Economics - Canadian Edition, 15e (Ragan)
Chapter 1 Economic Issues and Concepts
1.1 What Is Economics?
1) Which of the following statements provides the best definition of economics?
A) The study of the most equitable distribution of scarce resources.
B) The study of the use of scarce resources to satisfy unlimited human wants.
C) The study of the production of goods and services.
D) The study of the productive capacity of a nation's factors of production.
E) The study of production and increasing its efficiency.
Answer: B
Diff: 1
Topic: 1.1a. economics/resources
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
2) Society's resources are often divided into broad categories. They are
A) goods and services.
B) factors of consumption.
C) land, labour, and capital.
D) population and natural resources.
E) tangible commodities and intangible commodities.
Answer: C
Diff: 1
Topic: 1.1a. economics/resources
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
3) Consider the following list: a worker with training in video gaming technology, 10 hectares of arable land in
southern Ontario, a fishing trawler in Nova Scotia, an ice-cream truck at a park in Quebec. Each of these is an
example of
A) a factor of production.
B) a capital resource.
C) a commodity.
D) goods and services.
E) an economic service.
Answer: A
Diff: 1
Topic: 1.1a. economics/resources
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
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4) A basic underlying point in economics is that
A) people have unlimited wants in the face of limited resources.
B) there are unlimited resources.
C) governments should satisfy the needs of the people.
D) people have limited wants in the face of limited resources.
E) governments should never interfere in the workings of a market economy.
Answer: A
Diff: 1
Topic: 1.1b. scarcity and choice
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
5) Which of the following best describes the study of economics?
A) how to plan an economy
B) how to limit human wants so that scarce resources are sufficient
C) why resources are scarce
D) the allocation of scarce resources among alternative uses
E) how to distribute income as equally as possible
Answer: D
Diff: 1
Topic: 1.1b. scarcity and choice
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
6) Economics can best be described as
A) the study of how a society ought to allocate its resources.
B) the study of the use of scarce resources to satisfy unlimited human wants.
C) the application of sophisticated mathematical models to address social problems.
D) a normative science.
E) the study of how to reduce inflation and unemployment.
Answer: B
Diff: 1
Topic: 1.1b. scarcity and choice
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
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7) Scarcity is likely to be
A) a problem that will be solved by the proper use of available resources.
B) unique to the twentieth century.
C) a problem that will always exist.
D) a result of the work ethic.
E) eliminated with a better understanding of economics.
Answer: C
Diff: 2
Topic: 1.1b. scarcity and choice
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
8) Which of the following statements best describes the economic concept of scarcity?
A) Society is not employing all of its available resources in an efficient manner.
B) People's wants can never be satisfied by the available resources.
C) Scarcity afflicts only poor countries.
D) Too many frivolous goods and services are produced at the expense of socially desirable goods and services.
E) Production is efficient, but distribution is inefficient.
Answer: B
Diff: 2
Topic: 1.1b. scarcity and choice
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
9) Which of the following statements best describes the underlying feature in most economic problems?
A) People have unlimited wants in the face of limited resources.
B) There are unlimited resources.
C) Our country is rich; we just don't realize it.
D) People have limited wants in the face of limited resources.
E) Governments should never interfere in the workings of a market economy.
Answer: A
Diff: 1
Topic: 1.1b. scarcity and choice
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
3
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10) Because resources are scarce, individuals are required to
A) make choices among alternatives.
B) use resources inefficiently.
C) sacrifice production but not consumption.
D) improve distribution but not production.
E) improve production but not distribution.
Answer: A
Diff: 2
Topic: 1.1b. scarcity and choice
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
4
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With a budget of $200 million, the government can choose to purchase 4 helicopters or repair 200 km of highway.
FIGURE 1-1
11) Refer to Figure 1-1. For the government, the opportunity cost of one search and rescue helicopter is
A) 0 kilometres of highway repair.
B) 50 kilometres of highway repair.
C) 100 kilometres of highway repair.
D) 150 kilometres of highway repair.
E) 200 kilometres of highway repair.
Answer: B
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Quantitative
12) Refer to Figure 1-1. For the government, the opportunity cost of one kilometre of highway repair is
A) 1 search and rescue helicopter.
B) 1/2 of a search and rescue helicopter.
C) 1/10 of a search and rescue helicopter.
D) 1/50 of a search and rescue helicopter.
E) 1/100 of a search and rescue helicopter.
Answer: D
Diff: 3
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Quantitative
13) Refer to Figure 1-1. If the government chooses to allocate all $200 million to highway repair, we can say that
A) the opportunity cost of the highway repair is uncertain.
B) the opportunity cost of the highway repair is $0.
C) the opportunity cost of the highway repair is 4 search and rescue helicopters.
D) there is no opportunity cost involved because the government has achieved its objectives.
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E) there is no opportunity cost involved because the government stayed within its budget.
Answer: C
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Quantitative
14) Refer to Figure 1-1. Which of the following combinations of kilometres of highway repair and helicopters is
unaffordable, given the government's budget of $200 million?
A) B
B) D
C) E
D) F
E) G
Answer: E
Diff: 1
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
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With a budget of $500 000, a school board can choose to purchase 20 000 textbooks or 2000 laptop computers (or
some intermediate combination) for use in classrooms.
FIGURE 1-2
15) Refer to Figure 1-2. For the school board, what is the opportunity cost of one additional laptop computer?
A) 0 textbooks
B) 1/10 of a textbook
C) 10 textbooks
D) 20 textbooks
E) 2000 textbooks
Answer: C
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Quantitative
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16) Refer to Figure 1-2. For the school board, what is the opportunity cost of one additional textbook?
A) 2000 laptops
B) 1000 laptops
C) 1/100 of a laptop
D) 1/1000 of a laptop
E) 1/10 of a laptop
Answer: E
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Quantitative
17) Refer to Figure 1-2. Suppose the school board chooses to allocate all $500 000 to the purchase of laptop
computers. What is the opportunity cost of this entire purchase?
A) The opportunity cost is 2000 laptops.
B) The opportunity cost is 20,000 textbooks.
C) The opportunity cost is uncertain.
D) The opportunity cost is $0.
E) There is no opportunity cost because the purchase was made within the available budget.
Answer: B
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Quantitative
18) Refer to Figure 1-2. Which of the following combinations of textbooks and laptops is unaffordable, given the
school board's budget of $500 000?
A) A
B) B
C) C
D) D
E) E
Answer: D
Diff: 1
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Quantitative
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19) Refer to Figure 1-2. What is the price of a textbook in this example?
A) $25
B) $40
C) $50
D) $100
E) $250
Answer: A
Diff: 1
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Quantitative
20) Refer to Figure 1-2. What is the price of a laptop computer in this example?
A) $25
B) $40
C) $50
D) $100
E) $250
Answer: E
Diff: 1
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Quantitative
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The table below illustrates that, in one day, Tristan can produce either 12 fishing lures or mow 3 lawns, while
Thomas can produce either 6 fishing lures or mow 6 lawns.
Tristan
Thomas
Fishing Lures
12
6
Mowed Lawns
3
6
TABLE 1-1
21) Refer to Table 1-1. What is Tristan's opportunity cost of producing one fishing lure?
A) one mowed lawn
B) 3 mowed lawns
C) 1/3 of a mowed lawn
D) 1/4 of a mowed lawn
E) 4 mowed lawns
Answer: D
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Table
User2: Quantitative
22) Refer to Table 1-1. What is Thomas's opportunity cost of producing one fishing lure?
A) 5 lures
B) 1 mowed lawn
C) 1/6 of a lure
D) 1/6 of a mowed lawn
E) there is no opportunity cost
Answer: B
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Table
User2: Quantitative
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23) Refer to Table 1-1. What is Tristan's opportunity cost of producing one mowed lawn?
A) one fishing lure
B) 3 fishing lures
C) 4 fishing lures
D) 6 fishing lures
E) 12 fishing lures
Answer: C
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Table
User2: Quantitative
24) Refer to Table 1-1. What is Thomas's opportunity cost of producing one mowed lawn?
A) 0 fishing lures
B) 1/6 fishing lure
C) one fishing lure
D) 6 fishing lures
E) 12 fishing lures
Answer: C
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Table
User2: Quantitative
25) Refer to Table 1-1. If Tristan and Thomas want to maximize their joint output from one day of work, how
should they specialize their production?
A) Tristan produces 3 mowed lawns; Thomas produces 6 mowed lawns
B) Tristan produces 6 lures; Thomas produces 6 lures
C) Tristan produces 6 lures and 3 mowed lawns
D) Tristan produces 12 lures; Thomas produces 6 mowed lawns
E) Tristan produces nothing, Thomas produces 6 lures and 6 mowed lawns
Answer: D
Diff: 3
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Table
User2: Quantitative
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26) Refer to Table 1-1. Which of the following statements about Tristan's and Thomas's opportunity costs is correct?
A) Tristan has a higher opportunity cost of producing mowed lawns.
B) Thomas has a higher opportunity cost of producing mowed lawns.
C) Tristan has a higher opportunity cost of producing fishing lures.
D) Thomas has a higher opportunity cost of producing fishing lures.
E) Both A and D are correct.
Answer: E
Diff: 3
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Table
User2: Qualitative
12
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Madeleine allows herself $100 per month for purchasing coffee. The diagram below illustrates the choices available
to her in each month.
FIGURE 1-3
27) Refer to Figure 1-3. For Madeleine, the opportunity cost of one regular coffee is
A) 1/4 of a regular coffee.
B) 20 lattes.
C) 4 lattes.
D) 1/4 of a latte.
E) 80 lattes.
Answer: D
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Quantitative
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28) Refer to Figure 1-3. For Madeleine, the opportunity cost of one latte is
A) 1/4 of a regular coffee.
B) 1/4 of a latte.
C) 8 regular coffees.
D) 80 regular coffees.
E) 4 regular coffees.
Answer: E
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Quantitative
29) Refer to Figure 1-3. If Madeleine chooses to allocate all $100 to buying lattes, we can say that her opportunity
cost in one month is
A) zero because she bought what she desired.
B) zero because she stayed within her budget.
C) 80 cups of regular coffee.
D) 40 cups of regular coffee.
E) 20 cups of regular coffee.
Answer: C
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Quantitative
30) Refer to Figure 1-3. Which of the following combinations of regular coffees and lattes is affordable over the
one-month period, given Madeleine's budget?
A) 15 lattes and 30 coffees
B) 16 lattes and 16 coffees
C) 8 lattes and 50 coffees
D) 4 lattes and 66 coffees
E) 20 lattes and 80 coffees
Answer: B
Diff: 3
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Quantitative
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31) Refer to Figure 1-3. What is the price of a regular coffee in this example?
A) $0.80
B) $1.25
C) $2.00
D) $5.00
E) $8.00
Answer: B
Diff: 1
Topic: 1.1c. opportunity cost
Skill: Applied
User1: Graph
User2: Quantitative
32) Refer to Figure 1-3. What is the price of a coffee latte in this example?
A) $0.80
B) $1.00
C) $1.25
D) $2.00
E) $5.00
Answer: E
Diff: 1
Topic: 1.1c. opportunity cost
Skill: Applied
User1: Graph
User2: Quantitative
33) Suppose you own a courier service and you use two types of delivery vehicles - Model A, which costs $30 000
to purchase, and Model B, which costs $50 000 to purchase. You have a budget of $300 000 for the purchase of
new vehicles. If you were to draw a budget line to illustrate the choice between Model A and Model B vehicles,
with A on the vertical axis and B on the horizontal axis, the vertical intercept and the horizontal intercept,
respectively, would be
A) 10 and 10.
B) 6 and 6.
C) 0 and 10.
D) 0 and 0.
E) 10 and 6.
Answer: E
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
User2: Quantitative
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34) Suppose you own a courier service and you use two types of delivery vehicles - Model A, which costs $30 000
to purchase, and Model B, which costs $50 000 to purchase. You have a budget of $300 000 for the purchase of
new vehicles. What is the opportunity cost of one Model A vehicle?
A) 0
B) 3/5 ths of a Model B vehicle
C) 5/3rds of Model B vehicle
D) 5 Model B vehicles
E) 3 Model B vehicles
Answer: B
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
User2: Quantitative
35) Suppose you own a courier service and you use two types of delivery vehicles - Model A, which costs $30 000
to purchase, and Model B, which costs $50 000 to purchase. You have a budget of $300 000 for the purchase of
new vehicles. What is the opportunity cost of one Model B vehicle?
A) 0
B) 3/5ths of a Model A vehicle
C) 5/3rds of a Model A vehicle
D) 5 Model A vehicles
E) 3 Model A vehicles
Answer: C
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
User2: Quantitative
36) Suppose you own a courier service and you use two types of delivery vehicles - Model A, which costs $30 000
to purchase, and Model B, which costs $50 000 to purchase. You have a budget of $300 000 for the purchase of
new vehicles. Which of the following statements best describes the shape of your budget line?
A) The budget line is concave to the origin, indicating that the opportunity cost of each model of vehicle increases
with each additional unit purchased.
B) The budget line is convex to the origin, indicating that the opportunity cost of each vehicle decreases with each
additional unit purchased.
C) The budget line is a straight line, indicating that the opportunity cost of each vehicle decreases with each
additional unit purchased.
D) The budget line is a straight line, indicating that the opportunity cost of each model of vehicle is independent of
how many are purchased.
E) The budget line is a straight line, indicating that the opportunity cost of each vehicle increases with each
additional unit purchased.
Answer: D
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
User2: Quantitative
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37) Scarcity arises from limited resources. For this reason, all economic choices involve
A) a value judgement.
B) an educated decision.
C) an opportunity cost.
D) complementary ends.
E) greed.
Answer: C
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Recall
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
38) The opportunity cost of going to college or university for four years is
A) equal to the wage rate a person will earn after graduation.
B) the least valued alternative one forfeits to attend.
C) the cost of tuition and books and four years of lost wages from employment.
D) the cost of tuition, residence fees and books.
E) zero.
Answer: C
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
39) Suppose there are only three alternatives to attending a "free" social event: read a novel (you value this at $10),
go to work (you could earn $20), or watch videos with some friends (you value this at $25). The opportunity cost of
attending the social event is
A) $10.
B) $20.
C) $25.
D) $45.
E) $55.
Answer: C
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Quantitative
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40) The opportunity cost of producing good A is defined to be
A) the money cost of the factors of production used in good A.
B) the retail price of good A.
C) the cheapest method of producing good A.
D) what must be sacrificed of other goods to get an additional unit of good A.
E) the cost of having to get by using something else in place of good A.
Answer: D
Diff: 1
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
41) Suppose that one unit of labour can produce either 5 units of wool or 2 pineapples. What is the opportunity cost
of producing 1 pineapple?
A) 5 units of wool
B) 2 units of wool
C) 2/5 unit of wool
D) 5/2 units of wool
E) zero
Answer: D
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Quantitative
42) A small landscaping firm purchases a tractor that, in one day, is capable of drilling 60 fence-post holes or
removing 12 tree stumps (or some intermediate combination). For this landscaper, what is the opportunity cost of
removing one extra tree stump?
A) 1/12th of the cost of the tractor
B) 1/5 of the cost of the tractor
C) drilling 12 fence-post holes
D) drilling 5 fence-post holes
E) there is no opportunity cost
Answer: D
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Quantitative
18
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43) Suppose that a bakeshop with 5 employees can produce both pies and cakes. In one day, if all resources are
devoted to baking pies, the shop can produce 125 pies; if all resources are devoted to baking cakes, the shop can
produce 50. What is the shop's opportunity cost of producing any one cake?
A) 0.4 pies
B) 0.25 pies
C) 2.5 pies
D) 0.4 cakes
E) 2.5 cakes
Answer: C
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Quantitative
44) Suppose that a bakeshop with 5 employees can produce both pies and cakes. In one day, if all resources are
devoted to baking pies, the shop can produce 125 pies; if all resources are devoted to baking cakes, the shop can
produce 50. What is the shop's opportunity cost of producing any one pie?
A) 125 pies
B) 0.4 cakes
C) 2.5 pies
D) 0.4 pies
E) 50 cakes
Answer: B
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Quantitative
45) Katie and Hugh are producing pies and jars of pickles. Katie can produce either 200 jars of pickles or 100 pies
per month. Hugh can produce either 800 jars of pickles or 200 pies per month. Which of the following statements is
correct?
A) Katie's opportunity cost of producing 1 jar of pickles is 2 pies.
B) Katie's opportunity cost of producing 1 jar of pickles is 1/2 of a pie.
C) Hugh's opportunity cost of producing 1 jar of pickles is 4 pies.
D) Hugh's opportunity cost of producing 1 pie is 1/4 jar of pickles.
E) Hugh's and Katie's opportunity costs of producing are the same.
Answer: B
Diff: 3
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Quantitative
19
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46) Suppose Andrea has a job that pays her $25 000 per year (after taxes). She is considering quitting her job and
going to university full time for four years. Tuition fees and books will cost $12 000 per year. Living expenses in
either situation will cost $10 000 per year. What is the opportunity cost of Andrea's four-year university degree?
A) $88 000
B) $100 000
C) $120 000
D) $148 000
E) $188 000
Answer: D
Diff: 3
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Quantitative
47) Suppose Amin has a job that pays him $87 000 per year (after taxes). He is considering taking an unpaid leave
of absence from his job to complete a 12-month MBA program. Tuition is $75 000 and books and materials will cost
$5000. Living expenses for the 12-month period will be cheaper by $500 per month, mostly due to lower apartment
rental costs. What is the opportunity cost of Amin's 1-year MBA program?
A) $75 000
B) $76 000
C) $161 000
D) $167 000
E) $175 000
Answer: C
Diff: 3
Topic: 1.1c. opportunity cost
Skill: Applied
User2: Quantitative
48) It has been observed that university enrollment in Canada is higher during periods of high unemployment. A
possible explanation for this is that
A) when prospects for getting a job are poor, the opportunity cost of getting a job is lower.
B) when prospects for getting a job are poor, the opportunity cost of doing nothing is higher.
C) during periods of high unemployment, tuition fees are reduced.
D) during periods of high unemployment, the opportunity cost is no longer relevant.
E) when prospects for getting a job are poor, the opportunity cost of going to university is lower.
Answer: E
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
20
Copyright © 2017 Pearson Education, Inc.
49) Chantal has a full-time job as a geological engineer and earns an annual after-tax salary of $85 000. She decides
to leave her job for 6 months to scuba dive on the Great Barrier Reef in Australia, and incurs costs of $7500 for
course equipment and certification, $2500 for airfare, and $12 000 for regular living expenses in Australia (equal to
her living expenses at home). What is Chantal's opportunity cost for this 6-month, unpaid leave of absence?
A) $12 000
B) $22 000
C) $42 000
D) $52 500
E) $65 000
Answer: D
Diff: 3
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Quantitative
50) During economic recessions, the opportunity cost of going to university ________ because the wages a student
can expect to earn working in the best alternative ________.
A) increases; decrease
B) decreases; increase
C) increases; increase
D) decreases; decrease
E) remains the same; remain the same
Answer: D
Diff: 2
Topic: 1.1c. opportunity cost
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
51) A country's production possibilities boundary shows that
A) when a society combines its resources efficiently, it cannot produce more of one good without producing less of
the other good.
B) when a society combines its resources inefficiently, it cannot produce more of one good without producing less
of the other good.
C) when a society combines its resources efficiently, it is always possible to produce more of all goods.
D) all points inside the boundary are preferred to all points on the boundary.
E) the supply for goods always exceeds the demand.
Answer: A
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
21
Copyright © 2017 Pearson Education, Inc.
52) Consider a production possibilities boundary showing the possible combinations of military goods and civilian
goods that a country can produce. Suppose that the country is currently at a point on the boundary. If the production
of military goods is increased, the production of civilian goods will necessarily
A) decrease.
B) remain the same.
C) increase.
D) increase at a decreasing rate.
E) increase at a increasing rate.
Answer: A
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
53) A point lying inside the production possibilities boundary is one at which
A) there is no scarcity.
B) the opportunity cost of producing more output is negative.
C) it is not possible to produce more output with existing resources.
D) the economy has run out of resources.
E) more output could be produced with existing resources.
Answer: E
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
54) If a country's production possibilities boundary is drawn as a straight (downward-sloping) line it indicates
A) decreasing opportunity cost of producing more of either good.
B) the use of the scarce resources in an economy.
C) constant opportunity cost of producing more of either good.
D) an unfair distribution of resources in an economy.
E) increasing opportunity cost of producing more of either good.
Answer: C
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
22
Copyright © 2017 Pearson Education, Inc.
The diagram below shows two production possibilities boundaries for Country X.
FIGURE 1-4
55) Refer to Figure 1-4. The production possibilities boundaries are drawn concave to the origin. What does this
shape of the PPB demonstrate?
A) the decreasing opportunity cost of producing more of either good
B) the scarcity of resources in the economy
C) the constant opportunity cost of producing more of either good
D) the unfair distribution of resources in the economy
E) the increasing opportunity cost of producing more of either good
Answer: E
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
23
Copyright © 2017 Pearson Education, Inc.
56) Refer to Figure 1-4. If Country X, constrained by the production possibilities boundary PPB1, is producing the
combination of goods indicated at point F, it can produce more consumer goods by moving to one of the points
A) A or E.
B) D or E.
C) A, B, or C.
D) A or B, but not C.
E) A, B, C, D, or E.
Answer: C
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
57) Refer to Figure 1-4. If Country X is currently producing at point A, it could move to point B if
A) the cost of producing capital goods were to increase.
B) some resources were switched from the capital goods industries to the consumer goods industries.
C) the cost of producing consumer goods were to increase.
D) some resources were switched from the consumer goods industries to the capital goods industries.
E) Country X is no longer able to produce the quantity of capital goods at point A.
Answer: B
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
58) Refer to Figure 1-4. If Country X were producing at point C,
A) the opportunity cost of moving to point B is to give up some consumption goods.
B) the opportunity cost of moving to point A is zero.
C) the opportunity cost of moving to point A is to give up some capital goods.
D) this is the maximum output possible from given resources.
E) it is not possible to move to any point on PPB1 or PPB2 without technological progress.
Answer: B
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
24
Copyright © 2017 Pearson Education, Inc.
59) Refer to Figure 1-4. At point B,
A) the price of capital goods is higher than the price of consumer goods.
B) Country X is producing too many consumer goods and too few capital goods.
C) the price of consumer goods is equal to the price of capital goods.
D) the opportunity cost of producing an extra unit of capital goods is higher than at point A.
E) the opportunity cost of producing an extra unit of consumer goods is higher than at point A.
Answer: E
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
60) Refer to Figure 1-4. If Country X, constrained by the production possibilities boundary PPB1, is currently
producing at point A, it can produce more capital goods by moving to point
A) F.
B) E.
C) D.
D) C.
E) B.
Answer: A
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
61) Refer to Figure 1-4. Suppose that Country X is currently producing at point E. Country X could achieve
production at point D if
A) the given resources were fully employed.
B) the given resources were more efficiently employed.
C) sufficient improvements in technology occurred in either the capital goods industry or the consumer goods
industries.
D) firms reduced output of capital goods.
E) the prices of capital goods and consumption goods fell.
Answer: C
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
25
Copyright © 2017 Pearson Education, Inc.
62) Refer to Figure 1-4. A shift of the production possibilities boundary from PPB1 to PPB2 implies
A) a movement from full employment to some unemployment.
B) that if point E is the new choice of outputs, productivity has increased in the consumer goods industry.
C) that technology in the capital goods industries has improved.
D) an inevitable decrease in total output.
E) that technology in the consumer goods industry has improved.
Answer: C
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
63) Refer to Figure 1-4. Growth in the country's productive capacity is illustrated by
A) a point like D outside the boundary.
B) a movement from a point inside the boundary such as C to the boundary.
C) the movement between points on a given boundary.
D) a single point such as A on the boundary.
E) an outward shift of the boundary, for example from PPB1 to PPB2.
Answer: E
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
64) Refer to Figure 1-4. An outward shift of the production possibilities boundary from
which of the following?
A) an increase in the price of raw materials for consumer goods
B) growth in the country's productive capacity
C) an increase in the price of raw material for capital goods
D) more of the country's resources are being used
E) the country's resources are being used less efficiently
Answer: B
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
User2: Qualitative
26
Copyright © 2017 Pearson Education, Inc.
to
indicates
FIGURE 1-5
65) Refer to Figure 1-5. Suppose that the relevant production possibilities boundary is the one labelled B. This
boundary implies that
A) the concept of opportunity cost is not at work in this economy.
B) the opportunity cost of producing either capital goods or consumer goods does not depend on how much of each
good is produced.
C) consumer goods are preferred to capital goods.
D) in this society the resources are not efficiently employed.
E) capital goods are preferred to consumer goods.
Answer: B
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
27
Copyright © 2017 Pearson Education, Inc.
66) Refer to Figure 1-5. Which production possibilities boundaries are consistent with increasing opportunity costs?
A) boundary A only
B) boundaries A and B
C) boundary C only
D) boundaries B and C
E) boundaries A, B, and C
Answer: C
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
67) Refer to Figure 1-5. Which production possibilities boundaries exhibit decreasing opportunity costs?
A) boundary B only
B) boundaries A and C
C) boundaries A and B
D) boundary A only
E) boundary C only
Answer: D
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
68) If there is always a three-for-one trade-off between the production of goods X and Y, then the production
possibilities boundary for X and Y is
A) a downward-sloping curve convex to the origin.
B) semi-circular.
C) a downward-sloping straight line.
D) a downward-sloping straight line that is broken at one point.
E) a downward-sloping curve concave to the origin.
Answer: C
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Quantitative
28
Copyright © 2017 Pearson Education, Inc.
69) On a diagram of a production possibilities boundary, the concept of scarcity is illustrated by the
A) points on the boundary.
B) area within the boundary.
C) distance from the origin to the boundary.
D) negative slope of the boundary.
E) unattainable points outside the boundary.
Answer: E
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
70) On a diagram of a production possibilities boundary, the concept of opportunity cost is illustrated by the
A) distance from the origin to the boundary.
B) negative slope of the boundary.
C) boundary being concave to the origin.
D) unattainable points outside the boundary.
E) area bounded by the two axes and the boundary.
Answer: B
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
71) A straight-line production possibilities boundary differs from a concave boundary in which of the following
ways?
A) The straight-line boundary illustrates constant opportunity costs, whereas the concave boundary illustrates
increasing opportunity costs.
B) The concave boundary illustrates constant opportunity costs, whereas the straight-line boundary illustrates
decreasing opportunity costs.
C) The straight-line boundary does not show scarcity, whereas the concave boundary does.
D) The straight-line boundary shows opportunity cost, whereas the concave boundary does not.
E) A straight-line boundary is associated with a command economy, whereas a concave boundary is associated with
a free-market economy.
Answer: A
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
29
Copyright © 2017 Pearson Education, Inc.
72) Consider Canada's production possibilities boundary. Suppose a scientific breakthrough leads to a lower-cost
method of producing battery-operated cars in Canada. The likely effect would be to move Canada's current
production
A) to a point beyond its new production possibilities boundary.
B) to a point inside its new production possibilities boundary.
C) possibilities boundary outward.
D) possibilities boundary inward.
E) above the level of U.S. production.
Answer: C
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
73) Consider Canada's production possibilities boundary. Suppose fire destroys many millions of hectares of
valuable Canadian forest. The effect on the Canadian economy would be best illustrated by ________ the production
possibilities boundary.
A) a movement inside
B) a movement along
C) a movement to a point beyond
D) a shift outward of
E) an inward shift of
Answer: E
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
74) Consider Canada's production possibilities boundary. During the nineteenth and early twentieth centuries,
millions of people immigrated to western Canada. The effect on the Canadian economy was to
A) move it to a point beyond its new production possibilities boundary.
B) move it inside its new production possibilities boundary.
C) shift its production possibilities boundary inward.
D) shift its production possibilities boundary outward.
E) move it along an unchanged production possibilities boundary.
Answer: D
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
30
Copyright © 2017 Pearson Education, Inc.
75) In recent years, several large Canadian-owned mining and resource companies have been sold to foreign owners.
The immediate effect on Canada's production possibilities boundary is
A) a shift outward.
B) a shift inward.
C) no change.
D) a movement along.
E) a movement to a point beyond the boundary.
Answer: C
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
76) The world price of oil fell in 2014-2015 from over $100 per barrel to less than $50. As a producer of oil, what
effect did this change have on Canada's production possibilities boundary?
A) a shift outward
B) a shift inward
C) movement to a point beyond the boundary
D) movement to a point within the boundary
E) no change
Answer: E
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
User2: Qualitative
77) A move from inside the production possibilities boundary to the boundary itself could be caused by
A) the employment of previously idle resources.
B) a reallocation of resources from military to civilian goods.
C) technological progress.
D) an increase in the labour supply.
E) an improvement in the government's ability to control its spending.
Answer: A
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
31
Copyright © 2017 Pearson Education, Inc.
78) Consider a production possibilities boundary showing the quantity of military goods and the quantity of civilian
goods on the two axes. A movement along the production possibilities boundary could be caused by
A) the employment of previously idle resources.
B) the reallocation of resources between military and civilian goods.
C) the growth of productive capacity.
D) an increase in the labour supply.
E) technological progress.
Answer: B
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
The downward-sloping line in the diagram below shows the combinations of health care and education expenditures
that the government can afford with a given amount of tax revenue.
FIGURE 1-6
79) Refer to Figure 1-6. The levels of health and education expenditures at point C
A) are less than at point D.
B) are equal to those of point A and point B.
C) are more cost-effective than those at points A, B, and D.
D) could be achieved if the prices of health and/or education increased.
E) are not attainable with the government's current budget.
Answer: E
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
80) Refer to Figure 1-6. If the government's spending on health and education is given by point B, a move to point A
must involve
A) less spending on health.
B) zero opportunity cost.
C) less spending on education.
D) less spending in total.
E) more spending on education.
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Copyright © 2017 Pearson Education, Inc.
Answer: C
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
81) Refer to Figure 1-6. Suppose the government's current spending is shown by point D. In this case,
A) the government is not spending its total budget.
B) more education expenditures can be achieved only by sacrificing some health expenditures.
C) more health expenditures can be achieved only by sacrificing some education expenditures.
D) the government should spend its total budget so as to get to point B, since more health spending and more
education spending are both clearly desirable.
E) the prices of education and health care have increased beyond the government's ability to pay.
Answer: A
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User1: Graph
User2: Qualitative
82) Consider the production possibilities boundary (PPB) of an economy. Economic growth is illustrated by
A) the negative slope of the PPB.
B) an outward shift of the PPB.
C) a movement onto the PPB.
D) a movement along the PPB.
E) the movement to a point outside of the PPB.
Answer: B
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
33
Copyright © 2017 Pearson Education, Inc.
83) Suppose drought destroys many millions of acres of valuable Canadian farmland. The effect on the Canadian
economy would be to move
A) it along its production possibilities boundary.
B) its production possibilities boundary inward.
C) it beyond its production possibilities boundary.
D) its production possibilities boundary outward.
E) None of the above. There would be no change in Canada's production possibilities boundary.
Answer: B
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
84) Suppose there are only two goods produced in our economy—snowplows and helicopters. If there is always a
two-for-one tradeoff between the production of these two goods (in terms of opportunity cost), then the production
possibilities boundary between snowplows and helicopters is
A) a downward-sloping curve convex to the origin.
B) circular.
C) a downward-sloping straight line.
D) a downward-sloping straight line with slope equal to -1.
E) a downward-sloping curve concave to the origin.
Answer: C
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
Learning Obj.: 1-1 Explain the importance of scarcity, choice, and opportunity cost, and how each is illustrated by the
production possibilities boundary.
User2: Qualitative
34
Copyright © 2017 Pearson Education, Inc.
Figure 1-7 shows the production possibilities boundary for an economy that produces two goods - cotton and
bananas.
FIGURE 1-7
85) Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces two goods cotton and bananas, both measured in tonnes produced per year. Suppose the economy is currently producing at
point A. What is the opportunity cost to this economy of increasing production of bananas by 100 tonnes?
A) there is no opportunity cost
B) 60 tonnes of cotton
C) 100 tonnes of cotton
D) 1440 tonnes of bananas
E) 1500 tonnes of bananas
Answer: B
Diff: 1
Topic: 1.1d. production possibilities boundary
Skill: Applied
User1: Graph
User2: Quantitative
35
Copyright © 2017 Pearson Education, Inc.
86) Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces two goods cotton and bananas, both measured in tonnes produced per year. Suppose the economy is currently producing at
point D. What is the opportunity cost of increasing production of bananas by 100 tonnes?
A) 420 tonnes of cotton
B) 100 tonnes of cotton
C) there is no opportunity cost
D) 60 tonnes of cotton
E) 920 tonnes of cotton
Answer: E
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
User1: Graph
User2: Quantitative
87) Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces two goods cotton and bananas, both measured in tonnes produced per year. Suppose this economy is currently producing 1280
tonnes of cotton and 200 tonnes of bananas. What is the opportunity cost of increasing production of bananas by
100 tonnes?
A) 100 tonnes of cotton
B) 360 tonnes of cotton
C) 360 tonnes of bananas
D) 920 tonnes of cotton
E) there is no opportunity cost
Answer: B
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
User1: Graph
User2: Quantitative
36
Copyright © 2017 Pearson Education, Inc.
88) Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces two goods cotton and bananas, both measured in tonnes produced per year. Suppose this economy moves from point D to point
F, where it is then producing bananas exclusively. Which of the following explanations best describes the
opportunity cost involved in producing this extra 100 tonnes of bananas?
A) The opportunity cost is very high in this case because resources that are probably much better suited to producing
cotton are now being devoted to producing bananas.
B) The opportunity cost is very low in this case because resources that are probably much better suited to producing
cotton are now being devoted to producing bananas.
C) The opportunity cost is very high in this case because resources that are probably much better suited to producing
bananas are now being devoted to producing cotton.
D) The opportunity cost is very low in this case because resources that are probably much better suited to producing
bananas are now being devoted to producing cotton.
E) The opportunity cost of producing the extra bananas is independent of the amount being produced.
Answer: A
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
User1: Graph
User2: Quantitative
89) Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces two goods cotton and bananas, both measured in tonnes produced per year. If the economy moves from point C to point D,
what is the opportunity cost of each extra tonne of bananas produced?
A) 0.036 tonnes of cotton
B) 0.36 tonnes of cotton
C) 3.6 tonnes of cotton
D) 36 tonnes of cotton
E) 360 tonnes of cotton
Answer: C
Diff: 3
Topic: 1.1d. production possibilities boundary
Skill: Applied
User1: Graph
User2: Quantitative
90) Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces two goods cotton and bananas, both measured in tonnes produced per year. Which of the following statements best describes
the difference in opportunity costs that this economy faces at point A compared to point E?
A) The opportunity cost is 1500 tonnes of cotton at point A, compared to 500 tonnes at point E.
B) The opportunity cost is 500 tonnes of cotton at point A, compared to 1500 tonnes at point E.
C) The opportunity cost of producing an extra tonne of bananas is much higher at point A than at point E.
D) The opportunity cost of producing an extra tonne of bananas is much lower at point A than at point E.
E) The opportunity cost of producing an extra tonne of bananas is the same at point A as at point E.
Answer: D
Diff: 2
Topic: 1.1d. production possibilities boundary
Skill: Applied
User1: Graph
User2: Quantitative
1.2 The Complexity of Modern Economics
1) A modern economy like Canada's is largely organized by
A) governments at all levels coordinating the activities of firms and citizens.
B) individuals forming cooperative enterprises and labour unions.
C) individuals following their own self interest, doing what seems best for themselves.
D) benevolent individuals pursuing the public interest.
E) the self-interested behaviour of a small number of individuals.
37
Copyright © 2017 Pearson Education, Inc.
Answer: C
Diff: 2
Topic: 1.2a. self-organizing economy
Skill: Recall
Learning Obj.: 1-2 View the market economy as self-organizing in the sense that order emerges from a large number of
decentralized decisions.
User2: Qualitative
2) An insight first fully developed by Adam Smith is that
A) without benevolence production would not occur.
B) all individuals are motivated solely by self-interest.
C) self-interest, not benevolence, is the foundation of economic order.
D) self-interest undermines effective economic order.
E) individual self-interest is the only necessary force for social order.
Answer: C
Diff: 1
Topic: 1.2a. self-organizing economy
Skill: Recall
Learning Obj.: 1-2 View the market economy as self-organizing in the sense that order emerges from a large number of
decentralized decisions.
User2: Qualitative
3) In the Canadian economy, most decisions regarding resource allocation are made by
A) consumers and producers interacting in the price system.
B) the various levels of government.
C) negotiation between unions and firms.
D) business firms only.
E) legal contract.
Answer: A
Diff: 1
Topic: 1.2a. self-organizing economy
Skill: Recall
Learning Obj.: 1-2 View the market economy as self-organizing in the sense that order emerges from a large number of
decentralized decisions.
User2: Qualitative
38
Copyright © 2017 Pearson Education, Inc.
4) The famous economist who first described the division of labour was
A) Karl Marx.
B) Milton Friedman.
C) David Ricardo.
D) John Maynard Keynes.
E) Adam Smith.
Answer: E
Diff: 1
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is facilitated by money.
User2: Qualitative
5) Which of the following statements about specialization and trade are correct?
A) They developed only in the twentieth century.
B) They exist only in capitalist economies.
C) They arose as humans changed from nomadic and self-sufficient food gatherers to settled food producers.
D) They developed only where government and political institutions were stable.
E) They occur only in the private sector.
Answer: C
Diff: 1
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is facilitated by money.
User2: Qualitative
6) If an economy exhibits the specialization of labour, we know that
A) a barter economy is more suitable.
B) most production is artisanal in nature.
C) each worker is self-sufficient.
D) job security is ensured.
E) different individuals are producing different products.
Answer: E
Diff: 1
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is facilitated by money.
User2: Qualitative
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7) Which of the following statements best describes a barter system of exchange?
A) It involves the trading of goods directly for other goods.
B) It requires the use of money.
C) It does not involve the double coincidence of wants.
D) It developed late in history.
E) It is the most efficient form of exchange.
Answer: A
Diff: 1
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is facilitated by money.
User2: Qualitative
8) Specialization of labour led to greater efficiency in the allocation of resources because of
A) greater reliance on self-sufficiency.
B) the use of barter.
C) the principle of comparative advantage.
D) an increase in total work effort.
E) the opportunity cost of labour increased.
Answer: C
Diff: 2
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is facilitated by money.
User2: Qualitative
9) A greater specialization of labour leads to which of the following major results?
A) the overall output of the economy declines
B) there is an increased need for government to intervene in the marketplace
C) the circular flow of income contracts
D) there is a greater need for trade
E) each worker must become more self-sufficient
Answer: D
Diff: 2
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is facilitated by money.
User2: Qualitative
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10) A farmer selling tomatoes and corn at a roadside, and a currency trader in Hong Kong are each participating in
A) barter.
B) a market.
C) an involuntary transaction.
D) flexible manufacturing.
E) international trade.
Answer: B
Diff: 1
Topic: 1.2c. division of labour, specialization and trade
Skill: Applied
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is facilitated by money.
User2: Qualitative
11) Which of the following has most contributed to the globalization of the economy?
A) the decreased importance of agriculture
B) reductions in transportation and communication costs
C) the shift toward a market economy in China
D) tariffs and trade barriers
E) the decline in the relative importance of manufacturing
Answer: B
Diff: 1
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is facilitated by money.
User2: Qualitative
12) Which of the following results from the introduction of money for use in transactions?
A) exchange becomes easier and this promotes the specialization of labour
B) an increased use of barter
C) the specialization of labour becomes more difficult
D) self-sufficiency is assured
E) society is able to satisfy all wants
Answer: A
Diff: 2
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is facilitated by money.
User2: Qualitative
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13) The barter system of exchange is inefficient because
A) "fair" values cannot be defined without the use of money.
B) bargaining power is unequal between rich and poor.
C) the double coincidence of wants may not exist.
D) markets do not exist.
E) exchange partners need to know each other.
Answer: C
Diff: 2
Topic: 1.2c. division of labour, specialization and trade
Skill: Applied
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is facilitated by money.
User2: Qualitative
14) Which of the point(s) below is (are) true of money?
1) Money eliminated the need for barter.
2) Money allowed for specialization of labour and expansion of trade.
3) Money facilitated the development of a market economy.
4) Trade did not take place before the introduction of money.
A) only 1.
B) only 1 and 2
C) Only 1 and 4
D) Only 1, 2, and 3.
E) All of the points are true.
Answer: D
Diff: 2
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is facilitated by money.
User2: Qualitative
15) Money facilitates trade and specialization by
A) allowing an efficient barter system to develop.
B) increasing the value of gold.
C) eliminating the need for barter.
D) reducing the shift of resources between uses.
E) providing employment for coin makers.
Answer: C
Diff: 1
Topic: 1.2c. division of labour, specialization and trade
Skill: Recall
Learning Obj.: 1-3 Explain how specialization gives rise to the need for trade, and how trade is facilitated by money.
User2: Qualitative
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16) With reference to the circular flow of income, how is the allocation of resources largely decided?
A) by central authorities only
B) by central authorities and firms only
C) by firms and households acting independently
D) by political parties and firms only
E) by individuals only
Answer: C
Diff: 1
Topic: 1.2b. circular flow of income and expenditure
Skill: Recall
Learning Obj.: 1-4 Identify the economy's decision makers and see how their actions create a circular flow of income and
expenditure.
User2: Qualitative
17) The key decision makers in a market economy are
A) households, firms, and government.
B) individual citizens, non-profit organizations, and the Bank of Canada.
C) governments and all institutions under government control.
D) large corporations and labour organizations.
E) corporations and governments.
Answer: A
Diff: 1
Topic: 1.2b. circular flow of income and expenditure
Skill: Recall
Learning Obj.: 1-4 Identify the economy's decision makers and see how their actions create a circular flow of income and
expenditure.
User2: Qualitative
18) Economists usually assume that households and firms, respectively, maximize
A) income and sales.
B) savings and profits.
C) wages and revenues.
D) utility and profits.
E) expenditures and profits.
Answer: D
Diff: 2
Topic: 1.2b. circular flow of income and expenditure
Skill: Recall
Learning Obj.: 1-4 Identify the economy's decision makers and see how their actions create a circular flow of income and
expenditure.
User2: Qualitative
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19) In general, which of the following statements is an accurate description of economists' assumptions about
households? Households
A) make consistent decisions, maximize utility, and are the principal owners of the factors of production.
B) do not make consistent decisions, maximize satisfaction, and are the principal owners of the factors of
production.
C) make consistent decisions, maximize profits, and are the principal users of the factors of production.
D) do not make consistent decisions, maximize profits, and are the principal users of the factors of production.
E) make consistent decisions, maximize savings, and are the principal users of the factors of production.
Answer: A
Diff: 2
Topic: 1.2b. circular flow of income and expenditure
Skill: Recall
Learning Obj.: 1-4 Identify the economy's decision makers and see how their actions create a circular flow of income and
expenditure.
User2: Qualitative
20) Which of the following is illustrated by the circular flow of income?
A) the flows of expenditures and income in a household
B) that firms own the factors of production
C) the interaction of households and firms through the factors and goods markets
D) that the flow of payments moves in the same direction as the flow of goods
E) that there is no relationship between goods markets and factor markets
Answer: C
Diff: 2
Topic: 1.2b. circular flow of income and expenditure
Skill: Recall
Learning Obj.: 1-4 Identify the economy's decision makers and see how their actions create a circular flow of income and
expenditure.
User2: Qualitative
21) Which of the following represents a typical "real" flow (as opposed to a financial flow) in the circular flow of
income?
A) goods going from producers to consumers
B) factor services going from producers to consumers
C) goods going from consumers to producers
D) money payments going from consumers to producers
E) money payments going from producers to consumers
Answer: A
Diff: 1
Topic: 1.2b. circular flow of income and expenditure
Skill: Recall
Learning Obj.: 1-4 Identify the economy's decision makers and see how their actions create a circular flow of income and
expenditure.
User2: Qualitative
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22) If some income earned by households is not spent on output, or if some income earned by firms is not spent on
factor services, the circular flow of income will
A) stop.
B) run over.
C) expand.
D) contract.
E) explode.
Answer: D
Diff: 2
Topic: 1.2b. circular flow of income and expenditure
Skill: Applied
Learning Obj.: 1-4 Identify the economy's decision makers and see how their actions create a circular flow of income and
expenditure.
User2: Qualitative
1.3 Is There an Alternative to the Market Economy?
1) An economic system that relies primarily upon custom and habit in economic decision making is referred to as a
A) market system.
B) traditional system.
C) command system.
D) mixed system.
E) communist system.
Answer: B
Diff: 1
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
2) In practice, the term "centrally planned economy" refers to an economy in which
A) the government makes ALL production and consumption decisions.
B) the mix of market and command principles is heavily weighted towards the latter.
C) all commodities are rationed.
D) the military is in control of the government.
E) economic decisions are made in the geographic centre of the country.
Answer: B
Diff: 2
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
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3) Karl Marx argued that
A) centrally planned economies could provide a more equitable distribution of total output than capitalist
economies.
B) technological change was not important in improving living standards.
C) a free-market system would produce a low level of total output.
D) benevolence, not self-interest, produced an effective economic order.
E) the unfettered market system driven by self-interest leads to the best social outcome.
Answer: A
Diff: 1
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
4) When discussing types of economic systems the Canadian economy is best described as
A) primarily a public ownership economy.
B) primarily free-market decision making.
C) traditional.
D) a command economy.
E) a mixed economic system.
Answer: E
Diff: 1
Topic: 1.3. alternative economic systems
Skill: Applied
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
5) With regard to various economic systems, most economists agree that
A) the mix of market and command principles that exists in Canada is the best.
B) the optimal mix of market and command systems remains constant over time.
C) most production and consumption decisions are more efficiently coordinated by markets than through central
planning.
D) government intervention in the economy is only justified in time of war.
E) command economies have been very successful in distributing income in socially just ways.
Answer: C
Diff: 2
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
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6) Which countries have mostly public ownership of resources?
A) United States and Canada
B) Cuba and North Korea
C) France and Germany
D) Sweden and Norway
E) Brazil and Argentina
Answer: B
Diff: 1
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
7) Behaviour in free-market economies is
A) determined by a central authority.
B) based primarily on custom and habit.
C) mostly directed by self interest.
D) mostly affected by elements of tradition and government command.
E) random and unpredictable.
Answer: C
Diff: 1
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
8) In command economies, economic behaviour is
A) largely determined by a central authority.
B) based primarily on custom and habit.
C) directed by individual self interest.
D) largely affected by elements of tradition and market incentives.
E) random and unpredictable.
Answer: A
Diff: 1
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
47
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9) In mixed economies, economic behaviour is
A) largely determined by a central authority.
B) based primarily on custom and habit.
C) directed only by self interest.
D) affected by elements of tradition, government command, and market incentives.
E) random and unpredictable.
Answer: D
Diff: 1
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
10) In traditional economies, economic behaviour is
A) largely determined by a central authority.
B) based primarily on custom and habit.
C) directed only by self interest.
D) affected by elements of tradition, government command, and market incentives.
E) random and unpredictable.
Answer: B
Diff: 1
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
11) Complex economic plans for many economic sectors are most associated with a
A) free-market system.
B) mixed market system.
C) command economy.
D) feudal system.
E) traditional economy.
Answer: C
Diff: 1
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
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12) Most modern economies in the world today
A) have pure market exchange.
B) are similar to feudal systems.
C) are mostly run by government decree.
D) have a mix of traditional, command and market elements.
E) are complex systems that defy description and analysis.
Answer: D
Diff: 2
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
13) In the current Canadian economy, the majority of choices on how resources are allocated are made by
A) consumers and firms through the price system.
B) the various levels of government.
C) negotiation between unions and firms.
D) business firms only.
E) legal contracts.
Answer: A
Diff: 1
Topic: 1.3. alternative economic systems
Skill: Applied
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
14) Comparison of economic systems indicates that
A) most nations have either a purely socialist economy or a purely capitalist economy.
B) most countries have mixed economies.
C) socialist economies are clearly superior in producing consumer goods.
D) capitalist economies are clearly superior in distributing income.
E) all countries have largely traditional economies.
Answer: B
Diff: 2
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
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15) Many economies in central and Eastern Europe, including the countries of the former Soviet Union, are still in
the process of moving from a command economy to a market economy. In the first years of this transition, most of
these countries experienced sharp drops in output and reductions in living standards. Economists generally see this
as
A) the failure of the market system.
B) the triumph of capitalism over communism.
C) an indication of the extreme difficulty of transition from one type of economic system to another.
D) an indication that these economies should return to being command economies.
E) the difficulty of corruption in non-market economies.
Answer: C
Diff: 2
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
16) In a pure market economy, the role of government is limited to provision of :
i) a basic legal and institutional structure.
ii) intervention in the allocation of resources in some areas of the economy.
iii) redistribution of income.
iv) stabilization of economic conditions generally.
Which of the above points is true?
A) Only i).
B) Only i) and ii).
C) Only i) and iv).
D) Only i), ii), and iv).
E) All of the points are provided by government in a pure market economy.
Answer: A
Diff: 2
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
17) Income redistribution in a mixed economy
A) is supported by all individuals.
B) rarely occurs.
C) is only accomplished through government intervention.
D) risks reducing individual incentives to work and produce.
E) is not allowed.
Answer: D
Diff: 2
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
18) In a modern mixed economy the government ensures that key institutions are in place to facilitate voluntary
transactions between economic agents. These key institutions are
A) labour and capital markets.
B) the House of Commons and the Senate.
C) the Department of Finance and the Bank of Canada.
D) securities regulators and the court system.
E) private property and freedom of contract.
Answer: E
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Diff: 2
Topic: 1.3. alternative economic systems
Skill: Recall
Learning Obj.: 1-5 Describe how all actual economies are mixed economies, having elements of free markets, tradition, and
government intervention.
User2: Qualitative
Economics - Canadian Edition, 15e (Ragan)
Chapter 2 Economic Theories, Data, and Graphs
2.1 Positive and Normative Statements
1) Disagreements over positive statements
A) cannot arise because positive statements are facts.
B) are best handled by an appeal to the facts.
C) arise from the failure to distinguish between a positive and a normative statement.
D) are basically devoid of any emotion.
E) never occur.
Answer: B
Diff: 1
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Topic: 2.1. positive and normative statements
Skill: Applied
Learning Obj.: 2-1 Distinguish between positive and normative statements.
User2: Qualitative
2) A positive statement is one that states
A) what is, was, or will be.
B) what is and what should be.
C) what should be but is not.
D) what is desirable.
E) non-negative numbers.
Answer: A
Diff: 2
Topic: 2.1. positive and normative statements
Skill: Recall
Learning Obj.: 2-1 Distinguish between positive and normative statements.
User2: Qualitative
3) Which is the best description of positive statements? Positive statements
A) have been verified by appeal to factual evidence.
B) form the basis of all normative arguments.
C) are falsifiable in principle by appeal to factual evidence.
D) are seldom employed in social sciences like economics.
E) have no place in economics because economics deals only with value judgments.
Answer: C
Diff: 2
Topic: 2.1. positive and normative statements
Skill: Recall
Learning Obj.: 2-1 Distinguish between positive and normative statements.
User2: Qualitative
52
Copyright © 2017 Pearson Education, Inc.
4) Which is an example of a positive statement?
A) There should be one price for gasoline throughout Canada.
B) The higher the price for gasoline, the less of it will be consumed.
C) Substitutes for fossil fuels should be developed.
D) Canada should reduce its imports of consumer goods.
E) Corporations in Canada should pay more taxes.
Answer: B
Diff: 1
Topic: 2.1. positive and normative statements
Skill: Applied
Learning Obj.: 2-1 Distinguish between positive and normative statements.
User2: Qualitative
5) Which is the best description of a normative statement? A normative statement
A) can be derived logically from facts.
B) concerns what is provable.
C) is a statement that is empirically testable.
D) is one that involves a value judgment.
E) has no place in the study and practice of economics.
Answer: D
Diff: 1
Topic: 2.1. positive and normative statements
Skill: Recall
Learning Obj.: 2-1 Distinguish between positive and normative statements.
User2: Qualitative
6) Which of the following is a normative statement?
A) The sun rises in the west and sets in the east.
B) A government deficit will reduce unemployment and cause an increase in prices.
C) Reducing unemployment is more important than reducing inflation.
D) Queen Elizabeth II is the wealthiest woman in the world.
E) An increase in the price of lumber is followed by a decrease in the construction of new houses.
Answer: C
Diff: 1
Topic: 2.1. positive and normative statements
Skill: Applied
Learning Obj.: 2-1 Distinguish between positive and normative statements.
User2: Qualitative
7) Which of the following is a normative statement?
A) The higher is the level of taxes, the lower is consumption spending.
B) The higher is the level of taxes, the higher are wage demands.
C) A reduction in export taxes on petroleum would result in higher wages.
D) Tuition fees should be waived for low-income students.
E) A free-trade agreement between two countries will result in an increase in trade.
Answer: D
Diff: 2
Topic: 2.1. positive and normative statements
Skill: Applied
Learning Obj.: 2-1 Distinguish between positive and normative statements.
User2: Qualitative
8) Suppose an economist tells you that the unemployment rate in Canada last year was 7.8%. This is an example of
a(n) ________ statement.
A) autonomous
B) positive
C) normative
D) induced
E) imputed
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Answer: B
Diff: 1
Topic: 2.1. positive and normative statements
Skill: Applied
Learning Obj.: 2-1 Distinguish between positive and normative statements.
User2: Qualitative
9) Suppose an economist tells you that, on average, people in Canada have too much personal debt. This is an
example of a(n) ________ statement.
A) autonomous
B) positive
C) normative
D) independent
E) induced
Answer: C
Diff: 1
Topic: 2.1. positive and normative statements
Skill: Applied
Learning Obj.: 2-1 Distinguish between positive and normative statements.
User2: Qualitative
10) Which of the following statements belongs more properly in the field of normative economics than positive
economics?
A) An increase in the minimum wage leads to more unemployment.
B) The price of one Canadian dollar is $0.85 U.S.
C) When a drought occurs, the price of vegetables tends to rise.
D) Canadian governments should provide assistance to the auto industry.
E) Technological change has reduced the cost of cell phone service.
Answer: D
Diff: 2
Topic: 2.1. positive and normative statements
Skill: Applied
Learning Obj.: 2-1 Distinguish between positive and normative statements.
User2: Qualitative
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11) Which of the following best describes the relationship between positive and normative statements in economics?
A) Normative statements are those with which all economists agree; positive statements may give rise to some
disagreement.
B) Positive and normative statements are alternate ways of describing the desirability of certain economic policies.
C) Normative statements evaluate the desirability of certain economic changes; positive statements do not.
D) Neither positive nor normative statements are concerned with the desirability of certain economic changes.
E) Economists generally agree with each other regardless of whether a question is positive or normative.
Answer: C
Diff: 2
Topic: 2.1. positive and normative statements
Skill: Applied
Learning Obj.: 2-1 Distinguish between positive and normative statements.
User2: Qualitative
12) A theory
A) enables one to predict the future with certainty.
B) is designed to explain and predict what we observe.
C) is used to impose order on the world.
D) can only be tested with a controlled experiment.
E) assumes definitions for variables.
Answer: B
Diff: 1
Topic: 2.1. positive and normative statements
Skill: Recall
Learning Obj.: 2-1 Distinguish between positive and normative statements.
User2: Qualitative
13) An assertion about the desirability of reducing unemployment by lowering payroll taxes is most likely
A) a theory.
B) a testable proposition.
C) a hypothesis.
D) a normative statement.
E) a positive statement.
Answer: D
Diff: 2
Topic: 2.1. positive and normative statements
Skill: Applied
Learning Obj.: 2-1 Distinguish between positive and normative statements.
User2: Qualitative
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2.2 Building and Testing Economic Theories
1) An economic theory requires, among other things,
A) a set of definitions of the variables to be considered.
B) a controlled laboratory setting in which the theory can be tested.
C) that the set of predictions be correct.
D) a set of value judgments to interpret the empirical evidence.
E) the use of endogenous variables only.
Answer: A
Diff: 2
Topic: 2.2a. economic theories
Skill: Recall
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
2) Choose the statement that best describes how endogenous variables differ from exogenous variables.
A) An endogenous variable is explained within the theory, while an exogenous variable influences the endogenous
variables but is determined outside the theory.
B) An endogenous variable is a flow, while an exogenous variable is a stock.
C) An endogenous variable is explained outside the theory and influences an exogenous variable while an
exogenous variable is explained within the theory.
D) An exogenous variable is a function of the endogenous variable, and both are flow variables.
E) An endogenous variable is a function of the exogenous variable, and both are stock variables.
Answer: A
Diff: 2
Topic: 2.2a. economic theories
Skill: Applied
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
3) Suppose there is a theory that several things influence the price of fish in Halifax, one of which is the weather
during the fishing season. When examining the determinants of the price of fish, the weather is
A) an endogenous variable, as it influences the price of fish.
B) an exogenous variable, as it is determined outside the theory.
C) a stock, as it influences the quantity of fish caught.
D) an act of God and, therefore, has no legitimate connection with the theory.
E) an endogenous variable, as it is determined within the theory.
Answer: B
Diff: 2
Topic: 2.2a. economic theories
Skill: Applied
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
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4) The statement that a country's rate of economic growth is influenced by its firms' investment behaviour is an
example of a(n)
A) variable.
B) prediction.
C) normative statement.
D) theory.
E) economic law.
Answer: D
Diff: 2
Topic: 2.2a. economic theories
Skill: Applied
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
5) The statement that a 2% increase in the money supply leads to a 2% increase in the price level is an example of
a(n)
A) prediction.
B) assumption.
C) normative statement.
D) variable.
E) model.
Answer: A
Diff: 2
Topic: 2.2a. economic theories
Skill: Applied
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
6) The statement that introducing a policy of legislated rent controls will lead to a housing shortage is an example of
a(n)
A) assumption.
B) prediction.
C) theory.
D) normative statement.
E) model.
Answer: B
Diff: 2
Topic: 2.2a. economic theories
Skill: Applied
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
57
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7) Choose the statement that best characterizes an economic theory. A valid theory
A) allows one to deduce a normative statement.
B) appeals to the law of large numbers.
C) generates a hypothesis that can predict future events.
D) extrapolates from the past behaviour of a variable to predict its future course.
E) allows one to prove irrefutably one's hypothesis.
Answer: C
Diff: 1
Topic: 2.2a. economic theories
Skill: Recall
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
8) Choose the statement that best characterizes an economic theory. An economic theory
A) is only useful if its underlying assumptions are realistic.
B) will be useful as long as it is logically consistent.
C) must be judged on its ability to explain and predict real-world phenomena.
D) will predict more accurately if it contains a greater number of mathematical equations.
E) will be useful only if all human behaviour is rational.
Answer: C
Diff: 2
Topic: 2.2a. economic theories
Skill: Applied
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
9) Which of the following pairs of words have similar meanings?
A) induced and autonomous
B) endogenous and autonomous
C) independent and exogenous
D) dependent and exogenous
E) induced and exogenous
Answer: C
Diff: 2
Topic: 2.2a. economic theories
Skill: Recall
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
58
Copyright © 2017 Pearson Education, Inc.
10) Choose the answer that best explains why economists build models that abstract from the complexities of reality.
A) Because the complexities of reality are unimportant.
B) Because they believe they gain a greater understanding of reality.
C) Because economists are not interested in reality.
D) Because this allows economists to conduct controlled experiments to test their theories.
E) Because economics deals only in the abstract.
Answer: B
Diff: 1
Topic: 2.2a. economic theories
Skill: Recall
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
11) Suppose an individual wheat farmer's income is influenced by the region's average daily temperature. When
examining the determinants of individual farmer income, the average daily temperature is a(n) ________ variable.
A) endogenous
B) exogenous
C) flow
D) dependent
E) induced
Answer: B
Diff: 2
Topic: 2.2a. economic theories
Skill: Applied
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
12) If we seek to explain the number of seats sold on a particular air route, say Toronto to Halifax, over a one-year
period, we would consider many variables. Which of the following variables would be endogenous to our theory?
A) the average salary of Canadian airline pilots
B) the number of airline seats sold on this route
C) the price of jet fuel
D) the number of fog days in Halifax
E) the unemployment rate in Toronto
Answer: B
Diff: 2
Topic: 2.2a. economic theories
Skill: Applied
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
59
Copyright © 2017 Pearson Education, Inc.
13) When an economist assumes that the owners of firms are motivated only by the desire to maximize profits, the
economist most likely believes that
A) it doesn't matter whether or not the assumption is descriptively accurate; what matters is whether a theory built
on the assumption predicts well.
B) the assumption is descriptively accurate, since surveys have been taken and the owners of firms have admitted
that their only objective is to maximize profits.
C) the assumption is inaccurate, since surveys have been taken and the owners of firms have admitted that they care
about more than just profits.
D) individuals entering business are quite narrow in their personal objectives.
E) all people enter business for their own selfish gain.
Answer: A
Diff: 2
Topic: 2.2a. economic theories
Skill: Applied
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
14) An economic model that contains a highly realistic set of assumptions is
A) useful because there is then very little difference between "theory" and "reality."
B) necessarily better able to predict the future.
C) certainly superior to a model whose assumptions are highly unrealistic.
D) more abstract than a model whose assumptions are further removed from reality.
E) not likely to be useful because of its particularized nature and its complexity.
Answer: E
Diff: 3
Topic: 2.2a. economic theories
Skill: Applied
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
15) Economists build models that abstract from the complexities of reality because
A) it is easier to do so.
B) they believe they gain a greater understanding of reality.
C) economists are not interested in reality.
D) economists do not understand the real world.
E) the complexities of reality are unimportant.
Answer: B
Diff: 1
Topic: 2.2a. economic theories
Skill: Recall
Learning Obj.: 2-2 Explain why and how economists use theories to help them understand the economy.
User2: Qualitative
60
Copyright © 2017 Pearson Education, Inc.
16) Suppose we have data for 1000 students for a period of one year. The data show that those students who spend
more hours studying have a higher grade point average (GPA). We can say that
A) if hours of study time increase, then GPA will automatically increase.
B) having a higher GPA leads students to spend more time studying.
C) there is a causal relationship between hours of study time and GPA.
D) more hours spent studying leads to a higher GPA.
E) there is a positive correlation between hours of study time and GPA.
Answer: E
Diff: 3
Topic: 2.2b. testing theories
Skill: Applied
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
17) Suppose economists at the World Bank discover a positive correlation between family income and female
education levels in developing countries. We can say that
A) the correlation is inconsistent with a theory that an increase in female education levels causes an increase in
family income.
B) an increase in family income causes an increase in female education levels.
C) an increase in female education levels causes an increase in family incomes.
D) there is a causal relationship between family income and female education.
E) the observed correlation is consistent with a theory that an increase in female education levels causes an increase
in family income.
Answer: E
Diff: 3
Topic: 2.2b. testing theories
Skill: Applied
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
18) Suppose economists at the Department of Finance in Ottawa employ an economic model that predicts the effects
of an increase in the GST. After implementation of the change, researchers find that the empirical data is in conflict
with the theory. They are likely to
A) modify the prediction in light of the new evidence.
B) ignore the empirical evidence and continue using the model.
C) modify the theory in light of this newly acquired empirical knowledge.
D) reject the empirical data as faulty because it did not support the theory.
E) modify the data to suit the definitions and assumptions.
Answer: C
Diff: 2
Topic: 2.2b. testing theories
Skill: Applied
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
61
Copyright © 2017 Pearson Education, Inc.
19) Suppose economists at the World Bank develop a theory with a prediction that increased levels of foreign aid
lead to increases in per capita GDP in the recipient developing countries. They find empirical evidence that is
consistent with this theory. The economists are able to conclude that
A) the theory is valid, but should be subjected to continued scrutiny.
B) the theory has been proven correct.
C) the theory is always reliable.
D) the evidence is rejected by the theory.
E) the assumptions used in the theory have been proven correct.
Answer: A
Diff: 3
Topic: 2.2b. testing theories
Skill: Applied
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
20) When using statistics in economics, the possibility of error
A) cannot be eliminated.
B) cannot be controlled.
C) cannot be evaluated.
D) is not considered to be important.
E) can be eliminated with more sophisticated statistical techniques.
Answer: A
Diff: 2
Topic: 2.2b. testing theories
Skill: Recall
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
21) A hypothesis (or a prediction) is a statement about
A) how assumptions affect theories.
B) those things which we believe to be true, but cannot prove.
C) what will happen in the future.
D) the relationship between facts explained by the hypothesis.
E) how two or more variables are related to each other.
Answer: E
Diff: 2
Topic: 2.2b. testing theories
Skill: Applied
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
62
Copyright © 2017 Pearson Education, Inc.
22) A scientific prediction is
A) not testable.
B) a prophesy of how the future will unfold.
C) a causal statement of the following form: A will occur because B occurred.
D) a conditional statement of the following form: if A occurs, then B will follow.
E) always based on the law of large numbers.
Answer: D
Diff: 2
Topic: 2.2b. testing theories
Skill: Recall
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
23) Of the following, which is the most important characteristic of a successful theory?
A) the theory provides a basis for facts about economic behaviour
B) the theory could never be refuted
C) the theory adequately explains all economic behaviour
D) all assumptions on which the theory is based are true
E) the theory allows us to predict behaviour reasonably accurately
Answer: E
Diff: 3
Topic: 2.2b. testing theories
Skill: Applied
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
24) The scientific approach to economic inquiry involves
A) choosing data that will support the predictions.
B) using only endogenous variables in economic models.
C) testing the predictions with empirical data.
D) testing the reality of the assumptions of the model.
E) using only independent variables.
Answer: C
Diff: 2
Topic: 2.2b. testing theories
Skill: Applied
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
25) Economics is scientific because
A) economists routinely conduct controlled experiments.
B) individual behaviour is predictable.
C) economists routinely conduct laboratory experiments.
D) economists use data.
E) economists test hypotheses by appealing to empirical evidence.
Answer: E
Diff: 2
Topic: 2.2b. testing theories
Skill: Recall
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
26) In order to test a theory, one must
A) develop a better explanation than the one presented.
B) present a series of normative statements and positive statements.
C) use assumptions that most closely reflect reality.
D) develop normative statements from the law of large numbers.
E) confront the predictions of the theory with evidence.
Answer: E
63
Copyright © 2017 Pearson Education, Inc.
Diff: 1
Topic: 2.2b. testing theories
Skill: Recall
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
27) Suppose that a particular theory predicts that on Monday, Wednesday, and Friday the stock market will rise and
that on Tuesday and Thursday the stock market will fall. If an economist tests this theory and finds that over a sixmonth period the theory predicts accurately, the economist would likely say that the theory
A) has been proven correct.
B) is reliable.
C) is not in conflict with the evidence.
D) shouldn't be taken seriously.
E) is not useful because stock markets involve irrational human behaviour.
Answer: C
Diff: 2
Topic: 2.2b. testing theories
Skill: Applied
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
28) If a theory's prediction is tested and is in conflict with the evidence,
A) the original data and assumptions should be discarded.
B) it is rejected with certainty, because it is not possible to reject a hypothesis that is actually true.
C) the statistical tolerance of risk for accepting a false hypothesis should be increased.
D) inquiry into the matter should cease.
E) a new hypothesis is usually suggested and tested.
Answer: E
Diff: 2
Topic: 2.2b. testing theories
Skill: Applied
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
64
Copyright © 2017 Pearson Education, Inc.
29) As a science, economics is disadvantaged in that
A) it deals with human behaviour and thus is not open to empirical testing.
B) it is usually not possible to conduct controlled experiments in economics, in contrast with certain other sciences.
C) economic hypotheses cannot be accepted with complete certainty, by contrast with the other sciences.
D) economic variables do not change enough to provide reliable data for testing hypotheses.
E) some economic variables are determined within the theory.
Answer: B
Diff: 2
Topic: 2.2b. testing theories
Skill: Applied
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
30) Most economists believe that economic analysis ________ be made completely free of judgement, in part
because it is ________ to absolutely refute a theory on the basis of factual evidence.
A) can; possible
B) can; impossible
C) cannot; possible
D) cannot; impossible
E) will; necessary
Answer: D
Diff: 3
Topic: 2.2b. testing theories
Skill: Applied
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
31) Suppose a theory predicts that lowering tuition fees at Canadian universities will increase enrollment from lowincome households. If empirical evidence is inconsistent with this prediction, then we
A) need to amend the theory.
B) should test the theory again.
C) should change the empirical data.
D) should increase tuition fees back to their initial level.
E) change the exogenous variables in the theory.
Answer: A
Diff: 2
Topic: 2.2b. testing theories
Skill: Applied
Learning Obj.: 2-3 Understand the interaction between economic theories and empirical observation.
User2: Qualitative
65
Copyright © 2017 Pearson Education, Inc.
2.3 Economic Data
1) When studying economic data, and when comparing the magnitude of changes in variables with different scales it
is best to
A) compare the absolute data on each variable.
B) compare the relative data on each variable.
C) express each variable as an index number.
D) express each variable as a logarithmic number.
E) use only time-series data.
Answer: C
Diff: 3
Topic: 2.3a. index numbers
Skill: Recall
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Qualitative
2) When studying economic data, index numbers are especially valuable when comparing
A) relative movements in different variables measured in different units.
B) relative movements in real and nominal variables.
C) linear and logarithmic data.
D) time-series data with cross-sectional data.
E) government data with private-sector data.
Answer: A
Diff: 2
Topic: 2.3a. index numbers
Skill: Recall
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Qualitative
3) The base year for an index number is
A) determined by the year the variable equals exactly 100.
B) dependant upon the type of data.
C) declared by the federal government.
D) chosen arbitrarily by those who construct the data.
E) the year in which 2 or more index numbers are equal to 100.
Answer: D
Diff: 2
Topic: 2.3a. index numbers
Skill: Recall
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Qualitative
66
Copyright © 2017 Pearson Education, Inc.
4) For a given year, an index number of average prices across the economy (in Canada, the Consumer Price Index)
is the ratio of the
A) price of several goods in the given year to that in the base year.
B) simple average price of all goods in the given year to that in the base year.
C) average price of several goods in the base year to that in the given year.
D) weighted prices of a typical bundle of goods purchased in a given year to that in the base year.
E) weighted prices of a typical bundle of goods purchased in the base year to that in the given year.
Answer: D
Diff: 2
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Qualitative
5) An index number expresses the value of a variable in any given period
A) as a percentage of its value in the base period.
B) as a weighted average.
C) as a proportional weighted average.
D) as an average of its value in the base period.
E) as an absolute compared to the base period.
Answer: A
Diff: 2
Topic: 2.3a. index numbers
Skill: Recall
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Qualitative
6) Let 1 stand for "any given period" and 2 stand for "base period." The formula of any index number can be written
as
A) value of index at 1 =
× 100.
B) value of index at 1 =
× 100.
C) value of index at 1 =
× 100.
D) value of index at 1 =
.
E) value of index at 1 =
.
Answer: A
Diff: 2
Topic: 2.3a. index numbers
Skill: Recall
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Qualitative
67
Copyright © 2017 Pearson Education, Inc.
The table below shows hypothetical tuition costs at a Canadian university.
Year
2012
2013
2014
2015
2016
Tuition
$5000
$5050
$5100
$5150
$5200
TABLE 2-1
7) Refer to Table 2-1. Assume that 2012 is used as the base year, with the index number = 100. The value of the
index number in 2014 is calculated as follows:
A) (5000/5100) × 100 = 98.
B) 5100/5000 = 1.02.
C) 5000/5100 = 0.98.
D) 5100/5100 = 100.
E) (5100/5000) × 100 = 102.
Answer: E
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
8) Refer to Table 2-1. Assume that 2012 is used as the base year, with the index number = 100. The value of the
index number in 2016 is
A) 100.
B) 104.
C) 1.04.
D) 96.
E) 0.96.
Answer: B
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
68
Copyright © 2017 Pearson Education, Inc.
9) Refer to Table 2-1. The increase in tuition fees from 2012 to 2016 is
A) 200.
B) 100/5000.
C) 4%.
D) 0.04%.
E) 200/5200.
Answer: C
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
10) Refer to Table 2-1. Assume that 2014 is used as the base year, with the index number = 100. The value of the
index number in 2012 is calculated as follows:
A) 5000/5100 = 0.98.
B) (5100/5000) × 100 = 102.
C) 5100/5000 = 1.02.
D) 5100/5100 = 100.
E) (5000/5100) × 100 = 98.
Answer: E
Diff: 2
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
69
Copyright © 2017 Pearson Education, Inc.
The table below shows hypothetical per-minute cell phone charges for "pay-and-talk" service over several years.
2008
2009
2010
2011
2012
0.55
0.50
0.40
0.35
0.25
TABLE 2-2
11) Refer to Table 2-2. Assume that 2008 is used as the base year, with the index number = 100. The value of the
index number in 2011 is calculated as follows:
A) 0.35 × 100 = 35.
B) 0.35/0.55 = 0.64.
C) 0.55/0.35 = 1.57.
D) (0.35/0.55) × 100 = 63.64.
E) (0.55/0.35) × 100 = 157.14.
Answer: D
Diff: 2
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
12) Refer to Table 2-2. Assume that 2008 is used as the base year, with the index number = 100. The value of the
index number in 2012 is
A) 0.25.
B) 2.5.
C) 25.0.
D) 0.45.
E) 45.45.
Answer: E
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
70
Copyright © 2017 Pearson Education, Inc.
13) Refer to Table 2-2. Assume that 2008 is used as the base year, with the index number = 100. The value of the
index number in 2010 is
A) 100.
B) 0.72.
C) 72.73.
D) 1.375.
E) 137.5.
Answer: C
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
14) Refer to Table 2-2. Assume that 2008 is used as the base year, with the index number = 100. What is the
percentage change in the per-minute charge from 2011 to 2012?
A) -28.6%
B) -10.0%
C) -71.4%
D) -25.0%
E) -35.0%
Answer: A
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
15) Refer to Table 2-2. Assume that 2008 is used as the base year, with the index number = 100. Which of the
following series is the correct set of index numbers for the per-minute cell phone charges from 2008 to 2012?
A) 0.55; 0.50; 0.40; 0.35; 0.25
B) 100; 91; 73; 64; 45
C) 55; 50; 40; 35; 25
D) 1.0; 0.91; 0.73; 0.64; 0.45
E) 100%; 91%; 73%; 64%; 45%
Answer: B
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
71
Copyright © 2017 Pearson Education, Inc.
The table below shows hypothetical data for volumes of e-books and hardcover books sold over a 3-year period in a
particular city.
Year 1
Year 2
Year 3
E-books
23 000
52 000
106 000
Hardcover Books
72 000
59 000
31 000
TABLE 2-3
16) Refer to Table 2-3. Suppose we choose Year 1 as the base year and construct a series of index numbers with
which to analyze the sales data. The index numbers for volumes of e-books sold (starting with Year 1) is
A) 100; 44.2; 21.7.
B) 100; 226.1; 460.9.
C) 23 000; 52 000; 106 000.
D) 100; 126.1; 360.1.
E) 1; 0.442; 0.217.
Answer: B
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
17) Refer to Table 2-3. Suppose we choose Year 1 as the base year and construct a series of index numbers with
which to analyze sales data. The index numbers for volumes of hardcover books sold (starting with Year 1) is
A) 431; 819; 100.
B) 43.1; 81.9; 100.
C) 100; 81.9; 43.1.
D) 100; 0.819; 0.431.
E) 0.431; 0.819; 100.
Answer: C
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
72
Copyright © 2017 Pearson Education, Inc.
18) Refer to Table 2-3. Between Year 1 and Year 3, what is the percentage change in sales of e-books?
A) 83 000%
B) 460.9%
C) 360.9%
D) 21.7%
E) 83%
Answer: C
Diff: 2
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
19) Refer to Table 2-3. Between Year 1 and Year 3, what is the percentage change in sales of hardcover books?
A) 0.569%
B) 56.9%
C) -56.9%
D) -0.569%
E) -569%
Answer: C
Diff: 2
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
73
Copyright © 2017 Pearson Education, Inc.
The table below shows hypothetical prices for a particular anatomy textbook at a university bookstore over several
years.
Year
2012
2013
2014
2015
2016
Price
$180
$185
$205
$215
$220
TABLE 2-4
20) Refer to Table 2-4. Assume that 2012 is used as the base year, with the index number = 100. The value of the
index number in 2015 is calculated as follows:
A) 215/180 = 1.194.
B) 180/215 = 0.837.
C) (215/180) × 100 = 119.4.
D) (180/215) × 100 = 83.7.
E) (215 - 180) = 35.
Answer: C
Diff: 2
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
21) Refer to Table 2-4. Assume that 2012 is used as the base year, with the index number = 100. The value of the
index number in 2014 is
A) 0.878.
B) 1.0.
C) 1.139.
D) 87.8.
E) 113.9.
Answer: E
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
74
Copyright © 2017 Pearson Education, Inc.
22) Refer to Table 2-4. Assume that 2016 is used as the base year, with the index number = 100. The value of the
index number in 2012 is
A) 0.818.
B) 1.0.
C) 1.222.
D) 81.8.
E) 122.2.
Answer: D
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
23) Refer to Table 2-4. The increase in the price of the textbook from 2012 to 2016 is
A) -40.
B) 40.
C) 18.2%.
D) 22.2%.
E) 40%.
Answer: D
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
75
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The table below shows hypothetical data for the volume of gold and nickel output across several years.
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Gold
(troy ounces)
1 230 000
1 416 000
1 349 000
947 000
1 012 000
1 321 000
1 450 000
1 510 000
Index
100
Nickel
(lbs)
Index
4500
4551
4623
4791
4802
4867
5002
5117
100
TABLE 2-5
24) Refer to Table 2-5. What is the index number for gold output in Year 1?
A) 0.91
B) 109.7
C) 1.097
D) 91.2
E) 99.7
Answer: D
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
25) Refer to Table 2-5. What is the index number for gold output in Year 8?
A) 111.9
B) 111.9%
C) 11.9
D) 11.9%
E) 1.119
Answer: A
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
76
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26) Refer to Table 2-5. What is the index number for nickel output in Year 6?
A) 108.2
B) 105.3
C) 110.7
D) 95.0
E) 95.0%
Answer: B
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User1: Table
User2: Quantitative
27) Refer to Table 2-5. What is the index number for nickel output in Year 2?
A) 98.4%
B) 98.4
C) -72.0%
D) 72.0%
E) 0.984%
Answer: B
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
77
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The table below shows hypothetical data for the volume of gold and nickel output across several years.
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Gold
(troy ounces)
1 230 000
1 416 000
1 349 000
947 000
1 012 000
1 321 000
1 450 000
1 510 000
Index
100
Nickel
(lbs)
Index
4500
4551
4623
4791
4802
4867
5002
5117
100
TABLE 2-6
28) Refer to Table 2-6. What is the index number for gold output in Year 2?
A) 97.7%
B) 0.977
C) -3.4%
D) 97.7
E) -34%
Answer: D
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
29) Refer to Table 2-6. What is the index number for gold output in Year 8?
A) 104.1%
B) 104.1
C) 1.04
D) 60
E) 60%
Answer: B
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
78
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30) Refer to Table 2-6. What is the index number for nickel output in Year 5?
A) -200
B) -200%
C) 96
D) 0.96%
E) 96%
Answer: C
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
31) Refer to Table 2-6. What is the index number for nickel output in Year 3?
A) 92.4%
B) -379
C) 379
D) 0.924%
E) 92.4
Answer: E
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
32) Refer to Table 2-6. What is the percentage change in gold output from Year 1 to Year 7?
A) 17.9%
B) 84.8%
C) 15.2%
D) -15.2%
E) 0.152%
Answer: A
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
79
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The table below shows the approximate value of Canada's crude oil and natural gas exports over a 5-year period.
The amounts shown are billions of dollars.
2009
2010
2011
2012
2013
Crude Oil
42.5
49.9
68.3
73.0
81.0
Natural Gas
18.0
17.6
15.6
10.7
12.7
TABLE 2-7
33) Refer to Table 2-7. Assume that 2009 is the base year, with an index number = 100. What is the index number
for the value of crude oil exports in 2013?
A) 52.5
B) 52.5%
C) 38.5
D) 90.6
E) 190.6
Answer: E
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
34) Refer to Table 2-7. Assume that 2009 is the base year, with an index number = 100. What is the index number
for the value of natural gas exports in 2013?
A) 70.6
B) 1.42
C) 142
D) 142%
E) 14.2
Answer: A
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
80
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35) Refer to Table 2-7. Assume that 2009 is the base year, with an index number = 100. What is the index number
for the value of crude oil exports in 2012?
A) 1.72
B) 30.5
C) 171.8
D) 30.5%
E) 0.31
Answer: C
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
36) Refer to Table 2-7. Assume that 2009 is the base year, with an index number = 100. What is the index number
for the value of natural gas exports in 2012?
A) 0.59
B) 59.4%
C) 5.3
D) 59.4
E) -5.3
Answer: D
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
37) Refer to Table 2-7. Assume that 2009 is the base year, with an index number = 100. What is the percentage
change in the value of exports of crude oil from 2009 to 2013?
A) 90.6%
B) 190.6%
C) 100%
D) 96%
E) 0.906%
Answer: A
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
81
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38) Refer to Table 2-7. Assume that 2009 is the base year, with an index number = 100. What is the percentage
change in the value of exports of natural gas from 2009 to 2013?
A) 71
B) -71%
C) 71%
D) 29%
E) -29%
Answer: E
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
39) Refer to Table 2-7. Assume that 2009 is the base year, with an index number = 100. What is the percentage
change in the value of exports of crude oil from 2012 to 2013?
A) 8.0%
B) 10.96%
C) -8.0%
D) 9.9%
E) -9.9%
Answer: B
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
40) Refer to Table 2-7. Assume that 2009 is the base year, with an index number = 100. What is the percentage
change in the value of exports of natural gas from 2012 to 2013?
A) 11.2%
B) 11.2
C) -18.7
D) 18.7%
E) -18.7%
Answer: D
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
User1: Table
User2: Quantitative
82
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41) According to the Bank of Canada's website, Canada's Consumer Price Index (CPI) in August 2012 was 121.8,
August 2013 was 123.1, August 2014 was 125.7 and August 2015 was 127.3. Given this set of index numbers, what
can we conclude about average prices in Canada between August 2012 and August 2015?
A) average prices increased over this time period by 27.3%
B) average prices decreased over this time period by 5.5%
C) average prices decreased each year
D) average prices increased over this time period by 5.5%
E) average prices increased each year
Answer: E
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Quantitative
42) According to the Bank of Canada's website, Canada's Consumer Price Index (CPI) in August 2012 was 121.8,
August 2013 was 123.1, August 2014 was 125.7 and August 2015 was 127.3. Given this set of index numbers, what
is the percentage change in the average level of prices between August 2012 and August 2015?
A) 127.3%
B) 121.8%
C) 5.5%
D) 4.5%
E) 27.3%
Answer: D
Diff: 3
Topic: 2.3a. index numbers
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Quantitative
43) An economist collects data comparing per-capita expenditures on health care across provinces and territories for
the year 2015. The best way to illustrate this data is
A) a time-series line graph.
B) a cross-sectional bar-chart graph.
C) a scatter diagram.
D) a logarithmic scale diagram.
E) a time-series bar chart diagram.
Answer: B
Diff: 2
Topic: 2.3b. graphing economic data
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Qualitative
83
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44) An economist has data showing Canadian GDP for the years 1945-2015. The best way to illustrate these data is
A) a time-series line graph.
B) a cross-sectional bar-chart graph.
C) a scatter diagram.
D) a logarithmic scale diagram.
E) a time-series pie chart.
Answer: A
Diff: 2
Topic: 2.3b. graphing economic data
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Qualitative
45) An economist has data showing household income and energy consumption for 10 000 Canadian households.
The best way to illustrate these data is
A) a time-series line graph.
B) a cross-sectional bar-chart graph.
C) a scatter diagram.
D) a logarithmic scale diagram.
E) a time-series bar chart diagram.
Answer: C
Diff: 2
Topic: 2.3b. graphing economic data
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Qualitative
46) What is the best way to display the unemployment rate in each of the world's developed economies in 2015?
A) a time series line graph
B) a scatter diagram
C) a scatter diagram with two variables
D) a cross-sectional graph with time-series data
E) a cross-sectional bar chart graph
Answer: E
Diff: 2
Topic: 2.3b. graphing economic data
Skill: Applied
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Qualitative
84
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47) Data collected repeatedly over successive periods of time are called
A) cross-sectional data.
B) time-analysis data.
C) logarithmic data.
D) topographic data.
E) time-series data.
Answer: E
Diff: 1
Topic: 2.3b. graphing economic data
Skill: Recall
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Qualitative
48) Data collected of several variables but for the same time period are called
A) cross-sectional data.
B) time-analysis data.
C) logarithmic data.
D) topographic data.
E) time-series data.
Answer: A
Diff: 1
Topic: 2.3b. graphing economic data
Skill: Recall
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Qualitative
49) A scatter diagram
A) is a graph of a theoretical relationship between two variables.
B) relates cross-sectional data only.
C) relates time series data only.
D) plots a series of observations, showing the relationship between two variables.
E) shows the dependence of one variable on another.
Answer: D
Diff: 1
Topic: 2.3b. graphing economic data
Skill: Recall
Learning Obj.: 2-4 Identify several types of economic data, including index numbers, time ‐series and cross ‐sectional data, and
scatter diagrams.
User2: Qualitative
85
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2.4 Graphic Economics Theories
1) When it is said that variable A depends on variable B, then A is
A) a derivative of B.
B) proportional to B.
C) partially exclusive of B.
D) a function of B.
E) independent of B.
Answer: D
Diff: 1
Topic: 2.4a. functional relations
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Qualitative
2) Consider the following equation: Y = 10 + 5X - X2. This equation is an expression of
A) a functional relation between X and Y.
B) two dependent variables in a functional relation.
C) two independent variables in a functional relation.
D) a functional relation in a schedule format.
E) a functional relation in a verbal format.
Answer: A
Diff: 2
Topic: 2.4a. functional relations
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
3) When considering how a family's level of consumption changes in response to changes in its income,
A) income is the dependent variable and family consumption is the independent variable.
B) consumption is the dependent variable and income is the independent variable.
C) both of the variables are independent.
D) both of the variables are dependent.
E) there is no relationship between the variables.
Answer: B
Diff: 2
Topic: 2.4a. functional relations
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Qualitative
86
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4) The mathematical expression of a relationship between two or more variables is usually known as
A) a definition.
B) an assumption.
C) an observation.
D) a function.
E) a theory.
Answer: D
Diff: 1
Topic: 2.4a. functional relations
Skill: Recall
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Qualitative
5) The statement "Y is a function of X" means that the
A) value of Y depends on that of X.
B) value of X depends on that of Y.
C) values of Y and X are the same.
