1. When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing
a. scarcity.
b. shortages.
c. inefficiencies.
d. inequities.
2. Economics is the study of
a. production methods.
b. how society manages its scarce resources.
c. how households decide who performs which tasks.
d. the interaction of business and government.
3. A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other words, the society faces a tradeoff between
a. guns and butter.
b. efficiency and equity.
c. inflation and unemployment.
d. work and leisure.
4. Efficiency means that
a. society is conserving resources in order to save them for the future.
b. society's goods and services are distributed equally among society's members.
c. society's goods and services are distributed fairly, though not necessarily equally, among society's members.
d. society is getting the maximum benefits from its scarce resources.
5. Economists use the word equity to describe a situation in which
a. each member of society has the same income.
b. each member of society has access to abundant quantities of goods and services, regardless of his or her income.
c. society is getting the maximum benefits from its scarce resources.
d. the benefits of society's resources are distributed fairly among society's members.
6. For most students, the largest single cost of a college education is
a. the wages given up to attend school.
b. tuition, fees, and books.
c. room and board.
d. transportation, parking, and entertainment.
7. For a college student who wishes to calculate the true costs of going to college, the costs of room and board
a. should be counted in full, regardless of the costs of eating and sleeping elsewhere.
b. should be counted only to the extent that they are more expensive at college than elsewhere.
c. usually exceed the opportunity cost of going to college.
d. plus the cost of tuition, equals the opportunity cost of going to college.
8. The opportunity cost of an item is
a. the number of hours needed to earn money to buy the item.
b. what you give up to get that item.
c. usually less than the dollar value of the item.
d. the dollar value of the item.
9. To say that "people respond to incentives" is to say that
a. changes in costs (but not changes in benefits) influence people's decisions and their behavior.
b. changes in benefits (but not changes in costs) influence people's decisions and their behavior.
c. changes in benefits or changes in costs influence people's decisions and their behavior.
d. tradeoffs can be eliminated by rational people who think at the margin.
10. Stan buys a 1966 Mustang for $2,000, planning to restore and sell the car. He goes on to spend $8,000 restoring the car. At this point he can sell the car for $9,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $12,000. Stan should
a. complete the repairs and sell the car for $12,000.
b. sell the car now for $9, 000.
c. never try such an expensive project again.
d. be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it.
11. By scientific method we mean
a. the use of modern electronic testing equipment to understand the world.
b. the dispassionate development and testing of theories about how the world works.
c. the use of controlled laboratory experiments to understand the way the world works.
d. finding evidence to support preconceived theories about how the world works.
12. The use of theory and observation is more difficult in economics than in sciences such as physics due to the difficulty in
a. performing an experiment in an economic system.
b. applying mathematical methods to economic analysis.
c. analyzing available data.
d. formulating theories about economic events.
13. In conducting their research, economists face an obstacle that not all scientists face; specifically, in economics, it is difficult to
a. make use of theory and observation.
b. rely upon the scientific method.
c. conduct laboratory experiments.
d. find articles or books that were written before 1900.
14. In building economic models, economists often omit
a. assumptions.
b. theories.
c. details.
d. equations.
15. Factors of production are
a. used to produce goods and services.
b. also called output.
c. abundant in most economies.
d. assumed to be owned by firms in the circular-flow diagram.
16. For each good produced in a market economy, the interaction of demand and supply determines
a. the price of the good, but not the quantity.
b. the quantity of the good, but not the price.
c. both the price of the good and the quantity of the good.
d. neither price nor quantity, because prices and quantities are determined by the sellers of the goods alone.
17. A competitive market is a market in which
a. an auctioneer helps set prices and arrange sales.
b. there are only a few sellers.
c. the forces of supply and demand do not apply.
d. no individual buyer or seller has any significant impact on the market price.
18. An example of a perfectly competitive market would be the
a. cable TV market.
b. soybean market.
c. new car market.
d. blue jean market.
19. Despite the fact that not all markets are perfectly competitive, the study of perfect competition is worthwhile, in part because
a. buyers and sellers are price takers in all markets, not just in perfectly competitive markets.
b. buyers find it difficult to buy all they want to buy, and sellers find it difficult to sell all they want to sell, in all markets, not just in perfectly competitive markets.
c. some degree of competition is present in most markets, not just in perfectly competitive markets.
d. perfectly competitive markets are the most difficult markets to analyze, and this makes the study of other types of markets easy in comparison.
