More multiple Choice Practice Questions With Answers

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Increasing returns to scale for a firm are shown graphically by A) returns to scale have nothing to do with the shape of the long-run average cost curve. B) a horizontal long-run average cost curve. C) a vertical long-run average cost curve. D) an upward-sloping long-run average cost curve. E) a downward-sloping long-run average cost curve. 2) When cost curves are drawn for a firm, all of the following are generally assumed EXCEPT A) average fixed costs are constant. B) firm is too small to influence factor prices. C) average variable cost initially declines, then rises at higher output levels. D) total fixed costs are constant. E) marginal product of the variable factor eventually declines.

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4) In practice, rent controls are usually intended A) to prevent landlords from making excess profits and to reduce the long-term supply of rental housing. B) to increase the demand for rental housing and to discourage private ownership of low-cost rental housing developments. C) to stimulate employment in the construction industry through the increased demand for new houses. D) to stabilize volatile rents, and thus to make the investment climate less uncertain for prospective investors in this sector. E) to prevent landlords from making excess profits and to protect low-income tenants from rises in the cost of housing. 5) Consumer surplus A) is the difference between what the consumer is willing to pay for all the units consumed and what he/she actually paid. B) is the total value that a consumer receives from a purchase of a particular good. C) is a measure of the gains a consumer receives in the market. D) is the sum of the marginal values to the consumer. E) is the consumption of a commodity above and beyond the amount required by the consumer. 6) The supply curve remains the same if there is a change in A) the number of suppliers of the commodity B) technology. C) the price of the good D) the price of a commodity that is a substitute or complement in production. E) factor costs.

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8) For an inferior good, the quantity demanded A) does not change when income rises or falls. B) rises when income falls. C) falls when income falls. D) rises when income rises.

E) responds directly to changes in income. 9) Suppose fixed costs are $100 and average variable costs are constant regardless of output. Which of the following is then true? A) Marginal cost will equal average total cost. B) Marginal cost will be less than average variable cost. C) Marginal cost will be constant. D) Average total cost will decrease when output is increased. E) Average total costs will be constant. 10) Short-run cost curves rise eventually because of the effects of A) the increasing price of variable inputs. B) increasing marginal productivity of the variable inputs. C) increasing fixed costs. D) diminishing marginal product. E) decreasing average product. 11) In equilibrium, the consumer surplus obtained at the margin of the last unit of a good purchased is ______ A) negative. B) zero. C) positive. D) non-negative. E) unknown. 12) A normal good is a good A) that everyone normally consumes. B) that normal people consume. C) whose demand varies directly with household income. D) whose demand does not vary with household income. E) whose demand varies inversely with household income.

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14) A legally imposed upper limit on a price is called A) an excise price. B) a government price. C) a price floor. D) a price ceiling. E) a price support. 15) In defining a long-run average cost curve, A) factor prices are varied and the quantity of factors of production is held constant. B) factor prices are held constant and technology is assumed to change. C) the time period must be longer than one year. D) factor prices are held constant and the quantity of factors of production used is varied. E) technology, factor prices, and the quantity of factors of production are all varied. 16) The law of diminishing returns states that if increasing quantities of a variable factor are applied to a given quantity of fixed factors, then A) the marginal product and the average product of the variable factor will eventually decrease. B) total product will eventually begin to fall. C) the average product will eventually decrease with constant marginal product. D) the marginal product will eventually decrease with constant average product.

E) the average product will eventually decrease, but only if total product is held constant.

17) Refer to Figure 4-1. There is good reason to suppose that, of the four goods whose demand curves are shown in diagrams 1-4, the good that has the fewest close substitutes is shown in A) diagram 1. B) diagram 2. C) diagram 3. D) diagram 4. E) any of the diagrams as there is not enough information to even make a good guess. 18) A change in demand is said to take place when there is a A) shift of the demand curve. B) shift of the supply curve. C) movement along the demand curve. D) quantity change. E) price change. 19) A good has a substitute if there exists another good A) whose demand varies inversely with changes in this good's price. B) that is virtually the same. C) that has the same price. D) that is of equal value. E) whose demand varies directly with changes in this good's price. 20) The opportunity cost of money that a firm's owner has invested is an example of A) implicit costs. B) direct production costs. C) sunk costs. D) accounting costs. E) explicit costs.

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22) In the short run, the firm's product curves show (TP= Total Product, MP is marginal product

AP is average product)
A) TP is at its maximum when MP = O. B) TP begins to decrease when AP begins to decrease. C) when MP > AP, AP is decreasing. D) when the MP curve cuts the AP curve from below, the AP curve begins to fall. E) AP is at its minimum when MP = AP. 23) A fall in the price of raw milk used in the production of ice cream will A) decrease the supply of ice cream, causing the supply curve of ice cream to shift to the left. B) decrease the demand for ice cream. C) increase the supply of ice cream, causing the supply curve of ice cream to shift to the right. D) have no effect on the supply curve of ice cream but cause a downward movement along the supply curve of ice cream. E) have no effect on the supply curve of ice cream. 24) The law of demand describes A) an inverse relationship between the price of a good and the demand for the good. B) a direct relationship between the price of a good and the demand for the good. C) Any relationship between quantity demanded and demand for a good. D) a direct relationship between the price of a good and the quantity of the good demanded per unit of time. E) an inverse relationship between the price of a good and the quantity of the good demanded per unit of time. 25) The period of time in which at least one factor of production is fixed is the A) very-short run. B) short run. C) long run. D) very-long run. E) infinite.

