Quiz Compelation
Which of the following is a characteristic of pure monopoly?
A. "Price taking." B. Barriers to entry. C. The absence of market power. D. Close substitute products.
Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were
A. $100,000 and its economic profits were $100,000. B. $0 and its economic loss was $200,000. C. $100,000 and its economic profits were $0. D. $200,000 and its economic profits were $0.
Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total fixed costs are
A. $5,000. B. $500. C. $0.50. D. $50.
Refer to the diagram. At output level Q, total fixed cost is
A. 0BEQ. B. 0BEQ −0AFQ. C. BCDE. D. 0CDQ.
One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases?
A. A rather large number of firms producing a differentiated product. B. A very small number of firms producing a homogeneous product. C. A very small number of firms producing a differentiated product. D. A rather large number of firms producing a homogeneous product.
Demand is said to be inelastic when:
A. An increase in price results in a reduction in total revenue B. The elasticity coefficient exceeds one C. A reduction in price results in an increase in total revenue D. A reduction in price results in a decrease in total revenue
Which of the following will not produce an outward shift of the production possibilities curve?
A. An upgrading of the quality of a nation's human resources B. The reduction of unemployment C. An increase in the quantity of a society's labor force D. The improvement of a society's technological knowledge
Which of the following is not a basic characteristic of pure competition?
A. Considerable nonprice competition B. A large number of buyers and sellers. C. No barriers to the entry or exit of firms. D. A standardized or homogeneous product.
One of the economic effects of rising health care costs in the labor market is that A. Employers are using more temporary and part-time workers B. Productivity in medical care decreases C. Government is cutting health care coverage for workers D. The demand for medical workers is decreasing
A. Employers are using more temporary and part-time workers
If the demand for product X is inelastic, a 4 percent increase in the price of X will:
A. If the demand for product X is inelastic, a 4 percent increase in the price of X will: B. decrease the quantity of X demanded by less than 4 percent. C. increase the quantity of X demanded by more than 4 percent. D. increase the quantity of X demanded by less than 4 percent.
In which of the following industry structures is the entry of new firms the most difficult?
A. Oligopoly. B. Monopolistic competition. C. Pure competition. D. Pure monopoly.
Which of the following is a distinguishing feature of a command system?
A. Private ownership of all capital B. Central planning C. Heavy reliance on markets D. Widespread dispersion of economic power
Which of the following is not a typical characteristic of a market system?
A. Private property. B. Freedom of enterprise. C. Government ownership of most property resources. D. Competition in product and resource markets.
A government using fiscal policy in an attempt to stimulate the economy would do which of the following?
A. Raise taxes B. Lower interest rates C. Raise government spending D. Raise interest rates
Economics is a social science concerned with: A. The best use of scarce resources to achieve the maximum satisfaction of economic wants. B. Increasing the level of productive resources so there is a minimum level of income. C. Increasing the level of productive resources so there is maximum output in society. D. The best use of scarce resources paid for at the minimum level of cost to consumers and businesses.
A. The best use of scarce resources to achieve the maximum satisfaction of economic wants.
If the quantity supplied of a product is less than the quantity demanded, then: A. There is a shortage of the product B. The product is a normal good C. There is a surplus of the product D. The product is an inferior good
A. There is a shortage of the product
A purely competitive seller is
A. a "price maker." B. neither a "price maker" nor a "price taker." C. both a "price maker" and a "price taker." D. a "price taker."
If the minimum wage is set too high, in some labor markets we can expect to see
A. a decline in wage costs B. a surplus of labor C. an increase in on-the-job training D. a shortage of labor
The real rate of interest is the interest rate:
A. after adjustment has been made for inlfation B. associated with a riskless loan C. charged on long-term government bonds D. associated with a riskless loan
The MR = MC rule:
A. applies only to pure monopoly. B. does not apply to pure monopoly because price exceeds marginal revenue. C. applies both to pure monopoly and pure competition. D. applies only to pure competition.
