NVCC ECO 202 Midterm

The basic difference between macroeconomics and microeconomics is that:

microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets)

macroeconomics is concerned with generalization while microeconomics is concerned with specialization

macroeconomics is concerned with groups of individuals while microeconomics is concerned

with single countries

microeconomics looks at the forest (aggregate markets) while macroeconomics looks at the

trees (individual markets)

microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets)

Specialization:

leads to greater self-sufficiency.

is always the result of an inefficient use of resources

can lead to an increase in overall production.

allows workers to develop skills by working on a large number of tasks

can lead to an increase in overall production

In a _______________________, most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers.

market-oriented economy

macroeconomy

microeconomy

command economy

market-oriented economy

The circular flow diagram of economic activity is a model of the:

role of unions and government in the economy. flow of goods, services, and payments between households and firms.

influence of government on business behavior.

interaction among taxes, prices, and profits.

flow of goods, services, and payments between households and firms.

Which of the following best describes a fiscal policy tool?

financial capital markets

household spending

bank lending

government spending

government spending

Which of the following best describes a monetary policy tool?

household savings

taxes

interest rates

government spending

interest rates

In a command economy, the __________ either makes most economic decisions

itself or at least strongly influences how the decisions are made.

market

firm

business sector

government

government

In the ____________, households work and receive payment from firms.

savings market

financial investment market

financial capital market

labor market

labor market

Which of the following is most likely a topic of discussion in macroeconomics?

a decrease in the unemployment rate

an increase in the wage rate paid to automobile workers

an increase in the price of a hamburger

a decrease in the production of DVD players by a consumer electronics company

a decrease in the unemployment rate

Which of the following statements most likely lies within the realm of microeconomics?

A rapid acceleration of the supply of money may create inflation.

Unemployment rises during a recession and falls during an expansion.

An increase in government spending will increase the aggregate demand for goods and

services in the economy.

An increase in labor costs will increase the additional cost of producing another bus.

An increase in labor costs will increase the additional cost of producing another bus.

Philosophers draw a distinction between positive statements, which describe the world as it is, and ___________________s, which describe how the world should be.

budget constraint

normative statement

trade-off

opportunity cost

normative statement

Attending college is a case where the ________________ exceeds the monetary cost.

marginal analysis

budget constraint

marginal utility

opportunity cost

opportunity cost

As depicted in _________________________________, it is necessary to give up some of one good to gain more of the other good.

scarcity

utility

allocative efficiency

the production possibilities frontier

the production possibilities frontier

Why is there scarcity?

Because human wants are limited.

Because theory dictates it.

Because our unlimited wants exceed our limited resources.

Because the opportunity set determines this.

Because our unlimited wants exceed our limited resources.

"If I didn't have class tonight, I would save the $4 campus parking fee and spend

four hours at work where I earn $10 per hour." The opportunity cost of attending

class this evening is:

$4

$40

$0

$44

$44

As a person receives more of a good, the _______________ from each additional unit of the good declines.

marginal utility

sunk costs

budget constraint

utility

marginal utility

Which of the following would most likely shift the production possibilities curve

inward?

technological progress

a decrease in the average number of hours worked per week as the labor force chooses to

enjoy more leisure time

an increase in the production of capital goods

an increase in the number of hours factories are in use

a decrease in the average number of hours worked per week as the labor force chooses to

Economists refer to this pattern, the ___________________________________,

which means that as a person receives more of a good, the additional or marginal

utility from each additional unit of the good declines.

law of diminishing marginal utility

law of increasing marginal utility

law of trade-offs

production possibilities frontier

law of diminishing marginal utility

Philosophers draw a distinction between ___________________, which describe the world as it is, and normative statements, which describe how the world should be.

utilitarianism

negative statements

tradeoffs

positive statements

positive statements

The model that economists use for illustrating the process of individual choice in a

situation of scarcity is the _________________, sometimes also called the

opportunity set, a diagram that shows what choices are possible.

income cap

consumption set

original budget

budget constraint

budget constraint

The slope of the production possibility frontier is determined by the _________ of expanding production of one good, measured by how much of the other good would be lost.

relative advantage

specialization

absolute advantage

opportunity cost

opportunity cost

When one nation can produce a product at lower cost relative to another nation, it is said to have a(n)____________________in producing that product.

absolute advantage

relative advantage

production efficiency

economy of scale

relative advantage/comparative advantage

Which of the following is true?

A nation cannot have a comparative advantage in the production of every good.

A nation cannot have an absolute advantage in the production of every good.

A nation can have a comparative advantage in the production of a good only if it also has an

absolute advantage.

A nation can have a comparative advantage in the production of every good, but not an absolute advantage.

A nation cannot have an comparative advantage in the production of every good.

The underlying reason why trade benefits both sides of a trading arrangement is

rooted in the concept of

specialization

opportunity cost

maximum production

absolute advantage

opportunity cost

According to international trade theory, a country should:

import goods in which it has an absolute advantage

import goods in which it has an absolute disadvantage

import goods in which it has a comparative disadvantage

export goods in which it has an absolute advantage

import goods in which it has a comparative disadvantage

Jethro has a(n) ____________________ in all aspects of camping: he is faster at

carrying a backpack, gathering firewood, paddling a canoe, setting up tents,

making a meal, and washing up.

absolute advantage

comparative advantage

relative advantage

opportunity cost

absolute advantage

Say that Alland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 16 units of food per year or 8 units of clothing. Which of the following is true?

Alland has an absolute advantage, but not comparative advantage, in producing food

Georgeland has a comparative advantage, but not an absolute advantage, in producing

clothing

Georgeland has both a comparative and absolute advantage in producing clothing

Alland has a comparative advantage, but not an absolute advantage, in producing food

Alland has an absolute advantage, but not comparative advantage, in producing food

Intra-industry trade between similar trading partners allows the gains from

________________ that arise when firms and workers specialize in the production

of a certain product.

creating the value chain

learning and innovation

relative advantage

comparative advantage

learning and innovation

Trade allows each country to take advantage of ______________ in the other country.

economies of scale

specialization

worker productivity

lower opportunity costs

lower opportunity costs

Some nations that seek to produce all of their own needs face the problem that:

the opportunity cost of producing some of their own goods is lower than that of trading with others for them

they can deplete their natural resources as a result

some industries are too small to be efficient if restricted to their domestic markets alone

they will not be able to satisfy the wants of all of their citizens

some industries are too small to be efficient if restricted to their domestic markets alone

The downward slope of the demand curve again illustrates the pattern that as _____________ rises, ______________ decreases.

quantity supplied, quantity demanded

price, quantity supplied

price, quantity demanded

quantity demanded, price

price, quantity demanded

Any given demand or supply curve is based on the ceteris paribus assumption that _________________________.

what is true for the individual is not necessarily true for the whole

all else is held equal

everything is variable

no one knows which variables will change and which will remain constant

all else is held equal

When economists talk about supply, they are referring to a relationship between price received for each unit sold and the ________________

market price

demand schedule

demand curve

quantity supplied

quantity supplied

The demand schedule for a good:

indicates the quantity that people will buy at the prevailing price.

is determined primarily by the cost of producing the good.

indicates the quantities that suppliers will sell at various market prices.

indicates the quantities that will be purchased at alternative market prices.

indicates the quantity that people will buy at the prevailing price

When quantity demanded decreases in response to a change in price:

there is a movement up along the demand curve.

there is a movement down along the demand curve.

the demand curve shifts to the right.

the demand curve shifts to the left.

there is a movement down along the demand curve.

The _________ is the only price where quantity demanded is equal to quantity supplied.

equilibrium price

vertical axis intercept

market price

horizontal axis intercept

equilibrium

If new manufacturers enter the computer industry, then (ceteris paribus):

some established manufacturers must exit the industry.

the supply curve shifts to the left.

the demand curve shifts to the left.

the supply curve shifts to the right

the supply curve shifts to the right

If a firm faces _____________________, while the prices for the output the firm produces remain unchanged, a firm's profits will increase.

higher demand

lower costs of production

a shift in demand

equilibrium

lower costs of production

___________________ are enacted when discontented sellers, feeling that prices are too low, appeal to legislators to keep prices from falling.

Price ceilings

Price floors

Subsidies

Rent controls

Price floors

Price ceilings and price floors:

shift demand and supply curves and therefore have no effect on the rationing function of prices.

make the rationing function of free markets more efficient.

interfere with the rationing function of prices.

cause surpluses and shortages respectively.

make the rationing function of free markets more efficient.

The price elasticity of demand measures the:

responsiveness of price to a change in quantity demanded.

responsiveness of quantity demanded to a change in income.

responsiveness of quantity demanded to a change in quantity supplied.

responsiveness of quantity demanded to a change in price.

responsiveness of quantity demanded to a change in price.

Price elasticity of demand is defined as:

the slope of the demand curve divided by the price.

the percentage change in price divided by the percentage change in quantity demanded.

the slope of the demand curve.

the percentage change in quantity demanded divided by the percentage change in price.

the percentage change in quantity demanded divided by the percentage change in price.

Demand is said to be ___________ when the quantity demanded is very responsive to changes in price.

elastic

independent

inelastic

unit elastic

elastic

Demand is said to be _____________ when the quantity demanded is not very responsive to changes in price.

A. independent

B. inelastic

C. unit elastic

D. elastic

inelastic

Demand is said to be __________ when the quantity demanded changes at the same proportion as the price.

A. elastic

B. unit elastic

C. inelastic

D. independent

unit elastic

The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in __________.

A. quantity supplied

B. the slope of the demand curve

C. price

D. the slope in the supply curve

price

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?

A. 0.15

B. 3.0

C. 0.10

D. 0.05

3.0

If the demand curve is perfectly elastic, then an increase in supply will:

A. decrease the price but result in no change in the quantity exchanged.

B. increase the quantity exchanged but result in no change in the price.

C. increase the price but result in no change in the quantity exchanged.

D. increase both the price and the quantity exchanged.

increase the quantity exchanged but result in no change in the price.

13. A price cut will increase the total revenue a firm receives if the demand for its product is:

A. unit inelastic.

B. unit elastic.

C. inelastic.

D. elastic.

elastic

Refer to Figure 5-1. With reference to Graph A, at a price of $10, total revenue equals:

A. $1,000.

B. $500.

C. $400.

D. $200.

$400

The term _________________ refers to the additional utility provided by one additional unit of consumption.

Giffen utility

marginal utility

added utility

utility

marginal utility

The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.

A. income effect

B. substitution effect

C. backward-bending supply curve

D. preferences effect

substitution effect

The term ___________________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit.

A. diminishing marginal utility

B. marginal utility pattern

C. marginal income utility

D. decreasing marginal utility

diminishing marginal utility

The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.

A. substitution effect; lower price

B. intertemporal budget; higher price

C. income effect; higher price

D. intertemporal budget; lower price

income effect; higher price

Marginal utility can:

A. be positive or negative, but not zero

B. decrease, but not become negative

C. be positive, negative, or zero

D. increase positively, but not negatively

be positive, negative, or zero

Jay and Jen are married with two children. They are preparing a household budget for the coming year. Based on statistical information for American households, approximately what portion of this family's annual consumption will most likely be budgeted for food and vehicle expenses?

A. one-fourth

B. one-third

C. one-quarter

D. two-third

one-third

Kim has $24 per week in her entertainment budget. She splits her time between going to the movies and yoga classes. Each movie costs $8 while each yoga class costs $3. The total utility from each of these activities is set out in the table below. What is Kim's total utility maximizing point?

1 movie, 5 yoga classes

3 movies, 0 yoga classes

0 movies, 8 yoga classes

2 movies, 2 yoga classes

1 movie, 5 yoga classes

Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found?

A. the marginal utility per dollar is the same for both goods

B. the marginal utility per dollar is controlled by trade-offs

C. the quantities demanded change so total utility rises

D. the demand curves are flatter reducing quantity

the marginal utility per dollar is the same for both goods

For lunch, Maria eats only salads or vegetarian burgers. Her weekly food budget is $36. Each salad costs $6 and each vegetarian burger costs $3. When deciding how much of each good to buy, Maria knows that 2 salads and 4 vegetarian burgers will give her a utility of 8. Maria's utility-maximizing point is:

A. 6 salads, 1 vegetarian burger

B. 4 salads, 6 vegetarian burgers

C. 3 salads, 6 vegetarian burgers

D. 2 salads, 8 vegetarian burgers

3 salads, 6 vegetarian burgers

Substitution and income effects of a change in price of a good may be used to explain the:

A. direct relationship between price and quantity purchased.

B. inverse relationship between price and quantity demanded.

C. direct relationship between price and quantity supplied.

D. direct relationship between income and demand.

direct relationship between income and demand

A firm's ___________ consists of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

fixed costs; are consistently changing,

variable costs; do not change,

fixed costs; do not change,

variable costs; are constantly changing,

fixed costs; do not change,

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.

A. Diminishing variable returns

B. Diminishing average returns

C. Diminishing marginal returns

D. Diminishing marginal costs

Diminishing marginal returns

The term "constant returns to scale" describes a situation where

A. expanding all inputs does not change the average cost of production.

B. a larger-scale firm can produce at a lower cost than a smaller-scale firm.

C. expanding all inputs changes the average cost of production.

D. the quantity of output rises and the average cost of production falls.

expanding all inputs does not change the average cost of production.

______________ include all of the costs of production that increase with the quantity produced.

A. Fixed costs

B. Variable costs

C. Average costs

D. Average variable costs

Variable costs

If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.

A. decreasing returns to scale

B. consent returns to scale

C. economies of scale

D. increasing returns to scale

decreasing returns to scale

I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was

A. $3.00

B. $2.00

C. $1.80

D. $1.60

$2.00

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

A. downward-sloping; more costly to produce

B. upward-sloping; more costly to produce

C. downward-sloping; less costly to produce

D. upward-sloping; less costly to produce

upward-sloping; more costly to produce

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

A. marginal costs

B. average costs

C. total revenue

D. variable costs

total revenue

In order to determine ____________, the firm's total costs must be divided by the quantity of its output.

A. diminishing marginal returns

B. fixed costs

C. variable cost

D. average cost

average cost

In microeconomics, the term ___________________ is synonymous with decreasing returns of scale.

A. monopoly

B. economies of scale

C. diminishing returns

D. diseconomies of scale

diseconomies of scale

The term _______________ refers to a firm operating in a perfectly competitive

market that must take the prevailing market price for its product.

trend setter

price taker

price setter

business entity

price taker

In economics, the term "shutdown point" refers to the point where the

A. marginal cost curve crosses the total revenue curve.

B. average variable cost curve crosses the total revenue curve.

C. average variable cost curve crosses the marginal cost curve.

D. marginal cost curve crosses the average variable cost curve

marginal cost curve crosses the average variable cost curve

It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00, ____________________.

A. will likely cause the firm to reach its shutdown point immediately

B. will cause the firm to recover some of its opportunity costs

C. could likely result in a notable loss of sales to competitors

D. is a sure sign the firm is raising the given price in the market

could likely result in a notable loss of sales to competitors

In the _________, the perfectly competitive firm will seek out ________________________ .

A. long run; the quantity of output where profits are highest

B. short run; profits by ignoring the concept of total cost analysis

C. short run; the quantity of output where profits are highest

D. long run; methods to reduce production and shut down

short run; the quantity of output where profits are highest

In the ________, the perfectly competitive firm will react to profits by __________________________ .

A. short run; increasing quality of products

B. long run; tailoring their quality controls

C. short run; reducing its labor inputs

D. long run; increasing its production

long run; increasing its production

Firms operating in a market situation that creates ___________________, sell their product in a market with other firms who produce identical or extremely similar products.

A. a perfect monopoly

B. perfect competition

C. an oligopoly

D. a free-market

perfect competition

In the ________, the perfectly competitive firm will react to losses by __________________________ .

A. short run; reducing production or shutting down

B. long run; reducing production or shutting down

C. short run; increasing physical inputs

D. long run; increasing capital inputs

long run; reducing production or shutting down

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

A. what quantity to produce

B. what price to charge

C. what quantity of labor is needed

D. what quality to produce

what quantity to produce

Refer to the diagram. In this instance, at the range of output represented at point c,

the shutdown point has been reached.

capital input levels have been reduced.

profits will be maximized.

physical input levels have been reduced.

profits will be maximized.

If a competitive firm experiences a shift in costs of production that decreases marginal costs at all levels of output,

A. expanding output levels at any given price will be profitable.

B. producing less at any market price will off-set marginal cost .

C. the firm's marginal cost curve will shift to the left.

D. the firm's demand curve will also shift to the left.

expanding output levels at any given price will be profitable.