Chapter 1 1. The problem of scarcity a. arises only in poor countries. b. exists because the price of goods is too high. c. exists because of limited resources. d. will eventually be solved by better planning. ANSWER: c POINTS: 1 2. If society is producing a combination of goods on its production possibilities frontier a. it must be employing all available resources. b. it must be growing. c. it is using all the available natural resources but may not be using all available labor resources. d. Both a and b. ANSWER: a POINTS: 1 3. The slope of the production possibility frontier shows a. how inputs must be changed to keep them fully employed. b. the technically efficient combinations of the two goods. c. how demanders are willing to trade one good for another. d. the opportunity cost of one good in terms of the other. ANSWER: d POINTS: 1 4. If the prevailing price of shirts is $10 and at this price demanders demand 100 shirts while suppliers are willing to supply 110 shirts, there is a(n) a. shortage at the $10 price. b. surplus at the $10 price. c. equilibrium in this market. d. shortage if price were to rise above $10. ANSWER: b POINTS: 1 5. Positive economic analysis a. involves the study of firms with positive profits. b. involves how resources are actually used in an economy. c. involves judgments on how resources should be used in an economy. d. is usually thought to be a waste of time. ANSWER: b POINTS: 1 6. Normative economic analysis a. involves the study of what comprises a normal firm. b. involves how resources are actually used in an economy.
c. involves judgments on how resources should be used in an economy. d. is usually thought to be a waste of time. ANSWER: c POINTS: 1 7. A major problem that may occur with models that predict the values of economic variables in the future is that a. researchers are pessimistic about the future. b. the model may fail to acknowledge that economic actors will change their behavior in response to changing situations. c. the model may make predictions that conflict with widely held opinions. d. no one cares about these predictions. ANSWER: b POINTS: 1 8. In the equation where Y is a function of X a. Y is the independent variable. b. 38 is a variable. c. the slope of the line is 38. d. None of the above. ANSWER: d POINTS: 1 9. The Y-intercept of a. 3/8. b. 3. c. 8. d. –8/3. ANSWER: c POINTS: 1 10. The X-intercept of a. −3. b. 3. c. −1/3 d. 12. ANSWER: a POINTS: 1
is
is
11. If the Y-intercept of a linear function increases while the slope remains unchanged a. the graph must shift down in a parallel way. b. the graph must rotate to the left about the X intercept. c. the graph must shift up in a parallel. d. the graph remains unchanged. ANSWER: c POINTS: 1
12. If the slope of a linear function changes with no change in the Y-intercept a. the graph shifts either up or down in a parallel way. b. the graph remains unchanged. c. the graph rotates about its X-intercept. d. the graph rotates about its Y-intercept. ANSWER: d POINTS: 1 13. The slope of a nonlinear function at some particular point a. is the slope of the straight line that is tangent to the function at that point. b. is the slope of the straight line connecting the origin and the point. c. cannot be determined. d. is constant for the entire function. ANSWER: a POINTS: 1 14. Given which of the following are necessarily true? a. Y is a linear function. b. X, Z are dependent variables. c. A contour line of this function would keep Y constant. d. An increase in X would increase Y. ANSWER: c POINTS: 1 15. For the function a. the X-intercept. b. the Y-intercept. c. a contour line. d. a tangent line. ANSWER: c POINTS: 1 16. For the equation a. , b.
.
c.
, d. Both a and c. ANSWER: c POINTS: 1
17. For the equation
, the equation
represents
, which of the following points lie on the . . .
the point
,
a. yields a value of . b. lies below the contour line that includes the point
,
contour line?
. c. lies on the same contour line as the point d. Both a and b. ANSWER: d POINTS: 1
,
.
18. If , the contour lines a. are concentric circles. b. are parabolas. c. are hyperbolas. d. intersect whenever either X or Z is zero. ANSWER: a POINTS: 1 19. The solution to the simultaneous equations a. , . b. , .
and
is
c.
, . d. None of the above. ANSWER: b POINTS: 1 20. Graphically, the solution to a system of two independent linear equations is usually a. the average of the slopes. b. the average of the intercepts. c. a single point. d. None of the above. ANSWER: c POINTS: 1 21. Let a.
and ;
b.
;
c. d.