The law of diminishing returns indicates that
A. beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction. B. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point. C. the demand for goods produced by purely competitive industries is downsloping. D. because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped.
Households and businesses are:
A. both sellers in the product market. B. sellers in the product and resource markets respectively. C. sellers in the resource and product markets respectively. D. both buyers in the resource market.
In the resource market:
A. businesses borrow financial capital from households B. businesses sell services to households C. households sell resources to businesses D. firms sell raw materials to households
The price elasticity of demand coefficient measures:
A. buyer responsiveness to price changes. B. the extent to which a demand curve shifts as incomes change. C. the slope of the demand curve. D. how far business executives can stretch their fixed costs.
"Consumer sovereignty" means that
A. buyers control the quality of goods and services through regulatory agencies. B. buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers. C. buyers can dictate the prices at which goods and services will be offered. D. advertising is ineffective because consumers already know what they want.
The two basic markets shown by the simple circular flow model are:
A. capital goods and consumer goods. B. free and controlled C. Product and resource D. household and business
Which of the following is a fundamental characteristic of the market system?
A. central planning by government B. property rights C. unselfish behaviour D. government-set wages and prices
Marginal revenue is the
A. change in total revenue associated with the sale of one more unit of output. B. difference between product price and average total cost. C. change in average revenue associated with the sale of one more unit of output. D. change in product price associated with the sale of one more unit of output.
Average fixed cost
A. declines continually as output increases. B. may be found for any output by adding average variable cost and average total cost. C. graphs as a U-shaped curve. D. equals marginal cost when average total cost is at its minimum.
If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will:
A. decrease the amount demanded by more than 10 percent. B. increase the amount demanded by less than 10 percent. C. decrease the amount demanded by less than 10 percent D. increase the amount demanded by more than 10 percent.
If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will:
A. decrease the amount demanded by more than 10 percent. B. increase the amount demanded by more than 10 percent. C. decrease the amount demanded by less than 10 percent. D. increase the amount demanded by less than 10 percent.
If the nominal wages of carpenters rose by 5 percent in 2013 and the price level increased by 3 percent, then the real wages of carpenters:
A. decreased by 2 percent. B. increased by 8 percent. C. increased by 3 percent. D. increased by 2 percent.
The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides to increase tuition and fees to compensate for the loss of revenue. The board is assuming that the:
A. demand for education at GSU is inelastic. B. coefficient of price elasticity of demand for education at GSU is greater than unity. C. demand for education at GSU is very responsive. D. demand for education at GSU is elastic.
The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.
A. direct; inverse B. inverse; direct C. inverse; inverse D. direct; direct
The competitive market system
A. discourages innovation because firms want to get all the profits possible from existing machinery and equipment. B. encourages innovation because government provides tax breaks and subsidies to those who develop new products or new productive techniques. C. discourages innovation because it is difficult to acquire additional capital in the form of new machinery and equipment. D. encourages innovation because successful innovators are rewarded with economic profits.
The accompanying table gives cost data for a firm that is selling in a purely competitive market. The marginal cost column reflects
A. diseconomies of scale. B. the law of diminishing returns. C. the law of diminishing marginal utility. D. economies of scale.
The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.
A. downsloping; perfectly inelastic B. downsloping; perfectly elastic C. perfectly elastic; downsloping D. perfectly inelastic; perfectly elastic
Accounting profits equal total revenue minus
A. economic profits. B. total implicit costs. C. total economic costs. D. total explicit costs.
The competitive market system: A. encourages innovation because successful innovators are rewarded with economic profits. B. discourages innovation because firms want to get all the profits possible from existing machinery and equipment. C. encourages innovation because government provides tax breaks and subsidies to those who develop new products or new productive techniques. D. discourages innovation because it is difficult to acquire additional capital in the form of new machinery and equipment.
A. encourages innovation because successful innovators are rewarded with economic profits.
To the economist, total cost includes
A. explicit, but not implicit, costs. B. explicit and implicit costs. C. implicit, but not explicit, costs. D. neither implicit nor explicit costs.
