Midterm

A decrease in supply will cause the largest increase in price when a. both supply and demand are inelastic. b. demand is elastic and supply is inelastic. c. both supply and demand are elastic. d. demand is inelastic and supply is elastic.

A

A price floor is a. a legal minimum on the price at which a good can be sold. b. a source of efficiency in a market. c. often imposed when buyers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. d. a legal maximum on the price at which a good can be sold.

A

According to the circular-flow diagram, if Jalyssa is a worker who delivers flowers for Happy Day Flower Company, she participates a. in the markets for factors of production exchanging labor for income. b. in the markets for goods and services exchanging flowers for wages, rent, and profit. c. in the markets for goods and services exchanging labor for income. d. in the markets for factors of production exchanging flowers for revenue.

A

An increase (rightward shift) in the demand for a good will tend to cause a. an increase in the equilibrium price and quantity. b. a decrease in the equilibrium price and quantity. c. an increase in the equilibrium price and a decrease in the equilibrium quantity. d. a decrease in the equilibrium price and an increase in the equilibrium quantity. e. none of the above.

A

An increase in the price of a good along a stationary supply curve a. increases producer surplus. b. decreases producer surplus. c. improves market equity. d. does all of the above.

A

An increase in the price of beef provides a. information that tells producers to produce more beef. b. information that tells consumers to buy less pork. c. information that tells consumers to buy more beef. d. no information because prices in a market system are managed by planning boards.

A

If a nation has a comparative advantage in the production of a good, a. it can produce that good at a lower opportunity cost than its trading partner. b. it can produce that good using fewer resources than its trading partner. c. it can benefit by restricting imports of that good. d. it must be the only country with the ability to produce that good.

A

If a supply curve for a good is price elastic, then a. the quantity supplied is sensitive to changes in the price of that good. b. the quantity supplied is insensitive to changes in the price of that good. c. the quantity demanded is sensitive to changes in the price of that good. d. the quantity demanded is insensitive to changes in the price of that good. e. none of the above.

A

If pasta is an inferior good, then the demand curve shifts to the ________ when ________ rises. a. left, consumers' income b. left, the price of pasta c. right, consumers' income d. right, the price of pasta

A

In making which of the following statements is an economist acting more like a scientist? a. A reduction in unemployment benefits will reduce the unemployment rate. b. The state should increase subsidies to universities because the future of our country depends on education. c. The unemployment rate should be reduced because unemployment robs individuals of their dignity. d. The rate of inflation should be reduced because it robs the elderly of their savings.

A

Suppose the equilibrium price for apartments is $800 per month and the government imposes rent controls of $500. Which of the following is unlikely to occur as a result of the rent controls? a. The quality of apartments will improve. b. Landlords may discriminate among apartment renters. c. There may be long lines of buyers waiting for apartments. d. There will be a shortage of housing. e. Landlords may be offered bribes to rent apartments.

A

Suppose the income of buyers in a market for an inferior good decreases and a technological advancement occurs also. What would we expect to happen in the market? a. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. b. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. c. Equilibrium quantity and price would increase. d. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.

A

Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good, a. consumers will gain and producers will lose. b. producers will gain and consumers will lose. c. both producers and consumers will gain. d. both producers and consumers will lose.

A

Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government could lower unemployment by one percentage point if it would just increase government spending by 50 billion dollars." The other economist responds, "That's ridiculous. If the government spent an additional 50 billion dollars, it would reduce unemployment by only one-tenth of 1 percent, and that effect would only be temporary!" These economists a. disagree because they have different scientific judgments. b. disagree because they have different values. c. really don't disagree at all. It just looks that way. d. do none of the above.

A

The surplus caused by a binding price floor will be greatest if a. both supply and demand are elastic. b. both supply and demand are inelastic. c. supply is inelastic and demand is elastic. d. demand is inelastic and supply is elastic.

A

When the nation of Worldova allows trade and becomes an exporter of silk, a. residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova rises. b. residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova rises. c. residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova falls. d. residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova falls.

A

Which of the following events would cause both the equilibrium price and equilibrium quantity of number two grade potatoes to increase if number two grade potatoes are an inferior good? a. A decrease in consumer income b. Greater government restrictions on agricultural chemicals c. An increase in consumer income d. Fewer government restrictions on agricultural chemicals

A

Which of the following statements about trade is true? a. Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage. b. People that are skilled at all activities cannot benefit from trade. c. Trade can benefit everyone in society because it allows people to specialize in activities in which they have an absolute advantage. d. Unrestricted international trade benefits every person in a country equally.

A

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal a. cost of teaching increased. b. benefit of teaching increased. c. benefit of a corporate job decreased. d. cost of a corporate job increased.

A

A shortage results when a a. nonbinding price ceiling is imposed on a market. b. binding price ceiling is imposed on a market. c. nonbinding price ceiling is removed from a market. d. binding price ceiling is removed from a market.

B

Adam Smith's "invisible hand" concept suggests that a competitive market outcome a. minimizes total surplus. b. maximizes total surplus. c. generates equality among the members of society. d. does both b and c.

B

Because producers are better able to organize than consumers are, we would expect there to be political pressure to create a. free trade. b. import restrictions. c. export restrictions. d. none of the above.

B

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the a. closer to the vertical axis the demand curve will sit. b. flatter the demand curve will be. c. steeper the demand curve will be. d. further to the right the demand curve will sit.

B

For a price ceiling to be a binding constraint on the market, the government must set it... a. at any price because all price ceilings are binding constraints. b. below the equilibrium price. c. precisely at the equilibrium price. d. above the equilibrium price.

B

If a country sells fewer goods and services abroad than it buys from other countries, it is said to have a trade a. surplus and positive net exports. b. deficit and negative net exports. c. deficit and positive net exports. d. surplus and negative net exports.

B

If supply is price inelastic, the value of the price elasticity of supply must be a. zero. b. less than 1. c. greater than 1. d. infinite.

B

If the cross-price elasticity between two goods is negative, the two goods are likely to be a. luxuries. b. complements. c. necessities. d. substitutes.

B

If the price of a good is below the equilibrium price, a. there is a shortage and the price will fall. b. there is a shortage and the price will rise. c. the quantity demanded is equal to the quantity supplied and the price remains unchanged. d. there is a surplus and the price will fall. e. there is a surplus and the price will rise.

B

If the price of a good is equal to the equilibrium price, a. there is a shortage and the price will fall. b. the quantity demanded is equal to the quantity supplied and the price remains unchanged. c. there is a shortage and the price will rise. d. there is a surplus and the price will fall. e. there is a surplus and the price will rise.

B

In general, a steeper supply curve is more likely to be a. price elastic. b. price inelastic. c. unit price elastic. d. none of the above.

B

In the United States, nominal interest rates were a. high in the 1970s and 1990s. b. high in the 1970s and low in the 1990s. c. low in the 1970s and 1990s. d. low in the 1970s and high in the 1990s.

B

Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce a. efficiency. b. externalities. c. equality. d. productivity.

B

The distinction between efficiency and equality can be described as follows: a. Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers. b. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society. c. Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers. d. Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost.

B

The law of demand states that an increase in the price of a good a. decreases the demand for that good. b. decreases the quantity demanded for that good. c. increases the supply of that good. d. increases the quantity supplied of that good. e. does none of the above.

B

Warrensburg is a small college town in Missouri. At the end of August each year, the market demand for fast food in Warrensburg a. decreases. b. increases. c. remains constant, but we observe a movement downward and to the right along the demand curve. d. remains constant, but we observe a movement upward and to the left along the demand curve.

