1. In economics, “capital” refers to (Points:1)
money
stocks, bonds, and other financial assets
the seat of government
machines, buildings, tools, and knowledge
2. Households (Points: 1)
own and sell resources
play a very minor role in the economy
supply goods and services
are the largest purchasers of resources
3. Macroeconomics is the study of (Points: 1)
the behavior of large firms in the marketplace
the economic behavior of individual decision makers
the behavior of the economy as a whole
how to use the fewest natural resources to produce goods andservices
4. Theory seeks to (Points: 1)
simplify a complex reality
confront reality in all its complexity by focusing on the uniqueaspects of each phenomenon
explain phenomena without predicting them
predict phenomena without explaining them
5. The assumption of rational self-interest meansthat economic decision makers (Points: 1)
have no concern for the welfare of others
consider the welfare of others to be more important than their ownhappiness
know with certainty which choice will have the best result
make reasonable decisions based on their expectations ofresults
6. Division of labor increases productivitybecause (Points: 1)
tasks can be assigned according to individual tastes andabilities
workers who repeatedly perform the same tasks become bored
each worker must learn each of the numerous tasks in the totalproduction process
specialization of labor allows for the introduction of cheaper,less sophisticated production techniques
managers can force workers to produce goods that are valued morehighly than the costs of producing them.
7. Points outside the production possibilitiesfrontier represent (Points: 1)
unemployment of resources
inefficient use of resources
combinations that are attainable only if all resources are usedfully and efficiently
currently unattainable combinations of outputs
the only currently attainable combinations from which society mustchoose
8. If an economy is operating at a point insidethe production possibilities frontier, then (Points: 1)
some of the nation’s resources are unemployed
the production decisions are made by the government
unlimited resources must satisfy scarce desires
there is a scarcity of human resources relative to human wantstherefore society must have some mechanism for making choices
society is paying too much for wages
9. Which economic question does the decision togive all of the butter the economy produces to the homeless answer?(Points: 1)
What to produce?
How to produce?
For whom to produce?
Who has a comparative advantage in butter production?
Who has an absolute advantage in butter production?
10. The economic question of what will be producedis (Points: 1)
primarily answered by the government in a system of purecapitalism
primarily answered by markets in a command economy
faced by all economies regardless of their wealth
does not have to be answered by economies possessing greatwealth
cannot be illustrated by the economic concept of the productionpossibilities frontier
11. In the United States since World War II, therehas been (Points: 1)
a dramatic increase in the population living in rural areas
a decline in the number of women in the labor force
a decrease in the opportunity cost of working in the home
a dramatic increase in the number of married women in the laborforce
12. Which component of U.S. household spending hasgrown the most over the past ten years? (Points: 1)
taxes
savings
spending on services
spending on nondurable goods
13. Owners of corporations are referred to mostfrequently as (Points: 1)
entrepreneurs
limited partners
managers
stockholders
14. Externalities are defined as (Points: 1)
any transaction external to the firm
costs or benefits that fall on third parties
policies that firms undertake to sell products outside thecountry
managers’ dealings with stockholders outside the firm
15. Gross Domestic Product is the value of all(Points: 1)
goods and services produced during a particular year
goods and services sold during a particular year
final goods and services sold during a particular year
final goods and services produced during a particular year
16. Which of the following statements about demandis true? (Points: 1)
Since most college students want a Mercedes sports coupe, theirdemand for it is high.
If price increases, the demand curve shifts to the right.
The demand curve for bacon will not shift when the price of baconchanges.
If a supply curve shifts, thereby changing the price, the demandcurve will shift as well.
17. The effect of a decrease in the price ofpersonal computers, other things constant, is likely to be bestrepresented by which of the following? (Points: 1)
a leftward shift of the demand curve
a movement leftward along the demand curve
a rightward shift of the demand curve
a movement rightward along the demand curve
18. Economists emphasize the importance ofequilibrium in markets because (Points: 1)
trading in markets can only occur at the equilibrium price andquantity
the behavior of buyers and sellers will automatically guide themarket toward the equilibrium price and quantity
all buyers and sellers are better off at the equilibrium point thanany other price and quantity combination
it represents a compromise between sellers hoping for low pricesand buyers searching for high prices
19. The effect of an increase in consumer incomeon equilibrium price and quantity of Florida orange juice (a normalgood) is (Points: 1)
to increase equilibrium price and quantity
to decrease equilibrium price and quantity
to increase equilibrium price and decrease equilibrium quantity
to increase equilibrium quantity and decrease equilibrium price
20. A rightward shift of a supply curve (Points:1)
represents a decrease in supply
might be caused by an increase in demand
might be caused by a price ceiling
would cause an excess quantity supplied at the previous equilibriumprice
21. If demand increases and supply decreases,(Points: 1)
equilibrium price will fall and equilibrium quantity will rise
equilibrium price will rise; equilibrium quantity will either rise,fall, or remain unchanged
equilibrium price and quantity will both rise
equilibrium quantity will rise; equilibrium price will either riseor fall
22. Elasticity measures (Points: 1)
whether a price increase causes quantity demanded to increase ordecrease
the strength of an economy’s tendency to recover from recession
the responsiveness of decision makers to changes in prices, income,or other variables
the profitability of investment in an industry
23. If the demand for swordfish is price elasticand the price of swordfish increases, then (Points: 1)
the quantity of swordfish demanded will increase
the total revenue from swordfish sales will decrease
the total revenue from swordfish sales will increase
