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The adage, "There is no such thing as a free lunch," means
a. the cost of living is always increasing.
b. all costs are included in the price of a product.
c. even people on welfare have to pay for food.
d. people face tradeoffs
d
Which of the following is correct?
a. The word economy comes from the Greek word for “rational thinker.”
b. Economists study the management of scarce resources.
c. Because economists believe that people pursue their best interests, they are not interested in how people interact.
d. All of the above are correct.
b
Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that
a. people face trade-offs.
b. rational people think at the margin.
c. decisions made at the margin are not particularly important.
d. trade can make everyone better off.
a
Efficiency means that
a. society is getting the maximum benefits from its scarce resources.
b. society is conserving resources in order to save them for the future.
c. society's goods and services are distributed equally among society's members.
d. society's goods and services are distributed fairly, though not necessarily equally, among society's members.
a
When the government attempts to improve equality in an economy the result is often
a. additional government revenue since overall income will increase.
b. an increase in overall output in the economy.
c. a reduction in equality.
d. a reduction in efficiency.
d
When computing the opportunity cost of attending a basketball game you should include
a. the price you pay for the ticket, but not the value of your time.
b. neither the price of the ticket nor the value of your time.
c. the value of your time, but not the price you pay for the ticket.
d. the price you pay for the ticket and the value of your time.
d
Hamid spends an hour studying instead of watching TV with his friends. The opportunity cost to him of studying is
a. the improvement in his grades from studying minus the enjoyment of watching TV.
b. zero. Since Hamid chose to study rather than to watch TV, the value of studying must have been greater to him than the value of watching TV.
c. the enjoyment he would have received if he had watched TV with his friends.
d. the improvement in his grades from studying for the hour.
c
College-age athletes who drop out of college to play professional sports
a. underestimate the value of a college education.
b. are not rational decision makers.
c. are well aware that their opportunity cost of attending college is very high.
d. are concerned more about present circumstances than their future.
c
A rational decision maker takes an action only if the
a. marginal benefit is less than the marginal cost.
b. marginal benefit is greater than the marginal cost.
c. marginal benefit is greater than both the average cost and the marginal cost.
d. average benefit is greater than the average cost.
b
Something that induces a person to act is called
a. an opportunity cost.
b. an incentive.
c. a trade-off.
d. a policy.
b
Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?
a. Trade can make everyone better off.
b. Markets are usually a good way to organize economic activity.
c. People respond to incentives.
d. Rational people think at the margin.
c
If the United States decides to trade with Yemen, we know that
a. Yemen and the United States can both benefit.
b. Yemen will benefit, but trade with a less developed country could not benefit the United States.
c. it will not benefit Yemen because workers in the United States are more productive.
d. it will not benefit either country because their cultural differences are too vast.
a
Trade makes costs
a. lower but reduces the variety of goods and services available.
b. lower and raises the variety of goods and services available.
c. higher and reduces the variety of goods and services available.
d. higher but raises the variety of goods and services available.
b
The "invisible hand" directs economic activity through
a. prices.
b. government regulations.
c. central planning.
d. advertising.
a
According to Adam Smith, the success of decentralized market economies is primarily due to
a. partnerships that are forged between business and government.
b. society's legal system.
c. the basic benevolence of society.
d. individuals' pursuit of self-interest.
d
Prices usually reflect
a. neither the value of a good to society nor the cost to society of making the good.
b. both the value of a good to society and the cost to society of making the good.
c. only the value of a good to society.
d. only the cost to society of making a good.
b
Causes of market failure include
a. incorrect forecasts of consumer demand and foreign competition.
b. externalities and foreign competition.
c. externalities and market power.
d. market power and incorrect forecasts of consumer demand.
c
The term "productivity"
a. means the same thing as "efficiency."
b. refers to the variety of goods and services from which households can choose when they shop.
c. is seldom used by economists, as its meaning is not precise.
d. refers to the quantity of goods and services produced from each unit of labor input.
d
The primary determinant of a country's standard of living is
a. the average age of the country's labor force.
b. the total supply of money in the economy.
c. the country’s ability to produce goods and services.
d. the country’s ability to prevail over foreign competition.
c
Most economists believe that an increase in the quantity of money results in
a. an increase in the demand for goods and services.
b. lower unemployment in the short run.
c. higher inflation in the long run.
d. All of the above are correct.
d
Bottled water is
a. Scarce, because people would like to have more than is available
b. Scarce, because it is expensive
c. Not scarce, because you can find it in most stores
d. Not scarce, because soda and juice are more preferred
a
The higher the opportunity cost of doing something, the
a. more likely people are to do it.
b. the less likely people are to do it.
c. the more money has to be spend on that activity.
d. the less money has to be spend on that activity.
b
Opportunity cost can be used to make predictions when
a. it differs across groups
b. it differs across individuals
c. it changes over time
d. all of the above
d
Opportunity cost includes
a. explicit costs
b. implicit costs
c. both
d. neither
c
The essence of science is
a. the laboratory experiment.
b. the scientific method.
c. the study of nature, but not the study of society.
d. All of the above are correct.
b
The scientific method is
a. the use of modern technology to understand the way the world works.
