econ test #1

question

The difference between the minimum price the producer is willing to accept and the price the
producer actually receives for a product is referred to as:

answer

seller surplus.

question

If you are willing to sell your lawn mower business for $355,000 and someone offers you
$420,000 for it, this transaction will generate:

answer

$65,000 worth of seller surplus and unknown amount of buyer surplus

question

Economic reasoning is based on the premise that:

answer

all decisions and actions have a cost associated with them.

question

What is the one lesson of economics that you learned from the Henry Hazlitt video?

answer

Good decision making considers not just obvious and superficial consequences but also all
changes in incentives and the resultant long term consequences

question

The difference between the maximum price the consumer is willing to pay and the price the
consumer actually pays for a product is referred to as:

answer

c) buyer surplus

question

If you are willing to sell your car business for $500,000 and someone offers you $420,000 for it,
this transaction will generate:

answer

There is no surplus created

question

Why is capitalism necessary for wealth creation?

answer

) Value is subjective and if you don't own the "stuff" being traded, they will not be moved
from low value use to high value use consistently

question

Price "gouging" laws are an example of:

answer

Price ceilings

question

Price ceilings and floors:

answer

a) Destroy wealth by creating shortages and excesses
b) provides incentives to conduct business in an illegal black market
c) are a violation of property rights

question

An example of price floor is

answer

) Minimum wages

question

) What causes the Jevon's paradox?

answer

Policy makers' inability to correctly measure and apply the elasticity of demand

question

A consumer values a car at $525,000 and a producer values the same car at $485,000. If the
transaction is completed at $510,000, the transaction will generate:

answer

) $15,000 worth of buyer surplus and $25,000 of seller surplus

question

A consumer values a car at $525,000 and a producer values the same car at $485,000. If the
transaction is completed at $510,000, what level of tax rate will result in unconsummated
transaction?

answer

question

) Some critics of capitalism argue that

answer

If one person makes money, someone else must be losing it

question

Price gouging

answer

Is an act of charging a high price to take advantage of shortages created by natural disasters

question

) Let's imagine the economy as a whole pie. The difference between Capitalism and Socialism is
that

answer

Capitalism is concerned with making the "pie" as large as possible

question

The biggest advantage of capitalism is that

answer

It creates wealth by letting a person follow his or her own self-interest

question

Most bad business decisions can be fixed using

answer

Good incentives
b) Good information

question

) You and two partners start a company. However, your partners play no role in running the
company. You devote all our time and talent to run your own business rather than working for
someone else. You incur an(a):

answer

opportunity cost.

question

A business owner makes 1000 items a day. Each day he/she contributes 8 hours to produce those
items. If hired, elsewhere he/she could have earned $250 an hour. The item sells for $15 each.
Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the
firm's accounting profit for the month equals:

answer

$300,000

question

answer

$240,000

question

The opportunity cost of an action:

answer

is equal to the marginal cost of an action
is equal to the next best alternative forgone

question

Economists argue that:

answer

there is an opportunity cost associated with all decisions.

question

Variable costs are

answer

costs that vary with output

question

Opportunity costs arise due to

answer

Resource scarcity

question

) A manager invests $400,000 in a technology to reduce overall costs of production. The company
managed to reduce their cost per unit from $2 to $1.85. Ceteris peribus, if the firm continues its
production in the same economic environment, the firms accounting profits should

answer

increase

question

A business incurs the following costs per unit: Labor - $5/unit; Materials $3/unit and rent -
$5000/month. If the firm produces 1000 units a month, the total costs equals

answer

$13,000

question

The hidden-cost fallacy occurs when

answer

A firm ignores relevant costs

question

When a firm ignores the opportunity cost of capital when making investment or shutdown
decisions, this is a case of

answer

Hidden-cost fallacy

question

All the following are examples of accounting costs, except

answer

Cost of equity

question

A firm wishes to fire an employee. The company will save up to $3000 per month on his
compensation package. It is estimated that the employee contributes around $4,100 to the
company. The firm

answer

Should fire the employee if the hidden cost of not firing him is $1500

question

In the long-run, all costs are

answer

Variable costs

question

If a firm is earning negative economic profits, it implies

answer

More information is needed to conclude about accounting profits

question

Scott used $4,000,000 from his savings account that paid an annual interest of 5% to purchase a
hardware store. After one year, Scott sold the business for $4,100,000. An Economist calculated
his profit to be:

answer

c) -$100,000

question

If AVC=$5 and AFC=15, then ATC=

answer

d) $20

question

Total cost divided by the total number of inputs is called:

answer

b) average cost

question

A firm produces 1000 units per week. It hires 10 full‐time workers (40 hours/week) at an
hourly wage of $20. Raw materials are ordered weekly and they costs $5 for every unit
produced. The weekly cost of the rent payment for the factory is $1,500. How do the
overall costs breakdown for the week?

