(Test Bank) Economics Final Complete Test bank 2021

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Chapter 1 Preliminaries 1) Microeconomics is the branch of economics that deals with which of the following topics? A) The behavior of individual consumers C) The behavior of individual firms and investors E) A and C 2) A Rolling Stones song goes: ʺYou canʹt always get what you want. ʺ This echoes an important theme from microeconomics. Which of the following statements is the best example of this theme? A) Consumers must make the best purchasing decisions they can, given their limited incomes. 3) Economics is about the allocation of scarce resources. Which of the following is NOT an example of economic scarcity? C) If General Motors increases its production of SUVs this year, it will have to spend more on advertising. 4) A valid and useful theory of gold prices: A) helps to predict the movements of gold prices over time. B) may be founded on simplifying assumptions. C) need not exactly predict every change in gold prices. D) all of the above Answer: D 5) Use the following two statements to answer this question: I. Economic theories are developed to explain observed phenomena by deducing from a set of basic rules and assumptions. II. Economic theories use value judgments to determine which people ought to pay more taxes. B) I is true, and II is false. 6) Which of the following is a positive statement? B) A fundamental assumption of the economic theory of consumer behavior is that consumers always prefer having more of any good to having less of it. Answer: B 7) Which of the following is a normative statement? A) The taxes paid by the poor should be reduced in order to improve the income distribution in the U.S. B) State governments should not subsidize corporations by training welfare recipients. C) Presidential candidates should not be given funds from the federal government to run campaigns. D) The sea otter should not be allowed to spread into Southern California coastal waters, because it will reduce the value of fisheries. E) all of the aboveAnswer: E 8) Which of the following is a positive statement? A) Intermediate microeconomics should be required of all economics majors in order to build a solid foundation in economic theory. B) The minimum wage should not be increased because this action would increase unemployment. C) Smoking should be restricted on all airline flights. D) All automobile passengers should be required to wear seatbelts in order to protect them against injury. E) none of the above Answer: E 9) Which of the following is a positive statement? A) When the price of a good goes up, consumers buy less of it. B) When the price of a good goes up, firms produce more of it. C) When the Federal government sells bonds, interest rates rise and private investment is reduced. D) all of the above Answer: D 10) Which of the following statements is false? An economic analysis of carbon taxes can: E) conclude that such taxes should be imposed to benefit future generations. Answer: E 11) Use the following two statements to answer this question: I. In order to answer normative questions, it is necessary to make value judgments. II. In order to conduct positive economic analysis, it is always necessary to use empirical evidence in addition to economic theories. B) I is correct, II is incorrect. Answer: B 12) __________ questions have to do with explanation and prediction, __________ questions have to do with what ought to be. D) Positive; normative. Answer: D 13) The key assumption underlying the theory of the firm is that: C) firms are assumed to maximize profits. Answer: C 14) Which of the following statements is NOT true? B) All prices are determined by market interactions between buyers and sellers. Answer: B 15) Please use the following statements to answer this question: I. The process of testing and revising theories is central to the development of economics as a science.II. Theory is imperfect and may not adequately describe economic behavior in some cases. A) I and II are true. B) I is true and II is false. C) I is false and II is true. D) I and II are false. Answer: A Diff: 1 Section: 1.1 16) The trade-offs facing consumers include: A) how to allocate income across goods and serves. B) how to allocate income between consumption and savings. C) both A and B D) none of the above Answer: C Diff: 1 Section: 1.1 17) The trade-offs facing workers include all of the following EXCEPT: A) decision to work or remain outside the workforce. B) decision to work or seek additional education. C) decision to work for a large corporation or a small firm. D) decision to allocate their time between work and leisure. E) All of the above are trade -offs facing workers. Answer: E Diff: 1 Section: 1.1 18) Firms face trade -offs in production, including decisions related to: A) which products to produce. B) how much of a particular product to produce. C) the best way to produce a given amount of output. D) all of the above Answer: D Diff: 2 Section: 1.1 4 19) Which of the following markets has the most restrictive geographic boundary? A) The market for retail gasoline B) The market for housing C) The market for gold D) The market for beef Answer: B Diff: 1 Section: 1.2 20) An investor can acquire shares of stock in Acme Corporation either by purchasing shares on the stock market or by purchasing a bond that is convertible into shares of Acme stock. After careful study, the investor discovers that she can profit by purchasing the bond, converting it to shares of stock, and selling