ECON 101: Quizzes

ECON 101: Quizzes

Which of the following is assumed in constructing a typical production possibilities curve?
Production technology is fixed.

Refer to the table. For this economy to produce a total output of 3 units of capital goods and 13 units of consumer goods, it must:
achieve economic growth.

Refer to the diagram. Which of the following is a normative statement?
Point C is superior to point B because it is important to enhance the future of society.

In recent years the economy of Japan has grown, despite the fact that the population of Japan has declined. Which of the following would best explain Japan’s economic growth despite having a smaller population?
Advancements in technology that make labor more productive.

Which of the following will not produce an outward shift of the production possibilities curve?
The reduction of unemployment.

The production possibilities curve shows:
the various combinations of two goods that can be produced when society employs all of its scarce resources.

Positive statements are expressions of value judgments.
False

Which of the following is a positive statement?
The temperature is 92 degrees today.

The concept of opportunity cost:
suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.

The optimal allocation of resources is found:
where MB = MC.

A typical concave (bowed out from the origin) production possibilities curve implies:
that society must choose among various attainable combinations of goods.

Products and services are scarce because resources are scarce.
True

Any point inside the production possibilities curve indicates:
that more output could be produced with the available resources.

A nation’s production possibilities curve is bowed out from the origin because:
resources are not generally equally efficient in producing every good.

When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because:
resources are limited.

Slopes of lines are especially important in economics because:
they measure marginal changes.

What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500?

a. Small automobiles become more fashionable:

b. The price of large automobiles rises (with the price of small autos remaining the same):

c. Income declines and small autos are an inferior good:

d. Consumers anticipate that the price of small autos will greatly come down in the near future:

e. The price of gasoline substantially drops:

a. Small automobiles become more fashionable: Increase.

b. The price of large automobiles rises (with the price of small autos remaining the same): Increase.

c. Income declines and small autos are an inferior good: Increase.

d. Consumers anticipate that the price of small autos will greatly come down in the near future: Decrease.

e. The price of gasoline substantially drops: Cannot be determined.

True or False: A “change in quantity demanded” is a shift of the entire demand curve to the right or to the left.
False

What effect will each of the following have on the supply of auto tires? (Keeping all else constant)

a. A technological advance in the methods of producing tires:

b. A decline in the number of firms in the tire industry:

c. An increase in the prices of rubber used in the production of tires:

d. The expectation that the equilibrium price of auto tires will be lower in the future than currently:

e. A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production. (with no change in the price of auto tires):

f. The levying of a per-unit tax on each auto tire sold:

g. The granting of a 50-cent-per-unit subsidy for each auto tire produced:

a. A technological advance in the methods of producing tires: Increase

b. A decline in the number of firms in the tire industry: Decrease

c. An increase in the prices of rubber used in the production of tires: Decrease

d. The expectation that the equilibrium price of auto tires will be lower in the future than currently: Increase

e. A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production. (with no change in the price of auto tires): Increase

f. The levying of a per-unit tax on each auto tire sold: Decrease

g. The granting of a 50-cent-per-unit subsidy for each auto tire produced: Increase

In which of these two statements are the terms “supply” and “demand” used correctly?

A. “In the corn market, demand often exceeds supply and supply sometimes exceeds demand.”

B. “The price of corn rises and falls in response to changes in supply and demand.”

Statement B

Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be _______ of memory chips.
a surplus

a. On a hot day, both the demand for lemonade and the supply of lemonade increase.

b. On a cold day, both the demand for ice cream and the supply of ice cream decrease.

c. When Hawaii’s Mt. Kilauea erupts violently, the demand on the part of tourists for
sightseeing flights increases but the supply of pilots willing to provide these
dangerous flights decreases.

d. In a hot area of Arizona where they generate a lot of their electricity with wind
turbines, the demand for electricity falls on windy days as people switch off
their air conditioners and enjoy the breeze. But at the same time, the amount
of electricity supplied increases as the wind turbines spin faster.

a. P ?; Q Inc.
b. P ?; Q Dec.
c. P Inc.; Q?
d. P Dec.; Q?

A price ceiling will result in a shortage only if the ceiling price is ______ the equilibrium price.
less than

The demand curve shows the relationship between:
price and quantity demanded.

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.
direct; inverse

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the:
income effect

A recent study found that an increase in the federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that:
beer and marijuana are complementary goods.

If consumer incomes increase, the demand for product X:
may shift either to the right or left.

A firm’s supply curve is upsloping because:
beyond some point the production costs of additional units of output will rise.

Increasing marginal cost of production explains:
why the supply curve is upsloping.

A leftward shift of a product supply curve might be caused by:
some firms leaving an industry.

At the point where the demand and supply curves for a product intersect:
the quantity that consumers want to purchase and the amount producers choose to sell are the same.

At the optimal quantity of a public good:
marginal benefit equals marginal cost.

At the output level defining allocative efficiency
the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.

Society’s marginal cost of pollution abatement curve slopes upward because of the law of diminishing marginal utility.
False

When a supply-side market failure occurs, the costs are greater than the benefits for the last unit(s) of output produced.
True

What two conditions must hold for a competitive market to produce efficient outcomes?
Supply curves must reflect all costs of production, and demand curves must reflect consumers’ full willingness to pay.

