Principles of Economics 2e Chapters 1-8 Test Bank

. Jay and Jen are married with two children. They are preparing a household budget for the coming year. Based on statistical information for American households, approximately what portion of this family's annual consumption will most likely be budgeted for food and vehicle expenses? A. one-fourth B. one-third C. one-quarter D. two-thirds

B. one-third

When a firm uses retained profits to invest in more energy efficient equipment, an economist would calculate the _________________ of investing in physical capital. A. typical hurdle rate B. opportunity cost C. degree of risk D. hurdle rate premium

B. opportunity cost

Firms operating in a market situation that creates ___________________, sell their product in a market with other firms who produce identical or extremely similar products. A. a perfect monopoly B. perfect competition C. an oligopoly D. a free-market

B. perfect competition

Philosophers draw a distinction between ___________________, which describe the world as it is, and normative statements, which describe how the world should be. A. negative statements B. positive statements C. tradeoffs D. utilitarianism

B. positive statements

When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is A. considering opportunity costs. B. preparing to exit operations. C. preparing to reach its shutdown point. D. considering capital investments.

B. preparing to exit operations.

As a general rule, utility-maximizing choices between consumption goods occur where the: A. rise in income has created the greatest utility. B. price ratio and marginal utilities ratio of two goods is equal. C. higher-income households have the greatest satisfaction. D. constraints on budget expenditures has fallen substantially.

B. price ratio and marginal utilities ratio of two goods is equal.

Idaho farmers can sell as large a quantity of their potato crop as they wish, A. if they set their own price in the short run, but in the long run, the market sets the price. B. provided each is willing to accept the prevailing market price. C. if they set their own price in the long run, but in the short run, the market sets the price. D. provided quality is perceptible and determines the market price.

B. provided each is willing to accept the prevailing market price.

. A supply curve is a graphical illustration of the relationship between price, shown on the vertical axis, and ____________, shown on the horizontal axis. A. demand B. quantity C. quantity supplied D. quantity demanded

B. quantity

_________________ refers to the total number of units that are purchased at that price. A. quantity B. quantity demanded C. supply D. market quantity

B. quantity demanded

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to: A. rise and the equilibrium quantity to fall. B. rise and the equilibrium quantity to stay the same. C. rise and the equilibrium quantity to rise. D. stay the same and the equilibrium quantity to fall.

B. rise and the equilibrium quantity to stay the same.

Fixed costs are important because, at least in the ___________, the firm _______________. A. long run; cannot alter them B. short run; cannot alter them C. long run; can alter them D. short run; can alter them

B. short run; cannot alter them

If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________ . A. price taking point B. shutdown point C. marginal point D. opportunity margin

B. shutdown point

The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price. A. income effect B. substitution effect C. backward-bending supply curve D. preferences effect

B. substitution effect

The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options. A. marginal utility B. sunk costs C. marginal analysis D. budget constraints

B. sunk costs

Which of the following should typically be ignored because spending has already been made and cannot be changed? A. variable costs B. sunk costs C. marginal costs D. average marginal costs

B. sunk costs

For a perfectly competitive firm, the marginal cost curve is identical to the firm's ________________ . A. demand curve B. supply curve C. average total cost curve D. average variable cost curve

B. supply curve

. In a discussion of economics, which of the following would exert the most influence on an individual firm's decision to hire workers? A. wage levels B. the macroeconomy C. the firm's income D. household income

B. the macroeconomy

Even when competitive firms are unable to calculate marginal revenue product directly, _________________________________________ will push wage rates toward the marginal revenue product of labor. A. planned future investment in physical capital B. the pressures of competition in the labor market C. the marginal workers ongoing skills training D. wages that exceed workers' net revenue product

B. the pressures of competition in the labor market

. In order to determine the average variable cost, the firm's variable costs are divided by _______________________. A. its' fixed costs B. the quantity of output C. its' average costs D. diminishing marginal costs

B. the quantity of output

The theoretical model of the intertemporal budget constraint for the U.S. economy as a whole suggests that the most common pattern seems to be that: A. the quantity of savings automatically adjusts to changes in the rate of return. B. the quantity of savings doesn't adjust much to changes in the rate of return. C. the result of a higher rate of return is a higher quantity of saving. D. the result of a lower rate of return is a lower quantity of saving.

B. the quantity of savings doesn't adjust much to changes in the rate of return.

If new manufacturers enter the computer industry, then (ceteris paribus): A. the supply curve shifts to the left. B. the supply curve shifts to the right. C. the demand curve shifts to the left. D. some established manufacturers must exit the industry.

B. the supply curve shifts to the right.

Demand is said to be __________ when the quantity demanded changes at the same proportion as the price. A. elastic B. unit elastic C. inelastic D. independent

B. unit elastic

But nearly all supply curves share a basic similarity: they slope _______________. A. down from left to right B. up from left to right C. up from right to left D. down from right to left

B. up from left to right

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________. A. downward-sloping; more costly to produce B. upward-sloping; more costly to produce C. downward-sloping; less costly to produce D. upward-sloping; less costly to produce

B. upward-sloping; more costly to produce

In microeconomic terms, the ability of a good or a service to satisfy wants is called: A. opportunity cost. B. utility. C. utility maximization. D. profit potential.

B. utility.

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

B. will buy at various prices.

I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was A. $1.00 B. $3.00 C. $4.00 D. $7.00

A. $1.00

In May and June, Tammy spent all her clothing budget on bathing suits and beach bags. Each bathing suit cost $75. At Tammy's optimal choice, her marginal utility from the last bathing suit purchased is 300 and her marginal utility from the last beach bag purchased is 200. This means that each handbag must cost: A. $50 B. $25 C. $100 D. $150

A. $50

Rick eats only french fries and burgers at his office cafeteria. His weekly lunch budget is $48. Each burger costs $6 and each order of fries costs $3. When deciding how much of each good to buy, Rick knows that 2 burgers and 4 orders of french fries will give him a utility of 8. At his utility-maximizing point, Rick's utility is: A. 32 B. 48 C. 40 D. 24

A. 32

__________ is the change in what is on the horizontal axis (quantity) divided by the change in what is on the vertical axis (price). A. Elasticity B. Demand C. Supply D. Revenue

A. Elasticity

______________________ refers to the additional revenue gained from selling one more unit. A. Marginal revenue B. Total revenue C. Economic profit D. Accounting profit

A. Marginal revenue

. 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 because 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.

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price. A. Total revenue B. Total profits C. Average profit margin D. Total cost

A. Total revenue

An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________________ . A. accounting profit; excluding opportunity cost B. accounting profit; including opportunity cost C. economic profit; excluding opportunity cost D. opportunity cost; including economic profit

A. accounting profit; excluding opportunity cost

In order to reduce the harmful affects of recession and carbon emissions, the government provided tax incentives for manufacturing firm's to ___________________ that provide alternative, more efficient methods of combining inputs to produce output. A. acquire energy efficient production technologies B. increase the returns to scale C. maintain constant returns to scale D. create perfect competition between firms

A. acquire energy efficient production technologies

If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have reached its A. allocative efficiency B. productive efficiency C. utility-maximizing efficiency D. minimum price efficiency

A. allocative efficiency

The choice on a production possibilities set that is socially preferred, or the choice on an individual's budget constraint that is personally preferred, will display _____________________.

