Microeconomics Mid-Term Study Guide
In the United States, the poorest 20 percent of households earn roughly ________ percent of total income.
3
Which of the following is NOT a voluntary exchange? A) Tom's car is stolen from in front of his house. B) Marie buys groceries. C) Scott pays $10,000 for tuition and fees this semester. D) Emily buys a $1,000 plane ticket to fly from New York to Dallas on short notice.
a
Which of the following is NOT an example of a transaction cost? A) The enjoyment of owning the good. B) The opportunity cost of time spent looking for stores that sold the good desired. C) The cost of returning a defective product. D) Time spent bargaining over the price of a good.
a
Which of the following is a main characteristic of exchanges in the market system? A) Decisions to trade are based on individuals' self interest. B) Exchanges are highly regulated by the government. C) Sellers hire economists to determine the market clearing price. D) Exchanges are part of the legislative imperative.
a
Which of the following is most likely to generate a surplus? A) A price floor B) A price ceiling C) An illegal market D) All of these
a
Which of the following statement is false? A) Only the price system can be used to ration goods. B) Random assignment can be a method of rationing. C) Coupons can be used to ration goods. D) Queuing can be used for rationing.
a
Which of the following statements is NOT true about the rationing of goods? A) Goods can only be rationed by price. B) Goods can be rationed on a first come first serve basis. C) Goods can be rationed by random. D) Goods can be rationed by the use of coupons.
a
A demand schedule shows A) the quantities that people plan to buy in all possible circumstances. B) the quantities that people plan to buy at each different price when all other influences on buying plans remain the same. C) the quantities that people would plan to buy if they could afford them at each different price when all other influences on buying plans remain the same. D) the quantities that people plan to buy at each different income when all other influences on buying plans remain the same.
b
A maximum legal price that may be charged for a particular good or service is known as a A) price floor. B) price ceiling. C) black market. D) price support.
b
A price ceiling set below the market clearing price will tend to cause which of the following? A) a surplus B) a shortage C) an increase in demand D) a reduction in supply
b
A reason the production possibilities frontier exists is A) unlimited resources and technology. B) scarcity of resources. C) scarcity of resources and unlimited technology. D) unemployment. E) that people's wants are unlimited.
b
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.
b
According to the functional distribution of income, in the United States A) capital earns most of the income. B) labor earns most of the income. C) land earns most of the income. D) entrepreneurs earned most of the income. E) the income earned by capital and labor are approximately equal.
b
All of the following are methods of rationing goods EXCEPT A) political power. B) the profit motive. C) first come, first served. D) prices.
b
An example of a black market is A) the market for high fashions. B) the hiring of undocumented workers. C) a farmer's market. D) a discount market.
b
An increase in supply, other things being equal, will cause which of the following to occur? A) quantity supplied to decrease. B) quantity demanded to increase. C) a rightward shift in the demand curve as the price falls. D) a leftward shift in the demand curves as the price increases.
b
Because of scarcity, rationing is A) unimportant because people get what they want. B) necessary because people cannot get everything they want. C) unimportant because prices clear markets. D) not a problem because governments can determine what everybody wants.
b
Buyers and sellers receive signals from markets A) by listening to the TV news programs. B) through the price system. C) from the gossip columns in the newspapers. D) from their friends and acquaintances.
b
Chocolate has just been found to increase your expected life span by 5 years if you eat it every day. In the market for chocolate, this information will lead to A) an increase in price and a decrease in quantity. B) an increase in price and an increase in quantity. C) a decrease in price and a decrease in quantity. D) a decrease in price and an increase in quantity.
b
Excess quantity demanded may result from A) a government-imposed minimum price above market equilibrium. B) a government-imposed maximum price below market equilibrium. C) an oversupply of output. D) technological progress.
b
Goods X and Y are complementary goods. A decrease in price of good X has occurred. In the market for good Y, this will lead to A) an increase in price and a decrease in quantity. B) an increase in price and an increase in quantity. C) a decrease in price and a decrease in quantity. D) a decrease in price and an increase in quantity.
b
Holding supply constant, a reduction in demand leads to A) lower prices and higher quantity supplied. B) lower prices and lower quantity supplied. C) higher prices and higher quantity supplied. D) higher prices and lower quantity supplied.
b
Human capital can be increased through A) investment in new technology. B) education, on-the-job training, and work experience. C) investment in new machinery. D) decreases in population. E) increasing the nation's production of consumption goods.
b
If equilibrium price falls and the equilibrium quantity of the good purchased decreases, what has happened to either the supply curve or to the demand curve? A) Supply increased. B) Demand decreased. C) Demand increased. D) Supply decreased.
b
When a nation is producing on its production possibilities frontier, if more resources are used to produce one good, then the production of other goods A) must increase. B) must decrease. C) must remain the same. D) must change but they might increase or decrease. E) might increase if the nation can produce more efficiently.
b
When drawing a production possibilities frontier, which of the following is held constant? A) the amount of money in the economy B) the available factors of production and the state of technology C) the prices of goods and services D) the quantity of the goods and services that are produced
b
Which of the following is NOT a predictable result of a price ceiling set below the market clearing price? A) An illegal market in the good B) Excess quantity supplied C) Excess quantity demanded D) Lines to purchase the product
b
If supply decreases and demand increases, A) the market clearing price definitely rises, and the equilibrium quantity falls. B) the market clearing price definitely rises, and the equilibrium quantity is indeterminate. C) the market clearing price definitely falls, and the effect on the equilibrium quantity is indeterminate. D) the effect on the market clearing price is indeterminate, and the equilibrium quantity definitely falls.
b
If the production possibilities frontier between two goods is a straight line, then the A) opportunity cost is not a ratio. B) resources are equally productive in both goods. C) line does not qualify as a production possibilities frontier because the unattainable production points are too close to the inefficient production points. D) Both answers A and C are correct.
b
The price system features A) exchanges made in currency only. B) voluntary exchange that makes both the consumer and producer better off. C) exchanges made only on a barter basis. D) an exchange in which consumer is made better off and the producer is made worse off.
b
The production possibilities frontier is the boundary between the A) goods and services that the economy can produce. B) attainable and unattainable combinations of goods and services. C) wanted and unwanted combinations of goods and services. D) rational and irrational choices facing a society. E) affordable and unaffordable combinations of production.
b
The publication Consumer Reports reduces transaction costs on many purchases by A) providing coupons. B) providing reliable information on product quality. C) advertising sales at discount stores. D) paying its employees low wages.
b
The rationing function of prices refers to A) the situation when government must intervene in a market when there is a large shortage or surplus. B) the synchronization of decisions by buyers and sellers that leads to an equilibrium. C) the synchronization of decisions by buyers and sellers through the direction of government agencies. D) the situation when only the rich get the goods they want.