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. the search for evidence to support preconceived theories about how the world works.
b
Which of the following is an example of using the scientific method with a natural experiment?
a. tracking the price of oil when a war in the Middle East interrupts the flow of crude oil
b. observing the reaction when two chemicals are mixed together
c. measuring how long it takes a marble to fall from a ten story building
d. comparing plant growth with and without a soil additive
a
Economists face an obstacle that many other scientists do not face. What is that obstacle?
a. It is often impractical to perform experiments in economics.
b. It is often difficult to formulate theories in economics.
c. Economics cannot be addressed objectively; it must be addressed subjectively.
d. The scientific method cannot be applied to the study of economics.
a
Instead of conducting laboratory experiments to generate data to test their theories, economists often
a. assume that data would support their theories.
b. argue that data is impossible to collect in economics.
c. gather data from historical episodes of economic change.
d. ask winners of the Nobel Prize in Economics to evaluate their theories.
c
For an economist, the idea of making assumptions is regarded generally as a
a. bad idea, since doing so leads to the omission of important ideas and variables from economic models.
b. bad idea, since doing so invariably leads to data-collection problems.
c. good idea, since doing so helps to simplify the complex world and make it easier to understand.
d. good idea, since economic analysis without assumptions leads to complicated results that the general public finds hard to understand.
c
The art in scientific thinking is
a. deciding which assumptions to make.
b. not something in which economists have to be skilled.
c. finding the right problem to study.
d. the ability to make an abstract subject easy to understand.
a
A model can be accurately described as a
a. device that is useful only to the people who created it.
b. theoretical abstraction with very little value.
c. realistic and carefully constructed theory.
d. simplification of reality.
d
Economists build economic models by
a. conducting controlled experiments in a lab.
b. generating data.
c. making assumptions.
d. reviewing statistical forecasts.
c
Factors of production are
a. abundant in most economies.
b. also called output.
c. assumed to be owned by firms in the circular-flow diagram.
d. used to produce goods and services.
d
Which of the following is a correct statement about production possibilities frontiers?
a. An economy can produce only on the production possibilities frontier.
b. An economy can produce at any point inside the production possibilities frontier, but not on or outside the frontier.
c. An economy can produce at any point inside or outside a production possibilities frontier.
d. An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier.
d
An economy’s production of two goods is efficient if
a. it is impossible to produce more of one good without producing less of the other.
b. the opportunity cost of producing more of one good is zero.
c. the goods are produced using only some of society’s available resources.
d. all members of society consume equal portions of the goods.
a
Microeconomics is the study of
a. how government affects the economy.
b. how money affects the economy.
c. how the economy as a whole works.
d. how individual households and firms make decisions.
d
Macroeconomics is the study of
Selected Answer:
a. markets for large products.
b. economy-wide phenomena.
c. individual decision makers.
d. international trade.
b
Normative statements are
a. claims about how variables in the economy normally behave.
b. claims about how the world should be.
c. not usually made by economists.
d. pessimistic interpretations of the economy.
b
Positive statements are not
a. prescriptive.
b. descriptive.
c. made by economists speaking as scientists.
d. claims about how the world is.
a
You know an economist has crossed the line from policy adviser to scientist when he or she
a. talks about values.
b. makes a claim about how the world should be.
c. claims that the problem at hand is widely misunderstood by non-economists.
d. makes positive statements.
d
Economists sometimes give conflicting advice because
a. economists have different values and scientific judgment.
b. graduate students in economics are encouraged to argue with each other.
c. economists acting as scientists do not like to agree with economists acting as policy advisers.
d. economics is more of a belief system than a science.
a
For a hypothesis to be scientific, it must be
a. verifiable
b. falsifiable
c. both verifiable and falsifiable
d. neither verifiable nor falsifiable
b
The statement, "Chuck Norris is invincible" is
a. verifiable but unfalsifiable
b. verifiable and falsifiable
c. unverifiable and unfalsifiable
d. unverifiable but falsifiable
d
A market includes
a. both buyers and sellers.