Which of the following is an example of a public good?
A weather warning system

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.
True

Graphically, producer surplus is measured as the area:
above the supply curve and below the actual price.

An efficiency loss (or deadweight loss):
is measured as the combined loss of consumer surplus and producer surplus.

Demand-side market failures occur when:
the demand and supply curves don’t reflect consumers’ full willingness to pay for a good or service.

Economists consider governments to be “wasteful”:
whenever they over- or underallocate resources to a project.

Along a supply curve, product price and producer surplus are inversely related.
False.

Refer to the diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, it should:
tax producers so that the market supply curve shifts leftward (upward).

Which of the following conditions does not need to occur for a market to achieve allocative efficiency?
The total revenue received by producers equals the total cost of production.

The socially optimal amount of pollution abatement occurs where society’s marginal:
benefit of abatement equals its marginal cost of abatement.

If one person’s consumption of a good does not preclude another’s consumption, the good is said to be
nonrival in consumption.

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences:
a consumer surplus of $10 and Tony experiences a producer surplus of $190.

How would the following changes in price affect total revenue? That is, would total revenue increase, decrease, or remain unchanged?

a. Price falls and demand is inelastic:

b. Price rises and demand is elastic:

c. Price rises and demand is inelastic:

d. Price falls and demand is elastic:

e. Price falls and demand is of unit elasticity

a. Price falls and demand is inelastic: Decrease.

b. Price rises and demand is elastic: Decrease.

c. Price rises and demand is inelastic: Increase.

d. Price falls and demand is elastic: Increase.

e. Price falls and demand is of unit elasticity: Remain unchanged.

The price elasticity of demand coefficient measures:
buyer responsiveness to price changes.

The basic formula for the price elasticity of demand coefficient is:
percentage change in quantity demanded/percentage change in price.

The demand for a product is inelastic with respect to price if:
consumers are largely unresponsive to a per unit price change.

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:
increase the quantity demanded by about 25 percent.

Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the absolute value of the price elasticity (midpoint method) is:
1.37.

Which of the following is not characteristic of the demand for a commodity that is elastic?
The elasticity coefficient is less than one.

If the demand for product X is inelastic, a 4 percent increase in the price of X will:
decrease the quantity of X demanded by less than 4 percent.

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then:
the price elasticity of demand is 2.25.

A perfectly inelastic demand schedule:
can be represented by a line parallel to the vertical axis.

Which of the following statements is not correct?
In the range of prices in which demand is elastic, total revenue will diminish as price decreases.

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is:
relatively inelastic.

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is:
relatively elastic.

The demand for autos is likely to be:
less price elastic than the demand for Honda Accords.

Price elasticity of demand is generally:
greater in the long run than in the short run.

Suppose that the price of product X rises by 20 percent and the quantity supplied of X increases by 15 percent. The coefficient of price elasticity of supply for good X is:
less than 1 and therefore supply is inelastic.

Suppose the price of a product rises and the total revenue of sellers increases.
No conclusion can be reached with respect to the elasticity of supply.

Which of the following is most likely to be an implicit cost for Company X?
Forgone rent from the building owned and used by Company X.

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?
All are opportunity costs.

The long run is characterized by:
the ability of the firm to change its plant size.

Marginal product is:
the increase in total output attributable to the employment of one more worker.

the law of diminishing returns indicates that:
as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

Which of the following best expresses the law of diminishing returns?
As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, we can conclude that:
marginal product of the third worker is 9.

Which of the following is most likely to be a fixed cost?
Property insurance premiums.

If you operated a small bakery, which of the following would be a variable cost in the short run?
Baking supplies (flour, salt, etc.).

Which of the following is correct as it relates to cost curves?
Marginal cost intersects average total cost at the latter’s minimum point.

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm’s total fixed costs are:
$5,000.

Average total cost is:
(TFC + TVC) / Q

In the figure, curves 1, 2, 3, and 4 represent the:
(2 is above 3, 1 is nearest to y-axis, 4 is lowest curve)
MC, ATC, AVC, and AFC curves respectively.

Which of the following holds true?
When AP is rising AVC is falling, and when AP is falling AVC is rising.

Economies and diseconomies of scale explain:
why the firm’s long-run average total cost curve is U-shaped.

The diagram shows the short-run average total cost curves for five different plant sizes of a firm. The shape of each individual curve reflects:
increasing returns, followed by diminishing returns.

Suppose that the paper clip industry is perfectly competitive. Also assume that the market price for paper clips is 2 cents per paper clip. The demand curve faced by each firm in the industry is:
A horizontal line at 2 cents per paper clip.

What can you conclude about the structure of the industry in which this firm is operating?
(constant product price, increasing TR, constant MR, increasing D)
The industry is purely competitive.

