A good economic theory:

a. includes every detail that affects the economic behavior of interest.

b. relies on simplifying assumptions in order to explain economic behavior.

c. does not rely on simplifying assumptions.

d. is impossible to achieve because of the difficulty of conducting controlled experiments.

2. In Europe, birth rates have fallen as the stork population decreased. This is likely

a. a normative statement.

b. confusing correlation and causation.

c. the fallacy of composition.

d. all of the above

3. Which of the following best illustrates the fallacy of composition?

a. If I have more money, I will be better off; therefore if we all had more money, we all would be better off.

b. If I buy more gas each week, my gas consumption increases; therefore, if all gas consumers buy more gas each week, total gas consumption will increase.

c. If I spend more time studying, I will learn more; therefore, if all students spend more time studying, they will learn more.

d. If women's hemlines are higher this year, the Dow Jones Industrials average will fall.

4. Scarcity is the result of:

a. inappropriate normative judgments.

b. wants that exceed the resources necessary to provide them.

c. government decision making.

d. positive economics.

5. Which of the following will shift a production possibilities curve outward?

a. a decrease in the unemployment rate from 18% to 15%

b. a decrease in available labor and capital

c. an increase in the unemployment rate

d. an improvement in technology

6. In a market economy, resources are allocated:

a. by individual decision makers responding to market prices.

b. by decentralized planners at the local level.

c. by government bureaucracies because of the absence of a price system.

d. by central planners using a price system.

7. Which of the following is considered to be the best method of production?

a. Labor-intensive method

b. Capital-intensive method

c. Least-cost method

d. Scarce resource method

8. Refer to Exhibit 3-14 below.

Which move to the new production possibilities curve will lead to more food and the same level of housing?

a. A to C

b. B to C

c. C to B

d. A to B

9. If Bill expects to earn a higher income next month, he may choose to

a. save less now and spend more of his current income on goods and services.

b. decrease his current demand for goods and services.

c. save more now and spend less of his current income on goods and services.

d. move along his current demand curve for goods and services.

10. Which of the following best represents the effects of a decrease in the price of tea?

a. A leftward shift in the demand for tea.

b. A rightward shift in the demand for tea.

c. A downward movement along the demand curve for tea.

d. An upward movement along the demand curve for tea.

11. Which of the following is true?

a. Just as demanders will demand more now if the price of a good is expected to rise in the near future, sellers will supply more now if the price of a good is expected to rise in the near future.

b. Both technological progress and cost-increasing regulations will increase supply.

c. A decrease in the price of ice cream would cause a decrease in the demand for frozen yogurt, a substitute.

d. An increase in supply leads to a movement up along the supply curve.

12. If there is a decrease in demand

a. buyers are willing to purchase less of the good than before at each possible price.

b. firms would be willing to supply less of the good than before at each possible price.

c. the price of the product has increased, causing consumers to buy less of the product.

d. buyer's taste for the good has increased.

13. Nick is delighted to see that the price of his favorite food, black olives, has fallen. Which of the following could be responsible?

a. a simultaneous decrease in demand and increase in supply of black olives

b. a decrease in the supply of black olives

c. an increase in the demand for black olives

d. a simultaneous increase in demand and decrease in supply of black olives

14. A more efficient process for refining oil into gasoline is developed. As a result, the market price of gasoline:

a. and the quantity of gasoline purchased both increase.

b. increases and the quantity of gasoline purchased falls.

c. decreases and the quantity of gasoline purchased rises.

d. decreases and the demand curve for gasoline shifts to the right.

15. Assuming that the demand for a good has decreased and the supply of a good has increased by the same amount, then:

a. The change in price is determinate but the change in quantity is indeterminate.

b. The change in quantity is determinate but the change in price is indeterminate.

c. Neither the change in price nor the change in quantity will be indeterminate.

d. Both the change in price and the change in quantity will be indeterminate.

16. To say that a price floor is binding is to say that the price floor

a. results in a shortage.

b. is set below the equilibrium price.

c. causes quantity supplied to exceed quantity demanded.

d. All of the above are correct.