B

When inflation causes relative-price variability consumer decisions, a. are not distorted and markets are still able to efficiently allocate factors of production. b. are distorted and the ability of markets to efficiently allocate factors of production is impaired. c. are not distorted, but the ability of markets to efficiently allocate factors of production is impaired. d. are distorted, but markets are still able to efficiently allocate factors of production.

B

Which of the following situations describes the greatest market power? a. Volvo's impact on the price of autos b. Microsoft's impact on the price of desktop operating systems c. a farmer's impact on the price of corn d. a student's impact on college tuition

B

Which of the following statements about microeconomics and macroeconomics is not true? a. Macroeconomics is concerned with economy-wide phenomena. b. The study of very large industries is a topic within macroeconomics. c. Microeconomics and macroeconomics cannot be entirely separated. d. Microeconomics is a building block for macroeconomics.

B

Which of the following statements is normative? a. People work harder if the wage is higher. b. The unemployment rate should be lower. c. Printing too much money causes inflation. d. Large government deficits cause an economy to grow more slowly.

B

Which of the following would shift the demand curve for gasoline to the right? a. An increase in the price of cars, a complement for gasoline b. An increase in consumer income, assuming gasoline is a normal good c. A decrease in the expected future price of gasoline d. A decrease in the price of gasoline

B

A decrease (leftward shift) in the supply for a good will tend to cause a. an increase in the equilibrium price and quantity. b. a decrease in the equilibrium price and quantity. c. an increase in the equilibrium price and a decrease in the equilibrium quantity. d. a decrease in the equilibrium price and an increase in the equilibrium quantity. e. none of the above.

C

All of the following topics fall within the study of microeconomics EXCEPT a. the role of Microsoft's market power in the pricing of software. b. the effectiveness of antipoverty programs in reducing homelessness. c. the influence of the government budget deficit on economic growth. d. the impact of cigarette taxes on the smoking behavior of teenagers.

C

An example of a perfectly competitive market would be the a. breakfast cereal market. b. shampoo market. c. soybean market. d. cable TV market.

C

In a market economy, economic activity is guided by a. public-interest groups. b. central planners. c. self-interest and prices. d. the government.

C

In which of the following cases is the assumption most reasonable? a. To address the impact of taxes on income distribution, an economist assumes that everyone earns the same income. b. To address the impact of money growth on inflation, an economist assumes that money is strictly coins. c. To address the benefits of trade, an economist assumes that there are two people and two goods. d. To estimate the speed at which a beach ball falls, a physicist assumes that it falls in a vacuum.

C

Labor unions a. play a larger role in the current U.S. economy than in European countries such as Norway and Sweden. b. prefer to operate in states with right-to-work laws. c. are similar to cartels. d. attract a membership of about 25 percent of current U.S. workers.

C

Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets? a. The demand curve shifts to the left. b. The supply curve shifts to the right. c. The demand curve shifts to the right. d. The supply curve shifts to the left.

C

Suppose consumer tastes shift toward the consumption of apples. Which of the following statements is an accurate description of the impact of this event on the market for apples? a. There is an increase in the demand for apples and a decrease in the supply of apples. b. There is an increase in the quantity demanded of apples and in the supply for apples. c. There is an increase in the demand for apples and an increase in the quantity supplied of apples. d. There is a decrease in the quantity demanded of apples and an increase in the supply for apples. e. There is an increase in the demand and supply of apples.

C

The quantity demanded of a good is the amount that buyers are a. willing to purchase. b. willing, able, and need to purchase. c. willing and able to purchase. d. able to purchase.

C

Trade-offs are required because wants are unlimited and resources are a. marginal. b. economical. c. scarce. d. unlimited. e. efficient.

C

When the demand for a good increases and the supply of the good remains unchanged, consumer surplus a. is unchanged. b. increases. c. may increase, decrease, or remain unchanged. d. decreases.

C

Which of the following is an example of a price floor? a. rent controls b. restricting gasoline prices to $2.00 per gallon when the equilibrium price is $3.00 per gallon c. the minimum wage d. All of the above are price floors.

