Which of the following is a macroeconomics question: A. What is the rate of unemployment?



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Which of the following is a macroeconomics question:
A. What is the rate of unemployment?
B. How much would math majors earn after college?
C. How many books should be written by a publisher?
D. What is the price of a new radio?
ANSWER: A

Trade and specialization allow individuals to ?:


A. Shift their production possibilities frontier outward
B. Consume outside their own production possibilities frontier
C. Eliminate scarcity
D. Produce fewer goods with less technology
ANSWER: B

Pepsi and coke are substitute goods.What would one predict if the price of pepsi increases?:


A. The demand curve for coke would shift right
B. The demand curve for coke would shift left;
C. The demand for coke wouldn’t change
D. The demand for pepsi would shift right;
ANSWER: A

How would a economist understand people who are waiting in line for free food?:


A. Those in line waiting think their time is of low value
B. Those in line waiting think their time is of high value
C. The people waiting in line believe that the marginal cost of waiting in line exceeds the
marginal benefit.
D. Those waiting in line think the marginal cost of waiting in line is zero
ANSWER: A

What is the opportunity cost of working rather than going to school?:


A. Higher wages that come with higher education
B. Cost of clothing and transportation
C. Cost of housing and food
D. Annual wages earned by working
ANSWER: A

What is the important act of holding all other variables constant while examining a particular


variable known as?
A. Ceteris paribus
B. Normative statement
C. Positive statement
D. Macroeconomics
ANSWER: A

Which is a positive statement?


A. Increases in the minimum wage cause of unemployment
B. The government must provide health care to all citizens
C. An economist must test every theory four times
D. We ought to regulate banks
ANSWER: A

Economists believe that individuals that pare the benefits and costs of various options when


making a decision and in so doing act in what way?
A. Rationally
B. Fairly
C. Poorly
D. Unpredictably
ANSWER: A

What would be a possible problem with using faulty assumptions when building an economic


model?
A. IT could lead to poor economic decisions
B. There would be too much wealth
C. We would never have to rebuild the model
D. Model come become too popular
ANSWER: A

Economics is the study of what?


A. How to allocate resources to satisfy needs and wants
B. Capitalism
C.Markets
D.Ways to make money
ANSWER: A

What are opportunity costs of taking an exam?


A. Highest valued alternative given to take the exam
B. Money spent on housing
C. Money spent on tuition
D. Money spent on textbooks
ANSWER: A

Which is both a shift in supply and shift in demand?


A. Expectations of future prices
B. Number of buyers
C. Preferences
D. Income change
ANSWER: A

Which has a incentive illustrated:


A. Mike gives his siblings sweets when they behave
B. Chris’s kids throw tantrums in the store
C. Bob went to the football game
D. Lauren stays up late at night so is tired in the morning
ANSWER: A

What kind of demand for a good makes it a normal good?


A. Demand increases as consumers income increases
B. Decrease if price of substitute increases
C. Demand increases if price of complement good increases
D. Demand decreases as consumers income increases
ANSWER: A

What can be said about scarcity?


A. Scarcity forces people to make choices
B. Scarcity only impacts commodities
C. Scarcity doesn’t impact the wealthy
D. Scarcity typically doesn’t impact day to day life
ANSWER: A

A relative price is


A. the ratio of one price to another.
B. the difference between one price and another.
C. the slope of the supply curve.
D. the slope of the demand curve.
ANSWER: A

If the price of a candy bar is $1 and the price of a fast food meal is $5,


A) The money price of a fast food meal is 1/5 of a candy bar.
B) The money price of a candy bar is 1/5 of a fast food meal.
C) The relative price of a fast food meal is 5 candy bars.
D) The relative price of a candy bar is 5 fast food meals.
ANSWER: A

If the price of a hot dog is $2 and the price of a hamburger is $4,


A) The relative price of a hot dog is 1/2 of a hamburger.
B) The money price of a hot dog is 2 hamburgers.
C) The money price of a hamburger is 2 hot dogs.
D) the relative price of a hamburger is 1/2 of a hot dog.
ANSWER: A

The opportunity cost of good A in terms of good B is equal to the


A) ratio of the price of good A to the price of good B.
B) ratio of the price of good B to the price of good A.
C) price of good A minus the price of good B.
D) price of good B minus the price of good A.
ANSWER: A

The opportunity cost of a hot dog in terms of hamburgers is


A) the ratio of the price of a hot dog to the price of a hamburger.
B) the ratio of the slope of the supply curve for hot dogs to the slope of the supply curve for hamburgers.
C) the ratio of the slope of the demand curve for hot dogs to the slope of the demand curve for hamburgers.
D) the price of a hot dog minus the price of a hamburger.
ANSWER: A

Wants, as opposed to demands,


A) are the unlimited desires of the consumer
B) are the goods the consumer plans to acquire.
C) depend on the price.
D) are the goods the consumer has acquired.
ANSWER: A

Demands differ from wants in that


A) demands reflect a decision about which wants to satisfy and a plan to buy the good, while wants are unlimited and involve no specific plan to acquire the good.
B) demands are unlimited, whereas wants are limited by income.
C) wants imply a decision about which demands to satisfy, while demands involve no specific plan to acquire the good.
D) wants require a plan to acquire a good but demands require no such plan.
ANSWER: A

Scarcity guarantees that


A) wants will exceed demands.
B) demands will be equal to wants.
C) demands will exceed wants.
D) most demands will be satisfied.
ANSWER: A

