Econ 224 Final Neel
Suppose a monopoly firm produces a medical device and can sell 15 items per month at a price of $2,000 each. In order to increase sales by one item per month, the monopolist must lower the price of its medical device by $100 to $1,900. The marginal revenue of the 16th item is: A. $100. B. $400. C. $1,900. D. $2,000.
A. $400 Marginal revenue is defined as the change in total revenue ($30,400 - $30,000) divided by the one additional unit
Suppose a monopoly pharmaceutical company produces a drug and sells 100 prescriptions for $25 each. In order to sell 101 prescriptions, the monopolist must lower the price to $24 per prescription. The marginal revenue of the 101st prescription is: A. -$76. B. $24. C. $25. D. $2424.
A. -$76 Marginal revenue is defined as the change in total revenue ($2,424 - $2,500) divided by the one additional unit
A perfectly competitive firm: A. Can sell all of its output at the prevailing price. B. Has some market power. C. Can sell some output at a price above the market price. D. Can sell more output only if it reduces its price.
A. Can sell all of its output at the prevailing price Since a perfectly competitive firm faces a horizontal demand curve it can sell all of its output at the market price
A monopolist sets price at a point on the _______ curve, corresponding to the rate of output determined by the intersection of ______. A. Demand; marginal revenue and marginal cost. B. Marginal revenue; marginal revenue and marginal cost. C. Average total cost; price and marginal cost. D. Demand; average total cost and marginal cost.
A. Demand; marginal revenue and marginal cost Maximum profit is at the point where marginal revenue equals marginal cost and the profit per unit would be the difference between the price and the average total cost
A profit-maximizing competitive firm wants to _____ the rate of output when price _____ marginal cost. A. Expand; exceeds B. Reduce; exceeds C. Expand; is less than D. Reduce; equals
A. Expands; exceeds If price is grater than marginal cost an increase in output will add more additional revenue than additional cost
If a firm can change market prices by altering its output then it: A. Has market power. B. Is a price taker. C. Faces a horizontal demand curve. D. Is a competitive firm.
A. Has market power Marktet power is the ability to set a price that is above marginal cost
A producer tries to maximize profits by operating at an output where: A. MC equals price. B. Price minus ATC is greatest. C. MR is greater then MC. D. The profit per unit is greatest.
A. MC equals price What counts is total profits, profits per unit is the difference between price and the ATC curve, so maximum profit will occur at a point where MC equals price
In a competitive market, in the long run, economic profits will cause: A. New firms to enter the market. B. Existing firms to leave the market. C. Supply to decrease. D. Demand to decrease.
A. New firms to enter the market If economic profits are above normal profits then firms will enter the industry and this will cause economic profits to fall and eventually equal normal profits
Total revenue minus total cost equals: A. Profit. B. Variable costs. C. Economic costs. D. Marginal revenue.
A. Profit While profit can be negative or positive, it is the difference between total revenue and total costs.
Which of the following is true about the short run? A. Some inputs are fixed. B. It is less than one year. C. It is one to two years. D. All inputs are variable.
A. Some inputs are fixed The short run is defined as a period of time in which only variable factors of production can be changed
If Pepsi and Coke are the only two soft drink producers, they could be considered: A. A duopoly. B. A monopoly. C. An oligopoly. D. Perfectly competitive firms.
A. a duopoly Although there are some small producers in the cola industry, it is dominated by the two largest producers
Which of the following does not characterize a competitive market? A. A few firms B. No market power C. Identical products D. Marginal cost equals price
A. a few firms A competitive market is composed of many firms with no one firm's output large relative to the total market output
Which of the following statements is true, assuming the same cost and demand conditions? A. A monopoly produces less output than a competitive firm. B. A monopoly cannot earn an economic profit in the long run. C. A monopoly charges a lower price than a competitive firm. D. A monopoly maximizes profit where price equals marginal cost.
A. a monopoly produces less output than a competitive market firm Since a monopolist demand curve is downward sloping whereas a firm in a competitive market is flat, the marginal revenue curve for a monopolist will intersect with the marginal cost curve sooner and therefore the monopolist will charge a higher price and produce a lower quantity
If a seafood restaurant can raise the price of its fried shrimp without losing all of its customers, then the restaurant definitely: A. Has market power. B. Is experiencing economies of scale. C. Is using predatory pricing. D. Has a monopoly.
A. has market power The fewer customers that a seafood restaurant loses when it raises the price the more market power it has.
If price is greater than marginal cost, a competitive firm should increase output because additional units of output will: A. Cause marginal costs to fall. B. Add to the firm's profits (or reduce losses). C. Add to the firm's fixed costs. D. Cause price to rise.
B. Add to the firm's profits (or reduce losses) If the additional revenue is greater than the additional cost the profit will increase or the loss will decrease
Explicit costs: A. Include only payments to labor. B. Are the sum of actual monetary payments made for resources used to produce a good. C. Include the market value of all resources used to produce a good. D. Are the total value of resources used to produce a good but for which no monetary payment is actually made.
B. Are the sum of actual monetary payments made for resources used to produce a good Explicit costs are the monetary payments that a firm must make to outsiders
The equilibrium price for a perfectly competitive firm always occurs: A. Where price equals minimum average total cost. B. At the intersection of market supply and market demand. C. Where a firm's marginal cost equals total revenue. D. At the point where profit is maximized.
B. At the intersection of market supply and market demand Since in a perfectly competitive market all of the firms are price takers, the market establishes the price through the interaction of supply and demand
Which of the following is not a characteristic of a monopoly? A. High barriers to entry B. Differentiated product C. Ownership of essential resources D. Large economics of scale
B. Differentiated product In general a monopolistic firm's product is unique since it is the only producer
In defining costs, economists recognize: A. Explicit and implicit costs while accountants recognize only implicit costs. B. Explicit and implicit costs while accountants recognize only explicit costs. C. Only explicit costs while accountants recognize only implicit costs. D. Only explicit costs while accountants recognize explicit and implicit costs.
B. Explicit and implicit costs while accountants recognize only explicit costs Economic cost includes those costs which must be made with a monetary payment and those that the firm pays by using its own resources
An individual competitive firm: A. Has a large advertising budget. B. Produces a small portion of output relative to the market. C. Can alter the market price of the good(s) it produces. D. Can raise its price to increase profit.
B. Produces a small portion of output relative to the market In a competitive market a firm's relative output is so small that it will have no effect on the market price
If marginal cost equals price, then _____ is at a maximum. A. Total cost B. Profit C. Total revenue D. Marginal cost
B. Profit Once marginal cost equals price then any additional output will decrease profit
During the short run: A. All inputs can be changed. B. Some inputs are fixed. C. Factory size can be changed. D. The number of workers cannot be changed.
B. Some inputs are fixed Although in the short run variable factors of production can be changed, fixed factors of production cannot
Assume a toy company hires an additional worker to assemble toys, and the size of the factory and amount of equipment remain constant. As a result, the level of output increases but by a smaller amount than when the previous additional worker was hired. This is an example of: A. The law of poor planning. B. The law of diminishing returns. C. Say's Law. D. The law of substitution.
B. The law of diminishing returns The fixed factors of production must be used with more and more units of the variable factor and beyond some point additional amounts of input will yield less and less output
Which of the following is not true for a competitive firm? A. The marginal cost curve is the short-run supply curve. B. The marginal cost curve is horizontal at the equilibrium price. C. The marginal cost curve shifts downward when productivity increases. D. The marginal cost curve shifts upward when wages increase.
B. The marginal cost curve is horizontal at the equilibrium price For a competitive firm the marginal revenue curve is horizontal at the equilibrium price.
As more labor is hired in the short run, diminishing returns are observed because: A. The new workers are lazy. B. The new workers have less capital and land to work with. C. All the workers begin to socialize more and work less. D. The new workers are less skilled.
B. The new workers have less capital and land to work with The fixed factors of production must be used with more and more units of the variable factor and beyond some point additional amounts of input will yield less and less output
For a monopolist, the demand curve facing the firm is: A. The same as for the perfectly competitive firm. B. The same as the market demand curve. C. Always below marginal revenue. D. Perfectly elastic.
B. The same as the market demand curve Since a monopolist represents 100% of the market, the firm's individual demand curve is the market demand curve
Which of the following does not characterize a competitive market? A. Many firms B. Advertising by individual firms C. Low barriers to entry D. Zero economic profit in the long run
B. advertising by individual firms A major characteristic of a competitive market is a standardized product and so there is little need to advertise
In a perfectly competitive industry, firms are likely to: A. Exit when there are economic profits because they know the profits will not last. B. Reduce the level of production when there are economic profits. C. Enter when there are economic profits. D. Enter when price is equal to the minimum average total cost.
C. Enter when there are economic profits If economic profits are above normal profits then firms will enter the industry and this will cause economic profits to fall an eventually equal normal profits
Which of the following is an example of perfect competition? A. One large firm supplies the entire product to the market B. Two firms supply the entire market and compete with each other for customers C. Many small firms all produce the same good D. Many firms supply the same product essentially, but each has significant brand loyalty
C. Many small firms all produce the same good In a competitive market the type of product is standardized
An industry in which many firms produce similar products but each firm has significant brand loyalty is known as: A. Perfect competition. B. A monopoly. C. Monopolistic competition. D. An oligopoly.
C. Monopolistic competition Starbucks coffee would be an example of a firm in a monopolistic completion market
Which list has market structures in the correct order from the most to the least market power? A. Perfect competition, oligopoly, monopolistic competition, monopoly B. Monopoly, monopolistic competition, oligopoly, perfect competition C. Monopoly, oligopoly, monopolistic competition, perfect competition D. Oligopoly, perfect competition, monopolistic competition, monopoly
C. Monopoly, oligopoly, monopolistic competition, perfect competition The smaller the number of producers in a market the more the market power
In a perfectly competitive market: A. A single firm may dominate the supply side of the market. B. A single consumer can impact the market price. C. No seller has market power. D. The buyers with the most money have the most market power.
C. No seller has the market power In a competitive market sellers have no market power because no sale will be large enough to affect the market price
An industry dominated by one firm is: A. Monopolistic competition. B. Perfect competition. C. A monopoly. D. An oligopoly.
C. a monopoly A monopoly is control of the production and distribution of a product or service by one firm
Which of the following characterizes a perfectly competitive market? A. A downward-sloping demand curve facing the firm. B. A horizontal demand curve for the market. C. A selling price at the market-established equilibrium price. D. A few firms that compete by changing price.
C. a selling price at the market-established equilibrium price Since in a perfectly competitive market all of the firms are price takers, the market establishes the price
If there are only four companies that produce tennis balls, the market could be considered: A. A duopoly. B. A monopoly. C. An oligopoly. D. Perfectly competitive.
