Cumulative Review

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1 Cumulative Review 1. The study of economics is primarily concerned with: A. Expanding the production of goods and services B. Making the best use of scarce productive resources C. Equalizing the distribution of consumer income and wealth D. Reallocating resources from consumption to production in the economy 2. A recurring theme in economics is: A. Unlimited resources and unlimited economic wants B. People can increase resources by limiting their economic wants C. People have limited economic wants and limited resources D. People have unlimited economic wants, but limited resources 3. What is the economic meaning of the expression that "there is no such thing as a free lunch"? A. It refers to "free-riders," who do not pay for the cost of a product, but who receive the benefit from it B. It means that economic freedom is limited by the amount of income available to the consumer C. It means that there is an opportunity cost when resources are used to provide "free" products D. It indicates that products only have value because people are willing to pay for them 4. Opportunity cost is best defined as: A. Marginal cost minus marginal benefit B. The time spent on an economic activity C. The value of the best foregone alternative D. The money cost of an economic decision 5. Tammie makes $150 a day as a bank clerk. She takes off two days of work without pay to fly to another city to attend the concert of her favorite music group. The cost of transportation for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Tammie's trip to the concert is: A. $300 B. $450 C. $500 D. $ Which of the following is a normative economic statement? A. The Federal budget surplus rose by 10 billion dollars B. A fall in the unemployment rate was forecast for next month C. A trade deficit of 20 billion dollars will harm the economy D. The Federal funds rate was reduced by half a percentage point 7. The economizing problem for society is: A. To achieve a more equitable distribution of income in society B. That productive resources are scarce relative to economic wants C. To establish prices which are fair for both producers and consumers D. That product prices rise more rapidly than incomes of consumers 1

2 8. Economists would classify all of the following as land except: A. Two thousand acres of virgin forest B. A hydroelectric dam C. Crude oil reserves D. Iron ore deposits 9. The graph above shows the production possibilities curve for an economy producing two goods, X and Y. Which of the points on the graph indicate unemployed resources? A. D only B. E only C. E and A only D. B and C only 10. Refer to the above graph. The marginal opportunity cost of the third unit of defense goods is: A. 2 units of civilian goods B. 3 units of civilian goods C. 4 units of civilian goods D. 7 units of civilian goods 2

3 11. The economy of the former Soviet Union would best be classified as: A. A market system B. Pure capitalism C. Laissez-faire capitalism D. A command system 12. By free enterprise, we mean that: A. Products are provided free to those who can't afford to buy them B. Individual producers determine how to produce, but government agencies determine what will be produced C. Individuals may obtain resources, organize production, and sell the resulting output in any legal way they choose D. Individuals are free to produce those products that government agencies determine can be produced profitably 13. Which is a key feature of the market system? A. Price floors and price ceilings in all markets B. Reallocation of all resources from private to public uses C. The right to own private property and control resource use D. Central planning by government to provide goods and services 14. Which is one of the five fundamental questions that needs to be answered by economic systems? A. What is the rate of unemployment? B. Who will be the richest person in the economy? C. What goods and services will be produced? D. Why are the prices for goods and services so high? 15. When economists describe "a market," they mean: A. A place where stocks and bonds are traded B. Information networks that allow individuals to keep in touch with each other C. A hypothetical place where the production of goods and services takes place D. A mechanism which coordinates actions of consumers and producers to establish equilibrium prices and quantities 16. A market demand schedule for a product indicates that: A. As the product's price falls, consumers buy less of the good B. As a product's price rises, consumers buy less of other goods C. There is a direct relationship between price and quantity demanded D. There is an inverse relationship between price and quantity demanded 17. When one speaks of "demand" in a particular market, this refers to: A. The whole demand curve B. Only one point on the entire demand curve C. Only one price-quantity combination on the demand schedule D. The quantity demanded at a given price 18. In a competitive market for corn, the law of demand indicates that, other things equal, as: A. The demand for corn decreases, the price will increase B. Income decreases, the quantity of corn demanded will increase C. The price of corn decreases, the quantity of corn demanded will increase D. The price of corn decreases, the quantity of corn demanded will decrease 3

4 19. A result of a fall in the price of gasoline, consumers buy more gasoline and take more driving vacations. This situation is an illustration of: A. The income effect B. The substitution effect C. Diminishing marginal utility D. The rationing function of prices 20. Which statement best illustrates the concept of diminishing marginal utility? A. If the price of hamburger declines, there will be a change in consumer tastes in favor of hamburger B. A typical consumer will receive less satisfaction from consuming hamburgers than from consuming pork C. A typical consumer will receive less satisfaction from consuming the fourth hamburger per week than the third hamburger per week D. A decrease in the price of hamburger will cause consumers to buy more hamburger because they have, in effect, received an increase in income 21. A point on a demand curve indicates: A. The ratio of the selling price to the buying price B. A particular price and the corresponding quantity demanded by consumers C. A combination of two consumer goods which buyers will choose at given prices D. A situation where the buying and selling decisions of consumers and producers are consistent 22. If product Y is an inferior good, an increase in consumer incomes will: A. Result in a surplus of product Y B. Not affect the sales of product Y C. Shift the demand curve for product Y to the left D. Shift the demand curve for product Y to the right 23. For most products, purchases tend to rise with increases in buyers' incomes, and to fall with decreases in buyers' incomes. Such products are known as: A. Inferior goods B. Direct goods C. Average goods D. Normal goods 24. If an increase in consumer incomes causes the demand curve for product Z to shift to the left, then it can be said that product Z is a(n): A. Normal good B. Luxury good C. Inferior good D. Inexpensive good 25. If an increase in consumer incomes causes the demand curve for product Q to shift to the right, then it can be said that product Q is a(n): A. Normal good B. Luxury good C. Inferior good D. Inexpensive good 4

5 26. If two goods are close substitutes: A. Consumers will always buy the one that has the lower price B. A fall in the price of one will decrease the demand for the other C. An increase in the price of one causes the demand for the other to decrease D. A decrease in the price of one causes an increase in the demand for the other 27. If the demand for product J shifts to the left as the price of product K increases, then: A. The number of consumers of product K has increased B. The income of consumers of product K has increased C. J and K are substitute goods D. J and K are complementary goods 28. Which is not a determinant of supply? A. The existing state of technology used by the firm B. The cost of resources used in production C. The level of government taxes and subsidies D. The market price of the good 29. Refer to the above graph. An increase in supply would best be reflected by a change from: A. Point 5 to 4 B. Point 2 to 1 C. Line A to B D. Line A to C 30. Refer to the above graph. An increase in the quantity supplied would best be reflected by a change from: A. Point 5 to 1 B. Point 3 to 4 C. Line A to B D. Line A to C 5

6 31. Refer to the above table. If supply decreased by 2 units at each price, what would the new equilibrium price and quantity be? A. $3 and 5 units B. $4 and 4 units C. $5 and 5 units D. $6 and 6 units 32. If the price elasticity of demand for a good is.75, the demand for the good can be described as: A. Normal B. Elastic C. Inferior D. Inelastic 33. Which demand curve above is relatively more elastic between P 1 and P 2? A. D 1 B. D 2 C. D 3 D. D Which demand curve above is perfectly inelastic? A. D 2 B. D 3 C. D 4 D. D 5 6

7 35. Refer to the above graphs. A price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units. Which graph best illustrates the price elasticity of demand for this good? A. Graph A B. Graph B C. Graph C D. Graph D 36. Which is not characteristic of a product with relatively inelastic demand? A. The good is regarded by consumers as a necessity B. There are a large number of good substitutes for the good C. Buyers spend a small percentage of their total income on the product D. Consumers have had only a short time period to adjust to changes in price 37. The satisfaction or pleasure one gets from consuming a good or service is: A. Price B. Utility C. Consumption D. Preferences 38. Total utility is best defined by which of the following? A. The change in marginal utility multiplied by the price of a product B. The maximum amount of satisfaction from consuming a product C. The total satisfaction received from consuming a particular amount of a product D. The additional satisfaction received from consuming one more unit of a product 39. Which of the following defines marginal utility? A. The change in total utility divided by the price of a product B. The maximum amount of satisfaction from consuming a product C. The total satisfaction received from consuming as much of the product that is available for consumption D. The additional satisfaction received from consuming one more unit of a product 40. Which best expresses the law of diminishing marginal utility? A. The more consumption of a product, the smaller is the total and marginal utility from the consumption B. The less consumption of a product, the greater is the total and marginal utility of the consumption C. The more consumption of a product, the smaller is the marginal utility from consuming an additional unit D. The more consumption of a product, the smaller is the total and marginal utility from the consumption 7

8 41. After eating four slices of pizza, you are offered a fifth slice. You turn down the slice. Your refusal indicates that the: A. Marginal utility for pizza slices is negative B. Total utility for pizza slices is negative C. Marginal utility is positive for the fourth slice and negative for the fifth slice D. Total utility was positive for the fourth slice and negative for the fifth slice 42. Refer to the above table. What is the marginal utility of the fourth unit? A. 4 B. 8 C. 27 D Refer to the above table. Marginal utility becomes negative with the consumption of the: A. Second unit B. Third unit C. Fourth unit D. Fifth unit 44. If a rational consumer is in equilibrium, then: A. The marginal utility obtained from one product is equal to the marginal utility obtained from any other product B. A reallocation of income would increase the consumer's total utility C. The marginal utility per last dollar spent is the same for all goods consumed D. Total utility becomes zero 45. The increase in demand for ipods can be explained by: A. An increase in the technology used to produce ipods B. A reduction in the price of CD players C. Improved portability and storage as compared to CD players D. A decrease in the price of ipods 8

9 46. Consider the above graphs A through D, which depict the total utility a consumer receives from consuming good X. The principle of diminishing marginal utility is best illustrated by: A. Graph A B. Graph B C. Graph C D. Graph D 47. Jon Brooks quit his job in a bicycle shop, where he earned $15,000 per year, to become a graduate student in economics. At the university he attended, he spent $2,000 on books, $1,000 on cough medicine, and earned $12,000 as an economics instructor. What were Jon's economic costs while attending college? A. $18,000 B. $15,000 C. $6,000 D. $3, Suppose that you could prepare your own tax return in 15 hours, or you could hire a tax specialist to prepare it for you in 2 hours. You value your time at $11.00 an hour. The tax specialist will charge you $55 an hour. The opportunity cost of preparing your own tax return is: A. $40 B. $55 C. $110 D. $165 9

10 49. Cash expenditures a firm makes to pay for resources are called: A. Implicit costs B. Explicit costs C. Normal profit D. Opportunity costs 50. If a firm's revenues just cover all its opportunity costs, then: A. Normal profit is zero B. Economic profit is zero C. Total revenues equal its explicit costs D. Total revenues equal its implicit costs 51. Economic profit is: A. Total revenues minus fixed costs B. Total revenues from sales minus the cost of materials C. Total revenues minus the opportunity cost of the inputs D. Gross profit minus selling and operating expenses 52. Economic profit for a company is defined as the total revenues of the firm minus the: A. Opportunity cost of all resources B. Explicit costs of production C. Implicit cost of production D. Accounting profit 53. Which statement is false? A. The short run refers to the same calendar time period for all industries B. In the long run, all inputs can vary C. Firms may operate at a loss in the short run D. In the long run, firms do not operate at a loss 54. The short run is a time period in which: A. All resources are fixed B. The level of output is fixed C. The size of the production plant is variable D. Some resources are fixed and others are variable 55. Which statement is correct? A. In the short run the plant capacity is variable B. In the long run the plant capacity is variable C. In the long run the plant capacity is fixed D. In the short run, all resources are variable 56. Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly line basis? A. An increase in the amount of aluminum the firm buys B. A change in the production managers of the assembly line C. A change in the production to a redesigned, new model car D. An increase in the number of shifts of workers from two to three 10

11 57. The difference between the short run and the long run is that the short run can be characterized as a: A. "variable" plant period while the long run is a "fixed" plant period B. "fixed" plant period while the long run is a "variable" plant period C. "fixed output" period while the long run is a "variable output" period D. "variable output" period while the long run is a "fixed output" period 58. According to the law of diminishing marginal returns, eventually: A. Output must fall and then rise as additional units of input are employed B. Additional inputs will no longer generate average output C. The additional output generated by additional units of an input will diminish D. The additional inputs necessary to produce an additional unit of output will diminish 59. The law of diminishing returns for a manufacturing plant of a fixed size implies that, eventually employing one: A. More worker will increase output per worker B. More worker will decrease output per worker C. Less worker will increase output per worker D. Less worker will not affect output per worker 60. The law of diminishing returns only applies in cases where: A. There is increasing scarcity of factors of production B. The price of extra units of a factor is increasing C. There is at least one fixed factor of production D. Capital is a variable input The next question(s) are based on the following table that provides information on the production of a product that requires one variable input. 61. Refer to the above table. There are increasing marginal returns through the: A. First unit of variable input B. Second unit of variable input C. Third unit of variable input D. Fourth unit of variable input 11

12 62. Refer to the above table. Diminishing returns set in with the addition of the: A. First unit of input B. Second unit of input C. Third unit of input D. Fourth unit of input 63. Refer to the above graph. It shows the marginal product of labor (MP L ) and the average product of labor (AP L ). At which point above does diminishing marginal returns set in? A. Point A B. Point B C. Point C D. Point D 64. Refer to the above graph. It shows the marginal product of labor (MP L ) and the average product of labor (AP L ). At which point are marginal and average product the same as labor is added? A. Point A B. Point B C. Point C D. Point D 65. Refer to the above graph. It shows the marginal product of labor (MP L ) and the average product of labor (AP L ). At which point does the marginal product of labor become zero again? A. Point A B. Point B C. Point C D. Point D 66. Which is not a fixed cost? A. Monthly rent of $1,000 contractually specified in a one-year lease B. An insurance premium of $50 per year, paid last month C. An attorney's retainer of $50,000 per year D. A worker's wage of $15 per hour 12

13 67. If you know that total fixed cost is $200, total variable cost is $600, and total product is 4 units, then: A. Marginal cost is $50 B. Average fixed cost is $100 C. Average total cost is $100 D. Average variable cost is $ Refer to the above graph. It shows the total cost curves. Total fixed cost at output level Q 2 is measured by: A. 0B B. AC C. CD D. DE 69. Refer to the above graph. It shows the total cost curves. Total cost at output level Q 2 is measured by: A. 0C B. AD C. CD D. 0D 70. Refer to the above graph. It shows the total cost curves. Total variable cost at output level Q 2 is measured by: A. 0C B. AC C. CD D. 0D 71. When marginal cost is increasing: A. Total cost must be increasing B. Average total cost must be increasing C. Average total cost must be decreasing D. Average fixed costs might be increasing or decreasing 13

14 72. As output increases, average fixed costs: A. Increase B. Decrease C. Remain constant D. First increase and then decrease 73. Mutual interdependence would tend to limit control over price in which market model? A. Monopolistic competition B. Pure competition C. Pure monopoly D. Oligopoly 74. In which two market models would advertising be used most often? A. Pure competition and monopolistic competition B. Pure competition and pure monopoly C. Monopolistic competition and oligopoly D. Pure monopoly and oligopoly 75. There is no control over price by firms in: A. Oligopoly B. Pure monopoly C. Pure competition D. Monopolistic competition 76. Under which market model are the conditions of entry into the market easiest? A. Pure competition B. Pure monopoly C. Monopolistic competition D. Oligopoly 77. A purely competitive firm does not try to sell more of its product by lowering its price below the market price because: A. Its competitors would not permit it B. It can sell all it wants to at the market price C. This would be considered unethical price chiseling D. Its demand curve is inelastic, so total revenue will decline 14

