Microeconomics Test 1

A leftwards shift of the supply curve for oil in the united states is most likely to result from: - a decrease in the fees that oil companies must pay for drilling license - an increase int he subsidy for oil exploration and drilling - a decrease in the world price of oil - an increase in the costs of exploration and drilling for oil

An increase in the costs of exploration and drilling for oil

A television station reports that the price of coffee has increased but the quantity traded in the market has decreased. This situation would be caused by a(n) - increase in demand - increase in supply - decrease in demand - decrease is supply

Decrease in supply

If farmers withhold some of their current corn harvest from the market because they anticipate a higher price of corn in the near future, then this would cause a(n):

Decrease in the supply of corn

If Z is an inferior good, an increase in money income will shift the:

Demand curve for Z to the left

Which of the following is not an opportunity of going to college? - Tuition - Foregone income (income that would have been earned if working full time) - Expenditures on books - Expenditures on regular clothes for every day use

Expenditures on regular clothes for every day use

The market system automatically corrects a surplus condition in a competitive market by:

Reducing the price of the commodity in question while increasing the quantity demanded

In presenting the idea of demand curve, economists presume that the most important variable in determining the quantity demanded is

The price of the product itself

A decrease in supply, holding demand constant, will cause:

higher prices and a smaller quantity sold

Which of the following statements is true? - if demand increases, then the price will decrease - if demand decreases, then the price will decrease - if price increases, then the demand curve will shift to the left - if price decreases, then the demand curve will shift to the left

if demand decreases, then the price will decrease

What is tradeoff?

tradeoff means if you want to increase something, you have to give up something else

The principle "rational people think at the margin" means:

you should do something if and only if marginal benefit exceeds marginal cost

Which of the following will not cause the demand for product K to change? - a change in the price of close - substitute product J - an increase in consumer incomes - a change in the price of K - a change in consumer tastes

A change in the price of K

Which of the following will not cause the supply curve to shift? - a change in the costs of resources needed to produce the good - a technological change in the production of the good - a change in the price of the good - a change in the prices of other goods that could be produced

A change in the price of the good

When economists describe "a market," the mean

A mechanism by which consumers and producers exchange goods and service

The statement in a newspaper that "consumer prices rose last month by 1 percent, and if this trend continues, the annual rate of inflation will be 12 percent for the year" is an example of:

A positive economic statement

Which of the following is a normative economic statement? - The Federal budget surplus rose by 10 billion dollars - A fall in the unemployment rate is expected next month - A trade deficit of 20 billion dollars will harm the economy - The federal funds rate was reduced by half a percentage point

A trade deficit of 20 billion dollars will harm the economy

Clara states that "there is a high correlation between the level of people's education and the level of their income." Ellie replies that the correlation occurs because "more education is the best way to earn more income in this country." Which is normative and which is positive?

Clara's statement is normative and Ellie's statement is positive

An increase in the price of a product will reduce the amount of it purchased because:

Consumers switch from buying relatively high-priced to relatively low-prices products

Suppose that a more efficient way to produce a good is discovered, thus lowering production costs for the good. This will cause a(n):

Increase in supply, or a rightward shift of the supply curve

The main function of the entrepreneur

Innovate

Government may improve market outcome under the condition of

Market Failure

Which of the following statement is not correct? - Market is always a good way to allocate resources - People respond to incentive - Trade can make everyone better off - People face trade offs because of scarcity

Market is always a good way to allocate resources

Which of the following statements is correct? - Market is the only way to allocate resources - Market is always a good way to allocate resources - Market is normally a good way to allocate resources - Market is never a good way to allocate resources

Market is normally a good way to allocate resources

The tax relief for a series of environmentally-friendly products, such as hybrid or electric cars, is designed based on the principle of:

People respond to incentives by changing their behavior

All of the following would affect the position of the supply curve for cranberries, except the: - popularity of cranberry drinks - price of agricultural land for cranberries - cost of fertilizers for cranberry production - development of a new pest control for cranberries

Popularity of cranberry drinks

Which of the following is a determinant of supply? - Tastes and preferences - price of a complementary good - Consumer income - Technology

Technology

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes:

The income effect

What is a major opportunity cost of going to college on a full-time basis? - The cost of transportation to college instead of to a job - The cost of living expenses (room and board) to attend college - The cost on tuition - The income that would have been earned as a full time worker

The income that would have been earned as a full time worker

Microeconomics focuses on

The individual units that make up the whole of the economy

When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower. This statement describes:

The substitution effect

Which would be an economic statement? - The poverty rate hit a new high last year - Prices are increasing at a rate of 3 percent a year - This administration needs to raise taxes to pay for childcare programs - Retail sales were flat last month and continue on their downward trend

This administration needs to raise taxes to pay for childcare programs

Which of the statements is true about supply? - There is an inverse relationship product price and quantity supplied - There is some price at which quantity supplied of a product is negative - As product price decreases, producers are willing to put more of the good market for sale - To entice producers to offer more of a product on the market for sale, product price must rise

To entice producers to offer more of a product on the market for sale, product price must rise

Macroeconomics focuses on

Total output and the general level of prices in the economy

Which of the following is most likely to be an inferior good? - Fur coats - Ocean Cruises - Used Clothing - Steak Dinner

Used Clothing

Which question is an example of a macroeconomic question? -What is the level of industrial concentration in the US automotive industry? -What economic incentives can be used to reduce the cost of healthcare in the nation? -What policies would be recommended for stimulating economic growth? -What market conditions are expected for milk in the nation this year?

What policies would be recommended for stimulation economic growth?

Which is an illustration of a microeconomic question? -What is the current national rate of unemployment? -Is the economy experiencing a decline in the rate of inflation? -Will a new type of television set increase the number of buyers? -Is the production of goods and services in the economy greater this year than in the last year?

Will a new type of television set increase the number of buyers?

In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by:

a change in buyer rates

Which would cause a rightward shift in the supply curve for telephone service? - a decrease in the wages of telephone workers - an increase in the price of telephones - an increase in the taxes paid by telephone companies - a decrease in a subsidy given to telephone companies

a decrease in the wages of telephone workers

What is the likely effect on the market for wine of a simultaneous increase in both consumer incomes and producer taxes on wine? - an increase in both price and quantity - an increase in price and a decrease in output - a decrease in price and an indeterminate effect on quantity - an increase in price and an indeterminate effect on quantity

an increase in price and an indeterminate effect on quantity

an increase in the quantity of automobiles supplies would be caused by which of the following? - an increase in the demand for automobiles - a decrease in the demand for automobiles - higher prices for steel - higher prices for gasoline

an increase in the demand for automobiles

Which would cause a leftward shift in the supply curve for car washes? - an increase in the number of cars in the city - a decrease in the taxes on car washes - an increase in the price of car washing equipment - a decrease in the price of water

an increase in the price of car washing equipment

If two goods are complements:

an increase in the price of one will increase the demand for the other.

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that: - there are many goods that are substitutes for bicycles - there are many goods that are complementary to bicycles - there are few goods that are substitutes for bicycles - bicycles are normal goods

bicycles are normal goods

in competitive markets a surplus or shortage will...

cause buyer and seller reaction which tend to eliminate the surplus or shortage

DVD players and DVDs are:

complementary goods

A newspaper reports that the average price of new homes in a certain city had decreased, and the number of new homes sold had also decreased. This situation is probably caused by - declining in costs of construction materials - declining incomes of people in that city - higher government subsidies to new homebuyers in that city - a rising population in that city

declining incomes of people in that city

An increase in quantity supplied" suggests a:

movement up along the supply curve

What is the law of demand?

negative relationship between price and quantity demanded (Qd)

What is the law of supply?

positive relationship between price and quantity supplied (Qs)

The law of demand states that

price and quantity demanded are inversely related

a market for a product is in equilibrium when:

quantity supplied equals quantity demanded