C

Which of the following shifts the demand for watches to the right? a. a decrease in the price of watches b. a decrease in consumer incomes if watches are a normal good c. a decrease in the price of watch batteries if watch batteries and watches are complements d. an increase in the price of watches e. none of the above

C

You lose your job and, as a result, you buy fewer iTunes music downloads. This shows that you consider iTunes music downloads to be a. a complementary good. b. a substitute good. c. a normal good. d. an inferior good.

C

A rational person does not act unless a. the action makes money for the person. b. the action is ethical. c. the action produces marginal costs that exceed marginal benefits. d. the action produces marginal benefits that exceed marginal costs. e. None of the above is true.

D

After Frank and Ruby engage in trade, each of them a. consumes at a point on his or her production possibilities frontier. b. consumes at a point inside his or her production possibilities frontier. c. consumes the same amounts of meat and potatoes as the other. d. consumes at a point outside his or her production possibilities frontier.

D

An increase in a good's price reduces the total amount consumers spend on the good if the ________ elasticity of demand is ________ than one. a. income, less b. price, less c. income, greater d. price, greater

D

Disposable personal income is the income that a. households have left after paying taxes and non-tax payments to the government. b. households and businesses have left after paying taxes and non-tax payments to the government. c. businesses have left after paying taxes and non-tax payments to the government. d. households and noncorporate businesses have left after paying taxes and non-tax payments to the government.

D

Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should a. subsidize key industries. b. limit foreign investment to industries that don't already exist in the country. c. impose trade restrictions to protect the interests of domestic producers and consumers. d. lend support to the invisible hand by maintaining property rights and political stability.

D

In competitive markets, farmers adopt new technologies that will eventually reduce their revenue because a. farmers are short-sighted. b. regulation requires the use of best practices. c. consumers pressure farmers to lower prices. d. each farmer is a price taker.

D

Medical care clearly enhances people's lives. Therefore, we should consume medical care until a. everyone has as much as they would like. b. buyers receive no benefit from another unit of medical care. c. we must cut back on the consumption of other goods. d. the benefit buyers place on medical care is equal to the cost of producing it.

D

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to a. increase total revenue to farmers as a whole because the demand for food is elastic. b. increase total revenue to farmers as a whole because the demand for food is inelastic. c. reduce total revenue to farmers as a whole because the demand for food is elastic. d. reduce total revenue to farmers as a whole because the demand for food is inelastic.

D

The "invisible hand" refers to a. how central planners made economic decisions. b. the control that large firms have over the economy. c. government regulations without which the economy would be less efficient. d. how the decisions of households and firms lead to desirable market outcomes.

D

The law of supply states that an increase in the price of a good a. decreases the demand for that good. b. decreases the quantity demanded for that good. c. increases the supply of that good. d. increases the quantity supplied of that good. e. does none of the above.

D

When colonists in Virginia used tobacco as money, their money a. had no store of value. b. had no intrinsic value. c. was fiat money. d. was commodity money.

D

When the government prevents prices from adjusting naturally to supply and demand, it a. equates the amount buyers want to buy with the amount sellers want to sell. b. improves equality and efficiency. c. improves efficiency but reduces equality. d. adversely affects the allocation of resources.

D

Which of the following is not a factor of production? a. land b. labor c. capital d. money e. All of the above are factors of production.

D

Which of the following statements is true about a market economy? a. With a large enough computer, central planners could guide production more efficiently than markets. b. Taxes help prices communicate costs and benefits to producers and consumers. c. The strength of a market system is that it tends to distribute resources evenly across consumers. d. Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being

D

Which of the following will not shift a country's production possibilities frontier outward? a. an advance in technology b. an increase in the capital stock c. an increase in the labor force d. a reduction in unemployment

D

Workers in the United States enjoy a high standard of living because a. unions in the United States keep the wage high. b. we have protected our industry from foreign competition. c. the United States has a high minimum wage. d. workers in the United States are highly productive. e. None of the above is true.

D

Economics is the study of how a. to avoid having to make trade-offs. b. to fully satisfy our unlimited wants. c. society manages its unlimited resources. d. to reduce our wants until we are satisfied. e. society manages its scarce resources.

E

If buyers are rational and there is no market failure, a. free market solutions are efficient. b. free market solutions generate equality. c. free market solutions maximize total surplus. d. all of the above are true. e. a and c are correct.

E

T/F: A government program that reduces land under cultivation hurts farmers but helps consumers.

F

T/F: If a country has a lower opportunity cost than its potential trading partner, the country should decide to be self sufficient.

F

T/F: Unemployment insurance is designed to offer workers full protection against job loss

F

T/F: When the U.S. government purchases capital equipment, such as a computer, these expenditures are part of investment in GDP.

F

T/F: While the scientific method is applicable to studying natural sciences, it is not applicable to studying a nation's economy

F

T/F: A "Just Say No" drug education policy that successfully educates consumers to reduce their demand for drugs will lower drug prices and reduce the quantity of drugs demanded.

T

T/F: Because resources are scarce, a society cannot give all individuals the standard of living to which each aspires.

T

T/F: Frictional unemployment is often the result of changes in the demand for labor among different firms

T

T/F: Government-run employment agencies and public training programs both seek to reduce frictional unemployment.

T

T/F: If a German firm buys goods from a U.S. firm with dollars it obtains by exchanging euros for dollars, both U.S. net exports and U.S. net capital outflow increase

T

T/F: If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

T

T/F: Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acting in its role of lender of last resort.

T

T/F: People who report being not in the labor force but who, in fact, want to work but have given up trying to find a job after an unsuccessful search cause the reported unemployment rate to be lower than it would otherwise be.

T

T/F: Right-to-work laws give workers in a unionized firm the right to choose whether to join the union.

T

T/F: The labor-force participation rate tells us the fraction of the population that has chosen to participate in the labor market.

T

T/F: The slope of a line is the ratio of the vertical distance covered to the horizontal distance covered along the line.

T

A monopolistic market has a. only one seller. b. at least a few sellers. c. many buyers and sellers. d. firms that are price takers. e. none of the above.

A

The circular-flow diagram illustrates that, in markets for the factors of production, a. households are sellers, and firms are buyers. b. households are buyers, and firms are sellers.

A

The country Autarka does not allow international trade. In Autarka, you can buy a wool suit for 3 ounces of gold. Meanwhile, in neighboring countries, you can buy the same suit for 2 ounces of gold. This suggests that a. Autarka does not have a comparative advantage in producing suits and would become a suit importer if it opened up trade. b. Autarka does not have a comparative advantage in producing suits and would become a suit exporter if it opened up trade. c. Autarka has a comparative advantage in producing suits and would become a suit exporter if it opened up trade.

A

The demand for which of the following is likely to be the most price inelastic? a. airline tickets b. transportation c. taxi rides d. bus tickets

A

The phrase "twin deficits" refers to a. a country's trade deficit and its government budget deficit. b. the fact that if a country has a trade deficit, its trading partners must also have trade deficits. c. a country's trade deficit and its net capital outflow deficit. d. the equality of a country's saving deficit and its investment deficit.

A

The producer price index measures the cost of a basket of goods and services a. bought by firms. b. typically produced in the economy. c. produced for a typical consumer. d. sold by producers.

A

Which of the following is included in M2? a. Money market mutual funds b. Corporate bonds c. Credit cards d. Large time deposits

A

Which of the following statements regarding the circular-flow diagram is true? a. The factors of production are owned by households. b. If Susan works for IBM and receives a paycheck, the transaction takes place in the market for goods and services. c. If IBM sells a computer, the transaction takes place in the market for factors of production.

A

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

C