1.Which of the following most accurately describes the fundamental economic problem?

Select one:

a. Scarcity because there is a finite supply of everything

b. Scarcity because there are more people than Earth can support

c. Supply and demand because there must be an equilibrium

d. Supply and demand because there is not always an equilibrium

2.Suppose you work 40 hours every week and earn $15 per hour. If you wish to work beyond 40 hours, your

employer agrees to pay you $17 for every extra hour that you work. What is your marginal benefit from working

each extra hour of overtime?

Select one:

a. $2

b. $15

c. $17

d. $32

3.The marginal cost curve slopes:

Select one:

a. downward, as does the marginal benefit curve.

b. downward, but the marginal benefit curve slopes upwards.

c. upward, as does the marginal benefit curve.

d. upward, but the marginal benefit curve slopes downwards.

4.In the circular flow model, balanced budget taxation results in which of the following outcomes?

Select one:

a. Households have less money to spend, and firms sell less goods and services.

b. Households have less money to spend, but firms experience no change in their sale of goods and services.

c. Households experience no change in their ability to spend, and firms experience an increase in their ability

to spend on goods and services.

d. Firms benefit from increased ability to spend on goods and services, but they have to pay more taxes.

5.A price floor that is set above the equilibrium price creates a:

Select one:

a. surplus.

b. shortage.

c. shift in the supply curve.

d. shift in the demand curve.

6.Using the arc elasticity measure, what is the price elasticity of demand for a Starbucks latte that increases in price from $3 a cup to $5 a cup with the resulting change in quantity demanded from 15 cups an hour to 5 cups an hour?

Select one:

a. 1/3

b. 1/2

c. 2

d. 3

7.Suppose the government imposes an excise tax on a product with a demand curve of constant slope of -3. Which of the following will happen?

Select one:

a. The quantity supplied will fall, and the price will fall, creating a deadweight loss.

b. The quantity supplied will fall, and the price will rise, creating a deadweight loss.

c. The quantity supplied will fall, and the price will rise, avoiding a deadweight loss.

d. The quantity supplied and price will both remain the same.

8.An externality can be resolved by:

Select one:

a. educating bystanders.

b. imposing a tax or providing a subsidy.

c. government ownership and management.

d. encouraging markets to be more competitive.

9.Which of the following best describes the line of absolute income inequality in a Lorenz curve?

Select one:

a. It is horizontal because one person has all the wealth.

b. It has a slope of 30 degrees because greater rewards are given to more productive people.

c. It has a slope of 45 degrees because all income is perfectly uniform.

d. It is vertical because one person has all the wealth.

10.In economics, we define a normal good as one whose consumption _______ with ________ in income.

Select one:

a. decreases; an increase, ceteris paribus

b. increases; an increase, ceteris paribus

c. decreases; an increase

d. increases; an increase

11.The price elasticity of demand for zucchini is -1.5, and the price of zucchini increases by 10%. Which of the following identifies the percentage change in quantity demanded in zucchini and why?

Select one:

a. The price of zucchini increases by 20% because demand is inelastic.

b. The price of zucchini increases by 15% because demand is elastic.

c. The price of zucchini decreases by 10% because demand is elastic

d. The price of zucchini decreases by 15% because demand is inelastic.

12.Which of the following statements about diseconomies of scale is true?

Select one:

a. Diseconomies of scale happen in the short run.

b. Diseconomies of scale happen in the long run.

c. Diseconomies of scale arise due to increasing returns.

d. Diseconomies of scale arise due to the law of diminishing marginal returns.

13.In a purely competitive market, a firm finds that at its MR = MC output level, the total variable cost (TVC) = $550, total fixed cost (TFC) = $250, and total revenue = $700. What should a firm in this situation do?

Select one:

a. The firm should produce because it can still cover its TVC.

b. The firm should produce because it can still cover its TFC.

c. The firm should produce because it will realize an economic profit.

d. The firm should shut down in the short run because it will experience too much economic loss.

14.We can expect the cross price elasticity of demand between tea and coffee to be:

Select one:

a. positive, indicating coffee and tea are inferior goods.

b. positive, indicating coffee and tea are normal goods.

c. positive, indicating coffee and tea are substitute goods.

d. negative, indicating coffee and tea are substitute goods.

15.Which of the following is a valid criticism of the minimum wage?

Select one:

a. It reduces unemployment.

b. It increases unemployment.

c. It forces employers to be more efficient.

d. It forces employers to train their employees.

16.Given that the demand for capital declines with a rise in the interest rate while the supply of capital remains unaffected, what will happen to the new equilibrium quantity of capital if the interest rate increases?

Select one:

a. The demand curve would shift leftwards, and equilibrium quantity would increase.

b. The demand curve would shift leftwards, and equilibrium quantity would decline.

c. The demand curve would shift rightwards, and equilibrium quantity would decline.

d. The demand curve would shift to the right, and equilibrium quantity would increase