The diamond-water paradox occurs because

the price of a product is related to its marginal utility, not its total

"Other things equal" means

A number of relevant variables are assumed to be constant.

20% increase in the price of normal good Y causes a 10% decline in the quantity demanded of normal good X. It will be

negative, and therefore these goods are complements.

In a market economy, the distribution of output will be determined primarily by

the quantities and prices of the resources that households supply

If price is above the equilibrium level, competition among sellers to reduce the resulting

surplus will increase quantity demanded and decrease quantity supplied.

The law of diminishing returns describes the

relationship between resource inputs and product outputs in the short run.

For a linear demand curve,

demand is elastic at relatively high prices.

Which of the following represents a long-run adjustment?

A watch manufacturer sells one of it's plants

The theory of consumer behavior assumes that

consumers behave rationally, attempting to maximize their satisfaction.

A nation's production possibilities curve might shift to the left (inward) as a result of

The depletion of its soil fertility due to overplanting and overgrazing.

Two major virtues of the market system are that it

allocates resources efficiently and allows economic freedom.

In a competitive market economy, firms select the least-cost production technique because

to do so will maximize the firms' profits.

Which of the following is not a typical characteristic of a market system?

Government ownership of most property resources

reduce recipient utility relative to a cash gift

The economizing problem is one of deciding how to make the best use of -

Limited resources with unlimited wants

In a market system, resources will move away from an industry when

demand for the industry's product is decreasing.

not accurately defined by any of these statements

To maximize utility, a consumer should allocate money income so that the

marginal utility obtained from the last dollar spent on each is the same

We would expect the cross elasticity of demand between dress shirts and ties to be

negative, indicating complementary goods.

Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the

AVC, ATC, and MC curves all to rise.

You have a limited money income and you are purchasing products A and B, whose prices are the same. To max utility you

Should buy A and B their marginal utilities are the same.

When moving along a given budget line -

The price of both products and money income is constant

Assume a firm closes down in the short run and produces no output. Under these conditions,

TFC and TC are positive, but TVC is zero.

Which of the following is most likely to be an implicit cost for Company X?

forgone rent from the building owned and used by Company X

rising, then average total cost could be either falling or rising.

"Consumer sovereignty" refers to the

idea that the decisions of producers must ultimately conform to consumer demands.

The basic difference between consumer goods(cg) and capital goods(cpg) is that

cg satisfy wants directly, while cpg satisfy wants indirectly

Most demand curves are relatively elastic in the upper-left portion because the original price

The percentage price change is calculated is large; the original is small

If the supply of product X is perfectly elastic, an increase in the demand for it will increase

equilibrium quantity, but equilibrium price will be unchanged.

The economic perspective entails

A comparison of marginal benefits and marginal costs in decision making.

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Microeconomics Exam Practice

