Microeconomics Test Questions
Other things constant, an increase in the demand for motorcycles will a.) decrease the price of motorcycles. b.) decrease the quantity of motorcycles bought and sold. c.) decrease the demand for motorcycle manufacturers and lower their wages. d.) increase the demand for motorcycle manufacturers and increase their wages.
Answer d
"The economic wealth of this country is primarily the result of the profit made by some individuals at the expense of others." The person who made this statement a.) has failed to comprehend that mutual gains result from specialization and exchange. b.) has failed to comprehend the fallacy of composition. c.) has failed to understand the significance of the production possibilities constraint. d.) has utilized the economic way of thinking; the statement is essentially correct.
Answer: a
A decrease in the expected future price of a good will cause the current demand for the good to a.) decrease, which is a shift to the left of the demand curve. b.) decrease, which is a shift to the right of the demand curve. c.) increase, which is a shift to the left of the demand curve. d.) increase, which is a shift to the right of the demand curve.
Answer: a
A system of economic organization in which the ownership and control of productive capital assets rests with the government and in which resources are allocated through central planning and political decision making is called a.) socialism. b.) a market economy. c.) a corporate economy. d.) capitalism.
Answer: a
Bob believes that overseas corporations are evil because they hire young children to work for low wages. He thinks these children would be better off without these companies because then they could go to school and play outside like children do in the United States. In reality, without these companies to hire them, it is likely that these children will end up working in worse jobs, or be subject to the underground world of child prostitution. Which of the following best describes the error that Bob makes in his thinking? a.) The nirvana fallacy b.) The broken window fallacy c.) The belief that association is causation d.) The private property rights error
Answer: a
Demand will be more inelastic when a.) the time the consumer has to adjust to price changes is short. b.) the price of the good is high. c.) the number of good substitutes is large. d.) the consumption of the good is not very essential.
Answer: a
If Sally were to get a $3,000 bonus from her employer, which of the following tax rates would most accurately reflect the percent of this additional income that she would owe in taxes? a.) her marginal tax rate b.) her average tax rate c.) her progressive tax coefficient d.) the rate of excess burden
Answer: a
If Sean voluntarily sells Tom a tennis racket for $50, we would expect a.) both parties to gain from this transaction. b.) Sean to gain from the transaction, while Tom loses. c.) Tom to gain from the transaction, while Sean loses. d.) the well-being of both parties to be unchanged.
Answer: a
If a Pizza Hut restaurant near campus reduces its pizza prices by 15 percent, and as a result, its total revenue from pizza sales increases, this indicates that the price elasticity of demand was a.) elastic. b.) of unitary elasticity. c.) inelastic. d.) equal to 0.15.
Answer: a
If an economy is operating at a point inside the production possibilities curve, a.) its resources are not being used efficiently. b.) the curve will begin to shift inward. c.) the curve will begin to shift outward. d.) this is a trick question because an economy cannot produce at a point inside the curve.
Answer: a
If cable TV service and satellite TV service are substitutes, a.) a decrease in the price of cable will decrease the demand for satellite TV. b.) an increase in the price of cable will decrease the demand for satellite TV. c.) an increase in the price of cable will generally have no effect on the demand for satellite TV. d.) an increase in the price of cable will shift the demand curve for satellite TV to the left.
Answer: a
If consumer purchases of a good are not very sensitive to the price of the good, this is illustrated by a a.) demand curve that is relatively steep (more vertical). b.) demand curve that is relatively flat (more horizontal). c.) supply curve that is relatively flat (more horizontal). d.) supply curve that is relatively steep (more vertical).
Answer: a
In Figure 3-5, if the initial demand for margarine were D1, an increase in the price of butter, which is a substitute for margarine, would tend to cause which of the following changes in the market for margarine? a.) a shift in the demand curve from D1 to D2 b.) a shift in the demand curve from D2 to D1 c.) a movement along demand curve D1 from a to b d.) a movement along demand curve D1 from b to a
Answer: a
In a market that lacks sufficient competition, a.) output will generally be less than the output that is ideal from the standpoint of economic efficiency. b.) output will generally be greater than the output that is ideal from the standpoint of economic efficiency. c.) price will generally be less than the price that would result if the market was competitive. d.) profit rates will generally be so low that government subsidies will be necessary to ensure that the firms remain in business.
Answer: a
Joab and his friends used to play a game where they put on a dog's electric fence collar and tried to stand over the electric fence line because, after careful consideration of the costs and benefits, they decided that the benefits of watching their friends get shocked outweighed the costs of being shocked themselves. According to the economic way of thinking, Joab and his friends were a.) Making a rational choice. b.) Making an irrational choice. c.) Not responding to the incentives they faced. d.) Not fully considering the personal costs and benefits of their decision.
Answer: a
Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3. They agree to split the lunch bill evenly. Ed chooses a hot dog. The marginal cost to Joe then of ordering a hamburger instead of a hot dog is a.) $1. b.) $2. c.) $2.50. d.) $3.
Answer: a
Producers are willing to offer greater quantities for sale at higher prices because a.) they have the incentive to pay the increasing opportunity cost of resources necessary to attract them from alternative uses b.) they will decrease their profits by expanding production at higher prices c.) the government orders them to do so d.) lower prices attract new firms, which have higher costs of production e.) they hire superior quality, higher-priced resources as production expands
Answer: a
Rent controls imposed below the equilibrium price of rental units tend to cause persistent imbalances in the market for housing because a.) Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage. b.) Quantity demanded exceeds quantity supplied, but price cannot fall to remove this surplus. c.) Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage. d.) Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.
Answer: a
Suppose the supply of nachos increases. Ceteris paribus, what will happen to consumer surplus in the market for nachos? a.) It increases. b.) It decreases. c.) It remains unchanged. d.) It may increase, decrease, or remain unchanged.
Answer: a
The basic difference between macroeconomics and microeconomics is that a.) macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents). b.) macroeconomics is concerned with policy decisions, while microeconomics applies only to theory. c.) microeconomics is concerned with the forest (aggregate markets), while macroeconomics is concerned with the trees (subcomponents). d.) opportunity cost is applicable to macroeconomics, and the fallacy of composition relates to microeconomics.
Answer: a
There are only two consumers in a market, Kanye West and Taylor Swift. Kanye is willing to by 8 microphones when the price is $20 per microphone and 5 microphones when the price is $30 per microphone. Taylor is willing to by 10 microphones when the price is $20 per microphone and 7 microphones when the price is $30 per microphone. Given that these are the only two individuals in the market, what is the market demand for microphones, when the price of microphones is $20? a.) 18 b.) 12 c.) 10 d.) 8
Answer: a
When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because a.) the market price of the product will fall in response to the subsidy. b.) the market price of the product will rise in response to the subsidy. c.) the market price of the product will not change in response to the subsidy. d.) producers will reduce the supply of the product.
Answer: a
When external benefits (positive externalities) are present in a market, a.) less of the good will be produced than the amount consistent with economic efficiency. b.) more of the good will be produced than the amount consistent with economic efficiency. c.) the amount of the good produced will be equal to the amount consistent with economic efficiency. d.) corresponding external benefits are always generated.
Answer: a
When private ownership of a resource is clearly defined and enforced, the private owner a.) has a strong incentive to consider the wishes of others when deciding how to employ the resource. b.) has no incentive to use the resource wisely. c.) has a strong incentive to consume the resource during the period rather than conserving it for the future. d.) has no incentive to consider the wishes of others when deciding how to employ the resource.
Answer: a
Which of the following is true regarding the debate concerning the legalization of prostitution? a.) By operating outside of the legal system, prostitutes are more likely to be abused and cheated since they can't go to the police to report any violence or theft against them. b.) If prostitution is illegal, cops will spend less time focused on the prostitution trade and more time preventing more violent crimes as compared to if prostitution were legalized. c.) Making prostitution legal would increase the prevalence of sexually transmitted diseases among prostitutes since it would greatly increase the amount of sexual activity by which these diseases are transmitted. d.) All of the above would be true regarding the debate about legalizing prostitution.
