Chapter No.

1
Question 1

Which of the following statements about factors of production is false?

a) The term 'factors of production' is another term for resources.
b) The factor of production termed labour means human resources.
c) The factor or production termed land means natural resources.
d) The factor of production termed capital means the money which the
owners of firms need in order to set their firms up.

Question 2

Which of the following statements about the use of resources is not one of the key questions
in economics?
a) How are resources used?
b) Where are resources used?
c) For what are resources used?
d) For whom are resources used?

Question 3

Which of the following statements about producers is false?

a) Households produce many goods and services for themselves
b) People set up some producers who do not aim to make profits.
c) All the goods and services consumed in any country are produced by its
own producers.
d) Governments arrange the production of some goods and services.

Question 4

Which of the following statements is true?

 a) Despite the problem of scarcity, people do not always want producers to
use the most efficient production methods.
b) The problem of scarcity would disappear if the world's population grew
to ensure more labour was available.
c) A producer who uses no more resources than it needs must display
productive efficiency.
d) The world's economies were as integrated 50 years ago as they are
today

Question 5

What is meant by intermediate goods and services?

a) The same as capital goods, such as plant, buildings, vehicles and

machinery.
b) Products which one firm buys off another and then uses up in its own
products.
c) All inputs bought by firms, including labour and raw materials.
d) Imports.

Question 6

What is meant by the term final goods and services?

a) The same as the term intermediate goods and services.

b) The same as the term consumer goods and services.
c) All goods and services except those traded second hand.
d) Goods and services which are finished as far as the economy is
concerned.

Question 7
 Which of the following statements is false?
a) Purchases of capital goods are called investment
b) GDP equals the total value of wages received by households.
c) In a simple economy with just households and firms, the value of
investment equals the value of saving.
d) In a simple economy with just households and firms, the value of
investment plus consumers' expenditure equals GDP.

Question 8

Which of the following statements is false?

a) GDP measures the value of all the goods and services produced in the
economy.
b) GDP stands for gross domestic product.
c) GDP excludes intermediate goods and services.
d) GDP equals wages plus trading profits.

Question 9

Which of the following statements is true?

a) Microeconomics is concerned chiefly with the economy as a whole.

b) Macroeconomics is concerned chiefly with individual markets.
c) Governments have no influence over market prices.
d) When economists study the price in a market, their chief aims are to
understand why the price is what it is and why it may change.

Question 10

Which of the following statements is false?

a) An economic model is a theory based on key variables and expressed in
formal terms.
 b) An economic model is tested by seeing how accurate its predictions are.
c) Testing economic models is rarely tricky.
d) The words 'ceteris paribus' mean other things remaining the same.

Chapter No. 2
Question 1

Which of the following is not required for a country to be producing at a point on its
production possibility frontier?
a) Full employment of labour.
b) All producers using the latest technology.
c) Stable prices.
d) All producers having productive efficiency.

Question 2

Which of the following statements is true?

a) The production possibility frontier is steeper at the right end than the left
because some resources are better suited to making some products than
others.
b) The production possibility frontier is straight because some resources are
better suited to making some products than others.
c) The production possibility frontier is steeper at the left end than the right
because some resources are better suited to making some products than
others.
d) The production possibility passes the point which represents total wants
in the economy.

Question 3
 Which of the following will not shift a country's production possibility frontier?
a) A fall in unemployment.
b) An increase in the age at which people retire.
c) The introduction of improved technology.
d) Purchases of new capital by firms.

Question 4

Which of the following types of economy describes the economy of the UK?

a) A command economy.
b) A market economy.
c) A mixed economy.
d) A planned economy.

Question 5

All the following government policies are likely to increase the quantity of some products
that are produced. But with one policy, this effect is a side-effect rather than the aim. Which
policy is that?

a) A policy intended to improve efficiency.

b) The introduction of subsidies on some products.
c) A policy intended to reduce unemployment.
d) The introduction of taxes on the rich and transfers to the poor.

Question 6

Which of the following policies would increase production by taking it to a point closer to
the production possibility frontier, but would not shift the frontier?

a) A policy that encouraged firms to buy more industrial plant.

b) A policy that encouraged firms to develop and introduce improved
technology.
 c) A policy that encouraged firms to buy more machinery.
d) A policy that encouraged firms to adopt better technologies that are
already available.