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Answers

1
The diamond-water paradox occurs because
diamonds are more useful than water.
water is, in fact, very scarce in certain regions of the world.
the price of a product is related to its marginal utility, not its total
the price of a product is related to its total utility, not its marginal
2
price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z, which revenue rises
y and z
x and z
w and y
z and w
3
"Other things equal" means
The associated statement is normative.
When variable X increases, so does related variable Y
A number of relevant variables are assumed to be constant.
The associated statement is normative.
4
For an increase in demand, the price effect is smallest and the quantity effect is largest
when supply is least elastic.
in the immediate market period.
in the long run.
in the short run.
5
20% increase in the price of normal good Y causes a 10% decline in the quantity demanded of normal good X. It will be
negative, and therefore these goods are complements.
negative, and therefore these goods are substitute
positive, and therefore these goods are substitutes.
positive, and therefore these goods are complements.
6
It takes a long time to increase the production of pork, meaning that the short-run supply is less elastic than long-run
False
True
7
In a market economy, the distribution of output will be determined primarily by
consumer needs and preferences.
government regulations that provide a minimum income for all.
Government leader
the quantities and prices of the resources that households supply
8
If price is above the equilibrium level, competition among sellers to reduce the resulting
surplus will increase quantity demanded and decrease quantity supplied.
shortage will increase quantity demanded and decrease quantity supplied.
shortage will decrease quantity demanded and increase quantity supplied.
9
A production possibilities curve illustrates -
Consumer preferences
Scarcity
Market prices
Income
10
Which of the following will not produce an outward shift of the production possibilities curve?
Improving society's tech knowledge
Increasing society's quantity of labor force
Reducing unemployment
Upgrading the quality human resources
11
The law of diminishing returns describes the
profit-maximizing position of a firm.
relationship between total costs and total revenues.
relationship between resource inputs and product outputs in the short run.
relationship between resource inputs and product outputs in the long run.
12
For a linear demand curve,
demand is elastic at relatively low prices.
demand is elastic at relatively high prices.
elasticity is unity at every point on the curve.
elasticity is constant along the curve.
13
Which of the following represents a long-run adjustment?
A farmer uses an extra dose of fertilizer on his corn crop.
A steel manufacturer cuts back on its purchases of coke and iron ore.
A watch manufacturer sells one of it's plants
A supermarket hires four additional clerks.
14
Where total utility is at a maximum, marginal utility is
positive but decreasing.
positive and increasing.
zero
negative.
15
The theory of consumer behavior assumes that
marginal utility is constant.
consumers have unlimited money incomes.
Consumers will behave irrationally
consumers behave rationally, attempting to maximize their satisfaction.
16
Suppose that MUx/P_x exceeds MUy/P_y. To maximize utility, the consumer who is spending all her money income should buy
more of Y and/or less of X.
more of Y only if its price rises.
less of X only if its price rises.
more of X and/or less of Y.
17
I product has utility if it satisfies consumer wants
False
True
18
A nation's production possibilities curve might shift to the left (inward) as a result of
Technological advance
The depletion of its soil fertility due to overplanting and overgrazing.
Investing in more capital goods
An increases in the size of the labor force
19
Two major virtues of the market system are that it
results in price-level stability and distribution
eliminates discrimination and minimizes environmental pollution.
allocates resources efficiently and allows economic freedom.
20
In a competitive market economy, firms select the least-cost production technique because
to do so will maximize the firms' profits.
"dollar voting" by consumers mandates such a choice.
this will prevent new firms from entering the industry.
such choices will result in full employment of available resources.
21
Which of the following is not a typical characteristic of a market system?
Freedom of enterprise
Private property
Government ownership of most property resources
competition in product and resource markets
22
Netflix movie streaming and Redbox kiosks renting DVD and Blu-ray movies have demolished the market, this is -
creative destruction.
the difference between normal and economic profits.
capital accumulation
derived demand
23
Noncash gifts
entail as much utility as do cash gifts.
reduce recipient utility relative to a cash gift
increase the utility of recipients
24
The demand schedules for such products as eggs, bread, and electricity tend to be
relatively price elastic.
relatively price inelastic.
price elastic.
25
The economizing problem is one of deciding how to make the best use of -
Limited resources with limited wants
Unlimited resources with unlimited wants
Unlimited resources with limited wants
Limited resources with unlimited wants
26
In a market system, resources will move away from an industry when
profits of firms in other industries are falling.
the production of output in the industry is rising.
profits of firms in the industry are rising.
demand for the industry's product is decreasing.
27
Suppose that a university decides to spend $1m to computers for faculty rather than on building, this is-
Opportunity costs
