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Ohio Northern University IBEC 430 BASIC ECON REVIEW QUESTIONS Chapter 1 1)Economics can best be described as the study of: how to increase the level of productive resources so there is maximum output in society

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IBEC 430

BASIC ECON REVIEW QUESTIONS

Chapter 1

1)Economics can best be described as the study of:

1. how to increase the level of productive resources so there is maximum output in society.
2. how to use productive resources to maximize income level.
3. how people, institutions, and society make choices under conditions of scarcity.
4. how business structures influence the allocation of income among firms.

The term "scarcity" in economics can refer to the fact that:
1. economic wants are limited and resources are abused.
2. even in the richest country some people go hungry.
3. no country can produce enough products to satisfy everybody's economic wants.
4. it is impossible to produce too much of any particular good or service in a market economy.

What is the economic meaning of the expression that "there is no such thing as a free lunch"?
1. It refers to "free-riders," who do not pay for the cost of a product but who receive the benefit from it.
2. It means that economic freedom is limited by the amount of income available to the consumer.
3. It means there is an opportunity cost when resources are used to provide "free" products.
4. It indicates that products only have value because people are willing to pay for them.

Which expression is another way of saying "marginal cost"?
1. total cost
2. additional cost
3. average cost
4. scarcity

Are the goods that businesses offer for "free" to consumers also free to society?
1. Yes, because the individual consumer does not have to pay for them.
2. Yes, because the marginal benefit is greater than the marginal cost.
3. No, because scarce resources were used to produce the free goods.
4. No, because society does not assign a value to free goods.

The statement that "the unemployment rate will increase as the economy moves into a recession" is an example of:
1. a normative statement.
2. a microeconomic statement.
3. marginal analysis.
4. a generalization.

A basic assumption used in most economic theories is that:
1. what is true for a part of the whole must also be true for the whole.
2. as price decreases, quantity demanded will decrease.
3. whatever goes up must come down.
4. all other things remain the same.

Macroeconomics focuses on:
1. the individual units that make up the whole of the economy.
2. studies of how individual markets and industries are organized.
3. total output and the general level of prices in the economy.
4. how a business determines how much output to produce.

Which question is an illustration of a microeconomic question?
1. Is the quantity of wine purchased in one year dependent upon the price of wine?
2. Does government spending influence the total level of employment in the economy?
3. Is the purchasing power of the dollar higher or lower today than it was in 2005?
4. Is capitalism superior to socialism?

When modeling consumer choice, the price ratio of the two products is the:
1. equilibrium exchange rate.
2. slope of the budget line.
3. point of tangency for equilibrium.
4. demand for the two products.

Assume that a consumer purchases two products and the consumer's money income increases. All other things equal, the most likely effect is:
1. an outward shift in the production possibilities curve because the consumer can now satisfy more wants.
2. an inward shift in the budget line because the consumer can now purchase less of both products.
3. an outward shift in the budget line because the consumer can now purchase more of both products.
4. no change in the consumer's buying pattern.

Refer to the above graphs. Which pairs of budget constraints represent only a decrease in the price of good A, but no change in income?

1. Graph A
2. Graph B
3. Graph C
4. Graph D

Refer to the above graphs. Pizza and beer are the only two goods Jon consumes. The price of beer is $2.00 per pitcher and pizza is $1.25 per slice. If Jon has only $10 to spend for the evening, which graph represents the set of possible combinations of beer and pizza he can consume?

1. Graph A
2. Graph B
3. Graph C
4. Graph D

Money is not considered to be an economic resource because:
1. as such it is not productive.
2. money is not a free gift of nature.
3. the terms of trade can be determined in nonmonetary terms.
4. idle money balances do not earn interest income.

The production possibilities curve represents which of the following?
1. The amount of goods attainable with variable resources
2. The maximum amount of goods attainable with variable resources
3. The maximum combinations of goods attainable with fixed resources
4. The amount of goods attainable if prices decline

The following economy produces two products.

Refer to the above table. In moving from possibility A to F, the cost of a unit of steel in terms of a unit of wheat:

1. increases.
2. decreases.
3. remains constant.
4. increases from A to B, and decreases from B to F.

The following economy produces two products.

Given the production possibilities schedule above, a combination of three tanks and 350 autos:

1. illustrates the trade-off between tanks and autos.
2. is attainable but involves the unemployment or inefficient use of some of society's resources.
3. cannot be produced by society, given its current level of resources and production technology.
4. is not attainable because this combination is not listed in the schedule.