b
The richest 20 percent of individuals in the United States receive about ________ of the nation's total income. A) 21 percent B) 51 percent C) 91 percent D) 99 percent E) 23 percent
b
The signaling aspect of the market system refer to A) legal requirements for contracts and exchanges. B) the price of the good to the consumer and producer. C) the voluntary character of the exchange. D) transaction costs of carrying out exchanges.
b
The way we know what commodities are relatively scarce or abundant is through A) transaction costs. B) prices. C) price ceilings. D) price floors.
b
Wages are paid to ________ and interest is paid to ________. A) entrepreneurs; capital B) labor; capital C) labor; land D) entrepreneurs; land
b
What would happen in the market for bread if its demand increased but the price was NOT allowed to change? A) There would be a surplus of bread. B) There would be a shortage of bread. C) The supply of bread would increase. D) The supply of bread would decrease.
b
When a country's production possibilities frontier shifts outward over time, the country is experiencing A) no opportunity cost. B) economic growth. C) higher unemployment of resources. D) a decrease in unemployment of resources.
b
Which of the following statements is NOT true about exchanges in the market system? A) In voluntary exchange both parties are better off because of the exchange. B) Exchanges occur only in situations of barter where the market price is irrelevant. C) Prices indicate what is relatively abundant and what is relatively scarce. D) Transaction costs in exchanges include the cost of enforcing a contract as well as the costs of information.
b
Which of these would NOT be considered a middleman? A) A produce wholesaler B) An apple farmer C) A shopbot company D) A fruit distributor
b
A change in an equilibrium price can result from I. A change in demand II. A change in supply
both 1 and 2
) In a situation in which rationing is by queues, the total price of the rationed good is A) equal to the funds paid for the good. B) less than the funds paid for the good. C) equal to the funds paid for the good plus the opportunity cost of the time spent waiting. D) equal to the funds paid for the good less the opportunity cost of the time spent waiting.
c
A decrease in demand and an increase in supply will lead to A) unambiguous increases in both price and quantity. B) unambiguous decreases in both price and quantity. C) an unambiguous decrease in price, but the effect on quantity is indeterminate. D) an unambiguous decrease in quantity, but the effect on price is indeterminate.
c
A demand schedule A) shows the quantity demanded at one price. B) is a graph showing a relationship between the quantity demanded and the price of a good. C) is a list of the quantities demanded at each different price when all other influences on buying plans remain the same. D) shows that demand is on schedule.
c
A long line at the campus bookstore at the beginning of the term is an example of A) price rationing. B) an ineffective price ceiling. C) a non-price rationing device. D) an ineffective price floor.
c
A market in which a price-controlled good is sold at an illegally high price is known as A) a flooring market. B) a ceiling market. C) a black market. D) a supermarket.
c
For which situation would we expect the adjustment speed to be the fastest? A) The demand for surgeons increases. B) A large increase in birth rates leads to an increase in elementary school teachers. C) The demand for movie videos increases. D) The demand for office space in downtown Chicago increases.
c
Goods X and Y are complementary goods. An increase in the price of good X has occurred. In the market for good Y this will lead to A) an increase in price and a decrease in quantity. B) an increase in price and an increase in quantity. C) a decrease in price and a decrease in quantity. D) a decrease in price and an increase in quantity.
c
Government policies such as price controls, rent controls, and quantity restrictions have the effect of A) promoting the attainment of an unhindered market equilibrium. B) allowing quantity demanded to adjust to equality with aggregate supply. C) creating excess quantities demanded or excess quantities supplied. D) pushing prices to market clearing levels more rapidly than private market forces.
c
Holding supply constant, an increase in demand leads to A) lower prices and higher quantity supplied. B) lower prices and lower quantity supplied. C) higher prices and higher quantity supplied. D) higher prices and lower quantity supplied.
c
Markets tend to A) exist primarily in towns or cities. B) increase transaction costs. C) reduce transaction costs. D) make exchange more difficult.
c
One of the productive resources is capital. Capital includes A) money borrowed from a bank. B) a company's stocks and bonds. C) tools, buildings, and machine tools. D) toys, t-shirts, CD players, and pencils. E) money in a savings account at a bank.
c
Payments to the factors of production are A) rent, mortgage, interest, and bonds. B) rent, interest, bonds, and profit or loss. C) rent, wages, interest, and profit or loss. D) rent, wages, profit or loss, and bonus. E) land, labor, capital, and entrepreneurship.
c
Price controls A) exist when firms decide that they want to charge a higher price for their product. B) exist when consumers boycott a product. C) are government-mandated minimum or maximum prices that may be charged for goods. D) are the benefit of discount stores like Sam's Club.
c
Prices ration goods to A) the people who most deserve it. B) the people with the lowest opportunity cost of time. C) the people willing and able to pay the highest price. D) the richest people.
c
Suppose that demand for soybeans increases, and simultaneously, the supply of soybeans increases. Which of the following would you conclude definitely will occur in the market for soybeans? A) The market clearing price will rise. B) The market clearing price will fall. C) The equilibrium quantity will rise. D) The equilibrium quantity will fall.
c
Suppose there is a simultaneous increase in demand and increase in supply. Given this information, we know with certainty that A) both the equilibrium price and the equilibrium quantity will increase. B) the equilibrium price will increase, and the equilibrium quantity will increase. C) the equilibrium quantity will increase. D) the equilibrium price will increase.
c
Suppose we observe the following two simultaneous events in the market for cigarettes. First, there is a decrease in the demand for cigarettes due to changes in consumer tastes. And second, there is a reduction in supply due to tobacco farmers selling their land to real estate developers. We know with certainty that these two simultaneous events will cause which of the following? A) no change in the equilibrium quantity and a reduction in the equilibrium price B) an increase in the equilibrium quantity and in the equilibrium price C) a decrease in the equilibrium quantity and an indeterminate change in the equilibrium price D) a decrease in the equilibrium quantity and an increase in the equilibrium price
c
Suppose you observe that the price of a good increases and that the quantity of this good sold also increases. If only the demand curve or the supply curve shifts this suggests that A) supply increased over time while demand remained the same. B) supply decreased over time while demand remained the same. C) demand increased over time while supply remained the same. D) demand decreased over time while supply remained the same.
c
The United States possesses a large amount of human capital. As a result of this fact, in the United States there is a A) large amount of machinery and equipment. B) large number of people and a great deal of land. C) highly skilled and educated labor force. D) large number of kind and generous humans. E) large amount of machinery (capital) that is run by people (humans).
c
The economy is undergoing a recession that has reduced consumers' incomes. In the computer chip market, this will lead to A) an increase in price and a decrease in quantity. B) an increase in price and an increase in quantity. C) a decrease in price and a decrease in quantity. D) a decrease in price and an increase in quantity.
c
The income earned by entrepreneurs is A) interest. B) wages. C) profit or loss. D) rent, wages, and interest.
