3-7-11 Cumulative Review - PC\|MACimages.pcmac.org/SiSFiles/Schools/AL/LeeCountySchools...3-7-11 Cumulative Review 1. The study of economics is primarily concerned with: A. Expanding

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3-7-11 Cumulative Review1. The study of economics is primarily concerned with:

A. Expanding the production of goods and servicesB. Making the best use of scarce productive resourcesC. Equalizing the distribution of consumer income and wealthD. Reallocating resources from consumption to production in the economy

2. A recurring theme in economics is:

A. Unlimited resources and unlimited economic wantsB. People can increase resources by limiting their economic wantsC. People have limited economic wants and limited resourcesD. People have unlimited economic wants, but limited resources

3. What is the economic meaning of the expression that "there is no such thing as a free lunch"?

A. It refers to "free-riders," who do not pay for the cost of a product, but who receive the benefit from itB. It means that economic freedom is limited by the amount of income available to the consumerC. It means that there is an opportunity cost when resources are used to provide "free" productsD. It indicates that products only have value because people are willing to pay for them

4. Opportunity cost is best defined as:

A. Marginal cost minus marginal benefitB. The time spent on an economic activityC. The value of the best foregone alternativeD. The money cost of an economic decision

5. Tammie makes $150 a day as a bank clerk. She takes off two days of work without pay to fly to anothercity to attend the concert of her favorite music group. The cost of transportation for the trip is $250. Thecost of the concert ticket is $50. The opportunity cost of Tammie's trip to the concert is:

A. $300B. $450C. $500D. $600

6. Which of the following is a normative economic statement?

A. The Federal budget surplus rose by 10 billion dollarsB. A fall in the unemployment rate was forecast for next monthC. A trade deficit of 20 billion dollars will harm the economyD. The Federal funds rate was reduced by half a percentage point

7. The economizing problem for society is:

A. To achieve a more equitable distribution of income in societyB. That productive resources are scarce relative to economic wantsC. To establish prices which are fair for both producers and consumersD. That product prices rise more rapidly than incomes of consumers

1

8. Economists would classify all of the following as land except:

A. Two thousand acres of virgin forestB. A hydroelectric damC. Crude oil reservesD. Iron ore deposits

9. The graph above shows the production possibilities curve for an economy producing two goods, X andY. Which of the points on the graph indicate unemployed resources?

A. D onlyB. E onlyC. E and A onlyD. B and C only

10. Refer to the above graph. The marginal opportunity cost of the third unit of defense goods is:

A. 2 units of civilian goodsB. 3 units of civilian goodsC. 4 units of civilian goodsD. 7 units of civilian goods

2

11. The economy of the former Soviet Union would best be classified as:

A. A market systemB. Pure capitalismC. Laissez-faire capitalismD. A command system

12. By free enterprise, we mean that:

A. Products are provided free to those who can't afford to buy themB. Individual producers determine how to produce, but government agencies determine what will be

producedC. Individuals may obtain resources, organize production, and sell the resulting output in any legal way

they chooseD. Individuals are free to produce those products that government agencies determine can be produced

profitably

13. Which is a key feature of the market system?

A. Price floors and price ceilings in all marketsB. Reallocation of all resources from private to public usesC. The right to own private property and control resource useD. Central planning by government to provide goods and services

14. Which is one of the five fundamental questions that needs to be answered by economic systems?

A. What is the rate of unemployment?B. Who will be the richest person in the economy?C. What goods and services will be produced?D. Why are the prices for goods and services so high?

15. When economists describe "a market," they mean:

A. A place where stocks and bonds are tradedB. Information networks that allow individuals to keep in touch with each otherC. A hypothetical place where the production of goods and services takes placeD. A mechanism which coordinates actions of consumers and producers to establish equilibrium prices

and quantities

16. A market demand schedule for a product indicates that:

A. As the product's price falls, consumers buy less of the goodB. As a product's price rises, consumers buy less of other goodsC. There is a direct relationship between price and quantity demandedD. There is an inverse relationship between price and quantity demanded

17. When one speaks of "demand" in a particular market, this refers to:

A. The whole demand curveB. Only one point on the entire demand curveC. Only one price-quantity combination on the demand scheduleD. The quantity demanded at a given price

18. In a competitive market for corn, the law of demand indicates that, other things equal, as:

A. The demand for corn decreases, the price will increaseB. Income decreases, the quantity of corn demanded will increaseC. The price of corn decreases, the quantity of corn demanded will increaseD. The price of corn decreases, the quantity of corn demanded will decrease

3

19. A result of a fall in the price of gasoline, consumers buy more gasoline and take more driving vacations.This situation is an illustration of:

A. The income effectB. The substitution effectC. Diminishing marginal utilityD. The rationing function of prices

20. Which statement best illustrates the concept of diminishing marginal utility?

A. If the price of hamburger declines, there will be a change in consumer tastes in favor of hamburgerB. A typical consumer will receive less satisfaction from consuming hamburgers than from consuming

porkC. A typical consumer will receive less satisfaction from consuming the fourth hamburger per week than

the third hamburger per weekD. A decrease in the price of hamburger will cause consumers to buy more hamburger because they

have, in effect, received an increase in income

21. A point on a demand curve indicates:

A. The ratio of the selling price to the buying priceB. A particular price and the corresponding quantity demanded by consumersC. A combination of two consumer goods which buyers will choose at given pricesD. A situation where the buying and selling decisions of consumers and producers are consistent

22. If product Y is an inferior good, an increase in consumer incomes will:

A. Result in a surplus of product YB. Not affect the sales of product YC. Shift the demand curve for product Y to the leftD. Shift the demand curve for product Y to the right

23. For most products, purchases tend to rise with increases in buyers' incomes, and to fall with decreases inbuyers' incomes. Such products are known as:

A. Inferior goodsB. Direct goodsC. Average goodsD. Normal goods

24. If an increase in consumer incomes causes the demand curve for product Z to shift to the left, then it canbe said that product Z is a(n):

A. Normal goodB. Luxury goodC. Inferior goodD. Inexpensive good

25. If an increase in consumer incomes causes the demand curve for product Q to shift to the right, then itcan be said that product Q is a(n):


4

26. If two goods are close substitutes:

A. Consumers will always buy the one that has the lower priceB. A fall in the price of one will decrease the demand for the otherC. An increase in the price of one causes the demand for the other to decreaseD. A decrease in the price of one causes an increase in the demand for the other

27. If the demand for product J shifts to the left as the price of product K increases, then:

A. The number of consumers of product K has increasedB. The income of consumers of product K has increasedC. J and K are substitute goodsD. J and K are complementary goods

28. Which is not a determinant of supply?

A. The existing state of technology used by the firmB. The cost of resources used in productionC. The level of government taxes and subsidiesD. The market price of the good

29. Refer to the above graph. An increase in supply would best be reflected by a change from:

A. Point 5 to 4B. Point 2 to 1C. Line A to BD. Line A to C

30. Refer to the above graph. An increase in the quantity supplied would best be reflected by a changefrom:


5

31. Refer to the above table. If supply decreased by 2 units at each price, what would the new equilibriumprice and quantity be?

A. $3 and 5 unitsB. $4 and 4 unitsC. $5 and 5 unitsD. $6 and 6 units

32. If the price elasticity of demand for a good is .75, the demand for the good can be described as:

A. NormalB. ElasticC. InferiorD. Inelastic

33. Which demand curve above is relatively more elastic between P1 and P2?

A. D1B. D2C. D3D. D4

34. Which demand curve above is perfectly inelastic?

A. D2B. D3C. D4D. D5

6

35. Refer to the above graphs. A price increase from $20 to $40 causes quantity demanded to decrease from100 units to 50 units. Which graph best illustrates the price elasticity of demand for this good?

A. Graph AB. Graph BC. Graph CD. Graph D

36. Which is not characteristic of a product with relatively inelastic demand?

A. The good is regarded by consumers as a necessityB. There are a large number of good substitutes for the goodC. Buyers spend a small percentage of their total income on the productD. Consumers have had only a short time period to adjust to changes in price

37. The satisfaction or pleasure one gets from consuming a good or service is:

A. PriceB. UtilityC. ConsumptionD. Preferences

38. Total utility is best defined by which of the following?

A. The change in marginal utility multiplied by the price of a productB. The maximum amount of satisfaction from consuming a productC. The total satisfaction received from consuming a particular amount of a productD. The additional satisfaction received from consuming one more unit of a product

39. Which of the following defines marginal utility?

A. The change in total utility divided by the price of a productB. The maximum amount of satisfaction from consuming a productC. The total satisfaction received from consuming as much of the product that is available for

consumptionD. The additional satisfaction received from consuming one more unit of a product

40. Which best expresses the law of diminishing marginal utility?

A. The more consumption of a product, the smaller is the total and marginal utility from theconsumption

B. The less consumption of a product, the greater is the total and marginal utility of the consumptionC. The more consumption of a product, the smaller is the marginal utility from consuming an additional

unitD. The more consumption of a product, the smaller is the total and marginal utility from the

consumption

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41. After eating four slices of pizza, you are offered a fifth slice. You turn down the slice. Your refusalindicates that the:

A. Marginal utility for pizza slices is negativeB. Total utility for pizza slices is negativeC. Marginal utility is positive for the fourth slice and negative for the fifth sliceD. Total utility was positive for the fourth slice and negative for the fifth slice

42. Refer to the above table. What is the marginal utility of the fourth unit?

A. 4B. 8C. 27D. 31

43. Refer to the above table. Marginal utility becomes negative with the consumption of the:

A. Second unitB. Third unitC. Fourth unitD. Fifth unit

44. If a rational consumer is in equilibrium, then:

A. The marginal utility obtained from one product is equal to the marginal utility obtained from anyother product

B. A reallocation of income would increase the consumer's total utilityC. The marginal utility per last dollar spent is the same for all goods consumedD. Total utility becomes zero

45. The increase in demand for iPods can be explained by:

A. An increase in the technology used to produce iPodsB. A reduction in the price of CD playersC. Improved portability and storage as compared to CD playersD. A decrease in the price of iPods

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46. Consider the above graphs A through D, which depict the total utility a consumer receives fromconsuming good X. The principle of diminishing marginal utility is best illustrated by:


47. Jon Brooks quit his job in a bicycle shop, where he earned $15,000 per year, to become a graduatestudent in economics. At the university he attended, he spent $2,000 on books, $1,000 on coughmedicine, and earned $12,000 as an economics instructor. What were Jon's economic costs whileattending college?

A. $18,000B. $15,000C. $6,000D. $3,000

48. Suppose that you could prepare your own tax return in 15 hours, or you could hire a tax specialist toprepare it for you in 2 hours. You value your time at $11.00 an hour. The tax specialist will charge you$55 an hour. The opportunity cost of preparing your own tax return is:

A. $40B. $55C. $110D. $165

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49. Cash expenditures a firm makes to pay for resources are called:

A. Implicit costsB. Explicit costsC. Normal profitD. Opportunity costs

50. If a firm's revenues just cover all its opportunity costs, then:

A. Normal profit is zeroB. Economic profit is zeroC. Total revenues equal its explicit costsD. Total revenues equal its implicit costs

51. Economic profit is:

A. Total revenues minus fixed costsB. Total revenues from sales minus the cost of materialsC. Total revenues minus the opportunity cost of the inputsD. Gross profit minus selling and operating expenses

52. Economic profit for a company is defined as the total revenues of the firm minus the:

A. Opportunity cost of all resourcesB. Explicit costs of productionC. Implicit cost of productionD. Accounting profit

53. Which statement is false?

A. The short run refers to the same calendar time period for all industriesB. In the long run, all inputs can varyC. Firms may operate at a loss in the short runD. In the long run, firms do not operate at a loss

54. The short run is a time period in which:

A. All resources are fixedB. The level of output is fixedC. The size of the production plant is variableD. Some resources are fixed and others are variable

55. Which statement is correct?

A. In the short run the plant capacity is variableB. In the long run the plant capacity is variableC. In the long run the plant capacity is fixedD. In the short run, all resources are variable

56. Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly linebasis?

A. An increase in the amount of aluminum the firm buysB. A change in the production managers of the assembly lineC. A change in the production to a redesigned, new model carD. An increase in the number of shifts of workers from two to three

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57. The difference between the short run and the long run is that the short run can be characterized as a:

A. "variable" plant period while the long run is a "fixed" plant periodB. "fixed" plant period while the long run is a "variable" plant periodC. "fixed output" period while the long run is a "variable output" periodD. "variable output" period while the long run is a "fixed output" period

58. According to the law of diminishing marginal returns, eventually:

A. Output must fall and then rise as additional units of input are employedB. Additional inputs will no longer generate average outputC. The additional output generated by additional units of an input will diminishD. The additional inputs necessary to produce an additional unit of output will diminish

59. The law of diminishing returns for a manufacturing plant of a fixed size implies that, eventuallyemploying one:

A. More worker will increase output per workerB. More worker will decrease output per workerC. Less worker will increase output per workerD. Less worker will not affect output per worker

60. The law of diminishing returns only applies in cases where:

A. There is increasing scarcity of factors of productionB. The price of extra units of a factor is increasingC. There is at least one fixed factor of productionD. Capital is a variable input

The next question(s) are based on the following table that provides information on the production of aproduct that requires one variable input.

61. Refer to the above table. There are increasing marginal returns through the:

A. First unit of variable inputB. Second unit of variable inputC. Third unit of variable inputD. Fourth unit of variable input

11

62. Refer to the above table. Diminishing returns set in with the addition of the:

A. First unit of inputB. Second unit of inputC. Third unit of inputD. Fourth unit of input

63. Refer to the above graph. It shows the marginal product of labor (MPL) and the average product of labor(APL). At which point above does diminishing marginal returns set in?

A. Point AB. Point BC. Point CD. Point D

64. Refer to the above graph. It shows the marginal product of labor (MPL) and the average product of labor(APL). At which point are marginal and average product the same as labor is added?


65. Refer to the above graph. It shows the marginal product of labor (MPL) and the average product of labor(APL). At which point does the marginal product of labor become zero again?


66. Which is not a fixed cost?

A. Monthly rent of $1,000 contractually specified in a one-year leaseB. An insurance premium of $50 per year, paid last monthC. An attorney's retainer of $50,000 per yearD. A worker's wage of $15 per hour

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67. If you know that total fixed cost is $200, total variable cost is $600, and total product is 4 units, then:

A. Marginal cost is $50B. Average fixed cost is $100C. Average total cost is $100D. Average variable cost is $150

68. Refer to the above graph. It shows the total cost curves. Total fixed cost at output level Q2 is measuredby:

A. 0BB. ACC. CDD. DE

69. Refer to the above graph. It shows the total cost curves. Total cost at output level Q2 is measured by:

A. 0CB. ADC. CDD. 0D

70. Refer to the above graph. It shows the total cost curves. Total variable cost at output level Q2 ismeasured by:

A. 0CB. ACC. CDD. 0D

71. When marginal cost is increasing:

A. Total cost must be increasingB. Average total cost must be increasingC. Average total cost must be decreasingD. Average fixed costs might be increasing or decreasing

13

72. As output increases, average fixed costs:

A. IncreaseB. DecreaseC. Remain constantD. First increase and then decrease

73. Mutual interdependence would tend to limit control over price in which market model?

A. Monopolistic competitionB. Pure competitionC. Pure monopolyD. Oligopoly

74. In which two market models would advertising be used most often?

A. Pure competition and monopolistic competitionB. Pure competition and pure monopolyC. Monopolistic competition and oligopolyD. Pure monopoly and oligopoly

75. There is no control over price by firms in:

A. OligopolyB. Pure monopolyC. Pure competitionD. Monopolistic competition

76. Under which market model are the conditions of entry into the market easiest?

A. Pure competitionB. Pure monopolyC. Monopolistic competitionD. Oligopoly

77. A purely competitive firm does not try to sell more of its product by lowering its price below the marketprice because:

A. Its competitors would not permit itB. It can sell all it wants to at the market priceC. This would be considered unethical price chiselingD. Its demand curve is inelastic, so total revenue will decline

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78. Refer to the above graph for a firm in pure competition. Line A represents:

A. Total revenueB. Average revenueC. Average total costD. Average fixed cost

79. Refer to the above graph for a firm in pure competition. Line B represents:

A. Total revenueB. Marginal revenueC. Average total costD. Average fixed cost

80. In pure competition, marginal revenue is:

A. Equal to total revenueB. Equal to product priceC. Less than product priceD. Greater than product price

Use the table below to answer the next question(s) for a purely competitive firm.

81. Refer to the above table. The marginal revenue from the third unit of output is:

A. $40B. $50C. $120D. $160

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82. Refer to the above graph. To maximize profits, this firm would produce:

A. 0D units, which will result in a loss equal to ABGHB. 0E units, which will result in a loss equal to ALFHC. 0D units, which will result in economic profits equal to BCFGD. 0E units, which will result in economic profits equal to ABGH

83. Refer to the above graph. At the profit-maximizing level of output there will be:

A. A loss equal to ABGHB. A loss equal to ALFHC. Economic profits equal to BCFGD. Economic profits equal to ABGH

84. Consider the purely competitive firm pictured above. The firm is earning:

A. Normal profits, since its price is above AVCB. Economic profits, since its price is above AVCC. Normal profits, since its price just covers ATCD. Losses, since it is operating at the shutdown point

16

85. Refer to the above graph. It represents a profit-maximizing firm producing under conditions of purecompetition. When the firm is in equilibrium in the short run, its average fixed cost is:

A. EHB. DEC. DHD. DB

86. Refer to the above graph. It represents a profit-maximizing firm producing under conditions of purecompetition. When the firm is in equilibrium in the short run, its average variable cost is:


87. Refer to the above graph. It represents a profit-maximizing firm producing under conditions of purecompetition. When the firm is in equilibrium in the short run, the amount of economic profit per unit is:


88. One defining characteristic of pure monopoly is that:

A. The monopolist is a price takerB. The monopolist uses advertisingC. The monopolist produces a product with no close substitutesD. There is relatively easy entry into the industry, but exit is difficult

89. Which phrase would be most characteristic of pure monopoly?

A. Close substitutesB. Efficient advertiserC. Price takerD. Single seller

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90. Refer to the above graph showing the short-run revenue curves for a monopolist. What price should becharged in order to maximize total revenue?

A. P1B. P2C. P3D. P4

91. Refer to the above graph showing the short-run revenue curves for a monopolist. At what output level isdemand inelastic?

A. Q1B. Q2C. Q3D. Q4

92. Refer to the above graph. The profit-maximizing monopolist in it will set its price and output at:

A. 0J and 0V, respectivelyB. 0G and 0Y, respectivelyC. 0K and 0T, respectivelyD. 0H and 0X, respectively

18

93. Refer to the above graph. Consider a monopolist in short-run equilibrium. This monopolist:

A. Has total fixed costs equal to area BEFCB. Has total variable costs equal to area 0CFQC. Earns economic profit equal to the area of ABEDD. Will cease production since its economic profits are negative

94. A major characteristic of monopolistic competition is:

A. Mutual interdependenceB. A high degree of collusion among firmsC. A relatively large number of firms selling the productD. Relatively easy entry into an industry, but a relatively difficult exit from the industry

The graph depicts a monopolistically competitive firm

95. Refer to the above graph. In the short run, this monopolistically competitive firm will set price at:

A. $65 and produce 45 units of outputB. $65 and produce 35 units of outputC. $50 and produce 35 units of outputD. $50 and produce 50 units of output

19

96. Refer to the above graphs. A short-run equilibrium that would produce profits for a monopolisticallycompetitive firm would be represented by graph:

A. AB. BC. CD. D

97. When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrictcompetition, they are practicing the strategy of:

A. Interindustry competitionB. Limit pricingC. Price leadershipD. Collusion

Answer the next question(s) based on the following payoff matrix for a duopoly in which the numbersindicate the profit in millions of dollars for a high-price or a low-price strategy

98. Refer to the above payoff matrix. If both firms collude to maximize joint profits, the total profits for thetwo firms will be:

A. $350 millionB. $400 millionC. $500 millionD. $525 million

20

99. Refer to the above payoff matrix. Assume that firm B adopts a low-price strategy while firm A maintainsa high-price strategy. Compared to the results from a high-price strategy for both firms, firm B willnow:

A. Lose $75 million in profit and firm A will gain $50 million in profitB. Gain $50 million in profit and firm A will lose $50 million in profitC. Gain $75 million in profit and firm A will lose $50 million in profitD. Gain $50 million in profit and firm A will lose $75 million in profit

Answer the next question(s) based on the following payoff matrix for a duopoly in which the numbersindicate the profit in thousands of dollars for a high-price or a low-price strategy

100.Refer to the above payoff matrix. If both firms operate independently and do not collude, the most likelyprofit is:

A. $400,000 for firm X and $400,000 for firm YB. $725,000 for firm X and $475,000 for firm YC. $475,000 for firm X and $725,000 for firm YD. $625,000 for firm X and $625,000 for firm Y

21

3-7-11 Cumulative Review Key

1. The study of economics is primarily concerned with:

A. Expanding the production of goods and servicesB. Making the best use of scarce productive resourcesC. Equalizing the distribution of consumer income and wealthD. Reallocating resources from consumption to production in the economy

AACSB: Analytical SkillsBloom's: Knowledge

Learning Objective: 1-1Level: Easy

McConnell - Chapter 001 #2Topic: Economics; economic perspective

2. A recurring theme in economics is:

A. Unlimited resources and unlimited economic wantsB. People can increase resources by limiting their economic wantsC. People have limited economic wants and limited resourcesD. People have unlimited economic wants, but limited resources


Learning Objective: 1-1Level: Moderate


3. What is the economic meaning of the expression that "there is no such thing as a free lunch"?

A. It refers to "free-riders," who do not pay for the cost of a product, but who receive the benefitfrom it

B. It means that economic freedom is limited by the amount of income available to the consumerC. It means that there is an opportunity cost when resources are used to provide "free" productsD. It indicates that products only have value because people are willing to pay for them




4. Opportunity cost is best defined as:

A. Marginal cost minus marginal benefitB. The time spent on an economic activityC. The value of the best foregone alternativeD. The money cost of an economic decision


Learning Objective: 1-1Level: Difficult


1

5. Tammie makes $150 a day as a bank clerk. She takes off two days of work without pay to fly toanother city to attend the concert of her favorite music group. The cost of transportation for the trip is$250. The cost of the concert ticket is $50. The opportunity cost of Tammie's trip to the concert is:

A. $300B. $450C. $500D. $600

AACSB: Analytical SkillsBloom's: Application



6. Which of the following is a normative economic statement?

A. The Federal budget surplus rose by 10 billion dollarsB. A fall in the unemployment rate was forecast for next monthC. A trade deficit of 20 billion dollars will harm the economyD. The Federal funds rate was reduced by half a percentage point



McConnell - Chapter 001 #65Topic: Positive and normative economics

7. The economizing problem for society is:

A. To achieve a more equitable distribution of income in societyB. That productive resources are scarce relative to economic wantsC. To establish prices which are fair for both producers and consumersD. That product prices rise more rapidly than incomes of consumers



McConnell - Chapter 001 #90Topic: Society's economizing problem

8. Economists would classify all of the following as land except:

A. Two thousand acres of virgin forestB. A hydroelectric damC. Crude oil reservesD. Iron ore deposits



McConnell - Chapter 001 #96Topic: Society's economizing problem

2

McConnell - Chapter 001

9. The graph above shows the production possibilities curve for an economy producing two goods, Xand Y. Which of the points on the graph indicate unemployed resources?

A. D onlyB. E onlyC. E and A onlyD. B and C only



McConnell - Chapter 001 #161Topic: Unemployment, growth, and the future


3

10. Refer to the above graph. The marginal opportunity cost of the third unit of defense goods is:

A. 2 units of civilian goodsB. 3 units of civilian goodsC. 4 units of civilian goodsD. 7 units of civilian goods



McConnell - Chapter 001 #192Topic: Production possibilities model

11. The economy of the former Soviet Union would best be classified as:

A. A market systemB. Pure capitalismC. Laissez-faire capitalismD. A command system

AACSB: AnalyticBloom's: Knowledge


McConnell - Chapter 002 #12Topic: Economic systems

12. By free enterprise, we mean that:

A. Products are provided free to those who can't afford to buy themB. Individual producers determine how to produce, but government agencies determine what will be

producedC. Individuals may obtain resources, organize production, and sell the resulting output in any legal

way they chooseD. Individuals are free to produce those products that government agencies determine can be

produced profitably



McConnell - Chapter 002 #16Topic: Characteristics of the market system

13. Which is a key feature of the market system?

A. Price floors and price ceilings in all marketsB. Reallocation of all resources from private to public usesC. The right to own private property and control resource useD. Central planning by government to provide goods and services



McConnell - Chapter 002 #23Topic: Characteristics of the market system

4

14. Which is one of the five fundamental questions that needs to be answered by economic systems?

A. What is the rate of unemployment?B. Who will be the richest person in the economy?C. What goods and services will be produced?D. Why are the prices for goods and services so high?



McConnell - Chapter 002 #50Topic: Five fundamental questions

15. When economists describe "a market," they mean:

A. A place where stocks and bonds are tradedB. Information networks that allow individuals to keep in touch with each otherC. A hypothetical place where the production of goods and services takes placeD. A mechanism which coordinates actions of consumers and producers to establish equilibrium

prices and quantities



McConnell - Chapter 003 #1Topic: Demand and demand curve

16. A market demand schedule for a product indicates that:

A. As the product's price falls, consumers buy less of the goodB. As a product's price rises, consumers buy less of other goodsC. There is a direct relationship between price and quantity demandedD. There is an inverse relationship between price and quantity demanded




17. When one speaks of "demand" in a particular market, this refers to:

A. The whole demand curveB. Only one point on the entire demand curveC. Only one price-quantity combination on the demand scheduleD. The quantity demanded at a given price




18. In a competitive market for corn, the law of demand indicates that, other things equal, as:

A. The demand for corn decreases, the price will increaseB. Income decreases, the quantity of corn demanded will increaseC. The price of corn decreases, the quantity of corn demanded will increaseD. The price of corn decreases, the quantity of corn demanded will decrease




5

19. A result of a fall in the price of gasoline, consumers buy more gasoline and take more drivingvacations. This situation is an illustration of:

A. The income effectB. The substitution effectC. Diminishing marginal utilityD. The rationing function of prices

AACSB: ReflectiveBloom's: ComprehensionLearning Objective: 3-1

Level: DifficultMcConnell - Chapter 003 #15

Topic: Demand and demand curve

20. Which statement best illustrates the concept of diminishing marginal utility?

A. If the price of hamburger declines, there will be a change in consumer tastes in favor ofhamburger

B. A typical consumer will receive less satisfaction from consuming hamburgers than fromconsuming pork

C. A typical consumer will receive less satisfaction from consuming the fourth hamburger per weekthan the third hamburger per week

D. A decrease in the price of hamburger will cause consumers to buy more hamburger because theyhave, in effect, received an increase in income

AACSB: ReflectiveBloom's: Knowledge



21. A point on a demand curve indicates:

A. The ratio of the selling price to the buying priceB. A particular price and the corresponding quantity demanded by consumersC. A combination of two consumer goods which buyers will choose at given pricesD. A situation where the buying and selling decisions of consumers and producers are consistent




22. If product Y is an inferior good, an increase in consumer incomes will:

A. Result in a surplus of product YB. Not affect the sales of product YC. Shift the demand curve for product Y to the leftD. Shift the demand curve for product Y to the right



McConnell - Chapter 003 #38Topic: Determinants of demand

6

23. For most products, purchases tend to rise with increases in buyers' incomes, and to fall with decreasesin buyers' incomes. Such products are known as:

A. Inferior goodsB. Direct goodsC. Average goodsD. Normal goods




24. If an increase in consumer incomes causes the demand curve for product Z to shift to the left, then itcan be said that product Z is a(n):





25. If an increase in consumer incomes causes the demand curve for product Q to shift to the right, then itcan be said that product Q is a(n):





26. If two goods are close substitutes:

A. Consumers will always buy the one that has the lower priceB. A fall in the price of one will decrease the demand for the otherC. An increase in the price of one causes the demand for the other to decreaseD. A decrease in the price of one causes an increase in the demand for the other




7

27. If the demand for product J shifts to the left as the price of product K increases, then:

A. The number of consumers of product K has increasedB. The income of consumers of product K has increasedC. J and K are substitute goodsD. J and K are complementary goods




28. Which is not a determinant of supply?

A. The existing state of technology used by the firmB. The cost of resources used in productionC. The level of government taxes and subsidiesD. The market price of the good



McConnell - Chapter 003 #123Topic: Determinants of supply


29. Refer to the above graph. An increase in supply would best be reflected by a change from:





8

30. Refer to the above graph. An increase in the quantity supplied would best be reflected by a changefrom:






31. Refer to the above table. If supply decreased by 2 units at each price, what would the newequilibrium price and quantity be?

A. $3 and 5 unitsB. $4 and 4 unitsC. $5 and 5 unitsD. $6 and 6 units

AACSB: AnalyticBloom's: Application


McConnell - Chapter 003 #252Topic: Changes in equilibrium price and quantity

32. If the price elasticity of demand for a good is .75, the demand for the good can be described as:

A. NormalB. ElasticC. InferiorD. Inelastic



McConnell - Chapter 006 #2Topic: Price elasticity of demand

9


33. Which demand curve above is relatively more elastic between P1 and P2?

A. D1B. D2C. D3D. D4AACSB: Analytic

Bloom's: ApplicationLearning Objective: 6-1

Level: ModerateMcConnell - Chapter 006 #6

Topic: Price elasticity of demand

34. Which demand curve above is perfectly inelastic?

A. D2B. D3C. D4D. D5AACSB: Analytic


Level: EasyMcConnell - Chapter 006 #7

Topic: Price elasticity of demand


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35. Refer to the above graphs. A price increase from $20 to $40 causes quantity demanded to decreasefrom 100 units to 50 units. Which graph best illustrates the price elasticity of demand for this good?




McConnell - Chapter 006 #14Topic: Price elasticity of demand

36. Which is not characteristic of a product with relatively inelastic demand?

A. The good is regarded by consumers as a necessityB. There are a large number of good substitutes for the goodC. Buyers spend a small percentage of their total income on the productD. Consumers have had only a short time period to adjust to changes in price



McConnell - Chapter 006 #63Topic: Determinants of price elasticity

37. The satisfaction or pleasure one gets from consuming a good or service is:

A. PriceB. UtilityC. ConsumptionD. Preferences



McConnell - Chapter 007 #1Topic: Utility; law of diminishing marginal utility

38. Total utility is best defined by which of the following?

A. The change in marginal utility multiplied by the price of a productB. The maximum amount of satisfaction from consuming a productC. The total satisfaction received from consuming a particular amount of a productD. The additional satisfaction received from consuming one more unit of a product




39. Which of the following defines marginal utility?

A. The change in total utility divided by the price of a productB. The maximum amount of satisfaction from consuming a productC. The total satisfaction received from consuming as much of the product that is available for

consumptionD. The additional satisfaction received from consuming one more unit of a product




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40. Which best expresses the law of diminishing marginal utility?

A. The more consumption of a product, the smaller is the total and marginal utility from theconsumption

B. The less consumption of a product, the greater is the total and marginal utility of the consumptionC. The more consumption of a product, the smaller is the marginal utility from consuming an

additional unitD. The more consumption of a product, the smaller is the total and marginal utility from the

consumption




41. After eating four slices of pizza, you are offered a fifth slice. You turn down the slice. Your refusalindicates that the:

A. Marginal utility for pizza slices is negativeB. Total utility for pizza slices is negativeC. Marginal utility is positive for the fourth slice and negative for the fifth sliceD. Total utility was positive for the fourth slice and negative for the fifth slice

AACSB: ReflectiveBloom's: Application




42. Refer to the above table. What is the marginal utility of the fourth unit?

A. 4B. 8C. 27D. 31




43. Refer to the above table. Marginal utility becomes negative with the consumption of the:

A. Second unitB. Third unitC. Fourth unitD. Fifth unit




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44. If a rational consumer is in equilibrium, then:

A. The marginal utility obtained from one product is equal to the marginal utility obtained from anyother product

B. A reallocation of income would increase the consumer's total utilityC. The marginal utility per last dollar spent is the same for all goods consumedD. Total utility becomes zero



McConnell - Chapter 007 #41Topic: Utility-maximizing rule

45. The increase in demand for iPods can be explained by:

A. An increase in the technology used to produce iPodsB. A reduction in the price of CD playersC. Improved portability and storage as compared to CD playersD. A decrease in the price of iPods



McConnell - Chapter 007 #90Topic: Applications; extensions


13

46. Consider the above graphs A through D, which depict the total utility a consumer receives fromconsuming good X. The principle of diminishing marginal utility is best illustrated by:





47. Jon Brooks quit his job in a bicycle shop, where he earned $15,000 per year, to become a graduatestudent in economics. At the university he attended, he spent $2,000 on books, $1,000 on coughmedicine, and earned $12,000 as an economics instructor. What were Jon's economic costs whileattending college?

A. $18,000B. $15,000C. $6,000D. $3,000



McConnell - Chapter 008 #1Topic: Costs: explicit and implicit

48. Suppose that you could prepare your own tax return in 15 hours, or you could hire a tax specialist toprepare it for you in 2 hours. You value your time at $11.00 an hour. The tax specialist will chargeyou $55 an hour. The opportunity cost of preparing your own tax return is:

A. $40B. $55C. $110D. $165




49. Cash expenditures a firm makes to pay for resources are called:

A. Implicit costsB. Explicit costsC. Normal profitD. Opportunity costs




14

50. If a firm's revenues just cover all its opportunity costs, then:

A. Normal profit is zeroB. Economic profit is zeroC. Total revenues equal its explicit costsD. Total revenues equal its implicit costs



McConnell - Chapter 008 #13Topic: Profits

51. Economic profit is:

A. Total revenues minus fixed costsB. Total revenues from sales minus the cost of materialsC. Total revenues minus the opportunity cost of the inputsD. Gross profit minus selling and operating expenses




52. Economic profit for a company is defined as the total revenues of the firm minus the:

A. Opportunity cost of all resourcesB. Explicit costs of productionC. Implicit cost of productionD. Accounting profit




53. Which statement is false?

A. The short run refers to the same calendar time period for all industriesB. In the long run, all inputs can varyC. Firms may operate at a loss in the short runD. In the long run, firms do not operate at a loss



McConnell - Chapter 008 #27Topic: Short run versus long run

54. The short run is a time period in which:

A. All resources are fixedB. The level of output is fixedC. The size of the production plant is variableD. Some resources are fixed and others are variable




15

55. Which statement is correct?

A. In the short run the plant capacity is variableB. In the long run the plant capacity is variableC. In the long run the plant capacity is fixedD. In the short run, all resources are variable




56. Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assemblyline basis?

A. An increase in the amount of aluminum the firm buysB. A change in the production managers of the assembly lineC. A change in the production to a redesigned, new model carD. An increase in the number of shifts of workers from two to three




57. The difference between the short run and the long run is that the short run can be characterized as a:

A. "variable" plant period while the long run is a "fixed" plant periodB. "fixed" plant period while the long run is a "variable" plant periodC. "fixed output" period while the long run is a "variable output" periodD. "variable output" period while the long run is a "fixed output" period




58. According to the law of diminishing marginal returns, eventually:

A. Output must fall and then rise as additional units of input are employedB. Additional inputs will no longer generate average outputC. The additional output generated by additional units of an input will diminishD. The additional inputs necessary to produce an additional unit of output will diminish



McConnell - Chapter 008 #35Topic: Law of diminishing returns

59. The law of diminishing returns for a manufacturing plant of a fixed size implies that, eventuallyemploying one:

A. More worker will increase output per workerB. More worker will decrease output per workerC. Less worker will increase output per workerD. Less worker will not affect output per worker




16

60. The law of diminishing returns only applies in cases where:

A. There is increasing scarcity of factors of productionB. The price of extra units of a factor is increasingC. There is at least one fixed factor of productionD. Capital is a variable input




The next question(s) are based on the following table that provides information on the production of aproduct that requires one variable input.


61. Refer to the above table. There are increasing marginal returns through the:

A. First unit of variable inputB. Second unit of variable inputC. Third unit of variable inputD. Fourth unit of variable input




62. Refer to the above table. Diminishing returns set in with the addition of the:

A. First unit of inputB. Second unit of inputC. Third unit of inputD. Fourth unit of input




17


63. Refer to the above graph. It shows the marginal product of labor (MPL) and the average product oflabor (APL). At which point above does diminishing marginal returns set in?





64. Refer to the above graph. It shows the marginal product of labor (MPL) and the average product oflabor (APL). At which point are marginal and average product the same as labor is added?





65. Refer to the above graph. It shows the marginal product of labor (MPL) and the average product oflabor (APL). At which point does the marginal product of labor become zero again?





18

66. Which is not a fixed cost?

A. Monthly rent of $1,000 contractually specified in a one-year leaseB. An insurance premium of $50 per year, paid last monthC. An attorney's retainer of $50,000 per yearD. A worker's wage of $15 per hour



McConnell - Chapter 008 #78Topic: Short-run costs

67. If you know that total fixed cost is $200, total variable cost is $600, and total product is 4 units,then:

A. Marginal cost is $50B. Average fixed cost is $100C. Average total cost is $100D. Average variable cost is $150





68. Refer to the above graph. It shows the total cost curves. Total fixed cost at output level Q2 ismeasured by:

A. 0BB. ACC. CDD. DE




19

69. Refer to the above graph. It shows the total cost curves. Total cost at output level Q2 is measuredby:

A. 0CB. ADC. CDD. 0D




70. Refer to the above graph. It shows the total cost curves. Total variable cost at output level Q2 ismeasured by:

A. 0CB. ACC. CDD. 0D




71. When marginal cost is increasing:

A. Total cost must be increasingB. Average total cost must be increasingC. Average total cost must be decreasingD. Average fixed costs might be increasing or decreasing




72. As output increases, average fixed costs:

A. IncreaseB. DecreaseC. Remain constantD. First increase and then decrease




73. Mutual interdependence would tend to limit control over price in which market model?

A. Monopolistic competitionB. Pure competitionC. Pure monopolyD. Oligopoly



McConnell - Chapter 009 #4Topic: Four market models

20

74. In which two market models would advertising be used most often?

A. Pure competition and monopolistic competitionB. Pure competition and pure monopolyC. Monopolistic competition and oligopolyD. Pure monopoly and oligopoly




75. There is no control over price by firms in:

A. OligopolyB. Pure monopolyC. Pure competitionD. Monopolistic competition




76. Under which market model are the conditions of entry into the market easiest?

A. Pure competitionB. Pure monopolyC. Monopolistic competitionD. Oligopoly




77. A purely competitive firm does not try to sell more of its product by lowering its price below themarket price because:

A. Its competitors would not permit itB. It can sell all it wants to at the market priceC. This would be considered unethical price chiselingD. Its demand curve is inelastic, so total revenue will decline



McConnell - Chapter 009 #23Topic: Pure competition defined; demand curve

21


78. Refer to the above graph for a firm in pure competition. Line A represents:

A. Total revenueB. Average revenueC. Average total costD. Average fixed cost




79. Refer to the above graph for a firm in pure competition. Line B represents:

A. Total revenueB. Marginal revenueC. Average total costD. Average fixed cost




80. In pure competition, marginal revenue is:

A. Equal to total revenueB. Equal to product priceC. Less than product priceD. Greater than product price




22

Use the table below to answer the next question(s) for a purely competitive firm.


81. Refer to the above table. The marginal revenue from the third unit of output is:

A. $40B. $50C. $120D. $160



McConnell - Chapter 009 #57Topic: Profit maximization in the short run


82. Refer to the above graph. To maximize profits, this firm would produce:

A. 0D units, which will result in a loss equal to ABGHB. 0E units, which will result in a loss equal to ALFHC. 0D units, which will result in economic profits equal to BCFGD. 0E units, which will result in economic profits equal to ABGH




23

83. Refer to the above graph. At the profit-maximizing level of output there will be:

A. A loss equal to ABGHB. A loss equal to ALFHC. Economic profits equal to BCFGD. Economic profits equal to ABGH





84. Consider the purely competitive firm pictured above. The firm is earning:

A. Normal profits, since its price is above AVCB. Economic profits, since its price is above AVCC. Normal profits, since its price just covers ATCD. Losses, since it is operating at the shutdown point




24


85. Refer to the above graph. It represents a profit-maximizing firm producing under conditions of purecompetition. When the firm is in equilibrium in the short run, its average fixed cost is:





86. Refer to the above graph. It represents a profit-maximizing firm producing under conditions of purecompetition. When the firm is in equilibrium in the short run, its average variable cost is:





87. Refer to the above graph. It represents a profit-maximizing firm producing under conditions of purecompetition. When the firm is in equilibrium in the short run, the amount of economic profit per unitis:





25

88. One defining characteristic of pure monopoly is that:

A. The monopolist is a price takerB. The monopolist uses advertisingC. The monopolist produces a product with no close substitutesD. There is relatively easy entry into the industry, but exit is difficult



McConnell - Chapter 010 #3Topic: Monopoly concept; definition

89. Which phrase would be most characteristic of pure monopoly?

A. Close substitutesB. Efficient advertiserC. Price takerD. Single seller



McConnell - Chapter 010 #4Topic: Monopoly concept; definition


90. Refer to the above graph showing the short-run revenue curves for a monopolist. What price shouldbe charged in order to maximize total revenue?

A. P1B. P2C. P3D. P4AACSB: Analytic


Level: EasyMcConnell - Chapter 010 #34

Topic: Monopoly demand curve

26

91. Refer to the above graph showing the short-run revenue curves for a monopolist. At what output levelis demand inelastic?

A. Q1B. Q2C. Q3D. Q4AACSB: Analytic


Level: DifficultMcConnell - Chapter 010 #37

Topic: Monopoly demand curve


92. Refer to the above graph. The profit-maximizing monopolist in it will set its price and output at:

A. 0J and 0V, respectivelyB. 0G and 0Y, respectivelyC. 0K and 0T, respectivelyD. 0H and 0X, respectively



McConnell - Chapter 010 #73Topic: Profit maximization

27


93. Refer to the above graph. Consider a monopolist in short-run equilibrium. This monopolist:

A. Has total fixed costs equal to area BEFCB. Has total variable costs equal to area 0CFQC. Earns economic profit equal to the area of ABEDD. Will cease production since its economic profits are negative



McConnell - Chapter 010 #87Topic: Profit maximization

94. A major characteristic of monopolistic competition is:

A. Mutual interdependenceB. A high degree of collusion among firmsC. A relatively large number of firms selling the productD. Relatively easy entry into an industry, but a relatively difficult exit from the industry



McConnell - Chapter 011 #2Topic: Monopolistic competition: definition; characteristics

28

The graph depicts a monopolistically competitive firm


95. Refer to the above graph. In the short run, this monopolistically competitive firm will set price at:

A. $65 and produce 45 units of outputB. $65 and produce 35 units of outputC. $50 and produce 35 units of outputD. $50 and produce 50 units of output



McConnell - Chapter 011 #32Topic: Price-output behavior


29

96. Refer to the above graphs. A short-run equilibrium that would produce profits for a monopolisticallycompetitive firm would be represented by graph:

A. AB. BC. CD. D



McConnell - Chapter 011 #63Topic: Price-output behavior

97. When firms in an industry reach an agreement to fix prices, divide up market share, or otherwiserestrict competition, they are practicing the strategy of:

A. Interindustry competitionB. Limit pricingC. Price leadershipD. Collusion



McConnell - Chapter 011 #142Topic: Game theory

Answer the next question(s) based on the following payoff matrix for a duopoly in which thenumbers indicate the profit in millions of dollars for a high-price or a low-price strategy


98. Refer to the above payoff matrix. If both firms collude to maximize joint profits, the total profits forthe two firms will be:

A. $350 millionB. $400 millionC. $500 millionD. $525 million




30

99. Refer to the above payoff matrix. Assume that firm B adopts a low-price strategy while firm Amaintains a high-price strategy. Compared to the results from a high-price strategy for both firms,firm B will now:

A. Lose $75 million in profit and firm A will gain $50 million in profitB. Gain $50 million in profit and firm A will lose $50 million in profitC. Gain $75 million in profit and firm A will lose $50 million in profitD. Gain $50 million in profit and firm A will lose $75 million in profit




Answer the next question(s) based on the following payoff matrix for a duopoly in which thenumbers indicate the profit in thousands of dollars for a high-price or a low-price strategy


100. Refer to the above payoff matrix. If both firms operate independently and do not collude, the mostlikely profit is:

A. $400,000 for firm X and $400,000 for firm YB. $725,000 for firm X and $475,000 for firm YC. $475,000 for firm X and $725,000 for firm YD. $625,000 for firm X and $625,000 for firm Y




31

3-7-11 Cumulative Review Summary

Category # of QuestionsAACSB: Analytic 87AACSB: Analytical Skills 10AACSB: Reflective 3Bloom's: Application 44Bloom's: Comprehension 1Bloom's: Knowledge 55Learning Objective: 1-1 6Learning Objective: 1-4 2Learning Objective: 1-5 2Learning Objective: 10-1 4Learning Objective: 10-2 2Learning Objective: 11-1 1Learning Objective: 11-2 2Learning Objective: 11-4 4Learning Objective: 2-1 1Learning Objective: 2-2 3Learning Objective: 3-1 13Learning Objective: 3-2 3Learning Objective: 3-4 1Learning Objective: 6-1 5Learning Objective: 7-1 8Learning Objective: 7-2 1Learning Objective: 7-3 1Learning Objective: 8-1 6Learning Objective: 8-2 13Learning Objective: 8-3 7Learning Objective: 9-1 4Learning Objective: 9-2 4Learning Objective: 9-3 7Level: Difficult 17Level: Easy 37Level: Moderate 46McConnell - Chapter 001 12McConnell - Chapter 002 4McConnell - Chapter 003 19McConnell - Chapter 006 7McConnell - Chapter 007 12McConnell - Chapter 008 29McConnell - Chapter 009 20McConnell - Chapter 010 9McConnell - Chapter 011 11Topic: Applications; extensions 1Topic: Changes in equilibrium price and quantity 1Topic: Characteristics of the market system 2Topic: Costs: explicit and implicit 3Topic: Demand and demand curve 7Topic: Determinants of demand 6

1

Topic: Determinants of price elasticity 1Topic: Determinants of supply 3Topic: Economic systems 1Topic: Economics; economic perspective 5Topic: Five fundamental questions 1Topic: Four market models 4Topic: Game theory 4Topic: Law of diminishing returns 8Topic: Monopolistic competition: definition; characteristics 1Topic: Monopoly concept; definition 2Topic: Monopoly demand curve 2Topic: Positive and normative economics 1Topic: Price elasticity of demand 4Topic: Price-output behavior 2Topic: Production possibilities model 1Topic: Profit maximization 2Topic: Profit maximization in the short run 7Topic: Profits 3Topic: Pure competition defined; demand curve 4Topic: Short run versus long run 5Topic: Short-run costs 7Topic: Society's economizing problem 2Topic: Unemployment, growth, and the future 1Topic: Utility-maximizing rule 1Topic: Utility; law of diminishing marginal utility 8

2

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3-7-11 Cumulative Review - PC\|MACimages.pcmac.org/SiSFiles/Schools/AL/LeeCountySchools...3-7-11 Cumulative Review 1. The study of economics is primarily concerned with: A. Expanding