econ test 1 (practice test)
1) In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. An increase in the price of a product that is a close substitute for X will A) increase D, increase P, and increase Q. B) increase D, increase P, and decrease Q. C) increase D, decrease P, and increase Q. D) decrease D, increase P, and decrease Q.
A
A nation's production possibilities curve might shift to the left (inward) as a result of A) the depletion of its soil fertility due to overplanting and overgrazing. B) technological advance. C) increases in the size of the labor force. D) investing in more capital goods.
A
A recent study found that an increase in the federal tax on beer (which would increase the price of beer) would reduce the demand for marijuana. Based on this information we can conclude that A) beer and marijuana are complementary goods. B) marijuana is an inferior good. C) beer and marijuana are substitute goods. D) beer is an inferior good.
A
An improvement in production technology will A) shift the supply curve to the right. B) shift the demand curve to the left. C) increase equilibrium price. D) shift the supply curve to the left.
A
If the production possibilities curve is a straight line, A) economic resources are perfectly substitutable between the production of the two goods. B) equal quantities of the two goods will be produced at each possible point on the curve. C) the two goods are equally important to consumers. D) the two goods will sell at the same market prices.
A
The basic purpose of the other-things-equal assumption is to A) allow one to reason about the relationship between variables X and Y without the intrusion of variable Z. B) allow one to focus upon micro variables by ignoring macro variables. C) determine whether X causes Y or vice versa. D) allow one to focus upon macrovariables by ignoring microvariables.
A
The competitive market system A) encourages innovation because successful innovators are rewarded with economic profits. B) encourages innovation because government provides tax breaks and subsidies to those who develop new products or new productive techniques. C) discourages innovation because it is difficult to acquire additional capital in the form of new machinery and equipment. D) discourages innovation because firms want to get all the profits possible from existing machinery and equipment.
A
The demand curve shows the relationship between A) price and quantity demanded. B) price and production costs. C) consumer tastes and quantity demanded. D) money income and quantity demanded.
A
The individual who brings together economic resources and assumes the risk of business ventures in a capitalist economy is called the A)entrepreneur. B)banker. C)manager. D)stockbroker.
A
The production possibilities curve illustrates the basic principle that A) if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced. B) an economy's capacity to produce increases in proportion to its population size. C) an economy will automatically obtain full employment of its resources. D) the production of more of any one good will in time require smaller and smaller sacrifices of other goods.
A
The simple circular flow model shows that A) households are on the selling side of the resource market and on the buying side of the product market. B) households are on the buying side of both product and resource markets. C) businesses are on the buying side of the product market and on the selling side of the resource market. D) businesses are on the selling side of both product and resource markets.
A
Which of the following is a distinguishing feature of a command system? A) central planning B) widespread dispersion of economic power C) private ownership of all capital D) heavy reliance on markets
A
Which of the following is a positive statement? A) The temperature is 92 degrees today. B) A humidity level of 90 percent is too high. C) Summer evenings are nice when it cools off to around 70 degrees. D) It is too hot to run outside when the temperature exceeds 80 degrees.
A
Which of the following is not correct? A typical production possibilities curve A) specifies how much of each product a society will want to produce. B) reveals how much each additional unit of one product will cost in terms of the other product. C) indicates that to produce more of one product, a society must forgo larger and larger amounts of the other product. D) indicates how much of two products society can produce.
A
A shift to the right in the demand curve for product A can be most reasonably explained by saying that A) consumer incomes have declined, and consumers now want to buy less of A at each possible price. B) consumer preferences have changed in favor of A so that they now want to buy more at each possible price. C) the price of A has declined and, as a result, consumers want to purchase more of it. D) the price of A has increased and, as a result, consumers want to purchase less of it.
B
An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that A) there are many goods that are complementary to bicycles. B) bicycles are normal goods. C) there are few goods that are substitutes for bicycles. D) there are many goods that are substitutes for bicycles.
B
Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread, and potatoes are a consumer substitute for bread, we would expect the price of wheat to A) rise, the supply of bread to decrease, and the demand for potatoes to decrease. B) rise, the supply of bread to decrease, and the demand for potatoes to increase. C) fall, the supply of bread to increase, and the demand for potatoes to increase. D) rise, the supply of bread to increase, and the demand for potatoes to increase.
