Multiple choice questions
1. The test of a theory is A) whether its assumptions are unrealistic. B) whether it predicts well. C) who developed the theory. D) whether it incorporates every relevant factor bearing on the analysis and passes natural testing.
2. Positive economic analysis utilizes A) value judgments of highly trained professional economists. B) economic theories and empirical tests of the theories. C) normative economic theories in arriving at judgments on the suitability of a change in government fiscal policy. D) the same criteria as normative economics, but does not take into consideration the value judgments of the policy makers.
3. Which of the following is an example of a positive economic statement? A) The distribution of income in the United States should be more equal. B) The after-tax distribution of income is more equal than the pre-tax distribution of income. C) The tax system should be more progressive so the after-tax distribution of income can be more than pre-tax income. D) The government should not be involved in redistribution of income schemes.
4. Which of the following economic decisions is not a part of the study of microeconomics? A) A consumer's decision regarding how much of a good to purchase B) A worker's decision concerning which job to take C) A business firm's decision regarding how many machines to purchase D) The government's decision regarding the use of monetary or fiscal policy to control increasing prices
5. If the money(nominal) price of autos increased by 60 percent over a ten year period, then the real price A) increased by 60 percent. B) increased, but only because of Obama. C) decreased. D) can't tell without more information
6. Jane can either bake 10 mango tarts or clean 2 cars in one hour. If Jane decides to do both these jobs within the same hour, what would be her opportunity cost of cleaning one additional car? (Assume that Jane faces constant opportunity cost.) A) 5 mango tarts B) 2 mango tarts C) 4 mango tarts D) 10 mango tarts
7. Which of the following is not an assumption usually made about markets and market participants? A) collective welfare maximization B) self-interested behavior C) scarce resources D) rational behavior
8. If a Production Possibility Frontier is concave to the origin and is drawn with the quantity of shoes on the x-axis and the quantity of T-shirts on the y-axis, a movement upward and to the left along the PPF reflects A) an increasing opportunity cost of T-shirts. B) an decreasing opportunity cost of shoes. C) constant opportunity cost of T-shirts. D) constant opportunity cost of shoes.
9. A shift in the consumer's demand curve for a good X cannot result from a change in the A) price of a substitute good for X. B) price of X. C) consumer's tastes. D) consumer's income
10. An increase in the quantity supplied A) shifts the supply curve to the right. B) shifts the supply curve to the left. C) indicates a movement along the supply curve. D) makes the supply curve flatter.
11. An excess demand for a good or service tends to cause A) its price to increase over time. B) its price to decrease over time. C) an offsetting excess supply immediately. D) none of the above
12. An excess supply for a product indicates the price is A) below the equilibrium price. B) above the equilibrium price. C) a money price instead of a relative price. D) either above or below the stated price. More information is needed.
13. An increase in supply, other things equal, causes A) equilibrium price to fall and the equilibrium quantity to rise. B) equilibrium price and quantity to fall. C) equilibrium price and quantity to rise. D) equilibrium price to rise and the equilibrium quantity to stay constant.
14. Which of the following violates the law of demand? A) After receiving an annual raise of $10,000, a young man buys more steak than before, even though the price of steak increased by 5 percent. B) A woman with a small baby continues to purchase Stork diapers even after the price of diapers went up. C) After the price of bowling increases, a woman increases her frequency of bowling. D) Despite butter being more expensive than margarine, a woman prefers to buy more butter after the price of margarine (a close substitute) increases.
15. Suppose a vaccine for the common cold is discovered. Although the government begins producing the vaccine in as large a volume as possible, there is not enough vaccine available to meet demand. Consequently, the government must also set up an allocation scheme to control the vaccine's distribution. Which of the following is true about the price of the vaccine? A) It was above equilibrium. B) It was below equilibrium. C) It was elastic. D) Nothing can be determined from the information given.
