question
Microeconomics focuses on:
A) the big picture of the economy.
B) how governments, individuals, and businesses make decisions when faced with scarcity.
C) how governments, individuals, and businesses make decisions when resources are unlimited.
D) how to make money on investments.
A) the big picture of the economy.
B) how governments, individuals, and businesses make decisions when faced with scarcity.
C) how governments, individuals, and businesses make decisions when resources are unlimited.
D) how to make money on investments.
answer
how governments, individuals, and businesses make decisions when faced with scarcity
question
Resources are:
A) relatively plentiful in all countries.
B) relatively evenly distributed in all countries.
C) relatively scarce in all countries.
D) identical in all countries.
A) relatively plentiful in all countries.
B) relatively evenly distributed in all countries.
C) relatively scarce in all countries.
D) identical in all countries.
answer
relatively scarce in all countries.
question
A recurring theme in economics is that people:
A. have unlimited resources but limited economic wants.
B. can increase resources by limiting their economic wants.
C. have limited economic wants and limited resources.
D. have unlimited economic wants but limited resources.
A. have unlimited resources but limited economic wants.
B. can increase resources by limiting their economic wants.
C. have limited economic wants and limited resources.
D. have unlimited economic wants but limited resources.
answer
have unlimited economic wants but limited resources.
question
Economic reasoning is based on the premise that:
A. all decisions or actions are costless.
B. only economic decisions or actions have a cost associated with them.
C. only non-economic decisions or actions have a cost associated with them.
D. all decisions or actions have a cost associated with them.
A. all decisions or actions are costless.
B. only economic decisions or actions have a cost associated with them.
C. only non-economic decisions or actions have a cost associated with them.
D. all decisions or actions have a cost associated with them.
answer
all decisions or actions have a cost associated with them
question
To say that "people respond to incentives" is to say that:
A. changes in costs (but not changes in benefits) influence people's decisions and their behavior.
B. Changes in benefits (but not changes in costs) influence people's decisions and their behavior.
C. changes in benefits or changes in costs influence people's decisions and their behavior
D. tradeoffs can be eliminated by rational people who think at the margin.
A. changes in costs (but not changes in benefits) influence people's decisions and their behavior.
B. Changes in benefits (but not changes in costs) influence people's decisions and their behavior.
C. changes in benefits or changes in costs influence people's decisions and their behavior
D. tradeoffs can be eliminated by rational people who think at the margin.
answer
changes in benefits or changes in costs influence people's decisions and their behavior
question
A rational decision:
A) considers the relative scarcity of resources.
B) is the best decision for a person.
C) is the option chosen.
D) results from the comparison of marginal benefit and marginal cost.
A) considers the relative scarcity of resources.
B) is the best decision for a person.
C) is the option chosen.
D) results from the comparison of marginal benefit and marginal cost.
answer
results from the comparison of marginal benefit and marginal cost.
question
When studying human behavior, economists assume rational self-interest. This means that people:
A. have all the information they need to make a decision.
B. are quite selfish and are not concerned about others.
C. always make the right decisions.
D. make decisions based on some desired outcome.
A. have all the information they need to make a decision.
B. are quite selfish and are not concerned about others.
C. always make the right decisions.
D. make decisions based on some desired outcome.
answer
make decisions based on some desired outcome.
question
Michelle wants to purchase a new phone. Michelle will purchase the phone if:
A) she compares the total cost to her income.
B) she has enough income to purchase the phone.
C) the marginal cost of the phone is greater than its marginal benefit.
D) the marginal benefit of the phone is greater than its marginal cost.
A) she compares the total cost to her income.
B) she has enough income to purchase the phone.
C) the marginal cost of the phone is greater than its marginal benefit.
D) the marginal benefit of the phone is greater than its marginal cost.
answer
the marginal benefit of the phone is greater than its marginal cost.
question
The main significance of the equilibrium between marginal benefit and marginal cost is:
A) the market involved in the options is balanced.
B) an irrational decision has been made.
C) a rational decision has been made.
D) None of the above
A) the market involved in the options is balanced.
B) an irrational decision has been made.
C) a rational decision has been made.
D) None of the above
answer
a rational decision has been made.
question
A production possibilities frontier (PPF) illustrates which of the following concepts?
A) Unattainable points only
B) Opportunity cost
C) Decreasing opportunity cost
D) Attainable points only
A) Unattainable points only
B) Opportunity cost
C) Decreasing opportunity cost
D) Attainable points only
answer
Opportunity cost
question
If Angela spends all her time making pies she can make 20 each day, whereas if she spends all her time making cakes she can only make 10 each day.
What is the opportunity cost of making a cake?
A) 1 pie
B) 2 pies
C) 3 pies
D) More than 3 pies
What is the opportunity cost of making a cake?
A) 1 pie
B) 2 pies
C) 3 pies
D) More than 3 pies
answer
2 pies
question
Absolute advantage is found by comparing different producers:
A. opportunity costs.
B. payments to land, labor, and capital
C. input requirements per unit of output
D. locational and logistical circumstances
A. opportunity costs.
B. payments to land, labor, and capital
C. input requirements per unit of output
D. locational and logistical circumstances
answer
input requirements per unit of output
question
Suppose Lou gives up the production of 50 bikes to make 1 car and Sally gives up the production of 75 bikes to make 1 car.
Who has the comparative advantage in making cars?
A) Lou
B) Sally
C) Neither
Who has the comparative advantage in making cars?
