Micro Exam 1 (1-3)
Which of the following events would increase producer surplus? a. Sellers' costs stay the same and the price of the good increases. b. Sellers' costs increase and the price of the good stays the same. c. Sellers' costs increase and the price of the good decreases. d. All of the above are correct.
a
Which of the following is a positive economic statement? a. If taxes are over 50% of national income, job creation falls. b. Creating jobs is the most serious problem facing the US economy. c. Raising taxes provides additional revenue that should be used to finance health care. d. Too much gov't spending is the biggest problem facing the US economy.
a
Which of the following is part of the economic way of thinking? a. when an option becomes more expensive, people will be less likely to choose it b. the accuracy of the assumptions is the best test of an economic theory c. the value of a good can be determined objectively by measuring the amount of labor required for its production
a
"If Tom had twice as much money, he could consume twice as much. If everyone had twice as much money, they could consume twice as much." This quote illustrates: a. that association is not causation. b. the fallacy of composition. c. the law of unintended consequences. d. the difference between positive and normative economics.
b
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: a. the welfare state b. capitalism c. corporate economy d. national socialism
b
A good with a high income elasticity is generally considered to be: a. an inferior good b. a luxury good c. a necessity d. inexpensive, relative to other goods
b
A hotel in New Hampshire charges $150 per room in the winter ski season and $90 during the summer months. The number of rooms and operating costs are constant year round. These prices indicate a. a rightward shift in the demand in the summer. b. a rightward shift in demand in the winter. c. a leftward shift in the supply curve in the summer. d. a leftward shift in demand in the winter.
b
According to the law of supply, as the price of a good increases: a. buyers will buy less of a good b. sellers will produce more of the good c. sellers will produce less of the good d. buyers will buy more of the good
b
Assume that eggnog and cookies are complements. If the price of eggnog goes up, what happens to the demand for cookies? a. demand for cookies increases b. demand for cookies decreases c. demand for cookies remains unchanged d. the shift in demand will depend on the original price of cookies
b
Creative destruction refers to the process where: a. producing more of one good causes you to produce less of another b. new products and methods of production are continuously replacing old ones c. new ways to destroy buildings are employed d. everybody involved if made worse off
b
Economic choice and competitive behavior are the result of a. public ownership b. scarcity c. poverty d. private ownership of resources
b
Graphically, what impact would an increase in the price of jet fuel have on the market for air travel? a. It would shift the supply curve for air travel to the right. b. It would shift the supply curve for air travel to the left. c. It would shift the demand curve for air travel to the right. d. It would shift the demand curve for air travel to the left.
b
If a large percentage increase in the price of a good results in a small percentage reduction in the quantity demanded of the good, demand is said to be a. of unitary elasticity. b. relatively inelastic. c. relatively elastic. d. perfectly elastic.
b
If salsa and nacho chips are complements, an increase in the price of nacho chips would a. increase the price of salsa. b. decrease the demand for salsa. c. increase the demand for salsa. d. have no effect on the demand for salsa.
b
When collective decision making is utilized to resolve economic questions regarding the allocation of resources, a. economic equality will result b. central planning and political bargaining will replace market forces c. individual preferences are of no importance d. decentralized decision making is inevitable
b
When the quantity demanded and quantity supplied in a market are equal, the market is said to be in: a. fixation b. equilibrium c. excess demand d. excess supply
b
When there is excess supply of a product in a market, a. price will tend to rise. b. price must be above the equilibrium price. c. producers will expand output and sales will rise. d. price must be below the equilibrium price.
b
Which of the following is often referred to as the basic postulate of economics? a. The accuracy of the assumptions is the best test of an economic theory b. Incentives matter - individuals respond in predictable ways to changes in personal costs and benefits c. Individuals act only out of selfish motives. d. The value of a good is objective; it is equal to the cost of producing the good.
