Microeconomics MCQ 1

1. ‘Economics is the study of mankind in the ordinary business of life’ .
This
definition was given by : –
(a) Adam Smith

(b) Lord Robbins
(c) Alfred Marshall
(d) Samuelson
2. The branch of economic theory, that deals with the problem of allocation of
resources is :
(a) Micro Economics

(b) Macro Economics
(c) Econometrics
(d) None of these
3. A study of how increase in the corporate income tax rate , will affect the natural
unemployment rate is an example of :
(a) Macro Economics

(b) Descriptive Economics
(c) Micro Economics
(d) Normative Economics
4. If a point falls inside the production possibility curve, what does it indicate ?
(a) Resources are over utilized

(b) Resources are under utilized
(c) There is employment in the economy
(d) Both (b) and (c)
5. In which type of economy do consumers and producers make their choices based
on the market forces of demand and supply?
(a) Open Economy

(b) Controlled Economy
(c) Command Economy
(d) Market Economy
6. Under a free economy, prices are :
(a) Regulated
(b) Determined through free interplay of demand and supply
(c) Partly regulated.
(d) None of these
7. Which of the following falls under micro economics ?
(a) National income

(b) General price level
(c) Factor pricing
(d) National saving and investment
8. In a free market economy, when consumers increase their purchase of a goods and
the level of _______ exceeds _______ then prices tend to rise
(a) Demand, Supply

(b) Supply, Demand
(c) Prices, Demand
(d) Profits, Supply
9. Under Inductive method, the logic proceeds from :
(a) General to particulars

(b) Particular to general
(c) Both (a) and (b)
(d) None
10. According to Robbins, ‘means’ are:
(a) Scarce
(b) Unlimited
(c) Undefined
(d) All of these
Chapter 1 (Introduction) and Chapter 2 Part A (The Economics of
Crime) Gerald Pech, Microeconomics
q
True/False
Indicate whether the sentence or statement is true or false.
1. If there were no scarcity, economics would still give valuable insights.
2. When economists say, "There is no such thing as a free lunch," they mean that all
economic decisions involve trade-offs.
3. The expected value of a variable is the sum of all possible values which this
variable can take, weighted with the probability that the variable takes each value.
4. Rational people act only when the marginal benefit of the action exceeds the
marginal cost.
5. If the opportunity cost of going to prison for some person falls, this person is less
likely to commit a criminal act.
6. When there are more policemen on the ground, the probability of getting caught
when committing a crime increases, hence the expected cost of committing a
crime increases as well.
7. Rioting can be explained as a "tipping-point" phenomenon.
8. An unintended consequence of public support for higher education is that low

tuition provides an incentive for many people to attend state universities even if
they have no desire to learn anything.
9. Sue is better at cleaning and Bob is better at cooking. It will take fewer hours to
eat and clean if Bob specializes in cooking and Sue specializes in cleaning than if
they share the household duties evenly.
10. Scientists collect and analyze data to verify or refute their theories.
11. A successful scientist formulates theories such that under no circumstances can
they be falsified.
12. A car manufacturer should continue to produce additional cars as long as the firm
is profitable, even if the cost of the additional units exceeds the price received.
13. To the statistician, CAUSE is essentially the same thing as CORRELATION.
14. To a student, the opportunity cost of going to a football match would include the
price of the ticket and the value of the time that could have been spent studying.
15. In a natural experiment, some exogenous force (i.e. something which is itself
unaffected by what we want to explain) changes only the factor which the
econometrician believes to be the cause of some observed result.
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
16. Which of the following involve a trade-off?

a. Taking a nap
b. All of these answers involve trade-offs.
c. Watching a football game on Saturday afternoon
d. Going to university
e. Buying a new car
ANSWER: B
POINTS: 0 / 1
17. Trade-offs are required because wants are unlimited and resources are
a. economical.
b. unlimited.
c. efficient.
d. marginal.
e. scarce.
ANSWER: E
POINTS: 0 / 1
18. Economics is the study of

a. how society manages its unlimited resources.
b. how to reduce our wants until we are satisfied.
c. how society manages its scarce resources.
d. how to fully satisfy our unlimited wants.
e. how to avoid having to make trade-offs.
ANSWER: C
POINTS: 0 / 1
19. A rational person does not act unless

a. the action is ethical.
b. the action produces marginal costs that exceed marginal benefits.
c. the action produces marginal benefits that exceed marginal costs.
d. the action makes money for the person.
e. none of these answers.
ANSWER: C
POINTS: 0 / 1
20. Which of the following is NOT a natural experiment capable of verifying or

refuting the theory you want to test?
a. Theory: Immigration has a negative effect on the wages of the local
workforce. Experiment: For political reasons, there is a sudden influx of
people from Cuban into Miami which is unparalleled in any other major
American city.
b. Theory: A law which forces employers to pay a minimum wage reduces
employment. Experiment: The state of New Jersey introduces a minimum
wage law but Pennsylvania does not.
c. Theory: Legalising abortion has a negative effect on crime rates one
generation later. Experiment: Some American states legalize abortion in
1970, three years before abortion is made legal in all American states.
d. All the cases produce natural experiments which are capable of explaining
the respective theory.
e. Your theory: Incomes in university towns are higher than in other towns.
Experiment: The government runs a program to build new universities
mainly in poor regions.
ANSWER: E
POINTS: 0 / 1
21. Suppose you find €20. If you choose to use the €20 to go to a football match, your
opportunity cost of going to the game is
a. nothing, because you found the money.
b. €20 (because you could have used the €20 to buy other things) plus the
value of your time spent at the game.
c. €20 (because you could have used the €20 to buy other things) plus the
value of your time spent at the game, plus the cost of the dinner you
purchased at the game.
d. €20 (because you could have used the €20 to buy other things).
e. none of these answers
ANSWER: B
POINTS: 0 / 1
22. Since people respond to incentives, we would expect that, if the average salary of
accountants increases by 50% while the average salary of teachers increases by
20%, then
a. fewer students will take degree courses in accounting and more will take
education courses.
b. fewer students will take degree courses in education and more will take
accounting courses.
c. fewer students will attend university.
d. none of these answers.
ANSWER: B
POINTS: 0 / 1
23. Which of the following is not part of the opportunity cost of going on holiday?
a. the money you spent on a theatre show there
b. the money you could have made if you had stayed at home and worked
c. the money you spent on food
d. the money you spent on airline tickets.
ANSWER: C
POINTS: 0 / 1
24. Which of the following statements is true about a market economy?

a. With a large enough computer, central planners could guide production
more efficiently than markets.
b. By following their self-interest, In a market the self-interested actions of
market participants are co-ordinated in such a way as to bring about an
outcome from which everybody benefits.
c. The strength of a market system is that it tends to distribute resources
evenly across consumers.
d. Taxes help prices communicate costs and benefits to producers and
consumers.
ANSWER: B
POINTS: 0 / 1
25. You are planning to run a hot dog stand during a forthcoming fair. You originally
estimated that you will generate sales revenue of €2000 and you have already spent
€1000 building the hot dog stand. The hot dog stand is nearly completed but now
you estimate total sales to be only €800 because the fair clashes with a major music
festival in a nearby location.. You can complete the hot dog stand for another €300.
Should you complete the hot dog stand? (Assume that there are no other costs - the
hot dogs are costless to you.)
a. There is not enough information to answer this question.
b. Yes.
c. No.
ANSWER: B
POINTS: 0 / 1
26. You are planning to run a hot dog stand during a forthcoming fair. You originally
estimated that you will generate sales revenue of €2000 and you have already spent
€1000 building the hot dog stand. The hot dog stand is nearly completed but now
you estimate total sales to be only €800 because the fair clashes with a major music
festival in a nearby location.. You can complete the hot dog stand for another €300.
Your decision rule should be to complete the hot dog stand as long as the cost to
complete the stand is less than
a. €300
b. €100
c. €500
e. €800
Chapter 2: PPF Microeconomics ECN 2103
True/False
1. If an economy is operating on its production possibilities frontier, it must produce

less of one good if it produces more of another.
ANSWER: undefined
POINTS: 0 / 1
2. Points outside the production possibilities frontier are attainable but inefficient.
ANSWER: F
POINTS: 0 / 1
3. If an economy were experiencing substantial unemployment, the economy is

producing inside the production possibilities frontier.
ANSWER: T
POINTS: 0 / 1
4. The production possibilities frontier is bowed outward because the trade-offs

between the production of any two goods are constant.
ANSWER: F
POINTS: 0 / 1
5. An advance in production technology would cause the production possibilities

curve to shift outward.
ANSWER: T
POINTS: 0 / 1
6. Macroeconomics is concerned with the study of how households and firms make
decisions and how they interact in specific markets.
ANSWER: F
POINTS: 0 / 1
7. The statement, "An increase in inflation tends to cause unemployment to fall in the
short run," is normative.
ANSWER: F
POINTS: 0 / 1
8. When economists make positive statements, they are more likely to be acting as
scientists.
ANSWER: T
POINTS: 0 / 1
9. Normative statements can be refuted with evidence.
ANSWER: F
POINTS: 0 / 1
10. Most economists believe that tariffs and import quotas usually reduce general
economic welfare.
ANSWER: T
POINTS: 0 / 1
11. The scientific method requires that

a. the scientist be objective.
b. the scientist use precision equipment.
c. only correct theories are tested.
d. only incorrect theories are tested.
e. the scientist use test tubes and have a clean lab.
ANSWER: A
POINTS: 0 / 1
12. Which of the following is most likely to produce scientific evidence about a
theory?
a. A lawyer employed by Renault addressing the impact of air bags on
passenger safety.
b. An economist permanently employed at a leading university analysing the
impact of bank regulations on lending to small businesses.
c. An economist employed by the Trades Union Congress doing research on
the impact of trade policy on workers' wages.
d. A radio talk show host collecting data from listeners on how capital markets
respond to taxation.
ANSWER: B
POINTS: 0 / 1
13. Which of the following is not a factor of production?

a. labour
b. land
c. money
d. capital
e. All of these answers are factors of production.
ANSWER: C
POINTS: 0 / 1
14. Points on the production possibilities frontier are

a. inefficient.
b. normative.
c. unattainable.
d. efficient.
ANSWER: D
POINTS: 0 / 1
15. Which of the following will not shift a country's production possibilities frontier
outward?
a. an advance in technology
b. an increase in the labour force
c. an increase in the capital stock
d. a reduction in unemployment
ANSWER: D
POINTS: 0 / 1
Multiple Choice
16. Economic growth is depicted by

a. a shift in the production possibilities frontier outward.
b. a movement from inside the curve toward the curve.
c. a shift in the production possibilities frontier inward.
d. a movement along a production possibilities frontier toward capital goods.
ANSWER: A
POINTS: 0 / 1
17. Refer to Exhibit 6. If the economy is operating at point C, the opportunity cost of
producing an additional 20 units of bacon is
a. 40 units of eggs.
b. 10 units of eggs.
c. 20 units of eggs.
d. 30 units of eggs.
e. 50 units of eggs.
ANSWER: E
POINTS: 0 / 1
18. Refer to Exhibit 6. If the economy were operating at point E,
a. the opportunity cost of 20 additional units of eggs is 10 units of bacon.

b. the opportunity cost of 20 additional units of eggs is 20 units of bacon.
c. the opportunity cost of 20 additional units of eggs is 30 units of bacon.
d. 20 additional units of eggs can be produced with no impact on bacon
production.
ANSWER: D
POINTS: 0 / 1
19. Refer to Exhibit 6. Point F represents
a. none of these answers.

b. a combination of production that can be reached if we reduce the production
of eggs by 20 units.
c. a combination of production that can be reached if there is a sufficient
advance in technology.
d. a combination of production that is inefficient because there are
unemployed resources.
ANSWER: C
POINTS: 0 / 1
20. Refer to Exhibit 6. As we move from point A to point D,
a. the opportunity cost of eggs in terms of bacon falls.

b. the opportunity cost of eggs in terms of bacon rises.
c. the opportunity cost of eggs in terms of bacon is constant.
d. the economy becomes less efficient.
e. the economy becomes more efficient.
ANSWER: B
POINTS: 0 / 1
21. Which of the following statements is normative?

a. Large government deficits cause an economy to grow more slowly.
b. People work harder if the wage is higher.
c. The unemployment rate should be lower.
d. Printing too much money causes inflation.
ANSWER: C
POINTS: 0 / 1
22. Positive statements are

a. macroeconomic.
b. microeconomic.
c. statements of description that can be tested.
d. statements of prescription that involve value judgments.
ANSWER: C
POINTS: 0 / 1
Chapter 3: Gains from trade Microeconomics ECN2103
True/False
1. If Japan has an absolute advantage in the production of an item, it must also have a
comparative advantage in the production of that item.
ANSWER: F
POINTS: 0 / 1
2. Comparative advantage, not absolute advantage, determines the decision to

specialize in production.
ANSWER: T
POINTS: 0 / 1
3. Absolute advantage is a comparison based on productivity.
ANSWER: T
POINTS: 0 / 1
4. Self-sufficiency is the best way to increase one's material welfare.
ANSWER: F
POINTS: 0 / 1
5. Comparative advantage is a comparison based on opportunity cost.
ANSWER: T
POINTS: 0 / 1
6. A given amount of goods is distributed in the most efficient way if there are no
more gains from trade.
ANSWER: T
POINTS: 0 / 1
7. If a country's workers can produce 5 hamburgers per hour or 10 bags of French

fries per hour, absent trade, the price of 1 bag of fries is 2 hamburgers.
ANSWER: F
POINTS: 0 / 1
8. If producers have different opportunity costs of production, trade will allow them
to consume outside their production possibilities frontiers.
ANSWER: T
POINTS: 0 / 1
9. If trade benefits one country, its trading partner must be worse off due to trade.
ANSWER: F
POINTS: 0 / 1
10. Talented people that are the best at everything have a comparative advantage in the
production of everything.
ANSWER: F
POINTS: 0 / 1
11. The gains from trade can be measured by the increase in total production that
comes from specialization.
ANSWER: T
POINTS: 0 / 1
12. When a country removes a specific import restriction, it always benefits every
worker in that country.
ANSWER: F
POINTS: 0 / 1
13. If Germany's productivity doubles for everything it produces, this will not alter its
prior pattern of specialization because it has not altered its comparative advantage.
ANSWER: T
POINTS: 0 / 1
14. If an advanced country has an absolute advantage in the production of everything,

it will benefit if it eliminates trade with less developed countries and becomes
completely self-sufficient.
ANSWER: F
POINTS: 0 / 1
15. If gains from trade are based solely on comparative advantage, and if all countries
have the same opportunity costs of production, then there are no gains from trade.
ANSWER: T
POINTS: 0 / 1
Multiple Choice
16. Which of the following claims is NOT true? A distribution of a given amount of
goods is inefficient,
a. if some can still be made better off without making someone else worse off.
b. if there are still mutually beneficial trades which can be realized.
c. if I am unhappy with what I have but I cannot find a trading partner because
everybody else is happy with what they have.
d. if everybody s wellbeing can be increased simultaneously.
e. when everybody has been given the same amount of goods although tastes
are different and trade is prohibited.
ANSWER: C
POINTS: 0 / 1
17. If a nation has a comparative advantage in the production of a good,

a. it can produce that good at a lower opportunity cost than its trading partner.
b. it can benefit by restricting imports of that good.
c. it can produce that good using fewer resources than its trading partner.
d. it must be the only country with the ability to produce that good.
ANSWER: A
POINTS: 0 / 1
18. Which of the following statements about trade is true?

a. Unrestricted international trade benefits every person in a country equally.
b. Trade can benefit everyone in society because it allows people to specialize
in activities in which they have a comparative advantage.
c. People that are skilled at all activities cannot benefit from trade.
d. Trade can benefit everyone in society because it allows people to specialize
in activities in which they have an absolute advantage.
ANSWER: B
POINTS: 0 / 1
19. According to the principle of comparative advantage,

a. countries should specialize in the production of goods that they enjoy
consuming.
b. countries with a comparative advantage in the production of every good
need not specialize.
c. countries should specialize in the production of goods for which they have a
lower opportunity cost of production than their trading partners.
d. countries should specialize in the production of goods for which they use
fewer resources in production than their trading partners.
ANSWER: C
POINTS: 0 / 1
20. Which of the following statements is true?

a. A self-sufficient country can, at best, consume on its production
possibilities frontier.
b. Only countries with an absolute advantage in the production of every good
should strive to be self-sufficient.
c. A self-sufficient country consumes outside its production possibilities
frontier.
d. Self-sufficiency is the road to prosperity for most countries.
ANSWER: A
POINTS: 0 / 1
21. Suppose a country's workers can produce 4 watches per hour or 12 rings per hour.
If there is no trade,
a. the domestic price of 1 ring is 1/4 of a watch.
b. the domestic price of 1 ring is 3 watches.
c. the domestic price of 1 ring is 1/3 of a watch.
d. the domestic price of 1 ring is 12 watches.
e. the domestic price of 1 ring is 4 watches.
ANSWER: C
POINTS: 0 / 1
22. Suppose a country's workers can produce 4 watches per hour or 12 rings per hour.
If there is no trade,
a. the opportunity cost of 1 watch is 1/4 of a ring.
b. the opportunity cost of 1 watch is 4 rings.
c. the opportunity cost of 1 watch is 3 rings.
d. the opportunity cost of 1 watch is 12 rings.
e. the opportunity cost of 1 watch is 1/3 of a ring.
ANSWER: C
POINTS: 0 / 1
23. The figure shows how much a worker can produce in one day. Which of the
following statements about absolute advantage is true?
a. Australia has an absolute advantage in the production of food while Korea
has an absolute advantage in the production of electronics.
b. Korea has an absolute advantage in the production of food while Australia
has an absolute advantage in the production of electronics.
c. Australia has an absolute advantage in the production of both food and
electronics.
d. Korea has an absolute advantage in the production of both food and
electronics.
ANSWER: C
POINTS: 0 / 1
24. The figure shows how much a worker can produce in one day. The opportunity
cost of 1 unit of electronics in Korea is
a. 4 units of food.
b. 5 units of food.
c. 1/5 of a unit of food.
d. 1/4 of a unit of food.
ANSWER: A
POINTS: 0 / 1
cost of 1 unit of electronics in Australia is
a. 4 units of food.
b. 1/4 units of food.
c. 2 units of food.
d. 1/2 of a unit of food.
ANSWER: C
POINTS: 0 / 1
cost of 1 unit of food in Korea is
a. 1/5 of a unit of electronics.

b. 5 units of electronics.
c. 4 units of electronics.
d. 1/4 of a unit of electronics.
ANSWER: D
POINTS: 0 / 1
cost of 1 unit of food in Australia is
a. 1/2 of a unit of electronics.

b. 1/4 units of electronics.
c. 2 units of electronics.
d. 4 units of electronics.
ANSWER: A
POINTS: 0 / 1
28. The figure shows how much a worker can produce in one day. Which of the
following statements about comparative advantage is true?
a. Australia has a comparative advantage in the production of both food and

electronics.
b. Korea has a comparative advantage in the production of both food and
electronics.
c. Korea has a comparative advantage in the production of food while
Australia has a comparative advantage in the production of electronics.
d. Australia has a comparative advantage in the production of food while
Korea has a comparative advantage in the production of electronics.
e. Neither country has a comparative advantage.
ANSWER: C
POINTS: 0 / 1
29. The figure shows how much a worker can produce in one day. Australia should
a. specialize in electronics production, export electronics, and import food.

