A common property resource is characterized by:
1. A common property resource is characterized by:
a. not being a scarce good.
b. not having exclusive property rights.
c. not able to be priced.
d. not subject to being over used.
2. A market failure is said to occur when:
a. quantity demanded does not equal quantity supplied.
b. consumers value an additional unit of a good by more than it costs to produce the
extra unit.
c. private decisions by consumers and producers do not achieve an efficient allocation of
society's scarce resources.
d. there are too many buyers and sellers in the market.
3. All of the following statements are correct EXCEPT:
a. In order for a market system to function properly, some type of private property
rights must exist.
b. When a property right is exclusive, the owner of the property may exclude anyone
she wishes from using the property.
c. A transferable property right permits the owner to lease or sell the property to
someone else.
d. Although private property rights are necessary for a market to exist, they are not
necessary for exchange to take place.
4. A market satisfies the efficiency conditions if the market is:
a. competitive with private, but non-transferable property rights.
b. competitive with well-defined and transferable property rights.
c. imperfectly competitive with both private and transferable property rights.
d. one in which both consumer surplus and producer surplus are minimized.
5. Consumer surplus measures the:
a. deadweight loss to society of inefficient production.
b. amount (quantity) of a good which a consumer is willing and able to buy.
c. price that the consumer is willing to pay for a particular quantity of a good.
d. difference between what consumers are willing to pay for particular quantities of a
good and the amount which they actually have to pay.
6. Consumers, operating rationally in the marketplace, have as one of their primary goals:
a. owning their own business and being their own boss.
b. maximizing their level of utility.
c. minimizing their risk of going bankrupt.
d. maximizing their economic profit.
7. In order for a social system to be efficient in all of its economic activities, it must be true
that the:
a. net benefit from each of the activities is equal to each other.
b. net benefit from each activity is maximized.
c. net benefit from some of the activities is greater than it is for others.
d. total benefit from all of the activities is at a maximum.
8. Suppose that a producer of a good sells 10 units and has a total revenue of $100. In order
to produce these 10 units, the producer's total cost was $70. The difference between the
total revenue and the total cost is:
a. the consumer surplus.
b. the deadweight loss of production.
c. the producer surplus.
d. an inefficient allocation of resources.
9. Suppose that all television programs in the nation were carried by cable systems and you
were required to pay an access fee to the system. This would mean that all television
programs would:
a. be subject to the free rider problem.
b. be private goods.
c. be public goods.
d. not generate any externalities in production or consumption.
10. Suppose that you spend four hours studying for a history exam and earn a grade of "C". You
know that if you had studied for just one more hour, you would have made a "B" on the
exam, and you certainly value the higher grade much more than the extra hour of sleep that
you would have lost. All of the following correctly describe you EXCEPT:
a. the marginal cost of an extra hour of studying history must have been equal to the
marginal benefit of the higher grade.
b. there was a deadweight loss incurred by you as a result of misallocating your study
time.
c. your total benefit is not maximized.
d. your net benefit from studying is not maximized.
11. The distinguishing feature between a private good and a public good is that the public good:
a. is not available for my consumption if you consume it.
b. is usually provided by the private sector.
c. is available for my consumption even if you and your friends consume it.
d. cannot be produced by private firms.
12. The opportunity cost of producing an extra apple is the:
a. price charged for the apple.
b. number of oranges (the best alternative to producing apples) that must be given up in
order to produce the apple.
c. amount of time and fertilizer used to produce the apple.
d. difference between the price of the apple last year and the price this year.
13. The reason that the free-rider problem exists is that:
a. private goods may also be public goods.
b. private goods are not correctly priced in the market place.
c. the cost of producing public goods is too high.
d. it is possible for an individual to consume a public good without paying for it.
14. The total net benefit of production and consumption in an efficient, competitive market is:
a. the gross benefit minus the deadweight loss of using society's resources.
b. the sum of both consumer and producer surpluses.
c. guaranteed to generate an equitable distribution of income and output.
d. possible when the total costs of production are minimized.
15. When markets fail and externalities exist:
a. there is an inefficient allocation and use of society's scarce resources.
b. government intervention will not improve market performance.
c. society's well being is not affected.
d. government intervention will always improve market performance.