the stock. This practice is called: A) selling short. B) arbitrage. C) profiteering. D) dumping. E) none of the above Answer: B Diff: 1 Section: 1.2 21) Use the following two statements to answer this question:I. A market is a collection of buyers and sellers that, through actual or potential interactions, determine the price for a product or set of products. II. An industry is a collection of markets for similar or closely related products. A) Both I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) Both I and II are false. Answer: B Diff: 1 Section: 1.2 22) In a perfectly competitive market: A) there are a few buyers. B) there is a single seller. C) there is a cartel. D) no single buyer or seller can significantly affect the market price. Answer: D Diff: 1 Section: 1.2 23) Boeing Corporation and Airbus Industries are the only two producers of long -range commercial aircraft. This market is not perfectly competitive because: A) each company has annual sales over $10 billion. B) each company can significantly affect prices. C) Airbus receives subsidies from the European Union. D) Airbus cannot sell aircraft to the United States government. E) all of the above Answer: B Diff: 1 Section: 1.2 5 24) Which of the following are examples of perfectly competitive markets? A) Wheat B) T extiles C) Gold D) The stock market E) all of the above Answer: E Diff: 1 Section: 1.2 25) Although the U. S. airline industry has only a relatively small number of sellers, the market is nevertheless highly competitive. The reason is that: A) the number of buyers is very large. B) due to fierce competition, no firm has significant control over prices. C) due to fierce competition, no firm has significant control over the quantity supplied. D) most airline routes are served by relatively many sellers. Answer: B Diff: 2 Section: 1.2 26) Washington D.C. ʹs metro train system is being extended further into the neighboring states of Maryland and Virginia, thereby reducing the cost of commuting into the United Statesʹ capital. Other things being held constant, this can be expected to: A) decrease the extent of the market for housing around Washington D.C. B) increase the extent of the market for housing around Washington D.C.C) have no effect on the extent of the market for housing around Washington D.C. as the actual geography remains unchanged. D) have no effect on the extent of the market for housing around Washington D.C. as the range of houses available has not changed. E) have no effect on the extent of the market for housing around Washington D.C. as property taxes have not changed. Answer: B Diff: 2 Section: 1.2 27) Why is market definition important for economic decision making? A) A firm is interested in knowing its actual and potential competitors. B) A firm will define its market in order to maximize revenue. C) Government regulators are interested in knowing the effect of mergers and acquisitions on competition and prices in a particular market. D) both A and C E) both A and B Answer: D Diff: 1 Section: 1.2 6 28) Which of the following features are relevant for determining the extent of a market? A) Its geographical boundaries. B) T echnological innovations that would reduce the cost of production. C) The range of products to be included in it. D) both A and B E) both A and C Answer: E Diff: 1 Section: 1.2 29) Which of the following statements about markets and industries is TRUE? A) A market includes buyers but not sellers. B) A market includes sellers but not buyers. C) An industry includes buyers but not sellers. D) An industry includes sellers but not buyers. Answer: D Diff: 1 Section: 1.2 30) Although there are many reasons why a market can be non -competitive, the principal economic difference between a competitive and a non -competitive market is: A) the number of firms in the market. B) the extent to which any firm can influence the price of the product. C) the size of the firms in the market. D) the annual sales made by the largest firms in the market. E) the presence of government intervention. Answer: B Diff: 1 Section: 1.2 31) Which of the following could not possibly be included in the same market as Coke? A) Pepsi B) Gatorade C) Milk D) Bread Answer: DDiff: 1 Section: 1.2 32) Use the following statements to answer this question: I. Political candidates need to know the geographical extent of the market for TV commercials in determining how to reach the target number of eligible voters with the smallest possible expenditure. II. The geographical extent of the market for gasoline in T exas will determine whether an oil company drills for oil there. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false. Answer: B Diff: 1 Section: 1.2 7 33) Which of the following assertions, if proven true in a court of law, would help Archer-Daniels-Midland, a maker of corn syrup, in its attempt to acquire another corn syrup producer, the Clinton Corn Processing Company? A) Archer-Daniels-Midland is a dominant producer of corn syrup. B) There are no good substitutes for corn syrup for any of its major uses. C) Archer-Daniels-Midland and the Clinton Corn Processing Company together hold only a small share of the market for sweeteners including corn syrup and sugar. D) Archer-Daniels-Midland produces many other different agricultural products, in addition to corn syrup. Answer: C Diff: 1 Section: 1.2 34) Use the following statements to answer this question: I. If the extent of a market is broader, it is less likely that firms in the market can influence the market price. II. In determining whether two different products belong to the same market, it is necessary to know whether the two products can be used as substitutes for each other. A) I and II are both false. B) I is false, and II is true. C) I is true, and II is false. D) I and II are both true. Answer: D Diff: 2 Section: 1.2 35) Use the following statements to answer this question: I. The price for a given product may differ across sellers if the market is not perfectly competitive. II. A single ʺmarket priceʺ does not exist in imperfectly competitive markets. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false. Answer: B Diff: 2 Section: 1.2 36) Suppose you are in charge of product pricing and marketing strategy for a pharmaceutical company. You will have greater ability to independently set prices for your product if: A) there are no close substitutes for your product. B) there are lots of other firms selling closely related products in your market.C) Your pricing policy should not depend on the number of close substitute products. D) none of the above Answer: A Diff: 2 Section: 1.2 8 37) T o arbitrage a price difference between two markets, you should: A) sell in the low-price market and buy in the high -price market. B) buy in the low-price market and sell in the high -price market. C) sell in both markets to capture a lower average ʺmarket price.ʺ D) none of the above Answer: B Diff: 2 Section: 1.2 38) Arbitraging price differences between two markets is generally not possible if: A) there are positive costs of transporting the products from one market to the other. B) the transportation costs are larger than the difference in prices. C) the government has prohibited exchange between the two markets. D) A and C above E) B and C above Answer: E Diff: 2 Section: 1.2 39) Which of the following statement is FALSE? A) Perfectly competitive markets are composed of many buyers and sellers. B) Some markets may have only a few sellers but exhibit the properties of perfect competition. C) A market may be composed of only one buyer and one seller. D) All of the above statements are correct. Answer: D Diff: 2 Section: 1.2 40) The ʺconstant dollarʺ price is: A) the real price of a good. B) the nominal price of a good adjusted for inflation. C) the ʺcurrent dollarʺ price adjusted for inflation. D) all of the above E) none of the above Answer: D Diff: 1 Section: 1.3 41) What does it mean when the CPI is higher this year than last? A) The rate of inflation has increased. B) There has been inflation since last year. C) Real prices have increased. D) Real prices have decreased. Answer: B Diff: 1 Section: 1.3 9 42) The price of a taco was $0.29 in 1970 and $0.99 in 1993. The CPI was 38.8 in 1970 and 144.0 in 1993. The 1993 price of a taco in 1970 dollars is: A) $0.08. B) $0.27. C) $0.34. D) $3.67. Answer: B Diff: 2Section: 1.3 43) Since last year, the price of gold has risen from $120 to $420. What annual inflation rate would leave the real price of gold unchanged over the last twelve months? A) Approximately 29% B) 40% C) Approximately 71% D) 250% E) none of the above Answer: D Diff: 2 Section: 1.3 44) Over the past year price inflation has been 10%, but the price of a used Ford Escort has fallen from $6,000 to $5,000. The real price of a Ford Escort has fallen by: A) 12%. B) 17% C) 20%. D) 24% E) 32%. Answer: D Diff: 2 Section: 1.3 45) Suppose the nominal price of gasoline was $0.90 per gallon in 1987. T o convert this value to the real price of 1987 gasoline in 2008 dollars, we should: A) multiply by the 1987 CPI and divide by the 2008 CPI. B) multiply by the 2008 CPI and divide by the 1987 CPI. C) not do anything because this is the real price in 2008 dollars. D) none of the above Answer: B Diff: 1 Section: 1.3 46) The nominal price of industrial red paint was $12 per gallon in 1993. T o convert this value to the real price of paint in 2008 dollars, we should use the: A) Consumer Price Index. B) Producer Price Index C) Fed funds rate. D) 30 -day T-bill rate. Answer: B Diff: 1 Section: 1.3 47) Which of the following goods is NOT a likely component of the Consumer Price Index? A) Hamburger B) 87 octane gasoline C) Structural steel beams D) Movie tickets Answer: C Diff: 1 Section: 1.3 10 48) Which price index published by the US federal government represents wholesale price changes? A) Consumer Price Index B) Producer Price Index C) GDP deflator D) Dow -Jones Industrial Average Answer: B Diff: 1 Section: 1.3 49) When 1983 is the CPI base year, the CPI value is 82.4 for 1980 and 172.2 for 2000. Suppose wewant to convert this CPI series to have a base year of 2000 (that is, CPI2000 = 100). What is the value of the revised CPI for 1980? A) 172.2 B) 100 C) 47.9 D) 209.0 Answer: C Diff: 1 Section: 1.3 50) Use the following statements to answer this question: I. The inflation rate (the rate of change in the general price level) calculated from a price index like CPI is the same regardless of the base year we use to form the price index. II. Although the CPI may indicate the general price level increased by 5% last year, there are some consumer products that may have experienced more or less inflation in the past year. A) I and II are true. B) I is true and II is false. C) I is false and II is true. D) I and II are false. Answer: A Diff: 1 Section: 1.3 51) Which price index published by the US federal government represents retail price changes? A) Consumer Price Index B) Producer Price Index C) GDP deflator D) Dow -Jones Industrial Average Answer: A Diff: 1 Section: 1.3 52) Which of the following is NOT an example