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Practice Final Exam Econ

question
All else equal, if the price level in the U.S economy decreases, the equilibrium interest rate will _____. In this case, the Federal Reserve can _____ Treasury securities to bring the interest rate back to its original level.
a. increase; sell
b. increase; buy
c. decrease; sell
d. decrease; buy
answer
c. decrease; sell
question
If the nominal wage of a worker increases by 10 percent and her purchasing power decreases by 5 percent, then we can conclude that the price level must have _____ than 10 percent.
a. increased by more
b. increased by less
c. decreased by more
d. decreased by less
answer
a. increased by more
question
An economy uses coins made of gold as money. This is an example of:
a. fiat money.
b. gold standard.
c. commodity money.
d. commodity standard.
answer
c. commodity money
question
All else equal, the _____ the value of Treasury securities purchased by the Federal Reserve and the _____ the reserve requirement, the higher will be the amount of money created.
a. lower; lower
b. lower; higher
c. higher; lower
d. higher; higher
answer
c. higher; lower
question
An economy's _____ is measured along the vertical axis of an aggregate demand curve.
a. real gross domestic product
b. overall price level
c. interest rate
d. overall income level
answer
b. overall price level
question
Which of the following statements is true?
a. If a country's nominal GDP is rising, then its production must also be rising.
b. If a country's nominal GDP is constant, then its production must also be constant.
c. If a country's real GDP is constant, then the price level must also be constant.
d. If a country's real GDP is constant, then its production must also be constant.
answer
d. If a country's real GDP is constant, then its production must also be constant
question
If the short-run macroeconomic equilibrium occurs in the upward-sloping range of the short-run aggregate supply curve and the Federal Reserve increases the money supply, then which of the following will be true in the long run?
a. The nominal wage of workers will be lower compared to what it was in the short run.
b. Output will be higher compared to what it was in the short run.
c. The nominal wage of workers will be higher compared to what it was in the short run.
d. The price level will be lower compared to what it was in the short run.
answer
c. The nominal wage of workers will be higher compared to what it was in the short run
question
Which of the following will decrease aggregate demand, thereby shifting the curve left?
a. The interest rate increases.
b. Consumers' expectations of future income increase.
c. Government spending increases.
d. Foreign countries increase their imports of domestic goods.
answer
a. The interest rate increases
question
Which of the following statements about the long-run aggregate supply curve is true?
a. It is upward sloping in the range where the nominal wage is sticky.
b. It is horizontal in the range where cyclical unemployment is present.
c. It is vertical at the level of potential GDP.
d. It is downward sloping in the range where the real wage is flexible.
answer
c. It is vertical at the level of potential GDP
question
A decrease in the overall price level in the economy leads to all of the following EXCEPT:
a. an increase in consumption spending.
b. an increase in the interest rate.
c. an increase in its exports.
d. a decrease in its imports.
answer
b. an increase in the interest rate
question
According to the foreign trade effect, when all else is equal, when the price level in a country increases, its exports _____, and its imports:
a. increase; increase.
b. decrease; increase.
c. increase; decrease.
d. decrease; decrease.
answer
b. decrease; increase
question
All else equal, if the Federal Reserve follows an expansionary monetary policy, then the money supply curve will shift _____, and the equilibrium interest rate will:
a. left; decrease.
b. left; increase.
c. right; decrease.
d. right; increase.
answer
c. right; decrease
question
Monetary policy refers to the policies that the _____ uses to manage _____ in efforts to stabilize the economy.
a. federal government; taxes
b. Federal Reserve; taxes
c. federal government; money supply and interest rates
d. Federal Reserve; money supply and interest rates
answer
d. Federal Reserve; money supply and interest rates
question
If the people who live in a developing country increasingly use ATM machines to dispense cash, then the overall demand for money in that economy will ______, and the demand curve for money will shift:
a. decrease; left.
b. increase; left.
c. decrease; right.
d. increase; right.
answer
a. decrease; left
question
Dell Computers manufactures a $1,000 laptop in December 2017. This laptop is sold to a consumer in March 2018 for $1,000, who in turn sells it on eBay in August 2018 for $800. Because of these transactions, the 2017 GDP increases by _____, and the 2018 GDP increases by:
a. zero; $1,000.
b. $1,000; zero.
c. $1,000; $800.
d. zero; $1,800.
answer
b. $1,000; zero
question
Under the current U.S. monetary system, _____ are not considered to be money.
a. checks and debit cards
b. checking account deposits
c. currency
d. traveler's checks
answer
a. checks and debit cards
question
If the full employment level of output for an economy is 1,000 units and it is currently producing 900 units, then there is _____ gap, and the government can _____ taxes to close the gap.
a. an inflationary; decrease
b. an inflationary; increase
c. a recessionary; decrease
d. a recessionary; increase
answer
c. a recessionary; decrease
question
If the short-run aggregate supply curve intersects the aggregate demand curve to the left of the long-run aggregate supply curve, then the economy has _____ gap, and the government can close the gap using _____ fiscal policy.
a. an inflationary; an expansionary
b. a recessionary; an expansionary
c. an inflationary; a contractionary
d. a recessionary; a contractionary
answer
b. a recessionary; an expansionary
question
If the short-run aggregate supply curve intersects the aggregate demand curve to the left of the long-run aggregate supply curve, then the economy has _____ gap, and the government can close the gap by _____ taxes.
a. an inflationary; increasing
b. an inflationary; decreasing
c. a recessionary; increasing
d. a recessionary; decreasing
answer
d. a recessionary; decreasing
question
The interest rate that banks charge each other for short-term loans is known as the:
a. discount rate.
b. federal funds rate.
c. required rate.
d. prime rate.
answer
b. federal funds rate
question
An increase in the discount rate _____ the interest rate that banks charge their customers, which leads to _____ in the total spending in the economy.
a. increases; an increase
b. decreases; an increase
c. increases; a decrease
d. decreases; a decrease
answer
c. increases; a decrease
question
Suppose that a can of soda cost 30 cents in 1970 and the Consumer Price Index (CPI) in 1970 was 36. If the CPI in 2016 was 240, then the price of the can of soda in 2016 was:
a. $1.70.
b. $2.00.
c. $2.25.
d. $2.50.
answer
b. $2.00
question
Assume that individuals hold cash and the banks hold excess reserves. If the reserve requirement is 1 percent and the Federal Reserve buys $10 of Treasury securities from a bank, then money supply will _____ than $1,000.
a. increase by more
b. increase by less
c. decrease by more
d. decrease by less
answer
b. increase by less
question
A worker has a nominal income of $10,000 in the year 2000, and the Consumer Price Index (CPI) for 2000 was 100. If the worker's nominal income remained unchanged in 2001 but the real income increased to $10,050, then the CPI for 2001 is _____, and there has been _____ in the economy.
a. 100.50; deflation
b. 100.50; inflation
c. 99.50; deflation
d. 99.50; inflation
answer
c. 99.50; deflation
question
The real wage of workers increases when the nominal wage _____ by 5% and the overall price level _____.
a. increases; increases by 10%
b. decreases; decreases by 5%
c. increases; increases by 5%
d. decreases; decreases by 10%
answer
d. decreases; decreases by 10%
question
When all else is equal, if an increase in government spending leads to an increase in equilibrium output and no change in equilibrium price, then we can conclude that the economy must be operating on the:
a. classical range of the short-run aggregate supply curve.
b. Keynesian range of the short-run aggregate supply curve.
c. upward-sloping range of the short-run aggregate supply curve.
d. long-run aggregate supply curve.
answer
b. Keynesian range of the short-run aggregate supply curve
question
Which of these statements is true?
a. If the government spending is less than the total tax revenue, then the government has no debt.
b. If the government spending is less than the total tax revenue, then the government debt increases.
c. If the government spending is less than the total tax revenue, then the government has a budget surplus.
d. If the government spending is less than the total tax revenue, then the government has a budget deficit.
answer
c. If the government spending is less than the total tax revenue, then the government has a budget surplus
question
During times of _____, cash acts as a poor:
a. deflation; store of value.
b. deflation; unit of account.
c. inflation; store of value.
d. inflation; unit of account.
answer
c. inflation; store of value
question
Which one of the following will decrease aggregate supply, thereby shifting the curve left?
a. Nominal wages decrease as a result of an increased labor supply.
b. The productivity of workers decreases as a result of an epidemic.
c. A new government policy decreases business taxes.
d. The price of oil, which is a major input into most production activities, decreases.
answer
b. The productivity of workers decreases as a result of an epidemic
question
A decrease in the discount rate _____ the interest rate that banks charge their customers, which leads to _____ in the total spending in the economy.
