Name___________________________________
I. MULTIPLE CHOICE (40 questions, 2 points each). Choose the one alternative that best completes the
statement or answers the question.
1) An example of people acting in their own self-interest would include: 1) _______
A) a teenager earns an A grade average in school in order to use his or her parent's car.
B) individuals joining a car pool to work when tolls are imposed on congested highways.
C) an adult, returning to college to pursue a degree to qualify for a promotion at work.
D) All of the above are examples of people acting in their own self-interest.
2) Microeconomics is best described as the study of: 2) _______
A) inflation, unemployment, gross national product, and the nation's economy as a whole.
B) the choices made by individual households, firms, and governments.
C) marginal changes in the economy.
D) how markets interact in the aggregate economy.
3) The saying that "There is no such thing as a free lunch" refers to: 3) _______
A) the principle of reality in a modern world.
B) the principle of diminishing returns.
C) the price of fast food in today's economy.
D) the principle of opportunity cost.
Figure 2.3
4) In Figure 2.3, the move from production possibility curve YZ to production possibility curve XV, could be caused by:
4) _______
A) more land, labor or capital. B) increased unemployment.
C) a decline in technology. D) all of the above.
Recall Application 4, "Fertilizer and Crop Yields," to answer the following questions:
5) As bags of nitrogen applied went from 0 to 1 to 2 to 3 to 4, crop yield went from 85 to 120 to 135 to 144 to 147 bushels
per acre. The results show that as more bags of nitrogen was added, holding all other inputs constant, output: 5)
_______
A) stayed the same. B) rose but at an increasing rate.
C) fell. D) rose but at a declining rate.
6) One of the most obvious clues to the relative scarcity of a product in a market economy is: 6) _______
A) the limited selection of colors. B) the variations in available sizes.
C) its current market price. D) none of the above
7) Suppose Bob can produce more jeans than Joe in a day. Bob has ________ advantage over Joe in sewing jeans. 7)
_______
A) an absolute and a comparative B) an absolute
C) a comparative D) neither an absolute nor a comparative
Table 3.2
8) Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and Sharon's hourly productivity are
shown in Table 3.2. Which of the following is true? 8) _______
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A) Rose has a comparative advantage in producing fish but not coconuts.
B) Rose has a comparative advantage in producing coconuts but not fish.
C) Rose has a comparative advantage in producing both goods.
D) Rose does not have a comparative advantage in producing either good.
9) A rich nation will trade with a poor nation because the: 9) _______
A) rich nation has the absolute advantage in all products.
B) poor nation has the comparative advantage in a product.
C) rich nation has the comparative advantage in all products.
D) poor nation has the absolute advantage in all products.
10) Assume that compact discs and compact disc players are complements. When the price of compact disc players
decreases: 10) ______
A) the supply of compact discs decreases. B) the demand for compact discs increases.
C) the supply of compact discs increases. D) the demand for compact discs decreases.
11) A decrease in the amount of subsidies that a public university receives would result in: 11) ______
A) an upward movement along the supply curve for college classes.
B) a shift in the supply of college classes to the right.
C) an downward movement along the supply curve for college classes.
D) a shift in the supply of college classes to the left.
12) What happens if the price of a product is below the equilibrium price? 12) ______
A) There will be an excess demand for the product.
B) The buyers will stop purchasing a "cheap" product.
C) The producer will lower the price to make more profit.
D) none of the above
13) Suppose that in October the price of a cup of cafe latte was $1.50 and 400 lattes were consumed. In November the price
of a latte was $2.00 and 200 lattes were consumed. What might have caused this change? 13) ______
A) The price of coffee beans (an input of production of cafe lattes) rose.
B) The price of coffee beans (an input of production of cafe lattes) fell.
C) The price of tea (a substitute for cafe lattes) fell.
D) The price of tea (a substitute for cafe lattes) rose.
14) The price elasticity of supply is generally: 14) ______
C) positive. D) zero.
15) A perfectly inelastic supply is represented by a ________ supply curve. 15) ______
A) vertical B) upward sloping
C) downward sloping D) horizontal
16) When the price of a good is $75, 25 units are demanded. When the price of the good is $25, 75 units are demanded.
Using the initial value, the elasticity of demand is ________ starting at a price of $75 and ________ starting at a price of
$25. 16) ______
A) 1; 1 B) 3; 3 C) 1/3; 3 D) 3; 1/3
17) An increase in supply caused no change in the equilibrium price of a good. Thus, demand must be: 17) ______
A) perfectly elastic. B) perfectly inelastic.
C) unitary elastic. D) vertical.
18) The government imposes a maximum price on apartments that is below the equilibrium price. You accurately predict
that: 18) ______
A) the law will have no economic impact.
B) renters will find that landlords start offering to furnish the apartments.
