Economists believe that scarcity forces everyone to

1. satisfy all wants
2. abandon consumer sovereignity
3. lie about their wants
4. create unlimited resources
5. make choices

The subject of economies is primarily the study of

1. the government decision making process
2. how to operate a business successfully
3. decision making because of the problem of scarcity
4. how to make money in the stock market

1. the government decision making process
2. how to operate a business successfully
3. decision making because of the problem of scarcity
4. how to make money in the stock market

When building a model, an economist must

1. adjust for exceptional situations
2. provide a complete description of reality
3. make simplfying assumptions
4. develop a set of behavioral equation

1. adjust for exceptional situations
2. provide a complete description of reality
3. make simplfying assumptions
4. develop a set of behavioral equation

If the price of a textbook rises and students purchase fewer textbooks, an economic model can show a cause-and-effect relationship only if which of the following conditions holds?

1. students' incomes fall
2. tuition decreases
3. the number of students increases
4. everything else is constant
5. the bookstore no longer accepts used book trade-ins

1. students' incomes fall
2. tuition decreases
3. the number of students increases
4. everything else is constant
5. the bookstore no longer accepts used book trade-ins

Someone notices that sunspot activity is high just prior to recessions and concludes that sunspots cause recessions. This person has:

1.  confused association and causation
2. misunderstood the ceteris paribus assumption
3. used normative economics to answer a positive question
4. built a untestable model

1.  confused association and causation
2. misunderstood the ceteris paribus assumption
3. used normative economics to answer a positive question
4. built a untestable model

Which of the following is not true about a production possibilities curve? The curve:

1. indicates the combinations of goods and services that can be produced with a given technology
2. indicates the efficient production points
3. indicates the nonefficient points
4. indicates the feasible and nonfeasible production points
5. indicates which production point will be chosen

1. indicates the combinations of goods and services that can be produced with a given technology
2. indicates the efficient production points
3. indicates the nonefficient points
4. indicates the feasible and nonfeasible production points
5. indicates which production point will be chosen

Which of the following is true about the production possibilities curve when a technological progress occurs?

1. Shifts inward to the left
2. Becomes flatter at one end and steeper at the other
3. Becomes steeper
4. Shifts outward to the right
5. Doesn't change

1. Shifts inward to the left
2. Becomes flatter at one end and steeper at the other
3. Becomes steeper
4. Shifts outward to the right
5. Doesn't change

An outward shift of an economy’s production possibilities curve is caused by

1. entrepreneurship
2. an increase in labor
3. an advance in technology
4. all of the above

1. entrepreneurship
2. an increase in labor
3. an advance in technology
4. all of the above

Which would be least likely to cause the production possibilities curve to shift to the right?

1. An increase in labor force
2. Improved methods of production
3. An increase in the education and training of the labor force
4. A decrease in unemployment

1. An increase in labor force
2. Improved methods of production
3. An increase in the education and training of the labor force
4. A decrease in unemployment

A nation can accelerate its economic growth by

1. reducing the number of immigrants 
2. adding to its stock of capital
3. printing more money 
4. imposing tariffs and quotas on imported goods

1. reducing the number of immigrants 
2. adding to its stock of capital
3. printing more money 
4. imposing tariffs and quotas on imported goods

Which of the following illustrates the concept of scarcity?

1. More clean air is wanted than is avaiable in large polluted metropolitan areas such as Mexico City
2. There is usualy more than one use of you "free" time in the evening
3. There are many competing uses for the annual budget of your city, country, or state
4. All of the above

1. More clean air is wanted than is avaiable in large polluted metropolitan areas such as Mexico City
2. There is usualy more than one use of you "free" time in the evening
3. There are many competing uses for the annual budget of your city, country, or state
4. All of the above

Which of the following are factors of production?

1. The outputs generated by the production process fransforming land, labor, and capital into goods and services
2. Resources restricted to the land, such as natural resources that are unimproved by human economic activity
3. Land(natural resources), labor (human capital, entrepreneurship), and capital (constructed inputs such as factories)
4. Just labor and capital in industrialized countries, where natural resources are no longer used to produce goods and services

1. The outputs generated by the production process fransforming land, labor, and capital into goods and services
2. Resources restricted to the land, such as natural resources that are unimproved by human economic activity
3. Land(natural resources), labor (human capital, entrepreneurship), and capital (constructed inputs such as factories)
4. Just labor and capital in industrialized countries, where natural resources are no longer used to produce goods and services

Which of the following is not an example of a capital input?

1. A person's skills and abilities, which can be employed to produce valuable goods and services
2. Factories and offices where goods and services are produced
3. Tools and equipment
4. Computers used by a company to record inventory, sales, and payroll

1. A person's skills and abilities, which can be employed to produce valuable goods and services
2. Factories and offices where goods and services are produced
3. Tools and equipment
4. Computers used by a company to record inventory, sales, and payroll

Which of the following is the best definition of economics?

1. Economics is the study of how to manage corporations to generate the greatest return on shareholder investment
2. Economics is the study of how to manage city and county government to generate the greatest good to its citizens
3. Economics is the study of how society chooses to allocate its scarce resources
4. Economics is the study of how to track revenues and costs in a business

1. Economics is the study of how to manage corporations to generate the greatest return on shareholder investment
2. Economics is the study of how to manage city and county government to generate the greatest good to its citizens
3. Economics is the study of how society chooses to allocate its scarce resources
4. Economics is the study of how to track revenues and costs in a business

Which of the following best illustrates the application of the model-building process to economics?

1. On a Sunday morning talk show, 2 economists with differing political agendas argue about the best way to solve the social security problem 
2. A labor economist notices that unemployment tends to be higher among teenagers than more experienced workers, develops a model, and gathers data to test the hypothesis in the model
3. A Ph. D student in economics makes up data on the lumber market and develops a model for his dissertation that seems to be consistent with the data
4. Economists come to believe that some economic models are true simply because prominent leading economists say they are true

1. On a Sunday morning talk show, 2 economists with differing political agendas argue about the best way to solve the social security problem 
2. A labor economist notices that unemployment tends to be higher among teenagers than more experienced workers, develops a model, and gathers data to test the hypothesis in the model
3. A Ph. D student in economics makes up data on the lumber market and develops a model for his dissertation that seems to be consistent with the data
4. Economists come to believe that some economic models are true simply because prominent leading economists say they are true

Which of the following represents causality rather than association?

1. In years that fashion dictates wider lapels on men's jaclets, the stock market grows by at least 5%
2. Interest reates are higher in years ending with a 1 or a 6
3. Unemployment falls when the AFC champion wins the Super Bowl
4. Quantity demanded goes up when price falls becuase lower prices increase consumer purchasing power and because some consumers of substitute goods switch

1. In years that fashion dictates wider lapels on men's jaclets, the stock market grows by at least 5%
2. Interest reates are higher in years ending with a 1 or a 6
3. Unemployment falls when the AFC champion wins the Super Bowl
4. Quantity demanded goes up when price falls becuase lower prices increase consumer purchasing power and because some consumers of substitute goods switch

Which of the following describes the ceteris paribus assumption?

1. If we increase the price of a good, reduce consumer income, and lower the price of substitutes and if quantity demanded is observed to fall, we now that the price increase caused the decline in quantity demanded
2. If the federal government increases government spending and the Federal Reserve Bank lowers interest rates, we know that the increase in government spending caused unemployment to fall
3. If a company reduces its labor costs, negotiates lower materials costs from its vendors, and advertises, we know that the reduced labor costs are why the company's profits are higher
4. If we decrease the price of a good and observe that there is an increase in the quantity demanded, holding all other factors that influence this relationship constant 

1. If we increase the price of a good, reduce consumer income, and lower the price of substitutes and if quantity demanded is observed to fall, we now that the price increase caused the decline in quantity demanded
2. If the federal government increases government spending and the Federal Reserve Bank lowers interest rates, we know that the increase in government spending caused unemployment to fall
3. If a company reduces its labor costs, negotiates lower materials costs from its vendors, and advertises, we know that the reduced labor costs are why the company's profits are higher
4. If we decrease the price of a good and observe that there is an increase in the quantity demanded, holding all other factors that influence this relationship constant 

The condition of scarcity

1. Cannot be explained
2. Prevails in poor economies 
3. Prevails in rich economies
4. All of the above are correct

1. Cannot be explained
2. Prevails in poor economies 
3. Prevails in rich economies
4. All of the above are correct

Which of the following best describes an entrepreneur?

1. A person who works as an office clerk at a major corporation
2. A person who combines the factors of production to produce innovative products 
3. A special type of capital
4. Wealthy individuals who provide savings that stimulates the economy

1. A person who works as an office clerk at a major corporation
2. A person who combines the factors of production to produce innovative products 
3. A special type of capital
4. Wealthy individuals who provide savings that stimulates the economy

Which of the following is true about renewable natural resources?

1. They are a type of land resource that has a fixed stock
2. They are a type of capital resource that utilize water
3. They are a type of capital resource that renew and refresh polluted air from the outside
4. They are a type of land resource that naturally regenerate and thus can tolerate a sustained harvest but can be depleted from excessive harvest

1. They are a type of land resource that has a fixed stock
2. They are a type of capital resource that utilize water
3. They are a type of capital resource that renew and refresh polluted air from the outside
4. They are a type of land resource that naturally regenerate and thus can tolerate a sustained harvest but can be depleted from excessive harvest

Because of scarcity,

1. it is impossible to satisfy every desire and choices must be made 
2. the available supply of time, goods, and resources is greater than human wants
3. every desire is fulfilled
4. there are no limits on the economy's ability to satisfy unlimited wants

1. it is impossible to satisfy every desire and choices must be made 
2. the available supply of time, goods, and resources is greater than human wants
3. every desire is fulfilled
4. there are no limits on the economy's ability to satisfy unlimited wants

Which of the following represents positive economics?

