The price of petrol is too high. 14) What is the economic impact of Adam Smith’s invisible hand? A) Some people are able to take advantage of others and earn large incomes. B) Law breakers are captured and punished. C) The market provides consumers with what they want. D) Chaos in a market not controlled by the government. 5) Which of the following statements about positive economic analysis is true? A) Normative economic analysis can be tested, but positive economic analysis cannot. B) Positive analysis uses an economic model to estimate the costs and benefits of different choices or actions.
C) There is much more disagreement among economists over positive economic analysis than over normative economic analysis. D) There is much less disagreement among economists over normative economic analysis than over positive economic analysis. 16) When the price of a good increases, coteries papyrus, the: A) demand for the good will increase. C) demand for the good will decrease. B) quantity demanded of the good will increase. D) quantity demanded of the good will decrease. 17) Which of the following is not correct? A) Demand curves slope downward and to the right on a price-quantity diagram.
B) By itself, a demand curve shows what the market price is. C) Both demand schedules and demand curves reveal the law of demand. D) Demand schedules are tables relating quantity demanded to possible prices. 18) The substitution effect results in: A) sellers substituting less expensive inputs in production. B) buyers buying more of a relatively cheaper good. C) sellers reducing products when input prices fall. D) buyers buying more of a good because their purchasing power has increased. 19) The income effect occurs when: A) buyers buy more of a good because their purchasing power has increased.
B) sellers hire more workers because buyers’ incomes have increased. C) sellers produce more output because their profit has doubles while consumer income is constant: A) consumers will continue to buy exactly the same amount of petrol. B) consumers will substitute petrol for other products they once consumed. C) consumer purchasing power has decreased and consumers buy less of everything. D) consumers’ consumption of all goods will remain exactly the same. 21) An increase in the demand for bananas will not be caused by: A) news that bananas help relieve stress in people.
B) a rise in the price of apples. C) a drop in the market price of bananas. D) buyers switching to a more healthy diet. 22) Demand for a normal good would be increased by: A) a decrease in the price of the product. C) a decrease in consumer income. B) an increase in the price of a substitute good. D) All of the these options are correct. 23) If motor vehicle tires and petrol are complements, then: A) tires and petrol consumption are unrelated. B) an increase in the price of petrol will increase the consumption of tires.
C) an increase in the price of tires will increase the consumption of petrol. D) an increase in the price of petrol will reduce the consumption of tires. 24) The demand for AD televisions (TV’s) would fall if AD TV’s are normal goods and: A) the incomes of buyers of AD TV’s fall because of a recession. B) there is a larger output of AD TV’s. C) the market price of DVD’s falls. D) the market price of AD TV’s increases. 25) If the demand for a good increases when there is high unemployment, we can conclude that the commodity is: A) a normal good.
B) a luxury good. C) a good for which the law of demand does not apply. D) an inferior good. 26) The expectation of higher future prices actually causes higher prices now because: A) quantity demanded will increase now. B) supply will increase now as firms try to sell more before the price rises. C) demand will increase now as people try to buy before the price rises. D) quantity supplied will decrease now. 27) means the supply curve has shifted to the right, while refers to a movement along a given supply curve in response to an increase in price.
A) A decrease in supply; a decrease n quantity supplied B) An increase in supply; an increase in quantity supplied C) A decrease in supply; an increase in supply D) An increase in supply; a decrease in supply 28) The supply of soybeans will not initially increase if there is: A) an increase in the price of soybeans. B) a technological advance in growing soybeans. C) a decrease in the price of soybean fertilizers. D) an increase in the number of soybean farmers. 29) An advance in technology increases supply: A) because buyers are willing to buy more of a product produced with the new technology.
B) because new technology is so expensive. C) because laborer’s or capital’s productivity increases and costs of production fall. D) All of these options are correct. 30) If wages of workers in the car manufacturing industry rise, and the wage rises are not due to increases in worker productivity, then the market: A) demand for cars would increase because buyer incomes would be higher. B) supply of cars would increase because the price of cars would be higher. C) supply of cars would decrease because costs of production be higher. 1) Which of the following describes what occurs at market equilibrium? A) Every seller who is willing to sell at the current price can do so. B) The market is cleared and there is no surplus and no shortage. C) Everyone who wants to buy at the current price can do so. D) All of these options correctly describe what happens at market equilibrium. 32) If there is a surplus in a market, then the market is brought back into equilibrium by: A) quantity supplied falling. B) quantity demanded rising. C) price falling. D) All of these options are correct. 33) DVD players and DVD’s are complements.