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27) An inferior good is a good _ A) whose demand varies inversely with household income. B) whose demand varies directly with household income. C) that inferior people consume. D) that everyone normally consumes. E) whose demand does not vary with household income. 28) In the long run, a profit-maximizing firm produces any given level of output by choosing the production method that A) shows a flat total cost curve. B) produces that output at the lowest possible cost. C) maximizes the marginal product of all factors. D) maximizes the marginal product of labour. E) minimizes labor input 29) In the long run, decreasing returns can be caused by A) specialization. B) management diseconomies. C) a decrease in factor prices. D) decreasing costs. E) diminishing returns to the variable factor.

30) The substitution effect of a price change A) will result in the consumer buying less of a good at a higher price. B) will result in the consumer buying less of a good at a lower price. C) is equal to the income effect for normal goods. D) outweighs the income effect for Giffen goods. E) is equal to the iome effect for inferior goods. 31) The imposition of a sales tax usually causes the price to consumers to ________, while the revenue of sellers ________. A) rise; falls B) fall; remains unchanged C) rise; remains unchanged D) fall; falls E) rise; rises 32) Suppose the current level of output of some good is X. If market demand is inelastic at that quantity, total revenues would be higher if output was A) greater than X. B) less than X. C) kept constant. D) maximized. E) minimized. 33) A firm trying to maximize its profits in the long run should A) minimize the cost of producing the level of production it chooses. B) select the most technologically efficient method of production regardless of the level of production. C) charge the lowest price possible given the minimum possible cost. D) maximize the marginal product of all factors of production. E) charge the highest price.

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35) In the short run, when capital is a fixed factor, a rise in the cost of labour A) shifts the AVC curve down. B) shifts the total product curve downwards. C) shifts the marginal cost curve upwards. D) leaves the MC curve unchanged. E) leaves the ATC curve unchanged. 36) The point of tangency between the short-run average total cost (SRATC) curve and the long-run average cost (LRAC) curve occurs A) at the output level where the fixed factors are at the optimum quantity. B) at the point of minimum SRATC. C) at a point where average total cost is falling but the marginal cost is rising. D) at a point where both the average total cost and the marginal cost is rising. E) only when the LRAC curve is at its minimum. 37) Which of the following is true of price ceilings? A) With a binding ceiling price a shortage of the commodity will develop. B) If the ceiling price is set above the equilibrium price it will have no effect on the market. C) A ceiling price below the equilibrium price is not binding. D) With a non binding ceiling price an excess demand for the commodity will develop. E) Firms must charge the price established as a price ceiling.

38) The "incidence" of a tax illustrates A) the political process for implementing a tax. B) the economic costs of avoiding it. C) who the burden of the tax falls on. D) the legislative process it must pass through. E) who is legally responsible for paying it to the government. 39) If factor prices decrease, A) both the long-run and short-run average cost curves will shift downward. B) there will be no change in the cost curves in the long run. C) a firm will move to a lower point on its long-run average cost curve only. D) a firm will move to a lower point on both its long-run and short-run average cost curves. E) there will be a downward shift in the long-run average cost curve but not in the short-run average cost curve.

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44) A surplus exists in the market when A) the quantity demanded is less than the quantity supplied. B) the equilibrium price is too low. C) supply and demand are equal. D) the quantity demanded exceeds the quantity supplied. E) the supply curve has shifted to the right. 45) When a plant is operating at the level of output where its short-run average total cost is at a minimum, A) marginal cost is at a minimum. B) more of the variable factor of production should be employed. C) average fixed cost is at a minimum. D) average variable cost is at a minimum. E) the plant is operating at its capacity. 46) Which of the following factors of production is most likely to be variable in the short run? A) land B) labour C) technology D) entrepreneurship E) capital equipment 47) Consumer surplus of an individual can be eliminated entirely by: 1. raising the price until very few units are bought. 2. charging a price for each unit that is equal to the individual's marginal value for each unit. 3. raising the price until zero units are purchased. 47) ______ A) 1 only B) 2 only C) 3 only D) 2 or 3 E) 1, 2, & 3. 48) A consumer will maximizes utility when expenditures are allocated such that A) the total utility from each good is equal. B) the utility received per dollar spent on the last unit of each good is equal. C) the utility received from the last unit of each good is equal.

D) the total number of dollars spent on each good is equal. E) the marginal utility is zero for each good consumed utility.

49) A shift in the supply curve for good X in Figure 3-2 from S2 to S1 might be caused by A) a decrease in the price of X. B) additional suppliers entering the industry. C) an improvement in the technology of producing good X. D) a decrease in demand for X. E) a rise in the costs of producing good X.

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51) We can predict that resources will move into an industry whenever A) economic profits for firms in that industry are greater than zero. B) accounting profits for firms in that industry are greater than zero. C) that industry becomes fashionable. D) accounting profits for firms in that industry are zero. E) economic profits for firms in that industry are zero.

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The demand schedule for museum admissions in a small city Price (per visit per person) $10 $8 $6 $4 $2 Quantity Demanded (thousands of personvisits per year) 2 4 6 8 10 Table 4-1

54) According to Table 4-1, between the prices of $8 and $10, the elasticity of demand is 54) ______ A) 2/3. B) 3. C) 2. D) 1. E) 1/3. 55) If two goods are complements and the price of one falls, all other things being equal, the demand for the other A) can not be determined. B) falls. C) is unrelated. D) rises. E) remains constant.

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57) Income elasticity of demand measures the extent to which A) the price of a good changes when there is a change in income. B) quantity demanded changes when there is a change in price. C) real household income changes when there is a change in the price of a good. D) one household's income changes when there is a change in the income of another household. E) the quantity demanded of a good changes when income changes. 58) In economics, the term "marginal utility" is defined as the A) average utility of each unit of a good consumed. B) inverse of the measure of total utility. C) total satisfaction received from consumption of a good. D) change in total satisfaction caused by consumption of an additional unit of a good. E) price of the last unit consumed. 59) Diminishing marginal utility implies that the A) marginal utility of a good diminishes over time. B) total utility is negative. C) last unit of a good consumed will contribute most to the consumer's satisfaction. D) total utility is increasing. E) first unit of a good consumed will contribute most to the consumer's satisfaction.

61) In deriving the market demand curve for a commodity the only variable that can change is the ______ A) price of the commodity. B) distribution of income of the consumers is held constant. C) price of a related commodity. D) tastes of the consumers . E) income of consumers. 62) In the long-run for the firm, production will take place A) anywhere along the LRAC. B) between the highest and lowest points of the LRAC. C) at the minimum of the relevant SRATC and the LRAC. D) at the tangency of the relevant SRATC and the LRAC. E) at the minimum point of the LRAC.

65) A firm's decision about whether to shut down or continue production would not include in its consideration 65) ______ A) accounting costs. B) economic costs. C) implicit costs. D) fixed costs. E) direct production costs. 66) The income effect refers to the change in quantity demanded that occurs as a result of a change in ______ A) money income. B) preferences. C) marginal utility. D) real income. E) relative prices. 67) Price floors and price ceilings usually lead to A) more equitable distributions of commodities. B) a reduction in quantities exchanged. C) production control by the government. D) shortages. E) surpluses. 68) If the government establishes a fixed price greater than the equilibrium market price for wheat, economic theory predicts A) that consumers will purchase all of the output at the fixed price. B) a shortage. C) that the supply curve would shift to the right. D) a surplus, which will involve storage costs. E) a black market.

70) Average, marginal, and total product curves A) relate the price of output to the quantity supplied. B) demonstrate that each of these measures of output increase as more inputs are applied. C) express relationships between physical inputs and physical outputs. D) demonstrate that in the short run, all inputs are variable. E) relate the prices of inputs (factors of production) to the prices of products. 72) If the price elasticity of demand is 0.5, then a 10 percent increase in price results in a A) 5 percent decrease in total revenues. B) 0.5 percent decrease in quantity demanded. C) 5 percent increase in quantity demanded. D) 50 percent reduction in quantity demanded. E) 5 percent decrease in quantity demanded. 73) If total utility is decreasing, then marginal utility must be A) negative. B) decreasing at an increasing rate. C) increasing at a decreasing rate. D) positive. E) decreasing.

74) Refer to Figure 4-1. As supply increases total revenue increases continuously in diagram 74) ______ A) 1. B) 2. C) 1 and 2. D) 2 and 4. E) 3 and 4.

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77) The relative price of a good A) is a measure of the relative share of the consumer's income devoted to its purchase. B) is always measured in current dollars. C) is its price in terms of money. D) is equal to the average price of the good over the last 5 years. E) reflects its price compared to prices of other goods. 78) Which of the following paired concepts are appropriately reflective? A) increasing returns; decreasing costs B) constant costs; economies of scale C) increasing returns; diseconomies of scale D) increasing costs; economies of scale E) increasing returns; increasing costs

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1) E 2) A 3) A 4) E 5) A 6) C 7) E 8) B 9) D 10) D 11) B 12) C 13) C 14) D 15) D 16) A 17) B 18) A 19) E 20) A 21) D 22) A 23) C 24) E 25) B

26) E 27) A 28) B 29) B 30) A 31) A 32) B 33) A 34) D 35) C 36) A 37) B 38) C 39) A 40) A 41) A 42) C 43) E 44) A 45) E 46) B 47) D 48) B 49) E 50) B 51) A

52) B 53) B 54) B 55) D 56) D 57) E 58) D 59) E 60) D 61) A 62) D 63) B 64) B 65) D 66) D 67) B 68) D 69) A 70) C 71) B 72) E 73) A 74) D 75) B 76) A

77) E 78) A 79) B