Economics 1

Module Test II

Multiple Choice.

1. The law of demand states that

a. as price increases, quantity demanded increases.

b. as price decreases, demand increases.

c. there is a direct (positive) relationship between the price and quantity supplied.

d. there is an inverse relationship between price and quantity supplied.

2. Consider the market for corn. If the price of fertilizer decreases, then we can expect

a. the supply of corn to increase.

b. the supply of corn to decrease.

c. the demand for corn to decrease.

d. the demand for corn to increase.

e. the price of corn to increase.

3. If price is below equilibrium

a. quantity supplied exceeds quantity will occur.

b. quantity demanded will occur.

c. the income and substitution effects will cause rise.

d. demand will increase.

e. demand is too low for equilibrium.

4. The income effect measures the effect a price change has on

a. the relative price of other substitutable products.

b. the change in demand.

c. the purchasing power of consumer incomes.

d. national income.

e. the inflation rate.

5. If an increase in the price of product X causes a decrease in the demand for product Y, we can

conclude that

a. they are complements.

b. they are substitutes.

c. they are normal products.

d. the price of product Y will increase.

e. the quantity supplied of product. Y will increase.

6. If producers require higher prices to produce various quantities then

a. demand will decrease.

b. consumer incomes will decrease.

c. supply has shifted to the left.

d. quantity supplied has increased.

e. supply has increased.

7. A price floor

a. is a legal price set by the government that is below the equilibrium level.

b. causes a shortage.

c. causes quantity demand to exceed quantity supplied.

d. is a minimum level price for which a product can be sold.

e. occurs when the market is in equilibrium.

8. Which of the following may cause a change in demand for a product?

a. change in the price of the product.

b. a change in consumer incomes.

c. a decrease in the cost of producing the product.

d. a change in the profitability of producing another product. e. all of the above.

9. Assume the demand for watermelons is downward sloping. An increase in price from P20 per kilo to P30 per kilo

a. will cause demand to decrease.

b. will cause a smaller quantity of watermelons to be demanded.

c. will cause a larger quantity of watermelons to be demanded.

d. could have been caused by a decrease in quantity supplied.

e. could have been caused by an increase in supply.

10. When an economist says the demand for a product has increased, he or she means that

a. the demand curve has shifted to the left.

b. the price has decreased and consumers will therefore purchase more of the product.

c. the product has become more scarce and consumers therefore want it more.

d. consumers are willing and able to purchase more at any given price.

e. consumers would be willing and able to pay less to receive the same quantity.

11. If population doubles in size, what can be expected to happen to the market for automobiles?

a. people will use fewer automobiles.

b. people will buy more automobiles at any given price.

c. automobile manufacturers will decrease supply.

d. the price of automobiles will decrease.

e. none of the above will happen.

12. Consider the market for commercial movies seen on television. If there is a decrease in the number of

popular television programs, we can expect

a. demand for commercial movies to increase.

b. demand for commercial movies to decrease.

c. fewer commercial movies to be shown on television.

d. the profits of commercial movie makers to decrease.

e. none of the above.

13. If demand decreases but supply increases, we can say that

a. equilibrium price will rise, but equilibrium quantity is indeterminate,

b. equilibrium quantity will rise, but equilibrium price is indeterminate.

c. equilibrium price will decrease, but equilibrium price is indeterminate.

d. equilibrium quantity will decrease, but equilibrium price is indeterminate.

e. we would require more information to determine the movement in price and quantity.

14. The market demand curve is determined by

a. subtracting the demand for the product from the supply of the product.

b. adding the demand for the product and the supply o the product.

c. adding the quantity supplied by all producers at various prices.

d. adding individual demand curves.

15. If a product is in surplus supply, we can conclude that

a. its price is too low for equilibrium.

b. quantity demanded exceeds quantity supplied.

c. its price is above equilibrium.

d. consumers want to buy more than is being made available by producers.

e. its price will rise.

16. If a natural disaster destroys Mindanao's fruit crop, then

a. the price of fruit will drop because people will consume less.

b. the demand for fruit will increase.

c. the supply of fruit will remain unchanged but the demand will decrease.

d. the supply of fruit will decrease, causing the equilibrium price to increase and the equilibrium

quantity to decrease.

e. the supply of fruit will decrease, causing the equilibrium price to decrease and the equilibrium

quantity to increase.