C. an oligopoly An oligopoly is composed of firms with a significant amount of market share and market power and might contain three or more firms
A monopolist sets its price: A. Below the demand curve. B. Without constraints since there is no competition. C. At the rate of output where marginal revenue equals marginal cost. D. At the minimum of the long-run average total cost curve.
C. at the rate of output where marginal revenue equals marginal cost Maximum profit is at the point where marginal revenue equals marginal cost and the profit per unit would be the difference between the price and the average total cost
The main difference to an economist between "short-run" and "long-run" is that: A. Variable costs are short-run investment decisions where as fixed costs are long-run production decisions. B. In the short-run all resources are fixed where as in the long-run all resources are variable. C. In the long-run all resources are variable where as in the short-run at least one resource is fixed. D. Fixed costs are more important then variable costs in the short-run.
C. in the long-run all resources are variable where as in the short-run at least one resource is fixed In the long-run capital investment decisions are considered while in the short run the emphasis is on making production decisions
The law of diminishing returns indicates that the marginal physical product of a factor declines as more: A. Output is produced with the most efficient combination of factors. B. Of the factor is used, holding output constant. C. Of the factor is used, holding other inputs constant. D. Of the good is consumed.
C. of the factor is used, holding other inputs constant The fixed factors of production must be used with more and more units of variable factor and beyond some point additional amounts of input will yield less and less output
Which of the following is likely to be a monopolist? A. A potato chip company that sells lots of chips and competes with other chip producers. B. A farmer who specializes in growing organic fruits and vegetables. C. The sole producer of a new medical device for people with limited mobility. D. The chemical company in a small town that employs most of the town's workforce.
C. the sole producer of a new medical device for people with limited mobility The sole producer who is in control of the production and distribution of a product or service characterizes a monopolist
In the perfectly competitive catfish market, the market demand curve is: A. Flat (horizontal). B. The same as the demand curve faced by the firm. C. Vertical. D. Downward sloping.
D. Downward sloping Even though the individual firm in the catfish market faces a horizontal demand curve the market demand curve is still downward sloping
Economic cost is: A. Equal to explicit costs minus implicit costs. B. The same as dollar costs. C. Equal to the accounting cost minus implicit costs. D. The value of all resources used to produce a good or service.
D. The value of all resources used to produce a good or service Economic costs equal both the explicit and implicit costs to produce a good or service
Suppose during a year an economy produces $10 trillion of consumer goods, $4 trillion of investment goods, $6 trillion in government services, and has $4 trillion of exports and $5 trillion of imports. GDP would be: A. $19 trillion. B. $21 trillion. C. $24 trillion. D. $29 trillion.
A. $19 trillion Imports must first be subtracted from exports
Which of the following is a determinant of demand for a good? A. Consumer income. B. The number of available workers. C. Prices of factor inputs. D. Technology.
A. Consumer income Consumer income is a determinant of demand where as available workers, the prices of factor inputs, and technology are determinants of supply.
If more of an input factor is used, while holding other inputs constant, a firm will eventually experience: A. Diminishing returns. B. Falling marginal cost. C. Rising marginal physical product. D. Rising consumer demand.
A. Diminishing returns The fixed factors of production must be used with more and more units of the variable factor and beyond some point additional amounts of input will yield less and less output
If government intervention fails to improve economic outcomes, the result is known as: A. Government failure. B. Market failure. C. Mixed economy failure. D. Laissez faire.
A. Government Failure The government may not necessarily offer better answers to the three basic questions
If an individual demands a particular good, it means that he or she: A. Is willing and able to purchase the good at some price. B. Has a strong desire for the good. C. Must need the good. D. Prefers the good over all other choices.
A. Is willing and able to purchase the good at some price All of the answers describe the willingness to purchase a good but you must also have the ability
The change in total output that results from one additional unit of input is the: A. Marginal physical product. B. Average product of the input. C. Unit cost of the input. D. Input price.
A. Marginal physical product Marginal physical product is equal to the change in total product divided by the change in the quantity of resource applied
If the market mechanism causes the economy to arrive at the wrong mix of output, there is: A. Market failure. B. Mixed economy failure. C. Government failure. D. Laissez faire.
A. Market failure The market may not always pick the best possible mix of output
Which of the following is an example of an externality? A. Pollution. B. Inflation. C. Government failure. D. Laissez faire.
A. Pollution Consumers are worse off as the quality of the air and water deteriorate
According to the law of demand: A. Price and quantity demanded are inversely related. B. Price is constant along a particular demand curve. C. The demand curve will shift rightward as price increases. D. Businesses will produce more as price increases.
A. Price and quantity demanded are inversely related As price rises quantity demanded will fall. This is the inverse relationship
The response of quantity demanded to price changes is shown by: A. Price elasticity of demand. B. The determinants of demand. C. Opportunity cost. D. Income elasticity of demand.
A. Price elasticity of demand The responsiveness (or sensitivity) of consumers to a price change is measured by the price elasticity of demand
Ceteris paribus, according to the law of supply, if the price of lawn mowing decreases from $50 per lawn to $45 per lawn, then the: A. Quantity supplied of lawn mowing will decrease. B. Supply curve for lawn mowing will shift to the right. C. Quantity supplied of lawn mowing will increase. D. Quantity supplied of lawn mowing will stay the same.
