Questions:
1. According to Figure 1.3, The Production Possibilities Curve. the point where only satellites are produced is:
a. R
b. S
c. T
d. V
2. According to Figure 1.3, at which point is it possible for the economy to produce more of both goods?
a. R
b. S
c. T
d. U
3. According to Figure 1.3, which point cannot be obtained without an increase in production technology?
a. S
b. T
c. U
d. W
4. The principle that the cost of something is what is sacrificed to get it, is known as the:
a. marginal principle.
b. principle of opportunity cost.
c. principle of diminishing returns.
d. reality principle.
5. The opportunity cost of going to college:
a. is zero if your parents pay your tuition.
b. is equal to the cost of tuition, room and board, and other expenses.
c. includes wages you lose by going to school instead of working.
d. is the same for all students at a particular school who pay full tuition.
6. A demand curve is defined as the relationship between
a. the price of a good and the quantity of that good that consumers are willing to buy
b. the price of a good and the quantity of that good that producers are willing to sell
c. the income of consumers and the quantity of a good that consumers are willing to buy
d. the income of consumers and the quantity of a good that producers are willing to sell
7. The law of demand states that quantity demanded of a product increases as
a. consumer income rises
b. the prices of other products fall
c. the price of the product rises
d. the price of the product falls
8. The law of supply states that
a. Firms supply more of a product as consumer income rises
b. Firms supply more of a product as consumer income falls
c. Firms supply more of a product as the price of the product rises
d. Firms supply more of a product as the price of the product falls
9. Figure 4.1 illustrates the supply and demand for blue jeans. If the actual price of blue jeans is $30, there is
a. excess demand of 40 pairs of blue jeans
b. excess supply of 40 pairs of blue jeans
c. excess demand of 50 pairs of blue jeans
d. excess supply of 50 pairs of blue jeans
10. Figure 4.1 illustrates the supply and demand for blue jeans. If the actual price of blue jeans is $50, there is
a. excess demand of 40 pairs of blue jeans
b. excess supply of 40 pairs of blue jeans
c. excess demand of 50 pairs of blue jeans
d. excess supply of 50 pairs of blue jeans
11. Figure 4.1 illustrates the supply and demand for blue jeans. If the actual price of blue jeans is $30, we would expect that
a. demand will decrease until quantity demanded equals quantity supplied.
b. supply will increase until quantity demanded equals quantity supplied.
c. price will increase until quantity demanded equals quantity supplied.
d. there will be no change since the market is in equilibrium.
12. Judy demands more peanuts as her income increases. From this, we can conclude that
a. Peanuts are a normal good
b. Peanuts are an inferior good
c. Peanuts are a complementary good
d. Peanuts are a substitute good
13. A normal good is defined as a good for which demand decreases when
a. the price increases
b. income increases
c. the price decreases
d. income decreases
14. Two goods are complements if
a. The supply of one good decreases when the price of the other increases
b. The supply of one good decreases when the price of the other decreases
c. The demand for one good decreases when the price of the other increases
d. The demand for one good decreases when the price of the other decreases
15. Suppose that consumers expect the price of a product to decrease in the future. The result is that
a. The current demand for the product increases
b. The current demand for the product decreases
c. The current supply of the product increases
d. The current supply of the product decreases
16. Figure 4.2 illustrates the demand for guitars. An increase in the demand for guitars is represented by the movement from
a. Point B to point C
b. Point B to point A
c. D1 to D0
d. D1 to D2
17. Figure 4.2 illustrates the demand for guitars. A decrease in the demand for guitars is represented by the movement from
a. Point B to point C
b. Point B to point A
c. D1 to D0
d. D1 to D2
18. An inferior good is defined as a good for which demand decreases when
a. the price increases
b. income increases
c. the price decreases
d. income decreases
19. When Mary's income increases, she purchases less hamburger. We can conclude that hamburger is
a. a normal good
b. an inferior good
c. a substitute good
d. a complementary good
20. If a technological advance makes it possible to produce bananas at a lower cost,
a. The demand for bananas increases
b. The demand for bananas decreases
c. The supply of bananas increases
d. The supply of bananas decreases
21. The value of all final goods and services produced during a given time period measures a nation's:
a. Gross Domestic Product.
b. Net National Product.
c. Consumer Price Index.
d. Net Exports.
e. Government Spending.
22. How does real gross domestic product (GDP) differ from nominal GDP?
a. Nominal GDP controls for price changes, while real GDP does not.
b. Real GDP controls for price changes, while nominal GDP does not.
c. Nominal GDP can be used to directly compare the amount of output produced from year to year, while real GDP cannot be used for such comparison.
d. There is no difference between nominal GDP and real GDP.
e. None of the above is correct.
23. If Sam does not have a job and is actively looking for work, he is considered:
a. unemployed and in the labor force.
b. unemployed and not in the labor force.
c. only not in the labor force.
d. only unemployed.
e. underemployed.
24. Which of the following should be included in U.S. GDP?
a. A car manufactured in Japan and sold in the United States.
b. A car manufactured in Japan by a U.S. firm and sold in the United States.
c. A car manufactured in the United States and sold in Japan.
d. A used car manufactured in the United States and sold in Japan.
e. Both B and C are correct.
25. A period when economic growth is negative for at least six months is called a:
a. boom.
b. recession.
c. depression.
d. peak.
e. trough.
26. The period of time in which the level of output moves out of recession to a peak is called:
a. a recovery.
b. a peak.
c. a depression.
d. a contraction.
e. plateau.
27. Which of the following would cause an increase in aggregate demand?
a. an increase in the supply of money
b. a decrease in the price level
c. an increase in taxes
d. a crop failure
e. an increase in wages
28. The relationship between the level of prices and the quantity of real GDP supplied is known as:
a. aggregate supply.
b. market supply.
c. aggregate demand.
d. market demand.
e. None of the above.
29. Which of the following factors influence the position of the aggregate demand curve?
a. the supply of money
b. government spending
c. taxes
d. foreign GDP
e. All of the above.
30. Keynesian fiscal policy refers to:
a. the use of monetary policy to influence the level of GDP.
b. the use of gold to influence the level of GDP.
c. open market operations.
d. using taxes and government spending to influence the level of GDP in the short run.
e. None of the above.
31. Government policies designed to decrease total demand and GDP are called _________ policies.
a. contractionary
b. expansionary
c. withdrawing
d. augmentation
e. transfers
32. Government policies designed to increase total demand and GDP are called _________ policies.
a. contractionary
b. expansionary
c. withdrawing
d. augmentation
e. transfers
33. When money is accepted as payment for a good or service, it is being used as a:
a. medium of exchange.
b. store of value.
c. unit of account.
d. a mechanism for transforming current purchases into future purchases.
e. None of the above.
34. For the perfectly competitive firm:
a. price always equals average cost.
b. price always equals marginal cost.
c. price always equals marginal revenue.
d. price always equals average variable cost.
35. A perfectly competitive market:
a. is dominated by one firm.
b. consists of at most five firms.
c. is made up of a large number of firms.
d. consists of only one firm.
36. A market in which firms sell a homogenous product and cannot influence market price is most likely:
a. a perfectly competitive market.
b. an oligopoly.
c. a monopolistically competitive market.
d. a monopoly market.
37. Pepsi uses advertising to create the impression that Pepsi is superior to any other soft drink. Pepsi is attempting to:
a. differentiate Pepsi from other types of soft drinks.
b. lower the marginal cost of producing for Pepsi.
c. sell less Pepsi so they can raise the price of Pepsi.
d. convince consumers that Pepsi is identical to other soft drinks.
38. As compared to a perfectly competitive firm, a monopolistically competitive firm will:
a. have less control over price.
b. face more barriers to entry.
c. face more competitors.
d. sell a more differentiated product.
39. Price fixing is an arrangement whereby firms agree to:
a. not change price even if market conditions dictate a change.
b. set price equal to marginal cost.
c. set price equal to average total cost.
d. coordinate their pricing decisions.
40. Which of the following statements is false?
a. Cartels and price fixing are both legal under U.S. antitrust laws.
b. Firms in a cartel often charge the same price for a particular good or service.
c. If two firms form a cartel, they could charge the same price as a monopolist.
d. A cartel could be made up of as few as two firms.