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CHAPTER 2
1) In part, microeconomics is concerned with
A) how a business firm decides upon the amount it produces and the price it sets.
B) changes in the economy's total output of goods and services over long periods of time.
C) factors that explain changes in the unemployment rate over time.
D) the Federal Reserve's policy decisions.
Answer: A
Topic: Microeconomics and Macroeconomics
Skill: Recognition
Status: Previous edition, Chapter 1
AACSB: Reflective Thinking
4) The branch of economics that deals with the analysis of the whole economy is called
A) macroeconomics.
B) marginal analysis.
C) microeconomics.
D) metroanalysis.
Answer: A
Topic: Microeconomics and Macroeconomics
Skill: Recognition
Status: Previous edition, Chapter 1
AACSB: Reflective Thinking
6) On Saturday morning, you rank your choices for activities in the following order: go to the library,
work out at the gym, have breakfast with friends, and sleep late. Suppose you decide to go to the library.
Your opportunity cost is
A) working out at the gym, having breakfast with friends, and sleeping late.
B) working out at the gym.
C) zero because you do not have to pay money to use the library.
D) not clear because not enough information is given.
Answer: B
Topic: Opportunity Cost
Skill: Conceptual
Status: Previous edition, Chapter 1
AACSB: Reflective Thinking
10) Harry produces 2 balloon rides and 4 boat rides an hour. Harry could produce more balloon rides but
to do so he must produce fewer boat rides. Harry is ________ his production possibilities frontier.
A) producing inside
B) producing on
C) producing outside
D) producing either inside or on
Answer: B
Topic: Production Possibilities Frontier
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking
12) On the vertical axis, the production possibilities frontier shows ________; on the horizontal axis, the
production possibilities frontier shows ________.
A) the quantity of a good; the number of workers employed to produce the good
B) the quantity of a good; the price of the good
C) the quantity of a good; a weighted average of resources used to produce the good
D) the quantity of one good; the quantity of another good
Answer: D
Topic: Production Possibilities Frontier
Skill: Recognition
13) The figure above shows Roger's production possibilities frontier. Point a is an ________ point and at
that point production is ________.
A) attainable; efficient
B) attainable; inefficient
C) unattainable; inefficient
D) unattainable; efficient
Answer: B
Topic: Production Possibilities Frontier
Skill: Conceptual
Status: Modified 10th edition
AACSB: Analytical Skills
14) A country that must decrease production of one good in order to increase the production of another
A) must be using resources inefficiently.
B) must be producing on its production possibilities frontier.
C) must be producing beyond its production possibilities frontier.
D) must have private ownership of property.
Answer: B
Topic: Production Efficiency
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking
C) reflects the fact that more technology needs to be developed to fully employ all resources.
D) implies that too much labor and not enough capital is being used.
Answer: A
Topic: Production Efficiency
Skill: Conceptual
Status: Previous edition, Chapter 2
AACSB: Reflective Thinking
16) When operating on its PPF, a country can produce 2 tons of butter and 200 cars OR 3 tons of butter
and 150 cars. The opportunity cost of 1 ton of butter is ________ cars per ton of butter.
A) 300
B) 200
C) 50
D) 0.75
Answer: C
Topic: Opportunity Cost
Skill: Analytical
Status: Previous edition, Chapter 2
AACSB: Analytical Skills
17) At one point along a PPF, 10 pizzas and 7 sandwiches can be produced. At another point along the
same PPF, 9 pizzas and 10 sandwiches can be produced. The opportunity cost of a pizza between these
points is ________ per pizza.
A) 7/10 of a sandwich
B) 10/7 of a sandwich
C) 1/3 of a sandwich
D) 3 sandwiches
Answer: D
Topic: Opportunity Cost
Skill: Analytical
Status: Previous edition, Chapter 2
AACSB: Analytical Skills
Point
A
B
C
D
E
18) The above table shows production points on Sweet-Tooth Land's production possibilities frontier.
Which of the following statements is TRUE?
A) Producing 0 chocolate bars and 100 cans of cola is both attainable and efficient.
B) Producing 20 chocolate bars and 80 cans of cola is attainable, but inefficient.
C) Producing 30 chocolate bars and 38 cans of cola is only attainable with an increase in technology.
D) Producing 40 chocolate bars and 0 cans of cola is unattainable and inefficient.
Answer: A
19) The above table shows production points on Sweet-Tooth Land's production possibilities frontier.
Which of the following is an example of a point that is inefficient?
A) 0 chocolate bars and 100 cans of cola
B) 20 chocolate bars and 80 cans of cola
C) 32 chocolate bars and 40 cans of cola
D) 38 chocolate bars and 0 cans of cola
Answer: D
Topic: Production Efficiency
Skill: Conceptual
Status: Previous edition, Chapter 2
AACSB: Analytical Skills
20) The above table shows production points on Sweet-Tooth Land's production possibilities frontier.
What is the opportunity cost of one can of cola if Sweet-tooth Land moves from point C to point B?
A) 20 chocolate bars per can of cola
B) 10 chocolate bars per can of cola
C) 2 chocolate bars per can of cola
D) 1/2 chocolate bars per can of cola
Answer: D
Topic: Opportunity Cost
Skill: Analytical
Status: Modified 10th edition
AACSB: Analytical Skills
21) The bowed outward shape of the production possibilities frontier in the above figure indicates that
A) some resources are better suited for producing computers.
B) the opportunity cost of producing more computers decreases as more computers are produced.
22) According to the figure above, the opportunity cost of producing another computer is
A) higher at A.
B) higher at B.
C) the same at every point along the frontier.
D) different at most points along the frontier but equal at points A and B because they are equally distant
from the axes.
Answer: B
Topic: Increasing Opportunity Cost
Skill: Conceptual
Status: Previous edition, Chapter 2
AACSB: Analytical Skills
23) When the production possibilities frontier is bowed outwards, the opportunity cost of producing
more of one good
A) increases in terms of the amount foregone of the other good.
B) decreases in terms of the amount foregone of the other good.
C) remains constant.
D) cannot be determined.
Answer: A
Topic: Increasing Opportunity Cost
Skill: Conceptual
Status: Previous edition, Chapter 2
AACSB: Analytical Skills
Answer: D
Topic: Economic Growth
Skill: Conceptual
Status: Previous edition, Chapter 2
AACSB: Reflective Thinking
26) A person has a comparative advantage in producing a particular good if that person
A) has higher productivity in producing it than anyone else has.
B) can produce it at lower opportunity cost than anyone else can.
C) has less desire to consume that good than anyone else has.
D) has more human capital related to that good than anyone else has.
Answer: B
Topic: Comparative Advantage
Skill: Recognition
Status: Previous edition, Chapter 2
AACSB: Reflective Thinking
27) An economy produces only food and shelter. There are two individuals in the economy: Bill and
Mary. Mary's opportunity cost of producing 1 unit of shelter is 2 units of food. Bill's opportunity cost of
producing 1 unit of shelter is 4 units of food.
A) Bill has a comparative advantage over Mary in the production of shelter.
B) Mary has a comparative advantage over Bill in the production of food.
C) Mary has a comparative advantage over Bill in the production of shelter.
D) Bill has an absolute advantage over Mary in the production of shelter.
Answer: C
Topic: Comparative Advantage
Skill: Analytical
Status: Previous edition, Chapter 2
AACSB: Analytical Skills
28) In one week Alice can produce 5 pairs of shoes or 4 bookshelves while Roger can produce 10 pairs of
shoes or 6 bookshelves. Alice should specialize in the production of
A) shoes.
B) bookshelves.
C) either shoes or bookshelves.
D) neither shoes nor bookshelves.
Answer: B
Topic: Comparative Advantage
Skill: Analytical
Status: Previous edition, Chapter 2
AACSB: Analytical Skills
Pens
Pencils
Don's production
possibilities
10
20
Bob's production
possibilities
5
15
29) The above table shows the number of pencils or pens that could be produced by Don and Bob in an
hour. This schedule shows that
A) Don has an absolute advantage in the production of pencils, and Bob has an absolute advantage in the
production of pens.
B) Bob has an absolute advantage in the production of pencils, and Don has an absolute advantage in the
production of pens.
C) Don has a comparative advantage in the production of both pencils and pens.
D) Bob has a comparative advantage in the production of pencils.
Answer: D
Topic: Comparative Advantage
Skill: Analytical
Status: Previous edition, Chapter 2
AACSB: Analytical Skills
Chapter 3
30) The quantity demanded is
A) always equal to the equilibrium quantity.
B) independent of the price of the good.
C) the amount of a good that consumers plan to purchase at a particular price.
D) independent of consumers' buying plans.
