Microeconomics Test 1

Assuming that coffee and tea are substitutes in consumption, a decrease in the price of coffee will result in: A. a leftward shift in the demand for tea B. a downward movement along the demand curve for tea C. A rightward shift in the demand for tea D. An upward movement along the demand curve for tea

A. a leftward shift in the demand for tea

Interpret the following statement "an increase in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market" A. the statement is correct B. the statement would be correct if "quantity of wheat demanded" were substituted for "quantity of wheat supplied" C. the statement is incorrect bc it confuses a change in quantity supplied with a change in supply D. the statement would be correct if it read that a "decrease in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market."

A. the statement is correct

A severe freeze has once again damaged the Florida orange crop. The impact on the market for oranges will be a leftward shift of: A. the demand curve, as consumers try to economize bc of the shortage B. both the supply and demand curve C. the supply curve D. the supply curve and a rightward shift of the demand curve, resulting in a higher equilibrium price

C. the supply curve

The opportunity cost of attending college is likely to include all except which of the following? A. cost of required textbooks B. tuition fees C. the income you forego in order to attend classes D. cost of haircuts received during the school term E. cost of paper and pencils needed to take notes

D. cost of haircuts received during the school term

A virulent disease spreads throughout the population of an economy, causing death and disability. This can be portrayed as:

an inward shift of the production possibilities curve

An upward-sloping supply curve shows that: A. buyers are willing to pay more for particularly scarce products B. suppliers expand production as the product price falls C. suppliers are willing to increase production of their goods if they receive higher prices for them D. buyers are willing to buy more as the product price falls E. buyers are not affected either directly or indirectly by the sellers' costs of production

C. suppliers are willing to increase production of their goods if they receive higher prices for them

Figure 3-5. In the diagram, Point A is: A. unattainable B. efficient C. preferable to point D D. inefficient

D. inefficient

Which of the following could be responsible for an increase in the price of wheat? A. an increase in the supply of wheat B. an increase in the demand for wheat C. a decrease in the supply of wheat D. a simultaneous increase in supply and decrease in demand for wheat E. both b and c

E. both b and c

In a market system, decisions about how to allocate resources are made:

by individuals and firms interacting in markets

If a surplus exists in a market, then we know that the actual price is: A. above the equilibrium price, and quantity supplied is greater than quantity demanded B. above the equilibrium price, and quantity demanded is greater than quantity supplied C. below the equilibrium price, and quantity demanded is greater than quantity supplied D. below the equilibrium price, and quantity supplied is greater than quantity demanded

A. above the equilibrium price, and quantity supplied is greater than quantity demanded

An economy's resources: A. consist of land labor capital and entrepreneurial skills B. are unlimited in a country like the U.S. C. are always efficiently utilized in wealthy nations D. consist of labor land and entrepreneurial skills but not capital

A. consist of land labor capital and entrepreneurial skills

The problem of scarcity: A. exists bc resources are limited relative to wants B. exists bc resources are unlimited relative to wants C. is solved by economists using abstract models D. can be eliminated through appropriate government intervention into markets E. does not exist in communist societies

A. exists bc resources are limited relative to wants

Other things constant, a decrease in the price of fertilizer (an input for farmers) will: A. increase the supply of wheat B. decrease the supply of wheat C. increase the demand for wheat D. decrease the demand for wheat E. do none of the above

A. increase the supply of wheat because as supply goes up, price goes down quantity goes up

A university's football stadium is never more than half-full during the football games. This indicates: A. the ticket price is above the equilibrium price B. the ticket price is below the equilibrium price C. the ticket price is at the equilibrium price D. nothing about the equilibrium price

A. the ticket price is above the equilibrium price

The law of demand asserts that:

the quantity of a good that people will buy is inversely related to the product's price

Refer to Figure 5-6: At a market price of $4, which of the following conditions exist? A. Shortage B. Surplus C. Equilibrium D. Any of the above

B. Surplus

Which of the following would not cause an increase in demand for tennis balls? A. a reduction in the price of tennis racquets (complement) B. a decrease in the price of tennis balls C. an unusually sunny fall and winter extending the tennis season D. an increase in the popularity of tennis

B. a decrease in the price of tennis balls

In the circular flow diagram, A. business firms are buyers in the markets for goods and services B. households are sellers in the markets for resources C. business firms are sellers in the markets for resources and in the markets for goods and services D. households are buyers in the markets for resources and in the markets for goods and services

B. households are sellers in the markets for resources

Medical authorities announced in the late 1980s that an acne medicine named Retin-A also had previously unknown wrinkle-reducing properties. An economist would expect to find that, after this announcement, the price of Retin-A _____ and the quantity sold ______ A. increased, decreased B. increased, increased C. decreased, decreased D. decreased, increased

B. increased, increased

The law of increasing opportunity costs applies when: A. management is disorganized and production is inefficient B. resources are not perfectly substitutable among potential productive uses C. market forces do not lead to an equality between price and opportunity cost D. resources are free E. the production possibility curve is linear

