Exam 1

Questions from Previous Versions of Exam 1

1. Most economists believe that most people make almost all their personal decisions: (a) with a goal of maximizing their personal utility or “jollies.” (b) “at the margin.” (c) based on how the decisionmakers perceive their own self interests. (d) rationally, based on the best information available. (e) All of the above.
2. If a firm could cut costs without decreasing the value of its output, the firms currently experiences: (a) technological decline. (b) allocative inefficiency. (c) productive inefficiency. (d) distributive inefficiency. (e) profit maximization.
3. The observations [1] that when output is expanded, costs eventually grow faster than output, and [2] that the marginal utilities (“jollies”) that people get from consuming a particular good eventually decline, both follow logically from the law of: (a) rising expectations (b) rational consequences. (c) supply and demand. (d) diminishing returns. (e) economic scarcity.
4. A competitive market system based primarily on capitalism tends to generate: (a) an income distribution that many critics view as inequitable. (b) the products that consumers demand. (c) efficient production that adopts new, low‑cost technologies. (d) income in proportion to people’s ownership of resources. (e) All of the above.
5. Curve A in the figure below depicts this DVD manufacturer’s: (a) marginal costs. (b) average variable costs. (c) average total costs. (d) average fixed costs.
6. Curve B in the figure below depicts this DVD manufacturer’s: (a) average variable costs. (b) average total costs. (c) marginal costs. (d) average fixed costs. (e) total sunk costs.

If this DVD player producer’s only variable resource in the short run is labor, point y corresponds to: (a) the maximum value of the marginal productivity of labor. (b) the left-side boundary of zone 1 in production. (c) a minimum point on the firm’s long run average cost curve. (d) the maximum value of labor’s average physical productivity. (e) the output at which maximum economic profit is realized. Average variable costs are increasing but average total costs are decreasing: (a) simultaneously with the decline in average fixed costs as output increases. (b) between point y and point z. (c) whenever marginal cost is above average variable cost. (d) between point x and point y. (e) whenever this firm operates in zone 3 of production.

9. The vertical distances between curves C and D in the figure above do NOT equal: (a) the vertical distance between the horizontal axis and curve A. (b) the DVD manufacturer’s overhead per unit of output. (c) average fixed costs. (d) operating costs per unit of output. (e) average total costs minus average variable costs.
10. In market economies, resources are ultimately owned by the: (a) corporations that dominate economic activity. (b) partnerships and proprietorships. (c) business firms, collectively. (d) households that are the centerpieces of our lives. (e) government, acting as a social trustee.
11. Production entails using knowledge or technology to apply energy to increase the: (a) amounts of resources available. (b) income generated for corporations. (c) value of materials to consumers in form, place, possession, or the time they will be used. (d) physical quantities of goods and services available. (e) production possibilities frontier.
12. If speculators are correct, their actions tend to: (a) cause already depressed prices to fall further. (b) increase the risks to other firms of doing business. (c) prevent price declines from their peaks. (d) decrease the future level and volatility of prices.
13. Thorstein Veblen is most notably remembered for arguing that: (a) demand curves are negatively sloped because of diminishing marginal utility. (b) national income [NI] equals gross domestic product [GDP] in the circular flow model. (c) fixed costs are never relevant for rational profit-maximizing decisions. (d) consumer surplus is maximized by setting marginal utility equal to price. (e) wealthy people use “conspicuous consumption” to flaunt their class, status and power.
14. If the gasoline supply falls when demand for it is rising because vacations are scheduled in the summer, the result is: (a) higher prices and greater quantity. (b) higher prices and indeterminate changes in quantity. (c) higher prices and lesser quantity. (d) lower prices but greater quantity.
15. On the average, speculators whose activities increase the volatility and average future level of prices are most likely to: (a) decrease the risks to other firms of doing business. (b) increase prices when supply is increasing. (c) lose money and go bankrupt. (d) reduce prices when demand is growing.

16. Scarcity exists because human: (a) survival requires unlimited resources. (b) wants are enormous relative to the means available to satisfy them. (c) production is limited only by technology and human energy. (d) desires for goods are artificially stimulated by advertising.

17. The primary difference between the short run and the long run as analytic measures of time lies in the: (a) length of time considered. (b) range of adjustments available in response to some event. (c) total amounts of revenues, costs, and profits experienced. (d) existence of fixed costs only in the long run. (e) differences between average and marginal productivity.

18. Recently developed theory is least likely to evolve into common sense if it fails to: (a) conform to the principle of Occam’s razor. (b) have realistic assumptions. (c) accurately explain or predict the behavior of the phenomena being studied. (d) be consistent with widely-accepted previous theories. (e) be testable according to standard normative principles.

19. An example of how marginal utility diminishes occurs when: (a) Todd buys a box of 200 screws for his bike company though he only needs 180. (b) Amy Sue decides she would rather have 150 hogs than 151 on her pig farm. (c) Derek finds it hard to laugh politely after he hears a “new” joke for the fifth time today. (d) Wiley Coyote is tricked by Road Runner for the seventeenth straight cartoon. (e) Tia earned a B after she studied economics four hours over the weekend to prepare for an economics exam, but she would have made an A if she had studied twelve hours.

20. How output responds to a one unit change in a variable resource is the resource’s: (a) total physical product. (b) average physical product. (c) average marginal product. (d) marginal physical product.

21. Examples of opportunity costs include: (a) being severely injured in an accident because you failed to buckle your seat belt. (b) the extra income you could earn right now if you weren’t in school. (c) the time you spent studying economics even though you have a calculus exam tomorrow. (d) failing out of school because you partied too much this semester. (e) All of the above.

22. This production possibilities frontier unambiguously indicates that this economy: (a) can costlessly move from point b to point c. (b) maximizes the total value of output at point c. (c) fully employs all of its resources at point a. (d) cannot attain point e without more resources or better technology. 23. Movement from point b to point d might be achieved through: (a) investment in new capital. (b) an increase in the number of workers. (c) improvements in the quality and productivity of labor. (d) a technological advance. (e) All of the above.

24. Production possibilities frontiers (PPFs) tend to be “bowed out” because: (a) more of one good requires less production of other goods. (b) some resources are underutilized or unemployed. (c) technology is assumed constant. (d) resources vary in their relative suitability for different forms of production.

25. North Dakotans would be likely to eventually respond to higher prices for heating oil and natural gas by: (a) taking longer summer vacations to Disneyland in bigger convertibles. (b) insulating their houses more thoroughly and turning up their electric blankets. (c) dieting to lose weight by eating more vegetables and less fast food. (d) replacing tennis and croquet with skiing and recreational body building.

26. If dairy farmers expected an increase in demand for milk products next year, they would be most likely to: (a) increase the price of milk today. (b) increase production and storage of such milk products as cheese. (c) shift from cows to goats. (d) sell their dairy farms immediately. (e) upgrade their computers.

27. Ludicrously Luxurious Landscapers has found that, the more lawns the company mows, the lower are its average total costs in the long run, prompting it to take on more contracts and mow more lawns. This action is an example of: (a) economies of scope. (b) capital deepening. (c) economies of scale. (d) financial insulation. (e) capital widening.

28. If the nominal price of apples at a remote orchard is less than at a local grocery store, you are more likely to buy at the orchard if: (a) at all possible, since produce is invariably cheaper at the orchard. (b) you want to buy only fruits and vegetables. (c) the opportunity costs of shopping at the orchard instead of the grocery store are less than the price differentials. (d) apple pickers at the orchard have lower wages than do the employees in the grocery store.

29. Allocative mechanisms such as the brute force and random selection: (a) illustrate relationships between inputs and outputs. (b) depict the menu available to a society with unlimited resources. (c) tend to be inefficient for most purposes most of the time. (d) determine choices between current consumption and saving. (e) efficiently channel scarce resources to alternative uses.

30. The shape of an Average Fixed Cost curve is: (a) a triangle. (b) a straight vertical line. (c) a rectangular hyperbola. (d) a straight horizontal line. (e) irrelevant to reading the graph.

