Microeconomics - Test 1

Refer to Figure 2-13. One segment of the circular flow diagram in the figure shows the flow of funds from economic agents E to market F. Who are economic agents E and what is market F? a. E = households; F = product markets b. E = firms; F = product markets c. E = households ; F = factor markets d. E = firms; F = factor markets

a. E = households; F = product markets

Orange juice drinkers want to consume more orange juice at a lower price. Which of the following events would have this effect? a. a decrease in the price of orange juice processing b. an increase in the cost of fertilizer used for orange groves c. a decrease in income, assuming orange juice is a normal good d. a decrease in the population

a. a decrease in the price of orange juice processing

Microeconomics is the study of a. how households and firms make choices. b. the economy as a whole. c. the global economy. d. topics such as unemployment, inflation, and economic growth.

a. how households and firms make choices.

________ marginal opportunity cost implies that the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts. a. Increasing b. Decreasing c. Constant d. Negative

a. increasing

Refer to Figure 2-9. Which country has a comparative advantage in the production of cotton? a. Indonesia b. They have equal productive abilities. c. Pakistan d. neither country

a. indonesia

Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for apples at the intersection of D1 and S1 (point A). If there is an increase in the wages of apple workers and an increase in the price of oranges, a substitute for apples, the equilibrium could move to which point? a. none of the points shown b. B c. C d. E

a. none of the points shown.

The basic economic problem of ________ has always existed and will continue to exist. a. scarcity b. efficiency c. inflation d. recession

a. scarcity

The principle of opportunity cost is that a. in a market economy, taking advantage of profitable opportunities involves some money cost. b. the economic cost of using a factor of production is the alternative use of that factor that is given up. c. taking advantage of investment opportunities involves costs. d. the cost of production varies depending on the opportunity for technological application.

b. the economic cost of using a factor of production is the alternative use of that factor that is given up.

All of the following are examples of spending on factors of production in the circular flow model except a. Bima hires two students to work at his ice-cream store. b. "Get Fit Together" purchases 3 new treadmills for its gym. c. Iris buys a dozen roses for her mother's birthday. d. The Banyan Tree rents a much larger property so that it can add a restaurant to its facilities.

c. Iris buys a dozen roses for her mother's birthday.

Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision? a. zero, since she will no longer be earning a salary b. It depends on the "going rate" for home-care providers. c. at least $125,000 d. the value she attributes to the satisfaction she receives from taking care of her parents

c. at least $125,000

Refer to Figure 2-9. Which country has a comparative advantage in the production of cashews? a. Indonesia b. They have equal productive abilities. c. Pakistan d. neither country

c. pakistan

Which of the following statements about positive economic analysis is false? a. Positive analysis uses an economic model to estimate the costs and benefits of different course of actions. b. There is much more disagreement among economists over normative economic analysis than over positive economic analysis. c. There is much more disagreement among economists over positive economic analysis than over normative economic analysis. d. Unlike normative economic analysis, positive economic analysis can be tested.

c. there is much more disagreement among economists over positive economic analysis than over normative economic analysis.

Marginal analysis involves undertaking an activity a. until its marginal costs start declining. b. only when its marginal benefits are positive. c. until its marginal benefits equal marginal costs. d. only if its marginal costs are greater than its marginal benefits.

c. until its marginal benefits equal marginal costs.

Which of the following is an example of spending on factors of production in the circular flow model? a. Carolina has her nails done before her 20th high school class reunion. b. Giorgio buys snow cones for his youth soccer team after each game. c. Stevie trades in his old cell phone for a newer model. d. Arlisha purchases a cotton candy machine for her concession stand at the state fair.

d. Arlisha purchases a cotton candy machine for her concession stand at the state fair.

Refer to Figure 3-1. A decrease in the price of a substitute good would be represented by a movement from a. A to B. b. B to A. c. D1 to D2. d. D2 to D1.

d. D2 to D1.

The production possibilities frontier model shows that a. if consumers decide to buy more of a product its price will increase. b. a market economy is more efficient in producing goods and services than is a centrally planned economy. c. economic growth can only be achieved by free market economies. d. if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

d. if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

Suppose that when the price of raspberries increases, Lonnie increases his purchases of papayas. To Lonnie, a. raspberries and papayas are complements. b. raspberries and papayas are inferior goods. c. raspberries and papayas are normal goods. d. raspberries and papayas are substitutes.

d. raspberries and papayas are substitutes.

If a firm expects that the price of its product will be higher in the future than it is today a. the firm will go out of business. b. the firm has an incentive to increase supply now and decrease supply in the future. c. the firm has an incentive to decrease quantity supplied now and increase quantity supplied in the future. d. the firm has an incentive to decrease supply now and increase supply in the future.

d. the firm has an incentive to decrease supply now and increase supply in the future.