c
The law of demand refers to how A) demand changes when people's incomes change. B) demand changes when the prices of substitutes and complements change. C) the quantity demanded changes when the price of the good changes. D) the price of the good changes when people's demand for the good changes.
c
The personal distribution of income in the United States shows that A) income is equally distributed. B) the poorest 20 percent of individuals receive approximately 20 percent of total income. C) the richest 20 percent of individuals receive approximately 50 percent of total income. D) the poorest 60 percent of individuals receive approximately 50 percent of total income. E) the richest 20 percent of individuals receive approximately 25 percent of total income.
c
The price system has A) prices fixed by the government. B) prices fixed by the seller. C) voluntary exchange. D) prices fixed by the producer.
c
A technological advancement has just occurred in the computer chip industry. In the computer chip market this will lead to A) an increase in price and a decrease in quantity. B) an increase in price and an increase in quantity. C) a decrease in price and a decrease in quantity. D) a decrease in price and an increase in quantity.
d
All other factors being constant, a reduction in price tends to cause which of the following? A) an increase in supply and an increase in demand. B) a reduction in supply and an increase in demand. C) an increase in quantity supplied and a reduction in quantity demanded. D) a reduction in quantity supplied and an increase in quantity demanded.
d
An export good is a good produced A) in the United States and sold to foreigners living in the United States. B) by foreigners in the United States and purchased by U.S. households. C) in another country and purchased by U.S. residents. D) in the United States and sold in other countries. E) in another country and purchased by foreigners not residing in the United States.
d
An increase in demand and a decrease in supply will lead to an A) unambiguous increases in both price and quantity. B) unambiguous decreases in both price and quantity. C) an unambiguous increase in quantity, but the effect on price is indeterminate. D) an unambiguous increase in price, but the effect on quantity is indeterminate.
d
Assume that the market clearing price for a shirt is $20, but that the maximum price that can be charged is $15. This is an example of A) a price control that will lead to a surplus of shirts on the market. B) a price floor that will lead to a shortage of shirts on the market. C) markets failing to ration a fixed quantity of a good. D) a price ceiling that will likely lead to a shortage of shirts on the market.
d
Capital is a factor of production. An example of capital as a factor of production is A) money. B) stocks. C) bonds. D) machines. E) education.
d
Economists assume that when there is a change in supply and/or demand, the market clearing price returns to the equilibrium A) quickly. B) slowly. C) after a protracted negotiation process. D) after an adjustment period.
d
Entrepreneurship, as a factor of production, refers to A) the technology used by firms. B) the human capital accumulated by workers. C) the value of the firm's stock. D) the human resource that organizes labor, land, and capital. E) the capital the firm uses.
d
Governments may intervene in private markets through A) rationing by political power. B) price floors. C) price ceilings. D) all of the above.
d
Holding demand constant, a reduction in supply leads to A) lower prices and higher quantity demanded. B) lower prices and lower quantity demanded. C) higher prices and higher quantity demanded. D) higher prices and lower quantity demanded.
d
If a price ceiling is set above the current market clearing price, then A) a surplus must immediately occur. B) a shortage must immediately occur. C) there will be incentives for black markets to develop. D) quantity demanded will remain equal to quantity supplied at the current market clearing price.
d
If a price floor is set below the current market clearing price, then A) a surplus must immediately occur. B) a shortage must immediately occur. C) there will be incentives for black markets to develop. D) quantity demanded will remain equal to quantity supplied at the current market clearing price.
d
If a society moves from a period of time with significant unemployment to a time with full employment, its production possibilities frontier will A) shift leftward. B) shift rightward. C) not shift because the society moves from one point on the frontier to a point inside the frontier. D) not shift because the society moves from a point inside the frontier to a point on the frontier.
d
If an economy cannot produce more of one good without producing less of another good, this implies that which of the following has been achieved? A) allocative efficiency B) minimum marginal cost C) PPF efficiency D) production efficiency
d
If demand and supply both decrease, A) the equilibrium quantity definitely will decrease, and the market clearing price definitely will decrease. B) the equilibrium quantity definitely will decrease, and the market clearing price definitely will increase. C) the market clearing price definitely will decrease, but the change in the equilibrium quantity cannot be determined without more information. D) the equilibrium quantity definitely will decrease, but the change in market clearing price cannot be determined without more information.
d
If demand decreases and supply increases, A) the market clearing price will decrease, and the equilibrium quantity will increase. B) the market clearing price will decrease, and equilibrium quantity will decrease. C) the equilibrium quantity will decrease, but the change in the market clearing price cannot be determined without more information. D) the equilibrium price will decrease, but the change in the equilibrium quantity cannot be determined without more information.
d
If demand increases while supply simultaneously decreases, then the equilibrium quantity A) always increases. B) always decreases. C) can never change. D) none of the above
d
If one day it was discovered that lime juice caused cancer, which of the following would likely result? A) The supply curve for lime juice would shift to the right. B) The supply curve for lime juice would shift to the left. C) The demand curve for lime juice would shift to the right. D) The demand curve for lime juice would shift to the left.
d
If the demand for a product rises and the supply stays the same A) the market clearing price will fall and the equilibrium quantity will rise. B) the market clearing price will rise and the equilibrium quantity will fall. C) both the market clearing price and the equilibrium quantity will fall. D) both the market clearing price and the equilibrium quantity will rise.
d
If the government imposed a price ceiling on gasoline above this good's current market clearing price, there would be A) a shortage of gasoline. at the ceiling price. B) a surplus of gasoline at the ceiling price. C) an increase in the price of gasoline. D) no change in the price of gasoline.
d
If there is unemployment in an economy, then the A) production possibilities frontier will shift inwards. B) economy is operating at an unattainable point. C) production possibilities frontier will shift outwards. D) economy is producing at a point inside the production possibilities frontier.
d
In a market system, the costs associated with exchanging goods are known as A) voluntary costs. B) signaling costs. C) wholesale costs. D) transaction costs.
d
In a production possibilities frontier diagram, the attainable production points are shown as A) only the points on the production possibilities frontier. B) only the points beyond the production possibilities frontier. C) only the points inside the production possibilities frontier. D) the points inside and the points on the production possibilities frontier. E) any of the production points.
d
In a world of scarcity, there has to be some way to ration the available resources. According to economists, the most efficient use of available resources occurs when rationing occurs via A) queuing. B) lotteries. C) political power. D) the price system.
d
In situations in which prices cannot be used to signal relative scarcities of goods, which of the following can serve as a rationing mechanism? A) queuing B) political power C) random assignment D) all of the above
d
In the 1970s, the government placed price ceilings on gasoline prices. A shortage of gasoline occurred, and long lines formed at the pumps. Some gas stations required that in addition to paying the price on the pump you had to buy a blank will. The action of having to purchase the will in order to purchase gas is known as A) a surplus. B) a price support. C) the price system. D) a black market.
