ECO 561 Week 1 Knowledge Check
1 . Revenue increases when
A. producer surplus increases
B. producer surplus decreases
C. consumer surplus increases
D. consumer surplus decreases
2. An increase in the price of an inelastic good
A. decreases revenues
B. decreases the percentage change in quantity less than the percentage change in price
C. increases revenues
D. increases the percentage change in quantity more than the percentage change in price
3. Price elasticity of Demand increases when
Hint… The formula for price elasticity is the percentage change in quantity demanded divided by the percentage change in price.
A. the number of complementary goods decreases
B. the number of substitute goods decreases
C. people become more price sensitive over time
D. people become less price sensitive over time
4. The purpose of a market in a market system is to
Hint …. A true market system involves bartering
A. allow government to control what is sold
B. set constraints between buyers and sellers
C. bring buyers and sellers into contact
D. allow an organization to set prices in relation to their products
5. By specializing in the production of one good, a company is able to benefit from economies of scale which increases its revenue. Which of the following is an attribute of specialization?
Hint … Specialization helps a business be more efficient.
A. Reducing costs by creating a surplus
B. Saving time by allowing a worker to focus on one task
C. Encouraging workers to learn new skills
D. Encouraging workers to learn a number of different skills
6. The market system promotes progress by
Hint… In a market system , firms compete for consumers’ money.
A. creating incentive to continue to do things in the same way
B. restricting the amount of capital directed to specific goods
C. slowly adjusting to changes in the prices of resources
D. providing incentive for technological advances
7. Productive efficiency is achieved when
Hint…. Productive efficiency often arises out of competition in an attempt to lower cost of production.
A. the most valued combination of resources is used
B. the best technology is used
C. when production occurs at a fair cost per unit
D. fewer resources are left for production of other goods
8. The market is said to be in equilibrium when
Hint …. The market seeks a price at which the demand for goods equals the supply of goods.
A. there is potential for a shortage but not a surplus
B. there is potential for a surplus but not a shortage
C. neither a shortage nor a surplus exists
D. the quantity sold equals the quantity purchased
9. The market will move to a higher equilibrium price if
Hint…. If demand increases and supply stays the same , the price will increase. If the demand decreases and supply stays the same , the price will decrease.
A. the decrease in supply is equal to the decrease in demand
B. the increase in supply is greater than the increase in demand
C. the decrease in demand is greater than the decrease in supply
D. the increase in demand is greater than the increase in supply
10. The intersection of supply and demand will be at a lower equilibrium price but a higher equilibrium quantity if
Hint …. When supply increases, the supply curve shifts to the right. When supply decreases , the supply curve shifts to the left.
A. supply is constant and demand increases
B. supply is constant and demand decreases
C. demand is constant and supply decreases
D. demand is constant and supply increases
11. When a price ceiling occurs
Hint …. Price ceilings are often imposed to make the good more affordable.
A. the market price will be lower than the equilibrium price
B. the market price will be higher than the equilibrium price
C. the supply will exceed the demand
D. buyers will not be willing to pay more than the ceiling price
12. Because the goals of firms, entrepreneurs, and workers have different incentives, which of the following principles applies?
Hint …. In the case of firms and workers, the firm may want all employees to exert 100% of their effort during the work day. Employees , however , may have different expectations about productivity.
B. Invisible hand
C. Moral hazard
D. Free enterprise