question
The study of economics is centered around the condition of:
a. scarcity, which forces all societies to make decisions about how to allocate scarce resources among competing uses.
b. limited wants, which forces all individuals to make decisions about how to use their individual resources.
c. opportunity cost, which is of concern at the microeconomic level but not at the macroeconomic level.
d. selfishness, which prompts all sectors of the economy to make decisions to maximize their own personal gain.
a. scarcity, which forces all societies to make decisions about how to allocate scarce resources among competing uses.
b. limited wants, which forces all individuals to make decisions about how to use their individual resources.
c. opportunity cost, which is of concern at the microeconomic level but not at the macroeconomic level.
d. selfishness, which prompts all sectors of the economy to make decisions to maximize their own personal gain.
answer
a. scarcity, which forces all societies to make decisions about how to allocate scarce resources among competing uses.
question
Beth quit her job as a computer programmer for a large corporation to begin her own computer repair business in her garage. To do this, she took $10,000 out of her retirement fund and hired her brother, Will, on an hourly basis. As a factor of production, Beth is best classified as _______, and Will is best classified as _______.
a. an entrepreneur; labor
b. labor; an entrepreneur
c. capital; labor
d. an entrepreneur; capital
a. an entrepreneur; labor
b. labor; an entrepreneur
c. capital; labor
d. an entrepreneur; capital
answer
a. an entrepreneur; labor
question
Microeconomics studies the:
a. reasons for unemployment and inflation in the entire country
b. annual growth of national income and the total production of output in the economy
c. decisions and behaviors of individuals and businesses
d. normative aspects of the economy while macroeconomics focuses on the positive aspects
a. reasons for unemployment and inflation in the entire country
b. annual growth of national income and the total production of output in the economy
c. decisions and behaviors of individuals and businesses
d. normative aspects of the economy while macroeconomics focuses on the positive aspects
answer
c. decisions and behaviors of individuals and businesses
question
The old statement "what's good for General Motors is good for the entire nation" is a possible example of the:
a. fallacy of composition
b. association-causation issue (post hoc fallacy)
c. ceteris paribus assumption
d. fallacy of division
a. fallacy of composition
b. association-causation issue (post hoc fallacy)
c. ceteris paribus assumption
d. fallacy of division
answer
a. fallacy of composition
question
In a capitalist market economy, economic activity is mainly guided by:
a. the government
b. corporations
c. central planners
d. self-interest and prices
a. the government
b. corporations
c. central planners
d. self-interest and prices
answer
d. self-interest and prices
question
The economic argument supporting free trade is based on the principle of:
a. protection
b. tariffs and quotas
c. absolute advantage
d. comparative advantage
a. protection
b. tariffs and quotas
c. absolute advantage
d. comparative advantage
answer
d. comparative advantage
question
The opportunity cost to a student of attending a class lecture is the:
a. same for all students
b. value of the next best alternative use of the student's time
c. sum of the values of alternative activities that the student must forego in order to attend the class
d. monetary cost of the tuition and fees for a semester of classes paid by the student
a. same for all students
b. value of the next best alternative use of the student's time
c. sum of the values of alternative activities that the student must forego in order to attend the class
d. monetary cost of the tuition and fees for a semester of classes paid by the student
answer
b. value of the next best alternative use of the student's time
question
The law of demand states that:
a. price is the only variable that can cause consumers to purchase more or less.
b. consumers do not buy more or less when price changes
c. price and demand are inversely related, ceteris paribus
d. price and quantity demanded are inversely related, ceteris paribus
a. price is the only variable that can cause consumers to purchase more or less.
b. consumers do not buy more or less when price changes
c. price and demand are inversely related, ceteris paribus
d. price and quantity demanded are inversely related, ceteris paribus
answer
d. price and quantity demanded are inversely related, ceteris paribus
question
If an increase in the price of good A causes the demand for good B to increase, then:
a. the demand curve for good A will shift to the left
b. goods A and B are substitutes
c. goods A and B are compliments
d. both (a) and (b) are correct
a. the demand curve for good A will shift to the left
b. goods A and B are substitutes
c. goods A and B are compliments
d. both (a) and (b) are correct
answer
b. goods A and B are substitutes
question
According to the law of supply, a decrease in the price of binders iwll, ceteris paribus:
a. decrease the supply of binders
b. increase the supply of binders
c. increase the quantity supplied of binders
d. decrease the quantity supplied of binders
a. decrease the supply of binders
b. increase the supply of binders
c. increase the quantity supplied of binders
d. decrease the quantity supplied of binders
answer
d. decrease the quantity supplied of binders
question
Assume generic goods are inferior goods. A decrease in consumer income will cause the demand for generic goods to _________, and the equilibrium price of generic goods will __________.
a. increase; increase
b. increase; decrease
c. decrease; decrease
d. decrease; increase
a. increase; increase
b. increase; decrease
c. decrease; decrease
d. decrease; increase
answer
a. increase; increase
question
Ceteris paribus, if quantity supplied exceeds quantity demanded at the current market price, then a:
a. surplus exists and, as a result, price will fall
b. surplus exists and, as a result, price will rise
c. shortage exists and, as a result, price will rise
d. shortage exists and, as a result, price will fall
a. surplus exists and, as a result, price will fall
b. surplus exists and, as a result, price will rise
c. shortage exists and, as a result, price will rise
d. shortage exists and, as a result, price will fall
answer
a. surplus exists and, as a result, price will fall
question
If drought conditions in the farm belt result in a decrease in the supply of wheat, what will happen to the equilibrium price and quantity of wheat, other things held constant?
a. price and quantity both increase
b. price increases and quantity decreases
c. price and quantity both decrease
d. price decreases and quantity increases
a. price and quantity both increase
b. price increases and quantity decreases
c. price and quantity both decrease
d. price decreases and quantity increases
answer
b. price increases and quantity decreases
question
If the number of people seeking to purchase new homes in the area increases at the same time that the prices of lumber and other home-building materials increase, then supply and demand analysis predicts that the equilibrium:
a. price and the equilibrium quantity of new homes will increase
b. quantity of new homes will increase but the change in equilibrium price cannot be determined from the info given
c. price and the equilibrium quantity of new homes will decrease
d. price of new homes will increase but the change in equilibrium quantity cannot be determined from the info given
a. price and the equilibrium quantity of new homes will increase
b. quantity of new homes will increase but the change in equilibrium price cannot be determined from the info given
c. price and the equilibrium quantity of new homes will decrease
d. price of new homes will increase but the change in equilibrium quantity cannot be determined from the info given
answer
d. price of new homes will increase but the change in equilibrium quantity cannot be determined from the info given
question
The responsiveness of consumers to changes in the price of a product is measured by:
a. demand
b. price elasticity of demand
c. change in supply relative to the change in price
d. income elasticity of demand
a. demand
b. price elasticity of demand
c. change in supply relative to the change in price
d. income elasticity of demand
answer
b. price elasticity of demand
question
Ceteris paribus, the demand for a product will be more elastic when:
a. the time allowed for adjustment to a price change is very short
b. there are many close substitutes for the product available
c. the product is a necessity
d. spending on the product is small relative to income
a. the time allowed for adjustment to a price change is very short
b. there are many close substitutes for the product available
c. the product is a necessity
d. spending on the product is small relative to income
answer
b. there are many close substitutes for the product available
question
Assume a university wants to increase parking revenue and hired a consultant to analyze the demand for covered parking on campus. If the consultant determined that the priced elasticity of demand coefficient for covered parking is 0.65, then the consultant should advise the university to:
a. add more covered parking and maintain the current price
b. lower the price of covered parking on campus
c. raise the price of covered parking on campus
d. encourage students to carpool and park off campus
a. add more covered parking and maintain the current price
b. lower the price of covered parking on campus
c. raise the price of covered parking on campus
d. encourage students to carpool and park off campus
answer
c. raise the price of covered parking on campus
question
If a 5% decrease in the price of a good results in a 10% increase in the quantity demanded, the absolute value of the price elasticity of demand coefficient is ____, and demand is said to be ______.
a. 1/2; inelastic
b. 2; inelastic
c. 1/2; elastic
d. 2; elastic
a. 1/2; inelastic
b. 2; inelastic
c. 1/2; elastic
d. 2; elastic
answer
d. 2; elastic
question
The demand function is horizontal when demand is:
a. perfectly elastic
b. relatively elastic
c. perfectly inelastic
d. relatively inelastic
a. perfectly elastic
b. relatively elastic
c. perfectly inelastic
d. relatively inelastic
answer
a. perfectly elastic
question
Products that are necessities with no close substitutes tend to have _______ demand curves.
a. perfectly elastic
b. unit elastic
c. elastic
d. inelastic
a. perfectly elastic
b. unit elastic
c. elastic
d. inelastic
answer
d. inelastic
question
Marginal benefit (MB) functions are ______-sloping, while marginal cost (MC) functions are ______-sloping; the efficient point is where _________.
