Opportunity costs are experienced whenever choices are made.
Which of the following is an example of labor as a factor of production?
The skills and abilities of workers.
Which of the following is not included in U.S. GDP?
Toys produced by a U.S. firm located in China
Account for two-thirds of total U.S. output.
As an economy moves out of a recession into a period of economic growth, consumers tend to increase expenditures on:
Goods and services sold to foreigners.
The factors of production include all of the following except:
Are owned by one individual.
A demand schedule refers to the combinations of price and quantity that represent the:
Desires of consumers
The market supply of a particular good:
Is the sum of the quantities of the good that all producers are willing and able to sell.
Economists make a distinction between changes in quantity demanded and changes in demand:
To distinguish a movement along a demand curve from a shift of the demand curve.
According to the law of demand
Price and quantity demanded are inversely related.
Which of the following events would cause a rightward shift in the supply curve for automobiles?
An improvement in the technology used to produce automobiles.
A market is said to be in equilibrium when:
The quantity demanded equals the quantity supplied.
A market shortage occurs when:
The market price is below equilibrium
If supply is unchanged, a rightward shift in the demand curve for gourmet ice cream will result in:
An increase in equilibrium quantity and a higher equilibrium price.
A market shortage is:
Caused by a price ceiling.
The invisible hand is most consistent with:
The market mechanism without government interference.
According to the law of diminishing marginal utility:
Marginal utility of a good declines as more of it is consumed in a given time period
Total utility is maximized when:
Marginal utility is zero.
Suppose a university raises its tuition by 8 percent and as a result the enrollment of students drops by 4 percent. The price elasticity of demand is closest to:
If demand is elastic, then:
Quantity demanded is very responsive to changes in price.
If demand is unitary elastic, then a price cut:
Does not change total revenue.
People find it difficult to get along without necessities, therefore demand for necessities:
Is relatively inelastic.
If the price of battery-powered flashlights falls and the demand for flashlight batteries rises, then flashlights and batteries are:
When income decreases, the demand for most products:
Decreases and the demand curve shifts to the left.
The demand for such items as salt, sugar and hand soap tend to be:
Which of the following is a constraint that motivates economic interactions?
The limited resources that individuals have.
Which of the following is not a factor of production?
A price floor:
Creates a market surplus.
The law of demand states that:
Price and quantity demanded are inversely related.
TRUE/FALSE: The goal of economic theory is to explain and predict consumption choices.
Which of the following is not an example of investment?
A business owner uses his profits to play the lottery and wins.
Which of the following is likely to cause an outward shift of the production possibilities curve?
Investment in telecommunications networks.
Suppose during a year an economy produces $10 trillion of consumer goods, $4 trillion of investment goods, $6 trillion in government services, and has $4 trillion of exports and $5 trillion of imports. GDP would be:
Suppose your tax is $4,000 if your income is $40,000, and your tax is $9,000 if your income is $70,000. Such a tax structure is:
An increase in the supply of frozen yogurt will take place when:
The cost of producing frozen yogurt decreases.
If supply is constant, a decrease in the demand for potato chips will cause:
A decrease in equilibrium price and a decrease in equilibrium quantity.
If a state adopts a free college tuition program, ceteris paribus, economists expect there to be a:
A shortage of college education opportunities in the state.
Land, labor, capital and entrepreneurship are called:
Factors of production.
When producing jeans, which of the following is not a variable cost in the short run?
Rent for the factory
In the long run, a company will stay in business as long as price is:
Greater than or equal to average total costs.
The planning period over which at least one resource input is fixed in quantity is the:
Which of the following is true about the short run?
Some inputs are fixed.
The number and relative size of firms in an industry is the definition of:
If marginal cost equals price, then _____ is at a maximum.
Obstacles that make it difficult or impossible for additional producers to begin producing or selling in a new market are referred to as:
Barriers to entry.
Equilibrium price refers to the:
Price at which the quantity demanded of a good equals the quantity supplied.
Charges a higher price than a competitive firm, ceteris paribus.
The most desirable rate of output is the one that:
Maximizes total profit.
TRUE/FALSE: For a monopoly, profits are maximized at the output level where price and marginal cost are equal.
Which of the following is not a barrier to entry into a monopoly market?
The existence of substitute goods.
For a monopolist, marginal revenue is:
Always less than price, after the first unit.
TRUE/FALSE: According to the profit-maximization rule, a firm should produce at the rate of output where marginal revenue equals marginal cost.
Which of the following is not consistent with a monopoly industry?
Many firms produce identical or similar products.
A natural monopoly is a firm that:
Can produce the entire market supply more efficiently than any number of smaller firms.
Which of the following do a monopolist and a competitive firm have in common?
TRUE/FALSE: When there are economies of scale, a firm can simply increase capital and unit costs will decline.
In terms of pricing, which of the following is not true for a monopolist?
In the long-run economic profit is impossible.
A HEADLINE article in the text, titled "Music Firms Settle Lawsuit" discusses price fixing by music companies and retailers. Which market structure is most likely to be successful in price fixing?
Oligopoly but not perfect competition.
The equilibrium price for a perfectly competitive firm always occurs:
At the intersection of market supply and market demand.
Under both monopoly and perfect competition, a firm
operates where marginal revenue equal marginal cost.
Consumers may not experience the benefits of economies of scale if a natural monopoly:
Raises price and fails to pass cost savings on to consumers.
Suppose a monopoly firm produces software and can sell 10 items per month at a price of $50 each. In order to increase sales by one item per month, the monopolist must lower the price of its software by $1 to $49. The marginal revenue of the 11th item is:
If Pepsi and Coke are the only two soft drink producers, they could be considered:
An industry in which a few large firms supply most or all of a product is known as:
An individual wheat farmer has no market power because:
It must accept the equilibrium market price.
The goal of most business firms is to:
Maximize total profit.
In long-run competitive market equilibrium, price equals _______ and economic profit is ______.
Minimum average total cost; zero
Suppose a monopoly pharmaceutical company produces a drug and sells 100 prescriptions for $25 each. In order to sell 101 prescriptions, the monopolist must lower the price to $24 per prescription. The marginal revenue of the 101st prescription is:
Which of the following statements is true, assuming the same cost and demand conditions?
A monopoly produces less output than a competitive firm
Obstacles that make it difficult or impossible for would-be producers to enter a market are known as:
Barriers to entry.
The law of diminishing returns indicates that the marginal physical product of a factor declines as more:
Of the factor is used, holding other inputs constant.
It is impossible to:
Avoid fixed costs in the short run.
Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600.
What are the daily accounting costs for the firm described above?
Market supply in a competitive market is determined by:
The cost of factor inputs.
Which of the following is most likely a fixed cost?
A flat or horizontal demand curve for a firm indicates that:
The firm has no market power.
TRUE/FALSE: Patents and copyrights contribute to market power for a firm.
Externalities are the:
Difference between social and private costs or benefits.
One HEADLINE article in the text links secondhand smoke to cancer and other health issues. Which type of market failure does the article illustrate?
A public good is:
The source of the free-rider dilemma.
A decline in real GDP for at least two consecutive quarters is referred to as:
Which of the following is not a basic measure of macroeconomic performance?
Suppose a recent college graduate has an annual nominal income of $42,000 for the first year she works. If the annual inflation rate is 5 percent, what salary would she need in the second year to maintain the same real income?
The labor force is smaller than the total population because the labor force does not include:
The very young and old.
Which of the following is an example of the wealth effect during a period of inflation?
You hold money in a savings account that earns 5 percent interest while the price level doubles
Keynes and classical economists disagree about whether:
Government intervention should be used to correct business cycles.
During the Great Depression, classical theorists believed that:
Decreases in production were temporary.
Which of the following suggests that lower average prices stimulate more borrowing?
The interest rate effect
Which of the following is an example of the interest-rate effect, assuming the U.S. price level decreases?
The demand for loans decreases so interest rates decline and loan-financed purchases increase
According to Keynesian theory, the correct fiscal policy action to stimulate the economy would be to:
Increase government expenditures to increase aggregate demand.
Which of the following is the correct formula for the marginal propensity to consume?
MPC = 1 - MPS
If consumers save 21 cents out of every dollar received, the:
MPS is 0.21.
Disposable income is:
The after-tax income of consumers
TRUE/FALSE: Fiscal restraint may be an appropriate policy if inflation is a threat.
The terrorist attacks in September 2001 reduced consumer confidence. Which of the following indicates the appropriate change in the U.S. economy?
Aggregate demand shifted to the left
The multiplier is equal to:
1 ÷ MPS.
Which of the following is not a function performed by banks?
Determining fiscal policy.
If total reserves for a bank are $10,000, excess reserves are zero, and demand deposits are $100,000, then the money multiplier must be:
Ceteris paribus, if Tamika pays off a loan at the bank then over time
The money supply becomes smaller.
Which of the following is not true about money?
It must be minted by the government in order to have value
One HEADLINE article in the text has the title "Fed cuts key interest rate half-point to 1 percent." Assuming the economy is in the upward sloping portion of the eclectic aggregate supply curve, what should happen to the price level and output as a result of the Fed's action, ceteris paribus?
The equilibrium price level and equilibrium output should both increase.
The shape of the _____ curve determines the impact of an aggregate demand shift on prices and output.
The chairman of the Federal Reserve Board of Governors:
Serves a four-year term and can be reappointed.
As the economy falls from the peak to the trough of the business cycle:
Cyclical unemployment should increase and real GDP should decline.
One reason our full employment goal is not zero percent is because:
Frictional unemployment will always exist.
The Classical view of the economy is characterized by:
A laissez-faire approach.
Which of the following is necessary for an economy to self-adjust fairly quickly, according to classical economists?
Flexible wages and prices
Ceteris paribus, if the average price level falls, then the _____ effect will result in _____ in the purchases of goods and services.
Real balances; an increase
In a graph of the aggregate demand curve, a decrease in investment by businesses is represented by a:
Leftward shift of the curve
Which of the following will occur if aggregate demand is below full-employment GDP?
Unemployment that occurs when there are not enough jobs for the number of people in the labor force is referred to as: