A decrease in demand is represented by a
a. movement downward and to the right along a demand curve.
b. movement upward and to the left along a demand curve.
c. rightward shift of a demand curve.
d. leftward shift of a demand curve.
A friend of yours asks you why market prices are better than governmentdetermined
prices. Because you understand economic principles, you say that marketdetermined
prices are better because they generally reflect
a. the value of a good to society, but not the cost of making it.
b. the cost of making a good to society, but not its value.
c. both the value of a good to society and the cost of making it.
d. neither the value of a good to society nor the cost of making it.
Figure 520
Refer to Figure 520. Which supply curve is most likely relevant over a very long
period of time?
a. S1
b. S2
c. S3
d. All of the above are equally likely to be relevant over a very long period of time.
Figure 612
Refer to Figure 612. When the price ceiling applies in this market, and the supply
curve for gasoline shifts from S1 to S2, the resulting quantity of gasoline that is bought
and sold is
a. less than Q3.
b. Q3.
c. between Q1 and Q3.
d. at least Q1.
GDP
a. is used to monitor the performance of the overall economy but is not the single best
measure of a society’s economic wellbeing.
b. is used to monitor the performance of the overall economy and is the single best
measure of a society’s economic wellbeing.
c. is not used to monitor the performance of the overall economy but is the single best
measure of a society’s economic wellbeing.
d. is not used to monitor the performance of the overall economy and is not the single
best measure of a society’s economic wellbeing.
Which of the following is an example of a market?
a. a gas station
b. a garage sale
c. a barber shop
d. All of the above are examples of markets.
Exceptionally favorable growing conditions in the vineyards of Napa Valley would
cause a(n)
a. increase in the demand for wine, increasing price.
b. increase in the supply of wine, decreasing price.
c. decrease in the demand for wine, decreasing price.
d. decrease in the supply of wine, increasing price.
Suppose an economy produces two goods, food and machines. This economy always
operates on its production possibilities frontier. Last year, it produced 1000 units of
food and 47 machines. This year it experienced a technological advance in its
machinemaking industry. As a result, this year the society wants to produce 1050 units
of food and 47 machines. Which of the following statements is correct?
a. Because the technological advance occurred in the machinemaking industry, it will
not be possible to increase food production without reducing machine production below
47.
b. Because the technological advance occurred in the machinemaking industry,
increases in output can only occur in the machine industry.
c. In order to increase food production in these circumstances without reducing machine
production, the economy must reduce inefficiencies.
d. The technological advance reduced the amount of resources needed to produce 47
machines, so these resources could be used to produce more food.
Which of the following is not correct?
a. Evaluating statements about how the world should be involves values as well as
facts.
b. Positive statements can, in principle, be confirmed or refuted by examining evidence.
c. Normative statements can be judged using data alone.
d. Deciding what is good or bad policy is not just a matter of science.
Figure 420
Refer to Figure 420. At a price of $20, which of the following statements is not
correct?
a. The market is in equilibrium.
b. Equilibrium price is equal to equilibrium quantity.
c. There is no pressure for price to change.
d. The quantity of the good that is bought and sold is 600 units.
Which of the following is not an assumption of the productions possibilities frontier?
a. A country produces only two goods or types of goods.
b. Technology does not change.
c. The amount of available resources does not change.
d. There is a fixed quantity of money.
Figure 815
Refer to Figure 815. Panel (a) and Panel (b) each illustrate a $4 tax placed on a market.
In comparison to Panel (b), Panel (a) illustrates which of the following statements?
a. When demand is relatively inelastic, the deadweight loss of a tax is smaller than
when demand is relatively elastic.
b. When demand is relatively elastic, the deadweight loss of a tax is larger than when
demand is relatively inelastic.
c. When supply is relatively inelastic, the deadweight loss of a tax is smaller than when
supply is relatively elastic.
d. When supply is relatively elastic, the deadweight loss of a tax is larger than when
supply is relatively inelastic.
Both The Wealth of Nations and the Declaration of Independence share the point of
view that
a. every person is entitled to life, liberty, and the pursuit of happiness.
b. individuals are best left to their own devices without the government guiding their
actions.
c. the government plays a central role in organizing a market economy.
d. because of human nature a strong legal system is necessary for a market system to
survive.
There is no shortage of scarce resources in a market economy because
a. the government makes shortages illegal.
b. resources are abundant in market economies.
c. prices adjust to eliminate shortages.
d. quantity supplied is always greater than quantity demanded in market economies.
Figure 48
Refer to Figure 48. Suppose the figure shows the market demand for Big Box ereaders.
Suppose the price of the leading competitor’s ereaders, a substitute good, decreases.
Which of the following changes would occur?
a. a movement along D2 from point A to point B
b. a movement along D2 from point B to point A
c. a shift from D1 to D2
d. a shift from D2 to D1
Opponents of free trade often want the United States to prohibit the import of goods
made in overseas factories that pay wages below the U.S. minimum wage. Prohibiting
such goods is likely to
a. cause these factories to pay the U.S. minimum wage.
b. increase the rate of technological advance in poor countries so that they can afford to
pay higher wages.
c. increase poverty in poor countries and benefit U.S. firms which compete with these
imports.
d. harm U.S. firms which compete with these imports.
Figure 418
Refer to Figure 418. At a price of $35, there would be a
a. shortage of 400 units.
b. surplus of 200 units.
c. surplus of 400 units.
d. surplus of 600 units.
Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium
quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases
consumer surplus by $3,000 and decreases producer surplus by $4,400. The deadweight
loss of the tax is
a. $200.
b. $400.
c. $600.
d. $1,200.
Other things equal, when the price of a good falls, the
a. quantity supplied of the good increases.
b. supply decreases.
c. quantity supplied of the good decreases.
d. demand increases.
Last year, Tess bought 5 handbags when her income was $54,000. This year, her income
is $60,000, and she purchased 7 handbags. Holding other factors constant, it follows
that Tess’s income elasticity of demand is about
a. 0.32, and Tess regards handbags as inferior goods.
b. 0.32, and Tess regards handbags as normal goods.
c. 3.17, and Tess regards handbags as inferior goods.
d. 3.17, and Tess regards handbags as normal goods.
Table 321
Assume that Jamaica and Norway can switch between producing coolers and producing
radios at a constant rate. The following table shows the number of coolers or number of
radios each country can produce in one day.
Output Produced in One Day
CoolersRadios
Jamaica126
Norway243
Refer to Table 321. At which of the following prices would both Jamaica and Norway
gain from trade with each other?
a. 1 radio for 1 cooler
b. 1 radio for 4 coolers
c. 1 radio for 10 coolers
d. Jamaica and Norway would both gain from trade at all of the above prices.
Figure 220
Relationship Between Years of Education and Annual Income
Refer to Figure 220. The graph above is a
a. bar graph
b. scatterplot
c. pie chart
d. time series analysis
Consumer surplus is the
a. amount of a good consumers get without paying anything.
b. amount a consumer pays minus the amount the consumer is willing to pay.
c. amount a consumer is willing to pay minus the amount the consumer actually pays.
d. value of a good to a consumer.
Figure 91
The figure illustrates the market for coffee in Guatemala.
Refer to Figure 91. When trade in coffee is allowed, consumer surplus in Guatemala
a. increases by the area B + D.
b. increases by the area C + F.
c. decreases by the area B + D.
d. decreases by the area D + G.
The price elasticity of supply measures how responsive
a. sellers are to a change in price.
b. sellers are to a change in buyers’ income.
c. buyers are to a change in production costs.
d. equilibrium price is to a change in supply.
Two goods are substitutes when a decrease in the price of one good
a. decreases the demand for the other good.
b. decreases the quantity demanded of the other good.
c. increases the demand for the other good.
d. increases the quantity demanded of the other good.
Suppose that Firms A and B each produce highresolution computer monitors, but Firm
A can do so at a lower cost. Cassie and David each want to purchase a highresolution
computer monitor, but David is willing to pay more than Cassie. If Firm B produces a
monitor that David buys, then the market outcome illustrates which of the following
principles?
(i)Free markets allocate the supply of goods to the buyers who value them most highly,
as measured by their willingness to pay.
(ii)Free markets allocate the demand for goods to the sellers who can produce them at
the least cost.
a. (i) only
b. (ii) only
c. both (i) and (ii)
d. neither (i) nor (ii)
A seller’s willingness to sell is
a. measured by the seller’s cost of production.
b. related to her supply curve, just as a buyer’s willingness to buy is related to his
demand curve.
c. less than the price received if producer surplus is a positive number.
d. All of the above are correct.
When quantity moves proportionately the same amount as price, demand is
a. elastic, and the price elasticity of demand is 1.
b. perfectly elastic, and the price elasticity of demand is infinitely large.
c. perfectly inelastic, and the price elasticity of demand is 0.
d. unit elastic, and the price elasticity of demand is 1.
Economists make assumptions to
a. mimic the methodologies employed by other scientists.
b. minimize the number of experiments that yield no useful data.
c. minimize the likelihood that some aspect of the problem at hand is being overlooked.
d. focus their thinking on the essence of the problem at hand.