Midterm Exam (Spring 2017)NAME:________________________Part I: Multiple Choice Questions (1 point each)NOTE: Circle only one answer.1) Which of these key principles of economics relates to...

Midterm Exam (Spring 2017)NAME:________________________Part I: Multiple Choice Questions (1 point each)NOTE: Circle only one answer.1) Which of these key principles of economics relates to macroeconomics?a) Trade can make everyone involved better off.b) Prices rise when the government prints too much money.c) Rational people think at the margin.d) Governments can sometimes improve market outcomes.e) People respond to incentives.2) As scientists, economists do all of the following except:a) devising theories about how the world works.b) making simplifying assumptions.c) preferring experiments in the lab over real-world observations.d) collecting and analyzing data.e) building models with the help of diagrams and equations.3) Resources include all of the following except:a) land. b) labor. c) money. d) capital. e) entrepreneurial ability.4) Which of the following statements is correct?a) You have a comparative advantage when producing a good more efficiently than me.b) In our class example Frank the Farmer has a comparative advantage in the product in which he has the smaller absolute disadvantage.c) Trade is a zero­sum game of winners and losers.d) The recent decline in oil prices has reduced consumer surplus.e) Market power encourages firms to produce more at lower prices. 5) Which of the following will cause an increase in demand?a) higher price of a complement.b) a lower price of that product.c) when the government taxes that product more.d) expectations of higher prices for the product in the near future.e) greater supplies in the wake of major technological advances.6) A seller’s total revenues will increase:a) when you raise the price of a product whose demand is inelastic.b) when the price of a substitute falls.c) for a good with an inelastic supply experiencing falling prices.d) in the case of a unit-elastic product.e) for an inferior good during an economic boom when incomes rise rapidly1 Eco 1.3 – p.27) When the government:a) subsidizes education, it does so because of that service’s positive externalities.b) spends on the military, that spending does not show up in the GDP.c) imposes a price floor, that price is typically below the market­equilibrium price.d) taxes goods and services, we call those direct taxes.e) choses a price ceiling, it risks creating a surplus.8) The gross domestic product:a) does not take account of foreign trade.b) will typically accelerate over the next few quarters if there has been a large increase in inventories in the current quarter.c) should be measured as nominal GDP if we are to get a true measure of its growth.d) of the United States includes NHL ice hockey players from Canada, but excludes Robby Guttmann’s work in Paris.e) ignores depreciation charges.Part II: True/False-Explain Questions (4 points maximum each)NOTE: Circle either TRUE or FALSE (and get 1/2 point for correct choice). Then explain asconcisely as possible why you think this statement is true or false, depending on your choice.1) The production possibilities frontier is a good way to look at opportunity costs.TRUEFALSEEXPLAIN: 2 Eco 1.3 – p.32) Households are buyers in resource markets and sellers in product markets (NOTE: Use graphfor your answer, if you can!).TRUEFALSEEXPLAIN: 3) If left alone, the market mechanism is capable of giving both buyers and sellers efficient and socially beneficial outcomes (i.e. “maximize welfare”) unless prevented from doing so by marketfailures.TRUEFALSEEXPLAIN: 3 Eco 1.3 – p.4Part III: Definitions (4 points maximum each)NOTE: Explain in three to four well-structured sentences what the particular concept in questionis all about. It’s better to say more rather than less! Whenever you can draw a graph as part ofyour explanation, do so!1) Decrease in Supply 2) Cross-Elasticity of Demand. 3) Binding Price Floor. 4 Eco 1.3 – p.5PART IV: Prepared Essay Questions (6 points maximum each)1) Why do economists generally oppose policies that restrict trade among nations? 2) How does a tax on a good affect the price paid by buyers, the price received by sellers, and thequantity sold? How does the burden of that tax get divided? 5 Eco 1.3 – p. 6PART V: New Essay Question (6 points maximum each)1) What are the main components of the GDP? Why do we need to look at the real GDP and howdo we arrive at that number? 6