question
Price elasticity of demand is a measure of the responsiveness of quantity demanded to changes in
a. supply.
b. interest rates.
c. price.
d. demand
a. supply.
b. interest rates.
c. price.
d. demand
answer
C
question
Economists use the term utility to mean usefulness.
True or False
True or False
answer
False
question
A cost that is incurred when an actual monetary payment is made is a(n) __________ cost.
a. positive
b. expressed
c. explicit
d. implicit
a. positive
b. expressed
c. explicit
d. implicit
answer
C
question
When the price of Toyota Corollas rises, the demand for Corollas falls, ceteris paribus.
True or False
True or False
answer
False
question
On a supply-and-demand diagram, equilibrium is found
a. at every point on either curve
b. where the demand and supply curves intersect.
c. where the supply curve intercepts the vertical axis.
d. where the demand curve intercepts the horizontal axis.
a. at every point on either curve
b. where the demand and supply curves intersect.
c. where the supply curve intercepts the vertical axis.
d. where the demand curve intercepts the horizontal axis.
answer
B
question
Which of the following is true?
a. It is possible for total utility to rise as marginal utility falls.
b. Marginal utility is the same as total utility.
c. As marginal utility falls, total utility always falls.
d. As marginal utility falls, total utility always rises
a. It is possible for total utility to rise as marginal utility falls.
b. Marginal utility is the same as total utility.
c. As marginal utility falls, total utility always falls.
d. As marginal utility falls, total utility always rises
answer
A
question
Supply curves are usually upward sloping.
True or False
True or False
answer
True
question
Total utility is defined as the
a. change in total utility a person derives from the consumption of a good.
b. change in total utility a person derives from the consumption of a good divided by the change in the consumption of that good.
c. change in total utility a person derives from the consumption of a good divided by the price of that good.
d. change in marginal utility a person derives from the consumption of a good.
e. sum of the amounts of satisfaction a person receives from consuming a good.
a. change in total utility a person derives from the consumption of a good.
b. change in total utility a person derives from the consumption of a good divided by the change in the consumption of that good.
c. change in total utility a person derives from the consumption of a good divided by the price of that good.
d. change in marginal utility a person derives from the consumption of a good.
e. sum of the amounts of satisfaction a person receives from consuming a good.
answer
E
question
Which of the following pairs of goods would be most likely to be complements?
a. hiking boots and tennis shoes
b. olive oil and vegetable oil
c. airline tickets and rental cars
d. peanuts and peanut butter
a. hiking boots and tennis shoes
b. olive oil and vegetable oil
c. airline tickets and rental cars
d. peanuts and peanut butter
answer
C
question
Accounting profit is always greater than or equal to economic profit.
True or False
True or False
answer
True
question
For a certain good, when the good's price falls from $22 to $20, its quantity demanded rises from 2,000 to 2,200 units. Given this information, the price elasticity of demand for this good is approximately
a. 1.00
b. 0.66.
c. 0.39.
d. 2.55.
e. 0.20.
a. 1.00
b. 0.66.
c. 0.39.
d. 2.55.
e. 0.20.
answer
A
question
Resource X is necessary to the production of good Y. If the price of resource X rises,
a. the supply curve of Y is unaffected.
b. the supply curve of Y shifts leftward.
c. there is a movement down the supply curve of Y.
d. there is a movement up the supply curve of Y.
e. the supply curve of Y shifts rightward.
a. the supply curve of Y is unaffected.
b. the supply curve of Y shifts leftward.
c. there is a movement down the supply curve of Y.
d. there is a movement up the supply curve of Y.
e. the supply curve of Y shifts rightward.
answer
B
question
When people treat some dollars differently than others, they are said to be compartmentalizing.
