question
Economics is the study of...
a. stock prices and dividends.
b. how individuals exploit in vestment opportunities.
c. how society allocates scarce resources.
d. how to make the world a better place.
a. stock prices and dividends.
b. how individuals exploit in vestment opportunities.
c. how society allocates scarce resources.
d. how to make the world a better place.
answer
C
question
Central planning refers to...
a. markets guiding economic activity. Today many countries that had this system have abandoned it.
b. markets guiding economic activity. Today many countries that did not have this system have implemented it.
c. government guiding economic activity. Today many countries that had this system have abandoned it.
d. a mix of markets guiding economic activity and government guiding economic activity.
a. markets guiding economic activity. Today many countries that had this system have abandoned it.
b. markets guiding economic activity. Today many countries that did not have this system have implemented it.
c. government guiding economic activity. Today many countries that had this system have abandoned it.
d. a mix of markets guiding economic activity and government guiding economic activity.
answer
C
question
The difference between a change in quantity demanded and a change in demand is that a change in:
a. quantity demanded is caused by a change in a good's own price, while a change in demand is caused by a change in some other variable, such as income, tastes, or expectations.
b. demand is caused by a change in a good's own price, while a change in quantity demanded is caused by a change in some other variable, such as income, tastes, or expectations.
c. quantity demanded is a change in the amount people actually buy, while a change in demand is a change in the amount they want to buy.
d. This is a trick question. A change in demand and a change in quantity demanded are the same thing.
a. quantity demanded is caused by a change in a good's own price, while a change in demand is caused by a change in some other variable, such as income, tastes, or expectations.
b. demand is caused by a change in a good's own price, while a change in quantity demanded is caused by a change in some other variable, such as income, tastes, or expectations.
c. quantity demanded is a change in the amount people actually buy, while a change in demand is a change in the amount they want to buy.
d. This is a trick question. A change in demand and a change in quantity demanded are the same thing.
answer
A
question
If an increase in the price of Product X causes an increase in the demand for Product Y, we can conclude that:
a. Products X and Y are complements.
b. Products X and Y are substitutes.
c. Products X and Y are normal goods.
d. the price of Product Y will decrease.
e. Products X and Y are inferior goods.
a. Products X and Y are complements.
b. Products X and Y are substitutes.
c. Products X and Y are normal goods.
d. the price of Product Y will decrease.
e. Products X and Y are inferior goods.
answer
B
question
After receiving a promotion, Sophie immediately goes to the store and buys a new TV. We can conclude that, for Sophie, a TV is most likely:
a. an inferior good.
b. a normal good.
c. over $1,000.
d. b. and c.
a. an inferior good.
b. a normal good.
c. over $1,000.
d. b. and c.
answer
B
question
Which of the following would be most likely to cause a reduction in the supply of cotton (careful: "reduction in supply" is different from "reduction in quantity supplied". "reduction in supply" means a leftward shift in the supply curve)?
a. A decrease in the price of cotton.
b. A decrease in the price of the seed used to plant it.
c. An increase in the demand for cotton.
d. A decrease in the demand for cotton.
e. An increase in the price of the seed used to plant it.
a. A decrease in the price of cotton.
b. A decrease in the price of the seed used to plant it.
c. An increase in the demand for cotton.
d. A decrease in the demand for cotton.
e. An increase in the price of the seed used to plant it.
answer
E
question
The statement that ________ is a positive statement.
a. the price of gasoline is too high
b. too many people in the United States have no health care insurance
c. the price of sugar in the United States is higher than the price in Australia
d. more students should study economics
a. the price of gasoline is too high
b. too many people in the United States have no health care insurance
c. the price of sugar in the United States is higher than the price in Australia
d. more students should study economics
answer
C
question
If new customers enter the smartphone market, then (holding all else constant):
a. some customers must exit the market.
b. the equilibrium price of smartphones must fall.
c. the demand curve shifts to the right.
d. the demand curve shifts to the left.
a. some customers must exit the market.
b. the equilibrium price of smartphones must fall.
c. the demand curve shifts to the right.
d. the demand curve shifts to the left.
answer
C
question
In 2001, a high definition TV cost more than $2000; in 2010 a TV of the same quality cost less than $1000. Which of the following explanations is most consistent with these facts?
a. Intense competition in the computer industry caused the supply curve for TVs to shift to the left, depressing the price.
b. An increase in the demand for TVs led to the price drop.
c. An improvement in technology caused the supply of TVs to increase, depressing their price.
d. As the population grew, fewer expensive TVs were needed, causing prices to fall.
a. Intense competition in the computer industry caused the supply curve for TVs to shift to the left, depressing the price.
b. An increase in the demand for TVs led to the price drop.
c. An improvement in technology caused the supply of TVs to increase, depressing their price.
d. As the population grew, fewer expensive TVs were needed, causing prices to fall.
answer
C
question
Suppose that both new customers and new manufacturers simultaneously enter the market for tablets, then (holding all else constant):
a. the equilibrium quantity must rise; the equilibrium price must fall
b. the equilibrium quantity must fall; the equilibrium price may fall or rise
c. the equilibrium quantity may fall or rise; the equilibrium price must rise
d. the equilibrium quantity must rise; the equilibrium price may fall or rise
a. the equilibrium quantity must rise; the equilibrium price must fall
b. the equilibrium quantity must fall; the equilibrium price may fall or rise
c. the equilibrium quantity may fall or rise; the equilibrium price must rise
d. the equilibrium quantity must rise; the equilibrium price may fall or rise
answer
D
question
Suppose that U.S. soybean farmers have great weather and as a result the supply curve for soybeans shifts out to right. If the demand for soybeans is elastic, then:
a. total revenue received by soybean farmers will increase.
b. total revenue receive by soybean farmers will decrease.
c. total revenue received by soybean farmers will remain the same.
d. we cannot say whether total revenue will increase or decrease.
a. total revenue received by soybean farmers will increase.
b. total revenue receive by soybean farmers will decrease.
c. total revenue received by soybean farmers will remain the same.
d. we cannot say whether total revenue will increase or decrease.
answer
A
question
To say that demand is inelastic means that
a. relatively small changes in price lead to relatively large changes in quantity demanded.
b. people don't like the good very much.
c. people are not very responsive to price changes.
d. relatively small changes in quantity demanded lead to relatively small changes in price.
a. relatively small changes in price lead to relatively large changes in quantity demanded.
b. people don't like the good very much.
c. people are not very responsive to price changes.
d. relatively small changes in quantity demanded lead to relatively small changes in price.
answer
C
question
Firms are willing to supply more product when the price of the product increases. This tendency refers to:
a. The Law of Demand
b. The Law of Decreasing Marginal Utility
c. The Law of Supply
d. The inelasticity of supply
a. The Law of Demand
b. The Law of Decreasing Marginal Utility
c. The Law of Supply
d. The inelasticity of supply
answer
C
question
A society allocates its scarce resources to various jobs. These scarce resources include
a. land.
b. people.
c. machines.
d. All of the above are correct.
a. land.
b. people.
c. machines.
d. All of the above are correct.
answer
D
question
Consider a student at a graduation party eating chocolate cake. The first piece of chocolate cake consumed gives that student the most satisfaction. The hungry student begins eating more pieces of chocolate cake due to a lack of other food options. As the student eats more and more chocolate cake, the satisfaction after eating each piece goes down. After 8 pieces, the student becomes quite noxious. This is an example of:
a. The Law of Increasing Marginal Utility
b. The Law of Decreasing Marginal Utility
c. Law of Supply
d. Law of Demand
a. The Law of Increasing Marginal Utility
b. The Law of Decreasing Marginal Utility
c. Law of Supply
d. Law of Demand
answer
B
question
Suppose a technological advancement increases the efficiency of frozen yogurt production. At the same time, a new study is released uncovering superb health benefits from the consumption of frozen yogurt. These changes will cause the demand for frozen yogurt to _________ and supply of frozen yogurt to __________.
a. Decrease; Decrease
b. Decrease; Increase
c. Increase; Decrease
d. Increase; Increase
a. Decrease; Decrease
b. Decrease; Increase
c. Increase; Decrease
d. Increase; Increase
answer
D
question
A farm wishes to increase total revenue. It knows that demand is inelastic. Therefore, it should __________ its prices.
