Microeconomics Exam #1 (Chapters 1-4)
All of the following scenarios depict the characteristics of complements except:
the price of coffee increases and the demand for cream increases.
The diagram to the right illustrates a hypothetical demand curve representing the relationship between price (in dollars per unit) and quantity (in 1,000s of units per unit of time). The area of the triangle shown on the diagram is _______________ .
$ 1058000
The diagram to the right illustrates a hypothetical demand curve representing the relationship between price (in dollars per unit) and quantity (in 1,000s of units per unit of time). Total revenue is ________ .
$1925
If Damarius is willing to pay $100 for his economics textbook but instead only has to pay $80, his consumer surplus is:
$20
The diagram to the right shows a hypothetical demand curve for apples. The slope of this curve is
-1
The table above indicates the demand schedules for four types of consumers: A, B, C, and D and the number of consumers in each group (top row). The quantity demanded by each type of consumer (QA, QB, QC, and QD) is shown for market prices ranging from $10 down to $4. What is the combined quantity demanded at a market price of $4?
10,400
Using information in the table, what is country A's opportunity cost of producing 1 unit of clothing?
2 units of food
Refer to the graph on the right. What percentage of the marbles are blue? What fraction of the marbles are yellow? What fraction of the marbles are red?
22% , 20/86 , 0.13
The bar graph to the right illustrates hypothetical data for the market share for the United States automobile market. The percentage of the U.S. market that U.S. auto firms control is
45%
According to the law of supply, a.) there is a positive relationship between price and quantity supplied. b.) as the price of a product increases, firms will supply less of it to the market. c.) as the price of a product increases, firms will supply more of it to the market. d.) A and C only
A and C only
Your consumption point after trade is illustrated by point
C
When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of?
A market
Which of the following will cause an outward (rightward) shift in supply?
A technological improvement.
Which of the following would cause a shift in the demand curve from point A to point B?
All of the above
Which of the following is consistent with the law of supply?
An increase in the market price of MP3 players causes an increase in the production of MP3 players.
Which of the following events would cause the supply curve to decrease from S1 to S2?
An increase in the price of inputs.
In the diagram to the right, illustrating a binding price floor at P1, the amount of consumer surplus transferred to producers is represented by area ____ and the deadweight loss is equal to areas ___________.
B, C and E
Which of the following terms corresponds to a market where buying and selling take place at prices that violate government price regulations?
Black market
Deadweight loss is the reduction in economic surplus resulting from a market not being in competitive equilibrium. In the diagram to the right, deadweight loss is equal to the area(s):
C & E
In the diagram to the right, illustrating a binding price ceiling at P3, the amount of producer surplus transferred to consumers is represented by area ____ and the deadweight loss is equal to areas __________.
C, B and D
__________ goods and services are those bought by businesses to be used to increase efficiency or enhance production.
Capital
In what type of economy does the government decide how most economic resources will be allocated?
Centrally planned economy
In the above graph, which of the following combinations is unattainable with the current resources available in this country?
Combination G
__________ surplus is the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. This component of economic surplus is illustrated in the diagram to the right by area ___ .
Consumer, A
___________________________________________ decide(s) what goods and services will be produced.
Consumers, firms, and government
In the diagram to the right, illustrating a per-unit tax equal to P2 minus P3, tax revenue is represented by the areas ______ and the excess burden of the tax is represented by areas _________.
D and F, E and G
The diagram to the right represents a demand curve for apples. The original demand curve is D1. If a factor other than price which affects demand changes, causing demand to decrease, the resultant demand curve is represented by
D3
According to the rationality assumption, people:
Do not intentionally make decisions that would leave them worse off.
_________ is the study of the choices people make to attain their goals, given their scarce resources.
Economics
In the above graph, which of the following combinations of pies and cakes is unattainable given the existing resources?
Four cakes and seven pies
Which of these graphs best describes a minimum price imposed for milk?
Graph A
Economic decisions are made at every level in society. When we try to decide which production method to use among several alternatives, which of the following key economic questions are we trying to answer?