D) values of Y and X are independent.
E) values of Y and X are related to some third variable.
Answer: A
Diff: 1
Topic: 2.4a. functional relations
Skill: Recall
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Qualitative
6) When an increase in one variable is associated with an increase in a second variable, the two variables are
A) proportionally related.
B) inversely proportionally related.
C) positively related.
D) equivalent.
E) negatively related.
Answer: C
Diff: 1
Topic: 2.4a. functional relations
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Qualitative
87
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7) When an increase in one variable is associated with a decrease in a second variable, the two variables are
A) proportionally related.
B) inversely proportionally related.
C) positively related.
D) equivalent.
E) negatively related.
Answer: E
Diff: 1
Topic: 2.4a. functional relations
Skill: Recall
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Qualitative
8) Negatively related variables change such that as the value of one variable
A) decreases, the value of the other variable remains the same.
B) increases, the value of the other variable increases.
C) increases, the value of the other variable remains the same.
D) decreases, the value of the other variable decreases.
E) increases, the value of the other decreases.
Answer: E
Diff: 2
Topic: 2.4a. functional relations
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Qualitative
9) Positively related variables change such that as the value of one variable
A) decreases, the value of the other variable increases.
B) decreases, the value of the other variable decreases.
C) decreases, the value of the other variable remains the same.
D) increases, the value of the other variable decreases.
E) increases, the value of the other variable remains the same.
Answer: B
Diff: 2
Topic: 2.4a. functional relations
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Qualitative
88
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10) Suppose we observe that consumption of electricity decreases when the price of electricity rises. We can say
that the two variables are related
A) positively.
B) linearly.
C) negatively.
D) non-linearly.
E) exogenously.
Answer: C
Diff: 2
Topic: 2.4a. functional relations
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Qualitative
11) Consider the functional relationship between two variables, X and Y. If Y is an increasing function of X, then
A) Y increases when X increases.
B) Y increases when X decreases.
C) X decreases when Y increases.
D) Y decreases when X increases.
E) X remains constant as Y increases.
Answer: A
Diff: 2
Topic: 2.4a. functional relations
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Qualitative
12) The slope of a straight line is necessarily
A) zero.
B) constant.
C) positive.
D) negative.
E) increasing as one moves up the line.
Answer: B
Diff: 2
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Qualitative
89
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13) On a coordinate graph with y on the vertical axis and x on the horizontal axis, suppose that two points on a
straight line are (X = 4, Y = 5), and (X = 2, Y = 1). The slope of this line is
A) -2.
B) - .
C)
.
D)
.
E) 2.
Answer: E
Diff: 2
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
14) If the graph of a function is a horizontal line, the slope of this line is
A) undefined.
B) 0.
C) 1.
D) infinity.
E) -1.
Answer: B
Diff: 2
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
15) On a coordinate graph with y on the vertical axis and x on the horizontal axis, what is the X intercept of the
function X = 60 + 3Y?
A) -20
B) 20
C) -60
D) 60
E) 0
Answer: D
Diff: 2
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
90
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16) On a coordinate graph with y on the vertical axis and x on the horizontal axis, what is the Y intercept of the
function X = 60 + 3Y?
A) -20
B) 0.1
C) 3.0
D) 20
E) 60
Answer: A
Diff: 3
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
17) On a coordinate graph with y on the vertical axis and x on the horizontal axis, suppose point A represents
coordinates (X = 5, Y = 6) and point B represents coordinates (X = 2, Y = 3). Then the slope of the straight line
joining points A and B is
A) -1.
B) 2/3.
C) 5/6.
D) 1.
E) 3/2.
Answer: D
Diff: 2
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
18) The slope of a curve is
A) always positive.
B) always negative.
C) positive if the curve rises to the right.
D) negative if the curve rises to the right.
E) always constant.
Answer: C
Diff: 2
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Qualitative
91
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19) On a coordinate graph with y on the vertical axis and x on the horizontal axis, consider the line which is the
graph of the function Y = 60 - 4X. The slope of this line is
A) 4.
B) 60.
C) -2.5.
D) -4.0.
E) -40.
Answer: D
Diff: 1
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
20) In a co-ordinate graph, with Y on the vertical axis and X on the horizontal axis, the variable X is positive and the
variable Y is negative in the ________ quadrant.
A) top, right
B) top, left
C) bottom, left
D) bottom, right
Answer: D
Diff: 2
Topic: 2.4b. graphing linear functions
Skill: Recall
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Qualitative
21) On a coordinate graph with y on the vertical axis and x on the horizontal axis, suppose point A represents coordinates (X = 10, Y = 12) and point B represents co-ordinates (X = 5, Y = 7). The slope of the straight line joining
points A and B is
A) -1.
B) 1.
C) 2/3.
D) 3/2.
E) 5/6.
Answer: B
Diff: 3
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
92
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22) On a coordinate graph with y on the vertical axis and x on the horizontal axis, suppose point A represents
coordinates (X = 2, Y = 12) and point B represents coordinates (X = 6, Y = 4). The slope of the straight line joining
points A and B is
A) 5.
B) - .
C)
.
D) -2.
E) 2.
Answer: D
Diff: 3
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
93
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FIGURE 2-1
23) Refer to Figure 2-1. What is the slope of the line in part (i) of the figure?
A) -10
B) 5
C) -5
D) -1
E) 1
Answer: A
Diff: 2
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Quantitative
24) Refer to Figure 2-1. What is the slope of the line in part (ii) of the figure?
A) 12.5
B) -12.5
C) 1
D) 0.05
E) 0.08
Answer: D
Diff: 2
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Quantitative
25) On a coordinate graph with y on the vertical axis and x on the horizontal axis, suppose point A represents coordinates (x = 2, y = 16) and point B represents coordinates (x = 10, y = 4). What is the slope of the straight line
joining points A and B?
A) 0.75
94
Copyright © 2017 Pearson Education, Inc.
B) -0.75
C) 1.5
D) -1.5
E) -0.43
Answer: D
Diff: 3
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
26) Suppose Ahmoud would spend $1200 per year on travel, even if his annual income were zero. As his income
rises, he would spend 20% of each additional dollar of income on travel. Choose the correct mathematical equation
that describes the functional relation between his travel spending (T) and his income (Y).
A) Y = 1200 + 0.2T
B) Y = 1200 - 0.2T
C) T = 0.2 + 1200Y
D) T = 1200 + 0.8Y
E) T = 1200 + 0.2Y
Answer: E
Diff: 3
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
27) Suppose that over a 12-month period, Sonali's income (Y) rises from $27 000 to $35 000 per year and, as a
result, her spending on travel (T) increases from $1500 to $2500 per year. Assume there is a linear relation between
the two variables, Y and T. What is the marginal response in T to a change in Y?
A) 8
B) 4
C) 0
D) 0.25
E) 0.125
Answer: E
Diff: 3
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
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28) Suppose there is a linear relationship between the ticket price (P) to a university basketball game and the number
of tickets sold (Q). If the ticket price is $20, then 600 tickets are sold; if the ticket price is $8, then $3000 tickets are
sold. What is the slope of the function if Q is plotted on the horizontal axis and P is plotted on the vertical axis?
A) -0.005
B) -0.05
C) 0
D) 0.05
E) 0.005
Answer: A
Diff: 3
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
FIGURE 2-2
29) Refer to Figure 2-2. The slope of curve A is
A) positive and constant.
B) negative and constant.
C) positive and changing.
D) negative and changing.
E) undefined.
Answer: B
Diff: 1
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Qualitative
30) Refer to Figure 2-2. The slope of curve B is
A) positive and constant.
B) negative and constant.
C) positive and changing.
D) negative and changing.
E) undefined.
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Answer: A
Diff: 2
Topic: 2.4b. graphing linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Qualitative
31) Refer to Figure 2-2. The slope of curve C is
A) positive and constant.
B) negative and constant.
C) positive and changing.
D) negative and changing.
E) impossible to describe.
Answer: C
Diff: 2
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Qualitative
32) Refer to Figure 2-2. The slope of curve D is
A) positive and constant.
B) negative and constant.
C) positive and changing.
D) negative and changing.
E) undefined.
Answer: D
Diff: 2
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Qualitative
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FIGURE 2-3
33) Refer to Figure 2-3. The slope of curve A is
A) zero.
B) negative and variable.
C) positive and variable.
D) positive from X1 to X2 and negative from X2 to X3.
E) negative from X1 to X2 and positive from X2 to X3.
Answer: D
Diff: 2
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Qualitative
34) Refer to Figure 2-3. The slope of curve B is
A) zero at X2.
B) always negative but variable.
C) always positive but variable.
D) undefined at X2.
E) positive from Y1 to Y2 and negative between Y2 and Y3.
Answer: A
Diff: 3
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Qualitative
35) Refer to Figure 2-3. At X2 on curve A, the
A) maximum occurs at Y1.
B) minimum occurs at Y4.
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C) slope of the curve is zero.
D) slope is increasing.
E) slope is decreasing.
Answer: C
Diff: 3
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Qualitative
36) Refer to Figure 2-3. On curve A, the maximum value of Y occurs at
A) values of X greater than X3.
B) X3.
C) X2.
D) X1.
E) X = 0.
Answer: C
Diff: 1
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Qualitative
37) Refer to Figure 2-3. At X2 on curve B, the
A) maximum occurs at Y1.
B) minimum occurs at Y4.
C) slope of the curve is zero.
D) slope is increasing.
E) slope is decreasing.
Answer: C
Diff: 2
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Qualitative
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38) At the minimum or the maximum of the graph of a non-linear function (with x on the horizontal axis and y on
the vertical axis) the slope of the curve is
A) 1.
B) -1.
C) 0.
D) infinite.
E) undefined.
Answer: C
Diff: 2
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
39) At the minimum or the maximum of the graph of a non-linear function (with x on the horizontal axis and y on
the vertical axis) the marginal response of y to a small change in x is
A) 1.
B) -1.
C) 0.
D) infinite.
E) undefined.
Answer: C
Diff: 3
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User2: Quantitative
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FIGURE 2-4
40) Refer to Figure 2-4. This non-linear function shows that over the range shown,
A) as more fertilizer is applied, the marginal response in yield is increasing
B) as more fertilizer is applied, the marginal change in yield is diminishing.
C) as the yield per acre increases, the amount of fertilizer required per acre is diminishing.
D) as the yield per acre increases, the amount of fertilizer required per acre is increasing.
E) as more fertilizer is applied, the total yield per acre is diminishing.
Answer: B
Diff: 3
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Qualitative
41) Refer to Figure 2-4. The functional relation shown between fertilizer applied and wheat yield can be described
as a
A) constant marginal response.
B) increasing partial response.
C) decreasing total response.
D) diminishing marginal response.
E) increasing marginal response.
Answer: D
Diff: 3
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Qualitative
42) Refer to Figure 2-4. The slope of the non-linear function changes as we move along the curve. The slope is
A) positive and increasing, indicating an increasing marginal response.
B) negative and decreasing, indicating a diminishing marginal response.
C) positive and decreasing, indicating a diminishing marginal response.
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D) negative and increasing, indicating an increasing marginal response.
E) constant at all points, indicating a constant marginal response.
Answer: C
Diff: 3
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Qualitative
43) Refer to Figure 2-4. If we want to know the marginal response of "yield per acre" due to a change in "fertilizer
applied per acre of wheat" at point B, then we should determine the
A) slope of a straight line tangent to point B.
B) slope of a straight line joining points B and C.
C) yield per acre at 30 units of fertilizer.
D) the slope of a straight line from the origin to point B.
E) quantity of fertilizer applied at point B.
Answer: A
Diff: 3
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Qualitative
44) Refer to Figure 2-4. Suppose we draw a straight line tangent to point B of the non-linear function. The straight
line has a slope of 0.075. What information is conveyed to us by this measurement?
A) At point B, the marginal response to the application of 30 units of fertilizer per acre is 0.075 tonnes of wheat.
B) At point B, if one additional unit of fertilizer is applied per acre, the marginal response is 0.075 tonnes of wheat
per acre.
C) Because point B is midway between point A and point C, the yield per acre is 0.075 tonnes of wheat when
fertilizer applied is between 10 and 60 units per acre.
D) At point B, when fertilizer is applied at a rate of 30 units per acre, the yield is 0.075 tonnes per acre.
E) At point B, the marginal response to the application of 0.075 units of fertilizer is between 4 and 5 tonnes per acre.
Answer: B
Diff: 3
Topic: 2.4c. graphing non-linear functions
Skill: Applied
Learning Obj.: 2-5 See that the slope of a line on a graph relating two variables shows the "marginal response" of one variable to
a change in the other.
User1: Graph
User2: Quantitative
Figure 2-5 shows monthly average (per unit) production costs for producing Good X.
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FIGURE 2-5
45) Refer to Figure 2-5. What is the slope of this non-linear function when 200 units per month are being produced?
A) 4
B) -4
C) 0.25
D) -5.2
E) -0.25
Answer: B
Diff: 3
Topic: 2.4c. graphing non-linear functions
Skill: Applied
User1: Graph
User2: Quantitative
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46) Refer to Figure 2-5. What is the slope of this non-linear function when 600 units per month are being produced?
A) -2
B) 4
C) -4
D) 1
E) -1
Answer: E
Diff: 3
Topic: 2.4b. graphing linear functions
Skill: Applied
User1: Graph
User2: Quantitative
47) Refer to Figure 2-5. What is the slope of this non-linear function when 1200 units per month are being
produced?
A) 0.25
B) -0.25
C) 4
D) -4
E) -2
Answer: B
Diff: 3
Topic: 2.4b. graphing linear functions
Skill: Applied
User1: Graph
User2: Quantitative
Economics - Canadian Edition, 15e (Ragan)
Chapter 3 Demand, Supply, and Price
3.1 Demand
1) Which of the following best defines quantity demanded?
A) The amount an individual purchases at its current price.
B) The amount an individual purchases at his or her current income.
C) The amount, per time period, that is desired at the most recent price.
D) The amount, per time period, an individual desires to purchase at any given price.
E) The various amounts that all individuals desire at all relevant prices.
Answer: D
Diff: 1
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
2) The time period to which quantity demanded refers when constructing demand curves is
A) a moment in time.
B) a long period of time.
C) one year.
D) any specified time period.
E) a period shorter than one year.
Answer: D
Diff: 2
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
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3) The term "quantity demanded" refers to the
A) total amount of a good that is actually purchased during a given period of time.
B) entire relationship between desired purchases and possible prices.
C) total amount of a good that purchasers wish to purchase at a given price during a given period of time.
D) product of advertising, and is unrelated to price.
E) total amount of a good that people wish to buy, regardless of price.
Answer: C
Diff: 1
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
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4) Four of the five statements below contain a stock and a flow. Which statement describes ONLY stock variables
OR flow variables?
A) Chris earns $1500 per month and has $4000 in his savings account at the bank.
B) Nancy spends $400 per month on her credit card and has a balance owing of $2567.
C) The Transit Authority of Mytown collects $22 000 in fares per day and has an operating budget of $2 million per
year.
D) Country X spends an average of $1 million per year for flood relief and has an emergency services fund of $20
million.
E) The Canadian Federal government has a debt of approximately $450 billion and an annual deficit of over $25
billion dollars.
Answer: C
Diff: 2
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
5) A variable that is a "stock"
A) is measured per unit of time.
B) has meaning only at a point in time.
C) has only to do with products where inventory is kept.
D) has the same units as a flow variable.
E) is used only in accounting.
Answer: B
Diff: 1
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
6) Ceteris paribus means
A) other things being equal.
B) and so forth.
C) knowledge gained before the study of evidence is made.
D) among other things.
E) in a historical context.
Answer: A
Diff: 1
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
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7) The "law of demand" hypothesizes that, other things being equal,
A) the lower the price, the greater the demand.
B) price and demand vary inversely.
C) the higher the price, the lower the quantity demanded.
D) the higher the income, the higher the quantity demanded.
E) price and quantity demanded are positively related.
Answer: C
Diff: 1
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
8) In a market for a good or service, the quantities demanded and supplied are
A) both stock variables.
B) both flow variables.
C) a flow variable and a stock variable, respectively.
D) a stock variable and a flow variable, respectively.
E) neither stock nor flow variables.
Answer: B
Diff: 2
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
9) For a given commodity, quantity demanded can be represented by
A) a demand curve.
B) a demand schedule.
C) a point on a demand curve.
D) the money value of the stock of the commodity held by households.
E) the price on the vertical axis.
Answer: C
Diff: 2
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
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10) A demand curve is a representation of the relationship, ceteris paribus, between quantity demanded and
A) supply.
B) wealth.
C) price.
D) income.
E) preferences.
Answer: C
Diff: 1
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
11) Which statement best describes the "law of demand"? Other things being equal, the quantity of tennis rackets
demanded will be greater if the
A) incomes of tennis players are higher.
B) price of tennis rackets is lower.
C) price of badminton rackets is higher.
D) number of tennis players is higher.
E) demand for tennis rackets rises.
Answer: B
Diff: 2
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
12) The "law of demand" describes
A) an inverse relationship between the price of a good and the quantity of the good demanded per unit of time, other
things being equal.
B) a positive relationship between the price of a good and the quantity of the good demanded per unit of time,
ceteris paribus.
C) an inverse relationship between the price of a good and the demand for the good, per unit of time.
D) a direct relationship between the price of a good and the demand for the good.
E) any relationship between quantity demanded and demand for a good.
Answer: A
Diff: 1
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
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13) Which statement best describes a "demand schedule"?
A) a functional statement of the demand relationship
B) a graph showing the inverse relationship between quantity demanded and price
C) a numerical tabulation showing the quantities demanded at various prices
D) a timetable showing the quantity demanded at different time periods
E) an abstract concept underlying the graph of a demand curve
Answer: C
Diff: 1
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
14) An important assumption underlying a demand schedule is that
A) quantity demanded and demand mean the same thing.
B) everything else except the product's price is being held constant.
C) the numbers are not important; the general relationship between the variables is.
D) household tastes rarely change.
E) income has little significance to household demand.
Answer: B
Diff: 2
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
15) Which statement best describes a demand curve?
A) a functional statement of the demand relationship
B) a numerical table showing the inverse relationship between quantity demanded and price, other things being
equal
C) a graph showing the relationship between quantity demanded and the price of a commodity, other things being
equal
D) a timetable showing the quantity demanded at different time periods
E) an abstract concept underlying the graph of a demand curve
Answer: C
Diff: 1
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
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16) A demand curve represents graphically
A) a functional statement of the income-quantity relationship.
B) the timeless relationship between quantity demanded and price.
C) the quantity demanded per unit of time at various prices.
D) the available quantities at all possible prices for the product.
E) quantity demanded.
Answer: C
Diff: 1
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
17) To say that the demand curve for movies is negatively sloped means that
A) less quantity will be demanded at lower prices.
B) less quantity will be demanded as preferences change.
C) less quantity will be demanded at higher prices.
D) more quantity will be demanded as consumers' income increases.
E) less quantity will be demanded at the same price.
Answer: C
Diff: 1
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
18) A change in demand is said to take place when there is a
A) movement along the demand curve.
B) shift of the demand curve.
C) shift of the supply curve.
D) price change.
E) quantity change.
Answer: B
Diff: 2
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
19) A normal good is one
A) that everyone normally consumes.
B) that normal people consume.
C) for which demand varies directly with household income.
D) for which demand varies inversely with household income.
E) for which demand does not vary with household income.
Answer: C
Diff: 2
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
20) What is an inferior good?
A) a good that everyone normally consumes
B) a good that inferior people consume
C) a good for which demand varies directly with household income
D) a good for which demand varies inversely with household income
E) a good for which demand does not vary with household income
Answer: D
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Diff: 2
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
21) Consider butter and margarine, which are substitutes. When the price of butter falls, the demand curve for
margarine is likely to
A) shift to the right.
B) shift to the left.
C) remain stationary.
D) remain stationary, although its price will fall.
E) remain stationary, although its price will rise.
Answer: B
Diff: 2
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
22) Goods X and Y are defined to be substitutes in consumption if
A) the supply of Y varies inversely with the price of X.
B) the two goods are virtually the same.
C) the supply of Y varies directly with the price of X.
D) the demand for Y varies directly with the price of X.
E) the demand for Y varies inversely with the price of X.
Answer: D
Diff: 3
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
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23) If the price of tea falls and as a consequence the demand for sugar rises, then tea and sugar are
A) substitute goods.
B) complementary goods.
C) luxury goods.
D) neutral goods.
E) independent goods.
Answer: B
Diff: 1
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
24) If goods X and Y are substitutes and the price of X falls, all other things being equal, the demand curve for Y
will
A) shift to the left.
B) shift to the right.
C) not shift at all.
D) be indeterminate.
Answer: A
Diff: 2
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
25) Which of the following pairs of goods are likely to be substitutes for a large group of consumers?
A) eggs and toast
B) coffee and cream
C) green beans and peas
D) wieners and buns
E) pancakes and syrup
Answer: C
Diff: 1
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
26) Which of the following pairs of goods are likely to be complements for a large group of consumers?
A) televisions and radios
B) cars and trucks
C) tea and coffee
D) e-readers and e-books
E) tents and tent-trailers
Answer: D
Diff: 1
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
27) If tastes change so that a particular style of boots is now considered more appealing, the likely result is
A) a shift in the demand curve to the right.
B) a shift in the demand curve to the left.
C) a movement down the demand curve.
D) a movement up the demand curve.
E) no change in the demand curve.
Answer: A
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Diff: 1
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
28) Cars and gasoline are likely to be
A) complementary goods.
B) substitute goods.
C) independent goods.
D) inferior goods.
E) luxury goods.
Answer: A
Diff: 1
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
29) Consider cars and gasoline. Other things being equal, when the price of cars decreases, the demand for gasoline
is likely to
A) remain unchanged because cars and gasoline are produced independently of one another.
B) decrease because the two goods are complements.
C) remain unchanged.
D) increase because the two goods are complements.
E) remain unchanged because cars and gasoline are two distinct markets.
Answer: D
Diff: 2
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
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30) If goods X and Y are complements and the price of X falls, all other things being equal, the demand curve for Y
will
A) shift to the left.
B) shift to the right.
C) not shift at all.
D) unable to determine.
Answer: B
Diff: 2
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
31) Ceteris paribus, the position of the demand curve for apples will remain unchanged if there is a change in the
A) income of apple eaters.
B) price of apples.
C) hourly wage rate of most workers.
D) price of pears.
E) knowledge regarding the health benefits of eating fresh fruit.
Answer: B
Diff: 2
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
32) A variable that is assumed to be constant along an individual's demand curve for good X is the
A) price of good X.
B) quantity of X demanded per unit of time.
C) price of a substitute good, Y.
D) amount of X the individual wishes to purchase.
E) consumer's real purchasing power.
Answer: C
Diff: 3
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
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33) "Demand" in a particular market refers to
A) only the quantity demanded by households at current market prices.
B) the quantity purchased at the current market price.
C) the quantity that is desired but not satisfied by current supply.
D) the entire relationship between quantity demanded and price.
E) the relationship between demand and supply.
Answer: D
Diff: 1
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
34) A change in which of the following variables will result in NO change in the demand for a given commodity?
A) average household income
B) the distribution of income
C) population
D) tastes in favour of the commodity
E) the price of the commodity
Answer: E
Diff: 2
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
35) When deriving the market demand curve for a commodity, the only variable(s) that can change is (are) the
A) price of a related commodity.
B) income of consumers.
C) quantity of the commodity demanded.
D) price of the commodity.
E) both C and D.
Answer: E
Diff: 1
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
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36) Which of the following would cause a movement along the demand curve for ski-lift tickets, other things being
equal?
A) a change in tastes in favour of skiing
B) an increase in price as the supply curve for lift tickets shifts to the left
C) a rise in the price of ski boots and skis
D) a rise in average household income
E) an increase in population
Answer: B
Diff: 2
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
37) In which statement is the term "demand" used correctly? (1) An increase in the price of eggs will lead to a
decrease in the demand for eggs. (2) An increase in the price of eggs will lead to a decrease in the demand for bacon.
A) neither statement
B) the first statement only
C) the second statement only
D) both statements
E) more information is needed
Answer: C
Diff: 3
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
38) In which statement is the term "demand" used correctly? (1) An increase in the price of copper will lead to a
decrease in the demand for copper. (2) An increase in the price of copper will lead to an increase in the demand for
aluminum (a substitute for copper).
A) neither statement
B) the first statement only
C) the second statement only
D) both statements
E) more information is needed
Answer: C
Diff: 3
Topic: 3.1. demand
Skill: Applied
User2: Qualitative
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39) In which statement is the term "demand" used correctly? (1) A decrease in the price of airline tickets led to an
increase in quantity demanded for airline tickets. (2) A decrease in the price of airline tickets led to an increase in
the demand for airline tickets.
A) neither statement
B) the first statement only
C) the second statement only
D) both statements
E) more information is needed
Answer: B
Diff: 2
Topic: 3.1. demand
Skill: Applied
User2: Qualitative
40) In which statement is the term "demand" used correctly? (1) An increase in the price of copper will lead to an
increase in the demand for aluminum (a substitute for copper). (2) An increase in the price of aluminum will lead to
a decrease in quantity demanded of aluminum.
A) neither statement
B) the first statement only
C) the second statement only
D) both statements
E) more information is needed
Answer: D
Diff: 2
Topic: 3.1. demand
Skill: Applied
User2: Qualitative
41) Suppose new medical research suggests that consuming 200 grams of tofu everyday helps to prevent heart
disease. Widespread knowledge of this research, other things being equal, is likely to have what impact on the
market for tofu?
A) shift the whole demand curve to the right
B) shift the whole demand curve to the left
C) movement along the demand curve to the right
D) movement along the demand curve to the left
E) there would likely be no effect
Answer: A
Diff: 1
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
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42) Economists say there has been a change in demand when there is
A) a movement along the demand curve.
B) a shift of the demand curve.
C) a shift of the supply curve.
D) a price change.
E) a quantity change.
Answer: B
Diff: 1
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
43) Which of the following events would result in a change in the quantity demanded for some commodity but NOT
a change in the demand for that commodity?
A) a change in average household income
B) a change in the distribution of income
C) a change in population
D) a change in tastes in favour of the commodity
E) a change in the price of the commodity
Answer: E
Diff: 2
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
44) Quantity demanded is a flow variable, which means that it must be expressed
A) as so much at a specific moment in time.
B) in units of the good per day.
C) in units of the good per week.
D) in units of the good per year.
E) in units of the good per period of time.
Answer: E
Diff: 2
Topic: 3.1. demand
Skill: Recall
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Qualitative
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FIGURE 3-1
45) Refer to Figure 3-1. If demand is given by the curve D, the ________ energy-efficient light bulbs is
price of $9.
A) demand for
B) quantity purchased of
C) demand schedule for
D) quantity demanded of
E) quantity sold of
Answer: D
Diff: 2
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User1: Graph
User2: Qualitative
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at a
46) Refer to Figure 3-1. The movement along the demand curve, D, from point v to point x, could be caused by
A) a change in preferences away from ordinary light bulbs to energy-efficient light bulbs.
B) a change in the price of energy-efficient light bulbs.
C) an increase in household income, which allows consumers to purchase more light bulbs.
D) a change in the price of ordinary light bulbs.
E) an expectation that new, government regulations will require the use of energy-efficient light bulbs only.
Answer: B
Diff: 2
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User1: Graph
User2: Qualitative
47) Refer to Figure 3-1. A shift of the demand curve for energy-efficient light bulbs from D to D2 could be caused
by
A) an increase in the price of ordinary light bulbs.
B) a change in preferences away from ordinary bulbs to energy-efficient bulbs.
C) an expectation that new government regulation will require the use of energy-efficient light bulbs only.
D) a decrease in the price of energy-efficient light bulbs.
E) a news bulletin stating that energy-efficient light bulbs emit a harmful gas.
Answer: E
Diff: 3
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User1: Graph
User2: Qualitative
48) Refer to Figure 3-1. A shift of the demand curve for energy-efficient light bulbs from D to D1 could be caused
by
A) a decrease in the price of ordinary light bulbs.
B) a news bulletin stating that energy-efficient light bulbs emit a harmful gas.
C) a decrease in the price of energy-efficient light bulbs.
D) an expectation that government regulation will soon prohibit the use of ordinary light bulbs.
E) a change in preferences toward ordinary light bulbs.
Answer: D
Diff: 2
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User1: Graph
User2: Qualitative
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49) Suppose that the demand curves for goods A, B, and C have the following functional forms:, where Q denotes
quantity demanded and P denotes price:
QA = 120 - 3.5 PA - 6PB
QB = 100 - 2PB + 3PC
QC = 1500 - 0.5PC.
Based on these demand curves, which of the following pairs of goods are known to be complements?
A) B and C
B) A and C
C) A and B
D) A and C, and B and C
E) none of the pairs are complements
Answer: C
Diff: 3
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Quantitative
50) Suppose that the demand curves for goods A, B, and C have the following functional forms:, where Q denotes
quantity demanded and P denotes price:
QA = 120 - 3.5PA - 6PB
QB = 100 - 2PB + 3PC
QC = 1500 - 0.5PC.
Based on these demand curves, which of the following pairs of goods are known to be substitutes?
A) A and C
B) A and B
C) B and C
D) A and C, and B and C
E) none of the pairs are substitutes
Answer: C
Diff: 3
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Quantitative
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51) Suppose the demand curves for goods A, B, and C have the following functional forms, where Q denotes
quantity demanded, P denotes price, and M denotes income:
QA = 120 - 3.5PA - 6PB + 14M
QB = 100 - 2PB + 3PC + 1.1M
QC = 1500 - 0.5PC - 300M.
Based on these demand curves, which of the following goods are known to be normal goods?
A) A
B) B
C) C
D) A and B only
E) A, B and C
Answer: D
Diff: 3
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Quantitative
52) Suppose the demand curves for goods A, B, and C have the following functional forms, where Q denotes
quantity demanded, P denotes price, and M denotes income:
QA = 120 - 3.5PA - 6PB + 14M
QB = 100 - 2PB + 3PC + 1.1M
QC = 1500 - 0.5PC - 300M.
Based on these demand curves, which of the following goods are known to be inferior goods?
A) A
B) B
C) C
D) A and B only
E) A, B and C
Answer: C
Diff: 3
Topic: 3.1. demand
Skill: Applied
Learning Obj.: 3-2 Distinguish between a shift of the demand curve and a movement along the demand curve.
User2: Quantitative
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3.2 Supply
1) The positive slope of a supply curve indicates that
A) as price goes up, quantity supplied will decrease.
B) consumers will want to buy less at higher prices.
C) as price goes up, quantity supplied will increase.
D) if the costs of production increase, the quantity supplied will increase.
E) as price goes up, quantity supplied will remain constant.
Answer: C
Diff: 2
Topic: 3.2. supply
Skill: Recall
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
2) Which of the following events would cause a change in the quantity supplied of some agricultural commodity but
would not cause a change in the supply of that same commodity?
A) a change in factor costs
B) a technological change
C) a change in the price of the commodity
D) a change in the number of suppliers of the commodity
E) a change in the price of substitute goods
Answer: C
Diff: 3
Topic: 3.2. supply
Skill: Recall
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
3) Suppose that many coal mines are shut for environmental reasons. This will cause
A) an increase in the supply of coal (a rightward shift of the supply curve).
B) a decrease in the supply of coal (a leftward shift of the supply curve).
C) a movement up the supply curve.
D) a movement down the supply curve.
E) no change in the supply curve, only a change in price.
Answer: B
Diff: 2
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
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4) The market supply curve for wooden shipping crates would shift to the right
A) if a government subsidy for shipping crates is withdrawn.
B) if the prices of inputs fall.
C) if a tax is applied to shipping crates.
D) if suppliers leave the industry.
E) if technological conditions for the production of crates deteriorates.
Answer: B
Diff: 2
Topic: 3.2. supply
Skill: Recall
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
5) The term "quantity supplied" is the amount of a commodity that
A) firms wish to sell at a given price during a given period of time.
B) firms actually sell during a given period of time at a given price.
C) households wish firms would sell during a given period of time at a given price.
D) is exchanged between firms and consumers during a given period of time at a given price.
E) is supplied at a fair market price.
Answer: A
Diff: 1
Topic: 3.2. supply
Skill: Recall
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
6) Suppose there is a decrease in the quantity supplied of copper at each price. This change would imply
A) a shift to the left of the supply curve.
B) a shift to the right of the supply curve.
C) a movement up the supply curve.
D) a movement down the supply curve.
Answer: A
Diff: 1
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
7) The term "supply" in a particular market refers to
A) the particular quantity supplied at the moment.
B) only one point on the supply curve.
C) only one entry in a supply schedule.
D) the entire relationship between quantity supplied and price.
E) the quantity actually sold to consumers.
Answer: D
Diff: 1
Topic: 3.2. supply
Skill: Recall
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
8) A fall in the price of raw milk (which is used in the production of ice cream) will
A) decrease the supply of ice cream, causing the supply curve of ice cream to shift to the left.
B) increase the supply of ice cream, causing the supply curve of ice cream to shift to the right.
C) decrease the supply of ice cream, causing the supply curve to shift to the right.
D) have no effect on the supply curve of ice cream but cause a downward movement along the supply curve of ice
cream.
E) increase the supply of ice cream, causing the supply curve to shift to the left.
Answer: B
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Diff: 2
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
9) To say that the supply curve is positively sloped means that
A) as price goes up, quantity supplied will decrease.
B) households will want to buy less at higher prices.
C) as price goes up, quantity supplied will increase.
D) if the costs of production increase, the quantity supplied will have to increase also.
E) as price goes up, quantity supplied will remain constant.
Answer: C
Diff: 1
Topic: 3.2. supply
Skill: Recall
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
10) A rightward shift in the supply curve indicates
A) a decrease in the quantity supplied at each price.
B) that an increase in income results in an increase in the quantity demanded at each price.
C) that more is demanded at each price.
D) an increase in the quantity supplied at each price.
E) a shift in the demand curve also (because demand must equal supply).
Answer: D
Diff: 1
Topic: 3.2. supply
Skill: Recall
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
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11) A "decrease in supply" refers to which of the following?
A) the likely result from a decrease in the price of a factor of production
B) a downward movement along a supply curve
C) a decrease in quantity supplied
D) a leftward shift in the supply curve
E) a drop in the quantity actually exchanged
Answer: D
Diff: 1
Topic: 3.2. supply
Skill: Recall
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
12) Suppose that a newer way to produce a good is discovered, which reduces production costs for the good. This
will cause
A) no change in the supply curve, only a change in price.
B) a decrease in supply (a leftward shift of the supply curve).
C) a movement up the supply curve.
D) a movement down the supply curve.
E) an increase in supply (a rightward shift of the supply curve).
Answer: E
Diff: 2
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
13) Suppose that some resource X is necessary to produce some good Y. If the price of X falls
A) the supply curve of resource X shifts to the left.
B) the supply curve of good Y shifts to the right.
C) the supply curve of good Y is unaffected.
D) there is a movement along the supply curve of good Y.
E) the demand curve for X shifts to the right.
Answer: B
Diff: 2
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
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14) An improvement in the technology used to produce solar panels will
A) lead to a leftward shift in the supply curve.
B) lead to a leftward shift of the demand curve.
C) lead to a rightward shift of the demand curve.
D) have no effect on the supply curve for solar panels.
E) lead to a rightward shift in the supply curve.
Answer: E
Diff: 2
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
15) An increase in the number of firms wanting to provide accounting services will cause a ________ for accounting
services.
A) leftward shift in the supply curve
B) rightward shift in the demand curve
C) leftward shift in the demand curve
D) rightward shift in the supply curve
E) simultaneous shift of both the demand and supply curves
Answer: D
Diff: 2
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
16) The supply for some good or service will decrease if
A) technology improves.
B) the prices of inputs fall.
C) the prices of inputs increase.
D) technology improves and the price of inputs falls.
E) more suppliers enter the industry.
Answer: C
Diff: 2
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
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17) In which statement is the term "supply" used correctly? (1) An increase in the price of leather will cause a
decrease in the supply of leather. (2) An increase in the price of leather will cause a decrease in the supply of leather
boots.
A) the second statement only
B) neither statement
C) the first statement only
D) both statements
E) not enough information to tell
Answer: A
Diff: 3
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
18) In which statement is the term "supply" used correctly? (1) An increase in the price of copper will lead to an
increase in the quantity supplied of copper. (2) An increase in the price of copper will lead to an increase in the
supply of copper.
A) neither statement
B) the first statement only
C) the second statement only
D) both statements
E) more information is needed
Answer: B
Diff: 2
Topic: 3.2. supply
Skill: Applied
User2: Qualitative
19) In which statement is the term "supply" used correctly? (1)An increase in the number of suppliers of copper will
lead to an increase in the supply of copper. (2) An increase in the number of suppliers of copper will likely lead to a
decrease in the quantity supplied of copper.
A) neither statement
B) the first statement only
C) the second statement only
D) both statements
E) more information is needed
Answer: B
Diff: 2
Topic: 3.2. supply
Skill: Applied
User2: Qualitative
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20) A fall in the price of potatoes, which are used in the production of french fries, will
A) lead to a decrease in the supply of french fries, causing the supply curve of french fries to shift to the left.
B) lead to an increase in the supply of french fries, causing the supply curve of french fries to shift to the right.
C) have no effect on the supply of french fries.
D) have no effect on the supply of french fries but cause a movement along the supply curve of french fries.
E) lead to a decrease in the demand for french fries.
Answer: B
Diff: 2
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
21) A leftward shift in the supply curve indicates
A) a decrease in the quantity supplied at each price.
B) that an increase in income results in an increase in the quantity demanded at each price.
C) that more is demanded at each price.
D) an increase in the quantity supplied at each price.
E) that more suppliers have entered the industry.
Answer: A
Diff: 2
Topic: 3.2. supply
Skill: Recall
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User2: Qualitative
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FIGURE 3-2
22) Refer to Figure 3-2. If the supply curve is given by S, the ________ energy-efficient light bulbs is 175 000 when
the price is $9.
A) quantity supplied of
B) quantity purchased of
C) quantity sold of
D) supply schedule for
E) supply of
Answer: A
Diff: 2
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User1: Graph
User2: Qualitative
23) Refer to Figure 3-2. The movement along the supply curve, S, from point a to point c, could be caused by
A) a decrease in the price of energy-efficient light bulbs.
B) a decrease in the price of glass, a major input in the production of energy-efficient light bulbs.
C) an increase in the number of suppliers of energy-efficient light bulbs.
D) an increase in the price of energy-efficient light bulbs.
E) a decrease in the price of ordinary light bulbs.
Answer: D
Diff: 2
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User1: Graph
User2: Qualitative
24) Refer to Figure 3-2. A shift of the supply curve from S to S1 could be caused by
A) an increase in the price of energy-efficient light bulbs.
B) a decrease in the price of energy-efficient light bulbs.
C) an expectation that new government regulations will ban the use of energy-efficient light bulbs.
D) a change in consumers' preferences away from ordinary light bulbs toward energy-efficient light bulbs.
E) a decrease in the price of glass, a major input in the production of energy-efficient light bulbs.
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Answer: E
Diff: 2
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User1: Graph
User2: Qualitative
25) Refer to Figure 3-2. A shift of the supply curve for energy-efficient light bulbs from S to S2 could be caused by
A) an increase in the price of energy-efficient light bulbs.
B) a decrease in the price of energy-efficient light bulbs.
C) an increase in the number of suppliers.
D) the elimination of existing government subsidies to suppliers of energy-efficient light bulbs.
E) a change in consumers' preferences away from ordinary light bulbs.
Answer: D
Diff: 3
Topic: 3.2. supply
Skill: Applied
Learning Obj.: 3-3 List the factors that determine the quantity supplied of a good.
User1: Graph
User2: Qualitative
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3.3 The Determination of Price
1) Choose the best description of an "equilibrium price."
A) The price in the middle of supply and demand.
B) The price at which quantity demanded of the commodity is equal to the quantity supplied.
C) The price that consumers are willing to pay.
D) The price that producers want to charge.
E) The price at which demand for the commodity is equal to supply.
Answer: B
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
2) An equilibrium price can be described as
A) the price at which excess demand equals excess supply.
B) an aggregate price.
C) the final price.
D) one at which there is neither excess demand nor excess supply.
E) a regulated price.
Answer: D
Diff: 1
Topic: 3.3a. equilibrium price and quantity
Skill: Recall
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
3) "Excess demand" can also be described as
A) excess supply.
B) the area to the left of the equilibrium price on a supply and demand diagram.
C) quantity demanded exceeding quantity supplied.
D) quantity supplied exceeding quantity demanded.
E) the area to the right of the equilibrium price on a supply and demand diagram.
Answer: C
Diff: 1
Topic: 3.3a. equilibrium price and quantity
Skill: Recall
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
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4) A surplus exists in the market when
A) the quantity demanded exceeds the quantity supplied.
B) supply and demand are equal.
C) the quantity demanded is less than the quantity supplied.
D) the equilibrium price is too low.
E) the supply curve has shifted to the left.
Answer: C
Diff: 1
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
5) At the market-clearing price for a commodity
A) prices will remain unchanged, even if there is excess demand.
B) there may be excess demand for a product but not excess supply.
C) shifts in the supply or demand curves will not cause price changes.
D) the quantity supplied of the commodity equals quantity demanded.
E) there will never again be any pressure for prices to change, independent of what happens to demand or supply.
Answer: D
Diff: 1
Topic: 3.3a. equilibrium price and quantity
Skill: Recall
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
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The supply and demand schedules for dozens of roses are given below:
Price
$10
$20
$30
$40
$50
Quantity Supplied
per period
200
300
400
500
600
Quantity Demanded per
period
500
450
400
350
300
TABLE 3-1
6) Refer to Table 3-1. The equilibrium price for a dozen roses is
A) $10.
B) $20.
C) $30.
D) $40.
E) $50.
Answer: C
Diff: 1
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Quantitative
7) Refer to Table 3-1. How many dozens of roses would actually be purchased if the price in this market were $10?
A) 200
B) 300
C) 350
D) 400
E) 500
Answer: A
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Quantitative
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8) Refer to Table 3-1. At a price of ________ there would be an excess ________ of 300 dozen roses.
A) $10; supply
B) $30; supply
C) $10; demand
D) $50; demand
E) $30; demand
Answer: C
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Quantitative
9) Refer to Table 3-1. At a price of ________ there would be an excess ________ of 300 dozen roses.
A) $30; supply
B) $50; demand
C) $10; demand
D) $50; supply
E) both C and D are correct
Answer: E
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User1: Table
User2: Quantitative
10) Refer to Table 3-1. How many dozen of roses would actually be purchased if the price in this market were $40?
A) 150
B) 350
C) 200
D) 500
E) 850
Answer: B
Diff: 1
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User1: Table
User2: Quantitative
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The supply and demand schedules for the umbrella market are given below:
Price
$10
$15
$20
$25
$30
Quantity Supplied
400
500
600
700
800
Quantity Demanded
700
650
600
550
500
TABLE 3-2
11) Refer to Table 3-2. The equilibrium price for umbrellas is
A) $10.
B) $15.
C) $20.
D) $25.
E) $30.
Answer: C
Diff: 1
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Quantitative
12) Refer to Table 3-2. What number of umbrellas would actually be purchased if the price in this market were $10?
A) 400
B) 500
C) 550
D) 650
E) 700
Answer: A
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Quantitative
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13) Refer to Table 3-2. At a price of ________ there would be an excess ________ of umbrellas.
A) $10; supply
B) $20; supply
C) $10; demand
D) $30; demand
E) $20; demand
Answer: C
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Quantitative
14) Refer to Table 3-2. At a price of ________ there would be an excess ________ of umbrellas.
A) $10; supply
B) $15; supply
C) $20; supply
D) $25; supply
E) $30; demand
Answer: D
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User1: Table
User2: Quantitative
15) Refer to Table 3-2. At a price of ________ there would be an excess ________of 150 umbrellas.
A) $10; demand
B) $15; demand
C) $20; supply
D) $25; demand
E) $30; supply
Answer: B
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User1: Table
User2: Quantitative
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The demand and supply schedules for a hypothetical Canadian market for barley are given below:
Price
($ per tonne)
100
125
150
175
200
225
Quantity Demanded
(million tonnes)
370
360
350
340
330
320
Quantity Supplied
(million tonnes)
300
325
350
375
400
425
TABLE 3-3
16) Refer to Table 3-3. The equilibrium price of barley is
A) $125.
B) $150.
C) $175.
D) $200.
E) $225.
Answer: B
Diff: 1
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User1: Table
User2: Quantitative
17) Refer to Table 3-3. If the price in this market was $100 per tonne, then the amount of barley actually purchased
would be ________ million tonnes.
A) 70
B) -70
C) 670
D) 300
E) 370
Answer: D
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User1: Table
User2: Quantitative
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18) Refer to Table 3-3. If the price in this market was $200 per tonne, then the amount of barley actually purchased
would be ________ million tonnes.
A) 70
B) -70
C) 330
D) 400
E) 730
Answer: C
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User1: Table
User2: Quantitative
19) Refer to Table 3-3. At a price of $125 per tonne there would be an excess ________ million tonnes of barley.
A) supply of 325
B) demand of 360
C) supply of 35
D) demand of 35
E) supply of 125
Answer: D
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User1: Table
User2: Quantitative
20) Refer to Table 3-3. At a price of $200 per tonne there would be an excess ________ million tonnes of barley.
A) supply of 200
B) demand of 330
C) supply of 400
D) demand of 70
E) supply of 70
Answer: E
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User1: Table
User2: Quantitative
139
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The table below displays hypothetical demand and supply schedules for the market for overnight parcel deliveries in
Canada.
Price ($)
Quantity
Demanded
(millions)
Year 1
30
26
22
18
14
10
80
90
100
110
120
130
Year 2
Quantity
Supplied
(millions)
Year 1
Year 2
95
105
115
125
135
145
140
135
130
125
120
115
125
120
115
110
105
100
TABLE 3-4
21) Refer to Table 3-4. The equilibrium price and quantity for overnight parcel delivery in Year 1 is ________ and
________ million parcels.
A) $30; 80
B) $14; 120
C) $22; 115
D) $10; 115
E) $22; 130
Answer: B
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Quantitative
22) Refer to Table 3-4. The equilibrium price and quantity for overnight parcel delivery in Year 2 is ________ and
________ million parcels.
A) $10; 100
B) $18; 110
C) $18; 125
D) $22; 115
E) $14; 120
Answer: D
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Quantitative
23) Refer to Table 3-4. Which of the following statements describes a likely event in the market for overnight
parcel delivery? From Year 1 to Year 2,
A) there was a rise in the price of jet fuel.
B) there was a decrease in consumers' income.
C) there was an improvement in technology for tracking overnight parcels.
D) the price of regular parcel delivery decreased.
E) the number of suppliers of overnight parcel delivery service increased.
Answer: A
Diff: 3
140
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Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Quantitative
24) Refer to Table 3-4. If the price of overnight parcel delivery in Year 2 is $10, how many parcels will actually be
delivered?
A) 100
B) 115
C) 130
D) 145
E) 45
Answer: A
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Quantitative
25) Refer to Table 3-4. Suppose the price of overnight parcel delivery in Year 1 is $22. Which of the following
statements is correct? In Year 1
A) there is an excess demand of 15 million deliveries.
B) there is an excess demand of 30 million deliveries.
C) 115 million parcels will be delivered.
D) there is an excess supply of 15 million deliveries.
E) there is an excess supply of 30 million deliveries.
Answer: E
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Quantitative
141
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26) Refer to Table 3-4. Which of the following events could explain the change in the market for overnight parcel
delivery between Year 1 And Year 2?
A) there was a decrease in the price of jet fuel
B) the price of regular parcel delivery decreased
C) consumer preferences changed toward a desire for overnight delivery
D) the number of suppliers of overnight parcel delivery service increased
E) the government introduced a subsidy for overnight parcel delivery
Answer: C
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Quantitative
27) Refer to Table 3-4. Which of the following statements best describes the change in equilibrium price and
quantity in this market between Year 1 and Year 2?
A) The demand curve has shifted to the left, the supply curve has shifted to the right; as a result equilibrium price is
lower and equilibrium quantity is higher.
B) The demand curve has shifted to the left, the supply curve has shifted to the left; as a result equilibrium price is
higher and equilibrium quantity is lower.
C) The demand curve has shifted to the right, the supply curve has shifted to the left; as a result equilibrium price is
higher and equilibrium quantity is lower.
D) The demand curve has shifted to the left, the supply curve has shifted to the right; as a result equilibrium price is
higher and equilibrium quantity is lower.
E) There is no change in equilibrium price or quantity from Year 1 to Year 2.
Answer: C
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Quantitative
FIGURE 3-3
28) Refer to Figure 3-3. At a price of P2 there would be excess demand equal to
A) 0.
142
Copyright © 2017 Pearson Education, Inc.
B) Q1 Q5.
C) Q2 Q4.
D) Q1 Q3.
E) Q3 Q5.
Answer: A
Diff: 1
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
29) Refer to Figure 3-3. At a price of P1 there would be excess supply equal to
A) 0.
B) Q1 Q5.
C) Q2 Q4.
D) Q1 Q2.
E) Q4 Q5.
Answer: C
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
143
Copyright © 2017 Pearson Education, Inc.
30) Refer to Figure 3-3. At a price of P1 there would be excess demand equal to
A) Q1Q5.
B) Q2Q4.
C) Q1Q2.
D) Q4Q5.
E) There is no excess demand at P1.
Answer: E
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Quantitative
31) Refer to Figure 3-3. At a price of P3 there is excess ________ in the market for X and pressure for the price to
________.
A) supply; fall
B) supply; rise
C) demand; fall
D) demand; rise
Answer: D
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
32) Refer to Figure 3-3. At a price of P1 there is excess ________ in the market for X and pressure for the price to
________.
A) supply; fall
B) supply; rise
C) demand; fall
D) demand; rise
Answer: A
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
144
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FIGURE 3-4
33) Refer to Figure 3-4. The market for 1-bedroom apartments in Collegetown will be in equilibrium at a price and
quantity combination of
A) $500; 300 apartments.
B) $700; 450 apartments.
C) $500; 350 apartments.
D) $300; 250 apartments.
E) $400; 300 apartments.
Answer: E
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Quantitative
34) Refer to Figure 3-4. If the price of 1-bedroom apartments in Collegetown were $300, there would be a ________
of ________ apartments.
A) surplus; 100
B) shortage; 50
C) shortage; 100
D) surplus; 50
E) surplus; 150
Answer: C
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Quantitative
35) Refer to Figure 3-4. If the price of 1-bedroom apartments in Collegetown were $700, there would be a ________
of ________ apartments.
A) surplus; 150
B) shortage; 300
C) shortage; 150
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Copyright © 2017 Pearson Education, Inc.
D) surplus; 300
E) surplus; 100
Answer: D
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Quantitative
FIGURE 3-5
36) Refer to Figure 3-5. The price at which there would be a shortage in this market is
A) P1.
B) P2.
C) P3.
D) both P1 and P3.
E) both P2 and P3.
Answer: C
Diff: 1
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
146
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37) Refer to Figure 3-5. A price at which there would be a surplus in this market is
A) P1.
B) P2.
C) P3.
D) both P1 and P2.
E) both P1 and P3.
Answer: A
Diff: 1
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
38) Refer to Figure 3-5. Ceteris paribus, if supply were to increase, this would lead to
A) an increase in both equilibrium price and quantity.
B) a decrease in both equilibrium price and quantity.
C) an increase in equilibrium price and a decrease in equilibrium quantity.
D) a decrease in equilibrium price and an increase in equilibrium quantity.
E) no change in equilibrium price or quantity.
Answer: D
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
39) Refer to Figure 3-5. Ceteris paribus, if demand were to decrease, this would lead to
A) an increase in equilibrium price and an increase in equilibrium quantity.
B) a decrease in equilibrium price and a decrease in equilibrium quantity.
C) an increase in equilibrium price and a decrease in equilibrium quantity.
D) a decrease in equilibrium price and an increase in equilibrium quantity.
E) no change in equilibrium price or quantity.
Answer: B
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
147
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40) Refer to Figure 3-5. If supply and demand were to increase simultaneously, this would lead to
A) an increase in both equilibrium price and quantity.
B) a decrease in both equilibrium price and quantity.
C) an increase in equilibrium quantity and an indeterminate change in price.
D) an increase in equilibrium price and an indeterminate change in equilibrium quantity.
E) no change in equilibrium price or quantity.
Answer: C
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
41) Refer to Figure 3-5. If supply were to increase and demand were to decrease simultaneously, this would lead to
A) a decrease in equilibrium price and an indeterminate change in quantity.
B) a decrease in equilibrium quantity and an indeterminate change in price.
C) an increase in equilibrium quantity and a decrease in equilibrium price.
D) an increase in equilibrium quantity and an increase in equilibrium price.
E) no change in equilibrium price or quantity.
Answer: A
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
42) Tickets for music concerts that are sold on the Internet are often sold out within minutes and many unsatisfied
customers are unable to get tickets (in the legitimate market). One explanation for this is that
A) concert goers are not rational.
B) prices for purchasing digital music have increased.
C) the market price for concert tickets may be set above its equilibrium price.
D) the market price for concert tickets may be set below its equilibrium price.
E) the market price for concert tickets is at its equilibrium level.
Answer: D
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
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43) The quantity exchanged in the market will be below the equilibrium quantity
A) only if there is excess supply.
B) only if there is excess demand.
C) if there is either excess supply or demand.
D) in no imaginable situation.
E) only if price is below the equilibrium price.
Answer: C
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
44) The term "comparative statics" describes the
A) analysis of the path from one equilibrium to another.
B) comparison of one equilibrium point with another.
C) comparison of a demand curve with a supply curve.
D) analysis of the process of price and quantity adjustments that leads to an equilibrium.
E) analysis of excess demand and excess supply.
Answer: B
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
45) Given a positively sloped supply curve, a rise in the demand for that commodity causes
A) a shortage of other goods.
B) a fall in sales of that commodity.
C) an increase in both the equilibrium price and the equilibrium quantity exchanged.
D) a decrease in the equilibrium price and an increase in the equilibrium quantity exchanged.
E) a decrease in both the equilibrium price and the equilibrium quantity exchanged.
Answer: C
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
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46) Which of the following could lead to a rise in the quantity demanded of lemons?
A) a leftward shift in the supply curve of lemons
B) a rightward shift in the supply curve of lemons
C) a decline in the number of people drinking lemonade
D) a decrease in the price of artificial lemon flavouring
E) a cold spell which makes people want less lemonade
Answer: B
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
47) Weekend train travel costs less than weekday train travel. If the supply of train service remains the same
between weekdays and weekends, then the most likely explanation for this difference in price is that the weekend
A) demand curve is to the left of the weekday demand curve.
B) demand curve is to the right of the weekday demand curve.
C) demand curve is random.
D) supply curve is to the right of the weekday supply curve.
E) supply curve is to the left of the weekday supply curve.
Answer: A
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
48) Suppose that in Montreal in December, 2015, 10 000 ski helmets were sold at a price of $60 each. And in
Montreal in December, 2016, 20 000 ski helmets were sold at a price of $80 each. One possible explanation for the
change is that from 2015 to 2016 the ________ curve for ski helmets shifted to the ________.
A) supply; left
B) supply; right
C) demand; left
D) demand; right
E) supply or demand; right
Answer: D
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
150
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49) Consider a local market for 4-litre containers of windshield-wiper fluid. In January 2015, 100 000 containers
were sold at a price of $3 each. In March 2015, 120 000 containers are sold at a price of $8 each. Does this change
in equilibrium price and quantity violate the "law of demand"?
A) Not necessarily, because the supply curve could have shifted to the right, leading to an increase in equilibrium
price and quantity.
B) Not necessarily, because the demand curve could have shifted to the right, leading to an increase in equilibrium
price and quantity.
C) Not necessarily, because the demand curve could have shifted to the left, leading to an increase in equilibrium
price and quantity.
D) Not necessarily, because the supply curve could have shifted to the left, leading to an increase in equilibrium
price and quantity.
E) No, because the "law of demand" is not valid.
Answer: B
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Quantitative
50) Suppose we observe an increase in the price of good A and an increase in the quantity of good A exchanged.
Which of the following is a likely explanation?
A) The "law of demand" is violated.
B) The "law of supply" is violated.
C) The supply of good A has increased.
D) There is an excess supply of good A.
E) The demand for good A has increased.
Answer: E
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
51) Consider a negatively sloped demand curve for natural gas. If the supply of natural gas increases, the new
equilibrium will have
A) a lower price and a greater quantity.
B) a lower price and a smaller quantity.
C) a higher price and a smaller quantity.
D) a higher price and a larger quantity.
E) the same price and larger quantity.
Answer: A
Diff: 1
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
52) Which of the following statements is correct for a market with an upward-sloping supply curve and a
downward-sloping demand curve?
A) If the supply curve shifts left and demand remains constant, equilibrium quantity will rise.
B) If the supply curve shifts right and the demand curve remains constant, equilibrium price will rise.
C) If the demand curve shifts left and the supply curve shifts right, equilibrium price will rise.
D) If the demand curve shifts right and the supply curve shifts left, equilibrium price will rise.
E) If the demand curve shifts left and the supply curve shifts left, equilibrium quantity will rise.
Answer: D
Diff: 2
151
Copyright © 2017 Pearson Education, Inc.
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
152
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FIGURE 3-6
53) Refer to Figure 3-6. If the initial demand and supply curves are D1 and S1, equilibrium price and quantity are
represented by point
A) A.
B) B.
C) C.
D) D.
E) Not shown in the figure.
Answer: A
Diff: 1
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
153
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54) Refer to Figure 3-6. If the demand curve shifts from D1 to D2, while supply remains at S1, one could say that
A) the quantity demanded has decreased to Q1 and price has fallen to P2.
B) there has been an increase in demand for X.
C) the price of a good which is a substitute for X must have fallen.
D) the price increase has caused an increase in quantity demanded.
E) there is now an excess demand at the new price of P1.
Answer: B
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
55) Refer to Figure 3-6. If the initial demand and supply curves are D1 and S1, and demand shifts to D2, then
A) a permanent shortage of X will result.
B) a surplus of Q1Q3 will occur.
C) a shortage will occur at any price above P3.
D) if price remained at P2, a shortage of Q1Q3 would exist.
E) all of the above
Answer: D
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
56) Refer to Figure 3-6. A shift in the supply curve from S2 to S1 might be caused by
A) a rise in the costs of producing good X.
B) a decrease in the price of X.
C) a decrease in demand for X.
D) an improvement in the technology of producing good X.
E) additional suppliers entering the industry.
Answer: A
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Graph
User2: Qualitative
154
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57) With a given upward-sloping supply curve for sirloin steak (a normal good), a rise in household income will
cause the
A) equilibrium price and equilibrium quantity to both increase.
B) equilibrium price to increase and equilibrium quantity to decrease.
C) equilibrium price and equilibrium quantity to both decrease.
D) equilibrium price to decrease and equilibrium quantity to increase.
E) equilibrium price to increase and equilibrium quantity to remain constant.
Answer: A
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
58) If the legal beer-drinking age is raised from 18 to 21, the changes to the equilibrium price and quantity of beer
are likely to be that
A) price rises and quantity rises.
B) price falls and quantity rises.
C) price rises and quantity falls.
D) price falls and quantity falls.
E) no change in price or quantity occurs.
Answer: D
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
59) Steel is an important input to the production of cars. Tires and cars are used together by consumers. What will
occur in the market for tires when there is an increase in the price of steel?
A) price rises, quantity rises
B) price falls, quantity rises
C) price rises, quantity falls
D) price falls, quantity falls
E) no change in price or quantity occurs
Answer: D
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
155
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60) Aeronautical engineers are a factor of production for airplanes. What will happen in the world market for
airplanes when there is a worldwide shortage of aeronautical engineers?
A) price will increase, quantity exchanged will decrease
B) price will increase, quantity exchanged will increase
C) price will decrease, quantity exchanged will decrease
D) price will decrease, quantity exchanged will increase
E) there will be no change in price or quantity exchanged
Answer: A
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User1: Table
User2: Qualitative
61) Assume that apples and oranges are substitute goods. Given the initial supply and demand curves for apples, a
reduction in the price of oranges will tend to
A) increase the price of apples.
B) increase the demand for apples.
C) increase the demand for oranges.
D) decrease the demand for oranges.
E) decrease the price of apples.
Answer: E
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
62) Suppose that supply for some good increases and that simultaneously the demand for the same good decreases.
The result would be
A) a decrease in P and an indeterminate change in Q.
B) a decrease in Q and an indeterminate change in P.
C) an increase in Q and a decrease in P.
D) an increase in Q and an increase in P.
E) no change in either P or Q.
Answer: A
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
156
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63) Given a positively sloped supply curve, when market demand increases
A) the new equilibrium will have a lower price and a greater quantity.
B) the new equilibrium will have a lower price and a smaller quantity.
C) the new equilibrium will have a higher price and a smaller quantity.
D) the new equilibrium will have a higher price and a larger quantity.
E) the new equilibrium will have the same price and larger quantity.
Answer: D
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
64) Suppose we observe that movie theatre prices are less during the daytime than in the evening. If the supply of
movies does not change between daytime and evening, then the most likely explanation for this difference in price is
A) the evening demand curve is to the left of the daytime demand curve.
B) the evening demand curve is to the right of the daytime demand curve.
C) the evening supply curve is to the left of the daytime supply curve.
D) the evening supply curve is to the right of the daytime supply curve.
Answer: B
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
65) Consider the global market for some mineral, X. In January, 2014, the equilibrium price and quantity were P =
$27 per unit and Q = 140 million units. In January, 2016, the equilibrium price and quantity were P = $45 per unit
and Q = 175 million units. Which of the following is the best possible explanation for this change in market
equilibrium?
A) There has been a decrease in supply of mineral X.
B) There has been an increase in demand for mineral X.
C) There has been an increase in supply of mineral X.
D) There has been a decrease in demand for mineral X.
E) There has been a simultaneous decrease in demand for, and increase in supply of, mineral X.
Answer: B
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Quantitative
157
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66) Consider the global market for some mineral, X. In January, 2014, the equilibrium price and quantity were P =
$27 per unit and Q = 140 million units. In January, 2016, the equilibrium price and quantity were P = $27 per unit
and Q = 175 million units. Which of the following is the best possible explanation for this change in market
equilibrium?
A) There has been a simultaneous increase in demand for, and increase in supply of, mineral X.
B) There has been an increase in demand for mineral X.
C) There has been an increase in quantity demanded for mineral X.
D) There has been an increase in supply of mineral X.
E) There has been an increase in quantity supplied of mineral X.
Answer: A
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Quantitative
67) Consider the global market for some mineral, X. In January, 2014, the equilibrium price and quantity were P =
$27 per unit and Q = 140 million units. In January, 2016, the equilibrium price and quantity were P = $35 per unit
and Q = 110 million units. Which of the following is the best possible explanation for this change in market
equilibrium?
A) There has been an increase in demand for mineral X.
B) There has been a decrease in supply of mineral X.
C) There has been a decrease in global demand for mineral X.
D) There has been a simultaneous increase in demand and increase in supply for mineral X.
E) there has been a simultaneous increase in supply and decrease in demand for mineral X.
Answer: B
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Quantitative
68) Consider the global market for barley, an agricultural commodity. Suppose that in August, 2014, the equilibrium
price and quantity were P = $150 per tonne and Q = 350 million tonnes. In August, 2015, the equilibrium price and
quantity were P = $168 per tonne and Q = 350 million tonnes. Which of the following is the best possible
explanation for this change in market equilibrium?
A) There has been an increase in demand for barley.
B) There has been a decrease in supply of barley.
C) There has been a decrease in demand for barley.
D) There has been a simultaneous decrease in demand and increase in supply of barley.
E) There has been a simultaneous increase in demand and decrease in supply of barley.
Answer: E
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User2: Quantitative
158
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69) Consider the global market for barley, an agricultural commodity. Suppose that in August, 2014, the equilibrium
price and quantity were P = $150 per tonne and Q = 350 million tonnes. In August, 2015, the equilibrium price and
quantity were P = $150 per tonne and Q = 410 million tonnes. Which of the following is the best possible
explanation for this change in market equilibrium?
A) There has been a decrease in supply of barley.
B) There has been an increase in demand for barley.
C) There has been a simultaneous increase in demand and increase in supply of barley.
D) There has been a simultaneous increase in demand and decrease in supply of barley.
E) There has been a decrease in demand for barley.
Answer: C
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User2: Quantitative
70) Consider the global market for barley, an agricultural commodity. Suppose that in August, 2014, the equilibrium
price and quantity were P = $150 per tonne and Q = 350 million tonnes. In August, 2015, the equilibrium price and
quantity were P = $159 per tonne and Q = 372 million tonnes. Which of the following is the best possible
explanation for this change in market equilibrium?
A) There has been an increase in demand for barley.
B) There has been an increase in supply of barley.
C) There has been a simultaneous decrease in demand and increase in supply of barley.
D) There has been a decrease in supply of barley.
Answer: A
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User2: Quantitative
71) Consider the global market for barley, an agricultural commodity. Suppose that in August, 2014, the equilibrium
price and quantity were P = $150 per tonne and Q = 350 million tonnes. In August, 2015, the equilibrium price and
quantity were P = $168 per tonne and Q = 290 million tonnes. Which of the following is the best possible
explanation for this change in market equilibrium?
A) There has been an increase in demand for barley.
B) There has been an increase in supply of barley.
C) There has been a simultaneous increase in demand and increase in supply of barley.
D) There has been a decrease in supply of barley.
Answer: D
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User2: Quantitative
159
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72) Consider the global market for barley, an agricultural commodity. Suppose that in August, 2014, the equilibrium
price and quantity were P = $150 per tonne and Q = 350 million tonnes. In August, 2015, the equilibrium price and
quantity were P = $140 per tonne and Q = 325 million tonnes. Which of the following is the best possible
explanation for this change in market equilibrium?
A) There has been an increase in supply of barley.
B) There has been a decrease in supply of barley.
C) There has been a simultaneous increase in demand and increase in supply of barley.
D) There has been a decrease in demand for barley.
E) There has been an increase in demand for barley.
Answer: D
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User2: Quantitative
73) Consider the global market for barley, an agricultural commodity. Suppose that in August, 2014, the equilibrium
price and quantity were P = $150 per tonne and Q = 350 million tonnes. In August, 2015, the equilibrium price and
quantity were P = $142 per tonne and Q = 335 million tonnes. Which of the following is the best possible
explanation for this change in market equilibrium?
A) There has been an increase in supply of barley.
B) There has been a decrease in supply of barley.
C) There has been a simultaneous increase in demand and increase in supply of barley.
D) There has been a decrease in demand for barley.
E) There has been an increase in demand for barley.
Answer: D
Diff: 2
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
User2: Quantitative
74) If a demand curve and a supply curve can be stated functionally as Qd = 100 - 5P; and Qs = 90 + 5P,
respectively, then the equilibrium quantity and price (Q, P) would be
A) 95; 1.
B) 1; 95.
C) 190; 1.
D) 95; 10.
E) 190; 10.
Answer: A
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Quantitative
160
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75) If a demand curve and a supply curve can be stated functionally as Qd = 500 - 0.1P and Qs = 440 + 0.4P,
respectively, then the equilibrium quantity and price (Q, P) would be
A) 150; 150.
B) 50; 176.
C) 150; 485.
D) 488; 120.
E) 940; 0.4.
Answer: D
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Quantitative
76) Suppose that the demand and supply curves in the market for apples have the following functional forms: Q D =
250 - 4p and QS = 10 + p. The equilibrium quantity and price would then be
A) Q = 48, p = 58.
B) Q = 58, p = 48.
C) Q = 68, p = 98.
D) Q = 68, p = 108.
E) Q = 92, p = 48.
Answer: B
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Quantitative
77) Suppose that the demand and supply curves in the market for apples have the following functional form: QD =
250 - 4p and QS = 10 + p. If the prevailing price on the market is 50, then
A) the market is clearing.
B) the market exhibits an excess supply of 10 units.
C) the market exhibits an excess supply of 240 units.
D) the market exhibits an excess demand of 10 units.
E) the market exhibits an excess demand of 240 units.
Answer: B
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Quantitative
161
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78) Suppose the demand and supply curves in the market for apples have the following functional form: QD = 250 4p and QS = 10 + p. If the prevailing market price is 40, then
A) the market is clearing.
B) the market exhibits an excess supply of 50 units.
C) the market exhibits an excess supply of 40 units.
D) the market exhibits an excess demand of 50 units.
E) the market exhibits an excess demand of 40 units.
Answer: E
Diff: 3
Topic: 3.3a. equilibrium price and quantity
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Quantitative
79) The price of one good divided by the price of another good is called a
A) marginal price.
B) money price.
C) absolute price.
D) relative price.
E) ceteris paribus price.
Answer: D
Diff: 1
Topic: 3.3b. relative prices
Skill: Recall
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
80) The relative price of a good
A) is always measured in current dollars.
B) is a measure of the relative share of the consumer's income devoted to its purchase.
C) is its price in terms of money.
D) is equal to the average price of the good over the last 5 years.
E) reflects its price in terms of units of other goods.
Answer: E
Diff: 1
Topic: 3.3b. relative prices
Skill: Recall
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Qualitative
162
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81) Suppose that the price of wheat has fallen from $3 to $2 per bushel and that the price of newsprint has fallen
from $200 to $100 per tonne. The relative price of wheat in terms of newsprint
A) has fallen.
B) has risen.
C) remained constant.
D) cannot be determined from the above data.
E) is completely unrelated.
Answer: B
Diff: 3
Topic: 3.3b. relative prices
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Quantitative
82) Suppose that the price of good X increases from $3.00 to $4.00 while the price of good Y increases from $150 to
$200. The relative price of X (in terms of Y)
A) has fallen.
B) has risen.
C) remained constant.
D) cannot be determined from the above data.
E) is completely unrelated to the price of good Y.
Answer: C
Diff: 3
Topic: 3.3b. relative prices
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Quantitative
83) Suppose an index of average prices of imported goods in Canada indicates an increase in price of 2.3% over a
12-month period. Over the same period the Consumer Price Index indicates an increase in the general price level of
2.3%. What is the change in the price of imports relative to the change in the overall price level?
A) an increase of 2.3%
B) an increase of 4.6%
C) a decrease of 2.3%
D) a decrease of 4.6%
E) no change
Answer: E
Diff: 2
Topic: 3.3b. relative prices
Skill: Applied
Learning Obj.: 3-5 Explain the forces that drive market price to equilibrium, and how equilibrium price is affected by changes in
demand and supply.
User2: Quantitative
163
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84) Suppose the world price of oil rises by 25% over a 12-month period; over the same period the average price
level in Canada rises by 1.6%. What is the change in the price of oil relative to the change in the average price level?
A) an increase of 23.4%
B) a decrease of 23.4 %
C) an increase of 26.6%
D) a decrease of 26.6%
E) an increase of 25%
Answer: A
Diff: 2
Topic: 3.3b. relative prices
Skill: Applied
User2: Quantitative
Economics - Canadian Edition, 15e (Ragan)
Chapter 4 Elasticity
4.1 Price Elasticity of Demand
1) The price elasticity of demand measures the responsiveness of
A) quantity demanded to changes in the price.
B) the price to changes in quantity demanded.
C) demand to supply changes.
D) supply to demand changes.
E) equilibrium changes.
Answer: A
Diff: 1
Topic: 4.1a. price elasticity of demand
Skill: Recall
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
2) Consider two demand curves and the same price change for both. If the resulting percentage change in quantity
demanded is greater for one (D1) than the other (D2), we can conclude
A) that D1 is inelastic and D2 is elastic.
B) that D1 is elastic and D2 is inelastic.
C) that D2 is more elastic than D1.
D) that D1 is more elastic than D2.
E) nothing about their relative elasticities.
Answer: D
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
3) When the percentage change in quantity demanded is greater than the percentage change in price that brought it
about, demand is said to be
A) zero elastic.
B) unelastic.
C) inelastic.
D) unit elastic.
E) elastic.
Answer: E
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Recall
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
164
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User2: Qualitative
165
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4) When the percentage change in quantity demanded is less than the percentage change in price that brought it
about, demand is said to be
A) zero elastic.
B) unelastic.
C) inelastic.
D) unit elastic.
E) elastic.
Answer: C
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Recall
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
5) The formula for the price elasticity of demand for a commodity can be written as which of the following?
A)
B)
C)
D)
E)
Answer: C
Diff: 1
Topic: 4.1a. price elasticity of demand
Skill: Recall
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
6) If demand is unit elastic at all prices, then the demand curve is
A) a straight line.
B) a parabola.
C) a rectangular hyperbola.
D) upward sloping.
E) perfectly horizontal.
Answer: C
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Recall
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
166
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7) A demand curve that is the shape of a rectangular hyperbola
A) is elastic over the whole curve.
B) is inelastic over the whole curve.
C) is unit elastic over the whole curve.
D) has the same elasticity as a straight-line demand curve.
E) has an elasticity of 100% over the whole curve.
Answer: C
Diff: 1
Topic: 4.1a. price elasticity of demand
Skill: Recall
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
8) If household income increases by 50% and desired household expenditure on vacation travel increases by 15%,
the price elasticity of demand for vacation travel is
A) elastic.
B) inelastic.
C) unity.
D) positive.
E) not determinable from the information given.
Answer: E
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
9) If the price elasticity of demand is 0.5, then a 10% increase in price results in a
A) 50% reduction in quantity demanded.
B) 5% increase in quantity demanded.
C) 5% decrease in total revenues.
D) 5% decrease in quantity demanded.
E) 0.5% decrease in quantity demanded.
Answer: D
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
167
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10) Suppose that the quantity of a good demanded rises from 90 units to 110 units when the price falls from $1.20 to
80 cents per unit. The price elasticity of demand for this product is
A) 0.5.
B) 1.0.
C) 1.5.
D) 2.0.
E) 4.0.
Answer: A
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
11) Suppose the price elasticity of demand for some good is 1.4. A 10% increase in the price of the good results in
A) a 1.4% decrease in the quantity demanded.
B) a 1.4% increase in the quantity demanded.
C) a 14% increase in the quantity demanded.
D) a 14% decrease in the quantity demanded.
E) There is not enough information to answer this question.
Answer: D
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
12) If the value of the price elasticity of demand is 0.6, demand is said to be
A) elastic.
B) partially elastic.
C) inelastic.
D) partially inelastic.
E) somewhat inelastic.
Answer: C
Diff: 1
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
168
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13) Suppose that the quantity of lemonade demanded falls from 103 000 litres per week to 97 000 litres per week as
a result of a 10% increase in its price. The price elasticity of demand for lemonade is therefore
A) 0.6.
B) 6.0.
C) 1.97.
D) 1.03.
E) impossible to compute unless we know the before and after prices.
Answer: A
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
14) Suppose that the quantity demanded of skipping ropes rises from 1250 to 1750 units when the price falls from
$1.25 to $0.75 per unit. The price elasticity of demand for this product is
A) 1/3.
B) 2/3.
C) 1.
D) 3/2.
E) 2.
Answer: B
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
169
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The table below shows the demand schedule for museum admissions in a small city.
Price
(per visit per
person)
$10
$8
$6
$4
$2
Quantity Demanded
(thousands of personvisits per year)
2
4
6
8
10
TABLE 4-1
15) Refer to Table 4-1. The elasticity of demand for museum admissions is
A) greater at higher prices than at lower prices.
B) elastic at all points on the demand curve.
C) inelastic at all points on the demand curve.
D) greater at lower prices than at higher prices.
E) constant at all points on the demand curve.
Answer: A
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Table
User2: Qualitative
16) Refer to Table 4-1. Between the prices of $8 and $10, the elasticity of demand is
A) 1/3.
B) 2/3.
C) 1.
D) 2.
E) 3.
Answer: E
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Table
User2: Quantitative
170
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17) Refer to Table 4-1. Between the prices of $4 and $6 the price elasticity of demand is
A) 0.50.
B) 0.71.
C) 1.00.
D) 1.40.
E) 0.40.
Answer: B
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Table
User2: Quantitative
18) Refer to Table 4-1. Between the prices of $2 and $4 the price elasticity of demand is
A) 1/3.
B) 2/3.
C) 1.
D) 2.
E) 3.
Answer: A
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
User1: Table
User2: Quantitative
19) Refer to Table 4-1. Between the prices of $8 and $6 the price elasticity of demand is
A) 0.5.
B) 0.71.
C) 1.00.
D) 1.40.
E) 0.40.
Answer: D
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
User1: Table
User2: Quantitative
171
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20) If the price elasticity of demand for some good is 2.7, a 10% increase in the price results in
A) a 2.7% decrease in the quantity demanded.
B) a 2.7% increase in the quantity demanded.
C) a 27% increase in the quantity demanded.
D) a 27% decrease in the quantity demanded.
E) There is not enough information to answer this question.
Answer: D
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
21) As the price for some product increases from $4.00 to $5.00 per unit, quantity demanded decreases from 400 to
300 units per month. For this segment of the demand curve, the price elasticity of demand is
A) 7/9.
B) 1.
C) 9/7.
D) 7.
E) 9.
Answer: C
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
22) As the price for some product decreases from $4.00 to $3.00 per unit, quantity demanded increases from 400 to
500 units per day. For this segment of the demand curve, the price elasticity of demand is
A) 7/9.
B) 1.
C) 9/7.
D) 7.
E) 9.
Answer: A
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
172
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23) Which of the following illustrates elastic demand?
A) A 10% increase in price causes a 5% decrease in quantity demanded.
B) A 10% increase in price causes a 20% decrease in quantity demanded.
C) a price elasticity of 0.8
D) a price elasticity of 1.0
E) A 10% increase in price causes a 10% reduction in quantity demanded.
Answer: B
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
24) If per capita income increases by 10% and household expenditure on fur coats increases by 15%, one can
conclude that the price elasticity of demand for fur coats is
A) elastic.
B) inelastic.
C) unity.
D) positive.
E) not determinable from the information given.
Answer: E
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
173
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FIGURE 4-1
25) Refer to Figure 4-1, which shows two demand curves, one linear and the other a rectangular hyperbola. In
diagram 1, the price elasticity of demand
A) at point A is equal to that at point C.
B) at point A is less than at point C.
C) at point A is greater than at point C.
D) is equal at points A, B, and C.
E) at point A is equal to that at point B.
Answer: C
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Qualitative
26) Refer to Figure 4-1, which shows two demand curves, one linear and the other a rectangular hyperbola. The
price elasticity of demand is equal to one along the entire demand curve in
A) diagram 1 only.
B) diagram 2 only.
C) both diagrams.
D) neither diagram.
Answer: B
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Qualitative
174
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27) A perfectly horizontal demand curve shows that the price elasticity of demand is
A) zero.
B) unity.
C) less than one.
D) infinite.
E) not defined.
Answer: D
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Recall
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
28) A vertical demand curve shows that the price elasticity of demand is
A) zero.
B) unity.
C) less than one.
D) infinity.
E) not defined.
Answer: A
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Recall
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
29) The price elasticity of demand for a product tends to be greater the
A) lower its price.
B) more broadly the product is defined.
C) fewer close substitutes for it there are.
D) more close substitutes for it there are.
E) shorter the time span being considered.
Answer: D
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Recall
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
175
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30) Which of the following statements would you expect to be true about the demand elasticities for cornflakes and
food?
A) Compared with food, cornflakes have a lower price elasticity of demand because it is specifically defined.
B) Because cornflakes is food, but not all food is cornflakes, cornflakes would have a lower price elasticity of
demand.
C) Food has a higher price elasticity of demand because it is a necessity.
D) Because cornflakes is food, cornflakes would have the same price elasticity of demand as food.
E) Food has a lower price elasticity of demand than cornflakes because it is more broadly defined.
Answer: E
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
31) With a downward-sloping straight-line demand curve, price elasticity of demand is
A) rising continuously with price increases.
B) decreasing continuously with price increases.
C) increasing to the midpoint of the curve and then decreasing.
D) constant everywhere on it.
E) indeterminate.
Answer: A
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Recall
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
32) Which of the following statements about price elasticity of demand is true?
A) It is greater than one if the percentage increase in the commodity's price is greater than the percentage decline in
quantity demanded.
B) It is very small when good substitutes are readily available for the commodity.
C) It usually increases over time.
D) It is a positive number because price and quantity demanded move in the same direction.
E) It is higher for an entire group of related products than it is for a particular product in that group.
Answer: C
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
176
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33) Suppose you are shown two intersecting demand curves that are drawn on the same scale. At the point of
intersection, one of the demand curves is steeper than the other. Which of the following could explain the difference
in slopes?
A) The steeper one has a higher income elasticity of demand.
B) The steeper one is probably the demand curve for a luxury good.
C) The steeper one applies for the short run whereas the flatter one applies for the long run.
D) The flatter one is for a good with no close substitutes.
E) It is not possible to compare the slopes of different demand curves.
Answer: C
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
34) Suppose egg producers succeed in permanently raising the price of their product by 15%, and as a result the
quantity demanded falls by 15% in the short run. In the long run we can expect the quantity demanded to fall by
A) 0%.
B) 15%.
C) between 0 and 15%.
D) more than 15%.
E) 100%.
Answer: D
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
35) Suppose that the quantity demanded of a good rises from 40 units to 60 units per month when the price falls
from $1.05 to 95 cents per unit. The price elasticity of demand for this product is
A) 0.5.
B) 1.0.
C) 1.5.
D) 2.0.
E) 4.0.
Answer: E
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
177
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36) Which of the following statements would you expect to be true about price elasticities of demand for T-shirts
and clothing?
A) Compared with clothing, T-shirts have a lower price elasticity of demand because they are specifically defined.
B) Because T-shirts are clothing, but not all clothing is T-shirts, T-shirts would have a lower price elasticity of
demand than clothing.
C) Clothing has a higher price elasticity of demand because it is a necessity.
D) T-shirts would have the same price elasticity of demand as clothing.
E) Clothing has a lower price elasticity of demand because it is more broadly defined.
Answer: E
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Qualitative
37) Which of the following illustrates elastic demand?
A) A 5% increase in price causes a 2.5% decrease in quantity demanded.
B) A 5% increase in price causes a 10% decrease in quantity demanded.
C) a price elasticity of 0.8
D) a price elasticity of 1.0
E) A 10% increase in price causes a 10% reduction in quantity demanded.
Answer: B
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
38) Suppose that the quantity demanded of paperback novels rises from 80 000 to 120 000 units per month when the
price falls from $11 to $9 per unit. The price elasticity of demand for this product is
A) 1/3.
B) 1.
C) 2/3.
D) 3/2.
E) 2.
Answer: E
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
178
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Demand Schedule for Ski Tickets
Price
($)
120
110
100
90
80
70
60
50
40
30
20
10
0
Quantity
Demanded
(no. of tickets)
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
TABLE 4-2
39) Refer to Table 4-2. Using the data provided to plot the demand curve for ski tickets results in a ________
demand curve. Price elasticity along this demand curve is therefore ________ as price is falling.
A) horizontal; constant at a value of 8
B) vertical; constant at a value of 0
C) rectangular hyperbola; constant at a value of 1
D) downward sloping and linear; continuously increasing
E) downward sloping and linear; continuously decreasing
Answer: E
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Table
User2: Quantitative
179
Copyright © 2017 Pearson Education, Inc.
40) Refer to Table 4-2. Total expenditure for ski tickets reaches a maximum at a price/quantity demanded
combination of
A) $30/90.
B) $60/600.
C) $100/200.
D) $20/1000.
E) $80/400.
Answer: B
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Table
User2: Quantitative
41) Refer to Table 4-2. The price elasticity of demand over the interval of the demand curve between prices of $40
and $20 is
A) 3.0.
B) -3.0.
C) 1.0.
D) 0.33.
E) 0.
Answer: D
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Table
User2: Quantitative
42) Refer to Table 4-2. Price elasticity over the interval of the demand curve between prices of $90 and $70 is
A) 0.5.
B) 2.0.
C) -0.5.
D) 4.0.
E) 1.0.
Answer: B
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Table
User2: Quantitative
180
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FIGURE 4-2
43) Refer to Figure 4-2. In diagram 1, the elasticity of demand over the price range $14 to $16 is
A) 0.
B) less than 1.
C) 1.
D) greater than 1.
E) infinity.
Answer: D
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Quantitative
181
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44) Refer to Figure 4-2. In diagram 1, the elasticity of demand over the price range $12 to $14 is
A) 0.
B) less than 1.
C) 1.
D) greater than 1.
E) infinity.
Answer: D
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Quantitative
45) Refer to Figure 4-2. In diagram 1, the elasticity of demand for prices below $10 is
A) 0.
B) less than 1.
C) 1.
D) greater than 1.
E) infinity.
Answer: B
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Quantitative
46) Refer to Figure 4-2. In diagram 1, the elasticity of demand at $10 is
A) 0.
B) less than 1.
C) exactly 1.
D) greater than 1.
E) infinity.
Answer: C
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Quantitative
182
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47) Refer to Figure 4-2. In diagram 3, the elasticity of demand between prices $10 and $20 is
A) 0.
B) less than 1.
C) exactly 1.
D) greater than 1.
E) infinity.
Answer: C
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Quantitative
48) Refer to Figure 4-2. In diagram 3, the elasticity of demand between prices $5 and $10 is
A) 0.
B) less than 1.
C) exactly 1.
D) greater than 1.
E) infinity.
Answer: C
Diff: 1
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Quantitative
49) Refer to Figure 4-2. In diagram 2, the price elasticity of demand is
A) 0.
B) less than -1.
C) exactly 1.
D) greater than 1.
E) infinity.
Answer: A
Diff: 1
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Quantitative
183
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50) Refer to Figure 4-2. The price elasticity of demand is continuously decreasing as the price falls in diagram(s)
A) 1.
B) 2.
C) 1, 2, and 3.
D) 2, 3, and 4.
E) 1 and 2.
Answer: A
Diff: 1
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Qualitative
51) Refer to Figure 4-2. The price elasticity of demand is continuously increasing as the price falls in diagram(s)
A) 1.
B) 2.
C) 1, 2, and 3.
D) 2, 3, and 4.
E) none of the above
Answer: E
Diff: 1
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Qualitative
52) Refer to Figure 4-2. The price elasticity of demand is constant as price changes in diagram(s)
A) 1.
B) 2.
C) 1, 2, and 3.
D) 2, 3, and 4.
E) none of the above
Answer: D
Diff: 1
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Qualitative
184
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53) Refer to Figure 4-2. Demand is inelastic
A) over the entire demand curve in diagram 1.
B) over the entire demand curve in diagram 3.
C) over section (a) of the demand curve in diagram 1.
D) over section (b) of the demand curve in diagram 1.
E) at the midpoint between sections (a) and (b) of the demand curve in diagram 1.
