Chapter 1-5 Practice Quiz : Economics
If U.S can produce the cars at lower cost than bikes.U.S has
Comparative advantage
Why is there scarcity?
Because our unlimited wants exceed our limited resources
Refer to Figure 2-1. An economy is operating at full employment, and then workers in the bread industry are laid off. This change is portrayed in the movement from:
C to F
Refer to Figure 2-2. At Point A in the production possibilities graph shown above, the economy:
is not using its resources efficiently.
Water is considered a scarce good rather than a free good because:
it has alternative uses.
Although water is very abundant in most places, it is scarce because:
it has two or more alternative uses
Scarcity implies that:
it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available.
Human effort that can be applied in the production process is called:
labor
Economists refer to the relationship that a higher price leads to a lower quantity demanded as the _____________.
law of demand
Economists refer to this pattern, the ___________________________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.
law of diminishing marginal utility
Increasing the level of education in the United States will:
lead to workers possessing greater human capital.
If a firm faces ________________________, while the prices for the output the firm produces remain unchanged, a firm's profits will increase.
lower costs of production
A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume:
macaroni is an inferior good and price elasticity of supply is infinite.
Unemployment and inflation are:
major topics of macroeconomics.
Most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.
marginal analysis
Most real-world choices aren't about getting all of one thing or another, instead, most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.
marginal analysis
As a person receives more of a good, the _______________ from each additional unit of the good declines.
marginal utility
The marginal benefit of a slice of pizza is the:
maximum amount that a consumer is willing to pay for the slice.
The branch of economics that examines the choices of consumers and firms is:
microeconomics.
A simplified representation of a particular problem is a:
model.
A decrease in the price of a good will, all other things unchanged, will not result in:
more being supplied.
The demand curve for a typical good has a(n):
negative slope because some consumers switch to other goods as the price rises
Most economists' disagreements are a result of:
normative considerations
The statement that the minimum wage needs to be increased is a:
normative statement.
Statements that make value judgments are:
normative.
Scarcity in economics means:
not having sufficient resources to produce all the goods and services we want.
An example of a natural resource is:
oil in the ground
Attending college is a case where the ________________ exceeds the monetary cost.
opportunity cost
In many cases, it is reasonable to refer to the ________________ as the price.
opportunity cost
Economics is different from other social sciences because it gives special emphasis to the study of ______; it is similar to other social sciences because they are all concerned with the study of _______.
opportunity costs; choices
All possible combinations of consumption that someone can afford given the prices of goods and the individual's income
opportunity set
The elasticity of supply is defined as the ________ change in quantity supplied divided by the _______ change in price.
percentage; percentage
Philosophers draw a distinction between ___________________, which describe the world as it is, and normative statements, which describe how the world should be.
positive statements
Statements that are a hypothesis or statement of fact are:
positive.
The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in __________.
price
A minimum price set above the equilibrium price is a:
price floor.
A price that the government guarantees farmers will receive for a particular crop is a(n):
price support.
The downward slope of the demand curve again illustrates the pattern that as _____________ rises, _________________ decreases.
price, quantity demanded
The theory underlying demand and supply curves assumes that, all other things unchanged, the primary variable that assures the equality of the quantities demanded and supplied is:
price.
An economy is said to have a comparative advantage in the production of a good if it can:
produce the good at a lower opportunity cost than another economy.
A supply curve is a graphical illustration of the relationship between price, shown on the vertical axis, and ____________, shown on the horizontal axis.
quantity
A demand curve shows the relationship between price and _________________ on a graph.
quantity demanded
_________________ refers to the total number of units that are purchased at that price.
quantity demanded
When economists talk about supply, they are referring to a relationship between price received for each unit sold and the _________________.
quantity supplied
The concept of comparative advantage is based upon:
relative opportunity costs.
The price elasticity of demand measures the:
responsiveness of quantity demanded to a change in price.
Which of the following will not lead to economic growth?
restrictions on international trade
All other things unchanged, a tax on a product that leads to an increase in the cost of production would:
result in an increased price.
If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to:
rise and the equilibrium quantity to stay the same.
According to the textbook, economics is a:
social science
If the supply curve for aspirin is perfectly elastic, then a reduction in demand will cause the equilibrium price to:
stay the same and the equilibrium quantity to fall
When Cleveland raises the prices at his deli shop, he finds that he loses customers to competing deli shops. This is the:
substitution effect
Once you spent money on buying tickets for famous amusement park it is :
sunk cost
The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options.
sunk costs
A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the __________________ .
supply curve to the right
A curve that shows the relationship between the price and quantity supplied during a particular period, all other things unchanged, is the:
supply curve.
Factor prices, returns from alternative activities, technology, number of firms, producer expectations, and natural events are often termed:
supply shifters.
