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KAPLAN MT445 UNIT 1 QUIZ

Question 1. Question :

Which of the following statements is true about scarcity?

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Scarcity refers to the situation in which unlimited wants exceed limited resources.

Scarcity is not a problem for the wealthy.

Scarcity is only a problem when a country has too large a population.

Scarcity arises when there is a wide disparity in income distribution.

Question 2. Question :

What does the term “marginal” mean in economics?

the edge of a market

an additional or extra

illegal

secondary

trivial

Question 3. Question :

Economics promote which of the following as the way to make the best decision?

Continue an enjoyable activity as long as you do not have to pay for it.

Continue an enjoyable activity until it is no longer enjoyable.

Continue an enjoyable activity until you cannot afford to pursue it.

Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

Question 4. Question :

Making “how much” decisions involve

calculating the total benefits of the activity and determining if you are satisfied with that amount.

calculating the total costs of the activity and determining if you can afford to incur that expenditure.

calculating the average benefit and the average cost of an activity to determine if it is worthwhile undertaking that activity.

determining the additional benefits and the additional costs of that activity.

Question 5. Question :

Cassie’s Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800

purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt “as is” now for $900. What is the marginal cost of completing the task?

$200

$500

$1,000

$1,000 plus the value of her time

Question 6. Question :

Table 2-2

Table 2-2 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens.

Refer to Table 2-2. What is George’s opportunity cost of mowing a lawn?

half a garden cultivated

two lawns mowed

two-thirds of a garden cultivated.

one and a half lawns mowed

Question 7. Question :

The production possibilities frontier model shows that

if consumers decide to buy more of a product its price will increase.

a market economy is more efficient in producing goods and services than is a centrally planned economy.

economic growth can only be achieved by free market economies.

if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

Question 8. Question :

Figure 2-6

German auto producer, BMW currently produces two types of automobiles sports utility vehicles (SUVs) and coupes in its US plant. Since it opened in 1994, the company had made and continues to make several strategic production decisions. Figure 2-6 shows changes to its production possibilities frontier in response to some of these production strategies.

Refer to Figure 2-6. In response to changing consumer demands, BMW has cut back on the production of coupes and increased its production of SUVs. This strategy is best represented by

: movement from E to F in Graph A.

movement from G to H in Graph B.

movement from K to L in Graph C.

movement from J to H in Graph B.

Question 9. Question :

Figure 2-7

Figure 2-7 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews.

Refer to Figure 2-7. Which country has a comparative advantage in the production of cashews?

Indonesia

They have equal productive abilities.

Pakistan

neither country

Question 10. Question :

Table 2-3

Table 2-3 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea.

Refer to Table 2-3. What is South Korea’s opportunity cost of producing one pound of wheat?

5 digital cameras

60 digital cameras

20 digital cameras

0.05 units of a digital camera

KAPLAN MT445 UNIT 2 QUIZ

1. Question : The law of demand implies, holding everything else constant, that

as the price of bagels increases, the quantity of bagels demanded will decrease.

as the price of bagels increases, the demand for bagels will decrease.

as the price of bagels increases, the quantity of bagels demanded will increase.

as the price for bagels increases, the demand of bagels will increase.

Question 2. Question : Which of the following would cause both the equilibrium price and equilibrium quantity of barley (assume that barley is an inferior good) to increase?

An increase in consumer income.

A drought that sharply reduces barley output.

A decrease in consumer income.

Unusually good weather that results in a bumper crop of barley.

Question 3. Question : Buyers scrambled to secure stocks of Australian wool following a forecast of an 11 percent decline in wool production. What happens in the Australian wool market as a result of this announcement?

The demand curve for Australian wool shifts to the left in anticipation of higher prices in the future.

The demand curve for Australian wool shifts to the right in anticipation of higher prices in the future.

The supply curve for Australian wool shifts to the right in anticipation of higher prices in the future.

The supply curve for Australian wool shifts to the left in anticipation of lower quantities in the future.

Question 4. Question : George Gnat subscribes to a monthly pest control service for his home. Last week the owner of the service informed George that he will have to raise his monthly service fee because of increases in the price of gasoline used by his workers on their service trips. How is the market for pest control services affected by this?

There is an increase in the supply of pest control services.

There is a decrease in the demand for pest control services.

There is a decrease in the quantity supplied of pest control services.

There is a decrease in the supply of pest control services.

Question 5. Question : How does the increasing use of digital cameras affect the market for traditional camera film?

The demand curve for traditional camera film shifts to the right.

The supply curve for traditional camera film shifts to the left.

The supply curve for traditional camera film shifts to the right.

