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Basic Economic Concepts
Supply and
Demand
Economic Performan
ce
Production and Costs
Income and Price Determina
tion
Market Structure
s
A professor hires two aides, assigning them the tasks of reading student papers and of typing lectures notes on a computer. One of the aides, Ben, can read 1 page of lecture notes per minute or 50 words per minute and the other aide, Ann, can read 3 pages of a student paper per minute or type 60 words of lectures notes per minute. Which of the following statements is true?a.Ann has a comparative advantage in reading student papers, and Ben has a comparative advantage in typing lecture notes.b.Ann has an absolute advantage in reading student papers, and Ben has an absolute advantage in typing lecture notes.c.Ben has a comparative advantage in reading student papers, and Ann has a comparative advantage in typing lecture notes.d.Ben has a comparative advantage in both reading student papers and typing lecture notes.e.Ben has an absolute advantage in both reading student papers and typing lecture notes.
A 100
200
According to the graph, if a country is currently producing at point X, the opportunity cost of producing another consumer good is GRAPH #2 2005a.20 capital goodsb.more than 20 capital goodsc.fewer than 20 capital goodsd.20 consumer goodse.fewer than 20 consumer goods
A
300The study of economics is primarily concerned with which of the following?a.The testing of hypotheses under controlled conditionsb.The allocation of scarce resources, given unlimited wantsc.The fair and equal treatment of all householdsd.The provision of conclusive answers to public policy issuese.The development of the dynamics of group behavior
B
400Mr. Carpenter devotes his working time to producing tables and chairs. An increase in the demand for chairs will result ina.an increase in the amount of time he devotes to producing tablesb.an increase in his opportunity cost of producing tablesc.a decrease in the price of lumberd.a decrease in the price of chairse.a decrease in his total revenue
B
500For an economy with a straight-line production possibilities curve, which of the following must be true?I.The opportunity cost of producing another unit is constant.II.Resources are completely adaptable to alternative uses.III.Resources are used efficiently.a.I onlyb.II onlyc.III onlyd.I and IIe.II and III
D
100
To alleviate a financial crisis, a university increases student fees. This action will increase university revenues if the price elasticity of demand for university education isa.inelasticb.unit elasticc.elasticd.equal to the price elasticity of supplye.equal to one
A
200Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good?a.The quantity sold will exceed the equilibrium quantity.b.Firms’ total revenues will increase if demand is price elastic.c.There will be a shortage in the market.d.All firms will shut down, since price is below the equilibrium price.e.Price will exceed the marginal cost of producing the last unit sold.
C
300
Which of the following will decrease the demand for beef?a.An increase in the price of pork, if pork and beef are substitute goods.b.An increase in the price of potatoes, if potatoes and beef are complementary goods.c.A decrease in the cost of transporting beef to consumers.d.An increase in the income levels of most consumers, if beef is a normal good.e.Research showing beef is better for your health than chicken.
B
400
Assume that both the supply of and the demand for a good are relatively price elastic. The imposition of a per-unit excise tax on the sale of the good would cause the equilibrium price and quantity to change in which of the following ways?
Price Quantitya.Increase Increaseb.Increase No changec.Increase Decreased.DecreaseNo changee.DecreaseDecrease
C
500
Assume that consumers consider potatoes to be an inferior good, but consider rice to be a normal good. An increase in consumers’ incomes will most likely affect the equilibrium price and quantity of potatoes and rice in which of the following ways?
Potatoes RicePrice Quantity Price Quantity
a.DecreaseDecrease Increase Decreaseb.DecreaseIncrease Increase Decreasec.DecreaseDecrease Decrease Decreased.Increase Increase Decrease Decreasee.Increase Decrease Increase Decrease
A
100The major difference between real and nominal gross domestic product (GDP) is that real GDPa.excludes government transfer paymentsb.excludes importsc.is adjusted for price-level changes using a price indexd.measures only the value of final goods and services that are consumede.measures the prices of a market basket of good purchased by a typical urban consumer
C
200Which of the following statements exemplifies the concept of structural unemployment?a.New entrants into the labor force have trouble finding jobs.b.Workers leave their current jobs to find better jobs.c.Workers are laid off because aggregate demand has declined.d.Workers are fired because consumers have reduced their total expenditures.e.Workers are fined because their skills are no longer in demand.
E
300Under which of the following conditions would consumer spending most likely increase?a.Consumers have large unpaid balances on their credit cards.b.Consumers’ wealth is increased by changes in the stock market.c.The government encourages consumers to increase their savings.d.Social security taxes are increased.e.Consumers believe they will not receive pay increases next year.
