#1. When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing
a.
scarcity.
b.
surpluses.
c.
inefficiencies.
d.
inequalities.
#2. Economists use the word equality to describe a situation in which
a.
each member of society has the same income.
b.
each member of society has access to abundant quantities of goods and services, regardless of his or her income.
c.
society is getting the maximum benefits from its scarce resources.
d.
society's resources are used efficiently.
#3. Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth
a.
is more efficient and more equal for society.
b.
is more efficient but less equal for society.
c.
is more equal but less efficient for society.
d.
is less equal and less efficient for society.
#4. Which of the following is not an example of the opportunity cost of go ing to school?
a.
The money a student could have earned by working if he had not gone to college.
b.
The nap a student could have enjoyed if he had not attended class.
c.
The party a student could have enjoyed if he had not stayed in to study for his exam.
d.
The money a student spends on rent for his apartment while attending school.
#5. According to a recent study of Chilean bus drivers, drivers who are paid by the number of passengers they transport have higher productivity than drivers who are paid by the hour. This result is an example of which principle of economics?
a.
People face tradeoffs.
b.
The cost of something is what you give up to get it.
c.
Rational people think at the margin.
d.
People respond to incentives.
#6. True or False - Inflation is the primary determinant of a country's living standards.
#7. In conducting their research, economists face an obstacle that not all scientists face; specifically, in economics, it is often difficult and some- times impossible to
a.
make use of theory and observation.
b.
rely upon the scientific method.
c.
conduct laboratory experiments.
d.
find articles or books that were written before 1900.
#8. Any point on a country's production possibilities frontier represents a combination of two goods that an economy
a.
will never be able to produce.
b.
can produce using all available resources and technology.
c.
can produce using some portion, but not all, of its resources and technology.
d.
may be able to produce in the future with more resources and/or superior technology.
#9. One way to characterize the difference between positive statements and normative statements is as follows:
a.
Positive statements tend to reflect optimism about the economy and its future, whereas normative statements tend to reflect pessimism about the economy and its future.
b.
Positive statements offer descriptions of the way things are, whereas normative statements offer opinions on how things ought to be.
c.
Positive statements involve advice on policy matters, whereas normative statements are supported by scientific theory and observation.
d.
Economists outside of government tend to make normative statements, whereas government-employed economists tend to make positive statements.
#10. Policies such as rent control and trade barriers persist in spite of the fact that economists are virtually united in their opposition to such poli cies, probably because
a.
economists have not yet convinced the general public that the policies are undesirable.
b.
economists engage in positive analysis, not normative analysis.
c.
economists have values that are different from the values of most non-economists.
d.
economistsâ theories are not easily confirmed or refuted in laboratory analysis.
#11. How did the influential economist John Maynard Keynes explain his re mark that though economics is an easy subject compared with the high- er branches of philosophy or pure science, it is a subject at which few excel?
a.
Most people who study economics are not very bright.
b.
Good economists must possess a rare combination of gifts.
c.
Economics is quite boring; hence, people tend to lose interest in it before mastering it.
d.
Good thinkers become frustrated with economics because it does not make use of the scientific method.
#12. True or False - In the circular-flow diagram, factors of production in- clude land, labor, and cap ital.
#13. Regan grows flowers and makes ceramic vases. Jayson also grows flow- ers and makes ceramic vases, but Regan is better at producing both goods. In this case, trade could
a.
benefit both Jayson and Regan.
b.
benefit Jayson, but not Regan.
c.
benefit Regan, but not Jayson.
d.
benefit neither Jayson nor Regan.
#14. Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 20 bushels of corn or 5 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. Which of the following state- ments is true?
a.
Both countries could gain from trade with each other.
b.
Neither country could gain from trade with each other because Cornland has an absolute advantage in both goods.
c.
Neither country could gain from trade with each other because neither one has a comparative advantage.
d.
Oatland could gain from trade between the two countries, but Cornland definitively would lose.
#15. Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per year, and a worker in Sylvania can produce ei ther 2 units of corn or 6 units of wheat per year. Each nation has 10 workers. Without trade, Freedonia produces and consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn and 30 units of wheat. Suppose that trade is then initi ated between the two countries, and Freedonia sends 30 units of corn to Sylvania in exchange for 30 units of wheat. Sylvania will now be able to consume a maximum of
a.
30 units of corn and 30 units of wheat.
b.
40 units of corn and 30 units of wheat.
c.
40 units of corn and 20 units of wheat.
d.
10 unites of corn and 40 units of wheat.
#16. The gains from trade are
a.
evident in economic models, but seldom observed in the real world.
b.
evident in the real world, but impossible to capture in economic models.
c.
a result of more efficient resource allocation than would be observed in the absence of trade.
d.
based on the principle of absolute advantage.
#17. Suppose the US and Mexico both produce semiconductors and auto parts and the US has a comparative advantage in semiconductors while Mexico has a comparative advantage in auto parts. Also suppose the US has an absolute advantage in the production of both semiconductors and auto parts. The US should
a.
not trade semiconductors and auto parts with Mexico.
b.
import semiconductors from Mexico and export auto parts to Mexico.
c.
export semiconductors to Mexico and import auto parts from Mexico.
d.
export both semiconductors and auto parts to Mexico.
#18. True or False - It is possible for the U.S. to gain from trade with Germany even if it takes U.S. workers fewer hours to produce every good than it takes German workers.
#19. In a competitive market, the price of a product
a.
is determined by buyers, and the quantity of the product produced is determined by sellers.
b.
is determined by sellers, and the quantity of the product produced is determined by buyers.
c.
and the quantity of the product produced are both determined by sellers.
d.
None of the above is correct.
#20. The term price takers refers to buyers and sellers in
a.
perfectly competitive markets.
b.
monopolistic markets.
c.
markets that are regulated by the government.
d.
markets in which buyers cannot buy all they want and/or sellers cannot sell all they want.
#21. Which of the following is not a determinant of demand?
a.
the price of a resource that is used to produce the good
b.
the price of a complementary good
c.
the price of the good next month
d.
the price of a substitute good
#22. A market supply curve shows how the total quantity supplied of a good varies as
a.
production technology varies.
b.
price varies.
c.
input prices vary.
d.
demand varies.
#23. Which of the following events could cause an increase in the supply of ceiling fans?
a.
The number of sellers of ceiling fans increases.
b.
There is an increase in the price of air conditioners, and consumers regard air conditioners and ceiling fans as substitutes.
c.
There is an increase in the price of the motor that powers ceiling fans.
d.
All of the above are correct.
#24. True or False - Whenever a determinant of supply other than price changes, the supply curve shifts.
#25. Elasticity is
a.
a measure of how much buyers and sellers respond to changes in market conditions.
b.
the study of how the allocation of resources affects economic well-being.
c.
the maximum amount that a buyer will pay for a good.
d.
the value of everything a seller must give up to produce a good.
#26. If the price of milk rises, when is the price elasticity of demand likely to be the lowest?
a.
immediately after the price increase
b.
one month after the price increase
c.
three months after the price increase
d.
one year after the price increase
#27. Whether a good is a luxury or necessity depends on the
a.
price of the good.
b.
preferences of the buyer.
c.
intrinsic properties of the good.
d.
scarcity of the good.
#28. When the price of a bracelet was $25 each, the jewelry shop sold 20 per month. When it raised the price to $35 each, it sold 14 per month. Using the midpoint method, the price elasticity of demand for bracelets is about
a.
1.66.
b.
1.06.
c.
0.94.
d.
0.60.
#29. When the price of used cds is $4, Daphne buys five per month. When the price is $3, she buys nine per month. Daphne's demand for used cds is
a.
elastic, and her demand curve would be relatively flat.
b.
elastic, and her demand curve would be relatively steep.
c.
inelastic, and her demand curve would be relatively flat.
d.
inelastic, and her demand curve would be relatively steep.
#30. True or False - The demand for soap is more elastic than the demand for Dove soap.
#31. Price controls are usually enacted
a.
as a means of raising revenue for public purposes.
b.
when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
c.
when policymakers detect inefficiencies in a market.
d.
All of the above are correct.
#32. A price ceiling will be binding only if it is set
a.
equal to the equilibrium price.
b.
above the equilibrium price.
c.
below the equilibrium price.
d.
either above or below the equilibrium price.
#33. A price floor is
a.
a legal minimum on the price at which a good can be sold.
b.
often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor.
c.
a source of inefficiency in a market.
d.
All of the above are correct.
