Econ Test 1 T/F

By an increase in demand we mean a leftward shift of the demand curve

False

When a firm decides to produce no output in the short run its costs will be zero

False

Diseconomies of scale stem primarily from the difficulties in managing and coordinating a large-scale business enterprise

True

Given a downsloping demand curve and upsloping supply curve for a product, an increase in the price of a substitute good will increase equilibrium price and quantity

True

If the marginal cost curve lies below the average variable cost curve, the average variable cost curve must be falling

True

In the long run there are no fixed costs

True

Products and services are scarce because resources are scarce

True

a local bakery hiring two additional workers is an example of a short run adjustment

True

an increase in demand accompanied by an increase in supply will increase the equilibrium quantity but the effect on equilibrium price will be indeterminate

True

in economics, a firm earns a normal profit when its total revenue equals its total economic costs

True

Marginal product is the total product divided by the number of workers employed

false

economic profit is found by subtracting accounting costs from total revenue

false

supply refers to the amount of a product that a producer will offer in the market at some particular price

false

the short run is a period of time during which all costs are fixed costs

false

If demand increases and supply simultaneously decreases, equilibrium price will rise

true

Variable costs are costs that vary directly with output

true

used clothing is a good example of an inferior good

true

Although sleeping in on a work or school day has an opportunity cost, sleeping late on the weekend does not

False

An economic model is an ideal or utopian type of economy that society should strive to obtain through economic policy

False

An economy cannot produce at a point outside of its production possibilities curve because human economic wants are insatiable

False

Because economic generalizations are simplifications from reality, they are impractical and useless

False

Certain inherently desirable products such as education and health care should be produced so long as resources are available

False

If economic theories are solidly based on relevant facts, then appropriate economic policy becomes obvious and uncontroversial

False

Normative statements are expressions of facts

False

Positive statements are expressions of value judgements

False

a decrease in supply of X increases the equilibrium price of X, which reduces the demand for X and automatically returns the price of X to its initial level

False

a firm's economic profit is usually higher than its accounting profit

False

a linear demand curve has a constant elasticity over the full range of the curve

False

a price floor in a competitive market will result in persistent shortages of a product

False

an increase in quantity supplied might be caused by an increase in production costs

False

income and substitution effects account for an upward sloping supply curve

False

price elasticity of demand measures the slope of the demand curve

False

the law of diminishing returns explains diseconomies of scale

False

the law of diminishing returns explains why the long-run average total cost curve is U-shaped

False

the rationing function of prices refers to the fact that government must distribute any surplus goods that may be left in a competitive market

False

the smaller the number of good substitutes for a product, the greater will be the price elasticity of demand for it

False

A government subsidy per unit of output increases supply

True

BMW constructing a new assembly plant in South Carolina is an example of a long-run adjustment

True

Choices entail marginal costs because resources are scarce

True

Consumers buy more of normal goods as their incomes rise

True

Rational individuals may make different choices because their preferences and circumstances differ

True

The production possibilities curve shows various combinations of two products that an economy can produce when achieving full employment

True

average fixed costs diminish continuously as output increases

True

if the marginal utility of the last unit of A consumed is 12 and the marginal utility of the last unit of B is consumed is 8 then a price of A of $6 and a price of B of $4 would be consistent with consumer equilibrium

True

marginal analysis means that decision-makers compare the extra benefits with the extra costs of a specific choice

True

Surpluses drive market prices up, shortages drive them down

false

Toothpaste and toothbrushes are substitute goods

false

a ceiling price price in a competitive market will result in persistent surpluses of a product

false

if market demand increases and market supply decreases, the change in equilibrium price is unpredictable without first knowing the exact magnitudes of the demand and supply changes

false

A government tax per unit of output reduces supply

true

at zero units of output, a firm's variable costs are zero

true

generally speaking, the demand for luxury goods is more price elastic than is the demand for necessities

true

if price and total revenue are directly related, demand is inelastic

true

if price changes and total revenue changes in the opposite direction, demand is relatively elastic

true

if the demand for wheat is highly price inelastic, an extraordinarily large crop may reduce farm incomes

true

the law of diminishing returns explains why the short run marginal cost curves are upward sloping

true

the real opportunity cost of producing product X is the amounts of products Y, Z, and so forth that might have been produced if resources had not been used to produce X

true