ECON EXAM 1
7. If macroeconomics looks at the economy as a whole, it focuses on which of the following? A. households B. business firms C. unemployed people D. the division of labor
Answer: C Reference:
22. If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that: a. the price of Good Y will increase. b. Goods X and Y are normal goods. c. Goods X and Y are substitute goods. d. Goods X and Y are complement goods.
Answer: D Reference:
23. Most real-world choices aren't about getting all of one thing or another, instead, most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good. a. utility b. opportunity cost c. benefit analysis d. marginal analysis
Answer: D Reference:
5. Scarcity exists because of: a. the market mechanism. b. specialization and division of labor. c. the allocation of goods by prices d. unlimited wants and limited resources.
Answer: D Reference:
25. The choice on a production possibilities set that is socially preferred, or the choice on an individual's budget constraint that is personally preferred, will display _____________________. a. allocative efficiency b. the production possibilities frontier c. trade-offs d. scarcity
Answer: A Reference:
3. As depicted in _________________________________, it is necessary to give up some of one good to gain more of the other good. A. the production possibilities frontier B. allocative efficiency C. scarcity D. utility
Answer: A Reference:
3. In a _______________________, most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers. A. market-oriented economy B. macroeconomy C. microeconomy D. command economy
Answer: A Reference:
10. Many economists believe that the trend toward greater wage inequality across the U.S. economy was primarily caused by _____________. a. the recession b. new technologies c. the rise of global markets d. inflation
Answer: B Reference:
11. If new manufacturers enter the computer industry, then (ceteris paribus): a. the supply curve shifts to the left. b. the supply curve shifts to the right. c. the demand curve shifts to the left. d. some established manufacturers must exit the industry.
Answer: B Reference:
13. In a market-oriented economy, the amount of a good that is produced is primarily decided by the interaction of: A. all consumers. B. buyers and sellers. C. producers and input suppliers. D. producers and government planning committees
Answer: B Reference:
9. After widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Canada, the likely economic effect on the U.S. demand curve for beef from Canada is: a. no change; only the supply curve for beef is likely to be affected. b. a shift of the demand curve for beef to the left. c. a movement down along the demand curve for beef to the right. d. a shift of the demand curve for beef to the right.
Answer: B Reference:
1. The downward slope of the demand curve again illustrates the pattern that as _____________ rises, _________________ decreases. A. quantity demanded, price B. quantity supplied, quantity demanded C. price, quantity demanded D. price, quantity supplied
Answer: C Reference:
11. Macroeconomics primarily examines: A. the behaviour of individual households and firms. B. how prices are determined within individual markets. C. broad issues such as national output, employment and inflation. D. the output levels that maximize the profits of business firms
Answer: C Reference:
20. ______________ are enacted when discontented sellers, feeling that prices are too low, appeal to legislators to keep prices from falling. a. Rent controls b. Price ceilings c. Price floors d. Subsidies
Answer: C Reference:
19. Which of the following best characterizes the circular flow of income? A. Businesses buy resources from the government, and households buy goods and services from businesses. B. Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses. C. The government purchases resources from businesses and households and then sells goods and services to businesses and households. D. Households buy factors of production from businesses, and businesses buy goods and services from households.
Answer: B Reference:
2. In a discussion of economics, which of the following would exert the most influence on an individual firm's decision to hire workers? A. wage levels B. the macroeconomy C. the firm's income D. household income
Answer: B Reference:
21. Regardless of whether you are looking through the microeconomics microscope or the macroeconomics telescope, the fundamental subject material of the interconnected __________ doesn't change. A. market B. economy C. production D. firm
Answer: B Reference:
23. Economic models like the _____________________ are not physical models, but instead are diagrams or graphs or even mathematical equations that represent economic patterns or theories. A. financial capital market B. circular flow diagram C. financial investment market D. Specialization Model
Answer: B Reference:
23. If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. This is known as ___________________ a. excess supply b. excess demand c. ceteris paribus d. a price ceiling
Answer: B Reference:
24. Economists refer to this pattern, the ___________________________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines. a. law of trade-offs b. law of diminishing marginal utility c. production possibilities frontier d. law of increasing marginal utility
Answer: B Reference:
24. The ____________ is the quantity where quantity demanded and quantity supplied are equal at a certain price. a. quantity demanded b. equilibrium quantity c. demand schedule d. supply schedule
Answer: B Reference:
3. The term "ceteris paribus" means that: A. everything is variable. B. all variables except those specified are constant. C. no one knows which variables will change and which will remain constant. D. what is true for the individual is not necessarily true for the whole.