d
In the United States, the richest 20 percent of households receive about ________ percent of total income. A) 4 B) 15 C) 23 D) 50
d
In the price system, A) prices are set by government action. B) producers alone set the price. C) the president sets all prices. D) price is set by the interaction of supply and demand.
d
Nonprice rationing devices are required A) because the price system does not allocate resources efficiently. B) when there are price floors but not when there are price ceilings. C) so that prices will go back to equilibrium. D) to allocate goods when there is a price ceiling.
d
Price ceilings often generate A) market clearing prices. B) rapid increases in supply to meet the excess demand. C) equilibriums that utilize rationing by price. D) black markets.
d
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.
d
Rationing through the price system A) leads to an inefficient use of available resources. B) leads to high prices. C) works only with government interference. D) leads to an efficient use of available resources.
d
Relative scarcities are indicated by A) supply and demand being out of equilibrium. B) surpluses. C) excess demand and excess supply. D) relative prices.
d
Specialists who try to lower transaction costs are A) consumers. B) producers. C) bureaucrats. D) middlemen.
d
Suppose the price of cheese rises. In the market for pizza, one would expect that A) the supply of pizza would increase, and the price would fall. B) the demand for pizza would increase, and the price would increase. C) the demand for pizza would decrease, and price would fall. D) the supply of pizza would decrease, and price would rise.
d
The "law of demand" refers to the fact that, other things remaining the same, when the price of a good rises, A) the demand curve shifts rightward. B) the demand curve shifts leftward. C) there is a movement down along the demand curve to a larger quantity demanded. D) there is a movement up along the demand curve to a smaller quantity demanded.
d
The Price System and Markets 1) An economic system in which relative prices change to reflect changes in supply and demand for different commodities is known as a A) socialist system. B) communist system. C) queuing system. D) market system.
d
The more flexible prices are, the A) greater demand shifts have to be to bring about a new equilibrium. B) larger the shifts in supply will be after a change in demand. C) greater the reliance by sellers to change the nominal price. D) more quickly a shock to the economy can be absorbed.
d
The opportunity cost of economic growth is A) 0, because it means an expansion of production possibilities. B) the decrease in the current production of productive factors. C) a slower accumulation of human capital. D) the decrease in the current production of consumption goods.
d
The personal distribution of income measures which of the following? A) How federal tax revenues are related to the type of businesses that employs the taxpayers. B) The distribution of earnings by the factors of production. C) Proportion of income generated by the four types of expenditures on goods and services. D) The distribution of income among households. E) The distribution of income among nations.
d
The phrase "a change in demand" most directly implies a A) movement along a demand curve. B) movement along the price curve. C) change in the quantity demanded of a good. D) shift of the demand curve.
d
The rationing function of prices means that A) government is responsible for setting the prices of basic foods. B) all goods and services are produced by large firms. C) businesses determine what goods consumers should purchase. D) buyers and sellers synchronize their decisions through the price system.
d
The sustained expansion of production possibilities is called A) economic investment. B) production expansion. C) opportunity cost of growth. D) economic growth.
d
Transaction costs are A) production costs. B) taxes on production. C) regulations on production. D) costs associated with exchange.
d
Ways to ration goods include A) first-come, first-served. B) political power. C) prices. D) all of the above.
d
What will happen when there is a rightward shift in the demand curve? A) The product price will instantaneously adjust downward. B) Product prices do not change in this situation. C) Producers will decrease the product price. D) A new, higher price is not instantaneously achieved, but the price will rise over time.
d
When the government sets a maximum price that can be charged for a good or service, it creates A) a price support. B) a price floor. C) a white market. D) a price ceiling.
d
Which of the following are ways to ration goods and services? A) price B) physical force C) political power D) All of the above are correct.
d
Which of the following is not considered one of the factors of production? A) land B) labor C) capital D) technology E) entrepreneurship
d
Which of the following statements is FALSE? A) The rationing function of prices is not allowed to freely operate when the government imposes price controls. B) Price controls may take the form of price ceilings or price floors. C) Price ceilings below the equilibrium price can cause black markets to develop. D) Rent controls are examples of price floors.
d
Which of the following will tend to occur when a surplus exists in a market? A) supply will increase and demand will decrease until the surplus disappears. B) supply will decrease and demand will increase until the surplus disappears. C) the price will tend to rise over time. D) the price will tend to decrease over time.
d
Which one of the following statements is true? A) An effective price ceiling results in a surplus of the good. B) An effective price floor results in a shortage of the good. C) When the market clearing price of a good is the equilibrium, then everyone can afford it. D) The market clearing price of a good reflects its relative scarcity.
d
A normative statement
depends on someone's values.
Which of the following correctly lists the categories of factors of production? A) machines, buildings, land, and money B) hardware, software, land, and money C) capital, money, and labor D) owners, workers, and consumers E) land, labor, capital, and entrepreneurship
e
Which of the following is the best definition of economic growth? A) The investment in capital and consumption goods by an economy. B) The opportunity cost of capital. C) The opportunity cost of consumption. D) Increased development of land and entrepreneurship. E) The sustained expansion of production possibilities.
e
Goods produced in the United States and sold in other countries are called
exports
Economics is the social science that studies
how people make choices to cope with scarcity.
A positive statement i. makes a statement about how the world operates. ii. is a true statement. iii. can be tested against the facts
i and iii
Economic growth depends upon which of the following? i. Improving the quality of labor ii. Technological advancement iii. Increasing the amount of capital
i, ii, and iii
Which factor of production does human capital enhance? i. land ii. labor iii. capital
ii
Normative statements i. describe how the world is. ii. describe how the world ought to be. iii. depend on people's values and cannot be tested.
ii and iii
Which of the following is an assumption used when drawing a production possibilities frontier? i. Human wants and desires are limited to what is available. ii. Only two goods are considered. iii. The level of technology is fixed and unchanging.
ii and iii
Which of the following statements is correct? i. As the economy grows, the opportunity costs of economic growth decrease. ii. Economic growth has no opportunity cost. iii. The opportunity cost of economic growth is current consumption forgone.
iii
A normative statement i. can be tested as to whether it is true or false. ii. is considered negative. iii. depends on a person's values.
iii only
) Capital is a factor of production. Which of the following is an example of capital? i. $1,000 in money ii. 100 shares of Microsoft stock iii. $10,000 in bonds issued by General Motors iv. A drill press in your local machine shop
iv
In the United States, the productive factor that, as a group, receives the largest fraction of the nation's total income was
labor
The productive resource that includes all the "gifts of nature" is called
land
An opportunity cost is
the benefits of the highest-valued alternative forgone
Economics is best defined as the social science that studies
the choices that societies, and the people and institutions that make up societies, make in dealing with the issue of scarcity
A price ceiling below the market clearing price results in I. excess quantity demand II. excess quantity supplied III. entry of new producers
1
A price floor above the market clearing price typically results in I. an excess quantity supplied II. a shortage III. an excess quantity demand
1
Which of the following is a normative statement? A) Flood victims should pay for their own rebuilding. B) When the price of kiwi fruit increases, fewer people eat kiwi fruit. C) An increase in the supply of computers has caused computer prices to fall. D) Recessions lead to increases in the unemployment rate. E) Hurricanes strike mainly Florida and North Carolina.
