Multiple Choice Tutorial Market Equilibrium Price and Quantity by techmaster

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									  Multiple Choice Tutorial

Market Equilibrium Price and
    Supply and Demand

1. In the corn market, demand often exceeds supply and
   supply sometimes exceeds demand. The price of corn rises
   and falls in response to changes in supply and demand." In
   which of these two statements are the terms "demand" and
   "supply" being used correctly?
    a. in neither statement
    b. in the second statement
    c. in the first statement
    d. in both statements

B. Changes in the price of a product are
  determined in response to changes in supply
  and demand.

2. "When the price of a product falls, the purchasing power of
  our money income rises and thus permits consumers to
  purchase more of the product." This statement describes:
   a. an inferior good.
   b. the rationing function of prices.
   c. the substitution effect.
   d. the income effect.

D If income is held constant and the price of
 the product declines the purchasing power
 of the consumer‟s income will increase.

3. "When the price of a product rises, consumers shift their
  purchases to other products whose prices are now relatively
  lower." This statement describes:
   a. an inferior good.
   b. he rationing function of prices.
   c. substitution effect.
   d. the income effect.

C. If x and Y are substitutes and the price of X
 falls consumers will purchase more of Y
 because it is relatively less expensive.

4. (Last Word) Ticket scalping implies that:
  a. event sponsors have established ticket prices at above-
  equilibrium levels.
   b. an event is not likely to be sold out.
   c. event sponsors have established ticket prices at below-
      equilibrium levels.
   d. the demand for tickets has fallen between the time tickets
      were originally sold and the event takes place.
  C. When price is below equilibrium there is
   a shortage in the market because supply
   exceeds demand. Scalpers are thus in a
   position to charge higher prices for the
5. Advanced analysis) The equation for the demand
  curve in the above diagram:
 a. is P = 70 - Q
 b. is P = 35 - 2Q
 c. is P = 35 - .5Q
 d. cannot be determined from the information given.
C In this equation the intercept is 35 and the function is
  negative with a slope of 0.5. You can determine the price of
  the product by inserting a value for quantity.
6. Economics deals with the problems caused by
   a. A decrease in demand is depicted by a:
  b. a shift from D1 to D2.
  c. shift from D2 to D1
 d. move from point y to point x.
    C. This graph illustrates a decrease in demand caused
      by a change in any one or more of the 5 determinants.
      Economist‟s refer to this movement as a change in
      demand. The movement from X to Y is a change in the
      quantity demanded. This movement is from one point
      to another on the same demand curve.
7. Advanced analysis) The equation for the supply curve in the
   above diagram:
    a. is P = 5 + 1/3Q.
    b. is P = 5 + 2Q.
    c. is P = 5 + 3Q.
    d. is P = 5 - 3Q.
  C. In this equation the intercept is 5 and the function is
     positive with a slope of 3. You can determine the price
     of the product by inserting a value for quantity.
8. Refer to the above diagram. A shortage of 160 units would be
   encountered if price was:
    a. $1.10, that is, $1.60 minus $.50.
    b. $1.60.
    c. $1.00. d. to any and all natural resources.
    d. $.50.

  D. If price is $.50 demand exceeds supply by 160 units. Please
     read the quantities for demand and supply at this price
 9. Physical and mental human effort is
   defined in economics as
    a. labor
    b. manpower
    c. productivity
    d. performance

A. The labor that we are talking about here is
 directed and productive labor. Labor that is
 directed to the production of goods and
 services helps build a productive economy.

  10. Labor is ultimately derived from
    a. capital
    b. technology
    c. natural resources
    d. time
D. This is particularly true when it comes to
 skilled labor. It takes time to acquire the
 knowledge and skills to be productive in this
 high tech economy we live in.

11. In economics, “capital” refers to
  a. money.
  b. stocks, bonds, and other financial assets.
  c. the seat of government.
  d. machines, buildings, and tools.

