Download 2017 Test Bank - Section A - Economic Principles

A. Economic Principles Related to Business Management
Selling through a farmers’ market or roadside market is known as __________ .
a. Equilibrium
b. Call option
c. Direct marketing
d. Demand
Answer: C
The relationship between quantity purchased and price is known as __________ .
a. Demand
b. Supply
c. Call option
d. Equilibrium
Answer: A
The relationship between quantity supplied and price is known as _________ .
a. Demand curve
b. Derived demand
c. Supply curve
d. Direct marketing
Answer: C
Price movement across months within the year is __________ variability.
a. Seasonal
b. Short
c. Derived demand
d. Bull
Answer: A
The demand for a product at the farm level is a(n) __________ .
a. Equilibrium
b. Demand curve
c. Supply curve
d. Derived demand
Answer: D
The price where demand and supply intersect is known as __________ .
a. Derived demand
b. Equilibrium
c. Supply curve
d. Demand curve
Answer: B
The primary purpose of the production function is to determine _________ .
a. Whether or not to operate in the long run
b. How to allocate resources throughout a business
c. How much to produce
d. ALL of the above
Answer: C
1
What does stage two in production function graph determine?
a. The beginning point of increasing returns
b. The stage where you should not produce
c. The lowest point of increasing marginal returns
d. The amount of variable input to use
Answer: D
The point on a production function graph where marginal cost equals marginal revenue is where
__________ .
a. Losses will be the greatest
b. Profits will be the greatest
c. Costs are minimized
d. Production is maximized
Answer: B
An agriculture producer learns what from the production function?
a. Output responses to an input
b. Whether or not to operate in the long run
c. How to allocate resources throughout an enterprise
d. ALL of the above
Answer: A
On the production function graph the MC=MR, what does this tell the producer?
a. Where the losses will be the least
b. Where change in cost and change in revenue are the same
c. Where the profits are the greatest
d. ALL of the above
Answer: D
What is Stage II of the Production Function?
a. The lowest point
c. The point of diminishing returns
b. The highest point
d. The decision making stage
Answer: D
Any time a consumer will take more only at lower prices is called __________ .
a. Margin
b. Supply
c. Discovery
d. Demand
Answer: D
The dynamic process of searching for the equilibrium or market – clearing prices is called __________ .
a. Margin
b. Supply
c. Discovery
d. Demand
Answer: C
2
On a chart, a line that connects all the high points as the markets move higher forms a trend line. When
projected out, it forms points of __________ .
a. Support
b. Interest
c. Resistance
d. Understanding
Answer: C
When a market has huge swings on a daily basis, it is described as __________ .
a. Stable
b. Comfortable
c. Volatile
d. Variable
Answer: C
What does the Production Function indicate for an agricultural producer?
a. How to allocate resources throughout a business
b. How output responds to inputs
c. Whether to operate in the long run
d. ALL of the above
Answer: B
The point where Marginal Costs = Marginal Revenue is __________ .
a. Where production reaches maximum point
b. Where all of your resources are used
c. Where profits are at a maximum
d. ALL of the above
Answer: C
What does marginal cost measure?
a. The change in cost from one enterprise to another
b. The output cost from production at the level of inputs
c. The change in the cost by adding another unit of input
d. The change in cost by producing another unit of output
Answer: C
Suppose that the supply curve shifts right. What is the most likely effect on price and quantity?
a. Price will increase and quantity may change
b. Price will decrease and quantity may decrease
c. Price will decrease and quantity will increase
d. Price will increase and quantity will increase
Answer: C
3
What is the Law of Supply?
a. The higher the quantity demanded, the higher the price
b. The higher the price, the higher the quantity supplied will be
c. The lower the demand, the higher the price will be
d. ALL of the above
Answer: B
Why do you want to know how markets cycle?
a. What day of the week to sell your product
b. What season you should sell
c. Whether the market is going to go up or down
d. ALL of the above
Answer: D
It is impossible to be competitive in the complex commodity marketplace without __________ .
a. Physical accounts
b. The ability to collect accurate data
c. The ability to estimate losses
d. Reducing the number of daily decisions
Answer: B
Utility means satisfaction; products have what type of utility?
a. Form
b. Place
c. Time
d. ALL of the above
Answer: D
Which of the following terms describes this situation: Quantity taken will increase only if the price comes
down?
a. Margin
b. Basis
c. Supply
d. Demand
Answer: D
If the industry level supply curve shifts right, what result is most likely?
