1. The supply curve for watches
shows the supply of watches consumers are willing and able to buy at any given price.
shows the relationship between the quantity of watches firms are willing and able to supply and the quantity of watches consumers are willing and able to purchase.
shows the relationship between the price of watches and the quantity of watches supplied.
is downward sloping.
2. The three fundamental questions that any economy must address are:
What will be the prices of goods and services; how will these goods and services be produced; and who will receive them?
Who gets jobs; what wages do workers earn; and who owns what property?
How much will be saved; what will be produced; and how can these goods and services be fairly distributed?
What goods and services to produce; how will these goods and services be produced; and who receives them?
3. Which of the following statements about economic resources is true?
Economic resources are also called factors of production.
All economic resources are man-made.
Economic resources include financial capital and money.
Economic resources are used only by businesses.
4. The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino?
2/5 of a Russian tea cake
2 1/2 Russian tea cakes
Price per Bushel Quantity Demanded
(bushels) Quantity Supplied (bushels
$3 30,000 0
6 26,000 4,000
9 22,000 9,000
12 18,000 12,000
15 15,000 15,000
18 12,000 22,000
21 8,000 28,000
24 4,000 36,000
Refer to Table 3-2. The table contains information about the corn market. Use the table to answer the following questions.
a. What are the equilibrium price and quantity of corn?
b. Suppose the prevailing price is $9 per bushel. Is there a shortage or a surplus in the market?
c. What is the quantity of the shortage or surplus?
d. How many bushels will be sold if the market price is $9 per bushel?
e. If the market price is $9 per bushel, what must happen to restore equilibrium in the market?
f. At what price will suppliers be able to sell 22,000 bushels of corn?
g. Suppose the market price is $21 per bushel. Is there a shortage or a surplus in the market?
h. What is the quantity of the shortage or surplus?
i. How many bushels will be sold if the market price is $21 per bushel?
j. If the market price is $21 per bushel, what must happen to restore equilibrium in the market?
5. Marginal cost is
the difference between the lowest price a firm would have been willing to accept and the price it actually receives.
the total cost of producing one unit of a good or service.
the additional cost to a firm of producing one more unit of a good or service.
the average cost of producing a good or service.
6. Consumers are willing to purchase a product up to the point where
the marginal benefit of consuming the product is equal to the marginal cost of consuming it.
the marginal benefit of consuming a product is equal to its price.
the marginal benefit of consuming the product equals the area below the supply curve and above the market price.
the consumer surplus is equal to the producer surplus.
7. In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant?
The quantity demanded increases.
The demand curve shifts to the left.
The supply curve shifts to the right.
The demand curve shifts to the right
8. The decision about what goods and services will be produced made in a market economy is made by
consumers and firms choosing which goods and services to buy or produce.
lawmakers in the government voting on what will be produced.
workers deciding to produce only what the boss says must be produced.
producers deciding what society wants most.
consumers dictating to firms what they need most.
9. What does the ceteris paribus assumption mean?
10. Explain the difference between a normal good and an inferior good.
Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18.
Refer to Figure 4-3. What is the value of consumer surplus at a price of $18??
11. If the price of automobiles was to increase, then
the quantity demanded of gasoline would decrease.
the demand for gasoline would decrease.
the supply of gasoline would increase.
the demand for gasoline would increase.
12. If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until
the quantity demanded exceeds the quantity supplied. The market will then be in equilibrium.
quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.
quantity demanded equals quantity supplied. The equilibrium price will then be lower than the market price.
all consumers will be able to afford the product.
13. An increase in the demand for lobster due to changes in consumer tastes, accompanied by a decrease in the supply of lobster as a result bad weather reducing the number of fishermen trapping lobster, will result in
an increase in the equilibrium price of lobster; the equilibrium quantity may increase or decrease.
a decrease in the equilibrium quantity of lobster and no change in the equilibrium price.
a decrease in the equilibrium quantity of lobster; the equilibrium price may increase or decrease.
an increase in the equilibrium price of lobster and no change in the equilibrium quantity.
Refer to Figure 3-5. At a price of $15,
there would be a surplus of 4 units.
there would be a shortage of 2 units.
there would be a shortage of 4 units.
there would be a surplus of 6 units.
14. Last year, the Pottery Palace supplied 8,000 ceramic pots at $40 each. This year, the company supplied the same quantity of ceramic pots at $55 each. Based on this evidence, The Pottery Palace has experienced
an increase in the quantity supplied.
a decrease in the quantity supplied.
a decrease in supply.
an increase in supply.
15. Which of the following will shift the demand curve for a good?
a decrease in the price of a complementary good
an increase in the price of the good
a change in the technology used to produce the good
a decrease in the price of the good
16. What is the difference between positive economic analysis and normative economic analysis? Give one example each of a positive and normative economic issue or question or statement.
Economists reason that the optimal decision is to continue any activity up to the point where the
marginal cost is zero.
marginal benefit equals the marginal cost.
marginal benefit is zero.
marginal benefit is greater than the marginal cost.
17. Consider the following statements:
a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area.
b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment.
c. Firms produce more of a particular DVD when its selling price rises.
18. Which of the above statements demonstrates that economic agents respond to incentives?
a and b.
a, b, and c.
18. he economic analysis of minimum wage involves both normative and positive analysis. Consider the following consequences of a minimum wage:
a. The minimum wage law causes unemployment.
b. A minimum wage law benefits some groups and hurts others.
c. In some cities such as San Francisco and New York, it would be impossible for low-skilled workers to live in the city without minimum wage laws.
d. The gains to winners of a minimum wage law should be valued more highly than the losses to losers because the latter primarily comprises businesses.
Which of the consequences above are positive statements and which are normative statements?
Only a is a positive statement, b, c and d are normative statements.
a and c are positive statements, b and d are normative statements.
a, b, and c are positive statements and d is a normative statement.
a and b are positive statements, c and d are normative statement.
Choice Quantity of Pizzas Produced Quantity of Calzones Produced
A 48 0
B 36 15
C 24 30
D 12 45
E 0 60
Refer to Table 2-1. Assume Tomaso’s Trattoria only produces pizzas and calzones. A combination of 36 pizzas and 30 calzones would appear
outside Tomaso’s production possibilities frontier.
inside Tomaso’s production possibilities frontier.
at the horizontal intercept of Tomaso’s production possibilities frontier.
along Tomaso’s production possibilities frontier.
What is the difference between an “increase in demand” and an “increase in quantity demanded”?
There is no difference between the two terms; they both refer to a movement downward along a given demand curve.
There is no difference between the two terms; they both refer to a shift of the demand curve.
An “increase in demand” is represented by a movement along a given demand curve, while an “increase in quantity demanded” is represented by a rightward shift of the demand curve.
An “increase in demand” is represented by a rightward shift of the demand curve while an “increase in quantity demanded” is represented by a movement along a given demand curve.
19. Which of the following statements is true about scarcity?
Scarcity is not a problem for the wealthy.
Scarcity is only a problem when a country has too large a population.
Scarcity arises when there is a wide disparity in income distribution.
Scarcity refers to the situation in which unlimited wants exceed limited resources.
How are the fundamental economic decisions determined in North Korea?
The government decides because North Korea is a centrally planned economy.
Individuals, firms, and the government interact in a market to make these economic decisions.
The United Nations decides because North Korea is a developing economy.
These decisions are made by the country’s elders who have had much experience in answering these questions.
20. Suppose in Belize, the opportunity cost of producing a sailboat is 5 hang gliders. In Honduras, the opportunity cost of producing a sailboat is 8 hang gliders.
a. What is the opportunity cost of producing a hang glider for Belize?
b. What is the opportunity cost of producing a hang glider for Honduras?
c. Which country has a comparative advantage in the production of hang gliders?
d. Which country has a comparative advantage in the production of sailboats?
21. In 2004, hurricanes destroyed a large portion of Florida’s orange and grapefruit crops. In the market for citrus fruit,
the demand curve shifted to the left resulting in a decrease in the equilibrium price.
the supply curve shifted to the right resulting in an increase in the equilibrium price.
the supply curve shifted to the left resulting in an increase in the equilibrium price.
the demand curve shifted to the right resulting in an increase in the equilibrium price.
22. he production possibilities frontier model shows that
if consumers decide to buy more of a product its price will increase.
a market economy is more efficient in producing goods and services than is a centrally planned economy.
economic growth can only be achieved by free market economies.
if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.
23. All of the following are part of an economic model except
24. Over the past decade, health plans have sought to contain rising health care costs by raising premiums and encouraging the use of lower-cost generic drugs. Recently, some health insurers have implemented plans that involve lowering or eliminating co-payments on medications for chronic illnesses.
Source: Vanessa Fuhrmans, “New Tack on Copays: Cutting Them”, Wall Street Journal, Tuesday, May 8 2007, Page D1.
25. Which of the following best explains why employers and health insurers might choose to adopt this radical approach?
These health plans are trying to persuade employers and consumers to bear a greater share of rising health care costs.
Health insurers have an incentive to institute plans that promote equity.
They believe that this will give consumers incentives to take better care of their health which in turn, will enable health plans to save even more money by preventing costly health crises down the road.
Health insurers are finally recognizing that many, especially the elderly, are not getting the care they need.
26. If an increase in income leads to a decrease in the demand for popcorn, then popcorn is
an inferior good.
a neutral good.
a normal good.
27. Explain how it would be possible for the equilibrium price and equilibrium quantity to both increase in the market for motorcycles if consumer preference for motorcycles increases and the number of motorcycle manufacturers decreases.
28. The law of demand implies, holding everything else constant, that
as the price of bagels increases, the demand for bagels will decrease.
as the price of bagels increases, the demand for bagels will increase.
as the price of bagels increases, the quantity of bagels demanded will increase.
as the price of bagels increases, the quantity of bagels demanded will decrease.
29. A decrease in the equilibrium price for a product will result
when there is a decrease in demand and a decrease in the number of firms producing the product.
when there is a decrease in supply and a decrease in demand for the product.
when the quantity demanded for the product exceeds the quantity supplied.
when there is an increase in supply and a decrease in demand for the product.
30. Which of the following is a macroeconomics question?
What factors determine the price of carrots?
What determines the inflation rate?
What determines the production of DVDs?
What determines the wage of auto workers?
igure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables.
Refer to Figure 2-2. What is the opportunity cost of one pound of vegetables?
¾ pound of meat
1.2 pounds of meat
pounds of meat
12 pounds of meat
31. For each bottle of wine that Italy produces, it gives up the opportunity to make 10 pounds of cheese. France can produce 1 bottle of wine for every 25 pounds of cheese it produces. Which of the following is true about the comparative advantage between the two countries?
France has the comparative advantage in wine.
France has the comparative advantage in wine and cheese.
Italy has the comparative advantage in cheese.
Italy has the comparative advantage in wine.
32. Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul’s consumer surplus from the purchase is