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Principles of Economics 5th Edition By Frank  – 
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Chapter 1

 

Student: ___________________________________________________________________________

 

1. Economics is best defined as the study of:

 

A. prices and quantities.

B.  inflation and interest rates.

C.  how people make choices under the conditions of scarcity and the results of those choices.

D. wages and incomes.

 

 

2. Economic questions always deal with:

 

A. financial matters.

B.  political matters.

C.  insufficient resources.

D. choice in the face of limited resources.

 

 

3. The range of topics or issues that fit within the definition of economics is:

 

A. limited to market activities, e.g., buying soap.

B.  limited to individuals and firms.

C.  extremely wide, requiring only the ideas of choice and scarcity.

D. very limited.

 

 

4. The central concern of economics is:

 

A. poverty.

B.  scarcity.

C.  wealth accumulation.

D. overconsumption.

 

 

5. The scarcity principle indicates that:

 

A. no matter how much one has, it is never enough.

B.  compared to 100 years ago, individuals have less time today.

C.  with limited resources, having more of “this” means having less of “that”.

D. because tradeoffs must be made, resources are therefore scarce.

 

 

6. The logical implication of the scarcity principle is that:

 

A. one will never be satisfied with what one has.

B.  as wealth increases, making choices becomes less necessary.

C.  as wealth decreases, making choices becomes less necessary.

D. choices must be made.

 

 

7. If all the world’s resources were to magically increase a hundredfold, then:

 

A. the scarcity principle would still govern behavior.

B.  economics would no longer be relevant.

C.  the scarcity principle would disappear.

D. tradeoffs would become unnecessary.

 

 

8. The principle of scarcity applies to:

 

A. the poor exclusively.

B.  all consumers.

C.  all firms.

D. everyone—consumers, firms, governments, and nations.

 

 

9. At the very least, Joe Average and Bill Gates are both identically limited by:

 

A. their wealth.

B.  the 24 hours that comprise a day.

C.  their knowledge.

D. their influence.

 

 

 

10. Forest is a mountain man living in complete isolation in Montana. He is completely self-sufficient

 

through hunting, fishing, and farming. He has not been in the city to buy anything in five years. One can

infer:

A. the scarcity principle does not apply to Forest.

B.  Forest is not required to make choices.

C.  the scarcity principle still applies because more hunting means less fishing and farming.

D. Forest is very satisfied.

 

 

11. The scarcity principle applies to:

 

A. all decisions.

B.  only market decisions, e.g., buying a car.

C.  only non-market decisions, e.g., watching a sunset.

D. only the poor.

 

 

12. Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and

 

study or go to the gym and work out. The decision Chris must make is:

A. not an economic problem because neither one costs money.

B.  not an economic problem because it’s an hour that is wasted no matter what Chris does.

C.  an economic problem because the tuition Chris pays covers both the gym and the library.

D. an economic problem because Chris has only one hour during which he can study or work out.

 

 

13. Josh wants to go to the football game this weekend, but he has a paper due on Monday. It will take him

 

the whole weekend to write the paper. Josh decided to stay home and work on the paper. According to the

scarcity principle, the reason Josh didn’t go to the game is that:

A. Josh prefers schoolwork to football games.

B.  writing the paper is easier than going to the game.

C.  Josh doesn’t have enough time for writing the paper and going to the game.

D. it’s too expensive to go to the game.

 

 

14. Whether studying the size of the U.S. economy or the number of children a couple will choose to have,

 

the unifying concept is that wants are:

A. limited, resources are limited, and thus choices must be made.

B.  unlimited, resources are limited, and thus choices must be made.

C. unlimited, resources are limited to some but not to others, and thus some people must make choices.

D. unlimited, resources are limited, and thus government needs to do more.

 

 

15. The cost-benefit principle indicates that an action should be taken:

 

A. if the total benefits exceed the total costs.

B.  if the average benefits exceed the average costs.

C.  if the net benefit (benefit minus cost) is zero.

D. if the extra benefit is greater than or equal to the extra costs.

 

 

16. When a person decides to pursue an activity as long as the extra benefits are at least equal to the extra

 

costs, that person is:

A. violating the cost-benefit principle.

B.  following the scarcity principle.

C.  following the cost-benefit principle.

D. pursuing the activity too long.

 

 

17. Choosing to study for an exam until the extra benefit (improved score) equals the extra cost (mental

 

fatigue) is:

A. not rational.

B.  an application of the cost-benefit principle.

C.  an application of the scarcity principle.

D. the relevant opportunity cost.

 

 

 

18. The scarcity principle tells us that __________, and the cost-benefit principle tells us __________.

 

A. choices must be made; how to make the choices

B.  choices must be made; that the costs can never outweigh the benefits of the choices

C.  rare goods are expensive; that the costs should outweigh the benefits of the choices

D. rare goods are expensive; that the costs can never outweigh the benefits of the choices

 

 

19. According to the cost-benefit principle:

 

 

 the extra costs and benefits of an activity are more important considerations than the total costs and

benefits.

 

 

20. A rational person is one who:

 

A. is reasonable.

B.  makes choices that are easily understood.

C.  possesses well-defined goals and seeks to achieve them.

D. is highly cynical.

 

 

21. The seventh glass of soda that Tim consumes will produce an extra benefit of 10 cents and has an extra

 

 

 drink the seventh glass and continue until the marginal benefit of drinking another glass of soda is

zero.

 

C.  volunteer to empty out the fountain.

D. not drink the seventh glass.

 

 

22. Janie must either mow the lawn or wash clothes, earning her a benefit of $30 or $45, respectively.

 

She dislikes both equally and they both take the same amount of time. Janie will therefore choose to

_________ because the economic surplus is ________.

A. mow the lawn; greater

B.  wash clothes; greater

C.  mow the law; smaller

D. wash clothes; smaller

 

 

23. Dean decided to play golf rather than prepare for tomorrow’s exam in economics. One can infer that:

 

A. Dean has made an irrational choice.

B.  Dean is doing poorly in his economics class.

C.  the economic surplus from playing golf exceeded the surplus from studying.

D. the cost of studying was less than the cost of golfing.

 

 

24. Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per

 

year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State

College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending

State College at $40,000 per year. No Name U costs $20,000 per year, and offered Larry a full $20,000

annual scholarship. Larry values attending NoName at $15,000 per year.

The opportunity cost of attending Elite U is:

A. $50,000

B.  $10,000

C.  $20,000

D. $15,000

 

 

 

25. Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per

 

year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State

College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending

State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000

annual scholarship. Larry values attending NoName at $15,000 per year.

The opportunity cost of attending State College is:

A. $30,000

B.  $20,000

C.  $15,000

D. $10,000

 

 

26. Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per

 

year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State

College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending

State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000

annual scholarship. Larry values attending NoName at $15,000 per year.

Larry maximizes his surplus by attending:

A. Elite U, because $60,000 is greater than the benefit at the other schools.

B.  State College, because the difference between the benefit and cost is greatest there.

C.  NoName U, because Larry has a full scholarship there.

D. Elite U, because the opportunity costs of attending Elite U are the lowest.

 

 

27. Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per

 

year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State

College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending

State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000

annual scholarship. Larry values attending NoName at $15,000 per year.

Larry has decided to go to Elite U. Assuming that all of the values described are correct, for Larry to

decide on Elite U, he must have:

A. calculated his surplus from each choice and picked the one with the highest surplus.

B.  underestimated the benefits of attending No Name.

C.  miscalculated the surplus of attending Elite U.

D. determined the opportunity cost of each choice and picked the one with the lowest opportunity cost.

 

 

28. Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks

 

rather than spending an equal amount of money to go to a movie. The opportunity cost of going to the

beach is:

A. the $12 she spent on the umbrella, food and drinks.

B.

 

 

 only $1 because she would have spent the money on food and drinks whether or not she went to the

beach.

 

C.  the movie she missed seeing.

D. the movie she missed seeing plus the $12 she spent on the umbrella, food and drinks.

 

 

29. Relative to a person who earns minimum wage, a person who earns $30 per hour has:

 

A. a lower opportunity cost of working longer hours.

B.  a higher opportunity cost of taking a day off.

C.  a lower opportunity cost of driving farther to work.

D. the same opportunity cost of spending time on leisure activities.

 

 

30. The opportunity cost of an activity is the value of:

 

A. an alternative forgone.

B.  the next-best alternative forgone.

C.  the least-best alternative forgone.

D. the difference between the chosen activity and the next-best alternative forgone.

 

 

 

31. Amy is thinking about going to the movies tonight. A ticket costs $7 and she will have to cancel her dog-

 

sitting job that pays $30. The cost of seeing the movie is:

A. $7.

B.  $30.

C.  $37.

D. $37 minus the benefit of seeing the movie.

 

 

32. Economic surplus is:

 

A. the benefit gained by taking an action.

B.  the price paid to take an action.

C.  the difference between the benefit gained and the cost incurred of taking an action.

D. the wage someone would have to earn in order to take an action.

 

 

33. The Governor of your state has cut the budget for the University and increased spending on Medicaid.

 

This is an example of:

A. the pitfalls of considering average costs instead of marginal costs.

B.  poor normative economic decision making.

C.  poor positive economic decision making.

D. choice in the face of limited resources.

 

 

34. Sally earned $25,000 per year before she became a mother. After she became a mother, she told her

 

employer that her opportunity cost of working is now $50,000, and so she is not willing to work for

anything less. Her decision is based on:

A. the high cost of raising a child.

B.  her desire to save for her child’s college expenses.

C.  her increased value to her employer.

D. the value she places on spending time with her child.

 

 

35. Alex received a four-year scholarship to State U. that covered tuition and fees, room and board, and

 

books and supplies. As a result:

A. attending State U. for four years is costless for Alex.

B.  Alex has no incentive to work hard while at State U.

C. the cost of attending State U. is the amount of money Alex could have earned working for four years.

D

.

 

 the cost of attending State U. is the sum of the benefits Alex would have had attending each of the four

other schools to which Alex had been admitted.

 

 

36. Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck, but she finds one for

 

$12,000. Her __________ is __________.

A. benefit; $12,000

B.  cost; $15,000

C.  economic surplus; $3,000

D. economic surplus; $12,000

 

 

37. In general, rational decision making requires one to choose the actions that yield the:

 

A. largest total benefits.

B.  smallest total costs.

C.  smallest net benefits.

D. largest economic surpluses.

 

 

38. Suppose the most you would be willing to pay for a plane ticket home is $250, but you buy one online for

 

$175. The economic surplus of buying the online ticket is:

A. $175.

B.  $250.

C.  $75.

D. $0.

 

 

 

39. The use of economic models, like the cost-benefit principle, means economists believe that:

 

A. this is exactly how people choose between alternatives.

B.  this is a reasonable abstraction of how people choose between alternatives.

C.  those who explicitly make decisions this way are smarter.

D. with enough education, all people will start to explicitly make decisions this way.

 

 

40. Jenna decides to see a movie that costs $7 for the ticket and has an opportunity cost of $20. After the

 

movie, she says to one of her friends that the movie was not worth it. Apparently:

A. Jenna failed to apply the cost-benefit model to her decision.

B.  Jenna was not rational.

C.  Jenna overestimated the benefits of the movie.

D. Jenna underestimated the benefits of the movie.

 

 

41. Most of us make sensible decisions most of the time, because:

 

A. we know the cost-benefit principle.

B.  subconsciously we are weighing costs and benefits.

C.  most people know about the scarcity principle.

D. we conduct hypothetical mental auctions when we make decisions.

 

 

42. Suppose a person makes a choice that seems inconsistent with the cost-benefit principle. Which of the

 

following statements represents the most reasonable conclusion to draw?

A. The person (explicitly or implicitly) over-estimated the benefits or under-estimated the costs or both.

B.  The cost-benefit principle is rarely true.

C.  The person does not grasp how decisions should be made.

D. The person is simply irrational.

 

 

43. Economic models are intended to:

 

A. apply to all examples equally well.

B.  eliminate differences in the way people behave.

C.  generalize about patterns in decision-making.

D. distinguish economics students from everyone else.

 

 

44. Economic models claim to be:

 

A. reasonable abstractions of how people make choices, highlighting the most important factors.

B.  exact replications of the decision-making process people use.

C.  interesting chalkboard exercises with little applicability to the real world.

D. exceptionally accurate methods of predicting nearly all behavior of everyone.

 

 

45. The cost-benefit model used by economists is:

 

A. unrealistic because it is too detailed and specific to apply to a variety of situations.

B.  unrealistic because everyone can think of times when he or she violated the principle.

C.  useful because everyone follows it all of the time.

D. useful because most people follow it most of the time.

 

 

46. Barry owns a clothing store in the mall and has asked two economic consultants to develop models of

 

consumer behavior that he can use to increase sales. Barry should choose the model that:

A. does not include simplifying assumptions.

B.  is the most detailed and complex.

C.  assumes that consumers apply the cost-benefit principle.

D. predicts that consumers will always prefer Barry’s store to the competing stores.

 

 

47. Economists use abstract models because:

 

A. every economic situation is unique, so it is impossible to make generalizations.

B.  every economic situation is essentially the same, so specific details are unnecessary.

C.  they are useful for describing general patterns of behavior.

D. computers have allowed economists to develop abstract models.

 

 

 

48. Most people make some decisions based on intuition rather than calculation. This is:

 

A. irrational, because intuition is often wrong.

B.

 

 

 consistent with the economic model of decision-making, because calculating costs and benefits leads to

decision-making pitfalls.

 

C.

 

 

 consistent with the economic model because people intuitively compare the relative costs and benefits

of the choices they face.

 

D.

 

 

 inconsistent with the economic model, but rational because intuition takes into account non-financial

considerations.

 

 

49. Moe has a big exam tomorrow. He considered studying this evening, but decided to go out with Curly

 

instead. Since Moe always chooses rationally, it must be true that:

A. the opportunity cost of studying tonight is less than the value Moe gets from spending time with Curly.

B

.

 

 the opportunity cost of studying tonight is equal to the value Moe gets from spending time with Curly

minus the cost of earning a low grade on the exam.

 

C.  Moe gets more benefit from spending time with Curly than from studying.

D. Moe gets less benefit from spending time with Curly than from studying.

 

 

50. If one fails to account for implicit costs in decision making, then applying the cost-benefit rule will be

 

flawed because:

A. the benefits will be overstated.

B.  the costs will be understated.

C.  the benefits will be understated.

D. the costs will be overstated.

 

 

51. Your classmates from the University of Chicago are planning to go to Miami for spring break, and you

 

are undecided about whether you should go with them. The round-trip airfares are $600, but you have

a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for

the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only

alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to

attend your sister’s graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-

trip airfares are $450.

If you do not use the frequent-flyer coupon to fly, should you go to Miami?

A. Yes, your benefit is more than your cost.

B.  No, your benefit is less than your cost.

C.  Yes, your benefit is equal to your cost.

D. No, because there are no benefits in the trip.

 

 

52. Your classmates from the University of Chicago are planning to go to Miami for spring break, and you

 

are undecided about whether you should go with them. The round-trip airfares are $600, but you have

a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for

the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only

alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to

attend your sister’s graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-

trip airfares are $450.

What is the opportunity cost of using the coupon for the Miami trip?

A. $100

B.  $450

C.  $500

D. $550

 

 

 

53. Your classmates from the University of Chicago are planning to go to Miami for spring break, and you

 

are undecided about whether you should go with them. The round-trip airfares are $600, but you have

a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for

the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only

alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to

attend your sister’s graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-

trip airfares are $450.

If you use the frequent-flyer coupon to fly to Atlanta, would you get any economic surplus by making the

trip?

A. No, there is a loss of $50.

B.  Yes, surplus of $350.

C.  Yes, surplus of $400.

D. Yes, surplus of $100.

 

 

54. Your classmates from the University of Chicago are planning to go to Miami for spring break, and you

 

are undecided about whether you should go with them. The round-trip airfares are $600, but you have

a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for

the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only

alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to

attend your sister’s graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-

trip airfares are $450.

If the Chicago-Atlanta round-trip air fare is $350, should you go to Miami?

A. No, there is a loss of $50.

B.  No, there is a loss of $100.

C.  Yes, there is economic surplus of $50.

D. Yes, there is economic surplus of $400.

 

 

55. Pat earns $25,000 per year (after taxes), and Pat’s spouse, Chris, earns $35,000 (after taxes). They have

 

two pre-school children. Childcare for their children costs $12,000 per year. Pat has decided to stay home

and take care of the children. Pat must:

A. value spending time with the children by more than $25,000.

B.  value spending time with the children by more than $12,000.

C.  value spending time with the children by more than $13,000.

D. value spending time with the children as much as does Chris.

 

 

56. You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on

 

Saturday. (Assume that you would not have been willing to pay any more than $35 for this concert.) Your

boss called and she is looking for someone to cover a shift on Saturday at the same time as the concert.

You will have to work 4 hours and she will pay you time and a half, which is $9/hr.

Should you go to the concert instead of working Saturday?

A. Yes, your benefit is more than your cost.

B.  No, your benefit is less than your cost.

C.  Yes, your benefit is equal to your cost.

D. No, because there are no benefits in the concert.

 

 

57. You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on

 

Saturday. (Assume that you would not have been willing to pay any more than $35 for this concert.) Your

boss called and she is looking for someone to cover a shift on Saturday at the same time as the concert.

You will have to work 4 hours and she will pay you time and a half, which is $9/hr.

What is the opportunity cost of going to the concert?

A. $1

B.  $9

C.  $35

D. $36

 

 

 

58. You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on

 

Saturday. (Assume that you would not have been willing to pay any more than $35 for this concert.) Your

boss called and she is looking for someone to cover a shift on Saturday at the same time as the concert.

You will have to work 4 hours and she will pay you time and a half, which is $9/hr.

What is your opportunity cost, if you go to work on Saturday?

A. $0

B.  $9

C.  $35

D. $36

 

 

59. You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on

 

Saturday. (Assume that you would not have been willing to pay any more than $35 for this concert.) Your

boss called and she is looking for someone to cover a shift on Saturday at the same time as the concert.

You will have to work 4 hours and she will pay you time and a half, which is $9/hr.

Your economic surplus of going to work on Saturday is:

A. $0

B.  $1

C.  $35

D. $36

 

 

60. Matt has decided to purchase his textbooks for the semester. His options are to purchase the books via the

 

Internet with next day delivery to his home at a cost of $175, or to drive to campus tomorrow to buy the

books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket

because they offered 25 percent off the regular price of $16.

The benefit to Matt of buying his books at the bookstore is _____.

A. $5

B.  $9

C.  $170

D. $175

 

 

61. Matt has decided to purchase his textbooks for the semester. His options are to purchase the books via the

 

Internet with next day delivery to his home at a cost of $175, or to drive to campus tomorrow to buy the

books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket

because they offered 25 percent off the regular price of $16.

The benefit to Matt was ____ from driving to campus to buy the concert ticket last week.

A. $2

B.  $4

C.  $9

D. $16

 

 

62. Matt has decided to purchase his textbooks for the semester. His options are to purchase the books via the

 

Internet with next day delivery to his home at a cost of $175, or to drive to campus tomorrow to buy the

books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket

because they offered 25 percent off the regular price of $16.

According to the cost-benefit principle:

A

.

 

it would not be rational for Matt to drive to campus to purchase the books because the $5 saving is only

two percent of the cost of the books, and that is much less than the 25 percent he saved on the concert

ticket.

 

B

.

 

 it would be rational for Matt to drive to campus to purchase the books because it costs less to buy the

books there than via the Internet.

 

C

.

 

 it would be rational for Matt to drive to campus to purchase the books because the $5 saving is more

than he saved by driving there to buy the concert ticket.

 

D

.

 

 it would not be rational for Matt to drive to campus to purchase the books because the cost of gas and

his time must certainly be more than the $5 he would save.

 

 

 

63. Matt has decided to purchase his textbooks for the semester. His options are to purchase the books via the

 

Internet with next day delivery to his home at a cost of $175, or to drive to campus tomorrow to buy the

books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket

because they offered 25 percent off the regular price of $16.

Assume the minimum that Matt would be willing to accept to drive to the university campus is equal

to the amount he saved on the concert ticket. What would be the amount of his economic surplus if he

bought his textbooks at the university bookstore rather than via the Internet?

A. $5

B.  $1

C.  $50

D. $20

 

 

64. The marginal benefit of an activity is the:

 

A. same as the total benefits of the activity.

B.  total benefit divided by the level of the activity.

C.  extra benefit associated with an extra unit of the activity.

D. total benefit associated with an extra unit of the activity.

 

 

65. If the marginal costs of 1, 2, and 3 hours of talking on the phone are $50, $75, and $105 respectively, then

 

the total costs are of 1, 2 and 3 hours of talking on the phone are:

A. $50, $150, and $315 respectively.

B.  $50, $41.67, and $115 respectively.

C.  $50, $125, and $230 respectively.

D. $50, $175, and $405 respectively.

 

 

66. If the total benefits of watching 1, 2, and 3 baseball games on TV are 100, 120, and 125 respectively, then

 

the marginal benefits of watching 1, 2 and 3 baseball games on TV are:

A. 100,120, and 125 respectively.

B.  100, 20, and 5 respectively.

C.  100, 609, and 41.67 respectively.

D. 100, 240, and 375 respectively.

 

 

67. The extra benefit that comes from an extra unit of activity is called the _________ of the activity.

 

A. marginal benefit.

B.  marginal cost.

C.  average benefit.

D. reservation benefit.

 

 

68. The marginal cost of an activity is the:

 

A. change in the cost of the activity that results from an extra unit of the activity.

B.  same as the total cost of the activity.

C.  ratio of total cost to the level of the activity.

D. change in the level of the activity divided by the change in the cost of the activity.

 

 

69. The extra cost that results from an extra unit of an activity is the:

 

A. marginal benefit.

B.  marginal cost.

C.  reservation cost.

D. same as the opportunity cost.

 

 

70. Dividing the total cost of n units of an activity by n reveals the:

 

A. average benefit.

B.  marginal cost.

C.  units per cost.

D. average cost.

 

 

 

 

71. You had to pay $600 (non-refundable) for your meal plan for the Fall semester, which gives you up to

 

150 meals. If you eat all of the meals, your average cost for a meal equals:

A. $6.

B.  $5.

C.  $4.

D. $0.25.

 

 

72. You had to pay $600 (non-refundable) for your meal plan for Fall semester which gives you up to 150

 

meals. If you eat only 100 meals, your average cost for a meal equals:

A. $6.

B.  $5.

C.  $4.

D. $0.25.

 

 

73. You had to pay $600 (non-refundable) for your meal plan for Fall semester, which gives you up to 150

 

meals. If you eat only 100 meals, your marginal cost for the 100th meal is:

A. $6

B.  $4

C.  $0.25

D. $0

 

 

74. The average benefit of an activity is the:

 

A. total benefit of the activity divided by the number of units.

B.  number of units divided by the total benefit of the activity.

C.  number of units times the total benefit of the activity.

D. extra benefit for one additional unit of the activity.

 

 

75. You save $10 on gas every week since you live close to the bus stop. You have class five days a week.

 

What is your average benefit per day for living close to the bus stop?

A. $10

B.  $5

C.  $2

D. $1.43

 

 

76. Your scholarship depends on your maintaining a 3.5 cumulative GPA. Your GPA for last semester was

 

3.6, which brought your cumulative GPA down. What must be true?

A. Your marginal grades (last semester’s grades) were higher than your overall GPA.

B.  Your marginal grades (last semester’s grades) were lower than your overall GPA.

C.  If this semester’s grades are the same as last semester’s, your overall GPA will stay the same.

D. If this semester’s grades are the same as last semester’s, you might lose your scholarship.

 

 

77.

 

 

 

Refer to the table above. The average cost of 4 units of this activity is:

A. $20

B.  $25

C.  $30

D. $40

 

 

 

 

 

 

78.

 

 

 

Refer to the table above. The marginal cost of the 3rd unit of this activity is:

A. $30

B.  $25

C.  $20

D. $10

 

 

79.

 

 

 

Refer to the table above. The average benefit of 3 units of activity is:

A. $80

B.  $60

C.  $40

D. $20

 

 

80.

 

 

 

Refer to the table above. The marginal benefit of the 5th unit of activity is:

A. $60

B.  $50

C.  $5

D. $0

 

 

 

 

 

 

81.

 

 

 

Refer to the table above. According to the cost-benefit principle, the level of activity that provides the

largest net benefit is:

A. 1

B.  3

C.  4

D. 6

 

 

82.

 

 

 

Refer to the table above. The average cost of 5 units of activity is:

A. $1

B.  $2

C.  $3

D. $4

 

 

83.

 

 

 

Refer to the table above. The marginal cost of the 4th unit of activity is:

A. $1

B.  $2

C.  $3

D. $4

 

 

 

 

 

 

84.

 

 

 

Refer to the table above. The average benefit of 4 units of activity is:

A. $4

B.  $5

C.  $6

D. $10

 

 

85.

 

 

 

Refer to the table above. The marginal benefit of the 6th unit of activity is:

A. $1

B.  $2

C.  $4

D. $10

 

 

86.

 

 

 

Refer to the table above. According to the cost-benefit principle, the level of activity that provides the

largest net benefit is:

A. 1

B.  4

C.  5

D. 7

 

 

 

 

 

 

 

87.

 

 

 

Refer to the table above. The total value of donations raised by three employees is:

A. $43,899.

B.  $45,000.

C.  $48,911.

D. $51,963.

 

 

88.

 

 

 

Refer to the table above. The total labor cost of 4 employees is:

A. $21,500.

B.  $22,000.

C.  $38,000.

D. $43,121.

 

 

89.

 

 

 

Refer to the table above. The President of What’s AMatterU decides to hire fundraisers as long as the

average benefit exceeds the average cost, resulting in __________ employees being hired and a net

benefit (total donations minus total labor costs) of __________.

A. 5; $17,080

B.  5; $67,080

C.  4; $60,000

D. 4; $22,000

 

 

90.

 

 

 

Refer to the table above. The marginal benefit (extra donations) of the 2nd employee is:

A. $42,426.

B.  $21,213.

C.  $12,426.

D. $11,337.

 

 

 

 

 

 

91.

 

 

 

Refer to the table above. The marginal labor cost (extra labor cost) of the 4th employee is:

A. $9,500.

B.  $10,750.

C.  $11,000.

D. $13,000.

 

 

92.

 

 

 

Refer to the table above. The Chairman of the Economics Department at What’s AMatterU says that

fundraisers should be hired as long as their marginal donations exceed their marginal labor costs.

Following this criterion, __________ employees are hired and net benefits are __________.

A. 1; $22,000

B.  2; $25,426

C.  3; $25,426

D. 2; $3,476

 

 

93.

 

 

 

Refer to the table above. The net benefit of hiring fundraisers is largest when __________ employees are

hired.

A. 4

B.  3

C.  2

D. 1

 

 

94. Ginger bought a phone that came with a $10 rebate. Ginger should fill out and mail in the rebate form

 

if:

A. the opportunity cost of the time and trouble of sending in the rebate form is less than $10.

B.  the opportunity cost of the time and trouble of sending in the rebate form is more than $10.

C.

 

 

 she would have bought the phone without the rebate, and so sending in the rebate form involves no

opportunity cost.

 

D. Ginger’s surplus from purchasing the phone was less than $10.

 

 

 

95. Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if

 

he wants to buy something with a price of $50, it is a good offer, but if he wants to buy something with a

price of $500, it is not a good offer. This is an example of:

A. inconsistent reasoning; saving $20 is saving $20.

B.  the proper application of the cost-benefit principle.

C.  rational choice because in the first case he saves 40% and in the second case he saves 4%.

D. marginal cost equals marginal benefit thinking.

 

 

96. Suppose a retail store was offering 10% off all prices on all goods. The incentive to take advantage of the

 

10% savings is:

A. unrelated to the list price of one good.

B.  inversely related to the list price of the good.

C.  directly related to the list price of the good.

D. independent of the list price.

 

 

97. A firm employs Pam to assemble personal computers. Pam can assemble 1 computer if she works 1

 

hour, 4 computers in 2 hours, 8 computers in 3 hours, 10 computers in 4 hours, and 11 computers in 5

hours. Each computer consists of a motherboard that costs $200, a hard drive that costs $100, a case that

costs $20, a monitor that costs $200, a keyboard that costs $60 and a mouse that costs $20. The cost of

employing Pam is $40 per hour.

What is the marginal cost of producing the computers Pam assembles during her 3rd hour of work?

A. $1,200

B.  $1,240

C.  $2,400

D. $2,440

 

 

98. A firm employs Pam to assemble personal computers. Pam can assemble 1 computer if she works 1

 

hour, 4 computers in 2 hours, 8 computers in 3 hours, 10 computers in 4 hours, and 11 computers in 5

hours. Each computer consists of a motherboard that costs $200, a hard drive that costs $100, a case that

costs $20, a monitor that costs $200, a keyboard that costs $60 and a mouse that costs $20. The cost of

employing Pam is $40 per hour.

What is the marginal cost of producing the computers Pam assembles during her 4th hour of work?

A. $1,200

B.  $1,240

C.  $2,400

D. $2,440

 

 

99. A firm employs Pam to assemble personal computers. Pam can assemble 1 computer if she works 1

 

hour, 4 computers in 2 hours, 8 computers in 3 hours, 10 computers in 4 hours, and 11 computers in 5

hours. Each computer consists of a motherboard that costs $200, a hard drive that costs $100, a case that

costs $20, a monitor that costs $200, a keyboard that costs $60 and a mouse that costs $20. The cost of

employing Pam is $40 per hour.

The firm sells each computer for $620. How many hours should the firm employ Pam to maximize its

benefit from her employment?

A. 0 hour

B.  1 hour

C.  3 hours

D. 4 hours

 

 

 

 

 

100.A firm employs Pam to assemble personal computers. Pam can assemble 1 computer if she works 1

 

hour, 4 computers in 2 hours, 8 computers in 3 hours, 10 computers in 4 hours, and 11 computers in 5

hours. Each computer consists of a motherboard that costs $200, a hard drive that costs $100, a case that

costs $20, a monitor that costs $200, a keyboard that costs $60 and a mouse that costs $20. The cost of

employing Pam is $40 per hour.

The firm sells each computer for $640. How many hours should the firm employ Pam to maximize its

benefit from her employment?

A. 1 hour

B.  2 hours

C.  3 hours

D. 4 hours

 

 

101.If Jane works for 6 hours she can rent 12 apartments, and if she works for 7 hours she can rent 15

 

apartments. The marginal benefit of the 7th hour of Jane’s work equals:

A. 12 apartments.

B.  15 apartments.

C.  1 apartment.

D. 3 apartments.

 

 

102.The following table shows the relationship between the speed of a computer’s CPU and the benefits and

 

costs. Assume that all other features of the computer are the same, i.e., CPU speed is the only source of

variation.

 

 

 

The marginal benefit of upgrading from a 600 Mhz computer to a 700 Mhz computer is:

A. $1,500.

B.  $500.

C.  $50.

D. $5.

 

 

103.The following table shows the relationship between the speed of a computer’s CPU and the benefits and

 

costs. Assume that all other features of the computer are the same, i.e., CPU speed is the only source of

variation.

 

 

 

The total benefit of an 800 Mhz computer is:

A. $400.

B.  $800.

C.  $1,900.

D. $2,200.

 

 

 

 

 

 

 

104.The following table shows the relationship between the speed of a computer’s CPU and the benefits and

 

costs. Assume that all other features of the computer are the same, i.e., CPU speed is the only source of

variation.

 

 

 

The total cost of a 700 Mhz computer is:

A. $1,000.

B.  $900.

C.  $200.

D. $100.

 

 

105.The following table shows the relationship between the speed of a computer’s CPU and the benefits and

 

costs. Assume that all other features of the computer are the same, i.e., CPU speed is the only source of

variation.

 

 

 

The marginal cost of upgrading from a 700 to an 800 Mhz computer is:

A. $500.

B.  $400.

C.  $200.

D. $100.

 

 

106.The following table shows the relationship between the speed of a computer’s CPU and the benefits and

 

costs. Assume that all other features of the computer are the same, i.e., CPU speed is the only source of

variation.

 

 

 

Application of the cost-benefit principle would lead one to purchase a __________ computer because

__________.

A. 900 Mhz; the total benefit exceeds the total cost

B.  700 Mhz; the marginal benefit is $500 and the marginal cost is $100

C.  600 Mhz; it is certainly fast enough

D. 800 Mhz; the marginal benefits and marginal costs are equal

 

 

107.The following table shows the relationship between the speed of a computer’s CPU and the benefits and

 

costs. Assume that all other features of the computer are the same, i.e., CPU speed is the only source of

variation.

 

 

 

Choosing the 1,000 Mhz computer would be inefficient because:

A. the marginal benefit is less than the marginal cost.

B.  the marginal benefit is equal to the marginal cost.

C.  it is impossible to tell the difference compared to a 600 Mhz computer.

D. the marginal benefit is more than the marginal cost.

 

 

 

 

108.Jack has a ticket to see Bo Bice for which he paid $30 yesterday. He takes an unpaid day off from work to

 

get ready for the concert. When he arrives at the concert, five different people offer him $70 for his ticket.

Jack decides to keep his ticket. The cost to Jack of seeing Bo Bice is:

A. $30.

B.  $40.

C.  $70.

D. $70 plus his forgone earnings.

 

 

109.Catherine and Nancy both own homes with lawns of similar size. Catherine mows her own lawn while

 

Nancy hires someone to mow hers. Assume both women are rational decision makers. Which is the best

explanation of the different decisions they make?

A. The opportunity cost of Nancy’s time is higher than the cost to her of hiring someone to mow the lawn.

B.  Nancy can get her lawn mowed for less than Catherine.

C.  Nancy doesn’t own a lawnmower.

D. Nancy earns more than Catherine does.

 

 

110.What is the opportunity cost of living in a house that you already own?

 

A. Zero, because you already own it.

B.  That mostly depends on current mortgage rates.

C.  The rent you could receive if you rented the house out to someone else.

D. The taxes you pay your local government.

 

 

111.Jody has purchased a non-refundable $25 ticket to attend a Miley Cyrus concert on Friday evening.

 

Subsequently, she is asked to go to dinner and dancing at no expense to her. If she uses cost-benefit

analysis to choose between going to the concert and going on the date, she should:

A. include only the entertainment value of the concert in the opportunity cost of going on the date.

B.

 

 

 include the cost of the ticket plus the entertainment value of the concert in the opportunity cost of

going on the date.

 

C.  include only the cost of concert ticket in the opportunity cost of going on the date.

D.

 

 

 include neither the cost of the ticket nor the entertainment value of the concert in the opportunity cost

of going on the date.

 

 

112.You need a TV, DVD player, and CD player. The sale flyer from a store downtown shows that the TV

 

that you want to buy is on sale for 10% off of the regular price this week. DVD and CD players are both

on sale for 20% off next week. Last week you drove downtown to save $30 on some concert tickets, a

15% savings. The regular prices for TVs, DVD players, and CD players are given in the table below.

 

 

 

If nothing else has changed, should you drive downtown next week to buy the DVD player and the CD

player?

A. Yes, because you will save $32.

B.  No, because you will save less than $30.

C.  Yes, because you will save $64.

D. Yes, because it is always worth it to drive downtown to earn a 20% discount.

 

 

 

 

 

 

113.You need a TV, DVD player, and CD player. The sale flyer from a store downtown shows that the TV

 

that you want to buy is on sale for 10% off of the regular price this week. DVD and CD players are both

on sale for 20% off next week. Last week you drove downtown to save $30 on some concert tickets, a

15% savings. The regular prices for TVs, DVD players, and CD players are given in the table below.

 

 

 

Suppose instead that the DVD player is on sale for 20% off and the CD player is on sale for 5% off

regular price. Should you drive downtown to buy the DVD and the CD player?

A. Yes, because you will save $24.

B.  Yes, because you will save $34.

C.  Yes, because you will save $64.

D. Yes, because it is always worth it to drive downtown to earn a 20% discount.

 

 

114.You own a pizza shop called “Pizzas’R’ Us”. Currently you are paying your cooks an hourly wage of $20.

 

You sell a medium pizza for $10. By hiring more cooks, you can increase your pizza production as shown

in the following table.

 

 

 

What is the total cost per day of hiring 3 cooks if they work 8 hour shifts?

A. $60

B.  $160

C.  $320

D. $480

 

 

115.You own a pizza shop called “Pizzas’R’ Us”. Currently you are paying your cooks an hourly wage of $20.

 

You sell a medium pizza for $10. By hiring more cooks, you can increase your pizza production as shown

in the following table.

 

 

 

What is the dollar value of total production during an 8-hour shift if you hire 2 cooks?

A. $320

B.  $560

C.  $70

D. $140

 

 

 

 

 

 

116.You own a pizza shop called “Pizzas’R’ Us”. Currently you are paying your cooks an hourly wage of $20.

 

You sell a medium pizza for $10. By hiring more cooks, you can increase your pizza production as shown

in the following table.

 

 

 

What is the average labor cost per pizza if you hire 4 cooks?

A. $6

B.  $8

C.  $10

D. $12

 

 

117.You own a pizza shop called “Pizzas’R’ Us”. Currently you are paying your cooks an hourly wage of $20.

 

You sell a medium pizza for $10. By hiring more cooks, you can increase your pizza production as shown

in the following table.

 

 

 

What is the average benefit per cook if you hire 2 cooks for one hour?

A. 2 pizzas

B.  2.5 pizzas

C.  3 pizzas

D. 3.5 pizzas

 

 

118.You own a pizza shop called “Pizzas’R’ Us”. Currently you are paying your cooks an hourly wage of $20.

 

You sell a medium pizza for $10. By hiring more cooks, you can increase your pizza production as shown

in the following table.

 

 

 

If you operate one hour every day, what is the marginal cost of hiring the 4th cook?

A. $10

B.  $20

C.  $40

D. $60

 

 

 

 

 

119.You own a pizza shop called “Pizzas’R’ Us”. Currently you are paying your cooks an hourly wage of $20.

 

You sell a medium pizza for $10. By hiring more cooks, you can increase your pizza production as shown

in the following table.

 

 

 

If you operate one hour every day, what is the marginal benefit of hiring the 3rd cook?

A. $10

B.  $20

C.  $30

D. $40

 

 

120.You own a pizza shop called “Pizzas’R’ Us”. Currently you are paying your cooks an hourly wage of $20.

 

You sell a medium pizza for $10. By hiring more cooks, you can increase your pizza production as shown

in the following table.

 

 

 

How many cooks should you hire to maximize your net benefit?

A. 1

B.  3

C.  4

D. 5

 

 

121.Positive economic principles are those that:

 

A. are always correct.

B.  are influenced by political ideology.

C.  predict how people should behave.

D. predict how people will behave.

 

 

122.One thing that distinguishes normative principles from positive principles is that:

 

A. normative principles are pessimistic and positive principles are optimistic.

B.

 

 

 normative principles reflect the social norms of the community, and positive principles reflect

universal truths.

 

C

.

 

 normative principles tell us how people should make economic decisions, and positive principles tell us

how people actually do make decisions.

 

D

.

 

 normative principles tell us how people actually make economic decisions, and positive principles tell

us how people should make decisions.

 

 

 

123.Normative economics is concerned with how people _____ make decisions while positive economics is

 

concerned with how people _____ make decisions.

A. in the real world; in models

B.  should; do

C.  in power; in ordinary life

D. in ordinary life; in power

 

 

124.An editorial in the paper argues that students should only be allowed to attend school so long as the

 

marginal cost of educating that student is less than the marginal benefit of that student’s education. The

writer’s reasoning is an application of:

A. positive economics.

B.  negative economics.

C.  normative economics.

D. economic naturalism.

 

 

125.The incentive principle states that a person is more likely to do something if:

 

A. the opportunity costs are high.

B.  the benefits from doing it increase.

C.  everyone else is doing the same thing.

D. he is paid to do it.

 

 

126.The incentive principle is an example of:

 

A. an economic decision-making pitfall.

B.  over-estimating the benefits of an action.

C.  a positive economic principle.

D. a normative economic principle.

 

 

127.If the government wanted to use the incentive principle to discourage smoking, it could:

 

A. publicize the health risks associated with second-hand smoke.

B.  increase taxes on cigarettes, effectively raising the price.

C.  subsidize hospitals treating lung disease.

D. invest more money in health research.

 

 

128.According to the incentive principle:

 

A. it is irrational to perform volunteer services.

B.  people will always take the highest-paying job.

C.  benefits are more important than costs in making a decision.

D. people tend to do more of something when the benefits are greater.

 

 

129.Microeconomics is distinguished from macroeconomics in that microeconomics focuses on:

 

A. the performance of the national economy.

B.  the overall price level.

C.  choices made by individuals or groups in the context of individual markets.

D. how to improve the performance of the national economy.

 

 

130.Macroeconomics is distinguished from microeconomics by its concentration on:

 

A. choices.

B.  the performance of national economies and ways to improve upon their performance.

C.  individual markets.

D. the level of prices in specific markets.

 

 

131.The study of individual choices and group behavior in individual markets defines:

 

A. microeconomics.

B.  economics.

C.  the scarcity principle.

D. macroeconomics.

 

 

 

132.Which branch of economics is most likely to study differences in countries’ growth rates?

 

A. microeconomics

B.  normative economics

C.  macroeconomics

D. experimental economics

 

 

133.Which of the following would not be analyzed in microeconomics?

 

A. How to make the largest profit?

B.  Whether to study or watch TV tonight.

C.  How an early freeze in California will affect the price of fruit?

D. Whether the federal budget should always be balanced.

 

 

134.Which of the following questions would not be answered in macroeconomics?

 

A. What caused the great depression?

B.  At what rate does the US economy typically grow?

C.  Did the sharp increase in gasoline prices alter SUV sales?

D. How does government spending affect the economy?

 

 

135.By convention, there are two major divisions of economics, called:

 

A. marginal benefit and marginal cost.

B.  reservation price and opportunity cost.

C.  microeconomics and macroeconomics.

D. rational economics and irrational economics.

 

 

136.A study that deals with the salaries of university professors would be considered:

 

A. macroeconomics

B.  microeconomics

C.  economic naturalism

D. marginal benefit

 

 

137.Studying how Pat allocates her time between teaching classes and assisting undergraduate students is an

 

example of:

A. microeconomics.

B.  macroeconomics.

C.  individual economics.

D. economic naturalism.

 

 

138.In deciding the number of guitars to buy for his shop before the Christmas season, Mark is making a(n)

 

__________________ decision.

A. microeconomic

B.  macroeconomic

C.  economic surplus

D. marginal choice

 

 

139.The impact of government policies on the building of new roads and highways would be studied in the

 

field of:

A. microeconomics.

B.  macroeconomics.

C.  government economics.

D. marginal economics.

 

 

140.Last year interest rates fell. The field of economics that would be most concerned with this is:

 

A. microeconomics.

B.  macroeconomics.

C.  economic naturalism.

D. marginal economics.

 

 

 

141.An economic naturalist is described as someone who:

 

A. uses economic arguments to protect forests and wetlands from development.

B.  has a natural talent for drawing graphs.

C.  applies economic insights to everyday life.

D. studies the process of natural selection in a marginal cost and marginal benefit framework.

 

 

142.With ATMs, it is possible to retrieve cash from the bank at any time. One hundred years ago, one

 

could only get cash from the bank during business hours, say, 9 am to 3 pm. The difference has arisen

because:

A. flexibility was not valued 100 years ago.

B.  it was impossible to provide 24-hour service 100 years ago.

C.  the cost of providing 24-hour service is much lower today.

D. government forced banks to become more convenient.

 

 

143.The number of US households with access to the Internet and those with broadband connections is

 

growing rapidly. As an economic naturalist, one could predict that when a major purchase is being

considered, families will:

A. always buy online.

B.  never buy online.

C.

 

 

 collect more information before making the purchase because the cost of finding and acquiring it is

lower.

 

D. collect more information before making the purchase because the benefit of information is now larger.

 

 

144.Every time you go to the grocery store, you try to choose the shortest line. But all of the lines always

 

seem to be the same length. Why?

A. The store manager tells the cashiers to speed up or slow down to maintain equal line lengths.

B.  Everyone else is trying to choose the shortest line too.

C.  The cashiers all work at the same speed.

D. Cashiers do not have an incentive to work faster.

 

 

145.Several years ago there were two systems for viewing movies at home: Sony’s BetaMax machines and

 

VCR machines that played VHS tapes. Despite the higher quality of BetaMax video, VHS became the

dominant format. Once VHS tapes were the dominant format, BetaMax virtually disappeared from

consumer markets. Why?

A. Movie producers preferred VHS to BetaMax.

B.

 

 

 Consumers gained more benefit by using the same system that others used, allowing them to share

movies.

 

C.  Movie rental stores boycotted all Sony products.

D. BetaMax technology was obsolete.

 

 

146.Suppose there are two parallel highways between two cities with approximately equal traffic. What would

 

you expect to happen if the state began charging tolls to drive on one of those highways?

A. More drivers would drive on the non-toll road, making the toll road less congested.

B.  More drivers would drive on the toll road making the non-toll road less congested.

C.

 

 

 Traffic would remain evenly divided between the two roads as drivers continuously sought the less-

congested route.

 

D. Traffic would decrease on both roads.

 

 

147.During times of high unemployment, colleges often observe an increase in enrollment even if tuition

 

remains unchanged. Why?

A.

 

 

 Students do not know about the decision pitfalls and go to college even though the net benefit is

negative.

 

B.

 

 

 The opportunity cost of attending college is lower because students are less likely to have good full-

time jobs.

 

C.  The opportunity cost of attending college is higher because good jobs are harder to find.

D.

 

 

 The benefit of attending college is lower because college graduates are less likely to find jobs upon

graduation.

 

 

 

148.The last time gas prices increased drastically, sales of large Sport Utility Vehicles (SUVs) fell. What

 

economic reason would explain this decrease in sales?

A. SUVs were a fad and were no longer popular.

B.  People who liked SUVs had already purchased one.

C.  Higher gas prices increased the cost of owning a SUV.

D. The price of SUVs increased because it cost more to build them.

 

 

149.Curly used his frequent flyer miles to fly to visit Moe. Curly told Moe that it didn’t cost him anything to

 

visit. Is Curly correct?

A. Yes, because Curly’s frequent flyer miles made the trip free.

B.  Yes, because Curly could stay at Moe’s house for free.

C.

 

 

 No, because Curly could have used his frequent flyer miles to go somewhere else, but chose to visit

Moe.

 

D. No, because Curly had to pay for earlier trips in order to earn the frequent flyer miles.

 

 

150.Some states have started giving tax credits to homeowners who install solar panels. This is an example

 

of:

A.

 

 

 A decision pitfall because homeowners will not properly account for the costs and benefits of installing

solar panels.

 

B.  Using the incentive principle to encourage homeowners to switch to solar energy.

C.  Normative economics, because people should use clean sources of energy.

D. Macroeconomic policy because it involves government tax policy.

 

 

151.Pat can either drive to work, which takes half an hour and uses $1.50 worth of gas, or take the bus, which

 

takes an hour and costs $1.00. How should Pat get to work?

A. Pat should always take the bus because it costs $0.50 less.

B.  Pat should always drive because it saves half an hour.

C.  Pat should drive if saving a half hour is worth $0.50 or more.

D. Pat should take the bus if a half hour of time is worth $0.50 or more.

 

 

 

2

 

Student: ___________________________________________________________________________

 

1. To say that an individual possesses an absolute advantage in the production of software means that

 

individual:

A. has a lower opportunity cost of producing software.

B.  can produce more and/or higher quality software in a given amount of time.

C.  was the first to create the software.

D. charges the lowest price for software.

 

 

2. If Scout has an absolute advantage over Dill:

 

A. Scout has more money than Dill.

B.  the problem of scarcity applies to Dill, but not to Scout.

C.  the problem of scarcity applies to Scout, but not to Dill.

D. Scout can accomplish more in a given period of time than can Dill.

 

 

3. If Leslie can produce two pairs of pants in an hour while Eva can make one pair an hour, then it must be

 

the case that:

A. Leslie has a comparative advantage.

B.  Leslie has an absolute advantage.

C.  Eva has a comparative advantage.

D. Leslie has both comparative and absolute advantage.

 

 

4. If a nation can produce a good more quickly than any other nation, that nation has a(n):

 

A. comparative advantage.

B.  absolute advantage.

C.  relative advantage.

D. specialization advantage.

 

 

5. Having a comparative advantage in a particular task means that:

 

A. you are better at it than other people.

B.  you give up more to accomplish that task than do others.

C.  you give up less to accomplish that task than do others.

D. you have specialized in that task, while others have not.

 

 

6. Larry has a comparative advantage in writing a term paper if he:

 

A. can write a paper faster than the other students in class.

B.  has an absolute advantage in writing a term paper.

C.  always earns an A on his papers.

D. has the lowest opportunity cost for writing a term paper.

 

 

7. If a nation has the lowest opportunity cost of producing a good, that nation has a(n):

 

A. comparative advantage.

B.  absolute advantage.

C.  comparative advantage and an absolute advantage.

D. absolute advantage and possibly a comparative advantage.

 

 

8. Which of the following statements is always true?

 

A. Absolute advantage implies comparative advantage.

B.  Comparative advantage does not require absolute advantage.

C.  Absolute advantage requires comparative advantage.

D. Comparative advantage requires absolute advantage.

 

 

 

 

 

 

 

 

9. If Jane can produce 3 pairs of shoes hourly, while Bob can produce 2, then one can infer that the

 

__________ advantage belongs to __________.

A. absolute; Jane

B.  comparative; Jane

C.  comparative; Bob

D. comparative and absolute; Jane

 

 

10.

 

 

 

Refer to the table above. According to the data, Corey has an absolute advantage in:

A. the production of pizza.

B.  neither the production of pizza nor the delivery of pizza.

C.  delivering pizza.

D. both the production of pizza and the delivery of pizza.

 

 

11.

 

 

 

Refer to the table above. According to the data, Pat has an absolute advantage in:

A. the production of pizza.

B.  neither the production of pizza nor the delivery of pizza.

C.  delivering pizza.

D. both the production of pizza and the delivery of pizza.

 

 

12.

 

 

 

Refer to the table above. Corey’s opportunity cost of the production of an extra pizza is the delivery of

______ pizza(s).

A. 2

B.  3/2

C.  2/3

D. 1/2

 

 

13.

 

 

 

Refer to the table above. Corey’s opportunity cost of the delivery of an extra pizza is the production of

______ pizza(s).

A. 6

B.  12

C.  2

D. 1/2

 

 

14.

 

 

 

Refer to the table above. Pat’s opportunity cost of the production of an extra pizza is the delivery of

______ pizza(s).

A. 3

B.  2

C.  3/2

D. 2/3

 

 

 

 

 

 

 

15.

 

 

 

Refer to the table above. Pat’s opportunity cost of the delivery of an extra pizza is the production of _____

pizza(s).

A. 12

B.  10

C.  3/2

D. 2/3

 

 

16.

 

 

 

Refer to the table above. The comparative advantage for pizza production belongs to __________ and the

comparative advantage for pizza delivery belongs to __________.

A. Corey; Corey

B.  Pat; Pat

C.  Pat; Corey

D. Corey; Pat

 

 

17.

 

 

 

Refer to the table above. Based on their comparative advantages, Pat should specialize in _______ while

Corey should specialize in _______.

