Multiple Choice

QUESTION 1 According to economists, equilibrium exists when: output is distributed equitably. scarcity is eliminated. an individual would be better off taking a different action. no individual has an incentive to change his or her behavior. QUESTION 2 A trade-off between equity and efficiency may exist because of all of the following except that: allocating resources fairly may cause efficiency an efficient allocation of resources may lead to an outcome that most people consider unfair. policies that promote equity often come at a cost of decreased efficiency. allocating resources fairly may cause inefficiency. QUESTION 3 All children have to be immunized against polio, measles, mumps, and other diseases. If you don't have enough money to pay for the immunizations, they will be provided free at the county health clinic. This statement best represents this economic concept People usually exploit opportunities to make themselves better off. Resources should be used as efficiently as possible to achieve society's goals. When markets don't achieve efficiency, government intervention can improve society's welfare. Government policies can change spending. QUESTION 4 During the Great Depression, consumers and producers in the United States dramatically reduced their spending as compared to the quantity of goods and services available at the time. This statement best represents this economic concept: Resources are scarce. When markets don't achieve efficiency, government intervention can improve society's welfare. Overall spending sometimes gets out of line with the economy's productive capacity. Government policies can change spending.QUESTION 5 Economists say an economy is efcient when: 7'; the problem of scarcity is eliminated. 7'; output is distributed equitably. 7'; all opportunities to make some people better off without making other people worse off have been taken. 7', all opportunities to make some people worse offwithout making other people better off have been taken. QUESTION 6 An ambiguous change in price and a decrease in quantity are most likely caused by: 7'; no shift in supply and a shift to the left in demand. 7'; a shift to the left in supply and a shift to the left in demand. 7'; a shift to the right in supply and a shift to the left in demand. 7'; a shift to the left in supply and a shift to the right in demand. QUESTION 7 Assume that corn is an input in the production of beef but not in the production of pork. Further, beefand pork are substitutes. A decrease in the price of corn will: 7'; increase the supply of beef and increase the demand for pork. 7'; decrease the supply of beefand increase the demand for pork. 7'; decrease the supply of beefand decrease the demand for pork. 7'; increase the supply of beef and decrease the demand for pork. QUESTION 8 A consumer's willingness to pay depends on 77 the cost of producing the good or service. 7'; the benet that he or she expects to receive from consuming the good or service. 7? the size of the shortage of the good or service. 7'; the size of the surplus of the good or service. QUESTION 9 Coffee and tea are substitutes. If there is an increase in the price of coffee, total surplus in the tea market: will increase. will decrease. O will not change. may change, but we cannot determine the change without more information. QUESTION 10 Market failure arises when the market fails to: achieve an efficient outcome. provide the good for all consumers who desire it. provide a profit for all firms who produce the good. prevent the price of a good from rising in response to an increase in demand. QUESTION 11 A local restaurant has estimated that the price elasticity of demand for meals is equal to 2. If the restaurant increases menu prices by 5%, they can expect the number of customers to decrease by and total revenue to 10%; increase 5%; stay constant O 10%; fall O 2.5%; fall QUESTION 12 A tariff is most likely to prices and consumption of the good or service being protected. decrease; increase increase; decrease have no effect on; not change decrease; decreaseQUESTION 13 A tax leads to in consumer surplus and in producer surplus. C an increase; an increase C an increase; a decrease C a decrease; an increase C a decrease; a decrease QUESTION 14 An important determinant of the price elasticity of demand is the: C time period. C price of related goods. C level of technology. C quantity of the good supplied. QUESTION 15 An excise tax imposed on junk food reduces consumer surplus by $50, producer surplus by $80, and results in tax revenue of $40 for the government. What is the welfare effect of this tax? C A. A net loss of$10 C B. A net loss of$130 C C. A net gain of $40 C D.A net loss of $90 QUESTION 16 When the world price of a good exceeds the domestic price. a country is MOST likely to: C import the good. C export the good. C be made worse off by any kind oftrade in that good. C experience lower wages for workers in that industry by engaging in trade. QUESTION 17 A curve that represents combinations of two goods that yield equal levels of satisfaction isa(n): ('7 indifference cun/e. C; budget curve. C marginal utility curve. C, price-consumption curve. QUESTION 18 Atypical indifference curve is: C downward sloping and has a slope that is the negative of the marginal utility of the horizontal axis good divided by the marginal utility of the good measured on the vertical axis. C, upward sloping and has a slope that is the negative ofthe marginal utility ofthe horizontal axis good divided by the marginal utility ofthe good measured on the vertical axis. C; downward sloping and has a slope that is the negative of the total utility of the horizontal axis good divided by the total utility of the good measured on the vertical axis. C downward sloping and has a slope that is the total cost of the horizontal axis good divided by the total cost of the good measured on the vertical axis. QUESTION 19 A consumer maximizes utility. given her income. when she chooses a consumption bundle whose: C; marginal utility of each good is equal. C highest indifference curve is tangent to the budget line. C marginal rate of substitution is highest. C: marginal utility of each good is highest. QUESTION 20 According to the relative price rule, the optimal consumption bundle between hot dogs and beer takes place when the rate of substitution is their relative price. C, total; equal to C marginal; equal to C marginal; higher than C, total; lower than