How do we produce the products?
Assume the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft drinks? I. The demand for soft drinks decreases. II. The quantity of soft drinks demanded decreases. III. The supply of soft drinks decreases. IV. The quantity of soft drinks supplied decreases.
II and III
What is the name given to the development of a new good?
Invention
Consider the figure and assume that it is the market for health-care services. When the "baby boomer" generation retires, the number of people who require health care increases by 30%, and, as a result, the number of health-care providers also increases, but by only 25%. What is the effect on the price of health-care services over time?
It increases because demand increased by more than supply.
Consider the figure to the right and assume that it is the market for health-care services. When the "baby boomer" generation retires, the number of people who require health care increases by 30%, and, as a result, the number of health-care providers also increases, but by only 25%. What is the effect on the price of health-care services over time?
It increases because demand increased by more than supply.
Which of the following covers the study of topics such as inflation or unemployment?
Macroeconomics
__________ is the difference between what a producer receives for a good or service and the lowest amount they would accept for that good or service.
Producer surplus
__________ surplus is the difference between the lowest price a firm would be willing to accept and the price it actually receives. This component of economic surplus is illustrated in the diagram to the right by area ___.
Producer, B
The market for corn is initially in equilibrium. Suppose that the production of biofuels, which use corn as an input, increase, and at the same time, increases in the price of oil cause farm production costs to rise. Which of the following explains the effect on equilibrium price and quantity in the corn market?
The price of corn will rise, but the effect on equilibrium quantity cannot be determined without more information.
Washington state had a bumper apple crop this year, significantly increasing the supply of apples in the U.S. Given this information, choose the statement that correctly describes the effect on the U.S. apple market.
The quantity of apples demanded will increase as the price of apples falls.
The graph above shows the market for laptop computers. Suppose the price of memory chips used in laptop computers decreases. How will this event impact on the equilibrium quantity and the market price?
The supply increases, causing the equilibrium quantity to rise and the market price to fall.
According to the graph, what is the impact of a quantity restriction (known as a taxi medallion) on the number of taxis allowed to service this market?
There is an excess demand for taxi service and a higher price.
Which of the following statements about a shortage is correct?
There is no shortage of most scarce goods.
Which of the following represents an inferior good?
When consumer income increases, the demand for bologna decreases.
According to the law of demand, there is an inverse relationship between price and quantity demanded. That is, the demand curve for goods and services slopes downward. Why?
When the price of a good increases, consumers' purchasing power falls, and they cannot buy as much of the good as they did prior to the price change.
Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?
When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.
According to the graph how much domestic sugar will be supplied at the $0.12 price under free trade?
Zero pounds
In what type of economy does the government decide how economic resources will be allocated?
a centrally planned economy
The diagram in panel a is an example of
a demand schedule.
A black market is
a market in which buying and selling take place at prices that violate government price regulations.
Economic efficiency is
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
In the diagram to the right, when demand increases, __________ develops at the original price. Equilibrium price will ______ and equilibrium quantity will _____ as a new equilibrium is established.
a shortage, rise, rise
Other things remaining equal, the law of demand says that higher prices will lead to:
a smaller quantity demanded and lower prices to a larger quantity demanded.
The diagram in panel b is an example of Price: 300, 250, 200, 150, 100 Quantity: 50, 45, 40, 35, 30
a supply curve
In the diagram to the right, when supply increases, __________ develops at the original price. Equilibrium price will ____ and equilibrium quantity will ____ as a new equilibrium is established.
a surplus, fall, rise
The outward shift of the production possibilities frontier from point A to point B in the above graph would most likely be caused by:
a technological advance that affects both the production of automobiles and aircraft carriers
The diagram to the right is an example of
a time-series graph
The primary difference between absolute and comparative advantage is
absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.
Economists assume that when there is a change in demand and/or supply, that prices reach a new equilibrium:
after an adjustment period that varies.
In general, the term "ceteris paribus" means
all else equal.