A. allocative efficiency

If the price that a firm charges is lower than its ____________ of production, the firm will suffer losses. A. average cost B. marginal cost C. fixed cost D. variable cost

A. average cost

Marginal thinking is best demonstrated by: A. choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time. B. deciding to never purchase a coat made with animal skins or furs C. acquiring the information relevant to a choice before making that choice D. measuring all of the costs of a meal against all of the benefits when deciding whether to order a second milkshake

A. choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.

If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises. A. decreasing returns to scale B. consent returns to scale C. economies of scale D. increasing returns to scale

A. decreasing returns to scale

The most common pattern for marginal utility is ____________________. A. diminishing marginal utility B. a budget constraint model C. a long-term perspective theoretical model D. substitute consumption

A. diminishing marginal utility

The term ___________________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit. A. diminishing marginal utility B. marginal utility pattern C. marginal income utility D. decreasing marginal utility

A. diminishing marginal utility

In the first chapter of The Wealth of Nations, Smith introduces the idea of the __________, which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers. A. division of labor B. interconnected economy C. task economy D. modern economy

A. division of labor

According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will A. do so regardless of what type of competition exists in a market. B. take a long-run perspective on costs, when such costs cannot be adjusted. C. take a short-run perspective on labor costs which cannot be immediately changed. D. breakdown its cost structure according to short-run adjustments.

A. do so regardless of what type of competition exists in a market.

The future of cities in the United States and in other countries will be determined by their ability to benefit from the _________________ and to minimize or counterbalance the ______________________. A. economies of agglomeration; corresponding diseconomies B. economies of scale; agglomeration factors C. diverse population; greater returns to scale of illegal activities D. constant returns to scale; market-orientated system

A. economies of agglomeration; corresponding diseconomies

When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________. A. economies of scale; a larger factory can produce at a lower average cost than a smaller company. B. economies of scale; a smaller factory can produce at a lower average cost than a larger company. C. low labor inputs; larger scale of production leads to higher costs. D. labor inputs; economies-of-scale curve is U-shaped.

A. economies of scale; a larger factory can produce at a lower average cost than a smaller company.

. Demand is said to be ___________ when the quantity demanded is very responsive to changes in price. A. elastic B. unit elastic C. inelastic D. independent

A. elastic

When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as ____________. A. elastic B. inelastic C. having zero elasticity D. price inelasticity

A. elastic

. If the supply curve for a product is horizontal, then the elasticity of supply is: A. equal to infinity. B. greater than 1 but less than infinity. C. equal to 1. D. equal to zero.

A. equal to infinity.

. If the supply curve for a product is vertical, then the elasticity of supply is: A. equal to zero. B. equal to 1. C. greater than 1 but less than infinity. D. equal to infinity.

A. equal to zero.

The ___________ is the only price where quantity demanded is equal to quantity supplied. A. equilibrium price B. horizontal axis intercept C. vertical axis intercept D. market price

A. equilibrium price

The term "constant returns to scale" describes a situation where A. expanding all inputs does not change the average cost of production. B. a larger-scale firm can produce at a lower cost than a smaller-scale firm. C. expanding all inputs changes the average cost of production. D. the quantity of output rises and the average cost of production falls.

A. expanding all inputs does not change the average cost of production.

If a competitive firm experiences a shift in costs of production that decreases marginal costs at all levels of output, A. expanding output levels at any given price will be profitable. B. producing less at any market price will off-set marginal cost . C. the firm's marginal cost curve will shift to the left. D. the firm's demand curve will also shift to the left.

A. expanding output levels at any given price will be profitable.

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production. A. fixed costs; do not change, B. variable costs; are constantly changing, C. fixed costs; are consistently changing, D. variable costs; do not change,

A. fixed costs; do not change,

The circular flow diagram of economic activity is a model of the: A. flow of goods, services, and payments between households and firms. B. influence of government on business behaviour. C. role of unions and government in the economy. D. interaction among taxes, prices, and profits.

A. flow of goods, services, and payments between households and firms.

. In a command economy, the __________ either makes most economic decisions itself or at least strongly influences how the decisions are made. A. government B. market C. firm D. business sector

A. government

. Which of the following best describes a fiscal policy tool? A. government spending B. bank lending C. financial capital markets D. household spending

A. government spending

When economists attempt to predict the spending patterns of U.S. households, they will typically view the _____________________ as a primary determining factor that influences the individual consumption choices that each will make. A. income level of each household B. national average spending level C. national average savings level D. nation's perennial political debate

A. income level of each household

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise: A. increasing the price of game tickets because demand is inelastic. B. not changing the price of game tickets because demand is unit elastic. C. increasing the price of game tickets because demand is elastic. D. decreasing the price of game tickets because demand is elastic.

A. increasing the price of game tickets because demand is inelastic.

. When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that is close to vertical, and then to refer to that curve as _________. A. inelastic B. elastic C. unitary elasticity D. income elasticity

A. inelastic

Which of the following best describes a monetary policy tool? A. interest rates B. taxes C. household savings D. government spending

A. interest rates

A. economies of scale; a larger factory can produce at a lower average cost than a smaller company.

A. it allows all factors of production to change.

. In a _______________________, most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers. A. market-oriented economy B. macroeconomy C. microeconomy D. command economy

A. market-oriented economy

I'maGoldMiner has benefited from a record rise in gold prices in the global commodities market. While the price of its output is highly influenced by market speculation, if it wants to increase production to take advantage of the current profit-maximizing opportunity, the company A. must accept market price for its physical capital inputs. B. must reduce what it pays for inputs that make up its costs of production. C. must reduce production to encourage speculators to drive gold prices higher. D. must alter the price of its labor inputs to maximize profits.

A. must accept market price for its physical capital inputs.

The demand curve for a typical good has a(n): A. negative slope because some consumers switch to other goods as the price rises. B. negative slope because consumer incomes fall as the price of the good rises. C. negative slope because the good has less "snob appeal" as its price falls. D. inverse slope because as the price goes up, the good has more profitability.

A. negative slope because some consumers switch to other goods as the price rises.

Philosophers draw a distinction between positive statements, which describe the world as it is, and ___________________s, which describe how the world should be. A. normative statement B. budget constraint C. trade-off D. opportunity cost

A. normative statement

The government distributes food stamps that can only be used to acquire food to low-income families. The budget line graph will show food on the horizontal axis and everything else on the vertical axis. After receiving food stamps, Ted's family is able to consume the same amount of food. The new consumption point for Ted's family will be: A. on the new budget line, directly above the old consumption point. B. on the new budget line, above and to the right of the old consumption point. C. on the new budget line, directly to the right of the old consumption point. D. remain precisely the same as the old consumption point.

A. on the new budget line, directly above the old consumption point.

The model that economists use for illustrating the process of individual choice in a situation of scarcity is the budget constraint, sometimes also called the _______________, a diagram which shows what choices are possible.

