question
Margo spends $10,000 on one year's college tuition. The opportunity cost of spending one year in college for Margo is:
A. $10,000
B. Whatever she would have purchased with the $10,000 instead.
C. Whatever she would have earned had she not been in college.
D. Whatever she would have purchased with the $10,000 and whatever she would have earned had she not been in college.
A. $10,000
B. Whatever she would have purchased with the $10,000 instead.
C. Whatever she would have earned had she not been in college.
D. Whatever she would have purchased with the $10,000 and whatever she would have earned had she not been in college.
answer
D.
question
The fundamental problem at the core of economic analysis is:
A. Understanding how resources can be used without causing scarcity.
B. The creation of nonscarce goods and the elimination of scarce goods.
C. Finding the way in which society can eliminate scarcity.
D. Understanding how resources are allocated among competing uses to best satisfy society's unlimited wants.
A. Understanding how resources can be used without causing scarcity.
B. The creation of nonscarce goods and the elimination of scarce goods.
C. Finding the way in which society can eliminate scarcity.
D. Understanding how resources are allocated among competing uses to best satisfy society's unlimited wants.
answer
D.
question
A college student is faced with a difficult decision of how to spend one hour tonight. She could babysit her professor's child at an hourly wage of $8, she could work at the college library at a wage of $10, or she could finish her economics homework assignment. If she chooses to complete her homework assignment, she has incurred an opportunity cost equal to:
A. $10
B. $8
C. $18
D. $0
A. $10
B. $8
C. $18
D. $0
answer
A.
question
Water is considered a scarce good because:
A. scarce goods are less expensive.
B. not enough of it is available for all needs.
C. not enough of it is available for all needs and because it is less expensive.
D. it does not have any uses.
A. scarce goods are less expensive.
B. not enough of it is available for all needs.
C. not enough of it is available for all needs and because it is less expensive.
D. it does not have any uses.
answer
B.
question
Will, Bill and Phil each decide to study an extra hour for an exam. Instead of studying, they could have either slept, played football, or watched TV. Which of the following statements are correct:
A. The opportunity costs of the three students must be the same because they all make the same choice.
B. The students only made a rational choice if they do well on the exam.
C. Both a. and b.
D. none of the above.
A. The opportunity costs of the three students must be the same because they all make the same choice.
B. The students only made a rational choice if they do well on the exam.
C. Both a. and b.
D. none of the above.
answer
D.
question
Nara has gone to three movies already this week. She has some extra money, so she decides to go to another. This statement best represents this economic concept:
A. Resources are scarce.
B. "How much" is a decision at the margin.
C. The real cost of something is what you must give up to get it.
D. There are gains from trade.
A. Resources are scarce.
B. "How much" is a decision at the margin.
C. The real cost of something is what you must give up to get it.
D. There are gains from trade.
answer
B.
question
The condition of scarcity means that:
A. when the government produces something, there is no opportunity cost.
B. choices must be made in the allocation of productive resources.
C. you will not incur an opportunity cost if you make the right choice.
D. only a command economy can make efficient use of resources.
A. when the government produces something, there is no opportunity cost.
B. choices must be made in the allocation of productive resources.
C. you will not incur an opportunity cost if you make the right choice.
D. only a command economy can make efficient use of resources.
answer
B.
question
In economics usage, the word "marginal" means
A. that something is less good or substandard.
B. incremental.
C. situated on the border of a geographic area.
D. negligible.
A. that something is less good or substandard.
B. incremental.
C. situated on the border of a geographic area.
D. negligible.
answer
B.
question
A resource is:
A. anything that can be used to produce something else.
B. a sum of money used to start a business.
C. a physical attribute of land.
D. an intangible aspect of a society, such as its culture.
A. anything that can be used to produce something else.
B. a sum of money used to start a business.
C. a physical attribute of land.
D. an intangible aspect of a society, such as its culture.
answer
A.
question
Microeconomics deals with:
A. the working of the entire economy or large sectors of it.
B. economic growth.
C. individual decision makers in the economy.
D. gross domestic product.
A. the working of the entire economy or large sectors of it.
B. economic growth.
C. individual decision makers in the economy.
D. gross domestic product.
answer
C.
question
The cost of leaving a championship soccer match before it ends is ________, while the cost of staying for the entire match is ________.
A. the opportunity cost of not seeing the winning goal with two minutes to go; zero—the ticket to the match is already paid so there is no cost
B. the opportunity cost of not seeing the winning goal with two minutes to go; the opportunity cost of what else you could have done during that time
C. zero—you don't have to pay to leave; zero—the ticket to the match is already paid so there is no cost
D. the cost of the ticket; also the cost of the ticket
A. the opportunity cost of not seeing the winning goal with two minutes to go; zero—the ticket to the match is already paid so there is no cost
B. the opportunity cost of not seeing the winning goal with two minutes to go; the opportunity cost of what else you could have done during that time
C. zero—you don't have to pay to leave; zero—the ticket to the match is already paid so there is no cost
D. the cost of the ticket; also the cost of the ticket
answer
B.
question
Intel finds it difficult to hire enough skilled computer engineers. This statement best represents this economic concept:
A. Resources are scarce.
B. People usually exploit opportunities to make themselves better off.
C. There are gains from trade.
D. One person's spending is another person's income.
A. Resources are scarce.
B. People usually exploit opportunities to make themselves better off.
C. There are gains from trade.
D. One person's spending is another person's income.
answer
A.
question
If a production possibility frontier is a straight line, it tells us that the opportunity cost of producing one more unit of good X:
A. is equal to the inverse of the amount of good Y.
B. is a decreasing amount of good Y.
C. is a constant amount of good Y.
D. is an increasing amount of good Y.
A. is equal to the inverse of the amount of good Y.
B. is a decreasing amount of good Y.
C. is a constant amount of good Y.
D. is an increasing amount of good Y.
answer
C.
question
If a country specializes according to its own comparative advantage and then trades with other nations:
A. it must consume at a combination on its domestic production possibility frontier.
B. it can consume at a higher level than the domestic production possibility frontier.
C. its production possibility frontier will shift or rotate inward.
D. it will operate at a point inside its production possibility frontier.
A. it must consume at a combination on its domestic production possibility frontier.
B. it can consume at a higher level than the domestic production possibility frontier.
C. its production possibility frontier will shift or rotate inward.
D. it will operate at a point inside its production possibility frontier.
answer
B.
question
All points inside the production possibility frontier represent
A. economic growth.
B. inefficient production points.
C. infeasible production points.
D. efficient production points.
A. economic growth.
B. inefficient production points.
C. infeasible production points.
D. efficient production points.
answer
B.
question
Which of the following is an example of normative economics?
A. The minimum wage can create higher unemployment for teens and unskilled workers.
B. A higher minimum wage is expected to increase the price of a fast-food cheeseburger.
C. The minimum wage has not kept pace with inflation.
D. The minimum wage is an important tool in fighting poverty and should be increased.
A. The minimum wage can create higher unemployment for teens and unskilled workers.
B. A higher minimum wage is expected to increase the price of a fast-food cheeseburger.
C. The minimum wage has not kept pace with inflation.
D. The minimum wage is an important tool in fighting poverty and should be increased.
answer
D.
question
The slope of a typical production possibility frontier is
A. 0.
B. positive.
C. negative.
D. vertical.
A. 0.
B. positive.
C. negative.
D. vertical.
answer
C.
question
An economy is said to have a comparative advantage in the production of a good if it can produce that good:
A. outside its production possibilities curve.
B. with a higher opportunity cost than another economy.
C. with more resources than another economy.
D. at a lower opportunity cost than another economy.
A. outside its production possibilities curve.
B. with a higher opportunity cost than another economy.
C. with more resources than another economy.
D. at a lower opportunity cost than another economy.
answer
D.
question
The production possibility frontier will shift outward for all of the following reasons except:
A. an increase in the unemployment rate.
B. an improvement in technology.
C. an increase in worker productivity.
D. an increase in the labor force.
A. an increase in the unemployment rate.
B. an improvement in technology.
C. an increase in worker productivity.
D. an increase in the labor force.
answer
A.
question
Abe starts exercising regularly, and after a few months he can do twice as much of everything--in a single day Abe can now make 10 hamburgers or 8 milkshakes rather than the 5 hamburgers and 4 milkshakes he made in the past. We now know that Abe's production possibility frontier
A. has shifted right, but his opportunity cost of making milkshakes is unchanged.
B. has not changed, but his opportunity cost of making milkshakes has increased.
C. has not changed, but his opportunity cost of making milkshakes has decreased.
D. has shifted right, and his opportunity cost of making milkshakes has decreased.
A. has shifted right, but his opportunity cost of making milkshakes is unchanged.
B. has not changed, but his opportunity cost of making milkshakes has increased.
C. has not changed, but his opportunity cost of making milkshakes has decreased.
D. has shifted right, and his opportunity cost of making milkshakes has decreased.
answer
A.
question
Joe and Sam run a business mowing lawns and washing cars. In a day Joe can mow 10 lawns or wash 20 cars or any linear combination. Sam can mow 20 lawns or wash 30 cars in a day, or any linear combination. Joe's opportunity cost of mowing a lawn is
A. ½ of a washed car.
B. ½ of a mowed lawn.
C. 2 washed cars.
D. 2 mowed lawns.
A. ½ of a washed car.
B. ½ of a mowed lawn.
C. 2 washed cars.
D. 2 mowed lawns.
answer
C.
question
Joe and Sam run a business mowing lawns and washing cars. In a day Joe can mow 10 lawns or wash 20 cars or any linear combination. Sam can mow 20 lawns or wash 30 cars in a day, or any linear combination. Which of the following statements is true?
A. Joe has the comparative advantage and the absolute advantage in mowing lawns.
B. Joe has the comparative advantage, but not the absolute advantage in mowing lawns.
C. Sam has the comparative advantage and the absolute advantage in mowing lawns.
D. Neither person has a comparative advantage in mowing lawns.
A. Joe has the comparative advantage and the absolute advantage in mowing lawns.
B. Joe has the comparative advantage, but not the absolute advantage in mowing lawns.
C. Sam has the comparative advantage and the absolute advantage in mowing lawns.
D. Neither person has a comparative advantage in mowing lawns.
answer
C.
question
The typical bowed out shape of a production possibilities frontier reflects
A. increasing opportunity cost.
B. decreasing opportunity cost.
C. constant opportunity cost.
D. economic growth.
A. increasing opportunity cost.
B. decreasing opportunity cost.
C. constant opportunity cost.
D. economic growth.
answer
A.
question
The economy's factors of production are not equally suitable for producing different types of goods. This principle generates
A. efficiency in production.
B. the law of increasing opportunity cost.
C. economic growth.
D. resource underutilization.
A. efficiency in production.
B. the law of increasing opportunity cost.
C. economic growth.
D. resource underutilization.
answer
B.
question
Gains from trade arise because of
A. specialization in consumption.
B. marginal analysis.
C. individual choice.
D. specialization in production.
A. specialization in consumption.
B. marginal analysis.
C. individual choice.
D. specialization in production.
answer
D.
question
The ____ yogurt will decrease when the price of yogurt rises.
A. supply of
B. equilibrium of
C. demand for
D. quantity demanded of
A. supply of
B. equilibrium of
C. demand for
D. quantity demanded of
answer
D.
question
In the market for beef tacos, each of the following shifts the supply curve to the left except:
A. an increase in the price of beef.
B. fewer taco shops.
C. an increase in the wages of taco shop workers.
D. a decrease in the price of beef tacos.
A. an increase in the price of beef.
B. fewer taco shops.
C. an increase in the wages of taco shop workers.
D. a decrease in the price of beef tacos.
answer
D.
question
What is the difference between a shortage and scarcity?
