Econ Chapters 1-4 Test Review

Capital is best considered as: a. the natural environment. b. money. c. financial assets. d. a factor of production that has been produced.

d. a factor of production that has been produced.

Anything whose value can change is a: a. variable. b. constant. c. hypothesis. d. all of the above.

A: variable

Positive statements: a. are factual and can be tested. b. deal with what ought to be. c. are dealt with primarily in microeconomics. d. imply value judgments must be made.

a. are factual and can be tested.

(Exhibit: Demand and Supply of Gasoline) Given the equilibrium after a change in supply from S 1 to S 2: a. at the old price of $2.50, there will be pressure for the price to fall. b. the new price will be $1.50. c. the new quantity will be 400. d. all of the above are true.

a. at the old price of $2.50, there will be pressure for the price to fall.

Exhibit: Demand and Supply of Gasoline) A factor that may have changed supply from S 1 to S 2 is: a. better technology in the production of gasoline. b. lower labor productivity. c. increased demand. d. increased prices of substitutes for gasoline.

a. better technology in the production of gasoline.

If an economy's factors of production were owned by the government sector and the coordinating activity was done by a government planning board, the economy would be called: a. command socialism. b. mixed capitalism. c. market capitalism. d. capitalism.

a. command socialism.

A proposition about the relationship between two variables that can be proven false is called: a. the scientific method. b. a hypothesis. c. a law. d. a theory.

b. a hypothesis.

The branch of economics that examines the choices of consumers and firms is: a. microeconomics. b. positive economics. c. normative economics. d. macroeconomics.

A: microeconomics

Reaching the incorrect conclusion that one event causes another because the events tend to occur together is called: a. the fallacy of false cause. b. the scientific method. c. making choices at the margin. d. the economic way of thinking.

A: the fallacy of false cause

Opportunity cost is: a. the value of the best alternative forgone in making any choice. b. zero for the use of a free combo meal offer. c. the dollar payment for a product. d. the benefit derived from a product.

A: the value of the best alternative forgone in making any choice.

Something whose value does not change is a: a. variable. b. constant. c. hypothesis. d. all of the above.

B: constant

Ceteris paribus means: a. allowing all other things to change. b. making value judgments. c. all other things unchanged. d. differentiating between macroeconomics and microeconomics.

C: all other things unchanged

The primary emphasis in microeconomics is on: international trade and environmental economics. b. marginal analysis and normative economics. c. how firms set prices. d. aggregates in the economy.

D: aggregates in the economy

A systematic set of procedures through which knowledge is created is: a. a model. b. the economy. c. a market. d. the scientific method.

D: the scientific method

A hypothesis that has been tested extensively without being rejected and has won widespread acceptance is a: a. variable. b. constant. c. model. d. theory.

D: theory

(Exhibit: Demand and Supply of Gasoline) The initial price and quantity (at intersection of S 1 and D) in equilibrium are: a. $2.50 and 300 gallons. b. $1.50 and 400 gallons. c. $2.00 and 200 gallons. d. $2.00 and 450 gallons.

a. $2.50 and 300 gallons.

(Exhibit: Supply and Demand in Agriculture) If a price floor at P 4 is set to help farmers in terms of income and government wants to assure farmers that their output will be purchased, the government would have to purchase an amount of output equal to: a. Q3 - Q0. b. Q3 - Q1. c. Q2 - Q1. d. None of the above are true.

a. Q3 - Q0

Exhibit: Rent Controls) If rent controls are imposed, they will most likely be set at either _______ or _______. a. Rent0; Rent1 b. Rent1; Rent3 c. Rent3; Rent4 d. All of the above are equally likely rent control levels.

a. Rent0; Rent1

Exhibit: Rent Controls) Without rent controls, the equilibrium rent is _______ and the equilibrium quantity is _______. a. Rent2; Q2 b. Rent1; Q1 c. Rent2; Q1 d. Rent3; Q3

a. Rent2; Q2

A decrease in supply is caused by: a. a decrease in the number of sellers in the market. b. a decrease in resource prices. c. an advancement in the technology for producing the good. d. suppliers' expectations of lower prices in the future.

a. a decrease in the number of sellers in the market.

A decrease in supply means: a. a shift to the left of the entire supply curve. b. more will be supplied at every price. c. moving downward (to the left) along the supply curve with lower prices. d. less will be demanded at every price.

a. a shift to the left of the entire supply curve

Economists are: a. concerned with developing theories and interested in solving problems. b. always in agreement on the best way to implement policy decisions. c. interested in solving problems but not concerned with developing theories. d. reluctant to predict changes in variables such as prices, employment, and spending.

a. concerned with developing theories and interested in solving problems.

A decrease in the demand for eggs caused by concerns over cholesterol is most likely attributable to which demand shifter? a. consumer preferences and information b. prices of other goods c. income d. prices

a. consumer preferences and information

(Exhibit: Guns and Butter) If the economy were operating at point B, producing 16 units of guns and 12 units of butter per period, a decision to move to point E and produce 20 units of butter: a. involves a loss of 8 units of guns per period. b. involves a loss of 4 units of guns per period. c. indicates you can have more butter and guns simultaneously. d. makes it clear that this economy experiences decreasing opportunity costs.

a. involves a loss of 8 units of guns per period.

Supply is best defined as the: a. relationship between the quantity of a good or service sellers are willing to offer for sale and various prices, all other things unchanged. b. relationship between the quantity of a good or service buyers are able to purchase, all other things unchanged. c. quantity of a good or service sellers are willing to offer for sale at a specific price, all other things unchanged. d. relationship between the quantity of a good or service buyers are willing to purchase, all other things unchanged.

a. relationship between the quantity of a good or service sellers are willing to offer for sale and various prices, all other things unchanged.

Exhibit: Rent Controls) If rent controls are set at Rent 0: a. some renters would be willing to pay a price as high as Rent4 for Q0 units. b. no one would have to pay a higher actual price than Rent0 nor would anyone be willing to do so. c. there would be a shortage of rental units, but it is impossible to tell how large the shortage is based on the information provided. d. the shortage of rental units is Q2 to Q0.

a. some renters would be willing to pay a price as high as Rent4 for Q0 units.

Knowledge that can be applied to the production of goods and services is: a. technology. b. specialization. c. comparative advantage. d. natural resources.

a. technology.

Governments often impose taxes because they need money to fund their operations. This rationale for the tax is called: a. the revenue argument. b. paternalism. c. rent seeking. d. correcting a market failure.

a. the revenue argument.

(Exhibit: Guns and Butter) If the economy were producing 8 units of guns and 12 units of butter per period: a. this is a possible choice, but would involve unemployment and/or inefficiency. b. something must be done to reduce the amount of employment. c. the notion of increasing opportunity cost is invalidated. d. the economy is still efficient but has made a decision not to buy as much as it could.

a. this is a possible choice, but would involve unemployment and/or inefficiency.

(Exhibit: The Demand for Chocolate-Covered Peanuts) If George, Barbara, and Dan are the only three buyers in the market, and the price of a bag of chocolate-covered peanuts is 80 cents, the total market demand is ________ bags per month. a. 105 b. 70 c. 80 d. 280

a. 105

(Exhibit: Demand and Supply of Gasoline) When the supply curve shifted from the initial equilibrium to the new intersection of supply and demand at a price of ________ and quantity of 400, this could have resulted from ________. a. $1.50; an increase in consumers' income b. $1.50; an improvement in refining technology c. $2.00; an increase in the number of buyers d. A and B are true

b. $1.50; an improvement in refining technology

Exhibit: A Tax) Consider the demand and supply for movie tickets in a small town. When the government imposes a $5 tax on the sale of movie tickets, the (net) price ultimately paid by buyers will be: a. $8 b. $13 c. $7 d. $12

b. $13

(Exhibit: Demand and Supply of Gasoline) Given the initial equilibrium of S 1 and D, any price lower than _____________ will create pressure for the price to ________. a. $2.00; fall b. $2.50; rise c. $3.00; rise d. none of the above are true

b. $2.50; rise

The price of apples falls. What happens in the market for apple pies? a. The equilibrium price and quantity fall. b. The equilibrium price falls, and the equilibrium quantity rises. c. The equilibrium price and quantity rise. d. The equilibrium price rises, and the equilibrium quantity falls.

b. The equilibrium price falls, and the equilibrium quantity rises.

