Mock exam 1
True/False
Indicate whether the statement is true or false.
____
1. When a production possibilities frontier is bowed outward, the opportunity cost of the first good in terms
of the second good increases as more of the second good is produced.
____
2. Positive statements can be evaluated using data alone, but normative statements cannot.
____
3. The gains from specialization and trade are based on absolute advantage.
____
4. Measures of elasticity enhance our ability to study the magnitudes of changes.
____
5. A binding price floor may not help all sellers, but it does not hurt any sellers.
____
6. A tax on buyers shifts the demand curve and the supply curve.
____
7. Firms operating in perfectly competitive markets try to maximize profits.
____
8. A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm
receives for the typical gallon of milk.
____
9. As the number of firms in an oligopoly becomes very large, the price effect disappears.
____ 10. The labor-supply curve is affected by the trade-off between labor and leisure.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 11. If the price of visiting a doctor were fixed below the current price, then we would expect
a. an increase in the number of visits people want to make and an increase in the number of
visits health care providers want to provide.
b. an increase in the number of visits people want to make and a decrease in the number of
visits health care providers want to provide.
c. a decrease in the number of visits people want to make and an increase in the number of
visits health care providers want to provide.
d. a decrease in the number of visits people want to make and a decrease in the number of
visits health care providers want to provide.
____ 12. Which of the following firms is likely to have the greatest market power?
a. An electric company
b. A farmer
c. A grocery store
d. A local electronics retailer
Figure 2-2
____ 13. Refer to Figure 2-2. Alisha regularly buys fruits and vegetables at a grocery store. Santo regularly
pays a lawn-care company to mow his lawn. If the flow of fruits and vegetables from the grocery store
to Alisha is represented by an arrow from Box C to Box B of this circular-flow diagram, then the money
paid by Santo to the lawn-care company is represented by an arrow
a. from Box A to Box D.
b. from Box B to Box C.
c. from Box C to Box B.
d. from Box D to Box A.
____ 14. Which of the following statements best captures the relationship between microeconomics and
macroeconomics?
a. For the most part, microeconomists are unconcerned with macroeconomics, and
macroeconomists are unconcerned with microeconomics.
b. Microeconomists study markets for small products, whereas macroeconomists study
markets for large products.
c. Microeconomics and macroeconomics are distinct from one another, yet they are closely
related.
d. Microeconomics is oriented toward policy studies, whereas macroeconomics is oriented
toward theoretical studies.
____ 15. A demand curve shows the relationship
a. between income and quantity demanded.
b. between price and income.
c. between price and quantity demanded.
d. among income, price, and quantity demanded.
____ 16. Suppose Susan can wash three windows per hour or she can iron six shirts per hour. Paul can wash two
windows per hour or he can iron five shirts per hour.
a. Susan has an absolute advantage over Paul in washing windows.
b. Susan has a comparative advantage over Paul in washing windows.
c. Paul has a comparative advantage over Susan in ironing shirts.
d. All of the above are correct.
Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant
rate.
Aruba
Iceland
Labor Hours
Needed to Make 1
Cooler
Radio
2
5
1
4
____ 17. Refer to Table 3-2. Aruba’s opportunity cost of one cooler is
a. 0.4 radio and Iceland’s opportunity cost of one cooler is 0.25 radio.
b. 0.4 radio and Iceland’s opportunity cost of one cooler is 4 radios.
c. 2.5 radios and Iceland’s opportunity cost of one cooler is 0.25 radio.
d. 2.5 radios and Iceland’s opportunity cost of one cooler is 4 radios.
____ 18. Which of the following might cause the demand curve for an inferior good to shift to the left?
a. a decrease in income
b. an increase in the price of a substitute
c. an increase in the price of a complement
d. None of the above is correct.
Figure 4-3
price
D'
D
quantity
____ 19. Refer to Figure 4-3. If the demand curve shifts from D to D’, then
a. firms would be willing to supply less of the good than before at each possible price.
b. people are willing to buy less of the good than before at each possible price.
c. people’s incomes evidently have decreased.
d. the price of the product has increased, causing consumers to buy less of the product.
____ 20. The difference between a supply schedule and a supply curve is that
a. a supply schedule incorporates demand and a supply curve does not.
b. a supply schedule incorporates profit and a supply curve does not.
c. a supply schedule can shift, but a supply curve cannot shift.
d. a supply schedule is a table and a supply curve is drawn on a graph.
____ 21. Which of the following might cause the supply curve for an inferior good to shift to the right?
a. An increase in input prices.
b. A decrease in consumer income.
c. An improvement in production technology that makes production of the good more
profitable.
d. A decrease in the number of sellers in the market.
____ 22. Which of the following events would cause the price of oranges to fall?
a. There is a shortage of oranges.
b. An article is published in which it is claimed that tangerines cause a serious disease, and
oranges and tangerines are substitutes.
c. The price of land throughout Florida decreases, and Florida produces a significant
proportion of the nation’s oranges.
d. All of the above are correct.
____ 23. For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded.
Which of the following statements is most likely applicable to this good?
a. The relevant time horizon is short.
b. The good is a necessity.
c. The market for the good is broadly defined.
d. There are many close substitutes for this good.
____ 24. A perfectly elastic demand implies that
a. buyers will not respond to any change in price.
b. any rise in price above that represented by the demand curve will result in a quantity
demanded of zero.
c. quantity demanded and price change by the same percent as we move along the demand
curve.
d. price will rise by an infinite amount when there is a change in quantity demanded.
Table 5-5
Income
$30,000
$40,000
Quantity of Good X
Purchased
2
6
Quantity of Good Y
Purchased
20
10
____ 25. Refer to Table 5-5. Using the midpoint method, the income elasticity of demand for good Y is
a. 2.33, and good Y is a normal good.
b. -2.33, and good Y is an inferior good.
c. -0.43, and good Y is a normal good.
d. -0.43, and good Y is an inferior good.
____ 26. Which of the following is the most likely explanation for the imposition of a price ceiling on the market
for milk?
a. Policymakers have studied the effects of the price ceiling carefully, and they recognize
that the price ceiling is advantageous for society as a whole.
b. Buyers of milk, recognizing that the price ceiling is good for them, have pressured
policymakers into imposing the price ceiling.
c. Sellers of milk, recognizing that the price ceiling is good for them, have pressured
policymakers into imposing the price ceiling.
d. Buyers and sellers of milk have agreed that the price ceiling is good for both of them and
have therefore pressured policymakers into imposing the price ceiling.
____ 27. A drought in California destroys many red grapes.
the market for red grapes
As a result of the drought, the consumer surplus in
a.
b.
c.
d.
increases, and the consumer surplus in the market for red wine increases.
increases, and the consumer surplus in the market for red wine decreases.
decreases, and the consumer surplus in the market for red wine increases.
decreases, and the consumer surplus in the market for red wine decreases.
Table 7-7
The only four producers in a market have the following cost:
Seller
Charlie
Quinn
Wrex
Maxine
Cost
$50
$100
$150
$200
____ 28. Refer to Table 7-7. If the sellers bid against each other for the right to sell the good to a consumer, then
the producer surplus will be
a. $0 or slightly more.
b. $50 or slightly less.
c. $150 or slightly less.
d. $200 or slightly more.
____ 29. If the supply of land is fixed, the burden of a tax on land falls
a. partly on landowners and partly on users of land.
b. entirely on the renters or users of land.
c. entirely on workers.
d. entirely on landowners.
Figure 10-5
____ 30. Refer to Figure 10-5. Which price and quantity combination represents the social optimum?
a. P0 and Q1.
b. P2 and Q1.
c. P1 and Q0.
d. P2 and Q0.
Figure 10-9
Price
Panel (a)
Supply
P1
Demand
Q1
Quantity
Price
Price
Panel (b)
Panel (c)
Social cost
Supply
Supply
P3a
P4a
P2
P5
P3b
P4b
Social value
Demand
Demand
Q2
Q3
Quantity
Q4
Q5
____ 31. Refer to Figure 10-9. Which graph represents a market with a positive externality?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Both (b) and (c) are correct.
Figure 13-3
Quantity
100
Cost
90
80
70
60
50
40
30
20
10
2
4
6
8
10
12
14
16
Quantity
____ 32. Refer to Figure 13-3. Which of the following statements best captures the nature of the underlying
production function?
a. Output increases at a decreasing rate with additional units of input.
b. Output increases at an increasing rate with additional units of input.
c. Output decreases at a decreasing rate with additional units of input.
d. Output decreases at an increasing rate with additional units of input.