The demand curve for traditional camera film shifts to the left.

Question 6. Question : Table 4-3

Table 4-3 shows the demand and supply schedules for the low-skilled labor market in the city of Westover.

Refer to Table 4-3. If a minimum wage of $7.50 an hour is mandated, what is the quantity of labor supplied?

390,000

370,000

340,000

380,000

Question 7. Question : Figure 4-5

Refer to Figure 4-5. The figure above represents the market for iced tea. Assume that this is a competitive market. If 20,000 units of iced tea are sold

the deadweight loss is equal to economic surplus.

producer surplus equals consumer surplus.

the marginal benefit of each of the 20,000 units of iced tea equals $3.

marginal benefit is equal to marginal cost.

Question 8. Question : In Singapore the government places a $5,000 tax on the buyers of new automobiles. After the purchase of a new car, a buyer must pay the government $5,000. How would the imposition of the tax on buyers be illustrated in a graph?

The tax will shift the demand curve to the right by $5,000.

The tax will shift the demand curve to the left by $5,000.

The tax will shift both the demand and supply curve to the right by $5,000.

The tax will shift the supply curve to the left by $5,000.

Question 9. Question : In cities with rent controls, the actual rents paid can be higher than the legal maximum. One explanation for this is

rent control laws are so complicated that landlords and tenants may not be aware of what the legal price is.

landlords are allowed to charge more than the legal maximum on some apartments so long as they charge less on others.

because there is a shortage of apartments, tenants often are willing to pay rents higher than the law allows.

the legal penalty landlords face for charging more than the legal maximum rent is less than the revenue earned by charging their tenants more than the maximum rent.

Question 10. Question : Figure 4-7

Figure 4-7 shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf.

Refer to Figure 4-7. What area represents consumer surplus after the imposition of the price floor?

A + B + E

A + B

A + B + E + F

A

KAPLAN MT445 UNIT 3 QUIZ

1. Question : The internet has made it easy for consumers to buy books online. As a result, many traditional booksellers like Barnes & Noble and Borders (starting in 2008) along with Amazon sell books on their websites. What effect will the internet have on the demand curve that any bookstore faces?

The demand facing a bookstore will become more elastic.

The demand facing a bookstore will become more inelastic.

The demand facing a bookstore becomes horizontal.

The price elasticity of demand remains unchanged; only the cross-price elasticity

changes.

Question 2. Question : Suppose the value of the price elasticity of supply is 4. What does this mean?

A 4 percent increase in the price of the good causes quantity supplied to increase by 1 percent.

A 1 percent increase in the price of the good causes the supply curve to shift upward by 4 percent.

A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.

For every $1 increase in price, quantity supplied increases by 4 units.

Comments:

Question 3. Question : Figure 6-4

Refer to Figure 6-4. Which of the following statements is true about the price elasticity of demand?

The elasticity coefficient is constant along the demand curve.

The elastic portion of straight-line downward sloping demand curve corresponds to the segment above the midpoint.

The inelastic portion of the demand curve corresponds to the segment above the midpoint.

At the midpoint of the demand curve, the elasticity coefficient is zero.

Question 4. Question : When demand is unit price elastic, a change in price causes total revenue to stay the same because

the percentage change in quantity demanded exactly offsets the percentage change in price.

buyers are buying the same quantity.

total revenue never changes with price changes.

the change in profit is offset by the change in production cost.

Question 5. Question : Consider the following pairs of items:

Which of the pairs listed will have a positive cross-price elasticity?

a and b only

c and d only

e only

a, b, and c only

Question 6. Question : Which of the following is a reason why some firms do not use commission pay?

It gives workers incentive to produce more.

It increases firm profits.

It is difficult to measure the output and attribute output to a particular worker.

The best workers stay and less productive workers leave.

