microeconomics test1

chapter 3

15 questions

chapter 6

16 questions

chapter 5

17 questions

chapter 2

9 questions

chapter 5

9 questions

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%.

The purpose of an economic system is to: a. eliminate scarcity. b. protect the environment. c. allocate scarce resources. d. create an equal distribution of wealth.

allocate scarce resources.

Exchanges taking place in a market system: a. are voluntary. b. are inefficient. c. will benefit one party at the expense of another. d. are monitored by the government to ensure that scarce resources are being used wisely.

are voluntary.

. Economic theory asserts that: a. the equilibrium market price will maximize consumer surplus and minimize producer surplus. b. both producers and consumers gain from trade. c. all consumers have the same willingness to pay for a good. d. all producers have the same cost of providing a good.

b. both producers and consumers gain from trade.

A binding price ceiling is presented graphically as a(n): a. price at equilibrium. b. price below equilibrium. c. price above equilibrium. d. inefficiently low quality of the good provided.

b. price below equilibrium.

5. 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.

Economic theory asserts that people will behave in ways that: a. will be unfair to others. b. will enhance their own overall well-being. c. will not take advantage of opportunities for self-improvement. d. do not follow generally predictable patterns.

b. will enhance their own overall well-being.

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

. 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.

The price elasticity of demand measures the responsiveness of the quantity: a. demanded to changes in product quality. b. demanded to changes in income. c. demanded to changes in price. d. of supply to changes in demand.

c. demanded to changes in price.

An economic system is in __________ when no individual would be better off by making a different choice. a. chaos b. decline c. jeopardy d. equilibrium

d. equilibrium

What is traded in factor markets? a. agricultural products b. mineral products c. exports and imports d. land, labor, capital, and human capital

d. land, labor, capital, and human capital

. 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.

producers supply more of a good when its price increases.

In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of: a. equity. b. specialization. c. marginal analysis. d. interaction of choices.

specialization.

Which one of the following statements is not true of a market economy? a. Productive resources are scarce. b. Every choice involves an opportunity cost. c. A central planning authority makes decisions about production and consumption. d. People will respond to incentives.

. A central planning authority makes decisions about production and consumption.

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

Which of the following changes would cause a decrease in the demand for DVD rentals? a. a decrease in the price of DVD players b. decrease in the price of movie admissions c. improved technology in the manufacture of DVD players d. an increase in the supply of DVD players

b. decrease in the price of movie admissions

. A binding price floor is presented graphically as a(n): a. price at equilibrium. b. price below equilibrium. c. price above equilibrium. d. inefficiently high quality of the good provided.

c. price above equilibrium.

If air travel to Hawaii becomes less expensive, what is likely to happen in the market for hotel rooms in Hawaii? a. The demand curve for hotel rooms will shift to the left. b. The demand curve for hotel rooms will shift to the right. c. The supply curve for hotel rooms will shift to the left. d. The supply curve for hotel rooms will shift to the right.

b. The demand curve for hotel rooms will shift to the right.

What best describes the competitive market? a. The government controls the allocation of inputs in production. b. There are many buyers and sellers of the same good. c. One firm controls production of all goods in an industry. d. Firms cooperate in setting the price of a good.

b. There are many buyers and sellers of the same good.

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 binding minimum wage is a type of: a. quota. b. price floor. c. price ceiling. d. tax incidence.

b. price floor.

. Which of the following would cause a surplus of newsprint? a. The supply of newsprint decreases, and the price does not change. b. The demand for newsprint decreases, and the price adjusts to the new equilibrium. c. The demand for newsprint decreases, and the price does not change. d. The supply of newsprint decreases, and the price adjusts to the new equilibrium.

c. The demand for newsprint decreases, and the price does not change.

The medallion system used to license taxicabs in New York City is an example of a(n): a. price floor. b. price ceiling. c. quota. d. excise tax.

c. quota.

7. Which of the following statements is true? a. A country cannot have a comparative advantage in producing a particular good unless it first has an absolute advantage in producing that good. b. Comparative advantage in producing a certain item arises from being the first country to manufacture that item. c. A country cannot have comparative advantage in producing a certain item if it incurs an increasing opportunity cost in producing the item. d. All countries can gain from trade if they all specialize in production according to comparative advantage.

d. All countries can gain from trade if they all specialize in production according to comparative advantage.

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 thus there being a shortage.

a. result in quantity supplied being greater than quantity demanded.

. Economists would most likely disagree with which of the following statements? a. People respond to incentives. b. Making a choice involves an opportunity cost. c. Markets move towards equilibrium. d. Resources and inputs used in production are unlimited.

Resources and inputs used in production are unlimited.

What is the result of a binding quota restriction on quantity? a. The market-clearing price will be higher than the equilibrium price. b. Demand for the good will increase. c. The supply price at the transacted quantity will exceed the demand price. d. The efficiency of the market will be enhanced.

a. The market-clearing price will be higher than the equilibrium price.

