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1. If the demand curve for product A moves to the right, and the price of product B increases, it can be concluded that: A. A and B are substitute goods; B. A and B are complementary goods, C. A is an inferior good, and B is a superior good; D. Both goods A and B are inferior 2. If a point falls inside the production possibility curve, what does it indicate? A Resources are over utilized B Resources are under utilized C There is employment in the economy D Both (b) and (c) 3. In which type of economy do consumers and producers make their choices based on the market forces of demand and supply? (a) Open Economy (b) Controlled Economy (c) Command Economy (d) Market Economy 4. In a free market economy, when consumers increase their purchase of a goods and the level of exceeds then prices tend to rise A Demand, Supply B Supply. Demand ? Prices, Demand D Profits, Supply 5) Scarcity requires that people must A) cooperate B) compete. C) trade. D) make choices, 6. Which of the following is a microeconomic topic? A) The reasons why Kathy buys less orange juice. B) The reasons for a decline in average prices. C) The cause of why total employment may decrease. D) The effect of the government budget deficit on inflation. 7. Which of the following is NOT a factor of production? A) the water used to cool a nuclear power plant. B) the effort of farmers raising cattle. C) the wages paid to workers. D) the management skill of a small business owner. 8. When the government chooses to use resources to build a dam, these sources are no longer available to build a highway. This choice illustrates the concept of A) a market mechanism. B) macroeconomics. C) opportunity cost. D) a fallacy of composition 9. Any point on a production possibilities frontier (PPF) itself is A) efficient B) unattainable. C) inefficient. D) equitable.
Expert Solution
Answer:
1. A. A and B are substitute goods.
reason: If A and B are substitutes, then the increase in price of one good will decrease its demand. Consumers shift their preference to its substitute and therefore, the demand for the substitute increases.
2. B. Resources are under utilized.
reason: When the point is inside the PPF, it means that the economy is producing less output than it potentially can. So, resources at present are under utilized. There is unemployment.
3. D. Market economy
reason: Market economy works on the forces of demand and supply to determine price and quantity of goods and services.
4. A. Demand; supply
reason: When demand exceeds supply prices rise because it creates shortage and consumers are willing to pay higher price than the equilibrium price.
5. D. Make choices
reason: Due to scarcity, people must make choices as to what is more important and satisfy those needs and postpone the less important wants.
6. A. The reasons why Kathy buys less orange juice
reason: Microeconomics studies behavior of individuals, firms and their economic decisions.
7. C wages paid to workers
reason: factors of production are: land. labor, capital and entrepreneurship. Wages are the returns paid for labor.
8. C. opportunity cost
reason: Opportunity cost illustrates the loss of other alternatives when one alternative is chosen.
9. A. efficient
reason: every point on the PPF illustrates that the resources are employed efficiently.
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