15 78. Refer to the above graph for a firm in pure competition. Line A represents: A. Total revenue B. Average revenue C. Average total cost D. Average fixed cost 79. Refer to the above graph for a firm in pure competition. Line B represents: A. Total revenue B. Marginal revenue C. Average total cost D. Average fixed cost 80. In pure competition, marginal revenue is: A. Equal to total revenue B. Equal to product price C. Less than product price D. Greater than product price Use the table below to answer the next question(s) for a purely competitive firm. 81. Refer to the above table. The marginal revenue from the third unit of output is: A. $40 B. $50 C. $120 D. $160 15

16 82. Refer to the above graph. To maximize profits, this firm would produce: A. 0D units, which will result in a loss equal to ABGH B. 0E units, which will result in a loss equal to ALFH C. 0D units, which will result in economic profits equal to BCFG D. 0E units, which will result in economic profits equal to ABGH 83. Refer to the above graph. At the profit-maximizing level of output there will be: A. A loss equal to ABGH B. A loss equal to ALFH C. Economic profits equal to BCFG D. Economic profits equal to ABGH 84. Consider the purely competitive firm pictured above. The firm is earning: A. Normal profits, since its price is above AVC B. Economic profits, since its price is above AVC C. Normal profits, since its price just covers ATC D. Losses, since it is operating at the shutdown point 16

17 85. Refer to the above graph. It represents a profit-maximizing firm producing under conditions of pure competition. When the firm is in equilibrium in the short run, its average fixed cost is: A. EH B. DE C. DH D. DB 86. Refer to the above graph. It represents a profit-maximizing firm producing under conditions of pure competition. When the firm is in equilibrium in the short run, its average variable cost is: A. EH B. DE C. DH D. DB 87. Refer to the above graph. It represents a profit-maximizing firm producing under conditions of pure competition. When the firm is in equilibrium in the short run, the amount of economic profit per unit is: A. EH B. DE C. DH D. DB 88. One defining characteristic of pure monopoly is that: A. The monopolist is a price taker B. The monopolist uses advertising C. The monopolist produces a product with no close substitutes D. There is relatively easy entry into the industry, but exit is difficult 89. Which phrase would be most characteristic of pure monopoly? A. Close substitutes B. Efficient advertiser C. Price taker D. Single seller 17

18 90. Refer to the above graph showing the short-run revenue curves for a monopolist. What price should be charged in order to maximize total revenue? A. P 1 B. P 2 C. P 3 D. P Refer to the above graph showing the short-run revenue curves for a monopolist. At what output level is demand inelastic? A. Q 1 B. Q 2 C. Q 3 D. Q Refer to the above graph. The profit-maximizing monopolist in it will set its price and output at: A. 0J and 0V, respectively B. 0G and 0Y, respectively C. 0K and 0T, respectively D. 0H and 0X, respectively 18

19 93. Refer to the above graph. Consider a monopolist in short-run equilibrium. This monopolist: A. Has total fixed costs equal to area BEFC B. Has total variable costs equal to area 0CFQ C. Earns economic profit equal to the area of ABED D. Will cease production since its economic profits are negative 94. A major characteristic of monopolistic competition is: A. Mutual interdependence B. A high degree of collusion among firms C. A relatively large number of firms selling the product D. Relatively easy entry into an industry, but a relatively difficult exit from the industry The graph depicts a monopolistically competitive firm 95. Refer to the above graph. In the short run, this monopolistically competitive firm will set price at: A. $65 and produce 45 units of output B. $65 and produce 35 units of output C. $50 and produce 35 units of output D. $50 and produce 50 units of output 19

20 96. Refer to the above graphs. A short-run equilibrium that would produce profits for a monopolistically competitive firm would be represented by graph: A. A B. B C. C D. D 97. When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of: A. Interindustry competition B. Limit pricing C. Price leadership D. Collusion Answer the next question(s) based on the following payoff matrix for a duopoly in which the numbers indicate the profit in millions of dollars for a high-price or a low-price strategy 98. Refer to the above payoff matrix. If both firms collude to maximize joint profits, the total profits for the two firms will be: A. $350 million B. $400 million C. $500 million D. $525 million 20

21 99. Refer to the above payoff matrix. Assume that firm B adopts a low-price strategy while firm A maintains a high-price strategy. Compared to the results from a high-price strategy for both firms, firm B will now: A. Lose $75 million in profit and firm A will gain $50 million in profit B. Gain $50 million in profit and firm A will lose $50 million in profit C. Gain $75 million in profit and firm A will lose $50 million in profit D. Gain $50 million in profit and firm A will lose $75 million in profit Answer the next question(s) based on the following payoff matrix for a duopoly in which the numbers indicate the profit in thousands of dollars for a high-price or a low-price strategy 100.Refer to the above payoff matrix. If both firms operate independently and do not collude, the most likely profit is: A. $400,000 for firm X and $400,000 for firm Y B. $725,000 for firm X and $475,000 for firm Y C. $475,000 for firm X and $725,000 for firm Y D. $625,000 for firm X and $625,000 for firm Y 21

