question

Which of the following is assumed in constructing a typical production possibilities curve?

answer

Production technology is fixed.

question

Refer to the table. For this economy to produce a total output of 3 units of capital goods and 13 units of consumer goods, it must:

answer

achieve economic growth.

question

Refer to the diagram. Which of the following is a normative statement?

answer

Point C is superior to point B because it is important to enhance the future of society.

question

In recent years the economy of Japan has grown, despite the fact that the population of Japan has declined. Which of the following would best explain Japan's economic growth despite having a smaller population?

answer

Advancements in technology that make labor more productive.

question

Which of the following will not produce an outward shift of the production possibilities curve?

answer

The reduction of unemployment.

question

The production possibilities curve shows:

answer

the various combinations of two goods that can be produced when society employs all of its scarce resources.

question

Positive statements are expressions of value judgments.

answer

False

question

Which of the following is a positive statement?

answer

The temperature is 92 degrees today.

question

The concept of opportunity cost:

answer

suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.

question

The optimal allocation of resources is found:

answer

where MB = MC.

question

A typical concave (bowed out from the origin) production possibilities curve implies:

answer

that society must choose among various attainable combinations of goods.

question

Products and services are scarce because resources are scarce.

answer

True

question

Any point inside the production possibilities curve indicates:

answer

that more output could be produced with the available resources.

question

A nation's production possibilities curve is bowed out from the origin because:

answer

resources are not generally equally efficient in producing every good.

question

When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because:

answer

resources are limited.

question

Slopes of lines are especially important in economics because:

answer

they measure marginal changes.

question

What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500? a. Small automobiles become more fashionable: b. The price of large automobiles rises (with the price of small autos remaining the same): c. Income declines and small autos are an inferior good: d. Consumers anticipate that the price of small autos will greatly come down in the near future: e. The price of gasoline substantially drops:

answer

a. Small automobiles become more fashionable: Increase. b. The price of large automobiles rises (with the price of small autos remaining the same): Increase. c. Income declines and small autos are an inferior good: Increase. d. Consumers anticipate that the price of small autos will greatly come down in the near future: Decrease. e. The price of gasoline substantially drops: Cannot be determined.

question

True or False: A "change in quantity demanded" is a shift of the entire demand curve to the right or to the left.

answer

False

question

What effect will each of the following have on the supply of auto tires? (Keeping all else constant) a. A technological advance in the methods of producing tires: b. A decline in the number of firms in the tire industry: c. An increase in the prices of rubber used in the production of tires: d. The expectation that the equilibrium price of auto tires will be lower in the future than currently: e. A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production. (with no change in the price of auto tires): f. The levying of a per-unit tax on each auto tire sold: g. The granting of a 50-cent-per-unit subsidy for each auto tire produced:

answer

a. A technological advance in the methods of producing tires: Increase b. A decline in the number of firms in the tire industry: Decrease c. An increase in the prices of rubber used in the production of tires: Decrease d. The expectation that the equilibrium price of auto tires will be lower in the future than currently: Increase e. A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production. (with no change in the price of auto tires): Increase f. The levying of a per-unit tax on each auto tire sold: Decrease g. The granting of a 50-cent-per-unit subsidy for each auto tire produced: Increase

question

In which of these two statements are the terms "supply" and "demand" used correctly? A. "In the corn market, demand often exceeds supply and supply sometimes exceeds demand." B. "The price of corn rises and falls in response to changes in supply and demand."

answer

Statement B

question

Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be _______ of memory chips.

answer

a surplus

question

a. On a hot day, both the demand for lemonade and the supply of lemonade increase. b. On a cold day, both the demand for ice cream and the supply of ice cream decrease. c. When Hawaii's Mt. Kilauea erupts violently, the demand on the part of tourists for sightseeing flights increases but the supply of pilots willing to provide these dangerous flights decreases. d. In a hot area of Arizona where they generate a lot of their electricity with wind turbines, the demand for electricity falls on windy days as people switch off their air conditioners and enjoy the breeze. But at the same time, the amount of electricity supplied increases as the wind turbines spin faster.

answer

a. P ?; Q Inc. b. P ?; Q Dec. c. P Inc.; Q? d. P Dec.; Q?

