ECON 2103 Chp. 1- 2-

1. Resources are
a.
scarce for households but plentiful for economies.
b.
plentiful for households but scarce for economies.
c.
scarce for households and scarce for economies.
d.
plentiful for households and plentiful for economies.

C

2. Economics deals primarily with the concept of
a.
scarcity.
b.
money.
c.
poverty.
d.
banking.

A

3. The overriding reason as to why households and societies face many decisions is that
a.
resources are scarce.
b.
goods and services are not scarce.
c.
incomes fluctuate with business cycles.
d.
people, by nature, tend to disagree.

A

4. In most societies, resources are allocated by
a.
a single central planner.
b.
a small number of central planners.
c.
those firms that use resources to provide goods and services.
d.
the combined actions of millions of households and firms.

D

5. The principle that "people face tradeoffs" applies to
a.
individuals.
b.
families.
c.
societies.
d.
All of the above are correct.

D

6. A tradeoff exists between a clean environment and a higher level of income in that
a.
studies show that individuals with higher levels of income pollute less than low-income individuals.
b.
efforts to reduce pollution typically are not completely successful.
c.
laws that reduce pollution raise costs of production and reduce incomes.
d.
employing individuals to clean up pollution causes increases in employment and income.

C

7. Economists use the word equality to describe a situation in which
a.
each member of society has the same income.
b.
each member of society has access to abundant quantities of goods and services, regardless of his or her income.
c.
society is getting the maximum benefits from its scarce resources.
d.
society's resources are used efficiently.

A

8. Efficiency means that
a.
society is conserving resources in order to save them for the future.
b.
society's goods and services are distributed equally among society's members.
c.
society's goods and services are distributed fairly, though not necessarily equally, among society's members.
d.
society is getting the maximum benefits from its scarce resources.

D

9. As a result of a successful attempt by government to cut the economic pie into more equal slices,
a.
it is easier to cut the pie, and therefore the economy can produce a larger pie.
b.
those who earn more income pay less in taxes.
c.
the pie gets smaller, and there will be less pie overall.
d.
government will spend too much time cutting and it causes the economy to lose the ability to produce enough pie for everyone.

C

10. The opportunity cost of an item is
a.
the number of hours needed to earn money to buy the item.
b.
what you give up to get that item.
c.
usually less than the dollar value of the item.
d.
the dollar value of the item.

B

11. Which of the following is correct concerning opportunity cost?
a.
Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway.
b.
To compute opportunity costs, you should subtract benefits from costs.
c.
Opportunity costs and the idea of trade-offs are not closely related.
d.
Rational people should compare various options without considering opportunity costs.

A

12. For most students, the largest single cost of a college education is
a.
the wages given up to attend school.
b.
tuition, fees, and books.
c.
room and board.
d.
transportation, parking, and entertainment.

A

13. For a college student who wishes to calculate the true costs of going to college, the costs of room and board
a.
should be counted in full, regardless of the costs of eating and sleeping elsewhere.
b.
should be counted only to the extent that they are more expensive at college than elsewhere.
c.
usually exceed the opportunity cost of going to college.
d.
plus the cost of tuition, equals the opportunity cost of going to college.

B

14. A rational decision maker
a.
ignores marginal changes and focuses instead on "the big picture."
b.
ignores the likely effects of government policies when he or she makes choices.
c.
takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.
d.
takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions.

C

15. People are willing to pay more for a diamond than for a bottle of water because
a.
the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water.
b.
the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
c.
producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices.
d.
water prices are held artificially low by governments, since water is necessary for life.

B

16. Economists are particularly adept at understanding that people respond to
a.
laws.
b.
incentives.
c.
punishments more than rewards.
d.
rewards more than punishments.

B

17. People are likely to respond to a policy change
a.
only if they think the policy is a good one.
b.
only if the policy change changes the costs of their behavior.
c.
only if the policy change changes the benefits of their behavior.
d.
if the policy changes either the costs or benefits of their behavior.

D

18. Which is the most accurate statement about trade?
a.
Trade can make every nation better off.
b.
Trade makes some nations better off and others worse off.
c.
Trading for a good can make a nation better off only if the nation cannot produce that good itself.
d.
Trade helps rich nations and hurts poor nations.

A

19. Canada can benefit from trade
a.
only with nations that can produce goods Canada cannot produce.
b.
only with less developed nations.
c.
only with nations outside of North America.
d.
with any nation.

D

20. Trade between countries tends to
a.
reduce both competition and specialization.
b.
reduce competition and increase specialization.
c.
increase competition and reduce specialization.
d.
increase both competition and specialization.

D

21. Market economies are distinguished from other types of economies largely on the basis of
a.
the political affiliations of government officials.
b.
the process by which government officials are elected or appointed.
c.
the ways in which scarce resources are allocated.
d.
the number of retail outlets available to consumers.

C

22. In a market economy, economic activity is guided by
a.
the government.
b.
corporations.
c.
central planners.
d.
self-interest and prices.

D

23. For markets to work well, there must be
a.
market power.
b.
a central planner.
c.
property rights.
d.
abundant, not scarce, resources.

C

24. The government enforces property rights by
a.
requiring property owners to pay property taxes.
b.
providing police and courts.
c.
forcing people to own property.
d.
providing public parks and recreation facilities.

B

25. A rationale for government involvement in a market economy is as follows:
a.
Markets sometimes fail to produce a fair distribution of economic well-being.
b.
Markets sometimes fail to produce an efficient allocation of resources.
c.
Property rights have to be enforced.
d.
All of the above are correct.

D

26. Which of the following is not generally regarded by economists as a legitimate reason for the government to intervene in a market?
a.
to promote efficiency
b.
to promote equality
c.
to enforce property rights
d.
to protect an industry from foreign competition

D

27. Causes of market failure include
a.
externalities and market power.
b.
market power and incorrect forecasts of consumer demand.
c.
externalities and foreign competition.
d.
incorrect forecasts of consumer demand and foreign competition.

A

28. When a single person (or small group) has the ability to influence market prices, there is
a.
competition.
b.
market power.
c.
an externality.
d.
a lack of property rights.

B

29. Which of the following firms is most likely to have market power?
a.
a grocery store in a metropolitan area
b.
a gas station in a suburb
c.
a pub in a college town
d.
the only hotel in a rural area

D

30. Productivity is defined as the
a.
amount of goods and services produced from each unit of labor input.
b.
number of workers required to produce a given amount of goods and services.
c.
amount of labor that can be saved by replacing workers with machines.
d.
actual amount of effort workers put into an hour of working time.

A

31. What is the most important factor that explains differences in living standards across countries?
a.
the quantity of money
b.
the level of unemployment
c.
productivity
d.
equality

C

32. To promote good economic outcomes, policymakers should strive to enact policies that
a.
enhance productivity.
b.
enhance individuals' market power.
c.
result in a rapidly-growing quantity of money.
d.
All of the above are correct.

A

33. An increase in the overall level of prices in an economy is referred to as
a.
the income effect.
b.
inflation.
c.
deflation.
d.
the substitution effect.

B

34. Large or persistent inflation is almost always caused by
a.
excessive government spending.
b.
excessive growth in the quantity of money.
c.
foreign competition.
d.
higher-than-normal levels of productivity.

B

35. Most economists believe that an increase in the quantity of money results in
a.
an increase in the demand for goods and services.
b.
lower unemployment in the short run.
c.
higher inflation in the long run.
d.
All of the above are correct.

D

36. In the short run, an increase in the money supply is likely to lead to
a.
lower unemployment and lower inflation.
b.
lower unemployment and higher inflation.
c.
higher unemployment and lower inflation.
d.
higher unemployment and higher inflation.

B

37. The tradeoff between inflation and unemployment
a.
implies that policies designed to reduce unemployment also reduce inflation.
b.
was eliminated by improved economic policies in the 1900s.
c.
is a long-run tradeoff, persisting for decades, according to most economists.
d.
None of the above are correct.

D

38. The business cycle is the
a.
relationship between unemployment and inflation.
b.
irregular fluctuations in economic activity.
c.
positive relationship between the quantity of money in an economy and inflation.
d.
predictable changes in economic activity due to changes in government spending and taxes.

B

39. The business cycle is measured by the
a.
production of goods and services.
b.
number of people employed.
c.
the interest rate.
d.
both a and b

D

40. It once took 90 percent of our population to grow our food. It now takes only 3 percent of the population to grow our food. Which of the following statements is true?
a.
This loss of jobs has been detrimental to our economy.
b.
The government should provide subsidies to encourage more people to become farmers.
c.
This reduction in the number of farmers explains the increase in the price of food.
d.
Economists understand this is progress because the proportion of the population that used to be farmers is now employed in other professions.

D

1. Economists, like mathematicians, physicists, and biologists,
a.
make use of the scientific method.
b.
try to address their subject with a scientist's objectivity.
c.
devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories.
d.
All of the above are correct.

D

2. The scientific method is applicable to studying
a.
natural sciences, but not social sciences.
b.
social sciences, but not natural sciences.
c.
both natural sciences and social sciences.
d.
None of the above is correct.

C

3. In conducting their research, economists face an obstacle that not all scientists face; specifically, in economics, it is often difficult and sometimes impossible to
a.
make use of theory and observation.
b.
rely upon the scientific method.
c.
conduct laboratory experiments.
d.
find articles or books that were written before 1900.

C

4. For economists, substitutes for laboratory experiments often come in the form of
a.
natural experiments offered by history.
b.
untested theories.
c.
"rules of thumb" and other such conveniences.
d.
reliance upon the wisdom of elders in the economics profession.

A

5. Economists make use of assumptions, some of which are unrealistic, for the purpose of
a.
teaching economics to people who have never before studied economics.
b.
advancing their political agendas.
c.
developing models when the scientific method cannot be used.
d.
focusing their thinking.

D

6. When studying the effects of public policy changes, economists
a.
always refrain from making assumptions.
b.
sometimes make different assumptions about the short run and the long run.
c.
consider only the direct effects of those policy changes and not the indirect effects.
d.
consider only the short-run effects of those policy changes and not the long-run effects.

B

7. In building economic models, economists often omit
a.
assumptions.
b.
theories.
c.
details.
d.
equations.

C

8. Which types of models are built with assumptions?
a.
economic models, but not models in other disciplines such as physics and biology
b.
economic models as well as models in other disciplines such as physics and biology
c.
models that are built for teaching purposes but not for research purposes
d.
bad models

B

9. The circular-flow diagram is an example of
a.
a laboratory experiment.
b.
an economic model.
c.
a mathematical model.
d.
All of the above are correct.