Answer: D
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Qualitative
54) Refer to Figure 4-2. There is good reason to suppose that, of the four goods whose demand curves are shown in
diagrams 1-4 of the figure, the good that has the fewest close substitutes is shown in
A) diagram 1.
B) diagram 2.
C) diagram 3.
D) diagram 4.
E) There is not enough information to determine this.
Answer: B
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User1: Graph
User2: Qualitative
55) Refer to Figure 4-2. There is good reason to suppose that, of the four goods whose demand curves are shown in
diagrams 1-4 of the figure, the good that has the fewest close substitutes is shown in
A) diagram 1
B) diagram 2
C) diagram 3
D) diagram 4
E) There is not enough information to determine this.
Answer: B
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
User1: Graph
User2: Quantitative
185
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56) Suppose you are advising the government on changes in the gasoline market. The current price is $1.00 per litre
and the quantity demanded is 2.5 million litres per day. Short-run price elasticity of demand is constant at 0.3. If the
supply of gasoline is reduced so that the price rises to $1.50 per litre, then quantity demanded is predicted to fall in
the short run by
A) 15%, and total expenditure will rise.
B) 15%, and total expenditure will fall.
C) 50%, and total expenditure will fall.
D) 12%, and total expenditure will rise.
E) 13.3%, and total expenditure will rise.
Answer: D
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
57) Suppose you are advising the government on changes in the gasoline market. The current price is $1.00 per litre
and the quantity demanded is 2.5 million litres per day. Long-run price elasticity of demand is constant at 0.8. If the
supply of gasoline is reduced so that the price rises to $1.50 per litre, then quantity demanded is predicted to fall in
the long run by
A) 12%, and total expenditure will fall.
B) 32%, and total expenditure will rise.
C) 15%, and total expenditure will rise.
D) 15%, and total expenditure will fall.
E) 50%, and total expenditure will rise.
Answer: B
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
58) Suppose you are advising the government on changes in the gasoline market. The current price is $1.00 per litre
and the long-run price elasticity of demand is constant at 0.8. If a tax on gasoline causes the price to rise to $1.50 per
litre, then quantity demanded is predicted to fall in the long run by
A) 12% and total expenditure will fall.
B) 24% and total expenditure will fall.
C) 32% and total expenditure will fall.
D) 24% and total expenditure will rise.
E) 50% and total expenditure will rise.
Answer: C
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
User2: Quantitative
186
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59) Suppose a fast-food chain determines that the price elasticity of demand for its hamburgers is 1.7, and the price
of the hamburger is currently $4.00. What will be the effect on quantity demanded and total expenditure on this
chain's hamburgers if the price is increased to $6.00?
A) Quantity demanded will fall by 68% and total expenditure will decrease.
B) Quantity demanded will fall by 11.76% and total expenditure will decrease.
C) Quantity demanded will fall by 17% and total expenditure will increase.
D) Quantity demanded will fall by 1.7% and total expenditure will increase.
E) Quantity demanded will fall by 34% and total expenditure will decrease.
Answer: A
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
60) Suppose a fast-food chain determines that the price elasticity of demand for its hamburgers is 0.75, and the price
of the hamburger is currently $4.00. What will be the effect on quantity demanded and total expenditure on this
chain's hamburgers if the price is increased to $6.00?
A) Quantity demanded will fall by 30%, and total expenditure will increase.
B) Quantity demanded will fall by 40%, and total expenditure will increase.
C) Quantity demanded will fall by 75%, and total expenditure will increase.
D) Quantity demanded will fall by 0.3%, and total expenditure will decrease.
E) Quantity demanded will fall by 0.4%, and total expenditure will decrease.
Answer: A
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
User2: Quantitative
61) Rania is selling boxes of cookies door to door in her neighbourhood. At a price of $10 per box she sold 40 boxes
per day. When the price was reduced to $4 per box she sold 100 boxes per day. Assuming that the demand
conditions were unchanged, what is the price elasticity of demand for Rania's cookies?
A) -1.7
B) 0
C) 0.85
D) 1
E) 1.17
Answer: D
Diff: 3
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
187
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62) Every month Olivier buys exactly 6 take-out pizzas even though the price may fluctuate significantly.
Apparently, Olivier's price elasticity of demand for take-out pizza is
A) -1.
B) 0.
C) 1.
D) 6.
E) infinity.
Answer: B
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
63) Suppose the price of take-out pizza has been stable for many months at exactly $12.50 per pizza - and Olivier
buys 6 pizzas per month at this price. When the price rises to $12.55 per pizza, Olivier's quantity demanded drops to
zero. Apparently, Olivier's price elasticity of demand for take-out pizza is
A) -1.
B) 0.
C) 100
D) 6.
E) higher than 10 000.
Answer: E
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
User2: Quantitative
64) Suppose an analysis of the possible effects of increases in university tuition fees predicts that a 10% increase in
tuition fees will result in a 3% decline in enrolment. What is the implied price elasticity of demand for university
attendance?
A) 0
B) 0.3
C) 3
D) 7
E) 10
Answer: B
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
Learning Obj.: 4-1 Explain what price elasticity of demand is and how it is measured.
User2: Quantitative
188
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65) Elasticity of demand for prescription drugs is estimated to be much lower than elasticity of demand for one
particular brand of over-the-counter cough medicine. One reason for this is
A) there are many substitutes for prescription drugs in the short run.
B) there are many substitutes for prescription drugs in the long run.
C) there are no substitutes for one brand of cough medicine in the short run.
D) there are no substitutes for one brand of cough medicine in the long run.
E) there are few substitutes for the broad category of prescription drugs while there are many substitutes for one
brand of cough medicine.
Answer: E
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
User2: Qualitative
66) Which of the following situations could explain why product X has a relatively high price elasticity of demand
in the short run?
A) the price of product X is too low
B) the price of product X is too high
C) the prices of substitute products are constant
D) there are many substitutes for product X and consumers have an ability to switch quickly to those substitutes
E) there are few substitutes for product X in the short run
Answer: D
Diff: 2
Topic: 4.1a. price elasticity of demand
Skill: Applied
User2: Qualitative
67) Suppose an analysis of the possible effects of increases in university tuition fees predicts that a 10% increase in
tuition fees will result in a 3% decline in enrolment. Given the information this provides about price elasticity of
demand, what is the predicted effect on total expenditure on tuition fees?
A) total expenditure will decrease
B) total expenditure will decrease by 7%
C) total expenditure will decrease by 3%
D) total expenditure will increase
E) total expenditure will remain constant
Answer: D
Diff: 3
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Quantitative
189
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FIGURE 4-2
68) Refer to Figure 4-2. As price decreases, total expenditure increases, reaches a maximum, and then decreases for
the demand curve in diagram(s)
A) 1.
B) 2.
C) 3.
D) 4.
E) 1 and 3.
Answer: A
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User1: Graph
User2: Qualitative
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69) Refer to Figure 4-2. As price decreases, total expenditure remains constant in diagram(s)
A) 1.
B) 2.
C) 3.
D) 4.
E) 2 and 4.
Answer: C
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User1: Graph
User2: Qualitative
70) A demand curve for which any price-quantity combination yields the same total expenditure reveals a price
elasticity of demand equal to
A) infinity.
B) zero.
C) one.
D) some value greater than one but less than infinity.
E) not enough information to know.
Answer: C
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Qualitative
71) If price elasticity of demand for good X is equal to 0.4, then an increase in price will cause total expenditure on
good X to
A) increase.
B) remain constant.
C) decrease.
D) fall to zero.
E) be negative.
Answer: A
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Recall
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Qualitative
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72) When a product's price has an inverse relationship with total expenditure, then demand has a price elasticity of
A) zero.
B) less than one.
C) greater than one.
D) one.
E) inverse proportions.
Answer: C
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Quantitative
73) If total expenditure on a product rises and falls directly with a product's price, then demand for this product has
an elasticity of
A) zero.
B) less than one.
C) greater than one.
D) one.
E) direct proportions.
Answer: B
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Qualitative
74) If the total expenditure on photocopiers increases when the price of photocopiers rises, the price elasticity of
demand is
A) greater than one (demand is elastic).
B) less than one (demand is inelastic).
C) equal to one (demand is unit elastic).
D) exactly zero.
E) not determinable from the information given.
Answer: B
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Qualitative
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75) If the total expenditure on perfume increases when the price of perfume falls, the price elasticity of demand is
A) greater than one (demand is elastic).
B) less than one (demand is inelastic).
C) unity (demand is unit elastic).
D) exactly zero.
E) not determinable from the information given.
Answer: A
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Qualitative
76) If the total expenditure on cars increases when the price of cars rises, the price elasticity of demand for cars is
A) greater than one (demand is elastic).
B) less than one (demand is inelastic).
C) equal to one (demand is unit elastic).
D) exactly zero.
E) not determinable from the information given.
Answer: B
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Quantitative
77) Suppose the current level of output of some good is 100 units. If market demand is inelastic at that quantity, total
expenditure on this product would be higher if output was
A) maximized.
B) kept constant.
C) greater than 100 units.
D) less than 100 units.
E) minimized.
Answer: D
Diff: 3
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Quantitative
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78) The president of a major nickel-producing company says that an increase in the price of nickel would have no
effect on the total amount spent on nickel. If this is true, the price elasticity of demand for nickel is
A) more than one.
B) exactly one.
C) less than zero.
D) infinitely elastic.
E) not calculable from the information given.
Answer: B
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Quantitative
79) Suppose Statistics Canada reports that total income earned by Canadian barley farmers has declined as a result
of a partial crop failure that has driven up the Canadian price of barley. We can conclude that the price elasticity of
demand for barley in Canada is
A) greater than one.
B) exactly one.
C) less than zero.
D) less than one.
E) exactly zero.
Answer: A
Diff: 3
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Quantitative
80) If the total expenditure on clothing decreases when the price of clothing falls, the price elasticity of demand is
A) greater than one (demand is elastic).
B) less than one (demand is inelastic).
C) unity (demand is unit elastic).
D) exactly zero.
E) not determinable from the information given.
Answer: B
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Qualitative
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81) If household expenditures on electricity remain constant when the price of electricity increases, the price
elasticity for electricity is
A) greater than one (demand is elastic).
B) less than one (demand is inelastic).
C) one (demand is unit elastic).
D) exactly zero.
E) not determinable from the information given.
Answer: C
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Qualitative
82) If the total revenue of producers rises for an initial cut in the price of their product but falls for further reductions
in price, the price elasticity of demand for the product
A) declines as price falls.
B) is zero.
C) is unity.
D) rises as price falls.
E) rises and then falls.
Answer: A
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
Learning Obj.: 4-2 Explain the relationship between total expenditure and price elasticity of demand.
User2: Qualitative
83) What does the following statement imply about price elasticity of demand? "Cherry producers in British
Columbia experienced a healthy increase in revenues this year, despite a reduced harvest due to poor weather
conditions."
A) elastic demand for B.C. cherries
B) elasticity of demand equal to one for B.C. cherries
C) inelastic demand for B.C. cherries
D) elasticity of demand equal to zero for B.C. cherries
E) infinite elasticity of demand for B.C. cherries
Answer: C
Diff: 3
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
User2: Quantitative
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84) What does the following statement imply about price elasticity of demand? "Airlines experiencing higher traffic
with reduced fares, but are struggling with fall in revenue."
A) demand for airline travel is price inelastic
B) elasticity of demand for airline travel is equal to one
C) elasticity of demand for airline travel is constant
D) elasticity of demand for airline travel is equal to zero
E) demand for airline travel is price elastic
Answer: E
Diff: 3
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
User2: Quantitative
85) What does the following statement imply about price elasticity of demand? "An unexpected spike in world oil
prices leads to dramatic increase in revenue for the world's oil producers."
A) short-run demand for oil is inelastic
B) short-run demand for oil is elastic
C) elasticity of demand for oil is equal to one
D) elasticity of demand for oil is constant
E) elasticity of demand for oil is equal to zero
Answer: A
Diff: 3
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
User2: Quantitative
86) What does the following statement imply about price elasticity of demand? "Consumers unfazed by 400 percent
increase in price of table salt — grocers see no change in sales!"
A) elasticity of demand for salt is equal to one
B) demand for salt is elastic
C) salt is too narrowly defined to determine price elasticity of demand
D) demand for salt is almost perfectly inelastic in the relevant price range
E) salt is too broadly defined to determine price elasticity of demand
Answer: D
Diff: 2
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
User2: Qualitative
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87) What does the following statement imply about price elasticity of demand? "Government tries to reduce
cigarette consumption with an extra 50 cent tax per pack. Policy raises government revenue but fails to curb
smoking."
A) demand for cigarettes is elastic
B) demand for cigarettes is inelastic
C) elasticity of demand for cigarettes is equal to one
D) elasticity of demand for cigarettes is close to infinity
E) elasticity of demand for cigarettes equals 0.5
Answer: B
Diff: 3
Topic: 4.1b. elasticity and total expenditure
Skill: Applied
User2: Quantitative
4.2 Price Elasticity of Supply
1) The elasticity of supply for a given commodity is calculated as
A)
B)
C)
D)
E)
Answer: A
Diff: 1
Topic: 4.2a. price elasticity of supply
Skill: Recall
Learning Obj.: 4-3 Explain what price elasticity of supply is and how it is measured.
User2: Qualitative
2) A value of zero for the elasticity of supply of some product implies that
A) the supply curve is horizontal.
B) supply is highly responsive to price.
C) the supply curve is vertical.
D) the product will not be supplied at any price.
E) there is no supply.
Answer: C
Diff: 1
Topic: 4.2a. price elasticity of supply
Skill: Recall
Learning Obj.: 4-3 Explain what price elasticity of supply is and how it is measured.
User2: Qualitative
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3) If the demand for some good fluctuates, but supply is constant, then which of the following combinations would
generally yield the greatest price fluctuations?
A) small demand fluctuations and elastic supply
B) large demand fluctuations and elastic supply
C) small demand fluctuations and inelastic supply
D) large demand fluctuations and inelastic supply
E) small demand fluctuations and a unit elastic supply
Answer: D
Diff: 2
Topic: 4.2a. price elasticity of supply
Skill: Applied
Learning Obj.: 4-3 Explain what price elasticity of supply is and how it is measured.
User2: Qualitative
4) If the demand for some good fluctuates, but the supply curve is stable, then which of the following combinations
would generally yield the greatest quantity fluctuations?
A) large demand fluctuations and inelastic supply
B) small demand fluctuations and unit elastic supply
C) small demand fluctuations and inelastic supply
D) small demand fluctuations and elastic supply
E) large demand fluctuations and elastic supply
Answer: E
Diff: 2
Topic: 4.2a. price elasticity of supply
Skill: Applied
Learning Obj.: 4-3 Explain what price elasticity of supply is and how it is measured.
User2: Qualitative
5) Suppose that as the price of some product increases from $4.00 to $5.00 per unit the quantity supplied rises from
500 to 1000 units per month. The price elasticity of supply for this product is
A) 0.33.
B) 2.0.
C) 2.5.
D) 3.0.
E) 1.0.
Answer: D
Diff: 3
Topic: 4.2a. price elasticity of supply
Skill: Applied
Learning Obj.: 4-3 Explain what price elasticity of supply is and how it is measured.
User2: Quantitative
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6) The elasticity of supply for some product will tend to be larger
A) the higher is the elasticity of demand for the product.
B) the lower is the elasticity of demand for the product.
C) the harder it is for firms to shift from the production of this product to another.
D) the easier it is for firms to shift from the production of this product to another.
E) the less time firms have to adjust to price changes.
Answer: D
Diff: 2
Topic: 4.2a. price elasticity of supply
Skill: Applied
Learning Obj.: 4-3 Explain what price elasticity of supply is and how it is measured.
User2: Qualitative
7) Consider a firm's price elasticity of supply. If firms' costs rise rapidly as output increases, the
A) supply curve will tend to be flat.
B) demand curve will tend to be steep.
C) elasticity of demand will tend to be low.
D) price elasticity of supply will tend to be high.
E) price elasticity of supply will tend to be low.
Answer: E
Diff: 3
Topic: 4.2a. price elasticity of supply
Skill: Applied
Learning Obj.: 4-3 Explain what price elasticity of supply is and how it is measured.
User2: Qualitative
8) An upward-sloping straight-line supply curve through the origin has an elasticity of
A) one.
B) greater than one.
C) less than one.
D) infinity.
E) zero.
Answer: A
Diff: 3
Topic: 4.2a. price elasticity of supply
Skill: Applied
Learning Obj.: 4-3 Explain what price elasticity of supply is and how it is measured.
User2: Quantitative
9) A value of infinity for the elasticity of supply of some product implies that
A) the supply curve is horizontal.
B) supply is very unresponsive to price.
C) the supply curve is vertical.
D) the product will be supplied at any price.
E) no product will be supplied at any price.
Answer: A
Diff: 1
Topic: 4.2a. price elasticity of supply
Skill: Recall
Learning Obj.: 4-3 Explain what price elasticity of supply is and how it is measured.
User2: Qualitative
10) Suppose an increase in world demand for potash (used in the production of fertilizer) increases the price by 22
percent. Annual Canadian production increases by 33 percent. What is the elasticity of supply of Canadian potash?
A) 0.22
B) 0.33
C) 0.67
D) 1.0
E) 1.5
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Answer: E
Diff: 2
Topic: 4.2a. price elasticity of supply
Skill: Applied
User2: Quantitative
11) Suppose a decrease in world demand for potash (used in the production of fertilizer) decreases the price by 5
percent. Annual Canadian production decreases by 2 percent. What is the elasticity of supply of Canadian potash?
A) 0.2
B) 0.4
C) 0.5
D) 1.0
E) 2.5
Answer: B
Diff: 2
Topic: 4.2a. price elasticity of supply
Skill: Applied
User2: Quantitative
12) Suppose an increase in world demand for potash (used in the production of fertilizer) increases the price from
$285 per tonne to $315 per tonne. Annual Canadian production increases from 15 million tonnes to 17 million
tonnes. What is the elasticity of supply of Canadian potash?
A) 0.5
B) 0.8
C) 1.0
D) 1.25
E) 2.5
Answer: D
Diff: 2
Topic: 4.2a. price elasticity of supply
Skill: Applied
User2: Quantitative
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13) Suppose a decrease in world demand for potash (used in the production of fertilizer) decreases the price from
$400 per tonne to $240 per tonne. Annual Canadian production decreases from 12 million tonnes to 8 million
tonnes. What is the elasticity of supply of Canadian potash?
A) 0.4
B) 0.8
C) 0.75
D) 1.0
E) 1.25
Answer: B
Diff: 2
Topic: 4.2a. price elasticity of supply
Skill: Applied
User2: Quantitative
14) Given that elasticity of supply changes over time, in the short run an increase in demand will generally cause
A) the price to rise above its long-run equilibrium value.
B) the price to rise to a level below its long-run equilibrium value.
C) the quantity exchanged to rise above its long-run equilibrium value.
D) both price and quantity exchanged to rise above their long-run equilibrium values.
E) supply to change.
Answer: A
Diff: 3
Topic: 4.2b. short-run and long-run responses
Skill: Applied
Learning Obj.: 4-3 Explain what price elasticity of supply is and how it is measured.
User2: Qualitative
FIGURE 4-3
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15) Refer to Figure 4-3. The diagram shows a rightward shift in the demand curve for some good, and the short-run
and long-run supply curves (SS and SL, respectively). In the new short-run equilibrium after the increase in demand,
producers' revenue
A) is unambiguously lower than in the long-run equilibrium at EL.
B) could be higher or lower than at E0, depending on the short-run elasticity of supply.
C) is unambiguously higher than at E0.
D) is unambiguously lower than at E0.
E) is unambiguously higher than at EL.
Answer: C
Diff: 3
Topic: 4.2b. short-run and long-run responses
Skill: Applied
Learning Obj.: 4-3 Explain what price elasticity of supply is and how it is measured.
User1: Graph
User2: Qualitative
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16) Refer to Figure 4-3, which shows a demand shift and the short-run and long-run supply curves for some good.
The diagram illustrates the general principle that
A) supply is less elastic in the long run.
B) demand is less elastic in the long run.
C) supply is more elastic in the long run.
D) both demand and supply are less elastic in the long run.
E) demand is more elastic in the long run.
Answer: C
Diff: 1
Topic: 4.2b. short-run and long-run responses
Skill: Applied
Learning Obj.: 4-3 Explain what price elasticity of supply is and how it is measured.
User1: Graph
User2: Qualitative
17) Refer to Figure 4-3, which shows a demand shift and the short-run and long-run supply curves for some product.
In the new long-run equilibrium at EL, producers' revenue
A) is unambiguously lower than at ES.
B) could be higher or lower than at ES, depending on the price elasticity of demand.
C) is unambiguously lower than at E0.
D) could be higher or lower than at E0, depending on the price elasticity of demand.
E) is unambiguously higher than at ES.
Answer: B
Diff: 3
Topic: 4.2b. short-run and long-run responses
Skill: Applied
Learning Obj.: 4-3 Explain what price elasticity of supply is and how it is measured.
User1: Graph
User2: Quantitative
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4.3 Elasticity Matters for Excise Taxes
1) The imposition of an excise tax usually causes the price paid by consumers to ________, while the price received
by sellers ________.
A) rise; remains unchanged
B) rise; falls
C) rise; rises
D) fall; remains unchanged
E) fall; falls
Answer: B
Diff: 2
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User2: Qualitative
2) Consumers will bear a larger burden of an excise tax if
A) demand is relatively elastic and supply is relatively inelastic.
B) demand is relatively inelastic and supply is relatively elastic.
C) both demand and supply are relatively inelastic.
D) both demand and supply are relatively elastic.
E) the tax is collected by firms rather than remitted directly to the government by consumers.
Answer: B
Diff: 2
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User2: Qualitative
3) The imposition of an excise tax will cause the least burden on consumers when demand is
A) elastic.
B) unit elastic.
C) perfectly inelastic.
D) perfectly elastic.
E) vertical.
Answer: D
Diff: 2
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User2: Qualitative
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4) The "economic incidence" of an excise tax illustrates
A) who is legally responsible for paying it to the government.
B) the legislative process through which it must be passed.
C) the economic costs associated with avoiding the tax.
D) who bears the burden of the tax.
E) the political process for implementing a tax.
Answer: D
Diff: 1
Topic: 4.3. burden of an excise tax
Skill: Recall
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User2: Qualitative
5) Suppose a market is in equilibrium at price P0, and then an excise tax of t dollars per unit of the good is imposed.
At a price of (P0 + t) there will be excess ________ for the good unless the demand curve is ________.
A) supply; horizontal
B) supply; vertical
C) demand; horizontal
D) demand; vertical
E) tax; unit elastic
Answer: B
Diff: 3
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User2: Qualitative
6) Suppose the market supply curve for some good is upward sloping. If the imposition of an excise tax causes no
change in the equilibrium quantity sold in the market, the good's demand curve must be ________, meaning that the
burden of the tax has fallen completely on the ________.
A) vertical; firms
B) vertical; consumers
C) horizontal; firms
D) horizontal; consumers
E) unit elastic; government
Answer: B
Diff: 2
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User2: Qualitative
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7) Producers will bear a larger burden of a sales tax if
A) demand is relatively elastic and supply is relatively inelastic.
B) demand is relatively inelastic and supply is relatively elastic.
C) both demand and supply are relatively inelastic.
D) both demand and supply are relatively elastic.
E) the tax is collected by firms rather than remitted directly to the government by consumers.
Answer: A
Diff: 2
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User2: Qualitative
8) Consider an excise tax imposed on daily parking charges in the downtown of a small city. Before the imposition
of the tax, equilibrium price and quantity are $15 and 100 cars parked. (P = $15, Q = 100). The city government
imposes a tax of $3 per car parked per day. Market equilibrium adjusts to P = $16 and Q = 95. How much tax
revenue does the city government collect per day?
A) $95
B) $100
C) $285
D) $300
E) $1710
Answer: C
Diff: 3
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User2: Quantitative
9) Consider an excise tax imposed on daily parking charges in the downtown of a small city. Before the imposition
of the tax, equilibrium price and quantity are $15 and 100 cars parked. (P = $15, Q = 100). The city government
imposes a tax of $3 per car parked per day. Market equilibrium adjusts to P = $16 and Q = 95. After imposition of
the tax, what is the daily after-tax price received by the seller per car parked?
A) $1
B) $3
C) $13
D) $15
E) $16
Answer: C
Diff: 3
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User2: Quantitative
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10) Consider an excise tax imposed on daily parking charges in the downtown of a small city. Before the imposition
of the tax, equilibrium price and quantity are $15 and 100 cars parked. (P = $15, Q = 100). The city government
imposes a tax of $3 per car parked per day. Market equilibrium adjusts to P = $16 and Q = 95. What is the total
after-tax revenue received per day by the seller after imposition of the tax?
A) $1235
B) $1600
C) $1500
D) $1520
E) $1425
Answer: A
Diff: 3
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User2: Quantitative
11) Consider an excise tax imposed on daily parking charges in the downtown of a small city. Before the imposition
of the tax, equilibrium price and quantity are $15 and 100 cars parked per day. (P = $15, Q = 100). The city
government then imposes a tax of $3 per car parked per day. Market equilibrium adjusts to P = $16 and Q = 95.
Which of the following statements about the burden of the tax is correct?
A) Supply is less elastic relative to demand and therefore more of the burden falls on the consumer.
B) Supply is more elastic relative to demand and therefore more of the burden falls on the seller.
C) Supply is more elastic relative to demand and therefore more of the burden falls on the consumer.
D) Supply is less elastic relative to demand and therefore more of the burden falls on the seller.
Answer: D
Diff: 3
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User2: Quantitative
12) Consider an excise tax imposed on daily parking charges in the downtown of a small city. Before the imposition
of the tax, equilibrium price and quantity are $15 and 100 cars parked. (P = $15, Q = 100). The city government
imposes a tax of $3 per car parked per day. Market equilibrium adjusts to P = $18 and Q = 100. Which of the
following statements about the burden of the tax is correct?
A) Price elasticity of supply is 0 and therefore the entire burden of the tax falls on the consumer.
B) Elasticity of demand is 0 and therefore the entire burden of the tax falls on the consumer.
C) Elasticity of supply is 1 and therefore the entire burden of the tax falls on the seller.
D) Price elasticity of demand is 1 and therefore the entire burden of the tax falls on the seller
E) The burden of the tax is shared equally by the seller and the consumer.
Answer: B
Diff: 2
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User2: Quantitative
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There have been proposals that a tax be imposed on sugar-laden soft drinks in an attempt to reduce their
consumption. Assume for simplicity that all bottled soft drinks are the same size. Suppose the initial market
equilibrium is P = $2.00 and Q = 1000.
FIGURE 4-4
13) Refer to Figure 4-4. Suppose the government imposes a tax of $0.60 per soft drink purchased. The price paid by
the consumer becomes
A) $1.80.
B) $2.00.
C) $2.20.
D) $2.40.
E) $2.60.
Answer: D
Diff: 1
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User1: Graph
User2: Quantitative
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14) Refer to Figure 4-4. Suppose the government imposes a tax of $0.60 per soft-drink purchased. The after-tax
price received by the seller becomes
A) $1.80.
B) $2.00.
C) $2.20.
D) $2.40.
E) $2.60.
Answer: A
Diff: 1
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User1: Graph
User2: Quantitative
15) Refer to Figure 4-4. Suppose the government imposes a tax of $0.60 per soft drink purchased. The change in
total expenditure on soft drinks is
A) a decrease of $80.
B) a decrease of $160.
C) an increase of $320.
D) an increase of $480.
E) No change in total expenditure.
Answer: A
Diff: 3
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User1: Graph
User2: Quantitative
16) Refer to Figure 4-4. Suppose the government imposes a tax of $0.60 per soft drink purchased. Given the change
in total expenditure on soft drinks after imposition of the excise tax, what do we know about the price elasticity of
demand (η) for soft drinks?
A) η is equal to 1
B) η is equal to 0
C) η is greater than 1
D) η is less than 1
E) There is not enough information to determine.
Answer: C
Diff: 3
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User1: Graph
User2: Quantitative
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17) Refer to Figure 4-4. Suppose the government imposes a tax of $0.60 per soft drink purchased. Which of the
following statements most accurately describes the economic incidence of this tax?
A) The consumer bears more of the burden because demand is elastic relative to supply.
B) The seller bears more of the burden because supply is inelastic relative to demand.
C) The consumer bears more of the burden because demand is inelastic relative to supply.
D) The seller bears more of the burden because supply is elastic relative to demand.
E) The burden is shared equally between consumer and seller because the slopes of the supply and demand curves
are the same.
Answer: C
Diff: 3
Topic: 4.3. burden of an excise tax
Skill: Applied
Learning Obj.: 4-4 See how elasticity of demand and supply determine the effects of an excise tax.
User1: Graph
User2: Quantitative
4.4 Other Demand Elasticities
1) The formula for income elasticity of demand may be written as which of the following?
A)
B)
C)
D)
E)
Answer: C
Diff: 1
Topic: 4.4a. income elasticity
Skill: Recall
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Quantitative
2) Income elasticity measures the change in quantity demanded of some product with respect to changes in
A) the demand of the product.
B) the price of another related product.
C) its price.
D) the supply of the product.
E) households' income.
Answer: E
Diff: 1
Topic: 4.4a. income elasticity
Skill: Recall
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Qualitative
3) Income elasticity of demand measures the extent to which
A) the price of a good changes when there is a change in income.
B) the quantity demanded of a good changes when income changes.
C) real household income changes when there is a change in the price of a good.
D) one household's income changes when there is a change in the income of another household.
E) quantity demanded changes when there is a change in price.
Answer: B
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Diff: 1
Topic: 4.4a. income elasticity
Skill: Recall
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Qualitative
4) If a product's income elasticity of demand is -1.7, then we can conclude that
A) an increase in income will lead to an increase in demand for the product.
B) the product is certainly a necessity.
C) the product is a luxury good.
D) a decrease in income will lead to an increase in demand for the product.
E) the product is a normal good.
Answer: D
Diff: 2
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Quantitative
5) If a product's income elasticity of demand is 1.7, we can conclude that
A) an increase in income will lead to an increase in demand for the product.
B) the product is certainly a necessity.
C) the product is an inferior good.
D) a decrease in income will lead to an increase in demand for the product.
E) an increase in income will lead to an increase in quantity demanded of this product by 1.7%.
Answer: A
Diff: 2
Topic: 4.4a. income elasticity
Skill: Applied
User2: Quantitative
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6) Nancy's income has just risen from $950 per week to $1050 per week. As a result, she decides to double the
number of movies she attends each week. Nancy's demand for movies is
A) price elastic.
B) income elastic.
C) price inelastic.
D) income inelastic.
E) positively cross inelastic.
Answer: B
Diff: 2
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Quantitative
7) If the income elasticity of demand for some good is 2.4, a 10% increase in income results in
A) a 24% increase in the quantity demanded.
B) a 2.4% increase in the quantity demanded.
C) a 240% increase in the quantity demanded.
D) a 24% decrease in quantity demanded.
E) a 240% decrease in quantity demanded.
Answer: A
Diff: 2
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Quantitative
8) When national income falls, sales of vacation packages also fall, even at constant prices. This fact suggests that
the ________ elasticity of demand for vacation packages is ________.
A) income; positive
B) income; negative
C) price; positive
D) price; negative
E) cross; positive
Answer: A
Diff: 2
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Qualitative
212
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9) For a normal good, the quantity demanded
A) responds inversely to changes in income.
B) rises when income rises.
C) rises when income falls.
D) falls when income rises.
E) does not change when income rises or falls.
Answer: B
Diff: 1
Topic: 4.4a. income elasticity
Skill: Recall
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Qualitative
10) Which of the following tends to be true of the income elasticity of demand for food?
A) It tends to be well below unity only at low levels of income.
B) It tends to be well above unity only at high levels of income.
C) At low levels of income, it tends to be fairly high; but as the level of income rises, it tends to fall.
D) It tends to remain fairly constant at all levels of income.
E) It is usually zero, since we can only eat so much.
Answer: C
Diff: 2
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Qualitative
11) If the demand for a product has an income elasticity of -3.4, we can conclude that
A) an increase in income will lead to an increase in demand for the product.
B) the product is certainly a necessity.
C) the product is a normal good.
D) the product has a rising income-consumption curve.
E) a decrease in income will lead to an increase in demand for the product.
Answer: E
Diff: 2
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Qualitative
213
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12) If the income elasticity of demand for a good is 1.25, a 10% increase in income results in
A) a 12.5% increase in the quantity demanded.
B) a 12.5% decrease in the quantity demanded.
C) a 125% increase in the quantity demanded.
D) a decrease in quantity demanded.
E) There is not enough information to answer this question.
Answer: A
Diff: 2
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Quantitative
13) An increase in income will
A) increase the demand for SUVs if SUVs are inferior goods.
B) always increase the demand for SUVs.
C) increase the supply of SUVs.
D) decrease the demand for SUVs if SUVs have a very low price.
E) increase the demand for SUVs if SUVs are normal goods.
Answer: E
Diff: 1
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Qualitative
14) We can expect that the income elasticity of demand for gourmet catered meals would be ________ the income
elasticity of demand for basic groceries.
A) equivalent to
B) not comparable to
C) less than
D) higher than
E) lower than
Answer: D
Diff: 2
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Qualitative
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15) If Vicky's income increases by 8% and she increases her consumption of music downloads by 4%, then her
income elasticity of demand for music downloads is
A) 4.0.
B) -0.5.
C) -2.0.
D) 2.0.
E) 0.5.
Answer: E
Diff: 2
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Quantitative
Consider the following data for a hypothetical economy.
Year
2012
2013
Average
Household Income
($)
78 000
82 000
Price
of Gasoline
($/litre)
1.30
1.30
Quantity Demanded
of Gasoline
(millions of litres)
1940
2060
TABLE 4-3
16) Refer to Table 4-3. The income elasticity of demand for gasoline in this economy is
A) 6.0.
B) 0.5.
C) 0.6.
D) 8.3.
E) 1.2.
Answer: E
Diff: 3
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User1: Table
User2: Quantitative
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Consider the following data for a hypothetical economy.
Year
2012
2013
Average Household
Income ($)
78 000
82 000
Price of Transit Passes
($)
60
60
Quantity Demanded
Transit Passes
99 000
101 000
TABLE 4-4
17) Refer to Table 4-4. The income elasticity of demand for transit passes in this economy is
A) 0.4.
B) 0.5.
C) 2.5.
D) 2.5%.
E) 3.0%.
Answer: A
Diff: 3
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User1: Table
User2: Quantitative
18) Suppose the supply curve for breakfast cereals is upward sloping. Suppose also that as average household
income increases we observe a fall in the price of breakfast cereal. We can conclude that breakfast cereal is a(n)
A) luxury good.
B) substitute good.
C) inferior good.
D) normal good.
E) necessity good.
Answer: C
Diff: 3
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Qualitative
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19) Normal goods
A) have positive income elasticity of demand.
B) have negative income elasticity of demand.
C) have negative elasticity of supply.
D) do not have elasticity of demand.
E) are sometimes also inferior goods.
Answer: A
Diff: 1
Topic: 4.4a. income elasticity
Skill: Recall
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Qualitative
20) An inferior good has
A) a positive income elasticity of demand.
B) a negative income elasticity of demand.
C) an income elasticity of demand greater than zero but less than 1.
D) a positive income elasticity of demand and a price elasticity of demand greater than 1.
E) a negative price elasticity of demand.
Answer: B
Diff: 1
Topic: 4.4a. income elasticity
Skill: Recall
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Qualitative
21) If a producer knew his product to be an inferior good and he also knew average household income was falling,
he might
A) decrease output because the demand for his product would rise.
B) increase output because the demand for his product would rise.
C) keep his output the same.
D) cut output immediately because the demand for his product would surely fall.
E) close down, because inferior goods are the first to be eliminated from household budgets when income falls.
Answer: B
Diff: 2
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Qualitative
217
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22) Suppose national income is rising steadily at 2% per year over a 5-year period. Over the same time period,
suppose quantity demanded for iPods and iPhones increases at 5% per year, but no other relevant variables are
changing. We can conclude that the income elasticity for these products is ________ and that these products are
________ goods.
A) 0.4; inferior
B) 4.0; normal
C) 2.5; luxury
D) 10.0; necessities
E) 4.0; necessities
Answer: C
Diff: 2
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Quantitative
23) If the income elasticity of demand for a good is - 3.4, a 25% increase in income results in
A) a 4% increase in quantity demanded.
B) a 0.85% increase in quantity demanded.
C) an 8.5% decrease in quantity demanded.
D) an 85% decrease in the quantity demanded.
E) There is not enough information to answer this question.
Answer: D
Diff: 3
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Quantitative
24) If the income elasticity of demand for a good is 0.75, a 25% increase in income results in
A) an 18.75% increase in quantity demanded.
B) a 3% increase in quantity demanded.
C) a 0.1875% increase in quantity demanded.
D) a 3% decrease in quantity demanded.
E) There is not enough information to answer.
Answer: A
Diff: 3
Topic: 4.4a. income elasticity
Skill: Applied
User2: Quantitative
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25) Suppose the price elasticity of demand for good X is 1.5. If household income increases by 25%, ceteris paribus,
what is the change in quantity demanded for good X?
A) a 37.5% increase in quantity demanded
B) a 3.75% increase in quantity demanded
C) a 0.375% increase in quantity demanded
D) no change in quantity demanded
E) There is not enough information to answer this question.
Answer: E
Diff: 3
Topic: 4.4a. income elasticity
Skill: Applied
Learning Obj.: 4-5 Measure the income elasticity of demand and be able to distinguish between normal and inferior goods.
User2: Quantitative
26) Suppose empirical analysis concludes that the income elasticity of demand for Kraft Dinner (KD) is -0.2. The
interpretation of this result is that
A) a 10% increase in income will lead to a 2% decrease in quantity demanded of KD.
B) a 10% increase in income will lead to a 20% decrease in quantity demanded of KD.
C) a 10% increase in income will lead to a 0.2% decrease in quantity demanded of KD.
D) a 10% increase in income will lead to a 2% increase in quantity demanded of KD.
E) a 10% increase in income will lead to a 20% increase in quantity demanded of KD.
Answer: A
Diff: 2
Topic: 4.4a. income elasticity
Skill: Applied
User2: Quantitative
27) Cross-price elasticity of demand may be defined as
A)
B)
.
.
C)
.
D)
.
E)
.
Answer: C
Diff: 1
Topic: 4.4b. cross elasticity of demand
Skill: Recall
Learning Obj.: 4-6 Measure cross elasticity of demand and be able to distinguish between substitute and complement goods.
User2: Qualitative
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28) If two goods, X and Y, have a negative cross elasticity of demand, then we know that they
A) are substitutes.
B) are complements.
C) are both inferior goods.
D) each have a price elasticity greater than one.
E) are both normal goods.
Answer: B
Diff: 1
Topic: 4.4b. cross elasticity of demand
Skill: Recall
Learning Obj.: 4-6 Measure cross elasticity of demand and be able to distinguish between substitute and complement goods.
User2: Qualitative
29) If two goods, X and Y, have a positive cross elasticity of demand, then we know that they
A) are both normal goods.
B) are complements.
C) are both inferior goods.
D) each have a price elasticity greater than one.
E) are substitutes.
Answer: E
Diff: 1
Topic: 4.4b. cross elasticity of demand
Skill: Recall
Learning Obj.: 4-6 Measure cross elasticity of demand and be able to distinguish between substitute and complement goods.
User2: Qualitative
30) Suppose the cross elasticity of demand between two goods, X and Y, is negative. If the price of X decreases, the
quantity demanded will
A) rise for both goods.
B) fall for both goods.
C) rise for X and fall for Y.
D) fall for X and rise for Y.
E) not change.
Answer: A
Diff: 2
Topic: 4.4b. cross elasticity of demand
Skill: Applied
Learning Obj.: 4-6 Measure cross elasticity of demand and be able to distinguish between substitute and complement goods.
User2: Qualitative
220
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31) Suppose the cross elasticity of demand for two goods, X and Y, is positive. If the price of Y falls, then quantity
demanded will
A) rise for both goods.
B) fall for both goods.
C) rise for X and fall for Y.
D) fall for X and rise for Y.
E) remain the same for both goods.
Answer: D
Diff: 2
Topic: 4.4b. cross elasticity of demand
Skill: Applied
Learning Obj.: 4-6 Measure cross elasticity of demand and be able to distinguish between substitute and complement goods.
User2: Qualitative
32) If pizza and beer are complementary goods, we can conclude that
A) the income elasticity of demand is positive.
B) their cross-elasticity of demand is positive.
C) both goods are inferior goods.
D) the income elasticity of demand is negative.
E) their cross-elasticity of demand is negative.
Answer: E
Diff: 2
Topic: 4.4b. cross elasticity of demand
Skill: Applied
Learning Obj.: 4-6 Measure cross elasticity of demand and be able to distinguish between substitute and complement goods.
User2: Qualitative
33) For which of the following pairs of products would we expect the cross elasticity of demand to be negative?
A) printers and toner cartridges
B) iPhones and BlackBerry smartphones
C) butter and margarine
D) LCD TVs and plasma TVs
E) acetaminophen and ibuprofen
Answer: A
Diff: 2
Topic: 4.4b. cross elasticity of demand
Skill: Applied
Learning Obj.: 4-6 Measure cross elasticity of demand and be able to distinguish between substitute and complement goods.
User2: Quantitative
221
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34) During the 1970s, OPEC's output restrictions caused gasoline prices to increase sharply. Coincidentally, demand
for gas-guzzling cars fell. A likely explanation for these observations is that gasoline and cars had a ________
elasticity of demand that was ________.
A) cross; negative
B) cross; positive
C) income; negative
D) income; positive
E) price; negative
Answer: A
Diff: 2
Topic: 4.4b. cross elasticity of demand
Skill: Applied
Learning Obj.: 4-6 Measure cross elasticity of demand and be able to distinguish between substitute and complement goods.
User2: Qualitative
35) Suppose the cross-price elasticity of demand between raspberry jam and strawberry jam is 7.5. The
interpretation of this result is that
A) a 10% increase in the price of strawberry jam leads to a 7.5% increase in quantity demanded of raspberry jam.
B) a 10% increase in the price of strawberry jam leads to a 0.75% increase in quantity demanded of raspberry jam.
C) a 10% increase in the price of strawberry jam leads to a 75% increase in quantity demanded of raspberry jam.
D) a 10% increase in the price of strawberry jam leads to a 7.5% decrease in quantity demanded of raspberry jam.
E) a 10% increase in the price of strawberry jam leads to a 75% decrease in quantity demanded of raspberry jam.
Answer: C
Diff: 2
Topic: 4.4b. cross elasticity of demand
Skill: Applied
User2: Quantitative
36) The price of apples at a local market rises from $2.95 to $3.05 per kilogram, and as a result the quantity of
oranges that households purchase increases from 3950 to 4050 kilograms per week. The cross-price elasticity is
A) -1.33.
B) -0.75.
C) 0.75.
D) 1.33.
E) 1.5.
Answer: C
Diff: 3
Topic: 4.4b. cross elasticity of demand
Skill: Applied
Learning Obj.: 4-6 Measure cross elasticity of demand and be able to distinguish between substitute and complement goods.
User2: Quantitative
37) Suppose the cross-elasticity of demand for two goods, domestic cheese and imported cheese, is positive. If the
price of imported cheese falls, then quantity demanded will
A) rise for both domestic and imported cheese.
B) fall for both domestic and imported cheese.
C) rise for domestic cheese and fall for imported cheese.
D) fall for domestic cheese and rise for imported cheese.
E) There is not enough information to answer this question.
Answer: D
Diff: 3
Topic: 4.4b. cross elasticity of demand
Skill: Applied
Learning Obj.: 4-6 Measure cross elasticity of demand and be able to distinguish between substitute and complement goods.
User2: Qualitative
Consider the following data for a hypothetical economy.
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Copyright © 2017 Pearson Education, Inc.
Year
2012
2013
Average
Household
Income
($)
80 000
80 000
Price of
Transit
Passes
($)
60
60
Price of Quantity Demanded
Quantity Demanded Gasoline of Gasoline (millions
of Transit Passes
($/litre)
of litres)
99 000
0.95
1940
101 000
1.05
2060
TABLE 4-5
38) Refer to Table 4-5. The cross-price elasticity of demand for transit passes in terms of the price of gasoline is
________. We can therefore conclude that these two goods are ________.
A) 0.5; substitutes
B) 0.2; substitutes
C) 5.0; complements
D) 0.2; complements
E) 0.33; substitutes
Answer: B
Diff: 3
Topic: 4.4b. cross elasticity of demand
Skill: Applied
Learning Obj.: 4-6 Measure cross elasticity of demand and be able to distinguish between substitute and complement goods.
User1: Table
User2: Quantitative
223
Copyright © 2017 Pearson Education, Inc.
39) Refer to Table 4-5. The cross-price elasticity of demand for transit passes in terms of the price of gasoline is
________. A rise in the price of gasoline causes the demand curve for transit passes to shift to the ________.
A) 5.0; right
B) 0.33; right
C) 0.33; left
D) 0.2; right
E) 0.2; left
Answer: D
Diff: 3
Topic: 4.4b. cross elasticity of demand
Skill: Applied
Learning Obj.: 4-6 Measure cross elasticity of demand and be able to distinguish between substitute and complement goods.
User1: Table
User2: Quantitative
Economics - Canadian Edition, 15e (Ragan)
Chapter 5 Price Controls and Market Efficiency
5.1 Government-Controlled Prices
1) At any disequilibrium price, whether government controlled or not, the quantity actually exchanged is determined
by
A) the elasticity of supply.
B) the elasticity of demand.
C) government decree.
D) the lesser of quantity demanded and quantity supplied.
E) the greater of quantity demanded and quantity supplied.
Answer: D
Diff: 1
Topic: 5.1a. price controls
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
2) Consider a competitive labour market. The likely consequence of a binding minimum wage in this labour market
is
A) a labour shortage.
B) a lower wage for all individuals.
C) a higher wage for all individuals.
D) excess demand for workers.
E) unemployment.
Answer: E
Diff: 1
Topic: 5.1a. price controls
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
3) Government price controls are policies that attempt to maintain the
A) quantity bought at less than the quantity sold.
B) quantity sold at less than the quantity bought.
C) the price at some disequilibrium value.
D) market price at equilibrium.
E) price requested by the seller.
Answer: C
Diff: 1
Topic: 5.1a. price controls
Skill: Recall
224
Copyright © 2017 Pearson Education, Inc.
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
225
Copyright © 2017 Pearson Education, Inc.
4) In a market where we observe a disequilibrium, quantity exchanged is determined
A) by the quantity demanded.
B) by the greater of quantity demanded and quantity supplied.
C) by neither quantity demanded nor quantity supplied.
D) by the lesser of quantity demanded and quantity supplied.
E) by the quantity supplied.
Answer: D
Diff: 1
Topic: 5.1a. price controls
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
5) Which of the following statements about government price controls is most accurate. They
A) act as a guideline to producers as to what is a fair price.
B) inform consumers what is the maximum price they should pay.
C) usually set upper or lower limits on prices.
D) ensure that the actual price is at its free-market equilibrium.
E) ensure that transactions take place at a fair price.
Answer: C
Diff: 1
Topic: 5.1a. price controls
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
6) The price of a good or a service can be determined by free interaction of demand and supply or by a government
price regulation. One important difference between these two price-determining methods is
A) there are no shortages or surpluses at the free-market equilibrium price.
B) regulated prices are fairer since more people can then afford the goods or services.
C) that a regulated price above the equilibrium price will always result in shortages.
D) the government is in the best position to know the needs of the people.
E) one is capitalist and the other is communist.
Answer: A
Diff: 1
Topic: 5.1a. price controls
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
226
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7) Consider a market in which there is a government-set price. If there is excess demand at this price,
A) the market is in its free-market equilibrium.
B) the market is in disequilibrium.
C) there are unsuccessful sellers.
D) the product has not reached the point of saturation.
E) none of the product will be exchanged.
Answer: B
Diff: 1
Topic: 5.1a. price controls
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
8) In competitive markets, price floors and price ceilings usually lead to
A) shortages.
B) a reduction in quantities exchanged.
C) surpluses.
D) production control by the government.
E) more equitable distributions of commodities.
Answer: B
Diff: 1
Topic: 5.1a. price controls
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
9) In free and competitive markets, shortages are eliminated by
A) government price controls.
B) rationing.
C) black markets.
D) price increases.
E) price decreases.
Answer: D
Diff: 1
Topic: 5.1a. price controls
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
10) In free and competitive markets, surpluses are eliminated by
A) government price controls.
B) government purchases.
C) black markets.
D) price increases.
E) price decreases.
Answer: E
Diff: 1
Topic: 5.1a. price controls
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
11) Suppose the government sets a particular price in the market for gold, which results in an excess supply. In this
situation,
A) the market is in equilibrium.
B) the market is in disequilibrium.
C) there are unsuccessful buyers.
D) the gold market has not reached the point of saturation.
E) no gold will be exchanged.
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Copyright © 2017 Pearson Education, Inc.
Answer: B
Diff: 1
Topic: 5.1a. price controls
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
12) A minimum permissible price established by the government is called
A) the equilibrium price.
B) the margin price.
C) a price ceiling.
D) a price floor.
E) the fair price.
Answer: D
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
13) If the government fixes the price of good X above its free-market equilibrium level, we should expect
A) a surplus of good X to occur.
B) a shortage of good X to occur.
C) an excess demand for good X.
D) a black market to arise for good X.
E) a new free-market equilibrium price to be established.
Answer: A
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
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14) A legally imposed upper limit on a price is called
A) a price floor.
B) a price support.
C) an excise price.
D) a price ceiling.
E) a government price.
Answer: D
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
15) A binding price floor is a
A) minimum price, below equilibrium, below which price is not allowed to fall.
B) maximum price, above equilibrium, which price is not allowed to exceed.
C) minimum price, above equilibrium, below which price is not allowed to fall.
D) maximum price, below equilibrium, which price is not allowed to exceed.
E) any minimum price below which price is not allowed to fall.
Answer: C
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
16) A legal price floor is a
A) price set by the government at which all goods or services must be legally sold.
B) maximum price above which sales cannot legally be made.
C) minimum price below which sales cannot legally be made.
D) price above which there would be no demand.
E) price below which there would be no supply.
Answer: C
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
17) In which type of market would a government be most likely to establish a "legal" price floor?
A) housing market
B) labour market
C) diamond market
D) electricity market
E) natural gas market
Answer: B
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
18) For a price floor to be binding, it must be set
A) very low.
B) at the free-market equilibrium price.
C) below the free-market equilibrium price.
D) at a level such that there exists some unsatisfied demand.
E) above the free-market equilibrium price.
Answer: E
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Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
19) Consider the market for pulp and paper. Suppose, in an attempt to help this industry, the government sets a price
floor above the free-market equilibrium price. The result will be
A) a continuation of the market-determined equilibrium price and quantity.
B) the quantity demanded will exceed quantity supplied and there will be a shortage in the market.
C) the quantity supplied will exceed quantity demanded and there will be a surplus in the market.
D) a new free-market equilibrium at a higher price and lower output level.
E) increased government revenue.
Answer: C
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
20) Consider the market for iron ore, an important industrial input. Suppose the government sets a price floor below
the free-market equilibrium price. The result will be
A) a continuation of the free-market equilibrium price and quantity.
B) the quantity demanded will exceed quantity supplied and there will be a shortage in the market.
C) the quantity supplied will exceed quantity demanded and there will be a surplus in the market.
D) a new free-market equilibrium at a lower price and higher output level.
E) increased government revenue.
Answer: A
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
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21) An excess supply of some product is the same thing as
A) a surplus.
B) an excess demand.
C) a shortage.
D) scarcity.
E) price floor.
Answer: A
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
22) An excess demand for some product is the same thing as
A) a surplus.
B) an excess supply.
C) a shortage.
D) black market.
E) price ceiling.
Answer: C
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
23) Suppose the government establishes a binding price floor for some product. At the price floor,
A) although sellers are selling all of the product that they desire, consumers are not able to buy all that they desire.
B) a new free-market equilibrium price and quantity will be established.
C) both sellers and buyers are satisfied with the quantity that is being exchanged.
D) both sellers and buyers are exchanging the free-market equilibrium quantity.
E) although consumers are purchasing all of the product they desire at this price, the sellers are not selling all they
desire.
Answer: E
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
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24) Suppose the government decides to eliminate a binding price floor that it had previously imposed on a particular
good. It can be expected that
A) the price would increase, the quantity demanded would decrease and the quantity supplied would increase.
B) the price would increase, the quantity demanded would increase and the quantity supplied would decrease.
C) the price would decrease, the quantity demanded would decrease and the quantity supplied would increase.
D) the price would decrease, the quantity demanded would increase and the quantity supplied would decrease.
E) no changes would take place.
Answer: D
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
25) Suppose the government decides to eliminate a binding price ceiling that it had previously imposed on a
particular good. It can be expected that
A) the price would increase, quantity demanded would decrease, and quantity supplied would decrease.
B) the price would increase, quantity demanded would decrease, and quantity supplied would increase.
C) the price would decrease, quantity demanded would decrease, and quantity supplied would increase.
D) the price would decrease, quantity demanded would increase, and quantity supplied would decrease.
E) no change would take place
Answer: B
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
User2: Qualitative
26) A binding minimum wage established by the government
A) is essentially a price ceiling that creates a shortage of workers.
B) will be effective only if the minimum wage is set below the free-market equilibrium wage.
C) will have no effect on the quantity of labour employed.
D) will affect adversely only those workers whose value of productivity is greater than this minimum wage.
E) is a price floor that will create a surplus of workers if the labour market is competitive.
Answer: E
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
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27) If the equilibrium wage in a competitive labour market is $9 per hour, and the government raises the minimum
wage from $7 to $8 per hour, what will be the effect in this market?
A) the level of employment will decrease
B) unemployment will increase
C) unemployment will decrease
D) there will be no effect on employment
E) the average wage paid to workers will increase
Answer: D
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
28) For a legislated minimum wage to be binding in a competitive labour market, it must be set
A) below the free-market wage.
B) equal to the free-market wage.
C) above the free-market wage.
D) at or below the free-market wage.
E) such that no worker can earn more than the established minimum wage.
Answer: C
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
29) A legal price ceiling, if it is binding, is a
A) minimum price, below equilibrium, which price is not allowed to fall below.
B) maximum price, above equilibrium, which price is not allowed to exceed.
C) minimum price, above equilibrium, which price is not allowed to fall below.
D) maximum price, below equilibrium, which a price is not allowed to exceed.
E) any maximum price which price is not allowed to exceed.
Answer: D
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
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30) A price ceiling set below the free-market equilibrium price will result in
A) a clearing of the market.
B) greater quantity exchanged.
C) surpluses.
D) excess demand.
E) excess supply.
Answer: D
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
31) Suppose the free-market equilibrium price for ice time at privately operated hockey arenas is $250 per hour. If
the municipal government imposes a price ceiling of $130 per hour, we can expect to see
A) an adjustment of the free-market equilibrium price to $100.
B) an excess supply of ice time.
C) a black market price below the free-market equilibrium price.
D) that neither excess supply nor excess demand is created.
E) an excess demand for ice time.
Answer: E
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
32) In a competitive market, a legal price ceiling set above the free-market equilibrium price will result in
A) a continuation of the free-market equilibrium price and quantity.
B) the quantity demanded exceeding quantity supplied and thus a shortage in the market.
C) the quantity supplied exceeding quantity demanded and thus a surplus in the market.
D) a new free-market equilibrium at a higher price and lower output level.
E) increased profits to the firms in the industry.
Answer: A
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
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33) In a competitive market, a price ceiling set below the free-market equilibrium price will result in
A) a continuation of the free-market equilibrium price and quantity.
B) the quantity demanded exceeding quantity supplied and thus a shortage in the market.
C) the quantity supplied exceeding quantity demanded and thus a surplus in the market.
D) a new free-market equilibrium at a lower price and higher output level.
E) excess supply.
Answer: B
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
34) Which of the following statements best differentiates price ceilings and price floors?
A) Price ceilings represent minimum prices, while price floors represent maximum prices.
B) Binding price ceilings are always set below the equilibrium price, whereas binding price floors are always set
above the equilibrium price.
C) Price ceilings are always effective, whereas price floors are rarely effective.
D) Price floors cause shortages to appear, whereas price ceilings have the opposite effect.
E) Price ceilings and price floors have the same effects.
Answer: B
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
35) Suppose that the free-market equilibrium price of natural gas would be $2.00 per unit, but in an effort to protect
consumers the government has fixed the price at $1.50. At this ceiling price the quantity ________ will be greater
than the quantity ________, resulting in a ________ of natural gas.
A) demanded; supplied; surplus
B) supplied; demanded; surplus
C) demanded; supplied; shortage
D) supplied; demanded; shortage
E) demanded; supplied; reduction in equilibrium price
Answer: C
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
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36) Suppose that the free-market equilibrium price of downtown-to-airport taxi service would be $45 per trip, but in
an effort to protect taxi owners the government has fixed the price at $60 per trip. At this legislated price the
quantity ________ will be greater than the quantity ________, resulting in a ________ of downtown-to-airport taxi
services.
A) demanded; supplied; surplus
B) supplied; demanded; surplus
C) demanded; supplied; shortage
D) supplied; demanded; shortage
E) demanded; supplied; reduction in equilibrium price
Answer: B
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
User2: Qualitative
37) If the free-market equilibrium price for some product is $25, then a legal price ceiling set at $15 will bring about
A) the same general effects as a price ceiling of $25.
B) the same general effects as an equilibrium price of $15.
C) no change in the market outcomes.
D) a surplus of the good.
E) a shortage of the good.
Answer: E
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
38) Which of the following is true of price ceilings?
A) Firms must charge the price established as a price ceiling.
B) If the ceiling price is set above the free-market equilibrium price it will have no effect on the market.
C) A ceiling price below the free-market equilibrium price is not binding.
D) With a non-binding ceiling price an excess demand for the product will develop.
E) With a binding ceiling price a surplus of the commodity will develop.
Answer: B
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
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39) With respect to some commodity, X, if government objectives are to (1) restrict production and (2) keep prices
down to protect consumers, then legislated price ceilings will
A) be a dismal failure as neither goal can ever be achieved with price ceilings.
B) satisfy both goals but only if a black market develops.
C) satisfy only the second goal if a black market develops.
D) only have an effect on commodities at the international level.
E) satisfy both goals as long as a black market does not develop.
Answer: E
Diff: 3
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
40) Which of the following is an example of a black-market transaction?
A) A person buys a hotdog on a street corner.
B) A person buys a product at a price greater than the government-imposed ceiling price.
C) A person buys a product at a price below the government-imposed ceiling price.
D) A person places a bet at a racetrack.
E) A person buys a product at a price greater than the government-imposed price floor.
Answer: B
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
41) If the government imposes a price ceiling for some product, and a black market subsequently develops that gains
control of all of the reduced output of the product, then
A) the black market price will be lower than the ceiling price.
B) excess profits will flow back to consumers.
C) the quantity demanded will exceed quantity supplied at the black market price.
D) the black market price will be higher than the free-market equilibrium price.
E) consumers will be better off than they would be in the absence of the black market.
Answer: D
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
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42) If a binding price floor is in place and if the demand curve for the product shifts rightward, one consequence
would be
A) an increase in the amount of excess demand.
B) a decrease in the amount of excess demand.
C) an increase in the amount of excess supply.
D) a decrease in the amount of excess supply.
E) a decrease in the quantity exchanged.
Answer: D
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
43) If a binding price ceiling is in place and if the demand curve for the product shifts rightward, one consequence
would be
A) the quantity exchanged would increase.
B) the quantity exchanged would remain constant.
C) the quantity exchanged would decrease.
D) an increase in the amount of excess supply.
E) a decrease in the amount of excess demand.
Answer: B
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
44) The surpluses associated with a binding price floor will be the smallest when
A) both supply and demand are highly elastic.
B) both supply and demand are highly inelastic.
C) supply is highly elastic and demand is highly inelastic.
D) supply is highly inelastic and demand is highly elastic.
E) both supply and demand are unit elastic.
Answer: B
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
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45) The shortages associated with a binding price ceiling will be the smallest when
A) both supply and demand are highly elastic.
B) both supply and demand are highly inelastic.
C) supply is highly elastic and demand is highly inelastic.
D) supply is highly inelastic and demand is highly elastic.
E) none of the above—the size of the shortage has nothing to do with demand and supply elasticities.
Answer: B
Diff: 3
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
46) A predictable result of the imposition of binding price floors or price ceilings is
A) shortages.
B) a reduction in quantities exchanged.
C) surpluses.
D) production control by the government.
E) a more equitable distribution of commodities.
Answer: B
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Recall
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
47) If the equilibrium price for some product is $1000, a price ceiling of $1200 will result in
A) the same general effects as a price floor of $1200.
B) the same general effects as an administered price of $1200.
C) the same general effects as a price ceiling of $600.
D) massive surpluses of the good.
E) no effects because the price ceiling is not binding at that price.
Answer: E
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
48) If the equilibrium price for some product is $1000, a price ceiling of $800 will result in
A) the same general effects as a price ceiling of $1200.
B) the same general effects as a price floor of $1200.
C) the same general effects as a price ceiling of $600.
D) massive surpluses of the good.
E) no effects because the price ceiling is not binding at that price.
Answer: C
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
49) If a binding price ceiling is in effect and if the demand for the product increases, one consequence would be
A) a decrease in the amount of excess supply.
B) a decrease in the amount of excess demand.
C) an increase in the amount of excess supply.
D) an increase in the amount of excess demand.
E) no change in the excess supply or demand for the product.
Answer: D
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Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
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FIGURE 5-1
50) Refer to Figure 5-1. In this market, suppose the government announces that the price must be P2 or higher. This
price (P2) is referred to as
A) a price ceiling.
B) a price floor.
C) a non-binding price floor.
D) a binding price ceiling.
E) an equilibrium price.
Answer: B
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Qualitative
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51) Refer to Figure 5-1. In this market, suppose the government announces that the price must be P3 or lower. This
price (P3) is referred to as
A) a non-binding price ceiling.
B) a binding price floor.
C) an equilibrium price.
D) a price ceiling.
E) a price floor.
Answer: D
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Qualitative
52) Refer to Figure 5-1. If the government imposes an administered price at P2, the result will be a
A) surplus of BD.
B) shortage of AC.
C) shortage of FD.
D) surplus of AF.
E) surplus of 0D.
Answer: A
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Qualitative
53) Refer to Figure 5-1. If the diagram applies to the labour market, and P3 represents a legislated minimum wage,
A) there will be excess demand of AC in the labour market.
B) there will be unemployment of AC in the labour market.
C) the free-market equilibrium wage is P0 and the labour market is unaffected by the minimum wage.
D) the labour market is in disequilibrium.
E) the amount of labour employed will rise from quantity F to quantity C.
Answer: C
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Qualitative
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54) Refer to Figure 5-1. To be binding, a legal price ceiling must lie
A) above P0 but below P2.
B) anywhere above P0.
C) below P0 but above P3.
D) anywhere below P0.
E) anywhere above 0.
Answer: D
Diff: 1
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Qualitative
55) Refer to Figure 5-1. With a price ceiling of P3, how large will the resulting shortage be?
A) FD
B) AF
C) AC
D) BC
E) FC
Answer: C
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Qualitative
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FIGURE 5-2
56) Refer to Figure 5-2. A price floor set at $2.50 will result in
A) a shortage of 5 units.
B) a shortage of 10 units.
C) a surplus of 10 units.
D) a surplus of 5 units.
E) no change to the market outcomes.
Answer: C
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Quantitative
57) Refer to Figure 5-2. A price floor set at a price of $1.00 will result in
A) a shortage of 10 units.
B) a shortage of 20 units.
C) a surplus of 10 units.
D) a surplus of 20 units.
E) no change in the market outcomes.
Answer: E
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Quantitative
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58) Refer to Figure 5-2. A price ceiling set at a price of $1.00 per unit will result in
A) a shortage of 10 units.
B) a shortage of 20 units.
C) a surplus of 10 units.
D) a surplus of 20 units.
E) no change to the market outcomes.
Answer: B
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Quantitative
59) Refer to Figure 5-2. A price ceiling set at a price of $2.50 per unit will result in
A) a shortage of 5 units.
B) a shortage of 10 units.
C) a surplus of 5 units.
D) a surplus of 10 units.
E) no change in the market outcomes.
Answer: E
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Quantitative
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FIGURE 5-3
60) Refer to Figure 5-3. P2 represents a price imposed by the government. What is the quantity of this good that
would be exchanged in the market?
A) Q0
B) Q1
C) Q2
D) Q3
E) Q4
Answer: B
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Qualitative
61) Refer to Figure 5-3. To be effective, a price floor must lie
A) above P1 but below P2.
B) anywhere above P1.
C) below P1 but above P3.
D) anywhere below P1.
E) within the boundaries of P2 and P3.
Answer: B
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Qualitative
62) Refer to Figure 5-3. Suppose P3 represents a price imposed by the government. The result would be
A) excess supply of Q3Q4.
B) excess supply of Q3Q0.
C) excess demand of Q0Q2.
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D) excess demand of Q1Q2.
E) excess demand of Q3Q4.
Answer: E
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Qualitative
63) Refer to Figure 5-3. If the government imposes a price floor at P3, the result would be a price and quantity
combination of
A) P3 and Q3.
B) P3 and Q4.
C) P2 and Q1.
D) P1 and Q0.
E) P3 and Q0.
Answer: D
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Graph
User2: Qualitative
64) Suppose the demand for eggs is inelastic and that the market-clearing price is $1.50 per dozen. Now suppose the
government imposes a minimum price of $2.00 per dozen. Why might the government implement such a policy?
A) to make consumers better off
B) to increase the incomes of egg farmers
C) to increase excess demand in the egg market
D) to reduce excess supply in the egg market
E) to decrease tax revenues from egg farmers
Answer: B
Diff: 3
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
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65) Concert promoters often set ticket prices below what they expect the market-clearing price to be. They are
effectively imposing a ________ and the result is often ________ at a considerably higher price.
A) price ceiling; ticket scalping
B) price floor; ticket scalping
C) price ceiling; a surplus
D) price floor; a shortage
E) fair price; excess tickets
Answer: A
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User2: Qualitative
Demand and Supply Schedules for Chocolate Bars
Price
($)
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
Quantity Demanded
(thousands per week)
1500
1600
1700
1800
1900
2000
2100
2200
2300
Quantity Supplied
(thousands per week)
2100
2050
2000
1950
1900
1850
1800
1750
1700
TABLE 5-1
66) Refer to Table 5-1. Suppose that as a public-health measure the government wants to reduce the number of
chocolate bars that children consume. To achieve this outcome the government could implement which of the
following policies?
A) Impose an equilibrium price of $1.80.
B) Impose a price floor of $1.80.
C) Impose a price ceiling of $1.80.
D) Impose an equilibrium price of $1.20.
E) Impose a price ceiling of $2.00.
Answer: B
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Table
User2: Qualitative
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67) Refer to Table 5-1. Suppose the government imposed a price of $0.60 per chocolate bar. The result would be
A) excess demand of 450 chocolate bars per week.
B) excess supply of 450 chocolate bars per week.
C) excess supply of 1750 chocolate bars per week.
D) excess demand of 2200 chocolate bars per week.
E) stockpiling of unsold chocolate bars.
Answer: A
Diff: 3
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Table
User2: Quantitative
68) Refer to Table 5-1. Suppose the government imposed a price of $1.80 per chocolate bar. A likely result from this
policy is
A) the development of a black market in chocolate bars.
B) the allocation of chocolate bars by sellers preference.
C) the allocation of chocolate bars on a first-come, first-serve basis.
D) the stockpiling of unsold inventories of chocolate bars.
E) the rationing of chocolate bars.
Answer: D
Diff: 3
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Table
User2: Qualitative
69) Refer to Table 5-1. Suppose the government established a price floor of $1.00 per chocolate bar. How many
thousands of chocolate bars would be exchanged per week?
A) 2000
B) 1850
C) 1900
D) 1800
E) 2100
Answer: C
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-2 Compare the short-run and long-run effects of legislated rent controls.
User1: Table
User2: Quantitative
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70) Refer to Table 5-1. Suppose the government established a price ceiling of $1.00 per chocolate bar. How many
thousands of chocolate bars would be exchanged per week?
A) 1800
B) 1850
C) 1900
D) 2000
E) 2100
Answer: B
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
User1: Table
User2: Quantitative
71) Refer to Table 5-1. Suppose that as a public health measure the government wants to reduce the number of
chocolate bars consumed by children. If the government imposes a price of $1.60 per chocolate bar, how many
fewer chocolate bars will be consumed each week, relative to the competitive equilibrium?
A) 200
B) 300
C) 1700
D) 2000
E) 1800
Answer: A
Diff: 2
Topic: 5.1b. price floors and ceilings
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Table
User2: Quantitative
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5.2 Rent Controls: A Case Study of Price Ceilings
FIGURE 5-1
1) Refer to Figure 5-1. If the diagram applies to the market for rental housing and P3 represents the maximum rent
that can be charged, then
A) there will be an excess supply of rental units equal to BD.
B) units supplied will be reduced relative to the competitive equilibrium by AF rental units.
C) windfall profits will be earned by landlords.
D) there will be excess demand for rental units equal to FC.
E) there will be excess demand for rental units equal to AF.
Answer: B
Diff: 2
Topic: 5.2. rent controls
Skill: Applied
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User1: Graph
User2: Qualitative
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2) In the presence of binding rent controls, the shortage of housing is smaller
A) the higher is the elasticity of demand for housing.
B) the lower is the elasticity of supply of housing.
C) the longer is the length of time the rent controls are in place.
D) the greater is the difference between the equilibrium price and the rent-controlled price.
E) the more elastic is the long-run supply of housing.
Answer: B
Diff: 2
Topic: 5.2. rent controls
Skill: Applied
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User2: Qualitative
3) Consider the market for rental accommodation. In the short run, the supply of this product tends to be
A) infinitely price elastic.
B) very price elastic.
C) unit price elastic.
D) very or completely price inelastic.
E) irrelevant to the housing market price.
Answer: D
Diff: 2
Topic: 5.2. rent controls
Skill: Applied
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User2: Qualitative
4) Which of the explanations below best describes why a government might choose to impose binding rent controls?
A) To prevent landlords from making excess profits and to protect low-income tenants from increases in the cost of
housing.
B) To prevent landlords from making excess profits and to reduce the long-term quantity of rental housing.
C) To increase the demand for rental housing and to discourage private ownership of low-cost rental housing
developments.
D) To stabilize volatile rents, and thus to make the investment climate less uncertain for prospective investors in this
sector.
E) To stimulate employment in the construction industry through the increased demand for new houses.
Answer: A
Diff: 1
Topic: 5.2. rent controls
Skill: Recall
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User2: Qualitative
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5) Suppose the government establishes a ceiling on the price of rental accommodation that is lower than the freemarket equilibrium price. In this case,
A) construction of new rental units will be encouraged.
B) the rental housing market will be unaffected.
C) those people who obtain rental units at the ceiling price will benefit.
D) a surplus of current rental units will develop.
E) the current stock of rental housing will be better maintained as there is a shortage of housing.
Answer: C
Diff: 2
Topic: 5.2. rent controls
Skill: Applied
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User2: Qualitative
6) Assume that the long-run supply of housing is highly elastic. The imposition of binding rent controls will lead to
A) a reduction in the housing shortage over time.
B) a worsening of the housing shortage over time.
C) no significant change in the housing shortage over time.
D) only a temporary housing shortage.
E) the price of rental housing to revert back to its free-market equilibrium level.
Answer: B
Diff: 2
Topic: 5.2. rent controls
Skill: Applied
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User2: Qualitative
7) The use of legislated rent controls typically
A) has no effect on the distribution of income between tenants and landlords or on the availability of rental
accommodations.
B) affects the distribution of income between tenants and landlords but does not affect the supply of rental
accommodations.
C) has no effect on the distribution of income between tenants and landlords but does affect the supply of rental
accommodations.
D) affects the distribution of income between tenants and landlords and also affects the availability of rental
accommodations.
E) has much worse effects in the short run than in the long run.
Answer: D
Diff: 2
Topic: 5.2. rent controls
Skill: Recall
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User2: Qualitative
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8) Suppose the government imposes a price ceiling on rental housing that is below the market-clearing price. The
resulting shortage will be
A) greater the more recently the controlled price went into effect.
B) smaller the longer the controlled price has been in effect.
C) greater the more elastic the demand for rental housing.
D) smaller the more elastic the demand for rental housing.
E) diminished over time.
Answer: C
Diff: 2
Topic: 5.2. rent controls
Skill: Applied
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User2: Qualitative
9) Assuming that the long-run supply of housing is more ________ than the short-run supply, the imposition of
binding rent controls will generally ________.
A) inelastic; lead to a reduction in the housing shortage over time
B) elastic; lead to a worsening of the housing shortage over time
C) inelastic; lead to no significant change in the housing shortage
D) elastic; lead to only a temporary housing shortage
E) elastic; lead the price of rental housing to revert back to its equilibrium level
Answer: B
Diff: 2
Topic: 5.2. rent controls
Skill: Applied
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User2: Qualitative
10) Who are likely to be the biggest beneficiaries of rent controls?
A) landlords
B) prospective tenants
C) current tenants
D) construction companies
E) no group will benefit from the controls
Answer: C
Diff: 2
Topic: 5.2. rent controls
Skill: Recall
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User2: Qualitative
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FIGURE 5-4
11) Refer to Figure 5-4. Suppose the government imposes a rent-controlled price of $600 per month on apartments
in this city. In the short run we can expect the shortage of apartments to be ________ units.
A) 0
B) 200
C) 300
D) 800
E) 1000
Answer: C
Diff: 2
Topic: 5.2. rent controls
Skill: Applied
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User1: Graph
User2: Quantitative
12) Refer to Figure 5-4. Suppose the government imposes a rent-controlled price of $600 per month on apartments
in this city. In the long run we can expect the shortage of apartments to be ________ units.
A) 0
B) 200
C) 300
D) 800
E) 1000
Answer: D
Diff: 2
Topic: 5.2. rent controls
Skill: Applied
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User1: Graph
User2: Quantitative
13) Refer to Figure 5-4. Suppose the government sets a rent ceiling at $900. In this situation, the rental price for an
apartment is
A) $600.
B) $900.
C) any rent above $900.
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D) the same as the free-market equilibrium rental price.
E) any rent below $600.
Answer: D
Diff: 2
Topic: 5.2. rent controls
Skill: Applied
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User1: Graph
User2: Quantitative
14) Refer to Figure 5-4. The difference between supply curve S1 and supply curve S2 in this market for apartments
is that
A) S1 is not affected by a government controlled rental price.
B) S2 is not affected by a government controlled rental price.
C) S1 is more elastic than S2.
D) S1 is a short-run supply curve and S2 is a long-run supply curve.
E) S1 is a long-run supply curve and S2 is a short-run supply curve.
Answer: D
Diff: 2
Topic: 5.2. rent controls
Skill: Applied
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User1: Graph
User2: Quantitative
15) Refer to Figure 5-4. What is the significance of the difference in the slopes of the short-run supply curve ( )
and the long-run supply curve ( ) for apartments?
A) Over time, the supply of apartments shrinks in response to the controlled prices - the elasticity of supply
decreases.
B) Over time, the demand for apartments shrinks in response to the controlled prices - the elasticity of supply
increases.
C) Over time, the demand for apartments increases in response to the controlled prices - the elasticity of supply
increases.
D) Over time, the supply of apartments increases in response to the controlled prices - the elasticity of demand
increases.
E) Over time, the supply of apartments shrinks in response to the controlled prices - the elasticity of supply
increases.
Answer: E
Diff: 2
Topic: 5.2. rent controls
Skill: Applied
User1: Graph
User2: Qualitative
16) The short-run supply for rental housing is quite ________ while the long-run supply for housing is quite
________.
A) elastic; inelastic
B) inelastic; elastic
C) flat; steep
D) inelastic; inelastic
E) elastic; elastic
Answer: B
Diff: 2
Topic: 5.2. rent controls
Skill: Recall
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User2: Qualitative
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17) The long-run elasticity of supply of rental housing is greater than the short-run elasticity of supply because
A) changes in supply can occur very quickly, especially when rent controls are in place.
B) investment in new rental housing has such a short payback period.
C) changes in supply occur only after investment decisions are made regarding, for example, new construction or
conversion of rental housing to other uses.
D) in the long run, landlords have no incentive to alter the supply of rental housing.
E) the demand for rental housing is changing continuously.
Answer: C
Diff: 2
Topic: 5.2. rent controls
Skill: Recall
Learning Obj.: 5-3 Describe the relationship between economic surplus and the efficiency of a market.
User2: Qualitative
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5.3 An Introduction to Market Efficiency
1) Consider the demand curve for a product such as movie tickets, which shows how many tickets consumers wish
to purchase at each possible price. Alternatively, we could view this demand curve in the following way:
A) for each quantity of movie tickets, the price on the demand curve shows the value that consumers place on that
particular movie ticket.
B) for each quantity of movie tickets, the demand curve shows the economic surplus generated by the purchase of
the tickets.
C) for each possible price, the demand curve shows the economic surplus generated by the purchase of the tickets.
D) for each quantity of movie tickets, the demand curve shows the extent of market inefficiency and deadweight
loss.
E) for each quantity of movie tickets, the demand curve shows the additional cost to the producer of supplying that
particular movie ticket.
Answer: A
Diff: 2
Topic: 5.3a. market efficiency and economic surplus
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
2) Consider the supply curve for a product such as shipping crates, which shows how many crates producers want to
sell at each possible price. Alternatively, we could view this supply curve in the following way:
A) for each quantity of shipping crates, the supply curve shows the economic surplus generated by the provision of
that ticket.
B) for each possible price, the supply curve shows the economic surplus generated by the provision of those crates.
C) for each quantity of shipping crates, the supply curve shows the extent of market inefficiency and deadweight
loss.
D) for each quantity of shipping crates, the supply curve shows the value that consumers place on that particular
crate.
E) for each quantity of shipping crates, the price on the supply curve shows the additional cost to the producer of
supplying that crate.
Answer: E
Diff: 2
Topic: 5.3a. market efficiency and economic surplus
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
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3) Suppose a downward-sloping demand curve intersects the horizontal axis at a point where quantity demanded
equals 1250 units. What is the "value" that consumers place on the 1250th unit of this good?
A) a negative value
B) a positive value
C) $0
D) $1250
E) it depends on the position of the supply curve
Answer: C
Diff: 2
Topic: 5.3a. market efficiency and economic surplus
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
4) Suppose a negatively sloped demand curve and a positively sloped supply curve intersect at a price and quantity
combination of $100 and 600 units of the good. But suppose that producers actually produce and sell 610 units.
What can we correctly say about market efficiency in this case?
A) The value placed on the final 10 units of the good by consumers exceeds the additional costs associated with
their production — this market is not efficient.
B) The production and consumption of the additional 10 units of the good increases total economic surplus and
increases market efficiency.
C) This market is efficient because economic surplus is maximized as production and consumption increase
simultaneously.
D) This market is not efficient because quantity demanded for the good exceeds quantity supplied.
E) The value placed on the final 10 units of the good by consumers is less than the additional costs associated with
their production — this market is not efficient.
Answer: E
Diff: 3
Topic: 5.3a. market efficiency and economic surplus
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Quantitative
5) When economists describe a market for a specific product as being economically "efficient," what do they mean?
A) Production techniques are such that resources are used in the most technologically efficient manner.
B) Consumption of the product is such that economic surplus is maximized.
C) Production of the product is such that economic surplus is maximized.
D) The quantity of the product produced and consumed is such that the economic surplus is maximized.
E) There are no price controls in place in that market.
Answer: D
Diff: 2
Topic: 5.3a. market efficiency and economic surplus
Skill: Recall
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
6) Consider a competitive market for good X. A binding price floor and a binding price ceiling in this market would
be similar to each other in that
A) each type of price control will lead to a reduction in deadweight loss and therefore an increase in efficiency in the
market for good X.
B) the units of good X that will no longer be produced or consumed will not generate any economic surplus.
C) each type of price control results in a higher price paid by consumers, and therefore to a reduction in economic
surplus.
D) each type of price control results in a lower price received by sellers, and therefore to a reduction in economic
surplus.
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E) additional units of good X will be produced and consumed, leading to an increase in economic surplus.
Answer: B
Diff: 2
Topic: 5.3a. market efficiency and economic surplus
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
7) Each point on a demand curve shows the ________ price that consumers will pay to consume that quantity. The
demand curve therefore shows the ________ to consumers from consuming the product.
A) maximum; cost
B) minimum; cost
C) maximum; value
D) minimum; value
E) equilibrium; equilibrium price
Answer: C
Diff: 2
Topic: 5.3a. market efficiency and economic surplus
Skill: Recall
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
8) Each point on a supply curve shows the ________ acceptable price to firms for selling that unit; this price reflects
________ to firms from producing that unit.
A) minimum; the equilibrium price
B) maximum; the additional value
C) minimum; the additional value
D) maximum; the additional cost
E) minimum; the additional cost
Answer: E
Diff: 2
Topic: 5.3a. market efficiency and economic surplus
Skill: Recall
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
9) Geoff is willing to pay $13 for a sixth entrance to a mountain bike park. The market price for entrance is $10.50.
The bike park is willing to accept $8.75. The total economic surplus generated from Geoff's sixth trip to the bike
park is
A) $1.75.
B) $2.50.
C) $13.00.
D) $10.50.
E) $4.25.
Answer: E
Diff: 2
Topic: 5.3b. price controls and market efficiency
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Quantitative
10) Consider a market that is in equilibrium with a market-clearing price. Economic surplus is shown by
A) the intersection of the supply and demand curves.
B) the area that is both below the demand curve and above the supply curve.
C) the area that is both above the demand curve and below the supply curve.
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D) the area to the right of the market-clearing price and quantity.
E) the area below the supply curve up to the equilibrium quantity and below the demand curve beyond the
equilibrium quantity.
Answer: B
Diff: 2
Topic: 5.3a. market efficiency and economic surplus
Skill: Recall
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
11) If 10 000 snow tires are produced and purchased in the month of November, we can say that economic surplus is
A) the net value that society as a whole receives by producing and consuming those 10 000 snow tires.
B) the number of snow tires that are produced in excess of the equilibrium quantity.
C) the profit earned by the producers of those 10 000 snow tires.
D) the price at which the tires are sold multiplied by 10 000.
E) the net value to those consumers who purchased the 10 000 snow tires.
Answer: A
Diff: 3
Topic: 5.3a. market efficiency and economic surplus
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
FIGURE 5-5
12) Refer to Figure 5-5. At the market-clearing price and quantity of $30 per hour and 4000 hours of gardening
services purchased, the economic surplus is
A) the sum of the areas below the demand curve, but above the market-clearing price of $30 — i.e., areas 1, 2, 6.
B) the sum of the areas below the demand curve — i.e., areas 1, 2, 3, 4, 5, 6, 7, 8, 9.
C) the sum of the areas above the supply curve, but below the market-clearing price of $30 — i.e., areas 3, 4, 7.
D) the sum of the areas above the supply curve and below the demand curve — i.e., areas 1, 2, 3, 4, 6, 7.
E) the sum of the areas below the demand curve, up to 4000 hours — i.e., areas 1, 2, 3, 4, 5, 6, 7, 8.
Answer: D
Diff: 3
Topic: 5.3a. market efficiency and economic surplus
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
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be inefficient for society as a whole.
User1: Graph
User2: Qualitative
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13) Refer to Figure 5-5. At the market-clearing price and quantity of $30 per hour and 4000 hours of gardening
services, we can say that
A) economic surplus could be increased at a lower price because there would be more value to consumers.
B) economic surplus could be increased at a higher price because firms would generate more revenue.
C) economic surplus is maximized and the market is efficient.
D) the market is inefficient because there are some consumers who are not purchasing at this price.
E) the market is efficient because the government has imposed a market-clearing price and quantity.
Answer: C
Diff: 2
Topic: 5.3a. market efficiency and economic surplus
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Graph
User2: Qualitative
14) Refer to Figure 5-5. Suppose this market for gardening services is in a free-market equilibrium. If the
government then imposes a price floor of $50 per hour for gardening services, the result would be
A) a loss of economic surplus of the areas 6 and 7.
B) a loss of economic surplus of the areas 2 and 6.
C) a loss of economic surplus of the area 1.
D) a loss of economic surplus of the areas 2, 3, 4, 6, and 7.
E) a loss of economic surplus of the areas 1, 2, 3, and 4.
Answer: A
Diff: 3
Topic: 5.3a. market efficiency and economic surplus
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Graph
User2: Qualitative
15) Refer to Figure 5-5. If production and consumption of gardening services were 5000 hours per month
A) the value placed by consumers on the last 1000 hours is less than the additional costs associated with their
provision.
B) the provision of the last 1000 hours would decrease the amount of economic surplus in this market.
C) the resources going into the last 1000 hours of gardening service would be more highly valued elsewhere.
D) this market is not achieving efficiency.
E) all of the above.
Answer: E
Diff: 2
Topic: 5.3a. market efficiency and economic surplus
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Graph
User2: Qualitative
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16) In general (and in the absence of market failures), economic surplus will be maximized and economic efficiency
will be achieved
A) when the government is able to impose an equilibrium price.
B) when consumers and producers can agree on the most advantageous division of economic surplus.
C) when resources are allocated such that production of the good is maximized.
D) when the government successfully determines what is best for society as a whole.
E) in a competitive market where price is free to achieve its market-clearing equilibrium level.
Answer: E
Diff: 2
Topic: 5.3a. market efficiency and economic surplus
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
17) Which of the following statements most accurately describes the concept of deadweight loss?
A) the loss of production that occurs when a binding price floor or ceiling is imposed
B) the loss of consumption that occurs when a binding price floor or ceiling is imposed
C) the overall loss of economic surplus that occurs when a market is inefficient
D) the total market value of the goods no longer produced when quantity exchanged is below the equilibrium
quantity
E) the loss of economic surplus to consumers
Answer: C
Diff: 2
Topic: 5.3a. market efficiency and economic surplus
Skill: Recall
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
18) One measure of the extent of market inefficiency is
A) how far market price deviates from equilibrium.
B) how far quantity exchanged deviates from equilibrium.
C) the size of the economic surplus.
D) the size of the deadweight loss.
E) the difference between total economic surplus and deadweight loss.
Answer: D
Diff: 2
Topic: 5.3a. market efficiency and economic surplus
Skill: Recall
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
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FIGURE 5-6
19) Refer to Figure 5-6. The market for good X is in equilibrium at P0 and Q0. Economic surplus is represented by
A) areas 1 and 5.
B) areas 2, 3, 4, 6, 7, 8.
C) areas 1, 2, 3, 5, 6.
D) areas 1, 2, 3, 4, 5, 6, 7, 8.