17. One reason why the quantity demanded of a good increases as its price decreases is that

a. the lower price increase the purchasing power of consumers, enabling them to buy more.

b. the lower price shifts demand to the right.

c. the lower price shifts demand to the left.

d. the supply of substitute products increases.

e. the number of consumers in the market increases.

18. If it is now more profitable for farmers to produce rice than corn, we can expect

a. the supply of corn to increase.

b. the supply of corn to decrease.

c. the price of wheat to rise.

d. the quantity demanded of wheat to decrease.

e. the demand. for wheat to increase.

19. The law of supply illustrates that

a. whatever happens to price happens to quantify supplied.

b. a change in price causes a change in supply.

c. demands must decrease to cause an increase in quantity supplied.

d. as price increases, quantity supplied decreases.

e. price changes are always in the same direction as supply changes.

20. A change in supply may be caused by

a. an improvement in technology

b. changes in the profitability

c. a change in the price of inputs.

d. a change in the number of producers.

e. all of the above.

21. To say there is an elastic demand for some product means that

a. consumers are very responsive to a change in the price of the product.

b. consumers are not very responsive to a change in the price of the product.

c. if the prices rises by some percentage, then the quantity demanded will fall by a smaller percentage.

d. there is a direct relationship between price and total revenue

e. there are relatively substitutes, few competitors, and a short time period under consideration.

22. If a product has an inelastic demand, then

a. demand shifts to the right for an inferior product..

b. the quantity demanded at any price will decrease.

c. the demand for substitute products will decrease.

d. consumers will move toward a new equilibrium in the quantities of products purchased.

e. the marginal utility of normal products will increase.

23. If the price of home computers rises and people still buy more of them, then

a. the law of demand does not hold.

b. this could have been caused by a change in the none price determinants of demand.

c. demand has decreased.

d. the demand for home computers is elastic.

e. the demand for home computers is inelastic.

24. If the price of a product increases by 10 percent and the quantity demanded decreases by 15 percent, then

a. the product has an elastic demand.

b. the product has an inelastic demand.

c. the product has a unitary elastic demand.

d. the product should raise the price further to increase total revenue.

e. total consumption expenditures have risen.

25. If a liquor store decides to raise the price of its beer in order to finance the construction of a new building, then the owner is assuming that the

a. demand for his beer is elastic.

b. demand for his beer is unitary elastic.

c. percentage increase in the price of beer will cause a smaller percentage decrease in the quantity demanded.

d. percentage increase in the price of beer will cause a greater percentage decrease in the quantity demanded.

e. percentage increase in the price of beer will cause an equal percentage decrease in the quantity

demanded.

26. If consumer preferences increase for blue jeans, then

a. demand will, increase.

b. people will be willing to buy more at any given price.

c. people will be willing to pay a higher price to get any quantity.

d. all of the above.

27. If price elasticity of demand for a product is .5, this means

a. a change in price changes demand by 50 percent.

b. a 1 percent increase in quantity sold is associated with a .5 percent fall in price.

c. a 1 percent increase in quantity sold is associated with a 2 percent fall in price.

d. a .5 percent change in price will cause a .5 percent change in quantity sold,

28. If, when income rise by 5 percent, the quantity of a commodity sold rises by 10 percent, income

elasticity is

a. -2

b. 2

c. c.-1/2

d.

29. Price elasticity of demand for a commodity tends to be greater

a. the more of a necessity it is.

b. the closer substitutes there are for it.

c. the less important it is in the budget.

d. the lower the price.

30. The profit of any unit produced can be determined by

a. adding the marginal revenue of all additional units produced.

b. adding the marginal cost of all additional units produced and subtracting from the marginal revenue of the last unit.

c. subtracting marginal revenue from marginal cost.

d. subtracting marginal cost from marginal revenue.

e. subtracting marginal revenue from price.

31. If a firm wishes to maximize its profits or minimize its losses, then it should

a. always increase its prices.

b. always reduce its prices as low as possible.

c. produce where marginal revenue equals marginal cost.

d. produce where marginal revenue exceeds marginal cost.

e. produce where marginal cost exceeds marginal revenue.

