Econ Ch.1-4 Exam Practice Flashcards
Both minivan sales and birth rates are on the rise. The conclusion that minivans cause
people to have children is an example of making the mistake of:
a. extrapolation
b. correlation without causation
c. omitted variables
d. reverse causality
d. reverse causality
Economists argue that the optimal decision is to continue any activity up to the point
where the:
a. marginal benefit is zero.
b. marginal cost is zero.
c. marginal benefit equals the marginal cost.
d.marginal benefit is greater than the marginal cost.
c. marginal benefit equals the marginal cost
Consumers ________ factors of production in the ________ market.
a. sell; product
b. sell; factor
c. buy; product
d. buy; factor
b. sell; factor
“Which came first, the chicken or the egg?” This question seeks to address the
common fallacy of ________ in the context of correlation and causation.
a. linear relationships
b. reverse causality
c. comparative analysis
d. omitted variables
b. reverse causality
The economic analysis of minimum wage involves both normative and positive
analysis. Consider the following consequences of a minimum wage:
a. The minimum wage law causes unemployment.
b. A minimum wage law benefits some groups and hurts others.
c. In some cities such as San Francisco and New York, it would be impossible for
low-skilled workers to live in the city without minimum wage laws.
d. The gains to winners of a minimum wage law should be valued more highly than
the losses to losers because the latter primarily comprises businesses.
Which of the consequences above are positive statements and which are normative
statements?
a. A, b, and c are positive statements and d is a normative statement.
b. A and b are positive statements, c and d are normative statement.
c. Only a is a positive statement, b, c and d are normative statements.
d. A and c are positive statements, b and d are normative statements
b. A and b are positive statements, c and d are normative statement.
When the unemployment rate rises, college enrollment increases because workers
seek to expand training. This is an example of:
a. macroeconomics
b. correlation and causation
c. a negative correlation
d. normative economics
b. correlation and causation
After purchasing a coffee cup from your local gas station for $5.00, you can always
refill your cup for $0.50. The marginal cost of your 10th cup of coffee purchased at
the gas station is:
a. $10.00
b. $5.50
c. $5.00
d. $0.50
d. $0.50
Suppose in the United States, the opportunity cost of producing a motor engine is 4
auto bodies. In Canada, the opportunity cost of producing a motor engine is 2 auto
bodies. Which country has a comparative advantage in producing auto bodies?
a. The United States
b. Neither country has a comparative advantage in auto bodies
c. Canada
a. The United States
When economists talk about a trade-off between “guns and butter,” they mean:
a. Military goods are an inefficient use of resources.
b. Consumer goods are always more costly than military goods.
c. The production of more military goods may require fewer consumer goods.
d. Society can produce more military goods without giving up any consumer
goods.
c. The production of more military goods may require fewer consumer goods
The slope of a production possibilities frontier measures:
a. inefficient production of a good.
b. the trade-off in the consumption of one good versus the other good
c. the opportunity cost of producing one good in terms of the other good.
d. how much of the resources must be used in order to produce one the goods.
c. the opportunity cost of producing one good in terms of the other good
The law of supply can be stated as: all else equal _____
a.quantity supplied rises as income falls.
b. quantity supplied rises as price rises.
c. quantity supplied rises as income rises.
d. quantity supplied rises as price falls.
b. quantity supplied rises as price rises
In 2017, Hurricane Irma damaged a large portion of Florida’s orange crop. As a result
of this, many orange growers were not able to supply fruit to the market. At the
pre-hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect
to see
A)an increase in the demand for oranges.
B)a surplus of oranges.
C)the quantity demanded equal to the quantity supplied.
D)a shortage of oranges.
d. a shortage of oranges
The prices of related goods matters when determining supply because it affects:
a. the competition in the market.
b. whether or not your good will sell.
c. the availability of substitute goods.
d. the opportunity cost of production.
d. the opportunity cost of production
If, in response to an increase in the price of chocolate, the quantity demanded of
chocolate decreases economists would describe this as ___
A)a decrease in demand.
B)a decrease in consumers’ taste for chocolate.
C)a change in consumer income.
D)a decrease in quantity demanded.
d. a decrease in quantity demanded
Ranchers can raise either cattle or sheep on their land. Which of the following would
cause the supply of sheep to increase?
A)a decrease in the price of cattle
B)an increase in the demand for cattle
C)an increase in the price of sheep feed
D)an increase in the price of sheep
a. a decrease in the price of cattle
Tuition and fees for four year colleges in the United States have risen on average five
percent per year in the recent past. One cause for the increase in price has been an
increase in demand for college education. What could be a possible explanation for
the increase in the demand for college education?
