DEAMAND & SUPPLY

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
A perfectly competitive market has
16. a. firms that set their own prices.
b. only one seller.
c. at least a few sellers.
d. many buyers and sellers.
e. none of these answers.
If an increase in the price of blue jeans leads to an increase in the demand for
17. tennis shoes, then blue jeans and tennis shoes are
a. complements.
b. inferior goods.
c. normal goods.
d. none of these answers.
e. substitutes.
The law of demand states that an increase in the price of a good
18. 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.
e. none of these answers.
The law of supply states that an increase in the price of a good
19. a. none of these answers.
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.
If an increase in consumer incomes leads to a decrease in the demand for camping equipment,
20. then camping equipment is
a. a normal good.
b. none of these answers.
c. an inferior good.
d. a substitute good.
e. a complementary good.
That the supply curve of ice cream cones is upward sloping indicates that
21. a. the marginal cost of providing ice cream cones increasesas 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 icecream cones decreases.
d. all of the above.
e. none of the above.
Which of the following shifts the demand for watches to the right?
22. 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
All of the following shift the supply of watches to the right except
23. a. an advance in the technology used to manufacture watches.

MICROECONOMICS

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
The price elasticity of demand is defined as
11. 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.
d. none of these answers.
e. the percentage change in price of a good divided by the percentage change in the
quantity demanded of that good.
In general, a flatter demand curve is more likely to be
12. a. price elastic.
b. unit price elastic.
c. none of these answers.
d. price inelastic.
In general, a steeper supply curve is more likely to be
13. a. price elastic.
b. none of these answers.
c. unit price elastic.
d. price inelastic.
Which of the following would cause a demand curve for a good to be price inelastic?
14. 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.
The demand for which of the following is likely to be the most price inelastic?
15. a. transportation
b. taxi rides
c. bus tickets
d. airline tickets
If a supply curve for a good is price elastic, then
16. 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.
e. none of these answers.
If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered,
17. 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.
A decrease in supply (shift to the left) will increase total revenue in that market if
18. a. demand is price inelastic.
b. supply is price elastic.
c. supply is price inelastic.
d. demand is price elastic.

COMPETITION

Multiple Choice
Identify the choice that best completes the statement or answers the question.
Which of the following is not a characteristic of a competitive market?
11. 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.
Which of the following markets would most closely satisfy the requirements for a competitive
12. market?
a. electricity
b. cable television
c. cola
d. milk
e. economics textbooks.
If a competitive firm doubles its output, its total revenue
13. a. doubles.
b. more than doubles.
c. less than doubles.
d. cannot be determined because the price of the good may rise or fall.
For a competitive firm, marginal revenue is
14. 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.
The competitive firm maximizes profit when it produces output up to the point where
15. a. price equals average variable cost.
b. marginal revenue equals average revenue.
c. marginal cost equals total revenue.
d. marginal cost equals marginal revenue.
A grocery store should close at night if the
16. 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.
If an input necessary for production is in limited supply so that an expansion of the industry
17. 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.
In long-run equilibrium in a competitive market, firms are operating at
18. 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.

MONOPOLY

Which of the following is not a barrier to entry in a monopolized market?

16. 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.
17.

19.

20.

21.

22.

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.
.
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.
.
e.none of these answers.
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.
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.
.
Refer to Exhibit 4. The profit-maximizing
monopolist will choose the price and quantity
represented by point

When marginal costs are below average total costs,

c. average total costs are rising.
30. a. average fixed costs are rising.
b. average total costs are falling.
d. average total costs are minimized.
If marginal costs equal
31. average total costs,
a.average c.average
total costs total costs
are falling. are
maximized.
b.average d.average
total costs total costs
are rising. are
minimized.
In the long run, if a very
32. small factory were to
expand its scale of
operations, it is likely that it
would initially experience
a.an increase c.economie
in average
s of scale.
total costs.
b diseconomie d constant
. s of scale. . returns to
scale.
The efficient scale of
33. production is the quantity
of output that minimizes
a.average c.average
fixed cost. variable
cost.
b.average d.marginal
total cost. cost.
Which of the following
34. statements is true?
a.All costs c.All costs
are fixed in are
the short
variable in
run.
the short
run.
b.All costs d.All costs
are
are fixed in
variable in the long
the long
run.
run.

Which of the following would likely cause the greatest deadweight loss?
26. a. a tax on salt
b. a tax on cigarettes
c. a tax on petrol
d. a tax on cruise line tickets
A tax on petrol
27. 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.
Deadweight
28. 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