Practice Exam – 2 – ECO 2010
1.
Who is it that ultimately determines the demand for a product or service?
a. those who buy the product or service
b. the government
c. the producers who create the product or service
d. those who supply the raw materials used in the production of the good or service
2.
The behavior of buyers is represented by
a. demand.
b. supply.
c. a market.
d. competition.
3.
According to the law of demand price and quantity
a. supplied are inversely related.
b. demanded are inversely related.
c. demanded are positively related.
d. supplied are positively related.
4.
The sum of all individual demand curves for a product is called
a. total demand.
b. consumption demand.
c. summation demand.
d. market demand.
5.
When quantity demanded decreases at every price we know that the demand curve has
a. shifted to the left.
b. shifted to the right.
c. not changed, but we have moved down the curve to a new point.
d. not changed, but we have moved up the curve to a new point.
6.
Suppose you make jewelry. If the price of gold falls, we would expect you to
a. be willing and able to produce less jewelry than before at each possible price.
b. be willing and able to produce more jewelry than before at each possible price.
c. face a greater demand for your jewelry.
d. face a weaker demand for your jewelry.
7.
On the graph, the movement from S to S1 is called
a. a decrease in supply.
b. a decrease in quantity supplied.
c. an increase in supply.
d. an increase in quantity supplied.
8.
If a person only occasionally enjoys a cup of coffee, his demand for coffee would be
a. horizontal.
b. inelastic.
c. unit elastic.
d. elastic.
9.
According to the graph, the section of the demand curve labeled C represents the
a. elastic section of the demand curve.
b. perfectly elastic section of the demand curve.
c. unit elastic section of the demand curve.
d. inelastic section of the demand curve.
10.
At the midpoint of a downward-sloping linear demand curve, price elasticity would be
a. inelastic.
b. elastic.
c. unit elastic.
d. perfectly elastic.
11.
a.
b.
c.
d.
For a horizontal demand curve, slope
is undefined and elasticity equals 0.
equals 0 and elasticity is undefined.
and elasticity are both undefined.
and elasticity are both equal to 0.
12.
The demand for caviar tends to be income
a. elastic because it is relatively expensive.
b. inelastic because it is packaged in small containers.
c. elastic because buyers generally feel that they can do without it.
d. inelastic because it is scarce.
13.
When a supply curve is relatively flat,
a. the supply is relatively elastic.
b. the supply is relatively inelastic.
c. sellers are not at all responsive to a change in price.
d. quantity supplied changes slightly when the price changes.
14.
If wheat farmers know that the demand for wheat is inelastic, and they want to increase their total
revenue, they should all
a. plant more wheat so that they would be able to sell more each year.
b. increase spending on fertilizer in an attempt to produce more on the acres they farm.
c. reduce the number of acres they plant in wheat.
d. use better machinery.
15.
According to the graph shown, a binding price ceiling would exist at a price of
a. $14.00.
b. $12.00.
c. $10.00.
d. $8.00.
16.
Price ceilings and price floors
a. are desirable because they make markets more efficient as well as equitable.
b. cause surpluses and shortages to persist since price cannot adjust to the market equilibrium price.
c. can be enacted to restore a market to equilibrium.
d. are imposed because they can make the poor in the economy better off without causing adverse
effects.
17.
In the United States, when minimum wage laws are established, employers must
a. pay the going (equilibrium) wage in the market.
b. pay a wage equal to or higher than the minimum wage.
c. hire a minimum number of employees which is set by the government.
d. hire only those workers who will work for the established minimum wage.
18.
The term tax incidence refers to the
a. Boston Tea Party.
b. "flat tax" movement.
c. division of the tax burden between buyers and sellers.
d. division of the tax burden between sales taxes and income taxes.
19.
According to the graph, the price buyers will pay after the tax is imposed is
a. $18.00.
b. $14.00.
c. $12.00.
d. d. $8.00.
20.
If buyers are required to pay a $0.10 tax per bag on Hershey’s kisses, the demand for kisses will shift
a. up by $0.10 per bag.
b. up by $0.05 per bag.
c. down by $0.10 per bag.
d. down by $0.05 per bag.
21.
A tax on the sellers of TVs
a. leads sellers to supply a smaller quantity at every price.
b. leads buyers to demand a smaller quantity at every price.
c. leads sellers to supply a larger quantity at every price.
d. causes the supply curve to shift to the right.
22.
In the end, tax incidence
a. depends on the legislated burden.
b. is entirely random.
c. depends on the forces of supply and demand.
d. falls entirely on buyers or entirely on sellers.
23.
Which of the following is the MOST likely to result from the imposition of a price floor in the market
for rental cars?
a. free gasoline given to people as an incentive to a rent car
b. poor engine maintenance in rental cars
c. an accumulation of dirt on the interior of rental cars
d. slow replacement of old rental cars with new ones
24.
Welfare economics is the study of
a. the well-being of less fortunate people.
b. welfare programs in the United States.
c. the effect of income redistribution on work effort.
d. how the allocation of resources affects economic well-being.
25.
On a graph, consumer surplus would be the area
a. between the demand and supply curves.
b. below the demand curve and above price.
c. below the price and above the supply curve.
d. below the demand curve to the right of equilibrium price.
26.
Which of the following would NOT be true concerning a seller’s cost?
a. A seller would be eager to sell her product at a price higher than her cost.
b. A seller would refuse to sell her product at a price lower than her cost.
c. A seller would be indifferent about selling her product at a price equal to her cost.
d. Since sellers cannot set the price for their product, they must be willing to sell their product at any
price.
27.
We can say that the allocation of resources is efficient if
a. producer surplus is maximized.
b. consumer surplus is maximized.
c. total surplus is maximized.
d. None of the above are correct.
28.
According to the graph shown, the efficient price-quantity combination is
a. P1 and Q1.
b. P2 and Q2.
c. P3 and Q1.
d. P4 and 0.
29.
Whether a tax is levied on the buyer or seller of the good does not matter because
a. sellers always bear the full burden of the tax.
b. buyers always bear the full burden of the tax.
c. buyers and sellers will share the burden of the tax.
d. sellers bear the full burden if the tax is levied on them, and buyers bear the full burden if the tax is
levied on them.
30.
Deadweight loss measures the
a. loss in a market to buyers and sellers that is not offset by an increase in government revenue.
b. loss in revenue to the government when buyers choose to buy less of the product.
c. loss of efficiency in a market as a result of government intervention.
d. lost revenue to businesses because of higher prices to consumers from the tax.
ANSWERS
ANSWER: a.
those who buy the product or service
TYPE: M SECTION: 1 DIFFICULTY: 2
1
ANSWER: a.
demand.
TYPE: M SECTION: 2 DIFFICULTY: 1
2
ANSWER: b.
demanded are inversely related.
TYPE: M SECTION: 2 DIFFICULTY: 2
3
ANSWER: d.
market demand.
TYPE: M SECTION: 2 DIFFICULTY: 1
4
ANSWER: a.
shifted to the left.
TYPE: M SECTION: 2 DIFFICULTY: 2
5
ANSWER: b.
be willing and able to produce more jewelry than before at each possible price.
TYPE: M SECTION: 3 DIFFICULTY: 2
6
ANSWER: c.
an increase in supply.
TYPE: M SECTION: 3 DIFFICULTY: 2
7
ANSWER: d.
elastic.
TYPE: M SECTION: 1 DIFFICULTY: 2
8
ANSWER: d.
inelastic section of the demand curve.
TYPE: M SECTION: 1 DIFFICULTY:2
9
ANSWER: c. unit elastic.
TYPE: M SECTION: 1 DIFFICULTY: 2
10
ANSWER: b. equals 0 and elasticity is undefined.
TYPE: M SECTION: 1 DIFFICULTY: 3
11
ANSWER: c. elastic because buyers generally feel that they can do without it.
TYPE: M SECTION: 1 DIFFICULTY: 1
12
ANSWER: a. the supply is relatively elastic.
TYPE: M SECTION: 2 DIFFICULTY: 2
13
ANSWER: c. reduce the number of acres they plant in wheat.
TYPE: M SECTION: 3 DIFFICULTY: 3
14
ANSWER: d. $8.00.
TYPE: M SECTION: 1 DIFFICULTY: 2
15
cause surpluses and shortages to persist since price cannot adjust to the market
equilibrium price.
TYPE: M SECTION: 1 DIFFICULTY: 2
16
ANSWER: b.
ANSWER: b. pay a wage equal to or higher than the minimum wage.
TYPE: M SECTION: 1 DIFFICULTY: 2
17
ANSWER: c. division of the tax burden between buyers and sellers.
TYPE: M SECTION: 2 DIFFICULTY: 1
18
ANSWER: a. $18.00.
TYPE: M SECTION: 2 DIFFICULTY: 3
19
ANSWER: c. down by $0.10 per bag.
TYPE: M SECTION: 2 DIFFICULTY: 2
20
ANSWER: a. leads sellers to supply a smaller quantity at every price.
TYPE: M SECTION: 2 DIFFICULTY: 3
21
ANSWER: c. depends on the forces of supply and demand.
TYPE: M SECTION: 2 DIFFICULTY: 2
22
ANSWER: a. free gasoline given to people as an incentive to a rent car
TYPE: M SECTION: 1 DIFFICULTY: 2
23
ANSWER: d. how the allocation of resources affects economic well-being.
TYPE: M DIFFICULTY: 1
24
ANSWER: b. below the demand curve and above price.
TYPE: M SECTION: 1 DIFFICULTY: 2
25
Since sellers cannot set the price for their product, they must be willing to sell their
product at any price.
TYPE: M SECTION: 2 DIFFICULTY: 2
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ANSWER: d.
ANSWER: c. total surplus is maximized.
TYPE: M SECTION: 3 DIFFICULTY: 2
27
ANSWER: b. P2 and Q2.
TYPE: M SECTION: 3 DIFFICULTY: 1
28
ANSWER: c. buyers and sellers share the burden of the tax.
TYPE: M SECTION: 2 DIFFICULTY: 2
29
loss in a market to buyers and sellers that is not offset by an increase in government
revenue.
TYPE: M SECTION: 1 DIFFICULTY: 2
30
ANSWER: a.