ECON V01B Principles of Microeconomics

question

Economists would most likely disagree with which of the following statements?

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Resources and inputs used in production are unlimited.

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Macroeconomics is the branch of economics studying:

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fluctuations in the overall level of business activity.

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Economists generally agree that people are most likely to change their behavior when they:

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are given incentives to do so.

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Economists would most likely agree with which one of the following statements?

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People usually exploit opportunities to make themselves better off.

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Most individuals choose careers in which they specialize in producing only one type of good or service, yet as consumers they have access to a wide variety of goods and services. What principle allows for this?

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trade

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In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of:

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specialization.

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An opportunity cost arises:

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whenever any choice is made.

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Exchanges taking place in a market system:

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are voluntary.

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The condition of scarcity means that:

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choices must be made in the allocation of productive resources.

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The purpose of an economic system is to:

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allocate scarce resources.

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The focal point of economic inquiry is:

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individual choice.

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An economic system is in __________ when no individual would be better off by making a different choice.

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equilibrium

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An economy is __________ if it has exploited all opportunities to benefit someone without making anyone else worse off.

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efficient

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Economic theory asserts that people will behave in ways that:

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will enhance their own overall well-being.

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An equilibrium outcome is one in which:

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no one has as incentive to change his or her decisions or behavior.

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Which one of the following statements is not true of a market economy?

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A central planning authority makes decisions about production and consumption.

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Market failure results when the:

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pursuit of individual self-interest leads to bad results for society as a whole.

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Adam Smith used the idea of the invisible hand to refer to the ability of market economies to:

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harness the power of individual self-interest for the good of society as a whole.

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After finishing high school, LeBron James decided to enter the NBA rather that going to college to begin his studies to become a doctor. This choice between the two careers can best be described by:

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opportunity cost.

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If market failures exist, the market can become efficient when:

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the government intervenes to improve society's welfare.

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The problem of determining what goods and services society should produce:

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exists because there are not enough resources to provide all of the goods and services that people want to purchase.

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In China, which of the following would not be a resource in the production of rice?

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money

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Margo spends $10,000 on one year's college tuition. The opportunity cost of spending one year in college for Margo is:

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whatever she would have purchased with the $10,000 and whatever she would have earned had she not been in college.

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If the state government allocates additional spending on education, the opportunity cost is:

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measured in terms of the best alternative uses for that money.

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The cost of leaving the skating championship before it ends is ________, while the cost of staying for the entire match is ________.

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the opportunity cost of not seeing the perfect "10" performance that happens; the opportunity cost of what else you could have done during that time

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The best measure of the opportunity cost of any choice is:

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whatever you have given up to make that choice, even if no monetary costs are involved.

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The cost of going to college is:

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tuition, the cost of books, and forgone income.

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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 $7, she could work at the college library at a wage of $6, or she could finish her economics homework assignment. If she chooses to complete her homework assignment, she has incurred an opportunity cost equal to:

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$7.

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For which of the following decisions would marginal analysis be most relevant?

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Should I eat another doughnut?

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Marginal analysis:

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refers to decisions about whether to do a bit more or a bit less of an activity, helps when making a "how much" choice, and involves trade-offs.

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Which of the following demonstrates how people respond to incentives to make themselves better off?

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More students major in economics when they hear that salaries for economists are rising.

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If the price of gasoline rises and stays high for an extended period, we expect people to:

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use more public transportation.

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Which book illustrates the advantages of specialization using an eighteenth-century pin factory?

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The Wealth of Nations, by Adam Smith

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Gains from trade arise because of:

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specialization in production.

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Economists use the term equilibrium to describe:

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when no individual would be better off taking a different action or when no individual has an incentive to change his or her behavior.

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If an economy has not achieved efficiency, there must exist ways to:

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make some people better off without making others worse off.

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The trade-off between equity and efficiency occurs because:

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allocating resources fairly may cause inefficiency.

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When individuals act in their own self-interest:

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society may be worse off in some cases.

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When markets fail:

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government intervention may help.

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A market failure occurs when:

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the individual's pursuit of self-interest makes the society worse off.

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Microeconomics deals with:

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individual units in the economy.

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The study of a single firm and how it determines prices would fall under:

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microeconomics.

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The models that economists construct:

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usually make simplifying assumptions.

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(Figure: Guns and Butter) Look at the figure Guns and Butter. On this figure, points A, B, E, and F:

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indicate combinations of guns and butter that society can produce using all of its factors efficiently.

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(Figure: Strawberries and Submarines) Look at the figure Strawberries and Submarines. Suppose the economy is operating at point G. This implies that:

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the economy has unemployment and/or inefficiently allocates resources.

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(Figure: Strawberries and Submarines) Look at the figure Strawberries and Submarines. As the economy moves from point A toward point D, it will find that the opportunity cost of each additional submarine:

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rises.

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(Figure: Consumer and Capital Goods) Look at the figure Consumer and Capital Goods. The movement from curve 1 to curve 2 indicates:

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economic growth.

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(Figure: Consumer and Capital Goods) Look at the figure Consumer and Capital Goods. Point Z:

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is unattainable, all other things unchanged.

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Technological improvements will:

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shift the production possibility frontier outward.

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(Figure: Production Possibility Frontier for Tealand) Look at the figure Production Possibility Frontier for Tealand. In the figure, Tealand is producing at point C on its production possibility frontier. What is the opportunity cost in Tealand of increasing the production of tea from 20 million cups to 30 million cups?

answer

5 million scones

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(Figure: Tom's Production Possibilities) Look at the figure Tom's Production Possibilities. In the figure, which point or points represent a combination of coconuts and fish not feasible for Tom to produce at this time?

answer

D only

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(Figure: Tom's Production Possibilities) Look at the figure Tom's Production Possibilities. In the figure, the opportunity cost for Tom to move from point B on the curve to point A is:

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10 fish

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An economy is said to have a comparative advantage in the production of a good if it can produce that good:

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at a lower opportunity cost than another economy.