a. downward; upward; MB>MC
b. upward; downward; MB>MC
c. downward; upward; MB=MC
d. upward; downward; MB=MC
a. downward; upward; MB>MC
b. upward; downward; MB>MC
c. downward; upward; MB=MC
d. upward; downward; MB=MC
answer
c. downward; upward; MB=MC
question
Buyers enjoy consumer surplus when the market price actually paid is _______ than the lowest price buyers would pay; sellers enjoy producer surplus when the market price is _____ than the lowest price sellers would accept.
a. lower; lower
b. higher; higher
c. lower; higher
d. higher; lower
a. lower; lower
b. higher; higher
c. lower; higher
d. higher; lower
answer
c. lower; higher
question
Ceteris paribus, a decrease in the demand for soda leads to:
a. a decrease in the price of soda and a decrease in producer surplus
b. a decrease in the price of soda and an increase in producer surplus
c. an increase in the price of soda and a decrease in producer surplus
d. an increase in the price of soda and an increase in producer surplus
a. a decrease in the price of soda and a decrease in producer surplus
b. a decrease in the price of soda and an increase in producer surplus
c. an increase in the price of soda and a decrease in producer surplus
d. an increase in the price of soda and an increase in producer surplus
answer
a. a decrease in the price of soda and a decrease in producer surplus
question
All of the following are possible sources of inefficiency except:
a. taxes
b. price ceilings
c. negative externalities
d. perfect competition
a. taxes
b. price ceilings
c. negative externalities
d. perfect competition
answer
c. negative externalities
question
Ceteris paribus, the more elastic the demand for a taxed commodity, the ______ it is for sellers to shift the economic burden of the tax to consumers by ______ the product price.
a. easier; raising
b. easier; lowering
c. harder; raising
d. harder; lowering
a. easier; raising
b. easier; lowering
c. harder; raising
d. harder; lowering
answer
c. harder; raising
question
The tendency to use common resources more than is desirable from society's point of view is called the:
answer
Tragedy of the Commons
question
Which of the following is a government solution to a positive externality?
a. The Sierra Club uses private donations to protect the environment
b. corporations fund scholarships to make college educations more affordable
c. the county uses tax revenue to fund public schools
d. Mr. Jones allows Mr. Smith to cut down a large tree on the Jones' property that is blocking Mr. Smith's view
a. The Sierra Club uses private donations to protect the environment
b. corporations fund scholarships to make college educations more affordable
c. the county uses tax revenue to fund public schools
d. Mr. Jones allows Mr. Smith to cut down a large tree on the Jones' property that is blocking Mr. Smith's view
answer
c. the county uses tax revenue to fund public schools
question
When some of the costs of a good spill over to a third party, a _______ externality exists and the good tends to be ______ by private markets.
a. negative; overpriced
b. negative; underproduced
c. positive; underproduced
d. positive; overproduced
a. negative; overpriced
b. negative; underproduced
c. positive; underproduced
d. positive; overproduced
answer
a. negative; overpriced
question
Because a pure public good is:
a. excludable, it's not possible for any consumer to be a free rider
b. excludable, it's possible for some consumers to be free riders
c. nonexcludable, it's not possible for any consumer to be a free rider
d. nonexcludable, it's possible for some consumers to be free riders
a. excludable, it's not possible for any consumer to be a free rider
b. excludable, it's possible for some consumers to be free riders
c. nonexcludable, it's not possible for any consumer to be a free rider
d. nonexcludable, it's possible for some consumers to be free riders
answer
d. nonexcludable, it's possible for some consumers to be free riders
question
Firms experience economies of scale when:
a. long-run average cost increases as output increases
b. long-run average cost decreases as output increases
c. doubling inputs will less than double output
d. constant returns to scale are present
a. long-run average cost increases as output increases
b. long-run average cost decreases as output increases
c. doubling inputs will less than double output
d. constant returns to scale are present
answer
b. long-run average cost decreases as output increases
question
Which of the following is NOT a characteristic of a perfectly competitive market?
