ECO 101- Test #1

5. Economics involves marginal analysis because: A. most decisions involve changes from the present situation. B. marginal benefits always exceed marginal costs. C. marginal costs always exceed marginal benefits. D. much economic behavior is irrational.

A. most decisions involve changes from the present situation.

53. The French term "laissez-faire" means: A. "there is no free lunch." B. "let it be." C. "circular flow." D. "public ownership."

B. "let it be."

128. The equilibrium price and quantity in a market usually produces allocative efficiency because: A. all consumers who want the good are satisfied. B. marginal benefit and marginal cost are equal at that point. C. equilibrium insures an equitable distribution of output. D. the excess of goods produced at equilibrium guarantees that all will have enough.

B. marginal benefit and marginal cost are equal at that point.

1. For economists, the word "utility" means: A. versatility and flexibility. B. rationality. C. pleasure or satisfaction. D. purposefulness.

C. pleasure or satisfaction.

59. The division of labor means that: A. labor markets are geographically segmented. B. unskilled workers outnumber skilled workers. C. workers specialize in various production tasks. D. each worker performs a large number of tasks.

C. workers specialize in various production tasks.

125. Refer to the above diagram. A price of $60 in this market will result in: A. equilibrium. B. a shortage of 50 units. C. a surplus of 50 units. D. a surplus of 100 units.

D. a surplus of 100 units.

10. Economists contend that most economic decisions are: A. random B. chaotic C. spontaneous D. purposeful

D. purposeful

122. Suppose that at prices of $1, $2, $3, $4, and $5 for product Z, the corresponding quantities supplied are 3, 4, 5, 6, and 7 units, respectively. Which of the following would increase the quantities supplied of Z to, say, 6, 8, 10, 12, and 14 units at these prices? A. improved technology for producing Z B. an increase in the prices of the resources used to make Z C. an increase in the excise tax on product Z D. increases in the incomes of the buyers of Z

A. improved technology for producing Z

3. When economists say that people act rationally in their self interest, they mean that individuals: A. look for and pursue opportunities to increase their utility. B. generally disregard the interests of others. C. are mainly creatures of habit. D. are usually impulsive and unpredictable.

A. look for and pursue opportunities to increase their utility.

30. Money is not an economic resource because: A. money, as such, does not produce anything. B. idle money balances do not earn interest income. C. it is not scarce. D. money is not a free gift of nature.

A. money, as such, does not produce anything.

70. The market system's answer to the fundamental question "Who will get the goods and services?" is essentially: A. "Those willing and able to pay for them." B. "Those who physically produced them." C. "Those who most need them." D. "Those who get utility from them."

A. "Those willing and able to pay for them."

9. Which of the following most closely relates to the idea of opportunity costs? A. tradeoffs. B. economic growth. C. technological change. D. capitalism.

A. tradeoffs.

110. Digital cameras and memory cards are: A. substitute goods. B. complementary goods. C. independent goods. D. inferior goods.

B. complementary goods.

12. Kara was out jogging and despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara: A. must be an avid runner. B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile. C. decided that the marginal cost of running one more mile would outweigh the benefit of the additional mile. D. was not very tired, so the marginal cost of the extra mile was very low.

B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

23. The scarcity problem: A. persists only because countries have failed to achieve continuous full employment. B. persists because economic wants exceed available productive resources. C. has been solved in all industrialized nations. D. has been eliminated in affluent societies such as the United States and Canada.

B. persists because economic wants exceed available productive resources.

7. Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of: A. resource scarcity and the necessity of choice. B. purposeful behavior. C. marginal costs that exceed marginal benefits. D. the tradeoff problem that exists between competing goals.

B. purposeful behavior.

49. The concept of opportunity cost: A. is irrelevant in socialistic economies because of central planning. B. suggests that the use of resources in any particular line of production means that alternative outputs must be forgone. C. is irrelevant if the production possibilities curve is shifting to the right. D. suggests that insatiable wants can be fulfilled.

B. suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.

165. Supply-side market failures occur when: A. the demand and supply curves don't reflect consumers' full willingness to pay for a good or service. B. the demand and supply curves don't reflect the full cost of producing a good or service. C. government regulates production of a good or service. D. a good or service is not supplied because no one wants it.

B. the demand and supply curves don't reflect the full cost of producing a good or service.

101. Which of the following will not cause the demand for product K to change? A. a change in the price of close-substitute product J B. an increase in incomes of buyers of product K C. a change in the price of K D. a change in consumer tastes for K

C. a change in the price of K

102. If two goods are complements: A. they are consumed independently. B. an increase in the price of one will increase the demand for the other. C. a decrease in the price of one will increase the demand for the other. D. they are necessarily inferior goods.

C. a decrease in the price of one will increase the demand for the other.

178. Refer to the above diagram. Assuming equilibrium price P1, producer surplus is represented by areas: A. a + b. B. a + b + c + d. C. c + d. D. a + c.

C. c + d. PRODUCER SURPLUS

63. Which of the following characteristics is least unique to a market system? A. private ownership of property resources B. competition among buyers and sellers pursuing monetary returns C. the widespread use of money D. freedom of enterprise and choice

C. the widespread use of money

104. If the demand curve for product B shifts to the right as the price of product A declines, then: A. both A and B are inferior goods. B. A is a superior good and B is an inferior good. C. A is an inferior good and B is a superior good. D. A and B are complementary goods.

D. A and B are complementary goods

189. Which of the following statements is not true? A. Some public goods are paid for by private philanthropy. B. Private provision of public goods is usually unprofitable. C. The free-rider problem results from the characteristics of nonrivalry and nonexcludability. D. Public goods are only provided by government.

D. Public goods are only provided by government.

64. Which of the following is one of the Five Fundamental Questions? A. Which products will be in scarce supply and which in excess supply? B. Who should appoint the head of the central bank? C. How much should society save? D. What goods and services will be produced?

D. What goods and services will be produced?

24. The alternative combinations of two goods which a consumer can purchase with a given money income is shown by: A. a production possibilities curve. B. a demand curve. C. consumer expenditure line. D. a budget line.

D. a budget line.

100. In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by: A. an increase in the cost of making donuts. B. an increase in the price of coffee. C. consumers expecting donut prices to fall. D. a change in buyer tastes.

D. a change in buyer tastes.

166. From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically: A. generates more of a benefit than it costs to produce. B. produces a benefit exactly equal to the cost of producing the last unit. C. maximizes the net benefit to society. D. costs more to produce than it provides in benefits.

D. costs more to produce than it provides in benefits.

109. Tennis rackets and ballpoint pens are: A. substitute goods. B. complementary goods. C. inferior goods. D. independent goods.

D. independent goods.

2. In economics, the pleasure, happiness, or satisfaction received from a product is called: A. marginal cost. B. rational outcome. C. status fulfillment. D. utility.

D. utility.

168. What two conditions must hold for a competitive market to produce efficient outcomes? A. Demand curves must reflect all costs of production, and supply curves must reflect consumers' full willingness to pay. B. Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay. C. Firms must minimize production costs, and consumers must minimize total expenditures. D. Firms must maximize profits, and consumers must all pay prices equal to their maximum willingness to pay.

B. Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.

51. Which of the following is a distinguishing feature of a command system? A. private ownership of all capital. B. central planning. C. heavy reliance on markets. D. wide-spread dispersion of economic power.

B. central planning.

54. An economic system: A. requires a grouping of private markets linked to one another. B. is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem. C. requires some sort of centralized authority (such as government) to coordinate economic activity. D. is a plan or scheme that allows a firm to make money at some other firm's expense.

B. is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.

29. The four factors of production are: A. land, labor, capital, and money B. land, labor, capital, and entrepreneurial ability C. labor, capital, technology, and entrepreneurial ability D. labor, capital, entrepreneurial ability, and money

B. land, labor, capital, and entrepreneurial ability

65. Economic profits in an industry suggest the industry: A. can earn more profits by increasing product price. B. should be larger to better satisfy consumers' desire for the product. C. has excess production capacity. D. is the size that consumers want it to be.