Which of the following would result in a movement along the demand curve? a. an increase in the number of suppliers b. a change in price c. a decrease in income d. an increase in the number of buyers

b. a change in price

The three broad types of factors of production are: a. stocks, bonds, and financial assets. b. capital, labor, and natural resources. c. money, profit, and interest. d. technology, human capital, and comparative advantage.

b. capital, labor, and natural resources.

An economy that has the lowest cost for producing a particular good is said to have a(n): a. technological advantage. b. comparative advantage. c. convex news production possibilities curve. d. all of the above are correct and

b. comparative advantage.

The relationship between the price of a good and the quantity people are willing and able to purchase is: a. equilibrium. b. demand. c. disequilibrium. d. supply.

b. demand.

A market surplus occurs if the: a. price is below the equilibrium price. b. equilibrium price is below the actual price. c. price is equal to the equilibrium price. d. equilibrium price is above the actual price.

b. equilibrium price is below the actual price.

In a market capitalist economy: a. private ownership exists but decisions about resource allocation are usually made centrally by the government. b. factors of production are owned privately and decisions about their use are basically made by individuals. c. there is no role for the government. d. factors of production are owned by the government but decisions about their use are made privately.

b. factors of production are owned privately and decisions about their use are basically made by individuals

Economists are generally in support of: a. subsidizing exports. b. free international trade. c. tariffs to restrict trade. d. government restrictions on trade.

b. free international trade.

An economic system is the set of rules that define _______ and _______. a. resources; prices b. how an economy's resources are to be owned; how decisions about the resources are to be made c. who gets to vote; when elections will be held d. market prices; factors of production

b. how an economy's resources are to be owned; how decisions about the resources are to be made

The set of acquired skills and abilities that workers bring to the production of goods and services is: a. wealth. b. human capital. c. natural ability. d. money.

b. human capital.

Human effort that can be applied in the production process is called: a. natural resources. b. labor. c. technology. d. specialization.

b. labor.

Unemployment and inflation are: a. not relevant in the U.S. economy today. b. major topics in macroeconomics. c. unique only to capitalistic economies. d. very important in the study of microeconomics.

b. major topics in macroeconomics.

Resources from nature that can be used to produce other goods and services are called: a. money. b. natural resources. c. labor. d. capital.

b. natural resources.

Rent controls: a. almost always help low-income families find low-cost housing. b. often help high-income families. c. cause the quantity supplied to exceed the quantity demanded. d. result in all of the above.

b. often help high-income families.

Governments often impose taxes because they want to discourage behaviors that officials believe is undesirable. This rationale for the tax is called: a. the revenue argument. b. paternalism. c. correcting a market failure. d. rent seeking.

b. paternalism.

The model that shows the goods and services the economy is capable of producing is the model of: a. utility. b. production possibilities. c. the fallacy of composition. d. scarcity.

b. production possibilities.

Suppose an oil producer wants to ensure her business by lobbying her government to tax electric cars. This rationale for the tax—handicapping the business of one's competitors—is called: a. correcting a market failure. b. rent seeking. c. paternalism. d. the revenue argument.

b. rent-seeking.

Most firms in the United States today are: a. owned by shareholders. b. sole proprietorships and partnerships. c. corporations. d. owned by government.

b. sole proprietorships and partnerships.

When the government imposes a tax on a product, buyers will be most negatively impacted if: a. the tax is collected from the seller. b. the burden does not depend on who the government collects the tax from. c. the burden of the tax will always be felt most heavily by the seller. d. the tax is collected from the buyer.

b. the burden does not depend on who the government collects the tax from.

