File of Microeconomics

CHƯƠNG 1:
10. When a society cannot produce all the goods and services people wish to have, it is said that the
economy is expe-riencing

a. scarcity.

b. surpluses.

c. inefficiencies.

d. inequalities.

12. Economics is the study of

a. production methods.

b. how society manages its scarce resources.

c. how households decide who performs which tasks.

d. the interaction of business and government.

1. The adage, "There is no such thing as a free lunch," means

a. even people on welfare have to pay for food.

b. the cost of living is always increasing.

c. people face tradeoffs.

d. all costs are included in the price of a product.

6. The principle that "people face tradeoffs" applies to

a. individuals.

b. families.

c. societies.

d. All of the above are correct.

 7. Sophia is planning her activities for a hot summer day. She would like to go to the local
swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie
for the same time that the pool is open she can only choose one activity. This illustrates the basic
principle that

a. people respond to incentives.

b. rational people think at the margin.

c. people face tradeoffs.

d. improvements in efficiency sometimes come at the expense of equality.

14. Efficiency means that

a. society is conserving resources in order to save them for the future.

b. society's goods and services are distributed equally among society's members.

c. society's goods and services are distributed fairly, though not necessarily equally, among
society's members.

d. society is getting the maximum benefits from its scarce resources.

24. When the government attempts to improve equality in an economy the result is often

a. an increase in overall output in the economy.

b. additional government revenue since overall income will increase.

c. a reduction in equality.

d. a reduction in efficiency.

35. In economics, the cost of something is

a. the dollar amount of obtaining it.

b. always measured in units of time given up to get it.

c. what you give up to get it.

d. often impossible to quantify, even in principle.

39. When computing the opportunity cost of attending a concert you should include

a. the price you pay for the ticket and the value of your time.

b. the price you pay for the ticket, but not the value of your time.
c. the value of your time, but not the price you pay for the ticket.

d. neither the price of the ticket nor the value of your time.

41. Ellie decides to spend two hours taking a nap rather than attending her classes. Her
opportunity cost of napping is

a. the value of the knowledge she would have received had she attended class.

b. the $24 she could have earned if she had worked at her job for those two hours.

c. the value of her nap less the value of attending class.

d. nothing, since she valued sleep more than attendance at class.

57. A rational decisionmaker

a. ignores marginal changes and focuses instead on “the big picture.”

b. ignores the likely effects of government policies when he or she makes choices.

c. takes an action only if the marginal benefit of that action exceeds the marginal cost of that
action.

d. takes an action only if the combined benefits of that action and previous actions exceed the
combined costs of that action and previous actions.

58. A rational decision maker takes an action only if the

a. marginal benefit is less than the marginal cost.

b. marginal benefit is greater than the marginal cost.

c. average benefit is greater than the average cost.

d. marginal benefit is greater than both the average cost and the marginal cost.

66. The marginal benefit Claire gets from purchasing a third pair of flip-flops is

a. the same as the total benefit of purchasing three pairs of flip-flops.

b. more than the marginal cost of purchasing the third pair of flip-flops.

c. the total benefit Claire gets from purchasing three pairs of flip-flops minus the total benefit she
gets from purchasing two pairs of flip-flops.

d. the total benefit Claire gets from purchasing four pairs of flip-flops minus the total benefit she
gets from purchasing three pairs of flip-flops.
 79. Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5
empty rooms for tonight. If the marginal cost of operating one room for one night is $30 and a
customer is willing to pay $60 for the night, the hotel manager should

a. rent the room because the marginal benefit exceeds the marginal cost.

b. rent the room because the marginal benefit exceeds the average cost.

c. not rent the room because the marginal benefit is less than the marginal cost.

d. not rent the room because the marginal benefit is less than the average cost.

3. The principle that "trade can make everyone better off" applies to interactions and
trade between

a. families.

b. states within the United States.

c. nations.

d. All of the above are correct.

ANS: D PTS: 1 DIF: 1 REF: 1-2

NAT: AnalyticLOC: Gains from trade, specialization and trade

TOP: Trade MSC: Applicative

60. In the simple circular-flow diagram, the participants in the economy are

a. firms and government.

b. households and firms.

c. households and government.

d. households, firms, and government.

61. Which two groups of decision makers are included in the simple circular-flow diagram?

a. markets and government

b. households and government

c. firms and government

d. households and firms

 62. In the circular-flow diagram, firms produce

a. goods and services using factors of production.

b. output using inputs.

c. factors of production using goods and services.

d. Both (a) and (b) are correct.

63. Factors of production are

a. the mathematical calculations firms make in determining their optimal production levels.

b. social and political conditions that affect production.

c. the physical relationships between economic inputs and outputs.

d. inputs into the production process.

64. Factors of production are

a. used to produce goods and services.

b. also called output.

c. abundant in most economies.

d. assumed to be owned by firms in the circular-flow diagram.

65. In the circular-flow diagram, which of the following is not a factor of production?

a. labor

b. land

c. capital

d. money

66. In the circular-flow diagram,

a. firms own the factors of production.

b. the factors of production are labor, land, and capital.

c. the factors of production are also called “output.”

d. All of the above are correct.

 67. Which of these terms are used interchangeably?

a. "goods and services" and "inputs"

b. "goods and services" and "factors of production"

c. "inputs" and "factors of production"

d. "land, labor, and capital" and "goods and services"

68. Another term for factors of production is

a. inputs.

b. output.

c. goods.

d. services.

69. In economics, capital refers to

a. the finances necessary for firms to produce their products.

b. buildings and machines used in the production process.

c. the money households use to purchase firms' output.

d. stocks and bonds.

71. In the simple circular-flow diagram, households

a. are the only decision makers.

b. own the factors of production.

c. are buyers of inputs.

d. consume only some of the goods and services that firms produce.

72. In the simple circular-flow diagram,

a. households own the factors of production.

b. households buy all the goods and services that firms produce.

c. land, labor, and capital flow from households to firms.

d. All of the above are correct.

 124. Production is efficient if the economy is producing at a point

a. on the production possibilities frontier.

b. outside the production possibilities frontier.

c. on or inside the production possibilities frontier.

d. inside the production possibilities frontier.

130. When an economy is operating inside its production possibilities frontier, we know that

a. there are unused resources or inefficiencies in the economy.

b. all of the economy’s resources are fully employed.

c. economic growth would have to occur in order for the economy to move to a point on the
frontier.

d. in order to produce more of one good, the economy would have to give up some of the other
good.

132. Unemployment would cause an economy to

a. produce inside its production possibilities frontier.

b. produce on its production possibilities frontier.

c. produce outside its production possibilities frontier.

d. experience an inward shift of its production possibilities frontier.

133. The production possibilities frontier provides an illustration of the principle that

a. trade can make everyone better off.

b. governments can sometimes improve market outcomes.

c. people face trade-offs.

d. people respond to incentives.

227. Microeconomics is the study of

a. how money affects the economy.

b. how individual households and firms make decisions.

c. how government affects the economy.

d. how the economy as a whole works.

228. Macroeconomics is the study of

a. individual decision makers.

b. international trade.

c. economy-wide phenomena.

d. markets for large products.

5. For economists, statements about the world are of two types:

a. assumptions and theories.

b. true statements and false statements.

c. specific statements and general statements.

d. positive statements and normative statements.

6. Normative statements are

a. prescriptive, whereas positive statements are descriptive.

b. descriptive, whereas positive statements are prescriptive.

c. backward-looking, whereas positive statements are forward-looking.

d. forward-looking, whereas positive statements are backward-looking.

7. Positive statements are

a. prescriptive.

b. claims about how the world should be.

c. claims about how the world is.

d. made by economists speaking as policy advisers.

8. Normative statements are

a. descriptive.

b. claims about how the world should be.

c. claims about how the world is.

d. made by economists speaking as scientists.

9. Positive statements are not

a. descriptive.

b. prescriptive.

c. claims about how the world is.

d. made by economists speaking as scientists.

10. Normative statements are not

a. descriptive.

b. prescriptive.

c. claims about how the world should be.

d. made by economists speaking as policy advisers.

11. A statement describing how the world is

a. is a normative statement.

b. is a positive statement.

c. would only be made by an economist speaking as a policy adviser.

d. would only be made by an economist employed by the government.

12. A statement describing how the world should be

a. is a normative statement.

b. is a positive statement.

c. would only be made by an economist speaking as a scientist.

d. would only be made by an economist employed by the government.

CHƯƠNG 2:
Demand

2. An increase in quantity demanded

a. results in a movement downward and to the right along a demand curve.

b. results in a movement upward and to the left along a demand curve.

c. shifts the demand curve to the left.

d. shifts the demand curve to the right.

4. A movement upward and to the left along a demand curve is called a(n)

a. increase in demand.

b. decrease in demand.

c. decrease in quantity demanded.

d. increase in quantity demanded.

6. An increase in the price of a good will

a. increase demand.

b decrease demand.
.

c. increase quantity demanded.

d decrease quantity demanded.

.

13. “Other things equal, when the price of a good rises, the quantity demanded of the good falls,
and when the price falls, the quantity demanded rises.” This relationship between price and quantity
demanded

a. applies to most goods in the economy.

b is represented by a downward-sloping demand curve.

.

c. is referred to as the law of demand.

d All of the above are correct.
.

15. The law of demand states that, other things equal, when the price of a good

a. falls, the demand for the good rises.

b rises, the quantity demanded of the good rises.

.

c. rises, the demand for the good falls.

d falls, the quantity demanded of the good rises.

.

25. Which of the following is not held constant in a demand schedule?

a. income

b tastes
.

c. price

d expectations
.

29. When we move along a given demand curve,

a. only price is held constant.

b. income and price are held constant.

c. all nonprice determinants of demand are held constant.

d. all determinants of quantity demanded are held constant.

31. If something happens to alter the quantity demanded at any given price, then

a. the demand curve becomes steeper.

b the demand curve becomes flatter.

.

c. the demand curve shifts.

d we move along the demand curve.

.
 34. The market demand curve

a. is found by vertically adding the individual demand curves.

b. slopes upward.

c. represents the sum of the prices that all the buyers are willing to pay for a given quantity of the
good.

d. represents the sum of the quantities demanded by all the buyers at each price of the good.

36. To obtain the market demand curve for a product, sum the individual demand curves

a. vertically.

b diagonally.
.

c. horizontally.

d and then average them.

.

Figure 4-2

44. Refer to Figure 4-2. If Consumer A and Consumer B are the only consumers in the
market, then the market quantity demanded when the price is $6 is

a. 4 units.

b. 6 units.

c. 8 units.

d. 12 units.
 45. Refer to Figure 4-2. If Consumer A and Consumer B are the only consumers in the
market, then the market quantity demanded when the price is $10 is

a. 0 units.

b. 4 units.

c. 10 units.

d. 12 units.

Figure 4-4

59. Refer to Figure 4-4. Which of the following would cause the demand curve to shift from
Demand B to Demand C in the market for DVDs in the United States?

a. a decrease in the price of DVDs

b a decrease in the price of DVD players

.

c. a change in consumer preferences toward watching movies in movie theaters rather than at home

d a decrease in the number of people in the United States

.

60. Refer to Figure 4-4. Which of the following would cause the demand curve to shift from
Demand C to Demand A in the market for DVDs?

a. an increase in the price of DVDs

b a decrease in the price of DVD players

.

c. a change in consumer preferences toward watching movies in movie theaters rather than at home

d an expectation by buyers that their incomes will increase in the very near future
.

61. Refer to Figure 4-4. Which of the following would cause the demand curve to shift from
Demand C to Demand A in the market for tennis balls in the United States?

a. an increase in the price of tennis balls

b a decrease in the price of tennis racquets

.

c. an expectation by buyers that their incomes will increase in the very near future

d a decrease in the number of people in the United States under age 70

.

62. Refer to Figure 4-4. Which of the following would cause the demand curve to shift from
Demand A to Demand B in the market for golf balls in the United States?

a. a decrease in the price of golf balls

b an increase in the price of green fees

.

c. an expectation by buyers that their incomes will increase in the very near future

d a change in consumer tastes away from golf and toward tennis

.

63. Refer to Figure 4-4. Which of the following would cause the demand curve to shift from
Demand A to Demand B in the market for oranges in the United States?

a. a freeze in Florida

b. a technological advance that allows oranges to ripen faster

c. a decrease in the price of apples

d. an announcement by the FDA that oranges prevent heart disease

76. When the price of hot dogs changes, the demand curve for hot dogs

a. shifts because the price of hot dogs is measured on the vertical axis of the graph.

b. shifts because the quantity demanded of hot dogs is measured on the horizontal axis of the graph.
c. does not shift because the price of hot dogs is measured on the vertical axis of the graph.

d. does not shift because the price of hot dogs is measured on the horizontal axis of the graph.

84. The demand curve for textbooks shifts

a. only when income changes.

b when a determinant of the demand for textbooks other than the price of textbooks changes.
.

c. when the price of textbooks changes.

d Both b) and c) are correct.

.

85. Which of the following is not a determinant of the demand for a particular good?

a. the prices of related goods

b income
.

c. tastes

d the prices of the inputs used to produce the good

.

88. If the demand for a good falls when income falls, then the good is called a(n)

a. normal good.

b. regular good.

c. luxury good.

d. inferior good.

89. If a good is normal, then an increase in income will result in a(n)

a. increase in the demand for the good.

b. decrease in the demand for the good.

c. movement down and to the right along the demand curve for the good.

d. movement up and to the left along the demand curve for the good.
 91. You lose your job and, as a result, you buy fewer iTunes music downloads. This shows
that you consider iTunes music downloads to be a(n)

a. luxury good.

b. inferior good.

c. normal good.

d. complementary good.

99. Soup is an inferior good if the demand

a. for soup falls when the price of a substitute for soup rises.

b. for soup rises when the price of soup falls.

c. curve for soup slopes upward.

d. for soup falls when income rises.

107. You wear either shorts or sweatpants every day. You notice that sweatpants have gone
on sale, so your demand for

a. sweatpants will increase.

b. sweatpants will decrease.

c. shorts will increase.

d. shorts will decrease.

112. A higher price for batteries would result in a(n)

a. increase in the demand for flashlights.

b decrease in the demand for flashlights.

.

c. increase in the demand for batteries.

d decrease in the demand for batteries.

.

115. When quantity demanded has increased at every price, it might be because

a. the number of buyers in the market has decreased.

b income has increased, and the good is an inferior good.

.

c. the costs incurred by sellers producing the good have decreased.

d the price of a complementary good has decreased.

