To which of the followingâ household-type(s) does the phraseâ \"unlimited wants and limited resources\" âapply?

I. Aâ low-income household II. Aâ middle-income household III. Aâ high-income household

What is the relationship between wants andâ resources?

Resources are used to produce things that satisfyâ people\'s wants.

Microeconomics is the part of economic analysis that studies decision making undertaken byâ ________. Macroeconomics is the part of economic analysis that studies the behavior ofâ ________.

individuals andâ firms; the economy as a whole

Which of the following is a true statement aboutâ self-interest as used in the study ofâ economics?

Any action can be based onâ self-interest if the person has some reason for the action.

One of yourâ classmates, Sally, is a hardworkingâ student, serious about herâ classes, and conscientious about her grades. Sally is alsoâ involved, however, in volunteer activities and an extracurricular sport. Is Sally displaying rational

Yes, she is using her time allocated amongâ school, studying, sports and volunteer work in a manner she deems best.

The three fundamental economic questions that a nation addresses in order to allocateâ society\'s scarce resources include all of the following âexcept:

Why will the items beâ produced? 3 Questions: For whom will the items beâ produced? How will the items beâ produced? What and how much will beâ produced?

Economics – Flashcard Test Answers

question

A rational self-interested student decides whether to purchase a textbook required for a particular class based on all of the following, except

answer

whether the textbook has an attractive dust jacket.

question

Rational, self-interested government officials seeking more funding for mass transit through higher taxes should consider

answer

the fact that raising taxes is generally unpopular and may result in a potential loss in a future election.

question

A municipality taxing hotel guests to obtain funding for a new sports stadium should consider all of the following, except

answer

the winning potential of the sports team using the stadium.

question

To which of the following household-type(s) does the phrase "unlimited wants and limited resources" apply?

answer

I. A low-income household II. A middle-income household III. A high-income household

question

The economic way of thinking will

answer

allow you to make better decisions

question

The economic way of thinking is best described as

answer

an analytical framework enabling one to reach informed conclusions.

question

Decisions must frequently be made by individuals, organizations, and even nations. Facilitating better decision-making is a fundamental goal of economics. The analytical framework advocated by economists that enables one to make informed decisions is called

answer

the economic way of thinking

question

Suppose a government officiala government official is trying to decide whether or not to allow more immigration. Which of the following is not an aspect of the economic way of thinking that would apply in this decision-making process?

answer

flipping a coin

question

Economics is

answer

the study of how limited resources are allocated to satisfy unlimited wants.

question

The ultimate purpose of economics is

answer

to study how individuals make choices

question

What is the relationship between wants and resources?

answer

Resources are used to produce things that satisfy people's wants.

question

What is the difference between microeconomics and macroeconomics?

answer

Microeconomics is the study of decision making undertaken by individuals while macroeconomics looks at the behavior of the economy as a whole.

question

One reason that economists use microeconomics as the basis of macroeconomic analysis is

answer

that all choices are made by individuals and firms

question

Microeconomics focuses on

answer

decisions made by individual households and firms.

question

The impact of the national debt on the economy's unemployment is an example of

answer

macroeconomics analysis

question

Economics is the study of how people allocate their ________ resources in an attempt to satisfy their ________ wants. As such, economics is the study of how people make choices.

answer

limited; unlimited

question

Microeconomics is the part of economic analysis that studies decision making undertaken by ________. Macroeconomics is the part of economic analysis that studies the behavior of ________.

answer

individuals and firms; the economy as a whole

question

Economics is a social science that involves the study of how individuals choose among alternatives to satisfy their ___, which are what people would buy if their incomes were ____

answer

wants; unlimited

question

______ the study of the decision-making processes of individuals (or households) and firms, and _______ , the study of the performance of the economy as a whole, are the two main branches into which the study of economics is divided.

answer

Microeconomics; Macroeconomics

question

Based on the recommendation of a friend, you buy a ticket and attend a movie with high expectations. After seeing the movie, you think that it is the worst film ever made and that it was a complete waste of money. This situation

answer

is consistent with rational behavior because you had thought that you were going to like the movie.

question

The rationality assumption as used in economics

answer

states that people respond to incentives.

question

Economics

answer

assumes individuals are rational and respond to different incentives.

question

Which of the following is a true statement about self-interest as used in the study of economics?

answer

Any action can be based on self-interest if the person has some reason for the action.

question

One of your classmates, Sally, is a hardworking student, serious about her classes, and conscientious about her grades. Sally is also involved, however, in volunteer activities and an extracurricular sport. Is Sally displaying rational

answer

Yes, she is using her time allocated among school, studying, sports and volunteer work in a manner she deems best.

question

economics is the study of

answer

choices made when scarcity exists.

question

A simplified representation of a complex system dealing with economics is known as:

answer

an economic model.

question

Economic decision-making often focuses on how a one unit change will impact the system. This type of analysis is known as:

answer

marginal analysis.

question

Ph.D. economists have traditionally been hired by:

answer

Wall Street firms. Government agencies. Universities.

question

According to the article, ___________ is hiring an economist to help its team of economists use existing data to "reveal ways to improve the company's service for buyers and sellers."

answer

Ebay

question

The behaviors that these firms are attempting to model are the subject of:

answer

Microeconomics

question

The three fundamental economic questions that a nation addresses in order to allocate society's scarce resources include all of the following except:

answer

Why will the items be produced? 3 Questions: For whom will the items be produced? How will the items be produced? What and how much will be produced?

question

People may appear to use rules of thumb, as suggested by the assumption of bounded rationality, even though they may really be behaving in a manner suggested by the rationality assumption if

answer

they face persistently predictable range of choices for a period of time.

question

The ceteris paribus assumption means

answer

"other things constant" "other things equal"

question

An economic model is developed from a set of assumptions about consumer behavior and predicts that people will buy less of a good the higher the price of the good. Empirical testing of this model would involve

answer

the collection of data to evaluate the usefulness of the model.

question

Consider the following statement based on a positive economic analysis that assumes that all other things remain constant: Upper A reduction in income tax ratesA reduction in income tax rates will result in more people workingmore people working. Which of the following (initially assumed constant) could occur and thus offset the stated outcome?

answer

An increase in the outsourcing of jobs

question

economic goods are

answer

goods that are scarce.

question

The division of productive activities among persons and regions so that no one individual or region is totally self-sufficient is known as

answer

specialization.

question

Which is true?

answer

Everyone can benefit when people specialize where they have a comparative advantage and then trade with each other.

question

Specialization and comparative advantage

answer

lead to international trade and overall gains for the nations involved. lead to greater output even if you can do everything better than someone else. lead to greater productivity.

question

Farmer McDonald has 100 acres of land on which he can grow soybeans or corn. An acre of land yields 200 bushels of soybeans or 100 bushels of corn or some combination of both. The accompanying figure refers to farmer McDonald's

answer

production possibilities curve

question

The observation of more people running up larger student loan debts is

answer

onsistent with the Rationality Assumption employed by economists because student borrowers have anticipated finding jobs that would enable them both to repay their student loans and to buy items such as houses and vehicles.

question

A number of young college graduates confronting student loan debts have viewed their substantial debts as

answer

a disincentive to buying big-ticket items

question

Most student borrowers believe that borrowing to finance their educations is in their own self-interest because

answer

they anticipate finding jobs that will enable them to repay their student loans.

question

International trade between two nations increases the standard of living of both nations due to

answer

specialization and gains from comparative advantage.

question

Which of the following is NOT a factor of production?

answer

a product

question

Whenever productive resources are used to make capital goods

answer

society is giving up current consumption

question

John and Mary work eight hours at a bakery. John can decorate either 10 iceminus−cream cakes or 4 wedding cakes; Mary can decorate either 8 iceminus−cream cakes or 2 wedding cakes. According to this scenario,

answer

Mary has the comparative advantage in decorating iceminus−cream cakes.

question

What is the type of mechanism that answers the basic economic questions through a decentralized decision making process?

