Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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(I-1)
When economists speak of scarcity, they are referring to the a. | condition in
which society is not employing all its resources in an efficient way. | b. | condition in
which people's wants outstrip the limited resources available to satisfy those
wants. | c. | economic condition that exists in only very poor countries of
the world. | d. | condition in which society produces too many frivolous goods
and not enough socially desirable goods. | | |
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2.
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(I-2)
Choice is fundamentally a consequence of a. | living in a world where there are both goods and
bads. | b. | how wealthy one is. | c. | the existence of
evil. | d. | scarcity. | e. | opportunity
cost. | | |
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3.
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(I-3)
An free good is distinguished from an economic good by the fact that a. | it is
scarce. | b. | it has a positive price. | c. | at zero price
the quantity demanded of it is greater than the quantity supplied. | d. | at zero price
the quantity demanded of it is less than the quantity supplied. | e. | a, b, and
d. | | |
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4.
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(I-4)
When an economist assumes that the owners of firms are motivated only by the desire to maximize
profits, the economist believes that a. | the assumption is descriptively accurate, since surveys have
been taken and the owners of firms have admitted that their only objective is to maximize
profits. | b. | the assumption is inaccurate, since surveys have been taken and
the owners of firms have admitted that they care about more than only
profits. | c. | it doesn't matter whether the assumption is descriptively
accurate or not; what matters is whether a theory built on the assumption predicts
well. | d. | none of the above | | |
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5.
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(I-5)
Opportunity cost is the value of a. | the next best forfeited alternative. | b. | the chosen
alternative. | c. | a free good. | d. | an economic
good. | | |
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6.
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(I-5)
What is the reason for the law of increasing costs? a. | There is no
reason: it just is. | b. | People have varying abilities and those with lower opportunity
costs of producing a good produce it before people with higher opportunity costs produce
it. | c. | The price of a
good rises as more of it is demanded. | d. | As more of a good is produced, the taxes applied to the
production of the good rise. | e. | c and d | | |
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Exhibit A
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7.
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(I-6)
Refer to Exhibit A. A price of $6 in the market will result in a a. | shortage of 10
units. | b. | surplus of 10 units. | c. | surplus of 5
units. | d. | shortage of 5 units. | | |
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Exhibit B
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8.
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(I-7)
Refer to Exhibit B. Which graph depicts a discovery of a new cheap source of energy? a. | (1) | b. | (2) | c. | (3) | d. | (4) | e. | none of the above | | |
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9.
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(I-8)
Market pricing as a kind of automatic signalling system that responds to changes in
relative scarcities and rapidly redirects economic activity is part of a. | the capitalist
vision | b. | the socialist vision | c. | both the
capitalist and the socialist vision. | d. | neither the capitalist nor the socialist
vision. | | |
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10.
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(I-8)
“In every exchange, one party gains at the expense of the other party. There is
always a winner and a loser.” This statement would be held as true by ________
thinkers. a. | some
capitalist. | b. | all capitalist. | c. | all
socialist. | d. | neither capitalist nor socialist. | | |
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11.
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(I-9)
Where in the Cirular Flow of Economic Activity does the capitalistic economic system
answer the question of "to whom is output to be distributed?" a. | Final Goods and
Services Market | b. | Factor Market | c. | Households | d. | Business Firms | | |
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12.
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(I-9)
In the Circular Flow of Economic Activity, __________ determine(s) "what will be
produced." a. | the
government | b. | households | c. | the final goods
and sevices market | d. | the money market | e. | big, global
corportations | | |
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Exhibit C
Country 1
Good
A Good B | Country 2
Good
A Good
B
| 200
0
160
20
120
40
80
60
40
80
1
100
| 75
0
60
10
45
20
30
30
15
40
0
50 | | |
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13.
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(I-10) Refer to Exhibit C. Country 1 has a comparative advantage in the production of
__________, and country 2 has a comparative advantage in the production of
__________. a. | good A; good
B | b. | good B; good
A | c. | both goods;
neither good | d. | neither good; both goods | e. | neither good;
neither good | | |
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Exhibit D
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14.
