Bonus Quiz For Econone - T3 Ay0910

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This is a bonus quiz for third term, AY09-10 DLSU ECONONE students of Paulo Mutuc.

• 1.

Economic Cost...

• A.

Is generally bigger than Accounting Cost

• B.

Is Accounting Cost + Opportunity Cost

• C.

A and B

• D.

None of the above

C. A and B
Explanation
The correct answer is A and B. Economic cost is generally bigger than accounting cost because it includes not only the explicit costs recorded in accounting but also the implicit costs such as opportunity cost. Opportunity cost refers to the value of the next best alternative foregone when making a decision. Therefore, economic cost considers both the explicit and implicit costs, making it larger than accounting cost which only includes the explicit costs.

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• 2.

Economic outcomes are judged by all or any of the following criteria, except for:

• A.

Growth

• B.

Stability

• C.

Efficiency

• D.

Sufficiency

• E.

Equity

D. Sufficiency
Explanation
Economic outcomes are evaluated based on various criteria such as growth, stability, efficiency, and equity. However, sufficiency is not considered as one of the criteria to judge economic outcomes. Sufficiency refers to having enough resources or income to meet basic needs, whereas the other criteria focus more on the overall performance and fairness of the economy.

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• 3.

What is the slope of the line Y = 5x + 10?

• A.

5

• B.

1/5

• C.

10

• D.

1/10

A. 5
Explanation
The slope of a line is the coefficient of the x-term in the equation of the line. In this case, the equation of the line is Y = 5x + 10. The coefficient of the x-term is 5, so the slope of the line is 5.

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• 4.

"Absolute advantage" means one party facing lower opportunity cost compared to another in the performance of a task or the production of a good.

• A.

True

• B.

False

B. False
Explanation
The explanation for the given answer is that "Absolute advantage" means one party has the ability to produce more of a good or service with the same amount of resources compared to another party. It is not about the lower opportunity cost, but rather about the higher productivity or efficiency in production. Therefore, the statement is false.

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• 5.

Points lying on the same indifference curve represent...

• A.

Quantities of two goods that exhaust a person's budget

• B.

Quantities of two goods that make a person equally happy

• C.

Quantities of two goods that exhaust a person's budget and make her equally happy

• D.

None of the above

B. Quantities of two goods that make a person equally happy
Explanation
Points lying on the same indifference curve represent quantities of two goods that make a person equally happy. Indifference curves represent different combinations of goods that provide the same level of satisfaction or utility to an individual. Therefore, any point on an indifference curve represents a combination of goods that yields the same level of happiness or satisfaction for the person.

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• 6.

A donward-sloping Income Consumption Curve implies...

• A.

An Inferior good

• B.

A Normal good

• C.

A. An Inferior good
Explanation
A downward-sloping Income Consumption Curve indicates that as income increases, the quantity consumed of the good decreases. This pattern is typically observed for inferior goods, which are goods for which demand decreases when consumer income rises. Inferior goods are generally of lower quality or less desirable compared to other goods, so as consumers' income increases, they tend to switch to higher-quality or more desirable alternatives. Therefore, the correct answer is an Inferior good.

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• 7.

A firm's short run total cost curve...

• A.

Has a constant slope

• B.

Begins at the origin

• C.

Is the firm's variable cost curve plus any fixed cost

• D.

All of the above

C. Is the firm's variable cost curve plus any fixed cost
Explanation
The correct answer is "Is the firm's variable cost curve plus any fixed cost." In the short run, a firm's total cost curve is the sum of its variable costs and fixed costs. Variable costs are costs that change with the level of production, such as labor and raw materials. Fixed costs, on the other hand, are costs that do not change with the level of production, such as rent and insurance. Therefore, the short run total cost curve includes both variable costs and fixed costs.

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• 8.

The bulk of the burden of a tax falls on...

• A.

Consumers--if the demand curve is more elastic than the supply curve

• B.

Producers--if the demand curve is more elastic than the supply curve

• C.

Depends on which side of the market the tax is imposed

B. Producers--if the demand curve is more elastic than the supply curve
Explanation
If the demand curve is more elastic than the supply curve, it means that consumers are more sensitive to changes in price compared to producers. In this case, when a tax is imposed, producers are less able to pass on the burden of the tax to consumers through higher prices because consumers have more options and can easily switch to substitute goods or services. As a result, producers end up bearing a larger portion of the tax burden.

