Question 1

Suppose Amy and Brad both produce apples and pears. Amy can produce apples at a lower opportunity cost than Brad, and Brad can produce pears at a lower opportunity cost than Amy. According to the principle of comparative advantage, which of the following statements is correct?

Accepted Answer

Amy should specialize in apples and Brad should specialize in pears.

Question 2

Which of the following is a characteristic of a command economy?

Accepted Answer

Public ownership of the means of production.

Question 3

In a market economy, the amount of each good produced is determined primarily by:

Accepted Answer

Buyers and sellers interacting in the market.

Question 4

An outward shift in the production possibilities curve (PPC) can be caused by:

Accepted Answer

An increase in the amount of labor available for production.

Question 5

Trade allows countries to consume outside their production possibilities curve (PPC) because:

Accepted Answer

Countries can specialize in production and exchange for other goods.

Question 6

Suppose a government imposes a tax on sellers. If the price paid by buyers is $$12, the price received by sellers is 8$$, and the deadweight loss is $200, what is the tax revenue collected by the government?

Accepted Answer

$400

Question 7

If the price elasticity of demand for good X is $$-0.8$$, a 10 percent decrease in the price of good X will result in:

Accepted Answer

An 8 percent increase in the quantity demanded of good X.

Question 8

All of the following cause a rightward shift in demand for a normal good EXCEPT:

Accepted Answer

A decrease in the price of the good.

Question 9

Consumer surplus is best defined as:

Accepted Answer

Willingness of consumers to pay a price higher than the market price for some units of a good.

Question 10

If a consumer allocates her spending so that the marginal utility per dollar spent is equal for all goods, she is:

Accepted Answer

Maximizing her total utility.

Question 11

If the marginal utility of the last dollar spent on apples is greater than the marginal utility of the last dollar spent on candy, the consumer should:

Accepted Answer

Buy more apples and less candy.

Question 12

If the marginal utility of consuming an additional unit of a good is negative, a rational consumer should:

Accepted Answer

Stop consuming additional units of the good.

Question 13

If the marginal utility of the fourth candy bar is 0, what does this imply about the consumer's optimal consumption?

Accepted Answer

The consumer should not consume the fourth candy bar.

Question 14

Martha has $$10 to spend on oranges and video games. Oranges cost 2 $$each and video games cost $5 each. To maximize her utility, Martha should:

Accepted Answer

Consume two oranges and one video game.

Question 15

If the price of apples increases and the price of candy stays the same, the consumer should:

Accepted Answer

Buy fewer apples and more candy.

Question 16

Which of the following best describes the law of demand?

Accepted Answer

As the price of a good increases, the quantity demanded decreases.

Question 17

If the government imposes a price floor above the equilibrium price, what will be the result?

Accepted Answer

A surplus of the good.

Question 18

If the government imposes a tax on sellers, which area on the supply and demand graph represents the deadweight loss?

Accepted Answer

The triangle between the supply and demand curves and the quantity traded after the tax.

Question 19

If the cross-price elasticity of demand between two goods is positive, the goods are:

Accepted Answer

Substitutes.

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