Reference no: EM13722576

1. An economy is efficient if it is:
A) possible to produce more of all goods and services.
B) possible to produce more of one good without producing less of another.
C) not possible to produce more of one good without producing less of another good.
D) producing at a combination of goods that lies between the production possibilities curve and the origin.

2. Specialization and trade should lead to all of the following except:
A) individuals learning specific skills and earning a salary.
B) a decrease in total economic output.
C) higher living standards.
D) the exchange of goods and services in markets.

3. A market failure occurs when:
A) some people are able to buy many more goods than other people are.
B) the individual's pursuit of self-interest means some people will not be able to buy all of the goods they need.
C) the individual's pursuit of self-interest makes the society worse off.
D) while pursuing their self-interest, some people may make a mistake-for example, they may regret buying a particular car.

4. Opportunity cost is:
A) about half of the monetary cost of a product.
B) the dollar payment for a product.
C) the benefit derived from a product.
D) the value of the best alternative forgone in making any choice.

5. A choice made ________ is a choice whether to do a little more or a little less of something.
A) at the fringe
B) in the beginning
C) at the margin
D) after the fact

6. Economists use models to explain real-life situations because:
A) such models tend to be exactly what is occurring in each situation.
B) assumptions found in such models tend to make the problem more difficult.
C) simplifications and assumptions often yield answers that can help to explain the more difficult real-life situations.
D) real-life situations are not relevant to the building of models.

7. Trade takes the form of ________ when people directly exchange goods that they have for goods they want.
A) exploitation
B) benevolence
C) barter
D) the zero-sum game

8. An economy is said to have a comparative advantage in the production of a good if it can produce that good:
A) with more resources than another economy.
B) with a higher opportunity cost than another economy.
C) outside its production possibility frontier.
D) at a lower opportunity cost than another economy.

9. Which of the following statements is true?
A) Very talented people may have a comparative advantage in everything they do.
B) Very untalented people may have a comparative advantage in something they do.
C) Very talented people may have a very low opportunity cost in most things they do.
D) Very untalented people may have a very low opportunity cost in most things they do.

10. Which of the following is an example of a positive statement?
A) The poverty rate should be 4%.
B) A high rate of economic growth is good for the country.
C) The federal government pays for 46% of U.S. health care costs.
D) Everyone in the country needs to be covered by national health insurance.

11. The law of demand states that other things equal:
A) as the price increases, the quantity demanded will increase.
B) as the price decreases, the demand curve will shift to the right.
C) as the price increases, the demand will decrease.
D) as the price increases, the quantity demanded will decrease.

12. When a market is in equilibrium, one will find that the:
A) quantity demanded is equal to zero.
B) quantity demanded is equal to quantity supplied.
C) quantity demanded is greater than quantity supplied.
D) quantity supplied is zero.

13. Which would not cause the supply curve to shift?
A) a change in technology
B) a change in factor costs
C) a change in the price of the good
D) a change in suppliers' expectations of prices

14. The demand for a good will increase if:
A) there is a decrease in the price of the good.
B) the price of inputs needed in the production of the good decrease.
C) there is an increase in the number of consumers in this market.
D) the price of a complementary good increases.

15. The primary difference between a change in supply and a change in the quantity supplied is that:
A) a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve.
B) both a change in quantity supplied and a change in supply are movements along the supply curve, only in different directions.
C) a change in supply is related to the supply curve, while a change in quantity supplied is related to shifts in the demand curve that elicit a change in supply.
D) a change in supply is a movement along the supply curve, while a change in quantity supplied is a shift in the supply curve.

.16. Along a given demand curve, an increase in the price of a good will cause consumer surplus to:
A) increase.
B) decrease.
C) not change.
D) Cannot be determined without information about the supply curve.

Use the following to answer question 17:

Figure: Gain in Consumer Surplus

17. (Figure: Gain in Consumer Surplus) Identify the area(s) that represent the gain in consumer surplus to those consumers already participating in the market when the price falls from P1 to P2. Which of the following is correct?
A) A and B
B) B
C) B and C
D) C

Use the following to answer question 18:

Figure: Market Demand

18. (Figure: Market Demand) The amount by which the total benefits to consumers exceeds their total expenditure is called ________ and is depicted at quantity E by the area ________.
A) producer surplus; BCD
B) consumer surplus; OCDE
C) consumer surplus; BCD
D) net benefit; OBDE

19. A price control is:
A) when a firm controls the price of the good it produces.
B) a legal restriction on how high or low a price in a market may go.
C) an upper limit on the quantity of some good that can be bought or sold.
D) a tax placed on the sale of a good which controls the market price.

