Microeconomics

ECO 222 Exam 1

QUESTION 1

1. Economic growth solves the problem of scarcity.

 True

 False

1 points   

QUESTION 2

1. A shortage occurs when price is higher than the market equilibrium.

 True

 False

1 points   

QUESTION 3

1. Since rent controls have been in effect in New York City, apartments have been more
plentiful.

 True

 False

1 points   

QUESTION 4

1. Adam Smith believed that markets coordinated the self-interests of consumers.

 True

 False

1 points   

QUESTION 5

1. The lower left-hand corner of a graph where the two axes meet is called the graph’s origin.

 True

 False

1 points   
QUESTION 6

1. A supply schedule can be plotted on a graph to yield a supply curve.

 True

 False

1 points   

QUESTION 7

1. The negative slope of a production possibilities frontier is a graphic representation of

opportunity cost.

 True

 False

1 points   

QUESTION 8

1. The laws of supply and demand force prices to an equilibrium.

 True

 False

1 points   

QUESTION 9

1. If a society uses the market system, only markets are available to solve all of its problems.

 True

 False

1 points   

QUESTION 10

1. Marginal analysis involves looking at the extra costs involved in a decision.

 True

 False

1 points   

QUESTION 11

1. When people suddenly want to buy something, supply increases.

  True

 False

1 points   

QUESTION 12

1. Economic theory simplifies relationships to explain how the relationships interact.

 True

 False

1 points   

QUESTION 13

1. The achievement of greater efficiency in the United States has been at the expense of
growing inequality.

 True

 False

1 points   

QUESTION 14

1. The word “theory” means the same to the scientist as it does to the man on the street.

 True

 False

1 points   

QUESTION 15

1. If a society produces at a point on the production possibilities frontier, this is consistent with
the full employment of resources.

 True

 False

1 points   

QUESTION 16

1. The production possibilities frontier can show a manufacturer’s possible combinations of

output resulting from the combination of two goods.
  True

 False

1 points   

QUESTION 17

1. Equilibrium price and quantity are determined by the intersection of the demand and supply
curves.

 True

 False

1 points   

QUESTION 18

1. In a market economy, opportunity costs are always synonymous with explicit monetary
costs.

 True

 False

1 points   

QUESTION 19

1. The unemployment of some groups, such as low-skill workers, may increase as a result of
the imposition of a minimum wage.

 True

 False

1 points   

QUESTION 20

1. When the economy experiences a bust, the government knows exactly which policies will
spur an economic recovery.

 True

 False

1 points   

QUESTION 21

1. A vertical line always has a slope of one.

  True

 False

1 points   

QUESTION 22

1. Externalities can only involve the imposition of harm on a party not directly involved in an
economic transaction.

 True

 False

1 points   

QUESTION 23

1. A decrease in the unemployment rate will shift the production possibilities frontier outward
from the origin.

 True

 False

1 points   

QUESTION 24

1. A horizontal line has a slope of 0.

 True

 False

1 points   

QUESTION 25

1. Sugar price supports ensure an abundance of sugar, and hence reasonable prices for
consumers.

 True

 False

1 points   

QUESTION 26

1. Price floors lead to market surpluses.

  True

 False

1 points   

QUESTION 27

1. If the quantity of one good that must be forgone increases as successive units of another
good are produced, then there is said to be increasing opportunity cost between the two
goods.

 True

 False

1 points   

QUESTION 28

1. Efficient production can be carried out anywhere on or below the production possibilities
frontier.

 True

 False

1 points   

QUESTION 29

1. If supply increases, the equilibrium price will rise and the equilibrium quantity will fall.

 True

 False

1 points   

QUESTION 30

1. Specialization of labor makes sense only if there is some means of exchange.

 True

 False

1 points   

QUESTION 31

1. In economics, the true cost of making a choice is the value of what must be given up.
  True

 False

1 points   

QUESTION 32

1. Economists are often required to make unrealistic assumptions concerning the problems
they are investigating.

 True

 False

1 points   

QUESTION 33

1. High opportunity costs go hand in hand with high money costs in a properly functioning
economy.

 True

 False

1 points   

QUESTION 34

1. A society can occasionally produce at a point beyond its production possibilities frontier if
there is an economic crisis.

 True

 False

1 points   

QUESTION 35

1. As price increases, additional suppliers are willing to produce a commodity.

 True

 False

1 points   

QUESTION 36

1. A black market develops only when quantity demanded exceeds quantity supplied.
  True

 False

1 points   

QUESTION 37

1. An economic model is a realistic depiction of the operation of the economy.

 True

 False

1 points   

QUESTION 38

1. In the Wealth of Nations, Adam Smith wrote about how countries could increase their
consumption of goods and services through specialization and trade with other countries.

 True

 False

1 points   

QUESTION 39

1. The opportunity cost of a college education does not include any income that is foregone
while enrolled in school, since this is not measured using monetary costs.

 True

 False

1 points   

QUESTION 40

1. Rent controls are most often designed to protect the investment made by apartment
building owners.

 True

 False

1 points   

QUESTION 41

1. Demand curves can be affected by the prices of related goods.

  True

 False

1 points   

QUESTION 42

1. The United States has chosen to balance the competing claims of efficiency versus equality
by emphasizing greater efficiency over greater equality.

 True

 False

1 points   

QUESTION 43

1. A supply curve slopes upward because quantity supplied is higher when price is higher.

 True

 False

1 points   

QUESTION 44

1. A society that is inside its production possibilities frontier is efficient.

 True

 False

1 points   

QUESTION 45

1. Trade-offs can always be considered in terms of opportunity costs.

 True

 False

1 points   

QUESTION 46

1. Rent controls encourage investment in housing because they bring stability to the market.

 True
  False

1 points   

QUESTION 47

1. A graph with a positive slope indicates that the variables depicted on the axes move in the
same directions.

 True

 False

1 points   

QUESTION 48

1. Voluntary exchange results in mutual gains.

 True

 False

1 points   

QUESTION 49

1. Economists use the term capital to describe that factor of production that includes human-
made resources such as factories, buildings, machinery, and tools.

 True

 False

1 points   

QUESTION 50

1. The high unemployment of 2008–2010 caused a substantial decrease in inflation, which

created fears of deflation.

 True

 False

1 points   

QUESTION 51

1. Increasing opportunity cost tends to occur if

a. production is inefficient.
 b. management is disorganized.

c. markets do not equate money and opportunity cost.

d. resources are specialized.

e. resources are scarce.

1 points   

QUESTION 52

1. The price of natural gas fell and the quantity sold also fell. Everything else being equal, it is
consistent that

a. more efficient gas drilling equipment was installed.

b
natural gas workers received large wage increases.
.

c. consumer incomes rose.

d
the supply of natural gas fell.
.

e. the price of oil fell.

1 points   

QUESTION 53

1. Figure 1-1

The slope of the line in Figure 1-1 is

a. 0.5.

b. −2.0.

c. −0.5.

d. 2.0.

1 points   

QUESTION 54

1. Last year, 1,000 cases of cough syrup were sold at $10; this year, 1,200 cases were sold at
$12. The most probable interpretation of these data is that the
 a. supply and demand curves are shifting to the left.

b
supply and demand curves are shifting to the right.
.

c. supply curve has shifted to the left, with no change in demand.

d
demand curve has shifted to the right, with no change in supply.
.

1 points   

QUESTION 55

1. Assuming that resources are specialized, the opportunity cost of an item increases as the
production of it rises. This implies that firms will produce more as

a. government asks firms to produce more.

b
the opportunity cost is greater than the price.
.

c. the price decreases.

d
the income of buyers increases.
.

e. the price increases.

1 points   

QUESTION 56

1. Table 4-1

Quantity Quantity
Price
Demanded Supplied

$10 1,000  5,500 

9 2,000 5,000

8 3,000 4,500

7 4,000 4,000

6 5,000 3,500

5 6,000 3,000

4 7,000 2,500

3 8,000 2,000

2 9,000 1,500
1 10,000 1,000

2.

3.

4.

5. Refer to Table 4-1. What is the equilibrium price in the example above?

a. $9

b. $6

c. $5

d. $7

e. $8

1 points   

QUESTION 57

1. What is the opportunity cost of economic growth?

a. Consumption in the current time period

b. Investment in the current time period

c. Capital goods in the current time period

d. Improved technology in the current time period

1 points   

QUESTION 58

1. The wage rate. is the price of a unit of labor. What happens to the supply of labor if the
wage rate increases?                              

a. It increases.

b. It does not change.

c. It decreases.

d. Uncertain-economic theory has no answer to this question.

1 points   

QUESTION 59

1. Tampering with the price mechanism

 a. can enhance societal welfare if done properly.

b. often produces undesired side effects.

c. cannot be attempted in a market economy.

d. can be efficient for a while.

1 points   

QUESTION 60

1. What mechanism assures that firms produce outputs that consumers actually desire?

a. All of the responses are correct.

b. governmental regulations on the mix of outputs

c. altruism

d. the desire for profit

e. a desire to serve others without thought of reward

1 points   

QUESTION 61

1. The central question in economics is how to

a. use government planning agencies.

b. increase human knowledge.

c. make the best use of scarce resources.

d. induce people to want less.

1 points   

QUESTION 62

1. The development of new technology reduces the cost of producing calculators. In addition,
assume that consumers have cut back on their scheduled purchases in anticipation of
further cost-saving developments. As a result, we can expect

a. an increase in output but no predictable change in price.

b. a decrease in output but no predictable change in price.

c. a decrease in price but no predictable change in output.

 d. a predictable decrease in both output and price.

1 points   

QUESTION 63

1. Economics is a social science in the sense that it

a. relies on statistics instead of mathematics.

b
rigorously examines human behavior.
.

c. is not as scientific as physics.

d
All of these responses are correct.
.

e. relies on historical data instead of mathematical data.

1 points   

QUESTION 64

1. The supply curve of books (which are produced using paper made from trees) will shift to
the left in response to

a. a decline in college tuition.

b
an increase in the supply of lumberjacks.
.

c. an end to government regulations that limit timber harvesting in national forests.

d
an increase in home building.
.

1 points   

QUESTION 65

1. The statement “Resources employed in producing X are better suited to making Y” is

another way of saying resources

a. are used inefficiently.

b. are scarce.

c. are specialized.

d. are unproductive.

e. have no opportunity cost.

1 points   
QUESTION 66

1. The term opportunity cost refers to the

a. value of what is gained when a choice is made.

b
value of what is forgone when a choice is made.
.

c. direct costs involved in making a choice.

d difference between the value of what is gained and the value of what is forgone when a
. choice is made.

1 points   

QUESTION 67

1. Which of the following changes would not result in a shift in the demand curve for milk?

a. A change in the income of buyers of milk

b
A change in the population
.

c. A change in the price of milk

d
A medical report that milk consumption increases cholesterol.
.

1 points   

QUESTION 68

1. A recent article about the US economy asked, “What is the price of low inflation?” In this
context, the price is likely to be measured by

a. the cost of externalities.

b. the increase in unemployment.

c. the opportunity cost of higher interest rates.

d. the drop in market value.

e. the value of comparative advantage.

1 points   

QUESTION 69

1. Economists make assumptions because

a. their use allows complex situations to be analyzed.

 b. this is a way of incorporating value judgments into their models.

c. this permits imperfect information to describe reality.

d. assumptions are the final product of careful economic analysis.

e. assumptions allow economists to avoid facts that contradict their theories.

1 points   

QUESTION 70

1. The following price-quantity coordinates for gold used by U.S. dentists were observed: P =
$875/ounce, Q = 342,000; P = $200/ounce, Q = 706,000. These points most likely lie along
the

a. supply curve for gold for dental use.

b. demand curve for dental use.

c. equilibrium curve for dental use.

d. production possibilities curve for dental use.

1 points   

QUESTION 71

1. If an economic curve has a negative slope, then one variable

a. changes at a slower rate than another.

b. has a smaller value than another variable.

c. falls as the other rises.

d. changes after another variable.

1 points   

QUESTION 72

1. What is the “right” degree of abstraction necessary to analyze an economic problem?

a. Total abstraction of all variables

b
Total abstraction of all irrelevant details
.

c. There is no “right” degree of abstraction to analyze an economic problem.

d
Simple abstraction of only minor details
.
 e. Simple abstraction of only irrelevant details

1 points   

QUESTION 73

1. If both the supply and demand curves shift to the left, then we can conclude that there will
be

a. an increase in the equilibrium quantity sold.

b. a decrease in the equilibrium quantity sold.

c. a decrease in the equilibrium price.

d. an increase in the equilibrium price.

1 points   

QUESTION 74

1. Is it possible to express an economic model in words without diagrams?

a. No, the very definition of model requires mathematical form.

b
No, models can only be stated in diagrams.
.

c. Yes, some of the simplest models are verbal statements.

d
Yes, although the best models always use diagrams.
.

e. Uncertain, economic theory has not answered this question yet.

1 points   

QUESTION 75

1. Which of these options best reflects Jim’s opportunity cost of operating his own business?

a. The cost of hiring his laborers

b. All of the responses are correct.

c. The total amount of money he spends to obtain capital equipment

d. The value of Jim’s managerial skills that are used to run the business

1 points   

QUESTION 76

1. Inefficiency in an economy can be caused by

 a. misallocating resources.

b. underemploying resources.

c. discrimination.

d. All of the responses are correct.

1 points   

QUESTION 77

1. If a rent control policy is enacted to protect apartment renters, this is likely to lead to

a. rise in the number of households looking for rental units.

b. increased investment in rental properties.

c. an increase in the supply of apartments.

d. the conversion of office buildings to rental apartments.

1 points   

QUESTION 78

1. Jack buys a computer from Sam, knowing fully well that the technology used in it is obsolete.
In this case, the trade is

a. beneficial only to Jack.

b. beneficial only to Sam.

c. beneficial to both parties.

d. not beneficial to either of them.

1 points   

QUESTION 79

1. Higher steel prices will result in a  shift in the supply curve of bicycles, and this will lead to

a. higher prices for bicycles.

b
lower prices for bicycles.
.

c. a larger output of bicycles.

d
no impact on the price of bicycles.
.
 e. a shift in the demand curve for bicycles.

1 points   

QUESTION 80

1. When used in a professional or technical sense, the law of supply and demand refers to

a. the market forces that show how prices and quantities are determined.

b
some vague influences on economic affairs.
.

c. the controls that regulate the amount of scarce goods that each consumer can purchase.

d
the fact that prices go up when commodities are scarce.
.

1 points   

QUESTION 81

1. In early 1996, the upper Midwest suffered record cold, with wind chills of 50° below zero or
worse. Yet, grocery stores stocked fresh citrus fruit (which was clearly not grown locally).
Why did grocers stock the fruit?

a. Concern for their neighbors

b. The need to dispose of excess production

c. The desire for profit

d. Government orders to distribute fruit

e. All of the responses are correct.

1 points   

QUESTION 82

1. If orange juice prices fall by 25 percent next year, there will be a

a. rightward shift in the supply of pineapple juice.

b
rightward shift in the demand for pineapple juice.
.

c. leftward shift in the demand for pineapple juice.

d
leftward shift in the supply of pineapple juice.
.

1 points   

QUESTION 83
 1. When variable A rises by 10 units, variable B rises by 15 units. The slope of the line
describing this relationship is

a. always −1.5.

b. either 1.5 or −1.5, depending on which variable goes on which axis.

c. always 2/3.

d. either 2/3 or 1.5, depending on which variable goes on which axis of the graph.

1 points   

QUESTION 84

1. Which of the following factors are held constant for a given demand curve for a good?

a. The supply of the good

b. The technology used to produce the good

c. The price of the good

d. Consumer incomes and the prices of other goods

1 points   

QUESTION 85

1. Do markets solve all of society’s problems?

a. No, they hardly solve any problems at all.

b
Uncertain, economic theory has no answer to this question.
.

c. Yes, markets solve the problems of production and distribution.

d
Yes, markets are efficient and work well under nearly all circumstances.
.

e. No, they do not solve problems such as unemployment and inflation.

1 points   

QUESTION 86

1. One role that markets play is

a. to allocate resources.

b. provide revenues for governments to spend.

 c. distribute income equally.

d. provide for all human wants.

1 points   

QUESTION 87

1. If the price of chicken rises from $1.25 per pound to $1.75 per pound, if the demand curve is
consistent with the law of demand, then the quantity of chicken demanded would be
predicted to go from 

100 pounds to 100 pounds per day, because the price of chicken does not affect the quantity
a.
demanded.

b
100 pounds to 125 pounds per day.
.

c. 100 pounds to 75 pounds per day.

d 100 pounds to 0 pounds per day, because consumers would stop purchasing chicken at a
. price above $1.25 per pound.

1 points   

QUESTION 88

1. Economists and others use economic theory

a. only to analyze situations in which money changes hands.

b. instead of using value judgments concerning important policy issues.

c. as a partial basis for public policy recommendations.

d. to confuse their enemies.

1 points   

QUESTION 89

1. Which of the following observations is true?

a. The market leads to efficiency in production through the profit motive.

b. The ability to buy goods is divided equally among consumers.

c. Free markets will achieve all of society’s goals.

d. The market system encourages firms to use inputs wastefully.

1 points   

QUESTION 90
 1. All of the points inside a production possibilities frontier are ____; all of the points on the
production possibilities frontier are ____.

a. inefficient; efficient

b. unattainable; efficient

c. attainable; unattainable

d. rational; zero-cost

e. efficient; inefficient

1 points   

QUESTION 91

1. The process of focusing on only the most important factors to explain a phenomenon is
called

a. rational choice.

b. controlled experimentation.

c. abstraction.

d. marginal analysis.

e. the trade-off between efficiency and equality.

1 points   

QUESTION 92

1. A vertical line has a slope of

a. infinity.

b. zero.

c. 1,000

d. undefined.

1 points   

QUESTION 93

1. It is possible to represent three dimensions on a two-dimensional graph by using

a. a razor blade.

b. All of these responses are correct.

 c. curved lines.

d. a contour map.

1 points   

QUESTION 94

1. When the price of a good increases, it

a. a movement down along the demand curve will occur.

b
the demand for the good shifts.
.

c. leads suppliers to place few goods on the market.

d
leads consumers to want to buy more or less than before at a given price.
.

1 points   

QUESTION 95

1. Opportunity costs exist for

a. households, businesses, and governments.

b
businesses and households but not governments.
.

c. businesses but not households or governments.

d
households but not businesses or governments.
.

1 points   

QUESTION 96

1. The supply curve of books (which are produced using paper made from trees) will shift to
the right in response to

a. a reduction in the supply of lumberjacks.

b
removal of government regulations that limit timber harvests from national forests.
.

c. an increase in home building.

d
a decline in college tuition.
.

1 points   
QUESTION 97

1. Normally an increase in the supply of a good will cause

a. a shift of consumer preferences in favor of that good.

b. consumers to use more of that good and less of others.

c. a shift of consumer preferences away from that good.

d. consumers to use less of that good and more of others.

1 points   

QUESTION 98

1. Which of the following quotations best captures the idea of opportunity cost?

a. “Let’s not ask for the moon; we have the stars.”

b. “Fools rush in where wise men fear to tread.”

c. “Opportunity knocks but once.”

d. “Every choice involves a sacrifice.”

e. “All that glitters is not gold.”

1 points   

QUESTION 99

1. All other factors held constant, if the price of game consoles rise, the demand for gaming
titles will

a. shift to the right, because they are substitutes.

b. shift to the left, because they are normally used together.

c. remain constant.

d. shift to the right, because they are normally used together.

1 points   

QUESTION 100

1. A demand curve can be thought of as

a. a graphical display of “market potential.”

b
a forecasting tool.
.
c. a graphical representation of the information in a demand schedule.

d
showing how much people want to buy.
.

e. All of these responses are correct.