E) areas 2, 3, 4, 6, 7, 8, 9.
Answer: C
Diff: 2
Topic: 5.3b. price controls and market efficiency
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Graph
User2: Qualitative
20) Refer to Figure 5-6. The market for good X is in equilibrium at P0 and Q0. Now suppose the government
imposes a ________ at P1. One result would be ________.
A) price ceiling; an increase in economic surplus represented by areas 5 and 6
B) price ceiling; a deadweight loss represented by areas 5, 6, 7 and 8
C) price floor; a deadweight loss represented by areas 5, 6, 7 and 8
D) price floor; a deadweight loss represented by areas 2, 6 and 7
E) price ceiling; a deadweight loss represented by areas 5 and 6
Answer: E
Diff: 2
Topic: 5.3b. price controls and market efficiency
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Graph
User2: Qualitative
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FIGURE 5-7
21) Refer to Figure 5-7. The market for good X is in equilibrium at P0 and Q0. Now suppose the government
imposes a ________ at P2. One result would be ________.
A) price floor; an increase in economic surplus represented by area 1
B) price floor; a deadweight loss represented by areas 5 and 6
C) price ceiling; an increase in economic surplus represented by areas 2 and 5
D) price floor; a deadweight loss represented by area 8
E) price ceiling; a deadweight loss represented by areas 5 and 6
Answer: B
Diff: 2
Topic: 5.3b. price controls and market efficiency
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Graph
User2: Qualitative
22) In competitive markets, binding price floors and binding price ceilings lead to
A) a reduction in deadweight loss.
B) fairer prices for consumers and producers, and therefore are better for society as a whole.
C) an overall increase in economic surplus, and therefore to market efficiency.
D) a maximization of economic surplus.
E) an overall reduction in economic surplus, and therefore to market inefficiency.
Answer: E
Diff: 1
Topic: 5.3b. price controls and market efficiency
Skill: Recall
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
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23) Output quotas are commonly used in markets for
A) financial products.
B) exported goods.
C) imported goods.
D) agricultural products.
E) textiles.
Answer: D
Diff: 1
Topic: 5.3c. output quotas
Skill: Recall
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
24) Consider the Canadian market for barley. Suppose a marketing board sets a production quota which is below
the equilibrium quantity. The quota will cause the price of barley to ________ and the total revenue earned by
Canadian barley farmers to ________.
A) rise; rise if demand is inelastic
B) rise; rise if demand is elastic
C) fall; fall if demand is inelastic
D) fall; fall if demand is elastic
E) remain unchanged; remain unchanged
Answer: A
Diff: 3
Topic: 5.3c. output quotas
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
25) Consider Canada's east coast lobster fishery. Suppose the government sets a production quota which is below
the equilibrium quantity. Relative to the free-market equilibrium, we can expect the result to be
A) an increase in price and a decrease in deadweight loss.
B) a decrease in price and a decrease in deadweight loss.
C) the free-market equilibrium price and quantity because the quota is not binding.
D) an increase in price and the introduction of a deadweight loss.
E) a decreased price.
Answer: D
Diff: 2
Topic: 5.3c. output quotas
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
267
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26) Suppose a binding output quota is imposed in a previously competitive market with free-market equilibrium
price and quantity. The result is
A) higher price and higher quantity exchanged.
B) higher price and lower quantity exchanged.
C) lower price and lower quantity exchanged.
D) lower price and higher quantity exchanged.
E) no change in price or quantity exchanged.
Answer: B
Diff: 2
Topic: 5.3c. output quotas
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
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The diagram below shows the market for litres of milk.
FIGURE 5-8
27) Refer to Figure 5-8. Suppose that a binding output quota is imposed on this market at quantity Q1. The loss in
economic surplus due to the quota is equal to
A) areas 5 and 6.
B) areas 5, 6 and 7.
C) areas 2 and 5.
D) area 1.
E) areas 1, 2 and 3.
Answer: A
Diff: 2
Topic: 5.3c. output quotas
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Graph
User2: Qualitative
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28) Refer to Figure 5-8. After the imposition of a milk quota at quantity Q1, economic surplus is represented by
A) areas 1, 2 and 5.
B) areas 3 and 4.
C) areas 1, 2 and 3.
D) areas 1, 2, 3, 4, 5, 6 and 7.
E) areas 2, 3, 5 and 6.
Answer: C
Diff: 2
Topic: 5.3c. output quotas
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Graph
User2: Qualitative
29) Refer to Figure 5-8. After the imposition of a milk quota at quantity
represented by
A) area 1.
B) areas 1 and 4.
C) areas 1, 2, and 5.
D) areas 5 and 6.
E) areas 5, 6, and 7.
Answer: D
, the deadweight loss in this market is
Diff: 2
Topic: 5.3c. output quotas
Skill: Applied
User1: Graph
User2: Quantitative
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Consider the following demand and supply schedules for some agricultural commodity.
Price
$10
$30
$50
$70
$90
$110
Quantity Supplied
300
500
700
900
1100
1300
Quantity Demanded
1100
900
700
500
300
100
TABLE 5-2
30) Refer to Table 5-2. Total farmers' revenue under the free-market equilibrium is
A) $3000.
B) $15 000.
C) $35 000.
D) $63 000.
E) $75 000.
Answer: C
Diff: 2
Topic: 5.3c. output quotas
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Table
User2: Quantitative
31) Refer to Table 5-2. Consider the market-clearing equilibrium. If the government then imposes a production
quota of 500 units, the price of this commodity will ________ relative to the free-market equilibrium price.
A) remain unchanged
B) rise by $20
C) fall by $20
D) rise by $40
E) fall by $40
Answer: B
Diff: 3
Topic: 5.3c. output quotas
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Table
User2: Quantitative
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32) Refer to Table 5-2. Consider the market-clearing equilibrium. If the government then imposes a production
quota of 500 units, the deadweight loss that is created is equal to
A) $1000.
B) $2000.
C) $3000.
D) $4000.
E) $5000.
Answer: D
Diff: 3
Topic: 5.3c. output quotas
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Table
User2: Quantitative
33) Refer to Table 5-2. Consider the market-clearing equilibrium. If the government then required that production
increase to 900 units, the deadweight loss that is created is equal to
A) $1000.
B) $2000.
C) $3000.
D) $4000.
E) $5000.
Answer: D
Diff: 3
Topic: 5.3c. output quotas
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Table
User2: Quantitative
34) Refer to Table 5-2. Suppose we begin in a free-market equilibrium. If the government then imposes a production
quota of 500 units, total farmers' income
A) increases by $800.
B) increases by $500.
C) remains unchanged.
D) decreases by $500.
E) decreases by $700.
Answer: C
Diff: 3
Topic: 5.3c. output quotas
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User1: Table
User2: Quantitative
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35) Consider the market for any agricultural commodity for which there exists a binding output quota and demand is
inelastic. Any individual producer has a clear financial incentive to
A) produce a small amount beyond their individual quota amount.
B) leave the market.
C) give away their quota.
D) stop producing.
E) limit production of the commodity.
Answer: A
Diff: 3
Topic: 5.3c. output quotas
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
36) Consider the market for any agricultural commodity for which there exists a binding output quota and demand is
inelastic. One outcome of this situation is that
A) the price and quantity adjust back to the free-market equilibrium levels.
B) producers who were in this industry before the introduction of the quota are harmed.
C) producers leave this industry because total revenues fall as a result of the the quota.
D) it is difficult for new producers to enter this industry because the quotas are very expensive.
E) producers who enter this industry after the introduction of the quota benefit.
Answer: D
Diff: 3
Topic: 5.3c. output quotas
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
37) In Canada we have government intervention in the dairy market in the form of quotas on milk production. What
are two predicted economic effects of this policy?
A) a redistribution of income from consumers of dairy products to dairy farmers; and a reduction in the total amount
of economic surplus in the dairy market
B) a redistribution of income from consumers of dairy products to dairy farmers; and a reduction in deadweight loss
in the dairy market
C) a redistribution of income from dairy farmers to consumers of dairy products; a reduction in the total amount of
economic surplus in the dairy market
D) a redistribution of income from dairy farmers to consumers of dairy products; and an increase in the total amount
of economic surplus in the dairy market
E) an equitable distribution of income between dairy farmers and consumers of dairy products; and a reduction in
the total amount of economic surplus in the dairy market
Answer: A
Diff: 2
Topic: 5.3c. output quotas
Skill: Applied
Learning Obj.: 5-4 Explain why government interventions that cause prices to deviate from their market ‐clearing levels tend to
be inefficient for society as a whole.
User2: Qualitative
Economics - Canadian Edition, 15e (Ragan)
Chapter 6 Consumer Behaviour
6.1 Marginal Utility and Consumer Choice
1) In economics, the term "utility" is defined as the
A) system of basing the price of a good on its usefulness to society.
B) usefulness of a good.
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C) total consumer satisfaction received from consumption of a good.
D) usefulness of a theory to explain price determination.
E) a service such as sewer and water or electricity.
Answer: C
Diff: 1
Topic: 6.1a. total utility and marginal utility
Skill: Recall
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User2: Qualitative
2) Economists usually assume that consumers
A) are motivated to maximize their profit.
B) are poor judges of what is best for them.
C) spend all of their current income.
D) usually save as much as possible of their income.
E) are motivated to maximize their utility.
Answer: E
Diff: 1
Topic: 6.1a. total utility and marginal utility
Skill: Recall
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User2: Qualitative
3) Economists use the term "marginal utility" to describe the
A) change in total satisfaction caused by consumption of an additional unit of a good.
B) average utility of each unit of a good consumed.
C) inverse of the measure of total utility.
D) total satisfaction received from consumption of a good.
E) price paid for every unit consumed.
Answer: A
Diff: 1
Topic: 6.1a. total utility and marginal utility
Skill: Recall
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User2: Qualitative
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4) The idea that the utility a consumer derives from successive units of a good diminishes as total consumption of
the good increases is known as
A) the paradox of value.
B) the utility theory of demand.
C) utility maximization.
D) diminishing marginal utility.
E) diminishing total utility.
Answer: D
Diff: 1
Topic: 6.1a. total utility and marginal utility
Skill: Recall
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User2: Qualitative
5) The "law" of diminishing marginal utility implies that the
A) first unit of a good consumed will contribute most to the consumer's satisfaction.
B) last unit of a good consumed will contribute most to the consumer's satisfaction.
C) total utility is negative.
D) total utility is constant as more units are consumed.
E) marginal utility of a good diminishes over time.
Answer: A
Diff: 1
Topic: 6.1a. total utility and marginal utility
Skill: Recall
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User2: Qualitative
6) If consumption of an extra unit of some good generates a marginal utility of zero, then consumption of that
additional unit would mean that total utility would
A) also be zero.
B) not change.
C) be increasing.
D) be decreasing.
E) be negative.
Answer: B
Diff: 2
Topic: 6.1a. total utility and marginal utility
Skill: Applied
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User2: Qualitative
275
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7) If total utility from the consumption of some product is increasing as more units are consumed, then marginal
utility must be
A) decreasing at an increasing rate.
B) negative.
C) increasing.
D) increasing at an increasing rate.
E) positive.
Answer: E
Diff: 2
Topic: 6.1a. total utility and marginal utility
Skill: Recall
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User2: Qualitative
8) If total utility from the consumption of some product is decreasing as more units are consumed, then marginal
utility must be
A) positive.
B) negative.
C) decreasing.
D) decreasing at an increasing rate.
E) increasing at a decreasing rate.
Answer: B
Diff: 2
Topic: 6.1a. total utility and marginal utility
Skill: Applied
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User2: Qualitative
276
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FIGURE 6-1
9) Refer to Figure 6-1. The marginal utility of the second unit of the good consumed is
A) 10.
B) 20.
C) 30.
D) 40.
E) 50.
Answer: B
Diff: 1
Topic: 6.1a. total utility and marginal utility
Skill: Applied
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User1: Graph
User2: Quantitative
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10) Refer to Figure 6-1. The total utility from consuming two units of the good is
A) 20.
B) 40.
C) 60.
D) 80.
E) 140.
Answer: D
Diff: 1
Topic: 6.1a. total utility and marginal utility
Skill: Applied
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User1: Graph
User2: Quantitative
11) Refer to Figure 6-1. The consumer's total utility is
A) increasing at an increasing rate.
B) increasing at a decreasing rate.
C) decreasing at an increasing rate.
D) decreasing at a decreasing rate.
E) constant.
Answer: B
Diff: 2
Topic: 6.1a. total utility and marginal utility
Skill: Applied
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User1: Graph
User2: Quantitative
12) Refer to Figure 6-1. If this figure represents the utility obtained from consuming units of a good, how many
units would this consumer consume if the good were free?
A) 1
B) 2
C) 3
D) 4
E) at least 5
Answer: E
Diff: 2
Topic: 6.1a. total utility and marginal utility
Skill: Applied
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User1: Graph
User2: Qualitative
278
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13) Refer to Figure 6-1. This figure illustrates the law of
A) maximizing utility.
B) increasing total utility.
C) diminishing total utility.
D) diminishing marginal utility.
E) increasing marginal utility.
Answer: D
Diff: 2
Topic: 6.1a. total utility and marginal utility
Skill: Applied
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User1: Graph
User2: Qualitative
14) Refer to Figure 6-1. Marginal utility is zero when total utility is
A) equal to zero.
B) is decreasing.
C) is increasing.
D) equal to marginal utility.
E) at its maximum.
Answer: E
Diff: 2
Topic: 6.1a. total utility and marginal utility
Skill: Applied
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User1: Graph
User2: Qualitative
15) Refer to Figure 6-1. Total utility is at its maximum when marginal utility is
A) equal to zero.
B) negative.
C) positive.
D) equal to total utility.
E) at the maximum.
Answer: A
Diff: 2
Topic: 6.1a. total utility and marginal utility
Skill: Applied
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User1: Graph
User2: Qualitative
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16) If consumption of an extra unit of a product delivers a positive marginal utility, then consumption of that
additional unit would mean
A) that total utility is also zero.
B) that total utility would not change.
C) that total utility would be increasing.
D) that total utility would be decreasing.
E) that the consumer would no longer receive any satisfaction from any consumption of this good.
Answer: C
Diff: 2
Topic: 6.1a. total utility and marginal utility
Skill: Recall
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User2: Qualitative
17) A basic hypothesis of marginal utility theory is that the utility a consumer derives from successive units of a
good diminishes as total consumption of the good increases. This hypothesis is known as
A) the paradox of value.
B) the utility theory of demand.
C) utility maximization.
D) the law of diminishing marginal utility.
E) the law of diminishing total utility.
Answer: D
Diff: 1
Topic: 6.1a. total utility and marginal utility
Skill: Recall
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User2: Qualitative
18) Marginal utility theory is about
A) the consumer behaviour that underlies the theory of demand.
B) proving that demand curves are always downward sloping.
C) the total satisfaction resulting from the consumption of some good by the consumer.
D) how producers allocate their scarce resources.
E) calculating consumer surplus.
Answer: A
Diff: 1
Topic: 6.1a. total utility and marginal utility
Skill: Recall
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User2: Qualitative
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The table below shows the quantities of toffee bars and bags of cashews that a consumer could consume over a 1week period.
Units
1
2
3
4
5
6
7
Toffee (bars)
Total
Marginal Utility
Utility
10
10
8
18
5
23
3
26
1
27
0
27
0
27
Cashews (bags)
Marginal Utility
12
10
7
5
2
1
0
Total
Utility
12
22
29
34
36
37
27
TABLE 6-1
19) Refer to Table 6-1. If this consumer purchases 3 toffee bars and 4 bags of cashews per week, his/her total utility
will be
A) 7.
B) 23.
C) 31.
D) 54.
E) 57.
Answer: E
Diff: 2
Topic: 6.1a. total utility and marginal utility
Skill: Applied
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User1: Table
User2: Quantitative
20) Refer to Table 6-1. The maximum utility that a consumer can obtain from toffee bars and bags of cashews per
week is
A) 22.
B) 54.
C) 56.
D) 64.
E) 74.
Answer: D
Diff: 2
Topic: 6.1a. total utility and marginal utility
Skill: Applied
Learning Obj.: 6-1 Describe the difference between marginal and total utility.
User1: Table
User2: Quantitative
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21) Refer to Table 6-1. If the prices of toffee bars and bags of cashews are both $1 and this consumer has $7 per
week to spend on these two snacks, how many of each will he/she purchase to maximize utility?
A) 2 toffee bars and 5 bags of cashews
B) 3 toffee bars and 4 bags of cashews
C) 4 toffee bars and 3 bags of cashews
D) 5 toffee bars and 2 bags of cashews
E) 6 toffee bars and 1 bag of cashews
Answer: B
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Table
User2: Quantitative
22) Refer to Table 6-1. If the price of toffee bars is $1 each, bags of cashews are $2 each, and this consumer has $7
per week to spend on these two snacks, how many of each will he/she purchase to maximize utility?
A) 0 toffee bars and 3 bags of cashews
B) 1 toffee bars and 3 bags of cashews
C) 2 toffee bars and 2 bags of cashews
D) 3 toffee bars and 2 bags of cashews
E) 7 toffee bars and 0 bags of cashews
Answer: D
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Table
User2: Quantitative
23) Refer to Table 6-1. If the prices of toffee bars and bags of cashews are both $1 and this consumer has $11 per
week to spend on snacks, how many of each will he/she purchase?
A) 3 toffee bars and 8 bags of cashews
B) 4 toffee bars and 7 bags of cashews
C) 5 toffee bars and 5 bags of cashews
D) 5 toffee bars and 6 bags of cashews
E) 6 toffee bars and 5 bags of cashews
Answer: D
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Table
User2: Quantitative
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24) Refer to Table 6-1. If the prices of both toffee bars and bags of cashews are $2 and this consumer has $14 per
week to spend on these two snacks, what is the maximum total utility achievable?
A) 10
B) 15
C) 33
D) 45
E) 57
Answer: E
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Table
User2: Quantitative
25) A consumer maximizes his or her utility when expenditures are allocated such that
A) the total utility from each good is equal.
B) the total number of dollars spent on each good is equal.
C) the utility received from the last unit of each good is equal.
D) the utility received per dollar spent on the last unit of each good is equal.
E) the marginal utility is zero for each good consumed utility.
Answer: D
Diff: 2
Topic: 6.1b. utility maximization
Skill: Recall
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Qualitative
26) The condition required for a consumer to be maximizing utility, for any pair of products, X and Y, is
A) PX(MUX) = PY(MUY).
B) MUX = MUY.
C) MUX/PX = MUY/PY.
D) MUX/PY = MUY/PX.
E) PX = PY.
Answer: C
Diff: 2
Topic: 6.1b. utility maximization
Skill: Recall
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Qualitative
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27) If a consumer is faced with a choice of products A, B, C, ..., and has a given money income, the consumer's
utility will be maximized when
A) MUA/PA = MUB/PB = MUC/PC = ...
B) PA = PB = PC = ...
C) MUA = MUB = MUC = ...
D) TUA = TUB = TUC = ...
E) MUA = PA; MUB = PB; MUC = PC; ...
Answer: A
Diff: 2
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Qualitative
28) If all consumers in an economy have maximized their utility, and they face a given set of market prices, then
each consumer will have identical
A) total utilities for each good.
B) marginal utilities for each good.
C) marginal utilities per unit of each good.
D) ratios of marginal utility to price for each good.
E) consumption of each good.
Answer: D
Diff: 2
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Qualitative
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FIGURE 6-2
29) Refer to Figure 6-2. If the price of X is $2 and the price of Y is $1 and the consumer is buying 4 units of X and 2
units of Y, the consumer's total utility is
A) 8.
B) 10.
C) 52.
D) 56.
E) 69.
Answer: E
Diff: 2
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Graph
User2: Quantitative
30) Refer to Figure 6-2. Suppose the price of X is $2, the price of Y is $1, and the consumer's income is $10. The
consumer is currently buying 4 units of good X and 2 units of good Y. In order to maximize his utility, he should
A) make no changes — he is already maximizing his total utility.
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B) buy the same amount of X but less Y.
C) buy more of X but the same amount Y.
D) buy more of X and less Y.
E) buy more Y and less X.
Answer: E
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Graph
User2: Quantitative
31) Refer to Figure 6-2. Suppose the price of Y is $1, the consumer's income is $10, and the consumer is currently
buying 3 units of good X and 4 units of good Y. If this consumer is maximizing her utility, then the price of X must
be
A) $1.
B) $2.
C) $3.
D) $4.
E) Impossible to tell with the given information.
Answer: B
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Graph
User2: Quantitative
32) Refer to Figure 6-2. Suppose that the price of X is $2, the price of Y is $1, the consumer's income is $10, and the
consumer is buying 3 units of good X and 4 units of good Y. What is the total utility the consumer obtains from this
combination of X and Y?
A) 18
B) 30
C) 40
D) 60
E) 72
Answer: E
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Graph
User2: Quantitative
33) Refer to Figure 6-2. Suppose that the price of X is $2, the price of Y is $1, and the consumer's income is $10.
The consumer is currently buying 3 units of good X and 4 units of good Y. In order to maximize his/her utility, the
consumer should
A) not change his/her behaviour.
B) buy the same amount of X but less Y.
C) buy more of X but the same amount Y.
D) buy more of X and less Y.
E) buy less of X and more Y.
Answer: A
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
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Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Graph
User2: Quantitative
34) Refer to Figure 6-2. Suppose the price of Y is $1 and the consumer's income is $10. Initially, the price of X is $2
and the consumer is buying 3 units of good X and 4 units of good Y. If the price of X then falls to $1, what
quantities of X and Y will he/she now purchase in order to maximize total utility?
A) 2 X and 8 Y.
B) 3 X and 7 Y.
C) 4 X and 6 Y.
D) 5 X and 5 Y.
E) 6 X and 4 Y.
Answer: E
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Graph
User2: Quantitative
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35) Refer to Figure 6-2. Suppose that the price of Y is $1 and the consumer's income is $10. Initially, the price of X
is $2 and the consumer is buying 4 units of good Y. If the price of X then falls to $1, which of the following pairs of
quantities of X correctly completes the demand schedule below?
Price of X:
Quantity Demanded of X:
$1
________
$2
________
A) 2; 4
B) 4; 4
C) 4; 3
D) 6; 3
E) 6; 4
Answer: D
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Graph
User2: Quantitative
36) Christine is allocating her household expenditure between cleaning services and gardening services in order to
maximize the household's total utility. For the quantities of cleaning and gardening services she has chosen, an
increase in the price of cleaning service will, ceteris paribus,
A) increase the marginal utility of a unit of cleaning service.
B) reduce the marginal utility per dollar spent on cleaning service.
C) reduce the marginal utility of a unit of cleaning service.
D) increase the marginal utility per dollar spent on cleaning service.
E) have no effect on the marginal utility per dollar spent on cleaning service.
Answer: B
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Qualitative
37) John is allocating his household expenditure between groceries and housing in order to maximize total utility.
For the quantities of groceries and housing he has chosen, an increase in the price of housing will, ceteris paribus,
A) increase the marginal utility of a unit of housing.
B) increase the marginal utility per dollar spent on housing.
C) reduce the marginal utility of a unit of housing.
D) reduce the marginal utility per dollar spent on housing.
E) have no effect on the marginal utility per dollar spent on housing.
Answer: D
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
User2: Quantitative
38) Consider a consumer who divides his income between spending on good X and good Y. The opportunity cost of
good X in terms of good Y is reflected by the
A) absolute price of good X.
B) absolute price of good Y.
C) ratio of the price of X to the price of Y.
D) ratio of the price of Y to the price of X.
E) price of good X relative to the prices of all other goods.
Answer: C
Diff: 2
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Topic: 6.1b. utility maximization
Skill: Recall
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Qualitative
39) The Smith family is allocating its monthly household expenditure between only two goods, food and clothing.
Suppose that the price of food is $5 per unit, and the price of clothing is $10 per unit and that the marginal utility
that the family is receiving from its consumption of food is currently 25. What is the family's marginal utility from
its consumption of clothing if it is maximizing its utility?
A) 5
B) 10
C) 12.5
D) 25
E) 50
Answer: E
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Quantitative
40) The Smith family is allocating its monthly household expenditure between only two goods, food and
clothing. Suppose that the price of food is $12 per unit, and the price of clothing is $16 per unit and that the marginal
utility that the family is receiving from its consumption of clothing is currently 200. What is the family's marginal
utility from its consumption of food if it is maximizing its utility?
A) 200
B) 150
C) 75
D) 16
E) 12
Answer: B
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Quantitative
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41) Bjorn is a student with a monthly budget of $500, which he allocates between transportation services and "all
other goods." Suppose the price of transportation is $5 per unit, and the price of "all other goods" is $20 per unit.
The marginal utility he currently receives from his consumption of transportation services is 60. What is his
marginal utility from the consumption of "all other goods" if he is maximizing his utility?
A) 5
B) 20
C) 25
D) 200
E) 240
Answer: E
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Quantitative
42) Bjorn is a student with a monthly budget of $500, which he allocates between transportation services and "all
other goods." Suppose the price of transportation is $5 per unit, and the price of "all other goods" is $20 per unit.
The marginal utility he currently receives from his consumption of transportation services is 60. How many units of
"all other goods" is he consuming if he is maximizing his utility?
A) 25
B) 60
C) 200
D) 240
E) There is not enough information to determine.
Answer: E
Diff: 3
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Quantitative
43) Laurie spends all of her money buying bread and cheese. The marginal utility she receives from the last loaf of
bread is 60 and from the last block of cheese is 30. The price of bread is $3 and the price of cheese is $2. Laurie
A) is buying bread and cheese in utility-maximizing amounts.
B) should buy more bread and less cheese in order to maximize her utility.
C) should buy more cheese and less bread in order to maximize her utility.
D) is spending too much money on bread and cheese.
E) should buy more bread and more cheese in order to maximize her utility.
Answer: B
Diff: 2
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Qualitative
44) Marginal utility analysis predicts a downward-sloping demand curve for good X because
A) as PX falls, the ratio MUX/PX becomes smaller, causing the consumer to purchase more of good X.
B) as PX rises, the consumer increases purchases of X such that MUX/PX is equal to MU/P for all other products.
C) utility-maximizing consumers equate marginal utility received for each product consumed.
D) all demand curves are downward sloping, regardless of the behaviour of consumers.
E) as PX falls, the consumer increases purchases of X until MUX/PX is equal to MU/P for all other products.
Answer: E
Diff: 2
Topic: 6.1b. utility maximization
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Skill: Recall
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Qualitative
45) If John consumes only two goods, A and B, and he is maximizing his utility subject to his budget constraint,
A) MUA/MUB is at a maximum.
B) MUA/MUB equals the ratio of the total utility of A to the total utility of B.
C) MUA/MUB equals 1.
D) MUA/MUB equals zero.
E) MUA/MUB equals the ratio of the price of A to the price of B.
Answer: E
Diff: 2
Topic: 6.1b. utility maximization
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Qualitative
46) The market demand curve is derived from
A) the vertical summation of individual demand curves.
B) the average quantity demanded of all individuals in the economy.
C) a weighted average of the quantity demanded of all individuals in the economy at each price.
D) the horizontal summation of individual demand curves.
E) market data provided by Statistics Canada.
Answer: D
Diff: 1
Topic: 6.1c. market demand curve
Skill: Recall
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User2: Qualitative
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Diagrams A, B, and C show 3 individual consumers' demand curves for cement. Consumers A, B, and C constitute
the entire monthly cement market in this region.
FIGURE 6-3
47) Refer to Figure 6-3. What is the market demand (in cubic metres per month) for cement at a price of $80 per
cubic metre?
A) 0
B) 1000
C) 2000
D) 3000
E) 4000
Answer: B
Diff: 2
Topic: 6.1c. market demand curve
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Graph
User2: Quantitative
48) Refer to Figure 6-3. What is the market demand (in cubic metres per month) for cement at a price of $60 per
cubic metre?
A) 0
B) 1000
C) 2000
D) 3000
E) 4000
Answer: D
Diff: 2
Topic: 6.1c. market demand curve
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Graph
User2: Quantitative
49) Refer to Figure 6-3. What is the market demand (in cubic metres per month) for cement at a price of $20 per
cubic metre?
A) 0
B) 4000
C) 5000
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D) 10 000
E) 14 000
Answer: E
Diff: 2
Topic: 6.1c. market demand curve
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Graph
User2: Quantitative
50) Refer to Figure 6-3. On the regional market demand curve for cement (not shown), at which price level(s) is
there a "kink" in the demand curve?
A) $10
B) $20 and $30
C) $30 and $70
D) $40 and $70
E) $80
Answer: C
Diff: 3
Topic: 6.1c. market demand curve
Skill: Applied
Learning Obj.: 6-2 Explain how utility‐maximizing consumers adjust their expenditure until the marginal utility per dollar spent
is equalized across products.
User1: Graph
User2: Qualitative
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6.2 Income and Substitution Effects of Price Changes
1) Consider the income and substitution effects of price changes. The substitution effect is the change in quantity
demanded that occurs
A) as a result of a change in absolute prices, with real income held constant.
B) as a result of a change in relative prices with money income held constant.
C) as a result of a change in relative prices, with real income held constant.
D) when one good is substituted for another.
E) with a change in the relative prices of two or more goods.
Answer: C
Diff: 2
Topic: 6.2. income and substitution effects
Skill: Recall
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
2) Consider the income and substitution effects of price changes. The income effect refers to the change in quantity
demanded that occurs as a result of a change in
A) money income, with relative prices held constant.
B) real income, with relative prices held constant.
C) relative prices, with real income held constant.
D) marginal utility, with real income held constant.
E) preferences, with real income held constant.
Answer: B
Diff: 2
Topic: 6.2. income and substitution effects
Skill: Recall
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
3) Consider the income and substitution effects of price changes. If the price of a normal good changes, the income
effect of the price change will
A) always be larger than the substitution effect.
B) always be to increase quantity demanded.
C) reinforce the substitution effect.
D) produce a positively sloped demand curve.
E) oppose the substitution effect.
Answer: C
Diff: 2
Topic: 6.2. income and substitution effects
Skill: Recall
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
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4) Suppose a consumer can purchase only two goods, soap and apples. If the price of soap falls and the consumption
of apples increases, we can conclude that the increased consumption of apples is due to
A) neither the income effect nor the substitution effect.
B) both the income effect and the substitution effect.
C) the income effect only.
D) the substitution effect only.
E) the deflation effect.
Answer: C
Diff: 3
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
5) Suppose there are only two goods, A and B, and that consumer income is constant. If the price of good A falls
and the consumption of good B rises, we can conclude that
A) A is a normal good.
B) B is a normal good.
C) A is an inferior good.
D) B is an inferior good.
E) both A and B are normal goods.
Answer: B
Diff: 2
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
6) A demand curve for a normal good is downward sloping due to
A) the income effect.
B) the substitution effect.
C) the combination of income and substitution effects.
D) neither the substitution effect nor the income effect.
E) the Giffen effect.
Answer: C
Diff: 1
Topic: 6.2. income and substitution effects
Skill: Recall
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
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7) Consider the income and substitution effects of price changes. For a product with an income elasticity greater
than one, a price increase will cause the consumer's real income to
A) rise and the quantity purchased to fall.
B) fall and the quantity purchased to fall.
C) rise and the quantity purchased to rise.
D) fall and the quantity purchased to rise.
E) remain constant.
Answer: B
Diff: 3
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
8) Suppose the price of potatoes falls and we observe a decrease in an individual's purchases of potatoes. Which of
the following can we infer?
A) The income effect is negative and outweighs the substitution effect.
B) The income effect is negative and reinforces the substitution effect.
C) The income effect just offsets the substitution effect.
D) The income effect is positive and exceeds the substitution effect.
E) The substitution effect outweighs the income effect.
Answer: A
Diff: 3
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
9) The substitution effect of a price change
A) will result in the consumer buying less of a good at a lower price.
B) will result in the consumer buying less of a good at a higher price.
C) outweighs the income effect for Giffen goods.
D) is equal to the income effect for normal goods.
E) is equal to the income effect for inferior goods.
Answer: B
Diff: 2
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
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10) If the income effect of a price change is negative and larger in absolute terms than the substitution effect, then
the demand curve will be
A) upward sloping.
B) downward sloping.
C) vertical.
D) horizontal.
E) of indeterminate slope.
Answer: A
Diff: 2
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
11) The demand curve for a good with an income elasticity of less than one
A) must be downward sloping.
B) must be upward sloping.
C) will be upward sloping only if the substitution effect outweighs the income effect.
D) will be upward sloping only if the income effect outweighs the substitution effect.
E) indicates a normal good.
Answer: D
Diff: 3
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
12) The substitution effect is
A) the change in quantity demanded that occurs as a result of a change in absolute prices, with real income held
constant.
B) the change in quantity demanded that occurs as a result of a change in relative prices with money income held
constant.
C) the change in quantity demanded that occurs as a result of a change in relative prices with real income held
constant.
D) the change in quantity demanded that occurs when one good is substituted for another.
E) the change in the relative prices of two or more goods.
Answer: C
Diff: 2
Topic: 6.2. income and substitution effects
Skill: Recall
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
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13) In which of the following situations will an individual's purchasing power be unaffected?
A) money income is cut in half and the prices of all goods and services fall by 50%
B) money income falls and the price of one good falls
C) money income doubles and the prices of all goods and services are cut in half
D) money income doubles and the prices of all goods and services remain constant
E) money income is cut in half and prices of all goods and services remain constant
Answer: A
Diff: 2
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Quantitative
14) In which of the following situations will an individual's purchasing power be unaffected?
A) money income doubles and the prices of all goods and services are cut in half
B) money income remains constant and the prices of all goods and services double
C) money income is cut in half and the prices of all goods and services double
D) money income is cut in half and the prices of all goods and services remains constant
E) money income doubles and the prices of all goods and services double
Answer: E
Diff: 2
Topic: 6.2. income and substitution effects
Skill: Applied
User2: Quantitative
15) In which of the following situations will an individual's purchasing power be unaffected?
A) all absolute prices fall by 15% and money income falls by 15%
B) all relative prices fall by 15% and money income falls by 15%
C) all relative prices rise by 15% and money income falls by 15%
D) all absolute prices remain constant and money income falls by 15%
E) all relative prices remain constant and money income rises by 15%
Answer: A
Diff: 2
Topic: 6.2. income and substitution effects
Skill: Applied
User2: Quantitative
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16) Suppose a consumer can purchase only two goods, beef and chicken. If the price of beef falls (with all other
variables held constant), and the consumption of chicken increases, we can conclude that the increased consumption
of chicken is due to
A) neither the income effect nor the substitution effect.
B) both the income effect and the substitution effect.
C) the income effect only.
D) the substitution effect only.
E) a change in the consumer's preference toward chicken.
Answer: C
Diff: 3
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
FIGURE 6-4
17) Refer to Figure 6-4. For both goods, the price falls from P0 to P1. The substitution effect is illustrated by the
change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from
B to C. Good X is certainly a(n) ________ good.
A) normal
B) inferior
C) luxury
D) necessity
E) Giffen
Answer: B
Diff: 3
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User1: Graph
User2: Qualitative
18) Refer to Figure 6-4. For both goods, the price falls from P0 to P1. The substitution effect is illustrated by the
change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from
B to C. Good Y is certainly a(n) ________ good.
A) normal
B) inferior
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C) luxury
D) necessity
E) Giffen
Answer: A
Diff: 3
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User1: Graph
User2: Qualitative
300
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FIGURE 6-5
19) Refer to Figure 6-5. For both goods, the price increases from P0 to P1. The substitution effect is illustrated by
the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded
from B to C. Good X is certainly a(n) ________ good.
A) normal
B) inferior
C) luxury
D) necessity
E) Giffen
Answer: B
Diff: 3
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User1: Graph
User2: Qualitative
20) Refer to Figure 6-5. For both goods, the price increases from P0 to P1. The substitution effect is illustrated by
the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded
from B to C. Good Y is certainly a(n) ________ good.
A) inferior
B) normal
C) luxury
D) necessity
E) Giffen
Answer: B
Diff: 3
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User1: Graph
User2: Qualitative
21) Assume you are consuming two goods, X and Y. X and Y are both normal goods but they are not close
complements. The price of good X increases but the price of Y remains unchanged. However, you are given enough
additional income to ensure that your utility remains unchanged. What happens to your consumption of good X?
A) it increases
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B) it stays the same
C) it increases or decreases
D) it decreases
E) it increases over the long run
Answer: D
Diff: 3
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
22) Assume you are consuming two goods, X and Y. Suppose that the money prices for X and Y remain unchanged,
but your income increases by 20%. What happens to your consumption of good X?
A) it increases
B) it stays the same
C) it increases or decreases, depending on whether it is normal or inferior
D) it decreases
E) it increases by 20%
Answer: C
Diff: 3
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Quantitative
23) Assume you are consuming two goods, X and Y. Suppose the absolute prices for X and Y remain unchanged,
but your money income falls by 50%. What happens to your consumption of good X?
A) it increases
B) it stays the same
C) it increases or decreases, depending on whether it is normal or inferior
D) it decreases
E) it decreases by 50%
Answer: C
Diff: 3
Topic: 6.2. income and substitution effects
Skill: Applied
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Quantitative
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24) The substitution effect of a price change leads consumers to ________ their demand for goods whose prices
have risen. The income effect leads consumers to buy less of all ________ goods whose prices have risen.
A) reduce; normal
B) increase; inferior
C) increase; normal
D) reduce; Giffen
E) reduce; complement
Answer: A
Diff: 2
Topic: 6.2. income and substitution effects
Skill: Recall
Learning Obj.: 6-3 Understand how the slope of any demand curve is determined by the income and substitution effects of price
changes.
User2: Qualitative
25) Consider the substitution and income effects of a 15% increase in the price of a good. Of the goods listed below,
which is most likely to have the smallest income effect?
A) groceries
B) restaurant meals
C) gasoline
D) paperclips
E) dishwashers
Answer: D
Diff: 2
Topic: 6.2. income and substitution effects
Skill: Applied
User2: Qualitative
26) Consider the substitution and income effects of a 15% increase in the price of a good. Of the goods listed below,
which is most likely to have the largest income effect?
A) salt
B) paperclips
C) socks
D) tennis balls
E) electricity
Answer: E
Diff: 2
Topic: 6.2. income and substitution effects
Skill: Applied
User2: Qualitative
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6.3 Consumer Surplus
1) Consumer surplus is
A) the sum of the marginal values to the consumer.
B) the total value that a consumer receives from the purchase of a particular good.
C) a measure of the gains that a consumer forgoes by buying this product rather than another.
D) the difference between what the consumer is willing to pay for all the units consumed and what he or she actually
paid.
E) the consumption of a commodity above and beyond the amount required by the consumer.
Answer: D
Diff: 1
Topic: 6.3a. consumer surplus
Skill: Recall
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User2: Qualitative
2) Consumer surplus is
A) the same as Karl Marx's notion of surplus value.
B) the same as total utility.
C) the sum of the extra value placed on each unit of a commodity above the market price paid for each.
D) the total value that consumers place on their purchases.
E) the marginal value that consumers place on their purchases.
Answer: C
Diff: 1
Topic: 6.3a. consumer surplus
Skill: Recall
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User2: Qualitative
3) Consider the pizza market, with a downward-sloping demand curve and an upward-sloping supply curve.
Suppose 100 pizzas are purchased at the free-market equilibrium price. The consumer surplus on the 100th pizza is
A) positive.
B) negative.
C) non-negative.
D) unknown.
E) zero.
Answer: E
Diff: 1
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User2: Qualitative
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4) Given a typical downward-sloping demand curve in a market that has reached its equilibrium, the consumer
surplus
A) is measured by the area above the market price and under the demand curve.
B) is measured by the area below the market price and under the demand curve.
C) is measured by the area immediately above the demand curve.
D) is calculated as the product of market price and quantity consumed.
E) cannot be measured given the information.
Answer: A
Diff: 1
Topic: 6.3a. consumer surplus
Skill: Recall
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User2: Qualitative
5) Given a particular market demand curve, consumer surplus is
A) less the lower the price and the smaller the output.
B) less the lower the price and the larger the output.
C) greater the higher the price and the smaller the output.
D) greater the lower the price and the smaller the output.
E) greater the lower the price and the larger the output.
Answer: E
Diff: 1
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User2: Qualitative
6) Assume a person reveals the following demand conditions. At a price of $10, quantity demanded is zero; and at a
price of $1, quantity demanded is 10 units.
A) The consumer surplus will be zero at a price of $10.
B) The consumer surplus will be the area under the entire demand curve.
C) The consumer surplus is zero at a price of $1.
D) Demand decreases as the price decreases.
E) The lower the price the smaller the consumer surplus.
Answer: A
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User2: Qualitative
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7) An individual's consumer surplus from some product can be eliminated entirely by:
1. raising the price until very few units are bought.
2. charging a price for each unit that is equal to the individual's marginal value for each unit.
3. raising the price until zero units are purchased.
A) 1 only
B) 2 only
C) 3 only
D) 2 or 3
E) 1 or 2, but not 3.
Answer: D
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User2: Qualitative
8) Assume an individual with a downward-sloping demand curve is paying a single price for each unit of some
commodity. He will experience consumer surplus on
A) all units that were not bought at that particular price.
B) all of the units bought.
C) all units bought with the possible exception of the last unit.
D) the first unit only.
E) none of the units.
Answer: C
Diff: 3
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User2: Qualitative
9) At a garage sale, Ken purchases a used bicycle for $8 when he was willing to pay $25. If the bicycle costs $75
new, Ken's consumer surplus is
A) $0.
B) $17.
C) $33.
D) $50.
E) $67.
Answer: B
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User2: Quantitative
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10) At a garage sale, Dominique purchases a sewing machine for $30 when she was willing to pay $55. If the
sewing machine costs $200 new, Dominique's consumer surplus would be
A) $0.
B) $25.
C) $120.
D) $145.
E) $170.
Answer: B
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User2: Quantitative
11) The total value that Doug places on his consumption of computer games equals
A) the price multiplied by quantity demanded.
B) his marginal utility multiplied by quantity demanded.
C) price times marginal value.
D) the total amount he pays for all the games he purchases.
E) his total expenditure on computer games plus his consumer surplus.
Answer: E
Diff: 3
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User2: Qualitative
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FIGURE 6-6
12) Refer to Figure 6-6. Suppose the market price is p*. In this case, consumer surplus is outlined by the area
A) ACDE.
B) ABDF.
C) ACF.
D) BCD.
E) ADE.
Answer: D
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User1: Graph
User2: Qualitative
13) Refer to Figure 6-6. Suppose the market price is p*. In this case, the total value consumers place on consuming
Q* units is outlined by the area
A) BCD.
B) ABD.
C) ADE.
D) ACDE.
E) ABDF.
Answer: D
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
User1: Graph
User2: Quantitative
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FIGURE 6-7
14) Refer to Figure 6-7. Suppose that price is P0. Total consumer surplus is then given by the area
A) under the demand curve to the left of Q0.
B) below P0 and to the left of Q0.
C) under the demand curve to the left of Q0, but above P0.
D) under the entire demand curve.
E) above the market price.
Answer: C
Diff: 1
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User1: Graph
User2: Qualitative
15) Refer to Figure 6-7. Suppose that price is P0. The total value placed on all units of the commodity consumed is
given by the area
A) under the demand curve to the left of Q0.
B) under the demand curve to the left of Q0, but above P0.
C) below P0 and to the left of Q0.
D) under the demand curve and above P0.
E) under the demand curve and to the right of Q0.
Answer: A
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Recall
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User1: Graph
User2: Qualitative
16) Refer to Figure 6-7. Suppose that price is P0. The market value of the quantity purchased is given by the area
A) under the demand curve to the left of Q0.
B) under the demand curve.
C) below P0 and to the left of Q0.
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D) under the demand curve and above P0.
E) under the demand curve and to the right of Q0.
Answer: C
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User1: Graph
User2: Qualitative
Dave's Consumer Surplus on Movie Rentals per Week
(yes, we know no one rents movies anymore, but it makes a good example!)
Number of movies
rented per week
Amount Dave is willing to
pay to rent this movie ($)
1st
2nd
3rd
4th
5th
6th
7th
10.00
8.00
6.50
5.50
5.00
4.50
4.25
Dave's consumer surplus on
each movie rental if price is
$5 each
TABLE 6-2
17) Refer to Table 6-2. If Dave rents 3 movies in one week, his total consumer surplus is ________ and the total
amount he pays is ________.
A) $24.50; $24.50
B) $19.50; $15.00
C) $9.50; $15.00
D) $6.50; $5.00
E) $5.50; $5.00
Answer: C
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User1: Table
User2: Quantitative
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18) Refer to Table 6-2. If Dave rents 5 movies in one week, his total consumer surplus is ________ and the total
amount he pays is ________.
A) $5; $25
B) $0; $25
C) $9.50; $5
D) $9.50; $25
E) $10; $25
Answer: E
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
User1: Table
User2: Quantitative
19) Refer to Table 6-2. How many movies will Dave rent per week such that the consumer surplus on the last unit is
zero?
A) 1
B) 3
C) 5
D) 6
E) 7
Answer: C
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User1: Table
User2: Quantitative
20) Refer to Table 6-2. Assuming Dave maximizes his utility when the price is $5, his consumer surplus (in dollars)
on each movie rental in order from 1 through 7 is as follows:
A) 10.00, 18.00, 24.50, 30.00, 35.00, 39.50, 43.75.
B) 5.00, 3.00, 1.50, 0.50, 0, 0, 0.
C) 10.00, 8.00, 6.50, 5.50, 5.00, 4.50, 4.25.
D) 5.00 on all units.
E) 0 on all units.
Answer: B
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User1: Table
User2: Quantitative
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The table below shows the total value (in dollars) that Andrew gets from playing 9-hole rounds of golf.
Rounds of Golf
per Month
0
1
2
3
4
5
6
7
Total
Value
($)
0
40
70
92
108
120
130
130
TABLE 6-3
21) Refer to Table 6-3. Andrew values the 4th round of golf at a marginal value of
A) $16.
B) $92.
C) $108.
D) $310.
E) $430.
Answer: A
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User1: Table
User2: Quantitative
22) Refer to Table 6-3. If the price of a 9-hole round of golf is $19, then Andrew will play ________ rounds per
month.
A) 2
B) 3
C) 4
D) 5
E) 6 or more
Answer: B
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User1: Table
User2: Quantitative
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23) Refer to Table 6-3. If the price of a 9-hole round of golf is $9, then Andrew will play ________ rounds per
month.
A) 2
B) 3
C) 4
D) 5
E) 6
Answer: E
Diff: 2
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User1: Table
User2: Quantitative
24) Refer to Table 6-3. If the price of a 9-hole round of golf is $16, and Andrew is maximizing his utility, then his
consumer surplus will be
A) $310.
B) $108.
C) $92.
D) $44.
E) $16.
Answer: D
Diff: 3
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User1: Table
User2: Quantitative
25) Refer to Table 6-3. If the price of a 9-hole round of golf is $22, and Andrew is maximizing his utility, then his
consumer surplus will be
A) $202.
B) $108.
C) $92.
D) $26.
E) $22.
Answer: D
Diff: 3
Topic: 6.3a. consumer surplus
Skill: Applied
Learning Obj.: 6-4 See that consumer surplus is the "bargain" the consumer gets by paying less for the product than the
maximum price he or she is willing to pay.
User1: Table
User2: Quantitative
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26) Since there is a limited supply of diamonds in the world, the consumption of diamonds
A) takes place at relatively low marginal value.
B) takes priority over some other good.
C) is no less important than consumption of water.
D) takes place at relatively high marginal value.
E) should be regulated by the government.
Answer: D
Diff: 1
Topic: 6.3b. paradox of value
Skill: Applied
Learning Obj.: 6-5 Explain the "paradox of value."
User2: Qualitative
27) Since there is a relatively plentiful supply of water in Canada (this is not true in many parts of the world), the
consumption of water in Canada
A) takes place at a relatively low marginal value.
B) takes priority over all other goods.
C) takes place at a relatively high marginal value.
D) should be regulated by the government.
E) should be unlimited at a price of $0.
Answer: A
Diff: 1
Topic: 6.3b. paradox of value
Skill: Applied
Learning Obj.: 6-5 Explain the "paradox of value."
User2: Qualitative
28) The paradox in "the paradox of value" refers to the
A) confusion between supply curves and demand curves.
B) fact that goods with high total values command high prices.
C) fact that goods with low total values command low prices.
D) situation where a good that is necessary to sustain life is "more valuable" than a decorative, luxury item.
E) situation where a good with a low total value can command a high price, while a good with a high total value can
command a low price.
Answer: E
Diff: 1
Topic: 6.3b. paradox of value
Skill: Recall
Learning Obj.: 6-5 Explain the "paradox of value."
User2: Qualitative
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29) For your typical consumption levels of water and diamonds, the good with the higher marginal utility is
________; the good with the higher total utility is ________; and the good with the greatest consumer surplus is
________.
A) water; diamonds; water
B) water; water; water
C) water; water; diamonds
D) diamonds; water; water
E) diamonds; water; diamonds
Answer: D
Diff: 2
Topic: 6.3b. paradox of value
Skill: Applied
Learning Obj.: 6-5 Explain the "paradox of value."
User2: Qualitative
6A-1 Indifference Curves
1) An indifference curve plotted for two different goods on the axes
A) shifts when real income changes.
B) shows all combinations of the two goods that give the same level of utility.
C) changes its slope as the relative prices of the two goods change.
D) shows the combinations of the two goods that will just use up a consumer's income.
E) shows the different combinations of two goods that the same income can purchase.
Answer: B
Diff: 1
Topic: 6-appendix.1. indifference curves
Skill: Applied
Learning Obj.: 6-6A-1 Indifference curves
User2: Qualitative
2) As a consumer moves along an indifference curve
A) the combination of goods will vary but the level of utility remains constant.
B) the combination of goods he prefers will remain constant, but the level of satisfaction will vary.
C) the combination of goods and the consumer's income level will remain constant.
D) his level of utility will vary as the combinations of goods varies.
E) the combination of goods will vary, but the level of money income remains constant.
Answer: A
Diff: 1
Topic: 6-appendix.1. indifference curves
Skill: Recall
Learning Obj.: 6-6A-1 Indifference curves
User2: Qualitative
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3) Given a particular consumer's indifference map, the further the indifference curve is from the origin
A) the lower the marginal rate of substitution.
B) the higher the marginal rate of substitution.
C) the lower the level of satisfaction.
D) the higher the level of satisfaction.
E) the more goods are included.
Answer: D
Diff: 1
Topic: 6-appendix.1. indifference curves
Skill: Recall
Learning Obj.: 6-6A-1 Indifference curves
User2: Qualitative
4) The marginal rate of substitution
A) always has a positive algebraic value.
B) is constant as one moves along a particular indifference curve.
C) is the amount of one good the consumer is willing to give up in exchange for another so as to keep total
satisfaction unchanged.
D) is the amount of one good the consumer is willing to give up in exchange for another so as to keep total
expenditure unchanged.
E) is equal to the price ratio on the budget line.
Answer: C
Diff: 2
Topic: 6-appendix.1. indifference curves
Skill: Recall
Learning Obj.: 6-6A-1 Indifference curves
User2: Qualitative
5) The marginal rate of substitution measures the tradeoff between the
A) prices of two goods along a budget line.
B) different values that two consumers place on a good.
C) amount of one good the consumer is willing to give up in exchange for another good along an indifference curve.
D) different indifference curves.
E) amount of one good the consumer is willing to purchase and its own price.
Answer: C
Diff: 2
Topic: 6-appendix.1. indifference curves
Skill: Recall
Learning Obj.: 6-6A-1 Indifference curves
User2: Qualitative
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6) Suppose Arun consumes only 2 goods — books and CDs — and has a set of downward sloping indifference
curves. As Arun moves from one point to another on a particular indifference curve,
A) the combination of books and CDs will vary, but the level of utility remains constant.
B) the combination of books and CDs that Arun prefers will remain constant, but the level of satisfaction will vary.
C) the combination of books and CDs and Arun's income level will remain constant.
D) Arun's level of satisfaction will vary as the combinations of books and CDs varies.
E) Arun is consuming the same combination of goods, but with varying levels of income.
Answer: A
Diff: 2
Topic: 6-appendix.1. indifference curves
Skill: Recall
Learning Obj.: 6-6A-1 Indifference curves
User2: Qualitative
7) Indifference theory is based on the assumption that
A) consumers are not able to rank consumption bundles in order of preference.
B) consumers can always say which of two consumption bundles they prefer without having to say by how much
they prefer it.
C) the consumer has equated the marginal utilities of all products, and is therefore indifferent between consumption
bundles.
D) the consumer is able to quantify the difference in total utility received from two different consumption bundles.
E) the consumer receives the same utility and is therefore indifferent between any two consumption bundles.
Answer: B
Diff: 1
Topic: 6-appendix.1. indifference curves
Skill: Recall
Learning Obj.: 6-6A-1 Indifference curves
User2: Qualitative
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6A-2 The Budget Line
1) If money income is reduced by half, and the prices of all goods consumed by the household are reduced by half,
the household's budget line will
A) not change.
B) shift inward.
C) shift outward.
D) become steeper.
E) become flatter.
Answer: A
Diff: 2
Topic: 6-appendix.2. budget line
Skill: Applied
Learning Obj.: 6-6A-2 The budget line
User2: Qualitative
2) An equal proportional increase in money income and all money prices will
A) shift the budget line to the left parallel to the original budget line.
B) shift the budget line to the right parallel to the original budget line.
C) leave the position of the budget line unchanged.
D) rotate the budget line inward from the vertical axis.
E) rotate the budget line inward from the horizontal axis.
Answer: C
Diff: 2
Topic: 6-appendix.2. budget line
Skill: Applied
Learning Obj.: 6-6A-2 The budget line
User2: Qualitative
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The diagram below shows a set of budget lines facing a household.
FIGURE 6-8
3) Refer to Figure 6-8. The movement of the budget line from ab to ac could be caused by
A) an increase in money income.
B) an increase in the price of food.
C) an increase in the price of housing.
D) a decrease in the price of food.
E) a decrease in the price of housing.
Answer: D
Diff: 2
Topic: 6-appendix.2. budget line
Skill: Applied
Learning Obj.: 6-6A-2 The budget line
User1: Graph
User2: Qualitative
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4) Refer to Figure 6-8. The movement of the budget line from ab to db could be caused by
A) a decrease in money income.
B) an increase in the price of housing.
C) a decrease in the price of housing.
D) an increase in the price of food.
E) a decrease in the price of food.
Answer: B
Diff: 2
Topic: 6-appendix.2. budget line
Skill: Applied
Learning Obj.: 6-6A-2 The budget line
User1: Graph
User2: Qualitative
5) Refer to Figure 6-8. The movement of the budget line from ab to ef could be caused by
A) a decrease in money income.
B) a decrease in the price of either food or housing.
C) an equal percentage decrease in the price of both food and housing.
D) an equal percentage increase in the price of both food and housing.
E) an increase in the price of either food or housing.
Answer: C
Diff: 3
Topic: 6-appendix.2. budget line
Skill: Applied
Learning Obj.: 6-6A-2 The budget line
User1: Graph
User2: Qualitative
6) Refer to Figure 6-8. The movement of the budget line from ab to ef could be caused by
A) a decrease in real income.
B) an increase in money income.
C) an equal percentage increase in the price of both food and housing.
D) a decrease in the price of either food or housing.
E) an increase in the price of either food or housing.
Answer: B
Diff: 3
Topic: 6-appendix.2. budget line
Skill: Applied
User1: Graph
User2: Quantitative
320
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7) A parallel shift in the consumer's budget line must indicate a change in
A) at least one money price.
B) money income.
C) real income.
D) tastes.
E) both prices.
Answer: C
Diff: 2
Topic: 6-appendix.2. budget line
Skill: Applied
Learning Obj.: 6-6A-2 The budget line
User2: Qualitative
8) In indifference curve analysis, a point to the left of the consumer's budget line
A) indicates consumption spending beyond current income.
B) implies the household is paying above-market prices for the goods in question.
C) implies the household is paying below-market prices for the goods in question.
D) implies that the household is not spending all of its income on the goods in question.
E) shows a combination of goods that are beyond the income of the household.
Answer: D
Diff: 2
Topic: 6-appendix.2. budget line
Skill: Applied
Learning Obj.: 6-6A-2 The budget line
User2: Qualitative
9) Assume the quantity of good X is measured on the horizontal axis and the quantity of good Y on the vertical axis.
Initial prices are PX = $5 and PY = $10. The consumer's income is $100. If PY increases to $20, then
A) the entire budget line shifts parallel toward the origin.
B) the budget line will rotate toward the origin, slope remaining constant.
C) the budget line will rotate toward the origin with the slope changing from 1/2 to 1/4 (in absolute values).
D) the entire budget line shifts parallel away from the origin.
E) the budget line will rotate away from the origin with the slope changing from 1/4 to 1/2 (in absolute values).
Answer: C
Diff: 3
Topic: 6-appendix.2. budget line
Skill: Applied
Learning Obj.: 6-6A-2 The budget line
User2: Quantitative
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10) Suppose a consumer can purchase only two goods, pasta and cheese. Let the quantity of pasta be measured on
the vertical axis and the quantity of cheese be measured on the horizontal axis. If the price of pasta falls, with no
change in the price of cheese or in the consumer's money income, then the budget line for the consumer will rotate
A) toward the origin and become flatter.
B) toward the origin and become steeper.
C) away from the origin and become flatter.
D) away from the origin and become steeper.
E) outward parallel to the existing budget line.
Answer: D
Diff: 2
Topic: 6-appendix.2. budget line
Skill: Applied
Learning Obj.: 6-6A-2 The budget line
User2: Qualitative
11) Any consumption point that is on the budget line
A) indicates consumption spending beyond current income.
B) implies the household is paying above-market prices for the goods in question.
C) implies the household is paying below-market prices for the goods in question.
D) implies that the household is not spending all of its income on the goods in question.
E) implies that the household is spending all of its income on the goods in question.
Answer: E
Diff: 2
Topic: 6-appendix.2. budget line
Skill: Recall
Learning Obj.: 6-6A-2 The budget line
User2: Qualitative
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6A-3 The Consumer's Utility‐Maximizing Choices
1) Suppose a utility-maximizing person consumes only two goods, hamburgers and milkshakes. Suppose the price of
milkshakes rises and all other variables remain constant. As a result, this person will certainly
A) purchase more milkshakes and fewer hamburgers.
B) reduce his/her consumption of both milkshakes and hamburgers.
C) consume more hamburgers and the same amount of milkshakes.
D) not increase his consumption of both milkshakes and hamburgers.
E) increase his/her consumption of milkshakes.
Answer: D
Diff: 3
Topic: 6-appendix.3. utility maximization (indiff. curves)
Skill: Applied
Learning Obj.: 6-6A-3 The consumer's utility‐maximizing choices
User2: Qualitative
2) When a consumer's marginal rate of substitution between X and Y is equal to the ratio of prices for X and Y, and
when the consumer is spending all available income, then
A) the budget line is tangent to an indifference curve.
B) the consumer is not maximizing his utility.
C) a higher indifference curve can be reached given the existing budget line.
D) the budget line is tangent to the indifference curve at all quantities of X and Y.
E) all budget lines are tangent to all indifference curves.
Answer: A
Diff: 2
Topic: 6-appendix.3. utility maximization (indiff. curves)
Skill: Applied
Learning Obj.: 6-6A-3 The consumer's utility‐maximizing choices
User2: Qualitative
3) In indifference curve analysis, the consumer's utility-maximizing point is where
A) each indifference curve has the same slope as the relevant budget line.
B) the indifference curve farthest from the origin intersects with the budget line that is farthest from the origin.
C) the consumer's marginal utility curve is tangent to the relevant budget line.
D) one indifference curve is tangent to the relevant budget line.
E) the price-consumption line is tangent to the budget line.
Answer: D
Diff: 3
Topic: 6-appendix.3. utility maximization (indiff. curves)
Skill: Recall
Learning Obj.: 6-6A-3 The consumer's utility‐maximizing choices
User2: Qualitative
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FIGURE 6-9
4) Refer to Figure 6-9. In part (i), the consumer is able to move from point A to point B because of
A) a decrease in the price of milk.
B) a decrease in the price of bread.
C) a decrease in money income.
D) an increase in real income.
E) a decrease in the price of one good and an increase in money income.
Answer: D
Diff: 2
Topic: 6-appendix.3. utility maximization (indiff. curves)
Skill: Applied
Learning Obj.: 6-6A-3 The consumer's utility‐maximizing choices
User1: Graph
User2: Qualitative
5) Refer to Figure 6-9. In part (ii), the consumer's move from point Z to point Y is caused by
A) a change in the consumer's preferences towards milk.
B) an increase in the price of milk.
C) an increase in the price of bread.
D) a decrease in the price of bread.
E) a decrease in money income.
Answer: C
Diff: 2
Topic: 6-appendix.3. utility maximization (indiff. curves)
Skill: Applied
Learning Obj.: 6-6A-3 The consumer's utility‐maximizing choices
User1: Graph
User2: Qualitative
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6) Refer to Figure 6-9. In part (ii), the consumer's move from point X to point Z is caused by
A) a change in the consumer's preferences towards bread.
B) an increase in money income.
C) an increase in the price of bread.
D) a decrease in the price of milk.
E) a decrease in the price of bread.
Answer: E
Diff: 2
Topic: 6-appendix.3. utility maximization (indiff. curves)
Skill: Applied
User1: Graph
User2: Quantitative
6A-4 Deriving the Demand Curve
1) Refer to Figure 6-9. In part (i), the line joining points A, B, and C is known as ________, which shows how
________.
A) a price-consumption line; consumption changes as relative prices change, with money income constant
B) an income-consumption line; consumption changes as income changes, with relative prices held constant
C) a price-consumption line; consumption changes as money income and relative prices change
D) an income-consumption line; consumption changes with changing relative prices and constant income
E) an indifference map; the value of various combinations of two goods changes
Answer: B
Diff: 2
Topic: 6-appendix.4. deriving the demand curve (indiff. curves)
Skill: Recall
Learning Obj.: 6-6A-4 Deriving the consumer's demand curve
User1: Graph
User2: Qualitative
2) Refer to Figure 6-9. In part (ii), the line joining points X, Y, and Z is known as ________, which shows how
________.
A) a price-consumption line; consumption changes as relative prices change, with money income constant
B) an income-consumption line; consumption changes as income changes, with relative prices held constant
C) a price-consumption line; consumption changes as money income and relative prices change
D) an income-consumption line; consumption changes with changing relative prices and constant income
E) an indifference map; the value of various combinations of two goods changes
Answer: A
Diff: 2
Topic: 6-appendix.4. deriving the demand curve (indiff. curves)
Skill: Recall
Learning Obj.: 6-6A-4 Deriving the consumer's demand curve
User1: Graph
User2: Qualitative
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The figures below show Chris's consumption of specialty coffee per week.
FIGURE 6-10
3) Refer to Figure 6-10. The line connecting points A, B and C is ________. The line connecting points D, E and F
is ________.
A) the price-consumption line; the demand curve
B) the income-consumption line; the demand curve
C) the income-consumption line; the budget line
D) the budget line; the price-consumption line
E) the demand curve; the budget line
Answer: A
Diff: 1
Topic: 6-appendix.4. deriving the demand curve (indiff. curves)
Skill: Applied
Learning Obj.: 6-6A-4 Deriving the consumer's demand curve
User1: Graph
User2: Qualitative
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4) Refer to Figure 6-10. The two diagrams in Figure 6-10 are showing
A) the change in Chris's preferences toward specialty coffee.
B) that Chris is indifferent between bundles A, B and C.
C) the derivation of Chris's demand curve for specialty coffee.
D) that Chris is indifferent between points D, E and F.
E) the derivation of Chris's indifference curve for specialty coffee.
Answer: C
Diff: 2
Topic: 6-appendix.4. deriving the demand curve (indiff. curves)
Skill: Applied
Learning Obj.: 6-6A-4 Deriving the consumer's demand curve
User1: Graph
User2: Qualitative
5) Refer to Figure 6-10. Suppose Chris's income is such that he is able to buy no more than 10 specialty coffees per
week. If Chris is maximizing his utility at this level of income, how many specialty coffees is he consuming per
week?
A) 2
B) 4
C) 5
D) 6
E) 10
Answer: B
Diff: 2
Topic: 6-appendix.4. deriving the demand curve (indiff. curves)
Skill: Applied
Learning Obj.: 6-6A-4 Deriving the consumer's demand curve
User1: Graph
User2: Quantitative
6) Refer to Figure 6-10. In general, the absolute value of the slope of the budget lines is equal to
A) the relative price ratio (Pspecialty coffee/Pall other goods).
B) the relative price ratio (Pall other goods/Pspecialty coffee).
C) the quantity of all other goods consumed divided by the quantity of specialty coffees consumed.
D) $15/value of all other goods.
E) the dollar value of all other goods divided by the number of specialty coffees consumed per week.
Answer: A
Diff: 3
Topic: 6-appendix.4. deriving the demand curve (indiff. curves)
Skill: Applied
Learning Obj.: 6-6A-4 Deriving the consumer's demand curve
User1: Graph
User2: Qualitative
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7) Refer to Figure 6-10. The slope of the budget line reflects the ________ of specialty coffees in terms of all other
goods.
A) demand
B) quantity
C) opportunity cost
D) absolute price
E) substitution
Answer: C
Diff: 2
Topic: 6-appendix.4. deriving the demand curve (indiff. curves)
Skill: Applied
User1: Graph
User2: Quantitative
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6A-5 Income and Substitution Effects
FIGURE 6-11
1) Refer to Figure 6-11. Suppose the consumer begins at E1. The income and substitution effects of the reduction in
the price of X are represented as follows:
A) the distance Q1d shows the substitution effect and the distance Q2e shows the income effect.
B) the distance de shows the income effect and the distance cd shows the substitution effect.
C) the distance Q1Q2 shows the income effect and the distance Q2Q3 shows the substitution effect.
D) the distance Q1Q2 shows the substitution effect and the distance Q2Q3 shows the income effect.
E) the distance Q1Q3 shows the substitution effect and the distance Q2Q3 shows the income effect.
Answer: D
Diff: 3
Topic: 6-appendix.5. income and sub'n effects (indiff. curves)
Skill: Applied
User1: Graph
User2: Qualitative
2) Refer to Figure 6-11. The line joining points E1 and E3 is known as ________, which shows how ________.
A) a price consumption line; consumption changes as one price changes, with money income held constant
B) an income consumption line; consumption changes as income changes, with relative prices held constant
C) a price consumption line; consumption changes as money income and relative prices change
D) an income consumption line; consumption changes with changing relative prices and constant income
Answer: A
Diff: 3
Topic: 6-appendix.5. income and sub'n effects (indiff. curves)
Skill: Recall
User1: Graph
User2: Qualitative
Sophie consumes two goods — paperback novels and visits to the movies.
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FIGURE 6-12
3) Refer to Figure 6-12. Sophie's movement from point A to point B is the
A) substitution effect of a decrease in the price of paperback novels.
B) total effect of an increase in the price of paperback novels.
C) income effect of an increase in the price of paperback novels.
D) result of a change in her preferences between movies an paperback novels.
E) total effect of a decrease in income.
Answer: B
Diff: 2
Topic: 6-appendix.5. income and sub'n effects (indiff. curves)
Skill: Applied
User1: Graph
User2: Qualitative
4) Refer to Figure 6-12. Sophie's movement from point A to point C is
A) the income effect of an increase in the price of paperback novels.
B) the total effect of a decrease in the price of paperback novels.
C) the income effect of a decrease in the price of paperback novels.
D) the substitution effect of an increase in the price of paperback novels.
E) the total effect of a change in money income.
Answer: D
Diff: 3
Topic: 6-appendix.5. income and sub'n effects (indiff. curves)
Skill: Applied
User1: Graph
User2: Qualitative
Economics - Canadian Edition, 15e (Ragan)
Chapter 7 Producers in the Short Run
7.1 What Are Firms?
1) A single proprietorship is a form of business organization which
A) has one owner-manager who is personally responsible for the firm's actions and debts.
B) has a single owner but has directors who are responsible for the firm's debts.
C) has limited liability.
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D) has unlimited access to money capital.
E) allows easy transferability of ownership by the trading of shares.
Answer: A
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
2) Which of the following statements describes an advantage to the owner of a single proprietorship?
A) The owner's liability is limited to the amount he or she actually invests in the firm.
B) He or she has limited liability.
C) The owner can readily maintain full and complete control over every aspect of the firm's operation.
D) The firm has a legal existence separate from its owner.
E) Shares of the firm can be traded on any stock exchange.
Answer: C
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
3) A firm that has two or more owners who share decision-making power as well as the firm's profits is called
A) a single proprietorship.
B) a partnership.
C) a corporation.
D) a non-profit organization.
E) a joint-stock company.
Answer: B
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
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4) A limited partnership differs from an ordinary partnership by
A) having a limited number of partners.
B) having a limited number of partners, each with limited liability.
C) including some partners whose liability is restricted to the amount that they invested in the firm.
D) having limited liability of all partners.
E) having unlimited liability for all partners.
Answer: C
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
5) Which of the following items is part of a firm's financial capital as distinct from its real capital?
A) a new bulldozer
B) a $500 000 balance in a bank account
C) a network of personal computers
D) a fleet of delivery trucks
E) inventory of goods valued at $1 000 000
Answer: B
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Applied
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
6) Which of the following statements is NOT true of a corporation?
A) It can enter into contracts.
B) It is an entity separate from the individuals who own it.
C) It can incur debt that is an obligation of the corporation but not of its individual owners.
D) It has the right to sue and be sued.
E) It is legally obliged to distribute all profits to shareholders.
Answer: E
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
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7) A firm can raise financial capital without incurring debt by
A) issuing bonds.
B) making extra dividend payments.
C) issuing new shares.
D) increasing its bank loans.
E) investing in new capital equipment.
Answer: C
Diff: 2
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
8) Which of the following statements about the organization of firms is true?
A) Partnerships are the most common form of business organization in Canada.
B) Owners of a corporation have unlimited liability.
C) Corporations have limited access to money markets.
D) Owners of a corporation are not personally liable for the firm's actions, though its directors may be.
E) Crown corporations are never interested in increasing profits because they have other goals.
Answer: D
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
9) Churches, the YMCA, the Salvation Army, and the Nature Conservancy are examples of
A) single proprietorship.
B) partnership.
C) non-profit organizations.
D) limited partnership.
E) corporations.
Answer: C
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Applied
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
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10) An example of "real" capital is
A) shares in a corporation.
B) corporate bonds.
C) a firm's balance in a bank account.
D) a firm's computer systems.
E) a firm's retained earnings.
Answer: D
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Applied
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
11) Real capital includes
A) a firm's physical assets.
B) corporate bonds.
C) corporate stock.
D) a firm's balance in its bank account.
E) owner's equity.
Answer: A
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
12) Undistributed profits of a firm are
A) earnings that are used to pay dividends to shareholders.
B) earnings that are used to cover the costs of production.
C) earnings that are used to cover interest expenses of the firm.
D) profits that are paid out to owners of the firm.
E) profits that are available to be reinvested in the firm's operations.
Answer: E
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
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13) When a corporation issues a bond
A) the purchaser of the bond assumes ownership rights in the corporation.
B) it is making a promise to pay interest each year and to repay the principal at a stated time in the future.
C) it is called equity capital.
D) it is called financing through the stock market.
E) it is making a promise to pay interest each year but not repay the principal.
Answer: B
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
14) An example of debt financing for any form of business organization is
A) issuing new stock.
B) buying back bonds.
C) borrowing from a bank.
D) using undistributed profits.
E) buying back previously issued stock.
Answer: C
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
15) It is assumed in standard economic theory that a firm makes decisions in an effort to
A) become as large as possible.
B) have a highly diversified product.
C) be favoured politically.
D) maximize its revenue.
E) maximize its profits.
Answer: E
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
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16) "An objective of firms is to maximize profits." This statement
A) has been proven by empirical testing to be always true.
B) is an assumption used by economists to predict the behaviour of firms.
C) is a normative statement and thus cannot be tested.
D) applies only to corporations.
E) is an unrealistic assumption, and therefore of little use to economists.
Answer: B
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
17) The theory of the firm is based on the following two key assumptions:
A) Firms seek to become as large as possible, and they seek to maximize total revenue.
B) Each firm has a highly diversified product, and this leads to profit maximization.
C) Firms seek to maximize profit, and to distribute the maximum value in dividends.
D) Firms seek to maximize profits, and the firm is a single, consistent decision-making unit.
E) Firms seek to maximize revenues, and to maximize undistributed profits.
Answer: D
Diff: 2
Topic: 7.1. organization, financing, and goals of firms
Skill: Recall
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
18) Which of the following is the best example of an input to production that is an intermediate product?
A) 40 acres of farmland
B) the skills and training of a web designer
C) computer circuit boards
D) a textile factory
E) a sewing machine
Answer: C
Diff: 1
Topic: 7.1. organization, financing, and goals of firms
Skill: Applied
Learning Obj.: 7-1 Identify the various forms of business organization and discuss the different ways that firms can be financed.
User2: Qualitative
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7.2 Production, Costs, and Profits
1) The relationship between factors of production used in the production process and the resulting output is called
a(n)
A) consumption possibilities boundary.
B) economic function.
C) production boundary.
D) cost function.
E) production function.
Answer: E
Diff: 1
Topic: 7.2a. production functions
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
2) Economists use the notation Q = f(L,K) to describe
A) the flow of labour (L) and capital (K) services that are available when output is (Q).
B) the financial relationship between the inputs that a firm uses and the outputs that it produces.
C) the arithmetic relationship between the outputs that a firm uses and the inputs that it produces.
D) the technological relationship between the inputs that a firm uses and the outputs that it produces.
E) the level of output (Q) required to fully employ labour (L) and capital (K).
Answer: D
Diff: 2
Topic: 7.2a. production functions
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
3) The equation Q = 0.5KL - (0.4)L + 2L2 is an example of
A) a factor of production equation.
B) an economic input function.
C) a technological change equation.
D) an arithmetic expression of output quantities.
E) a production function.
Answer: E
Diff: 1
Topic: 7.2a. production functions
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
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4) Suppose a production function for a firm takes the following algebraic form: Q = 2KL - (0.2)L 2, where Q is the
output of sweaters per day. Now suppose the firm is operating with 8 units of capital (K=8) and 10 units of labour
(L=10). What is the output of sweaters?
A) 30 sweaters per day
B) 60 sweaters per day
C) 80 sweaters per day
D) 140 sweaters per day
E) 155 sweaters per day
Answer: D
Diff: 2
Topic: 7.2a. production functions
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Quantitative
5) Suppose a production function for a firm takes the following algebraic form: Q = (0.5)KL - 40L, where Q is the
output of paintbrushes per week. Now suppose the firm is operating with 100 units of capital (K = 100) and 30 000
units of labour (L = 30 000). What is the output of paintbrushes per week?
A) 30 000
B) 300 000
C) 1 200 000
D) 1 500 000
E) 3 000 000
Answer: B
Diff: 2
Topic: 7.2a. production functions
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Quantitative
6) Suppose a production function for a firm takes the following algebraic form: Q = (0.25)K × (1.5)L 2, where Q is
the output of garage doors produced per month. Now suppose the firm is operating with 10 units of capital (K = 10)
and 8 units of labour (L = 8). What is the output of garage doors per month?
A) 24
B) 240
C) 300
D) 2400
E) 3000
Answer: B
Diff: 2
Topic: 7.2a. production functions
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Quantitative
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7) The opportunity cost of any factor of production is
A) its accounting cost.
B) the money actually paid to the factors of production.
C) the benefit forgone by not using it in its worst alternative.
D) the benefit forgone by not using it in its best alternative.
E) its explicit cost.
Answer: D
Diff: 1
Topic: 7.2b. economic vs. accounting profits
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
8) The choices listed below involve costs to the firm. For which is the implicit cost potentially different than its
explicit cost?
A) The use of firm-owned assets.
B) The services of hired workers.
C) The use of rented land.
D) The interest paid on borrowed money.
E) The purchase of raw materials used in production.
Answer: A
Diff: 2
Topic: 7.2b. economic vs. accounting profits
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
9) The opportunity cost to a firm of using an asset is zero if
A) the asset is already owned by the firm.
B) no money was spent to acquire the asset.
C) the asset has no alternative uses.
D) the asset has zero sunk costs associated with it.
E) the asset was given to the firm for free.
Answer: C
Diff: 2
Topic: 7.2b. economic vs. accounting profits
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
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10) The opportunity cost of money that a firm's owner has invested in the firm is an example of
A) direct production costs.
B) accounting costs.
C) sunk costs.
D) implicit costs.
E) explicit costs.
Answer: D
Diff: 2
Topic: 7.2b. economic vs. accounting profits
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
11) If a firm uses factor inputs that are personally owned by the firm's owner, then economists refer to the
opportunity cost of these inputs as
A) direct production costs.
B) accounting costs.
C) sunk costs.
D) implicit costs.
E) inverted costs.
Answer: D
Diff: 2
Topic: 7.2b. economic vs. accounting profits
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
12) Economic profits are less than accounting profits because the calculation of economic profit
A) includes an amount for depreciation.
B) includes an explicit charge for risk taking.
C) includes the implicit charges for the use of capital owned by the firm and for risk taking.
D) includes the implicit charges for the use of capital owned by the firm and for income taxes.
E) is stipulated in regulations set forth by the Canada Revenue Agency.
Answer: C
Diff: 2
Topic: 7.2b. economic vs. accounting profits
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
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13) We can predict that resources will move into an industry whenever
A) accounting profits for firms in that industry are greater than zero.
B) accounting profits for firms in that industry are zero.
C) economic profits for firms in that industry are zero.
D) economic profits for firms in that industry are greater than zero.
E) economic losses for firms in that industry are minimized.
Answer: D
Diff: 1
Topic: 7.2b. economic vs. accounting profits
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
14) If Michelle used $1000 from her savings account, which was paying 6% interest annually, to invest in her
brother's new sporting-goods store, the opportunity cost of her investment on an annual basis would be
A) $60.
B) $1000.
C) $1060.
D) her share of the store's profits.
E) the dividend paid to her by her brother.
Answer: A
Diff: 2
Topic: 7.2b. economic vs. accounting profits
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Quantitative
15) Consider the production costs for a firm, one of which is the cost of depreciation. Depreciation costs are
A) payments to outside suppliers.
B) the cost of money borrowed to buy a durable asset.
C) an estimate of the loss of value of the firm's physical capital.
D) a measure of the depreciation of financial assets of the firm.
E) irrelevant to an accounting of the firm's total costs.
Answer: C
Diff: 2
Topic: 7.2b. economic vs. accounting profits
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
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The table below provides the annual revenues and costs for a family-owned firm producing catered meals.
Total Revenues ($)
500 000
Total Costs ($)
- wages and salaries
- risk-free return of 6% on owners' capital of 250 000
- rent
- depreciation of capital equipment
- risk premium of 8% on owners' capital of 250 000
- intermediate inputs
- forgone wages of owners in alternative employment
- interest on bank loan
200 000
15 000
105 000
25 000
20 000
150 000
80 000
10 000
TABLE 7-1
16) Refer to Table 7-1. The explicit costs for this family-owned firm are
A) $115 000.
B) $490 000.
C) $500 000.
D) $505 000.
E) $605 000.
Answer: B
Diff: 3
Topic: 7.2b. economic vs. accounting profits
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User1: Table
User2: Quantitative
17) Refer to Table 7-1. The implicit costs for this family-owned firm are
A) $35 000.
B) $80 000.
C) $100 000.
D) $115 000.
E) $490 000.
Answer: D
Diff: 3
Topic: 7.2b. economic vs. accounting profits
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User1: Table
User2: Quantitative
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18) Refer to Table 7-1. The accounting profits for this family-owned firm are
A) -$15 000.
B) $0.
C) $10 000.
D) $30 000.
E) $500 000.
Answer: C
Diff: 3
Topic: 7.2b. economic vs. accounting profits
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User1: Table
User2: Quantitative
19) Refer to Table 7-1. The economic profits for this family-owned firm are
A) $115 000.
B) $10 000.
C) $0.
D) -$10 000.
E) -$105 000.
Answer: E
Diff: 3
Topic: 7.2b. economic vs. accounting profits
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User1: Table
User2: Quantitative
20) Refer to Table 7-1. To an accountant, this family-owned catering company is earning ________. To an
economist, the same firm is earning ________.
A) zero profit; economic losses
B) zero profit; normal profits
C) positive profits; economic losses
D) economic profits; economic profits
E) economic profits; economic losses
Answer: C
Diff: 3
Topic: 7.2b. economic vs. accounting profits
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User1: Table
User2: Quantitative
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The table below provides the total revenues and costs for a small landscaping company in a recent year.
Total Revenues ($)
250 000
Total Costs ($)
- wages and salaries
- risk-free return of 2% on owner's capital of $20 000
- interest on bank loan
- cost of supplies
- depreciation of capital equipment
- additional wages the owner could have earned in next
best alternative
- risk premium of 4% on owner's capital of $20 000
150 000
400
1500
27 000
8000
30 000
800
TABLE 7-2
21) Refer to Table 7-2. The explicit costs for this firm are
A) $178 500.
B) $186 500.
C) $186 900.
D) $217 300.
E) $217 700.
Answer: B
Diff: 3
Topic: 7.2b. economic vs. accounting profits
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User1: Table
User2: Quantitative
22) Refer to Table 7-2. The implicit costs for this firm are
A) $31 200.
B) $30 800.
C) $30 400.
D) $400.
E) $800.
Answer: A
Diff: 3
Topic: 7.2b. economic vs. accounting profits
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User1: Table
User2: Quantitative
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23) Refer to Table 7-2. The accounting profits for this firm are
A) $32 300.
B) $32 700.
C) $63 100.
D) $63 500.
E) $71 500.
Answer: D
Diff: 3
Topic: 7.2b. economic vs. accounting profits
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User1: Table
User2: Quantitative
24) Refer to Table 7-2. The economic profits for this firm are
A) $63 500.
B) $32 700.
C) $33 500.
D) $31 200.
E) $32 300.
Answer: E
Diff: 3
Topic: 7.2b. economic vs. accounting profits
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User1: Table
User2: Quantitative
25) With regard to economic decision making for firms, the short run is
A) a definite number of months.
B) a period over which the quantities of all factors of production and technology are variable.
C) a period over which the quantity of at least one significant factor of production is fixed.
D) a period over which the quantities of all factors of production are variable but technology is fixed.
E) less than one year.
Answer: C
Diff: 1
Topic: 7.2c. time horizons for firms
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
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26) With regard to economic decision making for firms, the long run is a period in which
A) all factors of production are variable but technology is fixed.
B) technology is variable.
C) only some of the factors of production are variable.
D) technology may be variable, but some factors of production are fixed.
E) only capital is variable.
Answer: A
Diff: 1
Topic: 7.2c. time horizons for firms
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
27) Which of the following is most likely a long-run decision for a firm?
A) The hours a store should stay open.
B) How many warehouses to build.
C) The number of workers to hire.
D) The amount of inventory to stock.
E) The price at which to sell the product.
Answer: B
Diff: 1
Topic: 7.2c. time horizons for firms
Skill: Applied
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
28) The period of time over which at least one factor of production is fixed is called the
A) very-short run.
B) short run.
C) long run.
D) very-long run.
E) immediate run.
Answer: B
Diff: 1
Topic: 7.2c. time horizons for firms
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
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29) The period of time over which the firm can vary any of its inputs for a given production technology is called the
A) very-short run.
B) short run.
C) long run.
D) very-long run.
E) immediate run.
Answer: C
Diff: 2
Topic: 7.2c. time horizons for firms
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
30) Which of the following factors of production is most likely to be variable in the short run?
A) capital equipment
B) land
C) labour
D) entrepreneurship
E) technology
Answer: C
Diff: 1
Topic: 7.2c. time horizons for firms
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
31) The period of time over which all factors of production and technology are variable is known as the
A) very-short run.
B) short run.
C) long run.
D) very-long run.
Answer: D
Diff: 1
Topic: 7.2c. time horizons for firms
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
32) The period of time over which the firm can vary its technology of production is the
A) very-short run.
B) short run.
C) long run.
D) very-long run.
E) none of the above; technology cannot be varied.
Answer: D
Diff: 1
Topic: 7.2c. time horizons for firms
Skill: Recall
Learning Obj.: 7-2 Distinguish between accounting profits and economic profits.
User2: Qualitative
7.3 Production in the Short Run
1) What information is provided by average, marginal, and total product curves?
A) They demonstrate that each of these measures of output increase as more inputs are applied.
B) They demonstrate that, in the short run, all inputs are variable.
C) They relate the prices of inputs (factors of production) to the prices of products.
D) They relate the price of output to the quantity supplied.
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E) They express relationships between physical inputs and physical outputs.
Answer: E
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Recall
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
2) Consider a firm in the short run. Average product is at its maximum when
A) total product is maximized.
B) marginal product is maximized.
C) the maximum quantity of the variable input is employed.
D) diminishing returns cease to operate.
E) average product equals marginal product and marginal product is falling.
Answer: E
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Recall
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
3) Consider a firm in the short run. If total product is at its maximum, then
A) average product must equal marginal product.
B) average product must be rising and must lie above marginal product.
C) marginal product must be greater than zero and must be falling.
D) marginal product must be falling and be equal to zero.
E) average product must be falling and be equal to zero.
Answer: D
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
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4) Consider a firm in the short run. If the AP curve is rising, then the MP curve
A) must lie above the average-product curve over this range and must also be rising.
B) must lie above the average-product curve over this range.
C) can be either above or below the average-product curve, although it must be rising over the entire range.
D) must lie below the average-product curve over this range.
E) must be falling.
Answer: B
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
5) Consider a firm in the short run. If AP = MP and both are positive, then total product
A) is at a maximum.
B) is decreasing as extra units of the variable factor are employed.
C) is increasing as extra units of the variable factor are employed.
D) may be either increasing or decreasing as extra units of the variable factor are employed.
E) is at its minimum.
Answer: C
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
6) Consider a firm in the short run. When the total-product curve is increasing at an increasing rate
A) average product is zero.
B) marginal product is positive but declining.
C) the marginal-product curve lies below the average-product curve.
D) marginal product is positive and increasing.
E) average product is falling.
Answer: D
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
349
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7) Which of the following statements about the relationship between marginal product and average product is
correct?
A) When average product exceeds marginal product, marginal product must be rising.
B) When marginal product is falling, average product is falling.
C) When marginal product exceeds average product, average product must be rising.
D) Average product equals marginal product at marginal product's lowest point.
E) Average product equals marginal product when marginal product is at its maximum.
Answer: C
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
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FIGURE 7-1
8) Refer to Figure 7-1. The marginal product of labour curve intersects the average product of labour curve when
A) the firm is at its capacity.
B) the firm achieves increasing returns.