22 Cumulative Review Key 1. The study of economics is primarily concerned with: A. Expanding the production of goods and services B. Making the best use of scarce productive resources C. Equalizing the distribution of consumer income and wealth D. Reallocating resources from consumption to production in the economy 2. A recurring theme in economics is: al Skills Learning Objective: 1-1 McConnell - Chapter 001 #2 Topic: Economics; economic perspective A. Unlimited resources and unlimited economic wants B. People can increase resources by limiting their economic wants C. People have limited economic wants and limited resources D. People have unlimited economic wants, but limited resources al Skills Learning Objective: 1-1 McConnell - Chapter 001 #4 Topic: Economics; economic perspective 3. What is the economic meaning of the expression that "there is no such thing as a free lunch"? A. It refers to "free-riders," who do not pay for the cost of a product, but who receive the benefit from it B. It means that economic freedom is limited by the amount of income available to the consumer C. It means that there is an opportunity cost when resources are used to provide "free" products D. It indicates that products only have value because people are willing to pay for them 4. Opportunity cost is best defined as: al Skills Learning Objective: 1-1 McConnell - Chapter 001 #9 Topic: Economics; economic perspective A. Marginal cost minus marginal benefit B. The time spent on an economic activity C. The value of the best foregone alternative D. The money cost of an economic decision al Skills Learning Objective: 1-1 Level: Difficult McConnell - Chapter 001 #12 Topic: Economics; economic perspective 1

23 5. Tammie makes $150 a day as a bank clerk. She takes off two days of work without pay to fly to another city to attend the concert of her favorite music group. The cost of transportation for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Tammie's trip to the concert is: A. $300 B. $450 C. $500 D. $ Which of the following is a normative economic statement? A. The Federal budget surplus rose by 10 billion dollars B. A fall in the unemployment rate was forecast for next month C. A trade deficit of 20 billion dollars will harm the economy D. The Federal funds rate was reduced by half a percentage point 7. The economizing problem for society is: A. To achieve a more equitable distribution of income in society B. That productive resources are scarce relative to economic wants C. To establish prices which are fair for both producers and consumers D. That product prices rise more rapidly than incomes of consumers 8. Economists would classify all of the following as land except: A. Two thousand acres of virgin forest B. A hydroelectric dam C. Crude oil reserves D. Iron ore deposits al Skills Learning Objective: 1-1 Level: Difficult McConnell - Chapter 001 #13 Topic: Economics; economic perspective al Skills Learning Objective: 1-1 McConnell - Chapter 001 #65 Topic: Positive and normative economics al Skills Learning Objective: 1-4 McConnell - Chapter 001 #90 Topic: Society's economizing problem al Skills Learning Objective: 1-4 McConnell - Chapter 001 #96 Topic: Society's economizing problem 2

24 McConnell - Chapter The graph above shows the production possibilities curve for an economy producing two goods, X and Y. Which of the points on the graph indicate unemployed resources? A. D only B. E only C. E and A only D. B and C only al Skills Learning Objective: 1-5 McConnell - Chapter 001 #161 Topic: Unemployment, growth, and the future McConnell - Chapter 001 3

25 10. Refer to the above graph. The marginal opportunity cost of the third unit of defense goods is: A. 2 units of civilian goods B. 3 units of civilian goods C. 4 units of civilian goods D. 7 units of civilian goods 11. The economy of the former Soviet Union would best be classified as: A. A market system B. Pure capitalism C. Laissez-faire capitalism D. A command system al Skills Learning Objective: 1-5 McConnell - Chapter 001 #192 Topic: Production possibilities model 12. By free enterprise, we mean that: Learning Objective: 2-1 Level: Difficult McConnell - Chapter 002 #12 Topic: Economic systems A. Products are provided free to those who can't afford to buy them B. Individual producers determine how to produce, but government agencies determine what will be produced C. Individuals may obtain resources, organize production, and sell the resulting output in any legal way they choose D. Individuals are free to produce those products that government agencies determine can be produced profitably 13. Which is a key feature of the market system? A. Price floors and price ceilings in all markets B. Reallocation of all resources from private to public uses C. The right to own private property and control resource use D. Central planning by government to provide goods and services Learning Objective: 2-2 Level: Difficult McConnell - Chapter 002 #16 Topic: Characteristics of the market system Learning Objective: 2-2 McConnell - Chapter 002 #23 Topic: Characteristics of the market system 4

26 14. Which is one of the five fundamental questions that needs to be answered by economic systems? A. What is the rate of unemployment? B. Who will be the richest person in the economy? C. What goods and services will be produced? D. Why are the prices for goods and services so high? 15. When economists describe "a market," they mean: Learning Objective: 2-2 McConnell - Chapter 002 #50 Topic: Five fundamental questions A. A place where stocks and bonds are traded B. Information networks that allow individuals to keep in touch with each other C. A hypothetical place where the production of goods and services takes place D. A mechanism which coordinates actions of consumers and producers to establish equilibrium prices and quantities 16. A market demand schedule for a product indicates that: Learning Objective: 3-1 McConnell - Chapter 003 #1 Topic: Demand and demand curve A. As the product's price falls, consumers buy less of the good B. As a product's price rises, consumers buy less of other goods C. There is a direct relationship between price and quantity demanded D. There is an inverse relationship between price and quantity demanded 17. When one speaks of "demand" in a particular market, this refers to: Learning Objective: 3-1 McConnell - Chapter 003 #3 Topic: Demand and demand curve A. The whole demand curve B. Only one point on the entire demand curve C. Only one price-quantity combination on the demand schedule D. The quantity demanded at a given price 18. In a competitive market for corn, the law of demand indicates that, other things equal, as: A. The demand for corn decreases, the price will increase B. Income decreases, the quantity of corn demanded will increase C. The price of corn decreases, the quantity of corn demanded will increase D. The price of corn decreases, the quantity of corn demanded will decrease Learning Objective: 3-1 Level: Difficult McConnell - Chapter 003 #5 Topic: Demand and demand curve Learning Objective: 3-1 McConnell - Chapter 003 #7 Topic: Demand and demand curve 5