Answer: B Reference:
4. A supply curve is a graphical illustration of the relationship between price, shown on the vertical axis, and ____________, shown on the horizontal axis. A. demand B. quantity C. quantity supplied D. quantity demanded
Answer: B Reference:
4. Which of the following best denotes the reason for the existence of substantial black markets? A. a market-oriented economy B. a command economy C. government laws and rules D. the microeconomy
Answer: B Reference:
5. In economics, the demand for a good refers to the amount of the good that people: a. would like to have if the good were free. b. will buy at various prices. c. need to achieve a minimum standard of living. d. will buy at alternative income levels.
Answer: B Reference:
6. Scarcity implies that: a. consumers would be willing to purchase the same quantity of a good at a higher price. b. it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available. c. at the current market price, consumers are willing to purchase more of a good than suppliers are willing to produce. d. consumers are too poor to afford the goods and services available.
Answer: B Reference:
14. The marginal benefit of a slice of pizza is the: a. total amount that a consumer is willing to pay for a whole pizza, divided by the number of slices b. difference between the value of the slice to the consumer and the price of the slice. c. maximum amount that a consumer is willing to pay for the slice. d. price of the slice of pizza
Answer: C Reference:
14. Which of the following statements most likely lies within the realm of macroeconomics? A. An increase in the price of automobiles will lead to a decrease in the quantity of automobiles demanded. B. Due to process innovations in computer chip manufacturing, the market supply of computers increased. C. Due to an economic recession, manufacturing firms began implementing layoffs of their workforces. D. Anticipating that the benefits would outweigh costs involved, an undergraduate student purchases the course textbook.
Answer: C Reference:
15. A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the __________________ . a. demand curve to the right b. supply curve to the left c. supply curve to the right d. demand curve to the left
Answer: C Reference:
15. A more efficient means of processing algae to produce an anticancer drug is discovered. As a result, the supply curve for the drug will: a. shift to the right, increasing the price of the drug. b. shift to the left, increasing the price of the drug. c. shift to the right, decreasing the price of the drug d. shift to the left, decreasing the price of the drug.
Answer: C Reference:
17. The basic difference between macroeconomics and microeconomics is that: A. microeconomics looks at the forest (aggregate markets) while macroeconomics looks at the trees (individual markets). B. macroeconomics is concerned with groups of individuals while microeconomics is concerned with single countries. C. microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets). D. macroeconomics is concerned with generalization while microeconomics is concerned with specialization.
Answer: C Reference:
17. The imposition of a price ceiling on a market often results in: a. an increase in investment in the industry. b. a surplus c. a shortage d. a decrease in discrimination on the part of sellers.
Answer: C Reference:
18. As a person receives more of a good, the _______________ from each additional unit of the good declines. a. utility b. sunk costs c. marginal utility d. budget constraint
Answer: C Reference:
19. In many cases, it is reasonable to refer to the ________________ as the price. a. budget constraint b. sunk cost c. opportunity cost d. budget constraint
Answer: C Reference:
19. Whenever there is a shortage at a particular price, the quantity sold at that price will equal: a. the quantity demanded at that price. b. the quantity supplied minus the quantity demanded. c. the quantity supplied at that price. d. (quantity demanded plus quantity supplied)/2.
