1.What is the economic meaning of the expression that "There is no such thing as a free lunch?" It refers to "free-riders," who do not pay for the cost of a product but who receive the benefit from it.
It means that economic freedom is limited by the amount of income available to the consumer.
It means that there is an opportunity cost when resources are used to provide "free" products.
It indicates that products only have value because people are willing to pay for them.
2. The opportunity cost of constructing a new public highway is the
money cost of hiring contractors and construction workers for the new highway.
value of other goods and services that must be sacrificed to construct the new highway.
expected cost of constructing the new highway in a future year.
value of shorter driving times and distances when the new highway is completed.
3. A nation can increase its production possibilities by
shifting resources from investment good production to consumer good production.
shifting resources from private goods to public goods.
improving labor productivity.
eliminating discrimination.
4. A tradeoff exists between two economic goals, X and Y. This tradeoff means that
X causes Y.
X and Y are equal.
getting more of X requires getting more of Y.
getting more of X requires getting less of Y.
5. Which is not a factor of production?
Money
Land
Labor
Capital
6. The economy of Germany would best be classified as:
a command system.
socialism.
pure capitalism.
a market system.
7. The simple circular-flow model shows that workers, entrepreneurs, and the owners of land and capital offer their services through
product markets.
resource markets.
employment agencies.
business firms.
8. By free enterprise, we mean that
products are provided free to those who can't afford to buy them.
individuals may obtain resources, organize production, and sell the resulting output in any legal way they choose.
individual producers are free to produce whatever the government decides is needed by the society.
individuals are free to buy whatever products will satisfy their needs the most.
9. Which is not one of the five fundamental questions that an economy must deal with?
How will the goods and services be produced?
Why should the goods and services be produced?
Who is to receive the goods and services produced in the economy?
In what ways will progress be promoted?
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.
11. An increase in demand means that
given supply, the price of the product will decline.
the demand curve has shifted to the right.
price has declined and consumers therefore want to purchase more of the product.
the demand curve has shifted to the left.
12. A surplus of a product will arise when price is
above equilibrium with the result that quantity demanded exceeds quantity supplied.
above equilibrium with the result that quantity supplied exceeds quantity demanded.
below equilibrium with the result that quantity demanded exceeds quantity supplied.
below equilibrium with the result that quantity supplied exceeds quantity demanded.
13. If an effective price ceiling is placed on hamburgers then
the quantity demanded will exceed the quantity supplied.
a black market for hamburger may evolve.
consumers may want government to ration hamburger.
all of these are likely outcomes.
14. Which would cause an increase in quantity supplied of Product A?
An improvement in technology affecting the production of A
An increase in the price of Product B, an input in the production of A
A decrease in the taxes paid by producers of A
An increase in the price of A
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.
16. If the price-elasticity coefficient for a good is .75, the demand for that good is described as
normal.
elastic.
inferior.
inelastic.
17. When the price of movie tickets in a certain town was reduced, the movie-theaters' revenues did not change. This suggests that the demand for movie tickets in that town has a price-elasticity coefficient of
1.0.
greater than 1.
0.5.
zero.
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.
19. To economists the main differences between "the short run" and "the long run" are that
the law of diminishing returns applies in the long run, but not in the short run.
in the short run all resources are fixed, while in the long run all resources are variable.
fixed inputs are more important to decision making in the long run than they are in the short run.
in the long run all resources are variable, while in the short run at least one resource is fixed.
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.
21. Which would be an implicit cost for a firm? The cost
of worker wages and salaries for the firm.
paid for leasing a building for the firm.
paid for production supplies for the firm.
of wages foregone by the owner of the firm.
22. 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 earns an accounting profit of
$500,000 and an economic profit of $200,000.
$400,000 and an economic profit of $200,000.
$300,000 and an economic profit of $400,000.
$200,000 and an economic profit of $500,000.
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.
24. The law of diminishing returns only applies in cases where
there is increasing scarcity of factors of production.
the price of extra units of a factor is increasing.
there is at least one fixed factor of production.
capital is a variable input.
25. At an output of 20,000 units per year, a firm's variable costs are $80,000 and its average fixed costs are $3. The total costs per year for the firm are:
$80,000.
$100,000.
$140,000.
$240,000.
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.