Multiple choice questions:
Question 1. Microeconomics deals with:
the working of the entire economy or large sectors of it.
economic growth.
individual units in the economy.
gross domestic product.
Question 2. When a market is in equilibrium,
a person could do better if he or she did something different.
people have exploited all opportunities to make themselves better off.
government has directed the market in such a way as to achieve this point.
markets are not working efficiently.
Question 3. If equilibrium exists:
all individuals must have an equal amount of income.
the price in that market will not fluctuate by more than 5%.
there will be no remaining opportunities for individuals to make themselves better off.
the number of buyers equals the number of sellers.
Question 4. Manny is attending college and majoring in economics. Manny is improving his scarce resource of:
land.
labor.
capital.
human capital.
Question 5. The economic way of thinking has to do with:
analyzing benefits but not costs.
analyzing costs but not benefits.
making choices at the margin.
making the distinction between microeconomics and macroeconomics.
Question 6. If the opportunity cost of manufacturing machinery is higher in the United States than in Britain and the opportunity cost of manufacturing sweaters is lower in the United States than in Britain, then the United States will:
export both sweaters and machinery to Britain.
import both sweaters and machinery from Britain.
export sweaters to Britain and import machinery from Britain.
import sweaters from Britain and export machinery to Britain.
Question 7. If the production possibility frontier were a straight line sloping down from left to right, this would suggest that:
more of both goods could be produced moving along the frontier.
the two products must have the same price.
the opportunity costs of the products are constant.
there are no opportunity costs.
Question 8. Of the following statements, which reflect(s) a normative view?
I. The U.S. needs to increase the minimum wage to $10 per hour.
II. An effective minimum wage results in unemployment.
III. An effective minimum wage is a form of a price floor.
All are normative.
None are normative
Statements I and II reflect a normative view.
Statement I reflects a normative view.
Question 9. Free trade between countries:
should be based on absolute advantage.
will allow wealthy countries to exploit less developed nations.
will shift the domestic production possibility frontier to the right.
will allow for greater levels of consumption than without trade.
Question 10. The production possibility frontier illustrates:
the maximum quantity of one good that can be produced given the quantity of the other good produced.
that when markets don't achieve efficiency, government intervention can improve society's welfare.
the inverse relationship between price and quantity of a particular good.
that people usually exploit opportunities to make themselves better off.
Question 11.Recent research suggests that certain plastic containers may have cancer-causing elements in them. As a result of this research, one would expect that:
the demand for such containers would decrease.
the quantity demanded for such containers might increase.
no impact would be observed in this market.
the price of the containers would change due to a movement along the demand curve.
Question 12.The demand for a good will increase if:
there is a decrease in the price of the good.
the price of inputs needed in the production of the good decrease.
there is an increase in the number of consumers in this market.
the price of a complementary good increases.
Question 13.Milk is an important ingredient in the production of ice cream. If the price of milk increases, then one would expect, holding all other things constant:
the supply curve for ice cream to shift left.
the supply curve for ice cream to shift right.
no change in the supply curve for ice cream.
a movement along the supply curve for ice cream curve, resulting in more ice cream supplied.
Question 14. All of the following would result in an increase in the supply of a good except:
a decrease in resource prices.
a beneficial technological change.
an increase in the number of suppliers.
an increase in input prices.
Question 15. In the soft drink market, an increase in the price of sugar, a necessary ingredient for soft drinks, and an increased concern about tooth decay caused by the consumption of soft drinks will result in which of the following?
There will be an increase in both the equilibrium price and quantity.
Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay the same.
There will be a decrease in both equilibrium price and quantity.
Equilibrium quantity will increase, but equilibrium price may decrease, increase, or stay the same.
Question 16. Consumer surplus can be found by computing the area:
above the supply curve and below the price.
under the supply curve and above the price.
under the demand curve and above the price.
under the demand curve and below the price.
Question 17. Consumer surplus is represented by the area ________ the demand curve and ________ the price.
above; below
above; above
below; above
below; below
Question 18. Suppose apartments rent for $1,600 in Boston. If the city of Boston forces each landlord to charge $1,200, there will be:
an increase in producer surplus for each landlord.
a surplus of new apartments in Boston.
an increase in consumer surplus for Bostonians who can find apartments for $1,200.
an increase in total surplus.
Question 19. Along a given supply curve, an increase in the price of a good will:
increase producer surplus.
decrease producer surplus.
increase consumer surplus.
decrease producer surplus and increase consumer surplus.
Question 20. An effective price ceiling will most likely result in which of the following?
an increase in producer surplus
an increase in consumer surplus
a decrease in consumer surplus
no change in either producer or consumer surplus
Question 21. An effective price floor will lead to:
quantity demanded being greater than quantity supplied.
a resulting excess supply or a surplus.
the need for government to produce more of the good.
suppliers determining the amount of the good bought and sold in the market.
