Microeconomics Exam 1A Study Guide (Units 1-3)

A point or product-combination to the left of and inside a budget line: A. Is attainable, but a combination or point to the right of the line is unattainable B. Is unattainable, but a combination or point to the right of the line is attainable C. Costs more than a combination or point on the budget line D. Costs more than a combination or point outside the budget line

A

Advanced analysis) Answer the question on the basis of the following information. The demand for commodity X is represented by the equation P = 10 - 0.2Q and supply by the equation P = 2 + 0.2Q. Refer to the given information. If demand changed from P = 10 - .2Q to P = 7 - .3Q, the new equilibrium quantity is: A. 10. B. 20. C. 15. D. 30.

A

An increase in the quantity of hybrid cars supplied would be caused by which of the following? A. An increase in the demand for hybrid cars B. A decrease in the demand for hybrid cars C. Higher prices of car batteries D. Lower prices for gasoline

A

Assume that a consumer has a given budget or income of $12, and that she can buy only two goods, apples or bananas. The price of an apple is $1.50 and the price of a banana is $0.75. Refer to the information given above. If the consumer decides to buy 4 apples, how many bananas can she also buy with the remainder of her budget? A. 8 bananas B. 4 bananas C. 6 bananas D. 10 bananas

A

Assume that a consumer purchases only two products and there is a decrease in the consumer's income. The prices of the two products stay constant. The decrease in income will result in a: A. Shift of the budget line inward to the left B. Shift of the budget line outward to the right C. A decrease in the slope of the budget line D. An increase in the slope of the budget line

A

Because of increasing opportunity costs, the production possibility curve: A. Is bowed out from (or concave to) the origin B. Can be either downward- or upward-sloping C. At first rises, then falls eventually D. Is a straight downward-sloping line

A

Competition in a market system denotes a condition where: A. The diffusion of economic power limits its potential abuse B. Any given product can be purchased at a wide range of prices C. Contractual agreements among individual firms are restricted and avoided D. A few large sellers are constantly jostling for market share

A

Competition is more likely to exist when: A. There is easy entry into and exit out of industries B. A government-issued license is required to set up a firm in an industry C. The government purchases most goods and services D. Economic power is concentrated among a few large firms

A

Economic analysis assumes "purposeful behavior", which means that people will pursue decisions or actions: A. That will increase their well-being B. Always based on full or complete information C. With minimal consideration for their emotions D. Without any logical faults

A

If a linear relation is described by the equation was C = 35 - 5D, then the vertical intercept of the graph (where C is on the vertical axis) is: A. 35 B. -5 C. 30 D. Not known

A

In a competitive market illustrated by the diagram above, a price ceiling of $10 per unit will result in: A. A shortage of 200 units B. A surplus of 200 units C. A surplus of 250 units D. A shortage of 250 units

A

In a market system, employees and suppliers: A. are usually shielded from risk, but at the cost of not sharing in the profits of the firm. B. are usually shielded from risk and share in the profits of the firm. C. are generally subject to as much risk as firm owners but get to share in the profits. D. bear as much risk as firm owners but don't get to share in the profits.

A

In moving along a given budget line: A. the prices of both products and money income are assumed to be constant. B. each point on the line will be equally satisfactory to consumers. C. money income varies, but the prices of the two goods are constant. D. the prices of both products are assumed to vary, but money income is constant.

A

In the circular flow diagram, firms get their ability to pay for the costs of production from the: A. Revenues they receive for their products B. Resources they acquire in the resource markets C. Incomes they earn for their resources D. Goods and services they get in the product markets

A

Insurance companies facilitate the transfer of risk from: A. Those who have a low-risk tolerance to those with high risk-tolerance B. Those who have a high-risk tolerance to those with low risk-tolerance C. The insurance companies' owners to the insurance-policy holders D. Insurance policyholders to the bankers who lend money to the companies

A

Laissez-faire capitalism is characterized by: A. Very limited government role in the economy B. Active government intervention in the economy C. Individuals and firms abiding by a government economic plan D. A very fair distribution of income and wealth

A

Michigan: Has surplus of Autos and wants lettuce. Texas: Has surplus of Autos and wants apples. Washington: Has surplus of apples and wants autos. On the basis of the information and assuming trade occurs between the three states, we can expect: A. Washington to exchange apples with Texas and receive money in return. B. Washington to exchange apples with Michigan and receive money in return. C. Texas to exchange lettuce with Michigan and receive autos in return. D. Texas to trade lettuce directly for Washington apples

A

Refer to the above graph. A decrease in supply would best be reflected by a change from: A. Point 2 to point 1 B. Point 5 to point 1 C. Point 5 to point 2 D. Point 3 to point 6

A

Refer to the above graph. The selection of which point on the production possibilities curve is most like to result in the largest increase in economic growth over time? A. A B. B C. C D. D

A

Refer to the diagram. A government-set price ceiling is best illustrated by: A. price A. B. quantity E. C. price C. D. price B.

A

Refer to the diagram. Which of the following is a normative statement? A. Point C is superior to point B because it is important to enhance the future of society. B. If society is initially at point C, it must sacrifice 6 units of bread to obtain one more unit of tractors. C. If society produces 2 units of tractors and 12 units of bread, it is not using its available resources with maximum efficiency. D. Other things equal, the combination of outputs represented by point D will result in more rapid economic growth than will the combination represented by point C.

A

Refer to the production possibilities curve. At the onset of the Second World War, the Soviet Union was already at full employment. Its economic adjustment from peacetime to wartime can best be described by the movement from point: A. c to point b. B. b to point c. C. a to point b. D. c to point d.

A

The market system's answer to the fundamental question "What will be produced?" is essentially: A. "Goods and services that are profitable." B. "Low-cost goods and services." C. "Goods and services that can be produced using large amounts of capital." D. "Goods and services that possess lasting value."

A

Variables X and Y in the above table are: A. Positively related B. Negatively related C. Not directly related D. Independently related

A

What does "there is no such thing as a free lunch" mean in economics? A. That scarce resources are used up to provide "freebies" and giveaways B. That sometimes people may take friends out to lunch and pay for them C. That all items in the lunch menu have specific prices D. That products only have value because people are willing to pay for them

A

When economists say that people act rationally in their self-interest, they mean that individuals: A. look for and pursue opportunities to increase their utility. B. generally disregard the interests of others. C. are mainly creatures of habit. D. are usually impulsive and unpredictable.

A

When studying human behavior, economists assume rational self-interest. This means that: A. People make decisions based on some desired outcome B. People are quite selfish, and are not concerned about others C. People always make the right decisions D. People have all the information they need to make a decision

A

Which of the following is not a main function of the entrepreneur? A. To make routine pricing decisions. B. To innovate. C. To assume the risk of economic losses. D. To make strategic business decisions.

A

A market system tends to restrict business risk to owners and investors. This results in which of the following benefits? A. A more stable macroeconomy with fewer recessions. B. Firms are better able to attract inputs, as these inputs do not have to share the risk. C. Government agencies are better prepared to help when businesses fail. D. Consistently lower prices for consumers.

B

A society can consume a combination of goods outside its production possibilities if there is: A. Lower unemployment B. International specialization and trade C. A change in consumers' tastes D. A change in prices

B

According to economist Donald Boudreaux, the world's tens of billions of individual resources get arranged productively: A. because government has become highly effective at central planning. B. because private property encourages people to consider the alternative uses of their resources and select those that provide the most rewards. C. because people tend to be creative and orderly. D. through random trial and error.

B

By freedom of enterprise, we mean that individual: A. Workers are free to look for jobs and work in whichever firm will hire them B. Firms are free to employ resources, to produce their output, and to sell their products C. Producers are free to produce whatever the government decides are needed by the society D. Consumers are free to buy whatever products will satisfy their needs the most

B

Competition means that: A. sellers can manipulate market price by causing product scarcities. B. there are independently acting buyers and sellers in each market. C. a product can be purchased at a number of different prices. D. there is more than one seller in a market.

B

Consider an economy that is producing inside its production possibilities curve. This economy could move closer towards its production possibilities curve by: A. Distributing incomes more equally B. Employing more of its available resources C. Increasing the levels of wages and prices D. Acquiring additional resources

B

Cuba is a command economy that suffered a decline in economic growth because of a cut in the aid provided by the former Soviet Union when the latter collapsed. As a consequence, Cuba: A. Experienced an outward shift of its production possibilities curve B. Experienced an inward shift of its production possibilities curve C. Moved from one point to another along its existing production possibilities curve D. Went to a point inside its production possibilities curve

B

In a market system: A. firm owners and employees share business risk more or less equally. B. a firm's employees and suppliers are largely shielded from risk. C. employees and suppliers face the greatest risks because firms can shut down without notice and leave them unpaid. D. a firm's owners are largely shielded from risk because they can walk away from the business at any time.

B

Refer to the above graph. Which of the following movements would indicate a reduction in unemployment? A. From point C to point D B. From point F to point H C. From point E to point D D. From point D to point G

B

Suppose there are two economies, Alpha and Beta, which have the same production possibilities curves. If Beta devotes more resources to produce capital goods than consumer goods as compared to Alpha, then in the future: A. Alpha will experience greater economic growth than Beta B. Beta will experience greater economic growth than Alpha C. Alpha will not be able to achieve full employment or productive efficiency D. Beta will not be able to achieve full employment or productive efficiency

B

The equilibrium price and quantity in a market usually produce allocative efficiency because: A. all consumers who want the good are satisfied. B. marginal benefit and marginal cost are equal at that point. C. equilibrium ensures an equitable distribution of output. D. the excess of goods produced at equilibrium guarantees that all will have enough.

B

The idea that the desires of resource suppliers and firms to further their own self-interest will automatically further the public interest is known as: A. Consumer sovereignty B. The invisible hand C. Derived demand D. Creative destruction

B

Which of the following would be primarily determined in the resource markets? A. The airfares charged by airlines for family vacations B. The wage rates for computer programmers and engineers C. The number of home-internet connections installed D. The amount of money in circulation issued by the government

B

A shift to the right in the demand curve for product A can be most reasonably explained by saying that: A. consumer incomes have declined, and consumers now want to buy less of A at each possible price. B. the price of A has increased and, as a result, consumers want to purchase less of it. C. consumer preferences have changed in favor of A so that they now want to buy more at each possible price. D. the price of A has declined and, as a result, consumers want to purchase more of it.

C

An effective price ceiling will: A. induce new firms to enter the industry. B. result in a product surplus. C. result in a product shortage. D. clear the market.

C

An increase in the demand for a product and a reduction in its costs of production would: A. Decrease the profits of producers B. Encourage firms to leave an industry C. Encourage firms to enter an industry D. Cause a shortage of the product

C

Duckistan Production Possibilities Civilian Goods: 20 18 14 8 0 Military Goods: 0 1 2 3 4 Herbania Production Possibilties Civilian Goods: 40 36 26 14 0 Military Goods: 0 1 2 3 4 Refer to the tables. Opportunity costs are: A. constant in both Duckistan and Herbania. B. larger in Duckistan than in Herbania. C. increasing in both Duckistan and Herbania. D. increasing in Duckistan and constant in Herbania.

C

If we say that a price is too high to clear the market, we mean that: A. quantity demanded exceeds quantity supplied. B. the equilibrium price is above the current price. C. quantity supplied exceeds quantity demanded. D. the price of the good is likely to rise.

C

In a graph with "crop yield" on the vertical axis and "rainfall" on the horizontal axis, the vertical intercept refers to the: A. Steepness or flatness of the graph B. Amount of rainfall when "crop yield" is zero C. Amount of crop yield when "rainfall" is zero D. Total crop yield during a given period of time

C

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

Lines shifts from right to left The shift of the budget line from cd to ab in the figure is consistent with: A. decreases in the prices of both M and N. B. an increase in the price of M and a decrease in the price of N. C. a decrease in money income. D. an increase in money income.

C

Michigan: Has surplus of Autos and wants lettuce. Texas: Has surplus of Autos and wants apples. Washington: Has surplus of apples and wants autos. Given the information and assuming trade occurs between the three states, we can expect: A. that there is no means by which Michigan can obtain lettuce while specializing in the production of autos. B. that money will not be needed to accomplish the desired exchanges. C. money to flow counterclockwise from Michigan to Texas to Washington. D. money to flow clockwise from Michigan to Washington to Texas.

C

One basic problem faced by central planners, but hardly present in a market system, has to do with: A. Determining the production goals or targets in a factory B. Having limited resources and trying to match them with unlimited wants C. Coordinating production in various industries so that bottlenecks do not develop D. Providing financial resources for increasing the real flows of products in the economy

C

Refer to the above graph. All of the following development would allow a movement from point C to a point outside the production possibilities curve, except: A. An increase in the supply of resource B. An improvement in the quality of resources C. A reduction in unemployment of resources D. A technological advance

C

Refer to the above table. If the government introduced a guaranteed price floor of $40 and agreed to purchase surplus output, then the government's total support payments to producers would be: A. $3,000 per week B. $3,500 per week C. $4,000 per week D. $2,500 per week

C

Refer to the production possibilities curve. At the onset of the Second World War, the United States had large amounts of idle human and property resources. Its economic adjustment from peacetime to wartime can best be described by the movement from point: A. c to point b. B. b to point c. C. a to point b. D. c to point d.

C

The development of the digital video and camera which replaced film cameras is an example of: A. Roundabout production B. Derived demand C. Creative destruction D. Specialization

C

The economic perspective focuses largely on marginal analysis, which means analyzing: A. Peripheral elements of a given issue or action B. The minor aspects of a given issue or decision C. The changes in the situation that would result from a given action D. Emotional and psychological facets of a given action

C

The idea in economics that "there is no free lunch" means that: A. Businesses would go bankrupt if they offered free lunches B. The thought of a free lunch is often better than the reality of consuming it C. There are opportunity costs involved even in free lunches D. Free lunches used by businesses to attract customers is an inefficient marketing ploy

C

The market system automatically corrects a surplus condition in a competitive market by: A. Raising the price of the commodity in question while increasing the quantity demanded B. Raising the price of the commodity in question while decreasing the quantity demanded C. Reducing the price of the commodity in question while increasing the quantity demanded D. Reducing the price of the commodity in question while decreasing the quantity demanded

C

The process of producing and accumulating capital goods is called: A. money capital. B. depreciation. C. investment. D. consumption.

C

The slope of a graph with "income" on the horizontal axis and "saving" on the horizontal axis is +0.2. This means that if: (BOTH SAY HORIZONTAL) A. Income is $100, then saving is $20 B. Income is 0.20, then saving is zero C. Income increases by $100, then saving will rise by $20 D. Saving rises by $100, then income will rise by $20

C

The term "laissez-faire" suggests that: A. land and other natural resources should be privately owned, but capital should be publicly owned. B. land and other natural resources should be publicly owned, but capital should be privately owned. C. government should not interfere with the operation of the economy. D. government action is absolutely necessary if the economy is to achieve full employment and full production.

C

Variables X and Z in the above table are: A. Positively related B. Negatively related C. Independent D. Nonlinearly related

C

What is the best economic explanation for why a person would drop out of college to take a job or start a business? A. he has a good idea for starting a business B. he has to pay a higher tuition to attend college C. the expected future benefits from starting a business now are greater than the costs D. the opportunity cost of starting a business is high now, but will be low later in life

C

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the: A. cost effect. B. inflationary effect. C. income effect. D. substitution effect.

C

Which diagram above illustrates the effect on the natural-gas market, with the widespread use of "fracking" or hydraulic fracturing by gas-drilling companies? A. A B. B C. C D. D

C

Which of the following is the main problem with the barter system of exchange? A. It encourages self-interest B. It fosters the division of labor C. It requires a coincidence of wants D. It undermines the right to bequeath

C

A headline reads "Perfect Weather Brings Record-High Coffee Harvest." This situation would lead to a(n): A. Increase in the price and in the quantity purchased of coffee B. Decrease in the price and in the quantity purchased of coffee C. Increase in the price and a decrease in the quantity purchased of coffee D. Decrease in the price and an increase in quantity purchased of coffee

D

A production system where various workers concentrate on different specialized tasks to contribute towards a whole product is referred to as: A. A coincidence of wants B. Roundabout production C. Freedom of enterprise D. Division of labor

D

An economic system in which money is not used is a: A. Planned economy B. Market economy C. Mixed economy D. Barter economy

D

At the point where the demand and supply curves for a product intersect: A. the selling price and the buying price need not be equal. B. the market may, or may not, be in equilibrium. C. either a shortage or a surplus of the product might exist, depending on the degree of competition. D. the quantity that consumers want to purchase and the amount producers choose to sell are the same.

D

Economic growth is a result of: A. A reduction in the unemployment rate B. An increase in the opportunity costs of production C. A decrease in the demand for resources D. An increase in the supply of resources

D

Economic resources are also called: A. free gifts of nature. B. consumption goods. C. units of money capital. D. factors of production.

D

If a nation restricts trade with other nations, then the most likely effect is: A. Lower prices of goods and services in the nation B. Increased specialization of production C. Expanded economic wealth of the nation D. Make consumers in the nation worse off

D

If the demand curve for product B shifts to the right as the price of product A declines, then: A. both A and B are inferior goods. B. A is a superior good and B is an inferior good. C. A is an inferior good and B is a superior good. D. A and B are complementary goods.

D

In a market system, self-interest is the motivating force that: A. Makes individuals unwilling to deliver anything of value to others B. Makes owners of resources always want to use their resources themselves C. Leads the economy to chaos and confusion, especially the larger economies D. Coordinates and creates consistency in the operations of various parts of the economy

D

Price floors and ceiling prices: A. both cause shortages. B. both cause surpluses. C. cause the supply and demand curves to shift until equilibrium is established. D. interfere with the rationing function of prices.

D

Refer to the above graph. Which point in the graph would allow a simultaneous increase in the production of both investment and consumer goods? A. A B. B C. C D. D

D

Refer to the above table. If supply decreased by 2 units at each price, what would the new equilibrium price and quantity be? A. $3 and 5 units B. $4 and 4 units C. $5 and 5 units D. $6 and 6 units

D

Refer to the above table. In moving from combination E to F, the opportunity cost of an additional unit of steel is: A. 5 units of steel B. 0 unit of wheat C. 1 unit of steel D. 30 units of wheat

D

Refer to the figure above, which shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S1 to S2? A. An increase in the price of fertilizer B. A change in consumer tastes away from cornbread C. A decrease in consumer incomes, assuming corn is a normal good D. The development of a more effective insecticide against corn rootworm

D

Specialization—the division of labor—enhances productivity and efficiency by: A. allowing workers to take advantage of existing differences in their abilities and skills. B. avoiding the time loss involved in shifting from one production task to another. C. allowing workers to develop skills by working on one, or a limited number, of tasks. D. all of the means identified in the other answers.

D

The alternative combinations of two goods that a consumer can purchase with a specific money income is shown by: A. a production possibilities curve. B. a demand curve. C. a consumer expenditure line. D. a budget line.

D

The distribution of income in a market system is a primary factor that resolves which of the following fundamental economic questions? A. What will be produced? B. How will the output to be produced? C. How will the system accommodate change? D. Who will get the output?

D

The market system's answer to the fundamental The market system's answer to the fundamental question "How will the system promote progress?" is essentially: A. "Through government-funded research programs." B. "Through redistribution of income to promote greater equality." C. "Through training and retraining programs." D. "Through the profit potential that encourages development of new technology."

D

The use of money contributes to economic efficiency because: A. governmental direction of the production and distribution of output can be avoided by using money. B. roundabout production could not occur without the availability of money. C. it is necessary for the creation of capital goods. D. it promotes specialization by overcoming the problems with barter.

D

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes: A. an inferior good. B. the rationing function of prices. C. the substitution effect. D. the income effect.

D

Which of the following lists includes only capital resources (and therefore no labor or land resources)? A. An ice arena; a professional hockey player; hockey uniforms. B. The owner of a new startup firm; a chemistry lab; a researcher. C. A hydroelectric dam; water behind the dam; power lines. D. Autos owned by a car rental firm; computers at the car rental agency; the vans that shuttle rental customers to and from the airport.

D

Which statement is true about supply? A. There is an inverse relationship between price and quantity supplied B. Supply refers to the amount of inventory that sellers have in their warehouses C. As price decreases, producers are willing to put more of the good on the market for sale D. To entice producers to offer more of a good on the market for sale, price must rise

D