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Free trade between countries:

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will allow for greater levels of consumption than without trade.

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In a single day, Sarah can produce 10 hamburgers while Abe can produce 5 hamburgers. We then know that:

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Sarah has an absolute advantage in making hamburgers.

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If the opportunity cost of manufacturing machinery is lower in the United States than in Britain and the opportunity cost of manufacturing sweaters is higher in the United States than in Britain, then the United States will:

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import sweaters from Britain and export machinery to Britain.

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If Brazil gives up 3 automobiles for each ton of coffee it produces, while Peru gives up 7 automobiles for each ton of coffee it produces, then:

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Brazil has a comparative advantage in coffee production and should specialize in coffee production.

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Coworkers Yvonne and Rodney are trying to finish cleaning up the store by washing dishes and sweeping the floors. To finish both tasks as quickly as possible, they know that each of them should focus on just one task, but they don't know who should do what. To decide which coworker should wash dishes, Yvonne and Rodney should determine which one:

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has the comparative advantage in dishwashing.

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Which of the following is not a factor of production?

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money

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The circular-flow diagram illustrates how households ________ goods and services and ________ factors of production.

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buy; sell

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Which of the following is a normative statement?

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The best way to encourage growth in the economy is through government spending.

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Which of the following is a positive economic statement?

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There has been an increase in the rate of inflation.

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If two variables are positively related, on a graph they will always be represented by:

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a line or curve that slopes upward.

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If two variables are negatively related:

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as one goes up in value, the other must go down in value.

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Which of the following examples illustrates the law of demand?

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Consumers buy more personal computers because prices have fallen.

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A consumer's willingness to pay reflects

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the maximum price at which he or she would buy the good or service.

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(Table: Willingness to Pay for Basketball Sneakers) If the price of basketball sneakers is $130, how many pairs will be purchased?

answer

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(Table: Consumer Surplus and Phantom Tickets) Look at the table Consumer Surplus and Phantom Tickets. If the box office price of a ticket to see Phantom of the Opera is $50 and there is no other market for tickets, the total consumer surplus for the five students is:

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$240.

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Ashley bought a new pair of jeans. When she walked out of the store, she thought, "I got such a great deal; I would have paid $40 more for these jeans!" This best represents the concept of:

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consumer surplus.

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Jeanette is willing to pay $100 for the first pair of shoes, $80 for the second pair, $50 for the third, and $30 for the fourth. If shoes cost $50, Jeanette will buy ________ pairs of shoes and her total consumer surplus equals ________.

answer

3; $80

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(Figure: Market Demand) Look at the figure Market Demand. The amount by which the total benefits to consumers exceed their total expenditure is called ________, and if the price is B, is depicted by the area ________.

answer

consumer surplus; BCD

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Along a given demand curve, an increase in the price of a good will cause consumer surplus to:

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decrease.

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(Figure: Consumer Surplus I) Look at the figure Consumer Surplus I. At a price of P1, consumer surplus equals the area:

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AFP1.

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(Figure: Consumer Surplus I) Look at the figure Consumer Surplus I. If the price falls from P2 to P1, consumer surplus increases by the area:

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P1P2BF.

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(Figure: Consumer Surplus III) Look at the figure Consumer Surplus III. In the figure, total consumer surplus is ________ when the price is $10.

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$124

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(Table: Producer Surplus and Phantom Tickets) Look at the table Producer Surplus and Phantom Tickets. If the price for Phantom tickets is $140 and there is no other market for tickets, total producer surplus for these five students is:

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$379.

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(Table: Producer Surplus) Look at the table Producer Surplus. If the price of a ticket to see The Nutty Nutcracker is $50, then Francisco's producer surplus is:

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$0.

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Along the supply curve for brownies, a decrease in the price of brownies will:

answer

decrease producer surplus.

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(Figure: Producer Surplus) Look at the figure Producer Surplus. When the price falls from $45 to $35, producer surplus ________ for a total producer surplus of ________.

answer

decreases by $40; $60

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(Figure: Producer Surplus) Look at the figure Producer Surplus. Total producer surplus is ________ when the price is $40.

answer

$80

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(Figure: Producer Surplus II) Look at the figure Producer Surplus II. At a price of P1, producer surplus equals the area:

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P1K0.

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(Figure: Producer Surplus II) Look at the figure Producer Surplus II. If the price falls from P2 to P1, producer surplus decreases by the area:

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P2P1KM.

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Total surplus is:

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the sum of consumer and producer surplus.

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If a frost destroys much of the grapefruit crop, total surplus:

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will decrease.

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Market failure refers to a situation in which:

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markets fail to reach an efficient outcome.

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All of the following are possible reasons for market failure, except:

answer

extremely high prices for medical care.

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Rapidly increasing health costs have been a major political concern since at least 1992. Suppose the government sets the maximum price for a normal doctor's visit at $20 to control rising health costs but the current market price is $40. What will happen?

answer

More people will try to visit the doctor, but there will be fewer doctors willing to see patients at that price.

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The government decides to impose a price ceiling on a good because it thinks the market-determined price is "too high." If the government imposes the price ceiling below the equilibrium price:

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consumers will respond to the lower price and wish to purchase more of the good than at the equilibrium price.

