8th Grade Economics2015 Comp Review

Name: _________________________________

Microeconomics Scarcity

1. To say that “there is a scarcity of gold” means that:a) Gold prices will plummetb) There is not enough gold to satisfy people’s demandc) There are a very few substitutes for goldd) Gold is relatively less expensive than other metalse) The demand for gold is changing

2. Goods are scarce when:a) Their price is too highb) Their price is too lowc) The amount people want is more than the amount available at a zero priced) They are necessitiese) Their price is controlled

3. Economics is best described asa) The study of how scarce material wants are allocated between unlimited resourcesb) The study of how scarce labor can be replaced by unlimited capitalc) The study of how people choose the best way to satisfy their unlimited material

wants with a scarce supply of resourcesd) The study of how capitalism is superior to any other economic systeme) The study of how unlimited material wants can best be satisfied by allocating

limitless amounts of productive resources

PPC

4. When constructing production possibility curves for an economy, which of the following is assumed to be constant?

a) The quantity of resourcesb) The government budgetc) The quantity of goods producedd) The price levele) The money supply

Production Possibilities ScheduleGood A Good B

Choice 1 100 0Choice 2 90 20Choice 3 70 40Choice 4 40 60Choice 5 0 80

Use the table above for questions 5-6

5. Identify the correct statement. a) This economy can produce 100 units of A and 20 units of Bb) The opportunity cost of producing more of A decreases as A increasesc) The opportunity cost of producing more of B decreases as B increasesd) This economy can produce 70 units of A and 40 units of Be) If this economy fully and efficiently employs all its resources, it can produce 100

units of A and 80 units of B

6. According to the production possibilities schedule in the table above, which of the following statements is true?

a) Moving from choice 2 to choice 3, the opportunity cost of 20 more B is 20 units of A

b) There are increasing opportunity costs associated with getting more Bc) Moving from choice 3 to choice 4, the opportunity cost of 20 more B is 30 units

of Ad) Moving from choice 1 to choice 2, the opportunity cost of 20 more B is 10 units

of Ae) All of these statements are true

7. A point inside a nation’s production possibilities curve can represent:a) A recessionb) An increase in population sizec) Economic growthd) A technological advancemente) An improvement in living standards

8. Given a production possibilities curve for defense goods and nondefense goods, which of the following is not true?

a) A production point outside the curve may be attained if new resources are discovered.

b) A production point outside the curve may be attained by acquiring a new technology.

c) A production point outside the curve may be attained by shifting resources to defense goods.

d) A production point outside the curve may be attained by acquiring both a new technology and greater resources.

e) A production point outside the curve cannot be attained with the current level of resources and technology.

9. Which of the following will result in an outward shift of the production possibilities curve?

a) A decrease in the quantity of resourcesb) An improvement in the quality of resourcesc) A fall in education standardsd) A unsustainable growth in populatione) An increase in unemployment rate

Opportunity costs

10. In economics, the concept of opportunity cost is:a) Negated by ensuring that the government has a role in a capitalist societyb) Defined to be the highest-valued alternative that must be forgone when a choice is

madec) Best illustrated by knowing why consumers choose one good over anotherd) Quantifiable only if you know the real dollar prices of the goods and services you

are giving up to consume somethinge) The methodology that government economists use to determine the total amount

of the national debt

11. Which of the following is related to the concept of trade-off used in economics?a) The tuition you pay to attend collegeb) Paying a high price for a movie ticket on the first day of screeningc) Not having enough information available to make a rational decisiond) Giving up one good or activity in order to obtain some other good or activitye) Having your cake and eating it too

12. Which of the following is an example of opportunity cost?a) The Chinese food that you gave up when you chose to eat Italian foodb) The tuition that you pay so that you are able to attend collegec) For a professor of economics, the pleasure that he or she derives from teaching

economicsd) Sweets given up by a person who would never eat them even if he or she coulde) The price paid for a ticket when you decide to go to the movies