A) Lou
B) Sally
C) Neither
answer
Lou
question
The theory of comparative advantage states that countries gain from trade because:
A) trade decreases competition, which decreases market power (the ability to influence).
B) each country is always better off in both goods involved.
C) output per worker in each firm increases.
D) if each country specializes in producing the products it is best suited to produce, world output can rise.
A) trade decreases competition, which decreases market power (the ability to influence).
B) each country is always better off in both goods involved.
C) output per worker in each firm increases.
D) if each country specializes in producing the products it is best suited to produce, world output can rise.
answer
if each country specializes in producing the products it is best suited to produce, world output can rise.
question
Which of the following influence the terms of trade?
A) Different opportunity costs of the parties involved
B) The resource market
C) The goods and services market
D) The wealth of a country
A) Different opportunity costs of the parties involved
B) The resource market
C) The goods and services market
D) The wealth of a country
answer
Different opportunity costs of the parties involved
question
Specialization:
A) results in a more efficient use of resources.
B) results in more self-sufficiency.
C) is not considered an underlying concept of trade.
D) does not impact the world economy.
A) results in a more efficient use of resources.
B) results in more self-sufficiency.
C) is not considered an underlying concept of trade.
D) does not impact the world economy.
answer
results in a more efficient use of resources.
question
In the circular flow diagram, which of the following flows is correct?
A) Resources flow from households to the goods and services market.
B) Goods and services (products) flow from businesses to the resource market.
C) Goods and services (products) flow from businesses to the goods and services market.
A) Resources flow from households to the goods and services market.
B) Goods and services (products) flow from businesses to the resource market.
C) Goods and services (products) flow from businesses to the goods and services market.
answer
Goods and services (products) flow from businesses to the goods and services market.
question
The most important purpose of a market is to:
answer
bring buyers and sellers together so they can trade.
question
Suppose you have only $20 to spend on gasoline each week. If the price of gasoline is $2 a gallon how many gallons can you purchase?
A) 40 gallons
B) 10 gallons
C) 1/10th of a gallon
D) None of the above
A) 40 gallons
B) 10 gallons
C) 1/10th of a gallon
D) None of the above
answer
10 gallons
question
Now suppose the price of gasoline rises from $2 per gallon to $4 per gallon. You still have $20 to spend on gas each week, but now how many gallons can you purchase?
A) 5 gallons
B) 80 gallons
C) 8 gallons
D) None of the above
A) 5 gallons
B) 80 gallons
C) 8 gallons
D) None of the above
answer
5 gallons
question
When the Economics Department serves all-you-can-eat ice cream at its annual spring student-recruiting event, you eat three ice cream cones. You really enjoy the first, the second is just okay, and the third is tasteless.
A) Income Effect
B) Diminishing Marginal Utility
C) Substitution Effect
A) Income Effect
B) Diminishing Marginal Utility
C) Substitution Effect
answer
Diminishing Marginal Utility
question
Your parents gave you the $400 you thought you needed to purchase books for the semester. When you realized your books were much cheaper than you thought, you decided to purchase all of the required and recommended books instead of just a few.
A) Income Effect
B) Diminishing Marginal Utility
C) Substitution Effect
A) Income Effect
B) Diminishing Marginal Utility
C) Substitution Effect
answer
Income Effect
question
When the price of strawberries is high in the winter you purchase apples, but in the summer when the price of strawberries drops you purchase strawberries.
A) Income Effect
B) Diminishing Marginal Utility
C) Substitution Effect
A) Income Effect
B) Diminishing Marginal Utility
C) Substitution Effect
answer
Substitution Effect
question
In understanding and analyzing "market demand," we focus on how much all buyers are
A. willing and able to buy at different prices.
B. willing and able to buy with their given income.
C. actually buying now and in the recent past at various prices.
D. actually buying now and in the recent past at various prices.
A. willing and able to buy at different prices.
B. willing and able to buy with their given income.
C. actually buying now and in the recent past at various prices.
D. actually buying now and in the recent past at various prices.
answer
willing and able to buy at different prices.
question
When economists say that the demand for a product has decreased, they mean that:
answer
consumers are now willing and able to buy less of this product at each possible price
question
On Tuesday, a movie theater discounts tickets to all shows. What would we expect to see happen to popcorn on Tuesdays?
answer
Increased demand for popcorn
question
An increase in the price of dinners at fancy restaurants would likely cause the demand for babysitters to __________. This is because fancy dinners and babysitting services are likely _____________.
A) increase; substitutes
B) increase; complements
C) decrease; substitutes
D) decrease; complements
A) increase; substitutes
B) increase; complements
C) decrease; substitutes
D) decrease; complements
answer
decrease; complements
question
How does market supply differ from individual supply?
A) Market supply is the sum of all individual suppliers.
B) Markets are only concerned about individual suppliers.
C) Individual suppliers do not supply the same quantities.
D) Individual suppliers do supply the same quantities.
A) Market supply is the sum of all individual suppliers.
B) Markets are only concerned about individual suppliers.
C) Individual suppliers do not supply the same quantities.
D) Individual suppliers do supply the same quantities.
answer
Market supply is the sum of all individual suppliers.
question
Which of the following describes the relationship between price and quantity supplied?
A) It is an inverse relationship.
B) It is a direct relationship.
C) Price and quantity supplied move in opposite directions.
D) There is no concrete relationship between price and quantity supplied.
A) It is an inverse relationship.
B) It is a direct relationship.
C) Price and quantity supplied move in opposite directions.