B
Blu-ray players and Blu-ray discs are A) substitute goods. B) complementary goods. C) inferior goods. D) independent goods.
B
College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are A) complementary goods. B) inferior goods. C) substitute goods. D) normal goods.
B
If there is a shortage of product X, and the price is free to change, A) the supply curve will shift to the left and the demand curve to the right, eliminating the shortage. B) the price of the product will rise. C) fewer resources will be allocated to the production of this good. D) the price of the product will decline.
B
In 2007, the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are A) complementary goods, and the higher price for oil increased the demand for natural gas. B) substitute goods, and the higher price for oil increased the demand for natural gas. C) substitute goods, and the higher price for oil decreased the supply of natural gas. D) complementary goods, and the higher price for oil decreased the supply of natural gas.
B
Opportunity costs exist because A) most decisions do not involve sacrifices or trade-offs. B) the decision to engage in one activity means forgoing some other activity. C) wants are scarce relative to resources. D) households and businesses make rational decisions.
B
Other things equal, if the price of a key resource used to produce product X falls, the A) supply curve of product X will not shift. B) supply curve of product X will shift to the right. C) supply curve of product X will shift to the left. D) demand curve of product X will shift to the right.
B
Which of the following is a capital resource? A) silicon (sand) used to make computer chips B) software used by a firm C) a computer programmer D) a corporate bond issued by a computer manufacturer
B
Which of the following would not be considered a capital resource by economists? A) a camera used by a professional photographer B) a van used by a mother to transport the family around C) a crane used by a building contractor D)an office computer used by an accountant
B
1) Data from the registrar's office at Gigantic State University indicate that over the past 20 years tuition and enrollment have both increased. From this information we can conclude that A) higher education is an exception to the law of demand. B) GSU's supply curve of education is downsloping. C) factors such as school-age population, incomes, and preferences for education have increased over the 20-year period. D) the supply of education provided by GSU has also increased over the 20-year period.
C
A fundamental difference between the command system and laissez-faire capitalism is that, in command systems, A) money is not used, whereas it is in laissez-faire capitalism. B) scarcity does not exist, whereas it does in laissez-faire capitalism. C) the division of output is decided by central planning rather than by individuals operating freely through markets. D) all economic decisions are made by the government, whereas there is no government in laissez-faire capitalism.
C
Assume an economy is incurring unemployment. The effect of resolving this problem will be to A) shift its production possibilities curve to the left. B) shift its production possibilities curve to the right. C) move the level of actual output closer to the economy's production possibilities curve. D) create a less equal distribution of income.
C
In the simple circular flow model, A) households are buyers of resources. B) households are sellers of final products. C) businesses are sellers of final products. D) there are real flows of goods, services, and resources, but not money flows.
C
In which of the following statements are the terms "demand" and "quantity demanded" used correctly? A) When the price of ice cream rose, the demand for both ice cream and ice cream toppings fell. B) When the price of ice cream rose, the demand for ice cream fell, and the quantity demanded of ice cream toppings fell. C) When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell. D) None of these statements use the terms correctly.
C
On a production possibilities curve, the single optimal or best combination of output for any society A) is at a point near the bottom of the curve. B) is at the precise midpoint of the curve. C) depends upon the preferences of society. D) is at a point near the top of the curve.
C
Scarcity A) persists only because countries have failed to achieve continuous full employment. B) has been eliminated in affluent societies such as the United States and Canada. C) persists because economic wants exceed available resources. D) has been solved in all industrialized nations.
C
The four factors of production are A) land, labor, capital, and money. B) labor, capital, technology, and entrepreneurial ability. C) land, labor, capital, and entrepreneurial ability. D) labor, capital, entrepreneurial ability, and money.
C
The production possibilities curve A) shows all of those combinations of two goods that are most preferred by society. B) indicates that any combination of goods lying outside the curve is economically inefficient. C) is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced. D) shows all of those levels of production that are consistent with a stable price level.
C
The study of economics is primarily concerned with A) demonstrating that capitalistic economies are superior to socialistic economies. B) keeping private businesses from losing money. C) choices that are made in seeking the best use of resources. D) determining the most equitable distribution of society's output.
C
The term dollar votes in a market system means A) voters may be offered dollars to help elect certain political candidates. B) inflation will occur if consumers don't spend wisely. C) consumers "vote" for certain products to be produced by how they spend their incomes. D) government is responsible for determining what will be considered legal tender.