b. produce neither good because it has an absolute disadvantage in the
production of both goods.
c. produce both goods because neither country has a comparative advantage.
d. specialize in food production, export food, and import electronics
ANSWER: A
POINTS: 0 / 1
30. The figure shows how much a worker can produce in one day. Prices of electronics
can be stated in terms of units of food. What is the range of prices of electronics for
which both countries could gain from trade?
a. The price must be greater than 1/5 of a unit of food but less than 1/4 of a
unit of food.
b. The price must be greater than 4 units of food but less than 5 units of food.
c. The price must be greater than 2 of a unit of food but less than 4 of a unit of
food.
d. The price must be greater than 1/4 units of food but less than 1/2 units of
food.
ANSWER: C
POINTS: 0 / 1
31. Suppose the world consists of two countries: the UK and Spain. Further, suppose
there are only two goods--food and clothing. Which of the following statements is
true?
a. If the UK has an absolute advantage in the production of food, then Spain
must have an absolute advantage in the production of clothing.
b. none of these answers.
c. If the UK has a comparative advantage in the production of food, Spain
might also have a comparative advantage in the production of food.
d. If the UK has a comparative advantage in the production of food, it must
also have a comparative advantage in the production of clothing.
e. If the UK has a comparative advantage in the production of food, then
Spain must have a comparative advantage in the production of clothing.
ANSWER: E
POINTS: 0 / 1
32. Use the production possibilities frontiers in Exhibit 4 to answer the question.
Assume each country has the same number of workers, say 20 million, and that
each axis is measured in metric tons per month. Argentina has a comparative
advantage in the production of
a. neither fruit nor beef.
b. fruit.
c. both fruit and beef.
d. beef.
ANSWER: D
POINTS: 0 / 1
each axis is measured in metric tons per month. Peru will export
a. both fruit and beef.

b. beef.
c. fruit.
d. neither fruit nor beef.
ANSWER: C
POINTS: 0 / 1
each axis is measured in metric tons per month. The opportunity cost of producing
a metric ton of beef in Peru is
a. 1/3 ton of fruit.

b. 6 tons of fruit.
c. 1 ton of fruit.
d. 2 tons of fruit.
e. 3 tons of fruit.
ANSWER: E
POINTS: 0 / 1
35. Joe is a tax accountant. He receives €100 per hour doing tax returns. He can type
10,000 characters per hour into spreadsheets. He can hire an assistant who types
2,500 characters per hour into spreadsheets. Which of the following statements is
true?
b. Joe should hire the assistant as long as he pays the assistant less than €25
per hour.
c. Joe should not hire an assistant because the assistant cannot type as fast as
he.
d. Joe should hire the assistant as long as he pays the assistant less than €100
per hour.
ANSWER: B
POINTS: 0 / 1
chapter 4 Microeconomics ECN 2103
True/False
1. A perfectly competitive market consists of products that are all slightly different
from one another.
ANSWER: F
POINTS: 0 / 1
2. In a perfectly competitive market each seller has a negligible impact on the market
price.
ANSWER: T
POINTS: 0 / 1
3. The law of demand states that an increase in the price of a good decreases the
demand for that good.
ANSWER: F
POINTS: 0 / 1
4. If apples and oranges are substitutes, an increase in the price of apples will decrease
the demand for oranges.
ANSWER: F
POINTS: 0 / 1
5. If golf clubs and golf balls are complements, an increase in the price of golf clubs
will decrease the demand for golf balls.
ANSWER: T
POINTS: 0 / 1
6. If consumers expect the price of shoes to rise, there will be an increase in the
demand for shoes today.
ANSWER: T
POINTS: 0 / 1
7. The law of supply states that an increase in the price of a good increases the
quantity supplied of that good along its supply curve.
ANSWER: T
POINTS: 0 / 1
8. An increase in the price of steel will shift the supply of cars to the right.
ANSWER: F
POINTS: 0 / 1
9. When the price of a good is below the equilibrium price, it causes a surplus (i.e. an
excess supply) of this good.
ANSWER: F
POINTS: 0 / 1
10. The market supply curve is the horizontal summation of the individual supply
curves.
ANSWER: T
POINTS: 0 / 1
11. If there is a shortage (i.e. an excess demand) of a good, then the price of that good
tends to fall.
ANSWER: F
POINTS: 0 / 1
12. If pencils and paper are complements, an increase in the price of pencils causes the
demand for paper to decrease or shift to the left.
ANSWER: T
POINTS: 0 / 1
13. If Coke and Pepsi are substitutes, an increase in the price of Coke will cause an
increase in the equilibrium price and quantity in the market for Pepsi.
ANSWER: T
POINTS: 0 / 1
14. An advance in the technology employed to manufacture roller blades will result in
a decrease in the equilibrium price and an increase in the equilibrium quantity in
the market for roller blades.
ANSWER: T
POINTS: 0 / 1
15. If there is an increase in supply accompanied by a decrease in demand for coffee,
then there will be a decrease in both the equilibrium price and quantity in the
market for coffee.
ANSWER: F
POINTS: 0 / 1
Multiple Choice
16. A perfectly competitive market has

a. firms that set their own prices.
b. only one seller.
c. at least a few sellers.
d. many buyers and sellers.
ANSWER: D
POINTS: 0 / 1
17. If an increase in the price of blue jeans leads to a decrease in the demand for
tennis shoes, then blue jeans and tennis shoes are
a. complements.
b. inferior goods.
c. normal goods.
e. substitutes.
ANSWER: A
POINTS: 0 / 1
18. The law of demand states that an increase in the price of a good
a. increases the supply of that good.
b. decreases the quantity demanded for that good along its demand curve.
c. decreases the demand for that good.
d. increases the quantity supplied of that good along its supply curve.
ANSWER: B
POINTS: 0 / 1
19. The law of supply states that an increase in the price of a good
b. increases the quantity supplied of that good along its supply curve.
c. increases the supply of that good.
d. decreases the demand for that good.
e. decreases the quantity demanded for that good along its demand curve.
ANSWER: B
POINTS: 0 / 1
20. If an increase in consumer incomes leads to a decrease in the demand for camping
equipment, then camping equipment is
a. a normal good.
c. an inferior good.
d. a substitute good.
e. a complementary good.
ANSWER: C
POINTS: 0 / 1
21. That the supply curve for ice cream cones is upward sloping indicates that
a. the marginal cost of providing ice cream cones increases as more cones are
produced.
b. as the price of ice cream cones increases, the production technology is
upgraded.
c. as the price increases, the opportunity cost of making ice cream cones
decreases.
d. all of the above.
e. none of the above.
ANSWER: A
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22. Which of the following shifts the demand for watches to the right?
a. an increase in the price of watches
b. none of these answers
c. a decrease in the price of watch batteries if watch batteries and watches are
complements
d. a decrease in consumer incomes if watches are a normal good
e. a decrease in the price of watches
ANSWER: C
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23. All of the following shift the supply of watches to the right except
a. an advance in the technology used to manufacture watches.
b. an increase in the price of watches.
c. All of these answers cause an increase in the supply of watches.
d. a decrease in the wage of workers employed to manufacture watches.
e. manufacturers' expectation of lower watch prices in the future.
ANSWER: B
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24. If the price of a good is above the equilibrium price,

a. there is a surplus (i.e. an excess supply) and the price will rise.
b. there is a shortage (i.e. an excess demand) and the price will fall.
c. there is a shortage (i.e. an excess demand) and the price will rise.
d. the quantity demanded is equal to the quantity supplied and the price
remains unchanged.
e. there is a surplus (i.e. an excess supply) and the price will fall.
ANSWER: E
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25. If the price of a good is below the equilibrium price,

a. there is a shortage (i.e. an excess demand) and the price will rise.
b. the quantity demanded is equal to the quantity supplied and the price
remains unchanged.
c. there is a shortage (i.e. an excess demand) and the price will fall.
d. there is a surplus (i.e. an excess supply) and the price will rise.
ANSWER: A
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26. If the price of a good is equal to the equilibrium price,

a. there is a shortage (i.e. an excess demand) and the price will fall.
b. the quantity demanded is equal to the quantity supplied and the price
remains unchanged.
c. there is a surplus (i.e. an excess supply) and the price will rise.
d. there is a shortage (i.e. an excess demand) and the price will rise.
ANSWER: B
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27. An increase (rightward shift) in the demand for a good will tend to cause
a. an increase in the equilibrium price and quantity.
c. an increase in the equilibrium price and a decrease in the equilibrium
quantity.
d. a decrease in the equilibrium price and an increase in the equilibrium
quantity.
e. a decrease in the equilibrium price and quantity.
ANSWER: A
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28. A decrease (leftward shift) in the supply for a good will tend to cause
a. an increase in the equilibrium price and quantity.
b. a decrease in the equilibrium price and an increase in the equilibrium
quantity.
c. none of these answers.
d. a decrease in the equilibrium price and quantity.
e. an increase in the equilibrium price and a decrease in the equilibrium
quantity.
ANSWER: E
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29. Suppose there is an increase in both the supply and demand for personal computers.
In the market for personal computers, we would expect
a. the equilibrium quantity to rise and the equilibrium price to rise.
b. the equilibrium quantity to rise and the equilibrium price to fall.
c. the equilibrium quantity to rise and the equilibrium price to remain constant.
d. the change in the equilibrium quantity to be ambiguous and the equilibrium
price to rise.
e. the equilibrium quantity to rise and the change in the equilibrium price to be
ambiguous.
ANSWER: E
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30. Suppose there is an increase in both the supply and demand for personal computers.
Further, suppose the supply of personal computers increases more than demand for
personal computers. In the market for personal computers, we would expect
a. the change in the equilibrium quantity to be ambiguous and the equilibrium
price to fall.
b. the equilibrium quantity to rise and the equilibrium price to rise.
c. the equilibrium quantity to rise and the change in the equilibrium price to be
ambiguous.
d. the equilibrium quantity to rise and the equilibrium price to fall.
e. the equilibrium quantity to rise and the equilibrium price to remain constant.
ANSWER: D
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31. Which of the following statements is true about the impact of an increase in the
price of lettuce?
a. Both the demand for lettuce will decrease and the equilibrium price and
quantity of salad dressing will fall.
b. The supply of lettuce will decrease.
c. The demand for lettuce will decrease.
d. The equilibrium price and quantity of salad dressing will fall.
e. The equilibrium price and quantity of salad dressing will rise.
ANSWER: D
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32. Suppose a frost destroys much of the Florida orange crop. At the same time,
suppose consumer tastes shift toward orange juice. What would we expect to
happen to the equilibrium price and quantity in the market for orange juice?
a. Price will decrease; quantity is ambiguous.
b. The impact on both price and quantity is ambiguous.
c. Price will increase; quantity will increase.
d. Price will increase; quantity will decrease.
e. Price will increase; quantity is ambiguous.
ANSWER: E
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33. Suppose consumer tastes shift toward the consumption of apples. Which of the
following statements is an accurate description of the impact of this event on the
market for apples?
a. There is an increase in the quantity demanded of apples along the demand
curve and in the supply for apples.
b. There is an increase in the demand and supply of apples.
c. There is an increase in the demand for apples and a decrease in the supply
of apples.
d. There is a decrease in the quantity demanded of apples along its demand
curve and an increase in the supply for apples.
e. There is an increase in the demand for apples and an increase in the quantity
supplied of apples along the supply curve.
ANSWER: E
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34. Suppose both buyers and sellers of wheat expect the price of wheat to rise in the
near future. What would we expect to happen to the equilibrium price and quantity
in the market for wheat today?
a. The impact on both price and quantity is ambiguous.
b. Price will decrease; quantity is ambiguous.
c. Price will increase; quantity will decrease.
d. Price will increase; quantity is ambiguous.
e. Price will increase; quantity will increase.
ANSWER: D
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35. An inferior good is one for which an increase in income causes a(n)
a. decrease in supply.
b. increase in demand.
c. increase in supply.
d. decrease in demand.
ANSWER: D
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chapter 5 (Elasticity) ECN 2103 Microeconomics
True/False
1. If the quantity demanded of a good is sensitive to a change in the price of that

good, demand is said to be price inelastic.
ANSWER: F
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2. If an increase in the price of pencils from €0.10 to €0.20 reduces the quantity
demanded from 1000 pencils to 500 pencils, then the demand for pencils is unit
price elastic.
ANSWER: T
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3. The demand for aspirin over one month should be more elastic than the demand for
aspirin over one year.
ANSWER: F
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4. The price elasticity of demand is defined as the percentage change in the price of
that good divided by the percentage change in quantity demanded of that good.
ANSWER: F
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5. If the demand for a good is price inelastic, an increase in its price will increase total
revenue in that market.
ANSWER: T
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6. The demand for a necessity such as petrol tends to be elastic.
ANSWER: F
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7. If a demand curve is linear, the price elasticity of demand is constant along it.
ANSWER: F
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8. The supply of cars for this week is likely to be more price inelastic than the supply
of cars for this year.
ANSWER: T
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9. If the price elasticity of supply for blue jeans is 1.3, an increase in the price of blue
jeans of 10 percent would increase the quantity supplied of blue jeans by 13
percent.
ANSWER: T
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10. The price elasticity of supply tends to be more inelastic as the firm's production
facility reaches maximum capacity.
ANSWER: T
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11. The price elasticity of demand is defined as

a. the percentage change in the quantity demanded divided by the percentage
change in income.
b. the percentage change in income divided by the percentage change in the
quantity demanded.
c. the percentage change in the quantity demanded of a good divided by the
percentage change in the price of that good.
e. the percentage change in price of a good divided by the percentage change
in the quantity demanded of that good.
ANSWER: C
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12. In general, a flatter demand curve is more likely to be

a. price elastic.
b. unit price elastic.
d. price inelastic.
ANSWER: A
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13. In general, a steeper supply curve is more likely to be

a. price elastic.
c. unit price elastic.
d. price inelastic.
ANSWER: D
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14. Which of the following would cause a demand curve for a good to be price
inelastic?
a. The good is a luxury.
b. There are a great number of substitutes for the good.
c. The good is a necessity.
d. None of these answers.
ANSWER: C
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15. The demand for which of the following is likely to be the most price inelastic?
a. transportation
b. taxi rides
c. bus tickets
d. airline tickets
ANSWER: A
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Multiple Choice
16. If a supply curve for a good is price elastic, then

a. the quantity supplied is sensitive to changes in the price of that good.
b. the quantity demanded is insensitive to changes in the price of that good.
c. the quantity demanded is sensitive to changes in the price of that good.
d. the quantity supplied is insensitive to changes in the price of that good.
ANSWER: A
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17. If a fisherman must sell all of his daily catch before it spoils for whatever price he
is offered, once the fish are caught the fisherman's price elasticity of supply for
fresh fish is
a. zero.
b. infinite.
c. one.
d. unable to be determined from this information.
ANSWER: A
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18. A decrease in supply (shift to the left) will increase total revenue in that market if
a. demand is price inelastic.
b. supply is price elastic.
c. supply is price inelastic.
d. demand is price elastic.
ANSWER: A
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19. If an increase in the price of a good has no impact on the total revenue in that
market, demand must be
a. all of these answers.
b. price inelastic.
d. price elastic.
ANSWER: C
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20. Technological improvements in agriculture that shift the supply of agricultural

commodities to the right tend to
a. increase total revenue to farmers as a whole because the demand for food is
elastic.
b. increase total revenue to farmers as a whole because the demand for food is
inelastic.
c. reduce total revenue to farmers as a whole because the demand for food is
elastic.
d. reduce total revenue to farmers as a whole because the demand for food is
inelastic.
ANSWER: D
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21. If supply is price inelastic, the value of the price elasticity of supply must be
a. infinite.
b. zero.
c. less than 1.
e. greater than 1.
ANSWER: C
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22. If there is excess capacity in a production facility, it is likely that the firm's supply
curve is
a. price inelastic.
d. price elastic.
ANSWER: D
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23. Suppose that at a price of €30 per month, there are 30,000 subscribers to cable
television in Small Town. If Small Town Cablevision raises its price to €40 per
month, the number of subscribers will fall to 20,000. At which of the following
prices does Small Town Cablevision earn the greatest total revenue?
a. €0 per month
b. €30 per month
c. €40 per month
d. Either €30 or €40 per month because the price elasticity of demand is 1.0.
ANSWER: B
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24. If demand is linear (a straight line), then price elasticity of demand is

a. elastic in the upper portion and inelastic in the lower portion.
b. inelastic in the upper portion and elastic in the lower portion.
c. inelastic throughout.
d. constant along the demand curve.
e. elastic throughout.
ANSWER: A
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25. If consumers think that there are very few substitutes for a good, then
a. supply would tend to be price elastic.
c. demand would tend to be price inelastic.
d. demand would tend to be price elastic.
e. supply would tend to be price inelastic.
ANSWER: C
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Chapter 6 Mankiw/Taylor, Economics
True/False
1. If the equilibrium price of petrol is €1.00 per litre and the government places a
price ceiling on petrol of €1.50 per litre, the result will be a shortage of petrol.
ANSWER: F
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2. A price ceiling set below the equilibrium price causes a surplus.
ANSWER: F
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3. A price floor set above the equilibrium price is a binding constraint.
ANSWER: T
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4. The shortage of housing caused by a binding rent control is likely to be more severe
in the long run when compared to the short run.
ANSWER: T
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5. The minimum wage helps all teenagers because they receive higher wages than
they would otherwise.
ANSWER: F
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6. A 10 per cent increase in the minimum wage is more likely to raise unemployment
among teenage workers than among mid-career professional workers
ANSWER: T
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7. A price ceiling that is not a binding constraint today could cause a shortage in the
future if demand were to increase and raise the equilibrium price above the fixed
price ceiling.
ANSWER: T
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8. A price floor in a market always creates a surplus in that market.
ANSWER: F
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9. A €10 tax on football boots will always raise the price that the buyers pay for
football boots by €10.
ANSWER: F
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10. The ultimate burden of a tax falls most heavily on the side of the market that is less
elastic.
ANSWER: T
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11. If medicine is a necessity, the burden of a tax on medicine will probably fall more
heavily on the buyers of medicine.
ANSWER: T
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12. When we use the model of supply and demand to analyse a tax collected from the
buyers, we shift the demand curve upward by the size of the tax.
ANSWER: F
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13. A tax collected from buyers has an equivalent impact to a same size tax collected
from sellers.
ANSWER: T
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14. A tax creates a tax wedge between a buyer and a seller. This causes the price paid
by the buyer to rise, the price received by the seller to fall, and the quantity sold to
fall.
ANSWER: T
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15. The government can choose to place the burden of a tax on the buyers in a market
by collecting the tax from the buyers rather than the sellers.
ANSWER: F
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Multiple Choice
16. For a price ceiling to be a binding constraint on the market, the government must
set it
a. above the equilibrium price.
b. below the equilibrium price.
c. precisely at the equilibrium price.
d. at any price because all price ceilings are binding constraints.
ANSWER: B
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17. A binding price ceiling creates

a. a shortage or a surplus depending on whether the price ceiling is set above
or below the equilibrium price.
b. a surplus.
c. a shortage.
d. an equilibrium.
ANSWER: C
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18. Suppose the equilibrium price for apartments is €500 per month and the
government imposes rent controls of €250. Which of the following is unlikely to
occur as a result of the rent controls?
a. There may be long lines of buyers waiting for apartments.
b. Landlords may discriminate among apartment renters.
c. Landlords may be offered bribes to rent apartments.
d. There will be a shortage of housing.
e. The quality of apartments will improve.
ANSWER: E
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19. A price floor

a. always determines the price at which a good must be sold.
b. sets a legal maximum on the price at which a good can be sold.
c. is not a binding constraint if it is set above the equilibrium price.
d. sets a legal minimum on the price at which a good can be sold.
ANSWER: D
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20. Which of the following statements about a binding price ceiling is true?
a. The shortage created by the price ceiling is greater in the short run than in
the long run.
b. The surplus created by the price ceiling is greater in the short run than in the
long run.
c. The surplus created by the price ceiling is greater in the long run than in the
short run.
d. The shortage created by the price ceiling is greater in the long run than in
the short run.
ANSWER: D
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21. Which side of the market is more likely to lobby government for a price floor?
a. the buyers
b. Neither buyers nor sellers desire a price floor.
c. the sellers
d. Both buyers and sellers desire a price floor.
ANSWER: C
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22. The surplus caused by a binding price floor will be greatest if

a. demand is inelastic and supply is elastic.
b. supply is inelastic and demand is elastic.
c. both supply and demand are elastic.
d. both supply and demand are inelastic.
ANSWER: C
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23. Which of the following is an example of a price floor?

a. the minimum wage
b. rent controls
c. restricting petrol prices to €1.00 per litre when the equilibrium price is
€1.50 per litre
d. All of these answers are price floors.
ANSWER: A
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24. Which of the following statements is true if the government places a price ceiling
on petrol at €1.50 per litre and the equilibrium price is €1.00 per litre?
a. A significant increase in the demand for petrol could cause the price ceiling
to become a binding constraint.
b. A significant increase in the supply of petrol could cause the price ceiling to
become a binding constraint.
c. There will be a shortage of petrol.
d. There will be a surplus of petrol.
ANSWER: A
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25. Which of the following workers would be most likely to find it more difficult to get
a job after a rise in the minimum wage rate?
a. A teenage worker with few qualifications.
b. A manual worker with fifteen years of work experience.
c. A professional worker with a university degree.
d. All three are equally likely to find it difficult to get a job.
ANSWER: A
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26. Within the supply and demand model, a tax collected from the buyers of a good
shifts the
a. supply curve downward by the size of the tax per unit.
b. supply curve upward by the size of the tax per unit.
c. demand curve upward by the size of the tax per unit.
d. demand curve downward by the size of the tax per unit.
ANSWER: D
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27. Within the supply and demand model, a tax collected from the sellers of a good
shifts the
a. demand curve downward by the size of the tax per unit.
b. supply curve downward by the size of the tax per unit.
c. demand curve upward by the size of the tax per unit.
d. supply curve upward by the size of the tax per unit.
ANSWER: D
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28. Which of the following takes place when a tax is placed a good?
a. a decrease in the price buyers pay, an increase in the price sellers receive,
and a decrease in the quantity sold
b. an increase in the price buyers pay, a decrease in the price sellers receive,
and an increase in the quantity sold
c. a decrease in the price buyers pay, an increase in the price sellers receive,
and an increase in the quantity sold
d. an increase in the price buyers pay, a decrease in the price sellers receive,
and a decrease in the quantity sold
ANSWER: D
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29. When a tax is collected from the buyers in a market,

a. the tax burden falls most heavily on the buyers.
b. the buyers bear the burden of the tax.
c. the sellers bear the burden of the tax.
d. the tax burden on the buyers and sellers is the same as an equivalent tax
collected from the sellers.
ANSWER: D
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30. A tax of €1.00 per litre on petrol

a. places a tax wedge of €1.00 between the price the buyers pay and the price
the sellers receive.
b. decreases the price the sellers receive by €1.00 per litre.
c. increases the price the buyers pay by €1.00 per litre.
d. increases the price the buyers pay by precisely €0.50 and reduces the price
received by sellers by precisely €0.50.
ANSWER: A
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31. The burden of a tax falls more heavily on the sellers in a market when
a. both supply and demand are elastic.
b. both supply and demand are inelastic.
c. demand is inelastic and supply is elastic.
d. demand is elastic and supply is inelastic.
ANSWER: D
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32. A tax placed on a good that is a necessity for consumers will likely generate a tax
burden that
a. falls more heavily on sellers.
b. falls entirely on sellers.
c. falls more heavily on buyers.
d. is evenly distributed between buyers and sellers.
ANSWER: C
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33. The burden of a tax falls more heavily on the buyers in a market when
a. both supply and demand are inelastic.
b. demand is elastic and supply is inelastic.
c. both supply and demand are elastic.
d. demand is inelastic and supply is elastic.
ANSWER: D
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34. Which of the following statements about the burden of a tax is correct?
a. The tax burden generated from a tax placed on a good consumers perceive
to be a necessity will fall most heavily on the sellers of the good.
b. The burden of a tax falls on the side of the market (buyers or sellers) from
which it is collected.
c. The distribution of the burden of a tax is determined by the relative
elasticities of supply and demand and is not determined by legislation.
d. The tax burden falls most heavily on the side of the market (buyers or
sellers) that is most willing to leave the market when price movements are
unfavourable to them.
ANSWER: C
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35. For which of the following products would the burden of a tax likely fall more
heavily on the sellers?
a. clothing
b. food
c. housing
d. entertainment
ANSWER: D
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True/False
1. Consumer surplus is the buyer's willingness to pay minus the seller's cost.
ANSWER: F
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2. If the demand curve in a market is stationary, consumer surplus decreases when the
price in that market increases.
ANSWER: T
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3. If your willingness to pay for a hamburger is €3.00 and the price is €2.00, your
consumer surplus is €5.00.
ANSWER: F
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4. Producer surplus is a measure of the unsold inventories of suppliers in a market.
ANSWER: F
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5. Consumer surplus is a good measure of buyers' benefits if buyers are rational.
ANSWER: T
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6. Cost to the seller includes the opportunity cost of the seller's time.
ANSWER: T
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7. The height of the supply curve is the marginal seller's cost.
ANSWER: T
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8. Total surplus is the seller's cost minus the buyer's willingness to pay.
ANSWER: F
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9. Free markets are efficient because they allocate output to buyers who have a
willingness to pay that is below the price.
ANSWER: F
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10. Producer surplus is the area above the supply curve and below the price.
ANSWER: T
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11. The major advantage of allowing free markets to allocate resources is that the
outcome of the allocation is efficient.
ANSWER: T
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12. Equilibrium in a competitive market maximizes total surplus.
ANSWER: T
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13. The two main types of market failure are market power and externalities.
ANSWER: T
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14. Externalities are side effects, such as pollution, that are not taken into account by
the buyers and sellers in a market.
ANSWER: T
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15. Producing more of a product always adds to total surplus.
ANSWER: F
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Multiple Choice
16. Consumer surplus is the area

a. below the demand curve and above the price.
b. above the supply curve and below the price.
c. above the demand curve and below the price.
d. below the supply curve and above the price.
e. below the demand curve and above the supply curve.
ANSWER: A
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17. A buyer's willingness to pay is that buyer's

a. minimum amount they are willing to pay for a good.
b. producer surplus.
c. consumer surplus.
d. maximum amount they are willing to pay for a good.
ANSWER: D
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18. If a buyer's willingness to pay for a new Honda is €20,000 and she is able to
actually buy it for €18,000, her consumer surplus is
a. €18,000.
b. €20,000.
c. €2,000.
d. €0.
e. €38,000.
ANSWER: C
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19. An increase in the price of a good along a stationary demand curve

a. improves the material welfare of the buyers.
b. decreases consumer surplus.
c. improves market efficiency.
d. increases consumer surplus.
ANSWER: B
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20. Suppose there are three identical vases available to be purchased. Buyer 1 is willing
to pay €30 for one, buyer 2 is willing to pay €25 for one, and buyer 3 is willing to
pay €20 for one. If the price is €25, how many vases will be sold and what is the
value of consumer surplus in this market?
a. Three vases will be sold and consumer surplus is €80.
b. One vase will be sold and consumer surplus is €5.
c. One vase will be sold and consumer surplus is €30.
d. Three vases will be sold and consumer surplus is €0.
e. Two vases will be sold and consumer surplus is €5.
ANSWER: E
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21. Producer surplus is the area

a. below the supply curve and above the price.
b. below the demand curve and above the supply curve.
c. below the demand curve and above the price.
d. above the demand curve and below the price.
e. above the supply curve and below the price.
ANSWER: E
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22. If a benevolent social planner chooses to produce less than the equilibrium quantity
of a good, then
a. total surplus is maximized.
b. the value placed on the last unit of production by buyers exceeds the cost of
production.
c. producer surplus is maximized.
d. the cost of production on the last unit produced exceeds the value placed on
it by buyers.
e. consumer surplus is maximized.
ANSWER: B
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23. If a benevolent social planner chooses to produce more than the equilibrium
quantity of a good, then
a. the value placed on the last unit of production by buyers exceeds the cost of
production.
b. the cost of production on the last unit produced exceeds the value placed on
it by buyers.
c. consumer surplus is maximized.
d. total surplus is maximized.
e. producer surplus is maximized.
ANSWER: B
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24. The seller's cost of production is

b. the minimum amount the seller is willing to accept for a good.
c. the seller's producer surplus.
d. the maximum amount the seller is willing to accept for a good.
e. the seller's consumer surplus.
ANSWER: B
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25. Total surplus is the area

a. above the supply curve and below the price.
b. below the demand curve and above the price.
c. below the demand curve and above the supply curve.
d. below the supply curve and above the price.
e. above the demand curve and below the price.
ANSWER: C
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26. An increase in the price of a good along a stationary supply curve

