Exam

Name___________________________________

MULTIPLECHOICE. Choosetheonealternativethatbestcompletesthestatementoranswersthequestion.
1) Whichoneofthefollowingisapartoftheopportunitycostofattendingcollegeforan
individualwholivesontheirown?
1) _______
A) costoftuition
B) costofclothing
C) costoftransportation
D) costofmeals
E) costofrentingmovies

2) Sallyhastodecidewhethertostudyforhereconomicstestorheraccountingtest.Ifshechooses
tostudyforaccounting,thevalueofstudyingeconomicsis
2) _______
A) notcomparabletothevalueofstudyingeconomics.
B) theopportunitycostofstudyingaccounting.
C) thefuturelostwagesthatwilloccurifshefailsheraccountingexam.
D) equaltothevalueofstudyingaccounting.
E) greaterthanthevalueofstudyingaccounting.

3) Whichofthefollowingisapositivestatement? 3) _______
A) Lowrentswillrestrictthesupplyofhousing.
B) Governmentshouldcontroltherentsthatapartmentownerscharge.
C) Housingcoststoomuch.
D) Ownersofapartmentbuildingsoughttobefreetochargewhateverrenttheywant.
E) Highinterestratesarebadfortheeconomy.

Usethetablebelowtoanswerthefollowingquestion(s).

Table2.2ProductionPossibilities

4) RefertoTable2.2.Accordingtothisproductionpossibilitiesfrontier, 4) _______
A) acombinationof6butterand1gunwouldnotemployallresources.
B) theopportunitycostofproducinggunsdecreasesasmoregunsareproduced.
C) acombinationof0butterand4gunsisattainable.
D) resourcesareequallyusefulinallactivities.
E) theopportunitycostofproducinggunsincreasesasmoregunsareproduced.

5) Theslopeoftheproductionpossibilitiesfrontiercurveindicatesits 5) _______
A) absoluteadvantage.
B) preferences.
C) marginalbenefit.
D) comparativeadvantage.
E) opportunitycost.

Usethefigurebelowtoanswerthefollowingquestion(s).

Figure2.4

6) InFigure2.4,thecurvelabelledaisthe________curveandthecurvelabelledbisthe________
curve.
6) _______
A) productionpossibility;tradeline
B) marginalcost;tradeline
C) marginalcost;marginalbenefit
D) marginalbenefit;marginalcost
E) marginalbenefit;tradeline

7) Ifthegovernmentpassesanewlawthatmakesretirementmandatoryatage60,thiswillleadto
a
7) _______
A) riseinunemployedresources,andamovementinwardfromtheproductionpossibilities
frontier.
B) shiftoutwardintheproductionpossibilitiesfrontier,andthoseindustriesthatare
labour-intensive(usealotoflabourrelativetootherfactorsofproduction)willhavelarger
risesintheirproductionpossibilities.
C) shiftinwardintheproductionpossibilitiesfrontier.
D) shiftoutwardintheproductionpossibilitiesfrontier,withallindustriesequallyaffected.
E) shiftoutwardintheproductionpossibilitiesfrontier,andthoseindustriesthatare
capital-intensive(usealotofcapitalrelativetootherfactorsofproduction)willhavelarger
risesintheirproductionpossibilities.

8) Anytwoindividualswillgainfromexchange 8) _______
A) unlesstheyhavethesameopportunitycostsforproducingallgoods.
B) unlesstheyhavedifferentopportunitycostsforproducingallgoods.
C) ifeachspecializesintheproductionofthegoodforwhichhe/shehasthehigher
opportunitycost.
D) unlesstheyhavethesameabsoluteadvantageinproducingallgoods.
E) unlessonehasanabsoluteadvantageinproducingallgoods.

9) Arelativepriceis 9) _______
A) determinedbydemandandsupply.
B) aquantityofabasketofgoodsandservicesforgone.
C) anopportunitycost.
D) therationofonepricetoanother.
E) alloftheabove.

10) Whichoneofthefollowingcouldshiftthedemandcurveforgrapejellytotheright? 10) ______
A) adecreaseinthepriceofstrawberrypreserves,asubstitute
B) anincreaseinthepriceofpeanutbutter,acomplement
C) adecreaseinthepriceofgrapejelly
D) anincreaseinincomeifgrapejellyisanormalgood
E) afallinthepopulation

Usethefigurebelowtoanswerthefollowingquestion(s).

Figure3.2

11) RefertoFigure3.2.Ifaconsumersincomeincreases, 11) ______
A) thedemandforpizzaswillshiftfromD
1
toD
2
ifpizzaisanormalgood.
B) amovementfrompointatopointbonD
1
occurs.
C) thequantitysuppliedofpizzasdecreases.
D) thequantitydemandedofpizzaswillincrease.
E) thesupplyofpizzaswillincrease.

12) WhichoneofthefollowingwouldnotshiftthesupplycurveforgoodXtotheright? 12) ______
A) adecreaseinthepriceofY,asubstitutefortheproductionofX
B) areductioninthepriceofresourcesusedinproducingX
C) animprovementintechnologyaffectingtheproductionofX
D) anincreaseinthepriceofY,acomplementintheproductionofX
E) anincreaseinthepriceofX

13) Adecreaseinthequantitysuppliedofagoodisrepresentedby 13) ______
A) arightwardshiftinthesupplycurve.
B) aleftwardshiftinthesupplycurve.
C) aninitialrightwardshiftandthenleftwardshiftinthesupplycurve.
D) amovementdownonthesamesupplycurve.
E) amovementuponthesamesupplycurve.

14) Considerthemarketforgranolabars(ahealthfood)andchocolatebars.Supposeahealthcraze
sweepsthenation.Whichofthefollowingstatementsistrue?
14) ______
A) Theequilibriumpriceandquantityofgranolabarswillrise.
B) Theequilibriumpriceandquantityofgranolabarswillfall.
C) Granolabarsandchocolatebarsarecomplementsinconsumption.
D) Granolabarsandchocolatebarsaresubstitutesinconsumption.
E) BothAandD.

15) Whichoneofthefollowingillustratesaninelasticdemand? 15) ______
A) Apriceelasticitymeasureofinfinity.
B) A10percentincreaseinpriceleadstoa5percentdecreaseinquantitydemanded.
C) Apriceelasticitymeasureof2.0.
D) A10percentincreaseinpriceleadstoa20percentdecreaseinquantitydemanded.
E) Apriceelasticitymeasureof1.0.

16) Ifa10percentincreaseinincomehascauseda5percentincreaseinquantitydemanded(ata
constantprice),whatistheincomeelasticityofdemand?
16) ______
A) -0.5 B) 2.0 C) 0.5 D) -2.0 E) 1.5

17) Supposethepriceoftelevisionsetsrisesby10percent.Whichoneofthefollowingwouldwe
expecttobethemostelasticfollowingsuchapricechange?
17) ______
A) themomentarysupplyoftelevisionsets
B) theshort-runsupplyoftelevisionsets
C) thenormaldemandfortelevisionsets
D) themomentarydemandfortelevisionsets
E) thelong-runsupplyoftelevisionsets

18) Diminishingmarginalutilityis 18) ______
A) apredictionofmarginalutilitytheory.
B) aresultofthelawofdemand.
C) animplicationofmarginalutilitytheory.
D) thesameasthelawofdemand.
E) anassumptionofmarginalutilitytheory.

19) Whichoneofthefollowingstatementsisfalse? 19) ______
A) Alowmarginalrateofsubstitutionimpliesaflatindifferencecurve.
B) Iftheindifferencecurveissteep,themarginalrateofsubstitutionishigh.
C) AflatindifferencecurveimpliesaconsumermustreceivealargeamountofgoodXto
compensateforasmalldecreaseingoodY.
D) Ahighrateofmarginalsubstitutionimpliesaconsumermustreceiveasmallamountof
goodXtocompensateforalargedecreaseingoodY.
E) Ahighrateofmarginalsubstitutionimpliesaconsumermustreceivealargeamountof
goodXtocompensateforasmalldecreaseingoodY.

20) MysononlywatchesLittleBear(placedonthehorizontalaxis).HedoesnotwatchBarney
(placedontheverticalaxis)atallbecausehesaysIamnotababyanymore.!!!!!Whatmighthis
indifferencecurveslooklike?
20) ______
A) nearlystraight-lined
B) tightlycurved
C) straigth-linedandparalleltotheverticalaxis
D) straight-linedandparalleltothehorizontalaxis
E) L-shaped.

21) Whichoneofthefollowingisalwaystrueoftheincomeeffect? 21) ______
A) Itdecreasesconsumption.
B) Itleadstoapositiveincomeeffect.
C) Itispositive.
D) Itleadstoanegativeincomeeffect.
E) noneoftheabove

Usethetablebelowtoanswerthefollowingquestion(s).

Table10.1

22) RefertoTable10.1whichrepresentsSwankystotalproductcurve.Averageproductoflabour
reachesapeakforthe_________worker.
22) ______
A) first B) second C) third D) fourth E) fifth

23) Whichoneofthefollowingstatementsistrue? 23) ______
A) Whentheaverageproductcurveisrising,marginalproductisbelowaverageproduct.
B) Whentheaverageproductcurveisfalling,marginalproductisaboveaverageproduct.
C) Thehighestaverageproductoccurswhereaverageandmarginalproductareequaltoeach
other.
D) Thehighestaverageproductoccurswhereaverageproductisabovemarginalproduct.
E) Themaximumtotalproductoccursatminimummarginalproduct.

24) Whichoneofthefollowingstatementsconcerningshort-runcostsisfalse? 24) ______
A) Thegapbetweenaveragetotalcostandaveragevariablecostismarginalcost.
B) Thegapbetweenaveragetotalcostandaveragevariablecostnarrowsasoutputincreases.
C) Marginalcostcutstheaveragevariablecostcurveatitsminimumpoint.
D) AveragetotalcostandaveragevariablecostareU-shaped.
E) Marginalcostcutstheaveragetotalcostcurveatitsminimumpoint.

25) TheverticaldistancebetweentheTCandTVCcurvesis 25) ______
A) equaltoAFC.
B) equaltoMC.
C) equaltoTFC.
D) increasingasoutputincreases.
E) decreasingasoutputincreases.

26) Whichoneofthefollowingstatementsisfalse? 26) ______
A) Averagefixedcostplusaveragevariablecostequalsaveragetotalcost.
B) Marginalcostistheincreaseintotalcostresultingfromaunitincreaseinoutput.
C) Marginalcostdependsontheamountoflabourhired.
D) Totalcostequalsfixedcostplusaveragecost.
E) Averagetotalcostistotalcostperunitofoutput.

27) Economiesofscalearepresentwhenthepercentagechangeinafirmsoutput 27) ______
A) isconstant.
B) exceedsthepercentagechangeinitsinputs.
C) isincreasing.
D) isdecreasing.
E) islessthanthepercentagechangeinitsinputs.

Usethefigurebelowtoanswerthefollowingquestion(s).

Figure10.8

28) RefertoFigure10.8whichillustratesafirmslong-runaveragetotalcostofproduction.An
increaseinproductionfromQ
1
toQ
2
sweatersperdaywillresultin
28) ______
A) constantreturnstoscale.
B) diseconomiesofscale.
C) constanttotalcosts.
D) economiesofscale.
E) minimumefficientscale.

29) Thelong-runaveragecostcurve 29) ______
A) istheshort-runaveragetotalcostcurvewiththelowestcost.
B) shiftsdownwhenfixedcostsincrease.
C) willshiftupwhenfixedcostsincrease.
D) envelopestheshort-runaveragetotalcostcurvesassociatedwitheachscaleofplant.
E) tracesouttheminimumpointsonalltheshort-runaveragetotalcostcurvesforeachscale
ofplant.

30) Whichoneofthefollowingisnotanassumptionofthemodelofconsumerchoice? 30) ______
A) Consumersmakechoicesbasedontheirpreferences.
B) Ahouseholdhasafixedincome.
C) Ahouseholdchoosesitsmostpreferredaffordablecombinationofgoods.
D) Theslopeoftheindifferencecurveequalstheslopeofthebudgetline.
E) Indifferencecurvesusuallybowtowardstheorigin.

Usethefigurebelowtoanswerthefollowingquestion(s).

Figure8.8

31) WhichoneofthefollowingstatementsaboutFigure8.8is/aretrue? 31) ______
A) Pointsqandscostthesame,butqispreferredtos.
B) Pointtispreferredtopointq,buttisnotaffordable.
C) Pointsqandryieldthesameutility,butpointqismoreaffordable.
D) Pointsispreferredtopointq,butsisnotaffordable.
E) Alloftheabovestatementsaretrue.

32) Thelongrunisaperiodoftimeinwhich 32) ______
A) thefirmmaywanttobuildabiggerplant,butcannotdoso.
B) thefirmisabletomaximizetotalprofit.
C) thequantitiesofallresourcescanbevaried.
D) economicefficiencyisachieved.
E) thefirmcanhirealltheworkersitwantstoemploy,butitdoesnothavesufficienttimeto
buymoreequipment.

33) Thetermshortrunisassociatedwith 33) ______
A) bothfixedandtotalcosts.
B) variablecostsonly.
C) bothvariableandtotalcosts.
D) bothfixedandvariablecosts.
E) fixedcostsonly.

34) Anincreaseinthequantityoflaboursupplied 34) ______
A) isthesameasadecreaseinthequantityofleisuredemanded.
B) istheresultofthesubstitutioneffectofadecreaseinwages.
C) cannotbeexplainedusingindifferencecurveanalysis.
D) willalwaysbetheresultofanincreaseinwages.
E) canalwaysbeexplainedastheresultofanincreaseinnonwageincome.

35) Whentheincomeeffectinlaboursupplydominatesthesubstitutioneffect,whatistrueofthe
supplycurveforlabour?
35) ______
A) Itisvertical.
B) Itisflat.
C) Itispositivelysloped.
D) Itcanbeeitherpositivelyornegativelysloped.
E) Itisnegativelysloped.

36) Perfectcompetitionoccursinamarketwheretherearemanyfirms,eachsellinga(n) 36) ______
A) competitiveproduct.
B) identicalproduct.
C) uniqueproduct.
D) capital-intensiveproduct.
E) similarproduct.

37) Theslopeofaperfectlycompetitivefirmsthedemandcurveis 37) ______
A) infinity. B) zero. C) 1.00. D) 45degree. E) 90degree.

38) Whichoneofthefollowingisnotacharacteristicofaperfectlycompetitiveindustry? 38) ______
A) Manyfirmseachsupplyingasmallfractionofindustrysupply.
B) Adownward-slopingindustrydemandcurve.
C) Aperfectlyelasticdemandcurveforeachindividualfirm.
D) Eachfirmdecidesitsquantityofoutput.
E) Slightlydifferentiatedproducts.

39) Inaperfectlycompetitiveindustry,themarketpriceis$5.Anindividualfirmisproducingthe
levelofoutputwheremarginalcostis$5andisincreasing,andaveragetotalcostis$25.What
shouldthefirmdotomaximizeitsshort-runprofits?
39) ______
A) leaveoutputunchanged
B) shutdown
C) insufficientinformationtoanswer
D) expandoutput
E) contractoutput

40) Ifaprofit-maximizingfirminaperfectlycompetitivemarketisincurringeconomiclosses,then
itmustbeproducingalevelofoutputwhere
40) ______
A) priceisgreaterthanmarginalrevenue.
B) marginalcostisgreaterthanmarginalrevenue.
C) priceisgreaterthanmarginalcost.
D) averagetotalcostisgreaterthanmarginalcost.
E) averagetotalcostislessthanmarginalcost.

41) Aperfectlycompetitiveindustry,withexternaleconomies,isinitiallyinlong-runequilibrium.
Thereisapermanentfallindemand.Afteradjustmenttothenewlong-runequilibrium,
41) ______
A) theremainingfirmsintheindustrywilleachbeproducingeitherthesameormoreoutput.
B) theremainingfirmsintheindustrywilleachbeproducinglessoutput.
C) theremainingfirmsintheindustrywilleachbeproducingmoreoutput.
D) theremainingfirmsintheindustrymayeachbeproducingmoreorlessoutput,depending
onthesizeofthechangeincosts.
E) theremainingfirmsintheindustrywilleachbeproducingthesameoutput.

