Economics 50 Multiple Choice & 2 Shory Essay Questions

Question 1.1. (TCO 1) As a consequence of the condition of scarcity (Points : 3)
there is never enough of anything.
production has to be centrally planned.
things which are plentiful have relatively high prices.
individuals and communities have to make choices from among alternatives.

Question 2.2. (TCO 1) Henry wants to buy a book. The economic perspective suggests that Henry will buy the book if (Points : 3)
the book will give him utility.
his income is high.
the marginal cost of the book is greater than its marginal benefit.
the marginal benefit of the book is greater than its marginal cost.

Question 3.3. (TCO 1) A nation can increase its production possibilities by (Points : 3)
shifting resources from investment good production to consumer good production.
shifting resources from private goods to public goods.
improving labor productivity.
eliminating discrimination.

Question 4.4. (TCO 1) Which expression is another way of saying "marginal benefit"? (Points : 3)
Benefits given up
Unintended gain
Employment benefits
Extra benefit

Question 5.5. (TCO 1) Which is not a factor of production? (Points : 3)
Money
Land
Labor
Capital

Question 6.6. (TCO 1) Another term for capitalism is (Points : 3)
the command system.
the socialist economy.
the market system.
the system of inputs and outputs.

Question 7.7. (TCO 1) By consumer sovereignty we mean that (Points : 3)
government is responsible for protecting consumer interests.
consumers determine what goods and services are produced.
businesses decide what the consumer will buy.
all goods and services are produced by consumers.

Question 8.8. (TCO 1) Laissez-faire capitalism is characterized by (Points : 3)
very limited government role in the economy.
active government intervention in the economy.
individuals and firms abiding by a government economic plan.
a very fair distribution of income and wealth.

Question 9.9. (TCO 1) Which is not one of the five fundamental questions that an economy must deal with? (Points : 3)
How will the goods and services be produced?
Why should the goods and services be produced?
Who is to receive the goods and services produced in the economy?
In what ways will progress be promoted?

Question 10.10. (TCO 1) The major "success indicator" for business managers in command economies like the Soviet Union and China in the past was (Points : 3)
the quantity of output.
product quality.
the amount of profits.
worker morale.

Question 11.11. (TCO 2) The quantity demanded of a product increases as its price declines because the (Points : 3)
lower price shifts the demand curve rightward.
lower price shifts the demand curve leftward.
lower price results in an increase in supply.
demand curve is downsloping.

Question 12.12. (TCO 2) A surplus of a product will arise when price is (Points : 3)
above equilibrium with the result that quantity demanded exceeds quantity supplied.
above equilibrium with the result that quantity supplied exceeds quantity demanded.
below equilibrium with the result that quantity demanded exceeds quantity supplied.
below equilibrium with the result that quantity supplied exceeds quantity demanded.

Question 13.13. (TCO 2) If an effective price ceiling is placed on hamburgers then (Points : 3)
the quantity demanded will exceed the quantity supplied.
a black market for hamburger may evolve.
consumers may want government to ration hamburger.
all of these are likely outcomes.

Question 14.14. (TCO 2) Which would cause an increase in quantity supplied of Product A? (Points : 3)
An improvement in technology affecting the production of A
An increase in the price of Product B, an input in the production of A
A decrease in the taxes paid by producers of A
An increase in the price of A

Question 15.15. (TCO 2) If Product Y is an inferior good, a decrease in consumer incomes will (Points : 3)
make buyers want to buy less of Product Y.
not affect the sales of Product Y.
shift the demand curve for Product Y to the left.
shift the demand curve for Product Y to the right.

Question 16.16. (TCO 2) When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. In this range of prices, demand for this product is (Points : 3)
elastic.
inelastic.
cross-elastic.
unitary elastic.

Question 17.17. (TCO 2) When the price of movie tickets in a certain town was reduced, the movie-theaters' revenues did not change. This suggests that the demand for movie tickets in that town has a price-elasticity coefficient of (Points : 3)
1.0.
greater than 1.
0.5.
zero.

Question 18.18. (TCO 2) You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. To increase total revenues, you should: (Points : 3)
increase the price of the software.
decrease the price of the software.
hold the price of the software constant.
increase the supply of the software.

Question 19.19. (TCO 2) A state government wants to increase the taxes on cigarettes to increase tax revenue. This tax would only be effective in raising new tax revenues if the price elasticity of demand is(Points : 3)
unity.
elastic.
inelastic.
perfectly elastic.