B

10. The circular-flow diagram is a
a.
visual model of the economy.
b.
visual model of the relationships among money, prices, and businesses.
c.
model that shows the effects of government on the economy.
d.
mathematical model of how the economy works.

A

11. A circular-flow diagram is a model that
a.
helps to explain how participants in the economy interact with one another.
b.
helps to explain how the economy is organized.
c.
incorporates all aspects of the real economy.
d.
Both (a) and (b) are correct.

D

12. Another term for factors of production is
a.
inputs.
b.
output.
c.
goods.
d.
services.

A

13. In the simple circular-flow diagram,
a.
households own the factors of production.
b.
households buy all the goods and services that firms produce.
c.
land, labor, and capital flow from households to firms.
d.
All of the above are correct.

D

14. Which markets are represented in the simple circular-flow diagram?
a.
markets for goods and services and markets for financial assets
b.
markets for factors of production and markets for financial assets
c.
markets for goods and services and markets for factors of production
d.
markets for goods and services and markets for imports and exports

C

15. In the markets for goods and services in the circular-flow diagram,
a.
households and firms are both buyers.
b.
households and firms are both sellers.
c.
households are buyers and firms are sellers.
d.
households are sellers and firms are buyers.

C

16. Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram?
a.
a landowner leases land to a farmer
b.
a farmer hires a teenager to help with harvest
c.
a retired farmer sells his combine to a new farmer
d.
a woman buys corn for dinner

D

17. In the circular-flow diagram,
a.
factors of production flow from government to firms.
b.
goods and services flow from households to firms.
c.
income paid to the factors of production flows from firms to households.
d.
spending on goods and services flows from firms to households.

C

18. The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and
a.
society's preferences.
b.
the available production technology.
c.
a fair distribution of the output.
d.
the available demand for the output.

B

19. The production possibilities frontier is a graph that shows the various combinations of output that an economy
a.
should produce.
b.
wants to produce.
c.
can produce.
d.
demands.

C

20. Any point on a country's production possibilities frontier represents a combination of two goods that an economy
a.
will never be able to produce.
b.
can produce using all available resources and technology.
c.
can produce using some portion, but not all, of its resources and technology.
d.
may be able to produce in the future with more resources and/or superior technology.

B

21. If an economy is producing efficiently, then
a.
there is no way to produce more of one good without producing less of another good.
b.
it is possible to produce more of both goods without increasing the quantities of inputs that are being used.
c.
it is possible to produce more of one good without producing less of another good.
d.
it is not possible to produce more of any good at any cost.

A

22. An economy's production of two goods is efficient if
a.
all members of society consume equal portions of the goods.
b.
the goods are produced using only some of society's available resources.
c.
it is impossible to produce more of one good without producing less of the other.
d.
the opportunity cost of producing more of one good is zero.

C

23. When an economy is operating inside its production possibilities frontier, we know that
a.
there are unused resources or inefficiencies in the economy.
b.
all of the economy's resources are fully employed.
c.
economic growth would have to occur in order for the economy to move to a point on the frontier.
d.
in order to produce more of one good, the economy would have to give up some of the other good.

A

24. Unemployment would cause an economy to
a.
produce inside its production possibilities frontier.
b.
produce on its production possibilities frontier.
c.
produce outside its production possibilities frontier.
d.
experience an inward shift of its production possibilities frontier.

A

25. The bowed shape of the production possibilities frontier can be explained by the fact that
a.
all resources are scarce.
b.
economic growth is always occurring.
c.
the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing.
d.
the only way to get more of one good is to get less of the other.

C

26. Economists believe that production possibilities frontiers
a.
never have a bowed shape.
b.
rarely have a bowed shape.
c.
often have a bowed shape.
d.
always have a bowed shape.

C

27. A production possibilities frontier can shift outward if
a.
government increases the amount of money in the economy.
b.
there is a technological improvement.
c.
resources are shifted from the production of one good to the production of the other good.
d.
the economy abandons inefficient production methods in favor of efficient production methods.

B

28. A production possibilities frontier shifts outward when
a.
the economy experiences economic growth.
b.
the desires of the economy's citizens change.
c.
at least one of the basic principles of economics is violated.
d.
opportunity costs are lessened.

A

29. The production possibilities frontier is used to illustrate some basic economic ideas, including
a.
scarcity.
b.
opportunity cost.
c.
economic growth.
d.
All of the above are correct.

D

36. When economists are trying to explain the world, they are
a.
scientists.
b.
policy advisers.
c.
in the realm of microeconomics rather than macroeconomics.
d.
in the realm of normative economics rather than positive economics.

A

37. Which of the following statements is correct about the roles of economists?
a.
Economists are best viewed as policy advisers.
b.
Economists are best viewed as scientists.
c.
In trying to explain the world, economists are policy advisers; in trying to improve the world, they are scientists.
d.
In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers.

D

38. Normative statements are
a.
prescriptive, whereas positive statements are descriptive.
b.
descriptive, whereas positive statements are prescriptive.
c.
backward-looking, whereas positive statements are forward-looking.
d.
forward-looking, whereas positive statements are backward-looking.

A

39. Positive statements are
a.
prescriptive.
b.
claims about how the world should be.
c.
claims about how the world is.
d.
made by economists speaking as policy advisers.

C

40. Normative statements are
a.
descriptive.
b.
claims about how the world should be.
c.
claims about how the world is.
d.
made by economists speaking as scientists.

B

41. When economists make positive statements, they are
a.
speaking as scientists.
b.
speaking as policy advisers.
c.
making claims about how the world should be.
d.
revealing that they are very conservative in their views of how the world works.

A

42. When economists make normative statements, they are
a.
speaking as scientists.
b.
speaking as policy advisers.
c.
making claims about how the world is.
d.
revealing that they are very liberal in their views of how the world works.

B

43. When an economist evaluates a positive statement, he or she is primarily
a.
examining evidence.
b.
evaluating values as well as facts.
c.
acting as a policy adviser.
d.
concerned with making a sound decision on how the world ought to be.

A

44. Which of the following is an example of a positive, as opposed to normative, statement?
a.
Inflation is more harmful to the economy than unemployment is.
b.
If welfare payments increase, the world will be a better place.
c.
Prices rise when the government prints too much money.
d.
When public policies are evaluated, the benefits to the economy of improved equality should be considered more important than the costs of reduced efficiency.

C

45. Which of the following is an example of a positive, as opposed to normative, statement?
a.
Income tax rates should not have been cut as they were a few years ago.
b.
The quantity of money has grown too slowly in recent years.
c.
When the quantity of money grows rapidly, inflation is a predictable consequence.
d.
All of the above are positive statements.

C

46. Economists sometimes give conflicting advice because
a.
graduate students in economics are encouraged to argue with each other.
b.
economists have different values and scientific judgment.
c.
economists acting as scientists do not like to agree with economists acting as policy advisers.
d.
economics is more of a belief system than a science.

B

47. The two basic reasons why economists often appear to give conflicting advice to policymakers are differences in
a.
opinions and education.
b.
opinions and values.
c.
scientific judgments and education.
d.
scientific judgments and values.

D

48. Almost all economists agree that rent control
a.
has no effect on the rental income of landlords.
b.
allows the market for housing to work more efficiently.
c.
adversely affects the availability and quality of housing.
d.
is a very inexpensive way to help the most needy members of society.

C

49. Policies such as rent control and trade barriers persist in spite of the fact that economists are virtually united in their opposition to such policies, probably because
a.
economists have not yet convinced the general public that the policies are undesirable.
b.
economists engage in positive analysis, not normative analysis.
c.
economists have values that are different from the values of most non-economists.
d.
economists' theories are not easily confirmed or refuted in laboratory analysis.

A

50. Policies such as rent control and trade barriers persist
a.
because economists are about evenly divided as to the merits of those policies.
b.
because almost all economists agree that those policies have no discernible economic effects.
c.
because almost all economists agree that those policies are desirable.
d.
despite the fact that almost all economists agree that those policies are undesirable.

D

1. People who provide you with goods and services
a. are acting out of generosity.
b. do so because they get something in return.
c. have chosen not to become interdependent.
d. are required to do so by the government.

B

2. When can two countries gain from trading two goods?
a. when the first country can only produce the first good and the second country can only
produce the second good
b. when the first country can produce both goods, but can only produce the second good at
great cost, and the second country can produce both goods, but can only produce the first
good at great cost
c. when the first country is better at producing both goods and the second country is worse at
producing both goods
d. Two countries could gain from trading two goods under all of the above conditions.

D

3. The production possibilities frontier illustrates
a. the combinations of output that an economy should produce.
b. the combinations of output that an economy should consume.
c. the combinations of output that an economy can produce.
d. All of the above are correct.

C

4. An economy's production possibilities frontier is also its consumption possibilities frontier
a. under all circumstances.
b. under no circumstances.
c. when the economy is self-sufficient.
d. when the rate of tradeoff between the two goods being produced is constant.

C

5. A production possibilities frontier is a straight line when
a. the more resources the economy uses to produce one good, the fewer resources it has
available to produce the other good.
b. an economy is interdependent and engaged in trade instead of self-sufficient.
c. the rate of tradeoff between the two goods being produced is constant.
d. the rate of tradeoff between the two goods being produced depends on how much of each
good is being produced.

C

6. What must be given up to obtain an item is called
a. out-of-pocket cost.
b. comparative worth.
c. opportunity cost.
d. absolute value.

C

7. The opportunity cost of an item is
a. the number of hours that one must work in order to buy one unit of the item.
b. what you give up to get that item.
c. always less than the dollar value of the item.
d. always greater than the cost of producing the item.

B

8. Absolute advantage is found by comparing different producers'
a. opportunity costs.
b. payments to land, labor, and capital.
c. input requirements per unit of output.
d. locational and logistical circumstances.

C

9. The producer that requires a smaller quantity of inputs to produce a certain amount of a good,
relative to the quantities of inputs required by other producers to produce the same amount of that
good,
a. has a low opportunity cost of producing that good, relative to the opportunity costs of
other producers.
b. has a comparative advantage in the production of that good.
c. has an absolute advantage in the production of that good.
d. should be the only producer of that good.

C

10. If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then
a. Iowa has a comparative advantage in the production of corn.
b. Iowa has an absolute advantage in the production of corn.
c. Iowa should import corn from Oklahoma.
d. Oklahoma should produce just enough corn to satisfy its own residents' demands.