A. pizza delivery; pizza production

B.  pizza production; pizza delivery

C.  neither pizza production nor pizza delivery; both pizza production and pizza delivery

D. both pizza production and pizza delivery; neither pizza production nor pizza delivery

 

 

18. Which of the following is true?

 

A. Lou has both an absolute advantage and a comparative advantage over Alex in both tasks.

B.  Alex has a comparative advantage over Lou in cleaning.

C.  Lou has a comparative advantage over Alex in cleaning.

D. Lou has a comparative advantage over Alex in cooking.

 

 

19. Lou and Alex live together and share household chores. They like to cook some meals ahead of time and

 

eat leftovers. Suppose that in one hour Lou and Alex can do the following:

 

 

 

Alex and Lou have worked out an efficient arrangement. Under that arrangement:

A. Alex and Lou do half of the cooking and half of the cleaning.

B.  Alex does all of the cleaning, while Lou does all the cooking.

C.  Lou does all of the cleaning and half of the cooking.

D. Lou does all of the cleaning, while Alex does all of the cooking.

 

 

 

 

 

 

 

20. Lou and Alex live together and share household chores. They like to cook some meals ahead of time and

 

eat leftovers. Suppose that in one hour Lou and Alex can do the following:

 

 

 

For Alex, the opportunity cost of cleaning one room is ____ meal(s); for Lou the opportunity cost of

cleaning one room is _____ meal(s).

A. 4; 4

B.  1; 4/5

C.  1; 5/4

D. 3; 5

 

 

21. Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in

 

this table:

 

 

 

________ has an absolute advantage in selling cars and __________ has an absolute advantage in selling

trucks.

A. Joe; Joe

B.  Larry; Ralph

C.  Ralph; Larry

D. Larry; Joe

 

 

22. Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in

 

this table:

 

 

 

For Larry, the opportunity cost of selling a truck is:

A. 10 fewer cars sold.

B.  1/2 car not sold.

C.  1 fewer car sold.

D. 2 fewer cars sold.

 

 

23. Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in

 

this table:

 

 

 

For Joe, the opportunity cost of selling a truck is:

A. 9 fewer cars sold.

B.  1 fewer cars sold.

C.  4 fewer cars sold.

D. 1/3 car not sold.

 

 

 

 

 

 

24. Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in

 

this table:

 

 

 

For Ralph, the opportunity cost of selling a truck is:

A. 9 fewer cars sold.

B.  1/3 car not sold.

C.  3 fewer cars sold.

D. 1/4 car not sold.

 

 

25. Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in

 

this table:

 

 

 

Joe’s opportunity cost of selling a car is ______ than Ralph’s, and Joe’s opportunity cost of selling a car is

______ than Larry’s.

A. less; greater

B.  greater; less

C.  less; less

D. greater; greater

 

 

26. Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in

 

this table:

 

 

 

______ should specialize in truck sales, and ______ should specialize in car sales.

A. Joe; Ralph

B.  Ralph; Larry

C.  Larry; Ralph

D. Larry; Joe

 

 

27. Application of the Principle of Comparative Advantage leads to:

 

A. greater specialization of labor and other factors of production.

B.  less specialization of labor and other factors of production.

C.  societies without any specialization of labor.

D. lower total output.

 

 

28. The textbook notes that the last time a major league batter hit .400 was in 1941. This is because:

 

A. the average quality of batters has fallen.

B.  the league imposes harsh penalties for steroid use.

C.  specialization by pitchers, infielders, and outfielders has made it harder for batters to hit.

D. baseball diamonds have become larger.

 

 

29. Ginger and Maryann are lost in the jungle, where the only things to eat are mangoes and fish. Ginger

 

can gather mangoes faster than Maryann and can also catch more fish per hour than can Maryann.

Therefore:

A

.

 

 Ginger should specialize in fishing because it is harder than gathering mangoes, and Maryann should

specialize in gathering mangoes.

 

B.  Ginger should strike out on her own, because Maryann reduces their combined productivity.

C.  Maryann should specialize in the activity for which she has a comparative advantage.

D. Ginger should specialize in the activity for which she has an absolute advantage.

 

 

 

30. In general, individuals and nations should specialize in producing those goods for which they have

 

a(n):

A. absolute advantage.

B.  comparative advantage.

C.  absolutely comparative advantage.

D. absolute advantage and a comparative advantage.

 

 

31. In general, individuals and nations should specialize in producing goods _________ other individuals or

 

nations.

A. that they can produce more quickly than

B.  that they can produce less quickly than

C.  for which they have a lower opportunity cost compared to

D. for which they have a higher opportunity cost compared to

 

 

32. A country may have a comparative advantage in the production of cars if:

 

A. it imports most of the raw materials necessary to produce cars.

B.  its citizens prefer driving cars to other forms of transportation.

C.  it has strict environmental protection laws governing automobile emissions.

D. it has the natural resources needed to produce steel.

 

 

33. The United States generally has a comparative advantage in the development of technology because

 

of:

A. larger amounts of natural resources.

B.  a high concentration of the best research universities.

C.  tax incentives.

D. the existence of patent law, which no other country provides.

 

 

34. The United States has a comparative advantage in producing books and movies because:

 

A. New York and Hollywood are the historic centers of book publishing and movie production.

B. wages for workers who print books and make movies are lower in the United States than elsewhere.

C.  the English language is understood by many people all over the world.

D. the United States gives generous tax breaks to publishers and movie producers.

 

 

35. The United States was unable to maintain its dominance in the production of televisions because:

 

A. the highly technical skills necessary to produce televisions are greater in other countries.

B.  the raw materials necessary to build televisions became scarce in the United States.

C.  the product designs evolved too rapidly for United States engineers to keep up.

D. automated production allowed production to be outsourced to countries with less-skilled workers.

 

 

36. A graph that illustrates the maximum amount of one good that can be produced for every possible level of

 

production of the other good is called a(n):

A. production possibilities curve.

B.  consumption possibilities curve.

C.  production function.

D. supply curve.

 

 

37. The production possibilities curve shows:

 

A. the minimum production of one good for every possible production level of the other good.

B.  how increasing the inputs used for one good increases the production of the other good.

C.  the maximum production of one good for every possible production level of the other good.

D. how increasing the production of one good allows production of the other good to also rise.

 

 

38. The production possibilities curve is:

 

A. the boundary that divides all production combinations into efficient and inefficient ones.

B.  a graph illustrating the production combinations society would like to choose.

C. the boundary that divides all production combinations into attainable ones and unattainable ones.

D. a graph illustrating supply curves for different combinations of output.

 

 

 

 

 

39. The core principle that is illustrated by the production possibilities curve is:

 

A. the Scarcity Principle.

B.  the Cost-Benefit Principle.

C.  the Incentive Principle.

D. The Principle of Comparative Advantage.

 

 

40. This graph describes the production possibilities on the island of Genovia:

 

 

 

The opportunity cost of producing one car in Genovia is:

A. 5,000 tons of agricultural products.

B.  500 tons of agricultural products.

C.  5 tons of agricultural products.

D. 50 tons of agricultural products.

 

 

41. This graph describes the production possibilities on the island of Genovia:

 

 

 

The opportunity cost of producing one ton of agricultural products in Genovia is:

A. 1,000 cars.

B.  1 car.

C.  1/5 of a car.

D. 1/50 of a car.

 

 

 

 

 

42. This graph describes the production possibilities on the island of Genovia:

 

 

 

Assuming efficient production, If 500 cars are produced in Genovia:

A. 50,000 tons of agricultural products are also being produced.

B.  25,000 tons of agricultural products are also being produced.

C.  45,000 tons of agricultural products are also being produced.

D. 40,000 tons of agricultural products are also being produced.

 

 

43. The slope of the production possibilities curve must be:

 

A. positive.

B.  decreasing.

C.  increasing.

D. negative.

 

 

44. The slope of any production possibilities curve is __________ because __________.

 

A. negative; more production of one good means less production of the other

B.  constant; the tradeoff in production never changes

C.  positive; more production of one good means more production of the other

D. positive; more production of one good means less production of the other

 

 

45.

 

 

 

Refer to the figure above. Becky’s maximum production of clogs per hour is represented by point:

A. u.

B.  t.

C.  v.

D. w.

 

 

 

 

 

46.

 

 

 

Refer to the figure above. Becky’s maximum production of sandals per hour is represented by point:

A. u.

B.  t.

C.  v.

D. z.

 

 

47.

 

 

 

Refer to the figure above. Point u is an __________ point in relation to the production possibilities

curve.

A. attainable

B.  efficient

C.  unattainable

D. inefficient

 

 

 

 

 

48.

 

 

 

Refer to the figure above. Of the labeled points, ______________ are attainable.

A. only t and u

 

B.  only x, y, and z

 

C.  only w, x, y, z, and v

 

D. only w, x, y, z, v, and t

 

 

49.

 

 

 

Refer to the figure above. Of the labeled points, ______________ are efficient.

A. only t and u

 

B.  only x, y, and z

 

C.  only w, x, y, z, and v

 

D. only w, x, y, z, v, and t

 

 

 

 

 

50.

 

 

 

Refer to the figure above. Point t is an __________ point in relation to the production possibilities

curve.

A. attainable

B.  efficient

C.  unattainable

D. inefficient

 

 

51.

 

 

 

Refer to the figure above. Point y ___________________________ point v.

A. is more efficient than

B.  is less efficient than

C.  is equally as efficient as

D. is more attainable than

 

 

 

 

 

52.

 

 

 

Refer to the figure above. Relative to point x, at point y:

A. more sandals and more clogs are produced.

B.  more sandals and fewer clogs are produced.

C.  more clogs and fewer sandals are produced.

D. fewer sandals and fewer clogs are produced.

 

 

53.

 

 

 

Refer to the figure above. Suppose that during the summer Becky can sell more sandals than she can

clogs. If she had been producing at point x in the winter, during the summer she will produce at:

A. point w.

B.  point z.

C.  point u.

D. point t.

 

 

 

 

 

 

54.

 

 

 

Refer to the figure above. For Pat, the opportunity cost of removing one bag of trash is:

A. not planting 25 bulbs.

B.  not planting 5 bulbs.

C.  not planting 10 bulbs.

D. not planting one-fifth of a bulb.

 

 

55.

 

 

 

Refer to the figure above. For Chris, the opportunity to removing one bag of trash is:

A. not planting 25 bulbs.

B.  not planting 5 bulbs.

C.  not planting 3 bulbs.

D. not planting one-third of a bulb.

 

 

56.

 

 

 

Refer to the figure above. If Pat and Chris were to specialize in the task for which each has a comparative

advantage:

A. Chris would plant bulbs and Pat would remove trash.

B.  Chris would remove trash and Pat would plant bulbs.

C.  Pat and Chris would each spend one hour on each task.

D. both Pat and Chris would plant bulbs because they both have an absolute advantage in that task.

 

 

 

 

57.

 

 

 

Refer to the figure above. If Pat and Chris each spend half their time on each task the outcome will

consist of:

A. the greatest possible combined production.

B.  greater combined production than if each had specialized.

C.  less combined production than if each had specialized.

D. an unattainable level of combined production.

 

 

58. If a point on a production possibilities curve is attainable:

 

A. it must be efficient.

B.  it might or might not be efficient.

C.  it is efficient only if it does not exhaust all currently available resources.

D. it must completely exhaust all currently available resources.

 

 

59. Any combination of goods that can be produced with currently available resources defines a(n):

 

A. attainable point on a production possibilities curve.

B.  efficient point on a production possibilities curve.

C.  inefficient point on a production possibilities curve.

D. attainable and efficient point on a production possibilities curve.

 

 

60. An inefficient point on a production possibilities curve is:

 

A. necessarily also an attainable point.

B.  not necessarily an attainable point.

C.  necessarily an unattainable point.

D. possibly an unattainable point.

 

 

61. If a producer is operating at an inefficient point on a production possibilities curve using currently

 

available resources, that producer:

A. cannot produce more of one good without giving up some of the other good.

B.  can produce more of one good without producing less of the other good.

C.  must be at an unattainable point on the production possibilities curve.

D. must be specializing in activities for which it has a comparative advantage.

 

 

62. Points that lie below the production possibilities curve are inefficient because:

 

A.

 

 

 more of one or both goods could be produced using currently available resources without giving up

production of another good.

 

B.  producers are not specializing.

C.  producers face scarcity.

D. too many goods are being produced.

 

 

 

 

 

 

63.

 

 

 

Refer to the figure above. It is __________ for this farmer to grow 1,000 bushels of wheat and no corn

relative to growing 500 bushels of corn and no wheat.

A. not efficient

B.  more efficient

C.  less efficient

D. equally as efficient

 

 

64.

 

 

 

Refer to the figure above. It is efficient for this farmer to:

A. grow 500 bushels of wheat and 500 bushels of corn.

B.  grow 250 bushels of wheat and 500 bushels of corn.

C.  grow 500 bushels of wheat and 250 bushels of corn.

D. grow 1000 bushels of wheat and 500 bushels of corn.

 

 

65.

 

 

 

Refer to the figure above. The opportunity cost to produce one bushel of corn is:

A. 2 bushels of wheat.

B.  ½ of a bushel of wheat.

C.  500 bushels of wheat.

D. 250 bushels of wheat.

 

 

 

66. If a given production combination is known to be attainable, then it must be:

 

A. on the production possibilities curve.

B.  an inefficient point.

C.  an efficient point.

D. either an inefficient or efficient point.

 

 

67. If a given production combination is efficient, then it must be:

 

A. beyond the production possibilities curve.

B.  on the production possibilities curve.

C.  either an attainable or an unattainable point.

D. the best combination out of all possible combinations.

 

 

68. Working efficiently, Jordan can write 3 essays and outline 4 chapters each week. It must be true that:

 

A. 6 essays and 0 chapter outlines would be unattainable.

B.  2 essays and 3 chapter outlines would be efficient.

C.  3 essays and 5 chapter outlines would be unattainable.

D. 4 essays and 3 chapter outlines would be both attainable and efficient.

 

 

69. Point A on a linear production possibilities curve represents a combination of 12 coffees and 3

 

cappuccinos, and point B represents 3 coffees and 6 cappuccinos. Suppose coffees are on the vertical axis

and cappuccinos are on the horizontal axis.

The absolute value of the slope of the production possibilities curve between points A and B equals:

A. 6

B.  4

C.  3

D. 1/3

 

 

70. Point A on a linear production possibilities curve represents a combination of 12 coffees and 3

 

cappuccinos, and point B represents 3 coffees and 6 cappuccinos. Suppose coffees are on the vertical axis

and cappuccinos are on the horizontal axis.

The opportunity cost of a cup of coffee is:

A. 3 cappuccinos

B.  9 cappuccinos

C.  1/3 of a cappuccino

D. 6 cappuccinos

 

 

71. Generally, on a linear two-good production possibilities curve, the opportunity cost of the good measured

 

on the vertical axis is:

A. one minus the opportunity cost of the good measured on the horizontal axis.

B.  the reciprocal of the opportunity cost of the good measured on the horizontal axis.

C.  the slope of the production possibilities line.

D. the negative of the opportunity cost of the good measured on the horizontal axis.

 

 

72. If your linear, two-good production possibilities graph has a slope steeper than -1:

 

A

.

 

 you would have to give up more than one unit of the good measured on the horizontal axis to gain an

additional unit of the good measured on the vertical axis.

 

B

.

 

 you would have to give up less than one unit of the good measured on the horizontal axis to gain an

additional unit of the good measured on the vertical axis.

 

C

.

 

 by specializing in the good measured on the horizontal axis you would be able to make more total units

than you would if you specialized in the good measured on the vertical axis.

 

D. you have a comparative advantage in the good measured on the vertical axis.

 

 

 

73. Pat has 4 hours to spend either studying for a test or playing a new video game. If Pat spends all of that

 

time studying, Pat can score a 92 on the test. If Pat plays for 1 hour, Pat’s test score falls 5 points. For

playing a second hour, Pat’s score falls by another 7 points. Playing for a third hour will lower Pat’s score

by another 10 points.

Refer to the information above. The intercept on the test score axis of Pat’s PPC is:

A. 100

B.  92

C.  5 hours

D. 4 hours

 

 

74. Pat has 4 hours to spend either studying for a test or playing a new video game. If Pat spends all of that

 

time studying, Pat can score a 92 on the test. If Pat plays for 1 hour, Pat’s test score falls 5 points. For

playing a second hour, Pat’s score falls by another 7 points. Playing for a third hour will lower Pat’s score

by another 10 points.

Refer to the information above. Pat’s PPC for test score versus hours playing a new video game is:

A. upward-sloping.

B.  downward-sloping.

C.  first upward- and then downward-sloping.

D. first downward- and then upward-sloping.

 

 

75. Pat has 4 hours to spend either studying for a test or playing a new video game. If Pat spends all of that

 

time studying, Pat can score a 92 on the test. If Pat plays for 1 hour, Pat’s test score falls 5 points. For

playing a second hour, Pat’s score falls by another 7 points. Playing for a third hour will lower Pat’s score

by another 10 points.

Refer to the information above. The opportunity cost of the 2nd hour of playing the video game is:

A. 10 points on the test.

B.  5 points on the test.

C.  7 points on the test.

D. 2.5 points on the test.

 

 

76. Pat has 4 hours to spend either studying for a test or playing a new video game. If Pat spends all of that

 

time studying, Pat can score a 92 on the test. If Pat plays for 1 hour, Pat’s test score falls 5 points. For

playing a second hour, Pat’s score falls by another 7 points. Playing for a third hour will lower Pat’s score

by another 10 points.

Refer to the information above. The opportunity cost of playing video games:

A. decreases the longer Pat plays.

B.  increases the longer Pat plays.

C.  is greater than the value of earning a higher grade on the test.

D. is equal to the value of earning a higher grade on the test.

 

 

77. The fundamental reason the production possibilities curve has a downward slope is:

 

A. workers are inefficient.

B.  resources are of low quality.

C.  resources are fixed and therefore tradeoffs must be made.

D. it has empirical support but why it is so is still a mystery.

 

 

78. In a two-person, two-good economy, the benefits of labor specialization will be larger when:

 

A. one person has an absolute advantage in both goods.

B.  neither person has an absolute advantage.

C. there are small differences in the respective opportunity costs of the two individuals for both goods.

D. there are large differences in the respective opportunity costs of the two individuals for both goods.

 

 

 

 

 

 

 

79. According to the principle of increasing opportunity cost, expanding production requires using resources

 

in which order?

A. In random order.

B.

 

 

 Starting with the resource with the highest opportunity cost and progressing to the lower opportunity

cost resources.

 

C.

 

 

 Starting with the resource closest to the average opportunity cost, then progressing to higher

opportunity cost resources.

 

D.

 

 

 Starting with the resource with the lowest opportunity cost and proceeding to the higher opportunity

cost resources.

 

 

80. Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. The opportunity cost of making an extra calculator for Smith is __________ and

for Jones it is __________.

A. 0.10 computers; 0.05 computers

B.  10 computers; 6 computers

C.  1 computer; 0.5 computers

D. 0.6 computers; 1.2 computers

 

 

81. Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. By coordinating their production decisions, the maximum number of computers

Smith and Jones can produce in an hour is:

A. 120.

B.  6.

C.  16.

D. 10.

 

 

82. Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. Suppose Smith and Jones begin by producing 16 computers and 0 calculators

per hour. If they wish to produce 14 computers and 40 calculators per hour, then Smith will spend

__________ and Jones will spend __________.

A. 1 hour on computers; 40 minutes on computers and 20 minutes on calculators

B.  1 hour on computers; 20 minutes on computers and 40 minutes on calculators

C.  30 minutes on each; 30 minutes on each

D. 45 minutes on computers and 15 on calculators; 1 hour on calculators

 

 

83. Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. Suppose Smith and Jones begin by producing 0 computers and 220 calculators

per hour. If they wish to produce 2 computers and 200 calculators per hour, then Smith will spend

__________ and Jones will spend __________.

A. 30 minutes on each; 30 minutes on each

B.  48 minutes on computers and 12 minutes on calculators; 1 hour on calculators

C.  1 hour on calculators; 10 minutes on computers and 50 minutes on calculators

D. 12 minutes on computers and 48 minutes on calculators; 1 hour on calculators

 

 

 

 

 

 

 

84. Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. If Smith and Jones are dividing their time efficiently and producing more

than 10 computers and fewer than 120 calculators per hour, Smith will __________ and Jones will

__________.

A. produce only computers; produce only calculators

B.  produce only computers; split his time between computers and calculators

C.  split his time between computers and calculators; produce only computers

D. produce only calculators; produce only computers

 

 

85. Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. If Smith and Jones are dividing their time efficiently and producing fewer

than 10 computers and more than 120 calculators per hour, Smith will __________ and Jones will

__________.

A. split his time between the two; produce only calculators

B.  split his time between the two; split his time between the two

C.  produce only calculators; produce only computers

D. produce only computers; produce only calculators

 

 

86. Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. Suppose Smith and Jones begin by producing 100 calculators per hour; as Smith

and Jones choose to efficiently produce fewer computers and more calculators, __________ devotes more

time to calculators because his __________.

A. Smith; absolute advantage is larger

B.  Jones; absolute advantage is smaller

C.  Jones; opportunity costs are lower

D. Smith; opportunity costs are lower

 

 

87. Earth Movers & Shakers operates 3 iron ore mines. This table shows their daily production rates and the

 

current number of miners at each mine. All of the miners work for the same wage and each miner in any

given mine produces the same number of tons as each other miner in that mine.

 

 

 

Refer to the table above. The daily opportunity cost of moving one miner from Mother Lode to Scraping

Bottom is:

A. 2 tons.

B.  3 tons.

C.  4 tons.

D. 1 ton.

 

 

 

 

 

 

88. Earth Movers & Shakers operates 3 iron ore mines. This table shows their daily production rates and the

 

current number of miners at each mine. All of the miners work for the same wage and each miner in any

given mine produces the same number of tons as each other miner in that mine.

 

 

 

Refer to the table above. The daily opportunity cost of moving one miner from Scraping Bottom to

Middle Drift is:

A. less than 0.

B.  3 tons.

C.  4 tons.

D. 5 tons.

 

 

89. Earth Movers & Shakers operates 3 iron ore mines. This table shows their daily production rates and the

 

current number of miners at each mine. All of the miners work for the same wage and each miner in any

given mine produces the same number of tons as each other miner in that mine.

 

 

 

Refer to the table above. The opportunity cost of moving one miner from Middle Drift to Mother Lode

is:

A. 1 ton.

B.  3 tons.

C.  4 tons.

D. 5 tons.

 

 

90. Earth Movers & Shakers operates 3 iron ore mines. This table shows their daily production rates and the

 

current number of miners at each mine. All of the miners work for the same wage and each miner in any

given mine produces the same number of tons as each other miner in that mine.

 

 

 

Refer to the table above. Earth Movers & Shakers has just received an order for 60 tons of ore, to be filled

in a single day. It has no other orders for that day. It should:

A. take it all from Mother Lode.

B.  take it all from Middle Drift.

C.  take 30 tons from Scraping Bottom and 30 tons from Middle Drift.

D. take 20 tons from each of the three mines.

 

 

 

 

 

 

91. Earth Movers & Shakers operates 3 iron ore mines. This table shows their daily production rates and the

 

current number of miners at each mine. All of the miners work for the same wage and each miner in any

given mine produces the same number of tons as each other miner in that mine.

 

 

 

Refer to the table above. Earth Movers & Shakers needs to fill an order for 100 tons of ore in a single

day, and has no other orders to fill that day. It should:

A. take it all from Mother Lode.

B.  take 75 tons from Middle Drift and 25 tons from Mother Lode.

C.  take 75 tons from Middle Drift and 25 tons from Scraping Bottom.

D. take 30 tons from Scraping Bottom and 70 tons from Mother Lode.

 

 

92. Earth Movers & Shakers operates 3 iron ore mines. This table shows their daily production rates and the

 

current number of miners at each mine. All of the miners work for the same wage and each miner in any

given mine produces the same number of tons as each other miner in that mine.

 

 

 

By taking the first tons from ______, Earth Movers & Shakers is producing consistent with the _____

Principle.

A. Mother Lode; Low Hanging Fruit

B.  Middle Drift; Compromise

C.  Middle Drift; Low Hanging Fruit

D. Scraping Bottom; Cost Minimizing

 

 

93.

 

 

 

Refer to the figure above. If this restaurant makes 75 salads in one hour, how many pizzas can it also

make in that same hour, assuming efficient production?

A. 0

B.  10

C.  20

D. 30

 

 

 

 

 

94.

 

 

 

Refer to the figure above. Moving from Point B to Point C, this restaurant would be:

A. making more pizzas and more salads.

B.  making more pizzas and fewer salads.

C.  making fewer pizzas and more salads.

D. operating more efficiently.

 

 

95.

 

 

 

Refer to the figure above. Moving from Point C to Point B, the opportunity cost of 25 more salads is:

A. 5 fewer pizzas.

B.  10 fewer pizzas.

C.  15 fewer pizzas.

D. 30 fewer pizzas.

 

 

 

 

 

96.

 

 

 

Refer to the figure above. Moving from Point B to Point A, the opportunity cost of 25 more salads is:

A. 5 fewer pizzas.

B.  10 fewer pizzas.

C.  15 fewer pizzas.

D. 20 fewer pizzas.

 

 

97.

 

 

 

Refer to the figure above. The opportunity cost of making an additional salad:

A. remains constant regardless of how many salads are made.

B.  increases as the number of salads increases.

C.  decreases as the number of pizzas decreases.

D. decreases as the number of salads increases.

 

 

 

 

 

98.

 

 

 

Refer to the figure above. Compare the degree of efficiency at each point. Which is true?

A. Point A is less efficient than Point B.

B.  Points A, B, and C are more efficient than Point D.

C.  Points B and C are more efficient than either Point A or Point D.

D. Points A, B, C and D are equally efficient.

 

 

99.

 

 

 

The PPC shown in this graph is characteristic of production that displays:

A. constant opportunity costs.

B.  decreasing opportunity costs as production of a good increases.

C.  increasing opportunity costs as production of a good increases.

D. inefficient production because it is downward sloping.

 

 

 

 

 

100.

 

 

 

Refer to the figure above. Which of the following is true given the production possibilities shown?

A.

 

 

 Point C is more efficient than Point B because at Point C the opportunity cost of another warhead is

lower than at Point B.

 

B.  Point B is the most efficient feasible point because it represents specialization in warheads.

C.  Point F is the most efficient feasible point because it represents specialization in medical care.

D. Points B, C, and E are equally efficient.

 

 

101.

 

 

 

Refer to the figure above. Suppose that the government requires that resources are used efficiently. Which

of the following would the government definitely not allow?

A. Specialization in warhead production.

B.  Specialization in medical care production.

C.  Production at a point other than C.

D. Production at Point D.

 

 

 

 

102.

 

 

 

Refer to the figure above. Suppose that this economy is currently producing at point B, but an aging

population is demanding more medical care. Providing 400 additional units of medical care will cost this

economy:

A. 800 warheads.

B.  400 warheads.

C.  200 warheads.

D. 600 warheads.

 

 

103.To say that an individual possesses an absolute advantage in the production of software means that

 

individual:

A. has a lower opportunity cost of producing software.

B.  can produce more and/or higher quality software in a given amount of time.

C.  was the first to create the software.

D. charges the lowest price for software.

 

 

104.If Scout has an absolute advantage over Dill:

 

A. Scout has more money than Dill.

B.  the problem of scarcity applies to Dill, but not to Scout.

C.  the problem of scarcity applies to Scout, but not to Dill.

D. Scout can accomplish more in a given period of time than can Dill.

 

 

105.If Leslie can produce two pairs of pants in an hour while Eva can make one pair an hour, then it must be

 

the case that:

A. Leslie has a comparative advantage.

B.  Leslie has an absolute advantage.

C.  Eva has a comparative advantage.

D. Leslie has both comparative and absolute advantage.

 

 

106.If a nation can produce a good more quickly than any other nation, that nation has a(n):

 

A. comparative advantage.

B.  absolute advantage.

C.  relative advantage.

D. specialization advantage.

 

 

107.Having a comparative advantage in a particular task means that:

 

A. you are better at it than other people.

B.  you give up more to accomplish that task than do others.

C.  you give up less to accomplish that task than do others.

D. you have specialized in that task, while others have not.

 

 

108.Larry has a comparative advantage in writing a term paper if he:

 

A. can write a paper faster than the other students in class.

B.  has an absolute advantage in writing a term paper.

C.  always earns an A on his papers.

D. has the lowest opportunity cost for writing a term paper.

 

 

 

 

 

 

109.If a nation has the lowest opportunity cost of producing a good, that nation has a(n):

 

A. comparative advantage.

B.  absolute advantage.

C.  comparative advantage and an absolute advantage.

D. absolute advantage and possibly a comparative advantage.

 

 

110.Which of the following statements is always true?

 

A. Absolute advantage implies comparative advantage.

B.  Comparative advantage does not require absolute advantage.

C.  Absolute advantage requires comparative advantage.

D. Comparative advantage requires absolute advantage.

 

 

111.If Jane can produce 3 pairs of shoes hourly, while Bob can produce 2, then one can infer that the

 

__________ advantage belongs to __________.

A. absolute; Jane

B.  comparative; Jane

C.  comparative; Bob

D. comparative and absolute; Jane

 

 

112.

 

 

 

Refer to the table above. According to the data, Corey has an absolute advantage in:

A. the production of pizza.

B.  neither the production of pizza nor the delivery of pizza.

C.  delivering pizza.

D. both the production of pizza and the delivery of pizza.

 

 

113.

 

 

 

Refer to the table above. According to the data, Pat has an absolute advantage in:

A. the production of pizza.

B.  neither the production of pizza nor the delivery of pizza.

C.  delivering pizza.

D. both the production of pizza and the delivery of pizza.

 

 

114.

 

 

 

Refer to the table above. Corey’s opportunity cost of the production of an extra pizza is the delivery of

______ pizza(s).

A. 2

B.  3/2

C.  2/3

D. 1/2

 

 

 

 

 

 

 

 

115.

 

 

 

Refer to the table above. Corey’s opportunity cost of the delivery of an extra pizza is the production of

______ pizza(s).

A. 6

B.  12

C.  2

D. 1/2

 

 

116.

 

 

 

Refer to the table above. Pat’s opportunity cost of the production of an extra pizza is the delivery of

______ pizza(s).

A. 3

B.  2

C.  3/2

D. 2/3

 

 

117.

 

 

 

Refer to the table above. Pat’s opportunity cost of the delivery of an extra pizza is the production of _____

pizza(s).

A. 12

B.  10

C.  3/2

D. 2/3

 

 

118.

 

 

 

Refer to the table above. The comparative advantage for pizza production belongs to __________ and the

comparative advantage for pizza delivery belongs to __________.

A. Corey; Corey

B.  Pat; Pat

C.  Pat; Corey

D. Corey; Pat

 

 

119.

 

 

 

Refer to the table above. Based on their comparative advantages, Pat should specialize in _______ while

Corey should specialize in _______.

A. pizza delivery; pizza production

B.  pizza production; pizza delivery

C.  neither pizza production nor pizza delivery; both pizza production and pizza delivery

D. both pizza production and pizza delivery; neither pizza production nor pizza delivery

 

 

 

 

 

 

 

120.Which of the following is true?

 

A. Lou has both an absolute advantage and a comparative advantage over Alex in both tasks.

B.  Alex has a comparative advantage over Lou in cleaning.

C.  Lou has a comparative advantage over Alex in cleaning.

D. Lou has a comparative advantage over Alex in cooking.

 

 

121.Lou and Alex live together and share household chores. They like to cook some meals ahead of time and

 

eat leftovers. Suppose that in one hour Lou and Alex can do the following:

 

 

 

Alex and Lou have worked out an efficient arrangement. Under that arrangement:

A. Alex and Lou do half of the cooking and half of the cleaning.

B.  Alex does all of the cleaning, while Lou does all the cooking.

C.  Lou does all of the cleaning and half of the cooking.

D. Lou does all of the cleaning, while Alex does all of the cooking.

 

 

122.Lou and Alex live together and share household chores. They like to cook some meals ahead of time and

 

eat leftovers. Suppose that in one hour Lou and Alex can do the following:

 

 

 

For Alex, the opportunity cost of cleaning one room is ____ meal(s); for Lou the opportunity cost of

cleaning one room is _____ meal(s).

A. 4; 4

B.  1; 4/5

C.  1; 5/4

D. 3; 5

 

 

123.Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in

 

this table:

 

 

 

________ has an absolute advantage in selling cars and __________ has an absolute advantage in selling

trucks.

A. Joe; Joe

B.  Larry; Ralph

C.  Ralph; Larry

D. Larry; Joe

 

 

124.Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in

 

this table:

 

 

 

For Larry, the opportunity cost of selling a truck is:

A. 10 fewer cars sold.

B.  1/2 car not sold.

C.  1 fewer car sold.

D. 2 fewer cars sold.

 

 

 

 

 

 

 

125.Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in

 

this table:

 

 

 

For Joe, the opportunity cost of selling a truck is:

A. 9 fewer cars sold.

B.  1 fewer cars sold.

C.  4 fewer cars sold.

D. 1/3 car not sold.

 

 

126.Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in

 

this table:

 

 

 

For Ralph, the opportunity cost of selling a truck is:

A. 9 fewer cars sold.

B.  1/3 car not sold.

C.  3 fewer cars sold.

D. 1/4 car not sold.

 

 

127.Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in

 

this table:

 

 

 

Joe’s opportunity cost of selling a car is ______ than Ralph’s, and Joe’s opportunity cost of selling a car is

______ than Larry’s.

A. less; greater

B.  greater; less

C.  less; less

D. greater; greater

 

 

128.Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in

 

this table:

 

 

 

______ should specialize in truck sales, and ______ should specialize in car sales.

A. Joe; Ralph

B.  Ralph; Larry

C.  Larry; Ralph

D. Larry; Joe

 

 

129.Application of the Principle of Comparative Advantage leads to:

 

A. greater specialization of labor and other factors of production.

B.  less specialization of labor and other factors of production.

C.  societies without any specialization of labor.

D. lower total output.

 

 

 

130.The textbook notes that the last time a major league batter hit .400 was in 1941. This is because:

 

A. the average quality of batters has fallen.

B.  the league imposes harsh penalties for steroid use.

C.  specialization by pitchers, infielders, and outfielders has made it harder for batters to hit.

D. baseball diamonds have become larger.

 

 

131.Ginger and Maryann are lost in the jungle, where the only things to eat are mangoes and fish. Ginger

 

can gather mangoes faster than Maryann and can also catch more fish per hour than can Maryann.

Therefore:

A

.

 

 Ginger should specialize in fishing because it is harder than gathering mangoes, and Maryann should

specialize in gathering mangoes.

 

B.  Ginger should strike out on her own, because Maryann reduces their combined productivity.

C.  Maryann should specialize in the activity for which she has a comparative advantage.

D. Ginger should specialize in the activity for which she has an absolute advantage.

 

 

132.In general, individuals and nations should specialize in producing those goods for which they have

 

a(n):

A. absolute advantage.

B.  comparative advantage.

C.  absolutely comparative advantage.

D. absolute advantage and a comparative advantage.

 

 

133.In general, individuals and nations should specialize in producing goods _________ other individuals or

 

nations.

A. that they can produce more quickly than

B.  that they can produce less quickly than

C.  for which they have a lower opportunity cost compared to

D. for which they have a higher opportunity cost compared to

 

 

134.A country may have a comparative advantage in the production of cars if:

 

A. it imports most of the raw materials necessary to produce cars.

B.  its citizens prefer driving cars to other forms of transportation.

C.  it has strict environmental protection laws governing automobile emissions.

D. it has the natural resources needed to produce steel.

 

 

135.The United States generally has a comparative advantage in the development of technology because

 

of:

A. larger amounts of natural resources.

B.  a high concentration of the best research universities.

C.  tax incentives.

D. the existence of patent law, which no other country provides.

 

 

136.The United States has a comparative advantage in producing books and movies because:

 

A. New York and Hollywood are the historic centers of book publishing and movie production.

B. wages for workers who print books and make movies are lower in the United States than elsewhere.

C.  the English language is understood by many people all over the world.

D. the United States gives generous tax breaks to publishers and movie producers.

 

 

137.The United States was unable to maintain its dominance in the production of televisions because:

 

A. the highly technical skills necessary to produce televisions are greater in other countries.

B.  the raw materials necessary to build televisions became scarce in the United States.

C.  the product designs evolved too rapidly for United States engineers to keep up.

D. automated production allowed production to be outsourced to countries with less-skilled workers.

 

 

 

 

138.A graph that illustrates the maximum amount of one good that can be produced for every possible level of

 

production of the other good is called a(n):

A. production possibilities curve.

B.  consumption possibilities curve.

C.  production function.

D. supply curve.

 

 

139.The production possibilities curve shows:

 

A. the minimum production of one good for every possible production level of the other good.

B.  how increasing the inputs used for one good increases the production of the other good.

C.  the maximum production of one good for every possible production level of the other good.

D. how increasing the production of one good allows production of the other good to also rise.

 

 

140.The production possibilities curve is:

 

A. the boundary that divides all production combinations into efficient and inefficient ones.

B.  a graph illustrating the production combinations society would like to choose.

C. the boundary that divides all production combinations into attainable ones and unattainable ones.

D. a graph illustrating supply curves for different combinations of output.

 

 

141.The core principle that is illustrated by the production possibilities curve is:

 

A. the Scarcity Principle.

B.  the Cost-Benefit Principle.

C.  the Incentive Principle.

D. The Principle of Comparative Advantage.

 

 

142.This graph describes the production possibilities on the island of Genovia:

 

 

 

The opportunity cost of producing one car in Genovia is:

A. 5,000 tons of agricultural products.

B.  500 tons of agricultural products.

C.  5 tons of agricultural products.

D. 50 tons of agricultural products.

 

 

 

 

 

143.This graph describes the production possibilities on the island of Genovia:

 

 

 

The opportunity cost of producing one ton of agricultural products in Genovia is:

A. 1,000 cars.

B.  1 car.

C.  1/5 of a car.

D. 1/50 of a car.

 

 

144.This graph describes the production possibilities on the island of Genovia:

 

 

 

Assuming efficient production, If 500 cars are produced in Genovia:

A. 50,000 tons of agricultural products are also being produced.

B.  25,000 tons of agricultural products are also being produced.

C.  45,000 tons of agricultural products are also being produced.

D. 40,000 tons of agricultural products are also being produced.

 

 

145.The slope of the production possibilities curve must be:

 

A. positive.

B.  decreasing.

C.  increasing.

D. negative.

 

 

146.The slope of any production possibilities curve is __________ because __________.

 

A. negative; more production of one good means less production of the other

B.  constant; the tradeoff in production never changes

C.  positive; more production of one good means more production of the other

D. positive; more production of one good means less production of the other

 

 

 

 

 

147.

 

 

 

Refer to the figure above. Becky’s maximum production of clogs per hour is represented by point:

A. u.

B.  t.

C.  v.

D. w.

 

 

148.

 

 

 

Refer to the figure above. Becky’s maximum production of sandals per hour is represented by point:

A. u.

B.  t.

C.  v.

D. z.

 

 

 

 

 

149.

 

 

 

Refer to the figure above. Point u is an __________ point in relation to the production possibilities

curve.

A. attainable

B.  efficient

C.  unattainable

D. inefficient

 

 

150.

 

 

 

Refer to the figure above. Of the labeled points, ______________ are attainable.

A. only t and u

 

B.  only x, y, and z

 

C.  only w, x, y, z, and v

 

D. only w, x, y, z, v, and t

 

 

 

 

 

151.

 

 

 

Refer to the figure above. Of the labeled points, ______________ are efficient.

A. only t and u

 

B.  only x, y, and z

 

C.  only w, x, y, z, and v

 

D. only w, x, y, z, v, and t

 

 

152.

 

 

 

Refer to the figure above. Point t is an __________ point in relation to the production possibilities

curve.

A. attainable

B.  efficient

C.  unattainable

D. inefficient

 

 

 

 

 

153.

 

 

 

Refer to the figure above. Point y ___________________________ point v.

A. is more efficient than

B.  is less efficient than

C.  is equally as efficient as

D. is more attainable than

 

 

154.

 

 

 

Refer to the figure above. Relative to point x, at point y:

A. more sandals and more clogs are produced.

B.  more sandals and fewer clogs are produced.

C.  more clogs and fewer sandals are produced.

D. fewer sandals and fewer clogs are produced.

 

 

 

 

 

 

155.

 

 

 

Refer to the figure above. Suppose that during the summer Becky can sell more sandals than she can

clogs. If she had been producing at point x in the winter, during the summer she will produce at:

A. point w.

B.  point z.

C.  point u.

D. point t.

 

 

156.

 

 

 

Refer to the figure above. For Pat, the opportunity cost of removing one bag of trash is:

A. not planting 25 bulbs.

B.  not planting 5 bulbs.

C.  not planting 10 bulbs.

D. not planting one-fifth of a bulb.

 

 

157.

 

 

 

Refer to the figure above. For Chris, the opportunity to removing one bag of trash is:

A. not planting 25 bulbs.

B.  not planting 5 bulbs.

C.  not planting 3 bulbs.

D. not planting one-third of a bulb.

 

 

 

 

 

158.

 

 

 

Refer to the figure above. If Pat and Chris were to specialize in the task for which each has a comparative

advantage:

A. Chris would plant bulbs and Pat would remove trash.

B.  Chris would remove trash and Pat would plant bulbs.

C.  Pat and Chris would each spend one hour on each task.

D. both Pat and Chris would plant bulbs because they both have an absolute advantage in that task.

 

 

159.

 

 

 

Refer to the figure above. If Pat and Chris each spend half their time on each task the outcome will

consist of:

A. the greatest possible combined production.

B.  greater combined production than if each had specialized.

C.  less combined production than if each had specialized.

D. an unattainable level of combined production.

 

 

160.If a point on a production possibilities curve is attainable:

 

A. it must be efficient.

B.  it might or might not be efficient.

C.  it is efficient only if it does not exhaust all currently available resources.

D. it must completely exhaust all currently available resources.

 

 

161.Any combination of goods that can be produced with currently available resources defines a(n):

 

A. attainable point on a production possibilities curve.

B.  efficient point on a production possibilities curve.

C.  inefficient point on a production possibilities curve.

D. attainable and efficient point on a production possibilities curve.

 

 

162.An inefficient point on a production possibilities curve is:

 

A. necessarily also an attainable point.

B.  not necessarily an attainable point.

C.  necessarily an unattainable point.

D. possibly an unattainable point.

 

 

163.If a producer is operating at an inefficient point on a production possibilities curve using currently

 

available resources, that producer:

A. cannot produce more of one good without giving up some of the other good.

B.  can produce more of one good without producing less of the other good.

C.  must be at an unattainable point on the production possibilities curve.

D. must be specializing in activities for which it has a comparative advantage.

 

 

 

 

 

164.Points that lie below the production possibilities curve are inefficient because:

 

A.

 

 

 more of one or both goods could be produced using currently available resources without giving up

production of another good.

 

B.  producers are not specializing.

C.  producers face scarcity.

D. too many goods are being produced.

 

 

165.

 

 

 

Refer to the figure above. It is __________ for this farmer to grow 1,000 bushels of wheat and no corn

relative to growing 500 bushels of corn and no wheat.

A. not efficient

B.  more efficient

C.  less efficient

D. equally as efficient

 

 

166.

 

 

 

Refer to the figure above. It is efficient for this farmer to:

A. grow 500 bushels of wheat and 500 bushels of corn.

B.  grow 250 bushels of wheat and 500 bushels of corn.

C.  grow 500 bushels of wheat and 250 bushels of corn.

D. grow 1000 bushels of wheat and 500 bushels of corn.

 

 

 

 

167.

 

 

 

Refer to the figure above. The opportunity cost to produce one bushel of corn is:

A. 2 bushels of wheat.

B.  ½ of a bushel of wheat.

C.  500 bushels of wheat.

D. 250 bushels of wheat.

 

 

168.If a given production combination is known to be attainable, then it must be:

 

A. on the production possibilities curve.

B.  an inefficient point.

C.  an efficient point.

D. either an inefficient or efficient point.

 

 

169.If a given production combination is efficient, then it must be:

 

A. beyond the production possibilities curve.

B.  on the production possibilities curve.

C.  either an attainable or an unattainable point.

D. the best combination out of all possible combinations.

 

 

170.Working efficiently, Jordan can write 3 essays and outline 4 chapters each week. It must be true that:

 

A. 6 essays and 0 chapter outlines would be unattainable.

B.  2 essays and 3 chapter outlines would be efficient.

C.  3 essays and 5 chapter outlines would be unattainable.

D. 4 essays and 3 chapter outlines would be both attainable and efficient.

 

 

171.Point A on a linear production possibilities curve represents a combination of 12 coffees and 3

 

cappuccinos, and point B represents 3 coffees and 6 cappuccinos. Suppose coffees are on the vertical axis

and cappuccinos are on the horizontal axis.

The absolute value of the slope of the production possibilities curve between points A and B equals:

A. 6

B.  4

C.  3

D. 1/3

 

 

172.Point A on a linear production possibilities curve represents a combination of 12 coffees and 3

 

cappuccinos, and point B represents 3 coffees and 6 cappuccinos. Suppose coffees are on the vertical axis

and cappuccinos are on the horizontal axis.

The opportunity cost of a cup of coffee is:

A. 3 cappuccinos

B.  9 cappuccinos

C.  1/3 of a cappuccino

D. 6 cappuccinos

 

 

 

173.Generally, on a linear two-good production possibilities curve, the opportunity cost of the good measured

 

on the vertical axis is:

A. one minus the opportunity cost of the good measured on the horizontal axis.

B.  the reciprocal of the opportunity cost of the good measured on the horizontal axis.

C.  the slope of the production possibilities line.

D. the negative of the opportunity cost of the good measured on the horizontal axis.

 

 

174.If your linear, two-good production possibilities graph has a slope steeper than -1:

 

A

.

 

 you would have to give up more than one unit of the good measured on the horizontal axis to gain an

additional unit of the good measured on the vertical axis.

 

B

.

 

 you would have to give up less than one unit of the good measured on the horizontal axis to gain an

additional unit of the good measured on the vertical axis.

 

C

.

 

 by specializing in the good measured on the horizontal axis you would be able to make more total units

than you would if you specialized in the good measured on the vertical axis.

 

D. you have a comparative advantage in the good measured on the vertical axis.

 

 

175.Pat has 4 hours to spend either studying for a test or playing a new video game. If Pat spends all of that

 

time studying, Pat can score a 92 on the test. If Pat plays for 1 hour, Pat’s test score falls 5 points. For

playing a second hour, Pat’s score falls by another 7 points. Playing for a third hour will lower Pat’s score

by another 10 points.

Refer to the information above. The intercept on the test score axis of Pat’s PPC is:

A. 100

B.  92

C.  5 hours

D. 4 hours

 

 

176.Pat has 4 hours to spend either studying for a test or playing a new video game. If Pat spends all of that

 

time studying, Pat can score a 92 on the test. If Pat plays for 1 hour, Pat’s test score falls 5 points. For

playing a second hour, Pat’s score falls by another 7 points. Playing for a third hour will lower Pat’s score

by another 10 points.

Refer to the information above. Pat’s PPC for test score versus hours playing a new video game is:

A. upward-sloping.

B.  downward-sloping.

C.  first upward- and then downward-sloping.

D. first downward- and then upward-sloping.

 

 

177.Pat has 4 hours to spend either studying for a test or playing a new video game. If Pat spends all of that

 

time studying, Pat can score a 92 on the test. If Pat plays for 1 hour, Pat’s test score falls 5 points. For

playing a second hour, Pat’s score falls by another 7 points. Playing for a third hour will lower Pat’s score

by another 10 points.

Refer to the information above. The opportunity cost of the 2nd hour of playing the video game is:

A. 10 points on the test.

B.  5 points on the test.

C.  7 points on the test.

D. 2.5 points on the test.

 

 

178.Pat has 4 hours to spend either studying for a test or playing a new video game. If Pat spends all of that

 

time studying, Pat can score a 92 on the test. If Pat plays for 1 hour, Pat’s test score falls 5 points. For

playing a second hour, Pat’s score falls by another 7 points. Playing for a third hour will lower Pat’s score

by another 10 points.

Refer to the information above. The opportunity cost of playing video games:

A. decreases the longer Pat plays.

B.  increases the longer Pat plays.

C.  is greater than the value of earning a higher grade on the test.

D. is equal to the value of earning a higher grade on the test.

 

 

 

 

 

 

179.The fundamental reason the production possibilities curve has a downward slope is:

 

A. workers are inefficient.

B.  resources are of low quality.

C.  resources are fixed and therefore tradeoffs must be made.

D. it has empirical support but why it is so is still a mystery.

 

 

180.In a two-person, two-good economy, the benefits of labor specialization will be larger when:

 

A. one person has an absolute advantage in both goods.

B.  neither person has an absolute advantage.

C. there are small differences in the respective opportunity costs of the two individuals for both goods.

D. there are large differences in the respective opportunity costs of the two individuals for both goods.

 

 

181.According to the principle of increasing opportunity cost, expanding production requires using resources

 

in which order?

A. In random order.

B.

 

 

 Starting with the resource with the highest opportunity cost and progressing to the lower opportunity

cost resources.

 

C.

 

 

 Starting with the resource closest to the average opportunity cost, then progressing to higher

opportunity cost resources.

 

D.

 

 

 Starting with the resource with the lowest opportunity cost and proceeding to the higher opportunity

cost resources.

 

 

182.Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. The opportunity cost of making an extra calculator for Smith is __________ and

for Jones it is __________.

A. 0.10 computers; 0.05 computers

B.  10 computers; 6 computers

C.  1 computer; 0.5 computers

D. 0.6 computers; 1.2 computers

 

 

183.Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. By coordinating their production decisions, the maximum number of computers

Smith and Jones can produce in an hour is:

A. 120.

B.  6.

C.  16.

D. 10.

 

 

184.Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. Suppose Smith and Jones begin by producing 16 computers and 0 calculators

per hour. If they wish to produce 14 computers and 40 calculators per hour, then Smith will spend

__________ and Jones will spend __________.

A. 1 hour on computers; 40 minutes on computers and 20 minutes on calculators

B.  1 hour on computers; 20 minutes on computers and 40 minutes on calculators

C.  30 minutes on each; 30 minutes on each

D. 45 minutes on computers and 15 on calculators; 1 hour on calculators

 

 

 

 

 

 

 

185.Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. Suppose Smith and Jones begin by producing 0 computers and 220 calculators

per hour. If they wish to produce 2 computers and 200 calculators per hour, then Smith will spend

__________ and Jones will spend __________.

A. 30 minutes on each; 30 minutes on each

B.  48 minutes on computers and 12 minutes on calculators; 1 hour on calculators

C.  1 hour on calculators; 10 minutes on computers and 50 minutes on calculators

D. 12 minutes on computers and 48 minutes on calculators; 1 hour on calculators

 

 

186.Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. If Smith and Jones are dividing their time efficiently and producing more

than 10 computers and fewer than 120 calculators per hour, Smith will __________ and Jones will

__________.

A. produce only computers; produce only calculators

B.  produce only computers; split his time between computers and calculators

C.  split his time between computers and calculators; produce only computers

D. produce only calculators; produce only computers

 

 

187.Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. If Smith and Jones are dividing their time efficiently and producing fewer

than 10 computers and more than 120 calculators per hour, Smith will __________ and Jones will

__________.

A. split his time between the two; produce only calculators

B.  split his time between the two; split his time between the two

C.  produce only calculators; produce only computers

D. produce only computers; produce only calculators

 

 

188.Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below.

