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PRACTICE MULTIPLE CHOICE QUESTIONS FOR MIDTERM 1 - IITU

 

1. The adage, "There is no such thing as a free lunch," means

a. even people on welfare have to pay for food.
b. the cost of living is always increasing.
c. people face tradeoffs.
d. all costs are included in the price of a product.

2. The adage, "There is no such thing as a free lunch," is used to illustrate the principle that

a. goods are scarce.
b. people face tradeoffs.
c. income must be earned.
d. households face many decisions.

3.Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"?

a. Melissa can attend the concert only if she takes her sister with her.
b. Greg is hungry and homeless.
c. Brian must repair the tire on his bike before he can ride it to class.
d. Kendra must decide between going to Colorado or Cancun for spring break.

4. The principle that "people face tradeoffs" applies to

a. individuals.
b. families.
c. societies.
d. All of the above are correct.

5. Sophia is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that

a. people respond to incentives.
b. rational people think at the margin.
c. people face tradeoffs.
d. improvements in efficiency sometimes come at the expense of equality.

 

6. A tradeoff exists between a clean environment and a higher level of income in that

a. studies show that individuals with higher levels of income pollute less than low-income individuals.
b. efforts to reduce pollution typically are not completely successful.
c. laws that reduce pollution raise costs of production and reduce incomes.
d. employing individuals to clean up pollution causes increases in employment and income.

7. Economists use the word equality to describe a situation in which

a. each member of society has the same income.
b. each member of society has access to abundant quantities of goods and services, regardless of his or her income.
c. society is getting the maximum benefits from its scarce resources.
d. society's resources are used efficiently.

8. Efficiency means that

a. society is conserving resources in order to save them for the future.
b. society's goods and services are distributed equally among society's members.
c. society's goods and services are distributed fairly, though not necessarily equally, among society's members.
d. society is getting the maximum benefits from its scarce resources.

9. Market failure can be caused by



a. low consumer demand.
b. equilibrium prices.
c. externalities and market power.
d. high prices and foreign competition.

10. The term "market failure"

a. means the same thing as "market power."
b. refers to the dissolution of a market when firms decide to quit producing a certain product.
c. refers to the failure of a market to produce an efficient allocation of resources.
d. refers to government's failure to enforce the property rights of households or firms that participate in a certain market.

11. Production is efficient if the economy is producing at a point

a. on the production possibilities frontier.
b. outside the production possibilities frontier.
c. on or inside the production possibilities frontier.
d. inside the production possibilities frontier.

12. Unemployment would cause an economy to

a. produce inside its production possibilities frontier.
b. produce on its production possibilities frontier.
c. produce outside its production possibilities frontier.
d. experience an inward shift of its production possibilities frontier.

13. The production possibilities frontier provides an illustration of the principle that

a. trade can make everyone better off.
b. governments can sometimes improve market outcomes.
c. people face trade-offs.
d. people respond to incentives.

14. Which of the following concepts cannot be illustrated by the production possibilities frontier?

a. efficiency
b. opportunity cost
c. equality
d. trade-offs

15. When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good

a. increases as more of the good is produced.
b. decreases as more of the good is produced.
c. does not change as more of the good is produced.
d. may increase, decrease, or not change as more of the good is produced.

16. Refer to Table 2-2. What is the opportunity cost to Batterland of increasing the production of pancakes from 150 to 300?

a. 75 waffles
b. 150 waffles
c. 250 waffles
d. 325 waffles

 

 

Figure 2-3

17. Refer to Figure 2-3. At which point is this economy producing its maximum possible quantity of tubas?

a. J
b. L
c. M
d. N

18. Refer to Figure 2-3. This economy has the ability to produce at which point(s)?

a. J, K, M, N
b. K, M, N
c. K, N
d. M

 

19. Refer to Figure 2-3. This economy cannot produce at which point(s)?

a. J
b. J, L
c. J, L, M
d. L

20. Refer to Figure 2-3. Efficient production is represented by which point(s)?

a. J, K, N
b. K, M, N
c. K, N
d. L, M

21. Refer to Figure 2-3. Inefficient production is represented by which point(s)?

a. J, L
b. J, L, M
c. K, N
d. M

22. In a market economy, supply and demand determine

a. both the quantity of each good produced and the price at which it is sold.
b. the quantity of each good produced, but not the price at which it is sold.
c. the price at which each good is sold, but not the quantity of each good produced.
d. neither the quantity of each good produced nor the price at which it is sold.

23. In a market economy, supply and demand are important because they

a. play a critical role in the allocation of the economy’s scarce resources.
b. determine how much of each good gets produced.
c. can be used to predict the impact on the economy of various events and policies.
d. All of the above are correct.

