Economics Quiz

Question 1 Complete Mark 2.00 out of 2.00 Flag que question stion Question text If trade between nations is prohibited, Select one: a. nations can refine their ability to allocate resources and therefore raise consumption. b. nations will more easily achieve specialization in production and end up consuming more. c. nations will be unable to specialize in what they are good at and therefore end up consuming less. Correct. The activities and behaviors of specialization and efficiency of resources help create increased productivity that elevates nations’ economic welfare. d. nations can increase their public welfare. Question 2 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Society gains advantages through trade because of its ability to Select one: a. generalize resources to the uses where opportunity cost is maximized. b. attain absolute advantage in our trade with other nations. c. align output to reflect society’s preferences. d. specialize resources to the uses where opportunity cost is minimized. Correct. The ability to specialize in producing goods where there is a lower opportunity cost which will increase their economic welfare. Question 3 Complete Mark 0.00 out of 2.00 Flag que question stion Question text The ________ shows the interaction between household and firms in the goods and services market as well as in the labor market. This simplifies a complex economy, enabling economists to better observe and understand behavior. Select one: a. the production possibilities graph Incorrect. This is a curve showing all the possible production outcomes for two goods given a set of fixed resources. b. the supply & demand framework c. the consumption possibilities graph d. the circular flow diagram Question 4 Complete Mark 2.00 out of 2.00 Flag que question stion Question text The town of Franklin has an economy composed entirely of two equally sized specialized tire manufacturers. Both company X and company Z produce race car tires and airplane tires. Company X is better at producing race car tires than Company Z which is better at producing airplane tires. In order to maximize output, Company X should Select one: a. abandon the production of airplane tires to fully specialize in the production of race car tires and then trade with Company Z for airplane tires. Correct. Choosing to specialize will decrease both companies opportunity costs and increase production of their respective tires. b. produce both race car tires and airplane tires on its own and sell its excess race car tires to Company Z for additional airplane tires. c. reduce its production of race car tires in order to commit resources to learn how to better produce airplane tires. d. keep producing both products at the going rate. Question 5 Complete Mark 2.00 out of 2.00 Flag que question stion Question text What are the factors of production? Select one: a. land, labor, opportunity b. knowledge and intellectual resources c. land, economic capital, labor, entrepreneurship Correct. These are the production inputs used to create goods and services. d. money, resources, labor, management Question 6 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Because of ________ if a city government decides to spend money on beautifying its downtown and attracting tourism to its city when no money has been devoted to those efforts before, then gains in tourism may be significant. Select one: a. beautification being a relatively low expense b. the production possibility frontier. c. the law of diminishing returns Correct. When adding one unit of resource, the gains in production are greater when you have low existing production. As you add more and more resources, the gains in production start to decline. d. the opportunity cost of the production possibility tradeoff Question 7 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Indi and Indrani are sisters who own a software development company. Demand has been increasing for their products and services and the sisters are contemplating whether to open up a satellite office in Austin. They estimate it would add $7 million in expenses and a profit of $12.5 million in total over the next 5 years (all other things equal). Indi and Indrani decide Select one: a. to open an Austin office because the marginal cost of the new office is low compared to other similar projects. b. to not open a new office because revenue would not be as high as competitors c. to not open a new office because the marginal costs proved to be too high. d. to open a new office because the expected marginal benefit ($12.5 million over 5 years) is greater than the estimated marginal cost ($7 million). Correct. Comparing marginal cost to benefits is a rational way to make decisions. Question 8 Complete Mark 2.00 out of 2.00 Flag que question stion Question text The production possibilities model illustrates an inverse relationship between two goods or services because Select one: a. production of different types will compete for limited resources. Correct. As you need