Combo with "Microeconomics MIDTERM BW" and 8 others

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Economics

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The social science concerned with how individuals, institutions, and society make option choices under conditions of scarcity

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Utility

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The want-satisfying power of a good or service the satisfaction o pleasure a consumer obtains from the consumption of a good or service.

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Marginial Utility

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The extra utility a consumer obtains from the consumption of one additional unit of a good or service

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Scarcity

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Inefficiency or shortness of supply of a product

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Opportunity Cost

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The amount of other products that must be forgone or sacrificed to produce a unit of a product

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Production Possibilities Curve

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A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where supplies of resources and technology are fixed.

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Capital Goods

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Human-made resources (buildings, machinery and equipment) used to produce goods and services; goods that do not directly satisfy human wants

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Consumer Goods

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Products and services that satisfy human wants directly

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Economic Growth

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(1) an outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (GDP) or real output per capita.

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Factors of Production

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Economic resources: land, capital, labor and entrepreneurial ability

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Comparative Advantage

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A situation in which a person or country can produce a specific product at a lower opportunity cost than some other person or country, the basis for specialization and trade.

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Money

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Any item that is generally acceptable to sellers in exchange for goods and services.

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Barter

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The exchange of one good or service for another good or service.

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Command Economy

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A method of organizing an economy in which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities.

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Market Economy

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An economy in which the private decisions of consumers, resource suppliers, and firms determine how resources are allocated.

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Competition

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The presence in a market of independent buyers and sellers competing with one another along with the freedom of buyers and sellers to enter and leave the market.

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Invisible Hand

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The tendency of firms and resource suppliers that seek to further their own self-interests in competitive markets to also promote the interests of society.

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Dollar Votes

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The "votes" that consumers and entrepreneurs cast for the production of consumer and capital goods, respectively, when they purchase these goods in product and resource markets.

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Income Effect

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A change in the quantity demanded of a product that results from the change in purchasing power caused by a change in the product's price.

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Equilibrium Quantity

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(1) The quantity demanded and supplied at the equilibrium prince in a competitive market; (2) the profit-maximizing output of a firm.

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Monopoly

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A market structure in which the number of sellers is so small that each seller is able to influence the total supply and the price of that good or service.

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Externality

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A cost or benefit from production or consumption accruing without compensation to someone other than the buyers and sellers of the product.

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Transfer Payment

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A payment of money (or goods and services) by a government to a household or firm for which the payer recieves no good or service directly in return.

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Excise Tax

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A tax levied on the production of a specific product or on the quantity of the product purchased.

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Export Subsidies

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Government payments to domestic producers to enable them to reduce the price of a good or service to foreign buyers.

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Reciporical Trade Agreements

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A 1934 Federal law that authorized the president to negotiate up to 50 percent lower tariffs with foreign nations that agree to reduce their tariffs on U.S. goods.

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Off-Shoring

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The practice of shifting work previously done by American workers to workers located abroad.

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Market Period

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A period in which producers of a product are unable to change the quantity produced in response to a change in its price and in which there is a perfectly inelastic supply.

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Consumer Surplus

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The difference between the maximum price a consumer is (or consumers are) willing to pay for an additional unit of a product and its market price; the triangular area below the demand curve and above the market price.

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Producer Surplus

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The difference between the price a producer recieves and the minimum acceptable price; the triangular are above the supply curve and below the market price.

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Rational Behavior

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Human behavior based on comparison of marginal costs and marginal benefits; behavior designed to maximize total utility.

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Budget Constraints

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The limit that the size of consumer's income (and the prices that must be paid for goods and services) imposes on the ability of that consumer to obtain goods/services.

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Consumer Equilibrium

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The limit that the size of a consumers income imposes on the ability of that consumer to obtain goods and services

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Economic Profit

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The total revenue of a firm less its economic costs (which include both explicit and implicit costs) also called pure profit

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Total Product

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The total output of a particular good or service produced by a firm.

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Economies of Scale

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REductions in the average total cost of producing a product as the firm expands the size of plant in the long run, the economies of mass production.

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Minimum Efficient Scale

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The lowest level of output at which a firm can minimize long-run average total cost.

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Price-Taker

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A seller (or buyer) that is unable to affect the price at which a product or resource sells by changing the amount it sells (or buys)

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Break-Even Point

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AN output at which a firm makes a normal profit (Total revenue = total cost) but not an economic profit.

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Constant-Cost Industry

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AN industry in which expansion by the entry of new firms has no effect on the prices firms in the industry must pay for resources and thus no effect on production costs.

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Elasticity of demand

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a measure of how consumers react to a change in price

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Determinants of demand

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Anything other than price of the current item that influences consumer buying decisions, including income, tastes and preferences, price of related items (substitutes and complements), number of consumers in the market, and expected future price.

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Unit elasticity

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demand or supply for which the elasticity coefficient is equal to 1; means that the percentage change in the quantity demanded or supplied is equal to the percentage change in cost.

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Inelastic demand

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Product or resource demand for which the elasticity coefficient for price is less than 1

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Elasticity of supply

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a measure of the way quantity supplied reacts to a change in price

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Determinants of supply

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Factors such as input prices, productivity, and the legal-institutional environment that, if they change, shift the aggregate supply curve.

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Cross price elasticity

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It is a measure of the responsiveness of the demand for one good or service to a change in the price of another good or service.

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Income elasticity

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the percentage change in the quantity of a product demanded divided by the percentage change in consumer income that caused the change in quantity demanded

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Explicit costs

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the monetary payment a firm must make to an outsider to obtain a resource

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Implicit costs

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Input costs that do not require an outlay of money by the firm (e.g. interest forgone on money used). The opportunity costs associated with a firm's use of resources that it owns.

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Accounting profit

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total revenue - total explicit cost

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Economic profit

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total revenue minus total cost, including both explicit and implicit costs.

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Short run

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A period of time sufficiently short that at least some of the firm's factors of production are fixed and can change some but not all of the resources that they employ

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Long run

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A period of sufficient time to alter all factors of production used in the productive process - all inputs can be changed.

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Marginal product

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the extra output or change in total product caused by the addition of one more unit of variable input

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Average product

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The total product (output) divided by the number of units of the variable input required to produce that output level.

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Fixed costs

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Costs that do not vary with the quantity of output produced

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Variable costs

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costs that vary with the quantity of output produced

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Total costs

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the sum of the fixed and variable costs for any given level of production

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Average costs

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Total fixed costs (AFC) divided by output

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Marginal cost

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the additional cost to a firm of producing one more unit of a good or service

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AFC

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Average Fixed Costs (Declines as output increases.)

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AVC

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Average Variable Costs (Declines, reaches a minimum, then increases as more of a good is produced.)

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ATC

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Average Total Costs (Declines, reaches a minimum, then increases as more of a good is produced.)

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Economies of scale

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factors that cause a producer's average cost per unit to fall as output rises

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Diseconomies of scale

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The property whereby long-run average total cost rises as the quantity of output increases (right-most upward sloping part of the long-run ATC)

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Law of diminishing returns

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a law affirming that to continue after a certain level of performance has been reached will result in a decline in effectiveness

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Law of increasing costs

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law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases

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Circular flow Diagram

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an illustration showing the flow of resources from households to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to households and from households to firms.

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Public expenditures

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Public expenditure is spending by central government and local authorities on providing goods and services, transfer payments and debt repayments. It is also called government expenditure.

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Elasticities

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Measure the level of responsiveness to different types of market changes

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Allocative efficiency

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A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.

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Productive efficiency

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the situation in which a good or service is produced at the lowest possible cost

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Microeconomics

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the branch of economics that studies the economy of consumers or households or individual firms

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Macroeconomics

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the branch of economics that studies the overall working of a national economy

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Capital goods

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buildings, machinery, tools, and other goods that provide productive services over a period of time.

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Consumer goods

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goods (as food or clothing) intended for direct use or consumption

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Normal goods

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Goods for which demand goes up when income is higher and for which demand goes down when income is lower; new goods.

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Inferior goods

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a good that consumers demand less of when their incomes increase; used goods.

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Determinants of demand

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Factors such as consumption spending, investment, government spending, and net exports that, if they change, shift the aggregate demand curve.

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Determinants of supply

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Factors such as input prices, productivity, and the legal-institutional environment that, if they change, shift the aggregate supply curve.

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Price floor

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a legal minimum on the price at which a good can be sold

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Price ceilings

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maximum price set below equilibrium price, causes shortage, may cause illegal markets to form

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Surpluses

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An amount produced in excess of what is needed.

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Shortages

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quantity demanded is greater than qty. supplied at current price

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Positive externalities

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benefits created by a public good that are shared by the primary consumer of the good and by society more generally

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Negative externalities

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They are the "bad" effects that are suffered by a third party when a good or service is produced or consumed.

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Coase Therom

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An argument for property rights against regulatory intervention, sorting it out without government intervention.

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Public good

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a shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers

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Private good

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A good that, when consumed by one individual, cannot be consumed by another individual.

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Lorenze curve

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plots income held by each part of society (relation to equality line)

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Consumer surplus

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the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

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Producer surplus

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the amount a seller is paid for a good minus the seller's cost of providing it

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Efficiency loss

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reductions of combined consumer and producer surplus associated with underproduction or overproduction of a product

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For economists, the word "utility" means

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pleasure and satisfaction

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In economics, the pleasure, happiness, or satisfaction received from a product is called what?

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utility

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When economists say that people act rationally in their self interest, they mean that individuals do what?

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look for and pursue opportunities to increase their utility

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According to Emerson: "Want is a growing giant whom the coat of Have was never large enough to cover." According to economists, "Want" exceeds "Have" because what?

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productive resources are limited

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According to economists, economic self-interest is what?

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a reality that underlies economic behavior

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When entering a building, Sam diverts his path to go through an open door rather than make the physical effort to open the closed door that is directly in his path. This is an example of what?

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marginal benefit-marginal cost analysis

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Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of what?

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opportunity costs

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A person should consume more of something when its marginal means what?

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benefit exceeds its marginal cost

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Economics may best be defined as what?

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the social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity

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The study of economics is primarily concerned with what?

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choices that are made in seeking the best use of resources

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The economic perspective refers to what?

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the making of purposeful decisions in a context of marginal costs and marginal benefits.

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what does the economic perspective entail?

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a comparison of marginal benefits and marginal costs in decision making

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What does purposeful behavior suggest?

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individuals will make different choices because of different desired outcomes

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Purposeful behavior means that:

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people weigh costs and benefits to make decisions.

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Economics involves marginal analysis because:

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most decisions involve changes from the present situation

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Why should you decide to go to a movie?

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if the marginal benefit of the movie exceeds its marginal cost.

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Marginal costs exist because:

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the decision to engage in one activity means forgoing some other activity.

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The assertion that "There is no free lunch" means what?

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all production involves the use of scarce resources and thus the sacrifice of alternative goods.

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Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. What is this a reflection of?

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purposeful behavior

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If someone produced too much of a good, this would suggest that:

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the good was produced to the point where its marginal cost exceeded its marginal benefit.

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Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. What does this fact imply?

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implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

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In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of what?

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scarcity and opportunity costs

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Which one of the following expressions best states the idea of opportunity cost?

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"There is no such thing as a free lunch."

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What is an economic explanation for why most college-aged movie stars do not attend college?

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the opportunity cost in terms of reduced income is too great

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Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates what?

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Opportunity costs

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Which of the following most closely relates to the idea of opportunity costs?

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tradeoffs

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Economists contend that most economic decisions are what?

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purposeful

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Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as:

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rational self-interest, because he attempting to increase his own income by identifying and satisfying someone else's wants.

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Kara was out jogging and despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara:

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decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

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What are Economic theories?

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are generalizations based on a careful observation of facts.

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In constructing models, what do economists do?

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make simplifying assumptions

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What do Economic models do?

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emphasize basic economic relationships by purposefully simplifying the complexities of the real world.

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What does the term "ceteris paribus" mean?

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other things equal

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What is the basic purpose of the other-things-equal assumption?

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allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.

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Suppose an economist says that "Other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that:

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all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

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The term "other things equal" means that:

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a number of relevant variables are assumed to be constant

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Macroeconomics approaches the study of economics from the viewpoint of:

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the entire economy

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What is associated with macroeconomics?

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an empirical investigation of the general price level and unemployment rates since 1990

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The problems of aggregate inflation and unemployment are:

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major topics of macroeconomics.

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Which of the following statements pertains to macroeconomics?
A. Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force.
B. A decline in the price of soybeans caused farmer Wanek to plant more land in wheat.
C. National income grew by 2.7 percent last year.
D. The Pumpkin Center State Bank increased its interest rate on consumer loans by 1 percentage point.

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C. National income grew by 2.7 percent last year.

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What can Macroeconomics best be described as?

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study of the large aggregates of the economy or the economy as a whole.

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What is Microeconomics is concerned with?

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a detailed examination of specific economic units that make up the economic system.

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Microeconomics:

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is concerned with individual economic units and specific markets.

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Which of the following is a macroeconomic statement?
A. The gross profits of all U.S. businesses were $182 billion last year.
B. The price of beef declined by 3 percent last year.
C. General Motors' profits increased last year.
D. The productivity of steelworkers increased by 1 percent last year.

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A. The gross profits of all U.S. businesses were $182 billion last year.

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Which of the following is a microeconomic statement?
A. The real domestic output increased by 2.5 percent last year.
B. Unemployment was 6.8 percent of the labor force last year.
C. The price of personal computers declined last year.
D. The general price level increased by 4 percent last year.

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C. The price of personal computers declined last year.

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Which of the following statements is true?
A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.
B. Macroeconomics focuses on specific decision-making units of the economy; microeconomics examines the economy as a whole.
C. Every topic in economics is either a microeconomic or a macroeconomic issue; a topic cannot be both.
D. Topics in microeconomics have public policy implications; topics in macroeconomics do not.

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A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.

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A normative statement is one that:

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is based on value judgments.

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Which of the following is a normative statement?
A. The temperature is high today.
B. The humidity is high today.
C. It is too hot to play tennis today.
D. It will cool off later this evening.

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C. It is too hot to play tennis today.

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A positive statement is one that is:

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objective and is based on facts.

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Which of the following is a positive statement?
A. The humidity is too high today.
B. It is too hot to jog today.
C. The temperature is 92 degrees today.
D. Summer evenings are nice when it cools off.

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C. The temperature is 92 degrees today.

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What are Normative statements concerned with?

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what ought to be.

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What are Positive statements concerned with?

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what is.

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Most of the disagreement among economists involves:

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Normative statements

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Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should be increased on beer because college students drink too much." We can conclude that:

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Holly's statement is normative, but Ben's is positive.

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What is the economizing problem?

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the need to make choices because economic wants exceed economic means.

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The economizing problem is one of deciding how to make the best use of:

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limited resources to satisfy virtually unlimited wants.

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When the economist says that economic wants are insatiable, this means that:

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these wants are virtually unlimited and therefore incapable of complete satisfaction.

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Why does the scarcity problem persist?

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persists because economic wants exceed available productive resources.

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The alternative combination of two goods which a consumer can purchase with a given money income is shown by what?

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a budget line.

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What does a budget line show?

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all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

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61. Refer to the budget line shown in the diagram above. If the consumer's money income is $20, the:
A. prices of C and D cannot be determined.
B. price of C is $2 and the price of D is $4.
C. consumer can obtain a combination of 5 units of both C and D.
D. price of C is $4 and the price of D is $2.

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D. price of C is $4 and the price of D is $2.

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62. Refer to the budget line shown in the diagram above. If the consumer's money income is $20, which of the following combination of goods is unattainable?
A. 4 units of C, and 6 units of D.
B. 5 units of C, and no units of D.
C. 1 unit of C, and 8 units of D.
D. 2 units of C, and 6 units of D.

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A. 4 units of C, and 6 units of D.

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63. Refer to the budget line shown in the diagram above. The absolute value of the slope of the budget line is:
A. MUC/MUD.
B. one-half.
C. PD/PC.
D. PC/PD.

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D. PC/PD.

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In moving along a given budget line:

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the prices of both products and money income are assumed to be constant.

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An increase in money income does what?

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shifts the consumer's budget line to the right.

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66. The shift of the budget line from cd to ab in the above figure is consistent with:
A. decreases in the prices of both M and N.
B. an increase in the price of M and a decrease in the price of N.
C. a decrease in money income.
D. an increase in money income.

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a decrease in money income.

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Any combination of goods lying outside of the budget line is what?

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is unattainable, given the consumer's income.

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68. Suppose you have a money income of $10, all of which you spend on Coke and popcorn. In the above diagram, the prices of Coke and popcorn respectively are:
A. $.50 and $1.00.
B. $1.00 and $.50.
C. $1.00 and $2.00.
D. $.40 and $.50.

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A. $.50 and $1.00.

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A budget line shows the:

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alternative combinations of two goods that a consumer can purchase with a given money income.

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Other things equal, an increase in a consumer's money income does what?

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shifts her budget line rightward because she can now purchase more of both products.

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What does the slope of a budget line reflect?

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price ratio of the two products

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72. Suppose Elroy's budget line is as shown on the above diagram. If his tastes change in favor of Coke and against popcorn, the budget line will:

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be unaffected.

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Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line:

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is 1/5.

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Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia:

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can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.

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Which of the following is a land resource?
A. a computer programmer
B. a computer
C. silicon (sand) used to make computer chips
D. a piece of software used by a firm

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C. silicon (sand) used to make computer chips

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Which of the following is a labor resource?
A. a computer programmer
B. a computer
C. silicon (sand) used to make computer chips
D. a piece of software used by a firm

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A. a computer programmer

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Which of the following is a capital resource?
A. a computer programmer
B. a corporate bond issued by a computer manufacturer
C. silicon (sand) used to make computer chips
D. a piece of software used by a firm

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D. a piece of software used by a firm

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The four factors of production are:

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land, labor, capital, and entrepreneurial ability

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Which of the following lists includes only capital resources (and therefore no labor or land resources)?
A. an ice arena; a professional hockey player; hockey uniforms.
B. the owner of a new startup firm; a chemistry lab; a researcher.
C. a hydroelectric dam; water behind the dam; power lines.
D. autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.