A. opportunity set

Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it? A. physical space for the gallery B. costs of purchasing art work to sell in the gallery C. wages paid to three part-time employees D. accountant's fees for preparing tax returns

A. physical space for the gallery

If a perfectly competitive firm is a price taker, then A. pressure from competing firms will force acceptance of the prevailing market price. B. it must be a relatively small player compared to its competitors in the overall market. C. it can increase or decrease its output without affecting overall quantity supplied in the market. D. quality differences will be very perceptible and will play a major role in purchasers' decisions.

A. pressure from competing firms will force acceptance of the prevailing market price.

If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers? A. price of competing products B. size of competing products C. purchaser's opportunity cost D. geographic origin of products

A. price of competing products

When a firm makes plans for investments in physical capital, it compares the _______________ on these investments with ______________________ . A. projected rates of return; the cost of financial capital to the firm B. present inputs of physical capital; future hurdle rates C. present inputs of physical capita; future marginal revenue product D. projected rates of return; the competitive pressures for labor

A. projected rates of return; the cost of financial capital to the firm

A demand curve shows the relationship between price and _________________ on a graph. A. quantity demanded B. quantity produced C. economies of scale D. costs

A. quantity demanded

. If the supply curve for aspirin is perfectly elastic, then a reduction in demand will cause the equilibrium price to: A. stay the same and the equilibrium quantity to fall. B. fall and the equilibrium quantity to fall. C. rise and the equilibrium quantity to stay the same. D. rise and the equilibrium quantity to fall.

A. stay the same and the equilibrium quantity to fall.

The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options. A. sunk costs B. opportunity costs C. marginal analysis D. budget constraints

A. sunk costs

In Sam's greenhouse operation, labor is the only short term variable input. After completing a cost analysis, if the marginal product of labor is the same for each unit of labor, this will imply that A. the average product of labor is always equal to the marginal product of labor. B. the average product of labor is always greater that the marginal product of labor. C. the average product of labor is always less than the marginal product of labor. D. as more labor inputs are used, the average product of labor inputs will fall.

A. the average product of labor is always equal to the marginal product of labor.

The opportunity cost of attending university is likely to include all except which of the following? A. the cost of haircuts received during the school term B. the income you forgo in order to attend classes C. tuition fees D. the cost of required textbooks

A. the cost of haircuts received during the school term

Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found? A. the marginal utility per dollar is the same for both goods B. the marginal utility per dollar is controlled by trade-offs C. the quantities demanded change so total utility rises D. the demand curves are flatter reducing quantity

A. the marginal utility per dollar is the same for both goods

As depicted in _________________________________, it is necessary to give up some of one good to gain more of the other good. A. the production possibilities frontier B. allocative efficiency C. scarcity D. utility

A. the production possibilities frontier

. Macroeconomic topics do not usually include: A. the profit maximizing decisions of an individual manufacturer. B. the rate of inflation. C. the rate of unemployment. D. economic growth.

A. the profit maximizing decisions of an individual manufacturer.

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

A. the supply curve.

If cola and iced tea are good substitutes for consumers, then it is likely that: A. their cross price elasticities are greater than zero. B. their price elasticities of demand are less than one. C. their income elasticities are less than zero. D. their price elasticities of supply are less than one .

A. their cross price elasticities are greater than zero.

According to the law of supply: A. there is a direct relationship between price and the quantity supplied. B. there is an inverse relationship between price and the quantity supplied. C. there is a direct relationship between price and quantity demanded. D. there is an inverse relationship between price and quantity demanded.

A. there is a direct relationship between price and the quantity supplied.

. A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result: A. total revenue will decrease. B. total revenue will increase. C. total revenue will remain constant. D. the elasticity of demand will increase.

A. total revenue will decrease.

The general pattern that consumption of the first few units of any good tends to bring a higher level of _______ to a person than consumption of later units is a common pattern. A. utility B. marginal benefit C. opportunity cost D. sunk costs

A. utility

. If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero? A. variable costs B. fixed costs C. opportunity costs D. total cost

A. variable costs

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice? A. what quantity to produce B. what price to charge C. what quantity of labor is needed D. what quality to produce

A. what quantity to produce

. The marginal utility of two goods changes ______________. A. with the quantities consumed B. for the better, if taxes are imposed C. if they are intertemporal choices D. if the mother controls the household budget

A. with the quantities consumed

Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve? A. 0.1 B. 0.8 C. 1.0 D. 10.0

C. 1.0

. If accounting profits for a firm are 20% of output, and the opportunity cost of financial capital is 8% of output, then what do the firm's economic profits equal? A. 6% of output B. 10% of output C. 12% of output D. 8% of output

C. 12% of output

Josh's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Josh knows that 2 pizzas and 4 burgers will give him a utility of 8. What is Josh's utility-maximizing point? A. 0 pizzas, 8 burgers B. 3 pizzas, 2 burgers C. 2 pizzas, 4 burgers D. 4 pizzas, 1 burger

C. 2 pizzas, 4 burgers

For lunch, Maria eats only salads or vegetarian burgers. Her weekly food budget is $36. Each salad costs $6 and each vegetarian burger costs $3. When deciding how much of each good to buy, Maria knows that 2 salads and 4 vegetarian burgers will give her a utility of 8. Maria's utility-maximizing point is: A. 6 salads, 1 vegetarian burger B. 4 salads, 6 vegetarian burgers C. 3 salads, 6 vegetarian burgers D. 2 salads, 8 vegetarian burgers

C. 3 salads, 6 vegetarian burgers

Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve? A. 0.235 B. 2.00 C. 4.25 D. 6.33

C. 4.25

The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal: A. 20 units. B. 10 units. C. 5 units. D. 0 units.

C. 5 units.

_____________________ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas. A. Economies of scale B. Constant returns to scale C. Agglomeration factors D. Diseconomies of scale

C. Agglomeration factors

____________ tells a firm whether it can earn profits given the price in the market. A. Marginal cost B. Total cost C. Average cost D. Average marginal cost

C. Average cost

Why is there scarcity? A. Because the opportunity set determines this. B. Because theory dictates it. C. Because our unlimited wants exceed our limited resources D. Because human wants are limited.

C. Because our unlimited wants exceed our limited resources

How does the U.S. Bureau of Labor Statistics gather information with regard to the typical consumption choices of Americans? A. Consumer Spending Survey B. Consumer Income Budget Survey C. Consumer Expenditure Survey D. Consumer Income Survey

C. Consumer Expenditure Survey

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added. A. Diminishing variable returns B. Diminishing average returns C. Diminishing marginal returns D. Diminishing marginal costs

C. Diminishing marginal returns

Which of the following statements most likely lies within the realm of macroeconomics? A. An increase in the price of automobiles will lead to a decrease in the quantity of automobiles demanded. B. Due to process innovations in computer chip manufacturing, the market supply of computers increased. C. Due to an economic recession, manufacturing firms began implementing layoffs of their workforces. D. Anticipating that the benefits would outweigh costs involved, an undergraduate student purchases the course textbook.