The production possibility curve:
1. is convex to the origin.
2. is based on the law of diminishing returns.
3. is the boundary between attainable and unattainable outputs.
4. reflects the mixed economy found with most economic systems.

Consider a society that is producing inside its production possibilities frontier. This society could best achieve efficiency in its production of output by:
1. distributing incomes more equally.
2. fully employing all available resources.
3. increasing the levels of wages and prices.
4. producing relatively more capital goods and relatively fewer consumer goods.

Assume that for Indy, one hour of study time in economics is perfectly substitutable for an hour of study time in calculus. Indy has exams in both subjects tomorrow and he determines that if spends all of his time studying economics, he will receive scores of 96 on his economics exam and 45 on his calculus exam. If he studies only calculus, his econ score will be 81 and his calculus score 90. Based on this information and assuming that Indy has no better alternative use of his time, what is the opportunity cost of improving his econ score by one (1) point?
1. 1 point on his calculus exam
2. 1/3 point on his calculus exam
3. 3 points on his calculus exam
4. The opportunity cost cannot be determined with the information given.

The production possibilities table below shows the hypothetical relationship between the production of capital goods and consumer goods in an economy.

Refer to the table above. What is the opportunity cost of producing the first two units of capital goods?

1. 4 units of consumer goods
2. 5 units of consumer goods
3. 9 units of consumer goods
4. 13 units of consumer goods

Tammie makes $150 a day as a bank clerk. She takes off two days of work without pay to fly to another city to attend the concert of her favorite music group. The cost of transportation for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Tammie's trip to the concert is:

A. $300.

B. $450.

C. $500.

D. $600.

The overallocation of resources by society to a product means that the:
1. marginal benefit is greater than the marginal cost.
2. marginal cost is greater than the marginal benefit.
3. entrepreneurs are making too much profit in the economy.
4. workers are not being paid adequate wages and salaries.

Increases in resources or improvements in technology will tend to cause a society's production possibilities curve to:
1. shift inward or to the left.
2. shift outward or to the right.
3. become horizontal.
4. become vertical.

The graph above shows two production possibilities curves for a nation that produces two goods, Y and Z. PP₁ and PP₂ show the production possibilities for years 1 and 2. The nation's total production then decreased after year 2. This change could be represented by a move from:

1. F to A.
2. A to E.
3. F to B.
4. E to D.

Suppose there are two economies, Alpha and Beta, which have the same production possibilities curves and are on the same point on each curve. If Beta then devotes more resources to investment goods than consumer goods when compared to Alpha, then in the future:
1. Alpha will experience greater economic growth than Beta.
2. Beta will experience greater economic growth than Alpha.
3. Alpha will not be able to achieve full employment or productive efficiency.
4. Beta will not be able to achieve full employment or productive efficiency

Economics is the study of the efficient use of scarce resources to achieve maximum satisfaction of economic wants. True False

The economizing problem arises from the conflict between having relatively unlimited resources and relatively limited wants.

True False

Economic systems differ according to what two main characteristics?
1. Ownership of resources and methods of coordinating economic activity.
2. Quantity of output produced and who receives the output.
3. Who produces the output and what technology is used to produce it.
4. The system of government and the quantity of natural resources available.

Which statement best describes a command economy?
1. The production of goods and services is determined primarily by markets, but the allocation of goods and services is determined primarily by government.
2. The production of goods and services is determined primarily by government, but the allocation of goods and services is determined primarily by markets.
3. The production and allocation of goods and services is determined primarily through markets.
4. The production and allocation of goods and services is determined primarily through government.

Capitalism is an economic system that:
1. produces more capital goods than consumer goods.
2. produces more consumer goods than capital goods.
3. is characterized by government control of markets.
4. gives private individuals and corporations the right to own productive resources.

As of 2012, the economy of Hong Kong most closely approximates:
1. socialism.
2. a command economy.
3. pure capitalism.
4. a market economy.

The institution of private property encourages:
1. lack of maintenance because people are not forced by law to do it.
2. lack of easy exchange because ownership is sometimes hard to prove.
3. easy exchange of some property because a formal title or deed exists.
4. lack of incentives because the owner is responsible for maintenance costs.

