Government policies designed to promote efficiency:
a. usually do so at the expense of equity.
b. tend to cause the economy to grow more slowly.
c. always fail.
d. require very high taxes.
All of the following can be considered a student's costs of going to college, EXCEPT:
a. textbooks.
b. tuition and fees.
c. room and board (that costs her about the same as she was paying before entering college).
d. the student's time, which can no longer be devoted to earning a salary.
An airline's plane from Los Angeles to New York is about to take off, but it still has a few seats empty. If the average cost per seat is $500, what price should the airline charge passengers in standby to fill in those remaining seats? (Consider that quantitative decisions are made at the margin)
At least $500.
Exactly $500.
Any price above zero that will entice standby passengers to take the flight.
Slightly less than $500.
The Federal government enacted regulation in the 1960s requiring people to wear seatbelts in their cars. All of the following resulted from this regulation, EXCEPT:
overall deaths due to car accidents changed very little in the United States.
fewer deaths occurred per accident.
fewer pedestrians were killed in car accidents.
the frequency of accidents increased.
When two persons trade goods:
one person always gains at the expense of the other.
both persons usually gain from the exchange.
one person usually gains at the expense of the other.
the overall well being of
In a market economy, the decisions of what and how much to produce are made by:
voters in elections.
all producers and consumers.
the government only.
non governmental agencies.
Even though markets do a great job in organizing economic activity, governments are needed to do all of the following EXCEPT:
establish and enforce property rights.
intervene when markets fail due to externalities.
intervene when markets fail due to market power.
decide what and how much should be produced.
Living standards in the United States have risen tremendously over the years, mainly due to:
relentless increases in the productivity of labor over the years.
the forceful efforts of labor unions.
successive increases in the minimum wage.
trade protection from competition from countries
Rapid and persistent inflation occurs mainly due to
high wage increases demanded by labor unions
greedy firms that abuse consumers with higher-than-necessary prices.
rapid increases in the quantity of money in the economy.
trade with other countries.
A government that implements a policy designed to reduce inflation can expect unemployment to:
increase in the short-run.
decrease in the short-run.
increase in the long-run.
decrease in the long-run.
Which of the following is FALSE, regarding economics as a science?
Economic knowledge is obtained through the scientific method, just as in any other science.
It is difficult to conduct experiments in economic matters.
Economists pay close attention to natural experiments resulting from historical events.
Economic theories represent irrefutable facts.
Economists use assumptions in order to:
ecreate real situations accurately, with all their complexity.
avoid dealing with issues they would rather not talk about.
simplify economic theories, so as to make it possible to answer economic questions.
make their theories more realistic.
Economic models are:
simplified versions of economic theories.
All of the other options are true.
created by making assumptions.
usually composed of diagrams and equations.
All of the following are characteristics of the circular-flow model of the economy, EXCEPT:
the model has two markets: one for goods and services and one for factors of production.
the model includes two sectors: firms and households
the model describes two circular flows: one for inputs and one for outputs
the two flows described by the model move in opposite directions.
In the circular-flow model of the economy:
the economy has only two sectors: firms and households.
dollars in the economy are used over and over in an endless cycle.
firms produce and provide factors of production.
the government is the source of revenue for households to purchase goods and services from firms.
Which of the following is true regarding the production possibilities frontier (PPF) for the economy?
Any point on the PPF represents an efficient level of production.
Any point inside the PPF represents a combination of production that is not feasible.
The opportunity cost of producing one more unit of one of the goods remains the same at any point along the PPF.
Increases in the resources available for production will cause the PPF to shift toward the origin.
Economic growth in the economy can be portrayed in the model of the production possibilities frontier as a:
movement up and left along the PPF.
shift of the PPF away from the origin.
movement down and right along the PPF.
shift of the PPF toward the origin.
Microeconomics is the study of:
how governments can get the economy out of a recession.
economy-wide phenomena, including inflation, unemployment, and economic growth.
how households and firms make decisions and how they interact in markets.
how governments can reduce inflation
Which of the following is an example of a normative statement?