C) the law will create an excess supply of apartments.
D) there will be fewer apartments available to rent.
19) Figure 6.8 shows the market for taxicab services in a small town. If there is no government intervention and the
supply of taxicab services reflects the law of supply, the price per mile traveled will be: 19) ______
A) $1.00. B) $2.00.
C) $1.50. D) It is impossible to determine.
20) Refer to Figure 6.2. If the price of a DVD rental is $6.00, consumer surplus will be $ ________ each week. 20)
______
A) 12.00 B) 2.00 C) 6.00 D) 4.00
21) Recall the application about the response to lower taxes in French restaurants. If the quantity of meals sold will
increase due to the lower prices, a tax cut will: 21) ______
A) be paid exclusively by the customers.
B) decrease the competitiveness in the restaurant industry.
C) be paid exclusively by the restaurant owners.
D) have a positive effect on consumers and restaurant owners
Table 7.1
22) Refer to Table 7.1. Diminishing marginal utility sets in after the ________ cup of coffee per day. 22) ______
A) first B) second C) third D) fourth
23) Refer to Table 7.1. The marginal utility of the third donut per day is: 23) ______
A) 60. B) 20. C) 15. D) 75.
24) Refer to Table 7.1. The total utility of five donuts per day is: 24) ______
A) 70. B) 60. C) 65. D) 78.
25) Recall the application regarding how consumers respond to free goods. If a company in the U.S. would like to increase
sales, what would be the best incentive for a customer to consume more goods? 25) ______
A) incorporate free goods or services
B) Consumers are indifferent to any incentives.
C) offer discounted goods or services
D) none of the above
26) Suppose that Erin spends all of her income on two goods, pizza and fiction novels. If the price of pizza rises then:
26) ______
ORDER HERE!!!
A) the current marginal utility per dollar spent on fiction novels will rise.
B) the current marginal utility per dollar spent on fiction novels will fall.
C) the current marginal utility per dollar spent on pizza will rise.
D) the current marginal utility per dollar spent on pizza will fall.
27) A firm will begin to experience diminishing returns at the point where: 27) ______
A) marginal cost decreases. B) marginal product increases.
C) marginal cost increases. D) both B and C
28) Refer to Figure 8.2. The marginal product of the sixth worker is ________. 28) ______
A) 50 B) 0 C) -5 D) 5
29) Accounting profit is equal to: 29) ______
A) total revenue plus accounting cost. B) total revenue minus implicit costs.
C) total revenue minus economic cost.. D) total revenue minus explicit costs.
30) Refer to Table 9.1. The shutdown point for this firm is a price of: 30) ______
A) $55. B) $65. C) $60. D) $50.
31) Refer to Table 9.1. If the market price is $90, then for this firm to maximize profits it should produce ________ units of
output. 31) ______
A) the current marginal utility per dollar spent on fiction novels will rise.
B) the current marginal utility per dollar spent on fiction novels will fall.
C) the current marginal utility per dollar spent on pizza will rise.
D) the current marginal utility per dollar spent on pizza will fall.
27) A firm will begin to experience diminishing returns at the point where: 27) ______
A) marginal cost decreases. B) marginal product increases.
C) marginal cost increases. D) both B and C
28) Refer to Figure 8.2. The marginal product of the sixth worker is ________. 28) ______
A) 50 B) 0 C) -5 D) 5
29) Accounting profit is equal to: 29) ______
A) total revenue plus accounting cost. B) total revenue minus implicit costs.
C) total revenue minus economic cost.. D) total revenue minus explicit costs.
30) Refer to Table 9.1. The shutdown point for this firm is a price of: 30) ______
A) $55. B) $65. C) $60. D) $50.
31) Refer to Table 9.1. If the market price is $90, then for this firm to maximize profits it should produce ________ units of
output. 31) ______
ORDER HERE!!!
A) six B) four C) five D) three
32) Refer to Figure 9.7. This firm's short-run supply curve is the firm's: 32) ______
A) AVC curve to the left of Point B. B) marginal cost curve above Point D.
C) marginal cost curve above Point A. D) marginal cost curve above Point B.
33) Refer to Figure 9.2. If Buffy gives 17 perms per day, her daily profit is: 33) ______
A) $51. B) $45. C) $3. D) $10.
34) Verde Inc. has a monopoly over the production of emeralds in Ecuador. Verde Inc. will find it profitable to increase
the mining production of emeralds as long as marginal cost: 34) ______
A) is greater than marginal revenue. B) is positive.
C) equals marginal revenue. D) is less than marginal revenue.
35) The process of using public policy to gain economic profit is: 35) ______
A) rent seeking. B) deadweight loss.
C) never successful. D) illegal.
36) When a profit-maximizing firm in monopolistic competition is producing its long-run equilibrium quantity: 36)
______
A) six B) four C) five D) three
32) Refer to Figure 9.7. This firm's short-run supply curve is the firm's: 32) ______
A) AVC curve to the left of Point B. B) marginal cost curve above Point D.
C) marginal cost curve above Point A. D) marginal cost curve above Point B.
33) Refer to Figure 9.2. If Buffy gives 17 perms per day, her daily profit is: 33) ______
A) $51. B) $45. C) $3. D) $10.
34) Verde Inc. has a monopoly over the production of emeralds in Ecuador. Verde Inc. will find it profitable to increase
the mining production of emeralds as long as marginal cost: 34) ______
A) is greater than marginal revenue. B) is positive.
C) equals marginal revenue. D) is less than marginal revenue.
35) The process of using public policy to gain economic profit is: 35) ______
A) rent seeking. B) deadweight loss.
C) never successful. D) illegal.
36) When a profit-maximizing firm in monopolistic competition is producing its long-run equilibrium quantity: 36)
______
ORDER HERE!!!
A) its marginal revenue will exceed its marginal cost.
B) its price will be equal to its average total cost.
C) its price will equal its marginal cost.
D) it will be earning economic profit.
37) Refer to Figure 11.2. In the long run the monopolistic competitor would generate total revenue equal to the area:
37) ______
A) 0BGD. B) AHE0. C) 0AFD. D) AFGB.
38) Figure 12.2 shows the decision tree for setting price for the only two firms in a market. One way for both firms to
charge a high price is for both firms to: 38) ______
A) collude. B) expand output.
C) play their dominant strategies. D) any of the above
39) In a competitive labor market, 39) ______
A) the market wage rate is the marginal revenue product of labor.
B) the firm can hire all the labor it wants at the going market wage rate.
C) firms will hire as long as the marginal revenue product of labor is less than or equal to the market wage.
D) all of the above
Table 17.3
40) Refer to Table 17.3. If the market price of the product is $4 and the firm can hire as many workers as it wants at a wage
of $40, the firm should hire ________ workers. 40) ______
A) 3 B) 2 C) 4 D) 5
II. SHORT ANSWER (5 questions, 4 points each). Write the phrase that best completes each statement or
answers the question.
41) What is the opportunity cost of investing $10,000 of your own money in a business you wish to start? 41)
_____________
42) Figure 6.9 shows the market for tobacco. If the government has no restrictions on imported tobacco, what will be the
price of tobacco and the level of tobacco produced? If the government passes a law banning tobacco imports, what
happens to the price of tobacco and the quantity of tobacco sold? 42) _____________
43) Comment on the following statement: "In the short run, a firm's total costs will be zero if the firm chooses to produce
nothing." 43) _____________
44) What is a constant-cost industry? What does the long-run industry supply curve look like for a constant-cost industry?
44) _____________
45) Provide three examples of price discrimination. 45) _____________
A) its marginal revenue will exceed its marginal cost.
B) its price will be equal to its average total cost.
C) its price will equal its marginal cost.
D) it will be earning economic profit.
37) Refer to Figure 11.2. In the long run the monopolistic competitor would generate total revenue equal to the area:
37) ______
A) 0BGD. B) AHE0. C) 0AFD. D) AFGB.
38) Figure 12.2 shows the decision tree for setting price for the only two firms in a market. One way for both firms to
charge a high price is for both firms to: 38) ______
A) collude. B) expand output.
C) play their dominant strategies. D) any of the above
39) In a competitive labor market, 39) ______
A) the market wage rate is the marginal revenue product of labor.
B) the firm can hire all the labor it wants at the going market wage rate.
C) firms will hire as long as the marginal revenue product of labor is less than or equal to the market wage.
D) all of the above
Table 17.3
40) Refer to Table 17.3. If the market price of the product is $4 and the firm can hire as many workers as it wants at a wage
of $40, the firm should hire ________ workers. 40) ______
A) 3 B) 2 C) 4 D) 5
II. SHORT ANSWER (5 questions, 4 points each). Write the phrase that best completes each statement or
answers the question.
41) What is the opportunity cost of investing $10,000 of your own money in a business you wish to start? 41)
_____________
42) Figure 6.9 shows the market for tobacco. If the government has no restrictions on imported tobacco, what will be the
price of tobacco and the level of tobacco produced? If the government passes a law banning tobacco imports, what
happens to the price of tobacco and the quantity of tobacco sold? 42) _____________
43) Comment on the following statement: "In the short run, a firm's total costs will be zero if the firm chooses to produce
nothing." 43) _____________
44) What is a constant-cost industry? What does the long-run industry supply curve look like for a constant-cost industry?
44) _____________
45) Provide three examples of price discrimination. 45) _____________
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