Answer: a
Which of the following would most likely increase the demand for peanut butter? a.) a decrease in the price of jelly, a good that is often used with peanut butter b.) the discovery that excessive consumption of peanut butter is harmful to one's health c.) crop failures that raise the price of peanuts d.) the invention of a new product that consumers think is a good substitute for peanut butter
Answer: a
Which one of the following is a positive economic statement? a.) An increase in the minimum wage will reduce employment. b.) The minimum wage should be increased. c.) Social justice will be served by increasing the minimum wage. d.) Thoughtful people oppose an increase in the minimum wage.
Answer: a
Winston is a ghostbuster and also an excellent typist. He can type 120 words per minute, but he is pressed for time because he has all of the ghostbusting work he can handle where he gets paid $100 per hour. Janine is looking for work as a secretary, but can only type 30 words per minute. According to the law of comparative advantage, Winston should hire Janine to do her typing if and only if her wage rate is less than a.) $25 per hour. b.) $33 per hour. c.) $50 per hour. d.) $100 per hour.
Answer: a
"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements a.) are essentially correct. b.) contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand. c.) contain one error; the lower gasoline prices would increase the quantity demanded of large cars, not the demand. d.) contain two errors; the lower gasoline prices would cause the quantity of gasoline demanded (rather than the demand) to increase, and the lower gasoline price would cause an increase in quantity demanded (rather than the demand) for large cars.
Answer: b
A middleman a.) attempts to prevent buyers from finding sellers. b.) promotes trade by lowering the transaction costs of buyers and sellers. c.) acts as a liaison between top management and the hourly employees. d.) adds to the seller's expense and the buyer's price without providing a service to either.
Answer: b
Adam Smith's invisible hand principle stresses a.) that benevolence is a powerful motivator that encourages individuals to engage in productive economic activity. b.) the tendency of the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society. c.) the potential of government regulation as a means of bringing the self interest of individuals into harmony with the economic welfare of society. d.) the tendency of self-interested individuals to pursue activities that benefit themselves but harm the overall economic welfare of society.
Answer: b
Cupid has heard about the law of demand and wants to test this theory that people will buy less of a good as its price increases. He decides to study the relationship between the price of roses and the quantity of roses that people choose to buy. He notices that on Friday, February 14th (Valentine's Day), the price of roses increases, and yet people choose to buy even more Roses. He concludes that the law of demand is not a valid theory. Which of the following is true? a.) Cupid performed an accurate test and has correctly concluded that the law of demand is not valid b.) Cupid violated the ceteris paribus principle and, in doing so, probably reached a false conclusion c.) Cupid has confused the law of demand with the law of supply d.) Cupid has made the mistake of trying to test a normative, rather than positive, economic statement
Answer: b
If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who a.) have the highest opportunity cost. b.) have a comparative advantage in the productive activity. c.) can complete the productive activity most rapidly. d.) least enjoy performing the productive activity.
Answer: b
In an unregulated market free of any price controls, which of the following happens when there is an excess supply of a good? a.) Quantity demanded exceeds quantity supplied and the market pushes the price up, which in turn encourages more production and less consumption, until an equilibrium is reached. b.) Quantity supplied exceeds quantity demanded and the price falls, which encourages more consumption and less production, until an equilibrium is reached. c.) Quantity demanded exceeds quantity supplied and the market pushes the price down, which encourages more production and less consumption, until an equilibrium is reached. d.) Quantity supplied exceeds quantity demanded and the price rises, which encourages more production and less consumption, until an equilibrium is reached.
Answer: b
In an unregulated market, free of any price controls, the price of a good will tend to fall when a.) there is excess demand for the good. b.) there is excess supply of the good. c.) demand for the good increases. d.) the supply of the good decreases.
Answer: b
In figure 2-3, the vertical axis measures the amount of resources devoted to consumption while the horizontal axis measures the amount of resources devoted towards investment. Point A indicates the consumption and investment levels for economy A, while point B indicates the consumption and investment levels for economy B. Other things constant, which of the economies is likely to grow more rapidly in the future? a.) economy A b.) economy B c.) They can be expected to grow at the same rate. d.) This is uncertain since growth is not influenced by the factors indicated in this example.
Answer: b
Michael Scott is a manager for the Dundler-Mifflin Paper Company and explains to a group of children that his job involves buying paper from the manufacturer and selling it to stores and schools. The children he is explaining this to cry out that he is just a middleman who jacks up prices and provides nothing of value. Given what you learned in economics, what would you tell the children who made this statement? a.) They are right, all middlemen do is jack up the price of products and take their cut without providing anything of value. b.) That middleman are valuable for our economy because they bring buyers and sellers together in such a way to reduce transaction costs and create more trade. c.) There is no place for a middleman in our modern economy and that this paper company will soon be out of business. d.) This paper company is not acting like a middleman at all
Answer: b
People are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a new car than they are to purchase a consumer ratings magazine that reviews pens and pencils before buying a new pen or pencil. Which of the following best explains this behavior? a.) Because the consumer ratings magazine must have a higher price for the issue reviewing pens and pencils. b.) Because the value of the information, in terms of avoiding a mistake on the purchase, is much higher for an automobile than for a pen or pencil, it is more worthwhile to gather this information. c.) Because people generally do not know which products are reviewed by these consumer magazines. d.) None of the above explain this behavior.
Answer: b
Refer to Figure 4-11. On the Laffer curve shown, tax revenue could be increased by a.) decreasing the marginal tax rates if we were currently at point A. b.) decreasing the marginal tax rates if we were currently at point C. c.) increasing the marginal tax rates if we were currently at point B. d.) increasing the marginal tax rates if we were currently at point C.
Answer: b
The fallacy of composition is the fallacious view that a.) economic activity will benefit everyone. b.) what is true for the individual will also be true for the group. c.) it is possible for the whole to be greater than the sum of the individual parts. d.) association does not necessarily indicate causation.
Answer: b
The government sometimes provides public goods and funds them through taxation because a.) private markets are incapable of producing any public goods. b.) free-riders make it difficult for private markets to supply the efficient quantity. c.) markets are always better off with some government oversight. d.) It costs money for private producers to make these public goods, while the cost of the government providing these is zero.
Answer: b
The invisible hand principle indicates that competitive markets can help promote the efficient use of resources a.) only if buyers and sellers really care, personally, about economic efficiency. b.) even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use. c.) even if business firms fail to produce goods efficiently. d.) if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely.
Answer: b
The primary benefit that results when a nation employs its resources in accordance with the principle of comparative advantage is a.) an expansion in investment resulting from a reallocation of resources away from consumption. b.) a larger output resulting from a more efficient use of resources. c.) greater equality of income resulting from an increase in the number of workers. d.) an increase in the profitability of business enterprises resulting from an increase in investment.
Answer: b
Thousands of people work together every day so that fresh steak gets delivered to people in Tallahassee, Florida as cheaply as possible so that you can buy it if you so choose. Many of the people involved in this process don't know or even care about the people living in Tallahassee. Which of the following does this best reflect? a.) The idea that central planners are necessary to organize the economy and ensure that it runs smoothly b.) The invisible hand principle c.) The idea that association is not causation d.) the fallacy of composition
Answer: b
To say that people make marginal decisions means that a.) They usually wait until the last minute before making a decision to buy b.) They weigh the additional costs and additional benefits of various activities before they make a decision c.) Most people just barely get by on the incomes they earn and live from day to day on the very edge of subsistence d.) They consider the total cost and benefit of various activities before they make a purchase
Answer: b
Use the table below to answer the following question. Units Total Fixed Cost Total Variable Cost (dollars) of Output (dollars) 1 150 50 2 90 3 120 4 170 What is the average total cost of producing the third unit of output? a.) $40 b.) $90 c.) $270 d.) This cannot be determined from the data.
Answer: b
Use the table below to choose the correct answer. Income Tax (dollars) (dollars) 10,000 2,000 20,000 4,000 40,000 8,000 The tax schedule shown here is a.) regressive. b.) proportional. c.) progressive. d.) proportional up to $20,000 and regressive beyond that.
Answer: b
What is the best test of an economic theory? a.) the accuracy of the assumptions behind the theory b.) the ability of the theory to predict real-world events c.) the implications of the theory for current public policy d.) how much mathematical detail is behind the theory
Answer: b
When several hurricanes hit Florida in 2004, a number of local governments imposed price controls that prevented sellers from raising their prices for badly needed products like plywood and generators. In the areas where the controls were imposed, they resulted in a.) an expanded availability of these badly needed products. b.) a reduced availability of these badly needed products. c.) an increase in the speed with which people recovered from the hurricanes. d.) a more efficient allocation of these goods for which price controls were in effect.