b. sellers only.
c. the place where transactions occur but not the people involved.
d. buyers only.
a
A competitive market is one in which there
a. are so many buyers and so many sellers that each has a negligible impact on the price of the product.
b. is only one seller, but there are many buyers.
c. are many sellers, and each seller has the ability to set the price of his product.
d. are many sellers, and they compete with one another in such a way that some sellers are always being forced out of the market.
a
In a competitive market, each seller has limited control over the price of his product because
a. sellers usually agree to set a common price that will allow each seller to earn a comfortable profit.
b. these markets are highly regulated by the government.
c. buyers exert more control over the price than do sellers.
d. other sellers are offering similar products.
d
An increase in the price of a good will
a. increase demand.
b. decrease demand.
c. decrease quantity demanded.
d. increase
c
Refer to Figure 4-1. The movement from point A to point B on the graph shows a(n)
a. increase in quantity demanded.
b. decrease in quantity demanded.
c. increase in demand.
d. decrease in demand.
a
“Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.” This relationship between price and quantity demanded
a. applies to most goods in the economy.
b. is represented by a downward-sloping demand curve.
c. is referred to as the law of demand.
d. All of the above are correct.
d
When quantity demanded increases at every possible price, the demand curve has
a. shifted to the left.
b. not shifted; rather, the demand curve has become steeper.
c. not shifted; rather, we have moved along the demand curve to a new point on the same curve.
d. shifted to the right.
d
A leftward shift of a demand curve is called a(n)
a. decrease in demand.
b. increase in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
a
Which of the following is not a determinant of the demand for a particular good?
a. income
b. the prices of the inputs used to produce the good
c. tastes
d. the prices of related goods
b
Pizza is a normal good if the demand
a. curve for pizza shifts to the right when the price of burritos rises, assuming pizza and burritos are substitutes.
b. for pizza rises when income rises.
c. for pizza rises when the price of pizza falls.
d. curve for pizza slopes upward.
b
Good X and good Y are substitutes. If the price of good Y increases, then the
a. quantity demanded of good X will increase.
b. quantity demanded of good X will decrease.
c. demand for good X will decrease.
d. demand for good X will increase.
d
What will happen in the gasoline market now if buyers expect higher gasoline prices in the near future?
a. The demand for gasoline will be unaffected.
b. The supply of gasoline will increase.
c. The demand for gasoline will increase.
d. The demand for gasoline will decrease.
c
An increase in supply is represented by a
a. leftward shift of a supply curve.
b. movement downward and to the left along a supply curve.
c. movement upward and to the right along a supply curve.
d. rightward shift of a supply curve.
d
Refer to Figure 4-11. The movement from point A to point B on the graph is called
a. a decrease in the quantity supplied.
b. an increase in the quantity supplied.
c. an increase in supply.
d. a decrease in supply.
b
A decrease in the number of sellers in the market causes
a. a movement up and to the right along a stationary supply curve.
b. a movement downward and to the left along a stationary supply curve.
c. the supply curve to shift to the right.
d. the supply curve to shift to the left.
d
Suppose there is a decrease in the price of corn. If corn is an input into the production of ethanol, we would expect the supply curve for ethanol to
a. shift rightward.
b. become flatter.
c. shift leftward.
d. remain unchanged.
a
An improvement in production technology will
a. decrease a firm’s costs and increase its supply.
b. increase a firm’s costs and decrease its supply.
c. decrease a firm’s costs and decrease its supply.
d. increase a firm's costs and increase its supply.
a
At the equilibrium price, the quantity of the good that buyers are willing and able to buy
a. is greater than the quantity that sellers are willing and able to sell.
b. exactly equals the quantity that sellers are willing and able to sell.
c. is less than the quantity that sellers are willing and able to sell.
d. Either a) or c) could be correct.
b
Which of the following events must cause equilibrium price to rise?
a. demand increases and supply decreases
b. demand decreases and supply increases
c. demand and supply both decrease
d. demand and supply both increase
a
Which of the following would cause price to decrease?
a. a decrease in supply
b. an increase in demand
c. a surplus of the good
d. a shortage of the good
c
If a surplus exists in a market, then we know that the actual price is
a. above the equilibrium price, and quantity supplied is greater than quantity demanded.
b. below the equilibrium price, and quantity supplied is greater than quantity demanded.
c. below the equilibrium price, and quantity demanded is greater than quantity supplied.
d. above the equilibrium price, and quantity demanded is greater than quantity supplied.
a
A shortage exists in a market if
a. there is an excess supply of the good.
b. quantity supplied exceeds quantity demanded.
c. the current price is below its equilibrium price.
d. All of the above are correct.
c
Refer to Figure 4-18. Equilibrium price and quantity are, respectively,
a. $25 and 400 units.
b. $35 and 200 units.
c. $25 and 600 units.
d. $15 and 200 units.
a
Refer to Figure 4-18. At a price of $35, there would be
a. a surplus, and the price would tend to rise from $35 to a higher price.
b. excess demand, and the price would tend to fall from $35 to a lower price.
c. a shortage, and the price would tend to rise from $35 to a higher price.
d. excess supply, and the price would tend to fall from $35 to a lower price.
d
If consumers often purchase muffins to eat while they drink their lattés at local coffee shops, what would happen to the equilibrium price and quantity of lattés if the price of muffins rises?
a. The equilibrium price would decrease, and the equilibrium quantity would increase.
b. The equilibrium price would increase, and the equilibrium quantity would decrease.
c. Both the equilibrium price and quantity would decrease.
d. Both the equilibrium price and quantity would increase.
c
Rent-control laws dictate
a. a maximum rent that landlords may charge tenants.
b. both a minimum rent and a maximum rent that landlords may charge tenants.
c. the exact rent that landlords must charge tenants.
d. a minimum rent that landlords may charge tenants.
a
Minimum-wage laws dictate
a. both a minimum wage and a maximum wage that firms may pay workers.
b. the exact wage that firms must pay workers.
c. a minimum wage that firms may pay workers.
d. a maximum wage that firms may pay workers.
c
In a competitive market free of government regulation,
a. price adjusts until quantity demanded is greater than quantity supplied.
b. supply adjusts to meet demand at every price.
c. price adjusts until quantity demanded equals quantity supplied.
d. price adjusts until quantity demanded is less than quantity supplied.
c
A legal maximum on the price at which a good can be sold is called a price
a. subsidy.
b. support.
c. floor.
d. ceiling.
d
If a price ceiling is not binding, then
a. there will be a surplus in the market.
b. the market will be less efficient than it would be without the price ceiling.
c. there will be no effect on the market price or quantity sold.
d. there will be a shortage in the market.
c
A price ceiling will be binding only if it is set
a. below the equilibrium price.
b. either above or below the equilibrium price.
c. above the equilibrium price.
d. equal to the equilibrium price.
a
Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,
a. a smaller quantity of the good is bought and sold.
b. a larger quantity of the good is supplied.
c. the price rises above the previous equilibrium.
d. a smaller quantity of the good is demanded.
a
When a binding price ceiling is imposed on a market to benefit buyers,
a. every buyer and seller in the market benefits.
b. some buyers will not be able to buy any amount of the good.
c. every buyer who wants to buy the good will be able to do so, but only if he waits in long lines.
d. every buyer in the market benefits.
b
Refer to Figure 6-2. The price ceiling
a. is not binding, because it is set above the equilibrium price.
b. causes a shortage of 85 units.
c. causes a shortage of 45 units.
d. causes a shortage of 40 units.
b
A legal minimum on the price at which a good can be sold is called a
a. price floor.
b. price subsidy.
c. tax.
d. price ceiling.
a
A price floor will be binding only if it is set
a. either above or below the equilibrium price.
b. equal to the equilibrium price.
c. above the equilibrium price.
d. below the equilibrium price.
c
After a binding price floor becomes effective, a
a. smaller quantity of the good is bought and sold.
b. a larger quantity of the good is demanded.
c. a smaller quantity of the good is supplied.
d. All of the above are correct.
a
When a binding price floor is imposed on a market to benefit sellers,
a. no sellers actually benefit.
b. some sellers benefit, but no sellers are harmed.
c. all sellers benefit.
d. some sellers benefit, and some sellers are harmed.
d
The imposition of a binding price floor on a market
a. causes quantity demanded to be greater than quantity supplied.
b. causes quantity demanded to be less than quantity supplied.
c. causes quantity demanded to be equal to quantity supplied.
d. causes a decrease in demand.
b
Refer to Figure 6-5. If government imposes a price floor at $9, then the price floor causes
a. All of the above are correct.
b. quantity demanded to decrease by 40 units.
c. a surplus of 60 units.
d. quantity supplied to increase by 20 units.
a
Refer to Figure 6-9. A price ceiling set at
a. $7 will be binding and will result in a surplus of 4 units.
b. $4 will be binding and will result in a shortage of 8 units.
c. $4 will be binding and will result in a shortage of 16 units.
d. $7 will be binding and will result in a surplus of 8 units.
c
Refer to Table 6-2. A price floor set at $20 will
a. be binding and will result in a surplus of 75 units.
b. be binding and will result in a surplus of 200 units.
c. be binding and will result in a surplus of 125 units.
d. not be binding.
c
Under rent control, bribery is a mechanism to
a. allocate housing to the most deserving tenants.
b. bring the total price of an apartment (including the bribe) closer to the equilibrium price.
c. allocate housing to the poorest individuals in the market.
d. force the total price of an apartment (including the bribe) to be less than the market price.
b
Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because
a. they become resigned to the fact that many of their apartments are going to be vacant at any given time.
b. with rent control, the government guarantees landlords a minimum level of profit.
c. with rent control, it becomes the government's responsibility to maintain rental housing.
d. with shortages and waiting lists, they have no incentive to maintain and improve their property.
d
Which of the following is correct?
a. Rent control is an example of a price floor, and the minimum wage is an example of a price ceiling.
b. Rent control is an example of a price ceiling, and the minimum wage is an example of a price floor.
c. Rent control and the minimum wage are both examples of price ceilings.
d. Rent control and the minimum wage are both examples of price floors.
b
Studies of the effects of the minimum wage typically find that a 10 percent increase in the minimum wage depresses teenage employment by about
a. 1 to 3 percent.
b. 5 to 7 percent.
c. 10 percent.
d. None of the above is correct because studies show no decrease in teenage employment.
a
Opponents of the minimum wage point out that the minimum wage
a. encourages teenagers to drop out of school.
b. prevents some workers from getting needed on-the-job training.
c. contributes to the problem of unemployment.
d. All of the above are correct.
d
Unlike minimum wage laws, wage subsidies
a. cause unemployment.
b. help only wealthy workers.
c. discourage firms from hiring the working poor.
d. raise the living standards of the working poor without creating unemployment.
d
Consider the US market for chocolate, a market in which the government has imposed a price ceiling. Which of the following events could convert the price ceiling from a nonbinding to a binding price ceiling?
a. a large increase in the size of the cocoa bean crop; cocoa beans are used to produce chocolate.
b. South American cocoa bean producers refuse to ship to chocolate producers in the US.
c. a sharp drop in consumer income; chocolate is a normal good.
d. a government study that shows that consuming chocolate increases the incidence of cancer.
b
The principle of comparative advantage asserts that
a. countries can become better off by specializing in what they do best.
b. countries can become better off by exporting goods, but they cannot become better off by importing goods.
c. not all countries can benefit from trade with other countries.
d. the world price of a good will prevail in all countries, regardless of whether those countries allow international trade in that good.
a
If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price,
a. the country will be an exporter of the good.
b. the country will be an importer of the good.
c. the country will be neither an exporter nor an importer of the good.
d. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither.
a
If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price,
a. the country will be an exporter of the good.
b. the country will be an importer of the good.
c. the country will be neither an exporter nor an importer of the good.
d. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither.
b
When a country allows trade and becomes an exporter of a good,
a. domestic producers gain and domestic consumers lose.
b. domestic producers lose and domestic consumers gain.
c. domestic producers and domestic consumers both gain.
d. domestic producers and domestic consumers both lose.
a
When a country allows trade and becomes an importer of a good,
a. domestic producers become worse off, and domestic consumers become better off.
b. domestic producers become better off, and domestic consumers become worse off.
c. both domestic producers and domestic consumers become worse off.
d. both domestic producers and domestic consumers become better off.
a
Trade raises the economic well-being of a nation in the sense that
a. everyone in an economy gains from trade.
b. since countries can choose what products to trade, they will pick those products that are most beneficial to society.
c. the nation joins the international community when it begins to engage in trade.
d. the gains of the winners exceed the losses of the losers.
d
Spain is an importer of computer chips, taking the world price of $12 per chip as given. Suppose Spain imposes a $5 tariff on chips. As a result,
a. Spanish consumers of chips and Spanish producers of chips both lose.
b. Spanish consumers of chips lose and Spanish producers of chips gain.
c. Spanish consumers of chips and Spanish producers of chips both gain.
d. Spanish consumers of chips gain and Spanish producers of chips lose.
b
Note
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