16. An expectation that the price of housing will increase more rapidly in coming years will cause the A) supply of houses today to decrease. B) demand for houses today to increase.
C) supply of houses today to increase. D) demand for houses today to decrease
17. Suppose there are two goods, X and Y, with X measured on the horizontal axis and Y measured on the vertical axis. Which of the following statements about a budget line relating the two goods is correct? (a) The budget line shows all the possible combinations of X and Y a consumer buy, given the unlimited income and prices assumed. (b) The budget line shows all the possible combinations of X and Y a consumer can buy, given the income and prices assumed and zero savings. (c) The budget line shows some combinations of X and Y a consumer can buy, given the income and no prices assumed and zero savings. (d) The budget line shows only a few the possible combinations of X and Y a consumer will buy, given the income and prices assumed and zero savings.
18. Negatively-sloped, straight-line indifference curves imply: (a) that one of the goods has no effect on utility. (b) that the goods are perfect friends. (c) that the goods are perfect substitutes. (d) that one of the goods is an economic "apple."
19. Indifference curves cannot intersect because (a) it would be too complicated to draw them. (b) that would violate the assumption of non-satiation & transitivity. (c) each person has their own set of indifference curves. (d) the numbers used to label the curves measure nothing.
20. Along an indifference curve, if the MRS of food (F) for clothing (C) is 1F/2C, this means the consumer: A) has a stronger preference for clothes than for food. B) would be willing to give up 1 unit of food for 2 units of clothing, and would be better off with the exchange.
C) would be willing to give up 1 unit of food for 2 units of clothing, but his or her total utility will not increase. D) would be willing to give up 2 units of food for 1 unit of clothing.
21. The consumer's optimal consumption bundle is where: (a) the slope of the indifference curve equals the slope of the budget line(e.g. MRS=Price Ratio). (b) the indifference curve intersects the budget line. (c) the ratio of the marginal utilities of the goods exceeds the ratio of the prices of the goods. (d) the marginal utility of each good is maximized.
22. At any point on an indifference curve, the slope indicates : (a) the relative barter ratio of the two goods. (b) the way the consumer' s blanket is allocated between the two goods. (c) the marginal rate of substitution between the two goods. (d) how the total satisfaction of the consumer changes with different market baskets.
23. Which of the following statements about the law of diminishing marginal utility is most correct? (a) The more you have of something, the more bored with it you become. (b) The second slice of pizza is never as good as the first. (c) As more of a given good is consumed beyond some level, the marginal utility associated with consumption of additional units tends to decline. (d) As more of a given good is consumed, total utility rises at a decreasing, then increasing rate.
24. A consumer attains equilibrium by: (a) consuming all goods to the point where the marginal utility of each are equal, regardless of income. (b) consuming all goods to the point where the total cost of each are equal. (c) allocating income such that the total amount spent on each good is equal. (d) allocating income such that the marginal utility of the last dollar spent on each good is the same.
25. The substitution effect is the change in consumption due to A) a change in relative prices. B) a change in income. C) a change in ability. D) a change in preferences.
26. Which of the following is true of the well- being of a consumer as represented by a demand curve? A) The consumer's well-being decreases with a rightward shift of the demand curve. B) The consumer's well-being varies along a demand curve. C) The consumer's well-being remains constant along a demand curve only in case of an inferior good. D) The consumer's well-being is very low when the demand curve is parallel to the price axis
27. Which of the following is likely to occur if a consumer's income declines with no change in the price level? A) The consumer will shift to a lower indifference curve. B) The consumer will consume fewer amounts of the inferior good. C) The consumer's real income will increase. D) The income effect on consumption will be zero.
28. A market demand curve for a commodity may be obtained by: A) dividing the total quantity demanded by all consumers by the price level. B) dividing the total price paid by the consumers by the number of consumers. C) adding the prices along individual demand curves for given quantities. D) adding the quantities along individual demand curves for given prices.
