1.

The fundamental economic problem faced by all societies is:

a. unemployment
b. inequality
c. poverty
d. scarcity

2. "Capitalism" refers to:

a. the use of markets
b. government ownership of capital goods
c. private ownership of capital goods
d. private ownership of homes & cars

3. There are three fundamental questions every society must answer. Which of the
following is/are one of these questions?
a. What goods and services are to be produced?
b. How are the goods and services to be produced?
c. Who will get the goods and services that are produced?
d. All of the above

5. The bowed shape of the production possibilities curve illustrates:

a. the law of increasing marginal cost
b. that production is inefficient
c. that production is unattainable
d. the demand is relatively inelastic

6. You have taken this quiz and received a grade of 3 out of a possible 10 points (F). You
are allowed to take a second version of this quiz. If you score 7 or more, you can raise
your score to a 7 (C). You will need to study for the second version. In making a rational
decision as to whether or not to retake the test, you should
a. always retake the quiz
b. consider only the marginal benefits from of retaking the quiz (four extra points)
c. consider only the marginal opportunity costs from taking the quiz (the time spent
studying and taking the quiz)
d. consider both the marginal benefits and the marginal opportunity costs of retaking
the quiz

7. The law of demand states that:

a. as the quantity demanded rises, the price rises
b. as the price rises, the quantity demanded rises
c. as the price rises, the quantity demanded falls
d. as supply rises, the demand rises

8. The price elasticity of demand is the:

a. percentage change in quantity demanded divided by the percentage change in price
b. percentage change in price divided by the percentage change in quantity demanded
c. dollar change in quantity demanded divided by the dollar change in price
d. percentage change in quantity demanded divided by the percentage change in quantity
supplied

9. Community Colleges desired to increase revenues. They decided to raise fees paid by
students with Bachelors degrees to $50 per unit because they believed this would result
in greater revenues. But in reality, total revenues fell. Therefore, the demand for
Community College courses by people with Bachelors degrees must have actually been:

a. relatively inelastic
b. unit elastic
c. relatively elastic
d. perfectly elastic

10. The demand for a product would be more inelastic:

a. the greater is the time under consideration
b. the greater is the number of substitutes available to buyers
c. the less expensive is the product in relation to incomes
d. all of the above

11. In the case of agriculture,

a. the demand has shifted to the right more than the supply has shifted to the right
b. the demand has shifted to the right less than the supply has shifted to the right
c. the demand has shifted to the left more than the supply has shifted to the left
d. the demand has shifted to the left less than the supply has shifted to the left

12. The agricultural price support program is an example of

a. a price ceiling
b. a price floor
c. equilibrium pricing
d. None of above

13. If there is a price floor, there will be

a. shortages

b. surpluses
c. equilibrium
d. None of above

14. If there is a price ceiling, there will be

a. shortages
b. surpluses
c. equilibrium
d. None of above

15. If there is a price ceiling, which of the following is NOT likely to occur?
a. rationing by first-come, first-served
b. black markets
c. gray markets
d. sellers providing goods for free that were formerly not free

16. The goal of a pure market economy is to best meet the desires of
a. consumers
b. companies
c. workers
d. the government

17. In a pure market economy, which of the following is a function of the price?
I. provide information to sellers and buyers
II. provide incentives to sellers and buyers

a. I only
b. II only
c. both I and II
d. neither I nor II

18. In a market system, sellers act in ____________ interest , but this leads to behaviors
in ____________ interest.
a. self; self
b. self; societys
c. societys; societys
d. societys; self

19. The law of diminishing (marginal) returns states that as more of a variable factor is
added to a certain amount of a fixed factor, beyond some point:
a. Total physical product begins to fall
b. The marginal physical product rises
c. The marginal physical product falls
d. The average physical product falls

20. Why is the law of diminishing marginal returns true?

a. specialization and division of labor
b. spreading the average fixed cost
c. limited capital
d. all factors being variable in the long-run

21. Which of the following is a characteristic of pure monopoly?

a. one seller of the product

b. low barriers to entry
c. close substitute products
d. perfect information

22. In pure monopoly, what is the relation between the price and the marginal revenue?
a. the price is greater than the marginal revenue
b. the price is less than the marginal revenue
c. there is no relation
d. they are equal