20. Which of the following is not a determinant of demand?
a. the price of a resource that is used to produce the good
b. the price of a complementary good
c. the price of the good next month
d. the price of a substitute good
21. What will happen in the rice market if buyers are expecting higher rice prices in the near future?
a. The demand for rice will increase.
b. The demand for rice will decrease.
c. The demand for rice will be unaffected.
d. The supply of rice will increase.
22. A demand schedule is a table showing the relationship between
a. quantity demanded and quantity supplied, and those quantities are usually positively related.
b. quantity demanded and quantity supplied, and those quantities are usually negatively related.
c. price and quantity demanded, and those quantities are usually positively related.
d. price and quantity demanded, and those quantities are usually negatively related.
23. Refer to Figure 4-1. The movement from point A to point B on the graph would be caused by
a. an increase in price.
b. a decrease in price.
c. a decrease in the price of a substitute good.
d. an increase in income.
24. Refer to Figure 4-1. The movement from point A to point B on the graph shows
a. a decrease in demand.
b. an increase in demand.
c. a decrease in quantity demanded.
d. an increase in quantity demanded.
25. When the number of buyers in a market increases,
a. the market demand curve shifts to the right.
b. the demand curves of the individual demanders in the market are unaffected.
c. the market demand for the good in question increases.
d. Al of the above are correct.
26. Which of the following events could shift the demand curve for gasoline to the left?
a. Income of gasoline buyers rises, and gasoline is a normal good.
b. Income of gasoline buyers falls, and gasoline is an inferior good.
c. Public service announcements are run on television, encouraging people to walk or ride bicycles instead of driving cars.
d. The price of gasoline rises.
27. An increase in the number of college scholarships issued by private foundations would
a. increase the supply of education.
b. decrease the supply of education.
c. increase the demand for education.
d. decrease the demand for education.
28. When quantity demanded decreases at every possible price, we know that the demand curve has
a. shifted to the left.
b. shifted to the right.
c. not shifted; rather, we have moved down the demand curve to a new point on the same curve.
d. not shifted; rather, the demand curve has become flatter.
29. Refer to Figure 4-3. The graph shows the demand for cigarettes. The arrows are consistent with which of the following events?
a. The price of marijuana, a complement to cigarettes, increased.
b. Mandatory health warnings were placed on cigarette packages.
c. Several foreign countries banned U.S. cigarettes in their countries.
d. A tax was placed on cigarettes.
30. Refer to Figure 4-3. The graph shows the demand for cigarettes. The arrows are consistent with which of the following events?
a. Tobacco and marijuana are complements and the price of marijuana decreased.
b. Tobacco is a "gateway drug" and the price of marijuana increased.
c. The price of cigarettes increased.
d. The arrows are consistent with all of these events.
31. Which of the following events would cause a movement upward and to the right along the supply curve for tomatoes?
a. The number of sellers of tomatoes increases.
b. There is an advance in technology that reduces the cost of producing tomatoes.
c. The price of fertilizer decreases, and fertilizer is an input in the production of tomatoes.
d. The price of tomatoes rises.
32. Which of the following events could cause an increase in the supply of ceiling fans?
a. The number of sellers of ceiling fans increases.
b. There is an increase in the price of air conditioners, and consumers regard air conditioners and ceiling fans as substitutes.
c. There is an increase in the price of the motor that powers ceiling fans.
d. All of the above are correct.
33. For a seller, which of the following quantities are not positively related?
a. the price of the good and the seller's profit
b. the price of the good and quantity supplied
c. the seller's profit and production costs
d. the seller's profit and quantity supplied
34. The positive relationship between price and quantity supplied is called
a. profit.
b. a change in supply.
c. a shift of the supply curve.
d. the law of supply.
35. Lead is an important input in the production of crystal. If the price of lead decreases, other things equal, we would expect the supply of
a. crystal to be unaffected.
b. crystal to decrease.
c. crystal to increase.
d. lead to increase.
36. If car manufacturers begin utilizing new labor-saving technology on their assembly lines, we would not expect
a. a smaller quantity of labor to be used.
b. the supply of cars to increase.
c. costs to the firm to fall.
d. individual car manufacturers to move up and to the right along their individual supply curves.
37. If suppliers expect the price of their product to fall in the future they will
a. decrease supply now.
b. increase supply now.
c. decrease supply in the future but not now.
d. increase supply in the future but not now.
38. Refer to Figure 4-7. Equilibrium price and quantity are, respectively,
a. $35 and 200.
b. $35 and 600.
c. $25 and 400.
d. $15 and 200.