C
Which of the following statements is correct? A) If supply declines and demand remains constant, equilibrium price will fall. B) If demand decreases and supply increases, equilibrium price will rise. C) If supply increases and demand decreases, equilibrium price will fall. D) If demand increases and supply decreases, equilibrium price will fall.
C
1) In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. An increase in the price of a product that is a complement to X will A) increase D, increase P, and decrease Q. B) decrease S, decrease P, and decrease Q. C) increase D, increase P, and increase Q. D) decrease D, decrease P, and decrease Q.
D
At the equilibrium price, A) there are forces that cause price to rise. B) there are forces that cause price to fall. C) quantity supplied may exceed quantity demanded or vice versa. D)there are no pressures on price to either rise or fall.
D
If two goods are complements, A) an increase in the price of one will increase the demand for the other. B) they are necessarily inferior goods. C) they are consumed independently. D) a decrease in the price of one will increase the demand for the other.
D
In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. An improvement in the technology used to produce X will A) decrease S, increase P, and increase Q. B) decrease D, decrease P, and decrease Q. C) decrease S, increase P, and decrease Q. D) increase S, decrease P, and increase Q.
D
In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by A) consumers expecting donut prices to fall. B) an increase in the cost of making donuts. C) an increase in the price of coffee. D) a change in buyer tastes.
D
Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of A) marginal benefits that exceed marginal costs. B) normative economics. C) imperfect information. D) opportunity costs.
D
Normative statements are concerned primarily with A) facts and theories. B) what is. C) rational choice involving costs and benefits. D) what ought to be.
D
Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to A) increase the demand for both soda and tacos. B) reduce the demand for both soda and tacos. C) reduce the demand for tacos and increase the demand for soda. D) reduce the demand for soda and increase the demand for tacos.
D
The invisible hand refers to the A) fact that the U.S. tax system redistributes income from rich to poor. B) tendency of monopolistic sellers to raise prices above competitive levels. C) fact that government controls the functioning of the market system. D) notion that, under competition, decisions motivated by self-interest promote the social interest.
D
The issues of inflation, unemployment, and business cycles are A) not relevant to the U.S. economy. B) positive economic issues, but not normative issues. C) the primary focus of microeconomics. D) major topics of macroeconomics.
D
The law of increasing opportunity costs states that A) if the prices of all the resources used to produce goods increase, the cost of producing any particular good will increase at the same rate. B) if the sum of the costs of producing a particular good rises by a specified percentage, the price of that good must rise by a greater relative amount. C) the sum of the costs of producing a particular good cannot rise above the current market price of that good. D) if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so.
D
The law of supply indicates that, other things equal, A) producers will offer more of a product at low prices than at high prices. B) consumers will purchase less of a good at high prices than at low prices. C) the product supply curve is downsloping. D) producers will offer more of a product at high prices than at low prices.
D
The market system's answer to the fundamental question "Who will get the goods and services?" is essentially A) "Those who most need them." B) "Those who physically produced them." C) "Those who get utility from them." D) "Those most willing and able to pay for them."
D
What is a major opportunity cost of going to college on a full-time basis? A) the cost of transportation to college instead of to a job B) the cost of living expenses (room and board) to attend college C) the greater income that will be earned from having a college degree D) the forgone income that would have been earned working in a full-time job
D
Which of the following is a distinguishing feature of laissez-faire capitalism? A) public ownership of all capital B) central planning C) a circular flow of goods, resources, and money D) minimal government intervention
D
Which of the following is a microeconomic statement? A) Unemployment was 5.2 percent of the labor force last year. B) The real domestic output increased by 1.6 percent last year. C) The general price level increased by 1.1 percent last year. D) The price of smartphones declined 2.8 percent last year.
D
Which of the following will not produce an outward shift of the production possibilities curve? A) upgrading the quality of a nation's human resources B) increasing the quantity of a society's labor force C) improving a society's technological knowledge D) reducing unemployment
D
Which of the following would most likely increase the demand for gasoline? A) a decrease in the price of public transportation B) a widespread shift in car ownership from SUVs to hybrid sedans C) the expectation by consumers that gasoline prices will be lower in the future D) the expectation by consumers that gasoline prices will be higher in the future
D