Reference no: EM13926575

Part A:

Question 1. As a consequence of the condition of scarcity

• there is never enough of anything.
• production has to be centrally planned.
• things which are plentiful have relatively high prices.
• individuals and communities have to make choices from among alternatives.

Question 2. The idea in economics that "there is no free lunch" means that

• businesses would go bankrupt if they offered free lunches.
• the thought of a free lunch is often better than the reality of consuming it.
• there are opportunity costs involved when scarce resources are used up for "free" lunches.
• businesses use free lunches to attract customers but this advertising practice is inefficient.

Question 3. Which situation would most likely cause a nation's production possibilities curve to shift inward?

• The construction of more capital goods
• An increase in discrimination based on race
• An increase in the number of skilled immigrant workers
• The destruction from bombing and warfare in a losing military conflict

Question 4. Which expression is another way of saying "marginal cost"?

• Scarce resources
• Additional cost
• Opportunity cost
• Unrecognized cost

Question 5. Which would not be considered as a capital resource of a business by an economist?

• A van used by a mother to transport the family around
• An office computer used by an accountant
• A crane used by a building contractor
• A razor used by a barber

Question 6. The economy of Germany would best be classified as:

• a command system.
• socialism.
• pure capitalism.
• a market system.

Question 7. Markets in which firms sell their output of goods and services are called

• resource markets.
• product markets.
• command markets.
• mixed markets.

Question 8. Consumers express self-interest when they

• seek the lowest price for a product.
• reduce business losses.
• collect economic profits.
• search for jobs with the highest wages.

Question 9. Which is one of the five fundamental questions that need to be dealt with in any economic system?

• What makes the rate of unemployment low?
• Who will be the richest group in the economy?
• What goods and services will be produced?
• How high should the prices of goods and services be?

Question 10. A major problem with state ownership of resources is that it does not

• allow for the full use of central economic planning.
• let state enterprises buy resources used to make products.
• let state enterprises sell products produced with those resources.
• give incentives for individuals to make the best use of those resources.

Question 11. An increase in product price will cause:

• quantity demanded to decrease.
• quantity supplied to decrease.
• quantity demanded to increase.
• the supply curve to shift to the left.

Question 12. At the point where the demand and supply curves intersect

• the buying and selling decisions of consumers and producers are inconsistent with one another.
• the market is in disequilibrium.
• there is neither a surplus nor a shortage of the product.
• quantity demanded exceeds quantity supplied.

Question 13. Which of the following is a consequence of rent controls established to keep housing affordable for the poor?

• Less rental housing is available as prospective landlords find it unprofitable to rent at restricted prices.
• The quality of rental housing declines as landlords lack the funds and incentive to maintain properties.
• Apartment buildings are torn down in favor of office buildings, shopping malls, and other buildings where rents are not controlled.
• All of the above are consequences of rent controls.

Question 14. A headline reads "Lumber Prices Up Sharply." In a competitive market, this situation would lead to a(n)

• increase in the price and quantity of new homes.
• decrease in the price and quantity of new homes.
• increase in the price of new homes and decrease in quantity.
• decrease in the price of new homes and increase in quantity.

Question 15. If Product Y is an inferior good, a decrease in consumer incomes will

• make buyers want to buy less of Product Y.
• not affect the sales of Product Y.
• shift the demand curve for Product Y to the left.
• shift the demand curve for Product Y to the right.

Question 16. If the price-elasticity coefficient for a good is .75, the demand for that good is described as

• normal.
• elastic.
• inferior.
• inelastic.

Question 17. Demand is said to be inelastic when

• an increase in price results in a reduction in total revenue.
• a reduction in price results in an increase in total revenue.
• a reduction in price results in a decrease in total revenue.
• the elasticity coefficient exceeds one.

Question 18. You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. To increase total revenues, you should:

• increase the price of the software.
• decrease the price of the software.
• hold the price of the software constant.
• increase the supply of the software.

Question 19. A state government wants to increase the taxes on cigarettes to increase tax revenue. This tax would only be effective in raising new tax revenues if the price elasticity of demand is

• unity.
• elastic.
• inelastic.
• perfectly elastic.

