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1 Question Macroeconomics can best be described as the: analysis of how a consumer tries to spend income. 2 points Save study of the large aggregates of the economy or the economy as a whole. analysis of how firms attempt to maximize their profits. study of how supply and demand determine prices in individual markets. Question 2 Purposeful behavior suggests that: everyone will make identical choices. resource availability exceeds economic wants. individuals will make different choices because of different desired outcomes. an individual's economic goals cannot involve tradeoffs. Question 3 2 points Save (Last Word) The fallacy of composition is essentially the error of: omitting relevant variables in constructing a model. reasoning from the general to the particular. confusing cause and effect in economic relationships. generalizing from the particular to the general. Question 4 2 points Save "Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity." This statement is: positive, but incorrect. positive and correct. normative, but incorrect. normative and correct. Question 5 2 points Save (Consider This) In response to the terrorist attacks of September 11, 2001, the government decided to allocate more resources toward 2 points Save defense goods. The government's decision reflects their assessment that: the marginal benefits of additional defense goods outweighed the marginal cost. the marginal cost of additional defense goods outweighed the marginal benefit. there cannot be too many defense goods. civilian goods are not worth producing. Question 6 2 points Save (Last Word) The Social Security program (excluding Medicare) in the United States is projected to: grow from 4.4 percent of GDP today to 6.5 percent of GDP in 2035. grow from 1.0 percent of GDP today to 4.4 percent of GDP in 2035. decline from 4.4 percent of GDP today to 1.0 percent in 2035. stay relatively constant at 3 percent of GDP into the future. Question 7 Externalities: relate to costs only. relate to benefits only. relate to both costs and benefits. have been legislated out of existence. Question 8 The three basic legal forms of business enterprise are: monopolists, competitors, and enterprises. proprietorships, partnerships, and corporations. vertical, horizontal, and conglomerate corporations. conglomerates, multinationals, and partnerships. Question 9 An example of a quasi-public good is: 2 points Save 2 points Save 2 points Save public higher education. an automobile. a DVD player. national defense. Question 10 If a corporation goes bankrupt, its stockholders will lose: only the value of their stock. the value of their stock plus any other business assets they may own. the value of their stock plus any other personal assets they may own. the value of their stock plus any other business and personal assets they may own. Question 11 Most output in the United States is produced by: cooperatives. partnerships. sole proprietorships. corporations. Question 12 The average tax rate is: change in taxes / change in taxable income. total taxes / total taxable income. the sum of the marginal tax rate and the rate of transfer payments. the tax on incremental income less the tax on total income. Question 13 2 points Save 2 points Save 2 points Save 2 points Save Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (1) might represent: corporate income tax payments. government provision of highways for truck transportation. business property tax payments. transfer payments to low-income families. Question 14 2 points Save Which of the following is not an important source of revenue for the Federal government? corporate income taxes property taxes payroll taxes personal income taxes Question 15 Positive externalities benefits refer to: benefits that accrue to parties other than the producer and buyer of a good. the benefits that resource suppliers obtain from the production and sale of a good. the benefit that a consumer receives from buying a good. the combined benefits that buyer and seller receive from a voluntary market transaction. Question 16 2 points Save In a market economy a significant change in consumers' desire for product X will: alter the profits or losses received by certain firms. cause a reallocation of scarce resources. cause some industries to expand and others to contract. do all of these. Question 17 2 points Save Suppose that an individual sees a tremendous opportunity to produce and sell a new product, but dismisses the idea because there is no way to exploit this opportunity for personal gain. This 2 points Save situation best identifies the: coordination problem under communist central planning. self-sufficiency dilemma under communism. asymmetric information problem under communism. incentive problem under communist central planning. Question 18 2 points Save The two general types of economic systems that exist today are: market systems and capitalism. socialism and central planning. market systems and command systems. laissez faire systems and pure command systems. Question 19 2 points Save The advent of DVDs threatens to eventually demolish the market for This videocassettes. is an example of: creative destruction. derived demand. capital accumulation. the difference between normal and economic profits. Question 20 The economic function of profits and losses is to: bring about a more equal distribution of income. signal that resources should be reallocated. eliminate small firms and reduce competition. tell government which industries need to be subsidized. Question 21 Consumer sovereignty refers to the: fact that resource prices are higher than product prices in capitalistic economies. idea that the pursuit of self-interest is in the public interest. 2 points Save 2 points Save idea that the decisions of producers and resource suppliers with respect to the kinds and amounts of goods produced must be appropriate to consumer demands. fact that a Federal agency exists to protect consumers from harmful and defective products. Question 22 Economic profits in an industry suggest the industry: can earn more profits by increasing product price. should be larger to better satisfy consumers' desire for the product. has excess production capacity. is the size that consumers want it to be. Question 23 2 points Save "Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the: incentive problem under central planning. coordination problem under central planning. self-sufficiency dilemma under communism. resource overcommitment problem under communism. Question 24 2 points Save The market system's answer to the fundamental question "How will the system accommodate change?" is essentially: "Through government leadership and direction." "Through the guiding function of prices and the incentive function of profits." "Through training and retraining programs." "Through random trial and error." Question 25 2 points Save In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make expenditures in the _____ market. 2 points Save product; financial resource; product product; resource capital; product Question 26 A price ceiling means that: there is currently a surplus of the relevant product. government is imposing a legal price that is below the equilibrium price. government wants to stop a deflationary spiral. government is imposing a legal price that is above the equilibrium price. Question 27 2 points Save Assume the demand curve for product X shifts to the right. This might be caused by: a decline in income if X is an inferior good. a decline in the price of Z if X and Z are substitute goods. a change in consumer tastes that is unfavorable to X. an increase in the price of Y if X and Y are complementary goods. Question 28 2 points Save The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. direct, inverse inverse, direct inverse, inverse direct, direct Question 29 If the price of K declines, the demand curve for the complementary product J will: shift to the left. 2 points Save 2 points Save shift to the right. decrease. remain unchanged. Question 30 When an economist says that the demand for a product has increased, this means that: consumers are now willing to purchase more of this product at each possible price. the product has become particularly scarce for some reason. product price has fallen and as a consequence consumers are buying a larger quantity of the product. the demand curve has shifted to the left. Question 31 2 points Save 2 points Save Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in demand may have been caused by: a decline in the number of buyers in the market. a decline in the price of a substitute good. an increase in incomes if the product is a normal good. an increase in incomes if the product is an inferior good. Question 32 2 points Save Refer to the above diagram. A government-set price floor is best illustrated by: price A. quantity E. price C. price B. Question 33 2 points Save If the demand curve for product B shifts to the right as the price of product A declines, then: both A and B are inferior goods. A is a superior good and B is an inferior good. A is an inferior good and B is a superior good. A and B are complementary goods. Question 34 (Consider This) Ticket scalping: imposes economic losses on both buyers and sellers. creates economic gains for both buyers and sellers. 2 points Save imposes losses on buyers, but creates gains for sellers. imposes losses on sellers, but creates gains for buyers. Question 35 2 points Save Answer the next question(s) on the basis of the given supply and demand data for wheat: Refer to the above data. If price was initially $4 and free to fluctuate, we would expect: quantity supplied to continue to exceed quantity demanded. the quantity of wheat supplied to decline as a result of the subsequent price change. the quantity of wheat demanded to fall as a result of the subsequent price change. the price of wheat to rise

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