Figure 1-1
Panel (a)
Panel (b)
#34. Refer to Figure 1-1. In panel (b), there will be
a.
a shortage of wheat.
b.
equilibrium in the market.
c.
a surplus of wheat.
d.
lines of people waiting to buy wheat.
Figure 1-2
#35. Refer to Figure 1-2. When the price ceiling applies in this market, and the supply curve for gasoline shifts from S1 to S2,
a.
the market price will increase to P3.
b.
a surplus will occur at the new market price of P2.
c.
the market price will stay at P1.
d.
a shortage will occur at the new market price of P2.
#36. Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?
a.
The effective price received by sellers is $0.40 per bottle less than it was before the tax.
b.
Sixty percent of the burden of the tax falls on sellers.
c.
This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume.
d.
All of the above are correct.
#37. When a tax is placed on the buyers of lemonade, the
a.
sellers bear the entire burden of the tax.
b.
buyers bear the entire burden of the tax.
c.
burden of the tax will be always be equally divided between the buyers and the sellers.
d.
burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.
Figure 1-3
The vertical distance between points A and B represents the tax in the market.
#38. Refer to Figure 1-3. The price that buyers pay after the tax is imposed is
a.
$8.
b.
$10.
c.
$16.
d.
$24.
#39. Refer to Figure 1-3. The effective price that sellers receive after the tax is imposed is
a.
$6.
b.
$10.
c.
$16.
d.
$24.
#40. Refer to Figure 1-3. The amount of the tax per unit is
a.
$6.
b.
$8.
c.
$14.
d.
$18.
#41. True/False - The tax burden falls more heavily on the side of the market that is more inelastic.
#42. True/False - Even though federal law mandates that workers and firms each pay half of the total FICA tax, the tax burden may not fall equally on workers and firms.
#1. When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing
| a. | scarcity. |
| b. | surpluses. |
| c. | inefficiencies. |
| d. | inequalities. |
#2. Economists use the word equality to describe a situation in which
| a. | each member of society has the same income. |
| b. | each member of society has access to abundant quantities of goods and services, regardless of his or her income. |
| c. | society is getting the maximum benefits from its scarce resources. |
| d. | society's resources are used efficiently. |
#3. Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth
| a. | is more efficient and more equal for society. |
| b. | is more efficient but less equal for society. |
| c. | is more equal but less efficient for society. |
| d. | is less equal and less efficient for society. |
#4. Which of the following is not an example of the opportunity cost of go ing to school?
| a. | The money a student could have earned by working if he had not gone to college. |
| b. | The nap a student could have enjoyed if he had not attended class. |
| c. | The party a student could have enjoyed if he had not stayed in to study for his exam. |
| d. | The money a student spends on rent for his apartment while attending school. |
#5. According to a recent study of Chilean bus drivers, drivers who are paid by the number of passengers they transport have higher productivity than drivers who are paid by the hour. This result is an example of which principle of economics?
| a. | People face tradeoffs. |
| b. | The cost of something is what you give up to get it. |
| c. | Rational people think at the margin. |
| d. | People respond to incentives. |
#6. True or False - Inflation is the primary determinant of a country's living standards.
#7. In conducting their research, economists face an obstacle that not all scientists face; specifically, in economics, it is often difficult and some- times impossible to
| a. | make use of theory and observation. |
| b. | rely upon the scientific method. |
| c. | conduct laboratory experiments. |
| d. | find articles or books that were written before 1900. |
#8. Any point on a country's production possibilities frontier represents a combination of two goods that an economy
| a. | will never be able to produce. |
| b. | can produce using all available resources and technology. |
| c. | can produce using some portion, but not all, of its resources and technology. |
| d. | may be able to produce in the future with more resources and/or superior technology. |
#9. One way to characterize the difference between positive statements and normative statements is as follows:
| a. | Positive statements tend to reflect optimism about the economy and its future, whereas normative statements tend to reflect pessimism about the economy and its future. |
| b. | Positive statements offer descriptions of the way things are, whereas normative statements offer opinions on how things ought to be. |
| c. | Positive statements involve advice on policy matters, whereas normative statements are supported by scientific theory and observation. |
| d. | Economists outside of government tend to make normative statements, whereas government-employed economists tend to make positive statements. |
#10. Policies such as rent control and trade barriers persist in spite of the fact that economists are virtually united in their opposition to such poli cies, probably because
| a. | economists have not yet convinced the general public that the policies are undesirable. |
| b. | economists engage in positive analysis, not normative analysis. |
| c. | economists have values that are different from the values of most non-economists. |
| d. | economistsâ theories are not easily confirmed or refuted in laboratory analysis. |
#11. How did the influential economist John Maynard Keynes explain his re mark that though economics is an easy subject compared with the high- er branches of philosophy or pure science, it is a subject at which few excel?