True or False
True or False
answer
True
question
Economic profit is the difference between total revenue and
a. implicit costs.
b. explicit costs.
c. the sum of explicit and implicit costs.
d. sunk costs.
a. implicit costs.
b. explicit costs.
c. the sum of explicit and implicit costs.
d. sunk costs.
answer
C
question
The law of demand states that price and quantity demanded are
a. positively related, ceteris paribus.
b. independent.
c. directly related, ceteris paribus.
d. inversely related, ceteris paribus.
a. positively related, ceteris paribus.
b. independent.
c. directly related, ceteris paribus.
d. inversely related, ceteris paribus.
answer
D
question
Average fixed cost
a. does not change as output changes.
b. exists only in the long run.
c. is greater at lower levels of output than at higher levels.
d. is usually greater at higher levels of output than at lower levels of output.
a. does not change as output changes.
b. exists only in the long run.
c. is greater at lower levels of output than at higher levels.
d. is usually greater at higher levels of output than at lower levels of output.
answer
C
question
Which of the following statements is true?
a. George runs a stationery shop; he paid Frank $5,000 for the carpet he installed in the shop. The $5,000 for carpet is an implicit cost.
b. Costs are always implicit, never explicit.
c. Costs are always explicit, never implicit.
d. An implicit cost is a cost that represents the value of resources used in production for which no actual monetary payment is made.
a. George runs a stationery shop; he paid Frank $5,000 for the carpet he installed in the shop. The $5,000 for carpet is an implicit cost.
b. Costs are always implicit, never explicit.
c. Costs are always explicit, never implicit.
d. An implicit cost is a cost that represents the value of resources used in production for which no actual monetary payment is made.
answer
D
question
Marginal utility
a. is the extra satisfaction derived from consuming an additional unit of a good.
b. always remains constant as additional units of a good are consumed.
c. is the total satisfaction derived from consuming a good.
d. is the total satisfaction derived from consuming an additional unit of a good
a. is the extra satisfaction derived from consuming an additional unit of a good.
b. always remains constant as additional units of a good are consumed.
c. is the total satisfaction derived from consuming a good.
d. is the total satisfaction derived from consuming an additional unit of a good
answer
A
question
At a price below the equilibrium price, there is
a. excess supply.
b. a shortage.
c. sub-equilibrium.
d. a surplus.
a. excess supply.
b. a shortage.
c. sub-equilibrium.
d. a surplus.
answer
B
question
The fundamental reason why most supply curves are upward sloping is that
a. a higher price never reduces quantity supplied by enough to lower total revenue and so higher production is motivated.
b. consumers substitute lower-priced goods for higher-priced goods.
c. higher production raises the opportunity costs of production and so price must rise to induce more output.
d. the quantity supplied increases as more firms enter the market.
a. a higher price never reduces quantity supplied by enough to lower total revenue and so higher production is motivated.
b. consumers substitute lower-priced goods for higher-priced goods.
c. higher production raises the opportunity costs of production and so price must rise to induce more output.
d. the quantity supplied increases as more firms enter the market.
answer
C
question
A normal good is
a. a good for which the demand rises as income rises.
b. a good for which the quantity demanded rises as its price falls.
c. any good for which other goods can substitute.
d. any good that consumers normally buy.
e. a good for which the demand rises as income falls.
a. a good for which the demand rises as income rises.
b. a good for which the quantity demanded rises as its price falls.
c. any good for which other goods can substitute.
d. any good that consumers normally buy.
e. a good for which the demand rises as income falls.
answer
A
question
At a price above the equilibrium price, there is
a. excess demand.
b. a shortage.
c. super-equilibrium.
d. a surplus
a. excess demand.
b. a shortage.
c. super-equilibrium.
d. a surplus
answer
D
question
The diamond-water paradox is the observation that
a. those things that have the least price often have little value in exchange and those things that have the greatest price often have the greatest value in exchange.
b. those things that have the greatest value in use often have little value in exchange and those things that have little value in use often have the greatest value in exchange.
c. those things that have the greatest price often have little value in exchange and those things that have the lowest price often have the greatest value in exchange.
d. those things that have the least value in use often have little value in exchange and those things that have the greatest value in use often have the greatest value in exchange.
a. those things that have the least price often have little value in exchange and those things that have the greatest price often have the greatest value in exchange.
b. those things that have the greatest value in use often have little value in exchange and those things that have little value in use often have the greatest value in exchange.
c. those things that have the greatest price often have little value in exchange and those things that have the lowest price often have the greatest value in exchange.
d. those things that have the least value in use often have little value in exchange and those things that have the greatest value in use often have the greatest value in exchange.
answer
B
question
If a firm earns normal profit, then it has generated revenues
a. sufficient to cover implicit costs, but not explicit costs.
b. equal to the sum of implicit and explicit costs.
c. sufficient to cover explicit costs, but not implicit costs.
d. greater than total opportunity costs.
a. sufficient to cover implicit costs, but not explicit costs.
b. equal to the sum of implicit and explicit costs.
c. sufficient to cover explicit costs, but not implicit costs.
d. greater than total opportunity costs.
answer
B
question
A util is an artificial construct used as a means of measuring the
a. difference between the price and the value of a good.
b. satisfaction one receives from the consumption of a good.
c. price of a good.
d. costs of producing a good.
a. difference between the price and the value of a good.
b. satisfaction one receives from the consumption of a good.
c. price of a good.
d. costs of producing a good.
answer
B
question
Marginal utility is defined as the
a. change in total utility a person derives from the consumption of a good divided by the price of that good.
b. change in total utility a person derives from the consumption of a good divided by the value in use of that good.
c. sum of the amounts of satisfaction a person receives from consuming a good.
d. change in total utility a person derives from the consumption of a good divided by the change in the quantity of the good consumed.
e. change in marginal utility a person derives from the consumption of a good.
a. change in total utility a person derives from the consumption of a good divided by the price of that good.
b. change in total utility a person derives from the consumption of a good divided by the value in use of that good.
c. sum of the amounts of satisfaction a person receives from consuming a good.
d. change in total utility a person derives from the consumption of a good divided by the change in the quantity of the good consumed.
e. change in marginal utility a person derives from the consumption of a good.
answer
D
question
Suppose you are eating slices of pizza and after consuming the first slice you receive 14 utils of total utility, after the second you receive 22 utils of total utility, and after the third 25 utils of total utility. Then
a. your total utility is 25 utils, and the marginal utility of the first slice is 8 utils (22 - 14).
b. your total utility is 61 utils.
c. your total utility is 25 utils, and the marginal utility of the third slice is 3 utils.
d. the law of diminishing marginal utility is not applicable because your total utility is increasing instead of diminishing
a. your total utility is 25 utils, and the marginal utility of the first slice is 8 utils (22 - 14).
b. your total utility is 61 utils.
c. your total utility is 25 utils, and the marginal utility of the third slice is 3 utils.
d. the law of diminishing marginal utility is not applicable because your total utility is increasing instead of diminishing
answer
C
question
A good is unit elastic in demand if as the price changes there is no resulting change in total revenue.
True or False
True or False
answer
True
question
In which of the following settings is an interpersonal utility comparison being made?
a. Wendy says, "I got a lot less satisfaction from studying today than I did last week."
b. David says to Maria, "I know you like economics a lot more than I do."
c. Stephanie says, "I don't know what Taylor is feeling or thinking; I can't read a person's heart or mind."
d. Brandon says, "I got a lot more satisfaction out of eating pizza than today than I did yesterday."
a. Wendy says, "I got a lot less satisfaction from studying today than I did last week."
b. David says to Maria, "I know you like economics a lot more than I do."
c. Stephanie says, "I don't know what Taylor is feeling or thinking; I can't read a person's heart or mind."
d. Brandon says, "I got a lot more satisfaction out of eating pizza than today than I did yesterday."
answer
B
question
Minimum efficient scale refers to the output level where short-run average total cost is lowest.