D) There is no concrete relationship between price and quantity supplied.
answer
It is a direct relationship
question
Other things remaining the same, an increase in the price of beach front condos:
A) decreases the quantity of beach front condos supplied.
B) increases the quantity of beach front condos supplied.
C) decreases the supply of beach front condos.
D) increases the supply of beach front condos.
A) decreases the quantity of beach front condos supplied.
B) increases the quantity of beach front condos supplied.
C) decreases the supply of beach front condos.
D) increases the supply of beach front condos.
answer
increases the quantity of beach front condos supplied.
question
Which of the following scenarios will not cause an increase in supply?
A) Technology improves and drives down costs.
B) The number of suppliers increases.
C) The price of the product decreases.
D) Taxes decrease.
A) Technology improves and drives down costs.
B) The number of suppliers increases.
C) The price of the product decreases.
D) Taxes decrease.
answer
The price of the product decreases.
question
Smaller, fuel efficient SUVs have become very popular. Many customers are trading in existing cars and buying new SUVs. As a result, the supply of used cars will ______ and the price of used cars will ______. Additionally, the demand for new SUVs will ______ and the price of new SUVs will ______.
A) increase, decrease; increase, increase
B) increase, increase; increase, decrease
C) increase, decrease; increase, decrease
D) decrease, decrease; increase, increase
A) increase, decrease; increase, increase
B) increase, increase; increase, decrease
C) increase, decrease; increase, decrease
D) decrease, decrease; increase, increase
answer
increase, decrease; increase, increase
question
Which of the following statements does not describe equilibrium?
A) Quantity demanded equals quantity supplied at the same price.
B) The market is in balance.
C) There are no shortages or surpluses.
D) Equilibrium is a goal that is seldom achieved in the real world.
A) Quantity demanded equals quantity supplied at the same price.
B) The market is in balance.
C) There are no shortages or surpluses.
D) Equilibrium is a goal that is seldom achieved in the real world.
answer
Equilibrium is a goal that is seldom achieved in the real world.
question
For a price ceiling to be binding it must:
A) be higher than the equilibrium price.
B) be equal to the equilibrium price.
C) be lower than the equilibrium price.
D) create a shortage.
A) be higher than the equilibrium price.
B) be equal to the equilibrium price.
C) be lower than the equilibrium price.
D) create a shortage.
answer
be lower than the equilibrium price.
question
For a price floor to be binding it must:
A) be higher than the equilibrium price.
B) be equal to the equilibrium price.
C) be lower than the equilibrium price.
D) create a surplus.
A) be higher than the equilibrium price.
B) be equal to the equilibrium price.
C) be lower than the equilibrium price.
D) create a surplus.
answer
be higher than the equilibrium price.
question
Taxes on products:
A) decrease the price buyers pay.
B) increase the marginal cost for producers.
C) increase the price sellers receive.
D) only affect buyers.
A) decrease the price buyers pay.
B) increase the marginal cost for producers.
C) increase the price sellers receive.
D) only affect buyers.
answer
increase the marginal cost for producers.
question
Michael buys a handmade sweater for $60, although he was willing to pay $85. The minimum acceptable price to the seller, Susan, was $45. Michael experiences a:
A) consumer surplus of $25 and Susan experiences a producer surplus of $15.
B) producer surplus of $15 and Susan experiences a consumer surplus of $25.
C) consumer surplus of $15 and Susan experiences a producer surplus of $15.
D) producer surplus of $25 and Susan experiences a consumer surplus of $15.
A) consumer surplus of $25 and Susan experiences a producer surplus of $15.
B) producer surplus of $15 and Susan experiences a consumer surplus of $25.
C) consumer surplus of $15 and Susan experiences a producer surplus of $15.
D) producer surplus of $25 and Susan experiences a consumer surplus of $15.
answer
consumer surplus of $25 and Susan experiences a producer surplus of $15
question
Deadweight loss occurs when:
answer
the price paid by buyers or received by sellers does not equal the equilibrium price. Thus, there is a decrease in total surplus.
question
A deadweight loss _____________ as tax rates change.
A) stays the same
B) is eliminated
C) does not occur
D) changes
A) stays the same
B) is eliminated
C) does not occur
D) changes
answer
changes
question
Suppose the equilibrium price is $50. If the actual price paid by the buyer is $60 for one item, and the minimum acceptable price to the seller is $40, then:
A) the consumer surplus and producer surplus are both $10 each.
B) there is a deadweight loss.
C) consumer and producer surplus is maximized.
D) there is no deadweight loss.
A) the consumer surplus and producer surplus are both $10 each.
B) there is a deadweight loss.
C) consumer and producer surplus is maximized.
D) there is no deadweight loss.
answer
there is a deadweight loss
question
allocative efficiency means:
answer
producing the right amount of a good or service (the amount society wants), and it occurs where the marginal benefit equals the marginal cost.
question
Productive efficiency means:
answer
producing goods and services at the lowest average total cost (least cost methods of production are used).
question
Which of the following is not correct when describing allocative efficiency?
A) It occurs where marginal benefit equals marginal cost
B) It occurs when the right amount of goods and services are produced.
C) It occurs when total surplus is maximized.
D) It occurs when firms produce at the lowest possible average total cost.
A) It occurs where marginal benefit equals marginal cost
B) It occurs when the right amount of goods and services are produced.
C) It occurs when total surplus is maximized.
