Econ exam #1

Refer to the diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is A. $30. B. $60. C. $40. D. $20.

B. $60.

29) Producer surplus is the difference between 4. A. the maximum prices consumers are willing to pay for aproduct and the lower equilibrium price. 5. B. the quantity supplied and quantity demanded at an aboveequilibrium price. 6. C. the minimum prices producers are willing to accept for aproduct and the higher equilibrium price. 7. D. the maximum prices consumers are willing to pay for aproduct and the minimum prices producers are willing to accept

. C. the minimum prices producers are willing to accept for aproduct and the higher equilibrium price.

8. (30) Other things equal, a fall in the market price caused by achange in supply will 9. A. increase consumer surplus. 10. B. decrease consumer surplus. 11. C. increase producer surplus while leaving consumer surplusunchanged. 12. D. decrease producer surplus while leaving consumer surplusunchanged.

9. A. increase consumer surplus.

Refer to the diagram. A surplus of 160 units would be encountered if theprice was A. $1.10, that is, $1.60 minus $.50. B. $1.60. C. $1.00. D. $0.50.

B. $1.60.

10) The market system's answer to the fundamental question "Whatwill be produced?" is essentially A. "Goods and services that are profitable." B. "Low-cost goods and services." C. "Goods and services that can be produced using large amounts of capital." D. "Goods and services that possess lasting value."

A. "Goods and services that are profitable."

(11) The market system's answer to the fundamental question "Whowill get the goods and services?" is essentially A. "Those most willing and able to pay for them." B. "Those who physically produced them." C. "Those who most need them." D. "Those who get utility from them."

A. "Those most willing and able to pay for them."

Refer to the diagram. The equilibrium price and quantity in this market willbe A. $1.00 and 200. B. $1.60 and 130. C. $0.50 and 130. D. $1.60 and 290.

A. $1.00 and 200.

The graph above represents a competitive market for aproduct where the government has set a price ceiling of 0A.What quantity will buyers be able to buy after theimposition of the price ceiling? A. 0J B. 0L C. JL D. KL

A. 0J

Refer to the four graphs above. In which graph would theindicated shifts cause equilibrium quantity to definitely rise,but the effect on price is indeterminate? A. Graph A B. Graph B C. Graph C D. Graph D

A. Graph A

The "invisible hand" promotes society's interests because A. individuals pursuing their self-interest will try to produce goods and services that people in society want and are willing to purchase. B. individuals will produce goods for others out of concern for theirfellow human beings. C. it makes sure that everyone wins from competition in the market. D. government regulation pushes business into producing the right mixof goods and services.

A. Individuals pursuing their self-interest will try to produce goods and services that people in society want and are willing to purchase.

(2) Which of the following will cause a decrease in marketequilibrium price and an increase in equilibrium quantity? A. an increase in supply B. an increase in demand C. a decrease in supply D. a decrease in demand

A. an increase in supply

27) Which of the following will cause a decrease in marketequilibrium price and an increase in equilibrium quantity? A. an increase in supply B. an increase in demand C. a decrease in supply D. a decrease in demand

A. an increase in supply

13) The concept of 'comparative advantage' implies that you A. can produce a good at a lower opportunity cost. B. can produce goods with more human capital. C. can produce more units of a good than another. D. can produce goods with more capital resources.

A. can produce a good at a lower opportunity cost.

(11) The law of increasing opportunity costs states that A. if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so. B. the sum of the costs of producing a particular good cannot riseabove the current market price of that good. C. if the sum of the costs of producing a particular good rises by aspecified percentage, the price of that good must rise by a greaterrelative amount. D. if the prices of all the resources used to produce goods increase, thecost of producing any particular good will increase at the same rate.

A. if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so.

Refer to the diagram, which shows demand and supply conditionsin the competitive market for product X. Other things equal, ashift of the supply curve from S0 to S1 might be caused by a(n) A. increase in the wage rates paid to laborers employed inthe production of X. B. government subsidy per unit of output paid to firms producingX. C. decline in the price of the basic raw material used inproducing X. D. increase in the number of firms producing X.

A. increase in the wage rates paid to laborers employed inthe production of X.

(9) College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. Whenthey finish school and start careers, their consumption of bothgoods frequently declines. This suggests that ramen noodles andboxed macaroni and cheese are A. inferior goods. B. normal goods. C. complementary goods. D. substitute goods.

A. inferior goods.

33) An efficiency loss (or deadweight loss) A. is measured as the combined loss of consumer surplus andproducer surplus from over- or underproducing. B. results from producing a unit of output for which themaximum willingness to pay exceeds the minimum acceptableprice. C. can result from underproduction, but not from overproduction. D. can result from overproduction, but not from underproduction.

A. is measured as the combined loss of consumer surplus andproducer surplus from over- or underproducing.

(28) Consumer surplus A. is the difference between the maximum prices consumersare willing to pay for a product and the lower equilibriumprice. B. is the difference between the maximum prices consumers arewilling to pay for a product and the minimum prices producers are willing to accept. C. is the difference between the minimum prices producers arewilling to accept for a product and the higher equilibrium price. D. rises as equilibrium price rises.

A. is the difference between the maximum prices consumersare willing to pay for a product and the lower equilibriumprice.

3) When economists say that people act rationally in their self-interest, they mean that individuals A. look for and pursue opportunities to increase their utility. B. generally disregard the interests of others. C. are mainly creatures of habit. D. are usually impulsive and unpredictable.

A. look for and pursue opportunities to increase their utility.

The law of demand states that, other things equal, A. price and quantity demanded are inversely related. B. the larger the number of buyers in a market, the lower will be productprice. C. price and quantity demanded are directly related. D. consumers will buy more of a product at high prices than at low prices.

A. price and quantity demanded are inversely related.

15) The law of supply indicates that, other things equal, A. producers will offer more of a product at high prices than at lowprices. B. the product supply curve is downsloping. C. consumers will purchase less of a good at high prices than at lowprices. D. producers will offer more of a product at low prices than at high prices.

A. producers will offer more of a product at high prices than at lowprices.

) A nation's production possibilities curve is bowed out from the origin because A. resources are not generally equally efficient in producing everygood. B. opportunity costs of producing a good tend to fall as more of thegood is produced. C. resources are scarce. D. wants are virtually unlimited.

A. resources are not generally equally efficient in producing everygood.

(17) Other things equal, if the price of a key resource used to produceproduct X falls, the A. supply curve of product X will shift to the right. B. demand curve of product X will shift to the right. C. supply curve of product X will shift to the left. D. supply curve of product X will not shift.

A. supply curve of product X will shift to the right.

12) The concept of 'absolute advantage' relies on A. the ability to produce more units of an item with a given amount of resources. B. the concept of economic efficiency as measured on the production possibilities curve. C. the idea of opportunity cost. D. the idea of comparative advantage.

A. the ability to produce more units of an item with a given amount of resources.

1) Opportunity costs exist because A. the decision to engage in one activity means forgoing some other activity. B. wants are scarce relative to resources. C. households and businesses make rational decisions. D. most decisions do not involve sacrifices or trade-offs.

A. the decision to engage in one activity means forgoing some other activity.

A fundamental difference between the command system andlaissez-faire capitalism is that, in command systems, A. the division of output is decided by central planning rather thanby individuals operating freely through markets. B. all economic decisions are made by the government, whereas there isno government in laissez-faire capitalism. C. scarcity does not exist, whereas it does in laissez-faire capitalism. D. money is not used, whereas it is in laissez-faire capitalism

A. the division of output is decided by central planning rather thanby individuals operating freely through markets.

(2) Which of the following most closely relates to the idea ofopportunity costs? A. trade-offs B. economic growth C. technological change D. capitalism

A. trade-offs

(6) Economic systems differ according to which two maincharacteristics? A. who owns the factors of production and the methods used tocoordinate economic activity B. the technology used in production and the quantity and quality ofnatural resources C. how goods are produced and who gets them D. the political system in place and the degree of scarcity facing theeconomy

A. who owns the factors of production and the methods used tocoordinate economic activity

Consider the supply and demand curves depicted in thediagram above. If the government imposed a price ceiling of$15, then buyers will be intending to buy​__, but theywill be able to legally buy ___: A. 30 units; 24 units B. 36 units; 24 units C. 36 units; 30 units D. 24 units; more than 24 units

B. 36 units; 24 units

15) Which of the following statements is true about priceceilings? A. price ceilings create surpluses for goods but shortages forservices. B. Price ceilings cause goods to be rationed by some othermeans than legally determined market prices. C. Ration coupons are the only way to ration goods when price ceilings are in place. D. All of the other statements are correct.

B. Price ceilings cause goods to be rationed by some othermeans than legally determined market prices.

2. (27) What two conditions must hold for a competitive marketto produce efficient outcomes? A. Demand curves must reflect all costs of production, andsupply curves must reflect consumers' full willingness to pay. B. Supply curves must reflect all costs of production, anddemand curves must reflect consumers' full willingness topay. C. Firms must minimize production costs, and consumers must minimize total expenditures. D. Firms must maximize profits, and consumers must all payprices equal to their maximum willingness to pay

B. Supply curves must reflect all costs of production, anddemand curves must reflect consumers' full willingness topay.

6) A recent study found that an increase in the federal tax onbeer (which would increase the price of beer) would reduce thedemand for marijuana. Based on this information we canconclude that A. beer and marijuana are substitute goods. B. beer and marijuana are complementary goods. C. beer is an inferior good. D. marijuana is an inferior good.

B. beer and marijuana are complementary goods.

3) Which of the following is a distinguishing feature of acommand system? A. private ownership of all capital B. central planning C. heavy reliance on markets D. widespread dispersion of economic power

B. central planning

(18) A newspaper reports that the average price of newhomes in a certain city had decreased, and the numberof new homes sold had also decreased. This situation isprobably caused by A. declining costs of construction materials and services in thatcity. B. declining incomes of people in that city. C. higher government subsidies to new homebuyers in that city. D. a rising population in that city.

B. declining incomes of people in that city.

(13) A 'price ceiling' means that A. there is currently a surplus of the relevant product. B. government is imposing a legal price that is typicallybelow the equilibrium price. C. government wants to stop a deflationary spiral. D. government is imposing a legal price that is typically abovethe equilibrium price.

B. government is imposing a legal price that is typicallybelow the equilibrium price.

(1) Other things equal, an excise tax on a product will A. increase its supply. B. increase its price. C. increase the quantity sold. D. increase its demand.

B. increase its price.

26) At the current price, there is a shortage of a product. We would expect price to A. increase, quantity demanded to increase, and quantity supplied todecrease. B. increase, quantity demanded to decrease, and quantity supplied toincrease. C. increase, quantity demanded to increase, and quantity supplied toincrease. D. decrease, quantity demanded to increase, and quantity supplied todecrease.

B. increase, quantity demanded to decrease, and quantity supplied toincrease.

(6) One can say with certainty that equilibrium price will decline when supply A. and demand both decrease. B. increases and demand decreases. C. decreases and demand increases. D. and demand both increase.

B. increases and demand decreases.

21) If there is a surplus of a product, its price A. is below the equilibrium level. B. is above the equilibrium level. C. will rise in the near future. D. is in equilibrium.

B. is above the equilibrium level.

(8) The four 'factors of production' are A. land, labor, capital, and money. B. land, labor, capital, and entrepreneurial ability. C. labor, capital, technology, and entrepreneurial ability. D. labor, capital, entrepreneurial ability, and money.

B. land, labor, capital, and entrepreneurial ability.

(2) The economizing problem is one of deciding how to make the bestuse of A. virtually unlimited resources to satisfy virtually unlimited wants. B. limited resources to satisfy virtually unlimited wants. C. unlimited resources to satisfy limited wants. D. limited resources to satisfy limited wants.

B. limited resources to satisfy virtually unlimited wants.

Refer to the diagram. A government price support program to aidfarmers is best illustrated by A. quantity E. B. price C. C. price A. D. price B.

B. price C.

11) An 'effective' price floor will A. force some firms in this industry to go out of business. B. result in a product surplus. C. result in a product shortage. D. clear the market.

B. result in a product surplus.

(1) Economics may best be defined as the A. interaction between macro and micro considerations. B. social science concerned with how individuals, institutions, andsociety make optimal choices under conditions of scarcity. C. empirical testing of value judgments through the use of logic. D. study of why people are rational.

B. social science concerned with how individuals, institutions, andsociety make optimal choices under conditions of scarcity.

(4) Macroeconomics can best be described as the A. analysis of how a consumer tries to spend income. B. study of the large aggregates of the economy or the economy as awhole. C. analysis of how firms attempt to maximize their profits. D. study of how supply and demand determine prices in individualmarkets.

B. study of the large aggregates of the economy or the economy as awhole.

7) In 2007, the price of oil increased, which in turn caused the priceof natural gas to rise. This can best be explained by saying that oiland natural gas are A. complementary goods, and the higher price for oil increased thedemand for natural gas. B. substitute goods, and the higher price for oil increased thedemand for natural gas. C. complementary goods, and the higher price for oil decreased the supplyof natural gas. D. substitute goods, and the higher price for oil decreased the supply ofnatural gas.