answer

Market system

question

To an economist, the term "needs"

answer

is objectively undefinable.

question

Which of the following statements concerning economic models is FALSE?

answer

Economic models are based on pure fact and no assumptions.

question

Why do most people choose to specialize in a narrow set of skills for their work, rather than to learn a little bit about several varied fields of endeavor?

answer

It allows them to earn more income by being more productive.

question

All of the following are aspects of microeconomics EXCEPT

answer

the average level of prices of all goods and services produced in a country in a year.

question

The rationality assumption implies that

answer

individuals will not intentionally make decisions that leave them worse off.

question

Economic growth can be pictured in a production possibilities curve diagram by

answer

shifting the production possibilities curve out.

question

To be useful, a model must

answer

predict more accurately than other models that have been developed.

question

Recently, a bank was trying to decide what fee to charge for "expedited payments"long dash— payments that the bank would transmit extra speedily to enable customers to avoid late fees on cable TV bills, electric bills, and the like. To try to determine what fee customers were willing to pay for expedited payments, the bank conducted a survey. It was able to determine that many of the people surveyed already paid fees for services that exceeded the maximum fees that they said they were willing to pay. This illustrates that

answer

it is important to focus on what rational individuals actually do rather than what they say they will do.

question

Opportunity cost exists because of

answer

scarcity

question

Which statement is correct?

answer

The Fed has cut the key interest rate several times this year.

question

The model for forecasting electoral results that is more firmly based on the rationality assumption of economics is

answer

the Iowa Electronic Market model using prices, as the traders on this exchange have a strong incentive to make the best possible forecast.

question

An economist can evaluate which is the better model for forecasting electoral outcomes by

answer

comparing the predictions of the two models with actual election results.

question

An economic study of the number of online searches that individuals conduct before selecting a particular item to purchase online presumes that people are interested only in their own satisfaction, pursue their ultimate objectives, and consider every relevant option. In examining the above decision-making process, the approach that the economist is following can best be described as the one that relies on

answer

the rationality assumption.

question

An economist seeking to predict the effect that an increase in a state's sales tax rate will have on consumers? Purchases of goods and services presumes that people are limited in their ability to process information about how the tax-rate increase will influence the after-tax prices those consumers will pay. In examining the above decision-making process, the approach that the economist is following relies on

answer

the assumption of bounded rationality.

question

To evaluate the impact of an increase in the range of choices that an individual confronts when deciding among devices for accessing the internet, an economic researcher makes the assumption that the individual is unable to take into account every new internet-access option available to her. In examining the above decision-making process, the approach that the economist is following can best be described as the one that relies on

answer

the assumption of bounded rationality

question

An economic model is developed from a set of assumptions about consumer behavior and predicts that people will buy less of a good the higher the price of the good. Empirical testing of this model would involve

answer

the collection of data to evaluate the usefulness of the model.

question

Which of the following statements is true?

answer

Economics is a science since the study of economics uses models and theories that are subject to empirical testing.

question

A higher minimum wage will reduce employment opportunities for minimum wage workers

answer

Positive Economics

question

Increasing the earnings of minimum wage employees is desirable, and raising the minimum wage is the best way to accomplish this.

answer

Normative Economics

question

Everyone should enjoy open access to healthcare

answer

Normative Economics

question

Heathcare subsidies will increase the consumption of health care

answer

Positive Economics

question

"We ought to do more for the education of our children." Statements using words like ought or should are

answer

Normative Statements

question

A politician states "taxes should be raised to provide more spending on school lunch programs." This is

answer

a normative economic statement.

question

An increase in the price of gasoline will reduce the amount of gasoline purchased. This is

answer

A positive Economic Statement

question

Other things remaining equal, the law of demand says that higher prices will lead to a

answer

smaller quantity demanded and lower prices to a larger quantity demanded.

question

Which of the following is consistent with the law of demand?

answer

A reduction of the price of salt led to a 5 percent increaseincrease in the quantity of salt purchased.

question

Hospital room and Suite increase

answer

The money prices of both goods increased, the relative price of hospital rooms increased, and the relative price of hotel suites decreased.

question

Suppose that the price of a pair of shoes is $15 and the price of a jar of jellyjar of jelly is $9. What is the relative price of a pair of shoes? Relative of a jar of jelly??

answer

The relative price of a pair of shoes is the price of a pair of shoes divided by the price of a jar of jelly. 5/3 3/5

question

Suppose that at first the price of a pair of shoespair of shoes is $10 and the price of a t minus shirt is $6. Then, the price of a pair of shoespair of shoes changes to $20 and the price of a t minus shirtt−shirt changes to $14. What has happened the money prices and relative prices of these two goods?

answer

The money price of a pair of shoespair of shoes and a t minus shirtt−shirt have risen and the relative price of a pair of shoespair of shoes has fallen while relative price of a t minus shirtt−shirt has risen.

question

Which of the following is an implication of the law of supply?

answer

Producers will offer more units at a higher price and fewer units at a lower price.

question

The law of supply then implies that a ______ the supply curve occurs due to a change in market price.

answer

movement along

question

According to the text, firms encounter rising costs when they attempt to produce more in the same time period. As a consequence, they must be offered a higher price to be willing to incur these higher costs. The resulting relationship between price and quantity supplied is

answer

direct (or positive) and is called the law of supply.

question

Which of the following is consistent with the law of supply?

answer

An increase in the market price of MP3 players causes an increase in the production of MP3 players

question

The law of supply states that there is a ___ relationship between the price and _____. Thus, as the price increases, According to the law of supply, as the price of the good increases, it causes

answer

positive; the quantity supplied the quantity produced by firms increases a movement upward along the supply curve.

question

Firms providing wireless (an alternative to cable) Internet access services reduce their prices. This will cause a(n)

answer

decrease in demand.

question

Firms providing cable-based Internet access services reduce their prices. This will cause a(n)

answer

increase in quantity demanded.

question

There is a decrease in the incomes earned by consumers of cable-based Internet access services. This will cause a(n)

answer

decrease in demand.

question

Consumers' tastes shift away from using wireless Internet access in favor of cable-based Internet access services.

answer

increase in demand.

question

Identify which of the following would generate an increase in the market demand for tablet devices, which are a normal good. I. A decrease in the incomes of consumers of tablet devices. II. An increase in the price of ultrathin computers, which are substitutes. III. An increase in the price of online apps, which are complements. IV. An increase in the number of consumers in the market for tablet devices.

answer

Both II and IV.

question

Which of the following good is an inferior good?

answer

When consumer income increases, the demand for eggs decreases.

question

According to the example in the book, medical research has shown that grapefruit juice can adversely affect the effectiveness of certain medications. This is likely to affect the demand for grapefruit because

answer

people will buy less grapefruit because their tastes and preferences have changed.

question

According to the same example in the book, medical research has shown that grapefruit juice can reduce the effectiveness of certain medications. However, there is also evidence that grapefruit consumption can lower cholesterol in young people. The net effect on demand from these two findings

answer

cannot be determined because they have opposite effects on demand.

question

If the price of bacon rises, and as a result the demand for sausage increases, this implies that these two goods are

answer

substitutes

question

If the price of tennis racquets falls, and as a result the demand for tennis balls _____ this implies that these two goods are complements

answer

increases

question

If the price of coffee rises, and as a result the demand for sugar falls, this implies that these two goods are

answer

complements

question

If the price of automobiles____ and as a result the demand for motorbikes falls, this implies that these two goods are substitutes

answer

falls

question

According to the example in the book, medical research has shown that grapefruit juice can adversely affect the effectiveness of certain medications. This is likely to affect the demand for grapefruit because

answer

people will buy less grapefruit because their tastes and preferences have changed.

question

A rise in demand is represented by a leftward shift in the demand curve, and a fall in demand is represented by a rightward shift in the demand curve.

answer

False

question

For substitutes, a change in the price of a product will cause a change in demand in the ________ direction for the other good. For complements, a change in the price of a product will cause a change in demand in the ________ direction for the other good.

answer

same; opposite

question

A change in a good's own price leads to a change in quantity demanded for any given demand curve.

answer

True

question

Whenever there is a change in a ceteris paribus condition there will be a change in ________, which is represented by a ________.

answer

demand; shift in the entire demand curve

question

Demand curves are drawn with determinants other than the price of the good held constant. These other determinants, called ceteris paribus conditions, are income, tastes and preferences, prices of related goods, expectations about future prices and incomes, and the number of potential buyers in the market at any given price. If any one of these determinants changes, the demand curve will shift to the right or to the left.

answer

...

question

A change in demand comes about only because of a change in the ____ conditions of demand. This change in demand is a shift in the demand curve to the left or to the right.

answer

ceteris paribus

question

A change in the quantity demanded comes about when there is a change in the price of the good (other things held constant). Such a change in quantity demanded involves a ______ a given demand curve.

answer

movement along

question

The price of touch screens used in smartphones declines. This will cause a(n)

answer

increase in supply

question

Equilibrium Quantity would Equilibrium Price would

answer

increase decrease

question

The price of machinery used to produce smartphones increases. This will cause a(n)

answer

decrease in supply.

question

Equilibrium Quantity would Equilibrium Price would

answer

decrease increase

question

The number of manufacturers of smartphones increases. This will cause a(n)

answer

increase in supply

question

Equilibrium Quantity would Equilibrium Price would

answer

increase decrease

question

There is a decrease in the market demand for smartphones. This will cause a(n)

answer

decrease in quantity supplied

question

Equilibrium Quantity would Equilibrium Price would

answer

decrease decrease

question

Which of the following will cause an outward (rightward) shift in supply?

answer

a technological improvement

question

All of the following will decrease the supply of bus trips except

answer

a technological change that makes airplanes safer and more fuel-efficient.

question

I. The demand for soft drinks decreases. II. The quantity of soft drinks demanded decreases. III. The supply of soft drinks decreases. IV. The quantity of soft drinks supplied decreases.

answer

II and III.

question

Equilibrium

answer

The supply increases, causing the equilibrium quantity to rise and the market price to fall.

question

If the number of firms in an industry decreases, the supply curve will shift to the right.

answer

False

question

A change in which of the following will result in a shift of the supply curve?

answer

A.cost of inputs used to produce the product B.taxes and subsidies C.technology and productivity D.All of the above.

question

A change in a good's own price leads to a change in supply, which shifts the supply curve.

answer

False

question

Whenever there is a change in a ceteris paribus condition there will be a change in ________, which is represented by a ________

answer

supply; shift in the entire supply curve

question

If the price changes, we ___ a curve long dash—there is a change in quantity demanded or supplied. If some other determinant changes, we ____a curvelong dash—there is a change in demand or supply.

answer

move along; shift

question

The supply curve is drawn with other things held constant. If these ceteris paribus conditions of supply change, the supply curve will shift. The major ceteris paribus conditions are

answer

input prices; technology and productivity; taxes and subsidies; expectations of future relative prices; the number of firms in the industry

question

At a rental rate of $1,000 per month, there is an excess quantity____. The amount of the excess quantity supplied is ___ units

answer

supplied; 1500

question

If the present rental rate of one-bedroom apartments is $1,000 per month, through what mechanism will the rental rate adjust to the equilibrium rental rate of $800?

answer

Since the price is above equilibrium, the surplus of apartments will cause the quantity supplied to fall and the quantity demanded to rise.

question

At a rental rate of $600 per month, there is an excess quantity ______. What is the amount of the excess quantity demanded?

answer

demanded; 1500

question

If the present rental rate of one-bedroom apartments is $600 per month, through what mechanism will the rental rate adjust to the equilibrium rental rate of $800?

answer

Since the price is below equilibrium, the shortage of apartments will cause the quantity supplied to rise and the quantity demanded to fall.

question

At the market price of $8, the quantity demanded is ____ units and quantity supplied is _____ units

answer

20;60

question

At this price, a_______exists. At a market price of $4, a_______ now exists. The market equilibrium exists at a price of $6. In equilibrium, the quantity demanded by consumers is_____to the quantity supplied by producers.

answer

surplus; shortage; equal to

question

The price at which quantity demanded equals quantity supplied and at which the demand curve intersects the supply curve is called the market clearing price.

answer

True

question

Assume that the cost of aluminum used by soft-drink companies increases. Indicate which of the following statements describing the resulting effects in the market for soft drinks distributed in aluminum cans are true (T) or false (F).

answer

a.The demand for soft drinks decreases. F b. The quantity of soft drinks demanded decreases. T c. The supply of soft drinks decreases. T d. The quantity of soft drinks supplied decreases. F

question

As oil firms have bid against each other to move their oil through existing pipelines,

answer

the market prices of pipeline services have increased substantially.

question

The rise in pipeline prices has given oil firms

answer

incentives to utilize substitute services for moving oil around the nation.

question

The market demand for oil shipment services has increased because

answer

U.S. oil production has soared.

question

If the demand and supply curves increase (shift outward) by identical proportions then

answer

equilibrium price stays the same and quantity rises. Your answer is correct.B.

question

What if the increase in demand were larger than the increase in supply?

answer

The equilibrium price and quantity increase.

question

What if the increase in demand were smaller than the increase in supply?

answer

Equilibrium price falls and quantity rises.

question

At equilibrium, there is neither excess quantity supplied nor excess quantity demanded.

answer

True

question

Shortages and scarcity are the same thing.

answer

False

question

A shortage occurs when quantity demanded is ________ than quantity supplied at a price ________ the market clearing price.

answer

greater; below

question

A surplus occurs when quantity supplied is ________ than quantity demanded at a price ________ the market clearing price.

answer

greater; above

question

The market clearing price occurs at the _______ of the market demand curve and the market supply curve. It is also called the ______ price, the price from which there is no tendency to change unless there is a change in demand or supply.

answer

intersection;equilibrium

question

Whenever the price is __________ the equilibrium price, there is an excess quantity supplied (a surplus

answer

greater than

question

Whenever the price is ______ the equilibrium price, there is an excess quantity demanded (a shortage).

answer

less than

question

Traditionally, the comparative advantage for husbands over wives in the working world has been revealed by the fact that most husbands

answer

earned more than half of couples' combined incomes.

question

Traditionally,

answer

wives specialized in unpaid housework because they had a lower opportunity cost of engaging in that activity.

question

As husbands' earnings power has declined relative to their wives, there has been

answer

a decrease in the opportunity cost of husbands engaging in unpaid housework instead of earning income outside from home.

question

The inverse relationship between price and quantity demanded is often referred to as:

answer

the law of demand

question

If prices fall for a particular good then consumers will:

answer

buy more units.

question

All of the following pairs of goods are substitutes except

answer

we observe the price of bacon increases and the demand for eggs decreases.

question

All of the following pairs of goods are complements except

answer

we observe the price of coffee decreases and the demand for tea decreases.

question

What is the economic effect of price ceilings?

answer

An effective price ceiling will lead to a shortage.

question

What would happen in the market for rental housing in your community if the local government legally mandated rents that were below the market clearing price?

answer

There would be a shortage of rental housing.

question

Which of the following will cause a movement along the demand curve instead of a shift of the demand curve?

answer

A. Expectations of the future price of a good B.Tastes and preferences C.Income D.none of the above

question

Which of the following will shift today's supply curve to the right?

answer

Prices are expected to be lower in the future.

question

In recent years, technological improvements have greatly reduced the costs of producing basic cell phones, and a number of new firms have entered the cell phone industry. At the same time, prices of substitutes for cell phones, such as smartphones and some tablet devices, have declined considerably. Using the line drawing tool, illustrate the impacts of these developments on both the demand and supply. Label the new lines.

answer

Supply- Increase Demand- Decrease

question

The equilibrium market price will? The equilibrium market quantity will?

