Please select the best possible answer (only one answer) for each question.
1.
A)
B)
C)
D)
Scarcity arises because:
individuals can't solve the three central coordination problems.
governments can't solve the three central coordination problems.
the supply of goods is always less than the demand.
incentives that encourage work and reduce human desires cannot keep new wants from
developing.
2.
A)
B)
C)
D)
"Price controls are bad for the economy and should not be used" is an example of:
positive economics.
normative economics.
the art of economics.
Marshallian economics.
3. The fact that the price of a litre of milk is likely to be more expensive at a convenience
store than at a supermarket is an example of:
A) market forces.
B) political forces.
C) social forces.
D) normative economics.
4.
A)
B)
C)
D)
Which of the following is an example of a macroeconomic topic?
The effect of a frost on the Florida orange crop.
Wages of cross-country truckers.
How the unemployment and inflation rates are related.
How income is distributed in Canada.
5. The opportunity cost of spending $100 million on a new fighter plane might include all
of the following except:
A) the health care benefits that could have been provided by the $100 million.
B) the infrastructure that could have been built with the $100 million.
C) the wages earned by the workers who built the plane.
D) the technologies that might have been developed with the $100 million.
6.
A)
B)
C)
D)
Adam Smith's invisible hand is used to explain how:
economic activity is organized under capitalism.
government intervention was used under mercantilism.
social traditions and customs affected economic activity under feudalism.
the Industrial Revolution helped create a market economy.
Page 1
Industrial Goods
Please select the best possible answer (only one answer) for each question.
8
7
6
5
4
3
2
1
0
A
B
1
2 3 4 5 6 7
Agricultural Goods
8
7. Refer to the graph above. If countries A and B face the production possibility curves
shown, which of the following statements is TRUE?
A) Both countries would do better if A specialized in the production of agricultural goods
and B specialized in the production of industrial goods.
B) Both countries would do better if A specialized in the production of industrial goods and
B specialized in the production of agricultural goods.
C) A and B cannot gain from specializing in the production of one good over the other.
D) Both countries would do best if they produced where their production possibility curves
intersect.
C
Guns
Guns
C
A
Butter
(a)
B
B
D
Butter
A
(b)
8. Refer to the graph above. Destruction of some of the resources necessary to produce
both guns and butter would result in what movement?
A) From A-B to C-D in diagram A.
B) From C-D to A-B in diagram A.
C) From A-B to A-C in diagram B.
D) From A-C to A-B in diagram B.
Page 2
Please select the best possible answer (only one answer) for each question.
9.
A)
B)
C)
D)
If a country's production exceeds its consumption, it must be:
running a trade surplus.
running a trade deficit.
depleting its assets.
importing more goods and services than it is exporting.
10.
A)
B)
C)
D)
The general plan of NAFTA is:
to adjust tariffs so that they are equal across products and countries.
to replace tariffs with quotas.
to move towards political integration among Canada, Mexico, and the United States.
to remove tariffs on most goods traded in North America within 15 years of signing.
11.
A)
B)
C)
D)
Price tends to be in equilibrium where supply and demand intersect because:
when quantity supplied equals quantity demanded, prices don't change.
when quantity supplied exceeds quantity demanded, prices have a tendency to rise.
when quantity supplied is less than quantity demanded, prices tend to fall.
when quantity supplied equals quantity demanded, prices will fall.
12.
A)
B)
C)
D)
Total producer surplus is measured as the area:
between the demand curve and the supply curve.
above the supply curve.
between the supply curve and the horizontal axis.
between the supply curve and the market price.
13. According to the law of supply, it takes an increase in the __________ of a product,
other things constant, to motivate firms to increase their quantity supplied of that
product.
A) production cost
B) opportunity cost
C) price
D) supply
14. If the price of chicken rises and the price of beef doesn't rise, consumers will respond
by:
A) substituting beef for chicken.
B) substituting chicken for beef.
C) reducing purchases of beef and chicken.
D) increasing purchases of beef and chicken.
Page 3
Please select the best possible answer (only one answer) for each question.
15.
A)
B)
C)
D)
The market demand curve will always be
flatter than the individual demand curves that make it up.
steeper than the individual demand curves that make it up.
have the same slope as the individual demand curves that make it up.
unrelated to the individual demand curves and slope.
16.
A)
B)
C)
D)
According to the law of demand an increase in the price of gasoline will:
increase the quantity demanded of gasoline, other things constant.
decrease the quantity demanded of gasoline, other things constant.
increase the demand for gasoline.
decrease the demand for gasoline.
17. If price is increased by a law from a market equilibrium value of $5 to a higher value of
$6:
A) both producer surplus and consumer surplus will increase.
B) consumer surplus will decrease and there will be some lost surplus.
C) producer surplus will decrease and there will be some lost surplus.
D) there will be lost surplus as both producer surplus and consumer surplus decrease.
18.
