Exam 1 Study Guide

"Creative destruction" in a market system is brought about by A. entrepreneurship. B. striking workers. C. regulation by the government. D. money-based trade.

A. entrepreneurship.

(Consider This) North Korea's command economy A. is one of the few remaining command economies. B. has grown much faster than South Korea's economy since the two countries were divided after World War II. C. produces a per capita GDP of nearly $25,000. D. has undergone significant market reforms and is now one of the fastest-growing economies.

A. is one of the few remaining command economies.

Which of the following most closely relates to the idea of opportunity costs? A. trade-offs B. economic growth C. technological change D. capitalism

A. trade-offs

In order to derive a market demand curve from individuals' demand curves, we add up the A. various individuals' quantities demanded at each price level. B. various prices that each buyer is willing and able to pay C. incomes of all buyers, assuming that their tastes remain constant. D. total number of buyers in the market at each time period.

A. various individuals' quantities demanded at each price level.

Which of the following is associated with macroeconomics? A. an examination of the incomes of professional athletes B. an empirical investigation of the general price level and unemployment rates since 1990 C. a study of the trend of pecan prices since the Second World War D. a case study of pricing and production in the textbook industry

B. an empirical investigation of the general price level and unemployment rates since 1990

In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations? A. partnerships B. corporations C. sole proprietorships D. in all of the businesses listed in the other answers

B. corporations

Kara was out jogging and, despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara A. must be an avid runner. B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile. C. decided that the marginal cost of running one more mile would outweigh the benefit of the additional mile. D. was not very tired, so the marginal cost of the extra mile was very low.

B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

With specialization in a market economy, individual A. firms produce a wide range of products. B. producers consume little or none of the products they produce. C. producers consume most of the output that they produce. D. consumers have to produce most of what they consume.

B. producers consume little or none of the products they produce.

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of A. resource scarcity and the necessity of choice. B. purposeful behavior. C. marginal costs that exceed marginal benefits. D. the trade-off problem that exists between competing goals.

B. purposeful behavior.

An effective price floor will A. force some firms in this industry to go out of business. B. result in a product surplus. C. result in a product shortage. D. clear the market

B. result in a product surplus.

In a market economy, the distribution of output will be determined primarily by A. consumer needs and preferences. B. the quantities and prices of the resources that households supply. C. government regulations that provide a minimum income for all. D. a social consensus as to which distribution of income is most equitable.

B. the quantities and prices of the resources that households supply.

By an "increase in demand," economists mean that A. product price has fallen, so consumers move down to a new point on the demand curve. B. the quantity demanded at each price in a set of prices is greater. C. the quantity demanded at each price in a set of prices is smaller. D. a leftward shift of the demand curve has occurred.

B. the quantity demanded at each price in a set of prices is greater.

The production technique that is most efficient is the one that produces a given amount of output A. using the least amount of labor resources. B. at the highest price per unit. C. at the lowest cost per unit. D. that yields the highest revenues.

C. at the lowest cost per unit.

(Consider This) In 1975, McDonald's introduced its Egg McMuffin breakfast sandwich, which remains popular and profitable today. This longevity illustrates the idea of A. opportunity cost. B. upsloping supply. C. consumer sovereignty. D. specialization.

C. consumer sovereignty.

Which of the following is not a typical characteristic of a market system? A. private property B. freedom of enterprise C. government ownership of most property resources D. competition in product and resource markets

C. government ownership of most property resources

The simple circular flow model shows that A. households are on the buying side of both product and resource markets. B. businesses are on the selling side of both product and resource markets. C. households are on the selling side of the resource market and on the buying side of the product market. D. businesses are on the buying side of the product market and on the selling side of the resource market

C. households are on the selling side of the resource market and on the buying side of the product market.

"Consumer sovereignty" refers to the A. fact that resource prices are higher than product prices in capitalistic economies. B. idea that the pursuit of self-interest is in the public interest. C. idea that the decisions of producers must ultimately conform to consumer demands. D. fact that a federal agency exists to protect consumers from harmful and defective products.

C. idea that the decisions of producers must ultimately conform to consumer demands

In the circular flow diagram, households get their ability to pay for their consumption expenditures from the A. revenues they receive for their products. B. costs they incur for resources. C. incomes they earn for their resources. D. goods and services they get in the product markets

C. incomes they earn for their resources.

The Latin term "ceteris paribus" means A. that if event A precedes event B, A has caused B. B. that economics deals with facts, not values. C. other things equal. D. prosperity inevitably follows recession

C. other things equal.

The two basic markets shown by the simple circular flow model are A. capital goods and consumer goods. B. competitive and regulated. C. product and resource. D. household and business.

C. product and resource.

According to the concept of diminishing marginal utility, consumers will purchase more of a good when the price falls because A. substitutes are relatively more expensive. B. consumers' real income has increased. C. the marginal benefit of additional units of the good now outweigh the marginal cost. D. the good is now perceived as having higher quality.

C. the marginal benefit of additional units of the good now outweigh the marginal cost.

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes A. an inferior good. B. the rationing function of prices. C. the substitution effect. D. the income effect.

C. the substitution effect.

"Consumer sovereignty" means that A. buyers can dictate the prices at which goods and services will be offered. B. advertising is ineffective because consumers already know what they want. C. buyers control the quality of goods and services through regulatory agencies. D. buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

D. buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

A price floor means that A. inflation is severe in this particular market. B. sellers are artificially restricting supply to raise price. C. government is imposing a maximum legal price that is typically below the equilibrium price. D. government is imposing a minimum legal price that is typically above the equilibrium price.

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

A normative statement is one that A. is based on the law of averages. B. applies only to microeconomics. C. applies only to macroeconomics. D. is based on value judgments.

D. is based on value judgments.

One reason that the quantity demanded of a good increases when its price falls is that the A. price decline shifts the supply curve to the left. B. lower price shifts the demand curve to the left. C. lower price shifts the demand curve to the right. D. lower price increases the real incomes of buyers, enabling them to buy more

D. lower price increases the real incomes of buyers, enabling them to buy more

The horizontal axis of a graph that shows a market demand curve indicates the A. different prices at which various levels of output can be sold. B. number of consumers who are in the market for this product. C. various quantities of output at which the market will be cleared. D. quantities which consumers will be willing and able to buy at various prices.

D. quantities which consumers will be willing and able to buy at various prices.

In moving along a supply curve, which of the following is not held constant? A. the number of firms producing this good B. expectations about the future price of the product C. techniques used in producing this product D. the price of the product itself.

D. the price of the product itself.

Ben says that "an increase in the tax on beer will raise its price." Holly argues that "taxes should be increased on beer because college students drink too much." We can conclude that A. Ben's statement is normative, but Holly's is positive. B. Holly's statement is normative, but Ben's is positive. C. Both statements are normative. D. Both statements are positive.

B. Holly's statement is normative, but Ben's is positive.

Microeconomics is concerned with A. the aggregate or total levels of income, employment, and output. B. a detailed examination of specific economic units that make up the economic system. C. positive economics, but not normative economics. D. establishing an overall view of the operation of the economic system

B. a detailed examination of specific economic units that make up the economic system

Opportunity costs exist because A. the decision to engage in one activity means forgoing some other activity. B. wants are scarce relative to resources. C. households and businesses make rational decisions. D. most decisions do not involve sacrifices or trade-offs

A. the decision to engage in one activity means forgoing some other activity.

Broadly defined, competition involves A. private property and freedom of expression. B. independently acting buyers and sellers and freedom to enter or leave markets. C. increasing opportunity costs and diminishing marginal utility. D. capital goods and division of labor.

B. independently acting buyers and sellers and freedom to enter or leave markets.

A demand curve A. shows the relationship between price and quantity supplied. B. indicates the quantity demanded at each price in a series of prices. C. graphs as an upsloping line. D. shows the relationship between income and spending

B. indicates the quantity demanded at each price in a series of prices.

The invisible hand refers to the A. fact that the U.S. tax system redistributes income from rich to poor. B. notion that, under competition, decisions motivated by self-interest promote the social interest. C. tendency of monopolistic sellers to raise prices above competitive levels. D. fact that government controls the functioning of the market system.

B. notion that, under competition, decisions motivated by self-interest promote the social interest.