Download ECON 6115- Test Bank with 105 A+ PASS!!! and more Exams Economic Analysis in PDF only on Docsity!
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ECON 6115- Test Bank with 105 A+
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This textbook is about microeconomics because it deals mainly with the behavior of variables such as: A. economic sectors, the business cycle and monetary and fiscal policies. B. national output, interest rates, unemployment and inflation. C.individual economic units, such as consumers, firms, workers and investors D.national and international markets, exchange rates and economic treaties. - ANSWER-C Which of the following statements is false? An economic analysis of carbon taxes can: A. predict the effect on unemployment in West Virginia coal mining communities. B. conclude that such taxes should be imposed to benefit future generations. C. present a trade-off of the costs and benefits of different levels of carbon taxes. D. calculate the increase in costs faced by coal-using industries. compare the likely reductions in medical expenditures on diseases caused by smog. - ANSWER-B Use the following two statements to answer this question: I. Economic theories are developed to explain observed phenomena by deducing from a set of basic rules and assumptions. II. Economic theories use value judgments to determine which people ought to pay more taxes. A. Both I and II are false. B. I is false, and II is true. C. I is true, and II is false. D. Both I and II are true. - ANSWER-C The textbook argues that one of the trade-offs workers make is working for a small company or a large company. The small companies offer: A.benefits that appeal to the workers that do not include job security or career advancement. B. job security but limited potential for advancement. C. both job security and ample potential for advancement. D. more potential for advancement but limited job security. - ANSWER-D Which of the following is a positive statement? A. The minimum wage should not be increased because this action would increase unemployment. B. Smoking should be restricted on all airline flights.
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C. All automobile passengers should be required to wear seatbelts in order to protect them against injury. D. Intermediate microeconomics should be required of all economics majors in order to build a solid foundation in economic theory. E. none of the above - ANSWER-E The basic premise behind worker trade-offs in a market economy is that: A. workers decide how to allocate their time between work and leisure. B. workers don't decide how much leisure to have. The amount of leisure depends on the number of hours they must work, which is determined by the firm. C. the trade-off between work and leisure is determined by factors other than what workers or firms would determine to be optimal. D. firms decide how much workers must work and workers decide how much leisure to have. - ANSWER-A Use the following statements to answer this question: I. If the extent of a market is broader, it is less likely that firms in the market can influence the market price. II. In determining whether two different products belong to the same market, it is necessary to know whether the two products can be used as substitutes for each other. A. I and II are both true. B. I is true, and II is false. C. I and II are both false. D. I and II are both false. - ANSWER-A Although there are many reasons why a market can be non-competitive, the principal economic difference between a competitive and a non-competitive market is: A. the number of firms in the market. B. the annual sales made by the largest firms in the market. C. the size of the firms in the market. D the extent to which any firm can influence the price of the product. E the presence of government intervention. - ANSWER-D Although the U. S. airline industry has only a relatively small number of sellers, the market is nevertheless highly competitive. The reason is that: A. the number of buyers is very large. B. due to fierce competition, no firm has significant control over the quantity supplied. C. most airline routes are served by relatively many sellers. D. due to fierce competition, no firm has significant control over prices. - ANSWER-D Which of the following statements about markets and industries is TRUE? A.A market includes buyers but not sellers. B. An industry includes buyers but not sellers.
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B. a change in the demanded for two goods, following a change in the price of one good. C. the value of price elasticity at which supply crosses demand. D. the percentage change in the quantity demanded of one good resulting from a 1- percent increase in the price of another good. - ANSWER-D Peak season demand for Orlando hotel rooms is: Rooms = 200,000 - 1000 Rate What would be the nightly room rate that would fill all 100,000 rooms in Orlando hotels? $ $ $ $ $50 - ANSWER-$ For automobile demand in the U.S., the income response tends to be larger in the: A. The income response is the same in the long run and the short run. B. long run. C. We do not have enough information to answer this question. D.short run. - ANSWER-D For computers and other business equipment, small changes in business earnings tend to generate relatively large short-run changes in the demand for this equipment, and the long-run income response tends to be smaller. Industries that face demand behavior of this type are known as: A. natural monopolies. B. cartels. C. cyclical industries. D. constant-cost industries. - ANSWER-C Which of the following terms refers to price elasticity of demand calculated over a range of prices? A. Unit elasticity B. Cross-price elasticity of demand C. Point elasticity of demand D. Arc elasticity of demand - ANSWER-D A simple linear demand function may be stated as Q = a - bP + cI where Q is quantity demanded, P is the product price, and I is consumer income. To compute an appropriate value for b, we can use observed values for Q and P and then set - b(P/Q) equal to the: A. cross-price elasticity of demand. B. price elasticity of supply.
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C. income elasticity of demand. D. price elasticity of demand. - ANSWER-D Suppose the observed annual quantity of steel exchanged in the European market is 30 million metric tons, and the observed market price is 90 euros per ton. If the price elasticity of demand for steel is - 0.3 in Europe, what is an appropriate value for the price coefficient (b) in a linear demand function? A. b = - 0. B. b = 0. C.b = 0. D. b = - 0.1 - ANSWER-D When supply is written as Q = c + dP and P* and Q* are the equilibrium values for price and quantity, which of the following is the value of the price elasticity of supply, ES? A. - c/d B. c(P/Q) C. - d/c D. d(P/Q) - ANSWER-D A simple linear demand function may be stated as Q = a - bP + cI where Q is quantity demanded, P is the product price, and I is consumer income. To compute an appropriate value for c, we can use observed values for Q and I and then set the estimated income elasticity of demand equal to: A. c(Q/I). B. - b(I/Q). C. Q/(cI). D. c(I/Q). - ANSWER-D A price floor policy establishes a minimum price for a market, and the policy is said to be binding if the market equilibrium price is less than the floor price. What impact does a binding price floor have on the market outcome? A. Shortage B. Excess demand C. Excess supply D. No impact, and the market price and quantity equal their equilibrium values - ANSWER-C When the government controls the price of a product, causing the market price to be above the free market equilibrium price, A. some, but not all, sellers can find buyers for their goods. B. only consumers gain. C. both producers and consumers gain. D. all producers gain. - ANSWER-A
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B. an undetermined change in expenditures. C. an increase in total expenditures. D. no change in total expenditures. - ANSWER-A Some luxury product manufacturers will purposefully raise prices on their goods in order to reduce sales volume. This strategy may successfully increase sales revenue if the luxury goods are subject to the ________ effect and have relatively ________ demand. A. bandwagon; elastic B. snob; inelastic C. bandwagon; inelastic D. snob; elastic - ANSWER-B Which of the following are examples of situations with negative network externalities? A. All of the above B. A crowded beach C. Clothing made to order D. A rare work of art - ANSWER-A A positive network externality associated with a good: A. is not associated with the value of a good in any way. B. yields more intrinsic value than without it. C. yields more extrinsic value but less intrinsic value from its consumption. D. results in less intrinsic or extrinsic value. - ANSWER-B The opposite of the bandwagon effect is: A. a network externality, positive or negative. B. a positive network externality. C. the substitution effect. D. the snob effect. - ANSWER-D When network externalities are present: A. a person's demand cannot be affected by the number of other people who have purchased the good. B. we can obtain the market demand curve simply by summing individuals' demands. C. one person's demand also depends on the demands of other people. D. the social cost of production is larger than the private cost - ANSWER-C Part of the reason for the success of Facebook is: A. the avoidance of a positive externality. b. a strong negative network externality. C. a strong positive network externality. D. the avoidance of a negative externality. - ANSWER-C.