Question 22. A price ceiling on a good often results in:
black market or underground transactions of the good.
a surplus of the product.
greater communications between buyers and sellers about the appropriate price.
a more efficient allocation of the good to buyers.
Question 23. The price of a gallon of gasoline increases 10% this year. As a result, which of the following events is most likely to occur?
More people will drive their cars.
Public transportation usage will decrease.
Gasoline expenditures will increase if gasoline is an inelastic good.
Fewer people will ride bicycles, a substitute for car travel.
Question 24. If you wanted to make sure that your calculation of elasticity was consistent regardless of your initial point, you would use:
the absolute value of elasticity.
supply elasticity.
the midpoint formula calculation of elasticity.
the point formula calculation of elasticity.
Question 25. Suppose the cross-price elasticity between two goods is 1.5. If the price of one good increases by 10%, then the quantity demanded of the other good will:
decrease by 15%.
increase by 15%.
decrease by 1.5%.
increase by 1.5%.
Question 26. If the absolute value of the price elasticity of demand is greater than 1, this means:
small percentage changes in price will lead to much larger changes in the percentage change in quantity demanded.
small percentage changes in price will lead to even smaller changes in the percentage change in quantity demanded.
percentage changes in price will lead to equal percentage changes in quantity demanded.
changes in price will have no impact on changes in quantity demanded.
Question 27. A demand curve that is perfectly inelastic is:
horizontal.
vertical.
downward-sloping.
upward-sloping.
Question 28. George has a weekly income (I) of $50 which he uses to purchase donuts (D) and coffee (C). The price of a donut is $1 and the price of coffee is $2.50. Suppose George's income increases to $100 while the price of both donuts and coffee remain unchanged. Given this income change, one would expect George's budget line:
to shift to the right.
to shift to the left.
to rotate around the coffee axis point.
not to be affected.
Question 29. A consumer is attempting to maximize utility in her consumption of Goods A and B. If her income and the price of Good A do not change, but the price of Good B decreases, this will:
increase the marginal utility per dollar spent on Good B.
decrease the marginal utility per dollar spent on Good B.
not affect the marginal utility per dollar spent on Good B.
decrease the total utility from the consumption of Good B.
Question 30. If the price of a good changes, and this results in the income effect and the substitution effect reinforcing one another, this means the good is:
normal.
inferior.
always on the budget line.
not likely to be bought.
Question 31. A decrease in the price of a good, holding income and the prices of all other goods constant, will:
result in a positive substitution effect as consumers increase their consumption of the good as the marginal utility per dollar of the good increases.
cause a negative substitution effect as consumers decrease their consumption of the good as the marginal utility per dollar spent of the good decreases.
mean the consumer will purchase less of all goods in the consumption bundle.
cause the budget line to shift in.
Question 32. Tonya's budget constraint for gasoline (G) and clothes (C) each month can be expressed with the following equation: G = 100 - 2C. If you know that the price of clothing is $10, then this means the price of gasoline is ________ and the total amount of income spent on both clothing and gasoline each month is ________.
$5; $500
$2; $100
$1; $500
$2; $1,000
Question 33. When a firm produces a small amount of output, the spreading effect:
is stronger than the diminishing returns effect.
is weaker than the diminishing returns effect.
and diminishing returns effect are equal.
will be zero.
Question 34. Diminishing returns is a reason why:
the marginal cost curve is downward-sloping.
fixed costs remain constant.
the marginal cost curve is upward-sloping.
the average fixed cost curve is downward-sloping.
Question 35. Marginal cost can be calculated as:
ΔTC/ΔQ, where TC is total cost and Q is output.
ΔVC/ΔQ, where VC is variable cost and Q is output.
the slope of the total cost curve.
ΔTC/ΔQ, where TC is total cost and Q is output; ΔVC/ΔQ, where VC is variable cost and Q is output; and as the slope of the total cost curve.
Question 36. As production increases and the fixed cost is divided by larger quantities of output, this leads to lower average fixed cost. This is referred to as the ________ effect.
diminishing returns
spreading
constant cost
increasing returns
Question 37. The production function provides information about:
a firm's profit level.
the transformation of inputs into outputs.
the location of the firm's production.
a firm's market structure.
Question 38. A firm is producing at an output level at which its average total costs are minimized. At this output level, its average total costs also equal:
price.
MC.
MR.
AVC.
Question 39. Maximizing profits also means that a firm is attempting to:
make as much output as possible.
change the market price.
minimize its losses.
produce below its break-even price.
Question 40. In the long run, all firms in a perfectly competitive industry will:
minimize losses.
earn a greater than zero economic profit.
exit the industry if price is greater than average total cost.
produce an output level at which price is greater than average total cost.
