Indicate whether the sentence or statement is True or False. Mark "A" if the statement is True or "B" if it is False.

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1 2004 SLC Economics Page 1 Indicate whether the sentence or statement is True or False. Mark "A" if the statement is True or "B" if it is False. 1. The marginal social cost equals the marginal private cost a. True b. False when a negative externality exists. 2. The law of demand is a statement that price and quantity a. True b. False demanded are inversely related. 3. The Federal Reserve is primarily concerned with fiscal a. True b. False policy. 4. A monopoly market will typically have a lower price and a. True b. False more output than in competition. 5. An increase in the number of sellers in a market will a. True b. False increase the supply in a market. 6. According to the Compensating Wage Differential Theory, a. True b. False people who work in relatively safe environments should get paid less than workers in relatively unsafe environments. 7. The economic notion of profit includes an accounting of a. True b. False opportunity costs. 8. Firms are price searchers in a competitive market. a. True b. False 9. The first federal antitrust act in the United States was the Clayton Act of a. True b. False 10. The primary tool of monetary policy is open market a. True b. False operations. 11. A free rider problem can result when a good is a public a. True b. False good. 12. Firms in a competitive market have P = MR at all levels of a. True b. False output. 13. A federal government budget deficit exists when spending a. True b. False is less than tax revenues. 14. A backward bending supply curve implies that, at some a. True b. False point, if the wage rate rises, the worker will supply a lower quantity of labor. 15. Placing a tax on a good, paid by the seller, does not raise a. True b. False the price of the good in the market. 16. The long run supply curve in a competitive industry is a. True b. False downward sloping if the industry is characterized by decreasing costs. 17. Say goods A and B are substitutes. An increase in the price a. True b. False of good A will increase the demand for a good B. 18. Say goods A and B are complements. An increase in the a. True b. False price of good A will increase the demand for a good B. 19. Price in a market falls when the supply in the market falls. a. True b. False 20. An increase in income will lead to a decrease in the demand for an inferior good. a. True b. False

2 2004 SLC Economics Page Fiscal Policy is only concerned with government a. True b. False 22. A profit maximizing firm will sell the level of output a. True b. False where the MR = MC, if it sells any units at all. 23. In the long run, profit equals the revenue of a firm minus a. True b. False the variable costs. 24. The labor supply and demand model predicts that the a. True b. False minimum wage is a cause of unemployment among less skilled or less experienced workers. 25. From an economic perspective, too much of a good is a. True b. False produced when there are positive externalities. Mark the correct answer on your Scantron sheet for each of the following questions. 26. When supply in a market rises, the price in the market will a. decrease. b. increase. c. stay the same. d. fluctuate. 27. When supply in a market rises, the quantity traded in the a. decrease. b. increase. c. stay the same. d. fluctuate. market will 28. When demand in a market rises, the price in the market a. stay the same. b. fluctuate. c. decrease. d. increase. will 29. When demand in a market rises, the quantity traded in the a. decrease. b. increase. c. stay the same. d. fluctuate. market will 30. When supply rises less than demand rises in a market, the price in the market will a. stay the same. b. fluctuate. c. decrease. d. increase. 31. When supply rises more than demand falls in a market, the quantity traded in the market will 32. Which of the following occurs when one country trades corn to another country in exchange for gas? 33. Which of the following limits an economy's potential output? 34. When industries or countries specialize in producing goods and services, this results in a. decrease. b. increase. c. stay the same. d. fluctuate. aboth countries gain. b. Both countries lose. c. The country that trades corn gains, and the country that trades gas loses. a. The quantity and quality of labor, capital, and natural resources a. increased price inflation. 35. The prime lending rate is a. the rate the FED charges commercial banks. 36. Which of the following approaches to pollution control makes the best use of a country's economic resources? a. Abolishing the use of toxic chemicals 37. Firms with market power find the price a. on the demand curve for their product. b. Business demand for final goods and services b. less output per hour worked. b. the rate banks charge each other on overnight loans. b. Using resources to reduce all pollution damage b. on the supply curve for their product. c. Government regulations and spending c. greater economic interdependence. c. the rate banks charge their best customers. c. Controlling pollution as long as the extra benefits are greater than the extra costs c. on the MC curve for their product. d. The country that trades gas gains, and the country that trades corn loses. d. The amount of money in circulation d. more equal distribution of income. d. the rate charged on credit cards. d. Prohibiting economic activities that cause pollution or harm the environment d. on the MR curve for their product.