B. substitute goods, and the higher price for oil increased thedemand for natural gas.

(23) At the equilibrium price, A. quantity supplied may exceed quantity demanded or vice versa. B. there are no pressures on price to either rise or fall. C. there are forces that cause price to rise. D. there are forces that cause price to fall.

B. there are no pressures on price to either rise or fall.

5) "All Americans should have access to health care" is an example of a A. factual statement B. 'positive' statement C. 'normative' statement D. microeconomic argument

C. 'normative' statement

Innovation lagged in the centrally planned economies because A. there was too much domestic business competition. B. there was too much competition from foreign firms. C. enterprises resisted innovation in fear that their productiontargets would be raised. D.exports had to equal imports for the plan to work.

C. . enterprises resisted innovation in fear that their productiontargets would be raised.

the diagrams below, the subscript "1" refers to the initialposition of the curve, while the subscript "2" refers to the finalposition after the curve shifts. Which diagram illustrates the effect on the natural-gasmarket of the widespread use of "fracking," orhydraulic fracturing, by gas-drilling companies? A. A B. B C. C D. D

C. C

8) In economic terminology, the accumulated training and education that workers receive to increase their productivity is referred to as A. Entrepreneurship. B. Physical capital. C. Human Capital D. Absolute advantage

C. Human Capital

You should specialize in the production of a good over another if you have A. more capital resources than your trading partner. B. an absolute advantage. C. a comparative advantage. D. more human resources than your trading partner.

C. a comparative advantage.

(7) Capital Goods A. lead to inward shifts of a production possibilities curve. B. are a specialtype of consumption goods. C. are goods used to make consumer goods. D. are consumed because they enhance the enjoyment consumers obtain from other goods and services.

C. are goods used to make consumer goods.

Refer to the diagram. Assuming equilibrium price P1,producer surplus is represented by areas A. a + b. B. a + b + c + d. C. c + d. D. a + c.

C. c + d.

(12) 'Black markets' are associated with A. price floors and the resulting product surpluses. B. price floors and the resulting product shortages. C. ceiling prices and the resulting product shortages. D. ceiling prices and the resulting product surpluses.

C. ceiling prices and the resulting product shortages.

8) A shift to the right in the demand curve for product A can bemost reasonably explained by saying that A. consumer incomes have declined, and consumers now want to buy less of A at each possible price. B. the price of A has increased and, as a result, consumers want topurchase less of it. C. consumer preferences have changed in favor of A so that they nowwant to buy more at each possible price. D. the price of A has declined and, as a result, consumers want topurchase more of it.

C. consumer preferences have changed in favor of A so that they nowwant to buy more at each possible price.

(20) A decrease in demand and an increase in supply will A. affect price in an indeterminate way and decrease theequilibrium quantity. B. increase price and affect the equilibrium quantity in anindeterminate way. C. decrease price and affect the equilibrium quantity in anindeterminate way. D. increase price and increase the equilibrium quantity.

C. decrease price and affect the equilibrium quantity in anindeterminate way.

(26) In markets where the supply curve is vertical, changesin A. demand will not cause the equilibrium price to change. B. supply will not cause the equilibrium price to change. C. demand will not cause the equilibrium quantity tochange. D. supply will not cause the equilibrium quantity to change.

C. demand will not cause the equilibrium quantity tochange.

15) Private property A. discourages cooperation because people don't want to part with whatthey own. B. discourages innovation, as people are often afraid to risk losing theirown property. C. encourages owners to maintain or improve their property so asto preserve or enhance value. D. does everything indicated by the other answers.

C. encourages owners to maintain or improve their property so asto preserve or enhance value.

(4) The production possibilities curve illustrates the basic principlethat A. the production of more of any one good will in time require smallerand smaller sacrifices of other goods. B. an economy will automatically obtain full employment of itsresources. C. if all the resources of an economy are in use, more of one goodcan be produced only if less of another good is produced. D. an economy's capacity to produce increases in proportion to itspopulation size.

C. if all the resources of an economy are in use, more of one goodcan be produced only if less of another good is produced.

(22) A market is in equilibrium A. provided there is no surplus of the product. B. at all prices above that shown by the intersection of the supply anddemand curves. C. if the amount producers want to sell is equal to the amountconsumers want to buy. D. whenever the demand curve is downsloping and the supply curve is upsloping.

