1. The demand for a product is inelastic with respect to price if:
A. consumers are largely unresponsive to a per unit price
B. the elasticity coefficient is greater than 1.
C. a drop
in price is accompanied by a decrease in the quantity demanded.
drop in price is accompanied by an increase in the quantity demanded.
2. If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then:
A. the price elasticity of demand is 0.44.
B. A is a
C. the price elasticity of demand is 2.25.
A is an inferior good.
3. In which of the following instances will total revenue decline?
A. price rises and supply is elastic
B. price falls and
demand is elastic
C. price rises and demand is inelastic
rises and demand is elastic
4. Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming
that the demand for education at GSU is:
B. relatively elastic.
D. relatively inelastic.
5. For a linear demand curve:
A. elasticity is constant along the curve.
is unity at every point on the curve.
C. demand is elastic at low
D. demand is elastic at high prices.
6. If a demand for a product is elastic, the value of the price elasticity coefficient is:
B. greater than one.
C. equal to one.
less than one.
7. Price elasticity of demand is generally:
A. greater in the long run than in the short run.
greater in the short run than in the long run.
C. the same in both
the short run and the long run.
D. greater for "necessities" than it
is for "luxuries."
8. Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of normal good X. The
coefficient of cross elasticity of demand is:
A. negative and therefore these goods are substitutes.
negative and therefore these goods are complements.
C. positive and
therefore these goods are substitutes.
D. positive and therefore
these goods are complements.
9. Consumers' surplus:
A. is the difference between the maximum prices consumers
are willing to pay for a product and the lower equilibrium price.
the difference between the maximum prices consumers are willing to pay
for a product and the minimum prices producers are willing to
C. the difference between the minimum prices producers are
willing to accept for a product and the higher equilibrium price.
rises as equilibrium price rises.
10. We would expect the cross elasticity of demand between dress shirts and ties to be:
A. positive, indicating normal goods.
indicating inferior goods.
C. negative, indicating substitute
D. negative, indicating complementary goods.
11. We would expect the cross elasticity of demand between Pepsi and Coke to be:
A. positive, indicating normal goods.
indicating inferior goods.
C. positive, indicating substitute
D. negative, indicating substitute goods.
12. 45. If a 1% increase in fees for legal services leads to a 5% increase in total revenue for lawyers, the price elasticity of demand for
legal services must be:
B. of unitary elasticity.
D. perfectly inelastic.
13. The “incidence of a tax” is the term used to indicate:
A. Responsibility for collecting the tax.
B. Who actually
bears the economic tax burden.
C. Who the tax is initially levied
D. The regressive rate structure of the tax.
14. Approximately 40 luxury boats (price $100,000 or more) are produced each year. How much revenue could the government expect to raise
from a $1,000 excise tax on luxury boats?
A. Exactly equaled to $40,000.
B. Less than
C. More than $40,000.
15. Sally recently got a raise from $500 per week to $550 per week. As a result, she now purchases six steaks per week rather than
five. This indicates that:
A. Steak is an inferior good for Sally.
B. Steak is a
normal good for Sally.
C. Sally has an inelastic demand for
D. Sally has an elastic demand for steak.
||6. B |
||12. C |
A. is synonymous with usefulness.
B. is want-satisfying
C. is easy to quantify.
D. rarely varies from person to
2. The ability of a good or service to satisfy wants is called:
A. utility maximization.
B. opportunity cost.
3. The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three
Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:
A. 26 units of utility.
B. 6 units of utility.
units of utility.
D. 38 units of utility.
4. Total utility may be determined by:
A. multiplying the marginal utility of the last unit
consumed by the number of units consumed.
B. summing the marginal
utilities of each unit consumed.
C. multiplying the marginal utility
of the last unit consumed by product price.
D. multiplying the
marginal utility of the first unit consumed by the number of units
5. To maximize utility a consumer should allocate money income so that the:
A. elasticity of demand on all products purchased is the
B. marginal utility divided by its market price is the
same for all products.
C. total utility derived from each product
consumed is the same.
D. marginal utility of the last unit of each
product consumed is the same.
6. Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy:
A. less of X only if its price rises.
B. more of Y only
if its price rises.
C. more of Y and less of X.
D. more of X and
less of Y.
7. Suppose you have a limited money income and you are purchasing products A and B whose prices happen to be the same. To maximize your
utility you should purchase A and B in such amounts that:
A. their marginal utilities divided by its market price are
B. their total utilities are the same.
C. their marginal
and total utilities are proportionate.
D. the income and substitution
effects associated with each are equal.
8. A consumer is maximizing her utility with a particular money income when:
A. the total utility derived from each product consumed is
B. MUa/Pa = MUb/Pb = MUc/Pc = ... = MUn/Pn.
C. MUa = MUb
= MUc = ... = MUn.
D. Pa = Pb = Pc = ... = Pn.
9. The theory of consumer behavior assumes that consumers attempt to maximize:
A. the difference between total and marginal utility.10. When a consumer shifts purchases from product X
to product Y the marginal utility of:
C. average utility.
A. X falls and the marginal utility of Y rises.
rises and the marginal utility of Y falls.
C. both X and Y
D. both X and Y falls.
11. Which of the following has been a significant factor in DVDs replacing video cassettes (VCs) in the retail home video market?
A. DVDs are now less than one-half the price of VCs.
scarcity of production capacity has curtailed the manufacture of
C. Most consumers perceive DVD sound and video reproduction to
be of higher quality.
D. The price of DVD players has increased
12. The diamond-water paradox arises because:
A. essential goods may be cheap while nonessential goods may
B. the marginal utility of certain products increases,
rather than diminishes.
C. essential goods are always higher priced
than nonessential goods.
D. we sometimes fail to use money as a
standard of value.
13. All of the following would reduce property crime by increasing its "price," except:
A. imposing greater penalties for those who are caught and
B. using more sophisticated security systems.
enhancing the legitimate earnings of potential criminals.
out the middlemen ("fences") by selling stolen goods via Internet
14. High-wage consumers are over-represented among airline and taxi passengers because:
A. They pay lower money prices for these services than do
B. These commodities have income elasticities
less than zero.
C. The opportunity cost of spending more time on
time-consuming transportation is higher for high-wage consumers.
The price elasticity of demand for airline and taxi services is quite
15. If you receive a gift whose market price is $20, but you consider it to be worth only $10, then:
A. there is a $10 or 50 percent value gain.
B. there may
or may not be a value loss.
C. there is a $10 or 50 percent value
D. you can be relatively certain the giver was a sibling or
other close relative.
||6. D |
||12. A |
1. Which of the following constitutes an implicit cost to the Johnston
A. payments of wages to its office workers
B. rent paid
for the use of equipment owned by the Schultz Machinery Company
depreciation charges on company-owned equipment
D. economic profits
resulting from current production
2. Implicit costs are:
A. regarded as costs by accountants but not by
B. payments that a firm makes to other firms or
individuals who supply resources to it.
D. costs that vary proportionately with output.
3. Accounting profits are typically:
A. greater than economic profits because the former do not
take explicit costs into account.
B. equal to economic profits
because accounting costs include all opportunity costs.
than economic profits because the former do not take implicit costs into
D. greater than economic profits because the former do not
take implicit costs into account.
4. Normal profit is:
A. determined by subtracting implicit costs from total
B. determined by subtracting explicit costs from total
C. the return to the entrepreneur when economic profits are
D. the average profitability of an industry over the preceding
5. Which of the following is a short-run adjustment?
A. A local bakery hires two additional bakers.
B. Six new
firms enter the plastics industry.
C. The number of farms in the
United States declines by 5 percent.
D. BMW constructs a new assembly
plant in South Carolina.
6. Average fixed cost:
A. equals marginal cost when average total cost is at its
B. may be found for any output by adding average variable
cost and average total cost.
C. graphs as a U-shaped curve.
declines continually as output increases.
7. Marginal cost:
A. equals both average variable cost and average total cost
at their respective minimums.
B. is the difference between total cost
and total variable cost.
C. rises for a time, but then begins to
decline when diminishing returns set in.
D. declines continuously as
8. If a technological advance increases a firm's labor productivity, we would expect its:
A. average total cost curve to rise.
B. average total
cost curve to fall.
C. total cost curve to rise.
D. average total
cost curve to be unaffected.
9. Economies and diseconomies of scale explain:
A. the profit-maximizing level of production.
B. why the
firm's long-run average total cost curve is U-shaped.
C. why the
firm's short-run marginal cost curve cuts the short-run average variable
cost curve at its minimum point.
D. the distinction between fixed and
10. In the long run:
A. all costs are variable costs.
B. all costs are fixed
C. variable costs equal fixed costs.
D. fixed costs are
greater than variable costs.
11. (Last Word) A cost that cannot be partly or fully recovered through any subsequent action is known as a:
A. variable cost.
B. fixed cost.
D. sunk cost.
12. Other things equal, if the prices of a firm's variable inputs were to fall:
A. one could not predict how unit costs of production would
B. marginal cost, average variable cost, and average
fixed cost would all fall.
C. marginal cost, average variable cost,
and average total cost would all fall.
D. average variable cost would
fall, but marginal cost would be unchanged.
13. In the diagram below, curves 1, 2, and 3 represent:
A. average variable cost, marginal cost, and average fixed
B. total variable cost, total fixed cost, and
total cost respectively.
C. total fixed cost, total variable cost,
and total cost respectively.
D. marginal product, average variable
cost, and average total cost respectively.
14. In the figure below, curves 1, 2, 3, and 4 represent the:
A. ATC, MC, AFC, and AVC curves respectively.
B. AFC, MC,
AVC, and ATC curves respectively.
C. MC, ATC, AVC, and AFC curves
D. ATC, AVC, AFC, and MC curves
15. Refer to the diagram below. The vertical distance between ATC and AVC reflects:
A. the law of diminishing returns.
B. the average fixed
cost at each level of output.
C. marginal cost at each level of
D. the presence of economies of scale.