Question 1

Why does specialization lead to increased output of products?
A)People have the opportunity to try many different jobs
B)People have the opportunity to become increasingly better (and faster) at one particular job
C)People always enjoy their individual jobs.
D)People receive highly specialized training by experts

Accepted Answer

Specialization leads to increased output of products primarily because people have the opportunity to become increasingly better (and faster) at one particular job.
Key Takeaway: In economics, specialization is designed to assign tasks and roles within an organization in order to increase productivity, especially given the increasing complexity of the industrialization era. Specialization matches the skills and capabilities of individuals with given roles and divides labor among employees. Although they may receive training and may be happier if allowed to focus only upon tasks they are good at or enjoy, the only thing that is guaranteed in specialization is the focus upon one task.

Question 2

What states that as the price of a product rises, people purchase less of that good, leading to a decrease in demand?
A)Law of supply
B)Command economy
C)Law of demand
D)Law of increasing opportunity costs

Accepted Answer

The law of demand states that as the price of a product rises, people purchase less of that good, leading to a decrease in demand.
Key Takeaway: When prices begin to fall again, people typically then start to buy more of that product, leading to an increase in demand for that product. Remember that when the price of a product changes, there is always a change in the quantity demanded.

Question 3

Although demand changes with a change in price, there are also five general changes that will also lead to a change in demand for people-regardless of whether or not the price changes. Which of the following is one of these changes?
A)Change in the price of other products
B)Change in level of income
C)Change in individual tastes
D)All of the above

Accepted Answer

All of the above items could potentially lead to a change in demand for a product-whether or not the price changes.
Key Takeaway: The five general changes that can lead to a change in demand are: change in the price of other products, change in income level (up or down), change in individual tastes, a change in the expected future price of the item (will it be worth something someday?), or a change in information about the product that is supplied to consumers.

Question 4

What is reached when demand and supply are balanced so that both the amount of products sold and the market price are under no pressure to change?
A)Supply and demand curve
B)Market equilibrium
C)The production possibilities curve
D)The opportunity costs

Accepted Answer

Market equilibrium is reached when demand and supply are balanced so that both the amount of products sold and the market price are under no pressure to change.
Key Takeaway: Basically, the market equilibrium price is reached when the quantity demanded (noted as Qd) is equal to the quantity that is supplied (Qs). Because these are equal, there is no surplus or shortage of goods that would lead to a change in price.

Question 5

What are goods that are used together called?
A)Substitutes
B)Complements
C)Pairs
D)Supplies

Accepted Answer

Goods that are used together are called complements.
Key Takeaway: Typically, an increase in the price for one complement causes a decrease in the demand for the other complement. Complements are seen a lot in the travel industry. For example, if the price of hotel rooms goes way up, you may see a decrease in demand for airline tickets or rental cars.

Question 6

Why does the PPC slope downward?
A)Increasing opportunity costs
B)Scarcity
C)The PPC does not slope downward
D)None of the above

Accepted Answer

The PPC slopes downward due to scarcity.
Key Takeaway: The production possibilities curve, sometimes shortened to PPC, refers to the graphical method of illustrating the complicated economic relationship between consumption and spending. It is typically used to answer a very basic question that every economy must answer: what should be produced?

Question 7

If buyers and/or sellers do not have all of the available information about a product's prices, customers, suppliers, inputs, available markets, etc., what is this called?
A)Imperfect information
B)Market failure
C)Bilateral monopoly
D)In-truth advertising

Accepted Answer

If buyers and/or sellers do not have all of the available information about a product's prices, customers, suppliers, inputs, available markets, etc., this is called imperfect information.
Key Takeaway: Imperfect information is one of the main things that can lead to market failure. Because a buyer or seller does not have all of the information about a given product, it could lead to buyers paying too much for a product, producers producing too much of one given product, or customers making poor decisions about poor-quality products.

Question 8

Human capital consists of workers' skills and education.

Accepted Answer

Human capital consists of workers' skills and education.
Key Takeaway: In general, there are four things that can lead to overall economic growth: increasing capital, increasing the labor force, progress in technology, and improving the quality of the labor. By investing in increasing the skill and education level of the workforce, it is possible to both increase capital and improve the quality of the labor. Such an investment often pays off big in the road to economic growth.

Question 9

Mike is selling his coffee under perfect competition. If this is the case, which of the following equations would yield marginal revenue product of labor while producing his coffee (notated in the equations as Y)?
A)MPl x Py
B)MPl ÷ Py
C)MRC x Py
D)MPl x MRC

Accepted Answer

If Mike is selling his coffee under perfect competition, the equation MPl x Py would yield the marginal revenue product of labor while producing his coffee.
Key Takeaway: The marginal revenue product is simply the addition that one more unit of a resource would bring to a business's revenue. To find the marginal revenue product (MRP), you always multiply the marginal product of the resource being discussed (in this case, labor) by the price of the resource. In this case, the only equation that works is choice A.

Question 10

The marginal social benefit (MSB) is obtained by adding the marginal private benefit to what?
A)The marginal private cost
B)The marginal external cost
C)The marginal external benefit
D)The marginal social cost

Accepted Answer

The marginal social benefit (MSB) is obtained by adding the marginal private benefit to the marginal external benefit.
Key Takeaway: When any good is consumed or produced, there are always clear costs and benefits-sometimes public, sometimes private. When the costs or benefits are public, the spillover is experienced by people who are not directly involved with the consumption or production of a good. To determine the marginal social benefit of a good, use the equation: MSB = MPB + MEB (marginal private benefit + the marginal external benefit).

Question 11

Which of the following is the correct equation for the marginal social cost of a good (MSC)?
A)MSC = MPC + MEB
B)MSC = MPC MEC
C)MSC = MPC + MEC
D)MSC = MEC MPC

Accepted Answer

The correct equation for the marginal social cost of a good is MSC = MPC + MEC.
Key Takeaway: The marginal social cost of a good is the cost of consuming or producing a particular good-both by the individual who is consuming or producing the good and by individuals who are not consuming or producing it but are affected by someone else consuming or producing it. To determine the marginal social cost of the good (MSC), add together the marginal personal cost (MPC) to the marginal external cost (MEC).

Question 12

According to the Coase Theorem, involved parties should generally be able to negotiate solutions without any form of government intervention if which of the following is true?
A)Only a small number of people are concerned
B)The costs of bargaining are negligible
C)Property rights are very clear
D)All of the above

Accepted Answer

According to the Coase Theorem, involved parties should generally be able to negotiate solutions without any form of government intervention if only a small number of people are concerned, the costs of bargaining are negligible, and property rights are very clear.
Key Takeaway: The Coase Theorem has to do with property rights. According to the theorem, if only a small number of people are involved, the costs of bargaining are negligible, and property rights are very clear, the involved parties should generally be able to negotiate the solution without government intervention. Keep in mind, however, that the Coase Theorem and lawsuits cannot and do not resolve all situations with externalities. There are many cases in which large numbers of people can be affected and the spillover costs inhibit creating solutions without help from the government.

Question 13

Because there is no incentive to protect public areas, each user (such as a business) tends to act in their own self-interest. What is this called?
A)Marginal public cost
B)Tragedy of the commons
C)Market failure
D)Negative externalities

Accepted Answer

Because there is no incentive to protect public areas, each user tends to act in their own self-interest. This is called the tragedy of the commons.
Key Takeaway: The tragedy of the commons arises from a situation in which multiple individuals who are sharing a resource will ultimately deplete that resource in the pursuit of their own self-interest. The dilemma was first discussed by economist Garrett Hardin in the late 1960s and is typically used in discussions of environmental protection and global warming.

Question 14

Which principle maintains that the government should tax individuals in accordance with the benefits they receive-no matter what their income level?
A)Ability-to-pay principle
B)Benefits-received principle
C)Regressive tax principle
D)Progressive tax principle

Accepted Answer

The benefits-received principle maintains that the government should tax individuals in accordance with the benefits they receive-no matter what their income level.
Key Takeaway: The government uses two principles in order to allocate taxes: the benefits-received principle and the ability-to-pay principle. According to the benefits-received principle, individuals are taxed based upon the benefits they receive, not their income level. The ability-to-pay principle maintains that people are taxed according to their income, no matter what the benefits they may or may not receive from the government.

Question 15

Regressive taxes typically people in a higher income level bracket.

Accepted Answer

Key Takeaway: With a regressive tax, the rate of taxation generally declines as an individual or corporation's income increases. Because of this, regressive taxes actually hurt people within a lower income bracket. Typical examples of regressive taxes are the Social Security tax and sales tax.

Question 16

Which of the following is the correct term for the differences in wage levels that occur from job characteristics?
A)Human capital
B)Productivity factor
C)Compensating differentials
D)Equity

Accepted Answer

The differences in wage levels that occur from job characteristics are compensating differentials.
Key Takeaway: The compensating differential analyzes the relationship between the wage rate and any of the unpleasant sides of doing a job (including any risks involved) the unpleasantness, risk, or other undesirable attributes of a particular job. The compensating differential is basically the additional amount of salary that must be given to a particular worker in order to do the unpleasant portions of the position.

Question 17

Imagine that the number of people who are graduating from medical school increases by 10% each year. If this is the case, which of the following statements about doctors' salaries is true?
A)Doctors' salaries will increase
B)Doctors' salaries will decrease
C)Doctors' salaries will decrease if the demand is less than the supply
D)Doctors' salaries will decrease if the demand is greater than the supply

Accepted Answer

If the number of people who are graduating from medical school increases each year, then doctors' salaries will decrease only if the demand is less than the supply.
Key Takeaway: As always, both supply and demand are a factor. If the supply of new doctors increases, doctors' salaries will only fall if the supply curve for doctors increases more than the demand curve for doctors increases. That is, the supply curve needs to shift to the right more than the demand curve shifts.

