1. A government wants to reduce electricity consumption by 10%.

The price elasticity

of demand for electricity is -5. The government must ________ the price of electricity
by ________.
A) raise; 2.0%
B) raise; 0.5%
C) raise; 1.25%
D) lower; 0.5%

2. The owner of a local hot dog stand has estimated that if he lowers the price of hot
dogs from $2.00 to $1.50, he will increase sales from 400 to 500 hot dogs per day.
Using the midpoint formula, the demand for hot dogs is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.

3. Which of the following best explains why demand is often more elastic in the long
run than it is in the short run?
A) When demand is elastic, price increases reduce revenue because a small price
increase will lead to a large decrease in quantity demanded.
B) In the long run, consumers have greater access to substitutes.
C) Consumers tend to postpone making purchasing decisions as long as possible.
D) In the short run, prices can change rapidly, but in the long run they are more
stable.

4. The ABC Computer Company spends a lot of money for advertising designed to
convince you that their personal computers are superior to all other personal
computers. If the ABC Company is successful, the demand for ABC personal
computers
A) and the demand for other firms personal computers will become less price elastic.
B) and the demand for other firms personal computers will become more price
elastic.
C) will become more price elastic, but the demand for other firms personal computers
will become less price elastic.
D) will become less price elastic, but the demand for other firms personal computers
will become more price elastic.

5. Suppose a 10% increase in the price of steak reduces the consumption of steak by
30%. Such a price rise will induce households to spend
A) less of their income on steak.
B) more of their income on steak.
C) the same amount on steak as before.
D) more on products that are complementary with steak.

6. Jane has $500 a week to spend on clothing and food. The price of clothing is $25
and the price of food is $10. The clothing and food pairs in Jane's choice set include
________ units of clothing and ________ units of food.
A) 50; 50
B) 20; 50
C) 15; 25
D) 8; 30

Refer to the information provided in Figure 6.1 below to answer the questions that
follow.

Figure 6.1

7. Refer to Figure 6.1. Assume Tom is on budget constraint AC and the price of a
hamburger is $4.00. Tom's monthly income is
A) $20.
B) $60.
C) $80.
D) $100.

8. Refer to Figure 6.1. The slope of budget constraint AC is

A) -5.0.
B) -2.0.
C) -0.5.
D) indeterminate from this information because prices are not given.

9. Refer to Figure 6.1. Assume Tom's budget constraint is AC. He does NOT spend
his entire income at point
A) A.
B) B.
C) E.
D) D.

10. Refer to Figure 6.1. Along budget constraint AC, the opportunity cost of one
hamburger
A) is 1/4 of a hot dog.
B) is 1/2 of a hot dog.
C) is 2 hot dogs.
D) changes as you move down along the budget constraint.
11. Michael can buy either pizzas or submarine sandwiches. If the prices of pizzas
and submarine sandwiches double and so does Michael's money income, we can
conclude that Michael's budget constraint will
A) shift in but remain parallel to the old one.
B) shift out but remain parallel to the old one.
C) swivel in so that the slope of the budget constraint is doubled.
D) remain unchanged.

12. The price system

A) automatically distributes scarce goods.
B) is inefficient.
C) requires government help to allocate goods.
D) is the only way to allocate goods.

13. When acquiring a ticket for a play takes a significant amount of time, the true
economic cost of that ticket would include all of the following factors EXCEPT
A) the amount of time spent acquiring the ticket.
B) the utility provided by seeing the play.
C) the earning power of the person acquiring the ticket.
D) the purchase price of the ticket.

14. When there is overproduction in a market,

A) market price is too low.
B) there is excess quantity demanded.
C) the total of consumer and producer surplus is maximized.
D) there is a deadweight loss.

15. A frozen food manufacturer can produce either pizzas or calzones. As the result of
an increase in the price of calzones, the firm produces more calzones and fewer
pizzas. An economist would explain this by saying
A) the supply of calzones increased and the supply of pizzas decreased.
B) there has been an increase in the quantity supplied of calzones and a decrease in
the quantity supplied of pizzas.
C) there has been an increase in the quantity supplied of calzones and a decrease in
the supply of pizza.
D) the supply of calzones increased and the quantity supplied of pizza decreased.
Refer to the information provided in Figure 3.14 below to answer the following
questions.

Figure 3.14

16. Refer to Figure 3.14. A decrease in the wage rate of pizza makers will cause a
movement from Point B on supply curve S2 to
A) Point A on supply curve S2.
B) Point B on supply curve S2.
C) supply curve S3.
D) supply curve S1.

17. Refer to Figure 3.14. An increase in supply is represented by the movement from
A) S2 to S3.
B) S2 to S1.
C) Point B to Point A along supply curve S2.
D) Point B to Point C along supply curve S2.