more resources to produce more of product A, automatically you will have less to produce product B. Therefore, if the production of product A rise, then the production of product B has to fall. b. some goods are more difficult to produce that others. c. the opportunity cost of producing more of something will rise. d. of diminishing returns. Question 9 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Which of the following statements is normative? Select one: a. Tax breaks can change corporate behavior. b. Congress gives certain business corporations tax breaks. c. Congress gives too many tax breaks to corporations. Correct. This statement reflects opinion rather than plain facts. d. Tax breaks can lead to additional production. Question 10 Complete Mark 0.00 out of 2.00 Flag que question stion Question text Which of the following statements reflects marginal decision-making? Select one: a. Booking this condo in a better location is worth the extra $100. b. The total cost of the program is equal to the total benefits. Incorrect. Marginal decision making considers marginal cost and benefit, not total cost and benefits c. Staying in this rental cottage longer would be nice, but the cottage next door is more attractive. d. If we double the order to a dozen doughnuts, we will pay only 20 percent more. Question 11 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Lian is a production analyst at the cardboard box manufacturer Flexpac. Last year, because of an increase in online shopping, shipping companies have increased the use of boxes for shipping. Management has charged Lian with generating a supply curve graph to illustrate the rise in price and supply of their boxes. These are the figures Lian discovered and put in a table. If you were assisting Lian, what steps would you tell her to take next? Price ($) Quantity Supplied $100 100 $125 150 $150 200 $175 250 $200 280 $225 310 $250 350 Select one: a. Plot these points on a graph with graph sloping down to the right quantity supplied on the y-axis and price on the x-axis. b. Plot these points as a demand curve graph sloping down to the right with price on the y-axis and quantity supplied on the x-axis. c. Plot these points on a graph with graph sloping up to the right quantity supplied on the y-axis and price on the x-axis. d. Plot these points on a graph sloping up to the right with price on the y-axis and quantity supplied on the x-axis. Correct. This graph would match the information given above. Question 12 Complete Mark 2.00 out of 2.00 Flag que question stion Question text The downward slope of a demand curve illustrates the pattern that as ________ decreases, ________ increases. Select one: a. quantity supplied; quantity demanded b. price; quantity demanded Correct. The demand curve is the graphical representation of the inverse relationship between price and quantity demanded. c. price; quantity supplied d. supply, demand Question 13 Complete Mark 0.00 out of 2.00 Flag que question stion Question text Two common ways to discourage tobacco use are taxes on tobacco and information campaigns on the hazards of tobacco use. Which one causes a shift in the demand curve for smoking? Select one: a. Both cause a decrease in demand. b. Information campaign on hazards of tobacco. c. Tax on tobacco products that drives up its price. Incorrect. A tax on tobacco that changes the price does not change the entire demand d. None cause a change in the demand curve Question 14 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Which of the following will cause the supply curve to shift to the right? Select one: a. an increase in the number of consumers in the market. b. lower product taxes Correct. Lower product taxes would shift the supply to the right. c. an increase in input prices d. poor natural conditions for production Question 15 Complete Mark 2.00 out of 2.00 Flag que question stion Question text You are given this demand schedule for new boats. Which of the following demand curves accurately represents the demand schedule and has proper formatting? The demand schedule for new boats: Price ($) Quantity Demanded $500 5500 $1000 5000 $1500 4500 $2000 3500 $2500 3000 $3000 2000 $3500 1000 $4000 150 Select one: a. b. Correct. This graph has the proper data, variables and display. c. Question 16 Complete Mark 0.00 out of 2.00 Flag que question stion Question text Refer to the figure below. If the government set a price floor of $30, there would be Select one: a. excess supply of 12 units. b. Shortage of 8 units. Incorrect. Check the difference between the quantity demanded and supplied at the price of $30. c. excess supply of 16 units. d. zero excess supply. Question 17 Complete Mark 0.00 out of 2.00 Flag que question stion Question text Suppose, in the graph below, there is a price ceiling of $5. Then there is a shortage of Select one: a. 2 units. b. 6 units. c. 1 unit. Incorrect. Check the difference between the quantity demanded at a price of $5 and the quantity supplied at that same price of $5. d. 3 