Marymount University

Arlington, Virginia

Economics 210 Microeconomics

David Pomeroy, Assistant Professor of Economics

"...if an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight..." Milton Friedman

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Contents: Resources for Microeconomics ECO210

Grading Policy

Schedule for Microeconomics (ECO 210)

Example Test Questions

Terms to Review

Download Excel Model of Cost Curves

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GRADING POLICY

Quizzes (2)	30% (15% each)
Midterm Exam	30% (Cumulative)
Final Exam	40% (Cumulative)

Final and midterm exams will be cumulative, and semester grade will include students' in-class participation. Makeup tests will be considered only under exceptional circumstances and by special arrangement made in advance. Additional class assignments may be given which will contribute to the semester grade. If so, weights will be adjusted accordingly. Additional requirements, if any, will be announced in class. Students not attending class, for any reason, when assignments or changes to the schedule are announced are still required to comply.

Quizzes cover subjects covered in class from the last test up to, but not including the subjects scheduled for the week of the quiz. Midterm and final exams are always cumulative.

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CLASS SCHEDULE

ECO 210 Principles of Microeconomics –6:30-9:15 Balston Campus

Week		Date	Chaps.	Topics To Cover
1		02-Sep	1-2.	Labor Day Holiday - Microeconomics: the Economizing Problem
2		09-Sep	1-2	Microeconomics: the Economizing Problem
3		16-Sep	4-5	Quiz #1 & Economic Markets, Equilibrium; Price Determination
4		23-Sep	6	Price Elasticity and Consumer Surplus
5		30-Sep	8 & Appx	Marginal Utility Theory and Indifference Analysis
6		07-Oct	ALL	Midterm Examination
7		15-Oct	8 & Appx	Academic Monday--MEETS TUES OCT 15 -- Marginal Utility Theory and Indifference Analysis
8		21-Oct	9	Production, Marginal Cost and Other Costs in the Short Run
9		28-Oct	9	Production, Marginal Cost and Other Costs in the Short Run
10		04-Nov	10 & Appx	Long Run Costs, and Isoquant Model
11		11-Nov	11	Quiz #2 & Profit Maximization and Perfect Competition (Short Run)
12		18-Nov	11	Profit Maximization and Perfect Competition (Short Run)
13		25-Nov	12	Monopoly and Economic Efficiency
14		02-Dec	13	Monopolistic Competition and Oligopoly
15		09-Dec	21	Comprehensive Review & Labor Markets and Derived Demand
16		16-Dec	ALL	Final Exam*
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Microeconomics: Practice Multiple Choice Questions

This is a random sample of questions designed to assist you in learning the techniques of answering multiple choice test questions. Although I've tried to select questions which cover the material for which you are responsible, these sample questions are not exhaustive nor do they pertain exclusively to what you are required to know. That is, there are concepts that you will still be required to know that are not covered here--In addition, some of these questions cover other concepts you may not be required to know, however, for the most part these are highly representative of the questions you will see on quizzes and exams. Use class lecture notes, reading, and common sense to determine what is best to study. If you have questions about a question, please feel free to ask me, and I will be glad to help.

Questions appear in the approximate order of the material covered during the semester. If you spot an error in a question, please bring it to my attention, so I can make the correction and alert the class.

NOTE: Answers follow the questions (CLICK TO JUMP TO THE ANSWERS)

INTRODUCTION TO THE ECONOMY

202. If the average money price level increases by 12 percent and the price of calculators increases by 10 percent, the relative price of calculators:

a) has fallen by about 2 percent.

b) has fallen by about 1.2 percent.

c) has risen, but not by as much as the average price.

d) has risen by about 10 percent.

209. The specific roles of the government include all of the following except:

a) correcting for positive and negative externalities.

b) promoting workable, effective competition.

c) providing private goods that consumers demand.

d) providing for and protecting private property rights.

210. The process of producing and accumulating capital goods is called:

a) consumption. b) money capital. c) depreciation. d) investment.

211. The basic difference between consumer goods and capital goods is that:

a) the production of capital goods is not subject to the law of increasing costs.

b) consumer goods satisfy wants directly while capital goods satisfy wants indirectly.

c) consumer goods are produced in the private sector and investment goods are produced in the public sector.

d) an economy that commits a relatively large proportion of its resources to capital goods must accept a lower growth rate.

Use the following to answer question 212:

212. In this illustration the law of increasing costs is reflected in the fact that:

a) the production possibilities data would graph as a straight downsloping line.

b) human wants in the aggregate are insatiable and all the combinations of consumer goods and capital goods the economy can produce are finite amounts.

c) larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.

d) the amount of consumer goods which must be sacrificed to get more capital goods diminishes beyond a point.

e) the economy's resources are presumed to be scarce.

213. The law of increasing costs states that:

a) if the prices of all the resources devoted to the production of goods increase, the cost of producing any particular good will increase at the same rate.

b) if the sum of the costs of producing a particular good rises by a specified percentage, the price of that good must rise by a greater relative amount.

c) the sum of the costs of producing a particular good cannot rise above the current market price of that good.

d) if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so.

e) as the demand for a good increases the cost to consumers increases.

222. Which of the following is NOT a basic criticism of the price system?

a) The price system will not automatically provide for the production of public goods.

b) The price system does not automatically account for external costs and benefits.

c) The price system is permissive of recession and/or inflation.

d) Income inequality mayh cause the price system to result in the production of luxuries for the rich at the expense of necessities for the poor.

e) The price system limits individual freedom by imposing resource and product prices which buyers and sellers cannot control.

223. The division of labor means that:

a) labor markets are geographically segmented. c) unskilled workers outnumber skilled workers.

b) each worker performs a large number of tasks. d) workers specialize in various production tasks.

224. In the INPUT market of the Circular Flow Model:

a) businesses borrow money capital from households.

b) firms sell raw materials to households.

c) households sell labor services to businesses.

d) businesses sell final goods to households.

225. The problem of scarcity and the need for making choices arise because:

a) the prices of raw materials have been rising

b) per capita income has not been rising as rapidly as it did in the 1960s

c) our wants are practically unlimited, while our resources are limited

d) the cost of living is rising

e) per capita income has been falling

226. A bulldozer is

a) a capital good d) a consumption good

b) financial capital e) financial investment

c) the opportunity cost of digging ditches

227Table 2. Production possibilities

============================

Options: Products: A B C D E F

Capital goods 0 1 2 3 4 5

Consumer goods 25 24 21 16 9 0

============================

In Table 2, the choice of option C rather than B

a) represents a mistake, since consumers have fewer goods

b) represents a choice of less growth

c) represents a mistake, since only 23 total units are produced (that is, 2 + 21) rather than 25 (that is, 1 + 24)

d) represents a choice of more growth

e) means that there will be more unemployment

228. Money represents "general purchasing power" because:

a) it is backed by gold and other precious metals

b) the government is careful to increase its quantity at a slow and steady rate

c) it can be used to buy a wide range of goods and services

d) its value is more stable than the value of any single good or service

e) its supply may be increased or decreased unexpectedly

229. If the government issues much more paper currency, the likely result is:

a) bad money drives out good d) good money drives out bad

b) deflation e) inflation

c) money ceases to be the medium of exchange

230. We conclude that economies of scale exist when a doubling of all inputs results in an increase in output by:

a) between 50% and 100% b) less than 50% c) 100% d) more than 100% e) 50%

1. Which of the following statements about any economic system is true?

A) It solves the questions what is produced, how it is produced, and for whom it is produced.