Question 7

Suppose a country is currently producing at a point on its production possibility frontier, and
undertakes no trade with other countries. Then trade is opened up. Which of the following
would not occur as a direct result?
a) Its production possibility frontier would shift.
b) Its production would shift to another point on its production possibility
frontier.
c) The pattern of products that the country produced would differ from the
pattern that its consumers consumed.
d) Consumers would be able to consume at a point outside the production
possibility frontier.

Question 8

Which of the following policies is not classed as a stabilization policy?

a) A policy aimed at reducing unemployment.
b) A policy aimed at reducing the number of people in poverty.
c) A policy aimed at reducing the rate of inflation.
d) A policy aimed at shifting the production possibility frontier outwards.

Question 9

Which of the following statements is a positive statement?

a) Bankers' bonuses should be taxed.

b) The eurozone ought to allow member countries in difficulty to stop using
the euro and use currencies of their own instead.
 c) One of the largest industries in the UK is the financial services industry.
d) The UK government ought to split up some of the largest UK banks to
promote more competition in the banking industry.

Question 10

Suppose you buy Economics by David King. What is the opportunity cost of your
purchase?
a) The money you paid for the book.
b) Whatever you would have spent the money on if you had not bought
the book.
c) The cost of producing the book.
d) The time you spend studying the book.

Chapter No. 3
Question 1

The supply and demand model applies when three of the following four conditions are met.
Which condition is not required?
a) There must be many buyers.
b) There must be many sellers.
c) The buyers and sellers must trade an identical item.
d) The item traded must be a product.

Question 2

Which of the following predictions is not made by the supply and demand model?
a) If there is excess demand, the price will rise.
b) If there is excess supply, the price will fall.
c) If there is no excess demand or excess supply, the market will be in
equilibrium.
 d) A market which is out of equilibrium will always move rapidly to the
equilibrium,

Question 3

Suppose there is excess supply in a market and the price decreases. Which of the following
combinations of events will occur?

a) There will be a fall in quantity supplied and a rise in quantity demanded.

b) There will be a fall in quantity supplied and a rise in demand.
c) There will be a fall in supply and a rise in quantity demanded.
d) There will be a fall in supply and a rise in demand.

Question 4

Suppose there is a decrease in supply in a market where the supply curve slopes upwards and
the demand curve slopes downwards. Which of the following would not occur?
a) An excess supply.
b) A fall in price.
c) A fall in supply.
d) A fall in the equilibrium level of expenditure.

Question 5

Suppose a market is in equilibrium, and then the demand increases. Which of the following
would be shown on a graph that illustrated the effects?

a) An excess demand at the initial equilibrium price.

b) An excess demand at the new equilibrium price.
c) An excess supply at the initial equilibrium price.
d) An excess supply at the new equilibrium price.

Question 6
 Suppose there is an increase in demand in a market where the supply curve slopes upwards
and the demand curve slopes downwards. Which of the following might notoccur?
a) An excess supply.
b) A fall in price.
c) A rise in the quantity traded.
d) A fall in the equilibrium level of expenditure.

Question 7

Which of the following might not lead to an increase in the demand for a product that can be
stored?
a) A fall in the price of a complement.
b) A rise in consumer incomes.
c) An increase in the number of buyers.
d) An expected rise in price.

Question 8

Which of the following might not lead to a decrease in the demand for a type of labour?
a) A decrease in the number of firms using the labour.
b) An increase in the productivity of the labour.
c) A fall in the price of a substitute input.
d) A decrease in the demand for the produce or products which the labour
is used to produce.

Question 9

Which of the following would not lead to a decrease in the supply of a product that can be
stored?
a) An increase in the demand for a joint product.
b) A rise in the price of another input.
c) A decrease in the number of firms supplying the product.
 d) An expected rise in the price of the product.

Question 10

Which of the following could not lead to an increase in price combined with an increase in
the quantity traded?
a) An increase in demand combined with unchanged supply.
b) An increase in demand combined with a decrease in supply.
c) A decrease in demand combined with an increase in supply.
d) An increase in demand combined with an increase in supply.