The quantity demanded is


A) the amount of a good that consumers plan to purchase at a particular price.
B) independent of the price of the good.
C) independent of consumers' buying plans.
D) always equal to the equilibrium quantity.
ANSWER: A
The law of demand states that, other things remaining the same, the higher the price of a good, the
A) smaller is the quantity of the good demanded.
B) smaller is the demand for the good.
C) larger is the quantity of the good demanded.
D) larger is the demand for the good.
ANSWER: A

The law of demand implies that, other things remaining the same,


A) as the price of a cheeseburger rises, the quantity of cheeseburgers demanded will decrease
B) . as the demand for cheeseburgers increases, the price of a cheeseburger will fall.
C) as income increases, the quantity of cheeseburgers demanded will increase.
D) as the price of a cheeseburger rises, the quantity of cheeseburgers demanded will increase.
ANSWER: A

The law of demand states that the quantity of a good demanded varies


A) inversely with its price.
B) directly with population.
C) directly with income.
D) inversely with the price of substitute goods.
ANSWER: A

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


A) An increase in the price of a soda causes a decrease in the quantity of soda demanded.
B) A decrease in the price of a gallon of milk causes a decrease in the quantity of milk demanded.
C) An increase in the price of a tape causes an increase in the quantity of tapes demanded.
D) A decrease in the price of juice causes no change in the quantity of juice demanded.
ANSWER: A

The law of demand implies that if nothing else changes, there is


A) a negative relationship between the price of a good and the quantity demanded.
B) a positive relationship between the price of a good and the quantity demanded.
C) a linear relationship between price of a good and the quantity demanded.
D) an exponential relationship between price of a good and the quantity demanded.
ANSWER: A

Which of the following influences people's buying plans and varies moving along a demand curve?


A) the price of the good
B) preferences
C) income
D) the prices of related goods
ANSWER: A

The law of demand states that


A) other things remaining the same, the higher the price of a good, the smaller is the quantity demanded.
B) a decrease in the price of a good shifts the demand curve leftward.
C) other thing remaining the same, the higher the price of a good, the larger is the quantity demanded.
D) an increase in the price of a good shifts the demand curve leftward.
ANSWER: A

The law of demand implies that demand curves


A) slope down.
B) shift rightward whenever the price rises.
C) shift leftward whenever the price rises.
D) slope up.
ANSWER: A

Each point on the demand curve reflects


A) the highest price consumers are willing and able to pay for that particular unit of a good.
B) the highest price sellers will accept for all units they are producing.
C) the lowest-cost technology available to produce a good.
D) all the wants of a given household.
ANSWER: A

A drop in the price of a compact disc shifts the demand curve for prerecorded tapes leftward. From that you know compact discs and prerecorded tapes are


A) substitutes.
B) normal goods.
C) inferior goods.
D) complements.
ANSWER: A

A substitute is a good


A) that can be used in place of another good.
B) that is not used in place of another good.
C) of higher quality than another good.
D) of lower quality than another good.
ANSWER: A

People buy more of good 1 when the price of good 2 rises. These goods are


A) substitutes.
B) complements.
C) normal goods.
D) inferior goods.
ANSWER: A

Which of the following pairs of goods are most likely substitutes?


A) cola and lemon lime soda
B) lettuce and salad dressing
C) compact discs and compact disc players
D) peanut butter and gasoline
ANSWER: A

The demand for a good increases when the price of a substitute ________ and also increases when the price of a complement ________.


A) rises; falls
B) falls; falls
C) rises; rises
D) falls; rises
ANSWER: A

A complement is a good


A) used in conjunction with another good.
B) used instead of another good.
C) of lower quality than another good.
D) of higher quality than another good.
ANSWER: A

Suppose people buy more of good 1 when the price of good 2 falls. These goods are


A) complements.
B) inferior.
C) normal.
D) substitutes.
ANSWER: A

As the opportunity cost of a good decreases, people buy


A) more of that good and also more of its complements.
B) less of that good and also less of its complements.
C) less of that good but more of its complements.
D) more of that good but less of its complements.
ANSWER: A

People come to expect that the price of a gallon of gasoline will rise next week. As a result,


A) today's demand for gasoline increases.
B) the price of a gallon of gasoline falls today.
C) today's supply of gasoline increases.
D) next week's supply of gasoline decreases.
ANSWER: A

The demand curve for a normal good shifts leftward if income ________ or the expected future price ________.


A) decreases; falls
B) increases; rises
C) increases; falls
D) decreases; rises
ANSWER: A
If income increases or the price of a complement falls,
A) the demand curve for a normal good shifts rightward.
B) the supply curve of a normal good shifts rightward.
C) the supply curve of a normal good shifts leftward.
D) the demand curve for a normal good shifts leftward.
ANSWER: A

If income decreases or the price of a complement rises,


A) the demand curve for a normal good shifts leftward.
B) there is a downward movement along the demand curve for the good.
C) there is an upward movement along the demand curve for the good.
D) the demand curve for a normal good shifts rightward.
ANSWER: A

Normal goods are those for which demand decreases as


A) income decreases.
B) the price of a complement falls.
C) the good's own price rises.
D) the price of a substitute falls.
ANSWER: A

A normal good is a good for which


A) demand increases when income increases.
B) demand decreases when income increases.
C) there are very few complements.
D) there are few substitutes.
ANSWER: A

Most goods


A) are normal goods.
B) have vertical supply curves.
C) have vertical demand curves.
D) are complements to each other.
ANSWER: A