C. if the amount producers want to sell is equal to the amountconsumers want to buy.

5) In the following question you are asked to determine, otherthings equal, the effects of a given change in a determinant ofdemand or supply for product X upon (1) the demand (D) for, orsupply (S) of, X; (2) the equilibrium price (P) of X; and (3) theequilibrium quantity (Q) of X. An improvement in the technology used to produce X will A. decrease S, increase P, and decrease Q. B. decrease S, increase P, and increase Q. C. increase S, decrease P, and increase Q. D. decrease D, decrease P, and decrease Q.

C. increase S, decrease P, and increase Q.

(14) Which of the following is a distinguishing feature of laissez-fairecapitalism? A. public ownership of all capital B. central planning C. minimal government intervention D. a circular flow of goods, resources, and money

C. minimal government intervention

In a market with supply and demand curves as shown above, a price ceiling of $2.50 will result in A. a surplus of 10 units. B. a shortage of 10 units. C. no shortage or surplus. D. a black market price greater than $2.50.

C. no shortage or surplus.

) The demand curve shows the relationship between A. money income and quantity demanded. B. price and production costs. C. price and quantity demanded. D. consumer tastes and quantity demanded.

C. price and quantity demanded.

(4) If the supply and demand curves for a product bothdecrease, then equilibrium A. quantity must fall and equilibrium price must rise. B. price must fall, but equilibrium quantity may rise, fall, orremain unchanged. C. quantity must decline, but equilibrium price may rise,fall, or remain unchanged. D. quantity and equilibrium price must both decline.

C. quantity must decline, but equilibrium price may rise,fall, or remain unchanged.

(17) The market system automatically corrects a surpluscondition in a competitive market by A. raising the price of the commodity in question whileincreasing the quantity demanded. B. raising the price of the commodity in question whiledecreasing the quantity demanded. C. reducing the price of the commodity in question whileincreasing the quantity demanded. D. reducing the price of the commodity in question whiledecreasing the quantity demanded.

C. reducing the price of the commodity in question whileincreasing the quantity demanded.

13) The term "quantity demanded" A. refers to the entire series of prices and quantities that comprise thedemand schedule. B. refers to a situation in which the income and substitution effects do notapply. C. refers to the amount of a product that will be purchased at somespecific price. D. means the same thing as demand.

C. refers to the amount of a product that will be purchased at somespecific price.

(10) An 'effective' price ceiling will A. induce new firms to enter the industry. B. result in a product surplus. C. result in a product shortage. D. clear the market.

C. result in a product shortage.

14) An 'effective' price floor on wheat will A. force otherwise profitable farmers out of business. B. result in a shortage of wheat. C. result in a surplus of wheat. D. clear the market for wheat.

C. result in a surplus of wheat.

Refer to the diagram. A decrease in demand is depicted by a A. move from point x to point y. B. shift from D1 to D2. C. shift from D2 to D1. D. move from point y to point x.

C. shift from D2 to D1.

Refer to the diagram. A decrease in supply is depicted by a A. move from point x to point y. B. Shift from S1 to S2. C. shift from S2 to S1. D. move from point y to point x.

C. shift from S2 to S1.

(16) An improvement in production technology will A. increase equilibrium price. B. shift the supply curve to the left. C. shift the supply curve to the right. D. shift the demand curve to the left.

C. shift the supply curve to the right.

Refer to the above diagram for the milk market. If the price were $2 per gallon, then there would be a A. shortage of 20 million gallons. B. shortage of 10 million gallons. C. surplus of 10 million gallons. D. surplus of 30 million gallons.

C. surplus of 10 million gallons.

(2) Graphically, the market demand curve is A. steeper than any individual demand curve that is part of it. B. greater than the sum of the individual demand curves. C. the horizontal sum of individual demand curves. D. the vertical sum of individual demand curves.

C. the horizontal sum of individual demand curves.

(3) A production possibilities curve shows A. that resources are unlimited. B. that people prefer one of the goods more than the other. C. the maximum amounts of two goods that can be produced,assuming the full use of available resources. D. combinations of capital and labor necessary to produce specificlevels of output.

C. the maximum amounts of two goods that can be produced,assuming the full use of available resources.

When the price of a product rises, consumers with a given moneyincome shift their purchases to other products whose prices are nowrelatively lower. This statement describes A. an inferior good. B. the rationing function of prices. C. the substitution effect. D. the income effect.

