Micro test 1 exam

1. Which of the following statements is true about scarcity? A) Scarcity refers to the situation in which unlimited wants exceed limited resources. B) Scarcity is not a problem for the wealthy. C) Scarcity is only a problem when a country has too large a population. D) Scarcity arises when there is a wide disparity in income distribution

A

9. Suppose a hat manufacturer currently sells 2,000 hats per week and makes a profit of $5,000 per week. The plant owner observes, "Although the last 300 hats we produced and sold increased our revenue by $1,000 and our costs by $1,100, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of hats." Is this statement True or False?

False

. Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good) to increase? A) an increase in consumer income B) a drought that sharply reduces cotton output C) a decrease in consumer income D) unusually good weather that results in a bumper crop of cotton

a

3. Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that A) people are rational. B) people respond to economic incentives. C) optimal decisions are made at the margin. D) equity is more important than efficiency.

a

A change in all of the following variables will change the market demand for a product except A) the price of the product. B) population and demographics. C) income. D) tastes.

a

The market for smart phones has grown rapidly over the past few years, due in part to the overwhelming success of the Apple iPhone. Following the successful launch of the iPhone in 2007, companies such as Samsung, HTC, and LG have all introduced products to compete with the iPhone. The smart phones introduced to compete with the iPhone would be considered A) complements to the iPhone. B) substitutes for the iPhone. C) inferior goods compared to the iPhone. D) normal goods compared to the iPhone.

b

The principle of opportunity cost is that A) in a market economy, taking advantage of profitable opportunities involves some money cost. B) the economic cost of using a factor of production is the alternative use of that factor that is given up. C) taking advantage of investment opportunities involves costs. D) the cost of production varies depending on the opportunity for technological application.

b

20. If a straight line passes through the point x = 24 and y = 8 and also through the point x = 8 and y = 16, the slope of this line is A) negative 8 divided by 4. B) seven tenths. C) negative one half. D) one and one half.

c

Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses? A) 2.5 silk leaves B) 10 silk leaves C) 25 silk leaves D) 55 silk leaves

c

If the price of grapefruit rises, the substitution effect due to the price change will cause A) a decrease in the demand for grapefruit. B) a decrease in the demand for oranges, a substitute for grapefruit. C) a decrease in the quantity demanded of grapefruit. D) a decrease in the quantity supplied of grapefruit.

c

If the production possibilities frontier is ________, then opportunity costs are constant as more of one good is produced. A) bowed out B) bowed in C) non-linear D) Linear

d

Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase? A) a decrease in the price of flour B) an increase in the price of flour C) an increase in the price of rye bread, a substitute for white bread D) an increase in the price of butter, a complement for white bread

a

________ marginal opportunity cost implies that the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts. A) Increasing B) Decreasing C) Constant D) Negative

a

The production possibilities frontier model shows that A) if consumers decide to buy more of a product its price will increase. B) a market economy is more efficient in producing goods and services than is a centrally planned economy. C) economic growth can only be achieved by free market economies. D) if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

D

Pierre can produce either a combination of 20 bow ties and 30 neckties or a combination of 35 bow ties and 15 neckties. If he now produces 35 bow ties and 15 neckties, what is the opportunity cost of producing an additional 15 neckties? A) 2 bow ties B) 15 bow ties C) 20 bow ties D) 35 bow ties

b

Prices of California Merlot wine (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for French oak barrels used for wine storage have dropped and consumer incomes have risen. Which of the following best explains the rising prices of California Merlots? A) The supply curve for Merlot has shifted to the right while the demand curve for Merlot has shifted to the left. B) The demand curve for Merlot has shifted to the right more than the supply curve has shifted to the right. C) The demand curve and the supply curve for Merlot have both shifted to the left. D) The supply curve for Merlot has shifted to the right more than the demand curve has shifted to the right.

b

Tesla Motors manufacturers its cars at a plant in Fremont, California. At this plant, Tesla is able to take advantage of the high level of technical training possessed by its American workers, but it also sacrifices the ability to pay lower wages had it chosen to open its plant in a low-wage country such as Mexico, India, or China. In deciding to open the Fremont plant, Tesla A) faced no trade-offs because employing more technically-skilled workers increased efficiency. B) faced a trade-off between higher cost and lower precision. C) adopted a negative technological change because it chose high-skilled workers over low-paid workers. D) eroded some of its competitiveness in the luxury electric car market because of its increased cost of production.

b

. a. If an increase in income leads to an increase in the demand for peanut butter, then peanut butter is A) a neutral good. B) a normal good. C) a necessity. D) a complement. . b. If an increase in income leads to a decrease in the demand for popcorn, then popcorn is A) an inferior good. B) a neutral good. C) a necessity. D) a normal good.

b and a

.a. Let D= demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged? A) D decreases, S no change, P and Q decrease B) S decreases, D no change, P increases, Q decreases C) D and S decrease, P and Q increase D) D no change, S decreases, P increases, Q increases . Let D= demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol? A) D increases, S no change, P and Q increase B) S increases, D no change, P decreases, Q increases C) D and S increase, P and Q decrease D) D no change, S increases, P decreases, Q decreases

b and a

A production possibilities frontier with a bowed outward shape indicates A) the possibility of inefficient production. B) constant opportunity costs as more and more of one good is produced. C) increasing opportunity costs as more and more of one good is produced. D) decreasing opportunity costs as more and more of one good is produced.

c

5. DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is DeShawn's marginal benefit if he sells a basic detailing package? A) $35 B) $75 C) He makes a marginal loss of $15, not a marginal benefit. D) The marginal benefit cannot be determined.

B

10. Which of the following statements is true? A) Anytime you have to decide which action to take you are experiencing economic equity. B) Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale. C) Every individual, no matter how rich or poor, is faced with making trade-offs. D) Economics is a social science that studies the trade-offs we are forced to make because resources are unlimited.

C

19. You explain to your roommate Surya, who makes beaded headbands, about an economic theory which asserts that consumers will purchase more of a product at lower prices than they will at higher prices. She contends that the theory is incorrect because over the past two years she has lowered the price of her headbands and yet has seen a decrease in sales. How would you respond to Surya? A) Surya is right; she has evidence to back her claim. The theory must be erroneous. B) Surya is making the mistake of assuming that correlation implies causation. C) I will explain to her that she is making the error of reverse causality: it is the decrease in demand that has caused her to lower her prices. D) I will explain to her that there are some omitted variables that have contributed to a decrease in her sales such as changes in income.

D

8. Pookie's Pinball Palace restores old Pinball machines. Pookie has just spent $300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000. What should he do? A) He should sell the machine now to make the most profit. B) It does not matter what he does; he is going to take a loss on his project. C) He should rewire the machine, complete the task and then sell the machine. D) He should have never purchased the machine because he has already spent too much time on it and has not been paid for that time.

a

. Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation? A) The demand for digital music players is greater than the supply of digital music players. B) Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price. C) The price of digital music players will rise in response to the shortage; as the price rises the quantity demanded will increase and the quantity supplied will decrease. D) the shortage will cause an increase in the equilibrium price of digital music players.

b

13. Which of the following is a problem inherent in centrally planned economies? A) Households and firms make poor decisions in choosing how resources are allocated. B) There is too little production of low-cost, high-quality goods and services. C) Production managers are more concerned with satisfying consumer wants than with satisfying government's orders. D) Exports tend to exceed imports.

b

14. ________ is a situation in which a good or service is produced at the lowest possible cost. A) Allocative efficiency B) Productive efficiency C) Equity D) Optimal marginalism

b

15. Allocative efficiency is achieved when firms produce goods and services A) at the lowest possible cost. B) that consumers value most. C) at the lowest opportunity cost. D) at a marginal cost of zero.

b

17. In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit A) the supply curve shifted to the right resulting in an increase in the equilibrium price. B) the supply curve shifted to the left resulting in an increase in the equilibrium price. C) the demand curve shifted to the right resulting in an increase in the equilibrium price. D) the demand curve shifted to the left resulting in a decrease in the equilibrium price.

b

17. On a two-dimensional graph, ________ allows for the effects of additional variables. A) moving along a curve B) shifting curves C) eliminating a curve D) adding an additional curve

b

18. If the price of milk was $2.50 a gallon and it is now $3.25 a gallon, what is the percentage change in price? A) 13 percent B) 30 percent C) 75 percent D) 77 percent

b

2. Economists assume that rational behavior is useful in explaining choices people make A) because irrational people do not make economic choices. B) even though people may not behave rationally all the time. C) because individuals act rationally all the time in all circumstances. D) even though people rarely, if ever, behave in a rational manner.

b

4. Suppose the U.S. government encouraged consumers to trade in their old automobiles for more efficient, new models by paying up to $5,000 for the old automobiles. These consumers would be exemplifying the economic idea that A) people are rational. B) people respond to economic incentives. C) optimal decisions are made at the margin. D) equity is more important than efficiency.

b

11. The distribution of income primarily determines which of the fundamental economic questions? A) What goods and services are to be produced? B) How the goods and services are to be produced? C) Who will receive the goods and services produced? D) How to plan the economy?

c

12. How are the fundamental economic questions answered in a market economy? A) The government alone decides the answers. B) Individuals, firms, and the government interact in markets to decide the answers to these questions. C) Households and firms interact in markets to decide the answers to these questions. D) Large corporations alone decide the answers.

c

16. If a straight line passes through the point x = 14 and y = 3 and also through the point x = 4 and y = 10, the slope of this line is A) negative 11 divided by 6. B) seven tenths. C) negative seven tenths. D) 6 divided by 11.

c

6. DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. Should DeShawn continue to offer the engine detailing service? A) yes, he still makes a profit by selling the engine detailing service with the basic detailing package B) yes, but only if he raises the price of the basic detailing package C) no, his marginal benefit is less than his marginal cost D) More information is needed for DeShawn to make this decision.

c

Suppose your expenses for this term are as follows: tuition: $12,000, room and board: $6,500, books and other educational supplies: $1,500. Further, during the term, you can only work part-time and earn $3,500 instead of your full-time salary of $14,000. What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college? A) $13,500 B) $20,000 C) $24,000 D) $30,500

c

Holding everything else constant, an increase in the price of MP3 players will result in A) a decrease in the quantity of MP3 players supplied. B) a decrease in the demand for MP3 players. C) an increase in the supply of MP3 players. D) a decrease in the quantity of MP3 players demanded.

d

Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except A) engage in mutually beneficial trade with other nations. B) increase the variety of products that it can consume with no increase in resources. C) consume a combination of goods that lies outside its own production possibilities frontier. D) produce a combination of goods that lies outside its own production possibilities frontier

d

The attainable production points on a production possibility curve are A) the horizontal and vertical intercepts. B) the points along the production possibilities frontier. C) the points outside the area enclosed by the production possibilities frontier. D) the points along and inside the production possibility frontier

d

The income effect of a price change refers to the impact of a change in A) income on the price of a good. B) demand when income changes. C) the quantity demanded when income changes. D) the price of a good on a consumer's purchasing power.

d