1. Policy A is fair
2. Outcome B is the best objective to achieve
3. If policy A is followed, then outcome B results
4. All of the above are positive economic analyses

1. Policy A is fair
2. Outcome B is the best objective to achieve
3. If policy A is followed, then outcome B results
4. All of the above are positive economic analyses

Which of the following is the last step in the model-building process?

1. Collect data and test the model
2. Develop a model based on simplified assumptions
3. Identify the problem
4. Formulate an assumption

1. Collect data and test the model
2. Develop a model based on simplified assumptions
3. Identify the problem
4. Formulate an assumption

Which of the following is not a type of economic analysis?

1. Positive
2. Resources
3. Normative
4. None of the above

1. Positive
2. Resources
3. Normative
4. None of the above

Which word indicates that an economist is using positive economics?

1. Good 
2. Bad
3. If-then
4. Should

1. Good 
2. Bad
3. If-then
4. Should

Which of the following would eliminate scarcity as an economic problem?

1. Moderation of people's competitve instincts
2. Discovery of new, sufficiently large energy reserves
3. Resumption of steady productivity growth 
4. None of the above is correct

1. Moderation of people's competitve instincts
2. Discovery of new, sufficiently large energy reserves
3. Resumption of steady productivity growth 
4. None of the above is correct

Which resource is not an example of capital?

1. Equipment
2. Machinery
3. Physical plants
4. Stock and bonds

1. Equipment
2. Machinery
3. Physical plants
4. Stock and bonds

Which of the following is the second step in the model-building process?

1. Collect data and test the model
2. Develop a model based on simplified assumption
3. Identify the problem
4. Include all possible variables that affect the model 

1. Collect data and test the model
2. Develop a model based on simplified assumption
3. Identify the problem
4. Include all possible variables that affect the model 

Which of the following is a type of economic analysis?

1. Positive
2. Resources
3. Association
4. None of the above

1. Positive
2. Resources
3. Association
4. None of the above

Which of the following careers could result from majoring in economics?

1. Management
2. Banking
3. Government 
4. All of the above

1. Management
2. Banking
3. Government 
4. All of the above

Which of the following best describes the three fundamental economic questions?

1. What to produce, when to produce, where to produce
2. What time to produce, what place to produce, and how to produce
3. What to produce, when to produce, and for whom to produce
4. What to produce, how to produce, and for whom to produce

1. What to produce, when to produce, where to produce
2. What time to produce, what place to produce, and how to produce
3. What to produce, when to produce, and for whom to produce
4. What to produce, how to produce, and for whom to produce

Suppose the alternative uses of an hour of your time in the evening, ranked from best to worst, are

1. study economics,

2. watch two half-hour sitcoms,

3. play video games, and

4. jog around town.

You can choose only one activity. What is the opportunity cost of studying economics for one hour given this information?

1. Jogging aroud town
2. watching 2 half-hour TV sitcoms 
3. Playing video games
4. The sum of playing pool, doing laundry, and watching the two shows

1. Jogging aroud town
2. watching 2 half-hour TV sitcoms 
3. Playing video games
4. The sum of playing pool, doing laundry, and watching the two shows

Which word or phrase best completes the following sentence? Marginal analysis means evaluating  changes from a current situation.

1. positive or negative 
2. infinite
3. no 
4. maximum

1. positive or negative 
2. infinite
3. no 
4. maximum

Which of the following is an example of an organization using marginal analysis?

1. A hotel manager calculating the average cost per guest for the past year
2. A farmer hoping for rain 
3. A government official considering the effect an increase in military goods production will have on the production of consumer goods
4. a businessperson calculating economic profits

1. A hotel manager calculating the average cost per guest for the past year
2. A farmer hoping for rain 
3. A government official considering the effect an increase in military goods production will have on the production of consumer goods
4. a businessperson calculating economic profits

A production possibilities curve shows the various combinations of two outputs that

1. consumers would like to consume
2. producers would like to produce
3. an economy can produce
4. an economy should produce

1. consumers would like to consume
2. producers would like to produce
3. an economy can produce
4. an economy should produce

A production possibilities curve is drawn based on which of the following assumptions?

1. Resources are fixed and fully employed, and technology advances at the rate of growth of the economy overall
2. Resources such as nonrenewable resources will decline, but labor remains fully employed and technology is unchanged
3. Resources can vary; most resources most resources experience times of unemployment; and technology advances, particularly during wartime
4. Resources such as labor and capital will grow and are fully employed and technology is unchanged
5. None of the above

1. Resources are fixed and fully employed, and technology advances at the rate of growth of the economy overall
2. Resources such as nonrenewable resources will decline, but labor remains fully employed and technology is unchanged
3. Resources can vary; most resources most resources experience times of unemployment; and technology advances, particularly during wartime
4. Resources such as labor and capital will grow and are fully employed and technology is unchanged
5. None of the above

If an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), then if we increase the production of shelter along the PPC, which of the following is true?

