Econ review 1

The market system's answer to the fundamental question "What will be produced?" is essentially: A. "Goods and services that are profitable." B. "Low cost goods and services." C. "Goods and service that can be produced using large amounts of capital." D. "Goods and services that possess lasting value

A. "Goods and services that are profitable."

Refer to the above diagram. Total revenue at price P1 is indicated by area(s): A. C + D. B. A + B. C. A + C. D. A.

B. A + B.

A negative externality such as pollution can be corrected by A. a subsidy to producers. B. a tax on producers. C. a subsidy to consumers. D. a stimulus to production.

B. a tax on producers.

Exchange rates are particularly important because: A. they present a challenge to financial speculators. B. they link the price levels of various nations to one another. C. they represent exceptions to the laws of demand and supply. D. equilibrium is never achieved in such markets.

B. they link the price levels of various nations to one another.

Public goods are A. rival and exclusive. B. rival, but not exclusive. C. exclusive, but not rival. D. neither exclusive nor rival

D. neither exclusive nor rival

. Wage determination in labor markets is important because: A. wages are a major determinant of money incomes. B. wages allocate scarce resources among alternative uses. C. wages, along with labor productivity, are important to firms in minimizing their costs. D. of all of these reasons.

D. of all of these reasons.

Economic scarcity: A. is peculiar to the United States economy. B. applies to all economies. C. is peculiar to command systems. D. is peculiar to market systems.

B. applies to all economies.

Which of the following concepts provides the basic rationale for international trade? A. Increasing opportunity costs. B. Consumer sovereignty. C. Comparative advantage. D. The law of supply.

C. Comparative advantage.

Which of the following is a normative statement? A. The temperature is high today. B. The humidity is high today. C. It is too hot to play tennis today. D. It will cool off later this evening.

C. It is too hot to play tennis today.

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.

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

C. pleasures and satisfaction

An effective price floor on wheat will: A. force otherwise profitable farmers out of business. B. result in a shortage of wheat. C. result in a surplus of wheat. D. clear the market for wheat.

C. result in a surplus of wheat.

Refer to the above diagram. This economy will experience unemployment if it produces at point: A. A. B. B. C. C. D. D.

D. D.

Refer to the above diagram. A price of $20 in this market will result in: A. a shortage of 50 units. B. a surplus of 50 units. C. a surplus of 100 units. D. a shortage of 100 units.

D. a shortage of 100 units.

. Refer to the above diagram. Other things equal, this economy will achieve the most rapid rate of growth if: A. the ratio of capital to consumer goods is minimized. B. it chooses point C. C. it chooses point B. D. it chooses point A.

D. it chooses point A.

A leftward shift of a product supply curve might be caused by: A. an improvement in the relevant technique of production. B. a decline in the prices of needed inputs. C. an increase in consumer incomes. D. some firms leaving an industry.

D. some firms leaving an industry.

Which of the following is a fundamental characteristic of the market system? A. property rights. B. central planning by the government. C. unselfish behavior. D. government-set wages and prices

A. property rights.

The main determinant of elasticity of supply is the: A. number of close substitutes for the product available to consumers. B. amount of time the producer has to adjust inputs in response to a price change. C. urgency of consumer wants for the product. D. number of uses for the product.

B. amount of time the producer has to adjust inputs in response to a price change.

A nation's true gain from international trade is: A. increased employment in export industries. B. an overall increase in output obtained through specialization and exchange. C. added technological knowledge. D. the tariff revenue that goes to the national treasury.

B. an overall increase in output obtained through specialization and exchange.

Market failure occurs when A. a good is too expensive for the market to provide. B. an unrestrained market economy leads to too few or too many resources going to a specific economic activity. C. one good is superior to another and drives it out of the market. D. the stock market experiences a very large loss.

B. an unrestrained market economy leads to too few or too

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

B. complementary goods.

Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The data contained in the production possibilities curves are based on the assumption of: A. imperfect shiftability of resources between beer and pizza production. B. constant costs. C. decreasing costs. D. increasing costs.

B. constant costs.

One can say with certainty that equilibrium price will decline when supply: A. and demand both decrease. B. increases and demand decreases C. decreases and demand increases. D. and demand both increase.

B. increases and demand decreases

Broadly defined, competition involves: A. private property and freedom of expression. B. independently acting buyers and sellers and freedom to enter or leave markets. C. increasing opportunity costs and diminishing marginal utility. D. capital goods and division of labor.

