Econ 40 Final Practice Exam I.

1. Which of the following is true?

The Japanese rebuilt their economy after World War II by selling its goods to their own rapidly growing population.

America's rapid population growth in the 19th century slowed its economic growth rate.

This answer correctly states that the Japanese rebuilt their economy after World War II by targeting the large U.S. market. This is supported by historical evidence, as Japan focused on exporting goods to the United States and other countries in order to drive economic growth. Additionally, it mentions that Japan's own market remained largely closed to U.S. manufactured goods, indicating that the Japanese prioritized their own industries and protected them from foreign competition.

Explanation

This answer correctly states that the Japanese rebuilt their economy after World War II by targeting the large U.S. market. This is supported by historical evidence, as Japan focused on exporting goods to the United States and other countries in order to drive economic growth. Additionally, it mentions that Japan's own market remained largely closed to U.S. manufactured goods, indicating that the Japanese prioritized their own industries and protected them from foreign competition.

2. Which statement is true?

In 1900 most Americans still lived on farms.

Except for the stock market, most of our economy was depressed in the 1920s.

There was a depression within three years after World War I.

None of the statements are true.

The statement "There was a depression within three years after World War I" is true. After World War I, the United States experienced a post-war economic recession known as the "Depression of 1920-1921." This depression was characterized by a sharp decline in industrial production, high unemployment rates, and a contraction in the overall economy. It lasted for about 18 months before the economy began to recover.

Explanation

The statement "There was a depression within three years after World War I" is true. After World War I, the United States experienced a post-war economic recession known as the "Depression of 1920-1921." This depression was characterized by a sharp decline in industrial production, high unemployment rates, and a contraction in the overall economy. It lasted for about 18 months before the economy began to recover.

3. Which was a decade of high inflation and high unemployment?

The 1920s

The 1940s

The 1950s

The 1960s

The 1970s

The 1970s was a decade of high inflation and high unemployment. This was due to several factors, including the oil crisis of 1973 and 1979, which led to a significant increase in oil prices and caused a sharp rise in inflation. Additionally, the 1970s saw a decline in productivity growth and an increase in government regulation, which further contributed to the high unemployment rates during this period.

Explanation

The 1970s was a decade of high inflation and high unemployment. This was due to several factors, including the oil crisis of 1973 and 1979, which led to a significant increase in oil prices and caused a sharp rise in inflation. Additionally, the 1970s saw a decline in productivity growth and an increase in government regulation, which further contributed to the high unemployment rates during this period.

4. In the late 1920s, you could buy $10,000 worth of stock by putting down as little as

$100

$1,000

$2,500

$5,000

$10,000

During the late 1920s, it was possible to purchase $10,000 worth of stock by only investing $1,000. This indicates that the margin requirement, or the amount of money an investor had to put down as a percentage of the total investment, was 10%. This allowed individuals to leverage their investments and potentially earn higher returns. However, it also increased the risk as any losses would be magnified. The low margin requirement was one of the factors that contributed to the stock market crash of 1929 and the subsequent Great Depression.

Explanation

During the late 1920s, it was possible to purchase $10,000 worth of stock by only investing $1,000. This indicates that the margin requirement, or the amount of money an investor had to put down as a percentage of the total investment, was 10%. This allowed individuals to leverage their investments and potentially earn higher returns. However, it also increased the risk as any losses would be magnified. The low margin requirement was one of the factors that contributed to the stock market crash of 1929 and the subsequent Great Depression.

5. The economic expansion which began in 1933 was due to

The fact that business had hit bottom and was ready to rebound.

The efforts of the Roosevelt Administration to stimulate the economy.

Both the efforts of the Roosevelt Administration and the readiness of business to rebound.

Neither the efforts of the Roosevelt Administration nor the readiness of business to rebound.

The correct answer is both the efforts of the Roosevelt Administration and the readiness of business to rebound. This is because the economic expansion in 1933 was a result of multiple factors. The Roosevelt Administration implemented various policies and programs, such as the New Deal, to stimulate the economy and create jobs. At the same time, businesses had reached a low point during the Great Depression and were ready to recover. Therefore, it was a combination of government efforts and the natural cycle of business that led to the economic expansion.

Explanation

The correct answer is both the efforts of the Roosevelt Administration and the readiness of business to rebound. This is because the economic expansion in 1933 was a result of multiple factors. The Roosevelt Administration implemented various policies and programs, such as the New Deal, to stimulate the economy and create jobs. At the same time, businesses had reached a low point during the Great Depression and were ready to recover. Therefore, it was a combination of government efforts and the natural cycle of business that led to the economic expansion.

6. Which statement is false?

Before the Civil War about three quarters of the farms of over 500 acres were located in the South

The great abundance of land was the most influential factor in our economic development during the 19th century.

None of the statements are false.

not-available-via-ai

Explanation

not-available-via-ai

7. Who said the nation was "ill-fed, ill-clothed, and ill-housed?"

Herbert Hoover

Franklin D. Roosevelt

Lyndon B. Johnson

Jimmy Carter

Ronald Reagan

Franklin D. Roosevelt said the nation was "ill-fed, ill-clothed, and ill-housed" during his presidency. This statement reflects the challenging economic conditions of the Great Depression era, which Roosevelt aimed to address through his New Deal programs. These programs aimed to provide relief, recovery, and reform to the American people, including measures to improve access to food, clothing, and housing for those suffering from poverty and unemployment. Roosevelt's presidency is often associated with his efforts to combat the economic hardships of the time and bring about positive change for the nation.

Explanation

Franklin D. Roosevelt said the nation was "ill-fed, ill-clothed, and ill-housed" during his presidency. This statement reflects the challenging economic conditions of the Great Depression era, which Roosevelt aimed to address through his New Deal programs. These programs aimed to provide relief, recovery, and reform to the American people, including measures to improve access to food, clothing, and housing for those suffering from poverty and unemployment. Roosevelt's presidency is often associated with his efforts to combat the economic hardships of the time and bring about positive change for the nation.

8. Which statement is false?

The end of 1930 thousands of banks had failed.

. By the first week in March 1933 every single bank in the United States had shut its doors.

None of the statements are false.

The given correct answer states that none of the statements are false. This means that all the statements provided in the question are true. The first statement suggests that if the stock market had not crashed and the rest of the world had not gone into a depression, the U.S. depression could have been avoided. The second statement states that by the end of 1930, thousands of banks had failed. The third statement indicates that by the first week in March 1933, every single bank in the United States had closed. As none of these statements are false, the correct answer is that none of the statements are false.

Explanation

The given correct answer states that none of the statements are false. This means that all the statements provided in the question are true. The first statement suggests that if the stock market had not crashed and the rest of the world had not gone into a depression, the U.S. depression could have been avoided. The second statement states that by the end of 1930, thousands of banks had failed. The third statement indicates that by the first week in March 1933, every single bank in the United States had closed. As none of these statements are false, the correct answer is that none of the statements are false.

9. Choosing from among the following, the worst recession was in

1937-1938

1980

1990-1991

2001

The worst recession among the given options was in 1937-1938. This period is known as the Recession of 1937-1938 or the Roosevelt Recession. It occurred during the Great Depression and was characterized by a sharp decline in economic activity, including a significant drop in industrial production and a rise in unemployment rates. The recession was caused by the government's decision to reduce fiscal stimulus and tighten monetary policy, which led to a contraction in the economy. This downturn was severe and had a negative impact on the overall economic recovery during the Great Depression.

Explanation

The worst recession among the given options was in 1937-1938. This period is known as the Recession of 1937-1938 or the Roosevelt Recession. It occurred during the Great Depression and was characterized by a sharp decline in economic activity, including a significant drop in industrial production and a rise in unemployment rates. The recession was caused by the government's decision to reduce fiscal stimulus and tighten monetary policy, which led to a contraction in the economy. This downturn was severe and had a negative impact on the overall economic recovery during the Great Depression.

10. When General Dwight D. Eisenhower ran for the presidency for the first time, he said he would

End the recession and end inflation.

End the recession and end the Korean War.

End inflation and end the Korean War

End the recession, the Korean War, and inflation

During his presidential campaign, General Dwight D. Eisenhower promised to address two major issues: inflation and the Korean War. This answer choice accurately reflects his intentions to tackle both problems. He did not mention ending the recession specifically, so that option is not included in the answer.

Explanation

During his presidential campaign, General Dwight D. Eisenhower promised to address two major issues: inflation and the Korean War. This answer choice accurately reflects his intentions to tackle both problems. He did not mention ending the recession specifically, so that option is not included in the answer.

11. In the decades before the Civil War, the South _________________________.

Opposed the extension of slavery into the territories

Supported the extension of slavery into the territories

Cooperated with the North to establish both free and slavery territories

None of the choices are true

In the decades before the Civil War, the South supported the extension of slavery into the territories. This means that they were in favor of spreading slavery to new regions and expanding its reach. This support for the extension of slavery was one of the major factors that led to the tensions between the North and the South and eventually culminated in the Civil War.

Explanation

In the decades before the Civil War, the South supported the extension of slavery into the territories. This means that they were in favor of spreading slavery to new regions and expanding its reach. This support for the extension of slavery was one of the major factors that led to the tensions between the North and the South and eventually culminated in the Civil War.

12. Which statement is true?

In 1900 most Americans lived on farms.

Our nation's industrial base was largely destroyed by World War I.

John D. Rockefeller controlled the U.S. automobile industry during the first two decades of the 20th century.

. Andrew Carnegie was the leading steel producer in the U.S. in 1900.

In 1900, Andrew Carnegie was indeed the leading steel producer in the U.S. He built a vast steel empire and his company, Carnegie Steel Company, dominated the American steel industry during that time. Carnegie's innovative methods and vertical integration allowed him to control a significant portion of the market and make him the leading figure in the steel industry.

Explanation

In 1900, Andrew Carnegie was indeed the leading steel producer in the U.S. He built a vast steel empire and his company, Carnegie Steel Company, dominated the American steel industry during that time. Carnegie's innovative methods and vertical integration allowed him to control a significant portion of the market and make him the leading figure in the steel industry.

13. The most important factor in reversing the economic decline of 1929-1933 was that

The federal government finally balanced its budget.

The stock market began to rise.

People became more optimistic.

The federal government began to spend a huge amount of money.

The correct answer is that the federal government began to spend a huge amount of money. During the economic decline of 1929-1933, the federal government implemented various policies and programs to stimulate the economy. One of the most significant actions taken was the increase in government spending. The government invested heavily in infrastructure projects, job creation programs, and social welfare initiatives. This increased spending injected money into the economy, creating demand and stimulating economic growth. As a result, the economy began to recover from the decline.

Explanation

The correct answer is that the federal government began to spend a huge amount of money. During the economic decline of 1929-1933, the federal government implemented various policies and programs to stimulate the economy. One of the most significant actions taken was the increase in government spending. The government invested heavily in infrastructure projects, job creation programs, and social welfare initiatives. This increased spending injected money into the economy, creating demand and stimulating economic growth. As a result, the economy began to recover from the decline.

14. Which statement is false?

The rate of inflation rose during the Eisenhower Administration.

Our economy has not had an unemployment rate below 5 percent since the early 1940s.

President Reagan believed the federal government should "tax, tax, tax, spend, spend, spend", its way to prosperity.

All of the statements are false.

All of the statements are false because the rate of inflation did not rise during the Eisenhower Administration, our economy has had an unemployment rate below 5 percent since the early 1940s, and President Reagan did not believe in taxing and spending as a means to prosperity.

Explanation

All of the statements are false because the rate of inflation did not rise during the Eisenhower Administration, our economy has had an unemployment rate below 5 percent since the early 1940s, and President Reagan did not believe in taxing and spending as a means to prosperity.

15. Which of the following is true?

The completion of the transcontinental railroad system in the 1880s eventually made the United States the world's first mass market.

Southern manufacturers were hurt by the high protective tariffs of the 19th century that kept out cheaper British manufactured goods.

The national railroad network created an "American economy" rather than just a series of regional economies located in one country.

Agricultural inventions such as John Deere's steel plows greatly improved farm productivity.

All of the choices are true.

The completion of the transcontinental railroad system in the 1880s allowed for the transportation of goods and people across the entire United States, leading to the development of a mass market. Southern manufacturers were indeed negatively impacted by the high protective tariffs of the 19th century, as these tariffs made it more difficult for them to compete with cheaper British manufactured goods. The national railroad network connected different regions of the country, creating an integrated American economy rather than separate regional economies. Agricultural inventions such as John Deere's steel plows did contribute to improved farm productivity. Therefore, all of the choices are true.

Explanation

The completion of the transcontinental railroad system in the 1880s allowed for the transportation of goods and people across the entire United States, leading to the development of a mass market. Southern manufacturers were indeed negatively impacted by the high protective tariffs of the 19th century, as these tariffs made it more difficult for them to compete with cheaper British manufactured goods. The national railroad network connected different regions of the country, creating an integrated American economy rather than separate regional economies. Agricultural inventions such as John Deere's steel plows did contribute to improved farm productivity. Therefore, all of the choices are true.

16. Which of the following was considered a mild recession?

1937-1938

1973-1975

1981-1982

1990-1991

The recession that occurred in 1990-1991 is considered a mild recession because it was relatively short-lived and had a less severe impact on the economy compared to other recessions. This recession lasted for only eight months and was primarily caused by a combination of factors such as the savings and loan crisis, high oil prices, and a decline in consumer spending. While it did lead to a significant increase in unemployment and a decline in GDP, the economy quickly recovered and resumed its growth trajectory.

Explanation

The recession that occurred in 1990-1991 is considered a mild recession because it was relatively short-lived and had a less severe impact on the economy compared to other recessions. This recession lasted for only eight months and was primarily caused by a combination of factors such as the savings and loan crisis, high oil prices, and a decline in consumer spending. While it did lead to a significant increase in unemployment and a decline in GDP, the economy quickly recovered and resumed its growth trajectory.

17. Assuming that a society always operates on its production possibilities curve, an outward shift of the curve implies

Economic growth has occurred

. the society is making more efficient use of its available resources

Consumer demand has increased

The present value of capital resources has increased

An outward shift of the production possibilities curve indicates that the society is now able to produce more goods and services than before. This suggests that the economy has experienced economic growth, as it is now operating at a higher level of productivity and efficiency. The society has likely found ways to utilize its available resources more effectively, leading to an increase in output. Therefore, the correct answer is that economic growth has occurred.

Explanation

An outward shift of the production possibilities curve indicates that the society is now able to produce more goods and services than before. This suggests that the economy has experienced economic growth, as it is now operating at a higher level of productivity and efficiency. The society has likely found ways to utilize its available resources more effectively, leading to an increase in output. Therefore, the correct answer is that economic growth has occurred.

18. The reason that opportunity costs arise is that

People have unlimited wants.

There are no alternative decisions that could be made.

An economy relies on money to facilitate exchange of goods and services.

Resources are scarce.

Opportunity costs arise because resources are scarce. This means that there is a limited amount of resources available to fulfill unlimited wants and needs. When a decision is made to allocate resources towards one option, it means that those resources cannot be used for alternative options. Therefore, the opportunity cost is the value of the next best alternative that is forgone.

Explanation

Opportunity costs arise because resources are scarce. This means that there is a limited amount of resources available to fulfill unlimited wants and needs. When a decision is made to allocate resources towards one option, it means that those resources cannot be used for alternative options. Therefore, the opportunity cost is the value of the next best alternative that is forgone.

19. The production possibilities curve tells us that if full employment exists and a nation wishes to permanently increase its production of military goods, it must

Also increase its production of nonmilitary goods

Reduce its output of nonmilitary goods

Suffer inflation.

Suffer unemployment.

The production possibilities curve shows the maximum combination of goods that can be produced given the available resources and technology. If a nation wants to permanently increase its production of military goods, it would need to reallocate some of its resources from producing nonmilitary goods to military goods. This means reducing its output of nonmilitary goods in order to increase the production of military goods. This is because resources are limited and reallocating them towards one type of good means there are fewer resources available for producing the other type of good.

Explanation

The production possibilities curve shows the maximum combination of goods that can be produced given the available resources and technology. If a nation wants to permanently increase its production of military goods, it would need to reallocate some of its resources from producing nonmilitary goods to military goods. This means reducing its output of nonmilitary goods in order to increase the production of military goods. This is because resources are limited and reallocating them towards one type of good means there are fewer resources available for producing the other type of good.

20. Chart refers to units of butter & guns. Plots H,F,G,I During most of our involvement in World War II we temporarily operated at point

F

G

H

I

During most of our involvement in World War II, the country operated at point F on the chart referring to units of butter and guns. This suggests that during this time, the country was producing and allocating more resources towards guns (military equipment) rather than butter (consumer goods). This is likely due to the increased demand for military equipment and the need to prioritize defense during wartime.

