Question 1.
When the price of a good falls, there will be __________.
an outward shift in the good's demand curve
both an outward shift in the good's demand curve and a movement along the good's demand curve
a movement along the good's demand curve
no change in quantity demanded

Question 2.
If the price of Pepsi increases, then there will be ________ of Pepsi.
a decrease in the supply
an increase in the supply
an increase in the quantity supplied
a decrease in the quantity supplied

Question 3.
Refer to the figure below. The equilibrium price and quantity are __________.
image
$2 and 12 units
$6 and 9 units
$8 and 6 units
$10 and 1 unit

Question 4.
In the automobile industry, workers have just negotiated a new contract giving workers a large raise. There has also been an increase in the number of licensed drivers who are in the market for a new car. In the market for new automobiles, the effects that these changes will have on the equilibrium price and quantity are: __________.
price will increase, and quantity will decrease
price will increase, and the effect on quantity is indeterminate
price will decrease, and quantity will increase
price will decrease, and the effect on quantity is indeterminate

Question 5.
In a market, the rationing function of prices results in __________.
long queues or waiting lines
a price ceiling
equilibrium
a shortage or surplus

Question 6.
If a price floor is set below the current market clearing price, then __________.
a surplus must immediately occur
a shortage must immediately occur
there will be incentives for black markets to develop
quantity demanded will remain equal to quantity supplied at the current market clearing price

Question 7.
A result of a positive externality in the production of a good is that __________.
the price system will over-allocate resources to the production of that good or service
the price system will under-allocate resources to the production of that good or service
the market supply will be too high
the market demand will be too high

Question 8.
A fundamental aspect of public goods is that they __________.
are just like private goods EXCEPT that everybody wants to consume the same amount
have positive externalities
are characterized by the principle of rival consumption
can be consumed jointly by many people simultaneously

Question 9.
The free-rider problem is encountered when __________.
someone benefits from the consumption of a public good without paying his or her full share
all individuals who consume a public good pay for it
all goods consumed and produced are private goods
all individuals are willing to pay for what they consume

Question 10.
If a seller lowers the price of a product when demand is price inelastic, then the seller can expect revenues to __________.
rise
fall
stay the same
either rise or fall, but it is impossible to determine which

Question 11.
When two goods are unrelated, __________.
the demands for both goods will be inelastic
cross price elasticity of demand will be 0
cross price elasticity of demand will be negative
cross price elasticity of demand will be positive

Question 12.
If one's demand for peanut butter decreases as income rises, then the income elasticity of demand for the product is __________.
elastic
inelastic
unit elastic
negative

Question 13.
On a hot summer day, a construction worker enters a McDonald's fast-food restaurant. He orders the first Big Mac. He consumes it within 3 minutes. He then orders a second Big Mac and consumes it in 10 minutes. He eats only half of the third one in 18 minutes and throws away the rest. The store manager offers him the fourth for free. The construction worker says: "No thanks." Why?
For the construction worker, total utility increased at an increasing rate.
Marginal utility increased at an increasing rate.
Marginal utility declined as he consumed additional Big Macs.
The law of diminishing marginal utility does not apply to consumption of Big Macs.

Question 14.
If a consumer concludes that the marginal utility of the last dollar spent on vegetables exceeds the marginal utility of the last dollar spent on junk food, he will respond by
consuming relatively more junk food and fewer vegetables
consuming relatively more vegetables and less junk food
consuming equal amounts of vegetables and junk food
halting consumption of junk food altogether

Question 15.
The substitution effect shows that __________.
if the price of a good increases, consumers buy more of that good and less of all others
if the price of a good falls relative to all other goods, consumers buy less of that good and more of all others
if the price of a good falls, consumers buy less of all goods
if the price of a good rises, consumers buy less of that good and more of others

Question 16.
Economists generally define the short run as being __________.
that period of time in which at least one of the firm's inputs, usually plant size, is fixed
that period of time in which all inputs are variable
any period of time less than one year
any period of time less than six months