answer

Decrease Change in an indeterminate way

question

There are simultaneous changes in the demand for and supply of global-positioning-system (GPS) devices, with the consequences being an unambiguous decrease in the market clearing price of these devices but no change in the equilibrium quantity. What changes in the demand for and supply of GPS devices could have generated these outcomes?

answer

Demand decreases and supply increases.

question

Suppose that you are investigating the market for wheatwheat. The price of corncorn, a substitute good, has decreased. Which of the following would best describe the market reaction to this event?

answer

The demand for wheat decreases, which creates a surplus of wheat, causing the price of wheat to decrease.

question

When demand decreases and the (upward sloping) supply curve remains in the same position,

answer

price falls and equilibrium quantity falls.

question

When supply increases and the (downward-sloping) demand curve remains in the same position,

answer

price falls and equilibrium quantity rises.

question

Other things remaining equal, a decrease in the world oil supply like those that occurred in 1973-74 and 1979 would

answer

increase the price of airline travel and decrease its equilibrium quantity.

question

What happens in the market with an upward sloping supply curve when there is a shift in the demand curve due to an external shock?

answer

A new equilibrium price will be achieved over some period of time.

question

Economists assume that when there is a change in demand and/or supply, that prices reach a new equilibrium

answer

after an adjustment period that varies

question

People often complain about price gouging after a natural disaster. Suppose the government imposed limitations on price increases in the aftermath of a disaster. One would expect

answer

reconstruction to take longer because the quantity supplied of new materials would increase more slowly.

question

The more flexible prices are,

answer

the more quickly a shock to the economy can be absorbed.

question

If demand increases while supply remains unchanged, the equilibrium price of the product will ________ and the equilibrium quantity will ________.

answer

increase; increase

question

When both supply and demand curves change, the outcome is definite for both equilibrium price and equilibrium quantity. When both supply and demand decrease, the equilibrium price ________ and the equilibrium quantity ________.

answer

False change is uncertain; decreases

question

Markets which are temporarily out of equilibrium will always return to equilibrium immediately.

answer

False

question

When the _____ curve shifts outward or inward with an unchanged ____ curve, equilibrium price and quantity increase or decrease, respectively. When the _____ curve shifts outward or inward given an unchanged ______ curve, equilibrium price moves in the direction opposite to equilibrium quantity.

answer

Demand Supply Supply Demand

question

Which one of the following is a primary difference between a public good and a private good?

answer

Private goods are subject to the principle of rival consumption while public goods are not.

question

A true public good must be provided by the government. Which of the following goods provided by the government is a true public good?

answer

Flood control

question

Suppose Canada spends less per capita on national defense than many other countries of similar size and income. A reasonable economic explanation would be that

answer

Canada is able to free-ride on the defense spending of the United States.

question

Other than correcting externalities, other economic functions of government include

answer

The economic activities of government include: 1. correcting for externalities, 2. providing a legal system, 3. promoting competition, 4. producing public goods, and 5. ensuring economywide stability.

question

Much of our legal system is involved with defining and protecting property rights.

answer

True

question

The goal of antitrust legislation is to reduce the power of firms that can determine the market price of the goods they sell.

answer

True

question

The most common provider of public goods is the private sector.

answer

False

question

Most private goods ________ rival in consumption, and most public goods ________ rival in consumption.

answer

are; are not

question

All of the following are goals established by the Full-Employment Act of 1946 except

answer

Balanced budget

question

The principle of ________ does not apply to public goods as it does to private goods.

answer

rival consumption

question

Public goods have two characteristics: (1) Once they are produced, there is no additional _____ when additional consumers use them, because your use of a public good does not deprive others of its simultaneous use; and (2) consumers cannot conveniently be ____ on the basis of use.

answer

opportunity cost; charged

question

If a transaction results in a negative externality there will be:

answer

overproduction of the good; demand increase FYI: When a negative externality exists it means someone other than the buyer and seller is bearing a portion of the cost. This situation will result in overproduction of the good.

question

Which of these fuels has the smallest negative externality?

answer

LPG

question

Market failure occurs when

answer

the unrestrained market economy leads to too few or too many resources going to a specific economic activity

question

Suppose that the U.S. government determines that cigarette smoking creates social costs not reflected in the current market price and equilibrium quantity of cigarettes. A study has recommended that the government can correct for the externality effect of cigarette consumption by paying farmers not to plant tobacco used to manufacture cigarettes. It also recommends raising the funds to make these payments by increasing taxes on cigarettes. These actions by the government lead to all the following outcomes, except

answer

an increase in the negative externality caused by cigarette smoking.

question

The French government recently allocated the equivalent of more than $120 million in public funds to Quaero (Latin for "I search"), an Internet search engine analogous to Google or Yahoo. Is a publicly funded Internet search engine a public good or a government sponsored good?

answer

It is a government sponsored good, deemed socially desirable through the political process.

question

Does an Internet search engine satisfy the key characteristics of a public good?

answer

No, users can access the engine simultaneously, but advertising space is limited and can be sold to pay for the engine. No, it can be consumed simultaneously by many users at little or no additional cost, but the advertising space is limited comma and advertisers can be excluded.

question

Which of the following is not a political function of the government that leads to involvement in the economy?

answer

Public goods.

question

Suppose that the State of New New York decides to subsidize the cost of purchasing a treadmill for cardiac patients, as prescribed by their doctors. Prior to the program, the equilibrium price of treadmills was $800, and the equilibrium quantity purchased was 50,000. The state decides to subsidize $600 of the cost of the treadmill, and with the subsidy, the quantity that consumers wish to purchase is 70,000. Manufacturers are willing to supply this quantity at a price of $1,000.

answer

The cost of this program to the state of New York is 42 million After the subsidy, consumers will pay 40% of the cost of the treadmill, and the state will pay 60% of the cost.

question

Which of the following is not a difference between market and collective decision making?

answer

Government goods are costless to produce, while private goods have production costs.

question

To promote increased use of port facilities in a major coastal city, a state government has decided to construct a state-of-the-art lighthouse at a projected cost of $10 million. The state proposes to pay half this cost and asks the city to raise the additional funds. Rather than raise its $5 million in funds via an increase in city taxes and fees, however, the city's government asks major businesses in and near the port area to contribute voluntarily to the project. The city is likely to face problems in raising the funds because

answer

individual businesses may presume that others will pay for the lighthouse so that they can escape paying for their portion without causing a reduction in the structure's benefit.

question

Which of the following is not a source of funding available to governments?

answer

Stock sales.

question

In the current time period, this government's spending on goods and services and transfer payments is limited to

answer

$2200 add all

question

Over the long run, this government's fundamental revenues are equal to

answer

don't add borrowed funds

question

A city government imposes a proportional income tax on all people who earn income within its city limits. In 2004, the city's income tax rate was 0.060.06 (66 percent), and it collected $24.00 million in income taxes. In 2005, it raised the income tax rate to 0.07 (77 percent), and its income tax collections declined to $17.50 million. What happened to the city's income tax base between 2004 and 2005?

answer

it fell by $150 million.

question

What would cause a fall in the tax base?

answer

A. The number of residents earning income fell. B. Incomes of city residents fell. C. Either of the above.

question

Miranda works 25 hours a week at a wage rate of $10. Thus, her total weekly income is $250. On this income, she pays total taxes of $12.50. However, she calculates that on the last hour that she works, she pays $1.00.

answer

Carole's average tax rate is 5% Carole's marginal tax rate is 10% Marginal Tax Rate= (change in taxes due/ change in taxable income) x 100

question

Donna purchased stock valued at $20,000 in 2000. In 2005, she sold the stock for $23000. Donna's capital gain, for tax purposes, is ______, which is a ___ gain on her investment. Over the period during which Donna owned her stock, asset prices rose by 3% due to inflation. Thus Donna's real capital gain is ____ or _____.

answer

3000; 15% 12%, or $2400

question

An excise tax of 60 cents is levied on a product. As a result of the tax, the price of the product goes from $1 to $1.40. Which of the following is true?