17. If a price ceiling is not binding, then

a. the equilibrium price is above the price ceiling.

b. the equilibrium price is below the price ceiling.

c. it cannot be legally enforced.

d. None of the above is correct because all price ceilings must be binding.

18. If the short run elasticity of demand for widgets is 1.1 and the long run elasticity of demand for widgets is 3.6, an increase in price will ____ total revenue in the short run and ____ total revenue in the long run.

a. Decrease; increase.

b. Increase; increase.

c. Decrease; decrease.

d. Increase; decrease.

19. If a decrease in prices increases total revenue for a product in the short run, in the long run, it will:

a. Increase total revenue by more.

b. Increase total revenue by less.

c. Decrease total revenue.

d. Either b. or c. could result in the long run.

20. Exhibit 6-1

The elasticity in the vicinity of five different points along a demand curve varies as follows:

Refer to Exhibit 6-1. In the vicinity of which of these points would sellers find that their total revenue remained essentially unchanged as they changed their price?

a. B and D

b. A and E

c. C

d. None of the above. That could never happen.

21. If the elasticity of supply of a good was 2, how much would the price have to increase to lead to an increase in output of 6 percent?

a. 12 percent.

b. 8 percent.

c. 3 percent.

d. 4 percent.

22. If the elasticity of supply coefficient for a good is one-sixth (in absolute terms), we know:

a. that for every 1% increase in quantity, there will be a 6% increase in price.

b. that for every 6% increase in quantity, there will be a 1% decrease in price.

c. that for every 6% increase in quantity, there will be a 1% increase in price.

d. that for every 1% increase in quantity, there will be a 6% decrease in price.

23. Consumer surplus is:

a. the total utility derived from consuming a good.

b. the area underneath the demand curve.

c. the difference between what consumers are willing to pay and what they are required to pay for a good.

d. the marginal utility of the last unit consumed multiplied by the number of units consumed.

24. Refer to Exhibit 7-2.

What is the producer surplus of the 1st unit sold assuming this market reaches equilibrium?

a. $3.00

b. $7.00

c. $1.00

d. $2.00

25. Refer to Exhibit 7-5 below.

The schedule below represents the willingness of a typical consumer to pay for wine in a year. Suppose there are 10,000 identical consumers in the community.

If the market price of wine is $20, the total consumer surplus for the community equals:

a. $20,000.

b. $30,000.

c. $60,000.

d. $50,000.

26. Refer to Exhibit 7-9.

Deadweight loss occurs because:

a. the tax reduces the quantity exchanged below the original output level.

b. the price to buyers is lower than before the tax.

c. quantity exchanged increases to Q1.

d. the size of the total surplus realized from trade increases.

27. If the government wanted a tax to reduce the quantity exchanged a large amount but not raise much in tax revenue, it would want to tax an industry with

a. inelastic supply and elastic demand.

b. elastic supply and demand curves.

c. inelastic supply and demand curves.

d. elastic supply and inelastic demand.

28. Which of the following statements best summarizes the essence of public choice analysis?

a. Public choice analysis applies economic principles to political science issues.

b. Public choice analysis applies political science principles to traditionally economic issues.

c. Public choice analysis assumes that government leaders are primarily motivated by what is best for the community, unlike private interest groups.

d. None of the above.

29. A flat tax:

a. is designed so that everybody would pay the same number of dollars in taxes.

b. is designed in such a way that as a person's income rises, the tax rate falls.

c. is designed so that everybody would be charged the same percentage of their income.

d. is designed to take a smaller percentage of higher incomes as compared to lower incomes.

30. A regressive tax:

a. is considered to be the most equitable type of tax.

b. is designed in such a way that as a person's income rises, the amount of tax as a proportion of income rises.

c. takes a greater proportion of the income of lower-income groups than of higher-income groups.

d. is designed to take a larger percentage of higher incomes as compared to lower incomes.