Higher interest rates will cause people to borrow and invest less.
The government should increase spending during recessions, so that the economy recovers quickly.
When the price of a good increases, consumers respond by reducing the quantity of that good they want to purchase.
Over the past 50 years, the number of women who participate in the labor force has increased dramatically.
Economists tend to disagree with each other because:
different economists espouse different theories, so they believe different things are going on in the economy.
different economists make different assumptions to theories, leading them to different conclusions in economic matters
different economists have different values and priorities in economic matters.
All the other options are true.
Which of the following is NOT a characteristic of a perfectly competitive market?
The goods being offered for sale are all the same.
There are a large number of buyers and sellers.
Buyers and sellers are price takers.
It is difficult for new firms to enter the market.
A market with only one firm is called:
an oligopoly.
a monopoly.
perfect competition.
monopolistic competition.
An increase in demand means that:
when price falls consumers are willing to purchase greater quantities of the good.
consumers are willing to purchase greater quantities of the good at any given price.
when the price rises, consumers are willing to purchase greater quantities of the good.
consumers cause the price drop by buying greater quantities of the good.
If good B is a substitute for good A, and the price of good B increases:
the quantity demanded of good A will decrease.
the demand for good A will increase.
the price of good A will decrease.
the quantity demanded of good B will increase.
When the price of good X increases:
the quantity supplied of good X will increase.
the quantity supplied of good X will decrease.
the supply curve for good X will shift to the right.
the supply curve for good X will shift to the left.
A new technology that helps firms reduce production costs will cause a:
movement down and left along the supply curve.
movement up and right along the supply curve.
shift to the right of the supply curve.
shift to the left of the supply curve.
If the price in a market happens to be below equilibrium, there will be a ________ in the market, and the price will tend to ________.
surplus, fall
surplus, rise
shortage, fall
shortage, rise
If the price in a market happens to be above equilibrium, there will be a ________ in the market, and the price will tend to ________.
Suppose that a scientific study just published demonstrates that eating apples makes people much healthier. How will this affect the equilibrium price and quantity in the market?
The equilibrium price will increase and the equilibrium quantity will decrease.
The equilibrium price will decrease and the equilibrium quantity will increase.
Both the equilibrium quantity and price will increase.
Both the equilibrium quantity and price will decrease.
Suppose the price of corn syrup increases. Given that corn syrup is a major ingredient in the production of soft drinks, how will this affect the equilibrium price and quantity in the soft drink market?
The equilibrium price will decrease and the equilibrium quantity will increase
Both the equilibrium quantity and price will increase
The production possibilities frontiers used to explain trade are straight lines because:
it is assumed the farmer and rancher can switch at a constant rate from producing meat to producing potatoes
that is always true when the same person produces two goods.
the farmer is better than the rancher in producing both goods.
the gains of trade will benefit the farmer and the rancher.
The principle of absolute advantage refers to the situation in which one producer
can produce a good in greater quantities than other producers.
can produce a good using less resources than other producers.
is able to produce exactly the same quantity of a good as other producers.
has access to more resources than other producers.
The principle of comparative advantage refers to the situation in which one producer:
has a lower opportunity cost than other producers in the production of a good.
can produce a good using more resources than other producers.
Which of the following is true regarding the principle of comparative advantage?
Nations should specialize in producing those goods for which they have a lower opportunity cost.
Nations should export goods for which they do not have an absolute advantage.
Nations should specialize in producing those goods for which they have an absolute advantage.
Nations should export goods for which they have a higher opportunity cost.
Which of the following is true regarding the principle of absolute advantage?
A nation cannot have an absolute advantage in more than one good.
A nation with an absolute advantage in the production of a good may have a comparative advantage in the production of the same good.
A nation has nothing to gain from trade if it can produce more of a good than other nations.
A nation has nothing to gain from trade if it has more resources than other nations.
The boy next door has offered to mow Tiger Woods' lawn. It will take this boy twice as long as Tiger Woods to mow the lawn. Should Tiger Woods let the boy mow his lawn, instead of doing it himself?
Yes, as long as the boy has a lower opportunity cost than Tiger Woods.
Yes, because the boy next door needs the money and Tiger Woods can help him out that way.
No, because it will be more efficient if Tiger Woods mows his own lawn, since he can do it faster.
No, because Tiger Woods has better things to do with his money than pay the boy to mow the lawn.
Suppose that engaging in free trade means we have to stop making cars, which could cause American car manufacturers to reduce output and could cause people to lose jobs. Is it worth it having free trade?
Yes, because in spite of the lost jobs, we still want to get along with other nations.
Yes, because the gains outweigh the losses: new businesses and new jobs will flourish in other industries.
No, because we need to protect our jobs.
No, because our wages would have to fall drastically to make us remain competitive with low wage countries.
Suppose that Jill can type 10 pages per hour on the computer, while Jim can only type 8. Further suppose that Jill can review 5 articles per hour while Jim can only review 2. If they are working on a final project together, who should specialize in what task in order to be as productive as possible?
Jill should specialize in typing and Jim in reviewing articles.
Jill should specialize in reviewing articles and Jim in typing.
. Jill should perform both tasks, since she is better at both than Jim.
Jim should perform both tasks, since he is better at both than Jill.
Suppose that Jill can type 10 pages per hour on the computer, while Jim can only type 8. Further suppose that Jill can review 5 articles per hour while Jim can only review 2. Based on this, we can say that:
Jim has a comparative advantage over Jill in reviewing articles.
Jill has an absolute advantage over Jim in reviewing articles.
Jim has an absolute advantage over Jill in typing
Jill has a comparative advantage over Jim in typing.
The principle of comparative advantage suggests all of the following, EXCEPT:
specialization allows producers to become more efficient.
free trade tends to cause bankruptcies and high unemployment.
free trade allows producers to specialize.
as producers become more efficient, overall production increases, making everybody better off.
A good will tend to have an inelastic demand if:
the good has many close substitutes
the good is a luxury
the market is defined very broadly.
the time horizon is long.
A perfectly elastic demand is represented graphically by a:
relatively steep demand curve.
relatively flat demand curve
vertical demand curve.
horizontal demand curve
What effect will an increase in the price have on total revenue if demand is elastic?
Total revenue will increase.
Total revenue will decrease.
Total revenue will first decrease and then increase.
Total revenue will remain unchanged.
The price elasticity of demand tends to be more elastic:
at points further up and to the left along the demand curve.
at points further down and to the right along the demand curve.
when the demand curve becomes steeper.
when the demand curve is vertical.
Suppose that General Cars increases the price of its Cadiclap model from $13,500 to $16,500. As a result of this, the quantity demanded of the Cadiclap model decreases from 600,000 to 400,000 per year. Find the price elasticity of demand of the Cadiclap using the mid-point method.
-3.0
-0.5
-2.0
-0.3
If a firm needs to increase its total revenue, the firm should ________ the price if the demand for its product is ________.
raise, inelastic
raise, elastic
drop, elastic
drop, unit elastic
Suppose that consumers' incomes rise by 3% and this causes demand for a good to increase by 4.5%. What is the income elasticity of demand?
1.50
0.67
-1.50
-0.67
Suppose that a good has an income elasticity of demand of -2.0. This means that the good is:
normal.
inferior.
a substitute.
a complement.
Suppose that two goods have a cross-price elasticity of demand of -0.8. This means that these goods are:
normal
inferior
substitutes.
complements.
The price of good A increases from $4.50 to $5.50. This causes the quantity demanded of good B to increase from 900 to 1100 units per month. Find the cross price elasticity of demand using the mid-point method.
-1.0
+2.0
+1.0