answer

The consumer pays the majority of the tax but not the entire tax.

question

Which of the following is the most important source of revenue for the federal budget?

answer

The federal personal income tax

question

When state and local governments provide public schools with a per-unit subsidy to provide educational services, the price that the schools providing these services receive is

answer

greater than the market clearing price without the subsidy.

question

Cory's Coffee Cafe priced its caffeine delights at $1.00, they sold 150 per day. When the price was $2.00, they sold 100 per dayday. Based on this information and using the average-values formula, the absolute value of the price elasticity of demand for caffeine delightscaffeine delights is

answer

.60 inelastic

question

Price elasticity of demand is defined as

answer

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

question

At a price of $15.50 to play 18 holes on a golf course, 120 consumers pay to play a game of golf each day. Increasing the price to $20.00 causes the number of consumers to decline to 80.

answer

1.57 elastic

question

At the price-quantity combination you identified on the demand curve, a decrease in price will cause ___ in total revenue.

answer

an increase

question

Which of the following would have the most elastic demand?

answer

Coca-Cola.

question

The absolute value of the short-run elasticity of demand for bread has been estimated to be 0.15. Its long-run elasticity of demand is

answer

more than .15

question

We should expect the cross price elasticity of butter and margarine to be

answer

positive since they are substitutes.

question

If one wanted to know the impact of the falling price of using the Internet on the demand for library services, one would need to compute the

answer

cross price elasticity of demand for library services and price of using the Internet.

question

When income is $400 per week, 3 nights dining outnights dining out are demanded. When income is $600 per week, 5 nights dining out nights dining out are demanded. The income elasticity of demand for nights dining out nights dining out equals:

answer

1.25

question

Using the line drawing tool, draw a perfectly elastic supply curve. Label this line 'S elastic'.

answer

straight line across

question

The long-run elasticity of supply in most industries is ___________ than the short-run elasticity because in the long run, ________________.

answer

more elastic; resources and firms can enter the industry

question

Total utility

answer

A. falls as long as marginal utility is negative. B. rises as long as marginal utility is positive. C. is at a maximum when marginal utility is zero. D. All of the above.

question

If total utility is increasing at a decreasing rate, marginal utility is

answer

positive and decreasing.

question

Suppose the price of apples falls relative to other similar goods, and as a result the quantity of apples demanded increases. This is caused by

answer

substitution effect.

question

When the price of gasoline ]decreases, Dennis buys more gasoline and more of all other goods. This information describes

answer

the real income effect of a price decrease.

question

Total revenues from first class mail have been

answer

decreasing because most people have substituted away from first class mail to digital communications.

question

Relatively small proportionate increases in the prices of stamps for first class mail have been associated with proportionately large reductions in the volumes of first class mail deliveries, so total revenues have decreased. Based on this information alone, one could conclude that

answer

demand is elastic.

question

Economists cannot readily estimate the cross price elasticity of demand for USPS first class mail in relation to e-mail and text communications but have estimated the elasticity of demand for USPS first class mail with respect to

answer

ownership of digital devices.

question

Advocates of behavioral economics

answer

argue that utility theory is explained by applying the assumption of bounded rationality.

question

Which of the following examples are used as evidence favoring the bounded rationality assumption?

answer

When purchasing electric appliances such as refrigerators, people sometimes buy the lowest-priced, energy-inefficient models even though the price savings often fail to compensate for higher future energy costs.

question

Most economists

answer

apply the assumption that people behave as if they act rationally with an aim to maximize utility.

question

The use of utility-based consumer choice theory

answer

has allowed economists to make a wide array of predictions about how consumers respond to changes in prices, incomes, and other factors.

question

Behavioral economists suggest that consumers do not behave as if they are rational, and if the rationality assumption does not apply to actual behavior, they argue, it follows that utility-based consumer choice theory cannot, either.

answer

True

question

Because of the doubts expressed by proponents of behavioral economics, most economists no longer apply the assumption that people behave as if they act rationally with an aim to maximize utility.

answer

False

question

Advocates of applying behavioral economics to consumer choice theory argue that _______revents people from accounting for every feasible choice, which _____their ability to pursue their long-term interests effectively.

answer

bounded rationality; limits

question

The _______economics approach to consumer behavior offers a wider range of possible predictions of a consumer's choices than the _______-maximization theory of a consumer optimum, which makes clear-cut predictions about consumers' choices.

answer

behavioral; utility

question

Along the indifference curve

answer

total utility is constant.

question

When graphing the indifference curve

answer

units of one good is on the X axis and units of another good is on the Y axis.

question

The slope of the indifference curve is

answer

negative

question

Along an indifference curve, every point is equally desirable to the consumer.

answer

true

question

Which of the following violates the properties of indifference curves?

answer

Indifference curves are upward-sloping.

question

Indifference curves are

answer

convex to the origin.

question

The slope of an indifference curve

answer

must be negative.

question

The marginal rate of substitution is measured along

answer

a given indifference curve.

question

As more of the good on the X-axis is consumed, and less of the good on the Y-axis is consumed, the marginal rate of substitution

answer

is negative and decreasing.

question

The fact that the marginal rate of substitution falls (becomes less negative) is sometimes called

answer

the law of substitution

question

The negative slope of the consumer's indifference curve measures the consumer's marginal rate of substitution.

answer

True

question

Which of the following statements about the indifference curve is true?

answer

A higher indifference curve represents the possibility of higher rates of consumption if income increases.

question

Indifference curves that are higher than others necessarily imply that for every given quantity of one good

answer

more of the other good could possibly be obtained on a higher indifference curve. more of that good could possibly be obtained on a higher indifference curve.

question

All of the following are reasons why a higher indifference curve is preferred to a lower one except

answer

as more of any good or service is consumed, its extra benefit declines.

question

Which of the following statements about indifference curves is true

answer

A higher indifference curve represents the possibility of higher rates of consumption if income increases.

question

If a consumer faces the possibility of having less of both products represented by an indifference curve graph, this would be represented by

answer

a new indifference curve below and to the left of the original curve.

question

Bob has a highly specialized medical skill that is in great demand. His level of economic rent would be ____ because

answer

high ;highly specialized means there are few substitutes, supply is inelastic, and the skill is in great demand.

question

Sally has never attended school. She is 25 years old and is an internationally known supermodel. Her level of economic rent would be ___ because

answer

A. she would likely be willing to work for less. B. the supply curve for the factor is perfectly elastic. C. her specific resources can be replicated easily. D. None of the above.

question

Tim is a high school teacher and sells insurance part time. His level of economic rent would be ____ because

answer

low; his wage is likely close to his opportunity cost.

question

An important difference between common stock and preferred stock is that

answer

preferred stockholders are entitled to their dividends before common stockholders.

question

Which of the following individuals would you expect to have a high level of economic rent, and which would you expect to have a low level of economic rent? Rank them from highest economic rent to lowest. I. Emily quit high school at age 17, and she has since worked for several years as a waitress in fast-food restaurants. II..Demetrius earned a Ph.D. in financial economics, and he is among a handful of experts who specialize in assessing the values of highly complex securities traded in bond markets. III Xin was a child prodigy on the violin, and after years of developing her skills, she is now rated among the most talented performing violinists in the world.

answer

Xin, Demetrius and Emily.

question

With respect to the allocation of resources, which statement is true about economic rent?

answer

Economic rent allocates resources to their highest-valued use.

question

An individual leaves a college faculty, where she was earning $50,000 a year, to begin a new venture. She invests her savings of $40,000, which were earning 5 percent annually. She then spends $18,000 renting office equipment, hires two students at $20,000 a year each, rents office space for $14,000, and has other variable expenses of $38,000. At the end of the year, her revenues are $200,000.

answer

Accounting profit: $90,000 Economic Profit: $38,000

question

The academic calendar for a university is August 15 through May 15. A professor commits to a contract that binds her to a teaching position at this university for this period. Based on this information, the short run for the professor

answer

will be the nine month period between August 15 and May 15; any time period longer than this will be long run for her.

