Maco/Micro Economics Chapter 1-4

Which of the following would result in a movement along the production possibilities curve?

A) A fall in the unemployment rate B) Growth in the capital stock C) Population growth *D) A change in the relative outputs of two goods that a society chooses to produce*

In every economic system, choices must be made because resources,

A) are unlimited, but human desires and wants are limited. *B) are limited, but human desires and wants are unlimited.* C) are unlimited, and so are human desires and wants. D) are limited, and so are human desires and wants.

It is correct to state that a society which is on its production possibilities curve is

A) underutilizing is resources. B) technologically inefficient. C) consuming too much output. *D) fully utilizing its productive resources*

Economics can be described as the study of how people use ________ resources to satisfy________ wants.

A) unlimited; unlimited B) unlimited; limited *C) limited; unlimited* D) limited; limited

The fact that our wants are unlimited but our resources are limited implies that

A) we should limit our wants. B) entrepreneurship has failed as an economic system. *C) we have to make choices.* D) the only way to make someone better off is to make someone else worse off.

The issues that an economic system attempts to solve include:

A) what to produce. B) how to produce items. C) for whom items are produced. *D) all of the above.*

BONUS ESSAY QUESTIONS: A) How is an equilibrium price determined? What happens to suppliers if their price is above the equilibrium price? What happens if their price is below the equilibrium price?

The equilibrium price of a product or service is determined through massive market research. It can also vary over time. This equilibrium price occurs when the number of customers willing to pay a certain price meets the quantity suppliers are willing to make. When the market price of a good or service rises above equilibrium on its own, the number of buyers showing demand for it is reduced, causing a surplus. When the market price of a good or service falls below equilibrium on its own, the number of buyers showing demand for it exceeds supply, causing a shortage.

If an economy is operating at a point inside the production possibilities curve then,

*A) society's resources are being inefficiently utilized.* B) the curve will move to the left. C) society's resources are being used to produce too many consumer goods. D) economic policy must implement to slow growth of the economy further.

The curve that represents all possible combinations of goods that can be produced is called

*A) the production possibilities curve.* B) the resource allocation curve. C) the efficiency curve. D) the supply curve.

A market is in equilibrium when

*A) the quantity demanded equals the quantity supplied at the market clearing price.* B) the horizontal axis crosses the vertical axis. C) buyers do not desire for the price to be any lower. D) the equilibrium price is below the market price.

Entrepreneurs are important to market economies because

*A) they engage in risk taking and innovation.* B) they make up a large portion of part-time labor. C) while they take a few risks they also experience fewer bankruptcies. D) they represent the bulk of employment at large corporations.

Total market demand can be calculated by

*A) horizontally summing individual demand curves at each and every price level.* B) vertically summing individual demand curves at each and every income level. C) adding up the largest quantity demanded by each individual. D) looking at the changes in the productsʹ demand at different prices.

If the price of oil rises producers of oil will

*A) increase the quantity of oil supplied.* B) supply less oil. C) leave the amount of oil supplied unchanged. D) cut the price.

The most basic concept in economics is

A) wealth. B) income. *C) scarcity.* D) spending.

When we gauge efficiency with respect to price ceilings we recognize that:

*A) A price ceiling prohibits a market from adjusting to its equilibrium price and quantity* B) We do not experience a deadweight loss even though the total surplus to society is reduced C)It is not possible for both producer and consumer surplus to be higher D)With a price ceiling some producer surplus is inevitably transferred to other producers

When we impose a price floor or ceiling on a product or service we find:

*A) Consumers subject to price floors will pay less than the equilibrium price* B) If the price floor is reflected in a higher minimum wage, the quantity of labor supplied will increase but the quantity of labor demanded will decrease C) Some producer surplus will be transferred to other producers D) There will be an increase in jobs and total income earned by those subject to the higher minimum wage will increase

Derived demand has direct application when:

*A) The demand for a product or service increases the demand for laborers in the company providing those products or services increases* B) When derived labor demand increases the demand for labor will decrease C) When derived demand for labor increases there will be movement along the existing labor demand curve D) The demand for Hershey chocolate products increases, there will be increased demand for workers who plant cocoa trees in Africa

The ability to produce a good at a lower opportunity cost than others is known as

*A) comparative advantage.* B) absolute advantage. C) specialization. D) marginal cost production.

Economics may be referred to as a(n) ________ science, meaning that data is looked at to see whether assertions are correct.

*A) empirical* B) exact C) assumptive D) soft

In an inverse relationship,

*A) one variable rises while the other falls.* B) both variables rise together. C) both variables fall together. D) the two variables have nothing to do with each other.

6. People often complain about price gouging after a disaster such as a hurricane. Suppose the government successfully prevented price increases due to the disaster. We would expect

*A) reconstruction would take longer because the quantity supplied of new materials would not keep up with demand.* B) reconstruction would take less time because the demand for materials would increase faster than the supply C) reconstruction never would be completed D) reconstruction would take less time because the government could rebuild more quickly.

1. Price ceilings set below the equilibrium price cause

*A) shortages.* B) surpluses. C) a new market equilibrium. D) a greater number of exchanges.

Which of the following is true with respect to specialization?

A) Adam Smith in The Wealth of Nations referred to specialization and division of labor. B) With a given set of resources, specialization results in higher output. C) Individuals and nations specialize in their areas of comparative advantage in order to reap the gains of specialization. *D) All of the above are correct.*

The supply curve for labor is upward sloping and:

A) Adhere to the Law of Demand B) Discourage employers who seek higher labor productivity by investing in labor saving automation alternatives *C) When combined with a downward sloping labor demand curve will determine the resulting equilibrium wages and quantity of labor supplied* D) Be unresponsive to managers who wish to substitute improved communication, information, and automated processing equipment for low skilled labor

Price ceilings and floors serve to:

A) Block some transactions that consumers and producers would otherwise have made B) Initially misallocate labor resources. However the market will inevitably adjust to reach equilibrium wage and quantity of labor supplied C) Reflect an economy where social surplus will decrease once transaction barriers are removed *D) Reflect the personal objectives and/or biases of those imposing these market restrictions*

Which of the following statements is a normative as opposed to a positive economic statement?

A) Consumer spending generates more jobs. B) If the price of gasoline goes up, people buy less. *C) Labor unions should be allowed to organize in every industry.* D) Government intervention in markets is common in many countries.

Which of the following is NOT true about the use of economic models?

A) Economic models are simplified representations of the real world. B) Economists never use laboratory experiments to test their theories. C) Economists use what has already happened in the real world to test their theories. *D) Economists are employed to explain economic phenomena but are never used to predict what might happen next.*

Which of the following statements about a supply curve is FALSE?

A) It shows a direct (positive) relationship between price and quantity supplied. B) It shows the quantity supplied at each specific price. *C) It typically slopes downward to the right.* D) It has a positive slope.

Theories of supply and demand apply to which of the following conditions:

A) Labor markets are made up of individuals who are job seekers and companies who demand Labor. B) Where when the quantity of labor supplied exceeds the quantity demanded, wage rates will increase *C) When employers must pay higher wages, they may seek to replace higher priced labor with lower priced production options* D) At the equilibrium wage, employers will find a surplus of workers waiting to be hired

Increases in workers' salaries when labor supply decreases:

A) Leads to movement along existing labor demand and labor supply curves B) May reflect shifts in the supply curve for labor to the left C) Moves the demand curve for labor to the right D) Will result in a higher equilibrium wage *?*

When higher minimum wages are dictated by government the following results can be expected:

A) More workers will be hired and total worker incomes will increase B) Employers will seek to reduce total labor costs by reducing jobs and hours worked C) Consumers will pay less for affected products as prices drop D) Shareholders will benefit from higher corporate profits *?*

7. The price of milk increases. Which of the following is NOT part of the likely chain of events that follows from this price change?

A) Some milk consumers reduce their consumption of milk. B) Milk producers increase their production of milk. C) The producers of feed for dairy cows increase production. *D) The manufacturers of milking machines lay off some workers.*

Which is the best example of an intangible good?

A) The car you dream of owning but cannot afford. B) The suit you hope will make a good impression when you go on job interviews. C) The textbook study guide you hope will prepare you to perform well for examinations. *D) The advice and expertise provided by the music store clerk who sold you that CD.*

What happens as the result of a shortage?

A) There is downward pressure on prices. *B) There is upward pressure on prices.* C) Consumers begin to view the good as an inferior good because they have a hard time finding it. D) Supply of the good decreases.

The four-step process to analyze how technology shifts affect supply and demand in labor markets include the following step(s)

A) Understand the factors that influence the supply and demand for labor before the introduction of the new technology B) Determine how the new technology effects either the supply or demand for labor C) Determine if the new technology will increase or decrease the demand for labor and find the new equilibrium for high skilled and low skilled labor *D) All of the above*

Factors that can increase or decrease the demand for labor include:

A) When demand for the associated product or service increases the derived demand for labor will increase B) When the number of companies who provide the product or service requiring those products or services changes C) Government regulations specify minimum job skill requirements *D) All of the above*

5. A severe drought has devastated cocoa plants, causing an increase in the price of chocolate. In the market for chocolate chip cookies,

A) a surplus will arise. *B) supply has decreased and price has increased.* C) quantity has decreased and price has decreased. D) quantity demanded has increased.

The ceteris paribus assumption is important in economics because

A) all empirical data are equal. *B) it would be impossible to relate the effects of changes in one variable on another without holding some variables constant.* C) economic data move very slowly over time and so they can always be considered constant. D) models are always complex and require as many variables as possible.

The relationship between quantity supplied and price is usually

A) an inverse relationship. *B) a direct relationship.* C) a negative relationship. D) impossible to determine.

Capital goods

A) are a special type of consumption goods. B) are consumed because they enhance the enjoyment consumers obtain from other goods and services. *C) are goods used to make consumer goods and services.* D) lead to inward shifts of a production possibilities curve.

The slope of a line is the

A) change in the values along the x-axis divided by the change in the values along the y-axis. B) values on the x-axis divided by the values on the y-axis. C) change in the values along the y-axis divided by the change in the values along the x-axis. D) values on the y-axis divided by the values on the x-axis *?*

8. The law of demand states that

A) consumers have unlimited demands for a good. B) a higher price will lead to increased sales. C) the price can always be higher than some consumers are willing to pay. *D) quantity demanded will vary inversely with the price of the good*

Specialization and the division of labor typically result in

A) cost overruns. *B) increased output.* C) decreased output. D) a greater reliance upon imports.

3. The objective of rent controls is to

A) ensure an adequate supply of rental housing for the poor. *B) keep rents below levels that would occur in a freely competitive market.* C) encourage the construction of new rental units. D) raise revenue for the local apartment building owners.

The relative price of a good is that price

A) expressed in today's dollars. B) expressed in constant 2005 dollars. *C) expressed in terms of the price of another good.* D) that is equal to the equilibrium price.

When we say that an individual behaves according to ʺrational self-interestʺ we mean that this individual

A) is motivated by greed. B) will always buy the most fashionable items available. C) will always buy the least expensive products available on the market. *D) is making choices that he or she believes will leave him or her better off.*

A relationship between two variables in which one variable increases at the same time as the other decreases are called

A) nonlinear. B) constant. *C) inverse.* D) direct.

The market supply curve is found by

A) plotting the supply curves of individual firms. *B) plotting and summing up the supply curves of individual firms.* C) plotting the supply curves of individual consumers. D) taking the supply curve of the representative firm.

The United States is best known as a

A) pure price system. B) dictatorship. C) command and control system. *D) mixed economic system.*

2. Which of the following is a price floor?

A) rent controls *B) minimum wage rates* C) a freeze on upward-moving gasoline prices D) college tuition caps

The difference between scarcity and a shortage is that

A) scarcity is caused by poverty and shortages are caused by natural disasters. B) shortages are a type of scarcity caused by natural disasters while scarcity is caused by human errors. *C) scarcity always is a part of human life while shortages usually are temporary.* D) shortages are always part of human life while scarcity is usually temporary.

When productive activities are organized according to the principle of the division of labor

A) scarcity is eliminated. B) we do not devote enough resources for capital investment. *C) total output increases due to the advantages of specialization.* D) an inefficient outcome results.

Microeconomics is defined as that part of economic analysis that

A) studies the behavior of the economy as a whole. B) includes the problems of inflation and unemployment. *C) studies individual decision making by households and firms.* D) concerns aggregate production and consumption.

There is an increase in the demand for cream when the price of coffee falls. Other things constant, we can conclude that coffee and cream are

A) substitute goods. B) inferior goods. C) independent goods. *D) complementary goods.*

Economic goods are defined as

A) tangible items only. B) services only. *C) anything from which an individual derives satisfaction.* D) any item which is available in sufficient quantity at zero price.

4. Prices in a market economy perform a rationing function because they reflect

A) the demand of all buyers in the market. B) the extent to which the goods are necessities. C) the strength of the supply curve. *D) the relative scarcity of the goods in question.*

Opportunity cost is

A) the intrinsic value of an economic good. B) the total value of all the alternatives forsaken when a choice is made. C) the value of the opportunity selected when a need is satisfied. *D) the value of the next highest ranked alternative that must be sacrificed to obtain a want.*

Other things being equal, an increase in the price of a good leads to an increase in the amount produced. This is known as

A) the law of demand. *B) the law of supply.* C) ceteris paribus. D) equilibrium.

An appropriate test of the effectiveness of an economic model is

A) the number of variables contained within the model. *B) the model's ability to predict future economic activity.* C) the number of economists who have worked on the model. D) the number of assumptions which the economist has made.

An economic system is

A) the universe of all resources. B) a way to create new resources. *C) a mechanism that allocates scarce resources.* D) an organization that generates profits.

In any given market

prices are determined by, A) specialization of labor. B) transactions costs. *C) supply and demand.* D) comparative advantage.