1. We also increase the prodcution of food
2. We must decrease the production of food. This forgone food production represents the opportunity cost of the increase in shelter
3. We cannot change the production of food
4. The concept of opportunity cost does not apply along PPC

1. We also increase the prodcution of food
2. We must decrease the production of food. This forgone food production represents the opportunity cost of the increase in shelter
3. We cannot change the production of food
4. The concept of opportunity cost does not apply along PPC

An economy can produce various combinations of food and shelter along a production possibilities curve (PPC). We first increase the production of shelter along the PPC. If we then continue to shift more and more production to shelter, which of the following will mostlikely happen to the opportunity cost of a unit of shelter?

1. Opportunity cost will increase because as more and more shleter is produced, labor and capital that is highly productive at producing food is being shifted to shelter production, and so more and more food is being given up to produce a unit of shelter
2. Opportunity cost is the amount of labor that is used to produce the extra shelter
3. Opportunity cost must stay constant if we are to stay on the production possibilities curve
4. Opportunity cost includes alloptions given up to produce shelter

1. Opportunity cost will increase because as more and more shleter is produced, labor and capital that is highly productive at producing food is being shifted to shelter production, and so more and more food is being given up to produce a unit of shelter
2. Opportunity cost is the amount of labor that is used to produce the extra shelter
3. Opportunity cost must stay constant if we are to stay on the production possibilities curve
4. Opportunity cost includes alloptions given up to produce shelter

An economy can produce various combinations of food and shelter along a production possibilities curve (PPC). Suppose a technological innovation resulted in a new, higher yielding crop that generated more bushels of grain for a given set of land, labor, and capital resources. If this innovation did not affect the productivity of shelter production, which of the following would be true?

1. The PPC wil shift outward equally along both axes of the graph 
2. The PPC will rotate inward along the food axis, but will not shift on the shelter axis
3. The PPC will rotate outward along the food axis, but will not shift on the shelter axis
4. The PPC will not change

1. The PPC wil shift outward equally along both axes of the graph 
2. The PPC will rotate inward along the food axis, but will not shift on the shelter axis
3. The PPC will rotate outward along the food axis, but will not shift on the shelter axis
4. The PPC will not change

If a production possibilities curve (PPC) has capital on the vertical axis and consumer goods on the horizontal axis, which of the following is true?

Answer

1. There is a trade-off between emphasizing the production of capital today to benefit people today versus emphasizing the production of consumer goods today that will generate benefits in the future.

2. Greater emphasis on the production of capital today leads to future inward shifts in the PPC, thus decreasing the wealth of people in the future.

3. Greater emphasis on the production of consumer goods today leads to greater outward shifts in the PPC, thus increasing the wealth of people in the future.

4. Greater emphasis on the production of capital today leads to greater outward shifts in the PPC, thus increasing the wealth of people in the future.

1. There is a trade-off between emphasizing the production of capital today to benefit people today versus emphasizing the production of consumer goods today that will generate benefits in the future.

2. Greater emphasis on the production of capital today leads to future inward shifts in the PPC, thus decreasing the wealth of people in the future.

3. Greater emphasis on the production of consumer goods today leads to greater outward shifts in the PPC, thus increasing the wealth of people in the future.

4. Greater emphasis on the production of capital today leads to greater outward shifts in the PPC, thus increasing the wealth of people in the future.

Which of the following reasons could explain why an economy would be operating inside its production possibilities curve (PPC)?

1. Because shrinking population has reduced the number of productive workers in the economy
2. Because technological innovations have increased the productivity of labor and capital
3. Because damage to natural resources, such as damage caused by deforestation leading to erosion of topsoil, has shrunk the land resource
4. Because of unemployment or underemployment of labor, perhaps due to discrimination against employing workers of a certain race or gender

1. Because shrinking population has reduced the number of productive workers in the economy
2. Because technological innovations have increased the productivity of labor and capital
3. Because damage to natural resources, such as damage caused by deforestation leading to erosion of topsoil, has shrunk the land resource
4. Because of unemployment or underemployment of labor, perhaps due to discrimination against employing workers of a certain race or gender

Combinations of goods outside the production possibilities curve (PPC) have which of the following characteristics?

1. They're attainable today only if we employ all unemployed or underemployed resources
2. They're not attainable given our existing stock of resources and technology
3. They imply that some resources, such as labor, are unemployed or underemployed
4. None of the above 

1. They're attainable today only if we employ all unemployed or underemployed resources
2. They're not attainable given our existing stock of resources and technology
3. They imply that some resources, such as labor, are unemployed or underemployed
4. None of the above 

Suppose an economy can produce various combinations of fish and bread. If more people with strong fishing skills became employed in this economy, how would the production possibilities curve (PPC) change?

1. The PPC would shift outward on the fish axis, but would not change on the bread axis
2. The PPC would shift outward equally along both the fish and bread axes
3. The PPC would shift inward on the bread axis, but would not change on the fish axis
4. The PPC would shift inward equally along the fish and bread axes.

1. The PPC would shift outward on the fish axis, but would not change on the bread axis
2. The PPC would shift outward equally along both the fish and bread axes
3. The PPC would shift inward on the bread axis, but would not change on the fish axis
4. The PPC would shift inward equally along the fish and bread axes.

