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Econ Midterm 1-5

A colorful, engaging infographic depicting economic concepts such as supply and demand curves, production possibilities, and elasticity with visual representations to attract students and learners.

Econ Midterm Quiz: Master Your Knowledge

Test your understanding of fundamental economic concepts and prepare for your midterms with this comprehensive quiz designed for students of economics. With 100 thought-provoking questions covering various topics, you'll deepen your grasp of important principles.

Key Features:

100 multiple-choice questions
Instant feedback and scoring
Topics include supply and demand, elasticity, and utility

100 Questions25 MinutesCreated by StudyingEconomics57

A positive statement is concerned with:

Some goal which is desirable to society.

What should be

What is

The formulation of economic policy

The following production possibilites table represents an economy which is producing two products, steel and wheat. A change from possibility C to B means that:

1 unit of steel is given up to get 75 units of wheat.

2 units of steel is given up to get 15 more units of wheat.

1 unit of steel is given up to get 15 more units of wheat.

2 units of steel are given up to get 15 more units of wheat.

The construction of a production possibilities curve assumes:

The quantities of all resources are fixed

Technology is fixed

Full employment and full production are being realized

All of these

The production possibilities curve tells us:

What specific combinations of two products is most desired by society

That costs do not change as society varies output

Costs are irrelevant in a society which has fixed resources

What combiations of two goods can be produced with society's available resources

Which situation would most likely cause a nation's production possibilities curve to shift inward?

The construction of more capital goods

A decrease in discrimination based on race

An increase in the number of skilled immigrant workers

The destruction from bombing and warfare in a losing military conflict

Refer to the diagram below. Other things equal, this economy will achieve the most rapid rate of growth if:

The ratio of capital to consumer goods is minimized

It chooses point c

It chooses point b

It chooses point a

What to produce in a market economy is ultimately determined by the:

Output decisions of business firms

Government

Spending decisions of households

Workers' technical skills

Which of the following is unique to a market economy system?

The extensive use of capital goods

Private ownership of property resources

Specialization

The use of money

Graphically, the market demand curve is:

Steeper than any individual demand curve which comprises it

The horizontal sum of individual demand curves

The vertical sum of individual demand curves

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that:

There are many goods which are substitutes for bicycles

There are many goods which are complementary to bicycles

There are few goods which are substitutes for bicycles

Bicycles are normal goods

If the demand curve for product B shifts to the right as the price of product A declines, it can be concluded that:

Both A and B are inferior goods

A is a superior good and B is an inferior good

A is an inferior good and B is a superior good

A and B are complementary goods

A surplus of any given commodity can be expected whenever the:

Prevailing price of the good is below the equilibrium price

Prevailing price of the good is above the equilibrium price

Prevailing price of the good is equal to the equilibrium price

Amount demanded exceeds the amount supplied.

Refer to the diagram above, in which S1 and D1 represent the original supply and demand curves, and S2 and D2 the new curves. In this market the indicated shift in supply may have been caused by:

An increase in the wages paid to workers producing this good

The development of more efficient machinery for producing this commodity

This product becoming less fashionable.

An increase in consumer incomes

A price floor means that:

Force some firms in the industry to go out of business

Result in a product surplus

Result in a product shortage

Clear the market

One can say with certainty that equilibrium quantity will increase when supply:

And demand both decrease

Increases and demand decreases

Decreases and demand increases

And demand both increase

What combination of changes in supply and demand would most likely increase the equilibrium price?

When supply increases and demand decreases

When supply decreases and demand increases

When supply decreases and demand decreases

When supply increases and demand increases

Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases form 110 to 118. Then the price elasticity of demand (using the midpoint formula) is:

4.00

2.09

1.73

1.37

The following is the data on demand for a product. If the price decreases from $9 to $7, the price elasticity of demand (using the midpoint formula) is:

.63

1.16

1.60

2.27

If the demand for product X is inelastic, a 4 percent increase in the price of X will:

Decrease the quantity of X by more than 4 percent

Decrease the quantity of X demanded by less than 4 percent

Increase the quantity of X demanded by more than 4 percent

Increase the quantity of X demanded by less than 4 percent

The coefficient of price elasticity is 0.2. Demand is thus:

Perfectly inelastic

Perfectly elastic

Relatively elastic

Relatively inelastic

In which of the following instances will total revenue decline?