question

The short run is defined as

answer

the period of time in which at least one factor of production is fixed.

question

If a firm hires an additional worker and discovers that its total output has fallen, then it must be true that

answer

marginal product is negative.

question

Why does the marginal product of labor eventually decline as more labor is used with another fixed input?

answer

The labor will have, on average, fewer units of the other inputs to combine with and the increases to total output obtained from more labor will decrease.

question

The law of diminishing marginal returns is caused by

answer

the existence of a fixed input that must be combined with increasing amounts of the variable input.

question

During the previous month, a firm produced 200 tablet devices and its total costs were $10,600. Just before the firm produced its last tablet device in the previous month, its total costs were $10,519.

answer

The marginal cost incurred by the firm in producing the final tablet device that month was $81

question

The minimum possible short-run average costs are equal to long-run average costs when

answer

the long-run curve is at a minimum point.

question

What is a firm's minimum efficient scale?

answer

The lowest rate of output at which the firm achieves minimum long-run average cost.

question

Even though one firm produces a large portion of the industry's total output, there are many firms in the industry, and their products are indistinguishable. Firms can easily exit and enter the industry. This example violates characteristic number

answer

1) there is a large number of buyers and sellers,

question

There are many buyers and sellers in the industry. Consumers have equal information about the prices of firms' products, which differ slightly in quality from firm to firm. This example violates characteristic number

answer

(2) firms in the industry produce and sell a homogeneous product,

question

Many taxicabs compete in a city. The city's government requires all taxicabs to provide identical service. Taxicabs are virtually identical, and all drivers must wear a designated uniform. The government also limits the number of taxicab companies that can operate within the city's boundaries. This example violates characteristic number

answer

(4) there are insignificant barriers to industry entry or exit.

question

The demand curve for the perfectly competitive industry is

answer

downward sloping.

question

The Big Box Company is a firm in a perfectly competitive industry. The average rate of return on capital in this industry is 55%. Thus, if the Big Box Company earns a 55% rate of return,

answer

it earns zero economic profit

question

In several perfectly competitive markets for minerals extracted from the earth, steady increases in demand for the required minerals eventually have generated long-run increases in the market prices of these minerals. Which of the following statements best describes the types of adjustments that must have occurred in these markets to have brought about this outcome?

answer

An increase in demand initially leads to an increase in price and profits of the firms. New firms enter the market and the equilibrium quantity increases with an increase in market price along an upward rising long-run industry supply curve.

question

Such mineral industries can best be described as

answer

increasing-cost industries.

question

A perfectly competitive increasing costincreasing cost industry is in long-run equilibrium. Due to a change in tastes and preferences, there is a decreasea decrease in demand. Which of the following best describes the effect on the industry? The price will

answer

decrease, firms will produce less, profits will be below 0, and firms will exit until profit returns to 0

question

Economic efficiency means that

answer

total output of society cannot be increased without lowering the value of the total output produced in the economy.

question

A firm can be the sole supplier of a good and still not be considered a monopoly if

answer

there are very close substitutes for the good.

question

Which of the following markets has a barrier to entry?

answer

Joe's bar owns the only liquor license issued by the town

question

For a monopolist, marginal revenue is

answer

less than the price of the product.

question

You observe that the revenue of a monopolist varies directly with changes in price. This firm _____ maximizing its economic profits because a profit-maximizing monopolist will never operate in a price range in which demand is

answer

is not; inelastic since this is range in which revenues are falling and the firm could raise revenues by raising the price into the elastic range of demand.

question

As compared to a perfectly competitive industry, a monopoly industry with identical cost curves will

answer

produce less and set a higher price.

question

In order to price discriminate, a firm must

answer

face a downward-sloping demand curve.

question

There are a number of fast-food restaurants in town, and they compete fiercely. Some restaurants cook their hamburgers over open flames. Others fry their hamburgers. In addition, some serve broiled fish sandwiches, while others serve fried fish sandwiches. A few serve ice cream cones for dessert, while others offer frozen ice cream pies

answer

[A] A large number of firms that sell differentiated products that are close substitutes.

question

There is a vast number of colleges and universities across the country. Each competes for top students. All offer similar courses and programs, but some have better programs in business, while others have stronger programs in the arts and humanities. Still others are academically stronger in the sciences.

answer

[A] A large number of firms that sell differentiated products that are close substitutes.

question

If the average total costs are the same for a perfectly competitive firm and a monopolistically competitive firm, then we know that

answer

the monopolistically competitive firm will produce fewer units than the perfectly competitive firm.

question

Since the demand curve is downward sloping, the monopolistically competitive firm will set a price

answer

that is greater than marginal cost. DIAGONAL SLOPE

question

For an office copying machine a firm is more likely to use

answer

informational advertising that emphasizes the features of its product.

question

For an automobile loan a firm is more likely to use

answer

informational advertising that emphasizes the features of its product.

question

For a deodorant a firm is more likely to use

answer

persuasive advertising intended to induce a consumer to try the product.

question

For a soft drink a firm is more likely to use

answer

persuasive advertising intended to induce a consumer to try the product.

question

A perfectly competitive constant costconstant cost industry is in long-run equilibrium. Due to a change in tastes and preferences, there is an increasean increase in demand. Which of the following best describes the effect on the industry? The price will,

answer

increase, firms will produce more, profits will increase, and more firms will enter until profit returns to 0

question

Which of the following markets has a barrier to entry?

answer

an aluminum company owns all bauxite mines, an essential input

question

In which of the following situation(s) will owners who supply factors of production be most likely to earn economic rents? I. Highly elastic supply of the factor; highly elastic demand for the factor. II. Highly elastic supply of the factor; highly inelastic demand for the factor. III. Highly inelastic supply of the factor; highly inelastic demand for the factor.

answer

Highly inelastic supply of the factor; highly inelastic demand for the factor.

question

Economic rent is

answer

the amount paid for a resource over and above its opportunity cost.

question

Assume that the supply of land is perfectly inelastic as shown in the diagram. The demand for land has shifted from D1 to D2. What is the total value for economic rent after the change in demand?

answer

P2 × Q*.

question

With respect to the allocation of resources, which statement is true about economic rent?

answer

Economic rent allocates resources to their highest-valued use.

question

Why do some sports figures get economic rent?

answer

Their special talents cannot be replicated exactly.

question

The supply curve for land

answer

is vertical

question

The analysis of economic rent can also be applied to labor.

answer

True

question

Economic rent directs resources to the people who can use them most efficiently.

answer

True

question

Economic rent is defined as payment for a factor of production that is completely ____ in supply

answer

inelastic

question

Economic rent ______ resources to their ____- valued use

answer

allocates; high

question

A business organization that is owned by many

answer

is a corporation

question

Business organizations that are easy to form are

answer

are proprietorships and partnerships.

question

Corporations are subject to ________, but sole proprietorships and partnerships ______ double taxation.

answer

double taxation; do not face

question

All of the following are advantages of proprietorships except:

answer

unlimited liability.

question

All of the following are advantages of proprietorships except

answer

limited liability of the proprietor.

question

The type of business organizations that are responsible for the greatest share of all business revenues in the U.S. are

answer

Corporations They are responsible for 85.4 percent of total business revenues.

question

The most common form of business organization in the United States is the corporation.

answer

False

question

The owners of ________ face limited laibility and the owners of ________ face unlimited liability.

answer

corporations; proprietorships and partnerships

question

When caclulating accounting profits, the costs that accountants take into consideration are

answer

only explicit costs

question

The opportunity cost of capital is the amount of income that could have been earned by investing in all other alternative investments.

answer

False

question

If a proprietor owns her own building, the use of that building for her proprietorship has no opportunity cost.

answer

False

question

When caclulating economic profits, economists take into consideration

answer

both explicit and implicit costs.

question

The goal of the firm is to maximize total revenue.