B) It can eliminate scarcity.

C) It provides equal distribution of well-being among its participants.

D) Individuals have no effect on what is produced, how it is produced, and to whom products are distributed.

3. The three central coordination problems of the economy given in the book are

A) for whom, why, and what

B) whether, if whether, then what, and if what, then why

C) how, why and whether

D) what, how and for whom

4. An economic model is:

A) a physical or mental structure that significantly influences economic decisions.

B) an absolute truth concerning the workings of the real world.

C) a generalization/simplification that allows us to make predicitons about the workings of an economy.

D) an action taken to influence the course of economic events.

SUPPLY AND DEMAND

327. Phonographs and records are:

A) inferior goods. B) substitute goods. C) complementary goods. D) independent goods.

337. The difference between the price a demander would have been willing to pay and the price he or she must actually pay is:

A) monopolist surplus. B) inventory surplus. C) producer surplus. D) consumer surplus.

346. If rent control is applied to apartment housing, the prediction of basic supply and demand analysis is that:

A) there will be an excess supply of apartment housing.

B) the market will return to equilibrium by an increase in the supply of housing.

C) the market will return to equilibrium by a decrease in the demand for housing.

D) there will be an excess demand for apartment housing.

359. A rise in the demand for pork will most likely be caused by:

A) a rise in the price of beef. C) a decline in the money price of pork

B) a rise in the money price of pork. D) a decline in the relative price of pork.

365. A leftward shift of a product supply curve might be caused by:

A) an improvement in the relevant technique of production.

B) some firms leaving an industry.

C) all of the answers shown are correct.

D) a decrease in consumer incomes.

E) a decline in the prices of needed inputs.

372. If the demand for computers increases, the computer industry will probably:

A) increase their demand for labor. C) reduce their demand for labor.

B) experience no change in their demand for labor. D) reduce both their output and their demand for labor.

373. A market is in equilibrium:

A) provided there is no surplus of the product.

B) at all prices above that shown by the intersection of the supply and demand curves.

C) whenever the demand curve is downsloping and the supply curve is upsloping.

D) when the number of producers equals the number of consumers.

E) if the amount which producers want to sell is equal to the amount which consumers want to buy.

Use the following to answer question 201:

201. Given the above graph, the quantity that would be associated with the price of 1 in a demand table would be

a) 6 b) 4 c) 3 d) 5

203. Which of the following circumstances would most likely cause an increase in the current supply of milk?

a) An increase in demand for milk.

b) An increase in the price of milk.

c) A decrease in the number of dairy farmers of a given size.

d) Lower prices of feed for cows.

Use the following to answer question 204:

Price Quantity demanded Quantity Supplied

(per gal.) (gallons per week) (gallons per week)

$1 2000 1000

$2 1500 1500

$3 1000 2000

$4 500 2500

204. Suppose the above supply and demand tables reflect the supply and demand for milk per week:

At a price of $1:

a) there is a surplus of 1000 gallons per week. c) there is a shortage of 1000 gallons per week.

b) there is a surplus of 500 gallons per week. d) there is a shortage of 2500 gallons per week.

Use the following to answer question 205:

Price Quantity demanded Quantity supplied

($/ lb.) (lbs.) (lbs.)

.10 30,000 5,000

.25 25,000 10,000

.50 20,000 20,000

.75 15,000 30,000

.95 5,000 40,000

205. The table above shows the demand and supply schedules for pork bellies.

If the price of pork bellies were $0.25:

a) the market would be in equilibrium.

b) there would be a surplus of pork bellies on the market.

c) there would be upward pressure on the price of pork bellies.

d) there would be downward pressure on the price of pork bellies.

206. In the mid 1990s, The Wall Street Journal reported a renewed interest in eating caviar. At the same time, the supply of Russian caviar was shrinking following the collapse of Soviet Communism. What was the most likely effect of theses events on the price and quantity of caviar sold?

a) Price fell and quantity sold rise.

b) Price rose and the effect on the quantity of caviar sold is ambiguous.

c) Price rose and quantity sold fell.

d) Price fell and the effect on the quantity of caviar sold is ambiguous.

207. An effective price ceiling is best defined as:

a) a price lower than any supplier is willing to sell.

b) a price imposed by government above equilibrium price.

c) a price imposed by government below equilibrium price.

d) a price higher than any consumer is willing to pay.

208. New York City has been experiencing a housing emergency for quite some time. Apartments are difficult to come by. In fact, the vacancy rate has been below 5 percent since World War II. The most likely cause of the housing emergency is

a) Too high incomes in New York City.

b) a lack of a rationing mechanism to distribute existing apartments.

c) a price ceiling on rent lower than equilibrium price.

d) a price floor on rent higher than equilibrium price.

214. The demand for most products varies directly with changes in consumer incomes. Such products are known as:

a) normal goods. d) inferior goods.

b) competitive goods. e) none of the above.

c) complementary goods.

215. In constructing a stable demand curve for product X:

a) the prices of other goods are assumed given. c) consumer preferences are assumed constant.

b) money incomes are assumed constant. d) all of the above assumptions are made.

216. If the demand curve for product B shifts to the right as the price of product A declines, it can be concluded that:

a) A and B are substitute goods. d) A is a superior good and B is an inferior good.

b) A and B are complementary goods. e) both A and B are inferior goods.

c) A is an inferior good and B is a superior good.

217. A leftward shift of a product supply curve might be caused by:

a) some firms leaving an industry.

b) an improvement in the relevant technique of production.

c) all of the answers shown are correct.

d) a decline in the prices of needed inputs.

e) a decrease in consumer incomes.

218. If consumer incomes increase, the demand for product X:

a) will necessarily remain unchanged. c) may shift either to the right or left.

b) will necessarily shift to the right. d) will necessarily shift to the left.

Use the following to answer question 7:

7. Assume the graph above reflects the egg market. The arrow which would best capture the impact of cheaper, prefabricated henhouses on the egg market is:

A) A B) B C) C D) D

8. You're the supplier of a good and suddenly a number of your long-lost friends call you to buy your product. Your good is most likely

A) in equilibrium. B) in excess demand. C) in both excess supply and demand. D) in excess supply.

Use the following to answer question 9:

9. Refer to the graph above. If the price is changed from $3.00 to $1.00, how much more is demanded?

A) 8 cassettes per week. B) 2 cassettes per week. C) 6 cassettes per week. D) 4 cassettes per week.

11. Factors which shift the supply curve to the right include:

A) improvements in the technology of production.

B) a fall in the price of the good in question.

C) an increase in the price of the good in question.

D) increases in the price of the inputs used in production.

12. If supply shifts to the left and demand shifts to the right, then what would happen to price?

A) would go up. B) could go up or down. C) would stay the same. D) would go down.

13. An improvement in the technology for producing a good will shift the supply curve for that good to the left.

A) True B) False

Use the following to answer question 14:

14. The curve that best demonstrates the law of demand is:

A) A. B) B. C) C. D) D.

16. The explanation for the law of demand involves:

A) consumers' ability to substitute different goods. C) the market's ability to equate supply and demand.

B) suppliers' ability to substitute inputs. D) the government's ability to set prices.

17. An increase in price and indeterminate change in quantity is most likely caused by

A) a leftward shift in demand and no shift in supply.

B) a leftward shift in supply and no shift in demand.

C) a rightward shift in supply and a leftward shift in demand.

D) a leftward shift in supply and a rightward shift in demand.

19. When people heard that there was a shortage of Tickle Me Elmo dolls, they wanted even more of them. Because of this effect the pressure on the price of these dolls increased. The price of the dolls remained the same however. Thus, the shortage of these dolls

A) may have increased or decreased B) decreased C) increased D) did not change

20. Price ceilings and price floors

A) make the rationing function of markets more efficient.

B) cause demand and supply curves to shift thus having no effect on the rationing

function of prices.

C) cause surpluses and shortages in markets respectively.

D) interfere with the allocation function of prices.

Use the following to answer question 22:

22. Refer to the graph above. In the 1990s, Americans nationwide have been complying with recycling regulations with unexpected zeal. The effect on the market for waste paper is best shown by which graph?

A) A B) B C) C D) D

23. When the Polio vaccine first became available in the United States, the government set its price below market equilibrium. Production of the vaccine was not sufficient to fill all orders and the government had to regulate its distribution. Had the vaccine been sold without government intervention, the shortage would have been eliminated by price rising,

A) quantity demanded decreasing, and supply increasing.

B) demand decreasing, and quantity supplied increasing.

C) quantity demanded decreasing and quantity supplied increasing.

D) demand decreasing, and supply increasing.

24. A Wall Street Journal headline reads: "Cigar Shortage Draws New Brands into Market." The shortage resulted from a renewed interest in smoking cigars. What best describes facts behind the headline?

A) Supply has shifted to the right. Price has fallen somewhat, but not enough to equilibrate supply and demand.

B) Demand has shifted to the right. Price has risen somewhat, increasing quantity supply, but not enough to equal quantity demanded.

C) Supply has shifted to the left. Price has risen somewhat, but not enough to equilibrate supply and demand.

D) Demand has shifted to the right and price has risen to equilibrate supply and demand.

Use the following to answer question 25:

25. Refer to the graph above. In New York City, the rent on many apartments are set below market rates. As a result, many people find that the only way to obtain an apartment is to make illegal payments to landlords. If Pc is the controlled rent, a best estimate of such "key" money is shown as

A) Between zero and Pf minus Pc. B) Pe. C) Between zero and Pe minus Pc. D) Pf.

26. A decrease in price and indeterminate change in quantity is most likely caused by

A) a leftward shift in demand and no shift in supply.

B) a leftward shift in supply and no shift in demand.

C) a rightward shift in supply and a leftward shift in demand.

D) a leftward shift in supply and a rightward shift in demand.

. B) $10 million. C) Zero D) greater than $10 million.

28. What will likely happen to equilibrium price and quantity of paper if school enrollment increases while a tornado destroys the largest paper mill in Tanzania?

A) The price will increase, and quantity will decrease.

B) The price will increase, what happens to quantity is not clear.

C) The price will increase, so will quantity.

D) The price will decrease, what happens to quantity is not clear.

29. An increase in quantity and indeterminate change in price is most likely caused by

A) a rightward shift in supply and demand.

B) a rightward shift in demand, keeping supply constant.

C) a leftward shift in demand and supply

D) a rightward shift in supply, keeping demand constant.

Use the following to answer question 32:

32. Refer to the graph above. Floods in the U.S. Midwest in the early 1990s reduced the U.S. corn crop. Which graph depicts the effect of the drought on the U.S. corn market?

A) A B) B C) C D) D

33. When the price of soybeans declines, farmers will plant more corn. The cross-price elasticity of supply of corn and soybeans:

A) is positive and corn and soybeans are complements. C) is positive and corn and soybeans are substitutes.

B) is negative and corn and soybeans are complements. D) is negative and corn and soybeans are substitutes.

34. Which of the following statements concerning the price elasticity of demand is true?

A) If ED = 1.4, a 10% increase in the price will decrease total revenue.

B) If demand is elastic then a price increase will increase total revenue.

C) If ED = 3, a 5% increase in the price will increase the quantity demanded by 15%.

D) If demand is inelastic then the percentage change in the quantity demanded is greater than the percentage change in the price.

35. For luxuries, income elasticity is :

A) equal to 1. B) greater than 1. C) less than 0. D) greater than 0.

36. Suppose the demand for roses in increases from 500 to 600 stems when income rises from $10,000 to $20,000. Using the arc convention income elasticity is roses is

A) .27 B) 2 C) .02 D) 3.6

37. For substitutes:

A) price elasticity of demand is positive. C) cross price elasticity is negative.

B) cross price elasticity is less than one. D) cross price elasticity is positive.

38. A 1997 Florida freeze reduced the quantity of vegetables sold by 20% and increased their retail price by 30%. One can conclude that

A) Demand has shifted out along a perfectly elastic supply curve.

B) Demand has shifted out along a perfectly inelastic supply curve.

C) Supply of vegetables has shifted in along an inelastic demand curve.

D) Supply of vegetables has shifted in along an elastic demand curve.

39. In which case will the price change be the greatest (assuming the shifts described are the same size)?

A) Supply is elastic and demand shifts in. C) Demand is elastic and supply shifts in.

B) Demand is inelastic and supply shifts in. D) Supply is inelastic and supply shifts in.

40. The demand for a good is price elastic. Which of the following would be the most likely explanation for this?

A) The good is a necessity. C) The good is broadly defined.

B) The time interval considered is long. D) The good is a small portion of one's total income.

42. Refer to the table below to answer the question. Demand between $2.20 and $2.40, demand is:

Price	Quantity
$1.60	130
1.80	120
2.00	110
2.20	100
2.40	90
2.6	80

A) elastic. B) unit elastic. C) perfectly elastic. D) inelastic.

PRICE ELASTICITY

302. The price elasticity of demand is:

A) the change in the quantity demanded divided by the change in price.

B) the change in price divided by the change in the quantity demanded.

C) the percentage change in price divided by the percentage change in the quantity demanded.

D) the percentage change in the quantity demanded divided by percentage change in price.

318. The price elasticity of demand for insulin by diabetics is much smaller than the price elasticity of demand for leather shoes. This is an example of :

A) how the price elasticity of demand falls the more a good is a necessity.

B) how the price elasticity of demand falls the less specifically the good is defined.

C) how the price elasticity of demand rises the more a good is a necessity.

D) how the price elasticity of demand rises the less specifically the good is defined.

368. The demand for a good is price inelastic. Which of the following would be an explanation for this?

A) The good is specifically defined. C) The time interval considered is long.

B) The good is a large portion of one's total income. D) The good is a necessity.

Use the following to answer questions 321-322:

UTILITY THEORY

321. Point M:

A) is the consumer's equilibrium position. C) is unobtainable.

B) entails the highest attainable level of total utility. D) is inferior to point N.

322. The equilibrium position for the consumer is at:

A) any point on xy. B) point L. C) point J. D) point M. E) point K.

339. Refer to the graph above. If the price of bagels fall, the income constraint in the graph will

A) rotate in and become flatter. C) rotate in and become steeper.