39. Refer to Figure 4-7. At a price of $35,
a. there would be a shortage of 400 units.
b. there would be a surplus of 200 units.
c. there would be a surplus of 400 units.
d. there would be an excess supply of 200 units.
40. A surplus exists in a market if
a. there is an excess demand for the good.
b. the situation is such that the law of supply and demand would predict an increase in the price of the good from its current level.
c. the current price is above its equilibrium price.
d. None of the above is correct.
41. Refer to Figure 4-10. Which of the four graphs represents the market for peanut butter after a major hurricane hits the peanut-growing south?
a. A
b. B
c. C
d. D
42. Refer to Figure 4-10. Which of the four graphs represents the market for winter coats as we progress from winter to spring?
a. A
b. B
c. C
d. D
43. Refer to Figure 4-10. Which of the four graphs represents the market for pizza delivery in a college town as we go from summer to the beginning of the fall semester?
a. A
b. B
c. C
d. D
44. Refer to Figure 4-10. Which of the four graphs represents the market for cars as a result of the adoption of new technology on assembly lines?
a. A
b. B
c. C
d. D
45. Refer to Figure 4-10. Graph A shows which of the following?
a. an increase in demand and an increase in quantity supplied
b. an increase in demand and an increase in supply
c. an increase in quantity demanded and an increase in quantity supplied
d. an increase in supply and an increase in quantity demanded
46. Refer to Figure 4-10. Graph C shows which of the following?
a. an increase in demand and an increase in quantity supplied
b. an increase in demand and an increase in supply
c. an increase in quantity demanded and an increase in quantity supplied
d. an increase in supply and an increase in quantity demanded
47. Refer to Figure 4-10. Which of the four graphs illustrates an increase in quantity supplied?
a. A.
b. B.
c. C.
d. D.
48. Refer to Figure 4-10. Which of the four graphs illustrates a decrease in quantity demanded?
a. A.
b. B.
c. C.
d. D.
49. Refer to Figure 4-10. Suppose the events depicted in graphs A and C were illustrated together on a single graph. A definitive result of the two events would be
a. an increase in the equilibrium quantity.
b. an increase in the equilibrium price.
c. an instance in which the law of demand fails to hold.
d. All of the above are correct.
50. Which of the following events would result in an increase in equilibrium price and an ambiguous change in equilibrium quantity?
a. an increase in supply and an increase in demand
b. an increase in supply and a decrease in demand
c. a decrease in supply and an increase in demand
d. a decrease in supply and a decrease in demand
51. New oak tables are normal goods. What would happen to the equilibrium price and quantity in the market for oak tables if the price of maple tables rises, the price of oak wood rises, more buyers enter the market for oak tables and the price of wood saws increased?
a. Price will fall and the effect on quantity is ambiguous.
b. Price will rise and the effect on quantity is ambiguous.
c. Quantity will fall and the effect on price is ambiguous.
d. Quantity will rise and the effect on price is ambiguous.
52. What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages?
a. Price will fall and the effect on quantity is ambiguous.
b. Price will rise and the effect on quantity is ambiguous.
c. Quantity will fall and the effect on price is ambiguous.
d. Quantity will rise and the effect on price is ambiguous.
53. Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market?
a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous.
b. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous.
c. Both equilibrium price and equilibrium quantity would increase.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
54. The signals that guide the allocation of resources in a market economy are
a. surpluses and shortages.
b. quantities.
c. property rights.
d. prices.
55. In a free market system, what coordinates the actions of millions of people with their varying abilities and desires?
a. producers
b. prices
c. consumers
d. the government
56. In general, elasticity is a measure of
a. the extent to which advances in technology are adopted by producers.
b. the extent to which a market is competitive.
c. how fast the price of a good responds to a shift of the supply curve or demand curve.
d. how much buyers and sellers respond to changes in market conditions.
57. Demand is said to be inelastic if
a. buyers respond substantially to changes in the price of the good.
b. demand shifts only slightly when the price of the good changes.
c. the quantity demanded changes only slightly when the price of the good changes.
d. the price of the good responds only slightly to changes in demand.
58. If demand is inelastic, then
a. buyers do not respond much to a change in price.
b. buyers respond substantially to a change in price, but the response is very slow.
c. buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes.
d. the demand curve is very flat.