31. The greatest increases in the value of total production for all societies everywhere combined with the most significant declines in the opportunity costs of multiple goods for most consumers tend to be realized when production is organized in accord with: (a) the optimal division of labor. (b) the principle of distributive efficiency. (c) laissez faire capitalism. (d) specialization and exchange according to comparative advantage. (e) the utilitarian principle of “the greatest good for the greatest number.”

32. A belief that most nonhuman resources should be owned, not by private individuals, but rather “by everyone” in common, with the government as trustee, is a foundation for: (a) libertarianism. (b) capitalism. (c) anarchism. (d) laissez-faire policies. (e) socialism.

33. The demand for Honda Accords will increase in response to: (a) Honda offering huge discounts to prospective buyers. (b) a decrease in the price of steel. (c) higher prices for Toyota Camrys. (d) technological advances for designing the car. (e) higher safety ratings for Hummers.

34. If the citizens of a nation consume more of their income now and save less: (a) the future capacity of the economy to produce will be less than it would otherwise be. (b) social infrastructure is increased and private enterprise is reduced. (c) economic growth is stimulated by long periods of prosperity. (d) the production possibilities frontier will shrink.

35. The economic concept of total costs and a bookkeeper’s concept of total costs differ because economists: (a) place a lower value on psychic income. (b) include psychic income in explicit revenues. (c) sum the explicit costs bookkeepers record and the implicit costs bookkeepers ignore. (d) ignore accounting data.

36. Suppose demand is D0 before a hurricane devastated orange orchards, reducing supply from S0 to S1. For this season, the equilibrium quantity would: (a) rise to 200 boxcars while the price fell to $1 per pound. (b) fall to 150 boxcars and the price would rise to $2 per pound. (c) rise to 150 boxcars while the price increased to $1.50 per pound. (d) be constant, but the effect on price would be ambiguous. Persistent shortages of oranges would be most likely if supply is S1 and demand is D1 and: (a) government sets a price ceiling of $1 per pound. (b) unexpected cold weather reduces supply to S0. (c) government sets a price floor of $2 per pound. (d) demand grows to D0.

38. Positive scientific analysis cannot be used to test the economic assertion that: (a) every nation in the world allocates some economic resources through government agencies. (b) most transitional economies have experienced problems of falling output and rising prices over the past decade. (c) consumer sovereignty is relatively more important in market economies than in planned economies. (d) democratic nations need to focus on reducing inequality.

39. In a region of production in which a firm encounters constant returns to scale, the firm’s long-run average cost curve is: (a) positively sloped. (b) negatively sloped. (c) horizontal. (d) vertical.

40. An enormous increase in total fixed cost because of higher land prices is least likely to affect: (a) short run marginal cost. (b) average fixed cost. (c) long run total costs. (d) long run average cost.
41. From any reasonably complete circular flow model that contains households, firms, and government organizations, we know that it is impossible for a business firm to: (a) combine resources in productive ways. (b) bear the burdens of taxation. (c) purchase resources from households. (d) sell goods and services. (e) maximize profits for its owners.

42. The opportunity cost of producing an extra jar of peanut butter in Sandwichia is highest at: (a) point a. (b) point b. (c) point c. (d) point d. (e) point e. 43. The “dotted” point that would be productively [technically] inefficient is: (a) point a. (b) point b. (c) point c. (d) point d. (e) point e. 44. Across time, movement from point b to point e might be achieved through: (a) investment in new capital. (b) an increase in the number of workers. (c) improvements in the quality and productivity of labor. (d) a technological advance. (e) All of the above.

45. Soil erosion that reduced farmers’ productivity would cause equilibrium food prices to: (a) rise because of growth in demand for food. (b) fall because of reduced supply. (c) rise because of reduced supply. (d) fall because of increased demand.

46. Diseconomies of scale are often encountered if firms get larger and larger in the long run in part because: (a) entrepreneurial quests for profits decline as size increases. (b) managerial control deteriorates while the need for coordination between production teams increases. (c) corporate managers tend to be less efficient than entrepreneurial operations. (d) large firms inevitably come under close government scrutiny.

47. Positive scientific economic analysis could NOT be used to test whether: (a) higher tax rates cause tax revenues to fall. (c) legalizing gambling would increase government tax revenues. (b) only cigarette companies are harmed by higher cigarette taxes. (d) outlawing "happy hours" will reduce drunk driving. (e) states should use lotteries to increase the quality of public education.

48. If marginal cost is above average variable cost but below average total cost and then output is increased slightly, average variable cost will: (a) decrease until it exceeds average total cost. (b) increase but average total cost will decrease. (c) increasingly differ from average total cost. (d) decrease but average total cost will increase.

49. A researcher specializing in macroeconomics focuses primarily on such things as: (a) how prices and output are determined. (b) unemployment, inflation, economic growth, and other aggregate economic phenomena. (c) individual decision making and resource allocation. (d) consumer purchasing patterns. (e) how firms maximize their profits.

50. If the price of plastic moose heads rose from $5 to $7 and monthly sales drop from 2000 units to 1000 units, using the arc elasticity formula, their price elasticity of demand equals: (a) 1/3. (b) 3.0. (c) 2.0. (d) 2.5.

51. In Poor Richard’s Almanac, Benjamin Franklin asserted, “Fish and visitors stink in three days,” which is less a comment on how fast food spoils and more an illustration of the: (a) principle of equal marginal utilities per dollar. (b) law of equal marginal advantage. (c) law of diminishing marginal utility. (d) pervasiveness of rational ignorance.

52. The change in purchases that results because changes in relative prices alter the purchasing power of a consumer’s income is known as the: (a) transfer pattern. (b) income effect. (c) demonstration effect. (d) adjustment margin. (e) substitution effect.

53. If labor is the only resource that is variable in the short run, then the curved line through points a, b, c, d, and e represents this blueberry farm’s: (a) long-run average cost curve. (b) short-run average cost curve. (c) total physical product of labor curve. (d) long-run total profit curve. (e) short-run total variable cost curve. 54. The marginal physical product of labor for this blueberry farm is maximized at the amount of labor corresponding to point. (a) a. (b) b. (c) c. (d) d. (e) e. Short run average variable costs for blueberries are minimized at output: (a) Qa. (b) Qb. (c) Qc. (d) Qd.

56. The maximization of any individual’s consumer surplus from all the goods consumed requires conformity with the: (a) principle of equal marginal utilities per dollar. (b) balancing of equal total utility from every possible good being consumed. (c) absence of the consumer being exploited by monopolies. (d) ratios of MUs for all goods exceeding the ratios of their prices by the same proportions.

57. When Alfred Marshall categorized analytical periods of time, he specified that in the short run it is: (a) impossible to vary technology, and at least one resource is fixed so that at least one form of cost is also fixed. (b) possible to move resources from one industry to another. (c) possible to vary technology, but at least one resource is fixed and consequently at least one form of cost is also fixed. (d) possible to vary all resources and costs, but not technology.

58. Advocates of laissez-faire policies want: (a) government control of the economy. (b) public ownership of all resources. (c) optimal scarcity according to need. (d) minimal government intervention in the economy.

59. If total revenue to a firm is unaffected by small price changes, then the demand for the firm’s product is: (a) relatively price elastic. (b) relatively price inelastic. (c) unitarily price elastic. (d) vertical. (e) horizontal.

60. Not reading the fine-print in a contract when you rent a car because it’s too much bother while you are on vacation is an example of: (a) adverse selection. (b) rational ignorance. (c) economic dishonesty. (d) market power. (e) moral hazard.

61. The Infomercial Corporation was previously willing to sell 1800 vegetable mashers at $37 per unit, but is now willing to sell 2400 units at a price of $30. This is most compatible with Infomercial experiencing a: (a) technological advance. (b) labor strike that drove up wage costs. (c) successful advertising campaign. (d) bad rating from Consumer Reports.

62. Raising the price of a firm’s product definitely increases total revenue if the price elasticity of demand is: (a) infinity. (b) unitary. (c) relatively elastic. (d) relatively inelastic.
63. Consumers’ demand prices and sellers’ supply prices are most likely to differ in equilibrium because of: (a) arbitrage. (b) expectations about availability. (c) the invisible hand. (d) government subsidies or tax wedges. (e) the strength of competition in a market.
64. If 6 units of capital can be substituted for 1 unit of labor without changing total steel output, while 4 units of capital can be substituted for 1 unit of labor without changing the output of wheat, then: (a) there is an optimal allocation of resources between steel and wheat. (b) it would be more efficient if some labor were shifted from wheat to steel while some capital was shifted from steel to wheat. (c) the production possibilities frontier will expand if more steel and less wheat is produced. (d) it would be more efficient if some labor were shifted from steel to wheat while some capital was shifted from wheat to steel.