13. Nicky makes $25,000 a year as a sales clerk. He then decides to quit his job to enter an MBA program full-time (assume Nicky doesn’t work in the summer or hold any part-time jobs). His tuition, books, living expenses, and fees total $15,000 a year. Given this information, the annual total cost of Nicky's MBA studies is:

a) $10,000b) $30,000c) $40,000d) $15,000e) $25,000

Utility

14. When attempting to explain why a consumer purchases a Ford automobile instead of a Honda automobile or a Compaq computer instead of an IBM computer, an economist would assert:

a) That the consumer is making a decision based on what gives them maximum utility

b) That everyone knows Hondas are superior to Fords; the consumer cannot possibly be maximizing his utility

c) That everyone knows IBM computers are superior to Compaq computers; the consumer may be maximizing his utility at the margin, but is not maximizing total utility

d) That there is no standard explanation for consumer choices because consumers have varied tastes and preferences

e) That since rationality is bounded by lack of information, a consumer purchases goods based on convenience than on utility maximization

15. The additional satisfaction that a consumer receives from one more unit of a good or service is known as _____.

a) Marginal utilityb) Total utilityc) Disutilityd) Profite) The law of diminishing marginal utility

16. Suppose two people go out for coffee and donuts at the local donut store. The first donut you eat tastes incredibly good. The second one also tastes pretty good. The third donut seems just okay. With the fourth donut you are turning somewhat green. The fifth donut makes you sick. Your friend, an economist, describes your experience as the principle of:

a) Utility maximizationb) Irrationality in consumer behaviorc) Instant gratificationd) Differing tastes and preferencese) Diminishing marginal utility

17. Which of the following statements about marginal utility is correct?a) When marginal utility is negative, an increase in the quantity will increase total

utilityb) When marginal utility is decreasing, an increase in quantity will decrease total

utilityc) When marginal utility is positive, an increase in quantity will decrease total utilityd) When marginal utility is zero, an increase in quantity will leave total utility

unchangede) When total utility is increasing, marginal utility will be negative

18. Suppose that there are five bottles of lemonade, each of which gives the consumer the same level of utility per day. According to the law of diminishing marginal utility, how can one receive the highest utility?

a) Consume all five bottles in the next hourb) Consume all five bottles todayc) Consume all five bottles in one day next weekd) Consume two bottles today and three tomorrowe) Consume one bottle each day for the next five days

Demand

19. Consider a demand curve for peaches. Which of the following movements will be observed if the price of peaches decline at a point in time?

a) The demand curve will rotate inward at the given price levelb) The will be a movement up along the demand curvec) The demand curve will rotate outward at the given price leveld) There will be a movement down along the demand curvee) There will be no change in the demand curve

20. The change in the quantity demanded of any good is always caused by:a) A change in consumers’ preferences for that goodb) A change in the general income levels of the consumers who buy that goodc) An increase or decrease in the populationd) A change in the price of that goode) A change in the price of substitute goods

21. A decrease in the price of butter would most likely decrease the demand fora) Coffee beansb) Margarinec) Jellyd) Milke) Syrup

22. Which of the following would lead to a rightward shift in the demand curve for golf balls?

a) An increase in the price of golf clubs b) A decrease in the popularity of golfc) An increase in the number of golfersd) A decrease in the price of golf ballse) An increase in the golf club membership fee

Elasticity of Demand

23. Margarine and butter can both be used as a spread on toast. This means that they are: a) Independent goodsb) Complements in consumptionc) Substitutes in consumptiond) Giffen goodse) Inferior goods

24. Which of the following would cause the demand for a good to be relatively inelastic?a) The good has a large number of close substitutesb) The good is a necessityc) Expenditures on the good represent a large share of consumer incomed) The price of the good is in the upper left section of a linear demand curvee) There is ample time to adjust to price changes

25. If the price elasticity of demand is equal to 4, a 1 percent increase in price will cause the quantity demanded to _____ by _____ percent.

