Quiz

Question 1 (Mandatory) (2 points)

The price elasticity of demand is the percentage change in

Question 1 options:

a)	income divided by the percentage change in price.

b)	price divided by the percentage change in demand.

c)	price divided by the percentage change in quantity demanded.

d)	quantity demanded divided by the percentage change in price.

Question 2 (Mandatory) (2 points)

The price elasticity of demand indicates

Question 2 options:

a)	how flat the demand curve can be.

b)	a buyer's responsiveness or sensitivity to a change in price of a good.

c)	how far demand stretches over time.

d)	the extent to which a demand curve shifts as incomes change.

e)	none of the above

Question 3 (Mandatory) (2 points)

Price elasticity of demand for a perfectly inelastic demand curve is equal to

Question 3 options:

a)

1.00

b)

Zero

c)

infinity

d)

undifined

e)	none of the above

Question 4 (Mandatory) (2 points)

Which of the following would result in higher price elasticity of demand for a good?

Question 4 options:

a)	the good is more of a necessity.

b)	lack of substitute for a good.

c)	shorter periods of time considered.

d)	more substitutes for a good.

Question 5 (Mandatory) (2 points)

If price of a good is a large percentage of one's budget that goes to pay for that good, then demand for that good is said to be

Question 5 options:

a)	relatively elastic.

b)	relatively inelastic.

c)	unit elastic.

d)	perfectly inelastic.

Question 6 (Mandatory) (2 points)

Total profit is equal to

Question 6 options:

a)	total fixed cost minus total revenue.

b)	average cost minus average revenue.

c)	total revenue minus total cost.

d)	total revenue minus total variable cost.

Question 7 (Mandatory) (2 points)

A determinant of the price elasticity of demand is

Question 7 options:

a)	if the good is imported from other countries.

b)	how large it is.

c)

time.

d)	how small it is.

Question 8 (Mandatory) (2 points)

An excise tax is

Question 8 options:

a)	a tax on sales of a domestic good or a service.

b)	a tax on sporting goods and services

c)	a tax on property

d)	non of the above.

Question 9 (Mandatory) (2 points)

If the price elasticity of demand for a given product is 7, this means that

Question 9 options:

a)	the percentage change in quantity demanded is 7 times one percentage change in price.

b)	if quantity demanded fell by 1 percent, price would fall by 7 percent.

c)	if price was raised 7 percent, quantity demanded would fall by 7 percent.

d)	if price was raised 7 percent, quantity demanded would rise 7 percent.

Question 10 (Mandatory) (2 points)

Five months ago Wilson opened up a health club. Which of the following is an implicit cost related to the health club?

Question 10 options:

a)	Wilson paid $120 for an outside laundry service to clean the towels used at the club.

b)	Wilson paid $100 for the pest control exterminator to spray the health club.

c)	Wilson previously worked as an accountant, earning $4,000 a month.

d)	Wilson usually eats four hamburgers a day, priced at $3 each.

Question 11 (Mandatory) (2 points)

Costs that do not change as output changes are called __________ costs.

Question 11 options:

a)

fixed

b)

marginal

c)

average

d)

variable

Question 12 (Mandatory) (2 points)

The law of diminishing returns holds for a situation in which

Question 12 options:

a)	all inputs are variable.

b)	all inputs are fixed.

c)	some inputs are variable, and some inputs are fixed.

d)	a firm is operating in the long run.

Question 13 (Mandatory) (2 points)

The law of diminishing returns states that as more and more amounts of a variable input are combined with

Question 13 options:

a)	fixed inputs, the marginal physical product of the variable input rises.

b)	other variable inputs, the marginal physical product of the variable input declines.

c)	fixed inputs, eventually the marginal physical product (MPP) of the variable input begin to increase at a decreasing rate.

d)	other variable inputs, the marginal physical product of the variable input becomes constant.

Question 14 (Mandatory) (2 points)

Incidence of tax refers to

Question 14 options:

a)	a situation where government taxes businesses at very high marginal tax rates.

b)	incidences where taxpayers avoid paying taxes.

c)	situations where government does not know who should really pay an income tax.

d)	A measure of who really pays a tax.

Question 15 (Mandatory) (2 points)

Government wants to maximize its tax revenue and it can only place a $2 per-unit tax on one of four goods. It should place the tax on the production of the good whose demand curve

Question 15 options:

a)	is relatively more elastic.

b)	is relatively more inelastic.

c)	is unit elastic

d)	. is perfectly elastic.

