Microeconomics - Exam 1 (Section 1-6)

The slope of the graph depicting a perfectly elastic supply curve is ___________, and the quantity supplied of this good would be ____________ to price. A. horizontal; extremely responsive B. horizontal; extremely unresponsive C. vertical; extremely responsive D. vertical; extremely unresponsive

A (horizontal; extremely responsive)

Assume the cross-price elasticity of demand for Coke and Pepsi is equal to 3. If Pepsi raises its price by 10%, then the quantity of: A. Coke demanded will increase by 30%. B. Coke demanded will decrease by 30%. C. Pepsi demanded will increase by 30%. D. Pepsi demanded will decrease by 30%.

A (Coke demanded will increase by 30%.)

What do you have to know in order to calculate the price elasticity of demand? A. how much of the good was purchased at two different prices B. the price elasticity of supply C. how many firms supply the good D. the portion of income the typical consumer spends on the good

A (how much of the good was purchased at two different prices)

The United States has a comparative advantage in the creation of computer software, because this task is intensive in the use of: A. human capital. B. low skilled labor. C. physical capital. D. land.

A (human capital)

In the United States, growing international trade has: A. increased the wages of highly educated workers. B. reduced income inequality. C. increased the unemployment rate. D. made all consumers worse off and all producers better off.

A (increased the wages of highly educated workers)

If total revenue rises when the price increases, demand for the good must be: A. inelastic. B. elastic. C. unit-elastic. D. perfectly elastic.

A (inelastic)

We would expect the price elasticity of demand for cigarettes to be: A. inelastic. B. elastic. C. unit-elastic. D. perfectly elastic.

A (inelastic.)

The most likely reason the government implements a _____ is because it feels the price is too high for _____. A. price ceiling; consumers B. price ceiling; producers C. price floor; consumers D. price floor; producers

A (price ceiling; consumers)

Javier and Pierre each want to buy an ice cream cone. Javier is willing to pay $2.50 and Pierre is willing to pay $4.00. If the ice cream cone costs $2.25, what is the total consumer surplus after Javier and Pierre make their purchases? A. $6.50 B. $4.50 C. $2.00 D. $0.25

C ($2.00)

Suppose the price of arugula rises by 30%, but the quantity supplied rises by 10%. What is the price elasticity of supply? A. 33 B. 0.03 C. 0.33 D. 3

C (0.33)

Suppose that the country of Ologolia has a linear production possibility frontier in the production of boats and smartphones. It can produce 3 smartphones per hour of labor time or 4 boats per hour of labor time. What is the opportunity cost of producing one boat in Ologolia? A. 3 smartphones B. 4 boats C. 0.75 smartphone D. 1.33 smartphones

C (0.75 smartphone)

Suppose that Macronesia is producing at point A on its production possibility curve, which represents 4 fish and 9 coconuts. If Macronesia moves to another point on its production possibility curve such that it now produces 5 fish and 6 coconuts, the opportunity cost of the extra fish is: A. 6 coconuts. B. 9 coconuts. C. 3 coconuts. D. 1 coconut.

C (3 coconuts)

price Qd Qs $1.00 10.0 10.0 $0.90 10.5 9.00 If the government imposes a price ceiling of $0.90 per pound of butter, the quantity of butter actually purchased will be: A. 10.0 million pounds. B. 10.5 million pounds. C. 9.0 million pounds. D. 1.5 million pounds.

C (9.0 million pounds.)

Assuming that yarn and knitting needles are complements, which statement would cause an increase in the demand for yarn? A. A decrease in the number of people who are interested in knitting B. A higher price of yarn C. A lower price of knitting needles D. A higher price of knitting needles

C (A lower price of knitting needles)

If a price floor is imposed above the equilibrium price in a market, what is the effect? A. There is no visible effect on the market outcome. B. A shortage results. C. A surplus results. D. The quantity supplied will decrease.

C (A surplus results)

Ahmed, Boris, Roberto, and Sunil all want to attend a football game. The admission price is $48. Ahmed is willing to pay $59 for the ticket. Boris is willing to pay $39. Roberto is willing to pay $45, and Sunil is willing to pay $55. Based on this information, who will go to the game? A. Ahmed, Boris, Roberto, and Sunil B. Boris and Roberto C. Ahmed and Sunil D. Boris, Roberto, and Sunil

C (Ahmed and Sunil)

Which of the following statements best describes the effects of trade? A. A country that imports a lot of goods will experience a high level of domestic unemployment. B. A country is most likely to export those goods for which the domestic price exceeds the world price. C. All countries benefit when each country specializes according to its own comparative advantage. D. When a country imports goods, those who purchase the good will experience a decline in consumer surplus.

C (All countries benefit when each country specializes according to its own comparative advantage)

Why do minimum wage laws in Italy and Spain result in a greater prevalence of workers being hired for unreported jobs "off the books," than do minimum wage laws in the United States? A. Because workers in these countries prefer short-term employment contracts. B. Because the minimum wages in these countries are so low that workers typically feel they have to accept more than one job. C. Because the minimum wages in these countries are so far above the equilibrium wage that they have generated significant unemployment. D. Because governments in these countries have designed labor market policies with the goal of making the official unemployment rate appear as low as possible.

C (Because the minimum wages in these countries are so far above the equilibrium wage that they have generated significant unemployment)

All of the following are sources of comparative advantage EXCEPT: A. Differences in climate. B. Differences in factor endowments. C. Differences in tax structure. D. Differences in technology.

C (Differences in tax structure)

What points are unattainable or not feasible on a production possibility curve? A. points along the production possibility curve B. points below the production possibility curve C. points that touch the x-axis and that are also on the production possibility curve D. points above the production possibility curve

D (points above the production possibility curve)

Diet Coke and Coke Zero are considered by consumers to be close substitutes for one another. Therefore, their cross-price elasticity of demand should be: A. negative and large. B. negative and small. C. positive and small. D. positive and large.

D (positive and large)

A maximum price set below the equilibrium price is a: A. demand price. B. price floor. C. supply price. D. price ceiling.

D (price ceiling.)

Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the overall demand for cheeseburgers is: A. perfectly price inelastic. B. price unit-elastic. C. price elastic. D. price inelastic.

D (price inelastic)

If a good is an inferior good and its price rises, quantity demanded will: A. decline according to the substitution effect. B. rise according to the substitution effect. C. decline according to the income effect. D. rise according to the income effect.

D (rise according to the income effect.)

When the price of coffee cups falls, many consumers decide to buy more coffee cups solely because they are less expensive. This describes the: A. consumer surplus effect. B. marginal-maximizing rule. C. income effect. D. substitution effect.

D (substitution effect)

Consumer surplus is: A. the difference between the quantity of a good demanded and the quantity supplied. B. the quantity of a good that remains on the market in instances of market failure. C. the amount of revenue collected from a tax. D. the difference between the price that consumers are willing to pay for a good and the amount they actually pay.

D (the difference between the price that consumers are willing to pay for a good and the amount they actually pay)

Producer surplus is: A. the difference between the quantity of a good demanded and the quantity supplied. B. the price the producer receives at equilibrium. C. the amount of revenue collected from a tax. D. the difference between the price that producers receive and the amount for which they are willing to sell the good.

D (the difference between the price that producers receive and the amount for which they are willing to sell the good)

Excess supply occurs when: A. the price is below the equilibrium price. B. the quantity demanded exceeds the quantity supplied and when the price is below the equilibrium price. C. the quantity demanded exceeds the quantity supplied. D. the price is above the equilibrium price

D (the price is above the equilibrium price)

A shortage occurs when: A. demand for a good increases, causing an increase in the equilibrium price. B. demand for a good decreases, causing a decrease in the equilibrium price. C. the price of a good is held above the equilibrium price. D. the price of a good is held below the equilibrium price.

D (the price of a good is held below the equilibrium price.)

Consumer surplus is positive when: A. the price the consumer is willing to pay equals the market price. B. there is no tax applied to the good. C. the price the consumer is willing to pay is less than the market price. D. the price the consumer is willing to pay is more than the market price.

D (the price the consumer is willing to pay is more than the market price.)

When economists want to describe how much an economy can produce with a given amount of resources, they use a model known as: A. the positive model. B. the normative model. C. comparative advantage. D. the production possibility frontier.

D (the production possibility frontier.)

The sign (positive or negative) on the income elasticity of demand tells us: A. the number of substitutes available for the good. B. the number of complements available for the good. C. whether consumers or producers will bear the biggest burden of the tax. D. whether the good is normal or inferior.

D (whether the good is normal or inferior.)

Countries with ________ educated workforces tend to ________ skill-intensive goods which require ________ skilled labor. A. highly; export; more B. highly; import; less C. less; export; less D. less; import; more

A (highly; export; more)

Suppose at a price of $1.73 per gallon, residents of Tacoma purchase 1 million gallons of gas every week and enjoy a total consumer surplus of $730,000. If gas prices increase to $2.46 per gallon and the demand for gas is perfectly inelastic in Tacoma, residents will end up with a total consumer surplus equal to: A. $0. B. $730,000. C. $2,460,000. D. $.73 per gallon.

A ($0)

Suppose the price of a hotel room in San Diego averages $200 per night. At that price 30,000 people stay in hotel rooms on an average night in San Diego. If the average level of consumer surplus for each hotel guest equals $24, what is the total consumer surplus per night? A. $720,000 B. $528,000 C. $600,000 D. $480,000

A ($720,000)

Assume the price of a candy bar decreases from $1.00 to $0.80 and the quantity demanded does not change. If other things are unchanged, the price elasticity of demand, using the midpoint formula, is: A. 0. B. 0.2. C. 1. D. 2.

A (0)

Country Car Leather Boots US 80 40 Canada 60 30 The opportunity cost of producing one car in Canada is: A. 0.5 (thousand pairs) leather boots. B. 1 (thousand pairs) leather boots. C. 2 (thousand pairs) leather boots, which is the same as in the United States. D. different than it is in the United States.

A (0.5 (thousand pairs) leather boots.)

If the price of chicken rises from $3.50 per pound to $4.50 per pound and Safeway observes the quantity demanded decline from 11,000 pounds sold to 9,000 pounds sold, what is the price elasticity of demand using the midpoint method? A. 0.8 B. 0.78 C. 1.25 D. 1.28

A (0.8)

Suppose at a price of $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between the prices of $10 and $8, using the midpoint method, is approximately: A. 1.17. B. 1.00. C. 1.50. D. 0.85.

A (1.17)

Mario is willing to mow one lawn for $18; he will mow a second for $22, and a third for $28. Assume that the market rate for lawn mowing is $24. How many lawns will Mario mow? What will be his total revenue? What will be his producer surplus? A. Mario will mow two lawns for a total revenue of $48; his producer surplus will be $8. B. Mario will mow two lawns for a total revenue of $48; his producer surplus will be $2. C. Mario will mow three lawns for a total revenue of $72; his producer surplus will be $4. D. Mario will mow three lawns for a total revenue of $72; his producer surplus will be $2.

A (Mario will mow two lawns for a total revenue of $48; his producer surplus will be $8)

Which of the following is a likely result of a price floor imposed on providers of a particular service? A. The service providers will offer an inefficiently high quality. B. The service providers will offer an inefficiently low quality. C. A shortage will develop. D. The quantity demanded will increase beyond what it would be in the absence of the price floor.

A (The service providers will offer an inefficiently high quality)

If a price ceiling is imposed above the equilibrium price, what is the effect? A. There is no visible effect on the market outcome. B. A shortage results. C. A surplus results. D. The quantity demanded will decrease.

A (There is no visible effect on the market outcome)

A maximum price legislated by the government is called: A. a price ceiling. B. the parity price. C. a price support. D. a price floor

A (a price ceiling.)

A shift to the left of a supply curve can result from: A. an increase in the cost of an input B. an increase in the number of buyers C. an increase in the number of sellers D. a technological improvement in production

A (an increase in the cost of an input)

The demand curve for videos has shifted to the right. What could have caused it? A. an increase in the incomes of buyers B. an increase in the price of videos C. a fall in the price of videos D. an increase in the supply of videos

A (an increase in the incomes of buyers)

Assume that as the price of cucumbers falls, the income effect causes consumers to buy fewer cucumbers. Given this information we can conclude that cucumbers are: A. an inferior good. B. not affected by the income effect. C. a normal good. D. expensive.

A (an inferior good.)

