Download Ch.1: Preliminaries Multiple Choice: 1. The study of economics

Ch.1: Preliminaries
Multiple Choice:
1. The study of economics concentrates on:
a.
only how firms operate
b.
only how resources are allocated to meet businesses demands
c.
how scarce resources are allocated to satisfy human wants
d.
only how goods and services are destroyed by human beings
2. Markets perform which of the following tasks:
a. they provide a means by which buyers and sellers can interact
b. they determine the prices of goods and services traded there
c. they allocate resources
d. they provide a means for information to be reflected in prices
e. they perform all of the above tasks
3. Normative economic statements deal primarily with:
a. facts
b. a production possibilities frontier analysis
c. the way things should be
d. how to measure economic variables
4. Positive economic statements deal primarily with:
a. the way things should be
b. opinions
c. facts
d. feelings
5.
The validity of theories is judged based on their:
a. elegance
b. common sense
c. emphasis on normative economic statements
d. emphasis on ambiguous economic statements
e. accuracy describing how things work
6.
An area of concern in the study of microeconomics would be:
a. the inflation rate
b. consumer choice
c. the unemployment rate
d. the rate of economic growth
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7.
In perfectly competitive markets:
a. neither a single buyer nor a single seller can affect prices
b. only sellers can affect prices; buyers are powerless
c. only buyers can affect prices; sellers are powerless
d. sellers often collude to set high prices
e. a small number of sellers compete with a large number of buyers
8.
______________ is concerned with the overall performance of the economy, while
_____________________ concentrates on individual decision making and how prices and
output are determined.
a. microeconomics; macroeconomics
b. macroeconomics; microeconomics
c. Occam's Razor; macroeconomics
d. Production Possibilities Frontier Analysis; macroeconomics
9.
Suppose that the CPI in an earlier year A was 200, and the
CPI in a later year B was 300. If the nominal price of a pair of shoes in year B was $60,
what was its real price in terms of year A dollars?
a. (300/200) x $60 = $90
d. (300/200) x $100 = $150
b. (200/300) x $60 = $40
e. (200 x 300)/ $100 = $600
c. (200/300) x $100 = $67
10. Which statement concerning real prices and nominal prices
is most nearly correct:
a.
nominal prices are those listed on the price tags, whereas real prices take account of
discounts, credit terms, etc.
b.
nominal prices have been adjusted for inflation, but real prices have not
c.
in a period of inflation, real prices will be lower than nominal prices
d.
nominal prices are the prices buyers are willing to pay, whereas real prices are the
prices sellers actually charge
e.
in a period of inflation, real prices will be higher than nominal prices
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Ch.2 The Basics of Supply and Demand
Multiple Choice:
11.
The market mechanism is:
a.
the device whereby buyers are able to sell goods and services in the market place.
b.
the device that causes demand to shift when price is below equilibrium
c.
the tendency for price to adjust until the market clears
d.
the tendency for supply to decrease when price is above equilibrium
12.
Which of the following will cause the demand for beef to increase:
a.
a fall in the price of beef
b.
an decrease in income if beef is a normal good
c.
a decrease in the price of chicken, a substitute for beef
d.
a decrease in income if beef is an inferior good
13.
Two goods, X and Y, are said to be substitutes in demand if:
a.
an increase in the price of X decreases the demand for Y
b.
a decrease in the price of X increases the demand for Y
c.
an increase in the price of X increases the demand for Y
d.
an increase in income increases the demand for both X and Y
14.
Two goods, X and Y, are said to be complements in demand if:
a.
an increase in the price of X decreases the demand for Y
b.
a decrease in the price of X increases the demand for Y
c.
an increase in the price of X increases the demand for Y
d.
an increase in income increases the demand for both X and Y
e.
a and b
15.
A decrease in demand:
a.
shifts the demand curve to the left
b.
shifts the demand curve to the right
c.
indicates a movement up the demand curve
d.
makes the demand curve more nearly vertical
16.
Suppose there is a freeze in Florida which leads to a national reduction of oranges supplied
and at the same time it is claimed that orange juice cures the common cold. What will
happen to the equilibrium price and quantity of orange juice?
a.
price will rise, quantity indeterminate
b.
price indeterminate, quantity falls
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c.
d.
price falls, quantity rises
price rises, quantity falls
17.