A rise in the player price would cause which of the following in the market for DVD’s? The equilibrium price A) of DVD’s would rise and the equilibrium quantity would fall. B) and quantity of DVD’s would fall. C) of DVD’s would fall and the equilibrium quantity would rise. D) and quantity of DVD’s would rise. 34) Improvements in technology have reduced the cost of producing personal computers. As a result, you accurately predict that in the market for personal computers, there will be a(n) A) increase in the supply of personal computers, a reduction in the price, and an increase in the demand.
B) increase in the quantity supplied of personal computers, a reduction in the price, and an increase in the quantity demanded. C) decrease in the supply of personal computers, an increase in he price, and a decrease in the demand. D) increase in the supply of personal computers, a decrease in the price, and an increase in the quantity demanded. 35) Apples and oranges are substitute goods. A freeze in Florida destroyed a good portion of the orange crop. Coteries papyrus, the price of A) oranges will fall and the price of apples will rise. B) both apples and oranges will fall.
C) both apples and oranges will rise. D) oranges will rise and the price of apples will fall. 36) A(n) in equilibrium will occur when there is an increase in demand for and a decrease in supply of milk. A) increase; price B) decrease; C) increase; quantity D) decrease; price quantity 37) Assume that the prices of airline tickets (assuming airline tickets are normal goods) have fallen in recent months. Over this same period, assume that the price of jet fuel has risen and consumer incomes have fallen. Which of the following best explains the falling prices of airline tickets?
A) The supply curve for airline tickets has shifted to the left by more than the demand curve has shifted to the left. B) The demand curve for airline tickets has shifted to the left by more than the supply curve has shifted to the left. C) The demand curve and the supply curve for airline tickets have both shifted to the right. D) The supply curve for airline tickets has shifted to the right while the demand curve for airline tickets has shifted to the left by a greater amount than the supply shift. 38) The difference between the for a good and the is called the consumer surplus.
A) highest price a consumer is willing to pay; price the consumer actually pays B) lowest price a consumer is willing to pay; price the consumer actually pays C) highest price a consumer is willing to pay; lowest price a consumer is willing to pay D) price the consumer actually pays; actual cost to he producer 39) Consumer surplus in a market for a product would be equal to the area under the demand curve if: A) producer surplus was equal to zero. B) marginal cost was equal to the market price. C) the market price was zero. D) the product was marginal benefit received by producers from participating in a market.
B) the average benefit received by producers from participating in a market. C) the total benefit received by producers from participating in a market. D) the net benefit received by producers from participating in a market. 41) Market equilibrium: A) maximizes producer surplus. C) maximizes consumer surplus. B) maximizes economic surplus. D) All of these options are correct. 42) What causes producers to earn more income under a price floor even though less is produced? A) Producers capture some former consumer surplus because of the lower price. B) Consumers capture some former producer surplus because of the higher price.
C) Consumers capture some former producer surplus because of the lower price. D) Producers capture some former consumer surplus because of the higher price. 43) The European Union, the USA and Japan all use price floors on their agricultural products. The effect is to: A) decrease the quantity of agricultural reduces supplied. B) decrease domestic demand for agricultural products at this higher price. C) increase domestic demand for agricultural products at this lower price. D) increase domestic and international demand for agricultural products at this lower price. 4) Which of the following would you expect to occur as the result of a price ceiling in the apartment rental market? A) The rental market will gradually move toward equilibrium, as the price for rental apartments will rise due to the shortage. B) Discrimination, as landlords will possibly base their choice of tenants on gender, race or age. C) A reallocation of resources to the rental market to meet the increased demand for rental accommodation. D) The rental market will gradually move toward equilibrium, as the price falls due to the surplus. 5) The price elasticity of demand is equal to the: A) percentage change in price divided by the percentage change in quantity demanded. B) percentage change in quantity demanded divided by the percentage change in price. C) value of the slope of the demand curve. D) value of the slope of the supply curve. 46) Which of the following statements about the price elasticity of demand is incorrect? A) If quantity demanded changes by a larger percentage than the percentage change in price, demand is price elastic. B) The price elasticity of demand value is the reciprocal of the demand curve’s slope value.