Chapter No.4
A student club wants to raise just enough income to cover its costs. Its income comes partly
from membership fees and partly from selling tickets for its nightly discos. Attendance at the
discos currently leads to overcrowding of the club's room. The demand for membership is
price inelastic and the demand for discos is price elastic. To reduce the crowding without
changing its total income, what should the club do?

a) Raise both the disco ticket price and the membership fee.
b) Lower both the disco ticket price and the membership fee.
c) Raise the disco ticket price but lower the membership fee.
d) Lower the disco ticket price but raise the membership fee.

Question 2

Suppose the price of a product increases from £12 to £20 and the quantity demanded falls
from 55 a week to 45. What is the PED?
a) 0.4
b) -0.4
c) 2.5
d) -2.5
Question 3

Suppose a demand curve runs from the price axis to the quantity axis in a straight line.
Whereabouts will PED=-1.0?
a) Where the curve meets the price axis.
b) Everywhere along the curve.
c) At the mid-point of the curve.
d) Nowhere along the curve.

Question 4

A consumer product has a PED of -0.12. Which of the following factors would not help to
explain this?
a) There are few substitutes available.
b) Any substitutes there are have higher prices.
c) The product accounts for a small percentage of consumer expenditure.
d) The product is a normal good.

Question 5

Which of the following statements is true?

a) When an economy grows, firms would prefer to be making inferior

goods rather than making normal goods.
b) If a firm notices that the price of a substitute for its product has fallen, it
would prefer the CED between the products to be far from zero rather than
close to zero.
c) If a firm notices that the price of a complement for its product has risen,
it would prefer the CED between the products to be far from zero rather than
close to zero.
d) If a firm's costs increase and it has to increase the price of its output, it
would prefer demand to be price inelastic rather than price elastic.
Question 6

Suppose incomes double over a period of years. Which sorts of product will experience the
biggest increases in price?

a) Those with a PES close to 0.0 and an IED well above 0.0.
b) Those with a PES close to 0.0 and an IED well below 0.0
c) Those with a PES well above 1.0 and an IED well above 0.0
d) Those with a PES well above 1.0 and an IED well below 0.0

Question 7

Suppose the price of a product increases from £50 to £70 and the quantity supplied rises from
40 a day to 80. What is the PES?
a) 0.5
b) -0.5
c) 2.0
d) -2.0

Question 8

Which of the following statements is false?

a) PES is infinity all along any horizontal supply curve.
b) PES is 1.0 all along any supply curve which passes through the origin.
c) PED is zero all along any vertical demand curve.
d) PED is -1.0 along any demand curve where spending would be the same
at each price.

Question 9

A consumer product has a PES of 0.1. Which of the following factors would not help to
explain this?
a) The producers are close to full capacity.
 b) One or more of the key intermediate products needed to make the
product are themselves items with an inelastic supply.
c) Consumers need very little time to respond fully to price changes.
d) One type of labour used by the producers may be in inelastic supply

Question 10

Which of the following statements is false?

a) Price elasticity of demand is negative for most products.
b) Price elasticity of supply is positive for most products.
c) Income elasticity of demand is positive for normal goods.
d) Cross elasticity of demand is positive between complements.

Chapter No.5
Which of the following is not an argument against government intervention in a market?
a) If the government reduces output below the free market level, consumer
surplus will fall.
b) If the government reduces output below the free market level, producer
surplus will fall.
c) If the government raises output above the free market level, consumers
will get no benefit from the extra units of output.
d) If the government raises output above the free market level, some units
of output will cost more to produce than the value placed on them by
consumers.

Question 2

Which of the following statements about a price ceiling is false?

a) The number of buyers who gain from the ceiling is smaller than the
original number of buyers.
 b) The ceiling creates an excess demand.
c) The ceiling generates losers as well as gainers.
d) To have any effect, the price ceiling must be set at a higher level than the
original market price.

Question 3

Assuming that everyone is law-abiding, which of the following would not reduce the
quantity traded in a market?
a) The imposition of an effective price ceiling.
b) The removal of an effective price floor.
c) The imposition of a supply-side quantity control.
d) The imposition of a demand-side quantity control.

