Multiple Choice Practice

Multiple Choice Practice

Exam 1

____ 36. When individuals come together to buy and sell goods and services, they form a(n)

a. / economy
b. / market
c. / production possibilities frontier
d. / supply curve
e. / demand curve

____ 37. In the supply and demand schedules in Figure C-10, the equilibrium quantity of socks is

a. / 15
b. / 10
c. / 13
d. / 6
e. / 1

____ 38. In the supply and demand for socks schedules in Figure C-10, a price of $10 results in

a. / equilibrium
b. / excess demand of 6 units
c. / excess supply of 14 units
d. / excess supply of 6 units
e. / excess demand of 14 units

____ 39. If the supply of coffee falls due to bad weather conditions in coffee-exporting countries, then the

a. / price and quantity will rise
b. / price and quantity will fall
c. / price will fall and quantity will rise
d. / price will rise and quantity will fall
e. / quantity will fall, but price may rise or fall

____ 40. Assume the most typical shapes of the demand and supply curves. If both demand and supply increase in a competitive market, the equilibrium price will

a. / always rise
b. / always fall
c. / rise if demand increases more than supply increases
d. / fall if demand increases more than supply increases
e. / remain unchanged

____ 41. Consider the competitive market for oil. Which of the following would result from the discovery of new oil fields that can be profitably accessed at the current price?

a. / both b and d
b. / an increase in the demand for oil
c. / an excess demand for oil as oil companies shift resources to developing the new fields
d. / an excess supply of oil if the price of oil fails to drop sufficiently
e. / an increase in the expected future price of oil

____ 42. A decrease in demand, with supply constant, results in a(n)

a. / increase in equilibrium price and a decrease in equilibrium quantity
b. / decrease in equilibrium price and a decrease in equilibrium quantity
c. / increase in equilibrium price and an increase in equilibrium quantity
d. / increase in equilibrium price and an ambiguous effect on equilibrium quantity
e. / decrease in supply

____ 43. An increase in supply results in a(n)

a. / increase in demand
b. / decrease in equilibrium quantity and an increase in equilibrium price
c. / decrease in equilibrium quantity and a decrease in equilibrium price
d. / decrease in equilibrium price and an increase in equilibrium quantity
e. / unfavorable shift in tastes and preferences

____ 44. If two goods are substitutes, then

a. / an increase in the demand for one of them will lead to an increase in demand for the other
b. / an increase in the demand for one of them will lead to a decrease in demand for the other
c. / an increase in the supply of one of them will lead to an increase in supply of the other
d. / an increase in the supply of one of them will lead to a decrease in demand for the other
e. / they cannot be produced at the same time

____ 45. Macroeconomics is the study of

a. / how wages are determined in a specific labor market
b. / how to use the fewest natural resources to produce public goods
c. / what is happening in the economy as a whole
d. / how consumers and producers interact in individual markets
e. / the price and the quantity exchanged in a market

____ 46. In order to eliminate unnecessary details and highlight the essential features of an economic model, an economist makes

a. / critical assumptions
b. / macroeconomic assumptions
c. / normative assumptions
d. / positive assumptions
e. / simplifying assumptions

____ 47. High-income people will sometimes pay higher prices at convenience stores for goods that are available at discount stores. They do this because

a. / they are irrational
b. / their opportunity cost of time is low
c. / crowded and understaffed discount stores impose higher time costs
d. / they like to be seen paying more money
e. / they do not mind wasting time

____ 48. Individuals face opportunity costs because

a. / the minimum wage is too low
b. / technology is improving too fast
c. / time and funds are scarce
d. / government cut backs are widespread, except possibly among society's most affluent households
e. / welfare gives individuals an incentive to stay home

____ 49. If the economy is producing a combination of goods inside its production possibilities frontier, then

a. / workers are on vacation
b. / a significant number of workers have little education
c. / some resources are being wasted
d. / technology must improve before output can increase
e. / the opportunity cost of producing more output is greater than the value of the additional output that could be produced

____ 50. Suppose that the country of Utopia produces only steel and coffee. In 1998, Utopia produced 900 tons of steel and 500 pounds of coffee, while in 1999, it produced 1,000 tons of steel and 550 pounds of coffee. Assume that no technological changes occurred in the production of either good and the resource endowment of Utopia did not change. Which of the following is true?

a. / Utopia's opportunity cost of producing additional steel is 50 pounds of coffee
b. / Utopia's production must have been technically inefficient in 1998.
c. / Utopia's opportunity cost of producing additional steel is 1/2 pound of coffee per ton of steel
d. / Utopia's opportunity cost of producing additional coffee is 100 tons of steel
e. / the production point in 1998 was unattainable given then-current resources and technology

____ 51. The principle of specialization and exchange implies that

a. / total production is highest when individuals specialize according to their absolute advantages
b. / technical inefficiency increases as producers in society specialize
c. / exchange can only occur when there is specialization in the economy
d. / gains from specialization will only occur when society is operating at a point along its production possibilities frontier
e. / total production is highest when individuals specialize according to their comparative advantages

____ 52. Molly needs 30 minutes to wash the car and 45 minutes to mow the lawn. Renee needs 1 hour to wash the car and 2 hours to mow the lawn. Which of the following statements is correct?

a. / Molly has an absolute advantage in washing the car; Renee has an absolute advantage in mowing the lawn
b. / Molly has an absolute advantage in mowing the lawn; Renee has an absolute advantage in washing the car
c. / Molly has an absolute advantage in both tasks
d. / Renee has an absolute advantage in both tasks
e. / neither woman has an absolute advantage in washing the car

____ 53. A person has an absolute advantage in producing a good if he can

a. / produce it using fewer resources than another person
b. / produce it while sacrificing less than another person in terms of foregone output
c. / corner the market
d. / use other peoples' money to produce it
e. / work out some long term payment plan for financing the good

____ 54. The social problem of resource allocation requires society to decide

a. / all of the following
b. / both d and e
c. / how output should be produced
d. / what goods and services should be produced
e. / who gets what society produces

____ 55. An increase in the population will lead to

a. / a rightward shift in every individual's demand curve
b. / no shift in any individual's demand curve
c. / a leftward shift in the market demand curve
d. / a rightward movement along every individual's demand curve
e. / a rightward movement along the market demand curve

____ 56. An increase in buyers' incomes

a. / increases the quantity demanded of a good
b. / decreases the quantity demanded of a good
c. / increases the demand for a normal good
d. / increases the demand for an inferior good
e. / decreases the quantity demanded of a normal good

____ 57. Which of the following would shift the demand curve for new college textbooks to the right?

a. / an increase in the price of new college textbooks
b. / a decrease in the price of new college textbooks
c. / an increase in the price of used college textbooks
d. / a decrease in the population of college students
e. / a decrease in the wealth of college students

____ 58. Of the following, which could cause the demand curve for personal computers to shift to the left?

a. / a decrease in the price of personal computers
b. / an increase in the price of computer software
c. / a decrease in the price of computer software
d. / an increase in wealth (assuming personal computers are a normal good)
e. / expectations of an increase in the price of personal computers in the future

____ 59. Which of the following would not lead to a change in the supply of chocolate ice cream?

a. / a change in productive capacity
b. / a change in the price of strawberry ice cream
c. / a change in the price of milk
d. / a change in the price of chocolate ice cream
e. / a change in the expected future price of chocolate ice cream

____ 60. An increase in the price of a particular good, with all other variables constant, causes

a. / a movement along a given supply curve to a lower quantity supplied
b. / a shift to a different supply curve with lower quantities supplied
c. / a movement along a given supply curve to a higher quantity supplied
d. / a shift to a different supply curve with higher quantities supplied
e. / no movement along a given supply curve unless demand also changes

____ 61. An economic model

a. / uses equations to understand normative economic phenomena
b. / often omits crucial elements
c. / simplifies reality in order to focus on crucial elements
d. / produces poor predictions if it includes unrealistic assumptions
e. / cannot be proven wrong

____ 62. Procter & Gamble Co. is a major soap producer. All of the following, except one, would shift its supply curve of liquid soap inward. Which is the exception?

a. / an increase in the price of bar soap
b. / an increase in the price of a key ingredient of liquid soap
c. / environmental regulations force Procter & Gamble to use a more costly technology to produce liquid soap
d. / a decrease in the price of liquid soap
e. / an increase in the wage rate for factory workers who produce liquid soap

____ 63. When a market is in equilibrium,

a. / quantity demanded equals quantity supplied
b. / quantity demanded exceeds quantity supplied
c. / the demand curve is identical to the supply curve
d. / the economy must be at a point along the production possibilities frontier
e. / the law of demand is equivalent to the law of supply

____ 64. Excess demand occurs when

a. / the actual price is greater than the equilibrium price
b. / equilibrium is undefined
c. / consumer wants are unlimited
d. / the actual price is less than the equilibrium price
e. / the market is in equilibrium

____ 65. Figure B-2 illustrates the trade-off for a particular student between time spent studying per week and income per week from working part-time. What is the opportunity cost for this person of moving from point a to point b?

a. / $5 of income per week
b. / $10 of income per week
c. / two hours of studying per week
d. / $10 per hour of studying per week
e. / $20 of income per week

____ 66. Which point in Figure B-4 is not possible for this society to produce?

a. / A
b. / B
c. / C
d. / D
e. / E