The following are multiple choice questions.

11 Which of the following is true of sunk costs?

a. It is a type of opportunity cost.

b. It is a type of implicit cost.

c. It should be ignored when making decisions.

d. It includes annual costs like payroll, insurance expenses, etc.

12. The opportunity cost of a good is always constant if the production possibility frontier is:

a. a downward-sloping straight line.

b. concave to the origin.

c. convex to the origin.

d. negatively sloped

13. The opportunity cost of traffic congestion includes:

a. lower use of gasoline.

b. longer commuting time to work.

c. more fuel efficient cars.

d. more freeways being built.

14. Which of the following can be categorized as a sunk cost of a firm?

a. The retirement benefit provided to the workers

b. The investment on a research project that failed to take-off

c. The higher wages paid to workers for working extra hours

d. The value of the closing stock of inventory

15. Which one of the following is held constant along a given demand curve?

a. The consumers' income

b. The price of the good the demand curve represents

c. The cost of producing the good the demand curve represents

d. The quantity of the good the demand curve represents

16. Which of the following is an example of price ceiling?

a. A payment made by the government to farmers to prevent them from planting certain crops

b. Purchase of certain food crops by the government to lower its supply and increase its price

c. A cap on the automobile insurance rate charged in some states

d. A minimum wage announced by the government for workers in some specific industries

17. Which of the following would result in a higher equilibrium price and an ambiguous change in the equilibrium quantity?

a. An increase in both supply and demand

b. An increase in supply and a decrease in demand

c. A decrease in both supply and demand

d. A decrease in supply and an increase in demand

18. Along a linear demand curve, price elasticity of demand:

a. increases as price falls.

b. is independent of price.

c. decreases as price falls.

d. remains unchanged.

19. Which of the following statements about demand elasticity is correct?

a. If demand is inelastic, an increase in price will reduce revenues.

b. If demand is elastic, an increase in price will increase revenues.

c. If demand is inelastic, an increase in price will increase revenues.

d. If demand is elastic, an increase in price will leave revenues unchanged.

20. John will eat peanut butter and jelly sandwiches only when they are made with exactly two ounces of peanut butter and one ounce of jelly. If peanut butter is on the horizontal axis (PB) and jelly on the vertical axis (J), John's indifference curve for peanut butter and jelly is:

a. L-shaped, beginning at 2PB and 1J.

b. convex to the origin with a slope of -1/2.

c. a parallel straight line with a slope of -2.

d. concave to the origin with a slope of -2.

21. Which of the following will lead to a corner solution?

a. The consumer has a fixed amount of income

b. The first unit of one good is not worth its cost

c. The consumer has L-shaped indifference curves

d. The proportion of income spent on both goods is the same

22. Suppose movie theater tickets are on the vertical axis and books on the horizontal axis. You have a budget allowance of $100, and the price of movie theater passes is $10 and the price of books is $25 each. What is the vertical intercept of your budget constraint?

a. 1

b. 4

c. 10

d. 100

23. Good X is on the horizontal axis and Good Y is on the vertical axis. Your budget allowance is $200, the market price of X is $5, and the market price of Y is $20. You are expending your total budget and the marginal rate of substitution at your present consumption bundle is 0.1 so to maximize utility you should consume:

a. more X and less Y.

b. less X and more Y.

c. less of both X and Y.

d. more of both X and Y.

24. X is on the horizontal axis and Y on the vertical axis. If you are consuming at an optimal point on an indifference curve such that the slope at that point was -4, which of the following best describes your consumption bundle?

a. Your marginal utility of X is 20 and for Y it is 20.

b. Your marginal utility of X is 5 and for Y it is 20.

c. Your marginal utility of X is 20 and for Y it is 5.

d. Your marginal utility of X is 4 and for Y it is 4.

25. The bandwagon effect causes the market demand to become:

a. relatively more elastic.

b. relatively less elastic.

c. perfectly inelastic.

d. unit elastic.

26. In case of a normal good, the income and substitution effects:

a. always work together and both tend to make the demand curve downward sloping.

b. always work in the opposite direction to one another.

c. just offset each other.

d. work together, both tending to make the demand curve upward sloping.

27. Which of the following must be true for a Giffen good?

a. The good must be inferior and the substitution effect must be larger than the income effect.

b. The good must be inferior and the income effect must be larger than the substitution effect.

c. Both the income and the substitution effect of a price rise will be positive.

d. Both the income and the substitution effect of a price rise will be negative

28. The substitution effect causes more consumption of a good when its price is lower. When does this statement hold true?

a. This statement is true only for Giffen goods.

b. This statement is sometimes true for inferior goods, but never for normal goods.

c. This statement is always true for normal goods, but never for inferior goods.

d. This statement is always true regardless of the type of good.

29. For normal goods, the demand curve is:

a. always upward sloping.

b. always downward sloping.

c. upward sloping only if the income effect is larger than the substitution effect.

d. downward sloping only if the substitution effect is larger than the income effect.

30. Which of the following statements provides the best example of consumer surplus?

a. "Drinking that bottle of soda increased my happiness by $10."

b. "John gave me $5 for the watermelon."

c. "I paid $20 for this shirt for which I would have paid up to $40."

d. "I refuse to pay $30 for their steak dinner; it's highly overpriced."