Why did the United States experience a gasoline shortage in 1979? A. because the price of gas was legally prevented from rising to its equilibrium level B. because the demand for gasoline had increased too much C. because the supply of gasoline had decreased too much D. because oil producers had allowed refineries to fall into disrepair

A (because the price of gas was legally prevented from rising to its equilibrium level)

Price controls: A. can result in inequitable outcomes. B. are always set below the equilibrium price. C. always lead to more equitable results. D. always increase economic efficiency

A (can result in inequitable outcomes.)

The substitution effect of a change in the price of a good implies that, as good A gets more expensive when compared to good B, the consumer will: A. decrease the quantity consumed of good A. B. decrease the quantity consumed of good B. C. decrease consumption of both because the consumer's purchasing power has declined. D. substitute away from other goods as the consumer's purchasing power has decreased.

A (decrease the quantity consumed of good A.)

Using the midpoint method of elasticity to calculate the price elasticity of demand eliminates the problem of computing which of the following? A. different elasticities, depending on whether price decreases or increases B. different elasticities because price and quantity are inversely related on the demand curve C. total revenue when price falls and demand is inelastic D. total revenue when price falls and demand is elastic

A (different elasticities, depending on whether price decreases or increases)

If an economy is operating at a point on its production possibilities frontier, it is A. efficient in production and may be efficient in allocation. B. always efficient in both production and allocation. C. inefficient in both production and allocation. D. efficient in allocation, but not always efficient in production.

A (efficient in production and may be efficient in allocation.)

The cross-price elasticity of electricity with respect to the price of natural gas has been estimated as being equal to 0.2. This implies that: A. electricity and natural gas are substitutes. B. one of the two goods is inferior and the other is normal, but more information is needed to determine which of them is normal. C. natural gas and electricity are both normal goods. D. electricity and natural gas are complements.

A (electricity and natural gas are substitutes)

The price of microchips used to produce computers falls. As a result, the equilibrium price of computers _____ and the equilibrium quantity ______. A. falls; increases B. rises; increases C. rises; decreases D. falls; decreases

A (falls; increases)

Which of the following goods would you expect to be income inelastic? A. food. B. diamonds. C. international travel. D. a second home.

A (food)

The income elasticity of demand of a normal good is always: A. greater than 0. B. equal to 0. C. between 1 and 0. D. less than 0.

A (greater than 0)

Compared with autarky, international trade leads to: A. higher production in exporting industries and lower production in import-competing industries. B. lower production in exporting industries and higher production in import-competing industries. C. higher production in both exporting and import-competing industries. D. lower production in both import-competing and exporting industries.

A (higher production in exporting industries and lower production in import-competing industries)

A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, "How many of you will transfer to another university because of the increase in tuition?" One student out of about 300 said that he or she would transfer. Based on this information, the price elasticity of demand for education at this university is: A. highly inelastic. B. 0. C. 1. D. highly elastic.

A (highly inelastic)

The graphical result of a price ceiling is: A. quantity demanded exceeds the amount at the equilibrium price, and quantity supplied is less than the amount at the equilibrium price. B. quantity supplied exceeds the amount at the equilibrium price, and quantity demanded is less than the amount at the equilibrium price. C. quantity demanded and quantity supplied are equal at the equilibrium price. D. quantity demanded is less than the amount at the equilibrium price, and quantity supplied is also less than the amount at the equilibrium price.

A (quantity demanded exceeds the amount at the equilibrium price, and quantity supplied is less than the amount at the equilibrium price)

When the price of armchairs increases, the: A. quantity supplied increases. B. supply decreases. C. supply increases. D. quantity supplied decreases.

A (quantity supplied increases)

A price above the equilibrium price will: A. result in quantity supplied being greater than quantity demanded. B. result in a shortage. C. create pressure for price to rise further. D. result in quantity supplied being greater than quantity demanded and also create pressure for the price to rise further.

A (result in quantity supplied being greater than quantity demanded.)

Improvements in technology will: A. shift the production possibility curve (PPC) out away from the origin B.makes the production possibility curve flat. C. make points that were feasible to produce infeasible to produce. D. shift the production possibility curve in toward the origin.

A (shift the production possibility curve (PPC) out away from the origin)

A breakthrough in the production of computer hard drives allows them to now be assembled with cheaper materials, and to triple their storage capacity. This technological change should (assume all other things being equal): A. shift the supply curve for computer hard drives to the right. B. shift the supply curve for computer hard drives to the left. C. cause a movement down along the supply curve of computer hard drives. D. cause a movement up along the supply curve of computer hard drives.

A (shift the supply curve for computer hard drives to the right.)

Michelle's purchases of shoes increase by 10% when her income increases by 20%. Based on this information, we know that: A. shoes are a normal good. . B. the price of shoes has decreased. C. shoes are an inferior good. D. shoes have many substitutes.

A (shoes are a normal good)

The demand for a good becomes relatively more elastic as: A. substitutes for the good become more available. B. substitutes for the good become less available. C. the good becomes more of a necessity. D. the time allowed for adjustment is shortened.

A (substitutes for the good become more available.)

In a single year, the Netherlands can raise 100 tons of beef or produce 1,000 boxes of tulips. In the same growing season, Belgium can raise 50 tons of beef or produce 750 boxes of tulips. From this information, it is know that: A. the Netherlands has a comparative advantage in raising beef. B. Belgium has an absolute advantage in raising beef. C. the Netherlands has a comparative advantage in raising tulips. D. Belgium has a comparative advantage in raising beef.

A (the Netherlands has a comparative advantage in raising beef.)

Economists typically depict the production possibility frontier as a bowed-out curve rather than as a straight line in order to show that: A. the opportunity cost of producing a good rises as more is produced. B. the opportunity cost of producing a good declines as more is produced. C. resources used in the production of one good can be used in the production of another. D. cost is always present.

A (the opportunity cost of producing a good rises as more is produced.)

A surplus in the marketplace for cocoa beans will occur if: A. the price of cocoa beans is above the equilibrium price. B. the price of cocoa beans is below the equilibrium price. C. there is an excess of demand at the current price. D. quantity demanded is greater than quantity supplied at the current price.

A (the price of cocoa beans is above the equilibrium price.)

Samia is willing to pay $10 for one bracelet and $5 for a second. Isabella is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, what is the total consumer surplus after Samia and Isabella make their purchases? A. $8 B. $6 C. $7 D. $5

B ($6)

If Christina's purchases of shoes increase from 9 pairs per year to 11 pairs per year when her income increases from $19,000 to $21,000 a year, other things equal, for Christina, shoes are considered a(n): A. 1/6. B. 2/3. C. 3/2. D. 1/2.