The main mechanism that regulates the market system is
A. freedom of enterprise and choice. B. self-interest. C. competition. D. private property.
Market failure is siad to occur whenever:
A. government intervenes in the functioning of private markets B. private markets do not allocate resources in the most economically desirable way C. prices rise D. some consumers who want a good do not obtain it because the price is higher than they are willing to pay
For a purely competitive firm, total revenue
A. graphs as a straight upsloping line from the origin. B. has all of these characteristics. C. is price times quantity sold. D. increases by a constant absolute amount as output expands.
Accounting profits are typically
A. greater than economic profits because the former do not take explicit costs into account. B. greater than economic profits because the former do not take implicit costs into account. C. equal to economic profits because accounting costs include all opportunity costs. D. smaller than economic profits because the former do not take implicit costs into account.
Accounting profits are typically
A. greater than economic profits because the former do not take explicit costs into account. B. smaller than economic profits because the former do not take implicit costs into account. C. greater than economic profits because the former do not take implicit costs into account. D. equal to economic profits because accounting costs include all opportunity costs.
The marginal revenue curve of a purely competitive firm
A. has all of these characteristics. B. is downsloping because price must be reduced to sell more output. C. is horizontal at the market price. D. lies below the firm's demand curve.
In the simple circular flow model:
A. households are buyers of resources B. businesses are sellers of final products C. households are sellers of final products D. There are real flows of goods, services, and resources, but not money flows.
Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in:
A. income. B. price of some other product. C. the general price level. D. the price of that same product.
If the demand for product X is inelastic, a 4 percent increase in the price of X will:
A. increase the quantity of X demanded by less than 4 percent B. decrease the quantity of X demanded by less than 4 percent. C. decrease the quantity of X demanded by more than 4 percent. D. increase the quantity of X demanded by more than 4 percent
Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will:
A. increase, quantity demanded will decrease, and quantity supplied will increase. B. decrease, quantity demanded will decrease, and quantity supplied will increase. C. decrease and quantity demanded and quantity supplied will both decrease. D. decrease, quantity demanded will increase, and quantity supplied will decrease.
Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded
A. increased by 7 percent. B. decreased by 7 percent. C. decreased by 9 percent. D. decreased by 1.75 percent.
The real wage will rise if the nominal wage:
A. increases at the same rate as labor productivity B. increases more rapidly than the general price level C. falls at the same rate as the general price level D. falls more rapidly than the general price level
Increases in the productivity of labor result partly from:
A. increases in the quantity of labor B. improvements in technology C. the law of diminishing returns D. reductions in wage rates
The short run is characterized by
A. increasing but not diminishing returns. B. plenty of time for firms to either enter or leave the industry. C. zero fixed costs. D. fixed plant capacity.
Economics may best be defined as the:
A. interaction between macro and micro considerations. B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity. C. empirical testing of value judgments through the use of logic. D. study of why people are rational.
An economic system
A. is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem. B. requires some sort of centralized authority (such as government) to coordinate economic activity. C. is a plan or scheme that allows a firm to make money at some other firm's expense. D. requires a grouping of private markets linked to one another.
Marginal product
A. is always less than average product. B. diminishes at all levels of production. C. may initially increase, then diminish, and ultimately become negative. D. may initially increase, then diminish, but never become negative.
The marginal revenue product (MRP) of land declines as more land is brought into production because:
A. land rent has no incentive function. B. the supply of land is fixed. C. of diminishing returns. D. land is a "free and nonreproducible gift of nature."
The four factors of production are:
A. land, labor, capital, and money B. land, labor, capital, and entrepreneurial ability C. labor, capital, technology, and entrepreneurial ability D. labor, capital, entrepreneurial ability, and money.
Monopolistic competition is characterized by a
A. large number of firms and low entry barriers. B. large number of firms and substantial entry barriers. C. few dominant firms and substantial entry barriers. D. few dominant firms and low entry barriers.
Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of:
A. logrolling B. moral hazard C. the principle-agent problem D. rent-seeking behavior
Price is constant to the individual firm selling in a purely competitive market because
A. marginal costs are constant. B. each seller supplies a negligible fraction of total supply. C. of product differentiation reinforced by extensive advertising. D. the firm's demand curve is downsloping.
A firm reaches a break-even point (normal profit position) where:
A. marginal revenue cuts the horizontal axis. B. marginal cost intersects the average variable cost curve. C. total revenue and total cost are equal. D. total revenue equals total variable cost.
For a purely competitive seller, price equals
A. marginal revenue. B. average revenue. C. total revenue divided by output. D. all of these.
Firms seek to maximize
A. market share. B. per unit profit. C. total revenue. D. total profit.
The demand curve shows the relationship between:
A. money income and quantity demanded. B. price and production costs. C. price and quantity demanded. D. consumer tastes and quantity demanded.
Suppose firms in a collusive oligopoly decide to establish their prices at a level that discourages new rivals from entering the industry. This is called:
A. mutual interdependence. B. limit pricing. C. price leadership. D. pricing the demand curve.
The two main characteristics of a public good are:
A. nonrivalry and large negative externalities B. nonexcludability and production at rising marginal cost. C. nonrivalry and nonexcludability D. production at constant marginal cost and rising demand
An industry comprised of four firms, each with about 25 percent of the total market for a product, is an example of:
A. oligopoly. B. pure monopoly. C. monopolistic competition D. pure competition.
An explicit cost is
A. omitted when accounting profits are calculated. B. always in excess of a resource's opportunity cost. C. a money payment made for resources not owned by the firm itself. D. an implicit cost to the resource owner who receives that payment.
The MR = MC rule applies
A. only to monopolies. B. only to purely competitive firms. C. only when the firm is a "price taker." D. to firms in all types of industries.
Other things the same, if a price change causes total revenue to change in the opposite direction, demand is:
A. perfectly inelastic. B. relatively elastic. C. relatively inelastic. D. of unit elasticity.
The law of demand states that, other things equal:
A. price and quantity demanded are inversely related. B. the larger the number of buyers in a market, the lower will be product price. C. price and quantity demanded are directly related. D. consumers will buy more of a product at high prices than at low prices.
Other things equal, if the price of a key resource used to produce product X falls, the:
A. product supply curve of X will shift to the right. B. product supply curve of X will shift to the left. C. product supply curve of X will not shift. D. product demand curve of X will shift to the right.
In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market.
A. product; financial B. product; resource C. resource; product D. capital; product
A government subsidy to the producers of a product:
A. reduces product supply. B. increases product supply. C. reduces product demand. D. increases product demand.
Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?
A. rent paid for the use of equipment owned by the Schultz Machinery Company B. payments of wages to its office workers C. use of savings to pay operating expenses instead of generating interest income D. economic profits resulting from current production
The earnings of highly educated workers:
A. rise more rapidly than those of less-educated workers. B. stagnate earlier than do those of less-educated workers. C. rise more slowly than those of less-educated workers. D. rise at about the same rate as those of less-educated workers.
If one person's consumption of a good does not preclude another's consumption, the good is said to be:
A. rival in consumption B. nonexcludable C. nonrival in consumption D. excludable
In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of:
A. scarcity and opportunity costs. B. money and real capital. C. complementary economic goals. D. full production.
The invisible hand refers to the
A. tendency of monopolistic sellers to raise prices above competitive levels. B. notion that, under competition, decisions motivated by self-interest promote the social interest. C. fact that the U.S. tax system redistributes income from rich to poor. D. fact that government controls the functioning of the market system.
Human capital is best defined as:
A. the exchange of money for real assests. B. the productive skills and knowledge that workers acquire from education and training C. any piece of machinery that must be combined with labor to be productive D. the substitution of labor for machinery in the production process
The price elasticity of demand coefficient measures:
A. the extent to which a demand curve shifts as incomes change. B. buyer responsiveness to price changes. C. how far business executives can stretch their fixed costs D. the slope of the demand curve.