Table 13-5
The Flying Elvis Copter Rides
Quantity Total
Fixed
Cost
Cost
Variable
Cost
Marginal
Cost
0
1
2
3
$0
B
I
O
-C
$120
P
$50
$150
G
M
$50
A
H
N
Average
Fixed
Cost
-D
J
Q
Average
Variable
Cost
-E
K
$120
Average
Total
Cost
-F
L
R
____ 33. Refer to Table 13-5. What is the value of L?
a. $60
b. $135
c. $240
d. $270
____ 34. In the long run, when marginal cost is above average total cost, the average total cost curve exhibits
a. economies of scale.
b. diseconomies of scale.
c. constant returns to scale.
d. efficient scale.
Figure 13-9
The figure below depicts average total cost functions for a firm that produces automobiles.
____ 35. Refer to Figure 13-9. Which of the curves is most likely to characterize the short-run average total cost
curve of the smallest factory?
a. ATCA
b. ATCB
c. ATCC
d. ATCD
____ 36. A firm in a competitive market has the following cost structure:
Output
0
1
2
3
4
5
ATC
-$10
$8
$7
$8
$10
If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm
produce to maximize profit?
a. 1 unit
b. 2 units
c. 3 units
d. 4 units
Figure 15-3
Price
P
MC
A
B
C
ATC
F
G
H
D
O
J K
L
Quantity
MR
____ 37. Refer to Figure 15-3. What price will the monopolist charge?
a. A
b. B
c. C
d. F
____ 38. Suppose when a monopolist produces 75 units its average revenue is $10 per unit, its marginal revenue is
$5 per unit, its marginal cost is $6 per unit, and its average total cost is $5 per unit. What can we conclude
about this monopolist?
a. The monopolist is currently maximizing profits, and its total profits are $375.
b. The monopolist is currently maximizing profits, and its total profits are $300.
c. The monopolist is not currently maximizing profits; it should produce more units and
charge a lower price to maximize profits.
d. The monopolist is not currently maximizing profits; it should produce fewer units and
charge a higher price to maximize profits.
____ 39. Which of the following is not a characteristic of monopolistic competition?
a. a large number of sellers
b. firms are price takers
c. free entry into the market
d. a differentiated product
____ 40. New firms will likely enter a monopolistically competitive market when price exceeds
a. marginal revenue.
b. average revenue.
c. marginal cost.
d. average total cost.
____ 41. A firm is a price taker
a. only when the market is perfectly competitive.
b. only when the market is perfectly competitive or monopolistic.
c. only when the market is perfectly competitive or monopolistically competitive.
d. when the market is perfectly competitive, monopolistically competitive, or monopolistic.
____ 42. Barb and Sue are competitors in a local market. Each is trying to decide if it is better to advertise on TV,
on radio, or not at all. If they both advertise on TV, each will earn a profit of $5,000. If they both advertise
on radio, each will earn a profit of $7,000. If neither advertises at all, each will earn a profit of $10,000. If
one advertises on TV and other advertises on radio, then the one advertising on TV will earn $8,000 and
the other will earn $3,000. If one advertises on TV and the other does not advertise, then the one
advertising on TV will earn $15,000 and the other will earn $2,000. If one advertises on radio and the
other does not advertise, then the one advertising on radio will earn $12,000 and the other will earn
$4,000. If both follow their dominant strategy, then Barb will
a. advertise on TV and earn $5,000.
b. advertise on radio and earn $7,000.
c. not advertise at all and earn $10,000.
d. None of the above is correct. Barb and Sue do not have dominant strategies.
____ 43. A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser
into its Windows operating system, to be sold as one unit. This practice is known as
a. tying.
b. predation.
c. wholesale maintenance.
d. retail maintenance.
____ 44. Which of the following would shift a market labor supply curve to the right?
a. an increase in the price of output
b. an increase in immigration
c. a labor-saving technological change
d. a decrease in the wage rate
____ 45. A change in the supply of one factor of production
a. will not change either the marginal productivities or the prices of other factors.
b. will not change the prices of other factors, but it may change their marginal productivities.
c. will not change the marginal productivities of other factors, but it may change their prices.
d. changes the marginal productivities and the prices of other factors.
Short Answer
46. Place each of the following in the correct location in the table.
Rival?
Excludable?
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
Yes
No
Congested toll roads
Knowledge
Fish in the ocean
National defense
Congested nontoll roads
Cable TV
The environment
Fire protection
Ice-cream cones
Uncongested toll roads
Yes
Private Goods
Common Resources
No
Natural Monopolies
Public Goods
k.
l.
Clothing
Uncongested nontoll roads
47. Describe the difference between average revenue and marginal revenue. Why are both of these revenue
measures important to a profit-maximizing firm?