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The government imposes a price ceiling below the equilibrium price. The price ceiling will cause:

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a shortage of the good.

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Rent controls set a price ceiling below the equilibrium price and therefore:

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quantity demanded exceeds the quantity supplied.

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Suppose the Jamaican government sets coffee prices at $1 per pound, when the market price is $10. The government's actions will:

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cause coffee shortages even in a coffee-rich country.

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Suppose that the average cost of a doctor's visit is $100. If the government imposes a price ceiling of $50 on the cost of a doctor's visit, there will be:

answer

an excess demand for doctor's visits.

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A student organization is formed on your college campus to protest against the high rent prices for apartments near campus. This organization is planning a meeting with the dean and president of the college. Which of the following best describes the policy the student organization will fight for?

answer

a price ceiling

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(Figure: The Market for Economics Textbooks) Look at the figure The Market for Economics Textbooks. At a price ceiling of $40 in the market, the market outcome would be:

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a shortage of 30 textbooks.

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If the government sets out to help low-income people by establishing a maximum amount that can be paid for rent:

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a price ceiling has been set and a shortage of rental units may occur.

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If the government imposes rent control and it is binding:

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it may result in some landlords leaving the business because they cannot cover costs.

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Black markets may develop with price controls because:

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individuals can profit by illegal exchanges.

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(Figure: Rent Controls) Look at the figure Rent Controls. Suppose that rent controls are imposed in the market. If the government wanted a rent control ceiling to be effective immediately, what is one possible price to set?

answer

Rent1

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The likely result of a price floor is:

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a surplus of the good at a price above the market equilibrium price.

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(Figure: The Market for English Textbooks) Look at the figure The Market for English Textbooks. With a binding price floor at $90 in the market, the market outcome would be:

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a surplus of 45 textbooks.

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(Figure: Supply and Demand in Agriculture) Look at the figure Supply and Demand in Agriculture. If the equilibrium price for wheat is as shown in the graph, how could the government help increase farmers' income?

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A price floor could be set at P4, causing a surplus of Q3 - Q0.

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An agricultural market price support policy establishes a price floor, which:

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increases the price received by farmers.

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(Figure: Market for Hybrid Cars) Look at the figure The Market for Hybrid Cars. What area represents deadweight loss if there is a binding price floor at P1?

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c + e

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(Figure: Price Controls) Look at the graph Price Controls. An effective price floor would be at price ________ and a ________ would result of the difference between points________.

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b; surplus; f and e

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The system of taxicab medallions in New York City is an example of a

answer

quantity control.

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If New York City had no medallion system for taxicabs, the price of a taxicab ride would:

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decrease.

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The quota rent refers to:

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the difference between the demand price and the supply price at the quota limit.

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(Figure: The Market for Round-Trip Airline Flights) Look at the figure The Market for Round-Trip Airline Flights. The supply and demand graph represents the market for round-trip airline flights between Boston and New York. Suppose the mayor of New York decides to limit the number of flights to Q1 to reduce air pollution. What is the quota wedge?

answer

P1 - P3

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A price ceiling will create a persistent ________ and a price floor will create a persistent ________.

answer

shortage; surplus

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(Figure: The Shrimp Market) Look at the figure The Shrimp Market. If the government imposes a quota limiting sales of shrimp to 500 pounds, the quota rent per pound is:

answer

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The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to ________ and demand is described as ________.

answer

0.2; inelastic

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The ratio of the percentage change in the quantity demanded to the percentage change in price is the:

answer

price elasticity of demand.

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Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. Based on this data, the price elasticity of demand for gas is:

answer

0.2.

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The Cozy Chair Company believes it can sell 200 chairs at $200 per chair or 300 chairs at $150 per chair. Using the midpoint formula, what do they think is the price elasticity of demand?

answer

1.4.

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(Figure: The Demand for Shirts) Look again at the figure The Demand for Shirts. The price elasticity of demand for the segment BC, using the midpoint method, is:

answer

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(Figure: The Demand for Shirts) Look again at the figure The Demand for Shirts. The price elasticity of demand for the segment EF, using the midpoint method, is:

answer

0.33.

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The price elasticity of demand for skiing lessons in New Hampshire is over 1.00. This means that the demand is ________ in New Hampshire.

answer

price elastic

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You manage a popular nightclub and lately revenues have been disappointing. Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests that decreasing drink prices will increase revenues. You aren't sure who is right, but you do know that:

answer

your bouncer thinks the demand for drinks is inelastic, while your bartender thinks the demand for drinks is elastic.

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A perfectly price-inelastic demand curve is:

answer

vertical.

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A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, "How many of you will transfer to another university because of the increase in tuition?" One student out of about 300 said that he or she would transfer. Based on this information, the price elasticity of demand for education at this university is:

answer

highly inelastic.

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When a public transit system (such as a subway or bus line) raises its fares, it may experience an increase in total revenue. This suggests that demand is:

answer

price-inelastic.

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If a university decreases the price of tickets to football games to collect more revenue, it is assuming that the demand for tickets is:

answer

price-elastic.

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Yovanka has diabetes and she will pay any amount of money to buy the insulin she needs to stay alive. Yovanka's demand for insulin is:

answer

perfectly price-inelastic.

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If the price elasticity of demand is calculated to be 3/4, then demand is:

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price-inelastic.

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If total revenue goes up when the price falls, demand is said to:

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be price-elastic.

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If the quantity demanded of agricultural output is very unresponsive to a fall in price, the demand for agricultural output is:

answer

price-inelastic.

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On a linear demand curve, the price elasticity of demand at higher prices will be:

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price-elastic.