B) rotate out and have the same slope. D) rotate out and become flatter.

344. The principle of diminishing marginal utility says that

A) as you consume more of a good, you enjoy the additional units more than you did the initial units.

B) as you consume more of a good, you enjoy the additional units less than you did the initial units.

C) you don't enjoy consuming more of a good.

D) you enjoy consuming more of a good if it is good.

374. The following table lists the utility that Sarah receives from consuming bananas at 25 cents a banana. What is the marginal utility of consuming the 4th banana?

Number of Total

bananas utility

0 0

1 10

2 22

3 32

4 40

5 46

A) 8 B) 40 C) 46 D) 10

375. To make a choice among combinations of goods with a cost in money based upon the principle of rational choice, one must know

A) total utility only.

B) total utility of the combination of goods and its price.

C) marginal utility only.

D) marginal utility of each good and its price.

43. Goods A and B cost $1 each. The total utility one could get from consuming 1 unit of good A is 30. The total utility one could get from consuming 2 units of good B is 60. Based on rational choice one

A) should consume more of good A.

B) should consume more of good B.

C) should be indifferent between consuming good A and B.

D) would not be able to decide what to do because there is not enough information.

44. Which of the following statements is true?

A) The principle of diminishing marginal utility indicates that beyond some point the marginal utility from each additional unit of a good consumed decreases.

B) Two key psychological assumptions that economists make in their theory of individual choice are that humans are rational and self-interested.

C) If marginal utility is declining but still positive, total utility is increasing.

D) All of the above.

45. If the marginal utilities are constant for travel and food and the marginal utility per dollar of travel is 50 and the marginal utility per dollar of food is 30:

A) we can gain 20 utils net by spending one less dollar on food and one more dollar on travel.

B) we can gain 30 utils net by spending one less dollar on food and one more dollar on travel.

C) the total utility of food and travel is 80.

D) we can gain 20 utils net by spending one more dollar on food and one less dollar on travel.

46. To calculate the marginal utility of consuming N products:

A) divide total satisfaction from consuming all N products by N.

B) subtract total satisfaction from consuming N-1 products from total satisfaction from consuming N products.

C) subtract additional satisfaction from consuming the (N-1)th production from the additional satisfaction from consuming the N th product.

D) divide total satisfaction from consuming all N products by the price of the product.

47. When you consume the third piece of chicken, total utility rise from 420 to 520. Marginal utility for the third piece of chicken is:

A) 140 B) 520 C) 100 D) 420

Use the following to answer question 48:

48. Refer to the graph above. A consumer would be expected to change consumption from point A to point B in response to:

A) an increase in the price of chocolate bars. C) a decrease in the price of soda.

B) an increase in the price of soda. D) an increase in income.

49. The absolute value slope of the indifference curve given the law of diminishing marginal rate of substitution,

A) is constant. B) increases as one moves to the right. C) are different. D) declines as one moves to the right.

50. Tom is maximizing utility by buying three packs of bubble gum and four packages of Skittles. Given diminishing marginal utility, if the price of Skittles rises, the principle of rational choice tells us that :

A) Tom will buy fewer Skittles, to lower the opportunity cost of not consuming Skittles.

B) Tom will buy fewer Skittles, to raise the opportunity cost of not consuming Skittles.:

C) Tom will buy more Skittles, to raise the opportunity cost of not consuming Skittles.

D) Tom will buy more Skittles, to lower the opportunity cost of not consuming Skittles.

51. The following table lists the utility that Steve receives from consuming oranges at 50 cents apiece. What is the marginal utility of increasing consumption from 2 to 3 oranges?

Number of	Total
oranges	utility
0	0
1	4
2	9
3	15
4	20
5	24

A) 12 B) 6 C) 7.5 D) 3

52. Steve is currently maximizing utility by consuming three fried eggs and four strips of bacon. From this you can conclude that

A) the price of eggs and bacon are the same.

B) the marginal utility of the third fried egg equals the marginal utility of the fourth strip of bacon.

C) the opportunity cost of not consuming the third fried egg equals the opportunity cost of not consuming the fourth strip of bacon.

D) the total utility of the three eggs equals the total utility of the four strips of bacon.

Use the following to answer questions 305-307:

COST CURVES

305. Refer to the graph above. Average variable cost is minimized when output equals:

A) 25 units. B) 21 units. C) 12 units. D) 6 units.

306. Refer to the graph above. Marginal cost is minimized when output equals:

A) 21 units. B) 12 units. C) 25 units. D) 6 units.

307. Refer to the graph above. Why does the distance between curves II and III get smaller?

A) average fixed cost is increasing. C) average variable cost is increasing.

B) average fixed cost is declining. D) marginal cost is increasing.

333. In computing profits, accountants leave out what type of costs?

A) explicit costs. B) opportunity costs. C) total costs. D) fixed costs.

334. The law of diminishing marginal productivity (returns) states that as more units of a variable input are added to a fixed input, the additional output the firm gets:

A) will be constant. B) will always be positive. C) will eventually increase. D) will eventually decrease.

351. The firms in the oat industry are currently receiving a price of $2 per bushel for their product. The minimum possible average total cost of producing oats in the long-run is $1 per bushel. It follows that:

A) new firms will enter the oat industry.

B) firms in the oat industry will earn economic profits in both the long-run and in the short-run.

C) the oat industry is in equilibrium.

D) the price of oats will remain $2 per bushel in the long-run.

350. The marginal cost of producing cottonseed meal is $170 per ton. If the cottonseed oil industry is perfectly competitive and in long-run equilibrium, then:

A) the average total cost of producing cottonseed oil cannot be determined.

B) the average total cost of producing cottonseed oil is equal to $170 per ton.

C) the average total cost of producing cottonseed oil is greater than $170 per ton.

D) the average total cost of producing cottonseed oil is less than $170 per ton.

353. Fixed costs plus variable costs equal:

A) average total costs. B) marginal costs. C) average costs. D) total costs.

363. The short run is a period during which ____________ inputs are variable and ____________ inputs are fixed.:

A) some; some. B) no; some. C) no; all. D) some; no.

367. The law of diminishing marginal productivity holds:

A) in the short run. B) when all inputs are variable. C) when all inputs are fixed. D) in the long run.

369. The law of increasing costs states that:

A) if the prices of all the resources devoted to the production of goods increase, the cost of producing any particular good will increase at the same rate.

B) if the sum of the costs of producing a particular good rises by a specified percentage, the price of that good must rise by a greater relative amount.

C) the sum of the costs of producing a particular good cannot rise above the current market price of that good.

D) if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so.

E) as the demand for a good increases the cost to consumers increases.

317. To achieve economic efficiency, managers should:

A) use the most sophisticated technology. C) use the highest quality inputs.

B) use the least costly input combination. D) hire the most highly skilled employees.

Use the following to answer questions 319-320:

319. Refer to the graph above.The average variable cost curve is represented by which curve?

A) III. B) IV. C) I. D) II.

320. Refer to the graph above. The average fixed cost curve is represented by which curve?

A) IV. B) III. C) I. D) II.

53. In the short run, average variable cost is:

A) variable cost multiplied by output. C) total cost multiplied by output.

B) total cost divided by output. D) variable cost divided by output.

54. The average fixed cost curve appears:

A) always upward sloping. B) always downward sloping. C) horizontal. D) U shaped.

Use the following to answer question 55:

55. Refer to the graph above. At point A,

A) average product is maximum. C) marginal product is zero.

B) marginal product is minimum. D) marginal product is maximum.

Use the following to answer question 56:

Number of	Average
workers	product of workers
1	2
2	5
3	9
4	14
5	16
6	17
7	18
8	18
9	17
10	15

56. Refer to the table above. Marginal product declines when which worker is hired?

A) The ninth. B) The fifth. C) The sixth. D) The seventh.

57. If the average cost of producing 9 sweaters is $6.50 and the marginal cost of producing the 10th sweater is $6.75, then the average cost of producing 10 sweaters will:

A) increase. B) increase by 25 cents. C) not change. D) decrease.

Use the following to answer question 58:

Number of	Total
workers	Output
1	4
2	10
3	18
4	28
5	35
6	41
7	45
8	48
9	50
10	49

58. Refer to the table above. The marginal product of the sixth worker is:

A) 7. B) 8. C) 9. D) 6.

59. Marginal product eventually _________ because some inputs are __________.:

A) declines; variable B) increases; variable. C) increases; fixed. D) declines; fixed.

60. Costs that change as output changes include all of the following except:

A) variable costs. B) total costs. C) fixed costs. D) marginal costs.

61. When average total cost is rising, the marginal cost curve must be above the average total cost curve.

A) True B) False

62. The transformation of factors into goods is called:

A) production. B) distribution. C) value added. D) consumption.

63. The relationship between long-run and short-run average total costs is known as the:

A) technical relationship. B) envelope relationship. C) efficiency relationship. D) economic relationship.

Use the following to answer question 66:

 66. Refer to the graph above. If the seller expects a price of $52, the minimum efficient level of production is:

1. 16. B) 18. C) 17. D) 15.

Use the following to answer question 67:

67. Refer to the graph above. If the firm wants to produce 900 units of output, it should use the plant size represented by:

A) SATC3. B) SATC4. C) SATC2. D) SATC1.

68. Diseconomies of scale are associated with all of the following except:

A) improved team spirit. B) monitoring costs. C) the long-run. D) increasing per-unit costs.

69. Total revenue is 1000; explicit measurable costs are 500.:

A) Accounting profit cannot be determined from the figures given

B) Accounting profit is 1000.

C) Accounting profit is 500.

D) Accounting profit is 200.

70. A firm's average cost increases as it increases its output by expanding its plant and hiring additional workers. The firm's owners blame the increase in per-unit costs on the law of diminishing returns. The owner's argument:

A) is incorrect because all inputs are varied in the example.

B) is incorrect because economies of scale are present.

C) is correct because marginal productivity must decrease in the short-run.

D) is correct because some inputs are fixed in the long-run.

Use the following to answer questions 303-304:

PERFECT COMPETITION

303. Refer to the graph above. What level of output should the firm produce to maximize profits?

A) 6. B) 4. C) 7. D) 8.

304. Refer to the graph above. What area represents total economic profits?

A) CBWT. B) MFWT. C) DABC. D) DAFM.

310. In a perfectly competitive market the demand curve faced by an individual firm is:

A) relatively elastic. B) perfectly inelastic. C) perfectly elastic. D) relatively inelastic.

Use the following to answer question 323:

323. Refer to the graph above. Suppose that price is $5 in the above figure. Given this price, a perfectly competitive firm should:

A) shutdown in the short-run but continue production in the long-run.

B) continue to produce in the short-run but shutdown in the long-run.

C) shutdown permanently.

D) continue to produce in both the short-run and the long-run.

126. In competitive long-run equilibrium:

A) economic profits are positive. C) economic profits are negative.

B) normal profits exceed economic profits. D) economic profits are zero.

326. A perfectly competitive firm in the long-run:

A) makes zero accounting profits.

B) makes zero economic profits.

C) can earn positive or negative economic profits.

D) can earn negative accounting profits as long as economic profits are positive.

330. Marginal revenue is equal to:

A) the change in total profits when another unit of output is sold.

B) the change in total revenue when another unit of output is sold.

C) marginal cost.

D) total revenue divided by its output.

Use the following to answer questions 331-332:

331. Refer to the graph above. When the industry is in long-run competitive equilibrium:

A) the firm will earn economic profits of $300 per day. C) the firm will produce 100 units of output.

B) the marginal cost of production will be $3. D) the price of the product will be $6.

332. Refer to the graph above. If the price of the product is $8 and the firm maximizes profit:

A) the industry will be in long-run equilibrium.

B) the firm will earn economic profits of more than $330 per day.

C) output will be 100 units per day.

D) average cost of the product will be at the minimum possible level.

Use the following to answer questions 335-336:

335. Refer to the graph above. In order to maximize profit, the firm represented by the above graph will produce:

A) 90 units of output. B) 130 units of output. C) 110 units of output. D) 40 units of output.

336. Refer to the graph above. The total profit earned by the firm in the above graph is:

A) $220. B) $605. C) $330. D) $275.

Use the following to answer question 339:

340. A perfectly competitive firm will be profitable if price at the profit-maximizing quantity is:

A) above AFC. B) above ATC. C) above AVC. D) above MC.

341. Perfectly competitive firms:

A) maximize profits. B) minimize total costs. C) maximize total sales. D) maximize market share.

Use the following to answer question 342:

342. Refer to the graph above. If the market price is P4:

A) the firm will produce Q2 and incur a loss. C) the firm will produce Q4 and earn a profit.

B) the firm will produce Q3 and earn a profit. D) the firm will produce Q3 and break even.

343. Two persons are selling mugs that cost $1 each. Exerting the same amount of time and effort, one sells 20 mugs at a price of $4 and the other person sells 40 mugs at a price of $3. Which of the following is true?

A) You would not want to be either person.

B) You would want to be the person selling mugs for $3.

C) You would be indifferent between the two.

D) You would want to be the person selling mugs for $4.

345. The profit-maximizing condition for a perfectly competitive firm is:

A) P = AVC. B) P = MC. C) MR = AVC. D) MR = P.

Use the following to answer question 354:

354. Refer to the graph above. A competitive firm is producing at output A.

A) It cannot increase profits.

B) It could increase profits by decreasing output.

C) One can say nothing about profits from the diagram on the right.

D) It could increase profits by increasing output.

371. A product is homogeneous if:

A) it is always produced from the same inputs. C) its price is the same regardless of which firm sells it.

B) many varieties of it exist. D) it is the same no matter who produces it.

379. The supply curve of a perfectly competitive firm is:

A) the marginal cost curve only if price exceeds average total cost.

B) the marginal cost curve only if price exceeds average variable cost.

C) nonexistent.

D) the average total cost curve only if price exceeds average variable cost.

380. In a perfectly competitive market, if the government places a tax on the user of land:

A) the owner of the land will bear the entire burden of the tax.

B) the quantity of land supplied will go down.

C) the renter of the land will bear the entire burden of the tax.

D) the quantity of land supplied will go up.

219. Normal profits are:

a) not a cost because a firm can avoid these payments by temporarily closing down.

b) not a cost of production because they need not be realized in order for a firm to retain entrepreneurial ability.

c) a cost because any excess of total receipts over total costs will accrue to the businessperson.

d) a cost because they represent payments made for the resources which the businessperson owns and supplies in his or her own enterprise.