True or False
True or False
answer
False
question
The law of diminishing marginal returns holds for a situation in which
a. all inputs are increased in the same proportion.
b. all inputs are fixed.
c. all inputs are variable.
d. some inputs are variable and some inputs are fixed.
a. all inputs are increased in the same proportion.
b. all inputs are fixed.
c. all inputs are variable.
d. some inputs are variable and some inputs are fixed.
answer
D
question
One of the reasons why economies of scale exist is that the opportunity for labor specialization tends to increase as the size of the firm grows.
True or False
True or False
answer
True
question
"As the price of apples goes up, the demand for apples goes down." The author of this statement
a. uses the word "demand" when he should use the word "supply."
b. implies that demand and price have a direct relationship.
c. implies that price and demand are unrelated.
d. uses the word "demand" when he should use the words "quantity demanded."
a. uses the word "demand" when he should use the word "supply."
b. implies that demand and price have a direct relationship.
c. implies that price and demand are unrelated.
d. uses the word "demand" when he should use the words "quantity demanded."
answer
D
question
Price elasticity of demand is the ratio of the percentage change in price of one good to the percentage change in quantity demanded of another good.
True or False
True or False
answer
False
question
A good will tend to have a low price elasticity of demand if
a. the good has few substitutes.
b. a person has a long period of time to adjust to price changes.
c. the good is a luxury.
d. a person spends a high percentage of his or her budget on the good.
a. the good has few substitutes.
b. a person has a long period of time to adjust to price changes.
c. the good is a luxury.
d. a person spends a high percentage of his or her budget on the good.
answer
A
question
A cost of resources used in production for which no actual monetary payment is made is a(n) __________ cost.
a. covert
b. explicit
c. implicit
d. tacit
a. covert
b. explicit
c. implicit
d. tacit
answer
C
question
An inferior good is
a. a good for which the quantity demanded increases as its price decreases.
b. any good that a producer cannot sell a large quantity of, even at a low price.
c. a good for which the demand rises as income falls.
d. any good that consumers think is of low quality.
e. a good for which the demand rises as income rises.
a. a good for which the quantity demanded increases as its price decreases.
b. any good that a producer cannot sell a large quantity of, even at a low price.
c. a good for which the demand rises as income falls.
d. any good that consumers think is of low quality.
e. a good for which the demand rises as income rises.
answer
C
question
Price elasticity of demand is the ratio of the
a. percentage change in quantity demanded to the percentage change in price.
b. absolute change in quantity demanded to the absolute change in price.
c. absolute change in price to the absolute change in quantity demanded.
d. percentage change in price to the percentage change in quantity demanded.
a. percentage change in quantity demanded to the percentage change in price.
b. absolute change in quantity demanded to the absolute change in price.
c. absolute change in price to the absolute change in quantity demanded.
d. percentage change in price to the percentage change in quantity demanded.
answer
A
question
The average-marginal rule states that if the marginal magnitude is
a. less than the average magnitude, the average magnitude falls.
b. rising, the average magnitude is necessarily above it.
c. falling, the average magnitude is necessarily below it.
d. greater than the average magnitude, the average magnitude falls.
a. less than the average magnitude, the average magnitude falls.
b. rising, the average magnitude is necessarily above it.
c. falling, the average magnitude is necessarily below it.
d. greater than the average magnitude, the average magnitude falls.
answer
A
question
A demand schedule is a numerical tabulation of the ___________________ of a good at different ____________________.
a. quantity supplied; incomes
b. quantity demanded; incomes
c. quantity demanded; prices
d. quantity supplied; prices
a. quantity supplied; incomes
b. quantity demanded; incomes
c. quantity demanded; prices
d. quantity supplied; prices
answer
C
question
The law of diminishing marginal utility can be stated as follows:
a. As the amount of a good consumed increases, the additional satisfaction gained from consuming additional units tends to decrease.