C) A straight line demand curve has varying price elasticity of demand values. D) If quantity demanded changes by a smaller percentage than the percentage change in price, demand is price inelastic. 47) If price increases by 20 percent and the price elasticity of demand value is -5. 0, then quantity demanded will: A) be impossible to determine without additional information. B) decrease by 5 percent. C) increase 100 percent. D) decrease by 100 percent. 48) If the government wanted to reduce the consumption of water by domestic water users by 5 percent, and the price elasticity of water for domestic users is -0. , the government should: A) increase the price of water by 12. 5 percent. B) increase the price of water by 25 percent. C) increase the price of water by 5 percent. D) reduce the price of water by 0. 2 percent. 49) If 20 units are sold at a demand calculated using the midpoint formula is: A) minus 0. 56. B) minus 1. 8. C) minus 2. 5. D) minus 1. 0 50) If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would: A) double. B) decrease by 50 percent. C) remain constant. D) decrease, but only by a small amount. 1) When there are many close substitutes available for a good, demand tends to be: A) relatively price inelastic. B) perfectly price inelastic. C) perfectly price elastic. D) relatively price elastic. 52) Which of the following statements about price elasticity of demand is correct? A) The price elasticity of demand for a good in general is equal to the price elasticity of demand for a specific brand of the good. B) Demand is more rice elastic in a long time period than it is in a short time period. C) The absolute value of the price elasticity of demand ranges from zero to one.
D) Demand is more price elastic the smaller the percentage of the consumer’s budget the item takes up. 53) When demand is price inelastic, a fall in price causes total revenue to fall because: A) the increase in quantity sold is not large enough to offset the fall in price. B) anytime price decreases, total revenue will decrease also. C) quantity sold remains the same and thus total revenue has to fall. D) All of these options are correct. 4) Following the deregulation of the telecommunications industry in Australia, the price of long distance and overseas phone calls fell significantly.
Firms in the telecommunications industry would have been hoping that the demand for long distance and overseas phone calls was: A) price inelastic. B) price elastic. C) unit- elastic. D) perfectly price elastic. 55) If a firm raised its price and found that total revenue fell to zero, then the price elasticity of demand for its product is: A) unit- elastic. B) relatively elastic. C) perfectly elastic. D) perfectly inelastic. 56) On a onward sloping, straight line demand curve, total revenue is the greatest where the price elasticity of demand is: A) unit-elastic. B) normal. C) the most elastic.
D) the most inelastic. 57) If the cross-price elasticity of demand for goods A and B is zero, this means the two goods are: A) substitutes. B) complements. C) unrelated. D) inferior. 58) If a firm was accused by the Australian Competition and Consumer Commission of trying to monopolies a product, the firm would hire an economist to try to show the: A) cross- price elasticity of demand between the firm’s good and another firm’s good is active. B) income elasticity of the firm’s good is inferior. C) cross-price elasticity of demand between the firm’s good and another firm’s good is positive.
D) price elasticity of demand for the firm’s good is highly inelastic. 59) If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is: A) an inferior good. B) a substitute for another good. C) a luxury good. D) a necessity good. 60) If you expect the economy is going to be in a recession for several years, for Job security you should look for a Job in an industry with an income elasticity of demand of: A) negative five. B) positive three. C) positive five. D) None of these options is correct. 1) A characteristic of the short run is: A) the quantities of all inputs can be varied. C) there are no fixed inputs. B) plant capacity can be increased or decreased. D) the quantities of some inputs can 62) An example of a long run adjustment is: A) a soybean farmer turns on the irrigation system after a month of no rainfall. B) Smart builds another department store. C) your university offers Saturday morning classes next summer. D) Ford Motor Company sacks 2000 assembly line workers. 3) Which of the following is the best example of a short run adjustment?