a) Increase; 0.25b) Decrease; 0.25c) Increase; 4d) Decrease; 25e) Decrease; 4

26. Suppose 50 loaves of bread are demanded at a particular price. If that price rises by 2 percent, the quantity demanded decreases to 49.5 loaves of bread. This implies:

a) Demand is elasticb) Demand is unit-elasticc) The price elasticity of demand is equal to 2d) Demand is inelastice) Consumers are very responsive to a price change

27. If the demand for cream cheese produced by a dairy is perfectly elastic, then what will be the shape of the demand curve faced by the dairy?

a) The demand curve will be verticalb) The demand curve will be horizontalc) The demand curve will be upward slopingd) The demand curve will be downward slopinge) The demand curve will be concave

Supply

28. Last year a firm made 1,000 units of its product available at a price of $5 per unit. This year the firm will still make 1,000 units available, but only if the price is $7 per unit. What is most likely to have happened?

a) Supply has increasedb) Supply has decreasedc) Demand has decreasedd) Demand has increasede) Quantity supplied has increased

29. Which of the following would lead to an increase in the equilibrium price of product X?a) An increase in consumer incomes if product X is an inferior goodb) Increase in the price of machinery used to produce product Xc) Technological advance in the production of good Xd) Decrease in the price of good Y which is a substitute for good Xe) Expectation by consumers that the price of good X is going to fall

30. A rightward shift of a market supply curve might be caused by:a) The entry of new firms in the industryb) An increase in the wages of labor employed in the industryc) An increase in the price of the final productd) A decrease in the income of consumerse) An increase in the price of a substitute good

31. If the demand curve for mangoes increases and the supply decreases:a) Equilibrium price will decrease, but equilibrium quantity will be ambiguousb) Equilibrium price will increase and equilibrium quantity will increasec) Demand will decrease and supply will increased) Equilibrium price will increase, and equilibrium quantity will be ambiguouse) Both equilibrium price and equilibrium quantity will decrease

Elasticity of Supply

32. When the supply elasticity of a product is 2.5, a 10 percent decrease in price will _____ the quantity supplied of the product by _____ percent.

a) Increase; 25b) Decrease; 25c) Increase; 2.5d) Decrease; 2.5e) Decrease; 4

33. Supply curves applicable to shorter periods of time tend to:a) Be represented by horizontal lines parallel to the quantity axisb) Be perfectly elasticc) Be more inelastic than supply curves that apply to longer periods of timed) Be more elastic than supply curves that apply to longer periods of timee) Have a price elasticity of supply that is approximately equal to 1

EquilibriumFigure 1

34. Based on Figure 1, which of the following conditions would most likely move the point of equilibrium from A to B?

a) An increase in the income of a coffee buyerb) A decrease in the price of coffeec) A drought in Colombia, a major coffee producer, that affects the coffee harvestd) A decrease in the price of non-dairy creamers that are consumed along with

coffeee) An increase in the price of tea, assumed to be a substitute for coffee

35. When will a shortage occur in a market?a) When the actual price is lower than the equilibrium priceb) When quantity supplied is greater than the equilibrium quantityc) When the quantity that consumers are willing and able to purchase decreasesd) When the quantity available at zero price is insufficient to meet demande) When a price floor is set in the market

36. Assume that at the current market price of $4 per unit of a good, you are willing and able to buy 20 units. Last year at a price of $4 per unit, you would have purchased 30 units. What is most likely to have happened over the last year?

a) Demand has increasedb) Demand has decreasedc) Supply has increasedd) Supply has decreasede) Quantity supplied has decreased

Table 1

Quantity Demanded Price per Unit ($) Quantity Supplied10 5 5020 4 4030 3 3040 2 2050 1 10

37. Refer to Table 1. If government imposes a price ceiling of $2:a) The price will be above equilibriumb) The price will fall to $1 because producers will be forced to incur lossesc) Demand will increased) A surplus will result equal to 20 unitse) A shortage will result equal to 20 units

38. Refer to Table 1. If government imposes a price floor of $2:a) The price floor will not have an effectb) The price will fall to $1 because producers will be forced to incur lossesc) Demand will increased) A surplus will result equal to 20 unitse) A shortage will result equal to 20 units

39. If both supply and demand for a good increase, which of the following will definitely happen?

a) Equilibrium price will remain the sameb) Equilibrium price will increasec) Equilibrium price will decreased) Equilibrium quantity will increasee) Equilibrium quantity will decrease

40. In a market where the price is restricted by price floors or price ceilings, a) all sellers will be able to sell everything they produceb) surpluses and shortages will existc) all buyers will get what they wantd) disequilibrium will automatically correct itselfe) surpluses and shortages will put pressure on the price to move to its equilibrium

Production Costs

41. The law of diminishing returns applies:a) In the long run because all inputs are variableb) In the short run because some inputs remain fixedc) In both the short run and the long rund) To fixed inputs in the long rune) To fixed inputs in the short run

42. If the total cost of producing 2 pounds of cheese is $6 and the total cost of producing 4 pounds of cheese is $8, then:

a) Total cost is decliningb) Average total cost is decliningc) Average total cost is increasingd) Average total cost is constante) Total cost is constant

43. Suppose that the total fixed cost of producing five sailboats is $4,000, total variable cost is $4,000, and the total cost of producing six sailboats is $10,000. The marginal cost of the sixth sailboat is:

a) $2,000b) $4,000c) $8,000d) $10,000e) $6,000

44. When average total cost is minimum, it is:a) equal to average variable costb) greater than marginal costc) equal to average fixed costd) equal to marginal coste) less than marginal cost

45. Short run refers to a period of time during which:a) all the factors are constantb) all the factors are variablec) the producer can shift from one plant size to anotherd) some factors are fixed while some others are variablee) the producer cannot change the level of output

46. Suppose that for 20 bicycles, the total fixed cost is $100 and total variable cost is $300. Then the average fixed cost and average variable cost are:

a) $5 and $10 respectivelyb) $5 and $15 respectivelyc) $10 and $15 respectivelyd) $15 and $10 respectivelye) $10 and $5 respectively

47. If a firm doubles its resources and generates an output level which is more than double, it is said to be experiencing:

a) economic fluctuationsb) recessionc) diseconomies of scaled) increasing marginal returns to a factore) economies of scale

48. A firm gets less efficient as it gets bigger, if it is experiencing:a) economies of scaleb) constant returns to scalec) increasing returns to factorsd) diseconomies of scalee) a period of post war recovery

Perfect Competition

49. Under perfect competition, at the profit maximizing level of output:a) Price is greater than marginal revenueb) Price is equal to marginal revenuec) Marginal revenue is equal to zerod) The marginal revenue curve is downward slopinge) The average revenue curve is upward sloping

50. A perfectly competitive firm’s pricing decision depends on:a) Whether the firm wants to maximize profitsb) Whether the firm wants to maximize sales revenuec) The firm’s costsd) Whether it wants to compete with other firms in the markete) The market supply and demand

51. Suppose a perfectly competitive firm's total revenue equals $210 and its output is 70 units when the firm's marginal-cost curve intersects its marginal-revenue curve. Since the firm is a profit-maximizing firm, what is marginal revenue equal to?

a) $15b) $3c) $30d) $7e) $70

52. For a perfectly competitive firm in the short run, which of the following statements is true?

a) A price above minimum average variable cost, but below average total cost will produce an economic profit

b) A price below minimum average variable cost will cause the firm to shut downc) Marginal cost is parallel to the axis showing quantity of outputd) Price is always greater than marginal revenuee) Every firm contributes a significant amount to the total market output