C) average product is at its maximum.
D) diminishing returns sets in.
E) total product is at its maximum.
Answer: C
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User1: Graph
User2: Qualitative
9) Refer to Figure 7-1. Total product is increasing at an increasing rate
A) from 0 to 32 units of output.
B) from 0 to 140 units of output.
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C) between 140 to 200 units of output.
D) between 200 to 250 units of output.
E) over the whole production range.
Answer: B
Diff: 3
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User1: Graph
User2: Qualitative
10) Refer to Figure 7-1. Total product is increasing at a decreasing rate
A) from 0 to 20 units of output.
B) from 0 to 32 units of output.
C) between 140 to 200 units of output.
D) between 140 to 250 units of output.
E) over the whole production range.
Answer: D
Diff: 3
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User1: Graph
User2: Qualitative
11) Refer to Figure 7-1. If the firm hires the 15th unit of labour,
A) the extra output will be zero.
B) average product will rise.
C) marginal product will be unchanged.
D) the firm will reach its capacity.
E) output will increase by 2 units of output.
Answer: A
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User1: Graph
User2: Qualitative
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12) Refer to Figure 7-1. Suppose each unit of labour represents one worker for one month. What is the maximum
number of workers the firm could hire so that the final worker hired still raises the average product of the other
workers?
A) 7
B) 8
C) 9
D) 11
E) 15
Answer: C
Diff: 3
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User1: Graph
User2: Quantitative
13) In the short run, the firm's product curves show
A) AP is at its minimum when MP = AP.
B) TP is at its maximum when MP = O.
C) TP begins to decrease when AP begins to decrease.
D) when MP > AP, AP is decreasing.
E) when the MP curve cuts the AP curve from below, the AP curve begins to fall.
Answer: B
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
14) In the short run, the firm's product curves show
A) AP is at its minimum when MP = AP.
B) TP is at its maximum when MP is at its maximum.
C) TP begins to decrease when AP begins to decrease.
D) when MP < AP, AP is increasing.
E) when the MP curve cuts the AP curve from above, the AP curve begins to fall.
Answer: E
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
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15) Suppose that when a firm hires one additional unit of labour, total product increases from 100 to 110 units of
output per month. Marginal product must therefore be
A) increasing.
B) positive.
C) decreasing.
D) constant.
E) zero.
Answer: B
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
The following data show the total output for a firm when different amounts of labour are combined with a fixed
amount of capital. Assume that the wage per unit of labour is $10 and the cost of the capital is $50.
Labour per period
0
1
2
3
4
5
Total output per period
0
10
30
90
132
150
TABLE 7-3
16) Refer to Table 7-3. The marginal product of labour is at its maximum when the firm changes the amount of
labour hired from
A) 0 to 1 unit.
B) 1 to 2 units.
C) 2 to 3 units.
D) 3 to 4 units.
E) 4 to 5 units.
Answer: C
Diff: 3
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User1: Table
User2: Quantitative
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17) Refer to Table 7-3. The average product of labour is highest when the firm hires
A) 1 unit of labour.
B) 2 units of labour.
C) 3 units of labour.
D) 4 units of labour.
E) 5 units of labour.
Answer: D
Diff: 3
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User1: Table
User2: Quantitative
18) Refer to Table 7-3. What is the marginal product of the 4th unit of labour hired by the firm?
A) 42
B) 60
C) 132
D) 900
E) 1320
Answer: A
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
User1: Table
User2: Quantitative
19) Refer to Table 7-3. What is the total output per period when this firm is employing labour such that the marginal
product of labour is at its maximum?
A) 30
B) 60
C) 90
D) 132
E) 150
Answer: D
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
User1: Table
User2: Quantitative
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20) Refer to Table 7-3. Diminishing marginal product of labour is first observed when the firm changes the amount
of labour hired from
A) 0 to 1 units.
B) 1 to 2 units.
C) 2 to 3 units.
D) 3 to 4 units.
E) 4 to 5 units.
Answer: E
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
User1: Table
User2: Quantitative
21) Refer to Table 7-3. The average product of labour when the firm hires 3 units of labour is ________. The
average product of labour when the firm hires 4 units of labour is ________.
A) 30; 33
B) 90; 132
C) 60; 42
D) 90; 222
E) 30; 90
Answer: A
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
User1: Table
User2: Quantitative
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The following data show the total output for a firm when specified amounts of labour are combined with a fixed
amount of capital. When answering the questions, you are to assume that the wage per unit of labour is $25 and the
cost of the capital is $100.
Labour per unit of time
0
1
2
3
4
5
Total output
0
25
75
175
250
305
TABLE 7-4
22) Refer to Table 7-4. The marginal product of labour is at its maximum when the firm changes the amount of
labour hired from
A) 0 to 1 unit.
B) 1 to 2 units.
C) 2 to 3 units.
D) 3 to 4 units.
E) 4 to 5 units.
Answer: C
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User1: Table
User2: Quantitative
23) Refer to Table 7-4. Diminishing marginal productivity of labour is first observed when the firm changes the
amount of labour hired from
A) 0 to 1 unit.
B) 1 to 2 units.
C) 2 to 3 units.
D) 3 to 4 units.
E) 4 to 5 units.
Answer: D
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User1: Table
User2: Quantitative
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24) Refer to Table 7-4. The average product of labour is highest when the firm hires ________ units of labour.
A) 1
B) 2
C) 3
D) 4
E) 5
Answer: D
Diff: 3
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User1: Table
User2: Quantitative
25) Refer to Table 7-4. The marginal product of labour curve intersects the average product of labour curve from
above when the firm changes the amount of labour per unit of time from
A) 0 to 1 units.
B) 1 to 2 units.
C) 2 to 3 units.
D) 3 to 4 units.
E) 4 to 5 units.
Answer: E
Diff: 3
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User1: Table
User2: Quantitative
26) Refer to Table 7-4. Marginal product of labour begins decreasing with the ________ unit of labour hired.
Average product of labour begins decreasing with the ________ unit of labour hired.
A) 4th; 3rd
B) 3rd; 2nd
C) 2nd; 3rd
D) 3rd; 4th
E) 4th; 5th
Answer: E
Diff: 3
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User1: Table
User2: Quantitative
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27) Suppose NHL hockey player Jarome Iginla is averaging three points per game going into the last game of the
season in which he collects four points, thereby changing his average for the season. To use an analogy in
economics, it could be said that average product increases
A) when total product increases.
B) when marginal product exceeds average product.
C) when average product exceeds marginal product.
D) when marginal product increases.
E) whenever marginal product is positive.
Answer: B
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
28) Consider a basket-producing firm with fixed capital. If the firm can produce 36 baskets per day with 3 workers
and then increases productivity to 44 baskets per day with 4 workers, then which of the following statements is true?
A) The marginal product of the fourth worker is 11.
B) The firm has passed the point of diminishing average productivity.
C) The marginal product is above the average product.
D) The firm has not yet reached the point of diminishing marginal productivity.
E) With 4 workers, the firm's average product of labour is 13.
Answer: B
Diff: 3
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Quantitative
29) Consider a basket-producing firm with fixed capital. If the firm can produce 36 baskets per day with 3 workers
and then increases production to 44 baskets per day with 4 workers, then which of the following statements is true?
A) The marginal product of the fourth worker is 11.
B) With 4 workers, the marginal product is above the average product.
C) The firm has not yet reached the point of diminishing marginal productivity.
D) The firm has passed the point of diminishing marginal productivity.
E) With 4 workers, the firm's average product of labour is 8.
Answer: D
Diff: 3
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Quantitative
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Copyright © 2017 Pearson Education, Inc.
30) Consider a basket-producing firm with fixed capital. If the firm can produce 24 baskets per day with 3 workers
and then increases production to 36 baskets per day with 4 workers, then which of the following statements is
definitely true?
A) The firm has passed the point of diminishing marginal productivity.
B) The marginal productivity of the fourth worker is 9.
C) The firm has passed the point of diminishing average productivity.
D) With 4 workers, the average product is greater than the marginal product.
E) With 4 workers, the marginal product is greater than the average product.
Answer: E
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Quantitative
31) Consider a basket-producing firm with fixed capital. If the firm can produce 24 baskets per day with 3 workers
and then increases production to 36 baskets per day with 4 workers, then which of the following statements is
definitely true?
A) Marginal product for this firm is rising.
B) The marginal product of the fourth worker is 9.
C) Average product for this firm is rising.
D) The firm has passed the point of diminishing marginal productivity.
E) With 4 workers, the average product is greater than the marginal product.
Answer: C
Diff: 3
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Quantitative
32) Consider a house-construction firm with fixed capital. The firm can build 8 houses per year with 16 workers
and 8.8 houses per year with 17 workers. If it is currently building 8.8 houses per year, which of the following is
true?
A) Average product is at a maximum with 16 workers.
B) Average product is at a maximum with 17 workers.
C) The marginal product is below the average product.
D) The firm has already passed the point of diminishing marginal productivity.
E) The firm has not yet reached the point of diminishing average productivity.
Answer: E
Diff: 3
Topic: 7.3a. total product, average product, and marginal product
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Quantitative
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33) If increasing quantities of a variable factor are applied to a given quantity of fixed factors, then the law of
diminishing returns tells us that
A) the marginal product and the average product of the variable factor will eventually decrease.
B) the marginal product will eventually decrease with constant average product.
C) the average product will eventually decrease with constant marginal product.
D) the average product will eventually decrease, but only if total product is held constant.
E) total product will eventually begin to fall.
Answer: A
Diff: 1
Topic: 7.3a. total product, average product, and marginal product
Skill: Recall
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
34) When a firm's total-product curve is increasing at a decreasing rate
A) average product is zero.
B) marginal product is positive but declining.
C) the marginal-product curve lies below the average-product curve.
D) marginal product is negative and decreasing.
E) average product is falling.
Answer: B
Diff: 2
Topic: 7.3a. total product, average product, and marginal product
Skill: Recall
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
35) Diminishing marginal product of labour is said to exist when there is
A) an increase in the amount of capital available for each unit of labour.
B) a reduction in the level of labour input that causes output to increase.
C) an increase in the division and specialization of labour.
D) technological advancement.
E) a successively smaller increase in output with each successive unit increase in labour input.
Answer: E
Diff: 2
Topic: 7.3b. law of diminishing returns
Skill: Recall
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
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36) The law of diminishing returns states that if increasing quantities of a variable factor are applied to a given
quantity of fixed factors, then
A) the MP and the AP of the variable factor will eventually decrease.
B) the MP will eventually decrease with constant AP.
C) the AP will eventually decrease with constant MP.
D) the AP will eventually decrease, but only if TP is held constant.
E) TP will eventually begin to fall.
Answer: A
Diff: 2
Topic: 7.3b. law of diminishing returns
Skill: Recall
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
37) The point of diminishing marginal productivity is the point where
A) marginal product has reached its maximum.
B) average product has reached its maximum.
C) the marginal product begins to fall at an increasing rate.
D) the total product begins to fall.
E) the marginal product curve lies below the average product curve.
Answer: A
Diff: 2
Topic: 7.3b. law of diminishing returns
Skill: Recall
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
38) Suppose sport-fishermen on the Campbell River in British Columbia are catching fewer fish and are having to
fish many more hours to catch them. However, the total number of fish caught on the river continues to increase.
The river is experiencing
A) diminishing total returns.
B) constant marginal returns.
C) increasing marginal returns.
D) diminishing marginal returns.
E) increasing average returns.
Answer: D
Diff: 2
Topic: 7.3b. law of diminishing returns
Skill: Applied
Learning Obj.: 7-3 Understand the relationships among total product, average product, and marginal product; and the law of
diminishing marginal returns.
User2: Qualitative
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7.4 Costs in the Short Run
1) In economics, the term "fixed costs" means
A) implicit costs.
B) opportunity costs.
C) costs that are never accounted for.
D) costs incurred in the past that involve no implicit costs.
E) costs that do not vary with the level of output produced.
Answer: E
Diff: 1
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
The following data show the total output for a firm when specified amounts of labour are combined with a fixed
amount of capital. When answering the questions, you are to assume that the wage per unit of labour is $25 and the
cost of the capital is $100.
Labour per unit of time
0
1
2
3
4
5
Total output
0
25
75
175
250
305
TABLE 7-4
2) Refer to Table 7-4. Average fixed costs for 305 units of output is approximately
A) 33 cents.
B) 41 cents.
C) 45 cents.
D) 74 cents.
E) $3.05.
Answer: A
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
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3) Refer to Table 7-4. Average variable costs for 175 units of output is approximately
A) 25 cents.
B) 32 cents.
C) 43 cents.
D) 57 cents.
E) $1.00.
Answer: C
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
4) Refer to Table 7-4. The average total cost for 250 units of output is approximately
A) 33 cents.
B) 40 cents.
C) 63 cents.
D) 80 cents.
E) $1.00.
Answer: D
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
5) Refer to Table 7-4. The total cost of producing 175 units of output is
A) $75.
B) $100.
C) $150.
D) $175.
E) $350.
Answer: D
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
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6) Refer to Table 7-4. The average total cost of producing 75 units of output is
A) $1.
B) $2.
C) $0.80.
D) $0.67.
E) $1.33.
Answer: B
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
7) Refer to Table 7-4. The total variable cost of producing 305 units of output is
A) $100.
B) $125.
C) $225.
D) $305.
E) $325.
Answer: B
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
8) Refer to Table 7-4. The total fixed cost of producing 305 units of output is
A) $100.
B) $125.
C) $112.50.
D) $225
E) $305.
Answer: A
Diff: 1
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
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9) In the short run time horizon for a firm, total fixed costs
A) decrease and then increase as output increases.
B) decrease as output increases.
C) do not vary with output.
D) increase and then decrease as output increases.
E) are equal to total variable costs.
Answer: C
Diff: 1
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
10) Jodi recently went into business producing widgets. Which of the following would be a fixed cost for her firm?
1. labour costs of $1000 per month
2. raw material costs of $5000 per month
3. a one-year lease on a building of $12 000
A) 1 only
B) 2 only
C) 3 only
D) 1 and 2
E) 2 and 3
Answer: C
Diff: 1
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
11) Marginal cost is defined as the
A) change in total cost resulting from an additional unit of output.
B) change in fixed cost resulting from an additional unit of output.
C) difference between average total cost and average variable cost.
D) cost per unit when the firm is operating at capacity.
E) cost of an additional unit of a variable factor of production.
Answer: A
Diff: 1
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
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12) A firm's short-run cost curves, as conventionally drawn, show that
A) AFC increases as output increases.
B) ATC = TFC + TVC.
C) AVC decreases as long as MC > AVC.
D) the MC curve intersects the AVC and ATC curves at their maximum points.
E) ATC decreases and then increases as output increases.
Answer: E
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
13) Consider a firm's short-run cost curves. If average total cost is increasing as output rises, then
A) total fixed costs must be increasing.
B) average fixed costs must be increasing.
C) average variable cost must be increasing.
D) marginal cost must be below average total cost.
E) average total cost is no longer equal to the sum of average variable cost and average fixed cost.
Answer: C
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
14) Consider a firm's short-run cost curves. Which one of the following types of cost declines over the whole range
of output?
A) average fixed cost
B) marginal cost
C) total fixed cost
D) average variable cost
E) total variable cost
Answer: A
Diff: 1
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
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15) The vertical distance between the total cost curve and the total variable cost curve is
A) marginal cost.
B) average fixed cost.
C) average total cost.
D) total fixed cost.
E) average variable cost.
Answer: D
Diff: 1
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
16) Suppose a firm is producing 100 units of output, incurring a total cost of $10 000 and total variable cost of
$6000. It can be concluded that average fixed cost is
A) $40.
B) $60.
C) $100.
D) $160.
E) $4000.
Answer: A
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Quantitative
17) Suppose a firm is producing 500 units of output, incurring a total cost of $700 000 and total fixed cost of $100
000. It can be concluded that average variable cost is
A) $200.
B) $600.
C) $1200.
D) $1400.
E) $1600.
Answer: C
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Quantitative
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18) Suppose a firm is producing 250 units of output. At this level of output, average fixed costs are $20 per unit and
average variable costs are $80 per unit. It can be concluded that total cost is
A) $100.
B) $0.40 per unit.
C) $40 per unit.
D) $2500.
E) $25 000.
Answer: E
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Quantitative
19) Suppose a firm is producing 10 000 units of output. At this level of output, average total cost is $200 and
average fixed cost is $20. It can be concluded that total variable cost is
A) $180.
B) $1800.
C) $18 000.
D) $180 000.
E) $1 800 000.
Answer: E
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Quantitative
20) Suppose a firm with the usual U-shaped cost curves is producing a level of output such that its short-run costs
are as follows:
ATC = $0.37 per unit
AVC = $0.32 per unit
AFC = $0.05 per unit
MC = $0.43 per unit
Given these short-run costs, as the firm increases its output, which of the following statements is true?
A) Marginal product of the variable factor must be decreasing.
B) Marginal product of the variable factor must be increasing.
C) The point of diminishing average product of the variable factor has not yet been reached.
D) Average product of the variable factor must be increasing.
E) Marginal product of the variable factor is at its minimum point.
Answer: A
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Quantitative
21) Suppose a firm with the usual U-shaped cost curves is producing a level of output such that its short run costs
are as follows:
ATC = $0.37 per unit
AVC = $0.32 per unit
AFC = $0.05 per unit
MC = $0.43 per unit
Given these short run costs, which of the following statements is true?
A) The firm is operating with excess capacity.
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B) The firm is operating at capacity.
C) The firm is operating above capacity.
D) The firm has no capacity constraints.
E) The firm is producing a level of output where capacity is increasing.
Answer: C
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Quantitative
22) Consider the short-run costs of a firm. Suppose the firm's total fixed costs are $100 and average variable costs
are constant regardless of output. Which of the following is then true?
A) Marginal cost will equal average total cost.
B) Average total cost will decrease when output is increased.
C) Marginal cost will be less than average variable cost.
D) Average total costs will be constant.
E) Marginal cost will be rising as output rises.
Answer: B
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
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23) Suppose that a firm's capital is fixed and one more unit of labour is hired, thereby increasing the firm's total
output. Which of the following statements can be correct?
1. Marginal cost would remain constant.
2. Marginal cost would increase.
3. Marginal cost would decrease.
A) 1 only
B) 2 only
C) 3 only
D) Any of 1, 2, and 3 is possible.
E) None are possible.
Answer: D
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
24) A firm's capacity is defined as the level of output where
A) the upper limit on what can be produced is reached.
B) average total cost is at its maximum.
C) marginal cost equals average variable cost.
D) average fixed costs are at a minimum.
E) short-run average total cost is at its minimum.
Answer: E
Diff: 1
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
25) When a plant is operating at the level of output where its short-run average total cost is at its minimum,
A) average fixed cost is at a minimum.
B) marginal cost is at a minimum.
C) average variable cost is at a minimum.
D) the plant is operating at its capacity.
E) more of the variable factor of production should be employed.
Answer: D
Diff: 1
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
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26) Short-run cost curves for a firm are eventually upward-sloping because of the effects of
A) the increasing price of variable inputs.
B) diminishing marginal product.
C) increasing fixed costs.
D) increasing marginal productivity of the variable inputs.
E) decreasing total product.
Answer: B
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
27) A firm's short-run marginal cost curve is decreasing when
A) average fixed cost is increasing.
B) total fixed cost is decreasing.
C) marginal product is decreasing.
D) marginal product is increasing.
E) capacity is reached.
Answer: D
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
28) When a firm's marginal cost is rising, we know that
A) average fixed cost must be rising.
B) average variable cost must be rising.
C) average total cost must be rising.
D) marginal product must be zero.
E) marginal product must be falling.
Answer: E
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
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29) Consider a firm's short-run cost curves. When capital is a fixed factor, a rise in the cost of labour
A) shifts the marginal cost curve upwards.
B) shifts the AVC curve down.
C) shifts the total product curve downwards.
D) leaves the MC curve unchanged.
E) leaves the ATC curve unchanged.
Answer: A
Diff: 1
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
30) Suppose Jodi's widget business is using two inputs, labour and capital. If the price of labour increases, which of
the following will happen?
A) Jodi will shut down her business.
B) The firm's average total cost curve will shift upward.
C) The firm's marginal cost curve will remain unchanged.
D) Jodi will hire more labour.
E) The firm's average fixed cost curve will shift upward.
Answer: B
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
31) Suppose a firm producing digital cameras is operating such that marginal costs are higher than average costs. If
the firm produces one more camera, average costs will
A) rise.
B) fall.
C) reach a point of diminishing returns.
D) remain constant.
E) reach their maximum.
Answer: A
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
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32) A firm that is maximizing its profits by producing a certain level of output must also be
A) minimizing its cost of producing that output.
B) maximizing its sales.
C) minimizing its variable costs.
D) maximizing its output.
E) maximizing its revenue.
Answer: A
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User2: Qualitative
The following data show the total output for a firm when different amounts of labour are combined with a fixed
amount of capital. Assume that the wage per unit of labour is $10 and the cost of the capital is $50.
Labour per period
0
1
2
3
4
5
Total output per period
0
10
30
90
132
150
TABLE 7-3
33) Refer to Table 7-3. The average total cost when producing 150 units of output is approximately
A) 33 cents.
B) 40 cents.
C) 67 cents.
D) 80 cents.
E) $1.50.
Answer: C
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
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34) Refer to Table 7-3. The average total cost when producing 90 units of output is approximately
A) 27 cents.
B) 30 cents.
C) 33 cents.
D) 89 cents.
E) $26.67.
Answer: D
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
35) Refer to Table 7-3. The average total cost when this firm is producing zero units of output is
A) $50.
B) $0.
C) undefined.
D) $1.
E) There is not enough information to determine this.
Answer: C
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
User1: Table
User2: Quantitative
36) Refer to Table 7-3. The average total cost when this firm is producing 10 units of output is
A) 60 cents.
B) $1.
C) $6.
D) $10.
E) $60.
Answer: C
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
User1: Table
User2: Quantitative
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37) Refer to Table 7-3. The average variable cost when this firm is producing 10 units of output is
A) $0.10.
B) $0.50.
C) $0.60.
D) $1.00.
E) $6.00.
Answer: D
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
User1: Table
User2: Quantitative
38) Refer to Table 7-3. The average variable cost when this firm is producing 90 units of output is
A) 17 cents.
B) 33 cents.
C) 68 cents.
D) 89 cents.
E) 98 cents.
Answer: B
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
User1: Table
User2: Quantitative
39) Refer to Table 7-3. The average variable cost when producing 132 units of output is approximately
A) 24 cents.
B) 30 cents.
C) 45 cents.
D) 68 cents.
E) 89 cents.
Answer: B
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
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40) Refer to Table 7-3. If this firm is producing 20 units of output per period its marginal cost is
A) $1.00.
B) 50 cents.
C) $1.67.
D) 16.7 cents.
E) $10.00.
Answer: B
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
41) Refer to Table 7-3. If this firm is producing 111 units of output per period, its marginal cost is
A) $1.00.
B) 16.7 cents.
C) 76 cents.
D) 24 cents.
E) 38 cents.
Answer: D
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
42) Refer to Table 7-3. At what level of output does average variable cost reach a minimum?
A) 30
B) 90
C) 132
D) 150
E) AVC declines continuously over the range of output shown.
Answer: C
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
User1: Table
User2: Quantitative
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43) Refer to Table 7-3. At what level of output does average total cost reach a minimum?
A) 30
B) 90
C) 132
D) 150
E) ATC declines continuously over the range of output shown.
Answer: E
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
User1: Table
User2: Quantitative
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The diagram below shows some short-run cost curves for a firm.
FIGURE 7-2
44) Refer to Figure 7-2. Which of the following choices correctly identifies the cost curves in part (i) of the figure?
A) Curve 1 is the total cost curve.
Curve 2 is the total variable cost curve.
Curve 3 is the total fixed cost curve.
B) Curve 1 is the total fixed cost curve.
Curve 2 is the total variable cost curve.
Curve 3 is the total cost curve.
C) Curve 1 is the total variable cost curve.
Curve 2 is the total cost curve.
Curve 3 is the total fixed cost curve.
D) Curve 1 is the total marginal cost curve.
Curve 2 is the total average cost curve.
Curve 3 is the total average fixed cost curve.
E) Curve 1 is the total cost curve.
Curve 2 is the total variable cost curve.
Curve 3 is the average fixed cost curve.
Answer: A
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Copyright © 2017 Pearson Education, Inc.
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Graph
User2: Qualitative
45) Refer to Figure 7-2. Which of the following choices correctly identifies the cost curves in part (ii) of the figure?
A) Curve 4 is the marginal cost curve.
Curve 5 is the average fixed cost curve.
Curve 6 is the average variable cost curve.
Curve 7 is the average total cost curve.
B) Curve 4 is the average total cost curve.
Curve 5 is the marginal cost curve.
Curve 6 is the average variable cost curve.
Curve 7 is the average fixed cost curve.
C) Curve 4 is the average fixed cost curve.
Curve 5 is the average total cost curve.
Curve 6 is the marginal cost curve.
Curve 7 is the average variable cost curve.
D) Curve 4 is the marginal cost curve.
Curve 5 is the average total cost curve.
Curve 6 is the average variable cost curve.
Curve 7 is the average fixed cost curve.
E) Curve 4 is the marginal cost curve.
Curve 5 is the average variable cost curve.
Curve 6 is the average fixed cost curve.
Curve 7 is the average total cost curve.
Answer: D
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Recall
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Graph
User2: Qualitative
380
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The table below provides information on output per month and short-run costs for a firm producing outdoor wooden
lounge chairs. All costs are in dollars.
Q
Total Fixed Cost
5
10
15
20
25
30
200
200
200
200
200
200
Total Variable
Cost
200
220
240
260
350
810
Total Cost
400
420
440
460
550
1010
TABLE 7-5
46) Refer to Table 7-5. What is the average variable cost of producing 10 chairs?
A) $22
B) $42
C) $200
D) $220
E) $420
Answer: A
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
User1: Table
User2: Quantitative
47) Refer to Table 7-5. What is the average variable cost of producing 20 chairs?
A) $22
B) $23
C) $260
D) $460
E) $13
Answer: E
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
User1: Table
User2: Quantitative
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48) Refer to Table 7-5. What is the average total cost of producing 25 chairs?
A) $13
B) $14
C) $22
D) $23
E) $550
Answer: C
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
User1: Table
User2: Quantitative
49) Refer to Table 7-5. What is the average total cost of producing 30 chairs?
A) $13
B) $14
C) $22
D) $23
E) $33.67
Answer: E
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
User1: Table
User2: Quantitative
50) Refer to Table 7-5. Given the information in the table about short-run costs, this firm would minimize the
average variable cost of production when producing
A) 10 chairs.
B) 15 chairs.
C) 20 chairs.
D) 25 chairs.
E) 30 chairs.
Answer: C
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
382
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51) Refer to Table 7-5. Given the information in the table about short-run costs, this firm would minimize the
average total cost of production when producing
A) 10 chairs.
B) 15 chairs.
C) 20 chairs.
D) 25 chairs.
E) 30 chairs.
Answer: D
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
52) Refer to Table 7-5. At what level of output is this firm at its capacity?
A) 10 chairs
B) 15 chairs
C) 20 chairs
D) 25 chairs
E) 30 chairs
Answer: D
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
383
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The table below shows output, marginal cost, and average variable cost for the production of pairs of shoes. All
costs are in dollars.
Output
50
70
90
110
130
150
170
190
210
230
Marginal
Cost
60
45
35
30
35
60
105
180
230
290
Average
Variable Cost
140
115
95
80
65
60
65
75
90
110
TABLE 7-6
53) Refer to Table 7-6. The firm's marginal product of its variable factor is maximized when it produces ________
units of output.
A) 50
B) 90
C) 100
D) 110
E) 170
Answer: D
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
54) Refer to Table 7-6. Suppose there are no fixed costs. The firm reaches it's capacity level of output when its
output is equal to ________ units.
A) 50
B) 110
C) 150
D) 190
E) 210
Answer: C
Diff: 2
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
55) Refer to Table 7-6. If the firm produces 130 pairs of shoes, and the fixed cost is $550, then the firm's total cost is
A) $7000.
B) $8000.
C) $9000.
D) $10 000.
E) $12 000.
Answer: C
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Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
56) Refer to Table 7-6. Suppose this firm is producing 210 pairs of shoes per time period and that the variable factor
of production is labour. Which of the following statements best describes this firm's production?
A) Additional units of labour employed will increase the average variable cost of producing shoes.
B) Marginal cost is higher than average variable cost, so average product must be rising.
C) Marginal cost is higher than average variable cost, so marginal product must be rising.
D) Each additional unit of labour employed reduces the average variable cost of the pairs of shoes.
E) The firm is producing below its capacity.
Answer: A
Diff: 3
Topic: 7.4. short-run costs and cost-curves
Skill: Applied
Learning Obj.: 7-4 Explain the difference between fixed and variable costs, and the relationships among total costs, average
costs, and marginal costs.
User1: Table
User2: Quantitative
Economics - Canadian Edition, 15e (Ragan)
Chapter 8 Producers in the Long Run
8.1 The Long Run: No Fixed Factors
The table below shows the number of units of labour and capital used in 4 alternative production techniques for
producing 1000 widgets per month.
Technique
Labour
Capital
A
25
50
B
35
35
C
50
25
D
30
60
TABLE 8-1
1) Refer to Table 8-1. If the price of labour is $5 and the price of capital is $10, which production technique
minimizes the costs of producing 1000 units of output?
A) A
B) B
C) C
D) D
E) Any of the techniques have the same cost.
Answer: C
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User1: Table
User2: Quantitative
2) Refer to Table 8-1. If the price of labour is $10 and the price of capital is $5, which production technique
minimizes the costs of producing 1000 units of output?
A) A
B) B
C) C
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D) D
E) Any of the techniques have the same cost.
Answer: A
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User1: Table
User2: Quantitative
386
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3) Refer to Table 8-1. If the price of both labour and capital is $10, which production technique minimizes the costs
of producing 1000 units of output?
A) A
B) B
C) C
D) D
E) Any of the techniques have the same cost.
Answer: B
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User1: Table
User2: Quantitative
4) Refer to Table 8-1. Which production technique is obviously technically inefficient?
A) A
B) B
C) C
D) D
E) All four techniques are inefficient.
Answer: D
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User1: Table
User2: Quantitative
5) When there is no other way of producing a given level of output with a smaller total value of inputs, the firm is
operating at
A) minimum cost.
B) maximum output.
C) maximum profit.
D) optimal output.
E) maximum cost.
Answer: A
Diff: 1
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
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6) Which of the following conditions indicate cost minimization, assuming two inputs, labour (L) and capital (K)?
A) PK ∙ MPK = PL ∙ MPL
B) MPL = MPK
C) MPK/PK = MPL/PL
D) MPK/PL = MPL/PK
E) PK = PL
Answer: C
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Recall
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
7) By expressing the cost-minimizing condition as MPK/MPL = PK/PL, we are able to see
A) how the firm determines its profit-maximizing output.
B) how the firm can adjust the marginal products of the factors of production to the prices of the factors given by the
market.
C) that the capital-labour ratio is fixed.
D) that the ratio of factor prices is constant over time.
E) that the firm is producing at a lower cost if the left-hand side of the equation is greater than the right-hand side.
Answer: B
Diff: 1
Topic: 8.1a. profit maximization and cost minimization
Skill: Recall
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
8) For a firm with only two inputs, capital and labour, the condition MPK/MPL = PK/PL guarantees that the firm is
A) at its profit-maximizing output but is not necessarily minimizing its costs.
B) minimizing its costs but is not necessarily maximizing its profits.
C) technically efficient but not economically efficient.
D) economically efficient but not technically efficient.
E) at its profit-maximizing and cost-minimizing level of output.
Answer: B
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
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9) A profit-maximizing firm will increase its use of capital and decrease its use of labour when the
A) marginal product of capital is higher than the marginal product of labour.
B) marginal product of capital, per dollar spent on capital, is greater than the marginal product of labour, per dollar
spent on labour.
C) average product of capital is higher than the average product of labour.
D) total product of capital is higher than the total product of labour.
E) marginal product of capital, per dollar spent on capital, is less than the marginal product of labour, per dollar
spent on labour.
Answer: B
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Recall
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
10) When a firm seeks to minimize costs of producing a given level of output, it does NOT need to know
A) the available alternative methods of production.
B) the level of output that maximizes its profits.
C) the cost of the factors of production it uses.
D) its production function.
E) how its costs change as its production methods change.
Answer: B
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
11) A cost-minimizing firm will increase its use of labour and decrease its use of capital when the
A) marginal product of capital is higher than the marginal product of labour.
B) marginal product of capital, per dollar spent on capital, is greater than the marginal product of labour, per dollar
spent on labour.
C) average product of capital is higher than the average product of labour.
D) total product of capital is higher than the total product of labour.
E) marginal product of capital, per dollar spent on capital, is less than the marginal product of labour, per dollar
spent on labour.
Answer: E
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Recall
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
389
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12) The principle of substitution plays a central role in resource allocation because it demonstrates that
A) firms will find it profitable to make abundant use of relatively scarce factors.
B) methods of producing the same commodity will not differ from one country to another.
C) firms can use all factors of production interchangeably with no impact on their costs.
D) prices will be relatively low for those factors for which demand is high relative to supply.
E) relative factor prices reflect relative scarcities of factors in the economy and so firms will find it profitable to
make abundant use of relatively abundant factors.
Answer: E
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Recall
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
13) Suppose a firm employs two inputs, X and Y, and that at their current levels of use MPX/PX > MPY/PY. To
minimize the cost of production, the firm should hire
A) more input Y and less input X.
B) more input X and less input Y.
C) more input Y only if its price falls.
D) more input X only if its price increases.
E) more input X only if its price decreases.
Answer: B
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
14) When a cost-minimizing firm is faced with an increase in the relative price of labour, it adjusts its factor usage
so as to
A) increase the marginal product of capital relative to the marginal product of labour.
B) increase the marginal product of labour relative to the marginal product of capital.
C) use more labour per unit of output than before.
D) use more of both capital and labour per unit of output.
E) maintain the previous usage of labour.
Answer: B
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
390
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15) Suppose a firm is employing labour (L) and capital (K) such that MPK/MPL = PK/PL. If the price of labour
rises, the cost-minimizing firm should then
A) employ more labour and less capital because MPK/MPL > PK/PL.
B) employ more capital and less labour because MPK/MPL > PK/PL.
C) employ more labour and less capital because MPK/MPL < PK/PL.
D) employ more capital and less labour because MPK/MPL < PK/PL.
E) do nothing.
Answer: B
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
16) Suppose a firm is using 100 units of labour and 50 units of capital to produce 200 completed client tax returns
per day. The price of labour is $10 per unit and the price of capital is $5 per unit. The MPL equals 2 and the MPK
equals 5. In this situation,
A) the firm is minimizing its costs.
B) the firm should increase the use of both inputs.
C) the firm could lower its production costs by decreasing labour input and increasing capital input.
D) the firm could lower its production costs by increasing labour input and decreasing capital input.
E) the firm should decrease the use of both inputs.
Answer: C
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
17) Suppose a firm is using 100 units of labour and 50 units of capital to produce 200 completed client tax returns
per day. The price of labour is $5 per unit and the price of capital is $2 per unit. The MPL equals 5 and the MPK
equals 2. In this situation, the firm
A) is minimizing its costs.
B) should increase the use of both inputs.
C) could lower its production costs by decreasing labour input and increasing capital input.
D) could lower its production costs by increasing labour input and decreasing capital input.
E) should decrease the use of both inputs.
Answer: A
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
391
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18) Consider a firm that uses only labour and capital as inputs. At the present use of labour and capital, the MP of
labour is four times the MP of capital, and the price of labour is twice the price of capital. In order to minimize its
costs, the firm should
A) substitute capital for labour until their marginal products are equal.
B) decrease both capital and labour.
C) decrease capital and increase labour.
D) increase both labour and capital.
E) stay at its present factor mix.
Answer: C
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
19) Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore. The
price of labour is $40 per unit and the price of capital is $1000 per unit. The MPL equals 25 and the MPK equals
750. In this situation,
A) the firm is minimizing its costs.
B) the firm should increase the use of both inputs.
C) the firm could lower its production costs by decreasing labour input and increasing capital input.
D) the firm could lower its production costs by increasing labour input and decreasing capital input.
E) the firm should decrease the use of both inputs.
Answer: C
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
User2: Quantitative
20) Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore. The
price of labour is $20 per unit and the price of capital is $1000 per unit. The MPL equals 25 and the MPK equals
750. In this situation,
A) the firm is minimizing its costs.
B) the firm should increase the use of both inputs.
C) the firm could lower its production costs by decreasing labour input and increasing capital input.
D) the firm could lower its production costs by increasing labour input and decreasing capital input.
E) the firm should decrease the use of both inputs.
Answer: D
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
User2: Quantitative
392
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21) Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore. The
price of labour is $40 per unit and the price of capital is $1000 per unit. The MPL equals 24 and the MPK equals
600. In this situation,
A) the firm is minimizing its costs.
B) the firm should increase the use of both inputs.
C) the firm could lower its production costs by decreasing labour input and increasing capital input.
D) the firm could lower its production costs by increasing labour input and decreasing capital input.
E) the firm should decrease the use of both inputs.
Answer: A
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
User2: Quantitative
22) Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore. The
price of labour is $50 per unit and the price of capital is $800 per unit. The MPL equals 60 and the MPK equals
1200. In this situation,
A) the firm is minimizing its costs.
B) the firm should increase the use of both inputs.
C) the firm could lower its production costs by decreasing labour input and increasing capital input.
D) the firm could lower its production costs by increasing labour input and decreasing capital input.
E) the firm should decrease the use of both inputs.
Answer: C
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
User2: Quantitative
23) Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore. The
price of labour is $50 per unit and the price of capital is $800 per unit. The MPL equals 25 and the MPK equals 400.
In this situation,
A) the firm is minimizing its costs.
B) the firm should increase the use of both inputs.
C) the firm could lower its production costs by decreasing labour input and increasing capital input.
D) the firm could lower its production costs by increasing labour input and decreasing capital input.
E) the firm should decrease the use of both inputs.
Answer: A
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
User2: Quantitative
393
Copyright © 2017 Pearson Education, Inc.
24) Consider a firm that uses only labour and capital. At the present use of labour and capital, the MP of labour is
two times the MP of capital, and the price of labour is two times the price of capital. In order to minimize its costs,
the firm should
A) substitute capital for labour until their marginal products are equal.
B) decrease both capital and labour.
C) decrease capital and increase labour.
D) increase both labour and capital.
E) not alter its present factor mix.
Answer: E
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
25) Consider a firm that uses only labour and capital. At the present use of labour and capital, the MP of labour is
twice the MP of capital, and the price of labour is four times the price of capital. In order to minimize its costs, the
firm should
A) increase capital and decrease labour.
B) decrease both capital and labour.
C) decrease capital and increase labour.
D) increase both labour and capital.
E) maintain its present factor mix.
Answer: A
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
26) Suppose that capital costs $10 per unit and labour costs $5 per unit. For a profit-maximizing firm operating at its
optimal factor mix, if the marginal product of capital is 50, the marginal product of labour must be
A) 10.
B) 20.
C) 25.
D) 50.
E) 100.
Answer: C
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
394
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27) Suppose that capital costs $6 per unit and labour costs $3 per unit. If the marginal product of capital is 3 and the
marginal product of labour is 6, the cost-minimizing firm should
A) employ more of both capital and labour.
B) employ less of both capital and labour.
C) employ more capital and less labour.
D) employ less capital and more labour.
E) not change its current factor use.
Answer: D
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
28) Suppose that capital costs $6 per unit and labour costs $3 per unit. If the marginal product of capital is 12 and
the marginal product of labour is 6, the cost-minimizing firm should
A) employ more of both capital and labour.
B) employ less of both capital and labour.
C) employ more capital and less labour.
D) employ less capital and more labour.
E) not change its current factor use.
Answer: E
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
29) Suppose that capital costs $50 per unit and labour costs $20 per unit. If the marginal product of capital is 100
and the marginal product of labour is 30, a cost-minimizing firm should
A) employ more of both capital and labour.
B) employ less of both capital and labour.
C) employ more capital and less labour.
D) employ less capital and more labour.
E) not change its current factor use.
Answer: C
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
395
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30) Suppose that capital costs $100 per unit and labour costs $40 per unit. If the marginal product of capital is 200
and the marginal product of labour is 60, a cost-minimizing firm should
A) employ more capital and less labour.
B) employ more of both capital and labour.
C) employ less of both capital and labour.
D) employ less capital and more labour.
E) not change its current factor use.
Answer: A
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
31) If a firm is using labour and capital such that the MP of labour is two times the MP of capital, and the price of
labour is four times the price of capital, the firm should ________ in order to minimize its costs of producing its
output.
A) increase capital and decrease labour
B) decrease both capital and labour
C) decrease capital and increase labour
D) increase both labour and capital
E) not alter its present factor mix
Answer: A
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
32) Suppose that capital costs $8 per unit and labour costs $4 per unit. For a profit- maximizing firm operating at its
optimal factor mix, if the marginal product of capital is 60, the marginal product of labour must be
A) 10.
B) 20.
C) 30.
D) 90.
E) 120.
Answer: C
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
396
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33) Suppose capital costs $2000 per unit and labour costs $50 per unit. For a profit- maximizing firm operating at its
optimal factor mix, if the marginal product of labour is 10, the marginal product of capital must be
A) 40.
B) 50.
C) 100.
D) 400.
E) 500.
Answer: D
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
User2: Quantitative
34) Suppose capital costs $280 per unit and labour costs $16 per unit. For a profit- maximizing firm operating at its
optimal factor mix, if the marginal product of capital is 70, the marginal product of labour must be
A) 4.
B) 6.
C) 8.
D) 12.
E) 16.
Answer: A
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
User2: Quantitative
35) Suppose that capital costs $10 per unit and labour costs $4 per unit. If the marginal product of capital is 50 and
the marginal product of labour is 50, the firm should ________ in order to minimize its costs of producing its output.
A) employ more capital and labour
B) employ less capital and labour
C) employ more capital and less labour
D) employ less capital and more labour
E) not change its current factor use
Answer: D
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
397
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36) Suppose a firm employs two kinds of inputs, capital at $100 per unit, and labour at $25 per unit. If the marginal
product of capital is 50, then the firm should ________ in order to minimize its production costs.
A) employ more capital and less labour
B) employ more labour and less capital
C) employ more labour and more capital
D) not change its current factor use
E) There is insufficient information to make a recommendation.
Answer: E
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Quantitative
The following table shows the marginal products of capital (K) and labour (L) for various methods for Firm ABC to
produce 1000 toys per day.
Production
Method
A
B
C
D
E
F
G
MPK
50
45
40
35
30
25
20
MPL
4
8
12
16
20
24
28
TABLE 8-2
37) Refer to Table 8-2. As this firm switches from production method A to production method G, production is
A) moving farther and farther away from cost minimization.
B) becoming more capital intensive and less labour intensive.
C) becoming more profitable.
D) becoming more labour intensive and less capital intensive.
E) remaining at a cost-minimizing level of output.
Answer: B
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User1: Table
User2: Quantitative
398
Copyright © 2017 Pearson Education, Inc.
38) Refer to Table 8-2. If capital costs $6 per unit and labour costs $4 per unit, which production method minimizes
the cost of producing 1000 toys per day?
A) method B
B) method C
C) method D
D) method E
E) method F
Answer: D
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User1: Table
User2: Quantitative
39) Refer to Table 8-2. Suppose capital costs $6 per unit and labour costs $4 per unit and the firm is employing
production method A. How should this firm adjust its use of capital and labour to minimize costs?
A) employ more capital and less labour
B) employ less capital and more labour
C) employ more capital and more labour
D) employ less capital and less labour
E) There is insufficient information to know.
Answer: A
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User1: Table
User2: Quantitative
40) Refer to Table 8-2. Suppose the firm is employing production method G. How should this firm adjust its use of
capital and labour in order to minimize costs?
A) employ more capital and less labour
B) employ less capital and more labour
C) employ more capital and labour
D) employ less capital and labour
E) There is insufficient information to know.
Answer: E
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User1: Table
User2: Quantitative
399
Copyright © 2017 Pearson Education, Inc.
41) Refer to Table 8-2. Suppose capital costs $80 per unit and labour costs $24 per unit. Which production method
minimizes the cost of producing 1000 toys per day.
A) method B
B) method C
C) method D
D) method E
E) method F
Answer: B
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User1: Table
User2: Quantitative
42) Canada has a much lower population density than does Japan. Therefore, the price of land (relative to the price
of labour) is lower in Canada than in Japan. Consider a Canadian firm and a Japanese firm, both producing rice, both
having access to the same technologies, and both striving to minimize their costs. The Canadian firm will use the
two inputs, land and labour, in such a way that its land/labour ratio is
A) equal to that of the Japanese firm.
B) lower than that of the Japanese firm.
C) higher than that of the Japanese firm.
D) equal to one.
E) indeterminate as there is insufficient information to know.
Answer: C
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
43) Canada has a much lower population density than does Japan. Therefore, the price of land (relative to the price
of labour) is lower in Canada than in Japan. Consider a Canadian firm and a Japanese firm, both producing rice, both
having access to the same technologies, and both striving to minimize costs. Now suppose that the relative price of
land rises in Canada but remains the same in Japan. The effect on the use of inputs will be to
A) increase the land/labour ratio for both the Canadian and the Japanese firms.
B) decrease the land/labour ratio for both the Canadian and the Japanese firms.
C) increase the land/labour ratio for the Canadian firm.
D) decrease the land/labour ratio for the Canadian firm.
E) not change the land/labour ratio for either firm.
Answer: D
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
44) Consider a firm in the long run that is trying to maximize its profits. It should
A) select the most technically efficient method of production regardless of the level of production.
B) maximize the marginal product of all factors of production.
C) charge the highest price.
D) minimize the cost of producing whatever level of output it chooses.
E) charge the lowest price possible given the minimum possible cost.
Answer: D
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
400
Copyright © 2017 Pearson Education, Inc.
45) One hundred years ago, in North America and Europe it was commonplace for middle class households to
employ housemaids. As you know, this is quite rare today. Most such households now have dishwashers, washing
machines and dryers. What is an explanation of this change?
A) Over long periods of time, labour is always replaced by capital.
B) Over long periods of time, capital is always replaced by labour.
C) Households substituted away from a factor whose price was falling (labour) and toward a factor whose price was
rising (capital).
D) Households substituted away from an increasingly expensive factor (labour) and toward an increasingly
inexpensive factor (capital).
E) The marginal product of labour was falling over time while the marginal product of capital was rising.
Answer: D
Diff: 2
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
46) In recent years, garbage collection has changed dramatically. Twenty-five years ago a crew of up to 4 or 5
workers and 1 truck collected residential garbage. Now collection is often done by one driver and 1 more fully
automated truck. What is an explanation for this change?
A) Over long periods of time, labour is always replaced by capital.
B) Over long periods of time, capital is always replaced by labour.
C) Firms and municipalities substituted away from an increasingly expensive factor (labour) and toward an
increasingly inexpensive factor (capital).
D) Firms and municipalities substituted away from a factor whose price was falling (labour) and toward a factor
whose price was rising(capital).
E) The marginal product of labour was falling over time while the marginal product of capital was rising.
Answer: C
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
User2: Qualitative
401
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47) In the 1890s nearly 50 percent of the Canadian population worked on a farm. Today, that number is less than 2
percent. One important explanation for this change is
A) the response to a rising price of labour and a falling relative price of capital.
B) the response to a rising price of capital and a falling relative price of labour.
C) that over long periods of time, labour is always replaced by capital.
D) that over long periods of time, capital is always replaced by labour.
E) that the marginal product of labour was falling over time while the marginal product of capital was rising.
Answer: A
Diff: 3
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
User2: Qualitative
48) Which of the following is unlikely to be a source of increasing productivity?
A) better raw materials even if there are no changes in factor quantities or proportions
B) better organization of production
C) substitution toward labour and away from capital (with constant technology)
D) better-trained labour
E) increases in technological know-how
Answer: C
Diff: 1
Topic: 8.1a. profit maximization and cost minimization
Skill: Applied
Learning Obj.: 8-1 Explain why profit maximization requires firms to equate marginal product per dollar spent for all factors.
User2: Qualitative
49) The long-run average cost (LRAC) curve shows
A) the lowest unit cost at which the firm can produce a given output.
B) the highest unit costs of producing a given output.
C) the operation of the law of diminishing returns.
D) what happens to the fixed costs in the long run.
E) the same as the short-run average cost curve.
Answer: A
Diff: 1
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
402
Copyright © 2017 Pearson Education, Inc.
50) A firm's long-run average cost curve
A) shows the minimum cost of producing each possible level of output with a fixed factor.
B) shows the relationship between marginal cost and output given that the economically most efficient method of
production is employed.
C) is the boundary between attainable and unattainable cost levels, with known production technologies and given
factor prices.
D) is horizontal in most situations.
E) is an envelope of short-run average variable cost curves.
Answer: C
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
51) In defining a firm's long-run average cost curve,
A) factor prices are held constant and technology is assumed to change.
B) factor prices are held constant and the quantity of factors of production used is varied.
C) factor prices are varied and the quantity of factors of production is held constant.
D) technology, factor prices, and the quantity of factors of production are all varied.
E) the time period must be longer than one year.
Answer: B
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
52) Increasing returns to scale for a firm is shown graphically by
A) a downward-sloping long-run average cost curve.
B) an upward-sloping long-run average cost curve.
C) a horizontal long-run average cost curve.
D) a vertical long-run average cost curve.
E) None of the above; returns to scale have nothing to do with the shape of the long-run average cost curve.
Answer: A
Diff: 1
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
403
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53) In the long run, a profit-maximizing firm producing a given level of output chooses the production method that
A) produces that output at the lowest possible cost.
B) maximizes the marginal product of all factors.
C) maximizes the marginal product of labour.
D) leads to a flat total cost curve.
E) MINIMIZES LABOUR INPUT.
Answer: A
Diff: 1
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
54) What is meant by the term "increasing returns to scale"?
A) output rises proportionately less than inputs, increasing per unit cost of production in the short run
B) output rises proportionately more than inputs, resulting in increasing per unit costs
C) output rises proportionately more than inputs, resulting in lower per unit costs in the long run
D) it has the same meaning as increasing costs of production
E) it implies that the long-run average cost curve is shifting downward
Answer: C
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
55) In the long run, the law of diminishing marginal returns
A) is not relevant because there are no fixed factors of production.
B) sometimes holds, depending on the production process.
C) does hold, regardless of production process.
D) is exactly the same as in the short run.
E) does not hold because technology is a variable.
Answer: A
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
404
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56) Assume a firm is using 10 units of capital and 10 units of labour to produce 10 widgets per hour. By doubling
both inputs the result is a doubling of output. This firm is experiencing
A) constant returns to scale.
B) economies of scale.
C) diseconomies of scale.
D) increasing costs.
E) decreasing returns.
Answer: A
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Quantitative
57) Assume a firm is using 10 units of capital and 10 units of labour and is producing 10 widgets per hour. Now it
doubles both inputs, resulting in output of 30 widgets per hour. This firm is experiencing
A) decreasing returns to scale.
B) increasing returns to scale.
C) constant returns to scale.
D) diseconomies of scale.
E) increasing costs.
Answer: B
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Quantitative
58) Assume a firm is using 10 units of labour and 10 units of capital and is producing 10 units of output per hour.
Now both inputs are doubled, resulting in output rising to 18 units per hour. The firm is experiencing
A) constant returns to scale.
B) increasing returns to scale.
C) decreasing returns to scale.
D) economies of scale.
E) decreasing costs.
Answer: C
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Quantitative
405
Copyright © 2017 Pearson Education, Inc.
59) Assume a firm is using 6 units of capital and 6 units of labour to produce 6 baskets. Now it doubles both inputs
resulting in a new total of 16 baskets being produced. This firm is experiencing
A) decreasing returns to scale.
B) increasing returns to scale.
C) constant returns to scale.
D) diseconomies of scale.
E) increasing costs.
Answer: B
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Quantitative
60) Suppose a firm experiences decreasing returns to scale. This is shown graphically by
A) a downward-sloping long-run average cost curve.
B) an upward-sloping long-run average cost curve.
C) a downward-sloping long-run marginal-cost curve.
D) a horizontal long-run average cost curve.
E) an increasing marginal product curve.
Answer: B
Diff: 1
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
61) "The bigger the volume, the lower the cost, and we pass these savings on to you" is a familiar advertising
slogan. It implies essentially that the
A) total cost of the firm will remain constant as output expands.
B) firm expects to experience increasing returns over the relevant range of output.
C) average fixed cost will decline or remain constant over the long run.
D) consumer is able to pay less today because the total cost of the firm is expected to decline tomorrow.
E) firm is altruistic.
Answer: B
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
406
Copyright © 2017 Pearson Education, Inc.
FIGURE 8-1
62) Refer to Figure 8-1. Which of the four firms in the figure is displaying decreasing returns to scale at all output
levels?
A) Firm A
B) Firm B
C) Firm C
D) Firm D
E) all firms are displaying increasing returns to scale
Answer: C
Diff: 1
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User1: Graph
User2: Qualitative
407
Copyright © 2017 Pearson Education, Inc.
63) Refer to Figure 8-1. Which of the four firms in the figure is displaying constant returns to scale at all output
levels?
A) Firm A
B) Firm B
C) Firm C
D) Firm D
E) none of the four firms is displaying constant returns to scale
Answer: B
Diff: 1
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User1: Graph
User2: Qualitative
64) Refer to Figure 8-1. For which of the four firms in the figure is output increasing more than in proportion to
inputs for all output levels?
A) Firm A
B) Firm B
C) Firm C
D) Firm D
E) none of the four firms
Answer: A
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User1: Graph
User2: Qualitative
65) Refer to Figure 8-1. For which of the four firms is output increasing less than in proportion to inputs for all
output levels?
A) Firm A
B) Firm B
C) Firm C
D) Firm D
E) none of the four firms
Answer: C
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
User1: Graph
User2: Quantitative
408
Copyright © 2017 Pearson Education, Inc.
66) Refer to Figure 8-1. For which of the four firms would the family of short-run average total cost curves lie
below the LRAC?
A) Firm A
B) Firm B
C) Firm C
D) Firm D
E) none of the four firms
Answer: E
Diff: 3
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User1: Graph
User2: Qualitative
FIGURE 8-2
67) Refer to Figure 8-2. Increasing returns to scale occur over the output range
A) 0 to Q1 only.
B) Q1 to Q2 only.
C) Q2 to Q3 only.
D) 0 to Q3 only.
E) beyond Q3 only.
Answer: D
Diff: 1
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User1: Graph
User2: Qualitative
409
Copyright © 2017 Pearson Education, Inc.
68) Refer to Figure 8-2. Decreasing returns to scale occur over the output range
A) 0 to Q1 only.
B) Q1 to Q2 only.
C) Q2 to Q3 only.
D) 0 to Q3 only.
E) beyond Q3 only.
Answer: E
Diff: 1
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User1: Graph
User2: Qualitative
69) Refer to Figure 8-2. In the long run, the lowest-cost level of output achievable by this firm is
A) Q1.
B) Q2.
C) Q3.
D) not shown in the diagram
Answer: C
Diff: 1
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User1: Graph
User2: Qualitative
70) Consider the long-run average cost curve for a firm. Any point representing a cost and output combination that
is below the LRAC curve
A) may represent actual cost and production levels in the short run.
B) represents less efficient cost levels than points on the long-run average cost curve.
C) is attainable only when all factors are variable.
D) represents unattainable cost levels, given current technologies.
E) is attainable if the firm minimizes its costs according to the "principle of substitution."
Answer: D
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
410
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71) Which of the following paired concepts are equivalent to each other?
A) constant costs; economies of scale
B) increasing returns; decreasing costs
C) increasing returns; increasing costs
D) increasing costs; economies of scale
E) increasing returns; diseconomies of scale
Answer: B
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
72) Which of the following paired concepts are equivalent to each other?
A) constant costs; economies of scale
B) decreasing returns; decreasing costs
C) increasing returns; increasing costs
D) decreasing costs; economies of scale
E) increasing returns; diseconomies of scale
Answer: D
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
73) Of the following, which is the least likely to represent a firm's long-run decision?
A) What should be the size and design of a firm's new plant?
B) Should the firm choose a method of production that uses relatively more capital than labour?
C) By how much should output be expanded from existing plants?
D) Should the firm invest resources in the development of better technologies?
E) What technique (technology) is the best to use under current factor pricing?
Answer: C
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
411
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74) The long-run average cost curve is an envelope curve, with each point associated with a short-run average cost
curve
A) tangent at that point.
B) crossing that point from above.
C) lying below it.
D) intersecting that point.
E) at its minimum point.
Answer: A
Diff: 1
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
75) The point of tangency between the short-run average total cost (SRATC) curve and the long-run average cost
(LRAC) curve occurs
A) at the point of minimum SRATC.
B) at a point where average total cost is falling but the marginal cost is rising.
C) at a point where both the average total cost and the marginal cost are rising.
D) at an output level for which the quantity of the fixed factor is optimal.
E) only when the LRAC curve is at its minimum.
Answer: D
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
76) In the long run, decreasing returns to scale are likely to be caused by
A) diseconomies of scale associated with management problems.
B) a decrease in factor prices.
C) increasing specialization of labour.
D) diminishing returns to the variable factor.
E) decreasing costs.
Answer: A
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
412
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77) Which of the following statements concerning long-run and short-run cost curves is correct?
A) A short-run average cost curve can fall below the long-run average cost curve.
B) The short-run average cost curve is tangent to the long-run average cost curve for all levels of output of the fixed
factor.
C) The long-run average cost curve envelops a whole family of short-run marginal cost curves.
D) The minimum point of the long-run average cost curve will correspond to the minimum point on a single shortrun average cost curve.
E) Both the long-run and short-run average cost curves show the lowest cost of producing any output when all
factors are variable.
Answer: D
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
78) A short-run average total cost curve will touch the long-run average cost curve at a level of output only
A) where the short-run cost curve is downward sloping.
B) where the short-run cost curve is upward sloping.
C) when the quantity of the fixed factor being employed is at the optimal level for that level of output.
D) where the short-run cost curve is downward-sloping and the quantity of the fixed factor is optimal.
E) by coincidence.
Answer: C
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
79) Consider the short-run and long-run cost curves for a firm. If factor prices decrease,
A) the firm will move down along both its long-run and short-run average cost curves.
B) the firm will move down along its long-run average cost curve only.
C) both the long-run and short-run average cost curves will shift downward.
D) there will be a downward shift in the long-run average cost curve but not in the short-run average cost curve.
E) there will be no change in the cost curves in the long run.
Answer: C
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
413
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80) Which of the following cost curves demonstrate increasing returns to scale?
A) a downward-sloping long-run average cost curve
B) an upward-sloping long-run average cost curve
C) a horizontal long-run average cost curve
D) a vertical long-run average cost curve
E) returns to scale have nothing to do with the shape of the long-run average cost curve
Answer: A
Diff: 1
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
81) For many firms the LRAC curve is U-shaped. The downward-sloping portion of the LRAC curve can be
explained by
A) economies of scale.
B) the spreading of overhead.
C) both A and B.
D) declining prices of the fixed factor.
E) decreasing short-run marginal cost.
Answer: A
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
82) Suppose Farmer Smith hires 4 workers and leases 2 tractors and 15 hectares of farmland for one growing season,
and produces 120 000 bushels of crop. The next year he hires 8 workers and leases 4 tractors and 30 hectares of
farmland, and produces 210 000 bushels of crop. This firm (the farmer) is exhibiting ________ returns to scale.
A) decreasing
B) increasing
C) constant
D) marginal
E) variable
Answer: A
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Quantitative
414
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83) Suppose Farmer Smith hires 4 workers and leases 2 tractors and 15 hectares of farmland for one growing season,
and produces 120 000 bushels of crop. The next year he hires 8 workers and leases 4 tractors and 30 hectares of
farmland, and produces 260 000 bushels of crop. This firm (the farmer) is exhibiting ________ returns to scale.
A) decreasing
B) increasing
C) constant
D) marginal
E) variable
Answer: B
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
User2: Quantitative
84) Suppose Farmer Smith hires 4 workers and leases 2 tractors and 15 hectares of farmland for one growing season,
and produces 120 000 bushels of crop. The next year he hires 8 workers and leases 4 tractors and 30 hectares of
farmland, and produces 240 000 bushels of crop. This firm (the farmer) is exhibiting ________ returns to scale.
A) decreasing
B) increasing
C) constant
D) marginal
E) variable
Answer: C
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
User2: Quantitative
85) Suppose a shipping company employs 2000 workers, operates 400 delivery trucks and makes 1.5 million
domestic shipments in one year. The next year they increase their workforce to 3000 workers, operate 600 trucks
and make 2.8 million domestic shipments in one year. This firm is exhibiting ________ returns to scale.
A) decreasing
B) increasing
C) constant
D) marginal
E) variable
Answer: B
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Quantitative
415
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86) A short-run average total cost curve and a long-run average cost curve are tangent
A) where the short-run cost curve is downward sloping.
B) where the short-run cost curve is upward sloping.
C) when the plant size is at the optimal level for that level of output.
D) where the short-run cost curve is downward sloping and the plant size is optimal.
E) by coincidence.
Answer: C
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
87) In the long run, a profit-maximizing firm produces any given level of output by choosing the production method
that
A) maximizes the marginal product of all factors.
B) equates the marginal product of all factors.
C) equates the average cost per unit of all factors.
D) is associated with a flat total cost curve.
E) produces that output at the lowest possible cost.
Answer: E
Diff: 1
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User2: Qualitative
416
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The figure below shows a family of cost curves for a firm. The subscripts 1, 2, and 3 for the SRATC curves refer to
different plant sizes.
FIGURE 8-3
88) Refer to Figure 8-3. What is the difference between the SRATC curves and the LRAC curve?
A) The SRATC curves show the optimal plant size when all factors of production are variable, whereas the LRAC
shows the lowest cost attainable associated with each LRAC curve.
B) The SRATC curves show the lowest attainable cost of production at each level of output when all factors are
variable in the short run, whereas the LRAC curve shows the same in the long run.
C) The LRAC is an envelope curve, joining the minimum points on all SRATC curves.
D) For the SRATC curves, one or more of the factors of production is fixed, whereas for the LRAC curve, all factors
of production are variable.
E) The SRATC curves show diseconomies of scales, whereas the LRAC curve shows economies of scale.
Answer: D
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Recall
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User1: Graph
User2: Qualitative
417
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89) Refer to Figure 8-3. Each of the three SRATC curves shows
A) technically inefficient methods of production, given that they lie above the LRAC.
B) the lowest cost attainable, given that the plant size is the largest it can possibly be.
C) the output that is possible when all factors of production are fixed.
D) the lowest cost attainable, holding the plant size constant.
E) optimal plant sizes in the long run.
Answer: D
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User1: Graph
User2: Qualitative
90) Refer to Figure 8-3. The minimum efficient scale is achieved by this firm at output level
A) Q1.
B) Q2.
C) Q3.
D) Q4.
E) Q5.
Answer: C
Diff: 2
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User1: Graph
User2: Qualitative
91) Refer to Figure 8-3. If this firm is producing at point B, then
A) this firm is producing a level of output that is technically inefficient in the long run.
B) this firm is experiencing decreasing returns to scale.
C) this firm could produce the same level of output at a lower cost with plant size 2.
D) it should employ more of its variable factors of production.
E) plant size 1 is optimal.
Answer: C
Diff: 3
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User1: Graph
User2: Qualitative
418
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92) Refer to Figure 8-3. Should this profit-maximizing firm ever consider moving from point E (output level Q 3 on
SRATC2) to point F (output level Q5 on SRATC3)?
A) No, because they are already producing at their lowest possible cost at point E.
B) Yes, because the firm can take advantage of economies of scale.
C) Yes, because SRATC3 is the optimal plant size for this firm.
D) No, because producing at point F implies a higher cost per unit of output.
E) Yes, if the product price rises enough to lead the firm to expand to plant size 3.
Answer: E
Diff: 3
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User1: Graph
User2: Qualitative
93) Refer to Figure 8-3. Suppose this firm is producing output level Q3 with plant size 2. Now suppose this firm
changes to plant size 3 and is producing output level Q5. We can say that
A) the firm is then operating with the optimal plant size.
B) this firm has experienced economies of scale.
C) output has increased more than in proportion to the increase in inputs.
D) output has increased exactly in proportion to the increase in inputs.
E) output has increased less than in proportion to the increase in inputs.
Answer: E
Diff: 3
Topic: 8.1b. long-run costs and the LRAC curve
Skill: Applied
Learning Obj.: 8-2 Explain why profit‐maximizing firms substitute away from factors whose prices have risen and toward
factors whose prices have fallen.
User1: Graph
User2: Qualitative
419
Copyright © 2017 Pearson Education, Inc.
8.2 The Very Long Run: Changes in Technology
1) Consider the short-run and long-run cost curves for a firm. If there is an improvement in the firm's technology,
A) the firm will move to a lower point on both its long-run and short-run average cost curves.
B) the firm will move to a lower point on its long-run average cost curve only.
C) both the long-run and short-run average cost curves will shift downward.
D) there will be a downward shift in the long-run average cost curve but not in the short-run average cost curve.
E) there will be no change in the cost curves in the long run.
Answer: C
Diff: 2
Topic: 8.2. technological change
Skill: Recall
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
2) Economists collect and analyze data on output per worker and output per hour of work. What are they trying to
measure by doing so?
A) the ratio of marginal products of factors
B) the principle of substitution
C) diminishing marginal returns
D) returns to scale
E) productivity
Answer: E
Diff: 1
Topic: 8.2. technological change
Skill: Recall
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
3) A change in the technique for producing an existing product is known as
A) product innovation.
B) investment.
C) invention.
D) an increase in productivity.
E) process innovation.
Answer: E
Diff: 1
Topic: 8.2. technological change
Skill: Recall
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
420
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4) With respect to innovation, which of the following statements is true?
A) Government policy cannot influence the rate of innovation.
B) Innovation is exogenous to the economic system.
C) The utilization rate of existing plant and equipment and its durability are independent of the pace of innovation.
D) The principal incentive for innovation does not appear to be related to profits.
E) Innovation is often endogenous to the economic system.
Answer: E
Diff: 1
Topic: 8.2. technological change
Skill: Recall
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
5) What is the definition of productivity?
A) output produced per unit of input
B) output produced by a combination of two or more inputs
C) the cost of a unit of output
D) a measure of input used
E) the efficient use of technology
Answer: A
Diff: 2
Topic: 8.2. technological change
Skill: Applied
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
6) Which of the following factors is most important as a source of sustained growth in material living standards?
A) population increase
B) changing relative factor prices
C) decrease in cost of capital
D) technological improvement
E) capital-labour substitution
Answer: D
Diff: 2
Topic: 8.2. technological change
Skill: Recall
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
421
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7) A very-long-run consideration that could change a firm's production function is
A) rising cost of the factors of production.
B) increasing returns to scale of operation.
C) an improvement in education that increases the quality of the economy's labour force.
D) diminishing returns.
E) size of the plant.
Answer: C
Diff: 1
Topic: 8.2. technological change
Skill: Applied
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
8) Although capital is a variable factor in the long run, once chosen it often becomes a fixed factor for a long time. A
profit-maximizing firm must therefore select a method of production that is
A) economically efficient at current factor prices.
B) technologically advanced beyond methods currently used.
C) labour intensive, as labour is always a variable factor.
D) economically efficient at current factor prices and sufficiently flexible to adapt to changing factor prices over
time.
E) adaptable to wide ranges of output over time.
Answer: D
Diff: 2
Topic: 8.2. technological change
Skill: Recall
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
9) The fact that new methods to extract oil are developed as oil prices increase suggests
A) that methods of production do not change in response to factor-price changes.
B) that invention is exogenous.
C) that invention does respond to economic signals and is endogenous.
D) that oil has many close substitutes.
E) nothing; changes in technology occur regardless of market prices.
Answer: C
Diff: 1
Topic: 8.2. technological change
Skill: Applied
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
422
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10) The creation of a new product is called
A) process innovation.
B) a rise in productivity.
C) creative destruction.
D) investment.
E) product innovation.
Answer: E
Diff: 1
Topic: 8.2. technological change
Skill: Recall
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
11) Suppose RioTintoAlcan is considering the construction of a new aluminum smelter in Northern Quebec, the
operation of which requires a great deal of electricity. Suppose also that the price of electricity is predicted to rise
significantly in the near future. As a result, the firm decides to build a plant using existing technology that is more
expensive but uses less electricity per tonne of aluminum produced. This behaviour is an example of
A) short-run profit maximization.
B) short-run cost minimization.
C) the long-run principle of substitution.
D) innovation away from changes in factor prices.
E) long-run economies of scale.
Answer: C
Diff: 3
Topic: 8.2. technological change
Skill: Applied
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
12) Suppose RioTintoAlcan is considering the construction of a new aluminum smelter in Northern Quebec, the
operation of which requires a great deal of electricity. Suppose also that the price of electricity is predicted to rise
significantly in the near future. As a result, the firm decides to embark on new research and development which
leads to the development of a new production technique that uses less electricity per tonne of aluminum produced.
This is an example of
A) the marginal rate of substitution between factors.
B) innovation away from increases in factor prices.
C) short-run cost minimization.
D) short-run profit maximization.
E) long-run economies of scale.
Answer: B
Diff: 3
Topic: 8.2. technological change
Skill: Applied
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
423
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13) Suppose Commercial Footwear Inc. is making a cost-minimizing decision about the level of output to produce
with a given technology. Which of the following is a long-run decision?
A) Should we build a larger shoe manufacturing facility?
B) Should we hire additional labour to work in the existing facility?
C) Should we change to a lower-cost leather supplier?
D) Should we invest in research for a new, improved technology for shoe production?
E) Should we hire more accountants to investigate ways to reduce our corporate tax payments?
Answer: A
Diff: 3
Topic: 8.2. technological change
Skill: Applied
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
14) Which of the following statements most accurately makes the distinction between the long run and the very-long
run with respect to the long-run average cost (LRAC) curve?
A) In the long run, the LRAC curve is shifting down, whereas in the very-long run the firm is moving along the
existing LRAC curve.
B) In the long run, the firm is moving along the existing LRAC curve, whereas in the very-long run, the LRAC
curve is shifting down.
C) In the long run, the LRAC curve is shifting up, whereas in the very-long run the firm is moving along the existing
LRAC curve.
D) In the long run, the firm is moving along the existing LRAC curve, whereas in the very-long run, the LRAC
curve is shifting up.
E) There is no distinction between the long run and the very-long run with respect to the LRAC curve.
Answer: B
Diff: 3
Topic: 8.2. technological change
Skill: Recall
Learning Obj.: 8-4 Discuss the importance of technological change and why firms are motivated to innovate.
User2: Qualitative
424
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8A-1 Isoquants
1) What information is displayed by an isoquant?
A) the whole set of technically efficient factor combinations that can produce varying levels of output
B) various levels of output that can be produced with different factor combinations
C) various levels of output that can be produced with a fixed factor combination
D) the whole set of technically efficient factor combinations that can produce a single level of output
E) the alternative factor combinations that require the same expenditure
Answer: D
Diff: 2
Topic: 8-appendix.1. isoquant analysis
Skill: Recall
Learning Obj.: 8-8A-1 Isoquants
User2: Qualitative
2) The slope of an isoquant measures
A) the marginal rate of (technical) substitution between factors.
B) the average capital/labour ratio.
C) the marginal cost of a given level of output.
D) the ratio of prices of inputs.
E) the ratio of prices of goods.
Answer: A
Diff: 1
Topic: 8-appendix.1. isoquant analysis
Skill: Recall
Learning Obj.: 8-8A-1 Isoquants
User2: Qualitative
3) Movement from one point to another along an isoquant implies a change in
A) output levels, holding factor combinations constant.
B) factor combinations, holding output constant.
C) product prices.
D) the level of output, independent of what happens to factor combinations.
E) money income.
Answer: B
Diff: 1
Topic: 8-appendix.1. isoquant analysis
Skill: Recall
Learning Obj.: 8-8A-1 Isoquants
User2: Qualitative
425
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4) The fact that isoquants are downward sloping indicates
A) the diminishing marginal productivity of a variable factor.
B) the diminishing marginal productivity of a fixed factor.
C) that each factor input has a negative marginal productivity.
D) a change in relative factor prices, with output held constant.
E) that a reduction in the use of one factor requires an increase in the use of the other factor in order to keep output
constant.
Answer: E
Diff: 1
Topic: 8-appendix.1. isoquant analysis
Skill: Recall
Learning Obj.: 8-8A-1 Isoquants
User2: Qualitative
5) Isoquants are usually drawn convex when viewed from the origin, reflecting the standard assumption
A) that both factors are subject to the law of diminishing returns.
B) that the variable factor is subject to the law of diminishing returns.
C) the positive marginal productivity of all factors.
D) negative marginal productivity of all factors.
E) that both factors are subject to increasing returns.
Answer: A
Diff: 2
Topic: 8-appendix.1. isoquant analysis
Skill: Recall
Learning Obj.: 8-8A-1 Isoquants
User2: Qualitative
6) Suppose a firm moves from one isoquant to an isoquant further from the origin on an isoquant map. This
movement indicates that
A) factor prices for all inputs have increased.
B) the price of capital has decreased.
C) the firm has increased its plant size.
D) the firm has hired more labour.
E) the firm has increased its level of output.
Answer: E
Diff: 2
Topic: 8-appendix.1. isoquant analysis
Skill: Applied
User2: Qualitative
426
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8A-2 Cost Minimization
1) The slope of a firm's isocost line is equal to the ratio of
A) the marginal products of its factors.
B) the marginal rate of substitution between factors.
C) the factor prices.
D) total variable cost to total cost.
E) product prices.
Answer: C
Diff: 1
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Recall
Learning Obj.: 8-8A-2 Cost minimization
User2: Qualitative
2) A firm's least-cost position for producing a given output level occurs at that point where
A) the isocost line intersects the highest isoquant.
B) the isocost and isoquant intersect the horizontal axis.
C) the isoquant is closest to the origin.
D) the isocost line and the isoquant are tangent to each other.
E) the isocost and isoquant intersect the vertical axis.
Answer: D
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Recall
Learning Obj.: 8-8A-2 Cost minimization
User2: Qualitative
3) Movement from one point to another along an isocost line implies a change in
A) output levels, holding factor combinations constant.
B) factor combinations, holding expenditure constant.
C) factor prices.
D) the level of output, independent of what happens to factor combinations.
E) expenditure.
Answer: B
Diff: 1
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User2: Qualitative
427
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4) An individual isocost line is a downward sloping straight line. The negative slope reflects
A) decreasing factor prices.
B) increasing factor prices.
C) that each factor price has a negative value.
D) a change in relative factor prices.
E) constant factor prices.
Answer: E
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User2: Qualitative
5) A firm operates at its least-cost position for a given level of output by equating
A) the marginal product of each factor.
B) the marginal product per dollar spent for each factor.
C) the price of each input.
D) the total expenditure on each input.
E) the average product for each factor.
Answer: B
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Recall
Learning Obj.: 8-8A-2 Cost minimization
User2: Qualitative
428
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FIGURE 8-4
6) Refer to Figure 8-4. A firm that is producing an output of 1000 units will minimize its costs at point
A) A.
B) B.
C) C.
D) D.
E) halfway between B and D.
Answer: B
Diff: 1
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
7) Refer to Figure 8-4. A firm that is producing an output of 2000 units will minimize its costs at point
A) A.
B) B.
C) C.
D) D.
E) There is not enough information provided to be sure.
Answer: E
Diff: 3
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
429
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8) Refer to Figure 8-4. The firm is initially minimizing the cost of producing 1000 units of output. Suppose the
factor prices then change such that the price of capital (K) rises and the price of labour (L) falls. If the firm decides
to keep its output unchanged, it will move toward the point
A) A.
B) B.
C) C.
D) D.
E) Unknown as there is insufficient information to know
Answer: C
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
9) Refer to Figure 8-4. The firm is initially minimizing the cost of producing 1000 units of output. Suppose the
factor prices then change such that the price of capital (K) falls and the price of labour (L) rises. If the firm decides
to leave its output unchanged, it will now move toward the point
A) A.
B) B.
C) C.
D) D.
E) Unknown as there is insufficient information to know
Answer: A
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
10) Refer to Figure 8-4, with the isoquants and isocost line as shown. A firm that is producing at point A can reduce
its costs for producing 1000 units by employing
A) less capital and less labour.
B) more capital and less labour.
C) less capital and more labour.
D) more capital and more labour.
E) less capital and the same labour.
Answer: C
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
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11) Refer to Figure 8-4, with the isoquants and isocost line as shown. A firm that is producing at point C can reduce
its costs for producing 1000 units by employing
A) less capital and less labour.
B) more capital and less labour.
C) less capital and more labour.
D) more capital and more labour.
E) less labour and the same capital.
Answer: B
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
12) Refer to Figure 8-4. The firm is initially producing 1000 units and minimizing its production cost at point B.
Suppose the prices of capital and labour each fall by 20%. If the firm wishes to continue producing the same level of
output it will
A) move toward point A.
B) remain at point B.
C) move toward point C.
D) move toward point D.
E) move to the left of point B.
Answer: B
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
13) Refer to Figure 8-4. The firm is initially producing 2000 units and minimizing its production cost at point D.
Suppose the prices of capital and labour each rise by 10%. If the firm wishes to continue producing the same level of
output it will
A) move toward point A.
B) move toward point B.
C) move toward point C.
D) remain at point D.
E) move to the right of point D.
Answer: D
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
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14) Refer to Figure 8-4. The firm is initially operating at point B. If prices of both factors fell by 25% and the firm
wished to continue expending the same amount on each resource (while continuing to maintain efficiency) the firm
would
A) move towards point D.
B) move toward point A.
C) shift towards the origin.
D) move toward point C.
E) stay at point B.
Answer: A
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
15) Refer to Figure 8-4. The firm is initially operating at point B. An improvement in technology would be
represented by
A) a shift to the curve indicated by Q = 2000.
B) a movement toward point D.
C) a movement toward the origin.
D) a new isoquant map.
E) a new isocost curve.
Answer: D
Diff: 3
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
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The figure below shows the isocost lines facing a firm producing golf tees.
FIGURE 8-5
16) Refer to Figure 8-5. This firm can be a "cost minimizer" by producing on isocost line
A) 1 only.
B) 2 only.
C) 3 only.
D) 4 only.
E) Not able to determine from the information provided.
Answer: E
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
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17) Refer to Figure 8-5. Given the information provided about the isocost lines, we know that the per unit price of
capital is ________ and the per unit price of labour is ________.
A) $20; $50
B) $50; $20
C) $2; $5
D) $5; $2
E) not determinable; not determinable
Answer: D
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Quantitative
18) Refer to Figure 8-5. If the cost-minimizing firm is initially producing at a point on isocost line 1 and then moves
to a point on isocost line 3, we can say that
A) the per unit prices of capital and labour have each doubled.
B) the output of golf tees has doubled.
C) the per unit prices of capital and labour have fallen by 50%.
D) the firm's level of output has increased.
E) the firm is producing more efficiently.
Answer: D
Diff: 3
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
19) Refer to Figure 8-5. The firm that is facing the isocost lines as shown will minimize its cost of production of
any given output level if it employs capital and labour such that the ratio of the marginal product of labour to the
marginal product of capital (MPL/MPK) is equal to
A) 5/2.
B) 5.
C) 2.
D) 2/5.
E) Not able to determine from the information provided.
Answer: D
Diff: 3
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Quantitative
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The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.
FIGURE 8-6
20) Refer to Figure 8-6. This firm will minimize its costs of producing 2000 golf tees at point
A) A.
B) B.
C) C.
D) D.
E) E.
Answer: C
Diff: 1
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Quantitative
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21) Refer to Figure 8-6. Suppose this firm is producing 4000 golf tees with 10 units of capital and 25 units of labour
(point G). The marginal rate of substitution between capital and labour is
A) 2.5.
B) 0.4.
C) 100.
D) 40.
E) 0.025.
Answer: B
Diff: 3
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Quantitative
22) Refer to Figure 8-6. At each of points A, C, E and G on the isoquant map we know that
A) the firm is at its cost-minimizing position for an output level of 4000 golf tees.
B) the firm can adjust its employment of factors to reduce its total cost, with output unchanged.
C) the firm has adjusted the factor prices to equate the ratio of marginal products of the factors.
D) the ratio of the marginal utilities of capital and labour is equal to the ratio of the prices of capital and labour.
E) the ratio of the marginal products of capital and labour is equal to the ratio of the prices of capital and labour.
Answer: E
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
23) Refer to Figure 8-6. The cost-minimizing factor combination for producing 2000 golf tees is
A) 10 units of capital and 25 units of labour.
B) 12 units of capital and 30 units of labour.
C) 6 units of capital and 15 units of labour.
D) 8 units of capital and 20 units of labour.
E) 4 units of capital and 10 units of labour.
Answer: C
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Quantitative
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24) Refer to Figure 8-6. Suppose this firm is producing 3000 golf tees and is at point F on the isoquant map. Which
of the following is true?
A) MPK/MPL is equal to PK/PL .
B) MPK/MPL is greater than 5/2.
C) MPL/MPK is greater than 5/2.
D) MPK/MPL is equal to 2/5.
E) MPK/MPL is equal to 5/2.
Answer: B
Diff: 3
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Quantitative
25) Refer to Figure 8-6. Suppose this firm is producing 3000 golf tees and is at point F on the isoquant map. In
order to maintain its output and minimize costs this firm should
A) not change its use of factors.
B) move to an isoquant closer to the origin.
C) move to an isocost line further from the origin.
D) employ more labour and less capital.
E) employ more capital and less labour.
Answer: E
Diff: 2
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Qualitative
26) Refer to Figure 8-6. Suppose there is a change in relative factor prices and the cost-minimizing method of
producing 2000 golf tees is now at point D. If the total cost of producing 2000 golf tees is still $60, it must be the
case that
A) the price of labour fell and the price of capital remained constant.
B) the price of labour and capital both fell.
C) the price of labour rose and the price of capital fell.
D) the price of labour fell and the price of capital rose.
E) the price of labour and capital both rose.
Answer: D
Diff: 3
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Quantitative
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27) Refer to Figure 8-6. Suppose the firm is currently producing at point E and the prices of capital and labour each
increase by 30%. If the firm wants to minimize the cost of producing the same level of output, the firm's chosen
factor combination would be at point
A) A.
B) C.
C) E.
D) G.
E) not determinable from the information provided.
Answer: C
Diff: 3
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Quantitative
28) Refer to Figure 8-6. As this firm is increasing its production of golf tees, it is experiencing ________ returns to
scale.
A) constant
B) decreasing
C) increasing
D) diminishing
E) Not determinable from the information provided.
Answer: C
Diff: 3
Topic: 8-appendix.2. isoquant analysis and cost minimization
Skill: Applied
Learning Obj.: 8-8A-2 Cost minimization
User1: Graph
User2: Quantitative
Economics - Canadian Edition, 15e (Ragan)
Chapter 9 Competitive Markets
9.1 Market Structure and Firm Behaviour
1) Which of the following is NOT a determinant of market structure?
A) The number of sellers.
B) The nature of the product.
C) The ease of entering the industry.
D) The capital-labour ratio of the firm.
E) The market share of the sellers.
Answer: D
Diff: 1
Topic: 9.1. competitive market structure
Skill: Recall
Learning Obj.: 9-1 Explain the difference between competitive behaviour and a competitive market.
User2: Qualitative
2) The term "perfect competition" refers to
A) rivalrous behaviour.
B) ideal economic behaviour.
C) a type of market structure.
D) the most prevalent market structure in a capitalist economy.
E) the most realistic market structure.
Answer: C
Diff: 1
Topic: 9.1. competitive market structure
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Skill: Recall
Learning Obj.: 9-1 Explain the difference between competitive behaviour and a competitive market.
User2: Qualitative
3) In economics, perfect competition refers to a market structure where
A) firms behave strategically.
B) all firms are earning profits.
C) firms co-operate with each other.
D) each firm has zero market power.
E) firms can set the price of their product.
Answer: D
Diff: 1
Topic: 9.1. competitive market structure
Skill: Recall
Learning Obj.: 9-1 Explain the difference between competitive behaviour and a competitive market.
User2: Qualitative
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4) A firm is said to have "market power" only when
A) it has the ability to influence the price of its product.
B) it has the ability to choose its own profit-maximizing level of output.
C) its demand curve is the market demand curve.
D) it is one of 10 or fewer firms in the industry.
E) it is one of 25 or fewer firms in the industry.
Answer: A
Diff: 1
Topic: 9.1. competitive market structure
Skill: Recall
Learning Obj.: 9-1 Explain the difference between competitive behaviour and a competitive market.
User2: Qualitative
9.2 The Theory of Perfect Competition
1) The theory of perfect competition is built on several assumptions, including that
A) the individual firm can affect the price of the product it sells.
B) the individual firm can influence demand by advertising.
C) each firm must earn economic profits to remain in the industry.
D) any firm can easily enter or leave the industry.
E) there are few producers of an identical product.
Answer: D
Diff: 1
Topic: 9.2a. assumptions of perfect competition
Skill: Recall
Learning Obj.: 9-2 List the four key assumptions of the theory of perfect competition.
User2: Qualitative
2) An example of a product that could most closely satisfy the homogeneous product assumption of perfect
competition is
A) barley.
B) cars.
C) shampoo.
D) personal computers.
E) pizza.
Answer: A
Diff: 1
Topic: 9.2a. assumptions of perfect competition
Skill: Applied
Learning Obj.: 9-2 List the four key assumptions of the theory of perfect competition.
User2: Qualitative
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3) Which of the following statements does NOT apply to a perfectly competitive market?
A) There is freedom of entry and exit of firms in the industry.
B) Consumers can shop for the lowest available price.
C) Consumers prefer certain brands over others.
D) All firms have realized the possible economies of scale.
E) All firms in the industry are price takers.
Answer: C
Diff: 1
Topic: 9.2a. assumptions of perfect competition
Skill: Applied
Learning Obj.: 9-2 List the four key assumptions of the theory of perfect competition.
User2: Qualitative
4) If a firm in a perfectly competitive market were to raise its price, its
A) revenue would decrease only if market demand were elastic.
B) revenue would increase only if market demand were inelastic.
C) total costs would increase.
D) revenue would fall dramatically.
E) profits would increase as long as costs remained constant.
Answer: D
Diff: 2
Topic: 9.2a. assumptions of perfect competition
Skill: Applied
Learning Obj.: 9-2 List the four key assumptions of the theory of perfect competition.
User2: Qualitative
5) Given the usual assumptions about perfect competition, a perfectly competitive firm
A) can set the price it charges.
B) can sell as much of its product as it wishes at the market price.
