Multiple Choice Questions
1. Which of the following is a positive statement:
a. The President of the United States ought to be elected by a direct vote of the American people rather than the Electoral College.
b. Too few adults can afford to go to college, so tax credits for tuition should be introduced.
c. The economic theory of consumer behavior is founded on the assumption that consumers prefer more of any good to less.
d. All of the above.
2. Which of the following markets has the most restrictive geographic boundary:
a. The market for retail gasoline.
b. The market for housing.
c. The market for gold.
d. The market for beef.
3. If the actual price were below the equilibrium price in the market for bread:
a. A surplus would develop that cannot be eliminated over time.
b. A surplus would develop, which market forces eliminate over time.
c. A shortage would develop which market forces would tend to exacerbate.
d. A shortage would develop, which market forces eliminate over time.
4. Tires and automobiles are complementary goods. As a result, we would expect:
a. the demand curve for automobiles to shift right when the prices of tires increase.
b. the prices of automobiles to increase when the supply curve of tires shifts left.
c. the demand curve for automobiles to shift left when the prices of tires increase.
d. some tires to be given away with some automobiles.
5. At point A, demand is:
a. perfectly inelastic.
b. inelastic, but not completely inelastic.
c. elastic, but not infinitely elastic.
d. infinitely elastic.
6. At point C, demand is:
a. completely inelastic.
b. inelastic, but not completely inelastic.
c. unit elastic.
d. elastic, but not infinitely elastic.
7. The assumption of transitive preferences implies indifference curves must:
a. not cross one another.
b. have a positive slope.
c. be L-shaped.
d. be convex to the origin.
8. Indifference curves are convex to the origin because of:
a. transitivity of consumer preferences.
b. the assumption of a diminishing marginal rate of substitution.
c. the assumption that more is preferred to less.
d. the assumption of completeness.
9. Alvin's preferences for good X and good Y are shown in the diagram below. Based on the diagram, it can be inferred that:
a. Alvin does not consider good X as "good".
b. Alvin will never purchase any of good Y.
c. Alvin regards good X and good Y as perfect substitutes.
d. Alvin regards good X and good Y as perfect complements.
10. A consumer has $100 per day to spend on product A, which has a unit price of $7, and product B, which has a unit price of $15. What is the slope of the budget line if good A is on the horizontal axis and good B is on the vertical axis:
a. -7/15.
b. -7/100
c. -15/7.
d. 7/15.
11. An individual demand curve can be derived from which of the following curves:
a. price-consumption
b. price-income
c. income-substitution
d. income-consumption
12. The curve in the diagram above is called:
a. the price-consumption curve.
b. the demand curve.
c. the income-consumption curve.
d. the Engel curve.
13. Which of the following is true concerning the substitution effect of a decrease in price:
a. It will lead to an increase in consumption only for a normal good.
b. It always will lead to an increase in consumption.
c. It will lead to an increase in consumption only for an inferior good.
d. It will lead to an increase in consumption only for a Giffen good.
14. A consumer's original utility maximizing market basket of goods is shown in the diagram above as point A. Following a price change, the consumer's utility maximizing market basket changes is at point B. The substitution effect of the price change in food on the quantity of food purchased is:
a. the change from F3 to F1.
b. the change from F3 to F2.
c. the change from F2 to F1.
d. the change from F1 to F2.
15. A function that indicates the maximum output per unit of time that a firm can produce, for every combination of inputs with a given technology, is called:
a. an isoquant.
b. a production possibility curve.
c. a production function.
d. an isocost function.
16. The marginal product of an input is:
a. total product divided by the amount of the input used to produce this amount of output.
b. the addition to total output that adds nothing to profit.
c. the addition to total output due to the addition of one unit of all other inputs.
d. the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.
17. The rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the:
a. marginal rate of substitution.
b. marginal rate of technical substitution.
c. slope of the isocost curve.
d. average product of the input.