MGT 285 Exam 1

Q1. Scarcity arises because
a. international companies are slow to explore for new resources.
b. resources are finite and unable to meet all human wants and needs.
c. many countries waste goods because of inefficient political systems.
d. import taxes retard production.

Q2. If an economy is operating at a point inside the production possibilities curve, then
a. society's resources are being used to produce too many consumer goods.
b. the curve will move to the left.
c. economic policy must retard further growth of the economy.
d. society's resources are being inefficiently utilized.

Q3. In economics, all the things that people would consume if they had unlimited income are
a. needs.
b. aggregates.
c. outputs.
d. wants.

Q4. Moving from point to point along the production possibilities curve means that the allocation of resources is changing.
a. true
b. false

Q5. The production possibilities curve represents
a. possible combinations of maximum levels of output of two goods.
b. the trade-offs between efficiency and equity.
c. the trade-offs between self-interest and altruism.
d. the trade-offs between technology and ecology.

Q6. Clean air is a scarce resource.
a. true
b. false

Q7. If you can earn $10 an hour as a retail clerk, $12 an hour as an office assistant, $16 an hour as a house painter, and $20 an hour repairing bicycles, what is your opportunity cost of working to repair bicycles?
a. $12 an hour
b. $10 an hour
c. $20 an hour
d. $16 an hour

Q8. Suppose the current unemployment rate is 15 percent. If it rises to 20 percent,
a. the production possibilities curve will shift inward.
b. the economy will move closer to the production possibilities curve.
c. the economy will operate further inside the production possibilities curve.
d. the economy will move up along the production possibilities curve.

Q9. The assumption of rational self-interest implies that people will choose to enrich themselves even if doing so violates the rights or property of others.
a. true
b. false

Q10. Economic growth can be pictured in a production possibilities curve diagram by
a. shifting the production possibilities curve out.
b. moving from right to left along the curve.
c. moving from left to right along the curve.
d. shifting the production possibilities curve in.

Q11.

Figure 1.2

In Figure 1.2, the combination of civilian goods and military goods shown by point B
a. reflects an inefficient use of resources.
b. can be attained only if some of society's resources are unemployed.
c. reflects an efficient use of resources.
d. is not attainable at the point in time for which the graph is drawn.

Q12. The shape of the production possibilities curve reveals the degree of income equality in an economy.
a. true
b. false

Q13. GDP includes the value of both goods produced and service provided.
a. true
b. false

Q14. Which one of the following is FALSE?
a. The U.S. labor force will continue to grow through immigration.
b. Inflation stops economic growth.
c. Increased availability of reliable communication channels at lower and lower costs have led to companies relocating their manufacturing operations offshore.
d. The size of the U.S. labor force continues to grow despite many jobs being moved off-shore.

Q15. The price of a good increases when it becomes relatively more scarce.
a. true
b. false

Q16. The rationing function of prices means that
a. government is responsible for setting the prices of basic foods.
b. businesses determine what goods consumers should purchase.
c. buyers and sellers synchronize their decisions through the price system.
d. all goods and services are produced by large firms.

Q17. In a free market economy,
a. government decides what is produced, and producers decide who gets to consume it.
b. as a good becomes relatively more scarce, its price declines.
c. firms choose only to produce the most fashionable goods, regardless of the cost of production.
d. goods and services are allocated by a price system.

Q18. Which variable do both producers and consumers pay attention to?
a. transportation costs of getting the good to market
b. wages of employees engaged in manufacturing the product
c. selling price of the product
d. costs of producing the product

Q19. A recent study found that eating dark chocolate can provide cardiovascular health benefits. What effect does this have on the market for dark chocolate?
a. The price of dark chocolate can be expected to decline.
b. Dark chocolate is now relatively less scarce.
c. Dark chocolate is now relatively more scarce.
d. The price that the typical consumer is willing to pay for dark chocolate will decline.

Q20. What is the purpose of a market system?
a. to facilitate efficient exchange
b. to encourage consumers to buy goods on credit
c. to ensure an equal distribution of income
d. to ensure that everyone is treated fairly

Q21. What would lead a customer to purchase a product?
a. She believes the firm will earn a fair profit by selling the product to her.
b. She believes the price is an accurate reflection of the good's relative scarcity.
c. Her expected value from consuming it exceeds the cost of purchasing it.
d. Her expected value from consuming it exceeds the cost of producing it.

Q22. Which one of the following is TRUE?
a. The factors of production are land, labor, capital, and entrepreneurship.
b. Land is a factor of production only in agricultural endeavors.
c. Capital is a factor of production only in high-tech industries.
d. Labor is a factor of production only in providing services.

Q23. Production refers to
a. any activity that causes a material conversion of an object.
b. any activity that results in the conversion of resources into goods and services that can be consumed.
c. any activity carried on by a firm, whether a corporation, partnership, or sole proprietorship.
d. physically producing material goods only.

Q24. What must be true in order for per capita real GDP to increase when the population is also increasing?
a. The economy must be importing some essential goods.
b. The rate of growth of output must exceed the population growth rate.
c. The rate of inflation must be zero.
d. The rate of inflation must be less than the rate of economic growth.

Q25. In choosing whether to produce something, a firm wants to know
a. how the cost of producing the good compares to its selling price.
b. how many other firms are producing the same good.
c. how long the typical consumer will shop before making this purchase.
d. how frequently consumers who purchase the good will actually use it.

Q26. The size of the U.S. labor force has declined over the past 20 years as many jobs have been outsourced from the United States to other countries.
a. true
b. false

Q27. Consumers substitute between goods in response to changes in relative prices.
a. true
b. false

Q28. Scarcity can be eliminated by increasing the price of a good.
a. true
b. false

Q29. An increase in the price of one good will decrease the demand for a substitute good.
a. true
b. false

Q30. At the equilibrium price, there is no surplus and no shortage.
a. true
b. false

Q31. Which of the following will shift the supply curve to the right?
a. There is an increase in the number of consumers in the market.
b. There is an increase in the number of firms producing the good.
c. Input prices rise.
d. Sales taxes increase.

Q32. Which one of the following is TRUE?
a. An increase in price causes an increase in supply.
b. An increase in supply causes a decrease in demand.
c. An increase in price causes an increase in quantity supplied.
d. An increase in supply causes an increase in demand.

Q33. An increase in quantity demanded is caused by
a. an increase in income.
b. a decrease in the price of a complement.
c. a change in expectations about price in the future.
d. a decrease in the price of the good.

Q34. An increase in the price of coffee, holding other things constant, will
a. decrease the demand for coffee.
b. increase the demand for coffee.
c. decrease the quantity of coffee demanded.
d. decrease the supply of coffee.

Q35. If dry cleanersincrease the fees for cleaning services, economic theory predicts that
a. the supply of dry cleaning services will decrease, but demand will remain constant.
b. the supply of dry cleaning services will increase, but demand will remain constant.
c. demand will remain unchanged, but the quantity of cleaning services demanded falls.
d. the quantity of cleaning services demanded remains unchanged, but the demand falls.

Q36. The demand curve is downward sloping because
a. price and quantity have a direct relationship.
b. price is always constant.
c. demand is based on supply.
d. price and quantity have an inverse relationship.

Q37. Suppose a college increases the wages paid to student employees. Which of the following options is the best description of the most likely effect of the wage increases on the market for school sweatshirts in the bookstore?
a. The demand curve shifts to the left.
b. There is a leftward movement along the demand curve.
c. The demand curve shifts to the right.
d. There is a rightward movement along the demand curve.

Q38. What is the equilibrium price of a good?
a. The price that all producers are happy with.
b. The price that all consumers are happy with.
c. The price that the average consumer can afford.
d. The price that clears the market.

Q39. When demand is perfectly inelastic,
a. small changes in price lead to large changes in the quantity demanded.
b. the price elasticity of demand is greater than 1.
c. the demand curve is horizontal.
d. the demand curve is vertical.

Q40. A baker raised his bread prices by 10 percent and found that the quantity of bread sold decreased by 10 percent. What happened to the total amount of sales revenue he took in from bread sales?
a. It decreased.
b.

It remained unchanged.

c. It increased.
d. We cannot determine the effect on total revenue unless we also know the slope of the demand curve for bread.

Q41. Which one of the following statements is TRUE?
a. Consumers consider the expected marginal utility from a good in deciding whether to buy it.
b. The law of diminishing marginal utility does not apply to expensive items, such as cars, houses, and exotic vacations.
c. Consumers will only buy goods which are not subject to diminishing marginal utility.
d. The law of diminishing marginal utility does not apply to fashion items that are relatively new on the market.

Q42. The more you are willing to pay for an item, the more marginal utility you derive from it.
a. true
b. false

Q43. Diminishing marginal utility means that
a. as more and more of a good is consumed there is no impact on the rate of change of total utility.
b. as more and more of a good is consumed the rate at which total utility increases stays the same.
c. as more and more of a good is consumed the rate at which total utility increases starts to increase.
d. as more and more of a good is consumed the rate at which total utility increases starts to diminish.

Q44. When total utility is maximized,
a. marginal utility is equal to total utility.
b. marginal utility is zero.
c. marginal utility is minimized.
d. marginal utility is negative.

Q45. Which of the following statements is true with respect to total utility and marginal utility?
a. Marginal utility is always equal to total utility.
b. Total utility will always be negative when marginal utility is positive.
c. Total utility is minimized when marginal utility is zero.
d. Marginal utility can decline as total utility rises.

Q46. A rational consumer will never purchase a product when its
a. marginal utility is decreasing.
b. total utility is increasing.
c. marginal utility is slightly positive.
d. marginal utility is negative.

Q47. Table 4.4

According to Table 4.4, what is the total utility when six CDs are purchased?
a. 65
b. 260
c. 120
d. 220

Q48. Table 4.3

After consuming what quantity of soda does the consumer in Table 4.3 experience diminishing marginal utility?
a. 2
b. 3
c. 1
d. 4

Q49. The law of diminishing marginal utility asserts that total utility becomes negative when marginal utility begins to diminish.
a. true
b. false

Q50. If the price elasticity of demand for a product is greater than 1, then
a. higher prices will increase demand for the good.
b. consumers are relatively responsive to price changes.
c. higher prices will reduce demand for the good.
d. higher prices will increase the quantity demanded.