 

 

 

Refer to the table above. Suppose Smith and Jones begin by producing 100 calculators per hour; as Smith

and Jones choose to efficiently produce fewer computers and more calculators, __________ devotes more

time to calculators because his __________.

A. Smith; absolute advantage is larger

B.  Jones; absolute advantage is smaller

C.  Jones; opportunity costs are lower

D. Smith; opportunity costs are lower

 

 

 

 

 

 

189.Earth Movers & Shakers operates 3 iron ore mines. This table shows their daily production rates and the

 

current number of miners at each mine. All of the miners work for the same wage and each miner in any

given mine produces the same number of tons as each other miner in that mine.

 

 

 

Refer to the table above. The daily opportunity cost of moving one miner from Mother Lode to Scraping

Bottom is:

A. 2 tons.

B.  3 tons.

C.  4 tons.

D. 1 ton.

 

 

190.Earth Movers & Shakers operates 3 iron ore mines. This table shows their daily production rates and the

 

current number of miners at each mine. All of the miners work for the same wage and each miner in any

given mine produces the same number of tons as each other miner in that mine.

 

 

 

Refer to the table above. The daily opportunity cost of moving one miner from Scraping Bottom to

Middle Drift is:

A. less than 0.

B.  3 tons.

C.  4 tons.

D. 5 tons.

 

 

191.Earth Movers & Shakers operates 3 iron ore mines. This table shows their daily production rates and the

 

current number of miners at each mine. All of the miners work for the same wage and each miner in any

given mine produces the same number of tons as each other miner in that mine.

 

 

 

Refer to the table above. The opportunity cost of moving one miner from Middle Drift to Mother Lode

is:

A. 1 ton.

B.  3 tons.

C.  4 tons.

D. 5 tons.

 

 

 

 

 

 

192.Earth Movers & Shakers operates 3 iron ore mines. This table shows their daily production rates and the

 

current number of miners at each mine. All of the miners work for the same wage and each miner in any

given mine produces the same number of tons as each other miner in that mine.

 

 

 

Refer to the table above. Earth Movers & Shakers has just received an order for 60 tons of ore, to be filled

in a single day. It has no other orders for that day. It should:

A. take it all from Mother Lode.

B.  take it all from Middle Drift.

C.  take 30 tons from Scraping Bottom and 30 tons from Middle Drift.

D. take 20 tons from each of the three mines.

 

 

193.Earth Movers & Shakers operates 3 iron ore mines. This table shows their daily production rates and the

 

current number of miners at each mine. All of the miners work for the same wage and each miner in any

given mine produces the same number of tons as each other miner in that mine.

 

 

 

Refer to the table above. Earth Movers & Shakers needs to fill an order for 100 tons of ore in a single

day, and has no other orders to fill that day. It should:

A. take it all from Mother Lode.

B.  take 75 tons from Middle Drift and 25 tons from Mother Lode.

C.  take 75 tons from Middle Drift and 25 tons from Scraping Bottom.

D. take 30 tons from Scraping Bottom and 70 tons from Mother Lode.

 

 

194.Earth Movers & Shakers operates 3 iron ore mines. This table shows their daily production rates and the

 

current number of miners at each mine. All of the miners work for the same wage and each miner in any

given mine produces the same number of tons as each other miner in that mine.

 

 

 

By taking the first tons from ______, Earth Movers & Shakers is producing consistent with the _____

Principle.

A. Mother Lode; Low Hanging Fruit

B.  Middle Drift; Compromise

C.  Middle Drift; Low Hanging Fruit

D. Scraping Bottom; Cost Minimizing

 

 

 

 

 

195.

 

 

 

Refer to the figure above. If this restaurant makes 75 salads in one hour, how many pizzas can it also

make in that same hour, assuming efficient production?

A. 0

B.  10

C.  20

D. 30

 

 

196.

 

 

 

Refer to the figure above. Moving from Point B to Point C, this restaurant would be:

A. making more pizzas and more salads.

B.  making more pizzas and fewer salads.

C.  making fewer pizzas and more salads.

D. operating more efficiently.

 

 

 

 

 

197.

 

 

 

Refer to the figure above. Moving from Point C to Point B, the opportunity cost of 25 more salads is:

A. 5 fewer pizzas.

B.  10 fewer pizzas.

C.  15 fewer pizzas.

D. 30 fewer pizzas.

 

 

198.

 

 

 

Refer to the figure above. Moving from Point B to Point A, the opportunity cost of 25 more salads is:

A. 5 fewer pizzas.

B.  10 fewer pizzas.

C.  15 fewer pizzas.

D. 20 fewer pizzas.

 

 

 

 

 

199.

 

 

 

Refer to the figure above. The opportunity cost of making an additional salad:

A. remains constant regardless of how many salads are made.

B.  increases as the number of salads increases.

C.  decreases as the number of pizzas decreases.

D. decreases as the number of salads increases.

 

 

200.

 

 

 

Refer to the figure above. Compare the degree of efficiency at each point. Which is true?

A. Point A is less efficient than Point B.

B.  Points A, B, and C are more efficient than Point D.

C.  Points B and C are more efficient than either Point A or Point D.

D. Points A, B, C and D are equally efficient.

 

 

 

 

 

201.

 

 

 

The PPC shown in this graph is characteristic of production that displays:

A. constant opportunity costs.

B.  decreasing opportunity costs as production of a good increases.

C.  increasing opportunity costs as production of a good increases.

D. inefficient production because it is downward sloping.

 

 

202.

 

 

 

Refer to the figure above. Which of the following is true given the production possibilities shown?

A.

 

 

 Point C is more efficient than Point B because at Point C the opportunity cost of another warhead is

lower than at Point B.

 

B.  Point B is the most efficient feasible point because it represents specialization in warheads.

C.  Point F is the most efficient feasible point because it represents specialization in medical care.

D. Points B, C, and E are equally efficient.

 

 

 

 

 

203.

 

 

 

Refer to the figure above. Suppose that the government requires that resources are used efficiently. Which

of the following would the government definitely not allow?

A. Specialization in warhead production.

B.  Specialization in medical care production.

C.  Production at a point other than C.

D. Production at Point D.

 

 

204.

 

 

 

Refer to the figure above. Suppose that this economy is currently producing at point B, but an aging

population is demanding more medical care. Providing 400 additional units of medical care will cost this

economy:

A. 800 warheads.

B.  400 warheads.

C.  200 warheads.

D. 600 warheads.

 

 

 

 

205.

 

 

 

Refer to the figure above. Increasing the quantity of medical care provided from 100 units to 300 units

costs ______ increasing the quantity of medical care provided from 400 units to 600 units.

A. more than

B.  less than

C.  exactly the same as

D. twice as much as

 

 

206.Production possibilities curves for large economies generally have an outward bow shape because:

 

A. specialization gives some producers a comparative advantage.

B.  opportunity costs tend to decrease with increases in production.

C.  opportunity costs tend to increase with increases in production.

D. as more resources are used to produce the same good, those resources become less and less expensive.

 

 

207.The Principle of Increasing Opportunity Costs implies that:

 

A. productive people do the hardest tasks first, while they are fresh.

B.  to increase production, you should use the resources with the lowest opportunity cost first.

C.  the cost-benefit principle does not apply to increasing productivity.

D. specialization increases productivity.

 

 

208.You have noticed that your next-door neighbor, Mary, always works in the garden and her husband, Joe,

 

always walks the dog. Based on this observation, you conclude that:

A. Mary has an absolute advantage in gardening.

B.  Joe has a comparative advantage in walking the dog.

C.  Mary does not understand the principle of low-hanging fruit.

D. Joe experiences increasing opportunity costs when he gardens, but not when he walks the dog.

 

 

209.The principle of comparative advantage states that specialization increases productivity, but the principle

 

of increasing opportunity costs states that, when you increase production of a single good, you must use

increasingly costly resources. These two principles:

A. are evidence that economic theory is internally inconsistent.

B.  are an example of the difference between abstract models and the real world.

C.  cannot be true at the same time.

D. together account for the outward bow shape of production possibility curves.

 

 

210.The benefits of specialization can be used to explain why:

 

A. workers prefer to work on a variety of tasks during the day.

B.  machines are more productive than human workers.

C.  trade can make both parties to the trade better off.

D. big companies take advantage of smaller ones.

 

 

 

 

 

211.Moe divides his time between studying Physics and studying Economics. He has discovered that he can

 

earn grades as shown on this production possibilities curve.

 

 

 

Refer to the figure above. Both of Moe’s professors require at least a 65 to pass and a 90 to earn an A.

After looking at his PPC, Moe realizes that:

A. he can pass both classes.

B.  he can pass economics, but only if he fails physics.

C.  he can pass physics, but only if he fails economics.

D. he could earn an A in economics and still pass physics.

 

 

212.Moe divides his time between studying Physics and studying Economics. He has discovered that he can

 

earn grades as shown on this production possibilities curve.

 

 

 

Refer to the figure above. Moe’s PPC is bowed out because:

A. he is better at physics than at economics.

B.  his studying is subject to the principle of increasing opportunity costs.

C.  he is better at economics than at physics.

D. he has failed to take advantage of his comparative advantage.

 

 

 

 

 

213.Moe divides his time between studying Physics and studying Economics. He has discovered that he can

 

earn grades as shown on this production possibilities curve.

 

 

 

Refer to the figure above. According to Moe’s PPF, moving from a grade of 80 in economics to a grade of

90 in economics:

A. is inefficient.

B.  comes at a lower opportunity cost than moving from a 90 to a 100 in economics.

C.  is not feasible.

D. comes at a higher opportunity cost than moving from a 90 to a 100 in economics.

 

 

214.Moe divides his time between studying Physics and studying Economics. He has discovered that he can

 

earn grades as shown on this production possibilities curve.

 

 

 

Refer to the figure above. If Moe moved from Point A to Point C, his grade in Physics would go down by

______________ his grade in economics.

A. less than the increase in

B.  more than the increase in

C.  more than the decrease in

D. less than the decrease in

 

 

 

 

 

215.Moe divides his time between studying Physics and studying Economics. He has discovered that he can

 

earn grades as shown on this production possibilities curve.

 

 

 

Refer to the figure above. Which of the following is evidence that the low-hanging fruit principle applies

to Moe’s study habits?

A

.

 

 Earning the first 65 points in economics has a lower opportunity cost than earning the ten points that

moves his score from 90 to 100 in economics.

 

B.  Physics is easier to grasp than economics, so it is the “low-hanging fruit” for Moe.

C.  Economics is easier to grasp than physics, so it is the “low-hanging fruit” for Moe.

D. The low-hanging fruit principle applies only to production of goods and services, not to grades.

 

 

216.Moe divides his time between studying Physics and studying Economics. He has discovered that he can

 

earn grades as shown on this production possibilities curve.

 

 

 

Moe needs to earn at least an 80 in both economics and physics to keep his scholarship. Given his current

PPC, an 80 in both classes is ______.

A. infeasible

B.  attainable, but only if Moe is efficient

C.  efficient

D. attainable, but inefficient

 

 

 

 

 

217.

 

 

 

Refer to the figure above. In the country whose PPC is shown, it must be true that:

A. the resources are better at herding cattle than at making movies.

B.  the resources are better at making movies than at herding cattle.

C.  some resources are better at herding cattle and some residents are better at making movies.

D. this country has a comparative advantage in cattle herding.

 

 

218.

 

 

 

Refer to the figure above. At Point D:

A.

 

 

 resources that are better suited to making movies than to herding cattle are all being used to make

movies.

 

B.

 

 

 the opportunity cost of herding more cattle is low because the economy is specializing in cattle

herding.

 

C

.

 

 the opportunity cost of herding more cattle is high because resources that are better suited to movie

production are being used to herd cattle.

 

D. the economy is not operating efficiently.

 

 

 

 

 

219.

 

 

 

Refer to the figure above. This economy might be operating at Point B if:

A. technology has made cattle herding obsolete.

B.  the low-hanging fruit principle applies.

C.  opportunity costs are too high to finance a movie.

D

.

 

 resources that are best suited for making movies are being used to herd cattle, while resources that are

best used for herding cattle are being used to make movies.

 

 

220.

 

 

 

Refer to the figure above. If this economy were currently operating at Point D, in order to make more

movies:

A

.

 

 the first cattle herders to switch to movie making would be the cattle herders with the greatest

comparative advantage in cattle herding.

 

B.

 

 

 the first cattle herders to switch to movie making would be the cattle herders with the highest

opportunity cost of cattle herding.

 

C.  no cattle herders would have to switch because the economy is already efficient.

D.

 

 

 no cattle herders would have to switch because they are specialized in cattle herding, not movie

making.

 

 

 

 

 

221.

 

 

 

Refer to the figure above. The diagram shows Sven’s Production Possibilities for one day. For Sven, the

opportunity cost of spending one more hour studying:

A. is diminishing with each additional hour.

B.  is increasing with each additional hour.

C.  is exactly one hour of paid work.

D. is the marginal benefit from studying.

 

 

222.

 

 

 

Refer to the figure above. Sven could move from the bold PPC to the dashed PPC by:

A. finding a job that paid a higher wage.

B.  studying fewer hours but more effectively per hour.

C.  devoting fewer hours to sleeping and eating.

D. spending more time on the activity for which he has a comparative advantage.

 

 

223.Economic growth can result from a(n):

 

A. increase in the amount of productive resources.

B.  increase in number of the minimum wage jobs.

C.  increase in the amount of consumer goods produced.

D. decrease in the number of workers available.

 

 

224.An existing comparative advantage can be further magnified by specialization because:

 

A. it eliminates the need to switch from one task to another.

B.  repetition results in boredom.

C.  a variety of tasks will rise.

D. small tasks will be merged into larger tasks.

 

 

225.Which of the following statements is NOT true about specialization?

 

A. Total economic output is larger due to specialization.

B.  After specialization, worker skills are better matched with tasks.

C.  Specialization focuses experience and increases comparative advantage.

D. The variety of tasks associated with a particular job grows over time due to specialization.

 

 

 

226.According to the textbook, the largest factor explaining the variance in the performance of the economies

 

of the world is the:

A. degree of specialization.

B.  technological sophistication.

C.  location of the country.

D. type of government.

 

 

227.In the long-run, if the production of all goods increases for a society (there is economic growth), it will

 

cause the production possibility curve to:

A. shift inward.

B.  shift outward.

C.  first shift inward and then shift outward.

D. stay the same.

 

 

228.Between the U.S. and Nepal, Nepal invests less in new factories and equipment. This will likely

 

cause:

A. Nepal’s production possibilities curve to shift outward faster than the U.S.’s.

B.  The U.S.’s production possibilities curve to shift inward faster than Nepal’s.

C.  The U.S.’s production possibilities curve to shift outward faster than Nepal’s.

D. Nepal’s production possibilities curve to shift inward faster than the U.S’s.

 

 

229.Which of the following factors would not contribute to increasing an existing comparative advantage?

 

 

A. Productivity improvements from greater experience.

B.  Less time lost by switching tasks.

C.  Import restrictions.

D. Efficiency improvements due to learning.

 

 

230.In general, it is true that:

 

A. more specialization is always better.

B.  less specialization is always better.

C.  specialization imposes costs as well as benefits.

D. more specialization is always worse.

 

 

231.Suppose that a further increase in specialization allows a country to increase total output by 10%, but

 

afterward it was discovered that work absenteeism increased by 30%. This is likely an example of:

A. modern production.

B.  too much specialization.

C.  too little specialization.

D. inefficiencies caused by labor unions.

 

 

 

 

 

 

 

232.You are the Minister of Trade for a small island country in the South Pacific with the following annual

 

production possibilities curve:

 

 

 

You are negotiating a deal with a neighboring island that has the following annual PPC:

 

 

 

Refer to the figure above. As soon as you see the other island’s PPC, you realize:

A. there will be no trade because the other island has the same comparative advantage as yours.

B.  there will be no trade because there is no difference in your ability to harvest coconuts.

C.  there will be no trade because the other island has an absolute advantage.

D. your island will have to specialize in coconuts if it wants to gain from trade.

 

 

233.You are the Minister of Trade for a small island country in the South Pacific with the following annual

 

production possibilities curve:

 

 

 

You are negotiating a deal with a neighboring island that has the following annual PPC:

 

 

 

Refer to the figure above. When the other island’s delegate offers to give you 1,000 fish in exchange for

500 coconuts, you:

A. accept because you will then have a total of 2,500 fish.

B.

 

 

 refuse because the trade would leave you at a level of consumption that is less than what you could

produce on your own.

 

C.

 

 

 accept because the trade will leave you at a level of consumption that is more than what you could

produce on your own.

 

D. counter, offering to give them 400 coconuts in exchange for 1,000 fish.

 

 

 

 

 

 

 

234.You are the Minister of Trade for a small island country in the South Pacific with the following annual

 

production possibilities curve:

 

 

 

You are negotiating a deal with a neighboring island that has the following annual PPC:

 

 

 

Refer to the figure above. You have arrived with 300 coconuts to trade. The minimum number of fish you

would be willing to accept in exchange for those coconuts:

A. is 1,500 fish, because that’s how many you can catch without trade.

B. is 1,200 fish, because that is just enough to offset the opportunity cost of harvesting the coconuts.

C.  is 301 fish, because anything better than a one-for-one trade benefits your island.

D. is 901 fish, because that is just a little more than the opportunity cost of harvesting the coconuts.

 

 

235.You are the Minister of Trade for a small island country in the South Pacific with the following annual

 

production possibilities curve:

 

 

 

You are negotiating a deal with a neighboring island that has the following annual PPC:

 

 

 

Refer to the figure above. If you offer to give the other island 400 coconuts in exchange for 1,500

fish:

A. they will refuse your offer because it makes them worse off than producing on their own.

B.  they will accept your offer because it keeps them on their original PPC, and so is efficient.

C.

 

 

 they will accept your offer because it gives them 800 coconuts, which is more than they can make on

their own.

 

D

.

 

 they will accept your offer because it allows them to consume a combination of fish and coconuts that

would be unattainable on their own.

 

 

 

 

 

 

 

236.You are the Minister of Trade for a small island country in the South Pacific with the following annual

 

production possibilities curve:

 

 

 

You are negotiating a deal with a neighboring island that has the following annual PPC:

 

 

 

Refer to the figure above. Both islands specialize exclusively in the product for which they have a

comparative advantage. You have agreed to sell the other island 350 coconuts in exchange for 1,300 fish.

After the trade your island has a total of _____ coconuts and _____ fish.

A. 150; 2,800

B.  500; 1,300

C.  150; 1,300

D. 500; 1,500

 

 

237.You are the Minister of Trade for a small island country in the South Pacific with the following annual

 

production possibilities curve:

 

 

 

You are negotiating a deal with a neighboring island that has the following annual PPC:

 

 

 

Refer to the figure above. Both islands specialize exclusively in the product for which they have a

comparative advantage. You have agreed to sell the other island 350 coconuts in exchange for 1,300 fish.

After the trade the other island has a total of _____ coconuts and _____ fish.

A. 850; 1,200

B.  500; 1,200

C.  350; 1,500

D. 350; 1,200

 

 

 

238.Large developed countries can produce more of practically everything than can small, less developed

 

countries. Which of the following statements is true?

A. The large country has no incentive to trade with the smaller country.

B

.

 

 It would be impossible for the smaller country to have a comparative advantage in making any products

that the larger country wants to buy.

 

C. Trade will benefit both countries if each country has a comparative advantage in a traded product.

D. Trade between the countries is more likely to benefit the small country and harm the larger country.

 

 

239.The __________ the difference between domestic opportunity costs and international opportunity costs,

 

the __________ the potential benefits of trading with other countries.

A. smaller; greater

B.  greater; greater

C.  greater; smaller

D. larger; more insignificant

 

 

240.The key to resolving the apparent paradox of international trade increasing total output yet facing much

 

political opposition is noting that:

A. economists are mistaken about the increase in output.

B.  only the wealthy benefit from trade.

C.  no one benefits from trade.

D. everyone does not benefit equally from trade.

 

 

241.The political concern expressed about the North American Free Trade Agreement (NAFTA) was that:

 

A. prices to U.S. consumers would fall.

B.  wages in Mexico would rise.

C.  highly skilled workers in the United States would lose their jobs.

D. unskilled workers in the United States would lose their jobs.

 

 

242.When a government increases the cost of international trade, it is:

 

A. helping domestic consumers.

B.  hurting all domestic producers.

C.  reducing the total amount of output available to domestic consumers.

D. keeping all domestic prices artificially low.

 

 

243.The benefits to specialization are enhanced when two trading partners have:

 

A. absolute advantages in producing the same goods.

B.  similar consumption preferences.

C.  very similar opportunity costs.

D. large comparative advantages in different goods.

 

 

244.According to the textbook, the evidence indicates that NAFTA has:

 

A. reduced the wages of skilled workers in the United States.

B.  reduced the employment of unskilled workers in the United States significantly.

C.  stopped illegal immigration from Mexico.

D. not reduced the employment of unskilled workers in the United States.

 

 

245.NAFTA helped ______ to exploit a comparative advantage in the production of goods made by unskilled

 

labor.

A. Canada

B.  Cuba

C.  Mexico

D. The USA

 

 

246.It was expected that consumers in _____ would benefit from reduced prices of goods that will be freely

 

traded under the NAFTA.

A. Canada

B.  the United States

C.  China

D. Mexico

 

 

 

247.When U.S. companies open offices in Asia and hire workers there, it is evidence that:

 

A. workers in Asian countries have an absolute advantage over American workers.

B.  workers in Asian countries have a comparative advantage over American workers.

C.

 

 

 American workers have already picked all of the low-hanging fruit in the US, forcing companies to

look elsewhere.

 

D. all of the resources with low opportunity costs have been depleted.

 

 

248.When journalists write about outsourcing, they are referring to:

 

A. firms that hire illegal immigrants at wages less than the minimum wage.

B.  firms that import raw materials in order to produce more cheaply in the United States.

C.  exports.

D. firms that hire low-wage workers in other countries to perform some of their work.

 

 

249.The main reason that firms outsource is that:

 

A. low-wage workers in other countries are more productive than are U.S. workers.

B.  hiring low-wage workers reduces firms’ costs.

C.  hiring low-wage workers provides a tax deduction to firms.

D. U.S. workers cannot perform the tasks performed by workers in other countries.

 

 

250.When firms engage in outsourcing, ________ benefit and ______ are harmed.

 

A. the firms; consumers

B.  consumers; the firms

C.  consumers; the firm’s domestic employees

D. the firms; the firms’ foreign employees

 

 

251.A job is most likely to be outsourced if it:

 

A. involves face-to-face contact.

B.  cannot be done by a computer.

C.  does not require complex communication.

D. does not require use of computers or other technology.

 

 

252.Which of the following jobs is least likely to be outsourced?

 

A. Flipping hamburgers

B.  Technical assistance over the phone for your computer

C.  Transcription of physicians’ records

D. Software design

 

 

 

 

 

 20

3

 

Student: ___________________________________________________________________________

 

  1. In Cuba, a bureaucratic committee makes the production decisions for the country’s firms and factories. Therefore, Cuba is an example of a:
    1. centralized economy.

 

  1. capitalist economy.

 

  1. mixed economy.

 

  1. pure free-market economy.

 

  1. A good example of central planning at work in the U.S. would be:
    1. Burger King’s value meal price control.

 

  1. McDonald’s fries being the same everywhere in the U.S.

 

  1. union wages.
  2. New York City’s rent control.

 

  1. The entire group of buyers and sellers of a particular good or service makes up:
    1. only the demand curve.
    2. only the supply curve.

 

  1. a market.

 

  1. the equilibrium.

 

  1. Suppose you bought three tickets to a concert in advance at the University ticket window. At the last minute one friend cancelled, so you could use only two of those tickets. You scalped, or sold, the third ticket just outside the entrance to the concert for slightly more than the price you had originally paid. Which transaction occurred in a market?

 

  1. Only the advance purchase and sale at the University window was a market transaction.
  2. Only the transaction that occurred the evening of the concert was a market transaction.

 

  1. Both transactions, the one at the University ticket window as well as the sale at the concert entrance, occurred in markets.

 

  1. Neither the advance sale at the University ticket window nor the sale the night of the concert occurred in markets.

 

  1. Suppose you camped out in front of an electronics store to be one of the 200 lucky people able to purchase the latest gaming system. You bought the system for $350. Two weeks later you see that the same system can be sold on e-Bay for $600, so you sell your system. Your market role is as:

 

  1. a consumer in both of these markets.

 

  1. a consumer at the electronics store and as a seller on e-Bay.

 

  1. a consumer at the electronics store; the e-Bay transaction did not occur in a market.

 

  1. a seller in both of these markets.

 

  1. In order to understand how the price of a good is determined in the free market, one must account for the desires of:
    1. purchasers exclusively.

 

  1. sellers exclusively.
  2. governmental agencies exclusively.

 

  1. purchasers and sellers.

 

  1. Buyers and sellers of a particular good comprise the:
    1. market for the good.

 

  1. demand for the good.

 

  1. supply for the good.

 

  1. production possibilities curve for the good.

 

  1. In a market, the demanders are the _______, and the suppliers are the ______.
    1. bosses; workers
    2. poor; wealthy

 

  1. buyers; sellers

 

  1. sellers; buyers

 

  1. “Holding all other relevant factors constant, consumers will purchase more of a good as the price falls.” This statement reflects the behavior underlying:
    1. the demand curve.

 

  1. an increase in demand.

 

  1. the supply curve.
  2. a decrease in the demand curve.

 

  1. The demand curve illustrates the fact that consumers:
    1. tend to purchase more of a good as its price rises.
    2. purchase name brand products more frequently than generic products.

 

  1. tend to purchase more of a good as its price falls.

 

  1. purchase more of a good as their incomes rise.

 

  1. Which of the following is NOT true of a demand curve?
    1. It has negative slope.

 

  1. It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant.
  2. It relates the price of an item to the quantity demanded of that item.