Question 20.20. (TCO 2) Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an (Points : 3)
inelastic supply of movies in the evening.
elastic demand to see movies in the evening.
elastic demand to see movies in the afternoon.
inelastic demand to see movies in the afternoon.

Question 21.21. (TCO 3) Suppose that you could prepare your own tax return in 15 hours, or you could hire a tax specialist to prepare it for you in two hours. You value your time at $11 an hour. The tax specialist will charge you $55 an hour. The opportunity cost of preparing your own tax return is (Points : 3)
$40.
$55.
$110.
$165.

Question 22.22. (TCO 3) Economic profits are equal to (Points : 3)
total revenues minus fixed costs.
total revenues minus the costs of raw materials.
total revenues minus the opportunity costs of all inputs.
gross profit minus selling and operating expenses.

Question 23.23. (TCO 3) The main difference between the short run and the long run is that (Points : 3)
firms earn zero profits in the long run.
the long run always refers to a time period of one year or longer.
in the short run, some inputs are fixed.
in the long run, all inputs are fixed.

Question 24.24. (TCO 3) Fixed costs are those costs which are (Points : 3)
zero if the firm produces no output in the short run.
unchanging through time.
independent of the rate of output.
implicit to a competitive firm.

Question 25.25. (TCO 3) At an output of 20,000 units per year, a firm's variable costs are $80,000 and its average fixed costs are $3. The total costs per year for the firm are: (Points : 3)
$80,000.
$100,000.
$140,000.
$240,000.

Question 26.26. (TCO 3) If you know that total fixed cost is $200, total variable cost is $600, and total product is four units, then average total cost must be: (Points : 3)
$200.
$250.
$800.
$3200.

Question 1.1. (TCO 3) Mutual interdependence would tend to limit control over price in which market model? (Points : 3)
Monopolistic competition
Pure competition
Pure monopoly
Oligopoly

Question 2.2. (TCO 3) Local electric or gas utility companies mostly operate in which market model? (Points : 3)
Monopolistic competition
Pure competition
Pure monopoly
Oligopoly

Question 3.3. (TCO 3) The production of agricultural products such as wheat or corn would best be described by which market model? (Points : 3)
Monopolistic competition
Pure competition
Pure monopoly
Oligopoly

Question 4.4. (TCO 3) The demand curve faced by a purely competitive firm (Points : 3)
has unitary elasticity.
yields constant total revenues even when price changes.
is identical to the market demand curve.
is the same as its marginal revenue curve.

Question 5.5. (TCO 3) Let us suppose Harry's, a local supplier of chili and pizza, has the following revenue-and-cost structure:
Total Revenue $3,000 Per Week
Total Variable Cost $2,000 Per Week
Total Fixed Costs $2,000 Per Week

(Points : 3)
Harry's should stay open in the long run.
Harry's should shut down in the short run.
Harry's should stay open in the short run.
Harry's should shut down in the short run but reopen in the long run.

Question 6.6. (TCO 3) A firm should always continue to operate at a loss in the short run if (Points : 3)
the firm will show a profit.
the owner enjoys helping her customers.
it can cover its variable costs and some of its fixed costs.
the firm cannot produce any other products more profitably.

Question 7.7. (TCO 3) In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is (Points : 3)
equal to the price.
less than the price.
greater than the price.
equal to the average cost.

Question 8.8. (TCO 3) The classic example of a private, unregulated monopoly is (Points : 3)
Xerox.
De Beers.
General Motors.
General Electric.

Question 9.9. (TCO 3) Which of the following is a barrier to entry? (Points : 3)
Patents
Revenue maximization
Profit maximization
Elastic product demand

Question 10.10. (TCO 3) The nondiscriminating pure monopolist must decrease price on all units of a product sold in order to sell more units. This explains why (Points : 3)
there are barriers to entry in pure monopoly.
a monopoly has a perfectly elastic demand curve.
marginal revenue is less than average revenue.
total revenues are greater than total costs at the profit-maximizing level of output.

Question 11.11. (TCO 3) Which case below best represents a case of price discrimination? (Points : 3)
An insurance company offers discounts to safe drivers.
A major airline sells tickets to senior citizens at lower prices than to other passengers.
A professional baseball team pays two players with identical batting averages different salaries.
A utility company charges less for electricity used during "off-peak" hours, when it does not have to operate its less-efficient generating plants.

Question 12.12. (TCO 3) Monopolistic competition is characterized by firms (Points : 3)
producing differentiated products.
making economic profits in the long run.
producing at optimal productive efficiency.
producing where price equals marginal cost.

Question 13.13. (TCO 3) Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will (Points : 3)
reduce the excess capacity in the industry as firms expand production.
attract other firms to enter the industry, causing the firm's profits to shrink.
cause firms to standardize their product to limit the degree of competition.
make the industry allocatively efficient as each firm seeks to maintain its profits.

Question 14.14. (TCO 3) A unique feature of an oligopolistic industry is (Points : 3)
low barriers to entry.
standardized products.
diminishing marginal returns.
mutual interdependence.

Question 15.15. (TCO 3) You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that (Points : 3)
each of the top four firms has 20 percent of industry sales.
the four largest firms account for a combined 80 percent of the industry sales.
the four largest firms account for 20 percent of industry sales.
each of the four largest firms accounts for five percent of industry sales.

Question 16.16. (TCO 3) In which set of market models are there the most significant barriers to entry? (Points : 3)
Monopolistic competition and pure competition
Monopolistic competition and pure monopoly
Oligopoly and monopolistic competition
Oligopoly and pure monopoly

Question 17.17. (TCO 1) The four factors of production are (Points : 3)
land, labor, capital, and money.
land, labor, capital, and entrepreneurial ability.
labor, capital, technology, and entrepreneurial ability.
labor, capital, entrepreneurial ability, and money.

Question 18.18. (TCO 1) Refer to the diagram which refers to the Circular Flow Model in Chapter 2. Arrows (1) and (3) are associated with

(Points : 3)
the money market.
the resource market.
the product market.
international trade.

Question 19.19. (TCO 2) Refer to the diagram. A decrease in demand is depicted by a

Graph Description
(Points : 3)
move from Point x to Point y.
shift from D1 to D2.
shift from D2 to D1.
move from Point y to Point x.

Question 20.20. (TCO 2) Refer to the information and assume the stadium capacity is 5,000. If the Mudhens' management charges $7 per ticket
Price per Ticket Quantity Demanded
$13 1,000
11 2,000
9 3,000
7 4,000
5 5,000
3 6,000
(Points : 3)
some fans who want to see the game will find that tickets are not available.
there will be 2,000 empty seats.
there will be 1,000 empty seats.
the game will be sold out.

Question 21.21. (TCO 2) Which type of goods is most adversely affected by recessions? (Points : 3)
Goods for which the income-elasticity coefficient is relatively low or negative.
Goods for which the income-elasticity coefficient is relatively high and positive.
Goods for which the cross-elasticity coefficient is positive.
Goods for which the cross-elasticity coefficient is negative.

Question 22.22. (TCO 3) In the figure, Curves 1, 2, 3, and 4 represent the

Graph Description
(Points : 3)
ATC, MC, AFC, and AVC curves, respectively.
MC, AFC, AVC, and ATC curves, respectively.
MC, ATC, AVC, and AFC curves, respectively.
ATC, AVC, AFC, and MC curves, respectively.

Question 23.23. (TCO 1) Refer to the diagram. Points A, B, C, D, and E show

Graph Description
(Points : 3)
that the opportunity cost of bicycles increases, while that of computers is constant.
combinations of bicycles and computers that society can produce by using its resources efficiently.
that the opportunity cost of computers increases, while that of bicycles is constant.
that society's demand for computers is greater than its demand for bicycles.

Question 24.24. (TCO 3) Any activity designed to transfer income or wealth to a particular individual or firm at society's expense is called (Points : 3)
patent protection.
X-inefficiency.
price discrimination.
rent-seeking.

Question 25.25. (TCO 3) a.) Do you agree or disagree with the statement that: "A monopolist always charges the highest possible price."? Explain. b.) Why can't an individual firm raise its price by reducing output or lower its price to increase sales volume in a purely competitive market? (Points : 25)

Question 26.26. (TCO 2) What effect should each of the following have upon the demand for portable music players in a competitive market? Explain your reasoning in each case.

(a) the development of improved, low-priced devices that compete with music players
(b) an increase in population and incomes
(c) a substantial increase in the number and quality of music for players
(d) consumer expectations of substantial price increases in music players