Answer: C Reference:
2. As the __________ substitute for low-skill labor becomes available, the demand curve for low-skill labor will shift to the left. A. high-skill labor B. lower wage C. technology D. market
Answer: C Reference:
2. Attending college is a case where the ________________ exceeds the monetary cost. A. budget constraint B. marginal analysis C. opportunity cost D. marginal utility
Answer: C Reference:
21. In deciding how many hours to work, Beulah will make a choice that maximizes her _______; that is, she will choose according to her preferences for leisure time and income. a. budget constraint b. opportunity set c. utility d. production possibilities frontier
Answer: C Reference:
22. _____________ - a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines. A. Skill B. Specialization C. Economies of scale D. Division of labor
Answer: C Reference:
3. Improvements in the productivity of labor will tend to: A. decrease wages. B. decrease the supply of labor. C. increase wages. D. increase the supply of labor.
Answer: C Reference:
4. Which of the following will not result in a leftward shift of the market demand curve for labor? A. a decrease in labor productivity B. a decrease in demand for the firm's product C. an increase in the wage rate D. a decrease in the firm's product price
Answer: C Reference:
4. Why is there scarcity? a. Because the opportunity set determines this. b. Because theory dictates it. c. Because our unlimited wants exceed our limited resources d. Because human wants are limited.
Answer: C Reference:
5. If the demand for software engineers __________ slower than does supply, then wages of software engineers will __________. a. increases; remain constant b. increases, rise c. increases; fall d. decreases; fall
Answer: C Reference:
5. Which of the following is generally accepted as a valid criticism of the production of useful goods and services? A. government involvement B. the black market C. environmental pollution D. economic freedom
Answer: C Reference:
6. In contrast to goods and services markets, _____________ are rare in labor markets, because rules that prevent people from earning income are not politically popular. a. minimum wages b. price floors c. price ceilings d. living wage laws
Answer: C Reference:
7. Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is: a. nothing, because he enjoys playing basketball more than studying. b. the increase in skill he obtains from playing basketball for that hour. c. the benefit to his grades from studying for an hour d. nothing, because he had a free pass into the sports complex to play basketball.
Answer: C Reference:
8. In the ____________, households work and receive payment from firms. A. financial investment market B. financial capital market C. labor market D. savings market
Answer: C Reference:
8. When consumers and businesses have greater confidence that they will be able to repay in the future, _______________________ a. the quantity demanded of financial capital at any given interest rate will remain unchanged. b. the quantity demanded of financial capital at any given interest rate will shift to the left. c. the quantity demanded of financial capital at any given interest rate will shift to the right. d. the quantity demanded of financial capital at any given interest rate will achieve equilibrium.
Answer: C Reference:
9. If labor demand is downward sloping and labor supply is upward sloping, then when labor demand rises faster than labor supply, it is expected that real wages __________. a. will stay the same b. will decrease c. will increase d. may increase, decrease or stay the same depending on the relative slopes.
Answer: C Reference:
12. The opportunity cost of an action: a. can be determined by considering both the benefits that flow from as well as the monetary costs incurred as a result of the action. b. can be determined by adding up the bills incurred as a result of the action. c. can be objectively determined only by economists. d. is a subjective valuation that can be determined only by the individual who chooses the action.
Answer: D Reference:
16. Macroeconomics: A. is concerned with the expansion of a small business into a large corporation. B. is narrower in scope than microeconomics. C. analyzes mergers and acquisitions between firms. D. is concerned with the expansion and contraction of the overall economy.
Answer: D Reference:
2. The nature of demand indicates that as the price of a good increases: A. suppliers wish to sell less of it. B. more of it is produced. C. more of it is desired. D. buyers desire to purchase less of it.
Answer: D Reference:
20. In the circular flow diagram model: A. households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses. B. businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from households. C. households receive revenue for selling goods and services to businesses, and use that revenue to buy inputs from businesses. D. Both (a) and (b) are correct.
Answer: D Reference:
20. Whenever there is a surplus at a particular price, the quantity sold at that price will equal: a. (quantity demanded plus quantity supplied)/2. b. the quantity supplied at that price. c. the quantity supplied minus the quantity demanded. d. the quantity demanded at that price.