Question 18

Coffee has increased in price from $10 to $15 per pound. This change has lead to a decrease in the quantity of coffee demanded at a particular store from 75 to 50 pounds. Which of the following is true about the demand for coffee?
A)Demand for coffee is perfectly elastic
B)Demand for coffee has dropped to zero
C)Demand for coffee has reached equilibrium
D)Demand for coffee is inelastic

Accepted Answer

In this scenario, the demand for coffee is inelastic.
Key Takeaway: A change in price-whether an increase or decreases-always affects how much money producers receive for their good and the quantity of the good that is demanded by consumers. How much the demand is affected ultimately depends upon how much the price of the good changes and how much that affects consumers. In general, if the demand for a particular good is price elastic, an increase in the good's price will lead to a decrease in revenue; if the demand for a particular good is price inelastic, then an increase in the good's price will lead to an increase in total revenue.

Question 19

Which of the following statements would show that veggie burgers are a substitute for regular hamburgers?
A)If you calculate the income elasticity and get a negative number
B)If you calculate the income elasticity and get a decimal less than one
C)If you calculate the cross-price elasticity and get zero
D)If you calculate the cross-price elasticity and get a positive number

Accepted Answer

If you calculate the cross-price elasticity and get a positive number, you could show that veggie burgers are a substitute for regular hamburgers.
Key Takeaway: The cross-price elasticity of demand measures the relationships between substitutes and complements. By measuring how much the price of one good affects the quantity demanded of another good, economists and business owners can try to predict what may happen to their product within the marketplace. The formula for cross-price elasticity of demand is: (Percentage change in quantity demanded of good X) divided by the (percentage change in price of good Y)

Question 20

Why is it likely that when Mike goes to a sushi restaurant, he eats 15 pieces of sushi instead of 25?
A)Mike probably cannot afford to eat more than 15 pieces of sushi
B)The marginal utility of the sushi eventually weakens
C)The marginal utility of the sushi rises
D)The satisfaction that Mike derives from the sushi remains constant

Accepted Answer

It is likely that when Mike goes to a sushi restaurant he eats 15 pieces of sushi instead of 25 because the marginal utility of the sushi eventually weakens.
Key Takeaway: Utility is typically discussed within the context of the law of diminishing marginal utility. This law states that as a person gains more of one particular item, that person will have less satisfaction (or utility) from obtaining that one more unit.

Quiz 31: (AP) Macroeconomics: Part B

Why does specialization lead to increased output of products?

What states that as the price of a product rises, people purchase less of that good, leading to a decrease in demand?

Although demand changes with a change in price, there are also five general changes that will also lead to a change in demand for people-regardless of whether or not the price changes. Which of the following is one of these changes?

What is reached when demand and supply are balanced so that both the amount of products sold and the market price are under no pressure to change?

What are goods that are used together called?

Why does the PPC slope downward?

If buyers and/or sellers do not have all of the available information about a product's prices, customers, suppliers, inputs, available markets, etc., what is this called?

Human capital consists of workers' skills and education.

Mike is selling his coffee under perfect competition. If this is the case, which of the following equations would yield marginal revenue product of labor while producing his coffee (notated in the equations as Y) ?

The marginal social benefit (MSB) is obtained by adding the marginal private benefit to what? A)The marginal private cost B)The marginal external cost C)The marginal external benefit D)The marginal social cost

Which of the following is the correct equation for the marginal social cost of a good (MSC)? A)MSC = MPC + MEB B)MSC = MPC MEC C)MSC = MPC + MEC D)MSC = MEC MPC

According to the Coase Theorem, involved parties should generally be able to negotiate solutions without any form of government intervention if which of the following is true?

Because there is no incentive to protect public areas, each user (such as a business) tends to act in their own self-interest. What is this called?

Which principle maintains that the government should tax individuals in accordance with the benefits they receive-no matter what their income level?

Regressive taxes typically people in a higher income level bracket.

Which of the following is the correct term for the differences in wage levels that occur from job characteristics?

Imagine that the number of people who are graduating from medical school increases by 10% each year. If this is the case, which of the following statements about doctors' salaries is true?

Coffee has increased in price from $10 to $15 per pound. This change has lead to a decrease in the quantity of coffee demanded at a particular store from 75 to 50 pounds. Which of the following is true about the demand for coffee?

Which of the following statements would show that veggie burgers are a substitute for regular hamburgers?

Why is it likely that when Mike goes to a sushi restaurant, he eats 15 pieces of sushi instead of 25?