a. increases; an increase
b. decreases; an increase
c. increases; a decrease
d. decreases; a decrease
answer
b. decreases; an increase
question
All else equal, if the Federal Reserve follows a contractionary monetary policy, then the money supply curve will shift _____, and the equilibrium interest rate will:
a. left; decrease.
b. left; increase.
c. right; decrease.
d. right; increase.
answer
b. left; increase
question
Which of the following statements is true?
a. According to Keynesian theory, prices and wages are flexible.
b. According to Say's law, supply creates its own demand.
c. According to monetarist theory, stagflation results from a lack of aggregate demand.
d. According to classical theory, prices and wages are sticky.
answer
b. According to Say's law, supply creates its own demand
question
If the short-run macroeconomic equilibrium occurs in the Keynesian range of the short-run aggregate supply curve, then an increase in the federal income tax will lead to:
a. an increase in the equilibrium price.
b. a decrease in the equilibrium price.
c. an increase in the equilibrium output.
d. a decrease in equilibrium output.
answer
d. a decrease in equilibrium output
question
If the total money supply in the economy is $1,000, the price level is $10, and the real GDP is 600 units, then the velocity of money must be:
a. 10.
b. 8.
c. 6.
d. 4.
answer
c. 6
question
Which of the following is NOT a final good?
a. bread bought by a deli to make sandwiches
b. a sandwich bought by a customer at a deli
c. a new car purchased by a student to commute to college campus
d. a new laptop purchased by a college student to work on assignments
answer
a. bread bought by a deli to make sandwiches
question
Suppose that the nominal GDP of a country in 2017 is $10 trillion. The real GDP of the country remains constant between 2017 and 2018, but the price level increases by 20 percent. What is the nominal GDP of the country in 2018?
a. $8 trillion
b. $10 trillion
c. $12 trillion
d. $13 trillion
answer
c. $12 trillion
question
Economic growth is depicted by a:
a. rightward shift in the aggregate demand curve.
b. rightward shift in the upward-sloping range of the short-run aggregate supply curve.
c. downward shift in the Keynesian range of the short-run aggregate supply curve.
d. rightward shift in the long-run aggregate supply curve.
answer
d. ightward shift in the long-run aggregate supply curve
question
If the nominal GDP of a country increases and the real GDP remains constant, then we can conclude that:
a. both prices and production increased.
b. only production increased while prices remained constant.
c. only prices increased while production remained constant.
d. both prices and production remained constant.
answer
c. only prices increased while production remained constant
question
The Consumer Price Index (CPI) in January 2017 was 244.02 and the CPI in January 2018 was 249.24. Therefore, the rate of inflation between January 2017-January 2018 was _____ percent.
a. 5.22
b. 2.14
c. 6.31
d. 4.86
answer
b. 2.14
question
Full employment refers to the level of employment when there is no _____ unemployment.
a. structural
b. cyclical
c. seasonal
d. frictional
answer
b. cyclical
question
If the short-run macroeconomic equilibrium occurs in the classical range of the short-run aggregate supply curve, then an increase in money supply will _____ output and will _____ the price level.
a. not change; decrease
b. increase; not change
c. not change; increase
d. decrease; not change
answer
c. not change; increase
question
Nancy lives in a beach town where there is a lot of demand for workers between April and September. During the other months, Nancy remains unemployed. Therefore, during those months Nancy will be categorized as _____ unemployed.
a. structurally
b. frictionally
c. seasonally
d. cyclically
answer
c. seasonally
question
Suppose that the cost of a representative basket used to calculate the Consumer Price Index (CPI) was $1,000 in the base year 2000. The same basket cost $1,100 in 2016 and $1,150 in 2017. Therefore, the rate of inflation between 2016 and 2017 is _____ percent.
a. 4
b. 4.5
c. 5
d. 15
answer
b. 4.5
question
Real GDP is the value of GDP obtained after eliminating the:
a. value of intermediate goods.
b. value of exports.
c. value of imports.
d. effect of a change in prices.
answer
d. effect of a change in prices
question
Which of the following taxes contributes the largest share to the federal government's tax revenue in the United States?
a. excise tax
b. corporate income tax
c. individual income tax
d. payroll tax
answer
c. individual income tax
question
If government spending is _____ than the tax revenue, then the government is running a budget deficit. In this case, the overall debt of the government will:
a. less; increase.
b. less; decrease.
c. more; increase.
d. more; decrease.
answer
c. more; increase
question
According to the quantity theory of money, if the Federal Reserve increases money supply by 10 percent, then the price level will _____ by 10 percent, and real GDP will:
a. increase; increase.
b. increase; remain unchanged.
c. decrease; decrease.
d. decrease; remain unchanged.
answer
b. increase; remain unchanged
question
The ______ effect does NOT explain the downward slope of an aggregate demand curve.
a. real wealth
b. interest rate
c. substitution
d. foreign trade
answer
c. substitution
question
If there is an inflationary gap in the economy, then it is producing _____ than its full employment level of output, and the government can _____ transfer payments to close the gap.
a. more; decrease
b. more; increase
c. less; decrease
d. less; increase
answer
a. more; decrease
question
A tax system in which everyone pays the same proportion of his or her income in taxes is called a _____ tax system.
a. progressive
b. regressive
c. lump-sum
d. proportional
answer
d. proportional
question
Final goods and services are goods and services that are:
a. purchased by the government.
b. purchased by the ultimate consumers.
c. exported out of the country.
d. purchased by firms to produce more goods.
answer
b. purchased by the ultimate consumers
question
An increase in the government spending that is financed though borrowing _____ the interest rate, which can lead to ______ in private investment.
a. increases; an increase
b. decreases; an increase
c. increases; a decrease
d. decreases; a decrease
answer
c. increases; a decrease
question
The decrease in private investment caused by increased government spending using borrowed funds is known as:
a. crowding-out.
b. interest rate effect.
c. substitution effect.
d. supply-side policy.
answer
a. crowding-out
question
If an economy has a labor force of 1,000 workers out of which 900 are employed, then the unemployment rate of the economy is _____ percent.
a. 90
b. 50
c. 20
d. 10
answer
d. 10
question
An economy has a labor force of 1,000. The total number of employed workers in the economy is 900, and the number of discouraged workers in the economy is 50. The unemployment rate in the economy in this case is _____ percent.
a. 5
b. 10
c. 15
d. 20
answer
b. 10
question
Alex is a skilled furniture maker, but there are no jobs available in the economy that utilize his furniture-making skills. If Alex remains unemployed, then in which category of unemployment will he fall under?
a. frictional unemployment
b. seasonal unemployment
c. cyclical unemployment
d. structural unemployment
answer
d. structural unemployment
question
The type of unemployment that occurs as a result of the time that it takes to match workers with jobs is known as _____ unemployment.
a. frictional
b. structural
c. cyclical
d. seasonal
answer
a. frictional
question
Alisa buys a 3D printer for the coworking space that she operates. Which category of the four factors of production does this printer fall under?
a. labor
b. capital
c. entrepreneurship
d. land
answer
b. capital
question
Extensive medical research has concluded that using tobacco is harmful to your health. As a result, fewer Americans use tobacco today than they did 40 years ago. Economists would say that this change in _____ decreased the demand for tobacco, all else equal.
a. the price of substitute product
b. incomes
c. preferences
d. the price of a complementary product
answer
c. preferences
question
Netta considers apples and oranges complements. all else equal, what will happen to Netta's demand for oranges when the price of apples increase?
a. the quantity demanded of oranges will increase
b. the demand for oranges will shift to the right
c. the demand for oranges will not be affected
d. the demand for oranges will shift to the left
answer
d. the demand for oranges will shift to the left
question
Jaeyoung believes that the price of coffee will increase soon. All else equal, how will this affect his demand for coffee today?
a. his demand for coffee today increases
b. his demand for coffee today isn't affected
c. his demand for coffee today decreases
d. his quantity demanded of coffee increases
answer
a. his demand for coffee today increases
question
The government of Maxistan has imposed a price ceiling in the market for shoes and has been able to prevent black markets from forming. What is true about the market for shoes in Maxistan?
a. shoe buyers pay more in the form of queuing costs
b. the price will return to the equilibrium price
c. a price floor will be created
d. no shortages will exist
answer
a. shoe buyers pay more in the form of queuing costs
question
How do the price and quantity change for an inferior good if income increases?
a. price decreases, and quantity increases
b. price decreases, and quantity decreases
c. price increases, and quantity increases
d. price increases, and quantity decreases
answer
b. price decreases, and quantity decreases
question
Why does a decrease in demand cause a decrease in a good's equilibrium price?
a. there is a surplus at the old price, which leads firms to charge a lower price
b. a decrease in demand causes a price floor to be placed on a market
c. at the old price, the quantity demanded is greater than the quantity supplied, which leads firms to charge aa lower price
d. there is a shortage at the old price, which leads firms to charge a lower price
answer
a. there is a surplus at the old price, which leads firms to charge a lower price
question
What model is used by economists to illustrate efficient combinations of the production of two goods within an economy?