.

116. Which of the following might cause the demand curve for an inferior good to shift to the
left?

a. a decrease in income

b. an increase in the price of a substitute

c. an increase in the price of a complement

d. None of the above is correct.

121. Suppose scientists provide evidence that chocolate pudding increases the bad
cholesterol levels of those who eat it. We would expect to see

a. no change in the demand for chocolate pudding.

b. a decrease in the demand for chocolate pudding.

c. an increase in the demand for chocolate pudding.

d. a decrease in the supply of chocolate pudding.

122. A very hot summer in Atlanta will cause

a. the demand curve for lemonade to shift to the left.

b. the demand for air conditioners to decrease.

c. the demand for jackets to decrease.

d. a movement downward and to the right along the demand curve for tank tops.

126. Today, people changed their expectations about the future. This change

a. can cause a movement along a demand curve.

b can affect future demand but not today’s demand.

.

c. can affect today’s demand.

d cannot affect either today’s demand or future demand.
.

127. If Miguel expects to earn a higher income next month, he may choose to

a. save more now and spend less of his current income on goods and services.

b. save less now and spend more of his current income on goods and services.

c. decrease his current demand for goods and services.

d. move along his current demand curves for goods and services.

128. You love peanut butter. You hear on the news that 50 percent of the peanut crop in the
South has been wiped out by drought and that this will cause the price of peanuts to double by the end
of the year. As a result, your demand for peanut butter

a. will increase but not until the end of the year.

b increases today.
.

c. decreases as you look for a substitute good.

d shifts left today.

.

132. If the number of buyers in a market decreases, then

a. demand will increase.

b. demand will decrease.

c. supply will increase.

d. supply will decrease.

133. Which of the following does not affect an individual's demand curve?

a. expectations

b income
.

c. prices of related goods

d the number of buyers

.
Figure 4-7

Panel (a) Panel (b)

141. Refer to Figure 4-7. The graphs show the demand for cigarettes. In Panel (a), the
arrows are consistent with which of the following events?

a. Tobacco and marijuana are complements, and the price of marijuana decreased.

b Tobacco is a “gateway drug,” and the price of marijuana increased.

.

c. The price of cigarettes increased.

d The arrows are consistent with all of these events.

.

142. Refer to Figure 4-7. The graphs show the demand for cigarettes. In Panel (b), the
arrows are consistent with which of the following events?

a. an increase in the price of cigarettes

b placing a tax on cigarettes

.

c. the prohibition of cigarette advertisements on television

d decreasing the price of marijuana, given that tobacco and marijuana are complements
.
1. Which of the following events could shift the demand curve for gasoline to the left?

a. The income of gasoline buyers rises, and gasoline is a normal good.

b. The income of gasoline buyers falls, and gasoline is an inferior good.

c. Public service announcements run on television encourage people to walk or ride bicycles
instead of driving cars.

d. The price of gasoline rises.

2. If Max experiences a decrease in his income, then we would expect Max’s demand for

a. each good he purchases to remain unchanged.

b. normal goods to decrease.

c. luxury goods to increase.

d. inferior goods to decrease.

3. Which of these statements best represents the law of demand?

a. When buyers’ tastes for a good increase, they purchase more of the good.

b. When income levels increase, buyers purchase more of most goods.

c. When the price of a good decreases, buyers purchase more of the good.

d. When buyers’ demands for a good increase, the price of the good increases.

4. Suppose scientists provide evidence that chocolate pudding increases the bad cholesterol levels of
those who eat it. We would expect to see

a. no change in the demand for chocolate pudding.

b. a decrease in the demand for chocolate pudding.

c. an increase in the demand for chocolate pudding.

d. a decrease in the supply of chocolate pudding.

5. Which of the following changes would not shift the demand curve for a good or service?

a. a change in income

b. a change in the price of the good or service

c. a change in expectations about the future price of the good or service

d. a change in the price of a related good or service

6. Which of the following would shift the demand curve for gasoline to the right?

a. a decrease in the price of gasoline

b. an increase in consumer income, assuming gasoline is a normal good

c. an increase in the price of cars, a complement for gasoline

d. a decrease in the expected future price of gasoline

7. When the price of a good or service changes,

a. the supply curve shifts in the opposite direction.

b. the demand curve shifts in the opposite direction.

c. the demand curve shifts in the same direction.

d. there is a movement along a given demand curve.

8. If toast and butter are complements, then which of the following would increase the demand for
toast?

a. a decrease in the price of toast

b. a decrease in the price of butter

c. an increase in the price of butter

d. Both a and b are correct.

9. A movement along the demand curve might be caused by a change in

a. income.

b. the prices of substitutes or complements.

c. expectations about future prices.

d. the price of the good or service that is being demanded.

10. If the number of buyers in a market decreases, then

a. demand will increase.

b. demand will decrease.

c. supply will increase.

d. supply will decrease.

11. An increase in the price of a good will

a. increase demand.

b. decrease demand.

c. increase quantity demanded.

d. decrease quantity demanded.

12. Two goods are substitutes when a decrease in the price of one good

a. decreases the demand for the other good.

b. decreases the quantity demanded of the other good.

c. increases the demand for the other good.

d. increases the quantity demanded of the other good.

13. Each of the following is a determinant of demand except

a. tastes.

b. production technology.

c. expectations.

d. the prices of related goods.

14. If a good is normal, then an increase in income will result in a(n)

a. increase in the demand for the good.

b. decrease in the demand for the good.

c. movement down and to the right along the demand curve for the good.

d. movement up and to the left along the demand curve for the good.

15. A movement upward and to the left along a demand curve is called a(n)

a. increase in demand.

b. decrease in demand.
c. decrease in quantity demanded.

d. increase in quantity demanded.

16. The law of demand states that, other things equal, an increase in

a. price causes quantity demanded to increase.

b. price causes quantity demanded to decrease.

c. quantity demanded causes price to increase.

d. quantity demanded causes price to decrease.

17. A leftward shift of a demand curve is called a(n)

a. increase in demand.

b. decrease in demand.

c. decrease in quantity demanded.

d. increase in quantity demanded.

Supply

3. A decrease in the price of a good will

a. increase supply.

b. decrease supply.

c. increase quantity supplied.

d. decrease quantity supplied.

5. When the price of a good or service changes,

a. the demand curve shifts in the opposite direction.

b the supply curve shifts in the opposite direction.

.

c. the supply curve shifts in the same direction.

d there is a movement along a given supply curve.

.

6. A movement along the supply curve might be caused by a change in

a. production technology.

b. input prices.

c. expectations about future prices.

d. the price of the good or service that is being supplied.

9. An increase in the price of oranges would lead to

a. an increased supply of oranges.

b a reduction in the prices of inputs used in orange production.

.

c. an increased demand for oranges.

d a movement up and to the right along the supply curve for oranges.
.

10. An increase in quantity supplied

a. results in a movement downward and to the left along a fixed supply curve.

b results in a movement upward and to the right along a fixed supply curve.
.

c. shifts the supply curve to the left.

d shifts the supply curve to the right.

.

Figure 4-8

12. Refer to Figure 4-8. The movement from Point A to Point B represents a(n)
a. shift in the supply curve.

b decrease in the quantity supplied.

.

c. increase in the quantity supplied.

d Both a) and b) are correct.

.

14. “Other things equal, when the price of a good rises, the quantity supplied of the good
also rises, and when the price falls, the quantity supplied falls as well.” This relationship between price
and quantity supplied

a. is referred to as the law of supply.

b. applies only to a few goods in the economy.

c. is represented by a downward-sloping supply curve.

d. All of the above are correct.

19. A supply curve slopes upward because

a. as more is produced, total cost of production falls.

b. an increase in input prices increases supply.

c. the quantity supplied of most goods and services increases over time.

d. an increase in price gives producers an incentive to supply a larger quantity.

20. Which of the following demonstrates the law of supply?

a. When leather became more expensive, belt producers decreased their supply of belts.

b. When car production technology improved, car producers increased their supply of cars.

c. When sweater producers expected sweater prices to rise in the near future, they decreased their
current supply of sweaters.

d. When ketchup prices rose, ketchup sellers increased their quantity supplied of ketchup.

23. Which of the following is not held constant in a supply schedule?

a. production technology
b. the price of the good

c. the prices of inputs

d. expectations

Figure 4-9

25. Refer to Figure 4-9. The movement from point A to point B on the graph is called

a. a decrease in supply.

b an increase in supply.
.

c. an increase in the quantity supplied.

d a decrease in the quantity supplied.

.

26. Refer to Figure 4-9. The movement from point A to point B on the graph is caused by

a. a decrease in the price of the good.

b an increase in the price of the good.

.

c. an advance in production technology.

d a decrease in input prices.

.

Figure 4-10
 29. Refer to Figure 4-10. Which of the following would cause the supply curve to shift from
Supply A to Supply C in the market for winter coats?

a. an increase in the price of winter coats

b a decrease in the number of firms selling winter coats

.

c. a decrease in the price of zippers and snaps

d a decrease in the price of winter hats and gloves

.

30. Refer to Figure 4-10. Which of the following would cause the supply curve to shift from
Supply B to Supply A in the market for tennis racquets?

a. a decrease in the price of tennis balls

b. an expectation by firms that the price of tennis racquets will increase in the very near future

c. a decrease in the price of tennis racquet strings

d. an improvement in technology that allows firms to use less labor in the production of tennis
racquets

31. Refer to Figure 4-10. Which of the following would cause the supply curve to shift from
Supply B to Supply A in the market for disposable ballpoint pens?

a. a decrease in the price of disposable ballpoint pens

b. an increase in the price of fountain pens

c. an increase in the price of ink

d. an improvement in technology that allows firms to use less labor in the production of disposable
ballpoint pens

34. When we move along a given supply curve,

a. only price is held constant.

b technology and price are held constant.

.

c. all nonprice determinants of supply are held constant.

d all determinants of quantity supplied are held constant.

.

36. If something happens to alter the quantity supplied at any given price, then

a. we move along the supply curve.

b the supply curve shifts.

.

c. the supply curve becomes steeper.

d the supply curve becomes flatter.

.

37. An increase in supply is represented by a

a. movement downward and to the left along a supply curve.

b. movement upward and to the right along a supply curve.

c. rightward shift of a supply curve.

d. leftward shift of a supply curve.

39. A leftward shift of a supply curve is called a(n)

a. increase in supply.

b. decrease in supply.

c. decrease in quantity supplied.

d. increase in quantity supplied.

41. A movement upward and to the right along a supply curve is called a(n)
a. increase in supply.

b. decrease in supply.

c. decrease in quantity supplied.

d. increase in quantity supplied.

45. The supply curve for milk

a. shifts when the price of milk changes because the price of milk is measured on the vertical axis of
the graph.

b. shifts when the price of milk changes because the quantity supplied of milk is measured on the
horizontal axis of the graph.

c. does not shift when the price of milk changes because the price of milk is measured on the vertical
axis of the graph.

d. does not shift when the price of milk changes because the price of milk is measured on the
horizontal axis of the graph.

46. Which of the following changes would not shift the supply curve for a good or service?

a. a change in production technology

b. a change in the price of the good or service

c. a change in expectations about the future price of the good or service

d. a change in input prices

47. Which of the following would not shift the supply curve for mp3 players?

a. an increase in the price of mp3 players

b. a decrease in the number of sellers of mp3 players

c. an increase in the price of plastic, an input into the production of mp3 players

d. an improvement in the technology used to produce mp3 players

51. In a market, to find the total amount supplied at a particular price, we must

a. sum the quantities that individual firms are willing and able to supply at that price.

b. calculate the average of the quantities that individual firms are willing and able to supply at that
 price.

c. sum the costs that individual firms incur to supply the product at that price.

d. account for all determinants of demand.

52. A market supply curve is determined by

a. vertically summing individual supply curves.

b. horizontally summing individual supply curves.

c. finding the average quantity supplied by sellers at each possible price.

d. finding the average price at which sellers are willing and able to sell a particular quantity of the
good.

71. Suppose you make jewelry. If the price of gold falls, then we would expect you to

a. be willing and able to produce less jewelry than before at each possible price.

b. be willing and able to produce more jewelry than before at each possible price.

c. face a greater demand for your jewelry.

d. face a weaker demand for your jewelry.

72. Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If
the federal government increases the minimum wage by $1.00 per hour, then it is likely that the

a. demand for bicycle assembly workers will increase.

b supply of bicycles will shift to the right.

.

c. supply of bicycles will shift to the left.

d firm must increase output to maintain profit levels.

.

79. If car manufacturers begin using new labor-saving technology on their assembly lines,
we would not expect

a. a smaller quantity of labor to be used.

b. the supply of cars to increase.

c. the firms’ costs to fall.

d. individual car manufacturers to move up and to the right along their individual supply curves.
 80. Which of the following might cause the supply curve for an inferior good to shift to the
right?

a. an increase in input prices

b a decrease in consumer income

.

c. an improvement in production technology that makes production of the good more profitable

d a decrease in the number of sellers in the market

.

83. If suppliers expect the price of their product to fall in the future, then they will

a. decrease supply now.

b. increase supply now.

c. decrease supply in the future but not now.

d. increase supply in the future but not now.

Figure 4-13

94. Refer to Figure 4-13. The shift from S to S’ is called a(n)

a. decrease in supply.
b. decrease in quantity supplied.

c. increase in supply.

d. increase in quantity supplied.

95. Refer to Figure 4-13. The shift from S to S’ could be caused by an

a. increase in the price of the good.

b improvement in production technology.

.

c. increase in income.

d increase in input prices.

.

96. Refer to Figure 4-13. The shift from S to S’ in the market for peaches could be caused by
a(n)

a. increase in the price of peaches.

b decrease in the price of pears.

.

c. increase in income.

d decrease in the labor costs of the workers who pick peaches.

.

97. Refer to Figure 4-13. The shift from S’ to S in the market for chocolate cake could be
caused by a(n)

a. decrease in the number of commercial bakers.

b improvement in oven technology.

.

c. decrease in the price of butter.

d decrease in the price of chocolate cake.

.

98. Refer to Figure 4-13. If the supply curves that are drawn represent supply curves for
single-family residential houses, then the movement from S to S’ could be caused by a(n)

a. increase in the price of apartments which are a substitute for single-family houses for many people
 looking for a place to live.

b. newly-formed expectation by house-builders that prices of houses will increase significantly in the
next six months.

c. decrease in the price of lumber.

d. All of the above are correct.

Supply and Demand Together

5. In a given market, how are the equilibrium price and the market-clearing price related?

a. There is no relationship.

b They are the same price.

.

c. The market-clearing price exceeds the equilibrium price.

d The equilibrium price exceeds the market-clearing price.

.

8. Which of the following events must cause equilibrium quantity to fall?

a. demand increases and supply decreases

b demand and supply both decrease

.

c. demand decreases and supply increases

d demand and supply both increase

.

9. Which of the following events must cause equilibrium quantity to rise?

a. demand increases and supply decreases

b demand and supply both decrease

.

c. demand decreases and supply increases

d demand and supply both increase

.

10. Which of the following events must cause equilibrium price to fall?
a. demand increases and supply decreases

b demand and supply both decrease

.

c. demand decreases and supply increases

d demand and supply both increase

.

11. Equilibrium quantity must decrease when demand

a. increases and supply does not change, when demand does not change and supply decreases, and
when both demand and supply decrease.

b. increases and supply does not change, when demand does not change and supply increases, and
when both demand and supply decrease.

c. decreases and supply does not change, when demand does not change and supply increases, and
when both demand and supply decrease.

d. decreases and supply does not change, when demand does not change and supply decreases, and
when both demand and supply decrease.

12. Equilibrium quantity must increase when demand

a. increases and supply does not change, when demand does not change and supply increases, and
when both demand and supply increase.

b. increases and supply does not change, when demand does not change and supply increases, and
when both demand and supply decrease.

c. decreases and supply does not change, when demand does not change and supply decreases, and
when both demand and supply increase.

d. decreases and supply does not change, when demand does not change and supply decreases, and
when both demand and supply decrease.

13. Equilibrium price must decrease when demand

a. increases and supply does not change, when demand does not change and supply decreases, and
when demand decreases and supply increases simultaneously.

b. increases and supply does not change, when demand does not change and supply decreases, and
when demand increases and supply decreases simultaneously.

c. decreases and supply does not change, when demand does not change and supply increases, and
 when demand decreases and supply increases simultaneously.

d. decreases and supply does not change, when demand does not change and supply increases, and
when demand increases and supply decreases simultaneously.

14. Equilibrium price must increase when demand

a. increases and supply does not change, when demand does not change and supply decreases, and
when demand decreases and supply increases simultaneously.

b. increases and supply does not change, when demand does not change and supply decreases, and
when demand increases and supply decreases simultaneously.

c. decreases and supply does not change, when demand does not change and supply increases, and
when demand decreases and supply increases simultaneously.

d. decreases and supply does not change, when demand does not change and supply increases, and
when demand increases and supply decreases simultaneously.

15. Which of the following events must cause equilibrium price to rise?

a. demand increases and supply decreases

b demand and supply both decrease

.

c. demand decreases and supply increases

d demand and supply both increase

.

27. Which of the following would cause price to decrease?

a. a decrease in supply

b. an increase in demand

c. a surplus of the good

d. a shortage of the good

28. When the price of a good is higher than the equilibrium price,

a. a shortage will exist.

b buyers desire to purchase more than is produced.

.

c. sellers desire to produce and sell more than buyers wish to purchase.
d quantity demanded exceeds quantity supplied.
.

29. A surplus exists in a market if

a. there is an excess demand for the good.

b quantity demanded exceeds quantity supplied.

.

c. the current price is above its equilibrium price.

d All of the above are correct.

.

30. If a surplus exists in a market, then we know that the actual price is

a. above the equilibrium price, and quantity supplied is greater than quantity demanded.

b. above the equilibrium price, and quantity demanded is greater than quantity supplied.

c. below the equilibrium price, and quantity demanded is greater than quantity supplied.

d. below the equilibrium price, and quantity supplied is greater than quantity demanded.

31. If, at the current price, there is a surplus of a good, then

a. sellers are producing more than buyers wish to buy.

b the market must be in equilibrium.

.

c. the price is below the equilibrium price.

d quantity demanded equals quantity supplied.

.

32. When a surplus exists in a market, sellers

a. raise price, which increases quantity demanded and decreases quantity supplied, until the surplus is
eliminated.

b. raise price, which decreases quantity demanded and increases quantity supplied, until the surplus is
eliminated.

c. lower price, which increases quantity demanded and decreases quantity supplied, until the surplus is
 eliminated.

d. lower price, which decreases quantity demanded and increases quantity supplied, until the surplus is
eliminated.

33. Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses
is $30 per dozen. We would expect a

a. shortage to exist and the market price of roses to increase.

b shortage to exist and the market price of roses to decrease.

.

c. surplus to exist and the market price of roses to increase.

d surplus to exist and the market price of roses to decrease.

.

34. The current price of neckties is $30, but the equilibrium price of neckties is $25. As a
result,

a. the quantity supplied of neckties exceeds the quantity demanded of neckties at the $30 price.

b. the equilibrium quantity of neckties exceeds the quantity demanded at the $30 price.

c. there is a surplus of neckties at the $30 price.

d. All of the above are correct.

35. A university's football stadium is never more than half-full during football games. This
indicates

a. the ticket price is above the equilibrium price.

b. the ticket price is below the equilibrium price.

c. the ticket price is at the equilibrium price.

d. nothing about the equilibrium price.

36. When the price of a good is lower than the equilibrium price,

a. a surplus will exist.

b buyers desire to purchase more than is produced.

.

c. sellers desire to produce and sell more than buyers wish to purchase.
d quantity supplied exceeds quantity demanded.
.

37. A shortage exists in a market if

a. there is an excess supply of the good.

b quantity supplied exceeds quantity demanded.

.

c. the current price is below its equilibrium price.

d All of the above are correct.

.

38. If a shortage exists in a market, then we know that the actual price is

a. above the equilibrium price, and quantity supplied is greater than quantity demanded.

b. above the equilibrium price, and quantity demanded is greater than quantity supplied.

c. below the equilibrium price, and quantity demanded is greater than quantity supplied.

d. below the equilibrium price, and quantity supplied is greater than quantity demanded.

39. If, at the current price, there is a shortage of a good, then

a. sellers are producing more than buyers wish to buy.

b the market must be in equilibrium.

.

c. the price is below the equilibrium price.

d quantity demanded equals quantity supplied.

.

40. Which of the following would cause price to increase?

a. an increase in supply

b. a decrease in demand

c. a surplus of the good

d. a shortage of the good

41. When a shortage exists in a market, sellers

a. raise price, which increases quantity demanded and decreases quantity supplied until the shortage
is eliminated.

b. raise price, which decreases quantity demanded and increases quantity supplied until the shortage
is eliminated.

c. lower price, which increases quantity demanded and decreases quantity supplied until the shortage
is eliminated.

d. lower price, which decreases quantity demanded and increases quantity supplied until the shortage
is eliminated.

42. If there is a shortage of farm laborers, we would expect

a. the wage of farm laborers to increase.

b. the wage of farm laborers to decrease.

c. the price of farm commodities to decrease.

d. a decrease in the demand for substitutes for farm labor.

43. Suppose roses are currently selling for $20 per dozen, but the equilibrium price of roses
is $30 per dozen. We would expect a

a. shortage to exist and the market price of roses to increase.

b shortage to exist and the market price of roses to decrease.

.

c. surplus to exist and the market price of roses to increase.

d surplus to exist and the market price of roses to decrease.

.

44. Years ago, thousands of country music fans risked their lives by rushing to buy tickets for
a Willie Nelson concert at Carnegie Hall. This behavior indicates

a. the ticket price was above the equilibrium price.

b the ticket price was below the equilibrium price.

.

c. the ticket price was at the equilibrium price.

d nothing about the equilibrium price.

.
Table 4-7

Pric Quantity Quantity

e
Demanded Supplied

$10 10 60

$8 20 45

$6 30 30

$4 40 15

$2 50 0

47. Refer to Table 4-7. If the price were $8, a

a. shortage of 20 units would exist, and price would tend to rise.

b. surplus of 25 units would exist, and price would tend to fall.

c. shortage of 25 units would exist, and price would tend to rise.

d. surplus of 45 units would exist, and price would tend to fall.

48. Refer to Table 4-7. If the price were $4, a

a. surplus of 15 units would exist, and price would tend to fall.

b. shortage of 25 units would exist, and price would tend to rise.

c. surplus of 25 units would exist, and price would tend to fall.

d. shortage of 40 units would exist, and price would tend to rise.

Table 4-9

The demand schedule below pertains to sandwiches demanded per week.

Pric Harry’s Darby’s Jake’s

e
Quantity Quantity Quantity

Demanded Demande Demanded

d

$3 3 4 3

$5 1 2 x
 53. Refer to Table 4-9. Regarding Harry and Darby, whose demand for sandwiches
conforms to the law of demand?

a. only Harry’s

b. only Darby’s

c. both Harry’s and Darby’s

d. neither Harry’s nor Darby’s

54. Refer to Table 4-9. Regarding Harry and Darby, for whom are sandwiches a normal
good?

a. only for Harry

b. only for Darby

c. for both Harry and Darby

d. This cannot be determined from the given information.

55. Refer to Table 4-9. Suppose x = 1. Then it must be true that

a. Harry and Jake have the same income, which is lower than Darby’s income.

b. if sandwiches and potato chips are complements for Harry, then those two goods are also
complements for Jake.

c. Harry’s demand curve is identical to Jake’s demand curve.

d. All of the above are correct.

Figure 4-15
 65. Refer to Figure 4-15. Equilibrium price and quantity are, respectively,

a. $15 and 200 units.

b $25 and 600 units.

.

c. $25 and 400 units.

d $35 and 200 units.

.

66. Refer to Figure 4-15. At the equilibrium price,

a. 200 units would be supplied and demanded.

b. 400 units would be supplied and demanded.

c. 600 units would be supplied and demanded.

d. 600 units would be supplied, but only 200 would be

demanded.

67. Refer to Figure 4-15. At a price of $35, there would be a

a. shortage of 400 units.

b. surplus of 200 units.

c. surplus of 400 units.

d. surplus of 600 units.

68. Refer to Figure 4-15. At a price of $35, there would be

a. a shortage, and the price would tend to rise from $35 to a higher price.

b. a surplus, and the price would tend to rise from $35 to a higher price.

c. excess demand, and the price would tend to fall from $35 to a lower price.

d. excess supply, and the price would tend to fall from $35 to a lower price.

69. Refer to Figure 4-15. At what price would there be an excess supply of 200 units of the
good?

a. $15

b. $20

c. $30

d. $35

70. Refer to Figure 4-15. At a price of $15, there would be a

a. surplus of 400 units.

b. shortage of 200 units.

c. shortage of 400 units.

d. shortage of 600 units.

71. Refer to Figure 4-15. At a price of $20, there would be a(n)

a. shortage. The law of supply and demand predicts that the price will fall from $20 to a lower price.

b. surplus. The law of supply and demand predicts that the price will rise from $20 to a higher price.

c. excess demand. The law of supply and demand predicts that the price will rise from $20 to a higher
price.

d. excess supply. The law of supply and demand predicts that the price will fall from $20 to a lower
price.

72. Refer to Figure 4-15. At what price would there be an excess demand of 200 units of
the good?

a. $15

b. $20

c. $30
d. $35

87. Which of the following events must result in a higher price in the market for Snickers?

a. Demand for Snickers increases, and supply of Snickers decreases.

b. Demand for Snickers and supply of Snickers both decrease.

c. Demand for Snickers decreases, and supply of Snickers increases.

d. Demand for Snickers and supply of Snickers both increase

88. Suppose buyers of computers and printers regard the two goods as complements. Then
an increase in the price of computers will cause a(n)

a. decrease in the demand for printers and a decrease in the quantity supplied of printers.

b decrease in the supply of printers and a decrease in the quantity demanded of printers.
.

c. decrease in the equilibrium price of printers and an increase in the equilibrium quantity of printers.

d increase in the equilibrium price of printers and a decrease in the equilibrium quantity of printers.
.

90. A decrease in input costs to firms in a market will result in a(n)

a. decrease in equilibrium price and an increase in equilibrium quantity.

b decrease in equilibrium price and a decrease in equilibrium quantity.

.

c. increase in equilibrium price and a decrease in equilibrium quantity.

d increase in equilibrium price and an increase in equilibrium quantity.

.

91. Suppose there is an earthquake that destroys several corn canneries. Which of the
following would not be a direct result of this event?

a. Sellers would not be able to produce and sell as much as before at each relevant price.

b The supply would decrease.

.

c. Buyers would not be willing to buy as much as before at each relevant price.
d The equilibrium price would rise.
.

92. An early frost in the vineyards of Napa Valley would cause a(n)

a. increase in the demand for wine, increasing price.

b increase in the supply of wine, decreasing price.

.

c. decrease in the demand for wine, decreasing price.

d decrease in the supply of wine, increasing price.

.

93. Suppose the number of buyers in a market increases and a technological advancement
occurs also. What would we expect to happen in the market?

a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.

b Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
.

c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.

d Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
.

94. Suppose the incomes of buyers in a market for a particular normal good decrease and
there is also a reduction in input prices. What would we expect to occur in this market?

(D decreases, S increases)

D curve shifts left: P decreases, Q decreases

S curve shifts right: P decreases, Q increases

In conclusion, P decreases, Q ambigous

a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.

b Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
.

c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.

d Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
.

100. Which of the following events would cause the price of oranges to fall?

a. There is a shortage of oranges.

b. The FDA announces that bananas cause strokes, and oranges and bananas are substitutes.

c. The price of land throughout Florida decreases, and Florida produces a significant proportion of the
nation’s oranges.

d. All of the above are correct.

102. If macaroni and cheese is an inferior good, what would happen to the equilibrium price
and quantity of macaroni and cheese if consumers’ incomes rise?

a. Both the equilibrium price and quantity would increase.

b Both the equilibrium price and quantity would decrease.

.

c. The equilibrium price would increase, and the equilibrium quantity would decrease.

d The equilibrium price would decrease, and the equilibrium quantity would increase.
.

103. If consumers often purchase muffins to eat while they drink their lattés at local coffee
shops, what would happen to the equilibrium price and quantity of lattés if the price of muffins rises?

a. Both the equilibrium price and quantity would increase.

b Both the equilibrium price and quantity would decrease.

.

c. The equilibrium price would increase, and the equilibrium quantity would decrease.

d The equilibrium price would decrease, and the equilibrium quantity would increase.
.

