Micro econ test 1 correct study guide

Land, labor, capital, and entrepreneurship are bought and sold in the product market.

false

Market price is the same thing as equilibrium price.

false

Mathematically, the law of demand refers to the positive relationship between price and quantity demanded

false

Normative and positive questions are basically involving the understanding of basic facts.

false

Output combinations that lie inside the production-possibilities frontier are characterized by efficient use of resources.

false

Technological advance shifts the production-possibilities frontier inward.

false

The choice to attend a free college lecture involves absolutely no opportunity cost.

false

Thinking at the margin is defined as maximizing a firm's or individual's well-being

false

When a factory pollutes the air we breathe in a market economy, this situation is known in economics as market failure.

false

When a seller sells a good, the supply curve shifts to the right.

false

Markets differ in: A) Geographic location B) Product offered C) Size D) Markets differ in all of these

D) Markets differ in all of these

The table above shows the demand of three individuals in a market. Assuming these are the only buyers, what is total market demand if price is $20? A) 5 units B) 1 unit C) 20 units D) The answer cannot be determined from the information given.

A) 5 units

A change in quantity supplied is the result of: A) A change in the price of the good. B) A change in technology. C) An increase in the number of sellers. D) All of the above.

A) A change in the price of the good

Which of the following performs the role of both capital and land? A) A manufacturing plant and the property on which it is located. B) The equipment used to produce goods. C) A mine that has been vacated because it is no longer profitable. D) All of the above.

A) A manufacturing plant and the property on which it is located.

To calculate market supply we: A) Add the quantities supplied for each individual supply schedule horizontally. B) Add the quantities supplied for each individual supply schedule vertically. C) Find the average quantity supplied at each price. D) Find the difference between the quantity supplied and the quantity demanded at each price.

A) Add the quantities supplied for each individual supply schedule horizontally.

The market mechanism: A) Allows buyers to communicate with producers indirectly. B) Is directed by the government in order to promote efficiency. C) Results in the misallocation of resources because producers seek to maximize profits. D) Allocates goods in an equitable manner.

A) Allows buyers to communicate with producers indirectly.

When government directives do not produce a better economic outcomes, which of the following has occurred? A) Government failure. B) Market failure. C) Macroeconomic failure. D) Scarcity.

A) Government failure.

Which of the following definitely means productivity has increased? A) More output from fewer workers. B) More output from more workers. C) Less output from fewer workers. D) Less output from more workers.

A) More output from fewer workers.

According to economists, investment includes: A) Output which is used to produce output. B) Purchases of stock. C) Purchases of bonds. D) The hiring of labor

A) Output which is used to produce output

A leftward shift of the market supply curve, ceteris paribus, causes equilibrium: A) Price to increase and quantity to decrease. B) Price to increase and quantity to increase. C) Price to decrease and quantity to decrease. D) Price to decrease and quantity to increase.

A) Price to increase and quantity to decrease.

_______ occur(s) when goods are produced at the lowest possible cost, and ______ occur(s) when individuals who desire a product the most receive those goods and service A) Production efficiency; allocative efficiency B) Production possibilities; allocative possibilities C) Allocative possibilities; production possibilities D) Allocative efficiency; production efficiency

A) Production efficiency; allocative efficiency

The term market mechanism refers to: A) The use of market prices and sales to determine resource allocation. B) The establishment of a ceiling price in a market. C) Supply and demand curves. D) Government laws and regulations concerning how the market should operate.

A) The use of market prices and sales to determine resource allocation.

The goals of market participants include the maximization of: A) Utility, profits, and the general welfare of society. B) Rent, wages, profit, and interest. C) Land, labor, capital, and entrepreneurship. D) Resource constraints, budget constraints, and legal constraints.

A) Utility, profits, and the general welfare of society.

In the graph above a shift to the right of the demand curve would be caused by anything, EXCEPT a(n): A) decrease in the population. B) increase in income given that shoes are a normal good. C) decrease in the price of a complement. D) increase in the price of a substitute.

A) decrease in the population.

An item whose demand rises as people's incomes fall is known as a(n) ________ good. A) inferior B) complementary C) superior D) substitute

A) inferior

Other things remaining the same, an increase in the price of Chevrolets will cause the demand for Ford to: A) shift to the right B) shift to the left C) remain unchanged D) move up and down along the same curve

A) shift to the right

An increase in technology: A) shifts the PPF curve outward B) shifts the PPF curve inward. C) creates unemployment. D) decreases inflation

A) shifts the PPF curve outward

The purpose of invoking ceteris paribus is to: A) simplify the analysis being done B) make the economic model more relevant C) allow the model to make more complexity into account. D) introduce risk into the model.

