ECON 86991 – Because resources are limited

Because resources are limited:
Select one:
a.
only the very wealthy can get everything they want.
b.
people must make choices.
c.
firms will be forced out of business.
d.
the availability of goods will be limited but the availability of services will
not.
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According to economists,
there is no such thing as a free lunch because:
Select one:
a.
No one would pay for lunch anymore if they could get it for free.
b.
Resources used to produce the lunch could be used to produce other goods and
services.
c.
The government must raise taxes to pay for the lunches.
d.
The producer must charge something to cover the cost of production.
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Comparative advantage
Select one:
a.
means a nation can produce a unit of output using less resources than a trading
partner.
b.
was first expressed by Ronald Reagan.
c.
does not explain which products will be imported and exported.
d.
exists only in theory, not in actual trade patterns.
e.
is when one party has a lower opportunity cost than another in producing a good
or service.
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Which of the following is not a
factor of production?
Select one:
a.
A toll-bridge across a lake.
b.
The money hidden in an old basement.
c.
A wrecking ball used to tear down old buildings.
d.
The CEO of a large corporation.
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Which of the following is likely to
cause an outward shift of the production possibilities curve?
Select one:
a.
Investment in telecommunications networks.
b.
The deportation of illegal immigrants.
c.
An increase in the unemployment rate.
d.
A law that reduces the standard workweek from 40 hours to 35 hours.
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Figure 3.2 – Supply and demand

The equilibrium price and quantity in Figure 3.2 are, respectively:
Select one:
a.
$30 and 5 units.
b.
$10 and 10 units.
c.
$30 and 15 units.
d.
$40 and 10 units.
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Figure 3.2 – Supply and demand

In Figure 3.2, at a price of $40, there is a:
Select one:
a.
Surplus of 10 units.
b.
Surplus of 5 units.
c.
Shortage of 10 units.
d.
Shortage of 5 units.
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Figure 3.2 – Supply and demand

In Figure 3.2, the highest price at which buyers are willing and able to
purchase 5 units is:
Select one:
a.
$20.
b.
$30.
c.
$40.
d.
$50.
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According to the law of demand, a
demand curve:
Select one:
a.
Is upward sloping.
b.
Is downward sloping.
c.
Is a horizontal, or flat, line.
d.
Can slope either upward or downward based on consumer behavior.
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According to the law of demand, a
change in _______ causes a movement along the demand curve.
Select one:
a.
Buyers’ expectations
b.
The number of buyers
c.
The price of the good
d.
The price of other related goods
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Which of the following is not a
determinant of demand?
Select one:
a.
Income.
b.
Available technology.
c.
Price of other goods.
d.
Expectations of income.
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Ceteris paribus, the demand curve
for a good will shift to the right in response to:
Select one:
a.
An increase in income, if the good is inferior.
b.
An increase in the costs of production.
c.
An increase in tastes or preferences for the good.
d.
A higher price for the good.
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A change in demand means there has
been a shift in the demand curve, and a change in the quantity demanded:
Select one:
a.
Corresponds to a movement along the demand curve.
b.
Means a shortage or surplus will result from holding prices constant.
c.
Results from a change in the price of other related goods.
d.
Also means demand has shifted.
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Which of the following will cause a
leftward shift of the supply curve for houses?
Select one:
a.
A decrease in consumer incomes.
b.
An improvement in the technology used to build houses.
c.
Consumer expectations that the price of houses will increase next year.
d.
An increase in the cost of construction materials.
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If supply is unchanged, a decrease
in the demand for tacos will cause the equilibrium price to:
Select one:
a.
Rise and equilibrium quantity to fall.
b.
Rise and equilibrium quantity to rise.
c.
Fall and equilibrium quantity to rise.
d.
Fall and equilibrium quantity to fall.
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When an effective price floor is set
for a market, the quantity demanded will be:
Select one:
a.
Less than the equilibrium quantity, and price will be less than the equilibrium
price.
b.
Less than the equilibrium quantity, and price will be greater than the
equilibrium price.
c.
Greater than the equilibrium quantity, and price will be less than the
equilibrium price.
d.
Greater than the equilibrium quantity, and price will be greater than the
equilibrium price.
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Average fixed cost
Select one:
a.
falls as output increases.
b.
rises as output increases.
c.
does not change as output changes.
d.
first rises then falls as output increases.
e.
falls as output decreases.
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Nina uses 2 cups of flour, 1 can of
blueberries, 1/2 cup of sugar, 1 egg and 1 mixer to produce 12 blueberry
muffins. If she uses twice as many ingredients and 2 mixers, she gets 24
muffins. Assuming that there are no other inputs, the production function for
muffins shows
Select one:
a.
Diseconomies of Scale.
b.
gains from specialization.
c.
coordination problems.
d.
Constant Returns to Scale.
e.
Economies of Scale
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Matt quits his job, at which he was
earning $50,000 per year, and opens a small business. In the first year, the
business has sales of $75,000 and explicit costs of $45,000. Matt is only
interested in maximizing his economic profit. Which of the following statements
is TRUE?
Select one:
a.
Matt should be indifferent between the previous job and his business.
b.
Matt is better off running the business than he would have been staying at his
previous job.
c.
Matt’s business cannot make an economic profit.
d.
Matt needs to double his sales in order to make an economic profit.
e.
Matt is earning an economic loss.
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The primary reason why the marginal
product of labor may increase as the firm hires more workers is
Select one:
a.
increased employment of capital.
b.
higher quality workers.
c.
specialization.
d.
increasing average product of labor.
e.
overutilization of capital.
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Table
5.5—Production costs