Explanation

During most of our involvement in World War II, the country operated at point F on the chart referring to units of butter and guns. This suggests that during this time, the country was producing and allocating more resources towards guns (military equipment) rather than butter (consumer goods). This is likely due to the increased demand for military equipment and the need to prioritize defense during wartime.

21. Graph refers to consumer goods. Plots X, Y Imagine that country X is at point X of this production possibilities frontier and country Y is at point Y.

Country X will probably grow faster then country Y.

Country Y will probably grow faster then country X

The two countries will probably grow at about the same speed.

There is no way of predicting which country will grow faster.

Based on the information given, it can be inferred that country Y is at a point further along the production possibilities frontier compared to country X. This suggests that country Y is currently utilizing its resources more efficiently and has the potential for greater growth. Therefore, country Y will probably grow faster than country X.

Explanation

Based on the information given, it can be inferred that country Y is at a point further along the production possibilities frontier compared to country X. This suggests that country Y is currently utilizing its resources more efficiently and has the potential for greater growth. Therefore, country Y will probably grow faster than country X.

22. Hypothetical Production Schedule for a Two-Product Economy (Table) If the economy were producing at point C and moves to point B

4 units of capital goods are gained, while the capacity to produce 32 consumer goods are lost.

Of capital goods are gained at an opportunity cost of producing 40 consumer goods.

16 units of capital goods are gained at an opportunity cost of producing 72 consumer goods

4 units of capital goods are gained, while the capacity to produce 72 consumer goods are lost

Moving from point C to point B in the production schedule results in gaining 4 units of capital goods but losing the capacity to produce 32 consumer goods. This means that the economy is reallocating some of its resources from producing consumer goods to producing capital goods. As a result, the economy can produce more capital goods, but at the cost of producing fewer consumer goods.

Explanation

Moving from point C to point B in the production schedule results in gaining 4 units of capital goods but losing the capacity to produce 32 consumer goods. This means that the economy is reallocating some of its resources from producing consumer goods to producing capital goods. As a result, the economy can produce more capital goods, but at the cost of producing fewer consumer goods.

23. Hypothetical Production Schedule for a Two-Product Economy (Table) If the economy were producing at point E and moves to point D,

Resources will shift from producing capital goods to producing consumer goods.

Resources will shift from producing consumer goods to producing capital goods.

More capital goods can be produced without any sacrifice in consumer goods production.

More consumer goods can be produced without any sacrifice in capital goods production.

Moving from point E to point D on the production schedule indicates a shift in the allocation of resources. Specifically, resources will shift from producing consumer goods to producing capital goods. This means that the economy will prioritize the production of capital goods, which are used to produce other goods and services, over consumer goods, which are directly consumed by individuals. This shift suggests that the economy is focusing on long-term growth and investment rather than immediate consumption.

Explanation

Moving from point E to point D on the production schedule indicates a shift in the allocation of resources. Specifically, resources will shift from producing consumer goods to producing capital goods. This means that the economy will prioritize the production of capital goods, which are used to produce other goods and services, over consumer goods, which are directly consumed by individuals. This shift suggests that the economy is focusing on long-term growth and investment rather than immediate consumption.

24. Which statement about entrepreneurship in America is true?

Alexander Graham Bell and Thomas Edison were two of the most famous American inventors who became entrepreneurs.

The American entrepreneur led the way to the country's economic success

Often the entrepreneur is an innovator

The vast majority of entrepreneurs in America either work for themselves or have just one or two employees.

All of the statements are true.

All of the statements are true. Alexander Graham Bell and Thomas Edison were indeed famous American inventors who became entrepreneurs. American entrepreneurs have played a significant role in the country's economic success. Entrepreneurship often involves innovation, making the statement "Often the entrepreneur is an innovator" true. Lastly, the majority of entrepreneurs in America either work for themselves or have a small number of employees, making the statement "The vast majority of entrepreneurs in America either work for themselves or have just one or two employees" true as well.

Explanation

All of the statements are true. Alexander Graham Bell and Thomas Edison were indeed famous American inventors who became entrepreneurs. American entrepreneurs have played a significant role in the country's economic success. Entrepreneurship often involves innovation, making the statement "Often the entrepreneur is an innovator" true. Lastly, the majority of entrepreneurs in America either work for themselves or have a small number of employees, making the statement "The vast majority of entrepreneurs in America either work for themselves or have just one or two employees" true as well.

25. The United States was able to produce temporarily outside its production possibilities curve for several years during World War II by doing which of the following?

Recruiting housewives to work in tank and airplane factories

Convincing workers who qualified for retirement to put off retirement.

Pressing older machinery and equipment into use.

Expansion of the work week.

All of the choices are true

During World War II, the United States was able to produce temporarily outside its production possibilities curve by implementing various strategies. Recruiting housewives to work in tank and airplane factories increased the labor force, enabling higher production levels. Convincing workers who qualified for retirement to postpone retirement extended the availability of skilled workers. Pressing older machinery and equipment into use allowed for increased production capacity. Lastly, expanding the work week provided more hours for production. Therefore, all of these choices are true and contributed to the United States' ability to produce outside its production possibilities curve during the war.

Explanation

During World War II, the United States was able to produce temporarily outside its production possibilities curve by implementing various strategies. Recruiting housewives to work in tank and airplane factories increased the labor force, enabling higher production levels. Convincing workers who qualified for retirement to postpone retirement extended the availability of skilled workers. Pressing older machinery and equipment into use allowed for increased production capacity. Lastly, expanding the work week provided more hours for production. Therefore, all of these choices are true and contributed to the United States' ability to produce outside its production possibilities curve during the war.

26. . The price mechanism deals _ with the issue of an equitable income distribution and with the issue of efficiency.

Well; well

Poorly; poorly

Well; poorly

Poorly; well

The price mechanism deals poorly with the issue of an equitable income distribution because it tends to concentrate wealth in the hands of a few individuals, leading to income inequality. However, it deals well with the issue of efficiency because it allocates resources based on supply and demand, allowing for the most efficient use of resources in the production of goods and services.

Explanation

The price mechanism deals poorly with the issue of an equitable income distribution because it tends to concentrate wealth in the hands of a few individuals, leading to income inequality. However, it deals well with the issue of efficiency because it allocates resources based on supply and demand, allowing for the most efficient use of resources in the production of goods and services.

27. Which of the following is NOT an example of a command-and-control regulation to limit pollution?

Fuel economy standards for all new cars

A 50-cent tax on gasoline

Mandating the use of catalytic converters on all new vehicles

A ban on leaded gasoline

A 50-cent tax on gasoline is not an example of a command-and-control regulation to limit pollution because it is a market-based instrument rather than a direct regulatory measure. Command-and-control regulations typically involve specific mandates and requirements, whereas a tax on gasoline aims to influence behavior by increasing the cost of polluting activities. This tax can incentivize individuals to reduce their consumption of gasoline and choose more environmentally friendly alternatives, but it does not directly dictate the use of specific technologies or impose specific restrictions on pollution levels.

Explanation

A 50-cent tax on gasoline is not an example of a command-and-control regulation to limit pollution because it is a market-based instrument rather than a direct regulatory measure. Command-and-control regulations typically involve specific mandates and requirements, whereas a tax on gasoline aims to influence behavior by increasing the cost of polluting activities. This tax can incentivize individuals to reduce their consumption of gasoline and choose more environmentally friendly alternatives, but it does not directly dictate the use of specific technologies or impose specific restrictions on pollution levels.

28. Which of these is NOT an example of opportunity cost?

Lobster catchers in Point Judith, Rhode Island continued to trap lobsters at the cost of depleting the lobster population.

Lobster catchers in Port Lincoln, Australia paid a licensing fee for the right to own lobster traps.

This answer is correct because paying a licensing fee for the right to own lobster traps is not an example of opportunity cost. Opportunity cost refers to the value of the next best alternative that is forgone when a decision is made. In the other examples, there is a clear trade-off or sacrifice being made. The lobster catchers in Point Judith are depleting the lobster population, President George W. Bush's administration is sacrificing environmental preservation, and the "bridge to nowhere" is adding to the federal budget deficit. However, paying a licensing fee does not involve giving up an alternative option or sacrificing something else.

Explanation

This answer is correct because paying a licensing fee for the right to own lobster traps is not an example of opportunity cost. Opportunity cost refers to the value of the next best alternative that is forgone when a decision is made. In the other examples, there is a clear trade-off or sacrifice being made. The lobster catchers in Point Judith are depleting the lobster population, President George W. Bush's administration is sacrificing environmental preservation, and the "bridge to nowhere" is adding to the federal budget deficit. However, paying a licensing fee does not involve giving up an alternative option or sacrificing something else.

29. A socialist economy is characterized by

An extensive reliance on markets to allocate final goods and services.

An extensive reliance on the profit motive to govern resource allocation decisions.

Elimination of the problem of scarcity since all basic necessities are available to all citizens.

Public ownership of productive resources.

High levels of unemployment and inflation.

A socialist economy is characterized by public ownership of productive resources. This means that the government or the community as a whole owns and controls the means of production, such as factories, land, and natural resources. In a socialist economy, the profits generated from these resources are typically used for the benefit of society as a whole, rather than being privately owned and controlled by individuals or corporations. This approach aims to promote equality and ensure that resources are used in a way that benefits the entire society.

Explanation

A socialist economy is characterized by public ownership of productive resources. This means that the government or the community as a whole owns and controls the means of production, such as factories, land, and natural resources. In a socialist economy, the profits generated from these resources are typically used for the benefit of society as a whole, rather than being privately owned and controlled by individuals or corporations. This approach aims to promote equality and ensure that resources are used in a way that benefits the entire society.

30. Statement I: China's southern provinces have become "export platforms", sending out streams of consumer goods to Japan, Europe, and North America. Statement II: China has become a wealthy nation as a result of getting rid of its communist economic system.

Statement I is true and statement II is false.

Statement II is true and statement I is false.

Both statements are true.

Both statements are false.

The explanation for the correct answer is that statement I is true because China's southern provinces have indeed become major exporters of consumer goods to various countries. However, statement II is false because China's economic system is still largely communist, although it has implemented some market-oriented reforms. Therefore, only statement I is true and statement II is false.

Explanation

The explanation for the correct answer is that statement I is true because China's southern provinces have indeed become major exporters of consumer goods to various countries. However, statement II is false because China's economic system is still largely communist, although it has implemented some market-oriented reforms. Therefore, only statement I is true and statement II is false.

31. Karl Marx and Friedrich Engels said

"The theory of the Communists may be summed up in the single sentence: Abolition of private property."

"It is not the employer who pays wages-he only handles the money. It is the product that pays wages."

"Capital is past savings accumulated for future production."

The correct answer is "The theory of the Communists may be summed up in the single sentence: Abolition of private property." This answer accurately reflects the main idea of Karl Marx and Friedrich Engels' theory of communism. They believed that in order to achieve a more equal society, private property should be abolished and resources should be collectively owned and shared by all members of society. This idea is central to the communist ideology and distinguishes it from other economic systems.

Explanation

The correct answer is "The theory of the Communists may be summed up in the single sentence: Abolition of private property." This answer accurately reflects the main idea of Karl Marx and Friedrich Engels' theory of communism. They believed that in order to achieve a more equal society, private property should be abolished and resources should be collectively owned and shared by all members of society. This idea is central to the communist ideology and distinguishes it from other economic systems.

32. Our government helps the free enterprise system work by doing all of the following, except

Enforcing business contracts.

Using a central planning agency to direct the production process.

Defining property rights.

Lowering some of the barriers to competition

The government helps the free enterprise system work by enforcing business contracts, defining property rights, and lowering some of the barriers to competition. However, using a central planning agency to direct the production process goes against the principles of a free enterprise system, which is based on individual freedom and market forces. In a free enterprise system, businesses are expected to make their own production decisions based on market demand and competition.

Explanation

The government helps the free enterprise system work by enforcing business contracts, defining property rights, and lowering some of the barriers to competition. However, using a central planning agency to direct the production process goes against the principles of a free enterprise system, which is based on individual freedom and market forces. In a free enterprise system, businesses are expected to make their own production decisions based on market demand and competition.

33. Which does not fit with the others?

"The invisible hand"

Government regulations

A government "five-year plan"

Government planning

The correct answer is "The invisible hand" because it is the only option that does not pertain to government intervention or control. "Government regulations," "a government five-year plan," and "government planning" all involve the role of the government in making decisions and implementing policies. However, the concept of "the invisible hand" refers to the idea that the market forces of supply and demand, rather than government intervention, guide the economy.

Explanation

The correct answer is "The invisible hand" because it is the only option that does not pertain to government intervention or control. "Government regulations," "a government five-year plan," and "government planning" all involve the role of the government in making decisions and implementing policies. However, the concept of "the invisible hand" refers to the idea that the market forces of supply and demand, rather than government intervention, guide the economy.

34. Which of the following is a typical attribute of a socialist country?

Taxes are very high, particularly on the wealthy classes.

Government owns some of the means of production.

Cradle-to-grave security for its citizens.

A large-scale redistribution of income program from the wealthy and well-to-do to the middle class, working, class and the poor.

All of the choices are attributes of a socialist country.

A socialist country typically exhibits all of the mentioned attributes. High taxes, especially on the wealthy, are implemented to fund social programs and services. The government owns some means of production, aiming for collective control and distribution of resources. Cradle-to-grave security ensures social welfare and protection for citizens. Lastly, a large-scale redistribution of income program aims to reduce income inequality and support the middle class, working class, and the poor. Therefore, all of the choices are indeed typical attributes of a socialist country.

Explanation

A socialist country typically exhibits all of the mentioned attributes. High taxes, especially on the wealthy, are implemented to fund social programs and services. The government owns some means of production, aiming for collective control and distribution of resources. Cradle-to-grave security ensures social welfare and protection for citizens. Lastly, a large-scale redistribution of income program aims to reduce income inequality and support the middle class, working class, and the poor. Therefore, all of the choices are indeed typical attributes of a socialist country.

35. Which statement is false?

In the late 1970s, China began reforms, which eventually transformed it to a more market-oriented economy.

Russia has been more successful than China in becoming a market-oriented economy.

None of the above statements are false.

The given correct answer is "Russia has been more successful than China in becoming a market-oriented economy." This statement is false because China has been more successful than Russia in transitioning to a market-oriented economy. China's economic reforms in the late 1970s led to significant growth and liberalization of its economy, while Russia's transition has been more challenging and marked by corruption and inefficiencies. China's economic rise and integration into the global market have made it one of the world's largest economies, while Russia has faced economic stagnation and dependence on natural resources.

Explanation

The given correct answer is "Russia has been more successful than China in becoming a market-oriented economy." This statement is false because China has been more successful than Russia in transitioning to a market-oriented economy. China's economic reforms in the late 1970s led to significant growth and liberalization of its economy, while Russia's transition has been more challenging and marked by corruption and inefficiencies. China's economic rise and integration into the global market have made it one of the world's largest economies, while Russia has faced economic stagnation and dependence on natural resources.

36. An example of a public good is

National defense.

A lighthouse.

Flood control protection from the Tennessee Valley Authority (TVA).

Police protection.

All of the choices are examples of a public good.

All of the options listed - national defense, a lighthouse, flood control protection from the Tennessee Valley Authority (TVA), and police protection - are examples of public goods. Public goods are goods or services that are non-excludable and non-rivalrous, meaning that they are available to everyone and one person's use does not diminish their availability to others. In this case, all of the options listed are provided by the government and are available to all members of the public without discrimination. Therefore, they all qualify as examples of public goods.

Explanation

All of the options listed - national defense, a lighthouse, flood control protection from the Tennessee Valley Authority (TVA), and police protection - are examples of public goods. Public goods are goods or services that are non-excludable and non-rivalrous, meaning that they are available to everyone and one person's use does not diminish their availability to others. In this case, all of the options listed are provided by the government and are available to all members of the public without discrimination. Therefore, they all qualify as examples of public goods.

37. Q.D Price Q.S 30 $10 64 40 8 55 50 6 50 60 4 40 70 2 20 When the price is $2

Quantity supplied is greater than quantity demanded and, therefore, price must rise to get to equilibrium.

Quantity supplied is less than quantity demanded and, therefore, price must fall to get to equilibrium.

Quantity demanded is greater than quantity supplied and, therefore, price must rise to get to equilibrium.

Quantity demanded is greater than quantity supplied and, therefore, price must fall to get to equilibrium.

