1. A point on a nation’s production-possibilities curve represents:
A) Combinations of production that are unattainable, given current technology and resources
B) The full employment of resources to achieve a particular combination of goods and services
C) Levels of production that will cause both unemployment and inflation
D) An undesirable combination of goods and services
2. Opportunity cost may be defined as the:
A) Dollar cost of producing a particular product
B) Dollar prices paid for final goods and services
C) Difference between wholesale and retail prices
D) Goods or services that are forgone in order to obtain something else
3. Factors of production are:
A) Unlimited in quantity
B) Scarce only in United States
C) Scarce only in the poorest countries of the world
D) Scarce in every society
4. Given that resources are scarce:
A) Poor countries must make choices but rich countries with abundant resources do not have to make choices.
B) Opportunity costs are experienced whenever choices are made.
C) Some choices involve opportunity costs while other choices do not.
D) A “free lunch” is possible, but only for a limited number of people.
5. A consequence of the economic problem of scarcity is that:
A) There is never too much of any good or service produced.
B) The production-possibilities curve is bowed outward.
C) The production of goods and services must be controlled by the government.
D) Choices have to be made about how resources are used.
6. If an economy experiences increasing opportunity costs with respect to two goods, then the production-possibilities curve between the two goods will be:
A) A straight, downward-sloping line
B) Bowed inward
C) Bowed outward until the two goods are equal, and then bowed inward
D) Bowed outward
7. An increase in the capacity to produce can be represented by a movement from point:
A) A to point C
B) A to point B
C) D to point E
D) C to point E
8. Which of the following is true about the combination of plasma televisions and MP3 players represented by point F?
A) This economy will never be able to reach point F.C) Point F is attainable if this economy reduces its unemployment rate.
D) Point F will be more easily attainable if the government takes control of all privately-run factories.
9. A movement from point C to point A results in:
A) More efficient production
B) A reallocation of resources from MP3 player production to plasma television production
C) A reallocation of resources from plasma television production to MP3 player production
D) Permanent unemployment of workers producing plasma televisions
10. A shift of the production-possibilities curve from PP1 to PP2 could be caused by:
A) An increase in the unemployment rate
C) Tougher pollution controls for the producers of plasma televisions and MP3 players
D) Better use of existing technology
11. A market is said to be in equilibrium when:
A) The buying intentions of all consumers are realized.
B) The supply intentions of all sellers are realized.
C) The quantity demanded equals the quantity supplied.
D) Demand is fully satisfied at all alternative prices.
12. the most desirable rate of output for a firm is the output that:
A) Minimizes marginal costs.
B) Maximizes total profit
C) Maximizes total revenue.
D) Minimizes total costs
13. Accounting costs and economic costs differ because:
A) Economic costs include implicit costs and accounting costs do not.
B) Economic costs include explicit costs and accounting costs do not.
C) Accounting costs include implicit costs and economic costs do not.
D) Accounting costs include explicit costs and economic costs do not.
14. Which of the following determinants of demand is most directly an indication of a consumer’s utility for a good?
B) Expectations of future prices
D) Other goods (availability and prices)
15. A U-shaped average total cost curve implies:
A) A linear total cost curve
B) First, diminishing returns, and then, increasing returns
C) That total costs are at a minimum at the minimum of the average cost curve
D) First, marginal cost below average total cost, and then marginal cost above average total cost
16. In the short run, when a firm produces zero output, variable cost equals:
A) Total cost
B) Fixed cost
D) Marginal cost
17. If there is a surplus at a given price, then:
A) The price is zero.
B) That price is lower than the equilibrium price.
C) That price is greater than the equilibrium price.
D) The market is in equilibrium at that price.
18. Economies of scale:
A) Exist in both the short run and the long run
B) Explain why average total costs decline as output increases in the long run
C) Explain why average variable and average total costs decline in the short run
D) Explain why average total costs increase as output increases in the long run
19. If Carmen’s Coffee Company wants to increase total revenue and the price elasticity of demand is 0.43, the company should:
A) Keep the price constant since a price increase or decrease will cause total revenue to fall.
B) Decrease the price of coffee.
C) Advertise since this is only option that will increase total revenue.
D) Increase the price of coffee.
20. When Claudia goes to the gas station she buys 10 gallons of gas no matter what the price per gallon. What does this imply about her price elasticity of demand for gasoline?
A) It is unitary.
B) It is perfectly elastic.
C) It is perfectly inelastic.
D) It is relatively elastic.
21. Total utility is maximized when:
A) Marginal utility is zero.
B) Price is less than marginal utility.
C) Price is equal to marginal utility.
D) Marginal utility is maximized.
22. When the size of a factory (and all its associated inputs) doubles and, as a result, output more than doubles:
A) The law of diminishing returns must not apply in the smaller factory.
B) The short-run ATC curve must be declining.
C) Economies of scale must exist.
D) Marginal costs must be declining.
