ECONN

Question 1

Your opportunity cost of going to a movie is
a. the price of the ticket.
b. the price of the ticket plus the cost of any soda and popcorn you buy at the theatre.
c. the total cash expenditure needed to go to the movie plus the value of your time.
d. zero, as long as you enjoy the movie and consider it a worthwhile use of time and money

Answer 1

c. the total cash expenditure needed to go to the movie plus the value of your time.

Question 2

What does the adage, “There is no such thing as a free lunch,” mean?
a. Even people on welfare have to pay for food.
b. The cost of living is always increasing.
c. To get something we like, we usually have to give up another thing we like.
d. All costs are included in the price of a product.

Answer 2

c. To get something we like, we usually have to give up another thing we like.

Question 3

What does efficiency mean?
a. Society is conserving resources in order to save them for the future.
b. Society’s goods and services are distributed fairly among society’s members.
c. Society has lessened its dependence on foreign energy sources.
d. Society is getting the most it can from its scarce resources

Answer 3

d. Society is getting the most it can from its scarce resources

Question 4

What is a marginal change?
a. a long-term trend
b. a large, significant adjustment
c. a change for the worse, and so is usually short-term
d. a small incremental adjustment

Answer 4

d. a small incremental adjustment

Question 5

Suppose your management professor has been offered a corporate job with a 30% pay increase. He has decided to take the job. What happened for him?
a. The marginal cost of leaving was greater than the marginal benefit.
b. The marginal benefit of leaving was greater than the marginal cost.
c. The marginal benefit of teaching was greater than the marginal cost.
d. The marginal cost of teaching was greater than the marginal benefit

Answer 5

b. The marginal benefit of leaving was greater than the marginal cost

Question 6

A friend of yours asks you why market prices are better than government-determined prices. What do you say?
a. because they generally reflect the value of a good to society, but not the cost of making it
b. because they generally reflect the cost of making a good to society, but not its value
c. because they generally reflect both the value of a good to society and the cost of making it
d. because they generally reflect neither the value of a good to society nor the cost of making
it

Answer 6

c. because they generally reflect both the value of a good to society and the cost of making it

Question 7

What can cause market failure?
a. low consumer demand
b. government intervention and price controls
c. externalities and market power
d. high prices and foreign competition

Answer 7

c. externalities and market power

Question 8

When economists attempt to simplify the real world and make it easier to understand, what do they do?
a. They make assumptions.
b. They make mistakes in judgment.
c. They make predictions.
d. They make evaluations.

Answer 8

a. They make assumptions.

Question 9

What are factors of production?
a. They are used to produce goods and services.
b. They are owned by firms.
c. They are abundant in most economies.
d. They are used by both firms and households.

Answer 9

a. They are used to produce goods and services.

Question 10

According to a simple circular-flow diagram, in how many markets do households and firms interact?
a. one type of market
b. two types of markets
c. three types of markets
d. Households and firms do not interact

Answer 10

b. two types of markets

Question 11

When a production possibilities frontier shifts outward, what concept is being demonstrated?
a. tradeoffs
b. efficiency
c. economic growth
d. opportunity cos

Answer 11

c. economic growth

Question 12

What would unemployment cause an economy to do?
a. produce inside its production possibilities frontier
b. produce on its production possibilities frontier
c. produce outside its production possibilities frontier
d. unemployment could actually cause a, b, or c, depending on how severe it is

Answer 12

a. produce inside its production possibilities frontier

Question 13

15. How do economists consider normative statements?
    a. descriptive, making a claim about how the world is
    b. statements about the normal condition of the world
    c. prescriptive, making a claim about how the world ought to be
    d. statements that establish production goals for the economy

Answer 13

c. prescriptive, making a claim about how the world ought to be

Question 14

Which of the following is NOT a positive statement?
a. Higher gasoline prices will reduce gasoline consumption.
b. Equity is more important than efficiency.
c. Trade restrictions lower our standard of living.
d. Prices rise when the government prints too much money

Answer 14

b. Equity is more important than efficiency.

Question 15

26. Which goods will a nation typically export?
    a. those goods in which the nation has an absolute advantage.
    b. those goods in which the nation has a comparative advantage.
    c. those goods in which other nations have an absolute advantage.
    d. those goods in which other nations have a comparative advantage

Answer 15

b. those goods in which the nation has a comparative advantage.

Question 16

What happens at the equilibrium price?
a. Buyers have an incentive to buy more.
b. It is possible for there to be a shortage.
c. Firms have an incentive to increase production.
d. Everyone in the market has been satisfied

Answer 16

d. Everyone in the market has been satisfied

Question 17

If a shortage exists in a market, what do we know?
a. The actual price is below equilibrium price and quantity demanded is greater than quantity
supplied.
b. The actual price is above equilibrium price and quantity demanded is greater than quantity
supplied.
c. The actual price is above equilibrium price and quantity supplied is greater than quantity
demanded.
d. The actual price is below equilibrium price and quantity supplied is greater than quantity
demanded

Answer 17

The actual price is below equilibrium price and quantity demanded is greater than quantity
supplied.

Question 18

What would an early frost in the vineyards of the Okanagan Valley cause?
a. an increase in the demand for wine, increasing price
b. an increase in the supply of wine, decreasing price
c. a decrease in the demand for wine, decreasing price
d. a decrease in the supply of wine, increasing price

Answer 18

d. a decrease in the supply of wine, increasing price

Question 19

If the demand for a product decreases, what would we expect?
a. equilibrium price to increase and equilibrium quantity to decrease
b. equilibrium price to decrease and equilibrium quantity to increase
c. equilibrium price and equilibrium quantity to both increase
d. equilibrium price and equilibrium quantity to both decrease

Answer 19

equilibrium price and equilibrium quantity to both decrease

Question 20

Suppose that the incomes of buyers in a particular market for a normal good increase and there is also an
increase in input prices. What would we expect to occur in this market?
a. Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
b. The equilibrium price would decrease, but the impact on the amount sold in the market
would be ambiguous.
c. Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.
d. Equilibrium price would increase, but the impact on equilibrium quantity would be
ambiguous.

Answer 20

Equilibrium price would increase, but the impact on equilibrium quantity would be
ambiguous

Question 21

What might cause a movement along the supply curve?
a. a change in technology
b. a change in input prices
c. a change in expectations about future prices
d. a change in the price of the good or service

Answer 21

a change in the price of the good or service

Question 22

If a decrease in income increases the demand for a good, what is the good called?
a. a substitute good
b. a complementary good
c. a normal good
d. an inferior good

Answer 22

an inferior good

Question 23

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell
and the price of tea fell? (Coffee and tea are substitutes.)
a. price will fall and the effect on quantity is ambiguous
b. price will rise and the effect on quantity is ambiguous
c. quantity will fall and the effect on price is ambiguous
d. quantity will rise and the effect on price is ambiguous

Answer 23

price will fall and the effect on quantity is ambiguous

Question 24

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers rose
and the price of tea rose? (Coffee and tea are substitutes.)
a. price will fall and the effect on quantity is ambiguous
b. price will rise and the effect on quantity is ambiguous
c. quantity will fall and the effect on price is ambiguous
d. quantity will rise and the effect on price is ambiguous

Answer 24

price will rise and the effect on quantity is ambiguous

Question 25

Suppose that the incomes of buyers in a particular market for an inferior good increase and there is also an increase in input prices for the producers of the good. What would we expect to occur in this market?
a. The equilibrium price would increase, but the impact on the amount sold in the market would be
ambiguous.
b. The equilibrium price would decrease, but the impact on the amount sold in the market would be
ambiguous.
c. Both equilibrium price and equilibrium quantity would decrease.
d. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.

Answer 25

Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous

Question 26

Market demand is given as Qd = 400 – 4P. Market supply is given as Qs = 2P + 100. In a perfectly
competitive equilibrium, what will be price and quantity traded in the market?
a. price will be $40 and quantity will be 240
b. price will be $40 and quantity will be 300
c. price will be $50 and quantity will be 200
d. price will be $50 and quantity will be 300

Answer 26

c. price will be $50 and quantity will be 200

Question 27

Market demand is given as Qd = 200 – P. Market supply is given as Qs = 3P. What would result if the
market price were $20?
a. a shortage of 180
b. a surplus of 60
c. a surplus of 180
d. a shortage of 120

Answer 27

d. a shortage of 120

Question 28

What does the price elasticity of demand measure?
a. a buyer’s responsiveness to a change in the price of a good
b. the increase in demand as additional buyers enter the market
c. how much more of a good consumers will demand when incomes rise
d. the increase in demand that will occur from a change in one of the nonprice determinants
of demand

Answer 28

a. a buyer’s responsiveness to a change in the price of a good

Question 29

When would demand for a good tend to be more inelastic?
a. when there are fewer available substitutes
b. when the time period considered is longer
c. when the good is considered more of a luxury good
d. when the market is more narrowly defined

Answer 29

a. when there are fewer available substitutes

Question 30

44. If the price elasticity of demand for a good is 4.0, what would result from a 10 percent increase in price?
    a. a 4 percent decrease in the quantity demanded
    b. a 10 percent decrease in the quantity demanded
    c. a 40 percent decrease in the quantity demanded
    d. a 400 percent decrease in the quantity demanded

Answer 30

c. a 40 percent decrease in the quantity demanded

Question 31

When the price of kittens was $10 each, the pet shop sold 20 per month. When they raised the price to $30
each, they sold 10 per month. What is the elasticity of demand for kittens (using the midpoint method)?
a. 1
b. 0.66
c. 0.5
d. 1.5

Answer 31

b. 0.66

Question 32

When demand is inelastic, what will a decrease in price cause?
a. an increase in total revenue
b. a decrease in total revenue
c. no change in total revenue
d. There is insufficient information to answer this question.

Answer 32

b. a decrease in total revenue

Question 33

What does a perfectly inelastic demand imply?
a. Buyers decrease their purchases when the price rises.
b. Buyers purchase the same amount when the price rises or falls.
c. Buyers increase their purchases only slightly when the price falls.
d. Buyers respond substantially to an increase in price

Answer 33

Buyers purchase the same amount when the price rises or falls.

Question 34

If two goods are substitutes, what will their cross-price elasticity of demand be?
a. positive
b. negative
c. zero
d. 1

Answer 34

a. positive

Question 35

The local pizza restaurant makes such great bread sticks that consumers do not respond much to a change in
the price. If the owner is interested only in increasing revenue, what should he do?
a. He should lower the price of the bread sticks.
b. He should leave the price of the bread sticks alone.
c. He should raise the price of the bread sticks.
d. He should reduce costs.

Answer 35

c. He should raise the price of the bread sticks.

Question 36

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a
good. What is the income elasticity of demand for the good, and what type of good is it?
a. negative, and therefore the good is an inferior good
b. negative, and therefore the good is a normal good
c. positive, and therefore the good is a normal good
d. positive, and therefore the good is an inferior good

Answer 36

c. positive, and therefore the good is a normal good

Question 37

Suppose a 2 percent decrease in price of one good results in a 6 percent increase in the quantity demanded of
the second good. What is the the cross-price elasticity of demand of the second good, and what can we say
about these goods?
a. negative, and therefore the goods are substitutes
b. negative, and therefore the goods are complements
c. positive, and therefore the goods are substitutes
d. positive, and therefore the goods are substitutes

Answer 37

b. negative, and therefore the goods are complements

Question 38

Why could the discovery of a new hybrid wheat lower farmers’ revenue?
a. because the demand for wheat is inelastic
b. because the demand for wheat is elastic
c. because the supply of wheat is elastic
d. because the supply of wheat is inelastic

Answer 38

a. because the demand for wheat is inelastic

Question 39

When will a increase in demand cause the largest increase in price?
a. when both supply and demand are inelastic
b. when demand is elastic and supply is inelastic
c. when both supply and demand are elastic
d. when demand is inelastic and supply is elastic

Answer 39

a. when both supply and demand are inelastic

Question 40

Which of the following statements about a price floor is correct?
a. A price floor is a legal minimum on the price at which a good can be sold.
b. A price floor is a legal maximum on the price at which a good can be sold.
c. A price floor will generally result in a market shortage.
d. A price floor will benefit the consumer, but hurt the supplier.

Answer 40

A price floor is a legal minimum on the price at which a good can be sold.

Question 41

what will a price ceiling that is not binding do?
a. It will cause a surplus in the market.
b. It will cause a shortage in the market.
c. It will cause the market to be less efficient.
d. It will have no effect on the market price.

Answer 41

d. It will have no effect on the market price.

Question 42

A binding price ceiling is imposed on the market for peaches. At the ceiling price, what will be the quantity
demanded of peaches?
a. greater than the quantity supplied
b. equal to the quantity supplied
c. smaller than the quantity supplied
d. none of the above

Answer 42

. greater than the quantity supplied

Question 43

if a tax is imposed on a market with inelastic demand and elastic supply, how is the burden of the tax
distributed?
a. Buyers will bear most of the burden of the tax.
b. Sellers will bear most of the burden of the tax.
c. The burden of the tax will be shared equally between buyers and sellers.
d. It is impossible to determine how the burden of the tax will be shared.

Answer 43

a. Buyers will bear most of the burden of the tax.

Question 44

what do minimum wage laws dictate?
a. the average price employers must pay for labour
b. the highest price employers may pay for labour
c. the lowest price employers may pay for labour
d. the quality of labour that must be supplied

Answer 44

c. the lowest price employers may pay for labour

Question 45

what will the effect of minimum wage that is binding ?
a. It will cause unemployment for high skilled workers.
b. It will cause unemployment for low skilled workers.
c. It will cause a shortage in the market.
d. It will have no effect on the market price

Answer 45

b. It will cause unemployment for low skilled workers.

Question 46

What effect does a tax decrease have on the market quantity?
a. It increases the market quantity (the market quantity increases after the tax decrease).
b. It reduces the market quantity (the market quantity decreases after the tax decrease).
c. It has no effect on the market quantity.
d. It may increase, decrease, or have no effect on the market quantity