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• 9.

A price ceiling tends to result in a...

• A.

Shortage

• B.

Surplus

• C.

Either A or C

A. Shortage
Explanation
A price ceiling is a maximum limit set by the government on the price that can be charged for a particular good or service. When a price ceiling is imposed, it restricts the price from rising above a certain level. This can lead to a shortage because if the maximum price is set below the equilibrium price, suppliers may not find it profitable to produce and sell the goods or services. As a result, the quantity supplied will be lower than the quantity demanded, leading to a shortage in the market.

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• 10.

Raising the price of a good with a demand elasticity equal to -1 will...

• A.

Increase revenue for the producer

• B.

Leave the producer's revenue unchanged

• C.

Decrease producer's revenue

• D.

Have an uncertain impact on revenue

B. Leave the producer's revenue unchanged
Explanation
When the demand elasticity is equal to -1, it means that the percentage change in quantity demanded is equal to the percentage change in price. In this case, if the producer raises the price of the good, the quantity demanded will decrease by the same percentage. As a result, the decrease in quantity sold will offset the increase in price, leaving the producer's revenue unchanged.

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• 11.

Giffen goods are Veblen goods.

• A.

True

• B.

False

• C.

It depends

B. False
Explanation
Giffen goods and Veblen goods are not the same. While both are types of goods that defy the law of demand, they have different characteristics. Giffen goods are inferior goods for which demand increases as price increases, due to a lack of substitute goods and extreme poverty. On the other hand, Veblen goods are luxury goods for which demand increases as price increases, due to their perceived status and exclusivity. Therefore, it is incorrect to say that Giffen goods are Veblen goods.

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• 12.

Giffen goods have upward sloping demand curves because...

• A.

Are actually supply curves

• B.

Are inferior goods

• C.

They have no close substitutes

• D.

They are more desirable as their prices increase

C. They have no close substitutes
Explanation
Giffen goods have upward sloping demand curves because they have no close substitutes. This means that consumers do not have alternative products to switch to when the price of a Giffen good increases. As a result, consumers are forced to continue purchasing the good even at higher prices, leading to an increase in quantity demanded as the price increases. This unique behavior contradicts the typical law of demand, where quantity demanded decreases as price increases.

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• 13.

A positive cross price elasticity of one good in terms of another means that the two are...

• A.

Luxuries

• B.

Necessities

• C.

Substitutes

• D.

Complements

• E.

Independent

C. Substitutes
Explanation
A positive cross price elasticity of one good in terms of another means that the two goods are substitutes. This means that when the price of one good increases, the demand for the other good also increases. Consumers are willing to switch from one good to another because they perceive them as similar and interchangeable. The positive cross price elasticity indicates that there is a direct relationship between the prices of the two goods, suggesting that they are substitutes for each other.

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• 14.

The broader a market is defined to be, the more ________ market demand is.

• A.

Inelastic

• B.

Elastic

• C.

Uncertain

A. Inelastic
Explanation
Inelastic demand refers to a situation where a change in price does not significantly affect the quantity demanded. When the market is defined to be broader, it means that there are more substitutes available for the product, making the demand less sensitive to price changes. Therefore, the market demand becomes more inelastic as it is less responsive to price changes.

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• 15.

In the long run, supply, in general, tends to be more...

• A.

Inelastic

• B.

Elastic

• C.

Uncertain

B. Elastic
Explanation
In the long run, supply tends to be more elastic. This means that as time goes on, producers have more flexibility to adjust their production levels in response to changes in demand or input costs. This is because in the long run, producers can make changes to their production processes, invest in new technology, or enter or exit the market. As a result, the quantity supplied can change significantly in response to changes in price or other factors.

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• 16.

A person's labor supply curve...

• A.

Is indefinitely upward-sloping

• B.

Is upward-sloping in some regions due to a dominant substitution effect

• C.