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Which of the following is not a factor in determining the price elasticity of demand?

answer

the slope of the supply curve

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The demand for strawberry ice cream tends to be relatively price-elastic because:

answer

for most people there are many close substitutes for strawberry ice cream

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The demand for textbooks is price inelastic. Which of the following would explain this?

answer

Textbooks are a necessity.

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If two goods are complements, their cross-price elasticity of demand should be:

answer

less than 0.

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If your income increases and your consumption of bagels increases, other things equal, bagels are considered:

answer

a normal good.

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If the income elasticity of demand for a good is negative, the good is said to be:

answer

an inferior good

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The long-run price elasticity of supply of crude oil is ________ the short-run price elasticity of supply of crude oil.

answer

greater than

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Utility is most closely related to:

answer

satisfaction.

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Suppose bad weather and pollution dramatically reduce the supply of crawfish in Louisiana next year. This would also lead to ________ in the marginal utility of crawfish consumption.

answer

an increase.

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The principle of diminishing marginal utility means that when Sarah eats pizza, her satisfaction from the second slice of pizza is probably:

answer

less than that from the first.

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Assume that the marginal utilities for the first three units of a good consumed are 200, 150, and 125, respectively. The total utility when two units are consumed is:

answer

350

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(Table: Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls. The marginal utility for the fifth roll is:

answer

question

(Table: Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls. Total utility is maximized at the ________ roll.

answer

fourth.

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(Figure: Budget Lines for Tea and Scones) Look at the figure Budget Lines for Tea and Scones. For months now, Agnes has had $20 per month to spend on tea and scones. The price of each cup of tea and each scone is $1. Which of the charts in the figure shows what will happen to her budget line if her income increases to $25?

answer

chart A.

question

(Figure: Budget Lines for Tea and Scones) Look at the figure Budget Lines for Tea and Scones. For months now, Agnes has had $20 per month to spend on tea and scones. The price of each cup of tea and each scone has been $1. Which of the charts in the figure shows what will happen to her budget line if the price of a cup of tea falls to $0.50?

answer

Chart D.

question

Tom is trying to decide how to allocate his $50 budget for music downloads and online movie streaming when the price of a music download is $1 and the price of a movie is $5.
Reference: Ref 10-6

(Scenario: Tom's Budget Constraint) Look at the scenario Tom's Budget Constraint. Which of the following combinations of music downloads and movies lies on Tom's budget line?

answer

50 music downloads and 0 movies

question

Reference: Ref 10-9

(Table: Optimal Choice of Milk and Honey) Hal's total utility from consuming milk and honey is given in the table. The price of milk is $2 per gallon, and the price of honey is $4 per jar. Hal's income is $16. Assuming that Hal spends all of his income on honey and milk, if he buys 3 jars of honey and 2 gallons of milk, his total utility will be:

answer

180.

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You go to an all-you-can-eat buffet. If you maximize utility, the marginal utility of the last bite that you eat will be:

answer

zero

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How much utility is gained by spending an additional dollar on coffee pots?

answer

MUPots/PPots

question

Reference: Ref 10-10

(Table: Marginal Utility per Dollar of M&Ms) Andy's total utility from eating snack-size bags of M&Ms is given in the table. The price of M&Ms is $2 per bag. Andy's marginal utility per dollar of the second bag of M&Ms is:

answer

question

At the optimal consumption bundle:

answer

the marginal utility per dollar spent is equal for all goods consumed.

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If a consumer purchases a combination of coffee and football tickets such that MUCoffee/PCoffee = 20 and MUFootball tickets/PFootball tickets = 10, to maximize utility, the consumer should buy:

answer

more coffee and fewer football tickets.

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If Paloma is consuming the utility-maximizing quantities of pizza and soda pop, then we can conclude that:

answer

the ratio of the marginal utility to price is the same for pizza and for soda pop.

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According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:

answer

purchase more of the now less expensive good.

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For the vast majority of goods, demand curves slope downward because:

answer

the substitution effect constitutes almost the entire effect of a price change, and this effect always causes quantity demanded and price to be inversely related.

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The income effect of a price change of e-Books is the effect on consumption changes due to a change in:

answer

purchasing power caused by a change in the price of the good.

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When Laurie asks Matt if he wants a large popcorn and small soda or a large soda and small popcorn, Matt says, "Oh, I'm indifferent." This means Matt:

answer

thinks both bundles give him the same utility.

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If two combinations of two goods yield the same level of satisfaction, then they are on:

answer

the same indifference curve.

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In terms of indifference curves, an increase in total utility is represented by a:

answer

shift to the right to a higher indifference curve.

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Reference: Ref 10-3

(Figure: Indifference Curve Map I) Look at the figure Indifference Curve Map I. Keisha can choose between combinations of e-Books and cell phone apps. The figure shows an indifference curve map that identifies several bundles of e-Books and cell phone apps. Given this information, it can be said that:

answer

bundle D is preferred to bundle C, which is preferred to bundles A and B.

question

In terms of indifference curves, the optimal consumption bundle is determined by the:

answer

tangency of a budget line and an indifference curve.

question

Reference: Ref 10-17

(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. Given the figure and the budget constraint, Ashyra would maximize her utility at point ________ with the consumption of ________ olive oil and ________ dish soap.

answer

I; N; M

question

Reference: Ref 11-1

(Table: Labor and Output) Look at the table Labor and Output. The marginal product of the fifth worker is:

answer

question

The idea of diminishing returns to an input in production suggests that if a local college adds more custodians, the marginal product of labor for the custodial staff will ________.

answer

decrease

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Reference: Ref 11-2

(Figure: The Marginal Product of Labor) Look at the figure The Marginal Product of Labor. The total product of labor for eight workers is:

answer

96 bushels

question

In economics, the short run is defined as:

answer

period in which some inputs are considered to be fixed in quantity.

question

You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a fixed input for the production function at your deli?

answer

the dining room where customers eat their meals

question

You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a decision most likely to be made in the long run at your deli?

answer

You renovate the second floor of your building to increase the size of the dining room.

question

Reference: Ref 11-6

(Table: Production of Cabinets) Look at the table The Production of Cabinets. The table shows how many cabinets your firm can make with different numbers of workers. After which worker does the firm begin to experience diminishing returns to labor?

answer

second

question

When a firm experiences diminishing marginal returns:

answer

marginal product is falling but is likely to be still positive.