Answer: D Reference:
21. Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect: a. Andy's demand for pizza to increase. b. Andy's demand for pizza to decrease. c. Andy's quantity of pizza demanded to decrease. d. Andy's demand for beer to increase.
Answer: D Reference:
7. When quantity demanded decreases in response to a change in price: a. the demand curve shifts to the right. b. the demand curve shifts to the left. c. there is a movement down along the demand curve. d. there is a movement up along the demand curve.
Answer: D Reference:
8. "If I didn't have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." The opportunity cost of attending class this evening is: a. $0 b. $4 c. $40 d. $44
Answer: D Reference:
9. Which of the following statements most likely lies within the realm of microeconomics? A. Unemployment rises during a recession and falls during an expansion. B. An increase in government spending will increase the aggregate demand for goods and services in the economy. C. A rapid acceleration of the supply of money may create inflation. D. An increase in labor costs will increase the additional cost of producing another bus.
Answer: D Reference:
1. Philosophers draw a distinction between positive statements, which describe the world as it is, and ___________________s, which describe how the world should be. A. normative statement B. budget constraint C. trade-off D. opportunity cos
Answer: A Reference:
1. The "law of supply" functions in labor markets; that is, a higher __________ for labor leads to a higher quantity of labor supplied. A. price B. demand C. supply D. quantity
Answer: A Reference:
10. Macroeconomic topics do not usually include: A. the profit maximizing decisions of an individual manufacturer. B. the rate of inflation. C. the rate of unemployment. D. economic growth.
Answer: A Reference:
11. As the _____________ complement for high-skill labor becomes cheaper, the demand curve for high-skill labor will shift to the right. a. technology b. low-skill labor c. market d. lower wage
Answer: A Reference:
15. The general pattern that consumption of the first few units of any good tends to bring a higher level of _______ to a person than consumption of later units is a common pattern. a. utility b. marginal benefit c. opportunity cost d. sunk costs
Answer: A Reference:
17. According to the law of supply: a. there is a direct relationship between price and the quantity supplied. b. there is an inverse relationship between price and the quantity supplied. c. there is a direct relationship between price and quantity demanded. d. there is an inverse relationship between price and quantity demanded.
Answer: A Reference:
18. On April 1, 2009, in the middle of a recession, the government of the province of Ontario, Canada increased the provincial minimum wage from $8.75 to $9.50. What will the likely effect of this policy be? a. Both the leftward shift in the labor demand curve and the higher minimum wage will lead to an increase in the unemployment rate. b. Low income workers will be better able to survive the recession at the new, higher wage rate. c. More people will be hired at the higher wage rate offsetting the effects of the recession. d. The higher wage will increase the supply of labor offsetting the effects of the recession.
Answer: A Reference:
18. The circular flow diagram of economic activity is a model of the: A. flow of goods, services, and payments between households and firms. B. influence of government on business behaviour. C. role of unions and government in the economy. D. interaction among taxes, prices, and profits.
Answer: A Reference:
19. Interpret the following statement: "An increase in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market." a. The statement is correct. b. The statement would be correct if "quantity of wheat demanded" were substituted for "quantity of wheat supplied." c. The statement is incorrect because it confuses a change in quantity supplied with a change in supply. d. The statement would be correct if it read that a "decrease in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market."
Answer: A Reference:
20. The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options. a. sunk costs b. opportunity costs c. marginal analysis d. budget constraints
Answer: A Reference:
22. The model that economists use for illustrating the process of individual choice in a situation of scarcity is the budget constraint, sometimes also called the _______________, a diagram which shows what choices are possible. a. opportunity set b. consumption choice c. time value of money d. risk premium
Answer: A Reference:
6. In the first chapter of The Wealth of Nations, Smith introduces the idea of the __________, which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers. A. division of labor B. interconnected economy C. task economy D. modern economy
Answer: A Reference:
6. The demand curve for a typical good has a(n): a. negative slope because some consumers switch to other goods as the price rises. b. negative slope because consumer incomes fall as the price of the good rises. c. negative slope because the good has less "snob appeal" as its price falls. d. inverse slope because as the price goes up, the good has more profitability.
