microeconomics

Resources are
a. scarce for households but plentiful for economies.
b. plentiful for households but scarce for economies.
c. scarce for households and scarce for economies.
d. plentiful for households and plentiful for economies.

Economists use the word equality to describe a situation in which
a. each member of society has the same income.
b. each member of society has access to abundant quantities of goods and services,
regardless of his or her income.
c. society is getting the maximum benefits from its scarce resources.
d. society's resources are used efficiently.

When computing the opportunity cost of attending a concert you should include
a. the price you pay for the ticket and the value of your time.
b. the price you pay for the ticket, but not the value of your time.
c. the value of your time, but not the price you pay for the ticket.
d. neither the price of the ticket nor the value of your time.

Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight.
If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the
empty rooms only if a customer is willing to pay
a. more than $40, as the average benefit will exceed the marginal cost.
b. more than $40, as the marginal benefit will exceed the marginal cost.
c. more than $80, as the average benefit will exceed the marginal cost.
d. more than $80, as the marginal benefit will exceed the marginal cost.

Which of the following principles is not one of the four principles of individual decisionmaking?
a. People face tradeoffs.
b. Trade can make everyone better off.
c. People respond to incentives.
d. Rational people think at the margin.

According to a recent study of Chilean bus drivers, drivers who are paid by the number of passengers they
transport have higher productivity than drivers who are paid by the hour. This result is an example of which
principle of economics?
a. People face tradeoffs.
b. The cost of something is what you give up to get it.
c. Rational people think at the margin.
d. People respond to incentives.

Penny is piano teacher and Diego is a tile layer. If Penny teaches Diego's daughter to play the piano in
exchange for Diego tiling her kitchen floor,
a. only Penny is made better off by trade.
b. only Diego is made better off by trade.
c. both Penny and Diego are made better off by trade.
d. neither Penny nor Diego are made better off by trade.

Trade
a. allows specialization, which increases costs.
b. allows specialization, which reduces costs.
c. reduces specialization, which increases costs.
d. reduces specialization, which reduces costs.

Market economies are distinguished from other types of economies largely on the basis of
a. the political affiliations of government officials.
b. the process by which government officials are elected or appointed.
c. the ways in which scarce resources are allocated.
d. the number of retail outlets available to consumers.

Communist countries worked under the premise that
a. markets were the best way to organize economic activity.
b. central planners were in the best position to determine the allocation of scarce resources
in the economy.
c. households and firms, guided by an "invisible hand," could achieve the most efficient
allocation of scarce resources.
d. allowing the market forces of supply and demand to operate with no government
intervention would achieve the most efficient allocation of scarce resources.

The decisions of firms and households are guided by prices and self-interest in a
a. command economy.
b. centrally-planned economy.
c. market economy.
d. All of the above are correct

The government enforces property rights by
a. requiring property owners to pay property taxes.
b. providing police and courts.
c. forcing people to own property.
d. providing public parks and recreation facilities.

The term used to describe a situation in which markets do not allocate resources efficiently is
a. economic meltdown.
b. market failure.
c. equilibrium.
d. the effect of the invisible hand.

The price of diamonds is high, in part because the majority of the world's diamonds are controlled by a
single firm. This is an example of
a. a market failure caused by an externality.
b. a market failure caused by market power.
c. a market failure caused by equality.
d. There is no market failure in this case.

The income of a typical worker in a country is most closely linked to which of the following?
a. population
b. productivity
c. market power
d. government policies

Inflation is defined as
a. a period of rising productivity in the economy.
b. a period of rising income in the economy.
c. an increase in the overall level of output in the economy.
d. an increase in the overall level of prices in the economy.

In the short run, an increase in the money supply is likely to lead to
a. lower unemployment and lower inflation.
b. lower unemployment and higher inflation.
c. higher unemployment and lower inflation.
d. higher unemployment and higher inflation.

One thing economists do to help them understand how the real world works is
a. make assumptions.
b. ignore the past.
c. try to capture every aspect of the real world in the models they construct.
d. All of the above are correct.

Which of the following statements about models is correct?
a. The more details a model includes, the better the model.
b. Models assume away irrelevant details.
c. Models cannot be used to explain how the economy functions.
d. Models cannot be used to make predictions.