of ways in which microeconomic analysis can help Ford Motor Company its in corporate decision making? A) Forecasting demand for new automobiles B) Determining how many automobiles to produce in order to maximize profits C) Predicting how competitors will react to the firm ʹs pricing strategy D) Forecasting the effect of Ford ʹs hiring patterns on the U.S. unemployment rate E) Forecasting the effect of an oil price increase on demand for SUVs Answer: D Diff: 1 Section: 1.4 11 53) Which of the following is NOT an examples of ways in which microeconomic analysis can help in designing environmental policy? A) Determining the optimal level of vehicle tailpipe emissions standards B) Designing laws to provide incentives for firms to implement clean technologies in new vehicles C) Lobbying consumers and firms to reduce consumption of energy D) Examining the tradeoffs between ecological benefits of environmental legislation and its impacts on consumers ʹ standard of living Answer: C Diff: 1 Section: 1.4 54) T o evaluate the potential impact of changes to its SUV business, Ford Motor Company would use:A) normative economic analysis. B) positive economic analysis. C) negative economic analysis. D) arbitrage analysis. Answer: B Diff: 1 Section: 1.4 55) The Clean Air Act is designed to restrict automobile emissions and reduce the external costs of air pollution. The economic analysis used to develop the Clean Air Act was: A) normative. B) positive. C) macroeconomic. D) none of the above Answer: A Diff: 1 Section: 1.4 56) Suppose the Social Security Administration would like to guarantee the purchasing power of social security payments to the elderly does not diminish. That is, the real value of the payments does not decrease. The CPI in 1990 was 130.7 and the CPI in 1998 was 163.0. How much does the Social Security Administration need to increase payments from 1990 to 1998 to accomplish this objective? Answer: The change in the general price level is 100(163 -130.7)/130.7 = 25%. Thus, the level of payments in 1998 need to be P(1990)*(1 +0.25). Diff: 1 Section: 1.3 57) Suppose the minimum wage was $0.25 per hour in 1938 and the CPI in that year was 11.5. If the CPI in 1990 was 130.7, what is the real value of the 1938 minimum wage in terms of 1990 dollars? The real value of the 1990 minimum wage in terms of 1990 dollars is $4.25. Has the real value of the minimum wage declined since 1938? Answer: W(1938) = 130.7($0.25)/11.5 = $2.84 , so the real value of the minimum wage has increased from 1938 to 1990. Diff: 1 Section: 1.3 12 58) The reward for the capture of Jesse James was $500.00 in 1881. Suppose the CPI in 1881 was 0.25. What is the real value of the reward in 1990 dollars if the CPI was 130.7 in 1990? Answer: 130.7($500)/0.25 = 130.7($2,000) = $261,400. Diff: 1 Section: 1.3 59) The CPI in 1970 was 38.8 and in 1998 the CPI was 163.0. If the real value of a 1970 gallon of milk in terms of 1998 dollars is $0.70, what was the nominal price of milk in 1970? Answer: 38.8($0.70)/163 = $0.17. Diff: 2 Section: 1.3 60) The nominal price of milk was $2.25 in 1998 while the CPI was 163.0 that year. Also, the CPI in 1970 was 38.8. What was the real value of 1998 milk in terms of 1970 dollars?Answer: 38.8($2.25)/163 = $0.54. Diff: 2 Section: 1.3 61) The nominal price of a 1990 laptop was $3,500 and the CPI that year was 130.7. The nominal price of a laptop in 1998 was $1,600 and the CPI that year was 163.0. What is the real price of a 1998 laptop in terms of 1990 dollars? By what percent has the real price of laptops changed? Answer: 130.7($1,600)/163 = $1,283. Percent decline in the real value of laptops: -100($1,283 - $3,500)/$3,500 = $2,217(100)/$3,500 = 63.34% Diff: 2 Section: 1.3 62) The price to attend a NBA basketball game in Chicago is $55 while the CPI in Chicago is 153. The CPI in Charlotte is 108 while the price to attend a NBA basketball game is $52. Which city offers a smaller real cost of attending a NBA basketball game? Answer: Chicago real value[NBA(Charlotte)] = 153(52)/108 = $73.67. The real value of a game in Charlotte exceeds the real value of a game in Chicago. Chicago offers a smaller real cost of attending a game. Diff: 2 Section: 1.3 13 Chapter 2 The Basics of Supply and Demand 1) Which of the following is NOT an application of supply and demand analysis? A) Understanding changing world economic conditions and their effects on prices B) Evaluating the effects of government price controls on the agricultural industry C) Determining how taxes affect aggregate consumption spending patterns D) all of the above E) none of the above Answer: E Diff: 1 Section: 2.1 2) A supply curve reveals: A) the quantity of output consumers are willing to purchase at each possible market price. B) the difference between quantity demanded and quantity supplied at each price. C) the maximum level of output an industry can produce, regardless of price. D) the quantity of output that producers are willing to produce and sell at each possible market price. Answer: D Diff: 1 Section: 2.1 3) Plastic and steel are substitutes in the production of body panels for certain automobiles. If the price of plastic increases, with other things remaining the same, we would expect: A) the price of steel to fall. B) the demand curve for steel to shift to the right. C) the demand curve for plastic to shift to the left.D) nothing to happen to steel because it is only a substitute for plastic. E) the demand curve for steel to shift to the left. Answer: B Diff: 1 Section: 2.1 4) Coffee and cream: A) are both