The MR = MC rule can be restated for a purely competitive seller as P = MC because
A. the firm's marginal revenue and total revenue curves will coincide. B. each additional unit of output adds exactly its price to total revenue. C. the market demand curve is downsloping. D. the firm's average revenue curve is downsloping.
In making an investment decision, a business firm is most interested in the:
A. the future supply of loanable funds. B. nominal interest rate. C. nominal interest rate minus the real interest rate. D. real interest rate.
Firms are motivated to minimize production costs because
A. the government provides tax credits and subsidies to low-cost producers. B. it is the most environmentally friendly way to produce goods. C. competitive pressures in the market will drive out higher-cost producers. D. least-cost production techniques use the smallest total quantity of resources.
In presenting the idea of a demand curve, economists presume the most important variable in determining the quantity demanded is:
A. the price of the product itself. B. consumer income. C. the prices of related goods. D. consumer tastes.
At the point where the demand and supply curves for a product intersect:
A. the selling price and the buying price need not be equal. B. the market may, or may not, be in equilibrium. C. the quantity that consumers want to purchase and the amount producers choose to sell are the same. D. either a shortage or a surplus of the product might exist, depending on the degree of competition.
The productivity and real wages of workers in industrially advanced economies have risen historically partly because:
A. the supply of labor has increased. B. workers have been able to use larger quantities of capital equipment. C. over time the capital equipment used by workers has deteriorated in quality. D. workers have acquired less education and training over time.
The law of diminishing returns explains why
A. total cost eventually rises faster and faster. B. total cost eventually reaches a maximum point. C. total cost eventually falls. D. total cost eventually rises more and more slowly.
Firms seek to maximize
A. total profit. B. total revenue. C. market share. D. per unit profit.
A point inside a production possibilities curve best illustrates:
A. unemployment B. the efficient use of resources C. the use of best-available technology D. unlimited wants
The division of labor means that
A. unskilled workers outnumber skilled workers. B. workers specialize in various production tasks. C. labor markets are geographically segmented. D. each worker performs a large number of tasks.
Total fixed cost (TFC)
A. varies directly with total output. B. falls as the firm expands output from zero, but eventually rises. C. falls continuously as total output expands. D. does not change as total output increases or decreases.
A product market is in equilibrium: A. where the demand and supply curves intersect B. when consumers want to buy more of the product than producers offer for sale. C. when there is no shortage of the product D. when there is no surplus of the product
A. where the demand and supply curves intersect
Which of the following is a distinguishing feature of a command system?
A. widespread dispersion of economic power B. heavy reliance on markets C. central planning D. private ownership of all capital
If there is a surplus of a product, its price:
A. will rise in the near future. B. is in equilibrium. C. is below the equilibrium level. D. is above the equilibrium level.
Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:
A. zero and its economic loss was $200,000. B. $100,000 and its economic profits were $100,000. C. $100,000 and its economic profits were zero. D. $200,000 and its economic profits were zero.
If demand for a product is elastic, the value of the price elasticity coefficient is:
A. zero. B. greater than one. C. equal to one. D. less than one.
Implicit costs are: A. Always greater in the short run than in the long run B. "payments" for self-employed resources C. Comprised entirely of variable costs D. Equal to total fixed costs
B. "payments" for self-employed resources
If the market price is above the equilibrium price: A. A shortage will occur and the producers will produce more and lower prices B. A surplus will occur and producers will produce less and lower prices C. A surplus will result and consumers will bid prices up D. Producers will make extremely high profits
B. A surplus will occur and producers will produce less and lower prices
The circular flow model: A. Illustrates how money is created by the banking system B. Illustrates the interdependence of businesses and consumers C. Assumes that central planning is taking place D. Illustrates how natural resources are created.
B. Illustrates the interdependence of businesses and consumers
The main difference between the short run and the long run is that: A. In the long run, only one variable can be fixed B. In the short run, one or more inputs is fixed C. The long run always refers to a time period of one year or longer D. Firms earn zero profits in the long run
B. In the short run, one or more inputs is fixed
Government-set price floors and price ceilings: A. Result in shortages of products in markets where they are used B. Interfere with the rationing function of price in a free market C. Do not affect the rationing function of price in a free market D. Result in surpluses of products in markets where they are used
B. Interfere with the rationing function of price in a free market
Health insurance firms can reduce their costs by: A. Increasing taxes. B. More managed care systems. C. Lowering deductibles. D. Imposing a personal mandate.
B. More managed care systems.
A competitive market will: A. create disorder. B. achieve an equilibrium price. C. produce shortages. D. produce surpluses.
B. achieve an equilibrium price.
When the percentage change in price is greater than the resulting percentage change in quantity demanded: A. demand is elastic. B. an increase in price will increase total revenue. C. demand may be either elastic or inelastic. D. a decrease in price will increase total revenue.
B. an increase in price will increase total revenue.
The voluntary relocation of employable migrants from low-paying nations to high-paying nations reduces: A. labor productivity in the world. B. wage rate disparities among nations. C. total wage income in the world. D. business or capitalist income in the world.
B. wage rate disparities among nations
The supply of product X is elastic if the price of X rises by: A. 10 percent and quantity supplied remains the same. B. 8 percent and quantity supplied rises by 8 percent. C. 5 percent and quantity supplied rises by 7 percent. D. 7 percent and quantity supplied rises by 5 percent.
C. 5 percent and quantity supplied rises by 7 percent.
Most economists who have studied the health care industry have concluded that there is: A. Insufficient technological progress in the medical industry B. An underallocation of resources for health care in the United States C. An overallocation of resources for health care in the United States D. A need for government price controls for physicians' fees
C. An overallocation of resources for health care in the United States
A 2003 law that allows individuals without sufficient health insurance coverage to make tax-deductible contributions to cover health care is a primary feature of: A. Medicare Part D reform B. A patient's bill of rights C. Health savings accounts D. Prescription-drug coverage
C. Health savings accounts
Critics of the minimum wage argue that an increase in the minimum wage rate above the equilibrium rate of a purely competitive labor market would: A. Increase firms' demand for labor B. Cause firms to substitute labor for capital C. Increase unemployment in the labor market D. Decrease the supply of labor
C. Increase unemployment in the labor market
A schedule which shows the various amounts of a product producers are willing and able to produce at each price in a series of possible prices during a specified period of time is called: A. Quantity demanded B. Quantity supplied C. Supply D. Demand
C. Supply
Insurance companies use deductibles and copayments to A. prevent small companies from self-insuring their workers. B. increase access to health care. C. reduce health care costs by discouraging overuse of the health care system. D. keep government out of the health care insurance industry.
C. reduce health care costs by discouraging overuse of the health care system.
Human capital refers to: A. machinery that requires extensive human interaction to be productive. B. all of these things. C. the accumulated knowledge and skills that allow a person to be productive. D. the accumulated financial assets of people.
C. the accumulated knowledge and skills that allow a person to be productive.
Economists point out that the strong inflow of undocumented workers to some extent reflects: A. the increasing return to capital in the United States B. more lenient immigration laws C. the increasing scarcity of domestic unskilled labor in the United States D. the increasing scarcity of unskilled labor in other countries
C. the increasing scarcity of domestic unskilled labor in the United States
A headline reads "Storms destroy half of the lettuce crop." This situation would lead to a(n): A. Decrease in the price of lettuce and quantity purchased B. Decrease in the price of lettuce and increase in quantity purchased C. Increase in the price of lettuce and quantity purchased D. Increase in the price of lettuce and decrease in quantity purchased
D. Increase in the price of lettuce and decrease in quantity purchased
Which of the following is most likely to be a fixed cost? A. shipping charges B. wages for unskilled labor C. expenditures for raw materials D. property insurance premiums
D. property insurance premiums
