Micro Test 1

1. Which of the following is not one of the three fundamental economic questions? a. What happens when you add to or subtract from a current situation? b. For whom to produce? c. How to produce? d. What to produce?

a

10. Suppose a price floor is set by the government above the market equilibrium price. Which of the following will result? a. There will be a surplus. b. The quantity demanded will exceed the quantity supplied. c. The demand curve will shift to the left. d. None of the answers above are correct.

a

12. When demand is price inelastic: a. price and total revenue move in the same direction. b. price and total revenue move in the opposite direction. c. total revenue increases whether price goes up or down. d. total revenue decreases whether price goes up or down.

a

17. A good that provides external benefits to society has: a. too few resources devoted to its production. b. too many resources devoted to its production. c. the optimal resources devoted to its production. d. not provided profits to producers of the good.

a

17. As shown in Exhibit 1, the price and quantity supplied by sellers of Tucker's Cola have a (an) relationship. a. direct. b. inverse. c. negative. d. zero.

a

17. If demand is price elastic, a decrease in price causes: a. an increase in total revenue. b. a decrease in total revenue. c. no change in total revenue. d. an increase in quantity, but anything can happen to revenue.

a

18. If a decrease in the price of movie tickets increases the total revenue of movie theaters, this is evidence that demand is: a. price elastic. b. price inelastic. c. unit elastic with respect to price. d. perfectly inelastic.

a

19. Assume Congress passes a new tax of $2.00 per pack on cigarettes. The effect on the supply curve is a (an): a. decrease in supply. b. increase in supply. c. decrease in quantity supplied. d. increase in quantity supplied.

a

2. Suppose an increase in symphony tickets prices reduces the total revenue. This is evidence that demand is: a. price elastic. b. price inelastic. c. unitary elastic. d. perfectly elastic.

a

20. Over the elastic portion of a demand curve, a decrease in price causes: a. an increase in total revenue. b. a decrease in total revenue. c. no change in total revenue. d. an increase in quantity demanded, but anything can happen to revenue.

a

21. A third party is: a. the party to which a contractual agreement is meant to benefit. b. a person, or persons, who are unintentionally affected by the actions of others. c. the third person in a three-way contract. d. the person who owns the property right in a contract. e. when the government attempts to mediate a dispute between management and labor.

a

23. If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is: a. elastic. b. inelastic. c. perfectly inelastic. d. perfectly elastic.

a

26. If a decrease in the price of theater tickets increases the total revenue earned by the theater, this is evidence that demand is: a price elastic. b. price inelastic. c. unitary elastic. d. perfectly inelastic.

a

27. Along the elastic range of a demand curve, a price change causes: a. a change in total revenue in the opposite direction. b. a change in total revenue in the same direction. c. no change in total revenue. d. an unpredictable change in the total revenue.

a

3. Other things being equal, the effects of an increase in the price of computers would best be represented by which of the following? a. A movement up along the demand curve for computers. b. A movement down along the demand curve for computers. c. A leftward shift in the demand curve for computers. d. A rightward shift in the demand curve for computers.

a

3. Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is: a. 2.5. b. 0.4. c. 0.5. d. 5.0.

a

7. Microeconomics approaches the study of economics from the viewpoint of: a. individual or specific markets.b. the national economy.c. government units. d. economy wide markets.

a

8. A local Krispy Kreme doughnut shop reduced the price of its doughnuts from $4 per dozen to $3.50 per dozen, and as a result, the daily sales increased from 300 to 400 dozen. This indicates that the price elasticity of demand for the doughnuts was: a. elastic. b. inelastic. c. of unitary elasticity. d. indeterminate; more information is needed to determine the price elasticity of demand.

a

The software programs that make computer hardware useful in production and management tasks are:a. capital.b. labor. c. a natural resource.d. None of the answers above are correct.

a

15. "The federal minimum wage causes higher unemployment among teenagers" is a: a. statement of positive economics.b. statement of normative economics.c. testable value judgment. d. fallacy of composition.

a.

20. In economics, investment refers to the process of accumulating: a. capital goods. b. inefficiency. c. money. d. stocks and bonds.

a.

4. A textbook is an example of: a. capital. b. a natural resource.c. labor.d. None of the answers above are correct.

a.

