SAMPLE TEST QUESTIONS - CHAPTER 3

1. Which of the following would most likely increase the demand for peanut butter?
a. a decrease in the price of bread, a good that is often used with peanut butter
b. a discovery that the average daily consumption of peanut butter decreases one's life span by 15 years
c. crop failures that raise the price of peanuts
d. a decrease in the price of all substitute protein products

2. Economic profit is best defined as
a. a company's net income as indicated by its accounting statement. b. the difference between the price of a product and the monetary cost of the raw materials used to produce it.
c. the difference between the revenue from the sale of a product and the opportunity cost of the resources used to produce it.
d. income paid by a business to its owners.

3. The long run is a time period of sufficient length to enable
a. producers to alter their use of fixed capital (the size of their plant and equipment).
b. producers to alter their output by utilizing labor and raw materials more intensively.
c. decision makers to adjust fully to a change in market conditions.
d. Both a and c are correct.

4. The number of persons wanting tickets to Super Bowl games is invariably greater than the number of tickets (and seats) available. This is evidence that the price of the tickets is
a. higher than the competitive equilibrium price.
b. equal to the competitive equilibrium price since the number of tickets bought equals the number sold.
c. lower than the competitive equilibrium price.
d. higher than the competitive equilibrium price when the demand is inelastic but lower when the demand is elastic.

5. "A reduction in gasoline prices caused the demand to increase. The lower prices led to an increase in demand for large cars, causing their prices to rise." These statements
a. are essentially correct.
b. contain one error; the lower gasoline prices would cause a reduction in demand for large cars, not an increase.
c. contain one error; the lower gasoline prices would increase the quantity of gasoline demanded by consumers, not the demand.
d. contain two errors; the lower gasoline prices would cause the quantity of gasoline demanded (rather than demand for large cars) to increase, and the lower gasoline price would reduce (rather than increase) the demand for large cars.

6. A cold spell in Florida extensively reduced the orange crop, and, as a result, California oranges commanded a higher price. Which of the following statements best explains the situation?
a. The supply of Florida oranges fell, causing the supply of California oranges to increase as well as their price.
b. The supply of Florida oranges fell, causing the supply of California oranges to decrease and their price to increase.
c. The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase.
d. The demand for Florida oranges was reduced by the freeze, causing an increase in the price of California oranges and a greater demand for them.

7. When a price floor is above the equilibrium price,
a. quantity demanded will exceed quantity supplied.
b. quantity supplied will exceed quantity demanded.
c. the market will be in equilibrium.
d. This is a trick question because price floors generally exist below the equilibrium price.

8. If the market price of a good is less than the opportunity cost of producing it,
a. the market price of the product will fall in the long run.
b. producers will increase supply in the long run.
c. resources will flow away from production of the good, causing supply to decline with the passage of time.
d. the situation will remain unchanged as long as supply and demand remain in balance.

9. The price of chicken increases as the result of higher beef prices. This indicates that
a. chicken and beef are substitutes.
b. chicken and beef are complements.
c. the market demand for beef is inelastic.
d. the market demand for chicken is elastic.

10. The invisible hand principle indicates that competitive markets can help promote the efficient use of resources
a. only if buyers and sellers really care, personally, about economic efficiency.
b. even when each market participant cares only about getting a "bigger slice of the pie" rather than about the overall efficiency of resource use.
c. even if business firms fail to produce goods efficiently.
d. if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely.