1) Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of
a. the availability of substitutes in determining the price elasticity of demand.
b. a necessity versus a luxury in determining the price elasticity of demand.
c. the definition of a market in determining the price elasticity of demand.
d. the time horizon in determining the price elasticity of demand.
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2) Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided to take the job. For him, the marginal
a. cost of leaving was greater than the marginal benefit.
b. benefit of leaving was greater than the marginal cost.
c. benefit of teaching was greater than the marginal cost.
d. All of the above are correct.
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3) Over the past century, the average income in the United States has risen about
a. twofold.
b. fivefold.
c. eightfold.
d. tenfold.
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4) Suppose buyers of tequila are required to send $1.00 to the government for every bottle of tequila they buy. Further, suppose this tax causes the effective price received by sellers of tequila to fall by $0.80 per bottle. Which of the following statements is correct?
a. This tax causes the demand curve for tequila to shift downward by $1.00 at each quantity of tequila.
b. The price paid by buyers is $0.20 per bottle more than it was before the tax.
c. Eighty percent of the burden of the tax falls on sellers.
d. All of the above are correct.
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5) Which of the following statements is valid when supply is perfectly elastic at a price of $4?
a. The elasticity of supply approaches infinity.
b. The supply curve is vertical.
c. At a price below $4, quantity supplied is infinite.
d. At a price above $4, quantity supplied is zero.
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6) Almost all variation in living standards is attributable to differences in countries’
a. population growth rates.
b. productivity.
c. systems of public education.
d. taxes.
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7) When an economist is asked a question like why is unemployment higher for teenagers than for older workers? the economist
a. is asked to explain the cause of an economic event.
b. is asked to recommend a policy to improve economic outcomes.
c. is asked as a policy adviser.
d. does not have enough information to respond.
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8) A demand curve displaying the relationship between the price of cars and the quantity demanded of cars should have a slope that is
a. less than 0.
b. between zero and 1.
c. between one and infinity.
d. undefined.
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9) Productivity is defined as the
a. amount of goods and services produced from each unit of labor input.
b. number of workers required to produce a given amount of goods and services.
c. amount of labor that can be saved by replacing workers with machines.
d. actual amount of effort workers put into an hour of working time.
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10)
Refer to Figure 2-6. Inefficient production is represented by which point(s)?
a. A, B
b. C, D, F, G
c. C, F, G
d. D
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11) Both the production of goods and services and the unemployment rate are used to measure
a. the business cycle.
b. productivity.
c. the interest rate.
d. inflation.
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12)
Refer to Figure 5-13. Over which range is the supply curve in this figure the least elastic?
a. $16 to $40
b. $40 to $100
c. $100 to $220
d. $220 to $430
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13)
Refer to Figure 2-12. One difference between points A and B is that
a. Point B is unattainable with current resources, but point A is attainable.
b. All resources are fully employed at point A but there is unemployment at point B.
c. More output can be produced at point A but no additional output can be produced at point B.
d. This economy produces more blankets at point B than at point A.
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14) Pocoyo bakes cookies and Pato grows vegetables. In which of the following cases is it impossible for both Pocoyo and Pato to benefit from trade?
a. Pocoyo does not like vegetables and Pato does not like cookies.
b. Pocoyo is better than Pato at baking cookies and Pato is better than Pocoyo at growing vegetables.
c. Pato is better than Pocoyo at baking cookies and at growing vegetables.
d. Both Pocoyo and Pato can benefit from trade in all of the above cases.
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15) Suppose that in Ireland total annual output is worth $600 million and people work 30 million hours. In Canada total annual output is worth $800 million and people work 50 million hours. Productivity is higher
a. in Ireland. Most variation in the standard of living across countries is due to differences in productivity.
b. in Ireland. Differences in productivity explain very little of the variation in the standard of living across countries.
c. in Canada. Most variation in the standard of living across countries is due to differences in productivity.
d. in Canada. Differences in productivity explain very little of the variation in the standard of living across countries.
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16) For economists, statements about the world are of two types:
a. assumptions and theories.
b. true statements and false statements.
c. specific statements and general statements.
d. positive statements and normative statements.
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17) Table 4-9
The demand schedule below pertains to sandwiches demanded per week.
Price Harrys Quantity Demanded Darbys Quantity Demanded Jakes Quantity Demanded
$3 3 4 3
$5 1 2 x
Refer to Table 4-9. Suppose Harry, Darby, and Jake are the only demanders of sandwiches. Also suppose x = 2. Then
a. the slope of Jakes demand curve is -1/2, and the slope of the market demand curve is -5/2.
b. the slope of Jakes demand curve is -1/2, and the slope of the market demand curve is -2/5.
c. the slope of Jakes demand curve is -2, and the slope of the market demand curve is -5/2.
d. the slope of Jakes demand curve is -2, and the slope of the market demand curve is -2/5.
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18) Which of the following firms is most likely to have market power?
a. a grocery store in a metropolitan area
b. a gas station in a suburb
c. a pub in a college town
d. the only hotel in a rural area
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19) Table 4-5
Price Firm As Quantity Supplied Firm Bs Quantity Supplied Firm Cs Quantity Supplied Firm Ds Quantity Supplied
$0 0 0 0 0
$2 3 4 2 1
$4 6 8 4 2
$6 9 12 6 3
$8 12 16 8 4
$10 15 20 10 5
Refer to Table 4-5. If these are the only four sellers in the market, then the market quantity supplied at a price of $4 is
a. 4 units.
b. 5 units.
c. 20 units.
d. 80 units.
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20)
Refer to Figure 5-14. Using the midpoint method, what is the price elasticity of supply between points C and D?
a. 0.21
b. 0.29
c. 0.73
d. 1.36
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21)
Refer to Figure 3-8. Chile and Colombia would not be able to gain from trade if Colombia’s opportunity cost of one pound of soybeans changed to
a. 1/2 pound of coffee.
b. 3/4 pound of coffee.
c. 4/3 pounds of coffee.
d. 2 pounds of coffee.
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22) Saddle shoes are not popular right now, so very few are being produced. If saddle shoes become popular, then how will this affect the market for saddle shoes?
a. The supply curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity.
b. The supply curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity.
c. The demand curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity.
d. The demand curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity.
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23) The slope of a line passing through the points (12, 8) and (16, 5) is
a. -3/4.
b. 3/4.
c. -4/3.
d. 4/3.
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24) When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing
a. scarcity.
b. surpluses.
c. inefficiencies.
d. inequalities.
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25) When economists make
a. positive statements, they are speaking not as policy advisers but as scientists.
b. positive statements, they are speaking not as scientists but as forecasters.
c. normative statements, they are speaking not as policy advisers but as scientists.
d. normative statements, they are speaking not as policy advisers but as model-builders.
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26) You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should
a. compare the total cost of your education to the total benefits of your education.
b. compare the total cost of your education to the benefits of staying one more semester.
c. compare the cost of staying one more semester to the benefits of staying one more semester.
d. compare the total benefits of your education to the cost of staying one more semester.
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27)
Refer to Figure 4-19. All else equal, a sale on chicken would cause a move from
a. DA to DB.
b. DB to DA.
c. x to y.
d. y to x.
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28) In the housing market, supply and demand are
a. more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the short run than in the long run.
b. more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.
c. more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the short run than in the long run.
d. more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.
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29) Prices rise when the quantity of money rises rapidly is an example of a
a. negative economic statement.
b. positive economic statement.
c. normative economic statement.
d. statement that contradicts one of the basic principles of economics.
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30) Which of the following statements about markets is most accurate?
a. Markets are usually a good way to organize economic activity.
b. Markets are usually inferior to central planning as a way to organize economic activity.
c. Markets fail and are therefore not an acceptable way to organize economic activity.
d. Markets are a good way to organize economic activity in developed nations, but not in less developed nations.
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31)
Refer to Figure 5-14. Using the midpoint method, what is the price elasticity of supply between points A and B?
a. 2.33
b. 1.0
c. 0.43
d. 0.1
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32) In an economy in which decisions are guided by prices and individual self-interest, there is
a. the potential to achieve efficiency in production.
b. a strong need for government intervention in the market.
c. less efficiency than would be observed in a centrally-planned economy.
d. more need for a strong legal system to control individual greed than would be needed in a centrally-planned economy.
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33) Refer to Table 3-5. We could use the information in the table to draw a production possibilities frontier for England and a second production possibilities frontier for Spain. If we were to do this, measuring bread along the horizontal axis, then
a. the slope of Englands production possibilities frontier would be -4 and the slope of Spains production possibilities frontier would be -2.
b. the slope of Englands production possibilities frontier would be -0.25 and the slope of Spains production possibilities frontier would be -0.5.
c. the slope of Englands production possibilities frontier would be 25 and the slope of Spains production possibilities frontier would be 0.5.
d. the slope of Englands production possibilities frontier would be 4 and the slope of Spains production possibilities frontier would be 2.
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34) For the general population, a 10 percent increase in the price of cigarettes leads to a
a. 1 percent reduction in the quantity demanded of cigarettes.
b. 4 percent reduction in the quantity demanded of cigarettes.
c. 10 percent reduction in the quantity demanded of cigarettes.
d. 12 percent reduction in the quantity demanded of cigarettes.
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35)
Refer to Figure 3-9. If Uzbekistan and Azerbaijan switch from each country dividing its time equally between the production of bolts and nails to each country spending all of its time producing the good in which it has a comparative advantage, then total production will increase by
a. 5 bolts and 10 nails.
b. 15 bolts and 40 nails.
c. 20 bolts and 50 nails.
d. 30 bolts and 80 nails.
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36) When the price of a good or service changes,
a. the demand curve shifts in the opposite direction.
b. the supply curve shifts in the opposite direction.
c. the supply curve shifts in the same direction.
d. there is a movement along a given supply curve.
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37) A supply curve slopes upward because
a. as more is produced, total cost of production falls.
b. an increase in input prices increases supply.
c. the quantity supplied of most goods and services increases over time.
d. an increase in price gives producers an incentive to supply a larger quantity.
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38) When drawing a demand curve,
a. demand is measured along the vertical axis, and price is measured along the horizontal axis.
b. quantity demanded is measured along the vertical axis, and price is measured along the horizontal axis.
c. price is measured along the vertical axis, and demand is measured along the horizontal axis.
d. price is measured along the vertical axis, and quantity demanded is measured along the horizontal axis.
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39) Lawmakers can decide whether the buyers or the sellers must send a tax to the government, but they cannot legislate the true burden of a tax.
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40) Since half of the FICA tax is paid by firms and the other half is paid by workers, the burden of the tax must fall equally on firms and workers.
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41) Historical episodes are not valuable to economists.
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42) A production point is said to be efficient if there is no way for the economy to produce more of one good without producing less of another.
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43) A binding price floor may not help all sellers, but it does not hurt any sellers.
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44) In a market economy, supply and demand determine both the quantity of each good produced and the price at which it is sold.
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45) Most labor economists believe that the supply of labor is much more elastic than the demand.
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46) When two variables move in opposite directions, the curve relating them is upward sloping, and we say the variables are positively related.
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