units. Question 18 Complete Mark 0.00 out of 2.00 Flag que question stion Question text The local government is concerned about poverty so it institutes a minimum wage of $9 per hour. If the demand and supply for labor are given in the graph, there will be Select one: a. a surplus of 6 workers. b. a surplus of 3 workers. Incorrect. A surplus/shortage is the difference between Qd and Qs at the current price of $9, not the difference between the equilibrium quantity and the quantity demanded at $9. c. A shortage of 3 workers. d. a shortage of 6 workers. Question 19 Complete Mark 0.00 out of 2.00 Flag que question stion Question text What is total surplus area from the figure below? Select one: a. $105 b. $420 Incorrect. The sum of producer and consumer surplus make the total or social surplus or the area below the demand curve and above the supply curve. c. $210 d. $180 Question 20 Complete Mark 0.00 out of 2.00 Flag que question stion Question text Which of the following represents producer surplus? Select one: a. A. b. B+A Incorrect. This area represents total or social surplus. c. B d. B-A Question 21 Complete Mark 0.00 out of 2.00 Flag que question stion Question text The electric power company in a city increased its prices by 15% this year. Since the demand for electricity is a ________ demand in the short run, the equilibrium price will ________. Select one: a. inelastic; greatly increase b. inelastic; increase c. elastic; decrease d. inelastic; decrease Incorrect. An increase in price does not affect quantity demanded, but the decrease in associated with elastic demand. Question 22 Complete Mark 2.00 out of 2.00 Flag que question stion Question text When a 10% increase in income causes a 4% increase in quantity demanded of a good Select one: a. the price elasticity of demand is .4 and the good is an inferior good. b. the income elasticity is .4 and the good is a normal good. Correct. The income elasticity formula is the %∆ in quantity demanded divided by the %∆ in income and when these move in the same direction it is a normal good. c. the income elasticity is 2.5 and the good is a normal good. d. the income elasticity is -2.5 and the good is a inferior good. Question 23 Complete Mark 2.00 out of 2.00 Flag que question stion Question text When the demand for a product does not fluctuate when there is a change in price, the good is ________. Select one: a. unitarian b. perfectly elastic c. perfectly inelastic Correct. This means that quantity demanded or supplied is unaffected by any change in price so the quantity is essentially fixed. d. elastic Question 24 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Which product would have the quantity demanded decrease the most (be the most elastic) to a price increase? Select one: a. organic whole chicken Correct. This is considered a luxury item without many substitutes and therefore would be sensitive to price. b. non-organic whole chicken c. non-organic milk d. non-organic chicken thighs Question 25 Complete Mark 2.00 out of 2.00 Flag que question stion Question text You read an article stating that HTC’s latest cell phone price has increased from $450 to $550. At the same time the quantity demanded for the Samsung Galaxy 7s increases from 1000 to 1850. Calculate the cross price elasticity of demand using the midpoint method. Are these two cell phones complements or substitutes? Select one: a. The cross-price elasticity of demand is 2.98 and they are substitutes. Correct. The cross-price elasticity of demand formula is Exy=%∆ in Qd Good A/%∆ in Qd Good B and if it is positive then they are substitute goods. b. The cross-price elasticity of demand is -2.98 and they are compliments. c. The cross-price elasticity of demand is -.33 and they are substitutes. d. The cross-price elasticity of demand is .33 and they are substitutes. Question 26 Complete Mark 2.00 out of 2.00 Flag que question stion Question text A budget line for Ralph shows his consumption choices between hot dogs (on the vertical axis) and hamburgers (on the horizontal axis). If the price of hamburgers goes up, it Select one: a. will have no impact on the budget line since Ralph can substitute hot dogs for hamburgers b. reduces Ralph’s ability to buy both hot dogs and hamburgers. His budget line therefore makes a parallel shift inward. c. has no effect on Ralph’s ability to buy hot dogs but decreases the number of hamburgers he can buy. His budget line therefore rotates outward as if on a hinge from the vertical axis. d. has no effect on Ralph’s ability to buy hot dogs but decreases the number of hamburgers he can buy. His budget line therefore rotates inward as if on a hinge from the vertical axis. Correct. Ralph will be able to buy the same amount of hot dogs, but less hamburgers due to the increase in price. His budget line will rotate inward showing the consumption of less hamburgers along the horizontal axis. Question 27 Complete Mark 2.00 out of 2.00 Flag que question stion Question text As the consumption of a good increases, what happens to utility? Select one: a. Increased consumption increases marginal utility. b. Increased consumption lowers marginal utility, but may raise total utility. Correct. The law of diminishing marginal utility holds that increased consumption decreases marginal utility, but may still increase total utility. c. Increased consumption lowers total utility. d. Increased consumption lowers marginal utility and, therefore, total utility. Question 28 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Why do most demand curves have a negative slope? Select one: a. Because the income effect causes consumers to reduce consumption of a commodity when income falls because an increase in price reduces real income. b. Because as prices increase firms will supply more goods to the market. c. Because consumers try to substitute away from the consumption for a commodity when the commodity’s price rises because of the substitution effect. Correct. The substitution effect occurs when a price changes and consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price. d. Because consumers substitute higher quality goods for lower quality goods because of the substitution effect. Question 29 Complete Mark 2.00 out of 2.00 Flag que question stion Question text A new technological breakthrough increases production for an industry and shifts the supply curve to the right. If the firm ________, then the firm will likely be happy about this new technology. Select one: a. produces products because the consumer will buy less b. produces products that are considered elastic Correct. The shift will move the price down which will increase total revenue. c. produces products that are considered inelastic d. decreases production Question 30 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Analyze the following diagram: Demand "B" represents a demand curve that is Select one: a. relatively elastic. Correct. This means small changes in price will cause large changes in quantity consumed. This is represented by a flatter downwardly sloping curve. b. perfectly elastic. c. perfectly inelastic. d. relatively inelastic Question 31 Complete Mark 2.00 out of 2.00 Flag que question stion Question text According to the following cost information, marginal cost and average total cost are equal when the firm produces ________. Quantity produced/day Total Cost 0 $100 1 $150 2 $195 3 $225 4 $275 5 $375 6 $450 Select one: a. 6 units Correct. ATC = $450/6 = $75 = MC = $450-375 b. 1 unit. c. 5 units. d. 3 units. Question 32 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Suppose that a firm produces 10 units of output. Its average variable cost (AVC) = $25, average fixed cost (AFC) = $5, and marginal cost (MC) = $30. The firm's total cost is ________. Select one: a. $300 Correct. Total cost = ($25 + 5 ) x 10 units b. $250 c. $30 d. $330 Question 33 Complete Mark 2.00 out of 2.00 Flag que question stion Question text The term ________ is used to describe the additional cost of producing one more unit. Select one: a. average cost. b. fixed cost c. marginal cost Correct. Marginal cost describes the additional cost of producing one more unit. d. variable cost. Question 34 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Which of the curves in the following graph is the marginal cost curve? Select one: a. Cannot be determined with the available information. b. A Correct. The marginal cost curve starts below the other curves and has a steeper slope in the end. c. C d. B Question 35 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Which of the following is most likely to be a fixed cost? Select one: a. shipping charges b. expenditure for raw materials c. wages paid to an unskilled labor d. mortgage payments Correct. Mortgage payments would not increase as production increases. Question 36 Complete Mark 2.00 out of 2.00 Flag que question stion Question text A perfectly competitive firm should NOT shut down immediately as long as the price is Select one: a. lower than the break-even point. b. lower than the average total cost. c. higher than the average variable cost. Correct. If the price is higher than the average variable cost, then the firm would face a greater loss if it shut down than if it kept producing. d. lower than the average variable cost. Question 37 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Firms should shutdown if they cannot cover their ________ . Select one: a. fixed cost b. variable cost Correct. If firms cannot cover their variable cost, they will face a lower loss if they shut down instead of producing. c. marginal cost d. total cost Question 38 Complete Mark 2.00 out of 2.00 Flag que question stion Question text For a perfectly competitive firm, the output level that will maximize profit will occur where ________ is equal to marginal cost. Select one: a. Variable cost b. marginal revenue Correct. The output where marginal revenue equals marginal cost is the output that will maximize profit. c. adjustable revenue d. fixed cost Question 39 Complete Mark 2.00 out of 2.00 