B. resources are not perfectly substitutable among potential productive uses

At the current market price for milk, the quantity of milk that sellers are willing and able to sell falls short of the quantity that buyers are willing and able to purchase. In this situation: A. the current market price must exceed the equilibrium price B. the current market price must be less than the equilibrium price C. the current market price must be equal to the equilibrium price D. a surplus of milk results E. there will be downward pressure on price

B. the current market price must be less than the equilibrium price

In economics, the demand for a good refers to the amount of the good people: A. would likely to have if the good were free B. will buy at various prices during a particular time period C. need to achieve a minimum standard of living D. will buy at alternative income levels

B. will buy at various prices during a particular time period

Which of the following events must cause equilibrium price to fall? A. demand increases and supply decreases B. demand and supply both decrease C demand decreases and supply increases D.demand and supply both increase

C demand decreases and supply increases

After widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Europe, the likely economic effect on the demand curve for beef from Europe is: A. a shift of the demand curve for beef to the right B. a movement down along the demand curve for beef to the right C. a shift of the demand curve for beef to the left D. no change; only the supply curve for beef is likely to be affected

C. a shift of the demand curve for beef to the left

Which of the following is the most accurate statement about a production possibilities curve? A. an economy can produce at any point inside or outside its PPC B. an economy can produce only on its PPC C. an economy can produce at any point on or inside its PPC but not outside of it D. an economy can produce at any point inside its PPC but not on or outside the curve

C. an economy can produce at any point on or inside its PPC but not outside of it

The marginal (dollar) cost of an additional plate of food to a patron at an "All you can eat" restaurant is: A. equal to the price paid for the meal divided by the number of plates of food consumed B. equal for all plates of food consumed during the meal C. equal to zero D. equal to the price paid for the meal (since there is no such thing as a free lunch) E. described by both a and b

C. equal to zero

Lance's boss offers twice his usual wage rate to work tonight instead of taking his girlfriend on a romantic date. This offer will likely: A. not affect the opportunity cost of going on the date B. reduce the opportunity cost of going on the date bc giving up the additional work dollars will make his girlfriend feel even more appreciated C. increase the opportunity cost of going on the date D. not to be taken into consideration by Lance when deciding what to do tonight

C. increase the opportunity cost of going on the date

Refer to Figure 3-4 Production possibilities curve: If an economy is currently operating at Point A on the production possibilities curve shown above, then: A. it cannot increase its output of food B. it cannot increase its output of clothing C. it cannot simultaneously increase its output of both food and clothing D. it is utilizing its resources inefficiently E. none of the above are correct

C. it cannot simultaneously increase its output of both food and clothing

Are markets always in equilibrium? A. yes they are always at the eq. point, or very close to it B. yes because very few things tend to alter supply and demand C. no but if there is no outside interference they tend to move toward equilibrium D. no they never "settle down" into a stable price and quantity E. it is uncertain; economic theory has no answer to this question D

C. no but if there is no outside interference they tend to move toward equilibrium

According to the rule of rational choice, an individual will undertake an activity as long as: A. the expected marginal benefit equals the expected marginal cost B. the expected marginal benefits are less than the expected marginal costs C. the expected marginal benefits are greater than the expected marginal costs D. total costs exceed total benefits E. total benefits exceed total costs

C. the expected marginal benefits are greater than the expected marginal costs

The opportunity cost of an action is equal to: A. the monetary payment the action required B. the total time spent by all parties in carrying out the action C. the highest valued opportunity that must be sacrificed in order to take the action D. the value of all of the alternative actions that could have been taken E. zero, as only goods cost money

C. the highest valued opportunity that must be sacrificed in order to take the action

Suppose the US steps up efforts to combat drug trafficking and with the aid of the Colombian military, destroys a significant percentage of cocaine crops. Predict the impact of increased drug interdiction on the market for cocaine in LA: A. the supply of cocaine will increase causing the price of cocaine to increase B. the demand for cocaine will increase causing the price of cocaine to increase C. the supply of cocaine will decrease causing the price of cocaine to increase D. there will be a movement up along the supply curve of cocaine E. the demand for cocaine will decrease causing the price of cocaine to decrease

C. the supply of cocaine will decrease causing the price of cocaine to increase Supply goes down, price goes up, quantity goes down

"As a rational person, you would expect individuals to always avoid actions that are illegal." A. this is a true statement bc most people don't want to suffer the penalties associated with criminal behavior B. this is a true statement bc most individuals are good citizens and prefer not to commit crimes C. this is a false statement because some individuals, after considering the possible outcomes of their actions, will choose to commit illegal acts anyway. D. this is a false statement bc only people with certain genetic predispositions are likely to commit crimes

C. this is a false statement because some individuals, after considering the possible outcomes of their actions, will choose to commit illegal acts anyway.