23. In order to maximize profits, a monopoly company will produce that quantity at
which the:
a. marginal revenue equals average total cost
b. price equals marginal revenue
c. marginal revenue equals marginal cost
d. total revenue equals total cost

24. Compared to the case of perfect competition, a monopolist is more likely to:
a. charge a higher price
b. produce a lower quantity of the product
c. make a greater amount of economic profit
d. all of the above

25. Which of the following is necessary for a natural monopoly?

a. economies of scale

b. a high proportion of the total cost is the cost of capital goods

c. the market is very small
d. all of the above

26. Which of the following best defines price discrimination?

a. charging different prices on the basis of race
b. charging different prices for goods with different costs of production
c. charging different prices based on cost-of-service differences
d. selling a certain product of given quality and cost per unit at different prices to
different buyers

27. In order to practice price discrimination, which of the following is needed?

a. some degree of monopoly power
b. an ability to separate the market
c. an ability to prevent reselling
d. all of the above

28. In price discrimination, which section of the market is charged the higher price?
a. the section with the richest people
b. the section with the oldest people
c. the section with the most inelastic demand
d. the section with the most elastic demand

29. Which of the following concepts represents the extra revenue a firm receives from
the services of an additional unit of a factor of production?
a. total revenue

b. marginal physical product

c. marginal revenus product
d. marginal revenue

30. The demand for labor is the same as the

a. marginal revenue product
b. marginal physical product
c. marginal cost
d. wage

31. The demand for labor slopes down and to the right because of
a. the law of demand
b. the iron law of wages
c. the law of diminishing marginal returns
d. economies of scale

32. Skills that embodied in a person are called

a. Human capital
b. Embodied skills
c. Physical capital
d. Experience skills

33. Treating an individual as typical of a group is the definition of

a. pure discrimination
b. statistical discrimination

c. human capital
d. specific skills

34. If a 1% fall in the price of a product causes the quantity demanded of the product to
increase by 2%, demand is

Inelastic.

Unit-elastic.

Elastic.

Perfectly elastic.

35. Compared to the lower-right portion, the upper-left portion of most demand curves
tend to be

More inelastic.

More elastic.

Unit-elastic.

Perfectly inelastic.

36. If a business increased the price of its product from $7 to $8 when the elasticity of
demand was inelastic, then

Total revenues decreased.

Total revenues increased.

Total revenues remained unchanged.

Total revenues were perfectly inelastic.

37. You are the sales manager for a pizza company and have been informed that the
price elasticity of demand for your most popular pizza is greater than 1. To increase
total revenues, you should

Increase the price of the pizza.

Decrease the price of the pizza.

Hold pizza prices constant.

Decrease demand for your pizza.

38. Assume Amanda Herman finds that her total spending on compact discs remains the
same after the price of compact discs falls, other things equal. Which of the following is
true about Amandas demand for compact discs with this price change?

It is unit-price-elastic.

It is perfectly price-elastic.

It is perfectly price-inelastic.

It increased in response to the price change.

39. Which is characteristic of a product whose demand is elastic?

The price elasticity coefficient is less than 1.

Total revenue decreases if price decreases.

Buyers are relatively insensitive to price changes.

The percentage change in quantity is greater than the percentage of change in

price.

40. The demand for Nike basketball shoes is more price-elastic than the demand for
basketball shoes as a whole. This is best explained by the fact that

Nike basketball shoes are a luxury good, not a necessity.

Nike basketballs shoes are the best made and are widely advertised.

There are more complements for Nike basketball shoes than for basketball shoes as a
whole.

There are more substitutes for Nike basketball shoes than for basketball shoes as
a whole.

41. Which is characteristic of a good whose demand is inelastic?

There are a large number of good substitutes for the good for consumers.

The buyer spends a small percentage of total income on the good.

The good s regarded by consumers as a luxury.

The period of time for which demand is given is relatively long.

42. From a time perspective, the demand for most products is

Less elastic in the short run and unit-elastic in the long run.

Less elastic in the long run and unit-elastic in the short run.

More elastic in the short run than in the long run.

More elastic in the long run than in the short run.

43. If a 5% fall in the price of a commodity causes quantity supplied to decrease by 8%

supply is

Elastic.

Inelastic.

Unit-elastic.

Perfectly inelastic.

44. If supply is inelastic and demand decreases, the total revenue of sellers will

Increase.

Decrease.

Decrease only if demand is elastic.

Increase only if demand is inelastic.

45. The chief determinant of the price elastic of supply of a product is

The number of good substitutes the product has.

The length of time sellers has to adjust to a change in price.

Whether the product a luxury or necessity.

Whether the product is a durable or a nondurable good.

46. A study shows that the coefficient of the cross elasticity of Coke and Sprite is
negative. This information indicates that Coke and Sprite are

Normal goods.

Complementary goods.

Substitute goods.

Independent goods.

47. If a 5% increase in the price of one good results in a decrease of 2% in the quantity
demanded of another good, then it can be concluded that the two goods are

Complements.

Substitutes.

Independent.

Normal.

48. Most goods can be classified as normal goods rather than inferior goods. The
definition of a normal good means that

The percentage change in consumer income is greater that the percentage change in
price of a normal good.

The percentage change in quantity demanded of the normal good Is greater than the
percentage change in consumer income.

As consumer income increases, consumer purchases of a normal goodincrease.

The income elasticity of demand is negative.

49. In below question chicken and waffles are considered complimentary goods in the
region of Rosco. There is an outbreak of the avian flu which kills a majority of the
chicken in the region of Rosco.

50. What will happen to supply and demand for chicken and waffles in Rosco?

Supply of chicken will increase and quantity of waffles will increase

Supply of chicken will increase and quantity of waffles will decrease

Supply of chicken will decrease and quantity of waffles will increase

Supply of chicken will decrease and quantity of waffles will decrease

51. What will happen to the price of chicken?

Increase, because the demand for waffles will increase

Decrease, because chicken are cheaper during influenzas

Increase, because demand stayed the same while supply decreased

No change

52. What will happen to the quantity supplied of waffles?

Increase, because waffles are a substitute for chicken

Decrease, because the supplied of chicken has decreased as well

Increase, because more workers can make waffles now that supply of chicken is
decreased

No change

In below question Baby Bottle Pops and Nerds Ropes are considered substitute goods.
Along with sugar and spice, Wonka candy producers accidentally include chemical X as
an ingredient in all their candy, depleting the supply of Nerds Ropes.
53. What will happen to the demand for Baby Bottle Pops?

Decrease, because people will buy less candy after hearing about Wonka

Increase, because Nerds Ropes become more expensive with limited supply

Increase, because people will want to increase sugar consumption

No Change

54. What will happen to the price of Nerds Ropes and quantity demanded of Baby
Bottle Pops?

Price of Nerds Ropes will increase and quantity of Baby Bottle Pops will
increase

Price of Nerds Ropes will increase and quantity of Baby Bottle Pops will decrease

Price of Nerds Ropes will decrease and quantity of Baby Bottle Pops will increase

Price of Nerds Ropes will decrease and quantity of Baby Bottle Pops will decrease

55. The country Beta is experiencing an increase in unemployment. If steak is a normal

good:

Demand for steak will increase

Quantity demanded of steak will increase

Demand for steak will decrease

Quantity demanded of steak will decrease

56. Orange juice and mango juice are close substitutes. According to cross-elasticity, if
the price of mango juice increases by 12%, then the price/quantity demanded of orange
juice must also increase/decrease:

Price, increase

Price, decrease

Quantity demanded, increase

Quantity demanded, decrease

57. A private high school increases student tuition. This will increase total revenue if the
price elasticity of demand for private education is:

Inelastic

Unit-elastic

Elastic

Cross-elastic

Use the graph at right to answer questions 18-20.

58. At Y, what would cause the QS to shift from Q3 to Q4?

Demand decreases, D1 to D

Demand increases, D to D1

Supply decreases, S to S1

Supply increases, S1 to S

59. At X, what would cause price to decrease from P4 to P2?

Supply increases, S1 to S

Supply decreases, S to S1

Demand increases, D to D1

Demand decreases, D1 to D

60. What price and quantity demanded would result from a decrease in demand from
D1 to D when starting at X?

P1, Q3

P4, Q2

P3, Q1

P2, Q4

Use the following diagram to answer questions below 2.

61. Why is the supply curve upward sloping?

As price increases, so do costs

As price increases, consumers demand less

As the price increases, suppliers can earn higher levels of profit or justify higher
marginal costs to produce more

As the price increases, producers supply more of the good.

62. Which is an explanation for the downward slope of the demand curve?

Substitution effect

Elasticity

Profit maximization

Diminishing marginal utility

63. The set of six determinants of supply does not include:

Changes in technology

Changes in the size of the population

Changes in resource costs

Changes in the number of suppliers

64. Costs of production of jelly beans increase simultaneously with a decrease in the
price of M&Ms, a close substitute. This will cause:

A decrease in the demand of jelly beans

A decrease in the price of jelly beans

An increase in the supply of M&Ms

An increase in the demand of M&Ms

65. Income rises, and initially the demand for sweatshirts increases. As income continues
to rise, however, the demand for sweatshirts decreases. This tells us that a sweatshirt is:

A normal good at all income levels

An inferior good at all income levels

An inferior good at low income levels and a normal good at high income levels

A normal good at low income levels and an inferior good at high income levels

66. Which of the following is NOT a determinant of a products demand?

Taxes and subsidies

Changes in consumer preferences

Expected future prices by consumers

Changes in prices of substitute products

67. Average income of the American population decreases by 10%. The market would
see an increase in the demand for products sold at:

Jewelry stores

Boutiques

Department stores

Thrift stores

68. The price floor is set at $___ and the price ceiling is set at $___:

10, 25

80, 120

25, 10

60, 140

69. The quantity demanded when the government sets the price floor is:

60

80

120

140

70. When the price ceiling is enforced there is a shortage/surplus of 40/80:

Shortage, 40

Shortage, 80

Surplus, 40

Surplus, 80

71. Which of the following is NOT an inferior good?

Fur coats

Used cars

Secondhand clothing

Generic products

72. An increase in the demand for designer handbags would most likely result from a(n):

Increase in the costs of designer handbags

Increase in the costs of production of designer handbags

Increase in unemployment

Increase in average income

73. The price of red wine increases by 7% and the quantity demanded decreases by
13%. The elasticity coefficient of red wine is:

Less than one, so it is elastic

Less than one, so it is inelastic

Greater than one, so it is elastic

Greater than one, so it is inelastic

74. Which of the following would cause the entire market demand curve for peanut
butter to shift left?

An increase in the costs of peanuts

An increase in the price of peanut butter

A decrease in the price of nutella, a close substitute

An decrease in the price of jelly, a strong complement

75. Roys company produces both ping pong balls and tennis balls. The price of ping
pong balls decreases relative to the price of tennis balls. What will happen to the supply
of both types of balls?

Supply of tennis balls increases, supply of ping pong balls increases

Supply of tennis balls increases, supply of ping pong balls decreases

Supply of tennis balls decreases, supply of ping pong balls decreases

Supply of tennis balls decreases, supply of ping pong balls increases

76. Which of the following causes a good to be more elastic?

Greater percentage of income

Fewer substitutes

Greater necessity

Fewer suppliers of the good

77. The price of cashmere scarves increases by 4% but total revenue remains the same.
Price elasticity of cashmere scarves is:

Inelastic

Unit-elastic

Elastic

Equal to zero

78. The quantity demanded of shoelaces increases from 100 to 145 as price decreases
from $7 to $5. Comparison of total revenue before and after the price change proves
that:

Elasticity of demand is equal to zero

Elasticity of demand is equal to one

Elasticity of demand is greater than one

Elasticity of demand is less than one

79. Adam Smith's invisible hand principle stresses

That compassion is a powerful motivator that encourages individuals to engage in

productive economic activity.

The tendency of the competitive market process to direct self-interested

individuals into activities that enhance the economic welfare of society.

The potential of government regulation as a means of bringing the self interest of

individuals into harmony with the economic welfare of society.

The tendency of self-interested individuals to pursue activities that benefit

themselves, but harm the overall economic welfare of society.

80. In a free market economy, consumption and investment decisions

Are controlled largely by the government.

Shape the future course of the national economy.

Are necessarily controlled by big businesses.

Require protection from foreign forces if individuals desire wealth accumulation.

81. Most microeconomic models assume that decision makers wish to

Make themselves as well off as possible.

Act selfishly.

Not cooperate with others.

None of the above.

82. Which of the following is an example of a normative statement?

A higher price for a good causes people to want to buy less of that good.

A lower price for a good causes people to want to buy more of that good.

To make the good available to more people, a lower price should be set.

If you consume this good, you will be better off.