A. Quantity supplied of lawn mowing will decrease Suppliers are not as willing to supply products at lower prices
All points on the production possibilities curve: A. Represent the use of all available resources. B. Are equally desirable. C. Represent the same mix of output. D. Represent the same opportunity costs.
A. Represent the use of all available resources A production possibilities curve describes the various combination of final goods or services that could be produced in a given time period with available resources and technology
Which of the following explains why economic choices must be made? A. The factors of production are scarce. B. The factors of production are expensive. C. The factors of production are used inefficiently. D. The factors of production are of inferior quality.
A. The factors of production are scarce There is not an infinite amount of the factors of production
Which of the following is not included in U.S. GDP? A. Toys produced by a U.S. firm located in China. B. Beer brewed in Colorado and purchased by a German tourist. C. A car made by a Japanese auto producer in Kansas. D. Corn grown in Iowa and exported to Africa.
A. Toys produced by a U.S. firm located in China GDP measures only those products produced within a nations borders
For government, most market activity can be explained by the goal of: A. Welfare maximization. B. Social responsibility. C. Utility maximization. D. Charitable responsibility.
A. Welfare maximization Government agencies attempt to maximize social welfare
Which of the following causes the price elasticity of demand for a good to be more inelastic? A. A shorter period of time to adjust to a change in price. B. A higher ratio of price to income. C. The availability of many substitutes. D. The good is a luxury.
A. a shorter period of time to adjust to a change in price The shorter the time period the less time that a consumer can adjust to the price of a product
Economic growth always results in: A. An expansion of production possibilities. B. A change in how goods are distributed. C. A movement along the production possibilities curve. D. Higher prices.
A. an expansion of production possibilities Economic growth expands the possibilities to produce more
Which of the following events would cause a rightward shift in the supply curve for automobiles? A. An improvement in the technology used to produce automobiles. B. An increase in the cost of labor for automobile producers. C. An increase in taxes for automobile producers. D. A decrease in the number of sellers.
A. an improvement in the technology used to produce automobiles An improvement in technology is a determinate of supply which would cause a rightward shift of the supply curve
If output growth exceeds population growth for a country, then: A. Average living standards will increase. B. GDP must have grown at a very rapid rate. C. Per capita GDP will decrease. D. This country must have overcome the problem of scarcity.
A. average living standards will increase Economic growth keeps adding to our standard of living
When the additional satisfaction from a good declines as more of it is consumed, this illustrates the law of: A. Diminishing marginal utility. B. Exceptional marginal utility. C. Declining demand. D. Increasing opportunity costs.
A. diminishing marginal utility At some point the consumption of additional units of a good or service yields less and less additional utility
Welfare programs are designed to address the: A. "HOW" question. B. "FOR WHOM" question. C. Issue of scarce resources. D. "WHAT" question.
B. "FOR WHOM" question the optimal distribution of income must satisfy our sense of fairness and as well as our desire for more output.
If the price elasticity of demand is 2.5, then a 40 percent decrease in the price of the good will lead to a _______ percent increase in the quantity demanded. A. 150.00 B. 100.00 C. 66.7 D. 22.5
B. 100.00 Since elasticity is measured in terms of percentages, a coefficient of 2.50 would cause the quantity demanded to increase by 100% given to decrease in price (250% x 40% = 100%)
Which of the following causes demand to be more elastic with respect to price? A. Shorter periods of time to adjust to a change in price. B. A higher ratio of price to income. C. Fewer substitutes. D. A steeper demand curve for a given price and quantity.
B. A higher ratio of price to income A higher unit price makes consumers more sensitive to price changes because it represents a larger share of a budget
The most desirable and attainable mix of output for society: A. Consists of the entire production possibilities curve. B. Consists of a point on the production possibilities curve. C. Consists of a point outside the production possibilities curve. D. Occurs at the origin of the x- and y-axes on which the production possibilities curve is graphed.
B. Consists of a point on the production possibilities curve There is no single point on the production possibilities curve that is right for all nations at all times
A price ceiling does all of the following except: A. Increases the quantity demanded relative to the equilibrium level. B. Creates excess supply. C. Creates a market shortage. D. Decreases the quantity supplied relative to the equilibrium level.
B. Creates excess supply A price ceiling decreases quantity supplied
By definition, a progressive tax: A. Generates greater tax revenues from the poor. B. Imposes a higher tax rate as income increases. C. Imposes a lower tax rate as income increases. D. Implies that the same tax rate is paid at all income levels.
B. Imposes a higher tax rate as income increases. A progressive tax makes after-tax incomes more equal than before-tax incomes
Which of the following is true about demand? A. Demand reflects the desire for a good but not necessarily the ability to buy it. B. In order to demand a good, a person must be willing and able to buy the good. C. When drawing a demand curve, influences such as price do not change. D. Demand reflects the ability to buy a good but not necessarily the desire to do so.
B. In order to demand a good, a person must be willing an able to buy the good. Demand reflects both the desire and the ability to buy a good
If quantity demanded rises significantly following a moderate price cut, then demand is: A. Elastic. B. Inelastic. C. Unitary elastic. D. Most likely elastic.
B. Inelastic In general goods or services that are necessities or their price represents a low proportion or a consumer's total income, they will tend to be inelastic
According to the law of demand, a demand curve: A. Is upward sloping. B. Is downward sloping. C. Is a horizontal, or flat, line. D. Can slope either upward or downward based on consumer behavior.
