Microeconomics

Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. What is Allison's marginal benefit if she sells a basic 1-color job? A) $35 B) $60 C) $95 D) The marginal benefit cannot be determined

C) $95

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 leave

C) 25 silk leaves

Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment. c.Firms produce more of a particular DVD when its selling price rises Which of the above statements demonstrates that economic agents respond to incentives? A) a only B) b only C) c only D) a, b, and c

D) a, b, and c

Consider the following economic agents: a. the government b. consumers c. producers Who, in a market economy, decides what goods and services will be produced with the scarce resources available in that economy? A) the government B) producers C) consumers D) consumers and producers

D) consumers and producers

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) if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good

Which of the following is a principle concerning how people interact? a)Markets are usually a good way to organize economic activity. b)Rational people think at the margin. c)People respond to incentives. d)All of the above are correct.

a)Markets are usually a good way to organize economic activity.

The price elasticity of demand measures the a. magnitude of the response in quantity demanded to a change in price. b.direction of the shift in the demand curve in response to a market event. c.size of the shortage created by the increase in demand. d.responsiveness of quantity demanded to a change in income.

a. magnitude of the response in quantity demanded to a change in price.

Which of the following would not shift the demand curve for mp3 players? a.a decrease in the price of mp3 players. b.a fad that makes mp3 players more popular among 12-25 year olds. c.an increase in the price of digital music downloads, a complement for mp3 players. d.a decrease in the price of satellite radio, a substitute for mp3 players.

a.a decrease in the price of mp3 players.

If a good is normal, then an increase in income will result in a(n) a.increase in the demand for the good. b.decrease in the demand for the good. c.movement down and to the right along the demand curve for the good. d.movement up and to the left along the demand curve for the good.

a.increase in the demand for the good.

Equilibrium quantity must increase when demand a.increases and supply does not change, when demand does not change and supply increases, and when both demand and supply increase. b.increases and supply does not change, when demand does not change and supply increases, and when both demand and supply decrease. c.decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply increase. decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease

a.increases and supply does not change, when demand does not change and supply increases, and when both demand and supply increase.

The law of supply states that, other things equal, an increase in a.price causes quantity supplied to increase. b.price causes quantity supplied to decrease. c.quantity supplied causes price to increase. d.quantity supplied causes price to decrease.

a.price causes quantity supplied to increase.

Economist assume that rational people do all of the following except a) use all available information as they act to achieve their goals b) undertake activities that benefit others and hurt themselves c) weigh the benefits and costs of all possible alternative actions d) respond to economic incentives

b) undertake activities that benefit others and hurt themselves

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of a)A market failure caused by market power b)A market failure caused by an externality c)A market failure caused by equality d)There is no market failure in this case

b)A market failure caused by an externality

The primary determinant of a country's standard of living is a)the country's ability to prevail over foreign competition. b)The country's ability to produce goods and services. c)The total supply of money in the economy. d)The average age of the country's labor force.

b)The country's ability to produce goods and services.

Suppose a typical worker in India can produce 32 units of product in an eight-hour day, while a typical worker in Bangladesh can produce 30 units of product in a 10-hour day. We can conclude that a)Worker productivity in Bangladesh is higher than in India. b)The standard of living will likely be higher in India than in Bangladesh. c)Productivity is 4 units per hour for the worker in Bangladesh and 3 units per hour for the worker in India. d)There will be no difference between the standard of living in India and Bangladesh.

b)The standard of living will likely be higher in India than in Bangladesh.

Which of the following statements about trade is false? a)Trade increases competition. b)With trade, one country wins and one country loses. c)Bulgaria can benefit, potentially, from trade with any other country. d)Trade allows people to buy a greater variety of goods and services at lower cost.

b)With trade, one country wins and one country loses.

Trade can make everybody better off because it a) increases cooperation among nations. b)allows people to specialize according to comparative advantage. c)requires some workers in an economy to be retrained. d)reduces competition among domestic companies.

b)allows people to specialize according to comparative advantage.

Comparative advantage is related most closely to which of the following? a) output per hour b)opportunity cost c)Efficiency d)bargaining strength in international trade

b)opportunity cost

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are no close substitutes for this good. b. The good is a luxury. c. The market for the good is broadly defined. d. The relevant time horizon is short.

b. The good is a luxury.

Which of the following changes would not shift the supply curve for a good or service? a.a change in production technology. b.a change in the price of the good or service. c.a change in expectations about the future price of the good or service. a change in input prices

b.a change in the price of the good or service.

Which of the following events must cause equilibrium quantity to fall? a.demand increases and supply decreases. b.demand and supply both decrease. c.demand decreases and supply increases. d.demand and supply both increase.

b.demand and supply both decrease.

The law of demand states that, other things equal, an increase in a.price causes quantity demanded to increase. b.price causes quantity demanded to decrease. c.quantity demanded causes price to increase. d.quantity demanded causes price to decrease.

b.price causes quantity demanded to decrease.

By definition, economics is the study of a) how to make money in the stock market b) how to make money in a market economy c) the choices people make to attain their goals, given their scarce resources d) supply and demand

c) the choices people make to attain their goals, given their scarce resources

A circular-flow model and production possibilities frontier are similar in that a)Neither allows economic analysis to occur. b)Neither can be represented visually on a graph. c)Both make use of assumptions. d)Both make use of complex equations to arrive at solutions.

c)Both make use of assumptions.

For an economist, the idea of making assumptions is regarded generally as a a)bad idea, since doing so leads to the omission of important ideas and variables from economic models. b)Bad idea, since doing so invariably leads to data-collection problems. c)Good idea, since doing so helps to simplify the complex world and make it easier to understand. d)Good idea, since economic analysis without assumptions leads to complicated results that the general public finds hard to understand.

c)Good idea, since doing so helps to simplify the complex world and make it easier to understand.

Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that a)People respond to incentives. b)Rational people think at the margin. c)People face tradeoffs. d)Improvements in efficiency sometimes come at the expense of equality.

c)People face tradeoffs.

The basic principles of economics suggest that a)markets are seldom, if ever, a good way to organize economic activity. b)government should become involved in markets when trade between countries is involved. c)government should become involved in markets when those markets fail to produce efficient or fair outcomes. d)All of the above are correct.

c)government should become involved in markets when those markets fail to produce efficient or fair outcomes.

Absolute advantage is found by comparing different producers' a) opportunity costs. b)payments to land, labor, and capital. c)input requirements per unit of output. d)locational and logistical circumstances.

c)input requirements per unit of output.

Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is. a)the $60 she earns working. b)the $60 minus the enjoyment she would have received from going to the park. c)the enjoyment she would have received had she gone to the park. d)Nothing since she would have received less than $60 worth of enjoyment from going to the park

c)the enjoyment she would have received had she gone to the park.

Economists compute the price elasticity of demand as the a. percentage change in price divided by the percentage change in quantity demanded. b.change in quantity demanded divided by the change in the price. c.percentage change in quantity demanded divided by the percentage change in price. d.percentage change in quantity demanded divided by the percentage change in income

c.percentage change in quantity demanded divided by the percentage change in price.

Which of the following statements is not correct? a) Trade allows for specialization. b)Trade has the potential to benefit all nations. c)Trade allows nations to consume outside of their production possibilities curves. d)Absolute advantage is the driving force of specialization.

d)Absolute advantage is the driving force of specialization.

Most economists believe that an increase in the quantity of money results in a)An increase in the demand for goods and services. b)Lower unemployment in the short run. c)Higher inflation in the long run. d)All of the above are correct.

d)All of the above are correct.

The circular-flow diagram a)Is an economic model b)Incorporates two types of decision makers: households and firms. c)Represents the flows of inputs, outputs, and dollars. d)All of the above are correct.

d)All of the above are correct.

Production possibilities frontiers are usually bowed outward. This is because a)The more resources a society uses to produce one good, the fewer resources it has available to produce another good. b)The opportunity cost of producing a good decreases as more and more of that good is produced. c)Of the effects of technological change. d)Resources are specialized; that is, some are better at producing particular goods rather than other goods.

d)Resources are specialized; that is, some are better at producing particular goods rather than other goods.

Inflation is defined as a)a period of rising productivity in the economy. b)a period of rising income in the economy. c)an increase in the overall level of output in the economy. d)an increase in the overall level of prices in the economy.

d)an increase in the overall level of prices in the economy.

Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are a. complementary goods. b. normal goods. c. inferior goods. d. substitute goods.

d. substitute goods.

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a a. 0.4 percent decrease in the quantity demanded. b.2.5 percent decrease in the quantity demanded. c.4 percent decrease in the quantity demanded. d.40 percent decrease in the quantity demanded.

d.40 percent decrease in the quantity demanded.

"Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises." This relationship between price and quantity demanded a.applies to most goods in the economy. b.is represented by a downward-sloping demand curve. c.is referred to as the law of demand. d.All of the above are correct.

d.All of the above are correct

1.In a competitive market, the price of a product a.is determined by buyers, and the quantity of the product produced is determined by sellers. b.is determined by sellers, and the quantity of the product produced is determined by buyers. c.and the quantity of the product produced are both determined by sellers. d.None of the above is correct.

d.None of the above is correct.

A decrease in supply is represented by a a.movement downward and to the left along a supply curve. b.movement upward and to the right along a supply curve. c.rightward shift of a supply curve. d.leftward shift of a supply curve.

d.leftward shift of a supply curve.