If the launch of Nintendo’s Xii shifted the demand curve for games designed for Sony PlayStations from D0 to D1 during the same period when new game designers entered this market so that supplies of PlayStations games shifted from S0 to S1, the market equilibrium: (a) quantity would increase from roughly 14 million to roughly 16 million per week. (b) price would increase from $10 per game to $25 per game. (c) quantity and price would both decrease. (d) price would decline because of shortages in this market in the short run. (e) price and quantity would both increase.

66. Of the following, the only change in the markets for software game players and games that would increase quantities supplied of games for Sony PlayStations would be: (a) increases in the average hourly pay of game developers. (b) price cuts for Sony PlayStations. (c) improvements in game development technology. (d) price cuts for Nintendo’s Xii.
67. Scientifically positive statements would include assertions that: (a) experienced teachers should be paid more than less effective teachers. (b) Americans are better governed when no single political party controls both Congress and the presidency. (c) on average, college students who study less and drink more beer are likely to have lower GPAs. (d) equity considerations require society to provide poor people with food stamps. (e) premeditated murderers deserve capital punishment.
68. Your family’s home can generate the service of shelter across many years, so from the vantage point of economics, it can most reasonably be categorized as: (a) a financial investment. (b) a fixed cost resource. (c) economic capital. (d) market capitalization. (e) social infrastructure.
69. Applying 10,000 gallons of water per acre yields a harvest of four tons from each acre of linguini trees annually, but increasing water to 20,000 gallons per acre increases the crop to six tons per acre. The water elasticity of linguini production is: (a) – 1.2. (b) – 0.6 (c) zero. (d) 0.6. (e) 1.2.
70. In the short run, implicit costs are most commonly: (a) variable costs. (b) fixed costs. (c) marginal costs. (d) operating costs. (e) long-run costs.
71. Categories of the problems posed when asymmetric information prevents corporations from maximizing long run profits and the value of stocks owned by shareholders, or which keep consumers from maximizing their satisfaction or utility, do not include: (a) principal-agent problems. (b) adverse selection. (c) “analysis paralysis,” when decisionmakers confront too many bewildering choices. (d) moral hazard.
72. In a market system, intermediaries earn income and survive in the long run only if they help buyers and sellers by: (a) increasing the surpluses associated with economic profits. (b) providing employment to owners of labor resources. (c) innovating new products. (d) reducing transaction costs. (e) introducing cutting-edge technologies that reduce production costs.
73. A corporation is least likely to secure funding for its operations by: (a) acquiring its biggest competitor through a merger that consolidates its monopoly power. (b) issuing common stock. (c) borrowing from a financial institution. (d) issuing corporate bonds. (e) keeping some of its after-tax income as retained earnings instead of paying bigger dividends to its stockholders.
74. Individuals maximize satisfaction when the marginal utilities of all the goods they consume are: (a) equal to their cost/benefit ratios. (b) maximized. (c) exactly proportional to the opportunity costs of consuming them. (d) equal. (e) exactly proportional to the consumer’s income.

This graph for the web page design firm depicts: (a) labor’s marginal productivity. (b) how total costs are related to output. (c) a total product of labor curve. (d) profits for a competitive firm. (e) marginal utility derived from luxury goods. If labor were the only variable resource in the short run for this web design firm, then the amount of labor that would yield the maximum average physical product of labor [APPL] would correspond to the minimum amount of labor required to operate at: (a) point a. (b) point b. (c) point c. (d) point d. Between points a and b, this firm’s: (a) average fixed costs are rising. (b) average variable costs exceed marginal profit. (c) marginal costs are falling. (d) workers are suffering from diminishing returns. (e) profits reach their maximum.

78. Consumer gains from being able to buy a good at a single price per unit instead of paying all that a given quantity of a good is subjectively worth are: (a) consumer surpluses. (b) moral hazards. (c) economic profits. (d) adverse selections. (e) market exploitation.
79. Quotas that limited U.S. imports of foreign steel during 2001-2004 caused the: (a) prices paid by American car buyers to rise. (b) price of gasoline to rise sharply. (c) profits of U.S. steelmakers to drop. (d) amounts of food exported from the U.S. to Europe to fall.
80. Long-term shortages of gasoline would be most likely to result from: (a) unionization of workers in the oil industry. (b) excessively high fuel taxes. (c) enactment of legal price ceilings that were below equilibrium prices, and vigorous prosecutions of “price gougers.” (d) hurricanes Katrina and Rita, which damaged oil rigs in the Gulf of Mexico, and oil pipelines and refineries in Louisiana and Texas. (e) increases in the sales of gas-guzzling sports utility vehicles.
81. Substitution effects are negative because people respond to a price increase by: (a) buying fewer substitute goods. (b) purchasing less of the good. (c) producing more of the good. (d) working less to maintain existing purchasing patterns. (e) buying more complementary goods.
82. Economic profit is the difference between a firm’s total revenue and: (a) the sum of implicit and explicit economic costs. (b) monetary outlays. (c) variable costs. (d) accounting costs. (e) financial costs.
83. Our society is probably operating inefficiently if: (a) we could grow more pecans by producing fewer walnuts. (b) asthmatics would gain if all pollution were eliminated. (c) people would be healthier and total medical costs would be lower if we devoted more resources to preventive health care. (d) people would use public transportation more and personal vehicles less if bus fares were lowered.
84. The philosophy of utilitarianism does not assume that: (a) social welfare can be measured by summing individuals’ utilities. (b) people seek pleasure and try to avoid pain. (c) “the greatest good for the greatest number” is the optimal social goal. (d) pain detracts from utility, while pleasure adds to utility. (e) people differ immensely in ability to enjoy goods.
85. Any firm will shut down in the long run if its: (a) owners are faced with unlimited liability for any potential debts of the firm. (b) expected future revenues are not expected to cover all future costs of production. (c) implicit costs exceed all explicit costs. (d) economic profit does not exceed zero. (e) original owners die or quit working.
86. Speculators will tend to go bankrupt if their activities: (a) increase the magnitude and volatility of price fluctuations. (b) reduce transaction costs to other buyers or sellers. (c) dampen the volatility of prices. (d) enhance economic efficiency. (e) fail to generate economic profits.

This curve depicts the: (a) average physical product of labor [APPL] in the long run. (b) marginal physical product of labor [MPPL] in a market period. (c) total physical product of labor [TPPL] in the short run. (d) revenue the poker chip company will receive from hiring various possible quantities of labor. This poker chip producer’s marginal cost is minimized at a labor input in this figure of: (a) La. (b) Lb. (c) Lc. (d) Qc (e) zero. Poker chips per worker (average physical product of labor, or APPL) in this figure are maximized at a labor input of: (a) La. (b) Lb. (c) Lc. (d) Qc.

90. Which of several possible economic investments would maximize a firm’s profit for is not even partially determined by the firm’s: (a) maintenance costs for equipment. (b) fixed costs. (c) ability to negotiate low interest rates on a bank loan. (d) expected income streams. (e) opportunity costs.
91. The firms’ goal of profit maximization is most closely analogous to: (a) revenue maximization by Internal Revenue Agents. (b) maximization of a firm’s market share within an industry. (c) utility maximization by consumers. (d) vote maximization by politicians.
92. The resource a carpet manufacturer is most likely to view as variable in the short run would be: (a) a warehouse it owns. (b) a truck driver. (c) a truck on a five-year lease agreement. (d) the firm’s biggest factory.
93. Difficulties in distinguishing between total, average, and marginal utilities gave rise to a logical problem known as the: (a) marginalist paradigm. (b) paradox of value. (c) philosopher’s stone. (d) conundrum of consumption. (e) Pythagorean dilemma.
94. Transaction costs are reduced and economic efficiency is improved by: (a) long-term price ceilings. (b) monopolies coordinated by central planners. (c) blacklists and yellow dog contracts. (d) the bureaucratic tendencies of big organizations. (e) such intermediary (“middleman”) operations as arbitrage and speculation.