A
Which of the following is a positive statement?
A recession leads to higher enrollments at universities
Rationing goods on the basis of price is a direct result of A) scarcity. B) queuing. C) government intervention. D) the profit motive.
a
A positive statement A) must always be right. B) cannot be tested. C) might be right or wrong. D) depends on someone's value judgment. E) cannot be negative.
C
Rationing occurs for goods A) that have a positive price. B) that have a zero price. C) that have a negative price. D) that are not manufactured.
a
Which of the following is NOT a normative economic statement? A) States should reduce the tax on heating fuel oil during the winter. B) People over the age of 75 should not be allowed to drive cars. C) Teenagers are responsible for most driving fatalities. D) We don't spend enough money on anti-smoking campaigns. E) The price of gasoline is too high.
C
Which of the following is a positive statement? A) Taxes should be lower because then people get to keep more of what they earn, so they will work more. B) My economics class should last for two terms because it is my favorite class. C) A 10 percent increase in income leads to a 4 percent increase in the consumption of beef. D) Given their negative impact on productivity, the government should eliminate labor unions. E) The class average on this test should be more than 80 percent.
C
What is the reason that all economic issues and problems occur?
Human wants exceed the resources available to satisfy them
Price ceilings are adopted in most cases because A) the government views the current equilibrium price as too high for consumers. B) the government wants to create surpluses. C) the government favors a non-intervention policy. D) producers need incentives to produce more of the good or service.
a
Price ceilings set below the equilibrium price cause A) shortages. B) surpluses. C) a new market equilibrium. D) a greater number of exchanges.
a
Which of the following BEST describes macroeconomics?
It analyzes the aggregate effects on the national economy of the choices made by individuals, firms, and governments
Which of the following is a topic studied in macroeconomics?
The effect on economic growth if the government raises taxes
Price controls may be thought of as A) a restraint on the rationing function of prices. B) useful tools that promote production. C) necessary in market economies. D) the freeing-up of free market forces.
a
Price floors are designed to A) establish a minimum allowable price. B) allow free market prices to be achieved. C) create shortages where none existed before. D) none of the above.
a
Prices play a role in a market A) because they distribute scarce goods to those consumers who value them most highly. B) because when prices are in equilibrium, product shortages or surpluses can occur. C) because they help eliminate poverty. D) because they eliminate scarcity.
a
Prices provide the rationing function best when A) prices are flexible. B) prices are inflexible. C) they are used in conjunction with queuing. D) price controls are in place and ration coupons are used too.
a
Production efficiency is represented by ________ a production possibilities frontier. A) all points on B) all points inside C) all points outside D) a movement along
a
Market clearing prices in a market system act as A) a signaling device. B) a direct measure of resource costs. C) a way for producers to advertise. D) a legally determined rationing device.
a
Other things being equal, a higher price induces A) buyers to reduce the amount they want to buy and sellers to increase the amount they are willing to sell. B) buyers to increase the amount they want to buy and sellers to reduce the amount they are willing to sell. C) buyers to reduce the amount they want to buy and sellers to reduce the amount they are willing to sell. D) buyers to increase the amount they want to buy and sellers to increase the amount they are willing to sell.
a
Queuing is a way to ration goods A) on a first-come, first-serve basis. B) through prices. C) through the use of political power. D) through markets.
a
A black market is a market in which A) goods are traded at prices above their legal maximum prices. B) sales taxes are effectively doubled. C) goods are sold at outlet prices. D) sales take place exclusively at outlet prices.
a
A price floor set above a market equilibrium price causes A) a surplus. B) a shortage. C) producers to receive lower prices. D) consumers to pay lower prices.
a
A production possibilities frontier shows A) the various combinations of output a nation can produce a certain time, given its available resources and technology. B) the limits to future growth of a nation. C) how money can be allocated among two kinds of goods. D) that if price of one good decreases, the price of the other has to increase. E) that it is impossible to produce inefficiently.
a
All of the following are examples of nonprice rationing devices EXCEPT A) price controls. B) queues. C) black markets. D) waiting lists.
a
An increase in the minimum wage will tend to cause which of the following to occur? A) an increase in the size of the surplus of labor B) a leftward shift in the demand for labor C) a rightward shift in the supply of labor D) a reduction in the unemployment rate
a
An increase in the price of labor used to produce good Y will lead to A) an increase in the market clearing price of good Y. B) an increase in the supply of good Y. C) a decrease in the demand for good Y. D) an increase in the demand for good Y.
a
An increase in the quantity demanded is shown as a A) movement along the demand curve. B) movement toward the demand curve. C) rightward shift of the demand curve. D) leftward shift of the demand curve.
a
As an economy grows, A) its PPF shifts outward. B) it can eliminate scarcity. C) the opportunity cost of production will approach 0. D) the opportunity cost of production will increase.
a
Dividing the nation's income among the factors of production, the largest percentage is paid to A) labor. B) land. C) capital. D) entrepreneurship.
a
Firms that produce 80 percent of all computer chips have shut down their facilities for maintenance. In the computer chip market this will lead to A) an increase in price and a decrease in quantity. B) an increase in price and an increase in quantity. C) a decrease in price and a decrease in quantity. D) a decrease in price and an increase in quantity.
a
Goods and services are produced by using four factors of production: A) land, labor, capital, and entrepreneurship. B) land, labor, money, and equipment. C) natural resources, human resources, financial assets, and entrepreneurial resources. D) labor, human capital, physical capital, and financial capital.
a
Holding demand constant, an increase in supply leads to A) lower prices and higher quantity demanded. B) lower prices and lower quantity demanded. C) higher prices and higher quantity demanded. D) higher prices and lower quantity demanded.
a
If a nation devotes a larger share of its current production to consumption goods, then A) its economic growth will slow down. B) its PPF will shift outward. C) its PPF will shift inward. D) some productive factors will become unemployed.
a
If a price ceiling were established above the equilibrium price, A) it would have no effect on the quantity demanded. B) it would create a shortage. C) it would create a surplus. D) none of the above.
a
If demand increases while supply decreases, then the equilibrium price A) always increases. B) always decreases. C) may increase, decrease, or stay the same. D) never changes.
a
In the United States, the poorest 20 percent of households receive about ________ percent of total income. A) 3 B) 15 C) 23 D) 49
a
Intermediaries, known as middlemen, specialize in A) reducing transaction costs. B) negotiating high prices for sellers. C) negotiating low prices for buyers. D) encouraging consumers to buy goods on credit, rather than with cash.