Answer: C
Topic: Demand
Skill: Recognition
Status: Previous edition, Chapter 3
AACSB: Reflective Thinking
31) The law of demand states that, other things remaining the same, the higher the price of a good, the
A) smaller is the demand for the good.
B) larger is the demand for the good.
C) smaller is the quantity of the good demanded.
D) larger is the quantity of the good demanded.
Answer: C
Topic: Law of Demand
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Reflective Thinking
32) The "law of demand" predicts that, other things being equal,
A) an increase in the price of downloaded music decreases the demand for downloaded music.
B) a decrease in the price of gasoline decreases the quantity of gasoline demanded.
C) an increase in the price of pizza decreases the quantity of pizza demanded.
D) an increase in the price of coffee decreases the quantity of tea demanded.
Answer: C
Topic: Law of Demand
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Reflective Thinking
34) People buy more of good 1 when the price of good 2 rises. These goods are
A) complements.
B) substitutes.
C) normal goods.
D) inferior goods.
Answer: B
Topic: Change in Demand, Prices of Related Goods
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Reflective Thinking
35) Ham and eggs are complements. If the price of ham rises, the demand for eggs will
A) increase or decrease but the demand curve for ham will not change.
B) decrease and the demand curve for ham will shift rightward.
C) not change but there will be a movement along the demand curve for eggs.
D) decrease and the demand curve for eggs will shift leftward.
Answer: D
Topic: Change in Demand, Prices of Related Goods
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Reflective Thinking
36) Sweatshirts and tee-shirts are complements in consumption and the price of a sweatshirt increases. As
a result, the demand for
A) sweatshirts will increase, that is, the demand curve will shift rightward.
B) tee-shirts will increase, that is, the demand curve will shift rightward.
C) sweatshirts will decrease, that is, the demand curve will shift leftward.
D) tee-shirts will decrease, that is, the demand curve will shift leftward.
Answer: D
Topic: Change in Demand, Prices of Related Goods
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Analytical Skills
37) If the price of an Xbox player falls, then in the market for Xbox games,
A) the demand curve for Xbox games shifts rightward.
B) the demand curve for Xbox games shifts leftward.
C) there is a movement downward along the demand curve for Xbox games.
D) there is a movement upward along the demand curve for Xbox games.
Answer: A
Topic: Change in Demand, Prices of Related Goods
Skill: Analytical
Status: Modified 10th edition
AACSB: Analytical Skills
38) Consumers expect that the price of a gallon of gasoline will rise next week. As a result,
A) today's supply of gasoline increases.
B) today's demand for gasoline increases.
C) the price of a gallon of gasoline falls today.
D) next week's supply of gasoline decreases.
Answer: B
Topic: Change in Demand, Expected Future Prices
Skill: Conceptual
Status: Modified 10th edition
AACSB: Reflective Thinking
39) The demand curve for a normal good shifts leftward if income ________ or the expected future price
________.
A) decreases; falls
B) decreases; rises
C) increases; falls
D) increases; rises
Answer: A
Topic: Change in Demand
Skill: Analytical
Status: Previous edition, Chapter 3
AACSB: Analytical Skills
43) The figure above shows the demand for fruit snacks. Which movement reflects an increase in
demand?
A) from point a to point e
B) from point a to point b
C) from point a to point c
D) from point a to point d
Answer: D
Topic: A Change in Quantity Demanded Versus a Change in Demand
Skill: Conceptual
Status: Modified 10th edition
AACSB: Analytical Skills
44) The figure above shows the demand for fruit snacks. Which movement reflects a decrease in demand?
A) from point a to point e
B) from point a to point b
C) from point a to point c
D) from point a to point d
Answer: C
Topic: A Change in Quantity Demanded Versus a Change in Demand
Skill: Conceptual
Status: Modified 10th edition
AACSB: Analytical Skills
45) The figure above shows the demand for fruit snacks. Which movement reflects a decrease in quantity
demanded but NOT a decrease in demand?
A) from point a to point e
B) from point a to point b
C) from point a to point c
D) from point a to point d
Answer: A
Topic: A Change in Quantity Demanded Versus a Change in Demand
Skill: Conceptual
Status: Modified 10th edition
AACSB: Analytical Skills
46) The figure above shows the demand for fruit snacks. Which movement reflects how consumers would
react to an increase in the price of a fruit snack that is expected to occur in the future?
A) from point a to point e
B) from point a to point b
C) from point a to point c
D) from point a to point d
Answer: D
Topic: Change in Demand, Expected Future Prices
Skill: Conceptual
Status: Modified 10th edition
AACSB: Analytical Skills
47) The figure above shows the demand for fruit snacks. Which movement reflects an increase in income
if fruit snacks are an inferior good?
A) from point a to point e
B) from point a to point b
C) from point a to point c
D) from point a to point d
Answer: C
Topic: Change in Demand, Income
Skill: Analytical
Status: Modified 10th edition
AACSB: Analytical Skills
48) The figure above shows the demand for fruit snacks. Which movement reflects an increase in income
if fruit snacks are a normal good?
A) from point a to point e
B) from point a to point b
C) from point a to point c
D) from point a to point d
Answer: D
Topic: Change in Demand, Income
Skill: Analytical
Status: Modified 10th edition
AACSB: Analytical Skills
49) The figure above shows the demand for fruit snacks. Which movement reflects a decrease in
population?
A) from point a to point e
B) from point a to point b
C) from point a to point c
D) from point a to point d
Answer: C
Topic: Change in Demand, Population
Skill: Analytical
Status: Modified 10th edition
AACSB: Analytical Skills
50) A fall in the price of a good causes producers to reduce the quantity of the good they are willing to
produce. This fact illustrates
A) the law of supply.
B) the law of demand.
C) a change in supply.
D) the nature of an inferior good.
Answer: A
Topic: The Law of Supply
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Reflective Thinking
53) Good A and good B are substitutes in production. The demand for good A increases so that the price
of good A rises. The increase in the price of good A shifts the
A) demand curve for good B leftward.
B) demand curve for good B rightward.
C) supply curve of good B leftward.
D) supply curve of good B rightward.
Answer: C
Topic: Change in Supply, Prices of Related Goods Produced
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Reflective Thinking
55) The figure above shows the market for candy. People become more concerned that eating candy
causes them to gain weight, which they do not like. As a result, the
A) demand curve shifts from D2 to D1 and the supply curve does not shift.
B) demand curve shifts from D1 to D2 and the supply curve shifts from S1 to S2.
C) demand curve shifts from D2 to D1 and the supply curve shifts from S2 to S1.
D) demand curve does not shift, and the supply curve shifts from S1 to S2.
Answer: A
Topic: Changes in Demand, Preferences
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Analytical Skills
56) The above figure shows the market for oil. Because of the development of a new deep sea drilling
technology, the
A) demand curve shifts from D1 to D2 and the supply curve does not shift.
B) demand curve shifts from D1 to D2 and the supply curve shifts from S1 to S2.
C) demand curve does not shift, and the supply curve shifts from S2 to S1.
D) demand curve does not shift, and the supply curve shifts from S1 to S2.
Answer: D
Topic: Change in Supply, Technology
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Analytical Skills
57) The above figure shows the market for french fries at fast food joints. If the price of potatoes rises and
simultaneously people become concerned that french fries can cause heart attacks, the
A) demand curve for french fries shifts from D2 to D1 and the supply curve of french fries does not shift.
B) demand curve for french fries shifts from D2 to D1 and the supply curve of french fries shifts from S2
to S1.
C) demand curve for french fries shifts from D2 to D1 and the supply curve of french fries shifts from S1
to S2.
D) demand curve for french fries does not shift, and the supply curve of french fries shifts from S1 to S2.
Answer: B
Topic: Change in Demand/Supply; Preferences/Prices of Resources
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Analytical Skills
58) A rise in the price of a good causes producers to supply more of the good. This statement illustrates
A) the law of supply.
B) the law of demand.
C) a change in supply.
D) the nature of an inferior good.
Answer: A
Topic: Study Guide Question, The Law of Supply
Skill: Analytical
Status: Previous edition, Chapter 3
AACSB: Reflective Thinking
59) In a supply and demand figure, the equilibrium price and quantity are found at the
A) point where quantity supplied equals quantity demanded.
B) horizontal intercept of the demand curve.
C) vertical intercept of the supply curve.
D) horizontal intercept of the supply and the demand curves.
Answer: A
Topic: Market Equilibrium
Skill: Recognition
Status: Previous edition, Chapter 3
AACSB: Reflective Thinking
61) If the price of a CD is equal to the equilibrium price, there will be ________ of CDs and the price will
________.
A) surplus; rise
B) surplus; fall
C) shortage; fall
D) neither a shortage nor surplus; not change
Answer: D
Topic: Market Equilibrium
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Analytical Skills
62) When the price is below the equilibrium price, the quantity demanded
A) is less than the equilibrium quantity and the quantity supplied also is less than the equilibrium
quantity.
B) is less than the equilibrium quantity but the quantity supplied exceeds the equilibrium quantity.
C) exceeds the equilibrium quantity and the quantity supplied also exceeds the equilibrium quantity.
D) exceeds the equilibrium quantity but the quantity supplied is less than the equilibrium quantity.
Answer: D
64) If the quantity supplied exceeds the quantity demanded, then there is
A) a shortage and the price is below the equilibrium price.
B) a shortage and the price is above the equilibrium price.
C) a surplus and the price is below the equilibrium price.
D) a surplus and the price is above the equilibrium price.
Answer: D
Topic: Price Adjustments; Surplus
Skill: Analytical
Status: Previous edition, Chapter 3
AACSB: Reflective Thinking
66) When the demand for a good decreases, its equilibrium price ________ and equilibrium quantity
________.
A) falls; decreases
B) falls; increases
C) rises; decreases
D) rises; increases
Answer: A
Topic: Predicting Changes in Price and Quantity; Demand Changes
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Analytical Skills
67) When demand increases, the equilibrium price ________ and the equilibrium quantity ________.
A) rises; decreases
B) falls; decreases
C) rises; increases
D) falls; increases
Answer: C
Topic: Predicting Changes in Price and Quantity; Demand Changes
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Analytical Skills
68) If good A is a normal good and income increases, the equilibrium price of A ________ and the
equilibrium quantity of A ________.
A) rises; increases
B) rises; decreases
C) falls; decreases
D) falls; increases
Answer: A
Topic: Predicting Changes in Price and Quantity; Demand Changes
Skill: Conceptual
Status: Previous edition, Chapter 3
AACSB: Analytical Skills
69) Suppose that people find out that eating more fish improves their health, leading them to increase
their demand for fish. As a result, the equilibrium price of fish ________ and the equilibrium quantity
________.
A) rises; decreases
B) rises; increases
C) falls; decreases
D) falls; increases
Answer: B
Topic: Predicting Changes in Price and Quantity; Demand Changes
Skill: Analytical
Status: Previous edition, Chapter 3
AACSB: Analytical Skills
70) As a result of an increase in the supply of a good, the equilibrium quantity ________ and the
equilibrium price ________.
A) increases; falls
B) increases; rises
C) decreases; falls
D) decreases; rises
Answer: A
Topic: Predicting Changes in Price and Quantity; Supply Changes
Skill: Analytical
Status: Previous edition, Chapter 3
AACSB: Analytical Skills
71) If technological advances lower the cost of computer chips, in the market for computers the
equilibrium price will ________ and the equilibrium quantity will ________.
A) fall; increase
B) fall; decrease
C) rise; increase
D) rise; decrease
Answer: A
Topic: Predicting Changes in Price and Quantity; Supply Changes
Skill: Analytical
Status: Previous edition, Chapter 3
AACSB: Analytical Skills
Chapter 4
72) Suppose the price of burgers increases from $2 to $3 each. The degree to which quantity demanded
responds to this price increase depends on the
A) price elasticity of demand.
B) the price elasticity of supply.
C) income elasticity of demand.
D) cross elasticity of demand.
Answer: A
Topic: Price Elasticity of Demand
Skill: Analytical
Status: Old
AACSB: Analytical Skills
74) If a 6 percent decrease in the price leads to a 5 percent increase in the quantity demanded, the price
elasticity of demand is
A) 0.30.
B) 0.60.
C) 0.83.
D) 1.20.
Answer: C
Topic: Calculating Elasticity
Skill: Analytical
Status: Old
AACSB: Analytical Skills
75) A 10 percent increase in the quantity of spinach demanded results from a 20 percent decline in its
76) The price elasticity of demand for DVDs is 2. If the price of a DVD increased by 2 percent, the quantity
demanded will ________.
A) decrease by 2 percent
B) not change
C) decrease by 4 percent
D) decrease by 1 percent
Answer: C
Topic: Calculating Elasticity
Skill: Analytical
Status: Old
AACSB: Analytical Skills
77) If the demand for a good is elastic, the price elasticity of demand is ________.
A) greater than 1
B) equal to 1
C) between 0 and 1
D) less than zero
Answer: A
Topic: Inelastic and Elastic Demand
Skill: Definition
Status: Old
AACSB: Analytical Skills