Among the factors shifting the demand curve for "Doritos" is:
a.
the supply of "Doritos"
b.
the costs of producing "Doritos"
c.
the income available for consumption
d.
the price of "Doritos"
18.
Which of the followng would cause the demand curve for Calvin Klein jeans to shift to the
right:
1.
the makers of Jordache jeans lower their price
2.
Actress Brooke Shields strikes a fetching pose, legs skyward, and pouts to the
camera: "Whenever I get some money I buy Calvins. And if there's any left, I pay
the rent." The commercial is a smashing success.
3.
Levi Strauss sues all makers of designer jeans. Production costs rise for all jeans.
a.
b.
c.
d.
e.
19.
1 only
2 only
1 and 2 only
2 and 3 only
1, 2, and 3
Which one of the following events will increase the demand for flyswatters:
a.
the price of insecticide or screening goes up
b.
the rental rate on vacation cabins goes up
c.
the price of flypaper goes down
d.
the price of bug zappers goes down
20.
If producers of Toyota cars expect the price of these cars to increase in the future they
would respond (at the present time) by: (Note: Produced and supplied are different concepts.
Supply (or supplied) means sold, not just produced.)
a.
increasing their present supply (sold)
b.
decreasing their present supply (sold)
c.
increasing their present quantity supplied (sold)
d.
decreasing their present quantity supplied (sold)
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The Basics of Supply and Demand
Multiple Choice:
21.
Market equilibrium occurs when:
a.
demand equals supply
b.
quantity demanded equals quantity supplied
c.
the price sellers ask for goods is less than the price consumers pay for those goods
d.
a shortage exists
22.
The difference between supply and quantity supplied is:
a.
a change in quantity supplied is caused only by a change in the price of the good,
while a change in supply occurs whenever the ceteris paribus assumption is violated
b.
a change in quantity supplied is a movement along a given supply curve, while a
change in supply is a shift of the entire curve
c.
quantity supplied is determined by price, while supply is made of various
combinations of price and quantities
d.
all of the above
23.
An decrease in supply, accompanied by a decrease in demand, will:
a.
reduce the equilibrium quantity, but price may either increase or decrease
b.
reduce the equilibrium price, but quantity may either increase or decrease
c.
definitely reduce both the equilibrium price and quantity
d.
definitely increase both the equilibrium price and quantity
USE THE EQUATIONS OF DEMAND AND SUPPLY SHOWN BELOW TO ANSWER
QUESTIONS 24 & 25 :
Demand: Qd = 100 - P
Supply: Qs = -20 + 3P
24. What are the equilibrium price and quantity?
a. P=60, Q=40
c. P=50, Q=50
b. P=40, Q=60
d. P=30, Q=70
25.
a.
b.
c.
d.
e.
If the government placed a price floor of $50 on this market
the surplus would be 80 units
the surplus would be 20 units
the surplus would be 50 units
the shortage would be 20 units
none of the above
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26.
a.
b.
c.
d.
e.
27.
a.
b.
c.
d.
A substantial rise in door bell production combined with a large decrease in the price of
knockers would tend to:
raise the price of door bells
lower the price of door bells
leave the price of door bells unchanged
raise or lower the price of door bells depending on the magnitude of the two changes
bring back "Knock, knock" jokes
Which of the following changes would be expected to decrease the supply of U.S. made
automobiles:
a decrease in the price of automobiles
a decrease in the price of automobiles made in Japan
an increase in the wage rate of U.S. automobile assembly line workers
an improvement in the U.S. automobile manufacturing technology
28.
The government reduces the excise tax by $10 per unit sold on the sellers in a competitive
industry. Both supply and demand have some elasticity with respect to price. This
reduction in tax means:
a.
supply will decrease and equilibrium price will rise
b.
supply will decrease and equilibrium price will fall
c.
supply will increase and equilibrium price will fall
d.
supply will increase and equilibrium price will rise
29.
An increase in the number of firms producing stereos occurring at the same time that
consumers’ demand for stereos decreases results in a(n)
in equilibrium price and
equilibrium quantity will
.
a.
decrease; be uncertain
b.
increase; be uncertain
c.
decrease; increase
d.
increase; decrease
30.