D) It occurs when firms produce at the lowest possible average total cost.
answer
It occurs when firms produce at the lowest possible average total cost.
question
If the market is in equilibrium, which of the following occurs?
A) Gains from trade are maximized, economic surplus is maximized, allocative efficiency is achieved, and productive efficiency is achieved.
B) Gains from trade are maximized, economic surplus is maximized, allocative efficiency is not achieved, and productive efficiency is achieved.
C) Gains from trade are maximized, economic surplus is maximized, allocative efficiency is achieved, and productive efficiency is not achieved.
D) Gains from trade are lowered, economic surplus is reduced, allocative efficiency is achieved, and productive efficiency is achieved.
A) Gains from trade are maximized, economic surplus is maximized, allocative efficiency is achieved, and productive efficiency is achieved.
B) Gains from trade are maximized, economic surplus is maximized, allocative efficiency is not achieved, and productive efficiency is achieved.
C) Gains from trade are maximized, economic surplus is maximized, allocative efficiency is achieved, and productive efficiency is not achieved.
D) Gains from trade are lowered, economic surplus is reduced, allocative efficiency is achieved, and productive efficiency is achieved.
answer
Gains from trade are maximized, economic surplus is maximized, allocative efficiency is achieved, and productive efficiency is achieved.
question
Which of the following correctly describes the social welfare impact of a price ceiling?
A) All consumers win.
B) A deadweight loss occurs.
C) All producers win.
D) Total surplus is increased.
A) All consumers win.
B) A deadweight loss occurs.
C) All producers win.
D) Total surplus is increased.
answer
A deadweight loss occurs.
question
If a price ceiling (a price set lower than the equilibrium price) is instituted,
answer
then total surplus decreases.
question
If a price floor (a price set higher than the equilibrium price) is instituted,
answer
then total surplus decreases.
question
Which of the following correctly describes the social welfare impact of a price floor?
A) Total surplus is decreased.
B) All producers lose.
C) There is no deadweight loss.
D) All consumers win.
A) Total surplus is decreased.
B) All producers lose.
C) There is no deadweight loss.
D) All consumers win.
answer
Total surplus is decreased.
question
An excise tax:
A) is fixed.
B) is variable.
C) affects consumers.
D) affects producers.
A) is fixed.
B) is variable.
C) affects consumers.
D) affects producers.
answer
is fixed
question
Without taxes, a market moves to _____________ and __________ surplus is maximized.
A) equilibrium; economic
B) disequilibrium; producer
C) disequilibrium; consumer
A) equilibrium; economic
B) disequilibrium; producer
C) disequilibrium; consumer
answer
equilibrium; economic
question
Elasticity is a term economists use to:
answer
measure the sensitivity or responsiveness to a change in price.
question
The slope of a linear demand curve is:
answer
the same at each point.
question
Slope is measured by
answer
the change in the rise (price) divided by the change in the run (quantity).
question
The slope uses changes in ___________, while the elasticity calculation uses _____________ in price and quantity.
answer
price and quantity ; percentage changes
question
How is the slope of a linear demand curve different from its elasticity?
A) Along a linear demand curve, slope changes.
B) Along a linear demand curve, elasticity stays the same.
C) Along a linear demand curve, elasticity changes.
D) There are no differences between slope and elasticity.
A) Along a linear demand curve, slope changes.
B) Along a linear demand curve, elasticity stays the same.
C) Along a linear demand curve, elasticity changes.
D) There are no differences between slope and elasticity.
answer
Along a linear demand curve, elasticity changes.
question
If the change in price is 20% and the change in quantity demanded is 10%, what type of elasticity is present?
A) Elastic
B) Inelastic
C) Unit-Elastic
A) Elastic
B) Inelastic
C) Unit-Elastic
answer
Inelastic
question
If the price elasticity of demand for a product is _____________, it is considered elastic.
A) zero
B) greater than one
C) equal to one
D) less than one
A) zero
B) greater than one
C) equal to one
D) less than one
answer
greater than one
question
Which of the following statements is correct when the price elasticity of demand is inelastic?
A) The percentage change in quantity demanded is greater than the percentage change in price.
B) Buyers are relatively sensitive to price changes.
C) Total revenue decreases if price increases.
D) The elasticity coefficient is less than one.
A) The percentage change in quantity demanded is greater than the percentage change in price.
B) Buyers are relatively sensitive to price changes.
C) Total revenue decreases if price increases.
D) The elasticity coefficient is less than one.
answer
The elasticity coefficient is less than one.
question
The price of a camera decreases from $200 to $180, and in response to the price change the quantity demanded increases from 60 to 65 units. Therefore, demand for cameras in this price range:
A) has declined.
B) is unit-elastic.
C) is inelastic.
D) is elastic.
A) has declined.
B) is unit-elastic.
C) is inelastic.
D) is elastic.
answer
is inelastic
question
Consumers can be ________________ in their demand for a product when many substitutes exist.
A) inelastic
B) perfectly elastic
C) unit-elastic
D) elastic
A) inelastic
B) perfectly elastic
C) unit-elastic
D) elastic
answer
elastic
question
The demand for necessities tends to be:
A) inelastic.
B) elastic.
C) perfectly inelastic.
D) unit-elastic.
A) inelastic.
B) elastic.
C) perfectly inelastic.
D) unit-elastic.
answer
inelastic
question
The price of a good falls from $3 to $2.80 and the quantity demanded increases from 105 to 125. Using the midpoint formula, what is the price elasticity of demand?