Figure 4-22

Panel (a) Panel (b)

Panel (c) Panel (d)

152. Refer to Figure 4-22. Panel (a) shows which of the following?

a. an increase in demand and an increase in quantity supplied

b. an increase in demand and an increase in supply

c. an increase in quantity demanded and an increase in quantity supplied

d. an increase in quantity demanded and an increase in supply

153. Refer to Figure 4-22. Panel (b) shows which of the following?

a. a decrease in demand and a decrease in quantity supplied

b a decrease in demand and a decrease in supply

.

c. a decrease in quantity demanded and a decrease in quantity supplied

d a decrease in quantity demanded and a decrease in supply
.

154. Refer to Figure 4-22. Panel (c) shows which of the following?

a. an increase in demand and an increase in quantity supplied

b. an increase in demand and an increase in supply

c. an increase in quantity demanded and an increase in quantity supplied

d. an increase in quantity demanded and an increase in supply

155. Refer to Figure 4-22. Panel (d) shows which of the following?

a. a decrease in demand and a decrease in quantity supplied

b a decrease in demand and a decrease in supply

.

c. a decrease in quantity demanded and a decrease in quantity supplied

d a decrease in quantity demanded and a decrease in supply

.

THE ELASTICITY OF DEMAND

1. The price elasticity of demand measures how much

a. quantity demanded responds to a change in price.

b. quantity demanded responds to a change in income.

c. price responds to a change in demand.

d. demand responds to a change in supply.

2. The price elasticity of demand measures

a. buyers’ responsiveness to a change in the price of a good.

b. the extent to which demand increases as additional buyers enter the market.

c. how much more of a good consumers will demand when incomes rise.

d. the movement along a supply curve when there is a change in demand.

 10. The greater the price elasticity of demand, the

a. more likely the product is a necessity.

b. smaller the responsiveness of quantity demanded to a change in price.

c. greater the percentage change in price over the percentage change in quantity demanded.

d. greater the responsiveness of quantity demanded to a change in price.

19. Economists compute the price elasticity of demand as the

a. percentage change in price divided by the percentage change in quantity demanded.

b. change in quantity demanded divided by the change in the price.

c. percentage change in quantity demanded divided by the percentage change in price.

d. percentage change in quantity demanded divided by the percentage change in income.

23. Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent
decrease in the quantity of X demanded. Price elasticity of demand for X is

a. 0.

b. 1.

c. 6.

d. 36.

24. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price
results in a

a. 0.4 percent decrease in the quantity demanded.

b 2.5 percent decrease in the quantity demanded.

.

c. 4 percent decrease in the quantity demanded.

d 40 percent decrease in the quantity demanded.

.
 28. If the price elasticity of demand for a good is 1.5, then a 3 percent decrease in price
results in a

a. 0.5 percent increase in the quantity demanded.

b 2 percent increase in the quantity demanded.

.

c. 4.5 percent increase in the quantity demanded.

d 5 percent increase in the quantity demanded.

.

31. If the price elasticity of demand for a good is 4, then a 12 percent decrease in price
results in a

a. 0.33 percent increase in the quantity demanded.

b. 3 percent increase in the quantity demanded.

c. 30 percent increase in the quantity demanded.

d. 48 percent increase in the quantity demanded.

32. If the price elasticity of demand for a good is 0.8, then which of the following events is
consistent with a 4 percent decrease in the quantity of the good demanded?

a. a 0.2 percent increase in the price of the good

b. a 3.2 percent increase in the price of the good

c. a 4.8 percent increase in the price of the good

d. a 5 percent increase in the price of the good

35. For a particular good, a 10 percent increase in price causes a 5 percent decrease in
quantity demanded. Which of the following statements is most likely applicable to this good?

a. There are many close substitutes for this good.

b. The good is a necessity.

c. The market for the good is narrowly defined.

d. The relevant time horizon is long.

 41. If the price elasticity of demand for a good is 6, then a 3 percent decrease in price
results in

a. a 20 percent increase in the quantity demanded.

b. an 18 percent increase in the quantity demanded.

c. a 2 percent increase in the quantity demanded.

d. a 1.8 percent increase in the quantity demanded.

42. Elasticity of demand is closely related to the slope of the demand curve. The more
responsive buyers are to a change in price, the

a. steeper the demand curve will be.

b. flatter the demand curve will be.

c. further to the right the demand curve will sit.

d closer to the vertical axis the demand curve will sit.

.

44. The flatter the demand curve through a given point, the

a. greater the price elasticity of demand at that point.

b. smaller the price elasticity of demand at that point.

c. closer the price elasticity of demand will be to the slope of the curve.

d. greater the absolute value of the change in total revenue when there is a movement from that point
upward and to the left along the demand curve.

45. The smaller the price elasticity of demand, the

a. steeper the demand curve will be through a given point.

b. flatter the demand curve will be through a given point.

c. more strongly buyers respond to a change in price between any two prices P1 and P2.
d. smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.

46. As we move downward and to the right along a linear, downward-sloping demand
curve,

a. both slope and elasticity remain constant.

b. slope changes but elasticity remains constant.

c. both slope and elasticity change.

d. slope remains constant but elasticity changes.

83. Demand is said to be inelastic if

a. buyers respond substantially to changes in the price of the good.

b demand shifts only slightly when the price of the good changes.
.

c. the quantity demanded changes only slightly when the price of the good changes.

d the price of the good responds only slightly to changes in demand.

.

84. If demand is price inelastic, then

a. buyers do not respond much to a change in price.

b. buyers respond substantially to a change in price, but the response is very slow.

c. buyers do not alter their quantities demanded much in response to advertising, fads, or general
changes in tastes.

d. the demand curve is very flat.

85. If the quantity demanded of a certain good responds only slightly to a change in the
price of the good, then the

a. demand for the good is said to be elastic.

b. demand for the good is said to be inelastic.

c. law of demand does not apply to the good.

d. demand curve for the good shifts only slightly in response to a change in price.

86. Demand is inelastic if the price elasticity of demand is

a. less than 1.

b. equal to 1.

c. greater than 1.

d. equal to 0.

87. Demand is said to be inelastic if the

a. quantity demanded changes proportionately more than price.

b price changes proportionately more than income.

.

c. quantity demanded changes proportionately less than price.

d quantity demanded changes proportionately the same as price.

.

97. Which of the following expressions is valid for the price elasticity of demand?

a.
Price elasticity of demand = .

b
. Price elasticity of demand = .

c.
Price elasticity of demand = .

d
. Price elasticity of demand = .

98. Which of the following expressions can be used to compute the price elasticity of
demand?

a.
Price elasticity of demand = • .

b
. Price elasticity of demand = • .
c.
Price elasticity of demand = • .

d
. Price elasticity of demand = • .

88. When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the
price falls to $0.40, the quantity demanded increases to 600. Given this information and using the
midpoint method, we know that the demand for bubble gum is

a. inelastic.

b. elastic.

c. unit elastic.

d. perfectly inelastic.

89. The midpoint method is used to compute elasticity because it

a. automatically computes a positive number instead of a negative number.

b results in an elasticity that is the same as the slope of the demand curve.
.

c. gives the same answer regardless of the direction of change.

d automatically rounds quantities to the nearest whole unit.

.

90. Suppose the price of potato chips decreases from $1.45 to $1.25 and, as a result, the
quantity of potato chips demanded increases from 2,000 to 2,200. Using the midpoint method, the price
elasticity of demand for potato chips in the given price range is

a. 2.00.

b 1.55.
.

c. 1.00.

d 0.64.
.

91. Using the midpoint method, the price elasticity of demand for a good is computed to be
approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the
quantity of the good demanded?
a. a 7.5 increase in the price of the good

b. a 13.33 percent increase in the price of the good

c. an increase in the price of the good from $7.50 to $10

d. an increase in the price of the good from $10 to $17.50

92. Using the midpoint method, the price elasticity of demand for a good is computed to be
approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of
the good?

a. The quantity of the good demanded decreases from 250 to 150.

b. The quantity of the good demanded decreases from 200 to 100.

c. The quantity of the good demanded decreases by 0.05 percent.

d. The quantity of the good demanded decreases by 0.2 percent.

93. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A
government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6.
According to the midpoint method, the government policy should have reduced smoking by

a. 30%.

b 40%.
.

c. 80%.

d 250%.
.

99. Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice
cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46.
Using the midpoint approach to calculate the price elasticity of demand, it follows that the

a. demand for ice cream cones in this price range is elastic.

b. demand for ice cream cones in this price range is inelastic.

c. demand for ice cream cones in this price range is unit elastic.

d. price elasticity of demand for ice cream cones in this price range is 0.
 100. When the price of used cds is $4, Daphne buys five per month. When the price is $3, she
buys nine per month. Daphne's demand for used cds is

a. elastic, and her demand curve would be relatively flat.

b. elastic, and her demand curve would be relatively steep.

c. inelastic, and her demand curve would be relatively flat.

d. inelastic, and her demand curve would be relatively steep.

Table 5-2

Pric Quantity
e

$100 0

$80 10

$60 20

$40 30

$20 40

$0 50

102. Refer to Table 5-2. Using the midpoint method, if the price falls from $80 to $60, the
absolute value of the price elasticity of demand is

a. 20.

b 10.
.

c. 2.33.

d 0.43.
.

103. Refer to Table 5-2. Using the midpoint method, if the price falls from $60 to $40, the
absolute value of the price elasticity of demand is

a. 0.4.

b. 1.
c. 4.

d. 20.

104. Refer to Table 5-2. Using the midpoint method, if the price falls from $40 to $20, the
absolute value of the price elasticity of demand is

a. 20.

b 10.
.

c. 2.33.

d 0.43.
.

105. Refer to Table 5-2. Using the midpoint method, if the price falls from $80 to $60, the
price elasticity of demand is

a. zero.

b. unit elastic.

c. inelastic.

d. elastic.

106. Refer to Table 5-2. Using the midpoint method, if the price falls from $60 to $40, the
price elasticity of demand is

a. zero.

b. inelastic.

c. unit elastic.

d. elastic.

107. Refer to Table 5-2. Using the midpoint method, if the price falls from $40 to $20, the
price elasticity of demand is

a. zero.

b. inelastic.

c. unit elastic.
d. elastic.

117. Suppose demand is perfectly elastic, and the supply of the good in question decreases.
As a result,

a. the equilibrium quantity decreases, and the equilibrium price is unchanged.

b. the equilibrium price increases, and the equilibrium quantity is unchanged.

c. the equilibrium quantity and the equilibrium price both are unchanged.

d. buyers’ total expenditure on the good is unchanged.

118. A perfectly elastic demand implies that

a. buyers will not respond to any change in price.

b. any rise in price above that represented by the demand curve will result in a quantity demanded of
zero.

c. quantity demanded and price change by the same percent as we move along the demand curve.

d. price will rise by an infinite amount when there is a change in quantity demanded.

119. The case of perfectly elastic demand is illustrated by a demand curve that is

a. vertical.

b horizontal.
.

c. downward-sloping but relatively steep.

d downward-sloping but relatively flat.

.

120. When small changes in price lead to infinite changes in quantity demanded, demand is
perfectly

a. elastic, and the demand curve will be horizontal.

b. inelastic, and the demand curve will be horizontal.

c. elastic, and the demand curve will be vertical.

d. inelastic, and the demand curve will be vertical.

121. For a horizontal demand curve,

a. the slope is undefined, and the price elasticity of demand is equal to 0.

b the slope is equal to 0, and the price elasticity of demand is undefined.

.

c. both the slope and price elasticity of demand are undefined.

d both the slope and price elasticity of demand are equal to 0.

.

122. Suppose demand is perfectly inelastic, and the supply of the good in question decreases.
As a result,

a. the equilibrium quantity decreases, and the equilibrium price is unchanged.

b. the equilibrium price increases, and the equilibrium quantity is unchanged.

c. the equilibrium quantity and the equilibrium price both are unchanged.

d. buyers’ total expenditure on the good is unchanged.

123. In the case of perfectly inelastic demand,

a. the change in quantity demanded equals the change in price.

b. the percentage change in quantity demanded equals the percentage change in price.

c. infinitely-large changes in quantity demanded result from very small changes in the price.

d. quantity demanded stays the same whenever price changes.

124. When demand is perfectly inelastic, the demand curve will be

a. negatively sloped, because buyers decrease their purchases when the price rises.

b. vertical, because buyers purchase the same amount as before whenever the price rises or falls.

c. positively sloped, because buyers increase their purchases when price rises.

d. positively sloped, because buyers increase their total expenditures when price rises.

125. When demand is perfectly inelastic, the price elasticity of demand

a. is zero, and the demand curve is vertical.

b. is zero, and the demand curve is horizontal.

c. approaches infinity, and the demand curve is vertical.

d. approaches infinity, and the demand curve is horizontal.

126. A perfectly inelastic demand implies that buyers

a. decrease their purchases when the price rises.

b. purchase the same amount as before when the price rises or falls.

c. increase their purchases only slightly when the price falls.

d. respond substantially to an increase in price.

127. Ryan says that he would buy one cup of coffee every day regardless of the price. If he is
telling the truth, Ryan’s

a. demand for coffee is perfectly inelastic.

b. price elasticity of demand for coffee is 1.

c. income elasticity of demand for coffee is 0.

d. None of the above answers is correct.

128. For a vertical demand curve,

a. the slope is undefined, and the price elasticity of demand is equal to 0.

b the slope is equal to 0, and the price elasticity of demand is undefined.

.

c. both the slope and price elasticity of demand are undefined.

d both the slope and price elasticity of demand are equal to 0.

.

129. In which of these instances is demand said to be perfectly inelastic?

a. An increase in price of 2% causes a decrease in quantity demanded of 2%.

b. A decrease in price of 2% causes an increase in quantity demanded of 0%.

c. A decrease in price of 2% causes a decrease in total revenue of 0%.

d. An increase in price of 2% causes a decrease in quantity demanded of 1/2%.

130. Demand is said to have unit elasticity if the price elasticity of demand is
a. less than 1.

b. greater than 1.

c. equal to 1.

d. equal to 0.

131. Demand is said to be unit elastic if quantity demanded

a. changes by the same percent as the price.

b changes by a larger percent than the price.

.

c. changes by a smaller percent than the price.

d does not respond to a change in price.

.

132. When quantity moves proportionately the same amount as price, demand is

a. elastic, and the price elasticity of demand is 1.

b perfectly elastic, and the price elasticity of demand is infinitely large.

.

c. perfectly inelastic, and the price elasticity of demand is 0.

d unit elastic, and the price elasticity of demand is 1.

.