b
Which of the following is the best definition of economics? a. a study of why inflation and unemployment periodically plague the US economy b. an analysis of how individuals and societies deal with the problem of scarcity c. study of how goods and services are distributed throughout the world d. an examination of the role that money plays in the economy e. an investigation of the quantities and prices of the various goods produced by the nations of the world
b
Which of the following is true regarding private ownership? a. Relative to common ownership, private ownership generally leads to less conservation of resources. b. With private ownership, owners are held accountable for using their resources in a manner that harms the resources of others. c. With private ownership, resource owners have little incentive to consider the preferences of others when deciding how to employ a resource. d. Private ownership generally gives the owner little incentive to find ways to use the resource wisely.
b
If the citizens of a country were to work harder and take less leisure time, it would: a. cause an economy to operate insides its PPC b. shift the PPC outward c. cause an economy to move from one point on the PPC curve to another point on the curve d. shift the PPC curve inward
b
If the income elasticity of a good is positive, we can conclude that a. an inferior good b. a normal good c. a luxury good d. a necessity
b
If we observe an increase in the price of a good and an increase in the amount of the good bought and sold, this could be explained by a. an increase in the supply of the good. b. an increase in the demand for the good. c. a decrease in the demand for the good. d. a decrease in the supply of the good.
b
The opportunity cost of an action is: a. objective and will be the same for all individuals. b. the highest valued alternative forgone as the result of choosing an option. c. applicable only to choices involving material goods like commodities. d. a measure of the undesirable aspects involved in the action.
b
The student government associations at several universities have experimented with purchasing bicycles to leave around campus for everyone's use. Anyone who needs the bike can use it, and they are not allowed to lock the bike up or take it home, but rather must leave it on campus for someone else to use. Economic theory would predict that a. because universities have a lot of money, these bikes will be better maintained than the ones owned privately by college students who tend to have little money. b. students will not take as good of care of these commonly owned bicycles as they do their own bicycles. c. students will take better care of these commonly owned bicycles than they do their own bicycles. d. students will take equally as good care of these commonly owned bicycles as they do their own bicycles.
b
The wages of house painters will tend to rise when a. unemployment in the economy is high and there are few alternative jobs available for house painters b. the alternative earning opportunities of house painters improve. c. more people recognize that house painters have very low incomes. d. house painters can no longer find good paying alternatives for their labor.
b
Three basic decisions must be made by all economies. What are they? a. How much will be produced; when will it be produced; who will produce it? b. What goods will be produced; how will goods be produced; for whom will goods be produced? c. How will the opportunity cost principle be applied; if the law of comparative advantage will be utilized, how will it be utilized; will the production possibilities constraint apply? d. What will be consumed; how will goods be consumed; for whom will goods be consumed?
b
Which of the following statements about exchange is false? a. The expectation of gain motivates people to engage in trade. b. If one trading partner gains, the other must lose. c. Voluntary exchange is generally mutually beneficial to the trading partners. d. If a party to a potential exchange does not believe that it will lead to personal gain, he or she can chose not to engage in the trade.
b
In economics the term utility refers to a. the highest valued alternative that must be sacrificed when a choice is made b. the fact that human desire for goods is unlimited while the resources available to meet those desires is limited c. the subjective benefit or satisfaction a person expects to receive from a choice or course of action d. the number of possible uses for a resource
c
In economics, transaction costs refer to the: a. dollar cost or price of the item traded. b. cost an economy suffers when it allows specialization according to comparative advantage. c. time, effort, and other resources needed to search out and negotiate an exchange. d. amount by which the price of an item increases due to the presence of a middleman.