32. Explicit cost is

a. an implicit cost plus an opportunity cost.

b. equal to implicit cost plus sunk costs.

c. equal to implicit cost minus sunk costs.

d. the money cost required to obtain something.

e. none of the above.

33. If marginal costs are increasing, then the marginal cost curve will be

a. horizontal.

b. vertical.

c. upward-sloping.

d. downward-sloping.

e. a circle

34. The upward-sloping portion of a firm's marginal cost curve is the firm's

a. total profit curve.

b. total cost curve.

c. supply curve.

d. marginal revenue curve

e. marginal benefit curve.

35. If a firm is producing 17 units and the marginal cost of an 18th unit is P10, and the price it can receive for each unit sold is P11, then

a. the total revenue of 17 units is P170.

b. the firm should produce the 18th unit because marginal cost exceeds marginal revenue.

c. the firm should produce the 18th unit because marginal revenue exceeds marginal cost.

d. the profit of the 18th unit produced would be P11.

e. the total revenue of 18 units produced would be P180.

36. A firm

a. buys resources and sells products

b. sells. products and resources.

c. buys resources and products.

d. buys products and sells resources.

e. does none of the above.

37. A fixed cost

a. increases with increases in the output level.

b. decreases with decreases in the output level.

c. decreases with increases in the output level.

d. increases with decreases in the output level.

e. is any cost that does not vary with output level.

38. Any cost that varies with the output level is

a. a fixed cost.

b. a variable cost.

c. a sunk cost.

d. a negative marginal cost.

e. none of the above.

39. Total cost when output is zero, is equal to

a. sunk cost.

b. variable cost.

c. marginal cost.

d. fixed cost.

e. zero.

40. The cost structure of a firm includes

a. total fixed cost, total variable cost, and total cost

b. marginal cost, average fixed cost, average variable cost, and average total cost.

c. risk cost and opportunity cost.

d. rises after the law of diminishing returns set in.

e. is all of the above.

41. The average variable cost curve

a. slopes downward at all output levels.

b. is a horizontal line.

c. at any output level is equal to the vertical distance between the average total cost and average fixed cost curves.

d. intersects the average total cost curve at a high output level.

e. intersects the average total cost curve at its minimum.

42. The long-run average cost curve can be derived by

a. adding all firms' short-run average total cost curves.

b. adding all firms' short-run average variable cost curves.

c. drawing a curve that envelopes all of the firms' short-run average total cost curves.

d. adding all of the firms short-run marginal cost curves.

e. none of the above.

43. The long-run marginal cost curve

a. intersects the long-run average cost curve downward-sloping.

b. intersects the long-run average cost curve upward-sloping.

c. intersects the long-run average cost curve at a minimum.

d. at first is upward-sloping and then is downward-sloping.

e. is none of the above.

44. If variable costs increases in the short-run, then

a. a firm will produce more.

b. a firm will produce less.

c. all cost curves shift up.

d. average total cost decreases.

e. average fixed cost increases.

45. The production function relates

a. cost to input

b. cost to output

c. wages to profit

d. inputs to outputs

46. Short-run average costs eventually rise because of

a. rising overhead costs.

b. rising factor prices.

c. falling marginal and average productivity.

d. reduced incentives to work in large plants.

47. The hypothesis of diminishing returns

a. predicts that sooner or later the marginal product decline in the short run.

b. refers to reductions in total product that result as additional variable factors are employed.

c. makes intuitive sense but has not often been confirmed empirically.

d. applies only when all inputs are used in fixed proportions.

48. If the demand equation for candies is Qd=24-2P and supply equation is Qs=3+P, what would be the market equilibrium for the market of candies?

a. Equilibrium P=7 and Equilibrium Q = 10

b. Equilibrium P=10 and Equilibrium Q = 7

c. Equilibrium P = 9 and Equilibrium Q = 20

d. Equilibrium P = 20 and Equilibrium Q = 9

49. When the percentage change in quantity demanded is 20% and the percentage change in price is 5%,the market demand elasticity of price is described to be:

a. Inelastic

b. Unit Elastic

c. Elastic

d. Perfectly Elastic

50. In perfect market where demand and supply curves independent, an increase in the number of buyers without change supply, the new market equilibrium price and quantity will

a. Decrease

b. No change

c. Increase

d. None of the Choices