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(I-12) Refer to Exhibit D. A movement from point Z to point Y would have been the
result of a. | a price
reduction. | b. | an increase in population. | c. | an improvement
in technology. | d. | a change in a nonprice factor. | | |
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15.
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(I-12) The law of demand states (everything else unchanged) a. | that goods will
be supplied to just equal consumer demand. | b. | that consumer demand will determine the level of firm
supply. | c. | that consumers will buy more of a good if its price
rises. | d. | that consumers will buy more of a good if its price
falls. | | |
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16.
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(I-12) An increase in the price of Ford cars will have what likely effect in the
market for Honda cars? a. | It will have no effect. | b. | The demand for
Hondas will increase. | c. | The demand for Hondas will decrease. | d. | The supply of
Hondas will increase. | | |
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17.
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(I-13) Resource X is necessary to the production of good Y. If the price of resource X
rises, a. | the supply curve
of Y shifts leftward. | b. | the supply curve of Y shifts
rightward. | c. | the supply curve of Y is unaffected. | d. | there is a
movement down the supply curve of Y. | e. | there is a movement up the supply curve of
Y. | | |
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18.
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(I-14) If there is an increase in the supply of a good, a. | the demand for
the good will increase. | b. | the price of the good will fall and the quantity purchased will
decrease. | c. | the price of the good will fall and the quantity purchased will
rise. | d. | the price of the good will rise and the quantity purchased will
rise. | | |
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19.
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(I-14) Which of the following statements represents a correct and sequentially
accurate economic explanation? a. | X and Y are substitutes. The price of X falls, the quantity
demanded of X rises, and the demand for Y rises. | b. | X and Y are
substitutes. The price of X rises, the demand for X falls, and the demand for Y
rises. | c. | X and Y are substitutes. The price of X falls, the demand for X
rises, and the quantity demanded of Y rises. | d. | X and Y are
substitutes. The price of X falls, the quantity demanded of X rises, and the demand for Y
falls. | e. | X and Y are complements. The price of X falls, the quantity
demanded of X rises, and the demand for Y falls. | | |
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Exhibit E
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20.
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(I-15) Refer to Exhibit E. At $6 the surplus equals a. | 350
units. | b. | 150 units. | c. | 200
units. | d. | There is no surplus at $6. | | |
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21.
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(I-15) If rent controls for apartments were established in Austin below the
present going rental rates, we could expect a. | a building boom in new apartments to
start. | b. | equilibrium rents to fall below the rates set by rent
control. | c. | a surplus in apartments to develop. | d. | a shortage in
apartments to develop. | | |
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22.
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(II-1) If the percentage change in quantity demanded is greater than the percentage
change in price, demand is a. | inelastic. | b. | unit
elastic. | c. | elastic. | d. | perfectly
elastic. | e. | perfectly inelastic. | | |
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23.
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(II-2) A good will tend to have a low price elasticity of demand if a. | it has few
substitutes. | b. | a person spends a high percentage of his or her budget on
it. | c. | a person has a
long period of time to adjust to price changes. | d. | the good is
expensive. | | |
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24.
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(II-3) An inferior good is a. | any good that consumers think is of low
quality. | b. | a good for which the quantity demanded decreases as its price
increases. | c. | a good for which the demand rises as income
falls. | d. | a good for which the demand rises as income
rises. | e. | any good that a producer cannot sell a large quantity of, even
at a low price. | | |
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25.
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(II-4) When it comes to the behavior of economic agents, economic
theory a. | assumes everyone
would be better off if a kind, gentle, and all knowing government made decisions for
individuals. | b. | realizes that people are ignorant of their own
self-interest. | c. | assumes that it is very destructive for people to be acting in
their own self-interest. | d. | assumes people know what is best for themselves and they act
accordingly. | | |
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26.
