ECONOMICS FINAL EXAM !

The diamond-water paradox arises because:

essential goods may be cheap while nonessential goods may be expensive.

Negative externalities arise:

when firms "use" resources without being compelled to pay for their full costs.

Government may lessen income inequality by:

D. doing All of these.

8. In economics, an organization that employs resources to produce goods and services for profit and operates one or more plants is called a(n):

D. firm.

Refer to above data. Marginal utility becomes negative beginning with the:

D. fourth unit.

31. A perfectly inelastic demand curve:

D. graphs as a line parallel to the horizontal axis.

The majority of personal consumption expenditures go to purchase:

D. services.

40. To maximize utility a consumer should allocate money income so that the:

marginal utility obtained from the last dollar spent on each product is the same.

Suppose that Dave normally orders two tacos, but on seeing they are on sale, decides to buy three. Dave's decision is best explained by the:

the principle of utility maximization.

Newspapers dispensing devices seemingly "trust" people to take only a single paper but the devices actually rely on the law of:

D. diminishing marginal utility.

The Federal government requires automobile manufacturers to install pollution control equipment. This is an illustration of the:

D. internalization of external costs.

1. The personal distribution of income refers to the:

way income is distributed among specific households or spending units.

The functional distribution of income refers to the:

division of income on the basis of industry sources, for example, agriculture, transportation, mining, etc.

Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is:

. negative.

Positive externalities refer to:

A. benefits that accrue to parties other than the producer and buyer of a good.

Eclectic Enterprises is a single firm that sells goods and services in the markets for health food, furniture, electric energy, and toys. Eclectic Enterprises is best described as a(n):

A. conglomerate.

The theory of consumer behavior assumes that:

A. consumers behave rationally, attempting to maximize their satisfaction.

16. Which form of business enterprise accounts for the largest proportion of total output?

A. corporations

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then:

A. demand is elastic.

Economists define dura26. In economics, a group of firms that produce identical or similar products is called a(n):

A. industry.

An external cost or external benefit is also known as a(n):

A. marginal benefit.

The price elasticity of demand is generally:

A. negative, but the minus sign is ignored.

If a corporation goes bankrupt, its stockholders will lose:

A. only the value of their stock.

21. Corporate bonds are:

A. promises by a corporation to repay a loan.

The advantages of the corporate form of business include:

A. the ability to raise financial capital by selling stocks and bonds.

Which of the following is not considered to fall under government's function of redistributing income?

A. transfer payments

A firm that produces a single product but owns plants in many different stages of the production process - for example, a steel producer that owns iron ore mines and rolling mills - best illustrates a:

A. vertically integrated firm.

3. The largest functional share of the national income consists of:

A. wages and salaries.

Suppose you own $50,000 of personal property, $5,000 of stock in General Statics Corporation, a $10,000 savings account, and $20,000 of government bonds. If General Statics goes bankrupt, the most you could lose is:

B. $5,000.

Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is:

B. 1.2.

The law of diminishing marginal utility states that:

B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.

A perfectly inelastic demand schedule:

B. can be represented by a line parallel to the vertical axis.

The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to:

B. decrease by approximately 12 percent.

The law of diminishing marginal utility explains why:

B. demand curves slope downward.

If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will:

B. increase the amount demanded by more than 10 percent.

If the aggregate income of households is $300 billion, consumption is $210 billion, and personal taxes are $60 billion, then personal saving:

B. is $30 billion.

Utility

B. is want-satisfying power.

In 2007, personal saving comprised what portion of U.S. household income?

B. positive 1 percent

Which form of business enterprise accounts for the largest number of firms in the United States?

B. proprietorships

Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is:

C. 1.37.

Refer to the above data. If the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing:

C. 4 units of J and 5 units of K.

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:

C. 8 units of utility.

The demand for a product is inelastic with respect to price if:

C. a drop in price is accompanied by a decrease in the quantity demanded.

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:

C. increase the quantity demanded by about 25 percent.

A firm that makes computer chips at several locations across the country best illustrates a:

C. multiplant firm.

25. The concept of price elasticity of demand measures:

C. the extent to which the demand curve shifts as the result of a price decline.

Where total utility is at a maximum, marginal utility is:

C. zero.

A firm comprised of plants or units operating in different industries, say, beer and theme parks, best illustrates a:

D. conglomerate.

Refer to the above data. How many units of the two products will the consumer purchase?

D. 2 of L and 3 of M

Refer to the above data. The value for Y is:

D. 45

Which of the following statements is correct?

D. A product may yield utility, but not be functionally useful.

The U.S. Food Stamp program, which provides coupons that allow low-income individuals to buy food, is an illustration of:

D. the stabilization function of government.

If a demand for a product is elastic, the value of the price elasticity coefficient is:

ONE

Refer to the above data. The value for X is:

A. 15

Stocks are:

D. shares of ownership of a corporation.

Durable goods as those products expected to last at least _____ year(s).

3

The price elasticity of demand coefficient measures:

B. the extent to which a demand curve shifts as incomes change.

The theory of consumer behavior assumes that consumers attempt to maximize:

B. total utility.

4. In the above diagrams for a hypothetical economy, from Figure 2 we can conclude that:

D. the top one-fifth of all income receivers get about eight times as much income as the lowest one-fifth.

Unlike newspaper dispensing devices, soft drink dispensing machines do not permit people to take more than one can or bottle with each payment. The reason is that the:

marginal utility of extra soft drink cans or bottles declines slowly, particularly because they are storable and can be consumed later.

Noncash gifts:

reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences.