Economics 1

Economics primarily addresses the problems associated with
a) poverty.
b) money.
c) scarcity.
d) government policies.
e) shortages or surpluses

a) scarcity

Which of the following are the main ideas of economics?
a) Resources used to make goods and services desired by society are scarce.
b) Because resources are scarce, we cannot make all the goods and services that society desires.
c) Because we cannot make all the goods and services that society desires, individuals must
continually face trade-offs and make decisions.
d) These decisions should be made in such a way as to stretch the available resources to their
fullest and best use.
e) All the above represent main ideas of economics.

e) All the above represent main ideas of economics.

Why can’t we have all the goods and services we want?
a) Because humans wants are unlimited.
b) Because the resources used to make goods and services are limited.
c) Because humans make illogical or impractical decisions.
d) All of the above are true.
e) Both a and b are true.

e) both a and b are true

Physical capital is used by economists to mean
a) goods that are used to help make other goods and services.
b) the physical space (warehouse) where production occurs.
c) time allocated to producing goods and services.
d) the education and training of the workforce.
e) financial backing

goods that are used to help make other goods and services

Human capital is used by economists to mean
a) the education of the workforce.
b) goods that are used to help make other goods.
c) training and on the job experience.
d) financial backing.
e) Both a and c are correct.

Both a and c are correct.

Tradeoffs are required in any decision because wants are ____ while resources are ____.
a) realistic; plentiful
b) scarce; efficient
c) unlimited; scarce
d) within reason; abundant
e) scarce; unlimited

unlimited; scarce

Suppose that Matt spends 4 hours playing golf, paying green fees of $50, rather than working at his
job that pays $10 hour. What is the economic cost of his decision to play golf?
a) $90
b) $60
c) $50
d) $40
e) nothing, since he enjoys golf much more than working anyway.

90

Which of the following issues are concerned with microeconomic issues?
a) Whether Home Depot hires 50 or 51 workers per shift.
b) How consumers respond to a 5% tax on gasoline.
c) How a 5% tax on gasoline affects the market for new cars.
d) How a firm responds to new pollution regulations on production.
e) All of the above are microeconomic in nature.

All of the above are microeconomic in nature.

Which of the following statements is normative?
a) Printing money causes the price level to rise.
b) People work harder when the wage rate is higher.
c) The government should try to lower the unemployment level.
d) In the short run, inflation usually rises when unemployment falls.
e) A decrease in the capital gains tax by 5% will cause the economy to grow 1% faster.

The government should try to lower the unemployment level.

An economic theory is valuable only if it
a) is complex.
b) can be tested.
c) is proven correct.
d) expresses good news.
e) is published in an important academic journal

can be tested

Marginal thinking involves:
a) comparing the total benefit and total cost of a decision.
b) accurately calculating the opportunity cost of a decision.
c) always acting in your own self-interest.
d) weighing the small incremental benefits against the small incremental cost of a decision

weighing the small incremental benefits against the small incremental cost of a decision.

A reason for government involvement in a market economy is:
a) markets sometimes fail to produce an efficient allocation of resources.
b) markets sometimes fail to produce a fair distribution of economic resources.
c) property rights have to be enforced to promote innovation in an economy.
d) All of these answers are correct

All of these answers are correct.

An economic model
a) can never be proven wrong
b) often omits crucial elements
c) simplifies reality in order to focus on crucial elements
d) uses equations to understand normative economic phenomena
e) produces poor predictions since they include unrealistic assumptions

simplifies reality in order to focus on crucial elements

Every time we choose to do one thing, we give up doing something else. This best describes the
economic principle of:
a. opportunity cost.
b. marginal thinking.
c. monetary cost.
d. self-interest

opportunity cost.

Suppose a publishing company is deciding whether or not to print 50,000 additional copies of an
economic textbook. The company should print the textbooks if:
a. the marginal cost of printing the extra books is greater than the marginal benefit (additional
revenue) of selling the books.
b. the marginal benefit (additional revenue) from selling the extra books is greater than the
marginal cost of printing the books.
c. they can get a good deal on the paper used to print the additional textbooks.
d. the cost of printing the additional textbooks is zero

the marginal benefit (additional revenue) from selling the extra books is greater than the
marginal cost of printing the books

When the government intervenes in the economy to promote equality, it means that the
government is trying to:
a. change the way we produce goods and services.
b. create a more fair distribution of income.
c. increase the size of the economic pie.
d. create a more unequal distribution of income.

create a more fair distribution of income.

Adam Smith's 'invisible hand' refers to:
a. how households and firms, acting in their own self-interest, manage to make
everyone better off.
b. how central planners made economic decisions.
c. the control that large firms have over the economy.
d. how governments allocate economic resources.

how households and firms, acting in their own self-interest, manage to make
everyone better off

Kurt decides to spend 2 hours working rather than hanging out with his friends. He earns $10 per
hour for work. His opportunity cost of working is
a. the utility or enjoyment he would have gotten from hanging out with his friends.
b. the $20 he earned working the extra two hours
c. nothing as he has given nothing up to work the extra hours.
d. $20 minus the value of the time spent with friends

the utility or enjoyment he would have gotten from hanging out with his friends.

One of the reasons that people tend to eat more in an "all you can eat" buffet is because the
a. marginal cost of an extra plate of food is greater than the marginal benefit.
b. marginal benefit from an extra plate of food is greater than the marginal cost of the
additional food.
c. opportunity cost of the additional food is greater than the marginal benefit from the
extra food.
d. opportunity cost of the extra plate of food is negative

marginal benefit from an extra plate of food is greater than the marginal cost of the
additional food

Adam has $200 to spend and wants to buy either a new amplifier for his guitar or a new cell phone.
Both the amplifier and the cell phone cost $200, so he can only buy one. This illustrates the basic
concept that:
a. people respond to incentives.
b. people face trade-offs.
c. everyone has an unlimited supply of resources.
d. everyone is always acting in his or her own self-interest.

people face trade-offs

The main reason households and societies must make many decisions is because
a. incomes fluctuate with business cycles.
b. people, by nature, tend to disagree.
c. goods and services are unlimited.
d. resources are scarce.

resources are scarce.

Which of the following statements about the circular-flow diagram is NOT correct?
a. It is an economic model.
b. It represents the flows of inputs, outputs, and dollars.
c. It incorporates all aspects of the real economy.
d. It helps explain how participants in the economy interact with one another.

It incorporates all aspects of the real economy.

Which of the following is the most likely to be a perfectly competitive market?
a. Wheat
b. Soft drinks
c. Electricity
d. Jean

Wheat

The production possibilities frontier demonstrates the
a) problem of scarcity.
b) concept of tradeoffs.
c) concept of opportunity cost.
d) available, efficient choices to society.
e) All of the above are true.

All of the above are true.

Combinations of goods outside the production possibilities frontier curve (PPF)
a) are unattainable given society's technology and resources
b) are combinations of goods that have already been consumed
c) are luxury goods that are not necessary
d) result from not utilizing all available resources
e) are the result of economic recession

are unattainable given society's technology and resources

Combination of goods that lie on the production possibilities frontier curve (PPF) are said to be
a) not feasible
b) possible, but inefficient
c) inefficient
d) efficient
e) a poor choice of resource use

efficient

Combinations of goods that lie inside the production possibilities frontier curve (PPF) are said to be
a) not feasible.
b) luxury goods that aren’t necessary.
c) possible, but inefficient.
d) efficient.
e) the best choice sets for society

possible, but inefficient.

On a PPF, economic growth is shown as a/an
a) movement along the curve from the top left towards the bottom right.
b) outward shift in the curve.
c) inward shift in the curve.
d) a rotation outward along one axis.
e) a movement from a point inside the curve to a point on the curve

outward shift in the curve.

On a PPF, a technological advance in the production of one good is shown as a/an
a) movement along the curve from the top left towards the bottom right.
b) outward shift in the entire curve.
c) inward shift in the entire curve.
d) a rotation outward along the axis of the good with the technological advance in production.
e) a movement from a point inside the curve to a point on the curve

a rotation outward along the axis of the good with the technological advance in production.

if moving to a different point, both lying under the curve what is the cost

a) no cost in the move

b) there is cost in the move

In a typical market, the demand curve is composed of ___ and slopes ____.
a) sellers; downwards
b) buyers; downwards
c) buyers; upwards
d) sellers; upw

buyers; downwards

Along a typical downward sloping demand curve, what is NOT held constant?
a) price of related goods
b) number of buyers
c) preferences/tastes
d) price of the good itself
e) income

price of the good itself

Along a typical downward sloping demand curve, what is held constant?
a) income
b) tastes/preferences
c) prices of related goods
d) future price expectations
e) All of the above are held constant

All of the above are held constant

Which of the following would shift the demand curve?
a) a change in the incomes of consumers
b) a change in the tastes or preferences of consumers
c) a change in the price of the good or service
d) All of the above are demand shifters.
e) Only a and b are correct.

Only a and b are correct.

When referring to a graph, a decrease in demand means that
a) the demand curve has shifted left.
b) the demand curve has shifted right.
c) there has been a movement down along the demand curve.
d) there has been a movement up along the demand curve.
e) Both a and c are correct

demand curve has shifted left.

When referring to a graph, a decrease in quantity demanded means that
a) the demand curve has shifted left.
b) the demand curve has shifted right.
c) there has been a movement down along the demand curve.
d) there has been a movement up along the demand curve.
e) Both b and c are correct

there has been a movement up along the demand curve.

All of the following will cause an increase in demand EXCEPT
a) an increase in consumer income
b) a decrease in the price of the good
c) a decrease in the price of a complement good
d) an increase in the number of buyers in the market
e) All of the above will cause an increase in demand.

a decrease in the price of the good

Sonia buys 15 lattes per month when the price is $4.00 per latte and 20 lattes per month when the
price is $3.00 per latte. Sonia's buying decisions demonstrate
a. quantities supplied.
b. market equilibrium.
c. the law of demand.
d. the law of supply.

the law of demand.

Which of the following changes would not shift the demand curve for gas?
a. The price of gas decreases due to increased production.
b. The price of gas-powered cars increases due to higher steel prices.
c. Senior citizens' incomes increase due to a change in social security benefits.
d. The price of gas is expected to increase in near future due to decreased production.

The price of gas decreases due to increased production.

Which of the following below shows a decrease in quantity demanded for Pepsi?

the graph that shows the dot moving upward on the line

In a typical market, the supply curve is made up of ___ and slopes ___.
a) sellers; upwards
b) sellers; downwards
c) sellers; vertical
d) buyers; upwards
e) buyers; downwards

sellers; upwards

Which of the following is a supply shifter?
a) expected price (what sellers believe the price will do in the future)
b) price of the good itself
c) price of inputs
d) All of the above are supply shifters.
e) Only a and c are supply shifters.

Only a and c are supply shifters.

Which of the following would cause a movement along the supply curve?
a) a change in supplier price expectations
b) a change in the technology of production
c) a change in the price of the good itself
d) a change in the number of sellers
e) All of the above could cause a movement along the supply curve

a change in the price of the good itself

When referring to a graph, an increase in supply means that
a) the supply curve has shifted right.
b) the supply curve has shifted left.
c) there has been a movement down along the supply curve.
d) there has been a movement up along the supply curve.
e) Both b and d are correct

the supply curve has shifted right.

When referring to a graph, an increase in quantity supplied means that
a) the supply curve has shifted right.
b) the supply curve has shifted left.
c) there has been a movement down along the supply curve.
d) there has been a movement up along the supply curve.
e) Both b and d are correc

there has been a movement up along the supply curve.

Which of the following below shows a decrease in supply of computers?

the graph where the line moves left (towards y axis)

Which of the following below shows a decrease in quantity supplied of computers?

the graph where the dot moves down the line

Cotton is an important input in the production of t-shirts. If the price of cotton increases, then we
would expect the supply of
a. t-shirts to be unaffected.
b. t-shirts to increase.
c. cotton to increase.
d. t-shirts to decrease.

t- shirts to decrease.

In the market for beer, a movement from point A to point B could be caused by (a being lower than point b on the S1 curve)
a) an increase in the price of hops, an input into beer production.
b) more beer producers entering the market.
c) an expectation of an increase in the price of beer in the future.
d) an increase in the price of beer.

an increase in the price of beer.

In the market for beer, a movement from point A to point D could be caused by (a being S1 then moving paraellel to point d, further leftwards)
a. an increase in the price of hops, an input into beer production.
b. more beer producers entering the market.
c. an expectation of an decrease in the price of beer in the future.
d. an increase in the price of beer.

an increase in the price of hops, an input into beer production.

In the market for beer, a movement from point C to point B could be caused by (C being s2 then moving paraellel to point b further right)
a. an increase in the price of hops, an input into beer production.
b. more beer producers exiting the market.
c. an expectation of an decrease in the price of beer in the future.
d. an increase in the price of beer.

an expectation of an decrease in the price of beer in the future.

An increase in the number of orange growers causes
a. the market supply curve for oranges to shift to the left.
b. a movement up and to the right along the current market supply curve for oranges.
c. a movement downward and to the left along the current market supply curve for oranges.
d. the market supply curve for oranges to shift to the right

the market supply curve for oranges to shift to the right.

An increase in the price of orange causes
a. the market supply curve for oranges to shift to the left.
b. a movement up and to the right along the current market supply curve for oranges.
c. a movement downward and to the left along the current market supply curve for oranges.
d. the market supply curve for oranges to shift to the right.

a movement up and to the right along the current market supply curve for oranges.

Which of the following demonstrates the law of supply?
a. When production technology for tablet computers improves, tablet producers increased
their supply of tablets.
b. When the price of jewelry increased, jewelry producers decreased their quantity
supplied of jewelry.
c. When camera prices rose, camera sellers increased their quantity supplied of cameras.
d. When the price of cheese increased, pizza producers decreased their supply of pizzas.

When camera prices rose, camera sellers increased their quantity supplied of cameras.

Suppose there are five suppliers of ice cream in the town of Summerville. When the price of ice
cream is $2 per scoop, Firm A is willing to sell 20 scoops, Firm B is willing to sell 50 scoops, Firm C is
willing to sell 35 scoops, Firm D is willing to sell 100 scoops, and Firm E is willing to sell 40 scoops.
From this information we can conclude that
a. the market is in equilibrium.
b. the market quantity supplied is greater than 250 scoops when the price is $2 per scoop.
c. the market quantity supplied is greater than 250 scoops when the price is less than $2
per scoop.
d. the market quantity supplied is less than 250 scoops when the price is $2 per scoop.

the market quantity supplied is less than 250 scoops when the price is $2 per scoop.

What does P* stand for?
a) the government mandated price
b) the market clearing price
c) the equilibrium price
d) the price buyers pay and the price that sellers receive
e) b, c and d are correct

the equilibrium price

In competitive markets, who controls P* (market clearing price)?
a) buyers always control price
b) buyers mostly control price
c) sellers always control price
d) sellers mostly control price
e) combination of buyers and sellers – neither side “controls” the price

combination of buyers and sellers – neither side “controls” the price

When a market for a good/service is in equilibrium,
a) buyers can buy as much of the product they want, if they pay price P*.
b) sellers can produce as much of the product they want, if they receive price P*.
c) there are no forces on price to rise or fall.
d) the amount of the good demanded by consumers exactly equals the amount of the good supplied
by sellers.
e) All of the above are true

All of the above are true

When the price of a good/service is above the market clearing price (P*), then
a) The amount supplied of the good will exceed the amount demanded.
b) Market forces will begin to push the price downwards.
c) There will be a surplus of the good.
d) Some sellers will not sell all that they have produced.
e) All of the above are correct.

All of the above are correct.

According to the model of supply and demand, in general what happens when consumers want more
of the good or service?
a) it causes the price to fall
b) it causes the price to rise
c) it has no effect on price

it causes the price to rise

According to the model of supply and demand, in general what happens when consumers want less
of the good or service?
a) it causes the price to fall
b) it causes the price to rise
c) it has no effect on price

it causes the price to fall

Generally, anytime there is an increase in demand, the model of supply and demand would predict
equilibrium price to ____ and quantity to ____.
a) rise; fall
b) fall; rise
c) rise; remain unchanged
d) rise; rise
e) remain unchanged; rise

rise; rise

Generally, anytime there is a decrease in demand, the model of supply and demand would predict
equilibrium price to ____ and quantity to ____.
a) rise; fall
b) fall; fall
c) rise; remain unchanged
d) rise; rise
e) remain unchanged; fall

fall; fall

According to the model of supply and demand, in general what happens when sellers
produce/provide less of the good or service?
a) it causes the price to fall
b) it causes the price to rise
c) it has no effect on price

it causes the price to rise

According to the model of supply and demand, in general what happens when sellers
produce/provide more of the good or service?
a) it causes the price to fall
b) it causes the price to rise
c) it has no effect on price

it causes the price to fall

Generally, anytime there is an increase in supply, the model of supply and demand would predict
equilibrium price to ____ and quantity to ____.
a) rise; fall
b) fall; rise
c) rise; remain unchanged
d) rise; rise
e) remain unchanged; rise

fall; rise

Generally, anytime there is a decrease in supply, the model of supply and demand would predict
equilibrium price to ____ and quantity to ____.
a) rise; fall
b) fall; rise
c) rise; remain unchanged
d) rise; rise
e) remain unchanged; rise

rise; fall

Generally, anytime there is a rise in the price of a substitute good, the model of supply and demand
would predict equilibrium price to ___ and quantity to ____.
a) fall; remain unchanged
b) rise; rise
c) fall; rise
d) fall; fall
e) remain unchanged; rise

rise; rise

Consider the market for blue jeans. Suppose that khaki’s become more fashionable. In the model of
supply and demand, this would shift the ____ curve to the ____.
a) demand; right
b) demand; left
c) supply; right
d) supply; lef

demand; left

Consider the market for blue jeans. Suppose that there is an improvement in the technology of blue
jean production. In the model of supply and demand, this would shift the ___ curve to the _____.
a) demand; right
b) demand; left
c) supply; right
d) supply ; left

supply; right

Suppose that the price of steel, an important input to automobiles, falls. What does the model of
supply and demand will predict will happen in the market for automobiles?
a) equilibrium price and quantity will both increase
b) equilibrium price and quantity will both decrease
c) equilibrium price will decrease while quantity will increase
d) equilibrium price will increase while quantity will decrease
e) equilibrium quantity will fall, while the effect on price is ambiguous

equilibrium price will decrease while quantity will increase

When a new study reveals that eating pretzels can increase the likelihood of developing lung cancer,
which of the following outcomes is expected?
a. Both the price and quantity of pretzels will fall.
b. The price of pretzels will fall and the quantity will rise.
c. The price of pretzels will rise and the quantity will fall.
d. Both the price and quantity of pretzels will rise.

Both the price and quantity of pretzels will fall.

Consider the market for X. Recently, it has been noted that the price of X has decreased while at the
same time the equilibrium quantity has increased. Which of the following would explain that result?
a) an increase in demand
b) a decrease in demand
c) an increase in demand along with a decrease in supply
d) a decrease in supply
e) an increase in supply

an increase in supply

Generally, anytime there is a simultaneous increase in supply and an increase in demand, the model
of supply and demand would predict equilibrium price to ____ and quantity to ____.
a) rise; fall
b) unable to determine; rise
c) rise; unable to determine
d) rise; rise
e) fall; rise

unable to determine; rise

Generally, anytime there is a simultaneous increase in supply and a decrease in demand, the model
of supply and demand would predict equilibrium price to ____ and quantity to ____.
a) fall; rise
b) rise; rise
c) unable to determine; fall
d) fall; unable to determine
e) rise; unable to determine

fall; unable to determine

What will happen to the equilibrium price and quantity of iPhones if the price of other smart phones
falls, Apple develops new technology to produce iPhones, wireless phone contracts become more
expensive, and Apple expects the price of iPhones to decrease in the near future?
a. Price will rise, and the effect on quantity is ambiguous.
b. Quantity will rise, and the effect on price is ambiguous.
c. Price will fall, and the effect on quantity is ambiguous.
d. Quantity will fall, and the effect on price is ambiguous.

Price will fall, and the effect on quantity is ambiguous.

Which of the following events must cause the equilibrium quantity to rise in the market for burritos?
a. A new study shows eating burritos prevents cancer and there are fewer burrito sellers in
the market.
b. A new study shows eating burritos causes cancer and a new labor-saving technology is
created for making burritos.
c. The price of pizza increases and the price of tortillas decreases.
d. Consumer incomes increase, assuming burritos are an inferior good, and the prices of rice
and beans increase.

The price of pizza increases and the price of tortillas decreases.

What would happen to the equilibrium price and quantity of sunscreen if a new formula is developed
that makes production cheaper, and scientists discovered that sunscreen causes more cancer than
sun damage?
a. Both the equilibrium price and quantity would decrease.
b. The equilibrium quantity would decrease, and the effect on equilibrium price would be
ambiguous.
c. Both the equilibrium price and quantity would increase.
d. The equilibrium price would decrease, and the effect on equilibrium quantity would be
ambiguous.

The equilibrium price would decrease, and the effect on equilibrium quantity would be
ambiguous

To say that demand for a good is elastic, it means that
a) a 1% change in quantity demanded results in a 1% change in price.
b) a 1% rise in price results in a drop in quantity demanded by more than 1%.
c) a 1% rise in price results in a drop in quantity demanded by less than 1%
d) a 1% rise in price results in a drop in quantity demanded by 1%.
e) quantity demanded does not respond much to changes in price.

a 1% rise in price results in a drop in quantity demanded by more than 1%.

f a good has a price elasticity of demand of 0.5, this means that if price changed by 6%, quantity
demanded would change by ___.
a) 1%
b) 2%
c) 3%
d) 6%
e) 12%

3%

If a good has a price elasticity of demand of 3, this means that if price changed by 6%, quantity
demanded would change by ___.
a) 1%
b) 2%
c) 3%
d) 6%
e) 18%

18%

A good generally tends to be more elastic (elasticity of demand)
a) in the short run.
b) if the good is a luxury.
c) if the good is a necessity.
d) if the market is broadly defined.
e) if the good has few close substitutes

if the good is a luxury.

If a good is a necessity with no close substitutes, then demand will most likely be
a) very inelastic
b) slightly inelastic
c) unitary elastic
d) slightly elastic
e) very elastic

very inelastic

If demand for a good or service is elastic, then an increase in price will lead to ___.
a) an increase in revenue because increasing price always means more revenue.
b) an increase in revenue because the increase in price will outweigh the loss in quantity demand
c) a decrease in revenue because decreasing price always means less revenue.
d) a decrease in revenue because the increase in price will be outweighed by the loss in quantity
demand.
e) It is impossible to predict what will happen to revenue after increasing the price.

a decrease in revenue because the increase in price will be outweighed by the loss in quantity
demand

What is the official formula for the price elasticity of demand?
a) Ed = slope
b) Ed = %ΔQd / %ΔP
c) Ed = ΔQd / ΔP
d) Ed = Q / P
e) Both a and b are true

Ed = %ΔQd / %ΔP