a. Increase in price
b. Decrease in price
c. Prices remain steady
d. NONE of the above
Answer: B
The two most important driving factors that influence the market price are __________ .
a. Supply and demand
b. Supply and quality
c. Quality and location
d. Quality and demand
Answer: A
4
When an increase in the level of production of one enterprise causes a reduction in the level of
production in another enterprise, these two enterprises are said to be __________ .
a. Independent
b. Supplementary
c. Competitive
d. Complimentary
Answer: C
The __________ is King in the market place.
a. Farmer
c. Advertiser
b. Consumer
d. Processor
Answer: B
The middlemen in the marketing system operate on __________ .
a. Trust
b. Loans
c. Price
d. Margin
Answer: D
Elements of the past several agriculture government programs have tried to reduce the influence that the
program would have on __________ .
a. Local markets
b. Ethanol markets
c. World markets
d. Livestock markets
Answer: C
Price movements over time occur because of __________ .
a. Demand shifts
b. Supply shifts
c. Both A & B
d. Neither A nor B
Answer: C
The operator knows that the value of the dollar on the world market can have an impact on grain
markets. If the dollar increases in value related to other currencies, it will impact U.S. corn and wheat
prices in what way?
a. Make corn and wheat prices higher on world market
b. Make corn and wheat prices lower on world market
c. Make no difference on world market
d. Make rest of world prices higher
Answer: A
Comparing the retail price to the farm price for an agricultural commodity allows you to determine the
portion of each dollar spent at the retail level that farmers receive for their commodities. The difference
between retail value and the farm value is __________ .
a. Profit
b. Net farm revenue
c. Farm to city transportation cost
d. Marketing margin
Answer: D
5
A farmer who is willing to pay a set dollar amount to establish floor or base price to be received would do
what?
a. Purchase a call option
b. Purchase a put option
c. Purchase a basis contract
d. Purchase a supply contract
Answer: B
What can an agriculture producer determine from the Production Function?
a. How much to produce
b. Whether or not to operate in the long run
c. How to allocate resources throughout an enterprise
d. ALL of the above
Answer: A
On the Production Function graph, the MC=MR tells the producer __________ .
a. The point where the losses will be the least
b. The marginal cost = marginal return
c. The point where the profits are the greatest
d. ALL of the above
Answer: D
What is Stage II on the Production Function?
a. The lowest point in the production process
b. The highest point in the production process
c. The point of diminishing returns
d. The decision making stage
Answer: D
When economists speak of scarcity, they are referring to the __________ .
a. Condition in which society is not employing all its resources in an efficient way
b. Condition in which people’s wants outstrip the limited resources available to satisfy those
wants
c. Economic condition that exists in only very poor countries of the world
d. Condition in which society produces too many frivolous goods and not enough socially
desirable goods
Answer: B
Which of the following is NOT one of the categories of resources?
a. Labor
b. Government
c. Capital
d. Entrepreneurship
Answer: B
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“Entrepreneurship” is __________ .
a. The talent of organizing the use of land, labor and capital, among other things
b. Skill in influencing government regulators and legislators
c. Accumulated technical knowledge in using labor and capital
d. Knowledge of the particular natural resources to be found in a given area
Answer: A
Some years ago, chemists at 3M Corporation were trying to create a super-strong glue. Somehow they
got their molecules twisted and came up with one of the weakest glues ever made. Rather than pouring it
down the drain, they tried coating some paper with it. Voila! The “Post-It Note” was born. In this case,
3M was acting as __________ .
a. A utility
b. A rationer
c. An entrepreneur
d. An abstraction
Answer: C
A cost that is incurred when an actual monetary payment is made is a(n) __________ cost.
a. Explicit
b. Implicit
c. Positive
d. Expressed
Answer: A
Which of the following is true?
a. Economists calculate only economic profit, and accountants calculate only accounting profit
b. Economic profit is always greater than accounting profit
c. Accounting profit is the difference between total revenue and explicit costs
d. Economic profit is the difference between total revenue and explicit costs
Answer: C
Which of the following statements is false?
a. Money must change hands before a cost can be incurred.
b. No monetary payment takes place when an implicit cost is incurred.
c. Costs may be either explicit or implicit costs.
d. Costs implies that a sacrifice has been made.