95. The price of food relative to the price of clothing will be lowest in the figure below at: (a) point a. (b) point b. (c) point e. (d) point g.

96. Movement from point e to point h might be achieved through: (a) investment in new capital facilitated by increased saving. (b) improvements in the quality and productivity of labor. (b) technological advances in both the food and clothing industries. (d) an influx of ambitious immigrant workers. (e) All of the above. 97. This society might move from point a to point e if: (a) a wave of diligent immigrants entered the work force. (b) productive efficiency improved as the economy recovered from a recession. (c). more people began dieting and had to buy new clothes. (d) economic profits grew as technology advanced.

98. This production possibilities frontier unambiguously indicates that this economy: (a) can costlessly move from point b to point c. (b) maximizes the total value of output at point c. (c) fully employs all of its resources at point f. (d) cannot attain point e without more resources or better technology.

99. Airlines compensate ticketed passengers who voluntarily surrender guaranteed seats on an overbooked flight and take a later flight. This system is more distributively efficient than drawing names randomly from a hat to determine who will miss the flight because under this compensation system: (a) the distribution of seats is fairer than it would be under a system of random selection. (b) passengers have equal opportunities to earn money they hadn’t counted on. (c) the flight is far more likely to remain on schedule. (d) passengers with relatively the least to lose are the ones who miss the flight. (e) airlines maximize greater profits.

100. The idea that costs must eventually increase faster than output when any society expands any specific type of output follows logically from the law of: (a) diminishing returns. (b) increasing returns to scale. (c) rising expectations. (d) supply and demand. (e) rational consequences.

101. Economic efficiency is most clearly enhanced when: (a) a new Wal-Mart opens in a rural community. (b) India boosts its production of luxury automobiles. (c) Joy trades her brownies for chocolate chip cookies from Kim during lunch at school. (d) tax reform simplifies the tax code and makes the tax burden more progressive. (e) less-developed countries grow faster than more advanced countries.

102. If reducing ticket prices for Dixie Chick concerts increases total revenues, then the demand for tickets for Dixie Chick concerts is: (a) perfectly price elastic. (b) relatively price elastic. (c) unitarily price elastic. (d) relatively price inelastic. (e) perfectly price inelastic.

103. Predictable results when government sets a maximum price below equilibrium include: (a) shortages. (b) queues. (c) black markets and corruption. (d) economic inefficiency. (e) All of the above.

104. Most microeconomic models assume that all choices by individuals reflect attempts to: (a) conform to cultural norms and social mores. (b) minimize profits and maximize losses. (c) balance the expected marginal personal benefits of each activity with its expected marginal personal costs. (d) propagate the individual’s genes into future generations. (e) achieve class, status, and power.

105. In circular flow models of a market economy, the people who ultimately experience all joy or suffer all pain, consume all final goods, own all resources, and who bear all the burdens of inflation and pay all taxes, are categorized as members of: (a) corporations. (b) households. (c) government agencies. (d) business firms. (e) All of the above.

106. In the short run the demand for mink coats is least likely to change in response to: (a) development of a petroleum-based faux fur fabric that cannot be distinguished from genuine mink except through DNA analysis. (b) an army of animal rights activists splashing paint on passers-by who wear fur coats. (c) decreases in the prices of mink coats. (d) exceptionally mild winter weather in New York, Paris. London, Rome, Moscow, and Beijing. (e) massive redistributions of income from the rich to the poor.

107. Suppose that in the short run, increased globalization has caused this U.S. furniture market to achieve a temporary equilibrium at point e on S0D0, but most U.S. furniture manufacturers experience economic losses. As the American furniture industry adjusts, in the long run this market would move towards a new equilibrium at: (a) point a. (b) point b. (c) point c. (d) point d. (e) point f. 108. If this market begins in equilibrium at point e on S0D0 and then younger American families increasingly “inherit” furniture as their baby-boomer parents move into smaller retirement homes, this market will tend to shift to a new equilibrium at: (a) point i. (b) point h. (c) point a. (d) point d. (e) point f.

109. The basic foundations of a capitalist system do not include: (a) market-determined prices and outputs. (b) supplies and demands. (c) government acting as a trustee for all members of society in allocating non-human resources. (d) private property rights. (e) laissez-faire policies.

110. The law of equal marginal advantage is most clearly operating when: (a) oil companies use the same markup over costs to set prices. (b) your last dollar is spent on a winning lottery ticket. (c) identical twins work in equally well‑paid jobs. (d) shoppers exhaust their budgets on nondurables and services.

111. The law of supply states that higher prices cause increases in the: (a) quantity supplied of a good. (b) supply of the good. (c) demand for the good. (d) profits of investors.

112. Diseconomies of scale exist when average production costs: (a) rise as output increases. (b) exceed the price of output so that economic losses are incurred. (c) fall as the level of output rises. (d) depend on the number of firms in an industry. (e) fail to achieve diminishing returns.

113. Paradise Planners sold 170 deluxe Hawaiian winter vacation packages at a price of $1900, but only 130 tourists signed up when the price rose to $2100. These Hawaiian vacations have a price elasticity of demand roughly equal to: (a) 2.667. (b) 2.125. (c) 1.625. (d) 1.333. (e) 1.000.

114. A typical household maximizes utility by spending all its money to buy and consume a combination of goods that yields: (a) basic physiological needs and customary wants. (b) maximum status and social prestige. (c) complete satisfaction of all desires. (d) an equal MU/P for all goods purchased, including goods for which it saves and buys in the future.

115. The variable that is least relevant for a profit-maximizing firm’s pricing and output decisions would be: (a) total consumer demand for the firm’s products. (b) wages that must be paid to extra workers if it increases its output level. (c) the average fixed costs of production. (d) the sales taxes it must pay if it sells more output.

116. A disadvantage shared by both sole proprietorships and partnerships relative to the corporate form of business is the problem of: (a) vulnerability to a hostile merger. (b) decentralized decisionmaking. (c) unlimited liability for the owners. (d) excessive government regulation.

117. Uncertainty and asymmetric information about the quality of a good tends to result in: (a) not all potential gains from exchange being realized. (b) lower equilibrium prices. (c) purchases of unexpectedly low-quality items known as “lemons.” (d) fewer transactions. (e) All of the above.

118. Business firms can survive primarily because they: (a) coordinate team production and reduce transaction costs. (b) generate accounting profits that exceed economic profits. (c) make economic profits by exploiting employees and consumers. (d) facilitate the technological progress envisioned by entrepreneurs.

119. To be allocatively, productively, and distributively efficient, a country must: (a) maximize the value of output producible from its given resources. (b) provide for the basic needs of all its people. (c) coordinate its circular flow of income. (d) maximize the satisfaction attainable from its budget. (e) operate on the extreme endpoint of its production possibilities frontier

120. Examples of scientifically “positive” statements include assertions that: (a) the death penalty should be abolished. (b) Nicole Kidman is a horrible actress. (c) in all of history, no two snowflakes have ever been perfectly identical. (d) women who do comparable work should be paid just as much as men. (e) the Electoral College should be abolished.

121. Not learning everything possible about someone before you marry them is an example of: (a) adverse selection. (b) rational ignorance. (c) economic dishonesty. (d) blind indifference. (e) moral hazard.

122. Consumers will buy less of a good if the price increases. Economists divide this effect of a change in the price of a good into the: (a) diminishing marginal utility effect and the indifference effect. (b) income effect and the substitution effect. (c) total utility effect and the preference effect. (d) indifference effect and the enhancement effect.

123. No firm can survive unless it ultimately: (a) reduces the transaction costs of its consumers. (b) generates consistent economic profits. (c) maximizes the value of output for a given cost. (d) minimizes the costs of producing given amounts of output. (e) acquires some degree of monopoly power.