A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output at which
TR exceeds TC by as much as possible

If it is possible for a perfectly competitive firm to do better financially by producing rather than shutting down, then it should produce the amount of output at which:
MR=MC

A perfectly competitive firm that makes car batteries has a fixed cost of $10,000 per month. The market price at which it can sell its output is $100 per battery. The firm’s minimum AVC is $105 per battery. The firm is currently producing 500 batteries a month (the output level at which MR = MC). This firm is making a _____________ and should _______________ production.
loss; shut-down

Consider a profit-maximizing firm in a competitive industry. Under which of the following situations would the firm choose to produce where MR = MC?
P > minimum ATC.
Minimum AVC < P < minimum ATC.

Which of the following industries most closely approximates pure competition?
Agriculture

In which of the following industry structures is the entry of new firms the most difficult?
Pure Monopoly

An industry comprised of four firms, each with about 25 percent of the total market for a product, is an example of:
oligopoly

A purely competitive seller is:
a “price-taker”

The demand schedule or curve confronted by the individual, purely competitive firm is:
perfectly elastic

Which of the following is characteristic of a purely competitive seller’s demand curve?
Price and marginal revenue are equal at all levels of output.

Price is constant to the individual firm selling in a purely competitive market because:
each seller supplies a negligible fraction of total supply.

The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.
downsloping; perfectly elastic

A firm reaches a break-even point (normal profit position) where:
total revenue and total cost are equal.

The MR = MC rule applies:
in firms of all industries

When a firm is maximizing profit, it will necessarily be:
maximizing the difference between total revenue and total cost.

In the short run, the individual competitive firm’s supply curve is that segment of the:
marginal cost curve lying above the average variable cost curve.

Refer to the diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is:
where MC meets AVC

Refer to the diagram for a purely competitive producer. If product price is P3 (where MC meets ATC)
economic profits will be zero.

When discussing pure competition, the term long run refers to a period of time long enough to allow:
the term long run refers to a period of time long enough for existing firms to expand or contract their capacities AND for the overall number of firms to increase or decrease as new firms enter or existing firms exit.

Suppose that the pen-making industry is perfectly competitive. Also suppose that each current firm and any potential firms that might enter the industry all have identical cost curves, with minimum ATC = $1.25 per pen. If the market equilibrium price of pens is currently $1.50, what would you expect it to be in the long run?
$1.25

Suppose that as the output of mobile phones increases, the cost of touch screens and other component parts decreases. If the mobile phone industry features pure competition, we would expect the long-run supply curve for mobile phones to be:
downward sloping

Long-run equilibrium will be restored by ______ correct shifting _______ correct such that in the long run, market (industry) price will ________
Long-run equilibrium will be restored by supply correct shifting out correct such that in the long run, market (industry) price will remain unchanged

Suppose that purely competitive firms producing cashews discover that P exceeds MC.

a. Is their combined output of cashews too little, too much, or just right to achieve allocative efficiency?

b. In the long run, what will happen to the supply of cashews and the price of cashews?

a. too little
b. Supply will increase and the price of cashews will decrease

Which of the following distinguishes the short run from the long run in pure competition?
Firms can enter and exit the market in the long run but not in the short run.

The primary force encouraging the entry of new firms into a purely competitive industry is:
economic profits earned by firms already in the industry.

In a purely competitive industry:
there may be economic profits in the short run but not in the long run.

Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm:
should continue producing in the short run but leave the industry in the long run if the situation persists.

Which of the following is true concerning purely competitive industries?
In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then:
new firms will enter this market.

A purely competitive firm is precluded from making economic profits in the long run because:
of unimpeded entry to the industry.

When LCD televisions first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that
the LCD television industry is a decreasing-cost industry.

The MR = MC rule applies:
in both the short run and the long run.

The term allocative efficiency refers to:
the production of the product mix most desired by consumers.

If for a firm P = minimum ATC = MC, then:
both allocative efficiency and productive efficiency are being achieved.

Refer to the diagram. If this represents a typical firm in the industry and the firm is producing at the profit-maximizing level of output in the short run, then in the long run we would expect economic profits in this market to rise.
False

Which of the following could explain why a firm is a monopoly?
Government licenses.
Economies of scale.
Downsloping market demand.

The MR curve of a perfectly competitive firm is horizontal. The MR curve of a monopoly firm is:
downsloping

How often do perfectly competitive firms engage in price discrimination?
never

Suppose that a monopolist can segregate his buyers into two different groups to which he can charge two different prices. In order to maximize profit, the monopolist should charge a higher price to the group that has:
the lower elasticity of demand

The socially optimal price (P = MC) is socially optimal because:
it achieves allocative efficiency

The main problem with imposing the socially optimal price (P = MC) on a monopoly is that the socially optimal price:
May be so low that the regulated monopoly can’t break even.

Which of the following is correct?
A purely competitive firm is a “price taker,” while a monopolist is a “price maker.”

A purely monopolistic firm:
faces a downsloping demand curve.

Pure monopolists may obtain economic profits in the long run because:
of barriers to entry.

The terms of trade reflect the:
ratio at which nations will exchange two goods.

In the theory of comparative advantage, a good should be produced in that nation where
its cost is least in terms of alternative goods that might otherwise be produced

If two nations have straight-line production possibilities curves
there will be a basis for mutually advantageous trade provided the slopes differ

The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that:
a nation’s trading possibilities line lies to the right of its production possibilities line

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