53. If an individual firm in a market is a price taker, then:a) it faces a horizontal demand curveb) it is operating in a monopolistically competitive marketc) it sells its product at the market price that is solely determined by the buyersd) it faces a positively sloped marginal revenue curvee) it faces significant barriers to exit from the market

54. The perfectly competitive producer’s demand curve is:a) downward sloping but more elastic than the market-demand curveb) the market-demand curvec) perfectly elasticd) perfectly inelastice) vertical

The figure below shows the revenue and cost curves for a perfectly competitive firm use it to answer questions 55-57

55. The firm maximizes its profit at an output level of _____ units.a) Rb) Sc) Td) Ue) V

56. In the graph above, average fixed cost at the profit-maximizing output is equal to ______.a) UHb) UGc) GHd) UNe) HN

57. In the graph above, the firm's profit is equal to the area:a) OIWRb) JKEFc) OKETd) LMNGe) OJF

Monopoly

58. Which of the following is an assumption of the monopoly model?a) There exists a large number of buyers and sellers.b) There are no close substitutes of the good.c) The firm faces a horizontal demand curve.d) There is free entry and exit of firms.e) The firm is a price taker.

59. In many cities the market for cab services is monopolized. This monopoly arises because:a) of economies of scaleb) of government restriction of entryc) there is a limited space on the streets for taxisd) it protects the consumers from unscrupulous driverse) of high fixed costs of entering the business

60. Grocery store coupons, mail-in rebates, senior discounts, and in-state versus out-of-state tuition fees are all examples of:

a) government interventionb) price neutralityc) arbitrage pricingd) price discriminatione) illegal business practice

61. Economists have argued that there may be inefficiencies in industries that are monopolies. Which of the following are some of the reasons cited for this inefficiency?

I. Prices are set above marginal cost.II. They maximize profit by producing less than the socially optimal quantity.

III. There are positive economic profits in the long run.a) I and II onlyb) II onlyc) III onlyd) II and III onlye) I, II, and III only

Market Failures and the Role Government

62. A market failure occurs when:a) The market outcome is viewed as unfair by a majority of consumersb) A market fails to provide the good at a zero pricec) Quantity demanded exceeds quantity suppliedd) The market outcome is not the socially efficient outcomee) Prices are determined by the interaction of the forces of demand and supply and

not through central planning

63. In the case of public goods:a) the free rider problem does not ariseb) one person’s consumption of the good reduces the consumption of the good by

othersc) the goods are non-excludable and non-rival d) individuals can be easily excluded from consuming the good once it is providede) the quantity produced by a private market would be too large from society’s

viewpoint, because private firms could not force payment for the goods

64. When economic activity imposes costs on others not directly involved in the transaction:a) A negative externality existsb) A positive externality existsc) Then the market, will produce too little of the goodd) The tragedy of commons problem arisese) A free rider problem arises.

65. Which of the following is an example of a positive externality?a) Smoking a cigaretteb) Driving a less fuel efficient vehiclec) Setting up a chemicals factory in a residential aread) Overuse of chemical fertilizerse) Beekeepers keeping bees for honey which also happen to pollenate nearby plants

66. When social costs of producing or consuming a good exceed private costs:a) a positive externality existsb) an inefficiently high quantity of a good will be produced and consumedc) the direct consumers of the good will bear the external costsd) the individuals involved in the production of the good do not bear the private

costse) the quantity of the good produced will be less than the socially efficient level

67. Market provision of a public good will lead toa) The efficient quantityb) The efficient pricec) An inefficiently high quantity of the goodd) An inefficiently low quantity of the goode) None of the good being provided

Marginal Analysis

68. Johnny the Skeleton decides to go to the movies to see the latest superhero movie. The most probable reason Johnny the Skeleton decides to see the latest superhero movie is because:

a) The marginal benefit of the movie exceeds the marginal costb) The marginal benefit is less than the marginal costc) The additional satisfaction he receives does not surpass the movie ticket costd) He can’t do anything else evere) The amount of compensation he receives benefits the world