Answer: A
Economic profit is the difference between total revenue and __________ .
a. Explicit costs
b. Implicit costs
c. Sunk costs
d. The sum of explicit and implicit costs
Answer: D
7
The cost of resources used in production for which no actual monetary payment is made is a(n) __________
cost.
a. Tacit
b. Implicit
c. Covert
d. Explicit
Answer: B
Five months ago Wilson opened up a health club. Which of the following is an implicit cost related to the
health club?
a. Wilson paid $120 for an outside laundry service to clean the towels used at the club.
b. Wilson paid $100 for the pest control exterminator to spray the health club.
c. Wilson previously worked as an accountant, earning $3000 a month.
d. Wilson usually eats four hamburgers a day, priced at $3 each.
Answer: C
If a firm earns a normal profit, then it has generated revenues __________ .
a. Equal to the sum of implicit and explicit costs
b. Greater than total opportunity costs
c. Sufficient to cover explicit costs, but not implicit costs
d. Sufficient to cover implicit costs, but not explicit costs
Answer: A
An unrecoverable cost that should be disregarded in any current or future decision is also called a(n)
__________ cost.
a. Sunk
b. Explicit
c. Implicit
d. Variable
Answer: A
A fixed input is an input whose quantity __________ .
a. Can be changed as output changes in the short run
b. Cannot be changed as output changes in the short run
c. Cannot be changed as output changes in the long run
d. Both A and C
Answer: B
Which of the following statements is true?
a. The short run is always somewhere between six and twelve months.
b. In the short run, changes in output can only be brought about by a change in the quantity of
variable inputs.
c. The long run is any period of time over one year.
d. In the short run, there are variable costs but no fixed costs.
Answer: B
8
Average fixed cost __________ .
a. Is usually greater at lower levels of output than at higher levels
b. Does not change as output changes
c. Exists only in the short run
d. Both A and C
Answer: D
At 200 units of output, total cost is $36,000 and total variable cost is $20,000. What does total fixed cost
equal at 200 units?
a. $38,000
b. $20,000
c. $16,000
d. $80
Answer: C
Which of these statements is false?
a. There are no fixed costs in the long run.
b. Total costs are equal to total fixed costs plus total variable costs.
c. In the short run, all inputs are fixed inputs.
d. A fixed cost is a cost that does NOT change as output changes.
Answer: C
Costs that do not change with output are called __________ costs.
a. Marginal
b. Average
c. Fixed
d. Variable
Answer: C
Suppose that one fixed and one variable input are used to produce good X. As the marginal physical
product of the variable input increases, then marginal cost __________ .
a. Increases
b. Decreases
c. Remains constant
d. There is not enough information to answer
Answer: B
The law of demand states that price and quantity demanded are __________ .
a. Directly related, ceteris paribus
b. Inversely related, ceteris paribus
c. Independent
d. Positively related, ceteris paribus
Answer: B
9
At a price of $15, Marta buys 3 CD’s per month. When the price increases to $20, Marta buys 2 CD’s per
month. Luz says that Marta’s demand for CD’s has decreased. Is Luz correct?
a. Yes, Luz is correct.
b. No, Luz is incorrect. Marta’s demand has increased.
c. No, Luz is incorrect. Marta’s quantity demanded has decreased, but her demand has stayed the
same.
d. No, Luz is incorrect. Marta’s quantity demanded has increased, but her demand has stayed the
same.
Answer: C
One major reason for the law of demand is that __________ .
a. One price changing requires at least one other price to change in the opposite direction
b. People substitute relatively lower-priced goods for relatively higher-priced goods
c. A higher price never reduced quantity demanded by enough to lower total revenue
d. People are willing to produce more units at a higher price
Answer: B
If an increase in income results in an increase in the demand for chicken, then chicken is __________ .
a. A neutral good
b. A luxury good
c. A normal good
d. An inferior good
Answer: C
The law of supply states that price and quantity supplied are __________ .
a. Inversely related, ceteris paribus
b. Directly related, ceteris paribus
c. Not related
d. Fixed
Answer: B
Which of the following is true about the relationship between price and quantity supplied?
a. There is always a direct relationship b. There is always an inverse relationship
c. There is usually a direct relationship d. There is usually an inverse relationship
Answer: C
If Max’s demand for hot dogs falls as his income rises, then hot dogs are __________ .
a. A bad good
b. An inferior good
c. A preferential good
d. A normal good
Answer: B
An increase in the number of buyers in an area will result in a __________ .
a. Movement up the demand curve
b. Movement down the demand curve
c. Leftward shift in the demand curve
d. Rightward shift in the demand curve
Answer: D
10
Tobacco production is one of the more heavily subsidized industries in the United States. Suppose that as
a result of intense lobbying from health-related concerns, Congress repeals the tobacco farms’ subsidies.
Which of the following scenarios would likely occur?
a. The tobacco farms’ supply curve would shift rightward, as it would now be cheaper to produce
each level of output.
b. The tobacco farms’ supply curve would shift leftward, since it would now cost more to produce
each level of output.
c. The tobacco farms would not experience any shift in their supply curves; subsidies don’t affect
output.
d. There would be a movement along the supply curve for tobacco, but the supply curve would not
shift.
Answer: B
Which of the following will NOT shift a supply curve?
a. A change in the price of relevant resources.
b. A change in the good’s own price.
c. A change in the number of sellers.
d. A change in per unit costs brought about by a change in taxes.
Answer: B
At a price above equilibrium price, there is __________ .
a. A shortage
b. A surplus
c. Excess demand
d. Super-equilibrium
Answer: B
On a supply-and-demand diagram, equilibrium is found __________ .
a. Where the supply curve intercepts the vertical axis
b. Where the demand curve intercepts the horizontal axis
c. Where the demand and supply curves intersect
d. At every point on either curve
Answer: C
Price elasticity of demand is a measure of the responsiveness of quantity demanded to changes in
__________ .
a. Interest rates
b. Price
c. Supply
d. Demand
Answer: B
If quantity demanded rises by 90 percent as price falls by 40 percent, the coefficient of price elasticity of
demand equals __________ .
a. 0.44
b. 2.25
c. 1.0
d. 50.0
Answer: B
11
Price rises from $10 to $15, and the quantity demanded falls from 100 units to 90 units. What is the
coefficient of the price of elasticity of demand between these two prices?
a. 0.26
b. 0.48
c. 3.8
d. 1.00
Answer: A
If the percentage change in quantity demanded is equal to the percentage change in price, demand is
__________ .
a. Inelastic
b. Unit elastic
c. Elastic
d. Perfectly elastic
Answer: B
If quantity demanded is completely unresponsive to changes in price, demand is __________ .
a. Inelastic
b. Elastic
c. Perfectly elastic
d. Perfectly inelastic
Answer: D
If the price of good X falls and the demand for good X is unit elastic, then the percentage rise in quantity
demanded is __________ the percentage fall in price, and total revenue __________ .
a. Greater than; rises
b. Less than; falls
c. Equal to; remains constant
d. Greater than; falls
Answer: C
The fewer substitutes for a good, __________ .
a. The lower its income elasticity of demand
b. The higher its income elasticity of demand
c. The lower its price elasticity of demand
d. The higher its price elasticity of demand
Answer: C
If price rises and total revenue falls, __________ .
a. Cross elasticity is negative
b. Price elasticity of demand is less than 1
c. Income elasticity of demand is positive d. NONE of the above
Answer: D
If Cassandra bought 16 cotton blouses last year when her income was $40,000 and she buys 24 cotton
blouses this year when her income is $35,000, then blouses are __________ .
a. An inferior good
b. A normal good
c. A substitute good
d. A complementary good
Answer: A
12
A normal good is __________ .
a. Any good that consumers normally buy
b. Any good for which the demand rises as income falls
c. A good for which the demand rises as income falls
d. A good for which the demand rises as income rises
Answer: D
If the percentage change in quantity demanded of a good is less than the percentage change in income,
then the good is said to be __________ .
a. Income elastic
b. Income inelastic
c. Income unit elastic
d. Price elastic
Answer: B
If the percentage in quantity demanded of a good is equal to the percentage change in income, then the
good is said to be __________ .
a. Income elastic
b. Income inelastic
c. Income unit elastic
d. Price unit elastic
Answer: C
Which of the following is NOT an assumption of the theory of perfect competition?
a. There are may sellers and many buyers, none of which is large in relation to the total sales or
purchases.
b. Each firm produces and sells a differentiated product.
c. Buyers and sellers have all relevant information with respect to prices.
d. There is easy entry and exit.
