Download Economics Practice Test 4

2004 SLC Economics
Indicate whether the sentence or statement is True or False. Mark "A" if the statement is True or "B" if it is False.
1. The marginal social cost equals the marginal private cost
a. True
b. False
when a negative externality exists.
2. The law of demand is a statement that price and quantity
a. True
b. False
demanded are inversely related.
3. The Federal Reserve is primarily concerned with fiscal
a. True
b. False
policy.
4. A monopoly market will typically have a lower price and
a. True
b. False
more output than in competition.
5. An increase in the number of sellers in a market will
a. True
b. False
increase the supply in a market.
6. According to the Compensating Wage Differential Theory, a. True
b. False
people who work in relatively safe environments should
get paid less than workers in relatively unsafe
environments.
7. The economic notion of profit includes an accounting of
a. True
b. False
opportunity costs.
8. Firms are price searchers in a competitive market.
a. True
b. False
9. The first federal antitrust act in the United States was the
a. True
b. False
Clayton Act of 1914.
10. The primary tool of monetary policy is open market
a. True
b. False
operations.
11. A free rider problem can result when a good is a public
a. True
b. False
good.
12. Firms in a competitive market have P = MR at all levels of a. True
b. False
output.
13. A federal government budget deficit exists when spending
a. True
b. False
is less than tax revenues.
14. A backward bending supply curve implies that, at some
a. True
b. False
point, if the wage rate rises, the worker will supply a lower
quantity of labor.
15. Placing a tax on a good, paid by the seller, does not raise
a. True
b. False
the price of the good in the market.
16. The long run supply curve in a competitive industry is
a. True
b. False
downward sloping if the industry is characterized by
decreasing costs.
17. Say goods A and B are substitutes. An increase in the
a. True
b. False
price of good A will increase the demand for a good B.
18. Say goods A and B are complements. An increase in the
a. True
b. False
price of good A will increase the demand for a good B.
19. Price in a market falls when the supply in the market falls.
a. True
b. False
20. An increase in income will lead to a decrease in the
a. True
b. False
demand for an inferior good.
21. Fiscal Policy is only concerned with government spending. a. True
b. False
Page 1
2004 SLC Economics
22. A profit maximizing firm will sell the level of output
where the MR = MC, if it sells any units at all.
23. In the long run, profit equals the revenue of a firm minus
the variable costs.
24. The labor supply and demand model predicts that the
minimum wage is a cause of unemployment among less
skilled or less experienced workers.
25. From an economic perspective, too much of a good is
produced when there are positive externalities.
Mark the correct answer on your Scantron sheet for each of
the following questions.
26. When supply in a market rises, the price in the market will
27. When supply in a market rises, the quantity traded in the
market will
28. When demand in a market rises, the price in the market
will
29. When demand in a market rises, the quantity traded in the
market will
30. When supply rises less than demand rises in a market, the
price in the market will
31. When supply rises more than demand falls in a market, the
quantity traded in the market will
32. Which of the following occurs when one country trades
corn to another country in exchange for gas?
33. Which of the following limits an economy's potential
output?
34. When industries or countries specialize in producing goods
and services, this results in
35. The prime lending rate is
36. Which of the following approaches to pollution control
makes the best use of a country's economic resources?
37. Firms with market power find the price
38. What must the government do to reduce high inflation?
Page 2
a. True
b. False
a. True
b. False
a. True
b. False
a. True
b. False
a. decrease.
a. decrease.
b. increase.
b. increase.
c. stay the same.
c. stay the same.
d. fluctuate.
d. fluctuate.
a. stay the same.
b. fluctuate.
c. decrease.
d. increase.
a. decrease.
b. increase.
c. stay the same.
d. fluctuate.
a. stay the same.
b. fluctuate.
c. decrease.
d. increase.
a. decrease.
b. increase.
c. stay the same.
d. fluctuate.
aBoth countries gain.
b. Both countries lose.
d. The country that trades
gas gains, and the country
that trades corn loses.
a. The quantity and
quality of labor, capital,
and natural resources
a. increased price
inflation.
a. the rate the FED
charges commercial
banks.
a. Abolishing the use of
toxic chemicals
b. Business demand for
final goods and services
c. The country that trades
corn gains, and the
country that trades gas
loses.
c. Government
regulations and spending
c. greater economic
interdependence.
c. the rate banks charge
their best customers.
d. more equal distribution
of income.
d. the rate charged on
credit cards.
a. on the demand curve
for their product.
a. Decrease both spending
and the money supply
b. on the supply curve for
their product.
b. Increase both spending
and the money supply
c. Controlling pollution as
long as the extra benefits
are greater than the extra
costs
c. on the MC curve for
their product.
c. Decrease spending and
increase the money
supply
d. Prohibiting economic
activities that cause
pollution or harm the
environment
d. on the MR curve for
their product.
d. Increase spending and
decrease the money
supply
b. less output per hour
worked.
b. the rate banks charge
each other on overnight
loans.
b. Using resources to
reduce all pollution
damage
d. The amount of money
in circulation
2004 SLC Economics
39. A frost in Florida during the orange growing season is
likely to
40. Why are private businesses not likely to operate a
lighthouse?
41. The price elasticity of demand refers to
a. lower the price of
oranges.
b. increase the price of
oranges.
a. Ship owners buy
insurance policies to
protect themselves from
losses so they won’t pay
for lighthouses.
a. the change in price and
quantity demanded.
b. The light from the
lighthouse can be used
even by ships that do not
pay a fee for the service.
42. Pollution is an example of
a. a negative externality.
43. The demand for labor is
44. A monopoly is a
a. the marginal product of
labor.
a. single seller of output.
45. Sellers in a competitive market
a. all sell the same good.
46. For a competitive firm, the price of the product is
a. greater than the MR for
the firm.
a. MR = MC.
a. taxes go up as income
goes up.
a. never paid back.
47. The breakeven point for a firm is when
48. A progressive tax means
49. A government deficit is
50. The marginal tax rate is the rate on
c. increase the amount of
oranges traded in the
market.
c. It would cost private
business more to operate
a lighthouse than it costs
the government.
c. the change in price.
d. the change in the
quantity demanded.
c. a normal good.
b. the marginal revenue
product of labor.
b. situation where there
are many sellers.
b. all sell different goods
from each other.
b. not related to the MR
for the firm.
b. P = MC.
b. taxes go up as income
goes down.
b. the accumulation of all
past debts.
c. the marginal revenue of
labor.
c. situation of many
buyers.
c. set their own price.
d. a complement to
congested roads.
d. the marginal cost of
labor.
d. single buyer of labor.
d. are guaranteed a profit.
c. less than the MR for
the firm.
c. P = AVC.
c. tax rates go up as
income goes up.
c. a situation where tax
revenues are less than
spending.
c. the last dollar of
income.
c. shut down in the short
run if P is less than AC.
c. the MC is at its lowest
point.
c. MC curve.
d. equal to the MR for the
firm.
d. P = AC.
d. tax rates go up as
income goes down.
d. a situation where tax
revenues are greater than
spending.
d. the last dollar of
spending.
d. shut down in the short
run if P is less than AVC.
d. the TR is at its highest.
d. a downward sloping
long run supply curve.
d. depends on barriers to
entry.
d. partly upward sloping
and partly downward
sloping.
d. exports will rise and
imports will fall.
51. A price taking firm with a loss will
b. the first dollar of
spending.
b. always shut down.
52. A profit maximizing firm will produce the quantity where
a. the MR = MC.
b. the TR = TC.
53. The supply curve of a competitive firm is associated with
its
54. A constant cost industry will have
a. AC curve.
b. AVC curve.
a. a horizontal long run
supply curve.
a. will not occur.
b. a vertical long run
supply curve.
b. will definitely occur.
a. horizontal.
b. downward sloping.
c. an upward sloping long
run supply curve.
c. depends on the number
of firms already present.
c. upward sloping.
a. exports will fall and
imports will rise.
b. exports will fall and
imports will fall.
c. exports will rise and
imports will rise.