Question 20. When universities announce a large tuition increase and follow it with an announcement that more financial aid will be available, they are assuming that students who pay full tuition

• have elastic demand and students who use financial aid have inelastic demand.
• have inelastic demand and students who use financial aid have elastic demand.
• view a college education as an inferior good and students who use financial aid view it as a normal good.
• view a college education as a normal good and students who use financial aid view it as an inferior good.

Question 21. Question : (TCO 3) Suppose that you could prepare your own tax return in 15 hours, or you could hire a tax specialist to prepare it for you in two hours. You value your time at $11 an hour. The tax specialist will charge you $55 an hour. The opportunity cost of preparing your own tax return is

• $40.
• $55.
• $110.
• $165.

Question 22. If a firm's revenues just cover all its opportunity costs, then

• normal profit is zero.
• economic profit is zero.
• total revenues equal its explicit costs.
• total revenues equal its implicit costs.

Question 23. The long run is a period of time, or a time frame, in which

• all resources are fixed.
• the level of output is fixed.
• the amount of all resources can be varied.
• the capacity of the production plant is fixed.

Question 24. Variable costs are

• sunk costs.
• costs that change every day.
• costs that change with the level of production.
• the change in total cost due to the production of an additional unit of output.

Question 25. Marginal cost can be defined as the

• change in total fixed cost resulting from one more unit of production.
• change in total variable cost resulting from one more unit of production.
• change in average total cost resulting from one more unit of production.
• change in average variable cost resulting from one more unit of production.

Question 26. A fast-food company spends millions of dollars to develop and promote a new hamburger on its menu only to find that consumers won't buy it because they don't like the taste. From an economic perspective, the company should

• keep the hamburger on the menu because they've spent so much money and time developing and promoting the product.
• spend more money to develop a more efficient way to cook the hamburger so it cooks in a shorter time.
• pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost.
• keep trying to sell the hamburger so that people who developed and promote it have a job with the company.

Part B:

Question 1. Which market model assumes the least number of firms in an industry?

• Monopolistic competition
• Pure competition
• Pure monopoly
• Oligopoly

Question 2. In which two market models would advertising be used most often?

• Pure competition and monopolistic competition
• Pure competition and pure monopoly
• Monopolistic competition and oligopoly
• Pure monopoly and oligopoly

Question 3. The production of agricultural products such as wheat or corn would best be described by which market model?

• Monopolistic competition
• Pure competition
• Pure monopoly
• Oligopoly

Question 4. In pure competition, the demand for the product of a single firm is perfectly

• elastic because the firm produces a unique product.
• inelastic because the firm produces a unique product.
• elastic because many other firms produce the same product.
• inelastic because many other firms produce the same product.

Question 5. T-Shirt Enterprises is selling in a purely competitive market. It is producing 3,000 units, selling them for $2 each. At this level of output, the average total cost is $2.50 and the average variable cost is $2.20. Based on these data, the firm should

• shut down in the short run.
• decrease output to 2,500 units.
• ontinue to produce 3,000 units.
• increase output to 3,500 units.

Question 6. Question : (TCO 3) If a purely competitive firm is producing at an output where marginal revenue exceeds marginal cost, the firm will increase its profit by

• reducing production to the point where variable costs are minimized.
• reducing production to the point where unit costs are minimized.
• reducing its output and simultaneously increasing its price.
• increasing its output.

Question 7.  The short-run supply curve for a competitive firm is the

• entire MC curve.
• segment of the MC curve lying below the AVC curve.
• segment of the MC curve lying above the AVC curve.
• segment of the AVC curve lying to the right of the MC curve.

Question 8. Which phrase would be most characteristic of pure monopoly?

• Close substitutes
• Efficient advertiser
• Price taker
• Single seller

Question 9. Natural monopolies result from

• patents and copyrights.
• pricing strategies.
• extensive economies of scale in production.
• control over an essential natural resource.