B (2/3)

Table: Price Elasticity $2.00 50 $1.75 75 Examine the table Price Elasticity. What is the price elasticity of demand between $2.00 and $1.75? A. 2.33 B. 3.00 C. 4.00 D. 0.125

B (3.00)

Many of the commonplace items that you use everyday are manufactured in Asia. If the Heckscher-Olin model applies, what would account for this? A. The United States has used its military power to oppress the people of Asia and force them to work for low wages. B. Asian countries are abundant in low-skilled labor, and so items can be manufactured there at a relatively low opportunity cost. C. Asian countries do not enjoy a comparative advantage in any economic activity, so they end up being exploited by wealthy countries. D. Global corporations have located their manufacturing operations in Asia in their attempt to impoverish the people of Asia.

B (Asian countries are abundant in low-skilled labor, and so items can be manufactured there at a relatively low opportunity cost)

France and England both produce wine and cloth under conditions of constant opportunity costs. France can produce 150 barrels of wine if it produces no cloth or 100 bolts of cloth if it produces no wine. England can produce 50 barrels of wine if it produces no cloth or 100 bolts of cloth if it produces no wine. Using this information, it can be concluded that: A. France has a comparative advantage in cloth production. B. England has a comparative advantage in cloth production. C. mutually beneficial international trade is not possible. D. France has a comparative advantage in both goods.

B (England has a comparative advantage in cloth production.)

Which of the following statements is true about the substitution effect? A. It measures the change in the quantity consumed that results from the change in the overall purchasing power of the consumer due to the change in the price of the good. B. It measures the change in the quantity consumed as the consumer substitutes away from the relatively more expensive good toward other relatively cheaper goods. C. It is significant for those goods whose price represents a large share of total income. D. It does not obey the law of demand.

B (It measures the change in the quantity consumed as the consumer substitutes away from the relatively more expensive good toward other relatively cheaper goods.)

In autarky, Jackson produces and consumes 30 head of cattle and 80 bushels of wheat, whereas Tahoe produces and consumes 80 head of cattle and 60 bushels of wheat. Based on this information: A. Jackson has an absolute advantage in the production of cattle. B. Jackson has a comparative advantage in the production of wheat. C. Jackson has a comparative advantage in the production of cattle. D. Tahoe has a comparative advantage in the production of wheat.

B (Jackson has a comparative advantage in the production of wheat.)

Assume that there is a production possibilities frontier (PPF). Point A lies inside (to the left) of the frontier. Point B and C are located along the frontier, and Point D is located outside (to the right) of the frontier. Which of the following points represent feasible (attainable) production points? A. All points (A, B, C, and D) are feasible. B. Points A, B, and C are feasible. C. Points B and C are feasible. D. None of the points are feasible.

B (Points A, B, and C are feasible.)

Which group would be most likely to benefit from a binding price floor imposed on wheat? A. Buyers of wheat who are seeking lower prices. B. Sellers of wheat who are seeking higher prices. C. Sellers of goods considered complements to wheat, who hope to sell larger quantities of their products. D. Consumer groups hoping to keep overall food prices low.

B (Sellers of wheat who are seeking higher prices)

Sid and Nancy have opened a small shop selling tea and crumpets. Sid takes 1 hour to brew one pitcher of tea, and 3 hours to bake one plate of crumpets. Nancy also takes 1 hour to brew one pitcher of tea, and 2 hours to bake one plate of crumpets. From this information, we know that: A. Sid's opportunity cost of brewing one pitcher of tea is 3 plates of crumpets. B. Sid's opportunity cost of brewing one pitcher of tea is 1/3 of a plate of crumpets. C. Nancy's opportunity cost of brewing one pitcher of tea is 2 plates of crumpets. D. between the two of them, neither Sid nor Nancy has a comparative advantage in brewing tea.

B (Sid's opportunity cost of brewing one pitcher of tea is 1/3 of a plate of crumpets)

What would be the dominant effect in the new-home market of an increase in the wages of skilled tradesmen who work in housing construction? A. The supply of new homes would shift to the right. B. The supply of new homes would shift to the left. C. The demand for new homes would shift to the right. D. The demand for new homes would shift to the left.

B (The supply of new homes would shift to the left.)

If the price elasticity of demand for an annual magazine subscription is 1.6 in the range between $26 and $30, what happens in the market for this subscription when the price rises above this range? A. There will be an increase in the total revenue the magazine collects on its subscriptions. B. There will be a decrease in the total revenue the magazine collects on its subscriptions. C. Magazines will become a normal good. D. Magazines will become an inferior good.

B (There will be a decrease in the total revenue the magazine collects on its subscriptions.)

The income effect refers to: A. changes in money or nominal income caused by changes in wages. B. a change in the quantity demanded of a good caused by a change in the buyer's real income caused by a change in the price of a good or service. C. a change in the quantity demanded of a good because of a change in the buyer's money income. D. changes in income caused by changes in business investment.

B (a change in the quantity demanded of a good caused by a change in the buyer's real income caused by a change in the price of a good or service)

A price ceiling is presented graphically as: A. a price at equilibrium. B. a price below equilibrium. C. a price above equilibrium. D. an inefficiently low quality of the good provided.

B (a price below equilibrium)

If the government sets out to help low-income people by establishing a maximum amount that can be paid for rent: A. the quality of rental units will be inefficiently high. B. a price ceiling has been set and a shortage of rental units may occur. C. in the long run more rental units will appear. D. a price floor has been set and a shortage of rental units may occur.

B (a price ceiling has been set and a shortage of rental units may occur.)

A demand schedule is: A. a timetable indicating when purchases will be made. B. a table showing how much of a good consumers will buy at different prices. C. a timetable of household expenditures. D. a table showing how much of a good producers will sell at different prices

B (a table showing how much of a good consumers will buy at different prices)

A decrease in supply can result from: A. suppliers' expectations of lower prices in the future. B. an increase in the price of goods that are used in production. C. an increase in the number of producers. D. an advancement in the technology for producing the good.

B (an increase in the price of goods that are used in production)

If the price of a good increases by 15% and the quantity demanded changes by 20%, then the price elasticity of demand is equal to: A. approximately 0.33 B. approximately 1.33. C. 0.75. D. 1.0.

B (approximately 1.33)

The price elasticity of demand __________ along a downward-sloping demand curve. Demand is ________ at higher prices when compared to lower prices. A. is constant; the same B. changes; more elastic C. changes; less elastic D. changes; perfectly inelastic

B (changes; more elastic)

During a drought, the price elasticity of demand for water is less than one. During a flood, the price elasticity of demand for water is greater than one. This means that the: A. demand for water is elastic during a drought and inelastic during a flood. B. demand for water is inelastic during a drought and elastic during a flood. C. demand curve for water cannot have a constant slope. D. quantity of water people choose to consume is independent of the price.

B (demand for water is inelastic during a drought and elastic during a flood.)

A negative relationship between the quantity demanded of a good and its price is called the law of: A. supply. B. demand. C. increasing returns. D. market clearing.

B (demand)

The term autarky refers to a situation in which a country: A. trades goods and services based upon the principle of economic advantage. B. does not trade with other countries. C. trades goods and services based upon the principle of comparative advantage. D. trades goods and services based upon the principle of absolute advantage.

B (does not trade with other countries.)

Suppose that Great Britain and France each specialize according to their own comparative advantage, so that Great Britain produces fish and France produces wine. Then they engage in trade. This means that: A. each nation will experience more unemployment than they would under conditions of autarky. B. each nation can consume more of both goods than they could under conditions of autarky.. C. all wine consumers will gain and all wine producers will lose. D. all wine producers will gain and all wine consumers will lose.

B (each nation can consume more of both goods than they could under conditions of autarky)

If a good is a luxury, then we would expect the price elasticity of demand to be: A. inelastic. B. elastic. C. unit-elastic. D. perfectly inelastic.

B (elastic.)

Which of the following is NOT a predictable result of a price ceiling? A. development of an illegal black market B. exorbitant profits for producers of the good C. a persistent shortage D. an inefficiently low quality of the good provided

B (exorbitant profits for producers of the good)

To be binding, a price floor must be set at a price: A. at which quantity demanded exceeds quantity supplied. B. higher than the equilibrium price. C. lower than the equilibrium price and at which quantity demanded exceeds quantity supplied. D. lower than the equilibrium price.

B (higher than the equilibrium price.)

Production possibility frontiers: A. assume full employment but not maximum efficiency. B. illustrate the production choices available to an economy. C. are used to illustrate the law of decreasing opportunity costs. D. assume maximum efficiency but not full employment.

B (illustrate the production choices available to an economy.)

A binding minimum wage is a type of: A. quota. B. price floor. C. price ceiling. D. tax incidence.

B (price floor)

The graphical result of a price floor is: A. quantity demanded exceeds the amount at the equilibrium price, and quantity supplied is less than the amount at the equilibrium price. B. quantity supplied exceeds the amount at the equilibrium price, and quantity demanded is less than the amount at the equilibrium price. C. quantity demanded and quantity supplied are equal at the equilibrium price. D. quantity demanded is less than the amount at the equilibrium price, and quantity supplied is also less than the amount at the equilibrium price.

B (quantity supplied exceeds the amount at the equilibrium price, and quantity demanded is less than the amount at the equilibrium price)

A binding price floor is designed to: A. increase efficiency. B. raise the price above the equilibrium price. C. keep the price below the equilibrium price. D. generate a shortage.

B (raise the price above the equilibrium price.)

For consumers, pizza and hamburgers are substitutes. A rise in the price of a pizza causes a _____ in the equilibrium price of a hamburger and a _____ in the equilibrium quantity of hamburgers. A. fall; fall B. rise; rise C. fall; rise D. rise; fall

B (rise; rise)

Cocoa beans are an important input in chocolate production. We would expect that an increase in the price of cocoa beans should (assume all other things being equal): A. shift the supply of Hershey's chocolate bars to the right. B. shift the supply of Hershey's chocolate bars to the left. C. cause a movement up along the supply curve for Hershey's chocolate bars. D. cause a movement down along the supply curve for Hershey's chocolate bars.

B (shift the supply of Hershey's chocolate bars to the left.)

If the absolute value of the price elasticity of demand is greater than 1, then: A. changes in the price will have no impact on changes in the quantity demanded. B. small percentage changes in the price will lead to much larger changes in the percentage change in the quantity demanded. C. percentage changes in the price will lead to equal percentage changes in the quantity demanded. D. small percentage changes in the price will lead to even smaller changes in the percentage change in the quantity demanded.

B (small percentage changes in the price will lead to much larger changes in the percentage change in the quantity demanded)

For goods that absorb a ______ share of the typical consumer's spending, the _______ effect is essentially the sole reason why the demand curve slopes downward. A. large; substitution effect B. small; substitution effect C. small; income effect D. large; marginal utility effect

B (small; substitution effect)

Which area on a graph showing a firm's supply curve represents producer surplus? A. the area under the demand curve down to a line indicating price B. the area above the supply curve up to a line indicating price C. the area between the supply and demand curves to the left of the equilibrium point D. the area between the supply and demand curves to the right of the equilibrium point

B (the area above the supply curve up to a line indicating price)

When demand is perfectly elastic: A. the demand curve is vertical. B. the demand curve is horizontal. C. consumers do not respond to price changes. D. suppliers do not respond to price changes.

B (the demand curve is horizontal.)

If the quantity demanded of cocoa beans is greater than the quantity supplied of cocoa beans, then: A. the equilibrium price of cocoa beans will fall in the market. B. the equilibrium price of cocoa beans will rise in the market. C. the demand for cocoa beans will shift to the right. D. the supply for cocoa beans will shift to the right.

B (the equilibrium price of cocoa beans will rise in the market.)

When the price of air travel rises, both the income and substitution effects play a role in consumer response. The income effect describes what happens due to: A. the fact that many consumers will switch to traveling by car or by train. B. the fact that consumers find their incomes now have a lower purchasing power C. the lower utility now received from air travel. D. the lower utility now received from travel of any type.

B (the fact that consumers find their incomes now have a lower purchasing power)

The price elasticity of supply rises: A. when inputs become more difficult to obtain. B. the longer the period of time in consideration. C. when the good is made out of gold. D. in the short run.

B (the longer the period of time in consideration)

The price elasticity of demand is defined as: A. the percent change in quantity demanded divided by the percent change in quantity supplied. B. the percent change in quantity demanded divided by the percent change in price. C. the percent change in price divided by the percent change in quantity demanded. D. the percent change in quantity demanded divided by the percent change in income.

B (the percent change in quantity demanded divided by the percent change in price.)

Supply curves are usually _______ sloping. As the price of a good rises, the quantity supplied of the good __________. A. upward; falls B. upward; rises C. downward; falls D. downward; rises

B (upward; rises)

Regardless of its price, Charlie spends $5 a week on ice cream. What can we conclude about Charlie's demand for ice cream? A. His income elasticity of demand for ice cream is equal to one. B. His income elasticity of demand for ice cream is equal to zero. C. His price elasticity of demand for ice cream is equal to one. D. His price elasticity of demand for ice cream is equal to zero.

C (His price elasticity of demand for ice cream is equal to one.)

If the United States can produce 30 computers for every car it produces and Japan can produce 15 computers for every car it produces, it can be concluded that: A. the United States has the comparative advantage in car production. B. the United States has the absolute advantage in car production. C. Japan has the comparative advantage in car production. D. Japan has the absolute advantage in car production.

C (Japan has the comparative advantage in car production.)

Assume that we have a production possibilities frontier (PPF). Point A lies inside (to the left) of the frontier. Point B and C are located along the frontier, and Point D is located outside (to the right) the frontier. Which points represent efficient production points? A. All points (A, B, C, and D) are efficient. B. Points A, B, and C are efficient. C. Points B and C are efficient. D. Points B, C, and D are efficient.

C (Points B and C are efficient.)

Which of the following would cause a surplus of newsprint? A. The supply of newsprint decreases, and the price is not permitted to change. B. The demand for newsprint decreases, and the price adjusts to the new equilibrium. C. The demand for newsprint decreases, and the price is not permitted to change. D. The supply of newsprint decreases, and the price adjusts to the new equilibrium.

C (The demand for newsprint decreases, and the price is not permitted to change.)

What determines the price elasticity of supply? A. The number of substitutes consumers can find for the good. B. The amount of an excise tax imposed on a good. C. The ease with which suppliers can expand production of a good. D. The difference between the equilibrium price of a good and the price established by a price floor.

C (The ease with which suppliers can expand production of a good.)

How would an increase in the price of cotton affect the market for cotton T-shirts at your university bookstore? A. The demand curve for cotton T-shirts will shift leftward. B. The demand curve for cotton T-shirts will shift rightward. C. The supply curve for cotton T-shirts will shift leftward. D. The supply curve for cotton T-shirts will shift rightward.

C (The supply curve for cotton T-shirts will shift leftward.)

All of the following statements are accurate regarding the Leontief paradox that attempted to understand the nature of U.S. trade EXCEPT: A. Goods that the U.S. exported were slightly less capital-intensive than goods the country imported. B. U.S. exports are skill-intensive. C. U.S. exporting industries use a substantially lower ratio of highly educated workers to other workers that are found in U.S. industries that compete against imports. D. U.S. exports rely to a large degree on human capital.

C (U.S. exporting industries use a substantially lower ratio of highly educated workers to other workers that are found in U.S. industries that compete against imports)

A price control is: A. an upper limit on the quantity of some good that can be bought or sold. B. a tax placed on the sale of a good which controls the market price. C. a legal restriction on how high or low a price in a market may go. D. when a firm controls the price of the good it produces.

C (a legal restriction on how high or low a price in a market may go.)

A price floor is presented graphically as: A. a price at equilibrium. B. a price below equilibrium. C. a price above equilibrium. D. an inefficiently high quality of the good provided.

C (a price above equilibrium)

A minimum price that the government guarantees farmers will receive for a particular crop is: A. a deficiency price. B. an export price (export subsidy). C. a price floor (price support). D. a price ceiling.

C (a price floor (price support).)

An increase in supply is illustrated as: A. a movement up along a given supply curve. B. a movement down along a given supply curve. C. a shift to the right of the supply curve. D. a shift to the left of a given supply curve.

C (a shift to the right of the supply curve.)

The government imposes a price ceiling below the equilibrium price. The price ceiling will cause: A. an increase in the quality of the good. B. demand to decrease. C. a shortage of the good. D. supply to increase.

C (a shortage of the good.)

The equilibrium price of a good is the price: A. that consumers prefer. B. that producers prefer. C. at which there is no surplus and no shortage of the good. D. there is no opportunity cost associated with producing the good.

C (at which there is no surplus and no shortage of the good.)

Autarky is a situation in which a country: A. specializes according to its own comparative advantage. B. experiences wage inequality as a result of free trade. C. does not trade. D. imports those goods for which the world price exceeds the domestic price.

C (does not trade)

Globalization can be defined by all of the following trends EXCEPT that: A. investors from one country often invest funds in another nation. B. many companies are now multi-national, selling goods and services in many different countries. C. due to the increased use of tariffs and quotas, foreign trade has been shrinking over the past decade. D. many companies have subsidiaries operating in several countries.

C (due to the increased use of tariffs and quotas, foreign trade has been shrinking over the past decade)

When price elasticity of demand is greater than one, we say that demand is: A. perfectly inelastic. B. inelastic. C. elastic. D. unit-elastic.

C (elastic.)

French fries and hamburgers are complements. Suppose the cost of the ingredients used to make hamburgers rises, so that the price of a hamburger rises. Then the equilibrium relative price of french fries _____ and the equilibrium quantity _____. A. rises; rises B. rises; falls C. falls; falls D. falls; rises

C (falls; falls)

A price ceiling will have no effect if: A. it is set below the equilibrium price. B. it creates a shortage. C. the equilibrium price is above the price ceiling. D. it is set above the equilibrium price.

D (it is set above the equilibrium price.)

A market supply curve is found by: A. vertically summing the individual supply curves in the market. B. adding up all the prices offered by suppliers in the marketplace. C. horizontally summing the individual supply curves in the market. D. using the individual supply curve of the largest producer in the market.

C (horizontally summing the individual supply curves in the market.)