A normal good is a good for which demand


A) increases when income increases.
B) decreases when population increases.
C) increases when population increases.
D) decreases when income increases.
ANSWER: A
Inferior goods are those for which demand increases as
A) income decreases.
B) income increases.
C) the price of a substitute rises.
D) the price of a substitute falls.
ANSWER: A

The slope of a demand curve depends on


A) the units used to measure price and the units used to measure quantity.
B) the units used to measure quantity but not the units used to measure price.
C) the units used to measure price but not the units used to measure quantity.
D) neither the units used to measure price nor the units used to measure quantity.
ANSWER: A

The price elasticity of demand depends on


A) neither the units used to measure price nor the units used to measure quantity.
B) the units used to measure price and the units used to measure quantity.
C) the units used to measure quantity but not the units used to measure price.
D) the units used to measure price but not the units used to measure quantity.
ANSWER: A

The price elasticity of demand measures


A) the responsiveness of the quantity demanded to changes in price.
B) how often the price of a good changes.
C) the slope of a budget curve.
D) how sensitive the quantity demanded is to changes in demand.
ANSWER: A

When the quantity of coal supplied is measured in kilograms instead of pounds, the demand for coal becomes


A) neither more nor less elastic.
B) more elastic.
C) less elastic.
D) undefined.
ANSWER: A

The price elasticity of demand equals


A) the percentage change in the quantity demanded divided by the percentage change in the price.
B) the change in the quantity demanded divided by the change in price.
C) the percentage change in the price divided by the percentage change in the quantity demanded.
D) the change in the price divided by the change in quantity demanded.
ANSWER: A

If a rightward shift of the supply curve leads to a 6 percent decrease in the price and a 5 percent increase in the quantity demanded, the price elasticity of demand is


A) 0.83.
B) 0.30.
C) 0.60.
D) 1.20.
ANSWER: A

A 10 percent increase in the quantity of spinach demanded results from a 20 percent decline in its price. The price elasticity of demand for spinach is


A) 0.5.
B) 20.0.
C) 2.0.
D) 10.0.
ANSWER: A

A 20 percent increase in the quantity of pizza demanded results from a 10 percent decline in its price. The price elasticity of demand for pizza is


A) 2.0.
B) 10.0.
C) 0.5.
D) 20.0.
ANSWER: A

Suppose a rise in the price of peaches from $5.50 to $6.50 per bushel decreases the quantity demanded from 12,500 to 11,500 bushels. The price elasticity of demand is


A) 0.5.
B) 1000.0.
C) 2.0.
D) 1.0.
ANSWER: A

A fall in the price of lemons from $10.50 to $9.50 per bushel increases the quantity demanded from 19,200 to 20,800 bushels. The price elasticity of demand is


A) 0.80.
B) 1.20.
C) 8.00.
D) 1.25.
ANSWER: A

A fall in the price of cabbage from $10.50 to $9.50 per bushel increases the quantity demanded from 18,800 to 21,200 bushels. The price elasticity of demand is


A) 1.20.
B) 0.80.
C) 8.00.
D) 1.25.
ANSWER: A

Suppose that the quantity of root beer demanded declines from 103,000 gallons per week to 97,000 gallons per week as a consequence of a 10 percent increase in the price of root beer. The price elasticity of demand is


A) 0.60.
B) 6.00.
C) 1.66.
D) 1.40.
ANSWER: A

The price elasticity of demand is 5.0 if a 10 percent increase in the price results in a ________ decrease in the quantity demanded.


A) 50 percent
B) 10 percent
C) 2 percent
D) 5 percent
ANSWER: A

A shift of the supply curve of oil raises the price of oil from $9.50 a barrel to $10.50 a barrel and reduces the quantity demanded from 41 million to 39 million barrels a day. The price elasticity of demand for oil is


A) 0.5.
B) 2 million barrels a day per dollar.
C) $1 per 2 million barrels a day.
D) 2.0.
ANSWER: A

The table above gives the demand schedule for snow peas. If the price of snow peas falls from $4.00 to $3.00 a bushel, total revenue will


A) decrease because demand is inelastic in this range.
B) increase because demand is inelastic in this range.
C) increase because demand is elastic in this range.
D) decrease because demand is elastic in this range.
ANSWER: A

The table above gives the demand schedule for snow peas. The demand curve for snow peas is a straight line and so the elasticity of demand is


A) higher at higher prices.
B) lower at higher prices.
C) 1 at all prices.
D) the same at all prices but not 1.
ANSWER: A

If demand is price elastic,


A) a 1 percent decrease in the price leads to an increase in the quantity demanded that exceeds 1 percent.
B) a 1 percent increase in the price leads to an increase in the quantity demanded that exceeds 1 percent.
C) the price is very sensitive to any shift of the supply curve.
D) a 1 percent decrease in the price leads to a decrease in the quantity demanded that is less than 1 percent.
ANSWER: A

The price elasticity of demand can range between


A) zero and infinity.
B) negative one and one.
C) zero and one.
D) negative infinity and infinity.
ANSWER: A

Demand is perfectly inelastic when


A) shifts of the supply curve results in no change in quantity demanded.
B) shifts in the supply curve results in no change in price.
C) the good in question has perfect substitutes.
D) shifts of the supply curve results in no change in the total revenue from sales.
ANSWER: A