C. the substitution effect.

9) A production possibilities curve would most likely shift inward A. when production is inefficient. B. when resources are expanding. C. when a war destroys the industrial infrastructure of a country. D. when the unemployment level rises.

C. when a war destroys the industrial infrastructure of a country

(17) "Because the outputs of many industries are the inputs to otherindustries, the failure of any single industry to fulfil the outputquantities specified in the central plan caused a chain reaction ofadverse repercussions on production." This quotation bestidentifies the A. incentive problem under central planning. B. self-sufficiency dilemma under communism. C. resource overcommitment problem under communism. D. coordination problem under central planning.

D. coordination problem under central planning.

The competitive market system A. encourages innovation because government provides tax breaks and subsidies to those who develop new products or new productivetechniques. B. discourages innovation because it is difficult to acquire additional capital in the form of new machinery and equipment. C. discourages innovation because firms want to get all the profitspossible from existing machinery and equipment. D. encourages innovation because successful innovators arerewarded with economic profits.

D. encourages innovation because successful innovators arerewarded with economic profits.

Economic resources are also called A. Free gifts of nature. B. Consumption goods. C. Units of money capital. D. factors of production.

D. factors of production.

(10) A normal good is one A. whose amount demanded will increase as its price decreases. B. whose amount demanded will increase as its price increases. C. whose demand curve will shift leftward as incomes rise. D. for which the consumption varies directly with income.

D. for which the consumption varies directly with income.

(9) A price floor means that A. inflation is severe in this particular market. B. sellers are artificially restricting supply to raise price. C. government is imposing a maximum legal price that istypically below the equilibrium price. D. government is imposing a minimum legal price that istypically above the equilibrium price.

D. government is imposing a minimum legal price that istypically above the equilibrium price.

(7) Over time, the equilibrium price of a gigabyte ofcomputer memory has fallen, while the equilibriumquantity purchased has increased. Based on this we canconclude that A. decreases in the demand for computer memory have exceeded increases in supply. B. decreases in the supply of computer memory have exceeded increases in demand. C. increases in the demand for computer memory have exceeded increases in supply. D. increases in the supply of computer memory haveexceeded increases in demand.

D. increases in the supply of computer memory haveexceeded increases in demand.

(5) Unemployment A. causes the production possibilities curve to shift outward. B. can exist at any point on a production possibilities curve. C. is illustrated by a point outside the production possibilities curve. D. is illustrated by a point inside the production possibilities curve.

D. is illustrated by a point inside the production possibilities curve.

Refer to the diagram. Other things equal, this economy will shift itsproduction possibilities curve outward the most if A. the ratio of capital to consumer goods is minimized. B. it chooses point C. C. it chooses point B. D. it chooses point A.

D. it chooses point A.

Refer to the diagram. A decrease in quantity demanded is depicted by a A. move from point x to point y. B. shift from D1 to D2. C. shift from D2 to D1. D. move from point y to point x.

D. move from point y to point x.

Refer to the diagram. A price of $20 in this market will result in a A. shortage of 50 units. B. surplus of 50 units. C. surplus of 100 units. D. shortage of 100 units.

D. shortage of 100 units.

International trade between two nations increases the standard of living of both nations due to A. specialization and gains from absolute advantage. B. political intervention. C. high tariffs. D. specialization and gains from comparative advantage.

D. specialization and gains from comparative advantage.

18) An increase in the excise tax on cigarettes raises the price ofcigarettes by shifting the A. demand curve for cigarettes rightward. B. demand curve for cigarettes leftward. C. supply curve for cigarettes rightward. D. supply curve for cigarettes leftward.

D. supply curve for cigarettes leftward.

5) When the price of a product falls, the purchasing power of ourmoney income rises and thus permits consumers to purchase more ofthe product. This statement describes A. an inferior good. B. the rationing function of prices. C. the substitution effect. D. the income effect.

D. the income effect.

21) What combination of changes would most likelydecrease the equilibrium price? A. when supply decreases and demand increases B. when demand increases and supply increases C. when demand decreases and supply decreases D. when supply increases and demand decreases

D. when supply increases and demand decreases

Refer to the diagram. Which of the following areas bestrepresents the efficiency loss from underproduction? A. a + c B. e + f C. a + b + c + d D. ​b + d

D. ​b + d