a. maps
b. cost curves
c. the production possibilities frontier (PPF)
d. the market model
answer
c. the production possibilities frontier (PPF)
question
When the price of ice cream cones is $2 per cone, Celine buys three cones in a month. Which of the following describes an upward movement along Celine's monthly demand for ice cream cones?
a. when the price of ice cream cones is $3, she will buy two cones per month
b. when the price of ice cream cones is $2, she will by two cones per month
c. when the price of ice cream cones is $1, she will buy four cones per month
d. when the price of ice cream cones is $2, she will buy four cones per month
answer
a. when the price of ice cream cones is $3, she will buy two cones per month
question
What happens if an effective price floor is placed not he market for steel?
a. there will be a surplus of steel
b. there will be a shortage of steel
c. the price of steel will be lower than the equilibrium price
d. the quality of steel produced will decrease
answer
a. there will be a surplus of steel
question
Sisal is a plant that is used to produce sisal rugs. Wool rugs are a substitute in consumption for sisal rugs. If the price of wool rugs increases, what happens to the equilibrium price and quantity of sisal rugs?
a. price decreases, and quantity increases
b. price decreases, and quantity decreases
c. price increases, and quantity increases
d. price increases, and quantity decreases
answer
c. price increases, and quantity increases
question
To an economist , freeway congestion is a sign that the price to drive on the freeway is?
a. above its equilibrium level
b. below its equilibrium level
c. at its equilibrium level
d. none of the other answers are correct
answer
b. below its equilibrium level
question
The stalks left over from the harvesting of corn are used to produce ethanol. The demand for ethanol has increased. What happens to the price and quantity of ethanol if the price of corn also decreases but the shift in supply is not as large as the shift in demand?
a. price decreases, and quantity increases
b. price increases, and quantity increases
c. price decreases, and quantity decreases
d. price increases, and quantity decreases
answer
b. price increases, and quantity increases
question
Which of the following is NOT a possibility if demand increases and supply decreases?
a. quantity decreases
b. quantity increases
c. price increases
d. price decreases
answer
d. price decreases
question
Which of the following is a curve that illustrates the relationship between the price of a good and the quantity that people are willing to buy at each price?
a. utility
b. diminishing marginal benefit
c. the supply curve
d. the demand curve
answer
d. the demand curve
question
Which of the following would decrease the supply of leather boots?
a. a decrease in the price of sewing machines used to sew boots together
b. better technology in boot production methods
c. a decrease in the price of leather boots
d. an increase in the price of leather
answer
d. an increase in the price of leather
question
A collection of buyers and sellers of the same good and service is called:
a. a market
b. ceteris paribus
c. a model
d. an economy
answer
a. a market
question
The equilibrium price in the market for lobster tails is $45 per pound. If a price of $50 is imposed on this market, this would be:
a. an equilibrium price
b. an effective price floor
c. a queueing cost
d. an effective price ceiling
answer
b. an effective price floor
question
There is no toll charge to drive on freeway A. If there is freeway congestion at 9 a.m., there will be greater freeway congestion at 11 a.m. if
a. more people carpool at 11:00am than at 9:00am
b. the demand to drive on the freeway is same at both times
c. the demand to drive on the freeway at 9:00am is greater than the demand to drive on the freeway at 11:00am
d. the demand to drive on the freeway at 11:00am is greater than the demand to drive on the freeway at 9:00am
e. none of the other answers are correct
answer
d. the demand to drive on the freeway at 11:00am is greater than the demand to drive on the freeway at 9:00am
question
The price of meatballs increases, and as a result, the demand curve for salad shifts to the right. Based on this information, we can conclude that salad and meatballs are:
a. substitutes in consumption
b. normal goods
c. inferior goods
d. complements in consumption
answer
a. substitutes in consumption
question
Suppose that bicycles and bicycle helmets are complementary goods. All else equal, if the price of bicycles increases, there will be:
a. a decrease in the demand curve for helmets
b. an upward movement along the helmet demand curve
c. a downward movement along the bicycle demand curve
d. a decrease in the demand curve for bicycles
answer
a. a decrease in the demand curve for helmets
question
When a market has reached the equilibrium quantity, the:
a. price received by consumers is higher than the price paid by sellers
b. highest price that consumers are willing to pay is equal to the lowest price that sellers are willing to accept
c. lowest price that consumers are willing to pay is equal to the highest price that sellers are willing to accept
d. price paid by consumers is lower than price received by sellers
answer
b. highest price that consumers are willing to pay is equal to the lowest price that sellers are willing to accept
question
When the price of a good X increases by 20 percent, the quantity demanded of a good Y increases by 40 percent. The corss-price elasticity of demand is equal to___, and these goods are:
a. 2; substitutes
b. -0.5; substitutes
c. 0.5; complements
d. 2; complements
answer
a. 2; substitutes
question
As the marginal product of labor _____, it takes a ____ increase in the quantity of labor to produce another unit of output, which makes marginal cost increase.
a. increases; smaller
b. decreases; greater
c. decreases; smaller
d. increases; greater
answer
b. decreases; greater
question
A firm has _____ when it is able to spread fixed costs over a greater quantity of output if it increases output, but it has _____ when output increases long-run average total costs.
a. economies of scale; minimum efficient scale
b. diseconomies of scale; economies of scale
c. minimum efficient scale; economies of scale
d. economies of scale; diseconomies of scale
answer
d. economies of scale; diseconomies of scale
question
If Ana's income elasticity of demand for rice is -2, what happens to the quantity of rice she buys if her income decreases by 20 percent?
a. she buys 40 percent less rice
b. she buys 20 percent more rice
c. she buys 20 percent less rice
d. she buys 40 percent more rice
answer
d. she buys 40 percent more rice
question
A production function is a relationship that shows the:
a. product of the quantity of a good and the difference between the price of the good and the average total cost of the quantity produced
b. satisfaction that a consumer derives from each unit of consumption
c. difference between total revenues and total costs
d. quantity of each input that a firm uses and the quantity of output that the firm can produce as a result
answer
d. quantity of each input that a firm uses and the quantity of output that the firm can produce as a result
question
People who buy a good Z are typically in a hurry when they buy it. Good Z has _____ demand, and if the seller increases the price of good Z, its total revenue will:
a. inelastic; decrease
b. unit elastic; not change
c. elastic; increase
d. inelastic; increase
answer
d. inelastic; increase
question
The marginal cost curve:
a. is the sum of the total cost curve and the marginal cost curve
b. is the sum of the marginal cost curve and the fixed cost curve
c. intersects the average total cost curve at the highest point on the average total cost curve
d. intersects the average total cost curve at the lowest point on the average total cost curve
answer
d. intersects the average total cost curve at the lowest point on the average total cost curve
question
An economist who wants to measure a consumer's sensitivity to price changes would:
a. use a production possibilities frontier
b. calculate the consumer's income elasticity of demand
c. calculate the consumer's price elasticity of demand
d. use a market model
answer
c. calculate the consumer's price elasticity of demand
question
A year ago, Elizabeth purchased a new computer for $1,400, but not it needs $500 in repairs. She will get only $400 in additional value over the next year. What is Elizabeth's best course of action, and why it is the best?
a. she should not repair the computer because the benefit plus the cost of the repair is less than what she paid for the computer
b. she should not repair the computer because her additional value is less than there additional cost
c. she should repair the computer because the cost of repairing it is less than what she paid
d. she should repair the computer because it still can giver her additional value and she paid a lot of money to get the computer
answer
b. she should not repair the computer because her additional value is less than there additional cost
question
What happens to a consumer's budget constraint if the amount of money he or she has to spend increases?
a. it shifts in
b. it rotates to a new intersection on the vertical axis but not on the horizontal axis
c. it rotates to a new intersection on the horizontal axis but not on the vertical axis
d. it shifts out
answer
d. it shifts out
question
Each year, a bicycle repair shop receives $120,000 in total revenue. Annual costs include $40,000 for labor, $5,000 in parts, and $30,000 in equipment rental. The owner of the bicycle repair shop owns the building and could rent it out for $12,000 per year. She could be making $50,000 per year if she worked as a project manager instead. What is the owners ECONOMIC profit?
a. $75,000
b. $33,000
c. $-17,000
d. $45,000
answer
c. $-17,000
question
Each year, a bicycle repair shop receives $120,000 in total revenue. Annual costs include $40,000 for labor, $5,000 in parts, and $30,000 in equipment rental. The owner of the bicycle repair shop owns the building and could rent it out for $12,000 per year. She could be making $50,000 per year if she worked as a project manager instead. What is the owners ACCOUNTING profit?