A) simplify the analysis being done

Which of the following is not a factor of production? A). A psychiatrist. B). The $100,000 used to start a new business. C). A bulldozer. D). Six thousand acres of farmland.

B). The $100,000 used to start a new business.

If you are willing to sell an old bicycle for $30, but someone offers you $40 for it, the result of the transaction would yield: A). $10 worth of producer surplus and unknown consumer surplus B) $30 worth of consumer surplus and $10 worth of producer surplus C) $30 worth of producer surplus and $10 worth consumer surplus D) $10 worth of consumer surplus and unknown producer surplus .

A). $10 worth of producer surplus and unknown consumer surplus

Suppose there are a series of forest fires which affect the lumber industry while, at the same time, consumers demand more wooden furniture. The wooden furniture market would experience: A). An increase in price and an indeterminate change in quantity. B). An increase in price and an increase in quantity. C). An increase in quantity and an indeterminate change in price. D). A decrease in price and an indeterminate change in quantity.

A). An increase in price and an indeterminate change in quantity.

Which of the following graphs shows an increase in quantity supplied?

B

Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is the consumer surplus? A) $4 B) $11 C) $15 D) $21

B) $11

If the government prevented prices from falling to their equilibrium levels, there would be: A) A shortage. B) A surplus. C) A price ceiling. D) An equilibrium price.

B) A surplus

If the government prevented prices from falling to their equilibrium levels, there would be: A) A shortage. B) A surplus. C) A price ceiling. D) An equilibrium price.

B) A surplus.

The purpose of an economic model is to: A) Be a complex, exact replica of reality B) Demonstrate which values and beliefs are best for the economy C) The effect of Wal-Mart's pricing policies on consumers D) The effect of the government policies on the country's unemployment rate.

B) Demonstrate which values and beliefs are best for the economy

When an economy is producing efficiently it is: A) Producing a combination of goods and services outside the production- possibilities curve. B) Getting the most goods and services from the available resources. C) Experiencing decreasing opportunity costs. D) All of the above.

B) Getting the most goods and services from the available resources.

Which of the following events would cause the production-possibilities frontier to shift outward? A) A labor strike. B) Increased efficiency in using resources. C) The full employment of resources. D) A decrease in available resources.

B) Increased efficiency in using resources.

Which of the following illustrates the law of demand? A) Lindsay offers to buy more sticks of chewing gum at $2 than at $1. B) Lindsay offers to buy more sticks of chewing gum at $1 than at $2. C) Marcus offers to sell more sticks of chewing gum at $2 than at $1. D) Marcus offers to sell more sticks of chewing gum at $1 than at $2.

B) Lindsay offers to buy more sticks of chewing gum at $1 than at $2.

A corporation is a firm owned by: A) A small number of individuals who are liable for the firm's debt and other obligations. B) Many people who own shares (stock) in a firm, but who are not liable for the firm's debt. C) One individual who is liable for the firm's obligations and debt. D) Any of the above can characterize a corporation.

B) Many people who own shares (stock) in a firm, but who are not liable for the firm's debt.

An institution that enables buyers and sellers to interact and transact with one another is known as a(n): A) Bank B) Economy C) Stock exchange D) Market

D) Market

A theory composed of a number of assumptions and facts boiled down to their basic relevant elements is called a: A) Metaphor B) Model C) Conclusion D) Practice

B) Model

A decrease in available resources would cause: A) An economy to move inside its production-possibilities frontier. B) The production-possibilities frontier to shift inward. C) Opportunity costs to increase. D) The unemployment of resources.

B) The production-possibilities frontier to shift inward

Given a downward-sloping market demand curve for product X, if the price of X is reduced from $10 to $8, then, ceteris paribus: A) Demand for X will increase. B) The quantity demanded of X will increase. C) Demand for X will decrease. D) The quantity demanded of X will decrease.

B) The quantity demanded of X will increase.

Economists make a distinction between changes in quantity supplied and changes in supply: A) Because the supply curve shifts whenever there is a change in quantity supplied. B) To distinguish a movement along a supply curve from a shift in the supply curve. C) Because the demand curve shifts whenever there is a change in quantity supplied. D) To distinguish a supply shift from a demand shift.