18. Refer to Figure 3.14. A decrease in quantity supplied is represented by a

movement from
A) S2 to S3.
B) S2 to S1.
C) Point B to Point A along supply curve S2.
D) Point B to Point C along supply curve S2.

19. Refer to Figure 3.14. An increase in the price of pizza sauce will cause a
movement from Point B on supply curve S2 to
A) supply curve S3.
B) supply curve S1.
C) Point A on supply curve S2.
D) Point C on supply curve S2.
20. Refer to Figure 3.14. A movement from Point A to Point B on supply curve S2
would be caused by a(n)
A) increase in the price of pizza.
B) decrease in the demand for pizza.
C) increase in the price of pizza dough.
D) increase in the price of hamburgers, assuming hamburgers are a substitute for
pizza.

21. If the price ceiling is set above the equilibrium price,

A) quantity demanded will equal quantity supplied.
B) there will be a surplus.
C) there will be a shortage.
D) demand will be less than supply.

22. The cost involved when choosing between alternatives is known as the
A) marginal cost.
B) sunk cost.
C) opportunity cost.
D) normative cost.

Refer to the information provided in Figure 2.1 below to answer the questions that
follow.

Figure 2.1

23. Refer to Figure 2.1. Macroland is currently operating at Point A. The best
explanation for this is that
A) the economy has very poor technology.
B) the economy's resources are being used inefficiently.
C) the economy has very few resources.
D) the economy operates as an efficient market.

24. Refer to Figure 2.1. The shape of Macroland's production possibility frontier
shows
A) increasing opportunity costs.
B) constant opportunity costs.
C) decreasing opportunity costs.
D) random opportunity costs.
25. Health insurance should be provided to every citizen in a wealthy nation such as
the United States. This statement is best described as
A) a positive statement.
B) a normative statement.
C) a descriptive economics statement.
D) an implication of an efficient market.

26. Which of the following is held constant along the demand curve?
A) price of the good
B) quantity
C) income
D) both A and B

Refer to the information provided in Scenario 3.1 below to answer the questions
that follow.

SCENARIO 3.1: Rented DVDs and movies shown in theaters are substitutes. Rented
DVDs and plasma TVs are complements. Plasma TVs and movies shown in theaters
are normal goods. People watch rented DVDs more often in the winter than in the
summer.

27. Refer to Scenario 3.1. Most plasma TVs sold in the United States are imported
from Japan. If the United States government reduces the number of plasma TVs that
can be imported into the United States, ceteris paribus, what would happen?
A) The price of plasma TVs and the rental price of DVDs would decrease.
B) The price of plasma TVs would decrease and the rental price of DVDs would
increase.
C) The price of plasma TVs would increase and the rental price of DVDs would
decrease.
D) The price of plasma TVs and the rental price of DVDs would increase.

28. Refer to Scenario 3.1. To raise additional revenues, the government imposes an
entertainment tax on movie tickets, but there are no new additional taxes levied on
rented DVDs. This would lead to
A) an increase in the price of movie tickets, but no change in the rental price of
DVDs.
B) an increase in the price of movie tickets and the rental price of DVDs.
C) an increase in the price of a movie ticket and a decrease in the rental price of
DVDs.
D) no change in the price of a movie ticket and an increase in the rental price of
DVDs.

29. Refer to Scenario 3.1. You observe that the rental price for DVDs is higher in the
winter than in the summer. This would be explained by the fact that
A) demand for rented DVDs is higher in the winter than in the summer.
B) the quantity demanded of rented DVDs is higher in the winter than in the summer.
C) there are more DVDs released into the rental market in the winter than in the
summer.
D) consumer income tends to fall in the winter and increase in the summer.
30. If the price ceiling is set below the equilibrium price,
A) quantity demanded will equal quantity supplied.
B) there will be a surplus.
C) there will be a shortage.
D) demand will be less than supply.

31. To isolate the impact of one single factor, economists invoke the assumption of
A) inductive reasoning.
B) Ockham's razor.
C) ceteris paribus.
D) post hoc, ergo prompter hoc.

32. It is necessary to ration a good whenever ________ exists.

A) excess demand
B) excess supply
C) a surplus
D) market equilibrium

33. As more of a good, such as television sets, is produced, the opportunity costs of
producing it increases. This most likely occurs because
A) as more of a good is produced the inputs used to produce that good will increase in
price.
B) consumers would be willing to pay higher prices for the good as more of the good
is produced.
C) resources are not equally well suited to producing all goods and as more of a good
is produced it is necessary to use resources less well suited to the production of that
good.
D) as more of a good is produced the quality of that good declines and therefore the
costs of production increase.

Answers:
1. A
2. B
3. B
4. D
5. A
6. D
7. C
8. B
9. C
10. C
11. D
12. A
13. B
14. D
15. C
16. C
17. A
18. D
19. B
20. B
21. A
22. C
23. B
24. A
25. B
26. C
27. C
28. B
29. A
30. C
31. C
32. A
33. C