A)
B)
C)
D)
According to the law of supply, the quantity of an item supplied will fall as a result of:
an increase in the number of firms producing the item.
decreases in the prices of inputs used to produce the item.
an increase in the price of the item.
a decrease in the price of the item.
6
Price
5
4
3
2
1
0
1
2
3
4
5
6
Quantity
Page 4
Please select the best possible answer (only one answer) for each question.
19. Given the above graph, the quantity that would be associated with the price of $1 in a
supply table would be:
A) 3
B) 2
C) 1
D) 0
20. For many years, the price of personal computers has fallen and the quantity sold has
risen. This can best be attributed to:
A) improved technology which has caused supply to shift rightward.
B) improved technology which has caused supply to shift leftward.
C) greater popularity which has caused demand to shift rightward.
D) an increase in the number of computer users which has caused demand to shift
rightward.
21. If the consumption of a good by one individual does not prevent its consumption by
another individual, that good is called
A) a public good.
B) a private good.
C) a macroeconomic good.
D) a demerit good.
22. The invention of a machine that allows cows to milk themselves has led to an increase
in milk production. If farmers were to decry the effect of this new technology on the
price of milk and lobby government to set the price of milk at its pre self-milking cow
innovation price, what would be the result?
A) Excess demand for milk.
B) Excess supply of milk.
C) Neither a shortage nor a surplus of milk.
D) A decline in the price of milk.
23.
A)
B)
C)
D)
The best example of a positive externality is:
roller coaster rides.
pollution.
alcoholic beverages.
education.
Page 5
Please select the best possible answer (only one answer) for each question.
24.
A)
B)
C)
D)
A quota
is a tax imposed on an imported good.
is a quantitative restriction on the amount that one country can export to another.
imposed on a good will shift the supply of that good outward to the right.
imposed on a good, like a tariff, will reduce the price of the good to consumers.
25. If the government imposes an excise tax on gasoline equal to $0.25 per litre and the
demand curve for gasoline is downward-sloping, the supply of gasoline will shift:
A) upward and the price will increase by $0.25 per litre.
B) upward and the price will increase by less than $0.25 per litre.
C) downward and the price will decrease by $0.25 per litre.
D) downward and the price will decrease by less than $0.25 per litre.
26. In the mid 1990s, caviar sales soared as did its price. The Petrossian boutique in New
York which serves the upscale fare says it has raised its price in reaction to a renewed
interest in the food coupled with a shrinking supply of Russian caviar following the
collapse of Soviet Communism. Given these facts, what most likely led to the higher
quantity sold and higher price of caviar?
A) a small shift in demand to the left and a large shift in supply to the left.
B) a small shift in demand to the right and a small shift in supply to the left.
C) a large shift in demand to the right and a small shift in supply to the left.
D) a large shift in demand to the right and a small shift in supply to the right.
27.
A)
B)
C)
D)
For normal goods, income elasticity is:
greater than 0.
greater than 1.
less than 0.
equal to 1.
28.
A)
B)
C)
D)
If demand is highly inelastic and supply shifts to the right:
price will rise significantly; quantity hardly changes at all.
price hardly changes at all; quantity will rise significantly.
price will rise significantly as will quantity.
price will fall significantly; quantity hardly changes at all.
Page 6
Please select the best possible answer (only one answer) for each question.
10
Price
8
6
4
A
B
2
2
29.
A)
B)
C)
D)
4
C
D
E
6
8
10
Quantity
12
Refer to the above graph. Which point has an elasticity less than one?
A.
B.
C.
D.
30. The demand for a good is price inelastic. Which of the following would be an
explanation for this?
A) The good is a necessity.
B) The good is specifically defined.
C) The good is a large portion of one's total income.
D) The time interval considered is long.
D
10
C
Price
8
6
B
4
2
A
2
4
6
8
Quantity
10
Page 7
Please select the best possible answer (only one answer) for each question.
31. Refer to the above graph. Which of the following curves demonstrates a perfectly
inelastic supply curve?
A) A.
B) B.
C) C.
D) D.
5
A
Price
4
3
B
2
C
1
D
1
Price
32.
A)
B)
C)
D)
18
16
14
12
10
8
6
4
2
0
2
3
4
Quantity
5
Refer to the above graph. At which point is elasticity infinite?
A.
B.
C.
D.
A
B
C
D
1
2
3
4
5
6
7
Quantity
Page 8
Please select the best possible answer (only one answer) for each question.
33. Refer to the graph above. Using the mid-point formula the approximate elasticity of arc
AC is:
A) 3
B) 2
C) 1/2
D) 3/2
34. Which of the following is not an example of price discrimination?
A) Airlines charge higher fares to business travelers than to leisure travelers for the same
seats.
B) Most cars don't sell at list price. Price is negotiated with each customer.
C) When price of land rises, landowners do not increase the quantity of land supplied.
D) Peak-fare prices are higher than non-peak-fare prices.
Price
a
b
c
d
e
S1
k
S0
h
j
Demand
i
f
g
0
l
m
Quantity
35. Refer to the graph above. Assume the market is initially in equilibrium at point j in the
graph, but the imposition of a per unit tax on this product shifts the supply curve up
from S0 to S1. The welfare loss triangle from this tax is equal to area:
A) cdjh.
B) deij.
C) hji.
D) khj.
Page 9
Please select the best possible answer (only one answer) for each question.
Price 10
8
S0
6
S1
4.4
3
2
A
D
C
B
0
Demand
672 840
1200
Quantity
36. Refer to the graph above. The segment of the demand curve between the initial
equilibrium price of $4.40 and the new equilibrium price of $3.00 is:
A) elastic.
B) inelastic.
C) perfectly elastic.
D) perfectly inelastic.
Price
Supply
10
8
5
2
Demand
10
25
40
50
Quantity
37.
A)
B)
C)
D)
Refer to the graph above. With an effective price floor at $8, total surplus is reduced by:
25.
45.
90.
100.
Page 10
Please select the best possible answer (only one answer) for each question.
38.
A)
B)
C)
D)
The more elastic the supply and the demand curves are:
the smaller shortage a price ceiling will create.
the greater shortage a price ceiling will create.
the smaller surplus a price ceiling will create.
the greater surplus a price ceiling will create.
39.
A)
B)
C)
D)
A price floor will create the largest surplus when:
supply and demand are both inelastic.
supply and demand are both elastic.
supply is elastic and demand is inelastic.
supply is inelastic and demand is elastic.
Demand
S1
S1
Price
Price
S0
S0
Demand
tax
tax
(A)
(B)
Quantity
Quantity
Supply
Price
Price
S1
tax
tax
S0
Demand
Demand
(C)
(D)
Quantity
Page 11
Quantity
Please select the best possible answer (only one answer) for each question.
40. Refer to the graphs above. The most tax revenue collected by a given per unit tax is
shown by graphs:
A) A and D.
B) B and C.
C) C and D.
D) B and D.
Supply
Price
A
Pf
B
Pe
C
Pc
E
F
D
Demand
Q2
Q1
Q3
Quantity
41. Refer to the graph above. With an effective price floor at Pf, the effect is an implicit tax
on:
A) suppliers shown by area C and subsidy to consumers of that same area.
B) suppliers shown by area B and subsidy to consumers of that same area.
C) consumers shown by area C and subsidy to suppliers of that same area.
D) consumers shown by area B and subsidy to suppliers of that same area.
42.
A)
B)
C)
D)
Which of the following taxes best reflects the ability to pay principle of taxation?
a tax on gasoline used to maintain roads and highways.
a progressive income tax.
a regressive income tax.
a property tax used to fund education.
43.
A)
B)
C)
D)
An important difference between price ceilings and taxes is that:
price ceilings create shortages, while taxes do not.
taxes create shortages, while price ceilings do not.
price ceilings result in dead weight loss, while taxes do not.
taxes result in dead weight loss, while price ceilings do not.
Page 12
Quantity of Good Y
Please select the best possible answer (only one answer) for each question.
C
B
A
E
D
G
F
Quantity of Good X
44.
A)
B)
C)
D)
Price of Good Y
Price of Good X
Quantity of Good X
I
H
J
Quantity of Good Y
Refer to the graph above. The effect of a decrease in the price of X is shown by:
the movements from A to B, D to E, or F to G.
the movements from A to B, D to F, or E to G.
the movements from B to C, D to F, or E to G.
the movements from B to C, D to E, or F to G.
C
Total Utility
K
D
B
A
Quantity
Page 13
Please select the best possible answer (only one answer) for each question.
45.
A)
B)
C)
D)
Refer to the above graph. Marginal utility is:
negative between A and B.
negative between B and C.
negative between C and D.
is not negative anywhere along the total utility curve.
46. A Big Mac costs $2.00 and gives Éva 24 units of utility. A Whopper costs $1.50 and
gives her 18 units of utility. The price of the Whopper goes down to $1.30. Given
diminishing marginal utility, Éva should:
A) consume more Big Macs and less Whoppers.
B) consume more Whoppers and less Big Macs.
C) keep consuming the current amounts of both Big Macs and Whoppers.
D) realize that you don't have enough information to answer the question.
47. Dennis is deciding where to spend his spring break. If he goes to Vail, Colorado, the trip
will give him 10,000 units of utility (satisfaction) and will cost him $500. If, instead, he
travels to Padre Island, Texas, the trip will give him 6000 units of utility and will cost
him $400. Dennis should go to:
A) Vail because his total utility would be greatest.
B) Padre Island because it's cheapest.
C) Vail because his utility per dollar spent will be greatest.
D) Padre Island because his utility per dollar spent will be greatest.
48.
