wheat B) iron ore C) high fructose corn sweetener D) exported flour E) crude oil

12)

13) National income is the A) total value of all factor payments B) total value of all intermediate goods and services C) total receipts of the federal government D) total value of all final goods and services E) total value of all goods and services

13)

14) The total value of all final and intermediate goods and services produced during a period of time

14)

is called A) gross income product

B) national income C) gross domestic product D) gross national product E) none of the above 15) GDP is A) equal to the sum of all factor payments B) conceptually equal to the merchandise trade balance C) our largest trading partner in Europe D) offset by the official transactions balance E) a curve that lies below the AVC

15)

16) The sum of all factor payments used to produce a final good is A) called gross domestic product B) equal to payment for intermediate goods C) equal to the final value of the good D) called net domestic product E) none of the above

16)

17) Which of the following is clearly an intermediate good?

A) a visit to a doctor's office B) an automobile C) bananas D) a Checker's hamburger (with onion) E) crude oil

17)

3

18) Which of the following is most clearly a final good?

A) rubber B) wheat C) high fructose corn sweetener D) a hamburger E) soybean meal

18)

19) The value of a final good or service is A) equal to the sum of the factor payments B) used to compute inflation C) equal to the gross domestic product D) varies inversely with the rate of inflation E) equal to national income

19)

20) Which of the following would NOT be part of the GDP? A) plastic surgery B) a haircut C) toothpaste D) wheat E) a new pick-up truck

20)

21) In the circular flow of income, inter-sector transfers A) are controlled by the Fed B) cause disequilibrium in the system C) are controlled by the government D) are facilitated by financial intermediaries E) none of the above

21)

22) The gross domestic product A) is a measure of inflation B) is currently declining in the United States C) does not include intermediate goods D) is the total value of all goods and services produced during a period of time E) none of the above

22)

23) The basic proposition of the circular flow of income is A) equal but opposite flows B) that the system is closed so nothing leaks out C) consumers spend all that they earn D) what comes in goes out E) none of the above

23)

4

24) Gross domestic product is to national income as A) product markets are to factor markets B) father is to son C) whole is to part D) fiscal policy is to monetary policy E) retail prices are to wholesale prices

24)

25) Expenditures on final goods and services equals factor payments when A) the macroeconomy is in equilibrium B) the Fed should tighten the money supply C) fiscal stimulus is needed D) unemployment is growing E) exports exceed imports

25)

26) The equivalent to GDP measured on the factor side of the circular flow is called A) net factor income B) net national product C) gross income D) national income E) gross national product

26)

27) One reason economic and physical flows in the circular flow of income are equal is A) gross domestic product B) supply creates its own demand C) demand creates its own supply D) factor markets E) none of the above

27)

28) The value of a final good A) is part of the gross domestic product B) includes profits C) is determined in product markets D) is equal to the sum of the factor payments used to produce it E) all of the above

28)

29) The total value of all factor payments during a period of time is called A) gross domestic income B) gross national product C) aggregate demand D) gross domestic product E) national income

29)

5

30) Gross domestic product (GDP) is defined as A) the total value of all factor payments during a period of time B) all investment purchases during a period of time C) the total value of all goods and services produced during a period of time D) the total value of all final goods and services produced during a period of time E) all consumption expenditures during a period of time

30)

31) Which of the following is NOT a final good?

A) soybeans B) a Wendy's hamburger C) a haircut D) a watermelon E) a bottle of shampoo

31)

32) In a simple circular flow of income model, wage rates are determined by A) business firms B) factor markets C) households D) product markets E) value added

32)

33) The value of a good in the calculation of the GDP is equal to the A) price of the product minus the profits of the producers B) sum of all factor payments at each stage of production C) is equal to the price of the product minus the costs of production D) sum of the values of all intermediate goods E) none of the above

33)

34) Which of the following would NOT be included in the calculation of the GDP? A) a new car B) a doctor's bill for surgery C) a bag of burgers at Checker's D) a haircut E) a bushel of soybeans

34)

6

Answer Key Testname: CH 12

1) C 2) C 3) A 4) C 5) E 6) B 7) D 8) E 9) D 10) E 11) B 12) D 13) A 14) E 15) A 16) C 17) E 18) D 19) A 20) D 21) D 22) C 23) A 24) A 25) A 26) D 27) D 28) E 29) E 30) D 31) A 32) B 33) B 34) E

7

Chapter 13 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The notion that government could and should attempt to regulate the macroeconomy through

1)

fiscal policy was first proposed by A) Alan Greenspan

B) Dave Denslow C) Adam Smith D) Paul Samuelson E) John Maynard Keynes 2) Unlike the classical macroeconomists, Keynes argued that in times of high unemployment A) inflation was expected B) the Fed should buy bonds C) the economy would automatically self-correct D) the aggregate supply curve may be perfectly elastic E) none of the above

2)

3) A "savings gap" occurs when A) financial intermediaries convert savings into investment B) households earn more than they spend C) households hoard savings D) households stop saving E) none of the above

3)

4) The classical notion that ________ is known as Say's Law. A) monetary growth should be zero B) supply creates its own demand C) budget deficits are needed in recessions D) recessions are necessary E) none of the above

4)

5) During the depression, Keynes argued that the aggregate supply curve was A) shifting to the left B) elastic C) shifting to the right D) was less than the aggregate demand curve E) inelastic

5)

1

6) The basic foundation of modern macroeconomics was developed by A) David Ricardo B) John Maynard Keynes C) Adam Smith D) John Kenneth Galbraith E) none of the above

6)

7) The original proponent of deficit spending during economic depressions was A) Karl Marx B) John Maynard Keynes C) Alan Greenspan D) Paul Volker E) Adam Smith

7)

8) An output or savings gap may be caused by A) a failure of financial intermediaries B) households not saving a portion of their earnings C) firms not creating enough output D) government deficits E) all of the above

8)

9) A leading cause of the depression in the 1930s was A) government deficits B) inflation C) the collapse of the banking system D) low bond yields E) none of the above

9)

10) In certain situations, deficit spending by the federal government may be appropriate fiscal policy.

10)

This notion was first put forward by A) Hoover

B) Marshall C) Keynes D) Samuelson E) Greenspan 11) Which of the following would be used for a stimulative fiscal policy?

A) lower government spending B) decrease the required reserve ratio C) lower the discount rate D) increase taxes E) none of the above

2

11)

12) According to contemporary theory, during a period of economic depression, the aggregate supply

12)

curve is A) very elastic

B) very inelastic C) shifting outward D) shifting inward E) equal to the aggregate demand curve 13) A savings gap A) should be matched by a government surplus B) occurs when banks keep excess reserves C) will lead to inflation D) will lead to depression E) none of the above

13)

14) Keynes argued that A) exports should exceed imports B) macroeconomic equilibrium was possible without full employment C) free trade is not in the best interests of the countries involved in trade D) a depreciation of the currency of a country will lead to increased imports E) the Fed should buy bonds to stop inflation

14)

15) In the classical (pre-Keynesian) view, during a period of high inflation the appropriate fiscal

15)

policy is to A) reduce government spending

B) reduce the rate of growth of the money supply C) increase taxes D) increase interest rates E) none of the above 16) Monetary and fiscal policy are used to A) balance the federal budget B) shift aggregate supply C) allocate resources efficiently D) shift aggregate demand E) none of the above

16)

17) John Maynard Keynes A) would approve of the fiscal policy pursued by the United States during the past 15 years B) developed the concept of the "invisible hand" C) fundamentally changed our view of the relationship between government and the economy D) said "the only thing we have to fear..."

E) none of the above

17)

3

18) Keynes argued that what was needed in the 1930s was a(n) A) outward shift of the aggregate demand curve B) outward shift of the aggregate supply curve C) inward shift of the aggregate demand curve D) return to laissez faire E) inward shift of the aggregate supply curve

18)

19) According to Keynes, a savings gap A) was good for the economy B) should be compensated with deficit spending by government C) is the result of failures of financial intermediaries D) should be eliminated by appropriate monetary policy E) none of the above

19)

20) According to the classical school of macroeconomic thought, A) government should use both monetary and fiscal policy B) government should use neither fiscal nor monetary policy C) government should use monetary policy during periods of inflation and fiscal policy during

20)

periods of unemployment.

D) government should use monetary policy but not fiscal policy

E) government should use fiscal policy but not monetary policy 21) In the modern macroeconomic model, A) aggregate supply may be horizontal during a depression B) aggregate supply and aggregate demand always establish a full employment equilibrium C) aggregate demand may be vertical during a depression D) aggregate supply may be vertical during a depression E) none of the above

21)

22) When expenditures in a time period are less than earnings, A) households are avoiding financial intermediaries B) a savings gap exists C) it is appropriate for government to run a deficit D) GDP is decreasing E) all of the above

22)

23) In Gatorland the federal budget is currently balanced, but a high unemployment rate calls for a

23)

stimulative fiscal policy. To implement this policy the Gatorland congress should A) fiscal policy can't stimulate an economy

B) increase spending and increase taxes equally C) decrease spending and decrease taxes equally D) decrease spending and increase taxes E) increase spending and decrease taxes

4

24) According to Keynesian theory, in times of an economic depression the appropriate fiscal policy is A) for the Fed to increase the money supply B) to increase taxes to support more spending C) to cut taxes and/or increase spending D) for the Fed to reduce the money supply E) to stay the course and do nothing

24)

25) Keynes argued that A) the savings gap was the result of unscrupulous money lenders B) balanced budgets were essential for economic stability C) government should adopt a policy of laissez faire D) high interest rates caused the depression E) none of the above

25)

26) A tight or restrictive fiscal policy would be implemented by A) an increase in the money supply B) a tax increase C) increased federal spending D) higher interest rates E) a federal budget deficit

26)

27) Which of the following would represent a stimulative fiscal policy?

A) selective tax increases B) a decrease in federal spending C) an across-the-board tax cut D) reducing the national debt E) a drop in the prime rate

27)

28) A "savings gap" occurs when A) interest rates get so high that there is no investment B) aggregate demand is not equal to aggregate supply C) expenditures by households exceed earnings D) savings is not converted into investment by financial intermediaries E) none of the above

28)

29) Which of the following is NOT a position taken by Keynes?

A) Fiscal policy shifts the aggregate supply curve.

B) Monetary policy shifts the aggregate demand curve.

C) Under certain conditions the aggregate supply curve may be nearly vertical.

D) Some prices are downward inflexible.

E) Under certain conditions the aggregate supply curve may be horizontal.

29)

5

30) The economist who argued against a laissez faire macroeconomic policy was A) Adam Smith B) Paul Samuelson C) Thomas Malthus D) Alan Greenspan E) John Maynard Keynes

30)

31) Government can, and it should, control the macroeconomy by its actions. The father of this notion

31)

is

A) Adam Smith B) Allen Greenspan C) Herbert Hoover D) John Maynard Keynes E) Franklin Roosevelt 32) An appropriate policy to close a "savings gap" is to A) freeze prices B) run a budget deficit C) increase the discount rate D) increase taxes E) none of the above

32)

33) When a savings gap exists in a macroeconomy, the Keynesian solution is A) to engage in deficit spending B) to increase the discount rate C) for the Fed to sell bonds on the open market D) to increase taxes and spending E) to eliminate Social Security

33)

34) In the classical view of the macroeconomy, A) changes in fiscal policy had to be coordinated with changes in monetary policy B) manipulating monetary policy was essential to full employment C) the government should run a deficit during depressions D) it was a self-correcting system E) none of the above

34)

35) The General Theory by John Maynard Keynes was published in A) 1936 B) 1919 C) 1984 D) 1955

35)

6

E) 1948

36) If households do not put savings into financial intermediaries, A) the aggregate supply curve will become vertical B) consumption will increase C) prices will rise D) a savings gap will develop E) all of the above

36)

37) The "father" of neo-classical (contemporary) macroeconomic theory is A) Adam Smith B) John Maynard Keynes C) Paul Samuelson D) John Say E) none of the above

37)

38) Keynes argued that the aggregate supply curve A) is relatively steep during periods of economic recession B) could be easily shifted through appropriate fiscal policy C) is relatively flat at high output levels D) could be easily shifted through appropriate monetary policy E) none of the above

38)

39) The first economist to advocate deficit spending by the government in certain situations was A) Alfred Marshall B) Paul Volker C) Adam Smith D) Alan Greenspan E) John Maynard Keynes

39)

40) A Phillips curve illustrates the expected relationship between the A) unemployment rate and money growth rate B) unemployment rate and inflation rate C) money growth rate and gross domestic product growth rate D) inflation rate and money growth rate E) gross domestic product growth rate and unemployment rate

40)

41) Which of the following is NOT an aggregate demand shifter?

A) fiscal policy B) monetary policy C) factor market adjustments D) expectations E) population size

41)

7

42) Keynes argued that a stimulative fiscal policy during periods of low unemployment would result

42)

in

A) increased employment and no inflation B) no employment change and no inflation C) increased employment and more inflation D) no employment change and more inflation E) none of the above 43) If there is a savings gap in the economy then A) a tight fiscal policy is appropriate B) deficit spending by the government is appropriate C) the Fed should sell bonds D) a tight monetary policy is appropriate E) none of the above

43)

44) According to the classical view of macroeconomics, the appropriate policy in a depression is A) do nothing B) lower interest rates C) fiscal policy D) deficit spending E) monetary policy

44)

45) In the Keynesian view of the macroeconomy, the aggregate supply curve A) is very elastic at low levels of output B) does not shift in response to monetary policy C) is very inelastic at high levels of output D) does not shift in response to fiscal policy E) all of the above

45)

46) In the modern view, a deliberate policy of deficit spending by the federal government A) is appropriate during periods of inflation B) is not appropriate during a recession C) will shift the aggregate demand curve inward D) will lead to inflation during periods of full employment E) all of the above

46)

8

Answer Key Testname: CH 13

1) E 2) D 3) C 4) B 5) B 6) B 7) B 8) A 9) C 10) C 11) E 12) A 13) D 14) B 15) E 16) D 17) C 18) A 19) B 20) B 21) A 22) E 23) E 24) C 25) E 26) B 27) C 28) D 29) A 30) E 31) D 32) B 33) A 34) D 35) A 36) D 37) B 38) E 39) E 40) B 41) C 42) D 9

Answer Key Testname: CH 13

43) B 44) A 45) E 46) D

10

Chapter 14 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) With free international trade, A) countries import those good that they produce relatively efficiently B) countries specialize in the production of those goods that they produce relatively efficiently C) tariffs are used to stimulate imports D) trade flows from poor countries to rich countries E) everyone is a winner

1)

2) Which of the following is NOT a major grain exporter?

A) Australia B) Argentina C) the United States D) China E) Canada

2)

3) In a world free trade model, A) there are winners and losers but no net gain or loss in the aggregate B) consumers of the good exported in the exporting country are worse off with trade C) producers of the good exported in the exporting country are worse off with trade D) consumers of the good imported in the importing country are worse off with trade E) none of the above

3)

4) The incidence of a tariff A) will cause domestic prices to rise in the exporting country B) falls entirely on the producer in the exporting country C) depends on the elasticity of demand D) falls entirely on the consumer in the importing country E) none of the above

4)

5) Two countries, A and B, do not trade. A is a high cost producer of wine and B is a low cost

5)

producer of wine. If trade between A and B is permitted, who is most likely to complain?

A) consumers in A

B) producers in B C) consumers in B D) producers in A E) can't tell based on the information provided 6) Exports as a percent of U.S. production are by far the highest for A) cotton B) cattle C) tobacco D) wheat 1

6) E) corn

7) A decrease in the yen/$ exchange rate means the yen has ________ or ________ against the dollar.

A) weakened; appreciated B) weakened; depreciated C) strengthened; depreciated D) strengthened; appreciated

7)

8) There is a $5 per bottle tax on every bottle of wine that enters Gatorland from other countries

8)

(such as Dawgland). This tax is called a(n) A) special assessment

B) ad valorem tariff C) specific tariff D) quota E) none of the above 9) The effect of a tariff is to A) shift the demand curve as seen by the importer B) shift the demand curve as seen by the exporter C) shift the supply curve as seen by the exporter D) shift the supply curve as seen by the importer E) none of the above

9)

10) A tariff A) shifts the import demand of the good inward B) is a form of trade subsidy C) does not have the same effects on trade as a quota D) is prohibited by the General Agreement on Tariffs and Trade E) shifts the export supply curve upward

10)

11) When free international trade is allowed between two countries, one rich and the other poor, then A) the rich country will export to the poor but import nothing from the poor B) all people in both countries gain C) in aggregate both countries will gain, but there will be winners and losers in both countries D) the rich country is made better off and the poor country is made worse off E) none of the above

11)

12) Exports account for the production from approximately ________ out of every 10 acres of

12)

cropland in the United States.

A) zero B) three

C) four

D) two

E) one

13) Between 1985 and 1995, the dollar ________ against the Japanese yen. Since 1995, the dollar has ________ against the yen.

A) appreciated; appreciated

B) appreciated; depreciated C) depreciated; stayed the same D) depreciated; depreciated E) depreciated; appreciated 2

13)

14) An increase (a shift) of demand in Japan for American goods, ceteris paribus, should cause A) a shift in the supply of American firms B) the yen price of those goods to fall C) the volume of exports from the United States to Japan to decrease D) the dollar price of Japanese imports in the United States to increase E) the dollar to appreciate relative to the yen

14)

15) When free trade occurs between two countries, A) everyone gains, everywhere B) exporting producers gain and importing consumers lose C) the importers gain and the exporters lose D) the importers lose and the exporters gain E) none of the above

15)

16) In today's economy, the primary reason a tariff is imposed on a good is to A) raise tax revenue B) protect domestic producers C) benefit domestic consumers D) stimulate the exports of that good E) all of the above

16)

17) The leading exporter of feed grains in the world is A) the United States B) Argentina C) Canada D) China E) Australia

17)

18) A depreciation of the French franc should cause French imports to ________, and French exports

18)

to ________.

A) increase; increase

B) decrease; increase C) decrease; decrease D) increase; decrease E) impact on both is uncertain 19) From 1985 to 1995, the dollar ________ against the yen, and since 1995 the dollar has generally ________ against the yen.

A) depreciated; depreciated

B) appreciated; depreciated C) was steady; appreciated D) depreciated; appreciated E) appreciated; appreciated

3

19)

20) Several years ago it took 125 yams (the currency of Yamland) to buy one U.S. dollar. Today it

20)

takes 100 yams to buy a dollar. Therefore, A) the yam has appreciated and the dollar has appreciated

B) the yam has depreciated and the dollar has appreciated C) the yam has appreciated and the dollar has depreciated D) the yam has depreciated and the dollar has depreciated E) none of the above 21) NAFTA will be beneficial for A) Mexican corn farmers B) Florida tomato consumers C) Florida tomato producers D) Mexican tomato consumers E) none of the above

21)

22) If the United States increased the tariff on Mexican tomato exports, it would A) hurt Florida tomato producers and help Florida consumers B) not affect Mexican tomato producers and consumers C) help Florida tomato producers and consumers D) help Florida tomato producers and hurt Florida consumers E) hurt Florida tomato producers and consumers

22)

23) When free trade is allowed between two countries

23)

1. There will be winners in both countries.

2. There will be winners in only one country and losers in only one country.

3. There will be losers in both countries.

Which statements are true?

A) 1 only

B) 2 only C) 3 only D) 1 and 3 only E) 1, 2, and 3 24) During the past 50 years, U.S. agricultural imports as a percent of total imports have A) remained relatively stable at 30% B) remained relatively stable at 5% C) decreased D) increased E) remained relatively stable at 70%

4

24)

25) A tariff is a(n) A) import tax B) export tax C) quantitative restriction on imports D) quantitative restriction on exports E) device to shift domestic demand

25)

26) When a tariff is imposed today, its primary purpose is to A) punish foreign producers B) punish domestic producers C) shift consumer demand D) reduce imports E) generate government revenue

26)

27) At the present time, the United States has a trade ________ in agricultural goods and a ________ in

27)

all goods.

A) deficit; surplus

B) surplus; deficit C) deficit; deficit D) surplus; surplus E) balance; deficit 28) Which of the following statements is NOT correct regarding free trade?

A) Global resources will be used more efficiently.

B) One country is the winner and the other is the loser.

C) There are winners and losers.

D) The flow of goods replaces the flow of resources.

E) Global society is better off.

28)

29) An increase in Japanese tourists visiting Hawaii, ceteris paribus, would help ________ the U.S.

29)

trade deficit with Japan and cause the dollar to ________.

A) decrease; appreciate B) increase; appreciate

C) increase; depreciate

D) decrease; depreciate

30) Last week the U.S. Commerce Department released monthly trade data showing a record high U.S. trade deficit. In order to correct the trade deficit the United States should A) increase import tariffs

B) subsidize U.S. exports C) allow the dollar to depreciate D) impose import quotas E) complain to the World Trade Organization

5

30)

31) Countries tend to export those products that have a relatively ________ proportion of total cost associated with a relatively ________ resource.

A) low; scarce

31)

B) high; scarce D) high; abundant

C) low; abundant

32) The United States exports approximately ________% of the wheat it produces.

A) 40 B) 80 C) 60 D) 5

32) E) 20

33) Which of the following is NOT a competitor in the world market for feed grains exports?

A) Canada B) Australia C) Brazil D) Argentina E) none of the above

33)

34) At the present time the United States has A) a trade surplus in agricultural trade and a trade surplus in all other commodities B) balanced trade C) a trade surplus in agricultural trade and a trade deficit in all other commodities D) a trade deficit in agricultural trade and a trade deficit in all other commodities E) a trade deficit in agricultural trade and a trade surplus in all other commodities

34)

35) Unlike a tariff, a quota A) is a form of protectionism B) restricts imports C) has no impact on exports D) works on the quantity side of the market E) none of the above

35)

36) Which of the following is NOT a major exporter of wheat?

A) Australia B) China C) Canada D) Argentina E) the European Community

36)

37) The United States has significant import quotas on A) coffee B) shoes C) wine

37)

6

D) sugar

E) wheat

38) A tariff and a quota differ with regards to the A) desired impact B) effect on importing consumers C) amount of potential government revenue D) effect on exporting producers E) none of the above

38)

39) If the dollar appreciates relative to other currencies, we would expect U.S. A) imports to decrease and exports to decrease B) exports and imports to increase C) imports to increase and exports to decrease D) exports to increase and imports remain unchanged E) exports and imports to decrease

39)

40) In the fresh, winter tomato market the winners as a result of NAFTA are ________ and the losers

40)

are ________.

A) American producers; Mexican consumers

B) American consumers; Mexican producers C) American consumers; Mexican consumers D) American producers; Mexican producers E) Mexican consumers; American producers 41) Which of the following is NOT a major U.S. competitor in the world wheat market?

A) Argentina B) Brazil C) Australia D) Canada E) the European Community

41)

42) When Honduras exports bananas, it is essentially exporting its A) unique climate B) high technology C) cheap labor D) unique soils E) unique location close to markets

42)

43) An appreciation of the British pound against most other currencies should lead to a(n) A) decline of British imports and an increase in British exports B) appreciation of the U.S. dollar C) economic expansion of the British domestic economy D) increase in British imports and a decrease in British exports E) none of the above

43)

7

44) The impact of a tariff is paid entirely by the A) exporting consumer B) importing consumer C) exporting producer D) importing producer E) none of the above

44)

45) For our major crops in the United States, exports as a percent of production is greatest for A) corn B) wheat C) tobacco D) cotton E) soybeans

45)

46) When a country imposes a tariff on a good, the A) domestic price of the good falls and the quantity traded decreases B) domestic price of the good falls and the quantity traded increases C) domestic price of the good increases and the quantity traded increases D) domestic price of the good decreases and exports of the good increase E) domestic price of the good increases and the quantity traded decreases

46)

47) A major competitor of the United States in world grain markets is A) China B) France C) Brazil D) Germany E) Argentina

47)

48) If free international trade is allowed, who is going to be the most vocal in opposition to free trade?

A) consumers of goods we import B) producers of goods we import C) consumers of goods we export D) producers of goods we export E) shipping companies

48)

49) A depreciation of the dollar relative to the yen A) should be avoided B) stimulates economic growth in the United States C) stimulates economic growth in Japan D) is an indication of poor fiscal policy in the United States E) is an indication of poor monetary policy in the United States

49)

8

50) An appreciation of the dollar should lead to ________ imports and ________ exports.

A) more; less B) no change of; no change of C) less; less D) less; more E) more; more

50)

51) More than one-half of all world trade in ________ originates in the United States.

A) feed grains and soybeans B) wheat and soybeans C) rice and wheat D) feed grains and rice E) soybeans and rice

51)

52) Free trade has winners and losers. As a result of NAFTA we have moved to freer trade with

52)

Mexico. One of the losers is A) Mexican tortilla consumers

B) Florida tomato producers C) American tomato consumers D) Iowa corn farmers E) none of the above 53) In most instances the most vocal "losers" from free trade are A) producers of the imported good B) consumers of the imported good C) producers of the exported good D) consumers of the exported good E) there are no "losers" from free trade

53)

54) The United States is an oil importing country. The import demand for oil is very inelastic.

54)

Therefore, the incidence of a tariff on oil imports would primarily affect A) American oil consumers

B) foreign oil producers C) foreign oil consumers D) American oil producers E) none of the above 55) International merchandise trade is a substitute for A) tariffs and quotas B) domestic trade C) factor flows D) foreign exchange flows E) production efficiencies

55)

9

56) Exports account for about ________ out of every five acres of grain in the United States.

A) one B) four C) three D) two E) five

56)

57) A depreciation of the dollar relative to the yen should lead to an

57)

1. increase of Japanese exports to the United States 2. increase of U.S. exports to Japan 3. increase of Japanese imports from the United States 4. increase of U.S. imports from Japan A) 3 only

B) 2 and 3 C) 1 only D) 1 and 4 E) none of the above 58) The effect of a tariff is to A) reduce aggregate, global welfare B) increase the price paid by the importing consumer C) decrease the price received by the exporting producer D) reduce the quantity traded E) all of the above

58)

59) If the United States increases its tariffs on wine, the "winner(s)" is(are)

59)

1. U.S. wine consumers 2. U.S. wine producers 3. French wine consumers 4. French wine producers A) 1 and 4 B) 4

C) 2 and 4

D) 2

E) 2 and 3

60) A quantitative restriction on the amount of a good that may be imported is called a(n) A) tariff B) quota C) limit D) embargo E) reputo

60)

61) The world's leading rice exporter is A) China B) Brazil C) Indonesia D) the United States E) Thailand

61)

62) From the perspective of the consumer in the importing country, what is the difference between a

62)

tariff and a quota?

A) Quotas cause prices to rise while tariffs don't.

B) Tariffs cause prices to rise while quotas don't.

C) Tariffs cause quantity imported to fall while quotas don't.

D) Quotas cause quantity imported to fall while tariffs don't.

E) There is no difference.

10

63) The strongest competitor of the United States in the world soybean market is A) France B) Japan C) Canada D) Brazil

63) E) China

64) As the dollar depreciates, the dollar price of imported goods in the United States ________ while

64)

the local price in other countries of goods exported from the United States ________.

A) increases; decreases

B) decreases; decreases C) stays the same; stays the same D) increases; increases E) decreases; increases 65) Unlike a tariff, a quota A) limits the quantity imported B) causes the price paid by consumers in the importing country to increase C) causes the quantity of imports to fall D) causes the price received by producers in the exporting country to fall E) all of the above

65)

66) If the current tariff on imports of FCOJ into the United States were eliminated, U.S. consumers

66)

would be ________; Florida producers would be ________; Brazilian producers would be ________; and Brazilian consumers would be ________.

A) happy; happy; happy; happy B) happy; sad; sad; happy

C) happy; sad; happy; sad

D) sad; sad; happy; happy

67) The incidence of a tariff depends on A) whether the tariff is on imports or exports B) the slope of the import demand curve C) which country imposes the tariff D) whether the tariff is specific or ad valorem E) none of the above

67)

68) More than half of the world trade of this commodity (or these commodities) originates in the

68)

United States.

A) corn only

B) rice C) corn and soybeans D) soybeans only E) wheat

11

69) The passage of NAFTA will result in A) some winners and losers in both countries B) more, cheaper stuff in both countries C) a net gain for both countries D) the reallocation of resources in Mexico E) all of the above

69)

70) As a result of the approval of the NAFTA trade treaty, A) some American producers will be worse off and others will be better off B) American producers will be worse off and American consumers will be better off C) all Mexicans will be better off D) the average American will be worse off E) none of the above

70)

12

Answer Key Testname: CH 14

1) B 2) D 3) B 4) C 5) D 6) D 7) D 8) C 9) D 10) E 11) C 12) C 13) E 14) E 15) E 16) B 17) A 18) B 19) D 20) C 21) B 22) D 23) D 24) C 25) A 26) D 27) B 28) B 29) A 30) C 31) D 32) B 33) C 34) C 35) D 36) B 37) D 38) E 39) C 40) C 41) B 42) C 13

Answer Key Testname: CH 14

43) D 44) E 45) B 46) E 47) E 48) B 49) B 50) A 51) A 52) B 53) A 54) A 55) C 56) D 57) B 58) E 59) E 60) B 61) E 62) E 63) D 64) A 65) A 66) C 67) B 68) C 69) E 70) A

14

Exam

Chapter 15

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) One way to support domestic farm prices is the use of marketing quotas. This approach is used to

1)

support the price of A) beef cattle

B) tobacco C) poultry D) corn E) honey 2) One of the things that distinguishes agriculture from most other markets is that market level

2)

demand and supply are both very inelastic (i.e., not very price responsive). As a result, A) profit margins in agriculture are low

B) prices in agriculture are very unstable C) farm prices are consistently low D) farm income is low E) none of the above 3) The loan program in our agricultural programs A) establishes a price floor B) provides farmers with a cash payment each year C) provides farmers with loans to pay for crop inputs at planting time D) is designed to provide farmers with a payment equal to the difference between the target

3)

4) For a farmer who participates in the corn price support program, a loan rate of $2.25/bushel

4)

price and the average market price E) grants farmers recourse loans

means that A) the farmer can "sell" his corn to the Commodity Credit Corp. for $2.25/bu even if the cash price is less than $2.25/bu B) the farmer is eligible for a non-recourse loan

C) the farmer has the option of selling the corn on the cash market at prices above $2.25 D) the farmer can get $2.25/bu when he stores his grain E) all of the above 5) Agriculture is characterized by extreme price variability caused by A) environmental regulations B) the fact that both supply and demand curves are very inelastic C) foreign exchange fluctuations D) government intervention E) none of the above 1

5)

6) The price support programs in American agriculture were instituted A) by John F. Kennedy B) during reconstruction after the Civil War C) during Johnson's "Great Society" D) during the Roosevelt "New Deal" E) none of the above

6)

7) Which of the following is NOT accomplished by the marketing assistance loan program?

A) allows farmer to repay production loan from commercial bank B) assures farmer of a profit on the crop C) allows flexible marketing timing D) provides ready cash at harvest E) provides a price floor for the crop

7)

8) A minimum price for selected agricultural commodities is established by A) the Conservation Reserve Program B) P.L. 480 C) the Marketing Loan program D) the Production Flexibility Contract program E) GATT

8)

9) While the loan program solves some problems, it creates another problem. What is it?

A) high prices B) excessive imports C) surplus disposal D) land set-aside E) none of the above

9)

10) There is no price support program for A) milk B) pork C) sugar D) rice E) none of the above

10)

11) In the United States we have no direct price support programs for the producers of A) cattle B) wheat C) sugar D) rice E) none of the above

11)

2

12) The economic impact of the loan program is to A) provide a price floor B) be certain prices are high C) guarantee a minimum income level D) fix farm prices E) none of the above

12)

13) In the United States we have had some form of federal price/income support for farmers since A) 1863 B) 1776 C) 1995 D) 1933 E) 1948

13)

14) Under the loan program, if the market price of a covered commodity falls below the loan rate, the

14)

government A) pays farmers the difference between the market price and the loan rate

B) provides farmers with emergency loans equal to the difference between market prices and the loan rate

C) buys the surplus to support the price D) provides export subsidies E) none of the above 15) The major problem facing U.S. agriculture is A) capricious export markets B) foreign imports C) low prices D) the capability to overproduce E) government intervention

15)

16) A "non-recourse" loan A) is made to borrowers who can't obtain credit elsewhere B) is a loan on which no interest is paid C) requires no collateral D) is a loan that can be defaulted E) none of the above

16)

17) A price floor (price support) is established by A) the Conservation Reserve Program B) the loan rate C) Production Flexibility Contracts D) the target price E) the set-aside

17)

3

18) The primary beneficiaries of our price support programs are ________ farms and ________

18)

consumers.

A) small; poor

B) large; poor C) large; rich D) all; rich E) small; rich 19) In a typical price support program, the loan rate A) varies depending on the average market price B) establishes a market price floor C) will usually be between 10% and 15% D) is usually higher than the target price E) none of the above

19)

20) The 1996 farm bill eliminated A) the Cooperative Extension Service B) the loan program C) the Conservation Reserve Program D) production controls E) minimum price supports

20)

21) If the government adopts a policy of establishing a price floor that is above the market

21)

equilibrium price then A) price controls will have to be imposed

B) the market will clear normally C) the government will have to buy on world markets to fill the resulting shortage D) there will be a surplus at the price floor E) none of the above 22) If the market price for corn is at or below the loan rate, what problem does this create for the CCC?

A) disposal of surplus grain B) not enough grain to meet export needs C) cash payments to farmers D) shortages at the end of the marketing year E) none of the above

4

22)

23) A farmer gains from participating in the loan program because he/she

23)

1. gets money to pay off production loan from commercial bank 2. can defer marketing 3. is assured a price above the loan rate for the crop 4. can default on the loan A) 2 and 3 only

B) 1, 2, and 4 only C) 2 and 4 only D) 2 only E) 1 and 3 only 24) Marketing quotas are used for A) cotton B) corn C) tobacco D) wheat E) all of the above

24)

25) The loan program is the policy used to A) establish a minimum price B) establish a marketing quota C) restrict inputs D) restrict production E) none of the above

25)

26) The economic impact of the Marketing Assistance Loan program is A) a price floor B) guaranteed prices C) free market prices D) non-recourse loans E) a price ceiling

26)

27) The loan program in the current farm bill provides the farmer with

27)

1. direct cash payments 2. marketing flexibility 3. minimum price or price floor.

Which are true?

A) 1 only

B) 2 only C) 3 only D) 1 and 3 only E) 2 and 3 only

5

28) U.S. agricultural prices are subject to substantial price variability because demand is very

28)

________ and supply is very ________.

A) inelastic; inelastic

B) elastic; inelastic C) high; low D) elastic; elastic E) inelastic; elastic 29) The distinguishing feature of the 1996 was A) protection of agricultural labor B) direct cash payments to farmers C) limits on corn production D) substantial increases in farm subsidies E) export promotion

29)

30) The primary purpose of the loan program component of price support programs is to A) avoid having to sell at harvest B) prevent consumers having to pay high prices for agricultural commodities C) force farmers to set aside a portion of their land D) address the environmental issue E) keep prices received by farmers at a high level

30)

31) In our price support programs, the "loan rate" is A) the proportion of the farmer's crop he can loan to the government B) determined by Federal Reserve policy C) the interest rate a farmer must pay if he borrows from the government with his crop as

31)

collateral D) the difference between the market price and the target price

E) none of the above 32) The fundamental problem facing U.S. agriculture is A) foreign competition B) sustainability C) environmental compatibility D) overproduction E) low prices

32)

33) A non-recourse loan means that A) the farmer does not pay interest B) the farmer may default C) it must be repaid before any other loans D) the farmer must take a loan E) there is no collateral

33)

6

34) U.S. agricultural policy includes a loan program that creates ________, which causes ________.

A) a price floor; surpluses B) marketing quotas; reduced production C) marketing quotas; high prices D) a price floor; reduced production E) none of the above

34)

35) A price support program using price floors will A) restrict inputs B) help prevent inflation C) encourage farmers to produce less D) prevent prices from being too high E) create surpluses

35)

7

Answer Key Testname: CH 15

1) B 2) B 3) A 4) E 5) B 6) D 7) B 8) C 9) C 10) B 11) A 12) A 13) D 14) A 15) D 16) D 17) B 18) B 19) B 20) D 21) D 22) C 23) B 24) C 25) A 26) A 27) E 28) A 29) B 30) A 31) E 32) D 33) B 34) A 35) E

8

Chapter 16 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The largest single item in the food marketing bill is A) packaging B) profit C) transportation D) labor E) energy

1)

2) Expenditures for food and alcoholic beverages in the United States are around A) $30 billion B) $150 billion C) $4 trillion D) $925 billion E) $2 trillion

2)

3) Expenditures for food away from home as a percent of total food expenditures is A) 47% B) 73% C) 26% D) 19%

3) E) 66%

4) Which good has the highest farm share of retail food prices?

A) FCOJ B) bread C) fresh green beans D) eggs E) corn flakes

4)

5) Retail level prices are ________ volatile than farm level prices because retail level demand

5)

elasticity is more ________ than farm level elasticity.

A) more; elastic

B) less, inelastic C) more; inelastic D) more; volatile E) less; elastic 6) The difference between the farm level price of a product and the retail price is A) the elasticity of demand B) derived demand C) the marketing margin D) the elasticity of supply E) none of the above 1

6)

7) Increased efficiency in the marketing system will A) help the consumer and hurt the farmer B) increase profits of the middlemen C) help the farmer and hurt the consumer D) hurt the farmer and the consumer E) help the farmer and the consumer

7)

8) The farm level demand for a good is A) equal to the short-run marginal costs of the firm.

B) equal to the farm level supply C) equal to the primary demand plus the marketing costs D) more elastic than the retail demand E) none of the above

8)

9) Prices fluctuate more at the farm level than at retail. Why? A) Supply and demand are more inelastic at the farm level than at retail.

B) Retailers want to please the customer.

C) The middleman gets all the profit.

D) The middleman is willing to absorb losses to maintain market share.

E) none of the above

9)

10) Changes in the marketing system that make the system more efficient A) benefit farmers but hurt consumers B) benefit consumers but hurt farmers C) result in more profits for the middlemen D) benefit both the consumer and the farmer E) cause a reduction in the equilibrium quantity traded

10)

11) An improvement in a marketing system that makes it more efficient results in ________ prices for

11)

the consumer, ________ prices for the producer, and ________ quantity traded.

A) higher; lower; lower

B) higher; higher; higher C) lower; higher; higher D) lower; lower; lower E) lower; higher; lower 12) Many argue that food production in the United States is becoming industrialized. Which industry is a clear example of industrialization in U.S. agriculture?

A) tobacco B) shrimp C) poultry

2

D) peanuts

E) soybeans

12)

13) Because farm level demand and supply are more ________ than at retail, there is ________ price

13)

variability at the farm level that at the retail level.

A) inelastic; greater

B) costly; less C) inelastic; less D) elastic; greater E) elastic; less 14) The demand elasticities for three commodities are -0.3, -0.9, and -0.6. Respectively, the three

14)

commodities are A) bread, flour, and wheat

B) flour, bread, and wheat C) wheat, flour, and bread D) wheat, bread, and flour E) flour, wheat, and bread 15) Farm level demand A) is equal to retail demand plus the marketing margin B) goes down as the price goes up C) is more elastic than farm supply D) is derived from farm level supply E) is more inelastic than retail demand

15)

16) ________ demand is derived from ________ demand by ________ the marketing margin.

A) Derived; supply; switching B) Retail; farm; adding C) Farm; retail; adding D) Farm; retail; subtracting E) Retail; farm; subtracting

16)

17) Sam just bought $100 of groceries at the local Wal-Mart. The farm value of what he just purchased

17)

is approximately A) $35

B) $16

C) $79

D) $10

E) $19

18) A consumer product with a very low proportion of marketing costs relative to total cost is A) eggs B) white bread C) fresh peaches D) potato chips E) canned peas

3

18)

19) Of every $100 spent by Americans on food, roughly ________ is spent on marketing and ________

19)

represents the farm value of the food.

A) $81; $19

B) $48; $52 C) $62; $38 D) $70; $30 E) none of the above 20) Marketing involves change in A) place B) time C) utility D) form E) all of the above

20)

21) Farm value as a percent of food expenditures is A) 11% B) 19% C) 4%

21) D) 73%

E) 45%

22) The demand for beef is most elastic at the A) farm level B) processor level C) retail level D) wholesale level E) assembly level

22)

23) The marketing margin is A) the difference between prices at different market levels B) the profit rate of marketing firms C) used to find derived retail demand D) the share of the food bill that goes to marketing costs E) none of the above

23)

24) A reduction in marketing margins means A) profits in the marketing system will increase B) less of the product will be traded C) consumers get lower prices D) farmers get lower prices E) all of the above

24)

4

25) In a multi-level marketing model with both a farm level and a retail level, the intersection of the

25)

derived demand curve and the derived supply curve determines A) equilibrium price at the farm level and equilibrium quantity at the retail level

B) equilibrium price and quantity at the retail level C) equilibrium price at the retail level and equilibrium quantity at the farm level D) equilibrium price and quantity at the farm level E) nothing 26) Which of the following faces the most inelastic demand?

A) wheat farmer B) bread retailer C) flour miller D) bread baker E) It is the same for all.

26)

27) Primary supply in U.S. agriculture A) is always equal to primary demand B) is derived from primary demand C) is at the retail level D) would shift to the left if input prices for farmers fell E) is the summation of farmers' marginal costs

27)

28) The value added by farmers in $100 of retail food is approximately ________. The rest is added by

28)

the marketing system for inputs purchased by the farmer or by the post-farm marketing system.

A) $30 B) $20 C) $7 D) $25 E) $40

5

Answer Key Testname: CH 16

1) D 2) D 3) A 4) D 5) E 6) C 7) E 8) E 9) A 10) D 11) C 12) C 13) A 14) D 15) E 16) D 17) E 18) A 19) A 20) E 21) B 22) C 23) A 24) C 25) E 26) A 27) E 28) C

6

Exam

Chapter 17

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Futures contracts are A) promises B) the same thing as commodities C) created by the government and traded on exchanges D) created by individuals and traded on exchanges E) issued in initial public offerings

1)

2) A corn farmer who buys a corn futures contract in May is A) reducing taxes B) a hedger C) an investor D) betting that the price of corn will fall E) a speculator

2)

3) There are two traders of futures contracts. The first sells and then buys a contract. The second

3)

buys and then sells a contract. The first ________ and then ________ a position while the second ________ and then ________ a position.

A) closed; opened; closed; opened

B) opened; closed; opened; closed C) opened; closed; closed; opened D) closed; opened; opened; closed E) none of the above 4) What is traded at the Chicago Board of Trade?

A) bonds B) corn C) stocks D) frozen concentrated orange juice E) none of the above

4)

5) In March Sam sells a December corn futures contract to open a position. Sam can close this

5)

position by A) accepting delivery of corn in December

B) selling a June corn contract in December C) selling a December corn contract in August D) buying a June corn contract in December E) none of the above

1

6) A Florida grove owner who plans to harvest fruit in March should do what today to hedge his

6)

position?

A) sell a March FCOJ futures contract

B) sell a December FCOJ futures contract C) buy a March FCOJ futures contract D) buy a December FCOJ futures contract E) none of the above 7) Futures contracts A) must be bought before they can be sold B) are created by the exchanges on which they are bought and sold C) are created by a federal agency D) are limited in number in order to create scarcity E) give the holder the right, but not the obligation, to buy or sell a specified commodity at a

7)

8) Regardless of what happens to cash prices, A) speculators in futures contracts will lose money B) the price of futures contracts will remain stable C) speculators in futures contracts will earn money D) the basis on futures contracts approaches zero as the contract nears maturity E) none of the above

8)

9) Basis is predictable because of A) federal regulations B) orthogonal adjustments C) arbitrage D) the role of the Chicago Board of Trade E) none of the above

9)

10) In futures markets a speculator A) must be a floor trader B) is always a buyer C) takes opposite positions in cash and futures markets D) hopes to sell high and buy low E) is always a seller

10)

11) The prices for March, July, and September corn futures contract are listed in the newspaper. The

11)

future point in time

prices are 1. $2.78 2. $2.65 3. $2.85 Arrange these three prices in chronological order as they would appear in the paper.

A) 2-3-1 B) 3-2-1 C) 2-1-3 D) 3-1-2 E) 1-2-3

2

12) Hedging replaces price risk with A) basis risk B) contract risk C) price guarantees D) the Chicago Board of Trade E) futures contracts

12)

13) The basis on a futures contract is the difference between A) the price in Chicago and the price in Kansas City B) the cash price today and the cash price in the future C) a September contract and a December contract D) the cash price and the current price of a futures contract E) none of the above

13)

14) The use of futures markets to establish today the price that will be received in the future is called A) branding B) arbitrage C) hoarding D) speculating E) none of the above

14)

15) Which of the following is not standardized in a futures contract?

A) commodity quantity B) delivery price C) delivery date D) commodity quality E) delivery place

15)

16) The difference between the cash price of a commodity and the price of a futures contract for that

16)

commodity is called A) margin

B) split

C) basis

D) premium

E) spread

17) In October a grain elevator operator buys some corn that he plans to sell in March. In order to hedge this grain, he would A) buy a March contract in October

B) sell a March contract in October C) buy a March contract in March D) sell a March contract in March E) none of the above

3

17)

18) Farmer Dusty plans to harvest a corn crop in late fall. In order to hedge his crop he should A) buy a December futures contract in December B) buy a December futures contract in March C) sell a December futures contract in March D) buy a futures contract when he harvests E) sell a December futures contract in December

18)

19) A person who buys a June wheat contract today and sells a September wheat contract today is a(n) A) speculator B) arbitrager C) cross-hedger D) hedger E) broker

19)

20) The cash price today of wheat is $3.20/bu and the basis on a June contract is $-0.25/bu. What is the

20)

price today of a June futures contract?

A) $2.95

B) $3.45 C) $3.20 D) can't be determined with the information provided E) none of the above 21) As futures contracts approach the delivery date, A) basis increases B) marketing margins decrease C) marketing margins increase D) buyers of contracts must buy the commodity to complete the contract E) most open positions are closed out

21)

22) The practice of buying something at a low price in one market and selling it in another market at a

22)

higher price is called A) making a margin

B) cross trading C) leverage D) arbitrage E) none of the above 23) Futures contracts are standardized with regards to everything EXCEPT A) price B) quantity C) delivery location D) commodity E) delivery date

4

23)

24) Simultaneously buying and selling a product in two distinct markets is called A) price discrimination B) speculation C) price spreading D) arbitrage E) atrophy

24)

25) A wheat farmer who wants to hedge the crop he plans to harvest next June should do what?

A) buy a November contract in June B) sell a June contract today C) buy a June contract today D) sell a November contract in June E) none of the above

25)

26) A futures contract does NOT specify which of the following?

A) price B) delivery place C) delivery date D) quantity E) quality

26)

27) Most "open" positions on futures markets are "closed" by A) production B) speculators C) delivery D) buying or selling contracts E) hedgers

27)

28) Most futures contracts are A) closed by buying/selling an offsetting contract B) opened by buying/selling the commodity C) opened with an intent to deliver/accept delivery D) closed by delivery E) created by a branch of the U.S. Department of Agriculture

28)

29) Which of the following best describes the basis on a futures contract?

A) increases towards maturity B) random C) predictable D) fixed E) negative

29)

5

30) An individual who seeks to avoid price risk by taking opposite positions in the cash and futures

30)

markets is a(n) A) insurer

B) arbitrager C) investor D) speculator E) hedger 31) A hedger in futures markets A) buys in the hopes the price goes up B) creates opposite positions in the futures and commodity markets C) buys short and sells long D) buys simultaneously in both the cash and futures markets E) none of the above

31)

32) Futures markets A) can be used by farmers to reduce price risk over time B) determine what the price of grain will be in the future C) are used by farmers to buy and sell commodities like corn D) should only be used by investors willing to take large amounts of risk E) none of the above

32)

33) The difference between a cash price and a futures price is A) price spread B) basis C) marketing margin D) markup E) commission

33)

34) A hedger in futures markets A) is betting that the price of the commodity will go up B) is betting that the price of the commodity will go down C) is a risk taker D) is one who never intends to take physical possession of the commodity E) none of the above

34)

35) What is traded on futures markets is A) contracts B) corn C) bonds D) commodities E) products

35)

6

36) In futures markets, the buyer of a contract agrees to A) pay the market price at time of delivery B) accept delivery according to the terms of the contract C) make delivery according to the terms of the contract D) hedge a position in the physical market for the commodity E) sell it back before delivery

36)

37) A hedger will try to minimize the price risk associated with holding a physical commodity by A) buying and selling futures contracts with the same maturity dates B) buying and selling futures contracts with different maturity dates C) selling futures contracts when the commodity is acquired D) buying futures contracts when the price of a contract is more than the current cash price E) buying futures contracts when the commodity is acquired

37)

7

Answer Key Testname: CH 17

1) A 2) E 3) B 4) E 5) E 6) A 7) B 8) D 9) C 10) D 11) C 12) A 13) D 14) E 15) B 16) C 17) B 18) C 19) B 20) B 21) E 22) D 23) A 24) D 25) B 26) A 27) D 28) A 29) C 30) E 31) B 32) A 33) B 34) E 35) A 36) B 37) C

8

Chapter 18 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) According to The Wall Street Journal,, XYZ Corp. paid dividends of $3.50. This means that A) the board of directors will have to decide what to pay in dividends next year B) next year XYZ will pay $3.50 in dividends C) the dividend yield is 7% D) next year XYZ will pay at least $3.50 or more in dividends E) none of the above

1)

2) For a "no-load" mutual fund, A) the portfolio contains only stocks that are paying a dividend B) the portfolio is unmanaged C) there are no management fees D) the portfolio only has bonds E) none of the above

2)

3) The price of J.C. Penney stock is $50/share. Dividends are $2/share. Therefore, the P-E ratio for J.C.

3)

Penney is A) can't tell from the information given

B) 100 C) 2% D) 4% E) 25 4) A "round lot" of stock is A) worth $1,000 B) usually priced higher than an "odd lot" C) 1,000 shares D) 100 shares E) worth $100,000

4)

5) A U.S. Treasury bond issued several years ago matures in 2022 and has a coupon rate of 9%. The

5)

current price for this bond is approximately A) $1,000 B) $810 C) $1,820

1

D) $1,285

E) $985

6) The Dow Jones Industrial Average is based on the A) price of the 100 biggest stocks B) price of the 500 biggest stocks C) price of all stocks D) price of 30 blue-chip stocks E) none of the above

6)

7) Over time the ________ of a bond varies while the ________ does not.

A) price; current yield B) coupon rate; current yield C) coupon rate; face value D) coupon rate; price E) price; coupon rate

7)

8) A 9% Treasury bond that matures in 2029 would be trading today at approximately A) $740 B) $1,385 C) $1,000 D) $1,090 E) $1,850

8)

9) Money market mutual funds invest primarily in A) foreign bonds B) bonds issued by banks C) stocks issued by banks D) long-term bonds E) short-term certificates of deposit

9)

10) A typical "income stock" A) pays a high proportion of its earnings in the form of dividends B) has a high P-E ratio compared to similar companies C) has relatively high profits D) is that of a young, growing company E) has high retained earnings

10)

11) If the price of XYZ stock is $25 per share and the annual dividends per share are $3, then the A) price of the stock would never be less than $25 B) P-E ratio is 8.33 C) dividend yield is 8.33% D) P-E ratio is 12 E) none of the above

11)

2

12) Mutual funds A) promise investors a given return on investments B) are primarily designed for large investors with at least $1 million to invest C) involve a good deal more risk than buying stocks directly D) are unregulated investment pools E) none of the above

12)

13) Mutual funds invest in A) certificates of deposit B) government bonds C) stocks D) corporate bonds E) all of the above

13)

14) The current yield on a long Treasury bond today is about A) 6.7% B) 5.0% C) 5.8%

14) D) 8.4%

E) 6.2%

15) The coupon rate of a Treasury bond that matures in 2022 is 5.3%. The price of that bond in today's market would be approximately A) $790 B) $940

C) $1,000

D) $1,240

E) $1,150

16) The stock for Avon is listed in the paper with a price of 58 5/16, a dividend yield of 2.2%, and a P-E ratio of 23. The amount of annual dividend paid is A) $2.53 B) $1.28 C) $23

D) $0.45

C) $945

D) 94:23

16)

E) $0.51

17) The price of a Treasury bond that matures in 2023 and has a coupon rate of 8% would most likely be listed in the bond prices today as A) 100:0 B) 119:3

15)

17)

E) $1,000

18) Money market mutual funds A) are an attractive alternative to checking accounts B) pay no interest C) invest exclusively in long-term bonds D) invest exclusively in stocks E) none of the above

18)

19) During this semester, long-term bond prices A) have not changed much since interest rates have not changed much B) have gone up significantly because interest rates have gone up C) have gone down significantly because interest rates have gone down D) have gone up significantly because interest rates have gone down E) have gone down significantly because interest rates have gone up

19)

3

20) A major difference between bonds issued by corporations and those issued by state and local

20)

government agencies is A) interest earned on state and local issues is not taxable on federal income tax

B) state and local issues can never go bankrupt C) prices fluctuate more for corporate issues D) face value is usually smaller for corporate issues E) none of the above 21) In the past 12 months XYZ Corp. has had profits of $4/share and paid dividends of $3/share. The

21)

current price of the stock is $100/share. The P-E ratio is A) 4%

B) 25 C) 3% D) 33 E) none of the above 22) In the world of mutual funds, "load" refers to A) management fees as a percent of net asset value B) operating expenses C) net asset value D) number of shares issued E) none of the above

22)

23) The current price today of an 8% Treasury bond due in 2028 is about A) $1,250 B) $1,000 C) $925 D) $650

23) E) $1,550

24) Part ownership of a public company with rights to any dividends declared by the board of

24)

directors is called A) convertible stock

B) convertible bonds C) common stock D) corporate bonds E) preferred stock 25) A 6% bond that matures in 2005 is currently listed in the WSJ with a price of $115.

A) The coupon rate of this bond is 5.22%.

B) The buyer of this bond would have to pay $115 plus brokerage fees to buy this bond.

C) The face value of this bond is $1,150.

D) The holder of this bond receives $60 per year in interest.

E) This bond is currently in default.

4

25)

26) One distinguishing characteristic of bonds issued by state and local governments is that A) there is absolutely no risk B) they are available only through mutual funds C) interest is paid quarterly rather than semi-annually D) interest paid is not taxable by the federal government E) yields are substantially higher than for Treasuries

26)

27) Which of the following never changes over the life of a bond?

A) price B) prime rate C) market rate D) discount rate E) coupon rate

27)

28) An investor seeking to avoid risk should invest in A) certificates of deposit B) junk bonds C) growth stocks D) futures contracts E) none of the above

28)

29) The current yield of a Treasury bond maturing in 2023 with an 8% coupon listed in last Friday's

29)

paper would be A) 6.54%

B) 6.21%

C) 8.00%

D) 6.89%

E) 7.45%

30) The manager of a mutual fund must redeem shares of the fund at A) market price minus load B) gross adjusted market value C) net asset value D) market price plus load E) none of the above

30)

31) A firm wanting to raise additional funds by selling stock would contact a(n) ________ to arrange

31)

the deal.

A) accountant

B) stock exchange C) underwriter D) broker E) lawyer

5

32) The net asset value of a mutual fund is equal to A) the value of the portfolio B) the prospectus C) $1,000 D) its IPO E) none of the above

32)

33) For preferred stock A) the dividend is paid before interest is paid on bonds B) sales are permitted only to employees C) the dividend is larger than for common stock D) the dividend is fixed E) all of the above

33)

34) A "round lot" is A) $10,000 B) enough shares to equal or surpass $10,000 C) $1,000 D) $100 E) none of the above

34)

35) The Dow Jones Industrial Average A) is based on the prices of 30 blue-chip stocks B) has a divisor that never changes C) measures the amount of industrial production during a year D) includes only manufacturing companies E) has never been above 10,000

35)

36) A Treasury bond with maturity in 2020 and a coupon rate of 8% would currently trade for about A) $760 B) $1,000 C) $930 D) $1,115 E) $1,300

36)

37) At today's level of long-term interest rates, a Treasury bond with a coupon rate of 9% that

37)

matures in 2015 would be priced around A) $1,165 B) $1,435

C) $750

D) $1,215

38) The distinguishing characteristic of bonds issued by the State of Florida is A) interest is exempt from federal income taxes B) coupon rates are higher than on comparable Treasuries C) the price of the bond never changes D) the flamingo printed on the face of the bond E) the price of the bond is higher than comparable Treasuries

6

E) $1,000 38)

39) That portion of a corporation's profits that is returned to the shareholders is called A) net income B) interest C) P-E ratio D) earnings E) dividends

39)

40) The amount of coupon paid on a bond annually divided by market price of the bond is called A) coupon rate B) current rate C) P-E ratio D) face value ratio E) dividend yield

40)

41) The Bongo mutual fund has a portfolio worth $4 million. It has 2,540 investors who hold 100,000

41)

shares of Bongo. During the past year Bongo paid dividends of $3.50 per share. Therefore, A) the dividend yield is 4%

B) the P-E ratio is 11.4 C) the investment advisor of Bongo earned $350,000 last year D) the coupon rate is 7% E) the net asset value is $40 per share 42) A 5.2% Treasury bond is listed in The Wall Street Journal with a price of 95:4. If you were to buy

42)

one bond, how much would it cost?

A) $954

B) $951.25 C) $95.40 D) $1,000 E) none of the above 43) The current price of a Treasury bond with a coupon rate of 9% and maturity in 2025 is about A) $1,000 B) $720 C) $930 D) $1,380 E) $1,220

43)

44) If financial markets operate rationally, then we would expect to find about the same ________ for

44)

J.C. Penney and Sears.

A) P-E ratio

B) share price C) dividend D) dividend yield E) none of the above

7

45) Given the following information on Summit Corp.:

45)

Price per share: $30.00 Dividends per share: $2.30 Earnings per share: $4.20 Which of the following is correct?

A) The coupon rate of Summit is 7.1%.

B) The dividend yield of Summit is 7.7%.

C) The P-E ratio of Summit is 7.7.

D) The payout ratio of Summit is 1.8.

E) none of the above 46) A "no-load" mutual fund A) charges no initial sales charge B) is restricted to buying only bonds C) does not have a net asset value D) does not pass fund expenses back to shareholders E) cannot borrow in order to buy stock

46)

47) The net asset value of a mutual fund is A) determined by the Securities and Exchange Commission B) equal to the value of the fund's portfolio divided by the number of shares of the fund issued C) determined by the supply and demand for shares of the fund D) equal to the value of the fund's portfolio divided by the number of shares in the portfolio E) none of the above

47)

48) A tombstone is printed in The Wall Street Journal A) when a company wants to advertise its stock B) when a company goes bankrupt C) when a company issues new stock D) when a major investor dies E) none of the above

48)

49) An investor seeking a high level of liquidity would avoid A) time deposits B) junk bonds C) Treasuries D) corporate stocks E) money market mutual funds

49)

50) Assume that the U.S. Treasury is currently selling new long-term bonds with coupon rates of 9%

50)

and short-term bills for 6%. What is the current market price of a bond with a coupon rate of 14% that matures in March 1997?

A) $640 B) $1,560 C) $1,000 D) $900 E) $1,325

8

51) The Dow Jones Industrial Average A) is currently in the 1100 range B) is currently based on stocks traded only on the New York Stock Exchange C) is based on prices of stocks that have not been changed since 1995 D) is based on the prices of 500 stocks E) none of the above

51)

52) The current yield on junk bonds is either ________ or ________.

A) low; high B) zero; high C) the coupon rate; the Treasury rate D) zero; low E) the coupon rate; the market rate

52)

53) Normally speaking, the market or current rate of interest and the coupon rate of a bond A) are the same at the time the bond is issued B) vary inversely over time C) go down when the DJIA goes down D) don't change over time E) go up when the DJIA goes down

53)

54) The Dow Jones Industrial Average is based on A) prevailing interest rates B) commodity prices C) stock prices D) prices of stocks and bonds E) prices of bonds issued by major manufacturing companies

54)

55) Sam sold 400 shares of NetLord, Inc. on the New York Stock Exchange through his broker.

A) NetLord, Inc. gets nothing from this transaction.

B) The broker gets nothing from this transaction.

C) Sam and NetLord both get something from this transaction.

D) Sam gets nothing from this transaction.

E) NetLord and the broker both get something from this transaction.

55)

56) An 8%, 2015 bond issued by ABC is currently trading for $950. A 5%, 2015 bond issued by XYZ is

56)

currently trading for $1,100. Based on this information we can say A) they were both issued at the same time

B) ABC is paying more interest than it should C) XYZ is paying more interest than it should D) the risk associated with XYZ is greater than with ABC E) none of the above

9

57) The reason most investors buy state and local bond issues is because A) the interest paid is not taxable by the federal government B) they pay more interest than other bonds C) governments can never become insolvent D) they like to buy bonds in their local communities E) none of the above

57)

58) Fill in the blank.

58)

Bond U.S. Treasury U.S. Treasury

A) $1,300

Coupon 10% 8%

B) $1,000

Maturity 2010 2010

Price $1,300 ________

C) $1,040

D) $156

E) $1,560

59) A company that invests in a portfolio of stocks on behalf of many small investors is called A) a brokerage B) an investment pool C) mutual fund D) syndicate E) none of the above

59)

60) Which of the following would not be an appropriate investment for a retired widow?

A) income stocks B) junk bonds C) certificates of deposit D) quality corporate bonds E) money market mutual fund

60)

61) A money market mutual fund would NOT invest in A) Treasury bills B) certificates of deposit C) newly issued Treasury bonds D) foreign short-term certificates of deposit E) none of the above

61)

62) Alaska Airlines (a healthy company) and United Airlines (in bankruptcy) both have 8% bonds that

62)

mature in 2005. The price of the Alaska bond is 94. Based on this information it is safe to say that the A) price of the United bonds is greater than 94

B) current rate on the United bonds is greater than 8.5% C) coupon rate on the United bonds is less than 8% D) coupon rate on the United bonds is greater than 8% E) none of the above

10

63) Common stock A) has no voting rights B) stands before preferred stock in a bankruptcy C) has no guaranteed dividend D) has no P-E ratio E) none of the above

63)

64) Over the life of a typical bond, ________ never changes.

A) risk B) coupon rate C) market price D) market yield E) none of the above

64)

65) Mutual funds are A) only for bonds B) have been illegal since the banking reform of 1933 C) only for deposits D) only for stock E) none of the above

65)

66) In a corporation, the board of directors is A) composed of managers of the firm B) responsible for the day-to-day operations of the firm C) composed of the biggest stockholders D) elected by the shareholders E) appointed by the president of the corporation

66)

67) A right that holders of common stock have that holders of preferred stock do not have is A) guaranteed dividend B) constant stock price C) fixed share of profits D) vote for board of directors E) They both have the same rights.

67)

68) Investors buy bonds issued by state and local governments because A) there is almost no risk involved B) interest earned is exempt from federal taxes C) they mature more quickly than Treasury issues D) coupon rates are usually greater than for corporate bonds E) none of the above

68)

11

69) This week United Airlines announced that it had losses greater than expected in the past quarter.

69)

This news would cause the price of United Airlines bonds to ________ and the current yield to ________.

A) rise; fall

B) fall; fall C) rise; rise D) fall; rise E) none of the above 70) A "new issue" of stock A) avoids the use of tombstones B) is possible only if no shares have been previously issued C) is designed to raise funds for the company D) is usually sold on the New York Stock Exchange E) none of the above

70)

71) The Dow Jones Industrial Average A) has climbed above 12,000 this semester B) is based on the prices of 20 large corporate stocks C) is owned by the Dow Jones Corporation, which also publishes the Wall Street Journal D) is similar to the Asahi Index in Japan E) none of the above

71)

72) Unlike most bonds, zero coupon bonds are sold A) without a fixed maturity date B) on the stock market C) with a variable coupon rate over the life of the bond D) at a deep discount to face value E) none of the above

72)

73) Which of the following Treasury bonds was most likely issued in January 2000? (Coupon rate and

73)

maturity are listed.)

A) 6.2%, May 2000

B) 5.5%, 2026 C) 6.7%, 2025 D) 4.5%, 2023 E) 4%, 2020 74) A 30-year Treasury that matures in 2025 with a coupon rate of 9% would be priced in today's market at approximately A) $1,000 B) $1,250

C) $950

12

D) $1,400

E) $840

74)

75) The price of Gator stock is $40/share. The dividend yield is 4.5% and the P-E ratio is 20. Therefore, A) annual earnings per share are $1.80/share B) the annual dividend is $1.80/share C) the annual dividend is $2/share D) annual earnings per share are $0.50/share E) none of the above

75)

76) The price of IBM stock last year was $50 per share. Today it is $70 per share. Every year IBM pays

76)

dividends of $2 per share. Last year its profits were $7 per share. Therefore, A) the coupon rate on IBM bonds is 4%

B) owners of IBM stock were paid $20 last year C) the dividend yield today is 8% D) the P-E ratio today is 10% E) none of the above 77) Mutual funds must invest A) in bonds only B) in stocks and bonds only C) in stocks only D) only in those items specified by the Securities and Exchange Commission E) only in those items specified by the prospectus

77)

78) The interest on bonds issued by the State of Florida is A) guaranteed by the federal government B) paid at the beginning of the life of the bond instead of at the end C) only payable to residents of Florida D) exempt from federal income taxes E) none of the above

78)

79) The current yield on a three-month Treasury bill is about A) 5.65% B) $15 C) 4.45% D) 4.2% E) depends on the coupon rate

79)

80) Junk bonds A) frequently are in default, paying no interest to holders B) are relatively cheap compared to high quality bonds with similar coupons and maturities C) involve a high degree of risk D) have relatively high current yields if they are paying interest at all E) all of the above

80)

13

81) At any given point in time, the lowest current yield will be earned on A) junk bonds B) short-term Treasuries C) long-term Treasuries D) government agency issues E) quality corporate bonds

81)

82) The face value of a bond A) is small on zero coupon bonds B) approaches $1,000 as the bond approaches maturity C) goes up when interest rates go down D) is always $1,000 E) goes up when interest rates go up

82)

83) The Wall Street Journal reports the following for Fred's Food Factory, Inc. (FFF):

83)

Dividend yield: 1.2% P-E ratio: 45 Based on this information, A) FFF would be a good stock for a retired person needing income to buy food

B) FFF is a growth stock C) FFF is close to bankruptcy D) the price of FFF stock is $54 per share E) the price of FFF stock is $37.50 per share 84) The distinguishing characteristic of preferred stock is that A) holders get more dividends than holders of commonstock B) holders get to vote on corporate matters C) the price of the shares is constant D) holders get a fixed dividend E) none of the above

84)

85) A bond is currently priced at $920 per bond. According to the paper, the current yield of this bond

85)

is 8.5%. What is the coupon rate of this bond?

A) 7.82%

B) 4.53% C) 6.83% D) can't tell based on the information provided E) none of the above

14

86) Over time, bond prices A) rise and fall with the stock market B) vary inversely with the market rate of interest C) vary inversely with the coupon rate of the bond D) are constant E) vary directly with the market rate of interest

86)

87) Last year Sam bought a new issue 30-year Treasury bond with an 8% coupon. Today new issue

87)

30-year Treasury bonds have coupon rates of 6.5%. What is the current (or effective) yield on Sam's bond today?

A) 6.5%

B) 9.5% C) 8.0% D) 1.5% E) can't tell based on the information given 88) The price of a U.S. Treasury bill is quoted in the Wall Street Journal as 79:16. How much would an

88)

investor have to pay for one of these bills?

A) $795

B) $1,000 C) $79.16 D) can't tell based on information provided E) $791.60 89) When a government or corporation borrows from the public, it A) buys bonds B) sells bonds C) goes to a Federal Reserve Bank D) goes to a commercial bank E) none of the above

89)

90) At any time, the owner of shares in a mutual fund may sell those shares A) to the fund manager at net asset value B) on the New York Stock Exchange C) to the companies whose stocks are in the portfolio D) at whatever price the market will bear E) none of the above

90)

15

91) Sam owns a bond that pays him $65 per year in interest. The price of the bond is currently $950.

91)

Sam is in the 32% tax bracket and the discount rate is 5%. The coupon rate and current yield of Sam's bond are A) 5% and 6.5%

B) 6.5% and 5% C) 6.8% and 5% D) 6.5% and 6.5% E) 6.5% and 6.8% 92) An IPO would NOT be appropriate for a A) mature company like Disney B) company whose stock is not publicly traded C) new company D) company that wanted to raise money E) none of the above

92)

93) An investor who is willing to accept a high level of risk would be interested in investing in A) Treasury bills B) income stocks C) money market mutual funds D) certificates of deposit E) junk bonds

93)

94) By law, the manager of a mutual fund must A) not advertise the fund B) be ready to buy back shares outstanding at the net asset value C) publish a tombstone in The Wall Street Journal before selling shares to the public D) sell shares to the public at the net asset value E) none of the above

94)

95) The current P-E ratio for Dandy, Inc. stock is 43 and the dividend yield is 0.4%. Therefore, A) Dandy is a preferred stock B) Dandy is a growth stock C) Dandy is an income stock D) Dandy earned no profit last year E) none of the above.

95)

96) Given today's interest rates, a 30-year Treasury bond with a 10% coupon yield would be listed in

96)

The Wall Street Journal with a price of about A) $75 B) $100 C) $90

16

D) $190

E) $130

97) Which of the following is NOT characteristic of a growth stock?

A) high proportion of profits reinvested B) no dividends C) high dividend yield D) high P-E ratio E) earnings growth

97)

98) The stock of XYZ Corp. currently trades at $20/share. Its P-E ratio is 12 and its dividend yield is

98)

5%. How much will the next quarterly dividend be?

A) $2.40/share

B) can't tell based on the information provided C) $0.25/share D) $0.60/share E) $1/share 99) The distinguishing characteristic of preferred stock is A) the amount of the dividend is fixed B) it pays higher dividends than common stock C) that only preferred holders can vote D) payment of the dividend is guaranteed E) none of the above

99)

100) The price of XYZ stock is $24 per share. It paid dividends of $1.20 per share during the last 12

100)

months and had earnings of $3.05 during the past 12 months. Therefore, A) the P-E ratio is 5

B) the dividend yield is 7.2% C) it will pay dividends of $1.20 during the next 12 months D) the P-E ratio is 13 E) none of the above 101) For a typical bond, which of the following will change over the life of the bond?

A) coupon rate B) price C) face value D) maturity E) all of the above

101)

102) Over time, this never changes: A) price of a bond B) coupon rate of a bond C) current yield of a bond D) market rate of interest E) none of the above

102)

17

103) A Treasury bond with a coupon rate of 10.5% that matures in October 1998 would have a current market price of approximately A) $500 B) $1,500

C) $1,200

D) $2,000

103)

E) $1,000

104) A previously issued bond with a coupon rate of 7% that matures in 2010 was purchased last year

104)

for $900. How much interest does the holder of this bond receive each year?