a. $-17,000
b. $75,000
c. $33,000
d. $45,000
answer
d. $45,000
question
Jaon's carpentry business has a fixed cost of $5,000 from equipment and tool rental and a variable cost of $40,000 when he builds 100 bookshelves per year. The average total cost of producing 100 bookshelves is:
a. $450
b. $45,000
c. $4,000
d. $5,000
answer
a. $450
question
Mackenzie wants to produce more pies. If she rents another over for $100, she can make another 200 pies. If she hires another worker at a wage of $15, she can make another 45 pies. What statement is true based on this information?
a. she should use another oven to minimize costs
b. she should hire another worker to minimize costs
c. using either another oven or another worker will minimize costs
d. the marginal product of labor per dollar spend is less than the marginal product of capital per dollar spent
answer
b. she should hire another worker to minimize costs
question
An increase in the price of one good leads to a decrease in the quantity demanded of the other good. The sign of this cross-price elasticity is ______, and the two goods are:
a. positive; complements
b. negative; complements
c. negative; substitutes
d. positive substitutes
answer
b. negative; complements
question
There are NO fixed inputs in:
a. the long run
b. production functions
c. in the short run
d. profit functions
answer
a. the long run
question
When total utility _____ at a decreasing rate, marginal utility:
a. decreases; increases
b. increases; decreases
c. decreases; stays the same
d. increases; increases
answer
b. increases; decreases
question
Evelyn's Orchard currently produces 5,000 gallons of cider. The marginal cost of the 5000th gallon was $3, and the average total cost of the 5,000th gallon was $1,50. What can be concluded based on this information?
a. Evelyn's orchards' marginal product of labor is increasing at 5,000 gallons
b. if Evelyn's orchard produces one more gallon, marginal cost and average total cost will be closer to zero
c. the quantity where marginal cost equals average total cost is less than 5,000 gallons
d. producing one more gallon will make the difference between marginal cost and average total cost smaller
answer
c. the quantity where marginal cost equals average total cost is less than 5,000 gallons
question
Podrick enjoys consuming sandwiches (S) and juice boxes (J). Suppose that Podrick has $20 in his budget, the price of a sandwich is $4, and the price of a juice box is $2. Which of the following combinations uses more than his $20 budget?
a. 2S and 6J
b. 10S and 0J
c. 0S and 5J
d. 2S and 2J
answer
b. 10S and 0J
question
If Mackenzie owns the equipment that she uses to bake pies, then her:
a. opportunity cost of the equipment is what she could earn renting the equipment to someone else
b. opportunity cost of the equipment is what she could earn if she replaces all of her workers with equipment
c. opportunity cost of the equipment is how it would cost to buy replacement equipment
d. opportunity cost of the equipment is zero
answer
a. opportunity cost of the equipment is what she could earn renting the equipment to someone else
question
In which of the following situations would demand NOT be elastic?
a. consumers have many other options
b. the time frame is very short
c. a good is a luxury
d. people have a lot of time to shop around
answer
b. the time frame is very short
question
Burgin's Broilers produced one more chicken, and as a result its average total cost increased. What must be true?
a. Burgin's Broilers is experiencing increasing fixed costs
b. Burgin's Broilers marginal cost of producing one more chicken is less than the average total cost
c. Burgin's Broilers is losing money
d. Burgin's Broilers marginal cost of producing one more chicken is greater than the average total cost.
answer
d. Burgin's Broilers marginal cost of producing one more chicken is greater than the average total cost.
question
The reason that firms cannot charge more than the market price for a product in perfectly competitive markets is that:
a. one firm's product is a perfect substitute for another firm's product
b. there are a limited number of sellers to choose from in perfectly competitive markets
c. firms have imperfect information about the pricing by other firms
d. firms sell goods that are all slightly differentiated from each other
answer
a. one firm's product is a perfect substitute for another firm's product
question
Spangles are sold in a perfectly competitive market, and the market price of a spangle is $14. A firm in this market can produce 100 spangles at a cost of $6 each. What does this firm's demand curve look like?
a. a horizontal line at $14
b. a vertical line at $14
c. a horizontal line at $6
d. a horizontal line at $10
answer
a. a horizontal line at $14
question
When a girl in a perfectly competitive market is producing the optimal quantity, what is true?
a. P > MR and MR = MC
b. P = MR = MC
c. P < MC and MR < MC
d. P < MR nad MR = MC
answer
b. P = MR = MC
question
If the purchase of a good involves a positive externality, then the equilibrium quantity that is purchased in a free market is _____ than socially optimal, and the equilibrium price is _____ than socially optimal.
a. more; less
b. less; more
c. more; more
d. less; less
answer
d. less; less
question
Which one is not a private good?
a. bridge
b. toll expressway
c. a mellow mushroom pizza
d. toyota camry
answer
a. bridge
question
What is a key difference between a perfectly competitive market and a monopolistically competitive market?
a. perfectly competitive markets have identical products, but monopolistically competitive markets have slightly differentiated products
b. perfectly competitive markets have imperfect information, but monopolistically competitive markets have perfect information
c. perfectly competitive markets have many buyers and sellers, but monopolistically competitive markets have only a few sellers
d. perfectly competitive markets have difficult entry and exit, but monopolistically competitive markets have easy entry and exit
answer
a. perfectly competitive markets have identical products, but monopolistically competitive markets have slightly differentiated products
question
Suppose that the marginal social benefit curve of a good lies above the marginal private benefit curve. In this case, the purchase of the good involves a ______ externality, and the good will be purchased in an amount that is _____ than the socially optimal
a. negative; more
b. positive; less
c. positive; more
d. negative; less
answer
b. positive; less
question
Which of the following statements about oligopolies is FALSE?
a. duopoly is an example of an oligopoly market
b. firms face a downward-sloping demand curve
c. firms in the market do not have any market power
d. the business strategy of one firm can affect the business of other firms
answer
c. firms in the market do not have any market power
question
Which one of the following is NOT a characteristic of monopolistically competitive markets?
a. firms sell identical products
b. each firm faces a downward-sloping demand curve
c. firms can easily enter or exit the market
d. many firms compete in the market
answer
a. firms sell identical products
question
A monopolist maximizes profit at the point where the ______ of production is equal to:
a. marginal cost; price
b. average total cost; price
c. marginal cost; marginal revenue
d. marginal cost; total revenue
answer
c. marginal cost; marginal revenue
question
All else equal, if a technological improvement increases the marginal product of workers, then the marginal revenue product of workers will_____, and the firms will hire____ workers.
a. decrease; fewer
b. increase; more
c. increase; fewer
d. decrease; more
answer
b. increase; more
question
A firm pays $500,000 per year on costs that it cannot alter in the short run. This year, it expects to produce 100 units, and it will pay $300,000 on the inputs to produce those 100 units. What is this firm's average variable cost?
a. $5,000
b. $1,000
c. $3,000
d. $9,000
answer
c. $3,000
question
Which of the following statements is FALSE for a monopoly firm?
a. its marginal revenue is less than the price
b. its marginal revenue can be negative
c. it can sell additional units of output by lowering the price
d. it faces a horizontal demand curve
answer
d. it faces a horizontal demand curve
question
All else equal, an increase in the price of the good or service produced by a company allows the company to _____ the quantity of labor hired and/or ______ the wage rate.
a. an increase; a decrease
b. a decrease; an increase
c. a decrease; a decrease
d. an increase; an increase
answer
d. an increase; an increase
question
Firms that have market power face a _____ demand curve
a. horizontal
b. vertical
c. u-shaped
d. downward-sloping
answer
d. downward-sloping
question
A market in which there are many buyers and sellers, every firm sells the same standardized product, buyers and sellers have full information about the product and its price, and it is easy for firms to enter and exit the market is known as _____ market.
a. a monopoly
b. a duopoly
c. an oligopoly
d. a perfectly competitive
answer
d. a perfectly competitive
question
Orchid Movers is a price taker in the market for cross- country moving services. The current price to move a two-bedroom house is $1,000, and given the number of homes that it is currently moving, the average cost of providing this service to orchid movers is $1,200. What statement best describes what is likely to happen in the market for moving services?
a. firms will enter this market and drive down the price of moving services
b. firms will exit this marker and push up the price of moving services
c. firms do not have an incentive to enter or exit this market
d. firms like orchid movers will shut down temporarily
answer
b. firms will exit this marker and push up the price of moving services
question
Which one of the following is NOT a characteristic of monopolistically competitive markets?