A)
B)
C)
D)
You're maximizing utility when:
(MU of X)/ (P of X) > (MU of Y)/ (P of Y)
(MU of X)/ (P of X) < (MU of Y)/ (P of Y)
(MU of X)/ (P of X) = (MU of Y)/ (P of Y)
(MU of X)/ (P of Y) = (MU of Y)/ (P of X)
49. The consumption of an additional unit of a good provides additional satisfaction, which
is called:
A) total benefit.
B) marginal social benefit.
C) average utility.
D) marginal utility.
Page 14
Please select the best possible answer (only one answer) for each question.
The total satisfaction one gets from one's consumption of a product is called:
marginal utility.
a unit of utility.
total utility.
minimum utility.
51.
A)
B)
C)
D)
The average variable cost curve is a mirror image of:
the total product curve.
the marginal product curve.
the average product curve.
the marginal cost curve.
Output
50.
A)
B)
C)
D)
TP
A
B
C
Num be r of w ork e rs
52. Refer to the graph above. Within which part of the production function is the firm most
likely to operate?
A) A.
B) B.
C) C.
D) B and C.
53.
A)
B)
C)
D)
A production table can be used to determine:
a firm's profits.
a firm's costs.
how much output is produced from a given quantity of inputs.
how much of a product will be demanded by consumers.
Page 15
Please select the best possible answer (only one answer) for each question.
54. The essential difference between the short run and the long run is that:
A) the short run pertains to a period of time less than one year; long run is longer than one
year.
B) in the short run at least one factor of production is fixed; in the long run all factors are
variable.
C) in the short run some costs are fixed; in the long run all costs are fixed.
D) in the short run all costs are variable; in the long run all costs are fixed.
Cost
55.
A)
B)
C)
D)
18
16
14
12
10
8
6
4
2
0
Total revenue refers to:
the amount a firm receives for selling its product or service.
any increase in the value of the assets owned by the firm.
the opportunity cost of factors of production provided by the owners of the firm.
explicit payments to the factors of production.
IV
III
E
II
F
I
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34
Quantity
56.
A)
B)
C)
D)
Refer to the graph above. Why does the distance between curves II and III get smaller?
marginal cost is increasing.
average variable cost is increasing.
average fixed cost is declining.
average fixed cost is increasing.
Page 16
Please select the best possible answer (only one answer) for each question.
Costs in dollars
57. What is a production function?
A) The relationship between a firm's profits and the technology it uses in its production
processes.
B) The relationship between a firm's output and its profits.
C) The relationship between any combination of inputs and the maximum output obtained
from that combination.
D) The relationship between inputs and input costs.
MC
ATC
AVC
AFC
Output
58.
A)
B)
C)
D)
Refer to the graph above. The graph showing costs of production:
is correct.
is wrong because the average total cost and the marginal cost curves are confused.
is wrong because the average fixed cost curve is drawn incorrectly.
is wrong because the average fixed cost curve is shown to be below the average variable
cost.
59.
A)
B)
C)
D)
The average fixed cost curve appears:
U shaped.
horizontal.
always upward sloping.
always downward sloping.
60. The level of production that spreads indivisible setup costs out just enough to make
production profitable is referred to as the:
A) technically efficient level of production.
B) economically efficient level of production.
C) minimum efficient level of production.
D) minimum profitable level of production.
Page 17
Please select the best possible answer (only one answer) for each question.
Cost per unit
61. Refer to the graph above. A firm planning to produce 1500 units of output would
choose the scale of operation represented by:
A) SRAC1.
B) SRAC2.
C) SRAC3.
D) SRAC4.
A
Average
total cost
Quantity
Page 18
Please select the best possible answer (only one answer) for each question.
62. Refer to the graph above. The section of the long-run average total cost curve market as
"A" represents:
A) economies of scale.
B) diseconomies of scale.
C) diminishing marginal productivity.
D) increasing marginal productivity.
63. Which of the following statements is true?
A) Many different production processes can be economically efficient, but only the method
that involves the lowest possible cost is technically efficient.
B) Many different production processes can be technically efficient, but only the method
that involves the lowest possible cost is economically efficient.
C) There is only one production process that is technically efficient, and this process is also
economically efficient.
D) There are many production processes that are both technically and economically
efficient, but only one of these involves the lowest possible cost.
64.
A)
B)
C)
D)
Generally, as the size of a firm increases:
team spirit increases.
marginal productivity rises.
per-unit production costs fall.
monitoring costs increase.
65. A firm's average total cost increases as it increases its output by expanding its plant and
hiring additional workers. The firm's owners blame the increase in per-unit costs on the
law of diminishing marginal productivity. The owner's argument:
A) is correct because some inputs are fixed in the long-run.
B) is incorrect because economies of scale are present.
C) is correct because marginal productivity must decrease in the short-run.
D) is incorrect because all inputs are varied in the example.
Page 19
Please select the best possible answer (only one answer) for each question.
66.
65.
Refer to the graph above. The economically efficient point of production is at point:
Please ignore
this question
67. Which of the following is an example of diseconomies of scale?
A) Producing 1,000 lawn mowers costs of $100,000 while producing 2,000 lawn mowers
costs $220,000.
B) 50 workers and 5 machines produces 1,000 units of output while 100 workers and 10
machines produces 2,500 units of output.
C) 50 workers and 5 machines produces 1,000 units of output while 60 workers and 5
machines produces 1,200 units of output.
D) Producing 1,000 lawn mowers costs of $100,000 while producing 2,000 lawn mowers
costs $150,000.
Page 20
Please select the best possible answer (only one answer) for each question.
68. Refer to the graph above. If labour costs $10 per unit and machines cost $15 per unit,
then the economically efficient cost of producing 500 units of output is:
Please ignore
this question
Page 21
Please select the best possible answer (only one answer) for each question.
69. Refer to the graph above. Assuming that the industry operates under conditions of
perfect competition and that the firms seek to maximize profits each firm in the industry
will:
A) produce 800 square metres of construction per month in the short-run.
B) produce 1000 square metres of construction per month in the short-run.
C) produce 1200 square metres of construction in the short-run.
D) incur economic losses in the short-run.
70.
A)
B)
C)
D)
A perfectly competitive firm in the long-run:
can earn positive or negative economic profits.
can earn negative accounting profits as long as economic profits are positive.
makes zero economic profits.
makes zero accounting profits.
71. A perfectly competitive firm will be profitable if price at the profit-maximizing quantity
is:
A) above MC.
B) above AVC.
C) above ATC.
D) above AFC.
Cost
marginal
cost
$7.00
E
$6.00
D
$5.00
C
$4.00
B
$3.00
A
$2.00
$1.00
$0.00
0
450 550 650 750 850
Quantity
Page 22
Please select the best possible answer (only one answer) for each question.
Cost
72. Refer to the graph above. If market price is currently $3.00 per unit, this firm will
maximize profit by producing:
A) 450 units of output.
B) 650 units of output.
C) 850 units of output.
D) between 550 and 650 units of output.
TC
TR
210
180
150
100
86
48
120
250
450 525
Quantity
73. Refer to the graph above. Other things equal, an increase in the market price of this
product will cause:
A) an increase in total revenue and a decrease in the firm's profit-maximizing level of
output.
B) an increase in total revenue and an increase in the firm's profit-maximizing level of
output.
C) a decrease in total revenue and a decrease in the firm's profit-maximizing level of
output.
D) a decrease in total revenue and an increase in the firm's profit-maximizing level of
output.
74.
A)
B)
C)
D)
The demand curve for a perfect competitor is equal to:
its marginal cost curve.
its marginal revenue curve.
its average total cost curve.
its average fixed cost curve.
Page 23
Please select the best possible answer (only one answer) for each question.
75. If the long-run market supply curve is perfectly elastic, a fall in demand would cause the
final equilibrium to be:
A) at the same price but a lower output.
B) at a lower price and a lower output.
C) at a lower price but the same output.
D) at the same price and the same output.
76.
A)
B)
C)
D)
To maximize profits, a perfectly competitive firm should produce until:
price is greater than average total cost.
marginal cost is equal to price.
average total cost is minimized.
per unit profits are maximized.
77.
A)
B)
C)
D)
An increase in the number of firms in a perfectly competitive market causes:
a movement along the market supply curve.
an increase in each firm's supply curve.
an increase in the market supply curve.
a decrease in the market supply curve.
Price
78. If the retailing industry is perfectly competitive and Wal-Mart opens five new stores,
output must be such that:
A) price equals marginal cost.
B) price exceeds average variable cost.
C) marginal cost equals average total cost.
D) price exceeds average total cost.
MC
ATC
h
g
f
e
MR
0
ab cd
D
Quantity
Page 24
Please select the best possible answer (only one answer) for each question.
79.
A)
B)
C)
D)
Refer to the graph above. At an output of a, the monopolist should:
not change output since profits are maximized.
reduce output to maximize profits.
increase output to maximize profits.
increase price to maximize profits.
80.
A)
B)
C)
D)
If MR > MC, the monopolist should:
decrease production.
increase production.
maintain the same level of production.
stop producing.
81.
A)
B)
C)
D)
A monopolist:
earns a profit in the short run and the long run.
earns a profit in the short run but not the long run.
can earn profits or incur losses in the short run.
can never incur losses.
Price
$5
MC
$4
$3.5
$3
$2.5
$2
$1.25
$1
MR
$0
15
25 30
D
50
Quantity
82. Refer to the graph above. If the monopoly firm maximizes profit, it will produce _____
units of output and charge a price of _____ per unit.
A) 15; $3.50
B) 15; $2.00
C) 25; $2.50
D) 30; $2.00
Page 25
Please select the best possible answer (only one answer) for each question.
