Midterm 1 Multiple Choice

If home prices rise far above the value of the homeowner's mortgage loan, A. default risk faced by lenders tends to decrease B. default risk faced by lenders tends to increase C. homeowners will be tempted to default on their mortgage loans D. homeowners will have greater difficulty obtaining a home equity line of credit

A

If one person's enjoyment of a good is reduced when another person consumes the good then the good exhibits A. rivalry B. exclusivity C. an externality D. a moral loss

A

If the price of a good increases by 5% and the quantity demanded decreases by 10%, then at that price, the good is A. elastic B. inelastic C. perfectly inelastic D. perfectly elastic

A

In early 2005, inflation increased unexpectedly due to an increase in oil prices. This helped A. borrowers B. lenders C. people on fixed incomes D. worker

A

Marginal Cost is A. the addition to cost associated with one additional unit of output. B. the per unit cost of production C. the per unit variable cost of production D. the per unit fixed cost of production

A

Maringal Revenue is A. the extra revenue associated with one additional unit of sales B. the extra cost associated with one additional unit of output. C. the revenue associated with the first unit of sales. D. the revenue associated with the sale of the average unit

A

Suppose a new law makes illegal the sale of a good that had been legal. This will A. decrease consumer surplus B. increase consumer surplus C. increase producer surplus D. eliminate dead weight loss

A

The fast food industry can be modeled best using the model of A. monopolistic competition B. perfect competition C. oligopoly D. monopoly

A

Which of the following is true? A. On a linear demand curve, the higher the price the more elastic is demand B. On a linear demand curve, elasticity is constant C. At the same price demand is more elastic on the steeper demand curve D. None are true

A

A graph that maps output against the input required to make that output is called a/an A. average cost function B. production function C. cost function D. marginal cost function

B

A key assumption about the way firms behave is that they A. minimize costs B. maximize profits C. maximize market share D. maximize revenue

B

A reduction in the market price of the product is least likely to be required to enable A. Microsoft to sell more copies of Windows. B. a single Midwestern grain farmer to sell a larger harvest of grain. C. Apple to sell more of its iPhones. D. Verizon to increase its number of cellular telephone service subscribers

B

Fiscal Policy is controlled by A. the Federal Reserve Board B. Congress and the President C. the Supreme Court D. private banks

B

If the price rises and the total amount consumers spend on the good rises, then demand must be A. elastic B. inelastic C. perfectly inelastic D. perfectly elastic

B

The elasticity of demand is related to the slope of the demand curve A. and only the slope of the demand curve b. but also the (price, quantity) position on the demand curve c. but also the slop of the supply curve d. and whether the good is normal or inferior

B

The national debt is A. Amount by which revenues exceed expenditures B. Total amount owed by the federal government C. Amount by which revenues fall short of projections D. Amount by which expenditures exceed revenues

B

An increase in supply will decrease prices least when demand is A. elastic B. Unit elastic C. inelastic (but not perfectly inelastic) D. perfectly inelastic

C

If a business makes the determination that an investment makes sense at the current interest rate but before they can act the interest rates rise A. they will have to recalculate whether it still makes sense B. it will only make the situation better so they will clearly make the investment C. it will cause them to not make the investment regardless of the increase D. they will go ahead with the investment because interest rates have nothing to do with whether an investment makes sense.

A

Discretionary Fiscal Policy differs from Nondiscretionary Fiscal Policy in that A. the former deals with interest rates and the latter deals with tax policy. B. the former is built into the system whereas the latter requires timely decisions. C. the former requires timely decisions whereas the latter is built into the system D. the former deals with tax policy and the latter deals with interest rates

C

The Federal Reserve came into existence in response to A. the inflation of the Civil War. B. the depression of the 1930's. C. the boom and bust nature of the late 19th and early 20th century D. a fear of a post-World War 2 depression

C

The shape of the firm's marginal revenue curve depends on A. how high its costs are. B. how high production is C. how many competitors it has. D. whether the firm is a profit maximizer

C

To achieve the socially optimal combination of automobiles and mass transit facilities: A. the total social cost of the two alternatives should be equal B. the total private cost of automobiles should equal the tax cost of mass transit facilities C. price should equal marginal social cost for each alternative D. the marginal social cost of the two alternatives should be equal

C

When firms add workers and find that the additional workers add less to output than their predecessors did, they are experiencing A. the division of labor. B. the law of large numbers. C. diminishing returns. D. diminishing marginal utility.

C

Consumer surplus is defined as A. the value that the consumer places on a good over the amount they pay for it. B. the money that the producer gets from a good over the amount they are willing to sell for it. C. when the quantity supplied is greater than quantity demanded D. when quantity demanded is greater than quantity supplied.

D

If the price is greater than average variable cost, a profit maximizing firm will always A. produce where Marginal Cost is minimized B. produce where Average Total Cost is minimized C. where Total Revenue is maximized D. produce where Marginal Cost equals Marginal Revenue

D

The fact that the demand for eggs is inelastic is not surprising because A. there are many substitutes for eggs as breakfast food. B. the demand for food is inelastic C. the supply of eggs is inelastic D. they are so inexpensive

D

Using marginal analysis, an economist would judge the proper size of government by comparing A. whether the last dollar spent on one program would have been better spent on another B. whether the last dollar spent would have been better left in private hands C. whether the last dollar spend garnered any value to society D. the amount spent with the amount spent in the previous year

D

Which of the following may increase macroeconomic equilibrium real gross domestic product? A. A decrease in government spending B. A decrease in productivity C. An increase in taxes D. A decrease in input prices

D