When the price is $2, the quantity demanded is 70 and the quantity supplied is 2. Since the quantity demanded is greater than the quantity supplied, there is excess demand in the market. In order to reach equilibrium, where quantity demanded equals quantity supplied, the price must rise to incentivize suppliers to increase their quantity supplied. Therefore, the correct answer is that quantity demanded is greater than quantity supplied and, therefore, price must rise to get to equilibrium.

Explanation

When the price is $2, the quantity demanded is 70 and the quantity supplied is 2. Since the quantity demanded is greater than the quantity supplied, there is excess demand in the market. In order to reach equilibrium, where quantity demanded equals quantity supplied, the price must rise to incentivize suppliers to increase their quantity supplied. Therefore, the correct answer is that quantity demanded is greater than quantity supplied and, therefore, price must rise to get to equilibrium.

38. Refers to graph (intersecting lines "X") If the government set a price $24, there would be a price _____, that would cause a _ of __ units.

Floor, shortage, 10

Floor, surplus, 10

Ceiling, shortage, 10

Ceiling, surplus, 10

If the government set a price of $24, it would create a price floor. This means that the price cannot go below $24. In this case, the price floor would cause a surplus of 10 units. This means that there would be more supply than demand at the price of $24, resulting in an excess of 10 units that cannot be sold.

Explanation

If the government set a price of $24, it would create a price floor. This means that the price cannot go below $24. In this case, the price floor would cause a surplus of 10 units. This means that there would be more supply than demand at the price of $24, resulting in an excess of 10 units that cannot be sold.

39. When demand falls and supply rises, equilibrium price will and equilibrium quantity will .

Fall; either rise, fall or stay the same

Rise; rise

Either rise, fall or stay the same

Fall; fall

When demand falls, it means that consumers are less willing to purchase the product at the current price. On the other hand, when supply rises, it means that producers are offering more of the product to the market. These two factors together result in a decrease in the equilibrium price, as there is less demand for the product and more supply available. The equilibrium quantity can either rise, fall, or stay the same depending on the magnitude of the changes in demand and supply.

Explanation

When demand falls, it means that consumers are less willing to purchase the product at the current price. On the other hand, when supply rises, it means that producers are offering more of the product to the market. These two factors together result in a decrease in the equilibrium price, as there is less demand for the product and more supply available. The equilibrium quantity can either rise, fall, or stay the same depending on the magnitude of the changes in demand and supply.

40. An increase in supply means that quantity supplied rises

At least one price.

At a few prices.

At most prices.

At all prices.

An increase in supply means that the quantity supplied rises at all prices. This is because when supply increases, producers are willing and able to supply more of the good or service at any given price. In other words, they are willing to produce and sell more units of the product at all price levels. This is a fundamental concept in economics, as it shows the relationship between supply and price in a market.

Explanation

An increase in supply means that the quantity supplied rises at all prices. This is because when supply increases, producers are willing and able to supply more of the good or service at any given price. In other words, they are willing to produce and sell more units of the product at all price levels. This is a fundamental concept in economics, as it shows the relationship between supply and price in a market.

41. Which statement is true?

The quantity demanded is determined by the quantity supplied.

The quantity supplied is determined by the quantity demanded.

The quantity demanded is determined by sellers and the quantity supplied is determined by buyers.

None of these statements are true.

The correct answer is "None of these statements are true." This means that none of the statements provided accurately describe the relationship between quantity demanded and quantity supplied. In reality, the quantity demanded is determined by buyers, while the quantity supplied is determined by sellers. Therefore, none of the given statements are correct.

Explanation

The correct answer is "None of these statements are true." This means that none of the statements provided accurately describe the relationship between quantity demanded and quantity supplied. In reality, the quantity demanded is determined by buyers, while the quantity supplied is determined by sellers. Therefore, none of the given statements are correct.

42. Which situation below would represent a surplus in the fertilizer market?

Quantity demanded is 1.2 million; quantity supplied is 1.1 million.

Market price $2.00 per bag; equilibrium price $2.25 per bag.

Market price $2.50 per bag; equilibrium price $2.00.

Quantity supplied this year is 25% greater than quantity supplied last year.

A surplus in the fertilizer market occurs when the quantity supplied exceeds the quantity demanded. In this situation, the market price ($2.50 per bag) is lower than the equilibrium price ($2.00 per bag), indicating that there is excess supply in the market. This means that there are more bags of fertilizer available than consumers are willing to buy, leading to a surplus.

Explanation

A surplus in the fertilizer market occurs when the quantity supplied exceeds the quantity demanded. In this situation, the market price ($2.50 per bag) is lower than the equilibrium price ($2.00 per bag), indicating that there is excess supply in the market. This means that there are more bags of fertilizer available than consumers are willing to buy, leading to a surplus.

43. Which of the following government programs will create a surplus?

Rent control

The minimum wage law

Usury laws

Price controls on oil

The minimum wage law can create a surplus because it sets a minimum wage that employers must pay to their employees. This ensures that workers receive a fair wage and can afford their basic needs. By increasing the income of workers, they have more money to spend, which can stimulate economic growth and increase consumer demand. This can lead to an increase in production and job creation, ultimately resulting in a surplus.

Explanation

The minimum wage law can create a surplus because it sets a minimum wage that employers must pay to their employees. This ensures that workers receive a fair wage and can afford their basic needs. By increasing the income of workers, they have more money to spend, which can stimulate economic growth and increase consumer demand. This can lead to an increase in production and job creation, ultimately resulting in a surplus.

44. If the government set a price floor at $8

There would be a temporary surplus, then prices would fall to equilibrium.

There would be a permanent surplus, at least until the price floor was lifted.

The price would rise back to the equilibrium price.

The price floor would not have any effect on this market.

If the government sets a price floor at $8, it means that the price cannot fall below this level. This would lead to a situation where the price is artificially kept higher than the equilibrium price. As a result, there would be a permanent surplus in the market because the quantity supplied would exceed the quantity demanded at the higher price. This surplus would continue until the price floor is lifted, allowing the market to reach equilibrium again.

Explanation

If the government sets a price floor at $8, it means that the price cannot fall below this level. This would lead to a situation where the price is artificially kept higher than the equilibrium price. As a result, there would be a permanent surplus in the market because the quantity supplied would exceed the quantity demanded at the higher price. This surplus would continue until the price floor is lifted, allowing the market to reach equilibrium again.

45. If price was set by the government at $4, there would be a price _______, that would cause a _ of ___ units.

Floor, surplus, 8

Floor, surplus, 10

Ceiling, shortage, 8

Ceiling, shortage, 12

Ceiling, shortage, 14

If the government sets the price at $4, it creates a price ceiling. This means that the price cannot go above $4. This would cause a shortage of 12 units, as the quantity demanded at that price would exceed the quantity supplied.

Explanation

If the government sets the price at $4, it creates a price ceiling. This means that the price cannot go above $4. This would cause a shortage of 12 units, as the quantity demanded at that price would exceed the quantity supplied.

46. The equilibrium quantity is about

14.5.

15.0.

15.5.

16.0.

16.5.

The equilibrium quantity refers to the quantity at which the demand and supply in a market are balanced. In this case, the correct answer is 15.5, which means that at this quantity, the demand for the product is equal to the supply. It indicates that the market is in a state of equilibrium, with neither a shortage nor a surplus of the product.

Explanation

The equilibrium quantity refers to the quantity at which the demand and supply in a market are balanced. In this case, the correct answer is 15.5, which means that at this quantity, the demand for the product is equal to the supply. It indicates that the market is in a state of equilibrium, with neither a shortage nor a surplus of the product.

47. What happens to equilibrium quantity when simultaneously the demand curve shifts left and the supply curve shifts right?

Equilibrium quantity will increase.

Equilibrium quantity will decrease.

Equilibrium quantity will remain the same.

Equilibrium quantity may increase, decrease, or remain the same depending on the magnitude of the shifts in demand and supply.

When the demand curve shifts left and the supply curve shifts right simultaneously, the equilibrium quantity may increase, decrease, or remain the same depending on the magnitude of the shifts in demand and supply. If the decrease in demand is greater than the increase in supply, the equilibrium quantity will decrease. If the increase in supply is greater than the decrease in demand, the equilibrium quantity will increase. If the magnitude of the shifts is equal, the equilibrium quantity will remain the same. The direction and magnitude of the shifts in demand and supply determine the final impact on the equilibrium quantity.

Explanation

When the demand curve shifts left and the supply curve shifts right simultaneously, the equilibrium quantity may increase, decrease, or remain the same depending on the magnitude of the shifts in demand and supply. If the decrease in demand is greater than the increase in supply, the equilibrium quantity will decrease. If the increase in supply is greater than the decrease in demand, the equilibrium quantity will increase. If the magnitude of the shifts is equal, the equilibrium quantity will remain the same. The direction and magnitude of the shifts in demand and supply determine the final impact on the equilibrium quantity.

48. All of the following could shift the demand curve, except

A shift of the supply curve

A rise in income

A change in the price of substitutes

An increase in population in the age group buying that good

A successful advertising campaign convincing people that they want more of this good

An increase in population in the age group buying that good, a rise in income, a change in the price of substitutes, and a successful advertising campaign convincing people that they want more of this good can all potentially shift the demand curve. However, a shift of the supply curve does not affect the demand curve directly. The supply curve represents the relationship between the price of a good and the quantity supplied, while the demand curve represents the relationship between the price of a good and the quantity demanded. Therefore, a shift in the supply curve would impact the quantity supplied, not the quantity demanded, and would not cause a shift in the demand curve.

Explanation

An increase in population in the age group buying that good, a rise in income, a change in the price of substitutes, and a successful advertising campaign convincing people that they want more of this good can all potentially shift the demand curve. However, a shift of the supply curve does not affect the demand curve directly. The supply curve represents the relationship between the price of a good and the quantity supplied, while the demand curve represents the relationship between the price of a good and the quantity demanded. Therefore, a shift in the supply curve would impact the quantity supplied, not the quantity demanded, and would not cause a shift in the demand curve.

49. An increase in the price of IBM personal computers is likely to

Decrease the demand for IBM computers.

Increase the demand for Apple computers (Macs).

Increase the demand for IBM computers.

Decrease the demand for Apple computers (Macs).

An increase in the price of IBM personal computers is likely to decrease the demand for IBM computers because as the price goes up, consumers may be less willing or able to purchase them. This decrease in demand for IBM computers may lead consumers to consider alternative options, such as Apple computers (Macs), thereby increasing the demand for Apple computers.

Explanation

An increase in the price of IBM personal computers is likely to decrease the demand for IBM computers because as the price goes up, consumers may be less willing or able to purchase them. This decrease in demand for IBM computers may lead consumers to consider alternative options, such as Apple computers (Macs), thereby increasing the demand for Apple computers.

50. When demand decreases, the demand curve shifts

On its axis, becoming flatter.

Upward and to the right.

Downward and to the left.

On its axis, becoming more vertical.

When demand decreases, it means that consumers are buying less of a product at a given price. This causes the demand curve to shift downward and to the left. The curve becomes flatter because at lower prices, consumers are willing to buy more of the product, and at higher prices, they are willing to buy less. Therefore, the demand curve shows the relationship between price and quantity demanded, and a decrease in demand shifts the curve to the left, indicating a lower quantity demanded at each price level.

Explanation

When demand decreases, it means that consumers are buying less of a product at a given price. This causes the demand curve to shift downward and to the left. The curve becomes flatter because at lower prices, consumers are willing to buy more of the product, and at higher prices, they are willing to buy less. Therefore, the demand curve shows the relationship between price and quantity demanded, and a decrease in demand shifts the curve to the left, indicating a lower quantity demanded at each price level.

51. Which of the following pairs provides examples of complementary goods?

Cars and trucks

Coffee and tea

Butter and margarine

Cars and tires

Pens and pencils

Cars and tires are examples of complementary goods because they are typically used together. When someone buys a car, they also need to purchase tires for it. The demand for cars and tires is interconnected, as an increase in the demand for cars will lead to an increase in the demand for tires. Similarly, a decrease in the demand for cars will result in a decrease in the demand for tires. Therefore, cars and tires are considered complementary goods.

Explanation

Cars and tires are examples of complementary goods because they are typically used together. When someone buys a car, they also need to purchase tires for it. The demand for cars and tires is interconnected, as an increase in the demand for cars will lead to an increase in the demand for tires. Similarly, a decrease in the demand for cars will result in a decrease in the demand for tires. Therefore, cars and tires are considered complementary goods.

52. If sneakers and hiking boots are substitutes and the price of sneakers falls, what will happen?

Demand for sneakers will rise.

Demand for sneakers will fall.

Demand for hiking boots will rise.

Demand for hiking boots will fall.

If sneakers and hiking boots are substitutes, it means that consumers can choose between the two when making a purchase decision. When the price of sneakers falls, it becomes a more attractive option for consumers, leading to an increase in demand for sneakers. As a result, the demand for hiking boots, the substitute product, will decrease because consumers are now more likely to choose the cheaper sneakers over hiking boots. Therefore, the correct answer is that the demand for hiking boots will fall.

Explanation

If sneakers and hiking boots are substitutes, it means that consumers can choose between the two when making a purchase decision. When the price of sneakers falls, it becomes a more attractive option for consumers, leading to an increase in demand for sneakers. As a result, the demand for hiking boots, the substitute product, will decrease because consumers are now more likely to choose the cheaper sneakers over hiking boots. Therefore, the correct answer is that the demand for hiking boots will fall.

53. If the price of tanning salon sessions rises, then there will be a(n)

Decrease in the demand for sessions.

Decrease in the quantity of sessions demanded

Increase in the demand for sessions.

Increase in the quantity of sessions demanded.

When the price of tanning salon sessions rises, it becomes more expensive for consumers to purchase these sessions. As a result, some consumers may choose to forego or reduce the number of sessions they demand, leading to a decrease in the quantity of sessions demanded. This is because the higher price makes the sessions less affordable and therefore reduces the overall demand for them.

Explanation

When the price of tanning salon sessions rises, it becomes more expensive for consumers to purchase these sessions. As a result, some consumers may choose to forego or reduce the number of sessions they demand, leading to a decrease in the quantity of sessions demanded. This is because the higher price makes the sessions less affordable and therefore reduces the overall demand for them.

54. An increase in supply is represented by a shift

From one point on the supply curve to another, when quantity is increased.

From one supply curve to another.

To another supply curve that is entirely to the left of the first curve.

To another supply curve that is entirely to the right of the first curve.

An increase in supply is represented by a shift to another supply curve that is entirely to the right of the first curve. This means that at every price level, there is a greater quantity supplied compared to the original supply curve. This shift occurs when there are factors such as technological advancements, decrease in production costs, or increase in the number of suppliers, leading to an increase in the overall supply of a product or service in the market.

Explanation

An increase in supply is represented by a shift to another supply curve that is entirely to the right of the first curve. This means that at every price level, there is a greater quantity supplied compared to the original supply curve. This shift occurs when there are factors such as technological advancements, decrease in production costs, or increase in the number of suppliers, leading to an increase in the overall supply of a product or service in the market.

55. Suppose that, due to low profits, many individuals decide to leave the farming business. The effect of the exodus will be

To increase the demand for agricultural products

To increase the prices of agricultural products.

To decrease the demand for agricultural products.

To decrease the prices of agricultural products.

When many individuals leave the farming business, the supply of agricultural products decreases. As a result, the demand for these products remains the same or may even increase due to the growing population. With a decrease in supply and constant or increased demand, the prices of agricultural products will rise.

Explanation

When many individuals leave the farming business, the supply of agricultural products decreases. As a result, the demand for these products remains the same or may even increase due to the growing population. With a decrease in supply and constant or increased demand, the prices of agricultural products will rise.

56. As the price of leather increases

The price of leather shoes will decrease.

The demand for leather shoes will increase.

The quantity of leather shoes demanded will decrease.

The supply of leather shoes will increase.

As the price of leather increases, it becomes more expensive for manufacturers to produce leather shoes. This leads to an increase in the cost of production, which in turn causes the price of leather shoes to rise. As a result, consumers are less willing to buy leather shoes at higher prices, leading to a decrease in the quantity of leather shoes demanded.

Explanation

As the price of leather increases, it becomes more expensive for manufacturers to produce leather shoes. This leads to an increase in the cost of production, which in turn causes the price of leather shoes to rise. As a result, consumers are less willing to buy leather shoes at higher prices, leading to a decrease in the quantity of leather shoes demanded.

57. Which of the following will NOT shift the supply curve for gadgets?

A change in the prices of inputs used in the production of gadgets

A change in the technology available to produce gadgets

A change in the price of gadgets

A change in the number of sellers of gadgets

A change in the price of gadgets will not shift the supply curve for gadgets because the price of gadgets is a factor that is determined by the supply and demand in the market. It is not a factor that directly affects the supply curve itself. The supply curve is influenced by factors such as the prices of inputs used in production, technology available for production, and the number of sellers in the market.

