Principles of Microeconomics Exam 1

C

Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact discs if musicians accept lower royalties, compact disc players become cheaper, more firms start producing music compact discs, and music lovers experience an increase in income? a. Price will rise, and the effect on quantity is ambiguous. b. Quantity will fall, and the effect on price is ambiguous. c. Quantity will rise, and the effect on price is ambiguous. d. Price will fall, and the effect on quantity is ambiguous.

A

New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages, and automobile insurance becomes more expensive? a. Price will rise. b. Price will stay exactly the same. c. Price will fall. d. The price change will be ambiguous.

A

"Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises." This relationship between price and quantity demanded is referred to as a. the law of demand. b. the relationship between supply and demand. c. equilibrium. d. the definition of an inferior good.

A

A decrease in demand is represented by a a. leftward shift of a demand curve. b. movement downward and to the right along a demand curve. c. rightward shift of a demand curve. d. movement upward and to the left along a demand curve.

D

A demand curve shows the relationship between price and a. income and quantity demanded. b. income. c. production. d. quantity demanded.

A

A demand schedule is a table that shows the relationship between a. price and quantity demanded. b. income and quantity demanded. c. price and income. d. quantity demanded and quantity supplied.

A

A likely example of substitute goods for most people would be a. apple juice and orange juice. b. tables and chairs. c. coffee and sugar. d. bicycles and helmets.

B

An improvement in production technology will a. decrease a firm's costs and decrease its supply. b. decrease a firm's costs and increase its supply. c. increase a firm's costs and decrease its supply. d. increase a firm's costs and increase its supply

A

An increase in the price of a good will a. increase quantity supplied. b. decrease supply. c. decrease quantity supplied. d. increase supply.

C

Another term for factors of production is a. services. b. goods. c. inputs. d. output.

B

At the equilibrium price, the quantity of the good that buyers are willing and able to buy a. is greater than the quantity that sellers are willing and able to sell. b. exactly equals the quantity that sellers are willing and able to sell. c. is less than the quantity that sellers are willing and able to sell. d. Either a) or c) could be correct

D

By definition, imports are a. goods in which a country has an absolute advantage. b. limits placed on the quantity of goods leaving a country. c. people who work in foreign countries. d. goods produced abroad and sold domestically.

C

Cole is refinishing an antique china cabinet and has already spent $180 on the restoration. He expects to be able to sell the cabinet for $360. Cole discovers that he needs to do an additional $200 worth of work to make the cabinet worth $360 to potential buyers. He could also sell the cabinet now, without completing the additional work, for $100. What should Cole do? a. It does not matter which action he takes since the outcome will be the same either way. b. He should keep the cabinet since it wouldn't be rational to spend $380 restoring a cabinet and then sell it for only $360. c. He should complete the additional work and sell the cabinet for $360. d. He should sell the cabinet now for $100.

B

Equilibrium price must decrease when demand a. increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously. b. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously. c. decreases and supply does not change, when demand does not change and supply increases, and when demand increases and supply decreases simultaneously. d. increases and supply does not change, when demand does not change and supply decreases, and when demand decreases and supply increases simultaneously.

A

Equilibrium price must increase when demand a. increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously. b. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously. c. increases and supply does not change, when demand does not change and supply decreases, and when demand decreases and supply increases simultaneously. d. decreases and supply does not change, when demand does not change and supply increases, and when demand increases and supply decreases simultaneously

B

Exceptionally favorable growing conditions in the vineyards of Napa Valley would cause a(n) a. decrease in the demand for wine, decreasing price. b. increase in the supply of wine, decreasing price. c. decrease in the supply of wine, increasing price. d. increase in the demand for wine, increasing price

C

For a market for a good or service to exist, there must be a a. specific time and place at which the good or service is traded. b. high degree of organization present. c. group of buyers and sellers. d. All of the above are correct.

D

For which of the following individuals would the opportunity cost of going to college be highest? a. a student with average grades who has never held a job b. a student who is the best player on his college basketball team, but who lacks the skills necessary to play professional basketball c. a promising young mathematician who will command a high salary once she earns her college degree d. a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree

C

If Miguel expects to earn a higher income next month, he may choose to a. decrease his current demand for goods and services. b. save more now and spend less of his current income on goods and services. c. save less now and spend more of his current income on goods and services. d. move along his current demand curves for goods and services.

B

If a decrease in income increases the demand for a good, then the good is a(n) a. substitute good. b. inferior good. c. complementary good. d. normal good.

A

If a good is inferior, then an increase in income will result in a(n) a. decrease in the demand for the good. b. increase in the demand for the good. c. movement down and to the right along the demand curve for the good. d. movement up and to the left along the demand curve for the good.

A

If consumers often purchase muffins to eat while they drink their lattés at local coffee shops, what would happen to the equilibrium price and quantity of lattés if the price of muffins falls? a. Both the equilibrium price and quantity would increase. b. The equilibrium price would decrease, and the equilibrium quantity would increase. c. The equilibrium price would increase, and the equilibrium quantity would decrease. d. Both the equilibrium price and quantity would decrease.