A

11. Canada and the U.S. both produce wheat and computer software. Canada is said to have the
comparative advantage in producing wheat if
a. Canada requires fewer resources than the U.S. to produce a bushel of wheat.
b. the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the
U.S.
c. the opportunity cost of producing a bushel of wheat is lower for the U.S. than it is for
Canada.
d. the U.S. has an absolute advantage over Canada in producing computer software.

B

12. Comparative advantage is related most closely to which of the following?
a. output per hour
b. opportunity cost
c. efficiency
d. bargaining strength in international trade

B

13. For two individuals who engage in the same two productive activities, it is impossible for one of the
two individuals to
a. have a comparative advantage in both activities.
b. have an absolute advantage in both activities.
c. be more productive per unit of time in both activities.
d. gain from trade with each other.

A

14. Which of the following statements about comparative advantage is not true?
a. Comparative advantage is determined by which person or group of persons can produce a
given quantity of a good using the fewest resources.
b. The principle of comparative advantage applies to countries as well as to individuals.
c. Economists use the principle of comparative advantage to emphasize the potential benefits
of free trade.
d. A country may have a comparative advantage in producing a good, even though it lacks an
absolute advantage in producing that good.

A

15. The principle of comparative advantage does not provide answers to certain questions. One of those
questions is
a. Do specialization and trade benefit more than one party to a trade?
b. Is it absolute advantage or comparative advantage that really matters?
c. How are the gains from trade shared among the parties to a trade?
d. Is it possible for specialization and trade to increase total output of traded goods?

C

16. Specialization and trade are closely linked to
a. absolute advantage.
b. comparative advantage.
c. gains to some traders that exactly offset losses to other traders.
d. shrinkage of the economic pie.

B

17. When each person specializes in producing the good in which he or she has a comparative
advantage, total production in the economy
a. falls.
b. stays the same.
c. rises.
d. may fall, rise, or stay the same.

C

18. Total output in an economy increases when each person specializes because
a. there is less competition for the same resources.
b. each person spends more time producing that product in which he or she has a
comparative advantage.
c. a wider variety of products will be produced within each country due to specialization.
d. government necessarily plays a larger role in the economy due to specialization.

B

19. The gains from trade are
a. evident in economic models, but seldom observed in the real world.
b. evident in the real world, but impossible to capture in economic models.
c. a result of more efficient resource allocation than would be observed in the absence of
trade.
d. based on the principle of absolute advantage.

C

20. Trade can make everybody better off because it
a. increases cooperation among nations.
b. allows people to specialize according to comparative advantage.
c. requires some workers in an economy to be retrained.
d. reduces competition among domestic companies.

B

21. Economists generally support
a. trade restrictions.
b. government management of trade.
c. export subsidies.
d. free international trade.

D

22. By definition, imports are
a. people who work in foreign countries.
b. goods in which a country has an absolute advantage.
c. limits placed on the quantity of goods leaving a country.
d. goods produced abroad and sold domestically.

D

23. By definition, exports are
a. limits placed on the quantity of goods brought into a country.
b. goods in which a country has an absolute advantage.
c. people who work in foreign countries.
d. goods produced domestically and sold abroad.

D

24. Trade between countries
a. allows each country to consume at a point outside its production possibilities frontier.
b. limits a country's ability to produce goods and services on its own.
c. must benefit both countries equally; otherwise, trade is not mutually beneficial.
d. can best be understood by examining the countries' absolute advantages.

A

25. When a country has a comparative advantage in producing a certain good,
a. the country should import that good.
b. the country should produce just enough of that good for its own consumption.
c. the country's opportunity cost of that good is high relative to other countries' opportunity
costs of that same good.
d. None of the above is correct.

D

1. A group of buyers and sellers of a particular good or service is called a(n)
a. coalition.
b. economy.
c. market.
d. competition.

C

2. The supply of a good or service is determined by
a. those who buy the good or service.
b. the government.
c. those who sell the good or service.
d. both those who buy and those who sell the good or service.

C

3. In a competitive market, the quantity of a product produced and the price of the product are
determined by
a. a single buyer.
b. a single seller.
c. one buyer and one seller working together.
d. all buyers and all sellers.

D

4. A competitive market is one in which
a. there is only one seller, but there are many buyers.
b. there are many sellers and each seller has the ability to set the price of his product.
c. there are many sellers and they compete with one another in such a way that some sellers
are always being forced out of the market.
d. there are so many buyers and so many sellers that each has a negligible impact on the price
of the product.

D

5. The highest form of competition is called
a. absolute competition.
b. cutthroat competition.
c. perfect competition.
d. market competition.

C

6. Buyers and sellers who have no influence on market price are referred to as
a. market pawns.
b. monopolists.
c. price takers.
d. price makers.

C

7. A monopoly is a market
a. with one seller, and that seller is a price taker.
b. with one seller, and that seller sets the price.
c. with one buyer, and that buyer is a price taker.
d. with one buyer, and that buyer sets the price.

B

8. The quantity demanded of a good is the amount that buyers
a. are willing to purchase.
b. are willing and able to purchase.
c. are willing and able and need to purchase.
d. are able to purchase.

B

9. The law of demand states that, other things equal,
a. an increase in price causes quantity demanded to increase.
b. an increase in price causes quantity demanded to decrease.
c. an increase in quantity demanded causes price to increase.
d. an increase in quantity demanded causes price to decrease.

B

10. The following table contains a demand schedule for a good.
Price Quantity Demanded
$10 100
$20 ?
If the law of demand applies to this good, then "?" could be
a. 0.
b. 100.
c. 200.
d. 400.

A

11. A demand schedule is a table that shows the relationship between
a. quantity demanded and quantity supplied.
b. income and quantity demanded.
c. price and quantity demanded.
d. price and income.

C

12. When drawing a demand curve,
a. demand is on the vertical axis and price is on the horizontal axis.
b. quantity demanded is on the vertical axis and price is on the horizontal axis.
c. price is on the vertical axis and demand is on the horizontal axis.
d. price is on the vertical axis and quantity demanded is on the horizontal axis.

D

13. The market demand curve
a. is found by vertically adding the individual demand curves.
b. slopes upward.
c. represents the sum of the prices that all the buyers are willing to pay for a given quantity
of the good.
d. represents the sum of the quantities demanded by all the buyers at each price of the good.

D

14. A market demand curve shows how the total quantity demanded of a good varies as
a. income varies.
b. price varies.
c. the number of buyers varies.
d. supply varies.

B

15. When quantity demanded decreases at every possible price, we know that the demand curve has
a. shifted to the left.
b. shifted to the right.
c. not shifted; rather, we have moved along the demand curve to a new point on the same
curve.
d. not shifted; rather, the demand curve has become flatter.

A

16. An increase in demand is represented by
a. a movement downward and to the right along a demand curve.
b. a movement upward and to the left along a demand curve.
c. a rightward shift of a demand curve.
d. a leftward shift of a demand curve.

C

17. A decrease in demand is represented by
a. a movement downward and to the right along a demand curve.
b. a movement upward and to the left along a demand curve.
c. a rightward shift of a demand curve.
d. a leftward shift of a demand curve.

D

18. Which of the following changes would not shift the demand curve for a good or service?
a. a change in income
b. a change in the price of the good or service
c. a change in expectations about the future price of the good or service
d. a change in the price of a related good or service

B

19. Which of the following is not a determinant of the demand for a particular good?
a. the prices of related goods
b. income
c. tastes
d. the prices of the inputs used to produce the good

D

20. Each of the following is a determinant of demand except
a. tastes.
b. technology.
c. expectations.
d. the prices of related goods.

B

21. If the demand for a good falls when income falls, then the good is called
a. a normal good.
b. a regular good.
c. a luxury good.
d. an inferior good.

A

22. Pizza is a normal good if
a. the demand for pizza rises when income rises.
b. the demand for pizza rises when the price of pizza falls.
c. the demand curve for pizza slopes downward.
d. the demand curve for pizza shifts to the right when the price of burritos rises, assuming
pizza and burritos are substitutes.

A

23. If a decrease in income increases the demand for a good, then the good is
a. a substitute good.
b. a complementary good.
c. a normal good.
d. an inferior good.

D

24. Two goods are substitutes when a decrease in the price of one good
a. decreases the demand for the other good.
b. decreases the quantity demanded of the other good.
c. increases the demand for the other good.
d. increases the quantity demanded of the other good.

A

25. Two goods are complements when a decrease in the price of one good
a. decreases the quantity demanded of the other good.
b. decreases the demand for the other good.
c. increases the quantity demanded of the other good.
d. increases the demand for the other good.

D

26. Suppose the American Medical Association announces that men who shave their heads are less
likely to die of heart failure. We could expect the current demand for
a. hair gel to increase.
b. razors to increase.
c. combs to increase.
d. shampoo to increase.

B

27. Ford Motor Company announces that next month it will offer $3,000 rebates on new Mustangs. As
a result of this information, today's demand curve for Mustangs
a. shifts to the right.
b. shifts to the left.
c. shifts either to the right or to the left, but we cannot determine the direction of the shift
from the given information.
d. will not shift; rather, the demand curve for Mustangs will shift to the right next month.

B

28. If the number of buyers in a market decreases, then
a. demand will increase.
b. demand will decrease.
c. supply will increase.
d. supply will decrease.

B

34. The quantity supplied of a good is the amount that
a. buyers are willing and able to purchase.
b. sellers are able to produce.
c. buyers and sellers agree will be brought to market.
d. sellers are willing and able to sell.

D

35. "Other things equal, when the price of a good rises, the quantity supplied of the good also rises, and
when the price falls, the quantity supplied falls as well." This relationship between price and
quantity supplied
a. is referred to as the law of supply.
b. applies only to a few goods in the economy.
c. is represented by a downward-sloping supply curve.
d. All of the above are correct.

A

36. The difference between a supply schedule and a supply curve is that
a. a supply schedule incorporates demand and a supply curve does not.
b. a supply schedule incorporates profit and a supply curve does not.
c. a supply schedule can shift, but a supply curve cannot shift.
d. a supply schedule is a table and a supply curve is drawn on a graph.

D

37. The sum of all the individual supply curves for a product is called
a. total supply.
b. market supply.
c. aggregate supply.
d. total output.

B

38. A decrease in supply is represented by
a. a movement downward and to the left along a supply curve.
b. a movement upward and to the right along a supply curve.
c. a rightward shift of a supply curve.
d. a leftward shift of a supply curve.

D

39. A leftward shift of a supply curve is called
a. an increase in supply.
b. a decrease in supply.
c. a decrease in quantity supplied.
d. an increase in quantity supplied.