A. Scarcity will almost always exist, but a shortage will exist only if the price is kept below the equilibrium level.
B. A shortage will exist when a good is scarce.
C. There is no distinction between the two. They are the same thing.
D. Scarcity is a result of two or more alternative uses, and quantities of supply and demand adjusting to flexible prices will create shortages.
A. Scarcity will almost always exist, but a shortage will exist only if the price is kept below the equilibrium level.
B. A shortage will exist when a good is scarce.
C. There is no distinction between the two. They are the same thing.
D. Scarcity is a result of two or more alternative uses, and quantities of supply and demand adjusting to flexible prices will create shortages.
answer
A.
question
If there is a widely held expectation that prices of cotton will be higher next year, then
A. the demand for cotton will shift to the left today.
B. the demand for cotton will increase today.
C. there will be no change in the current demand.
D. the demand for cotton will decrease today.
A. the demand for cotton will shift to the left today.
B. the demand for cotton will increase today.
C. there will be no change in the current demand.
D. the demand for cotton will decrease today.
answer
B.
question
Assuming that yarn and knitting needles are complements in consumption, which of the following would cause an increase in the demand for yarn?
A. A decrease in the number of people who are interested in knitting.
B. A lower price of knitting needles.
C. A higher price of knitting needles.
D. A higher price of yarn.
A. A decrease in the number of people who are interested in knitting.
B. A lower price of knitting needles.
C. A higher price of knitting needles.
D. A higher price of yarn.
answer
B.
question
Suppose the equilibrium price of pencils is $4 and the equilibrium quantity is 150 units. If the price of pencils is $2
A. the quantity demanded will be less than 150 units.
B. there will be a shortage (also called excess demand) of pencils.
C. the quantity supplied will be greater than 150 units.
D. there will be a surplus (also called excess supply) of pencils.
A. the quantity demanded will be less than 150 units.
B. there will be a shortage (also called excess demand) of pencils.
C. the quantity supplied will be greater than 150 units.
D. there will be a surplus (also called excess supply) of pencils.
answer
B.
question
In the market for grass-fed beef, what would cause a price increase?
A. The price of the grass fed to cows increases.
B. The price of chicken, a substitute in consumption, decreases.
C. Doctors tell patients that beef is full of saturated fat that causes heart attacks.
D. There is a movement in the United States towards vegetarianism.
A. The price of the grass fed to cows increases.
B. The price of chicken, a substitute in consumption, decreases.
C. Doctors tell patients that beef is full of saturated fat that causes heart attacks.
D. There is a movement in the United States towards vegetarianism.
answer
A.
question
Which if the following would cause a surplus of newsprint?
A. The demand for newsprint decreases, and the price adjusts to the new equilibrium.
B. The supply of newsprint decreases, and the price does not change.
C. The demand for newsprint decreases, and the price does not change.
D. The supply of newsprint decreases., and the price adjusts to the new equilibrium.
A. The demand for newsprint decreases, and the price adjusts to the new equilibrium.
B. The supply of newsprint decreases, and the price does not change.
C. The demand for newsprint decreases, and the price does not change.
D. The supply of newsprint decreases., and the price adjusts to the new equilibrium.
answer
C.
question
The ____ for tomatoes has decreased because of higher fertilizer prices.
A. demand.
B. quantity demanded.
C. supply.
D. equilibrium price.
A. demand.
B. quantity demanded.
C. supply.
D. equilibrium price.
answer
C.
question
For an inferior good
A. an increase in income will decrease the quantity demanded along a given demand curve.
B. a decrease in income will decrease the quantity demanded along a given demand curve.
C. an increase in income will shift the demand curve right
D. an increase in income will shift the demand curve left
A. an increase in income will decrease the quantity demanded along a given demand curve.
B. a decrease in income will decrease the quantity demanded along a given demand curve.
C. an increase in income will shift the demand curve right
D. an increase in income will shift the demand curve left
answer
D.
question
It is true that equilibrium price will definitely rise if
A. supply and demand both increase.
B. supply increases and demand decreases.
C. supply and demand both decrease.
D. supply decreases and demand increases.
A. supply and demand both increase.
B. supply increases and demand decreases.
C. supply and demand both decrease.
D. supply decreases and demand increases.
answer
D.
question
If the price elasticity of demand (calculated using the midpoint method) for e-Books is -2.5, and the price of e-Books rises from $18 to $22, then the quantity demanded will:
A. decrease by 8%
B. decrease by 25%
C. decrease by 50%
D. increase by 2.5%
A. decrease by 8%
B. decrease by 25%
C. decrease by 50%
D. increase by 2.5%
answer
C.
question
A linear demand curve
A. has a constant price elasticity of demand.
B. has a price elasticity of demand equal to one.
C. has a calculated price elasticity of demand that is positive.
D. can have both elastic and inelastic price elasticities of demand.
A. has a constant price elasticity of demand.
B. has a price elasticity of demand equal to one.
C. has a calculated price elasticity of demand that is positive.
D. can have both elastic and inelastic price elasticities of demand.
answer
D.
question
Bar owners often offer lower beer prices to women than they do to men. This will increase bar revenues
A. if women have a unit-elastic demand for beer.
B. if women have an inelastic demand for beer.
C. if women have an elastic demand for beer.
D. if women have a negative income elasticity of demand for beer.
A. if women have a unit-elastic demand for beer.
B. if women have an inelastic demand for beer.
C. if women have an elastic demand for beer.
D. if women have a negative income elasticity of demand for beer.
answer
C.
question
Which of the following is likely to make supply more inelastic?
A. the time period under consideration is very short.
B. the inputs necessary for production cannot readily be increased.
C. the good is necessary for survival (e.g., a life saving drug)
D. the time period under consideration is very short and the inputs necessary for production cannot readily be increased.