Another term for factors of production is
a. inputs.
b. output.
c. goods.
d. services.

In the circular-flow diagram, in the markets for
a. goods and services, households and firms are both sellers.
b. goods and services, households are sellers and firms are buyers.
c. the factors of production, households are sellers and firms are buyers.
d. the factors of production, households and firms are both buyers.

Refer to Figure 2-2. If households are sellers in the markets represented by Box D of this circular-flow
diagram, then
a. Box D must represent the markets for factors of production.
b. Box C must represent the markets for goods and services.
c. firms are buyers in the markets represented by Box D.
d. All of the above are correct.

An economy's production of two goods is efficient if
a. all members of society consume equal portions of the goods.
b. the goods are produced using only some of society's available resources.
c. it is impossible to produce more of one good without producing less of the other.
d. the opportunity cost of producing more of one good is zero.

Which of the following concepts cannot be illustrated by the production possibilities frontier?
a. efficiency
b. opportunity cost
c. equality
d. trade-offs

Microeconomics is the study of
a. how money affects the economy.
b. how individual households and firms make decisions.
c. how government affects the economy.
d. how the economy as a whole works.

When economists are trying to help improve the world, they are
a. in the realm of positive economics rather than normative economics.
b. in the realm of macroeconomics rather than microeconomics.
c. scientists.
d. policy advisers

When economists make
a. positive statements, they are speaking not as policy advisers but as scientists.
b. positive statements, they are speaking not as scientists but as forecasters.
c. normative statements, they are speaking not as policy advisers but as scientists.
d. normative statements, they are speaking not as policy advisers but as model-builders.

Policymaking in a representative democracy
a. is straightforward and does not involve any disagreement.
b. benefits from the input of economists, even if their advice is not always followed.
c. is conducted without the input of economists.
d. is always based exclusively on the results of economic analysis.

Policies such as rent control and trade barriers persist
a. because economists are about evenly divided as to the merits of those policies.
b. because almost all economists agree that those policies have no discernible economic
effects.
c. because almost all economists agree that those policies are desirable.
d. despite the fact that almost all economists agree that those policies are undesirable.

People who provide you with goods and services
a. are acting out of generosity.
b. do so because they get something in return.
c. have chosen not to become interdependent.
d. are required to do so by the government.

A certain cowboy spends 10 hours per day mending fences and herding cattle. For the cowboy, a graph that
shows his various possible mixes of output (fences mended per day and cattle herded per day) is called his
a. line of tastes.
b. trade-off curve.
c. production possibilities frontier.
d. consumption possibilities frontier.

Suppose there are only two people in the world. Each person's production possibilities frontier also
represents his or her consumption possibilities when
a. neither person faces trade-offs.
b. the frontiers are straight lines.
c. the frontiers are bowed out.
d. they choose not to trade with one another.

The gains from trade are
a. evident in economic models, but seldom observed in the real world.
b. evident in the real world, but impossible to capture in economic models.
c. a result of more efficient resource allocation than would be observed in the absence of
trade.
d. based on the principle of absolute advantage.

Which of the following statements is correct?
a. Buyers determine supply, and sellers determine demand.
b. Buyers determine demand, and sellers determine supply.
c. Buyers determine both demand and supply.
d. Sellers determine both demand and supply.

A decrease in quantity demanded
a. results in a movement downward and to the right along a demand curve.
b. results in a movement upward and to the left along a demand curve.
c. shifts the demand curve to the left.
d. shifts the demand curve to the right.

A decrease in the price of a good would
a. increase the supply of the good.
b. increase the quantity demanded of the good.
c. give producers an incentive to produce more to keep profits from falling.
d. shift the supply curve for the good to the left.

Which of these statements best represents the law of demand?
a. When buyers' tastes for a good increase, they purchase more of the good.
b. When income levels increase, buyers purchase more of most goods.
c. When the price of a good decreases, buyers purchase more of the good.
d. When buyers' demands for a good increase, the price of the good increases

To obtain the market demand curve for a product, sum the individual demand curves
a. vertically.
b. diagonally.
c. horizontally.
d. and then average them.

An increase in demand is represented by a
a. movement downward and to the right along a demand curve.
b. movement upward and to the left along a demand curve.
c. rightward shift of a demand curve.
d. leftward shift of a demand curve.

When the price of tacos changes, the demand curve for tacos
a. shifts because the price of tacos is measured on the vertical axis of the graph.
b. shifts because the quantity demanded of tacos is measured on the horizontal axis of the
graph.
c. does not shift because the price of tacos is measured on the vertical axis of the graph.
d. does not shift because the price of tacos is measured on the horizontal axis of the graph.

Which of the following is not a determinant of the demand for a particular good?
a. the prices of related goods
b. income
c. tastes
d. the prices of the inputs used to produce the good

Which of the following would shift the demand curve for gasoline to the right?
a. a decrease in the price of gasoline
b. an increase in consumer income, assuming gasoline is a normal good
c. an increase in the price of cars, a complement for gasoline
d. a decrease in the expected future price of gasoline

If a good is inferior, then an increase in income will result in
a. an increase in the demand for the good.
b. a decrease in the demand for the good.
c. a movement down and to the right along the demand curve for the good.
d. a movement up and to the left along the demand curve for the good.

Two goods are substitutes when a decrease in the price of one good
a. decreases the demand for the other good.
b. decreases the quantity demanded of the other good.
c. increases the demand for the other good.
d. increases the quantity demanded of the other good

Two goods are complements when a decrease in the price of one good
a. decreases the quantity demanded of the other good.
b. decreases the demand for the other good.
c. increases the quantity demanded of the other good.
d. increases the demand for the other good.

The quantity supplied of a good is the amount that
a. buyers are willing and able to purchase.
b. sellers are able to produce.
c. buyers and sellers agree will be brought to market.
d. sellers are willing and able to sell.

A supply schedule is a table that shows the relationship between
a. price and quantity supplied.
b. input costs and quantity supplied.
c. quantity demanded and quantity supplied.
d. profit and quantity supplied.

Once the supply curve for a product or service is drawn, it
a. remains stable over time.
b. can shift either rightward or leftward.
c. is possible to move along the curve, but the curve will not shift.
d. tends to become steeper over time.

A market supply curve shows
a. the total quantity supplied at all possible prices.
b. the average quantity supplied by producers at all possible prices.
c. how quantity supplied changes when consumer income changes.
d. suppliers' responses, in terms of the amounts they will supply, to the demands of buyers.

Suppose there are five suppliers of ice cream in McAllen. If we add the respective quantities that each firm
would produce at each of the five ice cream parlors when the price of ice cream is $2 per scoop, $2.50 per
scoop, and $3 per scoop, and so forth, we have found the
a. market demand curve.
b. market supply curve.
c. equilibrium curve.
d. surplus or shortage depending on market conditions.

Which of the following is a determinant of the market supply curve but not a determinant of an individual
seller's supply?
a. production technology
b. expectations
c. input prices
d. the number of sellers

A decrease in the number of sellers in the market causes
a. the supply curve to shift to the left.
b. the supply curve to shift to the right.
c. a movement up and to the right along a stationary supply curve.
d. a movement downward and to the left along a stationary supply curve

Buyers are able to buy all they want to buy and sellers are able to sell all they want to sell at
a. prices at and above the equilibrium price.
b. prices at and below the equilibrium price.
c. prices above and below the equilibrium price, but not at the equilibrium price.
d. the equilibrium price but not above or below the equilibrium price.

Equilibrium quantity must decrease when demand
a. increases and supply does not change, when demand does not change and supply
decreases, and when both demand and supply decrease.
b. increases and supply does not change, when demand does not change and supply
increases, and when both demand and supply decrease.
c. decreases and supply does not change, when demand does not change and supply
increases, and when both demand and supply decrease.
d. decreases and supply does not change, when demand does not change and supply
decreases, and when both demand and supply decrease.

Which of the following events must cause equilibrium price to rise?
a. demand increases and supply decreases
b. demand and supply both decrease
c. demand decreases and supply increases
d. demand and supply both increase

When supply and demand both increase, equilibrium
a. price will increase.
b. price will decrease.
c. quantity may increase, decrease, or remain unchanged.
d. price may increase, decrease, or remain unchanged.