124. Enron managers publicly stated that its stock was “significantly undervalued” in 2001-2. Simultaneously, top Enron executives were aggressively selling their own stock. Shortly thereafter, Enron went bankrupt. Financial investors in Enron lost billions of dollars because of problems associated with: (a) monopolistic exploitation. (b) excessive profiteering. (c) immoral turpitude. (d) “free-rider” behavior. (e) asymmetric information.

125. In this graph, a price hike from P2 to P3 for fried grits would be most likely to reflect increases in: (a) national income. (b) the costs of frying grits. (c) competition between restaurants that fry grits. (d) diners’ desires for fried grits. (e) the technology used to fry grits. 126. Kimmie loves cheesy fried grits, but Pixie’s Café keeps switching prices on her. Economists would be least likely to ascribe variations in her weekly intake of grits from point a to point b to point c to: (a) changes in Kimmie’s tastes and preferences. (b) the income effect. c) changes in the quantities demanded. (d) the substitution effect. (e) diminishing marginal utility.

127. Net economic investment for the economy as a whole occurs when: (a) romance novelist Portia Palpitates buys a $4 ream of paper from Staples to print out the first draft of her latest masterpiece. (b) Punque Roque, a startup sand-and-gravel pit that launched its IPO today, sells Jester common stock for $10,000. (c) Cognitive-Slippage pays Carolina Cab $11,000 for a fully depreciated taxi with 477,164 miles on its odometer. (d) Ima Grate Stoodent, a UNC sophomore, signs a one-year lease on a used double-wide trailer. (e) Microsoft buys all outstanding IBM stock for $20 billion in a hostile takeover of the former computer monolith.

128. The least likely outcome if heroin were legalized would be that: (a) its price would fall. (b) the attractiveness of becoming a supplier would increase because profit per dealer would rise in the long run if the costs of being jailed were eliminated. (c) more people might experiment with the drug because the price would be relatively lower. (d) fewer addicts would engage in crime to support their habits. (e) consumption would decline for such substitute goods as alcohol.

129. The assumptions underpinning simple production possibilities frontier models do not include the notion that: (a) total resources are fixed. (b) all resources are efficiently utilized. (c) technology is constant. (d) resource owners are paid according to the productivity of the resources they own.

130. Melissa writing computer code while Jennifer handles the business aspects of the Byrns’ Daughters Software Company would be an example of specialization in accord with: (a) comparative advantage. (b) a division of labor. (c) hierarchical structuring. (d) absolute advantage. (e) familial nepotism.

131. If supply and demand for a good both increase, there will be an increase in: (a) a monopoly firm’s profits. (b) equilibrium quantity. (c) quality of the good. (d) market price. (e) consumer surplus.

132. Relative to people with lower incomes, higher-income families tend to shop for groceries less frequently and use fewer discount coupons, but buy more during each trip, because: (a) their superior access to transportation enables them to travel further, thereby paying lower prices per given item than lower-income people typically pay. (b) the huge cars that can carry more groceries are status symbols only the rich can afford. (c) such shopping patterns save time that high-income people value relatively more. (d) purchasing larger and more varied commodity bundles requires better planning and greater intelligence.

133. A tax system that increases the percentage paid as income rises is considered: (a) unfair. (b) regressive. (c) proportional. (d) progressive.

134. The equilibrium price for a good is the price at which: (a) the plans of both buyers and sellers are realized. (b) subjective prices just offset transaction costs. (c) queuing to circumvent shortages is socially optimal. (d) inventories accumulate at the fastest rate possible.

135. When falling income causes the demand for a good to grow, it is an: (a) expensive biological necessity. (b) unnecessary luxury. (c) inferior good. (d) excessive complementary good. (e) ideal substitute.

136. Given these supply and demand curves for fish, the equilibrium price and quantity are, respectively: (a) P2, and Q3 units. (b) P1, and Q5 units. (c) P3, and Q1 units. (d) P1, and Q1 units. (e) P3, and Q5 units. 137. If the price of fish is initially at P1, it will: (a) rise because of excess demand. (b) fall because of excess supply. (c) remain at this equilibrium. (d) rise because of excess supply.

138. The volatility of prices and opportunity costs tends to be dampened by the actions of successful: (a) labor unions. (b) corporate CEOs who overstate revenues and understate costs. (c) but myopic financial investors in government bonds. (d) speculators. (e) wage and price control regulators.

139. The time and other opportunity costs incurred in acquiring information about products and prices and then driving to and from markets are examples of: (a) mobilization costs. (b) contracting costs. (c) transactions costs. (d) frictional costs. (e) market imperfections.

140. Society's BASIC economic problems do NOT include deciding: (a) what goods to produce. (b) how to produce the goods chosen. (c) what occupation each person should pursue. (d) who should get to use the goods produced.

141. Positive economic analysis of higher cigarette taxes would include the theory that they: (a) will raise cigarette prices and reduce smoking. (b) are desirable because they will reduce smoking. (c) are bad because employment will fall in tobacco-growing states. (d) do more harm than good for smokers.

142. People tend to find more ways to use a good if the: (a) prices of substitute goods fall. (b) good is inferior and their incomes rise. (c) complements of the good become more expensive. (d) price is reduced. (e) good is widely advertised.

143. The short run in production theory is an analytic period in which: (a) labor is fixed but capital and land may vary. (b) all resources’ inputs are fixed. (c) some resources may vary, but at least one is fixed. (d) more adjustments are possible than in the long run.

144. In the figure below, curve abcd is the Tofu Burger Fast Food Franchise’s: (a) total physical product of labor curve. (b)long-run production function. (c) long-run cost curve. (d) short-run cost curve.

145. The marginal physical product of labor in producing tofu burgers is roughly zero at: (a) point a. (b) point b. (c) point c. (d) point d.

146. Labor’s marginal physical product is maximized when the Tofu Burger Fast Food Franchise hiring is roughly equal to: (a) labor La. (b) labor Lb. (c) labor Lc. (d) labor Ld. 147. Between points a and b in this figure for tofu burger production, labor’s marginal: (a) productivity is rising to equal average productivity. (b) cost is above average variable cost. (c) overhead cost exceeds operating cost. (d) product is falling, but average physical product rises. (e) wage rate declines at an increasing rate. 148. The Tofu Burger Fast Food Franchise will minimize average variable cost [AVC] at an output of roughly: (a) Qa. (b) Qb. (c) Qc. (d) 0 = zero.

Tofu Burger Fast Food Franchise

149. The long run for production theory is an analytical time period across which: (a) all production takes place. (b) firms can adjust all their resources and costs. (c) larger firms absorb smaller firms. (d) marginal costs become decreasingly important. (e) implicit costs become explicit costs.

150. An arbitrageur is a person who will: (a) create disparities between prices in different markets. (b) resolve disputes between consumers and sellers. (c) buy low and sell high at different time periods. (d) simultaneously buy low and sell high in different market locations.

151. The idea that a virtue of capitalism is its decentralized decision making emerged when: (a) such social philosophers as Adam Smith looked for alternatives to feudal kings as economic regulators. (b) Russian imperialism fostered anti-communist sentiment after World War I. (c) early Christian philosophers sought to reduce human greed. (d) anarchists tried to overthrow late 19th Century European monarchs.

152. A firm will shut down in the long run if. (a) its economic profit is zero. (b) its implicit costs exceed its accounting profits. (c) it is more profitable to outsource to a foreign country the manufacturing of its major products. (d) the psychic income of its owners is less than the economic profit it is trying to maximize. (e) the government imposes price ceilings on the goods it sells.

153. Public goods: (a) have no cost to society. (b) are provided on a user fee basis but available to all of the public. (c) are rival and exclusive. (d) are nonrival and nonexclusive.

154. In the absence of diminishing returns, the maximum output of food from a flower pot (land) and unlimited amounts of other resources could conceivably be adequate to feed: (a) a grasshopper. (b) one mouse. (c) one skinny family. (d) all of the world.

155. The profits realized from organizing production, taking risks, bearing uncertainty, and innovating are rewards to: (a) corporate managers. (b) government bureaucrats. (c) heirs to great fortunes. (d) entrepreneurs.

156. Information about incentives to produce and to use goods efficiently is imbedded most directly in: (a) relative prices. (b) normative economics. (c) characteristics of free goods. (d) absolute prices. (e) laws and government regulations.