;
. Here equilibrium price and quantity are
; ANSWER: a POINTS: 1 22. If the production possibilities frontier can be expressed as a. outside the production possibilities frontier b. on the production possibilities frontier c. inside the production possibilities frontier
then the point
;
is
d. in the wrong quadrant to be on the graph ANSWER: a POINTS: 1 23. If the production possibilities frontier can be expressed as a. outside the production possibilities frontier b. on the production possibilities frontier c. inside the production possibilities frontier d. in the wrong quadrant to be on the graph ANSWER: b POINTS: 1 24. Suppose a production possibilities frontier can be expressed as from 1 unit of X to 2 units of X (in terms of units of Y)? a. 45 b.
then the point
;
is
what is the opportunity cost of going
c. d. 1 ANSWER: c POINTS: 1 25. Suppose a production possibilities frontier can be expressed as from 2 units of X to 3 units of X (in terms of units of Y)? a.
what is the opportunity cost of going
b. c. 1 d. 0 ANSWER: b POINTS: 1 26. An increase in the technology used in the production of only one of the two goods in a society will a. eliminate scarcity b. move the production possibilities frontier out in all directions c. move the production possibilities frontier in all directions d. leave one intercept of the production possibilities frontier fixed and swing out from the other ANSWER: d POINTS: 1 27. Suppose a. 7 b. 8 c. 9 d. 10
and
. The equilibrium price is
ANSWER: b POINTS: 1 28. Suppose a. 2 b. 3 c. 4 d. 5 ANSWER: c POINTS: 1 29. Suppose a.
and
. The equilibrium quantity is
. If taxes are progressive which of the following is true?
b. c. d. ANSWER: a POINTS: 1 30. Suppose a. b.
. If taxes are regressive which of the following is true?
c. d. ANSWER: b POINTS: 1 31. Suppose a.
. If taxes are proportional which of the following is true?
b. c. d. ANSWER: c POINTS: 1 32. Suppose you can write generic supply and demand curves such that price is given by a. b. c. d. ANSWER: a POINTS: 1
and
. Equilibrium
33. Suppose you can write generic supply and demand curves such that quantity is then given by a.
and
. Equilibrium
34. Suppose you can write generic supply and demand curves such that reach a certain level before firms supply anything,, A must be a. positive b. negative c. 0 ANSWER: b POINTS: 1
and
. If price must
35. Suppose you can write generic supply and demand curves such that produce more when price rises, B must be a. positive b. negative c. 0 ANSWER: a POINTS: 1
and
. If firms
36. Suppose you can write generic supply and demand curves such that demand less as price rises, C must be a. positive b. negative c. 0 ANSWER: b POINTS: 1
and
. If consumers
37. Suppose you can write generic supply and demand curves such that supply-demand configuration, D must be a. positive b. negative c. 0 ANSWER: a POINTS: 1
and
. In the usual
b. c. d. ANSWER: b POINTS: 1
38. The Ricardian notion that of diminishing returns implies that a. as more input is used more output will be made. b. as more input is used less output will be made. c. as more input is used the increase in output will increase.
d. as more input is used the increase in output will decrease. ANSWER: d POINTS: 1 39. Economists typically use a. positive; positive b. normative; normative c. positive; normative d. normative; positive ANSWER: c POINTS: 1
analysis, whereas clergy members typically use
analysis.