In Table 5.5, the marginal cost of the first unit of output is:
Select one:
a.
$19.
b.
$10.
c.
$9.
d.
$3.
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Table
5.5—Production costs

In Table 5.5, the total cost of 3 units is:
Select one:
a.
$25.
b.
$15.
c.
$10.
d.
$3.
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The law of diminishing returns means
that:
Select one:
a.
The total product production function will eventually increase at a decreasing
rate.
b.
The marginal product will increase at an increasing rate.
c.
Average total costs are rising and then falling as output is increased.
d.
Average fixed cost will fall as production increases.
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Figure 5.2

In Figure 5.2, what is the marginal cost of the 12th unit of output?
Select one:
a.
$6.00
b.
$20.00
c.
$52.00
d.
$72.00
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Figure 5.2

In Figure 5.2, what is the total fixed cost?
Select one:
a.
$20.00
b.
$240.00
c.
$740.00
d.
$864.00
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Figure 5.2

In Figure 5.2, what is the total cost of 10 units?
Select one:
a.
$240.00
b.
$288.00
c.
$500.00
d.
$740.00
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The sum of fixed cost and variable
cost at any rate of output is equal to:
Select one:
a.
Average total cost.
b.
Total profit.
c.
Total cost.
d.
Marginal cost.
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Marginal cost tells us:
Select one:
a.
Total cost divided by output.
b.
The change in total cost due to producing one more unit of output.
c.
The change in total cost divided by the change in price.
d.
Total cost divided by total revenue.
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Economic costs are greater than
accounting costs:
Select one:
a.
Only if implicit costs are greater than zero.
b.
Only if explicit costs are greater than implicit costs.
c.
Only in the long run.
d.
In the short run but not the long run.
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Table
5.2—Jeans Production

If the firm in Table 5.2 receives $7.00 for each pair of jeans, in the short
run it should:
Select one:
a.
Produce 30 pairs of jeans.
b.
Produce 40 pairs of jeans.
c.
Produce 20 pairs of jeans.
d.
Only produce jeans if the price is greater than average total cost.
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Table
5.2—Jeans Production