D. Capital are those resources which can be
 used to produce goods and services.

 12. Which of the following is not an example
    of “capital”?
     a.the copy machine which duplicated this
     b. an economics professor‟s knowledge of
     c. the building in which this class is located
     d. the amount of tuition which you paid for
       this class
D. The copy machine and the school building
  are tangible things used in the productive
  process. The economic professor‟s knowledge
  is what we call human capital, the knowledge
  necessary to work with capital. But the tuition
  you pay is neither capital or human capital.13
13. An entrepreneur is
  a. an intermediary between buyers and sellers
    in the marketplace.
  b. the organizer who seeks profitable
    opportunities and is willing to accept risks.
  c. a business organization involved in using
    inputs to produce output.
  d. the administrator who runs an enterprise
    without accepting any risk of financial loss.
B. Someone has to decide what and how to
  produce goods, in a command economy it is
  the government, in a free market, it is the
14. Managerial and organizational skills are
  categorized as
   a. physical capital
   b. technological ability
   c. entrepreneurial ability
   d. human labor
 C. Anyone can be an entrepreneur, it does not
   necessarily take a lot of money.
   Entrepreneurship is an attitude more than
   anything else. If you have dreams of owning
   your own business and have a plan to start
   and and develop that business into a
   profitable venture, and take action on your
   dreams, you are an entrepreneur.           15
 15. Payment for the use of natural resources
   in a production process is called
    a. rent.
    b. wages.
    c. interest.
    d. profit.

A. When a person lets someone use their land,
 the payment they receive is called rent.

 16. Payment for the use of financial capital in
   a production process is called
    a. rent.
    b. wages.
    c. interest.
    d. profit.
C. Financial capital is money used to purchase
 capital. The return a persons can make when
 they lend someone this money to purchase
 capital is called interest. The same is true if
 the capital itself was lent out.

 17. In a production process, profit is the
   payment received by the
    a. capital.
    b. labor
    c. technology.
    d. entrepreneur.

D. The reward to someone to take risks in a
 business venture is called profit.

18. Profit is also known as
  a. rent
  b. mark-up
  c. the monetary aggregate
  d. the residual claimed by the entrepreneur
D. Residual is that which is left over. When
 one tallies up the total revenue and the
 total costs as a result of a business venture,
 if there is something left over, that
 something is called profit. If there is a
 deficit, a loss is incurred.
19. Unlike a service, a good
  a. is desirable
  b. uses resources to satisfy wants
  c. is physical and tangible
  d. is abundant and free

C. The word „good‟ is a term economists use
 to signify something physical and tangible
 that is useful.

20. Goods and services which are considered free
  a. are the most important topics for economic
  b. are produced at no cost to society or the the
  c. usually involve some real opportunity cost
  d. are undesirable
 C. Each time a choice is made an opportunity
    costs is incurred. To do one thing, even if it
    involves a free good, something else has to
    be given up. Even if you drink water from a
    drinking fountain, you cannot drink a soda
    pop at the same time. So the soda pop that
    you did not drink is an opportunity cost. 21
21. Households
  a. own and sell resources
  b. play a very minor role in the economy
  c. produce goods and services
  d. none of the above
 A. A home is an example of this. People can
  own everything that can go into a house.
  Households can sell the house and
  everything in the house.

22. Goods and services are exchanged in
  a. product markets.
  b. resource markets.
  c. inventory markets.
  d. classified markets.
A. Consumers buy products in retail
 stores. Therefore this market is called the
 product market. Business buy goods and
 services in the resource market. The
 resource market is where land, labor,
 and capital are exchanged.
23.The labor market is an example of a
  a. government market.
  b. classified market.
  c. communication market.
  d. resource market.
D. Labor is one of the four resources. The
  market that labor is bought and sold is
  therefore called the resource market.

24. The economic behavior of individual
  decision makers and the determination of
  price and output in specific markets are both
  studies in
   a. microeconomics.
   b. macroeconomics.
   c. positive economics.
   d. normative economics.

A. Microeconomics is the study of the decision
 making process of economics.

25. In macroeconomics, we analyze the
  a. all of the following.
  b. overall performance of the economy as a
  c. arrangements through which specific
     products are exchanged.
  d. influences on the decision making of
     particular households.
B. Macroeconomics is the study the economy in
  the large, it‟s like if you were flying over the
  economy and able to see how all the different
  parts fit together.
26. The assumption of rational self-interest
  means that economic decision makers
  a. have no concern for the welfare of others.
  b. consider the welfare of others to be more
     important than their own happiness.
  c. know with certainty which choice will have
     the best result.
  d. make reasonable decisions based on their
     expectations of results.
 D. In order to make predictions as what people
   will do when faced with choices, we have to
   assume that they will act rationally.
27. In economics, the term “marginal” refers to
  a. a change in an economic variable.
  b. a low quality product or resource.
  c. an unimportant and irrelevant economic
  d. all-or-nothing economic decisions.
   A. Marginal is the last increment or the
    last unit of something. Marginal product,
    for example, is the amount of money
    brought into a business by selling the last
    unit of output.
28.Rational economic decision makers will
  make a change only if
  a. the change is free of risk
  b. there are no costs involved
  c. their expectations are correct
  d. expected marginal benefit exceeds
    expected marginal cost
D. Marginal benefit is measured by how much
 benefit one receives from the last act;
 marginal cost is a measure of the cost of that
 last act. One will chose to do something if the
 marginal benefit of the last act is greater than
 the marginal cost of that last act.
29.When economic choice involves adjustment
  to the existing situation, marginal analysis
   a. has no practical applications or real-world
   b. eliminates incorrect decisions and bad
   c. means comparing the additional costs and
     additional benefits of an activity before
C. People make decisions based on the margin.
 For example, a person will buy a soda pop
 only if the expected pleasure received is
 greater than the value placed on the money
 that has to be given up to purchase the drink.
30. Economic information
  a. is scarce and costly to acquire
  b. is available for free to any decision maker
  c. is not required for rational decision making
  d. must be complete before any decision is
A. The government and businesses spend an
 enormous amount of resources on acquiring

