Question 1. A supply curve reveals
A) the quantity of output consumers are willing to purchase at each possible market price.
B) the difference between quantity demanded and quantity supplied at each price.
C) the maximum level of output an industry can produce, regardless of price.
D) the quantity of output that producers are willing to produce and sell at each possible market price
E) None of the above.
Question 2. When an industry's raw material costs increase, other things remaining the same,
A) the supply curve shifts to the left
B) the supply curve shifts to the right.
C) output increases regardless of the market price and the supply curve shifts upward.
D) output decreases and the market price also decreases.
E) None of the above.
Question 3.The price of good A goes up. As a result the demand for good B shifts to the left. From this we can infer that:
A) good A is used to produce good B.
B) good B is used to produce good A.
C) goods A and B are substitutes.
D) goods A and B are complements.
E) none of the above.
Question 4. Assume that the current market price is below the market clearing level. We would expect
A) a surplus to accumulate.
B) downward pressure on the current market price.
C) upward pressure on the current market price.
D) lower production during the next time period.
E) None of the above.
Question 5. Which of the following will cause the price of beer to rise?
A) A shift to the right in the demand curve for beer.
B) A shift to the left in the supply curve of beer.
C) A reduction in the price of hops.
D) both (A) and (B).
E) none of the above.
Question 6. The price of good A goes up. As a result the demand for good B shifts to the we can infer that:
A) good A is a normal good.
B) good B is an inferior good.
C) goods A and B are substitutes.
D) goods A and B are complements.
E) none of the above.
Question 7. Good A is a normal good. The demand curve for good A:
A) slopes downward.
B) usually slopes downward, but could slope upward.
C) slopes upward.
D) usually slopes upward, but could slope downward.
E) None of the above.
Question 8. When a good is price inelastic, consumer expenditures on the good
A) increase when price increases.
B) decrease when price increases.
C) do not change when price increases.
D) are not related to price elasticity of demand.
E) None of the above.
Question 9. The demand for sirloin steak is probably more elastic than the demand for all meat because
A) steak is very expensive.
B) people are worried about cholesterol.
C) cattle raising is not very profitable.
D) there are more substitutes for sirloin stakes than for all meats.
E) None of the above.
Question 10. The short run is
A) less than a year.
B) three years.
C) however long it takes to produce the planned output.
D) a time period in which at least one input is fixed.
E) a time period in which at least one set of outputs has been decided upon.
Question 11. Which of the following statements is true regarding the differences between economic and accounting costs?
A) Accounting costs include all implicit and explicit costs.
B) Economic costs include implied costs only.
C) Accountants consider only implicit costs when calculating costs.
D) Accounting costs include only explicit costs and very little implicit costs
E) None of the above.
Question 12) In a market economy, which of the following is the most important factor affecting scarcity?
A) the needs and wants of consumers
B) the price of the product
C) the degree to which the government is involved in the allocation of resources.
D) All of the above are equally important.
Question 13) Select the group that best represents the basic factors of production.
A) land, labor, capital, entrepreneurship
B) land, labor, money, management skills
C) land, natural resources, labor, capital
D) land, labor, capital, technology
Question 14) Which of the statements below best illustrates the use of the market process in determining the allocation of scarce resources?
A) "Let's make this product because this is what we know how to do best."
B) "Although we're currently making a profit on the products we make, we should consider shifting to products where we can earn even more money."
C) "Everyone is opening video stores, why don't we?"
D) "We can't stop making this product. This product gave our company its start."
Question 15) Which of the following is the best example of opportunity cost?
A) a company's expenditures on a training program for its employees
B) the rate of return on a company's investment
C) the amount of money that a company can earn by depositing excess funds in a money market fund
D) the amount of profit that a company forgoes when it decides to drop a particular product line in favor of another one
Question 16) Scarcity is a condition that exists when
A) there is a fixed supply of resources.
B) there is a large demand for a product.
C) resources are not able to meet the entire demand for a product.
D) All of the above.
Question 17) Which of the following statements is not true?
A) An increase in demand causes equilibrium price and quantity to rise.
B) A decrease in demand causes equilibrium price and quantity to fall.
C) An increase in supply causes equilibrium price to fall and quantity to rise.
D) A decrease in supply causes equilibrium price to rise and quantity to rise.
Question 18) Which of the following would cause a decrease in the price of a product?
A) an increasing shift in the supply of a product and no shift in demand
B) a decreasing shift in the supply of a product and no shift in demand
C) an increasing shift in the demand for product and no shift in supply
D) an increasing shift in the demand for product and a decreasing shift in supply
Question 19) The owner of a produce store found that when the price of a head of lettuce was raised from 50 cents to $1, the quantity sold per hour fell from 18 to 8. The arc elasticity of demand for lettuce is
A)-0.56.
B)-1.15.
C)-0.8.
D)-1.57.
Question 20) As income rise and consumers feel "better off," they will shift consumption away from goods toward goods more commensurate with their improved economic status.
A) inferior
B) superior
C) normal
D) inelastic
Question 21) If the consumption of sugar does not change at all following a price increase from 49 cents per pound to 58 cents per pound, the demand for sugar is considered to be
A) relatively inelastic.
B) perfectly elastic.
C) perfectly inelastic.
D) unitary elastic.
Question 22) If a firm decreases the price of a product and total revenue decreases, then
A) the demand for this product is price elastic.
B) the demand for this product is price inelastic.
C) the cross elasticity is negative.
D) the income elasticity is less than 1.
Question 23) A movement along the demand curve may be caused by
A) a change in nonprice determinants of demand.
B) a change in consumer expectations.
C) a change in demand.
D) a change in supply.
E) none of the above
Question 24) Which of the following will not cause a short-run shift in the supply curve?
A) a change in the number of sellers
B) a change in the cost of resources
C) a change in the price of the product
D) a change in future expectations
Question 25) Which of the following would indicate that price is temporarily below its market equilibrium?
A) There are a number of producers who are left with unwanted inventories.
B) There are a number of customers who must be placed on waiting lists for the product.
C) Firms decide to leave the market.
D) The government must step in and subsidize the product.
Question 26) In general, if there are many good substitutes for a given product, the demand elasticity will be
A) high.
B) low.
C) indeterminate.
D) zero.
Question 27) The sensitivity of the change in quantity consumed of one product to a change in the price of a related product is called
A) cross-elasticity.
B) substitute elasticity.
C) complementary elasticity.
D) price elasticity of demand.
Question 28) Which of the following would cause a short-run decrease in the quantity supplied of personal computers?
A) The price of workstations decreases.
B) The price of PC software decreases.
C) The number of PC manufacturers decreases.
D) The cost of manufacturing PCs decreases.
Question 29. If a perfectly competitive firm incurs an economic loss, it should
a. shut down immediately.
b. try to raise its price.
c. shut down in the long run.
d. shut down if this loss exceeds fixed cost.
Question 30. Which of the following relationships is correct?
a. When marginal product starts to decrease, marginal cost starts to decrease.
b. When marginal cost starts to increase, average cost starts to increase.
c. When marginal cost starts to increase, average variable cost starts to increase.
D When marginal product starts to decrease, marginal cost starts to increase.
Question 31. When a firm increased its output by one unit, its AC decreased. This implies that
a. MCb. MC = AC.
c. MCd. The law of diminishing returns has not yet taken effect.
Question 32. The main factor that explains the difference between accounting cost and economic cost is
a. opportunity cost.
b. fixed cost.
c. variable cost.
d. all of the above help to explain the difference.
Question 33. Economies of scale is indicated by
a. declining long run AVC.
b. declining long run AFC.
c. declining long run AC.
d. declining long run TC.
Question 34. When a firm experiences increasing returns to scale
a. its AFC will decrease.
b. its AFC will increase.
c. its AC will increase.
d. its AC will decrease.
Question 35. Suppose a firm is currently maximizing its profits (i.e., following the MR=MC rule). Assuming it wants to continue maximizing its profits, if its variable costs decrease, it should
a. lower its price in response to the lower costs.
b. raise its price in order to earn more profits.
c. maintain the same price.
d. not enough information to answer this question.
Question 36. Which of the following conditions would definitely cause a perfectly competitive company to shut down in the short run?
a. Pb. P = MCc. Pd. P = MR
Question 37. The relationship between MC and AC can best be described as follows
a. when AC increases, MC starts to increase.
b. when MC increases, AC starts to increase.
c. when MC decreases, AC decreases.
d. when MC exceeds AC, AC starts to increase.
Question 38. The main difference between the price-quantity graph of a perfectly competitive firm and amonopoly is
a. that the competitive firm's demand curve is horizontal, while that of the monopoly is downward sloping.
b. that a monopoly always earns an economic profit while a competitive company always earns only normal profit.
c. that a monopoly maximizes its profit when marginal revenue is greater than marginal cost.
d. that a monopoly does not incur increasing marginal cost.
Question 39. When a firm increased its output by one unit, its AC rose from $45 to $50. This implies that its MC is
a. $5.
b. between $45 and $50.
c. greater than $50.
d. cannot be determined from the above information.
Question 40. Which of the following cost relationships is not true?
a. AFC = AC-MC
b. TVC-TC-TFC
c. the change in TVC/the change in Q = MC
d. the change in TC/the change in Q = MC
Question 41. In the long run, a firm is said to be experiencing decreasing returns to scale if a 10 percent increase in inputs results in
a. an increase in output from 100 to 110.
b. a decrease in output from 100 to 90.
c. an increase in output from 100 to 105.
d. a decrease in output from 100 to 85.
Question 42) Which of the following is not characteristic of perfect competition?
A) a differentiated product
B) no barriers to entry or exit
C) large number of buyers
D) complete knowledge of market price
Question 43) Which of the following conditions would definitely cause a perfectly competitive company to shut down in the short run?
A)PB)P = MCC)PD)P=MR
Question 44) Which of the following is not characteristic of perfect competition?
A) a differentiated product
B) no barriers to entry or exit
C) large number of buyers
D) complete knowledge of market price
Question 46) When a firm has the power to establish its price,
A)P = MR.
B)P = MC.
C)P>MR.
D)P
Question 47) In the short run, which of the following would indicate that a perfectly competitive firm is producing an output for which it is receiving a normal profit?
A)P>AC
B)AVCC) P = AC
D) P = AVC
Question 48) Which of the following is true for a monopoly?
A)P = MC
B)P = MR
C) P>MR
D) P
Question 49) Which of the following is true about a monopoly?
A) Its demand curve is generally less elastic than in more competitive markets.
B) It will always earn economic profit.
C) It will try to charge the highest possible price.
D) It will always be subject to government regulation.
E) None of the above is true.