220. If competitive industry Z is realizing substantial economic profits, we can expect that output will:

a) fall, product price will fall, and economic profits will tend to disappear.

b) expand, product price will fall, and economic profits will tend to disappear.

c) fall, product price will rise, and economic profits will tend to disappear.

d) expand, product price will fall, and economic profits will tend to rise.

221. From society's point of view the economic function of profits and losses is to:

a) promote the equal distribution of real assets and wealth.

b) contribute to a more equal distribution of income.

c) reallocate resources from less-desired to more-desired uses.

d) perpetuate full employment and price level stability.

357. A perfectly competitive firm's marginal revenue is:

A) less than the selling price.

B) sometimes below and sometimes above the selling price.

C) greater than the selling price.

D) equal to the selling price.

Use the following to answer question 72:

 72. Refer to the graph above. What area represents total economic profits?

A) DABC. B) MFWT. C) DAFM. D) CBWT.

73. To maximize profits, a perfectly competitive firm should do all of the following except: :

A) produce until economic profits are maximized. C) produce until per unit profits are maximized.

1. produce until marginal revenue equals marginal cost. D) produce until marginal cost equals price.

Use the following to answer question 74:

Quantity	Total Cost	Total Revenue
10	$25	50
20	60	100
30	105	150
40	160	200

74. Based on the above information, a profit-maximizing firm would produce:

A) 20 units of output. B) 40 units of output. C) 30 units of output. D) 10 units of output.

75. A perfectly competitive firm's marginal revenue is:

A) greater than the selling price.

B) sometimes below and sometimes above the selling price.

C) less than the selling price.

D) equal to the selling price.

76. During a recession, the price of restaurant meals falls by over ten percent. The most likely cause is:

A) a downward shift of the demand curve. C) an upward shift of the supply curve.

B) a downward shift of the supply curve. D) an upward shift of the demand curve.

MONOPOLY

301. The demand curve for a monopolist is:

A) perfectly elastic. C) not relevant since the monopolist sets price.

B) perfectly inelastic. D) downward sloping.

309. Monopoly is a market structure where:

A) a few firms dominate the market. C) many firms produce identical products.

B) one firm makes up the entire market. D) many firms produce differentiated products.

Use the following to answer questions 312-316:

312. Refer to the graph above. If the firm maximizes profit, its daily output will be:

A) 45 units. B) 30 units. C) 10 units. D) 20 units.

313. Refer to the graph above. The maximum possible profit the firm can earn is:

A) $ 0. B) $ 60. C) $240. D) $120.

314. Refer to the graph above. If the firm seeks to maximize profit, it should set a price equal to:

A) $ 8. B) $10. C) $ 4. D) $ 6.

315. Refer to the graph above. If the firm maximizes profit, the marginal cost of its product will be:

A) $ 4. B) $10. C) $ 6. D) $ 8.

316. Refer to the graph above. If the firm produces 45 units of output per day, it:

A) will be able to increase profit by producing less per day.

B) will be able to increase profit by producing more per day.

C) will be maximizing profit.

D) will charge a price that exceeds its marginal cost.

377. If the marginal revenue of the last widget the firm produces is $50 and its marginal cost is $35, a firm should:

A) hold production constant. C) decrease production.

B) reconsider past production decisions. D) increase production.

Use the following to answer questions 324-325:

324. Refer to the graph above. The firm's profit-maximizing price is:

A) h. B) f. C) e. D) g.

325. Refer to the graph above. If the firm is attempting to maximize profit, it will:

A) make enough to cover its variable costs, but not its fixed costs.

B) earn pure profits.

C) incur a loss.

D) earn just normal profits, i.e., zero pure profits.

329. A natural monopoly occurs when a monopoly:

A) achieves a naturally efficient allocation of resources.

B) is created by the federal government.

C) exists because the monopolist is better at producing a good than anyone else.

D) exists because significant economies of scale are present.

338. If MR > MC, the monopolist should:

A) stop producing. B) decrease production. C) maintain the same level of production. D) increase production.

349. Of the following, the most likely example of price discrimination is:

A) when supermarkets charge different prices for oranges and apples.

B) when a firm sells different shoes for different prices.

C) when restaurants charge different prices for chicken and beef.

D) when hotels charge different rates when conventions are held.

355. For a monopolist, marginal revenue is:

A) below price. B) greater than price. C) constant. D) equal to price.

Use the following to answer question 360:

360. Refer to the graph above. Triangle D represents:

A) the loss of producer surplus resulting from a monopoly.

B) consumer surplus redistributed to the monopolist.

C) the cost to society of increasing output from Qm to Qc.

D) the loss of consumer surplus resulting from a monopoly.

366. Charging different prices to different individuals or groups is called:

A) price discrimination. B) quantity discrimination. C) market segmentation. D) price differentiation.

Use the following to answer question 77:

Quantity	Marginal	Total	Total
Cost	Cost	Revenue
1	24	68	35
2	18	88	70
3	15	104	105
4	13	118	140
5	15	130	175
6	20	147	210
7	26	169	245
8	35	199	280
9	47	239	315

77. Refer to the table above. If a firm is producing 5 units of output, then:

A) its marginal revenue is less than its marginal cost and it should reduce output to increase profits.

B) its marginal revenue is less than its marginal cost and it should increase output to increase profits.

C) its marginal revenue is greater than its marginal cost and it should reduce output to increase profits.

D) its marginal revenue is greater than its marginal cost and it should increase output to increase profits.

78. Barriers to entry:

A) exist only in perfectly competitive markets. C) limit the size of an industry.

B) restrict the number of firms in an industry. D) do not affect the number of firms in an industry.

79. A significant difference between monopoly and competition is that:

A) the monopolist's demand curve is the industry demand curve while the competitive firm's demand curve is perfectly elastic.

B) profits are driven to zero in a monopolized industry but may be positive in a competitive industry.

C) free entry and exit is possible in a monopolized industry but impossible in a competitive industry.

D) competitive firms control market supply but monopolies do not.

80. A market structure in which one firm makes up the entire market is:

1. a monopoly. B) an oligopoly. C) monopolistic competition. D) perfect competition.

Use the following to answer question 81:

81. Refer to the graph above. If hamburger dinners are produced by a pure monopoly firm that maximizes profit, the price of hamburger dinners will be:

A) $ 2. B) $ 6. C) $ 4. D) $ 5.

82. Patents do all of the following except:

A) increase research and development. C) raise price above its competitive level.

B) generate monopoly profits. D) increase quantity above its competitive level.

87. Which of the following market structures is best described by the long-run condition P = ATC > MR ?

A) Monopoly. B) Monopolistic competition. C) Perfect competition. D) Oligopoly.

Use the following to answer question 88:

88. Refer to the graph above of a monopolistically competitive firm. If the firm maximizes profit it will:

A) produce 8 thousand dresses per year. C) go out of business because it cannot earn a profit.

B) produce 12 thousand dresses per year. D) produce 5 thousand dresses per year.

89. Under monopolistic competition:

A) firms face a downward-sloping demand curve.

B) a single seller serves the market.

C) firms can sell all the output they wish without affecting the price.

D) firms have no monopoly power.

Use the following to answer question 90:

90. Refer to the graph above of a monopolistically competitive firm. In the long-run:

A) demand will fall as firms exit the industry. C) average cost will rise as firms enter the industry.

B) demand will rise as firms exit the industry. D) marginal cost will fall as firms exit the industry.

Use the following to answer question 91:

Industry	Number of Sellers	% of shipments accounted for by the 4 largest companies
Tires	15	95
Upholsteredfurniture	2000	15

91. Refer to the table above. The tire industry is best categorized as:

A) a pure monopoly. B) perfectly competitive. C) oligopolistic. D) monopolistically competitive.

92. Which of the following characterizes the two extremes that an oligopoly model can take?

A) the cartel model in which firms set a competitive price and the contestable market model in which firms set a monopoly price.

B) the price leadership model in which the dominant firm sets the price to maximize its own profit and the cartel model in which all firms must agree on a price.

C) the cartel model in which firms set a monopoly price and the contestable market model in which firms set a competitive price.

D) the implicit collusion model in which firms refrain from competing whenever possible and the price war model in which prices are driven to the competitive level.

93. Taking explicit account of a rival's expected response to a decision you are making is called:

A) competitive decision making. C) strategic decision making.

B) monopolistic decision making. D) economic decision making.

94. In the market for bank credit a large bank sometimes announces a change in interest rates. After the changes in interest rates are announced, other banks in the industry usually react by changing their rates in the same way. This is an example of:

A) price leadership. B) perfect competition. C) the kinked demand curve model. D) monopolistic competition.

95. The market has the following characteristics: Marginal cost equals marginal revenue; output is restricted somewhat by product differentiation; each firm acts independently, and there is no long-run economic profit. This market is:

A) an oligopoly. B) monopolistically competitive. C) perfectly competitive D) a monopoly.

96. The higher the concentration ratio in a given industry:

A) the closer the industry is to an oligopolistic or monopolistic type of market structure.

B) the closer the industry is to a perfectly competitive market structure.

C) the smaller the market shares of the largest four firms in the industry.

D) the larger the market shares of the smallest four firms in the industry.

97. Potential profits encourage new firms to try to figure out ways to break down methods of protecting monopolies.

A) True B) False

Use the following to answer questions 103-104:

103. Refer to the graph above. If this firm were allowed to choose the profit-maximizing level of output, it would charge a price of:

A) $9. B) $2. C) $1. D) $3.

104. Refer to the graph above. If this firm were forced to set price equal to marginal cost, it would likely:

A) charge a price of $9.00. B) eventually stop producing. C) charge a price of $1. D) charge a price of $2.

106. A price-discriminating monopolist will charge:

A) a higher price to women.

B) a higher price to minorities.

C) a higher price to individuals with a more inelastic demand.

D) a higher price to individuals with a more elastic demand.

SUPPLY AND DEMAND OF INPUTS

328. The tendency to work fewer hours when wages increase is called:

A) the incentive effect. B) the substitution effect. C) the work effect. D) the income effect.

347. If the U.S. reduces the number of illegal immigrants, what is likely to happen to wages and the supply of labor?

A) Wages will increase and the supply of labor will increase.

B) Wages will increase and the supply of labor will decrease.

C) Wages will decrease and the supply of labor will increase.

D) Wages will decrease and the supply of labor will decrease.

348. Which of the following will not shift the labor demand to the right?

A) An increase in the demand for output. C) An increase in the wage rate.

B) An increase in the competitiveness of an industry. D) An increase in the price of a competing input.

311. A person who decides to work less when his wage increases:

A) is responding entirely to the incentive effect.

B) has an incentive effect that dominates the income effect.

C) is irrational.

D) has an income effect that dominates the incentive effect.

352. If you win a million dollar lottery and will be paid $100,000 annually for the next 10 years, to decide how much this annuity is worth, you must:

A) discount all future dollars by the inflation rate in the economy.

B) divide the price of the annuity by the number of years involved.

C) add up the amount to be received each year.

D) discount all future dollars by the annual interest rate in the economy and add up the relevant discounted values.

356. The income paid to savers is generally called:

A) wages. B) profits. C) interest. D) rent.

358. The elasticity of labor demand depends on all of the following except:

A) the elasticity of labor supply.

B) the possibility of, and cost of, substitution in production.

C) the elasticity of demand for the firm's product.

D) the relative importance of the factor in the production process.

361. The income from a factor of production that is fixed in supply is called:

A) interest. B) profits. C) rent. D) wages.

Use the following to answer question 362:

The Present Value of One Dollar in X Years at Various Interest Rates

Year 3% 4% 6% 9% 12% 15% 18%

1 .97 .96 .94 .92 .89 .87 .85

2 .94 .92 .89 .84 .80 .76 .72

8 .79 .73 .63 .50 .40 33 .27

15 .64 .56 .42 .27 .18 .12 .08

20 .55 .46 .31 .18 .10 .06 .04

362. Refer to the table above. Given an interest rate of 9 percent, the present value of $10,000 to be received in 15 years is:

A) $5600. B) $1800. C) $1200. D) $2700.

308. Given 5 percent interest, the most a rational person would pay for an annuity that promises to pay $1500 per year forever is:

A) $150,000. B) $30,000. C) $1,200. D) $45,750.

364. The demand for labor is a derived demand because:

A) the demand for output is derived from the demand for labor.

B) the demand for labor is derived from the demand for output.

C) many workers are self-employed.

D) the income workers earn adds to the demand for output.

311. A person who decides to work less when his wage increases:

A) is responding entirely to the incentive effect.

B) has an incentive effect that dominates the income effect.

C) is irrational.

D) has an income effect that dominates the incentive effect.

370. The tendency to work more hours when wages increase is called the:

A) work effect. B) income effect. C) substitution effect. D) incentive effect.

376. The return on entrepreneurial activity and risk-taking is called:

A) interest. B) profit. C) rent. D) wages.

378. Which of the following factors would most likely explain why a U.S. company would choose to operate in the U.S. despite much lower wages in Mexico?

A) The lower productivity of Mexican workers.

B) The presence of many Japanese companies in Mexico.

C) The low cost of transportation between the two countries.

D) The absence of significant trade barriers.

107. Suppose both wages and employment decrease. These changes might be caused by:

A) an increase in emigration. C) a recession.

B) a decline in immigration. D) an increase in the working age population.

113. If increasing the hourly wage rate from $10 to $15 causes a worker to work 50 hours rather than 40, then the worker's elasticity of labor supply is equal to:

A) 1.66. B) 2. C) 0.5. D) 0.05.

114. If the demand for widgets decreases, this will:

A) increase the supply of inputs used to produce widgets.

B) increase the demand for inputs used to produce widgets.

C) decrease the demand for inputs used to produce widgets.

D) decrease the supply of inputs used to produce widgets.

116. The labor demand curve:

A) shifts in when wages rise. C) slopes down because of the law of demand.

B) slopes up because of the law of demand. D) shifts out when wages fall.

117. Which of the following statements about profit is true?

A) In competitive long-run equilibrium economic profits tend to be negative.

B) Taxing away profits resulting from innovation would not likely effect future innovative activities.

C) Normal profits are not an economic cost of production because they represent payment to entrepreneurs above their opportunity cost.

D) Economic profits are a return on entrepreneurship above and beyond normal profits.

118. If an annuity that pays $1200 per year forever has a present value of $20,000, then the interest rate must be:

A) 10 percent. B) 6 percent. C) 16.67 percent. D) 8 percent.

121. By assumption, if government imposes a tax on land, suppliers will supply the same amount of land regardless of the price they receive so:

A) suppliers will raise the price of land. C) the tax shifts the demand curve for land up.

B) the renter will bear the entire burden of the tax. D) suppliers of land must bear the entire burden of the tax.

125. If an annuity has a present value of $20,000 when the interest rate is 12 percent, then the annual payment will most likely be:

A) $2,400. B) $16,666.67. C) $24,000. D) $1666.67.

132. Which of the following is an opportunity cost, rather than an explicit cost, of recycling?

A) Spending time sorting trash to separate recyclable items.

B) The cost of special collection bins for recyclable trash.

C) Purchasing a new garbage truck designed to collect sorted trash.

D) The salary paid to the administrator of the recycling program.

133. A strong correlation between crime and ice cream sales probably indicates that:

A) both variables are likely moving in response to a third variable, such as the heat.

B) people must commit more crimes to support their ice cream habits.

C) people are more likely to commit a crime following an ice cream binge.

D) criminals often use their ill-gotten gains to purchase ice cream.

134. Economists generally believe prophets of doom are:

A) overstating their case because they are not taking into account the built-in market reaction to scarcity.

B) understating their case because they are not taking into account the built-in market reaction to scarcity.

C) overstating their case because they are taking into account the built-in market reaction to scarcity.

D) understating their case because they are taking into account the built-in market reaction to scarcity.

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Answers to the Microeconomics: Practice Multiple Choice Questions

1.	A
2.	C
3.	D
4.	C
5.	D
6.	B
7.	C
8.	B
9.	D
10.	C
11.	A
12.	A
13.	B
14.	D
15.	B
16.	A
17.	D
18.	C
19.	C
20.	D
21.	C
22.	A
23.	C
24.	B
25.	A
26.	C
27.	A
28.	B
29.	A
30.	B
31.	B
32.	D
33.	D
34.	A
35.	B
36.	A
37.	D
38.	C
39.	B
40.	B
41.	C
42.	A
43.	D
44.	D
45.	A
46.	B
47.	C
48.	B
49.	D
50.	B
51.	B
52.	C
53.	D
54.	B
55.	D
56.	B
57.	A
58.	D
59.	D
60.	C
61.	A
62.	A
63.	B
64.	D
65.	A
66.	C
67.	A
68.	A
69.	C
70.	A
71.	D
72.	A
73.	C
74.	C
75.	D
76.	A
77.	D
78.	B
79.	A
80.	A
81.	B
82.	D
83.	C
84.	D
85.	C
86.	B
87.	B
88.	A
89.	A
90.	B
91.	C
92.	C
93.	C
94.	A
95.	B
96.	A
97.	A
98.	C
99.	A
100.	C
101.	C
102.	A
103.	A
104.	B
105.	D
106.	C
107.	C
108.	A
109.	D
110.	B
111.	C
112.	A
113.	C
114.	C
115.	A
116.	C
117.	D
118.	B
119.	A
120.	B
121.	D
122.	B
123.	B
124.	C
125.	A
126.	D
127.	D
128.	A
129.	C
130.	C
131.	D
132.	A
133.	A
134.	A
135.	A
136.	B
201.	d
202.	a
203.	d
204.	c
205.	c
206.	b
207.	c
208.	c
209.	c
210.	d
211.	b
212.	c
213.	d
214.	a
215.	d
216.	b
217.	a
218.	c
219.	d
220.	b
221.	c
222.	e
223.	d
224.	c
225.	c
226.	a
227.	d
228.	c
229.	e
230.	d
301	D
302	D
303	D
304	C
305	B
306	B
307	B
308	B
309	B
310	C
311	D
312	B
313	B
314	A
315	A
316	A
317	B
318	C
319	D
320	C
321	C
322	E
323	D
324	D
325	B
326	B
327	C
328	D
329	D
330	B
331	C
332	B
333	B
334	D
335	C
336	D
337	D
338	D
339	D
340	B
341	A
342	C
343	B
344	B
345	B
346	D
347	B
348	C
349	D
350	B
351	A
352	D
353	D
354	D
355	A
356	C
357	D
358	A
359	A
360	D
361	C
362	D
363	A
364	B
365	B
366	A
367	A
368	D
369	D
370	C
371	D
372	A
373	E
374	A
375	D
376	B
377	D
378	A
379	B
380	A

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Contents

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List of Terms to Review for Microeconomics ECO 210

Accounting profits

Allocative efficiency

Backward Bending Supply of Labor

Barter

Black market

Break Even Point for a Firm

Budget Line (including reasons for shifting)

Cartel

Ceteris Paribus

Change in demand

Change in quantity demanded

Change in quantity supplied

Change in supply

Circular flow

Comparative statics

Complements

Constant Cost Industry

Consumer Equilibrium (MUx/Px=MUy/Py)

Consumer Surplus

Decreasing Cost Industry

Determinates of Elasticity of Demand

Determinates of Elasticity of Supply

Direct relationship

Diseconomies of Scale

Economic (Surplus) profits

Economies of Scale

Equilibrium Price

Equity

Excess Capacity Problem (mon. comp.)

Fair Rate of Return Monopoly Regulation

Firm's Perfectly Elastic Demand in Perf. Compet.

Fundamental Questions

Game Theory

Income Effect to explain downward sloping Demand

Increasing Cost Industry

Indifference Curves

Indirect relationship

Inferior good

Invisible hand metaphor

Kinked Demand Curve (assumptions and shortcomings of model)

Land, Labor, Capital, Entrepreneural ability

Law of Demand

Law of Diminishing Marginal Utility

Law of Increasing Costs

Law of Supply

Long Run Equilibrium Condition for Perf. Comp.

Long Run Industry Supply

Marginal Product of Labor

Marginal Revenue Product of Labor

Market Characteristics (of each type of firm)

Market economy

Minimum Efficient Scale (MES)

Mixed economy

Money

Monopolist's Demand Curve

Monopolistic Competition

Monopoly

Natural Monopoly/Oligopoly

Non-Price Competition

Normal good

Normal profits

Normative economics

Oligopoloy

Opportunity cost

Optimum Size of Plant

P=MC Monopoly Regulation

Perfect Competition

Positive economics

PPC simplifying assumptions

Preconditions for Price Discrimination

Price ceiling

Price Discrimination

Price elasticity of demand (Ed)

Price elasticity of supply (Es)

Price floor

Price Leadership

Price Stickiness

Prisoners' Dilemma

Problems (Evils) Associated with Monopoly

Production Possibilities Curve (PPC)

Productive Efficiency

Reasons for Monopolies

Recognized Mutual Interdependence

Relationship of elasticitiy and total revenue

Rent, wages, interest, profit

Scarcity

Shift factors: Demand

Shift factors: Supply

Shortage

Shut Down Point for a Firm

Slope of a graphed curve

Specialization

Substitutes

Substitution Effect to explaing downward sloping demand

Surplus

Technical (productive) Efficiency

Trade off

Unregulated Monopoly

W=MRP of labor

Ways to regulate monopoly

X-inefficiency

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