B. should be larger to better satisfy consumers' desire for the product.

108. Other things equal, which of the following might shift the demand curve for gasoline to the left? A. the discovery of vast new oil reserves in Montana B. the development of a low-cost electric automobile C. an increase in the price of train and air transportation D. a large decline in the price of automobiles

B. the development of a low-cost electric automobile

97. The income and substitution effects account for: A. the upward sloping supply curve. B. the downward sloping demand curve. C. movements along a given supply curve. D. shifts in the demand curve.

B. the downward sloping demand curve.

14. The process by which economists test hypotheses against facts to develop theories, principles, and models is called: A. the economic perspective. B. the scientific method. C. policy economics. D. microeconomics.

B. the scientific method.

58. Competition means that: A. sellers can manipulate market price by causing product scarcities. B. there are independently-acting buyers and sellers in each market. C. a product can be purchased at a number of different prices. D. there is more than one seller in a market.

B. there are independently-acting buyers and sellers in each market.

45. The negative slope of the production possibilities curve is a graphical way of indicating that: A. any economy "can have its cake and eat it too." B. to produce more of one product we must do with less of another. C. the principle of increasing opportunity costs applies to only parts of the econo

B. to produce more of one product we must do with less of another.

174. Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle: A. under the demand curve and below the actual price. B. under the demand curve and above the actual price. C. above the supply curve and above the actual price D. above the supply curve and below the actual price.

B. under the demand curve and above the actual price.

8. Which one of the following expressions best states the idea of opportunity cost? A. "A penny saved is a penny earned." B. "He who hesitates is lost." C. "There is no such thing as a free lunch." D. "All that glitters is not gold."

C. "There is no such thing as a free lunch."

167. The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If Transcontinental does not pay for the damage it causes, what has occurred? A. Positive externality B. Demand-side market failure C. Supply-side market failure D. All of these.

C. Supply-side market failure

20. Which of the following is a positive statement? A. The humidity is too high today. B. It is too hot to jog today. C. The temperature is 92 degrees today. D. Summer evenings are nice when it cools off.

C. The temperature is 92 degrees today.

172. Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences: A. a consumer surplus of $12 and Nathan experiences a producer surplus of $3. B. a producer surplus of $9 and Nathan experiences a consumer surplus of $3. C. a consumer surplus of $9 and Nathan experiences a producer surplus of $3. D. a producer surplus of $9 and Nathan experiences a producer surplus of $12.

C. a consumer surplus of $9 and Nathan experiences a producer surplus of $3.

96. An increase in the price of a product will reduce the amount of it purchased because: A. supply curves are upsloping. B. the higher price means that real incomes have risen. C. consumers will substitute other products for the one whose price has risen. D. consumers substitute relatively high-priced for relatively low-priced products.

C. consumers will substitute other products for the one whose price has risen.

164. People enjoy outdoor holiday lighting displays, and would be willing to pay to see these displays, but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a: A. negative externality B. supply-side market failure C. demand-side market failure D. government failure

C. demand-side market failure

55. The term laissez-faire suggests that: A. land and other natural resources should be privately owned, but capital should be publicly owned. B. land and other natural resources should be publicly owned, but capital should be privately owned. C. government should not interfere with the operation of the economy. D. government action is necessary if the economy is to achieve full employment and full production.

C. government should not interfere with the operation of the economy.

123. A market is in equilibrium: A. provided there is no surplus of the product. B. at all prices above that shown by the intersection of the supply and demand curves. C. if the amount producers want to sell is equal to the amount consumers want to buy. D. whenever the demand curve is downsloping and the supply curve is upsloping.

C. if the amount producers want to sell is equal to the amount consumers want to buy.

4. Purposeful behavior suggests that: A. everyone will make identical choices. B. resource availability exceeds economic wants. C. individuals may make different choices because of different desired outcomes. D. an individual's economic goals cannot involve tradeoffs.

C. individuals may make different choices because of different desired outcomes.

13. An economic hypothesis: A. has the same meaning as an economic principle or economic law. B. is usually a normative statement. C. is a possible explanation of cause and effect. D. is a stronger generalization than an economic law.