Price
$20
13.50
10
MC
7
M arket
Dem and
MR
325
500
750
1000
Quantity
83.
A)
B)
C)
D)
Refer to the graph above. The welfare loss of monopoly is:
1137.5.
1381.25.
2112.5.
2762.5.
The deadweight loss from monopoly exists because:
there are no net gains to society at the output level produced by a monopolist.
resource owners hired by the monopolist gain at the expense of consumers.
the monopolist produces at an output level at which no one can be made better off
without making someone worse off.
D) the marginal benefit of the monopolist's product to society exceeds the marginal cost.
Price
84.
A)
B)
C)
MC
A
B
C
D
MR
Quantity
85.
A)
B)
C)
D)
Refer to the graph above. Which area represents the welfare loss due to a monopolist?
A.
A + B.
B + C.
A + B + C.
Page 26
Please select the best possible answer (only one answer) for each question.
86. For a monopolist to earn an economic profit in the long run, which of the following
must happen?
A) There are barriers to entry.
B) Average total costs must fall.
C) Welfare loss due to monopoly must increase.
D) Fixed costs must be eliminated.
$9
$8
$7
Price
$6
$5
$4
$3
$2
$1
MR
$0
0
400 500
D
AC
MC
900 1,000
Quantity
87. Refer to the graph above. If this firm were forced to set price equal to marginal cost, it
would likely:
A) charge a price of $1.
B) charge a price of $2.
C) charge a price of $9.00.
D) eventually stop producing.
88.
A)
B)
C)
D)
An industry that has many sellers offering slightly differentiated products is called:
perfectly competitive.
monopolistically competitive.
oligopolistic.
monopolistic.
89.
A)
B)
C)
D)
If a monopolistically competitive firm is earning economic profits in the short-run, then:
these profits will persist in the long-run because of the firm's limited monopoly power.
these profits will be eliminated in the long-run as new firms enter the industry.
its output will increase in the long-run.
price will be driven down to minimum average total cost in the long-run.
Page 27
Please select the best possible answer (only one answer) for each question.
90.
A)
B)
C)
D)
The concentration ratio is defined as:
the percentage of industry output produced by a specific firm.
the percentage of total industry output produced by the top firms.
the squared value of the market shares of all the firms in an industry.
the squared value of the market shares of the largest four firms in the industry.
91.
A)
B)
C)
D)
The higher the concentration ratio in a given industry:
the closer the industry is to a perfectly competitive market structure.
the larger the market shares of the smallest four firms in the industry.
the closer the industry is to an oligopolistic or monopolistic type of market structure.
the smaller the market shares of the largest four firms in the industry.
92. Suppose there are only four airlines that service the air route between two cities. If
there is a barrier to entering the market (such as a limited number of gates), then the
market is best characterized as:
A) a pure monopoly.
B) monopolistically competitive.
C) oligopolistic.
D) perfectly competitive.
93.
A)
B)
C)
D)
Under monopolistic competition, a long-run equilibrium exists when price equals:
marginal cost.
average total cost.
minimum average total cost.
marginal revenue.
94.
A)
B)
C)
D)
In a long-run equilibrium, monopolistically competitive firms produce where:
marginal cost is equal to price.
marginal revenue is equal to price.
average total cost is equal to price.
marginal revenue is greater than marginal cost.
Page 28
Please select the best possible answer (only one answer) for each question.
Payoff Matrix
(Profits)
A Does not cheat
A Cheats
A $400,000
A $150,000
B Does not cheat
B -$150,000
B $150,000
A -$150,000
A0
B Cheats
B $400,000
B0
95.
A)
B)
C)
D)
Refer to the graph above. The competitive solution for the duopolists is:
A gains $150,00 and B gains $150,000.
Neither A nor B gain.
A gains $400,00 and B gains $400,000.
A gains $400,00 and B loses $150,000.
96.
A)
B)
C)
D)
Cartels are organizations that:
keep markets contestable.
encourage price wars.
coordinate the output and pricing decisions of a group of firms.
use predatory pricing to monopolize industries.
97.
A)
B)
C)
D)
All of the following are good examples of network externalities except:
telephones.
cigarettes.
computer software.
the Internet.
98. Which of the following statements about deregulation of the electricity industry in
Canada is true?
A) Government has deregulated the electricity industry because domestic producers are
facing fierce international competition.
B) Government has deregulated the entire electricity industry because the bureaucratic
costs of maintaining the regulations became too high.
C) Government is breaking the electricity industry into sub-industries and is deregulating
those portions that do not exhibit economies of scale.
D) Government has broken the electricity industry into sub-industries and deregulated those
portions that exhibit economies of scale.
Page 29
Please select the best possible answer (only one answer) for each question.
99.
A)
B)
C)
D)
100.
A)
B)
C)
D)
Suppliers facing ________ would be the least eager to organize to restrict output.
a less elastic demand.
a more elastic demand.
a perfectly inelastic demand.
a unit elastic demand curve.
A patent is:
a type of reverse engineering.
a type of natural monopoly.
a type of corporate takeover.
a type of legal monopoly
101. Suppose a lazy monopolist's fixed costs are higher than the fixed costs of an efficient
monopolist. In all other respects the monopolists are the same. Which of the following
statements about this lazy monopolist is true?
A) It charges a higher price than the monopolist producing efficiently.
B) It charges a lower price than the monopolist producing efficiently.
C) Its total revenue is the same as the monopolist producing efficiently.
D) It produces less than the monopolist producing efficiently.
Page 30
Please select the best possible answer (only one answer) for each question.
102. Refer to the graph above. To internalize the externality present in this market, the
government can:
A) tax consumers $1 per thousand.
B) tax consumers $2 per thousand.
C) subsidize consumers $1 per thousand.
D) subsidize consumers $2 per thousand.
103.
A)
B)
C)
D)
For an externality to occur:
someone whose desires are not reflected in market price must be affected by an activity.
someone whose desires are reflected in market price must be affected by an activity.
someone must have been physically hurt.
a spill-over cost must have occurred.
104.
A)
B)
C)
Government failure occurs when:
government fails to implement policy designed to correct market failure.
government intervention in the market to improve the market failure succeeds.
government intervention in the market to improve the market failure actually makes
things worse.
D) there is no need for government intervention into the market because there is no market
failure.
The central goal of the General Agreement on Tariffs and Trade (GATT) was to:
promote free trade associations and customs unions.
ensure a balance of trade between countries.
reduce trade barriers.
promote international security.
Dom estic
supply
$16.00
$14.00
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
Dom estic
dem and
00 00 00 00 00 00
12 24 36 48 60 72
74
00
0
61
00
Price
105.
A)
B)
C)
D)
Quantity
Page 31
Please select the best possible answer (only one answer) for each question.
106. Refer to the graph above for a small country that is a price-taker internationally. Assume
the foreign supply of this product is perfectly elastic at a price of $4 per unit. To have
the same effect on imports as a $2 per-unit tariff, the government would need to set an
import quota of:
A) 1200 units.
B) 1300 units.
C) 2500 units.
D) 5000 units.
107.
A)
B)
C)
D)
Gains from trade:
tend to be greater for large countries than for small ones.
tend to be smaller for countries producing goods with economies of scale.
exist only when a country has an absolute advantage in at least one product.
accrue primarily to traders when entry is limited.
108.
A)
B)
C)
D)
Efficiency wages:
increase costs in the short-run but reduce them in the long run.
raise costs in both the long-run and the short-run.
reduce costs in both the long-run and the short-run.
reduce costs in the short-run but increase them in the long-run.
109.
A)
B)
C)
D)
If a single union supplies all the labour in a market it could be called a:
monopoly.
monopsony.
bilateral monopoly.
closed shop.
110.
A)
B)
C)
D)
Generally, economists believe the higher the wage:
the higher the quantity of labour supplied.
the further to the right the supply of labour is.
the further to the left the supply of labour is.
the lower the quantity of labour supplied.
111.
A)
B)
C)
D)
Which of the following is the best example of an adverse selection problem?
Once individuals are insured, they are less likely to take efficient precautions.
Individuals are unlikely to pay for something if they can receive the benefits for free.
When a firm pollutes the air, families living nearby suffer the consequences.
Individuals who seek to purchase health insurance have better information about their
health than insurance companies.
Page 32
Please select the best possible answer (only one answer) for each question.
112.
A)
B)
C)
D)
The free rider problem:
can never prevent pure public goods from being supplied.
results because people act unselfishly.
results because people behave irrationally.
prevents voluntary cost-sharing from achieving the efficient output of a public good.
113. Economists are most likely to address the inefficiencies created by negative externalities
by:
A) direct regulation.
B) voluntary conservation.
C) making the price people pay reflect the cost of the externality.
D) leaving environmental problems alone so that the market can effectively deal with them.
114. A policy in which the marginal costs of undertaking the policy equal the marginal
benefits of that policy is best called an:
A) equality policy.
B) incentive policy.
C) optimal policy.
D) opportunity policy.
115.
A)
B)
C)
D)
Under NAFTA, trade barriers between Canada:
Mexico and the U.S. have been increased.
Mexico and the U.S. have been reduced.
and Europe have been increased.
and Europe have been reduced.
Cost (in domestic currency) of producing wine and an electric generator
France
Germany
(francs)
(marks)
Wine
10
20
Electric Generator
10,000
30,000
Page 33
Please select the best possible answer (only one answer) for each question.
116. Refer to the table above. From this we can conclude:
A) France has a comparative advantage in both goods.
B) France has a comparative advantage in wine and Germany has a comparative advantage
in electric generators.
C) Germany has a comparative advantage in wine and France has a comparative advantage
in electric generators.
D) Germany has a comparative advantage in both goods.
117.