157. A consumer maximizes satisfaction when the marginal utilities of all goods purchased are exactly:(a) proportional to personal income.(b) equal.(c) proportional to their market prices.(d) maximized.

158. Firms in highly competitive markets have difficulty realizing economic profits in the long run because: (a) consumer advocates organize boycotts that generate bad publicity for price gougers. (b) market pressures force fair distributions of products. (c) prices that stray above costs attract vigorous competition. (d) the government sets prices equal to opportunity costs. (e) high consumer incomes prevent firms from exploiting workers.

159. The price elasticity of demand for a good will tend to increase as the: (a) number of available substitutes increases. (b) consumer income level increases. (c) good is a less important budget item. (d) time allowed for response decreases. (e) elasticity of supply decreases.

160. The absolute value of the slope of a production possibilities frontier equals the: (a) Aggregate Demand curve. (b) rate of technological change. (c) total economic utility of the society. (d) relative social costs of producing goods. (e) Aggregate Supply curve.

161. Café Les Gourmands sells 160 dinner salads nightly when it charges $3 per salad, but raising the price to $4.50 each yields only 80 sales. The price elasticity of demand for dinner salads at this restaurant is: (a)0.333. (b) 0.667. (c) 1.0. (d) 1.333. (e) 1.667.

162. An example of the free-rider problem occurs when: (a) friends throw a surprise birthday party for a 21-year-old computer geek. (b) vigilant neighbors foil a burglary for homeowners who never contribute time or money to a “Neighborhood Watch” program. (c) government collects taxes from everyone to pay for national defense. (d) a poor, single mother collects welfare checks unavailable to middle-class mothers. (e) a scholarship athlete hones her skills by practicing daily.

163. Labor’s marginal physical product [MPPL] ultimately declines as more workers are added to any production process because each new worker added: (a) strengthens the diseconomies of scale. (b) decreases profits derived from economies of scale. (b) is less skilled than previous workers. (d) works with relatively less land and capital. (e) experiences diminishing marginal utility.

164. Economic efficiency tends to be enhanced through: (a) divisions of labor in production, and specialization and trade according to comparative advantage. (b) maximization of opportunity costs. (c) understanding macroeconomics. (d) intensive investments in education. (e) common sense instead of theory.

165. For this purely competitive firm, area deP2P1 represents: (a) fixed cost [TFC]. (b) losses, but the minimum possible economic loss. (c) the rate of return on investment. (d) average fixed cost [AFC]. (e) maximum economic profits. 166. This profit-maximizing pure competitor would quit operating in this market in the long run if the price were expected to be persistently less than the price corresponding to: (a) point c. (b) point d. (c) point e. (d) point f. (e) point g.

167. An example of a positive scientific statement would be: (a) most Americans are too fat. (b) men shouldn’t be nurses. (c) justice requires passage of an Equal Rights Amendment. (d) vegetarians are healthier than people who gorge on steak and fried chicken. (e) people shouldn’t be greedy.

168. If no one can gain unless someone else loses, then current arrangements are: (a) economically efficient. (b) not optimal. (c) inequitable. (d) the best cure for scarcity.

169. If hot fudge sundaes cost $4 each and fried grits are $2 per pound and your utility from an extra sundae is 50 jollies and an extra pound of fried grits per month would generate an extra 40 jollies, then, given your current budget, you: (a) would buy more fried grits and fewer sundaes if you inherited some money.. (b) can gain by buying more sundaes and less fried grits. (c) are now maximizing your satisfaction. (d) can gain by eating more fried grits and fewer sundaes.

170. Most empirical estimates of long‑run average cost curves based on the statistics indicate that “real-world” firms confront: (a) unlimited economies of scale. (b) diseconomies of scale for all firm sizes. (c) “M ‑shaped” long‑run average cost curves. (d) “U ‑shaped” long‑run average cost curves with relatively “flat” bottoms.

171. For consumers, the substitution effect is always negative because decreases in the: (a) relative price of a good make it advantageous to find more uses for the good. (b) tax structure cause declines in work effort. (c) absolute price level cause losses of consumer purchasing power. (d) prices of substitute goods cause supply to decline. (e) level of output follow hikes in the prices of goods.

172. No profit-maximizing firm would ever produce a level of output at which: (a) marginal revenue is below the price charged consumers. (b) demand is relatively price inelastic. (c) total revenue would exceed total variable costs but not total fixed cost. (d) accounting profit is negative.

173. A purely competitive firm’s short-run supply curve is the positively sloped part of the marginal cost curve that is above its: (a) average fixed cost curve. (b) resource demand curve. (c) average variable cost curve. (d) short-run average total cost curve.

174. Economic profits generated by purely competitive firms are least likely to generate pressures for: (a) each firm’s output to shrink in the short run. (b) the industry’s output to increase as firms enter the industry in the long run. (c) market prices to decrease in the long run. (d) resource costs to increase.

175. When physically indistinguishable units of a good are simultaneously sold at different prices at different locations, these price differentials reflect: (a) differences in marketing and advertising costs. (b) rational ignorance by consumers. (c) differential bargaining power. (d) product differentiation. (e) transaction costs.

176. That the extra enjoyment people gain from consuming extra units of a particular good eventually declines follows logically from the law of: (a) unexpected consequences. (b) diminishing returns. (c) bounded preferences. (d) increasing costs. (e) rational behavior.

177. Driving more carefully because your car insurance has lapsed means that when you were insured your sloppier driving was an example of: (a) naive selfishness. (b) market power. (c) adverse selection. (d) price discrimination. (e) moral hazard.

178. If the Japanese government now began to subsidize each car exported by the amount dg, then U.S. car buyers will: (a) pay P2 for a car previously priced at P0. (b) suffer Q0 ‑Q1 unemployment, and will buy fewer imports. (c) gain profit equal to area abef. (d) wind up paying P1 each for Q2 imported cars. 179. Starting from a free trade equilibrium, if our government now tried to boost U.S.-made auto sales by imposing a price ceiling of P1 on imported cars: (a) the quantity of cars imported will fall from Q0 to Q1. (b) American car prices would settle at P2. (c) foreign car exporters would ship more luxury cars to the United States. (d) American-made car sales would rise by Q2 ‑ Q0.

Assume the import market for cars is initially in equilibrium.

180. Normal accounting profits are: (a) important only for purposes of computing personal income taxes. (b) split evenly unless a partnership’s written agreement specifies a different division of income. (c) identical with corporate overhead expenses. (d) equal to the implicit costs of the firm’s owners. (e) evidence that consumers are exploited.

181. Most economists believe that an individual’s decisions are made: (a) “at the margin.” (b) with a goal of maximizing their personal utility or “jollies.” (c) rationally, based on the best information available. (c) based on how the decision-makers perceive their own self interests. (e) All of the above.

182. A firm experiences economies of scale when: (a) price decreases as more units are sold. (b) output increases as more workers are hired. (c) average costs decrease as output increases. (d) increases in the number of firms in the industry reduce resource costs or improve technology.

183. By 2003, airlines had significantly reduced the number of flights available relative to flight availability during 2000. Passenger mileage was down. Economists would be least likely to ascribe the decline in the demand for airline tickets in the early 2000s to: (a) changes in tastes and preferences because of the tragedy of September 11, 2001. (b) increases in transaction costs imposed on travelers by increased airport security. (c) a relative reduction in prosperity as the U.S. economy drifted into a recession. (d) increases in the costs of driving long distances because of higher average prices for gasoline.

184. Which of the following is most clearly a positive scientific statement? (a) The Miss America contest is tasteless and sexist. (b) Policies to replace intense competition with greater cooperation among all people would facilitate psychological health. (c) Microsoft’s record of innovation justifies Bill Gates’ incredible wealth. (d) Capitalism enhances people’s happiness far more than socialism does. (e) The president of France is three months pregnant.

185. If it is possible to make somebody better off without making anybody worse off, then the current situation is: (a) efficient. (b) inefficient. (c) optimal. (d) easily improved. (e) a “mini-max.”

186. The hallmarks of "pure" capitalism are the: (a) absence of allocative and productive efficiency. (b) interaction of positive and normative economics. (c) public ownership of resources and centralized decision making. (d) private ownership of property and laissez‑faire government policies. (e) flashy "logos" of giant corporations.