Question 4

Suppose the government introduces a specific tax of £5 a unit on a product which has sloping
supply and demand curves. Which of the following statements about the resulting
curve S+tax is true?
a) The gap between S+tax and S will be higher at high quantities than at
low quantities.
b) The gap between S+tax and S will be higher at low quantities than at
high quantities.
c) The gap between S+tax and S will be £5 at each quantity.
d) The gap between S+tax and S will be whatever is needed to show that
the equilibrium price for consumers increases by £5.

Question 5

On a graph showing the effects of an ad valorem tax, where do we find the price received
by producers?
a) At the point on S below the point where S+tax intersects D.
 b) At the point where S intersects D.
c) At the point where S+tax intersects D.
d) At the initial price minus the amount of the tax.

Question 6

Which of the following statements about the incidence of a specific tax is false?
a) The incidence which falls on consumers plus the incidence which falls on
producers equals the amount of the tax.
b) The incidence falls more heavily on producers than consumers if the
demand curve is flatter than the supply curve.
c) The incidence falls more heavily on consumers than producers if the
supply curve is flatter than the demand curve.
d) The incidence always falls wholly on consumers.

Question 7

Under which of the following circumstances would the incidence of a specific tax fall wholly
on consumers?

a) Demand is perfectly elastic.

b) Supply is perfectly elastic
c) Both demand and supply have unit elasticity.
d) Under all circumstances.

Question 8

Suppose the CAP has imposed a tariff on the import of a certain foodstuff from outside the
EU, and suppose that EU consumers always pay a price equal to the rest of the world price
plus the tariff. Which of the following events would not lead to a higher price for EU
consumers?
a) A rise in the supply of the foodstuff by EU producers.
b) An increase in the tariff.
 c) A rise in the demand for the foodstuff by non-EU consumers.
d) A fall in the supply of the foodstuff by non-EU producers.

Question 9

Suppose the CAP reduces the tariff on imports of a certain foodstuff from outside the EU.
Which of the following statements is false?
a) The quantity consumed in the EU would increase.
b) The quantity of imports into the EU would increase.
c) The incomes of EU farmers would increase.
d) The incomes of non-EU farmers would increase.

Question 10

Suppose the government introduces a prohibition on the supply or purchase of some

substance. Assuming that some suppliers and some users ignore the law, which of the
following could not occur?
a) The price might rise.
b) The price might stay the same.
c) The price might fall.
d) There would be no price because the market would disappear
underground.

Chapter No. 6
Which of the following statements about the market demand curve for a product is false?
a) The market demand curve represents the individual demand curves of all
consumers added together.
b) The market demand curve may shift if there is a change in the behaviour
of some households which consume the product.
 c) The market demand curve may shift if there is change in the price of the
product.
d) The market demand curve may shift if there is a change in the number of
consumers who buy the product.

Question 2

Which of the following does the principle of diminishing marginal utility say about what
happens when a consumer consumes more of a product?

a) The consumer's total utility will be unaffected.

b) The consumer's total utility will diminish.
c) The consumer's marginal utility will diminish.
d) The consumer's marginal utility will become negative

Question 3

A consumer finds that for product A, the price is £5 and the consumer's marginal utility is
100 utils, while for product B, the price is £10 and the consumer's marginal utility is 160
utils. Which of the following statements is true?

a) The consumer is maximizing utility from A and B.

b) The consumer would gain more utility from A and B by consuming more
A and less B.
c) The consumer would gain more utility from A and B by consuming less A
and more B.
d) The consumer could only gain more utility from A and B by consuming
more of both products.

Question 4

Which of the following factors does not help to explain why most indifference curves
between consumer products slope down to the right and are curved rather than straight?
 a) The principle of diminishing marginal utility.
b) The fact that both products concerned are regarded as desirable.
c) The fact that most pairs of products are not perfect substitutes.
d) The fact that the further an indifference curve is from the origin, the
more total utility it represents.

Question 5

Which of the following factors does not affect the slope and position of a consumer's budget
line between two products, A and B?
a) The shape and position of the consumer's indifference curves.
b) The price of A.
c) The price of B.
d) The consumer's income.

Question 6

A consumer plots an indifference map between two products A and B, and marks in points to
show the combinations of A and B that the consumer would buy if the price of A changed
but the price of B remained the same. The consumer then plots a line through these points.
Which of the following is this curve called?

a) A budget line.
b) A demand curve.
c) A price consumption curve.
d) An indifference curve.

Question 7

A consumer plots an indifference map between two products A and B, and marks in points to
show the combinations of A and B that the consumer would buy if the prices of A and B
remained the same but the consumer's income increased. Which of the following statements
about this line is false?
 a) The line is called an income consumption curve.
b) The line will always slope upwards to the right if both products are
normal goods.
c) The line will slope backwards or downwards at income levels where one
product is an inferior good.
d) The line may not pass through the origin.

Question 8

Suppose a consumer faces a rise in the price of product A while the consumer's income
remains unchanged. Which of the following statements about the income effect is false?
a) There is no income effect because the consumer's income is unchanged.
b) Between them the income and substitution effects cover the entire
change in the quantity that the consumer demands.
c) If the product is normal, the income effect works in the same direction as
the substitution effect.
d) If the product is inferior, the income effect works in the opposite
direction to the substitution effect.

Question 9

Suppose we draw an indifference map diagram to explore the hours of work a worker will
choose to do. Which of the following will not apply to this diagram?
a) The indifference curves slope downwards to the right because both
income and leisure are desirable.
b) The curves get flatter to the right because both income and leisure have
diminishing marginal utility.
c) The indifference curves furthest from the original represent the highest
total utility.
 d) An increase in the wage rate shifts the earnings leisure line, with the new
line being parallel to the initial line.

Question 10

Which of the following statements about labour supply curves at high wages is true?

a) The supply curves of individuals may slope backwards, and also the
market supply curve for any given type of labour may well slope backwards.
b) The supply curves of individuals may slope backwards, but the market
supply curve for any given type of labour is most unlikely to slope backwards.
c) The supply curves of individuals are most unlikely to slope backwards,
but the market supply curve for any given type of labour may well slope
backwards.
d) The supply curves of individuals are most unlikely to slope backwards,
and the market supply curve for any given type of labour is also most unlikely
to slope backwards.

Chapter 07

Instructions
Answer the following questions and then press 'Submit' to get your score.

Question 1

Which of the following statements about profit maximization is true?

a) It is something that all firms actually do.

b) It is something which economists believe that all firms actually do.

c) It is what economists believe is the most common aim of firms.

 d) It means that no firms ever make losses.

Question 2

Which of these statements about UK firms in 2009 is false? (Note: you do not need to learn
these facts to understand any later material, but hopefully you will find them interesting.)
a) More than 99% of firms have fewer than 50 employees.

b) Less than 1% of firms have 250 or more employees.

c) Between them, firms with fewer than 50 employees account for under
50% of the total turnover (that is total sales) of all firms.

d) Between them, firms with 250 or more employees account for under 50%
of the total turnover of all firms.

Question 3

Which of the following statements about firms is false?

a) All firms must pay corporation tax on their profits.

b) Both sole proprietorships and partnerships have unlimited liability.

c) All companies have limited liability.

d) Internal finance arises when a company finances new assets by using

past profits.

Question 4

Which of the following statements about the principal-agent problem is false?

a) It is the risk that a principal who hires or employs an agent to perform a
task may find that the task is done poorly.
 b) It is least likely to arise in cases where there is asymmetric information.

c) It may be reduced in the case of a company if its directors are given

bonuses that relate to the company's profits.

d) It may be reduced in the case of a company if its directors fear their

company may be subject to competition for corporate control.

Question 5

Which of the following statements about types of market or industry is false?

a) There are many firms in both perfect competition and monopolistic
competition.

b) Costs must be kept as low as possible in both monopolistic competition

and monopoly.

c) There may be homogeneous products in both perfect competition and

oligopoly.

d) There are barriers to entry in both oligopoly and monopoly.

Question 6

Which of the following statements about barriers to entry is false?

a) They help to make a market contestable.

b) They may include a fear of sunk costs.

c) They may include a lack of know-how.

d) They may include the well-known brand names of existing firms.

Question 7

Which of the following statements about firms in different types of market is false?
a) A perfect competitor has no influence over the price of its product.

b) A monopolistic competitor may engage in non-price competition.

c) An oligopolist may monitor the prices and products of all the other firms
in its market.

d) A monopolist must be a large firm.

Question 8

Suppose you give up a job and use some savings to buy a small bus which you drive on a
remote rural route. Which of the following costs of your firm is an explicit cost?
a) The depreciation on the bus.

b) The wage of the job you gave up.

c) The fuel you buy for the bus.

d) The interest you earned on your savings before you used them to buy
the bus

Question 9

To see whether a firm is making an economic profit, which of he following should be

deducted from its revenue?

a) Its explicit costs only.

b) Its explicit costs plus depreciation.

c) Its implicit costs only.

 d) Its explicit costs and its implicit costs.

Question 10

Which of the following statements is false?

a) A five-firm concentration ratio assesses firms' sizes with reference to the
number of employees, and shows the percentage of total employment in an
industry accounted for by the five firms with the most employees.

b) The firms in an industry with a high concentration ratio may,

nevertheless, find themselves in a highly competitive environment.

c) Economic profits in a contestable market attract new entrants.

d) In deciding whether to produce inputs or buy them, firms take account

of transactions costs.

Chapter 08

Instructions
Answer the following questions and then press 'Submit' to get your score.

Question 1

Which of the following statements about short-run and long-run costs is false?
a) A firm might quote its short-run costs as the costs of producing different
output levels over a period of a month.

b) A firm might quote its long-run costs as the costs of producing different
output levels over a period of an hour.
 c) A firm might quote both its short-run costs and its long-run costs as the
costs of producing different output levels over a period of a week.

d) Short-run costs are always lower than long-run costs.

Question 2

Which of the following statements about a profit-maximizing firm is false?

a) It might set its daily output at a higher level in the short run than in the
long run.

b) It might set its daily output at a lower level in the short run than in the
long run.

c) If it had a daily output of zero in the short run, it would be sure to have a
total cost of zero.

d) If it had a daily output of zero in the long run, it would be sure to have a
total cost of zero.

Question 3

Which of the following statements about a fixed input is true?

a) Its price is fixed.

b) The quantity of it that a firm can use in the long run is fixed.

c) The quantity of it that a firm can use in the short run is fixed.

d) The quantity of output that the firm can produce with it is fixed.

Question 4
 In the short-run, which of the following always gets smaller as output increases?

a) Average fixed cost.

b) Average variable cost.

c) Short-run average cost.

d) Short-run marginal cost.

Question 5

Which of the following statements about graphs of short-run cost curves is false?
a) The AFC at each output equals the gap between the SAC and AVC curves
at that output.

b) The SMC curve lies above the MVC curve.

c) The MVC curve intersects the lowest point on the AVC curve.

d) The SMC curve intersects the lowest point on the SAC curve.

Question 6

Which of the following is the correct definition of the law of diminishing returns?

a) If extra units of one variable input are added to a fixed amount of all
other inputs, then sooner or later the marginal returns will get smaller.

b) If extra units of one variable input are added to a fixed amount of all
other inputs, then the marginal returns will always get smaller.
 c) If extra units of all variable inputs are added to a fixed amount of all fixed
inputs, then the marginal returns will always get smaller.

d) If extra units of all variable inputs are added to a fixed amount of all fixed
inputs, then sooner or later the marginal returns will get smaller.

Question 7

Which of the following statements about economies of scale is false?

a) A firm may have economies of scale, even if it does not have increasing
returns to scale.

b) A firm may initially have economies of scale and later have diseconomies
of scale.

c) An industry where economies of scale are exhausted at an output that is

low relative to the industry output may have many small firms.

d) Throughout the output range where a firm enjoys economies of scale, its
long-run marginal cost curve, LMC, will slope downwards.

Question 8

Which of the following statements about a firm's average cost curves is false?
a) Its SAC curve will stay put if the price of an input that is fixed in the short
run increases.

b) Its SAC curve will shift upwards it the price of an input that is variable in
the short run increases.

c) Its SAC curve will generally lie above its LAC curve.
 d) Its LAC curve will shift upwards if new firms enter its industry and there
are external diseconomies of scale.