Goods and services purchased from abroad are _____, whereas goods and services sold abroad are _____. A. exports; imports B. quotas; factors C. imports; exports D. exports; quotas

C (imports; exports)

A firm is more likely to raise total revenue if it: A. decreases prices in the section of its demand curve where prices are low. B. increases prices in the section of its demand curve where prices are high. C. increases prices in the section of its demand curve where prices are low. D. increases prices in the section of its demand curve where elasticity is unit-elastic.

C (increases prices in the section of its demand curve where prices are low.)

A binding price ceiling is designed to: A. increase efficiency. B. raise the price above the equilibrium price. C. keep the price below the equilibrium price. D. generate a surplus.

C (keep the price below the equilibrium price)

A speedboat is considered to be a normal good and a luxury good. Therefore, we would expect the income elasticity of demand to be: A. negative and large. B. negative and small. C. positive and large. D. positive and small.

C (positive and large.)

Total revenue is equal to: A. an area whose width is the price of a good and whose height is the quantity supplied at that price. B. total sales of a good minus the total cost of that good. C. price of a good multiplied by the quantity sold of that good. D. total profit of a good times the total quantity of that good.

C (price of a good multiplied by the quantity sold of that good)

The upward slope of the supply curve indicates that: A. consumers seek to buy goods that are relatively less expensive. B. consumers do not take price into consideration when deciding whether to purchase a good. C. producers supply more of a good when its price increases. D. firms do not take price into consideration when deciding how much of a good to produce.

C (producers supply more of a good when its price increases.)

Price elasticity of demand measures the responsiveness of: A. quantity demanded to changes in product quality. B. quantity demanded to changes in income. C. quantity demanded to changes in price. D. supply to changes in demand.

C (quantity demanded to changes in price.)

Those points lying beyond the production possibility frontier: A. are inefficient. B. represent outcomes in which resources would be unemployed. C. represent outcomes unattainable with the current level of technology and resources. D. represent outcomes that are attainable with the current level of technology and resources but that are less desirable than those on the frontier.

C (represent outcomes unattainable with the current level of technology and resources.)

According to the Heckscher-Olin model, a country will export those goods: A. for which the world price is below the domestic price. B. in which it does not have a comparative advantage. C. that are intensive in its relatively abundant factors. D. that are produced at a relatively high opportunity cost.

C (that are intensive in its relatively abundant factors)

As an economy moves from point to point along its production possibility frontier (PPF), what is changing? A. the amount of resources available in the economy B. the productivity of the resources available in the economy C. the allocation of resources within the economy D. the size of the labor force

C (the allocation of resources within the economy)

The income effect of a change in the price of a good implies that, as good A gets more expensive as compared to good B: A. the consumer will buy less of good A because their purchasing power has increased. B. the consumer will buy less of good B because their purchasing power has increased. C. the consumer will buy less of good A because their purchasing power has decreased. D. the consumer will buy less of good B because their purchasing power has decreased.

C (the consumer will buy less of good A because their purchasing power has decreased.)

countries machinery petroleum US 80 40 Mexico 60 180 The table shows the maximum quantity of machinery and petroleum the two countries can produce when they devote all of their resources to the production of that good. Based on the information in the table, it is true that: A. the opportunity cost of petroleum is less in the United States than in Mexico. B. petroleum opportunity costs are the same in the United States and in Mexico. C. the opportunity cost of petroleum is more in the United States than in Mexico. D. machinery opportunity costs are the same in the United States and in Mexico.

C (the opportunity cost of petroleum is more in the United States than in Mexico.)

Producer surplus is positive when: A. the price the producer is willing to charge equals the market price. B. there is no tax applied to the good. C. the price the producer is willing to charge is less than the market price. D. the price the producer is willing to charge is greater than the market price.

C (the price the producer is willing to charge is less than the market price)

A model that helps economists think about the trade-offs that every economy faces is called: A. the circular-flow diagram. B. factors of production. C. the production possibility frontier. D. comparative advantage.

C (the production possibility frontier.)

The production of aluminum baseball bats is characterized by increasing returns. This means that: A. there are diseconomies of scale in production. B. the productivity of labor tends to fall as production increases. C. the productivity of resources tends to increase as production increases. D. an increase in domestic prices tends to increase revenue for bat exporters.

C (the productivity of resources tends to increase as production increases)

What is measured along the horizontal axis in a graph of the production possibility frontier? A. the amount of labor input B. the amount of capital input C. the quantity of one good produced D. the quantity of one good exported

C (the quantity of one good produced)

The sign (negative or positive) on the cross-price elasticity of demand for wine and chocolate tells us: A. whether wine is a normal good. B. whether chocolate is a normal good. C. whether wine and chocolate are substitutes or complements. D. how the burden of an excise tax on either good would be split between consumers and producers.

C (whether wine and chocolate are substitutes or complements.)

Bar owners often offer lower beer prices to women than they do to men. This will enhance bar revenues if: A. women have a unit-elastic demand for beer. B. women have an inelastic demand for beer. C. women have an elastic demand for beer. D. women have a negative income elasticity of demand for beer.

C (women have an elastic demand for beer.)

An increase in the price of bacon by 10% causes a 4% decrease in the quantity demanded for eggs. What is the cross-price elasticity between bacon and eggs, and are the two goods complements or substitutes? A. 2.5; substitutes B. -2.5; complements C. 0.4; substitutes D. -0.4; complements

D (-0.4; complements)

The price of notebooks is $5, and at that price consumers demand 12 notebooks. If the price rises to $7, consumers will decrease consumption to 4 notebooks. Using the midpoint formula, what is the price elasticity of demand for notebooks? A. 6 B. 1/3 C. 1/6 D. 3

D (3)

All of the following are good examples of how a country may enjoy a comparative advantage for a particular good EXCEPT: A. The climate in Columbia is ideal for growing coffee beans. B. German technological advances produce the most efficient car engines. C. Canada's rich and vast forestland is the source of lumber and paper products. D. All options are correct.

D (All options are correct)

Which of the following statements regarding price floors is TRUE? A. Price floors always benefit consumers and harm producers. B. Price floors make markets more efficient, but they diminish profit levels. C. Price floors result in shortages. D. Price floors are intended to help certain people, but they have side effects that may harm others in predictable ways.

D (Price floors are intended to help certain people, but they have side effects that may harm others in predictable ways)

A bank increased its fees for processing personal checks from 18 cents to 24 cents per check. In a statement accompanying the announcement, the bank said that customers who could find ways to reduce the number of checks they write would see no increase in their overall account fee. What is the implication of this statement? A. The price elasticity of demand for check-writing is less than one. B. The price elasticity of demand for check-writing is greater than one. C. Account holders are indifferent to the check-writing fee. D. Some account holders have a unit-elastic demand for check-writing.