C) can affect the market conditions in a significant way.
D) is aware of its competitors' costs.
E) competes actively with other sellers in the industry.
Answer: B
Diff: 1
Topic: 9.2a. assumptions of perfect competition
Skill: Recall
Learning Obj.: 9-2 List the four key assumptions of the theory of perfect competition.
User2: Qualitative
6) A firm in a perfectly competitive market
A) has no power to influence the market price.
B) is limited in the amount of product it can sell without affecting the price.
C) is dependant upon the behaviour of its competitors.
D) is aware of its competitors' costs.
E) competes actively with other sellers in the industry.
Answer: A
Diff: 1
Topic: 9.2a. assumptions of perfect competition
Skill: Recall
Learning Obj.: 9-2 List the four key assumptions of the theory of perfect competition.
User2: Qualitative
7) The conditions for a perfectly competitive market include which one of the following?
A) Firms behave as price takers.
B) Profits are zero in the short run.
C) New entrants cannot threaten the position of existing firms.
D) Firms can control prices.
E) Firms must employ the newest technologies as soon as they are developed.
Answer: A
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Diff: 1
Topic: 9.2a. assumptions of perfect competition
Skill: Recall
Learning Obj.: 9-2 List the four key assumptions of the theory of perfect competition.
User2: Qualitative
8) In order to decide the appropriate output to produce, the manager of a perfectly competitive firm needs to know
A) the industry or market demand.
B) the industry or market supply.
C) what other firms in the industry are producing.
D) the prevailing market price for the firm's output.
E) its competitors' market strategies.
Answer: D
Diff: 1
Topic: 9.2a. assumptions of perfect competition
Skill: Applied
Learning Obj.: 9-2 List the four key assumptions of the theory of perfect competition.
User2: Qualitative
9) When economists say that a firm is a "price taker" they mean that
A) the firm initially takes price as given and tries to influence it through advertising.
B) the firm can alter its rate of production and sales without affecting the market price of the product.
C) at the price prevailing in the market, the firm will be willing to sell an infinite quantity.
D) the demand curve that the firm faces is perfectly inelastic.
E) the firm can alter the market price as it changes its rate of production.
Answer: B
Diff: 1
Topic: 9.2a. assumptions of perfect competition
Skill: Recall
Learning Obj.: 9-2 List the four key assumptions of the theory of perfect competition.
User2: Qualitative
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10) Which of the following producers operate in a market structure closely approximated by perfect competition?
A) a restaurant in your neighbourhood
B) Air Canada
C) a Safeway grocery store
D) A British Columbia peach grower.
E) the Bank of Montreal
Answer: D
Diff: 1
Topic: 9.2a. assumptions of perfect competition
Skill: Applied
Learning Obj.: 9-2 List the four key assumptions of the theory of perfect competition.
User2: Qualitative
11) Which of the following statements is one of the assumptions of the theory of perfect competition?
A) Firms compete with each other by varying their price.
B) Firms are price setters.
C) Consumers know the prices charged by each firm.
D) Firms produce a wide variety of versions of the product.
E) A firm's entry to the market is regulated by the federal Competition Bureau.
Answer: C
Diff: 1
Topic: 9.2a. assumptions of perfect competition
Skill: Recall
Learning Obj.: 9-2 List the four key assumptions of the theory of perfect competition.
User2: Qualitative
12) Suppose XYZ Corp. is a profit-maximizing firm that is producing and selling 1 billion disposable wooden
chopsticks per month at a price of $0.04 per unit. Further, suppose market demand for this product is 1.5 billion
units per month. What can we conclude about market structure in this case?
A) This is not a perfectly competitive market because XYZ Corp. is small relative to the size of the industry.
B) This is not a perfectly competitive market because XYZ Corp. is selling its product at a price that is not equal to
marginal cost.
C) This is a perfectly competitive market because there is freedom of entry and exit in the industry.
D) This is a perfectly competitive market because the product is homogeneous.
E) This is not a perfectly competitive market because XYZ Corp. is large relative to the size of the industry.
Answer: E
Diff: 2
Topic: 9.2a. assumptions of perfect competition
Skill: Applied
Learning Obj.: 9-2 List the four key assumptions of the theory of perfect competition.
User2: Quantitative
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13) Why will a perfectly competitive firm not sell its product below the prevailing market price?
A) It faces inelastic demand.
B) It can sell all it wishes at the market price.
C) The sellers in the market have agreed to not sell below a specified price.
D) Its costs would increase dramatically.
E) This would lead to a price war among sellers.
Answer: B
Diff: 1
Topic: 9.2b. demand curve for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
14) The price elasticity of demand faced by an individual wheat farmer would come closest to which following
value?
A) 0.00007
B) 0.7
C) 1.0
D) 71.0
E) 71 000
Answer: E
Diff: 2
Topic: 9.2b. demand curve for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
15) Which of the following terms would best describe the price elasticity of demand facing a perfectly competitive
firm?
A) perfectly inelastic
B) inelastic
C) unit
D) elastic
E) perfectly elastic
Answer: E
Diff: 1
Topic: 9.2b. demand curve for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
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16) The demand curve facing a perfectly competitive firm
A) is the same as the industry or market demand curve.
B) is almost perfectly elastic at the market price.
C) depends on the firm's technology.
D) depends on the firm's costs of production.
E) depends on the firm's output.
Answer: B
Diff: 1
Topic: 9.2b. demand curve for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
17) If the demand curve faced by a firm is downward sloping, we can reasonably believe that the
A) firm can influence the price of the product it sells.
B) firm will have no effect on the price of the product it sells.
C) firm must lower prices if it hopes to increase its profits.
D) firm's contributions to total output of the product is insignificant.
E) firm has no control over the price of the product it sells but can vary the output.
Answer: A
Diff: 2
Topic: 9.2b. demand curve for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
18) The market demand curve for a perfectly competitive industry is typically
A) identical to the competitive firm's demand curve.
B) downward sloping.
C) upward sloping.
D) infinitely elastic.
E) a rectangular hyperbola.
Answer: B
Diff: 2
Topic: 9.2b. demand curve for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
19) Under perfect competition, the demand curve facing an individual firm is
A) the same as the industry's demand curve.
B) downward sloping.
C) upward sloping.
D) infinitely price elastic.
E) a rectangular hyperbola.
Answer: D
Diff: 1
Topic: 9.2b. demand curve for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
20) The perfectly elastic demand curve faced by a competitive firm means that
A) it could actually sell an infinite amount of output at the going price.
B) the firm could increase total revenue by increasing the price.
C) as the firm expands output its marginal revenue will fall.
D) total revenue is constant regardless of quantity produced.
E) the product's price will be unaffected by any realistic change in the firm's level of output.
Answer: E
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Diff: 1
Topic: 9.2b. demand curve for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
21) The demand curve facing a perfectly competitive firm depends on
A) market demand alone.
B) market demand and the firm's supply curve.
C) market demand and the market supply curve.
D) market supply alone.
E) the marginal cost of the firm.
Answer: C
Diff: 2
Topic: 9.2b. demand curve for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
22) When economists say that a perfectly competitive firm is a "quantity adjuster," they mean that
A) it adjusts its output in response to changes in prices.
B) it can vary its output by an infinite amount.
C) it is not concerned with cost factors.
D) its marginal-cost curve coincides with its own demand curve.
E) changing the output level does not affect the costs of production.
Answer: A
Diff: 1
Topic: 9.2b. demand curve for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
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23) When a firm is referred to as a "price taker,"
A) the firm initially takes price as given and tries to influence it through advertising.
B) the firm can alter its rate of production and sales without affecting the market price of the product.
C) the firm will be willing to sell an infinite quantity at the market price.
D) the demand curve that the firm faces is perfectly inelastic.
E) the firm can alter the market price as it changes its rate of production.
Answer: B
Diff: 1
Topic: 9.2b. demand curve for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
24) Total revenue (TR) for an individual firm in a perfectly competitive market equals
A) p × q.
B) (p × q)/q.
C) △p × △q.
D) △q/△p.
E) △(p × q)/△q.
Answer: A
Diff: 1
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
25) Average revenue (AR) for an individual firm in a perfectly competitive market equals
A) p × q.
B) (p × q)/q.
C) △p × △q.
D) △q/△p.
E) (p × q)/△q.
Answer: B
Diff: 1
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
26) Average revenue (AR) for an individual firm in a perfectly competitive market equals
A) p × q.
B) p.
C) △p × △q.
D) △q/△p.
E) (p × q)/△q.
Answer: B
Diff: 1
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
User2: Qualitative
27) Average revenue (AR) for an individual firm in a perfectly competitive market equals
A) MR/TR.
B) MR/q.
C) MR × q.
D) MR.
E) TR/MR.
Answer: D
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Diff: 1
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
User2: Qualitative
28) For any firm operating in any market structure, marginal revenue is defined as
A) total revenue divided by the number of units sold.
B) the change in total revenue resulting from the sale of an additional unit of the product.
C) the total amount received by the seller from the sale of a product.
D) the change in price resulting from the sale of an additional unit of the product.
E) price times quantity of the product sold.
Answer: B
Diff: 2
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
29) Any firm's average revenue is defined as
A) total revenue divided by the number of units sold.
B) the change in total revenue resulting from the sale of an additional unit of the product.
C) the total amount received by the seller from the sale of a product.
D) the change in price resulting from the sale of an additional unit of the product.
E) price times quantity of the product sold.
Answer: A
Diff: 1
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
30) A perfectly competitive firm's total revenue is equal to which of the following?
A) average revenue multiplied by price.
B) price times quantity of the product sold, divided by quantity of the product sold.
C) the revenue received on the last unit sold.
D) marginal revenue times quantity of the product sold.
E) price multiplied by marginal revenue.
Answer: D
Diff: 2
Topic: 9.2c. total, average, and marginal revenue
Skill: Applied
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
31) A perfectly competitive firm's demand curve coincides with
A) its average-revenue curve and total-revenue curve.
B) its total-revenue curve.
C) both its marginal and average-revenue curves.
D) both its marginal and total-revenue curves.
E) the market demand curve.
Answer: C
Diff: 1
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
32) A perfectly competitive firm's demand curve
A) has unit elasticity.
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B) is identical to the market demand curve.
C) yields constant total revenues.
D) is a horizontal line where P = AR = MR.
E) is downward sloping.
Answer: D
Diff: 1
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
33) For any firm operating in any market structure, marginal revenue (MR) equals
A) p × q.
B) (p × q)/q.
C) △p × △q.
D) △q/△p.
E) △(p × q)/△q.
Answer: E
Diff: 2
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
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34) Firms have several different concepts of revenue: total revenue, average revenue, marginal revenue, and price.
For a profit-maximizing perfectly competitive firm, which statement below is true?
A) Total revenue, average revenue, marginal revenue, and price are all equal.
B) Average revenue, marginal revenue, and price are equal.
C) Only marginal revenue and price are equal.
D) Only average revenue and price are equal.
E) None of these revenues are equal.
Answer: B
Diff: 1
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
35) In the short run, the profit-maximizing behaviour for a price-taking firm requires it to operate where
A) P = MC, given that P is greater than or equal to ATC.
B) P = TR = TC.
C) P > MR > MC.
D) AVC = AR.
E) P = MC, given that P is greater than or equal to AVC.
Answer: E
Diff: 2
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
36) For a given market price, a perfectly competitive firm's total-revenue curve
A) is a positively sloped straight line, starting from the origin.
B) increases to the right and then declines when MC = MR.
C) is a straight line that coincides with the market demand curve.
D) is the same as the firm's demand curve.
E) is the same as the firm's MR curve.
Answer: A
Diff: 1
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
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37) For a given market price, a perfectly competitive firm's average-revenue curve
A) is a positively sloped straight line, starting from the origin.
B) increases to the right and then declines when MC = MR.
C) is a straight line that coincides with the market demand curve.
D) is the same as the firm's demand curve.
E) is the same as the firm's TR curve.
Answer: D
Diff: 1
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
38) For a given market price, a perfectly competitive firm's marginal-revenue curve
A) is a positively sloped straight line, starting from the origin.
B) increases to the right and then declines when MC = MR.
C) is a straight line that coincides with the market demand curve.
D) is the same as the firm's demand curve.
E) is the same as the firm's TR curve.
Answer: D
Diff: 1
Topic: 9.2c. total, average, and marginal revenue
Skill: Recall
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Qualitative
39) Farmer Anna is producing tomatoes in a perfectly competitive market. In Year 1 she sells 4000 bushels of
tomatoes at a price of $12.00 each. In Year 2 she sells 4800 bushels at $13.00 each. In Year 2, her average revenue
is ________ and her marginal revenue is ________.
A) $13.00; $1.00
B) $12.50; $12.50
C) $13.00; $13.00
D) $12.00; $12.00
E) $12.00; $1.00
Answer: C
Diff: 2
Topic: 9.2c. total, average, and marginal revenue
Skill: Applied
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Quantitative
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40) Suppose XYZ Corp. is producing and selling disposable wooden chopsticks in a perfectly competitive market.
The market price is $0.04 per unit and the firm is currently producing 1 million units per month. The firm's total
revenue is ________ per month. The firm's marginal revenue is ________.
A) $25 000; $0.04
B) $40 000; $0.04
C) $15 000; $0.015
D) $40 000; $0.015
E) $40 000; $0.025
Answer: B
Diff: 2
Topic: 9.2c. total, average, and marginal revenue
Skill: Applied
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Quantitative
41) Suppose XYZ Corp. is producing and selling disposable wooden chopsticks in a perfectly competitive market.
The market price is $0.05 per unit and the firm is currently producing 600 000 units per month. The firm's total
revenue is ________ per month. The firm's marginal revenue is ________.
A) $30 000; $0.05
B) $12 million; $0.05
C) $1.2 million; $0.01
D) $3000; $0.50
E) $3000; $0.05
Answer: A
Diff: 2
Topic: 9.2c. total, average, and marginal revenue
Skill: Applied
User2: Quantitative
42) Suppose XYZ Corp. is producing and selling disposable wooden chopsticks in a perfectly competitive market.
The market price is $0.05 per unit and the firm is currently producing 600 000 units per month. What is the firm's
average revenue?
A) $3000
B) $30 000
C) $0.01
D) $0.05
E) $0.10
Answer: D
Diff: 2
Topic: 9.2c. total, average, and marginal revenue
Skill: Applied
User2: Quantitative
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43) Suppose XYZ Corp. is producing and selling disposable wooden chopsticks in a perfectly competitive market.
The market price is $0.04 per unit and the firm is selling 1 million units per month. Now suppose the firm increases
its stated price to $0.05 per unit. According to the theory of perfect competition, the result will be
A) total revenue for this firm will increase, but by less than $10 000 per month.
B) total revenue will increase from $40 000 to $50 000 per month.
C) total revenue will decrease from $50 000 to $40 000 per month.
D) total revenue for this firm will fall dramatically, perhaps to zero.
E) no change in the firm's total revenue.
Answer: D
Diff: 2
Topic: 9.2c. total, average, and marginal revenue
Skill: Applied
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User2: Quantitative
Consider the price and quantity data below for a perfectly competitive firm producing mousetraps.
Price ($)
5
5
5
5
5
Quantity
1000
1250
1500
1750
2000
TABLE 9-1
44) Refer to Table 9-1. If this firm is producing 1250 mousetraps, its total revenue is ________, its average revenue
is ________ and its marginal revenue is ________.
A) $5; $5; $5
B) $6250; $250; $5
C) $1750; $250; $5
D) $5000; $5; $250
E) $6250; $5; $5
Answer: E
Diff: 2
Topic: 9.2c. total, average, and marginal revenue
Skill: Applied
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User1: Table
User2: Quantitative
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45) Refer to Table 9-1. Suppose this firm is currently selling 1750 mousetraps at the market price of $5. If the firm
raises its price to $6, its total revenue will be
A) $0.
B) greater than or equal to $1750.
C) greater than or equal to $6250.
D) $10 500.
E) greater than $10 500.
Answer: A
Diff: 1
Topic: 9.2c. total, average, and marginal revenue
Skill: Applied
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User1: Table
User2: Quantitative
46) Refer to Table 9-1. Suppose this firm is currently selling 1750 mousetraps at the market price of $5. If the firm
raises its price to $6, it's average revenue will be
A) $0.
B) $5.
C) $6.
D) between $5 and $6.
E) greater than $6.
Answer: A
Diff: 3
Topic: 9.2c. total, average, and marginal revenue
Skill: Applied
Learning Obj.: 9-3 Derive a competitive firm's supply curve.
User1: Table
User2: Quantitative
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9.3 Short-Run Decisions
Assume the following total cost schedule for a perfectly competitive firm.
Output
0
1
2
3
4
5
6
TVC ($)
0
40
70
120
180
250
330
TFC ($)
100
100
100
100
100
100
100
TABLE 9-2
1) Refer to Table 9-2. In order to maximize its profits, the firm should continue to produce in the short run even if
the market price is less than its ATC as long as the price is greater than or equal to
A) AVC.
B) MC.
C) AFC.
D) TVC.
E) TC.
Answer: A
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Qualitative
2) Refer to Table 9-2. The total cost of producing 6 units of output is
A) $71.67.
B) $100.
C) $230.
D) $330.
E) $430.
Answer: E
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
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3) Refer to Table 9-2. If the firm is producing at an output level of 2 units, the ATC is ________ and the AVC is
________.
A) $100; $70
B) $70; $35
C) $50; $50
D) $140; $40
E) $85; $35
Answer: E
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
4) Refer to Table 9-2. If the firm is producing at an output level of 4 units, the ATC is ________ and the AVC is
________.
A) $280; $180
B) $25; $45
C) $70; $45
D) $70; $35
E) $180; $100
Answer: C
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
User1: Table
User2: Quantitative
5) Refer to Table 9-2. If the firm is producing at an output level of 6 units, the ATC is ________ and the AVC is
________.
A) $55; $16.67
B) $38.33; $16.67
C) $80; $55
D) $55; $80
E) $71.67; $55
Answer: E
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
User1: Table
User2: Quantitative
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6) Refer to Table 9-2. This profit-maximizing firm would produce no output in the short run if the market price of its
output dropped below
A) $35.
B) $40.
C) $70.
D) $90.
E) $100.
Answer: A
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
7) Refer to Table 9-2. At what price would a profit-maximizing firm earn zero economic profits?
A) $40
B) $70
C) $145
D) $220
E) $430
Answer: B
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
8) Refer to Table 9-2. If the market price were $75, this perfectly competitive firm wishing to maximize its profits
would
A) produce 2 units of output.
B) produce 6 units of output.
C) produce 5 units of output.
D) not produce because P < minimum of ATC.
E) not produce because P < TFC.
Answer: C
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
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9) Refer to Table 9-2. What is the marginal cost of producing the 2nd unit of output?
A) $10
B) $15
C) $5
D) $30
E) $35
Answer: D
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
User1: Table
User2: Quantitative
10) Refer to Table 9-2. What is the marginal cost of producing the 5th unit of output?
A) $30
B) $35
C) $50
D) $70
E) $80
Answer: D
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
User1: Table
User2: Quantitative
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Consider the following total cost schedule for a perfectly competitive firm producing ball-point pens.
Output
per period
0
10
20
30
40
50
TVC ($)
0
2
3
6
10
15
TFC ($)
5
5
5
5
5
5
TABLE 9-3
11) Refer to Table 9-3. If this firm were producing at an output level of 30 units, the AFC would be ________ and
the AVC would be ________.
A) $5; $6
B) $6; $5
C) $0.17; $0.20
D) $0.20; $0.17
E) $0.10; $0.30
Answer: C
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
12) Refer to Table 9-3. This firm would produce no output in the short run if the market price of its output
A) dropped below $0.15.
B) dropped below $0.20.
C) dropped below $0.30.
D) dropped below $2.00.
E) dropped below $3.00.
Answer: A
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
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13) Refer to Table 9-3. As this firm increases output from 40 units to 50 units per period, its marginal cost rises to
A) $0.10.
B) $0.17.
C) $0.375.
D) $0.40.
E) $0.50.
Answer: E
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
14) Refer to Table 9-3. What is the marginal cost of producing the 35th unit of output?
A) $0.10
B) $0.17
C) $0.375
D) $0.40
E) $0.50
Answer: D
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
User1: Table
User2: Quantitative
15) Refer to Table 9-3. What is the marginal cost of producing the 15th unit of output?
A) $0.10
B) $0.17
C) $0.375
D) $0.40
E) $0.50
Answer: A
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
User1: Table
User2: Quantitative
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16) Refer to Table 9-3. Suppose the prevailing market price for this firm's product is $0.40. The profit-maximizing
level of output for this firm is between
A) 0 and 10 units.
B) 10 and 20 units.
C) 20 and 30 units.
D) 30 and 40 units.
E) 40 and 50 units.
Answer: D
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
17) Refer to Table 9-3. Suppose the prevailing market price for this firm's product is $0.42 and the firm produces its
profit-maximizing level of output. At this price
A) the firm is earning zero economic profits.
B) the firm is earning positive economic profits.
C) the firm is suffering economic losses and this firm will exit the industry.
D) the firm should increase output.
E) the firm should decrease output.
Answer: B
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
18) Refer to Table 9-3. Suppose the prevailing market price for this firm's product is $0.45. If the firm is producing
20 units of output per period, then its profit per unit is ________ and its total profit per period is ________.
A) $9; $180
B) $0.05; $1.00
C) $6; $120
D) $0.01; $2
E) $0.40; $8
Answer: B
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
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19) Refer to Table 9-3. Suppose the prevailing market price for this firm's product is $0.14 and the firm is currently
producing 20 units of output. This competitive firm wishing to maximize profits would
A) increase output because marginal revenue is greater than marginal cost.
B) decrease output because marginal revenue is less than marginal cost.
C) increase output because marginal revenue is less than marginal cost.
D) decrease output because marginal revenue is greater than marginal cost.
E) produce zero output because price is less than the minimum average variable cost.
Answer: E
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
20) A firm in a perfectly competitive industry will maximize profits by adjusting
A) price until marginal revenue equals marginal cost.
B) output until marginal cost equals marginal revenue.
C) price until average revenue equals average total cost.
D) output until average revenue equals short-run average total cost.
E) average total cost until it equals price.
Answer: B
Diff: 1
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
21) Consider a perfectly competitive industry in the short-run. When a firm in this industry is at its profitmaximizing level of output, it
A) is doing as well as it can and is making a profit.
B) may be making a profit or incurring a loss.
C) is producing where P = AVC.
D) is producing where MC = AC.
E) is producing where price exceeds marginal cost.
Answer: B
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
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22) In the short run, a profit-maximizing firm will expand output
A) as long as marginal revenue is greater than marginal cost.
B) until marginal cost begins to rise.
C) until marginal revenue equals average variable cost.
D) until total revenue equals total cost.
E) as long as marginal cost is greater than marginal revenue.
Answer: A
Diff: 1
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
23) Suppose ABC Corp. is a firm producing newsprint in a perfectly competitive industry. Its output is 1500 tonnes
per month, the marginal cost of the last tonne produced is $710, and the average revenue per tonne is $620. In the
short run, this firm should
A) reduce output.
B) increase output until average revenue is equal to marginal cost.
C) increase output until marginal revenue is equal to marginal cost.
D) definitely shut down.
E) The price of the product is not known, so it is not possible to determine.
Answer: A
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Quantitative
24) Suppose ABC Corp. is a firm producing newsprint in a perfectly competitive industry. We have the following
information about the firm's production:
- output (Q) = 1500 tonnes per month
- average total cost (ATC) = $627 per tonne
- average variable cost (AVC) = $614 per tonne
- marginal revenue (MR) = $620 per tonne
- marginal cost (MC) = $620 per tonne
In the short run, this firm should
A) reduce output because the price per tonne is less than ATC.
B) shut down because the firm is incurring economic losses.
C) maintain production at the current level.
D) increase output because MR is greater than AVC.
E) Not possible to determine because the price of the product is not known.
Answer: C
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Quantitative
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25) Suppose ABC Corp. is a firm producing newsprint in a perfectly competitive industry. We have the following
information about the firm's production:
- output (Q) = 1500 tonnes per month
- average total cost (ATC) = $627 per tonne
- average variable cost (AVC) = $614 per tonne
- marginal revenue (MR) = $620 per tonne
- marginal cost (MC) = $620 per tonne
At the current level of output, this firm is ________ profit and is earning economic profit of ________ per month.
A) maximizing; $10 500
B) maximizing; -$10 500
C) not maximizing; -$10 500
D) not maximizing; -$9000
E) maximizing; $9000
Answer: B
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Quantitative
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FIGURE 9-1
26) Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P1,
the profit-maximizing firm in the short run should
A) produce output A.
B) produce output B.
C) produce output C.
D) produce output D or shut down as it doesn't really matter which.
E) definitely shut down.
Answer: D
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
27) Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P2,
the profit-maximizing firm in the short run should
A) produce output B.
B) produce output C.
C) produce output D.
D) produce output E.
E) shut down, as it is incurring losses.
Answer: D
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
28) Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P3,
the profit-maximizing firm in the short run should
A) produce output A.
B) produce output F or shut down, as it doesn't matter which.
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Copyright © 2017 Pearson Education, Inc.
C) produce output D.
D) shut down because more profits could be earned in another industry.
E) produce output F.
Answer: E
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
29) Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P4,
the profit-maximizing firm in the short run should produce output
A) C.
B) F.
C) G.
D) H.
E) I.
Answer: C
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
30) Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. The firm's short-run
supply curve starts at output ________ and rises along the marginal cost (MC) curve.
A) D
B) E
C) F
D) G
E) H
Answer: A
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
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31) Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. The short-run shut down
price for the firm is
A) P1.
B) P2.
C) P3.
D) P4.
E) P5.
Answer: A
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
32) Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. The price at which the
firm earns zero economic profits is
A) P1.
B) P2.
C) P3.
D) P4.
E) P5.
Answer: C
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
33) Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. The firm would incur
economic profit at all market prices above
A) P1.
B) P2.
C) P3.
D) P4.
E) P5.
Answer: C
Diff: 1
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
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34) Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P 4
and the firm is producing output level F, this firm should
A) expand output to quantity G.
B) expand output to quantity I.
C) maintain output at quantity F.
D) reduce output to quantity C.
E) reduce output to quantity D.
Answer: A
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Quantitative
35) If a perfectly competitive firm in the short run is producing where P = ATC = MC, this firm is
A) at its profit-maximizing output level.
B) obliged to shut down.
C) on the downward-sloping portion of its demand curve.
D) earning economic profits.
E) incurring losses.
Answer: A
Diff: 1
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
36) A perfectly competitive firm maximizes its profits by
A) maximizing total revenue.
B) maximizing total sales.
C) choosing the optimal level of output.
D) choosing the optimal price.
E) pricing slightly under its competitors.
Answer: C
Diff: 1
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
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37) If a perfectly competitive firm produces at an output level where marginal cost equals marginal revenue, then
A) the last unit produced adds the same amount to costs as it does to revenue.
B) the firm is maximizing its revenue.
C) there is no reason to reduce or expand output, as long as AVC is greater than or equal to price.
D) the difference between TR and TC is zero.
E) the firm should shut down.
Answer: A
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
38) Suppose your trucking firm in a perfectly competitive industry is making zero economic profits in the short run.
The federal government imposes a new safety regulation that affects all firms, thus shifting the marginal cost curve
upward. As a result your firm's profit maximizing short-run output will
A) decrease because the new MC curve will intersect the horizontal demand curve at a lower rate of output.
B) remain the same because you will pass on the extra costs to the consumers.
C) remain the same since the new regulation does not affect ATC.
D) increase as firms will leave the industry at the higher costs, thus driving up the market price.
E) increase as price rises in the long run.
Answer: A
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
39) If a perfectly competitive firm is faced with average revenue below average variable cost it will produce zero
output so as to reduce its
A) costs to below its revenue.
B) costs to zero.
C) losses to the amount of its fixed costs.
D) losses to the amount of its variable costs.
E) losses to the amount of its marginal costs.
Answer: C
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
469
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40) On a graph showing a firm's TC and TR curves, the profit-maximizing level of output is found where
A) TC intersects the vertical axis.
B) TR becomes vertical.
C) TR lies above TC by the greatest amount.
D) TR and TC intersect.
E) TR is at a maximum.
Answer: C
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
41) Suppose that in a perfectly competitive industry, the market price of the product is $6. A firm is producing the
output level at which average total cost equals marginal cost, both of which are $8. Average variable cost is $4. To
maximize its profits in the short run, the firm should
A) reduce its output.
B) expand its output.
C) leave its output unchanged.
D) shut down.
E) There is insufficient information to know.
Answer: A
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Quantitative
42) Suppose that in a perfectly competitive industry, the market price of the product is $27. A firm is producing the
output level at which average total cost equals marginal cost, both of which are $25. Average variable cost is $23.
To maximize profits in the short run, the firm should
A) reduce its output.
B) increase its output.
C) leave its output unchanged.
D) shut down.
E) change the price of the product.
Answer: B
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Quantitative
470
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43) Suppose that in a perfectly competitive industry, the market price for the product is $130. A firm is producing
the output level at which average total cost equals marginal cost, both of which are $138. Average variable cost is
$132. To maximize profits in the short run, the firm should
A) reduce its output.
B) expand its output.
C) leave its output unchanged.
D) produce zero output.
E) change the price of the product.
Answer: D
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Quantitative
44) A price-taking firm in the short run should not produce any level of output unless
A) marginal revenue exceeds marginal cost.
B) marginal revenue equals average total cost.
C) average revenue equals or exceeds average variable cost.
D) average revenue equals or exceeds average total cost.
E) it is earning positive profits.
Answer: C
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
45) Suppose a perfectly competitive firm is producing a level of output for which price equals average total cost, and
average total cost is less than marginal cost. In order to maximize its profits, the firm should
A) reduce its output.
B) expand its output.
C) produce zero output.
D) increase the market price.
E) not change its output.
Answer: A
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
471
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46) Which of the following statements about a firm in a perfectly competitive industry is true?
A) The firm can improve its competitive position and sell more output by advertising its product.
B) The firm maximizes its profit by producing where P = ATC.
C) The firm maximizes its profit by producing where P = AVC.
D) The firm will not produce at all if P < ATC.
E) The firm will not produce at all if P < the minimum of AVC.
Answer: E
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
47) Suppose a perfectly competitive firm is producing a level of output such that its average revenue is less than its
lowest average variable cost. The firm should
A) reduce its output.
B) expand its output.
C) produce zero output.
D) increase the market price.
E) not change its output.
Answer: C
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
48) Suppose that in a perfectly competitive industry, the market price of the product is $12. Firm A is producing the
output level at which average total cost equals marginal cost, both of which are $10. To maximize its profits, Firm A
should
A) reduce its output.
B) expand its output.
C) leave its output unchanged.
D) increase its advertising.
E) change the price of the product.
Answer: B
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Quantitative
472
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49) Consider a perfectly competitive firm in the following position: output = 4000 units, market price = $1, total
fixed costs = $2000, total variable costs = $2000, and marginal cost = $1. To maximize profits the firm should
A) reduce its output.
B) expand its output.
C) produce zero output.
D) increase the market price.
E) not change its output.
Answer: E
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Quantitative
50) Consider a perfectly competitive firm in the following position: output = 4000, market price = $1, total fixed
costs = $2000, total variable costs = $4500, and marginal cost = $1. To maximize profits the firm should
A) reduce its output.
B) expand its output.
C) produce zero output.
D) increase the market price.
E) not change its output.
Answer: C
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Quantitative
51) Consider a perfectly competitive firm in the following position: output = 4000 units, market price = $1, fixed
costs = $2000, variable costs = $1000, and marginal cost = $1.10. To maximize profits the firm should
A) reduce its output.
B) expand its output.
C) produce zero output.
D) increase the market price.
E) not change its output.
Answer: A
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Quantitative
473
Copyright © 2017 Pearson Education, Inc.
52) A perfectly competitive firm is currently producing an output level where price is $10.00, average variable cost
is $6.00, average total cost is $10.00, and marginal cost is $8.00. In order to maximize profits, this firm should
A) produce zero output.
B) decrease its output.
C) increase its output.
D) increase the market price.
E) not change its output — this firm is at its profit-maximizing position.
Answer: C
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Quantitative
Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.
FIGURE 9-2
53) Refer to Figure 9-2. If the current market price is $6, the profit-maximizing output for this firm is
A) 100 units.
B) 200 units.
C) 300 units.
D) 400 units.
E) 500 units.
Answer: D
Diff: 1
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
474
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54) Refer to Figure 9-2. If the price is $6 and the firm is producing at its profit-maximizing output, then total costs
for the firm are
A) $100.
B) $300.
C) $1600.
D) $2400.
E) $3500.
Answer: C
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Quantitative
55) Refer to Figure 9-2. If the market price is $1, the firm will produce ________ units of output in the short run.
A) 0
B) 100
C) 200
D) 300
E) 400
Answer: A
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Quantitative
56) Refer to Figure 9-2. If the market price is $2, the firm will
A) produce zero output. and make zero profit.
B) produce zero output. and suffer a loss equal to its fixed cost.
C) continue operating in the short run and suffer a loss that is less than its fixed cost.
D) produce 300 units and make a loss equal to total variable cost.
E) produce 200 units and make a loss equal to its total fixed cost.
Answer: C
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
475
Copyright © 2017 Pearson Education, Inc.
57) Consider a perfectly competitive firm that is producing a level of output such that price equals average total cost
and average total cost is less than marginal cost. In order to maximize its profits, the firm should
A) reduce output.
B) expand output.
C) shut down.
D) increase the market price.
E) not change output.
Answer: A
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
58) A perfectly competitive firm facing a price of $4.00 is currently producing an output level where average
variable cost is $2.00, average total cost is $4.00, and marginal cost is $3.00. In order to maximize profits, this firm
should
A) shut down.
B) decrease output.
C) increase output.
D) increase the market price.
E) not change output. This firm is at its profit-maximizing position.
Answer: C
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Quantitative
476
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Consider the following cost curves for two perfectly competitive firms, A and B.
FIGURE 9-3
59) Refer to Figure 9-3. Firms A and B are in the same industry. Choose the statement that best describes the
situation facing the two firms.
A) Firm A is suffering losses and will be shut down immediately; Firm B will be shut down if the price falls any
further.
B) Firm A is making losses but remains producing as long as price falls no further; Firm B is producing at lower
cost and is earning economic profits.
C) Firm A and Firm B are both earning positive economic profits; new firms will likely enter the industry.
D) Firm A and Firm B are both suffering economic losses and will soon exit the industry.
Answer: B
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
60) Refer to Figure 9-3. If Firm B is producing at output level q2, and selling its output at p0, then Firm B should
A) remain at this output level because profits are maximized when SRAVC is at its minimum.
B) expand output to q1 because profits are maximized when SRATC is at its minimum.
C) shut down because at this price and output level the firm is suffering losses.
D) expand output to q0 so that profits will be maximized.
Answer: D
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
Consider the price and quantity data below for a perfectly competitive firm producing mousetraps.
Price ($)
5
5
Quantity
1000
1250
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Copyright © 2017 Pearson Education, Inc.
5
5
5
1500
1750
2000
TABLE 9-1
61) Refer to Table 9-1. Suppose this firm is producing 1250 mousetraps and its average total cost is $4 per unit. The
firm will be
A) suffering losses of $5000.
B) earning profits of $5000.
C) breaking even.
D) earning profits of $1250.
E) suffering losses of $1250.
Answer: D
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
62) Refer to Table 9-1. Suppose this firm is producing 1500 mousetraps and its average total cost is $5.10 per unit.
The firm will be
A) suffering losses of $7650.
B) earning profits of $7650.
C) breaking even.
D) earning profits of $150.
E) suffering losses of $150.
Answer: E
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Table
User2: Quantitative
478
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63) Refer to Table 9-1. Suppose this firm is producing 2000 mousetraps and average variable cost is $5.50. What
level of economic profit is this firm earning?
A) $1000
B) -$1000
C) $0
D) $0.50
E) There is insufficient information to answer to know.
Answer: E
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
User1: Table
User2: Quantitative
Consider the total cost and revenue curves shown below, for two perfectly competitive firms, Firm A and Firm B.
FIGURE 9-4
64) Refer to Figure 9-4. Given its total cost and revenue curves, Firm A should
A) build another plant to reap scale economies.
B) produce zero output.
C) continue production, as it is earning positive profits.
D) maximize its profits by producing that level of output such that the slope of the TC curve is equal to the slope of
the TR curve.
E) maximize its profits by producing that level of output such that the slope of the TVC curve is equal to the slope of
the TR curve.
Answer: B
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
479
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65) Refer to Figure 9-4. Given its total cost and revenue curves, Firm B should
A) exit the industry.
B) shut down temporarily.
C) maximize its profits by producing that level of output such that the slope of the TC curve is equal to the slope of
the TR curve.
D) maximize its profits by producing that level of output such that the slope of the TVC curve is equal to the slope
of the TR curve.
E) produce the level of output where the TC curve intersects the TR curve.
Answer: C
Diff: 2
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
66) Refer to Figure 9-4. If both Firms A and B are producing a level of output such that the slope of the TC curve is
equal to the slope of the TR curve,
A) then MC = MR and the firm is maximizing profit (or minimizing losses).
B) then the ATC is at a minimum and the firm is maximizing profits.
C) then both firms are suffering losses because the distance between TR and TC is the smallest.
D) then both firms are earning positive economic profits because the distance between TR and TC is the greatest.
E) then MC = MR but the firm may not be maximizing its profits.
Answer: E
Diff: 3
Topic: 9.3a. profit maximization for perfectly competitive firm
Skill: Recall
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
67) The short-run supply curve for a perfectly competitive firm is
A) its entire marginal-cost curve.
B) its rising portion of the average-variable-cost curve.
C) its average-revenue curve.
D) its marginal-cost curve above the average-variable-cost curve.
E) the industry supply curve.
Answer: D
Diff: 1
Topic: 9.3b. supply curves perfectly comp. firm and industry
Skill: Recall
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
480
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68) Consider a firm in a perfectly competitive industry. The shut-down point is the price at which the firm can just
cover its
A) marginal costs.
B) non-economic costs.
C) fixed costs.
D) unstated costs.
E) variable costs.
Answer: E
Diff: 1
Topic: 9.3b. supply curves perfectly comp. firm and industry
Skill: Recall
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
69) The supply curve for a perfectly competitive industry is the horizontal summation of the individual firms'
A) MC curves above ATC.
B) MC curves above AVC.
C) AVC curves above MC.
D) MC curves above AFC.
E) short-run average cost curves.
Answer: B
Diff: 1
Topic: 9.3b. supply curves perfectly comp. firm and industry
Skill: Recall
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User2: Qualitative
481
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Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.
FIGURE 9-2
70) Refer to Figure 9-2. The short-run supply curve for this perfectly competitive firm is its
A) ATC curve at and above $3.
B) AVC curve at and above $1.50.
C) entire marginal cost curve.
D) marginal cost curve at and above $3.
E) marginal cost curve at and above $1.50.
Answer: E
Diff: 1
Topic: 9.3b. supply curves perfectly comp. firm and industry
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
71) Refer to Figure 9-2. The short-run supply curve for the industry in which this firm operates is
A) the MC curve at or above a price of $1.50.
B) the AVC curve at or above a price of $1.50.
C) the entire MC curve.
D) the MC curve at or above a price of $3.
E) not determinable from the information provided.
Answer: E
Diff: 2
Topic: 9.3b. supply curves perfectly comp. firm and industry
Skill: Applied
Learning Obj.: 9-4 Determine whether competitive firms are making profits or losses in the short run.
User1: Graph
User2: Qualitative
482
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9.4 Long-Run Decisions
1) If a perfectly competitive market is in a short-run equilibrium and each firm has P > SRATC, then
A) individual firms in the industry will increase their output.
B) new firms will enter the market because existing firms are earning economic profits.
C) the market supply curve will become less elastic.
D) existing firms will continue to earn economic profits in the long run.
E) price will fall in the short run as it is too high and firms are making economic profits.
Answer: B
Diff: 1
Topic: 9.4a. entry and exit
Skill: Recall
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
2) If firms in a competitive industry are earning positive economic profits, in the long run we expect
A) the demand curve for the product will shift to the left, so that the price of the product will fall.
B) the supply curve for the product will shift to the right as new firms enter the industry, causing industry output to
increase and price to fall.
C) there would be no change in the industry as long as P = MC for the individual firms.
D) the individual firms will lower their price to discourage new firms from entering the industry.
E) the government would intervene and force the firms to lower prices.
Answer: B
Diff: 2
Topic: 9.4a. entry and exit
Skill: Recall
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
3) If firms in a competitive industry are suffering economic losses, then one would expect that in the long run
A) the demand curve for the product will shift to the left, causing equilibrium output and price to decline.
B) there would be no change in the number of firms in the industry as long as firms are covering their average
variable costs.
C) the supply curve for the product will shift to the left as firms leave the industry, causing industry output to fall
and price to rise.
D) the supply curve for the product will shift to the right as individual firms lower their prices to increase their sales.
E) each firm would raise its price until it was breaking even.
Answer: C
Diff: 2
Topic: 9.4a. entry and exit
Skill: Recall
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
483
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4) Consider a perfectly competitive firm when its industry is in long-run equilibrium. Which of the following
statements is correct?
A) The firm has successfully differentiated its product.
B) The firm has successfully established barriers to entry.
C) The firm has a strong profit incentive to expand capacity.
D) The firm has no ability to affect its product's price.
E) The firm is earning positive economic profits.
Answer: D
Diff: 1
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Recall
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
5) Consider the following statement of equalities: P = MC = minimum SRATC = minimum LRAC. This statement
of equalities best applies to which of the following?
A) a perfectly competitive firm that is maximizing profits, which will lead other firms to enter this industry
B) a perfectly competitive firm when the industry is in long-run equilibrium
C) a perfectly competitive firm that is producing the optimal quantity, such that other firms will exit the industry
D) a perfectly competitive industry that is in long-run equilibrium
E) a perfectly competitive industry that is in short-run equilibrium
Answer: B
Diff: 3
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
6) Which of the following statements about a perfectly competitive industry in long-run equilibrium is true?
A) In order to stay in the industry each firm is making an economic profit.
B) Losses are tolerable because of high fixed costs.
C) Individual firms will have no incentive for technological improvement.
D) Firms must exhibit economies of scale.
E) Each firm is producing at the minimum point on its LRAC curve.
Answer: E
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Recall
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
484
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7) If a competitive firm is producing to the left of the minimum point of its long-run average cost curve, then
A) it cannot be producing its present output efficiently.
B) it can reduce its unit costs by building a larger plant.
C) it can still be in long-run equilibrium as long as P = SRATC.
D) its profits will decrease if it builds a larger plant.
E) it should shut down.
Answer: B
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
8) Consider a perfectly competitive firm. Which of the following equalities could hold true in a short-run
equilibrium but not in a long-run equilibrium?
A) TC = TFC + TVC
B) P = MC
C) P = AR
D) P = AVC
E) P = MR
Answer: D
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
485
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Consider the following cost curves for Firm X, a perfectly competitive firm.
FIGURE 9-5
9) Refer to Figure 9-5. At output Q2 and price P2, which of the following is FALSE?
A) There are economic profits to attract new entrants.
B) The firm producing Q2 is at its long-run profit-maximizing position.
C) P = MC = SRATC = LRAC.
D) There are no unexploited internal economies of scale.
E) Firm X is producing at its minimum efficient scale.
Answer: A
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User1: Graph
User2: Qualitative
486
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10) Refer to Figure 9-5. If Firm X has a capital stock that generates SRATC1, then in the long run Firm X will have
to
A) either expand its plant size or exit from the industry.
B) set its output at Q1 with the existing plant size.
C) expand its output to Q2 with the existing plant size.
D) set its output at Q1 with an expanded plant size.
E) maintain its output level at Q1, because it is maximizing its short-run profits.
Answer: A
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User1: Graph
User2: Qualitative
11) Refer to Figure 9-5. If Firm X is producing output Q1 and the market price is P1,
A) there are profits to induce increases in output by Firm X, using its existing plant.
B) there is no lower-cost scale of plant which could be built by Firm X.
C) Firm X is producing at its minimum efficient scale.
D) Firm X is at its long-run profit-maximizing position.
E) new firms have a profit incentive to enter the industry, building larger plants.
Answer: E
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User1: Graph
User2: Qualitative
12) Refer to Figure 9-5. In this industry, which one of the following is FALSE?
A) If the price were to fall below P2, firms would leave the industry.
B) If the price were to rise above P2, new firms would enter the industry.
C) If the scale of Firm X at output Q2 and price P2 is large enough that Firm X has an appreciable share of the
market, Firm X will no longer be a price taker.
D) At output Q2 and price P2, Firm X is maximizing its long-run profits.
E) Only one firm can reach the size of output Q2.
Answer: E
Diff: 3
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User1: Graph
User2: Qualitative
487
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13) Suppose a typical firm in a competitive industry has the following data in the short run: price = $10; output =
100 units; ATC = $8; AVC = $7. What will likely happen in the long run?
A) In the long run the industry will expand because firms are earning economic profits.
B) In the long run the industry will contract because firms are suffering losses.
C) The size of the industry will remain the same in the long run.
D) The typical firm would shut down, until the remaining firms have a higher price.
E) There is not enough information to formulate an answer.
Answer: A
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Quantitative
14) Suppose a typical firm in a competitive industry has the following data in the short run: price = $6; output = 100
units; ATC = $8; AVC = $7. What will likely happen in the long run?
A) In the long run the industry will expand because firms are earning economic profits.
B) In the long run the industry will contract because firms are suffering losses.
C) The size of the industry will remain the same in the long run.
D) The typical firm would shut down, until the remaining firms have a higher price.
E) There is not enough information to formulate an answer.
Answer: B
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Quantitative
15) Suppose a typical firm in a competitive industry has the following data in the short run: price = $5000; output =
1 million units; ATC = $5300; AVC = $4750. What will likely happen in the long run?
A) In the long run the industry will expand because firms are earning economic profits.
B) In the long run the industry will contract because firms are suffering losses.
C) The size of the industry will remain the same in the long run.
D) Consumers will avoid this industry because firms are suffering losses.
E) There is not enough information to formulate an answer.
Answer: B
Diff: 3
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
User2: Quantitative
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16) Suppose a typical firm in a competitive industry has the following data in the short run: price = $4000; output =
1 million units; ATC = $4000; AVC = $3500. What will likely happen in the long run?
A) In the long run the industry will expand because firms are earning economic profits.
B) In the long run the industry will contract because firms are suffering losses.
C) The size of the industry will remain the same in the long run.
D) The typical firm would shut down, until the remaining firms have a higher price.
E) There is not enough information to formulate an answer.
Answer: C
Diff: 3
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
User2: Quantitative
17) Suppose a typical firm in a competitive industry has the following data in the short run: price = $5000; output =
100 000 units; ATC = $4600; AVC =$ 4300. What will likely happen in the long run?
A) In the long run the industry will expand because firms are earning economic profits.
B) In the long run the industry will contract because firms are suffering losses.
C) The size of the industry will remain the same in the long run.
D) The typical firm would shut down, until the remaining firms have a higher price.
E) There is not enough information to formulate an answer.
Answer: A
Diff: 3
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
User2: Quantitative
18) In the long run it is not possible for a perfectly competitive firm to
A) alter its plant size.
B) adopt new technology.
C) replace its antiquated equipment.
D) adjust its output.
E) set the product price.
Answer: E
Diff: 1
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Recall
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
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19) In a perfectly competitive market, smaller-than-efficient sized firms can exist in
A) the short run.
B) the long run.
C) both the short and long run.
D) the long run, and they will make positive economic profits.
E) both the short run and the long run, but they must reduce plant size to remain competitive.
Answer: A
Diff: 1
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Recall
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
20) Comparing the short-run and long-run profit-maximizing positions of a perfectly competitive firm, which
statement is true?
A) Price will equal marginal cost in the short run, but not necessarily in the long run.
B) Economic profit may exist in the short run and in the long run.
C) The firm will produce at minimum average cost in both the short and long run.
D) Price should equal average cost in the long run, but not necessarily in the short run.
E) The firm may have unexploited economies of scale in both the short run and the long run.
Answer: D
Diff: 3
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
21) Consider a perfectly competitive firm when its industry is in long-run equilibrium. In this case,
A) price is greater than marginal cost.
B) marginal revenue is greater than marginal cost.
C) price equals minimum short-run and long-run average total cost.
D) economic profits are greater than zero.
E) average fixed costs are at the maximum.
Answer: C
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
490
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22) Consider a competitive industry in which firms are facing a continual decrease in demand for their product. In
the long run
A) new firms will enter the industry and earn normal profits.
B) existing firms will modernize plant and equipment in order to increase efficiency.
C) existing firms will expand output as a means of recovering losses.
D) firms will begin advertising in order to increase demand for their product.
E) capacity in the industry will gradually shrink as plant and equipment is not replaced.
Answer: E
Diff: 3
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
23) Long-run equilibrium in a perfectly competitive industry is characterized by
A) internal economies of scale.
B) an output level at which firms' SRATC curves are tangent to the downward sloping portion of their LRAC
curves.
C) falling costs.
D) rising costs.
E) each firm producing at the minimum point on its LRAC curve.
Answer: E
Diff: 1
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Recall
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
24) If a perfectly competitive firm is producing where its MR=MC, but is operating to the left of the minimum point
of its LRAC curve,
A) it cannot be optimizing its short-run behaviour.
B) it can reduce its average costs by building a larger plant.
C) it can still be in long-run equilibrium as long as P = SRATC.
D) its profits will decrease if it builds a larger plant.
E) it is in a long-run profit maximizing position.
Answer: B
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
491
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25) Which of the following conditions is true of a perfectly competitive industry when it is in long-run equilibrium?
A) Firms are entering the industry.
B) Firms are exiting the industry.
C) Price equals minimum short-run average total cost for all firms.
D) Accounting profits for all firms are zero.
E) Firms are experiencing increasing returns to scale.
Answer: C
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Recall
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
The diagram below shows the short-run cost curves for 3 perfectly competitive firms in the same industry.
FIGURE 9-6
26) Refer to Figure 9-6. Given that Firms A, B and C are in the same industry, is this industry in long-run
equilibrium?
A) No, because Firm A is not producing at a profit-maximizing level of output.
B) No, because if the industry were in equilibrium, all 3 firms would be earning zero economic profits.
C) Yes, because all 3 firms are producing at their minimum average total cost.
D) Yes, because P = MC = MR for each of the 3 firms.
E) Yes, because each of the 3 firms is operating at its minimum efficient scale.
Answer: B
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User1: Graph
User2: Qualitative
492
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27) Refer to Figure 9-6. Which firm or firms is likely to exit this industry?
A) Firm A
B) Firm B
C) Firm C
D) all of Firms A, B, and C
E) none of Firms A, B, and C
Answer: C
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User1: Graph
User2: Qualitative
28) Refer to Figure 9-6. Which of the following statements about Firms A, B and C is true?
A) Firm A is suffering losses, Firm B is breaking even, and Firm C is earning profits.
B) Firm A is breaking even, Firm B is suffering losses, and Firm C is earning profits.
C) Firm A is earning profits, Firm B is breaking even, and Firm C is suffering losses.
D) Firms A, B and C are breaking even.
E) Firms A, B and C are earning profits.
Answer: C
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User1: Graph
User2: Qualitative
29) Suppose a paper mill in Quebec is shut down by its owner, even though the plant and equipment are in excellent
shape and the paper is of top quality. What could explain this?
A) The price the firm is receiving for the paper is less than its average variable cost.
B) The paper mill must not have been operating at its profit-maximizing level of output.
C) The price the firm is receiving is less than the average total cost.
D) The price the firm is receiving for the paper is greater than its marginal cost.
E) The owner was not minimizing its production costs.
Answer: A
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
493
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30) Suppose a perfectly competitive industry is in long-run equilibrium. A new one-time cost-saving technology
(which is freely available) is then developed and new plants are built. Eventually, a new long-run equilibrium will
be established where
A) new plants employ the new technology, but existing plants continue to produce as long as they cover their fixed
costs.
B) high-cost and low-cost firms exist side by side and market output will be higher.
C) the industry supply curve has shifted to the left and price and output are both higher.
D) all plants continue to operate until they are physically worn out as long as price is greater than the firm's average
variable cost.
E) all plants use the new technology, and market output will be higher and price will be lower.
Answer: E
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Recall
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
31) Consider the textile industry, which we assume to be a competitive industry, and which experiences continuous
cost-reducing technological change. Which of the following statements best describes this industry?
A) High-cost textile mills will co-exist with low-cost mills as long as the revenue for the high-cost mills is covering
their variable costs.
B) The price of the product is determined by the minimum ATC of the lowest-cost plants.
C) All textile mills in the industry will be earning zero economic profits or losses.
D) Both A and B
E) Both B and C
Answer: D
Diff: 3
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Applied
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
32) Which of the following assumptions about perfectly competitive markets is primarily responsible for the
horizontal demand curve facing the individual firm?
A) differentiated product
B) consumers are aware of all firms' prices
C) each firm is small relative to the size of the industry
D) freedom of entry and exit in the industry
E) strategic behaviour
Answer: C
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
Skill: Recall
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
33) Which of the following assumptions about perfectly competitive markets is primarily responsible for firms
having zero economic profit in long run equilibrium?
A) homogeneous product
B) consumers are aware of all firms' prices
C) each firm is small relative to the size of the industry
D) freedom of entry and exit in the industry
E) strategic behaviour
Answer: D
Diff: 2
Topic: 9.4b. long-run equilibrium in perfect competition
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Skill: Recall
Learning Obj.: 9-5 Explain the role played by profits, entry, and exit in determining a competitive industry's long ‐run
equilibrium.
User2: Qualitative
Economics - Canadian Edition, 15e (Ragan)
Chapter 10 Monopoly, Cartels, and Price Discrimination
10.1 A Single-Price Monopolist
1) One similarity between a monopolist and a perfectly competitive firm is that both
A) are large relative to their markets.
B) may have similarly shaped cost curves.
C) choose the price at which to sell their product.
D) can make economic profits in the long run.
E) need to know the shape of the market demand curve.
Answer: B
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
2) The marginal revenue curve facing a single-price monopolist
A) is the same as the average revenue curve facing the monopolist.
B) is the same as the demand curve facing the monopolist.
C) shows the change in the profit for the firm.
D) lies below the average revenue curve.
E) at first falls to a minimum and then rises as output is increased.
Answer: D
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
3) The demand curve facing a single-price monopolist slopes downward because
A) its average revenue equals its marginal revenue.
B) its demand curve is the market demand curve, which is generally downward sloping.
C) demand is perfectly inelastic.
D) it sells typically to only one consumer.
E) its supply curve is upward sloping.
Answer: B
Diff: 1
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
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4) A monopoly is distinguished from a firm operating under any other market structure in the following way: the
monopoly
A) charges a price higher than its average revenue.
B) can choose its output level.
C) can choose its level of cost.
D) does not produce at a profit-maximizing level of output.
E) faces a demand curve which is identical to the market demand curve.
Answer: E
Diff: 1
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
5) A monopolistic firm faces a downward-sloping demand curve because
A) there are a large number of firms in the industry, all selling the same product.
B) the demand for its product is always inelastic.
C) the market price is affected by the amount sold by a monopolistic firm.
D) marginal revenue is negative throughout the feasible range of output.
E) the monopolistic firm can exploit economies of scale.
Answer: C
Diff: 1
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
6) The average revenue curve for a single-price monopolist
A) is a horizontal line, equal to the price of its product.
B) lies below its demand curve.
C) coincides with its demand curve.
D) slopes upward to the right.
E) does not exist.
Answer: C
Diff: 1
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
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7) For a single-price monopolist, marginal revenue falls faster than price (as output rises) because
A) in order to sell additional units, the price must be lowered on all units.
B) profits are maximized when marginal cost equals marginal revenue.
C) the firm has no supply curve.
D) the cost of producing extra units of output increases as production is increased.
E) none of the above — marginal revenue does not fall faster than price.
Answer: A
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
8) Marginal revenue is less than price for a single-price monopolist because the
A) firm's output decisions do not affect the selling price.
B) firm must lower its price for all units if it wants to sell more of the product.
C) monopolist charges a price higher than the unit production cost.
D) monopolist must worry about how its price setting will lead to entry by other firms.
E) monopolist has achieved economies of scale.
Answer: B
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
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Price
$8
$7
$6
$5
$4
$3
$2
Quantity
Demanded
5
6
7
8
9
10
11
TABLE 10-1
9) Refer to Table 10-1. For a single-price monopolist, the marginal revenue associated with increasing sales from 5
to 6 units is
A) -4.
B) -2.
C) 0.
D) 2.
E) 4.
Answer: D
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
10) Refer to Table 10-1. For a single-price monopolist, the marginal revenue associated with increasing sales from 6
to 7 units is
A) -4.
B) -2.
C) 0.
D) 2.
E) 4.
Answer: C
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
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11) Refer to Table 10-1. For a single-price monopolist producing and selling 9 units, the marginal revenue earned by
selling the 9th unit is
A) -4.
B) -2.
C) 0.
D) 2.
E) 4.
Answer: A
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
12) Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. At what level of output
is marginal revenue equal to 0?
A) between 6 and 7 units
B) between 7 and 8 units
C) between 8 and 9 units
D) between 9 and 10 units
E) between 10 and 11 units
Answer: A
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
13) Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. At what level of output
is total revenue maximized for this firm?
A) between 6 and 7 units
B) between 7 and 8 units
C) between 8 and 9 units
D) between 9 and 10 units
E) between 10 and 11 units
Answer: A
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
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14) Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. Which of the following
statements about price elasticity of demand is true?
A) demand is unit-elastic at a price of $4
B) demand is elastic at a price of $8
C) demand is elastic at a price of $5
D) demand is inelastic at a price of $8
E) demand is elastic at a price of $3
Answer: B
Diff: 3
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
15) Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. At what level of demand
is the price elasticity of demand equal to 1?
A) between 6 and 7 units
B) between 7 and 8 units
C) between 8 and 9 units
D) between 9 and 10 units
E) between 10 and 11 units
Answer: A
Diff: 3
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
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The figure below shows the demand schedule and demand curve for a product produced by a single-price
monopolist.
FIGURE 10-1
16) Refer to Figure 10-1. Suppose this single-price monopolist is initially selling 5 units at $8 each and then reduces
the price of the product to $6. By making this change, the firm is giving up revenue of ________ on the original
number of units sold and gaining revenue of ________ on the additional units sold. Its marginal revenue is therefore
________. (All figures are dollars.)
A) 38; 40; 2
B) 8; 6; 2
C) 10; 12; 2
D) 14; 14; 0
E) 5; 7; -2
Answer: C
Diff: 3
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Quantitative
17) Refer to Figure 10-1. Suppose this single-price monopolist is initially selling 9 units at $4 each and then reduces
the price of the product to $3. By making this change, the firm is giving up revenue of ________ on the original
number of units sold and gaining revenue of ________ on the additional units sold. Its marginal revenue is therefore
________. (All figures are dollars)
A) 40; 27; -13
B) 30; 36; 6
C) 34; 28; -6
D) 9; 3; -6
E) 3; 9; 6
Answer: D
Diff: 3
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Quantitative
18) Refer to Figure 10-1. What is the level of output at which marginal revenue first becomes negative?
A) 5th unit
B) 6th unit
C) 7th unit
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D) 8th unit
E) 9th unit
Answer: D
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Quantitative
19) If a single-price monopolist sets price where the price elasticity of demand exactly equals 1, its
A) total profits are at a maximum.
B) marginal revenue is always positive.
C) total revenue is rising, although marginal revenue is falling.
D) total revenue is falling.
E) total revenue is at its maximum.
Answer: E
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
20) Consider a profit-maximizing single-price monopolist that faces a linear demand curve. The firm sets price
where the price elasticity of demand is
A) zero.
B) less than one.
C) one.
D) greater than one.
E) infinite.
Answer: D
Diff: 3
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
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21) A monopolist faces a straight-line demand curve and is currently producing an output level of 2000 units
receiving $10 000 in total revenue. At an output of 1000 units the marginal revenue for this firm would be
A) 0.
B) $2.50.
C) $5.00.
D) $10.00.
E) Impossible to tell with the given information.
Answer: E
Diff: 3
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Quantitative
22) Consider a single-price monopolist that is operating in the inelastic range of its linear demand curve. This firm
A) would be operating where its AR is negative.
B) would have a marginal revenue curve that is negative.
C) would have a marginal revenue that is negative although its total revenues would be at a maximum.
D) could raise its total revenue by lowering its price.
E) would be operating at its profit-maximizing position.
Answer: B
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
23) Consider a profit-maximizing single-price monopolist that faces a linear demand curve. The firm would not set a
price at which demand is inelastic because
A) marginal revenue is zero in that range of output.
B) average revenue is zero in that range of output.
C) the marginal revenue would be negative in that range of output.
D) the average revenue would be negative in that range of output.
E) the marginal revenue and average revenue would be equal in that range of output.
Answer: C
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Recall
User2: Quantitative
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Consider the following AR and MR curves for a single-price monopolist.
FIGURE 10-2
24) Refer to Figure 10-2. The price elasticity of demand at Q2 is
A) zero.
B) greater than 1.
C) less than 1.
D) equal to 1.
E) not determinable from the diagram.
Answer: D
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
25) Refer to Figure 10-2. The price elasticity of demand at Q1 is
A) zero.
B) less than 1.
C) equal to 1.
D) greater than 1.
E) not determinable from the diagram.
Answer: D
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
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The diagram below shows total revenue for a single-price monopolist.
FIGURE 10-3
26) Refer to Figure 10-3. The firm's marginal revenue at Q1 is
A) zero.
B) positive and rising.
C) positive but falling.
D) negative and falling.
E) not determinable from the diagram.
Answer: C
Diff: 3
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
27) Refer to Figure 10-3. The price elasticity of demand at Q3 is
A) zero.
B) less than 1.
C) equal to 1.
D) greater than 1.
E) not determinable from the diagram.
Answer: B
Diff: 3
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
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The diagram below shows the demand curve facing a single-price monopolist.
FIGURE 10-4
28) Refer to Figure 10-4. Suppose the firm is currently producing at point A on the demand curve, selling 100 units
of output at a price of $60 per unit. If the firm moves to point B, the revenue the firm gives up on the units it was
already selling is ________, and the revenue it gains on the additional units sold is ________.
A) $1000; $5000
B) $2000; $5000
C) $5000; $2000
D) $100; $200
E) $100; $500
Answer: A
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
User1: Graph
User2: Quantitative
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29) Refer to Figure 10-4. What is the firm's marginal revenue per unit as it moves from point A to point B on the
demand curve?
A) $0
B) $40
C) $50
D) $1000
E) $2000
Answer: B
Diff: 3
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
User1: Graph
User2: Quantitative
30) Refer to Figure 10-4. Suppose the firm is currently at point C on the demand curve, selling 300 units at $40 per
unit. If the firm moves to point D, the revenue the firm gives up on the units it was already selling is ________ and
the revenue it gains on the additional units sold is ________.
A) $9000; $9000
B) $12 000; $12 000
C) $3000; 4000
D) $4000; $3000
E) $3000; $3000
Answer: E
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
User1: Graph
User2: Quantitative
31) Refer to Figure 10-4. What is the firm's marginal revenue per unit as it moves from point C to point D on the
demand curve?
A) $0
B) $10
C) $50
D) $100
E) $3000
Answer: A
Diff: 3
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
User1: Graph
User2: Quantitative
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32) Refer to Figure 10-4. At what level of quantity does the marginal revenue curve for this firm intersect the
horizontal axis?
A) 0
B) 250
C) 350
D) 500
E) 700
Answer: C
Diff: 3
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Applied
User1: Graph
User2: Quantitative
Consider the following AR and MR curves for a single-price monopolist.
FIGURE 10-2
33) Refer to Figure 10-2. If marginal costs were zero, the profit-maximizing output for this single-price monopolist
would be
A) 0.
B) Q1.
C) Q2.
D) Q3.
E) Q4.
Answer: C
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
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34) Refer to Figure 10-2. If marginal costs were positive and constant but less than A, the profit-maximizing output
for this single-price monopolist would be
A) 0.
B) greater than zero, but less than Q1.
C) greater than zero, but less than Q2.
D) equal to Q2.
E) between Q2 and Q4.
Answer: C
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
35) Refer to Figure 10-2. For this single-price monopolist, the profit-maximizing level of output is
A) Q1.
B) Q2.
C) Q3.
D) Q4.
E) not determinable from the diagram.
Answer: E
Diff: 1
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
36) If a single-price monopoly is presently producing an output at which marginal revenue is less than marginal cost,
it can increase its profits by
A) reducing output and raising prices.
B) reducing output and holding prices unchanged.
C) expanding output and lowering price.
D) expanding output and raising price.
E) reducing barriers to entry.
Answer: A
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
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37) For a monopolist, the profit-maximizing level of output occurs where
A) MR = MC.
B) MR = AC.
C) MC = 0.
D) MC = AR.
E) MC = price.
Answer: A
Diff: 1
Topic: 10.1b. profit maximization for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
38) A monopolist will be earning positive economic profits
A) at all times, since it controls the market.
B) when price equals marginal cost.
C) whenever marginal revenue equals marginal cost.
D) when price exceeds average total cost.
E) whenever marginal revenue is positive.
Answer: D
Diff: 1
Topic: 10.1b. profit maximization for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
39) At the profit-maximizing level of output for a single-price monopolist, price
A) always exceeds average total cost.
B) equals marginal cost.
C) exceeds marginal cost.
D) equals marginal revenue.
E) is below marginal revenue.
Answer: C
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
40) Which of the following statements about single-price monopolists is correct?
A) The profit-maximizing level of output is the same as the total revenue-maximizing level of output.
B) The average revenue curve lies above the demand curve.
C) AR is greater than MR.
D) Price elasticity of demand will be equal to one if the firm is profit-maximizing.
E) Price equals marginal cost at the profit-maximizing level of output.
Answer: C
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
41) Monopolistic firms do not have supply curves because
A) they are not constrained by the marginal costs of production.
B) their output is a fixed quantity.
C) monopolists get to choose their price-quantity combination along the demand curve.
D) monopolists face a given market price.
E) their marginal costs cannot be calculated.
Answer: C
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Copyright © 2017 Pearson Education, Inc.
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
42) A single-price monopolist is currently producing an output level where price equals marginal cost, and profits
are positive. In order to maximize profits, this monopolist should
A) produce zero output.
B) increase production and reduce price.
C) decrease production and increase price.
D) not change his output level, because he is currently earning profits.
E) reduce price and let production adjust to the new price.
Answer: C
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
43) If a single-price monopolist's price equals marginal cost, the firm
A) could increase its profits by lowering output and raising price.
B) should maintain its current price because it is a price taker.
C) will find it more profitable to produce a greater output.
D) is producing where MR = MC and thus is maximizing profits.
E) should definitely shut down.
Answer: A
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
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44) Suppose that a single-price monopolist calculates that at its present output, marginal revenue is $2 and marginal
cost is $1. If the price of the product is $3, the monopolist could maximize its profits by
A) lowering price and raising output.
B) lowering price and leaving output unchanged.
C) raising price and leaving output unchanged.
D) doing nothing.
E) shutting down.
Answer: A
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Quantitative
The diagram below shows total revenue for a single-price monopolist.
FIGURE 10-3
45) Refer to Figure 10-3. The profit-maximizing output for this single-price monopolist is
A) Q1
B) Q2.
C) Q3.
D) Q4.
E) not determinable from the diagram.
Answer: E
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
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46) A single-price monopolist is currently producing an output level where P = $20, MR = $13, ATC = $15, and MC
= $14. In order to maximize profits, this monopolist should
A) produce zero output.
B) increase production and reduce price.
C) decrease production and increase price.
D) not change the output level, because the firm is currently at the profit-maximizing output level.
E) There is insufficient information to make a recommendation.
Answer: C
Diff: 3
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Quantitative
47) A single-price monopolist is currently producing an output level where P = $320, MR = $260, ATC = $280, and
MC = $200. In order to maximize profits, this monopolist should
A) produce zero output.
B) increase production and reduce price
C) decrease production and increase price.
D) not change the output level because the firm is currently at the profit-maximizing output level.
E) There is insufficient information to make a recommendation.
Answer: B
Diff: 3
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Quantitative
48) A single-price monopolist is currently producing an output level where P = $320, MR = $200, AVC = $327, and
MC = $200. In order to maximize profits, this firm should
A) increase production and reduce prices.
B) decrease production and increase prices.
C) not change its output level, because the firm is currently at its profit maximizing level.
D) produce zero output.
E) There is insufficient information to make a recommendation.
Answer: D
Diff: 3
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Quantitative
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49) Economic profit for a monopolistic firm will equal zero when
A) average total cost is minimized.
B) marginal revenue equals marginal cost.
C) marginal revenue equals price.
D) price equals marginal cost.
E) average total cost equals price.
Answer: E
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
50) If a monopolist's marginal revenue is MR = 12 - 2Q and its marginal cost is MC = 3, then the profit-maximizing
quantity is
A) 0.
B) 4.
C) 4.5.
D) 6.
E) 12.
Answer: C
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Quantitative
51) If a monopolist's marginal revenue is MR = 15 - 2Q and its marginal cost is MC = 5, then the profit-maximizing
quantity is
A) 0.
B) 5.
C) 7.5.
D) 10.
E) 15.
Answer: B
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Quantitative
514
Copyright © 2017 Pearson Education, Inc.
Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
52) Refer to Figure 10-5. A profit-maximizing single-price monopolist would produce the quantity
A) Q0.
B) Q1.
C) Q2.
D) Q3.
E) Q4.
Answer: A
Diff: 1
Topic: 10.1b. profit maximization for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
53) Refer to Figure 10-5. A profit-maximizing single-price monopolist would charge the price
A) P0.
B) P1.
C) P2.
D) P3.
E) P4.
Answer: E
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
54) Refer to Figure 10-5. The average per unit profit earned by this profit-maximizing single-price monopolist is
A) P4 - P0.
B) P4 - P1.
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C) P4 - P2.
D) P4 - P3.
E) P3 - P2.
Answer: C
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
55) Refer to Figure 10-5. If the single-price monopolist is producing at the profit-maximizing level of output, the
total cost is represented by the area
A) 0P4aQ0.
B) 0P3cQ3.
C) 0P1dQ1.
D) 0P2bQ0.
E) 0P0gQ5.
Answer: D
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
56) Refer to Figure 10-5. If this single-price monopolist is producing at the profit-maximizing level of output, the
total revenue is represented by the area
A) 0P4aQ0.
B) 0P3cQ2.
C) 0P1dQ1.
D) 0P2bQ0.
E) 0P0gQ5.
Answer: A
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
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57) Refer to Figure 10-5. If this single-price monopolist is producing at the profit-maximizing level of output, the
total profit is represented by the area
A) 0P4aQ0.
B) P4abP2.
C) P3ceP2.
D) 0P2bQ0.
E) 0P0fQ0.
Answer: B
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
58) Refer to Figure 10-5. If this single-price monopolist is producing at the profit-maximizing level of output,
consumer surplus is represented by the area
A) P5P2b.
B) P5P4a.
C) P5P0g.
D) P5P1e.
E) P5Q30.
Answer: B
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
59) Refer to Figure 10-5. This single-price monopolist would maximize total revenue by producing the quantity
A) Q1.
B) Q2.
C) Q3.
D) Q4.
E) Q5.
Answer: C
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
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60) Refer to Figure 10-5. Suppose this firm experiences an increase in the demand for its product. In the short run,
this profit-maximizing monopolist will
A) increase price and output.
B) increase price and produce the same output.
C) increase price and reduce output.
D) neither raise price nor change output.
E) lower price and increase output.
Answer: A
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Graph
User2: Qualitative
Your food-services company has been named as the monopoly provider of meals at a small university. The cost and
demand schedules are:
Sold per Day
0
100
200
300
400
500
600
700
Price per Meal
$3.50
$3.25
$3.00
$2.75
$2.50
$2.25
$2.00
$1.75
Total
Fixed Cost
$150
$150
$150
$150
$150
$150
$150
$150
Total
Variable Cost
$0
$300
$500
$650
$750
$830
$905
$995
Total Revenue
$0
$325
$600
$825
$1000
$1125
$1200
$1225
TABLE 10-2
61) Refer to Table 10-2. The marginal cost between 100 and 200 meals per day is
A) $0.
B) $1.00.
C) $1.50.
D) $2.00.
E) $3.00.
Answer: D
Diff: 3
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
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62) Refer to Table 10-2. The marginal cost between 300 and 400 meals per day is
A) $0.
B) $1.00.
C) $1.50.
D) $2.00.
E) $3.00.
Answer: B
Diff: 3
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
User1: Table
User2: Quantitative
63) Refer to Table 10-2. Assuming the firm is a single-price monopolist, the marginal revenue between 100 and 200
meals per day is
A) $1.75.
B) $2.25.
C) $2.75.
D) $3.25.
E) $0.
Answer: C
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
64) Refer to Table 10-2. For a single-price monopolist, the profit-maximizing price and number of meals per day is
best approximated by
A) 650 meals at $1.87 per meal.
B) 550 meals at $2.12 per meal.
C) 450 meals at $2.37 per meal.
D) 350 meals at $2.62 per meal.
E) 250 meals at $2.87 per meal.
Answer: B
Diff: 3
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
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65) Refer to Table 10-2, and suppose that the firm is a single-price monopolist. At the profit-maximizing level of
output, the price elasticity of demand is
A) less than one.
B) one.
C) greater than one.
D) infinite.
E) impossible to know with the available information.
Answer: C
Diff: 3
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
66) Refer to Table 10-2, and suppose that the firm is a single-price monopolist. If the firm provided 700 meals per
day, total daily profits would be
A) -$60.
B) $80.
C) $150.
D) $230.
E) impossible to calculate given the information provided.
Answer: B
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
67) Refer to Table 10-2, and suppose that the firm is a single-price monopolist. The level of output at which profits
are zero is between
A) 0 and 100 meals.
B) 100 and 200 meals.
C) 200 and 300 meals.
D) 300 and 400 meals.
E) 300 and 500 meals.
Answer: C
Diff: 3
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
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68) Refer to Table 10-2. If the firm were to shut down in the short run its losses per day would be
A) zero.
B) $150.
C) equal to its average variable cost.
D) equal to its total revenue.
E) equal to its total cost.
Answer: B
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
69) Suppose that a single-price monopolist knows the following information:
Price
$10.00
Quantity
1500
TR
MR
$7.00
Fixed Cost
$6000
TC
ATC
$5.00
MC
$5.00
The monopolist could maximize profits by
A) staying at the current price and output.
B) lowering price and increasing output.
C) lowering price and leaving output unchanged.
D) raising price and leaving output unchanged.
E) producing zero output.
Answer: B
Diff: 3
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Quantitative
521
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70) Suppose that a single-price monopolist knows the following information:
Price
$10.00
Quantity
1500
TR
MR
$7.00
Fixed Cost
$6000
TC
ATC
$5.00
MC
$5.00
The total profit being earned by this firm at the current level of output is ________ which ________ the maximum
profit possible.
A) $3000; is not
B) $7500; is not
C) $15 000; is
D) $97 500; is not
E) $105 000; is
Answer: B
Diff: 3
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
71) Suppose that a single-price monopolist knows the following information:
Price
$9.00
Quantity
1500
TR
MR
$4.00
Fixed Cost
$7000
TC
ATC
$7.00
MC
$5.00
The monopolist could maximize its profits by
A) staying at the current price and output.
B) lowering price and increasing output.
C) lowering price and leaving output unchanged.
D) raising price and lowering output.
E) producing zero output.
Answer: D
Diff: 3
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Quantitative
522
Copyright © 2017 Pearson Education, Inc.
72) Suppose that a single-price monopolist knows the following information:
Price
$9.00
Quantity
1500
TR
MR
$4.00
Fixed Cost
$7000
TC
ATC
$7.00
MC
$5.00
The total profit being earned by this firm at the current level of output is
A) $1500.
B) $3000.
C) $6500.
D) $10 500.
E) $13 500.
Answer: B
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
73) Suppose that a single-price monopolist knows the following information:
Price
$5.00
Quantity
2000
TR
MR
$4.00
Fixed Cost
$2000
TC
ATC
$5.00
MC
$3.00
The monopolist could maximize profits in the short run by
A) staying at the current price and output.
B) lowering price and increasing output.
C) lowering price and leaving output unchanged.
D) raising price and lowering output.
E) shutting down.
Answer: B
Diff: 3
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Quantitative
523
Copyright © 2017 Pearson Education, Inc.
74) Suppose that a single-price monopolist knows the following information:
Price
$5.00
Quantity
2000
TR
MR
$4.00
Fixed Cost
$2000
TC
ATC
$5.00
MC
$3.00
The total profit being earned by this firm at the current level of output is
A) -$2000.
B) -$1000.
C) 0.
D) $1000.
E) $2000.
Answer: C
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User1: Table
User2: Quantitative
75) Which of the following statements describes a major difference between monopoly and perfect competition?
A) Perfectly competitive firms cannot maintain positive economic profits in the long run, whereas monopolists can.
B) Monopolists do not consider consumer demand when choosing price and output levels.
C) Monopolistic firms tend to maximize revenue while perfectly competitive firms maximize profit.
D) Monopolistic firms emphasize cost minimization whereas perfectly competitive firms emphasize profit
maximization.
E) Perfectly competitive firms can never earn economic profits; monopolistic firms always earn economic profits.
Answer: A
Diff: 1
Topic: 10.1b. profit maximization for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit ‐maximizing monopolist.
User2: Qualitative
76) Which one of the following is a natural barrier to firms entering an industry?
A) decreasing returns to scale
B) a positively sloped LRAC curve over the whole range of output
C) a negatively sloped LRAC curve over the whole range of output
D) threats of punitive price-cutting by existing producers
E) licensing and patent restrictions
Answer: C
Diff: 1
Topic: 10.1c. entry barriers
Skill: Recall
Learning Obj.: 10-2 Understand how entry barriers can allow monopolists to maintain positive profits in the long run.
User2: Qualitative
77) Natural barriers to firms to entering an industry include
A) control or ownership of the entire supply of an essential raw material.
B) large economies of scale in the industry.
C) a government-awarded franchise.
D) a patent which allows production by only the patent holder.
E) increasing-cost production.
Answer: B
Diff: 2
Topic: 10.1c. entry barriers
Skill: Recall
Learning Obj.: 10-2 Understand how entry barriers can allow monopolists to maintain positive profits in the long run.
User2: Qualitative
524
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78) A likely cause of a natural monopoly occurring in some industry is
A) scale economies.
B) patents.
C) licenses.
D) charters.
E) sabotage.
Answer: A
Diff: 1
Topic: 10.1c. entry barriers
Skill: Recall
Learning Obj.: 10-2 Understand how entry barriers can allow monopolists to maintain positive profits in the long run.
User2: Qualitative
79) If an industry's demand conditions allow at most one firm to cover its costs while producing at its minimum
efficient scale (MES), this situation is known as
A) a discriminating monopoly.
B) a natural monopoly.
C) declining marginal revenue.
D) limited competition.
E) natural economic limits.
Answer: B
Diff: 1
Topic: 10.1c. entry barriers
Skill: Recall
Learning Obj.: 10-2 Understand how entry barriers can allow monopolists to maintain positive profits in the long run.
User2: Qualitative
525
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80) Suppose the technology of an industry is such that the typical firm's minimum efficient scale is 8000 units per
month at an average long-run cost of $5 per unit. If the total quantity demanded at a price of $5 per unit is 8500 units
per month, the likely result would be
A) a cartel.
B) a concentrated oligopoly.
C) a natural monopoly.
D) price discrimination.
E) perfectly competitive firms.
Answer: C
Diff: 2
Topic: 10.1c. entry barriers
Skill: Applied
Learning Obj.: 10-2 Understand how entry barriers can allow monopolists to maintain positive profits in the long run.
User2: Qualitative
81) Suppose the technology of an industry is such that the typical firm's minimum efficient scale is 18 units per day
at an average long-run cost of $1600 per unit. If the total quantity demanded at a price of $1750 per unit is 16 units
per month, the likely result would be
A) a competitive industry.
B) a cartel.
C) price discrimination.
D) a natural monopoly.
E) a concentrated oligopoly.
Answer: D
Diff: 3
Topic: 10.1c. entry barriers
Skill: Applied
Learning Obj.: 10-2 Understand how entry barriers can allow monopolists to maintain positive profits in the long run.
User2: Quantitative
82) Suppose the technology of production is such that the typical firm's minimum efficient scale is 1400 units per
week at an average long-run cost of $9 per unit. If the total quantity demanded in this market at a price of $9 per unit
is 22 million units per week, the likely result will be
A) a cartel.
B) price discrimination.
C) a natural monopoly.
D) a concentrated oligopoly.
E) a competitive industry.
Answer: E
Diff: 2
Topic: 10.1c. entry barriers
Skill: Applied
Learning Obj.: 10-2 Understand how entry barriers can allow monopolists to maintain positive profits in the long run.
User2: Qualitative
526
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83) If a competing firm is able to overcome an entry barrier of a monopolized industry, the demand curve of the
single firm already in the industry will
A) shift to the right.
B) remain the same in spite of the entry of the other firm.
C) shift to the left.
D) become less elastic.
E) shift to the left and become more elastic.
Answer: E
Diff: 2
Topic: 10.1c. entry barriers
Skill: Applied
Learning Obj.: 10-2 Understand how entry barriers can allow monopolists to maintain positive profits in the long run.
User2: Qualitative
84) A firm is best described as a natural monopoly if
A) there are no competing firms.
B) it holds an exclusive charter from the government.
C) its ATC curve is upward sloping.
D) its MC curve is downward sloping.
E) it can supply the entire market while minimizing its average costs.
Answer: E
Diff: 1
Topic: 10.1c. entry barriers
Skill: Recall
Learning Obj.: 10-2 Understand how entry barriers can allow monopolists to maintain positive profits in the long run.
User2: Qualitative
85) The main argument of Joseph Schumpeter's idea of "creative destruction" is that
A) the existence of monopolies leads to destruction of the environment.
B) short-run profits created by the existence of monopolies will lead to antitrust legislation, which will force the
fragmentation of monopolies into competitive industries.
C) perfectly competitive industries are characterized by more productive innovation and productivity growth than
monopolistic industries, which Schumpeter regarded as destructive.
D) monopoly profits lead to innovation in an effort to sustain those profits.
E) monopolies create profits for themselves at the expense of the destruction of consumer surplus.
Answer: D
Diff: 2
Topic: 10.1d. innovation and creative destruction
Skill: Recall
Learning Obj.: 10-2 Understand how entry barriers can allow monopolists to maintain positive profits in the long run.
User2: Qualitative
527
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10.2 Cartels and Monopoly Power
1) A number of firms agreeing together to restrict output and thereby raise prices is known as
A) a monopoly.
B) a natural monopoly.
C) a cartel.
D) a barrier to entry.
E) an oligopoly.
Answer: C
Diff: 1
Topic: 10.2. cartels
Skill: Recall
Learning Obj.: 10-3 Describe why firms would form a cartel to restrict industry output and how this would increase their profits.
User2: Qualitative
2) The cartelization of an industry with a homogeneous product usually means that
A) member firms have agreed to cooperate in reducing costs.
B) member firms have agreed to reduce their joint output.
C) the demand curve facing the industry must be linear.
D) the demand curve facing the industry must be elastic.
E) member firms have agreed to reduce investment.
Answer: B
Diff: 1
Topic: 10.2. cartels
Skill: Recall
Learning Obj.: 10-3 Describe why firms would form a cartel to restrict industry output and how this would increase their profits.
User2: Qualitative
3) One of the reasons cartels are considered unstable is that
A) member firms reduce their investment, thereby becoming uncompetitive over time.
B) it is inefficient to manage individual firms collectively.
C) there are wide fluctuations in price as cartel members vary their output.
D) consumers seek out substitutes to the cartel product.
E) individual members of the cartel have an incentive to violate the cartel agreement.
Answer: E
Diff: 1
Topic: 10.2. cartels
Skill: Recall
Learning Obj.: 10-3 Describe why firms would form a cartel to restrict industry output and how this would increase their profits.
User2: Qualitative
528
Copyright © 2017 Pearson Education, Inc.
4) The two characteristic problems for cartels are
A) agreeing on the price to be set and preventing new entrants.
B) policing members' output restrictions and preventing new entrants.
C) coordinating marketing policies and policing members' quotas.
D) agreeing on the price to be set and coordinating marketing policies.
E) policing members' prices and restricting output.
Answer: B
Diff: 2
Topic: 10.2. cartels
Skill: Recall
Learning Obj.: 10-3 Describe why firms would form a cartel to restrict industry output and how this would increase their profits.
User2: Qualitative
5) It is common for a cartel to collapse when one or more firms in the cartel
A) exceed its output quota.
B) produce more efficiently than other member firms.
C) is much larger than other cartel members.
D) increase its price above the monopoly price.
E) exit the industry.
Answer: A
Diff: 1
Topic: 10.2. cartels
Skill: Applied
Learning Obj.: 10-3 Describe why firms would form a cartel to restrict industry output and how this would increase their profits.
User2: Qualitative
6) A cartel can only succeed in the long run
A) with authorization from the government.
B) if there is free entry of new firms.
C) if all firms are experiencing decreasing returns to scale.
D) if the long-run market supply curve is elastic.
E) if member firms cooperate and resist their individual incentives.
Answer: E
Diff: 2
Topic: 10.2. cartels
Skill: Recall
Learning Obj.: 10-3 Describe why firms would form a cartel to restrict industry output and how this would increase their profits.
User2: Qualitative
529
Copyright © 2017 Pearson Education, Inc.
7) Suppose all of the firms in a perfectly competitive industry form a cartel and agree to restrict output, thereby
raising the price of the product. Individual Firm A will gain the most from the existence of the cartel if
A) all firms, including A, cooperate and restrict output.
B) Firm A restricts output, while the other firms do not.
C) all firms, except Firm A, cooperate and restrict output.
D) no firms restrict output.
E) all firms revert back to their competitive outputs.
Answer: C
Diff: 2
Topic: 10.2. cartels
Skill: Applied
Learning Obj.: 10-3 Describe why firms would form a cartel to restrict industry output and how this would increase their profits.
User2: Qualitative
8) In November 2012, there was some discussion of several south-Asian countries joining together to restrict the
supply of rice to the world market. Between them, these countries' exports of rice account for 40% of the total global
trade. What would they be trying to accomplish?
A) They are attempting to form a cartel, increase their joint output, and control a larger percentage of the total global
trade.
B) They are attempting to price discriminate between consumers of their exported rice, thereby increasing their
share of the global trade and increasing their joint profits.
C) They are attempting to form a cartel, jointly restrict output, and increase the world price of rice.
D) They are attempting to act as a bloc to restrict entry of new producers to the world market, and thereby protect
their joint profits.