a. firms can easily enter or exit the market
b. each firm in the market faces a horizontal demand curve
c. many firms are competing in the market
d. the products that are sold by different firms are not identical
answer
b. each firm in the market faces a horizontal demand curve
1 of 119
question
All else equal, if the price level in the U.S economy decreases, the equilibrium interest rate will _____. In this case, the Federal Reserve can _____ Treasury securities to bring the interest rate back to its original level.
a. increase; sell
b. increase; buy
c. decrease; sell
d. decrease; buy
answer
c. decrease; sell
question
If the nominal wage of a worker increases by 10 percent and her purchasing power decreases by 5 percent, then we can conclude that the price level must have _____ than 10 percent.
a. increased by more
b. increased by less
c. decreased by more
d. decreased by less
answer
a. increased by more
question
An economy uses coins made of gold as money. This is an example of:
a. fiat money.
b. gold standard.
c. commodity money.
d. commodity standard.
answer
c. commodity money
question
All else equal, the _____ the value of Treasury securities purchased by the Federal Reserve and the _____ the reserve requirement, the higher will be the amount of money created.
a. lower; lower
b. lower; higher
c. higher; lower
d. higher; higher
answer
c. higher; lower
question
An economy's _____ is measured along the vertical axis of an aggregate demand curve.
a. real gross domestic product
b. overall price level
c. interest rate
d. overall income level
answer
b. overall price level
question
Which of the following statements is true?
a. If a country's nominal GDP is rising, then its production must also be rising.
b. If a country's nominal GDP is constant, then its production must also be constant.
c. If a country's real GDP is constant, then the price level must also be constant.
d. If a country's real GDP is constant, then its production must also be constant.
answer
d. If a country's real GDP is constant, then its production must also be constant
question
If the short-run macroeconomic equilibrium occurs in the upward-sloping range of the short-run aggregate supply curve and the Federal Reserve increases the money supply, then which of the following will be true in the long run?
a. The nominal wage of workers will be lower compared to what it was in the short run.
b. Output will be higher compared to what it was in the short run.
c. The nominal wage of workers will be higher compared to what it was in the short run.
d. The price level will be lower compared to what it was in the short run.
answer
c. The nominal wage of workers will be higher compared to what it was in the short run
question
Which of the following will decrease aggregate demand, thereby shifting the curve left?
a. The interest rate increases.
b. Consumers' expectations of future income increase.
c. Government spending increases.
d. Foreign countries increase their imports of domestic goods.
answer
a. The interest rate increases
question
Which of the following statements about the long-run aggregate supply curve is true?
a. It is upward sloping in the range where the nominal wage is sticky.
b. It is horizontal in the range where cyclical unemployment is present.
c. It is vertical at the level of potential GDP.
d. It is downward sloping in the range where the real wage is flexible.
answer
c. It is vertical at the level of potential GDP
question
A decrease in the overall price level in the economy leads to all of the following EXCEPT:
a. an increase in consumption spending.
b. an increase in the interest rate.
c. an increase in its exports.
d. a decrease in its imports.
answer
b. an increase in the interest rate
question
According to the foreign trade effect, when all else is equal, when the price level in a country increases, its exports _____, and its imports:
a. increase; increase.
b. decrease; increase.
c. increase; decrease.
d. decrease; decrease.
answer
b. decrease; increase
question
All else equal, if the Federal Reserve follows an expansionary monetary policy, then the money supply curve will shift _____, and the equilibrium interest rate will:
a. left; decrease.
b. left; increase.
c. right; decrease.
d. right; increase.
answer
c. right; decrease
question
Monetary policy refers to the policies that the _____ uses to manage _____ in efforts to stabilize the economy.
a. federal government; taxes
b. Federal Reserve; taxes
c. federal government; money supply and interest rates
d. Federal Reserve; money supply and interest rates
answer
d. Federal Reserve; money supply and interest rates
question
If the people who live in a developing country increasingly use ATM machines to dispense cash, then the overall demand for money in that economy will ______, and the demand curve for money will shift:
a. decrease; left.
b. increase; left.
c. decrease; right.
d. increase; right.
answer
a. decrease; left
question
Dell Computers manufactures a $1,000 laptop in December 2017. This laptop is sold to a consumer in March 2018 for $1,000, who in turn sells it on eBay in August 2018 for $800. Because of these transactions, the 2017 GDP increases by _____, and the 2018 GDP increases by:
a. zero; $1,000.
b. $1,000; zero.
c. $1,000; $800.
d. zero; $1,800.
answer
b. $1,000; zero
question
Under the current U.S. monetary system, _____ are not considered to be money.
a. checks and debit cards
b. checking account deposits
c. currency
d. traveler's checks
answer
a. checks and debit cards
question
If the full employment level of output for an economy is 1,000 units and it is currently producing 900 units, then there is _____ gap, and the government can _____ taxes to close the gap.
a. an inflationary; decrease
b. an inflationary; increase
c. a recessionary; decrease
d. a recessionary; increase
answer
c. a recessionary; decrease
question
If the short-run aggregate supply curve intersects the aggregate demand curve to the left of the long-run aggregate supply curve, then the economy has _____ gap, and the government can close the gap using _____ fiscal policy.
a. an inflationary; an expansionary
b. a recessionary; an expansionary
c. an inflationary; a contractionary
d. a recessionary; a contractionary
answer
b. a recessionary; an expansionary
question
If the short-run aggregate supply curve intersects the aggregate demand curve to the left of the long-run aggregate supply curve, then the economy has _____ gap, and the government can close the gap by _____ taxes.
a. an inflationary; increasing
b. an inflationary; decreasing
c. a recessionary; increasing
d. a recessionary; decreasing
answer
d. a recessionary; decreasing
question
The interest rate that banks charge each other for short-term loans is known as the:
a. discount rate.
b. federal funds rate.
c. required rate.
d. prime rate.
answer
b. federal funds rate
question
An increase in the discount rate _____ the interest rate that banks charge their customers, which leads to _____ in the total spending in the economy.
a. increases; an increase
b. decreases; an increase
c. increases; a decrease
d. decreases; a decrease
answer
c. increases; a decrease
question
Suppose that a can of soda cost 30 cents in 1970 and the Consumer Price Index (CPI) in 1970 was 36. If the CPI in 2016 was 240, then the price of the can of soda in 2016 was:
a. $1.70.
b. $2.00.
c. $2.25.
d. $2.50.
answer
b. $2.00
question
Assume that individuals hold cash and the banks hold excess reserves. If the reserve requirement is 1 percent and the Federal Reserve buys $10 of Treasury securities from a bank, then money supply will _____ than $1,000.
a. increase by more
b. increase by less
c. decrease by more
d. decrease by less
answer
b. increase by less
question
A worker has a nominal income of $10,000 in the year 2000, and the Consumer Price Index (CPI) for 2000 was 100. If the worker's nominal income remained unchanged in 2001 but the real income increased to $10,050, then the CPI for 2001 is _____, and there has been _____ in the economy.
a. 100.50; deflation
b. 100.50; inflation
c. 99.50; deflation
d. 99.50; inflation
answer
c. 99.50; deflation
question
The real wage of workers increases when the nominal wage _____ by 5% and the overall price level _____.
a. increases; increases by 10%
b. decreases; decreases by 5%
c. increases; increases by 5%
d. decreases; decreases by 10%
answer
d. decreases; decreases by 10%
question
When all else is equal, if an increase in government spending leads to an increase in equilibrium output and no change in equilibrium price, then we can conclude that the economy must be operating on the:
a. classical range of the short-run aggregate supply curve.
b. Keynesian range of the short-run aggregate supply curve.
c. upward-sloping range of the short-run aggregate supply curve.
d. long-run aggregate supply curve.
answer
b. Keynesian range of the short-run aggregate supply curve
question
Which of these statements is true?
a. If the government spending is less than the total tax revenue, then the government has no debt.
b. If the government spending is less than the total tax revenue, then the government debt increases.
c. If the government spending is less than the total tax revenue, then the government has a budget surplus.
d. If the government spending is less than the total tax revenue, then the government has a budget deficit.
answer
c. If the government spending is less than the total tax revenue, then the government has a budget surplus
question
During times of _____, cash acts as a poor:
a. deflation; store of value.
b. deflation; unit of account.
c. inflation; store of value.
d. inflation; unit of account.
answer
c. inflation; store of value
question
Which one of the following will decrease aggregate supply, thereby shifting the curve left?
a. Nominal wages decrease as a result of an increased labor supply.
b. The productivity of workers decreases as a result of an epidemic.
c. A new government policy decreases business taxes.
d. The price of oil, which is a major input into most production activities, decreases.
answer
b. The productivity of workers decreases as a result of an epidemic
question
A decrease in the discount rate _____ the interest rate that banks charge their customers, which leads to _____ in the total spending in the economy.
