Economics Sample Quizzes Ch 1-4

Combinations of goods outside the production possibilities curve (PPC) have which of the following characteristics?

They are not attainable given our existing stock of resources and technology.

The law of demand is the principle that there is ___________ relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus.

an inverse

The condition of scarcity

cannot be eliminated, prevails in poor economies, prevails in rich economies.

Because of scarcity,

it is impossible to satisfy every desire and choices must be made.

A curve that is derived by summing horizontally individual demand curves is called

market supply.

In the study of economics, investment means

the accumulation of capital that is used to produce goods and services.

In Exhibit 2-6, to move from U to B, the opportunity cost would be

zero.

Which of the following results from an increase in the price of a one-week vacation at beach resorts on the coast of Mexico?

An increase in the demand for vacations at resorts on Caribbean islands.

Which of the following is not an example of market failure?

Efficient equilibrium.

Three different economies have made choices about the production of capital goods. Which of the following is most likely to produce the greatest growth in the production possibilities curve (PPC)?

Greater production of capital goods than what is needed to replace worn-out capital.

Which of the following represents positive economics?

If policy A is followed, then outcome B results.

Which resource is not an example of capital?

Stocks or bonds.

An economy can produce various combinations of food and shelter along a production possibilities curve (PPC). Suppose a technological innovation resulted in a new, higher-yielding crop that generated more bushels of grain for a given set of land, labor, and capital resources. If this innovation did not affect the productivity of shelter production, then which of the following would be true?

The PPC will rotate outward along the food axis, but will not shift on the shelter axis.

An economy can produce various combinations of food and shelter along a production possibilities curve (PPC). We first increase the production of shelter along the PPC. If we then continue to shift more and more production to shelter, then which of the following will most likely happen to the opportunity cost of a unit of shelter?

Opportunity cost will increase because as more and more shelter is produced, labor and capital that is highly productive at producing food is being shifted to shelter production, and so more and more food is being given up to produce a unit of shelter.

Which of the following decreases supply in the market for pizza?

Pizza shop employees successfully organize a union and negotiate a pay increase.

Which of the following is a type of economic analysis?

Positive

If goods A and B are complements, and if the price of good B rises, how will this affect the market equilibrium for good A?

Price and quantity will both fall.

A surplus occurs when

Price is above the equilibrium.

A shortage occurs when

Price is below the equilibrium price.

In moving from a shortage toward the market equilibrium, which of the following is true?

Price rises.

If the cost of producing a good rises for sellers, then how will this affect the market equilibrium for that good?

Price will rise and quantity will fall.

Which of the following represents causality rather than association?

Quantity demanded goes up when price falls because lower prices increase consumer purchasing power, and because some consumers of substitute goods switch.

Which of the following is not a type of economic analysis?

Resources

Suppose that Big-Cat and Fat-Cat are rival cat food brands, and the price of Fat-Cat is reduced. Following this price drop, is there a shortage or a surplus of Big-Cat at the old price of Big-Cat?

Surplus.

Suppose that an economy can produce various combinations of fish and bread. If more people with strong fishing skills became employed in this economy, how would the production possibilities curve (PPC) change?

The PPC would shift outward on the fish axis, but would not change on the bread axis

Suppose that the City of Arcata, California, imposes rent control so that rents cannot exceed $500 per month on one-bedroom rental units. Suppose that $500 had also been the equilibrium rental price in Arcata before a huge new apartment complex was built in the nearby town of McKinleyville, where rents are $400 per month. Which of the following is most likely to be true?

The equilibrium rental price in Arcata will fall below $500, and thus rent control will not affect the rental market in Arcata.

Suppose that the average equilibrium monthly rental price of apartments and rooms in a college town had been steady at $600, but then the college expanded enrollment from 10,000 to 12,000, and suddenly there was a shortage of rental housing at the prevailing price of $600. Which of the following is most likely to be true?

The shortage occurred because demand increased, and a new market equilibrium will feature higher rental prices and more rental units available on the market.

If there are external benefits for good X, then which of the following would be true?

The socially efficient amount of good X can be achieved if society subsidizes consumers of good X.

Suppose a new pollution tax of $0.01 per kilowatt-hour of electricity is imposed on coal-fired power producers by the federal government. Which of the following correctly describes how this tax will affect the market for electricity served by these power plants?

The supply of electricity will decrease.

Suppose that the State of California imposes a minimum wage of $15 per hour. In the entry-level labor market in California fast-food restaurants, the quantity of labor demanded at $15 per hour is 800 thousand, and the quantity of labor supplied is 1.2 million. Which of the following is true?

There is a surplus of 400 thousand workers in the labor market.

Suppose that the federal government imposes a price floor (support price) in the milk market at a price of $3 per gallon. If market quantity demanded at $3 is 1 billion gallons, and if market quantity supplied is 1.5 billion gallons, then which of the following is true?

There is a surplus of 500 million gallons of milk, and the federal government will buy this 500 million gallons to maintain the $3 price.

Which of the following is true about renewable natural resources?

They are a type of land resource such as forests, range-lands, and marine fisheries that naturally regenerate and thus can tolerate a sustained harvest, but can be depleted from excessive harvest.

Suppose that the alternative uses of an hour of your time in the evening, ranked from best to worst, are (1) study economics, (2) watch two half-hour TV sitcoms, (3) play pool, and (4) jog around town. You can only choose one activity. What is the opportunity cost of studying economics for one hour, given this information?

Watching two half-hour TV sitcoms.

If an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), then if we increase the production of shelter along the PPC, which of the following is true?

We must decrease the production of food. This foregone food production represents the opportunity cost of the increase in shelter.

Which of the following is not one of the three fundamental economic questions?

What happens when you add to or subtract from a current situation?

Which of the following best describes the three fundamental economic questions?

What to produce, how to produce, and for whom to produce.

Under the law of demand, any increase in price will cause ____________ in quantity demanded.

a decrease

A leftward shift in the demand curve is called

a decrease in demand.

The law of supply is the principle that there is ___________ relationship between the price of a good and the quantity sellers are willing to offer for sale in a defined time period, ceteris paribus.

a direct

The market shown in Exhibit 4-11 is initially in equilibrium at M. Changes in market conditions result in a new equilibrium at J. This change is stated as a(an)

decrease in supply and a decrease in quantity demanded.

In Exhibit 3-14, if the price of video games was currently $45, there would be an ____________ of ______________ video games in this market.

excess demand; 100

In Exhibit 3-14, at any market price of video games below $50, a (an) ____________ would result, causing price to _________.

excess demand; rise

Exhibit 3-14 presents supply and demand data for the video game market. If the price of video games was currently $70, there would be an ____________ of ______________ video games in this market.

excess supply; 400

In Exhibit 3-14, at any market price of video games above $50, a(an) ______________ would result, causing price to __________.

excess supply; fall

There is news that the price of Tucker's Root Beer will increase significantly next week. If the demand for Tucker's Root Beer reacts only to this factor and shifts to the right, the position of this demand curve has reacted to a change in?

expectations.

The market shown in Exhibit 4-11 is initially in equilibrium at K. Changes in market conditions result in a new equilibrium at L. This change is stated as a(an)

increase in supply and an increase in quantity demanded.

Which word or phrase best completes the following sentence? Marginal analysis means evaluating _________ changes from a current situation.

positive or negative

In Exhibit 3-14, if there is a shortage of video games of 200 units, the current price of video games must be

$40

If a price ceiling is set at $10, and the equilibrium market price is $8, then which of these is the price that consumers actually pay?

$8.

Suppose that each of the seven dwarfs buys 4 mugs of ginger ale per week from Snow White's cafe, when the price per mug is $2. If the seven dwarfs are the entire market demand for Snow White's ginger ale, then which of the following is the correct value for market quantity demanded of ginger ale at a price of $2?

28.

With an upward-sloping supply curve, which of the following is true?

A decrease in price results in a decrease in quantity supplied.

Which of the following causes a shortage to become larger?

A decrease in price.

Which of the following is an example of an organization using marginal analysis?

A government official considering about what effect an increase in military good production will have on the production of consumer goods.

Which of the following best illustrates the application of the model-building process to economics?

A labor economist notices that unemployment tends to be higher among teenagers than more experienced workers, develops a model, and gathers data to test the hypotheses in the model.

Which of the following best describes an entrepreneur?

A person who combines the factors of production to produce innovative products.

Which of the following is not an example of a capital input?

A person's skills and abilities, which can be employed to produce valuable goods and services.

In Exhibit 2-6, which of the following points on the production possibilities are full-employment production points?

A, B, C, D

In Exhibit 2-6, which of the following points on the production possibilities curve are efficient production points?

A, B, C, D

A production possibilities curve shows the various combinations of two outputs that

An economy can produce.

A rightward shift in the demand curve is called

An increase in demand.

In Exhibit 4-11, which of the following might cause a shift from S1 to S2?

An increase in input prices.

Which of the following would not cause market demand for a normal good to decline?

An increase in the price of a substitute.

Which of the following causes the demand for veggie-burgers to increase?

An increase in the price of tofu-burgers, perceived as a substitute by veggie-burger consumers.

From the information in Exhibit 2-6, which of the following points are attainable with resources and technology currently available?

B, C, D, U

Why don't competitive markets do a good job providing public goods?

Because it is difficult to exclude people from gaining benefits from public goods without paying for them, and so market demand does not reflect the benefits to society from the public good.

Which of the following reasons might explain why an economy would be operating inside its production possibilities curve (PPC)?

Because of unemployment or underemployment of labor, perhaps due to discrimination against employing workers of a certain race or gender.

Which of the following is the last step in the model-building process?

Collect data and test the model.

Which of the following is true in ski-towns such as Crested Butte, Colorado, and Whistler, British Columbia during the peak winter ski season as compared to the months of May and June?

Demand for motel rooms is higher.

Which of the following is the second step in the model-building process?

Develop a model based on simplified assumptions.

Which of the following is the best definition of economics?

Economics is the study of how society chooses to allocate its scarce resources.

Suppose that the federal government provides wheat farmers with a price floor above the market equilibrium price of wheat, creating a surplus. Which of the following causes a reduction in the surplus of wheat?

Elimination of the price floor.

Suppose that X and Y are substitutes. If the price of Y increases, how will this change the market equilibrium for X?

Equilibrium price and quantity both rise.

Which of the following increases the supply of corn?

Farmers that grow soybeans can also grow corn, and the price of soybeans drops by 75 percent.

If a production possibilities curve (PPC) has capital on the vertical axis and consumer goods on the horizontal axis, which of the following is true?

Greater emphasis on the production of capital today leads to greater outward shifts in the PPC, thus increasing the wealth of people in the future.

Which of the following correctly describes the ceteris paribus assumption?

If we decrease the price of a good and observe that there is an increase in the quantity demanded, holding all other factors that influence this relationship constant.

Which word or phrase indicates that an economist is using positive economics?

If-then.

Low-income families consume proportionately more of which of the following kinds of goods?

Inferior goods.

The market shown in Exhibit 4-11 is initially in equilibrium at point M. Union negotiations for workers producing good X result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?

J

Which of the following are factors of production?

Land (natural resources), labor (human capital, entrepreneurship), and capital (constructed inputs such as factories).

In Exhibit 4-11, a decrease in quantity demanded would cause a movement from which equilibrium point to another, other things being equal?

M to J

Which of the following is a career that could result from majoring in economics?

Management, Banking, Government.

If society allows firms to freely pollute the environment, then which of the following is true?

Market equilibrium output will be too high relative to the efficient output level.

Which of the following illustrates the concept of scarcity?

More clean air is wanted than is available in large polluted metropolitan areas such as Mexico City, There is usually more than one use of your "free" time in the evening, There are many competing uses for the annual budget of your city, county, or state.

Which of the following would eliminate scarcity as an economic problem?

None of the answers above are correct.

A production possibilities curve is drawn based on which of the following assumptions?

None of the answers above is correct.