b. As the amount of a good consumed increases, the sum (total) of satisfaction received tends to decrease at a constant rate.
c. As the amount of a good consumed decreases, the additional satisfaction gained from consuming additional units tends to increase.
d. As the amount of a good consumed increases, the sum (total) of satisfaction received tends to decrease at a diminishing rate.
a. As the amount of a good consumed increases, the additional satisfaction gained from consuming additional units tends to decrease.
b. As the amount of a good consumed increases, the sum (total) of satisfaction received tends to decrease at a constant rate.
c. As the amount of a good consumed decreases, the additional satisfaction gained from consuming additional units tends to increase.
d. As the amount of a good consumed increases, the sum (total) of satisfaction received tends to decrease at a diminishing rate.
answer
A
question
A market is said to be in disequilibrium if
a. the number of units that individuals are willing to buy exceeds the number of units they can afford.
b. it is a market for an inferior good.
c. it exhibits either a surplus or a shortage.
d. it exhibits a shortage, but not if it exhibits a surplus.
a. the number of units that individuals are willing to buy exceeds the number of units they can afford.
b. it is a market for an inferior good.
c. it exhibits either a surplus or a shortage.
d. it exhibits a shortage, but not if it exhibits a surplus.
answer
C
question
The theory of consumer choice assumes that consumers attempt to maximize
a. average utility.
b. total utility.
c. marginal utility.
d. the difference between total utility and marginal utility.
a. average utility.
b. total utility.
c. marginal utility.
d. the difference between total utility and marginal utility.
answer
B
question
If two goods are substitute goods,
a. an increase in the price of one will cause an increase in the demand for the other.
b. the price elasticity of demand for both goods will be greater than 1.
c. an increase in the price of one will cause a decrease in the demand for the other.
d. the price elasticity of demand for both goods will be less than 1.
a. an increase in the price of one will cause an increase in the demand for the other.
b. the price elasticity of demand for both goods will be greater than 1.
c. an increase in the price of one will cause a decrease in the demand for the other.
d. the price elasticity of demand for both goods will be less than 1.
answer
A
question
If the percentage change in quantity demanded is greater than the percentage change in price for good X, then the demand for good X is
a. elastic.
b. unit elastic.
c. inelastic.
d. perfectly inelastic.
a. elastic.
b. unit elastic.
c. inelastic.
d. perfectly inelastic.
answer
A
question
An unrecoverable cost that should be disregarded in any current or future decision is also called a(n) __________ cost.
a. explicit
b. implicit
c. sunk
d. variable
a. explicit
b. implicit
c. sunk
d. variable
answer
C
question
Another term for excess supply is shortage.
True or False
True or False
answer
False
question
The fewer substitutes for a good,
a. the higher its income elasticity of demand.
b. the lower its income elasticity of demand.
c. the higher its price elasticity of demand.
d. the lower its price elasticity of demand.
a. the higher its income elasticity of demand.
b. the lower its income elasticity of demand.
c. the higher its price elasticity of demand.
d. the lower its price elasticity of demand.
answer
D
question
If quantity demanded is completely unresponsive to changes in the price of good XYZ, then demand for good XYZ is
a. inelastic.
b. elastic.
c. perfectly elastic.
d. unit elastic.
e. perfectly inelastic.
a. inelastic.
b. elastic.
c. perfectly elastic.
d. unit elastic.
e. perfectly inelastic.
answer
E
question
Consider the following information about a business Diane opened last year: price = $20, quantity sold = 25,000; implicit cost = $255,000; explicit cost = $360,000. Assuming that all relevant costs and revenue are noted, what was Diane's economic profit?
a. -$140,000
b. $220,000
c. -$115,000
d. $245,000
e. $140,000
a. -$140,000
b. $220,000
c. -$115,000
d. $245,000
e. $140,000
answer
C
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