a. raise
b. lower
c. not change
d. One cannot tell with more information
a. raise
b. lower
c. not change
d. One cannot tell with more information
answer
A
question
Consider the market for tomatoes. Assume a severe drought occurs this summer. This would have the effect of changing the market equilibrium. At the old equilibrium price in the market there would now exist a __________ of tomatoes due to the drought. This would have the effect of __________ the price of tomatoes and ___________ the equilibrium quantity, allowing the market to move to the new equilibrium in the market after the drought.
a. Shortage; Increasing; Decreasing
b. Shortage; Decreasing; Decreasing
c. Surplus; Increasing; Decreasing
d. Surplus; Decreasing; Decreasing
a. Shortage; Increasing; Decreasing
b. Shortage; Decreasing; Decreasing
c. Surplus; Increasing; Decreasing
d. Surplus; Decreasing; Decreasing
answer
A
question
A positive statement is
a. always true.
b. one that does not use the ceteris paribus clause.
c. about what is.
d. about what ought to be.
a. always true.
b. one that does not use the ceteris paribus clause.
c. about what is.
d. about what ought to be.
answer
C
question
Which of the following would result in an increase in the equilibrium price and an increase in the equilibrium quantity in the market for wheat?
a. Income increases, assuming wheat is a normal good.
b. The cost of producing wheat increases.
c. The price of flour, a compliment in production, decreases.
d. The market price of wheat is expected to decrease in the future.
a. Income increases, assuming wheat is a normal good.
b. The cost of producing wheat increases.
c. The price of flour, a compliment in production, decreases.
d. The market price of wheat is expected to decrease in the future.
answer
A
question
A subsidy on the sellers of beef
a. leads sellers to supply a smaller quantity at every price.
b. leads buyers to demand a smaller quantity at every price.
c. leads sellers to supply a larger quantity at every price.
d. causes the supply curve to shift to the left.
a. leads sellers to supply a smaller quantity at every price.
b. leads buyers to demand a smaller quantity at every price.
c. leads sellers to supply a larger quantity at every price.
d. causes the supply curve to shift to the left.
answer
C
question
If the demand curve shifts to the right and the government lowers an effective price ceiling, then:
a. the surplus increases
b. the surplus decreases
c. the shortage increases
d. the shortage decreases
e. we cannot say what happens
a. the surplus increases
b. the surplus decreases
c. the shortage increases
d. the shortage decreases
e. we cannot say what happens
answer
C
question
Long waiting lines are the result of a
a. tax
b. subsidy
c. price support
d. price ceiling
a. tax
b. subsidy
c. price support
d. price ceiling
answer
D
question
A price support generates a surplus of wheat. All of the following are ways the government can eliminate the surplus except:
a. burn the wheat
b. sell the wheat to foreign consumers.
c. auction the wheat to domestic consumers.
d. provide a subsidy to sellers of wheat.
a. burn the wheat
b. sell the wheat to foreign consumers.
c. auction the wheat to domestic consumers.
d. provide a subsidy to sellers of wheat.
answer
D
question
Economic profits are equal to (hint: write out what accounting profits are equal to)
a. total revenue minus explicit costs.
b. total revenue minus implicit costs.
c. accounting profits minus implicit costs.
d. accounting profits plus opportunity costs.
a. total revenue minus explicit costs.
b. total revenue minus implicit costs.
c. accounting profits minus implicit costs.
d. accounting profits plus opportunity costs.
answer
C
question
The Law of Diminishing Marginal Returns describes the fact that,
a. at some point, as the amount of an input increases, the marginal increase in output increases, holding all other inputs fixed.
b. at some point, as the amount of an input increases, the marginal increase in output decreases, holding all other inputs fixed.
c. as the price of a product increases, the quantity supplied increases.
d. as the price of a product increases, the quantity demanded decreases.
a. at some point, as the amount of an input increases, the marginal increase in output increases, holding all other inputs fixed.
b. at some point, as the amount of an input increases, the marginal increase in output decreases, holding all other inputs fixed.
c. as the price of a product increases, the quantity supplied increases.
