Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) When the price of a good increases, ceteris paribus, the: 1) _______
a) quantity demanded of the good will decrease.
b) demand for the good will decrease.
c) demand for the good will increase.
d) quantity demanded of the good will increase.

2) Which of the following is not correct? 2) _______
a) Both demand schedules and demand curves reveal the law of demand.
b) By itself, a demand curve shows what the market price is.
c) Demand schedules are tables relating quantity demanded to possible prices.
d) Demand curves slope downward and to the right on a price-quantity diagram.

3) Holding everything else constant, a decrease in the price of GPS systems will result in: 3) _______
a) a decrease in the quantity of GPS systems demanded.
b) an increase in the quantity of GPS systems demanded.
c) a decrease in the supply of GPS systems.
d) an increase in the demand for GPS systems.

4) The substitution effect results in: 4) _______
a) buyers buying more of a relatively cheaper good.
b) sellers producing products when input prices fall.
c) buyers buying more of a good because their purchasing power has increased.
d) sellers substituting less expensive inputs in production.

5) The income effect occurs when: 5) _______
a) sellers hire more workers because buyers' incomes have increased.
b) buyers buy more of a good because their purchasing power has increased.
c) sellers produce more output because their profit has increased.
d) buyers buy more of a relatively cheaper good.

6) An increase in the demand for bananas will not be caused by: 6) _______
a) a drop in the market price of bananas.
b) a rise in the price of apples.
c) news that bananas help relieve stress in people.
d) buyers switching to a more healthy diet.

7) If the demand for cars increases when the price of petrol decreases, then: 7) _______
a) the two goods are substitutes.
b) cars are an inferior good.
c) petrol is a normal good.
d) the two goods are complementary.

8) Which of the following pairs of goods would be the best example of substitutes? 8) _______
a) Petrol and cars.
b) Cooking oil and golf balls.
c) Computers and printers.
d) Lamb and beef.

9) With a normal good: 9) _______
a) if buyers expect a higher future price, demand will increase today.
b) as price decreases, the quantity demanded decreases.
c) as consumer income increases, demand increases.
d) as price increases, the quantity demanded decreases.

10) If a decrease in income leads to an increase in the demand for macaroni, then macaroni is: 10) ______
a) a neutral good.
b) a necessity.
c) an inferior good.
d) a normal good.

Refer to Figure 1 for the following questions.

Figure 1



11) Refer to Figure 1. An increase in the price of a complement would be represented by a movement
from:
11) ______
a) B to A.
b) D
2
to D
1
.
c) D
1
to D
2
.
d) A to B.

12) If there is a surplus in a market, then the market is brought back into equilibrium by: 12) ______
a) price falling.
b) quantity supplied falling.
c) quantity demanded rising.
d) All of these options are correct.

13) The existence of a shortage in a market will cause the market price to: 13) ______
a) rise and quantity demanded to increase.
b) fall and quantity demanded to decrease.
c) fall and quantity demanded to increase.
d) rise and quantity demanded to decrease.

Refer to Figure 2 for the following questions.

Figure 2



14) Refer to Figure 2. If the price is $25, there would be a: 14) ______
a) shortage of 200 units.
b) shortage of 300 units.
c) surplus of 300 units.
d) surplus of 200 units.

Refer to Figure 3.4 for the following questions.

Figure 3.4



15) Refer to Figure 3.4. Assume that the graphs in this figure represent the demand and supply
curves for blu-ray discs. Which panel best describes what happens in this market if there is a
substantial increase in the price of blu-ray players?
15) ______
a) Panel (a)
b) Panel (b)
c) Panel (c)
d) Panel (d)

16) Refer to Figure 3.4. Assume that the graphs in this figure represent the demand and supply
curves for laptop computers. Which panel best describes what happens in this market when the
price of computer hard drives (a production input into laptops) falls?
16) ______
a) Panel (a)
b) Panel (b)
c) Panel (c)
d) Panel (d)

17) Assume that the prices of airline tickets (assuming airline tickets are normal goods) have fallen
in recent months. Over this same period, assume that the price of jet fuel has risen and consumer
incomes have fallen. Which of the following best explains the falling prices of airline tickets?
17) ______
a) The demand curve and the supply curve for airline tickets have both shifted to the right.
b) The demand curve for airline tickets has shifted to the left by more than the supply curve
has shifted to the left.
c) The supply curve for airline tickets has shifted to the right while the demand curve for
airline tickets has shifted to the left by a greater amount than the supply shift.
d) The supply curve for airline tickets has shifted to the left by more than the demand curve
has shifted to the left.