3 2004 SLC Economics Page What must the government do to reduce high inflation? a. Decrease both spending b. Increase both spending c. Decrease spending and d. Increase spending and and the money supply and the money supply increase the money decrease the money 39. A frost in Florida during the orange growing season is likely to 40. Why are private businesses not likely to operate a lighthouse? a. lower the price of oranges. a. Ship owners buy insurance policies to protect themselves from losses so they won t pay for lighthouses. 41. The price elasticity of demand refers to a. the change in price and quantity demanded. b. increase the price of oranges. b. The light from the lighthouse can be used even by ships that do not pay a fee for the service. b. the percentage change in the quantity demanded and the price. supply c. increase the amount of oranges traded in the market. c. It would cost private business more to operate a lighthouse than it costs the government. supply d. have no impact on the market for oranges. d. The cost of operating a lighthouse is too high. c. the change in price. d. the change in the quantity demanded. 42. Pollution is an example of a. a negative externality. b. a positive externality. c. a normal good. d. a complement to congested roads. 43. The demand for labor is a. the marginal product of labor. b. the marginal revenue product of labor. c. the marginal revenue of labor. d. the marginal cost of labor. 44. A monopoly is a a. single seller of output. b. situation where there c. situation of many d. single buyer of labor. are many sellers. buyers. 45. Sellers in a competitive market a. all sell the same good. b. all sell different goods c. set their own price. d. are guaranteed a profit. from each other. 46. For a competitive firm, the price of the product is a. greater than the MR for the firm. b. not related to the MR for the firm. c. less than the MR for the firm. d. equal to the MR for the firm. 47. The breakeven point for a firm is when a. MR = MC. b. P = MC. c. P = AVC. d. P = AC. 48. A progressive tax means a. taxes go up as income goes up. b. taxes go up as income goes down. c. tax rates go up as income goes up. d. tax rates go up as income goes down. 49. A government deficit is a. never paid back. b. the accumulation of all past debts. c. a situation where tax revenues are less than d. a situation where tax revenues are greater than 50. The marginal tax rate is the rate on a. the first dollar of income. b. the first dollar of c. the last dollar of income. d. the last dollar of 51. A price taking firm with a loss will a. never shut down. b. always shut down. c. shut down in the short run if P is less than AC. d. shut down in the short run if P is less than AVC. 52. A profit maximizing firm will produce the quantity where a. the MR = MC. b. the TR = TC. c. the MC is at its lowest d. the TR is at its highest. point. 53. The supply curve of a competitive firm is associated with a. AC curve. b. AVC curve. c. MC curve. d. TC curve. its 54. A constant cost industry will have a. a horizontal long run b. a vertical long run c. an upward sloping long d. a downward sloping 55. The existence of profit in a competitive industry means entry supply curve. supply curve. run supply curve. a. will not occur. b. will definitely occur. c. depends on the number of firms already present. long run supply curve. d. depends on barriers to entry.

