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Exam 1 Review   

1) Economics is best defined as the study of how people, businesses, governments, and societies

A) choose abundance over scarcity.

B) make choices to cope with scarcity.

C) use their infinite resources.

D) attain wealth.

2) The problem of "scarcity" applies

A) only in industrially developed countries because resources are scarce in these countries.

B) only in underdeveloped countries because there are few productive resources in these countries.

C) only in economic systems that are just beginning to develop because specialized resources are scarce.

D) to all economic systems, regardless of their level of development.

3) Studying the determination of prices in individual markets is primarily a concern of

A) positive economics.

B) negative economics.

C) macroeconomics.

D) microeconomics.

4) Which of the following best defines capital as a factor of production?

A) The gifts of nature that businesses use to produce goods and services.

B) The knowledge and skills that people obtain from education and use in production of goods and services.

C) Financial assets used by businesses.

D) Instruments, machines, and buildings used in production.

5) The production possibilities frontier is the boundary between

A) those combinations of goods and services that can be produced and those that can be consumed.

B) those resources that are limited and those that are unlimited.

C) those combinations of goods and services that can be produced and those that cannot.

D) those wants that are limited and those that are unlimited.

6) The production possibilities frontier itself shows

A) the maximum amount of resources available at any given time.

B) combinations of goods and services that do not fully use available resources.

C) the maximum rate of growth of output possible for an economy.

D) the maximum levels of production that can be attained.

7) The production possibilities frontier separates ________.

A) the goods and services that people want from those that they do not want

B) the types of goods that can be attained from those that can't be attained

C) the quantities of goods and services that can be produced from those that cannot be produced

D) the combinations of goods that people value and those that they don't

8) When producing at a production efficient point, ________.

A) our choice of the goods can be either on or within the production possibilities frontier

B) we can satisfy our all wants

C) the opportunity cost of another good is zero

D) we face a tradeoff and incur an opportunity cost

Picture Not Working: point "a" inside the PPF

9) The figure above shows Roger's production possibilities frontier. Point a is an ________ point and at that point production is ________.

A) attainable; efficient

B) attainable; inefficient

C) unattainable; inefficient

D) unattainable; efficient

Picture NOT Working: Current 10 tons of clothing and 15 tons of food, Future 5 tons of clothing, 25 tons of food

10) The above figure illustrates that if this country wishes to move from its current production point (labeled "Current") and have 10 more tons of food, it can do this by producing

A) 10 more tons of clothing.

B) 10 fewer tons of clothing.

C) 5 more tons of clothing.

D) 5 fewer tons of clothing.

11) A country that must decrease production of one good in order to increase the production of another

A) must be using resources inefficiently.

B) must be producing on its production possibilities frontier.

C) must be producing beyond its production possibilities frontier.

D) must have private ownership of property.

Picture NOT Working: Point F inside PPF, Point G on PPF, Point H outside PPF, Point I bottom of PPF

12) Consider the PPF for office buildings and housing shown in the figure above. Which point in the diagram shows that resources to produce office buildings and housing are being misallocated, unused, or both?

A) Point F

B) Point G

C) Point H

D) Point I

13) A relative price is the

A) slope of the demand curve.

B) difference between one money price and another.

C) slope of the supply curve.

D) ratio of one money price to another.

14) The relative price of a good is

A) an opportunity cost.

B) equal to the money price of a good.

C) equal to the price of that good divided by the quantity demanded of the good.

D) what you get paid for babysitting your cousin.

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

A) relative price of a hot dog is 1/2 of a hamburger per hot dog.

B) money price of a hot dog is 2 hamburgers per hot dog.

C) relative price of a hamburger is 1/2 of a hot dog per hamburger.

D) money price of a hamburger is 2 hot dogs per hamburger.

16) The opportunity cost of a good is the same as its

A) money price.

B) relative price.

C) price index.

D) none of the above

17) Wants, as opposed to demands,

A) are the unlimited desires of the consumer.

B) are the goods the consumer plans to acquire.

C) are the goods the consumer has acquired.

