Because people's wants are unlimited but resources are scarce, (Points: 1)

  1. only the rich get everything they want
  2. choices must be made
  3. there will be more services produced than goods
  4. people search for spiritual fulfillment rather than material fulfillment

2. A resource is something that (Points: 1)

  1. is used to produce goods and services
  2. is provided by nature, not made by society
  3. exists in unlimited quantities
  4. must be produced by a firm

3. The difference between a good and a service is that (Points: 1)

  1. a service helps satisfy unlimited wants; a good does not
  2. a services is available in unlimited quantities; a good is not
  3. a good is tangible; a service is not
  4. a good is available in unlimited quantities; a service is not

4. The assumption that individuals act rationally implies that (Points: 1)

  1. people implicitly calculate the costs and benefits of an activity to decide if it is worthwhile
  2. people only consider the costs of an activity to decide whether it is worthwhile
  3. people undertake all those activities that yield benefits to themselves
  4. the greater the cost of a charitable deed to a benefactor, the more likely he or she is to perform that deed

5. One might commit the fallacy of composition by concluding that (Points: 1)

  1. statements that are true during prosperity are necessarily true during depression
  2. what is good for the individual is necessarily good for the group
  3. an event that precedes another is necessarily the cause of the latter
  4. intentions need not coincide with actions

6. On a given production possibilities frontier, which of the following is not assumed to be fixed? (Points: 1)

  1. the amount of labor available
  2. the amount of capital available
  3. the level of technology
  4. the amount of land and natural resources available production of each item

7. When drawing a production possibilities frontier, all of the following are usually assumed except one. Which is the exception? (Points: 1)

  1. The quantity of resources is rapidly growing.
  2. Technology is fixed.
  3. Resources can be shifted between production of the two goods.
  4. The production possibilities frontier is drawn for a particular time period.
  5. Resources are fully and efficiently employed.

8. The production possibilities frontier can be used to show all of the following except one. Which is the exception? (Points: 1)

  1. scarcity opportunity cost
  2. the law of increasing opportunity cost
  3. efficiency
  4. the best combination of goods and services for an economy

9. Which economic question does the decision to produce butter instead of guns answer? (Points: 1)

  1. What to produce?
  2. How to produce?
  3. For whom to produce?
  4. Who has a comparative advantage in gun production?
  5. Who has an absolute advantage in butter production?

10. Adam Smith's term, "the invisible hand," refers to (Points: 1)

  1. the hidden role of government in setting regulations that govern trading in markets
  2. the most capable entrepreneurs in the economy market forces
  3. the unseen work of the financial markets that facilitates trade
  4. the role of technological change and random events in the economy

11. In the United States since World War II, there has been (Points: 1)

  1. a dramatic increase in the population living in rural areas
  2. a decline in the number of women in the labor force
  3. a decrease in the opportunity cost of working in the home
  4. a dramatic increase in the number of married women in the labor force

12. Which of the following is a disadvantage of the corporation compared to the sole proprietorship? (Points: 1)

  1. limited liability
  2. difficulty raising start-up money
  3. lack of profitability
  4. corporate income is taxed twice

13. Externalities are defined as (Points: 1)

  1. any transaction external to the firm costs or benefits
  2. that fall on third parties policies
  3. that firms undertake to sell products outside the country
  4. managers' dealings with stockholders outside the firm

14. Gross Domestic Product is the value of all (Points: 1)

  1. goods and services produced during a particular year
  2. goods and services sold during a particular year
  3. final goods and services sold during a particular year
  4. final goods and services produced during a particular year

15. Which of the following taxes is most clearly based on the benefits-received principle of taxation? (Points: 1)

  1. corporate income tax
  2. gasoline tax
  3. personal income tax
  4. payroll tax

16. The difference between normal and inferior goods is that (Points: 1)

  1. an inferior good is something that will not be demanded until quantities of the normal good have been exhausted
  2. an increase in income will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward
  3. an increase in price will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward
  4. if the price of a normal good increases, individuals who buy it are poorer; for inferior goods, the opposite is true