187. Major types of market structure do not include: (a) oligarchy. (b) monopoly. (c) monopolistic competition. (d) oligopoly. (e) pure or perfect competition.

188. If line A in this figure is the steepest ray from the origin that is tangent to total physical product of labor curve C, then the: (a) short-run average variable cost curve is at a minimum with labor Lb. (b) average returns to hiring more labor to produce cat food increase up to Lc. (c) marginal physical product of labor is less than the average physical product of labor for each worker hired up to La. (d) marginal physical product of labor is highest when Lb labor is hired.

189. From this figure, we can infer that this cat food producer minimizes marginal cost [MC] at a labor input of: (a) La. (b) Lb. (c) Lc. (d) Ld. 190. The profit-maximizing cat food producer in this figure would never hire labor beyond point: (a) La. (b) Lb. (c) Lc. (d) Ld. 191. The marginal physical product of labor [MPPL] and the average physical product of labor [APPL] that can be inferred from this figure for a cat food producer are equal at labor input: (a) La. (b) Lb. (c) Lc. (d) Ld.

192. If the federal minimum wage is raised $1 over the equilibrium wage rate for relatively unskilled workers, the LEAST likely result would be for the: (a) unemployment rate of teenagers and unskilled workers to rise. (b) quantity of unskilled workers supplied to rise. (c) quantity of workers demanded to fall. (d) incomes of most working class families to rise. (e) discrimination against relatively unskilled members of minority groups to increase.

193. A total physical product curve shows the short run relationship between a firm’s output and one of the firm’s: (a) total costs. (b) fixed resources. (c) total profit. (d) variable resources.

194. From the circular flow model we know that it is impossible for a business firm to: (a) combine resources in productive ways. (b) bear the burdens of taxation. (c) purchase resources from households. (d) sell goods and services. (e) maximize profits for its owners.

195. The cost that is LEAST relevant for rational decision making by a firm would be: (a) average variable cost (AVC). (b) explicit cost. (c) average fixed cost (AFC). (d) marginal cost (MC). (e) opportunity cost.

196. An unattainable combination of outputs of guns and butter is shown by point: (a) a. (b) b. (c) d. (d) e. 197. Combination a: (a) is beyond this economy's capacity. (b) might be the best combination possible in the economy. (c) is the best possible combination of guns and butter. (d) cannot be the most efficient possible combination of guns and butter. 198. If the resources available were increased, or if technology improved for both goods, the: (a) PPF curve would shift outward. (b) PPF curve would shift inward. (c) output would shift from point a to b. (d) output would shift from point d to b.

199. Resources are classified into the broad categories of: (a) economic goods, free goods, and bads. (b) productive and nonproductive goods. (c) land, labor, capital, and entrepreneurship. (d) rent, wages, interest, and profits.

200. Economic inefficiency exists whenever: (a) a society suffers from economic inequity. (b) there is no way for anyone to gain unless someone else loses. (c) more output could be produced at lower cost. (d) maximum net benefits are obtained for a specified cost.

201. If diet faddists gulp 205 million unsweetened “No-Carb” milkshakes at $2.30 apiece, but cut back to 155 million weekly when the price rises to $3.70 each, the absolute value of price elasticity of their demand for shakes equals: (a) 4.09. (b) 0.25. (c) -4.00. (d) 2.20. (e) 0.595.

202. Equilibrium market price will definitely rise when: (a) demand decreases, with supply constant. (b) supply increases, with demand constant. (c) demand decreases and supply increases. (d) supply decreases and demand increases.

203. Peanut butter and jelly are complements. The price of peanut butter rises due to a blight. What happens to the equilibrium quantity and price of jelly? (a) Equilibrium price falls, equilibrium quantity increases. (b) Equilibrium price rises, equilibrium quantity falls. (c) Equilibrium price falls, equilibrium quantity falls. (d) Equilibrium price rises, equilibrium quantity rises.

204. The law of supply asserts a positive relationship between: (a) the relative price of a good and the quantity supplied. (b) the supply of a good and the demand it creates. (c) consumer purchases and the availability of goods. (d) technology and production.

205. The weakest of the following possible explanations for the relatively quite low price elasticity of demand for salt would be the fact that it: (a) is a good with few close substitutes. (b) is currently relatively low priced. (c) absorbs only small percentages of most household budgets. (d) is sodium chloride, a combination of two relatively common and very inexpensive chemical elements.

206. Suppose the demand for sugar in the figure below recently declined, and that these are now the supply and demand curves for sugar. These curves suggest that: (a) P₀ is the market-clearing price for sugar. (b) store inventories will accumulate if the current price remains at P₂. (c) a shortage of sugar exists when the current price is P₁. (d) queuing may be widespread if the current price for sugar is P₁. (e) a surplus of sugar exists when the current price is P₀.

207. These supply and demand curves in the sugar market indicate that: (a) a price ceiling of P2 will cause a shortage. (b) a price floor of P0 will cause a surplus. (c) the market clears when quantity equals Q0. (d) if the price were P2, unexpected inventory growth would push the price down towards P1. 208. Suppose these are the initial supply and demand curves. If a new law set a ceiling price of P0 for sugar, the predictable result would be: (a) increased profits for sugar cane growers. (b) inventories of sugar unexpectedly increasing on store shelves. (c) shortages of sugar. (d) substitution towards-low carbohydrate foods. (e) surpluses of sugar.

209. These supply and demand curves for sugar suggest that the: (a) demand price exceeds the supply price at quantity Q₂. (b) technology must advance to permit output to expand to Q₄. (c) the demand price for buyers equals the supply price for sellers at quantity Q₂. (d) the market experiences a shortage at P₂. (e) government has set an effective price floor at P₂.

210. Purely competitive markets share the characteristic of: (a) collusive behavior among large firms. (b) freedom of entry and exit in the long run. (c) widespread product differentiation. (d) persistent economic profits. (e) extensive negotiations about prices between buyers and sellers.

211. Feudal cultures in which parents arrange the marriages of their young children tend to rely relatively heavily on: (a) tradition. (b) random selection. (c) the market system. (d) queuing. (e) central planning.

212. An individual or organization that simultaneously buys low and sells high in different markets is a/an: (a) optionizer. (b) arbitrageur. (c) corporate raider. (d) financial gambler. (e) speculator.

213. The invisible hand of the marketplace is a term Adam Smith, the “Founder of Modern Economics”, used to describe: (a) government policies to set market prices at equilibrium levels. (b) speculative manipulations that create disequilibrium. (c) automatic adjustments that drive markets towards equilibrium. (d) Karl Marx's characterization of capitalistic exploitation of labor.

214. Market demands are NOT quickly affected by: (a) income. (b) prices of related goods. (c) resource costs. (d) numbers of buyers. (e) tastes and preferences.

215. Total revenue can be computed by calculating the value of: (a) P+Q. (b) P*Q. (c) e_p*P. (d) e_p*Q.

216. Production possibilities frontiers are concave from the origin because: (a) goods vary in their ability to satisfy individual wants. (b) a land, labor, and capital mix is required for all production. (c) people differ in their responses to production incentives. (d) all resources are equally suited for producing all goods. (e) resources vary in suitability for producing different goods.

217. A concave (bowed out) production possibilities frontier implies that as the output of a good increases, the opportunity costs of that good are: (a) increasing. (b) constant. (c) decreasing. (d) diminishing. (e) falling at first, but eventually rising.

218. In this figure, demand curve: (a) D1D1 is perfectly price‑inelastic. (b) D2D2 is perfectly price‑elastic. (c) D3D3 has a price elasticity coefficient of one. (d) D4D4 has a price elasticity coefficient of infinity. (e) D1D1 is perfectly price‑elastic. 219. The least plausible shape for a demand curve for a good would be demand curve: (a) D1D1. (b) D2D2. (c) D3D3. (d) D4D4. (e) D5D5. 220. The demand curve most likely to have price elasticity equal to one would be demand curve: (a) D1D1. (b) D2D2.(c) D3D3. (d) D4D4. (e) D5D5.

