ECON TEST 1

Jamie has enough money to buy either a Mountain Dew, or a Pepsi, or a bag of chips. He chooses to buy the Mountain Dew. The opportunity cost of the Mountain Dew is A) the Pepsi or the bag of chips, whichever the highest-valued alternative forgone. B) the Mountain Dew. C) the Pepsi because it is a drink, as is the Mountain Dew. D) the Pepsi and the bag of chips. E) zero because he enjoys the Mountain Dew.

* the Pepsi or the bag of chips, whichever the highest-valued alternative forgone.*

Market equilibrium occurs when A) other things remain the same. B) the market is changing rapidly. C) everyone who wants the good gets the quantity he or she wants. D) the quantity demanded equals the quantity supplied. E) buyers get the lowest possible price.

* the quantity demanded equals the quantity supplied.*

The "law of demand" indicates that if the University of Minnesota increases tuition, all other things remaining the same A) both the demand for and the quantity of classes demanded will decrease at the University of Minnesota. B) the quantity of classes demanded will increase at the University of Minnesota. C) the demand for classes will increase at the University of Minnesota. D) the quantity of classes demanded will decrease at the University of Minnesota. E) the demand for classes will decrease at the University of Minnesota.

* the quantity of classes demanded will decrease at the University of Minnesota.*

Pizza and tacos are substitutes, and the price of a pizza increases. Which of the following correctly indicates what happens? A) The quantity of tacos demanded increases and the quantity of pizza demanded decreases. B) The demand for each decreases because both are normal goods. C) The quantity of pizza demanded decreases and the demand for tacos increases. D) The demand for pizzas decreases, and the demand for tacos increases. E) The demand for both goods decreases.

*The quantity of pizza demanded decreases and the demand for tacos increases.*

A rise in the price of a substitute in production for a good leads to A) a decrease in the supply of that good. B) a decrease in the quantity of that good supplied. C) an increase in the supply of that good. D) no change in the supply of that good; instead there is a change in the quantity supplied. E) no change in either the supply or the quantity supplied of the good.

*a decrease in the supply of that good*

Which of the following does NOT increase the supply of personal computers, that is, does NOT shift the supply curve of personal computers? A) a fall in the cost of the components used to assemble personal computers B) an advance in the technology used to produce personal computers C) an increase in the number of firms producing personal computer D) a rise the price of a personal computer E) a change in the expected future price of a personal computer.

*a rise the price of a personal computer*

Suppose you have tickets to a concert. The tickets cannot be refunded or resold. When making a decision of whether to go to the concert, the cost of the tickets is A) a marginal cost of choosing to attend. B) a sunk cost. C) an opportunity cost of missing the game. D) a marginal benefit of choosing to attend. E) an incentive.

*a sunk cost*

Production efficiency is represented by ________ a production possibilities frontier. A) all points outside B) only one point on C) all points inside D) all points on E) a movement along

*all points on*

Ramen noodles are a staple food item for many college students. Ramen noodles are very inexpensive, easy to prepare, and can be combined easily with other foods. After students graduate, find employment, and earn a higher income, they decrease their Ramen noodle purchases significantly. In this case, Ramen noodles are A) an inferior good. B) a complement for higher income people. C) a normal good. D) a substitute good. E) None of the above answers is correct.

*an inferior good*

The law of demand implies that, other things remaining the same, A) as more people demand cheeseburgers, the quantity demanded increases. B) as the price of a cheeseburger rises, the quantity of cheeseburgers demanded increases. C) as income increases, the quantity of cheeseburgers demanded increases. D) as the price of a cheeseburger rises, the quantity of cheeseburgers demanded decreases. E) as the demand for cheeseburgers increases, the price of a cheeseburger falls.

*as the price of a cheeseburger rises, the quantity of cheeseburgers demanded decreases.*

Assume a competitive market is in equilibrium. There is an increase in supply, but no change in demand As a result the level of equilibrium price is ________, and the level of equilibrium quantity is _______. A) increased; increased B) decreased; decreased C) decreased; increased D) increased; decreased E) increased; unchanged

*decreased, increased*

Assume a competitive market is in equilibrium. There is an increase in supply, but no change in demand As a result the level of equilibrium price is ________, and the level of equilibrium quantity is _______. A) decreased; increased B) decreased; decreased C) increased; increased D) increased; decreased E) increased; unchanged

*decreased, increases*

Market equilibrium i. can never occur because there are always people who want a good but cannot afford it. ii. occurs at the intersection of the supply and demand curves. iii. is the point where the quantity demanded equals the quantity supplied. A) ii and iii B) iii only C) i only D) i and ii E) ii only

*ii and iii*

"During 2007, the higher price of gasoline led to a decrease in demand for gasoline." Holding other things constant, this statement is A) incorrect, because the statement implies that gasoline is a complement to automobiles. B) correct, because people did end up buying less gasoline during the summer of 2007. C) correct, because this really happened-it is a positive economic statement. D) incorrect, because as the price increases, the quantity demanded decreases, not the demand. E) incorrect, because the statement implies that gasoline is an inferior good.

*incorrect, because as the price increases, the quantity demanded decreases, not the demand.*

Suppose that in a PPF graph, wheat is on the vertical axis and jets are on the horizontal axis. Moving down along the PPF, the A) amount of wheat increases and the opportunity cost of wheat increases. B) number of jets increases and the opportunity cost of jets increases. C) opportunity cost of jets and wheat both increase. D) number of jets increases and the opportunity cost of jets decreases. E) amount of wheat increases and opportunity cost of wheat decreases.

*number of jets increases and the opportunity cost of jets increases.*

The negative slope of the production possibilities frontier represents the idea A) that free lunches are possible. B) of tradeoffs, that in order to produce more of one good, the nation must produce less of another. C) of unemployment. D) that prices rise as less is produced. E) of inefficient production.