A) A Ford motor vehicle manufacturing plant reduces the number of hours it operates its production lines during an economic downturn. B) Your local fried chicken take-away shop expands its building and adds more tables and chairs. C) An oil company builds another oil rig. D) A company expands its operations into another country. 64) Which of the following is an implicit cost of production? A) Wages paid to labor plus the cost of provisional benefits for workers, such as paid holidays and paid sick leave. B) Interest paid on a loan to a bank. C) Rent that could have been earned on a building owned and used by the firm.
D) The utility bills paid to water, electricity and natural gas companies. 65) Which of the following is a fixed cost? A) Costs of raw materials. B) Payment to hire a security company to guard the gate to the factory 24 hours a day. C) Payments to an electric utility for electricity used. D) Wages to hire assembly line workers. 66) Which of the following is a variable cost for a local transport business? A) The wage of $25 per hour paid to workers no matter how many hours they work per week. B) The interest repayments on a loan to set-up the business.
C) The opportunity cost of the money spent on purchasing vehicles. D) The annual insurance premiums paid to cover for fire damage. 67) Which of the following statements is false? A) Variable costs are costs that change as output changes. B) An explicit cost is a non-monetary opportunity cost. C) In the short run: total cost = fixed cost + variable cost. D) In the long run there are no fixed costs. 68) If the firm is producing nothing in the short run, then: A) total costs are zero. C) variable costs are low but positive. B) fixed costs are positive. D) marginal costs are negative. ) Economic costs of production differ from those in accounting in that: A) economics adds the opportunity cost of a firm using its own resources. B) accounting includes expenditures for hired resources while economics does not. C) economics includes expenditures for hired resources while accounting does not. D) accounting costs are always larger than economic costs. 70) A firm is currently hiring capital and labor so that ML/PL < MPK/PK, if the firm wishes to maximize profits it should hire A) less labor and less capital. B) less labor and more capital. C) more capital and more labor. D) more labor and less capital. ) If a profit maximizing firm is currently producing where MR = MC, it should A) increase output so that marginal revenue is less than marginal cost. B) not change because it is already maximizing profit. C) exit the industry. D) decrease output so that marginal revenue will be greater than marginal cost and the firm’s profit will increase. 72) Marginal revenue product (MRP) for a competitive seller is equal to the marginal product of labour multiplied by the another worker. B) the selling price of the product multiplied by the number workers hired. C) where marginal revenue equals marginal cost.
D) the selling price ultimate by the total product of labor. 73) If a competitive firm is paying a wage of $20 an hour and an additional worker would produce five units of output in an hour which sell for $5 each, then to maximize profits the firm should: A) hire an extra worker. B) not change its employment. C) lay off (sack) some workers. D) There is not enough information to answer the question. 74) The Package Store hires workers to wrap packages. The store sells this service for $5. The marginal revenue product of this store’s fifth worker is $50. The marginal product of the fifth worker is A) 0. 01 package.
B) 1 package. C) 10 packages. D) indeterminate from this information. 75) A dominant strategy in a game theory analysis of oligopoly behavior is: A) a strategy that a firm is forced into by following government policy. B) a strategy that is the best for a firm, no matter what strategies other firms use. C) deciding what to do after all rivals have chosen their own strategies. D) colluding with rivals to maximize Joint profits. 76) A Nash equilibrium is: A) a non-dominant strategy. B) where demand and supply intersect. C) where each player chooses its best strategy, given the strategies chosen by the other players.
D) an example of a cooperative equilibrium. 77) The prisoners’ dilemma results in a non-cooperative equilibrium because: A) each player has a dominant strategy to play a certain way regardless of what other players do. B) each player had agreed before the game started to maximize total payoff. C) each player is uncertain how other players will play the game. D) None of these options is correct. Refer to Table 1 for the following questions. Table 1 Alistair Luggage and Paine Baggage are the only firms selling luggage in Travel Town. Each firm must decide whether to increase its advertising spending to compete for customers.
If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 1 shows the payoff matrix for this advertising game. 78) Refer to Table 1. Does Alistair have a dominant strategy and, if so, what is it? A) Yes, Alistair should keep its advertising budget as is. B) Yes, Alistair should increase its advertising budget. C) There are two dominant strategies: if Paine increases its advertising budget, then Alistair best option is to keep its budget the same, but if Paine does not increase its spending then Alistair should raise its advertising budget.
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