17. The market supply curve of a particular product indicates the total quantities (Points: 1)

that are actually sold during a given time period

that buyers are willing to purchase at alternative prices

that sellers are willing and able to offer at alternative prices

that sellers are willing to offer for sale

18. Which of the following would shift the supply curve for a product to the right? (Points: 1)

  1. an improvement in the technology for producing the good
  2. the expectation of a higher price in the near future
  3. an increase in the price of the product
  4. an increase in the price of an alternative good

19. Which of the following would shift the supply curve for a good to the left? (Points: 1)

  1. an increase in the price of that good
  2. a decrease in the price of an alternative good
  3. an improvement in technology for producing that good
  4. an increase in the cost of an important resource used to make that good

20. If the demand for bicycles increases, (Points: 1)

  1. the quantity demanded decreases
  2. equilibrium price increases and equilibrium quantity decreases
  3. equilibrium price decreases and equilibrium quantity increases
  4. quantity supplied increases

21. Economists (Points: 1)

  1. believe that tastes are the major influence on consumers' income
  2. expectations have observed that tastes vary with changes in the number of consumers
  3. recognize that tastes have an important impact on demand
  4. can say a great deal about the origin of tastes

22. The price elasticity of demand helps determine the effect of price changes on a firm's (Points: 1)

  1. property taxes
  2. profits
  3. quantity supplied
  4. revenues

23. Demand is unit elastic whenever (Points: 1)

  1. price elasticity has an absolute value of 1
  2. price elasticity has an absolute value greater than 1
  3. price elasticity has an absolute value less than 1
  4. price elasticity is negative

24. Along a straight-line downward-sloping demand curve, elasticity is (Points: 1)

  1. constant, but its value cannot be determined without measurement
  2. constant and equal to an absolute value of one
  3. greater at higher prices
  4. greater at lower prices

25. The more broadly a good is defined, (Points: 1)

  1. the more substitutes it has so the more elastic is its demand
  2. the fewer substitutes it has so the more elastic is its demand
  3. the more substitutes it has so the less elastic is its demand
  4. the fewer substitutes it has so the less elastic is its demand

26. If supply is perfectly elastic, the supply curve is (Points: 1)

  1. vertical
  2. horizontal
  3. any straight-line supply curve
  4. any supply curve intersecting a perfectly elastic demand curve

27. The most important determinant of price elasticity of supply is (Points: 1)

  1. price elasticity of demand
  2. technological conditions such as how rapidly costs increase when a firm increases its output
  3. whether the production process relies heavily on capital or on labor
  4. the number and closeness of available substitutes

28. Unlike implicit costs, explicit costs (Points: 1)

  1. reflect opportunity costs
  2. include the value of the owner's time
  3. are not included in a firm's accounting statements
  4. are actual cash payments

29. The long run is a period of time (Points: 1)

  1. during which at least one resource is fixed
  2. during which all resources are variable
  3. during which all resources are fixed
  4. less than one year

30. Total cost is calculated as (Points: 1)

  1. average fixed cost plus average variable cost
  2. fixed cost plus variable cost
  3. the additional cost of the last unit produced
  4. marginal cost plus variable cost

31. Economies of scale occur where (Points: 1)

  1. long-run average cost falls as new firms enter the industry
  2. short-run average cost falls as new firms enter the industry
  3. long-run average cost falls as one firm expands plant size
  4. short-run average cost falls as one firm expands plant size

32. Diseconomies of scale at the firm level occur (Points: 1)

  1. wherever the firm's long-run average cost curve is horizontal
  2. wherever the firm's long-run total cost curve is horizontal
  3. where marginal cost equals marginal revenue
  4. if a firm becomes "too large"

33. Which of the following is likely to be present in a perfectly competitive market? (Points: 1)

  1. patents
  2. nonprice competition such as advertising
  3. high capital costs firms
  4. producing identical products

34. A perfectly competitive firm has no control over the (Points: 1)

  1. quantity of output produced
  2. quantities of inputs used
  3. price of the product
  4. type of good produced