16. When the production of a good generates externalities in the market place:
a. government intervention can never improve the market's performance.
b. the externality is "captured" in the market price of the good.
c. someone is affected who is not involved in either the buying or selling of the good.
d. society's scarce resources are allocated efficiently.
17. Assume that you and your roommate seek to maximize utility and are thinking about going to
a movie tonight. You should make the decision to go only if:
a. someone gives the both of you free passes.
b. you do not have anything important to do tomorrow.
c. the net benefit gained from going is zero.
d. the marginal benefit of going is greater than the marginal cost incurred by not doing
something else.
18. A consumer's budget constraint shows that:
a. the consumer cannot have as many goods as he wants.
b. as consumers spend more money on one good, they spend less on other goods.
c. a trade-off faces the consumer in the consumption of goods.
d. all of the above are correct statements.
19. A curve that shows a constant level of utility as an individual consumes different
combinations of two goods is the:
a. budget line.
b. indifference curve.
c. demand curve.
d. total utility curve.
20. A decrease in consumer income, while prices remain constant, will cause the budget line to:
a. make a parallel shift toward the origin.
b. rotate toward the origin.
c. make a parallel shift outward.
d. rotate away from the origin.
21. According to the law of diminishing marginal utility, the additional satisfaction that you get
from consuming apple pie decreases:
a. as the price of apple pie falls.
b. as your income rises and you can substitute more exotic deserts.
c. with every additional slice of apple pie that you eat.
d. as you get older.
22. The change in the consumption of a good because of the implicit change in consumers'
income that results when the price of the good changes is the:
a. substitution effect.
b. demand effect.
c. price effect.
d. income effect.
23. At every point on an indifference curve, the:
a. level of satisfaction is constant.
b. prices of all goods are constant.
c. marginal utility of each good is constant.
d. consumer's income is constant.
24. If a consumer has $1,000 of income and the price of good X is $50 and the price of good Y
is $100, the maximum amount of X or the maximum amount of Y that can be purchased is:
a. 10 units of X or 40 units of Y.
b. 20 units of X or 10 units of Y.
c. 100 units of X and 0 units of Y.
d. 10 units of X or 20 units of Y.
25. If MUx/Px = 1.5 and MUy/Py = 3.5, then with a given income and prices, the
utility-maximizing consumer should:
a. buy more of good Y and less of good X.
b. buy more of good X and less of good Y.
c. stop because an equilibrium is achieved.
d. buy all of good Y and none of good X.
26. In order to determine the market demand schedule for a product, you must:
a. sum the different prices that consumers are willing to pay for different quantities of
the product.
b. also know the market supply curve for the product.
c. sum the quantities demanded by all consumers at each different price.
d. calculate the average quantity demanded by all consumers at different prices.
27. Suppose that a consumer enters a market having "n" goods. The consumer has a given
income and faces given prices for the n-goods. The consumer will maximize utility when:
a. MUa = MUb = MUc = . . . = MUn
b. Pa = Pb = Pc = . . . = Pn
c. the total utilities of all of the goods are equal.
d. MUa/Pa = MUb/Pb = MUc/Pc = . . . =MUn/Pn
28. Suppose that the price of good X is $10 and the price of good Y is $30. The consumer's
budget constraint illustrates that she:
a. can trade-off three units of good X for one unit of good Y.
b. can trade-off one unit of good X for 1/3 unit of good Y.
c. faces a trade-off between goods X and Y.
d. all of the above are correct statements.
29. Suppose that you consume M&M chocolate peanuts. As you consume the peanuts, one by
one, beyond some level of peanut consumption, the change in total utility:
a. rises because of the law of demand.
b. rises because total utility rises.
c. falls because of the negative relationship between price and quantity demanded.
d. falls because of the law of diminishing marginal utility.
30. Suppose that you consume two goods, say x and y, and that the price of both goods is the
same (and unchanged). If it is the case that at your current level of consumption MUx > MUy, then we can conclude that to maximize utility you:
a. should buy more of good x and less of good y.
b. should buy more of good x and less of good y.
c. are willing to pay more for good x than for good y.
d. will not buy any of good y.
31. Suppose that your total utility changes from 50 to 62 when one more unit of a good is
consumed. The marginal utility associated with the additional unit of the good is:
a. 12 units of utility.
b. 50 units of utility.
c. 62 units of utility.
d. 112 units of utility.
