ECON 160 Self-Quiz Questions

In January, 2,500 quarts of ice cream are sold in Boston at $2 a quart. In February, 3,000 quarts are sold at $2.50 a quart. This change in quantity sold and price may have been caused by _____. (A) the release of a medical study showing that ice cream consumption improves mental health. (B) a reduction in wages in the Boston area. (C) the decision of Boston ice cream sellers to eliminate discount coupons. (D) the introduction of labor-saving automated ice cream packing machinery.

(A) the release of a medical study showing that ice cream consumption improves mental health.

Susan quit her job as a marketing professor to become a professional mountaineer. She gave up her salary ($30,000) and invested her retirement fund of $50,000 (which was earning 10% interest) in this venture. After all expenses, her net earnings as a mountaineer were $35,000. Susan's economic profits were _____. (A) zero. (B) $2,000. (C) $5,000. (D) $35,000.

(A) zero.

A microcomputer manufacturer sells 1,000 units per month at $2,500 each. A price cut to $2,000 is being considered. Its marginal cost is constant at $1,500 per unit. To maintain profits, quantity sold must increase to at least _____. (A) 2,500. (B) 2,000. (C) 3,000. (D) 1,500.

(B) 2,000

Frustrated by the cost and ineffectiveness of the war on drugs, the U.S. government is considering "decriminalization" of cocaine use and sale. Critics contend that lowers prices will expand drug use and that decriminalization will remove the stigma and danger from arrest for drug use, thus further increasing the demand and number of addicts. Which statement best describes the critic's case? (A) The supply and demand for cocaine will shift to the left. (B) The supply and demand for cocaine will shift to the right. (C) The supply of cocaine will shift to the right. (D) The demand for cocaine will shift to the right.

(B) The supply and demand for cocaine will shift to the right.

The silverware industry has been in serious decline since the 1980s. Family dining habits are less formal so people purchase less silverware. Also, in 1979-1980, the price of silver increased from $5 to $21 per ounce. Which statement best describes these developments? (A) The demand for silverware shifted to the right. (B) The supply and demand for silverware shifted to the left. (C) The demand for silverware shifted to the left. (D) The supply of silverware shifted to the left.

(B) The supply and demand for silverware shifted to the left.

An airline is considering adding a flight from Chicago to Sioux Falls. Total cost of the flight is $5,500. Variable cost is $2,000. Revenue from the flight is expected to be $3,000. Should the flight be added? (A) No; the revenue ($3,000) is below the cost ($5,500). (B) Yes; profit increases by $1,000 ($3,000 - $2,000). (C) Yes; profit increases by $3,000. (D) No; the addition to profit is very small and not worth the effort.

(B) Yes; profit increases by $1,000 ($3,000 - $2,000).

Professional baseball teams use only wooden bats. If aluminum bats were permitted, the likely result would be _____. (A) a shift in the supply curve for aluminum bats. (B) a change in the quantity supplied of aluminum bats. (C) a persistent shortage of aluminum bats. (D) a shift in the supply curve for wooden bats.

(B) a change in the quantity supplied of aluminum bats.

If the demand for steaks shifts to the right, the most likely explanation is that _____. (A) the price of cattle feed has fallen. (B) consumer income has risen. (C) the price of steak has fallen. (D) cattle production has fallen.

(B) consumer income has risen.

In high schools, all teachers are paid the same based on their years of service and regardless of specialization. Begining in the 1970s, a shortage of math and science teachers developed as private industry paid more for math and science skills than schools could offer. At the same time, a decline in the number of school-age children tended to reduce the demand for all other teachers, which lead to a surplus. The economist's solution to this problem would be _____. (A) raise the wages of all teachers. (B) raise the wages of teachers in fields that are in short supply and lower those of others. (C) merit pay to reward the best teachers. (D) recognition that all teachers do comparable work and should be paid the same.

(B) raise the wages of teachers in fields that are in short supply and lower those of others.

Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3. They agree to split the lunch bill evenly. Ed chooses a hot dog. The marginal cost to Joe then of ordering a hamburger instead of a hot dog is _____. (A) $2.50. (B) $3. (C) $1. (D) $2.

(C) $1.