Answer: B
Real-world markets that approximate the four assumptions of the theory of perfect competition include
__________ .
a. Some agricultural markets
b. The soft drink market
c. The stock market
d. Both A and C
Answer: D
In the theory of perfect competition, __________ .
a. Sellers of the product are NOT influenced by other sellers and therefore have virtually complete
control over the production and pricing of their product
b. Buyers of the product may have a preference as to whom they purchase from based on brand
loyalty
c. Buyers and sellers of the product know everything that there is to know about the product
d. It can be quite expensive for a firm to enter this type of market, but once the firm is established
it will be a profitable venture
Answer: C
13
A “price-taker” is a firm that __________ .
a. Does NOT have the ability to control the price of the product it sells
b. Does have the ability, although limited, to control the price of the product it sells
c. Can raise the price of the product it sells and still sell some units of its product
d. Sells a differentiated product
Answer: A
In the theory of perfect competition, __________ .
a. The market demand curve is horizontal
b. The single firm’s demand curve is horizontal
c. The single firm’s demand curve is downward sloping
d. Both A and B
Answer: B
Which of the following is an assumption of the theory of monopoly?
a. There are extremely high barriers to entry.
b. There are many sellers.
c. The product has a number of close substitutions.
d. The product is of extremely high quality.
Answer: A
A natural monopoly exists when __________ .
a. A monopolist produces a product, the main component of which is a natural resource
b. Economies of scale are so large that only one firm can survive and achieve low unit costs
c. A firm is the exclusive owner of a key resource necessary to produce the firm’s product
d. There are no close substitutes for a firm’s product
Answer: B
A monopoly may exist because __________ .
a. Government has refused to grant a public franchise
b. One firm has the exclusive ownership of a secure resource
c. The firm is so large and is currently experiencing such vast diseconomies of scale that it can
out-compete all newcomers
d. Both A and B
Answer: B
In a monopolistically competitive industry, __________ .
a. Each firm in the industry produces a slightly differentiated product
b. There are barriers to entry
c. There are barriers to exit
d. There are few sellers
Answer: A
14
Which of the following industries is the best real-world example of monopolistic competition?
a. Cotton
b. Electricity generation
c. Automobiles
d. Service stations
Answer: B
If a monopolistically competitive firm raises its price, then __________ .
a. It should expect to lose all of its customers because there are many other sellers of the product
b. This is a trick question because the firm does NOT have the ability to change its price
c. It should expect to lose some, but not all, of its customers
d. It will be able to increase its profits
Answer: C
Which of the following is an assumption of the theory of oligopoly?
a. There are barriers to entry.
b. There are many sellers and many buyers.
c. Firms produce and sell either homogeneous or differentiated products.
d. Both A and C
Answer: D
Concentration ratios are NOT perfect guides to industry concentration, because they __________ .
a. Do not take into account foreign competition and competition from substitute goods
b. Take into account foreign competition and competition from substitute goods
c. Do not take into account advertising expenditures
d. Do not take into account tax payment
Answer: A
A concentration ratio indicates the __________ .
a. Number of firms in an industry
b. Number of large firms in an industry compared to the number of large firms in another related
industry
c. Percentage of total sales accounted for by the (for example) four larger firms
d. Percentage of sellers in an industry relative to the number of buyers
Answer: C
A monopolist can sell 15,000 units at a price of $100 per unit. Lowering price by $1 raises the quantity
demanded by 500 units. What is the change in total revenue resulting from this price change?
a. $34,500
b. $12,500
c. $65,500
d. (-$35,500)
Answer: A
15
A farmer has 1,000 acres on which he has previously grown corn. His yield per acre is 100 bushels of
corn. If the corn payment rate is $0.43 a bushel, his production flexibility contract payment equals
__________ .
a. $39,600
b. $43,000
c. $36,550
c. $12,345
Answer: C
A tariff is a tax on __________ .
a. Savings
c. Imports
b. Capital goods
d. Land
Answer: C
Markets that quickly and accurately assimilate all available information into market prices are referred to
as __________ markets.
a. Efficient
b. Inefficient
c. Monopoly
d. Elastic
Answer: A
A “quota” is __________ .
a. A tax imposed on imported goods
b. A legal limit on the amount of a good that can be produced by foreign owners of a firm located
in a host country.
c. A legal limit on the amount of a good that can be imported
d. An agreement between two countries in which the exporting country voluntarily agrees to limit
its exports to the importing country.