B
400The unemployment rate measures the percentage ofa.people in the labor force who do not have jobsb.people in the labor force who have a part-time job but are looking for a full-time jobc.people who do not have jobs and have given up looking for workd.people in the adult population who do not have jobse.people in the adult population who have temporary jobs
A
500Which of the following can be considered a leakage from the circular flow of economic activity?a.Investmentb.Government expendituresc.Consumptiond.Exportse.Saving
E
100
If the price of a firm’s variable input increases, which of the following will occur?A.The firm will decrease its level of production.B.The price of the good will decrease in the short run.C.The firm’s marginal costs will decrease at every level of output.D.The firm’s average fixed cost will decrease.E.More firms will enter the industry in the run.
A
200In a given time period, a period consumes more and more of a good or service and, as a result, enjoys each additional unit less and is willing to pay less for each additional unit. This behavior is consistent with the law ofa.diminishing returnsb.diminishing marginal productc.diminishing marginal utilityd.increasing costse.scarce resources
C
300
Which of the following best describes the relationship between the average total cost curve and the marginal cost curve in the short run?a.If the average total cost curve is rising, the marginal cost curve is above the average total cost curve.b.If the average total cost curve is rising, the marginal cost curve is below the average total cost curve.c.If the average total cost curve is above the marginal cost curve, the marginal cost curve is rising.d.If the average total cost curve is below the marginal cost curve, the marginal cost curve is falling.e.If the average and marginal cost curves intersect, the marginal cost curve is at a minimum.
A
400At the current production level of good X, price is greater than marginal cost. Which of the following actions would lead to greater efficiency?a.Decreasing the production of good Xb.Increasing the production of good Xc.Maintaining the current level of production of good Xd.Imposing a tax on the production of good Xe.Imposing an effective price floor on good X
B
500Locotek produces toy trains and pays each worker $350 per week. Five workers can produce 40 trains per week and six workers can produce 45 trains per week. The marginal product per week of the sixth worker isa.$70b.$350c.5 trainsd.7.5 trainse.42.5 trains
C
100Crowding out is best described as which of the following?a.The decrease in full-employment output caused by an increase in taxesb.The decrease in consumption or private investment spending caused by an increase in government spendingc.The decrease in government spending caused by a decrease in taxesd.The increase in the amount of capital outflow caused by the increase in government spendinge.The increase in the amount of capital inflow caused by the increase in government spending
B
200The classical economists argued that involuntary unemployment would be eliminated bya.increasing government spending to increase aggregate demandb.increasing the money supply to stimulate investment spendingc.self-correcting market forces stemming from flexible prices and wagesd.maintaining the growth of the money supply at a constant ratee.decreasing corporate income taxes to encourage investment
C
300An increase in the marginal propensity to consume causes an increase in which of the following?a.Marginal propensity to saveb.Spending multiplierc.Savings rated.Exportse.Aggregate supply
B
400
Assume that the economy is at full-employment equilibrium in the diagram shown above. Which of the following would lead to stagflation?a.A leftward shift of the short-run aggregate supply curve onlyb.A rightward shift of the short-run aggregate supply curve onlyc.A leftward shift of the aggregate demand curve onlyd.A rightward shift of the aggregate demand curve onlye.A rightward shift in both the short-run aggregate supply curve and the aggregate demand curve
A
500A change in which of the following will cause the short-run aggregate supply curve to shift?I.The price levelII.Government spendingIII.The cost of all inputsa.I onlyb.II onlyc.III onlyd.I and II onlye.I, II, and III
C
100
One characteristic of perfectly competitive markets is that individual firmsa.engage in product differentiationb.are free to enter or exit an industry in the long runc.earn positive economic profits in the long rund.advertise to increase market sharee.face a downward-sloping demand curve
B
200Which of the following is true of a monopolistically competitive firm in long-run equilibrium?a.Price is greater than marginal cost, and marginal revenue is equal to average total cost.b.Price is greater than marginal revenue, and marginal cost is equal to average total cost.c.Price is greater than marginal revenue, and marginal cost is greater than average total cost.d.Marginal revenue is equal to marginal cost, and price is equal to average total cost.e.Marginal revenue is greater than marginal cost, and price is equal to average total cost.
D
300Generally, monopolies are considered inefficient because theya.produce at a point where marginal cost is less than marginal revenueb.produce at a point where marginal cost exceeds pricec.produce more output than does a competitive industry with similar cost conditionsd.lead to an overallocation of resources in the affected markete.lead to an underallocation of resources in the affected market
E
400Economies of scale exist whena.the doubling of all inputs doubles the output producedb.short-run average total cost decreases as output increasesc.short-run average total cost remains constant as output increasesd.long-run average total cost increases as output increasese.long-run average total cost decreases as output increases
E
500If the only two firms in an industry successfully collude to maximize their joint profit, the price for the product will bea.equal to the marginal cost of productionb.equal to the average total cost of productionc.above the marginal cost of productiond.above the monopoly pricee.below the average variable cost of production
C