ECO 561 Final Exam

1) The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:
A. derived demand.
B. capital accumulation.
C. creative destruction.
D. the difference between normal and economic profits. 2) If the demand for farm products is price inelastic, a good harvest will cause farm revenues to:
A. decrease
B. be unchanged.
C. increase
D. either increase or decrease, depending on what happens to supply. 3) In a competitive market economy firms will select the least-cost production technique because:
A. to do so will maximize the firms’ profits.
B. this will prevent new firms from entering the industry.
C. such choices will result in the full employment of available resources.
D. “dollar voting” by consumers mandates such a choice. 4) If price is above the equilibrium level, competition among sellers to reduce the resulting:
A. shortage will decrease quantity demanded and increase quantity supplied.
B. surplus will decrease quantity demanded and increase quantity supplied.
C. surplus will increase quantity demanded and decrease quantity supplied.
D. shortage will increase quantity demanded and decrease quantity supplied. 5) Which of the following statements is true about productive and allocative efficiency?
A. Productive efficiency can only occur if there is also allocative efficiency.
B. Society can achieve either productive efficiency or allocative efficiency, but not both simultaneously.
C. Realizing allocative efficiency implies that productive efficiency has been realized.
D. Productive efficiency and allocative efficiency can only occur together; neither can occur without the other. 6) Suppose that in 2007 Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of $19,500 per car. These statements:
A. suggest that the supply of Mustangs must have increased between 2007 and 2008.
B. suggest that…

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