A)Income in the United States has risen
B)The cost of two-year colleges has declined over the same period
C)More colleges have been established
D)The price of all other goods in the economy has risen 3 percent over the same
period
a. Income in the United States has risen
Ceteris paribus, according to the law of supply, if the price of lawn mowing
decreases from $50 per lawn to $45 per lawn, then the:
A)Quantity supplied of lawn mowing will stay the same.
B)Quantity supplied of lawn mowing will decrease.
C)Supply curve for lawn mowing will shift to the right.
D)Quantity supplied of lawn mowing will increase.
b. Quantity supplied of lawn mowing will decrease.
In which of the following instances is the effect on equilibrium price dependent on the
magnitude of the shifts in supply and demand?
A)Supply falls and demand remains constant.
B)Supply rises and demand falls.
C)Demand rises and supply falls.
D)Demand rises and supply rises.
d. Demand rises and supply rises
Assume in a competitive market that price is initially below the equilibrium level. We
can predict that price will:
A)decrease, quantity demanded will decrease, and quantity supplied will increase.
B)increase, quantity demanded will increase, and quantity supplied will decrease.
C)increase, quantity demanded will decrease, and quantity supplied will increase.
D)decrease and quantity demanded and quantity supplied will both decrease.
c. increase, quantity demanded will decrease, and quantity supplied will increase
In October, market analysts predict that the price of platinum will fall in November.
What happens in the platinum market in October, holding everything else constant?
A)The supply curve is unchanged.
B)The supply curve shifts to the left.
C)The supply curve shifts to the right.
D)The quantity demanded and the quantity supplied of platinum decrease.
c. the supply curve shifts to the right
The supply curve for watches ___
A)shows the relationship between the quantity of watches firms are willing and
able to supply and the quantity of watches consumers are willing and able to
purchase.
B)shows the relationship between the price of watches and the quantity of
watches supplied.
C)is downward sloping.
D)shows the supply of watches consumers are willing and able to buy at any given
price.
b. shows the relationship between the price of watches and the quantity of watches supplied
Which of the following is not held constant as you move along the demand curve?
A)The preferences of consumers for the good
B)The price of other goods
C)The incomes of consumers
D)The price of that good
d. the price of that good
An increase in the demand for lobster due to changes in consumer tastes,
accompanied by a decrease in the supply of lobster as a result of bad weather
reducing the number of fishermen trapping lobster, will result in
A)an increase in the equilibrium price of lobster; the equilibrium quantity may
increase or decrease.
B)a decrease in the equilibrium quantity of lobster and no change in the
equilibrium price.
C)an increase in the equilibrium price of lobster and no change in the equilibrium
quantity.
D)a decrease in the equilibrium quantity of lobster; the equilibrium price may
increase or decrease.
a. an increase in the equilibrium price of lobster; the equilibrium quantity may
increase or decrease.
Which of the following would cause the equilibrium price of white bread to decrease
and the equilibrium quantity of white bread to increase?
A)an increase in the price of rye bread, a substitute for white bread
B)a decrease in the price of flour
C)an increase in the price of butter, a complement for white bread
D)an increase in the price of flour
b. an increase in the price of rye bread, a substitute for white bread
In recent years the cost of producing organic produce in the U.S. has decreased largely
due technological advancement. At the same time, more and more Americans prefer
organic produce over conventional produce. Which of the following best explains the
effect of these events in the organic produce market?
A)The supply curve has shifted to the left and the demand curve has shifted to the
right. As a result there has been an increase in the equilibrium quantity and an
uncertain effect on the equilibrium price.
B)Both the supply and demand curves have shifted to the right. As a result, there
has been an increase in the equilibrium quantity and an uncertain effect on the
equilibrium price.
C)Both the supply and demand curves have shifted to the right. As a result, there
has been an increase in both the equilibrium price and the equilibrium quantity.
D)The supply curve has shifted to the left and the demand curve has shifted to the
right. As a result, there has been an increase in the equilibrium price and an
uncertain effect on the equilibrium quantity.
b. Both the supply and demand curves have shifted to the right. As a result, there
has been an increase in the equilibrium quantity and an uncertain effect on the
equilibrium price.
The law of supply can be stated as all else equal:
A)quantity supplied rises as price rises.
B)quantity supplied rises as income falls.
C)quantity supplied rises as income rises.