Productive efficiency
Increasing costs
28
An inferior good is
one whose price and quantity demanded vary directly.
not accurately defined by any of these statements
one that has not been approved by the Federal Food and Drug Administration
one whose demand curve will shift rightward as incomes rise.
29
To maximize utility, a consumer should allocate money income so that the
elasticity of demand on all products purchased is the same.
marginal utility of the last unit of each product consumed is the same.
marginal utility obtained from the last dollar spent on each is the same
total utility derived from each product consumed is the same.
30
Specialization—the division of labor—enhances productivity and efficiency by
Workers to develop skills by working on one or low number of tasks
All above are correct
avoiding the time lost shifting from one production task to another
Workers to take advantage of existing special abilities
31
We would expect the cross elasticity of demand between dress shirts and ties to be
positive, indicating normal goods.
negative, indicating complementary goods.
positive, indicating complementary goods.
negative, indicating substitute goods.
32
Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the
AFC and ATC curves to fall.
AVC, ATC, and MC curves all to rise.
MP curve to fall.
AFC, AVC, ATC, and MC curves all to rise.
33
The price of a product falls, the purchasing power of our money income rises and thus consumers to purchase more
an inferior good.
the rationing function of prices.
the income effect
the substitution effect.
34
In the circular flow model of the market system, households’ major role is to buy
False
True
35
Macroeconomics is in the view point of the whole economy
False
True
36
You have a limited money income and you are purchasing products A and B, whose prices are the same. To max utility you
Should buy A and B their total utilities are the same.
Should buy A and B to their marginal and total utilities are proportionate.
Should buy A and B their marginal utilities are the same.
37
When moving along a given budget line -
Money in come varies but price of products is constant
The price of both products and money income is constant
Price of product varies and money income is constant
Both price of products and money income vary
38
The main function of the entrepreneur is to
Innovate
Lead the econmy
Purchase capital
Making routine pricing decisions
39
The market system doen't harnesses the incentives of workers and entrepreneurs.
False
True
40
The supply of known Monet paintings is
perfectly elastic.
relatively inelastic.
relatively elastic
41
Assume a firm closes down in the short run and produces no output. Under these conditions,
TFC, TVC, and TC will all be positive.
TFC is positive, but TVC and TC are zero.
TVC is positive, but TFC and TC are zero.
TFC and TC are positive, but TVC is zero.
42
Which of the following is most likely to be an implicit cost for Company X?
payments for raw materials purchased from Company Y
forgone rent from the building owned and used by Company X
rental payments on IBM equipment
transportation costs paid to a nearby trucking firm
43
If marginal cost is
rising, then average total cost could be either falling or rising.
rising, then average total cost must also be rising.
falling, then average total cost must also be falling.
44
"Consumer sovereignty" refers to the
resource prices are higher than product prices in capitalism
federal agency exists to protect consumers from harmful products
idea that the decisions of producers must ultimately conform to consumer demands.
idea that the pursuit of self-interest is in the public interest.
45
Ben is using his money income consuming products A and B in such quantities that MU_a/P_a = 5 and MU_b/P_b = 8. Ben should
more of both A and B.
more of B and less of A.
less of both A and B.
more of A and less of B.
46
The basic difference between consumer goods(cg) and capital goods(cpg) is that
the production of cpg is not subject to the law of increasing opportunities
cg satisfy wants indirectly, while cpg satisfy wants indirectly
cg satisfy wants indirectly, while cpg satisfy wants directly
cg satisfy wants directly, while cpg satisfy wants indirectly
47
Most demand curves are relatively elastic in the upper-left portion because the original price
The percentage price change is calculated is small and the original is big
The percentage price change is calculated is large; the original is small
quantity from which the percentage changes in price and quantity are small
Both are large
48
If a firm wanted to know how much it would save by producing one less unit of output, it would look to ATC
True
False
49
If the supply of product X is perfectly elastic, an increase in the demand for it will increase
equilibrium quantity, but equilibrium price will be unchanged.
equilibrium price but reduce equilibrium quantity.
equilibrium quantity but reduce equilibrium price.
equilibrium price, but equilibrium quantity will be unchanged.
50
Price elasticity of demand is generally greater in the long run than in the short run
False
True
51
The economic perspective entails
irrational behavior of individuals
A comparison of marginal benefits and marginal costs in decision making.
Short - term thinking but no long-term thinking
Rejection of scientific method
52
The utility of a good or service
is the satisfaction or pleasure one gets from consuming it.
is easy to quantify.
rarely varies from person to person
is synonymous with usefulness.
53
If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that
the industry will comprise a very large number of small firms.
both relatively small and relatively large firms can be viable in the indus
the industry will be a natural monopoly.
technology precludes both economies and diseconomies of scale.
54
