Unit 1 Exam
A surplus of a product will arise when price is: below equilibrium, with the result that quantity supplied exceeds quantity demanded. above equilibrium, with the result that quantity supplied exceeds quantity demanded. above equilibrium, with the result that quantity demanded exceeds quantity supplied. below equilibrium, with the result that quantity demanded exceeds quantity supplied.
B
An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that: there are many goods that are complementary to bicycles. bicycles are normal goods. there are many goods that are substitutes for bicycles. there are few goods that are substitutes for bicycles.
B
Blu-ray players and Blu-ray discs are: substitute goods. complementary goods. inferior goods. independent goods.
B
Competition means that: there is more than one seller in a market. there are independently acting buyers and sellers in each market. a product can be purchased at a number of different prices. sellers can manipulate market price by causing product scarcities.
B
Households and businesses are: both buyers in the resource market. sellers in the resource and product markets respectively. sellers in the product and resource markets respectively. both sellers in the product market.
B
In making international comparisons of living standards using GDP, which of the following is not adjusted for in the calculation? Population size. The quantity of resources available to the economy. Different currency values. Purchasing power parity.
B
Picture 1: Refer to the budget line shown in the diagram. If the consumer's money income is $20, which of the following combinations of goods is unattainable? 2 units of C and 6 units of D. 4 units of C and 6 units of D. 5 units of C and no units of D. 1 unit of C and 8 units of D.
B
Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates: increasing opportunity costs. opportunity costs. distorted priorities. productive efficiency.
B
"Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity." This statement is: normative but incorrect. normative and correct. positive and correct. positive but incorrect.
C
An increase in consumer desire for strawberries is most likely to: reduce the number of people willing to pick strawberries. reduce the supply of strawberries. reduce the need for strawberry pickers. increase the number of strawberry pickers needed by farmers.
D
Economic systems differ according to which two main characteristics? The technology used in production and the quantity and quality of natural resources. How goods are produced and who gets them. The political system in place and the degree of scarcity facing the economy. Who owns the factors of production and the methods used to coordinate economic activity.
D
Economic theories: that are true for individual economic units are never true for the economy as a whole. are abstractions and therefore of no application to real situations. are useless because they are not based on laboratory experimentation. are generalizations based on a careful observation of facts.
D
In economics, the pleasure, happiness, or satisfaction received from a product is called: marginal cost. rational outcome. status fulfillment. utility.
D
Increasing marginal cost of production explains: the income effect. the law of demand. why the demand curve is downsloping. why the supply curve is upsloping.
D
Other things equal, which of the following might shift the demand curve for gasoline to the left? An increase in the price of train and air transportation. A large decline in the price of automobiles. The discovery of vast new oil reserves in Montana. The development of a low-cost electric automobile.
D
Picture 10: If government set a maximum price of $45 in the market: a surplus of 21 units would arise. a shortage of 21 units would arise. a surplus of 40 units would arise. it would create neither a shortage nor a surplus.
D
Picture 5: Refer to the table. If demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5), equilibrium price and quantity will be: $9 and 50 units. $7 and 50 units. $10 and 60 units. $8 and 60 units.
D
Picture 8:Refer to the diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is: $30. $40. $20. $60.
D
Risk is a problem faced: only in market systems. in neither market systems nor command systems, only in laissez-faire capitalism. only in command systems. in both market systems and command systems.
D
The "coincidence of wants" problem associated with barter refers to the fact that: buyers in resource markets and sellers in product markets can never engage in exchange. money must be used as a medium of exchange or trade will never occur. specialization is restricted by the size or scope of a market. for exchange to occur, each seller must have a product that some buyer wants.
D
The basic purpose of the other-things-equal assumption is to: allow one to focus upon macro variables by ignoring micro variables. determine whether X causes Y or vice versa. allow one to focus upon micro variables by ignoring macro variables. allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.
D
The fact that the slope of the production possibilities curve becomes steeper as we move down along the curve indicates that: resources are perfectly shiftable between alternative uses. society's resources are limited. the opportunity cost of producing each product is constant. the principle of increasing opportunity costs is relevant.
D
The law of demand states that, other things equal: the larger the number of buyers in a market, the lower will be product price. price and quantity demanded are directly related. consumers will buy more of a product at high prices than at low prices. price and quantity demanded are inversely related.
D
When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes: the rationing function of prices. the substitution effect. an inferior good. the income effect.
D
Which of the following would an economist consider to be investment? A stockbroker buying 10,000 shares of Starbucks stock. All of these. Oprah buying a $10 million home from a fellow celebrity. Boeing building a new factory.
D
Higher rates of unemployment are linked with: higher crime rates as the unemployed seek to replace lost income. improvements in overall health as the unemployed have more leisure time to be physically active. greater political stability because the employed tend to be more politically active. lower rates of heart disease as the unemployed have eliminated job stress.
A
North Korea's command economy: is one of the few remaining command economies. has grown much faster than South Korea's economy since the two countries were divided after World War II. produces a per capita GDP of nearly $25,000. has undergone significant market reforms and is now one of the fastest-growing economies.