20. A price ceiling is:
A) a maximum price sellers are allowed to charge for a good or service.
B) the difference between the quantity supplied and quantity demanded.
C) a minimum price buyers are required to pay for a good or service.
D) the deadweight loss caused by an inefficiently low quantity.

21. A price floor is a ________ set ________ the equilibrium price.
A) minimum price; at
B) maximum price; below
C) minimum price; above
D) maximum price; above

Use the following to answer question 22:

Figure: Price Control

22. (Figure: Price Control) Look at the figure Price Control. In the graph, one effective price ceiling would be the price indicated at point________ and a ________ would exist equal to the difference between points ________.
A) b; surplus; f and e
B) b; shortage; f and e
C) d; shortage; i and h
D) d; surplus; e and h

23. The price elasticity of supply measures:
A) the response of a supply shift to changes in technology.
B) how much supply changes when the prices of inputs change.
C) the responsiveness of the quantity supplied to changes in prices.
D) the response of a supply shift to changes in technology and to changes in prices.

24. Which of the following best describes the price elasticity of demand?
A) The price elasticity of demand measures the responsiveness of the change in the quantity demanded to a change in the price.
B) The price elasticity of demand measures the change in the price versus a change in the quantity demanded.
C) The price elasticity of demand measures the responsiveness of the change in the slope of the demand curve to a change in the price.
D) The price elasticity of demand measures the change in the slope of the demand curve versus a change in the quantity demanded.

25. The ratio of the percentage change in the quantity demanded to the percentage change in price is the:
A) price elasticity of demand.
B) quantity elasticity of demand.
C) income elasticity of demand.
D) cross-price elasticity of demand.

Use the following to answer question 26:

Figure: Demand Curves

26. (Figure: Demand Curves) Look at the figure Demand Curves. Which graph shows a perfectly elastic demand curve?
A) A
B) B
C) C
D) D

27. A tax:
A) generates tax revenue and creates deadweight loss.
B) increases consumer and producer surplus.
C) produces revenue for the government and increases total surplus.
D) is always efficient.

28. The deadweight loss of an excise tax arises because the tax prevents some mutually beneficial transactions.
A) True
B) False

29. By law, FICA (the Federal Insurance Contributions Act), a payroll tax, is collected equally from the employers and the employees. In reality:
A) the law works-the employers and the employees each bear half of the burden of the tax.
B) the employees bear almost all of the burden of the tax.
C) the employers bear almost all of the burden of the tax.
D) it's impossible to determine who bears the burden of the tax.

30. A progressive tax:
A) takes a larger share of the income of high-income taxpayers than of low-income taxpayers.
B) takes a smaller share of the income of high-income taxpayers than of low-income taxpayers.
C) takes the same share of the income of high-income taxpayers as it does of low-income taxpayers.
D) has no deadweight loss.

31. Determining who pays the burden of the tax is a question about:
A) tax incidence.
B) externality analysis.
C) public interest theory.
D) public choice theory.

32. Goods and services purchased from abroad are ________, while goods and services sold abroad are ________.
A) exports; imports
B) imports; exports
C) exports; quotas
D) quotas; factors

33. The term autarky refers to a situation in which a country:
A) trades goods and services based upon the principle of comparative advantage.
B) trades goods and services based upon the principle of absolute advantage.
C) trades goods and services based upon the principle of Ricardian advantage.
D) does not trade with other countries.

34. A tax on imports of foreign goods is called:
A) a quota.
B) a subsidy.
C) a tariff.
D) an export restriction.

35. The World Trade Organization (WTO):
A) oversees trade agreements.
B) is an example of a trade agreement.
C) includes all nations.
D) was created before World War II.

36. The belief that trade must be bad for exporting countries because those workers are paid very low wages by our standards is the:
A) pauper labor fallacy.
B) sweatshop labor fallacy.
C) third-world country fallacy.
D) Nike fallacy.