Answer: b
Which of the following would increase the supply of laptop computers? a.) higher wage rates for the workers that produce laptop computers b.) a technological improvement that lowers the cost of producing laptop computers c.) an increase in the price of computer chips used to produce laptop computers d.) all of the above
Answer: b
Which one of the following states a central element of the economic way of thinking? a.) Scarce goods are priceless. b.) Incentives matter—human choice is influenced in predictable ways by changes in personal costs and benefits. c.) The realism of the assumptions is the best test of an economic theory. d.) When deciding how to allocate time, the concept of opportunity cost is meaningless.
Answer: b
While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Jordan, the marginal cost of purchasing the third taco would be a.) zero. b.) 20 cents. c.) 75 cents. d.) 80 cents.
Answer: b
You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired and your income drastically increased. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, a.) yours would be negative and your roommate's would be positive. b.) yours would be positive and your roommate's would be negative. c.) yours would be zero and your roommate's would approach infinity. d.) yours would approach infinity and your roommate's would be zero.
Answer: b
"After every fall election, the weather starts to turn cold, therefore elections cause cold weather." This statement a.) confuses positive and normative analysis. b.) commits the fallacy of composition. c.) fails to recognize that association is not causation. d.) confuses macroeconomics with microeconomics.
Answer: c
"Now that Blake paints the broad surfaces and I do the trim work, we can paint a house in three-fourths the time that it took for each of us to do both." This statement most clearly reflects a.) the importance of secondary effects. b.) the fallacy of composition. c.) the law of comparative advantage. d.) behavior inconsistent with economizing.
Answer: c
A cold spell in Florida extensively reduced the orange crop, and as a result, California oranges commanded a higher price. Which of the following statements best explains the situation? a.) The supply of Florida oranges fell, causing the supply of California oranges to increase as well as their price. b.) The supply of Florida oranges fell, causing the supply of California oranges to decrease and their price to increase. c.) The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase. d.) The demand for Florida oranges was reduced by the freeze, causing an increase in the price of California oranges and a greater demand for them.
Answer: c
Brand names such as "BMW" or "Apple" a.) raise the cost of goods because they require advertising to make consumers aware of the brand name and, therefore, generally increase the price of products to consumers without producing any benefit to them. b.) generally convey little information about a product to consumers. c.) benefit consumers by assuring them of a known quality level when they buy a product that they have little previous first-hand knowledge about. d.) provide the most value to consumers for goods that are repeat-purchase items.
Answer: c
Gregory really enjoys eating bananas, but after eating 15 bananas in 20 minutes, Gregory says, "these are getting hard to swallow" and refuses to eat another banana. This statement best illustrates a.) the law of comparative advantage. b.) the fallacy of composition. c.) the law of diminishing marginal utility. d.) that bananas are an inferior good.
Answer: c
If Harry only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that a.) Harry is an irrational consumer. b.) The seller earned a $10,000 profit on the sale of the car. c.) Harry reaped $10,000 of consumer surplus from the transaction. d.) The seller received $10,000 worth of producer surplus on the transaction.
Answer: c
In Africa, which of the following policies has been most successful at increasing elephant populations? a.) Banning the ivory trade by making the buying and selling of ivory illegal. b.) Making elephants the common property of the people of the country through government ownership and control and making the killing of elephants illegal c.) Allowing private ownership of elephants and making the ivory trade legal d.) When used together, the policies in a and b have been more successful than the policy in c.
Answer: c
Joab wants to travel to California to climb Mt. Whitney and is trying to decide if he should drive or fly to the location. The flight to California would cost $800 and take 6 hours. Also if he flies, he would need to rent a car at an additional total cost of $200 (including gas) and drive an additional 2 hours total between the airport and the mountain. If Joab were to drive his Honda Civic from Tallahassee out to Mt. Whitney, the trip would take 78 hours and cost him $300. Other things constant, Joab would choose the flight plus rental car option if and only if the value of his time is at least a.) $133 per hour. b.) $125 per hour. c.) $10 per hour. d.) $3.85 per hour.
Answer: c
Points A, B, and C in Figure 2-8 indicate consumption and investment for three economies. Other things constant, which of the economies is likely to grow more rapidly in the future? a.) economy A b.) economy B c.) economy C d.) They would all be expected to grow at the same rate.
Answer: c
Refer to Figure 3-17. When the price is P1 , consumer surplus is a.) A. b.) A + B. c.) A + B + C. d.) A + B + D.
Answer: c
Refer to Figure 4-17. Ceteris paribus, if the government imposes a price floor in this market at a price of $7.00, the result would be a a.) no change, the market would still be in equilibrium. b.) shortage of 20 units. c.) surplus of 20 units. d.) shortage of 10 units.
Answer: c
Scarcity implies that a.) Consumers are too poor to afford the goods and services available b.) Consumers are willing to purchase more of a good at the current price than suppliers are willing to produce c.) It is impossible to completely fulfill the desire for goods and services with the limited resources available d.) Consumers would be willing to buy the same quantity of a good at a higher price
Answer: c
The economy has been booming and the general population has more disposable income. At the same time, an increase in technology has decreased the amount of wheat needed to make Ramen Noodles (an inferior good). Given these two effects, what would happen to the equilibrium price and quantity of Ramen Noodles? a.) Equilibrium quantity will decrease, equilibrium price will increase. b.) Equilibrium price will increase, the effect on quantity is ambiguous. c.) Equilibrium price will decrease, the effect on quantity is ambiguous. d.) Equilibrium quantity will increase, the effect on price is ambiguous.
Answer: c
The expression, "There's no such thing as a free lunch," implies that a.) everyone has to pay for his own lunch. b.) the person consuming a good must always pay for it. c.) opportunity costs are incurred when resources are used to produce goods and services. d.) no one has time for a good lunch anymore.
Answer: c
The height of the demand curve for a product indicates the a.) minimum price consumers are willing to pay for an additional unit of it. b.) minimum quantity consumers are willing to purchase at the current price. c.) maximum price consumers are willing to pay for an additional unit of it. d.) minimum price required to induce suppliers to produce an additional unit of it.
Answer: c
The number of people willing to buy tickets to the Super Bowl is invariably greater than the number of tickets (and seats) available. This is evidence that the price of the tickets is a.) higher than the equilibrium price. b.) equal to the equilibrium price since the number of tickets bought equals the number sold. c.) lower than the equilibrium price. d.) higher than the equilibrium price when the demand is inelastic but lower when the demand is elastic.
Answer: c
The opportunity cost of an action is a.) The monetary payment the action required. b.) The total time spent by all parties in carrying out the action. c.) The value of the best opportunity that must be sacrificed in order to take the action. d.) The cost of all alternative actions that could have been taken, added together.
Answer: c
The price of an airline ticket from Denver to Washington, D.C. costs $600. A bus ticket costs $150. Traveling by plane takes 6 hours compared with 51 hours by bus. Other things constant, an individual would gain by choosing air travel if, and only if, his time were valued at more than a.) $6 per hour. b.) $8 per hour. c.) $10 per hour. d.) $15 per hour.
Answer: c
Three basic decisions must be made by all economies. What are they? a.) how much will be produced, when it will be produced, and how much it will cost b.) what the price of each good will be, who will produce each good, and who will consume each good c.) what will be produced, how goods will be produced, and for whom goods will be produced d.) how the opportunity cost principle will be applied, if and how the law of comparative advantage will be utilized, and whether the production possibilities constraint will apply
Answer: c
When the market for a good is in equilibrium, a.) consumer surplus will equal producer surplus. b.) the total value created for consumers will equal the total cost of production for business firms. c.) all units valued more highly than the opportunity cost of production will be supplied. d.) all units that have value will be produced, regardless of their cost of production.
Answer: c
Which of the following is a normative economic statement? a.) Every year, the government spends over 40 billion dollars on the war on drugs b.) Legalizing drugs would increase the tax revenue collected on drug sales c.) Drugs should remain illegal because drugs are bad for your health and reduce productivity. d.) All of the above are normative statements
Answer: c
Which of the following is a normative statement? a.) A decrease in price leads to an increase in quantity consumed. b.) Incomes grow more rapidly in high-tax states than low-tax states. c.) People would be better off if government expenditures were higher. d.) People will buy less butter at $1.50 per pound than they will at $1 per pound.
Answer: c
Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives. a.) Farmers produce fewer bushels of wheat in response to an increase in the price of wheat. b.) People will buy more milk at a price of $2 per gallon than at $1 per gallon. c.) People will buy less gas if the price of gas increases by $.20 per gallon. d.) People will consume more beef if the price increases from $1 to $2 per pound.
Answer: c
Which of the following is most consistent with the idea of economic efficiency a.) We should eliminate all pollution. b.) Flying should be made perfectly safe so that there is zero chance of a plane crash no matter how much it costs c.) When cleaning house, people only generally clean the most visible areas and usually leave at least a little dirt and mess around. d.) A person should always strive to achieve a 4.0 and perfect test scores, not matter how much time, money, and other resources it takes.
Answer: c
According to the law of supply, if price rises, what happens to quantity supplied of a product? a.) Quantity supplied is constant, but supply increases. b.) It does not change. c.) It decreases. d.) It increases.
Answer: d
Does voluntary exchange create wealth (value)? a.) No, exchange does not expand output. b.) No, if one person gains, the other party must lose an equal amount. c.) Uncertain: It does when it results in the creation of additional goods and services; otherwise, it does not. d.) Yes, trade generally permits the trading partners to gain more of what they value; this is why they agree to the terms of the exchange.
Answer: d
Dr. Sheldon Cooper quit his job as a physics professor to open his own comic book store. He gave up his $60,000 salary and invested his retirement fund of $100,000 (which was earning 20 percent interest) in this venture. His store generated $250,000 in total revenue and had $150,000 in explicit costs. Dr. Cooper's economic profits were a.) $250,000. b.) $100,000. c.) $40,000. d.) $20,000
Answer: d
Economic analysis assumes that a.) individuals act only out of selfish motives. b.) although individuals are at times selfish and at times unselfish, only their selfish actions may be predicted. c.) people are basically humanitarian, and their actions are, therefore, impossible to predict. d.) changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.
Answer: d
Economic choice and competitive behavior are the result of a.) basic human greed. b.) poverty. c.) private ownership of resources. d.) scarcity.
Answer: d
If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market? a.) an increase in quantity of unskilled labor demanded b.) a decrease in the quantity of unskilled labor supplied c.) a shortage of unskilled labor d.) a surplus of unskilled labor (unemployment)
Answer: d
If somebody already has one car and is trying to decide whether or not to purchase a second car, then the economic way of thinking indicates that the purchaser should compare a.) the benefits expected from two cars with the cost of both. b.) the additional benefits expected from a second car with the cost of the two cars. c.) the dollar cost of the two cars with the potential income that the cars will generate. d.) the additional benefits of the second car with the additional cost of the second car.
Answer: d
In the marketplace, Starvin' Marvin voluntarily trades his last loaf of bread to Fat Joe for a rap CD. The economic way of thinking indicates that this will a.) benefit neither Starvin' Marvin nor Fat Joe. b.) benefit Fat Joe, but not Starvin' Marvin since this is Starvin' Marvin's last loaf of bread. c.) benefit Starvin' Marvin, but not Fat Joe since a rap CD is obviously worth more than a loaf of bread. d.) benefit both Starvin' Marvin and Fat Joe.
Answer: d
Increasing opportunity costs of producing goods imply that the production possibilities curve will be a.) downward sloping. b.) upward sloping. c.) bowed inward. d.) bowed outward.
Answer: d
Legislation to protect red-cockaded woodpeckers created incentives that resulted in premature harvesting of trees the woodpeckers like to nest in. This is an example of which of the following? a.) Association is not causation. b.) the fallacy of composition c.) the use of ceteris paribus conditions in economic analysis d.) Good intentions do not always lead to desirable outcomes.
Answer: d
Other things constant, a decrease in the demand for computers will a.) increase the price of computers. b.) increase the quantity supplied of computers. c.) increase the demand for computer manufacturing workers. d.) decrease the demand for computer manufacturing workers.