answer

False

question

_____ are the most common form of business organization, comprising about 71 percent of all firms. Each is owned by a single individual who makes all business decisions, receives all the profits, and has _____ liability for the firm's debts.

answer

Proprietorships; unlimited

question

______are much like proprietorships, except that two or more individuals, or partners, share the decisions and the profits of the firm. In addition, each partner has _____liability for the debts of the firm.

answer

partnerships; unlimited

question

Corporations are responsible for the largest share of business revenues. The owners, called _____ , share in the firm's profits but normally have little responsibility for the firm's day-to-day operations. They enjoy ____ liability for the debts of the firm.

answer

shareholders; limited

question

Accounting profits differ from economic profits, which are defined as total revenues minus total costs, where costs include the full _____ cost of all of the factors of production plus all other implicit costs.

answer

opportunity

question

The full opportunity cost of capital invested in a business is generally not included as a cost when accounting profits are calculated. Thus, accounting profits often are ______ than economic profits. We assume throughout that the goal of the firm is to ______ economic profits.

answer

greater; maximize

question

Suppose that the nominal interest rate in Japan is only 5.0 percent, while the comparable rate in the United States is 7.0 percent. Japan's rate of inflation is 2.0 percent while the U.S. inflation rate is 6.0 percent. Which economy has the higher real interest rate?

answer

Since Japan's real interest rate ( 5.0%−2.0%) is 3.0 percent, and the real interest rate in the U.S. (7%- 6%) is one percent; higher real interest rate.

question

The interest rate can vary depending upon what a loan will be used for. Which of the following factors will not influence the annual interest rate?

answer

economic costs

question

Interest is the payment for obtaining credit.

answer

True

question

Interest rates can vary due to which of the following determinants?

answer

A. the size of the loan B. the length of the loan C. the creditworthiness of the borrower D. All of the above.

question

If the nominal rate of interest is 6 percent and the anticipated rate of inflation is 2 percent, the real rate of interest is approximately

answer

4 percent

question

If the expected rate of return on the purchase of a new piece of manufacturing equipment is 7 percent and the funds required to purchase the new piece of equipment can be acquired for 8 percent, the purchase should not be made.

answer

True

question

Present value refers to the value of a future amount expressed in today's dollars.

answer

True

question

What is the present value of $500 to be received one year from now if the rate of interest is 8 percent?

answer

$462.96

question

Interest is the price of obtaining credit. In the credit market, the rate of interest paid depends on the _____of the loan, the ______, and the handling charges, among other things.

answer

length; risk

question

Nominal interest rates include a factor to take account of the ______rate of inflation. Therefore, during periods of high ______inflation, nominal interest rates will be relatively high.

answer

anticipated; anticipated

question

Payments received or costs incurred in the future are worth less than those received or incurred today. The _______of any future sum is lower the further it occurs in the future and the greater the discount rate used.

answer

present value

question

Which of the following is true regarding the differences between common stock and preferred stock?

answer

Owners of preferred stock generally must receive at least a certain amount of dividends in each period before the owners of common stock can receive any dividends.

question

Suppose that one of your classmates informs you that he has developed a method of forecasting stock market returns based on past trends. With a monetary investment by you, he claims that the two of you could profit handsomely from this forecasting method. Your classmate is

answer

wrong since there are no predictable trends that can be used to "get rich quickly;" stock prices go up following a "random walk."

question

Which of the following is not a main source of corporate funds?

answer

Loans from banks.

question

An important difference between common stock and preferred stock is that

answer

preferred stockholders are entitled to their dividends before common stockholders.

question

An investor wishes to own a part of a company and desires preferential treatment in the distribution of dividends. The investor should purchase

answer

preferred stock

question

A firm can obtain funds for investing by

answer

A. selling bonds. B. reinvesting profits. C. selling stocks. D. All of the above.

question

According to the random walk theory of stock market pricing,

answer

there are no predictable trends in stock prices.

question

The PE ratio measures

answer

the stock price divided by the earnings per share.

question

If the closing price of a stock traded on a particular day is $64 per share, and the dividend paid is $2.62 per share

answer

the yield is 4.1%.

question

Making stock trades based on "inside information"

answer

is illegal

question

Payments received or costs incurred in the future are worth less than those received or incurred today. The _______of any future sum is lower the further it occurs in the future and the greater the discount rate used.

answer

present value

question

Owners of preferred stock

answer

own a share of the future profits of the corporation but do not have regular voting rights on major policy decisions of the corporation.

question

Bonds are legal claims on the future profits of a firm.

answer

False

question

Reinvestment and borrowing are the primary means of financing for existing firms.

answer

True

question

The New York Stock Exchange (NYSE) is the largest stock exchange in the United States.

answer

False

question

Stock trading based on inside information is

answer

Illegal

question

The three primary sources of corporate funds are ____, ____, and ____ of profile

answer

stocks, bonds, reinvestment

question

A share of stock is a share of _____providing a legal claim to a corporation's future profits. A ______ is a legal claim entitling the owner to a fixed annual coupon payment and to a lump-sum payment on the date it matures.

answer

ownership; bond

question

Many economists believe that asset markets, especially the stock market, are ______ , meaning that one cannot make a higher-than-normal rate of return without having inside information (information that the general public does not possess). Stock prices normally drift upward following a ________ , meaning that you cannot predict changes in future stock prices based on information about stock price behavior in the past.

answer

inefficient; random walk

question

People who obtain inside information can earn extra profits in securities markets, according to the

answer

random walk theory.

question

When a Federal Reserve staff person recently accidentally e-mailed policy information a day early, a recipient could have

answer

reaped capital gains by buying securities and then reselling them after their prices increased.

question

Inside information

answer

is available to persons working in government agencies but cannot be used for profit-making security trades. Inside information is information that is not available to the public. Stock trading based on inside information such as this is illegal, punishable by substantial fines and even imprisonment. When a Federal Reserve staff person recently accidentally e-mailed policy information a day early, individuals who received it knew that market interest rates were likely to fall in the future. In principle, a recipient could have reaped capital gains by buying securities and then reselling them after their prices increased. Under the 1967 Freedom of Information Act (FOIA), anyone can request information from a federal agency. In most instances, the agency must provide the information. Recent reviews of FOIA requests have revealed that tens of thousands of such requests likely were associated with efforts to obtain profitable information.

question

From the perspective of the firm, what is the difference between the short run and the long run?

answer

In the short run, at least one input is fixed, while in the long run all inputs are variable.

question

The short run is defined as

answer

the period of time in which at least one factor of production is fixed. When any factors are fixed, it is the short run period.

question

The long run is defined as

answer

the period of time in which all factors of production are variable.

question

The long and short run are

answer

The long run and short run are not defined by chronological time.

question

In the long run,

answer

all factors of production are variable.

question

In the long run there

answer

are only variable inputs.

question

The short run is any time period where

answer

at least one input cannot be changed.

question

The long run is any time period where

answer

all inputs can be changed.

question

The ______ run is a time period during which at least one input cannot be altered. A typical input that cannot be changed in the short run is a firm's ____.

answer

short; plant size

question

The ____ run is a time period in which all inputs can be _____.

answer

long; varied

question

At the end of the year, a firm produced 16,000 laptop computers. Its total costs were $7 million, and its fixed costs were $4 million.

answer

Total variable cost equals total cost ($7,000,000) minus total fixed cost ($4,000,000). Average variable cost equals total variable cost ($3,000,000) divided by output (16,000) = $187.50

question

During the previous month, a firm produced 200 tablet devices and its total costs were $10,800. Just before the firm produced its last tablet device in the previous month, its total costs were $10,724.

answer

10800-10724

question

Daily total fixed costs

answer

AFC*Q

question

Total Variable Costs

answer

AVC*Q

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Total Costs

answer

VC+FC

question

Average Total Cost

answer

TC^/Q

question

At its current short-run level of production, a firm's average variable costs equal $20 per unit, and its average fixed costs equal $15 per unit. Its total costs at this production level equal $2,100.

