Econ Ch.1-4 Exam Practice

Question 1

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

Answer 1

d. reverse causality

Question 2

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.

Answer 2

c. marginal benefit equals the marginal cost

Question 3

Consumers ________ factors of production in the ________ market.

a. sell; product
b. sell; factor
c. buy; product
d. buy; factor

Answer 3

b. sell; factor

Question 4

“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

Answer 4

b. reverse causality

Question 5

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

Answer 5

b. A and b are positive statements, c and d are normative statement.

Question 6

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

Answer 6

b. correlation and causation

Question 7

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

Answer 7

d. $0.50

Question 8

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

Answer 8

a. The United States

Question 9

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.

Answer 9

c. The production of more military goods may require fewer consumer goods

Question 10

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.

Answer 10

c. the opportunity cost of producing one good in terms of the other good

Question 11

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.

Answer 11

b. quantity supplied rises as price rises

Question 12

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.

Answer 12

d. a shortage of oranges

Question 13

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.

Answer 13

d. the opportunity cost of production

Question 14

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.

Answer 14

d. a decrease in quantity demanded

Question 15

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

Answer 15

a. a decrease in the price of cattle

Question 16

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

Answer 16

a. Income in the United States has risen

Question 17

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.

Answer 17

b. Quantity supplied of lawn mowing will decrease.

Question 18

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.

Answer 18

d. Demand rises and supply rises

Question 19

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.

Answer 19

c. increase, quantity demanded will decrease, and quantity supplied will increase

Question 20

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.

Answer 20

c. the supply curve shifts to the right

Question 21

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.

Answer 21

b. shows the relationship between the price of watches and the quantity of watches supplied

Question 22

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

Answer 22

d. the price of that good

Question 23

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.

Answer 23

a. an increase in the equilibrium price of lobster; the equilibrium quantity may
increase or decrease.

Question 24

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

Answer 24

b. an increase in the price of rye bread, a substitute for white bread

Question 25

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.

Answer 25

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.

Question 26

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.

Answer 26

a. quantity supplied rises as price rises

Question 27

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.

Answer 27

d. price will rise with little change in equilibrium quantity

Question 28

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

Answer 28

d. an increase in consumer income

Question 29

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.

Answer 29

b. rise because the percentage decrease in quantity sold is less than the percentage increase in price

Question 30

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.

Answer 30

b.negative, and a decrease in the price of bacon will increase the demand for eggs.

Question 31

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.

Answer 31

b. the more elastic the supply curve, the smaller the price increase

Question 32

The cross-price elasticity of two goods is -2. This tells us the two goods are: a. unrelated b. inelastic c. complements d. substitutes

Answer 32

c. complements

Question 33

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.

Answer 33

a. percentage change in the quantity demanded of one good divided by the percentage change in the price of another good.

Question 34

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.

Answer 34

d. cross-price elasticity of demand is negative

Question 35

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.

Answer 35

d. Demand is inelastic, and supply shifts to the left.

Question 36

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.

Answer 36

a. demand is elastic; total revenue decreased

Question 37

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.

Answer 37

e. none of the above is correct

Question 38

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.

Answer 38

a. 5 percent increase in quantity supplied

Question 39

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.

Answer 39

a. a rise in price increases total revenue