A. the time period under consideration is very short.
B. the inputs necessary for production cannot readily be increased.
C. the good is necessary for survival (e.g., a life saving drug)
D. the time period under consideration is very short and the inputs necessary for production cannot readily be increased.
answer
D.
question
There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination. Therefore, you would expect the demand for
A. medical exams to be more price-elastic.
B. Bayer aspirin to be more price-inelastic.
C. Bayer aspirin to be more price-elastic.
D. the two to be equally price-elastic.
A. medical exams to be more price-elastic.
B. Bayer aspirin to be more price-inelastic.
C. Bayer aspirin to be more price-elastic.
D. the two to be equally price-elastic.
answer
C.
question
Market research shows that gate ticket revenue would increase if the price of tickets to a hockey game were increased, even though the number of tickets sold would fall. What does this imply about the price elasticity of demand for hockey tickets?
A. Demand is inelastic.
B. Demand is elastic.
C. Demand is elastic.
D. Demand is perfectly elastic.
A. Demand is inelastic.
B. Demand is elastic.
C. Demand is elastic.
D. Demand is perfectly elastic.
answer
A.
question
If the own price elasticity of demand for Gatorade is - 5.0, then demand is ___________. If price increases by 5%, then quantity demanded falls by _____.
A. elastic, 5%
B. elastic, 25%
C. elastic, 1%
D. inelastic, 1%
A. elastic, 5%
B. elastic, 25%
C. elastic, 1%
D. inelastic, 1%
answer
B.
question
Which of the following statements concerning own price elasticities of demand is true?
A. If demand is elastic in the short run, it is likely to be less elastic in the long run.
B. If demand is inelastic in the short run, it is likely to be even more inelastic in the long run.
C. If demand is inelastic in the short run, it is likely to become less inelastic in the long run.
D. None of the above.
A. If demand is elastic in the short run, it is likely to be less elastic in the long run.
B. If demand is inelastic in the short run, it is likely to be even more inelastic in the long run.
C. If demand is inelastic in the short run, it is likely to become less inelastic in the long run.
D. None of the above.
answer
C.
question
A perfectly inelastic demand curve
A. has own price elasticity of -1.
B. has own price elasticity of infinity.
C. has own price elasticity of 0.
D. is horizontal.
A. has own price elasticity of -1.
B. has own price elasticity of infinity.
C. has own price elasticity of 0.
D. is horizontal.
answer
C.
question
If two goods are complements in consumption, their cross-price elasticity of demand should be:
A. less than 0.
B. equal to 0.
C. greater than 0.
D. either greater or less than zero, but not zero.
A. less than 0.
B. equal to 0.
C. greater than 0.
D. either greater or less than zero, but not zero.
answer
A.
question
A home entertainment center typically consumes a larger proportion of a typical consumer's budget than does milk. From this information we would think consumer demand for home entertainment centers is
A. more price elastic than the demand for milk.
B. less price elastic than the demand for milk.
C. equally as price elastic as the demand for milk.
D. perfectly inelastic.
A. more price elastic than the demand for milk.
B. less price elastic than the demand for milk.
C. equally as price elastic as the demand for milk.
D. perfectly inelastic.
answer
A.
question
A perfectly elastic demand curve
A. is vertical.
B. is horizontal.
C. is downward sloping.
D. has an own price elasticity of 0.
A. is vertical.
B. is horizontal.
C. is downward sloping.
D. has an own price elasticity of 0.
answer
B.
question
If the price of chocolate-covered peanuts decreases from $1.10 to $0.90 and the quantity demanded does not change, this indicates that, if other things are unchanged, the price elasticity of demand using the midpoint method is
A. -1
B. 0
C. -0.5
D. -2
A. -1
B. 0
C. -0.5
D. -2
answer
B.
question
The cross price elasticity of electricity with respect to the price of natural gas has been estimated as being equal to 0.2. This implies that
A. natural gas and electricity are both normal goods.
B. one of the two goods is inferior while the other is normal, but we need additional information to determine which of them is inferior.
C. electricity and natural gas are substitutes in consumption.
D. electricity and natural gas are complements in consumption.
A. natural gas and electricity are both normal goods.
B. one of the two goods is inferior while the other is normal, but we need additional information to determine which of them is inferior.
C. electricity and natural gas are substitutes in consumption.
D. electricity and natural gas are complements in consumption.
answer
C.
question
If the income elasticity of demand for a good is negative, the good is said to be a(n)
A. inferior good
B. normal good.
C. positive good.
D. substitute in consumption.
A. inferior good
B. normal good.
C. positive good.
D. substitute in consumption.
answer
A.
question
The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5% in a period, how will that affect demand for eggs in that period, all other things unchanged?
A. Demand will increase by more than 5.7%.
B. Demand will increase by about 2.9%.
C. Demand will decrease by more than 5.7%.
D. Demand will decrease.
A. Demand will increase by more than 5.7%.
B. Demand will increase by about 2.9%.
C. Demand will decrease by more than 5.7%.
D. Demand will decrease.
answer
B.
question
Market research shows that gate ticket sales revenue would increase if the price of tickets to a hockey game were increased, even though the number of tickets sold would fall. What does this imply about the price elasticity of demand for hockey tickets?
A. demand is perfectly inelastic.
B. demand is perfectly elastic.
C. demand is elastic.
D. demand is inelastic.
A. demand is perfectly inelastic.
B. demand is perfectly elastic.
C. demand is elastic.
D. demand is inelastic.
answer
D.
question
Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold. Based on economic analysis, we would predict that
A. the price of sweaters will increase by less than $10.
B. the price of sweaters will decrease by $10.
C. the price of sweaters will increase by $10.
D. the consumers of sweaters will bear the entire economic burden of the tax.
A. the price of sweaters will increase by less than $10.
B. the price of sweaters will decrease by $10.
C. the price of sweaters will increase by $10.
D. the consumers of sweaters will bear the entire economic burden of the tax.
answer
A.
question
Suppose the government imposes a $4 excise tax on Good X. If the demand for Good X is perfectly elastic and the supply curve is upward sloping, then the price of Good X will
A. increase, but by less than $4.
B. increase by more than $4
C. remain constant.
D. increase by exactly $4.
A. increase, but by less than $4.
B. increase by more than $4
C. remain constant.
D. increase by exactly $4.
answer
C.