Which of the following statements is correct? a. When the price of a good increases, total revenue tends to increase due to the price effect and tends to decrease due to the sales effect. b. When the price of a good increases, total revenue tends to decrease due to the price effect and tends to increase due to the sales effect. c. A price increase always increases total revenue, because the seller collects a higher price on each unit sold. d. The cross-price elasticity of demand measures the extent to which the sales effect outweighs the price effect.

a. When the price of a good increases, total revenue tends to increase due to the price effect and tends to decrease due to the sales effect.

Why did Venezuela experience a shortage of basic food in 2006? a. because the price of basic food was legally prevented from rising to its equilibrium level b. because the demand for goods that weren't subject to price controls decreased. c. because the supply of fertilizer to farmers had decreased too much d. because president Hugo Chavez had allowed food exports.

a. because the price of basic food was legally prevented from rising to its equilibrium level

The downward slope of the demand curve indicates that, all else equal: a. consumers will buy more of a good when its price decreases. b. producers will supply more of a good when its price increases. c. producers will supply more of a good when its price decreases. d. a decrease in the equilibrium price of a good will cause a shortage

a. consumers will buy more of a good when its price decreases.

What do you have to know to calculate the price elasticity of demand? a. how much of the good was purchased at each of 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 each of two different prices

What is the name given to the wedge that occurs between the supply price and the demand price of the transacted quantity, when a good is subject to quantity restrictions? a. quota rent b. surplus c. shortage d. incidence

a. quota rent

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.

Economists typically depict the PPF 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 cannot be used in the production of another. d. the opportunity cost is always present.

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

Economists generally agree that people are most likely to change their behavior when they: a. are asked to do so voluntarily. b. are given incentives to do so. c. live in a world without scarcity. d. live in a world without opportunity costs.

are given incentives to do so.

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 when the subscription price rises from $26 to $30? 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.

If the demand curve shifts to the left, and the supply curve does NOT change, then the equilibrium price: a. and quantity both will increase. b. and quantity both will decrease. c. will increase, and the quantity will decrease. d. price will decrease, and the quantity will increase.

b. and quantity both will decrease.

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

Suppose at a price of $1.73 per gallon, residents of Tacoma purchase 1 million gallons of gas every week. If the price of gas increases to $2.46 per gallon, consumer surplus will: a. rise. b. fall. c. stay the same. d. A, B, and C are equally possible.

b. fall.

If a country specializes according to its own comparative advantage and then trades with other nations: a. it will operate at a point inside its production possibility frontier. b. it can consume at a higher level than the domestic production possibility frontier. c. its production possibility frontier will shift or rotate inward. d. it can consume at the same level as the domestic production possibility frontier.

b. it can consume at a higher level than the domestic production possibility frontier.

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.

Which group would be most likely to benefit from a binding price floor imposed on wheat? a. buyers of wheat that are seeking lower prices b. sellers of wheat that are seeking higher prices c. sellers of goods considered complements to wheat, hoping to sell larger quantities of their products d. consumer groups hoping to keep overall food prices low

b. sellers of wheat that are seeking higher prices

. 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

Which of the following is a normative statement? a. An increase in the price of cameras will decrease the number of cameras sold. b. A decrease in the price of digital cameras will decrease the demand for camera film. c. A camera makes a good wedding gift. d. The United States imports most of its cameras from Asia.

c. A camera makes a good wedding gift.

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

Suppose you hear an economist make an assertion that, between the two countries, France has a comparative advantage in the production of chocolate and that Italy has a comparative advantage in the production of wine. Which of the following statements is another way of stating the same idea expressed in the assertion? a. French chocolate is better tasting than Italian chocolate. b. French wine is better tasting than Italian wine. c. France can produce chocolate at a lower opportunity cost than Italy can. d. France can produce wine at a lower opportunity cost than Italy can

c. France can produce chocolate at a lower opportunity cost than Italy can

If an economist argues that all countries gain from trade, what reasoning is most likely underlying her argument? a. Trading with other countries does not affect the number or the type of remaining domestic jobs. b. Trading with other countries enriches those who work in the shipping industry, and shipping is a key sector of the economy. c. Production according to the principle of comparative advantage lowers overall costs and therefore allows both countries to have a higher standard of living. d. Export industries are the most important part of the economy.

c. Production according to the principle of comparative advantage lowers overall costs and therefore allows both countries to have a higher standard of living.

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

c. The minimum wages in these countries are so far above the equilibrium wage that they have generated significant unemployment.

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 to the left. b. The demand curve for cotton T-shirts will shift to the right. c. The supply curve for cotton T-shirts will shift to the left. d. The supply curve for cotton T-shirts will shift to the right.

c. The supply curve for cotton T-shirts will shift to the left.

Adam Smith used the idea of the invisible hand to refer to the ability of market economies to: a. recover from recessions. b. solve the problem of market failure. c. harness the power of individual self-interest for the good of society as a whole. d. convince people that society is better off if its members sacrifice their own self-interest for the cause of the greater good.

c. harness the power of individual self-interest for the good of society as a whole.