An example of a supply shifter is:
technology.
Macroeconomics deals with:
the analysis of the aggregate values in the economy.
Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is:
the benefit to his grades from studying for an hour
The problem of determining how goods and services should be produced is a problem of deciding:
the best combinations of resources to be used for producing goods and services
The opportunity cost of attending university is likely to include all except which of the following?
the cost of haircuts received during the school term
Plastic and steel are substitutes in the production of automobiles. If steel prices go up, all other things unchanged
the demand curve for plastic will shift to the right.
In the 1980s, the federal government undertook a major build-up of the military sector, leading to reports that prices charged by military contractors were spiraling upward. According to production possibilities analysis, this result is not surprising due to:
the law of increasing opportunity cost.
Price elasticity of demand is defined as:
the percentage change in quantity demanded divided by the percentage change in price
As depicted in _________________________________, it is necessary to give up some of one good to gain more of the other good.
the production possibilities frontier
Factors of production are:
the resources the economy has available to produce goods and services.
If new manufacturers enter the computer industry, then (ceteris paribus):
the supply curve shifts to the right.
A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:
the supply curve.
If cola and iced tea are good substitutes for consumers, then it is likely that:
their cross price elasticities are greater than zero.
When quantity demanded decreases in response to a change in price:
there is a movement up along the demand curve.
The basic concern of economics is to:
to study the choices people make.
A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:
total revenue will decrease
Any point inside a production possibilities curve indicates:
unemployment and/or inefficiency.
Demand is said to be __________ when the quantity demanded changes at the same proportion as the price.
unit elastic
Scarcity exists because of:
unlimited wants and limited resources
But nearly all supply curves share a basic similarity: they slope ______________
up from left to right
Humans desire goods and services for the satisfaction those goods and services provide is known as its:
utility
In deciding how many hours to work, Beulah will make a choice that maximizes her _______; that is, she will choose according to her preferences for leisure time and income.
utility
The general pattern that consumption of the first few units of any good tends to bring a higher level of _______ to a person than consumption of later units is a common pattern.
utility
The opportunity cost of something is:
what is given up to acquire it.
A normative statement deals with:
what ought to be
In economics, the demand for a good refers to the amount of the good that people:
will buy at various prices.
A shift in the demand curve to the left, all other things unchanged:
will cause a movement downward along the supply curve and a lower equilibrium quantity.
__________ is the change in what is on the horizontal axis (quantity) divided by the change in what is on the vertical axis (price).
Elasticity
As we consume more of a icecream, the utility we get from additional units of the icecream tend to become larger than what we received from earlier units
False
If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that:
Goods X and Y are complement goods.
It means comparing the benefits and costs of choosing a little more or a little less of a good.When many choices are involved with in budget constraint framework.
Marginal analysis
Given the events listed below that take place in the bread market, decide if demand changes or quantity demanded changes and determine the direction of change: The economy prospers and incomes increase dramatically.
The price of bread increases.
Which statement best illustrates complementary goods?
The price of tennis rackets declines so your economics instructor decides to take tennis lessons and purchases several cans of new tennis balls.
An example of a positive statement is:
The rate of unemployment is 4 percent.
Interpret the following statement: "An increase in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market."
The statement is correct.
A diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available is known as Production Possibility Frontier (PPF)
True
The budget constraint diagram containing just two goods, like most models used in this book, is not realistic. After all, in a modern economy people choose from thousands of goods.
True
Suppose that voters in your community pass a one-cent sales tax increase to fund education, knowing full well they will have to forgo other goods they typically consume. This primarily addresses the economic question of:
What goods and services should a society produce?
A change in price of a good or service typically causes ___________________________ for that specific good or service.
a change along the supply curve
Which would not cause the supply curve to shift?
a change in the price of the good
Scarcity exists when:
a choice must be made among two or more alternatives.
The BEST example of making a choice at the margin is:
a coffee drinker drinking another cup of coffee.
Which of the following would most likely shift the production possibilities curve inward?
a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time
A decrease in demand, with no change in supply, will lead to ________ in equilibrium quantity and ________ in equilibrium price.
a decrease; a decrease
If the government sets out to help low-income people by establishing a maximum amount for rent:
a price ceiling has been set and a shortage of rental units may occur.
After widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Canada, the likely economic effect on the U.S. demand curve for beef from Canada is:
a shift of the demand curve for beef to the left.
A source of economic growth is:
advances in technology.
Any given demand or supply curve is based on the ceteris paribus assumption that ___________________.
all else is held equal
A increase in the demand for economics textbooks could be caused by: an decrease in the cost of producing economics textbooks an decrease in the price of economics textbooks a increase in enrollment in economics classes All of the above
all of the above
If the government imposes a price ceiling in a market, this will lead to
all of the above
A feature that distinguishes economists' approach to making choices is (are):
all of the above.
The concept of the margin deals with:
all of the above.
The scientific method is more difficult for economists than, say, chemists, because:
all of the above.
Ceteris paribus means:
all other things unchanged
The problem of scarcity is confronted by:
all societies
The term "ceteris paribus" means that:
all variables except those specified are constant.
The choice on a production possibilities set that is socially preferred, or the choice on an individual's budget constraint that is personally preferred, will display _____________________.
allocative efficiency
An example of a positive statement is:
an increase in investment spending tends to reduce unemployment.
Assuming that pizza is a normal good, if students' income at your college increases substantially, there would be:
an increase in the demand for pizza.
Two goods are substitutes if:
an increase in the price of one leads to an increase in demand for the other.
A shift to the left of a supply curve is caused by:
an increase in the returns from other supply possibilities.
All possible consumption combinations of goods that Jackson can afford, given the prices of goods, when all income earned by Jackson is spent; the boundary of the opportunity set
bodget constraints
An increase in the demand for golf clubs could be caused by
both 1. and 2. above
The model that economists use for illustrating the process of individual choice in a situation of scarcity is the _________________, sometimes also called the opportunity set, a diagram which shows what choices are possible.
budget constraint
The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.
budget constraint
A model or theory in economics is:
built using relevant observations, assumptions, and abstractions.
The nature of demand indicates that as the price of a good increases:
buyers desire to purchase less of it.
Marginal thinking is best demonstrated by:
choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.
If an economy's factors of production were owned by the government sector and the coordinating activity was done by a government planning board, the economy would be called:
command socialism.
When the price of gas goes up and the demand for tires goes down, this means tires and gas are:
complements.
A decrease in the demand for eggs caused by concerns over cholesterol is most likely attributable to which demand shifter?
consumer preferences
An example of a demand shifter is:
consumer preferences.
When demand is inelastic:
consumers are not very responsive to changes in price.
When __________________, a firm will supply a higher quantity at any given price for its output, and the supply curve will shift to the right.
costs of production fall
A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:
cross-price elasticity of demand for iced tea is -2.
A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that:
cross-price elasticity of demand for soda is -3.
Refer to Figure 3-2. A change from Point A to Point B represents a(n):
decrease in quantity demanded.
Refer to Figure 3-3. A change from Point A to Point E represents a(n):
decrease in supply.
If the price of Honda Accords decreases, what happens to the demand for Toyota Camrys?
decreases
The study of how people choose among the alternatives available to them is the:
definition of economics.
A negative relationship between the quantity demanded and price is called the law of ______.
demand
When economists study the behavior of buyers, they are studying:
demand
The city of London wants to discourage the consumption of sugar. So the city imposes a 50% city sugar tax, to begin on the first of next month. What happens to the demand for sugar in the city of London between now and the first of next month?
demand for sugary products/sugar increases
The law of ____________________________ explains why people and societies rarely make all-or-nothing choices.
diminishing marginal utility
Price ceilings which lead to shortages will impose costs on society because they:
do all of the above.
The law of demand is illustrated by a demand curve that is:
downward-sloping.
If the United States decides to allocate more resources to capital goods and less to consumer goods, the United States will obtain a greater degree of:
economic growth.
The leader of a federal political party made the following campaign promise: "My administration will increase national defense without requiring sacrifices elsewhere in the economy." The promise can be kept if:
either b) or c) occurs, but not as a result of a). Figure 2-2
Refer to Figure 5-1. Graph B represents a demand curve that is relatively __________. Total revenue __________ as the price decreases from $10 to $5.
inelastic; decreases
Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves.
inelastic; elastic
After graduation from college you will receive a substantial increase in your income from a new job. If you decide that you will purchase more T-bone steak and less hamburger, then for you hamburger would be considered a(n):
inferior good.
A demand or supply curve with ______________ would be horizontal in appearance.
infinite elasticity
Which of the following would be a part of macroeconomics? A study of:
inflation
Because consumers will substitute lower-priced goods for higher-priced goods, the price and the quantity demanded of a good are:
inversely related
The opportunity cost of an action:
is a subjective valuation that can be determined only by the individual who chooses the action.
If the quantity of housing supplied in a community is greater than the quantity of houses demanded, the existing price:
is above the market equilibrium price
Refer to Figure 5-1. With reference to Graph B, at a price of $5, total revenue equals:
$200.
Refer to Figure 5-1. With reference to Graph A, at a price of $10, total revenue equals:
$400.
"If I didn't have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." The opportunity cost of attending class this evening is
$44
Refer to Figure 5-1. With reference to Graph A, at a price of $5, total revenue equals
$500.
Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve?