If the price elasticity is between 0 and 1, demand is


A) inelastic.
B) elastic.
C) perfectly elastic.
D) unit elastic.
ANSWER: A

Demand is inelastic if


A) the price elasticity of demand is less than 1.
B) the price elasticity of demand is greater than 1.
C) the quantity demanded is very responsive to changes in price.
D) a large change in quantity demanded results in a small change in price.
ANSWER: A

When the price elasticity of demand for a good equals


A) 0, the demand curve is vertical.
B) 1, the demand curve is vertical.
C) 1, the demand curve is horizontal.
D) 0, the demand curve is horizontal.
ANSWER: A

A straight-line demand curve along which the price elasticity of demand equals 0 is one that


A) is vertical.
B) is horizontal.
C) forms a 45 degree angle with the vertical axis.
D) forms a 60 degree angle with the horizontal axis.
ANSWER: A

The demand for movies is unit elastic if


A) a 5 percent increase in the price leads to a 5 percent decrease in the quantity demanded.
B) a 5 percent decrease in the price leads to an infinite increase in the quantity demanded.
C) any increase in the price leads to a 1 percent decrease in the quantity demanded.
D) a 5 percent increase in the price leads to a 5 percent increase in total revenue.
ANSWER: A

Unit elastic demand


A) means that the ratio of a percentage change in the quantity demanded to a percentage change in the price equals 1.
B) will be vertical.
C) means that the ratio of a change in the quantity demanded to a change in the price equals 1.
D) will be horizontal.
ANSWER: A

A good with a horizontal demand curve has a demand


A) with a price elasticity of demand of infinity.
B) with an income elasticity of demand of 0.
C) for which there are no substitute.
D) with a price elasticity of demand of 0.
ANSWER: A

A straight-line demand curve with negative slope intersects the horizontal axis at 100 tons per week. At


the midpoint on the demand curve (corresponding to 50 tons per week) the price elasticity of demand is A) 1.0.
B) 0.5.
C) greater than 1.0.
D) 0.
ANSWER: A

The figure above illustrates a linear demand curve. In the price range from $8 to $6, demand is ________ and in the price range $4 to $2, demand is ________.


A) elastic; inelastic
B) inelastic; inelastic
C) elastic; elastic
D) inelastic; elastic
ANSWER: A

The figure above illustrates a linear demand curve. If the price rises from $6 to $8 demand is ________ and if the price falls from $8 to $6 demand is ________.


A) elastic; elastic
B) elastic; inelastic
C) inelastic; inelastic
D) inelastic; elastic
ANSWER: A
A straight-line demand curve with negative slope intersects the horizontal axis at 200 tons per week. The point on the demand curve at which the price elasticity of demand is 1 corresponds to a quantity demanded
A) of 100 tons.
B) that would be negative if a negative quantity demanded were possible.
C) of 0 tons.
D) of 200 tons.
ANSWER: A

The cross elasticity of demand between apples and oranges is defined as


A) the percentage change in the quantity of apples demanded divided by the percentage change in the price of oranges.
B) the change in the quantity of apples demanded divided by the change in the quantity of oranges demanded.
C) the price elasticity of demand for apples divided by the price elasticity of demand for oranges.
D) the percentage change in the quantity of apples demanded divided by the percentage change in the quantity of oranges demanded.
ANSWER: A

If the cross elasticity of demand between goods A and B is positive,


A) A and B are substitutes.
B) A and B are complements.
C) the demands for A and B are both price elastic.
D) the demands for A and B are both price inelastic.
ANSWER: A

Fred's income has just risen from $940 per week to $1,060 per week. As a result, he decides to purchase 9 percent more steak per week. The income elasticity of Fred's demand for steak is


A) 0.75.
B) 1.33.
C) 0.90.
D) 1.00.
ANSWER: A

Joan's income has just risen from $940 per week to $1,060 per week. As a result, she decides to purchase 12 percent more lettuce per week. The income elasticity of Joan's demand for lettuce is


A) 1.00.
B) 0.90.
C) 1.33.
D) 0.75.
ANSWER: A

A 10 percent increase in income causes the quantity of orange juice demanded to increase from 19,200 to 20,800 gallons. The income elasticity of demand for orange juice is


A) 0.8.
B) 1.2.
C) 1.0.
D) 0.5.
ANSWER: A

A 10 percent increase in income causes the quantity of apple juice demanded to increase from 18,800 to 21,200 gallons. The income elasticity of demand for apple juice is


A) 1.2.
B) 1.0.
C) 0.5.
D) 0.8.
ANSWER: A

The increase in the demand for widgets, shown in the figure above, is caused by an increase in the price of McBoover devices from $9 to $11. Therefore, the cross-price elasticity for these two products is


A) 2.0.
B) -2.0.
C) 0.5.
D) -0.5.
ANSWER: A

The increase in the demand for widgets, shown in the figure above, is caused by a decrease in the price of McBoover devices from $11 to $9. Therefore, the cross-price elasticity for these two products is


A) -2.0.
B) 2.0.
C) -0.5.
D) 0.5.
ANSWER: A

The increase in the demand for widgets, shown in the figure above, is caused by an increase in average incomes. Therefore, widgets


A) are a normal good.
B) are elastically demanded.
C) are an inferior good.
D) are inelastically demanded.
ANSWER: A

A 10 percent decrease in income decreases the quantity demanded of compact discs by 3 percent. The income elasticity of demand for compact discs is


A) -0.3.
B) 3.3.
C) 10.0.
D) 0.3.
ANSWER: A

Which of the following is true about the distance between average variable cost and average total cost when graphed?