Explanation

A change in the price of gadgets will not shift the supply curve for gadgets because the price of gadgets is a factor that is determined by the supply and demand in the market. It is not a factor that directly affects the supply curve itself. The supply curve is influenced by factors such as the prices of inputs used in production, technology available for production, and the number of sellers in the market.

58. Each of the following can cause a change in demand except

Changes in income.

Changes in the prices of related goods and services.

Changes in tastes and preferences.

Changes in price expectations.

Changes in taxes.

Changes in taxes do not directly cause a change in demand. Taxes can affect the disposable income of consumers, which in turn can influence their purchasing power and ability to demand goods and services. However, the change in demand is not directly caused by taxes themselves, but rather by the impact taxes have on consumers' income. Therefore, changes in taxes are not included in the factors that directly affect demand.

Explanation

Changes in taxes do not directly cause a change in demand. Taxes can affect the disposable income of consumers, which in turn can influence their purchasing power and ability to demand goods and services. However, the change in demand is not directly caused by taxes themselves, but rather by the impact taxes have on consumers' income. Therefore, changes in taxes are not included in the factors that directly affect demand.

59. An increase in the price of ice cream is likely to

Increase the demand for ice cream cones.

Decrease the demand for ice cream cones.

Increase the supply of ice cream cones.

Increase the price of ice cream cones.

When the price of ice cream increases, it becomes more expensive for consumers to purchase. As a result, some consumers may choose to buy less ice cream or forgo purchasing it altogether. This decrease in demand for ice cream will also lead to a decrease in the demand for ice cream cones, as fewer people will be buying ice cream to put in them. Therefore, an increase in the price of ice cream is likely to decrease the demand for ice cream cones.

Explanation

When the price of ice cream increases, it becomes more expensive for consumers to purchase. As a result, some consumers may choose to buy less ice cream or forgo purchasing it altogether. This decrease in demand for ice cream will also lead to a decrease in the demand for ice cream cones, as fewer people will be buying ice cream to put in them. Therefore, an increase in the price of ice cream is likely to decrease the demand for ice cream cones.

60. A shift in the supply curve for gasoline in the United States would result if

A 50-cent tax on gasoline was enacted by Congress.

Congress and the president allowed oil to be drilled in previously restricted areas.

New methods were discovered for recovering oil from wells previously considered dried up.

All of the choices are true.

The correct answer is "All of the choices are true." This is because each of the given scenarios would lead to a shift in the supply curve for gasoline in the United States. A 50-cent tax on gasoline would increase the cost of production for gasoline suppliers, causing a decrease in supply and a leftward shift in the supply curve. Allowing oil to be drilled in previously restricted areas would increase the availability of oil, leading to an increase in supply and a rightward shift in the supply curve. Discovering new methods for recovering oil from previously dried up wells would also increase the supply of oil, resulting in a rightward shift in the supply curve. Therefore, all of these factors would cause a shift in the supply curve for gasoline in the United States.

Explanation

The correct answer is "All of the choices are true." This is because each of the given scenarios would lead to a shift in the supply curve for gasoline in the United States. A 50-cent tax on gasoline would increase the cost of production for gasoline suppliers, causing a decrease in supply and a leftward shift in the supply curve. Allowing oil to be drilled in previously restricted areas would increase the availability of oil, leading to an increase in supply and a rightward shift in the supply curve. Discovering new methods for recovering oil from previously dried up wells would also increase the supply of oil, resulting in a rightward shift in the supply curve. Therefore, all of these factors would cause a shift in the supply curve for gasoline in the United States.

61. Assume that demand is elastic. Of the elasticities shown here, which is the lowest that would still be considered elastic?

10.0

1.01

1.00

0.01

The concept of elasticity measures the responsiveness of demand to changes in price. If demand is elastic, it means that a small change in price will result in a relatively large change in quantity demanded. Among the given options, the elasticity of 1.01 is the lowest that would still be considered elastic. This means that a 1% increase in price would lead to a 1.01% decrease in quantity demanded, indicating a relatively responsive demand to price changes.

Explanation

The concept of elasticity measures the responsiveness of demand to changes in price. If demand is elastic, it means that a small change in price will result in a relatively large change in quantity demanded. Among the given options, the elasticity of 1.01 is the lowest that would still be considered elastic. This means that a 1% increase in price would lead to a 1.01% decrease in quantity demanded, indicating a relatively responsive demand to price changes.

62. Refers to graph (measured in millions) How much revenue will the government raise each week from the tax?

$8 million

$10 million

$20 million

$40 million

$80 million

The government will raise $8 million each week from the tax.

Explanation

The government will raise $8 million each week from the tax.

63. A firm that changes its price and sees no change in the total revenues it receives is facing demand that is

Price inelastic.

Revenue inelastic.

Unit elastic.

Price elastic.

If a firm changes its price and there is no change in the total revenues it receives, it indicates that the demand for its product is unit elastic. This means that the percentage change in quantity demanded is exactly equal to the percentage change in price. In other words, the responsiveness of demand to price changes is neither elastic (sensitive to price changes) nor inelastic (insensitive to price changes). This suggests that the firm is able to adjust its price without significantly affecting the quantity demanded, resulting in constant total revenues.

Explanation

If a firm changes its price and there is no change in the total revenues it receives, it indicates that the demand for its product is unit elastic. This means that the percentage change in quantity demanded is exactly equal to the percentage change in price. In other words, the responsiveness of demand to price changes is neither elastic (sensitive to price changes) nor inelastic (insensitive to price changes). This suggests that the firm is able to adjust its price without significantly affecting the quantity demanded, resulting in constant total revenues.

64. In general, the fewer the substitutes available for a good

The more inelastic the demand for the good.

The more elastic the demand for the good.

The greater the demand for the good.

The less the demand for the good.

When there are fewer substitutes available for a good, it means that consumers have limited options to choose from. This makes the demand for the good less responsive to changes in price or other factors. In other words, even if the price of the good increases, consumers are still willing to purchase it because there are no close alternatives. Therefore, the demand for the good is more inelastic, meaning it does not change significantly with changes in price or availability of substitutes.

Explanation

When there are fewer substitutes available for a good, it means that consumers have limited options to choose from. This makes the demand for the good less responsive to changes in price or other factors. In other words, even if the price of the good increases, consumers are still willing to purchase it because there are no close alternatives. Therefore, the demand for the good is more inelastic, meaning it does not change significantly with changes in price or availability of substitutes.

65. If elasticity of demand is 10, a 1% increase in price will lower quantity demanded by

1%.

10%.

100%.

If the elasticity of demand is 10, it means that a 1% increase in price will result in a 10% decrease in quantity demanded. This indicates that the demand for the product is relatively elastic, meaning that consumers are highly responsive to changes in price. Therefore, a small increase in price will lead to a proportionately larger decrease in quantity demanded.

Explanation

If the elasticity of demand is 10, it means that a 1% increase in price will result in a 10% decrease in quantity demanded. This indicates that the demand for the product is relatively elastic, meaning that consumers are highly responsive to changes in price. Therefore, a small increase in price will lead to a proportionately larger decrease in quantity demanded.

66. What is the key difference between the short-run and long-run in terms of elasticity of supply?

Fixed productive capacity

Labor changes

No changes can be made to capital or labor

No difference

The key difference between the short-run and long-run in terms of elasticity of supply is the fixed productive capacity. In the short-run, the productive capacity is fixed, meaning that firms cannot easily increase or decrease their output levels. Therefore, the supply is relatively inelastic in the short-run. In contrast, in the long-run, firms have the flexibility to adjust their productive capacity by making changes to capital or labor. This allows them to be more responsive to changes in demand, resulting in a more elastic supply.

Explanation

The key difference between the short-run and long-run in terms of elasticity of supply is the fixed productive capacity. In the short-run, the productive capacity is fixed, meaning that firms cannot easily increase or decrease their output levels. Therefore, the supply is relatively inelastic in the short-run. In contrast, in the long-run, firms have the flexibility to adjust their productive capacity by making changes to capital or labor. This allows them to be more responsive to changes in demand, resulting in a more elastic supply.

67. When the demand elasticity of a service is ____, a small increase in price will lead to a decline of the same percentage in quantity.

10

1.0

0.0

0.1

When the demand elasticity of a service is 1.0, it means that the demand for the service is perfectly elastic. This means that a small increase in price will lead to a decline of the same percentage in quantity. In other words, if the price of the service increases by 10%, the quantity demanded will decrease by 10%. This indicates that consumers are very sensitive to changes in price and will significantly reduce their consumption if the price goes up.

Explanation

When the demand elasticity of a service is 1.0, it means that the demand for the service is perfectly elastic. This means that a small increase in price will lead to a decline of the same percentage in quantity. In other words, if the price of the service increases by 10%, the quantity demanded will decrease by 10%. This indicates that consumers are very sensitive to changes in price and will significantly reduce their consumption if the price goes up.

68. In general taxes on goods and services

Are borne mainly by consumers.

Are borne mainly by sellers.

Are borne equally by consumers and sellers.

Taxes on goods and services can be paid by either the buyers or the sellers, or it can be shared equally between them. The burden of the tax depends on the specific circumstances and market conditions. For example, if the demand for a product is very high, sellers may be able to pass on the tax to the buyers by increasing the price. On the other hand, if the competition is intense, sellers may have to absorb the tax themselves to remain competitive. Therefore, taxes on goods and services can be borne by either party or shared between them.

Explanation

Taxes on goods and services can be paid by either the buyers or the sellers, or it can be shared equally between them. The burden of the tax depends on the specific circumstances and market conditions. For example, if the demand for a product is very high, sellers may be able to pass on the tax to the buyers by increasing the price. On the other hand, if the competition is intense, sellers may have to absorb the tax themselves to remain competitive. Therefore, taxes on goods and services can be borne by either party or shared between them.

69. In the short run, the demand for gasoline today is

Unit elastic.

Very inelastic.

Very elastic.

The given answer, "very inelastic," suggests that the demand for gasoline today is not very responsive to changes in price in the short run. This means that even if the price of gasoline increases or decreases, the quantity demanded will not change significantly. This could be due to the fact that gasoline is a necessity for many individuals and they are not easily able to reduce their consumption in response to price changes.

Explanation

The given answer, "very inelastic," suggests that the demand for gasoline today is not very responsive to changes in price in the short run. This means that even if the price of gasoline increases or decreases, the quantity demanded will not change significantly. This could be due to the fact that gasoline is a necessity for many individuals and they are not easily able to reduce their consumption in response to price changes.

70. The seller will bear the entire burden of a tax in all of the following except

When the demand is perfectly elastic.

When the supply is perfectly inelastic.

When the supply curve is a vertical line.

When the demand curve is a vertical line.

When the demand curve is a vertical line, it means that the quantity demanded does not change regardless of the price. In this case, the burden of the tax cannot be passed on to consumers through higher prices because they are not willing to pay more for the product. Therefore, the seller will bear the entire burden of the tax.

Explanation

When the demand curve is a vertical line, it means that the quantity demanded does not change regardless of the price. In this case, the burden of the tax cannot be passed on to consumers through higher prices because they are not willing to pay more for the product. Therefore, the seller will bear the entire burden of the tax.

71. Which of the following has the highest elasticity of demand?

Medical care

Telephone services

Bread

Household electricity

Restaurant meals

Restaurant meals have the highest elasticity of demand because they are considered a luxury item and are not essential for survival. The demand for restaurant meals is more responsive to changes in price compared to other items listed. When the price of restaurant meals increases, consumers have the option to substitute by cooking at home or eating at cheaper establishments. Conversely, when prices decrease, consumers may choose to dine out more frequently. This high level of responsiveness to price changes indicates a higher elasticity of demand for restaurant meals.

Explanation

Restaurant meals have the highest elasticity of demand because they are considered a luxury item and are not essential for survival. The demand for restaurant meals is more responsive to changes in price compared to other items listed. When the price of restaurant meals increases, consumers have the option to substitute by cooking at home or eating at cheaper establishments. Conversely, when prices decrease, consumers may choose to dine out more frequently. This high level of responsiveness to price changes indicates a higher elasticity of demand for restaurant meals.

72. Jason's cooking is so terrible that Melissa says she will have to be paid in order to even try it. Thus, her marginal utility for Jason's cooking is

Constant.

Increasing.

Positive.

Negative.

Melissa's statement indicates that she has a negative perception of Jason's cooking. She believes it is so terrible that she would require payment to even attempt it. This implies that her satisfaction or utility from Jason's cooking is negative, as it brings her displeasure or dissatisfaction. Therefore, her marginal utility for Jason's cooking is negative.

Explanation

Melissa's statement indicates that she has a negative perception of Jason's cooking. She believes it is so terrible that she would require payment to even attempt it. This implies that her satisfaction or utility from Jason's cooking is negative, as it brings her displeasure or dissatisfaction. Therefore, her marginal utility for Jason's cooking is negative.

73. If you were in the middle of the desert, came upon a lemonade stand, and paid $20 for a glass of lemonade,

You would definitely be overpaying.

You would have gotten at least $20 of utility from the lemonade.

There is no way to determine whether or not you overpaid.

In this scenario, the correct answer is "you would have gotten at least $20 of utility from the lemonade." This means that the person who paid $20 for a glass of lemonade would have received a minimum of $20 worth of satisfaction or benefit from the lemonade. While it is possible that the person may have overpaid for the lemonade in terms of its actual cost, the answer focuses on the utility or value that the person received from the lemonade rather than the price paid.

Explanation

In this scenario, the correct answer is "you would have gotten at least $20 of utility from the lemonade." This means that the person who paid $20 for a glass of lemonade would have received a minimum of $20 worth of satisfaction or benefit from the lemonade. While it is possible that the person may have overpaid for the lemonade in terms of its actual cost, the answer focuses on the utility or value that the person received from the lemonade rather than the price paid.

74. Which statement is true?

If you know a person's demand schedule, you can find his total utility, but not his marginal utility.

If a good is free, you will consume more and more of it until your marginal utility is zero.

If a good is free, you will consume more and more of it until your total utility is zero.

If you know a person's demand schedule you can find her marginal utility, but not her total utility.

If a good is free, you will consume more and more of it until your marginal utility is zero. This statement is true because according to the law of diminishing marginal utility, as you consume more units of a good, the additional satisfaction or utility you derive from each additional unit decreases. Eventually, the marginal utility will reach zero, indicating that consuming any more of the good would not provide any additional satisfaction.

Explanation

If a good is free, you will consume more and more of it until your marginal utility is zero. This statement is true because according to the law of diminishing marginal utility, as you consume more units of a good, the additional satisfaction or utility you derive from each additional unit decreases. Eventually, the marginal utility will reach zero, indicating that consuming any more of the good would not provide any additional satisfaction.

75. If water became very scarce and diamonds became very plentiful

The marginal utility of diamonds and water would both rise.

The marginal utility of both water and diamonds would both fall.

The marginal utility of diamonds would rise and the marginal utility of water would fall.

The marginal utility of water would rise and the marginal utility of diamonds would fall.

If water became very scarce, its marginal utility would increase because it would become more valuable and essential for survival. On the other hand, if diamonds became very plentiful, their marginal utility would decrease because they would become less scarce and less valuable. Therefore, the marginal utility of water would rise while the marginal utility of diamonds would fall.

Explanation

If water became very scarce, its marginal utility would increase because it would become more valuable and essential for survival. On the other hand, if diamonds became very plentiful, their marginal utility would decrease because they would become less scarce and less valuable. Therefore, the marginal utility of water would rise while the marginal utility of diamonds would fall.

76. The water-diamond paradox is resolved once we realize that the marginal utility of the last gallon of water consumed is very __ and the marginal utility of the last diamond carat purchased is very _.

Low; low

High; high

High; low

Low; high

The water-diamond paradox refers to the fact that water, which is essential for survival, has a lower price compared to diamonds, which are not necessary for survival. This paradox is resolved when we consider the concept of marginal utility. The marginal utility of the last gallon of water consumed is very low because water is abundant and we consume it in large quantities. On the other hand, the marginal utility of the last diamond carat purchased is very high because diamonds are scarce and we consume them in small quantities for luxury purposes. Therefore, the correct answer is "low; high".

Explanation

The water-diamond paradox refers to the fact that water, which is essential for survival, has a lower price compared to diamonds, which are not necessary for survival. This paradox is resolved when we consider the concept of marginal utility. The marginal utility of the last gallon of water consumed is very low because water is abundant and we consume it in large quantities. On the other hand, the marginal utility of the last diamond carat purchased is very high because diamonds are scarce and we consume them in small quantities for luxury purposes. Therefore, the correct answer is "low; high".

77. Which statement is true?

Few Americans blamed Herbert Hoover for the Great Depression.

The U.S. experienced a brief depression in the early 1920s.

Most American homes were not wired for electricity until the late 1940s.

None of the choices are true.

not-available-via-ai

Explanation

not-available-via-ai

78. Which of the following is not demonstrated by a production possibility curve?

Scarcity

Opportunity cost

Necessity for choice due to scarcity

Price

A production possibility curve represents the different combinations of two goods that can be produced given the available resources and technology. It illustrates the concept of scarcity, as it shows the limited nature of resources and the need to make choices. It also demonstrates the concept of opportunity cost, as producing more of one good requires sacrificing the production of another good. However, a production possibility curve does not directly represent the concept of price, which is determined by factors such as supply and demand in a market economy.

Explanation

A production possibility curve represents the different combinations of two goods that can be produced given the available resources and technology. It illustrates the concept of scarcity, as it shows the limited nature of resources and the need to make choices. It also demonstrates the concept of opportunity cost, as producing more of one good requires sacrificing the production of another good. However, a production possibility curve does not directly represent the concept of price, which is determined by factors such as supply and demand in a market economy.

79. An example of a public good would be

A plane ride from Miami to Dallas.

Flood control protection from the Tennessee Valley Authority (TVA).

A commuter's trip to work by car from Berkeley to Chicago.

A ride on a Greyhound bus from Phoenix to Los Angeles.

The correct answer is flood control protection from the Tennessee Valley Authority (TVA). This is an example of a public good because it is a service provided by the government that benefits the entire community. Flood control protection helps to prevent or mitigate the damage caused by floods, which can affect a large number of people and properties in an area. It is non-excludable, meaning that once the protection is in place, it benefits everyone regardless of whether they contribute to its provision or not. It is also non-rivalrous, meaning that one person's use of flood control protection does not diminish its availability to others.

Explanation

The correct answer is flood control protection from the Tennessee Valley Authority (TVA). This is an example of a public good because it is a service provided by the government that benefits the entire community. Flood control protection helps to prevent or mitigate the damage caused by floods, which can affect a large number of people and properties in an area. It is non-excludable, meaning that once the protection is in place, it benefits everyone regardless of whether they contribute to its provision or not. It is also non-rivalrous, meaning that one person's use of flood control protection does not diminish its availability to others.

80. Suppose state governments, in an attempt to help save the family farm, issued licenses that allowed them to grow a heretofore-illegal substance. As a result,

Both equilibrium price and quantity of the substance will rise.

Both equilibrium price and quantity of the substance will fall.

Equilibrium price will rise and equilibrium quantity will fall for the substance.

Equilibrium price will fall and equilibrium quantity will rise for the substance.

When state governments issue licenses that allow the growth of a previously illegal substance, it increases the supply of the substance in the market. This increase in supply leads to a decrease in the equilibrium price, as the market becomes more saturated with the substance. At the same time, the increase in supply also leads to an increase in the equilibrium quantity, as producers are now able to legally grow and sell more of the substance. Therefore, the correct answer is that the equilibrium price will fall and the equilibrium quantity will rise for the substance.

Explanation

When state governments issue licenses that allow the growth of a previously illegal substance, it increases the supply of the substance in the market. This increase in supply leads to a decrease in the equilibrium price, as the market becomes more saturated with the substance. At the same time, the increase in supply also leads to an increase in the equilibrium quantity, as producers are now able to legally grow and sell more of the substance. Therefore, the correct answer is that the equilibrium price will fall and the equilibrium quantity will rise for the substance.

81. Which statement is true?

All regions of the United States were primarily agricultural in 1865

Only the South was primarily agricultural in 1865

Only the North and West were primarily agricultural in 1865

None of the statements are true

In 1865, all regions of the United States were primarily agricultural. This means that farming and agriculture were the main economic activities in all parts of the country. This statement implies that both the North and the West, in addition to the South, relied heavily on agriculture as their primary source of income and livelihood.

Explanation

In 1865, all regions of the United States were primarily agricultural. This means that farming and agriculture were the main economic activities in all parts of the country. This statement implies that both the North and the West, in addition to the South, relied heavily on agriculture as their primary source of income and livelihood.

82. Which president had to cope with both rising deficits and a rising rate of inflation?

John Kennedy

Dwight Eisenhower

Jimmy Carter

Ronald Reagan

Jimmy Carter had to cope with both rising deficits and a rising rate of inflation during his presidency. In the late 1970s, the United States experienced high inflation, reaching double-digit percentages. Additionally, Carter faced a growing budget deficit due to increased government spending and a decrease in tax revenues. These economic challenges posed significant difficulties for his administration and were major issues during his time in office.

Explanation

Jimmy Carter had to cope with both rising deficits and a rising rate of inflation during his presidency. In the late 1970s, the United States experienced high inflation, reaching double-digit percentages. Additionally, Carter faced a growing budget deficit due to increased government spending and a decrease in tax revenues. These economic challenges posed significant difficulties for his administration and were major issues during his time in office.

83. Statement I. Employment discrimination causes underemployment. Statement II. The concept of opportunity cost has little validity in the global economy.

Statement I is true and statement II is false.

Statement II is true and statement I is false.

Both statements are true.

Both statements are false.

Employment discrimination refers to the unfair treatment of individuals based on characteristics such as race, gender, or age, which can result in them being underemployed or not given equal opportunities. This means that statement I, which states that employment discrimination causes underemployment, is true. On the other hand, statement II suggests that the concept of opportunity cost has little validity in the global economy. However, opportunity cost is a fundamental concept in economics, which states that by choosing one option, you forgo the benefits of the next best alternative. Therefore, statement II is false.

Explanation

Employment discrimination refers to the unfair treatment of individuals based on characteristics such as race, gender, or age, which can result in them being underemployed or not given equal opportunities. This means that statement I, which states that employment discrimination causes underemployment, is true. On the other hand, statement II suggests that the concept of opportunity cost has little validity in the global economy. However, opportunity cost is a fundamental concept in economics, which states that by choosing one option, you forgo the benefits of the next best alternative. Therefore, statement II is false.

84. Our economy would be operating at full employment with labor unemployment rate of _ percent and a capacity utilization rate of ___ percent.

5; 95

5; 85

10; 95

10; 85

This answer suggests that the labor unemployment rate is 5% and the capacity utilization rate is 85%. This means that only 5% of the labor force is unemployed and 85% of the available resources and capacity are being utilized. This indicates that the economy is operating close to its full potential, with a low unemployment rate and a high utilization of resources.

Explanation

This answer suggests that the labor unemployment rate is 5% and the capacity utilization rate is 85%. This means that only 5% of the labor force is unemployed and 85% of the available resources and capacity are being utilized. This indicates that the economy is operating close to its full potential, with a low unemployment rate and a high utilization of resources.

85. The production possibilities curve illustrates the basic principle that

An economy's capacity to produce increases in proportion to its population size

An economy will automatically seek that level of output at which all of its resources are employed.

The production of more of any one good will in time require smaller and smaller sacrifices of other goods.

The correct answer is that if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced. This is because resources are limited and finite, so they can only be allocated to produce a certain amount of goods. If more of one good is desired, resources must be reallocated from the production of another good, resulting in less of that good being produced. This concept is illustrated by the production possibilities curve, which shows the trade-off between producing different goods when resources are fully utilized.

Explanation

The correct answer is that if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced. This is because resources are limited and finite, so they can only be allocated to produce a certain amount of goods. If more of one good is desired, resources must be reallocated from the production of another good, resulting in less of that good being produced. This concept is illustrated by the production possibilities curve, which shows the trade-off between producing different goods when resources are fully utilized.

86. Statement I. Technological advance pushes a country's production possibilities frontier outward. Statement II. Our economic growth slowed down from the early 1970s compared to the two decades before the 1970s.

Statement I is true and statement II is false.

Statement II is true and statement I is false.

Both statements are true.

Both statements are false.

Statement I is true because technological advance allows for the development of new and more efficient production methods, which increases a country's potential output and expands its production possibilities frontier.
Statement II is true because it states that economic growth slowed down from the early 1970s compared to the two decades before the 1970s. This is a factual statement that can be supported by historical data and economic analysis. Therefore, both statements are true.

Explanation

Statement I is true because technological advance allows for the development of new and more efficient production methods, which increases a country's potential output and expands its production possibilities frontier.
Statement II is true because it states that economic growth slowed down from the early 1970s compared to the two decades before the 1970s. This is a factual statement that can be supported by historical data and economic analysis. Therefore, both statements are true.

87. Statement I: In the modern global economy, if our steel industry were operating at full capacity we could easily get steel from other steel-producing countries. Statement II: The only constraints on our production possibilities frontier are physical constraints such as the number of steel factories available, etc.

Statement I is true and statement II is false.

Statement II is true and statement I is false.

Both statements are true.

Both statements are false

The explanation for the given answer is that statement I is true because in the modern global economy, if our steel industry were operating at full capacity, we could easily import steel from other steel-producing countries. However, statement II is false because the constraints on our production possibilities frontier are not only physical constraints like the number of steel factories available, but also economic constraints such as cost, demand, and technology.

Explanation

The explanation for the given answer is that statement I is true because in the modern global economy, if our steel industry were operating at full capacity, we could easily import steel from other steel-producing countries. However, statement II is false because the constraints on our production possibilities frontier are not only physical constraints like the number of steel factories available, but also economic constraints such as cost, demand, and technology.

88. Which statement is true?

On the production possibilities frontier, unemployment is zero percent

On the production possibilities frontier, 85 percent of the labor force is employed.

To get out of a recession, we must move to some point closer to the production possibilities frontier.

To have economic growth, we must have zero unemployment.

not-available-via-ai

Explanation

not-available-via-ai

89. Statement I: When the unemployment rate is five percent, we are inside our production possibilities frontier. Statement II: Full production means that the nation's resources are being allocated in the most efficient manner possible.

Statement I is true and statement II is false.

Statement II is true and statement I is false.

Both statements are true.

Both statements are false.

The correct answer is that Statement II is true and statement I is false. This means that full production does not necessarily mean that the nation's resources are being allocated in the most efficient manner possible. The unemployment rate being at five percent does not necessarily indicate that we are inside our production possibilities frontier.

Explanation

The correct answer is that Statement II is true and statement I is false. This means that full production does not necessarily mean that the nation's resources are being allocated in the most efficient manner possible. The unemployment rate being at five percent does not necessarily indicate that we are inside our production possibilities frontier.

90. During 2009 and 2010, ______ of Americans under 25 were unemployed.

One-half

One-third

One-quarter

Three-quarters

During 2009 and 2010, one-quarter of Americans under 25 were unemployed. This means that 25% of the population in this age group did not have a job during that time period.

Explanation

During 2009 and 2010, one-quarter of Americans under 25 were unemployed. This means that 25% of the population in this age group did not have a job during that time period.

91. Which of the following statements is false?

Critics feel that wage and price controls interfere with the price mechanism.

Sweden has one of the world's most equal distributions of income, but also has a relatively low standard of living.

In the former Soviet Union, most of the crops were produced on collective farms.

The price system is based on supply and demand.

The given statement that "Sweden has one of the world's most equal distributions of income, but also has a relatively low standard of living" is false. Sweden is known for its high standard of living and strong social welfare system, which contributes to a relatively equal distribution of income.

Explanation

The given statement that "Sweden has one of the world's most equal distributions of income, but also has a relatively low standard of living" is false. Sweden is known for its high standard of living and strong social welfare system, which contributes to a relatively equal distribution of income.

92. Which description of capitalism was coined by Karl Marx?

The capitalist is led by an invisible hand to promote an end which was no part of his intention.

The factory owner, by paying his workers meager wages, is able to use this surplus to buy more capital goods.

None of these statements were coined by Karl Marx.

not-available-via-ai

Explanation

not-available-via-ai

93. In the former Soviet Union distributing scarce consumer goods was accomplished by

Higher prices which eliminated some potential consumers.

Making the consumer stand in a long line for hours if not days.

The government simply printing more money.

None of the choices are true.

In the former Soviet Union, distributing scarce consumer goods was accomplished by making the consumer stand in a long line for hours if not days. This method was used to control the distribution of goods and ensure that everyone had a chance to obtain them. By making people wait in long lines, the government could regulate the amount of goods each person could receive and prevent hoarding or excessive consumption. This system was a common practice in socialist countries where resources were limited and the government had to manage their distribution.

Explanation

In the former Soviet Union, distributing scarce consumer goods was accomplished by making the consumer stand in a long line for hours if not days. This method was used to control the distribution of goods and ensure that everyone had a chance to obtain them. By making people wait in long lines, the government could regulate the amount of goods each person could receive and prevent hoarding or excessive consumption. This system was a common practice in socialist countries where resources were limited and the government had to manage their distribution.

94. Which of the following is NOT a characteristic of the capitalist form of economic organization?

Central planning.

A reliance on decentralized market processes for resource allocation purposes.

Private ownership of productive resources.

All of the choices are true.

Central planning is not a characteristic of the capitalist form of economic organization. In capitalism, the allocation of resources is primarily determined by the decentralized market processes, where individuals and businesses make decisions based on supply and demand. Private ownership of productive resources is also a key feature of capitalism, allowing individuals and businesses to own and control their assets. However, central planning is more commonly associated with socialist or command economies, where the government plays a significant role in resource allocation and economic decision-making.

Explanation

Central planning is not a characteristic of the capitalist form of economic organization. In capitalism, the allocation of resources is primarily determined by the decentralized market processes, where individuals and businesses make decisions based on supply and demand. Private ownership of productive resources is also a key feature of capitalism, allowing individuals and businesses to own and control their assets. However, central planning is more commonly associated with socialist or command economies, where the government plays a significant role in resource allocation and economic decision-making.

95. Which statement is true about China?

It is a world-class industrial power.

It has not as yet achieved world-class industrial power, but it is heading in that direction.

It has just begun its industrial development.

It has virtually no industry, and has not yet embarked on a course of industrialization.

China has not yet achieved world-class industrial power, but it is heading in that direction. This implies that China is currently on the path towards becoming a world-class industrial power, but it has not reached that status yet. This suggests that China's industrial development is ongoing and progressing, indicating that it has made significant advancements in its industrial sector but still has room for further growth and improvement.

Explanation

China has not yet achieved world-class industrial power, but it is heading in that direction. This implies that China is currently on the path towards becoming a world-class industrial power, but it has not reached that status yet. This suggests that China's industrial development is ongoing and progressing, indicating that it has made significant advancements in its industrial sector but still has room for further growth and improvement.

96. Statement I. Market failure rarely happens under capitalism. Statement II. One remedy for market failure is public goods and services

Statement I is true and statement II is false.

Statement II is true and statement I is false.

Both statements are true.

Both statements are false.

This answer suggests that market failure does not rarely happen under capitalism, contradicting statement I. However, it acknowledges that one remedy for market failure is public goods and services, supporting statement II. Therefore, statement II is true and statement I is false.

Explanation

This answer suggests that market failure does not rarely happen under capitalism, contradicting statement I. However, it acknowledges that one remedy for market failure is public goods and services, supporting statement II. Therefore, statement II is true and statement I is false.

97. Today, __________ leads the world with more than 800 million cell phone users.

The United States

China

Japan

Canada

China is the correct answer because it is stated that they lead the world with more than 800 million cell phone users. This indicates that China has the highest number of cell phone users compared to the other countries listed.

Explanation

China is the correct answer because it is stated that they lead the world with more than 800 million cell phone users. This indicates that China has the highest number of cell phone users compared to the other countries listed.

98. The price mechanism

Works best when many competing business firms are in each industry.

Works best when government through a central planning agency sets prices.

Works best when corporations set prices for a market economy.

All of the choices are true about price mechanism.

The price mechanism works best when many competing business firms are in each industry because competition drives prices to their equilibrium levels. In a competitive market, businesses have to constantly adjust their prices to attract customers and stay profitable. This competition ensures that prices accurately reflect supply and demand conditions, allowing resources to be allocated efficiently. Additionally, competition encourages innovation and efficiency as firms strive to gain a competitive edge. Therefore, having many competing business firms in each industry is essential for the price mechanism to function effectively.

Explanation

The price mechanism works best when many competing business firms are in each industry because competition drives prices to their equilibrium levels. In a competitive market, businesses have to constantly adjust their prices to attract customers and stay profitable. This competition ensures that prices accurately reflect supply and demand conditions, allowing resources to be allocated efficiently. Additionally, competition encourages innovation and efficiency as firms strive to gain a competitive edge. Therefore, having many competing business firms in each industry is essential for the price mechanism to function effectively.

99. Which of the following statements is not true?

Our government ensures that competition flourishes, that information flows freely, and that property rights are protected.