B) To distinguish a movement along a supply curve from a shift in the supply curve.

In this graph above, total surplus is shown by area: A) acdf. B) ace. C) bce. D) abe.

B) ace.

Land: A) is not a scarce recourse because it is everywhere B) earns rent C) earns interest D) is only used for agriculture.

B) earns rent

Suppose that the price of pork rises. We would expect that the supply of beef will: A) fall because pork is a resource used in beef production. B) fall because farmers will shift resources from beef production to pork production. C) rise because pork is a resource used in beef production. D) rise because farmers will shift resources from beef production to pork production.

B) fall because farmers will shift resources from beef production to pork production.

Joe fixes cars for a living in his driveway. He works late at night and makes so much noise that Moe, his neighbor across the street, cannot sleep. Joe: A) is imposing an external benefit on Moe. B) is imposing an external cost on Moe. C) is breaking the law of supply. D) would definitely make more money if he rented a garage

B) is imposing an external cost on Moe.

If a price ceiling is set above the equilibrium price: A) a surplus results in the market. B) no impact is felt in the market. C) a shortage occurs in the market. D) quantity supplied exceeds quantity demanded

B) no impact is felt in the market.

If you accept a job in Seattle as a financial analyst, you must give up the chance to accept a similar job in Australia. Giving up the job in Australia is your: A) allocative cost. B) opportunity cost. C) production cost. D) cost factor

B) opportunity cost

The fundamental problem of economics is: A). The law of increasing opportunity costs. B). The scarcity of resources relative to human wants. C). How to get government to operate efficiently. D). How to create employment for everyone.

B). The scarcity of resources relative to human wants.

Which of the following graphs concerning hamburgers indicates an increase in the quantity demanded of hamburgers?

C

The above table shows coffee and tea units produced for the United States and Japan. If Japan decides to increase production of tea from 20 units to 35 units, the opportunity cost is: A) 15 units of tea. B) 10 units of tea. C) 8 units of coffee. D) 10 units of coffee

C) 8 units of coffee.

Which of the following will cause the production-possibilities curve to shift inward? A) An increase in population. B) A technological advance. C) A decrease in the size of the labor force. D) An increase in knowledge

C) A decrease in the size of the labor force.

In a market, the equilibrium price is determined by: A) What buyers are willing and able to purchase. B) What sellers are willing and able to offer for sale. C) Both demand and supply. D) The government.

C) Both demand and supply.

Economics is a social science that involves the study of how individuals, firms, and societies: A) Maximize happiness B) Maximize income C) Choose among alternatives to satisfy their unlimited wants D) Develop their tastes and preferences

C) Choose among alternatives to satisfy their unlimited wants

Suppose in the market for iPhones, the following two changes take place: (1) the cost of making iPhones rises and (2) customers begin to prefer Android-platform smart phones over iPhones. What happens to equilibrium price and equilibrium quantity? A) Equilibrium price and equilibrium quantity fall. B) Equilibrium price falls but equilibrium quantity is indeterminate. C) Equilibrium price is indeterminate and equilibrium quantity falls. D) Equilibrium price rises but equilibrium quantity is indeterminate.

C) Equilibrium price is indeterminate and equilibrium quantity falls.

According to the law of increasing opportunity costs: A) Greater production leads to greater inefficiency. B) Greater production means factor prices rise. C) Greater production of one good requires increasingly larger sacrifices of other goods. D) Higher opportunity costs induce higher output per unit of input

C) Greater production of one good requires increasingly larger sacrifices of other goods.

According to the law of demand, the quantity of a good demanded in a given time period: A) Increases as its price rises, ceteris paribus. B) Decreases as its price falls, ceteris paribus. C) Increases as its price falls, ceteris paribus. D) Does not change when price changes.

C) Increases as its price falls, ceteris paribus.

A single proprietorship is a firm owned by: A) A small number of individuals who are liable for the firm's debt and obligations. B) Many people who own shares (stocks) of the firm, but who are not liable for the firm's debt. C) One individual who is liable for the firm's obligations and debt. D) Another firm or corporation

C) One individual who is liable for the firm's obligations and debt.

The Latin phrase ceteris paribus means: A) The production-possibilities frontier never shifts. B) Laissez faire. C) Other things remain equal. D) The invisible hand

C) Other things remain equal.

In a market economy, which of the following is an incentive for producers to produce efficiently? A) Government laws and regulations. B) The production-possibilities curve. C) Profits. D) The public's welfare

C) Profits.

A shift in demand is defined as a change in the: A) Price. B) Quantity demanded because of a change in price. C) Quantity demanded at any given price. D) Equilibrium quantity.

C) Quantity demanded at any given price.

When effective price ceilings are set for a market: A) Quantity demanded will be less than the equilibrium quantity, and price will be less than the equilibrium price. B) Quantity demanded will be less than the equilibrium quantity, and price will be greater than the equilibrium price. C) Quantity demanded will be greater than the equilibrium quantity, and price will be less than the equilibrium price. D) Quantity demanded will be greater than the equilibrium quantity, and price will be greater than the equilibrium price.

C) Quantity demanded will be greater than the equilibrium quantity, and price will be less than the equilibrium price.

An effective price ceiling results in black-market pressures to: A) Reduce prices because of surpluses. B) Raise prices because of surpluses. C) Raise prices because of shortages. D) Reduce prices because of shortages.

C) Raise prices because of shortages.

A change in the price of a good: A) Causes a shift in the supply curve. B) Results in a change in supply. C) Results in a change in quantity supplied. D) Is a determinant of supply.

C) Results in a change in quantity supplied.

Productivity: A) Rises when the value of output rises relative to the cost of inputs. B) Falls when the value of output rises relative to the cost of inputs. C) Rises when the ratio of output to input increases. D) Falls when factors of production cost more.

C) Rises when the ratio of output to input increases.

The result of government intervention in the market, is that: A) Society is always better off. B) The production possibilities frontier will always shift outward. C) Society may be worse off. D) Society will always be worse off.

C) Society may be worse off

In economics, what does scarcity mean? A) That when there is a shortage of a particular good, the price will fall. B) That a production-possibilities curve cannot accurately represent the tradeoff between two goods. C) That society's desires exceed the want-satisfying capability of the resources available to satisfy those desires. D) That the market mechanism has failed.

C) That society's desires exceed the want-satisfying capability of the resources available to satisfy those desires.

When economists talk about "optimal outcomes" in the marketplace, they mean that: A) The allocation of resources by the market is perfect. B) All the consumer desires are satisfied and business profits are maximized. C) The allocation of resources by the market is likely to be the best possible, given scarce resources and income constraints. D) Everyone who wants a good or service can have it.

C) The allocation of resources by the market is likely to be the best possible, given scarce resources and income constraints.

To answer the question of how the goods and services are to be produced, society must decide: A) what products to export. B) what products government wants C) how to combine its scarce resources to produce the desired products. D) what products businesses want to produce

C) how to combine its scarce resources to produce the desired products.

In the graph above, which of the following would change demand from D0 to D1? A) increase in consumer income if this is an inferior good B) change in consumer taste so that consumers want less of the good C) increase in the price of a substitute good D) increase in the price of a complement

C) increase in the price of a substitute good

Which of the following is the best example of land? A). The ethanol refined from corn. B). A factory that produces new goods and services. C). The river water used to float a riverboat casino. D). A barber's chair

C). The river water used to float a riverboat casino.

In the above graph, what is the formula for producer surplus? A)(h - i) × (k - i) B)(i - j) × (k - i) C)0.5 × (h - j) × (k - i) D)0.5 × (i - j) × (k - i)

D) 0.5 × (i - j) × (k - i)

If bagels and donuts are substitutes, then a decrease in the price of donuts will result in: A) An increase in the demand for donuts. B) An increase in the demand for bagels. C) A decrease in the demand for donuts. D) A decrease in the demand for bagels.

D) A decrease in the demand for bagels.

When the market mechanism is allowed to operate freely prices will determine: A) The mix of output to be produced. B) The resources to be used in the production process. C) To whom the output will be distributed. D) All of the above.

D) All of the above

A point on a nation's production-possibilities frontier indicates: A) An undesirable combination of goods and services. B) Combinations of production that are unattainable, given current technology and resources. C) Levels of production that will cause both unemployment and inflation. D) That resources are fully employed in producing a particular combination of goods and services.

D) That resources are fully employed in producing a particular combination of goods and services.

Opportunity cost is: A) Only measured in dollars and cents. B) The dollar cost to society of producing the goods. C) The difficulty associated with using one good in place of another. D) The alternative that must be given up in order to get something else.

D) The alternative that must be given up in order to get something else.

Ceteris paribus, which of the following can change without shifting demand? A) Expectations. B) Income. C) The prices of other related goods. D) The price of the good itself.

D) The price of the good itself.

A market is said to be in equilibrium when: A) Demand is fully satisfied at all alternative prices. B) The buying intentions of all consumers are realized. C) The supply intentions of all sellers are realized. D) The quantity demanded equals the quantity supplied.

D) The quantity demanded equals the quantity supplied.

The term opportunity costs refers to the: A) Value of all the options given up when a good or service is produced. B) Financial costs of all the factors of production used to produce a good or service. C) Amount of resources used to produce a good or service. D) Value of the best option given up when a good or service is produced.

D) Value of the best option given up when a good or service is produced

A shift in the demand curve is caused by a change in: A) the price of the item. B) the behavior of suppliers. C) costs of production. D) one of the determinants of demand

D) one of the determinants of demand

A study by the Organization for Economic Co-operation and Development (OECD) on factors driving economic growth finds per capita GDP is: A) unaffected by increases in average education levels. B) positively affected by increased tax burdens. C) negatively affected by higher levels of research and development D) positively affected by lower inflation rates.

D) positively affected by lower inflation rates.

Scott decided to sleep in rather than attend his 8:30 A.M. economics class. Economists would find this choice: A) rational, if Scott has not missed any other classes. B) irrational, because economic analysis suggests you should always attend the classes for which you have paid. C) irrational, because oversleeping is not in Scott's self-interest. D) rational, if Scott values sleep more highly than the benefit he would expect to receive from attending the class.

D) rational, if Scott values sleep more highly than the benefit he would expect to receive from attending the class.

Reasons to study economics include all of the following, EXCEPT that you: A) will always live in a world of scarcity and choices B) will understand more about how government and businesses interact C) may become a better informed voter D) will learn exactly how to invest your cash short-term for the highest return on investment

D) will learn exactly how to invest your cash short-term for the highest return on investment

All output combinations that lie outside a production-possibilities frontier are unattainable with available resources and technology.

True

Price signals direct the answers to the WHAT, HOW, and FOR WHOM questions in a laissez-faire economy

True

In Figure 3.5 above, at a price of $100: a) The quantity supplied is greater than the quantity demanded. b) There is a shortage of 40 units. c) With no interference in the market, there is upward pressure on price. d) The market is in equilibrium.

a) The quantity supplied is greater than the quantity demanded.

A decrease in the proportion of the population that is unemployed is best represented in Figure 1.4 (above) by a movement from point: a. C to point B. b. B to point C. c. C to point E. d. E to point F.

b. B to point C.

According to the law of supply, if the price of calculators decreased, the supply of calculators would decrease, ceteris paribus.

false

All of the choices on the production possibilities frontier are equally desirable.

false

Both the supply and demand curves depend on expectations but the supply curve depends on the expectations of the buyer and the demand curve depends on the expectations of the seller.

false

If the market price of Beanie Babies increases, then the supply curve of Beanie Babies will shift to the right.

false

In a market economy, prices are determined by the consumer; in a planned or command economy, prices are determined by the seller.

false

It is impossible to have a conflict between allocative efficiency and productive efficiency

false

A decrease in the level of resource utilization would bring about an inward shift of a PPF.

true

An increase in the price of one good can cause the demand for another good to decrease if the goods are complements.

true

Another term for market economy is capitalistic economy.

true

Education and training are an example of investment in human capital.

true

Goods are scarce because society's desire for them exceeds society's ability to produce them.

true

Government regulations, taxes, and subsidies affect the mix of output in the economy.

true

If a price ceiling is set above the market price, it is ineffective.

true

In the above graph, if the government sets a price of $25, there is a shortage of 600.

true

In the graph above, if the government sets a price of $5, this is an example of an effective price floor.

true

One reason that buyers purchase less of a product when its price rises is that they switch to substitute items.

true

Price signals direct the answers to the WHAT, HOW, and FOR WHOM questions in a laissez-faire economy

true

The demand schedule and demand curve remain unchanged only so long as the underlying determinants of demand remain constant.

true

The market price equals the equilibrium price if quantity demanded equals quantity supplied, at the market price.

true

There are never shortages or surpluses when the price in a market is equal to the equilibrium price for the market.

true

When a scarce good or resource is consumed by a person who does not value it most, economists refer to the situation as a misallocation of resources.

true

When imports are larger than exports, the value of net exports is negative.

true

When individual supply curves shift, ceteris paribus, the market supply curve shifts

true