Micro Exam 1

Which of the following is a macroeconomics question? A. What determines the inflation rate? B. What factors determine the price of carrots? C. What determines the production of DVDs? D. What determines the wage of auto workers?

A. What determines the inflation rate?

The production possibilities frontier model shows that A. if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good. B. if consumers decide to buy more of a product its price will increase. C. economic growth can only be achieved by free market economies. D. a market economy is more efficient in producing goods and services than is a centrally planned economy.

A. if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

In a production possibilities frontier model, a point ____ the frontier is productively inefficient. A. inside B. outside C. along D. at either intercept of

A. inside

Economists assume that rational people do all of the following except A. undertake activities that benefit others and hurt themselves. B. use all available information as they act to achieve their goals. C. weigh the benefits and costs of all possible alternative actions. D. respond to economic incentives.

A. undertake activities that benefit others and hurt themselves.

Microeconomics is the study of A. the global economy. B. how households and firms make choices. C. topics such as unemployment, inflation, and economic growth. D. the economy as a whole.

B. how households and firms make choices.

Which of the following is evidence of a surplus of bananas? A. Firms raise the price of bananas. B. The price of bananas is lowered in order to increase sales. C. The quantity demanded of bananas is greater than the quantity supplied. D. The equilibrium price of bananas rises due to an increase in demand.

B. The price of bananas is lowered in order to increase sales.

Which of the following is a normative economic statement? A. When the price of gasoline rises, the quantity of gasoline purchased falls. B. The price of gasoline is too high. C. When the price of gasoline rises, transportation costs rise. D. The current high price of gasoline is the result of strong worldwide demand.

B. The price of gasoline is too high.

The distribution of income primarily determines which of the fundamental economic questions? A. How the goods and services are to be produced? B. Who will receive the goods and services produced? C. What goods and services are to be produced? D. How to plan the economy?

B. Who will receive the goods and services produced?

Ranchers can raise either cattle or sheep on their land. Which of the following would cause the supply of sheep to increase? A. an increase in the price of sheep feed B. a decrease in the price of cattle C. an increase in the demand for cattle D. an increase in the price of sheep

B. a decrease in the price of cattle

Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase? A. an increase in the price of butter, a complement for white bread B. a decrease in the price of flour C. an increase in the price of rye bread, a substitute for white bread D. an increase in the price of flour

B. a decrease in the price of flour

If opportunity costs are constant, the production possibilities frontier would be graphed as A. a negatively sloped curve bowed in toward the origin. B. a negatively sloped straight line. C. a positively sloped straight line. D. a ray from the origin.

B. a negatively sloped straight line.

Comparative advantage means the ability to produce a good or service A. at a higher profit level than any other producer. B. at a lower opportunity cost than any other producer. C. at a lower selling price than any other producer. D. of a higher quality than any other producer.

B. at a lower opportunity cost than any other producer.

The demand by all the consumers of a given good or service is the ____ for the good or service. A. law of demand B. market demand C. quantity demanded D. demand schedule

B. market demand

The highest valued alternative that must be given up to engage in an activity is the definition of A. marginal benefit. B. opportunity cost. C. economic equity. D. marginal cost.

B. opportunity cost.

Suppose that when the price of raspberries increases, Lonnie increases his purchases of papayas. To Lonnie, A. raspberries and papayas are complements. B. raspberries and papayas are substitutes. C. raspberries and papayas are normal goods. D. raspberries and papayas are inferior goods.

B. raspberries and papayas are substitutes.

Adam Smith's invisible hand refers to A. the laws of nature that influence economics decisions. B. the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole. C. property ownership laws and the rule of the court system. D. the government's unobtrusive role in ensuring that the economy functions efficiently.

B. the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole.

A successful market economy requires A. an equitable distribution of income and limits on immigration. B. well-defined property rights and an independent court system to adjudicate disputes based on the law. C. generous unemployment benefits and paid medical leave for everyone in the labor force. D. a government-controlled banking system and government price controls.

B. well-defined property rights and an independent court system to adjudicate disputes based on the law.

Which of the following illustrates the law of supply? A. A change in price causes a shift of the supply curve. B. An increase in the number of firms in an industry causes a shift of the supply curve. C. An increase in price causes an increase in the quantity supplied, and a decrease in price causes a decrease in the quantity supplied. D. all of these

C. An increase in price causes an increase in the quantity supplied, and a decrease in price causes a decrease in the quantity supplied.

Which of the following is the correct way to describe equilibrium in a market? A. At equilibrium, market forces no longer apply. B. At equilibrium, demand equals supply. C. At equilibrium, quantity demanded equals quantity supplied. D. At equilibrium, scarcity is eliminated.

C. At equilibrium, quantity demanded equals quantity supplied.

If the demand for a good increases, which of the following will generally occur in a market setting? A. The price of the good will decrease. B. The supply of the good will increase. C. The quantity supplied will increase. D. Producer profits will fall.

C. The quantity supplied will increase.

The basic economic problem of ____ has always existed and will continue to exist. A. efficiency B. recession C. scarcity D. inflation

C. scarcity

The principle of opportunity cost is that A. the cost of production varies depending on the opportunity for technological application. B. taking advantage of investment opportunities involves costs. C. the economic cost of using a factor of production is the alternative use of that factor that is given up. D. in a market economy, taking advantage of profitable opportunities involves some money cost.

C. the economic cost of using a factor of production is the alternative use of that factor that is given up.

A change in all of the following variables will change the market demand for a product except A. tastes. B. income. C. the price of the product. D. population and demographics.

C. the price of the product.

Who receives the most of what is produced in a market economy? A. lawmakers and other politically favored groups B. people who earn the highest incomes C. those who are willing and able to buy them D. everyone receives an equal amount

C. those who are willing and able to buy them

Which of the following is a positive economic statement? A. The standard of living in the United States should be higher. B. The government should revamp the health care system. C. The U.S. government should not have bailed out U.S. auto manufacturers. D. If the price of iPhones falls, a larger quantity of iPhones will be purchased.

D. If the price of iPhones falls, a larger quantity of iPhones will be purchased.

An outward shift of a nation's production possibilities frontier represents A. rising prices of the two goods on the production possibilities frontier model. B. a situation in which a country produces more of one good and less of another. C. an impossible situation. D. economic growth.

D. economic growth.

All of the following are critical functions of the government in facilitating the operation of a market economy except A. enforcing contracts. B. enforcing property rights. C. protecting private property. D. ensuring an equal distribution of income to all citizens.

D. ensuring an equal distribution of income to all citizens.

When the production possibilities curve is bowed out, resources are A. not being used efficiently. B. available in larger and larger quantities as more of one good is produced. C. equally well suited to the production of both goods. D. not equally well suited to the production of both goods.

D. not equally well suited to the production of both goods.

By definition, economics is the study of A. how to make money in a market economy. B. how to make money in the stock market. C. supply and demand. D. the choices people make to attain their goals, given their scarce resources.

D. the choices people make to attain their goals, given their scarce resources.

One would speak of a change in the quantity of a good supplied, rather than a change in supply, if A. the cost of producing the good changes. B. supplier expectations about future prices change. C. prices of substitutes in production change. D. the price of the good changes.

D. the price of the good changes.