1. Which statement is most representative of normative economic analysis:
a. raising cigarette taxes is a better way to raise revenue than taxing certain kinds of food
b. raising cigarette taxes will increase the price of cigarettes
c. raising cigarette taxes will reduce cigarette consumption in the long run
d. raising cigarette taxes will increase cigarette consumption in the long run

2. A command based economy is identifiable by:
a. its heavy reliance upon private property rights in determining how resources flow
b. a government that is minimally involved in its economy
c. large amounts of advertising
d. centralized (govt.) decisionmaking
e. all of the above

3. Which of the following statements is false:
a. government intervention in the economy occurs when there are market failures
b. public goods and externalities are not market failures
c. government intervention in the economy occurs when there is macroeconomic instability
d. market power relates to a firm's ability to raise its price above cost

4. Which of the following statements best describes economic analysis:
a. the use of models to explain why people have unlimited wants
b. the use of models to explain the scarcity of goods and services
c. the use of models to explain how goods and service are best allocated
d. the use of models to explain why goods and services are allocated

5. Which of the following statements best describes the concept of opportunity cost:
a. it is the value of some foregone activity
b. it is the value of each foregone activity
c. it is the monetary cost of a transaction
d. it is the value of the next best alternative activity

6. Which type of Production Possibilities Curve (PPC) is the most extreme example of increasing opportunity costs (i.e. the most bowed curve):
a. 2 door sedans vs. 4 door sedans
b. bridges vs. roads
c. multi-floor buildings vs. split-level homes
d. tomatoes vs. software

7. Which type of PPC is the closest to having constant opportunity costs
a. 2 door sedans vs. 4 door sedans
b. bridges vs. roads
c. multi-floor buildings vs. split-level homes
d. tomatoes vs. software

8. Inflation is a problem because it represents a change in:
a. relative prices
b. agricultural prices
c. absolute prices
d. food prices
e. all of the above

Questions #9-11 go with the table below, which reflects the (constant opportunity costs) PPC of Country A:

9. Moving from pt. B to C, the opportunity cost of each unit of fish is:
a. 4 units of lobster
b. 2 units of lobster
c. 1 unit of lobster
d. 1/2 unit of lobster

10. The opportunity cost of the 4th unit of lobster is:
a. 8 units of fish
b. 2 units of fish
c. 1 unit of fish
d. 1/2 unit of fish

11. If the opportunity cost in Country B of each fish is 1 unit of lobster, then:
a. Country A has a comparative advantage in fishing
b. Country A has a comparative advantage in catching lobster
c. Country B has a comparative advantage in fishing
d. neither country has a comparative advantage since their opportunity costs are equal
e. both b and c

12. One day, there is a higher demand for fish in Country A. As a result:
a. A's PPC will shift to reflect increased potential in fishing only
b. A's PPC will shift to reflect increased potential in fishing, but lower potential in catching lobster
c. A's PPC won't shift, but actual output will change as more fish and less lobster get produced
d. A's PPC will shift to reflect increased potential for both goods since they are complements

13. One day, firms learn that mercury in the water system has contaminated much of the existing sea life. As a result:
a. A's PPC will shift to reflect decreased potential in both fishing and catching lobster
b. A's PPC will shift to reflect higher unemployment in Country A, due to the mercury pollution
c. A's PPC won't shift, but actual output will change as less fish and lobster are demanded
d. both a and b are possible

14. Considering the demand and supply of butter in Country A, what likely effect will a decrease in the price of lobster have on this market?
a. the price of butter will rise and the quantity exchanged will fall
b. the price of butter will fall and the quantity exchanged will rise
c. the price and quantity exchanged of butter will rise
d. the price and quantity exchanged of butter will fall

15. Which of the following factors will not shift the demand curve for tobacco
a. increase in farm workers' wages
b. increase in the demand for cigarettes
c. increase in the per unit tax on each pack of cigarettes
d. decrease in the number of smokers
e. none of the above

16. If both (current) national income and the price level doubled:
a. nominal income would be increasing
b. real income would be increasing
c. inflation exists
d. relative prices would be increasing
e. both a and c are possible

17. If inflation is expected next month:
a. it is better to take out a car loan now, rather than waiting until next month
b. it is likely that market interest rates will fall next month
c. it will become more difficult to pay off existing loans next month
d. this expected inflation will have no effect on current market interest rates or borrowing

18. Which of the following does not directly increase GDP:
a. selling off existing inventories by lowering prices
b. replacement of depreciated equipment
c. a decrease in social security taxes
d. increases in military funding
e. both a and c are correct

19. During the 1980s, banks began to adopt ATM machines. Displaced bank tellers would become examples of what type of unemployment:
a. frictional unemployment
b. seasonal unemployment
c. cyclical unemployment
d. structural unemployment
e. none of the above

20. Many students choose to work only during the summer, when regular classes are out. After summer is over, these students are examples of what type of unemployment?
a. frictional unemployment
b. seasonal unemployment
c. cyclical unemployment
d. structural unemployment
e. none of the above

21. If the number of discouraged workers rises:
a. the participation rate will fall
b. the unemployment rate will be unchanged
c. the unemployment rate will rise
d. the labor force will increase in size

22. Which of the following is true:
a. Gross National Product is greater than Gross Domestic Product
b. Net National Product is greater than Gross National Product
c. Disposable Income is less than Personal Income
d. National Income is less than Personal Income

23. Which definition is false:
a. producer price index: measures average prices received by producers
b. consumer price index: measures average prices paid by consumers on household goods and services
c. implicit GDP deflator: a broad measure of the prices of goods and services included in the gross domestic product
d. none of the above

24. Which of the following is an important issue related to interpreting and using price indexes:
a. rising incomes cause price indexes to rise, which understates the actual inflation
b. rising quality causes prices to change, overstating actual inflation
c. constantly changing the base year is important if we are to keep the consumer basket up to date
d. allowing quantities and prices to change, when constructing a price index, gives a more accurate view of the amount of inflation in existence