Economics is a social science because
all of the above
A hypothesis is an economic model is
all of the above. (tested before it can be accepted or not rejected, usually about a casual relationship, a statement that may be either correct or incorrect about an economic variable)
According to the theory of comparative advantage, specialization and free trade will benefit:
all trading partners who specialize in goods where they have comparative advantage
Ms. Boulware is the best lawyer and the best secretary in town. She has:
an absolute advantage in both jobs
On the diagram shown above, a movement from A to C represents
an increase in demand
According to this graph the existence of a minimum wage in the market for low-skilled workers results in:
an increase in wages but lower employment
In the United States, property rights:
are guaranteed by two amendments to the U.S. Constitution
For markets to generate the greatest benefit and function in the most efficient manner they must:
be perfectly competitive
When we graph the relationship between two variables, we often want to draw conclusions about whether changes in one variable are causing changes in the other variable. Doing so, however, can lead to incorrect conclusions. Reasons for drawing incorrect conclusions about cause and effect include
both a and b
Market price is determined by _________.
both supply and demand
Market price is determined by
both supply and demand.
On the diagram to the right, a movement from A to B represents a
change in quantity demanded.
On the diagram shown above, a movement from A to B represents a:
change in quantity supplied.
On the diagram to the right, a movement from B to C represents a
change in supply.
The basis for trade is _____ advantage
comparative
The difference between the highest price a consumer is willing to pay for a good or service, and the price they actually pay is called:
consumer surplus.
In the graphs shown, which country has a comparative advantage in the production of shirts?
country B
In the diagram to the right, point C indicates an
efficient result.
A(n) _____ is someone who operates a business, bringing together the factors of production - labor, capital, and natural resources - to produce goods and services.
entrepreneur
In the diagram to the right, point A provides the _____, point B the _____, and point C the _____.
equilibrium price; market equilibrium; equilibrium quantity
One of the first steps in deciding whether to complete your education is to:
evaluate the marginal cost and marginal benefit of that decision.
In the circular flow model of the economy, __________ are the suppliers of goods and services.
firms
Two key groups participate in markets. A ___ consists of all the individuals in a home. ___ are suppliers of goods and services. We can use a simple economic model called the _____ to see how participants in markets are linked.
household, firms, circular-flow diagram
Macroeconomics can be used to understand all of the topics listed below, except:
how a consumer decides between the purchase of two different cars.
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
In the United States, who receives the goods and services produced depends largely on
how income is distributed.
Economics:
is concerned with how people respond to incentives.
On the diagram to the right, movement along the curve from points A to B to C illustrates
increasing marginal opportunity costs.
Contracts, insurance, patents and accounting rules are:
inventions that make a market work better
Adam Smith observed that people pursuing their own self-interest in a free market will actually result in the best interest of society as if these actions were guided by a(n):
invisible hand.
In the diagram to the right, marginal benefit __________ marginal cost at output level Q2. This output level is considered economically ________.
is equal to, efficient
Rent controls:
make tenants less mobile
Firms choose how to produce the goods and services they sell. In many cases, firms face a trade-off between using more workers or using more machines. For example,
many times in the past several decades, firms may have chosen between a production method in the United States that uses fewer workers and more machines and a production method in Chine that uses more workers and fewer machines.
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
marginal benefit equals marginal cost.
Economists believe that an individual or firm should continue any activity until:
marginal benefit is equal to marginal cost.
A price ceiling is a legally determined __________ price that sellers may charge. A price floor is a legally determined minimum __________ price that sellers may receive.
maximum, minimum
A __________ economy is an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
mixed
The United States economy is best classified as a
mixed economy.
If an effective minimum wage is imposed, then:
more workers will be unable to find jobs
The resources provided by nature and used to produce goods and services are also known as:
natural resources.
The diagram to the right illustrates a demand curve. As with all demand curves, this curve's slope is
negative.
Consumer and producer surplus measure the _____ benefit rather than the _____ benefit.
net, total
In the diagram to the right, the curve labeled "S" is apparently _____ , while the curve labeled "D" is apparently _____ .
nonlinear, linear
Macroeconomics is concerned with all of the following except
political party affiliation.