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The advantage of an isoelastic demand curve is that: A. both price and income elasticities are constant along the curve. B. income elasticity is constant and price elasticity changes along the curve. C. price elasticity is constant and income elasticity changes along the curve. D. both price and income elasticity change along the curve. - ANSWER-A Which of the following algebraic forms of a demand curve yields an isoelastic demand curve (i.e. a demand with constant elasticity)? A. Q = a - bP + cI B. log(Q) = a - b log(P) + c log(I) C. Q = a - b log(P) + c log(I) D. log(Q) = bP + cI - ANSWER-B When demand is written as log(Q) = - 0.23 - 0.34 log(P) + 1.33 log(I), the price elasticity of demand equals:
1.33 - ANSWER--. When a demand curve is expressed in log-linear form, such as log(Q) = a - b log(P) + b2 log(P2) + c log(I), the coefficients of the demand determinants correspond to: A. changes in determinants other than price. B. the parameters that may fluctuate in value. C. the independent variables in the model. D. the elasticity values of those determinants. - ANSWER-D Firms face trade-offs in production, including decisions related to: A how much of a particular product to produce. B which products to produce. C the best way to produce a given amount of output. D all of the above - ANSWER-D Microeconomics is the branch of economics that deals with which of the following topics? D. A and C A. The behavior of individual firms and investors E. B and C B. Unemployment and interest rates C. The behavior of individual consumers - ANSWER-D A valid and useful theory of gold prices:
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C. A firm is interested in knowing its actual and potential competitors. D. both A and C E. both A and B - ANSWER-D In the definition of a market, economists consider: A. actions by third parties that do not include buyers or sellers in the market. B. both actual and potential interactions between buyers and sellers. C. neither actual nor potential interactions between buyers and sellers. D. only actual interactions between buyers and sellers, not potential interactions. - ANSWER-B In a perfectly competitive market: A. there are a few buyers. B.there is a cartel. C. no single buyer or seller can significantly affect the market price. D.there is a single seller. - ANSWER-C Which of the following is NOT an example of a way in which microeconomic analysis can help in designing environmental policy? A. Examining the trade-offs between ecological benefits of environmental legislation and its impacts on consumers' standard of living B. Lobbying consumers and firms to reduce consumption of energy C. Designing laws to provide incentives for firms to implement clean technologies in new vehicles D. Determining the optimal level of vehicle fuel efficiency standards - ANSWER-B The cross-price elasticity of demand for peanut butter with respect to the price of jelly is
- 0.3. If we expect the price of jelly to decline by 15%, what is the expected change in the quantity demanded for peanut butter? Correct! +4.5%
- 4.5% +15% +45% - ANSWER-+4.5% For U.S. consumers, the income elasticity of demand for fruit juice is 1.1. If the economy enters a recession next year and consumer income declines by 2.5%, what is the expected change in the quantity of fruit juice demanded next year? +2.75%
- 27.5% +27.5%
- 2.75% - ANSWER--2.75%
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Which of the following is NOT an example of ways in which microeconomic analysis can help Toyota Motor Corporation in its corporate decision making? A.Forecasting demand for new automobiles B. Determining how many automobiles to produce in order to maximize profits C. Forecasting the effect of an oil price increase on demand for hybrid autos D. Predicting how competitors will react to the firm's pricing strategy E. Forecasting the effect of Toyota's hiring patterns on the U.S. unemployment rate - ANSWER-E An industry in which sales tend to magnify cyclical changes in gross domestic product and national income is called: A. a cyclical industry. B.a counter-cyclical industry. C. a dismal industry. D. a fluctuating industry. - ANSWER-A According to the textbook, for most goods and services-foods, beverages, entertainment, etc.-the income elasticity of demand is: A. larger in the short run than in the long run. B. larger in the long run than in the short run. C. about the same in the short run and in the long run. D. is difficult to differentiate from the short run to the long run. - ANSWER-B Suppose the observed annual quantity of steel exchanged in the European market is 30 million metric tons, and the observed market price is 90 euros per ton. If the linear demand function for steel takes the form Q = a - 0.9P, what is an appropriate value for the intercept coefficient a? a = - 111 a = 51 a = - 51 a = 111 - ANSWER- 111 In order to fit linear supply and demand curves to data, we need to find the parameters, a, b, c, and d, of the corresponding functions. A.One procedure for finding those values uses the known values of: the price elasticity of demand and supply and the income elasticity of demand. B. the price and quantity of equilibrium and the elasticities of supply and demand. C. any two known values of price and quantity and income elasticity of demand. D. the demand equation and income elasticity of demand. - ANSWER-B Other things being equal, the increase in rents that occurs after rent controls are abolished is smaller when: A.rented homes and owned homes are substitutes. B. rented homes and owned homes are complements.
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B. Demand curve shifts, but its degree of elasticity does not change. C. There is no change in the individual demand curve. D. Demand curve becomes less elastic due to the snob effect. - ANSWER-A The standardization of software applications that people can easily share is an example of: A. a network externality that can be positive or negative. B. an innovation that does not carry a network externality. C. a negative network externality. D. a positive network externality. - ANSWER-D Luxury brands like designer sun glasses are goods that may exhibit snob effects. Suppose this is true, and the price for a particular brand increases. What happens to the component changes in the quantity demanded? A. Pure price effect is positive, snob effect is negative. B. Pure price effect and snob effect are positive. C. Pure price effect is negative, snob effect is positive. D. Pure price effect and snob effect are negative. - ANSWER-C When network externalities are present, the market demand for the good in question becomes: A. less elastic. B. more elastic. C. unit elastic. D. perfectly inelastic. - ANSWER-B When would it be plausible to describe the demand for a product by drawing a straight line, Q = a - bP? A. Only if no important factors other than price affect demand B. In the vast majority of scenarios C. Practically never D. If we believe that factors other than price alone determine demand - ANSWER-A In the demand equation log(Q) = a - b log(P) + b2 log(P2) + c log(I), where P is the price of the good in question, P2 is the price of a second good and I is income, the second good must be: A. a complement for the good in question. B. a normal good. C. an inferior good. D. a substitute for the good in question. - ANSWER-D Estimations of demand are used as input in this type of scenario: A. understanding automobile demand to decide whether to offer below-market-rate loans for new cars.
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B. as input into a firm's decision-making process. C. understanding the demand for oil in order to impose a new oil import tax. D. all of the above - ANSWER-D
- Which of the following is a normative question about an initiative to impose a new tax? A.All of the above are normative considerations. B. What is the expected impact on producers and consumers? C. How much revenue is the tax expected to raise? D. Is the tax considered to be in the public interest? - ANSWER-D ________ questions have to do with explanation and prediction; ________ questions have to do with what ought to be. A. Negative; normative. B. Positive; negative. C. Affirmative; positive. D. Econometric; theoretical. E. Positive; normative. - ANSWER-E
- An investor can acquire shares of stock in Acme Corporation either by purchasing shares on the stock market or by purchasing a bond that is convertible into shares of Acme stock. After careful study, the investor discovers that she can profit by purchasing the bond, converting it to shares of stock, and selling the stock. This practice is called: A. arbitrage. B. dumping. C. profiteering. D.selling short. E. none of the above - ANSWER-
- From Example 1.2 in the textbook, Pindyck and Rubinfeld distinguish between the mass market and dealer market for bicycles. Although there are many dealers in the U.S. and only a few mass merchandisers, we should expect the dealer market to be somewhat less competitive than the mass market. Why?