C. Due to an economic recession, manufacturing firms began implementing layoffs of their workforces.

. _____________ - a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines. A. Skill B. Specialization C. Economies of scale D. Division of labor

C. Economies of scale

________________________ arises where many firms are competing in a market to sell similar but differentiated products. A. Oligopolistic competition B. Perfect competition C. Monopolistic competition D. Monogopolised competition

C. Monopolistic competition

______________ are enacted when discontented sellers, feeling that prices are too low, appeal to legislators to keep prices from falling. A. Rent controls B. Price ceilings C. Price floors D. Subsidies

C. Price floors

___________ include all spending on labor, machinery, tools, and supplies purchased from other firms. A. Total profits B. Total revenues C. Total costs D. Total profit margins

C. Total costs

. In terms of microeconomic analysis, what is the function of "utils"? A. a form of budget constraint B. applies to changes in income C. a measurement of utility D. relates to a consumers original choice

C. a measurement of utility

In the U.S., the amount in savings contributed to IRAs rose from $239 billion in 1992 to $3,667 billion by 2005, while overall savings actually dropped from low to lower. Evidence suggests that, in the economy as a whole, increased savings in these retirement accounts: A. are the negative result of a change in wage levels and a higher work effort. B. the result of personal preferences and intertemporal budget constraints. C. are being offset by negative savings or less savings in other kinds of accounts. D. the result of a higher interest rates and preferences about present consumption.

C. are being offset by negative savings or less savings in other kinds of accounts.

If the price that a firm charges is higher than its ________________ cost of production for that quantity produced, then the firm will earn profits. A. marginal B. variable C. average D. fixed

C. average

If the average product for six workers is fifteen and the marginal product of the seventh worker is eighteen, then A. marginal product is rising. B. marginal product is falling. C. average product is rising. D. average product is falling.

C. average product is rising.

The _____________________ curve will always lie below the curve for average cost because average cost includes _____________ in the numerator of the calculation. A. marginal cost; total costs B. marginal cost; fixed costs C. average variable cost; fixed costs D. average variable cost; total costs

C. average variable cost; fixed costs

Marginal utility can: A. be positive or negative, but not zero B. decrease, but not become negative C. be positive, negative, or zero D. increase positively, but not negatively

C. be positive, negative, or zero

The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good. A. Opportunity cost B. productive efficiency C. budget constraint D. production possibilities frontier

C. budget constraint

The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good. A. personal preference B. utility level C. budget constraint D. opportunity set

C. budget constraint

Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity rose sharply. The price of coal also rose. In these circumstances, any resulting shifts in the supply curves for coal miners and electricity producers A. will determine what price to produce at given the market demand. B. at all levels of output shifts marginal costs to the right. C. can also be interpreted as shifts of their respective marginal cost curves. D. shifts marginal costs to the right enabling both to produce more at any given market price.

C. can also be interpreted as shifts of their respective marginal cost curves.

A situation known as _____________________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production. A. returns to scale B. economies of scale C. constant returns to scale D. diminishing marginal returns

C. constant returns to scale

The ______________ of all firms can be broken down into some common underlying patterns. A. total revenues B. diminishing short-run costs C. cost structure D. diminishing long-run costs

C. cost structure

Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs? A. costs that must be made before production starts B. costs that vary according to specific line of business C. costs incurred in the act of producing D. costs incurred as advertising expenses

C. costs incurred in the act of producing

When __________________, a firm will supply a higher quantity at any given price for its output, and the supply curve will shift to the right. A. prices rise B. equilibrium is achieved C. costs of production fall D. there is a population increase

C. costs of production fall

It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00, ____________________. A. will likely cause the firm to reach its shutdown point immediately B. will cause the firm to recover some of its opportunity costs C. could likely result in a notable loss of sales to competitors D. is a sure sign the firm is raising the given price in the market

C. could likely result in a notable loss of sales to competitors

The law of ____________________________ explains why people and societies rarely make all-or-nothing choices. A. consumption B. marginal analysis C. diminishing marginal utility D. utility

C. diminishing marginal utility

The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls. A. diminishing marginal returns B. marginal cost output C. economies of scale D. diseconomies of scale

C. economies of scale

In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity. A. either total cost or average cost B. increasing marginal returns C. either total cost or variable cost D. decreasing marginal returns

C. either total cost or variable cost

. Youth smoking seems to be more __________ than adult smoking—that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price. A. unitary elastic B. inelastic C. elastic D. cross-price elastic

C. elastic

A manufacturer would likely make an ___________ in a market following the long-run process of beginning and expanding production in response to ________________ . A. accounting profit; a strategy to grow profits B. accounting profit; an incentive for profit C. entry; a sustained pattern of profits D. entry; an incentive to add to profits

C. entry; a sustained pattern of profits

. Which of the following is generally accepted as a valid criticism of the production of useful goods and services? A. government involvement B. the black market C. environmental pollution D. economic freedom

C. environmental pollution

An inferior good is a product: A. for which demand increases as income increases. B. for which there is no demand. C. for which demand decreases as income increases. D. that has an upward sloping demand curve.

C. for which demand decreases as income increases.

In the ______________, households receive goods and services and pay firms for them. A. labor market B. financial capital market C. goods and services market D. savings market

C. goods and services market

Why are some producers forced to sell their products at the prevailing market price? A. price takers find market analysis is too costly B. they are very small players in the overall market C. high degree of similarity to competitor's products D. they can increase output without affecting quality

C. high degree of similarity to competitor's products

. A perfectly elastic supply curve is: A. upward sloping to the right. B. downward sloping to the left. C. horizontal. D. vertical.

C. horizontal.

A perfectly competitive industry is a A. realistic extreme. B. hypothetical assumption. C. hypothetical extreme. D. realistic assumption.

C. hypothetical extreme.

. Which of the following can be thought of as an adjustment for the risks involved with respect to the cost of a firm acquiring financial capital? A. higher retained earnings from past profits B. cost of financial capital paid by a firm C. imposition of hurdle rates of interest D. tax credits for physical capital investments

C. imposition of hurdle rates of interest

The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed. A. substitution effect; lower price B. intertemporal budget; higher price C. income effect; higher price D. intertemporal budget; lower price

C. income effect; higher price

The longer the time period considered, the more the elasticity of supply tends to: A. decrease B. remain constant C. increase D. converge to zero

C. increase

The key assumption that accompanies the use of numbers for measuring utility is that: A. utility cannot be measured by an outside party. B. utility can be perfectly measured. C. individuals choose based on their preferences. D. people make consumption decisions.

C. individuals choose based on their preferences.

Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves. A. elastic; unit elastic B. elastic; inelastic C. inelastic; elastic D. unit elastic; inelastic

C. inelastic; elastic

. A demand or supply curve with ______________ would be horizontal in appearance. A. unitary elasticity B. zero elasticity C. infinite elasticity D. infinite cost elasticity

C. infinite elasticity

The _________________ budget constraint shows the tradeoff between present and future consumption. A. inflation B. utility-maximizing C. intertemporal choice D. time-value of money

C. intertemporal choice

In the ____________, households work and receive payment from firms. A. financial investment market B. financial capital market C. labor market D. savings market

C. labor market

. Economists refer to the relationship that a higher price leads to a lower quantity demanded as the _____________. A. income gap B. market equilibrium C. law of demand D. price model

C. law of demand

When nations desire a healthy macroeconomy, they typically focus on three goals, one of these being: A. balanced budget B. prudent monetary policy C. low inflation D. assuring competition between firms v

C. low inflation

. A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume: A. macaroni is a normal good and price elasticity of demand is greater than 1. B. macaroni is an inferior good and price elasticity of supply is equal to zero. C. macaroni is an inferior good and price elasticity of supply is infinite. D. macaroni is an inferior good and price elasticity of demand is less than 1.

C. macaroni is an inferior good and price elasticity of supply is infinite.

If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased, then A. marginal cost is above average variable cost. B. marginal cost is below average fixed cost. C. marginal cost is below average variable cost. D. average fixed cost is constant.

C. marginal cost is below average variable cost.

As a person receives more of a good, the _______________ from each additional unit of the good declines. A. utility B. sunk costs C. marginal utility D. budget constraint

C. marginal utility

The marginal benefit of a slice of pizza is the: A. total amount that a consumer is willing to pay for a whole pizza, divided by the number of slices B. difference between the value of the slice to the consumer and the price of the slice. C. maximum amount that a consumer is willing to pay for the slice. D. price of the slice of pizza

C. maximum amount that a consumer is willing to pay for the slice.

The basic difference between macroeconomics and microeconomics is: A. microeconomics concentrates on individual markets while macroeconomics focuses primarily on international trade. B. microeconomics concentrates on the behaviour of individual consumers while macroeconomics focuses on the behaviour of firms. C. microeconomics concentrates on the behaviour of individual consumers and firms while macroeconomics focuses on the performance of the entire economy. D. microeconomics explores the causes of inflation while macroeconomics focuses on the causes of unemployment.

C. microeconomics concentrates on the behaviour of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.

The basic difference between macroeconomics and microeconomics is that: A. microeconomics looks at the forest (aggregate markets) while macroeconomics looks at the trees (individual markets). B. macroeconomics is concerned with groups of individuals while microeconomics is concerned with single countries. C. microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets). D. macroeconomics is concerned with generalization while microeconomics is concerned with specialization.

C. microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets).

Attending college is a case where the ________________ exceeds the monetary cost. A. budget constraint B. marginal analysis C. opportunity cost D. marginal utility

C. opportunity cost

In many cases, it is reasonable to refer to the ________________ as the price. A. budget constraint B. sunk cost C. opportunity cost D. budget constraint

C. opportunity cost

The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in __________. A. quantity supplied B. the slope of the demand curve C. price D. the slope in the supply curve

C. price

The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product. A. price setter B. business entity C. price taker D. trend setter

C. price taker

The downward slope of the demand curve again illustrates the pattern that as _____________ rises, _________________ decreases. A. quantity demanded, price B. quantity supplied, quantity demanded C. price, quantity demanded D. price, quantity supplied

C. price, quantity demanded

. If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the _______________ and the vertical axis will represent ______________________ . A. price, measured in dollars; quantity of goods produced B. total costs measured in dollars; quantity of goods produced C. quantity produced; both total revenue and total costs, measured in dollars. D. quantity produced; total revenue and total variable costs, measured in dollars.

C. quantity produced; both total revenue and total costs, measured in dollars.

. When economists talk about supply, they are referring to a relationship between price received for each unit sold and the _________________. A. demand schedule B. market price C. quantity supplied D. demand curve

C. quantity supplied

. The price elasticity of demand measures the: A. responsiveness of quantity demanded to a change in quantity supplied. B. responsiveness of price to a change in quantity demanded. C. responsiveness of quantity demanded to a change in price. D. responsiveness of quantity demanded to a change in income.

C. responsiveness of quantity demanded to a change in price.

In the _________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where _____________________ . A. long run; increasing production B. short run; fixed costs can be reduced C. short run; losses are smallest D. long run; fixed costs can be eliminated

C. short run; losses are smallest

In the _________, the perfectly competitive firm will seek out ________________________ . A. long run; the quantity of output where profits are highest B. short run; profits by ignoring the concept of total cost analysis C. short run; the quantity of output where profits are highest D. long run; methods to reduce production and shut down

C. short run; the quantity of output where profits are highest

. A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the __________________ . A. demand curve to the right B. supply curve to the left C. supply curve to the right D. demand curve to the left

C. supply curve to the right

Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is: A. nothing, because he enjoys playing basketball more than studying. B. the increase in skill he obtains from playing basketball for that hour. C. the benefit to his grades from studying for an hour D. nothing, because he had a free pass into the sports complex to play basketball.

C. the benefit to his grades from studying for an hour

Refer to the diagram above. Based on the information illustrated in the graph, which of the following is correct? A. producing a marginal unit is reducing average costs overall B. the marginal cost of production for producing an additional unit is below the cost for producing the earlier units C. the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AC curve D. low marginal costs first pull up the overall average costs

C. the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AC curve

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit. A. marginal costs B. average costs C. total revenue D. variable costs

C. total revenue

If macroeconomics looks at the economy as a whole, it focuses on which of the following? A. households B. business firms C. unemployed people D. the division of labor

C. unemployed people

In deciding how many hours to work, Beulah will make a choice that maximizes her _______; that is, she will choose according to her preferences for leisure time and income. A. budget constraint B. opportunity set C. utility D. production possibilities frontier

C. utility

I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was A. $3.00 B. $2.00 C. $1.80 D. $1.60

B. $2.00

In order to produce 100 oatmeal cookies, GoodieCookieCo incurs an average total cost of $0.25 per cookie. The company's marginal cost is constant at $0.10 for all oatmeal cookies produced. The total cost to produce 50 oatmeal cookies is A. $25 B. $20 C. $50 D. $60

B. $20

In the US economy, nearly half of all the workers employed by private firms work at A. 18,000 firms with fewer than 100 employees. B. 18,000 large firms that employ more than 500 workers. C. 26,000 firms with fewer than 100 employees. D. 26,000 large firms that employ more than 300 workers.

B. 18,000 large firms that employ more than 500 workers.

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop? A. 0.15 B. 3.0 C. 0.10 D. 0.05

B. 3.0

Jed's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Jed knows that 2 pizzas and 4 burgers will give him a utility of 8. At his utility-maximizing point, Jed's utility is: A. 4 B. 8 C. 6 D. 10

B. 8

Which of the following best characterizes the circular flow of income? A. Businesses buy resources from the government, and households buy goods and services from businesses. B. Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses. C. The government purchases resources from businesses and households and then sells goods and services to businesses and households. D. Households buy factors of production from businesses, and businesses buy goods and services from households.

B. Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses.