C. is a possible explanation of cause and effect.

91. A market: A. reflects upsloping demand and downsloping supply curves. B. entails the exchange of goods, but not services. C. is an institution that brings together buyers and sellers. D. always requires face-to-face contact between buyer and seller.

C. is an institution that brings together buyers and sellers.

179. Allocative efficiency occurs only at that output where: A. marginal benefit exceeds marginal cost by the greatest amount. B. consumer surplus exceeds producer surplus by the greatest amount. C. the combined amounts of consumer surplus and producer surplus are maximized. D. the areas of consumer and producer surplus are equal.

C. the combined amounts of consumer surplus and producer surplus are maximized.

194. Refer to the above data. Suppose government has already produced 4 units of this public good. The amount individual B is willing voluntarily to pay for the 4th unit is: A. $14. B. $5. C. $2. D. $0.

D. $0.

28. Which of the following is a capital resource? A. a computer programmer B. a corporate bond issued by a computer manufacturer C. silicon (sand) used to make computer chips D. a piece of software used by a firm

D. a piece of software used by a firm

175. Graphically, producer surplus is measured as the area: A. under the demand curve and below the actual price. B. under the demand curve and above the actual price. C. above the supply curve and above the actual price. D. above the supply curve and below the actual price.

D. above the supply curve and below the actual price.

60. Specialization-the division of labor-enhances productivity and efficiency by: A. allowing workers to take advantage of existing differences in their abilities and skills. B. avoiding the time loss involved in shifting from one production task to another. C. allowing workers to develop skills by working on one, or a limited number, of tasks. D. all of the means identified in the other answers.

D. all of the means identified in the other answers.

162. Which of the following is an example of market failure? A. negative externalities B. positive externalities C. public goods D. all of these

D. all of these

119. A firm's supply curve is upsloping because: A. the expansion of production necessitates the use of qualitatively inferior inputs. B. mass production economies are associated with larger levels of output. C. consumers envision a positive relationship between price and quality. D. beyond some point the production costs of additional units of output will rise.

D. beyond some point the production costs of additional units of output will rise.

57. Command systems are also known as: A. market systems. B. pure capitalism. C. laissez-faire capitalism. D. communism.

D. communism.

62. The use of money contributes to economic efficiency because: A. governmental direction of the production and distribution of output can be avoided by using money. B. roundabout production could not occur without the availability of money. C. it is necessary for the creation of capital goods. D. it promotes specialization by overcoming the problems with barter.

D. it promotes specialization by overcoming the problems with barter.

107. College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are: A. inferior goods. B. normal goods. C. complementary goods. D. substitute goods.

D. substitute goods.

180. At the output level defining allocative efficiency: A. the areas of consumer and producer surplus necessarily are equal. B. marginal benefit exceeds marginal cost by the greatest amount. C. consumer surplus exceeds producer surplus by the greatest amount. D. the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.

D. the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.

86. Which is an example of barter? A. A person trades a desk for a box of tools B. A person buys clothes at a used clothing store C. A gift of tuition money from parents to their children D. The purchase of stock on the New York Stock Exchange

A. A person trades a desk for a box of tools

81. The market system is often also known as: A. Capitalism B. Socialism C. Central planning D. Regulation

A. Capitalism

85. How does human specialization contribute to an economy's output? A. It makes use of differences in abilities B. It is a process of creative destruction C. It works like an "invisible hand" D. It decreases derived demand

A. It makes use of differences in abilities

82. The economies of North Korea and South Korea are: A. Similar in that they are both basically command systems B. Similar in that they are both basically market systems C. Different in that North Korea has a command system while South Korea has a market system D. Different in that South Korea has a command system while North Korea has a market system

A. Similar in that they are both basically command systems

169. If the demand curve reflects consumers' full willingness to pay, and the supply curve reflects all costs of production, then which of the following is true? A. The benefit surpluses shared between consumers and producers will be maximized. B. The benefit surpluses received by consumers and producers will be equal. C. There will be no consumer or producer surplus. D. Consumer surplus will be maximized, and producer surplus will be minimized.