Three different economies have made choices about the production of capital goods. Which of the following is most likely to produce the greatest growth in the production possibilities curve (PPC)?

1. Capital goods produced at the exact rate needed to replace worn-out capital
2. Greater production of capital goods than what is needed to replace worn-out capital
3. Less production of capital goods than what is needed to replace worn-out capital 
4. More production of consumption goods that replace worn-out capital 

1. Capital goods produced at the exact rate needed to replace worn-out capital
2. Greater production of capital goods than what is needed to replace worn-out capital
3. Less production of capital goods than what is needed to replace worn-out capital 
4. More production of consumption goods that replace worn-out capital 

In the study of economics, investment means

1. the accumulation of capital that is used to produce goods and services
2. owning stocks and bonds
3. the principle that the opportunity cost increases as the production of one output expands
4. the effect of stock prices on the production possibilities curve 

1. the accumulation of capital that is used to produce goods and services
2. owning stocks and bonds
3. the principle that the opportunity cost increases as the production of one output expands
4. the effect of stock prices on the production possibilities curve 

Which of the following is not one of the three fundamental economic questions?

1. What happens when you add to or subtract from a current situation?
2. For whom to produce?
3. How to produce?
4. What to produce?

1. What happens when you add to or subtract from a current situation?
2. For whom to produce?
3. How to produce?
4. What to produce?

Opportunity cost

1. represents the best alternative sacrificed for a chosen alternative 
2. has no relationship to the various alternatives that must be given up when a choice is made in the context of scarcity 
3. represents the worst alternative sacrificed for a chosen alternative
4. represents all alternatives not chosen

Which words best complete the following sentence? A rational decision maker always chooses the option for which marginal benefit is  marginal cost.

1. less than 
2. equal to
3. unrelated to
4. more than

1. less than 
2. equal to
3. unrelated to
4. more than

The principle that the opportunity cost increases as the production of one output expands is the

1. law of increasing opportunity costs 
2. law of demand
3. law suppl
4. law of increasing returns scale

1. law of increasing opportunity costs 
2. law of demand
3. law suppl
4. law of increasing returns scale

The ability of an economy to produce greater levels of output per time period is called

1. positive economics
2. negative economics 
3. economic growth 
4. the law of specialization

1. positive economics
2. negative economics 
3. economic growth 
4. the law of specialization

Which of the following causes the demand for veggie burgers to increase?

1. A decline in the price of veggie burgers
2. An increase in the price of tofu burgers, perceived as a substitute by veggie burger consumers
3. An increase in the price of burger buns
4. A technological innovation that lowers the cost of producing veggie burgers

1. A decline in the price of veggie burgers
2. An increase in the price of tofu burgers, perceived as a substitute by veggie burger consumers
3. An increase in the price of burger buns
4. A technological innovation that lowers the cost of producing veggie burgers

Which of the following would not cause market demand for a normal good to decline?

1. An increase in the price of a substitute
2. An increase in the price of a complement
3. A decline in consumer income
4. Consumer expectations that the good will go on sale in the near future 
5. An announcement by the Surgeon General that the product contributes to premature death

1. An increase in the price of a substitute
2. An increase in the price of a complement
3. A decline in consumer income
4. Consumer expectations that the good will go on sale in the near future 
5. An announcement by the Surgeon General that the product contributes to premature death

Low-income families consume proportionately more of which of the following kinds of goods?

1. Luxury goods
2. Substitute goods
3. Normal goods
4. Inferior goods

1. Luxury goods
2. Substitute goods
3. Normal goods
4. Inferior goods

Suppose each of the seven dwarfs buys four mugs of ginger ale per week from Snow White’s café when the price per mug is $2. If the seven dwarfs are the entire market demand for Snow White’s ginger ale, which of the following is the correct value for market quantity demanded of ginger ale at a price of $2?

1. 4
2. 8
3. 28
4. 7

Which of the following increases the supply of corn?

1. The farm worker's union successfully negotiates a pay increase for corn harvest workers
2. The Surgeon General announces that eating corn bread contributes to baldness in men
3. Congress and the President eliminate subsidies formerly paid to corn farmers
4. Farmers who grow soybeans can also grow corn, and the price of soybeans drops by 75%

1. The farm worker's union successfully negotiates a pay increase for corn harvest workers
2. The Surgeon General announces that eating corn bread contributes to baldness in men
3. Congress and the President eliminate subsidies formerly paid to corn farmers
4. Farmers who grow soybeans can also grow corn, and the price of soybeans drops by 75%

With an upward-sloping supply curve, which of the following is true?