 

  1. It shows how an increase in price leads to an increase in quantity demanded of a good.

 

  1. A demand curve is ________ sloping because __________________.
    1. downward; of increasing opportunity costs

 

  1. upward; people prefer to purchase high-quality consumer goods

 

  1. downward; reservation prices tend to fall over time

 

  1. downward; fewer people are willing to buy an item at higher prices

 

  1. As coffee becomes more expensive, Joe starts drinking tea, and therefore quantity demanded for coffee decreases. This is called:
    1. the income effect.
    2. the change in equilibrium.

 

  1. the substitution effect.

 

  1. a shift in the demand curve.

 

  1. You can spend $5 for lunch and you would like to have two double cheeseburgers. When you get to the restaurant, you find out the price for double cheeseburger has increased from $2.50 to $2.99. You decide to have just one double cheeseburger for lunch. This is best described as a(n):

 

  1. substitution effect.

 

  1. income effect.
  2. buyer’s reservation price effect.

 

  1. seller’s reservation price effect.

 

  1. The quantity of Revlon nail polish demanded by Jen decreased after the price of Revlon nail polish increased. Jen decides to find a cheaper brand of nail polish. This is called a(n):
    1. substitution effect of a price change.

 

  1. income effect of a price change.

 

  1. decrease in buyer’s reservation price.

 

  1. increase in buyer’s reservation price.

 

  1. When the price of an item increases, buyers tend to purchase less of that item:
    1. solely because of the substitution effect.

 

  1. solely because of the income effect.
  2. because of both the substitution and the income effects.

 

  1. only if the substitution effect and the income effect do not cancel out each other.

 

  1. The buyer’s reservation price of a particular good or service is the:
    1. minimum amount the buyer would be willing to pay for it.
    2. same as the market price.

 

  1. maximum amount the buyer would be willing to pay for it.

 

  1. price the buyer must pay to ensure he or she gets it.

 

  1. Shelly purchases a leather purse for $400. One can infer that:
    1. she paid too much.

 

  1. her reservation price was at least $400.

 

  1. her reservation price was exactly $400.

 

  1. her reservation price was less than $400.

 

  1. Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they were $29.99. Therefore:
    1. Gertie should not buy the jeans because they will be of lower quality than she expected.
    2. Gertie should not buy the jeans because the price is not equal to her reservation price.

 

  1. Gertie should buy the jeans because the price is less than her reservation price.

 

  1. Gertie should buy the jeans because the price is more than her reservation price.

 

  1. One reason for the ________ slope of the demand curve is that as prices fall ________.
    1. upward; people expect goods to be of lower quality.

 

  1. upward; more people purchase the good.

 

  1. downward; more people find that the price is less than their reservation price.

 

  1. downward; fewer people find that the price equals their reservation price.

 

  1. When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Moe’s reservation price for a slice of pizza must be:
    1. less than $1.75.
    2. at least $1.75 but less than $2.

 

  1. exactly $1.75.

 

  1. exactly $2.00.

 

  1. Sellers tend to offer _______ for sale as price increases, and so the supply curve is ______ sloping.
    1. goods; not

 

  1. more; downward

 

  1. less; upward

 

  1. more; upward

 

  1. The supply curve illustrates that firms:
    1. increase the supply of a good when its price rises.

 

  1. increase the quantity supplied of a good when its price rises.
  2. decrease the quantity supplied of a good when input prices fall.

 

  1. decrease the quantity supplied to earn higher profits.

 

  1. As the price of a good rises:
    1. firms earn larger profits.

 

  1. more firms can cover their opportunity costs of producing the good.

 

  1. firms find they can raise price by even more.

 

  1. government regulation becomes more justified.

 

  1. Supply curves are generally _______ sloping because _______________.
    1. downward; more consumers will buy the good if the price falls.

 

  1. upward; of the principle of increasing opportunity costs.

 

  1. downward; it is less expensive to mass-produce goods.
  2. upward; of inflation.

 

  1. Last summer, real estate prices in your town soared. You started noticing more “For Sale” signs in your neighbors’ yards. You conclude that:
    1. people don’t like to live in your neighborhood anymore.

 

  1. when housing prices rose, they started to exceed some of your neighbors’ reservation prices.

 

  1. the demand curve for housing in your town has shifted to the left while supply remained constant.

 

  1. the supply curve for housing in your town has shifted to the right while demand has remained constant.

 

  1. Jessica’s marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 can also be called her:
    1. marginal revenue.
    2. equilibrium price.

 

  1. reservation price.

 

  1. producers surplus.

 

  1. Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5, and that Curly has now begun operating a hot dog cart. We can assume that:
    1. Curly’s reservation price is $5.00 or more.

 

  1. Curly’s reservation price is exactly $4.50.

 

  1. Curly’s reservation price is greater than $4.50 but no more than $5.
  2. Curly’s reservation price is exactly $5.

 

  1. A seller’s reservation price is generally equal to:
    1. the buyer’s reservation price.
    2. the seller’s opportunity cost.

 

  1. the seller’s marginal benefit.

 

  1. the market price.

 

  1. A seller’s reservation price is generally equal to:
    1. the buyer’s reservation price.

 

  1. the seller’s average cost.

 

  1. the seller’s marginal cost.

 

  1. the market price.

 

  1. A market comprised of a downward-sloping demand curve that intersects an upward-sloping supply curve is said to be stable because:
    1. price will never change.
    2. quantity will never change.

 

  1. demand will never change.

 

  1. at any price other than equilibrium, forces in the market move price towards the equilibrium.

 

  1. Which of the following is NOT a characteristic of a market in equilibrium?
    1. Excess supply is zero.
    2. All consumers are able to purchase an amount equal to their quantity demanded.
    3. Excess demand is zero.

 

  1. The equilibrium price is stable, i.e., there is no pressure for it to change.

 

  1. A market in disequilibrium would feature:
    1. a stable price.

 

  1. consumers able to purchase all they wish at the market price.

 

  1. a stable quantity.

 

  1. either excess supply or excess demand.

 

  1. The equilibrium price and quantity of any good or service is established by:
    1. only demanders.

 

  1. only suppliers.

 

  1. government regulations.
  2. both demanders and suppliers.

 

  1. A shortage occurs when:
    1. demand is greater than supply.
    2. the equilibrium price is too high.

 

  1. quantity demanded exceeds quantity supplied.

 

  1. quantity supplied exceeds quantity demanded.

 

  1. Whenever the quantity demanded is not equal to the quantity supplied, the quantity that is actually sold in the market is:
    1. the quantity demanded.

 

  1. the quantity supplied.

 

  1. the smaller of the quantity demanded and the quantity supplied.
  2. the greater of the quantity demanded and the quantity supplied.

 

  1. Almost every holiday season at least one gift idea achieves fad status. When that happens, prices tend to increase dramatically. Why?
    1. Sellers want to take advantage of people who received a year-end bonus.

 

  1. Quantity demanded exceeds quantity supplied.

 

  1. Too much government regulation in the market.

 

  1. The demand curve for fad items is upward-sloping.

 

  1. If the market for sport utility vehicles has excess supply, then one can say that:
    1. supply is greater than demand.

 

  1. quantity supplied is greater than quantity demanded.

 

  1. demand is greater than supply.
  2. quantity demanded is greater than quantity supplied.

 

39.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. The equilibrium price and quantity for this market are:

  1. $8; 6.

 

  1. $6; 4.

 

  1. $4; 6.

 

  1. $2; 8.

 

40.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. At a price of $9, the market will experience ______________ in the amount of

__________ units.

  1. excess demand; 5 units
  2. excess supply; 6 units

 

  1. equilibrium; 4 units

 

  1. excess supply; 5 units

 

41.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. At a price of $3, the market will experience ______________ in the amount of

_________ units.

  1. excess demand; 5 units
  2. excess supply; 7 units

 

  1. equilibrium; 4 units

 

  1. excess supply; 3 units

 

42.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. If the price is $4 today, and if there are no other changes in this market, one would expect the price in the future to be:

  1. $4.
  2. less than $4.

 

  1. greater than $6.

 

  1. greater than $4.

 

  1. You notice that your grocery store always has day-old bakery products at a reduced price. Why might that be?
    1. At the original price, the quantity demanded was greater than the quantity supplied.
    2. At the original price, there was a shortage of bakery products.

 

  1. The original price was an equilibrium price because it was established in a free market.

 

  1. At the original price, quantity supplied was greater than quantity demanded.

 

  1. Why does your grocery store sell day-old bakery goods but not day-old canned goods?
    1. Canned goods are priced at the market equilibrium.

 

  1. An excess supply of bakery goods will quickly spoil, but excess canned goods will not.

 

  1. There is excess demand for canned goods.

 

  1. Demand for canned goods is easier to predict.

 

  1. When the price of a good is below its equilibrium value:
    1. consumers will bid the price up.

 

  1. excess supply will occur.
  2. it will tend to stay below the equilibrium value.

 

  1. suppliers will notice their inventories are growing.

 

  1. In a free market, if the price of a good is below the equilibrium price, then;
    1. government needs to set a higher price.

 

  1. suppliers, dissatisfied with growing inventories, will raise the price.

 

  1. demanders, to acquire the good, will bid the price higher.

 

  1. suppliers, dissatisfied with growing inventories, will lower the price.

 

  1. In a free market, if the price of a good is above the equilibrium price, then;
    1. suppliers, dissatisfied with growing inventories, will raise the price.

 

  1. demanders, wanting to ensure they acquire the good, will bid the price lower.

 

  1. government needs to set a lower price.
  2. suppliers, dissatisfied with growing inventories, will lower the price.

 

  1. Which of following is NOT true of an equilibrium price?
    1. Consumers who are willing to pay the equilibrium price can acquire the good.
    2. It measures the value of the last unit sold to consumers.

 

  1. It is always a fair and just price.

 

  1. Firms who are willing to accept the equilibrium price can sell what they produce.

 

  1. When a market is not in equilibrium:
    1. government intervention is required to achieve equilibrium.

 

  1. firms will increase contributions to political action committees.
  2. the economic motives of sellers and buyers will move the market to its equilibrium.

 

  1. it will simply stay in a state of disequilibrium.

 

  1. Suppose you bought a concert ticket from Ticketmaster for $50, but when you got to the concert scalpers (individuals who re-sell tickets at the event) were selling tickets in the same seating area as yours for $25. What is probably true?

 

  1. There is excess demand for this concert at the Ticketmaster price.

 

  1. The ticket you bought was under-priced for the market.

 

  1. There is an excess supply of tickets for this concert at the Ticketmaster price.
  2. The Ticketmaster price is an equilibrium price.

 

  1. You have noticed that there is a persistent shortage of teachers in an inner-city school district in your state. Based on this observation, you suspect that:
    1. the wage for teachers at those schools is higher than at other schools in the state.

 

  1. the wage for teachers at those schools is lower than the equilibrium wage.

 

  1. there is an excess supply of teachers.

 

  1. the reservation price among teachers is lower than for other professions.

 

  1. Suppose you notice that more and more people are driving gas-guzzling cars. Since you drive an economy car, their increased demand for gas:
    1. does not affect you.

 

  1. causes companies to charge a lower price, thus benefiting you.
  2. causes the price you pay for gas to increase.

 

  1. does not change the price you pay, but reduces the quantity of gas supplied.

 

53.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. When this market is in equilibrium:

  1. the price is $30, and the quantity that will be sold is 15.

 

  1. the price is $25, and the quantity that will be sold is 20.

 

  1. the price is $25, and the quantity that will be sold is 5.
  2. the price is $35, and the quantity that will be sold is 20.

 

54.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. At a price of $20:

  1. the market would be in equilibrium.

 

  1. there would be excess supply of approximately 25 units.

 

  1. there would be excess demand of approximately 25 units.

 

  1. there would be excess demand, but it is impossible to know by how much.

 

55.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Suppose all the sellers in this market started out charging a price of $45 per unit. What is the most likely result?

  1. They would all make a large profit because $45 is more than the equilibrium price.
  2. They would all just break even because $45 is their reservation price.

 

  1. They would feel pressure to lower their prices because at $45 there would be excess supply.

 

  1. They would be forced to lower their prices because at $45 there would be excess demand.

 

56.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Now suppose that the government imposes a price ceiling of $40. What is the most likely result?

  1. Many sellers would go out of business because $40 is above the equilibrium.
  2. There would be no change in the price.

 

  1. The market would reach a new equilibrium at a price of $40.

 

  1. An underground, or black, market would emerge where this product would be sold at a price above $40.

 

  1. The tendency of markets to automatically gravitate toward equilibrium is an application of which core principle?
    1. The Scarcity Principle

 

  1. The Cost-Benefit Principle

 

  1. The Principle of Comparative Advantage

 

  1. The Incentive Principle

 

  1. Which of the following is NOT a characteristic of governmental rent controls?
    1. Equitable distribution of apartments.
    2. Excess demand for apartments.

 

  1. Fewer newly built apartment buildings.

 

  1. Very low vacancy rates.

 

  1. Minimum wage laws are an example of:
    1. mandated equilibrium wages.

 

  1. a price ceiling.

 

  1. a regulated price.
  2. comparative advantage for unskilled workers.

 

  1. Suppose one knows two facts: first, the market for prescription drugs experiences chronic shortages and second, government sets the price for prescription drugs. One can conclude that the:
    1. government has set the price too high.

 

  1. government has set the price above the equilibrium price.

 

  1. buyers are hoarding prescription drugs.

 

  1. government has set the price below the equilibrium price.

 

  1. A regulated maximum price that is above the equilibrium price:
    1. will lead to black markets.

 

  1. will have no effect on the market.

 

  1. will lead to excess supply in the market.
  2. will lead to excess demand in the market.

 

  1. In a market where government has set the maximum price below the equilibrium price, one might expect:
    1. quantity demanded to equal quantity supplied.

 

  1. excess supply.

 

  1. a black market to develop as individuals try to take advantage of unexploited opportunities.

 

  1. quantity supplied to surpass quantity demanded.

 

  1. According to the textbook, government price controls fail because:
    1. they are not enforced.

 

  1. legislation cannot repeal basic economic motives.

 

  1. bureaucrats lack accurate market data.
  2. firms ignore the restrictions.

 

  1. A movement along a demand curve from one price-quantity combination to another is called:
    1. a change in quantity demanded.
    2. a shift in the demand curve.

 

  1. a change in demand.

 

  1. a change in quantity supplied.

 

  1. “As the price of personal computers continues to fall, demand increases.” This headline is inaccurate because:
    1. a change in the price of personal computers shifts the demand curve.

 

  1. a change in the price of personal computers shifts the supply curve.

 

  1. the statement is backwards: increased demand leads to lower prices.
  2. a falling price for personal computers increases quantity demanded, not demand.

 

  1. An increase in the quantity demanded of tea occurs whenever:
    1. the population of tea drinkers grows.
    2. the price of coffee rises.

 

  1. tea drinkers receive an increase in their incomes.

 

  1. the price of the tea falls.

 

  1. If the demand for a good decreases as income decreases, it is a(n):
    1. complementary good.

 

  1. normal good.

 

  1. inferior good.

 

  1. substitute good.

 

  1. In the market for coffee, for many consumers:
    1. tea is a substitute.

 

  1. non-dairy creamer is a substitute.
  2. cola beverages are complements.

 

  1. coffee mugs are substitutes.

 

  1. In the market for office workers:
    1. there are no substitutes because each human is unique.

 

  1. computers are complements.

 

  1. an increase in wages will increase the number of workers demanded.

 

  1. a decrease in wages will shift the demand for workers to the left.

 

  1. What might cause a demand function to shift to the right?
    1. An increase in the price of a substitute.

 

  1. An increase in the product’s own price.

 

  1. An increase in the price of a complement.
  2. A decrease in the price of a substitute.

 

  1. If the demand for steak increases as income increases, this means that steak is a(n):
    1. complementary good.
    2. normal good.

 

  1. inferior good.

 

  1. substitute good.

 

  1. If the price of computers increases and the demand for monitors decreases as a result, then:
    1. computers and monitors are complements.

 

  1. computers are a normal good and monitors are inferior.

 

  1. computers and monitors are substitutes.

 

  1. computers are an inferior good and monitors are normal.

 

  1. Whether or not a good can be classified as a complement depends on whether;
    1. you personally tend to consume the goods together.

 

  1. no substitutes exist.
  2. an increase in demand for one good follows a decrease in the price of the other.

 

  1. an increase in demand for one good follows an increase in the price of the other.

 

  1. A decrease in the price of pizza will cause a(n):
    1. increase in demand.

 

  1. increase in quantity demanded.

 

  1. decrease in quantity demanded.

 

  1. decrease in the number of consumers.

 

  1. If the demand for computers shifts to the right as consumers’ incomes rise, computers are
    1. inferior goods.

 

  1. complement goods.

 

  1. normal goods.
  2. substitute goods.

 

  1. As consumers’ incomes increase, the demand for ground beef decreases. Ground beef is called a(n):
    1. normal good.
    2. complement good.

 

  1. substitute good.

 

  1. inferior good.

 

  1. As consumers’ incomes decrease, the demand curve for bologna sandwiches shifts to the right. Therefore bologna sandwiches are:
    1. normal goods.

 

  1. complement goods.

 

  1. substitute goods.
  2. inferior goods.

 

  1. Suppose the price of gasoline increases and that sport utility vehicles get poor gas mileage compared to other available cars. One would expect:
    1. the demand for gasoline to decrease.

 

  1. the demand for sport utility vehicles to decrease.

 

  1. the demand for sport utility vehicles to increase.

 

  1. the quantity of sport utility vehicles demanded to decrease.

 

  1. Suppose one could either rent a car or take a train to travel to Chicago from Washington, D.C. If the price of train tickets increases:
    1. the demand for train tickets will increase.

 

  1. the demand for rental cars will increase.
  2. the demand for train tickets will decrease.

 

  1. the demand for rental cars will decrease.

 

  1. Suppose that the price of doughnuts decreases and that doughnut-holes are a by-product of producing doughnuts. One would expect:
    1. the supply of doughnuts to decrease.

 

  1. the quantity supplied of doughnuts to decrease.

 

  1. the supply of doughnut-holes to increase.

 

  1. the quantity supplied of doughnut-holes to increase.

 

  1. Suppose that the price of doughnuts decreases and that doughnut-holes are a by-product of producing doughnuts. One would expect:
    1. the supply of doughnut holes to decrease.

 

  1. the supply of doughnuts to decrease.
  2. the supply of doughnut holes to increase.

 

  1. the supply of doughnuts to increase.

 

  1. For two goods X and Y to be classified as substitutes, it must be the case that:
    1. X and Y are identical.

 

  1. consumers tend to purchase both items.

 

  1. when the price of X rises, the demand for Y

 

  1. when the price of X rises, the demand for Y

 

  1. At the beginning of the fall semester, college towns experience large increases in their populations, causing a(n):
    1. decrease in the quantity of apartments demanded.

 

  1. increase in the supply of apartments.
  2. increase in the demand for apartments.

 

  1. decrease in the quantity of apartments supplied.

 

  1. Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One must conclude that:
    1. peanut butter and jelly are complements.

 

  1. peanut butter and jelly are substitutes.

 

  1. peanut butter and jelly are normal goods.

 

  1. peanut butter and jelly are inferior goods.

 

85.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Demand for coffee last Monday is shown in bold and labeled D(Monday). On Tuesday, the news featured a story about a storm that wiped out the entire coffee crop in Brazil. On Wednesday:

  1. the demand function remained at D(Monday), but the quantity demanded increased.

 

  1. demand shifted to D(A) in anticipation of future price increases.
  2. demand shifted to D(B) in anticipation of future price increases.

D there would be no change in either the demand function or the quantity demanded because not enough

.  time had passed for the storm’s effects to be felt.

 

86.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Demand for coffee last Monday is shown in bold and labeled D(Monday). On Tuesday, the news featured a story explaining that the coffee crop has been contaminated with disease-causing bacteria. The following week:

  1. the demand function remained at D(Monday), but the quantity demanded decreased.

 

  1. demand shifted to D(A) because some people decided to stop drinking coffee in light of the health hazard.
  2. demand shifted to D(B) in anticipation of future price increases.

 

D there would be no change in either the demand function or the quantity demanded because not enough

.  time had passed for the report’s effects to be felt.

 

  1. Suppose that a disease that affects people who consume beef has been discovered in the United States. One likely result is:
    1. an increase in buyers’ reservation prices for beef.
    2. a decrease in demand for chicken.

 

  1. a decrease in demand for beef.

 

  1. a decrease in the quantity demanded of beef.

 

  1. Assume consumers eat either rice or pasta for dinner every night. If the price of rice increases, in the pasta market one would expect to see:
    1. an increase in the quantity of pasta demanded.

 

  1. an increase in the demand for pasta.

 

  1. a decrease in the quantity of pasta demanded.
  2. a decrease in the demand for pasta.

 

  1. Suppose that two recent studies conclude that increased fiber in the diet does not reduce the risk of developing colon cancer as was previously thought. The likely result will be that the:
    1. quantity demanded of high-fiber foods will fall.

 

  1. demand for high-fiber foods will decrease.

 

  1. supply of high-fiber foods will increase.

 

  1. price of high-fiber foods will rise.

 

90.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Moving from demand curve D1 to demand curve D2 illustrates a(n):

  1. increase in quantity demanded.

 

  1. increase in demand.

 

  1. decrease in demand.
  2. decrease in quantity demanded.

 

91.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Moving from demand curve D2 to demand curve D1 could be caused by a(n):

  1. increase in consumers’ incomes.
  2. increase in quantity supplied.

 

  1. increase in the price of a substitute.

 

  1. increase in the price of a complement.

 

92.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Moving from demand curve D1 to demand curve D2 could be caused by a(n):

  1. decrease in consumers’ incomes.
  2. increase in quantity supplied.
  3. increase in the price of a close substitute.

 

  1. increase in the price of a complement.

 

  1. A decrease in the demand for bananas with no concurrent change in the supply of bananas will result in a

________ equilibrium price and a(n) ________ equilibrium quantity.

 

  1. higher; lower

 

  1. lower; lower

 

  1. higher; unchanged

 

  1. higher; higher

 

  1. As the price of cookies increases, firms that produce cookies will:
    1. increase the supply of cookies.

 

  1. increase the quantity supplied of cookies.
  2. decrease the supply of cookies.

 

  1. decrease the quantity supplied of cookies.

 

  1. Which of the following would cause an increase in quantity supplied of wheat?
    1. The price farmers receive for their wheat rises.

 

  1. The price of fertilizer farmers’ use in their fields decreases.

 

  1. The price firms pay for liability insurance falls.

 

  1. New, better technology for farming is introduced.

 

  1. As the price of flour (an input into the cookie production process) increases, firms that produce cookies will:
    1. increase the supply of cookies.

 

  1. increase the quantity of cookies supplied.
  2. decrease the supply of cookies.

 

  1. decrease the quantity of cookies supplied.

 

  1. Suppose that the technology used to manufacture laptops has improved. The likely result would be:
    1. an increase in supply of laptops.

 

  1. an increase in quantity supplied of laptops.

 

  1. a decrease in supply of laptops.

 

  1. a decrease in quantity supplied of laptops.

 

  1. What might cause a supply function to shift to the left today?
    1. An increase in the product’s own price.

 

  1. An expectation that the product’s price will fall in the future.

 

  1. An expectation that the product’s price will rise in the future.
  2. A decrease in the price of one of the inputs to making the product.

 

99.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Suppose that retailers learn that a new Shrek movie will be released next month. That news is likely to cause:

  1. no immediate change in supply, but a decrease in the quantity supplied.
  2. no immediate change in supply, since the only effect will involve demand.

 

  1. an immediate shift in the supply curve to Supply B in anticipation of increased future prices.

 

  1. an immediate shift in the supply curve to Supply A in anticipation of increased future prices.

 

100.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. If the price of the plastic used to make action figures rises, supply will:

  1. shift from Current Supply to Supply B.

 

  1. not change because a change in raw material prices cannot affect market prices.

 

  1. shift from Current Supply to Supply A.

 

  1. remain at Current Supply because Demand for Shrek figures is so strong.

 

101.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. In the original market equilibrium:

  1. 50 cups of coffee are sold for $1.00 each.

 

  1. 50 cups of coffee are sold for $2.50 each.

 

  1. 40 cups of coffee are sold for $2.00 each.

 

  1. 60 cups of coffee are sold for $1.50 each.

 

102.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. What might cause Demand to shift from the Original Demand to the New Demand?

  1. An expectation that coffee prices will fall in the future.
  2. An increase in the price of coffee creamer.
  3. A decrease in the price of tea.

 

  1. An increase in incomes.

 

103.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. What might cause Supply to shift from the Original Supply to the New Supply?

 

  1. A storm in South America wipes out the entire coffee crop.
  2. New technology reduces the amount of coffee beans necessary to make a good-tasting pot of coffee.

 

  1. A news report that coffee consumption greatly increases productivity.

 

  1. An increase in the price of tea.

 

104.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. In this market, if all buyers’ reservation prices for a cup of coffee increased by $1.00;

  1. the equilibrium price would increase by $1.00.
  2. the equilibrium price would increase by less than $1.00.

 

  1. the equilibrium price would increase by more than $1.00.

 

  1. the equilibrium price would not change.

 

105.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Suppose the coffee lobby convinced the legislature to impose a price control requiring that coffee prices must be at least $2.50, and that the original demand curve and original supply curve were applicable. The most likely result would be:

  1. a short term excess demand for coffee, followed by an increase in price.

 

  1. excess demand for coffee that would not correct itself because price is set by law.

 

  1. excess supply of coffee that would not correct itself because price is set by law.
  2. new equilibrium at a price of $2.50 and a quantity of 50 cups.

 

106.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. An increase in demand is represented by shifting from:

  1. curve A to curve B.

 

  1. curve B to curve A.

 

  1. curve C to curve D.

 

  1. curve D to curve C.

 

107.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. A decrease in demand is represented by shifting from:

  1. curve A to curve B.

