1. Chairs and tables are substitutes in production, therefore, if the price of chairs decreases, then A. we can predict that the price of tables will increase. B. we can predict that there will be no effect on the price of tables. C. we can predict that the price of tables will decrease. D. we cannot predict what will happen to the price of tables. 2. The Indonesian government is paying a $10 subsidy for every bag of rice produced. Which of the following statements about the outcome of the subsidy policy is incorrect? A. the subsidy will lower the price of rice. B. the subsidy will cause a dead weight loss. C. the subsidy will lead to an efficient production of rice. D. Each of the above is incorrect. 3. Which of the following explains why opportunity cost increases? A. economic resources are equally adaptable to the production of all goods B. as the production of a good increases, the amount of other goods sacrificed diminishes C. as the unemployment rate falls, business will pay a higher wage rate to a labour D. economic resources are not equally adaptable to the production of all goods 4. If A and B are substitutes and the cost of a factor of production used in the production of A increases, then ceteris paribus: A. demand A will increase and demand for B will decrease. B. the quantity demanded of A will decrease and the quantity demanded of B will increase. C. the quantity demanded of A will increase and demand for B will increase D. the quantity demanded of A will decrease and the demand for B will increase. 6. Suppose that the price elasticity of demand for apple is 3 when there is a 30 percent decrease in price. Quantity demanded ____ by ____ A. Decrease; 90% B. Increase; 10% C. Increase; 90% D. Decrease; 30% 7. One of the following statements about monopolistic competition is FALSE. Which one? A. A firm can earn positive economic profit, in the long run. B. A firm can raise its product price by a small amount and lose, some but not all of its buyers, because of product differentiation. C. A firm engages in nonprice competition as well as price competition. D. A firm faces a downward-sloping demand curve for its product. 7. Select the statement that distinguishes monopolistic competition from perfect competition. A. No barriers to entry/exist in monopolistic competition. B. A firm in monopolistic competition can set its own price and output. C. A firm in monopolistic competition makes zero economic profit in the long run. D. Close substitutes are available in monopolistic competition. 8. Buyers expect the price of a Hyundai Sonata to increase by next Friday. As a result, A. Supply increases now and the price falls now. B. Demand increases now and the prices rises now. C. Demand increases now and the price falls now. D. Supply decreases now and price falls now. 9. Which of the following would cause a movement along the demand curve for grapes? A. Increase in the number of farmers producing grapes. B. Introduction of a tax to be paid by sellers. C. Introduction of a tax to be paid by buyers. D. Decrease in the number of people consuming grapes. 10. When a market is in equilibrium: A. those buyers who value the good more than the price choose to buy the good. B. those sellers whose costs are less than the price choose to produce and sell the good. C. the marginal cost of producing the last unit of the good is equal to consumers' marginal benefit from consuming the last unit D. all of the above are correct. 11. If the government could charge different entry or user fees at different national parks to raise revenue for the maintenance of the parks, it should charge A. higher fees at parks where demand is relatively inelastic. B. lower fees at parks where demand is relatively inelastic. C. the same fees for all the national parks. D. higher fees at parks where demand is relatively elastic. 12. Suppose that the price elasticity of demand for apple is 2.5 when there is a 20 percent decrease in price. Quantity demanded increases by A. 10% B. 20% C. 30% D. 50% 13. In monopolistically competitive markets, zero economic profit is associated with: A. efficient output and no excess capacity. B. competitive equilibrium because other firms entered the market. C. inefficient output and excess capacity. D. no deadweight loss 14. If demand is price elastic and price decreases, then A. the extra revenue from the extra units sold is exactly offset by the loss in revenue due to the lower price B. more information is necessary to determine what happens to total revenue C. the extra revenue from the extra units sold is less than the loss in revenue from the lower price D. the extra revenue from the extra units sold exceeds the loss in revenue from the lower price 15. France produces wine and tractors. If, given the same resources, France can increase production of wine and tractors, at the same time, then France A. is producing outside his Production Possibility Frontier B. is has achieved technological advancement in the production of kola and cashew nuts C. is producing on its Production Possibility Frontier D. is producing inside its Production Possibility Frontier 16. If marginal cost of producing chocolate is less than average total cost but rising, then A. average total cost is rising B. average total cost is constant C. average total cost is at a minimum D. average total cost is falling 17. Princess Kritika says Friday Restaurant FR is a monopoly. a. Write down the characteristics of a monopoly firm. b. Draw FR's monopoly diagram and show the quantity of meals produced (QM) and market price (PM). How does FR select its profit maximising output? Explain. c. Explain why FR's profit maximising is not efficient. Show the inefficiency on the diagram in part (b). 18. Price ceiling and price floor. A. Define price ceiling and price floor. B. Draw a demand and supply diagram of housing. C. Use the diagram in part to explain the effects price ceiling and price floor. D. What is the impact of price floor or price ceiling on efficiency? 19. Economist says Huawei, Samsung and Sony operate in a monopolistic competitive industry. A. Write down the characteristics of monopolistic competition. B. Huawei has just introduced the latest version of mobile phone at the surprise of Samsung and Sony. C. Draw Huawei's short-run profit maximising diagram and indicate the profit maximising output market price. D. Explain how Huawei selected its profit maximising output. E. Explain why Huawei's profit maximising is not efficient. Show the inefficiency on the diagram in part (b). 20. Suppose the banana market is competitive and currently at equilibrium. Suppose the demand for banana is perfectly inelastic and the government imposes a tax t, on producers (i.e. sellers). Use the demand and supply diagram to analyse the impact of the tax on: a. The equilibrium quantity of bananas b. The price paid by the consumer c. The price received by sellers d. Consumer surplus, producer surplus and economic efficiency. 21. Suppose the banana market is competitive and currently at equilibrium. Suppose the supply of banana is perfectly inelastic and the government imposes a tax t, on buyers of banana (i.e. sellers). Use the demand and supply diagram to analyse the impact of the tax on: a. The equilibrium quantity of bananas b. The price paid by the consumer c. The price received by sellers d. Consumer surplus, producer surplus and economic efficiency