Multiple choice questions:

1.If the price of an apple increases,

a)its opportunity cost decreases.

b)its opportunity cost increases.

c)the substitution effect does not occur.

d)the income effect does not occur.

2.In the market for magazines, the "income effect" means that

a)magazines are usually purchased by people with higher than average incomes.

b)a decrease in the price of a substitute product like books will make magazine readers feel a little poorer than they were before.

c)an increase in the price of magazines will reduce the total purchasing power of magazine readers, making them able to afford fewer magazines.

d)an increase in the price of magazines will raise the relative price of magazines to books, causing magazine readers to read more books and fewer magazines.

3.A contest is a good way to allocate scarce resources when

a)the efforts of the players are hard to monitor directly.

b)the lines of responsibility are clear.

c)the decision being made affects a large number of people.

d)there is no effective way to distinguish among potential users.

4.The resource allocation method that is used to allocate scarce resources between private use and public use is

a)first-come, first-served.

b)personal characteristics.

c)majority rule.

d)market price.

5.Sal likes to eat pizza. The ________ is the maximum amount that Sal is willing to pay for one piece of pizza.

a)efficient price

b)efficient amount

c)marginal benefit

d)marginal cost

6.A price ceiling is a price

a)below which a seller cannot legally sell.

b)above which a seller cannot legally sell.

c)that creates a surplus of the good.

d)Both answers A and C are correct.

7.Marginal utility theory assumes that when Sally must consume less of a good that she likes, her ________.

a)total utility increases

b)marginal utility increases

c)income increases

d)total utility is maximized

8.The above table gives the total utility that Homer obtains from consuming various quantities of chocolate chip cookies. The marginal utility from the third pound of cookies is

Cookies

(pounds per week) Homer's total utility

0 0

1 5

2 3

3 12

4 14

5 15

a)3.

b)4.

c)9.

d)12.

9.In the market for private motor vehicles, which one of the following events would increase demand, ceteris paribus?

a)Studies showing the safety of taxi rides.

b)A fall in the price of private motor vehicles.

c)A rise in the price of petrol.

d)A fall in the price of petrol.

10. If demand is known to be Q = 50 - 5P then which is the lowest price that would make Q = 0?

a)when P = 0.

b)when P = 9.

c)when P = 10.

d)when P = 11.

11.If a market has a quantity demanded formula of Qd = 750 - 100P and a quantity supplied formula of Qs = 250 + 150P then at equilibrium:

a)price = 20 and equilibrium quantity = 350

b)b) price = 4 and equilibrium quantity = 350

c)c) price = 550 and equilibrium quantity = 2

d)price = 2 and equilibrium quantity = 550.

12.Which of the following will most likely increase the price of biltong?

a)There are less producers of biltong.

b) There is a new, cheaper way to produce biltong.

c) The supply of biltong rises.

D) The rent on biltong farms falls.

13. When an individual's income falls ceteris paribus, her demand for paraffin, an inferior good:

a) rises.

b) falls.

c) remains unchanged.

d) falls then rises.

14.The resource allocation method that is used to allocate scarce resources between private use and public use is

A) first-come, first-served.

B) personal characteristics.

C) majority rule.

D) market price.

15.As a method of resource allocation, force

A) is not important.

B) plays a crucial negative role.

C) plays a crucial positive role.

d) plays a crucial role for both good and ill.

16.If a per unit excise tax is levied on cigarettes, the more __________ the demand for cigarettes, the greater the proportion of the per-unit excise tax paid by the consumer, and the __________ the total tax receipts by the government.

a) inelastic; smaller.

b) inelastic; greater.

c) elastic; smaller.

d) elastic; greater.

e) none of the above.

18. Consumer equilibrium position for a given bundle of goods is defined as a pointwhere the combination is affordable and the goods:

a) generate the same total utility.

b) are of the same price.

c) have equal ratios of price to marginal utility

d) have equal ratios of price to total utility.

19. Jabulani can consume only two goods, pizza and coke, and the table of figures below shows his total utility from consuming these two goods. Use this table to answer question 19 and 20

Pizza Price = R2 Coke Price= R3

Quantity Total Utility Total Utility

1 40 75

2 72 135

3 92 189

4 102 237

5 106 261

Given that Jabulani's income is R16, what combination of pizza and coke would maximise his utility?

a) 1 unit of pizza and 2 units of coke.

b) 2 units of pizza and 4 units of coke.

c) 3 units of pizza and 3 units of coke.

d) 2 units of pizza and 1 unit of coke.

20. Jabulani still wishes to maximise his total utility from consuming pizza and coke. Based on this and with no changes in the prices of the two goods, what must be his level of income if he can only afford 1 pizza?

a) R14.

b) R12.

c) R10.

d) R8.

21. If a consumer has spent all her income on two goods, A and B, and we find that MUA/MUB = PA/PB, what can we say about the consumer?

a) The consumer should purchase more of A and less of B.

b) The consumer should purchase more of B and less of A.

c) The prices of goods A and B must be equal.

d) The consumer cannot increase her utility

22. For a budget line showing the affordably bundles of two goods, if the price of the good on the vertical axis gets cheaper what happens to the budget line relative to the horizontal axis?

a) It gets steeper.

b) It gets shallower.

c) It remains unchanged.

d) It gets longer.

23. When consuming a particular good, utility:

a) can be measured.

b) always rises at a constant rate.

c) varies across individuals.

d) is constant across individuals.

24. If marginal utility is always positive, but falling in value, then total utility will:

a) fall at a decreasing rate.

b) rise at a decreasing rate.

c) rise at an increasing rate.

d) fall at a constant rate.