Unit 1 & 2 Review- Microeconomics

Which of the following statements describes an economy confronting scarcity? A) If more of one good is produced, less of another good must be produced. B) An economy can produce a limitless amount of all goods. C) All individuals are able to satisfy their consumption desires. D) Scarcity is eliminated by government provision of goods. E) Scarcity only exists as a problem when there is more than one good to produce.

A) If more of one good is produced, less of another good must be produced.

Assume a 10 percent increase in price increased the market quantity supplied by 20 percent. Which of the following is true? A) The value of the price elasticity of supply is 2. B) The value of the price elasticity of supply is 0.5. C) Supply is price inelastic. D) Demand is price elastic. E) This price-quantity combination violates the law of supply.

A) The value of the price elasticity of supply is 2.

Assume there are two goods in a market economy. The amount of each good produced is determined by A) buyers and sellers' interactions in the market for each good B) a central planning agency C) the desires of households only D) each citizen's minimum needs for survival E) popular voting with one vote per citizen

A) buyers and sellers' interactions in the market for each good

Which of the following will cause the demand for a normal good to increase? A) A decrease in consumers' income B) A decrease in the price of a complementary good C) A decrease in the price of a substitute good D) A decrease in the price of the good E) A decrease in the number of consumers

B) A decrease in the price of a complementary good

Assume an economy uses one input, labor, to produce two goods, X and Y, with constant opportunity cost. Which of the following would cause a parallel shift to the right of the production possibilities curve (PPC) ? A) An increase in the productivity of labor with respect to producing good X B) An increase in the amount of labor available for production C) A reduction in the unemployment of labor D) An increase in the demand for good X and good Y E) A change in consumer tastes from good Y to good X

B) An increase in the amount of labor available for production

Which of the following statements about the market supply curve is true? A) An increase in input prices will shift the market supply curve to the right. B) At each price, a horizontal summation of the quantity supplied by each firm will yield the market supply curve. C) At each quantity supplied, a vertical summation of the price set by each firm will yield the market supply curve. D) A decrease in the price will shift the market supply curve to the left. E) The law of supply states that the market supply curve may shift right, shift left, or remain the same as the price increases.

B) At each price, a horizontal summation of the quantity supplied by each firm will yield the market supply curve.

Assume the price of a candy bar is $2 and the price of a bag of chips is $3. Assume Lilly's marginal utility from consuming an additional candy bar is 10 utils and her marginal utility from consuming an additional bag of chips is 12 utils. If Lilly is spending her fixed weekly allowance on candy bars and bags of chips, which of the following actions will maximize Lilly's total utility? A) Buying more candy bars and bags of chips B) Buying more candy bars and fewer bags of chips C) Buying fewer candy bars and more bags of chips D) Buying fewer candy bars and bags of chips E) Buying the same number of candy bars and bags of chips

B) Buying more candy bars and fewer bags of chips

Of the feasible and efficient points on the production possibilities curve (PPC) above, producing at which point will lead to the most economic growth in the future? A) Point M B) Point N C) Point R D) Point J E) Point S

B) Point N

Assume that good X is a normal good. If the price of good X increases, what will happen? A) The substitution and income effects will both lead to more of good X being purchased. B) The substitution and income effects will both lead to less of good X being purchased. C) The substitution effect will lead to more of good X being purchased, while the income effect will lead to less of good X being purchased. D) The substitution effect will lead to less of good X being purchased, while the income effect will lead to more of good X being purchased. E) There will be no income effect because only the price of good X has changed.

B) The substitution and income effects will both lead to less of good X being purchased.

Which of the following changes will lead to an increase in the supply of good X? A) An increase in the price of good X B) An increase in the wages of labor used to produce good X C) A decrease in the price of energy, a key input to the production of good X D) An increase in the demand for good X E) A decrease in the number of sellers of good X

C) A decrease in the price of energy, a key input to the production of good X

Assume the income elasticity of demand for good Z equals −5.0. Which of the following is true? A) Good Z is a normal good. B) Good Z must have an inelastic demand. C) An increase in income will lead to a decrease in demand. D) An increase in income will lead to an increase in demand. E) The income effect of a price increase will be a decrease in quantity demanded at every price.

C) An increase in income will lead to a decrease in demand.

Which of the following describes a factor of production that is not fully scarce and that can be used simultaneously in the production of more than one good? A) Machines that can produce both clothing and bedsheets B) Unskilled labor needed to produce all goods C) Basic knowledge that enhances the organization of all manufacturing assembly lines D) Land that is cultivated for two crops by more than one farmer E) Labor that has received enhanced training in assembly-line work

C) Basic knowledge that enhances the organization of all manufacturing assembly lines

The table above shows the costs and benefits for new construction projects the government is considering. Based on these costs and benefits, which of the construction projects should the government undertake? A) Widening existing highways B) Building new highways C) Building a new bridge D) Building a new tunnel E) Expanding an existing airport

C) Building a new bridge

Based on the graph above, the producer surplus at the market equilibrium price and quantity is shown by which area? A) GMK B) GMN C) GZN D) ZMN E) MNK

C) GZN

Assume an economy is using all its available resources efficiently to produce only two goods, X and Y. As more of good X is produced, what happens to the production of good Y? A) The production of good Y also increases. B) More resources will need to be devoted to producing good Y. C) Less of good Y is produced as resources move from producing good Y to producing good X. D) The economy can only produce more of good X if there is more labor available. E) There will be no loss of good Y produced.