Mock exam1
Answer Section
TRUE/FALSE
1. ANS:
NAT:
TOP:
2. ANS:
NAT:
TOP:
3. ANS:
NAT:
TOP:
4. ANS:
NAT:
MSC:
5. ANS:
NAT:
MSC:
6. ANS:
NAT:
MSC:
7. ANS:
NAT:
MSC:
8. ANS:
NAT:
MSC:
9. ANS:
NAT:
10. ANS:
NAT:
MSC:
F
PTS: 1
DIF: 2
REF: 2-1
Analytic
LOC: Understanding and applying economic models
Production possibilities frontier | Opportunity cost
MSC: Interpretive
T
PTS: 1
DIF: 2
REF: 2-2
Analytic
LOC: The study of economics and definitions in economics
Positive statements | Normative statements
MSC: Interpretive
F
PTS: 1
DIF: 1
REF: 3-2
Analytic
LOC: Gains from trade, specialization and trade
Gains from trade
MSC: Definitional
T
PTS: 1
DIF: 1
REF: 5-0
Analytic
LOC: Elasticity
TOP: Price elasticity of demand
Definitional
F
PTS: 1
DIF: 2
REF: 6-1
Analytic
LOC: Supply and demand
TOP: Price floors
Interpretive
F
PTS: 1
DIF: 2
REF: 6-2
Analytic
LOC: Supply and demand
TOP: Taxes
Interpretive
T
PTS: 1
DIF: 2
REF: 14-1
Analytic
LOC: Perfect competition
TOP: Profit maximization
Applicative
F
PTS: 1
DIF: 1
REF: 14-2
Analytic
LOC: Perfect competition
TOP: Sunk costs
Interpretive
T
PTS: 1
DIF: 2
REF: 17-1
Analytic
LOC: Oligopoly
TOP: Oligopoly
MSC: Interpretive
T
PTS: 1
DIF: 2
REF: 18-2
Analytic
LOC: Labor markets
TOP: Labor supply
Interpretive
MULTIPLE CHOICE
11. ANS:
NAT:
TOP:
12. ANS:
NAT:
TOP:
13. ANS:
NAT:
TOP:
14. ANS:
B
PTS: 1
DIF: 2
REF: 1-2
Analytic
LOC: Markets, market failure, and externalities
Markets
MSC: Applicative
A
PTS: 1
DIF: 2
REF: 1-2
Analytic
LOC: Markets, market failure, and externalities
Market power
MSC: Applicative
B
PTS: 1
DIF: 3
REF: 2-1
Analytic
LOC: Understanding and applying economic models
Circular-flow diagram
MSC: Analytical
C
PTS: 1
DIF: 2
REF: 2-1
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
NAT:
TOP:
ANS:
NAT:
MSC:
ANS:
NAT:
TOP:
ANS:
NAT:
TOP:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
ANS:
NAT:
TOP:
ANS:
Analytic
LOC: The study of economics and definitions in economics
Microeconomics | Macroeconomics
MSC: Interpretive
C
PTS: 1
DIF: 2
REF: 2-5
Analytic
LOC: Supply and demand
TOP: Demand
Interpretive
D
PTS: 1
DIF: 2
REF: 3-2
Analytic
LOC: Gains from trade, specialization and trade
Absolute advantage | Comparative advantage
MSC: Applicative
A
PTS: 1
DIF: 2
REF: 3-2
Analytic
LOC: Scarcity, tradeoffs, and opportunity cost
Opportunity cost
MSC: Applicative
C
PTS: 1
DIF: 3
REF: 4-2
Analytic
LOC: Supply and demand
TOP: Complements
Analytical
B
PTS: 1
DIF: 2
REF: 4-2
Analytic
LOC: Supply and demand
TOP: Demand curve
Interpretive
D
PTS: 1
DIF: 2
REF: 4-3
Analytic
LOC: Supply and demand
TOP: Supply schedule | Supply curve
Interpretive
C
PTS: 1
DIF: 3
REF: 4-3
Analytic
LOC: Supply and demand
TOP: Technology
Analytical
C
PTS: 1
DIF: 2
REF: 4-4
Analytic
LOC: Equilibrium TOP: Equilibrium MSC: Applicative
D
PTS: 1
DIF: 3
REF: 5-1
Analytic
LOC: Elasticity
TOP: Price elasticity of demand
Analytical
B
PTS: 1
DIF: 2
REF: 5-1
Analytic
LOC: Elasticity
TOP: Perfectly elastic demand
Interpretive
B
PTS: 1
DIF: 2
REF: 5-1
Analytic
LOC: Elasticity
TOP: Income elasticity of demand
Applicative
B
PTS: 1
DIF: 2
REF: 6-1
Analytic
LOC: Supply and demand
TOP: Price ceilings
Interpretive
D
