Econ 202 Hayes Quiz answers & Mid-Term

The Latin term "ceteris paribus" means A. that if event A precedes event B, A has caused B. B. that economics deals with facts, not values. C. other things equal. D. prosperity inevitably follows recession.

other things equal

The basic formula for the price elasticity of demand coefficient is A. absolute decline in quantity demanded/absolute increase in price. B. percentage change in quantity demanded/percentage change in price. C. absolute decline in price/absolute increase in quantity demanded. D. percentage change in price/percentage change in quantity demanded.

percentage change in quantity demanded/percentage change in price.

A firm can sell as much as it wants at a constant price. Demand is thus A. perfectly inelastic. B. perfectly elastic. C. relatively inelastic. D. relatively elastic.

perfectly elastic.

Marginal utility can be A. positive, but not negative. B. positive or negative, but not zero. C. positive, negative, or zero. D. decreasing, but not negative.

positive, negative, or zero.

The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is A. price. B. expectations. C. preferences. D. incomes.

price

A government subsidy to the producers of a product a. reduces product supply. B. increases product supply. C. reduces product demand. D. increases product demand.

increases product supply.

Broadly defined, competition involves A. private property and freedom of expression. B. independently acting buyers and sellers and freedom to enter or leave markets. C. increasing opportunity costs and diminishing marginal utility. D. capital goods and division of labor.

independently acting buyers and sellers and freedom to enter or leave markets

A demand curve A. shows the relationship between price and quantity supplied. B. indicates the quantity demanded at each price in a series of prices. C. graphs as an upsloping line. D. shows the relationship between income and spending.

indicates the quantity demanded at each price in a series of prices.

A market A. reflects upsloping demand and downsloping supply curves. B. entails the exchange of goods, but not services. C. is an institution that brings together buyers and sellers. D. always requires face-to-face contact between buyer and seller.

is an institution that brings together buyers and sellers.

The utility of a good or service A. is synonymous with usefulness. B. is the satisfaction or pleasure one gets from consuming it. C. is easy to quantify. D. rarely varies from person to person.

is the satisfaction or pleasure one gets from consuming it.

Which product is most likely to be the most price elastic? A. milk B. housing C. clothing D. automobiles

automobiles

The rationing function of prices refers to the A. tendency of supply and demand to shift in opposite directions. B. fact that ration coupons are needed to alleviate wartime shortages of goods. C. capacity of a competitive market to equalize quantity demanded and quantity supplied. D. ability of the market system to generate an equitable distribution of income.

capacity of a competitive market to equalize quantity demanded and quantity supplied.

A price floor means that A. inflation is severe in this particular market. B. sellers are artificially restricting supply to raise price. C. government is imposing a maximum legal price that is typically below the equilibrium price. D. government is imposing a minimum legal price that is typically above the equilibrium price.

government is imposing a minimum legal price that is typically above the equilibrium price.

A perfectly inelastic demand curve A. has a price elasticity coefficient greater than unity. B. has a price elasticity coefficient of unity throughout. C. graphs as a line parallel to the vertical axis. D. graphs as a line parallel to the horizontal axis.

graphs as a line parallel to the vertical axis.

If the price of product X rises, then the resulting decline in the amount purchased will A. necessarily increase the consumer's total utility from his total purchases. B. increase the marginal utility of the last unit consumed of this good. C. increase the total utility from purchases of this good. D. reduce the marginal utility of the last unit consumed of this good.

increase the marginal utility of the last unit consumed of this good.

The law of supply indicates that, other things equal, A. producers will offer more of a product at high prices than at low prices. B. the product supply curve is downsloping. C. consumers will purchase less of a good at high prices than at low prices. D. producers will offer more of a product at low prices than at high prices.

producers will offer more of a product at high prices than at low prices.