B. independently acting buyers and sellers and freedom to enter or leave markets.

7. The value of the best alternative sacrificed to obtain something you want is referred to as A. explicit cost. B. opportunity cost. C. marginal cost. D. sunk cost.

B. opportunity cost.

The basic formula for the price elasticity of demand coefficient is: A. absolute decline in quantity demanded/absolute increase in price. B. percentage change in quantity demanded/percentage change in price. C. absolute decline in price/absolute increase in quantity demanded. D. percentage change in price/percentage change in quantity demanded.

B. percentage change in quantity demanded/percentage change in price.

The terms of trade reflect the: A. rate at which gold exchanges internationally for any domestic currency. B. ratio at which nations will exchange two goods. C. fact that the gains from trade will be equally divided. D. cost conditions embodied in a single country's production possibilities curve.

B. ratio at which nations will exchange two goods.

The price elasticity of supply measures how: A. easily labor and capital can be substituted for one another in the production process. B. responsive the quantity supplied of X is to changes in the price of X. C. responsive the quantity supplied of Y is to changes in the price of X. D. responsive quantity supplied is to a change in incomes.

B. responsive the quantity supplied of X is to changes in the price of X.

Economics is best be defined as the: A. interaction between macro and micro considerations. B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity. C. empirical testing of value judgments through the use of logic. D. use of policy to refute facts and hypotheses.

B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

In the production of goods and services, trade-offs exist because A. not all production is efficient. B. society has only a limited amount of productive resources. C. buyers and sellers often must negotiate prices. D. human wants and needs are limited at a particular point in time

B. society has only a limited amount of productive resources.

An important characteristic of private goods is A. the nonexclusion principle. B. the principle of rival consumption. C. the principle of joint consumption. D. the principle of conspicuous consumption.

B. the principle of rival consumption.

Employers will hire more units of a resource if: A. the price of the resource increases. B. the productivity of the resource increases. C. the price of the good being produced declines. D. the price of a complementary resource rises.

B. the productivity of the resource increases.

In a market economy the distribution of output will be determined primarily by: A. consumer needs and preferences. B. the quantities and prices of the resources that households supply. C. government regulations that provide a minimum income for all. D. a social consensus as to what distribution of income is most equitable.

B. the quantities and prices of the resources that households supply.

It takes a considerable amount of time to increase the production of pork. This implies that: A. a change in the demand for pork will not affect its price in the short run. B. the short-run supply curve for pork is less elastic than the long-run supply curve for pork. C. an increase in the demand for pork will elicit a larger supply response in the short run than in the long run. D. the long-run supply curve for pork is less elastic than the short-run supply curve for pork.

B. the short-run supply curve for pork is less elastic than the long-run supply curve for pork.

8. Refer to the above data. Equilibrium price will be: A. $4. B. $3. C. $2. D. $1

C. $2

Which of the following statements best illustrates the concept of derived demand? A. As income goes up the demand for farm products will increase by a smaller relative amount. B. A decline in the price of margarine will reduce the demand for butter. C. A decline in the demand for shoes will cause the demand for leather to decline. D. When the price of gasoline goes up, the demand for motor oil will decline.

C. A decline in the demand for shoes will cause the demand for leather to decline.

6. All of the following are examples of physical capital EXCEPT A. buildings. B. machinery. C. company stocks and bonds. D. a hydroelectric power plant.

C. company stocks and bonds.

The spending by Americans while traveling in Europe best illustrates a: A. trade flow. B. labor flow. C. financial flow. D. technology flow.

C. financial flow.

Refer to the above diagram. Flow (3) represents: A. wage, rent, interest, and profit income. B. land, labor, capital, and entrepreneurial ability. C. goods and services. D. consumer expenditures.

C. goods and services.

Since 1970, United States exports and imports have: A. grown absolutely, but remained a constant proportion of GDP. B. grown absolutely, but declined as a proportion of GDP. C. grown both absolutely and as a percentage of GDP. D. declined both absolutely and as a percentage of GDP.

C. grown both absolutely and as a percentage of GDP.

The simple circular flow model shows that: A. households are on the buying side of both product and resource markets. B. businesses are on the selling side of both product and resource markets. C. households are on the selling side of the resource market and on the buying side of the product market. D. businesses are on the buying side of the product market and on the selling side of the resource market.

