Micro Economics M

At the point where the demand and supply curves for a product intersect:

the quantity that consumers want to purchase and the amount producers choose to sell are the same.

The process of developing hypotheses, testing them against facts, and using the results to construct theories is called:

the scientific method.

In a market economy, the money incomes of individuals depend primarily upon:

the value and amounts of the productive resources the individuals possess.

Refer to the above diagram. The equilibrium price and quantity in this market will be:

$1.00 and 200.

Refer to the above diagram. A surplus of 160 units would be encountered if price was

$1.60.

Refer to the above data. The average total cost of producing 3 units of output is:

$16.

Refer to the above data. The marginal cost of producing the sixth unit of output is:

$8.

Another term for capitalism is the:

market system

Consumer surplus:

is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.

A competitive economy assumes each industry consists of a:

large number of small firms facing a large number of small buyers.

The basic economic problem is essentially one of deciding how to make the best use of:

limited resources to satisfy unlimited economic wants.

With allocative efficiency:

production of any particular mix of goods and services is that mix most wanted by society.

Economic models do not reflect the full complexity of reality and instead are based on:

purposeful simplifications.

The simple circular flow model shows that workers, entrepreneurs, and the owners of land and capital offer their services through:

resource markets

When the demand for a good is price-elastic at a given output level:

total revenue for the good will increase if its price decreases.

In a free-market economy, a product that entails a spillover benefit will be:

underproduced

If an economy is being "productively efficient," then that means the economy is:

using the least costly production techniques.

The money income of households consists of the sum of:

wages plus rents plus interest plus profits.

"Rivalry" in consumption means that:

when one person buys a good, it is not available for another person to buy.

A public good:

cannot be provided to one person without making it available to others too.

One reason economists have difficulty applying the scientific method is because:

controlled laboratory experiments are often infeasible and sometimes impossible.

Private firms cannot profitably produce a public good because of:

nonrivalry and nonexcludability.

When production creates external costs greater than external benefits, a market is:

allocating too many resources to production of the product.

A group of firms that produce the same or similar products is:

an industry.

Which would not be characteristic of a capitalist economy?

Government ownership of the factors of production

A person receives a paper asset from a corporation that is a promise from the corporation to repay a loan at a fixed rate of interest. This type of asset is referred to as a:

bond.

In the circular flow model, households:

buy products and sell resources.

From the economist's perspective, "market failures" basically arise when:

demand and supply do not accurately reflect all the benefits and all the costs of production.

If X is a normal good, a rise in money income will shift the:

demand curve for X to the right.

If Z is an inferior good, an increase in money income will shift the:

demand curve for Z to the left.

As a consequence of the condition of scarcity:

individuals and communities have to make choices from among alternatives.

If the price elasticity of demand for a good is .75, the demand for the good can be described as:

inelastic

State government wants to increase the taxes on cigarettes to increase tax revenue. This tax would only be effective in raising new tax revenues if the price elasticity of demand is:

inelastic.

The law of demand states that:

price and quantity demanded are inversely related.

The demand curve shows the relationship between:

price and quantity demanded.

If an increase in the supply of a product results in a decrease in the price, but no change in the actual quantity of the product exchanged, then the:

price elasticity of demand is zero.

An increase in the quantity demanded means that:

price has declined and consumers therefore want to purchase more of the product.

Shares of ownership in corporations are referred to as:

stocks.

If some activity creates positive externalities as well as private benefits, then economic theory suggests that the activity ought to be:

subsidized.

One major feature of the economic perspective is:

the assumption of purposeful behavior by individuals.

Market failures occur when:

the competitive market system under- or overallocates resources to production of goods.

An increase in demand means that:

the demand curve has shifted to the right.

Graphically, the market demand curve is:

the horizontal sum of individual demand curves.

Marginal product is:

the increase in total output attributable to the employment of one more worker.

Microeconomics focuses on:

the individual units that make up the whole of the economy.

The optimal level of pollution in society occurs whenever:

the marginal benefit of pollution control equals the marginal cost.

In presenting the model of a demand curve, economists presume the most important variable in determining the quantity demanded is:

the price of the product itself.

A prerequisite of specialization is:

a medium of exchange or money system.

A factory, mine, store, or warehouse that performs one or more functions in making and distributing goods and services is:

a plant.

A positive income elasticity of demand coefficient indicates that:

a product is a normal good.

If a company owns plants at various stages of the production process, this is called:

a vertically integrated firm.

Which expression is another way of saying "marginal cost"?

additional cost

The demand curve for a product might shift as the result of a change in:

all of these

Refer to the above diagram. A shortage of 160 units would be encountered if price was:

$.50.

An increase in the price of a good will cause total revenue to fall if price elasticity of demand is:

elastic.

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:

$5,000.

Suppose you are given the following data on demand for a product. The price elasticity of demand when price decreases from $9 to $7 is:

1.60.

A consumer's weekly income is $300 and the consumer buys 5 bars of chocolate per week. When income increases to $330, the consumer buys 6 bars per week. The income elasticity of demand for chocolate by this consumer is about:

2.

Which is necessary to make a trade in a barter economy?

A coincidence of wants

Which of the following is correct?

A person who purchases a corporate stock is buying ownership in the corporation.

Which of the following best expresses the law of diminishing returns?

As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra output will decline.

Which is assumed to be most limited in scope under a market system?

Government

The legal concept of limited liability is important in which of the following types of business organizations?

Corporations.

The process by which new products and technologies drive out existing products and techniques is known as:

Creative destruction.

Which is characteristic of the market system?

Free enterprise and choice

What is the economic meaning of the expression "there is no such thing as a free lunch"?

It means there is an opportunity cost when resources are used to provide "free" products.

Which is not considered to be an economic resource?

Money

What are the two characteristics that distinguish public goods from private goods?

Nonrivalry and nonexcludability

Economic systems differ according to what two main characteristics?

Ownership of resources and methods of coordinating economic activity

Which of the following statements is correct about measuring collective demand for public and private goods?

Private good demand is found by horizontally adding individual demand curves; public good demand is found by vertically adding individual demand curves.

A business organization that owns and operates one or more plants is:

a firm.

Which is not one of the conditions for the Coase theorem to hold?

The amount of money disputed is minor.

The production possibilities curve represents which of the following?

The maximum combinations of goods attainable with fixed resources

Which statement best describes a command economy?

The production and allocation of goods and services is determined primarily through government.

Which of the following is not a central focus of the "economic perspective"?

The scientific method

Which is not a determinant of the price elasticity of demand for most products?

The slope of the demand curve for a product

Which will cause a demand curve to be relatively elastic?

The time interval considered is long.

Which is not characteristic of a product with relatively inelastic demand?

There are a large number of good substitutes for the good.

All economic systems must answer certain fundamental economic questions. Which is not one of these questions?

Which actions should government take to reduce inflation?

The alternative combinations of two goods that a consumer can purchase with a given money income is:

a budget line.

The principal-agent problem in corporations arises from:

a conflict of interest between corporate executives who manage the firm and stockholders who own the firm.

If two goods are complements:

a decrease in the price of one will increase the demand for the other.

When an economy is at full employment and full production, more of any one product:

can be produced only if there is less production of some other products.

One condition for individual bargaining to occur, according to the Coase theorem, is that there must be:

clearly defined property rights.

Economic cost can best be defined as:

compensations that must be received by resource owners to ensure their continued supply.

When an economist says that the demand for a product has increased, this means that:

consumers are now willing to purchase more of this product at each possible price.

The most effective form of business organization for raising money to finance the expansion of its facilities and capabilities is a:

corporation.

A straight-line downward-sloping demand curve has a price elasticity of demand that:

decreases as price decreases.

Along a linear downward-sloping demand curve, the price elasticity of demand will be:

different across each price range.

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.

direct, inverse

The process in which workers do specialized tasks to make a product is referred to as:

division of labor

Because of free riders, the demand for a public good:

does not get expressed in the market, and the good does not get produced by private sellers.

When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. In this range of prices, demand for this product is:

elastic.

The maximization of profit and the minimization of losses is the primary factor affecting the economic decision making of:

entrepreneurs.

A 4 percent reduction in the price of a product causes consumer expenditure to remain the same. The price elasticity of demand is:

equal to 1.

Economic profits are calculated by subtracting:

explicit and implicit costs from total revenue.

To the economist, total cost includes:

explicit and implicit costs, including a normal profit.

A characteristic of the market system is:

extensive use of capital goods.

A conglomerate is a(n):

firm that owns plants in different markets and industries.

A binding price floor means that:

government is imposing a minimum legal price that is typically above the equilibrium price.

Accounting profits are typically:

greater than economic profits because the former do not take implicit costs into account.

Economics can best be described as the study of:

how people, institutions, and society make choices under conditions of scarcity.

To economists, the main differences between "the short run" and "the long run" are that

in the long run all resources are variable, while in the short run at least one resource is fixed.

An inferior good is best defined as a product for which the:

income elasticity of demand is negative.

If a product has a short-run elasticity of supply equal to zero, then an increase in the demand for the product will:

increase price and leave quantity sold unchanged.

If the price elasticity of demand for a product is equal to 0.5, then a 10 percent decrease in price will:

increase quantity demanded by 5 percent.

To internalize the external costs of pollution is to:

make the polluter pay all of the costs associated with the polluting activity.

The term "scarcity" in economics can refer to the fact that

no country can produce enough products to satisfy everybody's economic wants

The law of supply indicates that:

producers will offer more of a product at high prices than they will at low prices.

The circular flow model shows that the good and services produced by business firms are sold through:

product markets

Markets in which firms sell their output of goods and services are called:

product markets.

If an economy is producing at a point inside a production possibilities curve:

resources are unemployed.

The price elasticity of demand is a measure of the:

responsiveness of quantity demanded to a change in price.

The purpose of the ceteris paribus assumption used in economic analysis is to:

restrict the analysis to the effect of a single economic factor.

An effective price ceiling will:

result in a product shortage.

Private goods are characterized by:

rivalry and excludability.

"Excludability" means that:

sellers can restrict the benefits of a good to those who pay for it.

An improvement in production technology will:

shift the supply curve to the right.

Macroeconomics focuses on:

total output and the general level of prices in the economy.