C) Less of good Y is produced as resources move from producing good Y to producing good X.

Assume a consumer is spending all her income on two goods: X and Y. At the current consumption combination of the two goods, if the marginal utility per dollar spent on the last unit of good X exceeds that of the marginal utility per dollar spent on the last unit of good Y, what should the consumer do to maximize utility? A) Purchase more units of X and more units of Y. B) Decrease the price of good X. C) Purchase more units of X and less units of Y. D) Increase income to buy more of both good Y and good X. E) Nothing; utility is maximized at current consumption bundles.

C) Purchase more units of X and less units of Y.

Using cost-benefit analysis, a local government would decide to build a new bridge if A) The additional tax paid by an individual resident is greater than the additional benefit of building the bridge for all residents. B) The toll paid by an individual resident crossing the bridge is less than the resident's benefit from crossing the bridge. C) The total costs of building the bridge are less than the total benefits from building the bridge. D) The total costs of building the bridge are greater than the total benefits from building the bridge. E) Total costs are at a minimum and total benefits are at a maximum.

C) The total costs of building the bridge are less than the total benefits from building the bridge.

An economy produces two goods: X and Y. Its production possibilities curve is linear with the intercept on the Y axis at 1,000 units and the intercept on the X axis at 100 units. Which of the following statements is correct? A) There is an increasing opportunity cost of producing good X, beginning with 1 unit of X costing 0.1 unit of Y. B) There is an increasing opportunity cost of producing good Y but not of producing good X, which has a constant opportunity cost. C) There is a constant opportunity cost with each unit of good X costing 10 units of good Y. D) There is a constant opportunity cost with 10 units of good X costing 1 unit of good Y. E) With a linear production possibilities curve, total production of goods X and Y will be the same at each point on the curve.

C) There is a constant opportunity cost with each unit of good X costing 10 units of good Y.

In the absence of market failures, a perfectly competitive market equilibrium is efficient for which of the following reasons? A) Consumer surplus is maximized and consumers are better off relative to producers. B) Producer surplus is maximized and producers are better off relative to consumers. C) Total economic surplus is maximized and all mutually beneficial transactions are exhausted. D) Total economic surplus is distributed equally between producers and consumers. E) The quantity of output is produced at a constant cost so that every consumer pays the same price.

C) Total economic surplus is maximized and all mutually beneficial transactions are exhausted.

Assume that the price elasticity of supply for good Y is 0.5. If the price of good Y decreases by 30 percent, the quantity supplied of good Y will A) decrease by 60 percent B) decrease by 30 percent C) decrease by 15 percent D) increase by 0.5 percent E) increase by 0.15 percent

C) decrease by 15 percent

If the value of the price elasticity of supply is 3, which of the following is true? A) Supply is inelastic. B) A percentage increase in price will lead to a relatively smaller percentage increase in quantity supplied. C) The supply curve is downward sloping with respect to the price of output. D) A 10 percent decrease in price will decrease the quantity supplied by 30 percent. E) A 3 percent increase in price will decrease the quantity supplied by 10 percent.

D) A 10 percent decrease in price will decrease the quantity supplied by 30 percent.

Which of the following statements relating to supply is true? A) An increase in an input price will lead to an increase in supply. B) An increase in the price of a good will lead to an increase in the supply of the good. C) A decrease in consumers' income will lead to a decrease in the supply of the good. D) A decrease in the price of a good will lead to a decrease in the quantity supplied of the good. E) A decrease in the price of a substitute good in production will lead to a decrease in the supply of another substitute good.

D) A decrease in the price of a good will lead to a decrease in the quantity supplied of the good.

Which of the following statements about the price elasticity of demand is true? A) When demand is price inelastic, total revenue will decrease as price increases. B) When demand is price elastic, an increase in price will increase total revenue. C) Demand tends to be more elastic in the short run compared to the long run. D) As more close substitutes become available, demand tends to be more price elastic. E) As a good becomes viewed as a necessity, demand becomes more price elastic.

D) As more close substitutes become available, demand tends to be more price elastic.

In the country Beta it takes two hours of labor to produce a unit of tea and four hours of labor to produce a unit of bread. In the country Zeta it takes three hours of labor to produce a unit of tea and nine hours of labor to produce a unit of bread. Which of the following is true? A) Country Zeta has an absolute advantage in producing both tea and bread. B) Country Zeta has an absolute advantage and a comparative advantage in producing tea. C) Country Beta has an absolute advantage and a comparative advantage in producing tea. D) Country Beta has the lower opportunity cost in producing bread and therefore a comparative advantage in producing bread. E) Country Beta, with trade, will export both tea and bread to country Zeta.