question

A price ceiling will result in a shortage only if the ceiling price is ______ the equilibrium price.

answer

less than

question

The demand curve shows the relationship between:

answer

price and quantity demanded.

question

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.

answer

direct; inverse

question

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the:

answer

income effect

question

A recent study found that an increase in the federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that:

answer

beer and marijuana are complementary goods.

question

If consumer incomes increase, the demand for product X:

answer

may shift either to the right or left.

question

A firm's supply curve is upsloping because:

answer

beyond some point the production costs of additional units of output will rise.

question

Increasing marginal cost of production explains:

answer

why the supply curve is upsloping.

question

A leftward shift of a product supply curve might be caused by:

answer

some firms leaving an industry.

question

At the point where the demand and supply curves for a product intersect:

answer

the quantity that consumers want to purchase and the amount producers choose to sell are the same.

question

At the optimal quantity of a public good:

answer

marginal benefit equals marginal cost.

question

At the output level defining allocative efficiency

answer

the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.

question

Society's marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility.

answer

False

question

When a supply-side market failure occurs, the costs are greater than the benefits for the last unit(s) of output produced.

answer

True

question

What two conditions must hold for a competitive market to produce efficient outcomes?

answer

Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.

question

Which of the following is an example of a public good?

answer

A weather warning system

question

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

answer

True

question

Graphically, producer surplus is measured as the area:

answer

above the supply curve and below the actual price.

question

An efficiency loss (or deadweight loss):

answer

is measured as the combined loss of consumer surplus and producer surplus.

question

Demand-side market failures occur when:

answer

the demand and supply curves don't reflect consumers' full willingness to pay for a good or service.

question

Economists consider governments to be "wasteful":

answer

whenever they over- or underallocate resources to a project.

question

Along a supply curve, product price and producer surplus are inversely related.

answer

False.

question

Refer to the diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, it should:

answer

tax producers so that the market supply curve shifts leftward (upward).

question

Which of the following conditions does not need to occur for a market to achieve allocative efficiency?

answer

The total revenue received by producers equals the total cost of production.

question

The socially optimal amount of pollution abatement occurs where society's marginal:

answer

benefit of abatement equals its marginal cost of abatement.

question

If one person's consumption of a good does not preclude another's consumption, the good is said to be

answer

nonrival in consumption.

question

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences:

answer

a consumer surplus of $10 and Tony experiences a producer surplus of $190.

question

How would the following changes in price affect total revenue? That is, would total revenue increase, decrease, or remain unchanged? a. Price falls and demand is inelastic: b. Price rises and demand is elastic: c. Price rises and demand is inelastic: d. Price falls and demand is elastic: e. Price falls and demand is of unit elasticity

answer

a. Price falls and demand is inelastic: Decrease. b. Price rises and demand is elastic: Decrease. c. Price rises and demand is inelastic: Increase. d. Price falls and demand is elastic: Increase. e. Price falls and demand is of unit elasticity: Remain unchanged.

question

The price elasticity of demand coefficient measures:

answer

buyer responsiveness to price changes.

question

The basic formula for the price elasticity of demand coefficient is:

answer

percentage change in quantity demanded/percentage change in price.

question

The demand for a product is inelastic with respect to price if:

answer

consumers are largely unresponsive to a per unit price change.

question

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:

answer

increase the quantity demanded by about 25 percent.

question

Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the absolute value of the price elasticity (midpoint method) is:

answer

1.37.

question

Which of the following is not characteristic of the demand for a commodity that is elastic?

answer

The elasticity coefficient is less than one.

question

If the demand for product X is inelastic, a 4 percent increase in the price of X will:

answer

decrease the quantity of X demanded by less than 4 percent.

question

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then:

answer

the price elasticity of demand is 2.25.

question

A perfectly inelastic demand schedule:

answer

can be represented by a line parallel to the vertical axis.

question

Which of the following statements is not correct?

answer

In the range of prices in which demand is elastic, total revenue will diminish as price decreases.

question

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is:

answer

relatively inelastic.

question

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is:

answer

relatively elastic.

question

The demand for autos is likely to be:

answer

less price elastic than the demand for Honda Accords.

question

Price elasticity of demand is generally:

answer

greater in the long run than in the short run.

question

Suppose that the price of product X rises by 20 percent and the quantity supplied of X increases by 15 percent. The coefficient of price elasticity of supply for good X is:

answer

less than 1 and therefore supply is inelastic.

question

Suppose the price of a product rises and the total revenue of sellers increases.

answer

No conclusion can be reached with respect to the elasticity of supply.

question

Which of the following is most likely to be an implicit cost for Company X?

answer

Forgone rent from the building owned and used by Company X.

question

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

answer

All are opportunity costs.

question

The long run is characterized by:

answer

the ability of the firm to change its plant size.

question

Marginal product is:

answer

the increase in total output attributable to the employment of one more worker.

question

the law of diminishing returns indicates that:

answer

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

question

Which of the following best expresses the law of diminishing returns?

answer

As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.

question

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, we can conclude that:

answer

marginal product of the third worker is 9.

question

Which of the following is most likely to be a fixed cost?

answer

Property insurance premiums.

question

If you operated a small bakery, which of the following would be a variable cost in the short run?

answer

Baking supplies (flour, salt, etc.).

question

Which of the following is correct as it relates to cost curves?

answer

Marginal cost intersects average total cost at the latter's minimum point.

question

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total fixed costs are:

answer

$5,000.

question

Average total cost is:

answer

(TFC + TVC) / Q

question

In the figure, curves 1, 2, 3, and 4 represent the: (2 is above 3, 1 is nearest to y-axis, 4 is lowest curve)

answer

MC, ATC, AVC, and AFC curves respectively.

question

Which of the following holds true?

answer

When AP is rising AVC is falling, and when AP is falling AVC is rising.

question

Economies and diseconomies of scale explain:

answer

why the firm's long-run average total cost curve is U-shaped.

question

The diagram shows the short-run average total cost curves for five different plant sizes of a firm. The shape of each individual curve reflects:

answer

increasing returns, followed by diminishing returns.

question

Suppose that the paper clip industry is perfectly competitive. Also assume that the market price for paper clips is 2 cents per paper clip. The demand curve faced by each firm in the industry is:

answer

A horizontal line at 2 cents per paper clip.

question

What can you conclude about the structure of the industry in which this firm is operating? (constant product price, increasing TR, constant MR, increasing D)

answer

The industry is purely competitive.

question

A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output at which

answer

TR exceeds TC by as much as possible

question

If it is possible for a perfectly competitive firm to do better financially by producing rather than shutting down, then it should produce the amount of output at which:

answer

MR=MC

question

A perfectly competitive firm that makes car batteries has a fixed cost of $10,000 per month. The market price at which it can sell its output is $100 per battery. The firm's minimum AVC is $105 per battery. The firm is currently producing 500 batteries a month (the output level at which MR = MC). This firm is making a _____________ and should _______________ production.

answer

loss; shut-down

question

Consider a profit-maximizing firm in a competitive industry. Under which of the following situations would the firm choose to produce where MR = MC?

answer

P > minimum ATC. Minimum AVC < P < minimum ATC.

question

Which of the following industries most closely approximates pure competition?

answer

Agriculture

question

In which of the following industry structures is the entry of new firms the most difficult?

answer

Pure Monopoly

question

An industry comprised of four firms, each with about 25 percent of the total market for a product, is an example of:

answer

oligopoly

question

A purely competitive seller is:

answer

a "price-taker"

question

The demand schedule or curve confronted by the individual, purely competitive firm is:

answer

perfectly elastic

question

Which of the following is characteristic of a purely competitive seller's demand curve?

answer

Price and marginal revenue are equal at all levels of output.

question

Price is constant to the individual firm selling in a purely competitive market because:

answer

each seller supplies a negligible fraction of total supply.

question

The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.

answer

downsloping; perfectly elastic

question

A firm reaches a break-even point (normal profit position) where:

answer

total revenue and total cost are equal.

question

The MR = MC rule applies:

answer

in firms of all industries

question

When a firm is maximizing profit, it will necessarily be:

answer

maximizing the difference between total revenue and total cost.

question

In the short run, the individual competitive firm's supply curve is that segment of the:

answer

marginal cost curve lying above the average variable cost curve.

question

Refer to the diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is:

answer

where MC meets AVC

question

Refer to the diagram for a purely competitive producer. If product price is P3 (where MC meets ATC)

answer

economic profits will be zero.

question

When discussing pure competition, the term long run refers to a period of time long enough to allow:

answer

the term long run refers to a period of time long enough for existing firms to expand or contract their capacities AND for the overall number of firms to increase or decrease as new firms enter or existing firms exit.

question

Suppose that the pen-making industry is perfectly competitive. Also suppose that each current firm and any potential firms that might enter the industry all have identical cost curves, with minimum ATC = $1.25 per pen. If the market equilibrium price of pens is currently $1.50, what would you expect it to be in the long run?

answer

$1.25

question

Suppose that as the output of mobile phones increases, the cost of touch screens and other component parts decreases. If the mobile phone industry features pure competition, we would expect the long-run supply curve for mobile phones to be:

answer

downward sloping

question

Long-run equilibrium will be restored by ______ correct shifting _______ correct such that in the long run, market (industry) price will ________

answer

Long-run equilibrium will be restored by supply correct shifting out correct such that in the long run, market (industry) price will remain unchanged

question

Suppose that purely competitive firms producing cashews discover that P exceeds MC. a. Is their combined output of cashews too little, too much, or just right to achieve allocative efficiency? b. In the long run, what will happen to the supply of cashews and the price of cashews?

answer

a. too little b. Supply will increase and the price of cashews will decrease

question

Which of the following distinguishes the short run from the long run in pure competition?

answer

Firms can enter and exit the market in the long run but not in the short run.

question

The primary force encouraging the entry of new firms into a purely competitive industry is:

answer

economic profits earned by firms already in the industry.

question

In a purely competitive industry:

answer

there may be economic profits in the short run but not in the long run.

question

Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm:

answer

should continue producing in the short run but leave the industry in the long run if the situation persists.

question

Which of the following is true concerning purely competitive industries?

answer

In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.

question

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then:

answer

new firms will enter this market.

question

A purely competitive firm is precluded from making economic profits in the long run because:

answer

of unimpeded entry to the industry.

question

When LCD televisions first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that

answer

the LCD television industry is a decreasing-cost industry.

question

The MR = MC rule applies:

answer

in both the short run and the long run.

question

The term allocative efficiency refers to:

answer

the production of the product mix most desired by consumers.

question

If for a firm P = minimum ATC = MC, then:

answer

both allocative efficiency and productive efficiency are being achieved.

question

Refer to the diagram. If this represents a typical firm in the industry and the firm is producing at the profit-maximizing level of output in the short run, then in the long run we would expect economic profits in this market to rise.

answer

False

question

Which of the following could explain why a firm is a monopoly?

answer

Government licenses. Economies of scale. Downsloping market demand.

question

The MR curve of a perfectly competitive firm is horizontal. The MR curve of a monopoly firm is:

answer

downsloping

question

How often do perfectly competitive firms engage in price discrimination?

answer

never

question

Suppose that a monopolist can segregate his buyers into two different groups to which he can charge two different prices. In order to maximize profit, the monopolist should charge a higher price to the group that has:

answer

the lower elasticity of demand

question

The socially optimal price (P = MC) is socially optimal because:

answer

it achieves allocative efficiency

question

The main problem with imposing the socially optimal price (P = MC) on a monopoly is that the socially optimal price:

answer

May be so low that the regulated monopoly can't break even.

question

Which of the following is correct?

answer

A purely competitive firm is a "price taker," while a monopolist is a "price maker."

question

A purely monopolistic firm:

answer

faces a downsloping demand curve.

question

Pure monopolists may obtain economic profits in the long run because:

answer

of barriers to entry.

question

The terms of trade reflect the:

answer

ratio at which nations will exchange two goods.

question

In the theory of comparative advantage, a good should be produced in that nation where

answer

its cost is least in terms of alternative goods that might otherwise be produced

question

If two nations have straight-line production possibilities curves

answer

there will be a basis for mutually advantageous trade provided the slopes differ

question

The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that:

answer

a nation's trading possibilities line lies to the right of its production possibilities line

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