Question 41. Perfectly competitive industries are characterized by:
few sellers and many buyers.
consumers who can differentiate between the products of different producers.
goods that are standardized.
a few producers who make up the majority of the market share of the industry.
Question 42. In a perfectly competitive market:
consumers are price-takers.
producers are price-takers.
both producers and consumers are price-takers.
neither producers nor consumers are price-takers.
Question 43. Temporary monopolies via the provision of sole ownership rights to profit from the production, use, or sale of a good are provided by:
patents and copyrights.
natural monopolies.
profit-maximizing behavior.
network externalities.
Question 44. When a firm finds that its ATC of production decreases as it increases production, this firm is said to be experiencing:
profit maximization.
economic profit.
economies of scale.
a barrier to entry.
Question 45. A monopolist with a linear demand curve will:
not produce in the inelastic portion of its demand curve.
produce regardless of elasticity since it is a monopolist.
not produce in the elastic portion of its demand curve.
produce only at the unit price elastic portion of its demand curve.
Question 46. If a monopolist knows its price elasticity of demand is greater than one, then a(n):
increase in price will increase total revenue.
decrease in price will increase total revenue.
decrease in price will decrease total revenue.
increase in price will have no impact on total revenue.
Question 47.An oligopoly is characterized as an industry in which:
there are few firms, each producing a differentiated or similar product.
there are many firms, each producing a similar product.
all market participants are price-takers.
only one firm produces a very differentiated product.
Question 48.Suppose there are 10 identical firms in an industry and each produces 10% of the total market sales. The HHI for this industry would indicate that the industry is:
competitive.
monopolistic.
oligopolistic.
Cannot be determined from the information provided.
Question 49. An oligopoly may result from:
the existence of increasing returns to scale in the industry.
the standardization of a product.
low or no barriers to entry.
price-taking conditions for both buyers and sellers.
Question 50. Suppose two firms decide to produce the same level of output and sell this output at the same price via a tacit agreement. The firms also do not have the same MC
curve. This would most likely occur if the firms operated under a(n):
kinked demand curve.
arms race.
tit-for-tat strategy.
Bertrand model.
Question 51.Firms will choose a tit-for-tat strategy if they:
expect that price wars will ultimately provide benefits for the dominant firm.
believe that the firms in the industry will be competing with each other for a long time.
do not believe interdependence is a very prominent characteristic of the industry.
are sure that cheating behavior will go unnoticed.
Question 52.In the long run, monopolistic competitors will:
earn zero economic profits.
produce at the minimum of their ATC
curves.
set price where MC = MR.
collude with other firms.
Question 53.Perfect competitors and monopolistic competitors both earn ________ economic profit in the long run, but perfect competitors produce at the ________ of the ATC
curve, while monopolistic competitors produce ________ of the ATC curve.
zero; minimum point; on the downward-sloping portion
positive; minimum point; on the upward-sloping portion
negative; minimum point; at the minimum point
zero; downward-sloping portion; at the minimum point
Question 54.When Henry Ford produced his cars, he ________, while GM produced its cars ________.
maximized economies of scale; by also maximizing economies of scale
maximized economies of scale; with an emphasis on product differentiation
produced with excess capacity; maximized economies of scale
produced with excess capacity; also with excess capacity
Question 55. Industries that are made up of many competing producers, each selling a differentiated product, and that eventually earn zero economic profits in the long run, are:
perfect competitively competitive.
monopolies.
oligopolies.
monopolistically competitive.
Question 56. Suppose that the marginal benefit received from pollution is equal to its marginal cost. In this instance, we can assume that:
society's well-being can be improved if the quantity of pollution decreases.
the market is producing too much pollution.
the market is producing too little pollution.
society has achieved its socially optimal level of pollution.
Question 57. Marginal social benefit of pollution:
increases as more pollution is emitted.
equals zero when the social optimal quantity of pollution is produced.
equals the marginal social cost of pollution in all markets at equilibrium.
is the benefit to society of one more unit of pollution.
Question 58. The marginal social cost of a unit of pollution:
is equal to the sum of the highest willingness to pay among all members of society to avoid that unit of pollution.
is easy to calculate since pollution produces costs.
is often overestimated.
remains constant as more of a good is produced.
Question 59. Positive externalities are:
similar to negative externalities in their ease of measuring marginal benefits.
likely to be solved with the use of a Pigouvian tax.
difficult to measure since marginal benefits are hard to observe.
result from greater than optimal production of a good.
Question 60. An externality is said to exist when:
individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account.
individuals impose costs or benefits on others, and the market provides incentives to take these costs and benefits into account.
individual actions are affected by external forces; for example, the loss of U.S. jobs due to competition from abroad is an externality.
individual actions are affected by government policies (such as taxes) that are externally imposed on the market.