 

  1. curve B to curve A.

 

  1. curve C to curve D.

 

  1. curve D to curve C.

 

108.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. An increase in supply is represented by shifting from:

  1. curve A to curve B.

 

  1. curve B to curve A.

 

  1. curve C to curve D.

 

  1. curve C to curve B.

 

109.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. A decrease in supply is represented by shifting from:

  1. curve A to curve B.

 

  1. curve B to curve A.

 

  1. curve C to curve D.

 

  1. curve D to curve C.

 

110.

 

 

 

 

 

 

 

 

 

Refer to the table above. Relative to column A, it appears that column B represents ______.

  1. an increase in quantity demanded
  2. an increase in demand

 

  1. a decrease in quantity supplied

 

  1. a change in supply

 

111.

 

 

 

 

 

 

 

 

 

Refer to the table above. Relative to column C, it appears that column D represents ______.

  1. an increase in quantity supplied.
  2. an increase in demand.

 

  1. a decrease in quantity demanded.

 

  1. a decrease in supply.

 

112.

 

 

 

 

 

 

 

 

 

Refer to the figure above. Assume that column A and column B are the initial demand and supply curves. At a price of $30, the market would experience:

  1. an equilibrium.
  2. excess demand of 95 units.
  3. excess supply of 45 units.

 

  1. excess demand of 45 units.

 

113.

 

 

 

 

 

 

 

 

 

Refer to the figure above. Assume that column A and column B are the initial demand and supply curves. At a price of $50, the market would experience:

  1. an equilibrium.
  2. excess demand of 5 units.

 

  1. excess supply of 70 units.

 

  1. excess supply of 5 units.

 

114.

 

 

 

 

 

 

 

 

 

Refer to the figure above. The equilibrium price in this market is:

 

  1. between $40 and $50.

 

  1. less than $40.

 

  1. greater than $50.

 

115.An increase in the demand for GM automobiles results in:

  1. a lower equilibrium price for GM automobiles.

 

  1. an increase in the quantity supplied of GM automobiles.
  2. an increase in the supply of GM automobiles.

 

  1. a lower equilibrium quantity of GM automobiles.

 

116.Which of the following is NOT a determinant of demand for gasoline?

  1. Consumers’ incomes.
  2. The price of diesel.

 

  1. The price of automobiles.
  2. The quantity of gasoline supplied.

 

117.When the supply of a good decreases, consumers will eventually:

  1. decrease their demand.
  2. increase their preferences for the good.

 

  1. decrease their quantity demanded.

 

  1. increase their quantity demanded.

 

118.In general, when the supply curve shifts to the left and demand is constant then:

  1. the market cannot reestablish an equilibrium.

 

  1. the equilibrium price will fall.

 

  1. the equilibrium quantity will rise.

 

  1. the equilibrium price will rise.

 

119.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. If supply were to shift to the left, and demand were to also shift to the left, in the new equilibrium:

  1. both price and quantity would be lower.
  2. both price and quantity would be higher.

 

  1. price would be higher and quantity would be lower.
  2. quantity would be lower, but the direction of the price change cannot be determined.

 

120.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Suppose supply increases substantially. Then:

  1. demand will also increase.

 

  1. the quantity demanded will increase.
  2. the quantity demanded will decrease.

 

  1. price will also increase substantially.

 

121.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Suppose that only demand has suddenly shifted to the left. To restore equilibrium, this market will have an immediate:

  1. excess demand, which will cause prices to rise to a new equilibrium.
  2. excess supply, which will cause prices to rise to a new equilibrium.
  3. excess demand, which will cause prices to fall to a new equilibrium.

 

  1. excess supply, which will cause prices to fall to a new equilibrium.

 

122.In general, when the demand curve shifts to the right and supply remains constant then:

  1. quantity demanded will rise.

 

  1. the equilibrium price will fall.

 

  1. the equilibrium quantity will rise.

 

  1. the market cannot reestablish an equilibrium.

 

123.Suppose that the equilibrium price of rice falls and the equilibrium quantity falls. Which of the following best fits the observed data?

  1. An increase in demand with supply constant.
  2. An increase in demand coupled with a decrease in supply.
  3. An increase in demand coupled with an increase in supply.

 

  1. A decrease in demand with supply constant.

 

124.Suppose that the equilibrium price of DVD players increases and the equilibrium quantity increases. Which of the following best fits the observed data?

  1. An increase in demand with supply constant.
  2. An increase in demand coupled with a decrease in supply.

 

  1. An increase in demand coupled with an increase in supply.

 

  1. A decrease in demand with supply constant.

 

125.Suppose that the equilibrium price of T-shirts increases and the equilibrium quantity falls. Which of the following best fits the observed data?

  1. An increase in demand with supply constant.
  2. A decrease in supply with demand constant.

 

  1. An increase in demand coupled with an increase in supply.

 

  1. A decrease in demand with supply constant.

 

126.Suppose that the equilibrium price of apples falls and the equilibrium quantity increases. Which of the following best fits the observed data?

  1. An increase in demand with supply constant.
  2. A decrease in supply with demand constant.

 

  1. An increase in demand coupled with an increase in supply.
  2. An increase in supply with demand constant.

 

127.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Assume demand remains unchanged at D1. If supply shifts from S1 to S2, then the equilibrium price will ________ and the equilibrium quantity will __________.

  1. rise; fall
  2. rise; rise

 

  1. fall; fall

 

  1. fall; rise

 

128.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Assume demand remains unchanged at D1. If supply shifts from S2 to S1, then the equilibrium price will ________ and the equilibrium quantity will __________.

  1. rise; fall
  2. rise; rise

 

  1. fall; fall

 

  1. fall; rise

 

129.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. If demand were to shift from D1 to D2 at the same time supply were to shift from S1 to S2:

  1. the equilibrium quantity would increase and the equilibrium price would remain the same.
  2. the equilibrium quantity would increase and the equilibrium price would increase.

 

  1. the equilibrium quantity would remain the same and the equilibrium price would increase.

 

  1. the equilibrium quantity would decrease and the equilibrium price would remain the same.

 

130.If a market is in equilibrium and demand increases while supply decreases, the change in the equilibrium price is ________ and the change in the equilibrium quantity is _________.

  1. positive; positive
  2. positive; negative

 

  1. positive; indeterminate

 

  1. indeterminate; positive

 

131.If both supply and demand increase simultaneously, the new equilibrium price is ___________ and the new equilibrium quantity is _________________.

  1. lower; lower
  2. lower; indeterminate

 

  1. indeterminate; higher
  2. higher; indeterminate

 

132.If both supply and demand decrease simultaneously, the new equilibrium price is ___________ and the new equilibrium quantity is _________________.

  1. lower; lower
  2. lower; indeterminate

 

  1. indeterminate; higher

 

  1. indeterminate; lower

 

133.If supply decreases while demand increases simultaneously, the new equilibrium price is ___________

and the new equilibrium quantity is _________________.

  1. lower; lower
  2. lower; indeterminate
  3. indeterminate; higher

 

  1. higher; indeterminate

 

134.Suppose that both the equilibrium price and quantity of ketchup fall. The most consistent explanation for these observations is:

  1. a decrease in demand for ketchup with no change in supply.
  2. an increase in demand for ketchup with no change in supply.

 

  1. an increase in demand for ketchup and a decrease in the supply of ketchup.

 

  1. an increase in the supply of ketchup with no change in demand.

 

135.Suppose that the equilibrium price of pickles falls while the equilibrium quantity rises. The most consistent explanation for these observations is:

  1. a decrease in demand for pickles with no change in supply.
  2. an increase in demand for pickles with no change in supply.
  3. a decrease in the supply of pickles and a decrease in the demand for pickles.

 

  1. an increase in the supply of pickles with no change in demand.

 

136.Suppose that the equilibrium price of French fries rises while the equilibrium quantity falls. The most consistent explanation for these observations is:

  1. a decrease in demand for French fries with no change in supply.
  2. an increase in demand for French fries with no change in supply.

 

  1. an increase in the supply of French fries and an increase in the demand for French fries.

 

  1. a decrease in the supply of French fries with no change in demand.

 

137.Assume the demand for coffee increases while the supply decreases. Which of the following outcomes is certain to occur?

  1. The equilibrium price of coffee will rise.
  2. The equilibrium quantity of coffee will rise.

 

  1. The equilibrium price of coffee will fall.

 

  1. The equilibrium quantity of coffee will fall.

 

138.Assume the demand for sugar decreases while the supply of sugar increases. Which of the following outcomes is certain to occur?

  1. The equilibrium price of sugar will rise.
  2. The equilibrium quantity of sugar will rise.

 

  1. The equilibrium price of sugar will fall.
  2. The equilibrium quantity of sugar will fall.

 

139.Assume both the demand and the supply of beef decrease. Which of the following outcomes is certain to occur?

  1. The equilibrium price of beef will rise.
  2. The equilibrium quantity of beef will rise.

 

  1. The equilibrium price of beef will fall.

 

  1. The equilibrium quantity of beef will fall.

 

140.Assume both the demand and the supply of bagels increase. Which of the following outcomes is certain to occur?

  1. The equilibrium price of bagels will rise.
  2. The equilibrium quantity of bagels will rise.
  3. The equilibrium price of bagels will fall.

 

  1. The equilibrium quantity of bagels will fall.

 

141.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Assume the market is originally at point W. Movement to point X is a combination of:

  1. an increase in quantity supplied and an increase in demand.
  2. an increase in supply and an increase in demand.

 

  1. an increase in supply and an increase in quantity demanded.

 

  1. a decrease in supply and an increase in quantity demanded.

 

142.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Assume the market is originally at point W. Movement to point Y is a combination of:

  1. an increase in quantity supplied and an increase in demand.
  2. an increase in supply and an increase in demand.

 

  1. an increase in supply and an increase in quantity demanded.
  2. a decrease in supply and an increase in quantity demanded.

 

143.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Assume the market is originally at point W. Movement to point Z is a combination of:

  1. an increase in quantity supplied and an increase in demand.
  2. an increase in supply and an increase in demand.

 

  1. an increase in supply and an increase in quantity demanded.

 

  1. a decrease in supply and an increase in quantity demanded.

 

144.Suppose that both supply and demand for iPads decrease. One can predict that the:

  1. equilibrium price will rise but the equilibrium quantity can increase or decrease.

 

  1. equilibrium price and quantity will decrease.

 

  1. equilibrium price and quantity will rise.

 

  1. equilibrium quantity will fall but the equilibrium price can rise or fall.

 

145.An outcome is socially optimal if it:

  1. follows from a market equilibrium.

 

  1. follows from collective action.
  2. leaves no money on the table.

 

  1. maximizes total economic surplus.

 

146.Efficiency occurs when:

  1. a market is in equilibrium.

 

  1. the socially optimal quantity of goods and services is being produced.

 

  1. the individually rational quantity of goods and services is being produced.

 

  1. the government does not interfere with market prices.

 

147.Efficiency is an important goal in economics because it:

  1. assures a fair outcome.

 

  1. assures a normative outcome.

 

  1. assures a higher level of output.
  2. takes into consideration the distribution of income.

 

148.Assume that Joe is willing to produce another hamburger that costs $1 to make. Mary is hungry and is willing to buy a hamburger for $3. According to the No Cash on the Table Principle, Joe and Mary:

  1. will make a trade.
  2. will only make a trade if Joe can get Mary to spend more than $3 for the hamburger.

 

  1. will only make a trade if Mary can get Joe to charge less than $1 for the hamburger.

 

  1. will never trade; they will look for better deals.

 

149.When two people agree to a price in a negotiation, we can assume that:

  1. each one will receive equal benefits from the transaction.
  2. the seller will receive more benefit from the transaction than the buyer.

 

  1. only one of the parties will benefit, but there is not enough information to determine which one it will be.
  2. both parties will benefit.

 

150.If, in a particular market, all unexploited opportunities have been realized, one can conclude that:

  1. government regulation has proven successful.

 

  1. the market is in equilibrium.

 

  1. demanders are unable to find adequate amounts of the good.
  2. excess demand is present.

 

151.The situation described in the book as “Smart for One, Dumb for All” occurs when:

  1. individuals, when acting rationally, benefit society as a whole.
  2. individuals make better decisions when acting alone than when in groups.

 

  1. individuals, when acting rationally, fail to take advantage of all opportunities for social benefit.

 

  1. a market is in equilibrium.

 

152.Suppose the local slaughterhouse gives off an unpleasant stench. The price of meat would then be

_______ because not all of the _________ are accounted for in the marketplace.

  1. too high; benefits
  2. too low; benefits

 

  1. too high; costs
  2. too low; costs

 

153.Suppose that the production of oranges reduces global warming. The equilibrium price of oranges is

_______ because not all of the _________ are accounted for in the marketplace.

  1. too high; benefits

 

  1. too low; benefits

 

  1. too low; costs

 

  1. optimal; costs

 

154.Which of the following is NOT a condition for maximizing total economic surplus in a particular market?

 

  1. All private costs of production must be included.
  2. All social costs of production must be included.

 

  1. All private benefits of consumption must be included.

 

  1. Government regulation of the market is needed.

 

155.Everyone in the neighborhood has been complaining about the deteriorating condition of the park, but nobody has cleaned it up. Why not?

  1. There is an excess demand for parks in the neighborhood.
  2. There is an excess supply of parks in the neighborhood.
  3. The reservation price for a clean park exceeds the cost of cleaning it.

 

  1. No single person’s reservation price to clean the park makes it worth cleaning it.

 

156.The No Cash on the Table Principle asserts that:

  1. in equilibrium, a few unexploited opportunities exist.

 

  1. sometimes tips aren’t picked up.

 

  1. in disequilibrium, no opportunities exist.

 

  1. in equilibrium, all opportunities have been exploited.

 

157.Which of the following directly follows from the No Cash on the Table Principle?

  1. In a transaction, the parties will negotiate over prices until neither one earns any surplus.

 

  1. For a transaction to occur, the buyer’s reservation price must be greater than the seller’s reservation price.
  2. For a transaction to occur, the buyer’s reservation price must be less than the seller’s reservation price.

 

  1. Efficiency requires that the buyer’s surplus equal the seller’s surplus.

 

158.According to the equilibrium principle:

  1. unregulated markets tend to reach equilibrium prices and quantities without government regulation.
  2. once a market has reached equilibrium, price will not change.

 

  1. collective action cannot improve on individual action.

 

D.market equilibrium exploits all opportunities for individual gain, but may not exploit gains possible through collective action.

 

4

 

Student: ___________________________________________________________________________

 

  1. The price elasticity of demand for a good is the response of:
    1. demand to a one percent change in price of that good.
    2. demand to a one percent change in price of the related good.

 

  1. quantity demanded to a one percent change in price of that good.

 

  1. quantity demanded to a one percent change in price of the related good.

 

  1. Price elasticity of demand is a measure of:
    1. consumer response to a change in a good’s price.

 

  1. a market’s ability to restore equilibrium after a change in a good’s price.

 

  1. the demand for a good or service.

 

  1. consumer response to excess demand.

 

  1. The percentage change in quantity demanded that results from the percentage change in price is known as the:
    1. price elasticity of supply.
    2. price elasticity of demand.

 

  1. income elasticity of demand.

 

  1. cross-price elasticity of demand.

 

  1. When calculating price elasticity of demand, if the numerator is positive, the denominator is:
    1. always greater than one.

 

  1. always greater than zero.

 

  1. sometimes positive and sometimes negative.

 

  1. always less than zero.

 

  1. If the price of cheese falls by one percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese has a value of:
    1. 30.

 

  1. 333.

 

 

  1. If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then the price elasticity of demand has a value of:
    1. 05.

 

  1. 5.

 

 

  1. If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:

 

  1. price inelastic.

 

  1. price elastic.

 

  1. perfectly inelastic.

 

  1. Price elasticity of demand is often expressed as a positive number because:
    1. using the formula yields a positive number.

 

  1. demand has a positive slope.

 

  1. it’s convenient to use absolute values even though the formula yields non-positive numbers.
  2. both the numerator and the denominator in the formula are negative.

 

  1. If the price elasticity of demand for tickets to a football game is 2 then, when the price increases by 1%, quantity demanded decreases by:
    1. ½ %.

 

  1. 1%.

 

  1. 2%.

 

  1. 4%.

 

  1. If the price elasticity of demand for cell phone service is 3, if the price increases by 1%, quantity demanded decreases by:
    1. 33%.

 

  1. 67%.
  2. 33%.

 

  1. 3%.

 

  1. If the price of a good increases by 20% and that leads to a decrease in quantity demanded by 60%, what is the price elasticity of demand for that good?

 

 

  1. 1/3.

 

  1. 1/6.

 

  1. If a 10% decrease in the price of good leads to a 20% increase in the quantity demanded of that good, the price elasticity of demand for that good would be:
    1. ½ .

 

 

 

  1. If the price elasticity of demand for pineapple is 0.75, a 4% increase in the price of pineapple will lead to a:
    1. 3% decrease in the quantity demanded of pineapple.

 

  1. 3% increase in the quantity demanded of pineapple.

 

  1. 4% decrease in the quantity demanded of pineapple.
  2. 1875% increase in the quantity demanded of pineapple.

 

  1. If the price elasticity of demand for chicken is 2, a 20% decrease in the price of chicken will lead to a:
    1. 10% decrease in the quantity demanded of chicken.

 

  1. 10% increase in the quantity demanded of chicken.

 

  1. 40% decrease in the quantity demanded of chicken.

 

  1. 40% increase in the quantity demanded of chicken.

 

  1. The demand for a good is elastic with respect to price if the price elasticity of demand is:
    1. equal to one.

 

  1. greater than one.

 

  1. less than one.
  2. equal to zero.

 

  1. If the price elasticity of demand for a good is greater than one, then the demand for that good, with respect to price, is:

 

 

  1. unitary elastic.

 

  1. perfectly elastic.

 

  1. The demand for a good is inelastic with respect to price, if the price elasticity of demand is:
    1. equals one.
    2. is greater than one.

 

  1. is less than one.

 

  1. equals negative one.

 

  1. The demand for a good is unitary elastic with respect to price if the price elasticity of demand is:
    1. equal to one.

 

  1. greater than one.

 

  1. less than one.

 

  1. greater than negative one.

 

  1. If the price elasticity of demand for a good equals one, then the demand for that good with respect to price, is:

 

  1. unitary elastic.

 

  1. perfectly elastic.

 

  1. When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the price falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs?

 

  1. 67

 

  1. 5
  2. 2

 

  1. 2

 

  1. When the price of NBA ticket is $25 each, 30,000 tickets are sold every game. After the price rises to $30 each, 20,000 tickets are sold every game. At the original price, the demand for NBA ticket is:

 

 

  1. unitary elastic.

 

  1. perfectly elastic.

 

  1. If the percentage change in the price of a good is less than the percentage change in the quantity demanded of that good then the demand for that good, with respect to price, is:

 

  1. unitary elastic.

 

  1. perfectly inelastic.

 

  1. If consumers respond to a 10% price reduction by buying twice as much of a particular good, we would conclude that:
    1. there was excess demand at the original price.

 

  1. there was excess supply at the original price.

 

  1. the absolute value of price elasticity at the original price was greater than one.
  2. the absolute value of price elasticity at the original price was less than one.

 

  1. Suppose a 10% increase in the price of pain relievers leads to a 5% decrease in quantity demanded of pain relievers. The demand for pain relievers, with respect to price, is:

 

 

  1. unitary elastic.

 

  1. perfectly inelastic.

 

  1. If the percentage change in price for a good is equal to the percentage change in quantity demanded of that good, then the demand for that good, with respect to price, is:

 

 

  1. unitary elastic.

 

  1. perfectly elastic.

 

  1. If the demand for a good is elastic, that good is likely to have:
    1. many close complements.

 

  1. few close complements.

 

  1. many close substitutes.
  2. few close substitutes.

 

  1. If the consumers can easily switch to a close substitute when the price of a good increases, demand for that good is likely to be:

 

 

  1. unitary elastic.

 

  1. perfectly inelastic.

 

  1. When the demand for a good is inelastic, that good is likely to have:
    1. many close complements.

 

  1. few close complements.

 

  1. many close substitutes.
  2. few close substitutes.

 

  1. If the consumers cannot switch to a close substitute when the price of a good increases, the demand for that good is likely to be:

 

 

  1. unitary elastic.

 

  1. perfectly elastic.

 

  1. For which of the following products is demand likely to be least price elastic?
    1. Frozen food

 

  1. Soft drinks

 

  1. Groceries
  2. Diet Coke

 

  1. Suppose that the company that owns all of the vending machines on your campus has doubled the price of a can of soda. They notice that they are selling approximately 15% fewer sodas. Price elasticity of demand for sodas from the campus vending machines is:

 

  1. inelastic

 

  1. unitary elastic

 

  1. elastic

 

  1. infinite

 

  1. Suppose that the company that owns all of the vending machines on your campus has doubled the price of a can of soda, but they still sell almost the same number of sodas per day because:
    1. students do not have good nutritional information.
    2. soda purchases represent a large fraction of students’ budgets.

 

  1. there are few other places to purchase soda on campus.

 

  1. price elasticity of demand for soda is almost unitary.

 

  1. If the price is $2.00 in both locations, the price elasticity of demand for a candy bar at an airport is likely to be _________ the price elasticity of demand for a candy bar in a grocery store.
    1. less than

 

  1. equal to

 

  1. greater than

 

  1. the reciprocal of

 

  1. Generally speaking, demand for a good will be more inelastic:
    1. if few substitutes exist.

 

  1. when the good represents a large share of the consumer’s budget.

 

  1. in the long run.
  2. when many substitutes exist.

 

  1. Jeans in general have fewer close substitutes than any specific brand of jeans. Therefore, the demand for jeans in general would be _______ than the demand for a specific brand of jeans.
    1. more elastic

 

  1. more inelastic

 

  1. more unitary elastic

 

  1. less inelastic

 

  1. Satellite TV is a close substitute for cable TV. In the 1990’s, small satellite TV units were developed that made it more practical for individual consumers to subscribe to satellite TV service. This caused the price elasticity of demand for cable TV service to:

 

  1. become more inelastic.
  2. become less elastic.

 

  1. become more elastic.

 

  1. shift to the left.

 

  1. Suppose that the demand for electricity has been found to be inelastic. The most likely explanation for this finding is that:
    1. electricity is a luxury commodity.

 

  1. the fraction of income spent on electricity is large.

 

  1. few substitutes exist for electricity.
  2. electricity is a monopoly market.

 

  1. Suppose that there is only one small clothing store in the remote village of Green Acres, and until recently all of the townspeople bought most of their shirts there. As more people in Green Acres become connected to the Internet, the price elasticity of demand for shirts at the Green Acres store will:

 

  1. increase because the Internet offers more substitutes.

 

  1. decrease because the Internet offers more substitutes.

 

  1. remain the same, but the quantity demanded will decrease as more people shop online.

 

  1. remain the same, but the quantity will decrease as more people shop online.

 

  1. Small budget items such as soap have ______ price elasticity of demand compared to big-ticket items such as flat-screen TVs.
    1. higher
    2. lower

 

  1. very high

 

  1. the same

 

  1. Big-ticket items such as refrigerators have a(n) _____ price elasticity of demand compared to low budget items such as paper towels.
    1. higher

 

  1. lower

 

  1. very low
  2. equal

 

  1. Price elasticity of demand for transportation generally is:
    • the same as price elasticity of the demand for bus tickets.
    • greater than price elasticity of the demand for bus tickets.

 

  • less than price elasticity of the demand for bus tickets.

Dgreater than price elasticity of the demand for bus tickets when bus tickets are expensive, but less than

. price elasticity of the demand for bus tickets when the prices of bus tickets fall.

 

  1. Demand tends to be _______ in the short run than in the long run.
    • more elastic

 

  • more inelastic

 

  • more volatile
  • less important

 

  1. Suppose you have one hour to catch a flight to Miami for spring break. It takes 45 minutes to drive to the airport. Your car is almost out of gas; the price of gas at the closest gas station is higher than at the one on the other side of the town. To you, the price elasticity of demand for gas is likely to be ______ than it would be if you had several hours before the flight.

 

  • higher

 

  • more inelastic

 

  • more elastic
  • no different

 

  1. Assume the price of gasoline doubles tonight and remains at that price for the next two years. The short-term price elasticity of demand for gasoline will be ______ when compared with the long-term price elasticity of demand for gasoline.

 

  • more elastic

 

  • larger in absolute value

 

  • the same

 

  • more inelastic

 

  1. The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a class of items (e.g., chicken), is because:
    • there are fewer substitutes for Tyson chicken.
    • it takes a lot of time to adjust to a substitute brand of chicken.

 

  • the share of income spent on “chicken” is larger than spent on “Tyson Chicken”.

 

  • there are fewer substitutes for chicken than for Tyson chicken.

 

  1. Suppose that the short run price elasticity of demand for electricity is 0.03 and the long run price elasticity of demand is 1.2. One would classify the short run elasticity as being ___________ and the long run elasticity as being ____________.

 

  • elastic; elastic

 

  • elastic; inelastic
  • inelastic; unitary elastic

 

  • inelastic; elastic

 

  1. Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why?
    • Winter is longer than summer, and price elasticity is lower over longer time horizons.

 

  • Winter is longer than summer, and price elasticity is higher over longer time horizons.

CWinter water use tends to be for necessities like cleaning and cooking, and summer water use tends to

. be for both necessities and non-necessities, like gardening and recreation.

  1. People take more vacations in the summer and so use less water at home.

 

  1. If the elasticity of demand for the latest American Idol CD is 1.4, this means:
    1. few substitutes exist.
    2. a 1% increase in the price leads to a 14% reduction in quantity demanded.

 

  1. a 10% decrease in the price leads to a 140% increase in quantity demanded.

 

  1. a 5% increase in the price leads to a 7% decrease in quantity demanded.