. In which of the following countries will the national government have the greatest influence with respect to the nation's economy? A. China B. Cuba C. Canada D. Chile

B. Cuba

In countries like _____________ the command economy predominates. A. China and Vietnam B. Cuba and North Korea C. South Africa and Kenya D. Germany and France

B. Cuba and North Korea

______________ include all of the costs of production that increase with the quantity produced. A. Fixed costs B. Variable costs C. Average costs D. Average variable costs

B. Variable costs

A change in price of a good or service typically causes ___________________________ for that specific good or service. A. a new equilibrium price B. a change along the supply curve C. the supply curve to shift D. a decreased demand

B. a change along the supply curve

Which of the following best denotes the reason for the existence of substantial black markets? A. a market-oriented economy B. a command economy C. government laws and rules D. the microeconomy

B. a command economy

Which of the following would most likely shift the production possibilities curve inward? A. an increase in the number of hours factories are in use B. a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time C. an increase in the production of capital goods D. technological progress

B. a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time

In economics, a firm that faces no competitors is referred to as _________________. A. an oligopoly B. a monopoly C. a perfect competitor D. an oligopolizor

B. a monopoly

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

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

Which of the following lies primarily within the realm of macroeconomics? A. a study of the demand for gasoline B. a study of how tax cuts stimulate aggregate production C. an analysis of supply and demand conditions in the electricity market D. a study of the impact of "mad cow" disease on the price of beef worldwide

B. a study of how tax cuts stimulate aggregate production

Economic theory offers ____________________ about the full range of possible events and responses, which can prevent __________________ about how households will respond to changes in prices or incomes. A. one budget constraint theory; unrealistic possibilities B. a systematic way of thinking; misguided conclusions C. two budget constraint theories; misguided possibilities D. systematic consumption choices; unrealistic conclusions

B. a systematic way of thinking; misguided conclusions

Any given demand or supply curve is based on the ceteris paribus assumption that ___________________. A. everything is variable. B. all else is held equal C. no one knows which variables will change and which will remain constant. D. what is true for the individual is not necessarily true for the whole.

B. all else is held equal

. The term "ceteris paribus" means that: A. everything is variable. B. all variables except those specified are constant. C. no one knows which variables will change and which will remain constant. D. what is true for the individual is not necessarily true for the whole.

B. all variables except those specified are constant.

The model that economists use for illustrating the process of individual choice in a situation of scarcity is the _________________, sometimes also called the opportunity set, a diagram which shows what choices are possible. A. consumption set B. budget constraint C. original budget D. income cap

B. budget constraint

In a market-oriented economy, the amount of a good that is produced is primarily decided by the interaction of: A. all consumers. B. buyers and sellers. C. producers and input suppliers. D. producers and government planning committees.

B. buyers and sellers.

Specialization: A. leads to greater self-sufficiency. B. can lead to an increase in overall production. C. allows workers to develop skills by working on a large number of tasks D. is always the result of an inefficient use of resources

B. can lead to an increase in overall production.

Economic models like the _____________________ are not physical models, but instead are diagrams or graphs or even mathematical equations that represent economic patterns or theories. A. financial capital market B. circular flow diagram C. financial investment market D. Specialization Model

B. circular flow diagram

When demand is inelastic: A. price elasticity of demand is greater than 1. B. consumers are not very responsive to changes in price. C. the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price. D. demand curves appear to be fairly flat.

B. consumers are not very responsive to changes in price.

Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs? A. costs that increase with the quantity produced B. costs of research and development C. costs related to labor expenditures D. costs related to physical inputs

B. costs of research and development

A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that: A. elasticity of demand for potato chips is 3. B. cross-price elasticity of demand for soda is -3. C. elasticity of demand for potato chips is 3. D. elasticity of demand for soda 3.

B. cross-price elasticity of demand for soda is -3.

Regardless of whether you are looking through the microeconomics microscope or the macroeconomics telescope, the fundamental subject material of the interconnected __________ doesn't change. A. market B. economy C. production D. firm

B. economy

. The government wants to make medicare benefits available to more people, but to achieve this goal, it needs to make cuts in the existing medicare budget. The two areas where they are considering cuts are non-essential elective surgery and 6-12 month mental health care programs. Applying the concept of diminishing marginal utility, the budget cuts should be made for spending on: A. mental health therapy due to its higher marginal return rate. B. elective surgery due to its lower marginal return rate. C. both programs, which have the same marginal return rate. D. neither can be compared by measuring marginal utility.

B. elective surgery due to its lower marginal return rate.

. The ____________ is the quantity where quantity demanded and quantity supplied are equal at a certain price. A. quantity demanded B. equilibrium quantity C. demand schedule D. supply schedule

B. equilibrium quantity

If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. This is known as ___________________ A. excess supply B. excess demand C. ceteris paribus D. a price ceiling

B. excess demand

Even with wage increases, the supply curve of labor is most often inelastic for which of the following? A. part-time workers B. full-time workers C. lawyers D. massage therapists

B. full-time workers

The two main tools of macroeconomic policy include monetary policy, and fiscal policy, which involves __________ spending. A. business B. government C. household D. capital market

B. government

Which of the following would reduce the supply of microcomputers? A. a technological improvement that lowers the cost of producing the computers B. higher wage rates for the workers that assemble the computers C. a reduction in the price of computer chips used to produce the computers D. a reduction in the price of computers.

B. higher wage rates for the workers that assemble the computers

Economic profit can be derived from calculating total revenues minus all of the firm's costs, A. excluding its opportunity costs. B. including its opportunity costs. C. including its marginal revenue. D. excluding its marginal revenue.

B. including its opportunity costs.

If the demand curve is perfectly elastic, then an increase in supply will: A. decrease the price but result in no change in the quantity exchanged. B. increase the quantity exchanged but result in no change in the price. C. increase the price but result in no change in the quantity exchanged. D. increase both the price and the quantity exchanged.

B. increase the quantity exchanged but result in no change in the price.

In microeconomics, the term _____________________ is synonymous with economies of scale. A. diminishing marginal returns B. increasing returns to scale C. decreasing returns to scale D. constant returns to scale

B. increasing returns to scale

Demand is said to be _____________ when the quantity demanded is not very responsive to changes in price. A. independent B. inelastic C. unit elastic D. elastic

B. inelastic

The evidence on the supply curve of financial capital is controversial, but at least in the short run, the elasticity of savings with respect to the interest rate appears to be __________. A. elastic B. inelastic C. perfectly elastic D. negative

B. inelastic

Because of their relatively small national economies, which of the following is most likely considered to be the most important factor for Belgium, Korea, and Canada to take full advantage of specialization? A. division of labor B. international trade C. economies of scale D. command economy

B. international trade

Saving money is a(n) ____________________, because it involves less consumption in the present, but the ability to consume more in the future. A. budget constraint B. intertemporal choice C. risk premium D. opportunity cost

B. intertemporal choice

I'maSolarPanelCo. manufactures and distributes solar panels in the US market. Two years ago, it had 5 US competitors, but government stimulus in the industry has encouraged 7 new US competitors to enter the market. In these circumstances, I'maSolarPanelCo.'s price for its output A. can be tailored to exceed the price of its inputs. B. is dictated by the forces of demand and supply. C. can be tailored to meet the price of its inputs. D. can be set by management to maximize profits.

B. is dictated by the forces of demand and supply.

When Marietta chooses to only purchase a combination of goods that lie within her budget line, she: A. is decreasing utility. B. is maximizing utility. C. likely has negative savings. D. must reduce the quantity.

B. is maximizing utility.

Scarcity implies that: A. consumers would be willing to purchase the same quantity of a good at a higher price. B. it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available. C. at the current market price, consumers are willing to purchase more of a good than suppliers are willing to produce. D. consumers are too poor to afford the goods and services available.