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D. autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.

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Why is money not an economic resource?

answer

money, as such, is not productive.

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Economic resources are also called:

answer

factors of production.

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Which of the following is real capital?
A. a pair of stockings
B. a construction crane
C. a savings account
D. a share of IBM stock

answer

B. a construction crane

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The main function of the entrepreneur is to:

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innovate

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Which of the following is not a main function of the entrepreneur?
A. make routine pricing decisions.
B. innovate.
C. assume the risk of economic losses.
D. makes strategic business decisions.

answer

A. make routine pricing decisions.

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The production possibilities curve illustrates the basic principle that:

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if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.

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Which of the following will not produce an outward shift of the production possibilities curve?
A. an upgrading of the quality of a nation's human resources
B. the reduction of unemployment
C. an increase in the quantity of a society's labor force
D. the improvement of a society's technological knowledge

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B. the reduction of unemployment

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Unemployment is illustrated by what?

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by a point inside the production possibilities curve.

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If the production possibilities curve is a straight line:

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economic resources are perfectly substitutable between the production of the two products.

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A production possibilities curve illustrates:

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Scarcity

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A production possibilities curve shows:

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the maximum amounts of two goods that can be produced assuming the full use of available resources.

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A nation's production possibilities curve is bowed out from the origin because:

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resources are not equally efficient in producing every good.

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92. Refer to the above table. If the economy is producing at production alternative C, the opportunity cost of the tenth unit of consumer goods will be:
A. 4 units of capital goods.
B. 2 units of capital goods.
C. 3 units of capital goods.
D. 1/3 of a unit of capital goods.

answer

D. 1/3 of a unit of capital goods.

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93. Refer to the above table. As compared to production alternative D, the choice of alternative C would:
A. tend to generate a more rapid growth rate.
B. be unattainable.
C. entail unemployment.
D. tend to generate a slower growth rate.

answer

A. tend to generate a more rapid growth rate.

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94. Refer to the above table. A total output of 3 units of capital goods and 4 units of consumer goods:
A. is irrelevant because the economy is capable of producing a larger total output.
B. will result in the maximum rate of growth available to this economy.
C. would involve an inefficient use of the economy's scarce resources.
D. is unobtainable in this economy.

answer

C. would involve an inefficient use of the economy's scarce resources.

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95. Refer to the above table. For this economy to produce a total output of 3 units of capital goods and 13 units of consumer goods it must:
A. achieve economic growth.
B. use its resources more efficiently than the data in the table now indicate.
C. allocate its available resources most efficiently among alternative uses.
D. achieve the full employment of available resources.

answer

A. achieve economic growth.

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96. Refer to the above table. For these data the law of increasing opportunity costs is reflected in the fact that:
A. the amount of consumer goods that must be sacrificed to get more capital goods diminishes beyond a point.
B. larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.
C. the production possibilities data would graph as a straight downsloping line.
D. the economy's resources are presumed to be scarce.

answer

B. larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.

question

When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because:

answer

resources are limited.

question

The production possibilities curve is a frontier between what?

answer

a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced.

question

Assume an economy is operating at some point on its production possibilities curve, which shows civilian and military goods. If the output of military goods is increased, the output of civilian goods:

answer

must be decreased.

question

Any point inside the production possibilities curve indicates:

answer

that more output could be produced with available resources.

question

101. Refer to the above diagram. Other things equal, this economy will achieve the most rapid rate of growth if:
A. the ratio of capital to consumer goods is minimized.
B. it chooses point C.
C. it chooses point B.
D. it chooses point A.

answer

D. it chooses point A.

question

102. Refer to the above diagram. This economy will experience unemployment if it produces at point:
A. A.
B. B.
C. C.
D. D.

answer

D. D.

question

In drawing the production possibilities curve we assume that:

answer

technology is fixed.

question

Which of the following is assumed in constructing a typical production possibilities curve?

answer

production technology is fixed.

question

If the production possibilities curve were a straight down-sloping line, this would suggest that:

answer

resources are perfectly shiftable between the production of these two goods.

question

Assume an economy is incurring unemployment. The effect of resolving this problem will be to:

answer

move the level of actual output to the economy's production possibilities curve.

question

107. Which of the following is not correct? A typical production possibilities curve:
A. indicates how much of two products a society can produce.
B. reveals how much each additional unit of one product will cost in terms of the other product.
C. specifies how much of each product society should produce.
D. indicates that to produce more of one product society must forgo larger and larger amounts of the other product.

answer

C. specifies how much of each product society should produce.

question

A point inside a production possibilities curve best illustrates:

answer

unemployment.

question

109. Refer to the above diagram. This production possibilities curve is constructed so that:
A. resources are presumed to be perfectly shiftable between bread and tractors.
B. the opportunity cost of bread diminishes as more bread is produced.
C. the opportunity cost of tractors increases as more bread is produced.
D. the opportunity cost of both bread and tractors increases as more of each is produced.

answer

D. the opportunity cost of both bread and tractors increases as more of each is produced.

question

110. Refer to the above diagram. Starting at point A, the opportunity cost of producing each successive unit of tractors is:
A. a constant 2 units of bread.
B. 2, 4, 6, and 8 units of bread.
C. 8, 6, 4, and 2 units of bread.
D. the reciprocal of the output of tractors.

answer

B. 2, 4, 6, and 8 units of bread.

question

111. Refer to the above diagram. Starting at point E, the production of successive units of bread will cost:
A. a constant 8 units of tractors.
B. a constant 6 units of tractors.
C. 1/8, 1/6, 1/4, and 1/2 units of tractors.
D. 1/2, 1/4, 1/6, and 1/8 units of tractors.

answer

C. 1/8, 1/6, 1/4, and 1/2 units of tractors.

question

In drawing a production possibilities curve we hold constant:

answer

both technology and resource supplies.

question

The construction of a production possibilities curve assumes:

answer

technology is fixed.

question

If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it:

answer

can produce more of both consumer goods and capital goods by using resources that are currently idle.

question

115. Refer to the above diagram. Points A, B, C, D, and E show:
A. that the opportunity cost of bicycles increases, while that of computers is constant.
B. combinations of bicycles and computers that society can produce by using its resources efficiently.
C. that the opportunity cost of computers increases, while that of bicycles is constant.
D. that society's demand for computers is greater than its demand for bicycles.

answer

B. combinations of bicycles and computers that society can produce by using its resources efficiently.

question

116. Refer to the above diagram. This production possibilities curve is:
A. convex to the origin because opportunity costs are constant.
B. linear because opportunity costs are constant.
C. concave to the origin because of increasing opportunity costs.
D. convex to the origin because of increasing opportunity costs.

answer

C. concave to the origin because of increasing opportunity costs.

question

117. Refer to the above diagram. If society is currently producing 9 units of bicycles and 4 units of computers and it now decides to increase computer output to 6, the cost:
A. will be 4 units of bicycles.
B. will be 2 units of bicycles.
C. will be zero because unemployed resources are available.
D. of doing so cannot be determined from the information given.

answer

A. will be 4 units of bicycles.

question

118. Refer to the above diagram. The combination of computers and bicycles shown by point G is:
A. attainable, but too costly.
B. unattainable, given currently available resources and technology.
C. attainable, but involves unemployment.
D. irrelevant because it is inconsistent with consumer preferences.

answer

B. unattainable, given currently available resources and technology.

question

119. Refer to the above diagram. If society is currently producing the combination of bicycles and computers shown by point D, the production of 2 more units of bicycles:
A. cannot be achieved because resources are fully employed.
B. will cost 1 unit of computers.
C. will cost 2 units of computers.
D. will cause some resources to become unemployed.

answer

B. will cost 1 unit of computers.

question

120. Refer to the above diagram. The combination of computers and bicycles shown by point F:
A. is unattainable, given currently available resources and technology.
B. is attainable, but implies that the economy is not using all its resources.
C. is irrelevant because it is inconsistent with consumer preferences.
D. suggests that opportunity costs are constant.

answer

B. is attainable, but implies that the economy is not using all its resources.

question

121. Refer to the above diagram. The movement down the production possibilities curve from point A to point E suggests that the production of:
A. computers, but not bicycles, is subject to increasing opportunity costs.
B. bicycles, but not computers, is subject to increasing opportunity costs.
C. both bicycles and computers are subject to constant opportunity costs.
D. both bicycles and computers are subject to increasing opportunity costs.

answer

D. both bicycles and computers are subject to increasing opportunity costs.

question

The law of increasing opportunity costs states that:

answer

if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so.

question

What does the concept of opportunity cost suggest?

answer

suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.

question

The law of increasing opportunity costs exists because:

answer

resources are not equally efficient in producing various goods.

question

The law of increasing opportunity costs is reflected in a production possibilities curve that is:

answer

concave to the origin.

question

Opportunity cost is best defined as:

answer

the amount of one product that must be given up to produce one more unit of another product.

question

If the output of product X is such that marginal benefit equals marginal cost:

answer

the correct amount of resources is being allocated to X's production.

question

128. Refer to the above diagram for athletic shoes. The optimal output of shoes is:
A. Q1.
B. Q2.
C. Q3.
D. greater than Q3.

answer

B. Q2.

question

129. Refer to the above diagram for athletic shoes. If the current output of shoes is Q1, then:
A. society would consider additional units of shoes to be more valuable than alternative uses of those resources.
B. society would consider additional units of shoes to be less valuable than alternative uses of those resources.
C. society would experience a net loss by producing more shoes.
D. resources are being allocated efficiently to the production of shoes.

answer

A. society would consider additional units of shoes to be more valuable than alternative uses of those resources.

question

130. Refer to the above diagram for athletic shoes. If the current output of shoes is Q3, then:
A. resources are being allocated efficiently to the production of shoes.
B. society would consider additional units of shoes to be more valuable than alternative products.
C. society would consider additional units of shoes to be less valuable than alternative products.
D. society would experience a net gain by producing more shoes.

answer

C. society would consider additional units of shoes to be less valuable than alternative products.

question

131. Refer to the above diagram for athletic shoes. If the current output of shoes is Q3, then:
A. society should produce fewer shoes to achieve the optimal allocation of resources.
B. society should produce more shoes to achieve the optimal allocation of resources.
C. resources are being allocated efficiently to the production of shoes.
D. shoes are more valuable to society than alternative products

answer

A. society should produce fewer shoes to achieve the optimal allocation of resources.

question

Suppose that an economy is producing on its production possibilities curve, but is not producing quantities of each good where the marginal benefit equals the marginal cost for each good. How can this economy improve its allocation?

answer

by producing more of one good and less of the other.

question

The optimal allocation of resources is found:

answer

where MB = MC.

question

The basic difference between consumer goods and capital goods is that

answer

consumer goods satisfy wants directly while capital goods satisfy wants indirectly.

question

Which of the following would be most likely to shift the production possibilities curve to the right?
A. a sudden and substantial expansion of consumer wants
B. an improvement in the literacy level and general level of education
C. a decline in the size of the population and labor force
D. shifting resources from the production of capital goods to the production of consumer goods

answer

B. an improvement in the literacy level and general level of education

question

Which of the following will shift the production possibilities curve to the right?
A. an increase in the unemployment rate from 6 to 8 percent
B. a decline in the efficiency with which the present labor force is allocated
C. a decrease in the unemployment rate from 8 to 6 percent
D. a technological advance that allows farmers to produce more output from given inputs

answer

D. a technological advance that allows farmers to produce more output from given inputs

question

Other things equal, which of the following would shift an economy's production possibilities curve to the left?
A. the discovery of a low-cost means of generating and storing solar energy
B. the entrance of more women into the labor force
C. a law requiring mandatory retirement from the labor force at age 55
D. an increase in the proportion of total output that consists of capital or investment goods

answer

C. a law requiring mandatory retirement from the labor force at age 55

question

138. Refer to the above diagram. The concept of opportunity cost is best represented by the:
A. shift of the production possibilities curve from PP1 to PP2.
B. move from B on PP1 to E on PP2.
C. move from B on PP1 to C on PP1.
D. move from D inside PP1 to B on PP1.

answer

C. move from B on PP1 to C on PP1.

question

139. Refer to the above diagram. Which of the following positions relative to PP1 would be the most likely to result in a future production possibilities curve of PP3, rather than PP2?
A. A.
B. B.
C. C.
D. D.

answer

A. A.

question

140. Refer to the above diagram. An improvement in technology will:
A. shift the production possibilities curve from PP1 to PP2.
B. shift the production possibilities curve from PP2 to PP1.
C. move the economy from A to C along PP1.
D. move the economy from A, B, or C on PP1 to D.

answer

A. shift the production possibilities curve from PP1 to PP2.

question

Which of the following statements, if any, is correct for a nation that is producing only consumer and capital goods?

answer

Other things equal, the more capital goods a nation produces, the greater will be its future growth rate.

question

(Consider This) A direct cost of going to college is:
A. tuition, while an indirect cost (opportunity cost) is books and other supplies.
B. forgone income while in college, while an indirect cost (opportunity cost) is tuition.
C. tuition, while an indirect cost (opportunity cost) is forgone income while in college.
D. books and supplies, while an indirect cost (opportunity cost) is food and housing.

answer

C. tuition, while an indirect cost (opportunity cost) is forgone income while in college.

question

(Consider This) An exception to the advice "go to college, stay in college, and earn a degree" occurs when:
A. tuition expenses are high and rising.
B. the opportunity cost of attending college is extraordinarily high.
C. the price of textbooks is high and rising.
D. the economy is growing rapidly and jobs are plentiful.

answer

B. the opportunity cost of attending college is extraordinarily high.

question

If we say that two variables are directly related, this means that:

answer

an increase in one variable is associated with an increase in the other variable.

question

If we say that two variables are inversely related, this means that:

answer

an increase in one variable is associated with a decrease in the other.

question

Which of the following statements is correct?
A. The value of the independent variable is determined by the value of the dependent variable.
B. The value of the dependent variable is determined by the value of the independent variable.
C. The dependent variable designates the "cause" and the independent variable the "effect."
D. Dependent variables graph as upsloping lines; independent variables graph as downsloping lines.

answer

B. The value of the dependent variable is determined by the value of the independent variable.

question

If two variables are inversely related, then as the value of one variable:

answer

increases, the value of the other decreases.

question

If a positive relationship exists between x and y:

answer

the relationship will graph as an upsloping line.

question

The slope of a straight line can be determined by:

answer

comparing the absolute vertical change to the absolute horizontal change between two points on the line.

question

150. Refer to the above diagram. The variables X and Y are:
A. inversely related.
B. directly related.
C. unrelated.
D. negatively related.

answer

B. directly related.

question

151. Refer to the above diagram. The vertical intercept:
A. is 40.
B. is 50.
C. is 60.
D. cannot be determined from the information given.

answer

B. is 50.

question

152. Refer to the above diagram. The slope of the line:
A. is - 1/4.
B. is + 1/4.
C. is .40.
D. cannot be determined from the information given.

answer

B. is + 1/4.

question

153. Refer to the above diagram. The equation that shows the relationship between Y and X is:
A. Y = 50 + 1/4 X.
B. X = 1/4Y.
C. Y = .4X.
D. Y = 1/4 X - 50.

answer

A. Y = 50 + 1/4 X.

question

Assume a household would consume $100 worth of goods and services per week if its weekly income were zero and would spend an additional $80 per week for each $100 of additional income. Letting C represent consumption and Y represent income, the equation that summarizes this relationship is:

answer

C = 100 + .8Y.

question

If the equation y = 5 + 6x was graphed, the slope would be what?

answer

slope would be +6.

question

If the equation y = 15 - 4x was plotted, the slope would be what?

answer

slope would be -4.

question

If the equation y = -10 + 2.5x was plotted:
A. the vertical intercept would be -10.
B. the slope would be -7.5.
C. it would graph as a downsloping line.
D. the slope would be -10.

answer

A. the vertical intercept would be -10.

question

158. The movement from line A to line A' represents a change in:
A. the slope only.
B. the intercept only.
C. both the slope and the intercept.
D. neither the slope nor the intercept.

answer

B. the intercept only.

question

159. In the above diagram variables x and y are:
A. both dependent variables.
B. directly related.
C. inversely related.
D. unrelated.

answer

C. inversely related.

question

160. In the above diagram the vertical intercept and slope are:
A. 4 and -1 1/3 respectively.
B. 3 and -1 1/3 respectively.
C. 3 and + 3/4 respectively.
D. 4 and + 3/4 respectively.

answer

A. 4 and -1 1/3 respectively.

question

161. Refer to the above diagram. The slope of curve ZZ at point A is approximately:
A. +2.
B. +2 1/2.
C. -2 1/2.
D. +4.

answer

B. +2 1/2.

question

162. Refer to the above diagram. The slope of curve ZZ at point B is:
A. infinity.
B. zero.
C. +1.
D. -1.

answer

B. zero.

question

163. Refer to the above diagram. The slope of curve ZZ at point C is approximately:
A. -4.
B. -2.
C. -2 2/5.
D. +3.

answer

C. -2 2/5.

question

164. The slope of a line parallel to the vertical axis is:
A. zero.
B. one.
C. infinite.
D. one-half.

answer

C. infinite.

question

165. The slope of a line parallel to the horizontal axis is:
A. zero.
B. one.
C. infinite.
D. one-half.

answer

A. zero.

question

What are the two general types of economic systems that exist today?

answer

market systems and command systems.

question

2. Which of the following is a distinguishing feature of a command system?
A. private ownership of all capital.
B. central planning.
C. heavy reliance on markets.
D. wide-spread dispersion of economic power

answer

B. central planning.

question

3. Which of the following is a distinguishing feature of a market system?
A. public ownership of all capital.
B. central planning.
C. wide-spread private ownership of capital.
D. a circular flow of goods, resources, and money.

answer

C. wide-spread private ownership of capital.

question

4. Examples of command economies are:
A. The United States and Japan.
B. Sweden and Norway.
C. Mexico and Brazil.
D. Cuba and North Korea.

answer

D. Cuba and North Korea.

question

What is an economic system?

answer

a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.

question

What does the term laissez-faire suggest?

answer

government should not interfere with the operation of the economy.