due to of higher gasoline prices, firms using gasoline largely in the production or distribution of their goods have
greater economies of scale.
a downward shift in their MC, AFC, and AVC curves.
an upward shift in their AFC, AVC, and ATC curves.
Because of higher gasoline prices, firms using gasoline intensively in the
55
In a market system, the task of assessing and managing the business risk of a firm is taken on by the firm's
labor.
capital suppliers.
entrepreneurs
customers.
56
With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will
reduce the quantity demanded but not shift the demand curve.
decrease equilibrium price and quantity if the product is a normal good.
increase equilibrium price and quantity if the product is a normal good.
have no effect on equilibrium price and quantity.
57
Corporation decreases all of its inputs by 12 percent and its output falls by 8 percent. This means initially
It was producing in the range of diseconomies of scale.
It was producing where AP is less than MP.
It was operating at the point of minimum efficient scale.
58
Of the following countries, which one best exhibits the characteristics of a market economy?
Canada
Cuba
Belarus
China
59
The money income of households consists of all the following, except
revenues.
profits.
wages.
interest.
60
The upward slope of the supply curve reflects the
law of diminishing marginal utility.
law of supply.
fact that price and quantity supplied are inversely related.
principle of specialization in production.
61
Which of the following would not be classified as an economic resource by economists?
Money in a business checking account
Water in a town's reservoir
A professional soccer playing
Manager of a local restaurant
62
If an economy produces its most wanted goods but uses outdated production methods, it is
achieving both productive and allocative efficiency.
not achieving productive efficiency
achieving productive efficiency but not allocative efficiency.
engaged in roundabout production.
63
Marginal product is
total product divided by the number of workers employed.
the change in total cost attributable to the employment of one more worker.
the change in total output attributable to the employment of one more worke
64
If the income elasticity of demand for store brand macaroni and cheese is −3.00, this means that
store brand macaroni and cheese is a normal good.
store brand is a substitute for name brand macaroni and cheese
store brand macaroni and cheese is an inferior good.
more store brand will be purchased when its price falls
65
A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the
larger the elasticity of demand coefficient.
more inelastic the demand for the product
more elastic the supply curve.
more elastic the demand for the product.
66
purchasing products C and D in utility-maximizing amounts. If the price of C is $4 and the price of D is $2, then
the marginal utility of C is twice that of D.
the marginal utility of D is twice that of C.
the marginal utility of C is four times that of D.
the marginal utility of D is the same as that of C.
67
Corn prices rise significantly. If farmers expect the price of corn to continue rising, then
consumer demand for wheat to fall.
the supply to fall as farmers plant more of other crops.
the supply to increase as farmers plant more corn.
the supply of ethanol, a corn-based product, to increase.
68
The total-revenue test for elasticity
doesn't apply to supply, because price and total revenue have a positive
is equally applicable to both demand and supply.
does not apply to demand, because price and quantity are inversely related
applies to the short-run supply curve but not to the long-run supply curve
69
In which of the following cases will total revenue increase?
Price falls and demand is inelastic.
Price rises and demand is elastic.
Price rises and demand is inelastic.
Price falls and supply is elastic.
70
In a market system, a firm's employees are typically shielded from business risk by
the Social Security program.
wage contracts.
paid vacation leaves.
profit-sharing agreements.
71
When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of
decrease in the supply of gasoline.
decrease in the demand for gasoline.
increase in the demand for gasoline.
increase in the supply of gasoline.
72
restaurant has been around for 30 years. They have remained in the same building and only changed staff and menu
They operated only in short run
They operated only in the long run
73
The equilibrium price and quantity in a market usually produce allocative efficiency because
the excess of goods produced at equilibrium ensures all will have enough
equilibrium ensures an equitable distribution of output.
marginal benefit and marginal cost are equal at that point.
all consumers who want the good are satisfied.
74
Which of the following is a consequence of rent controls established to keep housing affordable for the poor?
Apartment buildings are torn down to make office buildings, shopping ect
Less rental housing is available
All of these are consequences of rent controls.
Quality declines
75
Consumers spend their incomes to get the maximum satisfaction from the goods and services they purchase, this is-
Purposeful behavior
Marginal costs that exceed marginal benefits
Irrational behavior
Scarcity and necessity
76
Diseconomies of scale arise primarily because
difficulties involved in managing and coordinating a large enterprise
the short-run average total cost curve rises when product is increased
ease involved in managing and coordinating a large enterprise
77
Digital cameras and memory cards are
complementary goods.
independent goods.
substitute goods.
inferior goods.
78
A market system tends to restrict business risk to owners and investors. This results in which of the following benefits
Firms have to pay more to attract inputs, as these inputs have to share the