c
In voluntary exchange, if the seller of a product gains: a. someone else must lose an equal amount b. the buyer will generally lose an amount greater than the gain to the seller c. the buyer must also gain; mutual gain provides the foundation for exchange d. the buyer must lose an amount equal to what the seller gains
c
Other things constant, which of the following would you expect to increase the output growth rate of a country? a. passage of regulations restricting international trade b. passage of regulations restricting domestic trade c. an increase in the rate of investment as a share of total output d. an increase in the rate of taxation on personal income
c
The difference between positive economic statements and normative economic statements is that a. positive statements are based on opinion while normative statements are based on fact b. positive statements are often false and normative statements are true c. positive statements are based on fact while normative statements are based on opinion d. positive statements are true and normative statements are often false
c
The highest valued alternative that must be given up in order to choose an option is called a. utility b. scarcity c. opportunity cost d. disutility
c
An increase in the demand of a good means that: a. the demand curve has shifted to the left b. the good's price has fallen and, as a result, consumers are buying more of the good c. the good has become scarce d. consumers are willing to purchase more of the good at each possible price
d
Between 1994 and 2004, the monthly charge for cellular phone service decreased from $120 per month to $30 per month. At the same time, the number of subscribers increased from less than 10 million to more than 75 million. Which of the following provides the best explanation for these changes? a. an increase in consumer income between 1994 and 2004 b. a reduction in the price of residential phone service, a substitute for cellular phone service c. an increase in the wages of workers in the cellular phone industry d. technological improvements that reduced the cost of supplying cellular phone service
d
Deciding how to make the best use of limited resources to satisfy virtually unlimited wants is known in economics as: a. fallacy of composition b. the fallacy that good intentions do not guarantee the desired outcome c. ceteris paribus d. economizing behavior
d
Economics is primarily the study of a. how to find lower cost methods of production b. how to make money in the stock market c. the proper form of industrial structure for the US d. the choices we must make among alternatives because of scarcity
d
Graphically, the area that represents the difference between the maximum price consumers were willing to pay for a good and the market price is called: a. marginal cost b. triangular arbitrage c. producer surplus d. consumer surplus
d
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: a. charge a stand-by passenger more than $500. b. fill the seats at the last minute for any price. c. charge a stand-by passenger less than $100. d. charge a stand-by passenger more than $100. e. charge a stand-by passenger no less than the full fare of $500.
d
Price is important in a market economy because it a. eliminates imbalances between b. serves as the rationing mechanism for the limited supplies of goods and services. c. coordinates the choices of consumers and producers and brings them into harmony. d. is all of the above.
d
Private property rights involve: a. the right to transfer, sell, exchange, or mortgage the property b. legal protection against those who would seek to use or abuse the property without the owner's permission c. the right to exclusive use of the property d. all of the above
d
Senator DuMonde favors a government program that he believes will help save endangered species. Economic analysis indicates that: a. regardless of any secondary effects, costs should not be considered when designing environmental legislation. b. because Senator DuMonde has good intentions, his new program will have the desired results. c. because Senator DuMonde's proposal is a government program, it will not have an opportunity cost. d. Senator DuMonde's new program could have unintended consequences that might result in an outcome different from what was intended.
d
Specialization in production is beneficial because: a. it allows everyone to be self-sufficient b. it eliminates the need for the division of labor c. it allows everyone to have a job that they like d. it permits people to expand production and achieve rates of output that would otherwise be unattainable
d
The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called a. price elasticity of demand b. the substitution effect c. income elasticity of demand d. consumer surplus
d
The total economic cost of producing a good or service is called the: a. marginal valuation of output b. social consequence of resources c. comparative value of construction d. opportunity cost of production
d
The value of a good: a. depends on the labor necessary to supply the good b. can be measured objectively by a survey of manufacturers of the good c. is determined by the cost of producing it d. depends on many factors, including who uses it and under what circumstances
d
When economists say the demand for a good is highly inelastic, they mean that a. even if the price rose substantially, suppliers would be unwilling to offer much more of the good. b. the facilities utilized by producers of the good are inflexible; producers cannot easily expand their facilities, even in the long run. c. consumers will respond to a change in the price of the good by purchasing substantially more of it. d. a large (percentage) change in the price of a good will result in only a small (percentage) change in the quantity demanded.
d
When price is the rationing criterion, individuals have a strong incentive to: a. ignore the wishes of others when making decisions about how to use their resources. b. substitute promises for the consistent delivery of a quality product. c. avoid exchanges because in every exchange there will be one person who gains and another who loses. d. provide services to others in exchange for income.
d
When the price of a good falls, consumers buy more of the good because it is cheaper relative to competing goods. This statements describes the: a. consumer equilibrium effect b. price effect c. income effect d. substitution effect
d
Which of the following is a function performed by market prices? a. Market prices communicate information to buyers and sellers. b. Market prices motivate entrepreneurs to produce those products that are currently most desired relative to their costs of production. c. Market prices coordinate the decisions of buyers and sellers. d. All of the above are functions performed by market prices.