 

  1. If the quantity demanded of a good is Q when the price for the good is P, the price elasticity of demand for that good at that point is:
    1. (P/Q)*(1/slope)

 

  1. (Q/P)*(1/slope)

 

  1. (P/Q)*(slope)

 

  1. Q*P*(1/slope)

 

  1. If the slope of the demand curve is -1.4, price is $5 and quantity demanded is 13 units, the price elasticity of demand is:
    1. 27.

 

  1. 38.
  2. 4.

 

  1. 8.

 

  1. If the slope of the demand curve is -0.167, price is $8 and quantity demanded is 12 units, then demand for this good is:
    1. perfectly elastic.

 

 

  1. unit elastic.

 

 

  1. The following graph depicts demand.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. The slope of the demand curve (if you ignore the negative sign) is:

 

  1. 5.

 

 

  1. 5.

 

  1. The following graph depicts demand.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. The price elasticity of demand at point A is:

  1. 5/2.

 

  1. 5/8.

 

  1. 2/5.

 

  1. 8/5.

 

  1. The following graph depicts demand.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. At point A, demand is:

  1. price inelastic.

 

  1. price elastic.

 

  1. unitary elastic.

 

  1. perfectly price elastic.

 

  1. The following graph depicts demand.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. The price elasticity of demand at point B is:

  1. 3/4.

 

  1. 4/3.

 

 

  1. 1/3.

 

  1. The following graph depicts demand.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. The price elasticity of demand at point C is:

  1. 3/16.

 

  1. 16/3.

 

  1. 3/4.

 

  1. 3/8.

 

  1. The following graph depicts demand.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. The price elasticity of demand at point D is:

  1. 5/2.

 

  1. 1/2.

 

  1. 2/5.

 

 

  1. The following graph depicts demand.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. At point D, demand is:

  1. price inelastic.

 

  1. price elastic.

 

  1. unitary elastic.

 

  1. perfectly price elastic.

 

  1. Suppose two demand curves have a point in common. With respect to price at that point, demand shown by the steeper curve will be _______ the less steep curve.
    1. more elastic than
    2. less elastic than

 

  1. as elastic as

 

  1. more likely to be unitary than

 

  1. Price elasticity of demand is _______ the slope of the demand curve.
    1. not related to
    2. inversely related to

 

  1. positively related to

 

  1. equal to

 

61.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. The slope of the demand curve D1 is _____, and the slope of demand curve D2 is ______.

  1. 1/2; 2
  2. 2; 1/2

 

  1. 5/4; 4/5

 

  1. 4/5; 5/4

 

62.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. For demand curve D1, what is the price elasticity of demand when P = 12?

  1. 12

 

  1. 6
  2. 4

 

  1. 3

 

63.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. When the price is equal to 8, the price elasticity of demand for the demand curve D1 is ______ and D2 is _____.

  1. 4; 1
  2. 1; 4

 

  1. 4; 4

 

  1. 2; 4

 

64.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. At P = 8 and Q = 4, D1 is ______ elastic than D2, which is shown graphically as D1 being _____ D2.

  1. more; flatter than
  2. more; steeper than

 

  1. less; flatter than

 

  1. less; steeper than

 

65.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. When P = 4, the price elasticity of demand for the demand curve D1 is ______

and D2 is _____.

  1. 3; 3
  2. 2/3; 1/3

 

  1. 1/3; 3
  2. 1/3; 2/3

 

66.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. At P = 4, the price elasticity of demand measured for:

  1. D1 will be equal to the price elasticity of demand for D2.

 

  1. D1 will be greater than the price elasticity of demand for D2.
  2. D1 will be less than the price elasticity of demand for D2.

 

  1. both D1 and D2 will be greater than one.

 

  1. As one moves down along a linear demand curve (i.e., from high price, low quantity pairs to low price, high quantity pairs), the demand:
    1. becomes more price elastic.

 

 

 

  1. becomes less price elastic.

 

  1. On a given linear demand curve, demand is ______ at high prices than at low prices.
    1. more price elastic.

 

  1. more price inelastic.
  2. more negative.

 

  1. more volatile.

 

  1. At the midpoint of a straight-line demand curve, the price elasticity of demand is always:
    1. greater than one.

 

  1. less than one.

 

 

 

  1. Suppose the price P on a given demand curve results in a price elasticity of demand equal to 1. Any price higher than P will lie on the _______ part of the demand curve, and any price lower than P will lie on the

_______ part of the demand curve.

 

  1. elastic; inelastic
  2. unitary elastic; inelastic

 

  1. inelastic; elastic

 

  1. elastic; unitary elastic

 

  1. Suppose the price P on a given demand curve results in a price elasticity of demand equal to 1. This price is on the ______ portion of the demand curve.
    1. elastic

 

  1. unitary elastic

 

  1. inelastic

 

  1. steepest

 

  1. Suppose the price price P gives us a price elasticity of demand equal to 1. It is on the ______ portion of the demand curve.
    1. elastic

 

  1. unitary elastic
  2. inelastic

 

  1. steepest

 

  1. If consumers completely cease purchasing a product when its price increases by any amount, demand is classified as:

 

  1. perfectly inelastic.

 

  1. unitary elastic.

 

  1. perfectly elastic.

 

  1. If the slope of the demand curve is zero, the price elasticity of demand is:
    1. perfectly inelastic.

 

  1. unit elastic.

 

  1. perfectly elastic.

 

  1. If a demand curve is the line defined by P = $5, the absolute value of the price elasticity of demand is:

 

  1. 2.

 

 

 

  1. For any horizontal demand curve, the calculated price elasticity of demand is:

 

 

  1. equal to the price of the good.

 

  1. If the percent change in quantity demanded is zero for any percent change in the price, demand is classified as:

 

  1. perfectly inelastic.

 

  1. unit elastic.

 

  1. perfectly elastic.

 

  1. If the slope of the demand curve is equal to infinity, the price elasticity of demand will be:

 

 

  1. equal to the price of the good.

 

  1. A demand curve that is drawn as a vertical line illustrates price elasticity equal to:

 

 

 

  1. the quantity.

 

  1. Suppose the demand curve for open-heart surgery is vertical among people with serious heart conditions. Therefore, demand for open-heart surgery is _____ with respect to price.
    1. unitary elastic

 

  1. inelastic

 

  1. perfectly elastic

 

  1. perfectly inelastic

 

  1. If the demand curve for a good is the line defined by Q = 1, then a decrease in the price of that good will:
    1. decrease the quantity demanded.

 

  1. increase the quantity demanded.
  2. result in a quantity of zero being demanded.

 

  1. not change the quantity demanded.

 

  1. A perfectly elastic demand curve has a slope of ______ while a perfectly inelastic demand curve has a slope of ______.
    1. infinity; 0

 

  1. 1; 0

 

  1. 0; 1

 

  1. 0; infinity

 

  1. When the price of insulin was $10, consumers demanded 100 units; when the price was $15, consumers demanded 100 units; and when the price was $20, consumers demanded 100 units. Based on this information, insulin must have a(n) _______ demand curve.

 

  1. unitary elastic

 

  1. perfectly elastic

 

  1. perfectly inelastic

 

  1. elastic

 

84.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. At a price of $2, total expenditure on lattes equals:

  1. $30.

 

  1. $40.
  2. $60.

 

  1. $80.

 

85.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. If the price of a latte increases from $2.00 to $2.50:

  1. total revenue would increase.

 

  1. total revenue would stay the same.

 

  1. total revenue would decrease.

 

  1. the change in total revenue, if any, would depend on the supply curve.

 

86.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. Suppose this demand curve shows the demand at one coffee shop that currently charges $2.00 for a latte. The manager wants to increase its total revenues. What should the manager do?

 

  1. Increase the price from $2.00 to $3.00.
  2. Increase the price from $2.00 to $2.50.

 

  1. Reduce the price from $2.00 to $1.00.

 

  1. Reduce the price from $2.00 to $1.75.

 

87.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. If the demand is ________ with respect to price, a price increase will

___________ total revenues.

  1. elastic; increase
  2. inelastic; increase

 

  1. unitary elastic; decrease

 

  1. inelastic; decrease

 

88.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. To increase total revenues, firms with ______ demand should lower price, and firms with ______ demand should increase price.

  1. elastic; unitary
  2. elastic; inelastic

 

  1. inelastic; elastic

 

  1. unitary; inelastic

 

  1. Firms that produce goods with many substitutes will find that:
    1. lowering price increases total revenues.
    2. lowering price decreases total revenues.

 

  1. raising price increases total revenues.

 

  1. lowering price leaves total revenues unchanged.

 

  1. Which determines whether a company will earn higher revenues when it raises its price?
    1. The cost of the inputs.

 

  1. Government regulation of the industry.

 

  1. Consumer demand.

 

  1. Companies always earn higher revenues when they increase price.

 

  1. Suppose that a new drug has been approved to treat a life-threatening disease. Demand for that drug is shown on the graph below. Prior to approval of this drug, the only treatment for this condition was non-prescription pain relief. Demand for one brand of non-prescription pain reliever is also shown on the graph below.

 

 

 

Refer to the figure above. Demand for the new drug is ____ while demand for the pain reliever is

_____

  1. the line labeled A; the line labeled B.
  2. the line labeled B; the line labeled A.

 

  1. the horizontal line at $90; the line labeled B.

 

  1. the vertical line at 100; the line labeled A.

 

  • Suppose that a new drug has been approved to treat a life-threatening disease. Demand for that drug is shown on the graph below. Prior to approval of this drug, the only treatment for this condition was non-prescription pain relief. Demand for one brand of non-prescription pain reliever is also shown on the graph below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. At a price of $15, price elasticity of demand for the new drug is _______ price elasticity of demand for an over-the-counter pain reliever.

  1. greater than
  2. less than

 

  1. the same as
  2. the reciprocal of

 

  • Suppose that a new drug has been approved to treat a life-threatening disease. Demand for that drug is shown on the graph below. Prior to approval of this drug, the only treatment for this condition was non-prescription pain relief. Demand for one brand of non-prescription pain reliever is also shown on the graph below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. The manufacturer of the new drug would _______ total revenue by increasing the price from $15 to $25.

  1. increase
  2. decrease, but continue to earn some
  3. experience no change

 

  1. completely eliminate

 

  • Suppose that a new drug has been approved to treat a life-threatening disease. Demand for that drug is shown on the graph below. Prior to approval of this drug, the only treatment for this condition was non-prescription pain relief. Demand for one brand of non-prescription pain reliever is also shown on the graph below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. The manufacturer of the pain reliever would _______ total revenue by increasing the price from $15 to $25.

  1. increase
  2. decrease, but continue to earn some

 

  1. experience no change
  2. completely eliminate

 

  • Suppose that a new drug has been approved to treat a life-threatening disease. Demand for that drug is shown on the graph below. Prior to approval of this drug, the only treatment for this condition was non-prescription pain relief. Demand for one brand of non-prescription pain reliever is also shown on the graph below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. The main reason for the difference in the slopes of the demand curves is that:

  1. one drug has many substitutes and the other does not.
  2. one drug is new on the market and the other has been available for a long time.
  3. one drug is heavily regulated by the Food and Drug Administration and the other is not.

 

  1. one market is in equilibrium and the other is not.

 

  • Suppose that a new drug has been approved to treat a life-threatening disease. Demand for that drug is shown on the graph below. Prior to approval of this drug, the only treatment for this condition was non-prescription pain relief. Demand for one brand of non-prescription pain reliever is also shown on the graph below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. If the manufacturer of the new drug chose to increase its price from $30 to $40, consumers would acquire ______ doses, and have _____ total expenditures.

  1. more; higher
  2. fewer; lower

 

  1. more; lower
  2. fewer; higher

 

  • Suppose that a new drug has been approved to treat a life-threatening disease. Demand for that drug is shown on the graph below. Prior to approval of this drug, the only treatment for this condition was non-prescription pain relief. Demand for one brand of non-prescription pain reliever is also shown on the graph below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. If the manufacturer of the new drug chose to increase its price from $90 to $100, consumers would acquire ______ doses, and have _____ total expenditures.

  1. more; higher
  2. fewer; lower
  3. more; lower

 

  1. fewer; higher

 

  • Firms that produce goods with few or no substitutes will find that:
    1. lowering price increases total revenues.
    2. raising price decreases total revenues.

 

  1. raising price increases total revenues.

 

  1. raising price leaves total revenues unchanged.

 

  • Pepsi One is a close substitute for Diet Coke. When Pepsi introduced Pepsi One, the price elasticity of demand for Diet Coke _______ and Coke’s ability to raise revenues through price increases

_________.

 

  1. increased; was reduced

 

  1. increased; increased
  2. decreased; was reduced

 

  1. had no effect; was reduced

 

100.When Taylor raised the price of earrings at Taylor’s Boutique, total revenue from earrings increased. This suggests that:

  1. the demand for Taylor’s earrings at the original price must be elastic.
  2. there are too many other boutiques competing with Taylor.

 

  1. there was excess demand for earrings at the original price.

 

  1. the demand for Taylor’s earrings at the original price was inelastic.

 

101.A pizza shop observes that when it raises the price of the large pizza, total revenue from pizza decreases and when they lower the price of the large pizza, total revenue increases. This suggests that:

  1. pizza lovers act irrationally.
  2. the demand for large pizza must be elastic.

 

  1. there are few good substitutes for large pizza.

 

  1. the demand for large pizza must be inelastic.

 

102.When Joe’s Gas raises its prices for regular unleaded, total revenue from both regular unleaded falls to zero. It must be the case that:

  1. the demand for Joe’s regular unleaded gasoline is perfectly elastic.
  2. the demand for regular unleaded must be inelastic.

 

  1. there are NOT many good substitutes for regular unleaded gasoline.
  2. consumers are switching to premium grades of gasoline.

 

103.If the local electricity utility wants to raise revenues, it should _______ its price because demand for electricity is likely to be ________.

  1. lower; inelastic
  2. raise; elastic

 

  1. lower; elastic

 

  1. raise; inelastic

 

104.Suppose that total expenditures for coffee reach a maximum at a price of $5 per pound. At this price, the demand for coffee is:

  1. unitary elastic.

 

  1. perfectly inelastic.

 

105.Suppose that Chris had been charging $1.00 per pound for potatoes. When Chris lowered the price to $0.90 per pound, total revenue fell. When Chris raised the price to $1.10, total revenue also fell. Why?

 

  1. $1.00 is the equilibrium price for potatoes.
  2. At 90 cents, there is excess demand for potatoes.

 

  1. $1.10 is more than Chris’s customers’ reservation prices.
  2. Price elasticity of demand is unitary at $1.00.

 

106.At the price of $20 each, demand for T-shirts for students group’s fundraising activity is unitary elastic. Total expenditure for T-shirts reaches ______ at a price of $20 each.

  1. zero
  2. its minimum

 

  1. its maximum

 

  1. its maximum profit

 

107.The responsiveness of quantity demanded for one good when the price of a different good changes is measured by the:

  1. price elasticity of demand.
  2. income elasticity of demand.
  3. price elasticity of supply.

 

  1. cross-price elasticity of demand.

 

108.If a product has lots of substitutes:

  1. its income elasticity will be high.

 

  1. its price elasticity of demand will be low.

 

  1. the cross-price elasticity among those substitutes will be negative.

 

  1. the cross-price elasticity among those substitutes will be positive.

 

109.If cross price elasticity is positive but less than one, the two goods are:

 

  1. inelastically demanded.

 

 

110.The cross-price elasticity of two goods that are close substitutes can never be:

  1. less than one.

 

  1. greater than one.

 

 

111.When the price of lettuce rises, the demand for salad dressing _______ because these two goods are complements.

  1. increases
  2. decreases

 

  1. remains the same
  2. becomes more inelastic

 

112.If the demand for salad dressing increased when the price of lettuce decreased, cross price elasticity would be ________, and we would say these two goods are _______.

  1. unitary; inelastic
  2. zero; inferior

 

  1. negative; substitutes

 

  1. negative; complements

 

113.Elvis loves to eat peanut butter with bananas. Martha thinks the combination of peanut butter and bananas is repulsive. Therefore, economists would classify peanut butter and bananas as:

  1. complements for Elvis, but not for Martha.
  2. complements only if their cross-price elasticity is negative.
  3. complements only if their cross-price elasticity is positive.

 

  1. unrelated because whether or not they are complements depends in individual tastes.

 

114.The cross-price elasticity for bread and potatoes is estimated to be 0.5. This implies bread and potatoes are:

  1. normal goods.

 

 

 

115.A cross-price elasticity of -1.2 indicates that the two goods under consideration are:

  1. elastically demanded.

 

 

 

116.If the price of plane tickets increased, more people might choose to travel by train. If this happened, you would know that:

  1. plane tickets are now an inferior good.
  2. the cross-price elasticity between plane tickets and train tickets is positive.

 

  1. the cross-price elasticity between plane tickets and train tickets is negative.
  2. plane tickets and train tickets are complements.

 

117.If most consumer goods and services are ______, then most income elasticities are ______.

  1. normal; negative
  2. inferior; positive

 

  1. normal; greater than one

 

  1. normal; positive

 

118.During recessions, when some workers lose their jobs and have lower incomes, sales of durable goods (goods with a life expectancy of 3 years or more) decline. Apparently, durables are:

  1. normal goods.

 

  1. inferior goods.

 

119.In surveying their alumni, State U’s economics department discovered that ramen noodle consumption declined as soon as students graduated and found jobs. One conclusion the survey team might draw from this result is that:

  1. there is excess demand for ramen noodles.
  2. the equilibrium price for ramen noodles is too high.

 

  1. college graduates have a high reservation price for ramen noodles.

 

  1. ramen noodles are an inferior good.

 

120.For which of the following products is income elasticity likely to be greatest?

  1. Salt

 

  1. Groceries
  2. Airplane travel

 

  1. Blue jeans

 

121.If you consume less of a good as your income increases:

  1. your demand curve is not downward sloping for that good.

 

  1. the good must be an inferior good.

 

  1. the good must not have any close substitutes.

 

  1. your quantity demanded changed by a movement along the demand function.

 

122.A change in consumers’ income levels:

  1. changes demand.

 

  1. changes supply.

 

  1. changes price.
  2. creates cross-price elasticity.

 

123.If income elasticity for a particular good has a negative sign:

  1. the good is a normal good.
  2. as income increases, consumers will tend to purchase more of the good.

 

  1. as income increases, consumers will tend to purchase less of the good.

 

  1. the good is a luxury good.

 

124.Suppose you believe that plaid flannel shirts are an inferior good, and want to test this with economic data. You expect to find that the income elasticity for plaid flannel shirts is:

  1. close to zero.
  2. greater than zero, but less than one.

 

  1. greater than one.

 

  1. less than zero.

 

125.You have found data that indicates that the income elasticity of demand for generic (unbranded) shampoo is -0.7. You conclude that generic shampoo:

  1. is a normal good.
  2. has inelastic demand.
  3. is not in equilibrium.

 

  1. is an inferior good.

 

126.The change in quantity supplied that results from a change in price is known as the:

  1. cross-price elasticity of supply.

 

  1. slope of the supply curve.

 

  1. price elasticity of supply.

 

  1. cross-price elasticity of demand.

 

127.The price elasticity of supply at a point is:

  1. the percentage change in quantity supplied divided by the percentage change in price.

 

  1. the percentage change in price divided by the percentage change in quantity supplied.

 

  1. the change in quantity supplied divided by the change in price.
  2. the change in price divided by the change in quantity supplied.

 

128.If a one percent increase in the price of oranges leads to a five percent increase in the quantity supplied, the price elasticity of supply for oranges is ______.

  1. 1/5
  2. 1/2

 

  1. 5

 

  1. 2

 

129.An increase in the price of golf clubs from $75 to $125 led to an increase in quantity supplied from 200 units to 300 units. The price elasticity of supply for golf club is _____ so the supply curve is

_______.

  1. 2; elastic
  2. 2; inelastic

 

  1. 4/3; elastic

 

  1. 3/4; inelastic

 

130.An increase in the price of hamburger from $3 to $4 leads to an increase in quantity supplied from 100 units to 150 units. At the original price, the price elasticity of supply for hamburgers is _____ and at this point the supply curve is _______.

  1. 2/3; elastic

 

  1. 2/3; inelastic
  2. 3/2; elastic

 

  1. 3/2; inelastic

 

131.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. What is the slope of the supply curve?

  1. 4

 

  1. 2

 

  1. 1/2
  2. 1

 

132.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. What is the price elasticity of supply at point A?

  1. 4

 

  1. 2

 

  1. 1
  2. 1/2

 

133.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. What is the price elasticity of supply at point B and C?

  1. 1/2; 3/4

 

  1. 3/4; 1/2

 

  1. 3; 2
  2. 1; 1

 

134.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. The relationship between point B and point C on this supply curve is due to:

  1. the slope of the supply curve being greater than one.
  2. the slope of the supply curve being less than one.
  3. the positive slope of the supply curve.

 

  1. the fact that the ratio of price to quantity is equal at all points on the line.

 

135.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. What is the price elasticity of supply when P = 6?

  1. less than zero
  2. positive, but less than one

 

  1. 1

 

  1. greater than 1

 

136.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the figure above. If the price changes from $10 to $4, what happens to the elasticity?

  1. It will increase.

 

  1. It will decline.

 

  1. It will stay the same.

 

  1. It will first decline then increase.

 

137.Suppose that the price elasticity of supply for the Hope Diamond is zero. Therefore, the supply curve for the Hope Diamond is:

  1. perfectly inelastic.

 

  1. unitary elastic.

 

  1. perfectly elastic.

 

138.Suppose that each serving of Mac & Cheese costs exactly $0.50 to make no matter how many servings are produced. This means that the price elasticity of supply for Mac & Cheese is ______ and the supply is

_______.

  1. one; perfectly inelastic
  2. zero; perfectly elastic

 

  1. infinity; perfectly inelastic

 

  1. infinity; perfectly elastic

 

139.Mike knows how to make hamburgers (like many other people) and got a minimum wage job at Burger King. With respect to price elasticity of supply, the supply curve for hamburgers is __________ because the inputs to production are __________.

  1. inelastic; mobile
  2. inelastic; immobile

 

  1. inelastic; flexible

 

  1. elastic; flexible

 

140.Antony’s Pizza uses the same dough, sauce, and cheese for pizza and calzones. When the price of pizza is low Antony produces more calzones. For Antony, with respect to price, supply of pizza is ________

compared to supply at a pizza restaurant that does not serve calzones.

  1. more inelastic
  2. more elastic

 

  1. unitary elastic

 

  1. more unpredictable

 

141.Oil and oil products remain the main fuel for cars, planes, ships, and power plants. The amount of oil still in the earth is finite. According to this information, the supply of gasoline is relatively _______.

  1. elastic
  2. inelastic

 

  1. unitary elastic
  2. perfectly inelastic

 

142.The championship game will be held next weekend in your college’s 40,000-seat stadium. The supply of tickets:

  1. will increase because the price charged will be higher.
  2. is price elastic.

 

  1. is perfectly inelastic.

 

  1. depends on which teams make it to the championship game.

 

143.For OutBack Steakhouse, seating capacity is limited in the short run. In the long run they can add as many seats as they want. Therefore, the price elasticity of supply for the meals in OutBack would be

_____ in the short run than in the long run.

  1. higher
  2. lower

 

  1. the same

 

  1. more variable

 

144.Lakeville is a small community that completely surrounds a scenic lake up north. Lakeville’s zoning regulations require that residential lots have at least one hundred feet of frontage, or shoreline, on the lake. The total shoreline of the lake is 5,000 feet.

 

There are currently 40 homes on the lake. If demand for lakefront property in Lakeville increased,

  1. the price of lakefront property would not change because there is excess supply.

 

  1. the quantity supplied of lakefront property would decrease because there is excess demand.

 

  1. the quantity supplied of lakefront property would be zero because there is no room for new residents.
  2. the quantity supplied of lakefront property would increase, and the price per lot would increase.

 

145.Lakeville is a small community that completely surrounds a scenic lake up north. Lakeville’s zoning regulations require that residential lots have at least one hundred feet of frontage, or shoreline, on the lake. The total shoreline of the lake is 5,000 feet.

 

Suppose there are currently 50 homes on the lake, each with one hundred feet of shoreline. If demand for lakefront homes increased,

  1. there would be excess demand for lakefront homes that the market could not correct.
  2. a new equilibrium would be established at a quantity greater than 50 and at a higher price.

 

  1. a new equilibrium would be established at a quantity equal to 50 and at a higher price.

 

  1. no new residents would be able to purchase a home on the lake because all of the lots are taken.

 

146.Lakeville is a small community that completely surrounds a scenic lake up north. Lakeville’s zoning regulations require that residential lots have at least one hundred feet of frontage, or shoreline, on the lake. The total shoreline of the lake is 5,000 feet.

 

Assuming that the zoning regulations in Lakeville remain enforced, elasticity of supply of lakefront property is,

  1. infinite at a quantity of 50.
  2. greater than zero at quantities less than 50 and zero at quantity of 50.

 

  1. less than zero at quantities through 100.

 

  1. positive for all quantities.

 

147.You read online that, at current rates of production, the yearly world supply of food is sufficient to feed the projected 2010 population of the earth, and that after 2010 there will be massive starvation. One assumption behind this prediction is that:

  1. food supply is infinitely elastic.
  2. the long run elasticity of supply of food is inelastic.

 

  1. prices will allocate food supplies to only wealthy countries.

 

  1. short run supply elasticity is greater than long run supply elasticity.

 

148.In 1985 a desert community stopped pumping from a 1000 foot well because it had run dry. In 2005 the price of water doubled. The community then drilled the well deeper and started pumping again. In this community,

  1. the supply of water is perfectly inelastic because it is a finite resource.

 

  1. water production faces increasing opportunity costs.
  2. markets cannot reach equilibrium because there is a persistent shortage of water.

 

  1. higher water prices can reduce quantity demanded, but cannot increase quantity supplied.