Is upward-sloping in some regions due to a dominant income effect

B. Is upward-sloping in some regions due to a dominant substitution effect
Explanation
The labor supply curve is upward-sloping in some regions due to a dominant substitution effect. This means that as the wage rate increases, individuals are more likely to substitute leisure time for work in order to earn higher income. This is because the opportunity cost of leisure time becomes higher compared to the potential earnings from work. However, it is important to note that the labor supply curve may not be indefinitely upward-sloping as there could be other factors such as income effects that may influence an individual's decision to work.

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• 17.

Every point on the production possibilities frontier is technically efficient.

• A.

True

• B.

False

• C.

It depends

A. True
Explanation
Every point on the production possibilities frontier represents the maximum possible combination of goods and services that an economy can produce given its resources and technology. These points are considered technically efficient because they reflect the full utilization of available resources and the most efficient production methods. Therefore, the statement that every point on the production possibilities frontier is technically efficient is true.

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• 18.

In consumer theory, the best affordable bundle (combination) of x and y lies below the budget line.

• A.

True

• B.

False

• C.

It depends

B. False
Explanation
The statement is false because in consumer theory, the best affordable bundle of x and y lies on the budget line, not below it. The budget line represents all the combinations of x and y that can be purchased given the consumer's budget constraint. The consumer aims to maximize their utility by choosing the point on the budget line that provides the highest level of satisfaction. Therefore, the best affordable bundle will be on the budget line, not below it.

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• 19.

Consumer surplus...

• A.

Is the total difference between a good's market price and consumers' willingness to pay for the good

• B.

If the demand curve is straight line and downward sloping, represented by the area of the triangle formed by the intersection of supply and demand at equilibrium price under the demand curve

• C.

A and B

• D.

None of the above

C. A and B
Explanation
Consumer surplus is the difference between the price that consumers are willing to pay for a good and the actual market price of the good. In the case of a straight line and downward sloping demand curve, consumer surplus can be represented by the area of the triangle formed by the intersection of supply and demand at the equilibrium price under the demand curve. Therefore, both options A and B are correct explanations for consumer surplus.

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• 20.

Opportunity cost...

• A.

Is the value of the best alternative foregone

• B.

Is the value of all alternatives foregone

• C.

Is the value of the alternative chosen

A. Is the value of the best alternative foregone
Explanation
Opportunity cost refers to the value of the best alternative that is given up when making a decision. It is the value of the option that is not chosen or pursued. This concept recognizes that when we choose one option, we are sacrificing the benefits or potential gains that could have been obtained from the other alternatives. Therefore, the correct answer is "Is the value of the best alternative foregone."

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• 21.

The demand curve will slope downward as long as the income effect dominates the substitution effect.

• A.

True

• B.

False

• C.

It depends

B. False
Explanation
The statement suggests that the demand curve will slope downward only if the income effect dominates the substitution effect. However, this is not true. The slope of the demand curve is determined by the law of demand, which states that as the price of a good increases, the quantity demanded decreases, ceteris paribus. The income and substitution effects are factors that can influence the magnitude of the change in quantity demanded, but they do not determine the direction of the slope. Therefore, the correct answer is false.

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• 22.

The degree of responsiveness of one variable when another variable changes.

• A.

Slope

• B.

Percent change

• C.

Elasticity

C. Elasticity
Explanation
Elasticity refers to the degree of responsiveness of one variable when another variable changes. It measures the percentage change in one variable in response to a percentage change in another variable. In other words, it quantifies the sensitivity of one variable to changes in another variable. Therefore, elasticity is the correct answer in this context.

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• 23.

A firm's marginal costs in the short run...

• A.

Initially decrease until reaching a minimum, then increase

• B.

Initially increase until reaching a maximum, then decrease

• C.

Is constant

A. Initially decrease until reaching a minimum, then increase
Explanation
In the short run, a firm's marginal costs initially decrease until reaching a minimum and then start to increase. This occurs because as the firm increases its production, it can take advantage of economies of scale and lower average costs. However, at a certain point, the firm may start experiencing diminishing returns, where the additional units of production lead to higher costs. This causes the marginal costs to start increasing. Therefore, the correct answer is that the firm's marginal costs initially decrease until reaching a minimum, and then increase.

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• 24.

A cardinal approach to utility is based on "revealed preference" (i.e. people indicating and ranking their choices).

• A.

True

• B.

False

• C.

It depends

B. False
Explanation
A cardinal approach to utility is not based on "revealed preference" where people indicate and rank their choices. Instead, a cardinal approach to utility focuses on assigning numerical values to different levels of utility or satisfaction. This allows for the comparison and measurement of utility across different options or choices. Therefore, the statement that a cardinal approach to utility is based on "revealed preference" is false.

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• 25.

Holding on to something because of "sentimental value" simply means a willingness to forgo all price offers or a refusal to sell at any price--making the owner the highest bidder.

• A.

True

• B.

False

• C.

It depends

A. True
Explanation
The statement is true because holding onto something due to sentimental value implies that the owner is not willing to sell it regardless of any price offers. This means that the owner values the item more than any potential monetary gain, effectively making them the highest bidder and refusing to sell.

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• 26.

Making a product illegal will raise its price.

• A.

True

• B.

False

• C.

It depends

C. It depends
Explanation
The statement "Making a product illegal will raise its price" cannot be definitively categorized as true or false because it depends on various factors. In some cases, when a product is made illegal, its supply decreases, which can lead to an increase in price due to scarcity. However, in other cases, the demand for the product may decrease significantly when it becomes illegal, resulting in a decrease in price. Therefore, whether the price of a product increases or not after being made illegal depends on the specific circumstances and market dynamics surrounding that product.

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• 27.

Perfectly elastic demand for a good implies that...

• A.

Consumers will always shoulder the burden of any tax to be imposed

• B.

Demand will remain the same regardless of any price change

• C.

The good is probably a necessity with few or no available substitutes

• D.

All of the above

• E.

None of the above

E. None of the above
Explanation
Perfectly elastic demand for a good implies that demand will remain the same regardless of any price change. This means that consumers are extremely sensitive to price changes and will not adjust their quantity demanded even if the price changes significantly. In this case, the burden of any tax imposed on the good will not be shouldered solely by consumers, as they can easily switch to substitutes or reduce their consumption. Therefore, the correct answer is "None of the above."

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• 28.

In the theory of the firm, "long run" denotes...

• A.

A period of time where some inputs remain fixed

• B.

A capability to choose scale of operations and corresponding output levels

• C.

A fixed number of years, depending on the industry

B. A capability to choose scale of operations and corresponding output levels
Explanation
In the theory of the firm, "long run" refers to a period of time where the firm has the capability to choose the scale of its operations and adjust its output levels accordingly. This means that in the long run, the firm has the flexibility to change its production capacity, expand or contract its operations, and make adjustments to its output levels based on market conditions and its own strategic decisions. Unlike the short run, where some inputs remain fixed, the long run allows the firm to fully optimize its operations and adapt to changes in the market.

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• 29.

A convex indifference curve...

• A.

Stands for preferences between imperfectly substitutable things deemed desirable in greater quantities

• B.

Represents perfectly complementary goods

• C.

Reflects an increasing willingness to substitute one good for another

A. Stands for preferences between imperfectly substitutable things deemed desirable in greater quantities
Explanation
A convex indifference curve represents preferences between imperfectly substitutable things deemed desirable in greater quantities. This means that as the quantity of one good increases, the individual's preference for the other good also increases. It indicates that the individual is willing to trade off one good for another, but not at a constant rate. The convex shape of the indifference curve implies that the marginal rate of substitution between the two goods is diminishing, meaning that the individual requires more of one good to compensate for a decrease in the other.

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• 30.

Higher indifference curves stand for higher levels of utility.

• A.

True

• B.

False

• C.

It depends

C. It depends
Explanation
The statement "Higher indifference curves stand for higher levels of utility" is not always true. While it is generally true that higher indifference curves represent higher levels of utility, there are situations where this may not hold. Indifference curves represent different combinations of goods that provide the same level of satisfaction or utility to an individual. However, individual preferences and tastes can vary, and there may be cases where a person's preferences result in lower levels of utility for higher indifference curves. Therefore, the relationship between indifference curves and utility depends on the individual's preferences.

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• 31.

Which of the following is NOT an opportunity cost of attending college?

• A.