C. households are on the selling side of the resource market and on the buying side of the product market.

The production possibilities frontier illustrates the basic principle that: A. the production of more of any one good will in time require smaller and smaller sacrifices of other goods. B. an economy will automatically obtain full employment of its resources. C. if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced. D. an economy's capacity to produce increases in proportion to its population size.

C. if all the resources of an economy are in use, more of one good can be produced only if less of another

The real wage will rise if the nominal wage: A. falls more rapidly than the general price level. B. increases at the same rate as labor productivity. C. increases more rapidly than the general price level. D. falls more rapidly than the general price level.

C. increases more rapidly than the general price level.

Price ceilings and price floors: A. cause surpluses and shortages respectively. B. make the rationing function of free markets more efficient. C. interfere with the rationing function of prices. D. shift demand and supply curves and therefore have no effect on the rationing function of prices.

C. interfere with the rationing function of prices.

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.

According to the concept of comparative advantage, a good should be produced in that nation where: A. its domestic opportunity cost is greatest. B. money is used as a medium of exchange. C. its domestic opportunity cost is least. D. the terms of trade are maximized.

C. its domestic opportunity cost is least.

The problems of aggregate inflation and unemployment are: A. major topics of macroeconomics. B. not relevant to the U.S. economy. C. major topics of microeconomics. D. peculiar to command economies.

C. major topics of macroeconomic

Assume an economy is operating at some point on its production possibilities curve, which shows civilian and military goods. If the output of military goods is increased, the output of civilian goods: A. will remain unchanged. B. may be either increased or decreased. C. must be decreased. D. must also be increased.

C. must be decreased.

If we say that a price is too high to clear the market, we mean that: A. quantity demanded exceeds quantity supplied. B. the equilibrium price is above the current price. C. quantity supplied exceeds quantity demanded. D. the price of the good is likely to rise

C. quantity supplied exceeds quantity demanded.

Scarcity refers to A. the ability of society to employ all of its resources. B. the ability of society to consume all that it produces. C. the inability of society to satisfy all human wants because of limited resources. D. the inability of society to eliminate poverty

C. the inability of society to satisfy all human wants because of limited resources

12. The presence of market failures implies that: A. money is not an effective tool for exchange in a market system. B. individuals and firms should strive to be self-sufficient rather than specialize. C. there is an active role for government, even in a market system. D. command systems are superior to market systems in the allocation of resources.

C. there is an active role for government, even in a market system.

The physical import of DVD players to the United States from Japan best illustrates a: A. resource flow. B. financial flow. C. trade flow. D. technology flow.

C. trade flow.

Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The trading possibilities curves imply that: A. both countries have a trade surplus that will result in economic growth. B. the domestic production possibilities curves entail unemployment and/or the domestic misallocation of resources. C. world resources will be allocated more efficiently if the two nations specialize and trade based on comparative advantage. D. both nations will be worse off as a result of international specialization and trade

C. world resources will be allocated more efficiently if the two nations specialize and trade based on comparative advantage.

Over time, the equilibrium price of a gigabyte of computer memory has fallen while the equilibrium quantity purchased has increased. Based on this we can conclude that: A. Decreases in the demand for computer memory have exceeded increases in supply. B. Decreases in the supply of computer memory have exceeded increases in demand. C. Increases in the demand for computer memory have exceeded increases in supply. D. Increases in the supply of computer memory have exceeded increases in demand.

D. Increases in the supply of computer memory have exceeded increases in demand.

A rightward shift in the demand curve for product C might be caused by: A. an increase in income if C is an inferior good. B. a decrease in income if C is a normal good. C. a decrease in the price of a product that is a close substitute for C. D. a decrease in the price of a product that is complementary to C.

D. a decrease in the price of a product that is complementary to C.

Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The opportunity cost of producing a: A. pizza is 2 beers in both countries. B. beer is 1/2 a pizza in both countries. C. pizza in East Lothian is 1 beer. D. beer in West Lothian is 1/2 a pizza.

D. beer in West Lothian is 1/2 a pizza.

If X is a normal good, a rise in money income will shift the: A. supply curve for X to the left. B. supply curve for X to the right. C. demand curve for X to the left. D. demand curve for X to the right.

D. demand curve for X to the right.

. Refer to the above diagram. If price falls from $10 to $2, total revenue: A. rises from A + B to A + B + D + C and demand is elastic. B. falls from A + D to B + C and demand is inelastic. C. rises from C + D to B + A and demand is elastic. D. falls from A + B to B + C and demand is inelastic.

D. falls from A + B to B + C and demand is inelastic.

Refer to the above diagram. The decline in price from P1 to P2 will: A. increase total revenue by D. B. increase total revenue by B + D. C. decrease total revenue by A. D. increase total revenue by D - A.

D. increase total revenue by D - A.

Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is: A. negative and therefore X is an inferior good. B. negative and therefore X is a normal good. C. positive and therefore X is an inferior good. D. positive and therefore X is a normal good.

D. positive and therefore X is a normal good.

A government subsidy is typically used A. to correct a negative externality. B. to provide a government-inhibited good. C. to reduce inflation. D. to correct a positive externality.

D. to correct a positive externality.

The market and public sector are similar in that A.there is competition amongst the participants in both sectors. B.the resources used in both sectors are scarce. C.the participants in both sectors react to incentives. D.All of the above are true.

D.All of the above are true.

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."

Suppose that there is an improvement in technology in the market for iPhones. Which of the following is true? A. Supply will increase and the market clearing price will fall. B. Supply will increase and the market clearing price will rise. C. Demand will increase and the market clearing price will rise. D. Demand will increase and the market clearing price will fall.

A. Supply will increase and the market clearing price will fall.

Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The data suggest that: A. West Lothian should specialize in, and export, beer. B. both countries will be better off if they do not engage in specialization and trade involving these two products. C. West Lothian should specialize in, and export, pizza. D. East Lothian should specialize in, and export, beer.

A. West Lothian should specialize in, and export, beer.

Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be: A. inelastic for price declines that increase quantity demanded from 6 units to 7 units. B. elastic for price declines that increase quantity demanded from 6 units to 7 units. C. inelastic for price increases that reduce quantity demanded from 4 units to 3 units. D. elastic for price increases that reduce quantity demanded from 8 units to 7 units.

A. inelastic for price declines that increase quantity demanded from 6 units to 7 units.

The problems of aggregate inflation and unemployment are: A. major topics of macroeconomics. B. not relevant to the U.S. economy. C. major topics of microeconomics. D. peculiar to command economies.

A. major topics of macroeconomics.

The law of demand states that: A. price and quantity demanded are inversely related. B. the larger the number of buyers in a market, the lower will be product price. C. price and quantity demanded are directly related. D. consumers will buy more of a product at high prices than at low prices.

A. price and quantity demanded are inversely related.

The law of supply indicates that, other things equal: A. producers will offer more of a product at high prices than at low prices. B. the product supply curve is downsloping. C. consumers will purchase less of a good at high prices than at low prices. D. producers will offer more of a product at low prices than at high prices.

A. producers will offer more of a product at high prices than at low prices.

8. People always face trade-offs because A. they always have more than one use for their time and money. B. they buy goods with money. C. trading takes place in a market economy. D. they can make themselves better off through trade.

A. they always have more than one use for their time and money.

Refer to the above diagram. Flow (1) represents: A. wage, rent, interest, and profit income. B. land, labor, capital, and entrepreneurial ability. C. goods and services. D. consumer expenditures.

A. wage, rent, interest, and profit income.

The labor demand curve of a firm: A. will shift to the left if the price of the product the labor is producing falls. B. is perfectly elastic if the firm is selling its product in a purely competitive market. C. reflects a direct relationship between the number of workers hired and the money wage rate. D. is the same as its marginal product curve.

A. will shift to the left if the price of the product the labor is producing falls.

In its most ideal form, a price system allows A.firms to act in such a way that they eliminate scarcity. B.consumers to satisfy all their wants. C.resources to move from lower-valued uses to highervalued uses through voluntary exchange. D.government policy makers to allocate resources to the uses which they consider to be in the best interests of society.

C.resources to move from lower-valued uses to highervalued uses through voluntary exchange.

Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The trading possibilities curves suggest that the terms of trade are: A. 1.5 beers for 1 pizza. B. 1 beer for 2 pizzas. C. 2 beers for 1 pizza. D. 1 beer for 1.5 pizzas.

D. 1 beer for 1.5 pizzas.

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a: A. 1 percent reduction in price. B. 12 percent reduction in price. C. 40 percent reduction in price. D. 20 percent reduction in price.

D. 20 percent reduction in price.