1.  As a consequence of the problem of scarcity

there is never enough of anything.
individuals have to make choices from among alternatives.
production has to be planned by government.
things which are plentiful have relatively high prices.

2. Which of the following is considered to be an entrepreneur?

Self-employed person
MBA graduate hired by a firm to be its CEO
Production-line worker
Customer of a firm

3. A point on the production possibilities curve is

attainable and resources are fully employed.
attainable, but resources are unemployed.
unattainable, but resources are unemployed.
unattainable and resources are fully employed.

4. Which would not be characteristic of a capitalist economy?

Government ownership of most factors of production
Competition and unrestricted markets
Reliance on the market system
Freedom of enterprise and choice

5.  The demand curve is a representation of the relationship between the quantity of a product demanded and

supply.
wealth.
price.
income.

6.  What combination of changes would most likely decrease the equilibrium price?

When supply decreases and demand increases
When demand increases and supply increases
When demand decreases and supply decreases
When supply increases and demand decreases

7.  You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular

software is less than one. To increase total revenues, you should
increase the price of the software.
decrease the price of the software.
hold the price of the software constant.
increase the supply of the software.

8.  The price elasticity of demand increases with the length of the period considered because

consumers' incomes will increase over time.
the demand curve will shift outward as time passes.
all prices will increase over time.
consumers will be better able to find substitutes.

9.  A purely competitive firm's output is such that its marginal cost is $4 and marginal revenue is $5. Hint: remember that MR = P for Pure Competition and the Profit Maximizing rule. Assuming profit maximization, the firm should

cut its price and raise its output.
raise its price and cut output.
leave price unchanged and raise output.
leave price unchanged and cut output.

10.  Which would definitely not be an example of price discrimination?

A theater charges children less than adults for a movie.
Universities charge higher tuition for out-of-state residents.
A doctor charges for services according to the income of patients.
An electric power company charges less for electricity used during off-peak hours when production costs are lower.

11.  A major reason that firms form a cartel is to

reduce the elasticity of demand for the product.
enlarge the market share for each producer.
minimize the costs of production.
maximize joint profits.

12.  The main difference between the short run and the long run is that

firms earn zero profits in the long run.
the long run always refers to a time period of one year or longer.
in the short run, some inputs are fixed.
in the long run, all inputs are fixed.

13.
Refer to the diagram. The phases of the business cycle from points A to D are, respectively:

Graph Description

Peak, recession, expansion, trough
Trough, recovery, expansion, peak
Expansion, recession, trough, peak
Peak, recession, trough, expansion

14.  The unemployed are those people who

do not have jobs.
are not employed but are seeking work.
are not working.
are not in the workforce.

15.  Adding the market value of all intermediate goods and services to those of final goods and services in an economy in a given year would result in

the calculation of GDP for that year.
the calculation of NDP for that year.
an amount less than GDP for that year.
an amount greater than GDP for that year.

16.  GDP tends to overstate economic well-being because it takes into account

improvements in product quality over time.
expenditures undertaken to correct pollution.
illegal activities of individuals and businesses.
nonmarket activities, such as the productive work of homemakers.

17. The goal of expansionary fiscal policy is to increase

the price level.
aggregate supply.
real GDP.
unemployment.

18. Refer to the figure. The economy is at equilibrium at Point B. What would expansionary fiscal policy do?

Graph Description

Shift aggregate demand from AD2 to AD1
Shift aggregate demand from AD2 to AD3
Move the economy from Point B downward along AD2
Move the economy from Point B upward along AD2

19. The American Recovery and Reinvestment Act of 2009 included mostly
increases in taxes and government spending.
decreases in taxes and government spending.
increases in government spending and decreases in taxes.
decreases in government spending and increases in taxes.

20. If people expected that a tax cut was temporary, then this fiscal policy's effect on the economy will tend to be

stronger.
weaker.
the exact opposite of what was intended.
as the multiplier effect would predict