ECN 212: FINAL EXAM MULTIPLE CHOICE STUDY GUIDE
UPDATED ACTUAL QUESTIONS AND CORRECT
ANSWERS
Question:
1. Millions of producers working across the world cooperate to ensure that many more millions of
consumers can have the goods and services they desire. These producers do not know each other and are
not coordinated by a central agency. Their actions are directed simply by:
A) their governments.
B) robotic technology.
C) computer technology.
D) self-Interest.
Answer:
D) self-interest.
Question:
2. After a hurricane knocks out power to thousands of households, the price of electric generators increases
threefold. According to economists:
A) this is a vivid example of market and class exploitation by capitalists.
B) this discourages the use of electric generators in low-value uses, making them more readily available
for high-value uses
C) the rising price will give an incentive for firms to ship fewer electric generators to the disaster area
D) the increase in demand for electric generators should technically cause the price to fall after a hurricane
Answer:
B) this discourages the use of electric generators in low-value uses, making them more readily available
for high-value uses
Question:
3. Circa 1200 BCE, a decreasing supply of tin due to wars and the breakdown of trade led to a drastic
increase in the price of bronze in the Middle East and Greece (tin being necessary for its production). It is
around this time that blacksmiths developed iron- and steel-making techniques (as substitutes for bronze).
What does the increasing price of bronze signal?
A) It tells people to buy more bronze because it is going to be more valuable in the future
B) It tells people that the wars in the Middle East and Greece are coming close to being resolved because
of bronze scarcity
C) It tells people that there is a price bubble forming around bronze and that people are overvaluing the
price of bronze
D) It tells people that bronze is getting harder to find and its higher price will signal consumers to conserve
it more or seek substitutes
Answer:
D) It tells people that bronze is getting harder to find and its higher price will signal consumers to conserve
it more or seek substitutes
,Question:
4. Suppose that changing climate conditions results in a shortage of wood. Which of the following is the
most likely consequence of this shortage?
A) Paper, which is made from wood, would be rendered obsolete by continued technological advancement.
B) Houses would be torn down, and the wood used to make them recycled towards more valuable uses.
New houses would be built with other materials.
C) No one has any idea, but the market system will sort everything out for us, and make sure we continue
to use wood in the most valuable ways possible.
D) Local governments would restrict the use of wood for burning in fireplaces, as this is not a necessary
use.
Answer:
C) No one has any idea, but the market system will sort everything out for us, and make sure we continue
to use wood in the most valuable ways possible
Question:
5. A prediction market is a:
A) perfectly functioning futures marker, so that futures output can be interpreted as probabilities and used
to make predictions
B) speculative market carefully designed so that output can be interpreted as probabilities and used to
make predictions
C) perfectly functioning futures market, so that futures prices can be interpreted as probabilities and used
to make predictions
D) speculative market carefully designed so that prices can be interpreted as probabilities and used to make
predictions
Answer:
D) speculative market carefully designed so that prices can be interpreted as probabilities and used to make
predictions
Question:
6. Increasing prices act as a signal to:
A) consumers that the good is overvalued.
B) speculators that the opportunity cost of the good is falling
C) politicians that price gouging is occurring
D) suppliers to increase the quantity supplied in those markets
Answer:
D) suppliers to increase the quantity supplied in those markets
Question:
7. Large-scale central planning has been abandoned throughout the world (except for North Korea and
Cuba) because of ______ and _____ problems.
A) incentives; asymmetry
B) communication; complexity
C) information; transactions cost
D) information; incentive
Answer:
D) Information; incentive
, Question:
8. In a competitive market, what does it mean when a company goes out of business?
A) Capitalism capriciously causes some businesses to fail.
B) Resources are freed up to go to some other higher-valued use.
C) It is not a very useful signal.
D) The economy is not working very well.
Answer:
B) Resources are freed up to go to some other higher-valued use.
Question:
9. Fill in the blanks: When the government subsidizes an activity, resources such as labor, machines, and
bank lending will tend to gravitate __________ the activity that is subsidized and will tend to gravitate
___________ activity that is not subsidized.
A) away from; toward
B) away from; away from
C) toward; away from
D) toward; toward
Answer:
C) toward; away from
Question:
10. What is deadweight loss?
A) negative value of trades which are not mutually beneficial to both buyers and sellers, but do occur
because of a subsidy.
B) The higher cost of a subsidy compared to a tax.
C) The value of subsidies paid to those who would buy the good anyway.
D) The value of trades which are not mutually beneficial to both buyers and sellers, but do not occur
because of a subsidy.
Answer:
A) The negative value of trades which are not mutually beneficial to both buyers and sellers, but do occur
because of a subsidy.
Question:
11. If the government imposes a commodity tax on the sellers of a good, which of the following describes
the change to the market?
A) Demand shifts up by the amount of the tax.
B) Demand shifts down by the amount of the tax.
C) Supply shifts down by the amount of the tax.
D) Supply shifts up by the amount of the tax.