B. Is downward sloping As price falls people tend to purchase more
Which of the following is not a reason why the United States is able to produce such high levels of GDP? A. Abundant factors of production. B. Labor-intensive production process. C. High levels of investment in human capital. D. High quality of capital.
B. Labor-intensive production process The high productivity of the U.S. economy results from using highly educated workers in a capital-intensive production process
Which of the following are available in limited quantity and contribute to the problem of scarcity? A. Supply of and demand for goods and services. B. Land, labor, capital, and entrepreneurship. C. Net exports. D. Welfare of individuals and business firms.
B. Land, labor, capital, and entrepreneurship All factors of production are finite
Pollution is an example of: A. Inefficiency by the polluting firm. B. Market failure. C. Government transfers. D. Economic instability.
B. Market failure When the market mechanism selects the wrong choice of HOW to produce, this will cause a market failure
Nominal GDP measures changes in: A. Output only. B. Output and prices. C. Income transfers. D. Prices only.
B. Output and prices Nominal GDP measures the value of output produces in current prices.
Country D and Country E both recorded an increase in real GDP of 4 percent per year from 1997 to 2007. During this time, the population for Country D grew at 3 percent per year and the population for Country E grew at 2 percent. Which of the following is true during this period? A. Per capita GDP decreased for both Country D and Country E. B. Per capita GDP increased for both Country D and Country E. C. Per capita GDP increased for Country D only. D. Per capita GDP decreased for Country E only.
B. Per capita GDP decreased for both Country D and Country E Since the percentage of growth in population is lower than the percentage of growth in real GDP, both countries experience per capita increases
The essential signal of the market mechanism is: A. Income. B. Price. C. Property. D. Government directive.
B. Price Price and sales send signals to producers about what mix of output consumers want
The inflation-adjusted value of final goods and services produced in the United States measures: A. Nominal GDP. B. Real GDP. C. Per capita GDP. D. GDP per worker.
B. Real GDP Real GDP is adjusted for inflation
Which of the following is the best measure of an increase in actual output? A. Nominal GDP. B. Real GDP. C. Per capita GDP. D. GDP per dollar.
B. Real GDP Real GDP is the best measure because it adjusts for changes in price due to inflation
The central problem of economics is the: A. Distribution of goods and services to those in need. B. Scarcity of resources relative to human wants. C. Inefficiency of government operations. D. Unemployment of certain factors of production.
B. Scarcity of resources relative to human wants There are only a finite amount of resources
Scarcity means: A. Retail stores always run out of popular products. B. The desire for goods exceeds our capacity to produce them. C. Society will run out of the factors of production in the near future. D. A surplus of unsold goods in a specific market will not occur.
B. The desire for goods exceeds our capacity to produce them Given that resources are finite, consumers will to be able to have everything they desire
Which of the following is not a factor of production? A. A toll-bridge across a lake. B. The money hidden in an old basement. C. A wrecking ball used to tear down old buildings. D. The CEO of a large corporation.
B. The money hidden in an old basement In economics, capital is referred to as the goods that are used to make goods. Money is not a factor of production
Which of the following causes the market demand curve for a good to shift? A. The cost of factors of production. B. The number of buyers in the market. C. The expectations about future sales. D. A producer's income.
B. The number of buyers in the market A change in the number of buyers in a market would shift the demand curve, while the other determinants would affect the supply curve
The essential feature of the market mechanism is: A. That every consumer is concerned about the welfare of others. B. The price signal for both consumers and producers. C. Equity in the distribution of income and housing. D. Government taxation of profits.
B. The price signal for both consumers and producers Price is a determining factor for consumers to buy and producers to sell
Which of the following is an example of labor as a factor of production? A. People who bring together the skills necessary for creating products and services. B. The skills and abilities of workers. C. People who are paid an hourly wage but not those paid a salary. D. A college or university that educates people.
B. The skills and abilities of workers Labor is the number and skills of workers
Which of the following is a goal of businesses? A. To maximize happiness. B. To maximize profits given resource constraints. C. To produce the greatest quantity of goods. D. To maximize general welfare.
B. To maximize profits given resource constraints Businesses try to maximize profits
The difference between total utility and marginal utility is that: A. Total utility is the satisfaction from consuming one additional unit of a good while marginal utility is the complete satisfaction from consuming a good. B. Total utility is the complete satisfaction from consuming a good while marginal utility is the satisfaction from consuming one additional unit of a good. C. Both represent the satisfaction obtained from most all goods and services. D. Total utility is the satisfaction from consuming a good while marginal utility is the satisfaction from consuming services.
B. Total utility is the complete satisfaction from consuming a good while marginal utility is the satisfaction from consuming one additional unit of good Marginal utility determines the price of a good where as total utility tell us the total amount of satisfaction.
Which of the following situations is sufficient to represent current demand for a car? A. You have plenty of money to buy it, but you can't decide if you want a motorcycle or a car. B. You have enough money to buy it, and you are willing to spend the money on the car. C. You've decided you want a car, and you can possibly borrow the money from a bank. D. You want to buy a motorcycle and a car, and you'll have enough money for both in two years.
B. You have enough money to buy it, and you are willing to spend the money on the car A demand exists only if someone is willing and able to pay for the goods
GDP is: A. The sum of the physical amounts of goods and services in the economy. B. A dollar measure of output produced within a nation's borders during a given time period. C. A measure of the per capita economic growth rate of the economy. D. A physical measure of the capital stock of the economy.
