Econ 1030 - Principles of Microeconomics » Summer 2021 » Test 2

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Question #1
Which of the following statements is false?
A.   When the price of an item goes down, ceteris paribus, the quantity supplied will go down, but the supply will not change.
B.   When the supply curve for an item shifts to the right, ceteris paribus, it will cause the price of that item to go up. 
C.   There is a direct (positive) relationship between price and quantity supplied.
D.   A change in the supply of an item will cause a change in its price, but a change in the price of an item will not cause a change in its supply.
Question #2
Which of the following does not explain why is there an inverse (negative) relationship between price and quantity demanded?
A.   Income effect -- that is, a price change can affect the amount of some item you can afford to purchase.
B.   Diminishing marginal utility -- as you consumer more, as the result of a price decrease, the additional satisfaction received from the additional units consumed will start to go down.
C.   When the price of an item increases, you buy more because it is more valuable.
D.   Substitution effect -- that is, a price change can affect the opportunity cost of purchasing some item and your willingness  to switch to (or from) another item.
Question #3
Which of the following statements is true?
A.   A price floor set above the equilibrium price, in a particular market, will have no effect on that market.
B.   A price ceiling set above the equilibrium price, in a particular market, will cause a surplus. 
C.   A price floor set below the equilibrium price in a particular market will cause a shortage.
D.   A price ceiling set below the equilibrium price in a particular market will cause a shortage.
Question #4
Which of the following is true?
A.   Rent control is an example of a price floor.
B.   A price ceiling on gasoline, set below its current equilibrium price, would assure that everyone would be able to buy gasoline at an affordable price.
C.   A price floor for a resource, such as the minimum wage, set above its equilibrium price, would increase the demand for that resource.
D.   A price ceiling on some item, set below its equilibrium price, creates rationing problems.
Question #5
Which of the following is not a determinant of demand?
A.   Consumers’ expectations about their income, wealth and/or the price of the item
B.   Changes in the price of a substitute or complement
C.   The price of the item
D.   Household’s income and wealth.
Question #6
Consider the circular flow model. In the resource market, the firm does the demanding and the household does the supplying.
A.   TRUE
B.   FALSE
Question #7
An argument that some economists make against the minimum wage is that:
A.   It will decrease production costs and ultimately make the price of the product they produce too low.
B.   It will cause too many workers to be demanded.
C.   If it is too high, it will cause fewer workers to be demanded.
D.   All of the above are valid arguments against the minimum wage.
Question #8
Suppose you were shopping and saw a widget you’d like to buy – but there was no price tag. After some consideration, you determined that you’d spend as much as $25 to buy the widget. When you inquired about the price to a sales clerk, he said the price was $7. The difference between the two values is known as:
A.   Deadweight loss
B.   Producer surplus
C.   Consumer surplus
D.   Deadweight gain
Question #9
The society as a whole is better off when:
A.   Consumer surplus has been mazimized and producer surplus has been minimized.
B.   Producer surplus has been maximized and consumer surplus has been minimized
C.   The sum of producer and consumer surplus has been maximized
D.   The sum of producer and consumer surplus is zero.
Question #10
Market failure is said to occur whenever:
A.   prices rise.
B.   private markets do not allocate resources in the most economically desirable way.
C.   government intervenes in the functioning of private markets.
D.   some consumers who want a good do not obtain it because the price is higher than they are willing to pay.
Question #11
Which of the following is an example of market failure?
A.   Negative externalities, positive externalities, and public goods.
B.   Public goods.
C.   Positive externalities.
D.   Negative externalities.
Question #12
People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a:
A.   demand-side market failure.
B.   negative externality.
C.   government failure.
D.   supply-side market failure.
Question #13
From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically:
A.   maximizes the net benefit to society.
B.   generates more of a benefit than it costs to produce.
C.   produces a benefit exactly equal to the cost of producing the last unit.
D.   costs more to produce than it provides in benefits.
Question #14
The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If Transcontinental does not pay for the damage it causes, what has occurred?
A.   Positive externality.
B.   Supply-side market failure.
C.   Demand-side market failure.
D.   Demand-side market failure, supply-side market failure and positive externality.
Question #15
The two main characteristics of a public good are:
A.   nonrivalry and large negative externalities.
B.   production at constant marginal cost and rising demand.
C.   nonexcludability and production at rising marginal cost.
D.   nonrivalry and nonexcludability.
Question #16
Which of the following is an example of a public good?
A.   A weather warning system.
B.   A sofa.
C.   A bottle of soda.
D.   A television set.
Question #17
The market system does not produce public goods because:
A.   public enterprises can produce such goods at lower cost than can private enterprises.
B.   their production seriously distorts the distribution of income.
C.   private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.
D.   there is no need or demand for such goods.
Question #18
Which of the following is a key difference between the economic activities of government and those of private firms?
A.   Government has the legal right to force people to do things; private firms do not.
B.   Government focuses primarily on equity; private firms focus only on efficiency.
C.   Private economic activities create externalities; government activities do not.
D.   Private firms face the constraint of scarcity; government does not.
Question #19
The government of Southland wants to improve resource allocation in the country. Which of the following actions by the Southland government is most likely to accomplish this?
A.   Weakening enforcement of laws and contracts.
B.   Taxing polluters and subsidizing firms that are creating significant positive externalities.
C.   Promising to cover every risk of loss for private firms.
D.   Coercing all firms to innovate and invest.
Question #20
The many layers of the federal government in the United States:
A.   improve accountability of government officials, thus leading to more efficient policies.
B.   better allow the invisible hand to direct government resources to their best uses.
C.   lead to economic inefficiencies because of difficulty aggregating and conveying information.
D.   enhance government's ability make effective decisions quickly.
Question #21
Individual accountability within the government bureaucracy:
A.   tends to be greater than in private firms, making government more efficient than private firms.
B.   is not a problem because government bureaucrats are not affected by the self-interest that affects private sector individuals.
C.   tends to be lacking because of civil service protections and the complexity of government.
D.   is easy to monitor because of the small size and scope of government.
Question #22
The idea of government failure includes all of the following except:
A.   special-interest effect.
B.   pressure by special-interest groups.
C.   extensive positive externalities from public and quasi-public goods.
D.   bureaucratic inefficiency.
Question #23
Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of:
A.   the principal-agent problem.
B.   moral hazard.
C.   rent-seeking behavior.
D.   logrolling.
Question #24
The political tendency to favor spending priorities with immediate benefits but deferred costs results in:
A.   misdirection of stabilization policy.; and, unfunded liabilities.
B.   chronic budget deficits, misdirection of stabilization policy, and unfunded liabilities.
C.   chronic budget deficits.
Question #25
Chronic budget deficits can be attributed to:
A.   inappropriate monetary policy.
B.   voters wanting government programs but not wanting to pay taxes.
C.   unfunded liabilities.
D.   state budget laws.
Question #26
The U.S. federal government's largest unfunded liability is:
A.   unemployment insurance.
B.   national defense.
C.   Medicare.
D.   Social Security.

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