1. An increase in price results in a decrease in quantity supplied
2. An increase in price results in an increase in supply
3. A decrease in price results in a decrease in quantity supplied
4. A decrease in price results in an increase in supply

1. An increase in price results in a decrease in quantity supplied
2. An increase in price results in an increase in supply
3. A decrease in price results in a decrease in quantity supplied
4. A decrease in price results in an increase in supply

A rightward shift in the demand curve is called a(an)

1. decrease in output
2. decrease in demand
3. increase in demand
4. increase in income 

1. decrease in output
2. decrease in demand
3. increase in demand
4. increase in income 

A surplus occurs when

1. the quantity demanded exceeds the quantity supplied
2. price is below the equilibrium price
3. price is at the equilibrium
4. price is above the equilibrium 

1. the quantity demanded exceeds the quantity supplied
2. price is below the equilibrium price
3. price is at the equilibrium
4. price is above the equilibrium 

A shortage occurs when

1. the quantity suplied exceeds the quantity demanded 
2. price is below the equilibrium price
3. price is at the equilibrium
4. price is above the equilibrium

1. the quantity suplied exceeds the quantity demanded 
2. price is below the equilibrium price
3. price is at the equilibrium
4. price is above the equilibrium

Which of the following decreases supply in the market for pizza?

1. Pizza shop employees successfully organize a union and negotiate a pay increase 
2. The Surgeon General announces that eating pizza reduces the incidence of stomach cancer
3. Chesse prices drop because price supports for dairy farmers are removed 
4. Some hot sandwich shops can also make and sell pizzas, and consumer demand for hot sandwiches declines sharply, reducing the profitability of producing hot sandwiches

1. Pizza shop employees successfully organize a union and negotiate a pay increase 
2. The Surgeon General announces that eating pizza reduces the incidence of stomach cancer
3. Chesse prices drop because price supports for dairy farmers are removed 
4. Some hot sandwich shops can also make and sell pizzas, and consumer demand for hot sandwiches declines sharply, reducing the profitability of producing hot sandwiches

Which of the following results from an increase in the price of a one-week vacation at beach resorts on the coast of Mexico?

1. An increase in the supply of bicycles tires in Toledo, Ohio
2. An increase in the demand for vacations at resorts on Caribbean islands
3. An increase in the supply of vacation opportunities at resorts on the coast of Mexico
4. A decrease in the demand for vacations at resorts on Caribbean islands

1. An increase in the supply of bicycles tires in Toledo, Ohio
2. An increase in the demand for vacations at resorts on Caribbean islands
3. An increase in the supply of vacation opportunities at resorts on the coast of Mexico
4. A decrease in the demand for vacations at resorts on Caribbean islands

There is news that the price of Tucker’s Root Beer will increase significantly next week. If the demand for Tucker’s Root Beer reacts only to this factor and shifts to the right, the position of this demand curve has reacted to a change in

1. tastes 
2. income levels
3. the prices of related goods
4. the number of buyers
5. expectations

1. tastes 
2. income levels
3. the prices of related goods
4. the number of buyers
5. expectations

Which of the following causes a shortage to become larger?

1. An increase in market price
2. An increase in supply 
3. A decrease in demand 
4. A decrease in price

1. An increase in market price
2. An increase in supply 
3. A decrease in demand 
4. A decrease in price

Which of the following is true in ski towns such as Crested Butte, Colorado, and Whistler, British Columbia, during the peak winter ski season as compared to May and June?

1. Demand for motel rooms is higher 
2. Demand for motel rooms is lower
3. There is a surplus of motel rooms
4. The price of motel rooms will be lower

1. Demand for motel rooms is higher 
2. Demand for motel rooms is lower
3. There is a surplus of motel rooms
4. The price of motel rooms will be lower

In moving from a shortage toward the market equilibrium, which of the following is true?

1. Price falls
2. Price rises
3. Quantity demanded increases
4. Quantity supplied decreases

1. Price falls
2. Price rises
3. Quantity demanded increases
4. Quantity supplied decreases

The law of demand is the principle that there is  relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus.

1. a direct 
2. no 
3. an inverse
4. an independent

1. a direct 
2. no 
3. an inverse
4. an independent

A curve that is derived by summing horizontally individual demand curves is called

1. aggregate supply
2. market supply
3. aggregate demand 
4. market demand

1. aggregate supply
2. market supply
3. aggregate demand 
4. market demand

A leftward shift in the demand curve is called a 

1. decrease in demand 
2. decrease in output
3. increase in demand
4. increase in income

1. decrease in demand 
2. decrease in output
3. increase in demand
4. increase in income

The law of supply is the principle that there is  relationship between the price of a good and the quantity sellers are willing to offer for sale in a defined time period, ceteris paribus.

1. an inverse
2. a direct 
3. no
4. an independent

1. an inverse
2. a direct 
3. no
4. an independent

Under the law of demand, any increase in price will cause  in quantity demanded.

1. a decrease 
2. an increase
3. no change
4. constant change

1. a decrease 
2. an increase
3. no change
4. constant change

A decrease in demand with the supply held constant leads to a(an)

1. increased equilibrium price and an increased equilibrium quantity 
2. decreased equilibrium price and a decreased equilibrium quantity
3. decreased equilibrium price and an increased equilibrium quantity
4. increased equilibrium price and a decreased equilibrium quantity

1. increased equilibrium price and an increased equilibrium quantity 
2. decreased equilibrium price and a decreased equilibrium quantity
3. decreased equilibrium price and an increased equilibrium quantity
4. increased equilibrium price and a decreased equilibrium quantity

An increased equilibrium price and a decreased equilibrium quantity results from a(an)

1. decrease in demand 
2. increase in supply
3. decrease in supply
4. increase in demand 

1. decrease in demand 
2. increase in supply
3. decrease in supply
4. increase in demand 

Assume no price ceiling exists in a market. Then a price ceiling is established below the market equilibrium. What would result?

1. shortage
2. equilbrium
3. surplus
4. exchange price

1. shortage
2. equilbrium
3. surplus
4. exchange price

Which of the following is not an example of market failure?

1. Lack of competition
2. Externalities
3. Surplus
4. Exchange price

1. Lack of competition
2. Externalities
3. Efficient equilibrium
4. Extreme income inequailty 

A cost imposed on people other than the consumers of a good or service is a

1. price floor
2. negative externality
3. positive externality
4. price ceiling

1. price floor
2. negative externality
3. positive externality
4. price ceiling

Suppose X and Y are substitutes. If the price of Y increases, how will this change the market equilibrium for X?

1. Both equilibrium price and quantity decline
2. Both equilibrium price and quantity rise
3. Equilibrium price declines, and equilibrium quantity rises
4. Equilibrium price rises, and equilibrium quantity falls

1. Both equilibrium price and quantity decline
2. Both equilibrium price and quantity rise
3. Equilibrium price declines, and equilibrium quantity rises
4. Equilibrium price rises, and equilibrium quantity falls

If the cost of producing a good rises for sellers, how will this affect the market equilibrium for that good?

1. Price will rise, and quantity will fall
2. Price will fall, and quantity will rise
3. Both will rise
4. Both will fall

1. Price will rise, and quantity will fall
2. Price will fall, and quantity will rise
3. Both will rise
4. Both will fall

If goods A and B are complements and the price of good B rises, how will this affect the market equilibrium for good A?

1. Price will rise, and quantity will fall
2. Price will fall, and quantity will rise
3. Both will rise
4. Both will fall

1. Price will rise, and quantity will fall
2. Price will fall, and quantity will rise
3. Both will rise
4. Both will fall

Suppose Big-Cat and Fat-Cat are rival cat food brands and the price of Fat-Cat is reduced. Following this price drop, is there a shortage or a surplus of Big-Cat at the old price of Big-Cat?

1. Shortage
2. Surplus
3. Neither becuase equilibrium exists
4. Neither because a price drop cannot cause a shortage or a surplus

1. Shortage
2. Surplus
3. Neither becuase equilibrium exists
4. Neither because a price drop cannot cause a shortage or a surplus

1. Shortage occured because demand increased, and a new market equilibrium will feature higher rental prices and more rental units available on the market
2. Shortage occured because supply increased, and a new market equilibrium will feature lower rental prices and fewer rental units available on the market
3. Shortage occured because demand decreased, and a new market equilibrium will feature lower rental prices and fewer rental units available on the market
4. Shortage occured because demand increased, and a new market equilibrium will feature higher rental prices and fewer rental units available on the market

1. Shortage occured because demand increased, and a new market equilibrium will feature higher rental prices and more rental units available on the market
2. Shortage occured because supply increased, and a new market equilibrium will feature lower rental prices and fewer rental units available on the market
3. Shortage occured because demand decreased, and a new market equilibrium will feature lower rental prices and fewer rental units available on the market
4. Shortage occured because demand increased, and a new market equilibrium will feature higher rental prices and fewer rental units available on the market

If a price ceiling is set at $10 and the equilibrium market price is $8, which of the prices below will consumers actually pay?

1. 10
2. 8
3. 18
4. 2

1. 10
2. 8
3. 18
4. 2

Suppose the state of California imposes a minimum wage of $10 per hour. In the entry-level labor market in California fast-food restaurants, the quantity of labor demanded at $10 per hour is 800,000 and the quantity of labor supplied is 1.2 million. Which of the following is true?

1. There is a shortage of 800,000 workers in the labor market
2. There is a surplus of 400,000 workers in the labor market
3. There is a shortage of 400,000 workers in the labor market
4. There is a surplus of 1.2 million workers in the labor market

1. There is a shortage of 800,000 workers in the labor market
2. There is a surplus of 400,000 workers in the labor market
3. There is a shortage of 400,000 workers in the labor market
4. There is a surplus of 1.2 million workers in the labor market

Suppose the federal government imposes a price floor (support price) in the milk market at a price of $6 per gallon. If market quantity demanded at $6 is 1 billion gallons, and market quantity supplied is 1.5 billion gallons, which of the following is true?