The answer to, "What goods are to be produced?" deals with: a. how resources are combined to produce goods and services. b. the kinds and quantities of goods and services produced. c. how tastes and preferences are determined. d. who gets the goods.

b. the kinds and quantities of goods and services produced.

Exhibit: The Demand for Chocolate-Covered Peanuts) If the price of chocolate-covered peanuts increases from 40 cents to 50 cents, Dan will reduce his quantity demanded from 160 bags to 140 bags due to: a. the law of supply. b. the law of demand. c. a decline in his income. d. a change in his tastes and preferences.

b. the law of demand.

Exhibit: The Supply of Music Downloads) A decrease in the fee charged for music downloads would result in a change illustrated by the move from: a. p to q in Figure (b). b. u to v in Figure (d). c. s to t in Figure (c). d. n to o in Figure (a).

b. u to v in Figure (d).

(Exhibit: The Demand for Chocolate-Covered Peanuts) If George is only able to purchase 30 bags of chocolate-covered peanuts, the maximum price he is willing and able to pay for each bag is ________ cents. a. 80 b. 50 c. 70 d. 60

b. 50

Exhibit: The Demand for Chocolate-Covered Peanuts) If the price of chocolate-covered peanuts is 60 cents, the quantity demanded by George is ________ bags per month. a. 20 b. 10 c. 25 d. 15

c. 25

Exhibit: A Tax) Consider the demand and supply for movie tickets in a small town. When the government imposes a $5 tax on the sale of movie tickets, the (net) price ultimately received by sellers will be: a. $7 b. $12 c. $8 d. $13

c. 8

Price controls: a. always increase economic efficiency. b. always lead to more equitable results. c. can result in inequitable outcomes. d. All of the above are true.

c. can result in inequitable outcomes.

The bulk of the nation's output is produced by: a. partnerships. b. proprietorships. c. corporations. d. None of the above are true.

c. corporations

Economic resources used in the production process are called: a. consumer items. b. free gifts of the natural environment. c. factors of production. d. money capital.

c. factors of production.

Economics, generally speaking, is primarily concerned with: :a. the issues of income inequality or income equality. b. ceteris paribus, the scientific method, and the margin. c. how people choose among the alternatives available to them. d. the operation of the bond and stock markets.

c. how people choose among the alternatives available to them.

(Exhibit: Guns and Butter) Points A, B, E, and F: a. indicate constant costs for guns and increasing costs for butter. b. show that the opportunity cost of more guns increases, but that of more butter decreases as more of each good is produced.. c. indicate combinations of guns and butter that society can produce using all of its factors efficiently. d. indicate that society wants butter more than guns.

c. indicate combinations of guns and butter that society can produce using all of its factors efficiently.

A key theme fundamental to all of economics is: a. there are limited wants. b. we are a rich country but are simply not aware of it. c. people have unlimited wants facing limited means to satisfy them. d. there are unlimited resources.

c. people have unlimited wants facing limited means to satisfy them.

A firm owned by one individual is called a: a. corporation. b. partnership. c. sole proprietorship. d. none of the above.

c. sole proprietorship

International trade is possible in part through: a. restricting the rate of growth of output. b. inefficiently employing resources. c. specialization in the production of goods. d. generalization in the production of all goods.

c. specialization in the production of goods.

(Exhibit: The Supply of Music downloads) A decrease in the number of websites supplying music downloads would result in a change illustrated by: a. the move from s to t in Figure (c). b. the move from n to o in Figure (a). c. the move from p to q in Figure (b). d. the move from u to v in Figure (d).

c. the move from p to q in Figure (b).

The fundamental economic questions that every economic system must answer are: a. when, why, and for whom. b. how, when, and how much. c. what, how, and for whom. d. what, why, and for whom.

c. what, how, and for whom.

(Exhibit: Production Possibilities Schedule 1) If the economy produces 2 units of consumer goods per period, it also can produce at most _______ units of capital goods per period. a. 28 b. 30 c. 24 d. 18

c. 24

(Exhibit: The Demand for Chocolate-Covered Peanuts) If Barbara is only able to purchase 20 bags of chocolate-covered peanuts, the maximum price she is willing and able to pay for each bag is ________ cents. a. 80 b. 60 c. 70 d. 90

c. 70

The relationship between the value and price of a stock suggests that: a. the equilibrium price of a stock strikes a balance between those who think the stock is worth more and those who think it's worth less at the current price. b. it is the market's best guess regarding the expected value of the company's future profits. c. stocks are overvalued. d. A and B are true.

d. A and B are true.