"Rent controls, government farm programs, and other price ceilings and price floors are bad." This is an example of a
normative statement. The statement is concerned with what should be.
When nations specialize in their comparative advantage and engage in trade:
overall standards of living increase
The stock of computers, factory buildings and machine tools used to produce goods is known as:
physical capital.
A legally determined maximum that sellers may charge is known as a:
price ceiling
In response to information regarding the salaries of executives at firms receiving bailout funds in the United States, some people called for a limit on the salaries paid to executives. Such a limit on the compensation executives can receive is an example of a:
price ceiling
Black markets may arise if:
price ceilings exist
A legally determined minimum price that sellers must receive is known as a:
price floor
Some people believe there should be a legally determined minimum price for farm products such as milk. A limit on the price of milk would be an example of:
price floor
Prolonged shortages arise if:
prices are not allowed to rise to equilibrium
The Scottish philosopher Adam Smith argued in 1776 that
prices would do a better job of coordinating the activities of buyers and sellers than guilds could.
At the market equilibrium price:
quantity demanded equals quantity supplied.
Price performs a(n) __________ function. Inputs or outputs go to the __________ bidders if people are free to exchange voluntarily in the markets without government intervention or other market friction.
rationing, highest
In a price system:
relative prices change constantly to reflect changes in supply and demand.
Prolonged agricultural surpluses can arise if governments:
set the price above equilibrium
In the diagram, when supply decreases, a __________ develops at the original price. Equilibrium price will __________ and equilibrium quantity will __________ as a new equilibrium is established.
shortage; rise; fall
Price controls that put a price ceiling on goods and services create __________.
shortages
The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the __________ the payoff to devoting additional resources to that activity.
smaller
When the government imposes price floors or price ceilings,
some people win, some people lose, and there is a loss of economic efficiency.
The distinction between substitutes and complements is
substitute goods are used for the same purposes while complementary goods are used together.
According to this graph the existence of a minimum wage in the market for low-skilled workers results in a:
surplus of workers
In the diagram to the right, when the price is $65 per player, the amount of the ______ is __ million players per month.
surplus, 40
Price controls that put a price floor on goods and services create __________.
surpluses
The role of the entrepreneur always involves:
taking risks
One of the great benefits of trade is
that it makes it possible for society to become better off by increasing its consumption.
Tax incidence is
the actual division of the burden of a tax between buyers and sellers in a market.
Which of the following is not a possible opportunity cost of attending college?
the cost of housing
Given linear demand curves, if demand and supply increase by identical amounts, then:
the equilibrium price stays the same and the equilibrium quantity rises.
Given linear demand curves, if demand increases and supply decreases, then __________.
the equilibrium price will increase but the effect on the equilibrium quantity will be ambiguous
Equity is
the fair distribution of economic benefits
Opportunity cost is
the highest valued alternative that must be given up to engage in an activity.
Macroeconomics is
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
According to the law of demand,
there is an inverse relationship between price and quantity demanded.
The distinction between a normal and an inferior good is
when income increases, demand for a normal good increases while demand for an inferior good falls.
Which of the following shows a positive linear relationship? (assume values of x>0)
y = -2 + 3.7x
A perfectly competitive market is a market that meets the conditions of
(1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.
Economic surplus in a market is the sum of _____ surplus and _____ surplus. In a competitive market, with many buyers and sellers and no government restrictions, economic surplus is at a _____ when the market is in _____.
consumer; producer; maximum; equilibrium
Consider the following statement: "An increase in supply decreases the equilibrium price. The decrease in price increases demand." The statement is
false: decreases in price affect the quantity demanded, not demand.
In the circular flow diagram, which arrow shows the flow of goods and services?
B
Which letter best represents the demand for factors of production in this circular flow model?
C
Which of the following is a positive economic statement?
If minimum wage rates rise, then unemployment will rise.
Refer to the graph. Which of the following best represents the situation in which BMW must face a trade-off between producing SUVs and producing hybrids?