Answer:
D) Supply shifts up by the amount of the tax
UPDATED ACTUAL QUESTIONS AND CORRECT
ANSWERS
Question:
1. Millions of producers working across the world cooperate to ensure that many more millions of
consumers can have the goods and services they desire. These producers do not know each other and are
not coordinated by a central agency. Their actions are directed simply by:
A) their governments.
B) robotic technology.
C) computer technology.
D) self-Interest.
Answer:
D) self-interest.
Question:
2. After a hurricane knocks out power to thousands of households, the price of electric generators increases
threefold. According to economists:
A) this is a vivid example of market and class exploitation by capitalists.
B) this discourages the use of electric generators in low-value uses, making them more readily available
for high-value uses
C) the rising price will give an incentive for firms to ship fewer electric generators to the disaster area
D) the increase in demand for electric generators should technically cause the price to fall after a hurricane
Answer:
B) this discourages the use of electric generators in low-value uses, making them more readily available
for high-value uses
Question:
3. Circa 1200 BCE, a decreasing supply of tin due to wars and the breakdown of trade led to a drastic
increase in the price of bronze in the Middle East and Greece (tin being necessary for its production). It is
around this time that blacksmiths developed iron- and steel-making techniques (as substitutes for bronze).
What does the increasing price of bronze signal?
A) It tells people to buy more bronze because it is going to be more valuable in the future
B) It tells people that the wars in the Middle East and Greece are coming close to being resolved because
of bronze scarcity
C) It tells people that there is a price bubble forming around bronze and that people are overvaluing the
price of bronze
D) It tells people that bronze is getting harder to find and its higher price will signal consumers to conserve
it more or seek substitutes
Answer:
D) It tells people that bronze is getting harder to find and its higher price will signal consumers to conserve
it more or seek substitutes
,Question:
4. Suppose that changing climate conditions results in a shortage of wood. Which of the following is the
most likely consequence of this shortage?
A) Paper, which is made from wood, would be rendered obsolete by continued technological advancement.
B) Houses would be torn down, and the wood used to make them recycled towards more valuable uses.
New houses would be built with other materials.
C) No one has any idea, but the market system will sort everything out for us, and make sure we continue
to use wood in the most valuable ways possible.
D) Local governments would restrict the use of wood for burning in fireplaces, as this is not a necessary
use.
Answer:
C) No one has any idea, but the market system will sort everything out for us, and make sure we continue
to use wood in the most valuable ways possible
Question:
5. A prediction market is a:
A) perfectly functioning futures marker, so that futures output can be interpreted as probabilities and used
to make predictions
B) speculative market carefully designed so that output can be interpreted as probabilities and used to
make predictions
C) perfectly functioning futures market, so that futures prices can be interpreted as probabilities and used
to make predictions
D) speculative market carefully designed so that prices can be interpreted as probabilities and used to make
predictions
Answer:
D) speculative market carefully designed so that prices can be interpreted as probabilities and used to make
predictions
Question:
6. Increasing prices act as a signal to:
A) consumers that the good is overvalued.
B) speculators that the opportunity cost of the good is falling
C) politicians that price gouging is occurring
D) suppliers to increase the quantity supplied in those markets
Answer:
D) suppliers to increase the quantity supplied in those markets
Question:
7. Large-scale central planning has been abandoned throughout the world (except for North Korea and
Cuba) because of ______ and _____ problems.
A) incentives; asymmetry
B) communication; complexity
C) information; transactions cost
D) information; incentive
Answer:
D) Information; incentive
, Question:
8. In a competitive market, what does it mean when a company goes out of business?
A) Capitalism capriciously causes some businesses to fail.
B) Resources are freed up to go to some other higher-valued use.
C) It is not a very useful signal.
D) The economy is not working very well.
Answer:
B) Resources are freed up to go to some other higher-valued use.
Question:
9. Fill in the blanks: When the government subsidizes an activity, resources such as labor, machines, and
bank lending will tend to gravitate __________ the activity that is subsidized and will tend to gravitate
___________ activity that is not subsidized.
A) away from; toward
B) away from; away from
C) toward; away from
D) toward; toward
Answer:
C) toward; away from
Question:
10. What is deadweight loss?
A) negative value of trades which are not mutually beneficial to both buyers and sellers, but do occur
because of a subsidy.
B) The higher cost of a subsidy compared to a tax.
C) The value of subsidies paid to those who would buy the good anyway.
D) The value of trades which are not mutually beneficial to both buyers and sellers, but do not occur
because of a subsidy.
Answer:
A) The negative value of trades which are not mutually beneficial to both buyers and sellers, but do occur
because of a subsidy.
Question:
11. If the government imposes a commodity tax on the sellers of a good, which of the following describes
the change to the market?
A) Demand shifts up by the amount of the tax.
B) Demand shifts down by the amount of the tax.
C) Supply shifts down by the amount of the tax.
D) Supply shifts up by the amount of the tax.
Answer:
D) Supply shifts up by the amount of the tax