1.0
Referring to Table 2-1: A student has only a few hours to prepare for two different exams this afternoon. The below table shows alternative possible exam scores with three alternative uses of the student's time. The opportunity cost of scoring a 94 on the economics exam rather than a 77 is: Table 2-1 Possibility AEconomicsHistoryI9476II8784III7791
15 points on the history exam.
Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?
3.0
Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve?
4.25
The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal:
5 units.
Which of the following will result in an increased price of milk?
A shift to the right of the demand curve for milk
Utility is :
All of the above
Refer to Figure 2-2. When the economy moves from Point A to Point B in the diagram above:
All of the above occur
Which of the following is a criticism that has been raised of government spending in support of corn-based ethanol?
All of the above.
Refer to Figure 2-1. Along the production possibilities frontier, the most efficient point of production depicted is:
All points on the production possibilities frontier are equally efficient.
Economist use the term __________________ to indicate what must be given up to obtain something that is desired.
Opportunity cost.
Refer to Figure 2-1. The most inefficient point depicted is:
Point G
______________ are enacted when discontented sellers, feeling that prices are too low, appeal to legislators to keep prices from falling.
Price floors
According to the text, which of the following is true?
Scientists can show that a hypothesis is false.
When the price of gasoline Germany increases, the quantity demanded of gasoline decreases as many residents switch to public transportation. This is the:
Substitution effect
These costs are excluded from future business decision, because the cost will be the same regardless of the result of the decision. This cost has already been incurred and thus cannot be recovered
Sunk cost
Given that milk and cookies are complements, suppose the price of flour (an ingredient in cookies) rises. What happens in the market for cookies?
The equilibrium price rises, and the equilibrium quantity falls
Demand is said to be ___________ when the quantity demanded is very responsive to changes in price.
elastic
Supply is said to be ____________ when the quantity supplied is very responsive to changes in price.
elastic
When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as ____________.
elastic
Youth smoking seems to be more __________ than adult smoking-that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.
elastic
A price cut will increase the total revenue a firm receives if the demand for its product is:
elastic.
If the supply curve for a product is horizontal, then the elasticity of supply is:
equal to infinity
If the supply curve for a product is vertical, then the elasticity of supply is:
equal to zero.
The ___________ is the only price where quantity demanded is equal to quantity supplied.
equilibrium price
If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. This is known as ___________________
excess demand
The problem of determining what goods and services society should produce:
exists because there are not enough resources to provide all the goods and services that people want to purchase
If the opportunity cost of manufacturing machinery is higher in the United States than in Britain and the opportunity cost of manufacturing sweaters is lower in the United States than in Britain, then the United States will:
export sweaters to Britain and import machinery from Britain
Economic resources used in the production process are called:
factors of production.
If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to:
fall and the equilibrium quantity to stay the same.
The incorrect presumption that because two events tend to occur together, one must cause the other is the:
fallacy of false cause.
If an economy is producing a combination of goods that places it on the production possibilities curve, then it has:
full employment.
A scarce resource is one that:
has two or more alternative uses.
The "all other things unchanged" assumption is useful because it:
helps to restrict analysis to the effect of a single economic factor.
Which of the following would reduce the supply of microcomputers?
higher wage rates for the workers that assemble the computers
A perfectly elastic supply curve is:
horizontal.
A tradeoff between two economic goals means that:
if you achieve more of one, you will achieve less of the other.
Tobby is given a dollar each day to buy his breakfast on the way to school. He normally buys two donuts (for 45¢ piece) at the Bakefield Bakery. Today, the bakery raises its donut price to 60¢ and Bart can buy only one donut with his dollar. This is the:
income effect
The longer the time period considered, the more the elasticity of supply tends to:
increase
Refer to Figure 3-1. Using the graph below and beginning on D1, a shift to D2 would indicate a(n):
increase in demand.
Refer to Figure 3-3. A change from Point A to Point B represents a(n)
increase in quantity supplied.
Refer to Figure 3-3. A change from Point A to Point D represents a(n):
increase in supply
If the demand curve is perfectly elastic, then an increase in supply will:
increase the quantity exchanged but result in no change in the price.
Economists know that a particular good can be classified as an inferior good if a(n) ________ in buyers' income causes a(n) ________ .
increase; decrease in demand
If the price of the latest PlayStation decreases, what happens to the demand for PlayStation games?
increases
A market price floor for wheat:
increases the price paid by consumers.
The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:
increasing the price of game tickets because demand is inelastic.
The demand schedule for a good:
indicates the quantities that will be purchased at alternative market prices.
Demand is said to be _____________ when the quantity demanded is not very responsive to changes in price.
inelastic
The evidence on the supply curve of financial capital is controversial, but at least in the short run, the elasticity of savings with respect to the interest rate appears to be __________.
inelastic
When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that is close to vertical, and then to refer to that curve as _________.
inelastic