d. as the price of a product increases, the quantity demanded decreases.
answer
B
question
Reducing the tax charged on sellers from $0.30 to $0.20 will increase tax revenue if
a. demand is inelastic
b. demand is elastic
c. supply is elastic
d. supply is inelastic
a. demand is inelastic
b. demand is elastic
c. supply is elastic
d. supply is inelastic
answer
B
question
What is true about the burden of a tax imposed on candles?
a. Buyers bear the entire burden of the tax.
b. Sellers bear the entire burden of the tax.
c. Buyers and sellers share the burden of the tax.
d. The government bears the entire burden of the tax.
a. Buyers bear the entire burden of the tax.
b. Sellers bear the entire burden of the tax.
c. Buyers and sellers share the burden of the tax.
d. The government bears the entire burden of the tax.
answer
C
question
Consider the market for ice cream. Suppose that the supply curve shifts to the left. Compared to the initial equilibrium, at the new equilibrium
a. total surplus decreases; consumer surplus decreases; producer surplus increases
b. total surplus decreases; consumer surplus decreases; producer surplus decreases
c. total surplus increases; consumer surplus decreases; producer surplus increases
d. total surplus increases; consumer surplus increases; producer surplus increases
a. total surplus decreases; consumer surplus decreases; producer surplus increases
b. total surplus decreases; consumer surplus decreases; producer surplus decreases
c. total surplus increases; consumer surplus decreases; producer surplus increases
d. total surplus increases; consumer surplus increases; producer surplus increases
answer
B
question
Frank is considering planting corn this year. The cost of all required inputs for planting corn is $300 per acre. Frank could make $75 per acre in profit from planting soybeans or $100 per acre in profit from planting wheat. If Frank can expect to make $450 per acre in revenue from corn, then his economic profit from corn is:
a. $150 per acre
b. $75 per acre
c. $50 per acre
d. -$25 per acre
a. $150 per acre
b. $75 per acre
c. $50 per acre
d. -$25 per acre
answer
C
question
The dictator of Ruritania would like to make 4K TVs more available to low-income households. Which policy would achieve this goal?
a. An effective price support
b. An effective price ceiling
c. A subsidy for 4K TVs
d. All answers are correct
a. An effective price support
b. An effective price ceiling
c. A subsidy for 4K TVs
d. All answers are correct
answer
C
question
In economics, we assume that farmers choose the amount of seed per acre that maximizes
a. yield.
b. profits.
c. market share.
d. sales.
e. a.) and b.)
a. yield.
b. profits.
c. market share.
d. sales.
e. a.) and b.)
answer
B
question
A monopolistically competitive industry has
a. differentiated products.
b. a small number of large firms.
c. very little advertising.
d. firms that behave strategically.
a. differentiated products.
b. a small number of large firms.
c. very little advertising.
d. firms that behave strategically.
answer
A
question
In the short run, firms in which of the following market structures can earn economic profit?
(i) Perfect Competition
(ii) Monopolistic Competition
(iii) Monopoly
a. (i)
b. (i) and (ii)
c. (ii) and (iii)
d. (iii)
e. (i), (ii), and (iii)
(i) Perfect Competition
(ii) Monopolistic Competition
(iii) Monopoly
a. (i)
b. (i) and (ii)
c. (ii) and (iii)
d. (iii)
e. (i), (ii), and (iii)
answer
E
question
Lisa has been waiting at the bus stop for 30 minutes and it still hasn't arrived. She waits another 30 minutes and the bus still doesn't come. Lisa decides to continue waiting because she doesn't want the last 60 minutes to have been wasted for nothing. This is an example of:
a. Arbitrage.
b. Strategic decision making.
c. Profit Maximization.
d. Sunk Cost Fallacy.
a. Arbitrage.
b. Strategic decision making.
c. Profit Maximization.
d. Sunk Cost Fallacy.
answer
D
question
One difference between oligopoly and monopolistic competition is that
a. a monopolistically competitive industry has fewer firms.
b. fewer firms compete in oligopoly than in monopolistic competition.
c. in monopolistic competition, the products are identical.
d. monopolistic competition has barriers to entry.
a. a monopolistically competitive industry has fewer firms.
b. fewer firms compete in oligopoly than in monopolistic competition.
c. in monopolistic competition, the products are identical.
d. monopolistic competition has barriers to entry.
answer
B
question
Game theory proves most useful for analyzing
a. monopoly.
b. perfect competition.
c. oligopoly.
d. monopolistic competition.
a. monopoly.
b. perfect competition.
c. oligopoly.
d. monopolistic competition.
answer
C
question
A monopolistically competitive firm is like a perfectly competitive firm insofar as both
a. are price takers.
b. can earn no economic profit in the long run.
c. are protected by high barriers to entry.
d. sell differentiated products.
a. are price takers.
b. can earn no economic profit in the long run.
c. are protected by high barriers to entry.
d. sell differentiated products.
answer
B
question
The U.S. seed corn market, which is dominated by several large companies (Monsanto, Pioneer, etc.), is an example of
a. Perfect Competition
b. Monopolistic Competition
c. Oligopoly
d. Monopoly
a. Perfect Competition
b. Monopolistic Competition
c. Oligopoly
d. Monopoly
answer
C
question
Price discrimination
a. forces monopolies to charge a lower price as a result of government regulation.
b. is an attempt by a monopoly to prevent some customers from purchasing its product by charging a high price.
c. is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.
d. increases the consumer surplus associated with a monopolistic market.
a. forces monopolies to charge a lower price as a result of government regulation.
b. is an attempt by a monopoly to prevent some customers from purchasing its product by charging a high price.
c. is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.
d. increases the consumer surplus associated with a monopolistic market.
answer
C
question
Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $10 per bottle and Rogers sells 1,000 bottles per month, then in the long run it must be the case that
a. Roger exits the market.
b. Total costs equal $10,000 per month.
c. Profits are positive.
d. Marginal revenue exceeds marginal cost.
a. Roger exits the market.
b. Total costs equal $10,000 per month.
c. Profits are positive.
d. Marginal revenue exceeds marginal cost.
answer
B
question
Custom Pine produces custom made Pine tables. They currently charge $500 and sell 10 units. At price of $400 they would be able to sell 20 units. In order for Custom Pine to reduce their price from $500 to $400, the marginal cost of producing a pine table would need to be
a. Less than $100.
b. Greater than $100.
c. Less than $200.
d. Less than $300.
a. Less than $100.
b. Greater than $100.
c. Less than $200.
d. Less than $300.
answer
D
question
When the government grants a patent for an innovation or product it is
a. creating barriers to entry.
b. increasing the level of competition.
c. reducing the profitability of that product.
d. committing the sunk cost fallacy.
a. creating barriers to entry.
b. increasing the level of competition.
c. reducing the profitability of that product.
d. committing the sunk cost fallacy.
answer
A
question
Jean is running a dry cleaner. She pays $2,000 per month in rent. Jean signed a lease for her rent, however, she does have the option of ending her lease early for a penalty of $500 per month. Jane also pays $1,000 per month in labor costs but these costs are not under contract, so if Jean shuts down they do not have to be paid. If Jane expects to receive $2,800 in revenue per month, then in the short run she should
a. shut down.
b. stay open.
c. there is not enough information to determine what she should do.
a. shut down.
b. stay open.
c. there is not enough information to determine what she should do.
answer
B
question
A strategy is a dominant strategy if
a. the firm that uses that strategy receives a higher payoff than its competitor.
b. the firm plays that strategy regardless of what the other player does.
c. the average payoff from that strategy is less than the average payoff for all other strategies.
d. the other firm always loses against that strategy.
a. the firm that uses that strategy receives a higher payoff than its competitor.
b. the firm plays that strategy regardless of what the other player does.
c. the average payoff from that strategy is less than the average payoff for all other strategies.
d. the other firm always loses against that strategy.
answer
B
question
Suppose you are an entrepreneur and your goal is to earn as much profit as possible in the long-run. Given this goal, which type of market should you try to develop a product for?
a. Monopoly.
b. Perfectly Competitive Market.
c. A market with many sellers and buyers.
d. Monopolistically Competitive Market.
a. Monopoly.