B

40. A movement along the supply curve might be caused by a change in
a. technology.
b. input prices.
c. expectations about future prices.
d. the price of the good or service that is being supplied.

D

41. Wheat is the main input in the production of flour. If the price of wheat decreases, then we would
expect the
a. demand for flour to increase.
b. demand for flour to decrease.
c. supply of flour to increase.
d. supply of flour to decrease.

C

42. A technological advance will shift the
a. supply curve to the right.
b. supply curve to the left.
c. demand curve to the right.
d. demand curve to the left.

A

43. If suppliers expect the price of their product to fall in the future, then they will
a. decrease supply now.
b. increase supply now.
c. decrease supply in the future but not now.
d. increase supply in the future but not now.

B

44. If the number of sellers in a market increases, then the
a. demand in that market will increase.
b. supply in that market will increase.
c. supply in that market will decrease.
d. demand in that market will decrease.

B

51. The unique point at which the supply and demand curves intersect is called
a. market harmony.
b. coincidence.
c. equivalence.
d. equilibrium.

D

52. A surplus exists in a market if
a. there is an excess demand for the good.
b. the situation is such that the law of supply and demand would predict an increase in the
price of the good from its current level.
c. the current price is above its equilibrium price.
d. quantity demanded exceeds quantity supplied.

C

53. A shortage exists in a market if
a. there is an excess supply of the good.
b. the situation is such that the law of supply and demand would predict a decrease in the
price of the good from its current level.
c. the current price is below its equilibrium price.
d. quantity supplied exceeds quantity demanded.

C

57. If the demand for a product increases, then we would expect
a. equilibrium price to increase and equilibrium quantity to decrease.
b. equilibrium price to decrease and equilibrium quantity to increase.
c. equilibrium price and equilibrium quantity both to increase.
d. equilibrium price and equilibrium quantity both to decrease.

C

58. If the supply of a product increases, then we would expect
a. equilibrium price to increase and equilibrium quantity to decrease.
b. equilibrium price to decrease and equilibrium quantity to increase.
c. equilibrium price and equilibrium quantity both to increase.
d. equilibrium price and equilibrium quantity both to decrease.

B

59. When supply and demand both increase, equilibrium
a. price will increase.
b. price will decrease.
c. quantity may increase, decrease, or remain unchanged.
d. price may increase, decrease, or remain unchanged.

D

60. Suppose that demand for a good decreases and, at the same time, supply of the good decreases.
What would happen in the market for the good?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be
ambiguous.
b. Equilibrium price would increase, but the impact on equilibrium quantity would be
ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.

C

61. Suppose the number of buyers in a market increases and a technological advancement occurs also.
What would we expect to happen in the market?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be
ambiguous.
b. Equilibrium price would increase, but the impact on equilibrium quantity would be
ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.

D

1. The price elasticity of demand measures
a.
buyers' responsiveness to a change in the price of a good.
b.
the extent to which demand increases as additional buyers enter the market.
c.
how much more of a good consumers will demand when incomes rise.
d.
the movement along a supply curve when there is a change in demand.

A

2. For a good that is a necessity,
a.
quantity demanded tends to respond substantially to a change in price.
b.
demand tends to be inelastic.
c.
the law of demand does not apply.
d.
All of the above are correct.

B

3. For a good that is a luxury, demand
a.
tends to be inelastic.
b.
tends to be elastic.
c.
has unit elasticity.
d.
cannot be represented by a demand curve in the usual way.

B

4. For a good that is a necessity, demand
a.
tends to be inelastic.
b.
tends to be elastic.
c.
has unit elasticity.
d.
cannot be represented by a demand curve in the usual way.

A

5. A good will have a more inelastic demand,
a.
the greater the availability of close substitutes.
b.
the broader the definition of the market.
c.
the longer the period of time.
d.
the more it is regarded as a luxury.

B

6. A good will have a more elastic demand,
a.
the greater the availability of close substitutes.
b.
the more narrow the definition of the market.
c.
the shorter the period of time.
d.
the more it is regarded as a necessity.

A

7. Other things equal, the demand for a good tends to be more inelastic, the
a.
fewer the available substitutes.
b.
longer the time period considered.
c.
more the good is considered a luxury good.
d.
more narrowly defined is the market for the good.

A

8. Economists compute the price elasticity of demand as the
a.
percentage change in price divided by the percentage change in quantity demanded.
b.
change in quantity demanded divided by the change in the price.
c.
percentage change in quantity demanded divided by the percentage change in price.
d.
percentage change in quantity demanded divided by the percentage change in income.

C

9. Demand is said to have unit elasticity if elasticity is
a.
less than 1.
b.
greater than 1.
c.
equal to 1.
d.
equal to 0.

C

10. The smaller the price elasticity of demand, the
a.
steeper the demand curve will be through a given point.
b.
flatter the demand curve will be through a given point.
c.
more strongly buyers respond to a change in price between any two prices P1 and P2.
d.
smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.

A

11. When quantity moves proportionately the same amount as price, demand is
a.
elastic, and the price elasticity of demand is 1.
b.
perfectly elastic, and the price elasticity of demand is infinitely large.
c.
perfectly inelastic, and the price elasticity of demand is 0.
d.
unit elastic, and the price elasticity of demand is 1.

D

12. The price elasticity of demand changes as we move along a
a.
horizontal demand curve.
b.
vertical demand curve.
c.
linear, downward-sloping demand curve.
d.
All of the above are correct.

C

13. If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is
a.
0.50.
b.
1.
c.
1.5.
d.
2.

D

14. Demand is said to be price elastic if
a.
the price of the good responds substantially to changes in demand.
b.
demand shifts substantially when income or the expected future price of the good changes.
c.
buyers do not respond much to changes in the price of the good.
d.
buyers respond substantially to changes in the price of the good.

D

15. If demand is price inelastic, then
a.
buyers do not respond much to a change in price.
b.
buyers respond substantially to a change in price, but the response is very slow.
c.
buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes.
d.
the demand curve is very flat.

A

16. Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result,
a.
the equilibrium quantity decreases, and the equilibrium price is unchanged.
b.
the equilibrium price increases, and the equilibrium quantity is unchanged.
c.
the equilibrium quantity and the equilibrium price both are unchanged.
d.
buyers' total expenditure on the good is unchanged.

B

17. The case of perfectly elastic demand is illustrated by a demand curve that is
a.
vertical.
b.
horizontal.
c.
downward-sloping but relatively steep.
d.
downward-sloping but relatively flat.

B

18. When demand is perfectly inelastic, the demand curve will be
a.
negatively sloped, because buyers decrease their purchases when the price rises.
b.
vertical, because buyers purchase the same amount as before whenever the price rises or falls.
c.
positively sloped, because buyers increase their purchases when price rises.
d.
positively sloped, because buyers increase their total expenditures when price rises.

B

19. When demand is inelastic, a decrease in price will cause
a.
an increase in total revenue.
b.
a decrease in total revenue.
c.
no change in total revenue, but an increase in quantity demanded.
d.
no change in total revenue, but a decrease in quantity demanded.

B

20. When demand is elastic, a decrease in price will cause
a.
an increase in total revenue.
b.
a decrease in total revenue.
c.
no change in total revenue, but an increase in quantity demanded.
d.
no change in total revenue, but a decrease in quantity demanded.

A

21. Income elasticity of demand measures how
a.
the quantity demanded changes as consumer income changes.
b.
consumer purchasing power is affected by a change in the price of a good.
c.
the price of a good is affected when there is a change in consumer income.
d.
many units of a good a consumer can buy given a certain income level.

A

22. To determine whether a good is considered normal or inferior, one could examine the value of the
a.
income elasticity of demand for that good.
b.
price elasticity of demand for that good.
c.
price elasticity of supply for that good.
d.
cross-price elasticity of demand for that good.

A

23. Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be
a.
positive.
b.
negative.
c.
either positive or negative. It depends whether A and B are normal goods or inferior goods.
d.
either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand curve.

A

24. Cross-price elasticity of demand measures how
a.
the price of one good changes in response to a change in the price of another good.
b.
the quantity demanded of one good changes in response to a change in the quantity demanded of another good.
c.
the quantity demanded of one good changes in response to a change in the price of another good.
d.
strongly normal or inferior a good is.

C

25. The cross-price elasticity of demand can tell us whether goods are
a.
normal or inferior.
b.
elastic or inelastic.
c.
luxuries or necessities.
d.
complements or substitutes.

D

26. A key determinant of the price elasticity of supply is the
a.
time horizon.
b.
income of consumers.
c.
price elasticity of demand.
d.
importance of the good in a consumer's budget.

A

27. The supply of a good will be more elastic, the
a.
more the good is considered a luxury.
b.
broader is the definition of the market for the good.
c.
larger the number of close substitutes for the good.
d.
longer the time period being considered.

D

28. The price elasticity of supply measures how much
a.
the quantity supplied responds to changes in input prices.
b.
the quantity supplied responds to changes in the price of the good.
c.
the price of the good responds to changes in supply.
d.
sellers respond to changes in technology.

B

29. Frequently, in the short run, the quantity supplied of a good is
a.
impossible, or nearly impossible, to measure.
b.
not very responsive to price changes.
c.
determined by the quantity demanded of the good.
d.
determined by psychological forces and other non-economic forces.

B

30. When a supply curve is relatively flat,
a.
sellers are not at all responsive to a change in price.
b.
the equilibrium price changes substantially when the demand for the good changes.
c.
the supply is relatively elastic.
d.
the supply is relatively inelastic.

C

31. If the price elasticity of supply for wheat is less than 1, then the supply of wheat is
a.
inelastic.
b.
elastic.
c.
unit elastic.
d.
quite sensitive to changes in income.

A

32. As price elasticity of supply increases, the supply curve
a.
becomes flatter.
b.
becomes steeper.
c.
becomes downward sloping.
d.
shifts to the right.

A

35. Which of the following statements is valid when the market supply curve is vertical?
a. Market quantity supplied does not change when the price changes.
b. Supply is perfectly elastic.
c. An increase in market demand will increase the equilibrium quantity.
d. An increase in market demand will not increase the equilibrium price.

A

36. If the quantity supplied is the same regardless of price, then supply is
a.
elastic.
b.
perfectly elastic.
c.
perfectly inelastic.
d.
inelastic.

C

37. When supply is perfectly elastic, the value of the price elasticity of supply is
a.
0.
b.
1.
c.
greater than 0 and less than 1.
d.
infinity.

D

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ECON 2103 Chp. 1- 2-

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1. Resources are
a.
scarce for households but plentiful for economies.
b.
plentiful for households but scarce for economies.
c.
scarce for households and scarce for economies.
d.
plentiful for households and plentiful for economies.

C

2. Economics deals primarily with the concept of
a.
scarcity.
b.
money.
c.
poverty.
d.
banking.

A

3. The overriding reason as to why households and societies face many decisions is that
a.
resources are scarce.
b.
goods and services are not scarce.
c.
incomes fluctuate with business cycles.
d.
people, by nature, tend to disagree.

A

4. In most societies, resources are allocated by
a.
a single central planner.
b.
a small number of central planners.
c.
those firms that use resources to provide goods and services.
d.
the combined actions of millions of households and firms.

D

5. The principle that "people face tradeoffs" applies to
a.
individuals.
b.
families.
c.
societies.
d.
All of the above are correct.

D

6. A tradeoff exists between a clean environment and a higher level of income in that
a.
studies show that individuals with higher levels of income pollute less than low-income individuals.
b.
efforts to reduce pollution typically are not completely successful.
c.
laws that reduce pollution raise costs of production and reduce incomes.
d.
employing individuals to clean up pollution causes increases in employment and income.

C

7. Economists use the word equality to describe a situation in which
a.
each member of society has the same income.
b.
each member of society has access to abundant quantities of goods and services, regardless of his or her income.
c.
society is getting the maximum benefits from its scarce resources.
d.
society’s resources are used efficiently.

A

8. Efficiency means that
a.
society is conserving resources in order to save them for the future.
b.
society’s goods and services are distributed equally among society’s members.
c.
society’s goods and services are distributed fairly, though not necessarily equally, among society’s members.
d.
society is getting the maximum benefits from its scarce resources.

D

9. As a result of a successful attempt by government to cut the economic pie into more equal slices,
a.
it is easier to cut the pie, and therefore the economy can produce a larger pie.
b.
those who earn more income pay less in taxes.
c.
the pie gets smaller, and there will be less pie overall.
d.
government will spend too much time cutting and it causes the economy to lose the ability to produce enough pie for everyone.

C

10. The opportunity cost of an item is
a.
the number of hours needed to earn money to buy the item.
b.
what you give up to get that item.
c.
usually less than the dollar value of the item.
d.
the dollar value of the item.

B

11. Which of the following is correct concerning opportunity cost?
a.
Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway.
b.
To compute opportunity costs, you should subtract benefits from costs.
c.
Opportunity costs and the idea of trade-offs are not closely related.
d.
Rational people should compare various options without considering opportunity costs.

A

12. For most students, the largest single cost of a college education is
a.
the wages given up to attend school.
b.
tuition, fees, and books.
c.
room and board.
d.
transportation, parking, and entertainment.

A

13. For a college student who wishes to calculate the true costs of going to college, the costs of room and board
a.
should be counted in full, regardless of the costs of eating and sleeping elsewhere.
b.
should be counted only to the extent that they are more expensive at college than elsewhere.
c.
usually exceed the opportunity cost of going to college.
d.
plus the cost of tuition, equals the opportunity cost of going to college.

B

14. A rational decision maker
a.
ignores marginal changes and focuses instead on "the big picture."
b.
ignores the likely effects of government policies when he or she makes choices.
c.
takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.
d.
takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions.

C

15. People are willing to pay more for a diamond than for a bottle of water because
a.
the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water.
b.
the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
c.
producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices.
d.
water prices are held artificially low by governments, since water is necessary for life.

B

16. Economists are particularly adept at understanding that people respond to
a.
laws.
b.
incentives.
c.
punishments more than rewards.
d.
rewards more than punishments.

B

17. People are likely to respond to a policy change
a.
only if they think the policy is a good one.
b.
only if the policy change changes the costs of their behavior.
c.
only if the policy change changes the benefits of their behavior.
d.
if the policy changes either the costs or benefits of their behavior.

D

18. Which is the most accurate statement about trade?
a.
Trade can make every nation better off.
b.
Trade makes some nations better off and others worse off.
c.
Trading for a good can make a nation better off only if the nation cannot produce that good itself.
d.
Trade helps rich nations and hurts poor nations.

A

19. Canada can benefit from trade
a.
only with nations that can produce goods Canada cannot produce.
b.
only with less developed nations.
c.
only with nations outside of North America.
d.
with any nation.

D

20. Trade between countries tends to
a.
reduce both competition and specialization.
b.
reduce competition and increase specialization.
c.
increase competition and reduce specialization.
d.
increase both competition and specialization.

D

21. Market economies are distinguished from other types of economies largely on the basis of
a.
the political affiliations of government officials.
b.
the process by which government officials are elected or appointed.
c.
the ways in which scarce resources are allocated.
d.
the number of retail outlets available to consumers.

C

22. In a market economy, economic activity is guided by
a.
the government.
b.
corporations.
c.
central planners.
d.
self-interest and prices.

D

23. For markets to work well, there must be
a.
market power.
b.
a central planner.
c.
property rights.
d.
abundant, not scarce, resources.

C

24. The government enforces property rights by
a.
requiring property owners to pay property taxes.
b.
providing police and courts.
c.
forcing people to own property.
d.
providing public parks and recreation facilities.

B

25. A rationale for government involvement in a market economy is as follows:
a.
Markets sometimes fail to produce a fair distribution of economic well-being.
b.
Markets sometimes fail to produce an efficient allocation of resources.
c.
Property rights have to be enforced.
d.
All of the above are correct.

D

26. Which of the following is not generally regarded by economists as a legitimate reason for the government to intervene in a market?
a.
to promote efficiency
b.
to promote equality
c.
to enforce property rights
d.
to protect an industry from foreign competition

D

27. Causes of market failure include
a.
externalities and market power.
b.
market power and incorrect forecasts of consumer demand.
c.
externalities and foreign competition.
d.
incorrect forecasts of consumer demand and foreign competition.

A

28. When a single person (or small group) has the ability to influence market prices, there is
a.
competition.
b.
market power.
c.
an externality.
d.
a lack of property rights.

B

29. Which of the following firms is most likely to have market power?
a.
a grocery store in a metropolitan area
b.
a gas station in a suburb
c.
a pub in a college town
d.
the only hotel in a rural area

D

30. Productivity is defined as the
a.
amount of goods and services produced from each unit of labor input.
b.
number of workers required to produce a given amount of goods and services.
c.
amount of labor that can be saved by replacing workers with machines.
d.
actual amount of effort workers put into an hour of working time.

A

31. What is the most important factor that explains differences in living standards across countries?
a.
the quantity of money
b.
the level of unemployment
c.
productivity
d.
equality

C

32. To promote good economic outcomes, policymakers should strive to enact policies that
a.
enhance productivity.
b.
enhance individuals’ market power.
c.
result in a rapidly-growing quantity of money.
d.
All of the above are correct.

A

33. An increase in the overall level of prices in an economy is referred to as
a.
the income effect.
b.
inflation.
c.
deflation.
d.
the substitution effect.

B

34. Large or persistent inflation is almost always caused by
a.
excessive government spending.
b.
excessive growth in the quantity of money.
c.
foreign competition.
d.
higher-than-normal levels of productivity.

B

35. Most economists believe that an increase in the quantity of money results in
a.
an increase in the demand for goods and services.
b.
lower unemployment in the short run.
c.
higher inflation in the long run.
d.
All of the above are correct.

D

36. In the short run, an increase in the money supply is likely to lead to
a.
lower unemployment and lower inflation.
b.
lower unemployment and higher inflation.
c.
higher unemployment and lower inflation.
d.
higher unemployment and higher inflation.

B

37. The tradeoff between inflation and unemployment
a.
implies that policies designed to reduce unemployment also reduce inflation.
b.
was eliminated by improved economic policies in the 1900s.
c.
is a long-run tradeoff, persisting for decades, according to most economists.
d.
None of the above are correct.

D

38. The business cycle is the
a.
relationship between unemployment and inflation.
b.
irregular fluctuations in economic activity.
c.
positive relationship between the quantity of money in an economy and inflation.
d.
predictable changes in economic activity due to changes in government spending and taxes.

B

39. The business cycle is measured by the
a.
production of goods and services.
b.
number of people employed.
c.
the interest rate.
d.
both a and b

D

40. It once took 90 percent of our population to grow our food. It now takes only 3 percent of the population to grow our food. Which of the following statements is true?
a.
This loss of jobs has been detrimental to our economy.
b.
The government should provide subsidies to encourage more people to become farmers.
c.
This reduction in the number of farmers explains the increase in the price of food.
d.
Economists understand this is progress because the proportion of the population that used to be farmers is now employed in other professions.

D

1. Economists, like mathematicians, physicists, and biologists,
a.
make use of the scientific method.
b.
try to address their subject with a scientist’s objectivity.
c.
devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories.
d.
All of the above are correct.

D

2. The scientific method is applicable to studying
a.
natural sciences, but not social sciences.
b.
social sciences, but not natural sciences.
c.
both natural sciences and social sciences.
d.
None of the above is correct.

C

3. In conducting their research, economists face an obstacle that not all scientists face; specifically, in economics, it is often difficult and sometimes impossible to
a.
make use of theory and observation.
b.
rely upon the scientific method.
c.
conduct laboratory experiments.
d.
find articles or books that were written before 1900.

C

4. For economists, substitutes for laboratory experiments often come in the form of
a.
natural experiments offered by history.
b.
untested theories.
c.
"rules of thumb" and other such conveniences.
d.
reliance upon the wisdom of elders in the economics profession.

A

5. Economists make use of assumptions, some of which are unrealistic, for the purpose of
a.
teaching economics to people who have never before studied economics.
b.
advancing their political agendas.
c.
developing models when the scientific method cannot be used.
d.
focusing their thinking.

D

6. When studying the effects of public policy changes, economists
a.
always refrain from making assumptions.
b.
sometimes make different assumptions about the short run and the long run.
c.
consider only the direct effects of those policy changes and not the indirect effects.
d.
consider only the short-run effects of those policy changes and not the long-run effects.

B

7. In building economic models, economists often omit
a.
assumptions.
b.
theories.
c.
details.
d.
equations.

C

8. Which types of models are built with assumptions?
a.
economic models, but not models in other disciplines such as physics and biology
b.
economic models as well as models in other disciplines such as physics and biology
c.
models that are built for teaching purposes but not for research purposes
d.
bad models

B

9. The circular-flow diagram is an example of
a.
a laboratory experiment.
b.
an economic model.
c.
a mathematical model.
d.
All of the above are correct.

