ECON Exam 1: Quizzes 1-5
a. Point a illustrates the competitive private market outcome, while point b illustrates the outcome consistent with economic efficiency.
Figure 5-2 illustrates the market for a product that generates an external cost. S1 is the private market supply curve, while S2 is the supply curve including the external cost. Which of the following is true? Select one: a. Point a illustrates the competitive private market outcome, while point b illustrates the outcome consistent with economic efficiency. b. Point b illustrates the competitive private market outcome, while point a illustrates the outcome consistent with economic efficiency. c. The competitive private market outcome is consistent with the conditions for economic efficiency. d. The good will tend to be undersupplied relative to the conditions for economic efficiency.
a. Relative to economic efficiency, output of the good will be too large and the price too low
Figure 5-2 illustrates the market for a product that generates an external cost. S1 is the private market supply curve, while S2 is the supply curve including the external cost. Which of the following is true? Select one: a. Relative to economic efficiency, output of the good will be too large and the price too low. b. Relative to economic efficiency, output of the good will be too large and the price too high. c. Relative to economic efficiency, output of the good will be too small and the price too low. d. Relative to economic efficiency, output of the good will be too small and the price too high.
a. Consumers would want to buy t; producers would be willing to sell r.
Given the demand and supply conditions shown in Figure 4-2, if the government imposes a price ceiling of a, indicate the quantity consumers would like to buy and the amount producers would be willing to supply. Select one: a. Consumers would want to buy t; producers would be willing to sell r. b. Consumers would want to buy r; producers would be willing to sell t. c. Consumers would want to buy t; producers would be willing to sell s. d. Consumers would want to buy s; producers would be willing to sell s.
b. 20 toasters
Refer to Figure 2-9. If the economy moves from point A to point D, the opportunity cost is Select one: a. 10 toasters. b. 20 toasters. c. 30 toasters. d. 30 toothbrushes.
Jacob and Mason go to a diner that sells burritos for $5 and tacos for $3. They agree to split the lunch bill evenly. Mason chooses a taco. The marginal cost to Jacob of ordering a burrito instead of a taco is Select one: a. $1. b. $3. c. $2.50. d. $2.
a. $1
Which of the following best explains why making automobiles completely safe is not efficient? Select one: a. After some level of safety is reached, making cars even safer will not be worth the additional cost. b. Because human life is priceless, automobile safety generally doesn't matter. c. The benefit from additional automobile safety will generally rise as automobiles are made safer, more than offsetting the opportunity cost involved. d. Economic efficiency suggests that automobiles should be made as safe as humanly possible.
a. After some level of safety is reached, making cars even safer will not be worth the additional cost.
Michael takes 10 minutes to iron a shirt and 20 minutes to type a paper. Aiden takes 10 minutes to iron a shirt and 30 minutes to type a paper. Which of the following statements is correct? Select one: a. Aiden has a comparative advantage in ironing. b. Aiden has a comparative advantage in typing. c. Michael has a comparative advantage in ironing. d. Neither can gain from specialization and exchange.
a. Aiden has a comparative advantage in ironing
Mateo values his camper at $4,000, and Nicole values it at $9,000. If Nicole buys it from Mateo for $7,000, which of the following is true? Select one: a. Mateo gains $3,000 of value, and Nicole gains $2,000 of value. b. Mateo gains $7,000 of value, and Nicole loses $7,000 of value. c. Mateo gains $7,000 of value, and Nicole gains $6,000 of value. d. Mateo and Nicole both gain $7,000 of value.
a. Mateo gains $3,000 of value, and Nicole gains $2,000 of value
Which of the following statements is correct? Select one: a. Opportunity costs will always be incurred when scarce resources are used to produce a good. b. The value of goods is objective; it is equal to the cost of supplying the good. c. If the buyer of a good gains, the seller must lose an equal amount. d. Changes in incentives generally have no effect on human behavior.
a. Opportunity costs will always be incurred when scarce resources are used to produce a good
Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action? Select one: a. There will be a shortage of corn. b. There will be a surplus of corn. c. There will be a decrease in the quantity of corn demanded as the result of the price ceiling. d. There will be an increase in the quantity of corn supplied as the result of the price ceiling. Feedback Your answer is correct.
a. There will be a shortage of corn.
If education creates external benefits, Select one: a. actual market outcomes provide less than the efficient quantity of education. b. actual market outcomes provide more than the efficient quantity of education. c. actual market outcomes provide a higher price than the efficient price of education. d. the government should impose a depletion tax.
a. actual market outcomes provide less than the efficient quantity of education.
