Microeconomics Exam #1
An example of a factor of production for Dell is
A worker hired by Dell.
Which of the following is not a factor of production?
$1,000 in cash
Pierre can produce either a combination of 20 bowties 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 cos of producing an additional 15 neckties?
15 bowties
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?
25 silk leaves
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?
30 percent
If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, then economists would describe this as
A decrease in quantity demand.
Last year, the Pottery Palace supplied 8,000 ceramic pots at $40 each. This year, the company supplied the same quantity of ceramic pots at $55 each. Based on this evidence, The Pottery Palace has experienced
A decrease in supply.
Which of the following would shift the supply curve for smartphones to the right?
A decrease in the price of an input used to produce smartphones
Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?
A decrease in the price of flour.
If the price of beef jerky rises, then the substitution effect due to the price change will cause
A decrease in the quantity of beef jerky demanded.
The term "market" in economics refers to
A group of buyers and sellers of a product and the arrangement by which they come together to trade.
An inward shift of a nation's production possibilities frontier can occur due to
A natural disaster like a hurricane or bad earthquake
In 2004, hurricanes damaged a large portion of Florida's orange crop. As a result of this, many orange growers were not able to supply fruit to the market. If, following the hurricane, the price remained at its pre-hurricane level, we would expect to see
A shortage of oranges.
If a graph has a line that shows the amount of outsourcing in the last ten years, it is known as
A time-series graph.
"An Inquiry into the Nature and Causes of the Wealth of Nations" published in 1776 was written by
Adam Smith
In economics, an organization that produces a good or service is called a
All of these are correct.
What is the difference between an "increase in supply" and an "increase in quantity supplied"?
An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.
Which of the following statements bout entrepreneur is false?
An entrepreneur sells his entrepreneurial services in the output market.
Assume that potatoes are an inferior good. Which of the following would cause both the equilibrium price and equilibrium quantity of potatoes to decrease?
An increase in consumer income
Which of the following statements is correct?
An increase in the price of C will decrease the demand for complementary product D.
Farmers can raise either goats or ostriches on their land. Which of the following would cause the supply of goats to decrease?
An increase in the price of ostriches
Which of the following would cause a decrease in the supply of milk?
An increase the price of a product that producers sell instead of milk
The development of a new good or new process for making a good is called
An invention.
Which of the following is a factor of production?
An oven in a bakery
Which of the following is an example of spending on factors of production in the circular flow model?
Arlisha purchases a cotton candy machine for her concession stand at the state fair.
Comparative advantage means the ability to produce a good or service
At a lower opportunity cost than any other producer.
You have an absolute advantage whenever you
Can produce more of something than others with the same resources
Individuals who have never been the best at doing anything
Can still have a comparative advantage in producing some product.
The ____ demonstrates the roles played by households and firms in the market system.
Circular flow model
Specializing in the production of a good or service in which one has a comparative advantage enables a country to do which of the following?
Consume a combination of goods that lies outside its own production possibilities frontier.
Let D=demand, S=supply, P=equilibrium price, and 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 levels of bad cholesterol?
D increase, S no change, P and Q increase.
A(n) _____ is represented by a leftward shift of the demand curve while a(n) ____ is represented by a movement along a given demand curve.
Decrease in demand; increase in quantity demanded.
The law of demand implies, holding everything else constant, that as the price of gelato
Decreases, the quantity of gelato demanded will increase
If a demand curve shifts to the right, then
Demand has increased
Economists spend much of their time
Describing how choices are made and analyzing the results of those choices.
Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the good. This statement is most consistent with which explanation for the law of demand?
Diminishing marginal utility.
An outward shift of a nation's production possibilities frontier represents
Economic growth.
Which of the following statements about economic resources is true?
Economic resources are also called factors of production.
All of the following are critical functions of the government in facilitating the operation of a market economy except
Ensuring an equal distribution of income to all citizens.
______ occurs when economic benefits are distributed fairly.
Equity
Tesla Motors manufactures 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
Faces a trade-off between higher cost and less technical skill.
If a commercial dairy farm wants to raise funds to purchase feeding troughs, it does so in the
Factor market.
The natural resources used in production are made available in the
Factor market.
In economics, tangible merchandise is referred to as
Goods.
All centrally planned economies
Have been political dictatorships.
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?
He should sell the machine now to make the most profit.
Which of the following statements about a circular flow model is false?
Households are neither buyers nor sellers in the input market.
The simple circular flow model shows that
Households are on the selling side of the resource market and on the buying side of the product market.
Microeconomics is the study of
How households and firms make choices.
In economics, the accumulated skills and training that works have is known as
Human capital.
For each pound of salami that Hungary produces, it gives up the opportunity to make 10 bottles of beer. Slovakia gives up the opportunity to produce of 1 pound of salami for every 8 bottles of beer it produces. Which of the following is true about the comparative advantage between the two countries?
Hungary has the comparative advantage in beer.
What is the "omitted variable" problem in determining cause and effect?
It is a problem that arises when an economic variable that affects other variables is omitted from an analysis and its omission leads to false conclusion about cause and effect.
The production possibilities frontier model shows that
If all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.
If the amount of carbonated sodas consumed continues to decline as consumers continue to choose to buy healthier products, this will likely
Increase the demand for premium water, because premium water and carbonated sodas are considered substitutes.
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
Increase the demand for tacos and decrease the demand for soda.
Billie's Billiard Barn has seen its business slow down ever since Patti's Ping Pong Parlor opened up across the street. Since the opening of Patti's Ping Pong Parlor, the opportunity cost of shooting pool at Billie's Billiard Barn has ______ for Billie's customers who also like to play ping pong.
Increased
As women's wages has risen relative to men's wages, the opportunity cost to women of doing housework has ________ than has the opportunity cost to men.
Increased more
As job opportunities for women and the wages those jobs pay have increased, the opportunity cost of doing housework has ______, so many families have chosen to hire specialists in households' chores, such as cleaning services and lawn care services, because the cost of these specialists is _____ than the cost of the wife (or husband) performing those chores.
Increased; lower
Which of the following statements is true?
Individuals who have never been the best at doing anything can still have a comparative advantage in producing some product.
How are the fundamental economic decisions determined in Canada?
Individuals, firms, and the government interact in a market to make these economic decisions.
In economics, the practical application of an invention is known as
Innovation.
What is an economic model?
It is a simplified version of some aspect of economic life used to analyze an economic issue.
In 18th century Europe, governments gave guilds legal authority to limit production of goods. How did this authority either obstruct or improve the market mechanism?
It obstructed the market mechanism because the guild's actions prevented the forces of demand and supply from coordinating the self-interested decisions of producers and consumers.
For each bottle of wine that Italy produces, it gives up the opportunity to make 10 pounds of cheese. France gives up the opportunity to produce of 1 bottle of wine for every 25 pounds of cheese it produces. Which of the following is true about the comparative advantage between the two countries?
Italy has the comparative advantage in wine.
Which of the following is an example of spending on goods and services in the circular flow model?
Javier buys 800 square feet of wood flooring for his vacation home.
If the production possibilities frontier is ___, then opportunity costs are constant as more of one good is produced.
Linear
An office supply store sells a ream of printer paper at a fixed price of $4.50. Which of the following is a term used by economists to describe the money received from the sale of an additional ream of paper?
Marginal revenue
The demand by all the consumers of a given good or service is the _____ for the good or service.
Market demand
The production possibilities frontier shows the ____ combinations of two products that can be produced in a particular time period with available resources.
Maximum attainable
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 the line is
Negative seven-tenths
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 incorporate.
Opportunity costs.
The primary purpose of _____ is to encourage the expenditure of funds on research and development to create new products
Patents and copyrights
One reason some manufacturing companies began moving production to China in the early 2000s was due to lower wages that could be paid to Chinese workers. Moving manufacturing to China to take advantage of lower wages so goods could be produced at a lower cost than if produced in the United States exemplifies which key economic idea?
People respond to economic incentives.
The machines that workers have to work with are considered
Physical capital
Economic models do all of the following except
Portray reality in all its minute details.
The law of demand states that, other things equal
Price and quantity demanded are inversely related
When you purchase a new pair of jeans you do so in the
Product market.
Which of the following statements is true about profit?
Profit is the difference between revenue and cost.
In economics, the difference between a firm's revenues and its costs is referred to as
Profit.
Which of the following is a fundamental characteristic of the market system?
Property rights
Households ___ final goods and services in the ___ market.
Purchase; product
It is necessary for all economic systems to provide people with goods and services and also restrict them from getting much of these goods and services as they wish, because failure to do this could _____ the efficiency of the system by producing goods and services that are ________.
Reduce; not as highly valued as others.
Which of the following statements is true about revenue?
Revenue is the total amount received for selling a good or service.
Let D=demand, S=supply, P=equilibrium price, and Q=equilibrium quantity. What happens in the market for tropical hardwood trees if the government restrict the amount of forest lands that can be logged?
S decreases, D no change, P increase, Q decreases.
Households
Sell resources in the factor market.
If the best lawyer in town is also the best at operating a word processor, then according to the theory of comparative advantage, this person should
Specialize in being a lawyer because its opportunity cost is lower.
If the best surgeon in town is also the best at cleaning swimming pools, then according to the theory of comparative advantage, this person should
Specialize in being a surgeon because its opportunity cost is lower.
Which of the following is an example of an activity undertaken by an entrepreneur?
Starting your own pet sitting business
Scarcity
Stems from the incompatibility between limited resources and unlimited wants
Households _______ factors of production and _______ goods and services.
Supply; demand
For each watch that Switzerland produces, it gives up the opportunity to make 50n pounds of chocolate. Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which of the following is true about the comparative advantage between the two countries?
Switzerland has the comparative advantage in watches.
The term "property rights" refers to
The ability to exercise control over one's own resources within the confines of the law.
Assume that California Merlot is a normal good. Prices of California Merlot 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?
The demand curve for Merlot has shifted to the right more than the supply curve has shifted to the right.
The Internet has created a new category in the book selling market, namely, the "barely used" book. How does the availability of barely used books affect the market for new books?
The demand curve for new books shifts to the left.
In September, buyers of silver expect that the price of silver will rise in October. What happened in the silver market in September, holding all else constant?
The demand curve shifts to the right
Which of the following has occurred as the millennial generation has come of age?
The demand for golf equipment has decreased in the U.S market.
Suppose a positive technological change in the production of disease-resistant corn caused the price of corn to fall. Holding everything else constant, how would this affect the market for wheat (a substitute for corn)?
The demand for wheat would decrease and the equilibrium price of wheat would decrease.
The concept of opportunity cost is that
The economic cost of using a factor of production is the alternative use of that factor that is given up.
Macroeconomics is mostly focused on
The economy as a whole.
Macroeconomics is the study of
The economy as a whole.
The production possibilities frontier model assumes which of the following?
The economy produces only two products
Which of the following are separate flows in the circular flow model?
The flow of income earned from the sale of resources and the flow of expenditures on goods and services.
Which of the following is a flow in the circular flow model?
The flow of revenue received by firms and the flow of payments to resource owners
Who in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy?
The government.
A major factor contributing to the slow growth rate of less-developed economies is
The lack of well-defined and enforceable property rights.
The attainable production points on a production possibilities frontier are
The points along and inside the production possibility frontier.
The income effect of a price change refers to the impact of a change in
The price of a good on a consumer's purchasing power.
Which of the following is a normative economic statement?
The price of gasoline is too high.
Assume that there is a surplus in the market for hybrid automobiles. Which of the following statements correctly describes this situation?
The price of hybrid automobiles will fall in response to the surplus; as the price falls the quantity demanded will increase and the quantity supplied with decrease.
A firm has an incentive to decrease supply now and increase supply in the future if it expects that
The price of its product will be higher in the future than it is today.
Which of the following is a microeconomics statement?
The price of smartphones declined 2.8 percent last year.
Adam Smith's invisible hand refers to
The process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole.
Technology is defined as
The process used to produce goods and services
At a product's equilibrium price
The product's demand curve crosses the product's supply curve.
The circular flow model demonstrates
The roles played by households and firms in the market system
Using Richard Tedlow's "three phases of marketing", the premium bottled water industry is probably in
The second phase, where one or a few brands have attained high market shares by selling a large number of bottles of premium water at lower prices.
The prevalence of Alzheimer's dementia is very high among residents living in nursing homes. A student concludes that it is likely that living in a nursing home causes Alzheimer's dementia. What is the flaw in the student's reasoning?
The student is drawing a false conclusion; he is confusing cause and effect
The decline in the popularity of clothing made from animal fur has enticed large department stores like J.C. Penney and Sears to discontinue sales of animal-fur products. How does discontinuing sales of these products by J.C. Penney and Sears affect the animal-fur clothing market?
The supply curve for animal-fur clothing shifts to the left.
If in the market for apples the supply has decreased, then
The supply curve for apples has shifted to the left.
Suppose that in October, market analysts predict that the price of platinum will fall in November. What happens in the platinum market in October, holding everything else constant?
The supply curve shifts to the right.
Competition means that
There are independently acting buyers and sellers in each market.
Which of the following describes a characteristic of a perfectly competitive market?
There are many buyers and sellers.
Suppose when the price of laptops fall, college students buy more laptops. This implies that
There is a negative relationship between laptop prices and quantities purchased by college students.
Which of the following statements about positive economic analysis is false?
There is much more disagreement among economists over positive economic analysis than over normative economic analysis.
Which of the following best describes an assumption economists make about human behavior?
They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time.
Who receives the most of what is produced in a market economy?
Those who are most willing and able to buy them
Which of the following most clearly related to the idea of opportunity costs?
Trade-offs
Adam Smith's behavioral assumption about humans was that people
Usually act in a rational, self-interested way.
Which of the following is a macroeconomic question?
What determines the inflation rate?
Which of the following is a microeconomic question?
What factors determine the price of carrots?
The town of Harmonia gives away all 500 tickets to its annual Founder's Day Free Concert-in-the-Park to local residents. Each year, more than 500 people wish to attend the concert, so some of the residents who receive the free tickets sell them for as much as $75 each. Is a transaction where someone pays a resident $75 for a "free ticket" economically efficient?
Yes, it was a voluntary exchange that benefited both parties
The resource income earned by those who supply ___ is called wages.
labor
the points outside the production possibilities frontier are
unattainable
In economics, the pleasure, happiness, or satisfaction received from a product is called
utility