d
Which of the following most accurately reflects the opportunity cost to a pharmacist who drives a taxi? a. zero if the pharmacist received his education on a scholarship that paid his full tuition b. the revenue derived from operating the cab c. the dollars spent on his previously acquired education in pharmacy d. the value of the pharmacist's time in its highest valued use other than driving a cab
d
Which of the following most accurately states the economic significance of exchange? a. Physical goods have value because they exist; exchange can neither decrease or increase their value b. Exchange creates value by moving goods from people who value the goods less to people who value the goods more. c. Exchange creates value by permitting trading partners to expand total output as the result of specialization in areas where they have a comparative advantage. d. Both b and c are true
d
A shortage occurs whenever: a. goods are scarce. b. some of the people who need the product are not willing and able to buy it at the equilibrium price. c. quantity demanded is less than quantity supplied. d. quantity demanded exceeds quantity supplied at the equilibrium price. e. price is less than equilibrium price
e
An increase in the consumption of a good resulting from a reduction in price that makes the good cheaper in relation to other goods is called the a. substitution effect. b. income effect. c. real balance effect. d. inelasticity effect.
a
If a college enforces a new policy where anyone caught cheating is immediately expelled, the basic postulate of economics suggests that: a. fewer students will attempt to cheat b. cheating will be completely eliminated c. any of the above is possible because student behavior is unpredictable d. the amount of cheating will be unaffected
a
If the demand for a product increases as a result of a decline in income, it can be concluded that the: a. product is an inferior good b. demand for the product is inelastic c. price elasticity of demand for the product equals unity d. demand for the product is elastic
a
In economics, the term "scarcity" refers to the fact that a. no society can produce enough to satisfy fully the desires of people for goods and services b. sometimes shortages of a good arise when its price is set below the market equilibrium c. even in wealthy countries like the US, some people are poor d. everything really worthwhile costs money
a
What impact would a severe drought that destroys the wheat crop in several areas of the United States have on the market for wheat? a. The supply of wheat would fall. b. The supply of wheat would rise. c. The demand for wheat would fall. d. The demand for wheat would rise.
a
The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called a. price elasticity of demand. b. consumer surplus. c. the substitution effect. d. income elasticity of demand.
b
The economic way of thinking stresses that a. if one individual gains from an economic activity, then someone else must lose and in the same proportion. b. incentives matter--individuals respond in predictable ways to changes in personal costs and benefits. c. if a good is provided by the government, its production will not consume valuable scarce resources. d. changes in personal costs and benefits generally fail to exert much impact on behavior.
b
The fallacy of composition is the incorrect view that a. when two events are associated, the one observed first must have caused the second b. if something is true for an individual, then it must also be true for the group c. a small change in an economic variable will have unrecognizable but significant consequences on the economy d. everything else is always held constant when a change occurs
b
The law of demand refers to the: a. inverse relationship between the price of a good and the quantity offered for sale b. inverse relationship between the price of a good and the willingness of consumers to buy it c. price increase that results from an increase in demand for a good of limited supply d. increase in the quantity of a good available when its price increases.
b
The notion that specialization in goods that one can produce at a low opportunity cost will make it possible for trading partners to produce a larger joint output is called a. the law of absolute advantage b. the law of comparative advantage c. the exchange maximum principle d. the law of productions possibilities
b
A middleman is a person who: a. adds to the seller's expense and the buyer's buying price without providing a service to either. b. levies a tax on private sector activity and uses the funds to support government activities. c. specializes in arranging trades and selling, guaranteeing, and servicing items traded. d. acts as a middle person between the top management of a business firm and the hourly employees who actually produce the goods and services.