a. increases; an increase
b. decreases; an increase
c. increases; a decrease
d. decreases; a decrease
answer
b. decreases; an increase
question
All else equal, if the Federal Reserve follows a contractionary monetary policy, then the money supply curve will shift _____, and the equilibrium interest rate will:
a. left; decrease.
b. left; increase.
c. right; decrease.
d. right; increase.
answer
b. left; increase
question
Which of the following statements is true?
a. According to Keynesian theory, prices and wages are flexible.
b. According to Say's law, supply creates its own demand.
c. According to monetarist theory, stagflation results from a lack of aggregate demand.
d. According to classical theory, prices and wages are sticky.
answer
b. According to Say's law, supply creates its own demand
question
If the short-run macroeconomic equilibrium occurs in the Keynesian range of the short-run aggregate supply curve, then an increase in the federal income tax will lead to:
a. an increase in the equilibrium price.
b. a decrease in the equilibrium price.
c. an increase in the equilibrium output.
d. a decrease in equilibrium output.
answer
d. a decrease in equilibrium output
question
If the total money supply in the economy is $1,000, the price level is $10, and the real GDP is 600 units, then the velocity of money must be:
a. 10.
b. 8.
c. 6.
d. 4.
answer
c. 6
question
Which of the following is NOT a final good?
a. bread bought by a deli to make sandwiches
b. a sandwich bought by a customer at a deli
c. a new car purchased by a student to commute to college campus
d. a new laptop purchased by a college student to work on assignments
answer
a. bread bought by a deli to make sandwiches
question
Suppose that the nominal GDP of a country in 2017 is $10 trillion. The real GDP of the country remains constant between 2017 and 2018, but the price level increases by 20 percent. What is the nominal GDP of the country in 2018?
a. $8 trillion
b. $10 trillion
c. $12 trillion
d. $13 trillion
answer
c. $12 trillion
question
Economic growth is depicted by a:
a. rightward shift in the aggregate demand curve.
b. rightward shift in the upward-sloping range of the short-run aggregate supply curve.
c. downward shift in the Keynesian range of the short-run aggregate supply curve.
d. rightward shift in the long-run aggregate supply curve.
answer
d. ightward shift in the long-run aggregate supply curve
question
If the nominal GDP of a country increases and the real GDP remains constant, then we can conclude that:
a. both prices and production increased.
b. only production increased while prices remained constant.
c. only prices increased while production remained constant.
d. both prices and production remained constant.
answer
c. only prices increased while production remained constant
question
The Consumer Price Index (CPI) in January 2017 was 244.02 and the CPI in January 2018 was 249.24. Therefore, the rate of inflation between January 2017-January 2018 was _____ percent.
a. 5.22
b. 2.14
c. 6.31
d. 4.86
answer
b. 2.14
question
Full employment refers to the level of employment when there is no _____ unemployment.
a. structural
b. cyclical
c. seasonal
d. frictional
answer
b. cyclical
question
If the short-run macroeconomic equilibrium occurs in the classical range of the short-run aggregate supply curve, then an increase in money supply will _____ output and will _____ the price level.
a. not change; decrease
b. increase; not change
c. not change; increase
d. decrease; not change
answer
c. not change; increase
question
Nancy lives in a beach town where there is a lot of demand for workers between April and September. During the other months, Nancy remains unemployed. Therefore, during those months Nancy will be categorized as _____ unemployed.
a. structurally
b. frictionally
c. seasonally
d. cyclically
answer
c. seasonally
question
Suppose that the cost of a representative basket used to calculate the Consumer Price Index (CPI) was $1,000 in the base year 2000. The same basket cost $1,100 in 2016 and $1,150 in 2017. Therefore, the rate of inflation between 2016 and 2017 is _____ percent.
a. 4
b. 4.5
c. 5
d. 15
answer
b. 4.5
question
Real GDP is the value of GDP obtained after eliminating the:
a. value of intermediate goods.
b. value of exports.
c. value of imports.
d. effect of a change in prices.
answer
d. effect of a change in prices
question
Which of the following taxes contributes the largest share to the federal government's tax revenue in the United States?
a. excise tax
b. corporate income tax
c. individual income tax
d. payroll tax
answer
c. individual income tax
question
If government spending is _____ than the tax revenue, then the government is running a budget deficit. In this case, the overall debt of the government will:
a. less; increase.
b. less; decrease.
c. more; increase.
d. more; decrease.
answer
c. more; increase
question
According to the quantity theory of money, if the Federal Reserve increases money supply by 10 percent, then the price level will _____ by 10 percent, and real GDP will:
a. increase; increase.
b. increase; remain unchanged.
c. decrease; decrease.
d. decrease; remain unchanged.
answer
b. increase; remain unchanged
question
The ______ effect does NOT explain the downward slope of an aggregate demand curve.
a. real wealth
b. interest rate
c. substitution
d. foreign trade
answer
c. substitution
question
If there is an inflationary gap in the economy, then it is producing _____ than its full employment level of output, and the government can _____ transfer payments to close the gap.
a. more; decrease
b. more; increase
c. less; decrease
d. less; increase
answer
a. more; decrease
question
A tax system in which everyone pays the same proportion of his or her income in taxes is called a _____ tax system.
a. progressive
b. regressive
c. lump-sum
d. proportional
answer
d. proportional
question
Final goods and services are goods and services that are:
a. purchased by the government.
b. purchased by the ultimate consumers.
c. exported out of the country.
d. purchased by firms to produce more goods.
answer
b. purchased by the ultimate consumers
question
An increase in the government spending that is financed though borrowing _____ the interest rate, which can lead to ______ in private investment.
a. increases; an increase
b. decreases; an increase
c. increases; a decrease
d. decreases; a decrease
answer
c. increases; a decrease
question
The decrease in private investment caused by increased government spending using borrowed funds is known as:
a. crowding-out.
b. interest rate effect.
c. substitution effect.
d. supply-side policy.
answer
a. crowding-out
question
If an economy has a labor force of 1,000 workers out of which 900 are employed, then the unemployment rate of the economy is _____ percent.
a. 90
b. 50
c. 20
d. 10
answer
d. 10
question
An economy has a labor force of 1,000. The total number of employed workers in the economy is 900, and the number of discouraged workers in the economy is 50. The unemployment rate in the economy in this case is _____ percent.
a. 5
b. 10
c. 15
d. 20
answer
b. 10
question
Alex is a skilled furniture maker, but there are no jobs available in the economy that utilize his furniture-making skills. If Alex remains unemployed, then in which category of unemployment will he fall under?
a. frictional unemployment
b. seasonal unemployment
c. cyclical unemployment
d. structural unemployment
answer
d. structural unemployment
question
The type of unemployment that occurs as a result of the time that it takes to match workers with jobs is known as _____ unemployment.
a. frictional
b. structural
c. cyclical
d. seasonal
answer
a. frictional
question
Alisa buys a 3D printer for the coworking space that she operates. Which category of the four factors of production does this printer fall under?
a. labor
b. capital
c. entrepreneurship
d. land
answer
b. capital
question
Extensive medical research has concluded that using tobacco is harmful to your health. As a result, fewer Americans use tobacco today than they did 40 years ago. Economists would say that this change in _____ decreased the demand for tobacco, all else equal.
a. the price of substitute product
b. incomes
c. preferences
d. the price of a complementary product
answer
c. preferences
question
Netta considers apples and oranges complements. all else equal, what will happen to Netta's demand for oranges when the price of apples increase?
a. the quantity demanded of oranges will increase
b. the demand for oranges will shift to the right
c. the demand for oranges will not be affected
d. the demand for oranges will shift to the left
answer
d. the demand for oranges will shift to the left
question
Jaeyoung believes that the price of coffee will increase soon. All else equal, how will this affect his demand for coffee today?
a. his demand for coffee today increases
b. his demand for coffee today isn't affected
c. his demand for coffee today decreases
d. his quantity demanded of coffee increases
answer
a. his demand for coffee today increases
question
The government of Maxistan has imposed a price ceiling in the market for shoes and has been able to prevent black markets from forming. What is true about the market for shoes in Maxistan?
a. shoe buyers pay more in the form of queuing costs
b. the price will return to the equilibrium price
c. a price floor will be created
d. no shortages will exist
answer
a. shoe buyers pay more in the form of queuing costs
question
How do the price and quantity change for an inferior good if income increases?
a. price decreases, and quantity increases
b. price decreases, and quantity decreases
c. price increases, and quantity increases
d. price increases, and quantity decreases
answer
b. price decreases, and quantity decreases
question
Why does a decrease in demand cause a decrease in a good's equilibrium price?
a. there is a surplus at the old price, which leads firms to charge a lower price
b. a decrease in demand causes a price floor to be placed on a market
c. at the old price, the quantity demanded is greater than the quantity supplied, which leads firms to charge aa lower price
d. there is a shortage at the old price, which leads firms to charge a lower price
answer
a. there is a surplus at the old price, which leads firms to charge a lower price
question
What model is used by economists to illustrate efficient combinations of the production of two goods within an economy?