luxury goods. B) are complements. C) are both more inelastic in demand in the long run than in the short run. D) have a positive cross price elasticity of demand. Answer: B Diff: 1 Section: 2.1 5) Which of the following would shift the demand curve for new textbooks to the right? A) A fall in the price of paper used in publishing texts B) A fall in the price of equivalent used textbooks C) An increase in the number of students attending college D) A fall in the price of new textbooks. Answer: C Diff: 1 Section: 2.1 6) When an industry ʹs raw material costs increase, other things remaining the same, A) the supply curve shifts to the left. B) the supply curve shifts to the right. C) output increases regardless of the market price and the supply curve shifts upward. D) output decreases and the market price also decreases. Answer: A Diff: 1 Section: 2.1 7) Sugar can be refined from sugar beets. When the price of those beets falls, A) the demand curve for sugar would shift right. B) the demand curve for sugar would shift left. C) the supply curve for sugar would shift right. D) the supply curve for sugar would shift left. Answer: C Diff: 1 Section: 2.1 8) Assume that steak and potatoes are complements. When the price of steak goes up, the demand curve for potatoes: A) shifts to the left. B) shifts to the right. C) remains constant. D) shifts to the right initially and then returns to its original position. Answer: A Diff: 1 Section: 2.19) Which of the following events will cause a leftward shift in the supply curve of gasoline? A) A decrease in the price of gasoline B) An increase in the wage rate of refinery workers C) Decrease in the price of crude oil D) An improvement in oil refining technology E) all of the above Answer: B Diff: 1 Section: 2.1 10) Which of the following will NOT cause a shift in the supply of gasoline? A) An increase in the wage rate of refinery workers B) A decrease in the price of gasoline C) An improvement in oil refining technology D) A decrease in the price of crude oil Answer: B Diff: 1 Section: 2.1 11) Which of the following would cause a shift to the right of the supply curve for gasoline? I. A large increase in the price of public transportation. II. A large decrease in the price of automobiles. III. A large reduction in the costs of producing gasoline. A) I only B) II only C) III only D) II and III only Answer: C Diff: 2 Section: 2.1 12) You are analyzing the demand for good X. Which of the following will result in a shift to the right of the demand curve for X? A) A decrease in the price of X B) An increase in the price of a good that is a complement to good X C) An increase in the price of a good that is a substitute for X D) all of the above Answer: C Diff: 1 Section: 2.1 13) The price of good A goes up. As a result, the demand for good B shifts to the left. From this we can infer that: A) good A is used to produce good B. B) good B is used to produce good A. C) goods A and B are substitutes. D) goods A and B are complements. E) none of the above Answer: D Diff: 2 Section: 2.1 14) Which of the following will cause the demand curve for Beatles ʹ compact discs to shift to the right?A) An increase in the price of the discs B) A decrease in consumers ʹ incomes C) An increase in the price of Phil Collins ʹ latest compact disc (a substitute) D) all of the above E) none of the above Answer: C Diff: 1 Section: 2.1 15) Which of the following will NOT cause a rightward shift in the demand curve for beer? A) A change in the price of beer B) A health study indicating positive health benefits of moderate beer consumption C) An increase in the price of French wine (a substitute) D) A decrease in the price of potato chips (a complement) E) none of the above Answer: A Diff: 1 Section: 2.1 16) Which of the following would cause a rightward shift in the demand curve for gasoline? I. A large increase in the price of public transportation. II. A large decrease in the price of automobiles. III. A large reduction in the costs of producing gasoline. A) I only B) II only C) I and II only D) II and III only E) I, II, and III Answer: C Diff: 2 Section: 2.1 17) Suppose biochemists discover an enzyme that can double the amount of ethanol that may be derived from a given amount of biomass. Based on this technological development, we expect the: A) supply curve for ethanol to shift leftward. B) supply curve for ethanol to shift rightward. C) demand curve for ethanol to shift leftward. D) demand curve for ethanol to shift rightward. Answer: B Diff: 1 Section: 2.1 18) The discussion of Figure 2.2 in the text indicates that quantity demanded for most goods tends to increase as income rises. However, the quantity of bananas demanded in the U.S. tends to decrease as income rises. Under this condition, we expect that an increase in consumer income shifts the demand curve for bananas: A) rightward B) no shift. C) leftward. D) downward. Answer: CDiff: 1 Section: 2.1 19) Due to the recent increase in the price of natural gas, the quantity of coal demanded by electric power generation plants has increased. Based on this information, coal and natural gas are: A) complements. B) substitutes. C) independent goods. D) none of the above Answer: B Diff: 1 Section: 2.1 20) T o protect the cod fishery off the northeast coast of the U.S., the federal government may limit the amount of fish that each boat can catch in the fishery. The result of this public policy is to: A) shift the cod demand curve to the left. B) shift the cod demand curve to the right. C) shift the cod supply curve to the