B

10. The circular-flow diagram is a
a.
visual model of the economy.
b.
visual model of the relationships among money, prices, and businesses.
c.
model that shows the effects of government on the economy.
d.
mathematical model of how the economy works.

A

11. A circular-flow diagram is a model that
a.
helps to explain how participants in the economy interact with one another.
b.
helps to explain how the economy is organized.
c.
incorporates all aspects of the real economy.
d.
Both (a) and (b) are correct.

D

12. Another term for factors of production is
a.
inputs.
b.
output.
c.
goods.
d.
services.

A

13. In the simple circular-flow diagram,
a.
households own the factors of production.
b.
households buy all the goods and services that firms produce.
c.
land, labor, and capital flow from households to firms.
d.
All of the above are correct.

D

14. Which markets are represented in the simple circular-flow diagram?
a.
markets for goods and services and markets for financial assets
b.
markets for factors of production and markets for financial assets
c.
markets for goods and services and markets for factors of production
d.
markets for goods and services and markets for imports and exports

C

15. In the markets for goods and services in the circular-flow diagram,
a.
households and firms are both buyers.
b.
households and firms are both sellers.
c.
households are buyers and firms are sellers.
d.
households are sellers and firms are buyers.

C

16. Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram?
a.
a landowner leases land to a farmer
b.
a farmer hires a teenager to help with harvest
c.
a retired farmer sells his combine to a new farmer
d.
a woman buys corn for dinner

D

17. In the circular-flow diagram,
a.
factors of production flow from government to firms.
b.
goods and services flow from households to firms.
c.
income paid to the factors of production flows from firms to households.
d.
spending on goods and services flows from firms to households.

C

18. The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and
a.
society’s preferences.
b.
the available production technology.
c.
a fair distribution of the output.
d.
the available demand for the output.

B

19. The production possibilities frontier is a graph that shows the various combinations of output that an economy
a.
should produce.
b.
wants to produce.
c.
can produce.
d.
demands.

C

20. Any point on a country’s production possibilities frontier represents a combination of two goods that an economy
a.
will never be able to produce.
b.
can produce using all available resources and technology.
c.
can produce using some portion, but not all, of its resources and technology.
d.
may be able to produce in the future with more resources and/or superior technology.

B

21. If an economy is producing efficiently, then
a.
there is no way to produce more of one good without producing less of another good.
b.
it is possible to produce more of both goods without increasing the quantities of inputs that are being used.
c.
it is possible to produce more of one good without producing less of another good.
d.
it is not possible to produce more of any good at any cost.

A

22. An economy’s production of two goods is efficient if
a.
all members of society consume equal portions of the goods.
b.
the goods are produced using only some of society’s available resources.
c.
it is impossible to produce more of one good without producing less of the other.
d.
the opportunity cost of producing more of one good is zero.

C

23. When an economy is operating inside its production possibilities frontier, we know that
a.
there are unused resources or inefficiencies in the economy.
b.
all of the economy’s resources are fully employed.
c.
economic growth would have to occur in order for the economy to move to a point on the frontier.
d.
in order to produce more of one good, the economy would have to give up some of the other good.

A

24. Unemployment would cause an economy to
a.
produce inside its production possibilities frontier.
b.
produce on its production possibilities frontier.
c.
produce outside its production possibilities frontier.
d.
experience an inward shift of its production possibilities frontier.

A

25. The bowed shape of the production possibilities frontier can be explained by the fact that
a.
all resources are scarce.
b.
economic growth is always occurring.
c.
the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing.
d.
the only way to get more of one good is to get less of the other.

C

26. Economists believe that production possibilities frontiers
a.
never have a bowed shape.
b.
rarely have a bowed shape.
c.
often have a bowed shape.
d.
always have a bowed shape.

C

27. A production possibilities frontier can shift outward if
a.
government increases the amount of money in the economy.
b.
there is a technological improvement.
c.
resources are shifted from the production of one good to the production of the other good.
d.
the economy abandons inefficient production methods in favor of efficient production methods.

B

28. A production possibilities frontier shifts outward when
a.
the economy experiences economic growth.
b.
the desires of the economy’s citizens change.
c.
at least one of the basic principles of economics is violated.
d.
opportunity costs are lessened.

A

29. The production possibilities frontier is used to illustrate some basic economic ideas, including
a.
scarcity.
b.
opportunity cost.
c.
economic growth.
d.
All of the above are correct.

D

36. When economists are trying to explain the world, they are
a.
scientists.
b.
policy advisers.
c.
in the realm of microeconomics rather than macroeconomics.
d.
in the realm of normative economics rather than positive economics.

A

37. Which of the following statements is correct about the roles of economists?
a.
Economists are best viewed as policy advisers.
b.
Economists are best viewed as scientists.
c.
In trying to explain the world, economists are policy advisers; in trying to improve the world, they are scientists.
d.
In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers.

D

38. Normative statements are
a.
prescriptive, whereas positive statements are descriptive.
b.
descriptive, whereas positive statements are prescriptive.
c.
backward-looking, whereas positive statements are forward-looking.
d.
forward-looking, whereas positive statements are backward-looking.

A

39. Positive statements are
a.
prescriptive.
b.
claims about how the world should be.
c.
claims about how the world is.
d.
made by economists speaking as policy advisers.

C

40. Normative statements are
a.
descriptive.
b.
claims about how the world should be.
c.
claims about how the world is.
d.
made by economists speaking as scientists.

B

41. When economists make positive statements, they are
a.
speaking as scientists.
b.
speaking as policy advisers.
c.
making claims about how the world should be.
d.
revealing that they are very conservative in their views of how the world works.

A

42. When economists make normative statements, they are
a.
speaking as scientists.
b.
speaking as policy advisers.
c.
making claims about how the world is.
d.
revealing that they are very liberal in their views of how the world works.

B

43. When an economist evaluates a positive statement, he or she is primarily
a.
examining evidence.
b.
evaluating values as well as facts.
c.
acting as a policy adviser.
d.
concerned with making a sound decision on how the world ought to be.

A

44. Which of the following is an example of a positive, as opposed to normative, statement?
a.
Inflation is more harmful to the economy than unemployment is.
b.
If welfare payments increase, the world will be a better place.
c.
Prices rise when the government prints too much money.
d.
When public policies are evaluated, the benefits to the economy of improved equality should be considered more important than the costs of reduced efficiency.

C

45. Which of the following is an example of a positive, as opposed to normative, statement?
a.
Income tax rates should not have been cut as they were a few years ago.
b.
The quantity of money has grown too slowly in recent years.
c.
When the quantity of money grows rapidly, inflation is a predictable consequence.
d.
All of the above are positive statements.

C

46. Economists sometimes give conflicting advice because
a.
graduate students in economics are encouraged to argue with each other.
b.
economists have different values and scientific judgment.
c.
economists acting as scientists do not like to agree with economists acting as policy advisers.
d.
economics is more of a belief system than a science.

B

47. The two basic reasons why economists often appear to give conflicting advice to policymakers are differences in
a.
opinions and education.
b.
opinions and values.
c.
scientific judgments and education.
d.
scientific judgments and values.

D

48. Almost all economists agree that rent control
a.
has no effect on the rental income of landlords.
b.
allows the market for housing to work more efficiently.
c.
adversely affects the availability and quality of housing.
d.
is a very inexpensive way to help the most needy members of society.

C

49. Policies such as rent control and trade barriers persist in spite of the fact that economists are virtually united in their opposition to such policies, probably because
a.
economists have not yet convinced the general public that the policies are undesirable.
b.
economists engage in positive analysis, not normative analysis.
c.
economists have values that are different from the values of most non-economists.
d.
economists’ theories are not easily confirmed or refuted in laboratory analysis.

A

50. Policies such as rent control and trade barriers persist
a.
because economists are about evenly divided as to the merits of those policies.
b.
because almost all economists agree that those policies have no discernible economic effects.
c.
because almost all economists agree that those policies are desirable.
d.
despite the fact that almost all economists agree that those policies are undesirable.

D

1. People who provide you with goods and services
a. are acting out of generosity.
b. do so because they get something in return.
c. have chosen not to become interdependent.
d. are required to do so by the government.

B

2. When can two countries gain from trading two goods?
a. when the first country can only produce the first good and the second country can only
produce the second good
b. when the first country can produce both goods, but can only produce the second good at
great cost, and the second country can produce both goods, but can only produce the first
good at great cost
c. when the first country is better at producing both goods and the second country is worse at
producing both goods
d. Two countries could gain from trading two goods under all of the above conditions.

D

3. The production possibilities frontier illustrates
a. the combinations of output that an economy should produce.
b. the combinations of output that an economy should consume.
c. the combinations of output that an economy can produce.
d. All of the above are correct.

C

4. An economy’s production possibilities frontier is also its consumption possibilities frontier
a. under all circumstances.
b. under no circumstances.
c. when the economy is self-sufficient.
d. when the rate of tradeoff between the two goods being produced is constant.

C

5. A production possibilities frontier is a straight line when
a. the more resources the economy uses to produce one good, the fewer resources it has
available to produce the other good.
b. an economy is interdependent and engaged in trade instead of self-sufficient.
c. the rate of tradeoff between the two goods being produced is constant.
d. the rate of tradeoff between the two goods being produced depends on how much of each
good is being produced.

C

6. What must be given up to obtain an item is called
a. out-of-pocket cost.
b. comparative worth.
c. opportunity cost.
d. absolute value.

C

7. The opportunity cost of an item is
a. the number of hours that one must work in order to buy one unit of the item.
b. what you give up to get that item.
c. always less than the dollar value of the item.
d. always greater than the cost of producing the item.

B

8. Absolute advantage is found by comparing different producers’
a. opportunity costs.
b. payments to land, labor, and capital.
c. input requirements per unit of output.
d. locational and logistical circumstances.

C

9. The producer that requires a smaller quantity of inputs to produce a certain amount of a good,
relative to the quantities of inputs required by other producers to produce the same amount of that
good,
a. has a low opportunity cost of producing that good, relative to the opportunity costs of
other producers.
b. has a comparative advantage in the production of that good.
c. has an absolute advantage in the production of that good.
d. should be the only producer of that good.

C

10. If Iowa’s opportunity cost of corn is lower than Oklahoma’s opportunity cost of corn, then
a. Iowa has a comparative advantage in the production of corn.
b. Iowa has an absolute advantage in the production of corn.
c. Iowa should import corn from Oklahoma.
d. Oklahoma should produce just enough corn to satisfy its own residents’ demands.

