The rationale for the law of demand can best be-understood on the basis of (Points : 4) diminishing marginal utility.

As a consequence of the problem of scarcity (Points : 4)
there is never enough ofanything.
individuals have to makechoices from among alternatives.
production has to be plannedby government.
things which are plentifulhave relatively high prices.

2. (TCO1) Money is not considered to be an economic resourcebecause (Points : 4)
as such, it is notproductive.
money is not a free gift ofnature.
money is made by man.
idle money balances do notearn interest income.

3. (TCO1) A point outside the production possibilities curve is(Points : 4)
attainable, but there is notfull employment.
attainable, but there is notoptimal allocation.
unattainable because theeconomy is inefficient.
unattainable because oflimited resources.

4. (TCO1) A basic characteristic of a command system is that(Points : 4)
wages paid to labor arehigher.
government owns most economicresources.
free markets are neverpermitted in a command economy.
government planners play alimited role in deciding what goods will be produced.

5. (TCO 2) The rationale for the law of demand can best be-understood on the basis of (Points : 4)
diminishing marginal utility.
capitalist markets.
the invisible hand.
the rationing function ofprice.

6. (TCO 2) What combination of changes in supply and demand wouldmost likely increase the equilibrium quantity? (Points : 4)
When supply increases anddemand increases
When supply decreases anddemand decreases
When supply decreases anddemand increases
When supply increases anddemand decreases

7. (TCO 2) When the price of movie tickets in a certain town wasreduced, the movie theaters’ revenues did not change. Thissuggests that the demand for movie tickets in that town has aprice-elasticity coefficient of (Points : 4)
1.0.
greater than 1.
0.5.
zero.

8. (TCO 2) The elasticity of supply for a product will be 2 if:(Points : 4)
A 1 percent decrease in theprice causes a 0.2 percent decrease in quantity supplied
A 2 percent decrease in pricecauses a 1 percent decrease in quantity supplied
A 1 percent decrease in pricecauses a 2 percent decrease in quantity supplied
A 2 percent decrease in pricecauses a 2 percent decrease in quantity supplied

9. (TCO 2) Which is true for a purely competitive firm in short-runequilibrium? (Points : 4)
The firm is making only normalprofits.
The firm’s marginal cost isgreater than its marginal revenue.
The firm’s marginal revenue isequal to its marginal cost.
A decrease in output wouldlead to a rise in profits.

10. (TCO 2) Consumers who clip and redeem discount coupons (Points: 4)
exhibit the same priceelasticity of demand for a given product than consumers who do notclip and redeem coupons.
exhibit more price elasticityof demand for a given product than consumers who do not clip andredeem coupons.
exhibit less price elasticityof demand for a given product than consumers who do not clip andredeem coupons.
cause total revenue todecrease for firms that issue coupons for their products.

11. (TCO 3) In the kinked demand model of oligopoly, if one firmincreases its price, the most likely reaction of the other firmswill be to (Points : 4)
decrease their prices.
increase their prices.
not change their prices.
reduce their quantity.

12. (TCO 3) The main difference between the short run and the longrun is that (Points : 4)
firms earn zero profits in thelong run.
the long run always refers toa time period of one year or longer.
in the short run, some inputsare fixed.
in the long run, all inputsare fixed.

13.
(TCO 4) Refer to the diagram. The phases of the businesscycle from points A to D are, respectively:

Graph Description

(Points : 4)
Peak, recession, expansion,trough
Trough, recovery, expansion,peak
Expansion, recession, trough,peak
Peak, recession, trough,expansion

14. (TCO 4) The unemployed are those people who (Points : 4)
do not have jobs.
are not employed but areseeking work.
are not working.
are not in the workforce.

15. (TCO 4) Adding the market value of all intermediate goods andservices to those of final goods and services in an economy in agiven year would result in (Points : 4)
the calculation of GDP forthat year.
the calculation of NDP forthat year.
an amount less than GDP forthat year.
an amount greater than GDP forthat year.

16. (TCO 4) GDP tends to overstate economic well-being because ittakes into account (Points : 4)
improvements in productquality over time.
expenditures undertaken tocorrect pollution.
illegal activities ofindividuals and businesses.

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