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D All of the above C Toyota confronted the risk of making large investments and the uncertainly over future oil prices. - ANSWER-C
- According to the textbook, the income elasticity of demand is: A about the same in the short run and in the long run. B much smaller in the short run than in the long run. C much larger in the short run than in the long run. D is difficult to differentiate from the short run to the long run. - ANSWER-C
- The secondary supply of copper is: A equally elastic in the short run and in the long run. B unit elastic in the short run and perfectly elastic in the long run. C more elastic in the short run than in the long run. D less elastic in the short run than in the long run. - ANSWER-C
- A freeze in Florida's orange growing regions will: A result in a sharp increase in the price of oranges in the short run because demand and supply are highly elastic. B result in a sharp increase in the price of oranges in the short run because demand and supply are highly inelastic. C result in little change in the price of oranges in the short run because supply is infinitely elastic. D result in a sharp decrease in the price of oranges in the short run because demand is highly inelastic and supply is highly elastic. - ANSWER-B
- Suppose that, at the market clearing price of natural gas, the price elasticity of demand is - 1.2 and the price elasticity of supply is 0.6. What will result from a price ceiling that is 10 percent below the market clearing price? A More information is needed.
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B A shortage equal to 1.8 percent of the market clearing quantity C A shortage equal to 0.6 percent of the market clearing quantity D A shortage equal to 18 percent of the market clearing quantity E A shortage equal to 6 percent of the market clearing quantity - ANSWER-D
- Suppose the supply of coal is perfectly inelastic, and the price elasticity of demand for coal is - 0.4. If the government imposes a binding price ceiling for coal at a price that is 20 percent below the market equilibrium price, what is the impact of this policy on the market quantity? A Excess demand equals 16 percent of the market equilibrium quantity. B Excess demand equals 80 percent of the market equilibrium quantity. C The policy does not affect the market quantity. D Excess demand equals 8 percent of the market equilibrium quantity. - ANSWER-D
- When demand is inelastic, an increase in price causes the seller's total revenues to: A fall to zero. B decrease. C remain the same. D increase. - ANSWER-D The horizontal summation of the demands of each consumer at different price levels is called: A. the price elasticity of market demand. B. the market demand curve. C. consumer surplus. D speculative demand. - ANSWER-B
- When demand is inelastic, an increase in price leads to: A an undetermined change in expenditures.
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B. increase price more than quantity sold. C. augment the impact of the snob effect. D. minimize the impact of the snob effect. - ANSWER-C
- Other things being equal, the lower the value of elasticity: A. the more likely the profitability of a price increase. B. the less likely the profitability of a price increase. C. the greater the responsiveness in quantity demanded to a price change. D. the lower the corresponding increase in firm revenue. - ANSWER-A
- Estimations of demand are used as input in this type of scenario: A. understanding the demand for oil in order to impose a new oil import tax. B. understanding automobile demand to decide whether to offer below-market-rate loans for new cars. C. as input into a firm's decision-making process. D. all of the above - ANSWER-D
- During a presidential campaign, the candidates from each party typically describe their plans to maintain or change federal taxes on personal and business income. Are these policy statements generally positive or normative in nature? A. Both positive and normative B. Positive C. Normative D. Neither positive or normative - ANSWER-C
- The problem of scarcity means that people face trade-offs. Which of the following trade-offs are the concern of microeconomics? A. Trade-offs faced by firms in what goods to produce
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B. Trade-offs faced by consumers in the purchase of goods C. Trade-offs faced by workers between work and leisure D. all of the above - ANSWER-D
- A Rolling Stones song goes: "You can't always get what you want." This echoes an important theme from microeconomics. Which of the following statements is the best example of this theme? A. Consumers must make the best purchasing decisions they can, given their limited incomes. B. Firms in market economies have limited financial resources. C. Workers do not have as much leisure as they would like, given their wages and working conditions. D. Workers in planned economies, such as North Korea, do not have much choice over jobs. - ANSWER-A
- A key factor that determines the geographic extent of a housing market is the distance that commuters are willing to travel from home to work. Which of the following events would NOT help to expand the geographic extent of the housing market in a metropolitan area? A. Public transit fares decrease B. Price of gasoline declines C. State gasoline tax increases D. none of the above - ANSWER-C
- Which considerations regarding regulatory policies were related to the production of the Toyota Prius in the United States? A.Toyota had to make sure it complied with health and safety regulations. B. Since the car was a hybrid, Toyota did not have to worry about federal emissions standards. D. All of the above
