MCQ

1. What does it mean to make decisions at the margin? *

• That you should make your decision based on what people at the outer fringe or margin of society tell you
• That you weigh additional benefits of a change against the additional costs of a change concerning current conditions
• That you should make all-or-nothing choices and ignore additional benefits or costs
• That you can do best on your exams by reading margin materials of your textbook

2. The major determinants of a good's price elasticity of demand include *

• the number of complements with which the good is jointly consumed.
• the slope of the demand curve (whether vertical, horizontal, downwardsloping).
• the slope of the supply curve (whether it is vertical, horizontal, upwardsloping)
• the prices of resources that are needed for the good's production.
• the number of substitutes for the good that are available to consumers.

4.Which of the following statements about a good's cross elasticity of demand is correct? *

• It is positive for normal goods.
• It is all of the above
• It equals the percentage change in quantity demanded divided by the percentage change in the income of its purchasers.
• It is negative for normal goods.
• It equals the percentage change in the income of its purchasers divided by the percentage change in the quantity demanded.

5.___________ economics deals with human behavior and choices in small units-an individual, a firm, an industry, or a single market. __________ Economics deals with human behavior and choices as they relate to an entire economy. *

• Positive, Normative.
• Ceteris paribus, association-causation.
• Microeconomics, Macroeconomics.
• Economic theory, An economic hypothesis.

6.Which of the following best illustrates the economic way of thinking? *

• The ability to use cartographic techniques to describe the natural and human world in maps.
• The science of predicting fish populations based on environmental conditions, population, dynamics, and commercial harvest rates
• The capacity to critically evaluate art and theatre.
• The ability to look at an event, such as a cold freeze that damages the orange crop, and predict how it will affect prices and markets

7.Why does the quantity supplied go up as the price goes up? *

• Because people substitute lower-priced goods for higher-priced goods as price rises.
• Both (a) and (b) above
• Because as price rises, producer profit rises, which induces producers to supply a larger quantity.
• For a given period, the marginal utility gained by consuming equal successive units of goodwill decline as the amount consumed increases

9.Suppose that the demand for minivans has declined. Which of the following would offer a consistent explanation? *

• Fewer people are choosing to have two or more children, and thus the number of minivan buyers is declining.
• The price of sport utility vehicles, a substitute for minivans, has risen
• The price of gasoline, a complement for minivans, has declined
• Minivan consumers have experienced a decline in income and minivans are a normal good.

10.Which of the following is (are) consistent with the law of demand? *

• As the price of a good, rises, the quantity demanded of the good rises.
• As the price of a good falls, the quantity demanded of the good falls.
• Both (b) and (c) above.
• As the price of goods rises, the quantity demanded of the good falls.

11.The following is a rank ordering of how Allie would prefer to spend her time this evening: (1) Study economics, (2) go to a concert, (3) do laundry, and (4) exercise. If she chooses to study economics, what is the opportunity cost of studying? *

• The benefits she forgoes by not going to the concert.
• The sum of going to a concert, doing her laundry, and exercising.
• Zero
• None of the above.

12.In economics, a person who can produce a good at a lower cost than another person is said to have ________________ in the production of that good. *

• a consumer surplus advantage.
• an absolute advantage.
• production possibilities.
• a comparative advantage.

13.An increase in supply, ceteris paribus, lowers a good's price. If the total revenue of sellers now falls, we know *

• The good's demand curve was a rectangular hyperbola.
• that the good's price elasticity of demand was greater than 1.
• that the good's price elasticity of demand was smaller than 1.
• that the good's price elasticity of demand was equal to 1
• that the good's demand curve was vertical.

14.Which of the following statements about the price elasticity of demand is correct? *

• When a change in a good's price does not change that good's quantity demanded, the demand curve must be horizontal.
• When even a tiny rise in a good's price instantly reduces the good's quantity demanded to zero, the price elasticity of demand is said to be perfectly inelastic
• When a change in a good's price does not change that good's quantity demanded, the demand curve must be vertical.
• When even a tiny rise in a good's price instantly reduces the good's quantity demanded to zero, the price elasticity of demand is said to be unit elastic
• When a change in a good's price does not change that good's quantity demanded, the demand curve must be a rectangular hyperbola

15.Which of the following is consistent with a point below an economy's production possibilities frontier (PPF)? *

• The production of one good can only be increased if the production of another good is reduced.
• There are unemployed resources.
• None of the above.
• The economy is operating efficiently.

16.Which of the following correctly describes producers' surplus? *

• Price received - minimum selling price
• Maximum buying price - the price paid
• Price received - the price paid
• Maximum buying price - minimum selling price.

17.The price elasticity of demand is defined as *

• the percentage change in a good's quantity demanded divided by the percentage change in the good's price
• the change in the demand for a good divided by the associated change in another good's price
• the change in a good's price divided by the associated change in the demand for the good.
• the change in the demand for a good divided by the associated change in the good's rice.
• the change in a good's price divided by the associated change in the demand for another good

18.What is the relationship between a demanding schedule and a demand curve? *

• A demand schedule is a numerical tabulation of the quantity demanded of a good at different prices, while a demand curve is a graphical representation of the law of demand.
• A demand curve shows the various quantities of the goods demanded, while a demanding schedule shows the various prices.
• A demand schedule shows the various quantities of the goods demanded, while a demand curve shows the various prices.
• A demand curve is a numerical tabulation of the quantity demanded of a good at different prices, while a demanding schedule is a graphical representation of the law of demand.

19.Which of the following best illustrates the ceteris paribus assumption? *

• Felicia argues that since her company makes less profit when it limits its toxic pollution emissions, it must be true that pollution regulations are bad for everyone
• Chris notices that when economists discuss policy, they use the word "should" quite a lot, and they tend to disagree
• Caitlin notices that all other things being equal, her grades are higher the more time she spends studying
• If the law requires people to wear seat belts to reduce fatality rates, it may also cause people to drive faster.

20.Which of the following correctly describes consumers' surplus? *

• rice received - the price paid.
• Maximum buying price - minimum selling price.
• Maximum buying price - the price paid.
• Price received - minimum selling price

Short Question

1. Assume that tea and lemons are complements and coffee and tea are substitutes. Say that the

government imposes a price ceiling on tea that is below the current market equilibrium price. (2)

a) How, if at all, will this affect the price of lemons?

b) How, if at all, will this affect the price of coffee?

2. Draw a demand and supply diagram to show surplus and shortage. (2)

3. Explain the following economic concepts with a PPF (3)

a) Scarcity

b) Economic Inefficiency

c) Economic Growth

4. Define marginal benefit. Show the efficient point using a marginal cost/benefit diagram. (2)

5. With the help of a diagram, explain the derivation of the Total Revenue curve. (2)