Answer: d
Peter, a software engineer employed by Initech, sneaks into work late everyday and just sits at his desk spacing out for most of the week because he has no incentive to work any harder. This is most clearly an example of a.) the duality problem b.) diminishing marginal utility c.) fixed costs d.) shirking and the principle-agent problem
Answer: d
Price is important in a market economy because it a.) eliminates imbalances between supply and demand. 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.
Answer: d
Private property rights involve a.) the right to exclusive use of 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 transfer, sell, exchange, or mortgage the property. d.) all of the above.
Answer: d
Refer to Figure 2-9. What does the economy gain by moving from point A to point D? a. 20 toasters. b. 30 toasters. c. 20 toothbrushes d. 30 toothbrushes.
Answer: d
Refer to Figure 4-25. Which of the following is true after a tax is imposed in this market a.) The consumers lose areas B and C in consumer surplus, and are only left with area A b.) The producers lose areas D and E in producer surplus, and are only left with area F c.) The government gets areas B and D in government revenue, but areas C and E are the deadweight loss of the tax that nobody gets. d.) All of the above
Answer: d
Seller Minimum amount the seller is willing to accept Lucious $100 Million Andre $80 Million Hakeem $60 Million Jamal $40 Million Refer to Table 3-1. If the table represents the lowest amount these individuals are willing to accept to sell their ownership rights to the Empire Entertainment Record Label and a group of investors offers them each $50 million for their ownership rights, then what would be their combined producer surplus? a.) $90 Million b.) $80 Million c.) $50 Million d.) $10 Million
Answer: d
The upcoming game against the Clemson Tigers has caused a huge increase in the popularity of FSU T-shirts, hats and other pro-Seminole paraphernalia. At the same time, in an effort to support Florida State University, the local government has removed a tax from the production and sale of FSU merchandise. Given these two effects, what would happen to the equilibrium price and quantity of FSU merchandise in Tallahassee? a.) Equilibrium quantity will decrease, equilibrium price will increase. b.) Equilibrium price will decrease, the effect on quantity is ambiguous. c.) Equilibrium price will increase, the effect on quantity is ambiguous. d.) Equilibrium quantity will increase, the effect on price is ambiguous.
Answer: d
There have been many debates about whether or not there should be an open legal market for organs where individuals can voluntarily sell his or her kidney. Which of the following is likely to be true regarding the arguments that surround this debate? a.) In the United States, where it is illegal to sell your organs, there is a shortage of available organs that results in thousands of people dying every year while waiting on an organ. b.) In Iran, where you can legally sell your organs on the open market, they have completely eliminated their backlog of organ recipients so that nobody dies waiting on unavailable organs. c.) Allowing individuals to sell their organs on the open market may reduce the number of voluntary donations, which could result in a higher price of organ transplants that some people would not be able to afford. d.) All of the above are true regarding the arguments surrounding the legalization of an open market for organs.
Answer: d
What do economists mean when they state that a good is scarce? a.) There is a shortage or insufficient supply of the good at the existing price. b.) It is impossible to expand the availability of the good beyond the current amount. c.) People will want to buy more of the good regardless of the price of the good. d.) The amount of the good that people would like exceeds the supply freely available from nature.
Answer: d
When the price of running shoes from $60 to $40, the quantity demanded increases from 30 million to 50 million. Over this price range, the absolute value of the price elasticity of demand is a.) 0.80, making the demand for running shoes elastic over this price range b.) 0.80, making the demand for running shoes inelastic over this price range c.) 1.25, making the demand for running shoes inelastic over this price range d.) 1.25, making the demand for running shoes elastic over this price range
Answer: d
Which of the following is part of the economic way of thinking? a.) Opportunity costs will always be incurred when scarce resources are used to produce a good. b.) When the cost of an option increases, individuals will be less likely to choose it. c.) In addition to their immediate direct effects, economic actions often generate secondary effects that are observable only after the passage of time. d.) All of the above are part of the economic way of thinking.
Answer: d
Which of the following will most likely occur under a system of clearly defined and enforced private property rights? a.) Resource owners will fail to conserve vital resources, even if they expect their supply to be highly limited in the future. b.) Resource owners will ignore the wishes of others, including others who would like to use the resource that is privately owned. c.) Resource owners will fail to consider the wishes of potential future buyers when they decide how to employ privately owned resources. d.) Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.
Answer: d