Question 7. Question : Scenario: In academia, professors in some disciplines receive higher salaries than others. For example, professors teaching in business schools receive higher salaries than professors in the English department. Suppose in Unity College, assistant professors in the business school earn $Wb while assistant professors in the English department earn $We < Wb. Now suppose the government passes comparable worth legislation that requires academic institutions to pay all faculty the same salaries. Following the passage of comparable worth legislation, Unity College responds by placing salaries at $Wabetween the two existing salaries. Which of the following is the result of the legislation? The supply of English professors increase and the supply of business professors decrease. The demand for English professors decrease and the demand for business professors increase. There will be a surplus in the market for English professors and a shortage in the market for business professors. There will be a surplus in the market for English professors and the market for business professors will not be affected. Question 8. Question : Table 16-2 Refer to Table 16-2. What is the profit-maximizing quantity of labor that the firm should hire? 5 units $4 units $3 units 2 units Question 9. Question : A decrease in the wage rate causes an increase in the quantity of labor demanded. a rightward shift of the firm's labor demand curve. a leftward shift of the firm's labor demand curve. a decrease in labor's productivity. Question 10. Question : Suppose the government grants child care subsidies to mothers entering the labor force. What is likely to happen to the equilibrium wage and quantity of labor? The equilibrium wage and the equilibrium quantity of labor rise. The equilibrium wage and the equilibrium quantity of labor fall. The equilibrium wage falls and the equilibrium quantity of labor rises. The equilibrium wage rises and the equilibrium quantity of labor falls. KAPLAN MT445 UNIT 4 QUIZ 1. Question : If the marginal cost curve is below the average variable cost curve, then average variable cost is increasing. average variable cost is decreasing. marginal cost must be decreasing. average variable cost could either be increasing or decreasing. Question 2. Question : The minimum efficient scale is the level of output where diminishing returns have not set in yet. the plant size that yields the most profit. level of operation where long run average costs are lowest. the smallest output level where the firm finally reaches productive efficiency. Question 3. Question : Which of the following is an implicit cost of production? the loss in the value of capital equipment due to wear and tear the salary you pay yourself for running your business the utility bill paid to water, electricity, and natural gas companies the interest you pay your mother for the money she loaned you to start your business Question 4. Question : Higher isocost lines correspond to higher profits. total costs of production. input prices. sales revenue. Question 5. Question : Which of the following is not a source of technological advancement for a producer? better trained workers. more efficient physical capital. higher skill level of managers. outsourcing some aspect of production. Question 6. Question : Which of the following is an example of a long run adjustment? Your university offers Saturday morning classes next fall. Ford Motor Company lays off 2,000 assembly line workers. A soybean farmer turns on the irrigation system after a month long dry spell. Wal-Mart builds another Supercenter. Question 7. Question : The explicit cost of production is also called variable cost. accounting cost. direct cost. overhead cost. Question 8. Question : If the average variable cost curve is above the marginal cost curve, then marginal costs must be decreasing. average variable costs must be increasing. marginal costs must be increasing. marginal costs can be either increasing or decreasing. Question 9. Question : What is the difference between "diminishing marginal returns" and "diseconomies of scale"? Both concepts explain why marginal cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable. Both concepts explain why average total cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable. Diminishing marginal returns which applies only in the short run, when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale which applies in the long run, when all factors are variable, explains why average cost increases. Diminishing marginal returns which applies only in the short run, when at least one factor is fixed, explains why average variable cost increases, while diseconomies of scale which applies in the long run, when all factors are variable, explains why average total cost increases. Question 10. Question : The law of diminishing marginal returns explains why the average total cost and marginal cost curves are U-shaped in the short run. explains why the average total cost, average fixed cost and the marginal cost curves are U-shaped in the short run. causes average total costs to rise at a decreasing rate as output increases. causes the difference between average total cost and average variable cost to get smaller as output increases. KAPLAN MT445 UNIT 5 QUIZ Question 1. Question : If, as a perfectly competitive industry expands, it can supply larger quantities at the same long-run market price, it is a constant-cost industry. an increasing-cost industry. a decreasing-cost industry. a fixed-cost industry. Question 2. Question : Which of the following describes a situation in which a good or service is produced at the lowest possible cost? productive efficiency allocative efficiency marginal efficiency profit maximization Question 3. Question : A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run? No, it should shut down because it is making a loss. Yes, it should continue to produce because its price exceeds its average fixed cost. Yes, it should continue to produce because it is minimizing its loss. There is insufficient information to answer the question. Question 4. Question : If, as a perfectly competitive industry expands, it can supply larger quantities only at a higher long-run equilibrium price, it is : a constant-cost industry. an increasing-cost industry. a decreasing-cost