Answer: C
Economics is a social science that involves the study of how individuals __________ .
a. Develop their tastes and preferences b. Maximize their wealth
c. Define happiness
d. Choose among alternatives
Answer: D
The rule of profit maximization says that firms should produce at the point where __________ .
a. Total revenues equals total cost
b. Marginal revenue equals marginal cost
c. Price equals average cost
d. Price equals total cost
Answer: B
16
The N.M. Corporation has exactly the same costs of production as last year except for fixed costs, which
are $50,000 this year compared to $30,000 last year. Which of the following statements if FALSE?
a. The total cost curve will be the same this year as last year.
b. The marginal cost curve will be the same this year as last year.
c. The variable cost curve will be the same this year as last year.
d. The fixed cost curve will have the same slope this year as last year.
Answer: A
The marginal cost of making the 100th unit is $50 and the average total cost of the 100th unit is $100.
What do we know about the average total cost curve at a quantity of 100?
a. It is rising (increasing)
b. It is falling (decreasing)
c. It is constant (straight across)
d. We do not know what is happening
Answer: B
If the wage rate increases, which of the following will NOT happen?
a. The marginal cost curve will shift up.
b. The total fixed cost curve will shift up.
c. The total cost curve will shift up.
d. The total variable cost curve will shift up.
Answer: B
Pete’s Burgers has fixed costs of $200. When Pete’s Burgers makes 500 hamburgers, their variable costs
are $150. When Pete’s makes 600 hamburgers their variable costs are $250. The average total cost when
they are making 600 hamburgers is __________ , and the marginal cost for the range between 500 and 600
hamburgers is __________ .
a. ATC=$0.75; MC=$1.00
b. ATC=$0.75; MC=$2.00
c. ATC=$1.30; MC=$1.00
d. ATC=$1.30; MC=$2.00
Answer: A
Suppose that you are evaluating the market for baseball bats. Louisville Slugger produces the Barry
Bonds bat. Since his record breaking 73 home runs more kids prefer his bat to any other. What will
happen in the market for the Bonds’ bat?
a. Both the price and quantity will increase
b. Both the price and quantity will decrease
c. Price will decrease, quantity will increase
d. Quantity will increase, but price is indeterminate
Answer: A
The price of eggs will drop when __________ .
a. The number of egg farms increase
b. Government regulations cause an increase in the cost of producing eggs
c. The price of feed for chicken increases
d. The quantity demanded of eggs decreases
Answer: A
17
Sarah received a raise of 20%. Before, she purchased five pounds of hamburger and one pound of steak a
month. After her pay increase, she consumes three pounds of steak and two pounds of hamburger a
month. All else remaining constant, we know that __________ .
a. Hamburger is an inferior good and a steak is a normal good for Sarah
b. Hamburger is a normal good and steak is an inferior good for Sarah
c. Both steak and hamburger are normal goods
d. Both steak and hamburger are inferior goods
Answer: B
There has been significant freeze in Florida destroying a large portion of the orange crop. The U.S.
Surgeon General also reports that drinking fresh squeezed orange juice reduced the chance of having
cancer by 50%. Given these two events the price of orange juice will __________ and the output of orange
juice will __________ .
a. Increase; increase
b. Increase; decrease
c. Increase; be indeterminable
d. Be indeterminable; decrease
Answer: C
Suppose that you are evaluating the apple market. The U.S. Surgeon General confirms that eating apples
(one a day) can prevent many chronic diseases. At the same time, many apply trees are infested by an
apple weevil. This weevil destroys 1/3 of all apple trees in the U.S. The result of these two events will be
that __________ in the apple market.
a. Both the price and quantity will increase
b. Price will increase; quantity will decrease
c. Quantity will decrease, but price is indeterminable
d. Price will increase but quantity is indeterminable
Answer: D
When a farmer increases the amount of fertilizer used by 10%, the farmer’s crop of corn increases by 3%
and the farmer’s crop of wheat increases by 5%. Which of the following statements is TRUE about
elasticity with respect to fertilizer?
a. Corn has a higher elasticity than wheat
b. Wheat has a higher elasticity than corn
c. Wheat and corn have the same elasticity
d. Wheat and corn are unit elastic
Answer: B
If a good is an inferior good then income elasticity of demand is __________ .
a. Less than one
b. Less than zero
c. Greater than one
d. Greater than zero
Answer: C
18
Grocery stores do not often advertise sales prices on table salt because __________ .
a. The demand for salt is elastic
b. The demand for salt is inelastic
c. The demand for salt is unit elastic
d. The demand for salt is negative
Answer: B
Jack sells peanuts outside of Jacob’s Field in Cleveland. He currently charges $3 for a bag of peanuts. If
Jack’s customers have a price elasticity of demand of 0.75, which of the following statements is TRUE?
a. If Jack increases his price, he could increase his total revenue.
b. If Jack increases his price, his total revenue will be unchanged.
c. If Jack lowers his price, he could increase his total revenue.
d. If Jack lowers his price, his total revenue will be unchanged.
