MBA 5200 Practice Exam 1

7. Which question is an example of a microeconomic question?

B. Will the merger of two airlines likely result in higher airline ticket prices?

23. The economy of North Korea would best be classified as:

B. a command system.

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

B. additional cost

14. A point inside the production possibilities curve is:

B. attainable, but the economy is inefficient.

9. Which would be considered a macroeconomic study? A study of the effect of:

B. changing government spending to increase employment.

1. Among competing issues, the most important concern of economics is with the:

B. efficient use of limited productive resources to satisfy economic wants.

11. The individual who brings together economic resources and assumes the risk in a capitalist economy is called the:

B. entrepreneur.

73. A binding price ceiling means that:

B. government is imposing a legal price that is typically below the equilibrium price.

22. A basic characteristic of a command system is that:

B. government owns most economic resources.

60. At the current price there is a shortage of a product. We would expect price to:

B. increase, quantity demanded to decrease, and quantity supplied to increase.

50. A decrease in the demand for recreational fishing boats might be caused by an increase in the:

B. price of outboard motors.

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

B. purposeful simplifications.

52. If the price of a product increases, we would expect:

B. quantity supplied to increase.

48. Suppose that tacos and pizza are substitutes, and soda and pizza are complements. We would expect an increase in the price of pizza to:

B. reduce the demand for soda and increase the demand for tacos.

72. An effective price floor will:

B. result in a product surplus.

47. A decrease in the price of digital cameras will:

B. shift the demand curve for memory cards to the right.

43. If the price of K declines, the demand curve for the complementary product J will:

B. shift to the right.

18. All of the following would affect the position of a country's production possibilities curve, except:

B. the level of unemployment.

59. If there is a shortage of product X:

B. the price of the product will rise.

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

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

57. Refer to the above data. Equilibrium price is:

C. $2.

15. The production possibilities table below shows the hypothetical relationship between the production of capital goods and consumer goods in an economy. Refer to the table above. What is the opportunity cost of producing the first three units of capital goods?

C. 15 units of consumer goods

3. According to the Gates, Winfrey, and Rodriguez illustration:

C. Opportunity costs vary greatly between individuals and matter in decision making.

39. Refer to the above figure. If box B represents the resource market and flow (3) represents money income, then:

C. box D is the product market and box C is households.

44. A shift to the right in the demand curve for product A can be most reasonably explained by saying that:

C. consumer preferences have changed in favor of A so that they now want to buy more at each possible price.

61. Assume, in a competitive market, price is initially above the equilibrium level. We predict that price will:

C. decrease, quantity demanded will increase, and quantity supplied will decrease.

75. Ticket scalping implies that:

C. event sponsors have set ticket prices at below-equilibrium levels.

41. A market:

C. is an institution or mechanism that brings together buyers and sellers.

49. The term "quantity demanded":

C. refers to the amount of a product that will be purchased at some specific price.

17. In a production possibilities table, the most-valued or optimal point for society is determined by:

C. the equality of marginal benefits and marginal costs.

55. Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative toother crops, then we would expect:

C. the supply to increase as farmers plant more corn.

53. Increasing marginal cost of production explains:

C. why the supply curve is upsloping.

38. Which of the following would be primarily determined in the resource market?

B. The wage rates for electricians.

63. Refer to the above diagram, which shows demand and supply conditions in the competitive market for productX. If the initial demand and supply curves are D0 and S0, equilibrium price and quantity will be:

A. 0F and 0C respectively.

27. Which statement best describes a capitalist economy?

A. Society determines production and the allocation of goods and services only through markets.

35. The basic economic argument for the market system is that it promotes:

A. an efficient allocation of resources.

65. In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. An increase in income, if X is a normal good, will:

A. increase D, increase P, and increase Q.

8. The branch of economics that focuses primarily on aggregates is:

A. macroeconomics.

51. Refer to the above diagram. An increase in quantity supplied is depicted by a:

A. move from point y to point x.

70. Refer to the above diagram. A binding government-set price ceiling is best illustrated by:

A. price A.

69. In the above market, economists would call a government-set maximum price of $40 a:

A. price ceiling.

24. Legal and social rules that affect the ownership of property are:

A. property rights.

25. Competition is more likely to exist when:

A. there is free entry into and exit out of industries.

40.Refer to the above figure. If box A represents businesses and box B represents the resource market in this circular flow model, then the real flow of goods, services, and economic resources would be represented by flows:

B. (7), (5), (4), and (2).

67. Which of the above diagrams illustrate(s) the effect of an increase in the price of Budweiser beer on the market for Coors beer?

B. A only

46. Refer to the above diagram, which shows three demand curves for coffee. Which would cause the change in the demand for coffee illustrated by the shift from D1 to D2?

B. An increase in consumer incomes

30. Why might a company use barter rather than money to make a transaction?

B. Barter can enable two firms to trade when their cash flows are limited.

31. Economic efficiency would be primarily discussed with respect to which of the fundamental questions about a competitive market economy?

B. How will the goods and services be produced?

16. Which statement is an economic rationale for the law of increasing opportunity cost?

B. Many economic resources are better at producing one product than another.

12. Which is not considered to be an economic resource?

B. Money

10. If a consumer has an income of $200, the price of X is $5, and the price of Y is $10, the maximum quantity of X the consumer is able to purchase is:

D. 40.

20. Refer to the above graph. Assume that before the Persian Gulf War, Iraq's production possibilities were represented by AB. Which line on the above graph would represent the change in Iraq's production possibilities after the war?

D. AB to EF

64. Assuming competitive markets with typical supply and demand curves, which of the following statements is correct?

D. An increase in demand with no change in supply will result in an increase in sales.

66. Which of the above diagrams illustrate(s) the effect of an increase in automobile worker wages on the market for automobiles?

D. D only.

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

D. Government.

34. The influential book written by Adam Smith was:

D. The Wealth of Nations.

19. Which situation would most likely cause a nation's production possibilities curve to shift inward?

D. The destruction from bombing and warfare in a losing military conflict

36. Which of the following does not explain why the command systems of the Soviet Union and Eastern Europe failed?

D. The failure to use money for most exchanges.

21. Which statement best describes a command economy?

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

32. Which is not one of the Four Fundamental Questions?

D. What goods and services should be produced by government?

42. In the past few years the demand for donuts has greatly increased. This increase in demand might best be explained by:

D. a change in buyer tastes.

58. Refer to the above diagram. A price of $60 in this market will result in:

D. a surplus of 100 units.

54. The location of the supply curve of a product depends on:

D. all of these (A. the technology used to produce it. B. the prices of resources used in its production. C. the number of sellers in the market.)

28. An economic system in which money is not used is a:

D. barter economy.

37. In product markets:

D. businesses sell goods and services to households.

29. Consider a barter situation where you have pens and you want pencils. To achieve your objective there must be a(n):

D. coincidence of wants.

56. Refer to the above table. In relation to column (3), a change from column (5) to column (4) would indicate a(n):

D. decrease in supply.

13. On a production possibilities curve, the optimal or best combination of output for any society:

D. depends upon the preferences of society.

71. A binding price floor means that:

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

68. Over time, the equilibrium price of a gigabyte of computer memory has fallen while the equilibrium quantity purchased has increased. Based on this we can conclude that:

D. increases in the supply of computer memory have exceeded increases in demand.

45. Tennis rackets and ballpoint pens are:

D. independent goods.

2. As a consequence of the condition of scarcity:

D. individuals and communities have to make choices from among alternatives.

74. If a legal price ceiling is set above the equilibrium price:

D. neither the equilibrium price nor the equilibrium quantity will be affected.

5. When an economist says that there is "too much of a good thing," the economist is suggesting that:

D. the marginal benefit of the thing is less than the marginal cost.

62. A product market is in equilibrium:

D. where the demand and supply curves intersect.