c
A point on the production possibilities curve represents a combination of goods that is: a. attainable b. inefficient c. efficient d. unattainable
c
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: a. his total value from the meal exceeds $9 b. his marginal benefit of the additional serving is $9 or more c. his marginal benefit of the additional serving is greater than zero d. his marginal benefit of the additional serving is at least $3
c
An increase in supply will cause: a. increase in demand b. decrease in demand c. increase in quantity demanded d. decrease in quantity demanded e. increase in equilibrium price
c
Assume that supply increases slightly and demand increases greatly. Which of the following will happen? a. Equilibrium price will fall and equilibrium quantity will rise. b. Equilibrium price will rise and equilibrium quantity will fall. c. Equilibrium price will rise and equilibrium quantity will rise. d. Equilibrium price will fall and equilibrium quantity will fall. e. Neither equilibrium price nor equilibrium quantity will change.
c
Because information is costly to acquire: a. people will generally choose to become as fully informed as possible when making decisions b. people will generally choose to acquire no information that would be relevant to their decisions c. people will rationally choose not to become fully informed when making decisions d. none of the above are true
c
Diminishing marginal utility means that a. as you consume more of a good, other things constant, the total satisfaction you obtain from consuming this good tends to fall. b. as you hire more labor, other things constant, the total amount produced begins to fall. c. as you consume more of a good, other things constant, the additional satisfaction you obtain from each additional unit of the good tends to fall. d. as you consume more of a good, other things constant, the extra satisfaction you obtain from each additional unit becomes negative.
c
If Sean sells Tom a tennis racket for $50, we would expect: a. the well-being of both parties to be unchanged b. Sean to gain from the transaction, while Tom loses c. both parties to gain from this transaction d. Tom to gain from the transaction, while Sean loses
c
If Xavier can produce sandwiches at a lower opportunity cost than Kimani, then: a. Xavier is capable of producing more sandwiches than Kimani in a given amount of time b. Kimani has a comparative advantage in the production of sandwiches c. Xavier has a comparative advantage in the production of sandwiches d. Xavier should not produce sandwiches
c
If equilibrium is present in a market: a. quantity supplied exceeds quantity demanded b. quantity demanded exceeds quantity supplied c. quantity demanded equals quantity supplied d. there is generally either a shortage of a surplus
c
If the income elasticity of demand for a good is negative, this implies that: a. only the poor will buy the good b. as income falls, less will be spent on the good c. as incomes rise, the demand for the good will fall d. the good does not obey the law of demand
c
The term market always refers to: a. an arrangement in which buyers and sellers meet at a specific time and place. b. a single buyer and seller of a particular good or service. c. a group of buyers and sellers of a particular good or service. d. an arrangement in which an auctioneer plays at least a limited role in setting prices.
c
The unintended consequences of an economic change that are not immediately identifiable but are felt only with time are known in economics as a. marginal effects b. scarcity constraints c. secondary effects d. opportunity costs
c
When economics say goods are scarce, they mean a. consumers are too poor to afford the goods and services available b. goods are generally freely available from nature in most countries c. the desire for goods and services exceeds our ability to produce them with the limited resources available d. consumers are unwilling to buy goods unless they have very low prices
c
Which of the following best illustrates the fallacy of composition? a. If Jamal had more money, he could afford to buy more goods. b. High housing prices cause people to buy less housing, but an increase in income might cause them to buy more housing. c. If Aisha stood up at a basketball game, she could get a better view of the game; if everyone stood up at a basketball game, everyone could have a better view of the game. c. If the price of bread rose, consumers would buy less; if consumers bought less bread, the price of bread would rise.
c
Which of the following is a positive economic statement? a. Government control of rent is an injustice. b. Gov't control of rent is a fair way to help poor people afford housing. c. Gov't control of rent decreases the number of new apartments constructed. d. Gov't control of rent keeps landlords from charging too much rent.
c
Which of the following is true of exchange? a. The total output trading partners are able to produce is not influenced by whether the partners trade with each other. b. The exchange value of a good is determined by the cost of the resources required to produce the good. c. Exchange permits trading partners to expand their total output of goods and services as the result of greater specialization in areas where each has a comparative advantage. d. Exchange is a zero sum activity; if one party to an exchange gains, the other must lose an equal amount.
c
A demand curve for flowers would show the a. number of flowers the floral shop is willing to sell at various prices. b. number of people who need flowers. c. quantity of people who want to buy these flowers. d. number of flowers that will be purchased at various prices.
d