a
Roses are more expensive on Valentine's Day than at other times of the year, yet sales of roses are highest on that day. How does economic theory account for this? A) An increase in demand pushes up the market clearing price of roses. B) People buying the roses are irrational. C) Roses are not subject to the law of demand. D) Florists know that there are no substitutes for roses, so they take advantage of consumers on Valentine's Day.
a
Some oil refineries were damaged by Hurricane Katrina of 2005, leading to A) a decrease in supply of gasoline. B) a decrease in quantity supplied of gasoline. C) a decrease in demand for gasoline. D) a decrease in quantity demanded for gasoline.
a
Suppose that consumer income decreases and that hamburger is an inferior good. Which of the following will occur in the market for hamburger? A) Market clearing price will rise, and equilibrium quantity will rise. B) Market clearing price will fall, and equilibrium quantity will fall. C) Market clearing price will rise, and equilibrium quantity will fall. D) Market clearing price will fall, and equilibrium quantity will rise.
a
Suppose that there is an improvement in technology in the market for iPods. Which of the following is true? A) Supply will increase and the market clearing price will fall. B) Supply will increase and the market clearing price will rise. C) Demand will increase and the market clearing price will rise. D) Demand will increase and the market clearing price will fall.
a
Suppose the equilibrium quantity of ethanol has decreased. Which of the following could have caused this change? A) a decrease in demand B) an increase in supply C) an increase in quantity demanded D) an increase in quantity supplied
a
Suppose the price of crude oil used to produce gasoline rises significantly. At the same time, consumers purchase hybrid cars in great numbers. In the market for gasoline, demand shifts to the ________ and supply shifts to the ________. A) left, left B) left, right C) right, left D) right, right
a
The United States produced approximately ________ worth of goods and services in 2011. A) $15 trillion B) $15 billion C) $150 trillion D) $150 billion E) $1,500 trillion
a
The concept of human capital describes A) human skills, that is, the quality of labor. B) human population, that is, the quantity of labor. C) the number of machines per employed worker. D) the number of workers per operating machine.
a
The data show that more than 60 percent of the total income earned in the United States goes to A) labor. B) land. C) capital. D) entrepreneurship.
a
The market system is also called the price system because A) rising prices are the signal to producers to offer more of a particular good. B) people pay money in markets. C) everything has a price tag. D) inflation is a significant problem
a
The price of a good always changes when A) either a shortage or a surplus occurs. B) quantity demanded and quantity supplied are constant. C) there is an increase in demand and an increase in supply. D) there is a decrease in demand and a decrease in supply.
a
The price of cotton clothing falls. As a result, A) the quantity demanded of cotton clothing increases. B) the demand for cotton clothing increases. C) the quantity demanded of cotton clothing decreases. D) the demand for cotton clothing decreases.
a
The price rationing mechanism of a freely functioning market leads to the most efficient use of resources because A) all gains from mutually beneficial trade are captured. B) the Federal Trade Commission regulates the market. C) of the rise of the legislative apparatus that supports trade. D) the Justice Department monitors market activities.
a
The price system A) is the voluntary exchange system used in the United States. B) is old fashioned and is no longer used. C) is used only in countries that are developing. D) is used to set resource prices only.
a
The production possibilities frontier illustrates the A) maximum combinations of goods and services that can be produced. B) resources the economy possess, but not its level of technology. C) goods and services that people want. D) limits to people's wants. E) amount of each good that people want to buy.
a
The signals in markets are determined A) by supply and demand. B) for all goods by the government through the use of price controls. C) in an unfair manner that ends up hurting the poor. D) by nonprice rationing devices.
a
What is the opportunity cost of economic growth? A) Current period consumption goods B) Current period capital goods C) Land D) Both current period consumption and capital goods E) Both current period capital goods and land
a
When a government imposes price controls, the result is that A) the rationing function of prices is not allowed to function freely. B) the price system operates more efficiently. C) all trades are as mutually beneficial to each party as possible. D) scarcity usually disappears.
a
When a market clearing price is determined, A) the exchange between buyers and sellers is voluntary. B) the exchange between buyers and sellers is directed by outside factors such as the government. C) the exchange between buyers and sellers benefits only the buyers. D) the exchange between buyers and sellers benefits only the sellers.
a
When demand increases, A) consumers are willing to buy more at any price. B) consumers buy more of the good only if its price falls. C) the price is lower at any level of quantity demanded. D) consumers buy more of the good only if its price rises.
a
Which of the following correctly lists the categories of factors of production? A) land, labor, capital, and entrepreneurship B) land, buildings, capital, and entrepreneurship C) labor, machines, buildings, capital, and entrepreneurship D) forests, fish, buildings, capital, and entrepreneurship E) labor, money, stocks, and bonds
a
Which of the following statements is most accurate regarding who benefits and loses from establishment of a minimum wage above the market clearing wage? A) Individuals who obtain jobs benefit because they earn a higher wage, but some individuals lose because employers will not hire them at the minimum wage. B) All workers benefit equally from the establishment of the minimum wage because just as many workers as before remain employed, and all earn the higher minimum wage. C) All employers benefit equally from the establishment of the minimum wage because they are able to hire fewer workers at a lower wage. D) All employers lose because they must pay the higher minimum wage to the same number of employees as they did before the minimum wage was established.
a
Which rationing system leads to the most efficient use of available resources? A) free market B) physical force C) first come, first served D) random assignment
a
Why does an economy need a rationing mechanism? A) because of scarcity B) because it preserves the power of the wealthy C) because it eliminates poverty D) All of the above are correct.
a
________ earned the highest amount of income among the factors of production in the United States. A) Labor B) Capital C) Land D) Entrepreneurship E) Investment
a
A statement that "All children should receive free health care" is an example of what kind of statement?
a normative statement
The important characteristic of normative statements is that they
are based on somebody's values and cannot be tested
Economists measure opportunity cost
as the best thing given up
In September 2005, destruction to U.S. gasoline refineries was caused by back-to-back storms along the U.S. Gulf CoastHurricane Katrina and Hurricane Rita. In one week, the average price of a gallon of gasoline in the United States increased by about 40 cents. Which of the following best explains why these events pushed up the price of gasoline? A) The demand curve for gasoline shifted to the left along the supply curve for gasoline. B) The supply curve for gasoline shifted to the left along the demand curve for gasoline. C) The demand curve for gasoline shifted to the right along the supply curve for gasoline. D) The supply curve for gasoline shifted to the right along the demand curve for gasoline.
b
In a market system, what must take place for quantity demanded to continually be equated with quantity supplied? A) Price controls must be applied by governments. B) Relative prices must be able to adjust to market clearing levels. C) Tastes and preferences of consumers must adjust to eliminate surpluses or shortages. D) Businesses must engage in involuntary, unprofitable exchanges to eliminate surpluses or shortages.