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If Marie Marionettes is operating under conditions of diminishing marginal product, the marginal costs will be:

answer

increasing.

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The larger the output, the greater the quantity of output over which fixed cost is spread. Called the ________ effect, this leads to a ___________.

answer

spreading; lower average fixed cost.

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The average total cost curve has a U-shape because the ___________ effect is dominant at low levels of output, and the __________ effect is dominant at high levels of output.

answer

spreading; diminishing returns

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You run a business producing picture frames. This month your total cost of production is $10,000, your variable cost of production is $6,000, and you produce 3,000 picture frames. It follows that:

answer

average variable cost is $2.

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When marginal cost is above average variable cost, average variable cost must be:

answer

rising.

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If marginal cost is equal to average total cost, then:

answer

average total cost is at its minimum.

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(Figure: A Firm's Cost Curves) Look at the figure A Firm's Cost Curves. The curve labeled V represents the firm's ________ curve.

answer

marginal cost.

question

In the long run:

answer

the firm considers all factors as variable.

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The long-run average cost curve will be upward sloping when the firm is experiencing:

answer

diseconomies of scale.

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(Figure: Long-Run Average Cost) Look at the figure Long-Run Average Cost. This firm has ________ in the output region from 0 to A.

answer

economies of scale.

question

Reference: Ref 11-20

(Figure: Long-Run Average Cost) Look at the figure Long-Run Average Cost. This firm has ________ in the output region from B to C.

answer

decreasing returns to scale

question

It is common in large beer breweries for the long-run average total cost to decline as output increases. This indicates that many breweries operate under:

answer

economies of scale.

question

A manufacturing company that benefits from lower costs per unit as it grows is an example of a firm exhibiting:

answer

increasing returns to scale.

1 of 180

question

Economists would most likely disagree with which of the following statements?

answer

Resources and inputs used in production are unlimited.

question

Macroeconomics is the branch of economics studying:

answer

fluctuations in the overall level of business activity.

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Economists generally agree that people are most likely to change their behavior when they:

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are given incentives to do so.

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Economists would most likely agree with which one of the following statements?

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People usually exploit opportunities to make themselves better off.

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answer

trade

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In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of:

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specialization.

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An opportunity cost arises:

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whenever any choice is made.

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Exchanges taking place in a market system:

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are voluntary.

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The condition of scarcity means that:

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choices must be made in the allocation of productive resources.

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The purpose of an economic system is to:

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allocate scarce resources.

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The focal point of economic inquiry is:

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individual choice.

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An economic system is in __________ when no individual would be better off by making a different choice.

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equilibrium

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An economy is __________ if it has exploited all opportunities to benefit someone without making anyone else worse off.

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efficient

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Economic theory asserts that people will behave in ways that:

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will enhance their own overall well-being.

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An equilibrium outcome is one in which:

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no one has as incentive to change his or her decisions or behavior.

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Which one of the following statements is not true of a market economy?

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A central planning authority makes decisions about production and consumption.

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Market failure results when the:

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pursuit of individual self-interest leads to bad results for society as a whole.

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Adam Smith used the idea of the invisible hand to refer to the ability of market economies to:

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harness the power of individual self-interest for the good of society as a whole.

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After finishing high school, LeBron James decided to enter the NBA rather that going to college to begin his studies to become a doctor. This choice between the two careers can best be described by:

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opportunity cost.

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If market failures exist, the market can become efficient when:

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the government intervenes to improve society's welfare.

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The problem of determining what goods and services society should produce:

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exists because there are not enough resources to provide all of the goods and services that people want to purchase.

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In China, which of the following would not be a resource in the production of rice?

answer

money

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Margo spends $10,000 on one year's college tuition. The opportunity cost of spending one year in college for Margo is:

answer

whatever she would have purchased with the $10,000 and whatever she would have earned had she not been in college.

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If the state government allocates additional spending on education, the opportunity cost is:

answer

measured in terms of the best alternative uses for that money.

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The cost of leaving the skating championship before it ends is ________, while the cost of staying for the entire match is ________.

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the opportunity cost of not seeing the perfect "10" performance that happens; the opportunity cost of what else you could have done during that time

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The best measure of the opportunity cost of any choice is:

answer

whatever you have given up to make that choice, even if no monetary costs are involved.

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The cost of going to college is:

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tuition, the cost of books, and forgone income.

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answer

$7.

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For which of the following decisions would marginal analysis be most relevant?

answer

Should I eat another doughnut?

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Marginal analysis:

answer

refers to decisions about whether to do a bit more or a bit less of an activity, helps when making a "how much" choice, and involves trade-offs.

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Which of the following demonstrates how people respond to incentives to make themselves better off?

answer

More students major in economics when they hear that salaries for economists are rising.

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If the price of gasoline rises and stays high for an extended period, we expect people to:

answer

use more public transportation.

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Which book illustrates the advantages of specialization using an eighteenth-century pin factory?

answer

The Wealth of Nations, by Adam Smith

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Gains from trade arise because of:

answer

specialization in production.

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Economists use the term equilibrium to describe:

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when no individual would be better off taking a different action or when no individual has an incentive to change his or her behavior.

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If an economy has not achieved efficiency, there must exist ways to:

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make some people better off without making others worse off.

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The trade-off between equity and efficiency occurs because:

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allocating resources fairly may cause inefficiency.

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When individuals act in their own self-interest:

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society may be worse off in some cases.

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When markets fail:

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government intervention may help.

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A market failure occurs when:

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the individual's pursuit of self-interest makes the society worse off.

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Microeconomics deals with:

answer

individual units in the economy.

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The study of a single firm and how it determines prices would fall under:

answer

microeconomics.

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The models that economists construct:

answer

usually make simplifying assumptions.

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(Figure: Guns and Butter) Look at the figure Guns and Butter. On this figure, points A, B, E, and F:

answer

indicate combinations of guns and butter that society can produce using all of its factors efficiently.

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(Figure: Strawberries and Submarines) Look at the figure Strawberries and Submarines. Suppose the economy is operating at point G. This implies that:

answer

the economy has unemployment and/or inefficiently allocates resources.

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answer

rises.

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(Figure: Consumer and Capital Goods) Look at the figure Consumer and Capital Goods. The movement from curve 1 to curve 2 indicates:

answer

economic growth.

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(Figure: Consumer and Capital Goods) Look at the figure Consumer and Capital Goods. Point Z:

answer

is unattainable, all other things unchanged.

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Technological improvements will:

answer

shift the production possibility frontier outward.

question

answer

5 million scones

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answer

D only

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(Figure: Tom's Production Possibilities) Look at the figure Tom's Production Possibilities. In the figure, the opportunity cost for Tom to move from point B on the curve to point A is:

answer

10 fish

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An economy is said to have a comparative advantage in the production of a good if it can produce that good:

answer

at a lower opportunity cost than another economy.

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Free trade between countries:

answer

will allow for greater levels of consumption than without trade.

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In a single day, Sarah can produce 10 hamburgers while Abe can produce 5 hamburgers. We then know that:

answer

Sarah has an absolute advantage in making hamburgers.

question

answer

import sweaters from Britain and export machinery to Britain.

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If Brazil gives up 3 automobiles for each ton of coffee it produces, while Peru gives up 7 automobiles for each ton of coffee it produces, then:

answer

Brazil has a comparative advantage in coffee production and should specialize in coffee production.

question

answer

has the comparative advantage in dishwashing.

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Which of the following is not a factor of production?

answer

money

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The circular-flow diagram illustrates how households ________ goods and services and ________ factors of production.

answer

buy; sell

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Which of the following is a normative statement?

answer

The best way to encourage growth in the economy is through government spending.

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Which of the following is a positive economic statement?

answer

There has been an increase in the rate of inflation.

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If two variables are positively related, on a graph they will always be represented by:

answer

a line or curve that slopes upward.

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If two variables are negatively related:

answer

as one goes up in value, the other must go down in value.

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Which of the following examples illustrates the law of demand?

answer

Consumers buy more personal computers because prices have fallen.

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A consumer's willingness to pay reflects

answer

the maximum price at which he or she would buy the good or service.

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(Table: Willingness to Pay for Basketball Sneakers) If the price of basketball sneakers is $130, how many pairs will be purchased?

answer

question

answer

$240.

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Ashley bought a new pair of jeans. When she walked out of the store, she thought, "I got such a great deal; I would have paid $40 more for these jeans!" This best represents the concept of:

answer

consumer surplus.

question

answer

3; $80

question

answer

consumer surplus; BCD

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Along a given demand curve, an increase in the price of a good will cause consumer surplus to:

answer

decrease.

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(Figure: Consumer Surplus I) Look at the figure Consumer Surplus I. At a price of P1, consumer surplus equals the area:

answer

AFP1.

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(Figure: Consumer Surplus I) Look at the figure Consumer Surplus I. If the price falls from P2 to P1, consumer surplus increases by the area:

answer

P1P2BF.

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(Figure: Consumer Surplus III) Look at the figure Consumer Surplus III. In the figure, total consumer surplus is ________ when the price is $10.

answer

$124

question

answer

$379.

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(Table: Producer Surplus) Look at the table Producer Surplus. If the price of a ticket to see The Nutty Nutcracker is $50, then Francisco's producer surplus is:

answer

$0.

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Along the supply curve for brownies, a decrease in the price of brownies will:

answer

decrease producer surplus.

question

(Figure: Producer Surplus) Look at the figure Producer Surplus. When the price falls from $45 to $35, producer surplus ________ for a total producer surplus of ________.

answer

decreases by $40; $60

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(Figure: Producer Surplus) Look at the figure Producer Surplus. Total producer surplus is ________ when the price is $40.

answer

$80

question

(Figure: Producer Surplus II) Look at the figure Producer Surplus II. At a price of P1, producer surplus equals the area:

answer

P1K0.

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(Figure: Producer Surplus II) Look at the figure Producer Surplus II. If the price falls from P2 to P1, producer surplus decreases by the area:

answer

P2P1KM.

question

Total surplus is:

answer

the sum of consumer and producer surplus.