A. The answers A and C are both correct
B. It becomes larger as output goes up
C. It is equal to average fixed cost at all levels of output D. It is zero at all levels of output
D. It becomes smaller as output goes up
ANSWER: A

Implicit costs are:


A) "payments" for self-employed resources.
B) comprised entirely of variable costs.
C) equal to total fixed costs.
D) always greater in the short run than in the long run.
ANSWER: A

Which would be an implicit cost for a firm? The cost:


A) of wages foregone by the owner of the firm.
B) paid for leasing a building for the firm.
C) paid for production supplies for the firm.
D) of worker wages and salaries for the firm.
ANSWER: A

If a firm's revenues just cover all its opportunity costs, then:


A) economic profit is zero.
B) normal profit is zero.
C) total revenues equal its explicit costs.
D) total revenues equal its implicit costs.
ANSWER: A

Suppose a firm sells its product at a price lower than the opportunity cost of the inputs used to produce it. Which is true?


A) The firm may earn accounting profits, but will face economic losses.
B) The firm will face accounting and economic losses.
C) The firm will face an accounting loss, but earn economic profits.
D) The firm will earn accounting and economic profits.
ANSWER: A

Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm has an accounting profit of:


A) $500,000 and an economic profit of $200,000.
B) $400,000 and an economic profit of $200,000.
C) $300,000 and an economic profit of $400,000.
D) $200,000 and an economic profit of $500,000.
ANSWER: A

The short run is a time period in which:


A) some resources are fixed and others are variable.
B) the level of output is fixed.
C) the size of the production plant is variable.
D) all resources are fixed.
ANSWER: A
The law of diminishing returns states that:
A) as a firm uses more of a variable resource, given the quantity of fixed resources, marginal product of the firm will eventually decrease.
B) as a firm uses more of a variable resource, given the quantity of fixed resources, Page 2 the average product of the firm will increase.
C) in the short run, the average total costs of the firm will eventually diminish.
D) in the long run, the average total costs of the firm will eventually diminish.
ANSWER: A

The marginal product of labor curve shows the change in total product resulting from a:


A) one-unit increase in the quantity of a particular resource used, holding constant other resources.
B) one-unit increase in the quantity of a particular resource used, letting other resources vary.
C) change in the cost of a variable resource.
D) change in the cost of a fixed resource.
ANSWER: A

When the total product curve is falling, the:


A) marginal product of labor is negative.
B) marginal product of labor is zero.
C) average product of labor is increasing.
D) average product of labor must be negative.
ANSWER: A

When marginal product reaches its maximum, what can be said of total product?


A) total product is increasing if marginal product is still positive
B) total product starts to decline even if marginal product is positive
C) total product must be at its maximum
D) total product levels off
ANSWER: A

Variable costs are:


A) costs that change with the level of production.
B) multiplied by fixed costs.
C) sunk costs.
D) defined as the change in total cost resulting from the production of an additional unit of output.
ANSWER: A

Which is not a fixed cost?


A) a worker's wage of $15 per hour
B) an insurance premium of $50 per year, paid last month
C) an attorney's retainer of $50,000 per year
D) monthly rent of $1,000 contractually specified in a one-year lease
ANSWER: A

If you know that with 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25, then total cost at this output level is:


A) $750.
B) $97.78.
C) $93.75.
D) $880.
ANSWER: A

With fixed costs of $400, a firm has average total costs of $3 and average variable costs of $2.50. Its output is:


A) 800 units.
B) 400 units.
C) 200 units.
D) 1,600 units.
ANSWER: A

The reason the marginal cost curve eventually increases as output increases for the typical firm is because:


A) of the law of diminishing returns.
B) of minimum efficient scale.
C) of diseconomies of scale.
D) normal profit exceeds economic profit.
ANSWER: A

If the short-run average variable costs of production for a firm are rising, then this indicates that:


A) marginal costs are above average variable costs.
B) average fixed costs are constant.
C) average total costs are at a maximum.
D) average variable costs are below average fixed costs.
ANSWER: A

If a more efficient technology was discovered by a firm, there would be:


A) a downward shift in the MC curve.
C) a downward shift in the AFC curve.
B) an upward shift in the AFC curve.
D) an upward shift in the AVC curve.
ANSWER: A

The firm's short-run marginal-cost curve is increasing when:


A) marginal product is decreasing.
C) total fixed cost is increasing.
B) marginal product is increasing.
D) average fixed cost is decreasing.
ANSWER: A
A firm encountering economies of scale over some range of output will have a:
A) falling long-run average cost curve.
B) rising long-run average cost curve.
C) constant long-run average cost curve.
D) rising, then falling, then rising long-run average cost curve.
ANSWER: A

When a firm doubles its inputs and finds that its output has more than doubled, this is known as:


A) economies of scale.
B) constant returns to scale.
C) diseconomies of scale.
D) a violation of the law of diminishing returns.
ANSWER: A

The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of:


A) economies of scale.
B) normative economies.
C) diminishing marginal returns.
D) an increasing marginal product of labor.
ANSWER: A

If all resources used in the production of a product are increased by 20 percent and output increases by 20 percent, then there must be:


A) constant returns to scale.
C) economies of scale.
B) diseconomies of scale.
D) increasing average total costs.
ANSWER: A

Economies and diseconomies of scale explain why the:


A) long-run average total cost curve is typically U-shaped.
B) marginal cost curve must intersect the minimum point of the firm's average total cost curve.
C) short-run average fixed cost curve declines so long as output increases.
D) short-run average variable cost curve is U-shaped.
ANSWER: A

What is the difference between perfect competition and monopolistic competition?


A) In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.
B) Perfect competition has a large number of small firms while monopolistic competition does not.
C) Perfect competition has no barriers to entry, while monopolistic competition does.
D) Perfect competition has barriers to entry while monopolistic competition does not.
ANSWER: A

The market type known as perfect competition is


A) highly competitive and firms find it impossible to earn an economic profit in the long run.
B) almost free from competition and firms earn large profits.
C) dominated by fierce advertising campaigns.
D) marked by firms continuously trying to change their products so that consumers prefer their product to their competitors' products.
ANSWER: A

Which of the following market types has all firms selling products so identical that buyers do not care from which firm they buy?


A) perfect competition
B) oligopoly
C) monopolistic competition
D) monopoly
ANSWER: A

Perfect competition is characterized by all of the following EXCEPT


A) considerable advertising by individual firms.
B) a large number of buyers and sellers.
C) no restrictions on entry into or exit from the industry.
D) well-informed buyers and sellers with respect to prices.
ANSWER: A

Which of the following is the best example of a perfectly competitive market?


A) farming
B) athletic shoes
C) soft drinks
D) diamonds
ANSWER: A

Which of the following market types has the fewest number of firms?


A) monopoly
B) perfect competition
C) monopolistic competition
D) oligopoly
ANSWER: A

Which of the following market types has a large number of firms that sell similar but slightly different products?


A) monopolistic competition
B) oligopoly
C) perfect competition
D) monopoly
ANSWER: A

Which of the following market types has only a few competing firms?


A) oligopoly
B) monopolistic competition
C) monopoly
D) perfect competition
ANSWER: A

In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the long run. Which of the following is an example of a perfectly competitive firm's short-run decision?


A) the profit-maximizing level of output
B) whether or not to enter or exit an industry
C) what price to charge buyers for the product
D) how much to spend on advertising and sales promotion
ANSWER: A

In perfect competition, a firm maximizes profit in the short run by deciding


A) how much output to produce.
B) whether or not to enter a market.
C) what price to charge.
D) how much capital to use.
ANSWER: A

In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the long run. Which of the following is an example of a perfectly competitive firm's long-run decision?


A) whether or not to enter or exit an industry
B) how much to spend on advertising and sales promotion
C) the profit-maximizing level of output
D) what price to charge buyers for the product
ANSWER: A

A price-taking firm


A) cannot influence the price of the product it sells.
B) talks to rival firms to determine the best price for all of them to charge.
C) sets the product's price to whatever level the owner decides upon.
D) asks the government to set the price of its product.
ANSWER: A

A large number of sellers all selling an identical product implies which of the following?


A) the inability of any seller to change the price of the product
B) large losses by all sellers
C) horizontal market supply curves
D) market chaos
ANSWER: A
Perfectly competitive firms are price takers because
A) many other firms produce identical products.
B) there are no good substitutes for their goods.
C) each firm is very large.
D) their demand curves are downward sloping.
ANSWER: A

If demand for a seller's product is perfectly elastic, which of the following is correct?


A) All of the above answers are correct.
B) It will not sell any output at all if it tries to price its product above the market price.
C) There are a very large number of perfect substitutes for the seller's product.
D) There is no incentive to sell at a price below the market price.
ANSWER: A

One of the requirements for a monopoly is that


A) there is a unique product with no close substitutes.
B) there are several close substitutes for the product.
C) the product cannot be produced by small firms.
D) products are high priced.
ANSWER: A

A monopoly is a market with


A) one supplier.
B) many substitutes.
C) many suppliers.
D) no barriers to entry.
ANSWER: A

Firms face competition when the good they produce


A) has a close substitute.
B) is unique.
C) is in a market with legal barriers to entry.
D) is in a market with natural barriers to entry.
ANSWER: A

Which of the following statements is correct?


A) The market demand and the firm's demand are the same for a monopoly.
B) Monopolies have perfectly inelastic demand for the product sold.
C) Monopolies are guaranteed to earn an economic profit.
D) All of the above are correct.
ANSWER: A
Which describes a barrier to entry?
A) anything that protects a firm from the arrival of new competitors
B) a government regulation that bars a monopoly from earning an economic profit
C) something that establishes a barrier to expanding output
D) firms already in the market incurring economic losses so that no new firm wants to enter the market
ANSWER: A

A barrier to entry is


A) anything that protects a firm from the arrival of new competitors.
B) the economic term for diseconomies of scale.
C) illegal in most markets.
D) an open door.
ANSWER: A

Which of the following would create a natural monopoly?


A) technology enabling a single firm to produce at a lower average cost than two or more firms
B) requirement of a government license before the firm can sell the good or service
C) an exclusive right granted to supply a good or service
D) ownership of all the available units of a necessary input
ANSWER: A

If the technology for producing a good enables one firm to meet the entire market demand at a lower price than two or more firms could, then that firm has


A) a natural monopoly.
B) a legal barrier to entry.
C) increasing average total costs.
D) patented the market.
ANSWER: A

Which of the following goods is the best example of a natural monopoly?


A) natural gas
B) diamonds
C) a patented good
D) first-class mail
ANSWER: A

Which of the following is the best example of a natural monopoly?