B

If the number of buyers in a market decreases, then a. supply will decrease. b. demand will decrease. c. supply will increase. d. demand will increase.

C

In a market economy, who makes the decisions that guide most economic activity? a. government b. firms only c. firms and households d. households only

D

In competitive markets, buyers a. are price setters, but sellers are price takers. b. and sellers are price setters. c. are price takers, but sellers are price setters. d. and sellers are price takers.

D

In the circular-flow diagram, in the markets for a. the factors of production, households and firms are both buyers. b. the factors of production, households are buyers and firms are sellers. c. goods and services, households and firms are both sellers. d. goods and services, households are buyers and firms are sellers

B

It costs a company $35,000 to produce 500 graphing calculators. The company's cost will be $35,080 if it produces an additional graphing calculator. If the company produces 501 graphing calculators then a. its average cost and its marginal cost are equal. b. This cannot be determined from the information given. c. its average cost is less than its marginal cost. d. its average cost is greater than its marginal cost.

C

Kari downloads 7 songs per month when the price is $1.29 per song and 10 songs per month when the price is $0.99 per song. Kari's behavior demonstrates the law of a. price. b. income. c. demand. d. supply.

C

Olivia was accepted by Northwestern and by another university. She is trying to decide where to go. Which of the following should influence her decision? a. how much she spent applying to Northwestern, but not the difference between living expenses at Northwestern and the other university b. how much she spent applying to Northwestern, and the difference between living expenses at Northwestern and the other university c. the difference between living expenses at Northwestern and her second choice, but not how much she spent applying to Northwestern d. neither how much she spent applying to Northwestern nor the difference between living expenses at Northwestern and her second choice

D

Positive statements are a. claims about how the world should be. b. prescriptive. c. made by economists speaking as policy advisers. d. claims about how the world is

B

Something that induces a person to act is called a. a policy. b. an incentive. c. a trade-off. d. an opportunity cost.

D

Suppose an increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events, the demand for tires a. is unaffected, and the supply of tires increases. b. is unaffected, and the supply of tires decreases. c. decreases, and the supply of tires increases. d. None of the above is necessarily correct

A

Suppose the U.S. and Japan both produce airplanes and televisions and the U.S. has a comparative advantage in the production of airplanes while Japan has a comparative advantage in the production of televisions. If the U.S. exports airplanes to Japan and imports televisions from Japan, a. both countries, as a whole, will be better off. b. all individuals in both countries will be better off. c. both countries, as a whole, will be worse off. d. all individuals in both countries will be worse off

B

Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market? a. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. b. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. c. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. d. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.

B

Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided to take the job. For him, the marginal a. cost of leaving was greater than the marginal benefit. b. benefit of leaving was greater than the marginal cost. c. benefit of teaching was greater than the marginal cost. d. All of the above are correct.

A

The basic principles of economics suggest that a. government should become involved in markets when those markets fail to produce efficient or fair outcomes. b. markets are seldom, if ever, a good way to organize economic activity. c. government should become involved in markets when trade between countries is involved. d. All of the above are correct.

A

The circular-flow diagram is a a. visual model of the economy. b. mathematical model of how the economy works. c. visual model of the relationships among money, prices, and businesses. d. model that shows the effects of government on the economy.

C

The government has just passed a law requiring that all residents earn the same annual income regardless of work effort. This law is likely to a. increase efficiency and increase equality. b. increase efficiency but decrease equality. c. decrease efficiency but increase equality. d. decrease efficiency and decrease equality

B

The marginal benefit Susie gets from purchasing a third pair of gloves is a. more than the marginal cost of purchasing the third pair of gloves. b. the total benefit she gets from purchasing three pairs of gloves minus the total benefit she gets from purchasing two pairs of gloves. c. the same as the total benefit she gets from purchasing three pairs of gloves. d. the total benefit she gets from purchasing four pairs of gloves minus the total benefit she gets from purchasing three pairs of gloves.

B

The most obvious benefit of specialization and trade is that they allow us to a. spend more money on goods that are beneficial to society, and less money on goods that are harmful to society. b. consume more goods than we otherwise would be able to consume. c. work more hours per week than we otherwise would be able to work. d. consume more goods by forcing people in other countries to consume fewer good

C

The opportunity cost of an item is a. the dollar value of the item. b. the number of hours needed to earn money to buy the item. c. what you give up to get that item. d. usually less than the dollar value of the item

B

The opportunity cost of going to college is a. the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses. b. the value of the best opportunity a student gives up to attend college. c. zero, since a college education will allow a student to earn a larger income after graduation. d. zero for students who are fortunate enough to have all of their college expenses paid by someone else.

D

The supply curve for a good is a line that relates a. profit and quantity supplied. b. quantity supplied and quantity demanded. c. price and profit. d. price and quantity supplied

D

The term price takers refers to buyers and sellers in a. markets in which buyers cannot buy all they want and/or sellers cannot sell all they want. b. monopolistic markets. c. markets that are regulated by the government. d. perfectly competitive markets.

C

The unique point at which the supply and demand curves intersect is called a. coincidence. b. equivalence. c. equilibrium. d. market harmony

DC

Tom Brady should probably not mow his own lawn because a. he has a comparative advantage in mowing his lawn relative to a landscaping service. b. he might sprain his ankle. c. he has an absolute advantage in mowing his lawn relative to a landscaping service. d. his opportunity cost of mowing his lawn is higher than the cost of paying someone to mow it for him.

A

Tom produces baseball gloves and baseball bats. Steve also produces baseball gloves and baseball bats, but Tom is better at producing both goods. In this case, trade could a. benefit both Steve and Tom. b. benefit Tom, but not Steve. c. benefit neither Steve nor Tom. d. benefit Steve, but not Tom.

A

Trade makes costs a. lower and raises the variety of goods and services available. b. lower but reduces the variety of goods and services available. c. higher but raises the variety of goods and services available. d. higher and reduces the variety of goods and services available.

C

Two individuals engage in the same two productive activities. In which of the following circumstances would neither individual have a comparative advantage in either activity? a. One individual's production possibilities frontier is steeper than the other individual's production possibilities frontier. b. One individual is faster at both activities than the other individual. c. One individual's opportunity costs are the same as the other individual's opportunity costs. d. None of the above is correct; one of the two individuals always will have a comparative advantage in at least one of the two activities.

B

What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that reduced the amount of labor necessary to produce steamed milk, which is used to make lattés, and scientists discovered that lattés cause heart attacks? a. Both the equilibrium price and quantity would decrease. b. The equilibrium price would decrease, and the effect on equilibrium quantity would be ambiguous. c. Both the equilibrium price and quantity would increase. d. The equilibrium quantity would decrease, and the effect on equilibrium price would be ambiguous.

D

When an economist points out that you and millions of other people are interdependent, he or she is referring to the fact that we all a. have similar tastes and abilities. b. rely upon the government to provide us with the basic necessities of life. c. are concerned about one another's well-being. d. rely upon one another for the goods and services we consume.

C

When drawing a demand curve, a. price is measured along the vertical axis, and demand is measured along the horizontal axis. b. demand is measured along the vertical axis, and price is measured along the horizontal axis. c. price is measured along the vertical axis, and quantity demanded is measured along the horizontal axis. d. quantity demanded is measured along the vertical axis, and price is measured along the horizontal axis.

C

When economists are trying to explain the world, they are a. in the realm of microeconomics rather than macroeconomics. b. policy advisers. c. scientists. d. in the realm of normative economics rather than positive economics.

B

Which markets are represented in the simple circular-flow diagram? a. markets for goods and services and markets for financial assets b. markets for goods and services and markets for factors of production c. markets for factors of production and markets for financial assets d. markets for goods and services and markets for imports and exports

D

Which of the following is not an expression for the sum of all the individual demand curves for a product? a. aggregate demand b. total demand c. market demand d. equilibrium demand

B

Which of the following might cause the supply curve for an inferior good to shift to the right? a. an increase in input prices b. an improvement in production technology that makes production of the good more profitable c. a decrease in the number of sellers in the market d. a decrease in consumer income

A

Which of the following would cause price to increase? a. a shortage of the good b. a decrease in demand c. an increase in supply d. a surplus of the good

B

Which of these statements best represents the law of supply? a. When input prices increase, sellers produce less of the good. b. When the price of a good decreases, sellers produce less of the good. c. When sellers' supplies of a good increase, the price of the good increases. d. When production technology improves, sellers produce less of the good.

A

Which ofthe following is a determinant of the market supply curve but not a determinant of an individual seller's supply? a. the number of sellers b. expectations c. input prices d. production technology

D

Which ofthe following is not correct? a. The producer who requires a smaller quantity of inputs to produce a good issaid to have an absolute advantage in producing that good. b. The producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good X. c. The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good. d. The gains from specialization and trade are based not on comparative advantage but on absolute advantage.

D

Which ofthe following statements about market economies is correct? a. Market economies are characterized by decentralized decision making and self-interested decision makers. b. In a market economy, no one is looking out for the economic well-being of society as a whole. c. Market economies have proven remarkably successful in promoting overall economic well-being. d. All of the above are correct.

C

You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3 off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost? a. the amount you value the first movie + $9 b. $3 c. the amount you value the first movie + $3 d. $9

D

You have driven 800 miles on a vacation and then you notice that you are only 15 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include a. both the cost of driving the first 800 miles and the next 15 miles. b. neither the cost of driving the first 800 miles nor the cost of driving the next 15 miles. c. the cost of driving the first 800 miles, but not the cost of driving the next 15 miles. d. the cost of driving the next 15 miles, but not the cost of driving the first 800 miles.