Moving from point B to point C
Which of the following countries has an economy where most of the resource allocation is determined by a central planning authority?
North Korea
What is the name given to the highest-valued alternative that must be given up to engage in any activity?
Opportunity cost
Jim declined to take part in a health study on a free basis but changed his mind after being offered $1,000 to participate in the study. Jim's behavior best illustrates which economic principle?
People respond to economic incentives.
_____________ is concerned with what is, and _____________ is concerned with what ought to be. Economics is about _____________ , which measures the costs and benefits of different courses of action.
Positive analysis, normative analysis, positive analysis
In the circular flow model, which of the following refers to markets where goods such as computers or services such as medical treatment are offered?
Product markets
What are copyrights designed to accomplish?
Protect intellectual property rights
In his 1776 book, "An Inquiry into the Nature and Causes of the Wealth of Nations," Adam Smith notes that specialization increases productivity. Which of the following was the cause of this phenomenon?
The division of labor
Which of the following is critical to the success of the market system?
To allow individuals or firms to have exclusive use of their property
A production possibilities frontier (PPF) is
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
Any model is based on making assumptions because
both a and b.
The production possibilities frontiers depicted in the diagram to the right illustrate
both the labor force and capital stock increasing.
A market is a group of _____ of a good or service and the institution or arrangement by which they come together to trade.
buyers and sellers
Tangible products like cars and televisions are referred to as
goods.
If a country has a comparative advantage in the production of a good, then that country:
has a lower opportunity cost in the production of that good
The diagram to the right illustrates a common economic relationship. Economists know this relationship as marginal cost (MC). The diagram illustrates the relationship between the change in total cost and quantity produced. There are three lines (A, B, and C) drawn tangent to the MC curve. At line A, the MC curve has a _____ slope. Where lines B and C touch the MC curve, the slope is _____ and _____.
negative; positive; increasing
The diagram to the right illustrates a very important relationship in economics between two variables: the price of a good and the quantity demanded of that good. The two variables in this diagram are
price (dollars per bushel) on the vertical axis and quantity (bushels per week) on the horizontal axis.
Absolute advantage is the ability of an individual, firm, or country to:
produce more of a good or service than competitors using the same amount of resources
The primary difference between product markets and factor markets is that
product markets are markets for goods, while factor markets are markets for factors of production—labor, capital, natural resources, and entrepreneurial ability
_____________________ occurs when a good or service is produced at the lowest possible cost.. ____________________ occurs when production is in accordance with consumer preferences.
productive efficiency, allocative efficiency
One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls
scarcity
Economics is the study of choice under conditions of
scarcity.
The principle of opportunity cost evolves from the concept of
scarcity.
The production possibilities frontiers depicted in the diagram to the right illustrate
technological advances in the tank industry.
Given linear demand curves, if demand and supply both increase but demand increases by a greater amount than supply, then:
the equilibrium price and quantity both increase.
When the federal government crafts environmental policies that make it less expensive for firms to follow green initiatives,
the policies are consistent with economic incentives.
Property rights are
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
A free market exists
when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed.
Trade-offs force society to make choices, particularly when answering the following three fundamental questions:
One, what goods and services will be produced? Two, how will the goods and services be produced? Three, who will receive the goods and services produced?
Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a ___________ economy in which the government decides how economic resources will be allocated. Or a society can have a ______ in which the decisions of households and firms interacting in markets allocate economic resources.
centrally planned, market
In your economics class, you scored a 62 on the first quiz, a 83 on the second quiz, and an 65 on the third quiz. Your average quiz grade is __ . On the fourth quiz, you scored a 75. Did the fourth quiz raise your average?
70, yes
The pie chart to the right illustrates hypothetical data for the market share for the United States automobile market. The percentage of the U.S. market that U.S. auto firms control is
60%
Economists often are interested in percentage change from one period to the next. The percentage rate of change of gross domestic product (GDP) is an important macroeconomic variable. If in 2010 GDP was $11,150 billion dollars, and GDP increased to $11,719 billion in 2011, what is the growth rate of the U.S. economy in 2011?
5.1%