Which of the following would tend to increase the price of lumber? Select one: a. an increase in the demand for newly constructed homes b. an increase in the demand for newly constructed homes c. a decrease in the demand for wooden rocking chairs d. a decrease in the tax imposed on firms who produce lumber
a. an increase in the demand for newly constructed homes
Students in a class are assigned to groups to work on a project. A grade will be given for each project, and everyone in the group will receive that grade. For the members of a particular group, the grade is a Select one: a. external benefit. b. public good. c. external cost. d. repeat purchase item.
a. external benefit.
If in market equilibrium the true marginal cost of producing a good exceeds the marginal cost incurred by the firm, Select one: a. not enough of the product is being produced. b. the price charged for the good is too high. c. the good produces a positive externality. d. the good produces a negative externality. e. the government should produce the good.
a. not enough of the product is being produced.
If a group of sellers that can restrict entry into a market, they will often be able to enlarge their total profit by Select one: a. raising price and reducing output. b. raising price and expanding output. c. lowering price and expanding output. d. raising price and leaving output unchanged
a. raising price and reducing output.
A nation with cheap, efficient communications is likely to be Select one: a. richer, ceteris paribus, because transaction costs will be lower and trade greater. b. richer only if production of goods is cheaper, too, since trade itself cannot create value. c. poorer since it spends so much on communication instead of true productivity. d. spending too much on communications, which adds nothing to the value of output.
a. richer, ceteris paribus, because transaction costs will be lower and trade greater
Which one of the following is a positive economic statement? Select one: a. Social justice will be served by increasing the minimum wage. b. An increase in the minimum wage will reduce employment. c. The minimum wage should be increased. d. Thoughtful people oppose an increase in the minimum wage.
b. An increase in the minimum wage will reduce employment.
Which of the following is not consistent with the basic postulate of economics that incentives matter? Select one: a. People buy more milk in response to a reduction in the price of milk. b. Farmers produce fewer bushels of wheat in response to an increase in the price of wheat. c. A politician votes against a proposal because most of his constituents oppose it. d. People drive less because of higher gas prices. Feedback
b. Farmers produce fewer bushels of wheat in response to an increase in the price of wheat
Ethan washes and irons his own shirts. Sophia, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference? Select one: a. Ethan must enjoy ironing more than Sophia does. b. Sophia has a higher opportunity cost of laundering her clothes than Ethan does. c. Ethan must be better at ironing than Sophia is. d. The opportunity cost of ironing is greater for Ethan.
b. Sophia has a higher opportunity cost of laundering her clothes than Ethan does
Suppose external benefits are present in a market which results in the actual market price of $49 and market output of 800 units. How does this outcome compare to the efficient, ideal equilibrium? Select one: a. The efficient price would be higher than $49. b. The efficient price would be lower than $49. c. The efficient price would also be $49. d. The efficient output would be less than 800 units. Feedback
b. The efficient price would be lower than $49.
Land used to grow alfalfa could also be used to grow hay. Which of the following is true when the farmer plants hay and the market price of alfalfa rises? Select one: a. The opportunity cost of producing hay decreases. b. The opportunity cost of producing hay increases. c. There will be no change in the opportunity cost of producing hay. d. The opportunity cost of producing alfalfa increases. Feedback
b. The opportunity cost of producing hay increases
Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency? Select one: a. The price will be too high, and the output will be too large. b. The price will be too low, and the output will be too large. c. The price will be too low, and the output will be too small. d. The price will be too high, and the output will be too small.
b. The price will be too low, and the output will be too large.
In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time? Select one: a. The production possibilities curves for these countries would have shifted outward. b. The production possibilities curves for these countries would have shifted inward. c. The production possibilities curves for these countries would have been unaffected. d. This would have been illustrated by a movement along the production possibilities curves for these countries, but it would not have shifted them.
b. The production possibilities curves for these countries would have shifted inward
When several hurricanes hit Florida in 2004, a number of local governments imposed price controls that prevented sellers from raising their prices for badly needed products like plywood and generators. In the areas where the controls were imposed, they resulted in Select one: a. an expanded availability of these badly needed products. b. a reduced availability of these badly needed products. c. an increase in the speed with which people recovered from the hurricanes. d. a more efficient allocation of these goods for which price controls were in effect.
b. a reduced availability of these badly needed products.
An increase in the number of students graduating with a major in psychology would result in Select one: a. a decrease in the supply of psychologists that would increase the wage of psychologists and decrease the number employed. b. an increase in the supply of psychologists that would decrease the wage of psychologists and increase the number employed. c. a decrease in the demand for psychologists that would decrease the wage of psychologists and decrease the number employed. d. an increase in the demand for psychologists that would increase the wage of psychologists and increase the number employed.
b. an increase in the supply of psychologists that would decrease the wage of psychologists and increase the number employed.
If government taxes a firm which pollutes this will Select one: a. increase the demand for the good produced. b. decrease the supply of the good produced. c. increase the equilibrium quantity of the good produced in the market. d. decrease the equilibrium price of the good produced in the market. e. all of the above.
b. decrease the supply of the good produced.
The government sometimes provides public goods because Select one: a. private markets are incapable of producing public goods. b. free-riders make it difficult for private markets to supply the efficient quantity. c. markets are always better off with some government oversight. d. external benefits will accrue to private producers.
b. free-riders make it difficult for private markets to supply the efficient quantity.
A car sells at different prices at different dealerships in a local market. If a consumer has imperfect information about the price of a car at each dealership, he should Select one: a. always gather all available information about prices. b. gather information about prices until the expected marginal benefit of more information equals the marginal cost of gathering it. c. gather information about prices only if it can be gathered without cost. d. ignore information about prices because it is irrelevant to making an "optimally imperfect" decision.
b. gather information about prices until the expected marginal benefit of more information equals the marginal cost of gathering it.
Manny's Bar-n-Grill is next door to a franchised fast-food restaurant near a busy freeway exit. Essentially, the menus, food quality, atmosphere, and service are equal at the two restaurants. Nevertheless, the nationally franchised restaurant can attract more customers, even though its prices are higher. This situation Select one: a. indicates that people are irrational because it never makes sense to pay a higher price when a product is cheaper elsewhere. b. is one in which the national franchise provides uninformed consumers with valuable information that reduces their risk of being unsatisfied with the purchase. c. reflects the greater elasticity of supply for food at Manny's Bar-n-Grill relative to the nationally franchised restaurant. d. is inconsistent with the basic postulates that underlie the economic way of thinking.
b. is one in which the national franchise provides uninformed consumers with valuable information that reduces their risk of being unsatisfied with the purchase.
Abigail wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Abigail is currently spending all of her time efficiently, Abigail can spend more time studying this week only if Select one: a. she also spends more time doing other things. b. she spends less time doing other things. c. Daylight Savings Time begins this week, so everyone moves their clocks ahead one hour. d. none of the above.
b. she spends less time doing other things
The wages of house painters will tend to rise when Select one: a. more people recognize that house painters have very low incomes. b. the alternative earning opportunities of house painters improve. c. house painters can no longer find good paying alternatives for their labor. d. unemployment in the economy is high and there are few alternative jobs available for house painters. Feedback
b. the alternative earning opportunities of house painters improve
After the ban on the production and sale of alcohol ended in 1933, Select one: a. the quality of alcohol sold declined. b. the murder rate declined. c. the profit rate for bootleg sellers of alcohol increased. d. all of the above occurred.
b. the murder rate declined.
The opportunity cost of going to college is Select one: a. zero, since a college education will allow a student to earn a larger income after graduation. b. the value of the best opportunity a student gives up to attend college. c. zero for students who are fortunate enough to have all of their college expenses paid by someone else. d. 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
Suppose the price of an airline ticket from Dallas to Boston costs $600. A bus ticket costs $150. Traveling by plane takes 6 hours compared with 51 hours by bus. Other things constant, an individual would gain by choosing air travel if, and only if, his time were valued at more than Select one: a. $6 per hour. b. $8 per hour. c. $10 per hour. d. $15 per hour.
c. $10 per hour
Andre, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Andre should add fertilizer if it costs less than Select one: a. $100 per pound. b. $12.50 per pound. c. $20 per pound. d. $80 per pound.
c. $20 per pound
A ticket to a concert costs $45. You have a ticket and can resell it for $75. Your opportunity cost of actually attending the concert is Select one: a. $30. b. $45. c. $75. d. $120.
c. $75
Which of the following is most consistent with economizing behavior? Select one: a. Before voting, you should invest the time and energy to become fully informed on all of the issues and candidates. b. If you derive the same satisfaction from eating pizza and eating ice cream, it makes no difference which one of the two you choose. c. If you get the same satisfaction from a chicken sandwich and a salad, you should purchase the one that costs the least. d. It never makes sense to hire someone to do something for you that you could do yourself.
c. If you get the same satisfaction from a chicken sandwich and a salad, you should purchase the one that costs the least
Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives. Select one: a. Farmers produce fewer bushels of wheat in response to an increase in the price of wheat. b. People will consume more beef if the price increases from $1 to $2 per pound. c. People will buy less gas if the price of gas increases by $.20 per gallon. d. People will buy more milk at a price of $2 per gallon than at $1 per gallon.
c. People will buy less gas if the price of gas increases by $.20 per gallon.
Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot? Select one: a.The flu shot is cheaper than the cost of treatment when you get the flu. b. The income of doctors increases when you get the flu shot. c. The flu shot reduces the likelihood others will catch the flu. d. The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income.
c. The flu shot reduces the likelihood others will catch the flu.
Suppose that country A produces mostly consumption goods and few investment goods, while country B produces mostly investment goods with few consumption goods. Other things constant, which of the following is most likely to happen in the future? Select one: a. The per capita income of country A will grow more rapidly than country B. b. The population of country B will grow more rapidly than country A. c. The production possibilities curve (PPC) of country B will shift out more rapidly than the PPC of country A. d. The production possibilities curve (PPC) of country A will shift out more rapidly than the PPC of country B.
c. The production possibilities curve (PPC) of country B will shift out more rapidly than the PPC of country A.
If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen? Select one: a. The quantity of milk demanded will increase. b. The quantity of milk supplied will decrease. c. There will be a surplus of milk. d. There will be a shortage of milk. Feedback
c. There will be a surplus of milk.
Using a production possibilities curve, a technological advance that increases the amount of output for the same amount of inputs would be illustrated as Select one: a. an inward shift of the curve. b. a movement from one point to another point along the curve. c. an outward shift of the curve. d. a movement from a point on the curve to a point inside the curve.
c. an outward shift of the curve
If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100, then it will be profitable for the airline to Select one: a. fill the seats at the last minute for any price. b. charge a stand-by passenger more than $500. c. charge a stand-by passenger more than $100. d. charge a stand-by passenger no less than the full fare of $500. e. charge a stand-by passenger less than $100.
c. charge a stand-by passenger more than $100
If pollutants emitted by firms in the steel industry increase, but there is no increase in the costs borne by these firms, you could conclude that Select one: a. pollution is not a serious problem in this industry. b. the consumers of steel are unwilling to bear the costs of pollution generated from steel production. c. pollution is an externality in this market, since producers and purchasers of steel do not bear the full costs of the pollution. d. pollution creates an external benefit rather than an external cost in this case.
c. pollution is an externality in this market, since producers and purchasers of steel do not bear the full costs of the pollution.
Recent legislation provides parents with a substantial reduction in their personal income tax liability for each child that they have. The economic way of thinking indicates that legislation of this type will Select one: a. make it more costly for parents to provide for their children. b. reduce the value of children to their parents and, therefore, lead to a reduction in the birth rate. c. reduce the after-tax cost of raising children and, therefore, increase the birth rate. d. exert no impact on either the cost of raising children or the birth rate since having children is a not an economic activity.
c. reduce the after-tax cost of raising children and, therefore, increase the birth rate
Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that the below-equilibrium prices established by rent controls would Select one: a. create a surplus of rental housing. b. promote a rapid increase in the future supply of housing. c. result in poor service and quality deterioration of many rental units. d. lead to a reduction in housing discrimination against minorities.
c. result in poor service and quality deterioration of many rental units.
When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing Select one: a. inequities. b. inefficiencies. c. scarcity. d. shortages.
c. scarcity
When deciding whether to buy a second car, the economic way of thinking indicates that the purchaser should compare Select one: a. the additional benefits expected from a second car with the cost of the two cars. b. the benefits expected from two cars with the cost of both. c. the additional benefits of the second car with the additional cost of the second car. d. the dollar cost of the two cars with the potential income that the cars will generate.
c. the additional benefits of the second car with the additional cost of the second car
"Now that Terrance paints the broad surfaces and I do the trim work, we can paint a house in three-fourths the time that it took for each of us to do both." This statement most clearly reflects Select one: a. the importance of secondary effects. b. the fallacy of composition. c. the law of comparative advantage. d. behavior inconsistent with economizing.
c. the law of comparative advantage
While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80 cents, Emma notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Emma, the marginal cost of purchasing the third taco would be Select one: a. 75 cents. b. zero. c. 80 cents. d. 20 cents.
d. 20 cents
Which of the following is an example of a rational decision? Select one: a. DeShawn enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he fully realizes the potential for injury it creates by not wearing one in the unlikely event he is in an accident. b. Jayla, a burglar who breaks into houses, decides to break into the house at 265 Elm Street, rather than the house next door because the house next door has a sign in the yard that says "home protected by a security system." c. Nicolas, a drug user, chooses to buy his cocaine from Samuel, because Samuel's cocaine is as good as the cocaine from other dealers, but Samuel has lower prices. d. All of the above are examples of rational choices.
d. All of the above are examples of rational choices
Given your knowledge of the incentives created by private ownership, which of the following would you expect to be false? Select one: a. People will take better care of their own personal automobile than they will a rental car. b. People will take better care of a home they own than they will of a home they rent. c. Property owned privately will tend to be better conserved and kept than public property or property owned in common. d. People will be more likely to throw trash out onto their own lawn than they will be to throw it out onto the side of an interstate highway.
d. People will be more likely to throw trash out onto their own lawn than they will be to throw it out onto the side of an interstate highway.
**** In Figure 5-1, S1 and D illustrate the demand and supply for a product if it were produced in a normal competitive market. Which of the following would be true if the firms in the industry were instead able to get government licensing restrictions to limit competition in the market? Select one: a. The restricted market supply would be S3, resulting in a lower price and a higher than efficient level of output. b. The restricted market supply would be S3, resulting in a higher price and a less than efficient level of output. c. The restricted market supply would be S2, resulting in a lower price and a higher than efficient level of output. d. The restricted market supply would be S2, resulting in a higher price and a less than efficient level of output.
d. The restricted market supply would be S2, resulting in a higher price and a less than efficient level of output.
In economics, man-made resources such as tools, equipment, and structures that are used to produce other goods and services are referred to as Select one: a. marginal goods. b. consumer goods. c. infrastructures. d. capital.
d. capital
A form of economic organization that relies primarily on private ownership of productive assets, freedom of exchange, and market prices to allocate goods and resources is often called Select one: a. national socialism. b. the welfare state. c. a corporate economy. d. capitalism.
d. capitalism
Other things constant, a decrease in the demand for hair dryers will Select one: a. increase the price of hair dryers. b. increase the quantity supplied of hair dryers. c. increase the demand for hair dryer manufacturing workers. d. decrease the demand for hair dryer manufacturing workers.
d. decrease the demand for hair dryer manufacturing workers.
A restaurant offers an "all you can eat" meal for $9. Tyrone has eaten three servings and is trying to decide whether or not to go back for a fourth. The economic way of thinking suggests that Tyrone should go back for the fourth serving if and only if Select one: a. his total value from the meal exceeds $9. b. his marginal benefit of the additional serving is at least $3. c. his marginal benefit of the additional serving is $9 or more. d. his marginal benefit of the additional serving is greater than zero.
d. his marginal benefit of the additional serving is greater than zero
Brand names such as "Coca Cola" or "Nike" Select one: a. raise the cost of goods because they require advertising to make consumers aware of the brand name and, therefore, generally increase the price of products to consumers without producing any benefit to them. b. generally convey little information about a product to consumers. c. benefit consumers by assuring them of a known quality level when they buy a product that they have little previous first-hand knowledge about. d. provide the most value to consumers for goods that are repeat-purchase items.
d. provide the most value to consumers for goods that are repeat-purchase items.
In voluntary exchange, if the seller of a product gains, Select one: a. the buyer will generally lose an amount greater than the gain to the seller. b. the buyer must lose an amount equal to what the seller gains. c. someone else must lose an equal amount. d. the buyer must also gain; mutual gain provides the foundation for exchange.
d. the buyer must also gain; mutual gain provides the foundation for exchange
During a war, governments will sometimes draft people, most of whom are presently employed, into the army. An economist, computing the real cost of the war, would be sure to include which of the following items? Select one: a. the cost of transporting the soldiers to combat b. the dollar cost of the payroll c. the cost of feeding and clothing the new soldiers d. the value of the civilian goods no longer produced by the new soldiers e. the higher prices of civilian goods due to wartime shortages
d. the value of the civilian goods no longer produced by the new soldiers