question
Suppose the government imposes a $4 excise tax on Good Y. If the demand for Good Y is perfectly INelastic and the supply curve is upward sloping, then the price of Good Y will
A. increase, but by less than $4.
B. increase by more than $4.
C. remain constant.
D. increase by exactly $4.
A. increase, but by less than $4.
B. increase by more than $4.
C. remain constant.
D. increase by exactly $4.
answer
D.
question
When the government imposes an excise tax in a market:
A. a deadweight loss is created.
B. consumer surplus falls.
C. producer surplus falls
D. consumer surplus falls, producer surplus falls, and a deadweight loss is created.
A. a deadweight loss is created.
B. consumer surplus falls.
C. producer surplus falls
D. consumer surplus falls, producer surplus falls, and a deadweight loss is created.
answer
D.
question
Suppose the government imposes a $5 excise tax on the sale of leather shoes and collects it from the suppliers. We observe the price of leather shoes rises by $3 as a result. We may conclude that
A. producers are paying more of the tax than are the consumers.
B. consumers are paying more of the tax than the producers.
C. the government will receive less tax revenue than anticipated.
D. producers and consumers will share the economic burden of the tax equally.
A. producers are paying more of the tax than are the consumers.
B. consumers are paying more of the tax than the producers.
C. the government will receive less tax revenue than anticipated.
D. producers and consumers will share the economic burden of the tax equally.
answer
B.
question
Sweden can produce 500 Herring or 1000 Cell Phones. Finland can produce 500 Herring or 2000 Cell Phones.
A. Sweden's opportunity cost of a Herring is 1/2 Cell Phone.
B. Sweden's opportunity cost of a Herring is 4 Cell Phones.
C. Sweden's opportunity cost of a Herring is 2 Cell Phones.
D. Sweden's opportunity cost of a Herring is 1/2 Herring.
A. Sweden's opportunity cost of a Herring is 1/2 Cell Phone.
B. Sweden's opportunity cost of a Herring is 4 Cell Phones.
C. Sweden's opportunity cost of a Herring is 2 Cell Phones.
D. Sweden's opportunity cost of a Herring is 1/2 Herring.
answer
C.
question
Sweden can produce 500 Herring or 1000 Cell Phones. Finland can produce 500 Herring or 2000 Cell Phones.
A. Sweden has comparative advantage in Herring and absolute advantage in Herring.
B. Finland has comparative advantage in Herring and absolute advantage in Cell Phones.
C. Sweden has comparative advantage in Cell Phones and absolute advantage in Cell Phones.
D. Finland has comparative advantage in Cell Phones and absolute advantage in Cell Phones.
A. Sweden has comparative advantage in Herring and absolute advantage in Herring.
B. Finland has comparative advantage in Herring and absolute advantage in Cell Phones.
C. Sweden has comparative advantage in Cell Phones and absolute advantage in Cell Phones.
D. Finland has comparative advantage in Cell Phones and absolute advantage in Cell Phones.
answer
D.
question
The law of diminishing marginal utility states that
A. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed.
B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.
C. price must be lowered 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.
A. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed.
B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.
C. price must be lowered 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.
answer
B.
question
Which of the following statements is most accurate?
A. Both total utility and marginal utility tend to increase continually as additional units of something are consumed.
B. Both total utility and marginal utility tend to decrease as additional units of something are consumed.
C. Total utility tends to decrease and marginal utility tends to increase as more units of something are consumed.
D. Total utility tends to increase and marginal utility tends to decrease as more units of something are consumed.
A. Both total utility and marginal utility tend to increase continually as additional units of something are consumed.
B. Both total utility and marginal utility tend to decrease as additional units of something are consumed.
C. Total utility tends to decrease and marginal utility tends to increase as more units of something are consumed.
D. Total utility tends to increase and marginal utility tends to decrease as more units of something are consumed.
answer
D.
question
If total utility is increasing, marginal utility
A. is positive, but may be increasing or decreasing.
B. must also be increasing.
C. may be either positive or negative.
D. will be increasing at an increasing rate.
A. is positive, but may be increasing or decreasing.
B. must also be increasing.
C. may be either positive or negative.
D. will be increasing at an increasing rate.
answer
A.
question
Below is information on Marta's total utility from hours of exercise at the gym. Her marginal utility from the third hour is:
Hours of exercise Total Utility
0 0
1 5
2 15
3 23
4 29
A. 43
B. 38
C. 23
D. 8
Hours of exercise Total Utility
0 0
1 5
2 15
3 23
4 29
A. 43
B. 38
C. 23
D. 8
answer
D.
question
Below is information on Marta's total utility from hours of exercise at the gym. Diminishing marginal utility is observed beginning with the ____ unit
Hours of exercise Total Utility
0 0
1 5
2 15
3 23
4 29
A. first
B. second
C. third
D. fourth
Hours of exercise Total Utility
0 0
1 5
2 15
3 23
4 29
A. first
B. second
C. third
D. fourth
answer
C.
question
One can model a per unit tax by shifting up the ___________ curve by the amount of per unit tax, or by shifting down the _________ curve by the amount of the tax.
A. demand; supply
B. demand; demand
C. supply; demand
D. supply; supply
A. demand; supply
B. demand; demand
C. supply; demand
D. supply; supply
answer
C.
question
The own price elasticity of demand is -4.0 and the own price elasticity of supply is -2.0. If the government places a tax on this good, and the statutory incidence falls on demanders then
A. demanders will bear more of the economic burden of the tax than suppliers will.
B. suppliers will bear more of the economic burden of the tax than demanders will.
C. suppliers and demanders will split the economic burden of the tax equally.
D. We cannot tell from this information which group, suppliers or demanders, will bear more of the economic burden of the tax.