A

11. Canada and the U.S. both produce wheat and computer software. Canada is said to have the
comparative advantage in producing wheat if
a. Canada requires fewer resources than the U.S. to produce a bushel of wheat.
b. the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the
U.S.
c. the opportunity cost of producing a bushel of wheat is lower for the U.S. than it is for
Canada.
d. the U.S. has an absolute advantage over Canada in producing computer software.

B

12. Comparative advantage is related most closely to which of the following?
a. output per hour
b. opportunity cost
c. efficiency
d. bargaining strength in international trade

B

13. For two individuals who engage in the same two productive activities, it is impossible for one of the
two individuals to
a. have a comparative advantage in both activities.
b. have an absolute advantage in both activities.
c. be more productive per unit of time in both activities.
d. gain from trade with each other.

A

14. Which of the following statements about comparative advantage is not true?
a. Comparative advantage is determined by which person or group of persons can produce a
given quantity of a good using the fewest resources.
b. The principle of comparative advantage applies to countries as well as to individuals.
c. Economists use the principle of comparative advantage to emphasize the potential benefits
of free trade.
d. A country may have a comparative advantage in producing a good, even though it lacks an
absolute advantage in producing that good.

A

15. The principle of comparative advantage does not provide answers to certain questions. One of those
questions is
a. Do specialization and trade benefit more than one party to a trade?
b. Is it absolute advantage or comparative advantage that really matters?
c. How are the gains from trade shared among the parties to a trade?
d. Is it possible for specialization and trade to increase total output of traded goods?

C

16. Specialization and trade are closely linked to
a. absolute advantage.
b. comparative advantage.
c. gains to some traders that exactly offset losses to other traders.
d. shrinkage of the economic pie.

B

17. When each person specializes in producing the good in which he or she has a comparative
advantage, total production in the economy
a. falls.
b. stays the same.
c. rises.
d. may fall, rise, or stay the same.

C

18. Total output in an economy increases when each person specializes because
a. there is less competition for the same resources.
b. each person spends more time producing that product in which he or she has a
comparative advantage.
c. a wider variety of products will be produced within each country due to specialization.
d. government necessarily plays a larger role in the economy due to specialization.

B

19. The gains from trade are
a. evident in economic models, but seldom observed in the real world.
b. evident in the real world, but impossible to capture in economic models.
c. a result of more efficient resource allocation than would be observed in the absence of
trade.
d. based on the principle of absolute advantage.

C

20. Trade can make everybody better off because it
a. increases cooperation among nations.
b. allows people to specialize according to comparative advantage.
c. requires some workers in an economy to be retrained.
d. reduces competition among domestic companies.

B

21. Economists generally support
a. trade restrictions.
b. government management of trade.
c. export subsidies.
d. free international trade.

D

22. By definition, imports are
a. people who work in foreign countries.
b. goods in which a country has an absolute advantage.
c. limits placed on the quantity of goods leaving a country.
d. goods produced abroad and sold domestically.

D

23. By definition, exports are
a. limits placed on the quantity of goods brought into a country.
b. goods in which a country has an absolute advantage.
c. people who work in foreign countries.
d. goods produced domestically and sold abroad.

D

24. Trade between countries
a. allows each country to consume at a point outside its production possibilities frontier.
b. limits a country’s ability to produce goods and services on its own.
c. must benefit both countries equally; otherwise, trade is not mutually beneficial.
d. can best be understood by examining the countries’ absolute advantages.

A

25. When a country has a comparative advantage in producing a certain good,
a. the country should import that good.
b. the country should produce just enough of that good for its own consumption.
c. the country’s opportunity cost of that good is high relative to other countries’ opportunity
costs of that same good.
d. None of the above is correct.

D

1. A group of buyers and sellers of a particular good or service is called a(n)
a. coalition.
b. economy.
c. market.
d. competition.

C

2. The supply of a good or service is determined by
a. those who buy the good or service.
b. the government.
c. those who sell the good or service.
d. both those who buy and those who sell the good or service.

C

3. In a competitive market, the quantity of a product produced and the price of the product are
determined by
a. a single buyer.
b. a single seller.
c. one buyer and one seller working together.
d. all buyers and all sellers.

D

4. A competitive market is one in which
a. there is only one seller, but there are many buyers.
b. there are many sellers and each seller has the ability to set the price of his product.
c. there are many sellers and they compete with one another in such a way that some sellers
are always being forced out of the market.
d. there are so many buyers and so many sellers that each has a negligible impact on the price
of the product.

D

5. The highest form of competition is called
a. absolute competition.
b. cutthroat competition.
c. perfect competition.
d. market competition.

C

6. Buyers and sellers who have no influence on market price are referred to as
a. market pawns.
b. monopolists.
c. price takers.
d. price makers.

C

7. A monopoly is a market
a. with one seller, and that seller is a price taker.
b. with one seller, and that seller sets the price.
c. with one buyer, and that buyer is a price taker.
d. with one buyer, and that buyer sets the price.

B

8. The quantity demanded of a good is the amount that buyers
a. are willing to purchase.
b. are willing and able to purchase.
c. are willing and able and need to purchase.
d. are able to purchase.

B

9. The law of demand states that, other things equal,
a. an increase in price causes quantity demanded to increase.
b. an increase in price causes quantity demanded to decrease.
c. an increase in quantity demanded causes price to increase.
d. an increase in quantity demanded causes price to decrease.

B

10. The following table contains a demand schedule for a good.
Price Quantity Demanded
$10 100
$20 ?
If the law of demand applies to this good, then "?" could be
a. 0.
b. 100.
c. 200.
d. 400.

A

11. A demand schedule is a table that shows the relationship between
a. quantity demanded and quantity supplied.
b. income and quantity demanded.
c. price and quantity demanded.
d. price and income.

C

12. When drawing a demand curve,
a. demand is on the vertical axis and price is on the horizontal axis.
b. quantity demanded is on the vertical axis and price is on the horizontal axis.
c. price is on the vertical axis and demand is on the horizontal axis.
d. price is on the vertical axis and quantity demanded is on the horizontal axis.

D

13. The market demand curve
a. is found by vertically adding the individual demand curves.
b. slopes upward.
c. represents the sum of the prices that all the buyers are willing to pay for a given quantity
of the good.
d. represents the sum of the quantities demanded by all the buyers at each price of the good.

D

14. A market demand curve shows how the total quantity demanded of a good varies as
a. income varies.
b. price varies.
c. the number of buyers varies.
d. supply varies.

B

15. When quantity demanded decreases at every possible price, we know that the demand curve has
a. shifted to the left.
b. shifted to the right.
c. not shifted; rather, we have moved along the demand curve to a new point on the same
curve.
d. not shifted; rather, the demand curve has become flatter.

A

16. An increase in demand is represented by
a. a movement downward and to the right along a demand curve.
b. a movement upward and to the left along a demand curve.
c. a rightward shift of a demand curve.
d. a leftward shift of a demand curve.

C

17. A decrease in demand is represented by
a. a movement downward and to the right along a demand curve.
b. a movement upward and to the left along a demand curve.
c. a rightward shift of a demand curve.
d. a leftward shift of a demand curve.

D

18. Which of the following changes would not shift the demand curve for a good or service?
a. a change in income
b. a change in the price of the good or service
c. a change in expectations about the future price of the good or service
d. a change in the price of a related good or service

B

19. Which of the following is not a determinant of the demand for a particular good?
a. the prices of related goods
b. income
c. tastes
d. the prices of the inputs used to produce the good

D

20. Each of the following is a determinant of demand except
a. tastes.
b. technology.
c. expectations.
d. the prices of related goods.

B

21. If the demand for a good falls when income falls, then the good is called
a. a normal good.
b. a regular good.
c. a luxury good.
d. an inferior good.

A

22. Pizza is a normal good if
a. the demand for pizza rises when income rises.
b. the demand for pizza rises when the price of pizza falls.
c. the demand curve for pizza slopes downward.
d. the demand curve for pizza shifts to the right when the price of burritos rises, assuming
pizza and burritos are substitutes.

A

23. If a decrease in income increases the demand for a good, then the good is
a. a substitute good.
b. a complementary good.
c. a normal good.
d. an inferior good.

D

24. Two goods are substitutes when a decrease in the price of one good
a. decreases the demand for the other good.
b. decreases the quantity demanded of the other good.
c. increases the demand for the other good.
d. increases the quantity demanded of the other good.

A

25. Two goods are complements when a decrease in the price of one good
a. decreases the quantity demanded of the other good.
b. decreases the demand for the other good.
c. increases the quantity demanded of the other good.
d. increases the demand for the other good.

D

26. Suppose the American Medical Association announces that men who shave their heads are less
likely to die of heart failure. We could expect the current demand for
a. hair gel to increase.
b. razors to increase.
c. combs to increase.
d. shampoo to increase.

B

27. Ford Motor Company announces that next month it will offer $3,000 rebates on new Mustangs. As
a result of this information, today’s demand curve for Mustangs
a. shifts to the right.
b. shifts to the left.
c. shifts either to the right or to the left, but we cannot determine the direction of the shift
from the given information.
d. will not shift; rather, the demand curve for Mustangs will shift to the right next month.

B

28. If the number of buyers in a market decreases, then
a. demand will increase.
b. demand will decrease.
c. supply will increase.
d. supply will decrease.

B

34. The quantity supplied of a good is the amount that
a. buyers are willing and able to purchase.
b. sellers are able to produce.
c. buyers and sellers agree will be brought to market.
d. sellers are willing and able to sell.

D

35. "Other things equal, when the price of a good rises, the quantity supplied of the good also rises, and
when the price falls, the quantity supplied falls as well." This relationship between price and
quantity supplied
a. is referred to as the law of supply.
b. applies only to a few goods in the economy.
c. is represented by a downward-sloping supply curve.
d. All of the above are correct.

A

36. The difference between a supply schedule and a supply curve is that
a. a supply schedule incorporates demand and a supply curve does not.
b. a supply schedule incorporates profit and a supply curve does not.
c. a supply schedule can shift, but a supply curve cannot shift.
d. a supply schedule is a table and a supply curve is drawn on a graph.

D

37. The sum of all the individual supply curves for a product is called
a. total supply.
b. market supply.
c. aggregate supply.
d. total output.

B

38. A decrease in supply is represented by
a. a movement downward and to the left along a supply curve.
b. a movement upward and to the right along a supply curve.
c. a rightward shift of a supply curve.
d. a leftward shift of a supply curve.

D

39. A leftward shift of a supply curve is called
a. an increase in supply.
b. a decrease in supply.
c. a decrease in quantity supplied.
d. an increase in quantity supplied.