42) Allofthefollowingconditionsholdinlong-runequilibriuminaperfectlycompetitiveindustry
except:
42) ______
A) P>MR
B) MR=P.
C) P=AR.
D) SRAC=LRAC.
E) P=LRAC.

43) Themaximumlossforafirminlong-runequilibriumis 43) ______
A) itsaveragetotalcost.
B) itstotalcost.
C) zero.
D) itstotalvariablecost.
E) noneoftheabove.

44) Assuminglong-runexternaleconomies,whendemandincreasesinaperfectlycompetitive
market,price
44) ______
A) decreasesandtheequilibriumquantitywillstaythesame.
B) decreasesandtheequilibriumquantityincreases.
C) remainsconstantandtheequilibriumquantitydecreases.
D) remainsconstantandtheequilibriumquantityincreases.
E) increasesandtheequilibriumquantitydecreases.

45) Theproductionofsomegoodsimposeshighexternalcosts.Perfectcompetitionwillresultin 45) ______
A) anunderproductionofthesegoods.
B) anoverproductionofthesegoods.
C) aneliminationofexternalcosts.
D) toohighapriceforthesegoods.
E) theproductofthesegoodsinanamountthatmaximizesthetotalsatisfactionofsociety.

46) Barrierstoentrycharacterizemarkets 46) ______
A) inwhicheconomicprofitmustbezero.
B) withmanybuyers,makingitdifficultfornewfirmstoenter.
C) thatareperfectlycompetitive.
D) thatsetpriceequaltominimumaveragevariablecost.
E) thatmaybedominatedbyamonopoly.

47) The________substitutesforagood,the________amonopolisthasmarketpowertosetthe
marketpriceofthegood.
47) ______
A) more;less
B) more;more
C) less;less
D) less;more
E) more;same

48) Whichoneofthefollowingistrueforaproducingsingle-pricemonopolistbutnotfora
producingperfectcompetitor?
48) ______
A) Thefirmisaprice-taker.
B) Thefirmsmarginalcostislessthanaveragerevenue.
C) Thefirmcansellanylevelofoutputatanypriceitsets.
D) Thefirmmaximizesprofitbysettingmarginalcostequaltomarginalrevenue.
E) Thefirmsmarginalrevenuecurveisthesameastheaveragerevenuecurve.

Usethefigurebelowtoanswerthefollowingquestion(s).

Figure12.5

49) RefertoFigure12.5.Ifthismarketwereperfectlycompetitive,theoutputlevelwouldexceedthe
single-pricemonopolyoutputlevelby
49) ______
A) anamountimpossibletodeterminewithoutmoreinformation.
B) 40units.
C) 30units.
D) 20units.
E) zero.Theywouldbethesamesincemarginalcostisconstant.

Usethefigurebelowtoanswerthefollowingquestion(s).

Figure12.6

50) ConsiderFigure12.6.Supposewehaveamarketwithperfectcompetition.Iftheslanted-barred
areashowstheconsumersurplus,andthevertical-barredareashowstheproducersurplus,
whichgraph(s)correctlyrepresentsthismarket?
50) ______
A) (a) B) (b) C) (c) D) (d) E) (b)and(d)

Usethefigurebelowtoanswerthefollowingquestion(s).

Figure12.5

51) RefertoFigure12.5.Ifthismarketwereperfectlycompetitive,theoutputlevelwouldexceedthe
single-pricemonopolyoutputlevelby
51) ______
A) zero.Theywouldbethesamesincemarginalcostisconstant.
B) 20units.
C) anamountimpossibletodeterminewithoutmoreinformation.
D) 30units.
E) 40units.

52) Zeroeconomicprofitinmonopolisticallycompetitiveindustriescanbecausedby 52) ______
A) failuretoacceptworthwhilerisks.
B) theexistenceofexcesscapacity.
C) barrierstoentry.
D) thefactthattheymustpayforexpensiveadvertisementsontelevisioniftheirrivalsdothe
same.
E) thelackofsignificantbarrierstotheentryofrivalfirms.

53) Whichofthefollowinggeneratessomemarketpowerforafirmthatproducesina
monopolisticallycompetitiveindustry?
53) ______
A) productdifferentiation
B) upwardslopingdemandcurve
C) entrybarriers
D) downwardslopingdemandcurve
E) horizontaldemandcurve

54) Onefactorthatdistinguishesamonopolyfrommonopolisticcompetitionisthat 54) ______
A) productsaremorehomogenousintheformermarketstructurethaninthelattermarket
structure.
B) substitutegoodsarenotavailableintheformermarketstructure,buttheyareavailablein
thelattermarketstructure.
C) firmsareprice-takersintheformermarketstructure,buttheyareprice-settersinthelatter
marketstructure
D) nobarrierstoentryexistintheformermarketstructure.
E) nobarrierstoexitexistintheformermarketstructure.

55) Firmsinmonopolisticallycompetitiveindustriesmayearnonlynormaleconomicprofitinthe
longrunbecause
55) ______
A) theircostsriseasthecapitalstockgrowsolder.
B) thedemandtheyfacewillbedecreasedasrivalfirmsofferslightlydifferentiatedproducts
forsaleinthesamemarket.
C) theirmarginalcostcurveslopesupward.
D) costsalwaysriseovertime.
E) themarketeventuallybecomesperfectlycompetitive.

56) Firmsinmonopolisticcompetitionhaverivalsthat 56) ______
A) allagreeonacommonprice.
B) settheirpriceaccordingtothedemandtheyface.
C) willalwaysmatchtheirpricedecreasesbutnottheirpriceincreases.
D) willalwaysmatchtheirpriceincreases.
E) settheirpricewherethedemandcurveistangenttotheaveragecostcurve.

Usethefigurebelowtoanswerthefollowingquestion(s).

Figure13.1

57) RefertoFigure13.1.Ifthisfirminmonopolisticcompetitionisinshort-runequilibrium,then 57) ______
A) allfirmswillexittheindustry.
B) 60unitsofoutputwillbeproducedinordertomaximizeprofit.
C) thefirmsprofitscanbeexpectedtoriseovertime.
D) economicprofitwillbezero.
E) rivalfirmswillentertheindustry.

Usethefigurebelowtoanswerthefollowingquestion(s).

Figure13.2

58) RefertoFigure13.2.Inordertomaximizeprofit,thisfirminmonopolisticcompetitionwill
produceanoutput
58) ______
A) of40units.
B) of70units.
C) oflessthan40units.
D) of60units.
E) thatcannotbedeterminedwithoutinformationconcerningrivalfirms.

59) Intheshort-run,thesimilaritybetweenamonopolistandamonopolisticallycompetitivefirmis
that
59) ______
A) theybothmakethesamedecisionsaboutthelevelofoutputandoutputprice.
B) theybothtrytomaximizetheirtotalrevenues.
C) theybothtrytominimizetheiraveragefixedcosts.
D) theybothfaceanupwardslopingsupplycurvefortheirproducts.
E) theysetthepricewhenmarginalrevenueequalsaveragetotalcost.

60) Whichofthefollowingaretrue?Thesimilaritiesbetweenperfectcompetitionandmonopolistic
competitioninclude:
(1) freeentryandexit
(2) profit-maximizingoutputwhereMC=MR
(3) long-runeconomicprofitsequalzero.
60) ______
A) (1)
B) (2)
C) (1)and(2)
D) (2)and(3)
E) (1),(2),and(3)

61) Mrs.Smithsbakeryshopisafirminmonopolisticcompetition.Ifintheshort-runMrs.Smith
incursaneconomicloss,shewillkeepproducingaslongas
61) ______
A) priceislessthanaveragevariablecost.
B) marginalrevenueisgreaterthanorequaltoaveragevariablecost.
C) priceisgreaterthanorequaltoaveragevariablecost.
D) priceisequaltoaveragevariablecost.
E) marginalrevenueislessthanaveragevariablecost.

Usethefigurebelowtoanswerthefollowingquestion(s).

Figure12.5

62) RefertoFigure12.5.Iffixedcostsare$100,thesingle-pricemonopolistwouldnotshutdownthe
firmbecauseattheprofit-maximizingoutput
62) ______
A) thepriceisgreaterthanthemarginalrevenue.
B) theeconomicprofitispositive.
C) priceequalsaveragetotalcost.
D) thepriceisgreaterthanthemarginalcost.
E) theeconomicprofitwouldbezero.