Econ Exam

11) Opportunity cost is defined as A) the benefit of an activity. B) the monetary expense associated with an activity. C) the highest valued alternative that must be given up to engage in an activity. D) the total value of all alternatives that must be given up to engage in an activity.

C

12) In a market economy, ________ interact in markets to decide the answers to the fundamental economic questions. A) state and local governments B) large corporations C) households and firms D) the judicial and legislative branches of the federal government

C

2) By definition, economics is the study of A) how to make money in the stock market. B) how to make money in a market economy. C) the choices people make to attain their goals, given their scarce resources. D) supply and demand.

C

40) In a perfectly competitive market, there are ________ buyers and ________ sellers. A) many; few B) few; many C) many; many D) few; few

C

8) Marginal analysis involves undertaking an activity A) until its marginal costs start declining. B) only when its marginal benefits are positive. C) until its marginal benefits equal marginal costs. D) only if its marginal costs are greater than its marginal benefits.

C

29) The natural resources used in production are made available in the A) goods and services market. B) product market. C) government market. D) factor market.

D

Points ON the curve are technically _____

efficient

Points inside the curve are technically inefficient in that _____

not all resources are being used

1) Which of the following statements about scarcity is true? A) Scarcity refers to the situation in which unlimited wants exceed limited resources. B) Scarcity is not a problem for the wealthy. C) Scarcity is only a problem when a country has too large a population. D) Scarcity only arises when there is a wide disparity in income distribution

A

20) ________ marginal opportunity cost implies that the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts. A) Increasing B) Decreasing C) Constant D) Negative

A

21) An outward shift of a nation's production possibilities frontier represents A) economic growth. B) rising prices of the two goods on the production possibilities frontier model. C) an impossible situation. D) a situation in which a country produces more of one good and less of another.

A

6) Suppose that some teachers have decided that economic and financial uncertainty have made the prospect of retiring more risky, and therefore carry a higher cost than not retiring. By using all available information as they act to achieve their goals, these teachers are exemplifying the economic idea that A) people are rational. B) people respond to economic incentives. C) optimal decisions are made at the margin. D) equity is more important than efficiency.

A

13) When goods and services are produced at the lowest possible cost, ________ occurs. A) allocative efficiency B) productive efficiency C) equity D) efficient central planning

B

14) Which of the following is a positive economic statement? A) Everyone should live at the same standard of living. B) If the price of gasoline rises, a smaller quantity of it will be bought. C) The government should close income tax loopholes. D) U.S. firms should not be allowed to outsource production of goods and services.

B

15) Tesla Motors manufacturers its cars at a plant in Fremont, California. At this plant, Tesla is able to take advantage of the high level of technical training possessed by its American workers, but it also sacrifices the ability to pay lower wages had it chosen to open its plant in a low-wage country such as Mexico, India, or China. In deciding to open the Fremont plant, Tesla A) faced no trade-offs because employing more technically-skilled workers increased efficiency. B) faced a trade-off between higher cost and lower precision. C) adopted a negative technological change because it chose high-skilled workers over low-paid workers. D) eroded some of its competitiveness in the luxury electric car market because of its increased cost of production.

B

16) The production possibilities frontier shows the ________ combinations of two products that can be produced in a particular time period with available resources. A) minimum attainable B) maximum attainable C) only D) equitable

B

30) A successful market economy requires A) a government-controlled banking system and government price controls. B) well-defined property rights and an independent court system to adjudicate disputes based on the law. C) generous unemployment benefits and paid medical leave for everyone in the labor force. D) an equitable distribution of income and limits on immigration.

B

31) If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as A) a decrease in demand. B) a decrease in quantity demanded. C) a change in consumer income. D) a decrease in consumers' taste for chocolate.

B

4) Economists assume that rational behavior is useful in explaining choices people make A) because irrational people do not make economic choices. B) even though people may not behave rationally all the time. C) because individuals act rationally all the time in all circumstances. D) even though people rarely, if ever, behave in a rational manner.

B

5) Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits. A) equitably B) rationally C) emotionally D) selfishly

B

7) Suppose the U.S. government encouraged new medical school graduates to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100,000. These doctors would be exemplifying the economic idea that A) people are rational. B) people respond to economic incentives. C) optimal decisions are made at the margin. D) equity is more important than efficiency.

B

3) Prices of microbrewery beer (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for fermenting vats used in beer making have also risen and consumer incomes have fallen. Which of the following best explains the rising prices of microbrewery beer? A) The supply curve for microbrewery beer has shifted to the left while the demand curve for microbrewery beer has shifted to the right. B) The demand curve for microbrewery beer has shifted to the left more than the supply curve has shifted to the left. C) The demand curve and the supply curve for microbrewery beer have both shifted to the right. D) The supply curve for microbrewery beer has shifted to the left more than the demand curve has shifted to the left.

D

39) In a free market such as that depicted above, a shortage is eliminated by A) a price increase, increasing the supply and decreasing the demand. B) a price decrease, decreasing the supply and increasing the demand. C) a price decrease, decreasing the quantity supplied and increasing the quantity demanded. D) a price increase, increasing the quantity supplied and decreasing the quantity demanded.

D

friend chicken and grilled chicken are substitutes. if the American heart association announces that eating fried chicken increases the risk of a stroke, this will cause ____

demand for grilled chicken to rise, rightward shift of the demand curve

public transportation is an inferior good. if consumer's income decreases this will cause ____

demand for public transportation to rise

positive statements

factual

Inferior goods are

goods that consumers demand less of when their incomes increase

negative statements

involve value judgments

what happens if there is a price ceiling above the equilibrium?

nothing

what doesn't change demand?

price

law of demand

price and quantity have an inverse relationship

what happens if there is a price ceiling below equilibrium?

shortage

what do prices do?

solve knowledge problem by telling us opportunity cost. what is economically possible vs. what is economically feasible?

creative destruction

the creation of new products and production methods completely destroys the market positions of firms that are wedded to existing products and older ways of doing business

consumer sovereignty

the power of consumers to decide what gets produced

invisible hand

the tendency of firms and resource suppliers that seek to further their own self-interests in competitive markets to also promote the interests of society

what happens when there is a change in price?

there is a change in QUANTITY DEMANDED

coffee and cream are compliments. if the price of coffee increases, this will cause _____

upward movement (lower demand) along curve

If the price of chocolate rises, what happens to the demand curve?

upward movement along demand curve