If at optimum output of 1,000 units, the firm is incurring average variable cost per unit of $3, average fixed cost per unit of $1.50, and selling its output at $7 per unit, total profit is _____. (A) $7,000. (B) $250. (C) $2,500. (D) $1,500.

(C) $2,500.

An increase in the number of nursing homes and community health centers and the expansion of home care has led to an increase in the demand for nurses. At the same time, improving opportunities for women in business have reduced the supply of nurses. Hospitals, the major employers of nurses, have resisted wage increases. The resulting situation could be described as _____. (A) The problem of auxiliary restrictions. (B) The cost disease of the service sector. (C) A shortage of nurses. (D) The wage floor problem.

(C) A shortage of nurses.

If MC > MR, _____. (A) marginal profit is positive. (B) there are losses. (C) output should be reduced. (D) the total profit curve has yet to peak.

(C) output should be reduced.

Some medical authorities announced in the late 1980s that an acne medicine named Retin-A also had previously unknown wrinkle-reducing properties. An economist would expect to find that, after this announcement, the price of Retin-A _____________ and the quantity sold ____________. (A) rose; fell. (B) fell; rose. (C) rose; rose. (D) fell; fell.

(C) rose; rose.

Which of the following is a symptom of a price floor? (A) scalping of Super Bowl tickets (B) the New York city housing shortage (C) surplus cheese (D) black markets

(C) surplus cheese

Thomas Edison once said that he began making real profit on light bulbs when he dumped his surplus on the European market at less than the "cost of production." From this we can deduce _____. (A) Edison had an odd definition of the term "profit." (B) Edison did not understand the difference between fixed and variable cost. (C) Edison was crazy and did not want to maximize profits. (D) Edison understood the difference between marginal and average cost.

(D) Edison understood the difference between marginal and average cost.

If a person who weighs 100 lbs. is riding in an elevator and is joined by a person weighing 120 lbs., what happens to the average weight of persons in the elevator? (A) It stays the same. (B) It falls. (C) More information is needed to determine the answer. (D) It rises.

(D) It rises.

In arriving at the quantity of output and price of its product, a company ______. (A) has no control of either quantity or price. (B) generally leaves both quantity and price decisions to consumers. (C) makes two decisions by setting both optimal output and optimal price. (D) chooses either output or price, and consumer demand determines the other.

(D) chooses either output or price, and consumer demand determines the other.

Suppose that in a free market 2,000 patients purchase an operation to receive an artifical heart at a price of $500,000 per operation. Without the heart, each patient will die. The government decides this price is too high and imposes a maximum price of $200,000. Everything else equal, _____. (A) more patients will now die only if the demand curve is horizontal. (B) more patients will now die only if the demand curve is vertical. (C) fewer patients will now die. (D) more patients will now die.

(D) more patients will now die.

To find a firm's total revenue at every quantity, all you need to know is _____. (A) its profit-maximizing price and quantity. (B) its total profit curve. (C) the demand curve for its product and its total cost. (D) the demand curve for its product.

(D) the demand curve for its product.

If a profit-maximizing firm's fixed cost of producing widgets falls, _____. (A) its marginal cost curve shifts down. (B) its total cost curve is unaffected. (C) the firm will produce more widgets. (D) the firm's average profit per widget produced rises.

(D) the firm's average profit per widget produced rises.

An airline can profit by offering standby customers an unsold seat at a substantial discount just before takeoff because _____. (A) such passengers add more to profits than do those with reserved seats. (B) additional passengers are needed to balance the load. (C) additional passengers add little to fixed costs. (D) the marginal cost of additional passengers is very small.

(D) the marginal cost of additional passengers is very small.

The U.S. government banned cigarette advertising on radio and television after January 1971. You would expect to find that, after the ban took effect, _____. (A) the price of magazine ads for only cigarettes fell. (B) the price of magazine ads for only cigarettes rose. (C) the price of magazine ads for all goods fell. (D) the price of magazine ads for all goods rose.

(D) the price of magazine ads for all goods rose.

Pork can be used to produce bacon or sausage, but not both. If the price of bacon rises for some reason, then, everything else equal, _____. (A) the resources used in raising pigs will become more expensive. (B) the price of sausage will fall. (C) the resources used in raising pigs will become less expensive. (D) the price of sausage will rise.

(D) the price of sausage will rise.