answer

Output= Total Cost/ Average Total Cost 2100/35

question

During autumn months, passenger railroads across the globe deal with a condition called slippery rail. It results from a combination of water, leaf oil, and pressure from the train's weight, which creates a slippery black ooze that prevents trains from gaining traction. One solution for slippery rail is to cut back trees from all of a rail firm's rail network on a regular basis, thereby helping prevent the problem from developing. If incurred, would this railroad expense be a better example of a fixed cost or a variable cost? Why?

answer

This is an example of a fixed cost because the cost doesn't vary with the number of trains.

question

Another way of addressing slippery rail is to wait until it begins to develop. Then the company purchases sand and dumps it on the slippery tracks so that trains already en route within the rail network can proceed. If incurred, would this railroad expense be a better example of a fixed cost or a variable cost? Why?

answer

This is an example of a variable cost because the cost varies with the number of trains.

question

Suppose that a firm's only variable input is labor, and the constant hourly wage rate is $24 per hour. The last unit (hour) of labor hired enabled the firm to increase its hourly production from 250 units to 251 units. What was the marginal cost of the 251st unit of output?

answer

24

question

Suppose that a company currently employs 1,500 workers and produces 1 million units of output per month. Labor is its only variable input, and the company pays each worker the same monthly wage. The company's current total variable costs equal $2 million.

answer

Since Average Variable Cost = TVC/Total output $2

question

Average Product of labor: Total product or Output/Total workers or Input

answer

666.67

question

Monthly wage

answer

Variable Cost/ Number of Workers

question

At the end of the year, a firm produced 40,000 laptop computers. Its total costs were 10 million, and its fixed costs were 5 million. What are the average variable costs of this firm? AVC

answer

Total Costs- Fixed Costs/ Quantity

question

What characteristic of the airline industry make consumers better off if the industry is an oligopoly?

answer

high fixed costs

question

The Justice Department required AMR and US Airways to _______________ in order to approve the merger.

answer

eliminate some gates at airports

question

Critics of the merger maintain that the merger will:

answer

result in higher prices to consumers.

question

A measure of industry concentration used by the Justice Department to evaluate potential merger is the:

answer

Herfindahl-Hirschman Index.

question

Some mergers can benefit consumers if the:

answer

marginal cost of providing the good or service falls post-merger.

question

What is the pre-merger and post-merger HHI of an industry with 10 firms that each have 10% market share if two of these firms are allowed to merge?

answer

pre-merger =1,000 & post-merger = 1,200

question

The European Union is banning mango imports from India due to:

answer

pests found in the mango seeds.

question

The variety of mango that is banned by the EU currently retails for:

answer

$7 each.

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True or False: The Middle Eastern market for Indian mangos is approximately ten times larger than the European market.

answer

True

question

If the price of a product increases too much consumers may reduce consumption if ___________ goods are available.

answer

substitute

question

What is the dominant strategy in this situation?

answer

Both firms offer extended warranties.

question

A dominant strategy

answer

always yields the unique best action for the decision maker no matter what action the other firms undertake.

question

One of the three shops on campus that sell university logo clothing has found that if it sells a sweatshirt for $30 or more, the other two shops keep their prices constant and the store loses revenues. If, however, the shop reduces its price below $30, the other stores react by lowering their prices. What kind of market structure does this store face?

answer

oligopoly

question

If the store's marginal costs fluctuate up and down very slightly, how should the store adjust its prices?

answer

Prices should stay the same since the store expects lost revenue whether it raises or lowers the price.

question

Consider the payoff matrix to the right. Firm 1 and Firm 2 are seeking to choose between Format A and Format B for their products. Which of the following statements best describes their profit-maximization?

answer

Since there are network effects, the firms would maximize profits if they both produced format B.

question

What is the only market structure that does not have non-price competition?

answer

Perfect Competition.

question

Which of the market structures has unrestricted entry and exit, many sellers of the product and some ability to set the price?

answer

Monopolistic competition.

question

As long as their products are

answer

not too differentiated, conditions are favorable to form a cartel since there are relatively few firms and prices are observable.

question

If the firms successfully establish a cartel, why will there naturally be pressures for the cartel to break down, either from within or from outside?

answer

Firms in the cartel, especially the small ones, have an incentive to cheat by expanding output at the higher cartel price, and positive economic profits will induce non cartel firms to enter the market.

question

Which of the following is not one of the conditions that make it more likely that firms will be able to coordinate their efforts to restrain output and detect cheating?

answer

Market demand tends to be volatile.

question

When network effects are important then an industry can experience

answer

positive market feedback.

question

Which of the following would best "solve" the asymmetric information problem in this market?

answer

High-quality sellers could offer warranties or product guarantees.

question

Which of the following is an explanation of the capture theory?

answer

People who have been in an industry are most likely to be asked to be regulators of the industry.

question

Which of the following is not a key antitrust law?

answer

The Contestable Markets Act.

question

Recently, the U.S. Justice Department initiated an antitrust investigation of Homestore.com, a web site containing the listings of thousands of real estate agents in the United States. In cities and even in local communities, there is considerable rivalry among realtors. Nevertheless, nearly all belong to the National Association of Realtors, which is the majority owner of Homestore.com. In 2000, Homestore.com purchased a rival site, Move.com, which left the Microsoft Network's Homeadvisor.com as its only remaining key rival. The Justice Department became concerned with the activities of Homestore.com because

answer

of the growing concentration of ownership within this single association, exhibiting cartel-like behavior.

question

The Justice Department will consider it a violation of antitrust laws if

answer

the internet realtor listings are considered to be a part of the relevant market.

question

_______ regulation applies to specific industries, whereas _____ regulation applies to businesses throughout the economy. Governments commonly regulate the prices and quality of services provided by electric, gas, and other utilities, which traditionally have been considered _____ monopolies. Governments also single out various nonmonopolistic industries, such as the financial and transportation industries, for special forms of _____ regulation. Among the common forms of _____ regulation covering all industries are the occupational, health, and safety rules that federal and state governments impose on producers.

answer

Economic, Social, natural economic social

question

If the natural monopoly shown in the accompanying graph uses marginal cost pricing, then

answer

it will make an economic loss.

question

Which of the following is an explanation of the feedback effect?

answer

When products have too many warning labels comma consumers may not read any of them.

question

A monopolist will employ ________ workers than a perfectly competitive industry because for a monopolist, marginal revenue is _____ price.

answer

fewer; less than

question

Currently, the wage rate is $5 per worker hour, and the price of capital is $10 per machine hour. If the marginal productivity of labor is 66 units per hour and the marginal productivity of capital is 88 units per hour, how should a cost-minimizing firm adjust its input mix, assuming that it does not want to increase output?

answer

The firm should decrease its use of capital and increase its use of labor.

question

Why do younger workers make less than workers who are older?

answer

Younger workers earn less because their productivity is lower than that of older workers.

question

The principle that suggests that the distribution of income should be based on the contribution made by individuals to society's total output is known as

answer

the productivity standard.

question

The productivity standard fails to yield an equal distribution of income because

answer

individuals have different abilities and skills.

question

Which of the following is not an approach to measuring poverty?

answer

The marginal poverty standard that looks at the marginal increases in income

question

In the long run, imports are paid for by exports because

answer

for the most part, foreigners want U.S. produced goods in exchange for the goods that are shipped to the United States.

question

The United States economy is considered by the Institute for Management Development to be the most competitive economy because

answer

of widespread entrepreneurship.

question

One reason why "protecting domestic jobs" is a poor argument against free trade is because

answer

the cost of protecting jobs is much higher than the value of jobs

question

Critics of the North American Free Trade Agreement (NAFTA) suggest that much of the increase in exports from Mexico to the United States now involves goods that Mexico otherwise would have exported to other nations. Mexican firms choose to export the goods to the United States, the critics argue, solely because the items receive preferential treatment under NAFTA tariff rules. This can be described as

answer

a diversion of trade.

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