24. The supply of a good or service is determined by

a. those who buy the good or service.
b. the government.
c. those who sell the good or service.
d. both those who buy and those who sell the good or service.

25. For a market for a good or service to exist,

a. there must be a group of buyers and sellers.
b. there must be a specific time and place at which the good or service is traded.
c. there must be a high degree of organization present.
d. All of the above are correct.

26. The law of demand states that, other things equal,

a. when the price of a good falls, the demand for the good rises.
b. when the price of a good rises, the quantity demanded of the good rises.
c. when the price of a good rises, the demand for the good falls.
d. when the price of a good falls, the quantity demanded of the good rises.

27. The law of demand states that, other things equal,

a. an increase in price causes quantity demanded to increase.
b. an increase in price causes quantity demanded to decrease.
c. an increase in quantity demanded causes price to increase.
d. an increase in quantity demanded causes price to decrease.

28. Which of these statements best represents the law of demand?

a. When buyers’ tastes for a good increase, they purchase more of the good.
b. When income levels increase, buyers purchase more of most goods.
c. When the price of a good decreases, buyers purchase more of the good.
d. When buyers’ demands for a good increase, the price of the good increases.

29. A downward-sloping demand curve illustrates

a. that demand decreases over time.
b. that prices fall over time.
c. the relationship between income and quantity demanded.
d. the law of demand.

30. The following table contains a demand schedule for a good.

Price Quantity Demanded
$10
$20 ?

 

If the law of demand applies to this good, then “?” could be

a. 0.
b. 100.
c. 200.
d. 400.

31. A movement upward and to the left along a demand curve is called

a. an increase in demand.
b. a decrease in demand.
c. a decrease in quantity demanded.
d. an increase in quantity demanded.

32. A movement downward and to the right along a demand curve is called

a. an increase in demand.
b. a decrease in demand.
c. a decrease in quantity demanded.
d. an increase in quantity demanded.

33. The demand curve for textbooks shifts

a. when a determinant of the demand for textbooks other than income changes.
b. when a determinant of the demand for textbooks other than the price of textbooks changes.
c. when any determinant of the demand for textbooks changes.
d. only when the number of textbook-buyers changes.

34. Which of the following is not a determinant of the demand for a particular good?

a. the prices of related goods
b. income
c. tastes
d. the prices of the inputs used to produce the good

35. If Francis experiences a decrease in his income, then we would expect Francis’s demand for

a. each good he purchases to remain unchanged.
b. normal goods to decrease.
c. luxury goods to increase.
d. inferior goods to decrease.

36. You lose your job and, as a result, you buy fewer romance novels. This shows that you consider romance novels to be a(n)

a. luxury good.
b. inferior good.
c. normal good.
d. complementary good.

37. Suppose that a decrease in the price of good X results in fewer units of good Y being sold. This implies that X and Y are

a. complementary goods.
b. normal goods.
c. inferior goods.
d. substitute goods.

38. Good X and good Y are substitutes. If the price of good Y increases, then the

a. demand for good X will decrease.
b. quantity demanded of good X will decrease.
c. demand for good X will increase.
d. quantity demanded of good X will increase.

 

Figure 4-4

Panel (a) Panel (b)

39. Refer to Figure 4-4. The graphs show the demand for cigarettes. In Panel (a), the arrows are consistent with which of the following events?

a. The price of marijuana, a complement to cigarettes, increased.
b. Mandatory health warnings were placed on cigarette packages.
c. Several foreign countries banned U.S. cigarettes in their countries.
d. A tax was placed on cigarettes.

40. Refer to Figure 4-4. The graphs show the demand for cigarettes. In Panel (a), the arrows are consistent with which of the following events?

a. Tobacco and marijuana are complements and the price of marijuana decreased.
b. Tobacco is a “gateway drug” and the price of marijuana increased.
c. The price of cigarettes increased.
d. The arrows are consistent with all of these events.

41. Refer to Figure 4-4. The graphs show the demand for cigarettes. In Panel (b), the arrows are consistent with which of the following events?

a. The price of cigarettes increased.
b. A tax was placed on cigarettes.
c. The prohibition of cigarette advertisements on television.
d. Tobacco and marijuana are complements and the price of marijuana decreased.

42. For the general population, a 10 percent increase in the price of cigarettes leads to a

a. 1 percent reduction in the quantity demanded of cigarettes.
b. 4 percent reduction in the quantity demanded of cigarettes.
c. 10 percent reduction in the quantity demanded of cigarettes.
d. 12 percent reduction in the quantity demanded of cigarettes.

43. The following table contains a supply schedule for a good.

Price Quantity Supplied
$10
$20 ?

If the law of supply applies to this good, then “?” could be

a. 0.
b. 50.
c. 100.
d. 150.

44. A supply schedule is a table that shows the relationship between

a. price and quantity supplied.
b. input costs and quantity supplied.
c. quantity demanded and quantity supplied.
d. profit and quantity supplied.

45. When the price of a good is higher than the equilibrium price,

a. a shortage will exist.
b. buyers desire to purchase more than is produced.
c. sellers desire to produce and sell more than buyers wish to purchase.
d. quantity demanded exceeds quantity supplied.

46. A surplus exists in a market if

a. there is an excess demand for the good.
b. the situation is such that the law of supply and demand would predict an increase in the price of the good from its current level.
c. the current price is above its equilibrium price.
d. quantity demanded exceeds quantity supplied.

47. If a surplus exists in a market, then we know that the actual price is

a. above the equilibrium price and quantity supplied is greater than quantity demanded.
b. above the equilibrium price and quantity demanded is greater than quantity supplied.
c. below the equilibrium price and quantity demanded is greater than quantity supplied.
d. below the equilibrium price and quantity supplied is greater than quantity demanded.

48. If, at the current price, there is a surplus of a good, then

a. sellers are producing more than buyers wish to buy.
b. the market must be in equilibrium.
c. the price is below the equilibrium price.
d. quantity demanded equals quantity supplied.

49. Which of the following would cause price to decrease?

a. a decrease in supply
b. an increase in demand
c. a surplus of the good
d. a shortage of the good

50. You have been asked by your economics professor to graph the market for lumber and then to analyze the change that would occur in equilibrium price as a result of recent forest fires in the west. Your first step would be to

a. decide which direction to shift the curve.
b. decide whether the fires affected demand or supply.
c. graph the shift to see the effect on equilibrium.
d. None of the above are correct.

Table 4-5

Price Quantity Demanded Quantity Supplied
$10
$8
$6
$4
$2

 

51. Refer to Table 4-5. The equilibrium price and quantity, respectively, are

a. $2 and 50.
b. $6 and 30.
c. $6 and 60.
d. $12 and 30.

52. Refer to Table 4-5. If the price were $8, a

a. shortage of 20 units would exist and price would tend to rise.
b. surplus of 25 units would exist and price would tend to fall.
c. shortage of 25 units would exist and price would tend to rise.
d. surplus of 45 units would exist and price would tend to fall.

53. Refer to Table 4-5. If the price were $4, a

a. surplus of 15 units would exist and price would tend to fall.
b. shortage of 25 units would exist and price would tend to rise.
c. surplus of 25 units would exist and price would tend to fall.
d. shortage of 40 units would exist and price would tend to rise.

 

Figure 4-8

54. Refer to Figure 4-8. Equilibrium price and quantity are, respectively,

a. $15 and 200.
b. $25 and 600.
c. $25 and 400.
d. $35 and 200.

55. Refer to Figure 4-8. At the equilibrium price,

a. 200 units would be supplied and demanded.
b. 400 units would be supplied and demanded.
c. 600 units would be supplied and demanded.
d. 600 units would be supplied, but only 200 would be demanded.

56. Refer to Figure 4-8. At a price of $35,

a. there would be a shortage of 400 units.
b. there would be a surplus of 200 units.
c. there would be a surplus of 400 units.
d. there would be a surplus of 600 units.

57. The price elasticity of demand measures how much

a. quantity demanded responds to a change in price.
b. quantity demanded responds to a change in income.
c. price responds to a change in demand.
d. demand responds to a change in supply.

58. The price elasticity of demand measures

a. buyers’ responsiveness to a change in the price of a good.
b. the extent to which demand increases as additional buyers enter the market.
c. how much more of a good consumers will demand when incomes rise.
d. the movement along a supply curve when there is a change in demand.

59. The price elasticity of demand for a good measures the willingness of

a. consumers to buy less of the good as price rises.
b. consumers to avoid monopolistic markets in favor of competitive markets.
c. firms to produce more of a good as price rises.
d. firms to cater to the tastes of consumers.

60. There are very few, if any, good substitutes for motor oil. Therefore,

a. the demand for motor oil would tend to be inelastic.
b. the demand for motor oil would tend to be elastic.
c. the demand for motor oil would tend to respond strongly to changes in prices of other goods.
d. the supply of motor oil would tend to respond strongly to changes in people’s tastes for large cars relative to their tastes for small cars.

61. Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because

a. buyers tend to be much less sensitive to a change in price when given more time to react.
b. buyers tend to be much more sensitive to a change in price when given more time to react.
c. buyers will have substantially more real income over a ten-year period.
d. the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.

62. Which of the following is not a determinant of the price elasticity of demand for a good?

a. the time horizon
b. the steepness or flatness of the supply curve for the good
c. the definition of the market for the good
d. the availability of substitutes for the good

63. The greater the price elasticity of demand, the

a. more likely the product is a necessity.
b. smaller the responsiveness of quantity demanded to a change in price.
c. greater the percentage change in price over the percentage change in quantity demanded.
d. greater the responsiveness of quantity demanded to a change in price.

64. The value of the price elasticity of demand for a good will be relatively large when

a. there are no good substitutes available for the good.
b. the time period in question is relatively short.
c. the good is a luxury as opposed to a necessity.
d. All of the above are correct.

65. If the price elasticity of demand for a good is 10.0, then a 4 percent increase in price results in a

a. 0.4 percent decrease in the quantity demanded.
b. 2.5 percent decrease in the quantity demanded.
c. 4 percent decrease in the quantity demanded.
d. 40 percent decrease in the quantity demanded.

66. If the price elasticity of demand for a good is 0.4, then a 10 percent increase in price results in a

a. 0.4 percent decrease in the quantity demanded.
b. 2.5 percent decrease in the quantity demanded.
c. 4 percent decrease in the quantity demanded.
d. 40 percent decrease in the quantity demanded.

67. If the price elasticity of demand for a good is 0.25, then a 20 percent decrease in price results in a

a. 0.0125 percent increase in the quantity demanded.
b. 4 percent increase in the quantity demanded.
c. 5 percent increase in the quantity demanded.
d. 80 percent increase in the quantity demanded.

68. If the price elasticity of demand for a good is 1.5, then a 3 percent decrease in price results in a

a. 0.5 percent increase in the quantity demanded.
b. 2 percent increase in the quantity demanded.
c. 4.5 percent increase in the quantity demanded.
d. 5 percent increase in the quantity demanded.

69. If the price elasticity of demand for a good is 0.8, then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded?

a. a 0.2 percent increase in the price of the good
b. a 3.2 percent increase in the price of the good
c. a 4.8 percent increase in the price of the good
d. a 5 percent increase in the price of the good

70. The flatter the demand curve through a given point, the

a. greater the price elasticity of demand at that point.
b. smaller the price elasticity of demand at that point.
c. closer the price elasticity of demand will be to the slope of the curve.
d. greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand curve.

71. The smaller the price elasticity of demand, the

a. steeper the demand curve will be through a given point.
b. flatter the demand curve will be through a given point.
c. more strongly buyers respond to a change in price between any two prices P1 and P2.
d. smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.

Figure 5-1

72. Refer to Figure 5-1. The demand curve representing the demand for a luxury good with several close substitutes is

a. A.
b. B.
c. C.
d. D.

73. Refer to Figure 5-1. Atog says he would buy one cup of coffee per day regardless of the price. If this is true, then Atog's demand for coffee is represented by demand curve

a. A.
b. B.
c. C.
d. D.

Figure 5-2

74. Suppose that quantity demand rises by 10% as a result of a 15% decrease in price. The price elasticity of demand for this good is

a. inelastic and equal to 0.67.
b. elastic and equal to 0.67.
c. inelastic and equal to 1.50.
d. elastic and equal to 1.50.

75. Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

a. inelastic and equal to 6.
b. elastic and equal to 6.
c. inelastic and equal to 0.17.
d. elastic and equal to 0.17.

 

Table 5-2

The following table shows a portion of the demand schedule for a particular good at various levels of income.

 

Price Quantity Demanded (Income = $5,000) Quantity Demanded (Income = $7,500) Quantity Demanded (Income = $10,000)
$24
$20
$16
$12
$8
$4

 

76. Refer to Table 5-2. Using the midpoint method, when income equals $7,500, what is the price elasticity of demand between $16 and $20?

a. 0.56
b. 0.75
c. 1.33
d. 1.80

77. Refer to Table 5-2. Using the midpoint method, when income equals $5,000, what is the price elasticity of demand between $8 and $12?

a. 0.56
b. 0.75
c. 1.33
d. 1.80

78. Refer to Table 5-2. Using the midpoint method, at a price of $16, what is the income elasticity of demand when income rises from $5,000 to $10,000?

a. 0.00
b. 0.50
c. 1.00
d. 1.50

79. Refer to Table 5-2. Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $7,500 to $10,000?

a. 0.00
b. 0.41
c. 1.00
d. 2.45

80. Refer to Table 5-2. Using the midpoint method, at a price of $12, what is the income elasticity of demand when income rises from $5,000 to $10,000?

a. 0.00
b. 0.41
c. 1.00
d. 2.45

 

 


Date: 2015-12-11; view: 2004


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