An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, ceteris paribus. The phrase "ceteris paribus" means that: a. other relevant factors like consumer incomes must be held constant. b. the gasoline prices must first be adjusted for inflation.c. the theory is widely accepted but cannot be accurately tested.d. consumers' need for gasoline remains the same regardless of the price.

a.

1. Suppose that a jewelry store found that when it increased prices by 10 percent, sales revenue increased by 3 percent. Which of the following is true about the price elasticity of demand for the store's goods? a. Demand is perfectly inelastic. b. Demand is inelastic, but not perfectly. c. Demand is unitary classic. d. Demand is elastic, but not perfectly. e. Demand is perfectly elastic.

b

11. The price elasticity of demand for gasoline measures the: a. responsiveness of gasoline producers to changes in the quality of gasoline. b. responsiveness of customers to changes in the price of gasoline. c. responsiveness of consumer preferences to changes in the quality of gasoline. d. both a and c above.

b

12. If the equilibrium price of good X is $5 and a price ceiling is imposed at $4, the eventual result will be a (an): a. accumulation of inventories of unsold gas. b. shortage. c. surplus. d. All of the answers above are correct.

b

14. Any point on the production possibilities curve illustrates: a. minimum production combinations. b. maximum production combinations. c. economic growth. d. a non-feasible production combination.

b

18. Which of the following cause(s) economic growth? a. Answers c and d are correct. b. Answers d and e are correct. c. The production of more scarce goods d. A technological improvement e. The production of more capital goods

b

18. Which of the following is a property of a public good? a. A public good is free from externalities. b. Many individuals benefit simultaneously. c. A public good is not subject to free riders. d. A public good is established by law.

b

23. If there are external benefits for good X then which of the following is true? a. The socially efficient amount of good X can be achieved if society taxes consumers of good X. b. The socially efficient amount of good X can be achieved if society subsidized consumers of good X. c. The socially efficient amount of good X will be equivalent to the free market equilibrium quantity. d. The socially efficient amount of good X does not exist.

b

28. Suppose the president of a college argues that a 25 percent tuition increase will raise revenues for the college. It can be concluded that the president thinks that demand to attend this college is: a. elastic. b. inelastic, but not perfectly inelastic. c. unitary elastic. d. perfectly elastic.

b

29. Yesterday Seller A supplied 400 units of a good X at $10 per unit. Today Seller A supplies the same quantity of units at $5 per unit. Based on this evidence, Seller A has experienced a (an): a. decrease in supply. b. increase in supply. c. increase in the quantity supplied. d. decrease in the quantity supplied. e. increase in demand.

b

30. The price elasticity of demand for a vertical demand curve is: a. perfectly elastic. b. perfectly inelastic. c. unitary elastic. d. elastic. e. inelastic.

b

31. The president of Tucker Motors says, "Lowering the price won't sell a single additional Tucker car." The president believes that the price elasticity of demand is: a. perfectly elastic. b. perfectly inelastic. c. unitary elastic. d. elastic. e. inelastic.

b

32. If the price elasticity of demand is computed for two products, and product A measures .79, and product B measures 1.6, then: a. product A is more price elastic than product B. b. product B is more price elastic than product A. c. consumers are more sensitive to price changes in product A than in product B. d. product B is more price inelastic than product A. e. products A and B must be substitutes.

b

38. If the demand curve over a certain range is "price elastic," this implies that the: a. percentage change in the quantity demanded exceeds one. b. percentage change in the quantity demanded exceeds the percentage change in product price. c. percentage change in price exceeds the percentage change in quantity demanded. d. product is non-reactive. e. product has no good substitute.

b

4. Which of the following best represents the effects of a decrease in the price of tomato juice, other things being equal? a. An upward movement along the demand curve for tomato juice. b. A downward movement along the demand curve for tomato juice. c. A rightward shift in the demand curve for tomato juice. d. A leftward shift in the demand curve for tomato juice.

b

6. Assume that Coca-Cola and Pepsi-Cola are substitutes. A rise in the price of Coca-Cola will have which of the following effects on the market for Pepsi? a. A movement down along the Pepsi demand curve. b. A rightward shift in the Pepsi demand curve. c. A movement up along the Pepsi demand curve. d. A leftward shift in the Pepsi demand curve.

b

7. Assume that crackers and soup are complementary goods. The effect on the soup market of an increase in the price of crackers (other things being equal) would best be described as a (an): a. decrease in the quantity of soup demanded. b. decrease in the demand for soup. c. increase in the quantity of soup demanded. d. increase in the demand for soup.

b

9. If a demand curve for a good were completely vertical, it would be considered: a. perfectly elastic. b. perfectly inelastic. c. of unitary elasticity. d. relatively inelastic.

b

9. Suppose a price ceiling is set by the government below the market equilibrium price. Which of the following will result? a. The demand curve will shift to the left. b. The quantity demanded will exceed the quantity supplied. c. The quantity supplied will exceed the quantity demanded. d. There will be a surplus.

b

11. Select the normative statement that completes the following sentence: If the minimum wage is raised:a. cost per unit of output will rise.b. workers will gain their rightful share of total income. c. the rate of inflation will increase. d. profits will fall.

b.

1. Which of the following is true for the law of demand? a. Sellers increase the quantity of a good available as the price of the good increases. b. An increase in price results from false needs. c. There is an inverse relationship between the price of a good and the quantity of the good demanded. d. Prices increase as more units of a product are demanded.

c

12. On a production possibilities curve, a change from economic inefficiency to economic efficiency is obtained by: a. movement along the curve. b. movement from outside the frontier to a point on the curve. c. movement from a point inside the frontier to a point on the curve. d. a change in the slope of the curve.

c

12. The theory of supply states that: a. there is a negative relationship between the price of a good and the quantity of it purchased by suppliers. b. there is a positive relationship between the price of a good and the quantity that buyers choose to purchase. c. there is a positive relationship between the price of a good and the quantity of it offered for sale by suppliers. d. at a lower price, a greater quantity will be supplied.

c

13. If demand is inelastic, an increase in the price of a good will cause total revenue to: a. fall. b. remain constant since the decrease in quantity sold is exactly offset by the price increase. c. rise. d. rise if it is a normal good and fall if it is an inferior good.

c

13. One of the assumptions underlying the production possibilities curve for any given economy is that: a. the state of technology is changing. b. there is an unlimited supply of available resources. c. there is full employment and no underemployment of resources when the economy is operating on the curve. d. goods can be produced in unlimited quantities.

c

13. The former Soviet Union was known for black markets. An explanation for the existence of the black market is that: a. goods were not subject to price controls. b. the government imposed a price floor below the equilibrium price. c. the government imposed a price ceiling below the equilibrium price. d. All of the answers above are correct.

c

14. Price elasticity of demand refers to the ratio of the: a. percentage change in price of a good in response to a percentage change in quantity demanded. b. percentage change in price of a good to a percentage increase in income. c. percentage change in the quantity demanded of a good to a percentage change in its price.

c

15. A production possibilities curve has "good X" on the horizontal axis and "good Y" on the vertical axis. On this diagram, the opportunity cost of good X, in terms of good Y, is represented by the: a. distance to the curve from the horizontal axis. b. distance to curve from the vertical axis. c. movement along the curve. d. None of the answers above are correct.

c

15. Assume that both oranges and peaches can be grown on the same type of land. A decrease in the price of peaches, other things being equal, will cause a (an): a. upward movement along the supply curve for oranges. b. downward movement along the supply curve for oranges. c. rightward shift of the supply curve for oranges. d. leftward shift of the supply curve for oranges.

c

2. Which of the following does not illustrate opportunity cost? a. If I study, I must give up going to the football game. b. If I buy a computer, I must do without a 35" television. c. More consumer spending now means more spending in the future. d. If I spend more on clothes, I must spend less on food.

c

21. Using the midpoints formula, what would be price elasticity of demand for a gallbladder operation if the number of operations fell from 6,000 to 4,000 per week after its price increased from $6,000 to $10,000? a. 0.25. b. 0.50. c. 0.80. d. 1.25

c

21. Which of the following best explains the determination of the equilibrium price of a product? a. production costs b. the supply of a good c. the interaction of supply and demand d. the decisions of government

c

22. A public good will: a. be efficiently provided by the free market as long as its total benefits exceed its total costs. b. be efficiently provided by the free market as long as its marginal benefits exceed its marginal costs. c. be provided in less than efficient quantities by the free market. d. be provided in efficient quantities by voluntary contributions. e. not be provided by the government.

