Sample Questions
1. If the price of a certain brand of sneakers falls from $27.50 to $22.50, and the quantity demanded by
consumers increases from 15 to 25 pairs per week, then using the arc elasticity formula, the price elasticity
of demand is:
a) -0.25
b) -1.00
c) -2.75
d) -1.50
e) -2.50
2. A local store noticed that when it increased the price of milk from $2.50 per gallon to $3.50 per gallon,
it sold the same amount of milk per week (165 gallons). Since everything else remained the same, we
would say the
a) demand for milk is perfectly elastic
b) demand for milk is elastic
c) demand for milk is perfectly inelastic
d) demand for milk is unitary elastic
e) law of supply does not apply in this situation
3. If the cross-price elasticity of demand between two goods is negative, then:
a) the two goods are complements
b) the two goods are substitutes
c) as price of one good rises, the quantity demanded of the other good also rises
d) one of the goods must be inferior
e) the two goods are rarely used together by consumers
4. The cross-price elasticity of demand between Texaco gasoline and Mobil gasoline sold at the same
intersection would be:
a) positive
b) negative
c) 0
d) 1.0
e) infinity
5. Economists normally assume that the objective of a firm is to:
a) maximize profit
b) sell their product at the highest price possible
c) sell as much of their product as possible
d) minimize cost
6. The amount of money a firm receives from the sale of its output is called:
a) total net profit
b) net revenue
c) total revenue
d) total gross profit
7. An example of an implicit cost of production would be:
a) the cost of space in your home used for a home office
b) the cost of paying minimum wage to high school students that work in a fast food restaurant
c) the cost of leather used in manufacturing furniture
d) all of the above are implicit costs
8.
a)
b)
c)
d)
Graphically, consumer surplus is measured by:
the area below the demand curve.
the area below the demand curve, but above the upward-sloping supply curve.
the area below the demand curve, but above the market price.
the area below the market demand curve, but above the supply curve.
9. At a price of $5.00 per doll, most stores cannot keep Beanie Baby dolls in stock because consumers
buy them all as soon as shipments arrive. This implies that there
a) is an excess supply of Beanie Babies, and the price must fall for equilibrium to be reached
b) will be a downward shift in the demand curve for Beanie Babies
c) will be an upward shift in the supply curve for Beanie Babies
d) is an excess demand for Beanie Babies, and the price must rise for equilibrium to be reached
e) is an excess demand for Beanie Babies, and the price must fall for equilibrium to be reached
10. An excess supply of rice in a competitive market would indicate that
a) the problem of scarcity has been solved in that market
b) buyers want to purchase more rice at the current price than the sellers want to sell
c) the market will not be able to approach equilibrium
d) the entire supply curve must shift to the left in order to attain equilibrium
e) the current price exceeds the equilibrium price
11. If the demand for baseball cards rises and the supply curve does not shift, then the price:
a) will rise and quantity will fall
b) and quantity will rise
c) will fall and quantity will rise
d) and quantity will fall
e) will rise, but quantity may rise or fall
12. If the price of ice cream increases substantially, ceteris paribus, the equilibrium quantity of hot fudge
sauce is likely to:
a) increase, and the equilibrium price is likely to decrease.
b) increase, and the equilibrium price is likely to increase.
c) decrease, and the equilibrium price is likely to decrease.
d) decrease, and the equilibrium price is likely to increase.
e) decrease, while the impact on equilibrium price is uncertain.
13. When the minimum wage is set above the equilibrium market wage:
a) there will be an excess demand for labor at the minimum wage
b) it will have no effect on the quantity of labor employed
c) the unemployment rate will rise
d) the quality of the labor force will rise
e) the unemployment rate will fall
14. The price elasticity of demand measures the:
a) responsiveness of a good's price to a change in quantity demanded
b) adaptability of suppliers when a change in demand alters the price of a good
c) responsiveness of quantity demanded to a change in a good's price
d) adaptability of buyers when there is a change in demand
e) responsiveness of quantity supplied to a change in quantity demanded
15. If the price elasticity of demand for Cheer detergent is -3.0, then a:
a) 12 percent drop in price leads to a 36 percent rise in the quantity demanded
b) 12 percent drop in price leads to a 4 percent rise in the quantity demanded
c) $1,000 drop in price leads to a 3,000-unit rise in the quantity demanded
d) $1,000 drop in price leads to a 333-unit rise in the quantity demanded
e) 12 percent rise in price leads to a 36 percent rise in the quantity demanded
16. Firms can have:
i) accounting profits and economic losses
ii) accounting profits and economic profits
iii) accounting losses and economic losses
iv) accounting losses and economic profits
a) only (ii) and (iii)
b) (i), (ii), (iii) and (iv) are all possible
c) (i), (ii), and (iii)
d) only (i) and (iv)
17. Subtraction of AVC from ATC will give us back:
a) economic profit
b) average fixed cost
c) increasing cost
d) marginal cost
e) none of the above
18. Marginal cost equals:
a) the variable cost of the current unit produced minus the variable cost of the previous unit produced
b) change in total costs divided by change in quantity produced
c) change in variable costs divided by change in quantity produced
d) all of the above
e) none of the above
19. Marginal utility is:
a) the total satisfaction derived from consuming all goods.
b) always the total satisfaction derived from consuming the first unit of a good.
c) always positive.
d) always negative.
e) the change in total satisfaction derived from consuming one more unit of a particular good.