Flag que question stion Question text If the price that a firm charges is higher than its ________ cost of production for that quantity produced, then the firm will earn profits. Select one: a. marginal b. fixed c. variable d. average Correct. To determine whether a firm is earning profit, you have to compare the market price of the product to its average cost. Question 40 Complete Mark 0.00 out of 2.00 Flag que question stion Question text Refer to the figure below. Assuming the firm chooses the level of output that maximizes profit, what is total cost at that output level? Select one: a. $264 b. $160 c. $240 Incorrect. $240 represents the total cost of producing 10 units, but 10 is not the output that will maximize profit. d. $288 Question 41 Complete Mark 2.00 out of 2.00 Flag que question stion Question text A monopolist Select one: a. Faces the entry of many new firms in the market b. produces a product with no close substitutes. Correct. A monopoly is the sole producer of a unique product protected by barriers to entry. c. uses extensive advertising. d. experiences diseconomies of scale. Question 42 Complete Mark 0.00 out of 2.00 Flag que question stion Question text According to the figure below, what is the maximum profit of this monopoly? Hint: don't forget to subtract total cost from total revenue. Select one: a. $-120 b. $240 Incorrect. Look for the profit maximizing output (MR=MC), then find the ATC at that output and the Price (based on the demand curve) at that output and use the information to calculate profit. c. $80 d. $60 Question 43 Complete Mark 2.00 out of 2.00 Flag que question stion Question text If market share for five cleaning service companies are 8%, 13%, 6%, 25%, and 48%, the four firm concentration ratio would be ________. Select one: a. 94 Correct. The four firm concentration ratio would add up the market share of the 4 largest firms:48+25+13+8% b. 49 c. 100 d. 27 Question 44 Complete Mark 0.00 out of 2.00 Flag que question stion Question text Refer to the figure below. If the firm is producing the level of output that maximizes profit, its total cost of production is ________. (Hint, after finding the profit-maximizing point, you are looking for an area created by the average total cost curve.) Select one: a. $560 b. $320 Incorrect. This number does not correspond to the correct output and average cost. Remember that the monopoly will produce where MC =MR and then find the Average cost and find total cost = Q X ATC at that output. c. $720 d. $420 Question 45 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Which of the following is a characteristic of a monopoly? Select one: a. Responds to changes in the market price. b. It faces no significant competition. Correct. A monopoly is a single seller in a market and therefore faces no significant competition. c. It is one of several suppliers in a market. d. It advertises heavily Question 46 Complete Mark 0.00 out of 2.00 Flag que question stion Question text A monopolistically competitive firm has a ________ demand curve. Select one: a. downward-sloping and inelastic b. flat and perfectly elastic Incorrect. A monopolistically competitive firm does not have a perfectly elastic demand curve because product differentiation give each competitor a little market power. c. slightly downward-sloping and somewhat elastic d. Vertical Question 47 Complete Mark 0.00 out of 2.00 Flag que question stion Question text According to a prisoner's dilemma scenario, when individuals have no way of communicating, which choice benefits each of them the most regardless of what the other does? Select one: a. Implicate another person Incorrect. That is not one of the allowed options. b. Cooperate c. stay silent d. confess Question 48 Complete Mark 0.00 out of 2.00 Flag que question stion Question text If the firm is producing at a quantity of output where marginal cost exceeds marginal revenue, then ________. Select one: a. the excess profit would attract additional competition b. the firm's perceived demand will shift to the left c. the firm should reduce production d. each marginal unit adds profit by bringing in more revenue than its cost Incorrect. If marginal revenue is less than marginal cost, each additional unit will add more cost than revenue and will reduce profit. Question 49 Complete Mark 2.00 out of 2.00 Flag que question stion Question text Using the graph below, if Q = 5, Total Cost = Select one: a. $30 Correct. At an output of 5, according to the average cost curve, the average cost is $6, so the total cost is $30 = 5 x $6. b. $6 c. $70 d. $10 Question 50 Complete Mark 2.00 out of 2.00 Flag que question stion Question text What characterizes oligopolistic markets? Select one: a. They have a small number of sellers. Correct. A market where a small number of large firms to dominate most or all of the sales would be known as an oligopoly market. b. They have a large number of sellers. c. They are considered the most efficient market structures. d. Their barriers to entry are typically lower.