Microeconomics Exam 1 Questions

Which of the following is true about sole proprietorships in the United States?
a. It is the most common form of business organization
b. It is responsible for the largest portion of business sales
c. It offers the owner the least personal liability of any form of business organization
d. There is no opportunity cost to operating the business

Which of the following taxes is based on the ability to pay principle?
a. tolls on a bridge
b. income taxes
c. gasoline taxes
d. user fees that collect the same amount from each person

Which of the following would not shift the demand curve for pork?
a. An increase in the price of beef, a substitute for pork
b. An increase in the price of pork
c. An increase in the incomes of pork consumers
d. A finding that consumption of beef increases the risk of heart attack

The difference between normal and inferior goods is that
a. normal goods are always better quality than inferior goods
b. an increase in price will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward
c. an inferior good is something that will not be demanded until quantities of the normal good have been exhausted
d. An increase in income will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward

Two goods are substitutes if
a. a decrease in the demand for one leads to a decrease in the supply of the other
b. an increase in the demand for one leads to a decrease in the supply of the other
c. an increase in the price of one leads to an increase in the demand for the other
d. a decrease in the price of one leads to an increase in the demand for the other

Assume corn and soybeans are alternatives which could be grown by most farmers, a rise in the price of corn will
a. increase the supply of corn
b. increase the supply of soybeans
c. decrease the supply of soybeans
d. decrease the supply of corn

An increase in the number of producers will
a. increase the market supply because the price will rise
b. decrease the market supply only when market demand increases too
c. increase the market supply because market supply is the sum of all individual supply curves
d. decrease the market supply because firms compete with each other and each firm will supply more

Suppose demand decreases and supply decreases. Which of the following must happen?
a. equilibrium price increases
b. equilibrium price decreases
c. equilibrium quantity increases
d. equilibrium quantity decreases

If the market for beef cattle was initially in equilibrium, an increase in the price of the feed grains used to fatten cattle would cause
a. the demand for beef cattle to increase, driving prices upward
b. the supply of beef cattle to decline, driving beef prices upward
c. both supply and demand to fall, always leaving price unchanged
d. the supply of beef to increase, driving the price and down and increasing demand

An increase in supply will cause
a. an increase in demand
b. a decrease in demand
c. an increase in quantity demand
d. an increase in equilibrium price

Which of the following represents the largest source of U.S. personal income?
a. personal interest
b. proprietor's income
b. rental income
d. wages and salaries

Which form of business organization is the most common in the United States?
a. sole proprietorship
b. partnership
c. corporation
d. nonprofit organization

If supply remains unchanged, an increase in demand will be followed by
a. higher equilibrium price and higher equilibrium quantity
b. higher equilibrium price and unchanged equilibrium quantity
c. lower equilibrium price and higher equilibrium quantity
d. unchanged equilibrium price and higher equilibrium quantity

If the price of cameras increases, ceteris paribus, there will be
a. a decrease in the demand for cameras
b. an increase in the demand for film
c. a decrease in the quantity demanded of cameras
d. an increase in the supply of cameras

There would be an increase in supply with all but which one of the following occurrences?
a. an improvement in the technology involved in producing the good
b. an increase in the price of the good
c. a decline in the price of resources used in producing the good
d. an increase in the number of firms producing the good

A decrease in supply means that
a. demand will increase by the same amount
b. there is a movement down and to the left along the supply curve
c. the supply curve will shift out and to the right
d. the quantity supplied at every price will decrease

Demand for pumpkins increases, but because of poor weather, supply decreases. What will happen to price and quantity?
a. price will rise; quantity will fall
b. price will fall; quantity will fall
c. price will rise; effect on quantity is indeterminate
d. price will fall; effect on quantity is indeterminate

A minimum wage that is set below equilibrium wage
a. will cause unemployment
b. will have no effect on employment
c. will cause a surplus of labor
d. will cause the equilibrium wage to decrease

If the equilibrium price of milk is $0.75 per gallon and a price ceiling of $0.60 per gallon is imposed, we would expect
a. nothing to happen, since the price ceiling is lower than the equilibrium price
b. increased production of milk, leading to increased consumption
c. a shortage to occur, since the price ceiling is lower than the equilibrium price
d. a surplus to occur, since there is an increased incentive for suppliers