134. When we move upward and to the left along a linear, downward-sloping demand curve,
price elasticity of demand

a. first becomes smaller, then larger.

b. always becomes larger.

c. always becomes smaller.

d. first becomes larger, then smaller.

135. The price elasticity of demand changes as we move along a

a. horizontal demand curve.

b vertical demand curve.
.

c. linear, downward-sloping demand curve.

d All of the above are correct.

.

147. When the price of good A is $50, the quantity demanded of good A is 500 units. When
the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint
method, the price elasticity of demand for good A is

a. 1.50, and an increase in price will result in an increase in total revenue for good A.

b 1.50, and an increase in price will result in a decrease in total revenue for good A.
.

c. 0.67, and an increase in price will result in an increase in total revenue for good A.

d 0.67, and an increase in price will result in a decrease in total revenue for good A.
.

148. Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the
quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700
packages per week. Using the midpoint method, the price elasticity of demand is about

a. 1.43, and an increase in the price will cause hotels' total revenue to decrease.

b. 1.43, and an increase in the price will cause hotels' total revenue to increase.

c. 0.70, and an increase in the price will cause hotels' total revenue to decrease.

d. 0.70, and an increase in the price will cause hotels' total revenue to increase.

149. When the local used bookstore prices economics books at $15 each, it generally sells 70
books per month. If it lowers the price to $7, sales increase to 90 books per month. Given this
information, we know that the price elasticity of demand for economics books is about

a. 2.91, and an increase in price from $7 to $15 results in an increase in total revenue.

b. 2.91, and an increase in price from $7 to $15 results in a decrease in total revenue.

c. 0.34, and an increase in price from $7 to $15 results in an increase in total revenue.

d. 0.34, and an increase in price from $7 to $15 results in a decrease in total revenue.
 150. Fiona’s Fish Emporium increased its total monthly revenue from $1,500 to $1,800 when
it raised the price of tropical fish from $5 to $9. The price elasticity of demand for Fiona’s Fish Emporium
is

a. 0.57.

b 0.70.
.

c. 1.43.

d 2.20.
.

160. How does total revenue change as one moves downward and to the right along a linear
demand curve?

a. It always increases.

b It always decreases.
.

c. It first increases, then decreases.

d It is unaffected by a movement along the demand curve.

.

161. On a downward-sloping linear demand curve, total revenue reaches its maximum value
at the

a. midpoint of the demand curve.

b. lower end of the demand curve.

c. upper end of the demand curve.

d. It is impossible to tell without knowing prices and quantities demanded.

179. Total revenue

a. always increases as price increases.

b. increases as price increases, as long as demand is elastic.

c. decreases as price increases, as long as demand is inelastic.

d. remains unchanged as price increases when demand is unit elastic.

 180. In which of the following situations will total revenue increase?

a. Price elasticity of demand is 1.2, and the price of the good decreases.

b. Price elasticity of demand is 0.5, and the price of the good increases.

c. Price elasticity of demand is 3.0, and the price of the good decreases.

d. All of the above are correct.

184. Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU
feels that raising tuition would enhance revenue, it is

a. ignoring the law of demand.

b assuming that the demand for university education is elastic.

.

c. assuming that the demand for university education is inelastic.

d assuming that the supply of university education is elastic.

.

188. If the demand for textbooks is inelastic, then an increase in the price of textbooks will

a. increase total revenue of textbook sellers.

b decrease total revenue of textbook sellers.

.

c. not change total revenue of textbook sellers.

d There is not enough information to answer this question.

.

5. If the price of natural gas rises, when is the price elasticity of demand likely to be the
highest?

a. immediately after the price increase

b. one month after the price increase

c. three months after the price increase

d. one year after the price increase

 8. Holding all other forces constant, when the price of gasoline rises, the number of gallons
of gasoline demanded would fall substantially over a ten-year period because

a. buyers tend to be much less sensitive to a change in price when given more time to react.

b. buyers tend to be much more sensitive to a change in price when given more time to react.

c. buyers will have substantially more real income over a ten-year period.

d. the quantity supplied of gasoline increases very little in response to an increase in the price of
gasoline.

9. Which of the following is not a determinant of the price elasticity of demand for a good?

a. the time horizon

b. the steepness or flatness of the supply curve for the good

c. the definition of the market for the good

d. the availability of substitutes for the good

15. If the price of walnuts rises, many people would switch from consuming walnuts to consuming
pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its
place. These examples illustrate the importance of

a. the availability of close substitutes in determining the price elasticity of demand.

b. a necessity versus a luxury in determining the price elasticity of demand.

c. the definition of a market in determining the price elasticity of demand.

d. the time horizon in determining the price elasticity of demand.

48. Goods with many close substitutes tend to have

a. more elastic demands.

b less elastic demands.

.

c. price elasticities of demand that are unit elastic.

d income elasticities of demand that are negative.

.

49. For a good that is a luxury, demand

a. tends to be inelastic.
b. tends to be elastic.

c. has unit elasticity.

d. cannot be represented by a demand curve in the usual way.

52. A good will have a more elastic demand, the

a. greater the availability of close substitutes.

b more broad the definition of the market.

.

c. shorter the period of time.

d more it is regarded as a necessity.

.

55. The value of the price elasticity of demand for a good will be relatively large when

a. there are no good substitutes available for the good.

b. the time period in question is relatively short.

c. the good is a luxury rather than a necessity.

d. All of the above are correct.

57. Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The
price elasticity of demand for this good is

a. inelastic and equal to 6.

b elastic and equal to 6.

.

c. inelastic and equal to 0.17.

d elastic and equal to 0.17.

.

58. Which of the following is likely to have the most price elastic demand?
a. clothing

b. blue jeans

c. Tommy Hilfiger jeans

d. All three would have the same elasticity of demand because they are all related.

64. When quantity demanded responds strongly to changes in price, demand is said to be

a. fluid.

b. elastic.

c. dynamic.

d. highly variable.

65. Demand is elastic if the price elasticity of demand is

a. less than 1.

b. equal to 1.

c. equal to 0.

d. greater than 1.

66. For a good that is a necessity,

a. quantity demanded tends to respond substantially to a change in price.

b. demand tends to be inelastic.

c. the law of demand does not apply.

d. All of the above are correct.

82. There are very few, if any, good substitutes for automotive tires. Therefore, the
demand for automotive tires would tend to be

a. elastic.

b. unit elastic.

c. inelastic.

d. highly responsive to changes in income as well as changes in prices.

 Indicate the answer choice that best completes the statement or answers the
question.

167. Suppose the government imposes a 50-cent tax on the sellers of packets of chewing gum. The tax
would

a. shift the supply curve upward by less than 50 cents.

b. raise the equilibrium price by 50 cents.

c. create a 50-cent tax burden each for buyers and sellers.

d. discourage market activity.

168. If the government imposes a binding price ceiling on a market, then the price paid by buyers wil
l

a. decrease, and the quantity sold in the market will decrease

.

b. increase, and the quantity sold in the market will increase.

c. increase, and the quantity sold in the market will decrease.

d. decrease, and the quantity sold in the market will increase.

169. Suppose there is currently a tax of $80 per ticket on airline tickets. Sellers of airline tickets are
required to pay the tax to the government. If the tax is reduced from $80 per ticket to $64 per ticket,
then the

a. demand curve will shift upward by $16, and the price paid by buyers will decrease by less than
$16.

b. demand curve will shift upward by $16, and the price paid by buyers will decrease by $16.

c. supply curve will shift downward by $16, and the effective price received by sellers will increase
by less than $16.

d. supply curve will shift downward by $16, and the effective price received by sellers will increase
 by $16.

170. A shortage results when a

a. nonbinding price ceiling is imposed on a market.

b. nonbinding price ceiling is removed from a market

.

c. binding price ceiling is imposed on a market.

d. binding price ceiling is removed from a market.

172. If the government levies a $700 tax per motorcycle on sellers of motorcycles, then the price paid by
buyers of motorcycles would

a. increase by more than $700.

b. increase by exactly $700.

c. increase by less than $700.

d. decrease by an indeterminate amount.

173. A price ceiling is

a. often imposed on markets in which “cutthroat competition” would prevail without a price
ceiling.

b. a legal maximum on the price at which a good can be sold.

c. often imposed when sellers of a good are successful in their attempts to convince the
government that the market outcome is unfair without a price ceiling.

d. imposed to make sure everyone can earn a fair wage.

174. Rent control

a. serves as an example of how a social problem can be alleviated or even solved by government
policies.

b. serves as an example of a price ceiling.

c. is regarded by most economists as an efficient way of helping the poor.

d. is the most efficient way to allocate scarce housing resources.

Figure 6-10

The vertical distance between points A and B represents the tax in the market.

175. Refer to Figure 6-10. The amount of the tax per unit is

a. $6.

b. $8.

c. $14.
d. $18.

Figure 6-13

176. Refer to Figure 6-13. What is the amount of the tax per unit?

a. $1

b. $2

c. $3

d. $4

Figure 6-14
177. Refer to Figure 6-14. The buyers will bear the highest share of the tax burden compared to sellers
if the demand is

a. D1, and the supply is S1.

b. D2, and the supply is S1.

c. D1, and the supply is S2.

d. D2, and the supply is S2.

Figure 6-13
181. Refer to Figure 6-13. How is the burden of the tax shared between buyers and sellers? Buyers
bear

a. three-fourths of the burden, and sellers bear one-fourth of the burden.

b. two-thirds of the burden, and sellers bear one-third of the burden.

c. one-half of the burden, and sellers bear one-half of the burden.

d. one-fourth of the burden, and sellers bear three-fourths of the burden.

183. The price paid by buyers in a market will decrease if the government

a. increases a binding price floor in that market.

b. increases a binding price ceiling in that market.

c. decreases a tax on the good sold in that market.

d. increases a tax on the good sold in that market.

Figure 6-11

187. Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. Which of the
following is correct?

a. One-fourth of the burden of the tax will fall on buyers, and three-fourths of the burden of the
tax will fall on sellers.

b. One-third of the burden of the tax will fall on buyers, and two-thirds of the burden of the tax
will fall on sellers.

c. One-half of the burden of the tax will fall on buyers, and one-half of the burden of the tax will
fall on sellers.

d. Two-thirds of the burden of the tax will fall on buyers, and one-third of the burden of the tax
 will fall on sellers.

188. Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. What will be the new
equilibrium quantity in this market?

a. Less than 60 units

b. 60 units

c. Between 60 units and 100 units

d. Greater than 100 units

191. The imposition of a binding price ceiling on a market causes

a. quantity demanded to be greater than quantity supplied.

b. quantity demanded to be less than quantity supplied.

c. quantity demanded to be equal to quantity supplied.

d. the price of the good to be greater than its equilibrium price.

Figure 6-14
197. Refer to Figure 6-14. Suppose D1 represents the demand curve for gasoline in both the short run
and long run, S1 represents the supply curve for gasoline in the short run, and S2 represents the supply
curve for gasoline in the long run. After the imposition of the $2 tax, the price paid by buyers will be

a. higher in the long run than in the short run.

b. higher in the short run than in the long run.

c. equivalent in the short run and the long run.

d. unable to be determined without additional information.

199. If a tax is levied on the sellers of a product, then the demand curve will

a. shift down.

b. shift up.
c. become flatter.

d. not shift.

Figure 6-10

The vertical distance between points A and B represents the tax in the market.

200. Refer to Figure 6-10. The per-unit burden of the tax on buyers is

a. $6.

b. $8.

c. $14.

d. $24.

201. A legal minimum on the price at which a good can be sold is called a
a. price subsidy.

b. price floor.

c. tax.

d. price ceiling.

Figure 6-13

202. Refer to Figure 6-13. Suppose buyers, rather than sellers, were required to pay this tax (in the
same amount per unit as shown in the graph). Relative to the tax on sellers, the tax on buyers would
result in

a. buyers bearing a larger share of the tax burden.

b. sellers bearing a smaller share of the tax burden.

c. the same amount of tax revenue for the government.

d. an increase in the amount of tax revenue for the government.

Figure 6-3

205. Refer to Figure 6-3. A government-imposed price of $24 in this market is an example of a

a. binding price ceiling that creates a shortage.

b. nonbinding price ceiling that creates a shortage

c. binding price floor that creates a surplus.

d. nonbinding price floor that creates a surplus.

206. To say that a price ceiling is nonbinding is to say that the price ceilin
g
a. results in a surplus.

b. is set above the equilibrium price.

c. causes quantity demanded to exceed quantity supplied

.

d. is set below the equilibrium price.

209. Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that
the

a. demand is more inelastic than the supply.

b. supply is more inelastic than the demand.

c. government has required that buyers remit the tax payments.

d. government has required that sellers remit the tax payments.

211. Suppose that in a particular market, the supply curve is highly inelastic and the demand curve is
highly elastic. If a tax is imposed in this market, then the

a. sellers will bear a greater burden of the tax than the buyers.

b. buyers will bear a greater burden of the tax than the sellers.

c. buyers and sellers are likely to share the burden of the tax equally.

d. buyers and sellers will not share the burden equally, but it is impossible to determine who will
bear the greater burden of the tax without more information.

212. A tax on the buyers of smart watches encourages

a. sellers to supply a smaller quantity at every price.

b. buyers to demand a smaller quantity at every price.

c. sellers to supply a larger quantity at every price.

d. buyers to demand a larger quantity at every price.

213. A $1.39 tax levied on the buyers of elderberry juice will shift the demand curve

a. upward by exactly $1.39.

b. upward by less than $1.39.

c. downward by exactly $1.39.

d. downward by less than $1.39.

227. When a tax is placed on the sellers of a product, buyers pay

a. more, and sellers receive more than they did before the tax.

b. more, and sellers receive less than they did before the tax.

c. less, and sellers receive more than they did before the tax.

d. less, and sellers receive less than they did before the tax.

228. Under rent control, landlords can cease to be responsive to tenants' concerns about the quality of
the housing because

a. with rent control, the government guarantees landlords a minimum level of profit.

b. they become resigned to the fact that many of their apartments are going to be vacant at any
given time.

c. with shortages and waiting lists, they have no incentive to maintain and improve their property.

d. with rent control, it becomes the government's responsibility to maintain rental housing.

229. A surplus results when a

a. nonbinding price floor is imposed on a market.

b. nonbinding price floor is removed from a market.

c. binding price floor is imposed on a market.

d. binding price floor is removed from a market.

237. Minimum-wage laws dictate

a. the exact wage that firms must pay workers.

b. only a maximum wage that firms may pay workers.

c. only a minimum wage that firms may pay workers.

d. both a minimum wage and a maximum wage that firms may pay workers.