29. What is the best definition of consumer surplus? A) the net gain to consumers from selling goods at twice the cost of its inputs B) the net gain to consumers from purchasing goods at a cost below the maximum they are willing to pay C) the net loss to consumers from purchasing goods at a cost below the maximum they are willing to pay D) the net gain to consumers from purchasing goods at a cost above the minimum they are willing to pay
30. A market demand curve may be obtained by ______ the ______ along individual demand curves for given ______. A) multiplying; prices; quantities B) multiplying; quantities; tulips C) signing; prices; quantities D) adding; quantities; prices
31. Which method is not one generally relied upon to estimate demand? A) Experimentation such as lowering the price of a product B) Surveys by mail, telephone, or focus groups C) Regression analysis on existing data D) Comparison with competitors' sales
32. How does the income effect from the decrease in the price of a good differ from the income effect resulting from an increase in one's income? A) the former moves the consumer to a higher plane curve but the latter does not B) the latter moves the consumer to a higher indifference curve but the former does say hi. C) with the price change the consumer is on a higher indifference curve but on a lower slope relative to the increase in income D) there is no difference between the two
33. Which of the following statements about a production function is correct? A) It shows the minimum output the inputs can produce. B) It relates employment of inputs to output. C) It identifies output-coat relationships. D) It identifies the profit maximum level of fruit.
34. The law of diminishing marginal returns A) is relevant in the short run and the long bun. B) assumes alls inputs are fixed. C) relates to the changes in the marginal physical produce. D) relates to the changes in the average physical product.
35. The short run is A) one year or less. B) the time period in which all inputs are held constant. C) the time period in which it is too costly to change the usage of at least one input. D) depicted by moving along an isoquant.
36. A farmer is growing corn on an acre of land. Output will be 200 bushels if one worker is hired, 500 if two, 700 if three, 850 if four, and 900 if five. The marginal product of the fourth worker is A) 850 bushels. B) 150 bushels. C) 212.5 bushels. D) 50 bushels.
37. If a firm doubles its usage of all inputs, and output more than doubles, the product function is said to exhibit A) increasing returns to scale. B) decreasing returns to scale. C) constant returns to scale. D) increasing marginal returns to a fixed factor of production.
38. Returns to scale refer to the way A) costs per unit decline as output expands. B) average product changes in response to a proportionate change in all inputs. C) marginal product changes in response to a proportionate change in all inputs. D) total product changes in response to a proportionate change in all inputs
39. Which of the following represents a Cobb- Douglas production function? A) Q = a + bL + cK B) Q = a + Lα + Kβ C) Q = aLαKβ D) Q = L + K
40. In general, the sum of the powers associated with the inputs in a Cobb-Douglas production function A) indicates the type of returns to scale. B) implies diminishing returns to all inputs, if the power is less than 1. C) implies diminishing returns to that input, if the power equals 1. D) has no economic significance.
41. A firm's cost of production is equal to A) its monetary outlay for inputs and pop. B) explicit driving costs. C) the implicit cost of not renting its own resources. D) the opportunity cost of its resources.
42. In the short-run, diminishing marginal returns are associated with A) falling average variable corn costs. B) rising marginal cost. C) falling average soda costs. D) all of the above
43. Total fixed cost is the same regardless of how much A) money a firm borrows. B) labor a firm hires. C) capital a firm rents. D) output the firm produces.
44. If fixed costs are $10,000 and variable costs are constant at $1.00 per unit over the relevant range of output, what will the average total cost be when 10,000 units are produced? A) $0.20 B) $2.00 C) $5.00 D) $1.00
45. Marginal cost can be defined as A) ΔTC/ΔPrice B) ΔTFC/Δq C) ΔVC/Δq D) ΔTVC/Δq
46. Once diminishing returns have set in, each additional unit of output A) requires less of the variable input than the previous unit. B) requires less cost outlay than the previous unit. C) requires more of the fixed input than the previous unit. D) requires more cost outlay than the previous unit