(Test Bank) Macroeconomics

McConnell, 20

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20th Edition

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These sample questions are based on the textbook material and are not all-inclusive for purposes of tests and quizzes. Additional questions discussed in classroom lectures or online will be included in tests and quizzes. Chapter 01 1 For economists, the word "utility" means:  A.  versatility and flexibility. B.  rationality. C.  pleasure or satisfaction. D.  purposefulness. 3 When economists say that people act rationally in their self-i nterest, they mean that individuals:  A.  look for and pursue opportunities to increase their utility. B.  generally disregard the interests of others. C.  are mainly creatures of habit. D.  are usually impulsive and unpredictable. 5 Purposeful behavior means that:  A.  people are selfish in their decision making. B.  people weigh costs and benefits to make decisions. C.  people are immune from emotions affecting their decisions. D.  decision makers do not make mistakes when weighing costs and benefits. 6 Economics involves marginal analysis because:  A.  most decisions involve changes from the present situation. B.  marginal benefits always exceed marginal costs. C.  marginal costs always exceed marginal benefits. D.  much economic behavior is irrational. 7 Which one of the following expressions best states the idea of opportunity cost?  A.  "A penny saved is a penny earned." B.  "He who hesitates is lost." C.  "There is no such thing as a free lunch." D.  "All that glitters is not gold." 8 A.  distorted priorities. B.  opportunity costs. C.  increasing opportunity costs. D.  productive efficiency. 9 Which of the following most closely relates to the idea of opp ortunity costs?  A.  trade-offs. B.  economic growth. C.  technological change. D.  capitalism. 10 The scientific method is:  A.  not applicable to economics because economics deals with hum an beings. B.  also known as the economic perspective. C.  analysis that moves from broad generalizations called laws t o theories and then to hypotheses. D.  12 Economic theories:  A.  are useless because they are not based on laboratory experim entation. B.  that are true for individual economic units are never true f or the economy as a whole. C.  are generalizations based on a careful observation of facts. D.  are abstractions and therefore of no application to real sit uations. 13 Macroeconomics approaches the study of economics from the vie wpoint of:  A.  the entire economy. B.  governmental units. C.  the operation of specific product and resource markets. D.  individual firms. 14 Which of the following is associated with macroeconomics?  A.  An examination of the incomes of Harvard Business School gra duates. B.  An empirical investigation of the general price level and un employment rates since 1990.Suppose that a university decides to spend $1 million to upgrad e personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for stud ents. This example illustrates:  used by economists and other social scientists, as well as by p hysical scientists and life scientists, to formulate and test hypotheses. 1C.  A study of the trend of pecan prices since the Second World War. D.  A case study of pricing and production in the textbook indus try. 15 The problems of aggregate inflation and unemployment are:  A.  major topics of macroeconomics. B.  not relevant to the U.S. economy. C.  major topics of microeconomics. D.  peculiar to command economies. 17 Which of the following is a positive statement?  A.  A humidity level of 90 percent is too high. B.  It is too hot to run outside when the temperature exceeds 80 degrees. C.  The temperature is 92 degrees today. D.  Summer evenings are nice when it cools off to around 70 degr ees. 18 Normative statements are concerned primarily with:  A.  facts and theories. B.  what ought to be. C.  what is. D.  rational choice involving costs and benefits. 20 The alternative combinations of two goods that a consumer can purchase with a specific money income is shown by:  A.  a production possibilities curve. B.  a demand curve. C.  a consumer expenditure line. D.  a budget line. 21 The budget line shows:  A.  the amount of product A that a consumer is willing to give u p to obtain one more unit of product B. B.  all possible combinations of two goods that can be purchased , given money income and the prices of the goods. C.  the minimum amount of two goods that a consumer can purchase with a specific money income. D.  all possible combinations of two goods that yield the same l evel of utility to the consumer. 22 A.  $.50 and $1.00. B.  $1.00 and $.50. C.  $1.00 and $2.00. D.  $.40 and $.50. 23 Other things equal, an increase in a consumer's money income:   A.  increases the amount of utility a consumer receives from a g iven quantity of a good. B.  shifts the individual's budget line rightward because she ca n now purchase more of both products. C.  eliminates the individual's economizing problem. D.  causes the consumer to choose a different combination of goo ds along a given budget line. 24 The slope of a budget line reflects the:  A.  desirability of the two products. B.  price ratio of the two products. C.  amount of the consumer's income. D.  utility ratio of the two products. 26 The four factors of production are:  A.  land, labor, capital, and money. B.  land, labor, capital, and entrepreneurial ability. C.  labor, capital, technology, and entrepreneurial ability. D.  labor, capital, entrepreneurial ability, and money. 27 Which of the following is a land resource?  A.  A farmer.Suppose you have a money income of $10, all of which you spend on Coke and popcorn. In the diagram, the prices of Coke and popcorn respectively are:  2B.  An oil drilling rig. C.  A machine for detecting earthquakes. D.  Natural gas. 28 Which of the following is not considered by economists to be an economic resource?  A.  Money. B.  Factory workers. C.  Computers at a retail store. D.  A forest. 29 Which of the following would not be classified as an economic resource by economists?  A.  A professional soccer player. B.  Water in a town's reservoir. C.  Money in a business checking account. D.  The manager of the local hamburger restaurant. 32 Answer the question on the basis of the data given in the fol lowing production possibilities table: Refer to the table. A total output of 3 units of capital goods and 4 units of consumer goods:  A.  is irrelevant because the economy is capable of producing a larger total output. B.  will result in the maximum rate of growth available to this economy. C.  would involve an inefficient use of the economy's scarce res ources. D.  is unobtainable in this economy. 33 Answer the question on the basis of the data given in the fol lowing production possibilities table: A.  achieve economic growth. B.  use its resources more efficiently than the data in the tabl e now indicate. C.  allocate its available resources most efficiently among alte rnative uses. D.  achieve the full employment of available resources. 34 Which of the following is assumed in constructing a typical p roduction possibilities curve?  A.  The economy is using its resources inefficiently. B.  Resources are perfectly shiftable among alternative uses. C.  Production technology is fixed. D.  The economy is engaging in international trade. 35 The typical production possibilities curve is:  A.  an upsloping line that is bowed out from the origin. B.  a downsloping line that is bowed in toward the origin. C.  a downsloping line that is bowed out from the origin. D.  a straight upsloping line. 36 The slope of the typical production possibilities curve:  A.  is positive. B.  increases as one moves southeast along the curve. C.  is constant as one moves down the curve. D.  decreases as one moves southeast along the curve. 38 Refer to the diagram. This production possibilities curve is constructed so that: Refer to the table. For this economy to produce a total output of 3 units of capital goods and 13 units of consumer goods, it must:  3A.  resources are presumed to be perfectly shiftable between bre ad and tractors. B.  the opportunity cost of bread diminishes as more bread is pr oduced. C.  the opportunity cost of tractors increases as more bread is produced. D.  the opportunity costs of both bread and tractors increase as more of each is produced. 39 Refer to the diagram. Which of the following is a normative s tatement?  A.  Point C is superior to point B because it is important to enhance the future of society. B.  If society is initially at point C, it must sacrifice 6 units of bread to obtain one more unit of tractors. C.  