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Microeconomics True/false

52 Questions  I  By Jlsanko
Microeconomics True/False

  
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1.  A number of years ago, a company that is now out of business disposed of its chemical waste products by spraying them on the ground. It will take the EPA millions of dollars to clean up this site. This situation is an example of an externality. 
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2.  A market economy is usually an efficient method of organizing economic activity.
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B.
3.  The statement, "The government should step in to increase farm subsidies in times of drought," is an example of a normative economic statement. 
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4.  A critical part of economic modeling is to make the correct assumptions for the model. 
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5.  When considering two goods, two countries will benefit from trading the goods only when one country has an absolute advantage over teh other in the production of both goods. 
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6.  The reason trade makes everyone better off is that businesses can specialize in the things in which they can best use their resources, then trade for the things they are not so efficient at producing. 
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7.  For some goods and services, it would be wise for a society to produce at a level inside the production possibilities frontier. 
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8.  The statement, " A cut in income tax rates spurs growth in the economy." is an example of a positive economic statement. 
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9.  According to the table above, Country B has an absolute advantage in the production of rifles. 
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10.  In the table above, the opportunity cost for Country B to produce a rifle would be 18.75 pounds of butter. 
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11.  According to the table, Country A has a comparative advantage in the production of butter. 
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12.  The principle of comparative advantage is the basis for most arguments in favor of free trade. 
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13.  Most economists believe that if inflation goes down, unemployment will go down in the short term. 
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14.  A government program that provides free medical care to low-income mothers with small children is an example of a government intervention in the market because of equity concerns. 
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15.  Jessica Campbell is considering two possible jobs after graduation. One pays $35,000 per year, but requires a move to California. The other pays $30,000 per year for a similar job, but is nearby. If Jessica chooses the nearby job, the opportunity cost of the decision would be $30,000. 
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16.  Because economic policies are based on past economic research, economists seldom disagree about economic policy. 
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17.  In Bangladesh, the average worker earns about $250 per year. One should expect that Bangladesh would also be an economy with low productivity. 
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18.  In the long term, a country would not be able to shift its production possibilities curve for particular goods or services without finding new resources, improving its technology, or becoming more efficient in using its resources. 
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19.  If a producer faces unit elastic demand for his or her product, there are no market incentives to either raise or lower product prices. 
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20.  Market supply is a horizontal summation of the supply curves for all producers willing and able to supply their product to the market in a given length of time. 
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21.  Rumors are flying down at the coffee shop that the largest employer in town is about to announce layoffs. This would tend to shift the demand curve for cars at local car dealers to the left. 
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22.  Pork  and beef are substitute meat products. This relationship means that if the price for beef goes up, demand for pork goes down. 
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23.  As the time period increases, most products will become more elastic in their price elasticity of demand. 
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24.  Producers who manufacture products with inelastic demand have market incentives to lower prices. 
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25.  The Environmental Protection Agency has just put a regulation in place that will increase the cost of production for coal miners. The new regulation impact the market by causing the supply curve for coal to shift to the left. 
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26.  A luxury good would also be a normal good. 
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27.  One result of a rent control program such as New York City's is a surplus of rent control apartments for this market. 
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28.  Concrete plants just announced that the price of concrete will go up 15% per cubic yard, effective immediately. Since contractors use concrete for basements, footings, driveways, and sidewalks, the effect of the price increase would be to move the supply curve for new housing to the left. 
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29.  Since milk has few substitutes, demand for milk tends to be price inelastic. 
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30.  Spring has arrived and a local retailer has coats, mittens, and other winter gear left over. In the short run, a competitive market would react to this situation by forcing the prices for this gear lower. 
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31.  Chronic shortages of goods and services are a characteristic of competitive markets. 
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32.  Market demand represents a horizontal summation of the all of the demand curves for consumers willing and able to purchase a good or service in a given length of time. 
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33.  Recent good prices for fishing tackle have encouraged new businesses to enter the market and begin production. Entry of these new businesses will move the supply curve for fishing gear to the left. 
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34.  Because of a terrible ice storm, there has been a run on products like flashlights, kerosene heaters, dry ice, etc. In the short run, a competitive market would react to this shortage by pressuring prices lower. 
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35.  The U.S. Congress is considering a tax cut for the middle class, which would give these consumers additional income. This news would shift the demand curve for expensive watches to the left. 
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36.  For most consumers, bread and butter are complementary goods. This relationship means that if the price for bread falls, the demand for butter will also fall. 
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37.  In an industry where it may take a year or longer to get a new plant up and running (e.g., automobile manufacturing), supply would tend to be inelastic. 
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38.  Big-ticket items like houses tend to be elastic in their price elasticity of demand. 
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39.  If the government sets the farm commodity loan price above the market equilibrium price, surpluses will occur for farm commodities covered by the loan programs. 
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40.  The DIRTI 5 is an acronym for all variable costs. 
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41.  Easy entry and exit of firms ensures that there will be no long-run economic profits for a firm in perfect competition. 
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42.  Firms in competitive markets will be able to set their price for their products, regardless of what other firms in the market are charging for the product. 
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43.  At Businessman Adams' CD production plant, average fixed costs per CD are 1.1 cent and average total costs are 2.8 cents. Adams' average variable costs must be 1.7 cent per CD. 
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44.  In competitive markets, there are market incentives for firms to make as efficient use as possible of the resources committed to the business. 
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45.  In the short run, only those businesses currently in the market will have the ability to respond to market price incentives and supply more (or less) product to the market. 
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46.  In the short run, a firm in a competitive market that cannot pay for all its fixed and variable costs should shut down until the price improves. 
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47.  A firm making an economic profit must also be making an accounting profit. 
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48.  ABC Manufacturing has been analyzing the plastic worm manufacturing market, but is not currently in the business of making them. If ABC's variable cost per worm would be 38 cents and its fixed cost per worm would be 35 cents, ABC would be likely to enter the market if the current market price for plastic worms is 49 cents each. 
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49.  Adding production workers, but being able to supervise them with the same number of supervisory staff would be an example of an economy of scale. 
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50.  In the long run, a firm in a competitive market whose average total cost is higher than the current market price will exit the market. 
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51.  Businessman Brown currently runs a plastics plant that manufactures soda bottles. For the 2-liter bottle line, fixed costs run 0.7cents per bottle and variable costs currently run 0.8cents. If the market price for bottles drops to 1.3cents, Brown should stop production on the 2-liter line. 
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52.  To move more of its products, a firm in a competitive market should set the price for its product to enter the current market price. 
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