D)quantity supplied rises as price falls.
a. quantity supplied rises as price rises
If both buyers and sellers expect the price of a commodity to rise in the future, then
today, it is likely that equilibrium:
A)price will fall with little change in equilibrium quantity.
B)quantity will rise with little change in equilibrium price.
C)quantity will fall with little change in equilibrium price.
D)price will rise with little change in equilibrium quantity.
d. price will rise with little change in equilibrium quantity
Which of the following would cause both the equilibrium price and equilibrium
quantity of cotton to increase (assume that cotton is a normal good)?
A)a drought that sharply reduces cotton output
B)a decrease in consumer income
C)unusually good weather that results in a record harvest of cotton
D)an increase in consumer income
d. an increase in consumer income
Assume that the market for barley is in equilibrium and the demand for barley is
inelastic. Predict what happens to the revenue of barley farmers if a prolonged
drought reduces the supply of barley. The drought will cause farm revenue to
A)rise because the percentage increase in quantity sold is greater than the
percentage increase in price.
B)rise because the percentage decrease in quantity sold is less than the percentage
increase in price.
C)fall because of the decrease in the quantity of barley sold.
D)rise because there will be a shortage of barley.
b. rise because the percentage decrease in quantity sold is less than the percentage increase in price
For many consumers, bacon and eggs are complements. Therefore, egg producers
monitor the price of bacon because the cross elasticity between bacon and eggs is
A)negative, and a decrease in the price of bacon will decrease the demand for eggs.
B)negative, and a decrease in the price of bacon will increase the demand for eggs.
C)positive, and a decrease in the price of bacon will increase the demand for eggs.
D)positive, and an increase in the price of bacon will increase the demand for eggs.
b.negative, and a decrease in the price of bacon will increase the demand for eggs.
9)Suppose the demand curve for a product is represented by a typical
downward-sloping curve. Now suppose the demand for this product increases. Which
of the following statements accurately predicts the resulting increase in price?
A)The increase in price is not affected by the elasticity of the supply curve.
B)The more elastic the supply curve, the smaller the price increase.
C)The more elastic the supply curve, the greater the price increase.
D)There will be no increase in price if the supply curve is perfectly inelastic.
b. the more elastic the supply curve, the smaller the price increase
The cross-price elasticity of two goods is -2. This tells us the two goods are:
a. unrelated
b. inelastic
c. complements
d. substitutes
c. complements
The cross-price elasticity of demand measures the
A)percentage change in the quantity demanded of one good divided by the
percentage change in the price of another good.
B)percentage change in the quantity demanded of one good in one location
divided by the price of the same good in another location.
C)percentage change in the price of one good divided by the percentage change in
the quantity demanded of another good.
D)absolute change in the quantity demanded of one good divided by the absolute
change in the price of another good.
a. percentage change in the quantity demanded of one good divided by the
percentage change in the price of another good.
For complements:
A)cross-price elasticity of demand is positive.
B)price elasticity of income is positive.
C)price elasticity of income is negative.
D)cross-price elasticity of demand is negative.
d. cross-price elasticity of demand is negative
In which case will the price change be the greatest (assuming the shifts described are
the same size)?
A)Demand is elastic, and supply shifts to the left.
B)Supply is perfectly elastic, and demand shifts to the left.
C)Supply is elastic, and demand shifts to the left.
D)Demand is inelastic, and supply shifts to the left.
d. Demand is inelastic, and supply shifts to the left.
45)Suppose when Panini’s Bakery raised the price of its breads by 10 percent, the
quantity demanded fell by 15 percent. Which of the following best characterizes the
elasticity of demand and the effect on total revenue of the price increase?
A)Demand is elastic; total revenue decreased.
B)Demand is inelastic; total revenue increased.
C)Demand is elastic; total revenue increased.
D)Demand is inelastic; total revenue decreased.
a. demand is elastic; total revenue decreased
If a 6 percent increase in income leads to a 4 percent increase in quantity demanded
for e-books the income elasticity of demand is
A)2.
B)1.5.
C)1.66.
D)-0.66.
E)None of the above is correct.
e. none of the above is correct
If the price elasticity of supply is 0.5, a 10 percent increase in price will cause a:
A)5 percent increase in quantity supplied.
B)20 percent increase in quantity supplied.
C)5 percent decrease in quantity supplied.
D)20 percent decrease in quantity supplied.
a. 5 percent increase in quantity supplied
If elasticity of demand is less than 1:
A)a rise in price increases total revenue.
B)a decline in price will not change total revenue.
C)a decline in price increases total revenue.
D)a rise in price decreases total revenue.
a. a rise in price increases total revenue