239. If a binding price floor is imposed on the drone market, then

a. the demand for drones will decrease.

b. the supply of drones will increase.

c. a surplus of drones will develop.

d. a shortage of drones will develop.

240. If the government wants to reduce the burning of fossil fuels, it should impose a tax on

a. only the buyers of gasoline.

b. only the sellers of gasoline.

c. either buyers or sellers of gasoline.

d. whichever side of the market is less elastic.

247. If the government removes a tax on a good, then the price paid by buyers will
a. increase, and the price received by sellers will increase.

b. increase, and the price received by sellers will decrease.

c. decrease, and the price received by sellers will increase.

d. decrease, and the price received by sellers will decrease.

251. If a price floor is not binding, then

a. there will be a surplus in the market.

b. there will be a shortage in the market.

c. there will be no effect on the market price or quantity sold.

d. the market will be less efficient than it would be without the price floor.

252. If a price floor is not binding, then

a. the equilibrium price is above the price floor.

b. the equilibrium price is below the price floor.

c. there will be a surplus in the market.

d. there will be a shortage in the market.

255. The term tax incidence refers to

a. whether buyers or sellers of a good are required to send tax payments to the government.

b. whether the demand curve or the supply curve shifts when the tax is imposed.

c. the distribution of the tax burden between buyers and sellers.

d. widespread view that taxes (and death) are the only certainties in life.
259. When a tax is placed on the sellers of cell phones, the size of the cell phone market

a. and the effective price received by sellers both increase.

b. increases, but the effective price received by sellers decreases.

c. decreases, but the effective price received by sellers increases.

d. and the effective price received by sellers both decrease.

266. Price ceilings and price floors that are binding

a. are desirable because they make markets more efficient and more fair.

b. cause surpluses and shortages to persist because price cannot adjust to the market equilibrium
price.

c. can have the effect of restoring a market to equilibrium.

d. are imposed because they can make the poor in the economy better off without causing adverse
effects.

Figure 6-9
267. Refer to Figure 6-9. In this market, a minimum wage of $6 is

a. binding and creates a labor shortage.

b. binding and creates unemployment.

c. nonbinding and creates a labor shortage.

d. nonbinding and creates neither a labor shortage nor unemployment.

268. When a tax is placed on the buyers of lemonade, the

a. sellers bear the entire burden of the tax.

b. buyers bear the entire burden of the tax.

c. burden of the tax will always be equally divided between the buyers and the sellers.

d. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is
 not always equal.

269. Suppose sellers of cologne are required to send $1.50 to the government for every bottle of
cologne they sell. Further, suppose this tax causes the price paid by buyers of cologne to rise by
$0.90 per bottle. Which of the following statements is correct?

a. The effective price received by sellers is $0.60 per bottle less than it was before the tax.

b. Sixty percent of the burden of the tax falls on sellers.

c. This tax causes the demand curve for cologne to shift downward by $1.50 at each quantity of
cologne.

d. This tax does not change the quantity of cologne bought and sold.

CHAP3:
1. The maximum price that a buyer will pay for a good is called the

a. cost.

b. willingness to pay.

c. equity.

d. efficiency.

4. Willingness to pay

a. measures the value that a buyer places on a good.

b. is the amount a seller actually receives for a good minus the minimum amount the seller is willing to
accept.

c. is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to
accept.

d. is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

5. A consumer's willingness to pay directly measures

a. the extent to which advertising and other external forces have influenced the consumer’s
preferences.

b. the cost of a good to the buyer.

c. how much a buyer values a good.

d. consumer surplus.

6. When a buyer’s willingness to pay for a good is equal to the price of the good, the

a. buyer’s consumer surplus for that good is maximized.

b. buyer will buy as much of the good as the buyer’s budget allows.

c. price of the good exceeds the value that the buyer places on the good.

d. buyer is indifferent between buying the good and not buying it.

7. In which of the following circumstances would a buyer be indifferent about buying a

good?

a. The amount of consumer surplus the buyer would experience as a result of buying the good is zero.

b. The price of the good is equal to the buyer’s willingness to pay for the good.

c. The price of the good is equal to the value the buyer places on the good.

d. All of the above are correct.

9. Consumer surplus

a. is closely related to the supply curve for a product.

b. is represented by a rectangle on a supply-demand graph when the demand curve is a straight,

downward-sloping line.

c. is measured using the demand curve for a product.

d. does not reflect economic well-being in most markets.

10. Consumer surplus is

a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

b. the amount a buyer is willing to pay for a good minus the cost of producing the good.

c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good.

d. a buyer's willingness to pay for a good plus the price of the good.
 11. Consumer surplus

a. is the amount a buyer pays for a good minus the amount the buyer is willing to pay for it.

b. is represented on a supply-demand graph by the area below the price and above the demand curve.

c. measures the benefit sellers receive from participating in a market.

d. measures the benefit buyers receive from participating in a market.

14. Consumer surplus is equal to the

a. Value to buyers - Amount paid by buyers.

b. Amount paid by buyers - Costs of sellers.

c. Value to buyers - Costs of sellers.

d. Value to buyers - Willingness to pay of buyers.

15. On a graph, the area below a demand curve and above the price measures

a. producer surplus.

b. consumer surplus.

c. deadweight loss.

d. willingness to pay.

16. On a graph, consumer surplus is represented by the area

a. between the demand and supply curves.

b below the demand curve and above price.

.

c. below the price and above the supply curve.

d below the demand curve and to the right of equilibrium price.

.

19. In a market, the marginal buyer is the buyer

a. whose willingness to pay is higher than that of all other buyers and potential buyers.

b. whose willingness to pay is lower than that of all other buyers and potential buyers.
c. who is willing to buy exactly one unit of the good.

d. who would be the first to leave the market if the price were any higher.

Table 7-2

This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke.

Buyer Willingness To Pay

David $8.50

Laura $7.00

Megan $5.50

Mallory $4.00

Audrey $3.50

25. Refer to Table 7-2. If the price of Vanilla Coke is $6.90, who will purchase the good?

a. all five individuals

b. Megan, Mallory and Audrey

c. David, Laura and Megan

d. David and Laura

26. Refer to Table 7-2. Which of the following is not true?

a. At a price of $9.00, no buyer is willing to purchase Vanilla Coke.

b. At a price of $5.50, Megan is indifferent between buying a case of Vanilla Coke and not buying one.

c. At a price of $4.00, total consumer surplus in the market will be $9.00.

d. All of the above are correct.

27. Refer to Table 7-2. If the market price is $5.50, the consumer surplus in the market will
be

a. $3.00.

b $4.50.
.

c. $15.50.
d $21.00.
.

28. Refer to Table 7-2. If the market price is $3.80,

a. David’s consumer surplus is $4.70 and total consumer surplus for the five individuals is $9.50.

b Megan’s consumer surplus is $1.70 and total consumer surplus for the five individuals is $9.80.
.

c. David, Laura, and Megan will be the only buyers of Vanilla Coke.

d the demand curve for Vanilla Coke, taking the five individuals into account, is horizontal.
.

84. Jeff decides that he would pay as much as $3,000 for a new laptop computer. He buys
the computer and realizes consumer surplus of $700. How much did Jeff pay for his computer?

a. $700

b $2,300
.

c. $3,000

d $3,700
.

86. If the price a consumer pays for a product is equal to a consumer's willingness to pay,
then the consumer surplus relevant to that purchase is

a. zero.

b negative, and the consumer would not purchase the product.

.

c. positive, and the consumer would purchase the product.

d There is not enough information given to answer this question.

.

87. Suppose there is an early freeze in California that reduces the size of the lemon crop.
What happens to consumer surplus in the market for lemons?

a. Consumer surplus increases.

b. Consumer surplus decreases.

c. Consumer surplus is not affected by this change in market forces.

d. We would have to know whether the demand for lemons is elastic or inelastic to make this
determination.

1. A seller’s opportunity cost measures the

a. value of everything she must give up to produce a good.

b amount she is paid for a good minus her cost of providing it.
.

c. consumer surplus.

d out of pocket expenses to produce a good but not the value of her time.
.

2. Cost is a measure of the

a. seller's willingness to sell.

b seller's producer surplus.

.

c. producer shortage.

d seller's willingness to buy.

.

5. A seller is willing to sell a product only if the seller receives a price that is at least as
great as the

a. seller’s producer surplus.

b. seller’s cost of production.

c. seller’s profit.

d. average willingness to pay of buyers of the product.

6. Producer surplus is

a. measured using the demand curve for a good.

b always a negative number for sellers in a competitive market.

.

c. the amount a seller is paid minus the cost of production.

d the opportunity cost of production minus the cost of producing goods that go unsold.
.

7. Producer surplus measures the

a. benefits to sellers of participating in a market.

b. costs to sellers of participating in a market.

c. price that buyers are willing to pay for sellers’ output of a good or service.

d. benefit to sellers of producing a greater quantity of a good or service than buyers demand.

8. A seller’s willingness to sell is

a. measured by the seller’s cost of production.

b. related to her supply curve, just as a buyer’s willingness to buy is related to his demand curve.

c. less than the price received if producer surplus is a positive number.

d. All of the above are correct.

Table 7-7

The following table represents the costs of five possible sellers.

Seller Cost

Abby $1,500

Bobby $1,200

Carlos $1,000

Dianne $750

Evalin $500
a

19. Refer to Table 7-7. If the market price is $1,000, the producer surplus in the market is

a. $700.

b. $750.

c. $2,250.

d. $3,700.
 20. Refer to Table 7-7. If the market price is $900, the producer surplus in the market is

a. $350.

b. $550.

c. $750.

d. $1,000.

21. Refer to Table 7-7. If the market price is $1,100, the combined total cost of all
participating sellers is

a. $3,700.

b. $2,700.

c. $2,250.

d. $1,250.

22. Refer to Table 7-7. If the market price is $900, the combined total cost of all
participating sellers is

a. $3,700.

b. $2,700.

c. $2,250.

d. $1,250.

23. Refer to Table 7-7. If the price is $1,000,

a. Bobby is an eager supplier.

b Dianne is an eager supplier.

.

c. Abby’s producer surplus is $500.

d All of the above are correct.

.

24. Refer to Table 7-7. If the price is $775, who would be willing to supply the product?

a. Abby and Bobby

b Abby, Bobby, and Carlos

.

c. Carlos, Dianne, and Evalina

d Dianne and Evalina

.

25. Refer to Table 7-7. Suppose each of the five sellers can supply at most one unit of the
good. The market quantity supplied is exactly 3 if the price is

a. $670.

b. $770.

c. $970.

d. $1,170.

26. Refer to Table 7-7. Suppose each of the five sellers can supply at most one unit of the
good. The market quantity supplied is exactly 4 if the price is

a. $770.

b. $970.

c. $1,170.

d. $1,370.

27. Refer to Table 7-7. Who is a marginal seller when the price is $1,200?

a. Bobby

b Bobby and Abby

.

c. Carlos, Dianne, and Evalina

d Carlos, Dianne, Evalina, and Bobby

.

81. Producer surplus equals

a. Value to buyers - Amount paid by buyers.

b Amount received by sellers - Costs of sellers.

.

c. Value to buyers - Costs of sellers.

d Value to buyers - Amount paid by buyers + Amount received by sellers - Costs of sellers.
.

82. Producer surplus is the

a. area under the supply curve to the left of the amount sold.

b amount a seller is paid minus the cost of production.

.

c. area between the supply and demand curves, above the equilibrium price.

d cost to sellers of participating in a market.

.

83. Producer surplus is the area

a. under the supply curve.

b between the supply and demand curves.

.

c. below the price and above the supply curve.

d under the demand curve and above the price.

.

95. The Surgeon General announces that eating chocolate increases tooth decay. As a
result, the equilibrium price of chocolate

a. increases, and producer surplus increases.

b increases, and producer surplus decreases.

.

c. decreases, and producer surplus increases.

d decreases, and producer surplus decreases.

.

96. Suppose consumer income increases. If grass seed is a normal good, the equilibrium
price of grass seed will
a. decrease, and producer surplus in the industry will decrease.

b increase, and producer surplus in the industry will increase.

.

c. decrease, and producer surplus in the industry will increase.

d increase, and producer surplus in the industry will decrease.

.

101. The welfare of sellers is measured by

a. consumer surplus.

b producer surplus.
.

c. total surplus.

d price.
.

7. Total surplus is

a. equal to producer surplus plus consumer surplus.

b equal to the total cost to sellers minus the total value to buyers.
.

c. equal to consumers' willingness to pay plus producers’ cost.

d greater than the sum of consumer surplus plus producer surplus.

.

8. Total surplus is equal to

a. value to buyers - profit to sellers.

b value to buyers - cost to sellers.

.

c. consumer surplus x producer surplus.

d (consumer surplus + producer surplus) x equilibrium quantity.

.

9. Total surplus in a market is equal to

a. value to buyers - amount paid by buyers.

b. amount received by sellers - costs of sellers.

c. value to buyers - costs of sellers.

d. amount received by sellers - amount paid by buyers.

14. Total surplus is represented by the area below the

a. demand curve and above the price.

b. price and up to the point of equilibrium.

c. demand curve and above the supply curve, up to the equilibrium quantity.

d. demand curve and above the horizontal axis, up to the equilibrium quantity.

20. Efficiency is attained when

a. total surplus is maximized.

b producer surplus is maximized.

.

c. all resources are being used.

d consumer surplus is maximized and producer surplus is minimized.

.

91. The "invisible hand" refers to

a. the marketplace guiding the self-interests of market participants into promoting general economic
well-being.

b. the fact that social planners sometimes have to intervene, even in perfectly competitive markets, to
make those markets more efficient.

c. the equality that results from market forces allocating the goods produced in the market.

d. the automatic maximization of consumer surplus in free markets.

113. Raisin bran and milk are complementary goods. A decrease in the price of raisins will

a. increase consumer surplus in the market for raisin bran and decrease producer surplus in the market
for milk.

b. increase consumer surplus in the market for raisin bran and increase producer surplus in the market
 for milk.

c. decrease consumer surplus in the market for raisin bran and increase producer surplus in the market
for milk.

d. decrease consumer surplus in the market for raisin bran and decrease producer surplus in the
market for milk.

117. PlayStations and PlayStation games are complementary goods. A technological advance
in the production of PlayStations will

a. increase consumer surplus in the market for PlayStations and decrease producer surplus in the
market for PlayStation games.

b. increase consumer surplus in the market for PlayStations and increase producer surplus in the
market for PlayStation games.

c. decrease consumer surplus in the market for PlayStations and increase producer surplus in the
market for PlayStation games.

d. decrease consumer surplus in the market for PlayStations and decrease producer surplus in the
market for PlayStation games.