Question 17.
The marginal product of labor may increase rapidly initially as more __________.
workers are able to specialize
total product is decreasing
the amount of other inputs is held constant
workers will get crowded in a fixed factory

Question 18.
A decrease in long-run average costs resulting from increases in output is __________.
attributed to economies of scale
attributed to diseconomies of scale
attributed to constant returns to scale
attributed to the law of diminishing marginal product

Question 19.
In a perfectly competitive industry __________.
each firm is a price maker
no buyer or seller can influence the market price
there is apt to be a shortage of sellers of output
firms can never make an economic profit

Question 20.
A firm seeking to maximize economic profits should produce at the output at which __________.
total revenue equals total cost
marginal revenue equals marginal cost
average revenue equals average cost
marginal revenue equals average revenue

Question 21.
Price equals the minimum of long-run average cost __________.
in a long-run equilibrium
in a short-run equilibrium as well as in a long-run equilibrium
whenever average revenue equals marginal cost
along a horizontal long-run supply curve but not along an upward sloping long-run supply curve

Question 22.
To sell one more unit of a good, a monopolist must __________.
lower the price on the last unit only
lower the price on all units
raise the price only on the last unit sold
raise the prices on all goods

Question 23.
Refer to the figure below. What is the profit-maximizing price and output?
$9, 14
$13, 14
$11, 16
$10, 17

Question 24.
A monopolist engages in price discrimination __________.
by charging a higher price to consumers whose demand is more elastic
by charging a higher price when marginal cost is lower
by charging a lower price to consumers whose demand is more elastic
by charging the same price to all consumers

Question 25.
Compared to perfect competition, a monopolistically competitive market will produce ________ output and charge a ________ price.
more; higher
more; lower
less; higher
less; lower

Question 26.
If firms in a monopolistically competitive industry are operating with positive economic profit, over time we would see __________.
firms alter their advertising rates until they made at least normal profits
some firms entering the industry, causing the market supply curve to shift to the right, lowering price
some firms entering the industry, causing the demand curves of the existing firms to shift to the left
some firms entering the industry, causing the demand curves of the existing firms to shift to the right

Question 27.
The brand name of a firm __________.
has nothing to do with the profitability of a firm
has been considered irrelevant by economists since profits for a monopolistic competitive firm are zero in the long-run
relates to consumers' perception of product differentiation and to the market value of a firm
is important in the short-run but not in the long-run

Question 28.
Which of the following is NOT a necessary condition for oligopoly?
Barriers to entry
Strategic dependence of firms
Differentiated products
Either a small number of firms or market dominance by a small number of firms

Question 29.
Refer to the payoff matrix below for the profits (in $ millions) of two firms (X and Y) making a decision to advertise or not. Which of the following is the outcome of the dominant strategy without cooperation?
Both firm X and firm Y choose not to advertise.
Both firm X and firm Y choose to advertise.
Firm X chooses to advertise while firm Y chooses not to advertise.
Firm X chooses not to advertise while firm Y chooses to advertise.

Question 30.
Cheating in a cartel is more likely to occur if the industry __________.
has a large number of firms
has homogeneous products
has easily observable prices
has little variation in prices

Question 31.
A firm will not hire additional workers once __________.
it earns accounting profits
the additional cost of a worker equals the additional revenue from the worker
total product is rising
the company reaches its breakeven output level

Question 32.
When the demand curve for an input is a derived demand this means that __________.
the demand curve is derived from the demand for the final product being produced
the demand curve depends upon the MFC
the law of diminishing marginal product does not hold
the demand curve slopes upward

Question 33.
The equilibrium wage rate in an industry is determined by __________.
finding where the market supply curve indicates that the substitution effect and income effect of a wage increase are offsetting
the intersection of the market demand curve for labor and the market supply curve for labor
the strength of the substitution effect relative to the elasticity of demand for labor
whether workers or management are better at negotiating