B. a dollar measure of output produced within a nations borders during a given time period GDP enables us to sum production of all goods and services
Ceteris paribus, the quantity demanded of a good will decrease in response to: A. Higher income. B. A higher price for the good. C. A rightward shift of the supply curve. D. A lower price for the good.
B. a higher price for the good Because of the inverse relationship of demand, quantity demanded of a good will decrease in response to higher prices
Which of the following is an example of government failure? A. A negative externality, such as pollution. B. An increase in bureaucracy and red tape that fails to improve economic outcomes. C. An increase in airline safety. D. An increase in the costs of production and an improvement in economic outcomes.
B. an increase in bureaucracy and red tape that fails to improve economic outcomes An increase in bureaucratic red tape may burden private industry and reduce the amount of output
People find it difficult to get along without necessities, therefore demand for necessities: A. Is relatively elastic. B. Is relatively inelastic. C. Is relatively unitary elastic. D. Does not change with changes in price.
B. is relatively inelastic Consumers need necessities and therefore will be relatively less sensitive to the price changes
If the price elasticity of demand is 1.8 then a 30 percent decrease in the price of the good will lead to a _______ percent increase in the quantity demanded. A. 0.60 B. 0.55 C. 54.00 D. 16.67
C. 54.00 Since elasticity is measured in terms of percentages, a coefficient of 1.80 would cause the quantity demanded to increase by 54% given the decrease in price (180% x 30% = 54%)
Which of the following is not an example of investment? A. A hair salon buys additional hair dryers. B. The campus bookstore buys new T-shirts with the college logo. C. A business owner uses his profits to play the lottery and wins. D. Toyota expands the size of its factories located in the United States.
C. A business owner uses his profits to play the lottery and wins Lottery is a game of chance and not an investment
Which of the following is an example of a negative externality? A. Government funding of public education. B. An increase in government bureaucracy and red tape. C. An increase in the incidence of cancer due to pollution. D. A factory introduces a production process that reduces pollution.
C. An increase in the incidence of cancer due to pollution The cancer was a result of pollution and born by a third party
If resources are limited: A. People will rush to buy more goods than they would otherwise. B. Businesses will sell more products than they would otherwise. C. Choices must be made which involve tradeoffs. D. All individuals are deprived of basic necessities.
C. Choices must be made which involves tradeoffs Available resources always fall short of our desires
A demand schedule refers to the combinations of price and quantity that represent the: A. Concerns of regulators. B. Preferences of businesses. C. Desires of consumers. D. Demands of producers.
C. Desires of consumers A demand schedule shows quantities of a good consumer is willing and able to buy at alternative prices in a given time.
To answer the "HOW" to produce question, society should: A. Use all the available labor. B. Maximize the quantity of all resources used. C. Find an optimal method of producing goods and services. D. Attempt to produce a combination of goods and services beyond the production possibilities.
C. Find an optimal method of producing goods and services beyond the production possibilities Of the many possibilities to use resources one way is presumably best, to answer the HOW question.
In economics, capital refers to: A. Money. B. Savings put aside for future investment. C. Goods that can be used to produce other goods. D. The value of a corporation's assets.
C. Goods that can be used to produce other goods Capital would include items such as machinery, buildings, and networks. Money is not economic capital
The primary concern of economics is the study of: A. Why human wants exist and what motivates them. B. How to distribute goods and services according to human needs. C. How best to allocate scarce resources among competing uses. D. Who holds the most political power in a particular country.
C. How to best allocate scarce resources among competing uses There are not enough resources for everyone to have all that they desire
Which of the following statements is true? A. As consumption increases, total utility must increase. B. Total utility increases initially and then decreases as marginal utility approaches zero. C. If marginal utility is greater than zero, total utility is increasing. D. If marginal utility is zero, total utility is at a minimum.
C. If marginal utility is greater than zero, total utility is increasing Marginal utility is the additional utility per unit added to total utility
Total output includes all of the following except: A. Household consumption. B. Business investment. C. Imports. D. Government services.
C. Imports Total output is measured by what is produced within a country
The production possibilities curve shifts outward in response to: A. A decline in technology or more resources or both. B. A decline in technology or fewer resources or both. C. Improved technology or more resources or both. D. Improved technology or fewer resources or both.
C. Improved technology or more resources or both Outward shifts occur with growth. Growth is due to improved technologies which use fewer resources and/or increase in resources
Assume a price elasticity of demand of 0.50. If the tobacco lobby is successful in reducing a tax on the price of cigarettes by 10 percent, the quantity demanded will: A. Decrease by 5 percent. B. Decrease by 2 percent. C. Increase by 5 percent. D. Increase by 2 percent.
C. Increase by 5 percent Since elasticity is measured in terms of percentages, a coefficient of 0.50 would cause the quantity demanded to increase by 50% of the decrease in price (50% x 10% = 5%)
Per capita GDP is the most practical way to: A. Measure how much income households receive. B. Measure how much output can be consumed on a sustainable basis. C. Measure how much output is potentially available to the average person. D. Analyze the growth rate of the economy over time.
C. Measure how much output is potentially available to the average person Per Capita GDP is an indicator of how much each person would receive of output if output would be divided equally
Real GDP is a more accurate measure of economic growth than nominal GDP because: A. Nominal GDP is a total dollar measurement. B. Nominal GDP only increases because of an increase in production. C. Nominal GDP can increase due to an increase in production or prices or both. D. Real GDP is a measurement of the overall price level.