31. An economic model is useful only if it
  a. includes every detail of reality
  b. makes no unproven assumptions
  c. is mathematical, and is expressed in
  d. makes accurate predictions
D. An economic model is a picture of a series of
 events. It portrays a simplification of reality
 and is used to make predictions about the
 real world. The purpose of the model is to
 help us understand what is and what the
 results will be as certain variables change.
32. The scientific method is useful
  a. only in fields of science such as chemistry
     and physics
  b. for testing the validity of theoretical
  c. for testing the validity of a model‟s
  d. when no economic variables can be
     assumed to be constant
 B. The four steps to the scientific method are:
   identify and define the key variables, specify
   the assumptions, formulate an hypothesis,
   test the hypothesis.
33. The “ceteris paribus” assumption means
  a. “after all other changes have been taken
     into consideration”.
  b. “all economic decision makers behave
     according to rational self-interest”.
  c. “marginal benefit equals marginal cost”
  d. “holding all other variables constant”.
D. Economists can make predictions only if one
 variable changes and everything else stays
 the same. For example, people will buy more
 Cadillac cars when the price goes down,
 assuming that their incomes or the price of
 other luxury cars do not change.           34
34.A hypothesis is
  a. an assumption about behavior
  b. useful only if the assumptions are realistic
  c. useful in microeconomics, but not in
  d. a prediction of what will occur, given
    certain assumptions
D. In any theory, the accuracy of the theory is
 predicated upon the assumptions made. If the
 assumptions are not truthful, one‟s
 conclusions will be incorrect.
 35. A model which sometimes makes incorrect
   predictions will be used by economic
   decision makers
    a. under no circumstances
    b. only if its assumptions are detailed and
    c. if it is mathematical and computerized
    d. until a better model is developed
D. As events and conditions change in the real
 world, so it is necessary to refine economic
 models. Otherwise the models will not
 portray the real world.
36. Economic theory is designed to
  a. express normative values
  b. invent an imaginative and interesting story
  c. predict the behavior of a specific economic
    decision maker after an economic change
  d. predict the average behavior of a group of
    similar economic decision makers after an
    economic change
D. There are always exemptions to the rule. In
 economics we are interested in what is true
 most of the time for the majority of people.

37.The difference between positive economic
  statements and normative economic
  statements is that
   a. positive statements are based on opinion
     and normative statements are based on fact.
   b. positive statements are true and normative
     statements are often false.
   c. positive statements are based on fact and
     normative statements are based on opinion.
C. Positive economics is the study of what
  actually happens. For example, to predict that
  people will buy more Cadillac cars when the
  price goes down is an example of positive
  economics. To say that people should not waste
  money on luxury is normative economics. 38
38. If one were to commit the association-is-
  causation fallacy, one would conclude that
   a. an event which follows another event was
     caused by the first event.
   b. an event which follows another event was
     not necessarily caused by the first event.
   c. the simplest model is the best predictor.
   d. what is true for the individual is also true
     for the group.
 A. If you were raised on a farm and as a youth
   you believed the rooster growing caused the
   sun to come up everyday, you would be guilty
   of the association-is-causation fallacy.
39. If one commits the fallacy of composition, it
  is likely that the individual is assuming
   a. the simplest model is the best predictor.
   b. an event which follows another event was
     caused by the first event.
   c. an event which follows another event was
     not necessarily caused by the first event.
   d. what is true for the individual is also true
     for the group.
 D. If you were at a football game, it is true that
    you will get a better view if you stand up only
    if everyone else does not stand up at the same
40.The secondary effects of a policy are
  a. unintended consequences, which may be
  b. intentional and desirable, but require more
    time to take effect than the primary effect of
    the policy
  c. unimportant and should be ignored by
    policy makers
  d. immediately obvious to decision makers
 A. When building an economic model and
   making the assumptions, it is always possible
   that not everything germane to the situation is
   considered. Or, if considered, it is not
   considered in the correct way.


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