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(II-5) Which of the following is true? a. | It is possible
for total utility to rise as marginal utility falls. | b. | Marginal utility
is the same as total utility. | c. | It is possible for marginal utility to rise as total utility
falls. | d. | a and c | | |
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27.
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(II-5) If the total utilities corresponding to the first five units of a good consumed
are 10, 15, 19, 22, and 24, respectively, what is the marginal utility of the fourth
unit?
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28.
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(II-6) Given two goods, X and Y, and their prices, PX and PY a
consumer will maximize utility by allocating expenditures such that a. | MUX/PY = MUY/PX. | b. | PY/MUX = PX/MUY. | c. | MUX/PX = MUY
/PY. | d. | MUX = PX = MUY = PY
= MU$. | e. | MUX = MUY = PX = PY
= MU$. | | |
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Exhibit F
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29.
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(II-7) Refer to Exhibit F. Linda spends $5 a week on apples and oranges. If the price
of both goods is $1 per unit, what is Linda's total utility from consuming the optimal bundle of
goods?
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30.
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(II-8) The diamond-water paradox is illustrated by which of the following
statements? a. | Water, a
necessity, has a relatively low price whereas diamonds, usually a luxury, have a relatively high
price. | b. | Although water appears to have a relatively low price when
compared to diamonds, in reality, it has a relatively higher price. | c. | Although water
appears to have a relatively low price when compared to diamonds, in reality, the prices are
equal. | d. | Although water appears to have a relatively low price when
compared to diamonds, at the margin, water has the relatively higher price. | e. | Although water
appears to have a relatively low price when compared to diamonds, at the margin, the prices are
equal. | | |
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31.
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(II-9) The Alchian and Demsetz theory of why business firms exist suggests
that a. | there are only
advantages to team production. | b. | disadvantages of team production may outweigh the disadvantages
of individual production. | c. | individual production is more efficient than team
production. | d. | the sum of team production is sometimes greater than the sum of
individual production. | | |
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32.
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(II-10) When you buy a corporate bond, you are a. | borrowing funds
from the corporation. | b. | lending funds to the corporation. | c. | selling an
ownership right in the corporation. | d. | acquiring an ownership right in the
corporation. | e. | b and d | | |
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33.
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(II-11) Which of the following statements is true? a. | Explicit costs
always equal implicit costs. | b. | Economic profit is a larger dollar figure than accounting
profit. | c. | Zero economic profit is a larger dollar figure than normal
profit. | d. | Saying that a firm earned zero economic profit is the same as
saying it earned normal profit. | e. | none of the above | | |
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34.
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(II-12) It would be possible to produce the world's present supply of wheat in a
flowerpot if it were not for the law of a. | demand. | b. | supply. | c. | comparative advantage. | d. | diminishing
marginal returns. | | |
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35.
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(II-13) The demand curve that a perfectly competitive firm seems to
face a. | is downward
sloping. | b. | is upward sloping. | c. | is perfectly
horizontal. | d. | is perfectly vertical. | e. | may be downward
or upward sloping, depending upon the type of product offered for sale. | | |
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Exhibit G
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36.
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(II-14) Refer to Exhibit G. Curve B is a(n) __________ cost curve. a. | marginal | b. | average variable | c. | average
total | d. | average fixed | | |
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37.
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(II-15) The perfectly competitive firm's short-run supply curve is
the a. | upward-sloping
portion of its average total cost curve. | b. | horizontal portion of its marginal revenue
curve. | c. | portion of its average variable cost curve that lies above the
average fixed cost curve. | d. | upward-sloping portion of its marginal cost
curve. | e. | portion of its marginal cost curve that lies above its average
variable cost curve. | | |
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38.
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(III-1) If, in a competitive industry, P > ATC, then a. | losses in the
industry would cause some existing firms to exit the industry. | b. | positive
economic profit would attract firms to the industry in order to obtain the
profits. | c. | firms would not be producing the quantity of output at which MR
= MC. | d. | firms would not be covering total fixed
costs. | e. | none of the above | | |
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39.