D) depend on the price.

18) The quantity demanded of a good or service is the amount that

A) a consumer would like to buy but might not be able to afford.

B) is actually bought during a given time period at a given price.

C) consumers plan to buy during a given time period at a given price.

D) firms are willing to sell during a given time period at a given price.

19) The quantity demanded is

A) always equal to the equilibrium quantity.

B) independent of the price of the good.

C) the amount of a good that consumers plan to purchase at a particular price.

D) independent of consumers' buying plans.

20) The law of demand states that, other things remaining the same, the higher the price of a good, the

A) smaller is the demand for the good.

B) larger is the demand for the good.

C) smaller is the quantity of the good demanded.

D) larger is the quantity of the good demanded.

21) The law of demand implies that demand curves

A) slope down.

B) slope up.

C) shift rightward whenever the price rises.

D) shift leftward whenever the price rises.

22) For normal goods which of the following explains why demand curves slope downward?

A) prices and income

B) substitutes and complements

C) resources and technology

D) substitution effect and income effect

23) Apples are a normal good, so if the price of an apple increases from 50¢ to 60¢, the quantity of apples demanded decrease because of

A) the substitution effect only.

B) the income effect only.

C) a change in income.

D) the substitution and income effects.

24) Each point on the demand curve reflects

A) all the wants of a given household.

B) the highest price consumers are willing and able to pay for that particular unit of a good.

C) the highest price sellers will accept for all units they are producing.

D) the lowest-cost technology available to produce a good.

25) 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 lower quality than another good.

D) of higher quality than another good.

26) A complement is a good

A) of lower quality than another good.

B) used in conjunction with another good.

C) used instead of another good.

D) of higher quality than another good.

27) Ham and eggs are complements. If the price of ham rises, the demand for eggs will

A) increase or decrease but the demand curve for ham will not change.

B) decrease and the demand curve for ham will shift rightward.

C) not change but there will be a movement along the demand curve for eggs.

D) decrease and the demand curve for eggs will shift leftward.

28) The price of a tomato increases and people buy more lettuce. You infer that lettuce and tomatoes are ________.

A) complements

B) normal goods

C) substitutes

D) inferior goods

29) Suppose the price of burgers increases from $2 to $3 each. The degree to which quantity demanded responds to this price increase depends on the

A) price elasticity of demand.

B) the price elasticity of supply.

C) income elasticity of demand.

D) cross elasticity of demand.

30) The price elasticity of demand measures

A) how often the price of a good changes.

B) the slope of a budget curve.

C) how sensitive the quantity demanded is to changes in demand.

D) the responsiveness of the quantity demanded to changes in price.

31) The price elasticity of demand equals magnitude of the

A) change in the price divided by the change in quantity demanded.

B) change in the quantity demanded divided by the change in price.

C) percentage change in the price divided by the percentage change in the quantity demanded.

D) percentage change in the quantity demanded divided by the percentage change in the price.

32) The worst drought in over 50 years has decimated crops of soy beans and corn in the United States. (Source: New York Times, August 10, 2012). Because the production of corn has decreased, prices are expected to increase by 25 percent. These data are insufficient for calculating the elasticity of demand because we also need to know the

A) percentage increase in income.

B) percentage increase in quantity.

C) percentage decrease in quantity.

D) increase in bushels per acre.

33) The price elasticity of demand for new cars is 1.2. Hence, a 10 percent price increase will

A) decrease the quantity of new cars demanded by 1.2 percent.

B) increase consumer expenditure on new cars by 1.2 percent.

C) decrease the quantity of new cars demanded by 12 percent.

D) increase consumer expenditure on new cars by 12 percent.

34) The price elasticity of demand can range between

A) zero and one.

B) negative infinity and infinity.

C) zero and infinity.

D) negative one and one.

35) If the quantity demanded changes by a relatively small amount for a given change in price, then demand is

A) perfectly inelastic.

B) perfectly elastic.

C) elastic.

D) inelastic.

36) Demand is inelastic if

A) a large change in quantity demanded results in a small change in price.