Income becomes more equally distributed.
Firms focus attention on prudent risk management, as it is profitable to manage risk.
It encourages more people to become entrepreneurs.
79
The first yields 18 units of utility and the 2nd yields 12 units of utility. His total from 3 is 38. What is the 3rd
6 units
20 units
26 units
8 units
80
Black markets are associated with
ceiling prices and the resulting product shortages.
ceiling prices and the resulting product surpluses.
price floors and the resulting product shortages.
price floors and the resulting product surpluses.
81
A positive statement is one that
focuses on the best course of action and is based on value judgments
Derived by induction
Derived by deduction
Focuses on facts, descriptions, and theoretical relationships
82
In comparing the changes in TC and TVC associated with an additional unit of output, we find
the change in TVC exceeds the change in TC.
both TC and TVC changes are equal to MC.
the change in TC exceeds the change in TVC.
83
If an effective ceiling price is placed on hamburgers, then
a black market for hamburgers will not evolve.
the price charged will be below the market-clearing price.
the quantity demanded wont exceed the quantity supplied.
84
Implicit and explicit costs are different in that
implicit costs are opportunity costs; explicit costs are not.
explicit costs are opportunity costs; implicit costs are not.
the former refer to nonexpenditure costs and the latter to monetary pay
85
Which of the following is not characteristic of the demand for a commodity that is elastic?
The elasticity coefficient is greater than one.
Total revenue increases if price is increased.
Buyers are relatively sensitive to price changes.
86
Which of the following lists includes only capital resources (and therefore no labor or land resources)?
An ice arena, a professional hockey player, hockey uniforms
Autos owned by a car rental firm, computers at the car rental agency
A hydroelectric dam, water behind the dam, power in lines
The owner of a new start-up firm, a chemistry lab, a researcher
87
The law of diminishing returns indicates that
the demand for goods produced by purely competitive industries is downward
extra units of a VR are added to a FR, MP will decline beyond a point
economies and diseconomies of scale,a competitive firm's long-run with be U
88
Which of the following definitions is correct?
Economic profit − accounting profit = explicit costs.
Economic profit − implicit costs = accounting profits.
Economic profit = accounting profit − implicit costs.
Accounting profit + economic profit = normal profit.
89
Which of the following best illustrates the circular flow model in action?
Boeing experiences a surge in orders for new planes, Boeing hires more work
Both
Bobgoes to work and builds cars; she spends her income on food
90
Which of the following statements is correct?
If supply declines and demand remains constant, equilibrium price will fall.
If demand increases and supply decreases, equilibrium price will fall.
If supply increases and demand decreases, equilibrium price will fall.
If supply declines and demand remains constant, equilibrium price will fall.
91
The elasticity of demand for a product is likely to be greater,
the smaller the number of substitute products available.
the smaller the proportion of one's income spent on the product.
if the product is a necessity, rather than a luxury goo
the greater the amount of time over which buyers adjust to a price change.
92
If there is a shortage of product X, and the price is free to change,
the supply curve will shift to the left and the demand curve to the right, eliminating the shortage.
fewer resources will be allocated to the production of this good.
the price of the product will rise.
the price of the product will decline.
93
We would expect the cross elasticity of demand between Pepsi and Coke to be
positive, indicating normal goods.
positive, indicating inferior goods.
positive, indicating substitute goods.
negative, indicating substitute goods.
94
The supply curve shows the relationship between
total business revenues and quantity supplied.
physical inputs of resources and the resulting units of output.
price and quantity supplied.
production costs and the amount demanded.
95
The "coincidence of wants" problem associated with barter refers to the fact that
Specialization is restricted by the size or scope of a market
For exchange, each seller must have a product that some buyer wants
Money must be used as a medium of exchange or trade will never occur
Consumers have unlimited wants
96
An improvement in production technology will
shift the supply curve to the right.
increase equilibrium price.
shift the supply curve to the left.
shift the demand curve to the left.
97
Economists use the term "demand" to refer to
a particular price-quantity combination on a stable demand curve.
a schedule of various combinations of market prices and amounts demanded
the total amount spent on a particular commodity over a fixed time period.
98
Which of the following will shift the production possibilities curve to the right?
A decline in efficiency
A decrease in the unemployment rate from 8 to 6 percent
A tech advance that lets farmers to produce more output from inputs
An increase in the unemployment rate from 6 to 8 percent
99
Marginal cost is the
change in average variable cost that results from producing one more
change in total cost that results from producing one more unit of output.
rate of change in total fixed cost that results from producing one more
change in average total cost that results from producing one more
100
"You would have to pay me $50 to attend that pro wrestling event." The marginal utility of the event is
zero
negative
positive

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