32. The demand for an inferior good, all other things unchanged,:
a. is not affected by changes in either income or price.
b. increases as the price of the good falls.
c. decreases as income increases.
d. increases as income increases.
33. The downward slope of the demand curve is determined by:
a. the income effect only.
b. the substitution effect only.
c. the income and substitution effects.
d. the substitution effect only, it is not reinforced by the income effect.
34. The income effect results from the fact that:
a. a decrease in the price of a good increases the purchasing power of consumers'
incomes.
b. when the price of a good rises, consumers are able to buy more of other goods
because of the increase in the purchasing power of their income.
c. if the good is inferior, a decrease in the purchasing power of income results in less of
the good being consumed.
d. if the consumers' income rises, they buy less of normal goods and more of inferior
ones.
35. The substitution effect shows that given an income compensated price change (i.e., the individual could keep buying the same quantity of both goods after a price change as before), then:
a. if the price of a good falls, consumers buy less of all goods.
b. if the price of a good rises, consumers buy less of that good and more of other goods.
c. if the price rises, consumers buy more of that good and less of others.
d. if the price of a good falls relative to other goods, consumers buy less of that good
and more of others.
36. When a good is normal, a fall in its price causes an increase in quantity demanded and:
a. the good probably does not have many good substitutes.
b. the income effect and the substitution effect work together to increase the quantity
demanded of the good.
c. the income effect and the substitution effect work against each other, to increase
the quantity demanded of the good.
d. none of the above statements are correct.
37. When an extra unit of a good is consumed, total utility changes by an amount that is equal
to the:
a. marginal utility gained or lost by consuming the extra unit.
b. price of the extra unit consumed.
c. total utility divided by the number of units previously consumed.
d. average utility of all goods consumed.
38. When we study consumer behavior, we assume that the consumer tries to maximize:
a. income.
b. utility.
c. the price of one good relative to another.
d. the level of personal savings.
39. When you consume your optimal bundle of goods, it can be said that you :
a. have achieved the point where your total utility for each good is at its maximum.
b. are consuming the most desired combination of goods, given your income and the
goods' prices.
c. are consuming the largest bundle of goods possible.
d. would not want to consume additional units of the good.
40. Which one of the following is NOT a characteristic of an indifference curve?
a. As the consumer moves down and along his indifference curve, the slope of the curve
becomes flatter.
b. Indifference curves are negatively sloped, indicating that consumers are willing to
substitute one good for another.
c. As the consumer substitutes one good for another along an indifference curve, the
overall level of total satisfaction changes.
d. Higher indifference curves correspond to higher levels of total satisfaction.
41. Your friend John went to the store and purchased a new CD that cost him $15! John told
you, however, that he got 60 additional utility units from the new CD. For this purchase, you
can conclude that John:
a. made a rational choice because the utility gained is greater than the money given up.
b. received a marginal utility per dollar spent on the CD of 4.
c. will buy another CD because the utility gained on this one was high.
d. made an irrational choice because the money spent on the CD could have been used
to purchase other goods.
42. A firm's marginal cost of production is:
a. its total cost of production divided by total output.
b. the change in average cost of production divided by the level of output.
c. the change in total cost incurred as a result of producing one more unit of output.
d. the cost incurred by the firm even if no output is produced.
43. As more output is produced in the short run, more variable factors of production are added
to a given amount of a fixed factor. After some point, you can expect continued increases in
output to cause:
a. essentially no change in average fixed cost.
b. average total cost to stop rising and begin falling.
c. marginal cost to continue its decline throughout all ranges of output.
d. average variable cost to stop falling and to begin rising.
44. For a firm, the short run is that period of time:
a. when all of the factors of production are variable.
b. when at least one of the factors of production is fixed.
c. when all of the factors of production are fixed.
d. which lasts less than one year.
45. If a firm's output increases from 1860 units to 1990 units when it increases its labor from
137 to 138 workers, the marginal product of the last worker hired is:
a. 130 units.
b. 190 units.
c. 1990 units.
d. 14.4 units.
46. If a particular firm used a production process that is labor intensive, then:
a. it uses relatively more capital than labor.
b. each worker has too much capital, so the law of diminishing returns does not apply.
c. there is a relatively heavy use of labor and relatively little use of capital.
d. its capital-labor ratio is high.
47. If a production technique uses only labor and capital as its only inputs into the production
process, then a decrease in the wage rate paid to labor may cause:
a. the firm's average total cost curve to shift upward.
b. the firm to change its production technique.
c. a substitution of capital for labor.
d. all of the above may occur.
48. If the ACME Corp. uses a capital-intensive production process in order to produce its
outputs, then we would expect to see:
a. a relatively low capital-to-labor ratio.
b. a relatively heavy use of capital and relatively little use of labor.
c. not enough capital for the number of workers employed.
d. a firm that is not maximizing its profits since labor is cheaper than capital.
49. Suppose that a firm faces two production techniques that can be used to produce a given
level of output. To say that production technique X is capital-intensive while technique Y is
labor intensive means that:
a. technique X uses only capital and technique Y uses only labor.
b. technique X has a higher capital-to-labor ratio than does technique Y.
c. technique X uses relatively less capital than does technique Y.
d. technique X has a lower capital-to-labor ratio and technique Y has a higher
capital-to-labor ratio.
50. Suppose that the ACME Co. has a fixed plant and variable units of labor as its only factors
of production. If increasing amounts of the variable factor, labor, are continuously added to
the fixed factor, then we can expect all of the following to occur EXCEPT:
a. the average product of labor to reach a maximum when the marginal product of labor
is either zero or negative.
b. the total product of labor to be at a maximum when the marginal product of labor is
zero.
c. the average product of labor to continue rising as long as marginal product is greater
than average product.
d. the marginal product of labor to reach a maximum earlier than total product.
51. Suppose that your firm operates on the rising segment of its long-run average total cost
curve. In order to produce output at its lowest long-run average per unit cost, you must:
a. reduce your output and build a smaller plant.
b. increase output and build a larger plant.
c. reduce output but keep the same plant size.
d. build a smaller plant but keep producing the same level of output.
52. The distinction between the long and short run is that in the long run:
a. the opportunity costs of production are higher than in the short run.
b. some factors of production are fixed, while in the short run, all factors of production
are fixed.
c. the firm can adjust all of its factors of production, while in the short run, this is
impossible.
d. if a firm produces zero output, it still incurs a cost.
53. The law of diminishing marginal returns:
a. is a law that applies to very few technologies of production.
b. shows that adding more and more of the variable factors of production to a given
amount of the fixed factors of production always expand output.
c. states that after a point, each additional unit of a variable factor of production adds
less than the previous unit to total output.
d. all of the above are correct.
54. The marginal, average, and total product curves:
a. relate input prices to output.
b. tell the producer whether or not production is taking place efficiently.
c. tell the producer that level of output which should be produced in order to maximize
profits.
d. describe the relationship between physical inputs and output.
55. The total fixed cost faced by a firm in the short run:
a. falls as more and more output is produced.
b. remains constant regardless of the level of output produced.
c. is equal to the cost of using the variable factors of production.
d. increases as more output is produced.
56. The U-shaped long-run average cost curve shows:
a. the per unit cost of producing different levels of output in the long run.
b. the range of output over which a firm experiences economies of scale.
c. the range of output over which a firm experiences diseconomies of scale.
d. all of the above are correct.
57. When a firm experiences constant returns to scale:
a. the long-run average cost curve rises.
b. it should expand its scale of operation because production efficiency can be
increased.
c. the long-run average cost curve falls.
d. long-run average cost stays the same over that range of output.
58. When the marginal product of a factor of production used by a firm to produce its output is
falling:
a. marginal cost is rising.
b. average total cost is constant.
c. average fixed cost is rising.
d. marginal cost is falling.
59. Which one of the following is NOT a characteristic of the firm's short-run average, marginal,
and total product curves?
a. When marginal product is rising, average product is less than marginal product.
b. When average product is zero, total product is at a maximum.
c. When marginal product is zero, total product is at a maximum.
d. When marginal product is less than average product, average product is falling.
60. Which one of the following is NOTan explanation for the presence of economies of scale?
a. As the firm gets larger, it becomes more specialized in the way it uses its factors of
production.
b. As a firm gets larger, management becomes too bureaucratic.
c. As a firm gets larger, it can use better and more efficient capital equipment.
d. As a firm gets larger, it can lower costs through mass production.
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