Test Bank ECO205 PDF

Test Bank_ Principles of economics (ECO 205) Multiple Choice Questions: 1- Economics is best defined as the study of: A-inflation, interest rates, and the stock market. B-supply and demand. C- how people make choices in the face of scarcity and the implications of those choices for society as...

Test Bank_ Principles of economics (ECO 205) Multiple Choice Questions: 1- Economics is best defined as the study of: A-inflation, interest rates, and the stock market. B-supply and demand. C- how people make choices in the face of scarcity and the implications of those choices for society as a whole. D -the financial concerns of businesses and individuals. Ans:C 2- Economics is best defined as the study of A- the financial concerns of businesses and individuals. B- the role of government in limiting the choices people make. C- choice in the face of limited resources. D- whether we will have enough resources in the future. Ans:C 3- Economists recognize that because people have limited resources a- government intervention is necessary. b- they have to make trade-offs. c- they will never be happy. d- our future is bleak. Ans:B 4-A rational person: a- makes choices based on total benefits and total costs. b- makes choices based on added benefits and added costs. c- undertakes activities until the net benefits become less than zero. d-considers the financial benefits and financial costs of making a choice. Ans:B 5-The law of demand states that:  a- price and quantity demanded are inversely related. b- the larger the number of buyers in a market. c- price and quantity demanded are directly related. d- consumers will buy more of a product at high prices than at low prices. Ans: A 6-The single word that best describes the fundamental essence of economics is: a- employment (b) prices (c) inflation (d) scarcity Ans:D 7 - Use the following to answer questions; Supply Price of Q P* Demand Q* Quantity of Q - Given the supply and demand curves drawn for a normal good in Figure 3-1, an increase in income can be expected to cause: A) equilibrium price and quantity to increase. B) equilibrium price to increase and equilibrium quantity to fall. C) equilibrium price to increase while equilibrium quantity holds steady. D) equilibrium price and quantity to fall. Answer: A 9. According to the law of demand: A) the intersection of demand and supply establishes the market equilibrium point. B) consumers' tastes can influence the quantity demanded. C) there is an inverse relationship between price and the quantity demanded.  D) "all other things held equal" is an important concept. Answer: C 10. One reason that supply curves display positive slope is that: A) expanded production may require the use of superior resources. B) people are not willing to pay a higher price for more goods. C) extra production brings in the more efficient, lower-cost producers. D) the law of diminishing returns is important to producers. Answer: D The Market for Potato Chips (quantities measured in bags per week) Price Quantity Supplied Quantity Demanded $1.00 500 2000 2.00 1000 1750 3.00 1500 1500 4.00 2000 1250 5.00 2500 1000 11. According to Table , the equilibrium price for potato chips is: A) $1.00. B) $2.00. C) $2.50. D) $3.00. Answer: D 12. According to Table, the equilibrium level of output is: A) 1750. B) 1625. C) 1500. D) 1375. Answer: C 13. According to Table, for every $1.00 increase in price, the quantity demanded decreases by: A) 5. B) 500.  C) 10. D) 250. Answer: D 14- Suppose the most you would be willing to pay for a plane ticket home is 250.Ifyoubuyonefor175, then your economic surplus is: (a) $75. (b) $175. (c) $250. (d) zero$. Ans: A 15- The law of diminishing marginal utility states: (a) marginal utility is always going down. (b) as the amount of a good consumed increases, the marginal utility of that good tends to decline. (c) some goods have a lower marginal utility than others. (d) you can never have too much ice cream. Ans: B 16- The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____ (a) direct, inverse (b) inverse, direct (c) inverse, inverse (d) direct, direct Ans: A 17 - An increase in the price of product A will: (a) reduce the demand for resources used in the production of A (b) increase the demand for complementary product C (c) increase the demand for substitute product B (d) reduce the demand for substitute product B Ans: C 18 - DVD players and DVDs are: (a) complementary goods (b) substitute goods. (c) independent goods. (d) inferior goods. Ans: A 19 - The price elasticity of demand of a straight-line demand curve is: (a) elastic in high-price ranges