PTS: 1
DIF: 3
REF: 7-1
Analytic
LOC: Supply and demand
TOP: Consumer surplus
Applicative
B
PTS: 1
DIF: 3
REF: 7-2
Analytic
LOC: Supply and demand
TOP: Price | Cost | Producer surplus
Analytical
D
PTS: 1
DIF: 2
REF: 8-3
Analytic
LOC: Elasticity
TOP: Land tax
MSC: Interpretive
B
PTS: 1
DIF: 2
REF: 10-1
Analytic
LOC: Markets, market failure, and externalities
Negative externalities
MSC: Interpretive
C
PTS: 1
DIF: 2
REF: 10-1
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
NAT:
TOP:
ANS:
NAT:
MSC:
ANS:
NAT:
cost
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
TOP:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
ANS:
NAT:
MSC:
Analytic
LOC:
Positive externalities
A
PTS:
Analytic
LOC:
Interpretive
B
PTS:
Analytic
LOC:
Markets, market failure, and externalities
MSC: Interpretive
1
DIF: 2
REF: 13-2
Costs of production
TOP: Production function
1
DIF: 3
Costs of production
REF: 13-3
TOP: Average total cost
Analytical
B
PTS: 1
DIF: 2
REF:
Analytic
LOC: Costs of production
TOP:
Applicative
A
PTS: 1
DIF: 1
REF:
Analytic
LOC: Costs of production
TOP:
Analytical
C
PTS: 1
DIF: 3
REF:
Analytic
LOC: Perfect competition
TOP:
Analytical
B
PTS: 1
DIF: 2
REF:
Analytic
LOC: Monopoly
TOP: Monopoly
MSC:
D
PTS: 1
DIF: 3
REF:
Analytic
LOC: Monopoly
TOP: Profit maximization
Analytical
B
PTS: 1
DIF: 1
REF:
Analytic
LOC: Monopolistic competition
TOP:
Definitional
D
PTS: 1
DIF: 2
REF:
Analytic
LOC: Monopolistic competition
TOP:
Interpretive
A
PTS: 1
DIF: 1
REF:
Analytic
LOC: Monopolistic competition
Perfect competition | Monopolistic competition
MSC:
A
PTS: 1
DIF: 3
REF:
Analytic
LOC: Oligopoly
TOP: Dominant strategy
Applicative
A
PTS: 1
DIF: 2
REF:
Analytic
LOC: The role of government
TOP:
Interpretive
B
PTS: 1
DIF: 2
REF:
Analytic
LOC: Labor markets
TOP:
Applicative
D
PTS: 1
DIF: 2
REF:
Analytic
LOC: Labor markets
TOP:
Applicative
SHORT ANSWER
46. ANS:
Rival?
| Marginal
13-4
Diseconomies of scale
13-4
Average total cost
14-2
Profit maximization
15-2
Interpretive
15-2
16-1
Monopolistic competition
16-2
Long-run equilibrium
16-4
Interpretive
17-2
17-3
Tying
18-2
Labor supply
18-4
Factor markets
Yes
Excludable?
No
Yes
Private Goods
 Ice-cream cones
Clothing
Congested toll roads
Common Resources
Fish in the ocean
The environment
Congested nontoll roads
No
Natural Monopolies
Fire protection
Cable TV
Uncongested toll roads
Public Goods
National defense
Knowledge
Uncongested nontoll roads
PTS: 1
DIF: 1
REF: 11-1
NAT: Analytic
LOC: The study of economics and definitions in economics
TOP: Excludability | Rivalry in consumption
MSC: Applicative
47. ANS:
Average revenue is total revenue divided by the quantity of output. Marginal revenue is the change in total
revenue from the sale of each additional unit of output. Marginal revenue is used to determine the profitmaximizing level of production, and average revenue is used to help determine the level of profits. Note
that for all firms, price equals average revenue because AR=(PxQ)/Q=P. But only for a firm operating in
a perfectly competitive industry does price also equal marginal revenue.
PTS: 1
DIF: 2
LOC: Perfect competition
REF: 14-1
TOP: Price
NAT: Analytic
MSC: Definitional