the total revenue from swordfish sales will not change
24. The total revenue curve that corresponds to adownward-sloping linear demand curve (Points: 1)
slopes downward
slopes upward
is a horizontal line
first rises, then falls
25. The most important determinant of priceelasticity of supply is (Points: 1)
price elasticity of demand
technological conditions such as how rapidly costs increase when afirm increases its output
whether the production process relies heavily on capital or onlabor
the number and closeness of available substitutes
26. Luxury goods are (Points: 1)
price inelastic
income inelastic
income elastic
goods with negative income elasticity
27. If the cross-price elasticity of demandbetween two goods is 0, (Points: 1)
a price change for one good will be exactly offset by a pricechange for the other
neither demand curve would shift following a change in the price ofone of the goods
there is no income effect between the two goods
the demand for each good is price inelastic
28. Which of the following is not an explicitcost? (Points: 1)
sales taxes
the value of a firm owner’s time
insurance premiums
the cost of utilities, such as gas and electricity
29. The short run is a period of time (Points:1)
equal to or less than six months
during which all resources may be varied
during which all resources are fixed
during which at least one resource is fixed
30. The law of diminishing marginal returns statesthat (Points: 1)
long-run average cost declines as output increases
if the marginal product is above the average product, the averagewill rise
as units of a variable input are added to a given amount of fixedinputs, the marginal product of the variable input eventuallydiminishes
as a person consumes more of a good, the marginal satisfaction fromthat good eventually diminishes
31. Fixed costs are defined as (Points: 1)
the total costs of a firm’s production
the additional cost of the last unit produced
costs that increase proportionately as the quantity producedincreases
costs that do not vary as quantity produced increases
32. The short-run average variable cost curve(Points: 1)
is always downward-sloping
is a horizontal line intersecting the vertical axis
slopes downward at low rates of output, then slopes upward athigher rates of output
starts above the origin and always slopes upward
33. The price charged by a perfectly competitivefirm is determined by (Points: 1)
each individual firm
a group of firms acting together as a cartel
market demand and market supply
the firm’s total costs alone
34. Average revenue is (Points: 1)
total revenue minus total cost
total revenue divided by quantity of output
total revenue divided by quantity of input
the change in total revenue divided by the change in output
35. For a perfectly competitive firm operating atthe profit-maximizing output level in the short run, (Points:1)
MR = TR
MC = price
MC = ATC
MC = AVC
36. The short-run supply curve of a perfectlycompetitive firm is (Points: 1)
its average fixed cost curve
the part of its marginal cost curve rising above the averagevariable cost curve
the part of its marginal cost curve below the average variable costcurve
marginal product curve
37. A constant-cost industry is one (Points:1)
that faces constant average costs in the short run
that experiences economies of scale
that experiences stable demand
whose cost curves do not change as new firms enter
38. To achieve allocative efficiency, firms(Points: 1)
strive to minimize fixed costs
strive to maximize profits
produce at their minimum long-run average cost
produce the output consumers want most
39. Which of the following is true of monopoly?(Points: 1)
There are no barriers to entry.
The firm is a price taker.
There are no close substitutes for the product being produced.
There are many firms in the industry.
40. In the monopoly market structure, new firms(Points: 1)
cannot profitably enter the industry, even in the long run
may freely enter and leave the industry in both the short run andthe long run
may freely enter and leave the industry in the long run only
may freely enter and leave the industry in the short run only
41. As a monopolist increases the quantity ofoutput produced, what happens to price (P) and marginal revenue(MR)? (Points: 1)
P decreases, but MR is constant
both P and MR decrease, but P falls faster than MR
both P and MR decrease, but MR falls faster than P
P is constant, but MR decreases
42. For a monopolist that produces in the shortrun and does not price discriminate, price always has to be(Points: 1)
equal to marginal cost at the profit-maximizing quantity
equal to marginal revenue at the profit-maximizing quantity
greater than marginal cost at the profit-maximizing quantity
less than marginal cost at the profit-maximizing quantity
43. Unlike firms in a perfectly competitiveindustry, monopolists have control over (Points: 1)
the price they charge for the product
the quantity of output they produce
the prices they pay for resources
the quantities of various resources which are used
improvements in technology
44. Price discrimination occurs when a monopolistcharges (Points: 1)
both c and d
different prices to different buyers for different products
different prices to different groups of buyers, based ondifferences in the cost of providing the commodity to the buyer
different prices to different groups of buyers for reasonsunrelated to the cost of providing the commodity to the buyer
45. The demand curve facing a firm will be moreelastic, (Points: 1)
the fewer the number of competing firms
the more differentiated the product
the more substitutes there are for its product
the greater the firm’s ability to control price
46. Which of the following is unique to oligopolyamong all the market structures? (Points: 1)
product differentiation
profit maximization
mutual interdependence
advertising
47. It is harder to explain the behavior of firmsin oligopoly than in other market structures because in oligopoly(Points: 1)
the firms act independently of each other
firms base their decisions on what their rivals do
only differentiated products are produced
only homogeneous products are produced
48. A brand name may contribute to oligopolists’economic profit by (Points: 1)
shifting the demand curve leftward
shifting the supply curve leftward
overcoming economies of scale
acting as a barrier to entry
49. Which of the following is an example of anactual cartel? (Points: 1)
the three largest cereal producers in the United States
General Motors, Ford, and Chrysler
the Organization of Petroleum Exporting Countries (OPEC)
the three major U.S. cigarette manufacturers
50. Which oligopoly model was developed to explainprice wars in an industry? (Points: 1)
natural oligopolies
cartels
price leadership by a dominant firm
game theory
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