industry. a fixed-cost industry. Question 5. Question : Figure 11-6 Figure 11-6 shows cost and demand curves facing a profit-maximizing perfectly competitive firm. Refer to Figure 11-6. At price P3, the firm would lose an amount equal to its fixed costs. lose an amount more than fixed costs. lose an amount less than fixed costs. break even. Question 6. Question : Because a monopoly's demand curve is the same as the market demand curve for its product, the monopoly's marginal revenue equals its price. the monopoly is a price taker. the monopoly must lower its price to sell more of its product. the monopoly's average total cost always falls as it increases its output. Question 7. Question : When a proposed merger between two companies is reviewed by the government, the relevant market is defined by whether or not there are close substitutes for the products of the two firms. how elastic the demand is for each firm's product. counting the number of firms that are produce the same product. how much advertising is done in the industry. Question 8. Question : Governments grant patents to encourage research and development on new products. competition. low prices. firms to form public enterprises. Question 9. Question : A Herfindahl-Hirschman Index is calculated by summing the amount of sales by the four largest firms and dividing by total industry sales. dividing the number of firms wanting to merge by the total number in the industry. summing the squares of the market shares of each firm in the industry. summing the advertising expenditures of the firms that want to merge by total industry advertising expenditures. Question 10. Question : Governments grant patents to compensate firms for research and development costs. encourage competition. encourage low prices. encourage firms to reveal secret production techniques. KAPLAN MT445 UNIT 6 QUIZ Question 1. Question : One of your classmates asserts that advertising, marketing research, and brand management are redundant expenditures because a firm can obtain the same information by simply looking at what customers are already buying. Which of the following is not a response you might offer her? Conducting market research is a good way for firms to keep abreast of changing consumer tastes and preferences. Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations. Marketing research could allow a firm to identify new market opportunities and at least, in the short run, a firm can make a profit supplying products to this market segment. If a firm successfully manages its brand, customers become less price sensitive as they perceive fewer substitutes for the firm's brand. Question 2. Question : Figure 12-3 Figure 12-3 shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 12-3.What is the area that represents the total revenue made by the firm? 0P0aQa 0P1bQa 0P2cQa 0P3dQa Question 3. Question : Table 12-3 Table 12-3 shows the firm's demand and cost schedules for a firm in monopolistic competition. Refer to Table 12-3. What is the amount of the firm's loss at its optimal output level? $0 $31 $45 $50 Question 4. Question : Figure 12-6 Refer to Figure 12-6. What is the amount of excess capacity? Q4 - Q3 units Q4 - Q2 units Q3 - Q2 units Q3 - Q1 units Question 5. Question : What type of demand curve does a monopolistically competitive firm face? Horizontal Vertical Downward sloping Upward sloping Question 6. Question : Table 13-4 Table 13-4 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popularPlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000. Refer to Table 13-4. For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000? Yes, the firms can implicitly collude and agree to charge a higher price. No, there is no incentive for each firm to consider any other strategy. No, any other strategy hurts consumers. Yes, each firm can implicitly agree to increase output and not to deviate from a low price. Question 7. Question : Each member of OPEC can increase its income by selling more oil than its output quota because by selling more at OPEC's cartel price, a member will automatically earn more income. each member's demand is more elastic than the total demand for oil. the demand for oil is inelastic, total revenue increases. the demand for oil is perfectly elastic. Question 8. Question : An example of a barrier to entry is product differentiation. high profits. superior technological knowledge. increasing marginal costs Question 9. Question : In an oligopoly market the pricing decisions of all other firms have no effect on an individual firm. individual firms pay no attention to the behavior of other firms. advertising of one firm has no effect on all other firms. one firm's pricing decision affects all the other firms. Question 10. Question : The DeBeers Company of South Africa was able to block competition through economies of scale. ownership of an essential input. government-imposed barriers. differentiating its product. KAPLAN MT445 UNIT 7 QUIZ 1. Question : The size of the underground economy would tend to decrease if the government of a country decreased government regulations on businesses. made over-the-counter drugs illegal. increased income tax rates. increased business taxes. Question 2. Question : The informal sector can be a significant drag on the economies of developing countries because the firms in the informal sector produce goods and services no one wants. sell their goods and services to citizens in other countries. tend to be smaller and have less capital than firms acting legally. employ illegal immigrants from other countries. Question 3. Question : The GDP deflator is the difference between real GDP and nominal GDP multiplied by 100. difference between nominal GDP and real GDP multiplied by 100. ratio of real GDP to nominal GDP multiplied by 100. ratio of nominal GDP to real GDP multiplied by 100. Question 4. Question : Long-run economic growth requires all of the following except technological change. increases in capital per hour worked. government provision of secure property rights. political instability. Question 5. Question : If consumers decide to be more frugal and save more out of their income, then this will cause a shift in the supply for loanable funds to the right. a shift in the supply for loanable funds to the left. a movement along the supply for loanable funds curve