57. If the US dollar will buy more Japanese yen over time, in
the US
d. The cost of operating a
lighthouse is too high.
b. the percentage change
in the quantity demanded
and the price.
b. a positive externality.
a. the first dollar of
income.
a. never shut down.
55. The existence of profit in a competitive industry means
entry
56. The demand curve for a firm in a competitive environment
will be
Page 3
d. have no impact on the
market for oranges.
d. TC curve.
2004 SLC Economics
58. A price discriminating monopolist will charge the higher
price in the
59. In macroeconomics, the Federal Reserve refers to
60. The primary source of tax revenues for state and local
governments are sales taxes and
61. In the long run, in a decreasing cost industry, when the
demand falls,
62. If the first $10,000 of taxable income is taxed at the rate of
10% and the next $10,000 is taxed at the rate of 20%, then
the tax is an example of
63. An increase in the money supply will
64. An increase in the money supply will
65. The demand for money curve
66. The federal funds rate is
67. The discount rate is
68. The precautionary demand for money occurs because
a. elastic market.
b. inelastic market.
c. unit elastic market.
a. a safari destination
spot.
a. corporate income taxes.
.
a. supply will fall by the
same amount as demand.
.
a. a progressive tax.
b. oil stored in Texas.
c. the central bank.
Page 4
d. perfectly elastic
market.
d. the currency in banks.
b. social security taxes
c. personal income taxes.
d. property taxes.
b. supply will not fall
c. supply will fall by less
than demand.
d. supply will fall by
more than demand.
b. a regressive tax.
c. a flat, or proportional,
tax.
d. an income tax.
a. lower the interest rate.
b. increase the interest
rate.
b. decrease aggregate
supply.
b. is upward sloping.
b. the rate banks charge
each other on overnight
loans.
b. the rate banks charge
each other on overnight
loans.
b. sometimes holding
other assets is not very
attractive and thus people
want to hold money.
b. average variable cost
pricing.
b. equals accounting
profit minus fixed costs.
c. not change the interest
rate.
c. decrease aggregate
demand.
c. is horizontal.
c. the rate banks charge
their best customers.
d. make the interest rate
fluctuate.
d. increase aggregate
demand.
d. is vertical.
d. the rate charged on
credit cards.
c. the rate banks charge
their best customers.
d. the rate charged on
credit cards.
c. money that is stolen
must be replaced.
d. of the need to save for
a rainy day.
c. average cost pricing.
d. total cost pricing.
d. equals accounting
profit minus implicit
costs.
d. are never taxed.
a. increase aggregate
supply.
a. is downward sloping.
a. the rate the FED
charges commercial
banks.
a. the rate the FED
charges commercial
banks.
a. people want to make
transactions.
69. Rate of return regulation means
a. marginal cost pricing.
70. Economic profit
a. equals accounting
profit.
71. In a monopoly situation, profits
a. are guaranteed.
b. attract other firms to
the industry.
72. A monopolistically competitive firm will price its output
on the demand curve above where
73. In the long run, in a monopolistically competitive industry,
profits
74. In the long run, in a competitive industry, profits
75. One firm’s action to set a price below its shutdown point
with the intent to drive a competitor out of business is
called
a. MR = MC.
b. MR = AC.
c. equals accounting
profit minus variable
costs.
c. are secure, if earned,
because of barriers to
entry.
c. AC = MC.
a. will be positive.
b. will be driven to zero.
c. will fluctuate.
d. are guaranteed.
a. will be positive.
a. a hostile takeover.
b. will be driven to zero.
b. predatory pricing.
c. are guaranteed.
c. price discrimination.
d. will fluctuate.
d. a contestable market
action.
d. AVC = MC.