The tuition you pay

• B.

The income you could have earned if you were working instead

• C.

• D.

Cost of food you will consume while being in college

D. Cost of food you will consume while being in college
Explanation
The cost of food you will consume while being in college is not an opportunity cost of attending college because it is not a sacrifice or trade-off that you are making by choosing to attend college. Opportunity cost refers to the value of the next best alternative that you give up when making a decision. In this case, the tuition you pay, the income you could have earned if you were working instead, and alternative uses of your time are all examples of opportunity costs because they represent the potential benefits or opportunities that you are giving up by choosing to attend college.

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• 32.

If you eat a sushi restaurant that charges Php600 for its "eat all you can" sushi special, then the marginal cost of the 10th piece of sushi you eat is...

• A.

Zero

• B.

Php60

• C.

Php600

• D.

Php6000

A. Zero
Explanation
The marginal cost refers to the additional cost incurred from consuming one more unit of a product. In this case, since the question states that the sushi restaurant charges a fixed price of Php600 for its "eat all you can" special, regardless of the number of sushi consumed, the marginal cost of the 10th piece of sushi is zero. This is because the cost remains constant, and consuming one more sushi does not result in any additional cost.

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• 33.

Resources are unlimited in a wealthy society.

• A.

True

• B.

False

• C.

It depends

B. False
Explanation
The statement "Resources are unlimited in a wealthy society" is false. While a wealthy society may have more access to resources compared to a poorer society, resources are still limited. Even in a wealthy society, there are finite amounts of natural resources, such as land, water, and minerals, which cannot be replenished indefinitely. Additionally, the distribution and allocation of resources within a wealthy society may still be unequal, leading to scarcity for certain individuals or groups. Therefore, the statement is incorrect.

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• 34.

"I've lived in this village all my life and I've never experienced flooding here, so I see no reason why I should buy flood insurance."

• A.

Fallacy of composition

• B.

Post hoc ergo propter hoc fallacy

• C.

Fallacy of inductive reasoning

• D.

Ceteris paribus fallacy

A. Fallacy of composition
Explanation
The fallacy of composition occurs when someone assumes that what is true for one part or individual must also be true for the whole or group. In this case, the person is assuming that because they have never experienced flooding in their village, the entire village is immune to flooding. This is a fallacy because it is possible for certain areas or parts of a village to be more prone to flooding, even if the person has not personally experienced it.

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• 35.

"The economy was expanding throughout my years as an undergraduate in La Salle, but then the financial crisis hit soon after I finished my studies. I should have known the market was waiting for me to look for a job before things got worse!"

• A.

Fallacy of composition

• B.

Post hoc ergo propter hoc fallacy

• C.

Fallacy of inductive reasoning

• D.

Ceteris paribus fallacy

B. Post hoc ergo propter hoc fallacy
Explanation
The individual is assuming that because the financial crisis happened soon after they finished their studies, it must have been caused by their decision to look for a job. This is a post hoc ergo propter hoc fallacy, which is the fallacy of assuming that because one event happened before another, it must have caused the second event. In reality, the financial crisis was likely caused by a multitude of complex factors unrelated to the individual's job search.

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• 36.

The slope of a vertical line

• A.

Zero

• B.

Infinite

• C.

Negative

• D.

Increasing

B. Infinite
Explanation
A vertical line has an undefined slope because it does not have a change in the y-coordinate for any change in the x-coordinate. This means that the line goes straight up and down without any slant, resulting in a slope that is not a finite number but rather infinite.

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• 37.

• A.

One person will get the better of the other

• B.

One person must have an absolute advantage in terms of producing the good or service being traded

• C.

Both parties expect to be made better off by the exchange

• D.

They are trying to help each other out

C. Both parties expect to be made better off by the exchange
Explanation
When two people engage in a trade, it is because they both expect to benefit from the exchange. This implies that both parties believe they will be made better off by the trade. It is unlikely for someone to willingly engage in a trade if they believe they will be worse off as a result. Therefore, the correct answer is that both parties expect to be made better off by the exchange.

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• 38.

A budget line and a production possibilities frontier...

• A.

Represent limits to amounts of good and services that can be obtained given finite resources

• B.

Remain static or constant across time

• C.

Always have positive slopes

• D.

Are completely unrelated

A. Represent limits to amounts of good and services that can be obtained given finite resources
Explanation
A budget line and a production possibilities frontier both represent limits to the amounts of goods and services that can be obtained given finite resources. This means that there are constraints on the maximum quantities that can be produced or consumed due to limited resources such as time, labor, and capital. The budget line represents the different combinations of goods and services that can be purchased with a given income, while the production possibilities frontier represents the different combinations of goods and services that can be produced with a given set of resources. Both concepts highlight the scarcity of resources and the need to make choices about how to allocate them efficiently.

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• 39.

If resources are combined efficiently in production...

• A.

Society is producing at the most desirable point on the Production Possibilities Frontier

• B.

Society is producing at a point outside its Production Possibilities Frotier

• C.

Society is producing quantities of good X and Y that may be technically efficient, but not necessarily representative of the numbers of X and Y that people want

C. Society is producing quantities of good X and Y that may be technically efficient, but not necessarily representative of the numbers of X and Y that people want
Explanation
This answer suggests that even though resources are being combined efficiently in production, the quantities of goods X and Y being produced may not align with the preferences or demands of society. In other words, the production may be technically efficient, but it may not be meeting the needs or desires of the people.

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• 40.

Which of the following is held constant along a demand curve?

• A.

Price of good

• B.

Quantity of good

• C.

Income

• D.

A and B

C. Income
Explanation
Along a demand curve, the price of the good and the quantity of the good are the variables that change. The demand curve shows the relationship between the price of a good and the quantity demanded at that price, assuming all other factors remain constant. However, income is not held constant along a demand curve. Changes in income can shift the entire demand curve, causing a change in the quantity demanded at each price level. Therefore, the correct answer is income.

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• 41.

A price ceiling below the equilibrium price...

• A.

Is useless and ineffective

• B.

Will create a shortage

• C.

Will create a surplus

• D.

Will lead to equality between quantity demanded and supplied

B. Will create a shortage
Explanation
A price ceiling below the equilibrium price will create a shortage because it sets a maximum price that suppliers can charge, which is lower than the market equilibrium price. This means that suppliers are not able to cover their costs and may choose to reduce their quantity supplied or exit the market altogether. At the same time, consumers are incentivized to demand more of the product due to the lower price, leading to an increase in quantity demanded. The result is a situation where the quantity demanded exceeds the quantity supplied, creating a shortage in the market.

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• 42.

The law of diminishing marginal utility refers to...

• A.

Decrease in total satisfaction as more units of a good are consumed

• B.

The idea that total utility is negative

• C.

The idea that marginal utility is negative

• D.

Decrease in additional satisfaction as more units of a good are consumed

D. Decrease in additional satisfaction as more units of a good are consumed
Explanation
The law of diminishing marginal utility states that as a person consumes more units of a good, the additional satisfaction or utility derived from each additional unit decreases. In other words, the more of a good a person consumes, the less satisfaction they will derive from each additional unit. This is because as a person satisfies their basic needs with the initial units of a good, the desire or need for additional units decreases, resulting in a decrease in the additional satisfaction gained from consuming more units.

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• 43.

For inferior goods, the substitution and income effects of a price increase will...

• A.

Move in opposite directions, with the substitution effect decreasing quantity demanded and the income effect increasing quantity demanded

• B.

Move in opposite directions, with the substitution effect increasing quantity demanded and the income effect decreasing quantity demanded

• C.

Both reduce quantity demanded

• D.

Both increase quantity demanded

A. Move in opposite directions, with the substitution effect decreasing quantity demanded and the income effect increasing quantity demanded
Explanation
When the price of an inferior good increases, the substitution effect refers to consumers switching to a cheaper alternative, which decreases the quantity demanded. On the other hand, the income effect reflects the change in purchasing power due to the price increase. In the case of an inferior good, the income effect increases the quantity demanded because the decrease in purchasing power makes the inferior good relatively more affordable compared to other goods. Therefore, the substitution and income effects move in opposite directions, with the substitution effect decreasing quantity demanded and the income effect increasing quantity demanded.

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• 44.

A price change would have the largest income effect in which of the following goods?