37. Accounting profit differs from economic profit because:
A) of differences in the manner in which revenue is calculated.
B) economic costs include depreciation, while accounting costs do not.
C) accounting costs are generally higher than economic costs because accounting costs include explicit and implicit costs, while economic costs include only explicit costs.
D) economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include explicit costs only.

38. Accountants use only ________ costs in their computations of short-run total cost.
A) opportunity
B) implicit
C) explicit
D) variable

39. Marginal benefit:
A) is the subsidiary benefit from an activity; for example, the main benefit from weight training is an increase in muscle mass, and the subsidiary or marginal benefit might be a reduction in cholesterol.
B) is the addition to total benefit due to undertaking one more unit of an activity.
C) must be increasing if total benefit is increasing.
D) normally increases as more of an activity is undertaken.

40. Sunk costs:
A) affect economic profit.
B) are the losses associated with failed business ventures.
C) are an important component of marginal analysis.
D) are the same as fixed costs.

41. Profit is the difference between ________ and ________.
A) total sales; total revenues
B) total profits; total costs
C) total revenues; total costs
D) marginal costs; marginal revenues

42. A "how much" decision is best made by comparing:
A) the explicit costs of an action to the implicit costs of that action.
B) the accounting profit of an action to the economic profit of that action.
C) the marginal benefits of an action to the marginal costs of that action.
D) the present value of an action to the net present value of that action.

43. The willingness to sacrifice some economic payoff in order to avoid a potential loss is:
A) irrational behavior.
B) bounded rationality.
C) the result of a concern about fairness.
D) risk aversion.

44. In the short run:
A) all inputs are fixed.
B) all inputs are variable.
C) some inputs are fixed and some inputs are variable.
D) all costs are variable.

45. Marginal cost is the change in:
A) total cost resulting from a one-unit change in a variable input.
B) total cost resulting from a one-unit change in output.
C) total cost resulting from a one-unit change in average cost.
D) average cost resulting from a one-unit change in output.

46. Diminishing marginal returns occur when:
A) each additional unit of a variable factor adds more to total output than the previous unit.
B) an additional variable factor adds less to total output than the previous unit.
C) the marginal product of a variable factor is increasing, but at a decreasing rate.
D) total product decreases.

47. Diminishing marginal returns means that:
A) each additional unit of an input used will cause output to decrease.
B) each additional unit of an input used will increase output, but by smaller and smaller amounts.
C) each additional unit of an input used will increase output by larger and larger amounts.
D) the firm is maximizing profit.

48. When an additional unit of a variable input adds less to total product than the previous unit, the firm must be experiencing:
A) increasing returns.
B) diminishing marginal returns.
C) diminishing total returns.
D) diminishing marginal returns and diminishing total returns.

49. In the long run:
A) all inputs are fixed.
B) inputs are neither variable nor fixed.
C) at least one input is variable and one input is fixed.
D) all inputs are variable.

50. An input whose quantity can be changed in the short run is:
A) a marginal input.
B) a fixed input.
C) an incremental input.
D) a variable input.

51. Marginal cost is the:
A) increase in total cost when one more unit of output is produced.
B) reduction in cost from economies of scale.
C) ratio of average total cost to total cost.
D) increase in output from the addition of one unit of labor.

52. In the short run:
A) all inputs are fixed.
B) all inputs are variable.
C) some inputs are fixed and some inputs are variable.
D) all costs are variable.

53. The long run refers to the period for which:
A) a fixed input exists.
B) all inputs are variable.
C) marginal costs are decreasing.
D) diminishing returns causes marginal cost to increase.

54. In perfect competition, each firm:
A) is a price-maker.
B) produces about half of the total industry output.
C) produces a differentiated product.
D) produces a standardized product.

55. A firm's total output times the price at which it sells that output is:
A) net revenue.
B) total revenue.
C) average revenue.
D) marginal revenue.

56. One characteristic of a perfectly competitive market is that there are ________ sellers of the good or service.
A) one or two
B) a few
C) usually less than 10
D) hundreds or thousands of

57. Which of the following is true?
A) If price falls below average total cost, the firm will shut down in the short run.
B) Price and marginal revenue are the same in perfect competition.
C) Economic profit per unit is found by subtracting AVC from price.
D) Economic profit is always positive in the short run.

