Micro Exam 1 (quiz questions)

Assume that a consumer has a given budget or income of $12, and that she can buy only two goods, apples or bananas. The price of an apple is $1.50 and the price of a banana is $0.75. Refer to the information given above. What is the slope of the budget line, if the quantity of apples were measured on the horizontal axis and bananas on the vertical axis?

-2.0

A negative income elasticity of demand coefficient indicates that: Multiple Choice A. The product is an inferior good B. The product follows the law of demand C. The product is a complementary good D. The product is a substitute good

A

A straight-line downward-sloping demand curve has a price elasticity of demand which: Multiple Choice A. Decreases as price decreases B. Increases as price decreases C. Is zero at all prices D. Is unitary at all prices

A

Competition is more likely to exist when A. There is easy entry into and exit out of industries B. A government-issued license is required to set up a firm in an industry C. The government purchases most goods and services D. Economic power is concentrated among a few large firms

A

Consumer sovereignty and "dollar votes" guide the market system in dealing with which fundamental economic question? A. Which output will be produced? B. How is the output to be produced? C. How can the system accommodate change? D. Who is to receive the output?

A

For the music industry, the rise of Internet file-sharing of music has Multiple Choice A. worsened the free-rider problem. B. diminished or alleviated the free-rider problem. C. reduced the options for musicians to have their music heard. D. eliminated the problem of digital piracy.

A

If pollution coming from factories is bad, then why would the socially optimal level of pollution not be zero? Multiple Choice A.because there are significant social costs of achieving zero pollution B. because there are significant social benefits from attaining zero pollution C. because the factories are privately owned in a market system D. because there are zero benefits from zero pollution

A

In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic? Multiple Choice A. "The different brands are almost identical. I always buy the cheapest" B. "I use so little of that product that when I do buy it, I don't pay much attention to the price" C. "The brand I buy is so superior to other available brands that I hardly consider the others" D. "I pinch pennies in buying other products, but like most people I feel I owe it to myself to get the best brand of this product"

A

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean for the residents of a low-rise building. The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings Multiple Choice A. can be resolved by the owners themselves through private bargaining. B. has to be resolved by city government officials. C. can only be resolved by a zoning ordinance restricting high-rise buildings. D. should be resolved by a government fine for the builder of the high-rise.

A

The price-elasticity of demand is always negative because of: Multiple Choice A. The law of demand B. Percent-changes being used in the formula C. The midpoint formula D. Scarcity

A

The total revenue received by sellers of a good is computed by: Multiple Choice A. Multiplying the price times the quantity sold B. Adding the price and the quantity sold C. Multiplying the %-change in price times the %-change in quantity D. Dividing the %-change in quantity by the %-change in price

A

When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. The price-elasticity of demand coefficient for this product is: Multiple Choice A. 1.5 B. 0.15 C. 0.67 D. 67

A

Total revenue falls as the price of a good is raised, if the demand for the good is: Multiple Choice A. Elastic B. Inelastic C. Unitary elastic D. Perfectly elastic

A.

A news story states that "DVDs lose their appeal as consumers switch to online streaming for movies." In a competitive market for DVDs, this situation would lead to a(n): Multiple Choice A. Increase in the price and the quantity sold of DVDs B. Decrease in the price and the quantity sold of DVDs C. Increase in the price and a decrease in the quantity sold of DVDs D. Decrease in the price and an increase in the quantity sold of DVDs

B

Assume that Matt, Joe, and Teresa are the only citizens in a community. A proposed public good has a total cost of $1000. All three citizens will share an equal portion of this cost in taxes. The benefit of the public good is $500 for Matt, $280 for Joe, and $260 for Teresa. In a majority vote, this proposal will most likely be: Multiple Choice A. Accepted; the public good is produced even though it is economically inefficient B. Defeated; the public good is not produced even though it would have been efficient to do so C. Accepted; the public good is produced which is economically efficient D. Defeated; the public good is not produced, which is the proper outcome

B

Assume that Matt, Joe, and Teresa are the only citizens in a community. A proposed public good has a total cost of $1000. All three citizens will share an equal portion of this cost in taxes. The benefit of the public good is $500 for Matt, $280 for Joe, and $260 for Teresa. In a majority vote, this proposal will most likely be: Multiple Choice A. Accepted; two in favor and one against B. Defeated; two against and one in favor C. Accepted; three in favor and none against D. Defeated; none in favor and three against

B

If a 10 percent increase in the price of one good A results in an increase of 5 percent in the quantity demanded of another good B, then it can be concluded that the two goods A and B are: Multiple Choice A. Complementary goods B. Substitute goods C. Independent goods D. Normal goods

B

Interest groups result when people: Multiple Choice A. In a certain zip code vote together B. Who share strong preferences on a choice band together C. Do not all vote in elections D. Do not have strong preferences on the issues to be voted on

B

It has been proposed that a government agency be charged with the task of determining the amount of pollution that the atmosphere (or a body of water) can safely absorb, establish "rights" to this limited amount of pollution, and sell those limited amount of rights to firms. The firms can then buy and sell these rights among themselves later. This approach is known as the Multiple Choice A. taxes and subsidies system. B. cap-and-trade system. C. property rights system. D. market and command system.

B

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality would involve Multiple Choice A. a much greater marginal benefit than marginal cost. B. a much greater marginal cost than marginal benefit. C. having shortages in the market. D. having surpluses in the market.

B

Problems with collective decision-making and economic inefficiency in government are subjects that are studied in an area of economics called public: Multiple Choice A. Finance B. Choice C. Policy D. Interest

B

The idea that the desires of resource suppliers and firms to further their own self-interest will automatically further the public interest is known as: A. Consumer sovereignty B. The invisible hand C. Derived demand D. Creative destruction

B

The major virtues of the market system include all of the following, except: A. It promotes an efficient allocation of resources B. It leads to equality in the distribution of income C. It provides incentives for greater production and higher incomes D. It emphasizes the freedom to pursue self-interest

B

The socially optimal amount of pollution abatement occurs where society's marginal Multiple Choice A. benefit of abatement exceeds its marginal cost of abatement by the greatest amount. B. benefit of abatement equals its marginal cost of abatement. C. benefit of abatement is zero. D. cost of abatement is at its maximum.

B

When the price of a product is increased 15 percent, the quantity demanded decreases 10 percent. We can therefore conclude that the demand for this product is: Multiple Choice A. Elastic B. Inelastic C. Cross-elastic D. Unitary elastic

B

Where there are spillover (or external) benefits from having a particular product in a society, the government can make the quantity of the product approach the socially optimal level by doing the following, except Multiple Choice A. subsiding the buyers of the product. B. taxing the sellers of the product. C. subsidizing the sellers of the product. D. providing the product itself.

B

You are the newly appointed sales manager of the Rock Computer Tablets Company and have been charged with the task of increasing revenues. Your economics consultants have informed you that at present price and output levels, price elasticity of demand for your product is less than one. You should: Multiple Choice A. Decrease prices B. Increase prices C. Hold prices constant and increase supply D. Cut advertising expenditures to save money

B

The cross elasticity of demand for product X with respect to the price of product Y is -1.2. It can be inferred that X and Y are: Multiple Choice A. Substitute products B. Complementary products C. Luxury products D. Unrelated products

B.

The purpose of the ceteris paribus assumption used in economic analysis is to:

Focus on the effect of a single factor on a certain variable

The market system is an economic system that

Gives private individuals the right to own resources used in production

The law of increasing opportunity costs states that:

Increases in the production of one good require larger and larger sacrifices of the other good

Matt observes that "there is a high correlation between educational attainment and the level of income." Jean concurs and adds that "high school graduates should all proceed to college."

Matt's statement is positive while Jean's statement is normative

When a state government chooses to build more roads, the resources used are no longer available for public education programs. This dilemma illustrates the concept of:

Opportunity cost

In analyzing human decision and action, economists assume that:

People's behavior reflects rational self-interest

Laissez-faire capitalism limits the government's economic functions to the following, except:

Setting prices of individual goods and services

The opportunity cost of doing or getting something is best and fully defined as:

The value of the best alternative that is given up in order to do or get something

If the price of gasoline increases significantly, then we'd expect the demand curve for large trucks and SUVs to: Multiple Choice a. Shift to the right b. Shift to the left c. Become upward-sloping d. Not shift, but there will be a movement along that demand curve

b

Which of the following is not a factor of production?

money

The basic truth that underlies the study of economics is the fact that we all face

scarcity

A union argues that a price cut will boost the revenues of the firm, while management argues that the opposite is true. This suggests that the price elasticity of demand is: Multiple Choice A. Unit-elastic from the union's perspective and unit-inelastic from management's perspective B. Perfectly inelastic from the union's perspective and perfectly elastic from management's perspective C. Elastic from the union's perspective; inelastic from management's perspective D. Inelastic from the union's perspective; elastic from management's perspective

C

Alex, Kara, and Susie are the only three people in a community. Alex is willing to pay $20 for the fifth unit of a public good; Kara, $15; and Susie, $25. Government should produce the fifth unit of the public good if the marginal cost is less than or equal to Multiple Choice A. $25. B. $15. C. $60. D. $20.

C

Blossom, Inc. sells 500 bottles of perfume a month when the price is $7. A huge increase in resource costs forces Blossom to raise price to $9, and the firm only manages to sell 460 bottles of perfume. The price elasticity of demand is: Multiple Choice A. 0.33 and elastic B. 3.0 and elastic C. 0.33 and inelastic D. 3.0 and inelastic

C

If a good that generates negative externalities were priced to take these negative externalities into account, then its Multiple Choice A. price would decrease and its quantity would increase. B. quantity would increase, but its price would remain constant. C. price would increase and its quantity would decrease. D. price would increase, but its quantity would remain constant

C

If a price ceiling is set below the equilibrium price in a market: Multiple Choice A. Rationing will be unnecessary B. Surpluses of the commodity will develop C. The quantity demanded will exceed the quantity supplied D. The quantity supplied will exceed the quantity demanded

C

If demand for farm crops is inelastic, a good harvest will cause farm revenues to: Multiple Choice A. Increase because of the increase in the quantity that farmers can sell B. Increase because of a downward movement along the supply curve, encouraging an increase in demand C. Decrease because of a percentage fall in price greater than the percentage increase in quantity sold D. Remain unchanged, because the increase in quantity that can be sold will be matched by an equal decrease in price

C

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be Multiple Choice A. taxed. B. prohibited. C. subsidized. D. left alone.

C

Majority voting fails to incorporate the strength of the preferences of individual voters, and therefore: Multiple Choice A. Reduces the power of the median voter B. Is the primary reason for public sector failure C. May produce economically inefficient outcomes D. Creates the opportunity for the fallacy of limited decisions

C

Other things being equal, the law of demand suggests that as: A. The demand for iPads increases, this will cause the price to increase B. Income increases, the quantity of iPads demanded will increase C. The price of iPads decreases, the quantity demanded will increase D. The price of iPads decreases, the quantity demanded will decrease

C

Public goods are those for which there Multiple Choice A. is no free-rider problem. B. are no externalities. C. are nonrivalry and non excludability. Correct D. are rivalry and excludability.

C

Sometimes, public goods whose benefits are less than their costs still get produced because Multiple Choice A. the marginal benefit is still larger than the marginal cost. B. of externalities in production. C. the benefits accrue to politically powerful government officials and their constituents. D. of market failures.

C

The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that: Multiple Choice A. Cheerios are a luxury B. Cereals are a necessity C. There are more substitutes for Cheerios than for cereals as a whole D. Consumption of cereals as a whole is greater than consumption of Cheerios

C

The market system automatically corrects a surplus condition in a competitive market by: A. Raising the price of the commodity in question while increasing the quantity demanded B. Raising the price of the commodity in question while decreasing the quantity demanded C. Reducing the price of the commodity in question while increasing the quantity demanded D. Reducing the price of the commodity in question while decreasing the quantity demanded

C

The price elasticity of demand is a measure of the: Multiple Choice A. Effect of changes in demand on the price B. Relationship between price and profitability C. Responsiveness of buyers of a good to changes in its price D. Sensitivity of a good's price to changes in demand

C

The trading of votes to secure favorable outcomes on decisions which would otherwise be defeated is called: Multiple Choice A. Median-voter trading B. The special-interest effect C. Political logrolling D. The paradox of voting

C

Which of the following will not cause the supply curve to shift? A. A change in the costs of resources needed to produce the good B. A technological change in the production of the good C. A change in the price of the good D. A change in the prices of other goods that producers could be producing

C

Which statement best illustrates the concept of diminishing marginal utility? A. As one consumes more hamburgers per week, one would be willing to pay a higher price for additional hamburgers B. Some consumers will receive less satisfaction from consuming hamburgers than from consuming fried chicken C. A typical consumer will receive less satisfaction from consuming the fourth hamburger than from the third hamburger in a week D. A decrease in the price of hamburgers will cause consumers to buy more hamburgers because they can afford to buy more

C

An increase in the demand for corn is more than offset by an increase in its supply. As a result the equilibrium price will: A. Increase and the equilibrium quantity will decrease B. Increase and the equilibrium quantity will increase C. Decrease and the equilibrium quantity will decrease D. Decrease and the equilibrium quantity will increase

D

For most products, purchases tend to fall with decreases in buyers' incomes. Such products are known as: A.Inferior goods B. Direct goods C. Average goods D. normal goods

D

Suppose that the Anytown city government asks private citizens to donate money to support the town's annual holiday lighting display. Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that Multiple Choice A. the display creates negative externalities. B. government should tax the producers of holiday lighting. C. resources are currently overallocated to the provision of holiday lighting in Anytown. D. resources are currently underallocated to the provision of holiday lighting in Anytown.

D

The price elasticity of demand increases with the length of the period considered because: Multiple Choice A. Consumers' incomes will increase over time B. The demand curve will shift outward as time passes C. All prices will increase over time D. Consumers will be better able to find substitutes

D

When economists describe "a market," they mean: A. A place where stocks and bonds are traded B. A communication network that allow individuals to keep in touch with each other C. A hypothetical place where the production of goods and services takes place D. A system that allows buyers and sellers to interact with one another

D

Which of the following statements about the right to private ownership is false? A. It enables individuals to obtain, use, and dispose of land and capital resources as they see fit B. It encourages investment and innovation, and thus fosters economic growth C. It extends to intangibles such as pieces of music and computer programs D. It weakens the incentive to maintain the property that one already owns

D

If the price-elasticity coefficient for a good is .75, the demand for that good is described as: Multiple Choice A. Normal B. Elastic C. Inferior D. Inelastic

D.

A television station reports that the price of coffee has increased but the quantity traded in the market has decreased. This situation would be caused by a(n): Multiple Choice A. Increase in demand B. Increase in supply C. Decrease in demand D. Decrease in supply

D

A decrease in supply, holding demand constant, will cause: Multiple Choice A. Higher prices and a larger quantity sold B. Higher prices and a smaller quantity sold C. Lower prices and a smaller quantity sold D. Lower prices and a larger quantity sold

B

A fall in the price of milk, used in the production of ice cream, will: A. Decrease the supply of ice cream B. Increase the supply of ice cream C. Cause a movement along the supply curve of ice cream D. Have no effect on the supply of ice cream

B

From an economic perspective, when a student decides to go to the movies instead of studying for a test, it indicates that in the student's thinking the marginal:

Cost of going to the movies is less than the marginal benefit of going to the movies

A 3 percent increase in the price of tea causes a 6 percent increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is: Multiple Choice A. -0.5 B. +0.5 C. -2.0 D. +2.0

D

A higher price reduces the quantity demanded for a product because: A. The purchasing power of individuals increases B. The financial assets of individuals increase C. Individuals will buy more of the product and less of its substitutes D. Individuals can afford less of the product and will switch to substitutes

D

A production system where various workers concentrate on different specialized tasks to contribute towards a whole product is referred to as: A. A coincidence of wants B. Roundabout production C. Freedom of enterprise D. Division of labor

D

In a market system, self-interest is the motivating force that:

Coordinates and creates consistency in the operations of various parts of the economy