and inelastic in low-price ranges (b) elastic, but does not change at various points on the curve (c) inelastic, but does not change at various points on the curve (d) 1 at all points on the curve Ans: A 20- Marginal utility can be: (a) positive or negative, but not zero. (c) positive, but not negative. (b) positive, negative, or zero. (d) decreasing, but not negative. Ans:B 21- One reason that the quantity demanded of a good increase when its price falls is that the (a) price decline shifts the supply curve to the left (b) lower price shifts the demand curve to the left (c) lower price shifts the demand curve to the right (d) lower price increases the real incomes of buyers, enabling them to buy more. Ans: D 22- A demand curve: (a) shows the relationship between price and quantity supplied (b) indicates the quantity demanded at each price in a series of prices (c) graphs as an upsloping line (d) shows the relationship between income and spending. Ans: B 23- Graphically, the market demand curve is: (a) steeper than any individual demand curve that is part of it (b) greater than the sum of the individual demand curves (c) the horizontal sum of individual demand curves (d) the vertical sum of individual demand curves. Ans: C 24.A change in the supply of a given good could be caused by A) a change in demand for the good. B) a change in consumer preferences. C) a change in technology that affects of production costs. D) introduction of new consumers into the market. Answer: C 25- A vertical supply curve may be described as: A) relatively price elastic. B) perfectly price inelastic. C) relatively price inelastic. D) perfectly price elastic. Answer: B 26- The government levies an excise tax of 5 cents per unit sold on the sellers in a competitive industry. Both supply and demand curves have some elasticity with respect to price. This tax means that the: A) supply curve shifts up by 5 cents, but (unless demand is perfectly elastic) price will not rise. B) supply curve shifts up by less than 5 cents, but (unless demand is highly elastic) price will rise by the full 5 cents. C) supply curve shifts up by less than 5 cents, but (unless demand is highly inelastic) price will rise by more than 5 cents. D) supply curve shifts up by 5 cents, but (unless supply is perfectly elastic) any price rise will be less than 5 cents. Answer: D 27- How is it possible for a corn farmer to have a bumper crop season and yet make less income? A) demand for corn is elastic. B) demand for corn is inelastic. C) demand for corn is unit elastic. D) corn has lots of substitutes. Answer: B 28- If a demand curve displays unitary elasticity, an upward shift in the supply curve will: A) raise total revenue. B) lower total revenue.  C) have no effect on total revenue. D) have an indeterminant effect on total revenue. Answer: C 29- Suppose that demand is everywhere price inelastic. In this case, a contraction in the quantity supplied at every price must cause: A) total revenue to climb. B) total revenue to fall. C) total revenue to remain flexed as profits fall. D) any of the above depending upon circumstance. Answer: A 30- Given a relatively, but not perfectly, price elastic supply curve, an increase in demand will certainly: A) raise price but leave quantity sold unchanged. B) raise price and increase quantity sold. C) lower price, since supply cannot increase except through the inducement of higher price. D) reduce quantity sold but leave price unchanged. Answer: B 31- If the elasticity coefficient of demand for coconuts is.40, then a 20% fall in price will result in: A) a 20% rise in quantity demanded. B) an 8% rise in quantity demanded. C) a 200% rise in quantity demanded. D) a 50% rise in quantity demanded. Answer: B 32- A price subsidy of 20 cents per gallon on milk (which does not have a perfectly inelastic demand curve) will result in a: A) change in consumer tastes. B) decrease in the equilibrium price of 20 cents per gallon. C) decrease in the equilibrium price of less than 20 cents per gallon. D) decrease in the equilibrium price of more than 20 cents per gallon. Answer: C 33- A shift to the left of the demand curve for X together with a shift to the right of the supply curve for X tends to: A) increase the price of X; the effect upon the quantity exchanged is indeterminate. B) increase the price of X and to increase the quantity exchanged. C) decrease the price of X and to decrease the quantity exchanged. D) decrease the price of X; the effect upon quantity exchanged is indeterminate. Answer: D 34- A price subsidy of 20 cents per gallon on milk (which does not have a perfectly inelastic demand curve) will result in a: A) change in consumer tastes.  B) decrease in the equilibrium price of 20 cents per gallon. C) decrease in the equilibrium price of less than 20 cents per gallon. D) decrease in the equilibrium price of more than 20 cents per gallon. Answer: C 35- If demand is relatively price inelastic: A) a 1 percent increase in price evokes a less than 1 percent decrease in quantity demanded. B) a 1 percent increase in price evokes a larger than 1 percent decrease in quantity demanded. C) a 1 percent decrease in price evokes a larger than 1 percent increase in quantity demanded. D) a 1 percent decrease or increase in price induces no change in total revenue. Answer: A True/False Questions 1- The major purpose of studying economics is to learn how to succeed in business. Ans: False 2- Capital goods differ from other factors in that they are produced-they are outputs of the economic system. Ans: True 3- Since the amount bought must equal amount sold, at no price can there be a lack of equality between the quantities demanded and supplied of a good. Ans: False 4- An economic good is valued in part by its scarcity. Ans: True 5- Marginal utility is total utility divided by the number of units consumed. Ans: False 6- For whom goods are produced is a question that is largely answered by pricing the factors of production that people own. Ans: True  7- A fixed supply of apartments can be rationed out by letting market forces establish the market clearing competitive rent rate. Ans: True 8- The quantity of some good X demanded by individuals typically depends upon their incomes and preferences. Ans: True 9- The minimum wage is an example of a price floor. Ans: True 10- Consumers buy more of normal goods as their incomes rise. Ans: True 11- An equilibrium point could conceivably lie on the supply schedule, but not the demand schedule. Ans: False 12- Given a normal upward sloping supply schedule and a downward sloping demand schedule, an increase in labor productivity should result in a lower equilibrium price for the concerned good. Ans: True 13-. For a theory to be useful, it must be confirmed in each test case. Ans: False 14 -. Economics may be simply defined as the study of money matters. Ans: False 15-. The wide agreement among economists on the basic economic principles concerning prices and unemployment leads them to consensus in the policy field. Ans: False 16-Unlike the chemist, the economist can rarely perform controlled experiments. Ans: True 17-Economics includes the study of how to improve society. Ans: True 18- Elasticity of resource demand is measured by dividing "percentage change in resource price" by "percentage change in resource quantity." Ans: False 19- Scarcity exists because economies cannot produce enough to meet the perceived desires of all individuals. Ans: True 20-An economic good is valued in part by its scarcity. Ans: True 21-"Perfect competition" exists only when no single individual can influence the market price. Ans: True 22- Market equilibrium comes at the price which quantity demanded equals quantity supplied. Ans: True 23- The smaller the number of good substitutes for a product, the greater will be the price elasticity of demand for it. Ans: False 24- When total utility is at a maximum, marginal utility is zero. Ans: True 25- Over time the fact that some people buy more hamburger at 89 cents per pound than at 69 cents per pound refutes the law of downward-sloping demand. Ans: False 26- As the income of poor families increases, expenditure on many food items increases Ans: True 27- Macroeconomics explains the behavior of individual households and business firms; microeconomics is concerned with the behavior of aggregates or the economy as a whole. Ans: False 28 If demand increases and supply simultaneously decreases, equilibrium price will rise. Ans: True  29- A surplus in supply means that demanders are not willing to pay the current market price. Ans: True 30. A change in tastes can cause people to move down their demand curve, unlike an increase in income, which will cause the demand curve to shift. Ans: False 31. The quantity of labor demanded by an employer typically depends upon the wage that labor is paid. Ans: True 32. A surplus in supply means that demanders are not willing to pay the current market price. Ans: True 33. An increase in demand means a movement to a higher quantity along a given demand curve. Ans: False 34. An increase in demand means a movement to a higher price along a given demand curve. Ans: False 35. Equilibrium occurs where the demand curve intersects the supply curve. Ans: True