D (Some account holders have a unit-elastic demand for check-writing.)

In autarky, a country's production and consumption points must be identical. True False

True

What happens to the price elasticity of demand as we move down to the right along a straight-line demand curve? A. It changes from a negative number to a positive number. B. It changes from a positive number to a negative number. C. The demand becomes relatively more elastic. D. The demand becomes relatively less elastic.

D (The demand becomes relatively less elastic.)

Consider the market for kayaks. What happens when the process of manufacturing kayaks becomes less costly when new technology is used? A. The demand curve for kayaks will shift leftward. B. The demand curve for kayaks will shift rightward. C. The supply curve for kayaks will shift leftward. D. The supply curve for kayaks will shift rightward.

D (The supply curve for kayaks will shift rightward.)

What happens in the market for wheat when dry winter weather results in a poor harvest? A. The demand for wheat increases; the supply remains unchanged. B. The demand for wheat increases; the supply decreases. C. The demand for wheat decreases; the supply increases. D. The supply of wheat decreases; the demand remains unchanged.

D (The supply of wheat decreases; the demand remains unchanged.)

What situation would make the demand for new cars relatively more price-elastic? A. Auto manufacturers have a difficult time hiring skilled workers. B. Auto manufacturers find it easy to hire skilled workers. C. Car buyers are prosperous, and they are seeking luxury cars. D. There is a plentiful supply of used cars.

D (There is a plentiful supply of used cars.)

In the market for beef tacos, each of these shifts the supply curve to the left EXCEPT: A. an increase in the wages of taco shop workers. B. an increase in the price of beef. C. fewer taco shops. D. a decrease in the price of tacos.

D (a decrease in the price of tacos)

As calculated, the price elasticity of demand is: A. always positive. B. always greater than 1. C. usually equal to 1. D. always negative.

D (always negative.)

A decrease in the price of a good will result in: A. a decrease in demand. B. an increase in demand. C. a decrease in quantity demanded. D. an increase in the quantity demanded.

D (an increase in the quantity demanded)

Suppose an economy is capable of producing a combination of 10 bananas and 40 pounds of fish at point A. If this economy can also produce a combination of 11 bananas and 45 pounds of fish at point B, we know point A is: A. efficient in production. B. infeasible. C. on the production possibility curve. D. below the production possibility curve

D (below the production possibility curve)

Suppose the Jamaican government sets coffee prices at $1 per pound, when the market price is $10. The government's actions will: A. result in coffee surpluses even in a coffee-rich country. B. improve equality between rich and poor, because the poor can now afford coffee. C. improve efficiency, because the low prices will force producers to find cheaper production methods. D. cause coffee shortages even in a coffee-rich country.

D (cause coffee shortages even in a coffee-rich country.)

Countries that engage in trade will tend to specialize in goods in which they have a(n) _____ and will _____ those goods. A. comparative advantage; import B. absolute advantage; export C. economic profit; import D. comparative advantage; export

D (comparative advantage; export)

The government decides to impose a price ceiling on a good because it thinks the market-determined price is "too high." If the government imposes the price ceiling below the equilibrium price: A. producers will respond to the lower price and offer more units for sale. B. consumers will be able to purchase more of the good after the price ceiling is imposed. C. it will not be binding. D. consumers will respond to the lower price and wish to purchase more of the good than at the equilibrium price.

D (consumers will respond to the lower price and wish to purchase more of the good than at the equilibrium price.)

The price elasticity of demand is measured by: A. dividing the percentage change in price by the percentage change in quantity demanded. B. subtracting the percentage change in price from the percentage change in quantity demanded. C. adding the percentage change in price to the percentage change in quantity demanded. D. dividing the percentage change in quantity demanded by the percentage change in price.

D (dividing the percentage change in quantity demanded by the percentage change in price)

When the price of a good rises, total revenue falls because of the quantity effect. This means that as the price of a good rises: A. each unit sold sells at a higher price. B. each unit sold sells at a lower price. C. more units are sold. D. fewer units are sold.

D (fewer units are sold.)

We would expect the price elasticity of demand for foreign travel to be: A. zero. B. one. C. less than one. D. greater than one.

D (greater than one.)

What do you have to know in order to calculate the price elasticity of supply? A. the number of consumers in the market for the good B. the number of firms supplying the good C. the amount of total revenue collected on sales of the good D. how much of the good will be offered for sale at each of two different prices

D (how much of the good will be offered for sale at each of two different prices)

Assume that after graduation, you land a marketing job with Canon, in the digital camera division. After Canon introduces a new digital camera, you estimate that the price elasticity of demand for the camera equals 2, and the income elasticity is equal to 0.5. Furthermore, the cross-price elasticity with a similar Kodak camera is equal to 1.25. Based on this information, you would conclude that for the new Canon camera the product is income: A. elastic. During a period of strong economic growth the demand curve for the camera will shift outward by a greater amount than an income-inelastic good. B. elastic. During a period of strong economic growth the demand curve for the camera will shift outward by a smaller amount than an income-inelastic good. C. inelastic. During a period of strong economic growth the demand curve for the camera will shift outward by a greater amount than an income-elastic good. D. inelastic. During a period of strong economic growth the demand curve for the camera will shift outward by a smaller amount than an income-elastic good.

D (inelastic. During a period of strong economic growth the demand curve for the camera will shift outward by a smaller amount than an income-elastic good.)

When Ina's income declined from $50,000 to $35,000, her purchases of macaroni and cheese went up from 10 boxes a month to 15 boxes a month. Use the midpoint method to determine her income elasticity for macaroni and cheese. Her income elasticity for macaroni and cheese is ______. In this case, macaroni and cheese is a(n) ____ good. A. 0.88; normal B. −0.88; inferior C. 1.39; normal D. −1.133; inferior

D (−1.133; inferior)

International trade based on comparative advantage allows a country to produce outside its production possibility frontier. True False

False

Because the production of clothing is labor-intensive relative to the production of wheat and China is labor-abundant relative to most countries, one would expect China to export clothing. True False

True

A binding minimum wage will generally cause increased unemployment for low-skilled workers. True False

True