Environmental pollution is considered a market failure.

Everything produced by the public sector is a public good.

The statement "Everything produced by the public sector is a public good" is not true because not everything produced by the public sector is a public good. Public goods are non-excludable and non-rivalrous, meaning that they are available to everyone and one person's consumption does not reduce its availability for others. However, not all goods and services produced by the public sector meet these criteria. Some goods and services produced by the public sector, such as healthcare or education, may be excludable or rivalrous to some extent. Therefore, the statement is incorrect.

Explanation

The statement "Everything produced by the public sector is a public good" is not true because not everything produced by the public sector is a public good. Public goods are non-excludable and non-rivalrous, meaning that they are available to everyone and one person's consumption does not reduce its availability for others. However, not all goods and services produced by the public sector meet these criteria. Some goods and services produced by the public sector, such as healthcare or education, may be excludable or rivalrous to some extent. Therefore, the statement is incorrect.

100. Refers to a table: When the price is $2

Quantity supplied is greater than quantity demanded and, therefore, price must rise to get to equilibrium.

Quantity supplied is less than quantity demanded and, therefore, price must fall to get to equilibrium.

Quantity demanded is greater than quantity supplied and, therefore, price must rise to get to equilibrium.

Quantity demanded is greater than quantity supplied and, therefore, price must fall to get to equilibrium.

When the price is $2, the quantity demanded is greater than the quantity supplied. This means that there is excess demand in the market, and in order to reach equilibrium, the price must rise. As the price increases, suppliers are incentivized to produce more, while consumers are deterred from buying as much, eventually balancing the quantity demanded and supplied at a higher price point.

Explanation

When the price is $2, the quantity demanded is greater than the quantity supplied. This means that there is excess demand in the market, and in order to reach equilibrium, the price must rise. As the price increases, suppliers are incentivized to produce more, while consumers are deterred from buying as much, eventually balancing the quantity demanded and supplied at a higher price point.

101. Refers to a graph ( lines intersecting looks like "X") If price were set by the government at $3, there would be a price _______, that would cause a _ of ___ units.

Floor, surplus, 12

Floor, shortage, 12

Ceiling, surplus, 14

Ceiling, shortage, 14

If the government sets the price at $3, it would create a ceiling on the price, meaning that the price cannot exceed $3. This would result in a shortage of 14 units, as the quantity demanded at the price of $3 would exceed the quantity supplied.

Explanation

If the government sets the price at $3, it would create a ceiling on the price, meaning that the price cannot exceed $3. This would result in a shortage of 14 units, as the quantity demanded at the price of $3 would exceed the quantity supplied.

102. If market price is above equilibrium price,

Quantity demanded is greater than quantity supplied.

Quantity supplied is greater than quantity demanded.

Quantity supplied is equal to quantity demanded.

When the market price is above the equilibrium price, it means that the price is higher than what both buyers and sellers consider fair. This creates a situation where sellers are willing to supply more goods or services at the higher price, while buyers are not willing to purchase as much at the inflated price. As a result, the quantity supplied exceeds the quantity demanded, leading to a surplus in the market.

Explanation

When the market price is above the equilibrium price, it means that the price is higher than what both buyers and sellers consider fair. This creates a situation where sellers are willing to supply more goods or services at the higher price, while buyers are not willing to purchase as much at the inflated price. As a result, the quantity supplied exceeds the quantity demanded, leading to a surplus in the market.

103. Gas lines were the result of

Price ceilings.

Price floors.

Overproduction.

Gas lines were the result of price ceilings. Price ceilings set a maximum price that can be charged for a product, in this case, gas. When the demand for gas exceeds the supply, as in times of crisis or shortage, price ceilings prevent prices from rising to match the increased demand. This leads to a situation where the quantity demanded exceeds the quantity supplied, resulting in gas shortages and long lines at gas stations.

Explanation

Gas lines were the result of price ceilings. Price ceilings set a maximum price that can be charged for a product, in this case, gas. When the demand for gas exceeds the supply, as in times of crisis or shortage, price ceilings prevent prices from rising to match the increased demand. This leads to a situation where the quantity demanded exceeds the quantity supplied, resulting in gas shortages and long lines at gas stations.

104. When there is a price floor there will be

A shortage.

A surplus.

Either a shortage or a surplus.

Neither a shortage nor a surplus.

When there is a price floor, it means that the minimum price for a good or service is set above the equilibrium price. This creates a situation where the quantity supplied exceeds the quantity demanded, leading to a surplus. Suppliers are willing to supply more at the higher price, but consumers are not willing to purchase as much at the higher price, resulting in excess supply.

Explanation

When there is a price floor, it means that the minimum price for a good or service is set above the equilibrium price. This creates a situation where the quantity supplied exceeds the quantity demanded, leading to a surplus. Suppliers are willing to supply more at the higher price, but consumers are not willing to purchase as much at the higher price, resulting in excess supply.

105. A increase in the supply of loanable funds will ___________ interest rates.

Raise

Lower

Not effect

An increase in the supply of loanable funds means that there is more money available for lending. When there is a larger supply of funds, lenders will compete for borrowers by offering lower interest rates. This is because borrowers have more options and can choose the lender with the lowest interest rate. Therefore, an increase in the supply of loanable funds will lower interest rates.

Explanation

An increase in the supply of loanable funds means that there is more money available for lending. When there is a larger supply of funds, lenders will compete for borrowers by offering lower interest rates. This is because borrowers have more options and can choose the lender with the lowest interest rate. Therefore, an increase in the supply of loanable funds will lower interest rates.

106. Rent controls tend to __ the supply of housing and the the level of rents paid.

Raise, raise

Lower, lower

Raise, lower

Lower, raise

Rent controls tend to lower the supply of housing because landlords may be less incentivized to build or maintain rental properties if they are not able to charge market rents. Additionally, rent controls tend to lower the level of rents paid because they impose limits on how much landlords can charge, which can result in artificially low rental prices.

Explanation

Rent controls tend to lower the supply of housing because landlords may be less incentivized to build or maintain rental properties if they are not able to charge market rents. Additionally, rent controls tend to lower the level of rents paid because they impose limits on how much landlords can charge, which can result in artificially low rental prices.

107. The adjustment of the ____________ is the rationing mechanism in market economies.

Price

Competition

Government

None of the choices are correct.

In market economies, the adjustment of prices serves as the rationing mechanism. Prices play a crucial role in determining the allocation of goods and services, as they reflect the supply and demand dynamics in the market. When the demand for a particular good or service exceeds its supply, the price tends to increase, signaling scarcity and encouraging consumers to ration their consumption. Conversely, when supply exceeds demand, prices tend to decrease, incentivizing consumers to increase their consumption. Therefore, price adjustments act as a mechanism to balance supply and demand and allocate resources efficiently in market economies.

Explanation

In market economies, the adjustment of prices serves as the rationing mechanism. Prices play a crucial role in determining the allocation of goods and services, as they reflect the supply and demand dynamics in the market. When the demand for a particular good or service exceeds its supply, the price tends to increase, signaling scarcity and encouraging consumers to ration their consumption. Conversely, when supply exceeds demand, prices tend to decrease, incentivizing consumers to increase their consumption. Therefore, price adjustments act as a mechanism to balance supply and demand and allocate resources efficiently in market economies.

108. Which statement is false?

Rent control is a price ceiling.

Usury laws can lead to a surplus of loanable funds.

The government, to encourage family farms to stay in business, created price supports for corn and wheat.

Price ceilings prevent prices from rising.

Usury laws typically impose restrictions on the maximum interest rates that can be charged on loans. These laws are intended to protect borrowers from excessive interest rates. However, by limiting the interest rates, usury laws can discourage lenders from providing loans, especially to borrowers with higher credit risks. This can lead to a decrease in the supply of loanable funds, rather than a surplus. Therefore, the statement "Usury laws can lead to a surplus of loanable funds" is false.

Explanation

Usury laws typically impose restrictions on the maximum interest rates that can be charged on loans. These laws are intended to protect borrowers from excessive interest rates. However, by limiting the interest rates, usury laws can discourage lenders from providing loans, especially to borrowers with higher credit risks. This can lead to a decrease in the supply of loanable funds, rather than a surplus. Therefore, the statement "Usury laws can lead to a surplus of loanable funds" is false.

109. Refers to graphs ( intersecting lines look like "X") In the graph shown above, if the government set a price ceiling of $18

The price would rise to the equilibrium price.

The price would fall to equilibrium price.

There would be a temporary shortage, then price would rise to equilibrium price.

There would be a permanent shortage, at least until the price ceiling was lifted.

If the government sets a price ceiling of $18 in a market with intersecting lines that look like an "X," it means that the price cannot exceed $18. However, the equilibrium price, where supply and demand intersect, is higher than $18. Therefore, there would be a permanent shortage in the market because the price ceiling prevents the price from reaching the equilibrium level. This shortage would continue until the price ceiling is lifted.

Explanation

If the government sets a price ceiling of $18 in a market with intersecting lines that look like an "X," it means that the price cannot exceed $18. However, the equilibrium price, where supply and demand intersect, is higher than $18. Therefore, there would be a permanent shortage in the market because the price ceiling prevents the price from reaching the equilibrium level. This shortage would continue until the price ceiling is lifted.

110. When price is $6

There is a surplus.

There is a shortage.

There is both a surplus and a shortage.

There is neither a surplus nor a shortage.

When the price is $6, it means that the market is in equilibrium, where the quantity demanded equals the quantity supplied. In this situation, there is neither a surplus nor a shortage. A surplus occurs when the quantity supplied exceeds the quantity demanded, leading to a decrease in price. On the other hand, a shortage occurs when the quantity demanded exceeds the quantity supplied, resulting in an increase in price. However, in this case, the price of $6 indicates that the market is balanced, with no excess supply or demand.

Explanation

When the price is $6, it means that the market is in equilibrium, where the quantity demanded equals the quantity supplied. In this situation, there is neither a surplus nor a shortage. A surplus occurs when the quantity supplied exceeds the quantity demanded, leading to a decrease in price. On the other hand, a shortage occurs when the quantity demanded exceeds the quantity supplied, resulting in an increase in price. However, in this case, the price of $6 indicates that the market is balanced, with no excess supply or demand.

111. If the equilibrium price of corn is 20 cents an ear and the government imposes a floor of 30 cents an ear, the price of corn will ______________________.

Increase to 30 cents

Remain at 20 cents

Rise to about 25 cents

Be impossible to determine

If the equilibrium price of corn is 20 cents an ear and the government imposes a floor of 30 cents an ear, the price of corn will increase to 30 cents. This is because the floor price set by the government is higher than the equilibrium price, creating a price floor. This price floor prevents the price from falling below 30 cents, so the price of corn will increase to meet the floor price.

Explanation

If the equilibrium price of corn is 20 cents an ear and the government imposes a floor of 30 cents an ear, the price of corn will increase to 30 cents. This is because the floor price set by the government is higher than the equilibrium price, creating a price floor. This price floor prevents the price from falling below 30 cents, so the price of corn will increase to meet the floor price.

112. As the key component in gasoline production, an increase in the price of crude oil would cause

The demand for gasoline will decrease.

The demand for gasoline will increase.

The supply of gasoline will increase, and its price will decrease.

The supply of gasoline will decrease, and its price will increase.

An increase in the price of crude oil would cause the cost of producing gasoline to rise. This would lead to a decrease in the supply of gasoline as it becomes more expensive for producers to make and distribute. Additionally, the increase in production costs would result in an increase in the price of gasoline as producers pass on the higher costs to consumers. Therefore, the correct answer is that the supply of gasoline will decrease, and its price will increase.

Explanation

An increase in the price of crude oil would cause the cost of producing gasoline to rise. This would lead to a decrease in the supply of gasoline as it becomes more expensive for producers to make and distribute. Additionally, the increase in production costs would result in an increase in the price of gasoline as producers pass on the higher costs to consumers. Therefore, the correct answer is that the supply of gasoline will decrease, and its price will increase.

113. If we go from point R on demand curve D1 to point S on demand curve D2, then we may conclude that there was

An increase in quantity demanded.

A decrease in quantity demanded.

An increase in demand.

A decrease in demand.

If we move from point R on demand curve D1 to point S on demand curve D2, it implies that at the same price level, the quantity demanded has increased. This suggests that there has been an increase in demand for the product, as consumers are now willing to purchase a higher quantity at the same price.

Explanation

If we move from point R on demand curve D1 to point S on demand curve D2, it implies that at the same price level, the quantity demanded has increased. This suggests that there has been an increase in demand for the product, as consumers are now willing to purchase a higher quantity at the same price.

114. According to the law of demand, an increase in the price of Pepsi will

Increase the quantity of Pepsi demanded.

Decrease the quantity of Pepsi demanded.

Increase the demand for Pepsi.

Decrease the demand for Pepsi.

According to the law of demand, there is an inverse relationship between the price of a good and the quantity demanded. This means that as the price of Pepsi increases, consumers will be less willing and able to purchase it, leading to a decrease in the quantity of Pepsi demanded.

Explanation

According to the law of demand, there is an inverse relationship between the price of a good and the quantity demanded. This means that as the price of Pepsi increases, consumers will be less willing and able to purchase it, leading to a decrease in the quantity of Pepsi demanded.

115. Changes in which one of the following will not shift the demand curve in the short run?

Expectations about future prices and income

Income

Tastes and preferences

Prices of related goods

The price of the good itself

Changes in the price of the good itself will not shift the demand curve in the short run. This is because the price of the good itself is represented by a movement along the demand curve, rather than a shift of the entire curve. Shifts in the demand curve are caused by factors such as expectations about future prices and income, changes in income, tastes and preferences, and prices of related goods.

Explanation

Changes in the price of the good itself will not shift the demand curve in the short run. This is because the price of the good itself is represented by a movement along the demand curve, rather than a shift of the entire curve. Shifts in the demand curve are caused by factors such as expectations about future prices and income, changes in income, tastes and preferences, and prices of related goods.

116. The demand for a normal good is

Indirectly (negatively) related to the supply of the good.

Directly (positively) related to income.

Unaffected by changes in consumer tastes and preferences.

Unaffected by changes in the prices of complementary goods.

The correct answer is directly (positively) related to income. This means that as a person's income increases, their demand for a normal good also increases. This is because people with higher incomes have more purchasing power and can afford to buy more of the good. Conversely, if a person's income decreases, their demand for the normal good will decrease. Income is a key determinant of demand for normal goods, as it directly influences consumers' ability to purchase them.

Explanation

The correct answer is directly (positively) related to income. This means that as a person's income increases, their demand for a normal good also increases. This is because people with higher incomes have more purchasing power and can afford to buy more of the good. Conversely, if a person's income decreases, their demand for the normal good will decrease. Income is a key determinant of demand for normal goods, as it directly influences consumers' ability to purchase them.

117. A move from H to I represents

An increase in quantity supplied.

A decrease in quantity supplied.

An increase in supply.

A decrease in supply.

A move from H to I represents an increase in supply. This means that there has been a positive change in the factors affecting supply, such as an increase in the availability of resources, improved technology, or a decrease in production costs. As a result, the quantity of goods or services supplied at each price level will increase, leading to a rightward shift of the supply curve.

Explanation

A move from H to I represents an increase in supply. This means that there has been a positive change in the factors affecting supply, such as an increase in the availability of resources, improved technology, or a decrease in production costs. As a result, the quantity of goods or services supplied at each price level will increase, leading to a rightward shift of the supply curve.

118. A move from E to F represents a

Change in quantity supplied

Change in supply

Increase in supply

Decrease in supply

A move from E to F represents a change in supply. This means that there has been a shift in the entire supply curve, indicating a change in the quantity of a good or service that producers are willing and able to supply at each price level. This shift could be caused by various factors such as changes in production costs, technology, government regulations, or expectations of future prices.

Explanation

A move from E to F represents a change in supply. This means that there has been a shift in the entire supply curve, indicating a change in the quantity of a good or service that producers are willing and able to supply at each price level. This shift could be caused by various factors such as changes in production costs, technology, government regulations, or expectations of future prices.

119. A car dealership estimates that the elasticity of demand for its top models is 0.5. If it raises its prices by 10%,

Quantity demanded will decrease by 5% and total revenue will increase.

There will be no change in either quantity demanded or total revenue because demand is inelastic.

Quantity demanded will decrease by 5% and total revenue will decrease.

Quantity demanded will decrease by 10% and total revenue will increase.

If the elasticity of demand for the car dealership's top models is 0.5, it means that a 10% increase in price will lead to a 5% decrease in quantity demanded. However, because the demand is inelastic (elasticity less than 1), the decrease in quantity demanded is proportionally smaller than the increase in price. As a result, total revenue will increase. This is because the increase in price outweighs the decrease in quantity demanded, leading to a net gain in revenue.