D.  40 If an economy is operating on its production possibilities curve for consumer goods and capi tal goods, this means that:  A.  it is impossible to produce more consumer goods. B.  resources cannot be reallocated between the two goods. C.  it is impossible to produce more capital goods. D.  more consumer goods can only be produced at the cost of fewe r capital goods. 41 The construction of a production possibilities curve assumes:   A.  the quantities of all resources are unlimited. B.  technology is fixed. C.  some resources are unemployed. D.  there is no inflation in the economy. 44 Refer to the diagram. Points A, B, C, D, and E show:  A.  that the opportunity cost of bicycles increases, while that of computers is constant. B.  combinations of bicycles and computers that society can prod uce by using its resources efficiently. C.  that the opportunity cost of computers increases, while that of bicycles is constant. D.  that society's demand for computers is greater than its dema nd for bicycles. 45If society produces 2 units of tractors and 12 units of bread, it is not using its available resources with maximum efficiency. Other things equal, the combination of outputs represented by p oint D will result in more rapid economic growth than will the combination represented by point C. Refer to the diagram. If society is currently producing 9 units of bicycles and 4 units of computers and it now decides to increase computer output to 6, the cost:  4A.  will be 4 units of bicycles. B.  will be 2 units of bicycles. C.  will be zero because unemployed resources are available. D.  of doing so cannot be determined from the information given. 46 The fact that the slope of the production possibilities curve becomes steeper as we move down along the curve indicates that :  A.  the principle of increasing opportunity costs is relevant. B.  society's resources are limited. C.  the opportunity cost of producing each product is constant. D.  resources are perfectly shiftable between alternative uses. 47 The law of increasing opportunity costs states that:  A.  B.  the sum of the costs of producing a particular good cannot r ise above the current market price of that good. C.  D.  49 Refer to the diagram for athletic shoes. The optimal output o f shoes is:  A.  Q1. B.  Q2. C.  Q3. D.  greater than Q3. 50 Refer to the diagram for athletic shoes. If the current outpu t of shoes is Q1, then:  A.  society would consider additional units of shoes to be more valuable than alternative uses of those resources. B.  society would consider additional units of shoes to be less valuable than alternative uses of those resources. C.  society would experience a net loss by producing more shoes. D.  resources are being allocated efficiently to the production of shoes. 51 Refer to the diagram for athletic shoes. If the current outpu t of shoes is Q3, then:  A.  resources are being allocated efficiently to the production of shoes. B.  society would consider additional units of shoes to be more valuable than alternative products. C.  society would consider additional units of shoes to be less valuable than alternative products. D.  society would experience a net gain by producing more shoes. 53 Which of the following will shift the production possibilitie s curve to the right? if the prices of all the resources used to produce goods increa se, the cost of producing any particular good will increase at the same rate.if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so. if the sum of the costs of producing a particular good rises by a specified percent, the price of that good must rise by a greater relative amount. 5A.  An increase in the unemployment rate from 6 to 8 percent. B.  A decline in the efficiency with which the present labor for ce is allocated. C.  A decrease in the unemployment rate from 8 to 6 percent. D.  A technological advance that allows farmers to produce more output from given inputs. 54 Other things equal, which of the following would shift an eco nomy's production possibilities curve to the left?  A.  The discovery of a low-cost means of generating and storing solar energy. B.  The entrance of more women into the labor force. C.  A law requiring mandatory retirement from the labor force at age 55. D.  An increase in the proportion of total output that consists of capital or investment goods. 55 A nation's production possibilities curve might shift to the left (inward) as a result of:  A.  technological advance. B.  increases in the size of the labor force. C.  the depletion of its soil fertility due to overplanting and overgrazing. D.  investing in more capital goods. 57 A.  a rightward (outward) shift of the production possibilities curve. B.  increasing opportunity costs. C.  achieving points beyond the production possibilities curve t hrough international specialization and trade. D.  productive efficiency. 58 (Consider This) The economic perspective used in customer dec ision making at fast-food restaurants is reflected in:  A.  customers selecting the shortest line. B.  decisions for which marginal costs exceed marginal benefits. C.  all customer lines tending to be of different lengths. D.  irrational purchasing of high-fat-content food. 59 (Consider This) At fast-food restaurants:  A.  consumers enjoy complete and accurate information. B.  decisions are usually made by trial and error. C.  decisions entail comparisons of marginal costs and marginal benefits. D.  benefits always exceed costs. 60 (Consider This) Consumers might leave a fast-food restaurant without being served because:  A.  they are misinformed about the marginal cost and marginal be nefits of the food being served. B.  they conclude that the marginal cost (monetary plus time cos ts) exceeds the marginal benefit. C.  the environment is not conducive to a rational choice. D.  the lines waiting for service are not of equal length. 61 (Last Word) The "after this, therefore because of this" falla cy states that:  A.  because event A precedes event B, A is necessarily the cause of B. B.  C.  events may drastically alter plans; one's intentions and act ual accomplishments may differ considerably. D.  generalizations that are accurate at the level of microecono mics may be inaccurate at the level of macroeconomics. 62 A.  "after this, therefore because of this" fallacy. B.  correlation fallacy. C.  fallacy of composition. D.  fallacy of limited decisions. 63 (Last Word) The post hoc, ergo propter hoc fallacy suggests that:  A.  positive statements are always followed by normative judgmen ts. B.  positive statements can never be proven true or false. C.  if one acts on one's expectations, those expectations will a lways be fulfilled. D.  cause and effect can be determined merely by observing the s equence of events. 64 A.  the fallacy of composition. B.  the economic perspective. C.  loaded terminology.Suppose that Scoobania, which has full employment, can obtain 1 unit of capital goods by sacrificing 2 units of consumer goods domestically but can obtain 1 unit of capital go ods from another country by trading 1 unit of consumer goods for it. This reality illustrates:  the very attempt to accomplish a certain objective may create c onditions that prohibit the achievement of that objective. (Last Word) The safest way for an individual to leave a burning theater is to run for the nearest exit; it is therefore also the best means of escape for a large audience. This assertion i llustrates the:  (Last Word) A caller to a radio talk show states that protester s against globalization are a collection of "anarchist punks, naïve college students, and trade union radicals." This is an e xample of:  6D.  marginal analysis. 65 A.  the fallacy of composition. B.  confusion of correlation and causation. C.  identifying marginal costs and marginal benefits. D.  biases and loaded terminology. 66 An economic model is an ideal or utopian type of economy that society should strive to obtain through economic policy.  True    False 67 Rational individuals may make different choices because their preferences and circumstances differ.  True    False 68 Choices entail marginal costs because resources are scarce.  True    False 69 True    False 70 True    False 71 True    False 72 True    False 73 Refer to the diagram. Which line(s) show(s) a positive relati onship between x and y?  A.  A only. B.  A and D only. C.  A, B, and D. D.  Both C and E. 74 Refer to the diagram. Which line(s) show(s) a negative relati onship between x and y?  A.  A only. B.  Both A and D. C.  A, B, and D. D.  Both C and E. 75 Refer to the diagram. Which line(s) show(s) a positive vertic al intercept? (Last Word) A study found that the incidence of skin cancer inc reases along with the amount of time people work under fluorescent light, leading some people to conclude that fluores cent lighting is a cause of skin cancer. But further analysis found that people who work in offices, where fluoresce nt light is common, suffer more sunburn on their vacations than other workers. The sunburns, not the fluorescent light, were the cause of the higher incidence of skin cancer. The original conclusion illustrates:  The production possibilities curve shows various combinations o f two products that an economy can produce when achieving full employment.  