A) the cable television company in your hometown
B) the United States Postal Service
C) ownership of the only ferry across Puget Sound for twenty miles
D) owning the only licensed taxicab in town
ANSWER: A

Which barrier to entry is an exclusive right granted to the author or composer of a literary, musical, dramatic or artistic work?


A) copyright
B) patent
C) public franchise
D) government license
ANSWER: A

Patents


A) All of the above answers are correct.
B) encourage the invention of new products and production methods.
C) are exclusive rights granted to the inventor of a product or service.
D) stimulate innovation.
ANSWER: A

Which of the following is NOT correct about patents?


A) Patents enable a firm to be a permanent monopoly.
B) A patent is a barrier to entry.
C) Patents stimulate innovation.
D) Patents encourage invention of new products.
ANSWER: A

Recently in a small city, building contractors lobbied the city council to pass a law requiring all people working on residential dwellings be licensed by the city. Why would the contractors lobby for this requirement?


A) to create a legal barrier to entry
B) There is no good explanation for this type of lobbying.
C) to guarantee that work on dwellings is of high quality
D) to reduce the cost of building dwellings
ANSWER: A

Ownership of a necessary input creates what type of barrier to entry?


A) legal barrier to entry
B) a public franchise
C) a government license
D) natural barrier to entry
ANSWER: A

An industry with a large number of firms, differentiated products, and free entry and exit is called


A) monopolistic competition.
B) monopoly.
C) oligopoly.
D) perfect competition.
ANSWER: A

In monopolistic competition, each firm supplies a small part of the market. This occurs because


A) there are a large number of firms.
B) firms produce differentiated products.
C) there are no barriers to entry.
D) there are barriers to entry.
ANSWER: A

In monopolistic competition, the products of different sellers are assumed to be


A) similar but slightly different.
B) identical perfect substitutes.
C) either identical or differentiated.
D) unique without any close or perfect substitutes.
ANSWER: A

Which of the following is different about perfect competition and monopolistic competition?


A) Firms in monopolistic competition compete on their product's price as well as its quality and marketing.
B) In monopolistic competition, entry into the industry is unblocked.
C) Perfect competition has a large number of independently acting sellers.
D) Only firms in monopolistic competition can earn an economic profit in the short run.
ANSWER: A

In an industry with a large number of firms,


A) collusion is impossible.
B) one firm will dominate the market.
C) each firm will produce a large quantity, relative to market demand.
D) competition is eliminated.
ANSWER: A

Which of the following is an example of a monopolistically competitive industry?


A) colleges and universities
B) wheat farming
C) the local electricity producer
D) the domestic automobile producing industry
ANSWER: A

All of the following are examples of product differentiation in monopolistic competition EXCEPT


A) lower price.
B) new and improved packaging.
C) acceptance of more credit cards than the competition.
D) location of the retail store.
ANSWER: A

A differentiated product has


A) close but not perfect substitutes.
B) many perfect substitutes.
C) no close substitutes.
D) no substitutes of any kind.
ANSWER: A

As the degree of product differentiation increases among the products sold in a monopolistically competitive industry, which of the following occurs?


A) Each seller's demand becomes more inelastic.
B) The amount of marketing expenditures decreases for each firm.
C) The demand curve for each seller's product becomes more horizontal.
D) The cost of production falls.
ANSWER: A

Marketing consists of what?


A) advertising and packaging
B) producing more output to lower average costs
C) selling at a lower price than rivals sell for
D) None of the above answers are correct.
ANSWER: A

Firms use marketing to


A) All of the above answers are correct.
B) convince customers that their product is worth its price.
C) persuade buyers that their product is superior to others.
D) influence a consumer's buying decision.
ANSWER: A

If a monopolistically competitive seller can convince buyers that its product is of better quality and value than products sold by rival firms,


A) all of the above occur.
B) the firm gains more control over its price.
C) demand becomes more inelastic.
D) demand increases.
ANSWER: A

If you have found the percentage of the value of sales accounted for by the four largest firms in an industry, you have found the


A) four-firm concentration ratio.
B) Herfindahl-Hirschman Index.
C) elasticity of demand value.
D) elasticity of supply value.
ANSWER: A

Which of the following four-firm concentration ratios would be the best indication of a perfectly competitive industry?


A) 0.25 percent
B) 78 percent
C) 100 percent
D) 31 percent
ANSWER: A

Which of the following four-firm concentration ratios is consistent with monopolistic competition?


A) 25 percent
B) 0 percent
C) 100 percent
D) 75 percent
ANSWER: A

How would a economist understand people who are waiting in line for free food?:


A. Those in line waiting think their time is of low value
B. Those in line waiting think their time is of high value
C. The people waiting in line believe that the marginal cost of waiting in line exceeds the
marginal benefit.
D. Those waiting in line think the marginal cost of waiting in line is zero
ANSWER: A

What is the important act of holding all other variables constant while examining a particular


variable known as?
A. Ceteris paribus
B. Normative statement
C. Positive statement
D. Macroeconomics
ANSWER: A

Economists believe that individuals that pare the benefits and costs of various options when


making a decision and in so doing act in what way?
A. Rationally
B. Fairly
C. Poorly
D. Unpredictably
ANSWER: A

What are opportunity costs of taking an exam?


A. Highest valued alternative given to take the exam
B. Money spent on housing
C. Money spent on tuition
D. Money spent on textbooks
ANSWER: A

Which has a incentive illustrated:


A. Mike gives his siblings sweets when they behave
B. Chris’s kids throw tantrums in the store
C. Bob went to the football game
D. Lauren stays up late at night so is tired in the morning
ANSWER: A

What kind of demand for a good makes it a normal good?