question

What economies does Economic scarcity apply to?

answer

applies to all economies.

question

Economic systems differ according to what two main characteristics?

answer

Who owns the factors of production, and the methods used to coordinate economic activity.

question

Command systems are also known as what?

answer

communism.

question

A fundamental difference between the command system and the market system is that, in command systems:

answer

the division of output is decided by central planning rather than by individuals operating freely through markets.

question

Which of the following is a fundamental characteristic of the market system?

answer

property rights.

question

The pursuit of self-interest:
A. is highly detrimental to the market system.
B. means the same as "selfishness."
C. is reflected in the behavior of firms, but not in the behavior of consumers.
D. gives direction to the market system.

answer

D. gives direction to the market system.

question

What is the regulatory mechanism of the market system?

answer

competition

question

Broadly defined, what does competition involve?

answer

independently acting buyers and sellers and freedom to enter or leave markets.

question

What does competition mean?

answer

there are independently-acting buyers and sellers in each market.

question

What does the division of labor mean?

answer

workers specialize in various production tasks.

question

Why is specialization in production primarily important?

answer

because it results in greater total output.

question

Specialization-the division of labor-enhances productivity and efficiency by:
A. allowing workers to take advantage of existing differences in their abilities and skills.
B. avoiding the time loss involved in shifting from one production task to another.
C. allowing workers to develop skills by working on one, or a limited number, of tasks.
D. all of the means identified in the other answers.

answer

D. all of the means identified in the other answers.

question

Specialization in production is economically beneficial primarily because it:

answer

permits the production of a larger output with fixed amounts of resources.

question

Barter

answer

entails the exchange of goods for goods.

question

The use of money contributes to economic efficiency because:

answer

it promotes specialization by overcoming the problems with barter.

question

The presence of market failures implies that:

answer

there is an active role for government, even in a market system.

question

Which of the following is one of the Five Fundamental Questions?
A. Which products will be in scarce supply and which in excess supply?
B. Who should appoint the head of the central bank?
C. How much should the society save?
D. What goods and services will be produced?

answer

D. What goods and services will be produced?

question

Which of the following is not an economic cost?
A. wages.
B. rents.
C. economic profits.
D. payments made to the entrepreneur for organizing production.

answer

C. economic profits.

question

If competitive industry Z is making substantial economic profit, output will:

answer

expand in industry Z, as more resources will move to that industry.

question

From society's point of view the economic function of profits and losses is to:

answer

reallocate resources from less desired to more desired uses.

question

In a market economy a significant change in consumers' desire for product X will:
A. alter the profits or losses received by certain firms.
B. cause a reallocation of scarce resources.
C. cause some industries to expand and others to contract.
D. do all of these.

answer

D. do all of these.

question

Economic profits in an industry suggest the industry:

answer

should be larger to better satisfy consumers' desire for the product.

question

Economic profits and losses:

answer

are essential to the reallocation of resources from less desired goods to more desired goods.

question

If consumer desire for product X increases, all of the following will occur except:
A. an increase in the profits of industry X.
B. an increase in the quantity of resources employed by industry X.
C. an increase in the output of industry X.
D. a decrease in the quantity of resources employed in industry X.

answer

D. a decrease in the quantity of resources employed in industry X.

question

An increase in consumer desire for strawberries is most likely to:
A. increase the number of strawberry pickers needed by farmers.
B. reduce the supply of strawberries.
C. reduce the number of people willing to pick strawberries.
D. reduce the need for strawberry pickers.

answer

A. increase the number of strawberry pickers needed by farmers.

question

If competitive industry Y is incurring substantial losses, output will:

answer

contract as resources move away from industry Y.

question

The economic function of profits and losses is to:

answer

signal that resources should be reallocated.

question

In a competitive economy, prices:
A. influence consumers in their purchases of goods and services.
B. influence businesses in their purchases of economic resources.
C. influence workers in making occupational choices.
D. do all of these.

answer

D. do all of these.

question

If a competitive industry is neither expanding nor contracting, we would expect:

answer

economic profits to be zero.

question

Suppose industry A is realizing substantial economic profit. Which of the following best describes what will happen in this competitive market?
A. Firms will leave the industry and output will fall.
B. Firms will enter the industry and output will fall.
C. Firms will leave the industry and output will rise.
D. Firms will enter the industry and output will rise.

answer

D. Firms will enter the industry and output will rise.

question

What does the competitive market system do?

answer

encourages innovation because successful innovators are rewarded with economic profits.

question

The most efficient combination of resources in producing any output is the combination that:
A. comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability.
B. can be obtained for the smallest money outlay.
C. uses the smallest total quantity of all resources.
D. conserves most on the use of labor.

answer

B. can be obtained for the smallest money outlay.

question

39. Refer to the above data. In view of the indicated resource prices, the economically most efficient production technique(s) is (are) technique(s):
A. #1.
B. #2 and #4.
C. #3.
D. #1 and #3.

answer

B. #2 and #4.

question

40. Refer to the above data. Assuming that the firm is motivated by self-interest and that the 20 units which can be produced with each technique can be sold for $2 per unit, the firm will:
A. realize an economic profit of $10.
B. realize an economic profit of $4.
C. not earn any economic profit.
D. close down rather than incur a loss by producing.

answer

A. realize an economic profit of $10.

question

Refer to the above data. If a new production technique is developed that enables a firm to produce 20 units of output with 3 units of land, 3 of labor, 1 of capital, and 2 of entrepreneurial ability, this technique would:
A. not be adopted because, although it reduces production costs, it does not increase profit.
B. be adopted because it would lower production costs and increase economic profit.
C. not be adopted because it entails higher production costs than other available techniques.
D. be adopted, even though economic profits would be reduced slightly.

answer

B. be adopted because it would lower production costs and increase economic profit.

question

Answer the next question(s) on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3 respectively.

42. Refer to the above information. Which technique is economically most efficient in producing A?
A. I
B. II
C. III
D. IV

answer

D. IV

question

Answer the next question(s) on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3 respectively.

43. Refer to the above information. If the price of product A is $0.50, the firm will realize:
A. an economic profit of $4.
B. an economic profit of $2.
C. an economic profit of $6.
D. a loss of $3.

answer

B. an economic profit of $2.

question

In a competitive market economy, firms will select the least-cost production technique because:

answer

to do so will maximize the firms' profits.

question

The market system's answer to the fundamental question "What will be produced?" is essentially:

answer

"Goods and services that are profitable."

question

The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially:

answer

"Using the least-cost production techniques."

question

The market system's answer to the fundamental question "Who will get the goods and services?" is essentially:

answer

"Those willing and able to pay for them."

question

The market system's answer to the fundamental question "How will the system accommodate change?" is essentially:

answer

"Through the guiding function of prices and the incentive function of profits."

question

The market system's answer to the fundamental question "How will the system promote progress?" is essentially:

answer

"Through the profit potential that encourages development of new technology."

question

The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:

answer

creative destruction.

question

Consumer sovereignty refers to the idea that:

answer

the idea that the decisions of producers must ultimately conform to consumer demands.

question

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of:

answer

consumer sovereignty.

question

Which of the following is not one of the five fundamental questions?
A. What prices will be charged for goods and services?
B. Who will get the goods and services?
C. What goods and services will be produced?
D. How will the system promote progress?

answer

A. What prices will be charged for goods and services?

question

"Consumer sovereignty" means that:

answer

buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

question

Which of the following best describes the invisible-hand concept?
A. The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.
B. The nonsubstitutability of resources creates a conflict between private and public interests and calls for government intervention.
C. The market system is the best system for overcoming the scarce resources-unlimited wants problem.
D. Central direction by the government will improve resource allocation in a capitalistic economy.

answer

A. The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.

question

The invisible hand refers to the:

answer

notion that, under competition, decisions motivated by self-interest promote the social interest.

question

The invisible-hand concept suggests that:

answer

assuming competition, private and public interests will coincide.

question

The invisible-hand concept suggests that:

answer

when firms maximize their profits, society's output will also be maximized.

question

Two major virtues of the market system are that it:

answer

allocates resources efficiently and allows economic freedom.

question

According to the concept of the "invisible hand," if Susie opens and operates a profitable childcare center, then:
A. government should regulate the business to ensure quality.
B. the profit Susie earns indicates that she is overcharging for her services.
C. she has served society's interests by providing a desired good or service.
D. this demonstrates that consumer sovereignty is not present in this market.

answer

C. she has served society's interests by providing a desired good or service.

question

The invisible hand promotes society's interests because:

answer

individuals pursuing their self-interest will try to produce goods and services that people in society want and are willing to purchase.

question

The coordination problem in the centrally planned economies refers to the idea that:

answer

planners had to direct required inputs to each enterprise.

question

"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the:

answer

coordination problem under central planning.

question

"Because the outputs of many industries are the inputs to other industries, the failure of any single industry to fulfill the output quantities specified in the central plan caused a chain-reaction of adverse repercussions on production." This quotation best identifies the:

answer

coordination problem under central planning.

question

Shortages and unmet demand provide opportunities for individuals and firms to profit under capitalism, but they present no such opportunities under central planning. This reality represents central planning's:

answer

incentive problem.

question

Innovation lagged in the centrally planned economies because:

answer

enterprises resisted innovation in fear that their production targets would be raised.

question

Enterprise managers and workers in the Soviet Union often resisted innovations in production methods because:

answer

production targets were often increased when innovation occurred.

question

The failure of Soviet central planning was reflected in:
A. a declining growth rate.
B. poor quality goods.
C. the failure to provide promised consumer goods.
D. all of these.

answer

D. all of these.

question

If products were in short or surplus supply in the Soviet Union:

answer

producers would not react because no price or profit signals occurred.

question

The simple circular flow model shows that:

answer

households are on the selling side of the resource market and on the buying side of the product market.

question

The two basic markets shown by the simple circular flow model are:

answer

product and resource.

question

In the resource market:

answer

households sell resources to businesses

question

Which of the following is a limitation of the simple circular flow model?

answer

the determination of product and resource prices is not explained.

question

In the simple circular flow model:

answer

businesses are sellers of final products.

question

In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market.
A. product; financial
B. resource; product
C. product; resource
D. capital; product

answer

C. product; resource

question

In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make expenditures in the _____ market.
A. product; financial
B. resource; product
C. product; resource
D. capital; product

answer

C. product; resource

question

Households and businesses are:

answer

sellers in the resource and product markets respectively.

question

In the circular flow model:

answer

households sell resources to firms.

question

79. Refer to the above diagram. Arrows (1) and (2) represent:
A. goods and resources respectively.
B. money incomes and output respectively.
C. output and money incomes respectively.
D. resources and goods respectively.

answer

D. resources and goods respectively.

question

80. Refer to the above diagram. Arrows (3) and (4) represent:
A. goods and services respectively.
B. incomes and consumer expenditures respectively.
C. resources and goods respectively.
D. consumer expenditures and income respectively.

answer

B. incomes and consumer expenditures respectively.

question

81. Refer to the above diagram. Arrows (1) and (3) are associated with:
A. the money market.
B. the resource market.
C. the product market.
D. international trade.

answer

B. the resource market.

question

Which of the following best illustrates the circular flow model in action?
A. Bobbie goes to work and builds cars, and uses the income she receives to buy food at the grocery store.
B. Evan buys a new couch; the owner of the furniture store uses some of the money from the sale to pay her supplier, and uses the rest to take her family out to dinner.
C. Boeing experiences a surge in orders for new airplanes, prompting the company to hire more workers.
D. All of the above.

answer

D. All of the above.

question

(Consider This) In 1975 McDonald's introduced its Egg McMuffin breakfast sandwich, which remains popular and profitable today. This longevity illustrates the idea of:
A. opportunity cost.
B. upsloping supply.
C. consumer sovereignty.
D. specialization.

answer

C. consumer sovereignty.

question

(Consider This) In 1996 McDonald's introduced its Arch Deluxe hamburger, which failed to catch on with the public and was subsequently dropped from the menu. This failure illustrates the idea of:
A. consumer sovereignty.
B. technological change.
C. downsloping demand.
D. specialization.

answer

A. consumer sovereignty.

question

(Last Word) According to economist Donald Boudreaux, the world's tens of billions of individual resources get arranged productively:
A. because government has become highly effective at central planning.
B. because private property encourages people to consider the alternative uses of their resources and select those that provide the most rewards.
C. because people tend to be creative and orderly.
D. through random trial and error.

answer

B. because private property encourages people to consider the alternative uses of their resources and select those that provide the most rewards.

question

What is a market?

answer

an institution that brings together buyers and sellers.

question

Markets explained on the basis of supply and demand assume what?

answer

assume many buyers and many sellers of a standardized product.

question

What does the law of demand state?

answer

states that price and quantity demanded are inversely related.

question

Graphically, the market demand curve is:

answer

the horizontal sum of individual demand curves.

question

The demand curve shows the relationship between what?

answer

price and quantity demanded.

question

Economists use the term "demand" to refer to what?

answer

a schedule of various combinations of market prices and amounts demanded.

question

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.

answer

direct, inverse

question

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes:

answer

the income effect.

question

A demand curve indicates what?

answer

indicates the quantity demanded at each price in a series of prices.

question

In presenting the idea of a demand curve, economists presume that the most important variable in determining the quantity demanded is:

answer

the price of the product itself.

question

Why will an increase in the price of a product will reduce the amount of it purchased?

answer

consumers will substitute other products for the one whose price has risen.

question

What do the income and substitution effects account for?

answer

the downward sloping demand curve.

question

What will not cause a shift in the demand curve?

answer

Change in Price of the product itself

question

When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower. This statement describes:

answer

the substitution effect.

question

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes:

answer

the income effect.

question

When product prices change, consumers are inclined to purchase larger amounts of the now cheaper products and less of the now more expensive products. This describes:

answer

the substitution effect.

question

The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is:

answer

price.

question

One reason that the quantity demanded of a good increases when its price falls is that the:

answer

lower price increases the real incomes of buyers, enabling them to buy more.

question

When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls, and fewer Adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls?

answer

The substitution effect.

question

Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived he discovered that hamburgers were on sale for $1, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by:

answer

the income effect.

question

In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by:

answer

a change in buyer tastes.

question

Which of the following will not cause the demand for product K to change?

answer

A change in the price of K.

question

Which of the following would not shift the demand curve for beef?

answer

a reduction in the price of cattle feed

question

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that:

answer

bicycles are normal goods.

question

A rightward shift in the demand curve for product C might be caused by:

answer

a decrease in the price of a product that is complementary to C.

question

If two goods are complements:

answer

a decrease in the price of one will increase the demand for the other.

question

DVD players and DVDs are:

answer

complementary goods.

question

If the demand curve for product B shifts to the right as the price of product A declines, then:

answer

A and B are complementary goods.

question

If the price of product L increases, the demand curve for close-substitute product J will:

answer

shift to the right

question

If the price of K declines, the demand curve for the complementary product J will:

answer

shift to the right.

question

Which of the following is most likely to be an inferior good?
A. fur coats
B. ocean cruises
C. used clothing
D. steak

answer

C. used clothing

question

Which of the following statements is correct?
A. An increase in the price of C will decrease the demand for complementary product D.
B. A decrease in income will decrease the demand for an inferior good.
C. An increase in income will reduce the demand for a normal good.
D. A decline in the price of X will increase the demand for substitute product Y.

answer

A. An increase in the price of C will decrease the demand for complementary product D.

question

A shift to the right in the demand curve for product A can be most reasonably explained by saying that:

answer

consumer preferences have changed in favor of A so that they now want to buy more at each possible price.

question

If L and M are complementary goods, an increase in the price of L will result in:

answer

a decrease in the sales of M.

question

Which of the following will cause the demand curve for product A to shift to the left?

answer

an increase in money income if A is an inferior good.

question

If X is a normal good, a rise in money income will shift the:

answer

demand curve for X to the right.

question

If Z is an inferior good, an increase in money income will shift the:

answer

demand curve for Z to the left.

question

An increase in consumer incomes will:

answer

increase the demand for a normal good.

question

Tennis rackets and ballpoint pens are:

answer

independent goods.

question

The demand for most products varies directly with changes in consumer incomes. Such products are known as:

answer

normal goods.

question

Assume the demand curve for product X shifts to the right. This might be caused by:

answer

a decline in income if X is an inferior good.

question

Digital cameras and memory cards are:

answer

complementary goods.

question

A decrease in the price of digital cameras will:

answer

shift the demand curve for memory cards to the right.

question

A normal good is one that:

answer

the consumption of which varies directly with incomes.

question

If the demand for steak (a normal good) shifts to the left, the most likely reason is that:

answer

consumer incomes have fallen.

question

If consumer incomes increase, the demand for product X:

answer

may shift either to the left or right.

question

If products A and B are complements and the price of B decreases the:

answer

demand for A will increase and the amount of B demanded will increase.

question

If products C and D are close substitutes, an increase in the price of C will:

answer

shift the demand curve of D to the right.

question

In constructing a stable demand curve for product X:

answer

the prices of other goods are assumed constant.

question

The demand curve for a product might shift as the result of a change in:
A. consumer tastes.
B. consumer incomes.
C. the prices of related goods.
D. all of these.

answer

D. all of these.

question

An inferior good is:
A. one whose demand curve will shift rightward as incomes rise.
B. one whose price and quantity demanded vary directly.
C. one which has not been approved by the Federal Food and Drug Administration.
D. not accurately defined by any of the above statements.

answer

D. not accurately defined by any of the above statements.

question

An increase in the price of product A will:

answer

increase the demand for substitute product B.

question

Which of the following would mostly likely increase the demand for gasoline?
A. the expectation by consumers that gasoline prices will be higher in the future.
B. the expectation by consumers that gasoline prices will be lower in the future.
C. a widespread shift in car ownership from SUVs to hybrid sedans.
D. a decrease in the price of public transportation.

answer

A. the expectation by consumers that gasoline prices will be higher in the future.

question

Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to:

answer

reduce the demand for soda and increase the demand for tacos.

question

54. Refer to the above diagram. A decrease in demand is depicted by a:
A. move from point x to point y.
B. shift from D1 to D2.
C. shift from D2 to D1.
D. move from point y to point x.

answer

C. shift from D2 to D1.

question

55. Refer to the above diagram. A decrease in quantity demanded is depicted by a:
A. move from point x to point y.
B. shift from D1 to D2.
C. shift from D2 to D1.
D. move from point y to point x.

answer

D. move from point y to point x.

question

When an economist says that the demand for a product has increased, this means that:

answer

consumers are now willing to purchase more of this product at each possible price.

question

By an increase in demand we mean that :

answer

the quantity demanded at each price in a set of prices is greater.

question

The quantity demanded of a product increases as its price declines because the:

answer

demand curve is downsloping.

question

An increase in demand means that:

answer

the demand curve has shifted to the right.

question

Assume that the demand schedule for product C is downsloping. If the price of C falls from $2.00 to $1.75:

answer

a larger quantity of C will be demanded.

question

An increase in the quantity demanded means that:

answer

price has declined and consumers therefore want to purchase more of the product.

question

An increase in product price will cause:

answer

quantity demanded to decrease.

question

In moving along a stable demand curve which of the following is not held constant?
A. the price of the product for which the demand curve is relevant.
B. price expectations.
C. consumer incomes.
D. the prices of complementary goods

answer

A. the price of the product for which the demand curve is relevant.

question

In which of the following statements are the terms "demand" and "quantity demanded" used correctly?
A. When the price of ice cream rose, the demand for both ice cream and ice cream toppings fell.
B. When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell.
C. When the price of ice cream rose, the demand for ice fell, and the quantity demanded of ice cream toppings fell.
D. None of these statements use the terms correctly.

answer

B. When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell.

question

65. Refer to the above diagram. A decrease in supply is depicted by a:
A. move from point x to point y.
B. shift from S1 to S2.
C. shift from S2 to S1.
D. move from point y to point x.

answer

C. shift from S2 to S1.

question

66. Refer to the above diagram. An increase in quantity supplied is depicted by a:
A. move from point y to point x.
B. shift from S1 to S2.
C. shift from S2 to S1.
D. move from point x to point y.

answer

A. move from point y to point x.

question

The law of supply indicates that:

answer

producers will offer more of a product at high prices than they will at low prices.

question

The upward slope of the supply curve reflects the:

answer

law of supply.

question

The supply curve shows the relationship between:

answer

price and quantity supplied.

question

A firm's supply curve is upsloping because:
A. the expansion of production necessitates the use of qualitatively inferior inputs.
B. mass production economies are associated with larger levels of output.
C. consumers envision a positive relationship between price and quality.
D. beyond some point the production costs of additional units of output will rise.

answer

D. beyond some point the production costs of additional units of output will rise.

question

Increasing marginal cost of production explains:
A. the law of demand.
B. the income effect.
C. why the supply curve is upsloping.
D. why the demand curve is downsloping.

answer

C. why the supply curve is upsloping.

question

A leftward shift of a product supply curve might be caused by:
A. an improvement in the relevant technique of production.
B. a decline in the prices of needed inputs.
C. an increase in consumer incomes.
D. some firms leaving an industry.

answer

D. some firms leaving an industry.

question

The location of the product supply curve depends on:

answer

production technology.

question

An improvement in production technology will:
A. increase equilibrium price.
B. shift the supply curve to the left.
C. shift the supply curve to the right.
D. shift the demand curve to the left.

answer

C. shift the supply curve to the right.

question

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates that:

answer

the amount of oranges that will be available at various prices has declined.

question

If producers must obtain higher prices than previously to produce various levels of output, the following has occurred:

answer

a decrease in supply.

question

In moving along a stable supply curve which of the following is not held constant?

answer

the price of the product for which the supply curve is relevant

question

The location of the supply curve of a product depends on:
A. the technology used to produce it.
B. the prices of resources used in its production.
C. the number of sellers in the market.
D. all of these.

answer

D. all of these.

question

Other things equal, if the price of a key resource used to produce product X falls, the:
A. product supply curve of X will shift to the right.
B. product demand curve of X will shift to the right.
C. product supply curve of X will shift to the left.
D. product demand curve of X will shift to the left.

answer

A. product supply curve of X will shift to the right.

question

When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of a(n):

answer

increase in the supply of gasoline.

question

An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the:
A. demand curve for cigarettes rightward.
B. demand curve for cigarettes leftward.
C. supply curve for cigarettes rightward.
D. supply curve for cigarettes leftward.

answer

D. supply curve for cigarettes leftward.

question

A government subsidy to the producers of a product:

answer

increases product supply.

question

Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect:
A. the supply of ethanol, a corn-based product, to increase.
B. consumer demand for wheat to fall.
C. the supply to increase as farmers plant more corn.
D. the supply to fall as farmers plant more of other crops.

answer

C. the supply to increase as farmers plant more corn.

question

84. Refer to the above data. Equilibrium price will be:
A. $4.
B. $3.
C. $2.
D. $1.

answer

C. $2.

question

85. Refer to the above data. If the price in this market was $4:
A. the market would clear; quantity demanded would equal quantity supplied.
B. buyers would want to purchase more wheat than is currently being supplied.
C. farmers would not be able to sell all their wheat.
D. there would be a shortage of wheat.

answer

C. farmers would not be able to sell all their wheat.

question

86. Refer to the above data. If price was initially $4 and free to fluctuate, we would expect:
A. quantity supplied to continue to exceed quantity demanded.
B. the quantity of wheat supplied to decline as a result of the subsequent price change.
C. the quantity of wheat demanded to fall as a result of the subsequent price change.
D. the price of wheat to rise.

answer

B. the quantity of wheat supplied to decline as a result of the subsequent price change.

question

87. Refer to the above diagram. The equilibrium price and quantity in this market will be:
A. $1.00 and 200.
B. $1.60 and 130.
C. $.50 and 130.
D. $1.60 and 290.

answer

A. $1.00 and 200.

question

88. Refer to the above diagram. A surplus of 160 units would be encountered if price was:
A. $1.10, that is, $1.60 minus $.50.
B. $1.60.
C. $1.00.
D. $.50.

answer

B. $1.60.

question

89. Refer to the above diagram. A shortage of 160 units would be encountered if price was:
A. $1.10, that is, $1.60 minus $.50.
B. $1.60.
C. $1.00.
D. $.50.

answer

D. $.50.

question

If a product is in surplus supply, its price:
A. is below the equilibrium level.
B. is above the equilibrium level.
C. will rise in the near future.
D. is in equilibrium.

answer

B. is above the equilibrium level.

question

A market is in equilibrium if:

answer

if the amount producers want to sell is equal to the amount consumers want to buy.

question

At the equilibrium price:
A. quantity supplied may exceed quantity demanded or vice versa.
B. there are no pressures on price to either rise or fall.
C. there are forces that cause price to rise.
D. there are forces that cause price to fall.

answer

B. there are no pressures on price to either rise or fall.

question

93. Refer to the above diagram. A price of $60 in this market will result in:
A. equilibrium.
B. a shortage of 50 units.
C. a surplus of 50 units.
D. a surplus of 100 units.

answer

D. a surplus of 100 units.

question

94. Refer to the above diagram. A price of $20 in this market will result in:
A. a shortage of 50 units.
B. a surplus of 50 units.
C. a surplus of 100 units.
D. a shortage of 100 units.

answer

D. a shortage of 100 units.

question

95. Refer to the above diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is:
A. $30.
B. $60.
C. $40.
D. $20.

answer

B. $60.

question

96. Refer to the above diagram. If this is a competitive market, price and quantity will move toward:
A. $60 and 100 respectively.
B. $60 and 200 respectively.
C. $40 and 150 respectively.
D. $20 and 150 respectively.

answer

C. $40 and 150 respectively.

question

At the point where the demand and supply curves for a product intersect:

answer

the quantity that consumers want to purchase and the amount producers choose to sell are the same.

question

The rationing function of prices refers to the:

answer

capacity of a competitive market to equate the quantity demanded and the quantity supplied.

question

If there is a shortage of product X:
A. fewer resources will be allocated to the production of this good.
B. the price of the product will rise.
C. the price of the product will decline.
D. the supply curve will shift to the left and the demand curve to the right, eliminating the shortage.

answer

B. the price of the product will rise.

question

At the point where the demand and supply curves intersect:
A. the buying and selling decisions of consumers and producers are inconsistent with one another.
B. the market is in disequilibrium.
C. there is neither a surplus nor a shortage of the product.
D. quantity demanded exceeds quantity supplied.

answer

C. there is neither a surplus nor a shortage of the product.

question

At the current price there is a shortage of a product. We would expect price to:
A. increase, quantity demanded to increase, and quantity supplied to decrease.
B. increase, quantity demanded to decrease, and quantity supplied to increase.
C. increase, quantity demanded to increase, and quantity supplied to increase.
D. decrease, quantity demanded to increase, and quantity supplied to decrease.

answer

B. increase, quantity demanded to decrease, and quantity supplied to increase.

question

A surplus of a product will arise when price is:

answer

above equilibrium with the result that quantity supplied exceeds quantity demanded.

question

If price is above the equilibrium level, competition among sellers to reduce the resulting:

answer

surplus will increase quantity demanded and decrease quantity supplied.

question

If we say that a price is too high to clear the market, we mean that:

answer

quantity supplied exceeds quantity demanded.

question

Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will:

answer

decrease, quantity demanded will increase, and quantity supplied will decrease.

question

Assume in a competitive market that price is initially below the equilibrium level. We can predict that price will:

answer

increase, quantity demanded will decrease, and quantity supplied will increase.

question

There will be a surplus of a product when:

answer

consumers want to buy less than producers offer for sale.

question

Camille's Creations and Julia's Jewels both sell beads in a competitive market. If at the market price of $5, both are running out of beads to sell (they can't keep up with the quantity demanded at that price), then we would expect both Camille's and Julia's to:

answer

raise their price and increase their quantity supplied.

question

Productive efficiency refers to:

answer

the use of the least-cost method of production.

question

If an economy produces its most wanted goods but uses outdated production methods, it is:

answer

not achieving productive efficiency.

question

Allocative efficiency is concerned with:

answer

producing the combination of goods most desired by society.

question

Allocative efficiency involves determining:

answer

the mix of output that will maximize society's satisfaction.

question

The equilibrium price and quantity in a market usually produces allocative efficiency because:

answer

marginal benefit and marginal cost are equal at that point.

question

Allocative efficiency refers to:

answer

the production of the product-mix most wanted by society.

question

Other things equal, an excise tax on a product will:

answer

increase its price.

question

Assuming conventional supply and demand curves, changes in the determinants of supply and demand will:

answer

in all likelihood alter both equilibrium price and quantity.

question

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?
A. an increase in supply.
B. an increase in demand.
C. a decrease in supply.
D. a decrease in demand.

answer

A. an increase in supply.

question

Other things equal, the provision of a per unit subsidy for a product will:

answer

increase its supply.

question

Which of the following statements is correct?
A. If demand increases and supply decreases, equilibrium price will fall.
B. If supply increases and demand decreases, equilibrium price will fall.
C. If demand decreases and supply increases, equilibrium price will rise.
D. If supply declines and demand remains constant, equilibrium price will fall.

answer

B. If supply increases and demand decreases, equilibrium price will fall.

question

In which of the following instances will the effect on equilibrium price be dependent on the magnitude of the shifts in supply and demand?
A. demand rises and supply rises.
B. supply falls and demand remains constant.
C. demand rises and supply falls.
D. supply rises and demand falls.

answer

A. demand rises and supply rises.

question

121. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. If the initial demand and supply curves are D0 and S0, equilibrium price and quantity will be:
A. 0F and 0C respectively.
B. 0G and 0B respectively.
C. 0F and 0A respectively.
D. 0E and 0B respectively.

answer

A. 0F and 0C respectively.

question

122. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then:
A. supply has increased and equilibrium quantity has decreased.
B. supply has decreased and equilibrium quantity has decreased.
C. there has been an increase in the quantity supplied.
D. supply has increased and price has risen to 0G.

answer

B. supply has decreased and equilibrium quantity has decreased.

question

123. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. If supply is S1 and demand D0, then
A. at any price above 0G a shortage would occur.
B. 0F represents a price that would result in a surplus of AC.
C. a surplus of GH would occur.
D. 0F represents a price that would result in a shortage of AC.

answer

D. 0F represents a price that would result in a shortage of AC.

question

124. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. A shift in the demand curve from D0 to D1 might be caused by a(n):
A. decrease in income if X is an inferior good.
B. increase in the price of complementary good Y.
C. increase in money incomes if X is a normal good.
D. increase in the price of substitute product Y.

answer

B. increase in the price of complementary good Y.

question

125. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. Other things equal, a shift of the supply curve from S0 to S1 might be caused by a(n):
A. increase in the wage rates paid to laborers employed in the production of X.
B. government subsidy per unit of output paid to firms producing X.
C. decline in the price of the basic raw material used in producing X.
D. increase in the number of firms producing X.

answer

A. increase in the wage rates paid to laborers employed in the production of X.

question

If the supply and demand curves for a product both decrease, then equilibrium:

answer

quantity must decline, but equilibrium price may rise, fall, or remain unchanged.

question

If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium:

answer

price must rise, but equilibrium price may rise, fall, or remain unchanged.

question

An unusually large crop of coffee beans might:
A. increase the supply of coffee.
B. increase the price of coffee.
C. decrease the quantity of coffee consumed.
D. increase the price of tea.

answer

A. increase the supply of coffee.

question

One can say with certainty that equilibrium price will decline when supply:
A. and demand both decrease.
B. increases and demand decreases.
C. decreases and demand increases.
D. and demand both increase.

answer

B. increases and demand decreases.

question

Suppose that in 2007 Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of $19,500 per car. These statements:
A. suggest that the demand for Mustangs decreased between 2007 and 2008.
B. suggest that the supply of Mustangs must have increased between 2007 and 2008.
C. suggest that the demand for Mustangs increased between 2007 and 2008.
D. constitute an exception to the law of demand in that they suggest an upsloping demand curve.

answer

C. suggest that the demand for Mustangs increased between 2007 and 2008.

question

Since their introduction, prices of DVD players have fallen and the quantity purchased has increased. This statement:
A. suggests that the supply of DVD players has increased.
B. suggests that the demand for DVD players has increased.
C. constitutes an exception to the law of demand in that they suggest an upward sloping demand curve.
D. constitutes an exception to the law of supply in that they suggest a downward sloping supply curve.

answer

A. suggests that the supply of DVD players has increased.

question

One can say with certainty that equilibrium quantity will increase when supply:
A. and demand both decrease.
B. increases and demand decreases.
C. decreases and demand increases.
D. and demand both increase.

answer

D. and demand both increase.

question

With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will:
A. increase equilibrium price and quantity if the product is a normal good.
B. decrease equilibrium price and quantity if the product is a normal good.
C. have no effect on equilibrium price and quantity.
D. reduce the quantity demanded, but not shift the demand curve.

answer

A. increase equilibrium price and quantity if the product is a normal good.

question

With a downsloping demand curve and an upsloping supply curve for a product, a decrease in resource prices will:
A. increase equilibrium price and quantity.
B. decrease equilibrium price and quantity.
C. decrease equilibrium price and increase equilibrium quantity.
D. increase equilibrium price and decrease equilibrium quantity.

answer

C. decrease equilibrium price and increase equilibrium quantity.

question

Given a downsloping demand curve and an upsloping supply curve for a product, an increase in the price of a substitute good will:
A. increase equilibrium price and quantity.
B. decrease equilibrium price and quantity.
C. increase equilibrium price and decrease equilibrium quantity.
D. decrease equilibrium price and increase equilibrium quantity.

answer

A. increase equilibrium price and quantity.

question

Over time, the equilibrium price of a gigabyte of computer memory has fallen while the equilibrium quantity purchased has increased. Based on this we can conclude that:
A. Decreases in the demand for computer memory have exceeded increases in supply.
B. Decreases in the supply of computer memory have exceeded increases in demand.
C. Increases in the demand for computer memory have exceeded increases in supply.
D. Increases in the supply of computer memory have exceeded increases in demand.

answer

D. Increases in the supply of computer memory have exceeded increases in demand.

question

Suppose that in the clothing market, production costs have fallen, but the equilibrium price and quantity purchased have both increased. Based on this information we can conclude that:
A. The supply of clothing has grown faster than the demand for clothing.
B. Demand for clothing has grown faster than the supply of clothing.
C. The supply of and demand for clothing have grown by the same proportion.
D. There is no way to determine what has happened to supply and demand with this information.

answer

B. Demand for clothing has grown faster than the supply of clothing.

question

138. In the above market, economists would call a government-set minimum price of $50 a:
A. price ceiling.
B. price floor.
C. equilibrium price.
D. fair price.

answer

B. price floor.

question

139. In the above market, economists would call a government-set maximum price of $40 a:
A. price ceiling.
B. price floor.
C. equilibrium price.
D. fair price.

answer

A. price ceiling.

question

140. If government set a minimum price of $50 in the above market, a:
A. shortage of 21 units would occur.
B. shortage of 125 units would occur.
C. surplus of 21 units would occur.
D. surplus of 125 units would occur.

answer

C. surplus of 21 units would occur.

question

141. If government set a maximum price of $45 in the above market:
A. a shortage of 21 units would arise.
B. a surplus of 21 units would arise.
C. a surplus of 40 units would arise.
D. it would create neither a shortage nor a surplus.

answer

D. it would create neither a shortage nor a surplus.

question

142. Refer to the above diagram. A government-set price floor is best illustrated by:
A. price A.
B. quantity E.
C. price C.
D. price B.

answer

C. price C.

question

143. Refer to the above diagram. A government-set price ceiling is best illustrated by:
A. price A.
B. quantity E.
C. price C.
D. price B.

answer

A. price A.

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144. Refer to the above diagram. Rent controls are best illustrated by:
A. price A.
B. quantity E.
C. price C.
D. price B.

answer

A. price A.

question

145. Refer to the above diagram. A government price support program to aid farmers is best illustrated by:
A. quantity E.
B. price C.
C. price A.
D. price B.

answer

B. price C.

question

146. Refer to the above diagram. A government-set maximum permissible interest rate is best illustrated by:
A. price B.
B. quantity E.
C. price C.
D. price A.

answer

D. price A.

question

Price floors and ceiling prices:

answer

interfere with the rationing function of prices.

question

A price floor means that:

answer

government is imposing a minimum legal price that is typically above the equilibrium price.

question

An effective ceiling price will:

answer

result in a product shortage.

question

An effective price floor will:

answer

result in a product surplus.

question

Black markets are associated with:

answer

ceiling prices and the resulting product shortages.

question

Price ceilings and price floors:

answer

interfere with the rationing function of prices.

question

A price ceiling means that:

answer

government is imposing a legal price that is typically below the equilibrium price.

question

If a legal ceiling price is set above the equilibrium price:

answer

neither the equilibrium price nor equilibrium quantity will be affected.

question

An effective price floor on wheat will:

answer

result in a surplus of wheat.

question

Which of the following is a consequence of rent controls established to keep housing affordable for the poor?
A. Less rental housing is available as prospective landlords find it unprofitable to rent at restricted prices.
B. The quality of rental housing declines as landlords lack the funds and incentive to maintain properties.
C. Apartment buildings are torn down in favor of office buildings, shopping malls, and other buildings where rents are not controlled.
D. All of the above are consequences of rent controls.

answer

D. All of the above are consequences of rent controls.

question

(Consider This) Ticket scalping refers to:

answer

reselling a ticket at a price above its original purchase price.

question

(Consider This) Ticket scalping:

answer

creates economic gains for both buyers and sellers

question

(Consider This) Ticket scalping implies that:

answer

event sponsors have established ticket prices at below-equilibrium levels.