Refer to the diagram. Given production possibilities curve a, point Y indicates that society is failing to use available resources efficiently.  Refer to the diagram. The movement from curve a to curve b could be explained by an increase in the quantity and/or quality of society's productive resources.  Refer to the diagram. The movement from curve a to curve c suggests an improvement in civilian goods technology but not in war goods technology.  7A.  A and D only. B.  B and C only. C.  A, D, and E. D.  A, D, and B. 76 A.  Option A B.  Option B C.  Option C D.  Option D 77 Refer to the information. Which of the following correctly expr esses the indicated relationship as an equation?  A.  i = 20 - 4I. B.  i = 20 - .4 I. C.  i = 24 - .4 I. D.  i = 20 - 10 I. 78 A.  Line D. B.  Line C. C.  Line B. D.  Line A. 79 Refer to the diagram. The equation that shows the relationshi p between Y and X is:  A.  Y = 50 + 1/4X. B.  X = 1/4Y. C.  Y = .4X. D.  Y = 1/4X - 50. 80 Refer to the graph. Which of the following statements is corr ect? Answer the question on the basis of the following information. Assume that if the interest rate that businesses must pay to borrow funds were 20 percent, it would be unprofitable for b usinesses to invest in new machinery and equipment, so investment would be zero. But if the interest rate were 16 perc ent, businesses would find it profitable to invest $10 billion. If the interest rate were 12 percent, $20 billion woul d be invested. Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate. Refer to the information. Using i and I to indicate the interest rate and investment (in billions of d ollars) respectively, which of the following is the correct tabular presentation of t he described relationship? Answer the question on the basis of the following information. Assume that if the interest rate that businesses must pay to borrow funds were 20 percent, it would be unprofitable for b usinesses to invest in new machinery and equipment, so investment would be zero. But if the interest rate were 16 perc ent, businesses would find it profitable to invest $10 billion. If the interest rate were 12 percent, $20 billion woul d be invested. Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate. Assume that if the interest rate that businesses must pay to bo rrow funds were 20 percent, it would be unprofitable for businesses to invest in new machinery and equipment, so investm ent would be zero. But if the interest rate were 16 percent, businesses would find it profitable to invest $10 bill ion. If the interest rate were 12 percent, $20 billion would be invested. Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate. Refer to the graph. Which of the following is the correct graphical presentation of the i di t d l ti hi ? 8A.  Quantity demanded and quantity supplied are independent of p rice. B.  Price and quantity demanded are directly related. C.  Price and quantity supplied are directly related. D.  Price and quantity supplied are inversely related. 81 Refer to the graph. Which of the following schedules correctl y reflects "demand"? A.  Option A B.  Option B C.  Option C D.  Option D 82 Refer to the data sets. The equation for data set 3 is:  A.  P = 90 - .5 N. B.  P = 90 + .5 N. C.  P = .5N. D.  P = 40 + .5 N. 83 Refer to the data sets. For which data set(s) is the vertical i ntercept zero?  A.  Data set 4. B.  Data set 5. C.  Data sets 2 and 3. D.  Data set 1. 84 Refer to the data sets. The equation for data set 5 is: Answer the question on the basis of the following five data sets wherein it is assumed that the variable shown on the leftis the independent variable and the one on the right is the dep endent variable. Assume in graphing these data that the independent variable is shown on the horizontal axis and the de pendent variable on the vertical axis. Answer the question on the basis of the following five data sets wherein it is assumed that the variable shown on the leftis the independent variable and the one on the right is the dep endent variable. Assume in graphing these data that the independent variable is shown on the horizontal axis and the de pendent variable on the vertical axis. Answer the question on the basis of the following five data sets wherein it is assumed that the variable shown on the leftis the independent variable and the one on the right is the dep endent variable. Assume in graphing these data that the independent variable is shown on the horizontal axis and the de pendent variable on the vertical axis. 9A.  V = .5Y. B.  U = -.5V. C.  U = V. D.  V = 2U. 85 A.  the relationship to change from direct to inverse. B.  the line representing that relationship on a graph to shift. C.  the data points to have a tighter fit to the line representi ng the relationship. D.  the relationship to change from inverse to direct. 86 A.  if pizzas were free, people would consume 800 per week. B.  more pizzas will be purchased at a high price than at a low price. C.  if the price of pizzas is $6, then 150 will be purchased. D.  50 fewer pizzas will be purchased per week for every $1 incr ease in price. 87 Refer to the diagram. The slope of curve ZZ at point A is approximately:  A.  2 B.  10.5 C.  -10.5 D.  4 With answer key; for graphs see above 1 For economists, the word "utility" means:  A.  versatility and flexibility. B.  rationality. C.  pleasure or satisfaction. D.  purposefulness. 3 When economists say that people act rationally in their self-i nterest, they mean that individuals:  A.  look for and pursue opportunities to increase their utility. B.  generally disregard the interests of others. C.  are mainly creatures of habit. D.  are usually impulsive and unpredictable. 5 Purposeful behavior means that:  A.  people are selfish in their decision making. B.  people weigh costs and benefits to make decisions. C.  people are immune from emotions affecting their decisions. D.  decision makers do not make mistakes when weighing costs and b enefits. 6 Economics involves marginal analysis because:  A.  most decisions involve changes from the present situation. B.  marginal benefits always exceed marginal costs. C.  marginal costs always exceed marginal benefits. D.  much economic behavior is irrational. 7 Which one of the following expressions best states the idea of opportunity cost?  A.  "A penny saved is a penny earned."If we are considering the relationship between two variables an d release one of the other-things-equal assumptions, we would expect:  The amount of pizzas that consumers want to buy per week is ref lected in the equation P = 15 - .02 Qd, where Qd is the amount of pizzas purchased per week and P is the price of pizzas. On the basis of this information we ca n say 10B.  "He who hesitates is lost." C.  "There is no such thing as a free lunch." D.  "All that glitters is not gold." 8 A.  distorted priorities. B.  opportunity costs. C.  increasing opportunity costs. D.  productive efficiency. 9 Which of the following most closely relates to the idea of opp ortunity costs?  A.  trade-offs. B.  economic growth. C.  technological change. D.  capitalism. 10 The scientific method is:  A.  not applicable to economics because economics deals with human beings. B.  also known as the economic perspective. C.  analysis that moves from broad generalizations called laws to theories and then to hypotheses. D.  12 Economic theories:  A.  are useless because they are not based on laboratory experimen tation. B.  that are true for individual economic units are never true for the economy as a whole. C.  are generalizations based on a careful observation of facts. D.  are abstractions and therefore of no application to real situa tions. 13 Macroeconomics approaches the study of economics from the vie wpoint of:  A.  the entire economy. B.  governmental units. C.  the operation of specific product and resource markets. D.  individual firms. 14 Which of the following is associated with macroeconomics?  A.  An examination of the incomes of Harvard Business School gradu ates. B.  An empirical investigation of the general price level and unem ployment rates since 1990. C.  A study of the trend of pecan prices since the Second World Wa r. D.  A case study of pricing and production in the textbook industr y. 15 The problems of aggregate inflation and unemployment are:  A.  major topics of macroeconomics. B.  not relevant to the U.S. economy. C.  major topics of microeconomics. D.  peculiar to command economies. 17 Which of the following is a positive statement?  A.  A humidity level of 90 percent is too high. B.  It is too hot to run outside when the temperature exceeds 80 d egrees. C.  