to the right. a movement along the supply for loanable funds curve to the left. Question 6. Question : Which of the following will increase investment spending in the economy, all else being equal? an increase in the federal government surplus an increase in the budget deficit an increase in consumer dissavings an increase in transfer payments Question 7. Question : Extensive economic growth ________ output per worker at a(n) ________ rate due to diminishing marginal returns. increases; decreasing decreases; decreasing increases; increasing decreases; increasing Question 8. Question : In a small European country, it is estimated that changing the level of capital from $8 million to $10 million will increase real GDP from $2 million to $3 million. What level of GDP would you expect the economy to be able to reach if spending on capital continued to rise to $12 million, assuming no technological change and no change in the hours of work? GDP would increase further, but by less than $1 million. GDP would increase further by exactly $1 million. GDP would increase further by more than $1 million GDP would increase further by exactly $4 million. Question 9. Question : Barry Eichengreen published a book that argues that Europe's early post WWII growth was not sustainable because Europe is good at "extensive" growth but not "intensive" growth. Europe is good at "intensive" growth but not "extensive" growth. Europe is good at finding new products and new ways of doing things. Europe is not very good at producing more of what it already knows how to make. Question 10. Question : When additions of input to a fixed quantity of another input lead to progressively smaller increases in output, we say we are facing diminishing returns. negative returns. accelerating returns. decreasing production. KAPLAN MT445 UNIT 8 QUIZ 1. Question : A lumberjack loses his job because timber cutting restrictions are imposed by the EPA to protect the spotted owl habitat. This lumberjack would be frictionally unemployed. cyclically unemployed. structurally unemployed. seasonally unemployed. Question 2. Question : The labor force equals the number of people employed. unemployed. employed plus unemployed. in the working-age population. Question 3. Question : Suppose that at the beginning of a loan contract, the real interest rate is 4% and expected inflation is currently 6%. If actual inflation turns out to be 7% over the loan contract period, then borrowers gain 1%. lenders gain 1%. borrowers lose 3%. lenders gain 3%. Question 4. Question : Productivity gains in the United States since 1995 have been ________ productivity gains in other leading industrial nations. the same as lower than higher than more variable than Question 5. Question : In the United States, the annual growth rate of real GDP per hour worked between 1995 and 2006 averaged 2.3%. 6.9%. -0.3%. 10.2%. Question 6. Question : If real GDP in the United States is growing at an annual rate of 3.2% per capita and Bolivia's real GDP per capita is growing at a rate of 1.3%, which of the following would we expect in the long run? Assume real GDP per capita in the United States begins at a level above that of real GDP per capita in Bolivia. Real GDP per capita in the United States will always be 1.9% higher than real GDP per capital in Bolivia. The difference between the level of real GDP per capita in the United States and real GDP per capita in Bolivia will shrink over time. The difference between the level of real GDP per capita in the United States and real GDP per capita in Bolivia will increase over time. The difference between the level of real GDP per capita in the United States and real GDP per capita in Bolivia will always be $1.9 trillion. Question 7. Question : If the consumption function is defined as C = 5,500 + .9Y, what is the autonomous level of consumption expenditure? $5,500 $4,950 $6,111 $6,050 Question 8. Question : The difference between GDP and disposable income is national income. actual investment spending. net taxes. unplanned investment spending. Question 9. Question : Investment spending ________ during a recession, and ________ during an expansion. declines; increases increases; declines increases; increases declines; declines Question 10. Question : Which of the following leads to a decrease real GDP? an increase in government spending an increase in the inflation rate in other countries, relative to the inflation in the U.S. an increase in interest rates households have increasingly optimistic expectations about future income KAPLAN MT445 UNIT 9 QUIZ 1. Question : Suppose Warren Buffet withdraws $1 million from his checking account at Chase Manhattan Bank. If the reserve requirement ratio is .2 what is the maximum change in deposits in the banking system? -$5 million -$4 million $5 million $5 million -$200,000 Question 2. Question : People hold money as opposed to financial assets because money earns interest. is perfectly liquid. earns no interest. earns a higher return than other financial assets. Question 3. Question : The largest proportion of M1 is made up of currency. checking account deposits. traveler's checks. savings account deposits. time deposits. Question 4. Question : Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve reduces the required reserve ratio to 8 percent, then the bank can make a maximum loan of $0. $2 million. $8 million. $10 million. Question 5. Question : Scenario 25-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 25-2. Suppose you withdraw $500 from your checking account deposit and bury it in a jar in your backyard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole could drop up to a maximum of $0. $50. $500. $5,000. Question 6. Question : Compare the effect on the price level and real GDP of a decrease in tax rates assuming a supply-side effect versus no supply-side effect. Compared to no supply-side effect, including a supply-side effect for the decrease in tax rates will cause the price level to increase ________ and real GDP to increase ________. less; less less; more more; less more; more Question 7. Question : The government purchases multiplier equals the change in ________ divided by the change in ________. government purchases; equilibrium real GDP equilibrium real GDP; government purchase

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