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(Consider This) Ticket scalping is likely to:

answer

produce a more interested audience.

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(Consider This) Suppose that salsa manufacturers sell 2 million bottles at $3.50 in one year, and 3 million bottles at $3 in the next year. Based on this information we can conclude that the:

answer

supply of salsa has increased.

question

(Consider This) Suppose that coffee growers sell 200 million pounds of coffee beans at $2 per pound in 2007, and sell 240 million pounds for $3 per pound in 2008. Based on this information we can conclude that the:

answer

demand for coffee beans has increased.

question

(Last Word) A market for human organs (rather than the current volunteer-donor system) would be expected to:

answer

eliminate the shortage of organs.

question

(Last Word) A market-based system of buying and selling human organs for transplant would:

answer

increase the quantity of organs available for transplant.

question

(Last Word) A major objection to creating a legal market for human organs is that such a market would:

answer

commercialize human body parts and thus diminish the special nature of human life.

question

1. The price elasticity of demand coefficient indicates:
A. buyer responsiveness to price changes.
B. the extent to which a demand curve shifts when incomes change.
C. the slope of the demand curve.
D. how far business executives can stretch their fixed costs.

answer

question

2. The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from
50 to 60 units. From this we can conclude that the demand for X in this price range:
A. has declined.
B. is of unit elasticity.
C. is inelastic.
D. is elastic.

answer

question

3. Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11 and 0.29 for products W, X, Y and
Z respectively. A 1% decrease in price will result in an increase in total revenue in the case of:
A. W and Y.
B. Y and Z.
C. X and Z.
D. Z and W.

answer

question

4. If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:
A. increase the quantity demanded by 2.5%.
B. decrease the quantity demanded by 2.5%.
C. increase the quantity demanded by 25%.
D. do none of the above.

answer

question

5. Suppose that, as the price of Y falls from $2.00 to $1.90, the demanded quantity of Y increases from 110 to
118. It can be concluded that the price elasticity of demand is:
A. 4.00.
B. 2.09.
C. 1.37.
D. 3.94.

answer

question

6. A perfectly inelastic demand schedule:
A. rises upward and to the right, but has a constant slope.
B. can be represented by a line parallel to the vertical axis.
C. cannot be shown on a two-dimensional graph.
D. can be represented by a line parallel to the horizontal axis.

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question

7. If the supply of product X is perfectly elastic, an increase in the demand for it will increase:
A. equilibrium quantity, but reduce equilibrium price.
B. equilibrium quantity, but equilibrium price will be unchanged.
C. equilibrium price, but reduce equilibrium quantity.
D. both equilibrium quantity and equilibrium price.

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question

8. A given leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the:
A. more elastic the supply curve.
B. larger the elasticity of demand coefficient.
C. more elastic the demand for the product.
D. more inelastic the demand for the product.
.

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question

9. In which of the following instances will total revenue decline?
A. Price rises and supply is elastic.
B. Price falls and demand is elastic.
C. Price rises and supply is inelastic.
D. Price rises and demand is elastic.

answer

question

10. In which of the following cases will total revenue increase?
A. Price falls and demand is inelastic.
B. Price falls and supply is elastic.
C. Price rises and demand is inelastic.
D. Price rises and demand is elastic

answer

question

11. Price elasticity of demand is generally:
A. greater in the long run than in the short run.
B. greater in the short run than in the long run.
C. the same in both the short run and the long run.
D. greater for 'necessities' than it is for 'luxuries'.

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12. The main determinant of elasticity of supply is the:
A. number of close substitutes for the product available to consumers.
B. amount of time the producer has to adjust inputs in response to a price change.
C. urgency of consumer wants for the product.
D. number of uses for the product.

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13. Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price:
A. will decrease, but equilibrium quantity will increase.
B. and quantity will both decrease.
C. will increase, but equilibrium quantity will decline.
D. will increase, but equilibrium quantity will be unchanged.

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14. Suppose that the price of product X rises by 20%, and the quantity supplied of X increases by 18%. The
coefficient of price elasticity of supply for good X is:
A. negative and, therefore, X is an inferior good.
B. positive and, therefore, X is a normal good.
C. less than 1 and, therefore, supply is inelastic.
D. more than 1 and, therefore, supply is elastic.

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question

15. Supply curves tend to be:
A.perfectly elastic in the long run, because consumer demand will have sufficient time to adjust fully to changes in supply.
B. more elastic in the long run, because there is time for firms to enter or leave the industry.
C. perfectly inelastic in the long run, because the law of scarcity imposes absolute limits upon production.
D. less elastic in the long run, because there is time for firms to enter or leave an industry.

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question

16. The supply of Monet's paintings is:
A. perfectly elastic.
B. perfectly inelastic.
C. relatively elastic.
D. relatively inelastic.

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17. Suppose the income elasticity of demand for toys is +2.00.This means that:
A. a 10% increase in income will increase the purchase of toys by 20%.
B. a 10% increase in income will increase the purchase of toys by 2%.
C. a 10% increase in income will decrease the purchase of toys by 2%.
D. toys are an inferior good.

answer

question

18. If the income elasticity of demand for lard is -3.00, this means that:
A. lard is a substitute for butter.
B. lard is a normal good.
C. lard is an inferior good.
D. more lard will be purchased when its price falls.

answer

question

19. The larger the positive cross elasticity coefficient of demand between products X and Y, the:
A. stronger their complementariness.
B. greater their substitutability.
C. smaller the price elasticity of demand for both products.
D. the less sensitive purchases of each are to increases in income.

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question

20. The formula for cross price elasticity of demand is:
A. percentage change in quantity demanded of X / percentage change in price of X.
B. percentage change in quantity demanded of X / percentage change in income.
C. percentage change in quantity demanded of X / percentage change in price of Y.
D. percentage change in price of X / percentage change in quantity demanded of Y.

answer

question

21. Cross elasticity of demand measures how sensitive purchases of a given product are to changes in:
A. the price of some other product.
B. the price of that same product.
C. income.
D. the general price level.

answer

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22. Suppose that a 20% increase in the price of normal good Y causes a 10% decline in the quantity demanded
of normal good X. The coefficient of cross elasticity of demand is:
A. negative, and therefore, these goods are substitutes.
B. negative, and therefore, these goods are complements.
C. positive, and therefore, these goods are substitutes.
D. positive, and therefore, these goods are complements.

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question

23. Assume that a 4% increase in income in the economy produces a 5% increase in the quantity demanded of
good X. The coefficient of income elasticity of demand is:
A. negative and, therefore, X is an inferior good.
B. negative and, therefore, X is a normal good.
C. positive and, therefore, X is an inferior good.
D. positive and, therefore, X is a normal good.

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question

24. Other things being the same, the shortage associated with a price ceiling will be greater, the:
A. smaller the elasticity of both demand and supply.
B. greater the elasticity of both demand and supply.
C. greater the elasticity of supply and the smaller the elasticity of demand.
D. greater the elasticity of demand and the smaller the elasticity of supply.

answer

question

25. 'Black markets' are associated with:
A. price floors and the resulting product surpluses.
B. price floors and the resulting product shortages.
C. ceiling prices and the resulting product shortages.
D. ceiling prices and the resulting product surpluses.

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question

26. Assume the demand for a product is perfectly inelastic. If government establishes a price floor which is $2 above the equilibrium price, the resulting:
A. shortage will be greater, the more elastic the supply.
B. shortage will be greater, the less elastic the supply.
C. surplus will be greater, the more elastic the supply.
D. surplus will be greater, the less elastic the supply.

answer

question

27. If an effective legal ceiling is imposed upon credit card interest rates, we would expect:
A. such credit would be less readily available.
B. annual credit card fees would rise.
C. the product prices of retailers, who issue credit cards, to rise.
D. that all of the above might possibly occur.

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question

28. Assume a supply which is perfectly inelastic. If a sales tax is introduced:
A. the consumer will pay all the sales tax.
B. the market price of the product will increase.
C. the market price of the product will decrease.
D. the producer will pay all the tax.

answer

question

29. If a legal ceiling price is set above the equilibrium price:
A. a shortage of the product will occur.
B. a surplus of the product will occur.
C. a black market will evolve.
D. neither the equilibrium price nor the equilibrium quantity will be affected.

answer

question

30. An effective price floor on wheat will:
A. force otherwise profitable farmers out of business.
B. result in a shortage of wheat.
C. result in a surplus of wheat.
D. clear the market for wheat.

answer

question

31. A price floor in a competitive market will result in persistent shortages of a product.
A. True
B. False

answer

...

question

32. A ceiling price in a competitive market will result in persistent surpluses of a product.
A. True
B. False

answer

...

question

33. The smaller the number of good substitutes for a product, the greater will be the price elasticity of demand
for the product.
A. True
B. False

answer

...

question

34. If price and total revenue are directly related, it can be concluded that demand is inelastic.
A. True
B. False

answer

...

question

35. If price changes and total revenue changes in the opposite direction, we can conclude that demand is
relatively elastic.
A. True
B. False

answer

...

question

36. Quantity demanded per month Price Quantity supplied per month
30 $8 44
36 $7 38
42 $6 30
50 $5 20
Refer to the above demand and supply data. The demand for this product is elastic in the $8-$7 price range.
A. True
B. False
True False

answer

...

question

37. Quantity demanded per month Price Quantity supplied per month
30 $8 44
36 $7 38
42 $6 30
50 $5 20
Refer to the above demand and supply data. The supply of this product is inelastic in the $6-$5 price range.
A. True
B. False

answer

...

question

38. Cross elasticity of demand measures the effect of a change in the price of one product upon the quantity
demanded of another product.
A. True
B. False

answer

...

question

39. Income elasticity measures the effect of a change in income upon the purchases of some good or service.
A. True
B. False

answer

...

question

40. If the coefficient of income elasticity of demand is positive, the product is an inferior good.
A. True
B. False

answer

...

question

41. Price elasticity over any range of a demand curve is measured by the slope of the demand curve over that range.
A. True
B. False

answer

...

question

42. The price elasticity of demand measures how responsive:
A. buyers are to a change in income.
B. sellers are to a change in price.
C. buyers are to a change in price.
D. sellers are to a change in buyers' incomes.

answer

question

43. Demand for a good would tend to be more inelastic the:
A. fewer the available substitutes.
B. longer the time period considered.
C. more the good is considered a luxury good.
D. more narrowly defined the market is.

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question

44. There are very few, if any, good substitutes for motor oil. Therefore:
A. the supply of motor oil would tend to be price elastic.
B. the demand for motor oil would tend to be price elastic.
C. the demand for motor oil would tend to be price inelastic.
D. the demand for motor oil would tend to be income elastic.

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question

45. Economists compute the price elasticity of demand as the:
A. percentage change in the price divided by the percentage change in quantity demanded.
B. change in quantity demanded divided by the change in the price.
C. percentage change in the quantity demanded divided by the percentage change in price.
D. percentage change in the quantity demanded divided by the percentage change in income.

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question

46. Suppose there is a 6 per cent increase in the price of good X and a resulting 6per cent decrease in the quantity of X demanded. Price elasticity of demand for X is:
A. 1.
B. 6.
C. 0.
D. infinite.

answer

question

47. The main reason for using the midpoints formula to calculate elasticity is that it:
A. gives the same answer regardless of the direction of change.
B. uses fewer numbers.
C. rounds prices to the nearest dollar.
D. rounds quantities to the nearest whole unit.

answer

question

48. Demand is unit elastic if elasticity is:
A. less than 1.
B. greater than 1.
C. equal to 1.
D. equal to 0.

answer

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49. You produce jewellery boxes. If the demand for jewellery boxes is elastic and you want to increase your total revenue, you should:
A. increase the price of your jewellery boxes.
B. decrease the price of your jewellery boxes.
C. not change the price of your jewellery boxes.
D. None of the above answers are correct.

answer

question

50. If the cross-price elasticity of demand is 1.25, then the two goods would be:
A. complements.
B. luxuries.
C. normal goods.
D. substitutes.

answer

question

51. If the elasticity of supply is zero, then:
A. supply is very elastic.
B. the supply curve is horizontal.
C. the quantity supplied is the same regardless of price.
D.we are likely to be considering a long run situation, where producers have considerable time to adjust to
changes in demand.

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52. If the elasticity of supply of a product is 2.5, we know that supply is:
A. inelastic.
B. elastic.
C. unit elastic.
D. perfectly inelastic.

answer

question

53. Rent control is:
A. a common example of a price floor.
B. a common example of a price ceiling.
C. the most effective way to provide affordable housing.
D. the most efficient way to allocate housing.

answer

question

54. When government imposes price ceilings and floors in a market:
A. price no longer serves as a rationing device.
B. efficiency in the market is increased.
C. shortages and surpluses are eliminated.
D. buyers and sellers are both better off.

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55. Assume that the demand and supply curves for cars are elastic. If the government imposed a $500 sales tax on each car, we can assume that the:
A. equilibrium price of a car would increase by less than $500.
B. price of a car would increase by exactly $500.
C. price of a car would increase by more than $500.
D. price of a car would not change if both curves were elastic.

answer

question

56. A tax placed on the seller of a good:
A. raises the price buyers pay and lowers the price sellers receive.
B. lowers the price buyers pay and raises the price sellers receive.
C. raises both the price buyers pay and the price sellers receive.
D. lowers both the price buyers pay and the price sellers receive.

answer

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57. A tax on the sellers of TVs:
A. causes the supply curve to shift to the right.
B. leads buyers to demand a smaller quantity at every price.
C. leads sellers to supply a larger quantity at every price.
D. leads sellers to supply a smaller quantity at every price.

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58. A $2.00 tax placed on the sellers of mailboxes will shift the supply curve:
A. left (upward) by exactly $2.00.
B. left (upward) by less than $2.00.
C. right (downward) by exactly $2.00.
D. right (downward) by less than $2.00.

answer

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59. If a sales tax is imposed on a market with inelastic demand and elastic supply:
A. the burden of the tax will be shared equally between buyers and sellers.
B. sellers will bear most of the burden of the tax.
C. buyers will bear most of the burden of the tax.
D. it is impossible to determine how the burden of the tax will be shared.

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question

1. The 'income effect' indicates that:
A. a rise in money income will cause consumers to buy smaller quantities of normal goods.
B.when the price of a product falls, the lower price will induce the consumer to buy more of the product,
once it is relatively cheaper.
C.consumers should substitute various products until the marginal utility from the last unit of each product purchased is the same.
D. when the price of a product falls, a consumer will be able to buy more of it with a given money income.

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2. If the price of normal good X rises, the income effect:
A. and substitution effect will induce the consumer to buy less of X.
B. and substitution effect will induce the consumer to buy more of X.
C. will induce the consumer to buy more of X, and the substitution effect will induce him to buy less.
D. will induce the consumer to buy less of X, and the substitution effect will induce him to buy more.

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3. 'If the price of a product falls, that product becomes cheaper, and people will want to purchase more of it in place of other goods.' This statement best describes:
A. the income effect.
B. the substitution effect.
C. a complementary good.
D. an inferior good.

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4. 'A fall in the price of a good increases the real income or purchasing power of consumers, so that they are able to buy more of the product.' This statement best describes:
A. the income effect.
B. the substitution effect.
C. a complementary good.
D. a substitute good.

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question

5. A product has utility if it:
A. takes more and more resources to produce successive units of it.
B. violates the law of demand.
C. satisfies consumer wants.
D. is useful.

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6. The 'law of diminishing marginal utility' states that:
A. total utility is maximised when consumers obtain the same amount of utility, per unit, of each product
consumed.
B. beyond some point, additional units of a given product will yield less and less extra satisfaction to a
consumer.
C. the price must be lowered, in order to induce firms to supply more of a product.
D. it will take larger and larger amounts of resources, beyond some point, to produce successive units of a
product.

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7. The first meat pie yields, for Craig, 18 units of utility and the second yields him an additional 12 units of
utility. His total utility from three meat pies is 38 units of utility. The marginal utility of the third meat pie:
A. is 26 units of utility.
B. is 6 units of utility.
C. is 8 units of utility.
D. cannot be determined from the information given.

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8. Total utility may be determined by:
A. multiplying the marginal utility of the last unit consumed by the number of units consumed.
B. summing the marginal utilities of each unit consumed.
C. multiplying the marginal utility of the last unit consumed by product price.
D. multiplying the marginal utility of the first unit consumed by the number of units consumed.

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9. A consumer's demand curve for a product is down-sloping because:
A. total utility falls below marginal utility as more of a product is consumed.
B. marginal utility diminishes as more of a product is consumed.
C. time becomes less valuable as more of a product is consumed.
D. the income and substitution effects precisely offset each other.