a. increases producer surplus.
b. does all of the things described in these answers.
c. decreases producer surplus.
d. improves market equity.
ANSWER: A
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27. Adam Smith's "invisible hand" concept suggests that a competitive market outcome
a. maximizes total surplus.
b. generates equality among the members of society.
c. minimizes total surplus.
d. both maximizes total surplus and generates equality among the members of
society.
ANSWER: A
POINTS: 0 / 1
28. In general, if a benevolent social planner wanted to maximize the total benefits
received by buyers and sellers in a market, the planner should
a. choose a price below the market equilibrium price.
b. allow the market to seek equilibrium on its own.
c. choose any price the planner wants because the losses to the sellers (buyers)
from any change in price are exactly offset by the gains to the buyers
(sellers).
d. choose a price above the market equilibrium price.
ANSWER: B
POINTS: 0 / 1
29. If buyers are rational and there is no market failure,
a. free market solutions are efficient.
b. free market solutions maximize total surplus.
c. all of these answers.
d. free market solutions are equitable.
e. free market solutions are efficient and free market solutions maximize total
surplus.
ANSWER: E
POINTS: 0 / 1
30. If a producer has market power (can influence the price of the product in the
market) then free market solutions
a. are equitable.
b. are efficient.
c. maximize consumer surplus.
d. are inefficient.
ANSWER: D
POINTS: 0 / 1
31. If a market is efficient, then

a. the market allocates buyers to the sellers who can produce the good at least
cost.
b. all of these answers.
d. the quantity produced in the market maximizes the sum of consumer and
producer surplus.
e. the market allocates output to the buyers that value it the most.
ANSWER: B
POINTS: 0 / 1
32. If a market generates a side effect or externality, then free market solutions
a. maximize producer surplus.
b. are efficient.
c. are inefficient.
d. are equitable.
ANSWER: C
POINTS: 0 / 1
33. Medical care clearly enhances people’s lives. Therefore, we should consume
medical care until
a. everyone has as much as they would like.
b. the benefit buyers place on medical care is equal to the cost of producing it.
c. buyers receive no benefit from another unit of medical care.
d. we must cut back on the consumption of other goods.
ANSWER: B
POINTS: 0 / 1
34. Joe has ten pairs of football boots and Sue has none. A pair of football boots costs
€50 to produce. If Joe values an additional pair of boots at €100 and Sue values a
pair of boots at €40, then to maximize
a. efficiency Sue should receive the glove.
b. efficiency Joe should receive the glove.
c. equity, Joe should receive the glove.
d. consumer surplus both should receive a glove.
ANSWER: B
POINTS: 0 / 1
35. Suppose that the price of a new bicycle is €300. Natalie values a new bicycle at
€400. It costs €200 for the seller to produce the new bicycle. What is the value of
total surplus if Natalie buys a new bike?
a. €500
b. €300
c. €200
d. €400
e. €100
ANSWER: C
POINTS: 0 / 1
True/False
1. In general, a tax raises the price the buyers pay, lowers the price the sellers receive,
and reduces the quantity sold.
ANSWER: T
POINTS: 0 / 1
2. If a tax is placed on a good and it reduces the quantity sold, there must be a
deadweight loss from the tax.
ANSWER: T
POINTS: 0 / 1
3. Deadweight loss is the reduction in consumer surplus that results from a tax.
ANSWER: F
POINTS: 0 / 1
4. When a tax is placed on a good, the revenue the government collects is exactly
equal to the loss of consumer and producer surplus from the tax.
ANSWER: F
POINTS: 0 / 1
5. If John values having his hair cut at €20 and Mary's cost of providing the hair cut is
€10, any tax on hair cuts larger than €10 will eliminate the gains from trade and
cause a €20 loss of total surplus.
ANSWER: F
POINTS: 0 / 1
6. If a tax is placed on a good in a market where supply is perfectly inelastic, there is

no deadweight loss and the sellers bear the entire burden of the tax.
ANSWER: T
POINTS: 0 / 1
7. A tax on cigarettes would likely generate a larger deadweight loss than a tax on
luxury boats.
ANSWER: F
POINTS: 0 / 1
8. A tax will generate a greater deadweight loss if supply and demand are inelastic.
ANSWER: F
POINTS: 0 / 1
9. A tax causes a deadweight loss because it eliminates some of the potential gains
from trade.
ANSWER: T
POINTS: 0 / 1
10. A larger tax always generates more tax revenue.
ANSWER: F
POINTS: 0 / 1
11. A larger tax always generates a larger deadweight loss.
ANSWER: T
POINTS: 0 / 1
12. If an income tax rate is high enough, a reduction in the tax rate could increase tax
revenue.
ANSWER: T
POINTS: 0 / 1
13. A tax collected from buyers generates a smaller deadweight loss than a tax
collected from sellers.
ANSWER: F
POINTS: 0 / 1
14. If a tax is doubled, the deadweight loss from the tax more than doubles.
ANSWER: T
POINTS: 0 / 1
15. A deadweight loss results when a tax causes market participants to fail to produce
and consume units on which the benefits to the buyers exceeded the costs to the
sellers.
ANSWER: T
POINTS: 0 / 1
Multiple Choice
16. Refer to Exhibit 4. If there is no tax placed on the product in this market, consumer
surplus is the area
a. C + D + F.
b. A.
c. A + B + E.
d. D + C + B.
e. A + B + C.
ANSWER: C
POINTS: 0 / 1
17. Refer to Exhibit 4. If there is no tax placed on the product in this market, producer
surplus is the area
a. A + B + E.
b. D.
c. C + F.
d. A + B + C + D.
e. C + D + F.
ANSWER: E
POINTS: 0 / 1
18. Refer to Exhibit 4. If a tax is placed on the product in this market, consumer surplus
is the area
a. D.
b. A.
c. A + B + E.
d. A + B + C + D.
e. A + B.
ANSWER: B
POINTS: 0 / 1
19. Refer to Exhibit 4. If a tax is placed on the product in this market, producer surplus
is the area
a. A + B + E.
b. A + B + C + D.
c. A.
d. D.
e. C + D + F.
ANSWER: D
POINTS: 0 / 1
20. Refer to Exhibit 4. If a tax is placed on the product in this market, tax revenue paid
by the buyers is the area
a. B + C + E + F.
b. B.
c. B + C.
d. A.
e. C.
ANSWER: B
POINTS: 0 / 1
21. Refer to Exhibit 4. If a tax is placed on the product in this market, tax revenue paid
by the sellers is the area
a. C + F.
b. A.
c. B.
d. B + C + E + F.
e. C.
ANSWER: E
POINTS: 0 / 1
22. Refer to Exhibit 4. If there is no tax placed on the product in this market, total
surplus is the area
a. B + C + E + F.
b. E + F.
c. A + B + C + D.
d. A + B + C + D + E + F.
e. A + D + E + F.
ANSWER: D
POINTS: 0 / 1
23. Refer to Exhibit 4. If a tax is placed on the product in this market, total surplus is
the area
a. A + B + C + D + E + F.
b. A + B + C + D.
c. A + D.
d. B + C + E + F.
e. E + F.
ANSWER: B
POINTS: 0 / 1
24. Refer to Exhibit 4. If a tax is placed on the product in this market, deadweight loss
is the area
a. B + C + E + F.
b. E + F.
c. B + C.
d. A + B + C + D.
e. A + D.
ANSWER: B
POINTS: 0 / 1
25. Refer to Exhibit 4. Which of the following is true with regard to the burden of the
tax in Exhibit 4?
a. The buyers pay a larger portion of the tax because demand is more inelastic
than supply.
b. The sellers pay a larger portion of the tax because supply is more elastic
than demand.
c. The buyers pay a larger portion of the tax because demand is more elastic
than supply.
d. The sellers pay a larger portion of the tax because supply is more inelastic
than demand.
ANSWER: D
POINTS: 0 / 1
26. Which of the following would likely cause the greatest deadweight loss?
a. a tax on salt
b. a tax on cigarettes
c. a tax on petrol
d. a tax on cruise line tickets
ANSWER: D
POINTS: 0 / 1
27. A tax on petrol is likely to

a. generate a deadweight loss that is unaffected by the time period over which
it is measured.
b. cause a greater deadweight loss in the long run when compared to the short
run.
c. none of these answers
d. cause a greater deadweight loss in the short run when compared to the long
run.
ANSWER: B
POINTS: 0 / 1
28. Deadweight loss is greatest when

a. supply is elastic and demand is perfectly inelastic.
b. demand is elastic and supply is perfectly inelastic.
c. both supply and demand are relatively inelastic.
d. both supply and demand are relatively elastic.
ANSWER: D
POINTS: 0 / 1
29. Since the supply of undeveloped land is relatively inelastic, a tax on undeveloped
land would generate
a. a small deadweight loss and the burden of the tax would fall on the renter.
b. a large deadweight loss and the burden of the tax would fall on the landlord.
c. a large deadweight loss and the burden of the tax would fall on the renter.
d. a small deadweight loss and the burden of the tax would fall on the landlord.
ANSWER: D
POINTS: 0 / 1
30. Which of the following is true with regard to a tax on labour income? Taxes on
labour income tend to encourage
a. the unscrupulous to enter the underground economy.
b. the elderly to retire early.
c. all of the things described in these answers.
d. second earners to stay home.
e. workers to work fewer hours.
ANSWER: C
POINTS: 0 / 1
31. When a tax on a good starts small and is gradually increased, tax revenue
a. will fall.
b. will rise.
c. will first rise and then fall.
d. will first fall and then rise.
e. none of these answers
ANSWER: C
POINTS: 0 / 1
32. The graph that shows the relationship between the size of a tax and the tax revenue
collected by the government is known as a
a. none of these answers
b. Reagan curve.
c. Keynesian curve.
d. Laffer curve.
e. Henry George curve.
ANSWER: D
POINTS: 0 / 1
33. If a tax on a good is doubled, the deadweight loss from the tax
a. doubles.
b. stays the same.
c. increases by a factor of four.
d. could rise or fall.
ANSWER: C
POINTS: 0 / 1
34. The reduction of a tax