A tax: a. is mandatory. b. is generally linked to some activity, such as a purchase. c. discourages the activity being taxed. d. All of the above are true.

d. All of the above are true.

Which of the following statements is (are) true? a. A model is a set of simplifying assumptions about some aspect of the real world. b. Models are based on assumed conditions that are simpler than those of the real world. c. A model cannot be a complete representation of the real world. d. All of the above are true.

d. All of the above are true.

There is equilibrium in the market when: a. there is no shortage or surplus. b. quantity supplied equals quantity demanded. c. demand equals supply. d. a and b are true.

d. a and b are true

Scarcity exists when: :a. countries and people find themselves facing poverty. b. the notions of normative economics come into play. c. we face the notion of "all other things unchanged." d. a choice must be made among two or more alternatives.

d. a choice must be made among two or more alternatives.

Exhibit: Supply and Demand in Agriculture) To help farmers: a. a price ceiling would be set at P4, causing a surplus of Q2 - Q1. b. a price floor would be set at P2, causing a surplus of Q2 - Q0. c. a price floor would be set at P1, causing a shortage of Q3 - Q0. d. a price floor would be set at P4, causing a surplus of Q3 - Q0.

d. a price floor would be set at P4, causing a surplus of Q3 - Q0.

Given that meat and potatoes are complementary goods, if the price of meat decreases substantially, there would be: a. an increase in the quantity of potatoes demanded. b. a decrease in the demand for potatoes. c. no change in the demand for potatoes. d. an increase in the demand for potatoes.

d. an increase in the demand for potatoes.

The law of demand is illustrated when: a. higher fees for the use of public golf courses force golfers to purchase fewer golf balls. b. an increase in tuition encourages more students to enroll in college because the quality of education has risen. c. higher oil prices cause oil companies to drill for new sources of oil. d. an increase in the purchases of personal computers results from lower prices.

d. an increase in the purchases of personal computers results from lower prices.

(Exhibit: Guns and Butter) The combination of guns and butter at point H: a. can be obtained, but would cost too much. b. Is attainable but would increase unemployment. c. has no meaning since it does not relate to the preferences of consumers. d. cannot be attained given the level of technology and the factors of production available.

d. cannot be attained given the level of technology and the factors of production available.

Exhibit: A Tax) Consider the demand and supply for movie tickets in a small town. When the government imposes a $5 tax on the sale of movie tickets, the quantity traded in the marketplace: a. rises from 80 to 130. b. falls from 180 to 80. c. rises from 130 to 180. d. falls from 130 to 80.

d. falls from 130 to 80.

A simplified representation of a particular problem is a: a. constant. b. hypothesis. c. law. d. model.

d. model.

In the personal computer industry, the reason for the fall in prices and the increase in quantity after 1980 was: a. a result of a dramatic decrease in U.S. wages. b. a result of a dramatic decrease in foreign wages. c. mainly a function of resource prices. d. primarily due to technological change and an increase in the number of sellers.

d. primarily due to technological change and an increase in the number of sellers.

If demand and supply both decrease: a. price will fall but quantity will go up. b. both price and quantity will be less. c. both price and quantity will go up. d. quantity will go down but the effect on price is indeterminate.

d. quantity will go down but the effect on price is indeterminate.

In the textbook, the prices of the factors of production, returns from alternative activities, technology, seller expectations regarding future prices, and the number of sellers are called: a. supply prices. b. demand shifters. c. market realities. d. supply shifters.

d. supply shifters.

(Exhibit: Production Possibilities Schedule 1) The opportunity cost of producing the fourth unit of consumer goods is ___ __ units of capital goods. a. 4 b. 6 c. 2 d. 8

d. 8