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10. Suppose that MUx/Px for good X exceeds MUy/Py for good Y. To maximise utility, the consumer who is
exhausting his/her money income, should buy:
A. less of X only if its price rises.
B. more of Y only if its price rises.
C. more of Y and less of X.
D. more of X and less of Y.

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11. The following two schedules show the amounts of additional satisfaction (marginal utility) which a
consumer would get from successive quantities of products J and K.
Units of J MUjUnits of K MUk
1 56 1 32
2 48 2 28
3 32 3 24
4 24 4 20
5 20 5 12
6 16 6 10
7 12 7 8
Refer to the above information. If the consumer has a money income of $52 and the prices of J and K are
$8 and $4 respectively, the consumer will maximise his/her utility by purchasing:
A. 2 units of J and 7 units of K.
B. 5 units of J and 5 units of K.
C. 4 units of J and 5 units of K.
D. 6 units of J and 3 units of K.

answer

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12. A consumer is maximising his/her utility with a given money income when:
A. the total utility derived from each product consumed is the same.
B. MUa/Pa = MUb/Pb = MUc/Pc = ... = MUn/Pn.
C. MUa = MUb = MUc = ... = MUn.
D. Pa = Pb = Pc = ... = Pn.

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13. The theory of consumer behaviour assumes:
A. that consumers behave rationally in that they seek to maximise their satisfactions.
B. that the consumer has a limited income.
C. that consumers know how much marginal utility they obtain from successive units of various products.
D. all of the above.

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14. When a consumer is in the utility-maximising position:
A. the average utility from each dollar spent is the same.
B. reallocating expenditures among various products cannot increase total utility.
C. the total utility obtainable from each product is at a maximum.
D. the marginal utility of the last unit of each product purchased is zero.

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15. For the following marginal utility data for products X and Y, assume that the prices of X and Y are $4 and $2 respectively, and that the consumer's income is $18.
Units of X Marginal utility, X Units of Y Marginal utility, Y
1 20 1 16
2 16 2 14
3 12 3 12
4 8 4 10
5 6 5 8
6 4 6 6
Refer to the above information. What quantities of X and Y should be purchased in maximising utility?
A. 2 of X and 1 of Y.
B. 4 of X and 5 of Y.
C. 2 of X and 5 of Y.
D. 2 of X and 6 of Y.

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16. For the following marginal utility data for products X and Y, assume that the prices of X and Y are $4 and
$2 respectively, and that the consumer's income is $18.
Units of X Marginal utility, X Units of Y Marginal utility, Y
1 20 1 16
2 16 2 14
3 12 3 12
4 8 4 10
5 6 5 8
6 4 6 6
Refer to the above information. What level of total utility will the utility-maximising consumer realise?
A. 96 utils.
B. 108 utils.
C. 72 utils.
D. 142 utils.

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17. The 'income effect' explains an exception to the law of demand.
A. True
B. False

answer

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18. If marginal utility is diminishing, total utility must also be declining.
A. True
B. False

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19. The 'substitution effect' suggests that, when consumers judge product quality by price, they will substitute high-priced products for low-priced products.
A. True
B. False

answer

...

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20. If PA = 5 and MUA = 10, while PB = 1 and MUB = 3, the consumer should buy more of good B and less of good A.
A. True
B. False

answer

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21. If the marginal utility per dollar spent on another glass of beer exceeds the marginal utility per dollar spent on another meat pie, the consumer should buy another glass of beer.
A. True
B. False

answer

...

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22. Incorporating the value of time required for the consumption of a product, along with the market price of
the product, reflects the 'full price' in the consumption of the product.
A. True
B. False
True False

answer

...

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23. The relationship between the marginal utility that Harry gets from eating a bag of chips and the number of bags he eats per month is as follows:
Bags of chips 1 2 3 456
Marginal utility 201612840
Harry receives 2 units of utility from the last dollar spent on each of the other goods he consumes. If chips cost $4 per bag, how many bags of chips will he consume per month if he maximises utility?
A. 2.
B. 3.
C. 4.
D. 5.

answer

...

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24. Harry consumes two goods, milk and biscuits. He has maximised his utility, given his income. Milk costs
$2 per litre and he consumes it to the point where the marginal utility he receives from milk is 4. Biscuits
cost $8 per packet and the relationship between the marginal utility that Harry gets from eating a packet of
biscuits and the number of packets he eats per month is as follows:
Packets of biscuits 1 2 3 456
Marginal utility 201612840
How many packets of biscuits does Harry buy each month?
A. 1.
B. 2.
C. 3.
D. 4.

answer

...

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25. The consumer's optimal choice is the one in which the marginal utility per dollar spent:
A. is equal to the marginal utility per dollar saved.
B. on good X is greater than the marginal utility spent on good Y.
C. on good X is equal to the marginal utility spent on good Y.
D. on good X is less than the marginal utility spent on good Y.

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...

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1. In which market model would the number of firms be the fewest?
A. Monopolistic competition.
B. Pure competition.
C. Pure monopoly.
D. Oligopoly.

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2. Under which market model are the conditions of entry into the market easiest?
A. Pure competition.
B. Pure monopoly.
C. Monopolistic competition.
D. Oligopoly.

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3. Which of the following is not a basic market model?
A. Pure competition.
B. Pure enterprise.
C. Oligopoly.
D. Monopoly.

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4. Which characteristic would best be associated with pure competition?
A. Few sellers.
B. Price taker.
C. Non-price competition.
D. Product differentiation.

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5. Which of the following is a feature of a purely competitive market?
A. Price differences between firms producing the same product.
B. Significant barriers to entry into the industry.
C. The industry's demand curve is perfectly elastic.
D. Products are standardised or homogeneous.

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6. Which of the following is true under conditions of pure competition?
A. There are differentiated products.
B. The market demand curve is perfectly elastic.
C. No single firm can influence the market price by changing its output.
D. Firms that cannot make pure or economic profits go bankrupt.

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7. Which of the following is a reason for why there is no advertising, by individual firms, under pure
competition?
A. Firms produce a homogeneous product.
B. The quantity of the product demanded is very large.
C. The market demand curve cannot be increased.
D. Firms do not make long-run profits.

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8. 'Barriers to entry':
A. exist in economic theory, but not in the real world.
B. usually result in pure competition.
C. are often the result of government regulation.
D. are typically the result of wrongdoing on the part of a firm.

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9. Which of the following is a characteristic of monopolistic competition?
A. Standardised product.
B. A relatively small number of firms.
C. The absence of non-price competition.
D. Relatively easy entry.

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10. Into which of the following market structures is entry least difficult?
A. Pure monopoly.
B. Monopolistic competition.
C. Oligopoly.
D. Regulated monopoly.

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11. Which one of the following is not a form of product differentiation for the monopolistically competitive
firm?
A. Brand names and trademarks.
B. Promotion and packaging.
C. Location and accessibility.
D. Standard hours and procedures.

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12. A monopolistically competitive industry is like a purely competitive industry in that:
A. each industry produces a standardised (i.e. homogeneous) product.
B. non-price competition is a feature of both industries.
C. neither industry has significant barriers to entry.
D. firms in both industries face a horizontal demand curve.

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13. In an oligopolistic market there are:
A. many buyers.
B. few buyers.
C. few sellers.
D. many sellers.

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14. A unique feature of an oligopolistic industry is:
A. low 'barriers to entry'.
B. standardised products.
C. diminishing marginal returns.
D. mutual interdependence between firms.

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15. An oligopolistic market is consistent with:
A. all firms making economic profits.
B. a small number of firms in the industry.
C. the existence of 'barriers to entry'.
D. all of the above.

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16. A major distinction between a monopolistically competitive firm and an oligopolistic firm is that:
A. one is a price-taker and the other is a price-maker.
B. a recognised interdependence exists between firms in one industry, but not in the other.
C. one always produces differentiated products, and the other always produces a homogeneous product.
D. one necessarily faces a downward-sloping demand curve, and the other a horizontal demand curve.

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17. Which of the following would not be considered as non-price competition?
A. Cadbury offers two chocolate bars for the price of one.
B. Qantas offers upgrade certificates to certain frequent flyer members.
C. ANZ Bank offers a new, lower, home loan rate.
D. Target stores offer a money-back guarantee on all purchases.

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18. 'Barriers to entry' refers to:
A. any obstacles that stop firms from successfully offering lower entry prices to consumers.
B. any obstacles that stop firms from successfully moving into a market.
C. any obstacles that stop firms from successfully offering a higher entry price to consumers.
D. any obstacles that stop firms from successfully launching 'take-over bids' for other firms.

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19. In which of the following market structures is there mutual interdependence, with respect to price-output policies?
A. Pure monopoly.
B. Oligopoly.
C. Monopolistic competition.
D. Pure competition.

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20. Which answer describes an industry comprised of a very large number of sellers that are producing a
standardised product?
A. Monopolistic competition.
B. Oligopoly.
C. Pure monopoly.
D. Pure competition.

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21. Which answer describes an industry comprised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions?
A. Monopolistic competition.
B. Oligopoly.
C. Pure monopoly.
D. Pure competition.

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22. Which of the following statements is true?
A. Goodwill advertising is more common for oligopolists who are producing a standardised product.
B.Goodwill advertising is when an oligopolist tries to convince the public that their product is better than
other products.
C. Goodwill advertising is used when negligible differences exist among various oligopolists' product
offerings.
D. Goodwill advertising is not a feature of an oligopolistic industry.

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23. A contestable market is one in which:
A. both entry and exit from the market can be achieved at very low cost.
B. barriers to entry exist.
C. pricing interdependence exists.
D. goodwill advertising exists.

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24. Patents and licences are 'barriers to entry'.
A. True
B. False

answer

...

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25. Monopolistically competitive firms exist due to high 'barriers to entry'.
A. True
B. False

answer

...

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26. Annual design and model changes are a form of non-price competition.
A. True
B. False
True False

answer

...

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27. Patents and copyrights were deliberately established by the government in order to reduce oligopoly and monopoly power.
A. True
B. False

answer

...

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28. If technological advance necessitates the existence of a few large producers that can achieve efficient lowcost production, this will push market structures towards monopolistic competition.
A. True
B. False

answer

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29. There is no incentive for monopolistically competitive firms to engage in non-price competition because the number of firms in the industry is so large than no individual firm is large enough to affect the sales of others in the industry.
A. True
B. False

answer

...

question

30. A pure monopolist:
A. is a price maker.
B. is a price taker.
C. faces a limited number of immediate competitors.
D. faces non-price competition.

answer

...A

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31. Which of the following is not a characteristic of monopolistic competition?
A. Standardised product.
B. A relatively large number of firms.
C. The existence of non-price competition.
D. Relatively easy entry.

answer

...A

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1. 'Economies of scale' refers to:
A. the notion that small firms are less bureaucratic and, therefore, more efficient than corporations.
B. public investments in highways, schools, utilities etc.
C. the fact that large producers may be able to use more efficient technologies.
D. the reallocation of labour from less productive to more productive uses.

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2. Economic cost can best be defined as:
A. any contractual obligation which results in a flow of money expenditures from an enterprise to resource suppliers.
B. any contractual obligation to labour, or material suppliers.
C. compensations which must be received by resource owners to ensure their continued supply.
D. all costs, exclusive of payments to fixed factors of production.

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3. Which of the following constitutes an implicit cost to the Jackson Manufacturing Company?
A. Payments of wages to its office workers.
B. Property taxes.
C. Rent paid for the use of equipment owned by the Schultz Machinery Company.
D. Depreciation charges on company-owned equipment.

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4. Suppose that a business incurred implicit costs of $200 000 and explicit costs of $1 million in a specific
year. If the firm sold 4000 units of its output at $300 per unit, its accounting profits were:
A. $100 000, and its economic profits were zero.
B. $200 000, and its economic profits were zero.
C. $100 000, and its economic profits were $100 000.
D. zero, and its economic loss was $200 000.

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5. Economic profits are calculated by subtracting:
A. explicit costs from total revenue.
B. implicit costs from total revenue.
C. implicit costs from normal profits.
D. explicit and implicit costs from total revenue.

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6. Normal profit is:
A. determined by subtracting implicit costs from total revenue.
B. determined by subtracting explicit costs from total revenue.
C. the return to the entrepreneur when economic profits are zero.
D. the average profitability of an industry over the preceding 10 years.

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7. Which of the following definitions is correct?
A. Accounting profit + economic profit = normal profit.
B. Economic profit - accounting profit = explicit costs.
C. Economic profit = accounting profit - implicit costs.
D. Economic profit - implicit costs = accounting profits.

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8. The basic characteristic of the short run is that:
A. 'barriers to entry' prevent new firms from entering the industry.
B. the firm does not have sufficient time to change the size of its plant.
C. the firm does not have sufficient time to cut its rate of output to zero.
D. the firm does not have sufficient time to change the amounts of any of the resources it employs.

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9. To economists, the main difference between 'the short run' and 'the long run' is that:
A. the law of diminishing returns applies in the long run, but not in the short run.
B. in the long run, all resources are variable while, in the short run, at least one resource is fixed.
C. fixed costs are more important to decision making in the long run than they are in the short run.
D. in the short run all resources are fixed, while in the long run, all resources are variable.

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10. The law of diminishing returns indicates that:
A.as extra units of a variable resource are added to a fixed resource, the extra or marginal product will
decline beyond some point.
B. because of economies and diseconomies of scale, a competitive firm's long-run average cost curve will be U-shaped.
C. the demand for goods produced by purely competitive industries is down sloping.
D. beyond some point, the extra utility derived from additional units of a product will yield for the consumer smaller and smaller extra amounts of satisfaction.

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11. Which of the following statements concerning the relationships between total product (TP), average
product (AP) and marginal product (MP) is not correct?
A. AP continues to rise so long as TP is rising.
B. AP reaches a maximum before TP reaches a maximum.
C. TP reaches a maximum when the MP of the variable input becomes zero.
D. MP cuts AP at the maximum AP.

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12. The following is output data for a firm. Assume that the amounts of all non-labour resources are fixed.
Number of workers Units of output
0 0
1 40
2 90
3 126
4 150
5 165
6 180
Refer to the above information. Diminishing returns become evident with the addition of:
A. the fourth worker.
B. the third worker.
C. the second worker.
D. the first worker.

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13. The following is the total and marginal product for a firm.
Number of workers Total product Marginal product
0 0 —
1 8 8
2 10
3 25
4 30
5 3
6 34
Refer to the above information. When two workers are employed:
A. total product is 20.
B. total product is 18.
C. average product is 10.
D. total product cannot be determined from the information given.

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14. Which of the following is most likely to be a fixed cost?
A. Shipping charges.
B. Property insurance premiums.
C. Wages for unskilled labour.
D. Expenditures for raw materials.

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15. The cost of any output is minimised when:
A. the marginal product per dollar's worth of each resource used is the same.
B. the marginal product of each resource used is the same.
C. the price of each resource used is the same.
D. none of the above.

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16. Which of the following is most likely to be a variable cost?
A. Fuel and power payments.
B. Interest on bonded indebtedness.
C. Rental payments on IBM equipment.
D. Real estate taxes.

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17. Marginal cost may be defined as the:
A. rate of change in total fixed cost which results from producing one more unit of output.
B. change in total cost which results from producing one more unit of output.
C. change in average variable cost which results from producing one more unit of output.
D. change in average total cost which results from producing one more unit of output.

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18. Average fixed cost:
A. is intersected by marginal cost at its minimum point.
B. may be found for any output by adding average variable cost and average total cost.
C. graphs as a U-shaped curve.
D. declines so long as output increases.

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19. The vertical distance between ATC and AVC reflects:
A. the average fixed cost at each level of output.
B. marginal cost at each level of output.
C. the presence of economies of scale.
D. implicit costs.

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20. Assume that in the short run, a firm which is producing 100 units of output has average total costs of $200
and average variable costs of $150. The firm's total fixed costs are:
A. $5000.
B. $500.
C. $0.50.
D. $50.

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21. The following is the total output and cost data for a firm.
Total Output Total Cost($)
0 24
1 33
3 41
3 48
4 54
5 61
6 69
Refer to the above cost data. The average total cost of producing 3 units of output:
A. is $14.00.
B. is $16.00.
C. is $13.50.
D. cannot be determined from the information given.

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22. The following is the total output and cost data for a firm.
Total Output Total Cost($)
0 24
1 33
3 41
3 48
4 54
5 61
6 69
Refer to the above cost data. The marginal cost of producing the sixth unit of output:
A. is $24.
B. is $16.
C. is $8.
D. cannot be determined from the information given.

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23. If a technological advance reduces the amount of variable resources needed to produce any given level of
output, this will cause:
A. the AVC curve to shift downward.
B. the MC curve to shift downward.
C. the ATC curve to shift downward.
D. all of the above.

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24. The Sunshine Corporation finds that its costs are $40 when it produces no output. Its total variable costs
(TVC) change with output as shown in the table below.
Output TVC($)
1 30
2 50
3 65
4 85
5 110
Refer to the above information. This firm:
A. is making an economic profit of $260.
B. is realising a loss of $125.
C. may be either realising a profit or a loss.
D. is selling its output in a competitive market.

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25. Economies and diseconomies of scale explain:
A. the profit-maximising level of production.
B. why the firm's long-run average cost curve is U-shaped.
C.why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its
minimum point.
D. the distinction between fixed and variable costs.

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26. In the long run:
A. all costs are variable costs.
B. all costs are fixed costs.
C. variable costs equal fixed costs.
D. fixed costs are greater than variable costs.

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27. The long-run average cost curve:
A. will rise if diminishing returns are encountered.
B. will fall if diminishing returns are encountered.
C. will rise if economies of scale are incurred.
D. is based on the assumption that all resources are variable.

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28. If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that:
A. technological progress has occurred.
B. economies of scale are being realised.
C. the firm is encountering diminishing returns.
D. diseconomies of scale are being encountered.

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29. The minimum efficient scale of a firm:
A. is realised somewhere in the range of diseconomies of scale.
B. occurs where marginal product becomes zero.
C. is in the middle of the range of constant returns to scale.
D. is the smallest level of output at which long-run average cost is minimised.