58. Individuals in a market who must take the market price as given are:
A) quantity-minimizers.
B) quantity-takers.
C) price-takers.
D) price-searchers.

59. In perfect competition:
A) a firm's total revenue is found by multiplying the market price by the firm's quantity of output.
B) the firm's total revenue curve is a downward-sloping line.
C) at any price, the more sold, the higher is a firm's marginal revenue.
D) the firm's total revenue curve is nonlinear.

60. In oligopoly, a firm must realize that:
A) what it does has no effect on the other firms in the industry.
B) its behavior will be ignored by other firms in the industry.
C) another major firm may dominate choices in the industry, and it will need to behave accordingly.
D) collusion was made legal in 2004.

61. A cartel is an example of:
A) price extortion.
B) price leadership.
C) overt collusion.
D) tacit collusion.

62. The study of behavior in situations of interdependence is known as:
A) dominant strategies.
B) game theory.
C) Nash equilibrium.
D) tacit collusion.

63. OPEC is:
A) the Organization of Petroleum Exporting Countries.
B) an international cartel made up of oil-producing countries.
C) the cartel that was responsible for the large increases in crude oil prices in the 1970s.
D) described by all of these answer choices.

64. OPEC is a(n) ________that includes ________.
A) illegal cartel; 13 national governments
B) legal cartel; 13 national governments
C) illegal cartel; 11 national governments
D) legal cartel; 8 national governments

65. A duopoly is an industry that consists of:
A) a single firm.
B) two firms.
C) three or more firms.
D) a large number of small firms.

66. The market structure characterized by a few interdependent firms and in which there are barriers to entry is called:
A) monopolistic competition.
B) perfect competition.
C) oligopoly.
D) monopoly.

67. Monopolistic competition is an industry structure characterized by:
A) a product with no close substitutes.
B) a horizontal demand curve.
C) a large number of firms.
D) barriers to entry and exit.

68. Because of the lack of substitutes, the market for newly developed brand-name prescription drugs is best considered to be:
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.

69. In monopolistic competition:
A) firms advertise to increase demand for their product.
B) entry of new firms shifts the demand curve for existing firms to the right.
C) when some firms exit, the demand curve for the firms that remain in the industry shifts to the left.
D) firms earn large economic profits in the long run.

70. Budweiser is a brand name that many people recognize. During the Super Bowl each year, this beer company has many of the most successful ads. Which of the following is true about advertising for Budweiser?
A) It is designed to increase the demand for Budweiser.
B) It decreases the costs of supplying Budweiser.
C) It guarantees customers that Budweiser tastes better than other beers.
D) It is designed to increase excess capacity.

71. In monopolistic competition:
A) firms advertise to increase demand for their product.
B) entry of new firms shifts the demand curve for existing firms to the right.
C) when some firms exit, the demand curve for the firms that remain in the industry shifts to the left.
D) firms earn large economic profits in the long run.

72. Monopolistic competition is different from monopoly due to which one of the following features?
A) firms have some power to set prices
B) downward-sloping demand curve
C) firms face some competition
D) downward-sloping marginal revenue curve

73. In monopolistic competition, each firm:
A) is a price-taker.
B) has some ability to set the price of its differentiated good.
C) will set price equal to marginal cost.
D) has marginal revenue that is greater than price.

74. A monopoly is an industry structure characterized by:
A) a single buyer and several sellers.
B) a product with many close substitutes.
C) a large number of small firms.
D) barriers to entry and exit.

75. Which of the following statements best characterizes a monopoly? A monopoly:
A) produces a product with no close substitutes.
B) is composed of a single buyer and several sellers.
C) is composed of a large number of small firms.
D) is composed of a small number of large firms.

76. The De Beers company is described as a monopolist in the production of:
A) diamonds.
B) software.
C) oil.
D) beer.

77. Market structures are categorized by the following two criteria:
A) the number of firms and the size of the firms
B) whether or not products are differentiated and the extent of advertising
C) the number of firms and whether or not products are differentiated
D) the size of the firms and the extent of advertising

78. Which of the following is(are) true concerning monopoly?
A) Monopoly is at the opposite end of the spectrum from a perfectly competitive firm.
B) A monopoly has no rivals.
C) Barriers to entry prevent other firms from entering the industry.
D) All of the statements are true.