a. will have no impact on tax revenue.
b. will always reduce tax revenue regardless of the prior size of the tax.
c. could increase tax revenue if the tax had been extremely high.
d. causes a market to become less efficient.
ANSWER: C
POINTS: 0 / 1
35. When a tax distorts incentives to buyers and sellers so that fewer goods are
produced and sold than otherwise, the tax has
a. caused a deadweight loss.
b. decreased equity.
c. generated no tax revenue.
d. increased efficiency.
ANSWER: A
POINTS: 0 / 1
Chapter 09 Microeconomics 2103
True/False
Indicate whether the statement is true or false.
1. Total revenue equals the quantity of output the firm produces times the price at
which it sells its output.
ANSWER: T
POINTS: 0 / 1
2. Wages and salaries paid to workers are an example of implicit costs of production.
ANSWER: F
POINTS: 0 / 1
3. If total revenue is €100, explicit costs are €50, and implicit costs are €30, then
accounting profit equals €50.
ANSWER: T
POINTS: 0 / 1
4. If there are implicit costs of production, accounting profits will exceed economic
profits.
ANSWER: T
POINTS: 0 / 1
5. When a production function gets flatter, the marginal product is increasing.
ANSWER: F
POINTS: 0 / 1
6. If a firm continues to employ more workers within the same size factory, it will
eventually experience diminishing marginal product
ANSWER: T
POINTS: 0 / 1
7. If the production function for a firm exhibits diminishing marginal product, the
corresponding total cost curve for the firm will become flatter as the quantity of
output expands.
ANSWER: F
POINTS: 0 / 1
8. Fixed costs plus variable costs equal total costs.
ANSWER: T
POINTS: 0 / 1
9. Average total costs are total costs divided by marginal costs.
ANSWER: F
POINTS: 0 / 1
10. When marginal costs are below average total costs, average total costs must be
falling.
ANSWER: T
POINTS: 0 / 1
11. If a firm has fixed costs of production and if marginal cost increases, as the quantity
produced increases, the corresponding total average cost curve will be U-shaped.
ANSWER: T
POINTS: 0 / 1
12. The average total cost curve crosses the marginal cost curve at the minimum of the
marginal cost curve.
ANSWER: F
POINTS: 0 / 1
13. The average total cost curve in the long run is flatter than the average total cost
curve in the short run.
ANSWER: T
POINTS: 0 / 1
14. The efficient scale for a firm is the quantity of output that minimizes marginal cost.
ANSWER: F
POINTS: 0 / 1
15. In the long run, as a firm expands its production facilities, it generally first
experiences diseconomies of scale, then constant returns to scale, and finally
economies of scale.
ANSWER: F
POINTS: 0 / 1
Multiple Choice
Identify the choice that best completes the statement or answers the question.
16. Accounting profit is equal to total revenue minus

a. implicit costs.
b. variable costs.
c. the sum of implicit and explicit costs.
d. explicit costs.
e. marginal costs.
ANSWER: D
POINTS: 0 / 1
17. Economic profit is equal to total revenue minus

a. variable costs. c. explicit costs.
b. implicit costs. d. marginal costs.
ANSWER: B
POINTS: 0 / 1
18. Nicole owns a small pottery factory. She can make 1,000 pieces of pottery per year
and sell them for €100 each. It costs Nicole €20,000 for the raw materials to
produce the 1,000 pieces of pottery. She has invested €100,000 in her factory and
equipment: €50,000 from her savings and €50,000 borrowed at 10 per cent.
(Assume that she could have loaned her money out at 10 per cent, too.) Nicole can
work at a competing pottery factory for €40,000 per year. The accounting profit at
Nicole's pottery factory is
a. €30,000.
b. €35,000.
c. €70,000.
d. €75,000.
e. €80,000.
ANSWER: D
POINTS: 0 / 1
19. Nicole owns a small pottery factory. She can make 1,000 pieces of pottery per year
and sell them for €100 each. It costs Nicole €20,000 for the raw materials to
produce the 1,000 pieces of pottery. She has invested €100,000 in her factory and
equipment: €50,000 from her savings and €50,000 borrowed at 10 percent (assume
that she could have loaned her money out at 10 percent, too). Nicole can work at a
competing pottery factory for €40,000 per year. The economic profit at Nicole's
pottery factory is
a. €30,000.
b. €35,000.
c. €70,000.
d. €75,000.
e. €80,000.
ANSWER: A
POINTS: 0 / 1
20. If there are implicit costs of production,

a. accounting profit will exceed economic profit.
b. economic profit will always be zero.
c. economic profit will exceed accounting profit.
d. accounting profit will always be zero.
e. economic profit and accounting profit will be equal.
ANSWER: A
POINTS: 0 / 1
21. If a production function exhibits diminishing marginal product, its slope

a. is linear (a straight line).
b. becomes steeper as the quantity of the input increases.
c. could be any of these answers.
d. becomes flatter as the quantity of the input increases.
ANSWER: D
POINTS: 0 / 1
22. If a production function exhibits diminishing marginal product, the slope of the
corresponding total-cost curve
a. is linear (a straight line).
b. is negative throughout its length
c. becomes steeper as the quantity of output increases.
d. becomes flatter as the quantity of output increases.
ANSWER: C
POINTS: 0 / 1
23. Refer to Figure 13-1. The marginal product of labour as production moves from
employing one worker to employing two workers is
Figure 13-1
Number of Workers Output
0 0
1 23
2 40
3 50
a. 0.
b. 10.
c. 17.
d. 23
e. 40.
ANSWER: C
POINTS: 0 / 1
24. Refer to Figure 13-1. The production process described above exhibits
Figure 13-1
Number of Workers Output
0 0
1 23
2 40
3 50
a. constant marginal product of labour.
b. diminishing marginal product of labour.
c. increasing returns to scale.
d. increasing marginal product of labour.
e. decreasing returns to scale.
ANSWER: B
POINTS: 0 / 1
25. Which of the following is a variable cost in the short run?

a. rent on the factory
b. wages paid to factory labour
c. interest payments on borrowed financial capital
d. payment on the lease for factory equipment
e. salaries paid to upper management
ANSWER: B
POINTS: 0 / 1
26. Refer to Figure 13-2. The average fixed cost of producing four units is
Figure 13-2
Quantity of Fixed Costs Variable Total Costs Marginal

Output Costs Costs
0 €10 €0
1 10 5
2 10 11
3 10 18
4 10 26
5 10 36
a. €2.50.
b. €5.
c. €9
d. €26.
e. €40.
ANSWER: A
POINTS: 0 / 1
27. Refer to Figure 13-2. The average total cost of producing three units is
Figure 13-2

Output Costs Costs
0 €10 €0
1 10 5
2 10 11
3 10 18
4 10 26
5 10 36
a. €6.
b. €3.33.
c. €9.33.
d. €12.66
e. €28.
ANSWER: C
POINTS: 0 / 1
28. Refer to Figure 13-2. The marginal cost of changing production from three units to
four units is
Figure 13-2

Output Costs Costs
0 €10 €0
1 10 5
2 10 11
3 10 18
4 10 26
5 10 36
a. €5.
b. €6.
c. €7.
d. €8.
e. €9.
ANSWER: D
POINTS: 0 / 1
29. Refer to Figure 13-2. The efficient scale of production is
Figure 13-2

Output Costs Costs
0 €10 €0
1 10 5
2 10 11
3 10 18
4 10 26
5 10 36
a. one unit.
b. two units.
c. three units.
d. four units.
e. five units.
ANSWER: D
POINTS: 0 / 1
30. When marginal costs are below average total costs,

a. average fixed costs are rising. c. average total costs are rising.
b. average total costs are falling. d. average total costs are minimized.
ANSWER: B
POINTS: 0 / 1
31. If marginal costs equal average total costs,

a. average total costs are falling. c. average total costs are maximized.
b. average total costs are rising. d. average total costs are minimized.
ANSWER: D
POINTS: 0 / 1
32. In the long run, if a very small factory were to expand its scale of operations, it is
likely that it would initially experience
a. an increase in average total costs. c. economies of scale.
b. diseconomies of scale. d. constant returns to scale.
ANSWER: C
POINTS: 0 / 1
33. The efficient scale of production is the quantity of output that minimizes
a. average fixed cost. c. average variable cost.
b. average total cost. d. marginal cost.
ANSWER: B
POINTS: 0 / 1
34. Which of the following statements is true?

a. All costs are fixed in the short run. c. All costs are variable in the short
run.
b. All costs are variable in the long d. All costs are fixed in the long run.
run.
ANSWER: B
POINTS: 0 / 1
Chapter 10 Microeconomics ECN 2103
True/False
Indicate whether the statement is true or false.
1. The only requirement for a market to be perfectly competitive is for the market to
have many buyers and sellers.
ANSWER: F
POINTS: 0 / 1
2. For a competitive firm, marginal revenue equals the price of the good it sells.
ANSWER: T
POINTS: 0 / 1
3. If a competitive firm sells three times the amount of output, its total revenue also
increases by a factor of three.
ANSWER: T
POINTS: 0 / 1
4. A firm maximizes profit when it produces output up to the point where marginal
cost equals marginal revenue.
ANSWER: T
POINTS: 0 / 1
5. If marginal cost exceeds marginal revenue at a firm's current level of output, the
firm can increase profit if it increases its level of output.
ANSWER: F
POINTS: 0 / 1
6. In a competitive market, both buyers and sellers are price takers.
ANSWER: T
POINTS: 0 / 1
7. In the short run, the market supply curve for a good is the sum of the quantities
supplied by each firm at each price.
ANSWER: T
POINTS: 0 / 1
8. In the long run, perfectly competitive firms earn small but positive economic
profits.
ANSWER: T
POINTS: 0 / 1
9. In the long run, if firms are identical and there is free entry and exit in the market,
all firms in the market operate at their efficient scale.
ANSWER: T
POINTS: 0 / 1
10. If the price of a good rises above the minimum average total cost of production,
positive economic profits will cause new firms to enter the market, which drives the
price back down to the minimum average total cost of production.
ANSWER: T
POINTS: 0 / 1
11. Which of the following is not a characteristic of a competitive market?

a. All of these answers are characteristics of a competitive market.
b. There are many buyers and sellers in the market.
c. The goods offered for sale are largely the same.
d. Firms generate small but positive economic profits in the long run.
e. Firms can freely enter or exit the market.
ANSWER: D
POINTS: 0 / 1
12. Which of the following markets would most closely satisfy the requirements for a
competitive market?
a. electricity
b. cable television
c. cola
d. milk
e. economics textbooks.
ANSWER: D
POINTS: 0 / 1
13. If a competitive firm doubles its output, its total revenue

a. doubles.
b. more than doubles.
c. less than doubles.
d. cannot be determined because the price of the good may rise or fall.
ANSWER: A
POINTS: 0 / 1
14. For a competitive firm, marginal revenue is

a. total revenue divided by the quantity sold.
b. equal to the quantity of the good sold.
c. average revenue divided by the quantity sold.
d. equal to the price of the good sold.
ANSWER: D
POINTS: 0 / 1
15. The competitive firm maximizes profit when it produces output up to the point
where
a. price equals average variable cost.
b. marginal revenue equals average revenue.
c. marginal cost equals total revenue.
d. marginal cost equals marginal revenue.
ANSWER: D
POINTS: 0 / 1
Multiple Choice
Identify the choice that best completes the statement or answers the question.
16. A grocery store should close at night if the

a. variable costs of staying open are less than the total revenue due to staying
open.
b. total costs of staying open are less than the total revenue due to staying
open.
c. variable costs of staying open are greater than the total revenue due to
staying open.
d. total costs of staying open are greater than the total revenue due to staying
open.
ANSWER: C
POINTS: 0 / 1
17. If an input necessary for production is in limited supply so that an expansion of the
industry raises costs for all existing firms in the market, then the long-run market
supply curve for a good could be
a. perfectly inelastic. c. upward sloping.
b. perfectly elastic. d. downward sloping.
ANSWER: C
POINTS: 0 / 1
18. In long-run equilibrium in a competitive market, firms are operating at

a. the minimum of their average-total-cost curves.
b. all of these answers are correct.
c. their efficient scale.
d. zero economic profit.
e. the intersection of marginal cost and marginal revenue.
ANSWER: B
POINTS: 0 / 1
Chapter 11 Microeconomics ECN 2103 Mankiw/Taylor,
Economics
True/False
1. Monopolists are price takers.
ANSWER: F
POINTS: 0 / 1
2. A monopoly is the sole seller of a product with no close substitutes.
ANSWER: T
POINTS: 0 / 1
3. A natural monopoly is a monopoly that uses its ownership of natural resources as a

barrier to entry into its market.
ANSWER: F
POINTS: 0 / 1
4. The demand curve facing a monopolist is the market demand curve for its product.
ANSWER: T
POINTS: 0 / 1
5. For the monopolist, marginal revenue is always less than the price of the good.
ANSWER: T
POINTS: 0 / 1
6. The monopolist chooses the quantity of output at which marginal revenue equals
marginal cost and then uses the demand curve to find the price that will induce
consumers to buy that quantity.
ANSWER: T
POINTS: 0 / 1
7. A monopolist produces an efficient quantity of output but it is still inefficient

because it charges a price that exceeds marginal cost and the resulting profit is a
social cost.
ANSWER: F
POINTS: 0 / 1
8. Using regulations to force a natural monopoly to charge a price equal to its
marginal cost of production will cause the monopoly to lose money and exit the
industry.
ANSWER: T
POINTS: 0 / 1
9. Price discrimination is only possible if there is no arbitrage.
ANSWER: T
POINTS: 0 / 1
10. Price discrimination can raise economic welfare because output increases beyond
that which would result under monopoly pricing.
ANSWER: T
POINTS: 0 / 1
11. Perfect price discrimination is efficient but all of the surplus is received by the
consumer.
ANSWER: F
POINTS: 0 / 1
12. Which of the following is not a barrier to entry in a monopolized market?

a. A single firm is very large.
b. The government gives a single firm the exclusive right to produce some
good.
c. The costs of production make a single producer more efficient than a large
number of producers.
d. A key resource is owned by a single firm.
ANSWER: A
POINTS: 0 / 1
13. A firm whose average total cost continually declines at least to the quantity that
could supply the entire market is known as a
a. natural monopoly.
b. perfect competitor.
c. government monopoly.
d. regulated monopoly.
ANSWER: A
POINTS: 0 / 1
14. A monopolist maximizes profit by producing the quantity at which
a. marginal revenue equals marginal cost.
b. marginal revenue equals price.
c. marginal cost equals price.
d. marginal cost equals demand.
ANSWER: A
POINTS: 0 / 1
15. Which of the following statements about price and marginal cost in competitive and
monopolized markets is true?
a. In competitive markets, price equals marginal cost; in monopolized markets,
price exceeds marginal cost.
b. In competitive markets, price equals marginal cost; in monopolized markets,
price equals marginal cost.
c. In competitive markets, price exceeds marginal cost; in monopolized
markets, price exceeds marginal cost.
d. In competitive markets, price exceeds marginal cost; in monopolized
markets, price equals marginal cost.
ANSWER: A
POINTS: 0 / 1
Multiple Choice
16. Thomson is a monopolist in the production of your textbook because

a. Thomson has a legally protected exclusive right to produce this textbook.
b. Thomson owns a key resource in the production of textbooks.
c. Thomson is a natural monopoly.
d. Thomson is a very large company.
ANSWER: A
POINTS: 0 / 1
17. Refer to Exhibit 4. The profit-maximizing monopolist will choose the price and
quantity represented by point
a. A.
b. B.
c. C.
d. D.
ANSWER: A
POINTS: 0 / 1
18. Refer to Exhibit 4. The efficient price and quantity are represented by point
a. D.
b. A.
c. B.
d. C.
ANSWER: A
POINTS: 0 / 1
19. The inefficiency associated with monopoly is due to

a. underproduction of the good.
b. the monopoly's profits.
c. the monopoly's losses.
d. overproduction of the good.
ANSWER: A
POINTS: 0 / 1
20. Compared to a perfectly competitive market, a monopoly market will usually

generate
a. higher prices and lower output.
b. higher prices and higher output.
c. lower prices and lower output.
d. lower prices and higher output.
ANSWER: A
POINTS: 0 / 1
21. Public ownership of natural monopolies

a. tends to be inefficient.
b. usually lowers the cost of production dramatically.
c. creates synergies between the newly acquired firm and other government-
owned companies.
d. does none of the things described in these answers.
ANSWER: A
POINTS: 0 / 1
22. Which of the follow statements about price discrimination is not true?
a. Perfect price discrimination generates a deadweight loss.
b. Price discrimination can raise economic welfare.
c. Price discrimination requires that the seller be able to separate buyers
according to their willingness to pay.
d. Price discrimination increases a monopolist's profits.
e. For a monopolist to engage in price discrimination, buyers must be unable
to engage in arbitrage.
ANSWER: A
POINTS: 0 / 1
22. A monopoly is able to continue to generate economic profits in the long run
because
a. there is some barrier to entry to that market.
b. potential competitors sometimes don't notice the profits.
c. the monopolist is financially powerful.
d. antitrust laws eliminate competitors for a specified number of years.
e. of all of the things described in these answers
ANSWER: A
POINTS: 0 / 1
23. If marginal revenue exceeds marginal cost, a monopolists should

a. increase output.
b. decrease output.
c. keep output the same because profits are maximized when marginal revenue
exceeds marginal cost.
d. raise the price.
ANSWER: A
POINTS: 0 / 1

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1. ‘Economics is the study of mankind in the ordinary business of life’ .

(a) Adam Smith

(a) Micro Economics

(a) Macro Economics

(a) Resources are over utilized

(a) Open Economy

7. Which of the following falls under micro economics ?

(a) National income

(a) Demand, Supply

9. Under Inductive method, the logic proceeds from :

(a) General to particulars

10. According to Robbins, ‘means’ are:

1. If there were no scarcity, economics would still give valuable insights.

7. Rioting can be explained as a "tipping-point" phenomenon.

8. An unintended consequence of public support for higher education is that low

16. Which of the following involve a trade-off?

18. Economics is the study of

19. A rational person does not act unless

20. Which of the following is NOT a natural experiment capable of verifying or

24. Which of the following statements is true about a market economy?

1. If an economy is operating on its production possibilities frontier, it must produce

3. If an economy were experiencing substantial unemployment, the economy is

4. The production possibilities frontier is bowed outward because the trade-offs

5. An advance in production technology would cause the production possibilities

9. Normative statements can be refuted with evidence.

11. The scientific method requires that

13. Which of the following is not a factor of production?

14. Points on the production possibilities frontier are

16. Economic growth is depicted by

18. Refer to Exhibit 6. If the economy were operating at point E,

a. the opportunity cost of 20 additional units of eggs is 10 units of bacon.

19. Refer to Exhibit 6. Point F represents

a. none of these answers.

20. Refer to Exhibit 6. As we move from point A to point D,

a. the opportunity cost of eggs in terms of bacon falls.

21. Which of the following statements is normative?

22. Positive statements are

2. Comparative advantage, not absolute advantage, determines the decision to

3. Absolute advantage is a comparison based on productivity.

4. Self-sufficiency is the best way to increase one's material welfare.

5. Comparative advantage is a comparison based on opportunity cost.

7. If a country's workers can produce 5 hamburgers per hour or 10 bags of French

14. If an advanced country has an absolute advantage in the production of everything,

17. If a nation has a comparative advantage in the production of a good,

18. Which of the following statements about trade is true?

19. According to the principle of comparative advantage,

20. Which of the following statements is true?

a. 1/5 of a unit of electronics.

a. 1/2 of a unit of electronics.

a. Australia has a comparative advantage in the production of both food and

a. specialize in electronics production, export electronics, and import food.

a. both fruit and beef.

a. 1/3 ton of fruit.

16. A perfectly competitive market has

24. If the price of a good is above the equilibrium price,

25. If the price of a good is below the equilibrium price,

26. If the price of a good is equal to the equilibrium price,

1. If the quantity demanded of a good is sensitive to a change in the price of that

6. The demand for a necessity such as petrol tends to be elastic.

11. The price elasticity of demand is defined as