a. maps
b. cost curves
c. the production possibilities frontier (PPF)
d. the market model
answer
c. the production possibilities frontier (PPF)
question
When the price of ice cream cones is $2 per cone, Celine buys three cones in a month. Which of the following describes an upward movement along Celine's monthly demand for ice cream cones?
a. when the price of ice cream cones is $3, she will buy two cones per month
b. when the price of ice cream cones is $2, she will by two cones per month
c. when the price of ice cream cones is $1, she will buy four cones per month
d. when the price of ice cream cones is $2, she will buy four cones per month
answer
a. when the price of ice cream cones is $3, she will buy two cones per month
question
What happens if an effective price floor is placed not he market for steel?
a. there will be a surplus of steel
b. there will be a shortage of steel
c. the price of steel will be lower than the equilibrium price
d. the quality of steel produced will decrease
answer
a. there will be a surplus of steel
question
Sisal is a plant that is used to produce sisal rugs. Wool rugs are a substitute in consumption for sisal rugs. If the price of wool rugs increases, what happens to the equilibrium price and quantity of sisal rugs?
a. price decreases, and quantity increases
b. price decreases, and quantity decreases
c. price increases, and quantity increases
d. price increases, and quantity decreases
answer
c. price increases, and quantity increases
question
To an economist , freeway congestion is a sign that the price to drive on the freeway is?
a. above its equilibrium level
b. below its equilibrium level
c. at its equilibrium level
d. none of the other answers are correct
answer
b. below its equilibrium level
question
The stalks left over from the harvesting of corn are used to produce ethanol. The demand for ethanol has increased. What happens to the price and quantity of ethanol if the price of corn also decreases but the shift in supply is not as large as the shift in demand?
a. price decreases, and quantity increases
b. price increases, and quantity increases
c. price decreases, and quantity decreases
d. price increases, and quantity decreases
answer
b. price increases, and quantity increases
question
Which of the following is NOT a possibility if demand increases and supply decreases?
a. quantity decreases
b. quantity increases
c. price increases
d. price decreases
answer
d. price decreases
question
Which of the following is a curve that illustrates the relationship between the price of a good and the quantity that people are willing to buy at each price?
a. utility
b. diminishing marginal benefit
c. the supply curve
d. the demand curve
answer
d. the demand curve
question
Which of the following would decrease the supply of leather boots?
a. a decrease in the price of sewing machines used to sew boots together
b. better technology in boot production methods
c. a decrease in the price of leather boots
d. an increase in the price of leather
answer
d. an increase in the price of leather
question
A collection of buyers and sellers of the same good and service is called:
a. a market
b. ceteris paribus
c. a model
d. an economy
answer
a. a market
question
The equilibrium price in the market for lobster tails is $45 per pound. If a price of $50 is imposed on this market, this would be:
a. an equilibrium price
b. an effective price floor
c. a queueing cost
d. an effective price ceiling
answer
b. an effective price floor
question
There is no toll charge to drive on freeway A. If there is freeway congestion at 9 a.m., there will be greater freeway congestion at 11 a.m. if
a. more people carpool at 11:00am than at 9:00am
b. the demand to drive on the freeway is same at both times
c. the demand to drive on the freeway at 9:00am is greater than the demand to drive on the freeway at 11:00am
d. the demand to drive on the freeway at 11:00am is greater than the demand to drive on the freeway at 9:00am
e. none of the other answers are correct
answer
d. the demand to drive on the freeway at 11:00am is greater than the demand to drive on the freeway at 9:00am
question
The price of meatballs increases, and as a result, the demand curve for salad shifts to the right. Based on this information, we can conclude that salad and meatballs are:
a. substitutes in consumption
b. normal goods
c. inferior goods
d. complements in consumption
answer
a. substitutes in consumption
question
Suppose that bicycles and bicycle helmets are complementary goods. All else equal, if the price of bicycles increases, there will be:
a. a decrease in the demand curve for helmets
b. an upward movement along the helmet demand curve
c. a downward movement along the bicycle demand curve
d. a decrease in the demand curve for bicycles
answer
a. a decrease in the demand curve for helmets
question
When a market has reached the equilibrium quantity, the:
a. price received by consumers is higher than the price paid by sellers
b. highest price that consumers are willing to pay is equal to the lowest price that sellers are willing to accept
c. lowest price that consumers are willing to pay is equal to the highest price that sellers are willing to accept
d. price paid by consumers is lower than price received by sellers
answer
b. highest price that consumers are willing to pay is equal to the lowest price that sellers are willing to accept
question
When the price of a good X increases by 20 percent, the quantity demanded of a good Y increases by 40 percent. The corss-price elasticity of demand is equal to___, and these goods are:
a. 2; substitutes
b. -0.5; substitutes
c. 0.5; complements
d. 2; complements
answer
a. 2; substitutes
question
As the marginal product of labor _____, it takes a ____ increase in the quantity of labor to produce another unit of output, which makes marginal cost increase.
a. increases; smaller
b. decreases; greater
c. decreases; smaller
d. increases; greater
answer
b. decreases; greater
question
A firm has _____ when it is able to spread fixed costs over a greater quantity of output if it increases output, but it has _____ when output increases long-run average total costs.
a. economies of scale; minimum efficient scale
b. diseconomies of scale; economies of scale
c. minimum efficient scale; economies of scale
d. economies of scale; diseconomies of scale
answer
d. economies of scale; diseconomies of scale
question
If Ana's income elasticity of demand for rice is -2, what happens to the quantity of rice she buys if her income decreases by 20 percent?
a. she buys 40 percent less rice
b. she buys 20 percent more rice
c. she buys 20 percent less rice
d. she buys 40 percent more rice
answer
d. she buys 40 percent more rice
question
A production function is a relationship that shows the:
a. product of the quantity of a good and the difference between the price of the good and the average total cost of the quantity produced
b. satisfaction that a consumer derives from each unit of consumption
c. difference between total revenues and total costs
d. quantity of each input that a firm uses and the quantity of output that the firm can produce as a result
answer
d. quantity of each input that a firm uses and the quantity of output that the firm can produce as a result
question
People who buy a good Z are typically in a hurry when they buy it. Good Z has _____ demand, and if the seller increases the price of good Z, its total revenue will:
a. inelastic; decrease
b. unit elastic; not change
c. elastic; increase
d. inelastic; increase
answer
d. inelastic; increase
question
The marginal cost curve:
a. is the sum of the total cost curve and the marginal cost curve
b. is the sum of the marginal cost curve and the fixed cost curve
c. intersects the average total cost curve at the highest point on the average total cost curve
d. intersects the average total cost curve at the lowest point on the average total cost curve
answer
d. intersects the average total cost curve at the lowest point on the average total cost curve
question
An economist who wants to measure a consumer's sensitivity to price changes would:
a. use a production possibilities frontier
b. calculate the consumer's income elasticity of demand
c. calculate the consumer's price elasticity of demand
d. use a market model
answer
c. calculate the consumer's price elasticity of demand
question
A year ago, Elizabeth purchased a new computer for $1,400, but not it needs $500 in repairs. She will get only $400 in additional value over the next year. What is Elizabeth's best course of action, and why it is the best?
a. she should not repair the computer because the benefit plus the cost of the repair is less than what she paid for the computer
b. she should not repair the computer because her additional value is less than there additional cost
c. she should repair the computer because the cost of repairing it is less than what she paid
d. she should repair the computer because it still can giver her additional value and she paid a lot of money to get the computer
answer
b. she should not repair the computer because her additional value is less than there additional cost
question
What happens to a consumer's budget constraint if the amount of money he or she has to spend increases?
a. it shifts in
b. it rotates to a new intersection on the vertical axis but not on the horizontal axis
c. it rotates to a new intersection on the horizontal axis but not on the vertical axis
d. it shifts out
answer
d. it shifts out
question
Each year, a bicycle repair shop receives $120,000 in total revenue. Annual costs include $40,000 for labor, $5,000 in parts, and $30,000 in equipment rental. The owner of the bicycle repair shop owns the building and could rent it out for $12,000 per year. She could be making $50,000 per year if she worked as a project manager instead. What is the owners ECONOMIC profit?
a. $75,000
b. $33,000
c. $-17,000
d. $45,000
answer
c. $-17,000
question
Each year, a bicycle repair shop receives $120,000 in total revenue. Annual costs include $40,000 for labor, $5,000 in parts, and $30,000 in equipment rental. The owner of the bicycle repair shop owns the building and could rent it out for $12,000 per year. She could be making $50,000 per year if she worked as a project manager instead. What is the owners ACCOUNTING profit?