B) the quantity demanded is very responsive to changes in price.

C) the price elasticity of demand is less than 1.

D) the price elasticity of demand is greater than 1.

37) In the United States, resources are most often allocated by

A) market price.  

B) command system.

C) lottery.

D) contest.           

38) Which of the following is true?

A) Lotteries work best when a resource can serve just one user at a time in a sequence.

B) A market price always allocates resources better than a command system.

C) In the United States, how tax dollars are allocated among competing uses is an example of how resources are allocated by majority rule.

D) Force has never played an important role in allocating scarce resources.

39) As a method of resource allocation, market price

A) means those who are willing and able to pay get a particular good or service.

B) works well when self-interest must be suppressed.

C) works best inside firms and government departments.

D) is efficient when there is no effective way to distinguish among potential users of a scarce resource.

40) When scarce resources can serve only one user at a time in sequence, which method works well for allocating the scarce resources?

A) first come, first served

B) lottery

C) contest

D) command system

41) Allocating resources by the order of someone in authority is a ________ allocation method.

A) first-come, first-served

B) market price

C) majority rule

D) command

42) The value of one more unit of a good or service is the

A) marginal benefit.

B) minimum price that people are willing to pay for another unit of the good or service.

C) marginal cost.

D) opportunity cost of producing one more unit of a good or service.

43) A market demand curve measures

A) how much a consumer is willing to pay for an additional unit of the good.

B) the marginal social benefit of an additional unit of the good.

C) the marginal social cost of an additional unit of the good.

D) Both answers A and B are correct.

44) A price ceiling is a price

A) below which a seller cannot legally sell.

B) above which a seller cannot legally sell.

C) that creates a surplus of the good.

D) Both answers A and C are correct.

45) A rent ceiling set above the equilibrium rent

A) decreases the quantity demanded but not the quantity supplied.

B) decreases the quantity supplied but not the quantity demanded.

C) decreases both the quantity demanded and the quantity supplied.

D) has no effect on the market outcome.

46) Suppose the government imposes a price ceiling on gasoline that is less than the equilibrium price. As a result,

A) the price of gasoline rises to the equilibrium price.

B) there is incentive for buyers to undertake search activity.

C) the supply of gasoline will increase and the supply curve will shift rightward.

D) the demand for gasoline will decrease and the demand curve will shift leftward.

47) A price ceiling can result in which of the following?

A) inefficiency

B) black markets

C) increased search activities

D) All of the above answers are correct.

IGNORE Q48 AND Q49

48) The above figure shows the apartment rental market in Bigtown. At what rent will there be neither a shortage nor a surplus of apartments?

A) $1250 per month

B) $1000 per month

C) $750 per month

D) $500 per month

49) A price floor

A) always results in a surplus.

B) always results in a shortage.

C) results in a surplus if the floor price is higher than the equilibrium price.

D) results in a shortage if the floor price is higher than the equilibrium price.

50) A minimum wage set above the equilibrium wage rate is a price ________ that ________ the quantity of low-skilled labor demanded.

A) ceiling; decreases

B) ceiling; increases

C) floor; decreases

D) floor; increases

  

Answer 1

1. Economics is best defined as the study of how people, businesses, governments, and societies make the choices to cope with scarcity. Hence the correct answer is (B). This has two assumptions: First, people have unlimited wants and second, people have limited resources. Both these conditions together bring in scarcity.

2. The problem of "scarcity" applies to all economic systems regardless of their development. Hence the correct answer is (D). This is because all kinds of systems face from the two basic problems of finite resources and infinite desires.

3. Studying the determination of prices in individual markets is primarily a concern of microeconomics. Hence the correct answer is (D). Microeconomics is the study of the market behaviour of individual firms and people and how they make decisions in different scenarios.

4. Instruments, machines, and buildings used in production best defines the capital as a factor of production. Hence the correct answer is (D).

5.  The production possibilities frontier is the boundary between  those combinations of goods and services that can be produced and those that cannot. Hence the correct answer is (C).