c

22. When the price of a good in a market is above equilibrium: a. the quantity supplied exceeds the quantity demanded. b. a surplus of a good. c. the price will fall in the near future. d. All of the answers above are correct.

c

24. Suppose a new pollution tax of $0.01 per kilowatt-hour of electricity is imposed on coal-fired power producers by the federal government. Which of the following correctly describes how this tax will affect the market for electricity served by these power plants? a. Demand for electricity will decrease. b. Demand for electricity will increase. c. The supply of electricity will decrease. d. The supply of electricity will increase.

c

25. Along the elastic range of a demand curve, a decrease in price causes: a. no change in total revenue. b. a decrease in total revenue. c. an increase in total revenue. d. an unpredictable change in total revenue.

c

28. Three of the four events described below might reasonably be expected to shift the demand curve for beef to a new position. One would not shift the demand curve. The single exception is a (an): a. change in people's tastes with respect to beef. b. increase in the money income of beef consumers. c. fall in the price of beef. d. widespread advertising campaign undertaken by the producers of a product competitive with beef (e.g., pork).

c

29. Suppose Good Food's supermarket raises the price of its steak and finds its total revenue from steak sales does not change. This is evidence that price elasticity of demand for steak is: a. perfectly elastic. b. perfectly inelastic. c. unitary elastic. d. inelastic. e. elastic.

c

30. Assuming that wheat and corn can both be grown on the same type of land, a decrease in the price of corn, other factors held constant, will cause a (an): a. downward movement along the supply curve for wheat. b. upward movement along the supply curve for wheat. c. rightward shift in the supply curve for wheat. d. leftward shift in the supply curve for wheat.

c

4. An increase in total revenue results occurs from which of the following? a. Price decreases when demand is inelastic. b. Price increases when demand is elastic. c. Price decreases when demand is elastic. d. Price increases when demand is unitary elastic.

c

40. ​ A _______ demand curve has a price elasticity of demand that is perfectly elastic. a. ​vertical b. ​rectangular hyperbola c. ​horizontal d. ​circular

c

5. Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is 0.25, by how much would you have to raise the price of water? a. 10 percent b. 25 percent c. 40 percent d. 100 percent

c

6. Which of the following is included in the study of macroeconomics? a. Salaries of college professors. b. Computer prices.c. Unemployment in the nation. d. Silver prices.

c

7. If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as: a. unstable. b. relatively inelastic. c. relatively elastic.

c

3. Which of the following is not a factor of production? a. A computer chip.b. The service of a lawyer.c. Dollars. d. All of the above are factors of production. e. None of the answers above are correct.

c.

5. The subject of economics is primarily the study of:a. the government decision-making process.b. how to operate a business successfully.c. decision-making because of the problem of scarcity. d. how to make money in the stock market.

c.

8. The definition of a model is a: a. description of all variables affecting a situation.b. positive analysis of all variables affecting an event.c. simplified description of reality to understand and predict an economic event. d. data adjusted for rational action.

c.

1. The condition of scarcity:a. cannot be eliminated.b. prevails in poor economies.c. prevails in rich economies.d. All of the answers above are correct.

d

10. Assume that brand X is an inferior good and name brand Y is a normal good. An increase in consumer income, other things being equal, will cause a (an): a. upward movement along the demand curve for name brand Y. b. downward movement along the demand curve for brand X. c. rightward shift in the demand curve for brand X. d. leftward shift in the demand curve for brand X.

d

10. If the demand for cigarettes is highly inelastic, this indicates that: a. higher cigarette prices will increase the demand for cigarettes. b. the price elasticity coefficient of cigarettes exceeds 1. c. the price elasticity coefficient of cigarettes equals 1. d. the quantity of cigarettes purchased by consumers is not very responsive to a change in the price of cigarettes.

d

11. Suppose the government imposes rent control (a price ceiling) below the equilibrium price for rental housing. Which of the following will result? a. Black markets b. The quality of existing rental housing deteriorates c. Shortages d. All of the answers above are correct

d

13. Supply curves slope upward because: a. the quality is assumed to vary with price. b. technology improves over time, increasing the ability of firms to produce more at each possible price. c. increases in the price of a good lead to rightward shifts of the supply curve. d. rising prices provide producers with higher profit incentives needed to increase the quantity supplied.

d

14. Which of the following will not cause a movement along the supply curve? a. Changes in the sellers' expectations. b. Increases in taxes per unit of output. c. Advances in technology. d.All of the answers above are correct

d

15. Price elasticity of demand is defined as the ratio of the: a. percentage increase in price to an increase in quantity demanded. b. unit change in quantity demanded to the dollar change in price. c. maximum amount that consumers will pay to increase quantity. d. percentage change in quantity demanded to the percentage change in price, other things being equal.

d

16. As production of a good increases, opportunity costs rise because: a. there will be more inefficiency. b. people always prefer having more goods. c. of inflationary pressures. d. workers are not equally suited to all tasks.

d

16. Price elasticity of demand refers to the: a. percentage increase in price in response to a percentage increase in quantity demanded. b. percentage decrease in price in response to a percentage increase in income. c. minimum amount that consumers will pay for a percentage change in quantity demanded or supplied. d. responsiveness of quantity demanded to a change in the price of a good.

d

16. Which of the following is an example of market failure? a. Public goods. b. Externalities. c. Lack of competition. d. All of the answers above are correct.

d

17. Which of the following would be most likely to cause the production possibility curve for tanks and cars to shift outward? a. A reduction in the labor force. b. A choice of more tanks and fewer cars. c. A choice of more cars and fewer tanks. d. An increase in the quantity of natural resources.

d

18. In reference to Exhibit 1, assume the price of Tucker's Cola is $1.00 per gallon. If the price were to rise to $3.00 per gallon, and all other factors, such as taxes, etc. remained constant, the result would be a (an): a. decrease in supply. b. increase in supply. c. decrease in quantity supplied. d. increase in quantity supplied.

d

19. A perfectly elastic demand curve has an elasticity coefficient of: a. 0. b. 1. c. less than 1. d. infinity.

d

19. A source of economic growth is: a. unemployment. b. inefficiency. c. less resources. d. greater entrepreneurship.

d

19. Which of the following is a public good? a. Air traffic control. b. National defense. c. Clean air. d. All of the answers above are correct.

d

2. A demand curve for The Steel Porcupines concert tickets would show the: a. quality of service that customers demand when they buy a ticket. b. number of people who like to attend the concert. c. number of tickets the promoters are willing to sell at each price. d. number of concert tickets that will be purchased at each price.

d

20. Market equilibrium is defined as: a. the condition in which there is neither a shortage or surplus. b. the condition under which the separately formulated plans of buyers and sellers exactly mesh when tested in the market. c. represented graphically by the intersection of the supply and demand curves. d. All of the answers above are correct.

d

20. Price ceilings are imposed if the government believes: a. the market will not achieve an equilibrium price. b. the market equilibrium price is too low. c. an excess supply of the product exists. d. the market equilibrium price is too high. e. the quantity demanded will less than the quantity supplied of the product.

d

22. If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is: a. elastic. b. inelastic. c. perfectly inelastic. d. unitary elastic.

d

24. If the percentage change in the quantity demanded of a good equals the percentage change in price, price elasticity of demand is: a. elastic. b. inelastic. c. perfectly elastic. d. unitary elastic.

d

25. Why don't competitive markets do a good job providing public goods? a. Because people do not receive benefits from public goods. b. Because firms cannot produce enough to satisfy market demand. c. Because public goods generate negative externalities, and pollution taxes reduce the incentive for firms to supply public goods. d. Because it is difficult to exclude people from gaining benefits from public goods without paying for them, and so market demand does not reflect the benefits to society from the public good.

d

3. Which of the following would be most likely to cause the production possibility curve for computers and education to shift outward? a. A choice of more computers and less education. b. A choice of more education and less computers. c. A reduction in the labor force. d. An increase in the quantity of resources.

