1. A good is called "inferior" if:

i) There are other goods that consumers prefer to it.

ii) Consumers buy more of it as the price falls.

a) i) is the definition of an inferior good and ii) is irrelevant.

b) ii) is the definition of an inferior good and i) is irrelevant.

c) i) and ii) together define an inferior good.

d) Neither i) nor ii) define an inferior good.

2. In England, a person must obtain a license from the local council to open a hairdressing salon. Suppose that hairdressing salons form a perfectly competitive industry. In the long run,

i) Salons may be earning positive economic profits if the council issues fewer licenses than there are applicants.

ii) Salons may be earning negative economic profits if the council issues licenses to whoever wants one.

a) Only i) can be correct.

b) Only ii) can be correct.

c) Both i) and ii) can be correct.

d) Both i) and ii) are false.

3. The year 2016 saw a decrease in the amount of tuna consumed worldwide and a decrease in the price of tuna. Assuming the tuna industry is perfectly competitive, these two facts together imply that:

i) There was a shift in the supply curve of tuna.

ii) There was a shift in the demand curve of tuna.

a) Both i) and ii) must be true.

b) i) must be true, ii) may or may not be true.

c) ii) must be true, i) may or may not be true.

d) Neither i) nor ii) must be true.

4. Markets for corn and wheat are perfectly competitive, and corn and wheat are substitutes. Suppose the supply for wheat shifts to the right. This will lead to:

a) A lower price and lower quantity sold for corn.

b) A lower price and higher quantity sold for corn.

c) A higher price and lower quantity sold for corn.

d) A higher price and higher quantity sold for corn.

5. A government regulation has resulted in a situation of excess demand (demand exceeds supply) for a (otherwise) competitively supplied product. We should conclude that:

a) The regulation is a price floor (a minimum price the product can sell for).

b) The regulation is a price ceiling (a maximum price the product can sell for).

c) The regulation is a direct tax paid by the consumers of the product.

d) The regulation is an excise tax paid by the producers of the product.

6. Suppose the market for wheat is perfectly competitive. If the demand for wheat is inelastic, unusually bad weather that results in a lower than usual wheat production will cause:

a) The price of wheat to increase and the revenues of wheat farmers to decrease.

b) The price of wheat to increase and the revenues of wheat farmers to increase.

c) The price of wheat to decrease and the revenues of wheat farmers to decrease.

d) The price of wheat to decrease and the revenues of wheat farmers to increase.

7. Suppose the market for tyres is perfectly competitive. New international regulations require that tyre producers monitor their emissions better. If tire producers accomplish this by a change in procedure that costs $50 for each tyre produced, then:

a) The price of tyres will rise, the quantity sold will fall.

b) The price and quantity of tyres will both rise.

c) The price and quantity of tyres will both fall.

d) The price of tyres will fall, the quantity sold will rise.

8. Natasha sells pies that she bakes at home. If she charges 6/pie, she will sell three pies; if she charges 5/pie she will sell four pies. The marginal revenue of the fourth pie is:

a) 1

b) 2

c) 5

d) 6

9. A monopolist faces a demand curve described by Q = 40 - 0.5P. Its cost curve is given by c(Q) = 10+20Q. Its profit- maximizing price is:

a) 40

b) 45

c) 50

d) The monopolist should shut down.

10. You are told that the price elasticity of demand is -2.5. You observe that the market price is 20 and quantity demanded at the market price is 50. You also happen to know that the equation of the demand curve is linear and given by Q = a - bP where a and b are positive constants. The values of a and b are:

a) a = 175 and b = 12.5

b) a = 125 and b = 12.5

c) a = 175 and b = 6.25

d) a = 125 and b = 6.25

11. Suppose the market for widgets in Freedonia is perfectly competitive. Demand for widgets in Freedonia is given by Q_D = 100 - P and supply of widgets in Freedonia is given by Q_S = -20 + P where quantity is in units per month and price is in dollars per unit. Freedonian government imposes a $8 per unit excise tax on widgets (ie the tax is paid by the producers.) Deadweight loss created by this tax is:

8

16

24

32

12. Consider a competitive industry. The demand is Q_D(P) = 20 - P and

the supply is Q_S(P) = P (where quantities are in units and prices are per unit).

Producer surplus in this industry is:

25

50

75

100

13. A profit-maximising monopolist is operating in two separate markets. It can charge different prices in the two markets and has the same marginal cost of production in both markets. Monopolist's:

i) marginal revenue equals its marginal cost in each market.

ii) marginal revenue is larger in the larger market.

a) Both i) and ii) must be true.

b) i) must be true, ii) may or may not be true.

c) ii) must be true, i) may or may not be true.

d) Neither i) nor ii) must be true.

14. Consider a market in which three firms compete as quantity setters (i.e. firms are engaged in Cournot competition), and the market demand curve is given by Q = 6,000 - 10P. All firms have constant marginal cost equal to 100. In equilibrium, quantity supplied by each firm and the price are:

a) Q = 5000 and P = 100

b) Q = 1000 and P = 200

c) Q = 2500 and P = 225

d) Q = 1250 and P = 225

NO explanation is needed!!!