1. An increase in the price of tea will have which effect in the market for coffee? (Assume that coffee and tea are substitutes).

a) an increase in both price and quantity exchanged.

b) a reduction in both price and quantity exchanged.

c) an increase in price and a reduction in quantity.

d) a reduction in price and an increase in quantity.

2. An effective price ceiling on a commodity will likely:

a) reduce the quantity sold.

b) increase the quantity sold.

c) create a surplus of the good on the market.

d) lead to excessive investment in the industry.

3. A consumer's surplus is:

a) the excess of MU above price on the last good bought.

b) the sum of MU on all goods bought.

c) the sum of the excess of MU above price for the each good bought.

d) the difference between MU and total utility.

4. When the price of a good falls:

a) the substitution effect always increases purchases, and the income effect usually increases purchases.

b) the substitution effect usually increases purchases, and the income effect usually increases

purchases.

c) if the good is inferior, the income effect increases purchases.

d) if the good is inferior, the substitution effect reduces purchases.

5. A demand curve with zero price elasticity:

a) is horizontal.

b) is vertical.

c) has a steep negative slope.

d) has a steep positive slope.

6. When the absolute value of price elasticity of demand exceeds one, a price cut:

a) raises revenue.

b) reduces revenue.

c) lowers costs.

d) increases demand.

7. Which of these probably does not lead to low price elasticity?

a) the good is a necessity, not a luxury.

b) the good has many close substitutes.

c) the good is addictive.

d) people spend a small portion of their income on the good.

8. The research staff at Toyota found the monthly demand schedule for the model Camry is the straight

line: P = 40,000 - 100Q. At a current sales level of 150 units per month, the demand for the Camry:

a) is elastic.

b) is unit elastic.

c) is inelastic.

d) none of the above.

Table 1

Price Quantity

10 20

30 50

9. Find out the own price elasticity of demand from the table above:

a) own price elasticity = -2

b) own price elasticity = 2

c) own price elasticity is more than 1

d) none of the above.

In the market for Toyota Corolla cars it is known that the prices and total revenue are given by the following

table:

Table 2

Price of Toyota Corolla Total Revenue of the producer

$ 17,000 5 million dollars

$ 20,000 5 million dollars

10. The table above shows that the demand curve for Toyota Corolla cars

a) must be upward sloping.

b) must be horizontal.

c) must be vertical.

d) negatively sloped as usual.

11. From Table 2 we can conclude that the elasticity of demand for Toyota Corolla cars is

a) elastic

b) inelastic

c) infinity

d) zero

e) 1.

12. Which of the following will probably not increase demand?

a) The price of a substitute good falls.

b) The price of a complementary good falls.

c) An advertising campaign for the good is started.

d) Consumer incomes rise.

13. When two goods are substitutes:

a) the price elasticity of one of the goods is negative.

b) the income elasticity of one of the goods is positive.

c) the cross elasticity of demand is positive.

d) the cross elasticity of demand is negative.

14. Assuming that used cars are inferior goods, an economy-wide recession that lowered per capita income

would result in

a) an increase in the equilibrium price of used cars.

b) a decrease in the supply of used cars.

c) a decrease in the equilibrium quantity of used cars.

d) a decrease in the demand for used cars.

15. Farmer Brown grows both popping corn and wheat on his farm in Iowa. Which of the following would not

shift his supply curve for popping corn?

a) Farmer Brown expects a government embargo on all sales of popping corn to the Soviet Union, an

important buyer of U.S. popping corn.

b) The price of popping corn fertilizer declines.

c) The demand for wheat increases.

d) The price of popcorn poppers rises.

e) All of the above will shift the supply curve for popping corn.

16. If one input is increased when all other inputs stay constant:

a) average physical product per unit of the variable input falls at first, then increases.

b) average physical product is typically constant.

c) marginal physical product eventually falls.

d) marginal physical product is typically constant.

17. To maximize profits, a firm should hire an input until:

a) MPP equals price of output.

b) MRP equals price of output.

c) MRP equals price of input.

d) MC equals price of input.

18. Average fixed cost curves typically:

a) are horizontal.

b) increase at a constant rate.

c) decrease, approaching but never quite reaching the horizontal axis.

d) are u-shaped.

19. In the long run:

a) all costs are fixed costs.

b) all costs are variable costs.

c) the ratio between fixed and variable costs stabilizes.

d) costs almost always decline with output.

20. Which of the following statements best explains the relationship between costs and productivity?

a) Marginal costs increase when marginal physical productivity decreases.

b) Marginal costs increase when marginal physical productivity increases.

c) Average costs increase when average physical productivity increases.

d) Average costs decrease when average physical productivity decreases.

21. When the average physical product (APP) curve reaches its maximum point,

a) MPP = 0

b) APP = 0

c) APP = MP

d) TPP is at its maximum point.

22. Which of the following is true?

a) if marginal physical product is above average physical product, average physical product must be

falling.

b) if marginal physical product is above average physical product, total physical product must be falling.

c) if marginal physical product is positive, total physical product must be rising.

d) if marginal physical product is below average physical product, average physical product must be

rising.

23. As output increases, average total cost and average variable cost draw closer together.

a) true b) false

24. When marginal productivity is at a maximum, marginal cost is at a minimum.

a) true b) false

25. The short-run supply curve of the firm under perfect competition

a) is the same as the market supply curve,

b) is the same as the firm's average cost curve,

c) is the same as that part of the firm's marginal cost curve that lies above the AVC curve,

d) is always vertical, because in the short-run supply is fixed.

26. In a perfectly competitive industry with identical firms, the industry is in long-run equilibrium when

a) P = MC,

b) MC = MR,

c) P = MR = AC,

d) all of the above.

27. In the short-run, a competitive firm will cease production if,

a) P < AC,

b) the firm is making a loss,

c) losses are less than fixed costs,

d) the losses incurred if it carries on producing are greater than fixed costs.

28. In a perfectly competitive industry, the presence of positive supernormal economic profits,

a) causes new firms to enter the industry,

b) generally, leads to government intervention,

c) causes market price to rise,

d) causes the industry supply curve to shift to the left.

29. The short-run market supply curve under conditions of perfect competition is

a) always horizontal,

b) the same as the supply curve of the individual firm,

c) vertical,

d) upward, downward sloping or horizontal, depending on whether the industry is an increasing,

decreasing or constant cost industry,

e) obtained by horizontally summing short-run the marginal cost curves of the individual firms in the

industry.

30. The long-run market supply curve under conditions of perfect competition is

a) always horizontal,

b) the same as the supply curve of the individual firm,

c) vertical,

d) upward sloping, downward sloping,or horizontal depending on whether the industry is an increasing,

decreasing, or constant cost industry,

e) obtained by horizontally summing the long-run marginal cost curves of the individual firms in the

industry.

31. a perfectly competitive firm earns zero profit when,

a) output equals zero,

b) P = AVC,

c) P = AFC,

d) P = AC.

32. Under conditions of perfect competition, the total revenue curve is

a) horizontal,

b) an upward sloping straight line that passes through the origin,

c) an upward sloping straight line that intercepts the vertical axis with a positive intercept,

d) a downward sloping curve.

33. Which of the following is true when a monopolist is maximizing profit,

a) the demand for the firm's product is inelastic,

b) P = MC,

c) MR = 0,

d) P > MC.

34. A natural monopoly occurs,

a) when the government only allows one firm to produce a product,

b) when a single firm controls an important natural resource,

c) when economies of scale are so important, that one firm ends up driving out all its competitors,

d) when one firm is protected from competition by a patent.

35. which of the following cannot happen,

a) MC > AFC,

b) P < AFC,

c) MC = AFC,

d) AVC < AFC,

e) AC < AFC.