How do workers typically express self-interest?
1. By minimizing the economic losses of other business firms.
2. By maximizing the economic profits of other business firms.
3. By seeking the highest price when purchasing a consumer product.
4. By seeking jobs with the best combination of wages and benefits.

Which statement is correct?
1. In a market system, buyers and sellers must be in face-to-face contact with each other.
2. Prices affect the distribution of goods in a market system but not the allocation of resources.
3. In a market system, prices serve to ration goods and services to consumers.
4. The operation of a market system has little, if any, effect on the distribution of income in the economy.

Which statement best describes a capitalist economy?
1. Society determines production and the allocation of goods and services only through markets.
2. Government policies determine the production and the allocation of goods and services.
3. Government policies determine the production, but not the allocation, of goods and services.
4. The role of individual self-interest is relatively unimportant because government makes most economic decisions.

Which of the following does not explain why specialization increases output?
1. Specialization capitalizes on differences in ability.
2. Specialization promotes self-sufficiency and independence.
3. Specialization fosters learning by doing.
4. Specialization saves time by eliminating shifting between tasks.

Consider a barter situation where you have pens and you want pencils. To achieve your objective there must be a(n):
1. use of capital goods.
2. entry and exit from the market.
3. large number of sellers
4. coincidence of wants.

Consumer sovereignty and "dollar votes" are most related to which fundamental question about a competitive market system?

1. What goods and services will be produced?
2. How will the goods and services be produced?
3. How will the system promote progress?
4. Who will get the goods and services?

Which is not one of the Four Fundamental Questions?
1. How will goods and services be produced?
2. How should the system promote progress?
3. Who is to receive the output of the system?
4. What goods and services should be produced by government?

What to produce in a market economy is ultimately determined by the:
1. output decisions of business firms.
2. income plans of households.
3. spending decisions of households.
4. workers' technical skills.

A major feature of a market system is that:
1. there is economic equality.
2. there is consumer sovereignty.
3. there is full employment.
4. all producers make profits.

The idea that the desires of resource suppliers and producers to further their own self-interest will automatically further the public interest is known as:
1. consumer sovereignty.
2. the invisible hand.
3. derived demand.
4. profit maximization.

The development of the Internet and e-mail to often replace regular mail services is an example of:
1. roundabout production.
2. derived demand.
3. creative destruction.
4. specialization.

In the circular flow model, households:
1. buy products and resources.
2. sell products and resources.
3. buy products and sell resources.
4. sell products and buy resources.

In a circular flow model consisting of the household sector, the business sector, product markets, and resource markets:
1. households are sellers of products.
2. businesses are sellers of products.
3. households are buyers of productive resources.
4. resource markets are sellers of products.

The fact that expenditures on products and payments to owners of resources used to produce those products flow in opposite directions is known as:
1. roundabout production.
2. a barter economy.
3. a pure economy.
4. the circular flow of income.

A market:
1. exhibits upsloping demand and downsloping supply curves.
2. entails the exchange of goods but not services.
3. is an institution or mechanism that brings together buyers and sellers.
4. always requires face-to-face contact between buyer and seller.

The demand curve shows the relationship between:
1. money income and quantity demanded.
2. price and production costs.
3. price and quantity demanded.
4. consumer tastes and the quantity demanded.

An increase in the price of a product will reduce the amount of it purchased because:
1. supply curves are upsloping.
2. the higher price means that real incomes have risen.
3. consumers will substitute other products for the one whose price has risen.
4. consumers substitute relatively high-priced for relatively low-priced products.

Which of the following would not shift the demand curve for beef?
1. A widely publicized study that indicates beef increases one's cholesterol
2. A reduction in the price of cattle feed
3. An effective advertising campaign by pork producers
4. A change in the incomes of beef consumers

DVD players and DVDs are:
1. complementary goods.
2. substitute goods.
3. independent goods.
4. inferior goods.

A shift to the right in the demand curve for product A can be most reasonably explained by saying that:
1. consumer incomes have declined and they now want to buy less of A at each possible price.
2. the price of A has increased and, as a result, consumers want to purchase less of it.
3. consumer preferences have changed in favor of A so that they now want to buy more at each possible price.
4. the price of A has decreased and, as a result, consumers want to purchase more of it.