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(III-2) The firm's factor demand curve is the a. | MRP curve if the
firm is a price taker (perfectly competitive firm). | b. | MFC curve if the
firm is a price taker (perfectly competitive firm). | c. | VMP curve if the
firm is a price searcher (monopolist, monopolistic competitor,
oligopolist). | d. | MFC curve if the firm is a price searcher (monopolist,
monopolistic competitor, oligopolist). | | |
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40.
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(III-3) A decrease in the wage rate a. | shifts the
supply curve of labor leftward. | b. | decreases the quantity supplied of
labor. | c. | shifts the supply curve of labor
rightward. | d. | increases the quantity supplied of
labor. | | |
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41.
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(III-4) If all the individuals had the same innate and learned skills and abilities,
applied the same degree of effort on the job, and worked with the same amount and quality of other
factors of production, a. | all labor supply curves would be
horizontal. | b. | all labor demand curves would be
horizontal. | c. | wages in different markets would differ less than they
currently do. | d. | the quantity of labor supplied would decrease in all
markets. | e. | the demand curve for capital would be upward
sloping. | | |
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42.
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(III-5) If the price for loanable funds is less than the return on capital, then firms
will a. | borrow in the
loanable funds market and invest in capital goods, and as this happens, the quantity of capital
decreases and its return rises. | b. | borrow in the loanable funds market and invest in capital
goods, and as this happens, the quantity of capital increases and its return
falls. | c. | not borrow in the loanable funds market, and over time the
capital stock will decrease and the return on capital will fall. | d. | not borrow in
the loanable funds market, and over time the capital stock will decrease and the return on capital
will rise. | | |
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43.
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(III-6) The supply of factor X is perfectly inelastic and it receives a price of $100.
It follows that a. | the entire $100
is pure economic rent. | b. | part of the $100 is pure economic
rent. | c. | factor X does not receive any economic
rent. | d. | any payment above the price of $100 is economic
rent. | e. | none of the above | | |
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44.
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(III-7) Profits may exist as the result of a. | uncertainty. | b. | alertness to arbitrage opportunities. | c. | innovation. | d. | all of the above | e. | none of the
above | | |
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45.
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(III-8) The marginal productivity theory states that a. | as variable
inputs are added to a fixed quantity of other inputs eventually the additional output produced by
each additional variable input will decrease. | b. | inputs will be
used most efficiently when the additional output gained from each type of input is exactly the
same. | c. | firms in perfectly competitive product and factor markets will
pay factors their marginal revenue products. | d. | marginally
productive inputs (that is, inputs that are not particularly productive) will not be heavily
utilized. | | |
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46.
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(III-9) Refer to Exhibit 4. Which of the following Lorenz curves
illustrates the income distribution in the table at the top of Exhibit 4? a. | A | b. | B | c. | C | d. | D | e. | none of them | | |
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47.
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(III-10) In 1998, the poverty income threshold for a family of four was
approximately a. | $9,000. | b. | $11,000. | c. | $16,600. | d. | $20,500. | | |
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48.
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(III-11) The marginal productivity normative standard of income distribution states
that people a. | are paid their
marginal revenue products. | b. | should be paid their marginal revenue
products. | c. | should be paid the wage that does the most to reduce income
inequality. | d. | should be paid more for hard jobs than easy
jobs. | | |
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49.
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(III-12) A natural monopoly exists when a. | a monopolist
produces a product, the main component of which is a natural resource. | b. | economies of
scale are so large that only one firm can survive and achieve low unit
costs. | c. | a firm controls all the rights to a scarce
resource. | d. | there are no close substitutes for a firm's
product. | | |
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50.
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(III-13) The perfectly competitive firm charges a price equal to __________ while the
monopolist charges a price __________. a. | marginal revenue; equal to marginal
cost | b. | marginal cost;
greater than marginal cost | c. | marginal cost; equal to marginal
revenue | d. | average total cost; greater than average total
cost | | |
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