Explanation

If the elasticity of demand for the car dealership's top models is 0.5, it means that a 10% increase in price will lead to a 5% decrease in quantity demanded. However, because the demand is inelastic (elasticity less than 1), the decrease in quantity demanded is proportionally smaller than the increase in price. As a result, total revenue will increase. This is because the increase in price outweighs the decrease in quantity demanded, leading to a net gain in revenue.

120. When the cross elasticity of demand is , the goods or services are .

Zero; substitutes

Negative; substitutes

Positive; complements

Positive; substitutes

When the cross elasticity of demand is positive, it means that an increase in the price of one good or service leads to an increase in the demand for another good or service. This indicates that the two goods or services are substitutes, meaning that consumers are willing to switch from one to the other when the price of one increases. Therefore, the correct answer is positive; substitutes.

Explanation

When the cross elasticity of demand is positive, it means that an increase in the price of one good or service leads to an increase in the demand for another good or service. This indicates that the two goods or services are substitutes, meaning that consumers are willing to switch from one to the other when the price of one increases. Therefore, the correct answer is positive; substitutes.

121. If demand is ______ and price is _, total revenue will ____.

Inelastic; raised; increase

Inelastic; lowered; decrease

Elastic; raised; decrease

Elastic; lowered; increase

All of these options are true.

If demand is inelastic and price is raised, total revenue will increase. This is because when demand is inelastic, a change in price has a smaller impact on quantity demanded compared to the change in price. Therefore, when the price is raised, the increase in revenue from the higher price outweighs the decrease in revenue from the lower quantity demanded. Similarly, if demand is inelastic and price is lowered, total revenue will decrease, as the decrease in price leads to a smaller increase in quantity demanded compared to the decrease in price. The same logic applies to the elastic options, but in the opposite direction.

Explanation

If demand is inelastic and price is raised, total revenue will increase. This is because when demand is inelastic, a change in price has a smaller impact on quantity demanded compared to the change in price. Therefore, when the price is raised, the increase in revenue from the higher price outweighs the decrease in revenue from the lower quantity demanded. Similarly, if demand is inelastic and price is lowered, total revenue will decrease, as the decrease in price leads to a smaller increase in quantity demanded compared to the decrease in price. The same logic applies to the elastic options, but in the opposite direction.

122. If price falls from $100 to $99 and quantity demanded rises from 2 to 3, the demand is

0.03

1.75

25.7

39.8

The answer 39.8 indicates the price elasticity of demand. Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. In this case, the percentage change in quantity demanded is (3-2)/2 = 0.5, and the percentage change in price is (99-100)/100 = -0.01. By dividing the percentage change in quantity demanded by the percentage change in price, we get 0.5/-0.01 = -50. The negative sign indicates that demand is elastic, and the absolute value of 50 indicates that demand is highly elastic. Therefore, the answer is 39.8, which represents the price elasticity of demand.

Explanation

The answer 39.8 indicates the price elasticity of demand. Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. In this case, the percentage change in quantity demanded is (3-2)/2 = 0.5, and the percentage change in price is (99-100)/100 = -0.01. By dividing the percentage change in quantity demanded by the percentage change in price, we get 0.5/-0.01 = -50. The negative sign indicates that demand is elastic, and the absolute value of 50 indicates that demand is highly elastic. Therefore, the answer is 39.8, which represents the price elasticity of demand.

123. When the cross elasticity of demand for two services is positive, then these services are _________.

Complements

Substitutes

Both complements and substitutes

Neither complements nor substitutes

When the cross elasticity of demand for two services is positive, it indicates that an increase in the price of one service leads to an increase in the demand for the other service. This suggests that the two services are substitutes for each other, as consumers are willing to switch from one service to the other when the price of one increases. Therefore, the correct answer is "substitutes".

Explanation

When the cross elasticity of demand for two services is positive, it indicates that an increase in the price of one service leads to an increase in the demand for the other service. This suggests that the two services are substitutes for each other, as consumers are willing to switch from one service to the other when the price of one increases. Therefore, the correct answer is "substitutes".

124. Cross elasticity is defined as the _______________.

Change in quantity demanded for one good (A), divided by the change in the price of a related good (B)

Cross elasticity is a measure of how the quantity demanded of one good (A) changes in response to a change in the price of a related good (B). It is calculated by taking the percentage change in the quantity demanded of good A and dividing it by the percentage change in the price of good B. This measure helps to determine the relationship between two goods and whether they are substitutes or complements.

Explanation

Cross elasticity is a measure of how the quantity demanded of one good (A) changes in response to a change in the price of a related good (B). It is calculated by taking the percentage change in the quantity demanded of good A and dividing it by the percentage change in the price of good B. This measure helps to determine the relationship between two goods and whether they are substitutes or complements.

125. When two goods are complementary goods, as the price of one of the goods goes _, the quantity demanded of the other goes _.

Down; down

Up; up

Up; down

Down; neither up nor down

When two goods are complementary goods, they are typically consumed together. As the price of one of the goods goes up, it becomes more expensive for consumers to purchase that good. This leads to a decrease in the quantity demanded of that good. On the other hand, the decrease in quantity demanded of one good leads to a decrease in the demand for the complementary good as well. Therefore, as the price of one good goes up, the quantity demanded of the other complementary good goes down.

Explanation

When two goods are complementary goods, they are typically consumed together. As the price of one of the goods goes up, it becomes more expensive for consumers to purchase that good. This leads to a decrease in the quantity demanded of that good. On the other hand, the decrease in quantity demanded of one good leads to a decrease in the demand for the complementary good as well. Therefore, as the price of one good goes up, the quantity demanded of the other complementary good goes down.

126. The demand for hamburger buns is known to be elastic. This means that if the price of the product increases,

Total revenue will rise.

Total revenue will stay the same.

The quantity demanded will rise.

Total revenue will fall.

When the demand for hamburger buns is elastic, it implies that consumers are sensitive to changes in price. Therefore, if the price of the product increases, the quantity demanded will decrease significantly. As a result, the total revenue, which is calculated by multiplying the price by the quantity demanded, will decrease. This is because the decrease in quantity demanded outweighs the increase in price, leading to a fall in total revenue.

Explanation

When the demand for hamburger buns is elastic, it implies that consumers are sensitive to changes in price. Therefore, if the price of the product increases, the quantity demanded will decrease significantly. As a result, the total revenue, which is calculated by multiplying the price by the quantity demanded, will decrease. This is because the decrease in quantity demanded outweighs the increase in price, leading to a fall in total revenue.

127. Statement I: A tax increase on a product is usually borne by the buyer. Statement II: The supply curve is usually more elastic in the short run than the long run.

Statement I is true and statement II is false.

Statement II is true and statement I is false.

Both statements are true.

Both statements are false.

Both statements are false. Statement I is false because the burden of a tax increase can be shared between the buyer and the seller depending on the elasticity of demand and supply. Statement II is false because the supply curve is usually more elastic in the long run as producers have more time to adjust their production levels and inputs.

Explanation

Both statements are false. Statement I is false because the burden of a tax increase can be shared between the buyer and the seller depending on the elasticity of demand and supply. Statement II is false because the supply curve is usually more elastic in the long run as producers have more time to adjust their production levels and inputs.

128. If the elasticity of demand for tongue depressors is 0.5,

A 10% rise in the price of tongue depressors will lower quantity demanded by 50%.

An increase in the price of tongue depressors will lower total revenue for sellers.

A 10% increase in the price of tongue depressors will not change its total revenue.

A 10% fall in the price of tongue depressors will raise quantity demanded by 5%.

The given answer is incorrect. According to the information provided, the elasticity of demand for tongue depressors is 0.5. This means that a 10% fall in price would result in a 5% increase in quantity demanded, not a 10% increase. Therefore, the correct answer would be "a 10% fall in the price of tongue depressors will raise quantity demanded by 5%."

Explanation

The given answer is incorrect. According to the information provided, the elasticity of demand for tongue depressors is 0.5. This means that a 10% fall in price would result in a 5% increase in quantity demanded, not a 10% increase. Therefore, the correct answer would be "a 10% fall in the price of tongue depressors will raise quantity demanded by 5%."

129. Statement I: Marginal utility and consumer surplus are identical concepts. Statement II: Utility is simply a measure of what the buyer is willing to pay for a good or service.

Statement I is true and statement II is false.

Statement II is true and statement I is false.

Both statements are true.

Both statements are false.

The correct answer is that statement II is true and statement I is false. This is because marginal utility and consumer surplus are not identical concepts. Marginal utility refers to the additional satisfaction or benefit that a consumer derives from consuming one more unit of a good or service, while consumer surplus is the difference between the price a consumer is willing to pay for a good or service and the actual price they pay. Utility, on the other hand, is a measure of the satisfaction or benefit that a consumer derives from consuming a good or service, and it is not solely based on the buyer's willingness to pay.

Explanation

The correct answer is that statement II is true and statement I is false. This is because marginal utility and consumer surplus are not identical concepts. Marginal utility refers to the additional satisfaction or benefit that a consumer derives from consuming one more unit of a good or service, while consumer surplus is the difference between the price a consumer is willing to pay for a good or service and the actual price they pay. Utility, on the other hand, is a measure of the satisfaction or benefit that a consumer derives from consuming a good or service, and it is not solely based on the buyer's willingness to pay.

130. As a person buys increasing amounts of a good, their marginal utility __ and their consumer surplus _.

Decreases; increases

Decreases; decreases

Increases; increases

Increases; decreases

As a person buys increasing amounts of a good, their marginal utility decreases because each additional unit of the good provides less satisfaction or benefit. At the same time, their consumer surplus increases because they are able to purchase the good at a lower price than the maximum price they are willing to pay. This means they are getting more value or benefit from the good than what they are paying for it, resulting in an increase in consumer surplus.

Explanation

As a person buys increasing amounts of a good, their marginal utility decreases because each additional unit of the good provides less satisfaction or benefit. At the same time, their consumer surplus increases because they are able to purchase the good at a lower price than the maximum price they are willing to pay. This means they are getting more value or benefit from the good than what they are paying for it, resulting in an increase in consumer surplus.

131. Statement I: Consumer surplus is the difference between what you have to pay and what you would have been willing to pay. Statement II: A person's total utility reaches a maximum when that person's marginal utility falls to zero.

Statement I is true and statement II is false.

Statement II is true and statement I is false.

Both statements are true.

Both statements are false.

Statement I is true because consumer surplus is indeed the difference between the price that a consumer pays for a good or service and the maximum price that the consumer would have been willing to pay for it. It represents the additional benefit or value that the consumer receives from the purchase.

Statement II is also true because a person's total utility, which measures the satisfaction or happiness derived from consuming a certain quantity of a good or service, reaches a maximum when the marginal utility of the last unit consumed falls to zero. This means that consuming more of the good or service beyond that point would not provide any additional satisfaction or utility.

Explanation

Statement I is true because consumer surplus is indeed the difference between the price that a consumer pays for a good or service and the maximum price that the consumer would have been willing to pay for it. It represents the additional benefit or value that the consumer receives from the purchase.

Statement II is also true because a person's total utility, which measures the satisfaction or happiness derived from consuming a certain quantity of a good or service, reaches a maximum when the marginal utility of the last unit consumed falls to zero. This means that consuming more of the good or service beyond that point would not provide any additional satisfaction or utility.

132. Which of the following will NOT shift an economy's production possibilities curve outward?

An increase in technology

An improvement in the literacy rate

A reduction in the unemployment rate

An increase in the number of workers available

A reduction in the unemployment rate will not shift an economy's production possibilities curve outward because it does not directly affect the economy's capacity to produce goods and services. While reducing unemployment can lead to increased productivity and efficiency, it does not directly expand the economy's production possibilities. Factors such as an increase in technology, improvement in the literacy rate, and an increase in the number of workers available can all contribute to an outward shift in the production possibilities curve by increasing the economy's productive capacity.

Explanation

A reduction in the unemployment rate will not shift an economy's production possibilities curve outward because it does not directly affect the economy's capacity to produce goods and services. While reducing unemployment can lead to increased productivity and efficiency, it does not directly expand the economy's production possibilities. Factors such as an increase in technology, improvement in the literacy rate, and an increase in the number of workers available can all contribute to an outward shift in the production possibilities curve by increasing the economy's productive capacity.

133. If we are operating inside our production possibilities frontier,

It is possible the economy is in a recession.

It is possible the economy is in a depression.

It is possible that the economy is in neither a recession or a depression.

All of the choices are correct.

If we are operating inside our production possibilities frontier, it means that the economy is not utilizing all of its available resources efficiently. This could be due to various factors such as a decrease in consumer demand or a decrease in investment. Consequently, it is possible that the economy is in a recession or a depression. However, it is also possible that the economy is in neither a recession nor a depression, but rather experiencing a temporary slowdown in growth. Therefore, all of the choices are correct.

Explanation

If we are operating inside our production possibilities frontier, it means that the economy is not utilizing all of its available resources efficiently. This could be due to various factors such as a decrease in consumer demand or a decrease in investment. Consequently, it is possible that the economy is in a recession or a depression. However, it is also possible that the economy is in neither a recession nor a depression, but rather experiencing a temporary slowdown in growth. Therefore, all of the choices are correct.

134. Which of the following statements is not true?

Our government alters how resources are allocated in the economy by taxing, spending and issuing regulations.

The price mechanism will work best if there are a limited number of firms in each industry.

Lack of the provision of public goods is considered a market failure.

Not everything produced by the public sector is a public good.

The price mechanism refers to the way prices determine the allocation of resources in a market economy. It is based on the principles of supply and demand. However, the statement that the price mechanism works best with a limited number of firms in each industry is not true. In fact, the price mechanism works most efficiently in a competitive market with many firms. In a competitive market, firms compete with each other, leading to lower prices and greater efficiency. When there are only a few firms in an industry, they may have the power to manipulate prices and restrict competition, leading to market inefficiencies.

Explanation

The price mechanism refers to the way prices determine the allocation of resources in a market economy. It is based on the principles of supply and demand. However, the statement that the price mechanism works best with a limited number of firms in each industry is not true. In fact, the price mechanism works most efficiently in a competitive market with many firms. In a competitive market, firms compete with each other, leading to lower prices and greater efficiency. When there are only a few firms in an industry, they may have the power to manipulate prices and restrict competition, leading to market inefficiencies.

135. Which of the following statements is false?

The price mechanism is most important under capitalism.

The five-year plan was the main economic plan of the former Soviet Union.

In most fascist economies, the means of production was left in private hands, with varying degrees of government interference.

The main criticism of socialist countries is that they gave their citizens too many benefits.

The main criticism of socialist countries is not that they gave their citizens too many benefits. In fact, the main criticism of socialist countries is often that they did not provide enough economic incentives and individual freedoms, resulting in inefficiency and lack of innovation.

Explanation

The main criticism of socialist countries is not that they gave their citizens too many benefits. In fact, the main criticism of socialist countries is often that they did not provide enough economic incentives and individual freedoms, resulting in inefficiency and lack of innovation.

136. Our government helps the free enterprise system work by doing all of the following except

Seeing that information flows freely.

Providing the infrastructure for a market system to function efficiently.

Defining property rights.

Lowering some of the barriers to competition.

Creating an equal distribution of income.

The government helps the free enterprise system work by ensuring that information flows freely, providing the necessary infrastructure for the market system to function efficiently, and defining property rights. Additionally, the government lowers some barriers to competition. However, creating an equal distribution of income is not a role of the government in supporting the free enterprise system.

Explanation

The government helps the free enterprise system work by ensuring that information flows freely, providing the necessary infrastructure for the market system to function efficiently, and defining property rights. Additionally, the government lowers some barriers to competition. However, creating an equal distribution of income is not a role of the government in supporting the free enterprise system.

137. Statement I: It is the role of government to ensure that property rights are protected, but not to interfere with minimizing any unpleasant side effects from pollution. Statement II: The U.S. government must provide the infrastructure for a market system to function efficiently.

Statement I is true and statement II is false.

Statement II is true and statement I is false.

Both statements are true.

Both statements are false.

The correct answer is that Statement II is true and Statement I is false. This is because Statement I suggests that the role of government is to protect property rights but not to interfere with minimizing pollution, which is incorrect. In reality, it is the role of government to protect property rights and also to regulate and minimize the negative effects of pollution. Statement II, on the other hand, is true as the government does have a responsibility to provide the infrastructure for a market system to function efficiently.

Explanation

The correct answer is that Statement II is true and Statement I is false. This is because Statement I suggests that the role of government is to protect property rights but not to interfere with minimizing pollution, which is incorrect. In reality, it is the role of government to protect property rights and also to regulate and minimize the negative effects of pollution. Statement II, on the other hand, is true as the government does have a responsibility to provide the infrastructure for a market system to function efficiently.