A) $63 B) $100

C) $70

D) can't tell based on the information given

105) The Dow Jones Industrial Average is compiled by A) Standard and Poor's B) the company that owns The Wall Street Journal C) two professors at the University of Chicago D) a consulting firm E) none of the above

105)

106) A U.S. Treasury bond has a maturity in 1928 and a coupon rate of 11%. This bond would be priced

106)

today at approximately A) $1,530 B) $1,000

C) $650

D) $1,270

E) $920

107) Today, a Treasury bond that matures in 2029 that has an 8% coupon rate would be priced at about A) $1,230 B) $1,000 C) $1,540 D) $810 E) $720

107)

108) A conservative investor who wants to avoid any potential loss of principal (i.e., the original

108)

amount invested) should invest in A) gold

B) money market mutual funds C) junk bonds D) growth stocks E) all of the above 109) The price today of a Treasury bond that matures in 2020 with a coupon rate of 12% would be closest to A) $1,500

B) $1,000

C) $660

D) $800

E) $1,200

110) A "no-load" mutual fund A) charges no purchase commissions B) is one in which the fund manager collects no management fees C) is a fund in which the net asset value is constant D) has more risk than a "load" fund E) none of the above 111) What is the current price of a 7% Treasury bond that matures in 2029?

A) $1,060 B) $760 C) $1,000 D) $1,240 18

109)

110)

111) E) $1,460

112) XYZ Corp. had earnings last year of $3/share and paid dividends of $2/share. The current market

112)

price of XYZ is $33 per share. Therefore, A) the dividend ratio is 50%

B) the P-E ratio is 11 C) the company is insolvent and in bankruptcy D) the dividend yield is 9% E) all of the above 113) The current price (in today's market) of a 3.5% Treasury that matures next month is approximately A) $1,150 B) $580 C) $1,250 D) $1,000 E) $920

113)

114) The current rate on three-month Treasuries is about A) 4.2% B) 5.7% C) 2.4%

114) D) 3.2%

E) 3.8%

115) One advantage of holding stock is A) that dividends are not subject to federal income tax B) that unrealized capital gains are not subject to federal income tax C) that stock values are insured by an agency of the federal government D) you can't lose money even if the company goes bankrupt E) all of the above

115)

116) For a typical growth stock, one would expect to find a A) high price B) high dividend yield C) low price D) price-earnings ratio that is above the market average E) large dividend relative to the price of the stock

116)

117) According to the WSJ, the price of XYZ Corp. is $45/share; its dividend yield is 5%; and the P-E

117)

ratio is 12. Therefore, A) the annual earnings of XYZ are $2.25 per share

B) the annual earnings of XYZ are $5 per share C) dividends paid are $3.75 per share D) a round lot of XYZ would cost $540 E) none of the above 118) Shares of a mutual fund are redeemed A) when the value of the portfolio has risen by 25% B) at net asset value C) whenever the fund manager wants to D) at whatever price the manager sets E) none of the above

19

118)

119) Which of the following would be the least appropriate investment alternative for a widow living

119)

off the proceeds of her investments?

A) income stocks

B) certificates of deposit C) growth stocks D) money market mutual fund E) quality bonds 120) If the Treasury were to issue some new 30-year bonds today, the coupon rate on them would have

120)

to be

A) about 8% B) exactly $1,000 C) higher than rates on similar corporate issues D) about 5.5% E) none of the above 121) The manager of a mutual fund must A) stand ready to buy back shares of the fund at any time at the net asset value B) limit fund expenses to no more than 2% of the net asset value C) maintain the net asset value of shares in the fund at a constant price D) stand ready to sell shares of the fund at any time at a price no higher than the net asset value

121)

122) An IBM bond with an 11% coupon and 20-year maturity currently trades for $900. What is the

122)

of the fund E) all of the above

current yield of this bond?

A) $99

B) $110 C) 7.45% D) 11% E) none of the above 123) The call provisions of a bond deal with A) conditions of early redemption B) the effective yield C) payment terms at maturity D) the coupon rate E) none of the above

123)

20

124) Two years ago DEF Corp. earned $5/share and paid dividends of $4.50/share. In the past year it

124)

earned $5.50/share and paid $5/share in dividends. Current share price is $80/share. DEF is an example of a(n) A) earnings stock

B) preferred stock C) income stock D) growth stock E) none of the above 125) If a company distributes some of its profits to the owners of the company, that is called A) coupon rate B) dividends C) earnings D) equity E) none of the above

125)

126) If the U.S. Treasury issued some new 30-year bonds this week, the coupon rate would most likely

126)

be

A) 8%

B) 6%

C) 4%

D) 7%

E) 5%

127) The price of a Treasury bond is listed in the WSJ as 93:30. How much would the buyer of this

127)

bond have to pay for it?

A) $93.30

B) $1,000 C) $933 D) $930.30 E) none of the above 128) The current price (in today's market) of an 8% Treasury that matures in 2025 is about A) $1,000 B) $1,625 C) $1,333 D) $940 E) $780

128)

129) The owner of common stock A) is free to sell the stock at any time B) may share in the earnings of the company in the form of dividends C) is entitled to vote for the company's management D) is part owner of the company E) all of the above

129)

130) A U.S. Treasury bond that matures in 2025 with a coupon of 8.5% would trade today for about A) $1,365 B) $1,500 C) $670 D) $1,200 E) $1,000

130)

21

131) Long-term bond prices rise and fall as A) as the market rate of interest changes B) coupon rates change C) the economy goes through the business cycle D) as stock prices rise and fall E) none of the above

131)

132) An 8.5% Treasury bond that matures in 2027 has a current yield of A) 5.65% B) $1,000 C) $85 D) 8.5%

132) E) 6.5%

133) "Junk bonds" are A) relatively safe investments B) bonds that may not pay interest but they will always return face value at maturity C) bonds of companies that no longer exist D) bonds issued by recycling companies E) none of the above

133)

134) According to The Wall Street Journal, the stock of Gator Enterprises (GE) pays a dividend of $1; has

134)

a dividend yield of 5% and a P-E ratio of 10. Therefore, A) the price of GE stock is $50/share

B) the earnings of GE stock are $2/share C) the price of the stock is $10/share D) the earnings of GE are $1/share E) none of the above 135) The current market price for a 7 3/8% Treasury that matures in 2012 is listed in The Wall Street

135)

Journal as 108:20. How much interest does the holder of this bond receive annually?

A) $108.62

B) can't tell based on the information presented C) $737.50 D) $7.37 E) $73.75 136) The U.S. Treasury recently issued some new 30-year bonds. How much interest will the Treasury pay over the life of these bonds?

A) $2,300 B) $1,800

C) $1,000

D) $60

137) When an investor in a mutual fund redeems shares, the fund manager A) must pay net asset value B) must return what was paid when the shares were purchased C) pays net asset value minus the load the fund charges D) pays net asset value plus the load the fund charges E) none of the above

22

136)

E) $1,500 137)

138) For a mutual fund, net asset value is A) less than the offer price for a no-load fund B) the price at which the manager must redeem shares if the owner of fund shares wants to get

138)

out of the fund

C) the per share value of the fund's portfolio net of the 8% sales fee D) more than the offer price for load funds E) all of the above SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

139) What are the characteristics of firms with high P-E ratios?

139)

140) What is unique about preferred stock?

140)

141) What kind of stock is traded on the New York Stock Exchange and other stock exchanges?

141)

142) Distinguish between a new issue of stock and an IPO.

142)

143) How is the new asset value of a mutual fund calculated?

143)

144) What two promises does a bond make to the holder of the bond?

144)

145) How is the current (or effective) yield of a previously issued bond calculated?

145)

146) What are blue chips?

146)

147) Over time, what drives bond prices up and down?

147)

23

Answer Key Testname: CH 18

1) A 2) E 3) A 4) D 5) D 6) E 7) E 8) B 9) E 10) A 11) E 12) E 13) E 14) A 15) A 16) B 17) B 18) A 19) A 20) A 21) B 22) E 23) E 24) C 25) D 26) D 27) E 28) A 29) A 30) C 31) C 32) E 33) D 34) E 35) A 36) E 37) D 38) A 39) E 40) B 41) E 42) B 24

Answer Key Testname: CH 18

43) D 44) A 45) B 46) A 47) B 48) C 49) B 50) C 51) E 52) B 53) A 54) C 55) A 56) D 57) A 58) C 59) C 60) B 61) C 62) B 63) C 64) B 65) E 66) D 67) D 68) B 69) D 70) C 71) C 72) D 73) C 74) B 75) B 76) E 77) E 78) D 79) C 80) E 81) B 82) D 83) B 84) D 25

Answer Key Testname: CH 18

85) A 86) B 87) A 88) A 89) B 90) A 91) E 92) A 93) E 94) B 95) B 96) E 97) C 98) B 99) A 100) E 101) B 102) B 103) E 104) C 105) B 106) A 107) A 108) B 109) A 110) A 111) D 112) B 113) D 114) A 115) B 116) D 117) E 118) B 119) C 120) A 121) A 122) E 123) A 124) C 125) B 126) D 26

Answer Key Testname: CH 18

127) E 128) C 129) E 130) B 131) A 132) A 133) E 134) B 135) E 136) B 137) A 138) B 139) companies with above average growth potential; companies that have earnings per share increasing at a rapid rate 140) Dividends on preferred stock are paid before dividends on common stock and a fixed amount of dividend is

promised.

141) previously issued stock 142) A new issue is additional stock issued by a company that already has some stock issued. An initial public offering is stock of a company that is offered to the public for the first time.

143) It is equal to the current value of the fund's portfolio divided by the number of shares of the mutual fund outstanding.

144) to pay a fixed amount of interest every year until maturity, and to repay the $1,000 initially borrowed at maturity 145) The current yield of a bond is equal to the annual interest payment expressed as a percentage of the current market price of the bond.

146) stocks of the biggest, soundest companies 147) The prevailing market rate of interest. If interest rates rise, bond prices fall, and vice versa.

27

Chapter 19 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The opposite of compounding is A) anticompounding B) discounting C) recompounding D) hedging E) decompounding

1)

2) That discount rate at which the present value of the costs of an investment is equal to the present

2)

value of the returns.

A) internal rate of return

B) optimal rate of return C) equi-discount rate D) optimal discount rate E) zero return rate 3) The net present value of an investment depends on A) the discount rate B) interest rates C) inflation D) capital gains E) taxes

3)

4) The opportunity cost of money is measured by the A) capitalization rate B) internal rate of return C) compound rate D) interest rate E) discount rate

4)

5) The difference between present value and future value is A) the inflation rate B) the opportunity cost of money C) compounded D) discounted E) the discount rate

5)

6) The present value of $100 to be received two years from now at a discount rate of 15% is A) $85 B) $70 C) $130 D) $75.61 E) $132.25

6)

1

7) For a typical investment, an increase in the discount rate, ceteris paribus, will A) increase the net present value of the investment B) increase the present value of the returns C) decrease the internal rate of return D) increase the internal rate of return E) none of the above

7)

8) For a typical investment, as the discount rate increases, the A) net present value of the investment increases B) present value of costs increases C) internal rate of return falls D) present value of benefits increases E) none of the above

8)

9) In order to find the net present value of an investment, one should A) discount the costs and compound the returns B) discount the net returns C) use the internal rate of return D) compound the costs and discount the returns E) none of the above

9)

10) The discount rate that makes the net present value of an investment equal to zero is called the A) compound rate B) internal rate of return C) rate of return on investment D) zero discount rate E) net present value rate

10)

2

Answer Key Testname: CH 19

1) B 2) A 3) A 4) E 5) B 6) D 7) E 8) E 9) B 10) B

3

Chapter 20 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Which of the following is a significant source of long-term credit for U.S. agriculture, but is NOT a

1)

source for short-term credit?

A) insurance companies

B) Farm Service Agency C) commercial banks D) Farm Credit Service E) none of the above 2) As a result of the creation of the Federal Agricultural Mortgage Corporation, which of the

2)

following became more active in making long-term loans to farmers?

A) individuals

B) insurance companies C) commercial banks D) Farm Credit System E) Farm Service Agency 3) Profits of an agricultural cooperative A) may be distributed in whatever fashion the board of directors agrees on B) are always equal to zero C) are distributed to members on the basis of patronage D) are distributed to shareholders on the basis of shares held E) are never distributed to members of the coop

3)

4) Which of the following is NOT true about the Funding Corporation of the Farm Credit Service?

A) It is part of the vertical integration of Farm Credit Service.

B) It raises money by selling bonds on Wall Street.

C) It is the largest borrower on Wall Street.

D) It is a cooperative.

E) none of the above

4)

5) The Farm Credit Service is a good example of A) a rural savings bank B) vertical integration C) leverage D) a marketing cooperative E) arbitrage

5)

1

6) Ordinary corporations and cooperative corporations differ from one another in most respects

6)

except A) management

B) voting C) ownership D) clients E) taxation 7) Which of the following deals exclusively with farm mortgages?

A) Bank for Cooperatives B) Farm Credit Service C) Farm Service Agency D) insurance companies E) Farmer Mac

7)

8) A farmer seeking the "lender of last resort" would go to A) Federal Agricultural Mortgage Corporation B) Federal Farmers Finance Corporation C) Farm Credit System D) Farm Service Agency E) Farm Bank

8)

9) What is the objective of the Funding Corporation of the Farm Credit System (FCS)?

A) to distribute the profits of the FCS to members B) to reinvest the profits of the FCS in the market C) to distribute profits from profitable FSC members to unprofitable members D) to supervise member bank's funds E) none of the above

9)

10) Profits of a cooperative corporation are returned to the owners of the coop on the basis of A) membership B) sales C) patronage D) return to equity E) share of stock owned

10)

11) The most common source of non-real estate credit for farmers is A) individuals B) insurance companies C) Farm Credit Service D) commercial banks E) Farm Service Agency

11)

2

12) The Farm Credit Funding Corp.

A) makes loans to both large and small farmers B) makes loans to large farmers C) sells mortgage backed securities on the secondary market D) sells bonds on Wall Street E) is federally insured

12)

13) A patronage refund A) is proportional to the amount of business the member does with a cooperative B) is paid by all corporations C) is paid by the Farm Service Agency to all borrowers D) must be paid by all cooperatives E) none of the above

13)

14) A unique feature of agricultural cooperatives is A) they don't earn profits B) they are not corporations C) membership is closed D) that dividends paid by them are not taxable E) they are exempt from anti-trust legislation

14)

15) Farmer Mac encouraged the return of ________ to farm real estate lending.

A) Farm Service Agency B) individuals C) Farm Credit Service D) insurance companies E) none of the above

15)

16) The Farm Credit System gets the money it lends out to farmers from A) the U.S. Department of Agriculture B) "Farmer Mac" C) the Farm Service Agency D) the U.S. Treasury E) none of the above

16)

17) The Farm Credit System A) receives protection of the Capper-Volstead Act B) is an agency of the U.S. Department of Agriculture C) is a "lender of last resort" D) only makes long-term loans E) all of the above

17)

3

18) Which of the following is NOT a cooperative?

A) Kraft B) Sunkist C) Blue Diamond D) Land O' Lakes E) Ocean Spray

18)

19) Which of the following do not typically provide short-term credit to farmers?

A) individuals B) commercial banks C) Farm Service Agency D) Farm Credit Service E) insurance companies

19)

20) Agricultural cooperatives allow farmers to A) avoid transportation costs B) gain bargaining power C) fix prices D) avoid paying personal income taxes E) none of the above

20)

4

Answer Key Testname: CH 20

1) A 2) C 3) C 4) C 5) B 6) A 7) E 8) D 9) E 10) C 11) D 12) D 13) A 14) E 15) E 16) E 17) A 18) A 19) E 20) B

5

Chapter 21 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) When markets do not produce socially desirable results, we have A) externalities B) market failure C) public goods D) internalities E) none of the above

1)

2) In the case of higher education in the absence of any government intervention in the market A) MPB < MSB B) MPC > MSC C) MPB > MSB D) MPC < MSC E) none of the above

2)

3) When externalities exist, the usual remedy is A) to ignore them B) to use a tax or subsidy C) to use government to allocate resource D) to define property rights clearly E) none of the above

3)

4) If the social value of a good differs from the private value of that good, then A) the goods are common property goods B) externalities exist C) property rights are poorly defined D) a tax on the good is needed E) the goods are public goods

4)

5) Professor Ronald Coase worked in the area of A) public goods B) externalities C) cooperatives D) property rights E) futures markets

5)

1

6) Pollution from a proposed cement plant nearby is an example of A) a public good B) marginal social costs C) externalities D) common goods E) maximum sustainable yield

6)

7) Which of the following would NOT be an appropriate action in a situation where the marginal

7)

social costs of providing a good are not equal to the marginal social benefits?

A) quota

B) restrictions/regulations C) subsidy D) tax E) none of the above 8) A "bubble" pollution control policy calls for a A) regional limit to the total amount of pollution B) tax on polluters in proportion to the amount of pollution created C) subsidy to those firms that abate pollution D) restriction on the amount of pollution each firm produces E) none of the above

8)

9) By definition, a characteristic of a public good is that A) consumption is rival B) production demonstrates economies of scale C) consumption is non-excludable D) maximum sustainable yield is not achieved E) property rights are not clearly defined

9)

10) Unintended impacts on a third party of an economic transaction between the first two parties are

10)

called

A) common property B) externalities C) poorly defined property rights D) public goods E) none of the above 11) "Free riders" are a common problem for A) goods with substantial benefit externalities B) goods with poorly defined property rights C) goods with substantial cost externalities D) public goods E) common goods

11)

2

12) Costs of an economic activity not borne by the recipient of the benefits of that activity are called A) spillover B) externalities C) indirect costs D) opportunity costs E) social cost

12)

13) An example of market failure due to asymmetric knowledge is A) used cars B) shrimpers C) higher education D) eggs E) fast food hamburgers

13)

14) A socially optimal distribution of resources is one that equates A) marginal social costs and marginal social benefits B) marginal private benefits and marginal private costs C) marginal social costs and marginal private costs D) marginal private benefits and marginal social benefits E) none of the above

14)

15) The economist who pointed out that market failure can be reduced by reducing transactions costs

15)

is

A) Alan Greenspan B) Milton Friedman C) John Maynard Keynes D) Paul Samuelson E) none of the above 16) Marginal social costs A) are equal to marginal social benefits if marginal private benefits are equal to marginal

16)

private costs

B) have poorly defined property rights C) are equal to marginal private costs if externalities are present D) are not equal to marginal social benefits in cases of market failure E) none of the above 17) Which of the following is NOT one of the conditions of the Coase Theorem?

A) if transactions costs are low B) if both parties stand to gain C) if there are no externalities D) if property rights are clearly defined E) none of the above

3

17)

18) Consumption that is nonrival is characteristic of A) common property goods B) land C) capital goods D) natural resources E) public goods

18)

19) Ron Coase pointed out the importance of ________ in market failures.

A) non-excludable consumption B) externalities C) transaction costs D) government regulations E) all of the above

19)

20) When externalities are present in a market, the market can be made to behave in a socially optimal

20)

fashion through the use of A) government regulations

B) price controls C) a tax on production D) maximum sustainable yield E) clear property rights 21) The implication of the Coase Theorem is that government can provide a beneficial service to

21)

society by A) balancing the budget

B) providing social services such as Social Security C) reducing taxes D) reducing pollution E) clearly defining property rights 22) Markets do not produce socially optimal results when A) prices are freely determined B) supply does not equal demand C) they operate in laissez faire D) consumption is competitive E) property rights are poorly defined

4

22)

23) If, at a socially desirable level of output the marginal private benefit of an activity exceeds the

marginal private cost, then what would be an appropriate market based policy to obtain social optimization?

A) a subsidy for the activity

B) government regulation of the activity C) set a fixed price below the equilibrium price D) a tax on the activity E) none of the above

5

23)

Answer Key Testname: CH 21

1) B 2) A 3) B 4) B 5) D 6) C 7) E 8) A 9) C 10) B 11) D 12) B 13) A 14) A 15) E 16) D 17) C 18) E 19) C 20) C 21) E 22) E 23) D

6

Chapter 22 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) One country that seems to have avoided the demographic transition is A) Kenya B) Brazil C) Nigeria D) Mexico

1) E) China

2) The amount of arable (can be plowed) land available for the average person on this little planet

2)

we call earth is approximately A) the size of a basketball court

B) one hectare C) 6/10ths of a football field D) 2.2 acres E) none of the above 3) If "preventative" checks on population growth aren't taken it will inevitably be necessary to use

3)

the "positive" checks of war and famine. This was the basic premise of A) John Maynard Keynes

B) David Riccardo C) Thomas Malthus D) Karl Marx E) Adam Smith 4) Thomas Malthus A) is William J. Blythe B) said food production increases geometrically C) developed the concept of maximum sustainable yield D) was a Calvinist minister E) none of the above

4)

5) The amount of arable land per capita in the world today is about A) one square mile B) 10 square yards C) two-thirds of a football field D) 0.2 acres E) one city block

5)

1

6) Population tends to increase more rapidly than food production. This is the fundamental theme of A) Thomas Malthus B) David Ricardo C) Pope Paul D) Adam Smith E) Rachael Carson

6)

7) First prophet of a population crisis A) Malthus B) Linnus

7) C) Mendel

D) Keynes

E) Locke

8) The population of the world today is about A) 6.3 billion B) 4.6 billion C) 270 million D) 2.3 billion E) 9.6 billion

8)

9) An early proponent of population control was A) Lee Sung Yu B) Thomas Malthus C) Karl Marx D) John Maynard Keynes E) Adam Smith

9)

10) An acre is roughly the size of A) a basketball court B) a typical city block C) two basketball courts D) a football field E) none of the above

10)

11) The demographic transition divides societies into traditional, developing, and developed.

11)

According to this theory A) birth rates are highest in the traditional societies

B) the natural rate of population growth is approximately the same in all three societies C) birth rates and death rates are significantly different in developed societies D) birth rates and death rates are significantly different in developing societies E) birth rates and death rates are significantly different in traditional societies

2

Answer Key Testname: CH 22

1) E 2) C 3) C 4) D 5) C 6) A 7) A 8) A 9) B 10) D 11) D

3

Chapter 23 Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Day in and day out, about ________ people die of hunger each day.

A) 24,000 B) 10,000 C) 28,000 D) 45,000

1) E) 5,000

2) The income elasticity of demand for protein sources such as milk and eggs in a developing country is typically close to A) +1.0 B) -4.0

C) 0.0

D) -1.0

2)

E) +4.0

3) Who is most likely to die of hunger?

A) a rural, young, female B) a rural, old, male C) a rural, old, female D) an urban, young, female E) an urban, young, male

3)

4) The ________ elasticity for protein in developing countries is ________.

A) income; high B) demand; elastic C) income; less than zero D) demand; low E) supply; inelastic

4)

5) The average number of daily deaths from hunger in the world is approximately A) 12,000 B) 1.2 million C) 80,000 D) 24,000 E) 4,000

5)

6) As economic growth progresses in a relatively poor country, the rate of growth of ________ is the

6)

highest.

A) demand for food marketing services

B) income C) demand for grains and starches D) population E) demand for food

1

7) During the economic development process, which of the following grows at the most rapid pace?

A) demand for food B) demand for food marketing services C) demand for grains D) income E) population

7)

8) During economic growth as a poor country becomes richer, the fastest growth occurs in A) the demand for food marketing services B) per capita income C) the demand for staples such as rice D) the demand for food E) the population

8)

9) Hunger is most prevalent among the A) old, rural females B) old, urban males C) young, urban females D) old, rural males E) young, rural females

9)

2

Answer Key Testname: CH 23

1) A 2) A 3) A 4) A 5) D 6) A 7) B 8) A 9) E

3