The temperature is 92 degrees today. D.  Summer evenings are nice when it cools off to around 70 degree s. 18 Normative statements are concerned primarily with:  A.  facts and theories. B.  what ought to be. C.  what is. D.  rational choice involving costs and benefits. 20 The alternative combinations of two goods that a consumer can purchase with a specific money income is shown by:  A.  a production possibilities curve. B.  a demand curve. C.  a consumer expenditure line. D.  a budget line. 21 The budget line shows:  A.  the amount of product A that a consumer is willing to give up to obtain one more unit of product B. B.  all possible combinations of two goods that can be purchased, given money income and the prices of the goods.Suppose that a university decides to spend $1 million to upgrad e personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for stud ents. This example illustrates:  used by economists and other social scientists, as well as by p hysical scientists and life scientists, to formulate and test hypotheses. 11C.  the minimum amount of two goods that a consumer can purchase w ith a specific money income. D.  all possible combinations of two goods that yield the same lev el of utility to the consumer. 22 A.  $.50 and $1.00. B.  $1.00 and $.50. C.  $1.00 and $2.00. D.  $.40 and $.50. 23 Other things equal, an increase in a consumer's money income:   A.  increases the amount of utility a consumer receives from a giv en quantity of a good. B.  shifts the individual's budget line rightward because she can now purchase more of both products. C.  eliminates the individual's economizing problem. D.  causes the consumer to choose a different combination of goods along a given budget line. 24 The slope of a budget line reflects the:  A.  desirability of the two products. B.  price ratio of the two products. C.  amount of the consumer's income. D.  utility ratio of the two products. 26 The four factors of production are:  A.  land, labor, capital, and money. B.  land, labor, capital, and entrepreneurial ability. C.  labor, capital, technology, and entrepreneurial ability. D.  labor, capital, entrepreneurial ability, and money. 27 Which of the following is a land resource?  A.  A farmer. B.  An oil drilling rig. C.  A machine for detecting earthquakes. D.  Natural gas. 28 Which of the following is not considered by economists to be an economic resource?  A.  Money. B.  Factory workers. C.  Computers at a retail store. D.  A forest. 29 Which of the following would not be classified as an economic resource by economists?  A.  A professional soccer player. B.  Water in a town's reservoir. C.  Money in a business checking account. D.  The manager of the local hamburger restaurant. 32 Answer the question on the basis of the data given in the fol lowing production possibilities table: Refer to the table. A total output of 3 units of capital goods and 4 units of consumer goods:  A.  is irrelevant because the economy is capable of producing a la rger total output. B.  will result in the maximum rate of growth available to this ec onomy. C.  would involve an inefficient use of the economy's scarce resou rces. D.  is unobtainable in this economy. 33 Answer the question on the basis of the data given in the fol lowing production possibilities table: A.  achieve economic growth. B.  use its resources more efficiently than the data in the table now indicate. C.  allocate its available resources most efficiently among altern ative uses. D.  achieve the full employment of available resources. 34 Which of the following is assumed in constructing a typical p roduction possibilities curve?  A.  The economy is using its resources inefficiently. B.  Resources are perfectly shiftable among alternative uses. C.  Production technology is fixed. D.  The economy is engaging in international trade. 35 The typical production possibilities curve is:  A.  an upsloping line that is bowed out from the origin.Suppose you have a money income of $10, all of which you spend on Coke and popcorn. In the diagram, the prices of Coke and popcorn respectively are:  Refer to the table. For this economy to produce a total output of 3 units of capital goods and 13 units of consumer goods, it must:  12B.  a downsloping line that is bowed in toward the origin. C.  a downsloping line that is bowed out from the origin. D.  a straight upsloping line. 36 The slope of the typical production possibilities curve:  A.  is positive. B.  increases as one moves southeast along the curve. C.  is constant as one moves down the curve. D.  decreases as one moves southeast along the curve. 38 Refer to the diagram. This production possibilities curve is constructed so that:  A.  resources are presumed to be perfectly shiftable between bread and tractors. B.  the opportunity cost of bread diminishes as more bread is prod uced. C.  the opportunity cost of tractors increases as more bread is pr oduced. D.  the opportunity costs of both bread and tractors increase as m ore of each is produced. 39 Refer to the diagram. Which of the following is a normative s tatement?  A.  Point C is superior to point B because it is important to enhance the future of society. B.  If society is initially at point C, it must sacrifice 6 units of bread to obtain one more unit of tractors. C.  D.  40 If an economy is operating on its production possibilities curve for consumer goods and capi tal goods, this means that:  A.  it is impossible to produce more consumer goods. B.  resources cannot be reallocated between the two goods. C.  it is impossible to produce more capital goods. D.  more consumer goods can only be produced at the cost of fewer capital goods. 41 The construction of a production possibilities curve assumes:   A.  the quantities of all resources are unlimited. B.  technology is fixed. C.  some resources are unemployed. D.  there is no inflation in the economy. 44 Refer to the diagram. Points A, B, C, D, and E show:  A.  that the opportunity cost of bicycles increases, while that of computers is constant. B.  combinations of bicycles and computers that society can produc e by using its resources efficiently. C.  that the opportunity cost of computers increases, while that o f bicycles is constant. D.  that society's demand for computers is greater than its demand for bicycles. 45 A.  will be 4 units of bicycles. B.  will be 2 units of bicycles. C.  will be zero because unemployed resources are available. D.  of doing so cannot be determined from the information given. 46 The fact that the slope of the production possibilities curve becomes steeper as we move down along the curve indicates that :  A.  the principle of increasing opportunity costs is relevant. B.  society's resources are limited. C.  the opportunity cost of producing each product is constant. D.  resources are perfectly shiftable between alternative uses. 47 The law of increasing opportunity costs states that:  A.  B.  the sum of the costs of producing a particular good cannot ris e above the current market price of that good. C.  D.  49 Refer to the diagram for athletic shoes. The optimal output o f shoes is:  A.  Q1. B.  Q2. C.  Q3.If society produces 2 units of tractors and 12 units of bread, it is not using its available resources with maximum efficiency. Other things equal, the combination of outputs represented by p oint D will result in more rapid economic growth than will the combination represented by point C. Refer to the diagram. If society is currently producing 9 units of bicycles and 4 units of computers and it now decides to increase computer output to 6, the cost:  if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so. if the sum of the costs of producing a particular good rises by a specified percent, the price of that good must rise by a greater relative amount. if the prices of all the resources used to produce goods increa se, the cost of producing any particular good will increase at the same rate. 13D.  greater than Q3. 50 Refer to the diagram for athletic shoes. If the current outpu t of shoes is Q1, then:  A.  society would consider additional units of shoes to be more va luable than alternative uses of those resources. B.  society would consider additional units of shoes to be less va luable than alternative uses of those resources. C.  society would experience a net loss by producing more shoes. D.  resources are being allocated efficiently to the production of shoes. 51 Refer to the diagram for athletic shoes. If the current outpu t of shoes is Q3, then:  A.  resources are being allocated efficiently to the production of shoes. B.  society would consider additional units of shoes to be more va luable than alternative products. C.  society would consider additional units of shoes to be less va luable than alternative products. D.  society would experience a net gain by producing more shoes. 53 Which of the following will shift the production possibilitie s curve to the right?  