Answer: A
Suppose that an increase in income increases the demand for granola bars and that a decrease in the
price of grapes decreases the demand for granola bars. Based on this information, which of the following
do we know about granola bars?
a. Granola bars are normal goods, and granola bars and grapes are substitutes.
b. Granola bars are normal goods, and granola bars and grapes are compliments.
c. Granola bars are inferior goods, and granola bars and grapes are substitutes.
d. Granola bars are inferior goods, and granola bars and grapes are compliments.
Answer: A
When the price of Moose Tracks ice cream increases from $3 to $4, the quantity demanded of Moose
Tracks ice cream decreases from 1,000 to 900 and the quantity demanded of Chubby Hubby ice cream
increases from 500 to 550. The cross elasticity of demand is __________ and Moose Tracks and Chubby
Hubby are __________ .
a. -0.33; compliments
b. -0.33; substitutes
c. 0.33; compliments
d. 0.33; substitutes
Answer: D
Suppose the price of eggs fall and a chicken farmer decides to sell all his chickens for meat rather than
keeping them to lay eggs. The elasticity of supply for the farmer would be __________ .
a. Inelastic
b. Unit elastic
c. Elastic
d. Unit inelastic
Answer: C
If the government imposes a tax on suppliers, the equilibrium price of the product will __________ and the
equilibrium quantity of the product will __________ .
a. Increase; increase
b. Decrease; increase
c. Increase; decrease
d. Decrease; decrease
Answer: C
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Suppose the milk industry is characterized by perfect competition and is in long run equilibrium. As a
result of change in the price of orange juice, a substitute for milk, the demand curve for milk shifts out. If
milk is a decreasing-cost industry, what will happen in the long run?
a. The price of milk will increase
b. The price of milk will decrease
c. The price of milk will stay the same
d. The price of milk will decrease at first but then return to the original price
Answer: B
As a result of increased logging in a rural town, new roads are installed to the town and more people
choose to live in the town. The result of this is the logging industry faces __________ input prices and is
likely to be a(n) __________-cost industry.
a. Higher; increasing
b. Higher; decreasing
c. Lower; increasing
d. Lower; decreasing
Answer: D
A perfect competition industry is decreasing cost. If the demand curve for the industry shifts left
(decreases), which of the following will NOT happen?
a. Firm’s average cost curve shifts down
b. Industry supply shifts left
c. The price of the good increases
d. The quantity of the good decreases
Answer: A
Which of the following is an example of a monopoly?
a. You don’t want to buy cable from the one company that provides cable to your city so you are
stuck getting a satellite dish.
b. While there are a lot of appliance stores in the big city three hours away from you, they are too
far to travel so you buy your new refrigerator from the one store locally that sells
appliances.
c. If you want to buy a new novel, your only choices are to buy from the one local bookstore in
your town or to get on the internet and buy from any of the thousands of online places.
d. All of the above would be considered examples of monopoly.
Answer: B
A firm in monopolistic competition maximizes profits by producing the quantity where _________ .
a. Marginal revenues equals marginal cost
b. Price equals marginal cost
c. Marginal revenue equals average cost
d. Price equals average cost
Answer: A
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In a market with a dominant firm and a competitive fringe, the dominant firm’s demand curve shows the
__________ that will occur in the competitive market at each price _________ the equilibrium.
a. Shortage; above
b. Surplus; above
c. Shortage; below
d. Surplus; below
Answer: C
One force that has helped cause U.S. farms to become larger and fewer is _________ .
a. Competition from foreign producers
b. Lower production costs per unit by spreading fixed investment in technology over more units
c. More labor used in agricultural production
d. Declining nonfarm wage rates
Answer: B
An increase in the number of non-farmers living in rural areas will cause __________ .
a. Farmland values to decrease
b. Farmers to pay more attention to off-farm effects of their production practices
c. Less regulation of agricultural production practices
d. Profit maximization to be the only criterion for adopting new technologies
Answer: B
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