| a. | Most people who study economics are not very bright. |
| b. | Good economists must possess a rare combination of gifts. |
| c. | Economics is quite boring; hence, people tend to lose interest in it before mastering it. |
| d. | Good thinkers become frustrated with economics because it does not make use of the scientific method. |
#12. True or False - In the circular-flow diagram, factors of production in- clude land, labor, and cap ital.
#13. Regan grows flowers and makes ceramic vases. Jayson also grows flow- ers and makes ceramic vases, but Regan is better at producing both goods. In this case, trade could
| a. | benefit both Jayson and Regan. |
| b. | benefit Jayson, but not Regan. |
| c. | benefit Regan, but not Jayson. |
| d. | benefit neither Jayson nor Regan. |
#14. Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 20 bushels of corn or 5 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. Which of the following state- ments is true?
| a. | Both countries could gain from trade with each other. |
| b. | Neither country could gain from trade with each other because Cornland has an absolute advantage in both goods. |
| c. | Neither country could gain from trade with each other because neither one has a comparative advantage. |
| d. | Oatland could gain from trade between the two countries, but Cornland definitively would lose. |
#15. Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per year, and a worker in Sylvania can produce ei ther 2 units of corn or 6 units of wheat per year. Each nation has 10 workers. Without trade, Freedonia produces and consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn and 30 units of wheat. Suppose that trade is then initi ated between the two countries, and Freedonia sends 30 units of corn to Sylvania in exchange for 30 units of wheat. Sylvania will now be able to consume a maximum of
| a. | 30 units of corn and 30 units of wheat. |
| b. | 40 units of corn and 30 units of wheat. |
| c. | 40 units of corn and 20 units of wheat. |
| d. | 10 unites of corn and 40 units of wheat. |
#16. The gains from trade are
| a. | evident in economic models, but seldom observed in the real world. |
| b. | evident in the real world, but impossible to capture in economic models. |
| c. | a result of more efficient resource allocation than would be observed in the absence of trade. |
| d. | based on the principle of absolute advantage. |
#17. Suppose the US and Mexico both produce semiconductors and auto parts and the US has a comparative advantage in semiconductors while Mexico has a comparative advantage in auto parts. Also suppose the US has an absolute advantage in the production of both semiconductors and auto parts. The US should
| a. | not trade semiconductors and auto parts with Mexico. |
| b. | import semiconductors from Mexico and export auto parts to Mexico. |
| c. | export semiconductors to Mexico and import auto parts from Mexico. |
| d. | export both semiconductors and auto parts to Mexico. |
#18. True or False - It is possible for the U.S. to gain from trade with Germany even if it takes U.S. workers fewer hours to produce every good than it takes German workers.
#19. In a competitive market, the price of a product
| a. | is determined by buyers, and the quantity of the product produced is determined by sellers. |
| b. | is determined by sellers, and the quantity of the product produced is determined by buyers. |
| c. | and the quantity of the product produced are both determined by sellers. |
| d. | None of the above is correct. |
#20. The term price takers refers to buyers and sellers in
| a. | perfectly competitive markets. |
| b. | monopolistic markets. |
| c. | markets that are regulated by the government. |
| d. | markets in which buyers cannot buy all they want and/or sellers cannot sell all they want. |
#21. Which of the following is not a determinant of demand?
| a. | the price of a resource that is used to produce the good |
| b. | the price of a complementary good |
| c. | the price of the good next month |
| d. | the price of a substitute good |
#22. A market supply curve shows how the total quantity supplied of a good varies as
| a. | production technology varies. |
| b. | price varies. |
| c. | input prices vary. |
| d. | demand varies. |
#23. Which of the following events could cause an increase in the supply of ceiling fans?
| a. | The number of sellers of ceiling fans increases. |
| b. | There is an increase in the price of air conditioners, and consumers regard air conditioners and ceiling fans as substitutes. |
| c. | There is an increase in the price of the motor that powers ceiling fans. |
| d. | All of the above are correct. |
#24. True or False - Whenever a determinant of supply other than price changes, the supply curve shifts.
#25. Elasticity is
| a. | a measure of how much buyers and sellers respond to changes in market conditions. |
| b. | the study of how the allocation of resources affects economic well-being. |
| c. | the maximum amount that a buyer will pay for a good. |
| d. | the value of everything a seller must give up to produce a good. |
#26. If the price of milk rises, when is the price elasticity of demand likely to be the lowest?
| a. | immediately after the price increase |
| b. | one month after the price increase |
| c. | three months after the price increase |
| d. | one year after the price increase |
#27. Whether a good is a luxury or necessity depends on the
| a. | price of the good. |
| b. | preferences of the buyer. |
| c. | intrinsic properties of the good. |
| d. | scarcity of the good. |
#28. When the price of a bracelet was $25 each, the jewelry shop sold 20 per month. When it raised the price to $35 each, it sold 14 per month. Using the midpoint method, the price elasticity of demand for bracelets is about
| a. | 1.66. |
| b. | 1.06. |
| c. | 0.94. |
| d. | 0.60. |
#29. When the price of used cds is $4, Daphne buys five per month. When the price is $3, she buys nine per month. Daphne's demand for used cds is
| a. | elastic, and her demand curve would be relatively flat. |
| b. | elastic, and her demand curve would be relatively steep. |
| c. | inelastic, and her demand curve would be relatively flat. |
| d. | inelastic, and her demand curve would be relatively steep. |
#30. True or False - The demand for soap is more elastic than the demand for Dove soap.
#31. Price controls are usually enacted
| a. | as a means of raising revenue for public purposes. |
| b. | when policymakers believe that the market price of a good or service is unfair to buyers or sellers. |
| c. | when policymakers detect inefficiencies in a market. |
| d. | All of the above are correct. |
#32. A price ceiling will be binding only if it is set
| a. | equal to the equilibrium price. |
| b. | above the equilibrium price. |
| c. | below the equilibrium price. |
| d. | either above or below the equilibrium price. |
#33. A price floor is
| a. | a legal minimum on the price at which a good can be sold. |
| b. | often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. |
| c. | a source of inefficiency in a market. |
| d. | All of the above are correct. |
Figure 1-1
| Panel (a) | Panel (b) |
#34. Refer to Figure 1-1. In panel (b), there will be
| a. | a shortage of wheat. |
| b. | equilibrium in the market. |
| c. | a surplus of wheat. |
| d. | lines of people waiting to buy wheat. |
Figure 1-2
#35. Refer to Figure 1-2. When the price ceiling applies in this market, and the supply curve for gasoline shifts from S1 to S2,
| a. | the market price will increase to P3. |
| b. | a surplus will occur at the new market price of P2. |
| c. | the market price will stay at P1. |
| d. | a shortage will occur at the new market price of P2. |
#36. Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?
| a. | The effective price received by sellers is $0.40 per bottle less than it was before the tax. |
| b. | Sixty percent of the burden of the tax falls on sellers. |
| c. | This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume. |
| d. | All of the above are correct. |
#37. When a tax is placed on the buyers of lemonade, the
| a. | sellers bear the entire burden of the tax. |
| b. | buyers bear the entire burden of the tax. |
| c. | burden of the tax will be always be equally divided between the buyers and the sellers. |
| d. | burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal. |
Figure 1-3
The vertical distance between points A and B represents the tax in the market.
#38. Refer to Figure 1-3. The price that buyers pay after the tax is imposed is
| a. | $8. |
| b. | $10. |
| c. | $16. |
| d. | $24. |
#39. Refer to Figure 1-3. The effective price that sellers receive after the tax is imposed is
| a. | $6. |
| b. | $10. |
| c. | $16. |
| d. | $24. |
#40. Refer to Figure 1-3. The amount of the tax per unit is
| a. | $6. |
| b. | $8. |
| c. | $14. |
| d. | $18. |
#41. True/False - The tax burden falls more heavily on the side of the market that is more inelastic.
#42. True/False - Even though federal law mandates that workers and firms each pay half of the total FICA tax, the tax burden may not fall equally on workers and firms.
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