right. D) shift the cod supply curve to the left. Answer: D Diff: 1 Section: 2.1 21) When the current price is above the market -clearing level we would expect: A) quantity demanded to exceed quantity supplied. B) quantity supplied to exceed quantity demanded. C) a shortage. D) greater production to occur during the next period. Answer: B Diff: 1 Section: 2.2 22) Assume that the current market price is below the market clearing level. We would expect: A) a surplus to accumulate. B) downward pressure on the current market price. C) upward pressure on the current market price. D) lower production during the next time period. Answer: C Diff: 1 Section: 2.2 23) As long as the actual market price exceeds the equilibrium market price, there will be: A) downward pressure on the market price. B) upward pressure on the market price. C) no purchases made. D) Both A and C are correct. E) Both B and C are correct. Answer: A Diff: 1 Section: 2.2 24) If the actual price were below the equilibrium price in the market for bread, a: A) surplus would develop that cannot be eliminated over time. B) shortage would develop, which market forces would eliminate over time.C) surplus would develop, which market forces would eliminate over time. D) shortage would develop, which market forces would tend to exacerbate. Answer: B Diff: 1 Section: 2.2 25) Suppose the quantity of nursing services demanded exceeds the quantity of nursing services supplied. The nursing wage rate will: A) decrease. B) increase. C) not change. D) none of the above Answer: B Diff: 1 Section: 2.2 Scenario 2.1: The demand for books is: Qd = 120 - P The supply of books is: Qs = 5P 26) Refer to Scenario 2.1. What is the equilibrium price of books? A) 5 B) 10 C) 15 D) 20 E) none of the above Answer: D Diff: 1 Section: 2.2 27) Refer to Scenario 2.1. What is the equilibrium quantity of books sold? A) 25 B) 50 C) 75 D) 100 E) none of the above Answer: D Diff: 1 Section: 2.2 28) Refer to Scenario 2.1. If P = $15, which of the following is true? A) There is a surplus equal to 30. B) There is a shortage equal to 30. C) There is a surplus, but it is impossible to determine how large. D) There is a shortage, but it is impossible to determine how large. Answer: B Diff: 2 Section: 2.2 29) Refer to Scenario 2.1. If P = $15, which of the following is true? A) Quantity supplied is greater than quantity demanded. B) Quantity supplied is less than quantity demanded. C) Quantity supplied equals quantity demanded. D) There is a surplus. Answer: B Diff: 1Section: 2.2 30) Refer to Scenario 2.1. If P = $25, which of the following is true? A) There is a surplus equal to 30. B) There is a shortage equal to 30. C) There is a shortage, but it is impossible to determine how large. D) There is a surplus, but it is impossible to determine how large. Answer: A Diff: 2 Section: 2.2 31) Refer to Scenario 2.1. If P = $25, which of the following is true? A) Quantity supplied is greater than quantity demanded. B) Quantity supplied is less than quantity demanded. C) Quantity supplied equals quantity demanded. D) There is a shortage. Answer: A Diff: 1 Section: 2.2 32) Suppose the equilibrium price of milk is $3 per gallon but the federal government sets the market price at $4 per gallon. The market mechanism will force the milk price back down to $3 per gallon unless the government: A) rations the excess demand for milk among consumers. B) buys the excess supply of milk and removes it from the market. C) Both A and B are plausible actions. D) The government cannot maintain the price above the equilibrium level. Answer: B Diff: 2 Section: 2.2 33) The current market price for good X is below the equilibrium price, and then the demand curve for X shifts rightward. What is the likely outcome of the demand shift? A) The surplus increases. B) The surplus decreases. C) The shortage increases. D) The shortage decreases. Answer: C Diff: 1 Section: 2.2 34) Suppose there is currently a surplus of wheat on the world market. The problem of excess supply may be removed from the market by: A) lowering the market price. B) shifting the supply curve leftward. C) shifting the demand curve leftward. D) Both A and B are plausible actions. Answer: D Diff: 2 Section: 2.2 35) Which of the following would cause an unambiguous decrease in the real price of DVD players? A) A shift to the right in the supply curve for DVD players and a shift to the right in the demand curve for DVD players.B) A shift to the right in the supply curve for DVD players and a shift to the left in the demand curve for DVD players. C) A shift to the left in the supply curve for DVD players and a shift to the right in the demand curve for DVD players. D) A shift to the left in the supply curve for DVD players and a shift to the left in the demand curve for DVD players. Answer: B Diff: 2 Section: 2.3 36) From 1970 to 1993, the real price of a college education increased, and total enrollment increased. Which of the following could have caused this increase in price and enrollment? A) A shift to the right in the supply curve for college education and a shift to the left in the demand curve for college education. B) A shift to the left in the supply curve for college education and a shift to the right in the demand curve for college education. C) A shift to the left in the supply curve for college education and a shift to the left in the demand curve for college education. D) none of the above Answer: B Diff: 3 Section: 2.3 37) From 1970 to 1993, the real price of eggs decreased. Which of the following would cause an unambiguous decrease in the real price of eggs? A) A shift to the right in the supply curve for eggs and a shift to the right in the demand curve for eggs. B) A shift to the right in the supply curve for eggs and a shift to the left in the demand curve for eggs. C) A shift to the left in the supply curve for eggs and a shift to the right in the demand curve for eggs. D) A shift to the left in the supply curve for eggs and a shift to the left in the demand curve for eggs. Answer: B Diff: 2 Section: 2.3 38) From 1970 to 1993, the real price of eggs decreased and the total annual consumption of eggs decreased. Which of the following would cause an unambiguous decrease in the real price of eggs and an unambiguous decrease in the quantity of eggs consumed? A) A shift to the right in the supply curve for eggs and a shift to the right in the demand curve for eggs.B) A shift to the left in the supply curve for eggs and a shift to the right in the demand curve for eggs. C) A shift to the left in the supply curve for eggs and a shift to the left in the demand curve for eggs. D) none of the above Answer: D Diff: 3 Section: 2.3 39) We observe that both the price of and quantity sold of golf balls are rising over time. This is due to: A) continual improvements in the technology used to produce golf balls. B) increases in the price of golf clubs over time. C) decreases in membership fees for country clubs with golf facilities. D) more stringent professional requirements on the quality of golf balls requiring producers to use more expensive raw materials. Answer: C Diff: 3 Section: 2.3 40) Which of the following will cause the price of beer to rise? A) A shift to the right in the demand curve for beer B) A shift to the left in the supply curve of beer C) both A and B D) none of the above Answer: C Diff: 1 Section: 2.3 Scenario 2.2: In 1992, the Occupational Safety and Health Authority passed the Bloodborne Pathogens Standard (BBP), which regulates dental office procedures. This regulation is designed to minimize the transmission of infectious disease from patient to dental worker. The effect of this regulation was both to increase the cost of providing dental care and to ease the fear of going to the dentist as the risk of contracting an infectious disease. 41) Refer to Scenario 2.2. What is the effect of the BBP on the market for dental care? A) Only the supply curve shifts. B) Only the demand curve shifts. C) Both the demand and supply curves shift. D) Neither the demand nor supply curve shifts. Answer: C Diff: 1 Section: 2.3 42) Refer to Scenario 2.2. What is the effect of the BBP on the market for dental care? A) Both supply and demand shift to the right. B) Both supply and demand shift to the left. C) Supply shifts to the right, and demand shifts to the left. D) Supply shifts to the left, and demand shifts to the right. E) none of the aboveAnswer: D Diff: 1 Section: 2.3 43) Refer to Scenario 2.2. What is the effect of the BBP on the equilibrium price of dental care? A) It unambiguously increases. B) It unambiguously decreases. C) It increases only if supply shifts more than demand. D) It increases only if demand shifts more than supply. Answer: A Diff: 2 Section: 2.3 44) Refer to Scenario 2.2. Under what circumstances will the equilibrium level of output of dental care remain the same? A) If supply shifts more than demand. B) If demand shifts more than supply. C) If both demand and supply shift by the same magnitude. D) If supply and demand shift in the same direction. Answer: C Diff: 2 Section: 2.3 45) Refer to Scenario 2.2. Under what circumstances will the equilibrium level of output of dental care increase? A) If supply shifts more than demand. B) If demand shifts more than supply. C) If both demand and supply shift by the same magnitude. D) If supply and demand both decrease. Answer: B Diff: 2 Section: 2.3 46) After the September 11, 2001 attacks on the World Trade Center, the supply of downtown office space in Manhattan was dramatically reduced. Forecasters predicted that the equilibrium price would rise, but in fact the price fell. What are some factors that could explain the fall in the equilibrium price, which the forecasters failed to take into account? A) Demand for office space fell due to quality -of-life concerns. B) The economic slowdown caused demand for office space to fall. C) both A and B D) none of the above Answer: C Diff: 1 Section: 2.3 47) The effect of the September 11 attacks on the World Trade Center on the market for office space in downtown Manhattan was that both the equilibrium price and the equilibrium quantity fell. What is the most likely explanation for this?A) Supply and demand both shifted left, and the magnitude of the demand shift was greater. B) Supply and demand both shifted left, and the magnitude of the supply shift was greater. C) Supply shifted left, demand shifted right, and the magnitude of the demand shift was greater. D) Supply shifted left, demand shifted right, and the magnitude of the supply shift was greater. Answer: A Diff: 2 Section: 2.3 48) Last year, the world demand curve for copper shifted rightward due to continued economic growth in China and other emerging economies. Also, the supply curve for copper shifted leftward due to strikes and other labor disruptions at some of the copper mines. As a result, we observed: A) higher equilibrium copper prices and unambiguously lower quantities. B) higher equilibrium copper prices and unambiguously higher quantities. C) higher equilibrium copper prices and either higher or lower