27 19. A result of a fall in the price of gasoline, consumers buy more gasoline and take more driving vacations. This situation is an illustration of: A. The income effect B. The substitution effect C. Diminishing marginal utility D. The rationing function of prices 20. Which statement best illustrates the concept of diminishing marginal utility? AACSB: Reflective Bloom's: Comprehension Learning Objective: 3-1 Level: Difficult McConnell - Chapter 003 #15 Topic: Demand and demand curve A. If the price of hamburger declines, there will be a change in consumer tastes in favor of hamburger B. A typical consumer will receive less satisfaction from consuming hamburgers than from consuming pork C. A typical consumer will receive less satisfaction from consuming the fourth hamburger per week than the third hamburger per week D. A decrease in the price of hamburger will cause consumers to buy more hamburger because they have, in effect, received an increase in income 21. A point on a demand curve indicates: AACSB: Reflective Learning Objective: 3-1 Level: Difficult McConnell - Chapter 003 #18 Topic: Demand and demand curve A. The ratio of the selling price to the buying price B. A particular price and the corresponding quantity demanded by consumers C. A combination of two consumer goods which buyers will choose at given prices D. A situation where the buying and selling decisions of consumers and producers are consistent 22. If product Y is an inferior good, an increase in consumer incomes will: A. Result in a surplus of product Y B. Not affect the sales of product Y C. Shift the demand curve for product Y to the left D. Shift the demand curve for product Y to the right Learning Objective: 3-1 McConnell - Chapter 003 #21 Topic: Demand and demand curve Learning Objective: 3-1 McConnell - Chapter 003 #38 Topic: Determinants of demand 6

28 23. For most products, purchases tend to rise with increases in buyers' incomes, and to fall with decreases in buyers' incomes. Such products are known as: A. Inferior goods B. Direct goods C. Average goods D. Normal goods Learning Objective: 3-1 Level: Difficult McConnell - Chapter 003 #39 Topic: Determinants of demand 24. If an increase in consumer incomes causes the demand curve for product Z to shift to the left, then it can be said that product Z is a(n): A. Normal good B. Luxury good C. Inferior good D. Inexpensive good Learning Objective: 3-1 McConnell - Chapter 003 #42 Topic: Determinants of demand 25. If an increase in consumer incomes causes the demand curve for product Q to shift to the right, then it can be said that product Q is a(n): A. Normal good B. Luxury good C. Inferior good D. Inexpensive good 26. If two goods are close substitutes: Learning Objective: 3-1 Level: Difficult McConnell - Chapter 003 #41 Topic: Determinants of demand A. Consumers will always buy the one that has the lower price B. A fall in the price of one will decrease the demand for the other C. An increase in the price of one causes the demand for the other to decrease D. A decrease in the price of one causes an increase in the demand for the other Learning Objective: 3-1 McConnell - Chapter 003 #45 Topic: Determinants of demand 7

29 27. If the demand for product J shifts to the left as the price of product K increases, then: A. The number of consumers of product K has increased B. The income of consumers of product K has increased C. J and K are substitute goods D. J and K are complementary goods 28. Which is not a determinant of supply? Learning Objective: 3-1 Level: Difficult McConnell - Chapter 003 #49 Topic: Determinants of demand A. The existing state of technology used by the firm B. The cost of resources used in production C. The level of government taxes and subsidies D. The market price of the good Learning Objective: 3-2 McConnell - Chapter 003 #123 Topic: Determinants of supply 29. Refer to the above graph. An increase in supply would best be reflected by a change from: A. Point 5 to 4 B. Point 2 to 1 C. Line A to B D. Line A to C McConnell - Chapter 003 Learning Objective: 3-2 McConnell - Chapter 003 #126 Topic: Determinants of supply 8

30 30. Refer to the above graph. An increase in the quantity supplied would best be reflected by a change from: A. Point 5 to 1 B. Point 3 to 4 C. Line A to B D. Line A to C Learning Objective: 3-2 McConnell - Chapter 003 #127 Topic: Determinants of supply 31. Refer to the above table. If supply decreased by 2 units at each price, what would the new equilibrium price and quantity be? A. $3 and 5 units B. $4 and 4 units C. $5 and 5 units D. $6 and 6 units McConnell - Chapter 003 Learning Objective: 3-4 McConnell - Chapter 003 #252 Topic: Changes in equilibrium price and quantity 32. If the price elasticity of demand for a good is.75, the demand for the good can be described as: A. Normal B. Elastic C. Inferior D. Inelastic Learning Objective: 6-1 Level: Difficult McConnell - Chapter 006 #2 Topic: Price elasticity of demand 9

31 33. Which demand curve above is relatively more elastic between P 1 and P 2? McConnell - Chapter 006 A. D 1 B. D 2 C. D 3 D. D 4 Learning Objective: 6-1 McConnell - Chapter 006 #6 Topic: Price elasticity of demand 34. Which demand curve above is perfectly inelastic? A. D 2 B. D 3 C. D 4 D. D 5 Learning Objective: 6-1 McConnell - Chapter 006 #7 Topic: Price elasticity of demand McConnell - Chapter