Assume normally sloped demand and supply curves. A simultaneous increase in both demand and supply
a. must increase the equilibrium quantity but the effect on equilibrium price is indeterminate
b. must increase both equilibrium price and quantity
c. must reduce equilibrium quantity
d. must increase the equilibrium price but the effect on equilibrium quantity is indeterminate

Economics can best be defined as the
a. study of money and commerce
b. science of behavior and modification
c. study of how people use their scarce resources to satisfy their unlimited wants
d. study of how labor and product markets are related

A normative economic statement
a. is a hypothesis used to test economic theory
b. is a statement of fact
c. is a statement of opinion
d. indicates what will occur if certain assumptions are true

A rational decision maker will take only those actions for which the marginal benefit
a. is negative
b. is greater than the marginal cost
c. is at its maximum level
d. is less than the marginal cost

In economics, physical capital is defined as
a. natural resources, such as water, oil, and iron ore
b. the natural, unskilled abilities of people
c. human made aids to production
d. money and other financial assets

Scarcity is defined as
a. unlimited wants
b. a shortage when buyers cannot obtain the goods they want
c. a surplus when sellers cannot sell the goods they produce
d. none of the above

Opportunity cost is defined
a. only in terms of the money spent
b. as the value of all alternatives not chosen
c. as the value of the best alternative not chosen
d. as the difference between the benefits from your choice and costs of that choice

A point outside the production possibilities frontier
a. represents unemployment of resources
b. represents full employment of resources
c. would not represent an efficient combination of goods
d. cannot be reached with the available technology, resources, and rules of the game

A production possibilities frontier is bowed out from the origin because
a. resources are used efficiently
b. production of one good entails an opportunity cost
c. resources are not perfect substitutes
d. technology is improving

An increase in the amount of resources would
a. enable the economy to produce beyond the original production possibilities frontier
b. always eliminate scarcity; therefore, the production possibilities frontier would no longer exist
c. have no effect on the production possibilities frontier
d. change the production possibilities frontier to a line with a positive slope

In a pure market economy, the question of what goods should be produce is answered by
a. consumers
b. government regulation
c. producers
d. retailers

Which of the following would an economist classify as physical capital?
a. 100 shares of 100 IBM stock
b. a $50 bill
c. a credit card
d. a lawyer's computer

Economics can best be defined as the study of how
a. individuals decide to use scarce resources to satisfy unlimited wants
b. the government should deal with unemployment and inflation
c. to eliminate the problem of scarce resources
d. to run a business

The assumption that individuals act in their rational self interest implies
a. that people think only of themselves and disregard the well-being of others
b. that people undertake all those activities that yield benefits to themselves
c. that people only consider the costs of an activity to decide whether it is worthwhile the greater the cost of a charitable deed to a benefactor, the more likely he or she is to perform the deed
d. none of the above

Your friend notices that U.S. auto production and U.S. population growth statistically moved together over several decades. He reasons that one way to slow population growth is for the government to order auto makers to cut back on production. You gently point out to him that he
a. is correct only when the economy is in a recession
b. has mistakenly inferred causation from observed association
c. has ignored secondary effects
d. has committed the fallacy of composition

Behavioral assumptions
a. make economic models more complex than if these assumptions are removed
b. pertain only to consumers
c. hold all other things constant
d. describe how individuals are expected to behave

A decline in the amount of resources available to a nation would
a. cause a movement down along its production possibilities curve
b. result in its production possibilities curve shifting outwards
c. cause its production possibilities curve to become flatter
d. shift its production possibilities curve inward

The opportunity cost of your education includes
a. tuition
b. income you could have earned instead of going to college
c. money spent for textbooks and other college related items
d. all of the above

The presence of increasing opportunity costs suggests that the production possibilities frontier will
a. be a vertical line
b. be a straight line
c. be bowed out
d. shift to the left

In a pure capitalist economy, the question of how goods should be produced is answered by the
a. consumers
b. government regulation
c. producers
d. retailers

A production possibilities curve shows
a. that in order to acquire more of one good, none of the alternative good must be given up
b. that in order to acquire more of one good, some of the alternative good must be given up
c. that any amount of goods could be produced by society if people worked harder
d. all of the above