Question 9

An isoquant relates the quantity of inputs a firm uses to the quantity of output it can produce.
In drawing an isoquant, which of the following assumptions about the firm is made?

a) It is a profit-maximizing firm.

b) It is a technically efficient firm.

c) It is an economically efficient firm.

d) It has at least one fixed input.

Question 10

Suppose a profit-maximizing firm faces a rise in the wage rate it pays. Which of the
following would definitely stay the same?

a) Its choice of production method.

b) The expansion path on which it ends up.

c) Its isocost lines.

d) Its production function.

Chapter 09

Instructions
Answer the following questions and then press 'Submit' to get your score.
Question 1

Which of the following statements about the market supply curve for a product is false?
a) The market supply curve represents the individual supply curves of all
firms which produce the product added together.

b) The market supply curve may shift if there is a change in the behaviour
of some firms which produce the product.

c) The market supply curve may shift if there is change in the price of the
product.

d) The market supply curve may shift if there is a change in the number of
firms which supply the product.

Question 2

Which of the following statements about a firm which is a price-taker is false?

a) The firm will sell its product at the going market price.

b) The demand curve faced by the firm is downward sloping.

c) The demand curve faced by the firm is horizontal even though the
market demand curve is downward sloping.

d) The firm would sell nothing if it set a higher price than the market price.

Question 3

On a graph for a perfect competitor, which of the following curves coincide?

a) The demand curve, average revenue curve, and marginal revenue curve.
 b) The demand curve and the average revenue curve, but not the marginal
revenue curve.

c) The demand curve and marginal revenue curve, but not the average
revenue curve.

d) The average revenue curve and the marginal revenue curve, but not the
demand curve.

Question 4

A profit-maximizing perfect competitor is setting an output of 100 per day. Which of the
following statements is false?
a) Its marginal revenue and marginal cost curves must intersect at an
output of 100 per day.

b) If it increased its output to 101, then its revenue would rise by less than its
costs.

c) If it decreased its output to 99, then its revenue would fall by more than
its costs.

d) It must be earning the highest total revenue that it could earn.

Question 5

A profit-maximizing perfect competitor is setting an output of 100 per day and is making a
profit. Which of the following statements is false?
a) Its profit per unit of output will equal the gap between its AR curve and
its SACcurve at an output of 100 a day.
 b) Its average fixed cost for each unit of output will equal the gap between
its SAC andAVC curves at an output of 100 a day.

c) Its total revenue will equal its AR at an output of 100 a day multiplied by
100.

d) Its total cost will equal its AVC at an output of 100 a day multiplied by 100.

Question 6

A perfect competitor finds that the best it can do if it produces any output is to produce a
daily output of 100 units which it will sell at the market price or AR of £10, but even then it
would then make a loss. Under what circumstances would it definitely make a smaller loss if
it shut down and produced nothing?
a) If, at an output of 100 a day, its AVC would be above £10.

b) If, at an output of 100 a day, its AFC would be above £10.

c) If, at an output of 100 a day, its SAC would be above £10.

d) If, at an output of 100 a day, its SMC would be above £10.

Question 7

Which part of a perfect competitor's short-run marginal cost curve, SMC, is also its short-run
supply curve, SS?
a) The whole of the SMC curve.

b) The whole of the upward sloping part of the SMC curve

c) The part of the SMC curve above its intersection with the AVC curve.

d) The part of the SMC curve above its intersection with the SAC curve.
Question 8

A profit-maximizing perfect competitor is in short-run equilibrium with an output of 100 per

day. Which of the following events would not cause it to alter its output in the short-run?
a) A change in the demand for the product it makes.

b) A change in the number of other firms in its industry.

c) A change in the price of a fixed input.

d) A change in the price of a variable input.

Question 9

A profit-maximizing perfect competitor faces a price of £10 and is in long-run equilibrium

with an output of 100 per day. At an output of 100, which of the following will have a value
of £10?

a) Only its LMC.

b) Only its LMC and its LAC.

c) Only its LMC and its SMC.

d) Its LMC, LAC, SMC and SAC.