d

33. Demand price elasticity measures: a. how much supply will change as price changes? b. how consumers change their purchases in response to a change in income. c. how consumers change their purchases in response to a change in the price of a substitute good. d. how consumers change their purchases in response to a change in the price of a product. e. the change in price brought about by a change in consumer demand.

d

41. Which of the statements below does not describe a demand curve that is unit elastic? a. The percentage change in the quantity demanded = percentage change in product price. b. An increase in product price will not change total revenue. c. The price elasticity of demand equals one. d. A change in price does not change quantity demanded. e. A decrease in product price will not change total revenue.

d

5. The "ceteris paribus" clause in the law of demand does not allow which of the following factors to change? a. Consumer tastes and preferences. b. The prices of other goods. c. Expectations. d. All of the answers above are correct.

d

8. Assume that a computer is a normal good. An increase in consumer income, other things being equal, would: a. cause an upward movement along the demand curve for computers. b. cause a downward movement along the demand curve for computers. c. shift the demand curve for computers to the left. d. shift the demand curve for computers to the right.

d

9. Which of the following will increase the demand for large automobiles? a. A fall in the price of small automobiles b. A rise in insurance rates for large automobiles c. A fall in the price of large automobiles d. An increase in buyers' incomes (assuming large automobiles to be a normal good)

d

10. "An increase in the federal minimum wage will provide a living wage for the working poor" is a: a. statement of positive economics.b. fallacy of composition.c. tautology.d. statement of normative economics.

d.

12. "The government should provide health care for all citizens." This statement is an illustration of: a. positive economic analysis.b. correlation analysis.c. fallacy of association analysis. d. normative economic analysis.

d.

16. Which of the following would eliminate scarcity as an economic problem? a. Moderation of people's competitive instincts.b. Discovery of sufficiently large new energy reserves. c. Resumption of steady productivity growth.d. None of the answers above are correct.

d.

2. The condition of scarcity can be eliminated if: a. people satisfy needs rather than false wants. b. sufficient new resources were discovered.c. output of goods and services were increased. d. None of the answers above are correct.

d.

9. Which of the following is a positive statement? a. I think we should pass a constitutional amendment to reduce the deficit.b. President X's way of dealing with the economy is better than President Y's. c. I hope interest rates come down soon. d. If taxes are raised, unemployment will drop.

d.

If a textbook price rises and then students reduce the quantity demanded of textbooks, an economic model can show a cause-and-effect relationship only if which of the following occurs?a. Students' incomes fall. b. Tuition decreases.c. The number of students increases.d. All other factors are held constant.e. The bookstore no longer accepts used book trade-ins.

d.

Which of the following is true about renewable resources?a. Land resources include oil, coal, and natural gas that have a fixed stock.b. Land resources include irrigation networks and wastewater treatment plants that utilize water.c. Land resources include air filtration systems in buildings that renew and refresh polluted air from the outside. d. Land resources include forests, range lands, and marine fisheries that naturally regenerate.

d.

Which of the following would not be classified as a capital resource? a. The Empire State Building.b. A Caterpillar bulldozer.c. A Macintosh computer. d. 100 shares of stock in General Motors.

d.

11. There is news that the price of Tucker's Root Beer will increase significantly next week. If the demand for Tucker's Root Beer reacts only to this factor and shifts to the right, the position of this demand curve has reacted to a change in: a. tastes. b. income levels. c. the price of other goods. d. the number of buyers. e. expectations.

e

16. An advance in technology results in: a. suppliers offering a larger quantity than before at each given price. b. suppliers offering the same quantity as before at a lower price. c. a rightward shift of the supply curve. d. an increase in supply. e. All of the answers above are correct.

e

39. If the demand curve is unit elastic, this implies that: a. consumers do not react to a change in product price. b. the good can only be purchased in units of 1. c. this good has no good substitutes. d. the good is a basic food staple. e. the percentage change in the quantity demanded = the percentage change in product price.

e

All of the following are examples of capital except:a. the robot used to help produce your car.b. a computer used by your professor to write this exam.c. the factory that produces the costume jewelry you buy.d. the inventory of unsold goods at your local hardware store. e. an uncut diamond that you discover in your backyard.

e.