23. The additional pleasure or satisfaction from a good declines as more of it is consumed in a given period. This is the definition of the:
A) Total revenue rule
B) Law of diminishing total utility
C) Law of diminishing marginal utility
D) Law of demand
24. In the short run, when a firm produces zero output, total cost equals:
B) Variable costs
C) Fixed costs
D) Marginal costs
25. Assume a series of forest fires reduces the supply of lumber, which is an input in the production of wooden bats. Baseballs and wooden bats are complements. If the price of wooden bats increases, we can expect the:
A) Supply of baseballs to increase
B) Supply of baseballs to decrease
C) Demand for baseballs to decrease
D) Demand for baseballs to increase
26. Suppose a university raises its tuition by 6% and as a result the enrollment of students decreases by 3%. The absolute value of the price elasticity of demand is:
27. Maximum total revenue occurs when:
A) Price multiplied by quantity is 1.0.
B) The absolute value of the price elasticity of demand is 1.0.
C) Total revenue is -1.0.
D) The absolute value of the price elasticity of demand is 100.
28. Marginal physical product is the:
A) Change in total input required to produce one additional unit of output
B) Change in total output associated with one additional unit of the variable input
C) Number of units of output obtained from all units of input employed
D) Additional cost of an additional unit of output
29. The equilibrium price in a market is found where:
A) The market supply curve intersects the y-axis.
B) The market supply curve intersects the market demand curve.
C) The market demand curve intersects the y-axis.
D) The market supply curve intersects the x-axis.
30. When the percentage change in quantity demanded is less than the percentage change in price, ceteris paribus:
A) Elasticity is impossible to calculate.
B) Demand is elastic.
C) Demand is inelastic.
D) Demand is unitary elastic.
31. Economies of scale are reductions in average:
A) Total cost that result from using operations of larger size
B) Fixed cost that result from reducing the firm’s scale of operations
C) Total cost that result from declining average fixed costs
D) Fixed cost resulting from improved technology and production efficiency
32. Which of the following is the best explanation of why the law of diminishing returns does not apply in the long run?
A) In the long run, firms have enough time to find the most qualified workers.
B) In the long run, firms can increase the availability of space and equipment to keep up with the increase in variable inputs.
C) All factors of production are fixed, in the long run.
D) The MPP does not change, in the long run.
33. The term market mechanism refers to:
A) The use of market prices and sales to determine resource allocation
B) The establishment of a ceiling price in a market
C) Government laws and regulations concerning how the market should operate
D) Supply and demand curves
34. Assume that pencils and pens are substitutes. If the price of pencils rises, then we will see:
A) An increase in the supply of pens
B) A decrease in the demand for pens
C) A decrease in the supply of pens
D) An increase in the demand for pens
35. Which of the following is a determinant of supply?
A) Available technology
B) Consumers’ income
C) Suppliers’ tastes for the good they produced
D) Consumers’ desire for the good
36. A lower quantity demanded of a good reflects, ceteris paribus:
A) A higher price of the good
B) Fewer units actually purchased
C) A downward shift of the supply curve
D) Lower income
37. A shift in supply is defined as a change in:
A) Equilibrium quantity
B) Quantity supplied because of a change in price
D) Supply because of a change in a nonprice determinant
38. If there is a shortage at a given price, then:
A) That price is greater than the equilibrium price.
B) That price is less than the equilibrium price.
C) There is no equilibrium price in the market.
D) That price is the equilibrium price.
39. A production function shows the:
A) Minimum amount of output that can be obtained from alternative combinations of inputs
B) Maximum quantity of inputs required to produce a given quantity of output
C) Maximum output that can be produced with varying combinations of factor inputs
D) Output capacity of the entire economy
40. If the marginal cost curve is rising, then which of the following must be true?
A) The average total cost curve must be above the marginal cost curve.
B) Total costs must be rising.
C) The average total cost curve must be below the marginal cost curve.
D) The average total cost curve must be rising.
41. Jose goes to an all-you-can-eat buffet at a Chinese restaurant and consumes three plates of food. He does not go back for a fourth plate of food because:
A) His total utility would increase with the fourth plate of food.
B) He has reached the point of increasing marginal utility.
C) The price of the fourth plate is too high.
D) The marginal utility of the fourth plate would be zero or even negative.
42. Marginal cost:
A) Falls whenever marginal physical product decreases
B) Rises whenever marginal revenue product rises
C) Falls in the short run because some resources are fixed
D) Rises as a direct result of diminishing returns
43. Which determinant of demand changes in the personal computer market as more individuals become interested in “surfing the Internet”?
C) Cost of factors of production
D) Number of buyers
44. What is the marginal cost of the 120th unit of output?
45. At what output level does diminishing marginal return begin?
A) 120 units
B) 100 units
C) Only the production function will indicate when diminishing marginal returns begins.
D) 40 units
46. What is the total cost of 120 units?
47. At what output does this firm maximize technical efficiency?
A) 40 units
B) 0 units
C) 120 units
D) 100 units
48. What is the total variable cost when output is 100 units?
49. What is the average fixed cost when output is 120 units?