4 2004 SLC Economics Page The demand curve for a firm in a competitive environment will be a. horizontal. b. downward sloping. c. upward sloping. d. partly upward sloping and partly downward sloping. 57. If the US dollar will buy more Japanese yen over time, in the US a. exports will fall and imports will rise. b. exports will fall and imports will fall. c. exports will rise and imports will rise. d. exports will rise and imports will fall. 58. A price discriminating monopolist will charge the higher price in the a. elastic market. b. inelastic market. c. unit elastic market. d. perfectly elastic market. 59. In macroeconomics, the Federal Reserve refers to a. a safari destination b. oil stored in Texas. c. the central bank. d. the currency in banks. spot. 60. The primary source of tax revenues for state and local a. corporate income taxes. b. social security taxes c. personal income taxes. d. property taxes. governments are sales taxes and. 61. In the long run, in a decreasing cost industry, when the demand falls, a. supply will fall by the same amount as b. supply will not fall c. supply will fall by less than d. supply will fall by more than 62. If the first $10,000 of taxable income is taxed at the rate of 10% and the next $10,000 is taxed at the rate of 20%, then the tax is an example of. a. a progressive tax. b. a regressive tax. c. a flat, or proportional, tax. d. an income tax. 63. An increase in the money supply will a. lower the interest rate. b. increase the interest rate. c. not change the interest rate. d. make the interest rate fluctuate. 64. An increase in the money supply will a. increase aggregate supply. b. decrease aggregate supply. c. decrease aggregate d. increase aggregate 65. The demand for money curve a. is downward sloping. b. is upward sloping. c. is horizontal. d. is vertical. 66. The federal funds rate is a. the rate the FED charges commercial banks. b. the rate banks charge each other on overnight loans. c. the rate banks charge their best customers. d. the rate charged on credit cards. 67. The discount rate is a. the rate the FED charges commercial banks. b. the rate banks charge each other on overnight loans. 68. The precautionary demand for money occurs because a. people want to make transactions. b. sometimes holding other assets is not very attractive and thus people want to hold money. 69. Rate of return regulation means a. marginal cost pricing. b. average variable cost 70. Economic profit a. equals accounting profit. pricing. b. equals accounting profit minus fixed costs. 71. In a monopoly situation, profits a. are guaranteed. b. attract other firms to the industry. 72. A monopolistically competitive firm will price its output on the demand curve above where c. the rate banks charge their best customers. c. money that is stolen must be replaced. d. the rate charged on credit cards. d. of the need to save for a rainy day. c. average cost pricing. d. total cost pricing. c. equals accounting profit minus variable costs. c. are secure, if earned, because of barriers to entry. d. equals accounting profit minus implicit costs. d. are never taxed. a. MR = MC. b. MR = AC. c. AC = MC. d. AVC = MC.

5 2004 SLC Economics Page In the long run, in a monopolistically competitive industry, a. will be positive. b. will be driven to zero. c. will fluctuate. d. are guaranteed. profits 74. In the long run, in a competitive industry, profits a. will be positive. b. will be driven to zero. c. are guaranteed. d. will fluctuate. 75. One firm s action to set a price below its shutdown point with the intent to drive a competitor out of business is called a. a hostile takeover. b. predatory pricing. c. price discrimination. d. a contestable market action. 76. A combining of two firms that sell the same good or same type of good is called a 77. When two or more firms conspire to fix prices, they do a. horizontal merger. b. vertical merger. c. conglomerate merger. d. cartel. a. anticompetitive, but b. anticompetitive, but c. illegal and competitive. d. illegal and something legal. illegal. anticompetitive. 78. Giving senior citizens a discount on prices at restaurants is a. predatory pricing. b. price discrimination. c. factor cost pricing. d. average age pricing. called 79. The basis for breaking up Standard Oil in 1911 was a. the Sherman Act. b. the Clayton Act. c. The Robinson Patman d. The Wagner Act. Act. 80. The basic model of supply and demand is essentially one a. monopoly. b. oligopoly. c. duopoly. d. competition. of 81. A firm in a competitive environment is a a. price faker b. price maker. c. price taker. d. cookie baker. 82. A homogeneous product means a. the product has been b. all firms make different c. all firms make the same d. milk is involved. pasteurized. products. product. 83. Firms with the least market power are in a(n) industry. a. a monopoly b. a competitive c. a monopolistically competitive d. an oligopoly a. unit elastic. b. inelastic. c. perfectly inelastic. d. perfectly elastic. 84. The demand curve for a firm in a competitive environment is 85. In a competitive market, a. only suppliers have surplus value. b. only demanders have surplus value. c. both suppliers and demanders have surplus value. c. will consider the actions of the other firms. c. price is found where AC is a minimum. 86. When pricing its product, an oligopoly a. will ignore all the other firms. b. will ignore most of the other firms. 87. In the Kinked Demand Model of Oligopoly, a. price tends to fluctuate b. price is found where often. AVC is a minimum. 88. When price is below AVC, firms will a. make tons of profit. b. make a little profit. c. shut down their operation. 89. In order to maximize total revenue, a firm should price its a. in the elastic range of b. in the inelastic range of product For questions 90 through 95 use the following information: Productivity per worker Country Computer Chips Cases of Potato Chips USA Ireland The opportunity cost of 1 computer chip in the USA is a. greater than it is in b. 15 cases of potato c. 1.5 cases of potato Ireland. chips. chips 91. The USA has an absolute advantage in a. only potato chips. b. only computer chips. c. both computer chips d. neither suppliers nor demanders have surplus value. d. will not consider the actions of the other firms. d. price tends to be stable. d. continue to operate. c. out on the open range. d. in the unit elastic range of d cases of potato chips.