a. there are no barriers to entry into the market in the long run
b. there are many sellers in the market
c. firms earn long-run positive economic profits
d. firms produce identical products
a. there are no barriers to entry into the market in the long run
b. there are many sellers in the market
c. firms earn long-run positive economic profits
d. firms produce identical products
answer
c. firms earn long-run positive economic profits
question
An individual firm operating in a perfectly competitive market:
a. is a price-taker and has a demand curve that is perfectly elastic at the price determined by the market forces of demand and supply
b. is a price-taker and has a demand curve that slopes downward to the right
c. is a price-setter and has a demand curve that is perfectly elastic at the price determined by the market forces of demand and supply
d. is a price-setter and has a demand curve that slopes downward to the right
a. is a price-taker and has a demand curve that is perfectly elastic at the price determined by the market forces of demand and supply
b. is a price-taker and has a demand curve that slopes downward to the right
c. is a price-setter and has a demand curve that is perfectly elastic at the price determined by the market forces of demand and supply
d. is a price-setter and has a demand curve that slopes downward to the right
answer
a. is a price-taker and has a demand curve that is perfectly elastic at the price determined by the market forces of demand and supply
question
The profit-maximizing rule is for firms to produce the amount of output at which:
a. ATC = AVC
b. MR = MC
c. P = ATC
d. MR = P
a. ATC = AVC
b. MR = MC
c. P = ATC
d. MR = P
answer
b. MR = MC
question
A firm that chooses NOT to produce in the short run suffers a loss equal to:
a. zero
b. marginal cost
c. total variable cost
d. total fixed cost
a. zero
b. marginal cost
c. total variable cost
d. total fixed cost
answer
d. total fixed cost
question
Assume that blueberries are produced in a perfectly competitive market. If existing sellers in this market are earning positive economic profit, the number of sellers would be expected to ______ in the long run, resulting in a _______ equilibrium price, ceteris paribus.
a. increase; higher
b. increase; lower
c. decrease; higher
d. decrease; lower
a. increase; higher
b. increase; lower
c. decrease; higher
d. decrease; lower
answer
b. increase; lower
question
A firm is in long-run equilibrium in a perfectly competitive market when:
a. P > MR = MC = ATC
b. P = MR > MC = ATC
c. P = MR = MC > ATC
d. P = MR = MC = ATC
a. P > MR = MC = ATC
b. P = MR > MC = ATC
c. P = MR = MC > ATC
d. P = MR = MC = ATC
answer
d. P = MR = MC = ATC
question
A market that is made up of a few large firms that engage in strategic behavior is:
answer
an oligopoly
question
A market that has a single supplier of a product with no close substitutes and barriers to entry is:
answer
a monopoly
question
A market characterized by many firms, product differentiation, and easy entry in the long run is:
answer
monopolistically competitive
question
For all firms, profits are maximized and losses are minimized in the short run at the output where:
a. marginal revenue equals marginal cost so long as price exceeds AVC
b. marginal revenue equals marginal cost so long as price exceeds ATC
c. total revenue is equal to total cost
d. total revenue is maximized
a. marginal revenue equals marginal cost so long as price exceeds AVC
b. marginal revenue equals marginal cost so long as price exceeds ATC
c. total revenue is equal to total cost
d. total revenue is maximized
answer
a. marginal revenue equals marginal cost so long as price exceeds AVC
question
For a pure monopoly, the industry or market demand curve is:
a. more elastic than the monopoly firm's demand curve
b. less elastic than the monopoly firm's demand curve
c. unrelated to the monopoly firm's demand curve
d. the same as the monopoly firm's demand curve
a. more elastic than the monopoly firm's demand curve
b. less elastic than the monopoly firm's demand curve
c. unrelated to the monopoly firm's demand curve
d. the same as the monopoly firm's demand curve
answer
d. the same as the monopoly firm's demand curve
question
A monopolist that earns positive economic profit in the short run will:
a. always continue to earn positive economic profit in the long run
b. earn positive economic profit in the long run if it can maintain barriers to entry, assuming no changes in costs or market demand
c. earn higher economic profit in the long run because of economies of scale
d. earn zero economic profit in the long-run equilibrium
a. always continue to earn positive economic profit in the long run
b. earn positive economic profit in the long run if it can maintain barriers to entry, assuming no changes in costs or market demand
c. earn higher economic profit in the long run because of economies of scale
d. earn zero economic profit in the long-run equilibrium
answer
b. earn positive economic profit in the long run if it can maintain barriers to entry, assuming no changes in costs or market demand
question
Compared to a perfectly competitive market, a monopoly produces a _______ output and charges a _________ price, provided economies of scale are not significant.