A. demanders will bear more of the economic burden of the tax than suppliers will.
B. suppliers will bear more of the economic burden of the tax than demanders will.
C. suppliers and demanders will split the economic burden of the tax equally.
D. We cannot tell from this information which group, suppliers or demanders, will bear more of the economic burden of the tax.
answer
B.
question
Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a $1 tax is levied on each gallon of gas. As a result, the price of gasoline rises to $3.75 per gallon. The economic incidence of the $1 tax is:
A. $0.25 paid by consumers, $0.75 paid by producers.
B. $0.50 paid by consumers, $0.50 paid by producers.
C. $1.00 paid by producers, $0 paid by consumers.
D. $0.75 paid by consumers, $0.25 paid by producers.
A. $0.25 paid by consumers, $0.75 paid by producers.
B. $0.50 paid by consumers, $0.50 paid by producers.
C. $1.00 paid by producers, $0 paid by consumers.
D. $0.75 paid by consumers, $0.25 paid by producers.
answer
D.
question
If the Washington State government removed the excise tax on car rentals, which of the following would NOT occur?
A. Consumer surplus would increase.
B. Producer surplus would increase.
C. Producer surplus would decrease.
D. Total surplus would increase.
A. Consumer surplus would increase.
B. Producer surplus would increase.
C. Producer surplus would decrease.
D. Total surplus would increase.
answer
C.
question
If marginal utility is lower than average utility, then
A. average utility is constant.
B. average utility is decreasing.
C. average utility is increasing.
D. average utility may be increasing, decreasing, or constant.
A. average utility is constant.
B. average utility is decreasing.
C. average utility is increasing.
D. average utility may be increasing, decreasing, or constant.
answer
B.
question
Review question! Which of the following would cause a change in the quantity demanded along a given demand curve?
A. a change in the price of a related good.
B. a change in the price of the good.
C. a change in the population.
D. both a change in the price of the good and a change in the price of related goods.
A. a change in the price of a related good.
B. a change in the price of the good.
C. a change in the population.
D. both a change in the price of the good and a change in the price of related goods.
answer
B.
question
If the world price of coffee beans is $10/kilogram and a country's autarky price for the good is $6/kilogram then in this country
A. the domestic quantity demanded is greater than the domestic quantity supplied and the country exports.
B. the domestic quantity demanded is lower than the domestic quantity supplied and the country exports.
C. the domestic quantity demanded is greater than the domestic quantity supplied and the country imports.
D. the domestic quantity demanded is lower than the domestic quantity supplied and the country imports.
A. the domestic quantity demanded is greater than the domestic quantity supplied and the country exports.
B. the domestic quantity demanded is lower than the domestic quantity supplied and the country exports.
C. the domestic quantity demanded is greater than the domestic quantity supplied and the country imports.
D. the domestic quantity demanded is lower than the domestic quantity supplied and the country imports.
answer
B.
question
A firm produces 200 pop-up speakers at a total cost of $2000. The variable cost is $700. What is the firm's level of fixed cost?
A. $2700
B. $1300
C. $600
D. $20
A. $2700
B. $1300
C. $600
D. $20
answer
B.
question
A country that imports T-shirts imposes a tariff on T-shirt imports. In the country we would expect to see a(n)
A. increase in the price of T-shirts and an increase in producer surplus and a decrease in consumer surplus.
B. increase in the price of T-shirts and a decrease in producer surplus and a decrease in consumer surplus.
C. decrease the price of T-shirts and an increase in producer surplus and an increase in consumer surplus.
D. decrease in the price of T-shirts and a decrease in producer surplus and an increase in consumer surplus.
A. increase in the price of T-shirts and an increase in producer surplus and a decrease in consumer surplus.
B. increase in the price of T-shirts and a decrease in producer surplus and a decrease in consumer surplus.
C. decrease the price of T-shirts and an increase in producer surplus and an increase in consumer surplus.
D. decrease in the price of T-shirts and a decrease in producer surplus and an increase in consumer surplus.
answer
A.
question
The marginal product is the slope of the:
A. short run average total cost curve.
B. marginal cost curve.
C. total cost curve.
D. total product curve.
A. short run average total cost curve.
B. marginal cost curve.
C. total cost curve.
D. total product curve.
answer
D.
question
Diminishing marginal returns occur when:
A. an additional variable input adds less to total output than the previous unit.
B. each additional unit of a variable input adds more to total output than the previous unit.
C. total product decreases.
D. the marginal product of a variable input is increasing but at a decreasing rate.
A. an additional variable input adds less to total output than the previous unit.
B. each additional unit of a variable input adds more to total output than the previous unit.
C. total product decreases.
D. the marginal product of a variable input is increasing but at a decreasing rate.
answer
A.
question
Tankao makes ear buds for mobile devices. When Tankao produces 20 sets of ear buds, its average variable cost is $5 per set and its average total cost is $8 per set. Tankao's:
A. marginal cost is $3 per set.
B. marginal cost is equal to its average fixed cost.
C. marginal cost is less than $3 per set.
D. average fixed cost is $3 per set.
A. marginal cost is $3 per set.
B. marginal cost is equal to its average fixed cost.
C. marginal cost is less than $3 per set.
D. average fixed cost is $3 per set.
answer
D.
question
Total Cost equals all of the following except:
A. Variable Cost plus Fixed Cost
B. Average total cost divided by quantity
C. (Average Fixed Cost + Average Variable Cost) times Quantity
D. Average total cost times quantity
A. Variable Cost plus Fixed Cost
B. Average total cost divided by quantity
C. (Average Fixed Cost + Average Variable Cost) times Quantity
D. Average total cost times quantity
answer
B.
question
If marginal product is higher than average product
A. average product must be falling.
B. average product must be staying constant.
C. average product must be increasing.
D. average product may be increasing or decreasing.
A. average product must be falling.
B. average product must be staying constant.
C. average product must be increasing.
D. average product may be increasing or decreasing.
answer
C.