Bar owners often offer lower beer prices to women than they do to men. This will increase bar revenues: a. if women have a unit-elastic demand for beer. b. if women have an inelastic demand for beer. c. if women have an elastic demand for beer. d. if women have a negative income elasticity of demand for beer.

c. if women have an elastic demand for beer.

. If coffee is a normal good, then an increase in consumer income will: a. increase the supply of coffee b. decrease the supply of coffee. c. increase the demand for coffee. d. decrease the demand for coffee.

c. increase the demand for coffee.

The focal point of economic inquiry is: a. the stock market. b. the value of the dollar. c. individual choice. d. business ethics.

c. individual choice.

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.

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 the 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 the good

. 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.

. 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.

The condition of scarcity means that: a. when the government produces something, there is no opportunity cost. b. choices must be made in the allocation of productive resources. c. you will not incur an opportunity cost if you make the right choice. d. only a command economy can make efficient use of resources.

choices must be made in the allocation of productive resources.

What happens to the 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. Demand becomes relatively more elastic. d. Demand becomes relatively less elastic.

d. Demand becomes relatively less elastic.

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.

consider the market for kayaks. What happens when the process of manufacturing kayaks becomes less costly through the use of new technology? a. The demand curve for kayaks will shift to the left. b. The demand curve for kayaks will shift to the right. c. The supply curve for kayaks will shift to the left. d. The supply curve for kayaks will shift to the right.

d. The supply curve for kayaks will shift to the right.

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.

. 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 some customers who reduce the number of checks they write would see no change in their overall account fee. What is the implication of this statement for these customers? 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. They are indifferent to the check writing fee. d. They have a unit-elastic demand for check writing.

d. They have a unit-elastic demand for check writing.

Which of the following is not a likely result of a quantity control in the form of a binding quota? a. economic inefficiency arising from missed opportunities b. illegal providers of the good or service who attempt to evade the quantity control c. a wedge between the demand price and the supply price d. a surplus of the good or service

d. a surplus of the good or service

. In a voluntary exchange: a. the amount of consumer surplus will equal the amount of producer surplus. b. if the consumer derives consumer surplus, the supplier will derive no producer surplus. c. if the supplier derives producer surplus, the consumer will derive no consumer surplus. d. both the producer and the consumer can experience a net benefit.

d. both the producer and the consumer can experience a net benefit.

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

d. difference between the price that consumers are willing to pay for a good and the price they actually pay.

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

d. difference between the price that producers receive and the price at which they are willing to sell the good.

The result of free trade between nations is that: a. wealthy countries benefit; developing nations lose. b. developing nations benefit; wealthy countries lose. c. the worldwide level of unemployment increases. d. goods can be produced in the location where their opportunity cost is the lowest.

d. goods can be produced in the location where their opportunity cost is the lowest.

. 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

If the price of a bale of cotton increases from $0.80 to $1.20, and a pound of Kenyan coffee decreases from $12 a pound to $10 a pound, we can expect a(n): a. shift to the left in the supply curve of cotton. b. increase in the quantity supplied of Kenyan coffee. c. shift to the left in the demand curve for cotton. d. increase in the quantity demanded of Kenyan coffee.

d. increase in the quantity demanded of Kenyan coffee.

Consider gas stations. As a result of an economic recession and a decrease in consumer incomes, there will be a: a. rightward shift in the station's supply curve and lower gas prices. b. leftward shift in the station's supply curve and higher gas prices. c. rightward shift in the station's demand curve and higher gas prices. d. leftward shift in the station's demand curve and lower gas prices.

d. leftward shift in the station's demand curve and lower gas prices.

Which of the following would enhance the level of efficiency in a market? a. imposing a price ceiling below the equilibrium price b. imposing a price floor above the equilibrium price c. imposing a quota restriction on quantity d. removing a binding price floor, allowing the price to return to its equilibrium level

d. removing a binding price floor, allowing the price to return to its equilibrium level

A shortage is the result of 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.

Macroeconomics is the branch of economics studying: a. how prices are determined. b. why trade-offs exist. c. how decisions are made at the margin. d. fluctuations in the overall level of business activity.

fluctuations in the overall level of business activity

Most individuals choose careers in which they specialize in producing only one type of good or service, yet as consumers they have access to a wide variety of goods and services. What principle allows for this? a. trade b. equity c. scarcity d. opportunity cost

trade

An opportunity cost arises: a. only when a monetary cost is incurred. b. only when a time cost is incurred. c. only when the wrong decision is made. d. whenever any choice is made.

whenever any choice is made.

If the supply curve shifts to the left, and the demand curve does not change then the equilibrium price: a. and quantity both will increase. b. and quantity both will decrease. c. will increase, and the quantity will decrease. d. will decrease, and the quantity will increase.

will increase, and the quantity will decrease.