a. higher; lower
b. higher; higher
c. lower; higher
d. lower; lower
a. higher; lower
b. higher; higher
c. lower; higher
d. lower; lower
answer
c. lower; higher
question
From society's perspective:
a. monopoly markets are more efficient than competitive markets
b. there is no difference between the outcome in monopoly markets and competitive markets
c. it is never good to have only one firm service an entire market
d. competition leads to lower prices, higher output, and greater efficiency than monopoly
a. monopoly markets are more efficient than competitive markets
b. there is no difference between the outcome in monopoly markets and competitive markets
c. it is never good to have only one firm service an entire market
d. competition leads to lower prices, higher output, and greater efficiency than monopoly
answer
d. competition leads to lower prices, higher output, and greater efficiency than monopoly
question
Government addresses the problem of monopoly inefficiency by:
a. using antitrust laws to promote competition
b. regulating the price a monopolist can charge for output
c. operating the monopoly itself, especially in the case of natural monopoly
d. all of the above are true
a. using antitrust laws to promote competition
b. regulating the price a monopolist can charge for output
c. operating the monopoly itself, especially in the case of natural monopoly
d. all of the above are true
answer
d. all of the above are true
question
Monopolistically competitive firms have some market power because of:
a. economies of scale
b. barriers to entry
c. product differentiation
d. industry domination
a. economies of scale
b. barriers to entry
c. product differentiation
d. industry domination
answer
c. product differentiation
question
The typical firm in a monopolistically competitive industry earns zero economic profit in the long run because:
a. high barriers to entry exist
b. there are no barriers to prevent the entry of new firms with similar products
c. it produces and output for which there are no close substitutes
d. short-run losses usually turn into profits in the long run
a. high barriers to entry exist
b. there are no barriers to prevent the entry of new firms with similar products
c. it produces and output for which there are no close substitutes
d. short-run losses usually turn into profits in the long run
answer
b. there are no barriers to prevent the entry of new firms with similar products
question
A large group of firms in an industry that band together and agree to charge a common price and set output quotas is referred to as:
a. a duopoly
b. a contestable market
c. a cartel
d. an oligopoly
a. a duopoly
b. a contestable market
c. a cartel
d. an oligopoly
answer
c. a cartel
question
The characteristic that distinguishes oligopoly from other market structures is:
a. government regulation
b. easy entry and exit
c. interdependence among firms in pricing and output decisions
d. cost-minimizing behavior
a. government regulation
b. easy entry and exit
c. interdependence among firms in pricing and output decisions
d. cost-minimizing behavior
answer
c. interdependence among firms in pricing and output decisions
question
Game theory helps explain:
a. why firms in oligopoly markets are revenue-maximizers
b. why firms don't advertise if they operate in oligopoly markets
c. hiring behavior in professional sports
d. the strategic behavior of firms in oligopoly markets
a. why firms in oligopoly markets are revenue-maximizers
b. why firms don't advertise if they operate in oligopoly markets
c. hiring behavior in professional sports
d. the strategic behavior of firms in oligopoly markets
answer
d. the strategic behavior of firms in oligopoly markets
question
Which of the following industries is the best example of oligopoly?
a. breakfast cereal
b. local residential water service
c. wheat
d. chinese food restaurants
a. breakfast cereal
b. local residential water service
c. wheat
d. chinese food restaurants
answer
a. breakfast cereal
question
The market structure that maximizes total producer and consumer surplus and generates no deadweight loss is:
a. perfect competition
b. single-price monopoly
c. oligopoly
d. monopolistic competition
a. perfect competition
b. single-price monopoly
c. oligopoly
d. monopolistic competition
answer
a. perfect competition
question
Which of the following best represents a derived demand?
a. the demand for coffee by students to help them stay up late and study
b. a coffee shop's demand for baristas to prepare and sell coffee drinks
c. the demand for textbooks by students
d. the demand for parking spaces on campus by faculty and staff
a. the demand for coffee by students to help them stay up late and study
b. a coffee shop's demand for baristas to prepare and sell coffee drinks
c. the demand for textbooks by students
d. the demand for parking spaces on campus by faculty and staff
answer
b. a coffee shop's demand for baristas to prepare and sell coffee drinks
question
Ceteris paribus, which of the following decreases the value of marginal product (VMP) for autoworkers?
a. a decrease in the price of automobiles
b. a decrease in the wage rate paid to autoworkers
c. a decrease in the price of capital operated by autoworkers
d. all of the above will decrease the VMP for autoworkers
a. a decrease in the price of automobiles
b. a decrease in the wage rate paid to autoworkers
c. a decrease in the price of capital operated by autoworkers
d. all of the above will decrease the VMP for autoworkers
answer
a. a decrease in the price of automobiles
question
Ceteris paribus, an increase in the demand for labor in a competitive labor market will lead to:
a. a decrease in the demand for labor by an individual firm in that market
b. a decrease in the value of marginal product for workers in that market
c. an increase in the supply of labor to that market
d. an increase in the wage paid to labor in that market
a. a decrease in the demand for labor by an individual firm in that market
b. a decrease in the value of marginal product for workers in that market
c. an increase in the supply of labor to that market
d. an increase in the wage paid to labor in that market
answer
d. an increase in the wage paid to labor in that market
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