Shortages and surpluses:
a.
occur when the market is not in equilibrium
b.
occur whenever quantity supplied and quantity demanded are not the same
c.
occur whenever the market price of a good is below or above the equilibrium price
d.
all of the above
6
The Basics of Supply and Demand
Multiple Choice:
31.
OPEC announces a new agreement on production quotas that will reduce the amount of oil
produced by member countries next year. The announcement will have the effect this year
of:
a.
shifting the demand curve to the right
b.
shifting the demand curve to the left
c.
have no effect on supply or demand this year
d.
have no effect on equilibrium price this year
32.
A number of "mini-breweries" are springing up in the United States producing a substitute
for traditional beer. As the price of these products decreases:
a.
the demand for traditional beers will probably increase
b.
the quantity demanded for mini-breweries beer will decrease
c.
the demand for traditional beers will probably fall
d.
the quantity demanded for traditional beers will fall
33.
At your favorite watering spot, happy hour prices are less than normal prices for all drinks
except wine. No discount prices are offered for wine. You can conclude that:
a. wine drinkers may be price elastic
b. wine is a substitute and thus sales will rise without a price reduction
c. wine drinkers may be price inelastic
d. none of the above could be correct
34.
35.
36.
If the actual price were above the equilibrium price in the market for bread:
a.
a surplus would develop and get worse
b.
a shortage would develop and market forces would tend to correct the problem
c.
a surplus would develop, but market forces would tend to correct the problem
d.
a shortage would develop and market forces would tend to make it worse
Elasticity measures:
a.
the slope of the demand curve
b.
the inverse of the slope of the demand curve
c.
the percentage change in one variable in response to a one percent change in another
variable
d.
sensitivity of price to a change in quantity
The elasticity of supply of secondary resources (e.g., scrap metals) is:
a.
greater in the short-run than the long-run
b.
about the same in the short-run and the long-run
c.
greater in the long-run if the demand is price elastic
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d.
greater in the long-run than the short-run
37.
For a durable good, the short-run income elasticity is:
a.
smaller than the long-run elasticity
b.
usually identical to the long-run elasticity
c.
larger than the long-run elasticity
d.
very close to zero
38.
In the long run, the supply elasticity of primary products tends to be:
a.
less elastic than in the short-run
b.
more elastic than in the short-run
c.
perfectly elastic in most markets
d.
perfectly inelastic in most markets
39.
Plastic and steel are substitutes in some applications. They are substitutes in some body
panels in automobiles. If the price of plastic decreases, with other things remaining the
same we would expect:
a.
the price of steel to fall in response to the change in price of plastic
b.
the demand for steel to increase
c.
the quantity demanded of steel to increase
d.
nothing to happen to steel because it is only a substitute for plastic
40.
If the government places a price floor on good X, the surplus will be smallest if the price
elasticity of demand is:
a.
0.0 b. -0.5 c. -1.0 d. -2.0 e. -3.0
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The Basics of Supply and Demand
41.
The demand for a durable good will tend to be more elastic when:
a.
there are many substitutes for the good
b.
there are few substitutes for the good
c.
we are considering demand in the short-run
d.
we are considering demand in the long-run
e.
both a and c
42.
The price elasticity of demand for non durables is ___________ in the long run than in the
short run
a.
greater b. less than c. the same
43.
If quantity demanded decreases 10% when price rises from $10 to $12, demand is:
a.
elastic
c. unitary elastic
b.
inelastic
d. cannot be determined
44.
Suppose quantity demanded increases by 10% when there is a 20% decrease in price. Then
the elasticity of demand coefficient is:
a. -1/2
c. -2
b. -1/20
d. -20
45.
George Herman budgets a fixed amount of his weekly allowance to the purchases of
baseball cards. This would imply that his demand for baseball cards is:
a.
linear and downward sloping
b.
perfectly inelastic
c.
unit elastic
d.
upward sloping
46.
Cross elasticity of demand measures:
a.
the percentage change in the price of good X in response to a change in the quantity
demanded for good Y
b.
the percentage change in the quantity demanded for good X in response to a
percentage change in the price of good Y
c.
the percentage change in the quantity demanded for good Y in response to a change
in the quantity demanded for good X
e.
the absolute change in the quantity demanded for good X divided by the absolute
change in the price of good Y
47.