Price rises and supply is elastic

Price falls and demand is elastic

Price rises and demand is inelastic

Price rises and demand is elastic

Which of the following generalizations is not correct?

The larger an item is in one's budget, the greater the price elasticity of demand

The price elasticity of demand is greater for necessitates than it is for luxuries

The larger the number of close substitutes available, the greater the price elasticity of demand for a particular product

The price elasticity of demand is greater the longer the time period under consideration

Suppose that the price of product X raises by 20 percent and the quantity supplied of X increases by 15 percent. The coefficient of price elasticity of supply for good X is:

Negative and therefore X is an inferior good

Positive and therefore X is a normal good

Less than 1 and therefore supply is inelastic

More than 1 therefore supply is elastic

Assume that a 4 percent increase in income in the economy produces an 8 percent increase in the quality demand of good X. The coefficient of income elasticity of demand is:

Negative therefore X is an inferior good

Negative therefore X is a normal good

Positive and therefore X is an inferior good

Positive and therefore X is a normal good

In which S is the before-tax supply curve and S1 is the supply curve after the imposition of an excise tax. The burden of this tax is borne:

Equally by consumers and producers

Most heavily by consumers

Most heavily by producers

Only by consumers

Marginal utility is the:

Sensitivity of consumer purchases of a good to changes in the price of that good

Change in total utility realized by consuming one more unit of a good

Change in total utility realized by consuming another unit of a good divided by the change in the price of that good

The utility associated with the consumption of a certain number of units of a good divided by the number of units consumed

According to the law of diminishing marginal utility, the marginal utility associated with consuming successive units of a good will:

Increase as the amount consumed decreases

Remain constant as the amount consumed increases

Eventually decline as the amount consumed increases

Eventually increase as the amount consumed increases

The following two schedules show the amounts of additional satisfaction (marginal utility) which a consumer would get from successive quantities of products J and K. If the consumer has a money income of $52 and the price of J and K are $8 and $4 per unity respectively, the consumer will maximize her utility by purchasing:

2 units of J and 7 units of K

5 units of J and 5 units of K

4 units of J and 5 units of K

6 units of J and 3 units of K

Normal profit is:

Determined by subtracting implicit costs from total revenue

Determined by subtracting explicit costs from total revenue

Payments that must be made by a firm to obtain and retain entrepreneurial ability

The average profitability of an industry over the preceding 10 years

The short run is a time period in which:

All factors of production are fixed

The level of output is fixed

The size of the production plant is variable

Some factors of production are fixed and others are variable

Which of the following best expresses the law of diminishing returns?

Because large-scale production allows the realization of economies of scale, the real cost of production vary directly with the level of output

Population growth automatically adjusts to that level at which the average product per worker will be at a maximum

As successive amounts of one factor of production (labor) are added to fixed amounts of other factors of production (property), beyond some point of the resulting extra output will decline

Proportionate increases in the inputs of all factors of production will result in a less-than-proportionate increase in total output

If a firm decides to produce no output in the short run, its costs will be:

Its marginal costs

Its fixed plus its variable costs

Its fixed costs

Zero

At output level Q average fixed cost:

Is equal to EF

Is equal to QE

Is measured by QF and by ED

Cannot be determined from the information given

Which of the graphs is correct?

Which of the following is correct:

There is no relationship between MP and MC

When AP is rising MC is falling, and when AP is falling MC is rising

When MP is rising MC is falling, and when MP is falling MC is falling

When MP is rising MC is falling, and when MP is falling MC is rising

If long-run average total cost decreases as output increases, this is due to:

Declining average fixed costs

The law of diminishing returns

Economies of scale

Externalities

Diseconomies of scale arise primarily because

The short-run average total cost curve rises when marginal product is increasing

Of the difficulties involved in managing and coordinating a large business enterprise

Firms must be large both absolutely and relative to the market to employ the most efficeint productive techniques available

Beyond some point marginal product declines as additional units of a variable factor of production (labor) are added to a fixed factor of production (capital)

Which characteristics would be best associated with perfect competitions

Few sellers

Price taker

Nonprice competition

Product differentiation

Price is constant or "given" to the individual firm selling in a perfectly competitive market because:

The firms demand curve is downward sloping

There are no good substitutes for the firms product

Each seller supplies a negligible fraction of total supply

Product differentiation is reinforced by extensive advertising

The demand curve of a perfectly competitive firm is:

Perfectly elastic

Perfectly inelastic

Elastic but not perfectly elastic

Inelastic but not perfectly inelastic

At the profit maximizing output, the firm will realize:

A loss equal to BCFG

A loss equal to ACFH

An economic profit of ACFH

An economic profit of ABGH

The following graph shows the demand and cost curves for a perfectly competitive firm. The profit-maximizing firm will:

Shut down

Produce with short-run losses

Produce with long-run economic profits

Produce with short-run economic profits

In the short run a perfectly competitive seller will shut down if product price:

Equals average revenue

Is greater than MC

Is less than AVC

Is less than ATC

In a perfectly competitive industy:

There will be no economic profits in the short or long run

Economic profits may persist in the long run of consumer demand is strong and stable

There may be economic profits in the short run, but not the long run

There may be economic profits in the long run, but not the short run

Which of the following statements is correct?

Economic profits induce firms to enter an industry; losses encourage firms to leave

Economic profits induce firms to leave an industry; profits encourage firms to leave

Economic profits and losses have no significant impact on the growth or decline of an industry

Normal profits will cause and industry to expand

An increasing-cost industry is associated with:

A perfectly elastic long-run supply curve

An upward sloping long-run supply curve

A perfectly inelastic long-run supply curve

An upward sloping long-run demand curve

A profit-maximizing monopolist will set its price:

As far above ATC as possible

Along the elastic portion of its demand curve

Where the marginal cost curve intersects the demand curve

As close as possible to the minimum point of ATC

To maximize profits or minimize losses this firm should produce:

E units and charge price C

E units and charge price A

M units and charge price N

L units and charge price LK

At its profit-maximizing output, a monopolist achieves:

Neither "productive efficiency" nor "allocative efficiency"

Both "productive efficiency" and "allocative efficiency"

"productive efficiency" but not "allocative efficiency"

"allocative efficiency" but not "productive efficiency"

The demand curve of a monopolistic competitive producer is:

Less elastic than that of either a monopolist or a perfectly competitive seller

More elastic than that of a monopolist, but less elastic than that of a perfectly competitive seller.

Less elastic than that of a monopolist, but more elastic than that of a perfectly competitive seller

More elastic than that of either a monopolist or a perfectly competitive seller

Which set best describes the basic features of monopolistic competiton?

Easy entry, few firms, and standardized products

Barriers to entry, few firms, and differentiated produtcts

Easy entry, many firms, and differentiated products

Barriers to entry, many firms, and standardized products

Monopolistically competitive firms:

Realize normal profits in the short run but losses in the long run

Incur persistent losses in both the short run and long run

May realize either profits or losses in the short run, but realize normal profits in the long run

Persistently realize economic profits in both the short and long run

The graphs below pertain to monopolistically competitive firms. Short-run equilibrium entailing economic loss is shown by:

Diagram c only

Diagram b only

Diagram a only

Both diagrams a and c

Oligopoly is difficult to analyze primarily because:

The number of frims is too large to make collusion understandable

The price and output decisions of any one firm depend on the reactions of its rivals

Output may be either homogenous or differentiated

Neither allocative nor productive efficiency is achieved

In which set of market models are there the most significant barriers to entry?

Monopolistic competition and perfect competiton

Monopolistic competition and monopoly

Oligopoly and monopolistic competition

Oligopoly and monopoly

A unique feature of an oligopolistic industry is:

Low barriers to entry

Standardized products

Diminishing marginal returns

Mutual interdependence

Marginal revenue product measures the:

Amount by which the extra production of one or more workers increases a firms total revenue

Decline in product price which a firm must accept to sell the extra output of one more worker

Increase in total factor cost resulting from the hire of one more extra unit of fcator

Increase in total revenue resulting from the production of one more unit of a product

A firm willfind it profitable to hire workers up the the point at which their:

Marginal factor cost equals their marginal product

Wage rate equals product price

MP is equal to their MRP

Marginal factor cost is equal to their MRP

Other things equal, the factor demand curve of an imperfectly competitive seller will:

Lie below its marginal revenue product curve

Not be subject to diminishing marginal productivity

Be less elastic than that of a perfectly competitive seller

Be more elastic than that of a perfectly competitive seller

A firm is hiring factors X, Y and Z in the profit-maximizing amounts when:

MRPx/Px equals MRPy/Py equals MRPz/Pz equals 1

The sum of the MRPs of the three factors is at a minimum

The marginal revenue productivity of all three factors is the same

The marginal revenue product of the last dollar spend on each of the three factors is the same

In calculating GDP by the income approach we should sum up:

Wages, consumption, investment and rent

Wages, rent, investment and profit income

Wages, interest, investment and exports

Wages, profit income, investments and consumption

If depreciation exceeds gross investment:

The economy's stock of capital may be either growing or shrinking

The economy's stock of capital is shrinking

The economy's stock of capital is growing

Net investment is zero

Which would be considered an investment according to economists?

The buying of shares of Janus mutual funds

The purchase of new machinery by Ford

The purchase of stock of McDonalds

The selling of IBM corporate bonds

In comparing GDP data over a period of years a difference between nominal and real GDP may arise because:

Of changes in our trade deficits and surplueses

The length of the workweek has declined historically

The price level may change over time

Depreciation may be greater or smaller than gross investment

The GDP gap measures the:

Difference between NDI and GDP

Amount by which potential GDP exceeds actual GDP

Amount by which actual GDP exceeds NDI

Amount by which nominal GDP exceeds real GDP

Demand-pull inflation:

Occurs when prices of resources rise, pushing up the costs and the price level

Occurs when total spending exceeds the economys ability to provide output at the existing price level

Occurs only when the economy has reached its absolute production capacity

Is also called cost-push inflation

Refer to the diagram. The phases of the business cycle from points A to D are, respectivley

Peak, recession, expansion, trough

Trough, expansion, expansion, peak

Expansion, recession, trough, peak

Peak, recession, trough, expansion

During a serios recession we would expect output to fall most in:

The alcoholic beverage industry

The clothing industry

Agriculture

The machine tool industry

Assuming the total population is 100 million, the civilian labor force is 50 million and 47 million workers are employed, the unemployment rate is:

Is 3 percent

Is 6 percent

Is 7 percent

Is 9 percent

Which of the following constitute the unemployment occurring when the natural rate of unemployment exists?

Frictional and cyclical unemployment

Structural and frictional unemployment

Cyclical and structural unemployment

Frictional, structural, and cyclical unemployment

When unanticipated inflation occurs:

Both creditors and debtors benefit

Both creditors and debtors are hurt

Debtors are hurt, but creditors benefit

Creditors are hurt, but debtors benefit

The consumption schedule in the diagram indicates that:

Consumers will maximize their satisfaction where the consumption schedule and 45 degree line intersect.

Up to a point consumption exceeds income, but then falls below income

The MPC falls as income increases

Households consume as much as they earn

For all levels of icnome to the left of the intersection of the 45 degree line and the consumption schedule, the APC is

Greater than 100 percent

Less than the APS

Equal to the MPC

Equal to 100 percent

The diagram shows consumption schedules for economies A and B. We can say that the:

MPC is greater in B than A

APC at any given income level is greater in B than in A

MPS is smaller in B than in A

MPC is greater in A than in B

Which of the following will cause a movement down along an economy's consumption schedule?

An increase in stock prices

A decrease in stock prices

An increase in consumer indebtedness

A decrease in disposable income

The immediate determinates of investment spending are the:

Expected rate of return on capital goods and the real interest rate

Level of saving and the real interest rate

Marginal propensity to consume and the real interest rate

Interest rate and the expected price level

Assume that the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by:

$3 billion

$2/3 billion

$6 billion

$2 billion

The practical significance of the multiplier is that it:

Brings about an equality of planned investment and saving.

Magnifies relatively small initial changes in spending into larger changes in GDP

Keeps inflation within tolerable limits

Helps to stabilize the economy

The table shows a private, open economy, All figures are in billions of dollars. The equilibrium real GDP is:

$550

$600

$650

$700

In the private open economy exports are ______ and imports are _____ domestic GDP:

Inversly related to, directly related to

Independent of, inversely related to

Independent of, dependent of

Directly related to, independent of

The aggregate demand curve is

Vertical if full employment exists

Horizontal when there is considerable unemployment in the economy

Downward sloping because of the interest-rate, wealth or real balances, and foreign trade effects

Downward sloping because production costs decrease as real output increases

The foreign trade effect suggests that an increase in the Canadian price level relative to other countries will:

Increase in amount of canadian real output purchased

Increase canadian imports and decrease canadian exports

Increase both canadian imports and canadian exports

Decrease both canadian imports and canadian exports

Which of the above diagrams best portrays the effects of declines in the incomes of other major nations with whom we trade

Which would increase aggregate supply

An increase in business regulation

A decline in productivity

An increase in business subsidies

A decrease in the capital stock

If real output rises and the price level falls, this would likely be due to a:

Rightward shift of the aggregate demand curve

A leftward shift of the aggregate demand curve

A rightward shift of the aggregate supply curve

A leftward shift of the aggregate supply curve

Which of the following represents the most expansionary fiscal policy?

A $10 billion tax cut

A $10 billion increase in government spending

A $10 billion tax increase

A $10 billion decrease in government spending

Contractionary fiscal policy is so named because it:

Involves a contraction of the nations money supply

Necessarily reduces the size of the government

Is aimed at reducing aggregate demand and thus achieving price stability

Is expressly designed to contract real GDP

Refer to the diagram wherin T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit:

At all levels of GDP

At any level of GDP above $400

At any level of GDP below $400

Only when GDP is stable

A major advantage of built-in or automatic stabilizers is that they:

Simultaneously stableize the economy and reduce the absolute size of the public debt

Automatically produce surpluses during recessions and deficits during inflations

Require no discretionary budgetary policy

Garantee that federal budget will be balanced over the course of the business cycle.

Which of the following statements is correct?

Built-in stability only partially offsets fluctuations in economic activity

Built-in stability works in halting inglation, but cannot alleviate unemployment

Built-in stability can be relied on to eliminate completely any fluctuation in economic activity

Built-in stability overcorrects for fluctuations in economic activity; for example, it may change a small expansion into a recession

One of the timing problems with fiscal policy is an "operational lag" that occurs between the:

Beginning of a recession and the time that it is recognized that the event is occurring

Time the need for fiscal action is recognized and the time that action is actually taken

Time that fiscal action is taken and the time that action has an impact on output, employment, and the price level

Time that fiscal action has an impact on output, employment, and the price level and the time by which it can be determined if the policy is effective.

The crowding-out effect suggests that:

Increase in consumption are always at the expense of saving

Increase in government spending will always close a recessionary gap

Increase in government spending may raise the interest rate and thereby reduce investment

High taxes reduce both consumption and saving

The crowding-out effect from government borrowing to finance the public debt is reduce when:

The economy is experiencing a period of high inflation

The economy is operating at full employment level of output

Publix investment complements private investment

The distribution of income becomes more equal

The federal budget deficit is found by:

Subtracting government tax revenues plus government borrowing from government spending in a particular year

Subtracting government tax revenues from government spending in a particular year

Cumulating the differences between government spending and tax revenues over all years since the nations founding

Subtracting government revenues from the non-investment-type government spending in a particular year

In Canada the money supply (m1) is comprised of:

Coins, paper currency, and demand deposits

Currency, notice deposits, and bonds

Coins, paper currency, demand deposits, and credit balances with brokers,

Paper currency, coin, gold certificates, and time deposits

The value of money varies:

Inversely with price level

Directly with the volume of employment

Directly with the price level

Directly with the interest rate

Which of the following is correct?

The asset demand for money is downward sloping becasue the opportunity cost of holding money declines as the interest rate rises

The asset demand for money is downward sloping becasue the opportunity cost of holding money increases as the interest rate rises

The transactions demand for money is downward sloping because the opportunity cost of holding money varies inversely with interest rate

The asset demand for money is downward sloping because bond prices and the interest rate are directly related

The Bank of Canada

Acts as a fiscal agent for all the federal government

Supplies the economy with paper currency

Hold all the deposits of the chartered banks

Does all of these

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

A decrease in the money supply will lower the interest rate, increase investment spending, and increase GDP

A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease GDP

An increase in money supply will raise the interest rate, decrease investment spending, and decrease GDP

An increase in the money supply will lower the interest rate, decrease investment spending, and increase GDP

The economy is experiencing high unemployment and a low rate of economic growth and the Bank of Canada decides to pursue an expansionary monetary policy. Which action by BOC would be most consistent with this policy?

Buying government securities

Selling government securities

Raising the desired reserve ratio

Raising the bank rate

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