B. it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should A. raise her prices above the perfectly competitive level set by the market. B. keep the business open in the short-run, but plan to go out of business in the long-run. C. keep the business open in the short-run, and plan to expand the business in the long-run. D. lay-off her staff, break her lease, and close the business down immediately.

B. keep the business open in the short-run, but plan to go out of business in the long-run.

Economists refer to this pattern, the ___________________________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.

B. law of diminishing marginal utility

In the ________, the perfectly competitive firm will react to losses by __________________________ . A. short run; reducing production or shutting down B. long run; reducing production or shutting down C. short run; increasing physical inputs D. long run; increasing capital inputs

B. long run; reducing production or shutting down

. If a firm faces ________________________, while the prices for the output the firm produces remain unchanged, a firm's profits will increase. A. higher demand B. lower costs of production C. equilibrium D. a shift in demand

B. lower costs of production

Most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good. A. utility B. marginal analysis C. the budget constraint D. consumption

B. marginal analysis

Under perfect competition, any profit-maximizing producer faces a market price equal to its A. average costs B. marginal costs C. total costs D. variable costs

B. marginal costs

In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ________________ and ________________ . A. total revenue; total cost B. marginal revenue; marginal cost C. total revenue; marginal cost D. marginal revenue; total cost

B. marginal revenue; marginal cost

The term _________________ refers to the additional utility provided by one additional unit of consumption. A. utility B. marginal utility C. added utility D. Giffen utility

B. marginal utility

. The step-by-step process of finding the choice with highest total utility involves a comparison of the: A. budget constraint and low-income housing expenses. B. marginal utility gained and lost from different choices along the budget constraint. C. household consumption choice budget and the labor-leisure budget using an utilimometer. D. various categories of economic proverbial wisdom.

B. marginal utility gained and lost from different choices along the budget constraint.

A decrease in consumer preference for a product, other things being equal, will cause: A. a decrease in supply. B. market demand to shift to the left. C. market demand to shift to the right. D. quantity demanded is not a price function.

B. market demand to shift to the left.

I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was A. $1.50 B. $1.23 C. $2.25 D. $2.43

D. $2.43

In order to produce 100 pairs of oven gloves, Marcia incurs an average total cost of $2.50 per pair. Marcia's marginal cost is constant at $10.00 for every pair of oven gloves produced. The total cost to produce 50 pairs of oven gloves is A. $250.00 B. $500.00 C. $300.00 D. $200.00

D. $200.00

"If I didn't have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." The opportunity cost of attending class this evening is: A. $0 B. $4 C. $40 D. $44

D. $44

Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees? A. 63% B. 50% C. 45% D. 35%

D. 35%

For lunch, Wendy eats only salads or fruit & yogurt smoothies. Her weekly food budget is $48. Each salad costs $6 and each smoothie costs $3. When deciding how much of each good to buy, Wendy knows that 2 salads and 4 smoothies will give her a utility of 8. What is Wendy's utility-maximizing point? A. 1 salad, 14 smoothies B. 6 salads, 4 smoothies C. 5 salads, 6 smoothies D. 4 salads, 8 smoothies

D. 4 salads, 8 smoothies

Todd is a cattle rancher. In June and July he spent his clothing budget on jeans and cowboy hats. Each pair of jeans cost $50 and each hat cost $100. At Todd's optimal choice, his marginal utility from the last pair of jeans purchased is 200. This means that his marginal utility from the last cowboy hat purchased is: A. 550 B. 500 C. 450 D. 400

D. 400

Which of the following statements most likely lies within the realm of microeconomics? A. Unemployment rises during a recession and falls during an expansion. B. An increase in government spending will increase the aggregate demand for goods and services in the economy. C. A rapid acceleration of the supply of money may create inflation. D. An increase in labor costs will increase the additional cost of producing another bus.

D. An increase in labor costs will increase the additional cost of producing another bus.

. 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.

D. Andy's demand for beer to increase.

In the circular flow diagram model: A. households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses. B. businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from households. C. households receive revenue for selling goods and services to businesses, and use that revenue to buy inputs from businesses. D. Both (a) and (b) are correct.

D. Both (a) and (b) are correct.

If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that: A. the price of Good Y will increase. B. Goods X and Y are normal goods. C. Goods X and Y are substitute goods. D. Goods X and Y are complement goods.

D. Goods X and Y are complement goods.

In a perfectly competitive market setting, which of the following would be a true statement? A. Market price automatically sets itself exactly at equilibrium. B. Market price rarely trends toward the equilibrium value. C. Wage rates mirror marginal revenue product levels exactly. D. Wage rates trend toward marginal revenue product levels.

D. Wage rates trend toward marginal revenue product levels.

Which of the following is most likely a topic of discussion in macroeconomics? A. an increase in the price of a hamburger B. a decrease in the production of DVD players by a consumer electronics company C. an increase in the wage rate paid to automobile workers D. a decrease in the unemployment rate

D. a decrease in the unemployment rate

The fact that a consumer is not required to buy the goods that a given firm produces, as well as the fact that the consumer might want the goods a firm produces, but may choose to buy from other firms instead A. will reduce the revenue a firm receives and it should shut down. B. means the firm has reached it shutdown point and should exit. C. is part of the process to a sustained pattern of profits. D. are two stark realities any business firm must recognize.

D. are two stark realities any business firm must recognize.

In order to determine ____________, the firm's total costs must be divided by the quantity of its output. A. diminishing marginal returns B. fixed costs C. variable cost D. average cost

D. average cost

Refer to the diagram above. Which of the following is a true statement? A. backward-bending supply curves for labor are typical in the short run B. workers react to higher wages by working more hours in the long run C. long run reaction to higher wages is an increase in hours worked to gain more income D. backward-bending supply curves for labor are not typical in the short run

D. backward-bending supply curves for labor are not typical in the short run

A situation where the level of output, scale and average costs are all rising is called A. decreasing returns to scale B. diseconomies of scale C. diminishing returns to scale D. both a and b are correct

D. both a and b are correct

The nature of demand indicates that as the price of a good increases: A. suppliers wish to sell less of it. B. more of it is produced. C. more of it is desired. D. buyers desire to purchase less of it.

D. buyers desire to purchase less of it.

. A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that: A. elasticity of demand for soda 0.5 and is inelastic. B. elasticity of demand for iced tea is 2 and is elastic. C. cross-price elasticity of demand for soda is -0.5. D. cross-price elasticity of demand for iced tea is -2.

D. cross-price elasticity of demand for iced tea is -2.

In economics, labor demand is synonymous with A. market demand. B. average demand. C. marginal demand. D. derived demand.

D. derived demand.

When I'MaGoldMiner chooses what quantity of gold each of it/s mines will produce over the next 12 months, this quantity, along with the prices prevailing in the market for output and inputs, will A. determine the company's annual revenue, variable costs and its profits. B. no longer be dictated by the forces of demand and supply. C. have no effect on the market forces of demand and supply. D. determine the company's total revenue, total costs, and its profits.

D. determine the company's total revenue, total costs, and its profits.

Substitution and income effects of a change in price of a good may be used to explain the: A. direct relationship between price and quantity purchased. B. inverse relationship between price and quantity demanded. C. direct relationship between price and quantity supplied. D. direct relationship between income and demand.