A. The benefit surpluses shared between consumers and producers will be maximized.

177. Refer to the above diagram. Assuming equilibrium price P1, consumer surplus is represented by areas: A. a + b. CONSUMER SURPLUS B. a + b + c + d. C. c + d. D. a + c.

A. a + b. CONSUMER SURPLUS

27. Which of the following is a labor resource? A. a computer programmer B. a computer C. silicon (sand) used to make computer chips D. a piece of software used by a firm

A. a computer programmer

173. Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences: A. a consumer surplus of $10 and Tony experiences a producer surplus of $190. B. a producer surplus of $200 and Tony experiences a consumer surplus of $10. C. a consumer surplus of $670 and Tony experiences a producer surplus of $200. D. a producer surplus of $10 and Tony experiences a consumer surplus of $190.

A. a consumer surplus of $10 and Tony experiences a producer surplus of $190.

92. Markets, viewed from the perspective of the supply and demand model: A. assume many buyers and many sellers of a standardized product. B. assume market power so that buyers and sellers bargain with one another. C. do not exist in the real-world economy. D. are approximated by markets in which a single seller determines price.

A. assume many buyers and many sellers of a standardized product.

103. DVD players and DVDs are: A. complementary goods. B. substitute goods. C. independent goods. D. inferior goods.

A. complementary goods.

94. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is ____. A. direct, inverse B. inverse, direct C. inverse, inverse D. direct, direct

A. direct, inverse

170. Consumer surplus: A. is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price. B. is the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept. C. is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price. D. rises as equilibrium price rises.

A. is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.

161. Market failure is said to occur whenever: A. private markets do not allocate resources in the most economically desirable way. B. prices rise. C. some consumers who want a good do not obtain it because the price is higher than they are willing to pay. D. government intervenes in the functioning of private markets.

A. private markets do not allocate resources in the most economically desirable way.

95. In presenting the idea of a demand curve, economists presume the most important variable in determining the quantity demanded is: A. the price of the product itself. B. consumer income. C. the prices of related goods. D. consumer tastes.

A. the price of the product itself.

79. In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations? A. Partnerships. B. Corporations. C. Sole proprietorships. D. In all of the businesses listed in the other answers.

B. Corporations.

22. Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should be increased on beer because college students drink too much." We can conclude that: A. Ben's statement is normative, but Holly's is positive. B. Holly's statement is normative, but Ben's is positive. C. Both statements are normative. D. Both statements are positive

B. Holly's statement is normative, but Ben's is positive.

11. Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as: A. rational self-interest, because he attempting to increase his own income by identifying and satisfying someone else's wants. B. greedy, because he is asking for a high wage. C. selfish, because he is asking for a wage that is higher than others might charge. D. irrational, because some neighbors refused his offer.

A. rational self-interest, because he attempting to increase his own income by identifying and satisfying someone else's wants.

163. Demand-side market failures occur when: A. the demand and supply curves don't reflect consumers' full willingness to pay for a good or service. B. the demand and supply curves don't reflect the full cost of producing a good or service. C. government imposes a tax on a good or service. D. a good or service is not produced because no one demands it.

A. the demand and supply curves don't reflect consumers' full willingness to pay for a good or service.

18. Macroeconomics approaches the study of economics from the viewpoint of: A. the entire economy. B. governmental units. C. the operation of specific product and resource markets. D. individual firms.

A. the entire economy.

68. If a competitive industry is neither expanding nor contracting, we would expect: A. total revenue to be zero. B. economic profits to be zero. C. total opportunity cost to be zero. D. more resources to flow to that industry.

B. economic profits to be zero.

6. You should decide to go to a movie: A. if the marginal cost of the movie exceeds its marginal benefit. B. if the marginal benefit of the movie exceeds its marginal cost. C. if your income will allow you to buy a ticket. D. because movies are enjoyable.

B. if the marginal benefit of the movie exceeds its marginal cost.

52. Which of the following is a distinguishing feature of a market system? A. public ownership of all capital. B. central planning. C. wide-spread private ownership of capital. D. a circular flow of goods, resources, and money

C. wide-spread private ownership of capital.