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Question 1 (5 points)
Economics is the study of:
Question 1 options:
increasing the level of productive resources so there is maximum output in society.
increasing the level of productive resources so there is a minimum level of income.
how people, institutions, and society make choices under conditions of scarcity.
the efficient use of scarce resources paid for at the minimum level of cost to consumers and businesses.
Question 2 (5 points)
Which of the following is not a central focus of the “economic perspective”?
Question 2 options:
Scarcity and choice.
The scientific method.
Question 3 (5 points)
The satisfaction or pleasure one gets from consuming a good or service is:
Question 3 options:
Question 4 (5 points)
The private ownership of property resources and use of prices to direct and coordinate economic activity is characteristic of:
Question 4 options:
a command system.
a market system.
Question 5 (5 points)
Which statement best describes a capitalist economy?
Question 5 options:
The production of goods and services is determined primarily by markets, but the allocation of goods and services is determined primarily by government.
The production of goods and services is determined primarily by government, but the allocation of goods and services is determined primarily by markets.
The production and allocation of goods and services is determined primarily through markets.
The production and allocation of goods and services is determined primarily through government.
Question 6 (5 points)
Capitalism is an economic system that:
Question 6 options:
produces more capital goods than consumer goods.
produces more consumer goods than capital goods.
gives the government the right to tax individuals and corporations.
private individuals and corporations the right to own productive resources.
Question 7 (5 points)
In a market system, well-defined property rights are important because they:
Question 7 options:
reduce unnecessary investment.
limit destructive economic growth.
create economic problems.
encourage economic activity.
Question 8 (5 points)
If two goods are complements:
Question 8 options:
they are consumed independently.
an increase in the price of one will increase the demand for the other.
a decrease in the price of one will increase the demand for the other.
they are necessarily inferior goods.
Question 9 (5 points)
When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. In this range of prices, demand for this product is:
Question 9 options:
Question 10 (5 points)
Demand can be said to be inelastic when:
Question 10 options:
an increase in price results in a reduction in total revenue.
a reduction in price results in an increase in total revenue.
a reduction in price results in a decrease in total revenue.
the elasticity coefficient exceeds one.
Question 11 (5 points)
Economic growth is shown by a shift of the production possibilities curve outward and to the right.
Question 11 options:
Question 12 (5 points)
The four factors of production are land, labor, capital, and government services.
Question 12 options:
Question 13 (5 points)
If demand increases and supply simultaneously decreases, equilibrium price will rise.
Question 13 options:
Question 14 (5 points)
Property rights have a positive effect in a market economy because they encourage owners to maintain their property.
Question 14 options:
Question 15 (5 points)
In the price range where demand is inelastic, a decrease in price will result in a decrease in total revenue.
Question 15 options:
Question 16 (5 points)
Price elasticity of supply decreases the longer the time period.
Question 16 options:
Question 17 (5 points)
Toothpaste and toothbrushes are substitute goods.
Question 17 options:
Question 18 (5 points)
A government-set price ceiling will lower equilibrium price and quantity in a market.
Question 18 options:
Demand for Shirts
Question 19 (5 points)
(Exhibit: Demand for Shirts) The price elasticity of demand for the segment AB is:
Question 19 options:
Question 20 (5 points)
(Exhibit: Demand for Shirts) The price elasticity of demand for the segment BC is:
Question 20 options:
greater than 3.33 (absolute value).
Question 21 (5 points)
(Exhibit: Demand for Shirts) The price elasticity of demand for the segment CD is:
Question 21 options:
greater than 1 (absolute value).
Markets and Efficiency
Question 22 (5 points)
(Exhibit: Markets and Efficiency) In panel (a):
Question 22 options:
the price of apples is $0.80 and the quantity demanded is Q1.
the equilibrium price ensures that quantity demanded will match quantity supplied.
the equilibrium price ensures that there will be neither surpluses nor shortages.
all of the above are true.
Question 23 (5 points)
(Exhibit: Markets and Efficiency) The equilibrium price in Panel (a) tells us that the marginal cost of a pound of apples is:
Question 23 options:
less than $0.80.
equal to $0.80.
greater than $0.80.
equal to the average cost of producing apples.
Question 24 (5 points)
(Exhibit: Markets and Efficiency) The price and marginal cost in Panel(a) are equal because of:
Question 24 options:
the marginal decision rule.
the law of demand.
the law of supply.
the law of increasing cost.
Question 25 (5 points)
(Exhibit: Markets and Efficiency) What is the marginal benefit to a producer of an extra pound of apples in Panel (a)?
Question 25 options:
It is the price the producer receives.
It is the price the consumer receives.
It is the price the producer pays.
It is all of the above.
Question 26 (5 points)
(Exhibit: Markets and Efficiency) What is the marginal cost of an extra pound of apples to a producer in Panel(a)?
Question 26 options:
It is greater than the price.
It is the value that must be given up to produce an extra pound of apples.
It must be less than the price.
It is the cost of the least satisfactory apples.
Question 27 (5 points)
(Exhibit: Markets and Efficiency) In Panel (b) demand shifted from D1 to D2, reflecting a change in consumer preferences. The price of apples will change to the new equilibrium price:
Question 27 options:
where the marginal benefit of apples is again equal to the marginal cost.
where an efficient solution is again achieved.
that is described by all of the above.
Question 28 (20 points)
What effect on the price elasticity of demand for commuter rail is there likely to be from a decrease in the price of gasoline? Explain your answer.
Decrease in price of gasoline will increase use of personal vehicles as people will find it cheaper and more comfortable to use personal vehicle. Personal vehicles and commuter rails are substitutes. Increase in use of personal vehicles will reduce demand for commuter rail. Price of ticket of commuter rail does not vary with shirt-term fluctuations in the price of gasoline. So in short-term, demand for commuter rail will decrease. If price of gasoline remains low for long time, ticket price of commuter rail will fall and so demand for commuter rail will increase.
The quantum of impact of change in price of gasoline on the demand of commuter rail is determined by cross-price elasticity of demand of commuter rail with respect to the price of gasoline. Cross-price elasticity between gasoline price and demand for commuter rail is about 0.2 (Nowak & Savage, 2013). So, change in price of gasoline will have small impact on the demand for commuter train. Positive cross-price elasticity shows that decrease in price of gasoline will lead to decline in demand for commuter train. For every 1% decrease in price of gasoline, demand for commuter train will decline by 0.2%.
Nowak, W. P., & Savage, I. (2013). The cross elasticity between gasoline prices and transit use: Evidence from Chicago. Transport Policy. 29 (2013) 38–45.
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