A
Picture 11:Refer to the diagram. Rent controls are best illustrated by: price A. quantity E. price C. price B.
A
According to economist Donald Boudreaux, the world's tens of billions of individual resources get arranged productively: because government has become highly effective at central planning. because people tend to be creative and orderly. because private property encourages people to consider the alternative uses of their resources and select those that provide the most rewards. through random trial and error.
C
Macroeconomics approaches the study of economics from the viewpoint of: the operation of specific product and resource markets. individual firms. the entire economy. governmental units.
C
Picture 3: Answer the question on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina: Refer to the tables. Suppose that resources in North Cantina and South Cantina are identical in quantity and quality. We can conclude that: North Cantina is growing more rapidly than South Cantina. South Cantina has better technology than North Cantina in producing both capital and consumer goods. North Cantina has better technology than South Cantina in producing consumer goods but not capital goods. North Cantina has better technology than South Cantina in producing both capital and consumer goods.
C
Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to: reduce the demand for tacos and increase the demand for soda. increase the demand for both soda and tacos. reduce the demand for soda and increase the demand for tacos. reduce the demand for both soda and tacos.
C
Picture 4: Answer the question using the following data, which show all available techniques for producing 20 units of a particular commodity: Refer to the data. If a new production technique is developed that enables a firm to produce 20 units of output with 3 units of land, 3 of labor, 1 of capital, and 2 of entrepreneurial ability, this technique would: be adopted because it would lower production costs and increase economic profit. not be adopted because it entails higher production costs than other available techniques. not be adopted because, although it reduces production costs, it does not increase profit. be adopted, even though economic profits would be reduced slightly.
A
Picture 6:Refer to the table. In relation to column (3), a change from column (1) to column (2) would mostly likely be caused by: reduced taste for the good. an increase in input prices. government subsidizing production of the good. consumers expecting that prices will be lower in the future.
A
Picture 9: Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then: supply has decreased and equilibrium quantity has decreased. supply has increased and price has risen to 0G. there has been an increase in the quantity supplied. supply has increased and equilibrium quantity has decreased.
A
The incentive problem under communist central planning refers to the idea that: workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products. planners had to direct required inputs to each enterprise. the immediate effect of more investment was less consumption. exports had to be equal to imports for a central plan to work.
A
With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will: increase equilibrium price and quantity if the product is a normal good. have no effect on equilibrium price and quantity. reduce the quantity demanded but not shift the demand curve. decrease equilibrium price and quantity if the product is a normal good.
A
Assuming competitive markets with typical supply and demand curves, which of the following statements is correct? An increase in supply with no change in demand will result in a decline in sales. An increase in demand with no change in supply will result in an increase in sales. An increase in supply with a decrease in demand will result in an increase in price. An increase in supply with no change in demand will result in an increase in price.
B
Picture 12:Refer to the figures. Which figure(s) represent(s) a situation where prices are flexible? Neither A nor B. A only. B only. Both A and B.
B
Picture 13: Refer to the figures. If government policy can be used to affect the level of demand in the economy, these figures suggest that government policy: can affect the level of output in the longer run, when prices are flexible. can affect the level of output in the very short run, when prices are stuck. cannot affect output in either the very short run or the longer run. can be used to simultaneously affect the levels of output and prices.
B
Picture 2: Answer the question on the basis of the data given in the following production possibilities table: Refer to the table. For this economy to produce a total output of 3 units of capital goods and 13 units of consumer goods, it must: allocate its available resources most efficiently among alternative uses. achieve economic growth. achieve the full employment of available resources. use its resources more efficiently than the data in the table now indicate.
B
Picture 7: Refer to the diagram. The equilibrium price and quantity in this market will be: $0.50 and 130. $1.00 and 200. $1.60 and 290. $1.60 and 130.
B
The business cycle depicts: the evolution of technology over time. short-run fluctuations in output and employment. fluctuations in the general price level. the phases a business goes through from when it first opens to when it finally closes.
B
Which of the following is an example of a demand shock? Hurricane Harry knocks out oil drilling platforms in the Gulf of Mexico. Floods in the Midwest destroy crops. The federal government unexpectedly requires automobile producers to raise fuel efficiency standards. Consumers become worried about job loss and buy fewer goods and services than expected.
D
The four factors of production are: land, labor, capital, and money. labor, capital, technology, and entrepreneurial ability. land, labor, capital, and entrepreneurial ability. labor, capital, entrepreneurial ability, and money.
C
The invisible hand refers to the: tendency of monopolistic sellers to raise prices above competitive levels. fact that government controls the functioning of the market system. notion that, under competition, decisions motivated by self-interest promote the social interest. fact that the U.S. tax system redistributes income from rich to poor.
C
When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of a(n): increase in the demand for gasoline. decrease in the supply of gasoline. increase in the supply of gasoline. decrease in the demand for gasoline.
C
Which of the following statements is true about productive and allocative efficiency? Productive efficiency and allocative efficiency can only occur together; neither can occur without the other. Society can achieve either productive efficiency or allocative efficiency, but not both simultaneously. Realizing allocative efficiency implies that productive efficiency has been realized. Productive efficiency can only occur if there is also allocative efficiency.
C