QUESTION 1

If, for any given amount of a good or service, willingness to pay increases, then:

		A. supply has increased.
		B. supply has decreased.
		C. demand has increased.
		D. demand has decreased.

QUESTION 2

When the price of wood is high:

A. consumers will be more likely to use wood in its lower-valued uses.

B. consumers will be more likely to use wood in its higher-valued uses.

C. the quantity demanded of wood will also rise.

D. the quantity demanded of wood will be unaffected.

QUESTION 3

Which of the following statements is TRUE?

		A. A price ceiling is the minimum price allowed by law.
		B. An increase in market deman does not lead to an increase in quantity supplied under a price ceiling.
		C. A shortage occurs whenever the price is set above the equilibrium price.
		D. When quantity supplied exceeds quantity demanded, the market experiences a shortage. QUESTION 4

Why is the demand curve for oil rather inelastic?

		A. There are few widely available good substitutes for oil.
		B. To increase the production of oil requires a significant outlay of exploration and drilling costs.
		C. The world supply of oil is low relative to demand.
		D. The demand curve for oil is always perfectly inelastic.

QUESTION 5

In the market for pharmaceuticals, the issue of "drug loss" illustrates which of the following ideas?

		A. The longer a drug is tested for safety, the lower is the opportunity cost in terms of lives lost.
		B. If a drug is not tested for safety, it might kill more people.
		C. Because of the higher cost of testing a drug, fewer drugs are made, and more lives are lost.
		D. Lives are being lost because safe drugs that are still in the testing stage have not been approved.

QUESTION 6

Barry's wage increased and he responded by working more hours. Which statement must be TRUE?

		A. Leisure is an inferior good.
		B. The substitution effect of the wage increase dominated the income effect.
		C. The income effect of the wage increase dominated the substitution effect.
		D.The substitution and income effect both increased hours of work.

QUESTION 7

The Edict on Maximum Prices, established by the Roman emperor Diocletian, created price ceilings on various jobs and goods in a failed effort to curb inflation. For example, legal pay for a farm laborer could be no more that $0.108 a day (payment set in modern currency). If the market rate of farm labor was $0.12 a day, which would be a plausible consequence of this law?

		A. Farms would produce more food than they otherwise would.
		B. Nothing unusual would happen.
		C. A laborer would work less hard than he otherwise would.
		D. Unemployment for farm hands would increase.

QUESTION 8

The ability of one producer to produce one good or service using fewer inputs than another producer is:

		A. comparative advantage.
		B. absolute advantage.
		C. opportunity cost.
		D. competition.

QUESTION 9

Which of the following statements reflects Adam Smith's important insight into marketplace behavior?

		A. Society benefits when people and firms pursue their own self-interest.
		B. Markets are usually an inefficient way of organizing economic activity.
		C. Greedy, self-interested behavior needs to be constrained to ensure strong economic growth.
		D. Trade restrictions on imported goods increase domestic employment.

QUESTION 10

The law of demand suggests a _______relationship between price and _______.

		A. positive; quantity demanded
		B. positive; quantity supplied
		C. negative; quantity demanded
		D. negative; quantity supplied