35. Marginal revenue is (Points: 1)

  1. total revenue minus total cost
  2. total revenue divided by quantity of output
  3. the change in total revenue divided by the change in output
  4. the change in total revenue divided by the change in the quantity of an input used

36. A perfectly competitive firm in the short run determines its quantity supplied at various prices by using (Points: 1)

  1. the portion of its marginal cost curve rising above its average total cost curve
  2. the portion of its marginal cost curve rising above its average variable cost
  3. its average variable cost curve
  4. its average total cost curve

37. A constant-cost industry is one (Points: 1)

  1. that faces constant average costs in the short run
  2. that experiences economies of scale
  3. that experiences stable demand
  4. whose cost curves do not change as new firms enter

38. Economic profits in a competitive industry are signals that (Points: 1)

  1. attract new firms into the industry
  2. prevent firms from adopting newer technologies
  3. encourage existing firms to continue to operate inefficiently
  4. indicate that business conditions are improving

39. Which of the following is true of monopoly? (Points: 1)

  1. There are no barriers to entry.
  2. The firm is a price taker.
  3. There are no close substitutes for the product being produced.
  4. There are many firms in the industry.

40. Which of the following describes the market structure of monopoly? (Points: 1)

  1. many firms with some control over price, and considerable product
  2. differentiation a single firm producing all of the output for the industry
  3. many firms with no control over price, producing identical products with no differentiation
  4. a few firms with no control over price, producing highly differentiated products

41. A natural monopoly results when a firm has (Points: 1)

  1. a license
  2. a patent
  3. official approval to produce a product
  4. decreasing average costs over the range of market demand

42. A monopolist (Points: 1)

  1. can charge whatever price it wants
  2. charges more than almost any consumer is willing to pay
  3. is constrained by marginal cost in setting price
  4. is constrained by demand in setting price

43. If a nondiscriminating monopolist is operating at an output level where price equals average total cost, we can conclude that (Points: 1)

  1. economic profit is $0
  2. the firm is not maximizing profit
  3. the firm should go out of business in the long run
  4. the firm is not earning its normal profit

44. The main reason a monopolist can earn long-run economic profit, whereas a perfectly competitive firm cannot, is that (Points: 1)

  1. demand for the monopolist's output is inelastic
  2. there are no barriers to entry in perfect competition
  3. demand for the monopolist's output is elastic
  4. perfectly competitive firms have opportunity costs

45. A firm will only earn normal profit in the long run (Points: 1)

  1. if firms can freely enter or leave the market
  2. if firms do not try to maximize profit
  3. only if the industry is perfectly competitive
  4. whenever products are not differentiated

46. Compared to a firm in perfect competition, the monopolistically competitive firm tends to (Points: 1)

  1. produce less and charge a higher price
  2. produce less and charge a lower price
  3. produce more and charge a lower price
  4. produce more and charge a higher price

47. It is harder to explain the behavior of firms in oligopoly than in other market structures because in oligopoly (Points: 1)

  1. the firms act independently of each other
  2. firms base their decisions on what their rivals do
  3. only differentiated products are produced
  4. only homogeneous products are produced

48. Collusion occurs when (Points: 1)

  1. a firm chooses a level of output to maximize its own profit
  2. firms get together to maximize joint profits
  3. firms refuse to follow their price leaders
  4. firms petition their U.S. senators for favors

49. The term strategy in terms of game theory refers to (Points: 1)

  1. the relationship between price and marginal cost
  2. the relationship between individual firm demand curves and the market demand curve
  3. each firm's game plan in making decisions
  4. the interrelationship between price and marginal revenue

50. Which oligopoly model was developed to explain price wars in an industry? (Points: 1)

  1. natural oligopolies
  2. cartels price
  3. leadership by a dominant firm
  4. game theory

51. Resource owners will supply additional units of a resource as long as doing so (Points: 1)

  1. decreases their opportunity cost
  2. increases their income
  3. increases their utility
  4. decreases their income taxes