D) Country Beta has the lower opportunity cost in producing bread and therefore a comparative advantage in producing bread.

Cindy and Martin both sew t-shirts in a small factory. Using the same resources, Martin can sew twelve t-shirts and Cindy can sew nine t-shirts in one day. Which of the following can be concluded from the given information? A) Martin has a higher opportunity cost of sewing t-shirts than Cindy does. B) Cindy has a comparative advantage in sewing t-shirts. C) Martin has a comparative advantage in sewing t-shirts. D) Martin has an absolute advantage in sewing t-shirts. E) Cindy has an absolute advantage in sewing t-shirts.

D) Martin has an absolute advantage in sewing t-shirts.

Assume that the price of orange juice increases by 40 percent following a crop failure. If the quantity demanded falls by 10 percent, which of the following is true? A) The demand for orange juice is elastic. B) The price of grapefruit juice, a substitute good, will fall. C) The absolute value of the price elasticity of demand for orange juice is 4. D) The absolute value of the price elasticity of demand for orange juice is 0.25. E) The absolute value of the price elasticity of demand for orange juice is 10.

D) The absolute value of the price elasticity of demand for orange juice is 0.25.

In contrast to a market economy, a command economy relies on which of the following? A) The private sector in deciding what goods will be produced B) Private ownership of resources C) Profits as incentives to make choices D) The government to allocate resources E) Supply and demand to determine prices

D) The government to allocate resources

Assume a worker can either cut grass or wash windows in a given day. It takes 5 hours to mow a one-acre lawn and 2.5 hours to wash all the windows in a house. When a worker chooses to wash the windows of four houses in a neighborhood, what is the opportunity cost of this decision? A) The pay the worker receives for washing the windows in the four houses B) The pay the worker would receive for cutting one lawn C) Cutting the grass at the same four houses D) The pay the worker would have received from cutting the grass at two houses E) The pay the worker would receive for cutting .25 lawns

D) The pay the worker would have received from cutting the grass at two houses

The price elasticity of demand for a product is 0.5. If the price of the product increases by 20 percent, which of the following will occur? A) The quantity demanded of the good will increase by 10%. B) The quantity demanded of the good will increase by 20%. C) The quantity demanded of the good will increase by 40%. D) The quantity demanded of the good will decrease by 10%. E) The quantity demanded of the good will decrease by 40%.

D) The quantity demanded of the good will decrease by 10%.

Which of the following best describes the law of demand? A) When income increases, the demand for goods increases. B) When the price of a good decreases, the demand for the good increases. C) When the price of a good decreases, the quantity demanded of the good decreases. D) When the price of a good increases, the quantity demanded of the good decreases. E) When the demand for a good increases, consumers' willingness and ability to buy the good increases.

D) When the price of a good increases, the quantity demanded of the good decreases.

Which of the following statements relating to income elasticity is true? A) A positive value for the income elasticity coefficient indicates an inferior good. B) If good X and good Y have negative income elasticities, then both goods are substitutes. C) With an income elasticity coefficient of 0.6, the demand is inelastic and the good is an inferior good. D) With an income elasticity coefficient of 5, a 10 percent increase in income will lead to a 50 percent increase in the quantity demanded of the good. E) With an income elasticity coefficient of −1.2−1.2, a 10 percent increase in income will lead to a 12 percent decrease in the price of the good.

D) With an income elasticity coefficient of 5, a 10 percent increase in income will lead to a 50 percent increase in the quantity demanded of the good.

Which of the following statements regarding specialization and trade is true? A) With specialization and trade, a country's production possibilities curve shifts out, showing an increase in productive capacity. B) With specialization and trade, a country will produce a combination of goods beyond its production possibilities curve. C) To gain from trade, countries specialize in producing goods and services in which they have an absolute advantage. D) With specialization and trade, a country can consume beyond its production possibilities curve. E) A country must have both the comparative and the absolute advantage in a product to specialize and gain from trade.

D) With specialization and trade, a country can consume beyond its production possibilities curve.

Based on the graph above, the consumer surplus at the market equilibrium price and quantity is shown by which area? A) GMK B) GMN C) GZN D) ZMN E) MNK

D) ZMN

The cross-price elasticity of demand between goods J and K is −3. A 20 percent decrease in the price of good K will result in a A) 3 percent decrease in the quantity demanded of good K B) 15 percent decrease in the quantity demanded of good K C) 6 percent increase in the quantity demanded of good J D) 12 percent increase in the quantity demanded of good J E) 60 percent increase in the quantity demanded of good J

E) 60 percent increase in the quantity demanded of good J

Which of the following is associated with a command economy? A) Competitive product markets B) Use of resources for private gain C) Use of available resources to meet all the needs and wants of its citizens D) Entry of firms into industries with economic profit E) Public ownership of the means of production

E) Public ownership of the means of production