quantities. D) lower equilibrium copper prices and either higher or lower quantities. Answer: C Diff: 2 Section: 2.3 49) Suppose the supply of textbooks is upward sloping and shifts leftward due to higher ink and paper costs. Which of the following events would leave the equilibrium price of textbooks at the same level observed before the supply shift? A) Demand is perfectly elastic (horizontal). B) Demand is downward sloping and shifts leftward. C) all of the above D) none of the above Answer: C Diff: 1 Section: 2.3 50) If we plot the quantity of aluminum ore mined per year on the horizontal axis and the real annual price of aluminum ore on the vertical axis, we find that the path of price -quantity combinations generally indicates lower real prices and higher quantities over time. Which of the following statements is a plausible explanation for this observed outcome? A) Aluminum supply shifted leftward faster than the aluminum demand curve shifted rightward. B) Aluminum supply shifted rightward faster than the aluminum demand curve shifted rightward. C) Aluminum supply shifted rightward and aluminum demand remained constant. D) both A and B aboveE) both B and C above Answer: E Diff: 2 Section: 2.3 51) The income elasticity of demand is the A) absolute change in quantity demanded resulting from a one unit increase in income. B) percent change in quantity demanded resulting from the absolute increase in income. C) percent change in quantity demanded resulting from a one percent increase in income. D) percent change in income resulting from a one percent increase in quantity demanded. E) percent change in income resulting from a one percent increase in price. Answer: C Diff: 1 Section: 2.4 52) The price elasticity of demand for a demand curve that has a zero slope is A) zero. B) one. C) negative but approaches zero as consumption increases. D) infinity. Answer: D Diff: 1 Section: 2.4 53) Elasticity measures A) the slope of a demand curve. B) the inverse of the slope of a demand curve. C) the percentage change in one variable in response to a one percent increase in another variable. D) sensitivity of price to a change in quantity. Answer: C Diff: 1 Section: 2.4 55) A vertical demand curve is A) completely inelastic. B) infinitely elastic. C) highly (but not infinitely) elastic. D) highly (but not completely) inelastic. Answer: A Diff: 1 Section: 2.4 56) Which of these measures the responsiveness of the quantity of one good demanded to an increase in the price of another good? A) price elasticity. B) income elasticity. C) cross price elasticity. D) cross substitution elasticity. Answer: C Diff: 1 Section: 2.457) The cross price elasticity between a pair of complementary goods will be A) positive. B) negative. C) zero. D) positive or zero depending upon the strength of the relationship. Answer: B Diff: 1 Section: 2.4 Figure 2.1 58) Refer to Figure 2.1. At point A, demand is: A) completely inelastic. B) inelastic, but not completely inelastic. C) unit elastic. D) elastic, but not infinitely elastic. E) infinitely elastic. Answer: E Diff: 2 Section: 2.4 59) Refer to Figure 2.1. At point B, demand is: A) small. B) inelastic, but not completely inelastic. C) unit elastic. D) elastic, but not infinitely elastic. E) infinitely elastic. Answer: D Diff: 1 Section: 2.4 60) Refer to Figure 2.1. At point C, demand is: A) completely inelastic. B) inelastic, but not completely inelastic. C) unit elastic. D) elastic, but not infinitely elastic. E) infinitely elastic. Answer: C Diff: 2 Section: 2.461) Refer to Figure 2.1. At point D, demand is: A) completely inelastic. B) inelastic, but not completely inelastic. C) unit elastic. D) elastic, but not infinitely elastic. E) infinitely elastic. Answer: B Diff: 1 Section: 2.4 62) Refer to Figure 2.1. At point E, demand is: A) completely inelastic. B) inelastic, but not completely inelastic. C) unit elastic. D) elastic, but not infinitely elastic. E) infinitely elastic. Answer: A Diff: 2 Section: 2.4 63) Which of the following statements about the diagram below is true? A) Demand is infinitely elastic. B) Demand is completely inelastic. C) Demand becomes more inelastic the lower the price. D) Demand becomes more elastic the lower the price. Answer: A Diff: 1 Section: 2.4 64) Which of the following statements about the diagram below is true? A) Demand is infinitely elastic. B) Demand is completely inelastic. C) Demand becomes more inelastic the lower the price. D) Demand becomes more elastic the lower the price. Answer: B Diff: 1 Section: 2.4 65) Which of the following statements about the diagram below is true? A) Demand is infinitely elastic. B) Demand is completely inelastic. C) Demand becomes more inelastic as price declines. D) Demand becomes more elastic as price declines. Answer: C Diff: 1 Section: 2.4 66) Along any downward sloping straight -line demand curve: A) both the price elasticity and slope vary. B) the price elasticity varies, but the slope is constant. C) the slope varies, but the price elasticity is constant. D) both the price elasticity and slope are constant. Answer: B Diff: 2 Section: 2.4 67) Which of the following pairs of goods are most likely to have a negative cross price elasticity of demand? A) Hotdogs and hotdog buns B) Coke and Pepsi C) Rail tickets and plane tickets D) A Luciano Pavarotti compact disc and a Placido Domingo compact disc (Both Pavarotti and Domingo are opera stars.) Answer: A Diff: 1 Section: 2.4 68) Consider the demand curve of the form Q = a - bP . If a is a positive real number, and b = 0, then demand is