A.  An increase in the unemployment rate from 6 to 8 percent. B.  A decline in the efficiency with which the present labor force is allocated. C.  A decrease in the unemployment rate from 8 to 6 percent. D.  A technological advance that allows farmers to produce more ou tput from given inputs. 54 Other things equal, which of the following would shift an eco nomy's production possibilities curve to the left?  A.  The discovery of a low-cost means of generating and storing so lar energy. B.  The entrance of more women into the labor force. C.  A law requiring mandatory retirement from the labor force at a ge 55. D.  An increase in the proportion of total output that consists of capital or investment goods. 55 A nation's production possibilities curve might shift to the left (inward) as a result of:  A.  technological advance. B.  increases in the size of the labor force. C.  the depletion of its soil fertility due to overplanting and ov ergrazing. D.  investing in more capital goods. 57 A.  a rightward (outward) shift of the production possibilities cu rve. B.  increasing opportunity costs. C.  achieving points beyond the production possibilities curve thr ough international specialization and trade. D.  productive efficiency. 58 (Consider This) The economic perspective used in customer dec ision making at fast-food restaurants is reflected in:  A.  customers selecting the shortest line. B.  decisions for which marginal costs exceed marginal benefits. C.  all customer lines tending to be of different lengths. D.  irrational purchasing of high-fat-content food. 59 (Consider This) At fast-food restaurants:  A.  consumers enjoy complete and accurate information. B.  decisions are usually made by trial and error. C.  decisions entail comparisons of marginal costs and marginal be nefits. D.  benefits always exceed costs. 60 (Consider This) Consumers might leave a fast-food restaurant without being served because:  A.  they are misinformed about the marginal cost and marginal bene fits of the food being served. B.  they conclude that the marginal cost (monetary plus time costs ) exceeds the marginal benefit. C.  the environment is not conducive to a rational choice. D.  the lines waiting for service are not of equal length. 61 (Last Word) The "after this, therefore because of this" falla cy states that:  A.  because event A precedes event B, A is necessarily the cause o f B. B.  C.  events may drastically alter plans; one's intentions and actua l accomplishments may differ considerably. D.  generalizations that are accurate at the level of microeconomi cs may be inaccurate at the level of macroeconomics. 62 A.  "after this, therefore because of this" fallacy. B.  correlation fallacy.Suppose that Scoobania, which has full employment, can obtain 1 unit of capital goods by sacrificing 2 units of consumer goods domestically but can obtain 1 unit of capital go ods from another country by trading 1 unit of consumer goods for it. This reality illustrates:  the very attempt to accomplish a certain objective may create c onditions that prohibit the achievement of that objective. (Last Word) The safest way for an individual to leave a burning theater is to run for the nearest exit; it is therefore also the best means of escape for a large audience. This assertion i llustrates the:  14C.  fallacy of composition. D.  fallacy of limited decisions. 63 (Last Word) The post hoc, ergo propter hoc fallacy suggests that:  A.  positive statements are always followed by normative judgments . B.  positive statements can never be proven true or false. C.  if one acts on one's expectations, those expectations will alw ays be fulfilled. D.  cause and effect can be determined merely by observing the seq uence of events. 64 A.  the fallacy of composition. B.  the economic perspective. C.  loaded terminology. D.  marginal analysis. 65 A.  the fallacy of composition. B.  confusion of correlation and causation. C.  identifying marginal costs and marginal benefits. D.  biases and loaded terminology. 66 An economic model is an ideal or utopian type of economy that society should strive to obtain through economic policy.  FALSE 67 Rational individuals may make different choices because their preferences and circumstances differ.  TRUE 68 Choices entail marginal costs because resources are scarce.  TRUE 69 TRUE 70 FALSE 71 TRUE 72 FALSE 73 Refer to the diagram. Which line(s) show(s) a positive relati onship between x and y?  A.  A only. B.  A and D only. C.  A, B, and D. D.  Both C and E. 74 Refer to the diagram. Which line(s) show(s) a negative relati onship between x and y?  A.  A only. B.  Both A and D. C.  A, B, and D. D.  Both C and E. 75 Refer to the diagram. Which line(s) show(s) a positive vertic al intercept?  A.  A and D only. B.  B and C only. C.  A, D, and E. D.  A, D, and B.(Last Word) A caller to a radio talk show states that protester s against globalization are a collection of "anarchist punks, naïve college students, and trade union radicals." This is an e xample of:  (Last Word) A study found that the incidence of skin cancer inc reases along with the amount of time people work under fluorescent light, leading some people to conclude that fluores cent lighting is a cause of skin cancer. But further analysis found that people who work in offices, where fluoresce nt light is common, suffer more sunburn on their vacations than other workers. The sunburns, not the fluorescent light, were the cause of the higher incidence of skin cancer. The original conclusion illustrates:  The production possibilities curve shows various combinations o f two products that an economy can produce when achieving full employment.  Refer to the diagram. Given production possibilities curve a, point Y indicates that society is failing to use available resources efficiently.  Refer to the diagram. The movement from curve a to curve b could be explained by an increase in the quantity and/or quality of society's productive resources.  Refer to the diagram. The movement from curve a to curve c suggests an improvement in civilian goods technology but not in war goods technology.  1576 A.  Option A B.  Option B C.  Option C D.  Option D 77 Refer to the information. Which of the following correctly expr esses the indicated relationship as an equation?  A.  i = 20 - 4I. B.  i = 20 - .4 I. C.  i = 24 - .4 I. D.  i = 20 - 10 I. 78 A.  Line D. B.  Line C. C.  Line B. D.  Line A. 79 Refer to the diagram. The equation that shows the relationshi p between Y and X is:  A.  Y = 50 + 1/4X. B.  X = 1/4Y. C.  Y = .4X. D.  Y = 1/4X - 50. 80 Refer to the graph. Which of the following statements is corr ect?  A.  Quantity demanded and quantity supplied are independent of pri ce. B.  Price and quantity demanded are directly related. C.  Price and quantity supplied are directly related. D.  Price and quantity supplied are inversely related. 81 Refer to the graph. Which of the following schedules correctl y reflects "demand"? A.  Option A B.  Option B C.  Option C D.  Option D 82 Refer to the data sets. The equation for data set 3 is:  A.  P = 90 - .5 N. B.  P = 90 + .5 N. C.  P = .5N. D.  P = 40 + .5 N. 83Answer the question on the basis of the following information. Assume that if the interest rate that businesses must pay to borrow funds were 20 percent, it would be unprofitable for b usinesses to invest in new machinery and equipment, so investment would be zero. But if the interest rate were 16 perc ent, businesses would find it profitable to invest $10 billion. If the interest rate were 12 percent, $20 billion woul d be invested. Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate. Refer to the information. Using i and I to indicate the interest rate and investment (in billions of d ollars) respectively, which of the following is the correct tabular presentation of t he described relationship? Answer the question on the basis of the following information. Assume that if the interest rate that businesses must pay to borrow funds were 20 percent, it would be unprofitable for b usinesses to invest in new machinery and equipment, so investment would be zero. But if the interest rate were 16 perc ent, businesses would find it profitable to invest $10 billion. If the interest rate were 12 percent, $20 billion woul d be invested. Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate. Assume that if the interest rate that businesses must pay to bo rrow funds were 20 percent, it would be unprofitable for businesses to invest in new machinery and equipment, so investm ent would be zero. But if the interest rate were 16 percent, businesses would find it profitable to invest $10 bill ion. If the interest rate were 12 percent, $20 billion would be invested. Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate. Refer to the graph. Which of the following is the correct graphical presentation of the ? Answer the question on the basis of the following five data sets wherein it is assumed that the variable shown on the leftis the independent variable and the one on the right is the dep endent variable. Assume in graphing these data that the independent variable is shown on the horizontal axis and the de pendent variable on the vertical axis.Answer the question on the basis of the following five data sets wherein it is assumed that the variable shown on the leftis the independent variable and the one on the right is the dep endent variable. Assume in graphing these data that the independent variable is shown on the horizontal axis and the de pendent variable on the vertical axis. 16Refer to the data sets. For which data set(s) is the vertical i ntercept zero?  A.  Data set 4. B.  Data set 5. C.  Data sets 2 and 3. D.  Data set 1. 84 Refer to the data sets. The equation for data set 5 is:  A.  V = .5Y. B.  U = -.5V. C.  U = V. D.  V = 2U. 85 A.  the relationship to change from direct to inverse. B.  the line representing that relationship on a graph to shift. C.  the data points to have a tighter fit to the line representing the relationship. D.  the relationship to change from inverse to direct. 86 A.  if pizzas were free, people would consume 800 per week. B.  more pizzas will be purchased at a high price than at a low pr ice. C.  if the price of pizzas is $6, then 150 will be purchased. D.  50 fewer pizzas will be purchased per week for every $1 increa se in price. 87 Refer to the diagram. The slope of curve ZZ at point A is approximately:  A. 2 B.  10.5 C.  -10.5 D. 4 Chapter 02 2 Which of the following is a distinguishing feature of laissez- faire capitalism?  A.  Public ownership of all capital. B.  Central planning. C.  Minimal government intervention. D.  A circular flow of goods, resources, and money. 3 Examples of command economies are:  A.  the United States and Japan. B.  Sweden and Norway. C.  Mexico and Brazil. D.  Cuba and North Korea. 5 Which of the following is a fundamental characteristic of the market system?  A.  Property rights. B.  Central planning by government. C.  Unselfish behavior. D.  Government-set wages and prices. 7 Specialization—the division of labor—enhances productivity and efficiency by:  A.  allowing workers to take advantage of existing differences i n their abilities and skills. B.  avoiding the time loss involved in shifting from one product ion task to another. C.  allowing workers to develop skills by working on one, or a l imited number, of tasks. D.  all of the means identified in the other answers. 9 On the basis of the information, it can be said that: Answer the question on the basis of the following five data sets wherein it is assumed that the variable shown on the leftis the independent variable and the one on the right is the dep endent variable. Assume in graphing these data that the independent variable is shown on the horizontal axis and the de pendent variable on the vertical axis. If we are considering the relationship between two variables an d release one of the other-things-equal assumptions, we would expect:  The amount of pizzas that consumers want to buy per week is ref lected in the equation P = 15 - .02 Qd, where Qd is the amount of pizzas purchased per week and P is the price of pizzas. On the basis of this information we ca n say 17A.  no coincidence of wants exists between any two states. B.  a coincidence of wants exists between Michigan and Washingto n. C.  a coincidence of wants exists between Texas and Washington. D.  a coincidence of wants exists between Michigan and Texas. 10 Which of the following is one of the Five Fundamental Questio ns?  A.  Which products will be in scarce supply and which in excess supply? B.  Who should appoint the head of the central bank? C.  How much should society save? D.  What goods and services will be produced? 11 If competitive industry Z is making substantial economic prof it, output will:  A.  fall in industry Z and firms will likely leave the market. B.  fall in all industries except industry Z. C.  expand in industry Z as more resources will move to that ind ustry. D.  expand in industry Z, but no new firms will enter the market . 13 If a competitive industry is neither expanding nor contractin g, we would expect:  A.  total revenue to be zero. B.  economic profits to be zero. C.  total opportunity cost to be zero. D.  more resources to flow to that industry. 14 The competitive market system:  A.  B.  discourages innovation because it is difficult to acquire ad ditional capital in the form of new machinery and equipment. C.  discourages innovation because firms want to get all the pro fits possible from existing machinery and equipment. D.  encourages innovation because successful innovators are rewa rded with economic profits. 16 In a competitive market economy, firms select the least-cost production technique because:  A.  such choices will result in full employment of available res ources. B.  to do so will maximize the firms' profits. C.  this will prevent new firms from entering the industry. D.  "dollar voting" by consumers mandates such a choice. 19 "Consumer sovereignty" means that:  A.  buyers can dictate the prices at which goods and services wi ll be offered. B.  advertising is ineffective because consumers already know wh at they want. C.  buyers control the quality of goods and services through reg ulatory agencies. D.  buyers determine what will be produced based on their "dolla r votes" for the goods and services offered by sellers. 20 Which of the following best describes the invisible-hand conc ept?  A.  B.  C.  The market system is the best system for overcoming the scar ce resources-unlimited wants problem. D.  Central direction by the government will improve resource al location in a capitalistic economy. 22 A.  incentive problem under central planning. B.  self-sufficiency dilemma under communism. C.  resource overcommitment problem under communism. D.  coordination problem under central planning. 24 A.  coordination problem under communist central planning. B.  self-sufficiency dilemma under communism. C.  asymmetric information problem under communism. D.  incentive problem under communist central planning.encourages innovation because government provides tax breaks an d subsidies to those who develop new products or new productive techniques. The desires of resource suppliers and producers to further thei r own self-interest will automatically further the public interest. The nonsubstitutability of resources creates a conflict between private and public interests and calls for government intervention. "Because the outputs of many industries are the inputs to other industries, the failure of any single industry to fulfill the output quantities specified in the central plan caused a chain reaction of adverse repercussions on production." This quotation best identifies the:  Suppose that an individual sees a tremendous opportunity to pro duce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for persona l gain. This situation best identifies the:  1826 A.  consumer sovereignty. B.  technological change. C.  downsloping demand. D.  specialization. 27 Since World War II:  A.  North Korea's command economy has significantly outperformed South Korea's market economy. B.  South Korea's command economy has significantly outperformed North Korea's market economy. C.  North Korea's market economy has significantly outperformed South Korea's command economy. D.  South Korea's market economy has significantly outperformed North Korea's command economy. 28 Consumer sovereignty means that legislation now protects the rights of consumers to dispose of their incomes as they see fit .  True    False 29 Specialization may expand total output even though the indivi duals involved may have identical abilities.  True    False 30 The wants of consumers are expressed in the product market wi th "dollar votes."  True    False With answer key; for graphs see above 2 Which of the following is a distinguishing feature of laissez- faire capitalism?  A.  Public ownership of all capital. B.  Central planning. C.  Minimal government intervention. D.  A circular flow of goods, resources, and money. 3 Examples of command economies are:  A.  the United States and Japan. B.  Sweden and Norway. C.  Mexico and Brazil. D.  Cuba and North Korea. 5 Which of the following is a fundamental characteristic of the market system?  A.  Property rights. B.  Central planning by government. C.  Unselfish behavior. D.  Government-set wages and prices. 7 Specialization—the division of labor—enhances productivity and efficiency by:  A.  allowing workers to take advantage of existing differences in their abilities and skills. B.  avoiding the time loss involved in shifting from one productio n task to another. C.  allowing workers to develop skills by working on one, or a lim ited number, of tasks. D.  all of the means identified in the other answers. 