E) They are attempting to form a cartel, drive other producers out of the world market and then increase their output
of rice.
Answer: C
Diff: 3
Topic: 10.2. cartels
Skill: Applied
Learning Obj.: 10-3 Describe why firms would form a cartel to restrict industry output and how this would increase their profits.
User2: Qualitative
530
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10.3 Price Discrimination
Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
1) Refer to Figure 10-5. In order to maximize its profits, a perfect-price-discriminating monopolist produces the
quantity
A) Q0.
B) Q1.
C) Q2.
D) Q3.
E) Q4.
Answer: C
Diff: 2
Topic: 10.3. price discrimination
Skill: Recall
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User1: Graph
User2: Qualitative
531
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2) Refer to Figure 10-5. If the monopolist is practicing perfect price discrimination and is maximizing its profits, the
total revenue is represented by the area
A) 0P4aQ0.
B) 0P5cQ2.
C) 0P1dQ1.
D) 0P2bQ0.
E) 0P3cQ2.
Answer: B
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User1: Graph
User2: Qualitative
3) Refer to Figure 10-5. If the monopolist is practicing perfect price discrimination and is maximizing its profits, the
consumer surplus is represented by the area
A) P5P3c.
B) P5P4a.
C) P5P0c.
D) P5P2e.
E) There is no consumer surplus in this case.
Answer: E
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User1: Graph
User2: Qualitative
4) Refer to Figure 10-5. Suppose this monopolist is practicing perfect price discrimination. How does this differ
from the situation where this firm is charging a single price for its product?
A) The firm is producing the same quantity, has successfully identified different segments of the market, and is able
to capture some of the consumer surplus.
B) The firm is restricting output to a level below that of the single-price monopolist, and thereby raises the price of
its product and earns higher profits.
C) The firm is producing a smaller quantity, is charging a different price for each unit sold and is earning higher
profits.
D) The firm is producing the same quantity, but charging a different price for each unit sold and is earning higher
profits.
E) The firm is producing a higher quantity, is charging a different price for each unit sold and is earning higher
profits.
Answer: E
Diff: 3
Topic: 10.3. price discrimination
Skill: Recall
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
5) Relative to a firm that must charge a single price for all of its output, the ability to charge multiple prices gives a
firm with market power the ability to capture some or all of the
A) producer surplus.
B) consumer surplus.
C) fixed costs.
D) variable costs.
E) marginal costs.
Answer: B
532
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Diff: 1
Topic: 10.3. price discrimination
Skill: Recall
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
6) Price discrimination, if possible, allows a price-setting firm to increase its profits by
A) shifting its cost curves downward.
B) raising the price above the competitive price.
C) charging different prices according to the willingness to pay of each consumer.
D) reducing costs through a reduction in output.
E) charging different prices according to the different marginal cost on each unit.
Answer: C
Diff: 2
Topic: 10.3. price discrimination
Skill: Recall
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
7) Suppose the market for some product can be divided into two segments, each with a linear demand curve. A
monopolist can set a different price (but only one price) in each segment. The profit-maximizing price
discrimination across these two market segments will lead to
A) higher output with average revenue higher than the best single price.
B) lower output with total revenue higher than the single best price.
C) lower output with a higher average revenue than the best single price.
D) higher output with average revenue lower than the best single price.
E) the same output but higher average revenue than the best single price.
Answer: E
Diff: 3
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
533
Copyright © 2017 Pearson Education, Inc.
8) One reason movie theatres charge a lower admission price to senior citizens is that
A) movie-theatre owners are able to practice perfect price discrimination.
B) government sets the price policies.
C) senior citizens have a more elastic demand than other movie-goers.
D) senior citizens have a less elastic demand than other movie-goers.
E) senior citizens have a higher willingness-to-pay than other people.
Answer: C
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
9) Which one of the following cases is NOT an example of price discrimination?
A) Airlines charge different fares for business people than tourist travelers.
B) Young males are charged higher premiums for car insurance than older males or women.
C) A local phone company charges different telephone rates to residential and business users.
D) Electric companies charge different rates to commercial and residential users for electricity.
E) Theatres charge different rates for different age groups.
Answer: B
Diff: 3
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
10) Which of the following is probably NOT an example of price discrimination?
A) A doctor charging for his services according to the income of his patients.
B) Train fares that are less expensive for weekend travel than weekday travel.
C) A theatre charging children under 12 less for a movie ticket than it charges an adult.
D) Universities charging out-of-province students higher tuition fees.
E) A supermarket charging more for strawberries in December than in June.
Answer: E
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
534
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11) Which of the following statements about a monopoly practicing perfect price discrimination is correct?
A) The profit-maximizing criterion is MR = P, the same as for perfect competition.
B) The demand curve is also the marginal-revenue curve.
C) It will charge higher prices in those market segments with more elastic demand.
D) The output will always be less than that produced by a single-price monopolist.
E) Total costs will be lower than that of a single-price monopolist.
Answer: B
Diff: 3
Topic: 10.3. price discrimination
Skill: Recall
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
12) If a monopolist is practicing perfect price discrimination, then the following equation is true:
A) MR = P for all units.
B) MR = 1/2 P for any unit.
C) AR = ATC at the profit-maximizing level of output.
D) MC = 1/2 MR at the profit-maximizing level of output.
E) P = AVC at the profit-maximizing level of output.
Answer: A
Diff: 3
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
13) If a monopolist is practicing perfect price discrimination, then
A) the producer surplus is zero.
B) consumer surplus is zero.
C) costs are lower than for the non-price-discriminating monopolist.
D) demand must be inelastic.
E) the monopolist is not profit maximizing.
Answer: B
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
535
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14) Which of the following products would most easily lend itself to successful price discrimination by a
monopolist?
A) cellular phones
B) electricity
C) pianos
D) restaurant meals
E) transport trucks
Answer: B
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
15) If a monopolist is practising perfect price discrimination, we know that
A) the firm is facing a perfectly elastic demand curve.
B) the firm is facing a perfectly inelastic demand curve.
C) marginal cost is rising as output rises.
D) the firm is producing a lower output than it would if it were a single-price monopolist.
E) the firm is selling each unit at a different price and capturing all consumer surplus.
Answer: E
Diff: 2
Topic: 10.3. price discrimination
Skill: Recall
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
16) One reason airlines charge a higher price to business travellers is that
A) business travellers don't profit maximize.
B) government sets the price policies.
C) business travellers have a relatively higher demand elasticity than other travellers.
D) business travellers have a relatively lower demand elasticity than other travellers.
E) they are thereby able to minimize costs.
Answer: D
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
536
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The diagram below shows the demand curve and marginal cost and marginal revenue curves for a new heart
medication for which the pharmaceutical firm holds a 20-year patent on its production and sales. This protection
gives the firm monopoly power for the 20 years of the patent.
FIGURE 10-6
17) Refer to Figure 10-6. Assume this pharmaceutical firm charges a single price for its drug. At its profitmaximizing level of output it will produce
A) Q0 units and charge the perfectly competitive price.
B) Q0 units and charge a price of p0.
C) Q1 units and charge a price of p1.
D) Q0 units and charge a price of p2.
E) Q1 units and charge a price greater than its average total variable cost.
Answer: B
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User1: Graph
User2: Qualitative
537
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18) Refer to Figure 10-6. Assume this pharmaceutical firm charges a single price for its drug. At its profitmaximizing level of output, consumer surplus is represented by
A) areas H + I.
B) areas C + D + E + F.
C) areas D + E.
D) There is no consumer surplus generated.
E) It is not possible to determine with the information provided.
Answer: C
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User1: Graph
User2: Qualitative
19) Refer to Figure 10-6. Assume this pharmaceutical firm charges a single price for its drug. At its profitmaximizing level of output, it will generate a total profit represented by
A) the sum of areas A through K.
B) areas A + B + C + F + G.
C) areas B + C + F + G + H + I.
D) areas D + E.
E) It is not possible to determine with the information provided.
Answer: E
Diff: 3
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User1: Graph
User2: Qualitative
20) Refer to Figure 10-6. Assume this pharmaceutical firm is practicing perfect price discrimination among its
buyers. At its profit-maximizing level of output it will produce
A) Q1 units and charge a price of p1 on the last unit sold.
B) Q1 units and charge a price of p1 on all units.
C) Q0 units and charge a price of p0 on the last unit sold.
D) Q0 units and charge a price of p0 on all units.
E) It is not possible to determine with the information provided.
Answer: A
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User1: Graph
User2: Qualitative
538
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21) Refer to Figure 10-6. Assume this pharmaceutical firm is practicing perfect price discrimination among its
buyers. At its profit-maximizing level of output, consumer surplus is represented by
A) areas C + D + E + F + H.
B) areas D + E.
C) areas C + F + H.
D) There is no consumer surplus.
E) It is not possible to determine with the information provided.
Answer: D
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User1: Graph
User2: Qualitative
22) Refer to Figure 10-6. Assume this pharmaceutical firm charges a single price for its drug. At its profitmaximizing level of output, it will generate a deadweight loss to society represented by
A) areas H + I.
B) areas H + I + J + K.
C) areas I + J + K.
D) There is no deadweight loss generated.
E) It is not possible to determine with the information provided.
Answer: A
Diff: 3
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User1: Graph
User2: Qualitative
23) Refer to Figure 10-6. Assume this pharmaceutical firm is practicing perfect price discrimination among its
buyers. At its profit-maximizing level of output, it will generate a deadweight loss to society represented by
A) areas H + I.
B) areas H + I + J + K.
C) areas I + J + K.
D) There is no deadweight loss generated.
E) It is not possible to determine with the information provided.
Answer: D
Diff: 3
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User1: Graph
User2: Qualitative
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24) Refer to Figure 10-6. Assume this pharmaceutical firm has no fixed costs and is practicing perfect price
discrimination among its buyers. At its profit-maximizing level of output, it will generate a total profit represented
by
A) areas B + C + F + G + H + I.
B) areas C + F + H.
C) areas G + I.
D) the area below the demand curve minus the area below the MC curve, up to Q1.
E) It is not possible to determine with the information provided.
Answer: D
Diff: 3
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User1: Graph
User2: Qualitative
25) Refer to Figure 10-6. Suppose this pharmaceutical firm is charging a single price for its drug and is maximizing
its profits. If it then begins to perfectly price discriminate among its buyers it will
A) cause a loss of economic surplus to society as a whole.
B) capture consumer surplus equal to areas D + E + C + F + H.
C) no longer be equating MR and MC.
D) reduce its producer surplus by areas C + F + H.
E) decrease its total output.
Answer: B
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User1: Graph
User2: Qualitative
26) Consider a monopolist that is able to distinguish between two distinct market segments, A and B, for its product.
Marginal cost is constant at $18 for each unit produced. The firm is currently selling its output at a single price and
allocating its output across segments such that marginal revenue in segment A is $25 and marginal revenue in
segment B is $15. Is this firm maximizing its profit?
A) Yes, because it has set a price such that MC is between the MRs of the two market segments.
B) No, because it is only possible to equate MR and MC when there is a single MR curve.
C) Yes, because since marginal cost is constant, the firm must set a single price.
D) No, this firm can increase its profits by price discriminating across the two market segments.
Answer: D
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Quantitative
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27) Consider a monopolist that is able to distinguish between two distinct market segments, A and B, for its product.
Marginal cost is constant at $18 for each unit produced. The firm is currently selling its output at a single price and
allocating its output across segments such that marginal revenue in segment A is $25 and marginal revenue in
segment B is $15. How can this firm maximize its profit?
A) increase the output in segment A and decrease the output in segment B
B) increase the output in segments A and B
C) decrease the output in segment A and increase the output in segment B
D) decrease the output in segments A and B
E) maintain the current output and its allocation across segments
Answer: A
Diff: 3
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Quantitative
28) Consider a monopolist that is able to distinguish between two distinct market segments, A and B, for its product.
Marginal cost is constant at $100 for each unit produced. The firm is currently selling its output at a single price and
allocating its output across segments such that marginal revenue in segment A is $85 and marginal revenue in
segment B is $105. Is this firm maximizing its profit?
A) Yes, because it has set a price such that MC is between the MRs of the two market segments.
B) No, because it is only possible to equate MR and MC when there is a single MR curve.
C) Yes, because since marginal cost is constant, the firm must set a single price.
D) No, this firm can increase its profits by price discriminating across the two market segments.
Answer: D
Diff: 1
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Quantitative
29) Consider a monopolist that is able to distinguish between two distinct market segments, A and B, for its product.
Marginal cost is constant at $100 for each unit produced. The firm is currently selling its output at a single price and
allocating its output across segments such that marginal revenue in segment A is $85 and marginal revenue in
segment B is $105. How can this firm maximize its profit?
A) increase the output in segment A and decrease the output in segment B
B) increase the output in segments A and B
C) decrease the output in segment A and increase the output in segment B
D) decrease the output in segments A and B
E) maintain the current output and its allocation across segments
Answer: C
Diff: 3
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Quantitative
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30) With regard to price discrimination, we can generally say that a monopolist practicing perfect price
discrimination ________ a single-price monopolist in the same market.
A) produces a lower level of output compared to
B) generates more consumer surplus than
C) generates a more efficient outcome for society as a whole compared to
D) produces the same output level and charges the same price as
E) has the same effects on consumer welfare as
Answer: C
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
31) Many clothing retailers allow you to go to their website and print a coupon that you then present for a
discounted price on your next purchase in the store. In economics we refer to this as
A) a created entry barrier, a form of price discrimination.
B) hurdle pricing, a form of price discrimination.
C) sales maximization, a form of market segmentation.
D) a loss-leader, a form of advertising.
E) arbitrage, a form of price discrimination.
Answer: B
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
32) Suppose you go to a retailer's website and print a coupon that gives you a discount on your next purchase at their
store. But your friend, who also plans to purchase there, can't be bothered. You are revealing to the store that
A) you have a lower income than your friend.
B) you understand price discrimination and your friend does not.
C) you have a lower elasticity of demand than your friend.
D) you have a higher elasticity of demand than your friend.
E) elasticity of demand changes according to the size of the discount offered.
Answer: D
Diff: 2
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
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33) Consider the following statement: "Price discrimination is harmful to society and should not be tolerated under
any circumstance." Why is this statement false?
A) Price discrimination always leads to lower prices and higher quantities.
B) Price discrimination can allow for some consumers to be made better off because they are able to buy a product
or service that was otherwise unaffordable.
C) Price discrimination leads to higher prices for all consumers and a reduction in consumer surplus.
D) Price discrimination reduces total quantity exchanged and therefore reduces the sum of producer and consumer
surplus.
E) Price discrimination violates the Canadian Charter of Rights and Freedoms.
Answer: B
Diff: 3
Topic: 10.3. price discrimination
Skill: Applied
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User2: Qualitative
Economics - Canadian Edition, 15e (Ragan)
Chapter 11 Imperfect Competition and Strategic Behaviour
11.1 Imperfect Competition
1) An example of a Canadian industry composed of a few large firms is
A) the accounting profession.
B) clothing retailing.
C) gasoline retailing.
D) restaurants.
E) hair dressers.
Answer: C
Diff: 1
Topic: 11.1. imperfectly competitive market structures
Skill: Recall
Learning Obj.: 11-1 Recognize that Canadian industries typically have either a large number of small firms or a small number of
large firms.
User2: Qualitative
2) A Canadian industry composed of many small firms is
A) steel manufacturing.
B) automobile production.
C) gasoline retailing.
D) restaurants.
E) natural gas transmission.
Answer: D
Diff: 1
Topic: 11.1. imperfectly competitive market structures
Skill: Recall
Learning Obj.: 11-1 Recognize that Canadian industries typically have either a large number of small firms or a small number of
large firms.
User2: Qualitative
3) By calculating a concentration ratio, economists measure the
A) degree to which a monopolist's output is lower than in perfect competition.
B) control of a monopolist over its input prices.
C) fraction of total industry sales accounted for by the largest firms.
D) degree to which firms in the industry use similar technologies.
E) concentration of firms in one geographic location.
Answer: C
Diff: 1
Topic: 11.1. imperfectly competitive market structures
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Skill: Recall
Learning Obj.: 11-1 Recognize that Canadian industries typically have either a large number of small firms or a small number of
large firms.
User2: Qualitative
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4) In Canada, concentration ratios are the highest in
A) tobacco products.
B) petroleum and coal products.
C) mining.
D) machinery.
E) clothing industries.
Answer: B
Diff: 1
Topic: 11.1. imperfectly competitive market structures
Skill: Recall
Learning Obj.: 11-1 Recognize that Canadian industries typically have either a large number of small firms or a small number of
large firms.
User2: Qualitative
The table below shows the market shares for the only firms in a domestic cement market.
Firm A
Firm B
Firm C
Firm D
Firm E
Firm F
Firm G
Firm H
Market Share
45%
22%
10%
8%
7%
5%
2%
1%
TABLE 11-1
5) Refer to Table 11-1. The four-firm concentration ratio in this industry is ________%.
A) 100
B) 92
C) 85
D) 67
E) 45
Answer: C
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Applied
Learning Obj.: 11-1 Recognize that Canadian industries typically have either a large number of small firms or a small number of
large firms.
User1: Table
User2: Quantitative
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6) Refer to Table 11-1. The eight-firm concentration ratio in this industry is ________%.
A) 100
B) 92
C) 85
D) 67
E) 45
Answer: A
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Applied
Learning Obj.: 11-1 Recognize that Canadian industries typically have either a large number of small firms or a small number of
large firms.
User1: Table
User2: Quantitative
7) Suppose the 2-firm concentration ratio (measuring output) in a Canadian manufacturing industry is over 90%.
Why might the market power of these 2 firms be less than the concentration ratio suggests?
A) The product is purely domestic and there is no international trade.
B) A high concentration ratio usually indicates low degrees of market power.
C) The product is traded internationally and the two Canadian firms compete with many global rivals.
D) The relevant market is regional and so the concentration ratio is not relevant.
E) A 2-firm concentration ratio does not provide enough information.
Answer: C
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Applied
Learning Obj.: 11-1 Recognize that Canadian industries typically have either a large number of small firms or a small number of
large firms.
User2: Qualitative
8) Suppose the market for gasoline retailing (gas stations) in an island economy has 12 firms. The two largest firms
each account for 30% of sales, the third accounts for 15%, the fourth for 7%, the fifth for 4% and the remaining
firms for 2% each. What is the four-firm concentration ratio?
A) 8%
B) 60%
C) 75%
D) 82%
E) 100%
Answer: D
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Applied
Learning Obj.: 11-1 Recognize that Canadian industries typically have either a large number of small firms or a small number of
large firms.
User2: Quantitative
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9) Suppose the market for gasoline retailing (gas stations) in an island economy has 12 firms. The two largest firms
each account for 30% of sales, the third accounts for 15%, the fourth for 7%, the fifth for 4% and the remaining
firms for 2% each. Which of the following statements best describes the structure of this local industry?
A) This industry is an oligopoly.
B) This industry is perfectly competitive.
C) This industry is a monopoly.
D) This industry is monopolistically competitive.
E) Either A or D could be correct.
Answer: E
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Applied
Learning Obj.: 11-1 Recognize that Canadian industries typically have either a large number of small firms or a small number of
large firms.
User2: Qualitative
10) Which of the following products is best considered a differentiated product?
A) wheat
B) steel
C) soap
D) topsoil
E) sugar
Answer: C
Diff: 1
Topic: 11.1. imperfectly competitive market structures
Skill: Applied
User2: Qualitative
11) An imperfectly competitive industry is often allocatively inefficient when compared to the performance of a
competitive industry, because imperfect competitors
A) maximize profits.
B) make profits.
C) obtain economies of scale.
D) operate in the global economy.
E) set price above the marginal cost.
Answer: E
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Recall
User2: Qualitative
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12) A characteristic common to most imperfectly competitive markets is
A) inelastic market demand curves.
B) a homogeneous product.
C) non-price competition among firms.
D) unexploited economies of scale.
E) common pricing among firms.
Answer: C
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Recall
User2: Qualitative
13) In an imperfectly competitive market, changes in market conditions are often signalled to the individual firms by
a change in the
A) firm's sales.
B) price of the product.
C) government policy.
D) cost conditions.
E) elasticity of supply.
Answer: A
Diff: 1
Topic: 11.1. imperfectly competitive market structures
Skill: Recall
User2: Qualitative
14) A monopolistically competitive firm and a monopoly are similar because
A) both firms will earn zero profits in the long run.
B) both firms always operate at their point of minimum average cost.
C) each firm can raise its price without losing all of its sales.
D) both firms must behave strategically toward other firms in the industry.
E) each firm has a large number of competitors.
Answer: C
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Recall
User2: Qualitative
15) A monopolistically competitive firm and a monopoly are similar because
A) both firms will earn zero profits in the long run.
B) both firms always operate at their point of minimum average cost.
C) they each face a downward-sloping demand curve.
D) both firms must behave strategically toward other firms in the industry.
E) each firm has a large number of competitors.
Answer: C
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Recall
User2: Qualitative
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16) In which market structure are price fluctuations most common?
A) price fluctuations occur with the same frequency in all market structures
B) monopoly
C) oligopoly
D) monopolistic competition
E) perfect competition
Answer: E
Diff: 1
Topic: 11.1. imperfectly competitive market structures
Skill: Recall
User2: Qualitative
17) In imperfectly competitive markets, "administered" prices usually change ________ than prices in perfectly
competitive markets, because ________.
A) more often; they are more flexible
B) more often; perfectly competitive firms are price takers
C) more often; price becomes a strategic choice
D) less often; changing prices is costly
E) less often; changing prices is costless
Answer: D
Diff: 1
Topic: 11.1. imperfectly competitive market structures
Skill: Recall
User2: Qualitative
18) One difference between a perfectly competitive market and a monopolistically competitive market is that
A) there are no barriers to entry in monopolistic competition.
B) there are no barriers to exit in monopolistic competition.
C) there is no product differentiation in perfect competition
D) there is no product differentiation in monopolistic competition
E) there is strategic interaction among firms in monopolistic competition.
Answer: C
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Recall
User2: Qualitative
19) Which of the following characteristics is NOT associated with imperfectly competitive markets?
A) firms are price setters
B) products are differentiated
C) firms engage in non-price competition
D) firms are price takers
E) firms can shift the demand curve for their product by advertising
Answer: D
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Recall
User2: Qualitative
20) Which of the following characteristics is NOT typically associated with imperfectly competitive market
structures?
A) each firm faces a downward sloping demand curve
B) products are differentiated
C) firms engage in non-price competition
D) each firm faces a horizontal demand curve for its product
E) firms can shift the demand curve for their product by advertising
Answer: D
Diff: 2
Topic: 11.1. imperfectly competitive market structures
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Skill: Recall
User2: Qualitative
21) Consider the following characteristics of a particular industry:
- each firm faces a demand curve with price elasticity greater than 10 000
- each firm produces at a minimum efficient scale in long-run equilibrium
This industry is likely to be
A) an oligopoly.
B) highly concentrated.
C) monopolistically competitive.
D) perfectly competitive.
E) a cartel.
Answer: D
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Applied
User2: Qualitative
22) Consider the following characteristics of a particular industry:
- the four-firm concentration ratio is 78% (in the relevant market)
- each firm produces output where P > MC
- the products are highly differentiated
This industry is likely to be
A) an oligopoly.
B) one where each firm has limited market power.
C) monopolistic.
D) perfectly competitive.
E) a cartel.
Answer: A
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Applied
User2: Qualitative
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23) Consider the following characteristics of a particular industry:
- there is freedom of entry and exit
- in long-run equilibrium, each firm is producing a level of output where there are increasing returns to scale
This industry is likely to be
A) an oligopoly.
B) highly concentrated.
C) monopolistically competitive.
D) perfectly competitive.
E) a cartel.
Answer: C
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Applied
User2: Qualitative
24) Consider the following characteristics of a particular industry:
- the firms in the industry are maximizing their joint profits
- entry of new firms is restricted
This industry is likely to be
A) a monopoly.
B) one where each firm has limited market power.
C) monopolistically competitive.
D) perfectly competitive.
E) a cartel.
Answer: E
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Recall
User2: Qualitative
25) Consider the following characteristics of a particular industry:
- there are natural barriers to entry
- market price exceeds marginal cost of production
- there is no strategic behaviour in the industry
This industry is likely to be
A) an oligopoly.
B) a monopoly.
C) monopolistically competitive.
D) perfectly competitive.
E) one where each firm has limited market power.
Answer: B
Diff: 2
Topic: 11.1. imperfectly competitive market structures
Skill: Applied
User2: Qualitative
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11.2 Monopolistic Competition
1) A characteristic of a monopolistically competitive market is that
A) each firm's marginal revenue curve lies above its demand curve.
B) the firms in the industry engage in strategic, non-price competition.
C) entry into the industry is difficult.
D) each firm faces a downward-sloping demand curve.
E) the firms sell an identical product.
Answer: D
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
2) Which of the following is most characteristic of a monopolistically competitive market?
A) Firms engage in strategic behaviour.
B) There are many small firms in the industry.
C) Economic profits are often positive in the long run.
D) Each firm faces a horizontal demand curve.
E) All firms are price takers.
Answer: B
Diff: 1
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
3) If there are economic profits in a monopolistically competitive industry, they will generally be competed away
through the
A) introduction of brand name products by existing firms.
B) entry of new firms.
C) increasing advertising budgets of existing firms.
D) manipulation of the demand curve.
E) exit of existing firms.
Answer: B
Diff: 1
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
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4) Suppose there are many independent dry cleaners in your city, each of which is earning economic profits.
According to the theory of monopolistic competition,
A) existing dry cleaners will cooperate and maximize their joint profits.
B) existing dry cleaners will engage in non-price competition and maintain their profits in the long run.
C) existing dry cleaners will expand until they reach the quantity associated with minimum long-run average cost.
D) existing dry cleaners will cooperate and restrict entry of new firms.
E) new dry cleaners will enter this market until each firm is earning zero profits.
Answer: E
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
5) Suppose there are many independent dry cleaners in your city, each of which provides essentially the same
service. However, one offers local delivery, another offers free coffee in the shop, while another offers one-hour dry
cleaning. Which of the following statements explains what is happening in this market?
A) These firms are perfectly competitive and are attempting to increase sales and maximize their profits.
B) These firms are oligopolistic and are engaging in strategic behaviour.
C) These firms are perfectly competitive and are engaging in non-price competition.
D) These firms are monopolistically competitive and are attempting to differentiate their product.
E) These firms are perfectly competitive and are engaging in strategic behaviour.
Answer: D
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
6) In a monopolistically competitive industry, the freedom of entry and exit leads to
A) a negatively sloped demand curve for the industry.
B) strategic behaviour with regard to other firms in the industry.
C) brand proliferation.
D) zero profits in long-run equilibrium.
E) deficient capacity in the industry.
Answer: D
Diff: 1
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
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7) Monopolistic competition is similar to perfect competition in that
A) firms in both types of market structures produce a standardized product.
B) strategic behaviour is common to both market structures.
C) neither has significant barriers to entry.
D) each firm faces a horizontal demand curve.
E) firms in both types of market structure engage in non-price competition.
Answer: C
Diff: 1
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
8) If entry into a monopolistically competitive industry occurs because of positive profits earned by the existing
firms, the
A) industry demand curve will shift to the left.
B) industry demand curve will shift to the right.
C) demand curve for each existing firm will shift to the left.
D) demand curve for each existing firm will shift to the right.
E) demand curves for the existing firms will remain unchanged.
Answer: C
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
9) Compared with perfect competition, monopolistic competition results in
A) a wider variety of the good produced, but at higher unit costs.
B) the same degree of variety of the good, but higher unit costs.
C) fewer varieties of the good produced at lower unit costs.
D) fewer varieties of the good produced at higher unit costs.
E) a clearly more efficient social outcome.
Answer: A
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
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10) A monopolistically competitive firm maximizes profits in the short run
A) by equating MC with price.
B) by equating MC with MR.
C) when P = AVC.
D) when P = ATC.
E) by maximizing total revenue.
Answer: B
Diff: 1
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
11) Suppose that a monopolistically competitive firm decides to raise its price. The theory of monopolistic
competition predicts that
A) this firm would lose some, but not all of its customers.
B) this firm would increase its profits.
C) this firm would lose all of its customers.
D) increasing the price has no effect on profits.
E) a large loss of customers as the demand facing the firm is quite inelastic.
Answer: A
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
12) The main difference between perfect competition and monopolistic competition is
A) there are more firms in perfect competition.
B) perfect competition has freedom of entry and exit.
C) monopolistic competition has product differentiation.
D) firms earn profits in the long run in monopolistic competition.
E) monopolistic competition has lower costs.
Answer: C
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
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13) Of the following, which is the best example of a monopolistically competitive firm?
A) Apple
B) Air Canada
C) Burger King
D) a PEI potato farmer
E) a local hair salon
Answer: E
Diff: 1
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
14) The presence of significant scale economies in an industry implies that
A) a large share of the market would be required by each firm to achieve the lowest possible cost per unit.
B) the minimum efficient scale of operation occurs at fairly low output levels.
C) barriers to entry in the industry are non-existent.
D) this industry is more efficient than others.
E) the firms in the industry will behave as perfect competitors.
Answer: A
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
15) The demand curve facing a monopolistically competitive firm is quite elastic because
A) there are many close substitutes to the good the firm is producing.
B) goods that are complements to the good the firm is producing also have elastic demand curves.
C) of the possibility of entry of new firms.
D) the industry is producing a homogeneous product.
E) firms are not behaving strategically.
Answer: A
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
16) Consider an industry that is monopolistically competitive. In such a market,
A) only one firm is present in the industry.
B) firms set prices without any threat of competition.
C) firms set prices and are constrained by the existence of close substitutes for their product.
D) firms do not have any price-setting ability because the product is homogeneous.
E) firms can charge slightly different prices even though they produce identical goods.
Answer: C
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
17) A good example of a monopolistically competitive firm is
1) The Gap clothing store.
2) a neighbourhood drycleaner.
3) a Prince Edward Island potato farmer.
A) 1 only
B) 2 only
C) 3 only
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D) 1 and 2 only
E) 1 and 3 only
Answer: D
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
18) Which of the following are products that differ from each other enough that they can be sold at different prices,
but are similar enough that they can be considered the same product?
A) complementary products
B) standardized products
C) necessary products
D) differentiated products
E) inferior products
Answer: D
Diff: 1
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
19) One prediction about monopolistic competition is that it has higher unit costs than perfect competition. But it is
unreasonable to conclude that monopolistic competition is therefore bad for consumers because
A) consumers benefit from lower prices.
B) consumers benefit from an increased variety of products.
C) consumers benefit because of an increase in quantity available.
D) consumers benefit from products becoming more homogeneous.
E) higher production costs means more employment.
Answer: B
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
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20) A monopolistically competitive firm is predicted to earn positive profits
A) because there are barriers to entry.
B) only in the long run.
C) only in the short run.
D) only if it advertises its own product.
E) only if it maintains excess capacity in the production of it product.
Answer: C
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
21) A monopolistically competitive firm has some degree of market power because
A) it always makes positive profits.
B) there are few firms in the industry.
C) of natural barriers to entry.
D) of legal barriers to entry.
E) it sells a differentiated product.
Answer: E
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
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The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry.
FIGURE 11-1
22) Refer to Figure 11-1. What price will this profit-maximizing firm set?
A) $5
B) $10
C) $15
D) $20
E) $25
Answer: D
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Quantitative
23) Refer to Figure 11-1. What quantity of output will this profit-maximizing firm choose to sell?
A) 80 units
B) 100 units
C) 120 units
D) 140 units
E) 150 units
Answer: B
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Quantitative
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24) Refer to Figure 11-1. Assuming this firm is producing its profit-maximizing level of output, what is the per-unit
profit being earned by this firm?
A) -$5
B) -$10
C) $20
D) $10
E) $5
Answer: E
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
User1: Graph
User2: Quantitative
25) Refer to Figure 11-1. Assuming that this firm is producing its profit-maximizing level of output, what are the
profits or losses being earned by this firm?
A) -$500
B) -$1000
C) $2000
D) $1000
E) $500
Answer: E
Diff: 3
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Quantitative
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FIGURE 11-2
26) Refer to Figure 11-2. A perfectly competitive firm with zero economic profits is depicted in diagram
A) A.
B) B.
C) C.
D) D.
E) B or D
Answer: C
Diff: 1
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
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27) Refer to Figure 11-2. In diagram B, the firm's short-run supply curve is
A) ATC above AVC.
B) MC above AVC.
C) MC above ATC.
D) AR.
E) MC.
Answer: B
Diff: 1
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
28) Refer to Figure 11-2. In diagram A, the profit-maximizing output for a competitive firm is one where
A) ATC is at the minimum.
B) P > MC.
C) P < MC.
D) AR = ATC.
E) P = AR = MC.
Answer: E
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
29) Refer to Figure 11-2. In diagram D, the profit-maximizing output for a single-price monopolist occurs where
A) P = MR.
B) P > AR.
C) P > MC.
D) P = MC.
E) P < MC.
Answer: C
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
562
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30) Refer to Figure 11-2. In diagram B, at the short-run profit-maximizing position, the firm
A) is making profits.
B) should produce zero output.
C) is losing money.
D) should raise its price.
E) should increase output.
Answer: C
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
31) Refer to Figure 11-2. Diagram C depicts a typical firm in long-run equilibrium in
A) a perfectly competitive industry.
B) monopolistic industry.
C) monopolistically competitive industry.
D) oligopolistic industry.
E) an imperfectly competitive industry
Answer: A
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
32) Refer to Figure 11-2. Diagram D depicts the only possible long-run equilibrium for a typical firm in
A) a perfectly competitive industry.
B) a monopolistic industry.
C) a monopolistically competitive industry.
D) an oligopolistic industry.
E) None of the above - it is not a long-run equilibrium.
Answer: C
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
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33) Refer to Figure 11-2. The position of a typical firm when the industry is in long-run equilibrium with free entry
and exit and product differentiation is exhibited in diagram
A) A.
B) B.
C) C.
D) D.
Answer: D
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
34) In long-run equilibrium, a monopolistically competitive industry is characterized by
A) positive profits for all firms in the industry.
B) a perfectly elastic demand curve facing each firm in the industry.
C) zero profits for all firms in the industry.
D) positive profits as a result of barriers to entry.
E) all firms operating at the minimum point of their long-run average cost curves.
Answer: C
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
35) When a monopolistically competitive industry is in long-run equilibrium, each firm will be operating where
price is
A) greater than average total cost but equal to marginal cost.
B) greater than average total cost and greater than marginal cost.
C) equal to average total cost and to marginal cost.
D) greater than marginal cost but equal to average total cost.
E) less than marginal cost and equal to average total cost.
Answer: D
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
564
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36) When a monopolistically competitive industry is in long-run equilibrium, the excess capacity in an individual
firm is indicated by the difference between
A) price and marginal cost.
B) the output at which ATC is at a minimum and the output at which price equals marginal cost.
C) zero and the output at which the demand curve is tangent to the ATC curve.
D) price and average cost.
E) the output at which ATC is at a minimum and the output at which marginal revenue is equal to marginal cost.
Answer: E
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
37) In the long run, a monopolistically competitive firm will
A) lose money.
B) operate where price = marginal cost.
C) earn positive economic profits.
D) produce where price exceeds the minimum of average costs.
E) produce the output where average costs are minimized.
Answer: D
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
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The diagram below shows demand and cost curves for a monopolistically competitive firm.
FIGURE 11-3
38) Refer to Figure 11-3. In the long run, a monopolistically competitive firm will
A) produce Q2 at Price P1.
B) produce Q1 at Price P2.
C) produce Q1 at Price P1.
D) produce Q2 at Price P2.
E) produce the output where AC is at its minimum.
Answer: C
Diff: 1
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
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39) Refer to Figure 11-3. In the long run, a monopolistically competitive firm will
A) make profit by producing at Q2 and charging price P1.
B) lose money by producing at Q1 and charging price P2.
C) maximize profit and make positive profit by producing at Q1 and charging price P1.
D) maximize profit but only break even by producing at Q1 and charging price P1.
E) maximize profit by producing output level Q2, the minimum point of its LRAC curve.
Answer: D
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
40) Refer to Figure 11-3. A monopolistically competitive firm is allocatively inefficient because in the long-run
equilibrium
A) LRAC is not at its minimum.
B) MC is greater than price.
C) price is greater than MC at Q1.
D) price is greater than LRAC at Q1.
E) None of the above - the long-run equilibrium is allocatively efficient.
Answer: C
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
41) Refer to Figure 11-3. A monopolistically competitive firm is said to be inefficient because in the long-run
equilibrium
A) MC is greater than LRAC.
B) MC is greater than price.
C) price is greater than MC at Q1.
D) price is greater than LRAC at Q1.
E) LRAC at Q1 is not at its minimum.
Answer: E
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
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42) Refer to Figure 11-3. If an increase in industry demand led to an outward shift in each firm's demand curve, and
no change to the firm's costs, the typical firm would
A) be making profits and new firms would enter the industry in the long run.
B) be making losses and some firms would exit the industry in the long run.
C) would expand its output in the long run.
D) increase costs in order to break even at P1 and Q1 in the long run.
E) decrease costs in order to break even at P1 and Q1 in the long run.
Answer: A
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
43) Refer to Figure 11-3. If a decrease in industry demand led to an inward shift of each firm's demand curve, a
typical firm would
A) be making profits and new firms would enter the industry in the long run.
B) be making losses and some firms would exit the industry in the long run.
C) exit the industry and the industry would shut down.
D) increase costs in order to break even at PL and QL in the long run.
E) decrease costs in order to break even at PL and QL in the long run.
Answer: B
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
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The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry.
FIGURE 11-4
44) Refer to Figure 11-4. How is the excess-capacity theorem demonstrated in this diagram?
A) The short-run equilibrium occurs where the firm is producing output at , which is less than that corresponding
to the lowest point on its LRAC curve.
B) The long-run equilibrium occurs where the firm is producing output at , which is the same as for a perfectly
competitive industry.
C) In long-run equilibrium the firm is earning positive profits, but has unexploited economies of scale.
D) In long-run equilibrium, this firm has excess capacity because they are selling output at a price below their
LRAC.
E) The long-run equilibrium occurs where the firm is producing output at , which is less than that corresponding
to the lowest point on its LRAC curve.
Answer: E
Diff: 3
Topic: 11.2. monopolistic competition
Skill: Applied
User1: Graph
User2: Qualitative
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45) Refer to Figure 11-4. Which of the following best describes this industry if all firms have the same cost and
revenue curves and are producing output of ?
A) firms are earning positive profits and new firms will enter the industry until all firms are operating at their
minimum LRAC
B) all firms are earning positive profits and there is no incentive for firms to enter or exit the industry
C) firms are earning zero profits and there is no incentive for firms to enter or leave the industry
D) all firms will try to minimize costs and move toward minimum LRAC
E) firms are incurring losses and firms will exit this industry
Answer: C
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
User1: Graph
User2: Qualitative
46) Refer to Figure 11-4. Assuming this firm is producing its profit-maximizing level of output, what are the profits
or losses being earned by this firm?
A) $0 per unit
B) $7 per unit
C) $13 per unit
D) $6 per unit
E) $20 per unit
Answer: A
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
User1: Graph
User2: Quantitative
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The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry.
FIGURE 11-1
47) Refer to Figure 11-1. If this firm is maximizing its profits, does the diagram depict a long-run equilibrium
situation?
A) Yes, because this firm is producing where MC = MR and is earning zero profits.
B) Yes, because this firm is producing where MC = MR and is earning economic profits.
C) No, because this firm is earning profits which will attract new firms to this market.
D) No, because this firm is suffering losses and firms will exit this market.
E) No, because this firm is a natural monopoly.
Answer: C
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User1: Graph
User2: Qualitative
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48) Refer to Figure 11-1. Which of the following statements best describes the long-run equilibrium for this firm?
A) New firms will enter, causing this firm's demand curve to shift to the left until its profits are eliminated.
B) The firm will continue to earn its existing level of profits.
C) The firm will continue to earn its existing level of profits because it can prevent the entry of new firms to the
market.
D) Firms with similar cost structures will exit the industry until profits are zero.
E) The AC curve will shift down in the long run and profits for this particular firm will increase.
Answer: A
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
User1: Graph
User2: Qualitative
49) With regard to the long-run equilibrium in the two market structures, the higher unit costs in monopolistic
competition relative to perfect competition implies that
A) society would be better off if there were fewer, and more homogeneous, goods produced at the scale at which
average costs are minimized.
B) resources are being used inefficiently in perfect competition.
C) there is a tradeoff between product variety and the ability to minimize cost per unit.
D) firms are restricting output to extract positive economic profits.
E) the government should force monopolistically competitive firms to behave like perfectly competitive firms.
Answer: C
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
50) In long-run equilibrium, a monopolistically competitive industry operates where
A) P > LRAC.
B) MR > MC.
C) LRAC is increasing.
D) LRAC > minimum average cost.
E) LRAC = MC.
Answer: D
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Applied
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
572
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51) If a monopolistically competitive industry is in long-run equilibrium, then for each firm
A) the demand curve is tangent to its LRAC curve.
B) the MC curve intersects MR at the minimum level of its LRAC curve.
C) price equals MC at the minimum level of the firm's LRAC curve.
D) the demand curve cuts the MC curve at the minimum level of the LRAC curve.
E) positive profits are being earned.
Answer: A
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
52) The excess-capacity theorem predicts that
A) when price-taking firms maximize their profits by setting price equal to marginal cost, each firm operates with
some excess capacity.
B) long-run equilibrium in a monopolistically competitive industry occurs with all firms producing at a lower output
level than that which minimizes average total costs.
C) profit-maximizing firms will always choose to operate with some degree of excess capacity, in order to be
flexible in the face of shifts in demand.
D) monopolistic firms will achieve positive economic profits by restricting output below the economically efficient
level at which average total costs are minimized.
E) all firms in a perfectly competitive industry will produce at a lower output level than that which minimizes
average total costs.
Answer: B
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
53) If firms are able to freely enter and exit a monopolistically competitive industry, then we can predict
A) a negatively sloped demand curve for the industry.
B) strategic behaviour with regard to other firms in the industry.
C) brand proliferation.
D) zero profits in long-run equilibrium.
E) that exit will occur until no firm has excess capacity.
Answer: D
Diff: 2
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
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54) Consider the following statement: "A monopolistically competitive market in which there are no entry barriers
will have the identical long-run equilibrium as if the market were perfectly competitive." Is this statement correct?
A) No, because firms in the monopolistically competitive market will not reach their minimum efficient scale as
they would in perfect competition - the result is higher prices and lower output.
B) No, because firms in the monopolistically competitive market do not produce at an output level where MC = MR,
as in perfect competition, which leads to a different price and output in long-run equilibrium.
C) No, firms in the monopolistically competitive market earn economic profits in the long run because they are
facing a downward-sloping demand curve, whereas in perfect competition they earn zero profits.
D) Yes, in the absence of entry barriers, new firms enter the industry until industry price and output are identical to
perfect competition.
E) Yes, in the absence of entry barriers, firms in the monopolistically competitive market will expand until they are
producing at the minimum of their LRAC curves, just as in perfect competition.
Answer: A
Diff: 3
Topic: 11.2. monopolistic competition
Skill: Recall
Learning Obj.: 11-3 Describe the key elements of the theory of monopolistic competition.
User2: Qualitative
574
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11.3 Oligopoly and Game Theory
1) One characteristic of oligopolistic markets is
A) ease of entry and exit.
B) zero profits in the long run.
C) mutual interdependence between firms.
D) a horizontal demand curve facing each individual firm.
E) a large number of firms in the industry.
Answer: C
Diff: 1
Topic: 11.3a. oligopoly
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
2) Oligopolists make decisions after taking into account the expected reaction of their competitors. In doing this,
oligopolists are exhibiting
A) non-strategic behaviour.
B) collusive behaviour.
C) cooperative behaviour.
D) non-cooperative behaviour.
E) strategic behaviour.
Answer: E
Diff: 1
Topic: 11.3a. oligopoly
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
3) Unlike perfectly competitive and monopolistically competitive firms, oligopolists
A) operate where MR = MC.
B) take account of the likely reactions of their competitors to their actions.
C) always make positive profits.
D) always have differentiated products.
E) earn zero profits in the long run.
Answer: B
Diff: 2
Topic: 11.3a. oligopoly
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
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4) A duopoly is
A) an oligopoly with only two products.
B) an oligopoly with only two sellers.
C) an oligopoly with only two buyers.
D) a monopoly firm that has only two suppliers.
E) a monopolist that has two related products.
Answer: B
Diff: 1
Topic: 11.3a. oligopoly
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
5) When the firms in an oligopoly are in a cooperative equilibrium and are maximizing their joint profits, which of
the following statements is true?
A) An individual firm could increase profits by cheating.
B) P > MC for each individual firm.
C) MR > MC for each individual firm.
D) The firms in the industry will jointly be earning monopoly profits.
E) All of the above statements are true.
Answer: E
Diff: 2
Topic: 11.3a. oligopoly
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
6) For firms in an oligopoly, the main advantage of explicit collusion is that it
A) removes much of the uncertainty about rivals' reactions.
B) makes all firms more productively efficient.
C) leads to greater product differentiation.
D) reduces the cost per unit of advertising.
E) eliminates the gains from cheating.
Answer: A
Diff: 1
Topic: 11.3a. oligopoly
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
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7) Which of the following is a characteristic of oligopoly?
A) Firms compete solely on the basis of price.
B) The pricing policies of one firm have no impact on pricing policies of other firms.
C) There are large numbers of significantly sized sellers.
D) The industry usually has a low concentration ratio.
E) Prices are usually above marginal costs.
Answer: E
Diff: 2
Topic: 11.3a. oligopoly
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
8) Consider an example of the prisoner's dilemma where 2 firms are making sealed bids on a contract and each firm
is allowed to bid either $100 or $180. If both firms bid the same price, the job is shared equally and each firm earns
half the value of its bid. Otherwise the lowest bidder wins the contract and receives the full value of its bid (and the
other bidder earns zero). The non-cooperative outcome in this situation is
A) both firms bid $100.
B) both firms bid $180.
C) one firm bids $100, the other firm bids $180.
D) both firms bid $50.
E) both firms bid $90.
Answer: A
Diff: 2
Topic: 11.3b. game theory
Skill: Applied
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User2: Quantitative
9) Consider an example of the prisoner's dilemma where 2 firms are making sealed bids on a contract and each firm
is allowed to bid either $100 or $180. If both firms bid the same price, the job is shared equally and each firm earns
half the value of its bid. Otherwise the lowest bidder wins the contract and receives the full value of its bid (and the
other bidder earns zero). The cooperative outcome in this situation is
A) both firms bid $100.
B) both firms bid $180.
C) one firm bids $100, the other firm bids $180.
D) both firms bid $50.
E) both firms bid $90.
Answer: B
Diff: 2
Topic: 11.3b. game theory
Skill: Applied
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User2: Quantitative
577
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10) Consider an example of the prisoner's dilemma where 2 firms are making sealed bids on a highway-construction
contract and each firm is allowed to bid either $100 million or $120 million. If both firms bid the same price, the
job is shared equally and each firm earns half the value of its bid. Otherwise the lowest bidder wins the contract and
receives the full value of its bid (and the other bidder earns zero). The non-cooperative outcome in this situation is
A) both firms bid $50 million.
B) both firms bid $60 million.
C) one firm bids $100 million, the other firm bids $120 million.
D) both firms bid $100 million.
E) both firms bid $120 million.
Answer: D
Diff: 2
Topic: 11.3b. game theory
Skill: Applied
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User2: Quantitative
11) Consider an example of the prisoner's dilemma where 2 firms are making sealed bids on a highway-construction
contract and each firm is allowed to bid either $100 million or $120 million. If both firms bid the same price, the
job is shared equally and each firm earns half the value of its bid. Otherwise the lowest bidder wins the contract and
receives the full value of its bid (and the other bidder earns zero). The cooperative outcome in this situation is
A) both firms bid $50 million.
B) both firms bid $60 million.
C) one firm bids $100 million, the other firm bids $120 million.
D) both firms bid $100 million.
E) both firms bid $120 million.
Answer: E
Diff: 3
Topic: 11.3b. game theory
Skill: Applied
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User2: Quantitative
578
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12) Which of the following is an incorrect statement about a Nash equilibrium?
A) A Nash equilibrium is an example of a non-cooperative equilibrium.
B) In a Nash equilibrium, all players are maximizing their payoffs given the current behaviour of the other players.
C) In a Nash equilibrium, all players are better off than they would be with any other combination of strategies.
D) A Nash equilibrium is a self-policing equilibrium.
E) Once a Nash equilibrium is established, no individual firm has an incentive to depart from it.
Answer: C
Diff: 2
Topic: 11.3b. game theory
Skill: Recall
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User2: Qualitative
13) Which of the following statements is the best description of a Nash equilibrium?
A) An equilibrium outcome achieved by cooperation between players in the game.
B) An outcome where each player's best strategy is to maintain its present behaviour given the present behaviour of
the other players.
C) An outcome that is achieved when players in the game have jointly maximized profits and divided those profits
according to market share of each player.
D) An outcome where each player's strategy depends on the behaviour of its opponents.
E) An equilibrium outcome that is achieved by collusion, and no party has an incentive to change their behaviour.
Answer: B
Diff: 2
Topic: 11.3b. game theory
Skill: Recall
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User2: Qualitative
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Suppose two firms, Allstom from France, and Bombardier from Canada, are bidding on a contract to replace train
cars for the subway system in Mexico City. If they bid the same amount, they share the contract—otherwise, the low
bid wins. The figure below shows the payoff matrix for this contest.
FIGURE 11-5
14) Refer to Figure 11-5. If Allstom and Bombardier co-operated with each other when bidding on the contract, then
the likely outcome is that
A) each firm bids $35 million, and earns profit of $2.5 million.
B) each firm bids $50 million, and earns profit of $10 million.
C) Bombardier bids $50 million, and earns profit of $0, while Allstom bids $35 million and earns profit of $5
million.
D) Bombardier bids $35 million, and earns profit of $5 million, while Allstom bids $50 million and earns profit of
$0.
Answer: B
Diff: 3
Topic: 11.3b. game theory
Skill: Applied
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User1: Graph
User2: Qualitative
15) Refer to Figure 11-5. What is the Nash equilibrium in this bidding contest between Allstom and Bombardier?
A) The two firms will co-operate and maximize their joint profits at $10 million each.
B) Each firm will bid the high price, expecting a larger total profit.
C) Each firm will bid the low price, and each will earn a profit of $2.5 million.
D) There is no Nash equilibrium in this bidding contest, because each firm can expect to earn at least $5 million.
E) both A and C are Nash equilibria.
Answer: E
Diff: 3
Topic: 11.3b. game theory
Skill: Applied
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User1: Graph
User2: Qualitative
16) Refer to Figure 11-5. Given the information provided in the figure, what is the cost to either firm of completing
this project on its own?
A) $2.5 million
B) $5 million
C) $10 million
D) $20 million
E) $30 million
Answer: E
Diff: 3
580
Copyright © 2017 Pearson Education, Inc.
Topic: 11.3b. game theory
Skill: Applied
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User1: Graph
User2: Quantitative
17) What is a Nash equilibrium?
A) an example of a cooperative equilibrium
B) a situation where all players are maximizing their payoffs given the current behaviour of the other players
C) a situation where all players are better off than they would be with any other combination of strategies
D) is an unstable equilibrium
E) will in general produce the greatest payoff for the players
Answer: B
Diff: 2
Topic: 11.3b. game theory
Skill: Recall
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User2: Qualitative
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The payoff matrix below shows the payoffs for Firm A and Firm B, each of whom can either "cooperate" or "cheat."
The numbers in parentheses are (payoff for A, payoff for B).
Firm B
Firm A
TABLE 11-2
18) Refer to Table 11-2. Of the choices provided below, what is the minimum value for x in order for both firms'
cheating to be a Nash equilibrium?
A) 25
B) 40
C) 60
D) 70
E) 80
Answer: B
Diff: 3
Topic: 11.3b. game theory
Skill: Applied
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User1: Table
User2: Quantitative
19) Refer to Table 11-2. If Firm A is indifferent between cheating or cooperating when Firm B chooses to cooperate,
x must be equal to
A) 0.
B) 10.
C) 20.
D) 30.
E) 40.
Answer: D
Diff: 2
Topic: 11.3b. game theory
Skill: Applied
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User1: Table
User2: Quantitative
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20) Refer to Table 11-2. If x = 40, what is the Nash equilibrium in this game?
A) (Firm A: cooperate, Firm B: cooperate)
B) (Firm A: cooperate, Firm B: cheat)
C) (Firm A: cheat, Firm B: cooperate)
D) (Firm A: cheat, Firm B: cheat)
E) there is no Nash equilibrium for this value of x
Answer: D
Diff: 3
Topic: 11.3b. game theory
Skill: Applied
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User1: Table
User2: Quantitative
The payoff matrix below shows the payoffs to Firms A and B from producing different levels of output. The numbers
in parentheses are (payoff to A, payoff to B).
TABLE 11-3
21) Refer to Table 11-3. From the payoff matrix we can infer that
A) it is optimal for Firm A to produce 1000 units of output regardless of what Firm B is doing.
B) both firms are indifferent between an equilibrium (Produce 1000 units, Produce 1000 units) and (Produce 2000
units, Produce 2000 units).
C) it is optimal for Firm A to produce 2000 units of output regardless of what Firm B is doing.
D) it is optimal for Firm B to produce 1000 units of output regardless of what Firm A is doing.
E) there is no Nash equilibrium in the game.
Answer: C
Diff: 3
Topic: 11.3b. game theory
Skill: Applied
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User1: Table
User2: Quantitative
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22) Refer to Table 11-3. The Nash equilibrium in this game is
A) (Firm A: produce 1000 units, Firm B: produce 1000 units).
B) (Firm A: produce 2000 units, Firm B: produce 1000 units).
C) (Firm A: produce 2000 units, Firm B: produce 2000 units).
D) (Firm A: produce 1000 units, Firm B: produce 2000 units).
E) non-existent.
Answer: C
Diff: 3
Topic: 11.3b. game theory
Skill: Applied
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User1: Table
User2: Quantitative
23) Suppose there are only two firms in an industry. If they each set a high price, they each earn $5000. If they each
set a low price, they each earn $2500. If one firm sets a low price while the other sets a high price, the low-price
firm earns $7000 while the high-price firm earns $1000. Does a prisoners' dilemma exist?
A) yes, because there is always a prisoner's dilemma in game theory
B) it cannot be determined from the information provided
C) yes, the Nash equilibrium does not maximize the joint payoff
D) no, the Nash equilibrium does not maximize the joint payoff
E) no, the Nash equilibrium does not maximize the individual payoff
Answer: C
Diff: 3
Topic: 11.3b. game theory
Skill: Applied
Learning Obj.: 11-5 Provide examples of the nature of the competition among oligopolists and the most common entry barriers.
User2: Quantitative
584
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11.4 Oligopoly in Practice
1) Tacit collusion in an oligopolistic industry
A) occurs when firms make an explicit agreement to cooperate.
B) results in a non-cooperative equilibrium.
C) occurs when firms achieve the cooperative outcome without an explicit agreement.
D) results in competitive behaviour.
E) is a form of predatory pricing.
Answer: C
Diff: 2
Topic: 11.4. oligopoly in practice
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
2) Explicit collusion in an oligopolistic industry
A) occurs when firms make an explicit agreement to cooperate.
B) results in a non-cooperative equilibrium.
C) occurs when firms achieve the cooperative outcome without an explicit agreement.
D) results in competitive behaviour.
E) is a form of predatory pricing.
Answer: A
Diff: 1
Topic: 11.4. oligopoly in practice
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
3) Suppose Proctor and Gamble introduces a new brand of laundry detergent. Brand proliferation is an example of
A) explicit collusion.
B) tacit collusion.
C) a Nash equilibrium.
D) a firm-created barrier to entry.
E) a cooperative outcome.
Answer: D
Diff: 1
Topic: 11.4. oligopoly in practice
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
585
Copyright © 2017 Pearson Education, Inc.
4) If joint profits are to be maximized in an oligopolistic industry with a homogeneous product, the firms
A) can produce whatever output they want at the agreed-upon price.
B) need to determine the output each firm will produce.
C) must form a cartel in order to be legal.
D) have no individual incentive to cheat on the agreement.
E) None of the above — differentiated products are required for joint-profit maximization in oligopoly.
Answer: B
Diff: 2
Topic: 11.4. oligopoly in practice
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
5) An ineffective means of discouraging the entry of new firms by existing firms in an oligopolistic industry is
A) producing a wide range of brands of their products.
B) carrying out industrial sabotage.
C) spending heavily on advertising.
D) raising their prices.
E) seeking greater patent protection.
Answer: D
Diff: 2
Topic: 11.4. oligopoly in practice
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
6) "Brand proliferation" in an oligopolistic industry
A) allows easier entry to a new entrant with small sales.
B) can shift the average total cost curve down and raise the overall minimum scale of operation.
C) allows new entrants to the industry to gain significant market share.
D) will generally reduce the expected market share of new entrants to the industry.
E) allows firms to cooperate to maximize their joint profits.
Answer: D
Diff: 2
Topic: 11.4. oligopoly in practice
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
586
Copyright © 2017 Pearson Education, Inc.
7) "Brand proliferation" is an example of
A) an economy of scale.
B) a firm-created barrier to entry.
C) an absolute cost advantage.
D) collusive behaviour.
E) predatory pricing.
Answer: B
Diff: 1
Topic: 11.4. oligopoly in practice
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
8) Advertising by existing firms in an oligopolistic industry
A) will increase the expected market share of new entrants to the industry.
B) can be an effective entry barrier to potential entrants to the industry.
C) only exists where natural entry barriers are weak.
D) allows easy entry to a new entrant with small sales.
E) maximizes joint profits for firms in the industry.
Answer: B
Diff: 1
Topic: 11.4. oligopoly in practice
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
9) An oligopolistic firm often detects a change in the demand for its product by first observing a change in
A) average cost.
B) market price.
C) marginal revenue.
D) marginal cost.
E) sales.
Answer: E
Diff: 1
Topic: 11.4. oligopoly in practice
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
587
Copyright © 2017 Pearson Education, Inc.
10) Which of the following industries in Canada can best be thought of as oligopolies?
1) breweries
2) women's clothing retailers
3) automobile manufacturers
A) 1 only
B) 2 only
C) 3 only
D) 1 and 3 only
E) 1, 2, and 3
Answer: D
Diff: 1
Topic: 11.4. oligopoly in practice
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
11) The process of "creative destruction" in an oligopolistic industry suggests that
A) profits are driven to zero by the entry of new firms.
B) no firm can survive in the long run.
C) firms can enter and leave without incurring any sunk costs of entry.
D) there are no costs of exit in oligopoly.
E) the prospect of keeping the resulting profits provides an incentive for firms to innovate.
Answer: E
Diff: 2
Topic: 11.4. oligopoly in practice
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
12) The theory of oligopoly suggests that
A) entry into the industry is an important force preventing the exploitation of market power by existing firms.
B) oligopoly may be the best of the feasible alternative market structures when major scale economies exist.
C) the tendency toward joint maximization of profits is greater for a large number of sellers than for a small number
of sellers.
D) game theory is interesting theory but not useful for real corporate managers.
E) innovation is weak when there is no price competition.
Answer: B
Diff: 2
Topic: 11.4. oligopoly in practice
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
588
Copyright © 2017 Pearson Education, Inc.
13) Both empirical evidence and everyday observation suggest that oligopolies contribute to economic growth in the
very-long-run by
A) achieving allocative efficiency.
B) consistently producing at full-capacity output.
C) achieving technological improvements and innovations through research and development.
D) decreasing minimum efficient scale.
E) rarely laying off workers.
Answer: C
Diff: 2
Topic: 11.4. oligopoly in practice
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
14) The following statements describe a cooperative equilibrium in an oligopoly where the firms are jointly
maximizing profits by restricting output. Which statement is false?
A) An individual firm could increase profits by cheating.
B) P > MC for each individual firm.
C) MR > MC for each individual firm.
D) The firms in the industry will jointly be earning monopoly profits.
E) No individual firm will have an incentive to change output.
Answer: E
Diff: 3
Topic: 11.4. oligopoly in practice
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
15) In an oligopolistic industry, which of the following is an example of a firm-created entry barrier?
A) LRAC curve negatively sloped over a large range of output
B) large set-up costs
C) brand proliferation
D) decreasing demand for the product
E) price competition
Answer: C
Diff: 1
Topic: 11.4. oligopoly in practice
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
589
Copyright © 2017 Pearson Education, Inc.
16) In a typical oligopolistic market, there are
A) no barriers to entry, but firms sell differentiated products.
B) substantial barriers to entry and firms interact strategically with each other.
C) no barriers to entry and firms sell homogeneous products.
D) substantial entry barriers, and firms are too large to strategically interact with each other.
E) no barriers to entry and firms interact strategically with each other.
Answer: B
Diff: 1
Topic: 11.4. oligopoly in practice
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
17) An oligopolistic firm can earn positive profits
A) because there are barriers to entry.
B) only in the long run.
C) only in the short run.
D) only if it advertises its own product.
E) only if it maintains excess capacity in the production of it product.
Answer: A
Diff: 2
Topic: 11.4. oligopoly in practice
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
18) One reason an oligopolistic firm may have market power is that
A) it always makes positive profits.
B) it produces a significant fraction of total industry output.
C) the market may be "contestable."
D) it has dis-economies of scale.
E) there are many similar producers.
Answer: B
Diff: 2
Topic: 11.4. oligopoly in practice
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
590
Copyright © 2017 Pearson Education, Inc.
19) A special kind of imperfectly competitive market that has only two firms is called
A) an incidental monopoly.
B) a two-tier competitive structure.
C) a duopoly.
D) a dublet.
E) a natural monopoly.
Answer: C
Diff: 1
Topic: 11.4. oligopoly in practice
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
20) Consider the three largest cell-phone service providers in Canada - Bell, Telus, and Rogers. If we observe that
all three companies increase their monthly service fees simultaneously, we might conclude that
A) there is tacit collusion among these firms.
B) these firms have monopolized the industry.
C) they are perfect competitors and they are unable to set the price.
D) they are engaged in predatory pricing.
E) they are creating entry barriers to prevent entry by new firms.
Answer: A
Diff: 2
Topic: 11.4. oligopoly in practice
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
21) Assume that the world's largest smart-phone producers (Apple, Nokia, Samsung, etc.) operate in an oligopolistic
industry. In the long run, which of the following is the most important form of competition between these firms?
A) predatory pricing
B) tacit collusion
C) product innovation
D) brand proliferation
E) advertising
Answer: C
Diff: 1
Topic: 11.4. oligopoly in practice
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
591
Copyright © 2017 Pearson Education, Inc.
22) Suppose there are only five construction companies in a particular region that are each large enough to take on
large public infrastructure projects (roads, bridges, sewers, etc.). Representatives of these companies meet regularly
for coffee or on the golf course and agree on which company will submit the lowest bid for a particular project. This
type of firm behaviour is an example of
A) cooperative behaviour that results in higher output and lower prices.
B) cooperative behaviour that results in increased consumer welfare.
C) tacit collusion, and is legal as long as output is not restricted.
D) predatory pricing, and is meant to prevent new entrance to the industry.
E) explicit collusion and is illegal.
Answer: E
Diff: 2
Topic: 11.4. oligopoly in practice
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
23) The sugar industry in Canada is effectively a duopoly with two large firms competing with each other for market
share. Suppose the two firms collude and successfully restrict joint output to that of a profit-maximizing monopolist.
As a result, they each realize an increase in their profits. Why would this collusive agreement be difficult to sustain?
A) Because each firm has an incentive to break the agreement by further restricting output in order to increase the
price, thereby increasing their own profits.
B) Because each firm has an incentive to break the agreement by increasing output in order to increase their own
profits.
C) Because the firm with the lower long-run average costs will be able to capture all sales, driving the second firm
out of the market.
D) Because a non-cooperative outcome is inevitable in which output is further restricted and each firm's profit is
reduced.
Answer: B
Diff: 2
Topic: 11.4. oligopoly in practice
Skill: Applied
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
592
Copyright © 2017 Pearson Education, Inc.
24) In what way can an oligopolistic market structure be beneficial to society?
A) Oligopolistic firms compete through advertising, which increases economic efficiency.
B) Oligopolistic firms are able to exploit all existing economies of scale and operate at the minimum of long-run
average costs, and thereby reduce the use of society's resources.
C) An oligopolistic market structure is most conducive to non-competitive behaviour which leads to lower prices for
consumers in the long run.
D) An oligopolistic market structure is most adaptive to today's rapid rate of technological change.
E) Oligopolistic firms compete through innovation, which is a driving force of economic growth and increasing
living standards.
Answer: E
Diff: 2
Topic: 11.4. oligopoly in practice
Skill: Recall
Learning Obj.: 11-4 Understand game theory to explain the difference between cooperative and non-cooperative outcomes
among oligopolists.
User2: Qualitative
Economics - Canadian Edition, 15e (Ragan)
Chapter 12 Economic Efficiency and Public Policy
12.1 Productive and Allocative Efficiency
1) Productive efficiency for an individual firm requires that
A) all resources be fully used.
B) MC = P for all goods.
C) the firm be on its LRAC curve.
D) the firm be allocatively efficient.
E) P = ATC for all goods.
Answer: C
Diff: 1
Topic: 12.1a. productive and allocative efficiency
Skill: Recall
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
2) For an entire economy, allocative efficiency requires that
A) goods are allocated equitably across markets.
B) marginal cost equals price for all goods.
C) MRP is equated for all factors of production.
D) price equals average cost for all goods.
E) price is greater than marginal cost for all goods.
Answer: B
Diff: 1
Topic: 12.1a. productive and allocative efficiency
Skill: Recall
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
3) Consider two firms, A and B, that are producing the same product but with different marginal costs. In this case,
A) a reallocation of output between the firms can lower the industry's total cost.
B) neither firm is producing its output at the lowest attainable cost.
C) some resources must be unemployed.
D) each firm is being wasteful.
E) one firm is not maximizing profits.
Answer: A
Diff: 1
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
593
Copyright © 2017 Pearson Education, Inc.
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
594
Copyright © 2017 Pearson Education, Inc.
4) If the total output of some industry is allocated among its individual firms in such a way that the total cost of
producing the industry's output is minimized, we know the industry has achieved
1) full employment of resources;
2) productive efficiency;
3) allocative efficiency.
A) 1 only
B) 2 only
C) 3 only
D) both 1 and 3
E) both 2 and 3
Answer: B
Diff: 2
Topic: 12.1a. productive and allocative efficiency
Skill: Recall
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
5) All points on a country's production possibilities boundary are
A) allocatively efficient.
B) points at which P = MC for all goods.
C) productively efficient.
D) Pareto optimal.
E) not productively efficient.
Answer: C
Diff: 1
Topic: 12.1a. productive and allocative efficiency
Skill: Recall
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
6) Consider two firms, A and B, that are producing the same product but with different average costs. Economists
say this situation reflects a problem of
A) unemployed resources.
B) economic inefficiency.
C) productive inefficiency.
D) allocative inefficiency.
E) Not necessarily any of the above.
Answer: E
Diff: 3
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
595
Copyright © 2017 Pearson Education, Inc.
7) If an economy is productively inefficient, it could improve its situation by
A) moving along its production possibilities boundary.
B) moving beyond its production possibilities boundary.
C) moving onto its production possibilities boundary.
D) acquiring more resources.
E) trading some of its resources.
Answer: C
Diff: 1
Topic: 12.1a. productive and allocative efficiency
Skill: Recall
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
8) An economy will be allocatively efficient if
A) the economy's resources are fully employed.
B) all firms are breaking even.
C) the average cost of production is the lowest possible for all goods produced.
D) price equals marginal cost for all products.
E) the price equals average cost for all goods.
Answer: D
Diff: 2
Topic: 12.1a. productive and allocative efficiency
Skill: Recall
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
9) An economy will be allocatively efficient if
A) least-cost production techniques are employed by all firms.
B) the marginal costs of all firms in an industry are equal.
C) marginal cost equals price for all goods.
D) the economy's resources are fully employed.
E) imperfectly competitive markets are regulated.
Answer: C
Diff: 2
Topic: 12.1a. productive and allocative efficiency
Skill: Recall
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
10) If all firms are profit maximizers, then the following is assured:
A) allocative efficiency.
B) each firm is productively efficient.
C) allocative and productive efficiency.
D) that the economy is operating inside the production possibilities boundary.
E) that firms attain the lowest possible average costs.
Answer: B
Diff: 2
Topic: 12.1a. productive and allocative efficiency
Skill: Recall
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
11) Allocative efficiency is actively sought
A) by profit-maximizing firms in all market structures.
B) only by perfectly-competitive firms.
C) only by profit-maximizing imperfectly-competitive firms.
D) by none of the firms in any market.
E) by all firms in all markets.
Answer: D
596
Copyright © 2017 Pearson Education, Inc.
Diff: 1
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
12) Productive efficiency (at the level of the firm) is a goal that is sought
A) by profit-maximizing firms in all market structures.
B) only by perfectly competitive firms.
C) only by profit-maximizing imperfectly competitive firms.
D) by no firms in any market.
E) only by profit-maximizing firms in an oligopolistic market structure.
Answer: A
Diff: 1
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
13) Allocative efficiency is a property of the behaviour of
A) individual firms.
B) all firms in an industry.
C) perfectly-competitive firms.
D) monopolies.
E) the overall economy.
Answer: E
Diff: 2
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
14) Allocative efficiency concerns
A) producing outputs at lowest possible cost.
B) the allocation of resources such that total economic surplus is maximized.
C) encouraging monopoly if it generates innovation.
D) discouraging all monopoly firms.
E) the equitable distribution of resources.
Answer: B
Diff: 2
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
15) At the level of the industry, the condition for productive efficiency is that
A) goods are allocated equitably.
B) there are no idle resources in the industry.
C) MC = P for all goods.
D) MRP = P for all inputs.
E) MC is equal for all firms in the industry.
Answer: E
Diff: 1
Topic: 12.1a. productive and allocative efficiency
Skill: Recall
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
16) We can safely say that each point on a country's production possibilities boundary (PPB) is
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A) allocatively efficient.
B) one at which P = MC for all goods.
C) productively efficient.
D) Pareto optimal.
E) not productively efficient.
Answer: C
Diff: 2
Topic: 12.1a. productive and allocative efficiency
Skill: Recall
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
17) An economy in which there are no market failures and all industries are in a competitive long-run equilibrium is
one where
1. allocative efficiency is achieved;
2. the economy is on the production possibilities boundary;
3. there is no incentive for firms to enter or leave industries.
A) 1 and 2
B) 2 and 3
C) 1 and 3
D) 1, 2, and 3
E) 2 only
Answer: D
Diff: 2
Topic: 12.1a. productive and allocative efficiency
Skill: Recall
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
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18) Consider a monopolistically competitive industry in long-run equilibrium. Will this industry be productively
efficient?
A) Yes. Since the firms are in long-run equilibrium, they will all be producing at the minimum of their LRAC
curves.
B) Yes. Since the firms are in long-run equilibrium, they will all be operating on their LRAC curves.
C) Yes. In long-run equilibrium, each firm is producing at an output level where price is equal to marginal cost.
D) No. Firms are selling their output at a level where price exceeds marginal cost and thus, by definition, cannot be
productively efficient.
E) No. Since firms are selling differentiated products and there is no industry-wide price, we cannot conclude that
marginal cost will be equated across all firms.
Answer: E
Diff: 3
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
19) Consider an industry with three profit-maximizing firms producing identical soccer jerseys. At their current
levels of output, Firm A has a MC of $22, Firm B has a MC of $26, and Firm C has a MC of $27. Each firm is
minimizing its costs for its given level of output. Which of the following statements is definitely true?
A) Each firm and the industry are productively efficient.
B) Each firm is productively efficient but the industry is not.
C) The industry is productively efficient but each firm is not.
D) Each firm is allocatively efficient but the industry is not.
E) Each firm and the industry are allocatively efficient.
Answer: B
Diff: 3
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
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Consider three firms, A, B and C, all producing kilos of potatoes (per year) in a perfectly competitive market. The
diagrams below show marginal cost curves for each of the three firms.
FIGURE 12-1
20) Refer to Figure 12-1. Suppose each of Firms A, B, and C are producing 500 kilos of potatoes. Is this industry
productively efficient?
A) No, because the marginal cost curve for each firm has a different slope.
B) Yes, because output is equated for all firms.
C) No, because each firm could easily produce more than 500 kilos.
D) No, because marginal costs are not equated for all firms.
E) It is not possible to say whether this industry is productively efficient because we do not know the market price of
the product.
Answer: D
Diff: 2
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User1: Graph
User2: Qualitative
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21) Refer to Figure 12-1. Suppose each of Firms A, B, and C are producing 500 kilos of potatoes. Which of the
following statements correctly describes the productive efficiency of this industry?
A) Productive efficiency would be achieved if Firm B produced all the output, since it has the lowest MC for the
production of 500 kilos.
B) It is possible to reduce the total cost of the given output by reallocating production among the three firms.
C) The total output of 1500 kilos is the productively efficient output for this industry, so no reallocation is necessary.
D) It is not possible to say whether this industry is productively efficient because we do not know the market price
of the product.
E) It is not possible to say whether this industry is productively efficient because we do not know the average costs
for each firm.
Answer: B
Diff: 3
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User1: Graph
User2: Qualitative
22) Refer to Figure 12-1. Suppose each of Firms A, B and C are producing 500 kilos of potatoes. Keeping total
output unchanged, what level of output should each firm be producing such that the industry is productively
efficient?
A) Firm A: 200 kilos, Firm B: 500 kilos, Firm C: 800 kilos
B) Firm A: 700 kilos, Firm B: 800 kilos, Firm C: 0 kilos
C) Firm A: 500 kilos, Firm B: 800 kilos, Firm C: 200 kilos
D) Firm A: 500 kilos, Firm B: 500 kilos, Firm C: 500 kilos
E) Firm A: 500 kilos, Firm B: 200 kilos, Firm C: 200 kilos
Answer: C
Diff: 3
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User1: Graph
User2: Quantitative
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23) Refer to Figure 12-1. Suppose each of Firms A, B, and C are producing 500 kilos of potatoes. Is this industry
allocatively efficient?
A) It is not possible to say whether this industry is allocatively efficient because we do not know the market price
for kilos of potatoes.
B) It is not possible to say whether this industry is allocatively efficient because we do not know the average costs
for each firm.
C) Yes, because output is equated for all firms.
D) No, since marginal costs are not equated for all firms, the industry is not productively efficient, and thus cannot
be allocatively efficient.
E) No, because the marginal cost curve for each firm has a different slope.
Answer: D
Diff: 3
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User1: Graph
User2: Qualitative
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The production possibilities boundary shows possible combinations of guns and butter that can be produced by a
country. The lower diagram shows demand and supply for butter.
FIGURE 12-2
24) Refer to Figure 12-2. Suppose demand and supply for butter are shown by D and S, respectively. And suppose
the economy is at point (a) on the production possibilities boundary. Is this output of guns and butter allocatively
efficient?
A) No, because the marginal value to consumers of the butter produced is greater than the marginal cost to
producers.
B) No, because the marginal cost to producers of the butter produced is more than the marginal value to consumers.
C) Yes, because all points on the production possibilities boundary are allocatively efficient.
D) Yes, because the marginal cost of producing the butter equals the marginal value of consuming the butter.
E) No, because the marginal costs for guns and butter are not equated.
Answer: A
Diff: 2
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User1: Graph
User2: Qualitative
25) Refer to Figure 12-2. Suppose demand and supply for butter are shown by D and S, respectively. And suppose
the economy is at point (a) on the production possibilities boundary. How can this economy move toward allocative
efficiency?
A) expand the production possibilities boundary outward
B) increase the supply of guns
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C) increase the demand for butter
D) produce less butter, more guns
E) produce more butter, fewer guns
Answer: E
Diff: 2
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User1: Graph
User2: Qualitative
26) Refer to Figure 12-2. Suppose demand and supply for butter are shown by D and S, respectively. And suppose
the economy is at point (b) on the production possibilities boundary, producing
units of butter. We can say that
this economy is ________ efficient because ________.
A) allocatively; guns and butter are both produced to the point where the marginal cost to producers equals the
marginal value to consumers
B) productively; the marginal cost of production across guns and butter is equated
C) allocatively; the price of guns is equal to the price of butter
D) productively; the economy is operating at a point inside the production possibilities boundary
E) allocatively; the economy is operating at a point on the production possibilities boundary
Answer: A
Diff: 2
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
User1: Graph
User2: Qualitative
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27) Refer to Figure 12-2. Suppose this economy is allocatively efficient at Q 1 units of butter. Now suppose there is
an increase in demand for butter from D to D1. After this shift in demand,
A) the supply curve will shift up to S1 and allocative efficiency will be maintained.
B) the marginal value to consumers of butter is less than the marginal cost to producers; the price of butter (relative
to the price of guns) rises; the economy moves to output Q2 of butter and point (c) on the PPB.
C) the marginal value to consumers of butter is greater than the marginal cost to producers; the price of butter
(relative to the price of guns) rises; the economy moves to output Q2 of butter and point (c) on the PPB.
D) the increase in the price of butter (relative to the price of guns) will cause the demand curve to shift back down to
D and allocative efficiency will be maintained.
E) the price of guns (relative to the price of butter) rises and the economy moves to point (a) on the PPB.
Answer: C
Diff: 3
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User1: Graph
User2: Qualitative
28) The Canadian economy is achieving allocative efficiency if
A) price equals average cost in all industries.
B) there are no idle resources in the economy.
C) marginal product is equal for all factors of production.
D) marginal cost equals price in all industries.
E) marginal cost is equalized across industries.
Answer: D
Diff: 2
Topic: 12.1a. productive and allocative efficiency
Skill: Applied
Learning Obj.: 12-1 Distinguish between productive efficiency and allocative efficiency.
User2: Qualitative
29) An important defence of oligopoly as a market structure is that
A) it involves less allocative inefficiency than monopoly.
B) it results in lower prices than perfect competition.
C) it is the most efficient available alternative when the minimum efficient scale is large.
D) it generates less unused capacity than monopolistic competition.
E) it is more productively efficient than monopoly.
Answer: C
Diff: 2
Topic: 12.1b. market structure and efficiency
Skill: Recall
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
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30) Consider the efficiency of various market structures and complete the following sentence. The larger the
minimum efficient scale of firms, ceteris paribus, the
A) more likely we are to have a concentrated market and allocative inefficiency.
B) less the tendency toward monopoly inefficiency.
C) lower the advantages of large-scale production.
D) greater the number of firms comprising an industry.
E) more likely firms will display productive efficiency.
Answer: A
Diff: 2
Topic: 12.1b. market structure and efficiency
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
31) Traditionally, economists have regarded monopoly as an undesirable market structure because
A) of its ability to minimize costs through large output.
B) it is allocatively inefficient.
C) of its wasteful innovation.
D) it is usually characterized by wastefully confrontational labour relations.
E) it allows producers to earn large profits.
Answer: B
Diff: 1
Topic: 12.1b. market structure and efficiency
Skill: Recall
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
32) Monopoly is allocatively inefficient because
A) the price exceeds the marginal cost of the last unit produced.
B) the opportunity cost exceeds the marginal cost of the last unit produced.
C) the marginal cost exceeds the average cost for the last unit produced.
D) lower costs could be achieved.
E) the firm has no incentive to maximize profits.
Answer: A
Diff: 1
Topic: 12.1b. market structure and efficiency
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
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33) Consider the efficiency of various market structures. In the absence of other market failures, allocative efficiency
is achieved only under perfect competition because only this market structure results in
A) zero long-run profits.
B) P = MC.
C) complete freedom of entry and exit.
D) maximization of profits through competition.
E) productive efficiency.
Answer: B
Diff: 1
Topic: 12.1b. market structure and efficiency
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
34) If a perfectly competitive industry was suddenly monopolized without any change in cost conditions,
A) both price and quantity produced would increase.
B) both price and quantity produced would decrease.
C) price would increase and quantity produced would decrease.
D) price would decrease and quantity produced would increase.
E) there would be no change in either price or quantity produced.
Answer: C
Diff: 2
Topic: 12.1b. market structure and efficiency
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
35) In principle, a comparison of the long-run equilibrium of competitive and (single-price) monopoly industries
leads to the following conclusion:
A) both the competitive industry and the monopoly will allocate resources efficiently.
B) the competitive industry is consistent with allocative efficiency whereas the monopoly is not.
C) neither industry is capable of allocative efficiency.
D) the competitive industry will achieve productive efficiency but the monopoly will not.
E) both the competitive industry and the monopoly will allocate resources inefficiently.
Answer: B
Diff: 1
Topic: 12.1b. market structure and efficiency
Skill: Recall
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
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FIGURE 12-3
36) Refer to Figure 12-3. If the diagram is depicting a perfectly competitive industry, the equilibrium price and
quantity is
A) P1 and q1.
B) P1 and q2.
C) P2 and q1.
D) P2 and q2.
E) P3 and q1.
Answer: D
Diff: 1
Topic: 12.1b. market structure and efficiency
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
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37) Refer to Figure 12-3. If the diagram is depicting the market situation for a monopoly, the equilibrium price and
quantity are
A) P1 and q1.
B) P1 and q2.
C) P2 and q1.
D) P2 and q2.
E) P3 and q1.
Answer: E
Diff: 1
Topic: 12.1b. market structure and efficiency
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
38) When comparing a perfectly competitive firm and a (single-price) monopolist, a major difference is that
A) the monopolist produces where MR = MC, but the perfect competitor does not.
B) the perfect competitor achieves productive efficiency, but the monopolist does not.
C) the perfect competitor produces where P = MC, but the monopolist does not.
D) the monopolist achieves allocative efficiency but the perfect competitor does not.
E) the perfect competitor minimizes its costs, but the monopolist does not.
Answer: C
Diff: 2
Topic: 12.1b. market structure and efficiency
Skill: Recall
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
39) Choose the statement that best compares the long-run equilibrium of a competitive industry with that in a
monopolized industry (with a single price).
A) Resources will be allocated efficiently in both the competitive and monopolized industries.
B) Allocative efficiency will be achieved in the competitive, but not the monopolized industry.
C) Allocative efficiency is not possible in either industry.
D) Allocative efficiency will be achieved in the monopolized, but not the competitive industry.
E) It is not possible to make this comparison because firms in a competitive industry operate only in the short run.
Answer: B
Diff: 1
Topic: 12.1b. market structure and efficiency
Skill: Recall
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
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40) In the absence of other market failures, allocative efficiency is achieved in a perfectly competitive industry
because
A) firms do not need to maximize profits.
B) the industry produces a level of output such that the marginal cost of production is minimized.
C) the industry produces a level of output such that there are increasing returns to scale.
D) there are barriers to entry.
E) the industry produces a level of output such that the marginal cost to producers equals the marginal benefit to
consumers.
Answer: E
Diff: 2
Topic: 12.1b. market structure and efficiency
Skill: Recall
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
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The diagram below shows supply, demand, and quantity exchanged of Monday matinee movie tickets. Assume it is a
perfectly competitive market.
FIGURE 12-4
41) Refer to Figure 12-4. What is the total revenue received by the sellers of this product at the allocatively efficient
level of output?
A) $5
B) $125
C) $250
D) $375
E) $500
Answer: C
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Quantitative
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42) Refer to Figure 12-4. What is the value of the consumer surplus generated in this market at the allocatively
efficient level of output?
A) $0
B) $5
C) $10
D) $125
E) $250
Answer: D
Diff: 3
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Quantitative
43) Refer to Figure 12-4. What is the value of the producer surplus generated in this market at the free-market
equilibrium?
A) $0
B) $5
C) $10
D) $125
E) $250
Answer: D
Diff: 3
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Quantitative
44) Refer to Figure 12-4. What is the total economic surplus generated in this market at the allocatively efficient
level of output?
A) $5
B) $10
C) $125
D) $250
E) $500
Answer: D
Diff: 3
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Quantitative
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45) Refer to Figure 12-4. Suppose a disequilibrium price of $7.50 per movie ticket is imposed in this market. The
consumer surplus becomes ________ and the producer surplus becomes ________.
A) $0; $62.50
B) $2.50; $7.50
C) $62.50; $125
D) $62.50; $250
E) $31.25; $156.25
Answer: E
Diff: 3
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Quantitative
46) Refer to Figure 12-4. Suppose a disequilibrium price of $7.50 per movie ticket is imposed on this market. The
total economic surplus is now ________, which is ________ than the total economic surplus generated at the
allocatively efficient level of output.
A) $125; $250 less
B) $125; $125 less
C) $187.50; $62.50 less
D) $62.50; $125 less
E) $187.50; $187.50 less
Answer: C
Diff: 3
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Quantitative
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47) Refer to Figure 12-4. If a disequilibrium price of $7.50 per movie ticket were imposed on this market, this
market would not be allocatively efficient because
1) the sum of consumer and producer surplus would not be maximized;
2) the marginal benefit to consumers of the last movie consumed would be greater than the marginal cost to the
seller;
3) the marginal cost to the seller of the last movie consumed would be more than the marginal benefit to consumers.
A) 1 only
B) 2 only
C) 3 only
D) 1 and 2
E) 2 and 3
Answer: D
Diff: 3
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
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FIGURE 12-3
48) Refer to Figure 12-3. The area representing consumer surplus in a monopoly equilibrium is outlined by
A) ACE.
B) ABE.
C) 0P4Eq2.
D) P3P4C.
E) P2P4E.
Answer: D
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
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49) Refer to Figure 12-3. The area representing consumer surplus in a perfectly competitive equilibrium is outlined
by
A) ACE.
B) ABE.
C) 0P4Eq2.
D) P3P4C.
E) P2P4E.
Answer: E
Diff: 1
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
50) Refer to Figure 12-3. The area representing producer surplus at the monopoly equilibrium is outlined by
A) 0P0Aq1.
B) P0P2BA.
C) P0AP1.
D) P0P3CA.
E) 0P3Cq1.
Answer: D
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
51) Refer to Figure 12-3. Comparing the perfectly competitive equilibrium to the monopoly equilibrium, the
reduction in consumer surplus due to monopoly is outlined by
A) P2EP4.
B) P2ECP3.
C) BCE.
D) q1CEq2.
E) P2P3E.
Answer: B
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
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52) Refer to Figure 12-3. Comparing the monopoly equilibrium to the perfectly competitive equilibrium, the area
representing the gain in producer surplus due to monopoly is outlined by
A) P1P3CA less ACE.
B) P2P3CB less ABE.
C) P0P3CA less ACE
D) P3P4 less ABE.
E) P2P4E.
Answer: B
Diff: 3
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
53) Refer to Figure 12-3. Comparing the monopoly equilibrium to the perfectly competitive equilibrium, the area
P2P3CB represents
A) the dead-weight loss of monopoly.