C. Nominal GDP can increase due to an increase in production or prices or both Real GDP adjusts for changes in price or inflation
Given that resources are scarce: A. A "free lunch" is possible but only for a limited number of people. B. Poor countries must make choices but rich countries do not have to make choices. C. Opportunity costs are experienced whenever choices are made. D. Some choices involve opportunity costs while other choices do not.
C. Opportunity costs are experienced whenever choices are made Resources required in the production of desired goods and services are limited so there is an opportunity cost for each production decision.
Ceteris paribus, which of the following will cause the demand curve for basketballs to shift to the left? A. The cost of producing basketballs increases. B. Consumer incomes increase. C. Parents decide soccer is a better sport for their children than basketball. D. People become more interested in basketball as more football players are arrested for drugs.
C. Parents decide soccer is a better sport for their children than basketball The shift in tastes from basketball to soccer creates a decrease in demand for basketballs
The price elasticity of demand is defined as the: A. Percentage change in quantity demanded times the percentage change in price. B. Unit change in price divided by the unit change in quantity demanded. C. Percentage change in quantity demanded divided by the percentage change in price. D. Unit change in quantity demanded times the unit change in price.
C. Percentage change in quantity demanded divided by the percentage change in price Using percentages rather than absolute amounts to measure price elasticity, allows us to compare different products with different prices
Price elasticity of demand indicates the consumer response to changes in: A. Quantity. B. Demand. C. Price. D. Supply.
C. Price Price elasticity of demand measures consumer's sensitivity to price changes
In the United States, government regulation is designed to: A. Protect the environment through government ownership of natural resources. B. Prevent businesses from competing with each other. C. Protect labor, consumers, and the environment. D. Determine all the answers to the WHAT, HOW and FOR WHOM questions.
C. Protect labor, consumers, and the environment Government lays the foundation for market transactions, protecting consumers, labor and the environment
Output choices are made necessary within a market because of: A. Inefficient use of resources. B. High prices for goods. C. Scarcity of resources. D. Advancing technology.
C. Scarcity of resources With limited factors of production, and technology output would have a finite limit
The market demand curve is calculated by: A. Summing the price from individual demand curves. B. Averaging the price demanded from individual demand curves. C. Summing the quantities demanded from individual demand curves. D. Averaging the quantities demanded from individual demand curves.
C. Summing the quantities demanded from individual demand curves The market demand curve is defined as the sum of the individual demand curves
Which of the following is not a determinant of demand? A. Income. B. Tastes. C. The cost of factors of production. D. Expectations of the future price.
C. The cost of factors of production While income, tastes, and expectation about future prices are determinants of demands the const of factors of production is a determinate of supply
The opportunity cost of playing tennis with your friend is: A. Negative since it's good exercise. B. Zero since you already own the tennis racket and play on a public court. C. The next-best alternative use of your time that is forgone. D. The cost of the tennis lessons you took last year.
C. The next-best alternative use of your time that is forgone An opportunity cost is an opportunity lost
According to the law of demand, a change in _______ causes a movement along the demand curve. A. Buyers' expectations B. The number of buyers C. The price of the good D. The price of other related goods
C. The price of the good If price of a good decreases quantity demanded will rise causing movement along the demand curve.
Which of the following will not cause a shift in the demand curve for a good? A. Income. B. Taste. C. The price of the good itself. D. The prices of other related goods.
C. The price of the good itself Change in the price of the good itself leads to a movement along the original demand curve
The market mechanism: A. Works through central planning by the government. B. Eliminates market failures created by the government. C. Uses prices as a means of communication between consumers and producers. D. Is very inefficient since consumers cannot communicate directly with producers.
C. Uses prices as a means of communication between consumers and producers The market mechanism signals producers what products are demanded
The pleasure or satisfaction obtained from goods and services is known as: A. Price elasticity of demand. B. Total revenue. C. Utility. D. Ceteris paribus.
C. Utility Utility is a measure of the satisfaction received from the consumption of a good or service
Ceteris paribus, the demand curve for a good will shift to the right in response to: A. A decrease in income. B. An increase in the costs of production. C. An increase in tastes or preferences for the good. D. A higher price for the good.
C. an increase in tastes or preferences for the good Tastes and or preference of a good is a determinate of demand. If change is taste is favorable it will cause the demand curve to shift to the right
Economic growth is represented by: A. An inward shift of the production possibilities curve. B. A point inside the production possibilities curve. C. An outward shift of the production possibilities curve. D. A movement along the production possibilities curve.
C. an outward shift of the production possibilities curve Production possibilities increase and shift outward with growth in resources and technology
Ceteris paribus, which of the following will cause the demand for peanut butter to decrease? A. The factories that produce peanut butter close down for safety reasons. B. The workers who pick peanuts, the main ingredient in peanut butter, demand a higher wage. C. Many people learn that they are allergic to peanut butter. D. It is reported that peanut butter prevents heart attacks.
C. many people learn that they are allergic to peanut butter If people learn that they are allergic to peanut butter, they will stop buying it. This is a change in "taste" which is a determinant of demand
Which of the following does not influence the price elasticity of demand? A. The availability of substitutes. B. The price of the item relative to your budget. C. The costs of production. D. Successful advertising.
C. the costs of production The cost of production is a factor of supply and would not affect demand
The quantity of a good demanded in a given time period increases as the price falls, which is known as: A. Say's Law. B. The law of ceteris paribus. C. The law of demand. D. The opportunity cost.