If the firm in Table 5.2 can sell jeans for $7.00 per pair, the total profit
from producing 30 pair is:
Select one:
a.
$13.
b.
$3.
c.
$30.
d.
$210.
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If an individual perfectly
competitive firm raises its price above the market price, it will:
Select one:
a.
Sell some output, but less than previously.
b.
Not sell any output.
c.
Sell more output than previously.
d.
Sell the same amount of output as previously.
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Economists assume that the principal
motivation of producers is:
Select one:
a.
Profit.
b.
Competition in society.
c.
A sense of well-being.
d.
Individual desires.
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If price equals ATC and equals MC
then:
Select one:
a.
Producers will want to increase output.
b.
New firms will enter the market.
c.
Economic profits would be zero.
d.
The firm would be operating at a loss.
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Marginal cost is:
Select one:
a.
The change in total costs because of a one-unit increase in output.
b.
Total cost divided by the rate of output.
c.
Total revenue minus total cost.
d.
The average profit divided by the quantity sold.
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A perfectly competitive firm:
Select one:
a.
Can sell all of its output at the prevailing price.
b.
Has some market power.
c.
Can sell some output at a price above the market price.
d.
Can sell more output only if it reduces its price.
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Which of the following is consistent
with competitive long-run equilibrium?
Select one:
a.
Economic profits are maximized.
b.
Average total costs of production are minimized.
c.
Price equals the maximum of average total cost.
d.
Marginal costs are minimized.
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In order to sell one additional unit
of output, a profit-maximizing monopolist must:
Select one:
a.
Increase the size of its factory.
b.
Reduce marginal cost.
c.
Increase marginal revenue.
d.
Reduce the price of all units sold.
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Why would a monopolist never set a
price on a point in the inelastic portion of the demand curve?
Select one:
a.
Marginal revenue would be negative and therefore well below the marginal cost
curve.
b.
The point where marginal revenue equals marginal cost would be below the
shutdown point.
c.
The demand curve would be below the average total cost curve.
d.
The monopolist would be operating at a loss.
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A monopolist sets its price:
Select one:
a.
Below the demand curve.
b.
Without constraints since there is no competition.
c.
At the rate of output where marginal revenue equals marginal cost.
d.
At the minimum of the long-run average total cost curve.
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A monopolist:
Select one:
a.
Maximizes profit at the output where price equals marginal cost.
b.
Charges a higher price than a competitive firm, ceteris paribus.
c.
Is a price taker since it has market power.
d.
Cannot earn an economic profit in the long run
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Which of the following is not a
barrier to entry into a monopoly market?
Select one:
a.
A patent.
b.
Economic profits.
c.
Exclusive licensing.
d.
A government franchise.
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The market structure of the U.S.
soft drink industry is most likely:
Select one:
a.
Perfectly competitive.
b.
A monopoly.
c.
Monopolistically competitive.
d.
An oligopoly.
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An industry in which one firm can
achieve economies of scale over the entire range of output is referred to as:
Select one:
a.
A natural monopoly.
b.
Perfectly competitive.
c.
A neutral monopoly.
d.
A contestable market.
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On a demand and supply diagram,
consumer surplus would be the area
Select one:
a.
above the supply curve and below the demand curve up to the equilibrium
quantity.
b.
above the demand curve up to the equilibrium quantity.
c.
above the market price and below the demand curve up to the equilibrium
quantity.
d.
above the supply curve and below the market price up to the equilibrium
quantity.
e.
below the demand curve up to the equilibrium quantity.
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The reason why economists say there
is a deadweight loss when the market output is less than the optimal output is
that the market has
Select one:
a.
caused prices to exceed the total net gain of that market.
b.
produce addtional output where the additional cost of producing such output is
greater than the additional benefit received from such output.
c.
forced consumers to buy additional output at a price that is greater than their
consumer surplus.
d.
not produce some output that, if produced, whould have a positive net gain for
society.
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If there are external benefits
(postive externalities) then the private sector markets will:
Select one:
a.
produce more than the efficient amount
b.
produce the efficient amount only if a tax is imposed on the producers.
c.
produce the efficient amount
d.
produce less than the efficient amount
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If supply increases,
Select one:
a.
consumer surplus decreases.
b.
the marginal cost of producing the product increases.
c.
the marginal utility (benefit) of consuming the product increases.
d.
consumer surplus is unchanged.
e.
consumer surplus increases.
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Joe’s marginal benefit from coffee
is $5 for the first cup, $2 for the second cup, $0.75 for the third cup, $0.25
for the fourth cup, and -$0.25 for every cup after the fourth. If the local
coffee house sells cups of coffee for $1.50 each, how many cups will Joe buy?
Select one:
a.
4
b.
3
c.
2
d.
0
e.
1
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Joe’s marginal benefit from coffee
is $5 for the first cup, $2 for the second cup, $0.75 for the third cup, $0.25
for the fourth cup, and -$0.25 for every cup after the fourth. If the local
coffee house sells cups of coffee for $1.50 each, then Joe’s maximum total
consumer surplus is:
Select one:
a.
$1
b.
$2
c.
$3
d.
$7
e.
$4

5.
Juan, the manager of Fresh Fruit and
Veggie Smoothie (a currently profitable business), is considering increasing
his hours of operation by staying open 3 more hours each day. Juan estimates
the additional costs will be $120 per day. He estimates he will generate an
additional $100 in revenue each day. What decision should Juan make if he is
using benefit cost analysis?

a. Juan should stay open 3 more
hours each day

b. Juan should keep his hours the
same for now

c. Juan should go out of business
since he is losing money

d. Juan should add sandwiches and
salads to the menu

e. Juan should sell his business
to someone with more experience

4.
A rational decision maker using
benefit cost analysis will take those actions for which the expected marginal
benefit is:

a. Greater than the expected
marginal cost

b. Lower than the expected
marginal cost

c. At its maximum possible level

d. Known with 100% certainty

e. Equal to $100 per day or more

3.
How can benefit cost analysis help
us explain why people are more likely to overeat at all-you-can-eat buffets
than at restaurants where we pay for extra portions?

a. All of the following

b. The plates tend to be larger at
buffets

c. At all-you-can-eat buffets, the
food always tastes better, so people eat more

d. The marginal cost of additional
food is zero at all you-can-eat buffets since they don’t

e. The marginal benefit is always
less than the marginal cost for food at all-you-can eat buffets

2.
You own a pizza restaurant in
Claremont that delivers to Claremont only. If you wanted to decide whether to
increase the delivery radius to include Upland, which of the following would be
useful in your benefit cost analysis of the situation?

a. All of the following

b. The yearly property taxes paid
on your restaurant building

c. The number of pizza restaurants
(if any) that already provide delivery service to Upland

d. The amount you spent 6 months
ago repairing your refrigerator unit

e. The amount you paid an attorney
last month for winning a court case involving an employee

Which of the following could be analyzed
using cost benefit analysis?

a. All of the following

b. Should you start your own
business or work for someone else’s business?

c. Should we increase taxes on
households earning more than $250,000 per year?

d. Should I retire at age 55 or
keep working?

e. What should I eat for lunch
today?