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13 True or False questions

1. The law of supply asserts that there is a direct relationship between demand and supply.

2. A government price control in the form of a price ceiling will lead to expanded output and fewer shortages in the market.

3. A change in quantity supplied involves a new supply curve resulting from a shift in the supply curve either inward or outward, leading to a new equilibrium point between demand and supply.

4. Government actions such as price floors and price ceilings can actually increase unemployment and reduce market efficiency.

5. If the government increases the excise tax on a gallon of gasoline we can expect the supply curve to shift rightward, quantity demanded to fall, and price to rise.

6. A shortage of demand in the market will cause the price of a product to increase.

7. A point inside the production possibility frontier indicates an economy that is underutilizing resources.

8. An increase in the population of a country will cause the demand curve to shift outward and supply to increase.

9. If the government were to impose a price ceiling on gasoline, thereby setting the price per gallon at $1.50 when the market price currently is $2.50, we could expect shortages in supply, long lines at gas stations, and an illegal underground market to form as a result.

10. The demand curve is positively sloped because there is a positive relationship between the dependent variable quantity and independent variable price.

11. In the circular flow model of economic activity, the government own the factors of production which firms use to produce goods and services.

12. If the government raises taxes on wealthy individuals, we can expect the economy to expand positively.

13. Movement along the demand and supply curves is referred to as “a change in demand and supply,” while a shift in the demand and supply curves is referred to as “a change in quantity demanded and supplied.”

11 Multiple Choice

14. If the government provides free schooling for all students, an economist would say education is:

A. a free good, having no cost

B. Scarce even though its cost is paid by taxpayers rather than by students

C. an example of a good that is no longer scarce

D. All of the above

15. Which of the following is a normative economic statement?

A. If we doubled the size of welfare payments, we would reduce the number of homeless persons.

B. Companies should be concerned with more than just their profits.

C. An increase in spending on airport security will reduce the number of hijackings

D. If social security were to be privatized, workers would earn a higher rate of return on their retirement contribution

16. The production possibilities frontier curve illustrates that

A. an economy’s capacity to produce is unrelated to its population.

B. if all the resources of an economy are being used efficiently, more of one good can be produced only if more of another good is produced.

C. an economy will automatically move toward a point at which all of its resources are being used inefficiently.

D. if all the resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.


17. If a small percentage increase in the price of a good results in a rather large percentage reduction in the quantity demanded of the good, demand is said to be

A. vertical

B. relatively inelastic

C. relatively elastic

D. robust

18.When a supply and demand model is used to analyze the market for labor,

A. demand is generally no longer downward sloping.

B. the wage rate is used on the vertical axis as the market price.

C. employment is used on the horizontal axis as the market quantity

D. both b and c.


19. In which statement(s) is “supply” used correctly?

(I) “An increase in the price of flour will increase the supply of flour.”

(II) “As the cost of producing flour rises, the supply of flour will tend to fall.

A. in both statements I and II

B. in statement I only

C. in statement II only

D. in neither statements I nor II

20. Which of the following is an example of a rational decision?

A. Mike enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he fully realizes the potential for injury it creates by not wearing one in the unlikely event he is in an accident.

B. Bob, a burglar who breaks into houses, decides to break into the house at 265 Elm Street, rather than the house next door because the house next door has a sign in the yard that says “home protected by a security system.”

C. Nicolas, a drug user, chooses to buy his cocaine from Samuel, because Samuel’s cocaine is as good as the cocaine from other dealers, but Samuel has lower prices.

D. All of the above are examples of rational choices.


21. If price rises, what happens to the demand for a product?

A. it increases

B. it decreases

C. it does not change

D. Uncertain-economic theory has no answer to the question

22. All things equal, the price elasticity of supply

A. approaches zero in the long run.

B. will be greater in the long run than in the short run

C.will be greater in the short run than in the long run

D. is the same for the short run and the long run


23. Assuming that bus travel is an inferior good, a decrease in consumer income, other things being equal, will cause

A. a downward movement along the demand curve for bus travel.

B. a rightward shift in the demand curve for bus travel.

C. an upward movement along the demand curve for air travel.

D. no change in the demand curve for bus travel.


24. Which of the following is an example of political action that reflects the shortsightedness effect?

A. spending on programs that transfer income from the rich to the poor

B. spending on roads and highways

C. the promise of future benefits without providing for their funding

D. budget surpluses

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