A. Demand increases as consumers income increases
B. Decrease if price of substitute increases
C. Demand increases if price of complement good increases
D. Demand decreases as consumers income increases
ANSWER: A
What can be said about scarcity?
A. Scarcity forces people to make choices
B. Scarcity only impacts commodities
C. Scarcity doesn’t impact the wealthy
D. Scarcity typically doesn’t impact day to day life
ANSWER: A

A relative price is


A. the ratio of one price to another.
B. the difference between one price and another.
C. the slope of the supply curve.
D. the slope of the demand curve.
ANSWER: A

The opportunity cost of good A in terms of good B is equal to the


A) ratio of the price of good A to the price of good B.
B) ratio of the price of good B to the price of good A.
C) price of good A minus the price of good B.
D) price of good B minus the price of good A.
ANSWER: A

The opportunity cost of a hot dog in terms of hamburgers is


A) the ratio of the price of a hot dog to the price of a hamburger.
B) the ratio of the slope of the supply curve for hot dogs to the slope of the supply curve for hamburgers.
C) the ratio of the slope of the demand curve for hot dogs to the slope of the demand curve for hamburgers.
D) the price of a hot dog minus the price of a hamburger.
ANSWER: A

Wants, as opposed to demands,


A) are the unlimited desires of the consumer
B) are the goods the consumer plans to acquire.
C) depend on the price.
D) are the goods the consumer has acquired.
ANSWER: A

The quantity demanded is


A) the amount of a good that consumers plan to purchase at a particular price.
B) independent of the price of the good.
C) independent of consumers' buying plans.
D) always equal to the equilibrium quantity.
ANSWER: A

The law of demand implies that, other things remaining the same,


A) as the price of a cheeseburger rises, the quantity of cheeseburgers demanded will decrease
B) . as the demand for cheeseburgers increases, the price of a cheeseburger will fall.
C) as income increases, the quantity of cheeseburgers demanded will increase.
D) as the price of a cheeseburger rises, the quantity of cheeseburgers demanded will increase.
ANSWER: A

The law of demand implies that demand curves


A) slope down.
B) shift rightward whenever the price rises.
C) shift leftward whenever the price rises.
D) slope up.
ANSWER: A

The demand for a good increases when the price of a substitute ________ and also increases when the price of a complement ________.


A) rises; falls
B) falls; falls
C) rises; rises
D) falls; rises
ANSWER: A

A complement is a good


A) used in conjunction with another good.
B) used instead of another good.
C) of lower quality than another good.
D) of higher quality than another good.
ANSWER: A

Suppose people buy more of good 1 when the price of good 2 falls. These goods are


A) complements.
B) inferior.
C) normal.
D) substitutes.
ANSWER: A

If income increases or the price of a complement falls,


A) the demand curve for a normal good shifts rightward.
B) the supply curve of a normal good shifts rightward.
C) the supply curve of a normal good shifts leftward.
D) the demand curve for a normal good shifts leftward.
ANSWER: A

If income decreases or the price of a complement rises,


A) the demand curve for a normal good shifts leftward.
B) there is a downward movement along the demand curve for the good.
C) there is an upward movement along the demand curve for the good.
D) the demand curve for a normal good shifts rightward.
ANSWER: A

The slope of a demand curve depends on


A) the units used to measure price and the units used to measure quantity.
B) the units used to measure quantity but not the units used to measure price.
C) the units used to measure price but not the units used to measure quantity.
D) neither the units used to measure price nor the units used to measure quantity.
ANSWER: A

When the quantity of coal supplied is measured in kilograms instead of pounds, the demand for coal becomes


A) neither more nor less elastic.
B) more elastic.
C) less elastic.
D) undefined.
ANSWER: A

A 10 percent increase in the quantity of spinach demanded results from a 20 percent decline in its price. The price elasticity of demand for spinach is


A) 0.5.
B) 20.0.
C) 2.0.
D) 10.0.
ANSWER: A

Suppose a rise in the price of peaches from $5.50 to $6.50 per bushel decreases the quantity demanded from 12,500 to 11,500 bushels. The price elasticity of demand is


A) 0.5.
B) 1000.0.
C) 2.0.
D) 1.0.
ANSWER: A

A fall in the price of cabbage from $10.50 to $9.50 per bushel increases the quantity demanded from 18,800 to 21,200 bushels. The price elasticity of demand is


A) 1.20.
B) 0.80.
C) 8.00.
D) 1.25.
ANSWER: A

Suppose that the quantity of root beer demanded declines from 103,000 gallons per week to 97,000 gallons per week as a consequence of a 10 percent increase in the price of root beer. The price elasticity of demand is


A) 0.60.
B) 6.00.
C) 1.66.
D) 1.40.
ANSWER: A
A shift of the supply curve of oil raises the price of oil from $9.50 a barrel to $10.50 a barrel and reduces the quantity demanded from 41 million to 39 million barrels a day. The price elasticity of demand for oil is
A) 0.5.
B) 2 million barrels a day per dollar.
C) $1 per 2 million barrels a day.
D) 2.0.
ANSWER: A

The table above gives the demand schedule for snow peas. The demand curve for snow peas is a straight line and so the elasticity of demand is


A) higher at higher prices.
B) lower at higher prices.
C) 1 at all prices.
D) the same at all prices but not 1.
ANSWER: A
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