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If a frost destroys much of the grapefruit crop, total surplus:

answer

will decrease.

question

Market failure refers to a situation in which:

answer

markets fail to reach an efficient outcome.

question

All of the following are possible reasons for market failure, except:

answer

extremely high prices for medical care.

question

answer

More people will try to visit the doctor, but there will be fewer doctors willing to see patients at that price.

question

The government decides to impose a price ceiling on a good because it thinks the market-determined price is "too high." If the government imposes the price ceiling below the equilibrium price:

answer

consumers will respond to the lower price and wish to purchase more of the good than at the equilibrium price.

question

The government imposes a price ceiling below the equilibrium price. The price ceiling will cause:

answer

a shortage of the good.

question

Rent controls set a price ceiling below the equilibrium price and therefore:

answer

quantity demanded exceeds the quantity supplied.

question

Suppose the Jamaican government sets coffee prices at $1 per pound, when the market price is $10. The government's actions will:

answer

cause coffee shortages even in a coffee-rich country.

question

Suppose that the average cost of a doctor's visit is $100. If the government imposes a price ceiling of $50 on the cost of a doctor's visit, there will be:

answer

an excess demand for doctor's visits.

question

answer

a price ceiling

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(Figure: The Market for Economics Textbooks) Look at the figure The Market for Economics Textbooks. At a price ceiling of $40 in the market, the market outcome would be:

answer

a shortage of 30 textbooks.

question

If the government sets out to help low-income people by establishing a maximum amount that can be paid for rent:

answer

a price ceiling has been set and a shortage of rental units may occur.

question

If the government imposes rent control and it is binding:

answer

it may result in some landlords leaving the business because they cannot cover costs.

question

Black markets may develop with price controls because:

answer

individuals can profit by illegal exchanges.

question

answer

Rent1

question

The likely result of a price floor is:

answer

a surplus of the good at a price above the market equilibrium price.

question

(Figure: The Market for English Textbooks) Look at the figure The Market for English Textbooks. With a binding price floor at $90 in the market, the market outcome would be:

answer

a surplus of 45 textbooks.

question

answer

A price floor could be set at P4, causing a surplus of Q3 - Q0.

question

An agricultural market price support policy establishes a price floor, which:

answer

increases the price received by farmers.

question

(Figure: Market for Hybrid Cars) Look at the figure The Market for Hybrid Cars. What area represents deadweight loss if there is a binding price floor at P1?

answer

c + e

question

(Figure: Price Controls) Look at the graph Price Controls. An effective price floor would be at price ________ and a ________ would result of the difference between points________.

answer

b; surplus; f and e

question

The system of taxicab medallions in New York City is an example of a

answer

quantity control.

question

If New York City had no medallion system for taxicabs, the price of a taxicab ride would:

answer

decrease.

question

The quota rent refers to:

answer

the difference between the demand price and the supply price at the quota limit.

question

answer

P1 - P3

question

A price ceiling will create a persistent ________ and a price floor will create a persistent ________.

answer

shortage; surplus

question

(Figure: The Shrimp Market) Look at the figure The Shrimp Market. If the government imposes a quota limiting sales of shrimp to 500 pounds, the quota rent per pound is:

answer

question

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to ________ and demand is described as ________.

answer

0.2; inelastic

question

The ratio of the percentage change in the quantity demanded to the percentage change in price is the:

answer

price elasticity of demand.

question

Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. Based on this data, the price elasticity of demand for gas is:

answer

0.2.

question

The Cozy Chair Company believes it can sell 200 chairs at $200 per chair or 300 chairs at $150 per chair. Using the midpoint formula, what do they think is the price elasticity of demand?

answer

1.4.

question

(Figure: The Demand for Shirts) Look again at the figure The Demand for Shirts. The price elasticity of demand for the segment BC, using the midpoint method, is:

answer

question

(Figure: The Demand for Shirts) Look again at the figure The Demand for Shirts. The price elasticity of demand for the segment EF, using the midpoint method, is:

answer

0.33.

question

The price elasticity of demand for skiing lessons in New Hampshire is over 1.00. This means that the demand is ________ in New Hampshire.

answer

price elastic

question

answer

your bouncer thinks the demand for drinks is inelastic, while your bartender thinks the demand for drinks is elastic.

question

A perfectly price-inelastic demand curve is:

answer

vertical.

question

answer

highly inelastic.

question

When a public transit system (such as a subway or bus line) raises its fares, it may experience an increase in total revenue. This suggests that demand is:

answer

price-inelastic.

question

If a university decreases the price of tickets to football games to collect more revenue, it is assuming that the demand for tickets is:

answer

price-elastic.

question

Yovanka has diabetes and she will pay any amount of money to buy the insulin she needs to stay alive. Yovanka's demand for insulin is:

answer

perfectly price-inelastic.

question

If the price elasticity of demand is calculated to be 3/4, then demand is:

answer

price-inelastic.

question

If total revenue goes up when the price falls, demand is said to:

answer

be price-elastic.

question

If the quantity demanded of agricultural output is very unresponsive to a fall in price, the demand for agricultural output is:

answer

price-inelastic.

question

On a linear demand curve, the price elasticity of demand at higher prices will be:

answer

price-elastic.

question

Which of the following is not a factor in determining the price elasticity of demand?

answer

the slope of the supply curve

question

The demand for strawberry ice cream tends to be relatively price-elastic because:

answer

for most people there are many close substitutes for strawberry ice cream

question

The demand for textbooks is price inelastic. Which of the following would explain this?

answer

Textbooks are a necessity.

question

If two goods are complements, their cross-price elasticity of demand should be:

answer

less than 0.

question

If your income increases and your consumption of bagels increases, other things equal, bagels are considered:

answer

a normal good.

question

If the income elasticity of demand for a good is negative, the good is said to be:

answer

an inferior good

question

The long-run price elasticity of supply of crude oil is ________ the short-run price elasticity of supply of crude oil.

answer

greater than

question

Utility is most closely related to:

answer

satisfaction.

question

Suppose bad weather and pollution dramatically reduce the supply of crawfish in Louisiana next year. This would also lead to ________ in the marginal utility of crawfish consumption.

answer

an increase.

question

The principle of diminishing marginal utility means that when Sarah eats pizza, her satisfaction from the second slice of pizza is probably:

answer

less than that from the first.

question

Assume that the marginal utilities for the first three units of a good consumed are 200, 150, and 125, respectively. The total utility when two units are consumed is:

answer

350

question

(Table: Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls. The marginal utility for the fifth roll is:

answer

question

(Table: Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls. Total utility is maximized at the ________ roll.

answer

fourth.

question

answer

chart A.

question

(Figure: Budget Lines for Tea and Scones) Look at the figure Budget Lines for Tea and Scones. For months now, Agnes has had $20 per month to spend on tea and scones. The price of each cup of tea and each scone has been $1. Which of the charts in the figure shows what will happen to her budget line if the price of a cup of tea falls to $0.50?

answer

Chart D.

question

answer

50 music downloads and 0 movies

question

answer

180.

question

You go to an all-you-can-eat buffet. If you maximize utility, the marginal utility of the last bite that you eat will be:

answer

zero

question

How much utility is gained by spending an additional dollar on coffee pots?

answer

MUPots/PPots

question

answer

question

At the optimal consumption bundle:

answer

the marginal utility per dollar spent is equal for all goods consumed.

question

If a consumer purchases a combination of coffee and football tickets such that MUCoffee/PCoffee = 20 and MUFootball tickets/PFootball tickets = 10, to maximize utility, the consumer should buy:

answer

more coffee and fewer football tickets.

question

If Paloma is consuming the utility-maximizing quantities of pizza and soda pop, then we can conclude that:

answer

the ratio of the marginal utility to price is the same for pizza and for soda pop.

question

According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:

answer

purchase more of the now less expensive good.

question

For the vast majority of goods, demand curves slope downward because:

answer

the substitution effect constitutes almost the entire effect of a price change, and this effect always causes quantity demanded and price to be inversely related.

question

The income effect of a price change of e-Books is the effect on consumption changes due to a change in:

answer

purchasing power caused by a change in the price of the good.

question

When Laurie asks Matt if he wants a large popcorn and small soda or a large soda and small popcorn, Matt says, "Oh, I'm indifferent." This means Matt:

answer

thinks both bundles give him the same utility.

question

If two combinations of two goods yield the same level of satisfaction, then they are on:

answer

the same indifference curve.

question

In terms of indifference curves, an increase in total utility is represented by a:

answer

shift to the right to a higher indifference curve.

question

answer

bundle D is preferred to bundle C, which is preferred to bundles A and B.

question

In terms of indifference curves, the optimal consumption bundle is determined by the:

answer

tangency of a budget line and an indifference curve.

question

answer

I; N; M

question

Reference: Ref 11-1

(Table: Labor and Output) Look at the table Labor and Output. The marginal product of the fifth worker is:

answer

question

The idea of diminishing returns to an input in production suggests that if a local college adds more custodians, the marginal product of labor for the custodial staff will ________.

answer

decrease

question

Reference: Ref 11-2

(Figure: The Marginal Product of Labor) Look at the figure The Marginal Product of Labor. The total product of labor for eight workers is:

answer

96 bushels

question

In economics, the short run is defined as:

answer

period in which some inputs are considered to be fixed in quantity.

question

You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a fixed input for the production function at your deli?

answer

the dining room where customers eat their meals

question

You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a decision most likely to be made in the long run at your deli?

answer

You renovate the second floor of your building to increase the size of the dining room.

question

answer

second

question

When a firm experiences diminishing marginal returns:

answer

marginal product is falling but is likely to be still positive.

question

If Marie Marionettes is operating under conditions of diminishing marginal product, the marginal costs will be:

answer

increasing.

question

The larger the output, the greater the quantity of output over which fixed cost is spread. Called the ________ effect, this leads to a ___________.

answer

spreading; lower average fixed cost.

question

The average total cost curve has a U-shape because the ___________ effect is dominant at low levels of output, and the __________ effect is dominant at high levels of output.

answer

spreading; diminishing returns

question

You run a business producing picture frames. This month your total cost of production is $10,000, your variable cost of production is $6,000, and you produce 3,000 picture frames. It follows that:

answer

average variable cost is $2.

question

When marginal cost is above average variable cost, average variable cost must be:

answer

rising.

question

If marginal cost is equal to average total cost, then:

answer

average total cost is at its minimum.

question

(Figure: A Firm's Cost Curves) Look at the figure A Firm's Cost Curves. The curve labeled V represents the firm's ________ curve.

answer

marginal cost.

question

In the long run:

answer

the firm considers all factors as variable.

question

The long-run average cost curve will be upward sloping when the firm is experiencing:

answer

diseconomies of scale.

question

(Figure: Long-Run Average Cost) Look at the figure Long-Run Average Cost. This firm has ________ in the output region from 0 to A.

answer

economies of scale.

question

Reference: Ref 11-20

(Figure: Long-Run Average Cost) Look at the figure Long-Run Average Cost. This firm has ________ in the output region from B to C.

answer

decreasing returns to scale

question

It is common in large beer breweries for the long-run average total cost to decline as output increases. This indicates that many breweries operate under:

answer

economies of scale.

question

A manufacturing company that benefits from lower costs per unit as it grows is an example of a firm exhibiting:

answer

increasing returns to scale.

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