The following table contains some production possibilities for an economy for a given year: Cakes Rolls(in dozen) 100 5000 120 4600 140 ? If the production possibilities frontier is bowed outward, then "?" could be: A. 4400 B. 4300 C. 4200 D. 4100

D. 4100

Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect: A. Andy's demand for pizza to increase B. Andy's demand for pizza to decrease C. Andy's quantity of pizza demanded to decrease D. Andy's demand for beer to increase E. Andy's demand for beer to decrease

D. Andy's demand for beer to increase

After a cruise ship is hijacked at sea by terrorists, fearful consumers seek to take their vacations on land. At the same time, cruise employees demand and receive higher wages. The effect on the market for cruise vacations is: A. an increase in both the equilibrium price and quantity of cruise vacations B. an increase in the equilibrium price of cruise vacations, but an uncertain effect on the quantity of cruise vacations purchased C. an increase in the equilibrium price and a decrease in the equilibrium quantity of cruise vacations purchased D. an uncertain impact on the equilibrium price and a decrease in the quantity of cruise vacations purchased E. a decrease in both the equilibrium price and quantity of cruise vacations purchased

D. an uncertain impact on the equilibrium price and a decrease in the quantity of cruise vacations purchased

You notice that the price of OJ at your local grocery store has increased. Which of the following statements is not a possible explanation for the rise in the price of OJ? A. Frosty weather destroys oranges causing the price of oranges to increase B. as a result of an increase in income, consumers wish to purchase more OJ at every price level C. A recent scientific study is reported in the press that suggests that apple juice (a substitute for OJ) may be contaminated with pesticides D. due to the bioengineering of orange trees, the domestic supply of oranges increases E. the supply curve of oranges has shifted to the left

D. due to the bioengineering of orange trees, the domestic supply of oranges increases

Economists believe that people respond to benefits and costs in predictable ways. Therefore, if the government imposes a tax on each child born, you would expect that: A. families would have the same number of children, but wait longer to begin having them B. more children would be born, but spaced further apart C. more children would be adopted D. fewer children would be born

D. fewer children would be born

When resources are used efficiently (you are on the production possibilities curve), you can produce more of one good only by: A. printing more money B. charging a lower price for output C. charging a higher price for output D. producing less of another good E. none of the above

D. producing less of another good

If there is a surplus in the market, _____ will be frustrated by their inability to exchange at the current price, and they will compete the price _____ as a result. A. buyers; up B. buyers; down C. sellers; up D. sellers; down

D. sellers; down

What do economists mean when they state that a good is scarce? A. there is a limited demand for the good B. it is impossible to expand the availability of the good C. people will want to buy more of the good regardless of price D. the amount of the good that people would like to have exceeds the supply that is freely available from nature

D. the amount of the good that people would like to have exceeds the supply that is freely available from nature

When quantity demanded decreases in response to a change in price: A. the demand curve shifts to the right B. the demand curve shifts to the left C. there is a movement down along the demand curve D. there is a movement up along the demand curve E. the supply curve shifts to the right

D. there is a movement up along the demand curve

The demand curve for a typical good has a(n): A. negative slope bc some consumers switch to other goods as the price rises B. negative slope bc consumer purchasing power rises as the price of the good falls C. negative slope bc the good has less "snob appeal" as its price falls D. negative slope bc as the price goes up, the good has more profitability E. both a and b

E. both a and b

A decrease in consumer incomes will: A. decrease the demand for an inferior good B. decrease the supply of an inferior good C. increase the demand for a normal good D. increase the supply of a normal good E. do none of the above

E. do none of the above Because as consumer incomes decrease, demand decreases, and so does quantity

A candidate for president made the following campaign promise: " My administration will increase national defense without requiring sacrifices elsewhere in the economy." The promise can be kept if: A. the economy moves along the production possibilities in the direction of a greater quantity of defense B. the economy moves from a point inside the production possibilities curve toward a point on the production possibilities curve C. the production possibilities frontier shifts outward D. any of the above occur E. only b and c

E. only b and c B. the economy moves from a point inside the production possibilities curve toward a point on the production possibilities curve C. the production possibilities frontier shifts outward

T/F: A decrease in the unemployment rate will shift an economy's production possibilities curve outward.

False

T/F: If the price of pizza falls, the demand for pizza will rise.

False

T/F: If the soccer ball market is in equilibrium at a price of $22 per ball, an increase in the supply of soccer balls will cause a shortage at that price.

False because a DECREASE in the supply of soccer balls will cause a shortage at that price.

T/F: The opportunity cost of a decision is the value of all of the available alternatives that were not chosen.

False because the opportunity cost of a decision

T/F: Implementing a stricter smog control program after determining that the additional benefits of increased air quality outweigh the additional costs of pollution reduction is consistent with the rule of rational choice.

True

T/F: In a market system, consumers vote with their dollars, which helps determine what is produced.

True

Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good?

equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous bc D goes up, P goes up, Q goes up S goes down, P goes up, Q goes down

When a surplus exists in a market, sellers

lower price, which increases quantity demanded and decreases quantity supplied, until the surplus is eliminated

The expression, "there's no such thing as a free lunch" implies that:

opportunity costs are incurred when choices are made

T/F: An entrepreneur organizes the other factors of production and bears the business risk.

True

T/F: If Xavier gives up a job in which he earns $23,000 per year in order to go to college full time, his foregone income is part of the opportunity cost of going to college.

True