question
In the short run:
A. all inputs are fixed.
B. all inputs are variable.
C. some inputs are fixed and some inputs are variable.
D. all costs are variable.
A. all inputs are fixed.
B. all inputs are variable.
C. some inputs are fixed and some inputs are variable.
D. all costs are variable.
answer
C.
question
Diminishing returns to an input occur
A. when all inputs are fixed
B. only in the long run.
C. when all inputs are variable.
D. when the input is variable and other inputs are fixed.
A. when all inputs are fixed
B. only in the long run.
C. when all inputs are variable.
D. when the input is variable and other inputs are fixed.
answer
D.
question
Marginal cost is the change in
A. total cost from a one unit change in a variable input.
B. average total cost from a one unit change in a variable input.
C. average total cost from a one unit change in output.
D. total cost from a one unit change in output.
A. total cost from a one unit change in a variable input.
B. average total cost from a one unit change in a variable input.
C. average total cost from a one unit change in output.
D. total cost from a one unit change in output.
answer
D.
question
If a firm is operating under conditions of diminishing marginal product, the firm's marginal costs will be:
A. constant
B. increasing
C. decreasing
D. increasing or decreasing, but not constant
A. constant
B. increasing
C. decreasing
D. increasing or decreasing, but not constant
answer
B. Marginal cost increases as marginal product decreases.
question
A country that imports bananas removes a tariff on banana imports. We expect to see a(n)
A. increase in the price of bananas in the country and an increase in producer surplus.
B. decrease the price of bananas in the country and an increase increase in producer surplus.
C. increase in the price of bananas in the country and a decrease in consumer surplus.
D. decrease in the price of bananas in the country and an increase in consumer surplus.
A. increase in the price of bananas in the country and an increase in producer surplus.
B. decrease the price of bananas in the country and an increase increase in producer surplus.
C. increase in the price of bananas in the country and a decrease in consumer surplus.
D. decrease in the price of bananas in the country and an increase in consumer surplus.
answer
D.
question
A perfectly competitive firm is definitely earning an economic profit when
A. MR > MC
B. P > ATC
C. P > MC.
D. P > AVC.
A. MR > MC
B. P > ATC
C. P > MC.
D. P > AVC.
answer
B.
question
Kaile Cakes is currently producing 10 cakes per day. The marginal cost of the tenth cake is $24, and the average total cost of 10 cakes is $6. The average total cost of 9 cakes is
A. $4.
B. $5.
C. $6.
D. $8.
A. $4.
B. $5.
C. $6.
D. $8.
answer
A.
question
If a price taking firm is producing a quantity where MC > MR, then profit
A. is maximized.
B. can be increased by increasing production.
C. can be increased by decreasing production.
D. can be increased by decreasing the price.
A. is maximized.
B. can be increased by increasing production.
C. can be increased by decreasing production.
D. can be increased by decreasing the price.
answer
C.
question
A perfectly competitive firm operating in the short run is maximizing profits and just breaking even. Its costs include a yearly license fee of $1500 that is imposed by the state and must be paid for as long as the firm is in existence. If the license fee is reduced to $1000, which of the following should the firm do to maximize profits in the short run?
A. increase price.
B. increase output.
C. reduce output.
D. not change output.
A. increase price.
B. increase output.
C. reduce output.
D. not change output.
answer
D.
question
The short run individual supply curve of the perfectly competitive firm is
A. the upward-sloping portion of its average variable cost curve.
B. the upward-sloping part of its average total cost curve.
C. its marginal cost curve above average variable cost.
D. its marginal cost curve above average total cost.
A. the upward-sloping portion of its average variable cost curve.
B. the upward-sloping part of its average total cost curve.
C. its marginal cost curve above average variable cost.
D. its marginal cost curve above average total cost.
answer
C.
question
In a perfectly competitive industry, the market demand curve is usually
A. perfectly inelastic.
B. perfectly elastic.
C. unit elastic.
D. downward sloping.
A. perfectly inelastic.
B. perfectly elastic.
C. unit elastic.
D. downward sloping.
answer
D. Remember that it's market demand curve and NOT firm demand curve.
question
Consider a perfectly competitive firm in the short run. Assume the firm produces the profit-maximizing output and that it is earning a positive economic profit. At the profit-maximizing output amount, all of the following are correct EXCEPT
A. price equals marginal cost.
B. price equals marginal revenue.
C. price equals average total cost.
D. marginal cost is greater than average total cost.
A. price equals marginal cost.
B. price equals marginal revenue.
C. price equals average total cost.
D. marginal cost is greater than average total cost.
answer
C.
question
The table below lists three supply points for an individual, perfectly competitive firm operating in the short run. If the industry is composed of 120 identical firms, which of the following will be a point on the short-run market supply curve for this industry?
Price Quantity
$5 15
$8 32
$10 40
A. Price = $5; quantity supplied = 1,650.
B. Price = $5; quantity supplied = 15
C. Price = $10; quantity supplied = 87
D. Price = $10; quantity supplied = 4800
Price Quantity
$5 15
$8 32
$10 40
A. Price = $5; quantity supplied = 1,650.
B. Price = $5; quantity supplied = 15
C. Price = $10; quantity supplied = 87
D. Price = $10; quantity supplied = 4800
answer
D.
question
The perfectly competitive model assumes all of the following EXCEPT
A. that firms attempt to maximize their total revenue.
B. that firms cannot influence the price of their product.
C. easy entry into and easy exit from the market.
D. each individual firm has a small market share.
A. that firms attempt to maximize their total revenue.
B. that firms cannot influence the price of their product.
C. easy entry into and easy exit from the market.
D. each individual firm has a small market share.
answer
A. They're trying to maximize PROFIT, not REVENUE.
question
A perfectly competitive small farm that produces 1,000 cauliflower heads in the short run has an ATC = $6 and AFC = $2. The market price is $3 per head and is equal to MC. In order to maximize profits (or minimize losses) this firm should:
A. reduce output but continue to produce a positive amount of output.
B. shut down.
C. increase output.
D. do nothing; the firm is already maximizing profits.
A. reduce output but continue to produce a positive amount of output.
B. shut down.
C. increase output.
D. do nothing; the firm is already maximizing profits.
answer
B. P<AVC.
question
The Bountiful Bakery is considering hiring another pastry chef. The bakery knows the average product of its chefs is 15 dozen croissants per day. It also believes that the next chef hired will produce an extra 12 dozen croissants per day. A dozen croissants sell for $30. To maximize profits the bakery should hire another chef:
A. only if the new chef's marginal product is 12 dozen or more.
B. only if the new chef's daily wage is $450 or less
C. only if the new chef's daily wage is $360 or less
D. because the marginal product is below the average product
A. only if the new chef's marginal product is 12 dozen or more.
B. only if the new chef's daily wage is $450 or less
C. only if the new chef's daily wage is $360 or less
D. because the marginal product is below the average product
answer
C.