b
In a production possibilities frontier graph, the cost of producing more units of a good is measured by the A) dollar value of the resources used to produce the good. B) amount of the other good or service that must be forgone. C) dollar value of the additional output. D) area in the arc between the PPF and a straight line drawn between the starting point and the ending point.
b
In order to be effective, a price floor A) must be set below equilibrium price. B) must be set above equilibrium price. C) must be set at equilibrium price. D) must be a zero price.
b
In the labor market, adjustments to changes in supply and demand A) usually occur instantly. B) usually take time to occur. C) do not apply, since the labor market does not respond to supply and demand forces. D) do not apply, since wages in the labor market always go up.
b
Other things being equal, suppose that the demand for wheat in constant quality units increases. The increase in demand will cause A) a surplus of wheat. B) a higher equilibrium price and higher equilibrium quantity of wheat. C) fall in the market clearing price of corn, a substitute for wheat. D) a higher equilibrium quantity, but a lower equilibrium price of wheat.
b
People consume more fresh fruit in the summer than during the rest of the year, yet the prices of fresh fruit are lower in the summer than in other seasons. What accounts for this? A) Fresh fruit is not subject to the law of supply. B) The supply of fresh fruit increases in the summer. C) Fresh fruit is an inferior good. D) Fresh fruit is not subject to the law of demand.
b
Price controls often generate A) more efficient markets. B) black markets. C) rapid adjustment to market-clearing prices. D) greater price flexibility.
b
Price floors A) provide free market incentives for producers. B) create surpluses by setting the price above equilibrium. C) create shortages by setting the price above equilibrium. D) are used by advocates of the free market.
b
Rationing of resources, goods, and services A) is not required under the price system. B) is required because of scarcity. C) must be done by the government. D) happens only when the price is zero.
b
Suppose new research shows that soy milk and other products derived from soybeans provide more health benefits than previously thought. At the same time, drought conditions result in extensive damage to the soybean crop. What will be the combined impact of these two factors on the equilibrium price and quantity of soybeans?
b
Suppose that the supply curve remains unchanged. If the demand curve shifts to the right, A) the market clearing price definitely will decrease. B) the market clearing price definitely will increase. C) there will be no change in the market clearing price. D) the market will collapse.
b
The difference between consumption and capital goods is that A) only big corporations can afford capital goods. B) capital goods are used to produce additional goods while consumption goods are not. C) capital goods are provided by the government. D) consumption goods can be enjoyed by many people at the same time. E) it is illegal to export capital goods.
b
The functional distribution of income measures which of the following? A) How federal tax revenues are related to the business function that employs taxpayers. B) The distribution of earnings by the factors of production. C) The proportion of income generated by the four types of expenditures on goods and services. D) The distribution of income among households. E) The distribution of income among nations.
b
A price ceiling is A) the lowest price a seller can charge for a good without losing all her customers. B) a legal minimum price that can be charged for a particular good or service. C) a legal maximum price that can be charged for a particular good or service. D) the lowest price a buyer can pay for a good without having to report the purchase to the government.
c
A price ceiling is A) the lowest price a seller can charge without losing all of its customers. B) a legal minimum price below which a good or service cannot be sold. C) a legal price above which a good or service cannot be sold. D) a nonprice rationing device.
c
A price floor that is set above market equilibrium will cause A) an excess quantity demanded. B) a shortage. C) a surplus. D) queuing on the part of consumers.
c
All of the following reduce the transaction costs for consumers EXCEPT A) eBay. B) a shopping mall. C) the Supreme Court decisions regarding the Second Amendment. D) a grocery store.
c
An effective price ceiling usually generates A) fire sales as firms try to unload their excess inventories. B) higher nominal prices. C) the use of nonprice rationing devices. D) happy sellers and dissatisfied buyers.
c
An example of a black market is A) a retail market. B) a discount market. C) scalping. D) barter.
c
An increase in demand and an increase in supply will lead to A) unambiguous increases in both price and quantity. B) unambiguous decreases in both price and quantity. C) an unambiguous increase in quantity, but the effect on price is indeterminate. D) an unambiguous increase in price, but the effect on quantity is indeterminate.
c
An increase in supply causes A) quantity supplied to decrease. B) supply and price to increase. C) price to decrease. D) price to increase.
c
An item that is purchased to increase businesses' productive resources is A) an export. B) a government good. C) a capital good. D) a consumption good
c
Another term for intermediaries who specialize in reducing transaction costs is A) service providers. B) consultants. C) middlemen. D) revenue agents.
c
As demand for computer games increases, other things being equal, we can expect A) a decrease in both the relative price and quantity of computer games. B) a decrease in the supply of computer games. C) more computer games to be produced. D) an excess number of computer games in the market.
c
Capital, as a factor of production, refers to A) money, stocks, and bonds. B) the production technology used by firms. C) the tools and instruments used to produce other goods and services. D) the production factors imported from abroad. E) stocks and bonds but not money.
c
Factors of production are the A) goods that are bought by individuals and used to provide personal enjoyment. B) goods that are bought by businesses to produce productive resources. C) productive resources used to produce goods and services. D) productive resources used by government to increase the productivity of consumption. E) goods and services produced by the economy.
c
Hospitals announce that there are not enough nurses available to keep them fully staffed. Economically speaking, what does this announcement mean? A) The market wage for trained nurses is currently above the equilibrium wage. B) There is currently a surplus of nurses in this market. C) The market wage for nurses will eventually rise to the market clearing wage. D) The market will adjust very rapidly to correct this imbalance because anyone can be a nurse without any training.
c
If both the demand curve and the supply curve shift to the right, we can unambiguously conclude that the A) market clearing price will increase. B) market clearing price will decrease. C) equilibrium quantity will increase. D) equilibrium quantity will decrease.
c
If demand and supply both increase, A) the equilibrium quantity definitely will increase and market clearing price definitely will decrease. B) the equilibrium quantity definitely will increase and market clearing price definitely will increase. C) the equilibrium quantity definitely will increase but the change in market clearing price cannot be determined without more information. D) market clearing price definitely will increase but the change in the equilibrium quantity cannot be determined without further information.
c
If demand increases and supply decreases, A) the market clearing price definitely will increase, and the equilibrium quantity definitely will increase. B) the market clearing price definitely will increase, and the equilibrium quantity definitely will decrease. C) the market clearing price definitely will increase, but the change in the equilibrium quantity cannot be determined without more information. D) the equilibrium quantity definitely will decrease, but the change in the market clearing price cannot be determined without more information.
c
If price increases and the quantity purchased increases, we know that A) supply increased. B) supply decreased. C) demand increased. D) demand decreased.
c
If supply increases and demand decreases, A) the market clearing price definitely rises, and the equilibrium quantity definitely falls. B) the market clearing price definitely rises, and the effect on the equilibrium quantity is indeterminate. C) the market clearing price definitely falls, and the effect on the equilibrium quantity is indeterminate. D) the effect on the market clearing price is indeterminate, and the equilibrium quantity definitely falls.