*of tradeoffs, that in order to produce more of one good, the nation must produce less of another.*

A country has a comparative advantage in the production of a good if it can A) produce the good on and remain on its production possibilities frontier. B) produce the good at the lowest opportunity cost. C) produce more of the good most efficiently. D) produce more of the good than another country. E) tradeoff producing the good for another good.

*produce the good at the lowest opportunity cost.*

points of the PPF are all a. production efficient b. unattainable and have fully employed resources c. attainable and have some unemployed resources d. inefficient e. free lunches

*production efficient*

If the price of carrots is below the equilibrium price, the A) quantity demanded of carrots exceeds the quantity supplied and a shortage exists. B) quantity supplied of carrots equals the quantity demanded. C) quantity supplied of carrots exceeds the quantity demanded and a shortage exists. D) quantity supplied of carrots exceeds the quantity demanded and a surplus exists. E) quantity demanded of carrots exceeds the quantity supplied and a surplus exists.

*quantity demanded of carrots exceeds the quantity supplied and a shortage exists.*

If there is a surplus of tacos, then the A) quantity of tacos demanded is greater than the quantity of tacos supplied. B) supply curve of tacos will shift leftward to eliminate the surplus. C) market is at equilibrium. D) quantity of tacos demanded is less than the quantity of tacos supplied. E) quantity of tacos demanded equals the quantity of tacos supplied.

*quantity of tacos demanded is less than the quantity of tacos supplied.*

Suppose that the price of lettuce used to produce tacos increases. As a result, the equilibrium price of a taco ________ and the equilibrium quantity ________. A) rises; decreases B) falls; decreases C) rises; increases D) does not change; decreases E) falls; increases

*rises, decreases*

If the demand for used cars decreases after the price of a new car falls, used cars and new cars are A) complementary goods. B) normal goods. C) substitute goods. D) inferior goods. E) The questions errs because it is the quantity of used cars, NOT the demand for used cars, that will change when the price of a new car falls.

*substitute good*

An opportunity cost is A) anything the decision maker believes costs to be. B) the benefits of the highest-valued alternative forgone. C) the dollar amount that is paid. D) another term for all the sunk costs. E) whatever is paid out and cannot be reduced or reversed.

*the benefits of the highest-valued alternative forgone.*

You study one more hour for the exam, and give up one hour of tennis. The hour of tennis is A) the benefit of spending the hour studying. B) the incentive to study. C) the cost of spending the hour studying. D) a sunk cost. E) a sunk benefit.

*the cost of spending the hour studying*

Hot dogs and hot dog buns are complements. If the price of a hot dog falls, then A) the demand for hot dog buns will increase. B) the demand for hot dog buns will decrease. C) the quantity demanded of hotdogs will decrease. D) the quantity demanded of hot dog buns will increase. E) the demand for hot dogs will increase.

*the demand for hot dog buns will increase. *

If the demand for a good increases when people's incomes increase, A) the good is a substitute good for an inferior good. B) the good's demand curve must be slope upward. C) the good is an inferior good. D) the good is a normal good. E) the law of demand is violated.

*the good is a normal good*

If the demand for a good decreases when people's incomes increase, like college students stay away from Ramen noodles when they get real jobs, A) the good is a substitute good for an inferior good. B) the good is an inferior good. C) the good is a normal good. D) the law of demand is violated. E) the good's demand curve must be slope upward.

*the good is an inferior good*

When a surplus of corn occurs, A) the demand curve shifts rightward and the supply curve shifts leftward to eliminate the surplus. B) the quantity demanded is greater than quantity supplied at the current price. C) there is a balance between the forces of supply and demand. D) the price of corn will rise. E) the price of corn will fall.

*the price of corn will fall*

When a surplus of rice occurs, A) there is a balance between the forces of supply and demand. B) the quantity demanded is greater than quantity supplied at the current price. C) the demand curve shifts rightward and the supply curve shifts leftward to eliminate the surplus. D) the price of rice rises. E) the price of rice falls.

*the price of rice falls*

Changes in which of the following factors do NOT shift the demand curve? A) the number of buyers B) the price of the good C) the price of a substitute good D) the price expected in the future E) buyers' incomes

*the price of the good*

Market equilibrium occurs when A) other things remain the same. B) everyone who wants the good gets the quantity he or she wants. C) buyers get the lowest possible price. D) the quantity demanded equals the quantity supplied. E) the market is changing rapidly.

*the quantity demanded equals the quantity supplied.*

Market equilibrium occurs when A) the market is changing rapidly. B) the quantity demanded equals the quantity supplied. C) everyone who wants the good gets the quantity he or she wants. D) buyers get the lowest possible price. E) other things remain the same.

*the quantity demanded equals the quantity supplied*

If the automobile worker's union successfully negotiates a wage increase for its members, how does the wage hike affect the supply of automobiles? A) The supply increases. B) The supply decreases. C) The quantity supplied increases. D) The quantity supplied decreases. E) Both answers B and D are correct.

*the supply decreases*

Milk can be used to produce cheese or butter. If the price of a pound of butter rises, what happens to the supply of cheese? A) The supply of cheese stays the same and there is no change in the quantity supplied of cheese. B) The supply of cheese stays the same and there is a decrease in the quantity supplied of cheese. C) The supply of cheese decreases. D) The supply of cheese increases. E) The supply of cheese could increase, decrease, or stay the same depending on what happens to the supply of butter.

*the supply of cheese decreases*

If the price is below the equilibrium price, A) the supply curve will shift leftward. B) the demand curve will shift leftward. C) there is a surplus. D) there is a shortage. E) the supply curve will shift rightward.

*there is a shortage*