20. As Mark eats more and more oranges:
a) his total utility falls, but the marginal utility of each orange rises.
b) his marginal utility rises as long as the total utility derived from the oranges remains positive.
c) his total utility rises, as does the marginal utility of each orange.
d) his total utility rises as long as the marginal utility of the oranges is positive, but the marginal utility of
each additional orange likely falls.
21. The schedule below shows the prices that a consumer is just willing to pay for pounds of shrimp:
Price Per Pound
Number of Pounds Consumed Each Year
$20
1
$16
2
$12
3
$10
4
$6
5
$2
6
If the price of shrimp is $12 per pound, according to the above schedule consumer surplus equals:
a) $8
b) $12
c) $14
d) $36
e) $48
22. The total utility from consuming five slices of pizza are 11, 18, 24, 29, and 32 utils, respectively. The
marginal utility of the third slice of pizza is:
a) 11.
b) 7.
c) 18.
d) 6.
e) 53.
23. Hamburgers cost $2 and hot dogs cost $1 and John is in consumer equilibrium. What must be true
about the marginal utility of the last hamburger John consumes?
a) The marginal utility of the last hamburger consumed must be less than that of the last hot dog.
b) The marginal utility of the last hamburger consumed must be equal to that of the last hot dog.
c) The marginal utility of the last hamburger consumed must be greater than that of the last hot dog.
d) The marginal utility of the last hamburger consumed must be equal to zero.
24. If demand is elastic and price increases, total revenue will:
a) increase
b) decrease if the elasticity is infinite
c) increase if the elasticity of supply is not zero
d) remain unchanged
e) decrease
25. In economics, the long run is considered to be a period of:
a) at least 6 months
b) time greater than five years
c) time of sufficient length to require that implicit costs be taken into account in the production process
d) time of sufficient length to allow all factors of production to be varied
26. The difference between the firm's total revenue and total cost when all explicit and implicit costs are
included is the firm's"
a) economic profit
b) accounting profit
c) opportunity cost of capital
d) long run average total cost curve
27. Price floors set above market equilibrium price cause:
a) shortages
b) surpluses
c) a new market equilibrium
d) the increased use of illegal drugs
e) all of the above
28. In the short run, fixed costs:
a) do not vary with output.
b) do not exist.
c) are always greater than marginal cost.
d) are always less than marginal cost.
APPLES
ORANGES
Units
Total Utility Units
Total Utility
______________________________________________
0
0
0
0
1
15
1
22
2
28
2
41
3
38
3
58
4
48
4
73
5
55
5
85
29.
Refer to the above table. Assume that the price of oranges is $2, and the price of apples is $1, and
Lindsay allocates $5 of the weekly food budget to purchasing apples and oranges. Her utility-maximizing
consumption bundle will consist of
a)
1 apple and 2 oranges.
b)
2 apples and 2 oranges.
c)
3 apples and 1 orange.
d)
4 apples and 1 orange.
e)
5 apples and no oranges.
30. The elasticity in the vicinity of five different points along a demand curve varies as follows:
Point
A
B
C
D
E
Elasticity
1.25
0.3
1.0
0.2
2.1
At which of these points would a price increase be accompanied by an increase in total revenue?
a) B and D
b) A and E
c) A, C and E
d) A and D
True (A) or False (B)
31. If marginal cost is increasing, average total cost must be increasing.
32. Price elasticity of demand is a measure of the relative responsiveness of the change in price to a change
in quantity demanded.
33. Utility is the satisfaction or enjoyment derived from consumption.
34. If a consumer is maximizing utility, she will purchase quantities of output to the point where the
marginal utility from consumption is equal across all goods.
35. Consumer surplus equals the quantity supplied minus the quantity demanded.
36. A perfectly elastic demand curve is horizontal.
37. If a 5 percent increase in income leads to a 15 percent increase in the quantity demanded of a service,
then the income elasticity for that service equals 0.33.
38. A price elasticity of demand of -2 for a specific cola means that if the price increases 1 percent, the
quantity demanded of the cola will decrease by 2 percent.
39. A government-imposed price ceiling below the market's equilibrium price will create an excess demand
for the product. As a result of the excess demand, either the demand curve will tend to shift to the
left or the supply curve will shift to the right-or both.
40. If both the demand and supply curves for computers shift to the right, the price of computers may rise,
fall, or remain unchanged.
1e 2c 3a 4a 5a 6c 7a 8c 9d 10e 11b 12c 13c 14c 15a 16c 17b 18b 19e 20d 21b 22d 23c
24e 25d 26a 27b 28a 29c 30a 31b 32b 33a 34b 35b 36a 37b 38a 39b 40a