CHAP 4:
Indicate the answer choice that best completes the statement or answers the
question.

Figure 21-8
4 Properties: 1. Downward; 2. bowed inward; 3: higher ICs bring higher satisfaction; 4: ICs cannot cross

56. Refer to Figure 21-8. As the consumer moves from A to B to C, the marginal rate of substitution

a. increases.

b. decreases.

c. remains constant.

d. first increases, then decreases.

57. On a graph we draw a consumer's budget constraint, measuring the number of pineapples on the
horizontal axis and the number of pencils on the vertical axis. If the slope of the budget constraint is -6,
then

a. a pencil costs six times as much as a pineapple.

b. the opportunity cost of a pineapple is one-sixth of a pencil.

c. the opportunity cost of a pencil is six pineapples.

d. a pineapple costs six times as much as a pencil.

Figure 21-
12
59. Alicia is a vegetarian, so she does not eat beef. That is, beef provides no additional utility to Alicia.
She loves potatoes, however. If we illustrate Alicia's indifference curves by drawing beef on the
horizontal axis and potatoes on the vertical axis, her indifference curves will

a. slope downward.

b. be vertical straight lines.

c. slope upward.

d. be horizontal straight lines.

Figure 21-9

Graph (a) Graph (b) Graph (c)

60. Refer to Figure 21-9. Which of the following statements is correct?

a. The indifference curves represented in graph (a) are perfect complements.

b. The indifference curves represented in graph (b) are perfect substitutes.

c. The indifference curves represented in graph (c) are neither perfect substitutes not perfect
complements.

d. The indifference curves represented in graph (c) are perfect complements.

Figure 21-1

62. Refer to Figure 21-1. If the price of a CD is $13, then the consumer's income amounts to

a. $231.

b. $201.

c. $191.

d. $221.

Figure 21-4
63. Refer to Figure 21-4. Suppose the price of popcorn is $2, the price of soda is $3, the value of A is
150, and the value of B is 100. How much income does the consumer have?

a. $200

b. $450

c. $300

d. $500

64. A family on a trip budgets $800 for meals and gasoline. If the price of a meal for the family is $50,
how many meals can the family buy if they do not buy any gasoline?

a. 8

b. 16

c. 24
d. 32

66. Indifference curves illustrate

a. a firm's profits.

b. a consumer's budget.

c. a consumer's preferences.

d. the prices of two goods.

Figure 21-10

67. Refer to Figure 21-10. It would be possible for the consumer to reach I3 if

a. the price of Y increases.

b. the price of X increases.

c. income decreases.

d. the price of Y decreases.

Figure 21-8

73. Refer to Figure 21-8. As the consumer moves from A to B to C, the consumer's total utility

a. increases.

b. decreases.

c. remains constant.

d. first increases, then decreases.

Figure 21-10

74. Refer to Figure 21-10. Bundle B represents a point

where

a. MRSxy > Py/Px.

b. MRSxy = Px/Py.

c. MRSxy < Px/Py.

d. MRSxy > Px/Py.

75. Suppose Caroline is indifferent between tea and coffee as long as she consumes an equivalent
amount of caffeine. Suppose that coffee has twice as much caffeine as tea. Which graph would illustrate
a representative indifference curve?
a.

b.

c.

d.
76. A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is
$40. In addition, suppose the family could afford a total of eight nights in a hotel if they don't buy any
meals. How many meals could the family afford if they gave up two nights in the hotel?

a. 1

b. 2

c. 5

d. 8

Figure 21-5

80. Refer to Figure 21-5. If the price of good X is $5, and your budget constraint is DE, what is the price
of good Y?

a. $10
b. $5

c. $2.50

d. $1.67

Figure 21-7

The following graph shows three possible indifference curves (I) for a consumer.

94. Refer to Figure 21-7. When comparing bundle B to bundle D, the

consumer

a. prefers bundle B because it contains more muffins.

b. prefers bundle D because it lies on a higher indifference curve.

c. prefers bundle D because it contains more muffins.

d. is indifferent between the two bundles.

Figure 21-13

99. Refer to Figure 21-13. When the price of X is $80, the price of Y is $20, and the consumer's income is
$160, the consumer's optimal choice is D. Then the price of X decreases to $20. The income effect can
be illustrated as the movement from

a. D to E.

b. D to C.

c. C to E.

d. E to D.

Figure 21-7
The following graph shows three possible indifference curves (I) for a consumer.

100. Refer to Figure 21-7. When comparing bundle C to bundle A, the consumer

a. prefers bundle C because it contains more muffins.

b. is indifferent between the two bundles.

c. prefers bundle A because it contains more cake.

d. In order to compare bundle C to bundle A, we must know the prices of muffins and cake.

103. If a good is a Giffen good, then

a. the supply curve is downward sloping.

b. the demand curve is upward-sloping.

c. the demand curve is horizontal.

d. there is no optimal level of consumption for the consumer.

107. Oakley consumes two goods, wheat and fish. When the price of fish rises, he consumes less fish.
When the price of wheat rises, he consumes more wheat. For Oakley,

a. fish is not a Giffen good but wheat is.

b. wheat is not a Giffen good but fish is.

c. both fish and wheat are normal goods.

d. both fish and wheat are Giffen goods.

108. When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget
constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point
shows that it occurs

a. along the lowest attainable indifference curve.

b. where the indifference curve crosses the budget constraint.

c. where the marginal utility per dollar spent is higher for X than for Y.

d. along the highest attainable indifference curve.

Figure 21-1
109. Refer to Figure 21-1. A consumer who chooses to spend all of her income could be at which
point(s) on the figure?

a. D only

b. C only

c. E, A, or B only

d. D, E, A, or B only

Figure 21-8
110. Refer to Figure 21-8. What is the consumer's marginal rate of substitution as she moves from A to
B?

a. 4

b. 2

c. 1

d. 0.5

111. Suppose an individual knows that the marginal utility he receives from the next apple is 5 and that
the price of an apple is $2. He also knows that the marginal utility he receives from the next orange is 3
and the price of an orange is $1. If the individual is choosing optimally, the next good he will buy is

a. an orange because the marginal utility per dollar spent on an orange is greater.
b. an orange because the marginal utility of the orange is greater.

c. an apple because the marginal utility per dollar spent on an apple is greater.

d. an apple because the marginal utility of the apple is greater.

112. A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The
substitution effect, by itself, suggests that the consumer will consume

a. more popcorn and more Pepsi.

b. less popcorn and less Pepsi.

c. more popcorn and less Pepsi.

d. less popcorn and more Pepsi.

CHAP 5:
ECONOMIC AND ACCOUNTANT PROFIT

1 118 A difference between explicit and implicit costs is that

a. explicit costs must be greater than implicit costs.

b. explicit costs do not require a direct monetary outlay by the firm, whereas implicit
costs do.

c. implicit costs do not require a direct monetary outlay by the firm, whereas explicit
 costs do.

d. implicit costs must be greater than explicit costs.

2 170 Which of the following statements is correct?

a. Assuming that explicit costs are positive, economic profit is greater than
accounting profit.

b. Assuming that implicit costs are positive, accounting profit is greater than
economic profit.

c. Assuming that explicit costs are positive, accounting profit is equal to economic
profit.

d. Assuming that implicit costs are positive, economic profit is positive.

Accounting profit = TR - EC

Economic profit = TR - EC - IC = Accounting profit - IC

3 172 A firm's opportunity costs of production are equal to its

a. explicit costs only.

b. implicit costs only.

c. explicit costs + implicit costs.

d. explicit costs + implicit costs + total revenue.

4 129 An example of an explicit cost of production would be the

a. cost of forgone labor earnings for an entrepreneur.

b. lost opportunity to invest in capital markets when the money is invested in one's
business.

c. lease payments for the land on which a firm's factory stands.

d. value of the time the business could've spent producing something else.

4 142 Ryzard decides to open his own business and earns $60,000 in accounting profit the first
year. When deciding to open his own business, he withdrew $20,000 from his savings,
which earned 6 percent interest. He also turned down three separate job offers with
 annual salaries of $30,000, $40,000, and $45,000. What is Ryzard's economic profit from
running his own business?

a. $18,800

b. $58,800

c. $13,800

d. $28,800

112 Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her
own law practice. In the first year of business she generated revenues of $347,000 and
incurred explicit costs of $163,000. Jane's economic profit from her first year in her own
practice is

a. −$39,000.

b. $124,000.

c. $163,000.

d. $184,000.

183 Bev is opening her own court-reporting business. She financed the business by
withdrawing money from her personal savings account. When she closed the account, the
bank representative mentioned that she would have earned $300 in interest next year. If
Bev hadn't opened her own business, she would have earned a salary of $25,000. In her
first year, Bev's revenues were $30,000, and she spent $1,000 on materials and supplies.
Which of the following statements is correct?

a. Bev's total explicit costs are $26,300.

b. Bev's total implicit costs are $300.

c. Bev's accounting profits exceed her economic profits by $300.

d. Bev's economic profit is $3,700.

MARGINAL PRODUCT

6 100 Table 13-2

 Outpu
Labor Marginal Product
t
(Number of workers) (Units)
(Units)

0 0 –

1 300

2 500

3 600

4 650

Refer to Table 13-2. What is the marginal product of the 3rd worker?

a. 300 units

b. 200 units

c. 100 units

d. 50 units

5 104 Table 13-2

Outpu
Labor Marginal Product
t
(Number of workers) (Units)
(Units)

0 0 –

1 300

2 500

3 600

4 650

104. Refer to Table 13-2. At which number of workers does diminishing marginal product
 begin?

a. 1

b. 2

c. 3

d. 4

6 117 117. Suppose a certain firm is able to produce 125 units of output per day when 19
workers are hired. The firm is able to produce 137 units of output per day when 20
workers are hired, holding other inputs fixed. The marginal product of the 20th worker is

a. 6 units of output.

b. 7 units of output.

c. 12 units of output.

d. 137 units of output.

PRODUCTION COSTS

7 99 99. Zaid's Tent Company has total fixed costs of $300,000 per year. The firm's average
variable cost is $65 for 10,000 tents. At that level of output, the firm's average total costs
equal

a. $65

b. $75

c. $85

d. $95

8 102 Table 13-8

Outpu
Fixed Cost Variable Cost
t
(Dollars) (Dollars)
(Units)

0 20 0
 1 20 10

2 20 40

3 20 80

4 20 130

5 20 200

6 20 300

102. Refer to Table 13-8. What is the shape of the marginal cost curve for this firm?

a. constant

b. upward-sloping

c. downward-sloping

d. U-shaped

9 105
 105. Refer to Figure 13-2. Curve C is always declining because

a. of diminishing marginal product.

b. we are dividing fixed costs by higher and higher levels of output.

c. marginal product first increases, then decreases.

d. marginal product first decreases, then increases.

11 106

Table 13-7
The following table shows the production costs for The Flying Elvis Copter Rides.

Output Total Cost Fixed Cost Variable Cost

(Helicopter rides) (Dollars) (Dollars) (Dollars)

0 50 50 0

1 150 A B

2 G H I

3 M N O

106. Refer to Table 13-7. What is the value of A?

a. $25

b. $50

c. $100

d. $200

10 108 108. On a 250-acre farm, a farmer is able to produce 4,600 bushels of wheat when he hires
2 workers. He is able to produce 6,400 bushels of wheat when he hires 3 workers. Which
of the following possibilities is consistent with the property of diminishing marginal
product?
 a. The farmer is able to produce 7,660 bushels of wheat when he hires 4 workers.

b. The farmer is able to produce 8,200 bushels of wheat when he hires 4 workers.

c. The farmer is able to produce 8,400 bushels of wheat when he hires 4 workers.

d. The farmer is able to produce 8,600 bushels of wheat when he hires 4 workers.

L = 2, Q = 4600;

L = 3, Q = 6400 → MPL3 = 1800

L= 4, Q = 7660 → MPL4 = 1260

Q = 8200 → MPL4 = 1800

Q = 8400 → MPL4 = 2000

Q = 8600 → MPL4 = 2200

13 109 109. A firm produces 400 units of output at a total cost of $1,200. If total variable costs are
$1,000,

a. average fixed cost is 50 cents.

b. average variable cost is $2.

c. average total cost is $2.50.

d. average total cost is 50 cents.

114 114. The average fixed cost curve

a. always declines with increased levels of output.

b. always rises with increased levels of output.

c. declines as long as it is above marginal cost.

d. declines as long as it is below marginal cost.

15 125 125. For a large firm that produces and sells automobiles, which of the following costs
 would be a variable cost?

a. The $20 million payment that the firm pays each year for accounting services

b. The cost of the steel that is used in producing automobiles

c. The rent that the firm pays for office space in a suburb of St. Louis

d. The cost of internet advertising incurred each year

11 127

127. If a firm produces nothing, which of the following costs will be zero?

a. Total cost

b. Fixed cost

c. Opportunity cost

d. Variable cost

128 128. Jack's Car Wash has average variable costs of $2 and average fixed costs of $3 when it
produces 300 units of output (car washes). The firm's total cost is

a. $600.

b. $900.

c. $300.

d. $1,500.

134

134. In the short run, a firm that produces and sells house paint can adjust

a. where to produce along its long-run average-total-cost curve.

b. the size of its factories.

c. how many workers to hire.

d. the location of its factory.

 135

135. Suppose that for a particular firm the only variable input into the production process
is labor and that output equals zero when no workers are hired. In addition, suppose that
the average total cost when 5 units of output are produced is $60, and the marginal cost
of the sixth unit of output is $120. What is the average total cost when six units are
produced?

a. $60.00

b. $60.00

c. $65.00

d. $70.00

137

137. A firm produces 100 units of output at a total cost of $1,200. If fixed costs are $100,

a. average fixed cost is $12.

b. average variable cost is $11.

c. average total cost is $13.

d. average total cost is $14.

148 148. If a firm uses labor to produce output, the firm's production function depicts the
relationship between

a. the number of workers and the quantity of output.

b. marginal product and marginal cost.

c. the maximum quantity that the firm can produce as it adds more capital to a fixed
quantity of labor.

d. fixed inputs and variable inputs in the short run.

** 152

12 152. If marginal cost is rising,

a. average variable cost must be falling.

 b. average fixed cost must be rising.

c. marginal product must be falling.

d. marginal product must be rising.

