When the consumption of a good generates an external benefit:
a. the private benefit consumers receive from the good will be higher than the true
social benefit.
b. too much of the good will tend to be produced from the viewpoint of economic
efficiency.
c. the community generally suffers an exactly offsetting external cost from the
production of the good.
d. the market demand curve will understate the total benefits derived from consumption
of the good, and as a result, too little of it will be produced and consumed.
Over time, an increase in a nation’s stock of physical capital will:
a. shift the production possibilities curve inward.
b. cause an economy to operate inside its production possibilities curve.
c. shift the production possibilities curve outward.
d. eliminate the basic economic problem of scarcity.
A tariff has the effect of granting ____ a larger share of the domestic market.
a. domestic consumers
b. foreign consumers
c. domestic producers
d. foreign producers
e. no producers or consumers
A line that has a different slope at each point is a:
a. curve. c. vertical line.
b. straight line. d. horizontal line.
An increase in inflation in the United States relative to the rate in France would make:
a. U.S. goods relatively less expensive in the United States and in France.
b. French goods relatively less expensive in the United States and U.S. goods relatively
more expensive in France.
c. French goods relatively more expensive in the United States and in France.
d. French goods relatively more expensive in the United States and U.S. goods
relatively less expensive in France.
The slope of an indifference curve is ____ and a movement along the curve causes the
loss in marginal utility (MU) of one good to ____ the marginal utility (MU) gained
from another good.
a. zero; maximize
b. positive; exceed
c. concave; reduce
d. negative; equal
Which of the following best illustrates the concept of derived demand?
a. A decrease in the price of glass causes the demand for plastic to decrease.
b. An increase in the demand for bread leads to an increase in the demand for flour.
c. A decrease in the price of air travel leads to an increase in the quantity demanded of
air travel.
d. An increase in the demand for peanut butter leads to an increase in the demand for
jelly.
The main explanation for why the cheap foreign labor argument is a poor reason for
restricting international trade is that:
a. workers who get paid less tend to have lower productivity than those who get paid
more.
b. all firms and workers gain when there are no restrictions on international trade.
c. infant industries such as steel and automobiles need to be protected.
d. specialization and free trade usually raise the prices of all the traded goods, so that
the workers can get paid more.
e. labor costs tend to be the same worldwide in the long run because of worker mobility.
Assume a monopolist charges a price corresponding to the intersection of the marginal
cost and marginal revenue curves. If this price is between its average variable cost and
average total cost curves, the firm will:
a. earn an economic profit.
b. continue to operate in the short run.
c. shut down.
d. all of these are true.
Which of the following is true about marginal utility?
a. Marginal utility is total utility divided by the total quantity consumed.
b. Marginal utility is the change in total utility divided by the change in total quantity
demanded.
c. Marginal utility is the satisfaction that a consumer experiences from all the units of a
good or service consumed.
d. None of the above are true.
A cost imposed on people other than the consumers of a good or service is a:
a. price floor.
b. negative externality.
c. positive externality.
d. price externality.
Assume the total utilities corresponding to the first four units of a product consumed are
8, 12, 14, 15, respectively. The marginal utility of the third unit consumed is:
a. 2.
b. 14.
c. 3
d. 34.
An indifference curve has a negative slope because movement along the curve requires
the consumer to give up the:
a. marginal utility of one good.
b. total utility of one good.
c. marginal substitution value (MSV).
d. marginal transitivity of one good.
In the real world, most economic systems are:
a. market economies. c. mixed economies.
b. command economies d. traditional economies.
Suppose that when price is $10, quantity supplied is 20. When price is $6, quantity
supplied is 12. The price elasticity of supply is:
a. 0.5.
b. 0.8.
c. 1.0.
d. 1.5.
e. 2.0.
Diminishing marginal utility means that as you consume more of a good, other things
constant, the:
a. total satisfaction you obtain from consuming this good falls.
b. total amount produced falls.
c. marginal product falls.
d. additional satisfaction you obtain from each additional unit of the good falls.
e. total satisfaction you obtain from each extra good becomes constant.
On a production possibilities curve diagram, greater entrepreneurship:
a. causes the curve to shift outward.
b. keeps the economy on the curve.
c. prevents movement along the curve.
d. keeps the economy at the corners of the curve.
Which of the following is the most likely effect of lower apple juice prices on the price
and quantity purchased of orange juice, a substitute product?
a. The price of orange juice will increase, and the quantity purchased will fall.
b. The price of orange juice will fall, and the quantity purchased will increase.
c. The price of orange juice will increase, and the quantity purchased will increase.
d. The price of orange juice will fall, and the quantity purchased will fall.
Suppose the exchange rate changes so that more Japanese yen are required to buy a
dollar. We could conclude that:
a. the Japanese yen has appreciated in value.
b. U.S. citizens will buy more Japanese imports.
c. Japanese will demand more U.S. exports.
d. U.S. citizens will buy less Japanese imports.
An increase in the price of good X causes the demand for good Y to shift inward. One
can conclude that X and Y are:
a. complements.
b. substitutes.
c. unrelated goods.
d. normal goods.
e. exceptions to the law of demand.
Goods whose benefits to society are not diminished as more people consume them and
whose benefits cannot be withheld from anyone are:
a. impossible since resources are limited.
b. examples of negative externalities.
c. public goods.
d. food and other necessities.
e. provided by free markets to free riders.
An analysis of IBM’s pricing decisions would be classified as a macroeconomic study.
A price ceiling set below the equilibrium price creates a shortage.
What is the shut-down rule for any firm?
All points on the production possibilities curve represent efficient levels of production.
Union membership as a percentage of the civilian labor force is lower in the United
States than in Germany or Japan.