Chapter 2 1. Indifference curves a. are nonintersecting. b. are contour lines of a utility function. c. are negatively sloped. d. All of the above. ANSWER: d POINTS: 1 2. For an individual who consumes only two goods, X and Y, the opportunity cost of consuming one unit of X in terms of how much Y must be given up is reflected in a. the individual’s marginal rate of substitution. b. the slope of the individual’s budget constraint. c. the slope of the individual’s indifference curve. d. None of the above. ANSWER: b POINTS: 1 3. If bundles of goods A and B lie on the same indifference curve, one can assume the individual a. prefers bundle A to bundle B. b. prefers bundle B to bundle A. c. enjoys bundle A and B equally. d. bundle A contains the same goods as bundle B. ANSWER: c POINTS: 1 4. If bundle A lies on an indifference curve and bundle B lies to the right of the curve, the individual a. prefers bundle A to bundle B. b. prefers bundle B to bundle A. c. enjoys bundle A and B equally. d. must receive more of both—with bundle B. ANSWER: b POINTS: 1 5. “If an individual is to maximize the utility received from consumption, he or she should spend all available income. . . .” This statement assumes a. that saving is impossible. b. that the individual is not satiated in all goods. c. that no goods are “inferior.” d. Both a and b. ANSWER: d POINTS: 1 6. Suppose an individual’s MRS (of steak for beer) is 2:1. That is, at the current consumption choices he or she is willing to give up 2 beers to get an extra steak. Suppose also that the price of a steak is $1 and a beer is 25¢. Then in order to increase utility the individual should
a. buy more steak and less beer. b. buy more beer and less steak. c. continue with current consumption plans. d. Not enough information to answer the question. ANSWER: b POINTS: 1 7. Suppose that at current consumption levels an individual’s marginal utility of consuming an extra hot dog is 10 whereas the marginal utility of consuming an extra soft drink is 2. Then the MRS (of soft drinks for hot dogs)—that is, the number of hot dogs the individual is willing to give up to get one more soft drink is a. 5 b. 2 c. 1/2 d. 1/5 ANSWER: d POINTS: 1 8. If an individual’s indifference curve map does not obey the assumption of a diminishing MRS, then a. the individual will not maximize utility. b. the individual will buy none of good X. c. tangencies of indifference curves to the budget constraint may not be points of utility maximization. d. the budget constraint cannot be tangent to an appropriate indifference curve. ANSWER: c POINTS: 1 9. As an individual moves northwest along an indifference curve substituting more and more Y for X, his or her MRS of X for Y a. increases. b. decreases. c. stays the same. d. changes in a way that cannot be determined. ANSWER: a POINTS: 1 10. The X-intercept of the budget constraint represents a. how much of good Y can be purchased if no good X is purchased and all income is spent. b. how much of good X can be purchased if no good Y is purchased and all income is spent. c. total income divided by the price of X. d. b and c. ANSWER: d POINTS: 1 11. The point of tangency between a consumer’s budget constraint and his or her indifference curve represents a. complete satisfaction for the consumer. b. the equivalence of prices the consumer pays. c. constrained utility maximization for the consumer.
d. the least he or she can spend. ANSWER: c POINTS: 1 12. An increase in an individual’s income without changing relative prices will a. rotate the budget constraint about the X-axis. b. shift the indifference curves outward. c. shift the budget constraint outward in a parallel way. d. rotate the budget constraint about the Y axis. ANSWER: c POINTS: 1 13. The slope of the budget constraint line is a. the ratio of the prices
.
b. the negative of the ratio of the prices
.
c. the ratio of income divided by price of Y . d. none of the above. ANSWER: b POINTS: 1 14. If the price of X falls, the budget constraint a. shifts outward in a parallel fashion. b. shifts inward in a parallel fashion. c. rotates outward about the X-intercept. d. rotates outward about the Y-intercept. ANSWER: d POINTS: 1 15. If an individual has a constant MRS of shoes for sneakers of 3/4 (that is, he or she is always willing to give up 3 pairs of sneakers to get 4 pairs of shoes) then, if sneakers and shoes are equally costly, he or she will a. buy only sneakers. b. buy only shoes. c. spend his or her income equally on sneakers and shoes. d. wear sneakers only 3/4 of the time. ANSWER: a POINTS: 1 16. Suppose a cup of coffee at the campus coffee shop is $2.50 and a cup of hot tea is $1.25 and that a student’s beverage budget is $20 per week. What is the most cups of tea the student could buy? a. 20 b. 16 c. 10 d. 8 ANSWER: b
POINTS: 1 17. Suppose a cup of coffee at the campus coffee shop is $2.50 and a cup of hot tea is $1.25 and that a student’s beverage budget is $20 per week. What is the market tradeoff between coffee and tea? a. 1 coffee to 1 tea b. 2 coffee to 1 tea c. 1 coffee to 2 tea d. 2 coffee to 2 tea ANSWER: c POINTS: 1 18. Suppose a cup of coffee at the campus coffee shop is $2.50 and a cup of hot tea is $1.25 and that a student’s beverage budget is $20 per week. What is the algebraic expression of the budget? a. b. c. d. ANSWER: a POINTS: 1 19. Suppose a cup of coffee at the campus coffee shop is $2.50 and a cup of hot tea is $1.25 and that a student’s beverage budget is $20 per week. If you were going to write an algebraic expression of this budget line of the form . B would be a. 16 b. 2 c. -2 d. -1/2 ANSWER: d POINTS: 1 20. Suppose a cup of coffee at the campus coffee shop is $2.50 and a cup of hot tea is $1.25. Suppose a student’s beverage budget is $20 per week. Suppose the student simply prefers more caffeine to less and that the tea sold has the same amount of caffeine as the coffee. The student will buy a. all tea. b. all coffee. c. a mix of coffee and tea. d. quantities that cannot be determined from the information given here. ANSWER: a POINTS: 1 21. Suppose a caffeine-deprived man needs to wake up. Suppose his preferences can be described by . If the price of coffee is $4 and the price of tea is $1, he will buy a. all coffee. b. all tea. c. some of both, but more coffee. d. some of both, but more tea. ANSWER: b
POINTS: 1 22. Suppose a little girl likes peanut butter and jelly sandwiches with exactly 2T of jelly and 1T of peanut butter. Suppose further that her mom agrees to make sandwiches to those exact specifications and the price of peanut butter is $.25/T and the price of jelly is $.10/T. If she has $1.80 to spend on peanut butter and jelly ingredients (ignore the bread) in a week, how many sandwiches will she make? a. 1 b. 2 c. 4 d. 8 ANSWER: c POINTS: 1 23. If people like their goods in fixed proportions, the two goods are a. perfect substitutes b. perfect complements c. complements (but not perfect) d. substitutes (but not perfect) ANSWER: b POINTS: 1 24. If a person’s indifference curves can be represented as a straight line, the person views the goods as a. perfect substitutes b. perfect complements c. complements (but not perfect) d. substitutes (but not perfect) ANSWER: a POINTS: 1
25. Suppose a person likes both rap music (R) and country music (C) with a set of preferences so that
.
Which point (C, R) makes this person the happiest? a. 4, 16 b. 25, 1 c. 9, 9 d. 16, 4 ANSWER: c POINTS: 1 26. Suppose a person has $20 and likes both rap music (R) and country music (C) with a set of preferences so that . Suppose that the iTunes price of a rap music song is . Which level of utility is affordable? a. b. 9 c. 16 d. 25
and the price of a country music song is
ANSWER: a POINTS: 1 27. Suppose a person has $20 and likes both rap music (R) and country music (C) with a set of preferences so that . Suppose that the iTunes price of a rap music song is . What is the lowest level of utility that is unaffordable? a. 6 b. 7 c. d. 8 ANSWER: d POINTS: 1
and the price of a country music song is
Chapter 3 1. Which of the following functional forms for utility suggests the greatest substitution effect when starting at the point where a. b. c. d. ANSWER: b POINTS: 1 2. With only two goods, if the income effect is in the same direction as the substitution effect then the good is a. normal b. inferior but not Giffen c. Giffen d. There is not enough information to answer. ANSWER: a POINTS: 1 3. With only two goods, if the income effect is in the opposite direction as the substitution effect but the substitution effect dominates then the good is a. normal b. inferior but not Giffen c. Giffen d. There is not enough information to answer. ANSWER: b POINTS: 1 4. With only two goods, if the income effect is in the opposite direction as the substitution effect but the income effect dominates then the good is a. normal b. inferior but not Giffen c. Giffen d. There is not enough information to answer. ANSWER: c POINTS: 1 5. Suppose a person’s utility is only a function of their consumption of diet soda and they do not care which brand, Diet Coke (DC) or Diet Pepsi (DP) they consume. Suppose further that . If PDC rises but it remains less than PDP then the consumption of DC a. Falls from a positive amount to zero b. Falls from a positive amount to another positive amount. c. rises. d. stays at zero.
ANSWER: b POINTS: 1 6. Suppose a person’s utility is only a function of their consumption of diet soda and they do not care which brand, Diet Coke (DC) or Diet Pepsi (DP) they consume. Suppose further that . If PDC rises to a point where then the consumption of DC a. Falls from a positive amount to zero b. Falls from a positive amount to another positive amount. c. rises. d. stays at zero. ANSWER: a POINTS: 1 7. Suppose two goods coffee and creamer provide the consumer with utility but only if they are consumed in fixed proportions. An increase in the price of coffee will yield a. a substitution effect and an income effect in opposite directions. b. a substitution effect and an income effect in the same direction. c. a substitution effect but no income effect. d. an income effect but no substitution effect. ANSWER: d POINTS: 1 8. Suppose you were to believe that “money illusion” exists that is as prices and incomes both rise proportionally, people buy more. Which of the following characteristics of demand does that cause you to doubt? a. demand functions are downward sloping b. demand has a positive vertical intercept c. demand has a positive horizontal intercept. d. demand functions are homogeneous of degree zero. ANSWER: d POINTS: 1 9. Suppose there are two goods (X and Y). On a traditional graph of a budget line a tripling of all prices and incomes will a. alter the slope of the budget line only. b. alter the slope of the budget line as well as the Y-intercept. c. alter the slope of the budget line as well as the X-intercept. d. leave the budget line unaltered. ANSWER: d POINTS: 1 10. The lump sum principle suggests that the tax that reduces utility the least is a. a tax on income b. a tax on a good with many substitutes c. an equal tax per-unit on all goods d. a tax on a good with only a few substitutes ANSWER: a POINTS: 1
11. If a good is normal and its price increases, a. the income effect will be positive and the substitution effect will be positive. b. the income effect will be negative and the substitution effect will be negative. c. the income effect will be positive and the substitution effect will be negative. d. the income effect will be negative and the substitution effect will be positive. ANSWER: b POINTS: 1 12. If a good is inferior and its price increases, a. the income effect will be positive and the substitution effect will be positive. b. the income effect will be negative and the substitution effect will be negative. c. the income effect will be positive and the substitution effect will be negative. d. the income effect will be negative and the substitution effect will be positive. ANSWER: c POINTS: 1 13. If a good is Giffen and its price increases, a. the income effect will be positive and the substitution effect will be positive. b. the income effect will be negative and the substitution effect will be negative. c. the income effect will be positive and the substitution effect will be negative. d. the income effect will be negative and the substitution effect will be positive. ANSWER: c POINTS: 1 14. If a good is normal and its price decreases, a. the income effect will be positive and the substitution effect will be positive. b. the income effect will be negative and the substitution effect will be negative. c. the income effect will be positive and the substitution effect will be negative. d. the income effect will be negative and the substitution effect will be positive. ANSWER: a POINTS: 1 15. If a good is inferior and its price decreases, a. the income effect will be positive and the substitution effect will be positive. b. the income effect will be negative and the substitution effect will be negative. c. the income effect will be positive and the substitution effect will be negative. d. the income effect will be negative and the substitution effect will be positive. ANSWER: d POINTS: 1 16. Suppose and the price of X is 1, the price of Y is 1 and income is $12. If the price of X increases to 2, the income effect (in terms of units of X bought) is a. 2 b. -1 c. 0 d. -2
ANSWER: d POINTS: 1 17. Suppose the substitution effect is a. 2 b. -1 c. 0 d. -2 ANSWER: c POINTS: 1
and the price of X is 1, the price of Y is 1 and income is $12. If the price of X increases to 2,
18. If the prices of all goods increase by the same proportion as income, the quantity demanded of good X will a. decrease. b. increase. c. remain unchanged. d. change in a way that cannot be determined from the information given. ANSWER: c POINTS: 1 19. Demand functions are “homogeneous of degree zero in all prices and income.” This means a. a proportional increase in all prices and income will leave quantities demanded unchanged. b. a doubling of all prices will not alter consumption decisions. c. prices directly enter individuals’ utility functions. d. an increase in income will cause all quantities demanded to increase proportionately. ANSWER: a POINTS: 1 20. The relationship between changes in income and purchase of a good indicates a. whether the good is a luxury or necessity. b. whether the good is normal or inferior. c. whether the good is a complement or substitute. d. Both a and b. ANSWER: d POINTS: 1 21. If income doubles and the quantity demanded of good X more than doubles, then good X can be described as a a. substitute good. b. complement good. c. necessity. d. luxury. ANSWER: d POINTS: 1 22. If an individual’s housing purchases are always a constant fraction of income, then the income elasticity of demand for housing is
a. greater than one. b. equal to one. c. less than one. d. Cannot be determined from the available information. ANSWER: b POINTS: 1 23. If an individual buys only two goods and these must be used in a fixed relationship with one another (e.g., coffee and cream for a coffee drinker who never varies the amount of cream used in each cup), then a. there is no substitution effect from a change in the price of coffee. b. there is no income effect from a change in the price of coffee. c. Giffen’s Paradox must occur if both coffee and cream are inferior goods. d. an increase in income will not affect cream purchases. ANSWER: a POINTS: 1 24. Consider the two statements: I. X is an inferior good. II. X exhibits Giffen’s Paradox.
Which of the following is true? a. I implies II, but II does not necessarily imply I. b. II implies I, but I does not necessarily imply II. c. I and II are statements of the same phenomenon. ANSWER: b POINTS: 1 25. Two goods, X and Y, are called substitutes if a. an increase in PX causes more Y to be bought. b. an increase in PX causes less Y to be bought. c. an increase in PY causes less Y to be bought. d. an increase in income causes more of both X and Y to be bought. ANSWER: a POINTS: 1 26. Two goods, X and Y, are called complements if a. an increase in PX causes more Y to be bought. b. an increase in PX causes less Y to be bought. c. an increase in PY causes less Y to be bought. d. an increase in income causes more of both X and Y to be bought.
ANSWER: b POINTS: 1 27. If good X is a normal good and its price rises, then quantity demanded a. may or may not fall. b. will always fall. c. will always rise. d. will remain unchanged. ANSWER: b POINTS: 1 28. Assume X and Y are the only two goods a person consumes. If after a rise in the quantity demanded of Y increases, one could say a. the income effect dominates the substitution effect for Y. b. the substitution effect dominates the income effect for Y. c. it is impossible to determine whether the substitution or income effect dominates for Y. d. None of the above. ANSWER: b POINTS: 1 29. An individual’s demand curve a. represents the various quantities that a consumer is willing to purchase of a good at various prices. b. is derived from an individual’s indifference curve map. c. will shift if preferences, prices of other goods, or income change. d. all of the above. ANSWER: d POINTS: 1 30. An increase in quantity demanded is represented by a. a shift outward of the entire demand curve. b. a shift inward of the entire demand curve. c. a movement along the demand curve in a southeasterly direction in response to a decline in the good’s price. d. a movement along the demand curve in a northwesterly direction in response to a decline in the good’s price. ANSWER: c POINTS: 1 31. Which of the following will not cause a demand curve to shift position? a. A doubling of the good’s price. b. A doubling of the price of a closely substitutable good. c. A doubling of income. d. A shift in preferences. e. A doubling of both the price of X and the price of Y. ANSWER: a POINTS: 1 32. A decrease in demand is represented by
a. a shift outward of the entire demand curve. b. a shift inward of the entire demand curve. c. a movement along the demand curve in a southeasterly direction. d. a movement along the demand curve in a northwesterly direction. ANSWER: b POINTS: 1 33. Suppose demand can be written as . The price elasticity of demand is a. increasing as price rises. b. decreasing as price rises. c. constant regardless of prices and perfectly elastic. d. constant regardless of prices and unit elastic. ANSWER: d POINTS: 1 34. Suppose demand can be written as . The elasticity of demand is a. increasing as price rises. b. decreasing as price rises. c. constant regardless of prices and perfectly elastic. d. constant regardless of prices and unit elastic. ANSWER: c POINTS: 1 35. Suppose demand can be written as . The elasticity of demand is) a. increasing as price rises. b. decreasing as price rises. c. constant regardless of prices and perfectly inelastic. d. constant regardless of prices and unit elastic. ANSWER: c POINTS: 1 36. The demand for gasoline is more elastic in the long run than in the short run because a. other prices are more likely to change in the long run. b. incomes tend to rise over time. c. people can buy new cars in the long run. d. cars have become more expensive over time. ANSWER: c POINTS: 1 37.37.
In the picture above the point A2 is half way between the origin and the quantity intercept of the demand curve. The price elasticity at point “1” is a. 0 b. between -∞ and -1 c. -1 d. between -1 and 0 ANSWER: b POINTS: 1 38.38.
In the picture above the point A2 is half way between the origin and the quantity intercept of the demand curve. The price elasticity at point “2” is a. 0