C. the law of demand The law of demand is an inverse relationship. As price fall, quantity demanded will rise
Economists make a distinction between changes in quantity demanded and changes in demand: A. Because the supply curve shifts whenever there is a change in demand. B. Because the demand curve shifts whenever there is a change in quantity demanded. C. To distinguish a movement along a demand curve from a shift of the demand curve. D. To distinguish a surplus from a shortage.
C. to distinguish a movement along a demand curve from a shift of the demand curve Quantity demanded reflects movement on the demand curve. A shift in demand occurs when their is a change in a determinant demand
Which of the following is not an example of land? A. Coal. B. A river. C. Natural gas. D. A homebuilder.
D. A homebuilder A homebuilder would be an example of labor
A price floor: A. Decreases the quantity producers are willing and able to supply relative to the equilibrium level. B. Increases the quantity demanded relative to the equilibrium level. C. Causes excess demand. D. Creates a market surplus.
D. Creates a market surplus A price floor may guarantee a price that is above the market equilibrium. If this is the case, producers will be willing to supply more than consumers demand creating a surplus
Any place where factors of production are bought and sold is a: A. Private-goods market. B. Stock market. C. Product market. D. Factor market.
D. Factor Market Market participants buy or sell land, labor, or capital that can be used in the production process
If the price elasticity of demand is 1.5, and a firm raises its price by 20 percent, the quantity sold by the firm will, ceteris paribus: A. Rise by 13.3 percent. B. Fall by 13.3 percent. C. Rise by 30.0 percent. D. Fall by 30.0 percent.
D. Fall by 30.0 percent Since elasticity is measured in terms of percentages, a coefficient of 1.50 would cause the quantity demanded to decrease by 150% of the decrease in price (150% x 20% = 30%)
When a price floor is set for a market, quantity supplied will be: A. Less than the equilibrium quantity, and price will be less than the equilibrium price. B. Less than the equilibrium quantity, and price will be greater than the equilibrium price. C. Greater than the equilibrium quantity, and price will be less than the equilibrium price. D. Greater than the equilibrium quantity, and price will be greater than the equilibrium price
D. Greater than the equilibrium quantity, and price will be greater than the equilibrium price.
For consumers, most market activity can be explained by the goal of: A. Charitable responsibility. B. Maximizing income. C. Profit maximization. D. Maximizing happiness.
D. Maximizing happiness Consumers strive to achieve happiness
The value of output produced in the United States in current prices measures: A. GDP growth. B. Real GDP. C. Per capita GDP. D. Nominal GDP.
D. Nominal GDP Nominal GDP is the value of output measured in current prices
Ceteris paribus, if Korea increases the size of its military, then its production: A. Possibilities curve will shift outward. B. Possibilities curve will shift inward. C. Of consumer goods will increase. D. Of consumer goods will decrease.
D. Of consumer goods with decrease Because limited resources the increase in military production will decrease the production of consumer goods.
Entrepreneurship refers to: A. Natural resources such as land and water. B. Computer technology. C. Skilled labor. D. People who are creators.
D. People who are creators Entrepreneurship is skill in creating products, services, and processes
The law of demand states that: A. The greater the number of buyers in a marker, the lower the price. B. Price and quantity demanded are directly related. C. The lower the cost the lower the price. D. Price and quantity demanded are inversely related.
D. Price and quantity demanded are inversely related It is an inverse relationship because for most goods the higher the price, the less demanded, and vice versa
A market in which finished goods and services are exchanged is a: A. Financial market. B. Intermediate-goods market. C. Factor market. D. Product market.
D. Product market The exchange of goods and services occurs in the product market
The limits to the production of any good are reflected in the: A. Law of demand. B. Capacity curve. C. Demand curve. D. Production function.
D. Production function A production function shows the potential total output available by using various amounts of inputs
In order to measure what a country produces, we: A. Summarize total output in physical terms. B. Count units of output. C. Count the weight of different products. D. Summarize the monetary value of output.
D. Summarize the monetary value of output Using monetary value instead of physical unites to compare total output, the accounting is easier
Javier goes to an all-you-can-eat buffet at a Chinese restaurant and consumes three plates of food. Which of the following explains why the third plate of food does not provide as much satisfaction as the second plate? A. The law of expanding externalities. B. The rule of total utility. C. The law of supply. D. The law of diminishing marginal utility.
D. The law of diminishing marginal utility When Javier orders at the buffet each additional plate yields less and less additional satisfaction as he consumes the dinner
If per capita GDP were distributed across the United States, each individual would receive: A. Their current income divided by the U.S. population. B. The market value of final goods and services produced in the U.S. per year. C. The value of total world output divided by the population. D. The market value of final goods and services produced in the U.S. per year divided by the population.
D. The market value of final goods and services produced in the U.S. per year divided by the population Per capita GDP is an indicator of how much output each person would get if all output were divided evenly among the population
Which of the following refers to the satisfaction a consumer receives from the consumption of a good? A. Price elasticity. B. Law of demand. C. Equilibrium price. D. Utility.
D. Utility Utility is a measure of the satisfaction received from the consumption of a good or service
Which of the following will not shift the demand curve for natural gas? A. A change in consumer income. B. A change in consumer expectations. C. A change in the weather and heating requirements. D. A change in the technology used to produce natural gas.
D. a change in the technology used to produce natural gas Change in technology is not a determinate of demand; therefore, technological changes will not shift demand