Question 10. The demand curve confronting a nondiscriminating, pure monopolist is

• horizontal.
• the same as the industry's demand curve.
• more elastic than the demand curve confronting a competitive firm.
• derived by vertically summing the individual demand curves for the buyers.

Question 11. Which would definitely not be an example of price discrimination?

• A theater charges children less than adults for a movie.
• Universities charge higher tuition for out-of-state residents.
• A doctor charges for services according to the income of patients.
• An electric power company charges less for electricity used during off-peak hours when production costs are lower.

Question 12. In which industry is monopolistic competition most likely to be found?

• Utilities
• Agriculture
• Retail trade
• Mining

Question 13. Which set of characteristics below best describes the basic features of monopolistic competition?

• Easy entry, many firms, and standardized products
• Barriers to entry, few firms, and differentiated products
• Easy entry, many firms, and differentiated products
• Easy entry, few firms, and standardized products

Question 14. In an oligopolistic market there are

• many buyers.
• few buyers.
• few sellers.
• many sellers.

Question 15. A high concentration ratio indicates that

• the industry is highly profitable.
• the industry is highly competitive.
• many firms produce most of the output in an industry.
• few firms produce most of the output in an industry.

Question 16. A cartel is

• a form of covert collusion.
• legal in the United States.
• always successful in raising profits.
• a formal agreement among firms to collude.

Question 17. Money is not an economic resource because

• money, as such, does not produce anything.
• idle money balances do not earn interest income.
• it is not scarce.
• money is not a free gift of nature.

Question 18. Refer to the diagram which refers to the Circular Flow Model in Chapter 2. Arrows (1) and (3) are associated with

• Graph Description
• the money market.
• the resource market.
• the product market.
• international trade.

Question 19.  Refer to the diagram. A decrease in demand is depicted by a

• Graph Description
• move from Point x to Point y.
• shift from D1 to D2.
• shift from D2 to D1.
• move from Point y to Point x.

Question 20. Refer to the information and assume the stadium capacity is 5,000. The supply of seats for the game
Price per Ticket Quantity Demanded
$13 1,000
11 2,000
9 3,000
7 4,000
5 5,000
3 6,000

• varies inversely with ticket prices.
• varies directly with ticket prices.
• is perfectly inelastic.
• is perfectly elastic.

Question 21. Which of the following goods (with their respective income-elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession?

• Dinner at a nice restaurant (+1.8)
• Chicken purchased at the grocery store for preparation at home (+0.25)
• Facial tissue (+0.6)
• Plasma-screen and LCD TVs (+4.2)

Question 22. In the diagram Curves 1, 2, and 3 represent

• Graph Description
• average variable cost, marginal cost, and average fixed cost, respectively.
• total variable cost, total fixed cost, and total cost, respectively.
• total fixed cost, total variable cost, and total cost, respectively.
• marginal product, average variable cost, and average total cost, respectively.

Question 23. Question : (TCO 1) Refer to the diagram. If society is producing nine units of bicycles and four units of computers and it now decides to increase computer output to six, the cost

• Graph Description
• will be four units of bicycles.
• will be two units of bicycles.
• will be zero because unemployed resources are available.
• of doing so cannot be determined from the information given.

Question 24. What type of barrier to entry was used by De Beers throughout much of its history to maintain its monopoly position?

• Patent protection
• Government regulation
• Economies of scale
• Ownership of an essential resource

Question 25.

a.) Do you agree or disagree with the statement that: "A monopolist always charges the highest possible price."? Explain.

b.) Why can't an individual firm raise its price by reducing output or lower its price to increase sales volume in a purely competitive market?

Question 26. Evaluate how the following situations will affect the demand curve for iPods.(a) Income statistics show that income of 18-25-year-olds have increased by 10 percent over the last year.(b) Efforts of music artists wanting greater protection of their music result in more stringent enforcement of copyrights and the shutdown of numerous illegal downloading sites.(c) Believing that it has significant control of the market for portable digital music players, Apple decides to raise the price of iPods with the goal of increasing profits.(d) The price of milk decreases.