b. Perfectly Competitive Market.
c. A market with many sellers and buyers.
d. Monopolistically Competitive Market.
answer
A
question
The fundamental reason that a perfectly competitive firm cannot engage in price discrimination is because
a. they are a price maker.
b. they can choose the price but not the quantity.
c. they sell identical (non-differentiated) products.
d. they are a price taker.
a. they are a price maker.
b. they can choose the price but not the quantity.
c. they sell identical (non-differentiated) products.
d. they are a price taker.
answer
D
question
A cost that has already been paid, or must be paid, regardless of any further action; These shouldn't be considered when making decisions
answer
Sunk Costs
question
Letting old purchases or decisions influence current decisions
answer
Sunk Cost Fallacy
question
When should a firm shutdown?
answer
When the profit from closing is greater than the profit from operating; This decision shouldn't depend on sunk costs
question
Two-person game illustrating that even if cooperation is better than the Nash equilibrium for both, each have an incentive not to cooperate
answer
Prisoner's Dilemma
question
the situation in which no player wants to change their action given what other players are doing
answer
Nash Equilibrium
question
Many firms, identical products, price taker, advertising is not important
answer
Perfect Competition
question
There are many sellers, similar but differentiated products, and sellers can enter the market but not as easy
answer
Monopolistic Competition
question
A market structure characterized by a few large sellers of similar or identical products
answer
Oligopoly
question
Other firms cannot enter the market and compete with or copy the monopoly
answer
Barriers to Entry
question
The practice of charging different consumers different prices for the same good
answer
Price Discrimination
question
If MR ______________ MC, a firm can earn more profit by increasing output
answer
greater than
question
Profits are maximized when MR ______ MC
answer
equals
question
If MR _________ MC, a firm is producing too much
answer
less than
question
A firm is the sole seller of its product and there are no close substitute products
answer
Monopoly
question
total revenue minus total explicit cost
answer
Accounting Profit
question
total revenue minus total opportunity cost
answer
Economic Profit
question
the value a buyer places on a good minus the amount they actually pay; area below the demand curve and above the price paid
answer
Consumer Surplus
question
the price a seller receives minus the cost of providing it; the area above the supply curve and below the price paid
answer
Producer Surplus
question
a maximum price sex by government
answer
Price-ceiling
question
a minimum price set by the government; illegal for a seller to sell at a price lower than the minimum
answer
Price Support
question
there is more of a good demanded then supplied
answer
Shortage
question
there is more of a good supplied then demanded
answer
Surplus
question
everything total; out of pocket
answer
Explicit Costs
question
forgone wages; not out of pocket
answer
Implicit Costs
question
whatever is given up to produced or obtain something; implicit cost + explicit cost
answer
Opportunity Costs
question
the amount of money received when the producer sells profit
answer
Total Revenue
question
The negative relationship between price and the quantity demanded
answer
Law of Demand
question
The higher the price of a good, the greater the quantity demanded
answer
Law of Supply
question
Increases in income leads to increase in demand (demand shifts right)
answer
Normal good
question
Increase in income leads to decrease in demand (demand shifts right)
answer
Inferior good
question
the percentage of change in one economic variable in response to a percentage change in another economic variable
answer
Elasticity
question
Factors that shift supply
answer
Input prices; technology; future expectations; number of sellers
question
Factors that shift demand
answer
Income; price of related good; taste and preferences; expectations of future prices; number of buyers
question
Because resources are limited, the goods and services produced from using those resources are also limited, which means consumers must make choices or tradeoff among different goods
answer
Scarcity
question
when a fall in the price of a good leads to an increase in the demand for a related good
answer
Complement Good
question
when the fall in the price of a good leads to a decrease in the demand of a related good
answer
Substitute Good
question
individuals decide how resources are allocated
answer
Market Economy
question
government owns and directs all resources
answer
Command Economy
question
mix of common and market economy
answer
Mixed Economy
question
what is- factual statement that contains no value judgement or opinion
answer
Positive economics
question
what ought to be- statements of opinions
answer
Normative economics
question
What the company or government gives individuals (supplies)
answer
supply
question
What the economy or individuals what (demanded)
answer
demand
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