2004 SLC Economics
76. A combining of two firms that sell the same good or same
type of good is called a
77. When two or more firms conspire to fix prices, they do
something
78. Giving senior citizens a discount on prices at restaurants is
called
79. The basis for breaking up Standard Oil in 1911 was
80. The basic model of supply and demand is essentially one
of
81. A firm in a competitive environment is a
82. A homogeneous product means
83. Firms with the least market power are in a(n)
________________ industry.
84. The demand curve for a firm in a competitive environment
is
85. In a competitive market,
86. When pricing its product, an oligopoly
87. In the Kinked Demand Model of Oligopoly,
88. When price is below AVC, firms will
Page 5
a. horizontal merger.
b. vertical merger.
c. conglomerate merger.
d. cartel.
a. anticompetitive, but
legal.
a. predatory pricing.
b. anticompetitive, but
illegal.
b. price discrimination.
c. illegal and competitive.
d. illegal and
anticompetitive.
d. average age pricing.
a. the Sherman Act.
b. the Clayton Act.
d. The Wagner Act.
a. monopoly.
b. oligopoly.
c. The Robinson Patman
Act.
c. duopoly.
a. price faker
a. the product has been
pasteurized.
a. a monopoly
b. price maker.
b. all firms make different
products.
b. a competitive
d. cookie baker.
d. milk is involved.
a. unit elastic.
b. inelastic.
c. price taker.
c. all firms make the same
product.
c. a monopolistically
competitive
c. perfectly inelastic.
a. only suppliers have
surplus value.
b. only demanders have
surplus value.
a. will ignore all the other
firms.
a. price tends to fluctuate
often.
a. make tons of profit.
b. will ignore most of the
other firms.
b. price is found where
AVC is a minimum.
b. make a little profit.
c. both suppliers and
demanders have surplus
value.
c. will consider the
actions of the other firms.
c. price is found where
AC is a minimum.
c. shut down their
operation.
c. out on the open range.
d. neither suppliers nor
demanders have surplus
value.
d. will not consider the
actions of the other firms.
d. price tends to be stable.
c. 1.5 cases of potato
chips
c. both computer chips
and potato chips.
c. both computer chips
and potato chips.
c. both computer chips
and potato chips.
c. both computer chips
and potato chips.
d. 0.67 cases of potato
chips.
d. neither computer chips
nor potato chips.
d. neither computer chips
nor potato chips.
d. neither computer chips
nor potato chips.
d. neither computer chips
nor potato chips.
89. In order to maximize total revenue, a firm should price its
a. in the elastic range of
product
demand.
For questions 90 through 95 use the following information:
Productivity per worker
Country
Computer Chips
Cases of Potato Chips
USA
10
15
Ireland
5
10
90. The opportunity cost of 1 computer chip in the USA is
a. greater than it is in
Ireland.
91. The USA has an absolute advantage in
a. only potato chips.
b. in the inelastic range of
demand.
92. The USA has a comparative advantage in
a. only potato chips.
b. only computer chips.
93. Ireland will want to specialize in
a. only potato chips.
b. only computer chips.
94. The USA will want to specialize in
a. only potato chips.
b. only computer chips.
b. 15 cases of potato
chips.
b. only computer chips.
c. factor cost pricing.
d. competition.
d. an oligopoly
d. perfectly elastic.
d. continue to operate.
d. in the unit elastic range
of demand.
2004 SLC Economics
95. Which of the following terms of trade would yield benefits
to only the USA, assuming each specializes in the
appropriate output.
96. If the price of donuts rises and then the demand for coffee
falls,
97. If the price of cola rises and then the demand for juice
rises,
98. A tax in a market for a good
a. 1 computer chip = 1
case of potato chips
b. 1 computer chip = 3
cases of potato chips
c. 1 computer chip = 1.75
cases of potato chips
Page 6
d. 1 computer chip = 2
cases of potato chips
a. donuts and coffee are
normal goods.
a. cola and juice are
normal goods.
a. lowers the price and
lowers the amount traded.
b. donuts and coffee are
inferior goods.
b. cola and juice are
inferior goods.
b. lowers the price and
raises the amount traded.
c. donuts and coffee are
complements.
c. cola and juice are
complements.
c. raises the price and
lowers the amount traded.
d. donuts and coffee are
substitutes.
d. cola and juice are
substitutes.
d. raises the price and
raises the amount traded.
2004 SLC Economics