ECON - Test 1

Refer to the above diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is:

$60.

Command systems in the Soviet Union and Eastern Europe failed primarily because of coordination and incentive problems.

True

Consider a barter situation where you have pens and you want pencils. To achieve your objective there must be a(n):

coincidence of wants.

In 1997, McDonald's introduced the "55-cent special." It turned out to be an unsuccessful product. In the marketplace for fast-food products, this lack of success is an example of:

consumer sovereignty.

Private firms cannot profitably produce a public good because of:

nonrivalry and nonexcludability.

In 2007 the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are:

substitute goods and the higher price for oil increased the demand for natural gas.

Suppose that in 2008 Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2009, 600,000 Mustangs were sold at an average price of $22,500 per car. These statements:

suggest that the demand for Mustangs increased between 2008 and 2009.

Refer to the above table. The marginal opportunity cost of the third unit of steel is:

20 units of wheat.

Refer to the above diagram, which shows three demand curves for coffee. Which would cause the change in the demand for coffee illustrated by the shift from D1 to D3?

A decrease in the price of tea

The "invisible hand" concept to describe the guiding function of prices was developed by:

Adam Smith

Which of the following is a consequence of rent controls established to keep housing affordable for the poor?

All of these are consequences of rent controls.

Assuming competitive markets with typical supply and demand curves, which of the following statements is correct?

An increase in demand with no change in supply will result in an increase in sales.

Why might a company use barter rather than money to make a transaction?

Barter can enable two firms to trade when their cash flows are limited.

In the U.S. economy, housing accounts for over half of all consumer expenditures.

False

The four factors of production are land, labor, capital, and government services.

False

Assume that for Indy, one hour of study time in economics is perfectly substitutable for an hour of study time in calculus. Indy has exams in both subjects tomorrow and he determines that if spends all of his time studying economics, he will receive scores of 96 on his economics exam and 45 on his calculus exam. If he studies only calculus, his econ score will be 81 and his calculus score 90. Based on this information and assuming that Indy has no better alternative use of his time, what is the opportunity cost of improving his econ score by one (1) point?

NOT 1 point on his calculus exam

Refer to the above supply and demand graph. Point A represents the current equilibrium level of output of this product and point B represents the optimal level of output from society's perspective. The amount of the subsidy to be given to producers to correct this externality problem would be:

NOT GH.

When an economy is at full employment and full production, more of any one product:

NOT can be produced only if there is a general decrease in prices.

(Applying the Analysis) Proponents of a value-added tax (VAT) claim that a VAT:

NOT equalizes the tax burden between buyers and sellers of goods.

The law of increasing opportunity costs indicates that:

NOT if the prices of all the resources involved in the production of goods increase, the cost of producing those goods will increase at the same rate.

On a production possibilities curve, the optimal or best combination of output for any society:

NOT is at the precise midpoint of the curve.

When an economist says that the demand for a product has increased, this means that:

NOT the demand curve has shifted to the left.

College students living off-campus frequently consume large amounts of boxed macaroni and cheese. When they finish school and start their careers, their consumption of this good frequently declines. This suggests that boxed macaroni and cheese is:

NOT a substitute good.

The influential book written by Adam Smith was:

The Wealth of Nations.

Which is not one of the conditions for the Coase theorem to hold?

The amount of money disputed is minor.

Which is an illustration of a microeconomic question?

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

Assume the demand curve for product X shifts to the right. This might be caused by:

a decline in income if X is an inferior good.

Refer to the above graph. The shift of the budget line from CD to AB is consistent with:

a decrease in money income.

Refer to the above figure. If box B represents the resource market and flow (3) represents money income, then:

box D is the product market and box C is households.

Suppose an excise tax is imposed on product X. We would expect this tax to:

decrease the demand for complementary good Y and increase the demand for substitute product Z.

Along a production possibilities curve, an increase in the production of one type of good can be accomplished only by:

decreasing the production of the other type of good.

The air pollution policy of the United States has historically been one of:

direct controls in the form of uniform emission standards.

The maximization of profit and the minimization of losses is the primary factor affecting the economic decision making of:

entrepreneurs

When producers maximize their profits from the production of a good or service, they are:

exhibiting purposeful behavior.

The market system is an economic system that:

gives private individuals and institutions the right to own resources used in production.

Suppose that at prices of $5, $4, $3, $2, and $1 for product Z, the corresponding quantities supplied are 3, 4, 5, 6, and 7 units, respectively. Which of the following would increase the quantities supplied of Z to, say, 6, 8, 10, 12, and 14 units at these prices?

improved technology for producing Z

Given a downsloping demand curve and an upsloping supply curve for a product, an increase in the price of a substitute good will:

increase equilibrium price and quantity.

An unusually large crop of coffee beans would:

increase the supply of coffee.

Other things equal, if the price of a key resource used to produce product X falls, the:

product supply curve of X will shift to the right.

If the price of a product increases, we would expect:

quantity supplied to increase.