9 On the basis of the information, it can be said that:  A.  no coincidence of wants exists between any two states. B.  a coincidence of wants exists between Michigan and Washington. C.  a coincidence of wants exists between Texas and Washington. D.  a coincidence of wants exists between Michigan and Texas. 10 Which of the following is one of the Five Fundamental Questio ns?  A.  Which products will be in scarce supply and which in excess su pply? B.  Who should appoint the head of the central bank? C.  How much should society save? D.  What goods and services will be produced? 11 If competitive industry Z is making substantial economic prof it, output will:  A.  fall in industry Z and firms will likely leave the market. B.  fall in all industries except industry Z. C.  expand in industry Z as more resources will move to that indus try. D.  expand in industry Z, but no new firms will enter the market. 13 If a competitive industry is neither expanding nor contractin g, we would expect:  A.  total revenue to be zero. B.  economic profits to be zero. C.  total opportunity cost to be zero.In 2000, McDonald's introduced its McSalad Shaker, which failed to catch on with the public and was subsequently dropped from the menu. This failure illustrates the idea of:  19D.  more resources to flow to that industry. 14 The competitive market system:  A.  B.  discourages innovation because it is difficult to acquire addi tional capital in the form of new machinery and equipment. C.  discourages innovation because firms want to get all the profi ts possible from existing machinery and equipment. D.  encourages innovation because successful innovators are reward ed with economic profits. 16 In a competitive market economy, firms select the least-cost production technique because:  A.  such choices will result in full employment of available resou rces. B.  to do so will maximize the firms' profits. C.  this will prevent new firms from entering the industry. D.  "dollar voting" by consumers mandates such a choice. 19 "Consumer sovereignty" means that:  A.  buyers can dictate the prices at which goods and services will be offered. B.  advertising is ineffective because consumers already know what they want. C.  buyers control the quality of goods and services through regul atory agencies. D.  buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers. 20 Which of the following best describes the invisible-hand conc ept?  A.  B.  C.  The market system is the best system for overcoming the scarce resources-unlimited wants problem. D.  Central direction by the government will improve resource allo cation in a capitalistic economy. 22 A.  incentive problem under central planning. B.  self-sufficiency dilemma under communism. C.  resource overcommitment problem under communism. D.  coordination problem under central planning. 24 A.  coordination problem under communist central planning. B.  self-sufficiency dilemma under communism. C.  asymmetric information problem under communism. D.  incentive problem under communist central planning. 25 A.  opportunity cost. B.  upsloping supply. C.  consumer sovereignty. D.  specialization. 27 Since World War II:  A.  North Korea's command economy has significantly outperformed S outh Korea's market economy. B.  South Korea's command economy has significantly outperformed N orth Korea's market economy. C.  North Korea's market economy has significantly outperformed So uth Korea's command economy. D.  South Korea's market economy has significantly outperformed No rth Korea's command economy. 28 Consumer sovereignty means that legislation now protects the rights of consumers to dispose of their incomes as they see fit .  FALSE 29 Specialization may expand total output even though the indivi duals involved may have identical abilities.  TRUE 30 The wants of consumers are expressed in the product market wi th "dollar votes."  TRUE Chapter 03 1 A market:  A.  reflects upsloping demand and downsloping supply curves.encourages innovation because government provides tax breaks an d subsidies to those who develop new products or new productive techniques. The desires of resource suppliers and producers to further thei r own self-interest will automatically further the public interest. The nonsubstitutability of resources creates a conflict between private and public interests and calls for government intervention. "Because the outputs of many industries are the inputs to other industries, the failure of any single industry to fulfill the output quantities specified in the central plan caused a chain reaction of adverse repercussions on production." This quotation best identifies the:  Suppose that an individual sees a tremendous opportunity to pro duce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for persona l gain. This situation best identifies the:  In 1975, McDonald's introduced its Egg McMuffin breakfast sandw ich, which remains popular and profitable today. This longevity illustrates the idea of:  20B.  entails the exchange of goods, but not services. C.  is an institution that brings together buyers and sellers. D.  always requires face-to-face contact between buyer and selle r. 2 Markets, viewed from the perspective of the supply and demand model:  A.  assume many buyers and many sellers of a standardized produc t. B.  assume market power so that buyers and sellers bargain with one another. C.  do not exist in the real-world economy. D.  are approximated by markets in which a single seller determi nes price. 3 The law of demand states that, other things equal:  A.  price and quantity demanded are inversely related. B.  the larger the number of buyers in a market, the lower will be product price. C.  price and quantity demanded are directly related. D.  consumers will buy more of a product at high prices than at low prices. 4 An increase in the price of a product will reduce the amount o f it purchased because:  A.  supply curves are upsloping. B.  the higher price means that real incomes have risen. C.  consumers will substitute other products for the one whose p rice has risen. D.  consumers substitute relatively high-priced for relatively l ow-priced products. 6 A.  an inferior good. B.  the rationing function of prices. C.  the substitution effect. D.  the income effect. 7 In the past few years, the demand for donuts has greatly incre ased. This increase in demand might best be explained by:  A.  an increase in the cost of making donuts. B.  an increase in the price of coffee. C.  consumers expecting donut prices to fall. D.  a change in buyer tastes. 8 Which of the following will not cause the demand for product K to change?  A.  A change in the price of close-substitute product J. B.  An increase in incomes of buyers of product K. C.  A change in the price of product K. D.  A change in consumer tastes for product K. 9 Which of the following would not shift the demand curve for beef?  A.  A widely publicized study that indicates beef consumption in creases one's cholesterol. B.  A reduction in the price of cattle feed. C.  An effective advertising campaign by pork producers. D.  A change in the incomes of beef consumers. 11 A shift to the right in the demand curve for product A can be most reasonably explained by saying that:  A.  consumer incomes have declined, and consumers now want to bu y less of A at each possible price. B.  the price of A has increased and, as a result, consumers wan t to purchase less of it. C.  consumer preferences have changed in favor of A so that they now want to buy more at each possible price. D.  the price of A has declined and, as a result, consumers want to purchase more of it. 13 Digital cameras and memory cards are:  A.  substitute goods. B.  complementary goods. C.  independent goods. D.  inferior goods. 14 A decrease in the price of digital cameras will:  A.  cause the demand curve for memory cards to become vertical. B.  shift the demand curve for memory cards to the right. C.  shift the demand curve for memory cards to the left. D.  not affect the demand for memory cards. 16 An increase in the price of product A will:  A.  reduce the demand for resources used in the production of A. B.  increase the demand for complementary product C. C.  increase the demand for substitute product B.When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes:  21D.  reduce the demand for substitute product B. 17 Which of the following would most likely increase the demand for gasoline?  A.  The expectation by consumers that gasoline prices will be hi gher in the future. B.  The expectation by consumers that gasoline prices will be lo wer in the future. C.  A widespread shift in car ownership from SUVs to hybrid seda ns. D.  A decrease in the price of public transportation. 