A) 2.521
B) 0.396
C) 0.069
D) 0.174
A) 2.521
B) 0.396
C) 0.069
D) 0.174
answer
2.521
question
Which is more elastic in demand?
A) Having telephone service.
B) Having cable television service.
A) Having telephone service.
B) Having cable television service.
answer
Having cable television service.
question
Cross-price elasticity identifies goods as substitutes when:
A) the midpoint formula is used.
B) the sign of the coefficient or result of the calculation is ignored.
C) the sign of the coefficient or result of the calculation is positive.
D) the sign of the coefficient or result of the calculation is negative.
A) the midpoint formula is used.
B) the sign of the coefficient or result of the calculation is ignored.
C) the sign of the coefficient or result of the calculation is positive.
D) the sign of the coefficient or result of the calculation is negative.
answer
the sign of the coefficient or result of the calculation is positive
question
Cross-price elasticity identifies goods as complements when:
A) the sign of the coefficient or result of the calculation is positive.
B) the sign of the coefficient or result of the calculation is negative.
C) the sign of the coefficient or result of the calculation is ignored.
D) the midpoint formula is used.
A) the sign of the coefficient or result of the calculation is positive.
B) the sign of the coefficient or result of the calculation is negative.
C) the sign of the coefficient or result of the calculation is ignored.
D) the midpoint formula is used.
answer
the sign of the coefficient or result of the calculation is negative.
question
Which of the following is not correct regarding income elasticity of demand?
A) It measures the response of consumer demand to changes in consumer income.
B) An increase in income causes an increase in demand for normal goods.
C) An increase in income causes a decrease in demand for inferior goods.
D) It measures the response of consumer demand to changes in the price of a related good.
A) It measures the response of consumer demand to changes in consumer income.
B) An increase in income causes an increase in demand for normal goods.
C) An increase in income causes a decrease in demand for inferior goods.
D) It measures the response of consumer demand to changes in the price of a related good.
answer
It measures the response of consumer demand to changes in the price of a related good.
question
If the change in price is 2% and the change in quantity supplied is 10%, supply is:
A) elastic.
B) inelastic.
C) unit-elastic.
A) elastic.
B) inelastic.
C) unit-elastic.
answer
elastic
question
The most important determinant of price elasticity of supply is:
A) The ability for buyers to select from a large number of substitutes.
B) the length of time available to the producer to make adjustments.
C) the fact that the product is a necessity and must be produced.
D) the fact that producers prefer to make luxury goods with high prices.
A) The ability for buyers to select from a large number of substitutes.
B) the length of time available to the producer to make adjustments.
C) the fact that the product is a necessity and must be produced.
D) the fact that producers prefer to make luxury goods with high prices.
answer
the length of time available to the producer to make adjustments.
question
Which of the following is not true for the price elasticity of supply?
A) There is a formula to calculate it.
B) It is considered elastic if the coefficient is greater than 1.
C) It has the same determinants as price elasticity of demand.
D) The coefficient is always positive.
A) There is a formula to calculate it.
B) It is considered elastic if the coefficient is greater than 1.
C) It has the same determinants as price elasticity of demand.
D) The coefficient is always positive.
answer
It has the same determinants as price elasticity of demand.
question
Which of the following is true for suppliers in the short run?
A) The supply curve is vertical.
B) Suppliers can change employees and raw materials.
C) All variables can be altered.
D) The supply curve is relatively flat.
A) The supply curve is vertical.
B) Suppliers can change employees and raw materials.
C) All variables can be altered.
D) The supply curve is relatively flat.
answer
Suppliers can change employees and raw materials.
question
The price elasticity of supply measures:
A) how the quantity of a good supplied responds to income changes of consumers.
B) how responsive the quantity of a good supplied is to changes in the price of another good.
C) how responsive the quantity of a good supplied is to changes in its own price.
D) how quickly suppliers can substitute capital for labor when producing a good.
A) how the quantity of a good supplied responds to income changes of consumers.
B) how responsive the quantity of a good supplied is to changes in the price of another good.
C) how responsive the quantity of a good supplied is to changes in its own price.
D) how quickly suppliers can substitute capital for labor when producing a good.
answer
how responsive the quantity of a good supplied is to changes in its own price.
question
Economic costs are:
answer
the costs associated with the use of resources and include both explicit and implicit costs.
question
Generally, accounting profits are:
A) greater than economic profits, because accounting profits do not consider explicit costs. B) equal to economic profits, because accounting costs include all opportunity costs.
C) smaller than economic profits, because accounting profits do not consider implicit costs.
D) greater than economic profits, because accounting profits do not consider implicit costs.
A) greater than economic profits, because accounting profits do not consider explicit costs. B) equal to economic profits, because accounting costs include all opportunity costs.
C) smaller than economic profits, because accounting profits do not consider implicit costs.
D) greater than economic profits, because accounting profits do not consider implicit costs.
answer
greater than economic profits, because accounting profits do not consider implicit costs.
question
Suppose that a business incurred explicit costs of $1.5 million and implicit costs of $300,000 last year. If the firm sold 4,500 units of its output at $450 per unit, its accounting profits were _______ and its economic profits were _______.
A) $525,000; $225,000
B) $1,725,000; $225,000
C) $525,000; $200,000
D) $1,725,000; $250,000
A) $525,000; $225,000
B) $1,725,000; $225,000
C) $525,000; $200,000
D) $1,725,000; $250,000
answer
$525,000; $225,000
question
Marginal product:
A) declines across all levels of output, except the first unit.