138. If supply increases and demand remains unchanged, equilibrium quantity will _ and equilibrium price will ________.

Rise, rise

Fall, fall

Fall, rise

Rise, fall

If supply increases and demand remains unchanged, there will be a surplus of the product in the market. This surplus will cause the equilibrium quantity to rise as there is more supply available. However, since demand remains unchanged, the equilibrium price will fall as sellers will need to lower the price in order to sell the increased quantity of the product. Therefore, the correct answer is "rise, fall."

Explanation

If supply increases and demand remains unchanged, there will be a surplus of the product in the market. This surplus will cause the equilibrium quantity to rise as there is more supply available. However, since demand remains unchanged, the equilibrium price will fall as sellers will need to lower the price in order to sell the increased quantity of the product. Therefore, the correct answer is "rise, fall."

139. Which statement is false?

A demand curve slopes downward to the right.

Moving down along a demand curve, price falls and quantity rises.

Moving up a demand curve, price rises and quantity rises.

A demand curve shows an inverse relationship between price and quantity.

Moving up a demand curve, price rises and quantity rises. This statement is false because as we move up along a demand curve, the price increases while the quantity demanded decreases. This is because as the price increases, consumers are willing to buy less of a product. Therefore, there is a positive relationship between price and quantity along a demand curve, not an inverse relationship.

Explanation

Moving up a demand curve, price rises and quantity rises. This statement is false because as we move up along a demand curve, the price increases while the quantity demanded decreases. This is because as the price increases, consumers are willing to buy less of a product. Therefore, there is a positive relationship between price and quantity along a demand curve, not an inverse relationship.

140. When we go from one demand curve to another, there has definitely been

A change in quantity demanded.

A change in demand.

An increase in demand.

A decrease in demand.

When we go from one demand curve to another, it indicates a shift in the entire demand curve, rather than just a change in quantity demanded at a specific price. This means that there has been a change in the factors influencing demand, such as consumer preferences, income levels, or the price of related goods. This shift leads to a change in demand for the product or service, rather than just a change in the quantity demanded at a given price.

Explanation

When we go from one demand curve to another, it indicates a shift in the entire demand curve, rather than just a change in quantity demanded at a specific price. This means that there has been a change in the factors influencing demand, such as consumer preferences, income levels, or the price of related goods. This shift leads to a change in demand for the product or service, rather than just a change in the quantity demanded at a given price.

141. A move from G to H represents a

Change in quantity supplied

Change in supply

Increase in supply

Decrease in supply

A move from G to H represents a decrease in supply. This is because the quantity supplied decreases as we move from G to H on the supply curve. This could be due to factors such as a decrease in production capacity, increase in production costs, or a decrease in the availability of resources. As a result, suppliers are able to supply less quantity at each price level, leading to a decrease in overall supply.

Explanation

A move from G to H represents a decrease in supply. This is because the quantity supplied decreases as we move from G to H on the supply curve. This could be due to factors such as a decrease in production capacity, increase in production costs, or a decrease in the availability of resources. As a result, suppliers are able to supply less quantity at each price level, leading to a decrease in overall supply.

142. If demand is elastic and price is raised, total revenue will

Rise.

Fall.

Stay the same.

Possibly rise or possibly fall.

When demand is elastic, it means that a small change in price will result in a proportionally larger change in quantity demanded. Therefore, if the price is raised, the quantity demanded will decrease by a greater percentage, leading to a decrease in total revenue. Hence, the correct answer is "fall."

Explanation

When demand is elastic, it means that a small change in price will result in a proportionally larger change in quantity demanded. Therefore, if the price is raised, the quantity demanded will decrease by a greater percentage, leading to a decrease in total revenue. Hence, the correct answer is "fall."

143. A 15% decrease in the price of radios causes the quantity demanded to rise by 16%. The demand for radios is

Very elastic.

Slightly elastic.

Unit elastic.

Slightly inelastic.

Very inelastic.

The given scenario indicates that a decrease in price leads to a larger increase in quantity demanded, suggesting that the demand for radios is relatively responsive to price changes. This responsiveness is characteristic of elastic demand, where a small change in price results in a proportionally larger change in quantity demanded. Therefore, the demand for radios is classified as slightly elastic.

Explanation

The given scenario indicates that a decrease in price leads to a larger increase in quantity demanded, suggesting that the demand for radios is relatively responsive to price changes. This responsiveness is characteristic of elastic demand, where a small change in price results in a proportionally larger change in quantity demanded. Therefore, the demand for radios is classified as slightly elastic.

144. Statement I: Utility is measured by a product's usefulness. Statement II: If you purchased eight ballpoint pens at 75 cents each, you would be enjoying a consumer surplus.

Statement I is true and statement II is false.

Statement II is true and statement I is false.

Both statements are true.

Both statements are false.

The correct answer is "Statement II is true and statement I is false." This means that while it is true that purchasing eight ballpoint pens at 75 cents each would result in a consumer surplus, it is not true that utility is measured by a product's usefulness. Utility refers to the satisfaction or value that a consumer derives from consuming a product, and it is not necessarily tied to its usefulness.

Explanation

The correct answer is "Statement II is true and statement I is false." This means that while it is true that purchasing eight ballpoint pens at 75 cents each would result in a consumer surplus, it is not true that utility is measured by a product's usefulness. Utility refers to the satisfaction or value that a consumer derives from consuming a product, and it is not necessarily tied to its usefulness.

145. Statement I. The generation that came of age in the 21st century did better economically than their parents' generation. Statement II. The American economic picture was brighter in the 1980s than the 1990s.

Statement I is true and statement II is false.

Statement II is true and statement I is false.

Both statements are true.

Both statements are false.

The correct answer is "Both statements are false." This means that neither statement I nor statement II is true. The generation that came of age in the 21st century did not do better economically than their parents' generation, and the American economic picture was not brighter in the 1980s than the 1990s.

Explanation

The correct answer is "Both statements are false." This means that neither statement I nor statement II is true. The generation that came of age in the 21st century did not do better economically than their parents' generation, and the American economic picture was not brighter in the 1980s than the 1990s.

146. If the government legislates a price ceiling that is above the equilibrium price

A shortage will develop.

Some non-price method of rationing will develop.

Market price and quantity sold will be unaffected.

A surplus will develop.

If the government legislates a price ceiling that is above the equilibrium price, it means that the price ceiling is set at a level higher than the price at which the quantity demanded equals the quantity supplied. In this case, since the price ceiling is above the equilibrium price, there will be no immediate impact on the market price and quantity sold. The price and quantity will remain unaffected because the market forces of supply and demand are not being restricted by the price ceiling.

Explanation

If the government legislates a price ceiling that is above the equilibrium price, it means that the price ceiling is set at a level higher than the price at which the quantity demanded equals the quantity supplied. In this case, since the price ceiling is above the equilibrium price, there will be no immediate impact on the market price and quantity sold. The price and quantity will remain unaffected because the market forces of supply and demand are not being restricted by the price ceiling.

147. Statement I: A price floor will always have an effect on a market. Statement II: A price ceiling which has been set above equilibrium will cause a shortage.

Statement I is true and statement II is false.

Statement II is true and statement I is false.

Both statements are true.

Both statements are false.

Both statements are false. A price floor does not always have an effect on a market. If the price floor is set above the equilibrium price, it will create a surplus, but if it is set below the equilibrium price, it will have no impact. Similarly, a price ceiling set above the equilibrium price will not cause a shortage, as it will not affect the market if it is not binding.

Explanation

Both statements are false. A price floor does not always have an effect on a market. If the price floor is set above the equilibrium price, it will create a surplus, but if it is set below the equilibrium price, it will have no impact. Similarly, a price ceiling set above the equilibrium price will not cause a shortage, as it will not affect the market if it is not binding.

148. Along a downward-sloping straight-line demand curve,

Demand is perfectly elastic when price is zero.

Demand is unit elastic at all prices.

Demand is very inelastic at high prices but becomes more elastic as price decreases.

Demand is very elastic at high prices but becomes less elastic as price decreases.

As the price decreases along a downward-sloping straight-line demand curve, demand becomes less elastic. This means that the percentage change in quantity demanded is less responsive to the percentage change in price. At high prices, demand is very elastic, meaning that a small change in price will result in a large change in quantity demanded. However, as the price decreases, demand becomes less elastic, indicating that a larger change in price is needed to elicit the same percentage change in quantity demanded.

Explanation

As the price decreases along a downward-sloping straight-line demand curve, demand becomes less elastic. This means that the percentage change in quantity demanded is less responsive to the percentage change in price. At high prices, demand is very elastic, meaning that a small change in price will result in a large change in quantity demanded. However, as the price decreases, demand becomes less elastic, indicating that a larger change in price is needed to elicit the same percentage change in quantity demanded.

149. When a tax is lowered this will

Raise both demand and supply.

Lower both demand and supply.

Lower only supply.

Raise only supply.

When a tax is lowered, it means that the cost of production for businesses decreases. This leads to an increase in the profitability of producing goods and services, which incentivizes businesses to increase their supply. As a result, the supply curve shifts to the right, leading to a higher quantity supplied in the market. However, lowering taxes does not directly impact consumer demand, so the demand curve remains unchanged. Therefore, the correct answer is that lowering taxes raises only supply.

Explanation

When a tax is lowered, it means that the cost of production for businesses decreases. This leads to an increase in the profitability of producing goods and services, which incentivizes businesses to increase their supply. As a result, the supply curve shifts to the right, leading to a higher quantity supplied in the market. However, lowering taxes does not directly impact consumer demand, so the demand curve remains unchanged. Therefore, the correct answer is that lowering taxes raises only supply.

150. According to the general utility formula, the marginal utility of a good divided by the price of that good is _______.

Less that negative one

Equal to one

Greater than one

Equal to zero

According to the general utility formula, the marginal utility of a good divided by the price of that good is equal to one. This means that the additional satisfaction or benefit derived from consuming one more unit of a good is equal to the price paid for that unit. In other words, the consumer is willing to pay exactly the amount that they perceive the good to be worth in terms of its utility.

Explanation

According to the general utility formula, the marginal utility of a good divided by the price of that good is equal to one. This means that the additional satisfaction or benefit derived from consuming one more unit of a good is equal to the price paid for that unit. In other words, the consumer is willing to pay exactly the amount that they perceive the good to be worth in terms of its utility.

Econ 40 Final Practice Exam I.

1. Which of the following is true?

2.

What first name or nickname would you like us to use?

2. Which statement is true?

3. Which was a decade of high inflation and high unemployment?

4. In the late 1920s, you could buy $10,000 worth of stock by putting down as little as

5. The economic expansion which began in 1933 was due to

6. Which statement is false?

7. Who said the nation was "ill-fed, ill-clothed, and ill-housed?"

8. Which statement is false?

9. Choosing from among the following, the worst recession was in

10. When General Dwight D. Eisenhower ran for the presidency for the first time, he said he would

11. In the decades before the Civil War, the South _________________________.

12. Which statement is true?

13. The most important factor in reversing the economic decline of 1929-1933 was that

14. Which statement is false?

15. Which of the following is true?

16. Which of the following was considered a mild recession?

17. Assuming that a society always operates on its production possibilities curve, an outward shift of the curve implies

18. The reason that opportunity costs arise is that

19. The production possibilities curve tells us that if full employment exists and a nation wishes to permanently increase its production of military goods, it must

20. Chart refers to units of butter & guns. Plots H,F,G,I During most of our involvement in World War II we temporarily operated at point

21. Graph refers to consumer goods. Plots X, Y Imagine that country X is at point X of this production possibilities frontier and country Y is at point Y.

22. Hypothetical Production Schedule for a Two-Product Economy (Table) If the economy were producing at point C and moves to point B

23. Hypothetical Production Schedule for a Two-Product Economy (Table) If the economy were producing at point E and moves to point D,

24. Which statement about entrepreneurship in America is true?

25. The United States was able to produce temporarily outside its production possibilities curve for several years during World War II by doing which of the following?

26. . The price mechanism deals _____ with the issue of an equitable income distribution and ____ with the issue of efficiency.

27. Which of the following is NOT an example of a command-and-control regulation to limit pollution?

28. Which of these is NOT an example of opportunity cost?

29. A socialist economy is characterized by

30. Statement I: China's southern provinces have become "export platforms", sending out streams of consumer goods to Japan, Europe, and North America. Statement II: China has become a wealthy nation as a result of getting rid of its communist economic system.

31. Karl Marx and Friedrich Engels said

32. Our government helps the free enterprise system work by doing all of the following, except

33. Which does not fit with the others?

34. Which of the following is a typical attribute of a socialist country?

35. Which statement is false?

36. An example of a public good is

37. Q.D Price Q.S 30 $10 64 40 8 55 50 6 50 60 4 40 70 2 20 When the price is $2

38. Refers to graph (intersecting lines "X") If the government set a price $24, there would be a price ___________, that would cause a ___________ of ______ units.

39. When demand falls and supply rises, equilibrium price will __________ and equilibrium quantity will __________.

40. An increase in supply means that quantity supplied rises

41. Which statement is true?

42. Which situation below would represent a surplus in the fertilizer market?

43. Which of the following government programs will create a surplus?

44. If the government set a price floor at $8

45. If price was set by the government at $4, there would be a price _____________, that would cause a ___________ of _______ units.

46. The equilibrium quantity is about

47. What happens to equilibrium quantity when simultaneously the demand curve shifts left and the supply curve shifts right?

48. All of the following could shift the demand curve, except

49. An increase in the price of IBM personal computers is likely to

50. When demand decreases, the demand curve shifts

51. Which of the following pairs provides examples of complementary goods?

52. If sneakers and hiking boots are substitutes and the price of sneakers falls, what will happen?

53. If the price of tanning salon sessions rises, then there will be a(n)

54. An increase in supply is represented by a shift

55. Suppose that, due to low profits, many individuals decide to leave the farming business. The effect of the exodus will be

56. As the price of leather increases

57. Which of the following will NOT shift the supply curve for gadgets?

58. Each of the following can cause a change in demand except

59. An increase in the price of ice cream is likely to

60. A shift in the supply curve for gasoline in the United States would result if

61. Assume that demand is elastic. Of the elasticities shown here, which is the lowest that would still be considered elastic?

62. Refers to graph (measured in millions) How much revenue will the government raise each week from the tax?

63. A firm that changes its price and sees no change in the total revenues it receives is facing demand that is

64. In general, the fewer the substitutes available for a good

65. If elasticity of demand is 10, a 1% increase in price will lower quantity demanded by

66. What is the key difference between the short-run and long-run in terms of elasticity of supply?

67. When the demand elasticity of a service is ____, a small increase in price will lead to a decline of the same percentage in quantity.

68. In general taxes on goods and services

69. In the short run, the demand for gasoline today is

70. The seller will bear the entire burden of a tax in all of the following except

71. Which of the following has the highest elasticity of demand?

72. Jason's cooking is so terrible that Melissa says she will have to be paid in order to even try it. Thus, her marginal utility for Jason's cooking is

73. If you were in the middle of the desert, came upon a lemonade stand, and paid $20 for a glass of lemonade,

74. Which statement is true?

75. If water became very scarce and diamonds became very plentiful

76. The water-diamond paradox is resolved once we realize that the marginal utility of the last gallon of water consumed is very ____ and the marginal utility of the last diamond carat purchased is very ___.

77. Which statement is true?

26. . The price mechanism deals _ with the issue of an equitable income distribution and with the issue of efficiency.

38. Refers to graph (intersecting lines "X") If the government set a price $24, there would be a price _____, that would cause a _ of __ units.

39. When demand falls and supply rises, equilibrium price will and equilibrium quantity will .

45. If price was set by the government at $4, there would be a price _______, that would cause a _ of ___ units.

76. The water-diamond paradox is resolved once we realize that the marginal utility of the last gallon of water consumed is very __ and the marginal utility of the last diamond carat purchased is very _.

84. Our economy would be operating at full employment with labor unemployment rate of _ percent and a capacity utilization rate of ___ percent.

101. Refers to a graph ( lines intersecting looks like "X") If price were set by the government at $3, there would be a price _______, that would cause a _ of ___ units.

106. Rent controls tend to __ the supply of housing and the the level of rents paid.

120. When the cross elasticity of demand is , the goods or services are .

121. If demand is ______ and price is _, total revenue will ____.

125. When two goods are complementary goods, as the price of one of the goods goes _, the quantity demanded of the other goes _.

130. As a person buys increasing amounts of a good, their marginal utility __ and their consumer surplus _.

138. If supply increases and demand remains unchanged, equilibrium quantity will _ and equilibrium price will ________.