ECON practice test 1

3. Which of the following statements about scarcity is true?

(A) Scarcity refers to the situation in which unlimited wants exceed limited resources

37. Suppose that in October, market analysts predict that the price of platinum will fall in November. What happens in the platinum market in October, holding everything else constant?

(A) The supply curve shifts to the right.

46. Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?

(A) a decrease in the price of flour

45. Orange juice drinkers want to consume more orange juice at a lower price. Which of the following events would have this effect?

(A) a decrease in the price of orange juice processing

36. In general, the term "ceteris paribus" means

(A) all else equal.

34. If a demand curve shifts to the right, then

(A) demand has increased.

53. Tax incidence is

(A) the actual division of the burden of a tax between buyers and sellers in a market.

38. If the price of automobiles was to increase, then

(A) the demand for gasoline would decrease.

32. The law of demand implies, holding everything else constant, that as the price of bagels increases

(A) the quantity of bagels demanded will decrease.

40. Which of the following is the correct way to describe equilibrium in a market?

(B) At equilibrium, quantity demanded equals quantity supplied.

2. Which of the following covers the study of topics such as inflation or unemployment?

(B) Macroeconomics

42. Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation?

(B) Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price.

43. Which of the following is evidence of a surplus of bananas?

(B) The price of bananas is lowered in order to increase sales.

33. If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as

(B) a decrease in quantity demanded.

50. The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.

(B) above; below

8. In economics, the term ________ means "additional" or "extra."

(B) marginal

11. Economic models do all of the following except

(B) portray reality in all its minute details.

4. One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls

(B) scarcity.

6. Opportunity cost is

(B) the highest valued alternative that must be give up to engage in an activity.

44. In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit in 2004

(B) the supply curve shifted to the left resulting in an increase in the equilibrium price.

7. ________ is concerned with what is, and ________ is concerned with what ought to be. Economics is about ________, which measures the costs and benefits of different courses of action.

(C) Positive, normative, positive

39. In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant?

(C) The demand curve shifts to the right.

41. In 2004, hurricanes damaged a large portion of Florida's orange crop. As a result of this, many orange growers were not able to supply fruit to the market. If, following the hurricane, the price remained at its pre-hurricane level, we would expect to see

(C) a shortage of oranges.

1. By definition, economics is the study of

(C) the choices people make to attain their goals, given their scarce resources.

12. The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of

(C) trade-off.

49. Frieda is at her local florist to buy a dozen roses. She is willing to pay $75 for the roses, and buys them for $75. Frieda's consumer surplus from the purchase is

(D) $0.

48. Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is

(D) $75.

35. According to the law of supply,

(D) A and C only.

5. Trade-offs force society to make choices, particularly when answering the following three fundamental questions:

(D) One, what goods and services will be produced? Two, how will the goods and services be produced? Three, who will receive the goods and services produced?

51. Economic efficiency is

(D) a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

14. The primary difference between absolute and comparative advantage is

(D) absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.

10. Economists assume that individuals

(D) are rational and respond to incentives.

47. The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called

(D) consumer surplus.

13. The production possibilities frontier model shows that

(D) if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

52. In a city with rent-controlled apartments, all of the following are true except

(D) landlords have an incentive to rent more apartments than they would without rent control.

9. Economists reason that the optimal decision is to continue any activity up to the point where the

(D) marginal benefit equals the marginal cost.