6 2004 SLC Economics Page The USA has a comparative advantage in a. only potato chips. b. only computer chips. c. both computer chips 93. Ireland will want to specialize in a. only potato chips. b. only computer chips. c. both computer chips 94. The USA will want to specialize in a. only potato chips. b. only computer chips. c. both computer chips 95. Which of the following terms of trade would yield benefits to only the USA, assuming each specializes in the a. 1 computer chip = 1 case of potato chips b. 1 computer chip = 3 cases of potato chips c. 1 computer chip = 1.75 cases of potato chips d. 1 computer chip = 2 cases of potato chips appropriate output. 96. If the price of donuts rises and then the demand for coffee falls, a. donuts and coffee are normal goods. b. donuts and coffee are inferior goods. c. donuts and coffee are complements. d. donuts and coffee are substitutes. 97. If the price of cola rises and then the demand for juice a. cola and juice are b. cola and juice are c. cola and juice are d. cola and juice are rises, normal goods. 98. A tax in a market for a good a. lowers the price and lowers the amount traded. inferior goods. b. lowers the price and raises the amount traded. complements. c. raises the price and lowers the amount traded. substitutes. d. raises the price and raises the amount traded.

7 2004 SLC Economics Page FBLA ECONOMICS ANSWER KEY 1. B 26. A 51. D 76. A 2. A 27. B 52. A 77. D 3. B 28. D 53. C 78. B 4. B 29. B 54. A 79. A 5. A 30. D 55. B 80. D 6. A 31. B 56. A 81. C 7. A 32. A 57. A 82. C 8. B 33. A 58. B 83. B 9. B 34. C 59. C 84. D 10. A 35. C 60. D 85. C 11. A 36. C 61. D 86. C 12. A 37. A 62. A 87. D 13. B 38. A 63. A 88. C 14. A 39. B 64. D 89. D 15. B 40. B 65. A 90. C 16. A 41. B 66. B 91. C 17. A 42. A 67. A 92. B 18. B 43. B 68. D 93. A 19. B 44. D 69. C 94. B 20. A 45. A 70. D 95. B 21. B 46. D 71. C 96. C 22. A 47. D 72. A 97. D 23. A 48. C 73. B 98. B 24. A 49. C 74. D B 50. C 75. B 100.

Eco402 - Microeconomics Glossary By

Eco402 - Microeconomics Glossary By Break-even point : the point at which price equals the minimum of average total cost. Externalities : the spillover effects of production or consumption for which no