Economic Concepts

Question 1

If the cost of imported oil declined suddenly and significantly, which flow of economic resources would be most likely to be the first impacted?

Answer 1

Firms provide goods and services to individuals

Question 2

If there is an increase in the income of market participants, which of the following is most likely to happen to the demand for normal goods?

Answer 2

The demand curve will shift outward

Question 3

What factor would not cause an increase in demand for a commodity?

Answer 3

A reduction in the price of the commodity

Question 4

In the statement “quantity supplied is a function of price,” are the variables quantity and price dependent or independent variables?

Answer 4

Quantity is the dependent variable and price is the independent variable

Question 5

A supply schedule (or supply curve) shows the relationship between the quantity of a commodity that will be supplied during a period of time and

Answer 5

The selling price of the commodity

Question 6

If a change in market variables causes a supply curve to shift inward, what will occur?

Answer 6

In order for the same quantity to be provided after the shift as was provided before the shift, price will have to increase

Question 7

If both demand and supply have traditional curves, what might cause a higher equilibrium price?

Answer 7

An increase in demand

Question 8

What is the effect on the quantity of a commodity supplied relative to demand as a result of a government-mandated price ceiling or price floor?

Answer 8

Price Ceiling - Quantity Shortage

Price Floor - Quantity Surplus

Question 9

According to the law of diminishing returns

Answer 9

The marginal product (output) falls as more units of a variable input are added to fixed inputs

Question 10

In the long run, if all input factors to a production process are increased by 100%, but total output increases by only 75%, this indicates

Answer 10

Decreasing returns to scale

Question 11

what is the shape of the demand curve a firm faces in a perfectly competitive market?

Answer 11

Horizontal

Question 12

In perfect competition

Answer 12

Price equals marginal revenue

Question 13

In the long run, when a monopolistic firm produces at the quantity that maximizes revenue, will the firm use resources efficiently or inefficiently and will its price be higher or lower than in a competitive environment?

Answer 13

Use of Resources - Inefficient

Monopoly Price - Higher than perfect competition

Question 14

In a perfect monopoly, what is the relationship between the marginal revenue curve and the demand curve?

Answer 14

The marginal revenue curve is below the demand curve and the curves diverge as the quantity increases

Question 15

In a perfect monopoly market structure, what is a characteristic of a natural monopoly?

Answer 15

A firm has increasing returns to scale

Question 16

what could be the basis for a natural monopoly?

Answer 16

Economics of (or increasing return to) scale

Question 17

What is the shape of the demand curve faced by a monopolistic firm?

Answer 17

Negatively sloped

Question 18

The demand curve facing a firm in monopolistic competition is

Answer 18

negatively sloped

Question 19

A group of firms that conspires to make price and output decisions for a product or service is called

Answer 19

a cartel

Question 20

An air route between two cities is served by only three U.S. airlines. Every week, the largest of the three airlines posts its prices for future flights on the internet. The other two airlines immediately match the posted prices for future bookings. What does this practice illustrate?

Answer 20

Tacit collusion