B) usually increases then decreases, but stays a positive value.
C) usually increases then decreases and may become negative.
D) is always more than total product.
A) declines across all levels of output, except the first unit.
B) usually increases then decreases, but stays a positive value.
C) usually increases then decreases and may become negative.
D) is always more than total product.
answer
usually increases then decreases and may become negative.
question
When total product is rising:
A) marginal product is positive.
B) marginal product is zero.
C) marginal product is negative.
D) average product is decreasing.
A) marginal product is positive.
B) marginal product is zero.
C) marginal product is negative.
D) average product is decreasing.
answer
marginal product is positive.
question
Average fixed cost:
A) equals marginal cost when average variable cost is at its minimum value.
B) is total variable cost divided by the number of units of output.
C) declines and then rises in a U-shape as output expands.
D) declines continually as output expands..
A) equals marginal cost when average variable cost is at its minimum value.
B) is total variable cost divided by the number of units of output.
C) declines and then rises in a U-shape as output expands.
D) declines continually as output expands..
answer
declines continually as output expands.
question
Average total cost is __________ divided by the number of units of output.
A) total cost
B) total variable cost
C) total fixed cost
D) marginal cost
A) total cost
B) total variable cost
C) total fixed cost
D) marginal cost
answer
total cost
question
Marginal cost describes a change in _________ when output is expanded by one more unit.
A) average total cost
B) total cost
C) average variable cost
D) total fixed cost
A) average total cost
B) total cost
C) average variable cost
D) total fixed cost
answer
total cost
question
The marginal cost curve crosses the:
A) average variable and average fixed cost curves at their highest points.
B) average variable and average total cost curves at their lowest points.
C) average variable and average total cost curves at their highest points.
D) average variable cost curve at its lowest point.
A) average variable and average fixed cost curves at their highest points.
B) average variable and average total cost curves at their lowest points.
C) average variable and average total cost curves at their highest points.
D) average variable cost curve at its lowest point.
answer
average variable and average total cost curves at their lowest points.
question
Which of the following scenarios does not illustrate a long-run adjustment?
A) A local Starbucks hires two new employees.
B) Three firms leave the retail clothing industry.
C) Ten new vineyards are opened in the U.S.
D) Honda Jet builds a new assembly plant in Greensboro, NC.
A) A local Starbucks hires two new employees.
B) Three firms leave the retail clothing industry.
C) Ten new vineyards are opened in the U.S.
D) Honda Jet builds a new assembly plant in Greensboro, NC.
answer
A local Starbucks hires two new employees.
question
Which of the following statements describes a difference between the short run and the long run?
A) The law of diminishing returns is an issue in the long run but not in the short run.
B) All resources are fixed in the short run and all resources are variable in the long run.
C) Some resources are fixed in the short run and all resources are variable in the long run.
D) Variable costs are more important for decision making in the short run than in the long run
A) The law of diminishing returns is an issue in the long run but not in the short run.
B) All resources are fixed in the short run and all resources are variable in the long run.
C) Some resources are fixed in the short run and all resources are variable in the long run.
D) Variable costs are more important for decision making in the short run than in the long run
answer
Some resources are fixed in the short run and all resources are variable in the long run.
question
One reason a firm may experience economies of scale is:
A) the firm is too large to efficiently manage.
B) the firm experienced a decline in productivity. C) the firm's long-run average total cost is rising.
D) the firm experienced specialization in labor and management.
A) the firm is too large to efficiently manage.
B) the firm experienced a decline in productivity. C) the firm's long-run average total cost is rising.
D) the firm experienced specialization in labor and management.
answer
the firm experienced specialization in labor and management
question
A firm is experiencing diseconomies of scale if:
A) costs decrease as output expands.
B) costs increase as output expands.
C) costs stay constant as output expands.
A) costs decrease as output expands.
B) costs increase as output expands.
C) costs stay constant as output expands.
answer
costs increase as output expands.
question
Which of the following statements does not describe a perfectly competitive market?
A) A large number of firms are involved.
B) Entry and exit are relatively easy.
C) In the short run firms can earn profits, minimize losses, or earn a normal profit.
D) Price is greater than marginal revenue.
A) A large number of firms are involved.
B) Entry and exit are relatively easy.
C) In the short run firms can earn profits, minimize losses, or earn a normal profit.
D) Price is greater than marginal revenue.
answer
Price is greater than marginal revenue
question
A perfectly competitive firm:
A) can sell as much output as it wants at the equilibrium price.
B) must lower its price to sell more output.
C) can select the price for its output.
D) is a price maker.
A) can sell as much output as it wants at the equilibrium price.
B) must lower its price to sell more output.
C) can select the price for its output.
D) is a price maker.
answer
can sell as much output as it wants at the equilibrium price.
question
Price for a perfectly competitive seller equals:
A) average revenue divided by price.
B) marginal revenue divided by price.
C) total revenue.
D) marginal revenue.
A) average revenue divided by price.
B) marginal revenue divided by price.
C) total revenue.
D) marginal revenue.
answer
marginal revenue
question
In the short run, a perfectly competitive firm calculates the profit-maximizing (or loss-minimizing) production output by equating:
A) price and average variable cost.
B) price and average total cost.
C) price and marginal revenue.
D) marginal revenue and marginal cost.
A) price and average variable cost.
B) price and average total cost.
C) price and marginal revenue.
D) marginal revenue and marginal cost.
answer
marginal revenue and marginal cost
question
In a perfectly competitive industry, firms seek to maximize:
A) marginal profit.
B) total revenue per unit.
C) total profit.
D) their percentage of the total market.
A) marginal profit.
B) total revenue per unit.
C) total profit.
D) their percentage of the total market.
answer
total profit
question
Assume the Unico Corporation is producing 40 units of output and selling the output in a perfectly competitive market for $5 per unit. Its total fixed costs are $110 and its average variable cost is $4 for each of the 40 units of output. Unico:
A) earns a profit of $40.
B) maximizes its profits.
C) earns a loss of $70.
D) should shut down.
A) earns a profit of $40.
B) maximizes its profits.
C) earns a loss of $70.
D) should shut down.
answer
earns a loss of $70
question
In the short run, if ATC is greater than price at the output level where MC = MR then:
A) new firms may be incentivized to enter the industry.
B) the firm may be able to minimize losses.
C) the firm will shut down.
D) the firm will realize an economic profit..
A) new firms may be incentivized to enter the industry.
B) the firm may be able to minimize losses.
C) the firm will shut down.
D) the firm will realize an economic profit..
answer
the firm may be able to minimize losses
question
A perfectly competitive firm's short-run supply curve is at its lowest point when MC equals the minimum point of:
A) the average fixed cost curve.
B) the marginal revenue curve.
C) the average total cost curve.
D) the average variable cost curve.
A) the average fixed cost curve.
B) the marginal revenue curve.
C) the average total cost curve.
D) the average variable cost curve.
answer
the average variable cost curve
question
In the long run, if ATC equals price at the output level where MC = MR then:
A) new firms may be incentivized to enter the industry.
B) the firm will shut down.
C) the firm will earn a normal profit.
D) the firm may be able to minimize losses.
A) new firms may be incentivized to enter the industry.
B) the firm will shut down.
C) the firm will earn a normal profit.
D) the firm may be able to minimize losses.
answer
the firm will earn a normal profit
question
In the long run, perfectly competitive firms achieve:
A) allocative and productive efficiency.
B) allocative efficiency, but not productive efficiency.
C) productive efficiency, but not allocative efficiency.
D) neither allocative nor productive efficiency
A) allocative and productive efficiency.
B) allocative efficiency, but not productive efficiency.
C) productive efficiency, but not allocative efficiency.
D) neither allocative nor productive efficiency
answer
allocative and productive efficiency
question
Which of the following statements describes what perfectly competitive firms experience in the long run?
A) Price equals ATC.
B) Price equals the minimum point on AVC.
C) Price equals the minimum point on ATC.
D) Marginal revenue is greater than marginal cost.
A) Price equals ATC.
B) Price equals the minimum point on AVC.
C) Price equals the minimum point on ATC.
D) Marginal revenue is greater than marginal cost.
answer
Price equals the minimum point on ATC.
question
Which of the following statements describes a perfectly competitive market under conditions of constant cost?
A) The market supply curve becomes perfectly elastic in the long run.
B) The market rarely experiences changes in the price and quantity sold in the short run.
C) If 50 units can be produced for $150, then 150 units can be produced for $350 and 200 units for $450.
D) The market rarely experiences changes in supply in response to changes in demand.
A) The market supply curve becomes perfectly elastic in the long run.
B) The market rarely experiences changes in the price and quantity sold in the short run.
C) If 50 units can be produced for $150, then 150 units can be produced for $350 and 200 units for $450.
D) The market rarely experiences changes in supply in response to changes in demand.
answer
The market supply curve becomes perfectly elastic in the long run.
question
Which of the following is nota characteristic of monopoly?
A) It produces a unique product.
B) Entry to the market is blocked.
C) Its demand curve is downward sloping.
D) Its demand curve is perfectly elastic.
A) It produces a unique product.
B) Entry to the market is blocked.
C) Its demand curve is downward sloping.
D) Its demand curve is perfectly elastic.
answer
Its demand curve is perfectly elastic.
question
A monopolist's demand curve:
A) is the same as the market demand curve.
B) is perfectly inelastic.
C) is perfectly elastic.
D) is the same as the marginal revenue curve.
A) is the same as the market demand curve.
B) is perfectly inelastic.
C) is perfectly elastic.
D) is the same as the marginal revenue curve.
answer
is the same as the market demand curve
question
A monopolist's marginal revenue curve:
A) is perfectly inelastic.
B) is perfectly elastic.
C) lies below the demand curve.
D) lies above the demand curve.
A) is perfectly inelastic.
B) is perfectly elastic.
C) lies below the demand curve.
D) lies above the demand curve.
answer
lies below the demand curve
question
Which of the following statements explains why a pure monopolist's marginal revenue is less than price?
A) Its demand curve is perfectly inelastic.
B) Its demand curve is perfectly elastic.
C) It must lower price to sell more output, and the lower price applies to all units of output sold.
D) Its marginal revenue curve slopes upward.
A) Its demand curve is perfectly inelastic.
B) Its demand curve is perfectly elastic.
C) It must lower price to sell more output, and the lower price applies to all units of output sold.
D) Its marginal revenue curve slopes upward.
answer
It must lower price to sell more output, and the lower price applies to all units of output sold.
question
Assuming the same costs, a monopoly will:
A) produce more and charge a higher price than a perfectly competitive firm.
B) produce less and charge a higher price than a perfectly competitive firm.
C) produce less and charge a lower price than a perfectly competitive firm.
D) produce more and charge a lower price than a perfectly competitive firm.
