Midterm Exam

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In a market economy a significant change in consumers' desire for product X will:

do all of these.

Economic profits in an industry suggest the industry:

should be larger to better satisfy consumers' desire for the product.

Which of the following is not one of the five fundamental questions?

What prices will be charged for goods and services?

"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the:

coordination problem under central planning.

In the simple circular flow model:

businesses are sellers of final products.

Refer to the diagram. Flow (2) represents:

land, labor, capital, and entrepreneurial ability.

Refer to the diagram. Arrows (3) and (4) represent:

incomes and consumer expenditures respectively.

One reason that the quantity demanded of a good increases when its price falls is that the:

lower price increases the real incomes of buyers, enabling them to buy more.

Which of the following statements is correct?

An increase in the price of C will decrease the demand for complementary product D.

A shift to the right in the demand curve for product A can be most reasonably explained by saying that:

consumer preferences have changed in favor of A so that they now want to buy more at each possible price.

If X is a normal good, a rise in money income will shift the:

demand curve for X to the right.

Suppose an excise tax is imposed on product X. We would expect this tax to:

decrease the demand for complementary good Y and increase the demand for substitute product Z.

Refer to the diagram. A decrease in demand is depicted by a:

shift from D2 to D1.

The supply curve shows the relationship between:

price and quantity supplied.

Assume product A is an input in the production of product B. In turn product B is a complement to product C. We can expect a decrease in the price of A to:

increase the supply of B and increase the demand for C.

With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will:

increase equilibrium price and quantity if the product is a normal good.

Over time, the equilibrium price of a gigabyte of computer memory has fallen while the equilibrium quantity purchased has increased. Based on this we can conclude that:

Increases in the supply of computer memory have exceeded increases in demand.

The largest functional share of the national income consists of:

wages and salaries.

The three basic legal forms of business enterprise are:

proprietorships, partnerships, and corporations.

The most crucial determinant of the legal form of an enterprise will usually be the:

amount of financial capital required by the line of production.

The owners of a firm face unlimited liability for the firm's debts in:

both a proprietorship and a partnership.

When externalities cause substantial positive benefits for third parties, a competitive market:

underallocates resources to the production of the good.

When the production or consumption of a good involves an externality:

someone not involved in buying or selling the good is affected.

A quasi-public good is:

a good for which exclusion could take place but that has such large spillover benefits that government provides it to prevent an underallocation of resources.

In a full-employment economy government can reallocate resources from private to public employment by:

increasing taxes and increasing government expenditures.

Which of the following is not an important source of revenue for the Federal government?

property taxes

The marginal tax rate is:

change in taxes / change in taxable income.

Which of the following statements is correct?

United States exports and imports have been expanding as a percentage of U.S. GDP but the U.S. share of total world trade has been declining.

Which of the following concepts provides the basic rationale for international trade?

comparative advantage.

Renee earns $500 per hour in the courtroom as a trial lawyer; she can type up her legal documents at a rate of 80 words per minute. Christopher has no training as a trial lawyer, but can type legal documents at a rate of 50 words per minute for a wage of $30 per hour. Based on the theory of comparative advantage:

Renee should specialize in courtroom trials and hire Christopher to type her legal documents.

If yesterday $1 would buy 800 South Korean won, but today $1 will only buy 790 won; the:

dollar has depreciated in value.

A trade bloc is:

a group of nations that allows free trade among member nations but restricts imports from nonmember nations via tariffs and quotas.

Which of the following is an example of a land-intensive commodity?


In the theory of comparative advantage, a good should be produced in that nation where:

its cost is least in terms of alternative goods that might otherwise be produced.

Refer to the above information. In Singsong the domestic real cost of each chicken:

is 1/2 a fish.

Other things equal, a tariff is:

superior to an import quota for Americans because a tariff generates revenue for the United States Treasury.

Economic scarcity:

applies to all economies.

The pursuit of self-interest:

gives direction to the market system


entails the exchange of goods for goods.

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