A consumer who has a limited budget will maximize utility or satisfaction when the A. ratios of the marginal utility of each product purchased divided by its price are equal. B. total utility derived from each product purchased is the same. C. marginal utility of each product purchased is the same. D. price of each product purchased is the same.

ratios of the marginal utility of each product purchased divided by its price are equal.

A production possibilities curve illustrates A. scarcity. B. market prices. C. consumer preferences. D. the distribution of income.

scarcity

In deciding whether to study for an economics quiz or go to a concert, one is confronted by the idea(s) of A. scarcity and opportunity costs. B. money and real capital. C. complementary economic goals. D. full production.

scarcity and opportunity costs

A government tax per unit of output reduces supply. True/False

true

An increase in consumer incomes will cause a decrease in the demand for an inferior good. True/False

true

Choices entail marginal costs because resources are scarce. True/False

true

The greater the ease of shifting resources from product X to product Y in the production process, the greater is the elasticity of supply of product Y. True/False

true

The production possibilities curve shows various combinations of two products that an economy can produce when achieving full employment. True/False

true

When the marginal benefits exceed the marginal costs of producing a product, then allocative efficiency is not achieved in the market. True/False

true

In a free-market economy, a product which entails a positive externality will be A. overproduced. B. underproduced. C. produced at the optimal level. D. provided solely by the government.

underproduced

For which product is the income elasticity of demand most likely to be negative? A. computer software B. used clothing C. apps for iPads D. bread

used clothing

Where total utility is at a maximum, marginal utility is A. negative. B. positive and increasing. C. zero. D. positive but decreasing.

zero.

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is A. 26 units of utility. B. 6 units of utility. C. 8 units of utility. D. 38 units of utility.

8 units of utility.

Which of the following is the best example of a supply-side market failure? A. No one provides street lights in a town because, once the lights are in operation, people don't have to pay to use them. B. A firm keeps its production costs down by dumping its waste in the nearby river, adversely affecting water quality for residents in the area. C. Government imposes taxes on the production of a socially desirable good. D. Street performers don't get full payment for the value of their output because people watch and enjoy the shows without paying the artist.

A firm keeps its production costs down by dumping its waste in the nearby river, adversely affecting water quality for residents in the area.

For economists, the word "utility" means A. versatility and flexibility B. rationality C. pleasure or satisfaction D. purposefulness

C. pleasure or satisfaction

When a consumer shifts purchases from X to Y, the marginal utility of X falls and the marginal utility of Y rises. True/False

False

A person should consume more of something when its marginal A.benefit exceeds its marginal cost. B. cost exceeds its marginal benefit. C. cost equals its marginal benefit. D. benefit is still better.

D. benefit exceeds its marginal

A price floor in a competitive market will result in persistent shortages of a product. True/False

False

The consumer demand curve for a product is downsloping because marginal utility is constant when price declines. True/False

False

What two conditions must hold for a competitive market to produce efficient outcomes? A. Demand curves must reflect all costs of production, and supply curves must reflect consumers' full willingness to pay. B. Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay. C. Firms must minimize production costs, and consumers must minimize total expenditures. D. Firms must maximize profits, and consumers must all pay prices equal to their maximum willingness to pay.

Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.

Which of the following is not characteristic of the demand for a commodity that is elastic? A. The relative change in quantity demanded is greater than the relative change in price. B. Buyers are relatively sensitive to price changes. C. Total revenue increases if price is increased. D. The elasticity coefficient is greater than one.

Total revenue increases if price is increased.

The law of diminishing marginal utility suggests that the total utility that a consumer derives from a product will increase slower and slower as more of the product is consumed. True/False

True

The limited money income of consumers results in a so-called budget constraint. True/False

True

Which of the following will not cause the demand for product K to change? A. a change in the price of close-substitute product J B. an increase in incomes of buyers of product K C. a change in the price of product K D. a change in consumer tastes for product K

a change in the price of product K

Microeconomics is concerned with A. the aggregate or total levels of income, employment, and output. B. a detailed examination of specific economic units that make up the economic system. C. positive economics, but not normative economics. D. establishing an overall view of the operation of the economic system.

a detailed examination of specific economic units that make up the economic system.

Assume that the demand curve for product C is downsloping. If the price of C falls from $2.00 to $1.75, A. a smaller quantity of C will be demanded. B. a larger quantity of C will be demanded. C. the demand for C will increase. D. the demand for C will decrease.

a larger quantity of C will be demanded.

The term "other things equal" means that A. the associated statement is normative. B. many variables affect the variable under consideration. C. a number of relevant variables are assumed to be constant. D. when variable X increases, so does related variable Y.

a number of relevant variables are assumed to be constant.

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity? A. an increase in supply B. an increase in demand C. a decrease in supply D. a decrease in demand

an increase in supply

Which of the following is an example of market failure? A. negative externalities B. positive externalities C. public goods D. all of these

all of these

When the percentage change in price is greater than the resulting percentage change in quantity demanded, A. a decrease in price will increase total revenue. B. demand may be either elastic or inelastic. C. an increase in price will increase total revenue. D. demand is elastic.

an increase in price will increase total revenue.

The socially optimal amount of pollution abatement occurs where society's marginal A. benefit of abatement exceeds its marginal cost of abatement by the greatest amount. B. benefit of abatement equals its marginal cost of abatement. C. benefit of abatement is zero. D. cost of abatement is at its maximum.

benefit of abatement equals its marginal cost of abatement.

The law of diminishing marginal utility states that A. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. B. beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer. C. price must be lowered to induce firms to supply more of a product. D. it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

A firm's supply curve is upsloping because A. the expansion of production necessitates the use of qualitatively inferior inputs. B. mass production economies are associated with larger levels of output. C. consumers envision a positive relationship between price and quality. D. beyond some point, the production costs of additional units of output will rise.

beyond some point, the production costs of additional units of output will rise.

The price elasticity of demand coefficient measures A. buyer responsiveness to price changes. B. the extent to which a demand curve shifts as incomes change. C. the slope of the demand curve. D. how far business executives can stretch their fixed costs.

buyer responsiveness to price changes.

If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it A. can only produce more consumer goods by producing fewer capital goods. B. can only produce more capital goods by producing fewer consumer goods. C. can produce more of both consumer goods and capital goods by using resources that are currently idle. D. must improve its technology to produce more output.

can produce more of both consumer goods and capital goods by using resources that are currently idle

The demand for a product is inelastic with respect to price if A. consumers are largely unresponsive to a per unit price change. B. the elasticity coefficient is greater than 1. C. a drop in price is accompanied by a decrease in the quantity demanded. D. a drop in price is accompanied by an increase in the quantity demanded.

consumers are largely unresponsive to a per unit price change.

The theory of consumer behavior assumes that A. consumers behave rationally, attempting to maximize their satisfaction. B. consumers have unlimited money incomes. C. consumers do not know how much marginal utility they obtain from successive units of various products. D. marginal utility is constant.

consumers behave rationally, attempting to maximize their satisfaction.

With a downsloping demand curve and an upsloping supply curve for a product, a decrease in resource prices will A. increase equilibrium price and quantity. B. decrease equilibrium price and quantity. C. decrease equilibrium price and quantity. D. increase equilibrium price and decrease equilibrium quantity.

decrease equilibrium price and increase equilibrium quantity.

Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the good. This statement is most consistent with which explanation for the law of demand? A. diminishing marginal utility B. the rationing function of prices C. the substitution effect D. the income effect

diminishing marginal utility

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

factors of production

A price floor in a competitive market will result in persistent shortages of a product. True/False

false

An increase in immigration would shift the production possibilities curve to the left. True/False

false

An increase in quantity supplied might be caused by an increase in production costs. True/False

false

If the consumer is willing to pay a price higher than the actual price of a product, then the consumer will not buy the product because the consumer surplus will be negative. True/False

false

If the elasticity coefficient of supply is 0.7, supply is elastic. True/False

false

If the percentage change in quantity demanded is less than the percentage change in price, then demand is said to be elastic. True/False

false

In the price range where demand is elastic, if the seller of the good raises its price, then total revenues will increase. True/False

false

Macroeconomics explains the behavior of individual households and business firms; microeconomics is concerned with the behavior of aggregates or the economy as a whole. True/False

false

Normative statements are expressions of facts. True/False

false

Society's marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility. True/False

false

Surpluses drive market prices up; shortages drive them down. True/False

false

The budget line shows the various incomes that an individual can earn from different jobs. True/False

false

The smaller the number of good substitutes for a product, the greater will be the price elasticity of demand for it. True/False

false

The study of economics is not useful for consumers, because economic analysis focuses only on businesses and the economy. True/False

false

Two goods are considered to be related goods by many buyers: if the price of one increases, buyers buy more of the other. This indicates that the two goods are complements. True/False

false

One reason that the quantity demanded of a good increases when its price falls is that the A. price decline shifts the supply curve to the left. B. lower price shifts the demand curve to the left. C. lower price shifts the demand curve to the right. D. lower price increases the real incomes of buyers, enabling them to buy more.

lower price increases the real incomes of buyers, enabling them to buy more.

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.

marginal benefit and marginal cost are equal at that point.

To maximize utility, a consumer should allocate money income so that the A. elasticity of demand on all products purchased is the same. B. marginal utility obtained from the last dollar spent on each product is the same. C. total utility derived from each product consumed is the same. D. marginal utility of the last unit of each product consumed is the same.

marginal utility obtained from the last dollar spent on each product is the same.

The law of demand states that, other things equal, A. price and quantity demanded are inversely related. B. the larger the number of buyers in a market, the lower will be product price. C. price and quantity demanded are directly related. D. consumers will buy more of a product at high prices than at low prices.

price and quantity demanded are inversely related

The supply curve shows the relationship between A. price and quantity supplied. B. production costs and the amount demanded. C. total business revenues and quantity supplied. D. physical inputs of resources and the resulting units of output.

price and quantity supplied.

If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium A. price must rise, but equilibrium quantity may rise, fall, or remain unchanged. B. price must rise and equilibrium quantity must fall. C. price and equilibrium quantity must both increase. D. price and equilibrium quantity must both decline.

price must rise, but equilibrium quantity may rise, fall, or remain unchanged.

Market failure is said to occur whenever A. private markets do not allocate resources in the most economically desirable way. B. prices rise. C. some consumers who want a good do not obtain it because the price is higher than they are willing to pay. D. government intervenes in the functioning of private markets.

private markets do not allocate resources in the most economically desirable way.

An improvement in production technology will A. increase equilibrium price. B. shift the supply curve to the left. C. shift the supply curve to the right. D. shift the demand curve to the left.

shift the supply curve to the right.

Other things equal, if the price of a key resource used to produce product X falls, the A. supply curve of product X will shift to the right. B. demand curve of product X will shift to the right. C. supply curve of product X will shift to the left. D. supply curve of product X will not shift.

supply curve of product X will shift to the right.

Supply-side market failures occur when A. supply curves don't reflect consumers' full willingness to pay for a good or service. B. supply curves don't reflect the full cost of producing a good or service. C. government regulates production of a good or service. D. a good or service is not supplied because no one wants it.

supply curves don't reflect the full cost of producing a good or service.

Which of the following defines marginal utility? A. the change in total utility divided by the price of a product B. the maximum amount of satisfaction from consuming a product C. the total satisfaction derived from a certain amount of the product D. the additional satisfaction from consuming one more unit of a product

the additional satisfaction from consuming one more unit of a product

Opportunity costs exist because A. the decision to engage in one activity means forgoing some other activity. B. wants are scarce relative to resources. C. households and businesses make rational decisions. D. most decisions do not involve sacrifices or trade-offs.

the decision to engage in one activity means forgoing some other activity.

Graphically, the market demand curve is A. steeper than any individual demand curve that is part of it. B. greater than the sum of the individual demand curves. C. the horizontal sum of individual demand curves. Correct D. the vertical sum of individual demand curves.

the horizontal sum of individual demand curves.

Graphically, the market demand curve is A. steeper than any individual demand curve that is part of it. B. greater than the sum of the individual demand curves. C. the horizontal sum of individual demand curves. D. the vertical sum of individual demand curves.

the horizontal sum of individual demand curves.

According to the concept of diminishing marginal utility, consumers will purchase more of a good when the price falls because A. substitutes are relatively more expensive. B. consumers' real income has increased. C. the marginal benefit of additional units of the good now outweigh the marginal cost. D. the good is now perceived as having higher quality.

the marginal benefit of additional units of the good now outweigh the marginal cost.

According to the marginal-cost-marginal-benefit rule, A. only government projects (as opposed to private projects) should be assessed by comparing marginal costs and marginal benefits. B. the optimal project size is the one for which MB = MC. C. the optimal project size is the one for which MB exceeds MC by the greatest amount. D. project managers should attempt to minimize both MB and MC.

the optimal project size is the one for which MB = MC.

In moving along a demand curve, which of the following is not held constant? A. the price of the product itself. B. price expectations C. consumer incomes D. prices of complementary goods

the price of the product itself.

If there is a shortage of product X, and the price is free to change, A. fewer resources will be allocated to the production of this good. B. the price of the product will rise. C. the price of the product will decline. D. the supply curve will shift to the left and the demand curve to the right, eliminating the shortage.

the price of the product will rise.

If there are external benefits associated with the consumption of a good or service, A. the private demand curve will overestimate the true demand curve. B. the private demand curve will underestimate the true demand curve. C. consumers are paying for all these benefits in private markets. D. the market demand curve will be the vertical summation of the individual demand curves.

the private demand curve will underestimate the true demand curve.

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.

the quantity that consumers want to purchase and the amount producers choose to sell are the same.

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes A. an inferior good. B. the rationing function of prices. C. the substitution effect. D. the income effect.

the substitution effect.

"Essential" water is cheaper than "nonessential" diamonds because A. new industrial uses for diamonds have been discovered. B. the supply of water is great relative to demand and the supply of diamonds is small relative to demand. C. although the total utility of diamonds is greater, their marginal utility is small. D. the supply of diamonds is great relative to demand and the supply of water is small relative to demand.

the supply of water is great relative to demand and the supply of diamonds is small relative to demand.

Productive efficiency refers to A. the use of the least-cost method of production. B. the production of the product mix most wanted by society. C. the full employment of all available resources. D. production at some point inside of the production possibilities curve.

the use of the least-cost method of production.

The production possibilities curve shows A. the various combinations of two goods that can be produced when society employs all of its scarce resources. B. the minimum outputs of two goods that will sustain a society. C. the various combinations of two goods that can be produced when some resources are unemployed. D. the ideal, but unattainable, combinations of two goods that would maximize consumer satisfaction.

the various combinations of two goods that can be produced when society employs all of its scarce resources.

At the equilibrium price, A. quantity supplied may exceed quantity demanded or vice versa. B. there are no pressures on price to either rise or fall. C. there are forces that cause price to rise. D. there are forces that cause price to fall.

there are no pressures on price to either rise or fall.

The negative slope of the production possibilities curve is a graphical way of indicating that A. any economy "can have its cake and eat it too." B. to produce more of one product, we must do with less of another. C. the principle of increasing opportunity costs applies to only parts of the economy. D. consumers buy more when prices are low than when prices are high.

to produce more of one product, we must do with less of another