Other things equal, which of the following might shift the demand curve for gasoline to the left?
1. The discovery of vast new tar sands oil reserves in Canada
2. The development of a low-cost electric automobile
3. An increase in the price of train and air transportation
4. A large decline in the price of automobiles

Assume the demand curve for product X shifts to the right. This might be caused by:
1. a decline in income if X is an inferior good.
2. a decline in the price of Z if X and Z are substitute goods.
3. a change in consumer tastes that is unfavorable to X.
4. an increase in the price of Y if X and Y are complementary goods.

If products A and B are complements and the price of B decreases, the:
1. demand curves for both A and B will shift to the left.
2. amount of B purchased will increase, but the demand curve for A will not shift.
3. demand for A will increase and the amount of B demanded will increase.
4. demand for A will decline and the demand for B will increase.

Suppose that tacos and pizza are substitutes, and soda and pizza are complements. We would expect an increase in the price of pizza to:
1. reduce the demand for tacos and increase the demand for sodas.
2. reduce the demand for soda and increase the demand for tacos.
3. increase the demand for both soda and tacos.
4. reduce the demand for both soda and tacos.

The quantity demanded of a product increases as its price declines because the:
1. lower price shifts the demand curve rightward.
2. lower price shifts the demand curve leftward.
3. lower price results in an increase in supply.
4. demand curve is downsloping.

Assume the demand schedule for product C is downsloping. If the price of C falls from $2.00 to $1.75:
1. a smaller quantity of C will be demanded.
2. a larger quantity of C will be demanded.
3. the demand for C will increase.
4. the demand for C will decrease.

Refer to the above diagram. A decrease in supply is depicted by a:

1. move from point x to point y.
2. shift from S₁ to S₂.
3. shift from S₂ to S₁.
4. move from point y to point x.

If the price of a product increases, we would expect:
1. demand to decrease.
2. quantity supplied to increase.
3. supply to decrease.
4. quantity demanded to increase.

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates that:
1. the demand for oranges will necessarily rise.
2. the equilibrium quantity of oranges will rise.
3. the amount of oranges that will be available at various prices has declined.
4. the price of oranges will fall.

When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of a(n):
1. increase in the demand for gasoline.
2. decrease in the demand for gasoline.
3. increase in the supply of gasoline.
4. decrease in the supply of gasoline.

Refer to the above table. If demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5), equilibrium price and quantity will be:

1. $10 and 60 units.
2. $9 and 50 units.
3. $8 and 60 units.
4. $7 and 50 units.

Refer to the above table. In relation to column (3), a change from column (1) to column (2) would mostly likely be caused by:

1. reduced taste for the good.
2. an increase in input prices.
3. consumers expecting that prices will be higher in the future.
4. government subsidizing production of the good.

Refer to the above diagram. A surplus of 160 units would be encountered if price was:

A. $1.10, that is, $1.60 minus $.50.

B. $1.60.

C. $1.00.

D. $.50.

Refer to the above diagram. A price of $60 in this market will result in:

1. equilibrium.
2. a shortage of 50 units.
3. a surplus of 50 units.
4. a surplus of 100 units.

The rationing function of prices refers to the:
1. tendency of supply and demand to shift in opposite directions.
2. fact that ration coupons are needed to alleviate wartime shortages of goods.
3. capacity of a competitive market to equate the quantity demanded and the quantity supplied.
4. ability of the market system to generate an equitable distribution of income.

A surplus of a product will arise when price is:
1. above equilibrium, with the result that quantity demanded exceeds quantity supplied.
2. above equilibrium, with the result that quantity supplied exceeds quantity demanded.
3. below equilibrium, with the result that quantity demanded exceeds quantity supplied.
4. below equilibrium, with the result that quantity supplied exceeds quantity demanded.

There will be a surplus of a product when:
1. price is below the equilibrium level.
2. the supply curve is downward sloping and the demand curve is upward sloping.
3. the demand and supply curves fail to intersect.
4. consumers want to buy less than producers offer for sale.

Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. If supply is

S₁ and demand D₀, then:

1. at any price above 0G a shortage would occur.
2. 0F represents a price that would result in a surplus of AC.
3. a surplus of GH would occur.
4. 0F represents a price that would result in a shortage of AC.

Refer to the above diagram, in which S₁ and D₁ represent the original supply and demand curves and S₂ and D₂ the new curves. In this market the indicated shift in supply may have been caused by:

1. an increase in the wages paid to workers producing this good.
2. the development of more efficient machinery for producing this good.
3. this product becoming less fashionable.
4. an increase in consumer incomes.