36. In a monopolistically competitive industry, when firms leave the industry,

a) the demand curves of firms already in the industry are unchanged,

b) the demand curves of firms in the industry shift to the left,

c) the industry supply curve shifts to the left,

d) the demand curves of firms in the industry shift to the right.

37. In long-run equilibrium a typical monopolistically competitive firm produces

a) at the minimum point on his long-run AC curve,

b) to the right of the minimum point on his long-run AC curve,

c) to the left of the minimum point on the long-run AC curve,

d) either to the left of, the right of, or at the minimum point on the long-run AC curve, depending on the

behavior of other firms in the industry.

38. In a monopolistically competitive industry, a long-run decline in costs will

a) lead to higher short-run profits for all firms,

b) have no effect on profits in the long-run,

c) cause new firms to enter the industry, shifting individual demand curves to the left,

d) generally lead to lower prices in the long-run,

e) all of the above.

39. A firm maximizes revenue when it sets

a) TR = TC,

b) MR = MC,

c) MR = AR,

d) MR = 0,

e) AR = AC.

40. A cartel occurs when,

a) a monopolist can keep out all competitors,

b) the government grants a firm an exclusive license,

c) when the government regulates an industry,

d) when the firms in an oligopoly collude and behave as if they were a monopoly.

41. If the AR curve touches the AC curve at a single point of tangency, it must be the case that,

a) MR = AR,

b) MC = AC,

c) TR = TC,

d) MC = MR,

e) both C and D are true.

42. Assume that the typical firm in a competitive industry has identical costs with a typical firm in a

monopolistically competitive industry. If both industries are in long-run equilibrium, we would expect,

a) a higher price in the competitive industry,

b) a higher price in the monoplistically competitive industry,

c) the same price in both industries,

d) a higher price in the industry for which the market demand curve is less elastic.

43. If a competitive industry is taken over and turned into a monopoly,

a) price will always be higher,

b) price will generally be higher, but may be lower if the monopoly can achieve majors cost

reductions as a result of economies of scale,

c) price will generally be lower,

d) price will be the same.

44. The main difference between monopolistic competition and monopoly is

a) the monopolist chooses a price where demand is inelastic,

b) P = MR for the monopolistic competitor, while P > MR for the monopolist,

c) In long-run equilibrium it is always the case that P = AC for the monopolistic competitor, but not

necessarily the case for the monopolist,

d) the monopolist advertises, while the monopolistic competitor does not.

45. The main difference between perfect competition and monopolistic competition is,

a) The monopolistically competitive firm faces a downward sloping demand curve,

b) P > MR for the monopolistically competitive firm, while P = MR for the perfect competitor,

c) In long-run equilibrium it is always the case that P = MC for the perfect competitor, but P > MC for

the monopolistically competitive firm,

d) monopolistically competitive firms often advertise, while perfect competitive firms do not,

e) all of the above are true.

46. If marginal revenue is less than average cost, a firm

a) should reduce output.

b) Must be losing money.

c) Should shut-down production.

d) Can still increase profits if marginal revenue exceeds marginal cost.

47. Which of the following is inconsistent with perfect competition?

a) Perfect information about products.

b) One firm producing many products.

c) Freedom of entry.

d) Freedom of exit.

48. An increase in monopoly's fixed cost will

a) Reduce the profit maximizing level of output.

b) Not affect the profit maximizing level of output.

c) increase the profit maximizing level of output as the monopolist needs to sell more to cover costs.

49. All else equal, a competitive firm will demand more labor if:

a) Technological advances lead to automation.

b) The price of the firm's output rises.

c) More firms enter the industry.

d) Competing firms offer their workers more training.

e) None of the above.

50. Increases in wage rate ALWAYS:

a) Lack impact on the relative price of leisure.

b) Increase the relative price of leisure.

c) Decrease the relative price of leisure.

d) Increase the quantity of labor individuals supply.

e) none of the above.