79. A monopoly is a market structure characterized by:
A) a single buyer and several sellers.
B) a product with many close substitutes.
C) a large number of small firms.
D) barriers to entry and exit.

80. A monopoly is a market characterized by:
A) a single seller.
B) a product with many close substitutes.
C) a large number of small firms.
D) a small number of large firms.

81. The principle of diminishing marginal utility:
A) refers to the tendency of total utility to increase until an individual's budget is no longer constrained.
B) refers to the tendency of marginal utility to decline as the amount of consumption of a good or service increases.
C) indicates that if a good is inferior, less of it will be purchased when income falls during a period.
D) assumes all goods are normal.

82. A consumer's spending is restricted because of:
A) marginal utility.
B) total utility.
C) a budget constraint.
D) utility maximization.

83. Utility is the:
A) difference between a firm's total revenue and its total economic cost.
B) good not adequately provided by a free market and usually provided by the government.
C) satisfaction consumers derive from their consumption of goods and services.
D) lowest price that buyers are willing to pay for a given quantity of a good.

84. Economists identify the satisfaction a person derives from the consumption of goods and services as:
A) happiness.
B) usefulness.
C) utility.
D) pleasure.

85. The amount by which an additional unit of a good or service increases a consumer's total utility, all other things unchanged, is:
A) marginal utility.
B) maximum utility.
C) average utility.
D) required utility.

86. Damage to the environment occurs because:
A) most businesses just don't care about the environment.
B) consumers want goods and services at the lowest prices no matter what other costs may be involved.
C) in the process of producing the goods and services we enjoy, pollution occurs.
D) pollution reduces the social cost of production.

87. The idea that even in the presence of externalities an economy can reach an efficient solution as long as transaction costs of making a deal are low is known as:
A) a Pigouvian tax.
B) a network externality.
C) a technology spillover.
D) the Coase theorem.

88.A market economy will produce ________without any government regulation.
A) too little pollution
B) too much pollution
C) the socially optimal amount of pollution
D) the amount of pollution that maximizes total surplus

89. Pollution has ________ and ________.
A) no benefits; only costs
B) benefits; costs
C) no opposition; only advocates
D) short-term impacts; very little long-term impact

90. An externality is said to exist when:
A) individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account.
B) individuals impose costs or benefits on others, and the market provides incentives to take these costs and benefits into account.
C) individual actions are affected by external forces like the loss of U.S. jobs because of competition from abroad.
D) individual actions are affected by government policies (such as taxes) that are externally imposed on the market.

91. The U.S. government health insurance program for people 65 years old and older is:
A) Medicare.
B) Medicaid.
C) the Veterans Administration.
D) health savings accounts.

92. People with more education have a lower poverty rate.
A) True
B) False

93. An example of a social insurance program is:
A) expenditure on national defense.
B) Social Security payments to the disabled.
C) the food stamp program.
D) purchasing a new city police car.

94. Which of the following transactions is a transfer payment?
A) The government pays an employee by making a direct transfer to the employee's bank account.
B) An army officer, paid by the government, transfers part of the money he receives to the government to pay his taxes.
C) A senior citizen receives a Social Security payment.
D) All of these are transfer payments.

95. The largest ________ program in the United States is ________.
A) social insurance; Medicaid
B) social insurance; Social Security payments to retired persons
C) means-tested; farmers' aid
D) means-tested; Social Security payments to retired persons

96. Moral hazard:
A) increases the ability of markets to allocate risk efficiently.
B) decreases the ability of markets to allocate risk efficiently.
C) has no impact on the ability of markets to allocate risk efficiently.
D) encourages the provision of 100% insurance coverage.

97. A ________ insurance policy is an insurance policy for which the premium is equal to the expected value of the claim.
A) fair
B) premium
C) unfair
D) diversification

98. Uncertainty about monetary outcomes is known as:
A) financial risk.
B) monetary risk.
C) profitability risk.
D) risk aversion.

99. Through insurance and other devices, the modern economy offers many ways for individuals to reduce their exposure to risk.
A) True
B) False

100. A random variable:
A) is a variable with an uncertain future value.
B) is a variable with a constant value.
C) doesn't exist in economics.
D) is useless in economic decision making.