83. According to the Law of Demand, the demand curve for a good will

Shift leftward when the price of the good increases.

Shift rightward when the price of the good increases.

Slope downward.

Slope upward.

84. Holding all other factors constant, consumers demand more of a good the

Higher its price.

Lower its price.

Steeper the downward slope of the demand curve.

Steeper the upward slope of the demand curve.

85. As the price of good increases, the change in the quantity demanded can be shown
by

Shifting the demand curve leftward.

Shifting the demand curve rightward.

Moving down along the same demand curve.

Moving up along the same demand curve.

86. If the price of automobiles were to increase substantially, the demand curve for
gasoline would most likely

Shift leftward.

Shift rightward.

Become flatter.

Become steeper.

87. If the price of automobiles were to decrease substantially, the demand curve for
automobiles would most likely

Shift rightward.

Shift leftward.

Remain unchanged.

Become steeper.

88. If the price of automobiles were to decrease substantially, the demand curve for
public transportation would most likely

Shift rightward.

Shift leftward.

Remain unchanged.

Remain unchanged while quantity demanded would change.

89. An increase in the demand curve for orange juice would be illustrated as a

Leftward shift of the demand curve.

Rightward shift of the demand curve.

Movement up along the demand curve.

Movement down along the demand curve.

90. If government regulations prohibit the production of a particular good, the demand
curve for that good will most likely

Shift leftward.

Shift rightward.

Remain unchanged.

Disappear.

91. To determine the total demand for all consumers, sum the quantity each consumer
demands

At a given price.

At all prices and then sum this amount across all consumers.

Both a and b will generate the same total demand.

None of the above

92. Suppose the demand curve for a good shifts rightward, causing the equilibrium
price to increase. This increase in the price of the good results in

A rightward shift of the supply curve.

An increase in quantity supplied.

A leftward shift of the supply curve.

A leftward movement along the supply curve.

93. Equilibrium is defined as a situation in which

Neither buyers nor sellers want to change their behavior.

No government regulations exist.

Demand curves are perfectly horizontal.

Suppliers will supply any amount that buyers wish to buy.

94. If price is initially above the equilibrium level,

The supply curve will shift rightward.

The supply curve will shift leftward.

Excess supply exists.

All firms can sell as much as they want.

95. A competitive equilibrium is described by

A price only.

A quantity only.

The excess supply minus the excess demand.

A price and a quantity.

96. In the labor market, if the government imposes a minimum wage that is below the
equilibrium wage, then

Workers who wish to work at the minimum wage will have a difficult time finding
jobs.

Firms will hire fewer workers than without the minimum wage law.

Some workers may lose their jobs as a result.

Nothing will happen to the wage rate or employment.

97. The change in price that results from a leftward shift of the supply curve will be
greater if

The demand curve is relatively steep than if the demand curve is relatively flat.

The demand curve is relatively flat than if the demand curve is relatively steep.

The demand curve is horizontal than if the demand curve is vertical.

The demand curve is horizontal than if the demand curve is downward sloping.

98. The change in price that results from a rightward shift in demand will be greater if

The supply curve is horizontal than if the supply curve is upward sloping.

The supply curve is relatively steep than if the supply curve is relatively flat.

The supply curve is upward sloping than if the supply curve is vertical.

The supply curve is horizontal than if the supply curve is vertical.

99. If the demand curve for a good is horizontal and the price is positive, then a leftward
shift of the supply curve results in

A price of zero.

An increase in price.

A decrease in price.

No change in price.

100. A vertical demand curve results in

No change in quantity when the supply curve shifts.

No change in price when the supply curve shifts.

No change in the supply curve being possible.

No change in quantity when the demand curve shifts.

101. A vertical demand curve for a particular good implies that consumers are

Sensitive to changes in the price of that good.

Not sensitive to changes in the price of that good.

Irrational.

Not interested in that good.

102. The percentage change in the quantity demanded in response to a percentage

change in the price is known as the

Slope of the demand curve.

Excess demand.

Price elasticity of demand.

All of the above.

103. If the price elasticity of demand for a good is less than one in absolute terms, we say
consumers of this good

Are not very sensitive to price.

Are not very sensitive to the quantity they demand.

Are very sensitive to price.

Are elastic.

104. The fundamental economic problem faced by all societies is:

Unemployment

Inequality

Poverty

Scarcity