32 35. Refer to the above graphs. A price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units. Which graph best illustrates the price elasticity of demand for this good? A. Graph A B. Graph B C. Graph C D. Graph D 36. Which is not characteristic of a product with relatively inelastic demand? A. The good is regarded by consumers as a necessity B. There are a large number of good substitutes for the good C. Buyers spend a small percentage of their total income on the product D. Consumers have had only a short time period to adjust to changes in price Learning Objective: 6-1 McConnell - Chapter 006 #14 Topic: Price elasticity of demand 37. The satisfaction or pleasure one gets from consuming a good or service is: A. Price B. Utility C. Consumption D. Preferences Learning Objective: 6-1 Level: Difficult McConnell - Chapter 006 #63 Topic: Determinants of price elasticity 38. Total utility is best defined by which of the following? A. The change in marginal utility multiplied by the price of a product B. The maximum amount of satisfaction from consuming a product C. The total satisfaction received from consuming a particular amount of a product D. The additional satisfaction received from consuming one more unit of a product 39. Which of the following defines marginal utility? Learning Objective: 7-1 McConnell - Chapter 007 #1 Topic: Utility; law of diminishing marginal utility Learning Objective: 7-1 McConnell - Chapter 007 #3 Topic: Utility; law of diminishing marginal utility A. The change in total utility divided by the price of a product B. The maximum amount of satisfaction from consuming a product C. The total satisfaction received from consuming as much of the product that is available for consumption D. The additional satisfaction received from consuming one more unit of a product Learning Objective: 7-1 McConnell - Chapter 007 #5 Topic: Utility; law of diminishing marginal utility 11

33 40. Which best expresses the law of diminishing marginal utility? A. The more consumption of a product, the smaller is the total and marginal utility from the consumption B. The less consumption of a product, the greater is the total and marginal utility of the consumption C. The more consumption of a product, the smaller is the marginal utility from consuming an additional unit D. The more consumption of a product, the smaller is the total and marginal utility from the consumption Learning Objective: 7-1 McConnell - Chapter 007 #6 Topic: Utility; law of diminishing marginal utility 41. After eating four slices of pizza, you are offered a fifth slice. You turn down the slice. Your refusal indicates that the: A. Marginal utility for pizza slices is negative B. Total utility for pizza slices is negative C. Marginal utility is positive for the fourth slice and negative for the fifth slice D. Total utility was positive for the fourth slice and negative for the fifth slice AACSB: Reflective Learning Objective: 7-1 McConnell - Chapter 007 #7 Topic: Utility; law of diminishing marginal utility 42. Refer to the above table. What is the marginal utility of the fourth unit? McConnell - Chapter 007 A. 4 B. 8 C. 27 D. 31 Learning Objective: 7-1 McConnell - Chapter 007 #26 Topic: Utility; law of diminishing marginal utility 43. Refer to the above table. Marginal utility becomes negative with the consumption of the: A. Second unit B. Third unit C. Fourth unit D. Fifth unit Learning Objective: 7-1 McConnell - Chapter 007 #29 Topic: Utility; law of diminishing marginal utility 12

34 44. If a rational consumer is in equilibrium, then: A. The marginal utility obtained from one product is equal to the marginal utility obtained from any other product B. A reallocation of income would increase the consumer's total utility C. The marginal utility per last dollar spent is the same for all goods consumed D. Total utility becomes zero 45. The increase in demand for ipods can be explained by: A. An increase in the technology used to produce ipods B. A reduction in the price of CD players C. Improved portability and storage as compared to CD players D. A decrease in the price of ipods Learning Objective: 7-2 McConnell - Chapter 007 #41 Topic: Utility-maximizing rule Learning Objective: 7-3 McConnell - Chapter 007 #90 Topic: Applications; extensions McConnell - Chapter

35 46. Consider the above graphs A through D, which depict the total utility a consumer receives from consuming good X. The principle of diminishing marginal utility is best illustrated by: A. Graph A B. Graph B C. Graph C D. Graph D Learning Objective: 7-1 McConnell - Chapter 007 #23 Topic: Utility; law of diminishing marginal utility 47. Jon Brooks quit his job in a bicycle shop, where he earned $15,000 per year, to become a graduate student in economics. At the university he attended, he spent $2,000 on books, $1,000 on cough medicine, and earned $12,000 as an economics instructor. What were Jon's economic costs while attending college? A. $18,000 B. $15,000 C. $6,000 D. $3,000 Learning Objective: 8-1 McConnell - Chapter 008 #1 Topic: Costs: explicit and implicit 48. Suppose that you could prepare your own tax return in 15 hours, or you could hire a tax specialist to prepare it for you in 2 hours. You value your time at $11.00 an hour. The tax specialist will charge you $55 an hour. The opportunity cost of preparing your own tax return is: A. $40 B. $55 C. $110 D. $ Cash expenditures a firm makes to pay for resources are called: Learning Objective: 8-1 McConnell - Chapter 008 #2 Topic: Costs: explicit and implicit A. Implicit costs B. Explicit costs C. Normal profit D. Opportunity costs Learning Objective: 8-1 McConnell - Chapter 008 #5 Topic: Costs: explicit and implicit 14

36 50. If a firm's revenues just cover all its opportunity costs, then: A. Normal profit is zero B. Economic profit is zero C. Total revenues equal its explicit costs D. Total revenues equal its implicit costs 51. Economic profit is: Learning Objective: 8-1 McConnell - Chapter 008 #13 Topic: Profits A. Total revenues minus fixed costs B. Total revenues from sales minus the cost of materials C. Total revenues minus the opportunity cost of the inputs D. Gross profit minus selling and operating expenses 52. Economic profit for a company is defined as the total revenues of the firm minus the: A. Opportunity cost of all resources B. Explicit costs of production C. Implicit cost of production D. Accounting profit Learning Objective: 8-1 Level: Difficult McConnell - Chapter 008 #15 Topic: Profits 53. Which statement is false? Learning Objective: 8-1 Level: Difficult McConnell - Chapter 008 #18 Topic: Profits A. The short run refers to the same calendar time period for all industries B. In the long run, all inputs can vary C. Firms may operate at a loss in the short run D. In the long run, firms do not operate at a loss 54. The short run is a time period in which: Learning Objective: 8-2 McConnell - Chapter 008 #27 Topic: Short run versus long run A. All resources are fixed B. The level of output is fixed C. The size of the production plant is variable D. Some resources are fixed and others are variable Learning Objective: 8-2 McConnell - Chapter 008 #29 Topic: Short run versus long run 15

37 55. Which statement is correct? A. In the short run the plant capacity is variable B. In the long run the plant capacity is variable C. In the long run the plant capacity is fixed D. In the short run, all resources are variable Learning Objective: 8-2 McConnell - Chapter 008 #31 Topic: Short run versus long run 56. Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly line basis? A. An increase in the amount of aluminum the firm buys B. A change in the production managers of the assembly line C. A change in the production to a redesigned, new model car D. An increase in the number of shifts of workers from two to three Learning Objective: 8-2 McConnell - Chapter 008 #33 Topic: Short run versus long run 57. The difference between the short run and the long run is that the short run can be characterized as a: A. "variable" plant period while the long run is a "fixed" plant period B. "fixed" plant period while the long run is a "variable" plant period C. "fixed output" period while the long run is a "variable output" period D. "variable output" period while the long run is a "fixed output" period 58. According to the law of diminishing marginal returns, eventually: Learning Objective: 8-2 McConnell - Chapter 008 #34 Topic: Short run versus long run A. Output must fall and then rise as additional units of input are employed B. Additional inputs will no longer generate average output C. The additional output generated by additional units of an input will diminish D. The additional inputs necessary to produce an additional unit of output will diminish Learning Objective: 8-2 McConnell - Chapter 008 #35 Topic: Law of diminishing returns 59. The law of diminishing returns for a manufacturing plant of a fixed size implies that, eventually employing one: A. More worker will increase output per worker B. More worker will decrease output per worker C. Less worker will increase output per worker D. Less worker will not affect output per worker Learning Objective: 8-2 McConnell - Chapter 008 #39 Topic: Law of diminishing returns 16

38 60. The law of diminishing returns only applies in cases where: A. There is increasing scarcity of factors of production B. The price of extra units of a factor is increasing C. There is at least one fixed factor of production D. Capital is a variable input Learning Objective: 8-2 McConnell - Chapter 008 #41 Topic: Law of diminishing returns The next question(s) are based on the following table that provides information on the production of a product that requires one variable input. 61. Refer to the above table. There are increasing marginal returns through the: McConnell - Chapter 008 A. First unit of variable input B. Second unit of variable input C. Third unit of variable input D. Fourth unit of variable input 62. Refer to the above table. Diminishing returns set in with the addition of the: Learning Objective: 8-2 McConnell - Chapter 008 #56 Topic: Law of diminishing returns A. First unit of input B. Second unit of input C. Third unit of input D. Fourth unit of input Learning Objective: 8-2 McConnell - Chapter 008 #57 Topic: Law of diminishing returns 17

39 McConnell - Chapter Refer to the above graph. It shows the marginal product of labor (MP L ) and the average product of labor (AP L ). At which point above does diminishing marginal returns set in? A. Point A B. Point B C. Point C D. Point D Learning Objective: 8-2 McConnell - Chapter 008 #61 Topic: Law of diminishing returns 64. Refer to the above graph. It shows the marginal product of labor (MP L ) and the average product of labor (AP L ). At which point are marginal and average product the same as labor is added? A. Point A B. Point B C. Point C D. Point D Learning Objective: 8-2 McConnell - Chapter 008 #62 Topic: Law of diminishing returns 65. Refer to the above graph. It shows the marginal product of labor (MP L ) and the average product of labor (AP L ). At which point does the marginal product of labor become zero again? A. Point A B. Point B C. Point C D. Point D Learning Objective: 8-2 McConnell - Chapter 008 #63 Topic: Law of diminishing returns 18

40 66. Which is not a fixed cost? A. Monthly rent of $1,000 contractually specified in a one-year lease B. An insurance premium of $50 per year, paid last month C. An attorney's retainer of $50,000 per year D. A worker's wage of $15 per hour Learning Objective: 8-3 McConnell - Chapter 008 #78 Topic: Short-run costs 67. If you know that total fixed cost is $200, total variable cost is $600, and total product is 4 units, then: A. Marginal cost is $50 B. Average fixed cost is $100 C. Average total cost is $100 D. Average variable cost is $150 Learning Objective: 8-3 McConnell - Chapter 008 #86 Topic: Short-run costs 68. Refer to the above graph. It shows the total cost curves. Total fixed cost at output level Q 2 is measured by: A. 0B B. AC C. CD D. DE McConnell - Chapter 008 Learning Objective: 8-3 McConnell - Chapter 008 #94 Topic: Short-run costs 19

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