Question 16 (Mandatory) (2 points)

The marginal cost (MC) curve cuts the __________ curve at its lowest point.

Question 16 options:

a)

AVC

b)

ATC

c)

AFC

d)

a and b

e)	a, b, and c

Question 17 (Mandatory) (2 points)

Which of the following statements is true?

Question 17 options:

a)	Explicit costs always equal implicit costs, this is why zero economic profit is the same as normal profit.

b)	Zero economic profit is a smaller dollar figure than normal profit.

c)	Zero economic profit is a larger dollar figure than normal profit.

d)	Saying that a firm earned zero economic profit is the same as saying it earned normal profit.

Question 18 (Mandatory) (2 points)

If the demand for a good is inelastic and the price of the good decreases, then

Question 18 options:

a)	total revenue decreases.

b)	total revenue increases.

c)	total revenue is not affected.

d)	cannot be determined from the information given.

Question 19 (Mandatory) (2 points)

Refer to Exhibit 22-7. The average total cost (ATC) of producing 4 units of output is

Exhibit 22-7

Output	Total Cost
0	$30
1	$40
2	$60
3	$90
4	$110
5	$125
6	$135
7	$140

Question 19 options:

a)

$27.50

b)

$11.25

c)

$5.00

d)

$3.50

Question 20 (Mandatory) (2 points)

In the short run:

Question 20 options:

	all inputs are fixed.
	all inputs are variable.
	at least one input is fixed.
	all costs are variable.

Question 21 (Mandatory) (2 points)

Use Figure and Table: Variable, Fixed, and Total Costs for Buckwheat. The marginal cost of increasing production from 19 to 36 bushels of buckwheat is:

Points on Graph	Quantity of Labor (workers),L	Quantity of Buckwheat (bushels),Q	Variable Cost,VC	Fixed Cost,FC	Total Cost,TC = FC + VC
A	0	0	$0	$400	$400
B	1	19	200	400	600
C	2	36	400	400	800
D	3	51	600	400	1,000
E	4	64	800	400	1,200
F	5	75	1,000	400	1,400
G	6	84	1,200	400	1,600
H	7	91	1,400	400	1,800
I	8	96	1,600	400	2,000

Question 21 options:

	$23.53.
	$11.76.
	$22.22.
	$11.11.

Question 22 (Mandatory) (2 points)

Accounting profit differs from economic profit because:

Question 22 options:

	of the way in which revenue is calculated.
	economic costs include only explicit costs, while accounting costs do not.
	accounting costs are generally higher than economic costs.
	economic costs are generally higher than accounting costs.

Question 23 (Mandatory) (2 points)

Refer to Exhibit 22-7. The marginal cost of producing the seventh unit of output is

Exhibit 22-7

Output	Total Cost
0	$30
1	$40
2	$60
3	$90
4	$110
5	$125
6	$135
7	$140

Question 23 options:

a)

$12.14

b)

$5.00

c)

$21.00

d)

$85.00

Question 24 (Mandatory) (2 points)

The smaller share of the price of a good to one's budget or income, the more elastic the demand (curve) will be.

Question 24 options:

	True
	False

Question 25 (Mandatory) (2 points)

Increasing returns to scale often arise from the increased specialization that large output levels allow.

Question 25 options:

	True
	False

Question 26 (Mandatory) (2 points)

It is very important for the seller of a good to know whether the good is elastic, unit elastic, or inelastic in demand so that she will know what will happen to total revenue when she changes the price of the good.

Question 26 options:

	True
	False

Question 27 (Mandatory) (2 points)

An example of an implicit cost is the foregone income that a business owner-manager could have earned working for someone else.

Question 27 options:

	True
	False

Question 28 (Mandatory) (2 points)

Average Fixed Cost = Average Total Cost + Average Variable Cost

Question 28 options:

	True
	False

Question 29 (Mandatory) (4 points)

Is price elasticity of supply higher or lower in the long run? Why? Explain.

Question 29 options:

Question 30 (Mandatory) (10 points)

Exhibit 20-2

Price (dollars 52 per pack) Government Lax on cigarettes 51 $5.50 4.50 4.25 18 20 Quantity (billions of packs per year)