59. If a person only occasionally buys a cup of coffee, his demand for coffee is probably
a. represented by a vertical or nearly-vertical demand curve.
b. not easily represented by a demand schedule or demand curve.
c. inelastic.
d. elastic.
60. When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is
a. inelastic.
b. elastic.
c. unit elastic.
d. perfectly inelastic.
61. If the price elasticity of demand for a good is 0.94, then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded?
a. a 0.235 percent increase in the price of the good
b. a 2.350 percent increase in the price of the good
c. a 3.760 percent increase in the price of the good
d. a 4.255 percent increase in the price of the good
62. When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about
a. 0.22.
b. 0.67.
c. 1.33.
d. 1.50.
63. Demand is said to have unit elasticity if elasticity is
a. less than 1.
b. greater than 1.
c. equal to 1.
d. equal to 0.
64. Refer to Figure 5-1. Assume the section of the demand curve labeled A corresponds to prices between $6 and $12. Then, when the price increases from $8 to $10,
a. the percent decrease in the quantity demanded exceeds the percent increase in the price.
b. the percent increase in the price exceeds the percent decrease in the quantity demanded.
c. sellers' total revenue increases as a result.
d. it is possible that the quantity demanded fell from 550 to 500 as a result.
65. Refer to Figure 5-2. If the price decreased from $18 to $6,
a. total revenue would increase by $1,200 and demand is elastic between points A and C.
b. total revenue would increase by $800 and demand is elastic between points A and C.
c. total revenue would decrease by $1,200 and demand is inelastic between points A and C.
d. total revenue would decrease by $800 and demand is inelastic between points A and C.
66. Demand is said to be inelastic if the
a. quantity demanded changes proportionately more than price.
b. price changes proportionately more than income.
c. quantity demanded changes proportionately less than price.
d. quantity demanded changes proportionately the same as price.
67. On a downward-sloping linear demand curve, total revenue reaches its maximum value at the
a. midpoint of the demand curve.
b. lower end of the demand curve.
c. upper end of the demand curve.
d. It is impossible to tell without knowing prices and quantities demanded.
68. Refer to Figure 5-5. When the price is $30, total revenue is
a. $3,000.
b. $5,000.
c. $7,000.
d. $9,000.
69. Refer to Figure 5-5. An increase in price from $20 to $30 would
a. increase total revenue by $2,000.
b. decrease total revenue by $2,000.
c. increase total revenue by $1,000.
d. decrease total revenue by $1,000.
70. Refer to Figure 5-5. An increase in price from $30 to $35 would
a. increase total revenue by $250
b. decrease total revenue by $250.
c. increase total revenue by $500.
d. decrease total revenue by $500.
71. If the demand curve is linear and downward sloping, which of the following statements is not correct?
a. Demand is more elastic on the lower part of the demand curve than on the upper part.
b. Different pairs of points on the demand curve can result in different values of the price elasticity of demand.
c. Different pairs of points on the demand curve cannot result in different values of the slope of the demand curve.
d. Starting from a point on the upper part of the demand curve, an increase in price leads to a decrease in total revenue.
72. Barb's Bakery earned $200 in total revenue last month when it sold 100 loaves of bread. This month it earned $300 in total revenue when it sold 60 loaves of bread. The price elasticity of demand for Barb's bread is
a. 0.27.
b. 0.58.
c. 1.25.
d. 1.71.
73. Last year, Sheila bought 6 pairs of shoes when her income was $40,000. This year, her income is $52,000 and she purchased 7 pairs of shoes. Holding other factors constant and using the midpoint method, it follows that Sheila's income elasticity of demand is about
a. 0.59 and Sheila regards shoes as an inferior good.
b. 0.59 and Sheila regards shoes as a normal good.
c. 1.7 and Sheila regards shoes as an inferior good.
d. 1.7 and Sheila regards shoes as a normal good.
74. Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?
a. Leave the price at 25 cents and be patient.
b. Raise the price to increase total revenue.
c. Lower the price to increase total revenue.
d. There isn't enough information given to answer this question.
75. If an increase in income results in a decrease in the quantity demanded of a good, then for that good,
a. the cross-price elasticity of demand is negative.
b. the price elasticity of demand is negative.
c. the income elasticity of demand is negative.
d. an increase in the market supply will increase the equilibrium price of the good.