Income elasticity of demand is defined as:
a.
the percentage change in quantity demanded divided by the percentage change in
income
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b.
c.
d.
the percentage change in quantity demanded multiplied by total income
the percentage change in income divided by the percentage change in quantity
demanded
the percentage change in income multiplied by the percentage change in quantity
demanded
48.
If the demand for Kellogg's Frosted Flakes is very elastic:
a.
Frosted Flakes will have a high price
b.
Frosted Flakes is probably an inferior good
c.
a decrease in the price will reduce expenditures on Frosted Flakes
d.
there are many close substitutes for Frosted Flakes
49.
As a market analyst for the U.S. Department of Transportation, in trying to determine the
impact of free public transit on the use of automobiles, you would be most interested in the
concept of:
a.
price elasticity of demand
b.
price elasticity of supply
c.
income elasticity of demand
d.
cross elasticity of demand
50.
Which of the following values would most likely represent the cross elasticity of demand
between Reese's Pieces and M&M's:
a.
3.0 b. -1.0 c. 0 d. -2.0
10
The Basics of Supply and Demand
Essay/Problem:
1.
In the same graph, show a simultaneous increase in demand and
happens to equilibrium price and quantity
supply.
Show
what
2.
In the same graph, draw a simultaneous increase in supply and decrease in demand. Show
what happens to equilibrium price and quantity.
3.
In the same graph, draw a simultaneous increase in demand and a decrease in supply.
Show what happens to equilibrium price and quantity
4.
Draw the effects of consumers and producers expectations of a price decline.
5.
Draw the effects on equilibrium price and quantity when a large increase in demand
occurs and at the same time a small decline in supply takes place.
6.
The demand for cantaloupes is
P = 120 - 3QD and the supply is P = 5Qs
What is the equilibrium price and quantity of cantaloupes?
7.
What will happen to the equilibrium prices and quantities of golf clubs and golf balls if the
cost of producing golf clubs (but not golf balls) increases?
8.
The cost of a college education rose throughout the 1970's increased yet more people chose
to attend. This constitutes a violation of the law of demand. True or false? Explain.
9.
The cost of an input for tennis rackets increases, but not for tennis balls. What happens to
equilibrium P & Q for balls and rackets?
10.
The U.S. Department of Agriculture is interested in analyzing the domestic market for corn.
The USDA's staff economists estimate the following equations for the demand and supply
curves:
Qd = 1600 -125P
Qs = 440 + 165P
Quantities measured in millions of bushels, prices measured in dollars per bushel.
a.
Calculate the equilibrium price and quantity that will prevail under a completely free
market.
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11.
b.
Calculate the price elasticities of supply and demand at the equilibrium values.
c.
The government currently has a $4.50 per bushel support price in place. What
impact will this support price have on the market? Will the government be forced to
purchase corn under the program that requires them to buy up any surpluses? If so,
how much?
The demand for rental houses is Xd = 400 - 0.75P.
The supply for rental houses is Xs = 0.25P.
a) What is the equilibrium quantity and price of houses?
b) Suppose the city council imposes a rent ceiling of $100 per month. Will there be a
surplus or shortage? How large is the surplus or shortage?
12.
Midcontinent Plastic makes 75 fiberglass truck hoods per day for large truck manufacturers.
Each hood sells for $450.00. Midcontinent sells all of it's products to the large truck
manufacturers. The price elasticity of demand for hoods is only -0.4. The price elasticity of
supply is 1.5
a.
Compute the supply and demand for truck hoods.
b.
13.
If the local county government imposed a per-unit tax of $25.00 per good
manufactured, what would be the new equilibrium price of hoods to the truck
manufacturer?
Example 2.6 of the textbook analyzes the world oil market. Using the data given in that
example:
a.
Show that the short-run demand and competitive supply curves are indeed given by:
D = 18.9 - 0.225 x P and Sc = 5.4 + 0.15 x P
b.
Show that the long-run demand and competitive supply curves are indeed given by:
D = 25.2 - 1.8 x P and Sc = 3.6 + 0.6 x P
c.
Use this model to calculate what would happen to the price of oil in the short run
and the long run if OPEC were to cut its production by 6 bb/yr.
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