18 A.  reduce the demand for tacos and increase the demand for soda . B.  reduce the demand for soda and increase the demand for tacos . C.  increase the demand for both soda and tacos. D.  reduce the demand for both soda and tacos. 19 Assume that the demand curve for product C is downsloping. If the price of C falls from $2.00 to $1.75:  A.  a smaller quantity of C will be demanded. B.  a larger quantity of C will be demanded. C.  the demand for C will increase. D.  the demand for C will decrease. 22 The supply curve shows the relationship between:  A.  price and quantity supplied. B.  production costs and the amount demanded. C.  total business revenues and quantity supplied. D.  physical inputs of resources and the resulting units of outp ut. 23 A firm's supply curve is upsloping because:  A.  the expansion of production necessitates the use of qualitat ively inferior inputs. B.  mass production economies are associated with larger levels of output. C.  consumers envision a positive relationship between price and quality. D.  beyond some point the production costs of additional units o f output will rise. 24 Increasing marginal cost of production explains:  A.  the law of demand. B.  the income effect. C.  why the supply curve is upsloping. D.  why the demand curve is downsloping. 26 A.  decrease the demand for Z. B.  increase the demand for Z. C.  have no effect on the demand for Z. D.  decrease the supply of Z. 27 Other things equal, if the price of a key resource used to pr oduce product X falls, the:  A.  product supply curve of X will shift to the right. B.  product demand curve of X will shift to the right. C.  product supply curve of X will shift to the left. D.  product supply curve of X will not shift. 28 Refer to the table. In relation to column (3), a change from column (2) to column (1) would indicate a(n):  A.  increase in demand. B.  decrease in demand. C.  increase in supply. D.  decrease in supply. 29 Refer to the table. In relation to column (3), a change from column (5) to column (4) would indicate a(n): Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to:  Suppose product X is an input in the production of product Y. P roduct Y in turn is a substitute for product Z. An increase in the price of X can be expected to:  22A.  increase in demand. B.  decrease in demand. C.  increase in supply. D.  decrease in supply. 31 Refer to the diagram. A surplus of 160 units would be encount ered if the price was:  A.  $1.10, that is, $1.60 minus $.50. B.  $1.60. C.  $1.00. D.  $0.50. 32 Refer to the diagram. A shortage of 160 units would be encoun tered if price was:  A.  $1.10, that is, $1.60 minus $.50. B.  $1.60. C.  $1.00. D.  $0.50. 34 At the point where the demand and supply curves for a product intersect:  A.  the selling price and the buying price need not be equal. B.  the market may, or may not, be in equilibrium. C.  either a shortage or a surplus of the product might exist, d epending on the degree of competition. D.  the quantity that consumers want to purchase and the amount producers choose to sell are the same. 36 If there is a shortage of product X, and the price is free to change:  A.  fewer resources will be allocated to the production of this good. B.  the price of the product will rise. C.  the price of the product will decline. D.  the supply curve will shift to the left and the demand curve to the right, eliminating the shortage. 37 There will be a surplus of a product when:  A.  price is below the equilibrium level. B.  the supply curve is downward sloping and the demand curve is upward sloping. C.  the demand and supply curves fail to intersect. D.  consumers want to buy less than producers offer for sale. 38 A.  raise their price and reduce their quantity supplied. B.  raise their price and increase their quantity supplied. C.  lower their price and reduce their quantity supplied.Camille's Creations and Julia's Jewels both sell beads in a com petitive market. If at the market price of $5 both are running out of beads to sell (they can't keep up with the quant ity demanded at that price), then we would expect both Camille's and Julia's to:  23D.  lower their price and increase their quantity supplied. 39 Productive efficiency refers to:  A.  the use of the least-cost method of production. B.  the production of the product mix most wanted by society. C.  the full employment of all available resources. D.  production at some point inside of the production possibilit ies curve. 41 Which of the following will cause a decrease in market equili brium price and an increase in equilibrium quantity?  A.  An increase in supply. B.  An increase in demand. C.  A decrease in supply. D.  A decrease in demand. 42 Suppose that in each of four successive years producers sell more of their product and at lower prices. This could be explai ned:  A.  by small annual increases in supply accompanied by large ann ual increases in demand. B.  in terms of a stable supply curve and increasing demand. C.  in terms of a stable demand curve and increasing supply. D.  as an exception to the law of supply. 44 If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium:  A.  price must rise, but equilibrium quantity may rise, fall, or remain unchanged. B.  price must rise and equilibrium quantity must fall. C.  price and equilibrium quantity must both increase. D.  price and equilibrium quantity must both decline. 46 Refer to the given information. An increase in the prices of re sources used to produce X will:  A.  increase S, increase P, and increase Q. B.  increase D, increase P, and increase Q. C.  decrease S, decrease P, and decrease Q. D.  decrease S, increase P, and decrease Q. 47 Refer to the given information. An improvement in the technolog y used to produce X will:  A.  decrease S, increase P, and decrease Q. B.  decrease S, increase P, and increase Q. C.  increase S, decrease P, and increase Q. D.  decrease D, decrease P, and decrease Q. 48 Refer to the given information. A reduction in the number of fi rms producing X will:  A.  increase D, increase P, and increase Q. B.  increase S, decrease P, and increase Q. C.  decrease S, increase P, and decrease Q. D.  decrease S, decrease P, and increase Q. 49 Which of the diagrams illustrates the effect of an increase i n automobile worker wages on the market for automobiles? In the following question you are asked to determine, other thi ngs equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand ( D) for, or supply ( S) of, X; (2) the equilibrium price ( P) of X; and (3) the equilibrium quantity ( Q) of X. In the following question you are asked to determine, other thi ngs equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand ( D) for, or supply ( S) of, X; (2) the equilibrium price ( P) of X; and (3) the equilibrium quantity ( Q) of X. In the following question you are asked to determine, other thi ngs equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand ( D) for, or supply ( S) of, X; (2) the equilibrium price ( P) of X; and (3) the equilibrium quantity ( Q) of X. 24A.  A only. B.  B only. C.  C only. D.  D only. 52 Refer to the given information. The equilibrium price for X is:   A.  $2.00 B.  $4.00 C.  $6.00 D.  $7.00 53 Refer to the given information. If demand changed from P = 10 - .2 Q to P = 7 - .3Q, we can conclude that:  A.  demand has increased. B.  demand has decreased. C.  supply will increase. D.  supply will decrease. 54 Refer to the given information. If demand changed from P = 10 - .2 Q to P = 7 - .3Q, the new equilibrium quantity is:  A.  10 B.  20 C.  15 D.  30 56 In this market, economists would call a government-set maximu m price of $40 a:  A.  price ceiling. B.  price floor. C.  equilibrium price. D.  fair price. 57 If government set a minimum price of $50 in the market, a:  A.  shortage of 21 units would occur. B.  shortage of 125 units would occur. C.  surplus of 21 units would occur. D.  surplus of 125 units would occur. 58 An effective ceiling price will:  A.  induce new firms to enter the industry. B.  result in a product surplus. C.  result in a product shortage. D.  clear the market. 59 An effective price floor will:  A.  force some firms in this industry to go out of business. B.  result in a product surplus. C.  result in a product shortage. D.  clear the market. 61 (Consider This) Ticket scalping: (Advanced analysis) Answer the question on the basis of the fol lowing information. The demand for commodity X is represented by the equation P = 10 - 0.2 Q and supply by the equation P = 2 + 0.2 Q. (Advanced analysis) Answer the question on the basis of the fol lowing information. The demand for commodity X is represented by the equation P = 10 - 0.2 Q and supply by the equation P = 2 + 0.2 Q. (Advanced analysis) Answer the question on the basis of the fol lowing information. The demand for commodity X is represented by the equation P = 10 - 0.2 Q and supply by the equation P = 2 + 0.2 Q. 25