B

40. A movement along the supply curve might be caused by a change in
a. technology.
b. input prices.
c. expectations about future prices.
d. the price of the good or service that is being supplied.

D

41. Wheat is the main input in the production of flour. If the price of wheat decreases, then we would
expect the
a. demand for flour to increase.
b. demand for flour to decrease.
c. supply of flour to increase.
d. supply of flour to decrease.

C

42. A technological advance will shift the
a. supply curve to the right.
b. supply curve to the left.
c. demand curve to the right.
d. demand curve to the left.

A

43. If suppliers expect the price of their product to fall in the future, then they will
a. decrease supply now.
b. increase supply now.
c. decrease supply in the future but not now.
d. increase supply in the future but not now.

B

44. If the number of sellers in a market increases, then the
a. demand in that market will increase.
b. supply in that market will increase.
c. supply in that market will decrease.
d. demand in that market will decrease.

B

51. The unique point at which the supply and demand curves intersect is called
a. market harmony.
b. coincidence.
c. equivalence.
d. equilibrium.

D

52. A surplus exists in a market if
a. there is an excess demand for the good.
b. the situation is such that the law of supply and demand would predict an increase in the
price of the good from its current level.
c. the current price is above its equilibrium price.
d. quantity demanded exceeds quantity supplied.

C

53. A shortage exists in a market if
a. there is an excess supply of the good.
b. the situation is such that the law of supply and demand would predict a decrease in the
price of the good from its current level.
c. the current price is below its equilibrium price.
d. quantity supplied exceeds quantity demanded.

C

57. If the demand for a product increases, then we would expect
a. equilibrium price to increase and equilibrium quantity to decrease.
b. equilibrium price to decrease and equilibrium quantity to increase.
c. equilibrium price and equilibrium quantity both to increase.
d. equilibrium price and equilibrium quantity both to decrease.

C

58. If the supply of a product increases, then we would expect
a. equilibrium price to increase and equilibrium quantity to decrease.
b. equilibrium price to decrease and equilibrium quantity to increase.
c. equilibrium price and equilibrium quantity both to increase.
d. equilibrium price and equilibrium quantity both to decrease.

B

59. When supply and demand both increase, equilibrium
a. price will increase.
b. price will decrease.
c. quantity may increase, decrease, or remain unchanged.
d. price may increase, decrease, or remain unchanged.

D

60. Suppose that demand for a good decreases and, at the same time, supply of the good decreases.
What would happen in the market for the good?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be
ambiguous.
b. Equilibrium price would increase, but the impact on equilibrium quantity would be
ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.

C

61. Suppose the number of buyers in a market increases and a technological advancement occurs also.
What would we expect to happen in the market?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be
ambiguous.
b. Equilibrium price would increase, but the impact on equilibrium quantity would be
ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.

D

1. The price elasticity of demand measures
a.
buyers’ responsiveness to a change in the price of a good.
b.
the extent to which demand increases as additional buyers enter the market.
c.
how much more of a good consumers will demand when incomes rise.
d.
the movement along a supply curve when there is a change in demand.

A

2. For a good that is a necessity,
a.
quantity demanded tends to respond substantially to a change in price.
b.
demand tends to be inelastic.
c.
the law of demand does not apply.
d.
All of the above are correct.

B

3. For a good that is a luxury, demand
a.
tends to be inelastic.
b.
tends to be elastic.
c.
has unit elasticity.
d.
cannot be represented by a demand curve in the usual way.

B

4. For a good that is a necessity, demand
a.
tends to be inelastic.
b.
tends to be elastic.
c.
has unit elasticity.
d.
cannot be represented by a demand curve in the usual way.

A

5. A good will have a more inelastic demand,
a.
the greater the availability of close substitutes.
b.
the broader the definition of the market.
c.
the longer the period of time.
d.
the more it is regarded as a luxury.

B

6. A good will have a more elastic demand,
a.
the greater the availability of close substitutes.
b.
the more narrow the definition of the market.
c.
the shorter the period of time.
d.
the more it is regarded as a necessity.

A

7. Other things equal, the demand for a good tends to be more inelastic, the
a.
fewer the available substitutes.
b.
longer the time period considered.
c.
more the good is considered a luxury good.
d.
more narrowly defined is the market for the good.

A

8. Economists compute the price elasticity of demand as the
a.
percentage change in price divided by the percentage change in quantity demanded.
b.
change in quantity demanded divided by the change in the price.
c.
percentage change in quantity demanded divided by the percentage change in price.
d.
percentage change in quantity demanded divided by the percentage change in income.

C

9. Demand is said to have unit elasticity if elasticity is
a.
less than 1.
b.
greater than 1.
c.
equal to 1.
d.
equal to 0.

C

10. The smaller the price elasticity of demand, the
a.
steeper the demand curve will be through a given point.
b.
flatter the demand curve will be through a given point.
c.
more strongly buyers respond to a change in price between any two prices P1 and P2.
d.
smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.

A

11. When quantity moves proportionately the same amount as price, demand is
a.
elastic, and the price elasticity of demand is 1.
b.
perfectly elastic, and the price elasticity of demand is infinitely large.
c.
perfectly inelastic, and the price elasticity of demand is 0.
d.
unit elastic, and the price elasticity of demand is 1.

D

12. The price elasticity of demand changes as we move along a
a.
horizontal demand curve.
b.
vertical demand curve.
c.
linear, downward-sloping demand curve.
d.
All of the above are correct.

C

13. If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is
a.
0.50.
b.
1.
c.
1.5.
d.
2.

D

14. Demand is said to be price elastic if
a.
the price of the good responds substantially to changes in demand.
b.
demand shifts substantially when income or the expected future price of the good changes.
c.
buyers do not respond much to changes in the price of the good.
d.
buyers respond substantially to changes in the price of the good.

D

15. If demand is price inelastic, then
a.
buyers do not respond much to a change in price.
b.
buyers respond substantially to a change in price, but the response is very slow.
c.
buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes.
d.
the demand curve is very flat.

A

16. Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result,
a.
the equilibrium quantity decreases, and the equilibrium price is unchanged.
b.
the equilibrium price increases, and the equilibrium quantity is unchanged.
c.
the equilibrium quantity and the equilibrium price both are unchanged.
d.
buyers’ total expenditure on the good is unchanged.

B

17. The case of perfectly elastic demand is illustrated by a demand curve that is
a.
vertical.
b.
horizontal.
c.
downward-sloping but relatively steep.
d.
downward-sloping but relatively flat.

B

18. When demand is perfectly inelastic, the demand curve will be
a.
negatively sloped, because buyers decrease their purchases when the price rises.
b.
vertical, because buyers purchase the same amount as before whenever the price rises or falls.
c.
positively sloped, because buyers increase their purchases when price rises.
d.
positively sloped, because buyers increase their total expenditures when price rises.

B

19. When demand is inelastic, a decrease in price will cause
a.
an increase in total revenue.
b.
a decrease in total revenue.
c.
no change in total revenue, but an increase in quantity demanded.
d.
no change in total revenue, but a decrease in quantity demanded.

B

20. When demand is elastic, a decrease in price will cause
a.
an increase in total revenue.
b.
a decrease in total revenue.
c.
no change in total revenue, but an increase in quantity demanded.
d.
no change in total revenue, but a decrease in quantity demanded.

A

21. Income elasticity of demand measures how
a.
the quantity demanded changes as consumer income changes.
b.
consumer purchasing power is affected by a change in the price of a good.
c.
the price of a good is affected when there is a change in consumer income.
d.
many units of a good a consumer can buy given a certain income level.

A

22. To determine whether a good is considered normal or inferior, one could examine the value of the
a.
income elasticity of demand for that good.
b.
price elasticity of demand for that good.
c.
price elasticity of supply for that good.
d.
cross-price elasticity of demand for that good.

A

23. Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be
a.
positive.
b.
negative.
c.
either positive or negative. It depends whether A and B are normal goods or inferior goods.
d.
either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand curve.

A

24. Cross-price elasticity of demand measures how
a.
the price of one good changes in response to a change in the price of another good.
b.
the quantity demanded of one good changes in response to a change in the quantity demanded of another good.
c.
the quantity demanded of one good changes in response to a change in the price of another good.
d.
strongly normal or inferior a good is.

C

25. The cross-price elasticity of demand can tell us whether goods are
a.
normal or inferior.
b.
elastic or inelastic.
c.
luxuries or necessities.
d.
complements or substitutes.

D

26. A key determinant of the price elasticity of supply is the
a.
time horizon.
b.
income of consumers.
c.
price elasticity of demand.
d.
importance of the good in a consumer’s budget.

A

27. The supply of a good will be more elastic, the
a.
more the good is considered a luxury.
b.
broader is the definition of the market for the good.
c.
larger the number of close substitutes for the good.
d.
longer the time period being considered.

D

28. The price elasticity of supply measures how much
a.
the quantity supplied responds to changes in input prices.
b.
the quantity supplied responds to changes in the price of the good.
c.
the price of the good responds to changes in supply.
d.
sellers respond to changes in technology.

B

29. Frequently, in the short run, the quantity supplied of a good is
a.
impossible, or nearly impossible, to measure.
b.
not very responsive to price changes.
c.
determined by the quantity demanded of the good.
d.
determined by psychological forces and other non-economic forces.

B

30. When a supply curve is relatively flat,
a.
sellers are not at all responsive to a change in price.
b.
the equilibrium price changes substantially when the demand for the good changes.
c.
the supply is relatively elastic.
d.
the supply is relatively inelastic.

C

31. If the price elasticity of supply for wheat is less than 1, then the supply of wheat is
a.
inelastic.
b.
elastic.
c.
unit elastic.
d.
quite sensitive to changes in income.

A

32. As price elasticity of supply increases, the supply curve
a.
becomes flatter.
b.
becomes steeper.
c.
becomes downward sloping.
d.
shifts to the right.

A

35. Which of the following statements is valid when the market supply curve is vertical?
a. Market quantity supplied does not change when the price changes.
b. Supply is perfectly elastic.
c. An increase in market demand will increase the equilibrium quantity.
d. An increase in market demand will not increase the equilibrium price.

A

36. If the quantity supplied is the same regardless of price, then supply is
a.
elastic.
b.
perfectly elastic.
c.
perfectly inelastic.
d.
inelastic.

C

37. When supply is perfectly elastic, the value of the price elasticity of supply is
a.
0.
b.
1.
c.
greater than 0 and less than 1.
d.
infinity.

D

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