D. direct relationship between income and demand.

In microeconomics, the term ___________________ is synonymous with decreasing returns of scale. A. monopoly B. economies of scale C. diminishing returns D. diseconomies of scale

D. diseconomies of scale

If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point? A. divide total costs into two categories: variable costs that can't be changed in the short run and fixed costs that can be B. divide the total costs of production by the quantity of output C. divide the variable costs of production by the quantity of output D. divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be

D. divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be

Which of the following is most likely to cause variation in American household spending patterns? A. differing levels of family income B. geographical location of households C. each household's personal preferences D. each of the above will cause a variation

D. each of the above will cause a variation

. The leader of a federal political party 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 due to an improvement in technology. D. either b) or c) occurs, but not as a result of a).

D. either b) or c) occurs, but not as a result of a).

. Supply is said to be ____________ when the quantity supplied is very responsive to changes in price. A. independent B. inelastic C. unit elastic D. elastic

D. elastic

A price cut will increase the total revenue a firm receives if the demand for its product is: A. unit inelastic. B. unit elastic. C. inelastic. D. elastic.

D. elastic.

. If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to: A. rise and the equilibrium quantity to fall. B. rise and the equilibrium quantity to stay the same. C. fall and the equilibrium quantity to fall. D. fall and the equilibrium quantity to stay the same.

D. fall and the equilibrium quantity to stay the same.

If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to: A. rise and the equilibrium quantity to fall. B. rise and the equilibrium quantity to stay the same. C. fall and the equilibrium quantity to fall. D. fall and the equilibrium quantity to stay the same.

D. fall and the equilibrium quantity to stay the same.

. Economies of scale may arise from all but one of the following. Which one is it? A. doubling promotional expenses to expand sale more than proportionately B. having a larger retail space can expand sales more than proportionately C. spreading the fixed-costs of administration over more customers holds average costs down D. government economic subsidies protect firms from competition to avoid losses.

D. government economic subsidies protect firms from competition to avoid losses.

The demand schedule for a good: A. indicates the quantity that people will buy at the prevailing price. B. indicates the quantities that suppliers will sell at various market prices. C. is determined primarily by the cost of producing the good. D. indicates the quantities that will be purchased at alternative market prices.

D. indicates the quantities that will be purchased at alternative market prices.

. The opportunity cost of an action: A. can be determined by considering both the benefits that flow from as well as the monetary costs incurred as a result of the action. B. can be determined by adding up the bills incurred as a result of the action. C. can be objectively determined only by economists. D. is a subjective valuation that can be determined only by the individual who chooses the action.

D. is a subjective valuation that can be determined only by the individual who chooses the action.

Macroeconomics: A. is concerned with the expansion of a small business into a large corporation. B. is narrower in scope than microeconomics. C. analyzes mergers and acquisitions between firms. D. is concerned with the expansion and contraction of the overall economy.

D. is concerned with the expansion and contraction of the overall economy.

In the ________, the perfectly competitive firm will react to profits by __________________________ . A. short run; increasing quality of products B. long run; tailoring their quality controls C. short run; reducing its labor inputs D. long run; increasing its production

D. long run; increasing its production

. Most real-world choices aren't about getting all of one thing or another, instead, most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

D. marginal analysis

The term _____________ is used to describe the additional cost of producing one more unit. A. average cost B. fixed cost C. variable cost D. marginal cost

D. marginal cost

In economics, the term "shutdown point" refers to the point where the A. marginal cost curve crosses the total revenue curve. B. average variable cost curve crosses the total revenue curve. C. average variable cost curve crosses the marginal cost curve. D. marginal cost curve crosses the average variable cost curve.

D. marginal cost curve crosses the average variable cost curve.

. What happens in a perfectly competitive industry when economic profit is greater than zero? A. existing firms may expand their operations B. firms may move along their LRAC curves to new outputs C. there may be pressure on the market price to fall D. new firms may enter the industry and all of the above

D. new firms may enter the industry and all of the above

12. Approximately what portion of annual consumption is typically spent by American households on shelter? A. one-fourth B. one-half C. one-quarter D. one-third

D. one-third

The elasticity of supply is defined as the ________ change in quantity supplied divided by the _______ change in price. A. total; percentage B. percentage; marginal C. marginal; percentage D. percentage; percentage

D. percentage; percentage

Why would labor be treated as a variable cost? A. they are costs incurred in the act of producing that will decrease with quantity produced B. they are made before production starts and vary according to the specific line of business C. labor costs are an input cost that firms are unable to change in the short run D. producing larger quantities of a good or service generally requires more workers

D. producing larger quantities of a good or service generally requires more workers

During a severe recession, the government issued food stamps that could only be used to acquire food to a greater number of families. The budget line graph shows food on the horizontal axis and everything else on the vertical axis. The government expects that issuing the food stamps will cause each family's budget constraint line to: A. pivot out along the horizontal axis. B. pivot out along the vertical axis. C. shift to the left. D. shift to the right.

D. shift to the right.

Which of the following occurs simultaneously with an income effect? A. backward-bending supply curve B. Giffen good effect C. preferences effect D. substitution effect

D. substitution effect

. Economists are able to determine total utility by: A. multiplying the marginal utility of the first unit consumed by the number of units consumed. B. multiplying the marginal utility of the last unit consumed by the number of units consumed. C. multiplying the marginal utility of the last unit consumed by the unit price. D. summing up the marginal utilities of each unit consumed.

D. summing up the marginal utilities of each unit consumed.

. Price elasticity of demand is defined as: A. the slope of the demand curve. B. the slope of the demand curve divided by the price. C. the percentage change in price divided by the percentage change in quantity demanded. D. the percentage change in quantity demanded divided by the percentage change in price.

D. the percentage change in quantity demanded divided by the percentage change in price.

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.

D. there is a movement up along the demand curve.

Why would a profit-seeking firm need to tailor its decisions about the quantity of labor inputs that it purchases? A. to produce the highest profitable quantity of output at the lowest possible marginal cost B. deciding what quantity to produce is one of the major choices a profit-seeking firm makes C. the quantity of labor is the only variable cost choice a profit-seeking firm can make D. to produce the profit-maximizing quantity of output at the lowest possible average cost

D. to produce the profit-maximizing quantity of output at the lowest possible average cost

Scarcity exists because of: A. the market mechanism. B. specialization and division of labor. C. the allocation of goods by prices D. unlimited wants and limited resources.

D. unlimited wants and limited resources.

If I'maJuiceCo. establishes a bottling plant in Delaware, it will most likely A. use production technologies that require more workers. B. strive for economies of scale where quantity of output falls as the cost of production falls. C. strive to reach economies of scale that will result in producing at a higher average cost. D. use production technologies that conserve on the number of workers.

D. use production technologies that conserve on the number of workers.

If a comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals A. that if the market price exceeds average cost, profits will be positive. B. that if the market price is below average cost, then profits will be negative. C. total revenues are the quantity produced multiplied by the price. D. whether the firm is earning profit if fixed costs are left out of the calculation.

D. whether the firm is earning profit if fixed costs are left out of the calculation.