• A.

Magazine

• B.

PC

• C.

Car

• D.

T-shirts

C. Car
Explanation
A price change would have the largest income effect in the case of a car. This is because a car is a high-priced item that typically represents a significant portion of a person's income. Therefore, any change in its price would have a substantial impact on the individual's overall budget and purchasing power. In contrast, goods like magazines, PCs, and T-shirts are generally lower-priced items that would have a relatively smaller income effect when their prices change.

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• 45.

Economic costs...

• A.

Include both a normal rate of return on investment and opportunity costs of every input used

• B.

Are equal to the direct costs of hiring all factors of production

• C.

Are equal to total revenue less accounting profit

• D.

Are equal to opportunity costs less interest charges paid on borrowed funds

A. Include both a normal rate of return on investment and opportunity costs of every input used
Explanation
The correct answer is "Economic costs include both a normal rate of return on investment and opportunity costs of every input used." Economic costs refer to the total cost of producing a good or service, taking into account not only the direct costs of hiring factors of production but also the opportunity costs of using those resources. This includes the foregone returns from investing in alternative ventures or the next best alternative use of resources. By considering both the normal rate of return on investment and opportunity costs, economic costs provide a more comprehensive measure of the true cost of production.

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• 46.

If economic profit is zero...

• A.

A firm earns a negative rate of return

• B.

Will leave the industry

• C.

Earns a positive but below normal rate of return

• D.

Earns a normal rate of return

D. Earns a normal rate of return
Explanation
If economic profit is zero, it means that the firm is earning exactly enough revenue to cover all of its costs, including both explicit (such as wages and rent) and implicit (such as opportunity cost of the owner's time and capital) costs. This indicates that the firm is earning a normal rate of return, which means it is earning a profit that is equal to the opportunity cost of the resources used in production. In other words, the firm is earning a fair return on its investment and is not making above-average profits.

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• 47.

The short run is a standard and definite time period when one or more inputs to firm's production is fixed.

• A.

True

• B.

False

• C.

It depends

B. False
Explanation
The statement is false because the short run is not a standard and definite time period. In the short run, at least one input to a firm's production is fixed, but the duration of the short run can vary depending on the industry and the specific circumstances of the firm. Therefore, it is not a standardized or universally defined time period.

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• 48.

Which of the following activities can be understood as "production" in economics?

• A.

Placing money in a savings account

• B.

Collecting antiques

• C.

A theatre company performing a play

• D.

A company purchasing a new building to house its operations

C. A theatre company performing a play
Explanation
Performing a play can be understood as "production" in economics because it involves the creation of a tangible product, which is the performance itself. The theatre company invests resources such as labor, capital, and materials to produce the play, which can then be consumed by the audience. This activity adds value to the economy by generating revenue through ticket sales, creating jobs for actors and staff, and contributing to the cultural and entertainment sector.

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• 49.

If labor is a variable input to production, then the law of diminishing marginal returns implies that...

• A.

Labor's marginal product is constant

• B.

Labor's marginal product decreases after a certain point

• C.

Total product is negative

• D.

Total product always increases

B. Labor's marginal product decreases after a certain point
Explanation
The law of diminishing marginal returns states that as more units of a variable input (in this case, labor) are added to a fixed input (such as capital), the marginal product of the variable input will eventually decrease. This means that initially, adding more labor will result in an increase in output, but after a certain point, the additional output gained from each additional unit of labor will start to decline. Therefore, the correct answer is that labor's marginal product decreases after a certain point.

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• 50.

If the first photographer is able to complete five in-studio shoots a day and the second photographer is able to do the same, it can be said that diminishing marginal productivity has not yet set in.

• A.

True

• B.

False

• C.

It depends

A. True
Explanation
The statement is true because diminishing marginal productivity refers to the decrease in the additional output gained from each additional unit of input. If both photographers are able to complete five in-studio shoots a day, it suggests that they are still able to maintain the same level of productivity without a decrease in output. Therefore, diminishing marginal productivity has not yet set in for them.

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• Current Version
• Jan 10, 2023
Quiz Edited by
ProProfs Editorial Team
• Feb 18, 2010
Quiz Created by
Mutucpm