221. The demand curve facing a purely competitive seller is: (a) negatively sloped. (b) horizontal at the market price. (c) vertical at the market quantity. (d) market demand times 1/n, where n = the number of firms. (e) the horizontal summation of all potential buyers’ individual demand curves.

222. Kyle brewing the espresso drinks while Chef bakes croissants at the South Park Coffee Shop is an example of: (a) comparative advantage. (b) division of labor. (c) hierarchical structuring. (d) absolute advantage.

223. Modern economists assume that if a group of people shared a keg of beer, they: (a) could quantify their combined utility from beer. (b) couldn't quantify their combined utility from the beer. (c) aren't individually aware of their alternatives. (d) don't know what's good for them.

224. Asymmetric information causes various inefficiencies, including principal-agent problems. Which of the following problems is NOT an example of the principal-agent problem? (a) A friend to whom you grant power of attorney allows a realtor to sell your house for less than you agreed to. (b) A publisher’s sales representative books first class seats when traveling out of town and writes off the expense as "samples". (c) A sales manager takes her husband out to dinner and charges the meal to her expense account. (d) A used car dealer cons a buyer into paying more for a car than it’s worth. (e) An NBA center stays out all night and plays ineffectively in a crucial play-off game.

225. Characteristics that are widely shared by most highly successful entrepreneurs do not include: (a) vision and timing. (b) conviction and action. (c) luck and one-upmanship. (d) willingness to bear risk and workaholism.

226. NOT among a firm’s explicit costs would be: (a) employees’ wages. (b) value of the owner's time and effort. (c) electric bills. (d) business taxes. (e) payments to other firms for semi-finished goods.

227. If a Hawaiian can grow 50 bushels of either pineapples or 50 potatoes per acre, while an Idahoan manages only 3 bushels of pineapples or 30 bushels of potatoes: (a) Idaho's absolute disadvantages bar gains from specialization and exchange. (b) the optimal division is when each is self‑sufficient. (c) both may gain from specialization and exchange, with the Hawaiian growing pineapples and exchanging them for Idaho potatoes. (d) Hawaii is too close to Idaho for either side to gain.

228. A short run movement of the supply curve from S0 to S1 for dehydrated water, which can be stored almost forever, might result from a decline in: (a) the market price of the good being supplied. (b) market demand for a substitute good. (c) technological efficiency. (d) producers' expectations about future output prices. 229. An increase in the costs of the resources used to produce dehydrated water would lead to a: (a) shift of the supply curve to the left. (b) shift of the supply curve to the right. (c) movement upward along the supply curve. (d) downward movement along the supply curve.

230. If average family income rises from $36,000 per year to $44,000 per year and annual gasoline consumption per household rises from 1000 to 1500 gallons, the income elasticity of demand for gas is: (a) in the inferior range. (b) 0.5. (c) 1.0. (d) 2.0. (e) 3.0.

231. From which of the following data might you roughly estimate a price elasticity of supply? (a) Steel output rises 18% when national income grows 13 %. (b) Farmers plant 15% more soybeans when prices rise 5%. (c) Ford increases production when Chevy sales fall because GM raises prices. (d) Tennis ball sales slump 8% when racquet prices jump 12%.

232. Positive values of this marginal utility curve are associated with: (a) decreasing values of total utility. (b) the maximum point on a total utility function. (c) negative values of a total utility function. (d) increasing values of total utility.

233. Total revenue grows when the price of a good is cut if the absolute value of the price elasticity of: (a) demand exceeds the price elasticity of supply. (b) substitute goods is less than one. (c) supply is in a relatively elastic range. (d) demand is greater than one but less than infinity.

234. The demand curve for heroin is relatively inelastic and negatively sloped but "steep." Enforcement that reduced the heroin supply in street markets would: (a) reduce the demand for heroin. (b) reduce most addicts' spending on heroin. (c) reduce the revenue of heroin pushers. (d) increase most addicts' spending on heroin.

235. The founder of modern utilitarianism was: (a) William Penn. (b) Benjamin Franklin. (c) Jeremy Bentham. (d) Thomas Edison. (e) Mohandas Gandhi.

236. Production occurs when: (a) economic bads are generated. (b) resources are combined in any fashion. (c) materials are altered to make them more valuable. (d) a costly commodity is consumed.

237. Economic capital would NOT include: (a) tools. (b) buildings. (c) machinery. (d) corporate stock. (e) an inventory of office supplies.

238. In this market for bananas: (a) a shortage exists at P2. (b) bananas are a free good at P0. (c) bananas are currently a scarce good. (d) everyone loves banana splits. (e) the equilibrium price for bananas is P0. 239. A surplus of bananas would emerge if: (a) government set a price ceiling of P1. (b) growers expected prices to soar. (b) hurricanes destroyed Central American banana plantations. (c) government imposed a price floor of P2. (d) seller’s supply prices rose to P1. (e) consumer’s demand prices rose to P1. 240. A shortage of bananas would correspond to line: (a) ab. (b) cd. (c) ac. (d) bd. (e) ae.

241. Buying because you expect a price to rise, at which point you will sell, is known as: (a) arbitration. (b) speculation. (c) profiteering. (d) arbitrage.

242. You are more likely to shop at a remote orchard rather than buy apples at a local grocery store when: (a) possible, since produce is cheaper at the orchard. (b) you want to buy only fruits and vegetables. (c) the transaction costs of shopping at the orchard are less than the price differentials. (d) the opportunity cost of shopping at the orchard exceeds grocery store prices.

243. A major advantage of the corporation is: (a) limited liability of stockholders. (b) separation of ownership from control. (c) legal person status. (d) preferential tax treatment of corporate income.

244. Queuing entails: (a) relying on luck to distribute goods. (b) low opportunity costs for busy people. (c) assembly-line production. (d) first-come, first-served allocations. (e) basic skills for pool sharks.

245. The price elasticity of demand is likely to be greater the: (a) more the good is a necessity. (b) better are the available alternatives for producers. (c) higher are the opportunity costs of production. (d) larger is the number of uses for the good. (e) more numerous are complements for the good.

246. Which statement is NOT an example of improving technology? (a) Discovering a new alloy for stronger, lighter aluminum. (b) Light bulbs that burn less electricity. (c) Tomato plants that double yield. (d) A farmer switches from growing wheat to soybeans.

247. Transactions decline and supply prices move below demand prices when a good becomes: (a) subsidized by the government. (b) subject to a high sales tax. (c) more technologically advanced. (d) a complementary by‑product in production.

248. Laws that require extensive testing before medical products can be administered to patients increase the: (a) supplies of new drugs and lower the cost. (b) profits of pharmaceutical suppliers. (c) costs of development and raise prices. (d) demands for medical care.

249. An income elasticity of demand for a good equal to 2 means roughly that: (a) demand curves for the good slope upward. (b) (% change in Q) / (% change in P) = 2. (c) the product is an inferior good. (d) each 1% gain in income boosts the amount sold by 2%. (e) a 20% gain in income yields a 1% increase in sales.

250. The enormous transfer of wealth from industrialized countries to the oil producing countries that accompanied the large hikes in oil prices in the 1970s indicates that the price elasticity of demand for oil was: (a) relatively low. (b) relatively high. (c) unitary. (d) perfectly elastic.

251. Positive analysis of economic policy (a) examines the economic consequences of policies but does not address the question of whether those consequences are desirable. (b) attempts to predict consequences of policies and addresses the question of whether those consequences are desirable. (c) generates less agreement among economists than normative analysis. (d) is rare in questions of economic policy.

252. The difference between the maximum amount that consumers would pay for a given quantity of a good and the amount they actually pay is known as: (a) the discount rate. (b) the mark-up factor. (c) familial profits. (d) household savings. (e) consumer surplus.

253. A consumer maximizes utility whenever spending patterns cause the: (a) total outlays to rise each time prices are changed. (b) marginal utilities of all goods consumed to be equal. (c) marginal utilities from the last cent spent on each good to be equal. (d) dollar outlays on each good to be equal.

254. Toyota produces cars at a number of different locations. In this characteristic Toyota is an example of a: (a) horizontally integrated firm. (b) conglomerate firm. (c) vertically integrated firm. (d) multinational monopoly.

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