13 153

153. When marginal cost is less than average total cost,

a. marginal cost must be falling.

b. average variable cost must be falling.

c. average total cost is falling.

d. average total cost is rising.

19 155 155. Suppose that for a particular firm the only variable input into the production process
is labor and that output equals zero when no workers are hired. In addition, suppose that
when four units of output are produced, the total cost is $175, and the average variable
cost is $33.75. What would the average fixed cost be if ten units were produced?

a. $4

b. $10

c. $40

d. $135

14 157

157. Marginal cost is equal to average total cost when

a. average variable cost is falling.

b. average fixed cost is rising.

c. marginal cost is at its minimum.

d. average total cost is at its minimum.

158

158. Lim Industries has average variable costs of $1 and average total costs of $12 when it
 produces 500 units of output. The firm's total fixed costs equal

a. $11.

b. $13.

c. $5,500.

d. $6,500.

15 161 Table 13-9

Fixed
Labor Output Variable Cost
Cost
(Number of workers) (Units) (Dollars)
(Dollars)

0 0 30 0

1 100 30 15

2 180 30 30

3 240 30 45

4 280 30 60

5 300 30 75

161. Refer to Table 13-9. For the firm whose production function and costs are specified in
the table, its average-total-cost curve is

a. constant.

b. decreasing.

c. increasing.

d. U-shaped.

22 162 162. The minimum points of the average variable cost and average total cost curves occur
where the

a. marginal cost curve lies below the average variable cost and average total cost
 curves.

b. marginal cost curve intersects those curves.

c. average variable cost and average total cost curves intersect.

d. slope of total cost is the smallest.

165

165. Which of the following costs of publishing a book is a fixed cost?

a. Author royalties of 5 percent per book

b. The costs of paper and binding

c. Shipping and postage expenses

d. Composition, typesetting, and jacket design for the book

168

168. Average total cost is increasing whenever

a. total cost is increasing.

b. marginal cost is increasing.

c. marginal cost is less than average total cost.

d. marginal cost is greater than average total cost.

169

169. Average total cost is very high when a small amount of output is produced because

a. average variable cost is high.

b. average fixed cost is high.

c. marginal cost is high.

d. marginal product is high.

SHORT RUN, LONG RUN, ECONOMIES OF SCALE

16 159 When a factory is operating in the short run,

a. it cannot alter variable costs.

b. total cost and variable cost are usually the same.

c. average fixed cost rises as output increases.

d. it cannot adjust the quantity of fixed inputs.

17 113 In the long run,

a. inputs that were fixed in the short run remain fixed.

b. inputs that were fixed in the short run become variable.

c. inputs that were variable in the short run become fixed.

d. variable inputs are rarely used.

18 138 If a firm experiences constant returns to scale at all output levels, then its long-run average
total cost curve would

a. slope downward.

b. be horizontal.

c. slope upward.

d. slope downward for low output levels and upward for high output
levels.

120 Which of the following explains why long-run average total cost at first decreases as
output increases?

a. Diseconomies of scale

b. Less-efficient use of inputs

c. Fixed costs becoming spread out over more units of output

d. Gains from specialization of inputs

26 145 In the long run a company that produces and sells popcorn incurs total costs of $1,150
when output is 70 canisters and $1,000 when output is 100 canisters. The popcorn
 company exhibits

a. diseconomies of scale because total cost is rising as output rises.

b. diseconomies of scale because average total cost is rising as output rises.

c. economies of scale because total cost is rising as output rises.

d. economies of scale because average total cost is falling as output rises.

15 164 Table 13-11

Listed in the table are the long-run total costs for three different firms.

Quantity 1 2 3 4 5

Firm A 100 10 100 100 100

0

Firm B 100 20 300 400 500

0

Firm C 100 30 600 1,000 1,500

0

164. Refer to Table 13-11. Which firm is experiencing diseconomies of scale?

a. Firm A only

b. Firm B only

c. Firm C only

d. Firm A and Firm B only

16 187 Firms may experience diseconomies of scale when

a. they are too small to take advantage of specialization.

b. large management structures are bureaucratic and inefficient.

 c. there are too few employees, and managers do not have enough to do.

d. average fixed costs begin to rise again.

17 196 When a firm experiences constant returns to scale,

a. long-run average total cost is unchanged, even when output increases.

b. long-run marginal cost is greater than long-run average total cost.

c. long-run marginal cost is less than long-run average total cost.

d. the firm is experiencing coordination problems.

19 98 Economies of scale occur when

a. long-run average total costs rise as output increases.

b. long-run average total costs fall as output increases.

c. average fixed costs are falling.

d. average fixed costs are constant.

20 107 Suppose that a firm's long-run average total costs of producing smart phones increases as
it produces between 50,000 and 60,000 smart phones. For this range of output, the firm is
experiencing

a. diseconomies of scale.

b. constant returns to scale.

c. economies of scale.

d. average returns to scale

ST CÂU HỎI
T

Figure 14-2
 Suppose a firm operating in a competitive market has the following cost curves:

75. Refer to Figure 14-2. If the market price is $10, what is the firm's total revenue?

a. $15

b. $30

c. $35

d. $50

Scenario 14-1

Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000,
the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output
for $12 per unit.
 77. Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

a. −$200.

b. $1,000.

c. $3,000.

d. $4,000.

9 80. If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a
positive profit, then

a. its total cost is more than $9,000.

b. its marginal revenue is less than $10.

c. its average total cost is less than $10.

d. the firm cannot be a competitive firm because competitive firms cannot earn positive
profits.

10

Figure 14-3

Suppose a firm operating in a competitive market has the following cost curves:
 86. Refer to Figure 14-3. When market price is P7, a profit-maximizing firm's short-run profits can be
represented by the area

a. P7 × Q5.

b. P7 × Q3.

c. (P7 − P5) × Q3.

d. We are unable to determine the firm's profits because the quantity that the firm would
produce is not labeled on the graph.

11 87. Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue
for the last unit sold by the typical firm in this market?

a. Less than $2.50

b. More than $2.50

c. Exactly $2.50

d. The marginal revenue cannot be determined without knowing the actual quantity sold by
 the typical firm.

12

Figure 14-1

Suppose that a firm in a competitive market has the following cost curves:

88. Refer to Figure 14-1. If the market price rises above $6.5, the firm will earn

a. positive economic profits in the short run.

b. negative economic profits in the short run but remain in business.

c. negative economic profits and shut down.

d. zero economic profits in the short run.

13

Table 14-5
 Suppose that a firm in a competitive market faces the following revenues and costs:

Marginal
Quantity Marginal Revenue
Cost
(Units) (Dollars)
(Dollars)

12 5 7

13 6 7

14 7 7

15 8 7

16 9 7

17 10 7

89. Refer to Table 14-5. If the firm is maximizing profit, how much profit is it earning?

a. $0.50

b. $7.50

c. $10

d. There is insufficient data to determine the firm's profit.

14

Figure 14-1

Suppose that a firm in a competitive market has the following cost curves:
 96. Refer to Figure 14-1. If the market price falls below $3, the firm will earn

a. positive economic profits in the short run.

b. negative economic profits in the short run but remain in business.

c. negative economic profits in the short run and shut down.

d. zero economic profits in the short run.

15

Table 14-5
Suppose that a firm in a competitive market faces the following revenues and costs:

Quantity Marginal Marginal Revenue

 Cost
(Units)
(Dollars) (Dollars)

12 5 7

13 6 7

14 7 7

15 8 7

16 9 7

17 10 7

114. Refer to Table 14-5. If the firm is currently producing 14 units, what would you advise the
owners?

a. Decrease quantity to 13 units

b. Increase quantity to 15 units

c. Continue to operate at 14 units

d. Increase quantity to 16 units

16 104. Competitive markets are characterized by

a. a small number of buyers and seller

s

b. unique products.

c. the interdependence of firms.

d. free entry and exit by firms.

17

181. If a firm in a competitive market doubles its number of units sold, total

revenue for the firm will

 a. more than double.

b. increase but by less than double.

c. double.

d. may increase or decrease depending on the price elasticity of demand

.

18

Scenario 14-2

The information below applies to a competitive firm that sells its output for $45 per unit.

• When the firm produces and sells 100 units of output, its average total cost is $24.5.

• When the firm produces and sells 101 units of output, its average total cost is $24.65.

Q = 100, ATC = 24.5

Q = 101, ATC = 24.65

P = 45

profit = TR - TC = P*Q - ATC*Q

Profit (q =100) = 100*(45-24.5) = 2050;

Profit (q = 101) = 101*(45-24.65)=2055.35

157. Refer to Scenario 14-2. When the firm increases its output from 100 units to 101 units, its
profit

a. decreases by $5.35.

b. decreases by $45.00.

c. increases by $45.00.

d. increases by $5.35.
19

Figure 14-1

Suppose that a firm in a competitive market has the following cost curves:

158. Refer to Figure 14-1. If the market price is $6, the firm will earn

a. positive economic profits in the short run.

b. negative economic profits in the short run but remain in business.

c. negative economic profits and shut down.

d. zero economic profits in the short run.

20 139. For an individual firm operating in a competitive market, marginal revenue equals

a. average revenue and the price for all levels of output.

b. average revenue, which is greater than the price for all levels of output.
 c. average revenue, the price, and marginal cost for all levels of output.

d. marginal cost, which is greater than average revenue for all levels of output.

21

Table 14-1

Price Quantity Demanded

(Dollars per unit) (Units)

15 0

15 2

15 4

15 6

15 8

15 10

15 12

15 14

15 16

15 18

138. Refer to Table 14-1. The price and quantity relationship in the table is most likely a demand
curve faced by a firm in a

a. concentrated market.
 b. monopoly.

c. competitive market.

d. strategic market.

22 140. Which of the following represents the firm's short-run condition for shutting down?

a. Shut down if TR < TC

b. Shut down if TR < FC

c. Shut down if P < ATC

d. Shut down if TR < VC

23 109. When fixed costs are ignored because they are irrelevant to a business's production decision,
they are called

a. explicit costs.

b. implicit costs.

c. sunk costs.

d. opportunity costs.

24 87. Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue
for the last unit sold by the typical firm in this market?

a. Less than $2.50

b. More than $2.50

c. Exactly $2.50

d. The marginal revenue cannot be determined without knowing the actual quantity sold by
the typical firm.

1. When a firm experiences continually declining average total costs, the firm is a

A. price taker.

B. government-created monopoly.
C. natural monopoly.

D. has monopoly power due to the ownership of a patent or copyright.

2. Which of the following statements is true?

(i) When a competitive firm sells an additional unit of output, its revenue increases by an amount less
than the price.

(ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less
than the price.

(iii) Average revenue is the same as price for both competitive and monopoly firms.

A. (ii) only

B. (ii) and (iii) only

C. (iii) only

D. (i) and (ii) only

3. Monopoly firms have

A. downward-sloping demand curves, and they can sell as much output as they desire at the
market price.

B. downward-sloping demand curves, and they can sell only a limited quantity of output at each
price.

C. horizontal demand curves, and they can sell as much output as they desire at the market price.

D. horizontal demand curves, and they can sell only a limited quantity of output at each price.

4. A monopoly firm is a price

A. taker and has no supply curve.

B. maker and has no supply curve

C. taker and has an upward-sloping supply curve.

D. maker and has an upward-sloping supply curve.

5. When there are economies of scale over the relevant range of output for a monopoly, the monopoly

A. is a government-granted monopoly.

B. is a natural monopoly.
C. has monopoly power due to the ownership of a patent or copyright.

D. has monopoly power due to the ownership of a key production resource.

6. When a firm has a natural monopoly, the firm'

A. marginal cost always exceeds its average total cost.

B. average total cost curve is downward sloping.

C. total cost curve is horizontal.

D. marginal cost curve must lie above the firm’s average total cost curve.

7. When a single firm can supply a product to an entire market at a lower cost than could two or more
firms, the industry is called a

A. resource industry.

B. natural monopoly.

C. exclusive industry.

D. government monopoly.

8. When a firm's average total cost curve continually declines, the firm is a

A. government-created monopoly.

B. natural monopoly.

C. revenue monopoly.

D. profit monopoly.

9. The fundamental cause of monopoly is

A. incompetent management in competitive firms.

B. barriers to entry.

C. the zero-profit feature of long-run equilibrium in competitive markets.

D. advertising.

10. A fundamental source of monopoly market power arises from

A. perfectly elastic demand.

B. barriers to entry.
C. perfectly inelastic demand.

D. availability of "free" natural resources, such as water or air.

11. The simplest way for a monopoly to arise is for a single firm to

A. decrease its price below its competitors’ prices.

B. decrease production to increase demand for its product.

C. own a key resource.

D. make pricing decisions jointly with other firms.

12. A benefit of a monopoly is

A. efficient production.

B. decreasing long-run marginal costs.

C. free entry and exit

D. profit that can be invested in research and development.

13. Which of the following are necessary characteristics of a monopoly?

(i) The firm is the sole seller of its product.

(ii) The firm’s product does not have close substitutes.

(iii) The firm generates a large economic profit.

(iv) The firm is located in a small geographic market.

A. (i) and (iii) only

B. (i), (ii), and (iii) only

C. (i) and (ii) only

D. (i), (ii), (iii), and (iv)

14. For a monopoly firm, which of the following equalities is always true?

A. price = marginal revenue

B. price = total revenue

C. price = average revenue

D. marginal revenue = marginal cost

15. Marginal revenue can become negative for

A. both competitive and monopoly firms.

B. competitive firms but not for monopoly firms.

C. neither competitive nor monopoly firms.

D. monopoly firms but not for competitive firms.

16. If a monopoly lowers its price, its

A. total revenue must increase.

B. total revenue must decrease.

C. marginal revenue must decrease.

D. marginal revenue must increase.

17. A monopoly's marginal cost will

A. be less than its average fixed cost.

B. exceed its marginal revenue.

C. be less than the price per unit of its product.

D. equal its average total cost.

18. When a firm operates under conditions of monopoly, its price is

a constrained by demand.

b. not constrained.

c. constrained by marginal cost.

d. constrained only by its social agenda.

19. For a monopoly, the level of output at which marginal revenue equals zero is also the level of output
at which

A. total revenue is maximized.

B. average revenue is zero.

C. profit is maximized.
D. marginal cost is zero.

20. For a monopolist, marginal revenue is

A. positive when the demand effect is greater than the supply effect.

B. negative when the price effect is greater than the output effect.

C. positive when the monopoly effect is greater than the competitive effect.

D. negative when the output effect is greater than the price effect