Question;Microeconomics;1.;Which of the following is not a basic question that each economy;must answer?;A) Which resources are scarce?;B) For whom shall the goods be produced?;C) How shall goods be produced?;D) What goods shall be produced?;2.;If Kim can either wash 10 cars or wax 2 cars during a day, and;Vince can either wash 17 cars or wax 2 cars during a day, then according to the;law of comparative advantage;A) Vince's opportunity;cost of waxing a car is less than Kim's.;B) their total output can be expanded if Kim specializes in waxing and Vince in;washing.;C) their total output can be expanded if Kim specializes in washing and Vince;in waxing.;D) it would be impossible for Vince and Kim to increase their total output;through specialization and mutual exchange.;3.;The following question(s) relate(s) to the material in the;addendum to Chapter 2. Use the production possibilities data for Lebos and;Slavia below to answer the question(s).;Table 2-4;Lebos;Slavia;Food;Clothing;Food;Clothing;0;8;0;8;2;6;1;6;4;4;2;4;6;2;3;2;8;0;4;0;Refer to Table 2-4. Which of the following is correct?;A) In Lebos, the;opportunity cost of producing one unit of food is equal to one unit of;clothing.;B) In Slavia, the opportunity cost of producing one unit of food is equal to;two units of clothing.;C) The opportunity cost of producing food in Lebos is less than the opportunity;cost of producing food in Slavia.;D) All of the above are correct.;4. Which of the following is NOT true of opportunity cost?;A) Opportunity costs are;subjective because they depend upon how the decision-maker values his or her;options.;B) Opportunity costs are only the monetary costs of lost options.;C) Opportunity costs are the highest-valued alternative sacrificed in order to;choose an option.;D) Only the decision-maker can determine his or her opportunity costs for any;particular action.;5. Assume the demand curve;for cookies is downward sloping. If the price of cookies falls from $1.50 to;$1.25 per dozen;A) the demand for;cookies will fall.;B) the demand for cookies will rise.;C) a larger quantity of cookies will be demanded.;D) a smaller quantity of cookies will be demanded.;6. The price of a good will tend to rise when;A) there is excess;demand for the good.;B) there is excess supply of the good.;C) demand for the good decreases.;D) the supply of the good increases.;7. If we observe an increase in the price of a good and a decrease;in the amount of the good bought and sold, this could be explained by;A) an increase in the supply;of the good.;B) an increase in the demand for the good.;C) a decrease in the demand for the good.;D) a decrease in the supply of the good.;8. Suppose demand increases and supply increases. Which of the;following will happen?;A) Equilibrium price;will rise, fall, or stay the same while equilibrium quantity will decrease.;B) Equilibrium price will rise, fall, or stay the same while equilibrium;quantity will increase.;C) Equilibrium quantity will rise, fall, or stay the same and equilibrium price;will increase.;D) Equilibrium quantity will rise, fall, or stay the same while equilibrium;price will decrease.;E) The change in equilibrium price and quantity cannot be determined.;9. The invisible hand principle, as developed by Adam Smith inThe Wealth of Nations, states that;A) government control;over economic activity is essential for the talents of individuals to be;directed toward their highest valued use.;B) the economic wealth of a nation is determined by a nation's holdings of;precious metals, such as gold and silver.;C) public policy should prohibit domestic producers from selling their goods to;foreigners.;D) competitive markets will bring individual self-interest and the public;interest into harmony.;10.;Refer to Figure 3-18. Which;area represents the increase in consumer surplus when the price falls from P1;to P2?;A) ABD;B) ACF;C) DEF;D) BCFD;11. According to the law of supply, as the price of a good decreases;A) buyers will buy more;of the good.;B) sellers will produce more of the good.;C) buyers will buy less of the good.;D) sellers will produce less of the good.;12. If the demand for a good increases, which of the following will;generally occur in a market setting?;A) The price of the good;will decrease.;B) The supply of the good will increase.;C) The quantity supplied will increase.;D) Producer profits will fall.;13. Other things constant, as the price of a resource increases;A) the quantity of the;resource demanded falls.;B) the quantity of the resource supplied falls.;C) the price of the product the resource helps to produce falls.;D) there is less of an incentive for users of the resource to find substitute;resources.;14. If a government price control succeeds in affecting price, it can;be expected to lead to a corresponding;A) decrease in the;quantity of sales only if the price is forced down.;B) decrease in the quantity of sales if the price is forced down and an;increase in the volume of sales if the price is forced up.;C) decrease in the quantity of sales whether the price is forced up or down.;D) increase in the quantity of sales whether the price is forced up or down.;15. When a price floor is imposed above the equilibrium price of a;commodity;A) quantity demanded;will be greater than quantity supplied for the good.;B) the quantity demanded by consumers will be greater than at the equilibrium;price.;C) a shortage of the good will develop.;D) a surplus of the good will develop.;16. If Heather's tax liability increases from $10,000 to $13,500 when;her income increases from $30,000 to $40,000, her marginal tax rate is;A) 33 percent.;B) 35 percent.;C) 50 percent.;D) 60 percent.;17. According to the Laffer curve;A) an increase in tax;rates will always cause tax revenues to increase.;B) when marginal tax rates are high, an increase in tax rates is likely to;cause tax revenues to increase.;C) when marginal taxes are low, an increase in tax rates will probably cause;tax revenues to decline.;D) when marginal tax rates are high, a reduction in tax rates may increase tax;revenue.;18. When the government increased its involvement in rescue efforts;on Mount McKinley (the tallest peak in North America), the number of mountain;climbing deaths;A) decreased slightly.;B) decreased substantially.;C) remained the same.;D) increased.;19. Use the figure below to answer the following question(s).;Refer to Figure 4-7. The;supply curve S1 and the demand curve D indicate initial conditions in the;market for gasoline. A $.60-per-gallon excise tax on gasoline is levied, which;shifts the supply curve from S1 to S2. Imposing the tax causes the equilibrium;price of gasoline to increase from;A) $.80 to $1.40.;B) $.80 to $1.50.;C) $.90 to $1.50.;D) $.90 to $1.40.;20. Refer to Figure 4-7. The supply curve S1 and the;demand curve D indicate initial conditions in the market for gasoline. A;$.60-per-gallon excise tax on gasoline is levied, which shifts the supply curve;from S1 to S2. Which of the following states the actual;burden of the tax?;A) $.50 for buyers and;$.10 for sellers;B) $.50 for sellers and $.10 for buyers;C) The entire $.60 falls on sellers.;D) The entire $.60 falls on buyers.;21. Use the figure below to answer the following question(s).;Refer to Figure 4-9. The;market for gasoline was initially in equilibrium at point b and a $.40 excise;tax is illustrated. Which of the following states the actual burden of the tax?;A) $.20 for buyers and;$.20 for sellers;B) $.30 for buyers and $.10 for sellers;C) The entire $.40 falls on sellers.;D) The entire $.40 falls on buyers.;22.;Refer to Figure 4-17.;Suppose a price floor of $7.00 is imposed. As a result;A) buyers' total;expenditure on the good decreases by $20.00.;B) the supply curve will shift to the left so as to now pass through the point;(Q = 40, P = $7.00).;C) the quantity of the good demanded decreases by 20 units.;D) the price of the good continues to serve as the rationing mechanism.;23.;Refer to Figure 4-25.;The equilibrium price before the tax is imposed is;A) P1;B) P2;C) P3;D) impossible to determine from the figure.;24. Black markets that operate outside the legal system are often;characterized by;A) low profits for;suppliers.;B) lower opportunity costs for suppliers and buyers.;C) decreased prices.;D) the use of violence as a means of settling disputes.;25. Suppose external costs are present in a market which results in;the actual market price of $50 and market output of 800 units. How does this;outcome compare to the efficient, ideal equilibrium?;A) The efficient outcome;would be greater than 800 units.;B) The efficient outcome would be less than 800 units.;C) The efficient outcome would also be 800 units.;D) The efficient price would be less than $50.;26. Suppose external costs are present in a market which results in;the actual market price of $84 and market output of 320 units. How does this;outcome compare to the efficient, ideal equilibrium?;A) The efficient price;would be higher than $84.;B) The efficient price would be lower than $84.;C) The efficient price would also be $84.;D) The efficient output would be greater than 320 units.;27. Compared to ideal economic efficiency, when the production of a;good generates external benefits, competitive markets will likely result in an;output that is too;A) large and a price;that is too high.;B) large and a price that is too low.;C) small and a price that is too high.;D) small and a price that is too low.;28. A car sells at different prices at different dealerships in a;local market. If a consumer has imperfect information about the price of a car;at each dealership, he should;A) always gather all;available information about prices.;B) gather information about prices until the expected marginal benefit of more;information equals the marginal cost of gathering it.;C) gather information about prices only if it can be gathered without cost.;D) ignore information about prices because it is irrelevant to making an;optimally imperfect" decision.;29. The problem created when it is difficult to exclude nonpaying;customers is called the;A) consumption-payment;link problem.;B) free-rider problem.;C) public sector dilemma.;D) asymmetric information problem.;30. Which of the following provides the best summary of the basic;idea of public choice analysis?;A) Public choice;analysis applies the principles of economics to political science topics.;B) Public choice analysis takes the principles of political science and applies;them to the traditional topics of economics.;C) Public choice analysis uses the principle of majority rule to determine the;efficiency of an action.;D) Public choice analysis indicates there is a sharp distinction between;economic and political topics.;31. In a representative democracy, government action results from the;A) choices of voters.;B) legislative decisions by politicians.;C) political action of organized interest groups.;D) complex interaction of all of the above.;32. Which of the following;increases the political power of special interest groups and makes;counterproductive government action more likely?;A) logrolling and pork;barrel legislation;B) the rational-ignorance effect;C) public goods;D) both a and b, but not c;33. Use the figure below to answer the following question(s).;Figure 6-1 illustrates;the four possibilities of the distribution of costs and benefits among voters;for a government project. For which type would the government most likely fail;to undertake many projects that would be considered efficient or productive (in;other words, do too few of them relative to economic efficiency)?;A) type A;B) type B;C) type C;D) type D;34. Despite many differences, the market and public sectors are;similar in which one of the following respects?;A) In both sectors;income (or power) is distributed on the basis of the same criterion.;B) Consumers in the market sector and voters in the public sector are equally;well informed.;C) Voluntary exchange, rather than compulsion, is characteristic of both sectors.;D) It will be costly to use scarce goods, whether through the private or the;public sector.;35. Studies indicate that the demand for fresh tomatoes is much more;elastic than the demand for salt. These findings reflect that;A) tomatoes are a necessity;while salt is a luxury.;B) it takes longer for consumers to adjust to a change in the price of salt;than to a change in the price of tomatoes.;C) salt will not spoil as easily as fresh tomatoes.;D) more good substitutes exist for fresh tomatoes than for salt.;36. The principle of diminishing marginal utility says that;A) as more of a good or;service is consumed, demand will decrease.;B) as more of a good or service is consumed, the price will rise.;C) the marginal utility of additional units consumed will increase.;D) the marginal utility of additional units consumed will decline.;37. The demand curve for a good is very unlikely to be perfectly;vertical because;A) scarcity and limited;income restrict the ability of consumers to afford goods as they become very;expensive.;B) as the price of a good rises to high enough levels, the incentive for other;suppliers to invent new substitutes for the good increases.;C) consumers generally do not care about the price of the goods they consume.;D) both a and b are true.;38. As the period for firms to expand output is lengthened, the;elasticity of the market supply curve will;A) approach zero.;B) increase.;C) decrease.;D) remain the same since time does not affect the elasticity of market supply.;39. The price elasticity of demand for automobiles measures the;responsiveness of;A) consumer purchases to;a change in the price of automobiles.;B) consumer purchases to a change in the quality of automobiles.;C) supplier production levels to a change in the price of automobiles.;D) consumer purchases of automobiles to a change in their income.;40. Which of the following is true regarding the price elasticity of;demand?;A) Demand is generally;more elastic in the long run than in the short run.;B) Along a single demand curve, demand elasticity decreases as you move down;the curve (to lower prices).;C) A demand curve that is flatter (has a less steep slope) is relatively more;elastic than a demand curve that has a steeper slope.;D) All of the above are true.;41. Essay (AnswerONE of the Following Question);?;Economists maintain that the price of a product has no effect on;demand. How can this be true?;?;National defense is considered a public good because there appears;to be no limits to the nonrivalry-in-consumption characteristic, and exclusion;of nonpayers is impossible. Are there any other goods that so perfectly meet;both public goods criteria?;?;Congressman Localstuff always votes for a balanced budget;amendment to the U.S. Constitution. He also always votes for spending bills;supported by the leadership of his political party. Is this rational?
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