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X.

A decrease in the number of consumers of product X will:

1. decrease S, decrease P, and decrease Q.
2. increase D, increase P, and increase Q.
3. decrease D, decrease P, and decrease Q.
4. decrease D, decrease P, and increase Q.

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X.

An increase in the price of a product that is a complement to X will:

1. decrease S, decrease P, and decrease Q.
2. decrease D, decrease P, and decrease Q.
3. increase D, increase P, and increase Q.
4. increase D, increase P, and decrease Q.

Which of the above diagrams illustrate(s) the effect of an increase in automobile worker wages on the market for automobiles?

1. A only.
2. B only.
3. C only.
4. D only.

With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will:
1. increase equilibrium price and quantity if the product is a normal good.
2. decrease equilibrium price and quantity if the product is a normal good.
3. have no effect on equilibrium price and quantity.
4. reduce the quantity demanded but not shift the demand curve.

In the above market, economists would call a government-set maximum price of $40 a:

1. price ceiling.
2. price floor.
3. equilibrium price.
4. fair price.

Refer to the above diagram. Rent controls are best illustrated by:

1. price A.
2. quantity E.
3. price C.
4. price B.

An effective price floor will:
1. force some firms in this industry to go out of business.
2. result in a product surplus.
3. result in a product shortage.
4. clear the market.

An effective price floor on wheat will:
1. force otherwise profitable farmers out of business.
2. result in a shortage of wheat.
3. result in a surplus of wheat.
4. clear the market for wheat.

Ticket scalping implies that:
1. event sponsors have set ticket prices at above-equilibrium levels.
2. an event is not likely to be sold out.
3. event sponsors have set ticket prices at below-equilibrium levels.
4. the demand for tickets has fallen between the time tickets were originally sold and the event takes place.

An increase in quantity supplied might be caused by an increase in production costs. True False

The price elasticity of demand is a measure of the:
1. steepness or slope of a demand curve.
2. absolute changes in quantity demanded and price.
3. responsiveness of quantity demanded to a change in price.
4. sensitivity of the quantity demanded for one good to a change in the price of another good.

A straight-line downward-sloping demand curve has a price elasticity of demand that:
1. decreases as price decreases.
2. increases as price decreases.
3. is zero at all prices.
4. is unitary at all prices.

If price declines from $450 to $350 and, as a result, quantity demanded rises from 1200 to 1500, price elasticity of demand is:

A. 1.78.

B. 0.89.

C. 1.12.

D. 3.42.

If a 5 percent fall in the price of a product causes the quantity demanded of the product to increase by 10 percent, the demand is:
1. inelastic.
2. elastic.
3. unit elastic.
4. perfectly elastic.

If an increase in the supply of a product results in a decrease in the price, but no change in the actual quantity of the product exchanged, then the:
1. price elasticity of supply is zero.
2. price elasticity of supply is infinite.
3. price elasticity of demand is unitary.
4. price elasticity of demand is zero.

Refer to the figure above. Over the $5-$6 range, demand is:

1. unitary elastic.
2. perfectly elastic.
3. elastic.
4. inelastic.

Refer to the above graph. When the quantity of product X increases from 14,000 to 16,000, the price elasticity of demand for product X is:

1. elastic.
2. inelastic.
3. unit-elastic.
4. perfectly inelastic.

When the demand for a good is price-elastic at a given output level:
1. total revenue is negative.
2. total revenue for the good will increase if its price decreases.
3. an increase in price will lead to an increase in total revenue for firms selling the good.
4. a large change in price will result in a relatively small change in the quantity demanded.

A product priced at $5 has annual sales of 1,000 units. When price is reduced to $4, quantity increases to 1,250 units. Other things unchanged, the price elasticity of demand for the product is:
1. unitary.
2. elastic.
3. inelastic.
4. zero.

Refer to the table above. What is the price with the maximum total revenue?

1. $2
2. $3
3. $4
4. $5

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Ohio Northern University IBEC 430 BASIC ECON REVIEW QUESTIONS Chapter 1 1)Economics can best be described as the study of: how to increase the level of productive resources so there is maximum output in society

Economics

Ohio Northern University

IBEC 430

BASIC ECON REVIEW QUESTIONS