question
An individual producer's labor demand curve is the
A. marginal product of labor curve.
B. value of the average product of labor curve.
C. average product curve.
D. value of the marginal product of labor curve.
A. marginal product of labor curve.
B. value of the average product of labor curve.
C. average product curve.
D. value of the marginal product of labor curve.
answer
D.
question
The monopolist's marginal revenue curve is downward sloping because
A. it operates in the range where ATC is downward sloping.
B. it operates in the range where MC is downward sloping.
C. the monopolist must lower its price in order to sell more.
D. its total revenue declines as it sells more.
A. it operates in the range where ATC is downward sloping.
B. it operates in the range where MC is downward sloping.
C. the monopolist must lower its price in order to sell more.
D. its total revenue declines as it sells more.
answer
C.
question
The ability of a monopolist to raise the price of a product above the competitive level by reducing output is known as:
A. barrier to entry.
B. patents and copyrights.
C. product differentiation.
D. market power.
A. barrier to entry.
B. patents and copyrights.
C. product differentiation.
D. market power.
answer
D.
question
Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles. High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing total average cost for any conceivable level of demand. Your monopoly would result from:
A. control of a scarce resource or input.
B. government created barriers.
C. technological superiority.
D. economies of scale.
A. control of a scarce resource or input.
B. government created barriers.
C. technological superiority.
D. economies of scale.
answer
D.
question
Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 to $29 per unit, marginal revenue for the eleventh unit is
A. $9.
B. $1.
C. $29.
D. $19.
A. $9.
B. $1.
C. $29.
D. $19.
answer
D.
question
A downward sloping demand curve will ensure that
A. P > MR
B. P = ATC
C. P = MC
D. P < MC
A. P > MR
B. P = ATC
C. P = MC
D. P < MC
answer
A.
question
A monopoly is producing at the output level where average total costs equals $30, marginal revenue is $40, and the price is $50. If $30 is the minimum ATC and the ATC curve is U-shaped, in order to maximize profits this firm should... (hint, draw a graph to figure this out!)
A. increase output.
B. shut down.
C. do nothing; it is already maximizing profits.
D. reduce output.
A. increase output.
B. shut down.
C. do nothing; it is already maximizing profits.
D. reduce output.
answer
A.
question
One difference between monopoly and perfect competition is that
A. a monopolist seeks to maximize profit and a perfect competitor does not.
B. the marginal revenue curve for a perfect competitor is downward sloping; for a monopolist it is horizontal.
C. a perfect competitor seeks to maximize profit; a monopolist does not.
D. the marginal revenue curve for a monopolist is downward sloping; for a perfect competitor it is horizontal.
A. a monopolist seeks to maximize profit and a perfect competitor does not.
B. the marginal revenue curve for a perfect competitor is downward sloping; for a monopolist it is horizontal.
C. a perfect competitor seeks to maximize profit; a monopolist does not.
D. the marginal revenue curve for a monopolist is downward sloping; for a perfect competitor it is horizontal.
answer
D.
question
Natural monopolies arise due to
A. patent protection
B. ownership of all of a critical natural resource input.
C. diseconomies of scale
D. economies of scale
A. patent protection
B. ownership of all of a critical natural resource input.
C. diseconomies of scale
D. economies of scale
answer
D.
question
In perfect competition, the firm produces the output such that __________, and in monopoly the firm produces the output such that _________.
A. P = MR = MC; P < MR = MC
B. P = MR = MC; P = MR = MC
C. P > MR = MC; P = MR = MC
D. P = MR = MC; P > MR = MC
A. P = MR = MC; P < MR = MC
B. P = MR = MC; P = MR = MC
C. P > MR = MC; P = MR = MC
D. P = MR = MC; P > MR = MC
answer
D.
question
Suppose GoSports pennant monopoly is broken up and the pennant industry becomes perfectly competitive. We would expect the _______ to increase from the breakup and _______ to decrease from the breakup.
A. consumer surplus; producer surplus and total surplus
B. consumer surplus and total surplus; producer surplus
C. producer surplus; consumer surplus and total surplus
D. producer surplus and total surplus; consumer surplus
A. consumer surplus; producer surplus and total surplus
B. consumer surplus and total surplus; producer surplus
C. producer surplus; consumer surplus and total surplus
D. producer surplus and total surplus; consumer surplus
answer
B.
question
If a monopolist is producing a quantity that generate MC > MR, then profit
A. is maximized.
B. is maximized only if MC = P.
C. can be increased by increasing production.
D. can be increased by decreasing production.
A. is maximized.
B. is maximized only if MC = P.
C. can be increased by increasing production.
D. can be increased by decreasing production.
answer
D.
question
A profit maximizing monopolist with a linear demand curve will:
A. not produce in the inelastic portion of its demand curve.
B. produce regardless of elasticity, since it is a monopolist.
C. not produce in the elastic portion of its demand curve.
D. produce only at the unit price elastic portion of its demand curve.
A. not produce in the inelastic portion of its demand curve.
B. produce regardless of elasticity, since it is a monopolist.
C. not produce in the elastic portion of its demand curve.
D. produce only at the unit price elastic portion of its demand curve.
answer
A.
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