B) a redistribution of income from consumers to the monopolist.
C) the net gain in the monopolist's profits.
D) the net loss in the monopolist's profits.
E) a redistribution of income from the monopolist to the consumer.
Answer: B
Diff: 3
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
54) Refer to Figure 12-3. Comparing the perfectly competitive equilibrium to the monopoly equilibrium, the
deadweight loss of monopoly is given by
A) q1BEq2.
B) AP4E.
C) q1CEq2.
D) ACE.
E) P2P4E.
Answer: D
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
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55) The deadweight loss of monopoly is
A) its fixed cost.
B) any negative profit due to cyclical decreases in demand.
C) the loss of economic surplus due to the low monopoly output level.
D) the cost of maintaining effective barriers to entry.
E) the extra administrative costs of operating a large firm.
Answer: C
Diff: 1
Topic: 12.1c. consumer and producer surplus
Skill: Recall
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
56) Suppose we compare two monopolists with identical cost and demand conditions. Monopolist A charges a single
price. Monopolist B engages in price discrimination, charging a different price for different units of the product.
Which one of the following statements is correct?
A) B will produce less than A, resulting in a larger deadweight loss.
B) B will generally produce more than A, resulting in less deadweight loss.
C) A will produce less than B, resulting in smaller deadweight loss.
D) A will produce more than B, and there is no deadweight loss.
E) A and B will both produce the same amount.
Answer: B
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
57) Allocative efficiency occurs when
A) producer surplus is maximized.
B) consumer surplus is maximized.
C) the sum of consumer and producer surplus is maximized.
D) the economy achieves the frontier of the production possibilities boundary.
E) deadweight loss is achieved.
Answer: C
Diff: 1
Topic: 12.1c. consumer and producer surplus
Skill: Recall
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
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58) In general, the sum of consumer and producer surplus is maximized under the conditions of
A) perfect competition.
B) monopoly.
C) monopolistic competition.
D) oligopoly.
E) any market structure.
Answer: A
Diff: 1
Topic: 12.1c. consumer and producer surplus
Skill: Recall
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
59) Which of the following is the result of a monopolist's pricing and output behaviour, as compared to a perfectly
competitive outcome?
A) a reduction in producer surplus and increase in consumer surplus
B) an increase in both consumer and producer surplus
C) a reduction in both consumer and producer surplus
D) a reduction in the sum of consumer and producer surplus
E) an increase in the sum of consumer and producer surplus
Answer: D
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Recall
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
60) When comparing a monopoly equilibrium to a competitive market equilibrium, the consumer suffers two types
of losses. They are
A) the deadweight loss due to the output that is produced beyond the competitive level, and the transfer of consumer
surplus to the monopolist .
B) the loss of both consumer surplus and producer surplus.
C) a loss of consumer surplus due to the output that is not produced, and the transfer of consumer surplus to the
monopolist.
D) the deadweight loss due to the output that is produced and the reduced incentive for innovation by the
monopolist.
E) the deadweight loss due to the output that is not produced and the transfer of producer surplus to the monopolist.
Answer: C
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Recall
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
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The diagram below shows the demand and supply curves in a perfectly competitive market.
FIGURE 12-5
61) Refer to Figure 12-5. Allocative efficiency occurs
A) at output level Q3.
B) at output level Q1.
C) at price P1 and output Q3.
D) at price P2 and output Q2.
E) where the areas 1, 2, 3, and 4 are maximized.
Answer: D
Diff: 1
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
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62) Refer to Figure 12-5. At the free-market equilibrium, consumer surplus is represented by the area
A) P2P3E.
B) P1P2E.
C) P1P3E.
D) 1 + 2.
E) 1 + 2 + 3 + 4.
Answer: A
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
63) Refer to Figure 12-5. In the free-market equilibrium, producer surplus is shown by the area
A) P3P2E.
B) P1P2E.
C) P1P3E.
D) 1 +2.
E) 1 + 2 + 3 + 4.
Answer: B
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
64) Refer to Figure 12-5. In the free-market equilibrium, producer plus consumer surplus is maximized and is
illustrated by the area
A) P3P2E.
B) P1P2E.
C) P1P3E.
D) 1 + 2.
E) 1 + 2 + 3 + 4.
Answer: C
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
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65) Refer to Figure 12-5. If output in this market were Q1, but the price was still at its free-market level, the loss in
consumer surplus relative to the competitive equilibrium would be illustrated by area
A) P3P2E.
B) P1P3E.
C) 1.
D) 2.
E) 1 + 2.
Answer: C
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
66) Refer to Figure 12-5. If output in this market were Q1, and the price were still equal to its free-market level, the
loss in producer surplus relative to the competitive equilibrium would be illustrated by area
A) P3P2E.
B) P1P3E.
C) 1.
D) 2.
E) 1 + 2.
Answer: D
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
67) Refer to Figure 12-5. If output in this market were Q1, the total loss in economic surplus relative to the
competitive equilibrium would be illustrated by area
A) P1P3E.
B) 1.
C) 2.
D) 1 + 2.
E) 1 + 2 + 3 + 4.
Answer: D
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
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68) Refer to Figure 12-5. If output in this market were Q3, and the price were still P2, the loss in consumer surplus
relative to the competitive equilibrium would be illustrated by area
A) 1.
B) 2.
C) 3.
D) 4.
E) 3 + 4.
Answer: D
Diff: 3
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
69) Refer to Figure 12-5. If output in this market were Q3, and the price was still equal to its free-market level, the
loss in producer surplus relative to the competitive equilibrium would be illustrated by area
A) 1.
B) 2.
C) 3.
D) 4.
E) 3 + 4.
Answer: C
Diff: 3
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
70) Refer to Figure 12-5. If output in this market were Q3, the loss in total economic surplus relative to the
competitive equilibrium would be illustrated by area
A) 1.
B) 2.
C) 3.
D) 4.
E) 3 + 4.
Answer: E
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User1: Graph
User2: Qualitative
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71) Which of the following is the definition of producer surplus?
A) the total revenue received by the producer for a good minus the total cost of producing that good
B) the price of a good minus the marginal cost of producing it, summed over the quantity produced
C) the revenue received for a good, minus the cost of producing it
D) the price of a good minus the cost of producing it
E) quantity produced in excess of the allocatively efficient amount
Answer: B
Diff: 3
Topic: 12.1c. consumer and producer surplus
Skill: Recall
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
72) Which of the following is the definition of consumer surplus?
A) the difference between the value that consumers place on a good and the payment they make to buy the good,
summed over the quantity consumed
B) the total value that consumers place on the quantity consumed of some good
C) the quantity consumed in excess of the allocatively efficient amount
D) the value that consumers place on the last unit consumed of a good
E) the marginal value that consumers place on the last unit consumed of a good
Answer: A
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Recall
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
73) Which of the following is an example of an industry that succeeds in formally restricting entry, thereby
maintaining prices above competitive levels?
A) transport trucking
B) beef cattle ranching
C) window washing
D) dentistry
E) book publishing
Answer: D
Diff: 2
Topic: 12.1c. consumer and producer surplus
Skill: Applied
Learning Obj.: 12-2 Explain why perfect competition is allocatively efficient, whereas monopoly is allocatively inefficient.
User2: Qualitative
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12.2 Economic Regulation to Promote Efficiency
1) In which of the following situations would a natural monopoly exist?
A) a firm has a government charter to be the sole producer of some good
B) a firm is able to operate at the minimum point of its long-run average total cost curve
C) a firm produces a product essential to national security
D) only one firm is supplying a natural resource
E) one firm can most efficiently supply the entire market demand
Answer: E
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Recall
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
2) In general, which of the following statements guides policymakers with respect to a natural monopoly? The firm
A) should be broken up into a large number of competitive firms.
B) should be taken over by government and run as a crown corporation.
C) is the best way to produce a given product and should be left alone.
D) generally needs to be regulated in order to reduce allocative inefficiency.
E) will not achieve productive efficiency without regulation.
Answer: D
Diff: 1
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Recall
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
3) One method of regulating a natural monopoly is known as average-cost pricing. Using this method, the regulator
requires that the price be set equal to
A) internal cost.
B) marginal cost.
C) average variable cost.
D) long-run average cost.
E) average fixed cost.
Answer: D
Diff: 1
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Recall
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
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4) Choose the statement that best describes the dilemma facing the regulator of a natural monopoly.
A) Marginal-cost pricing leads to profit or losses; average-cost pricing results in allocative inefficiency.
B) Marginal-cost pricing will result in allocative inefficiency; average-cost pricing leads to profits or losses.
C) Marginal-cost pricing will result in productive and allocative inefficiency; average-cost pricing will not.
D) Both kinds of regulation have the same implications for allocative efficiency.
E) There is no dilemma.
Answer: A
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Recall
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
5) Consider the case of a natural monopoly with falling long-run average costs. If regulation sets the price equal to
marginal cost, then
A) the firm would operate at a loss and eventually go out of business.
B) shortages would result.
C) the demand curve would shift to the left.
D) the firm would earn economic profits.
E) the outcome would be allocatively inefficient.
Answer: A
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
6) Consider a natural monopoly that has declining LRAC over the entire range of the market demand curve. If it is
regulated and required to charge a price that is equal to MC, the resulting level of output is
A) allocatively efficient, and profit is earned.
B) allocatively efficient, but the firm must be paid a subsidy or it will eventually go out of business.
C) less than the allocatively efficient level, and profit is zero.
D) less than the allocatively efficient level, but losses occur.
E) greater than the allocatively efficient level, but losses occur.
Answer: B
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
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7) Consider a public utility that is a natural monopoly with falling long-run average costs. If a regulatory agency
ordered this firm to price all of its output at marginal cost, then the firm
A) would lose money unless it is subsidized.
B) could incur profits or losses depending on the position of the demand curve and the LRAC curve.
C) would earn profits since the demand curve is perfectly inelastic.
D) would incur losses since the demand curve is perfectly elastic.
E) would have to shut down.
Answer: A
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
8) If average-cost pricing is imposed on a falling-cost natural monopoly, the result will be
A) exit from the industry in the short run.
B) zero economic profit.
C) economic profits.
D) economic losses.
E) losses and exit from the industry in the long run.
Answer: B
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
9) If a regulatory agency imposes a lump-sum tax on a monopolist (i.e., a tax that is independent of the level of
output) it will reduce the firm's profits because the tax increases
A) the LRAC but not the MC, leaving price and output unchanged.
B) both the LRAC and the MC, leaving price and output unchanged.
C) all costs as it shifts the demand curve to the left.
D) all costs as it shifts the demand curve to the right.
E) price whereas quantity demanded falls.
Answer: A
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
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10) Regulation can reduce the profits of a natural monopoly by imposing a per-unit output tax (rather than directly
regulating price). Such a tax would cause the monopolist's
1) average total cost curve to shift upward;
2) marginal cost curve to shift upward;
3) demand curve to shift to the left.
A) 1 only
B) 2 only
C) 3 only
D) 1 and 2
E) 2 and 3
Answer: D
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Recall
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
11) Suppose a cell-phone service provider has monopoly rights for a geographical region and is earning monopoly
profits. If the government then imposes a lump-sum tax (i.e., a tax that is independent of the level output) of $X on
this firm, the effect is
A) an increase in consumer surplus due to the tax revenue.
B) to increase the firm's marginal costs and reduce its profit by $X.
C) to increase the firm's average costs and reduce its profit by $X.
D) a reduction in output and an increase in price.
E) an increase in output and a decrease in price.
Answer: C
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
12) The economic efficiency of a natural monopoly can be improved with the use of two-part tariffs because it
allows the monopoly to
A) charge users according to their willingness to pay.
B) charge residential users different rates than business users.
C) charge users according to their ability to pay.
D) charge users separately for fixed and variable costs.
E) lower its total costs.
Answer: D
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Recall
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
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Copyright © 2017 Pearson Education, Inc.
13) Suppose your municipality charges your household a flat fee of $100 per year plus $2 per cubic metre of water
used. This pricing policy is an example of
A) marginal-cost pricing.
B) average cost pricing.
C) a two-part tariff.
D) utility pricing.
E) linear pricing.
Answer: C
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
14) In the long run, the imposition of average-cost pricing in natural monopolies, such as Manitoba Hydro and New
Brunswick Power, would generally lead to
A) allocative efficiency.
B) productive efficiency.
C) distorted investment decisions.
D) a reduction in the output by these firms.
E) both allocative efficiency and productive efficiency.
Answer: C
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
15) Consider a regulated natural monopoly, such as an electricity distribution company, that faces falling long-run
average costs. If it is forced to price its output at average cost it will provide
A) less output than what is socially optimal.
B) more output than what is socially optimal.
C) the socially optimal amount of output.
D) more output than can be absorbed by the market.
E) so little output that there will be a shortage.
Answer: A
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
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16) A regulated monopoly that faces rising long-run costs (at its current level of output) and which is forced to price
its output at average cost will provide
A) less output than what is socially optimal.
B) more output than what is socially optimal.
C) the socially optimal amount of output.
D) more output than what can be absorbed by the market.
E) so little output that there will be a shortage.
Answer: B
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
17) Consider a natural monopoly that is producing an output level such that it is experiencing decreasing returns to
scale. If government policy requires the firm to set price equal to marginal cost,
A) the outcome will be allocatively efficient and the firm will be earning profits.
B) the outcome will be allocatively inefficient and the firm will be earning profits.
C) the outcome will be allocatively efficient and the firm will be incurring losses.
D) the outcome will be allocatively inefficient and the firm will be incurring losses.
E) the outcome will be allocatively efficient and the firm will be earning zero profits.
Answer: A
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
18) Consider the following information for a regional cable television service provider that is a natural monopoly
and has a U-shaped long-run average cost curve. (Assume the service provided is basic cable and units are
household connections.)
- minimum LRAC = $9.00 per month
- minimum efficient scale = 2 million units
- current output = 2.3 million units
- LRAC at current output = $10.25 per month
If this firm is currently being regulated and is following an average-cost pricing policy, the price of the service is
________ per month.
A) less than $9.00
B) $9.00
C) between $9.00 and $10.25
D) $10.25
E) higher than $10.25
Answer: D
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Quantitative
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Copyright © 2017 Pearson Education, Inc.
19) Consider the following information for a regional cable television service provider that is a natural monopoly
and has a U-shaped long-run average cost curve. (Assume the service provided is basic cable and units are
household connections.)
- minimum LRAC = $9.00 per month
- minimum efficient scale = 2 million units
- current output = 2.3 million units
- LRAC at current output = $10.25 per month
Suppose the firm is currently being regulated and is required to follow a marginal-cost pricing policy. The price of
the service will be ________ per month.
A) lower than $9.00
B) $9.00
C) between $9.00 and $10.25
D) $10.25
E) higher than $10.25
Answer: E
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Quantitative
20) Consider the following information for a regional cable television service provider that is a natural monopoly
and has a U-shaped long-run average cost curve. (Assume the service provided is basic cable and units are
household connections.)
- minimum LRAC = $9.00 per month
- minimum efficient scale = 2 million units
- current output = 1.7 million units
- current LRAC = $10.25 per month
If this firm is currently being regulated and is following an average-cost pricing policy, the price of service is
________ per month.
A) lower than $9.00
B) $9.00
C) between $9.00 and $10.25
D) $10.25
E) higher than $10.25
Answer: D
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Quantitative
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21) Consider the following information for a regional cable television service provider that is a natural monopoly
and has a U-shaped long-run average cost curve. (Assume the service provided is basic cable and units are
household connections.)
- minimum LRAC = $9.00 per month
- minimum efficient scale = 2 million units
- current output = 1.7 million units
- current LRAC = $10.25 per month
Suppose the firm is currently being regulated and is required to follow a marginal-cost pricing policy. The price of
the service will be ________ per month.
A) lower than $9.00
B) $9.00
C) lower than $10.25
D) $10.25
E) higher than $10.25
Answer: C
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Quantitative
22) According to economist George Stigler, the process of regulating firms with market power becomes suspect over
time because
A) regulators impose additional costs on regulated firms because they are expected to accomplish other social goals.
B) regulators shift from protecting the consumer to protecting the regulated firm from competition.
C) regulated firms are allowed to expand into other markets and drive out competing firms.
D) regulated firms devise methods to circumvent the regulations.
E) regulation leads to corruption of political parties.
Answer: B
Diff: 1
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Recall
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
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Copyright © 2017 Pearson Education, Inc.
The diagram below shows the market demand curve and the cost curves for a single firm.
FIGURE 12-6
23) Refer to Figure 12-6. The firm depicted in the figure is
A) a perfectly competitive firm.
B) a monopolistically competitive firm.
C) a natural monopoly.
D) an oligopoly.
E) a cartel.
Answer: C
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Qualitative
24) Refer to Figure 12-6. Suppose the firm is being regulated using a policy of average-cost pricing. The resulting
price and output would be
A) P1 and Q2.
B) P1 and Q1.
C) P2 and Q2.
D) P3 and Q1.
E) P3 and Q2.
Answer: D
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Qualitative
25) Refer to Figure 12-6. Suppose this firm is being regulated using a policy of average-cost pricing. In this case,
economic profits to the firm are represented by the area
A) P2P3ad.
B) P2P3ab.
C) 0P3aQ1.
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D) P1P2bc.
E) There are no economic profits.
Answer: E
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Qualitative
26) Refer to Figure 12-6. Suppose this firm is being regulated using a policy of average-cost pricing. In this case,
A) the result is allocatively efficient because economic profits are zero.
B) the result is allocatively inefficient because price exceeds marginal cost.
C) the level of output is too low, but the price is allocatively efficient.
D) the result is as close to the competitive outcome as possible.
E) the result is allocatively inefficient because the marginal cost curve is downward sloping.
Answer: B
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Qualitative
27) Refer to Figure 12-6. Suppose this firm is being regulated using the policy of marginal-cost pricing. The
resulting price and output would be
A) P2 and Q2.
B) P3 and Q1.
C) P1 and Q2.
D) P3 and Q2.
E) P1 and Q1.
Answer: C
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Qualitative
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28) Refer to Figure 12-6. Suppose this firm is being regulated using a policy of marginal-cost pricing. In this case,
the firm would experience ________ represented by the area ________.
A) losses; P1P2bc
B) losses; edbc
C) losses; 0P2bQ2
D) profits; P2P3ad
E) profits; edbc
Answer: A
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Qualitative
29) Refer to Figure 12-6. Suppose this firm is being regulated using a policy of marginal-cost pricing. In this case,
A) allocative efficiency is achieved because profits are maximized.
B) the result is allocatively inefficient because the firm is suffering losses.
C) the result is allocatively inefficient because the firm is earning profits.
D) the result is allocatively inefficient because the marginal cost curve lies below the ATC curve.
E) allocative efficiency is achieved because price equals marginal cost.
Answer: E
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Qualitative
30) Refer to Figure 12-6. Suppose this firm is being regulated using a policy of marginal-cost pricing. To maintain
the resulting level of output
A) the government would have to subsidize the firm or it will eventually shut down.
B) the regulator would have to allow the firm to keep the monopoly profits at this level of output.
C) the government would have to accept the allocative inefficiency associated with this level of output.
D) the average total cost curve would have to shift up.
E) the demand curve would have to the left.
Answer: A
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Qualitative
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31) Refer to Figure 12-6. Suppose this firm is a government-owned natural monopoly and imposes a price so as to
achieve allocative efficiency in this market. The amount of tax revenue that the government must raise elsewhere in
the economy to offset the losses of this firm is represented by the area
A) P1P3ae.
B) P1P2bc.
C) edbc.
D) Q1dbQ2.
E) 0P2bQ2.
Answer: B
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Qualitative
636
Copyright © 2017 Pearson Education, Inc.
The diagram below shows cost and revenue curves for a natural monopoly producing electricity. Price is dollars
per kilowatt hour and quantity is kilowatt hours per day.
FIGURE 12-7
32) Refer to Figure 12-7. If this firm were unregulated and profit maximizing, its profit would be ________ per day.
A) $0
B) $10 000
C) $60 000
D) $110 000
E) $120 000
Answer: B
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Quantitative
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33) Refer to Figure 12-7. If this firm were unregulated and profit maximizing, its price and output would be
________ per kwh and ________ kwh per day.
A) $0.08; 1.5 million
B) $0.09; 1.4 million
C) $0.12; 1 million
D) $0.11; 1 million
E) $0.07; 1.5 million
Answer: C
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
User1: Graph
User2: Quantitative
34) Refer to Figure 12-7. Suppose this firm is being regulated using a policy of average-cost pricing. The resulting
price and output would be ________ per kwh and ________ kwh per day.
A) $0.06; 1 million
B) $0.07; 1.5 million
C) $0.09; 1.4 million
D) $0.11; 1 million
E) $0.12; 1 million
Answer: C
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Quantitative
35) Refer to Figure 12-7. Suppose this firm is being regulated using a pricing policy of average-cost pricing. In this
case, economic profits are equal to
A) $10 000.
B) $6000.
C) $126 000.
D) $28 000.
E) $0.
Answer: E
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Quantitative
638
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36) Refer to Figure 12-7. Suppose this firm is being regulated using a policy of marginal-cost pricing. The resulting
price and output would be ________ per kwh and ________ kwh per day.
A) $0.06; 1 million
B) $0.07; 1.5 million
C) $0.08; 1.5 million
D) $0.09; 1.4 million
E) $0.12; 1 million
Answer: B
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Quantitative
37) Refer to Figure 12-7. Suppose this firm is being regulated using a policy of marginal-cost pricing. In this case,
economic profits are equal to
A) -$15 000.
B) -$28 000.
C) $0.
D) $90 000.
E) -$50 000.
Answer: A
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Applied
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User1: Graph
User2: Quantitative
38) Which of the following is a possible negative result of a policy of average-cost pricing as a method of regulating
a natural monopoly?
A) economic losses will accumulate over time to unsustainable levels
B) taxpayers will have to subsidize the economic losses of the regulated monopoly
C) the regulated monopoly earns unreasonable profits
D) socially desirable capital investment may not occur
E) the induced technological change leads to more industries becoming natural monopolies
Answer: D
Diff: 3
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Recall
User2: Qualitative
639
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39) There has been a trend toward less government regulation and ownership in oligopolistic industries in most
industrialized countries since the 1980s. One reason for this is
A) policymakers came to understand that many oligopolistic firms were operating at their minimum efficient scale,
thereby producing an efficient outcome.
B) policymakers came to understand that many oligopolistic firms were producing output levels that resulted in
allocative efficiency.
C) policymakers realized that they did not have effective tools for promoting efficiency.
D) Canada's Competition Bureau, and similar agencies in other countries were so successful at promoting
competition that such regulation is no longer required.
E) domestic firms are now exposed to more international competition due to falling transportation and
communication costs.
Answer: E
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Recall
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
40) In many cases throughout Canadian history, governments have sought to control the behaviour of oligopolistic
firms through either ownership or regulation. Policymakers are now skeptical of such practices because
1) many innovations in products and production methods that have led to increases in living standards are
attributable to firms in oligopolistic industries;
2) it became clear that oligopolistic industries can achieve both productive and allocative efficiency without
government intervention;
3) the regulatory body often ends up protecting the firms from competition.
A) 1 only
B) 2 only
C) 3 only
D) 1 and 2
E) 1 and 3
Answer: E
Diff: 2
Topic: 12.2. regulation of monopoly and oligopoly
Skill: Recall
Learning Obj.: 12-3 Describe alternative methods for regulating a natural monopoly.
User2: Qualitative
640
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12.3 Canadian Competition Policy
1) The objective of government regulation and competition policy can be described as a means to
A) promote economic efficiency.
B) make at least one person better off at the expense of others.
C) reduce inequality in the economy.
D) increase fairness in economic activities.
E) make all industries perfectly competitive.
Answer: A
Diff: 1
Topic: 12.3. Canadian competition policy
Skill: Recall
Learning Obj.: 12-4 Discuss some details about Canadian competition policy.
User2: Qualitative
2) A major aim of Canadian competition policy is to
A) eliminate oligopolies and the allocative inefficiency that they entail.
B) prevent further concentration of industries where such concentration would lessen competition.
C) monitor the pricing practices of crown corporations.
D) protect Canadian companies from unfair foreign competition.
E) achieve a perfectly competitive market structure in all markets in the Canadian economy.
Answer: B
Diff: 1
Topic: 12.3. Canadian competition policy
Skill: Recall
Learning Obj.: 12-4 Discuss some details about Canadian competition policy.
User2: Qualitative
3) Prior to the 1986 amendments to the Canadian Competition Act, cases brought against mergers were almost
always unsuccessful. The reason most often cited for this is
A) that merging firms were always successful in destroying the incriminating evidence.
B) that judges were influenced.
C) that mergers that were detrimental to the public interest previously fell under criminal law, rather than civil law,
making them particularly hard to prove.
D) that mergers that were detrimental to the public interest previously fell under civil law, rather than criminal law,
making them particularly hard to prove.
E) the lack of a director responsible for prosecution.
Answer: C
Diff: 1
Topic: 12.3. Canadian competition policy
Skill: Recall
Learning Obj.: 12-4 Discuss some details about Canadian competition policy.
User2: Qualitative
641
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4) An allowable defence for a merger according to Canada's Competition Bureau is that
A) merging firms find it easier to decide how they will share the market.
B) merging firms are more profitable because they no longer have to compete with one another.
C) the gains in efficiency resulting from the merger more than offset any reductions in competition.
D) merged and therefore bigger firms are better placed to compete globally.
E) larger firms are easier to regulate.
Answer: C
Diff: 1
Topic: 12.3. Canadian competition policy
Skill: Recall
Learning Obj.: 12-4 Discuss some details about Canadian competition policy.
User2: Qualitative
5) In Canada, a significant challenge for the Competition Bureau when reviewing a possible merger between firms
in a concentrated industry is to
A) determine whether efficiency gains make the merger desirable.
B) determine whether monopoly no longer poses a threat to the Canadian economy.
C) impose effective entry barriers to the industry.
D) determine whether criminal charges are required due to unlawful collusion.
E) allow those mergers that lead to larger firms that are easier to regulate.
Answer: A
Diff: 1
Topic: 12.3. Canadian competition policy
Skill: Recall
Learning Obj.: 12-4 Discuss some details about Canadian competition policy.
User2: Qualitative
6) In Canada, the Competition Act specifies that in antitrust cases the "watchdog" is the
A) Senate.
B) Commissioner of the Competition Bureau.
C) Supreme Court of Canada.
D) minister responsible for Industry Canada.
E) prime minister.
Answer: B
Diff: 1
Topic: 12.3. Canadian competition policy
Skill: Recall
Learning Obj.: 12-4 Discuss some details about Canadian competition policy.
User2: Qualitative
642
Copyright © 2017 Pearson Education, Inc.
7) The administrative agency established to enforce the provisions of the Competition Act is the
A) Competition Bureau.
B) Federal Free Trade Practices Commission.
C) Department of Consumer and Corporate Affairs.
D) Competition Tribunal Act.
E) Director of Investigations.
Answer: A
Diff: 1
Topic: 12.3. Canadian competition policy
Skill: Recall
Learning Obj.: 12-4 Discuss some details about Canadian competition policy.
User2: Qualitative
8) Canadian governments (federal, provincial and municipal) employ public ownership or regulation of industries in
an effort to
A) ensure that the goal of profit maximization is being pursued because this ensures allocative efficiency.
B) produce a more equitable distribution of income between consumers and producers with monopoly power.
C) protect consumers from the high prices and restricted output associated with monopoly power.
D) promote productive efficiency in all industries.
E) transfer monopoly profits from private firm owners to the government.
Answer: C
Diff: 2
Topic: 12.3. Canadian competition policy
Skill: Recall
Learning Obj.: 12-4 Discuss some details about Canadian competition policy.
User2: Qualitative
9) Suppose there are only two firms (Firms A and B) in Canada that produce good X, and the two firms propose a
merger to create a single firm (Firm AB). Is there any circumstance under which the authorities enforcing Canadian
competition policy might approve of such a merger?
A) According to the Competition Act, as long as the revenues of the merged firm are less than $100 million per year.
B) According to the Competition Act, if the merged firm enhances the status of a Canadian cultural industry.
C) If the market is defined as being within Canada's borders, and the merger allows Firm AB to exploit economies
of scale.
D) If international trade in good X is such that Firm AB faces a fully competitive environment, both within and
outside of Canada's borders.
Answer: D
Diff: 2
Topic: 12.3. Canadian competition policy
Skill: Recall
Learning Obj.: 12-4 Discuss some details about Canadian competition policy.
User2: Qualitative
643
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10) In Canada, alleged violations of the Competition Act are referred to the ________ for adjudication.
A) Commissioner of the Competition Bureau
B) Competition Tribunal
C) minister responsible for Industry Canada
D) RCMP
E) provincial Courts of Appeal
Answer: B
Diff: 1
Topic: 12.3. Canadian competition policy
Skill: Recall
Learning Obj.: 12-4 Discuss some details about Canadian competition policy.
User2: Qualitative
Economics - Canadian Edition, 15e (Ragan)
Chapter 13 How Factor Markets Work
13.1 The Demand for Factors
1) For any firm in any market structure, a factor's marginal revenue product is
A) the average product of the factor multiplied by the price of the output.
B) the change in revenue caused by the sale of the product contributed by an additional unit of input.
C) the change in revenue caused by the sale of an additional unit of output.
D) the increase in output resulting from the use of an additional unit of the factor multiplied by the cost of that
factor.
E) marginal revenue multiplied by total product.
Answer: B
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Recall
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
2) Suppose the last unit of a factor of production employed has a marginal product of 12. The factor's price is $8,
and the product's competitive market price is $6. This factor's marginal revenue product is
A) $6.
B) $36.
C) $48.
D) $72.
E) $96.
Answer: D
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Quantitative
3) The marginal revenue product of labour is the change in the value of the firm's output resulting from
A) a change in the product's price.
B) an increase in the marginal physical product of labour.
C) a change in the wage rate paid to labour.
D) producing one more unit of output.
E) hiring one more unit of labour input.
Answer: E
Diff: 1
Topic: 13.1a. marginal product and marginal revenue product
Skill: Recall
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
644
Copyright © 2017 Pearson Education, Inc.
4) A condition for the profit-maximizing use of any factor of production is
(where MP = marginal product, w = the price of a factor of production, p = price of one unit of the firm's output, MR
= marginal revenue, MC = marginal cost, MRP = marginal revenue product):
A) MRP = MP × p
B) MR =
C) MC = MR × w
D) w = MP × p
E) MRP = MR × MC
Answer: D
Diff: 1
Topic: 13.1a. marginal product and marginal revenue product
Skill: Recall
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Quantitative
5) Consider labour that is hired for $18 per hour. If the last hour of labour hired produces 8 units of output which
sells for $10 per unit, that labour-hour's marginal revenue product is
A) $1.20.
B) $4.44.
C) $64.
D) $80.
E) $144.
Answer: D
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Quantitative
6) Consider labour that is hired for $18 per hour. If the last hour of labour hired produces 8 units of output which
sells for $10 per unit, that labour-hour adds ________ to the firm's profit and so ________ labour should be hired.
A) $80; more
B) -$80; less
C) $62; less
D) $62; more
E) $0; no
Answer: D
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Quantitative
645
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7) Consider labour that is hired for $18 per hour. If the last hour hired produces 8 units of output which sells for $2
per unit, ________ labour should be hired in this situation since the wage is ________ MRP.
A) more; greater than
B) more; less than
C) less; greater than
D) less; less than
E) no; equal to
Answer: C
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Quantitative
8) Consider labour that is hired for $18 per hour. If the last hour hired produces 8 units of output which sells for $2
per unit, that labour-hour adds ________ to the firm's profit and so ________ labour should be hired.
A) -$128; more
B) -$2; less
C) $16; less
D) $16; more
E) $0; no
Answer: B
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Quantitative
9) Consider labour hired for $18 per hour. If the last hour of labour hired produces 8 units of output which sells for
$10 per unit, ________ labour should be hired in this situation since the wage is ________ MRP.
A) more; greater than
B) more; less than
C) less; greater than
D) less; less than
E) no; equal to
Answer: B
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Quantitative
646
Copyright © 2017 Pearson Education, Inc.
10) Consider labour hired for $1000 per week. If the last week of labour hired produces 0.25 units of output which
sells for $5000 per unit, ________ labour should be hired in this situation since the wage is ________ MRP.
A) more; greater than
B) more; less than
C) less; greater than
D) less; less than
E) no; equal to
Answer: B
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Quantitative
11) Consider a small firm that is producing winter jackets. It can lease an additional sewing machine for one month
for $750. With this additional machine, the firm can produce an additional 6 jackets during that time period that it
sells for $125 each. Hiring the marginal machine adds ________ to the firm's profit and so it should ________ the
machine.
A) -$750; not lease
B) -$750; lease
C) $0; be indifferent as to whether to lease
D) $750; not lease
E) $750; lease
Answer: C
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Quantitative
12) Consider a small firm that is producing winter jackets. It can lease an additional sewing machine for one month
for $1200. With this additional machine, the firm can produce an additional 7 jackets during that time period that it
sells for $250 each. Hiring the marginal machine adds ________ to the firm's profit and so it should ________ the
machine.
A) -$1200; not lease
B) $0; be indifferent as to whether to lease
C) $1200; lease
D) $550; lease
E) $1750; lease
Answer: D
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Quantitative
647
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13) Consider a small firm that is producing winter jackets. It can lease an additional sewing machine for one month
for $2400. With this additional machine, the firm can produce an additional 4 jackets during that time period that it
sells for $550 each. Hiring the marginal machine adds ________ to the firm's profit and so it should ________ the
machine.
A) -$2400; not lease
B) -$200; not lease
C) $0; be indifferent as to whether to lease
D) $200; lease
E) $2400; lease
Answer: B
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Quantitative
Consider the following production and cost schedule for a firm. The first column shows the number of units of a
variable factor of production employed by the firm.
Total Number of
Units of the Factor
10
11
12
13
14
15
Total Number of
Units of Output
20
44
64
78
84
86
Price per Unit
of Output
$10
$10
$10
$10
$10
$10
TABLE 13-1
14) Refer to Table 13-1. The marginal product of the 15th unit of the factor of production is
A) -2.
B) 0.
C) 2.
D) 82.
E) 84.
Answer: C
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
648
Copyright © 2017 Pearson Education, Inc.
15) Refer to Table 13-1. The marginal product of the 12th unit of the factor of production is
A) 4.
B) 14.
C) 20.
D) 44.
E) 64.
Answer: C
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Qualitative
16) Refer to Table 13-1. The total revenue of the output produced by 12 units of the factor is
A) $120.
B) $520.
C) $640.
D) $768.
E) $1440.
Answer: C
Diff: 1
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
17) Refer to Table 13-1. The total revenue of the output produced by 15 units of the factor is
A) $860.
B) $150.
C) $640.
D) $780.
E) $1440.
Answer: A
Diff: 1
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
649
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18) Refer to Table 13-1. The marginal revenue product of the 14th unit of the factor is
A) -$60.
B) $60.
C) $140.
D) $700.
E) $840.
Answer: B
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
19) Refer to Table 13-1. The marginal revenue product of the 15th unit of the factor is
A) -$20.
B) $20.
C) $60.
D) $150.
E) $820.
Answer: B
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
20) Refer to Table 13-1. Diminishing marginal returns are present for which units of the factor of production?
A) 10th unit only
B) 11th unit only
C) 12th unit only
D) 13th unit only
E) all units shown in the table
Answer: E
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
650
Copyright © 2017 Pearson Education, Inc.
21) Refer to Table 13-1. How many units of this factor of production would the profit-maximizing firm choose to
hire?
A) 11
B) 12
C) 13
D) 14
E) It is not possible to determine with the data provided.
Answer: E
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
Consider the following table for a firm. The first column shows the number of units of a variable factor of
production employed by the firm.
Total Number of
Units of the Factor
2
3
4
5
6
7
8
Total Number of
Units of Output
100
110
128
148
162
170
166
TABLE 13-2
22) Refer to Table 13-2. The marginal product of the 7th unit of the factor is
A) -8.
B) 0.
C) 8.
D) 162.
E) 170.
Answer: C
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
651
Copyright © 2017 Pearson Education, Inc.
23) Refer to Table 13-2. Suppose the firm is a perfect competitor and faces a given price of the product equal to $2
per unit. The marginal revenue product of the 5th unit of the factor is
A) $128.
B) $148.
C) $20.
D) $40.
E) $2.
Answer: D
Diff: 3
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
24) Refer to Table 13-2. This firm begins to experience diminishing marginal productivity when it hires the
________ unit of the factor.
A) 3rd
B) 4th
C) 5th
D) 6th
E) 7th
Answer: D
Diff: 3
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
25) Refer to Table 13-2. Suppose this firm is a perfect competitor and faces a given price of the product equal to $10
per unit. The marginal revenue product of the 3rd unit of the factor is
A) $30.
B) $100.
C) $110.
D) $1000.
E) $1100.
Answer: B
Diff: 3
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
652
Copyright © 2017 Pearson Education, Inc.
26) Refer to Table 13-2. Suppose this firm is a perfect competitor and faces a given price of the product equal to $15
per unit. The marginal revenue product of the 5th unit of the factor is
A) $30.
B) $100.
C) $75.
D) $300.
E) $2220.
Answer: D
Diff: 3
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
User1: Table
User2: Quantitative
Consider the following production and cost schedule for a firm. The first column shows the number of units of a
variable factor of production employed by the firm.
Total Number of
Units of the Factor
2
3
4
5
6
7
Total Number of
Units of Output
12
20
26
30
32
32
Price per Unit
of Output
$10
$9
$8
$7
$6
$5
Total Cost
of Production
$50
$55
$60
$65
$70
$75
TABLE 13-3
27) Refer to Table 13-3. The marginal product of the 4th unit of the factor of production is
A) 4.
B) 6.
C) 8.
D) 26.
E) 30.
Answer: B
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
653
Copyright © 2017 Pearson Education, Inc.
28) Refer to Table 13-3. The marginal product of the 6th unit of the factor of production is
A) -2.
B) 2.
C) 4.
D) 8.
E) 32.
Answer: B
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
29) Refer to Table 13-3. The total revenue obtained if the 5th unit of the factor of production is hired is
A) $160.
B) $180.
C) $192.
D) $202.
E) $210.
Answer: E
Diff: 1
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
30) Refer to Table 13-3. The total revenue obtained if the 7th unit of the factor of production is hired is
A) $160.
B) $180.
C) $192.
D) $202.
E) $210.
Answer: A
Diff: 1
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
654
Copyright © 2017 Pearson Education, Inc.
31) Refer to Table 13-3. The rise in total revenue generated by hiring the 4th unit of the factor of production is
A) -$11.00.
B) $2.00.
C) $3.67.
D) $7.50.
E) $28.00.
Answer: E
Diff: 3
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
32) Refer to Table 13-3. The increase in total revenue generated by hiring the 5th unit of the factor of production is
A) -$11.00.
B) -$2.00.
C) $2.00.
D) $7.50.
E) $11.00.
Answer: C
Diff: 3
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
33) Refer to Table 13-3. A profit-maximizing firm would never hire more than the ________ unit of this factor of
production.
A) 3rd
B) 4th
C) 5th
D) 6th
E) 7th
Answer: B
Diff: 3
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
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34) Profit-maximizing firms increase production up to the point at which the last unit of the variable factor
employed adds
A) nothing to marginal cost.
B) nothing to marginal revenue.
C) positive economic profits.
D) just as much to revenue as to profit.
E) just as much to revenue as to cost.
Answer: E
Diff: 1
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
35) If a firm is a perfect competitor in its product market, the marginal product of a factor multiplied by the
product's price equals
A) marginal cost.
B) marginal profit.
C) total revenue.
D) marginal revenue.
E) marginal revenue product.
Answer: E
Diff: 1
Topic: 13.1a. marginal product and marginal revenue product
Skill: Recall
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
36) The marginal revenue product curve for a monopolist would be ________ its marginal product curve because
________.
A) steeper than; its MR decreases as output increases
B) steeper than; its product's price increases as output increases
C) flatter than; it must pay a higher wage to labour
D) flatter than; its product's price decreases as output increases
E) the same as; the MRP curve always has the same shape as the MP curve
Answer: A
Diff: 3
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
656
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37) The shape of the marginal revenue product curve for a perfectly competitive firm would be ________ its
marginal product curve because ________.
A) the same as; MR is constant as output increases
B) steeper than; MR decreases as output increases
C) steeper than; its product's price increases as output increases
D) flatter than; its product's price decreases as output increases
E) flatter than; it must pay a higher wage to the variable factor as output increases
Answer: A
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Recall
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
38) Which of the following is the best definition of the marginal revenue product (MRP) of a factor of production?
A) the average product of the factor multiplied by the price of the output
B) the change in revenue generated by the sale of the product produced by an additional unit of input
C) the change in revenue caused by the sale of an additional unit of output
D) the increase in output resulting from the use of an additional unit of the factor multiplied by the cost of that factor
E) marginal revenue multiplied by total product
Answer: B
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Recall
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
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The table below shows the total production for varying numbers of hours worked producing yo-yos. The firm sells
its product and hires its workers in competitive markets.
Number of
Hours Worked
10
11
12
13
14
15
Number of
Yo-Yos Produced
60
70
78
84
88
90
Wage Rate
per Hour ($)
10
10
10
10
10
10
Price of Yo-Yos
($)
5
5
5
5
5
5
TABLE 13-4
39) Refer to Table 13-4. What is the MRP for the 13th hour worked?
A) $78
B) $84
C) $5
D) $30
E) $10
Answer: D
Diff: 3
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
40) Refer to Table 13-4. What is the marginal cost of the variable factor employed by this firm?
A) $0
B) $5
C) $10
D) $20
E) $30
Answer: C
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
658
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41) Refer to Table 13-4. A profit-maximizing firm will continue to hire labour to produce yo-yos until they have
equated
A) the price of yo-yos and the wage rate per hour.
B) the marginal product of an additional hour of labour and the price of the yo-yos.
C) the wage rate per hour and the value of the yo-yos produced by hiring one additional hour of labour.
D) the marginal revenue product of an additional hour of labour and the price of yo-yos.
E) the wage rate per hour and the marginal product of labour.
Answer: C
Diff: 2
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
User1: Table
User2: Quantitative
42) Refer to Table 13-4. Which of the following statements best describes the situation of this firm when it is
employing 12 hours of labour? The 12th hour of labour hired
A) adds $10 to revenue and costs $10 to hire, so this firm is maximizing its profit at 12 hours of labour.
B) adds $5 to revenue, but costs $10 to hire, so this firm should hire less labour.
C) adds $30 to revenue, but only costs $10 to hire, so this firm should hire more labour.
D) adds $8 to revenue, but costs $10 to hire, so this firm should hire less labour.
E) adds $40 to revenue, but only costs $10 to hire, so this firm should hire more labour.
Answer: E
Diff: 3
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
43) Refer to Table 13-4. Which of the following statements best describes the situation of this firm when it is
employing 15 hours of labour? The 15th hour of labour hired
A) adds $5 to revenue, but costs $10 to hire, so this firm should hire less labour.
B) adds $20 to revenue, but only costs $10 to hire, so this firm should hire more labour.
C) adds $10 to revenue and costs $10 to hire, so this firm is maximizing its profit at 15 hours of labour.
D) adds $50 to revenue, but only costs $10 to hire, so this firm should hire more labour.
E) adds $2 to revenue, but costs $10 to hire, so this firm should hire less labour.
Answer: C
Diff: 3
Topic: 13.1a. marginal product and marginal revenue product
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
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44) Refer to Table 13-4. If plotted on a graph, the marginal revenue product curve for the "number of hours
worked" would be the same as
A) the firm's marginal product curve, and would be downward sloping and concave to the origin.
B) the firm's marginal product curve, and would be downward sloping and convex to the origin.
C) the firm's demand curve for hours worked, and would be downward sloping and linear.
D) the firm's demand curve for yo-yos, and would be downward sloping and linear.
E) the firm's marginal revenue curve, and would be horizontal at $5 because this firm is operating in a competitive
labour market.
Answer: C
Diff: 3
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
45) Refer to Table 13-4. How many worker-hours should this profit-maximizing firm hire?
A) 11
B) 12
C) 13
D) 14
E) 15
Answer: E
Diff: 3
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
46) Refer to Table 13-4. If the market price of yo-yos drops to $2.50, how many worker-hours should this profitmaximizing firm hire?
A) 11
B) 12
C) 13
D) 14
E) 15
Answer: D
Diff: 3
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
660
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47) In a competitive labour market, an increase in the demand for labour might be due to an increase in the
A) supply of labour.
B) wage rate.
C) supply of the product that labour produces.
D) demand for the product that labour produces.
E) supply of the other factors.
Answer: D
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
48) A demand for a factor of production is said to be "derived" because the factor's demand depends
A) entirely on the cost of the factor.
B) entirely on corporate advertising.
C) heavily on government policy.
D) heavily on public choice.
E) on the demand for the good or services it helps to make.
Answer: E
Diff: 1
Topic: 13.1b. a firm's demand for a factor
Skill: Recall
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
49) Which of the following is the best example of a derived demand?
A) A decrease in interest rates increases the demand for housing.
B) An increase in the wage rate causes firms to substitute capital for labour.
C) An increase in demand for cars will increase the demand for auto workers.
D) A decrease in the price of internet connection will increase the demand for tablet computers.
E) An increase in the price of butter increases the demand for margarine.
Answer: C
Diff: 1
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
661
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50) The demand curve for a variable factor is always
A) that factor's marginal cost curve.
B) that factor's MRP curve.
C) that factor's MP curve.
D) steeper than that factor's MRP curve.
E) flatter than that factor's MRP curve.
Answer: B
Diff: 1
Topic: 13.1b. a firm's demand for a factor
Skill: Recall
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
51) In a perfectly competitive labour market, a profit-maximizing firm will employ labour until the
A) MPP = MRP.
B) wage = MP.
C) MRP = the product's price.
D) wage = MRP.
E) wage = the product's price.
Answer: D
Diff: 1
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
52) The demand for a factor will be more elastic if
A) there is little substitutability between factors.
B) it is easier to substitute between this factor and others.
C) that factor determines a small percentage of total cost.
D) the demand for the good being produced is inelastic.
E) the supply of the factor is elastic.
Answer: B
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Recall
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
662
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53) Consider a firm's demand curve for labour. If a technological change makes it easier to substitute capital for
labour, the demand curve for labour
A) shifts parallel to the right.
B) shifts parallel to the left.
C) becomes more inelastic.
D) becomes more elastic.
E) is not affected.
Answer: D
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Recall
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
54) Consider a firm's demand curve for labour. If a technological change makes it harder to substitute capital for
labour, the demand curve for labour
A) shifts parallel to the right.
B) shifts parallel to the left.
C) becomes less elastic.
D) becomes more elastic.
E) is not affected.
Answer: C
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
55) Which of the following is the best example of a derived demand?
A) an increase in the wage for yoga instructors causes an increase in the demand for yoga classes
B) a decrease in the price of Pilates classes causes an increase in the demand for yoga classes
C) an increase in demand for yoga classes causes an increase in demand for yoga instructors
D) a decrease in the demand for yoga mats causes a decrease in demand for yoga classes
E) an increase in awareness about fitness causes an increase in demand for yoga classes
Answer: C
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
663
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The diagram below shows the MRP curve for a firm producing copper plumbing pipe. The factor of production
being considered here is hours of labour.
FIGURE 13-1
56) Refer to Figure 13-1. Assume that the firm is a perfect competitor and the price of the firm's output is fixed. We
know that the firm's MRP curve is
A) the same shape as the firm's marginal product curve for labour.
B) the same shape as the firm's marginal revenue curve.
C) horizontal, if the firm is perfectly competitive.
D) steeper than the firm's marginal product curve for labour.
E) flatter than the firm's marginal product curve for labour.
Answer: A
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Graph
User2: Qualitative
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57) Refer to Figure 13-1. This firm's MRP curve is the firm's
A) derived demand for copper plumbing pipe.
B) demand curve for labour.
C) market demand curve for copper plumbing pipe.
D) marginal product of labour curve.
E) total product curve for labour.
Answer: B
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Graph
User2: Qualitative
58) Refer to Figure 13-1. Suppose this firm initially has the marginal revenue product curve MRP 1. One reason that
the curve could shift to MRP2 is
A) a decrease in demand for the firm's output, copper plumbing pipe.
B) an increase in the supply of labour.
C) a decrease in the wage rate.
D) a decrease in the market price of copper plumbing pipe.
E) an improvement in workers' human capital.
Answer: E
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Graph
User2: Qualitative
59) Refer to Figure 13-1. Suppose this firm initially has the marginal revenue product curve MRP 1. One reason that
the curve could shift to MRP3 is
A) an increase in demand for the firm's output, copper plumbing pipe.
B) a decrease in the market price of copper plumbing pipe.
C) a decrease in the supply of labour.
D) an increase in the wage rate.
E) an increase in the marginal product of labour.
Answer: B
Diff: 3
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Graph
User2: Qualitative
665
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60) Refer to Figure 13-1. Suppose this firm has the marginal revenue product curve MRP1. At a wage rate of $12,
the profit-maximizing firm will hire ________ units of labour.
A) 100
B) 120
C) 140
D) 160
E) 180
Answer: C
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Graph
User2: Qualitative
61) Refer to Figure 13-1. Suppose this firm is facing MRP1, a wage rate of $12 per hour and is employing 150 units
of labour. At this level of employment,
A) the last unit of labour is adding less to the firm's cost than it is adding to the firm's revenue, so it should increase
the use of labour.
B) the last unit of labour contributes as much to the firm's costs as to the firm's revenues and so the firm should not
change its use of labour.
C) the last unit of labour is adding more to the firm's cost than it is adding to the firm's revenue, so it should reduce
the use of labour.
D) the firm has shifted the MRP curve to MRP2.
E) the firm has shifted the MRP curve to MRP3.
Answer: C
Diff: 3
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Graph
User2: Qualitative
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62) Refer to Figure 13-1. Suppose this firm is facing MRP1, a wage rate of $16 per hour and is employing 100 units
of labour. At this level of employment,
A) the last unit of labour is adding less to the firm's cost than it is adding to the firm's revenue, so it should increase
the use of labour.
B) the last unit of labour contributes as much to the firm's costs as to the firm's revenues and so the firm should not
change its use of labour.
C) the last unit of labour is adding more to the firm's cost than it is adding to the firm's revenue, so it should reduce
the use of labour.
D) the firm has shifted the MRP curve to MRP2.
E) the firm has shifted the MRP curve to MRP3.
Answer: A
Diff: 3
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Graph
User2: Qualitative
63) Refer to Figure 13-1. Suppose this profit-maximizing firm is facing MRP1 and a wage rate of $12 per hour.
Now suppose there is, simultaneously, an increase in demand for copper plumbing pipe (such that MRP shifts to
MRP2), and an increase in the wage rate to $16 per hour. The firm should
A) employ 20 more units of labour.
B) employ 40 more units of labour.
C) employ the same number of units of labour.
D) employ 40 fewer units of labour
E) employ 20 fewer units of labour.
Answer: A
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Graph
User2: Qualitative
667
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The demand and supply curves shown below apply to a competitive market for a factor used in the production of
widgets.
FIGURE 13-2
64) Refer to Figure 13-2. This factor market is in equilibrium at point B. What is the marginal revenue product of
the 40th unit of the factor employed?
A) $8 multiplied by the price of the product
B) $320
C) $8
D) the marginal product of the 40th unit employed multiplied by the wage
E) $8 multiplied by the marginal revenue of the 40th unit employed
Answer: C
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Graph
User2: Quantitative
668
Copyright © 2017 Pearson Education, Inc.
65) Refer to Figure 13-2. If the supply and demand curves for the factor are as shown in the diagram, but the wage
being paid is $9, and the market is at point C,
A) the wage is higher than the factor's marginal revenue product, and firms will reduce the amount of the factor
employed.
B) the wage is higher than the factor's marginal product, and firms will reduce the amount of the factor employed.
C) the marginal revenue product is not equal to the marginal cost of the factor and firms will increase the amount of
the factor employed.
D) the demand curve will shift to the right until equilibrium factor price and quantity are re-established.
E) the demand curve will shift to the left until equilibrium factor price and quantity are re-established.
Answer: A
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Graph
User2: Qualitative
66) Other things being equal, if it becomes more difficult to substitute capital for labour in the production of cell
phones, the demand curve for labour in that industry
A) will shift parallel to the left.
B) will shift parallel to the right.
C) will remain unchanged.
D) will become more elastic.
E) will become more inelastic.
Answer: E
Diff: 3
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
67) Consider a firm's demand for a factor of production. A monopolist will continue to increase production until the
marginal cost of the variable factor is
A) greater than the marginal revenue of the firm's output.
B) less than the marginal revenue of the firm's output.
C) equal to zero.
D) equal to the marginal revenue product of the factor.
E) equal to the marginal revenue of the firm's output.
Answer: D
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
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68) Consider a firm's demand for a factor of production. A perfectly competitive firm will continue to increase
production until the marginal cost of the variable factor is
A) greater than the marginal revenue of the firm's output.
B) less than the marginal revenue of the firm's output.
C) equal to zero.
D) equal to the marginal revenue product of the factor.
E) equal to the marginal revenue of the firm's output.
Answer: D
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
Consider the following production and cost schedule for a firm. The first column shows the number of units of a
variable factor of production employed by the firm.
Total Number of
Units of the Factor
10
11
12
13
14
15
Total Number of
Units of Output
20
44
64
78
84
86
Price per Unit
of Output
$10
$10
$10
$10
$10
$10
TABLE 13-1
69) Refer to Table 13-1. How many units of this factor of production would the profit-maximizing firm hire if the
price of each unit of the factor was $200?
A) 10
B) 11
C) 12
D) 13
E) It is not possible to determine with the data given.
Answer: C
Diff: 3
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
670
Copyright © 2017 Pearson Education, Inc.
70) Refer to Table 13-1. How many units of this factor of production would the profit-maximizing firm hire if the
price of each unit of the factor was $140?
A) 11
B) 12
C) 13
D) 14
E) It is not possible to determine with the data given.
Answer: C
Diff: 3
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
71) Refer to Table 13-1. How many units of this factor of production would the profit-maximizing firm hire if the
price of each unit of the factor was $30?
A) 12
B) 13
C) 14
D) 15
E) It is not possible to determine with the data given.
Answer: C
Diff: 3
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User1: Table
User2: Quantitative
72) Refer to Table 13-1. In order to determine this firm's profit-maximizing number of units of the variable factor of
production, what necessary information is missing from the table?
A) the price per unit of the factor
B) the per unit price of the output
C) the marginal product of the factor
D) the marginal revenue product of the factor
E) the total output for the firm
Answer: A
Diff: 2
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
User1: Table
User2: Qualitative
671
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73) Consider a perfectly competitive labour market for video-game designers. Which of the following will shift the
demand curve for these workers to the right?
1) an increase in the equilibrium wage rate for video-game designers;
2) a decrease in the market price of video games;
3) new software that improves the design process.
A) 1 only
B) 2 only
C) 3 only
D) 1 and 2
E) 2 and 3
Answer: C
Diff: 3
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
74) Assume that the market for farmland in the fruit-growing region of southwestern Ontario is perfectly
competitive. Which of the following will shift the demand curve for this land to the left?
1) a decrease in demand for Canadian-grown fruit;
2) a change in consumer preferences toward eating more fruit;
3) scientific reports that confirm a reduction in water supply to the region.
A) 1 and 2
B) 2 and 3
C) 1 and 3
D) 1 only
E) 3 only
Answer: C
Diff: 3
Topic: 13.1b. a firm's demand for a factor
Skill: Applied
Learning Obj.: 13-2 Examine the role of factor mobility in determining factor supply.
User2: Qualitative
672
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13.2 The Supply of Factors
1) If a given factor of production is highly mobile across alternative uses, the factor's supply is
A) highly price elastic.
B) highly price inelastic.
C) perfectly inelastic.
D) irrelevant to its earnings.
E) immobile at the industry level.
Answer: A
Diff: 2
Topic: 13.2. factor mobility and supply
Skill: Recall
Learning Obj.: 13-3 Distinguish between temporary and equilibrium factor ‐price differentials.
User2: Qualitative
2) The aggregate quantity of labour supplied will generally rise when there is an increase in
1) immigration;
2) labour-force participation rates;
3) the retirement age.
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) 1, 2, and 3
E) 1 only
Answer: D
Diff: 1
Topic: 13.2. factor mobility and supply
Skill: Applied
Learning Obj.: 13-3 Distinguish between temporary and equilibrium factor ‐price differentials.
User2: Qualitative
3) The elasticity of supply of computer-game programmers will generally be greater if we are analyzing the amount
supplied to
A) the whole economy in the short run.
B) the whole economy in the long run.
C) a particular industry in the short run.
D) a particular industry in the long run.
E) a specific firm.
Answer: E
Diff: 2
Topic: 13.2. factor mobility and supply
Skill: Recall
Learning Obj.: 13-3 Distinguish between temporary and equilibrium factor ‐price differentials.
User2: Qualitative
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4) Consider computer programmers as a factor of production. Their factor mobility is quite ________, and so to any
specific firm the supply of this factor is quite ________.
A) low; inelastic
B) low; elastic
C) high; inelastic
D) high; elastic
Answer: D
Diff: 2
Topic: 13.2. factor mobility and supply
Skill: Applied
Learning Obj.: 13-3 Distinguish between temporary and equilibrium factor ‐price differentials.
User2: Qualitative
5) If small changes in incentives can induce a factor to shift between alternative uses, we say that the factor is
A) efficient.
B) mobile.
C) inelastic.
D) declining.
E) flighty.
Answer: B
Diff: 1
Topic: 13.2. factor mobility and supply
Skill: Recall
Learning Obj.: 13-3 Distinguish between temporary and equilibrium factor ‐price differentials.
User2: Qualitative
6) Which of the following statements concerning factor mobility is FALSE?
A) Land is a mobile resource in an economic sense, because it has many alternative uses.
B) Once it is in place, a factory designed and built for a specific purpose is highly mobile.
C) The allocation of labour tends to depend more on non-monetary considerations than does the allocation of either
land or capital.
D) The elasticity of the supply of labour to any particular use is likely to be greater in the long run than in the short
run.
E) Factor mobility is an important determinant of economic rent.
Answer: B
Diff: 2
Topic: 13.2. factor mobility and supply
Skill: Applied
Learning Obj.: 13-3 Distinguish between temporary and equilibrium factor ‐price differentials.
User2: Qualitative
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The three diagrams below each show a supply curve for oil tankers over a relatively short period of time.
FIGURE 13-3
7) Refer to Figure 13-3. Consider the supply of oil tankers to an individual Canadian shipping firm, the North
American shipping industry, and the world shipping industry. Which diagram best shows the supply of oil tankers
that is relevant to the North American shipping industry?
A) diagram 1
B) diagram 2
C) diagram 3
D) diagrams 2 or 3
E) diagrams 1 or 2
Answer: C
Diff: 2
Topic: 13.2. factor mobility and supply
Skill: Applied
Learning Obj.: 13-3 Distinguish between temporary and equilibrium factor ‐price differentials.
User1: Graph
User2: Qualitative
8) Refer to Figure 13-3. Consider the supply of oil tankers to an individual Canadian shipping firm, the North
American shipping industry, and the world shipping industry. Which diagram best shows the supply of oil tankers
that is relevant to an individual Canadian firm?
A) diagram 1
B) diagram 2
C) diagram 3
D) diagrams 2 or 3
E) diagrams 1 or 2
Answer: A
Diff: 2
Topic: 13.2. factor mobility and supply
Skill: Applied
Learning Obj.: 13-3 Distinguish between temporary and equilibrium factor ‐price differentials.
User1: Graph
User2: Qualitative
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9) Refer to Figure 13-3. Consider the supply of oil tankers to an individual Canadian shipping firm, the North
American shipping industry, and the world shipping industry. Which diagram best shows the supply of oil tankers
that is relevant to the world shipping industry?
A) diagram 1
B) diagram 2
C) diagram 3
D) diagrams 2 or 3
E) diagrams 1 or 2
Answer: B
Diff: 2
Topic: 13.2. factor mobility and supply
Skill: Applied
Learning Obj.: 13-3 Distinguish between temporary and equilibrium factor ‐price differentials.
User1: Graph
User2: Qualitative
10) Refer to Figure 13-3. Consider oil tankers as a factor of production (for example, for the production of gasoline).
Which diagram shows the most mobility of this factor of production?
A) diagram 1
B) diagram 2
C) diagram 3
D) none of the diagrams
E) each diagram shows mobility
Answer: A
Diff: 3
Topic: 13.2. factor mobility and supply
Skill: Applied
Learning Obj.: 13-3 Distinguish between temporary and equilibrium factor ‐price differentials.
User1: Graph
User2: Qualitative
11) Consider a manufacturing plant as an example of physical capital. Factor mobility with regard to this physical
capital refers to
A) the ease with which this plant can be relocated to another location.
B) the ease with which this plant can be converted to a different use.
C) the ease with which the labour employed at the plant can be retrained to produce a different product.
D) the elasticity of supply of the labour employed in the plant.
E) only the long-run concept of mobility because it is physical capital.
Answer: B
Diff: 2
Topic: 13.2. factor mobility and supply
Skill: Applied
Learning Obj.: 13-3 Distinguish between temporary and equilibrium factor ‐price differentials.
User2: Qualitative
676
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13.3 The Operation of Factor Markets
1) Which of the following statements about equilibrium factor-price differentials is correct? They
A) tend to be self-eliminating.
B) may be caused by differences in the intrinsic qualities of factors.
C) will be eliminated when the allocation of resources is in long-run equilibrium.
D) are unrelated to differences in non-monetary benefits.
E) are unrelated to acquired differences in factors.
Answer: B
Diff: 1
Topic: 13.3a. factor-price differentials
Skill: Recall
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
2) Non-monetary considerations tend to be most important in the allocation of
A) land.
B) capital.
C) labour.
D) raw materials.
E) natural resources.
Answer: C
Diff: 1
Topic: 13.3a. factor-price differentials
Skill: Applied
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
3) Factors of production (land, labour, and capital) tend to move between uses so as to
A) equalize distribution of wealth.
B) equalize the amount of industry in separate regions of a nation.
C) maximize the net advantages to the owners of the factors.
D) increase the ratio of capital to labour.
E) maximize only the monetary advantages to the owners of the factors.
Answer: C
Diff: 1
Topic: 13.3a. factor-price differentials
Skill: Recall
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
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4) The difference between temporary factor-price differentials and equilibrium factor-price differentials is that
A) equilibrium differentials are affected by shifts in demand and supply whereas temporary differentials are not.
B) equilibrium differentials lead to, and are eliminated by, factor mobility whereas temporary differentials do not.
C) the government can only eliminate equilibrium differentials.
D) temporary differentials lead to, and are eliminated by, factor mobility whereas equilibrium differentials do not.
E) only equilibrium differentials are interesting for policy purposes.
Answer: D
Diff: 2
Topic: 13.3a. factor-price differentials
Skill: Recall
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
5) According to the hypothesis of "equal net advantage,"
A) owners of factors will use their factors in a way that results in the largest financial return.
B) in equilibrium, owners of identical factors of production will receive different net returns for different uses of the
factors.
C) owners of factors will use them in a way that results in the largest combined monetary and non-monetary
rewards.
D) supply curves for a factor in any particular use are not likely to shift.
E) demand curves for a factor in any particular use are not likely to shift.
Answer: C
Diff: 2
Topic: 13.3a. factor-price differentials
Skill: Recall
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
6) The theory of equal net advantage is a theory concerning
A) the demand for factors.
B) the supply of factors.
C) the marginal product of the factors.
D) the production process.
E) economic versus accounting profit.
Answer: B
Diff: 1
Topic: 13.3a. factor-price differentials
Skill: Recall
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
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7) A temporary factor-price differential is one which
A) will tend to be eliminated in the long run.
B) will hamper the reallocation of resources from declining to growing industries.
C) derives from intrinsic differences in the factors themselves.
D) will reflect a permanent state of disequilibrium.
E) is seldom self-eliminating.
Answer: A
Diff: 1
Topic: 13.3a. factor-price differentials
Skill: Recall
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
8) The hypothesis of equal net advantage explains why
A) two workers doing the same job in the same office are sometimes paid different wage rates.
B) higher wages must be paid to entice workers to accept less desirable occupations or a less desirable location.
C) the supply of unskilled labour in Canada is as great as it is.
D) a hard-working employee may get paid less than other employees.
E) lower wages are paid to workers with less qualifications.
Answer: B
Diff: 1
Topic: 13.3a. factor-price differentials
Skill: Recall
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
9) When the wage paid to workers in job A increases relative to the wage in job B, then, ceteris paribus,the
A) net advantage of job B will increase relative to job A.
B) non-monetary advantages of job A will increase.
C) non-monetary advantages of job B will decrease.
D) net advantage of job A will increase relative to job B.
E) monetary advantage of job A will increase, but not its net advantage.
Answer: D
Diff: 1
Topic: 13.3a. factor-price differentials
Skill: Recall
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
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10) If at a particular wage rate in a competitive labour market the quantity demanded of labour is less than quantity
supplied of labour, then
A) some workers will begin to accept lower wages and induce employers to hire more workers.
B) there will be a shortage of labour, thereby increasing the equilibrium wage rate.
C) the demand curve for labour will shift to the right.
D) the supply curve for labour will shift to the right.
E) a black market for labour will form, with firms offering workers very high wages.
Answer: A
Diff: 2
Topic: 13.3a. factor-price differentials
Skill: Applied
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
11) Other things equal, if a particular province has some non-monetary advantages, such as a temperate climate, the
wage rate in that province will be
A) higher than national average and the market will be in equilibrium.
B) higher than national average and the market will be in disequilibrium.
C) lower than national average and the market will be in equilibrium.
D) lower than national average and the market will be in disequilibrium.
E) the same as any other province.
Answer: C
Diff: 2
Topic: 13.3a. factor-price differentials
Skill: Applied
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
12) Suppose the following conditions existed in the Canadian labour market:
1) All labour is mobile and possesses the same skills.
2) Non-monetary advantages are the same across industries and occupations.
3) The demand conditions for labour are the same across industries.
In this situation, we expect wage rates to
A) be the same in all industries.
B) be higher in some industries than in others.
C) be the same in most industries.
D) differ because of the desirability of the location of the job.
E) have equilibrium differentials.
Answer: A
Diff: 2
Topic: 13.3a. factor-price differentials
Skill: Applied
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
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13) Suppose a cook at a diamond mining camp in Canada's North earns a much higher wage than a cook with
similar training and experience at an office building in Halifax. Economists would likely call this
A) a temporary factor-price differential.
B) a compensating differential.
C) an intrinsic difference.
D) an acquired difference.
E) an equilibrium differential.
Answer: B
Diff: 2
Topic: 13.3a. factor-price differentials
Skill: Applied
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
14) Suppose the government decides, in the interest of "fairness," to impose a policy prohibiting factor-price
differentials. The likely result would be
A) a horizontal factor supply curve.
B) a decrease in net factor demands.
C) an increase in factor mobility.
D) a shortage of factors in uses with low net advantage.
E) equilibrium in factor markets.
Answer: D
Diff: 2
Topic: 13.3a. factor-price differentials
Skill: Applied
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
15) All of the following are examples of equilibrium factor-price differentials, EXCEPT
A) the different prices of two pieces of land, one with a good supply of water and one without.
B) the different wages earned by labour of varying ability.
C) the difference in average wages in Toronto and Dryden, Ontario.
D) an income differential that induces increased rates of entry into the higher paid professions.
E) higher pay to a dentist than to a dental hygienist.
Answer: D
Diff: 2
Topic: 13.3a. factor-price differentials
Skill: Applied
Learning Obj.: 13-4 Discuss "economic rent" and how it relates to factor mobility.
User2: Qualitative
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16) The term "economic rent" refers to
A) a payment for use of land.
B) transfer earnings plus opportunity cost.
C) the opportunity cost of land.
D) economic profit.
E) factor payments in excess of transfer earnings.
Answer: E
Diff: 1
Topic: 13.3b. transfer earnings and economic rent
Skill: Recall
User2: Qualitative
17) Alfred Marshall's concept of "transfer earnings" denotes
A) the value of the factor to its user.
B) a return to a particular factor which must be the same for all uses of that factor.
C) the amount a factor earns over and above what is necessary to keep the factor from transferring to an alternative
use.
D) the amount that a factor must earn to keep it from transferring to another use.
E) the amount the factor earns every time it transfers between locations.
Answer: D
Diff: 1
Topic: 13.3b. transfer earnings and economic rent
Skill: Recall
User2: Qualitative
18) Which of the following concepts is most similar to the concept of "transfer earnings"?
A) factor mobility
B) factor price differentials
C) factor payments
D) equal net advantage
E) opportunity cost
Answer: E
Diff: 2
Topic: 13.3b. transfer earnings and economic rent
Skill: Recall
User2: Qualitative
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Consider the following demand and supply curves in factor markets.
FIGURE 13-4
19) Refer to Figure 13-4. The panel that best illustrates the short-run supply of a factor to the economy as a whole is
A) 1.
B) 2.
C) 3.
D) 4.
E) 1 or 4.
Answer: C
Diff: 2
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User1: Graph
User2: Qualitative
20) Refer to Figure 13-4. Assume that all four factor markets are labour markets. The total amount paid to the
workers is "transfer earnings" in diagram
A) 1.
B) 2.
C) 3.
D) 4.
E) 1 or 4
Answer: B
Diff: 2
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User1: Graph
User2: Qualitative
21) Refer to Figure 13-4. Assume that all four factor markets are labour markets. The total amount paid to the
workers is "economic rent" in diagram
A) 1.
B) 2.
C) 3.
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D) 4.
E) 1 or 4.
Answer: C
Diff: 2
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User1: Graph
User2: Qualitative
22) Refer to Figure 13-4. The panel that best illustrates the supply of a factor to a specific firm in the economy is
A) 1.
B) 2.
C) 3.
D) 4.
E) 1 or 4.
Answer: B
Diff: 2
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User1: Graph
User2: Qualitative
23) Refer to Figure 13-4. In diagrams 1 and 4, the marginal worker is earning
A) transfer earnings only.
B) economic rent only.
C) both transfer earnings and economic rent.
D) a wage greater than the equilibrium market wage.
E) a wage greater than the worker should receive for the product produced.
Answer: A
Diff: 3
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User1: Graph
User2: Qualitative
684
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24) If the supply curve for a factor is perfectly inelastic, the payments to the factor are
A) wholly economic rent.
B) wholly transfer earnings.
C) partly economic rent and partly transfer earnings.
D) neither economic rent nor transfer earnings.
E) an unnecessary tax on the factor.
Answer: A
Diff: 2
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User2: Qualitative
25) If the supply curve for a factor is perfectly elastic, the payments to the factor are
A) wholly economic rent.
B) wholly transfer earnings.
C) partly economic rent and partly transfer earnings.
D) neither economic rent nor transfer earnings.
E) an unnecessary tax on the factor.
Answer: B
Diff: 2
Topic: 13.3b. transfer earnings and economic rent
Skill: Recall
User2: Qualitative
26) The earnings of a factor in its best alternative use is called its
A) intrinsic value.
B) alternative value.
C) transfer earnings.
D) economic earnings.
E) economic profit.
Answer: C
Diff: 1
Topic: 13.3b. transfer earnings and economic rent
Skill: Recall
User2: Qualitative
27) Suppose that the municipal government of Calgary decides to tax economic rent on a highly sought-after piece
of land. The result would be
A) little or no effect on the supply of the land.
B) an increase in the supply of the land.
C) a reduction in the supply of land.
D) a shift of the entire tax onto the consumer.
E) a rise in the price of land.
Answer: A
Diff: 2
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User2: Qualitative
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28) John Smith plays baseball for $500 000 per year, but if he were not a baseball player, his next best alternative
would be to earn $35 000 per year as a sales representative. By playing baseball, Smith is earning economic rent of
A) $535 000.
B) $500 000.
C) $465 000.
D) $35 000.
E) zero.
Answer: C
Diff: 1
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User2: Quantitative
29) Which of the following would be least likely to earn economic rent?
A) an owner of land located on Yonge Street, near downtown Toronto
B) Lady Gaga
C) John Smith, an auto-plant worker in Oshawa, Ontario
D) Robert Bateman, famous wildlife artist
E) a university professor who loves every bit of his job
Answer: C
Diff: 2
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User2: Qualitative
30) Choose the statement that best describes the difference between "economic rent" and other factor payments.
A) Economic rent is unearned income of the factor whereas other payments are earned.
B) Economic rent is not a cost to the firm but other payments are.
C) A reduction in economic rent will not reduce the availability of the factor whereas reducing other payments of
factors will reduce their availability.
D) There is no difference between economic rent and other factor payments.
E) Economic rent is the sum of all factor payments.
Answer: C
Diff: 2
Topic: 13.3b. transfer earnings and economic rent
Skill: Recall
User2: Qualitative
686
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31) Consider the mobility of any factor of production. The more broadly we define the use of the factor, the
________ is the mobility of the factor and the ________ is the share of the factor payment that is economic rent.
A) lower; lower
B) lower; higher
C) higher; higher
D) higher; lower
Answer: B
Diff: 2
Topic: 13.3b. transfer earnings and economic rent
Skill: Recall
User2: Qualitative
32) Suppose Harrison Ford makes 2 movies per year and earns $10 million per movie. Suppose that if he weren't
making movies his next best alternative would be to earn $500 000 per year endorsing shampoo. By making movies,
Harrison Ford
A) is earning economic rent of $20 500 000 per year.
B) is earning economic rent of $20 000 000 per year.
C) is earning economic rent of $19 500 000 per year.
D) is earning economic rent of $500 000 per year.
E) is not earning economic rent.
Answer: C
Diff: 2
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User2: Quantitative
33) Kobe Bryant is a highly paid professional basketball player in the National Basketball Association. From the
perspective of the whole NBA, Kobe Bryant's economic rent would be ________, while from the perspective of his
individual team it would be ________.
A) very small; very large
B) zero; impossible to calculate
C) close to his whole salary; very small
D) zero; close to his whole salary
E) very large; close to his whole salary
Answer: C
Diff: 3
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User2: Qualitative
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The demand and supply curves shown below apply to a competitive market for a factor used in the production of
widgets.
FIGURE 13-2
34) Refer to Figure 13-2. This factor market is in equilibrium at point B. Which of the following statements best
describes factor payments at point B?
A) total income paid to the factor is $8
B) total of economic rent plus transfer earnings is $320
C) total factor earnings are $320 and the 40th unit earns zero rent
D) total factor earnings are $320 and the 40th unit earns economic rent of $8
E) economic rent to the 40th unit is $320
Answer: C
Diff: 3
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User1: Graph
User2: Quantitative
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35) Refer to Figure 13-2. This factor market is initially in equilibrium at point B, but changes occur that cause the
equilibrium to shift to point D (S curve shifts left). At the new equilibrium, total factor earnings ________
compared to the initial equilibrium.
A) decreased by $30
B) increased by $30
C) remained the same
D) increased by $10
E) increased by $330
Answer: D
Diff: 3
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User1: Graph
User2: Quantitative
36) Refer to Figure 13-2. This factor market is in equilibrium at point B. In equilibrium, the 20th unit of the factor
is being paid transfer earnings of ________ and economic rent of ________.
A) $120; -$2
B) $16; $2
C) $320; $80
D) $120; $40
E) $6; $2
Answer: E
Diff: 3
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User1: Graph
User2: Quantitative
37) Refer to Figure 13-2. This factor market is in equilibrium at point B. In equilibrium, the 30th unit of the factor
is being paid transfer earnings of ________ and economic rent of ________.
A) $120; -$2
B) $16; $2
C) $7; $1
D) $210; $1
E) $6; $2
Answer: C
Diff: 3
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User1: Graph
User2: Quantitative
689
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38) Refer to Figure 13-2. This factor market is in equilibrium at point B. If a technological change occurs in the
production of widgets that allows for increased production from each factor, then
A) economic rents to the initial 40 units of the factor will decrease.
B) equilibrium will move toward point D and the factor price will rise.
C) total factor earnings will rise and economic rent to the 40th unit will be zero.
D) equilibrium will move toward point C and economic rent to the initial 40 units will increase.
E) total factor earnings will decrease and economic rent to the initial 40 units will increase.
Answer: D
Diff: 3
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User1: Graph
User2: Quantitative
39) Refer to Figure 13-2. This factor market is initially in equilibrium at point B. Assume that there is a decrease in
the demand for widgets and a new equilibrium is established at point A. Which of the following statements about
point A is true?
A) Total economic rent is $120.
B) The marginal revenue product of the 20th unit of the factor is $6 and economic rent of the 20th unit of the factor
is $0.
C) The marginal revenue product of the 20th unit of the factor is $120 and economic rent of the 20th unit of the
factor is $6.
D) Total transfer earnings are $120.
E) Transfer earnings for the 20th unit of the factor are $6 and economic rent of the 20th unit of the factor is $2.
Answer: B
Diff: 3
Topic: 13.3b. transfer earnings and economic rent
Skill: Applied
User1: Graph
User2: Quantitative
Economics - Canadian Edition, 15e (Ragan)
Chapter 14 Labour Markets and Income Inequality
14.1 Wage Differentials
1) In a perfectly competitive labour market, all workers would earn the same wage if
A) the world was fair.
B) workers' education and experience were identical.
C) all jobs had the same working conditions.
D) regional variables mattered.
E) jobs and workers were identical in every way.
Answer: E
Diff: 1
Topic: 14.1a. wage differentials in competitive markets
Skill: Recall
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
2) If labour markets were perfectly competitive,
A) all workers would eventually earn the same wage.
B) all workers would achieve the same levels of education and experience.
C) working conditions would be the same for all jobs.
D) wage differentials could still exist because of differences in workers and jobs.
E) discrimination could not create wage differentials.
Answer: D
Diff: 1
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Topic: 14.1a. wage differentials in competitive markets
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
3) One possible reason for wage differentials is that
A) there are competitive forces operating in labour markets.
B) discrimination affects labour-market outcomes.
C) working conditions are the same for most jobs.
D) workers have more-or-less equal skills.
E) there is only a single national labour market.
Answer: B
Diff: 1
Topic: 14.1a. wage differentials in competitive markets
Skill: Recall
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
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4) Other things being equal, individuals working in relatively risky working conditions generally
A) earn higher wages due to the greater relative demand for these individuals.
B) earn higher wages due to the reduced supply of risk-taking individuals.
C) earn lower wages because of the scarcity of these jobs.
D) do not concern economists as these situations are uncommon.
E) work in perfectly competitive labour markets.
Answer: B
Diff: 1
Topic: 14.1a. wage differentials in competitive markets
Skill: Recall
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
5) All of the following are classified as human capital EXCEPT
A) education.
B) training.
C) gender.
D) health.
E) experience.
Answer: C
Diff: 1
Topic: 14.1a. wage differentials in competitive markets
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
6) One attempt to provide some minimum level of human capital for all citizens is a system of
A) compulsory and publicly financed education.
B) income taxation.
C) unionism.
D) comparable worth.
E) minimum wages.
Answer: A
Diff: 1
Topic: 14.1a. wage differentials in competitive markets
Skill: Recall
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
7) If you choose to stay in school beyond the compulsory minimum period, you are
A) realizing the benefits of your investment in human capital.
B) delaying your investment in human capital.
C) refusing to invest in your human capital.
D) investing further in your human capital.
E) wasting your time from an economic standpoint.
Answer: D
Diff: 1
Topic: 14.1a. wage differentials in competitive markets
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
8) During recessions, individual investment in higher education typically ________ due to the relatively ________
opportunity cost of time spent in university.
A) rises; high
B) rises; low
C) falls; high
D) falls; low
E) stays constant; constant
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Answer: B
Diff: 2
Topic: 14.1a. wage differentials in competitive markets
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
9) Investment in human capital can be very costly to the individual, but it can also generate large returns. Canadian
census data from 2007 show that average employment income for a university graduate is approximately ________
of the average employment income of a worker with no more than a high school diploma.
A) 50%
B) 125%
C) 200%
D) 300%
E) 400%
Answer: C
Diff: 2
Topic: 14.1a. wage differentials in competitive markets
Skill: Recall
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
10) Wage differentials due to cross-worker differences in human capital
A) are not justifiable on efficiency grounds.
B) will persist in competitive equilibrium.
C) are not an important source of observed wage differentials.
D) are an example of economic distortions due to monopoly power.
E) exist because of distortions in labour markets.
Answer: B
Diff: 2
Topic: 14.1a. wage differentials in competitive markets
Skill: Recall
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
693
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11) A typical firm hiring in a perfectly competitive labour market faces a marginal cost curve for labour that is
A) horizontal.
B) vertical.
C) equal to the supply curve of the firm.
D) parallel to the firm's marginal cost curve for its product.
E) downward sloping.
Answer: A
Diff: 2
Topic: 14.1a. wage differentials in competitive markets
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
12) In terms of human capital, which of the following is the best example of an inherited skill?
A) a neurosurgeon who can perform brain surgery after many years of training
B) a retail worker who is able to work overtime each week
C) a worker who exercises is healthier and therefore more productive
D) a salesman doubles his sales after taking a training course
E) a music teacher who can carry a tune for the school choir
Answer: E
Diff: 1
Topic: 14.1a. wage differentials in competitive markets
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
13) One or two generations ago, fewer Canadians completed post-secondary training and education. One
explanation for this is
A) a decrease in demand for more education in recent years.
B) wage differentials due to formal education have diminished over time.
C) a negative relationship between the acquisition of human capital and overall earnings.
D) the relative wage of more highly educated people has increased in recent years.
E) that the opportunity cost of post-secondary education has increased.
Answer: D
Diff: 2
Topic: 14.1a. wage differentials in competitive markets
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
694
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14) In recent years, some business schools in Canada have begun charging tuition of close to $35 000 per year for a
graduate degree, whereas Arts faculties charge much lower tuition for their graduate degrees. Students are prepared
to pay the high tuition in a business school because
A) the expected payoff in terms of higher future wages is large.
B) the cost of providing the business education is far higher than the cost of the Arts education.
C) the marginal revenue product of a business degree is lower than the marginal revenue product of an Arts degree.
D) the marginal cost of a business degree is less than the marginal benefit of a business degree.
E) they recognize that the investment in human capital is not worthwhile.
Answer: A
Diff: 2
Topic: 14.1a. wage differentials in competitive markets
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
The table below shows the labour demand and labour supply schedules in a competitive labour market.
Wage Rate
($/hour)
10
12
14
15
17
Quantity Demanded
of Labour
(hours/month)
1300
1000
800
400
200
Quantity Supplied
of Labour
(hours/month)
500
1000
1300
1500
1800
TABLE 14-1
15) Refer to Table 14-1. In a competitive labour market that clears, the equilibrium employment level would be
A) 400 units.
B) 500 units.
C) 800 units.
D) 1000 units.
E) 1300 units.
Answer: D
Diff: 1
Topic: 14.1a. wage differentials in competitive markets
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User1: Table
User2: Quantitative
695
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16) Refer to Table 14-1. If the wage rate is $15 per hour, how many hours per month are supplied to this market but
are not actually employed?
A) 0
B) 400
C) 1000
D) 1100
E) 1500
Answer: D
Diff: 2
Topic: 14.1a. wage differentials in competitive markets
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User1: Table
User2: Quantitative
17) Refer to Table 14-1. In this labour market, if the wage rate is $10 per hour, how many hours of labour per month
are actually employed?
A) 0
B) 500
C) 1000
D) 1300
E) 1850
Answer: B
Diff: 2
Topic: 14.1a. wage differentials in competitive markets
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User1: Table
User2: Quantitative
18) Labour-market discrimination results in a
A) lower supply in discriminating occupations and a higher supply in non-discriminating occupations.
B) higher supply in discriminating occupations and a lower supply in non-discriminating occupations.
C) lower supply in all occupations.
D) lower demand in all occupations.
E) higher demand in both occupations.
Answer: A
Diff: 2
Topic: 14.1b. discrimination
Skill: Recall
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
696
Copyright © 2017 Pearson Education, Inc.
19) Labour-market discrimination, which keeps one group of workers out of elite (E) occupations and limits them to
ordinary (O) occupations, will have which of the following effects?
A) a decrease in supply and higher wages in the E occupations
B) more employment in the E occupations
C) a decrease in supply and lower wages in the O occupations
D) more unemployment in the E occupations
E) a decrease in supply and higher wages in the O occupation
Answer: A
Diff: 2
Topic: 14.1b. discrimination
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
20) Labour-market discrimination, which keeps one group of workers out of elite (E) occupations and limits them to
ordinary (O) occupations, will have which of the following effects?
A) a decrease in supply and lower wages in the O occupations
B) an increase in supply and lower wages in the E occupations
C) an increase in supply and higher wages in the E occupations
D) a decrease in supply and lower wages in the E occupations
E) an increase in supply and lower wages in the O occupations
Answer: E
Diff: 2
Topic: 14.1b. discrimination
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
21) If competitive labour market E discriminates against one group of workers and market O does not, we can
predict an increase in
A) employment in market E.
B) wages in market E.
C) wages in market O.
D) the welfare of the average worker.
E) economy-wide wage rates.
Answer: B
Diff: 1
Topic: 14.1b. discrimination
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
697
Copyright © 2017 Pearson Education, Inc.
22) Suppose market E discriminates against one group of workers and market O does not. Unemployment in market
O would result if
A) the free-market equilibrium wage in market O is below the legal minimum wage.
B) some workers are unwilling to work in E-market jobs.
C) there is no statutory minimum wage.
D) the supply curve in market O shifts to the left and wages are slow to adjust.
E) the demand curve in market O shifts to the right and wages are slow to adjust.
Answer: A
Diff: 3
Topic: 14.1b. discrimination
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
23) Evidence suggests that some of the observed average female-male wage differential can be explained by
A) the nature of the jobs and differences in acquired human capital.
B) differences in the innate abilities between men and women.
C) higher marginal revenue product for female workers.
D) the labour-force participation rate of adult women being above that of adult men.
E) None of the above can explain part of the wage differentials.
Answer: A
Diff: 2
Topic: 14.1b. discrimination
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
24) Some types of discrimination in the labour market will be limited by
A) the minimum wage.
B) entry of of discriminating firms into the market.
C) an increase in the number of individuals discriminated against.
D) the desire of firms to maximize profits.
E) greater monopoly power in the market.
Answer: D
Diff: 2
Topic: 14.1b. discrimination
Skill: Applied
Learning Obj.: 14-1 Explain wage differentials in both competitive and non-competitive labour markets.
User2: Qualitative
698
Copyright © 2017 Pearson Education, Inc.
25) The following statements describe the adverse effects suffered by groups subject to labour-market
discrimination. Which of the statements is false?
A) They will be more likely to experience spells of unemployment.
B) Their children's ability and willingness to invest in human capital will be less on average than