Micro Midterm 1

A production possibilities frontier can shift outward for all of the following reasons except one. Which is the exception? a. a decrease in the unemployment rate b. an improvement in labor skills c. an improvement in technology d. a larger work force e. a larger capital stock

a

A resource is something that a. is used to produce goods and services b. is provided by nature, not made by society c. exists in unlimited quantities d. must be produced by a firm e. consumes goods and services

a

A tariff is a. a tax on imports b. a legal limit on quantities of goods that can be imported c. a voluntary limit on quantities of goods that can be imported d. a quality restriction on imports e. a subsidy for exports

a

As the price of milk increases, producers are normally willing to supply greater quantities. This response is known as the law of a. supply b. demand c. averages d. variable proportions e. increasing costs

a

At various points along the production possibilities frontier, a. the greatest achievable output levels are illustrated b. resources are not fully employed c. more of one good can be obtained without giving up more of the other d. more efficient output levels are possible e. society is equally well off

a

Economists classify all of the following as capital, except one. Which one is not capital? a. a $20 bill in a firm's petty cash drawer b. the building where our economics class meets c. a plumber's wrench d. a railroad car e. a factory

a

Households a. own and sell resources b. play a very minor role in the economy c. supply goods and services d. are the largest purchasers of resources e. none of the above

a

If I trade a ginger snap for a chocolate chip cookie, I am engaging in a. barter b. comparative advantage c. absolute advantage d. privatization e. division of labor

a

In Exhibit 2-3, if all the economy's resources are used efficiently to produce good B, then the economy is at point a. g b. b c. h d. i e. e

a

In economics, the term "marginal" usually refers to a. a small change in an economic variable b. a low-quality product or resource c. an unimportant and irrelevant economic variable d. an all-or-nothing economic decision e. a footnote or minor point

a

The economic behavior of individual decision makers and the determination of price and output in specific markets are both studied in a. microeconomics b. macroeconomics c. positive economics d. normative economics e. disequilibrium economics

a

The law of comparative advantage says that a. the individual with the lowest opportunity cost of producing a particular good should produce it b. comparative advantage exists only when one person has an absolute advantage in the production of two goods c. whoever has a comparative advantage in producing a good also has an absolute advantage in producing that good d. whoever has an absolute advantage in producing a good also has a comparative advantage in producing that good e. gains from trade are possible only when one person has the comparative advantage in producing both goods

a

When drawing a production possibilities frontier, all of the following are usually assumed except one. Which is the exception? a. The quantity of resources is rapidly growing. b. Technology is fixed. c. Resources can be shifted between production of the two goods. d. The production possibilities frontier is drawn for a particular time period. e. Resources are fully and efficiently employed.

a

Which of the following is a reason why government is a participant in a market-oriented economy? a. to enforce contracts and protect private property b. to promote collusion c. to promote the growth of natural monopolies d. to provide more inequality in the distribution of income e. all of the above

a

Which of the following is an example of a positive statement: a. Today I paid $2.20 for a gallon of gas b. $2.20 for a gallon of gas is very cheap c. The gas prices are too high d. The gas prices are too low e. $2.20 for a gallon of gas is expensive

a

Which of the following is true of import tariffs and quotas? a. They benefit domestic producers. b. Domestic consumers gain because they purchase the output of domestic firms. c. Specialization and comparative advantage are advanced by tariffs and quotas. d. They tend to expand the volume of world trade. e. Because they increase the output levels of domestic firms, they tend to lower domestic prices.

a

Which of the following lists the three types of firms in the United States from smallest to largest in terms of volume of sales? a. partnerships, sole proprietorships, corporations b. sole proprietorships, partnerships, corporations c. sole proprietorships, corporations, partnerships d. corporations, partnerships, sole proprietorships e. partnerships, corporations, sole proprietorships

a

Which of the following will not shift the market supply curve for corn? a. a change in the price of corn b. a change in the price of soybeans c. a change in the price of herbicides and pesticides d. a change in storage technology e. a change in the number of acres planted in corn

a

Which of the following would shift the production possibilities frontier outward? a. an increase in the size of the labor force b. more efficient use of existing resources and technology c. the government prints more money d. the end of a strike by a labor union e. society's desire to produce more of one of the goods

a

Which resource generates the largest share of the income in the United States? a. labor b. land c. capital d. entrepreneurial ability e. money

a

A production possibilities frontier can shift inward if there is a. an increase in the unemployment rate b. mandatory retirement at age 55 c. an improvement in technology d. a larger work force e. a larger capital stock

b

An example of a positive externality is a. pollution because it affects people not directly involved with producing it b. a homeowner's maintenance of a beautiful lawn because this creates a benefit for neighbors c. creating a monopoly d. driving a car that emits pollution e. cigarette smoking because this imposes an indirect cost on people around the smoker

b

An outward shift of the production possibilities frontier a. reflects economic stability b. reflects economic growth c. reflects economic decline d. does not relate to the state of the economy e. is always a parallel shift

b

Externalities are defined as a. any transaction external to the firm b. costs or benefits that fall on third parties c. policies that firms undertake to sell products outside the country d. managers' dealings with stockholders outside the firm e. costs of maintaining plant and equipment to avoid the scrutiny of external auditors

b

Households act as suppliers when they provide a. goods and services to firms and governments b. resources to firms and governments c. tax payments to governments d. the demand for only what firms supply or make available e. money to firms in exchange for goods and services

b

Households supply four basic types of resources. They include all of the following except a. natural resources b. final goods and services c. capital d. entrepreneurial ability e. labor

b

In a circular-flow model, households supply all of the following except a. labor b. goods and services c. capital d. entrepreneurial ability e. natural resources

b

One might commit the fallacy of composition by concluding that a. statements that are true during prosperity are necessarily true during depression b. what is good for the individual is necessarily good for the group c. an event that precedes another is necessarily the cause of the latter d. intentions need not coincide with actions e. the composition of a complex product is not revealed by its exterior appearance

b

Recently it has been discovered that lobsters grown on lobster farms can feed on algae, which is a cheaper lobster food. As a result of this discovery, a. the supply curve for lobster will shift to the left b. the supply curve for lobster will shift to the right c. there will be an increase in the quantity of lobsters supplied d. there will be a decrease in the quantity of lobsters supplied e. both supply and demand curves will shift to the right

b

The demand curve for spinach shows the quantity demanded of spinach a. only at the equilibrium price of spinach b. at each possible price of spinach c. as income increases d. as income decreases e. at each possible price of a substitute good

b

The division of labor a. allows more people to be employed b. allows tasks to be performed more efficiently c. makes people happier on the job d. means that less management is required e. means that less equipment will be used

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. given a choice, most people would prefer to make their own decisions concerning the things that affect their lives e. they consider the total cost and benefit of various activities before they make a purchase

b

Which of the following is an example of a normative statement? a. The moon is made of green cheese. b. Women should earn the same income as men. c. When the price of a good rises, people will buy more of it. d. The more time you spend studying, the higher your economics test scores will be. e. The more time you spend studying for chemistry, the higher your economics test score will be.

b

Which of the four types of economic decision makers is most important? a. firms, because they produce all goods and services in the economy b. households, because they demand goods and services and supply resources c. government, because it ultimately sets and enforces the "rules of the game" d. government, because it steps in when there is market failure e. the rest of the world, because there are over 150 countries

b

. In Exhibit 4-13, a movement from point A to point B represents: a. A downward movement along demand D b. An upward movement along demand D' c. An increase in demand from D to D' d. A decrease in demand from D to D' e. A decrease in demand from D' to D

c

. Movements along a demand curve are called changes in a. demand b. opportunity costs c. quantity demanded d. the substitution effect e. preferences

c

A change in the composition of the population will generally a. change demand only if there is a change in the size of the population b. change demand only if there is no change in the size of the population c. change demand even if there is no change in the size of the population d. have absolutely no effect on demand e. result in a movement along the demand curve

c

A public good is one that is supplied to a. only people who pay for it b. only people who do not pay for it c. all people, regardless of whether they pay or not d. the government from private firms e. foreign governments from our federal government

c

An economic model a. omits critical elements b. must be presented in mathematical terms c. simplifies reality in order to focus on its essential elements d. can never be proven wrong if its assumptions are realistic e. produces poor predictions if it includes an unrealistic assumption

c

An increase in the number of producers of a good will a. increase the market supply because the price will rise b. increase the market supply only if market demand increases too c. increase the market supply because market supply is the sum of all individual supply curves d. increase the market supply only if all suppliers have an identical supply curves e. decrease the market supply because firms compete with each other and each firm will supply more

c

As the use of DVDs becomes more widespread, we would expect all of the following except one. Which is the exception? a. The prices of CDs will decrease. b. The demand curve for CD players will shift leftward. c. The supply curve of CD players will shift rightward. d. The demand curve for CDs will shift leftward. e. Firms will move their resources away from CD production to DVD production.

c

Assume that corn and soybeans are alternatives that could be grown by most farmers. An increase in the price of corn will a. increase the supply of corn b. increase the supply of soybeans c. decrease the supply of soybeans d. decrease the supply of corn e. have no effect on the supplies of corn and soybeans

c

Don can produce 10 pens or 20 pencils in one hour while Bob can produce 5 pencils or 15 pens in one hour. Which of the following statements is correct? a. Don has an absolute advantage over Bob in the production of pencils and Bob in the production of pens b. Bob has an absolute advantage over Don in the production of pencils c. Bob has a comparative advantage over Don in the production of pens d. Don has a comparative advantage over Bob in the production of pens e. Don does not have a comparative advantage in the production of either good

c

Government antitrust laws were designed to a. encourage the production of public goods b. prevent natural monopolies c. prevent collusion among firms d. regulate natural monopolies e. correct the outcomes of positive and negative externalities in private markets

c

If Sam can chop up more carrots per minute than Joe can, then a. Joe has an absolute advantage in carrot chopping b. Joe must have a comparative advantage in carrot chopping c. Sam has an absolute advantage in carrot chopping d. Sam must have a comparative advantage in carrot chopping e. we can conclude nothing about absolute advantage

c

If the price of gasoline (a normal good) decreases, other things constant, a. the demand for gasoline increases b. the demand for gasoline decreases c. the quantity demanded of gasoline increases d. the quantity demanded of gasoline decreases e. neither the demand for gasoline nor the quantity demanded of gasoline changes because everything is assumed constant along a demand curve

c

In Exhibit 4-12, a decrease in price from $21 to $15 leads to: a. An increase in demand b. A decrease in demand c. A downward movement along the demand curve d. An upward movement along the demand curve e. An increase in supply

c

In Exhibit 4-14, a movement from point M to point N represents: a. An increase in supply b. A decrease in supply c. An increase in quantity supplied d. A decrease in quantity supplied e. An increase in quantity demanded

c

In Exhibit 4-15, when the price is $15, an increase in the quantity supplied from 17 to 24 units can result from all of the following, except: a. Increase in the number of producers b. Technological advances c. An increase in the price of a relevant resource d. A decrease in the price of an alternative good e. A decrease in the price of a relevant resource

c

In economics, capital is defined as a. natural resources, such as water, oil, and iron ore b. the natural, unskilled abilities of people c. human creations used in the production process d. money and other financial assets e. the willingness of business owners to take risks

c

Opportunity cost is defined a. only in terms of money spent b. as the value of all alternatives not chosen c. as the value of the best alternative not chosen d. as the difference between the benefits from a choice and the benefits from the next best alternative e. as the difference between the benefits from a choice and the costs of that choice

c

Specialization of labor a. increases productivity without creating any problems b. reduces productivity, and is usually eliminated by business firms c. can create problems of boredom and repetitive motion injuries d. prevents the introduction of more sophisticated and efficient production techniques e. ignores individual preferences and natural abilities

c

Suppose you drink more tea because the price of coffee has increased. Which of the following best explains your action? a. the law of supply b. tea and coffee are complements c. the substitution effect d. the income effect e. your nominal income has increased

c

The law of increasing opportunity cost explains why a. opportunity cost is constant along the production possibilities frontier b. the production possibilities frontier is downward sloping c. the production possibilities frontier is curved d. efficient points lie along the production possibilities frontier e. technology remains constant along a production possibilities frontier

c

Trade restrictions result in all of the following except one. Which is the exception? a. higher prices b. fewer choices c. improved quality d. misallocation of resources e. reduced competition

c

When faced with a natural monopoly, the government will: a. Break up the natural monopoly b. Do nothing, natural monopolies are good for the economy c. Regulate the natural monopoly to decrease prices and increase production d. Do nothing if the natural monopoly creates a negative externality e. Do nothing because the natural monopoly provides a public good

c

Which of the following accounts for the largest percentage of spending by households in the United States? a. durable goods b. nondurable goods c. services d. insurance payments e. underground activities (e.g., illegal activities)

c

Which of the following accounts for the largest source of revenue for the federal government? a. sales tax b. federal property tax c. personal income tax d. corporate income tax e. borrowing

c

Which of the following have their profits taxed twice? a. sole proprietorships b. partnerships c. corporations d. nonprofit institutions e. S-corporations

c

Which of the following is a service? a. anything that is scarce and that satisfies unlimited human wants b. a thing for which people pay money c. an intangible activity that satisfies human wants d. any output produced by a service-sector industry, such as fast food e. something less desirable than a good

c

Which of the following points in Exhibit 2-3 represents an inefficient use of the economy's resources? a. g b. i c. f d. d e. h

c

Which of the following would cause an increase in the supply of wheat? a. an increase in fertilizer costs b. a decrease in the price of bread c. a decrease in the price of corn d. an increase in land prices e. an expectation that the price of wheat will be higher next period

c

Which of the following would not be considered a role of the government? a. promoting competition b. providing public goods c. providing externalities d. regulating natural monopolies e. safeguarding private property and enforcing contracts

c

A production possibilities frontier will be bowed out if a. there is scarcity b. resources are used efficiently c. production of one good involves an opportunity cost d. resources are not perfectly adaptable to making each good e. technology is improving

d

If the price of vanilla ice cream decreases, it is likely that a. demand for vanilla ice cream will increase b. demand for vanilla ice cream will decrease c. demand for chocolate ice cream will increase d. demand for chocolate ice cream will decrease e. the quantity demanded of vanilla ice cream will decrease

d

In Exhibit 2-3, if all the economy's resources are used efficiently to produce good A, then the economy is at point a. h b. e c. d d. i e. c

d

In economics, "capital" refers to a. money b. stocks, bonds, and other financial assets c. the seat of government d. machines, buildings, tools, and knowledge e. net worth (assets minus liabilities)

d

In the simple circular-flow model: a. Goods and services are flowing through the resource market b. Firms produce and buy goods and services c. Households produce and sell goods and services d. Firms produce and sell goods and services e. Households own and buy resources

d

Natural monopolies occur when a. government antitrust laws are too weak or not enforced b. negative externalities are present c. firms collude to set prices and divide the market among themselves d. one firm can service the market more cheaply than two or more firms can e. a public good is produced by a private firm

d

The law of demand says that the lower the price of a good, other things constant, a. the smaller the demand for that good b. the larger the demand for that good c. the smaller the quantity demanded of that good d. the larger the quantity demanded of that good e. the smaller the real income of consumers and the lower the quantity demanded of that good

d

The term "fiscal policy" refers to a. the amount of physical output produced by firms b. the means by which government policy makes firms more productive c. the avenue by which government influences credit markets d. spending and taxing by governments e. a tool of government that works in the opposite direction of monetary policy

d

Which of the following are the four categories of resources? a. human effort, human capital, money, and natural resources b. labor, physical capital, money, and entrepreneurial ability c. labor, entrepreneurial ability, capital, and money d. labor, entrepreneurial ability, capital, and natural resources e. human effort, money, entrepreneurial ability, and natural resources

d

Which of the following is an example of a durable good? a. food prepared at home b. food eaten at a restaurant c. high-fashion clothing d. binoculars e. motor oil

d

Which of the following will increase the supply of vanilla ice cream? a. an increase in the price of vanilla beans (an ingredient in ice cream) b. a decrease in the sales tax on restaurant bills c. an increase in the price of chocolate ice cream d. a decrease in the price of milk (an ingredient in ice cream) e. an increase in the price of hot fudge

d

"Efficiency" refers to a. producing output using the least amount of labor b. producing output using the least amount of capital c. producing as far inside the production possibilities frontier as possible d. producing only one out of many possible commodities e. getting the maximum possible output from available resources

e

. If a certain type of clothing becomes more fashionable, we would expect that its price a. will decrease and quantity will remain constant b. and quantity will both decrease c. will increase and quantity will decrease d. will decrease and quantity will increase e. and quantity will both increase

e

A market a. is often a physical place b. facilitates exchanges between buyers and sellers c. typically involves monetary transactions d. might not have well-defined geographical limits e. all of the above

e

Along a bowed-out production possibilities frontier, as more of one good is produced, a. the opportunity cost of producing that good remains constant b. the opportunity cost of producing that good decreases c. efficiency decreases d. the opportunity cost of producing both goods must remain constant e. technology remains constant

e

An improvement in technology would shift a. the demand curve leftward b. the demand curve rightward c. the supply curve leftward d. neither the supply nor the demand curve; instead, there is movement along both of them e. the supply curve rightward

e

Economics is the study of a. how to get rich by playing the stock market b. the best ways to reduce people's wants, given the scarcity of resources c. how rational government officials determine what goods should be produced d. money and why it is good e. how people use limited resources to try to satisfy unlimited wants

e

If Monica has a comparative advantage in baking and George has a comparative advantage in sewing, then a. Monica must have an absolute advantage in baking b. Monica must have an absolute advantage in sewing c. George must have an absolute advantage in baking d. George must have an absolute advantage in sewing e. we can conclude nothing about absolute advantage

e

If the production possibilities frontier is a straight line, a. its slope will equal -1 b. resources must not be used efficiently c. resources must be unemployed d. society must not be using the latest technology e. resources must be equally adaptable at producing either product

e

In Exhibit 2-3, if resources are used fully and efficiently, then the economy can produce at point(s) a. f b. h, d, or e c. a, b, or c d. d or e e. g, h, or i

e

In moving from point f to point g in Exhibit 2-3, the a. production of B increases without a change in the production of A b. production of A increases without a change in the production of B c. production of both A and B increase d. production of both A and B decrease e. production of B increases and production of A decreases

e

On a given production possibilities frontier, which of the following is not assumed to be fixed? a. the amount of labor available b. the amount of capital available c. the level of technology d. the amount of land and natural resources available e. production of each item

e

Rational economic decision makers will make a change only if a. the change is free of risk b. there are no costs involved c. their expectations are correct d. there is no uncertainty about the results of the change e. the expected marginal benefit exceeds expected marginal cost

e

Scarcity a. exists because people have wants that are unlimited relative to the availability of resources to satisfy those wants b. applies when a resource is not freely available c. means that each society and each individual must make choices d. exists in all societies e. all of the above are true

e

Studies show that the demand curve for peas has shifted. Which of the following explanations would you reject first? a. The price of string beans has changed. b. The demand for corn has changed. c. The demand for string beans has changed. d. The income of consumers has changed. e. The price of peas has changed.

e

Sunk costs a. can only be measured in monetary terms b. are opportunity costs c. should influence a person's choice if that person is a marginal decision maker d. lower the efficiency of production e. should not be considered when making economic decisions

e

Suppose you have an hour before your next class starts. You can either read a book, get something to eat, or take a nap. The opportunity cost of getting something to eat is a. the cost of what you eat b. the value of reading and sleeping c. the loss of value from not reading or sleeping d. the net benefit of sleeping for another hour e. impossible to determine because the most preferred alternative is not known

e

The difference between positive economic statements and normative economic statements is that a. both c and e are true b. positive statements are based on opinion while normative statements are based on fact c. positive statements are true and normative statements are often false d. positive statements are often false and normative statements are true e. positive statements are based on fact while normative statements are based on opinion

e

The law of demand is illustrated by a demand curve that is a. horizontal b. vertical c. upward sloping d. constant e. downward sloping

e

The objective of the household is to a. maximize household wealth b. own as much land as possible c. save as much money as possible d. acquire as many goods as possible e. maximize utility

e

Which of the following cannot be determined from a nation's position relative to its production possibilities frontier? a. whether it is producing efficiently b. whether it has unemployed resources c. the opportunity cost of each good illustrated d. the society's relative preferences regarding each good illustrated e. the price of each good illustrated

e

Which of the following points in Exhibit 2-3 is unattainable, given the quantity of resources and level of technology? a. h b. g c. f d. i e. e

e