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30. If an industry's long-run average cost curve has an extended range of constant returns to scale, this implies
that:
A. technology precludes both economies and diseconomies of scale.
B. the industry will be a natural monopoly.
C. both relatively small and relatively large firms can be viable in the industry.
D. the industry will be comprised of a very large number of small firms.

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31. If a firm increases all of its inputs by 10% and its output increases by 15%, we can say that:
A. it is encountering diseconomies of scale.
B. it is encountering economies of scale.
C. the law of diminishing returns is taking hold.
D. the firm's long-run ATC curve will be rising.

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32. As successive units of labour are applied to a set of fixed resources, the marginal product of labour:
A. diminishes at all levels of production.
B. may initially increase, then diminish, but will never become negative.
C. may initially increase, then diminish, and ultimately become negative.
D. is always less than average product.

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33. The short run is a period of time during which all costs are fixed costs.
A. True
B. False

answer

...

question

34. The law of diminishing returns accounts for the fact that the long-run average cost curve is U-shaped.
A. True
B. False

answer

B. False

question

35. Diseconomies of scale stem, primarily, from the difficulties in managing and coordinating a large-scale
business enterprise.
A. True
B. False

answer

A. True

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36. At zero units of output, a firm's variable costs are zero.
A. True
B. False

answer

A. True

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37. Average fixed costs diminish so long as output increases.
A. True
B. False

answer

...

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38. If marginal cost lies below average variable cost, average variable cost must be falling.
A. True
B. False

answer

...

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39. When economic profits equal zero, normal profits are negative or equal zero.
A. True
B. False

answer

...

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40. In the long run, all resource inputs are fixed instead of variable.
A. True
B. False

answer

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41. The law of diminishing marginal utility explains why short-run production costs increase directly with a
firm's level of output.
A. True
B. False

answer

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42. The short-run marginal-cost curve is upward sloping because of the law of diminishing marginal returns.
A. True
B. False

answer

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43. Economies of scale are generally in evidence over an entire range of output.
A. True
B. False

answer

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44. Economies of scale are generally in evidence over low to medium levels of output.
A. True
B. False

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45. If economies of scale are quickly exhausted, and diseconomies of scale set in at a low level of output
relative to the market, the industry will have a small number of large firms.
A. True
B. False

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46. Explicit costs are resources for which the firm does not pay, but which have an opportunity cost, while
implicit costs are resource for which direct monetary payment is made.
A. True
B. False

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47. An example of an explicit cost of production would be:
A. the cost of forgone labour earnings for an entrepreneur.
B. the lost opportunity to invest in other capital markets when the money is invested in one's business.
C. the cost of flour for a baker.
D. None of the above is correct.

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48. An example of an implicit cost of production would be:
A.the income an entrepreneur could have earned working for someone else.
B. the cost of raw materials for producing bread in a bakery.
C. the cost of a delivery truck in a business that rarely makes deliveries.
D. All of the above are correct.

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49. Which of these assumptions is often realistic for a firm in the short run?
A. The firm can vary both the size of its factory and the number of workers it employs.
B. The firm can vary the size of its factory, but not the number of workers it employs.
C.The firm can vary the number of workers it employs, but not the size of its factory.
D. The firm can vary neither the size of its factory nor the number of workers it employs.

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50. The marginal product of an input in the production process is the increase in:
A. total revenue obtained from an additional unit of that input.
B. profit obtained from an additional unit of that input.
C. total revenue obtained from an additional unit of that input.
D. quantity of output obtained from an additional unit of that input.

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...

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51. Fixed costs can be defined as costs that:
A. vary inversely with production.
B. vary in proportion with production.
C. are incurred only when production is large enough.
D. are incurred even if nothing is produced.

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...

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52. When marginal cost is less than average total cost:
A. marginal cost must be falling.
B. average variable cost must be falling.
C. average total cost is falling.
D. average total cost is rising.

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53. Marginal cost is equal to average total cost when:
A. average variable cost is falling.
B. average fixed cost is rising.
C. marginal cost is at its minimum.
D. average total cost is at its minimum.

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54. If marginal product is rising:
A. marginal cost will be falling.
B. marginal cost will be increasing.
C. marginal cost will be constant.
D. There is no relationship between marginal product and marginal cost.

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1 of 679

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Economics

answer

The social science concerned with how individuals, institutions, and society make option choices under conditions of scarcity

question

Utility

answer

The want-satisfying power of a good or service the satisfaction o pleasure a consumer obtains from the consumption of a good or service.

question

Marginial Utility

answer

The extra utility a consumer obtains from the consumption of one additional unit of a good or service

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Scarcity

answer

Inefficiency or shortness of supply of a product

question

Opportunity Cost

answer

The amount of other products that must be forgone or sacrificed to produce a unit of a product

question

Production Possibilities Curve

answer

A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where supplies of resources and technology are fixed.

question

Capital Goods

answer

Human-made resources (buildings, machinery and equipment) used to produce goods and services; goods that do not directly satisfy human wants

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Consumer Goods

answer

Products and services that satisfy human wants directly

question

Economic Growth

answer

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Factors of Production

answer

Economic resources: land, capital, labor and entrepreneurial ability

question

Comparative Advantage

answer

A situation in which a person or country can produce a specific product at a lower opportunity cost than some other person or country, the basis for specialization and trade.

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Money

answer

Any item that is generally acceptable to sellers in exchange for goods and services.

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Barter

answer

The exchange of one good or service for another good or service.

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Command Economy

answer

A method of organizing an economy in which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities.

question

Market Economy

answer

An economy in which the private decisions of consumers, resource suppliers, and firms determine how resources are allocated.

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Competition

answer

The presence in a market of independent buyers and sellers competing with one another along with the freedom of buyers and sellers to enter and leave the market.

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Invisible Hand

answer

The tendency of firms and resource suppliers that seek to further their own self-interests in competitive markets to also promote the interests of society.

question

Dollar Votes

answer

The "votes" that consumers and entrepreneurs cast for the production of consumer and capital goods, respectively, when they purchase these goods in product and resource markets.

question

Income Effect

answer

A change in the quantity demanded of a product that results from the change in purchasing power caused by a change in the product's price.

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Equilibrium Quantity

answer

(1) The quantity demanded and supplied at the equilibrium prince in a competitive market; (2) the profit-maximizing output of a firm.

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Monopoly

answer

A market structure in which the number of sellers is so small that each seller is able to influence the total supply and the price of that good or service.

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Externality

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A cost or benefit from production or consumption accruing without compensation to someone other than the buyers and sellers of the product.

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Transfer Payment

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A payment of money (or goods and services) by a government to a household or firm for which the payer recieves no good or service directly in return.

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Excise Tax

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A tax levied on the production of a specific product or on the quantity of the product purchased.

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Export Subsidies

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Government payments to domestic producers to enable them to reduce the price of a good or service to foreign buyers.

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Reciporical Trade Agreements

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A 1934 Federal law that authorized the president to negotiate up to 50 percent lower tariffs with foreign nations that agree to reduce their tariffs on U.S. goods.

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Off-Shoring

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The practice of shifting work previously done by American workers to workers located abroad.

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Market Period

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A period in which producers of a product are unable to change the quantity produced in response to a change in its price and in which there is a perfectly inelastic supply.

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Consumer Surplus

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Producer Surplus

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The difference between the price a producer recieves and the minimum acceptable price; the triangular are above the supply curve and below the market price.

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Rational Behavior

answer

Human behavior based on comparison of marginal costs and marginal benefits; behavior designed to maximize total utility.

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Budget Constraints

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The limit that the size of consumer's income (and the prices that must be paid for goods and services) imposes on the ability of that consumer to obtain goods/services.

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Consumer Equilibrium

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The limit that the size of a consumers income imposes on the ability of that consumer to obtain goods and services

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Economic Profit

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The total revenue of a firm less its economic costs (which include both explicit and implicit costs) also called pure profit

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Total Product

answer

The total output of a particular good or service produced by a firm.

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Economies of Scale

answer

REductions in the average total cost of producing a product as the firm expands the size of plant in the long run, the economies of mass production.

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Minimum Efficient Scale

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The lowest level of output at which a firm can minimize long-run average total cost.

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Price-Taker

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A seller (or buyer) that is unable to affect the price at which a product or resource sells by changing the amount it sells (or buys)

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Break-Even Point

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AN output at which a firm makes a normal profit (Total revenue = total cost) but not an economic profit.

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Constant-Cost Industry

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AN industry in which expansion by the entry of new firms has no effect on the prices firms in the industry must pay for resources and thus no effect on production costs.

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Elasticity of demand

answer

a measure of how consumers react to a change in price

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Determinants of demand

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Unit elasticity

answer

demand or supply for which the elasticity coefficient is equal to 1; means that the percentage change in the quantity demanded or supplied is equal to the percentage change in cost.

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Inelastic demand

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Product or resource demand for which the elasticity coefficient for price is less than 1

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Elasticity of supply

answer

a measure of the way quantity supplied reacts to a change in price

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Determinants of supply

answer

Factors such as input prices, productivity, and the legal-institutional environment that, if they change, shift the aggregate supply curve.

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Cross price elasticity

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It is a measure of the responsiveness of the demand for one good or service to a change in the price of another good or service.

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Income elasticity

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the percentage change in the quantity of a product demanded divided by the percentage change in consumer income that caused the change in quantity demanded

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Explicit costs

answer

the monetary payment a firm must make to an outsider to obtain a resource

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Implicit costs

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Input costs that do not require an outlay of money by the firm (e.g. interest forgone on money used). The opportunity costs associated with a firm's use of resources that it owns.

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Accounting profit

answer

total revenue - total explicit cost

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Economic profit

answer

total revenue minus total cost, including both explicit and implicit costs.

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Short run

answer

A period of time sufficiently short that at least some of the firm's factors of production are fixed and can change some but not all of the resources that they employ

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Long run

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A period of sufficient time to alter all factors of production used in the productive process - all inputs can be changed.

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Marginal product

answer

the extra output or change in total product caused by the addition of one more unit of variable input

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Average product

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The total product (output) divided by the number of units of the variable input required to produce that output level.

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Fixed costs

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Costs that do not vary with the quantity of output produced

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Variable costs

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costs that vary with the quantity of output produced

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Total costs

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the sum of the fixed and variable costs for any given level of production

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Average costs

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Total fixed costs (AFC) divided by output

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Marginal cost

answer

the additional cost to a firm of producing one more unit of a good or service

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AFC

answer

Average Fixed Costs (Declines as output increases.)

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AVC

answer

Average Variable Costs (Declines, reaches a minimum, then increases as more of a good is produced.)

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ATC

answer

Average Total Costs (Declines, reaches a minimum, then increases as more of a good is produced.)

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Economies of scale

answer

factors that cause a producer's average cost per unit to fall as output rises

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Diseconomies of scale

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The property whereby long-run average total cost rises as the quantity of output increases (right-most upward sloping part of the long-run ATC)

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Law of diminishing returns

answer

a law affirming that to continue after a certain level of performance has been reached will result in a decline in effectiveness

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Law of increasing costs

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law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases

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Circular flow Diagram

answer

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Public expenditures

answer

Public expenditure is spending by central government and local authorities on providing goods and services, transfer payments and debt repayments. It is also called government expenditure.

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Elasticities

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Measure the level of responsiveness to different types of market changes

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Allocative efficiency

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Productive efficiency

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the situation in which a good or service is produced at the lowest possible cost

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Microeconomics

answer

the branch of economics that studies the economy of consumers or households or individual firms

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Macroeconomics

answer

the branch of economics that studies the overall working of a national economy

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Capital goods

answer

buildings, machinery, tools, and other goods that provide productive services over a period of time.

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Consumer goods

answer

goods (as food or clothing) intended for direct use or consumption

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Normal goods

answer

Goods for which demand goes up when income is higher and for which demand goes down when income is lower; new goods.

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Inferior goods

answer

a good that consumers demand less of when their incomes increase; used goods.

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Determinants of demand

answer

Factors such as consumption spending, investment, government spending, and net exports that, if they change, shift the aggregate demand curve.

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Determinants of supply

answer

Factors such as input prices, productivity, and the legal-institutional environment that, if they change, shift the aggregate supply curve.

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Price floor

answer

a legal minimum on the price at which a good can be sold

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Price ceilings

answer

maximum price set below equilibrium price, causes shortage, may cause illegal markets to form

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Surpluses

answer

An amount produced in excess of what is needed.

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Shortages

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quantity demanded is greater than qty. supplied at current price

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Positive externalities

answer

benefits created by a public good that are shared by the primary consumer of the good and by society more generally

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Negative externalities

answer

They are the "bad" effects that are suffered by a third party when a good or service is produced or consumed.

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Coase Therom

answer

An argument for property rights against regulatory intervention, sorting it out without government intervention.

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Public good

answer

a shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers

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Private good

answer

A good that, when consumed by one individual, cannot be consumed by another individual.

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Lorenze curve

answer

plots income held by each part of society (relation to equality line)

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Consumer surplus

answer

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

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Producer surplus

answer

the amount a seller is paid for a good minus the seller's cost of providing it

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Efficiency loss

answer

reductions of combined consumer and producer surplus associated with underproduction or overproduction of a product

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For economists, the word "utility" means

answer

pleasure and satisfaction

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In economics, the pleasure, happiness, or satisfaction received from a product is called what?

answer

utility

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When economists say that people act rationally in their self interest, they mean that individuals do what?

answer

look for and pursue opportunities to increase their utility

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According to Emerson: "Want is a growing giant whom the coat of Have was never large enough to cover." According to economists, "Want" exceeds "Have" because what?

answer

productive resources are limited

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According to economists, economic self-interest is what?

answer

a reality that underlies economic behavior

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When entering a building, Sam diverts his path to go through an open door rather than make the physical effort to open the closed door that is directly in his path. This is an example of what?

answer

marginal benefit-marginal cost analysis

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answer

opportunity costs

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A person should consume more of something when its marginal means what?

answer

benefit exceeds its marginal cost

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Economics may best be defined as what?

answer

the social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity

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The study of economics is primarily concerned with what?

answer

choices that are made in seeking the best use of resources

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The economic perspective refers to what?

answer

the making of purposeful decisions in a context of marginal costs and marginal benefits.

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what does the economic perspective entail?

answer

a comparison of marginal benefits and marginal costs in decision making

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What does purposeful behavior suggest?

answer

individuals will make different choices because of different desired outcomes

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Purposeful behavior means that:

answer

people weigh costs and benefits to make decisions.

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Economics involves marginal analysis because:

answer

most decisions involve changes from the present situation

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Why should you decide to go to a movie?

answer

if the marginal benefit of the movie exceeds its marginal cost.

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Marginal costs exist because:

answer

the decision to engage in one activity means forgoing some other activity.

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The assertion that "There is no free lunch" means what?

answer

all production involves the use of scarce resources and thus the sacrifice of alternative goods.

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Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. What is this a reflection of?

answer

purposeful behavior

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If someone produced too much of a good, this would suggest that:

answer

the good was produced to the point where its marginal cost exceeded its marginal benefit.

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Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. What does this fact imply?

answer

implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

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In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of what?

answer

scarcity and opportunity costs

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Which one of the following expressions best states the idea of opportunity cost?

answer

"There is no such thing as a free lunch."

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What is an economic explanation for why most college-aged movie stars do not attend college?

answer

the opportunity cost in terms of reduced income is too great

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answer

Opportunity costs

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Which of the following most closely relates to the idea of opportunity costs?

answer

tradeoffs

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Economists contend that most economic decisions are what?

answer

purposeful

question

answer

rational self-interest, because he attempting to increase his own income by identifying and satisfying someone else's wants.

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Kara was out jogging and despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara:

answer

decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

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What are Economic theories?

answer

are generalizations based on a careful observation of facts.

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In constructing models, what do economists do?

answer

make simplifying assumptions

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What do Economic models do?

answer

emphasize basic economic relationships by purposefully simplifying the complexities of the real world.

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What does the term "ceteris paribus" mean?

answer

other things equal

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What is the basic purpose of the other-things-equal assumption?

answer

allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.

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Suppose an economist says that "Other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that:

answer

all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

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The term "other things equal" means that:

answer

a number of relevant variables are assumed to be constant

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Macroeconomics approaches the study of economics from the viewpoint of:

answer

the entire economy

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What is associated with macroeconomics?

answer

an empirical investigation of the general price level and unemployment rates since 1990

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The problems of aggregate inflation and unemployment are:

answer

major topics of macroeconomics.

question

answer

C. National income grew by 2.7 percent last year.

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What can Macroeconomics best be described as?

answer

study of the large aggregates of the economy or the economy as a whole.

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What is Microeconomics is concerned with?

answer

a detailed examination of specific economic units that make up the economic system.

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Microeconomics:

answer

is concerned with individual economic units and specific markets.

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answer

A. The gross profits of all U.S. businesses were $182 billion last year.

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answer

C. The price of personal computers declined last year.

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answer

A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.

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A normative statement is one that:

answer

is based on value judgments.

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Which of the following is a normative statement?
A. The temperature is high today.
B. The humidity is high today.
C. It is too hot to play tennis today.
D. It will cool off later this evening.

answer

C. It is too hot to play tennis today.

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A positive statement is one that is:

answer

objective and is based on facts.

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answer

C. The temperature is 92 degrees today.

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What are Normative statements concerned with?

answer

what ought to be.

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What are Positive statements concerned with?

answer

what is.

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Most of the disagreement among economists involves:

answer

Normative statements

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Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should be increased on beer because college students drink too much." We can conclude that:

answer

Holly's statement is normative, but Ben's is positive.

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What is the economizing problem?

answer

the need to make choices because economic wants exceed economic means.

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The economizing problem is one of deciding how to make the best use of:

answer

limited resources to satisfy virtually unlimited wants.

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When the economist says that economic wants are insatiable, this means that:

answer

these wants are virtually unlimited and therefore incapable of complete satisfaction.

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Why does the scarcity problem persist?

answer

persists because economic wants exceed available productive resources.

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The alternative combination of two goods which a consumer can purchase with a given money income is shown by what?

answer

a budget line.

