MICRO EXAM 1

If the price elasticity of demand for a product is 2.5, then price cut from $2.00 to $1.80 will: A: increase the quantity demanded by about 2.5% B: decrease the quantity demanded by about 2.5% C: increase the quantity demanded by about 25 % D: increase the quantity demanded by about 250%

A-increase the quantity demanded by about 2.5%

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.

A production possibilities curve illustrates: A: scarcity B: market prices C: consumer preferences D: the distribution of income

A-scarcity

The term "other things equal" means that: A: the associated statement is normative B: many variables affect the variable under consideration C:a number of relevant variables are assumed to be constant D: when variable X increases so does related variable Y.

A-the associated statement is normative

Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived he discovered that hamburgers were on sale for $1, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by: A: the substitution effect B: the income effect C: the price effect D: a rightward shift in the demand curve for hamburgers

A-the substitution effect

Gigantic State university raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is: A: decreasing B:Relatively elastic C: perfectly elastic D: relatively inelastic

B-Relatively elastic

The economic perspective entails: A: irrational behavior by individuals and institutions. B: a comparison of marginal benefits and marginal costs in decision making C: short-tern but not long-term thinking. D: rejection of the scientific method.

B-a comparison of marginal benefits and marginal costs in decision making

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

B-an increase in the price of one will increase the demand for the other

Which of the following might shift a nation's production possibilities curve inward? A: improved technology B: devestation by war C: improved healthcare D: a business downturn in which unemployment temporarily rises

B-devestation by war

If the price of product L increases, the demand curve for close-substituee product J will: A: shift downward towards the horizontal axis B: shift to the left C: shift to the right D: remain unchanged

B-shift to the left

The price elasticity of demand coefficient measures: A: buyer responsiveness to price changes B: the extent to which a demand curve shifts as incomes change C: the slope of the demand curve D: how far business executives can stretch their fixed costs

B-the extent to which a demand curve shifts as incomes change

If someone produced too much of a good, this would suggest that: A: rational choice cannot be applied to many economic decisions B: the good was produced to the point where its marginal cost exceeded its marginal benefit, C: certain goods and services such as education and health care are inherently desirable and should be produced regardless of costs and benefits D: the good was produced to the point where its marginal benefit exceeded its marginal cost.

B-the good was produced to the point where its marginal cost exceeded its marginal benefit,

Which of the following generalizations is not correct? A: the larger an item is in one's budget, the greater the price elasticity of demand B: the price elasticity of demand is greater for necessities than it is for luxuries C: the larger number of close substitutes available, the greater will be the price elasticity of demand for a particular product. D: the price elasticity of demand is greater the longer the time period under consideration.

B-the price elasticity of demand is greater for necessities than it is for luxurie

If a price reduction reduces a firm's total revenue: A: the demand for the product is inelastic in this price range. B: the product is an inferior good C: in this price range the elasticity coefficient of demand is greater than 1. D: this price decline will increase the firm's profits.

B-the product is an inferior good

In drawing the production possibilities curve we assume that: A: technology is fixed B: unemployment exists C: economic resources are unlimited D: wants are limited

B-unemployment exists

Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is: A: 4.00 B:2.09 C: 1.37 D: 3.94

C-1.37

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

C-consumers will purchase less of a good at high prices than they will at low prices.

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 unsloping

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

In which of the following instances will total revenue decline? A: price raises and supply is elastic B: price falls and demand is elastic C:price rises and demand is inelastic D: price rises and demand is elastic

C-price rises and demand is inelastic

Which of the following is a micronomic statement? A: the real domestic output increased by 2.5 percent last year B: unemployment was 6.8 percent of the labor force last year. C: the price of personal computers declined last year D: the general price level increase by 4 percent last year.

C-the price of personal computers declined last year

The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20 percent. The railroad argued that decline revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that: A: both groups felt that the demand was elastic but for different reasons. B: both groups felt that the demand was inelastic but for different reasons. C: the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic D: the railroad felt that the demand for passenger service was elastic and opponents of the rate increase felt it was inelastic.

C-the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic

The price elasticity of demand for widgets is .80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a: A 1 percent redution 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

If Z is an inferior good, an increase in money income will shift the: A: supply curve for Z to the left B: supply curve for Z to the right C: demand curve for Z to the left D: Demand curve for Z to the right

D-Demand curve for Z to the right

Which of the following is real capital? A: a pair of stockings B: a construction crane C: a savings account D: a share of IBM stock

D-a share of IBM stock

If you leave a football game at the end of the third quarter, you will avoid traffic and get home more quickly. Therefore, everyone should leave the game early. This assertion illustrates the: A: moral hazard problem B: adverse selection problem C: fallacy of limited decisions D: fallacy of composition

D-fallacy of composition

the safest was for an individual to leave a burning theater is to run for the nearest exit; it is therefore also the best means of escape for a large audience. This assertion illustrates the: A: "after this, therefore because of this" fallacy B: correlation fallacy C: fallacy of composition D: fallacy of limited decisions

D-fallacy of limited decisions

the law of increasing opportunity cost states that: A: if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so. B: the sum of the costs of producing a particular good cannot rise above the current market price of that good. C: if the sum of the costs of producing a particular good rises by a specified percent, the price of that good must rise by a greater relative amount. D: if the prices of all the resources used to produce goods increase, the cost of producing any particular good will increase at the same rate.

D-if the prices of all the resources used to produce goods increase, the cost of producing any particular good will increase at the same rate.

A positive statement is one which is: A: derived induction B: derived by deduction C: subjective and is based on value judgment D: objective and is based on facts

D-objective and is based on facts

Opportunity cost is best defined as: A: the monetary price of any productive resource. B: the amount of labor that must be used to produce one unit of any product C: the ratio of the prices imported goods t the prices of exported goods D: the amount of one product that must be given up to produce one more unit of another product

D-the amount of one product that must be given up to produce one more unit of another product