answer

b) total variable cost is $5,000; total fixed cost is $9,500; total cost is $14,500

question

According to the law of diminishing returns,

answer

a) Some productions factors are fixed
b) All inputs are variable
c) All inputs are fixed
None of the above*

question

Total costs increase from $1500 to $1800 when a firm increases output from 40 to 50 units. Which
of the following are true?

answer

MC=30

question

The level of an economic activity should be increased to the point where

answer

d) Marginal costs are equal to marginal benefits

question

According to the CNN article, what is a major reason for the drop in health insurance coverage
numbers if Obamacare is repealed?

answer

Removal of IRS penalty decreases the marginal benefit of being insured

question

) Marginal cost is the ____________ cost of producing one additional unit and marginal revenue is
the_____________ revenue of selling an additional unit.

answer

a) Incremental, Incremental

question

) If you know that with 8 units of output, average fixed cost is $40 and average variable cost is $25,
then total cost at this output level is:

answer

c) $520

question

A manager of a clothing firm is deciding whether to add another factory in addition to one already in
production. The manager would compare

answer

c) The incremental benefit expected from the second factory to the cost of the second
factory

question

) How were banks able to get away with "greed" and make so many sub‐prime loans that led to the
eventual financial crisis?

answer

Government‐sponsored enterprises guaranteed such loans reducing risk and therefore the marginal
costs to banks of bad borrowers

question

In the absence of government intervention, how do you think the banks would have handled
subprime loans?

answer

b) They would have assumed the risk of bad loans themselves, and made subprime loans only up to the
point where marginal returns on such loans equaled marginal costs of the added risks
c) The banks would have had to suffer the losses of any subprime loan made that the borrower could
not pay back

question

A firm is thinking of hiring an additional worker to their organization who they believe can increase
total productivity by 100 units a week. The cost of hiring him or her is $1500 per week. If the price of
each unit is $20,

answer

a) the MR of hiring the worker is $2000
b) The MC of hiring the worker is $1500
c) The firm should hire the worker since MB>MC

question

Microsoft found that instead of producing a dvd player and a gaming system separate, it is
cheaper to incorporate dvd playing capabilities in their new version of the gaming system.
Microsoft is taking advantage of

answer

Economies of Scope

question

When a firm is experiencing decreasing marginal costs, it implies

answer

There are increasing marginal productivity

question

The marginal cost curve:

answer

Declines initially as output increases and rises with further increases in output

question

The average total cost curve

answer

is downward sloping when marginal costs are decreasing and upward sloping when
marginal costs are increasing

question

The supply curve is a mirror image of

answer

The marginal cost curve

question

As long as marginal cost is decreasing, marginal product is

answer

greater than average product.

question

When there are economies of scale,

answer

per-unit costs decrease as output increases

question

Diminishing marginal returns occur because

answer

Some inputs are fixed and some inputs are variable in the short-run

question

A firm experiencing constant economies of scale will have a long-run average cost curve that
is:

answer

horizontal

question

As table manufacturing company produces more tables, the average total cost of each table
produced increases. This is because:

answer

There is economies of scale

question

The ability to lower the average costs of production for one product is possible with

answer

Economies of scale

question

The ability to lower the average costs of production for two or more products is possible with

answer

Economies of Scope

question

All the factors below are causes of diminishing marginal returns, except

answer

Division of Labor

1 of 60

question

The difference between the minimum price the producer is willing to accept and the price the
producer actually receives for a product is referred to as:

answer

seller surplus.

question

If you are willing to sell your lawn mower business for $355,000 and someone offers you
$420,000 for it, this transaction will generate:

answer

$65,000 worth of seller surplus and unknown amount of buyer surplus

question

Economic reasoning is based on the premise that:

answer

all decisions and actions have a cost associated with them.

question

What is the one lesson of economics that you learned from the Henry Hazlitt video?

answer

Good decision making considers not just obvious and superficial consequences but also all
changes in incentives and the resultant long term consequences

question

The difference between the maximum price the consumer is willing to pay and the price the
consumer actually pays for a product is referred to as:

answer

c) buyer surplus

question

If you are willing to sell your car business for $500,000 and someone offers you $420,000 for it,
this transaction will generate:

answer

There is no surplus created

question

Why is capitalism necessary for wealth creation?

answer

) Value is subjective and if you don't own the "stuff" being traded, they will not be moved
from low value use to high value use consistently

question

Price "gouging" laws are an example of:

answer

Price ceilings

question

Price ceilings and floors:

answer

a) Destroy wealth by creating shortages and excesses
b) provides incentives to conduct business in an illegal black market
c) are a violation of property rights

question

An example of price floor is

answer

) Minimum wages

question

) What causes the Jevon's paradox?

answer

Policy makers' inability to correctly measure and apply the elasticity of demand

question

A consumer values a car at $525,000 and a producer values the same car at $485,000. If the
transaction is completed at $510,000, the transaction will generate:

answer

) $15,000 worth of buyer surplus and $25,000 of seller surplus

question

A consumer values a car at $525,000 and a producer values the same car at $485,000. If the
transaction is completed at $510,000, what level of tax rate will result in unconsummated
transaction?

answer

question

) Some critics of capitalism argue that

answer

If one person makes money, someone else must be losing it

question

Price gouging

answer

Is an act of charging a high price to take advantage of shortages created by natural disasters

question

) Let's imagine the economy as a whole pie. The difference between Capitalism and Socialism is
that

answer

Capitalism is concerned with making the "pie" as large as possible

question

The biggest advantage of capitalism is that

answer

It creates wealth by letting a person follow his or her own self-interest

question

Most bad business decisions can be fixed using

answer

Good incentives
b) Good information

question

answer

opportunity cost.

question

answer

$300,000

question

answer

$240,000

question

The opportunity cost of an action:

answer

is equal to the marginal cost of an action
is equal to the next best alternative forgone

question

Economists argue that:

answer

there is an opportunity cost associated with all decisions.

question

Variable costs are

answer

costs that vary with output

question

Opportunity costs arise due to

answer

Resource scarcity

question

answer

increase

question

A business incurs the following costs per unit: Labor - $5/unit; Materials $3/unit and rent -
$5000/month. If the firm produces 1000 units a month, the total costs equals

answer

$13,000

question

The hidden-cost fallacy occurs when

answer

A firm ignores relevant costs

question

When a firm ignores the opportunity cost of capital when making investment or shutdown
decisions, this is a case of

answer

Hidden-cost fallacy

question

All the following are examples of accounting costs, except

answer

Cost of equity

question

A firm wishes to fire an employee. The company will save up to $3000 per month on his
compensation package. It is estimated that the employee contributes around $4,100 to the
company. The firm

answer

Should fire the employee if the hidden cost of not firing him is $1500

question

In the long-run, all costs are

answer

Variable costs

question

If a firm is earning negative economic profits, it implies

answer

More information is needed to conclude about accounting profits

question

answer

c) -$100,000

question

If AVC=$5 and AFC=15, then ATC=

answer

d) $20

question

Total cost divided by the total number of inputs is called:

answer

b) average cost

question

answer

b) total variable cost is $5,000; total fixed cost is $9,500; total cost is $14,500

question

According to the law of diminishing returns,

answer

a) Some productions factors are fixed
b) All inputs are variable
c) All inputs are fixed
None of the above*

question

Total costs increase from $1500 to $1800 when a firm increases output from 40 to 50 units. Which
of the following are true?

answer

MC=30

question

The level of an economic activity should be increased to the point where

answer

d) Marginal costs are equal to marginal benefits

question

According to the CNN article, what is a major reason for the drop in health insurance coverage
numbers if Obamacare is repealed?

answer

Removal of IRS penalty decreases the marginal benefit of being insured

question

) Marginal cost is the ____________ cost of producing one additional unit and marginal revenue is
the_____________ revenue of selling an additional unit.

answer

a) Incremental, Incremental

question

) If you know that with 8 units of output, average fixed cost is $40 and average variable cost is $25,
then total cost at this output level is:

answer

c) $520

question

A manager of a clothing firm is deciding whether to add another factory in addition to one already in
production. The manager would compare

answer

c) The incremental benefit expected from the second factory to the cost of the second
factory

question

) How were banks able to get away with "greed" and make so many sub‐prime loans that led to the
eventual financial crisis?

answer

Government‐sponsored enterprises guaranteed such loans reducing risk and therefore the marginal
costs to banks of bad borrowers

question

In the absence of government intervention, how do you think the banks would have handled
subprime loans?

answer

question

answer

a) the MR of hiring the worker is $2000
b) The MC of hiring the worker is $1500
c) The firm should hire the worker since MB>MC

question

answer

Economies of Scope

question

When a firm is experiencing decreasing marginal costs, it implies

answer

There are increasing marginal productivity

question

The marginal cost curve:

answer

Declines initially as output increases and rises with further increases in output

question

The average total cost curve

answer

is downward sloping when marginal costs are decreasing and upward sloping when
marginal costs are increasing

question

The supply curve is a mirror image of

answer

The marginal cost curve

question

As long as marginal cost is decreasing, marginal product is

answer

greater than average product.

question

When there are economies of scale,

answer

per-unit costs decrease as output increases

question

Diminishing marginal returns occur because

answer

Some inputs are fixed and some inputs are variable in the short-run

question

A firm experiencing constant economies of scale will have a long-run average cost curve that
is:

answer

horizontal

question

As table manufacturing company produces more tables, the average total cost of each table
produced increases. This is because:

answer

There is economies of scale

question

The ability to lower the average costs of production for one product is possible with

answer

Economies of scale

question

The ability to lower the average costs of production for two or more products is possible with

answer

Economies of Scope

question

All the factors below are causes of diminishing marginal returns, except

answer

Division of Labor

Continue to order Get a quote

econ test #1

Recent Posts

Recent Comments

Calculate the price of your order

Our guarantees

Money-back guarantee

Zero-plagiarism guarantee

Free-revision policy

Privacy policy

Fair-cooperation guarantee