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What does a budget line show?

answer

all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

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answer

D. price of C is $4 and the price of D is $2.

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answer

A. 4 units of C, and 6 units of D.

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63. Refer to the budget line shown in the diagram above. The absolute value of the slope of the budget line is:
A. MUC/MUD.
B. one-half.
C. PD/PC.
D. PC/PD.

answer

D. PC/PD.

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In moving along a given budget line:

answer

the prices of both products and money income are assumed to be constant.

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An increase in money income does what?

answer

shifts the consumer's budget line to the right.

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answer

a decrease in money income.

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Any combination of goods lying outside of the budget line is what?

answer

is unattainable, given the consumer's income.

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answer

A. $.50 and $1.00.

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A budget line shows the:

answer

alternative combinations of two goods that a consumer can purchase with a given money income.

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Other things equal, an increase in a consumer's money income does what?

answer

shifts her budget line rightward because she can now purchase more of both products.

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What does the slope of a budget line reflect?

answer

price ratio of the two products

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72. Suppose Elroy's budget line is as shown on the above diagram. If his tastes change in favor of Coke and against popcorn, the budget line will:

answer

be unaffected.

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answer

is 1/5.

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answer

can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.

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Which of the following is a land resource?
A. a computer programmer
B. a computer
C. silicon (sand) used to make computer chips
D. a piece of software used by a firm

answer

C. silicon (sand) used to make computer chips

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Which of the following is a labor resource?
A. a computer programmer
B. a computer
C. silicon (sand) used to make computer chips
D. a piece of software used by a firm

answer

A. a computer programmer

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answer

D. a piece of software used by a firm

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The four factors of production are:

answer

land, labor, capital, and entrepreneurial ability

question

answer

D. autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.

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Why is money not an economic resource?

answer

money, as such, is not productive.

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Economic resources are also called:

answer

factors of production.

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Which of the following is real capital?
A. a pair of stockings
B. a construction crane
C. a savings account
D. a share of IBM stock

answer

B. a construction crane

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The main function of the entrepreneur is to:

answer

innovate

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Which of the following is not a main function of the entrepreneur?
A. make routine pricing decisions.
B. innovate.
C. assume the risk of economic losses.
D. makes strategic business decisions.

answer

A. make routine pricing decisions.

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The production possibilities curve illustrates the basic principle that:

answer

if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.

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answer

B. the reduction of unemployment

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Unemployment is illustrated by what?

answer

by a point inside the production possibilities curve.

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If the production possibilities curve is a straight line:

answer

economic resources are perfectly substitutable between the production of the two products.

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A production possibilities curve illustrates:

answer

Scarcity

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A production possibilities curve shows:

answer

the maximum amounts of two goods that can be produced assuming the full use of available resources.

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A nation's production possibilities curve is bowed out from the origin because:

answer

resources are not equally efficient in producing every good.

question

answer

D. 1/3 of a unit of capital goods.

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answer

A. tend to generate a more rapid growth rate.

question

answer

C. would involve an inefficient use of the economy's scarce resources.

question

answer

A. achieve economic growth.

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answer

B. larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.

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When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because:

answer

resources are limited.

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The production possibilities curve is a frontier between what?

answer

a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced.

question

answer

must be decreased.

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Any point inside the production possibilities curve indicates:

answer

that more output could be produced with available resources.

question

answer

D. it chooses point A.

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102. Refer to the above diagram. This economy will experience unemployment if it produces at point:
A. A.
B. B.
C. C.
D. D.

answer

D. D.

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In drawing the production possibilities curve we assume that:

answer

technology is fixed.

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Which of the following is assumed in constructing a typical production possibilities curve?

answer

production technology is fixed.

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If the production possibilities curve were a straight down-sloping line, this would suggest that:

answer

resources are perfectly shiftable between the production of these two goods.

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Assume an economy is incurring unemployment. The effect of resolving this problem will be to:

answer

move the level of actual output to the economy's production possibilities curve.

question

answer

C. specifies how much of each product society should produce.

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A point inside a production possibilities curve best illustrates:

answer

unemployment.

question

answer

D. the opportunity cost of both bread and tractors increases as more of each is produced.

question

answer

B. 2, 4, 6, and 8 units of bread.

question

answer

C. 1/8, 1/6, 1/4, and 1/2 units of tractors.

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In drawing a production possibilities curve we hold constant:

answer

both technology and resource supplies.

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The construction of a production possibilities curve assumes:

answer

technology is fixed.

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If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it:

answer

can produce more of both consumer goods and capital goods by using resources that are currently idle.

question

answer

B. combinations of bicycles and computers that society can produce by using its resources efficiently.

question

answer

C. concave to the origin because of increasing opportunity costs.

question

answer

A. will be 4 units of bicycles.

question

answer

B. unattainable, given currently available resources and technology.

question

answer

B. will cost 1 unit of computers.

question

answer

B. is attainable, but implies that the economy is not using all its resources.

question

answer

D. both bicycles and computers are subject to increasing opportunity costs.

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The law of increasing opportunity costs states that:

answer

if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so.

question

What does the concept of opportunity cost suggest?

answer

suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.

question

The law of increasing opportunity costs exists because:

answer

resources are not equally efficient in producing various goods.

question

The law of increasing opportunity costs is reflected in a production possibilities curve that is:

answer

concave to the origin.

question

Opportunity cost is best defined as:

answer

the amount of one product that must be given up to produce one more unit of another product.

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If the output of product X is such that marginal benefit equals marginal cost:

answer

the correct amount of resources is being allocated to X's production.

question

128. Refer to the above diagram for athletic shoes. The optimal output of shoes is:
A. Q1.
B. Q2.
C. Q3.
D. greater than Q3.

answer

B. Q2.

question

answer

A. society would consider additional units of shoes to be more valuable than alternative uses of those resources.

question

answer

C. society would consider additional units of shoes to be less valuable than alternative products.

question

answer

A. society should produce fewer shoes to achieve the optimal allocation of resources.

question

answer

by producing more of one good and less of the other.

question

The optimal allocation of resources is found:

answer

where MB = MC.

question

The basic difference between consumer goods and capital goods is that

answer

consumer goods satisfy wants directly while capital goods satisfy wants indirectly.

question

answer

B. an improvement in the literacy level and general level of education

question

answer

D. a technological advance that allows farmers to produce more output from given inputs

question

answer

C. a law requiring mandatory retirement from the labor force at age 55

question

answer

C. move from B on PP1 to C on PP1.

question

answer

A. A.

question

answer

A. shift the production possibilities curve from PP1 to PP2.

question

Which of the following statements, if any, is correct for a nation that is producing only consumer and capital goods?

answer

Other things equal, the more capital goods a nation produces, the greater will be its future growth rate.

question

answer

C. tuition, while an indirect cost (opportunity cost) is forgone income while in college.

question

answer

B. the opportunity cost of attending college is extraordinarily high.

question

If we say that two variables are directly related, this means that:

answer

an increase in one variable is associated with an increase in the other variable.

question

If we say that two variables are inversely related, this means that:

answer

an increase in one variable is associated with a decrease in the other.

question

answer

B. The value of the dependent variable is determined by the value of the independent variable.

question

If two variables are inversely related, then as the value of one variable:

answer

increases, the value of the other decreases.

question

If a positive relationship exists between x and y:

answer

the relationship will graph as an upsloping line.

question

The slope of a straight line can be determined by:

answer

comparing the absolute vertical change to the absolute horizontal change between two points on the line.

question

150. Refer to the above diagram. The variables X and Y are:
A. inversely related.
B. directly related.
C. unrelated.
D. negatively related.

answer

B. directly related.

question

151. Refer to the above diagram. The vertical intercept:
A. is 40.
B. is 50.
C. is 60.
D. cannot be determined from the information given.

answer

B. is 50.

question

152. Refer to the above diagram. The slope of the line:
A. is - 1/4.
B. is + 1/4.
C. is .40.
D. cannot be determined from the information given.

answer

B. is + 1/4.

question

153. Refer to the above diagram. The equation that shows the relationship between Y and X is:
A. Y = 50 + 1/4 X.
B. X = 1/4Y.
C. Y = .4X.
D. Y = 1/4 X - 50.

answer

A. Y = 50 + 1/4 X.

question

answer

C = 100 + .8Y.

question

If the equation y = 5 + 6x was graphed, the slope would be what?

answer

slope would be +6.

question

If the equation y = 15 - 4x was plotted, the slope would be what?

answer

slope would be -4.

question

If the equation y = -10 + 2.5x was plotted:
A. the vertical intercept would be -10.
B. the slope would be -7.5.
C. it would graph as a downsloping line.
D. the slope would be -10.

answer

A. the vertical intercept would be -10.

question

158. The movement from line A to line A' represents a change in:
A. the slope only.
B. the intercept only.
C. both the slope and the intercept.
D. neither the slope nor the intercept.

answer

B. the intercept only.

question

159. In the above diagram variables x and y are:
A. both dependent variables.
B. directly related.
C. inversely related.
D. unrelated.

answer

C. inversely related.

question

160. In the above diagram the vertical intercept and slope are:
A. 4 and -1 1/3 respectively.
B. 3 and -1 1/3 respectively.
C. 3 and + 3/4 respectively.
D. 4 and + 3/4 respectively.

answer

A. 4 and -1 1/3 respectively.

question

161. Refer to the above diagram. The slope of curve ZZ at point A is approximately:
A. +2.
B. +2 1/2.
C. -2 1/2.
D. +4.

answer

B. +2 1/2.

question

162. Refer to the above diagram. The slope of curve ZZ at point B is:
A. infinity.
B. zero.
C. +1.
D. -1.

answer

B. zero.

question

163. Refer to the above diagram. The slope of curve ZZ at point C is approximately:
A. -4.
B. -2.
C. -2 2/5.
D. +3.

answer

C. -2 2/5.

question

164. The slope of a line parallel to the vertical axis is:
A. zero.
B. one.
C. infinite.
D. one-half.

answer

C. infinite.

question

165. The slope of a line parallel to the horizontal axis is:
A. zero.
B. one.
C. infinite.
D. one-half.

answer

A. zero.

question

What are the two general types of economic systems that exist today?

answer

market systems and command systems.

question

answer

B. central planning.

question

answer

C. wide-spread private ownership of capital.

question

4. Examples of command economies are:
A. The United States and Japan.
B. Sweden and Norway.
C. Mexico and Brazil.
D. Cuba and North Korea.

answer

D. Cuba and North Korea.

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What is an economic system?

answer

a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.

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What does the term laissez-faire suggest?

answer

government should not interfere with the operation of the economy.

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What economies does Economic scarcity apply to?

answer

applies to all economies.

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Economic systems differ according to what two main characteristics?

answer

Who owns the factors of production, and the methods used to coordinate economic activity.

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Command systems are also known as what?

answer

communism.

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A fundamental difference between the command system and the market system is that, in command systems:

answer

the division of output is decided by central planning rather than by individuals operating freely through markets.

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Which of the following is a fundamental characteristic of the market system?

answer

property rights.

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answer

D. gives direction to the market system.

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What is the regulatory mechanism of the market system?

answer

competition

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Broadly defined, what does competition involve?

answer

independently acting buyers and sellers and freedom to enter or leave markets.

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What does competition mean?

answer

there are independently-acting buyers and sellers in each market.

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What does the division of labor mean?

answer

workers specialize in various production tasks.

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Why is specialization in production primarily important?

answer

because it results in greater total output.

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answer

D. all of the means identified in the other answers.

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Specialization in production is economically beneficial primarily because it:

answer

permits the production of a larger output with fixed amounts of resources.

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Barter

answer

entails the exchange of goods for goods.

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The use of money contributes to economic efficiency because:

answer

it promotes specialization by overcoming the problems with barter.

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The presence of market failures implies that:

answer

there is an active role for government, even in a market system.

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answer

D. What goods and services will be produced?

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Which of the following is not an economic cost?
A. wages.
B. rents.
C. economic profits.
D. payments made to the entrepreneur for organizing production.

answer

C. economic profits.

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If competitive industry Z is making substantial economic profit, output will:

answer

expand in industry Z, as more resources will move to that industry.

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From society's point of view the economic function of profits and losses is to:

answer

reallocate resources from less desired to more desired uses.

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answer

D. do all of these.

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Economic profits in an industry suggest the industry:

answer

should be larger to better satisfy consumers' desire for the product.

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Economic profits and losses:

answer

are essential to the reallocation of resources from less desired goods to more desired goods.

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answer

D. a decrease in the quantity of resources employed in industry X.

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answer

A. increase the number of strawberry pickers needed by farmers.

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If competitive industry Y is incurring substantial losses, output will:

answer

contract as resources move away from industry Y.

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The economic function of profits and losses is to:

answer

signal that resources should be reallocated.

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answer

D. do all of these.

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If a competitive industry is neither expanding nor contracting, we would expect:

answer

economic profits to be zero.

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answer

D. Firms will enter the industry and output will rise.

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What does the competitive market system do?

answer

encourages innovation because successful innovators are rewarded with economic profits.

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answer

B. can be obtained for the smallest money outlay.

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39. Refer to the above data. In view of the indicated resource prices, the economically most efficient production technique(s) is (are) technique(s):
A. #1.
B. #2 and #4.
C. #3.
D. #1 and #3.

answer

B. #2 and #4.

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answer

A. realize an economic profit of $10.

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answer

B. be adopted because it would lower production costs and increase economic profit.

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answer

D. IV

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Answer the next question(s) on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3 respectively.

43. Refer to the above information. If the price of product A is $0.50, the firm will realize:
A. an economic profit of $4.
B. an economic profit of $2.
C. an economic profit of $6.
D. a loss of $3.

answer

B. an economic profit of $2.

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In a competitive market economy, firms will select the least-cost production technique because:

answer

to do so will maximize the firms' profits.

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The market system's answer to the fundamental question "What will be produced?" is essentially:

answer

"Goods and services that are profitable."

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The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially:

answer

"Using the least-cost production techniques."

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The market system's answer to the fundamental question "Who will get the goods and services?" is essentially:

answer

"Those willing and able to pay for them."

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The market system's answer to the fundamental question "How will the system accommodate change?" is essentially:

answer

"Through the guiding function of prices and the incentive function of profits."

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The market system's answer to the fundamental question "How will the system promote progress?" is essentially:

answer

"Through the profit potential that encourages development of new technology."

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The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:

answer

creative destruction.

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Consumer sovereignty refers to the idea that:

answer

the idea that the decisions of producers must ultimately conform to consumer demands.

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The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of:

answer

consumer sovereignty.

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answer

A. What prices will be charged for goods and services?

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"Consumer sovereignty" means that:

answer

buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

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answer

A. The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.

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The invisible hand refers to the:

answer

notion that, under competition, decisions motivated by self-interest promote the social interest.

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The invisible-hand concept suggests that:

answer

assuming competition, private and public interests will coincide.

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The invisible-hand concept suggests that:

answer

when firms maximize their profits, society's output will also be maximized.

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Two major virtues of the market system are that it:

answer

allocates resources efficiently and allows economic freedom.

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answer

C. she has served society's interests by providing a desired good or service.

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The invisible hand promotes society's interests because:

answer

individuals pursuing their self-interest will try to produce goods and services that people in society want and are willing to purchase.

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The coordination problem in the centrally planned economies refers to the idea that:

answer

planners had to direct required inputs to each enterprise.

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answer

coordination problem under central planning.

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answer

coordination problem under central planning.

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answer

incentive problem.

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Innovation lagged in the centrally planned economies because:

answer

enterprises resisted innovation in fear that their production targets would be raised.

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Enterprise managers and workers in the Soviet Union often resisted innovations in production methods because:

answer

production targets were often increased when innovation occurred.

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The failure of Soviet central planning was reflected in:
A. a declining growth rate.
B. poor quality goods.
C. the failure to provide promised consumer goods.
D. all of these.

answer

D. all of these.

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If products were in short or surplus supply in the Soviet Union:

answer

producers would not react because no price or profit signals occurred.

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The simple circular flow model shows that:

answer

households are on the selling side of the resource market and on the buying side of the product market.

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The two basic markets shown by the simple circular flow model are:

answer

product and resource.

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In the resource market:

answer

households sell resources to businesses

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Which of the following is a limitation of the simple circular flow model?

answer

the determination of product and resource prices is not explained.

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In the simple circular flow model:

answer

businesses are sellers of final products.

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answer

C. product; resource

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answer

C. product; resource

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Households and businesses are:

answer

sellers in the resource and product markets respectively.

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In the circular flow model:

answer

households sell resources to firms.

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answer

D. resources and goods respectively.

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answer

B. incomes and consumer expenditures respectively.

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81. Refer to the above diagram. Arrows (1) and (3) are associated with:
A. the money market.
B. the resource market.
C. the product market.
D. international trade.

answer

B. the resource market.

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answer

D. All of the above.

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answer

C. consumer sovereignty.

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answer

A. consumer sovereignty.

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answer

B. because private property encourages people to consider the alternative uses of their resources and select those that provide the most rewards.

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What is a market?

answer

an institution that brings together buyers and sellers.

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Markets explained on the basis of supply and demand assume what?

answer

assume many buyers and many sellers of a standardized product.

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What does the law of demand state?

answer

states that price and quantity demanded are inversely related.

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Graphically, the market demand curve is:

answer

the horizontal sum of individual demand curves.

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The demand curve shows the relationship between what?

answer

price and quantity demanded.

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Economists use the term "demand" to refer to what?

answer

a schedule of various combinations of market prices and amounts demanded.

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The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.

answer

direct, inverse

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When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes:

answer

the income effect.

question

A demand curve indicates what?

answer

indicates the quantity demanded at each price in a series of prices.

question

In presenting the idea of a demand curve, economists presume that the most important variable in determining the quantity demanded is:

answer

the price of the product itself.

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Why will an increase in the price of a product will reduce the amount of it purchased?

answer

consumers will substitute other products for the one whose price has risen.

question

What do the income and substitution effects account for?

answer

the downward sloping demand curve.

question

What will not cause a shift in the demand curve?

answer

Change in Price of the product itself

question

When the price of a product

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