18) Since a consumer's demand curve shows the maximum price a consumer will pay for each unit
of the good, it also shows the consumer's:
18) ______
a) total benefit.
b) average benefit.
c) per capita benefit.
d) marginal benefit.

19) If you would have been willing to pay $10 for a pizza and you only had to pay $8, what does the
difference between $10 and $8 represent?
19) ______
a) Total benefit.
b) Average benefit.
c) Marginal benefit.
d) Consumer surplus.

20) Which of the following statements best describes the concept of consumer surplus? 20) ______
a) "I was going to pay $300 for new sunglasses that I had seen in the Oakley store but I ended
up paying only $240 for the same sunglasses."
b) "Target was having a sale on socks so I bought 5 pairs."
c) "I paid $300 for a microwave oven last week. This week the same store is selling the same
microwave oven for $250."
d) "I sold my hard copy of Harry Potter and the Half-Blood Prince to a used book store for $10
even though I was willing to sell it for $5."

21) If a producer is willing to sell a unit of output at $15 and the market price is $20, the $5
difference is:
21) ______
a) producer surplus.
b) consumer surplus.
c) average profit.
d) total profit.

Refer to Figure 4 for the following questions.

Figure 4



22) Refer to Figure 4. What area represents producer surplus at a price of P
1
? 22) ______
a) C
b) A + C + E
c) C + E
d) A + C

23) If marginal benefits equal marginal costs, then: 23) ______
a) more needs to be produced.
b) economic efficiency has been achieved.
c) less needs to be produced.
d) economic efficiency has not been reached.

24) If marginal benefits in a market equal $556, while extra costs are $678, then economic efficiency: 24) ______
a) has not been achieved and more needs to be produced.
b) cannot be achieved.
c) has not been achieved and less needs to be produced.
d) has been achieved.

Refer to Figure 5.3 for the following questions.

Figure 5.3



25) Refer to Figure 5.3. The figure above represents the market for iced tea. Assume that this is a
competitive market. At a price of $3:
25) ______
a) producers should lower the price to $1 in order to sell the quantity demanded of 10 000.
b) the marginal cost of iced tea is greater than the marginal benefit, therefore output is
inefficiently low.
c) the marginal benefit of iced tea is greater than the marginal cost, therefore output is
inefficiently high.
d) the marginal benefit of iced tea is greater than the marginal cost, therefore output is
inefficiently low.

26) Some consumers lobby the government to convince law makers to impose price ceilings, so that
they can:
26) ______
a) earn more income.
b) receive a larger producer surplus.
c) buy at prices lower than producer costs of production.
d) receive a larger consumer surplus.

27) People who are able to rent apartments benefit from rent controls because: 27) ______
a) they find that their apartments are kept in better shape.
b) the lower rent lets them capture some producer surplus.
c) it is easier to find an apartment in a desirable location.
d) there are more apartments to rent.

28) The European Union, the USA and Japan all use price floors on their agricultural products. The
effect is to:
28) ______
a) decrease the quantity of agricultural products supplied.
b) decrease domestic demand for agricultural products at this higher price.
c) increase domestic demand for agricultural products at this lower price.
d) increase domestic and international demand for agricultural products at this lower price.

29) A price floor invariably creates a surplus of the commodity affected, which means: 29) ______
a) the good under the price floor has become more plentiful.
b) the commodity is no longer scarce.
c) at the price floor, quantity supplied is greater than quantity demanded.
d) at the price floor, quantity demanded is greater than quantity supplied.

30) A black market is when: 30) ______
a) buying and selling take place at prices that violate government price regulations.
b) quantity demanded is greater than quantity supplied.
c) economic surplus is very low.
d) quantity supplied is greater than quantity demanded.

1) a
2) b
3) b
4) a
5) b
6) a
7) d
8) d
9) c
10) c
11) b
12) d
13) d
14) c
15) d
16) a
17) b
18) d
19) d
20) a
21) a
22) a
23) b
24) c
25) d
26) d
27) b
28) b
29) c
30) a