A)
B)
C)
D)
Trade restrictions:
increase domestic competition.
increase prices to consumers.
benefit consumers.
have economic benefits that outweigh the economic costs.
118.
A)
B)
C)
D)
The central goal of the General Agreement on Tariffs and Trade (GATT) was to:
promote free trade associations and customs unions.
ensure a balance of trade between countries.
reduce trade barriers.
promote international security.
119.
A)
B)
C)
D)
A developing country can be expected to rely more on:
tariffs than quotas since tariffs are an easy way to raise tax revenue.
tariffs than quotas because tariffs are more effective means of reducing imports.
quotas than tariffs since quotas provide better protection for infant industries.
quotas than tariffs since quotas are easier to enforce and give rise to less corruption
among officials.
120.
A)
B)
C)
D)
An import quota is:
a tax on imported goods.
a type of regulatory trade restriction.
an all-out restriction on the import or export of a good.
a quantity limit placed on imports.
121. The distinguishing characteristic of a public good is that
A) once the good is produced, everyone gets to enjoy its benefits, whether they have paid
for the good or not.
B) private firms cannot produce public goods because they don't have access to the
technology necessary to produce the good.
C) the good is produced at a zero cost to the public sector.
D) individuals do not benefit from consuming the good, but society as a whole benefits
from its production.
Page 34
Please select the best possible answer (only one answer) for each question.
122. The ABC Computer Company spends a lot of money for advertising designed to convince
you that their personal computers are superior to all other personal computers. If the ABC
Company is successful,
A) the demand for ABC personal computers and the demand for other firms' personal
computers will become less price elastic.
B) the demand for ABC personal computers and the demand for other firms' personal
computers will become more price elastic.
C) the demand for ABC personal computers will become more price elastic but the
demand for other firms' personal computers will become less price elastic.
D) the demand for ABC personal computers will become less price elastic but the demand
for other firms' personal computers will become more price elastic.
123. If the percentage change in quantity demanded for a product is less than infinite but greater
than the percentage change in price, then the demand for the good is
A) inelastic.
B) elastic.
C) unitarily elastic.
D) perfectly elastic.
124. The slope of a horizontal line is
A) negative.
B) zero.
C) continually changing.
D) infinite.
125. For Matthew, the marginal utility of the tenth soda in a day is zero. This
A) implies that Matthew's demand curve for sodas per day will become upward sloping at
10 sodas per day.
B) is impossible because each additional unit of consumption of any good must provide
positive marginal utility.
C) implies that at a zero price Matthew's demand curve will intersect the quantity axis at
10.
D) implies Matthew must maximize utility by consuming ten sodas per day.
126. The limits imposed on household choices by income, wealth, and product prices are the
A) choice set.
B) budget constraint.
C) assumption of perfect knowledge.
D) preference set.
Page 35
Please select the best possible answer (only one answer) for each question.
127. The reason that opportunity costs arise is that
A) an economy relies on money to facilitate exchange of goods and services.
B) resources are scarce.
C) there are no alternative decisions that could be made.
D) people have unlimited wants.
128. Which of the following would an economist classify as capital?
A) natural gas
B) a typewriter
C) a corporate bond
D) a federal government employee
129. Consumer surplus will be zero at any quantity if
A) supply is perfectly elastic.
B) supply is perfectly inelastic.
C) demand is perfectly elastic.
D) demand is perfectly inelastic.
130. Jane has $500 a week to spend on food and clothing. The price of food is $10 and the price
of clothing is $25. Which of the following pairs of food and clothing are in Jane's choice
set?
A) 20 units of clothing and 50 units of food
B) 50 units of clothing and 50 units of food
C) 10 units of clothing and 25 units of food
D) 0 units of clothing and 500 units of food
+___________________________________________________________________________
Answer Key
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
D
B
A
C
C
A
B
B
A
D
A
D
C
A
A
B
Page 36
Please select the best possible answer (only one answer) for each question.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
B
D
D
A
A
B
D
B
B
C
A
D
D
A
D
A
B
C
C
B
B
B
B
D
D
B
A
B
C
B
C
C
D
C
C
B
C
B
A
C
C
C
D
C
D
A
Page 37
Please select the best possible answer (only one answer) for each question.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95.
96.
97.
98.
99.
100.
101.
102.
103.
104.
105.
106.
107.
108.
B
D
D
C
A
B
B
C
C
A
B
B
A
B
C
D
C
B
C
A
B
D
C
A
D
B
B
B
C
C
B
C
B
C
B
C
B
D
C
D
A
C
C
C
D
A
Page 38
Please select the best possible answer (only one answer) for each question.
109.
110.
111.
112.
113.
114.
115.
116.
117.
118.
119.
120.
121.
122.
123.
124.
125.
126.
127.
128.
129.
130.
A
A
D
D
C
C
B
C
B
C
A
D
A
D
B
B
C
B
B
B
C
C
Page 39