c
If the demand for a product falls and the supply stays the same, A) the market clearing price will fall and the equilibrium quantity will rise. B) the market clearing price will rise and the equilibrium quantity will fall. C) both the market clearing price and the equilibrium quantity will fall. D) both the market clearing price and the equilibrium quantity will rise.
c
If the government sets a minimum price at which a good or service can be sold, it thereby creates A) a price ceiling. B) a black market price. C) a price floor. D) an illegal price control.
c
In a freely operating market system, queuing is most likely to occur when A) selling necessities. B) the market clearing price increases. C) demand fluctuates unpredictably and quickly. D) demand increases gradually over time.
c
In a market system, how are the price signals established? A) Consumer advocacy groups establish fair prices for items, and most firms follow these pricing guidelines because they don't want to anger their consumers. B) Industry associations establish an acceptable price range for each commodity sold within the industry, and member firms are obligated to abide by association guidelines. C) The forces underlying supply and demand interact to determine a market clearing price. D) Federal legislation establishes maximum prices for most goods, and state governments regulate the prices of any remaining items.
c
In a market system, intermediaries in the exchange process are known as A) producers. B) consumers. C) middlemen. D) free agents.
c
In a market system, which component conveys information about what is relatively scarce and what is relatively abundant? A) The number of producers B) The number of consumers C) Prices D) The amount of government regulation
c
In a market, the rationing function of prices results in A) long queues or waiting lines. B) a price ceiling. C) equilibrium. D) a shortage or surplus.
c
In a price system, changes in prices A) make it difficult for the system to function well. B) imply that people have made mistakes in the past. C) signal to everyone in the system what goods are relatively more or less scarce. D) signal to policy makers what goods should and should not be taxed more.
c
In economic terms, the total price of a pound of meat for an individual who has waited in line is A) the money price paid to the butcher for the pound of meat. B) the money price of meat relative to the price of bread or other necessity. C) the money price of the meat plus the opportunity cost of time spent waiting in line. D) the money price of an equal amount of meat substitute, such as beans and rice.
c
The prices of certain goods, such as ice and lumber, often increase after a disaster such as a hurricane. The economic explanation for this observation is that A) people panic in disaster situations. B) disasters bring out the worst in people. C) the disaster temporarily reduces the supply of the goods and increases the demand for the goods. D) the disaster temporarily reduces the supply of the goods and reduces the demand for the goods.
c
The production possibilities frontier is the A) maximum output that can be produced at an opportunity cost of zero. B) minimum output that can be produced when resources are used inefficiently. C) boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology. D) boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced when technology is changing.
c
The productive resource that organizes labor, land, and capital is A) human capital. B) financial capital. C) entrepreneurship. D) government. E) capital.
c
Voluntary exchange A) will eliminate scarcity. B) is a nonprice rationing device. C) is trading so that the consumer and producers are better off. D) never involves transactions costs.
c
What would be an example of capital good? A) Jeanette buys a new dress. B) The local driver's license office purchases a new digital camera and printer. C) Antonio, the manager of the local Taco Hut, purchases a new deep fryer. D) Apple sells computers to Japan. E) Rhianna gets a haircut.
c
When prices are used as a rationing device, goods that are relatively more scarce than they used to be will have A) greater demand. B) lower excess demands. C) higher prices. D) long queues.
c
When the supply and/or demand curve shift, the new market clearing price is A) reached instantaneously. B) reached only after the government intervenes in the market. C) reached after some period of adjustment. D) never reached.
c
Which of the following is NOT a device to reduce transaction costs? A) Shopping centers B) Auto dealers located close together C) Government prohibitions on advertising D) Banks that direct funds from savers to borrowers
c
Which of the following statements about markets is correct? I. A market helps resources move to their highest-valued uses by means of prices. II. A market encompasses the exchange arrangements of both buyers and sellers. A) I only B) II only C) Both I and II D) Neither I nor II
c
Which of the following statements is true about a competitive market? A competitive market A) must have a physical location. B) includes markets for goods and services but not for inputs. C) has so many buyers and sellers that no one can influence the price. D) has one seller competing to sell his or her product.
c
Which of the following will cause, other things being equal, a movement along the supply curve for HD televisions? A) An improvement in technology. B) An increase resource costs. C) A reduction in the price of HD televisions. D) An expectation that the price of HD televisions will be lower in the future.
c
Why does a sports car cost more than a mountain bike? A) because sports car manufacturers are greedier than mountain bike manufacturers B) because sports cars are priced higher in order to make them attractive as status symbols C) because more scarce resources are required to produce a sports car than to produce a mountain bike D) because mountain bike manufacturers know that their customers have relatively low incomes
c
Items bought by businesses to help produce other goods and services are called
capital goods.
Microeconomics includes the study of the
choices made by individuals and businesses
Scarcity forces people to
choose among available alternatives
Decision making on the margin involves
comparing the marginal cost and marginal benefits when making a decision
Items that are purchased by individuals for their own enjoyment are called
consumption goods and services
The largest share of total production in the United States is
consumption goods and services.
When the total U.S. production of goods and services is divided into consumption goods and services, capital goods, government goods and services, and export goods and services, the largest component is
consumption goods and services.
A bowed out production possibilities frontier shows A) that resources are equally productive in all uses. B) increasing opportunity cost. C) that resources are not equally productive in all uses. D) Both answers B and C are correct.
d
A decrease in demand and a decrease in supply will lead to A) unambiguous increases in both price and quantity. B) unambiguous decreases in both price quantity. C) an unambiguous decrease in price, but the effect on quantity is indeterminate. D) an unambiguous decrease in quantity, but the effect on price is indeterminate.
d
A market is defined as A) a physical place where people buy only goods. B) a physical place where people buy both goods and services. C) a store where people buy physical goods. D) any arrangement that brings buyers and sellers together
d
A newspaper headline asserts: "Rising Demand Pushes Up Housing Prices." This headline A) incorrectly implies that the demand for housing can change, whereas in fact only the quantity of housing demanded can change. B) incorrectly implies that the price of housing will rise when demand increases. C) incorrectly implies that more housing will be demanded at higher prices. D) correctly implies that an increase in demand will increase the market clearing price.
d
A price ceiling set above the equilibrium price will cause which of the following? A) an increase in supply B) a surplus C) a shortage D) no effect on either the price or quantity
d
A price floor set below the equilibrium price will cause which of the following? A) an increase in demand B) a shortage C) a surplus D) none of the above
d
Scarcity means we must
make choices
Which of the following statements about a price system is true? I. Prices ration goods and services. II. Prices indicate relative scarcity.
one and two
The opportunity cost of a decision is measured in terms of
the next best thing given up