76. For which of the following types of goods would the income elasticity of demand be positive and relatively large?
a. all inferior goods
b. all normal goods
c. goods for which there are many good complements
d. luxuries
77. Cross-price elasticity of demand measures how
a. the price of one good changes in response to a change in the price of another good.
b. the quantity demanded of one good changes in response to a change in the quantity demanded of another good.
c. the quantity demanded of one good changes in response to a change in the price of another good.
d. strongly normal or inferior a good is.
78. The cross-price elasticity of demand can tell us whether goods are
a. normal or inferior.
b. elastic or inelastic.
c. luxuries or necessities.
d. complements or substitutes.
79. Food and clothing tend to have
a. small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant quantities of these goods.
b. small income elasticities because consumers buy proportionately more of both goods at higher income levels than they buy at low income levels.
c. large income elasticities because they are necessities.
d. large income elasticities because they are relatively inexpensive.
80. If the quantity supplied responds only slightly to changes in price, then
a. supply is said to be elastic.
b. supply is said to be inelastic.
c. an increase in price will not shift the supply curve very much.
d. even a large decrease in demand will change the equilibrium price only slightly.
81. Which of the following statements is not valid when supply is perfectly elastic?
a. The elasticity of supply approaches infinity.
b. The supply curve is horizontal.
c. Very small changes in price lead to large changes in quantity supplied.
d. The time period under consideration is more likely a short period rather than a long period.
82. A decrease in supply will cause the largest increase in price when
a. both supply and demand are inelastic.
b. both supply and demand are elastic.
c. demand is elastic and supply is inelastic.
d. demand is inelastic and supply is elastic.
83. A decrease in supply will cause the smallest increase in price when
a. both supply and demand are inelastic.
b. demand is elastic and supply is inelastic.
c. both supply and demand are elastic.
d. demand is inelastic and supply is elastic.
84. The presence of price controls in a market usually is an indication that
a. an insufficient quantity of a good or service was being produced in that market to meet the public's need.
b. the usual forces of supply and demand were not able to establish an equilibrium price in that market.
c. policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.
d. policymakers correctly believed that, in that market, price controls would generate no inequities of their own.
85. A legal maximum price at which a good can be sold is a price
a. floor.
b. stabilization.
c. support.
d. ceiling.
86. A price ceiling is binding when it is set
a. above the equilibrium price, causing a shortage.
b. above the equilibrium price, causing a surplus.
c. below the equilibrium price, causing a shortage.
d. below the equilibrium price, causing a surplus.
87. An example of a price floor is
a. the regulation of gasoline prices in the U.S. in the 1970s.
b. rent control.
c. the minimum wage.
d. any restriction on price that leads to a shortage.
88. Refer to Figure 6-3. In panel (b), with the price floor in effect, there will be
a. a shortage of wheat.
b. equilibrium in the market.
c. a surplus of wheat.
d. an excess demand for wheat.
89. Refer to Figure 6-4. Suppose a price ceiling of $4.50 is imposed. As a result,
a. there is a shortage of 15 units of the good.
b. the demand curve will shift to the left so as to now pass through the point (Q = 35, P = $4.50).
c. the situation is very much like the one created by a binding minimum wage.
d. the quantity of the good that is bought and sold is the same as it would have been had a price floor of $7.50 been imposed.
90. Refer to Figure 6-6. When the price ceiling applies in this market and the supply curve for gasoline shifts from S1 to S2,
a. the price will increase to P3.
b. a surplus will occur at the new market price of P2.
c. the market price will stay at P1 due to the price ceiling.
d. a shortage will occur at the price ceiling of P2.
91. Under rent control, tenants can expect
a. lower rent and higher quality housing.
b. lower rent and lower quality housing.
c. higher rent and a shortage of rental housing.
d. higher rent and a surplus of rental housing.
92. Which of the following is a correct statement about the labor market?
a. Workers determine the supply of labor, and firms determine the demand for labor.
b. Workers determine the demand for labor, and firms determine the supply of labor.
c. Workers determine the supply of labor, and government determines the demand for labor.
d. The forces of supply and demand, while present in the labor market, have nothing to balance in that market.
93. At a minimum wage that exceeds the equilibrium wage,
a. the quantity demanded of labor will exceed the quantity supplied.
b. the quantity supplied of labor will exceed the quantity demanded.
c. the minimum wage will not be binding.
d. the market for skilled workers is affected, but the market for unskilled workers remains unaffected.
94. Which of the following is the most correct statement about price controls?
a. Price controls always help those they are designed to help.
b. Price controls never help those they are designed to help.
c. Price controls often hurt those they are designed to help.
d. Price controls always hurt those they are designed to help.