Question 10

When would a perfectly competitive industry have a long-run supply curve that slopes
downwards?

a) If the industry has constant costs.

b) If the industry has decreasing costs.

c) If the industry has increasing costs.

 d) Never.

Chapter 10

Instructions
Answer the following questions and then press 'Submit' to get your score.

Question 1

Which of the following statements about price-takers is false?

a) They include monopolistic competitors and monopolists.

b) They can always raise their prices and still retain some customers.

c) They may set different prices in the short run and in the long run.

d) We do not analyse them using diagrams with supply and demand curves.

Question 2

On a graph for a monopolist or monopolistic competitor, which of the following curves

coincide?

a) The demand and average revenue curves only.

b) The demand and marginal revenue curves only.

c) The average revenue and marginal revenue curves only.

d) The demand, average revenue and marginal revenue curves.

Question 3

A profit-maximizing monopolist sets an output of 100 per day and a price of £10. Which of
the following statements is true?
 a) The firm's SMC and MR curves intersect at an output of 100, and the point
on its demand curve at this output is at £10.

b) The firm's SMC and MR curves intersect at an output of 100, and the point
on itsMR curve at this output is at £10.

c) The firm's SMC and AR curves intersect at an output of 100, and the point
on its MRcurve at this output is at £10.

d) The firm's SMC and AR curves intersect at an output of 100, and the point
on its ARcurve at this output is at £10.

Question 4

A profit-maximizing monopolist finds that if it remains open, the best output is 50 a week,
but at this output it would make a loss. Under what circumstances should it shut down?

a) If AR at this output is below SAC.

b) If AR at this output is below AVC.

c) If MR at this output is below SAC.

d) If MR at this output is below AVC.

Question 5

Which of the following statements about a profit-maximizing monopolist is false?

a) This firm might respond to a fall in demand by reducing its output and
reducing its price.
 b) This firm might respond to a fall in demand by reducing its output and
increasing its price.

c) This firm would respond to a fall in the price of a fixed input by

increasing its output and reducing its price.

d) This firm would respond to a fall in the price of a variable input by

increasing its output and reducing its price.

Question 6

Suppose a monopolist discriminates between different groups of customer. Which of the

following statements is false?
a) The best strategy for the monopolist is to set the highest prices for the
types of customer with the least elastic demand.

b) Some customers will face a higher price than they would if the firm did
not adopt price discrimination.

c) By having a relatively low price for some groups of customers, the

monopolist is sure to make less profit than it would without price
discrimination.

d) The monopolist might be able to make more profit by instead

discriminating between different individual customers.

Question 7

Suppose a profit-maximizing monopolist faces no threats from possible new entrants to its
industry. Which of the following statements about the firm's long-run equilibrium is false?
a) The firm may make a profit indefinitely.
 b) The firm's SMC curve and its LMC curve will both intersect its MR curve at
its chosen output.

c) The firm's SAC curve will intersect its LAC curve at its chosen output.

d) If the firm suddenly started to worry about the prospect of new entrants,
it might decide to reduce its price.

Question 8

Which of the following statements about a monopolistic competitor is false?

a) It faces a downward sloping demand curve.

b) Its demand curve, and those for its competitors, may all be in different
positions.

c) It will produce at the output where its MR and SMC curves intersect,
provided it would make either a profit or a loss that was less than its total fixed
cost.

d) It supply curve is part of its marginal cost curve.

Question 9

Which of the following statements about the long-run equilibrium of a profit-maximizing

monopolistic competitor is false?
a) The firm will just break even.

b) The firm's SMC curve and its LMC curve will just touch each other at its
chosen output.
 c) The firm's SAC curve and its LAC curve will just touch each other at its
chosen output.

d) The firms AR curve and its SAC curve will just touch each other at its
chosen output.

Question 10

A student alleges that there are four differences between monopolistic competitors and
monopolists, as follows. Which of these alleged differences is false?
a) There are many firms in monopolistic competition and only one in
monopoly.

b) The monopolist may make a profit in the long run whereas the
monopolistic competitor will not.

c) Price discrimination is less common with monopolists than with

monopolistic competitors.

d) A monopolist would never react to the imposition of a tax on its product

by reducing its price, but a monopolistic competitor might.