1. There is a shortage of 500 million gallons of milk, and the federal government will buy 1 billion gallons to maintain the $6 price
2. There is a surplus of 500 million gallons of milk, and the federal government will buy these 500 million gallons to maintain the $6 price
3. There is a shortage of 500 million gallons of milk, and the federal government will buy an additional 500 million gallons to maintain the $6 price
4. There is a surplus of 1 billion gallons of milk, and the federal government will buy 1.5 billion gallons to maintain the $6 price

1. There is a shortage of 500 million gallons of milk, and the federal government will buy 1 billion gallons to maintain the $6 price
2. There is a surplus of 500 million gallons of milk, and the federal government will buy these 500 million gallons to maintain the $6 price
3. There is a shortage of 500 million gallons of milk, and the federal government will buy an additional 500 million gallons to maintain the $6 price
4. There is a surplus of 1 billion gallons of milk, and the federal government will buy 1.5 billion gallons to maintain the $6 price

Suppose the city of Arcata, California, imposes rent control so that rents cannot exceed $1,000 per month on one-bedroom rental units. Suppose $500 had also been the equilibrium rental price in Arcata before a huge new apartment complex was built in the nearby town of McKinleyville, where rents are $800 per month. Which of the following is most likely true?

1. There will be a shortage of rental housing in Arcata at the rent control price of $1000
2. There will be a lasting surplus of rental housing in Arcata after the new apartment complex is built in McKinleyville
3. The equilibrium rental price in Arcata will fall below $1000; thus, rent control will not affect the rental market in Arcata
4. The equilibrium price of $1000 per month in Arcata will not change 

1. There will be a shortage of rental housing in Arcata at the rent control price of $1000
2. There will be a lasting surplus of rental housing in Arcata after the new apartment complex is built in McKinleyville
3. The equilibrium rental price in Arcata will fall below $1000; thus, rent control will not affect the rental market in Arcata
4. The equilibrium price of $1000 per month in Arcata will not change 

Suppose the federal government provides wheat farmers with a price floor above the market equilibrium price of wheat, creating a surplus. Which of the following causes a reduction in the surplus of wheat?

1. Elimination of the price floor
2. An increase in the price of wheat
3. A decrease in the demand for wheat
4. An increase in the supply of wheat

1. Elimination of the price floor
2. An increase in the price of wheat
3. A decrease in the demand for wheat
4. An increase in the supply of wheat

If society allows firms to freely pollute the environment, which of the following is true?

1. Market equilibrium output will be too high relative to the efficient output level
2. Market equilibrium outputwill be too low relative to the efficient output level
3. Market equilibrium output will be equivalent to the efficient output leve
4. The efficient output level can be achieved by giving firms a subsidy for the pollution they generate
5. 
   

1. Market equilibrium output will be too high relative to the efficient output level
2. Market equilibrium outputwill be too low relative to the efficient output level
3. Market equilibrium output will be equivalent to the efficient output leve
4. The efficient output level can be achieved by giving firms a subsidy for the pollution they generate

If there are external benefits for good X, which of the following is true?

1. The socially efficient amount of good X can be achieved if society taxes consumers of good X
2. The socially efficient amount of good X can be achieved if society subsdizes consumers of good X
3. The socially efficient amount of good X will be equivalent to the free market equilibrium quantity 
4. The socially efficient amount of good X does not exist

1. The socially efficient amount of good X can be achieved if society taxes consumers of good X
2. The socially efficient amount of good X can be achieved if society subsdizes consumers of good X
3. The socially efficient amount of good X will be equivalent to the free market equilibrium quantity 
4. The socially efficient amount of good X does not exist

Suppose the federal government imposes a new pollution tax of $0.01 per kilowatt-hour of electricity on coal-fired power producers. Which of the following describes how this tax will affect the market for electricity served by these power plants?

1. Demand for electricity will decrease
2. Demand for electricity will increase
3. The supply of electricity will decrease
4. The supply of electricity will increase 

1. Demand for electricity will decrease
2. Demand for electricity will increase
3. The supply of electricity will decrease
4. The supply of electricity will increase

Why don’t competitive markets do a good job providing public goods?

1. Because people do not receive benefits from public goods
2. Because firms cannot produce enough goods to satisfy market demand
3. Because public goods generate negative externalities and pollution taxes reduce the incentive for firms to supply public goods
4. Because it is difficult to exclude people from gaining benefits from public goods without paying for them; so market demand does not reflect the benefits to society from the public good

1. Because people do not receive benefits from public goods
2. Because firms cannot produce enough goods to satisfy market demand
3. Because public goods generate negative externalities and pollution taxes reduce the incentive for firms to supply public goods
4. Because it is difficult to exclude people from gaining benefits from public goods without paying for them; so market demand does not reflect the benefits to society from the public good

Which of the following is not an example of market failure?

1. Lack of competition 
2. Externalities
3. Efficient equilibrium
4. Extreme income inequality

1. Lack of competition 
2. Externalities
3. Efficient equilibrium
4. Extreme income inequality

A perfectly elastic demand curve has an elasticity coefficient of

1. 0
2. 1
3. less than 1
4. infinity

1. 0
2. 1
3. less than 1
4. infinity

If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is

1. elastic
2. inelastic
3. perfectly inelastic
4. unitary elastic

1. elastic
2. inelastic
3. perfectly inelastic
4. unitary elastic

As shown in Exhibit 11, the price elasticity of demand for good X between points Eand B is

1. 3/7
2. 7/3
3. 1/2
4. 1

1. 3/7
2. 7/3
3. 1/2
4. 1