When the price of a good is higher than the equilibrium price,
a. a shortage will exist.
b. buyers desire to purchase more than is produced.
c. sellers desire to produce and sell more than buyers wish to purchase.
d. quantity demanded exceeds quantity supplied.

When the price of a good is lower than the equilibrium price,
a. a surplus will exist.
b. buyers desire to purchase more than is produced.
c. sellers desire to produce and sell more than buyers wish to purchase.
d. quantity supplied exceeds quantity demanded.

What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that
reduced the amount of labor necessary to produce steamed milk, which is used to make lattés, and scientists
discovered that coffee prevents heart attacks?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the effect on equilibrium quantity would be
ambiguous.
d. The equilibrium quantity would increase, and the effect on equilibrium price would be
ambiguous.

There is no shortage of scarce resources in a market economy because
a. the government makes shortages illegal.
b. resources are abundant in market economies.
c. prices adjust to eliminate shortages.
d. quantity supplied is always greater than quantity demanded in market economies

The price elasticity of demand measures how much
a. quantity demanded responds to a change in price.
b. quantity demanded responds to a change in income.
c. price responds to a change in demand.
d. demand responds to a change in supply.

Economists compute the price elasticity of demand as the
a. percentage change in price divided by the percentage change in quantity demanded.
b. change in quantity demanded divided by the change in the price.
c. percentage change in quantity demanded divided by the percentage change in price.
d. percentage change in quantity demanded divided by the percentage change in income.

If the price elasticity of demand for a good is 1.5, then a 3 percent decrease in price results in a
a. 0.5 percent increase in the quantity demanded.
b. 2 percent increase in the quantity demanded.
c. 4.5 percent increase in the quantity demanded.
d. 5 percent increase in the quantity demanded.

The difference between slope and elasticity is that slope
a. is a ratio of two changes, and elasticity is a ratio of two percentage changes.
b. is a ratio of two percentage changes, and elasticity is a ratio of two changes.
c. measures changes in quantity demanded more accurately than elasticity.
d. none of the above; there is no difference between slope and elasticity.

Demand is said to be inelastic if
a. buyers respond substantially to changes in the price of the good.
b. demand shifts only slightly when the price of the good changes.
c. the quantity demanded changes only slightly when the price of the good changes.
d. the price of the good responds only slightly to changes in demand.

When demand is inelastic, the price elasticity of demand is
a. less than 1, and price and total revenue will move in the same direction.
b. less than 1, and price and total revenue will move in opposite directions.
c. greater than 1, and price and total revenue will move in the same direction.
d. greater than 1, and price and total revenue will move in opposite directions.

If the demand for apples is elastic, then an increase in the price of apples will
a. increase total revenue of apple sellers.
b. decrease total revenue of apple sellers.
c. not change total revenue of apple sellers.
d. There is not enough information to answer this question.

Income elasticity of demand measures how
a. the quantity demanded changes as consumer income changes.
b. consumer purchasing power is affected by a change in the price of a good.
c. the price of a good is affected when there is a change in consumer income.
d. many units of a good a consumer can buy given a certain income level.

Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 20
percent increase in the price of hot dogs will cause the quantity of mustard purchased to
a. fall by 200 percent.
b. fall by 40 percent.
c. rise by 200 percent.
d. rise by 40 percent.

If the cross-price elasticity of demand for two goods is -4.5, then
a. the two goods are substitutes.
b. the two goods are complements.
c. one of the goods is normal while the other good is inferior.
d. one of the goods is a luxury while the other good is a necessity.

The price elasticity of supply measures how responsive
a. sellers are to a change in price.
b. sellers are to a change in buyers' income.
c. buyers are to a change in production costs.
d. equilibrium price is to a change in supply.

If the price elasticity of supply is 0.8, and price increased by 5%, quantity supplied would
a. increase by 4%.
b. increase by 6.25%.
c. decrease by 4%.
d. decrease by 6.25%.

When a supply curve is relatively flat, the
a. sellers are not at all responsive to a change in price.
b. equilibrium price changes substantially when the demand for the good changes.
c. supply is relatively elastic.
d. supply is relatively inelastic.

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is
about
a. 0.63, and supply is elastic.
b. 0.63, and supply is inelastic.
c. 1.60, and supply is elastic.
d. 1.60, and supply is inelastic.