Answer: A Reference:
7. Since Baltimore passed the first _______________ in 1994, several dozen cities enacted similar laws in the late 1990s and into the 2000s. a. living wage law b. price ceiling c. price floor d. minimum wage
Answer: A Reference:
8. The ___________ is the only price where quantity demanded is equal to quantity supplied. a. equilibrium price b. horizontal axis intercept c. vertical axis intercept d. market price
Answer: A Reference:
9. The opportunity cost of attending university is likely to include all except which of the following? a. the cost of haircuts received during the school term b. the income you forgo in order to attend classes c. tuition fees d. the cost of required textbooks
Answer: A Reference:
1. In which of the following countries will the national government have the greatest influence with respect to the nation's economy? A. China B. Cuba C. Canada D. Chile
Answer: B Reference:
12. Many cooks view butter and margarine to be substitutes. If the price of butter rises, then in the market for margarine: a. the equilibrium price will fall and the equilibrium quantity will fall. b. both the equilibrium price and quantity will rise. c. the equilibrium price will rise and the equilibrium quantity will decrease. d. the equilibrium price will rise, while the change to equilibrium quantity is indeterminate.
Answer: B Reference:
12. Specialization: A. leads to greater self-sufficiency. B. can lead to an increase in overall production. C. allows workers to develop skills by working on a large number of tasks D. is always the result of an inefficient use of resources
Answer: B Reference:
13. The supply curve of textbooks (which are produced using paper made from trees) will shift to the left in response to: a. a decline in college tuition. b. a sharp increase in the demand for and construction of wood-frame homes. c. an increase in the supply of lumberjacks. d. an end to government regulations that limit timber harvesting in national forests.
Answer: B Reference:
14. Steel mill wage costs increase by 18 percent over a year. What is the likely economic effect on the market for steel? a. There is an increase in the cost of producing steel, which shifts the supply curve of steel to the right, thereby increasing the price of steel. b. There is an increase in the cost of producing steel, which shifts the supply curve of steel to the left, thereby increasing the price of steel. c. There is a decrease in the cost of producing steel, which shifts the supply curve of steel to the left, thereby increasing the price of steel. d. The increase in wage costs will shift the demand curve for steel to the left, increasing the cost of steel.
Answer: B Reference:
15. Which of the following lies primarily within the realm of macroeconomics? A. a study of the demand for gasoline B. a study of how tax cuts stimulate aggregate production C. an analysis of supply and demand conditions in the electricity market D. a study of the impact of "mad cow" disease on the price of beef worldwide
Answer: B Reference:
16. A change in price of a good or service typically causes ___________________________ for that specific good or service. a. a new equilibrium price b. a change along the supply curve c. the supply curve to shift d. a decreased demand
Answer: B Reference:
16. Are markets always in equilibrium? a. No, they never "settle down" into a stable price and quantity. b. No, but if there is no outside interference, they tend to move toward equilibrium. c. Yes, because very few things tend to alter supply and demand. d. Yes, they are always at the equilibrium point, or very close to it.
Answer: B Reference:
16. The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options. a. marginal utility b. sunk costs c. marginal analysis d. budget constraints
Answer: B Reference:
17. The model that economists use for illustrating the process of individual choice in a situation of scarcity is the _________________, sometimes also called the opportunity set, a diagram which shows what choices are possible. a. consumption set b. budget constraint c. original budget d. income cap
Answer: B Reference:
18. Which of the following would reduce the supply of microcomputers? a. a technological improvement that lowers the cost of producing the computers b. higher wage rates for the workers that assemble the computers c. a reduction in the price of computer chips used to produce the computers d. a reduction in the price of computers.
Answer: B Reference: