Econ Exam
If there are external benefits for good X , which of the following is true?
The socially efficient amount of good X can be achieved if society subsidizes consumers of good X.
Suppose the federal government imposes a new pollution tax of $0.01 per kilowatt-hour of electricity is imposed on coal-fired power producers . Which of the following correctly describes how this tax will affect the market for electricity served by these power plants?
The supply of electricity will decrease.
Suppose that the state of California imposes a minimum wage of $10 per hour. In the entry-level labor market in California fast-food restaurants, the quantity of labor demanded at $10 per hour is 800,000, and the quantity of labor supplied is 1.2 million. Which of the following is true?
There is a surplus of 400,000 workers in the labor market.
Suppose the federal government imposes a price floor (support price) in the milk market at a price of $6 per gallon. If market quantity demanded at $6 is 1 billion gallons, and market quantity supplied is 1.5 billion gallons, which of the following is true?
There is a surplus of 500 million gallons of milk, and the federal government will buy this 500 million gallons to maintain the $6 price
Which of the following is true about renewable natural resources?
They are a type of land resource (for example, forests, range-lands, and marine fisheries) that naturally regenerate and thus can tolerate a sustained harvest, but can be depleted from excessive harvest.
Combinations of goods outside the production possibilities curve (PPC) have which of the following characteristics?
They are not attainable given our existing stock of resources and technology
All points on the production possibilities curve represent efficient levels of production.
True
Marginal analysis examines the effects of additions to or subtractions from a current situation.
True
On the production possibilities curve, a movement between points that yields a loss of one good in order to raise the output of another good will maintain efficient production.
True
The opportunity cost of producing a good or service is the good or service that is foregone by choosing to produce another good with the same resources in a given period of time.
True
What to produce, how to produce, and for who to produce are the three fundamental economic questions.
True
Suppose that the alternative uses of an hour of your time in the evening, ranked from best to worst, are (1) study economics, (2) watch two half-hour TV sitcoms, (3) play video gamesl, and (4) jog around town. You can only choose one activity. What is the opportunity cost of studying economics for one hour, given this information?
Watching two half-hour TV sitcoms.
If an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), then if we increase the production of shelter along the PPC, which of the following is true?
We must decrease the production of food. This forgone food production represents the opportunity cost of the increase in shelter.
Which of the following best describes the three fundamental economic questions?
What to produce, how to produce, and for whom to produce.
Under the law of demand, any increase in price will cause ____________ in quantity demanded.
a decrease
An increased equilibrium price and a decreased equilibrium quantity results from a(an)
a decrease in supply.
The law of supply is the principle that there is ___________ relationship between the price of a good and the quantity sellers are willing to offer for sale in a defined time period, ceteris paribus.
a direct
A production possibilities curve shows the various combinations of two outputs that
an economy can produce
The law of demand is the principle that there is ___________ relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus.
an inverse
A leftward shift in the demand curve is called a(an)
decrease in demand
A decrease in demand with the supply held constant leads to a(an)
decreased equilibrium price and a decreased equilibrium quantity.
The ability of an economy to produce greater levels of output is called
economic growth
If Sam, the Pizza Man, lowers the price of his pizzas from $6 to $5 and finds that sales increase from 400 to 600 pizzas per week, then the demand for Sam's pizzas in this range is:
elastic
There is news that the price of Tucker's Root Beer will increase significantly next week. If the demand for Tucker's Root Beer reacts only to this factor and shifts to the right, the position of this demand curve has reacted to a change in
expectations
A _______ demand curve has a price elasticity of demand that is perfectly elastic.
horizontal
A rightward shift in the demand curve is called a(an)
increase in demand.
If demand is price elastic, then when price decreases, total revenue:
increases
Suppose the president of a college argues that a 25 percent tuition increase will raise revenues for the college. It can be concluded that the president thinks that demand to attend this college is:
inelastic
Because of scarcity,
it is impossible to satisfy every desire and choices must be made.
The principle that the opportunity cost increases as the production of one output expands is the
law of increasing opportunity costs.
A curve that is derived by summing horizontally individual demand curves is called
market demand
Which words best complete the following sentence? A rational decision maker always chooses the option for which marginal benefit is _____ marginal cost.
more than.
A cost imposed on people other than the consumers of a good or service is a
negative externalities
Price elasticity of demand refers to the ratio of the:
percentage change in the quantity demanded of a good to a percentage change in its price.
A surplus occurs when the
price is above equilibrium
If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as:
relatively elastic.
Opportunity cost
represents the best alternative sacrificed for a chosen alternative.
The price elasticity of demand for gasoline measures the:
responsiveness of customers to changes in the price of gasoline.
Which resource is not an example of capital?
stocks or bonds
In the study of economics, investment means
the accumulation of capital that is used to produce goods and services.
Demand price elasticity measures:
the change in price brought about by a change in consumer demand.
A shortage occurs when the
the price is below the equilibrium price
If the percentage change in the quantity demanded of a good equals the percentage change in price, price elasticity of demand is:
unitary elastic.
A _______ demand curve has a price elasticity of demand that is perfectly inelastic.
vertical
In Exhibit 5-1, between points a and b, the price elasticity of demand measures:
1.0
Suppose that each of the seven dwarfs buys 4 mugs of ginger ale per week from Snow White's cafe‚ when the price per mug is $2. If the seven dwarfs are the entire market demand for Snow White's ginger ale, then which of the following is the correct value for market quantity demanded of ginger ale at a price of $2 for one week?
28
Which of the following causes a shortage to become larger?
A decrease in price.
Which of the following is an example of an organization using marginal analysis?
A government official considering the effect an increase in military goods production will have on the production of consumer goods.
Which of the following best illustrates the application of the model-building process to economics?
A labor economist notices that unemployment tends to be higher among teenagers than more experienced workers, develops a model, and gathers data to test the hypotheses in the model.
Which of the following best describes an entrepreneur?
A person who combines the factors of production to produce innovative products.
Which of the following is not an example of a capital input?
A person's skills and abilities, which can be employed to produce valuable goods and services.
Which of the following careers could result from majoring in economics?
All of the Above
Which of the following illustrates the concept of scarcity?
All of the above answers are correct.
The condition of scarcity
All of the above are correct
Which of the following results from an increase in the price of a one-week vacation at beach resorts on the coast of Mexico?
An increase in the demand for vacations at resorts on Caribbean islands.
Which of the following would not cause market demand for a normal good to decline?
An increase in the price of a substitute.
Which of the following causes the demand for veggie burgers to increase?
An increase in the price of tofu burgers, perceived as a substitute by veggie burger consumers.
Which of the following reasons could explain why an economy would be operating inside its production possibilities curve (PPC)?
Because damage to natural resources, such as damage caused by deforestation leading to erosion of topsoil, has shrunk the land resource.
Why don't competitive markets do a good job providing public goods?
Because it is difficult to exclude people from gaining benefits from public goods without paying for them, and so market demand does not reflect the benefits to society from the public good.
Suppose that X and Y are substitutes. If the price of Y increases, how will this change the market equilibrium for X?
Both equilibrium price and quantity both rise.
If goods A and B are complements, and if the price of good B rises, how will this affect the market equilibrium for good A?
Both price and quantity will fall.
Which of the following is the last step in the model-building process?
Collect data and test the model.
Which of the following is true in ski-towns such as Crested Butte, Colorado and Whistler, British Columbia during the peak winter ski season as compared to the months of May and June?
Demand for motel rooms is higher.
Suppose that a jewelry store found that when it increased prices by 10 percent, sales revenue increased by 3 percent. Which of the following is true about the price elasticity of demand for the store's goods?
Demand is inelastic, but not perfectly.
Which of the following is the second step in the model-building process?
Develop a model based on simplified assumptions.
Which of the following is the best definition of economics?
Economics is the study of how society chooses to allocate its scarce resources.
Which of the following is not an example of market failure?
Efficient Equilibrium
Suppose the federal government provides wheat farmers with a price floor above the market equilibrium price of wheat, creating a surplus. Which of the following causes a reduction in the surplus of wheat?
Elimination of the price floor.
A nation can accelerate economic growth by increasing its production of consumer goods.
False
If some resources were used inefficiently, the economy would operate outside its production possibilities curve.
False
The opportunity cost of attending a movie is the purchase price of a ticket.
False
Which of the following increases the supply of corn?
Farmers who grow soybeans can also grow corn, and the price of soybeans drops by 75 percent.
If a production possibilities curve (PPC) has capital on the vertical axis and consumer goods on the horizontal axis, which of the following is true?
Greater emphasis on the production of capital today leads to greater outward shifts in the PPC, thus increasing the wealth of people in the future.
Three different economies have made choices about the production of capital goods. Which of the following is most likely to produce the greatest growth in the production possibilities curve (PPC)?
Greater production of capital goods than what is needed to replace worn-out capital.
Which of the following represents positive economics?
If policy A is followed, then outcome B results.
Which of the following correctly describes the ceteris paribus assumption?
If we decrease the price of a good and observe that there is an increase in the quantity demanded, holding all other factors that influence this relationship constant.
Which word or phrase indicates that an economist is using positive economics?
If-then
In order to save money families consume more of which of the following kinds of goods?
Inferior goods.
Which of the following are factors of production?
Land (natural resources), labor (human capital, entrepreneurship), and capital (constructed inputs such as factories).
If society allows firms to freely pollute the environment, then which of the following is true?
Market equilibrium output will be too high relative to the efficient output level.
You are part of a local community theater group. It is the goal of the group to increase the amount of revenue earned through ticket sales. Mary says the obvious solution is to increase ticket prices. Is Mary correct?
Mary is correct if the demand for tickets is price inelastic.
Which of the following would eliminate scarcity as an economic problem?
None of the above.
An economy can produce various combinations of food and shelter along a production possibilities curve (PPC). We first increase the production of shelter along the PPC. If we then continue to shift more and more production to shelter, which of the following will most likely happen to the opportunity cost of a unit of shelter?
Opportunity cost will increase because as more and more shelter is produced, labor and capital that is highly productive at producing food is being shifted to shelter production, and so more and more food is being given up to produce a unit of shelter.
Over the elastic portion of a demand curve, a decrease in price causes:
Over the elastic portion of a demand curve, a decrease in price causes:
Which of the following decreases supply in the market for pizza?
Pizza shop employees successfully organize a union and negotiate a pay increase.
Which of the following is a type of economic analysis?
Positive
Which word or phrase best completes the following sentence? Marginal analysis means evaluating _________ changes from a current situation.
Positive or negative.
An increase in total revenue results occurs from which of the following?
Price decreases when demand is elastic.
In moving from a shortage toward the market equilibrium, which of the following is true?
Price rises.
If the cost of producing a good rises for sellers, how will this affect the market equilibrium for that good?
Price will rise and quantity will fall.
Which of the following represents causality rather than association?
Quantity demanded goes up when price falls because lower prices increase consumer purchasing power, and because some consumers of substitute goods switch.
Which of the following is not a type of economic analysis?
Resources
A production possibilities curve is drawn based on which of the following assumptions?
Resources such as labor and capital will grow, are fully employed, and technology is unchanged.
Assume no price ceiling exists in a market. Then a price ceiling is established below the market equilibrium. What would result?
Shortage
Suppose that Big-Cat and Fat-Cat are rival cat food brands, and the price of Fat-Cat is reduced. Following this price drop, is there a shortage or a surplus of Big-Cat at the old price of Big-Cat?
Surplus
What is the result of a price floor (minimum wage) on wages paid to labor?
Surplus of Labor
.Suppose the city of Arcata, California, imposes rent control so that rents cannot exceed $1,000 per month on one bedroom rental units. Suppose that $1,000 had also been the equilibrium rental price in Arcata before a huge new apartment complex was built in the nearby town of McKinleyville, where rents are $800 per month. Which of the following is most likely true?
The equilibrium rental price in Arcata will fall below $1,000, and thus rent control will not affect the rental market in Arcata.
Suppose that the average equilibrium monthly rental price of apartments and rooms in a college town has been steady at $600, but then the college expanded enrollment from 10,000 to 12,000. Suddenly there is a shortage of rental housing at the prevailing price of $600. Which of the following is most likely to be true?
The shortage occurred because demand increased, and a new market equilibrium will feature higher rental prices and more rental units available on the market.
If a price ceiling is set at $10, and the equilibrium market price is $8, then which of the prices below is the price that consumers actually pay?
$8
