ECON 201 Exam #1

Which of the following will cause an outward (rightward) shift in supply?

A technological improvement.

What is critical to the success of the market system?

Allowing individuals or firms to have exclusive use of their property

Which of the following is consistent with the law of supply?

An increase in the market price of MP3 players causes an increase in the production of MP3 players.

Which of the following are sometimes called accounting costs?

Explicit

What is the name for the additional output that a firm produces as a result of hiring one more worker?

Marginal product of labor

Which of the following countries has an economy where most of the resource allocation is determined by a central planning authority?

North Korea

What is the name given to the highest-valued alternative that must be given up to engage in any activity?

Opportunity cost

Which of the following is known as the highest-valued alternative that must be given up in order to engage in an activity?

Opportunity cost

Jim declined to take part in a health study on a free basis but changed his mind after being offered $1,000 to participate in the study. Jim's behavior best illustrates which economic principle?

People respond to economic incentives.

Which of the following goods is probably the most highly income elastic?

Private education

In the circular flow model, which of the following refers to markets where goods such as computers or services such as medical treatment are offered?

Product markets

What are copyrights designed to accomplish?

Protect intellectual property rights

In his 1776 book, "An Inquiry into the Nature and Causes of the Wealth of Nations," Adam Smith notes that specialization increases productivity. Which of the following was the cause of this phenomenon?

The division of labor

Which of the following statements about a shortage is correct?

There is no shortage of most scarce goods.

Which of the following is critical to the success of the market system?

To allow individuals or firms to have exclusive use of their property

Which of these costs are affected by the level of output produced?

Variable costs

Which of the following represents an inferior good?

When consumer income increases, the demand for bologna decreases.

Other things remaining equal, the law of demand says that higher prices will lead to:

a smaller quantity demanded and lower prices to a larger quantity demanded.

The condition that exists when quantity supplied exceeds quantity demanded at the current price is known as __________.

a surplus or excess supply

The outward shift of the production possibilities frontier from point A to point B in the above graph would most likely be caused by:

a technological advance that affects both the production of automobiles and aircraft carriers

In the United States, property rights:

are guaranteed by two amendments to the U.S. Constitution

The short run is a period of time where __________ while the long run is a period of time where __________.

at least one input is fixed, all inputs are variable

For markets to generate the greatest benefit and function in the most efficient manner they must:

be perfectly competitive

Which of the following terms corresponds to a market where buying and selling take place at prices that violate government price regulations?

black market

Market price is determined by _________.

both supply and demand

the government decides how economic resources will be allocated

centrally planned economy

The difference between the highest price a consumer is willing to pay for a good or service, and the price they actually pay is called:

consumer surplus.

In the circular flow model of the economy, __________ are the suppliers of goods and services.

firms

In the short-run, the cost that is independent of the amount of output produced is called __________.

fixed

In the short-run, the cost that is independent of the amount of output produced is called __________.

fixed costs

any product you can touch

goods

If a country has a comparative advantage in the production of a good, then that country:

has a lower opportunity cost in the production of that good

Macroeconomics can be used to understand all of the topics listed below, except:

how a consumer decides between the purchase of two different cars

Rent Control:

make tenants less mobile

Economists believe that an individual or firm should continue any activity until:

marginal benefit is equal to marginal cost.

What is the term given to all the activities necessary for a firm to sell a product to a consumer?

marketing

The United States economy is best classified as a:

mixed economy

If an effective minimum wage is imposed, then:

more workers will be unable to find jobs

The resources provided by nature and used to produce goods and services are also known as

natural resources

When you compute a price elasticity of demand the answer is always:

negative

Economists avoid confusion over units in the computation of elasticity by using:

percentage changes

The stock of computers, factory buildings and machine tools used to produce goods is known as:

physical capital

The stock of computers, factory buildings and machine tools used to produce goods is known as

physical capital.

Macroeconomics is concerned with all of the following except:

political party affiliation

Macroeconomics is concerned with all of the following except:

political party affiliation.

The price elasticity of supply always has a:

positive value

A legally determined maximum that sellers may charge is known as a:

price ceiling

Black markets may arise if:

price ceilings exist

The __________ is a measure of responsiveness of the change in quantity demanded of a good to the change in its price.

price elasticity of demand

A legally determined minimum price that sellers must receive is known as a:

price floor

Some people believe there should be a legally determined minimum price for farm products such as milk. A limit on the price of milk would be an example of:

price floor

In a market system, which of the following provides the information that individuals need to make decisions about resource allocation?

prices

Prolonged shortages arise if:

prices are not allowed to rise to equilibrium

Price performs a(n) __________ function. Inputs or outputs go to the __________ bidders if people are free to exchange voluntarily in the markets without government intervention or other market friction.

rationing, highest

The principle of opportunity cost evolves from the concept of

scarcity

Prolonged agricultural surpluses can arise if governments:

set the price above equilibrium

Price controls that put a price ceiling on goods and services create __________.

shortages

The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the _ the payoff to devoting additional resources to that activity.

smaller

A positive economic statement

statements of fact that imply no value judgment.

Price controls that put a price floor on goods and services create __________.

surpluses

The role of the entrepreneur always involves:

taking risks

Given linear demand curves, if demand and supply both increase but demand increases by a greater amount than supply, then:

the equilibrium price and quantity both increase.

Given linear demand curves, if demand and supply increase by identical amounts, then:

the equilibrium price stays the same and the equilibrium quantity rises.

Given linear demand curves, if demand increases and supply decreases, then __________.

the equilibrium price will increase but the effect on the equilibrium quantity will be ambiguous

If prices rise the quantity supplied will be greater:

the longer the time that elapses

If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees?

As a part of fixed cost

All of the following will decrease the supply of airline flights except:

a technological change that makes airplanes safer and more fuel-efficient.

Economists assume that when there is a change in demand and/or supply, that prices reach a new equilibrium:

after an adjustment period that varies.

According to the theory of comparative advantage, specialization and free trade will benefit:

all trading partners who specialize in goods where they have comparative advantage

people do not intentionally make decisions that would leave them worse off

assumption

Any equipment, machinery, buildings, or tools used to produce goods or services is known as

economic capital

The downward sloping part of the long run average total cost curve is where the firm is achieving:

economies of scale

If the supply of Good B is perfectly elastic and price falls the quantity supplied will:

falls to zero

When the marginal product of labor is greater than the average product of labor, then the average product of labor must be:

increasing

A perfectly inelastic supply curve:

indicates the quantity supplied does not respond to a change in price

At current prices of a highly addictive drug the demand for the drug is highly price:

inelastic

The disappearance of the family farm can be partially attributed to the fact that the elasticity of demand for wheat is __________, while at the same time, the income elasticity for wheat is __________.

inelastic, low

The development of a new good is known as

invention

Contracts, insurance, patents and accounting rules are:

inventions that make a market work better

people pursuing their own self-interest in a free market will actually result in the best interest of society as if these actions were guided by an

invisible hand.

Economics:

is concerned with how people respond to incentives

Along a linear demand curve, the slope __________ while the price elasticity of demand __________.

is constant, changes from one point to another

When nations specialize in their comparative advantage and engage in trade:

overall standards of living increase

Absolute advantage is the ability of an individual, firm, or country to:

produce more of a good or service than competitors using the same amount of resources

__________ is the difference between what a producer receives for a good or service and the lowest amount they would accept for that good or service.

producer surplus

All of the following scenarios depict the characteristics of complements except:

the price of coffee increases and the demand for cream increases.

When graphing a conventional short-run production function, we place __________ on the horizontal axis and __________ on the vertical axis.

the variable input, output