a. $-17,000
b. $75,000
c. $33,000
d. $45,000
answer
d. $45,000
question
Jaon's carpentry business has a fixed cost of $5,000 from equipment and tool rental and a variable cost of $40,000 when he builds 100 bookshelves per year. The average total cost of producing 100 bookshelves is:
a. $450
b. $45,000
c. $4,000
d. $5,000
answer
a. $450
question
Mackenzie wants to produce more pies. If she rents another over for $100, she can make another 200 pies. If she hires another worker at a wage of $15, she can make another 45 pies. What statement is true based on this information?
a. she should use another oven to minimize costs
b. she should hire another worker to minimize costs
c. using either another oven or another worker will minimize costs
d. the marginal product of labor per dollar spend is less than the marginal product of capital per dollar spent
answer
b. she should hire another worker to minimize costs
question
An increase in the price of one good leads to a decrease in the quantity demanded of the other good. The sign of this cross-price elasticity is ______, and the two goods are:
a. positive; complements
b. negative; complements
c. negative; substitutes
d. positive substitutes
answer
b. negative; complements
question
There are NO fixed inputs in:
a. the long run
b. production functions
c. in the short run
d. profit functions
answer
a. the long run
question
When total utility _____ at a decreasing rate, marginal utility:
a. decreases; increases
b. increases; decreases
c. decreases; stays the same
d. increases; increases
answer
b. increases; decreases
question
Evelyn's Orchard currently produces 5,000 gallons of cider. The marginal cost of the 5000th gallon was $3, and the average total cost of the 5,000th gallon was $1,50. What can be concluded based on this information?
a. Evelyn's orchards' marginal product of labor is increasing at 5,000 gallons
b. if Evelyn's orchard produces one more gallon, marginal cost and average total cost will be closer to zero
c. the quantity where marginal cost equals average total cost is less than 5,000 gallons
d. producing one more gallon will make the difference between marginal cost and average total cost smaller
answer
c. the quantity where marginal cost equals average total cost is less than 5,000 gallons
question
Podrick enjoys consuming sandwiches (S) and juice boxes (J). Suppose that Podrick has $20 in his budget, the price of a sandwich is $4, and the price of a juice box is $2. Which of the following combinations uses more than his $20 budget?
a. 2S and 6J
b. 10S and 0J
c. 0S and 5J
d. 2S and 2J
answer
b. 10S and 0J
question
If Mackenzie owns the equipment that she uses to bake pies, then her:
a. opportunity cost of the equipment is what she could earn renting the equipment to someone else
b. opportunity cost of the equipment is what she could earn if she replaces all of her workers with equipment
c. opportunity cost of the equipment is how it would cost to buy replacement equipment
d. opportunity cost of the equipment is zero
answer
a. opportunity cost of the equipment is what she could earn renting the equipment to someone else
question
In which of the following situations would demand NOT be elastic?
a. consumers have many other options
b. the time frame is very short
c. a good is a luxury
d. people have a lot of time to shop around
answer
b. the time frame is very short
question
Burgin's Broilers produced one more chicken, and as a result its average total cost increased. What must be true?
a. Burgin's Broilers is experiencing increasing fixed costs
b. Burgin's Broilers marginal cost of producing one more chicken is less than the average total cost
c. Burgin's Broilers is losing money
d. Burgin's Broilers marginal cost of producing one more chicken is greater than the average total cost.
answer
d. Burgin's Broilers marginal cost of producing one more chicken is greater than the average total cost.
question
The reason that firms cannot charge more than the market price for a product in perfectly competitive markets is that:
a. one firm's product is a perfect substitute for another firm's product
b. there are a limited number of sellers to choose from in perfectly competitive markets
c. firms have imperfect information about the pricing by other firms
d. firms sell goods that are all slightly differentiated from each other
answer
a. one firm's product is a perfect substitute for another firm's product
question
Spangles are sold in a perfectly competitive market, and the market price of a spangle is $14. A firm in this market can produce 100 spangles at a cost of $6 each. What does this firm's demand curve look like?
a. a horizontal line at $14
b. a vertical line at $14
c. a horizontal line at $6
d. a horizontal line at $10
answer
a. a horizontal line at $14
question
When a girl in a perfectly competitive market is producing the optimal quantity, what is true?
a. P > MR and MR = MC
b. P = MR = MC
c. P < MC and MR < MC
d. P < MR nad MR = MC
answer
b. P = MR = MC
question
If the purchase of a good involves a positive externality, then the equilibrium quantity that is purchased in a free market is _____ than socially optimal, and the equilibrium price is _____ than socially optimal.
a. more; less
b. less; more
c. more; more
d. less; less
answer
d. less; less
question
Which one is not a private good?
a. bridge
b. toll expressway
c. a mellow mushroom pizza
d. toyota camry
answer
a. bridge
question
What is a key difference between a perfectly competitive market and a monopolistically competitive market?
a. perfectly competitive markets have identical products, but monopolistically competitive markets have slightly differentiated products
b. perfectly competitive markets have imperfect information, but monopolistically competitive markets have perfect information
c. perfectly competitive markets have many buyers and sellers, but monopolistically competitive markets have only a few sellers
d. perfectly competitive markets have difficult entry and exit, but monopolistically competitive markets have easy entry and exit
answer
a. perfectly competitive markets have identical products, but monopolistically competitive markets have slightly differentiated products
question
Suppose that the marginal social benefit curve of a good lies above the marginal private benefit curve. In this case, the purchase of the good involves a ______ externality, and the good will be purchased in an amount that is _____ than the socially optimal
a. negative; more
b. positive; less
c. positive; more
d. negative; less
answer
b. positive; less
question
Which of the following statements about oligopolies is FALSE?
a. duopoly is an example of an oligopoly market
b. firms face a downward-sloping demand curve
c. firms in the market do not have any market power
d. the business strategy of one firm can affect the business of other firms
answer
c. firms in the market do not have any market power
question
Which one of the following is NOT a characteristic of monopolistically competitive markets?
a. firms sell identical products
b. each firm faces a downward-sloping demand curve
c. firms can easily enter or exit the market
d. many firms compete in the market
answer
a. firms sell identical products
question
A monopolist maximizes profit at the point where the ______ of production is equal to:
a. marginal cost; price
b. average total cost; price
c. marginal cost; marginal revenue
d. marginal cost; total revenue
answer
c. marginal cost; marginal revenue
question
All else equal, if a technological improvement increases the marginal product of workers, then the marginal revenue product of workers will_____, and the firms will hire____ workers.
a. decrease; fewer
b. increase; more
c. increase; fewer
d. decrease; more
answer
b. increase; more
question
A firm pays $500,000 per year on costs that it cannot alter in the short run. This year, it expects to produce 100 units, and it will pay $300,000 on the inputs to produce those 100 units. What is this firm's average variable cost?
a. $5,000
b. $1,000
c. $3,000
d. $9,000
answer
c. $3,000
question
Which of the following statements is FALSE for a monopoly firm?
a. its marginal revenue is less than the price
b. its marginal revenue can be negative
c. it can sell additional units of output by lowering the price
d. it faces a horizontal demand curve
answer
d. it faces a horizontal demand curve
question
All else equal, an increase in the price of the good or service produced by a company allows the company to _____ the quantity of labor hired and/or ______ the wage rate.
a. an increase; a decrease
b. a decrease; an increase
c. a decrease; a decrease
d. an increase; an increase
answer
d. an increase; an increase
question
Firms that have market power face a _____ demand curve
a. horizontal
b. vertical
c. u-shaped
d. downward-sloping
answer
d. downward-sloping
question
A market in which there are many buyers and sellers, every firm sells the same standardized product, buyers and sellers have full information about the product and its price, and it is easy for firms to enter and exit the market is known as _____ market.
a. a monopoly
b. a duopoly
c. an oligopoly
d. a perfectly competitive
answer
d. a perfectly competitive
question
Orchid Movers is a price taker in the market for cross- country moving services. The current price to move a two-bedroom house is $1,000, and given the number of homes that it is currently moving, the average cost of providing this service to orchid movers is $1,200. What statement best describes what is likely to happen in the market for moving services?
a. firms will enter this market and drive down the price of moving services
b. firms will exit this marker and push up the price of moving services
c. firms do not have an incentive to enter or exit this market
d. firms like orchid movers will shut down temporarily
answer
b. firms will exit this marker and push up the price of moving services
question
Which one of the following is NOT a characteristic of monopolistically competitive markets?
a. firms can easily enter or exit the market
b. each firm in the market faces a horizontal demand curve
c. many firms are competing in the market
d. the products that are sold by different firms are not identical
answer
b. each firm in the market faces a horizontal demand curve
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