A) produce more and charge a higher price than a perfectly competitive firm.
B) produce less and charge a higher price than a perfectly competitive firm.
C) produce less and charge a lower price than a perfectly competitive firm.
D) produce more and charge a lower price than a perfectly competitive firm.
answer
produce less and charge a higher price than a perfectly competitive firm.
question
Assuming the same costs, a monopoly will:
A) produce more and charge a higher price than a perfectly competitive firm.
B) produce less and charge a higher price than a perfectly competitive firm.
C) produce less and charge a lower price than a perfectly competitive firm.
D) produce more and charge a lower price than a perfectly competitive firm.
A) produce more and charge a higher price than a perfectly competitive firm.
B) produce less and charge a higher price than a perfectly competitive firm.
C) produce less and charge a lower price than a perfectly competitive firm.
D) produce more and charge a lower price than a perfectly competitive firm.
answer
produce less and charge a higher price than a perfectly competitive firm.
question
The MR = MC rule is used to analyze:
A) only monopoly profit maximization.
B) only perfect competition profit maximization.
C) both monopoly and perfect competition profit maximization
D) This rule is not used to analyze profit.
A) only monopoly profit maximization.
B) only perfect competition profit maximization.
C) both monopoly and perfect competition profit maximization
D) This rule is not used to analyze profit.
answer
both monopoly and perfect competition profit maximization
question
Which of the following statements explains when a natural monopoly occurs?
A) Diseconomies of scale occur as ATC decreases over a wide range of output.
B) A monopoly owns or controls a resource necessary to produce the product.
C) Economies of scale occur as ATC decreases over a wide range of output.
D) Economies of scale are obtained from constant costs over a wide range of output.
A) Diseconomies of scale occur as ATC decreases over a wide range of output.
B) A monopoly owns or controls a resource necessary to produce the product.
C) Economies of scale occur as ATC decreases over a wide range of output.
D) Economies of scale are obtained from constant costs over a wide range of output.
answer
Economies of scale occur as ATC decreases over a wide range of output.
question
Regulation of natural monopolies often causes a price ceiling price that:
A) achieves allocative efficiency and economic profits.
B) results in productive efficiency and normal profits.
C) consumers and suppliers both approve of.
D) achieves allocative efficiency and may result in government subsidies.
A) achieves allocative efficiency and economic profits.
B) results in productive efficiency and normal profits.
C) consumers and suppliers both approve of.
D) achieves allocative efficiency and may result in government subsidies.
answer
achieves allocative efficiency and may result in government subsidies.
question
In monopolistically competitive markets, entry barriers :
A) do not exist.
B) are more prevalent than in perfectly competitive markets but less than in monopoly markets.
C) are more prevalent than in monopoly markets but less than in perfectly competitive markets.
D) are blocked.
A) do not exist.
B) are more prevalent than in perfectly competitive markets but less than in monopoly markets.
C) are more prevalent than in monopoly markets but less than in perfectly competitive markets.
D) are blocked.
answer
are more prevalent than in perfectly competitive markets but less than in monopoly markets.
question
It is more difficult to analyze a monopolistically competitive market than a perfectly competitive market because in a monopolistically competitive market:
A) products are differentiated, which results in non-price competition.
B) a normal profit in the long run is normal.
C) there is only one firm.
D)firms are characterized by mutual interdependence.
A) products are differentiated, which results in non-price competition.
B) a normal profit in the long run is normal.
C) there is only one firm.
D)firms are characterized by mutual interdependence.
answer
products are differentiated, which results in non-price competition.
question
Which of the following statements explains a similarity between perfect competition and monopolistic competition?
A) Firms in these models make use of non-price competition.
B) Firms in these models operate at the minimum point on their long-run average total cost curves.
C) Firms in these models produce differentiated products.
D) Firms in these models find it easy to enter a market.
A) Firms in these models make use of non-price competition.
B) Firms in these models operate at the minimum point on their long-run average total cost curves.
C) Firms in these models produce differentiated products.
D) Firms in these models find it easy to enter a market.
answer
Firms in these models find it easy to enter a market.
question
In which of the following markets are demand and marginal revenue equal?
A)Monopoly, oligopoly, and monopolistic competition
B)Monopoly, oligopoly, and perfect competition
C)Perfect competition only
D)Monopolistic competition only
A)Monopoly, oligopoly, and monopolistic competition
B)Monopoly, oligopoly, and perfect competition
C)Perfect competition only
D)Monopolistic competition only
answer
Perfect competition only
question
In the short run, monopolistically competitive firms:
A) can earn an economic profit, minimize a loss, earn a normal profit, and shut down.
B) can only earn a normal profit.
C) can only earn an economic profit.
D) must shutdown if price is less than average total cost.
A) can earn an economic profit, minimize a loss, earn a normal profit, and shut down.
B) can only earn a normal profit.
C) can only earn an economic profit.
D) must shutdown if price is less than average total cost.
answer
can earn an economic profit, minimize a loss, earn a normal profit, and shut down.
question
Oligopolies produce:
A)standard products.
B)differentiated products.
C)unique products.
D)Both A and B are correct.
A)standard products.
B)differentiated products.
C)unique products.
D)Both A and B are correct.
answer
Both A and B are correct.
question
In which market model does mutual interdependence exist?
A)Perfect competition
B)Monopoly
C)Monopolistic competition
D)Oligopoly
A)Perfect competition
B)Monopoly
C)Monopolistic competition
D)Oligopoly
answer
Oligopoly
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