1.  An increase in which of the following will most likely result in a

long-run surplus of a product?

(A) the number of suppliers of the product

(B) a price that is set by law above the equilibrium price

(C) the demand for the product

(D) the costs of resources used to produce the product

(E) the future expected price of the product

Answer: (B)

2. Assume that popcorn and movie attendance are complements and Salty Concession grows corn suitable for popping. Mr. Concession will most likely sell a greater quantity of popping corn at a higher price if which of the following occurs?

(A)The wages of a farm worker and movie theater employees increase.

(B)A technological improvement results in less expensive and more efficient harvesting of corn.

(C)The introduction of new fat-free potato chips provides new competition in the snack-food market.

(D)The release of three summer movies sets records for movie attendance.

(E)New government regulations force movie theaters to hire more security guards at each theater.

Answer: D

3. In a perfectly competitive market, which of the following shifts in the supply and demand curves will definitely cause both the equilibrium price and quantity to decrease?

Supply Curve                  Demand Curve

(A) Shifts to left                 Shifts to the left

(B ) shifts to the left              No shift

(C) shifts to the right              shifts to the right

(D) no shift                     shifts to the right

(E) no shift                     shifts to the left

Answer: E

4.Which of the following situations best illustrates the law of demand?

(A) as real income of United States citizens have decreased over the past year, the demand for housing has also decreased.

(B) recent decreases in the price of imported wine have led to an increase in the consumption of domestic wine.

(C) in the past several months, as the price of compact disc players has decreased , the quantity of compact disc players sold has increased.

(D) the increase in the price of quality health foods has increased the revenues of firms producing these goods.

(E) as the demand for computers has increased, the number of workers in the computer industry has increased.

Answer: C

5.Which of the following events will cause the demand curve for Hamburg to shift to the right?

(A) an increase in the price of price of pizza, a substitute for hamburgers.

(B) an increase in the price of French fries, a complements to hamburgers.

(C) an increase in the price of hamburgers

(D) a decrease in the price of hamburgers

(E) a decrease in the cost of producing hamburgers

Answer: A

6.Which of the following would cause the equilibrum price of good X to increase?

(A) Producers of good X find a new technology that reduces the cost of producing X

(B) The price of an essential input in the production of good X increases

(C) Good X and Y are complements, and the government imposes a tax on good Y.

(D) Good X is a normal good, and the government increases income taxes by 3%

(E) Good X is an inferior good, and the government decreases income tax by 10%

Answer: B

7.The graph above shows the supply and demand curves for artichokes. The surgeon general announces that eating an artichoke a day dramatically reduces one’s likelihood of developing cancer. Simultaneously an infestation of artichoke weevil severely damages the crop. Which of the following will definitely occur as a result?

(A) the supply of artichokes will increase.

(B) the price of artichokes will increase

(C) the demand for artichokes will decrease

(D) the quantity of artichokes grown will decrease.

(E) the profits of farmers who specialize in growing artichokes will decrease.

 

p                 Supply   

                   

                     Demand

    Quantity of ARTICHOKES      

Answer :B

8.Which of the following must be true if the revenues of wheat farmers increase when the price of wheat increases?

(A) the supply of wheat is price elastic

(B) the supply of wheat is income elastic

(C) the supply of wheat is income inelastic

(D) the demand for wheat is price elastic

(E) the demand for wheat is price inelastic

Answer :E

9.To alleviate a financial crisis, a university increases student fees. This action will increase university revenue if the price elasticity of demand for university education is

(A) inelastic

(B) unit elastic

(C) elastic

(D) equal to the price elasticity of supply

(E) equal to one

Answer:A

10.If a 5% wage increase in a particular labor market results in a 10% decrease in employment, the demand for labor is

(A) perfectly elastic

(B) relatively elastic

(C) unit elastic

(D) relatively inelastic

(E) perfectly inelastic

Answer: (B)

11. Consumer Surplus is defined as

(A) opportunity cost minus total revenue

(B) total revenue minus opportunity cost

(C) the difference betwwen the resource costs and the price that consumers pay

(D) the difference between the value that consumers place on a good and the price they pay

(E) the sum of external costs and benefits

Answer: D

12.If the market demand for a good is inelastic and the supply is elastic, which of the following is true when there is an increase in sales tax?

(A) consumers will bear most of the burden of the tax.

(B) producers will bear all of the burden of the tax.

(C) Producers will bear most of the burden of the tax or risk losing sales.

(D) Both consumers and producers will share the burden of the tax equally.

(E) The price of the good will not change.

Answer: A

13.Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good?

(A) The quantity sold will exceed the equilibrium quantity.

(B) Firm’s total revenue will increase if demand is price elastic.

(C) There will be a shortage in the market.

(D) All firms will shut down, since price is below the equilibrium price.

(E) Price will exceed the marginal cost of producing the last unit sold.

Answer: C

14. Leather and beef and jointly produced such that an increase in the production of one results in an equal increase in the production of the other. An increase in the demand for leather will most likely cause

(a) a decrease in the price of leather

(b) a decrease in the price of beef

(c) a decrease in the equilibrium quantity of beef sold

(d) an increase in the demand for beef in the short run

(e) an increase in the supply of leather

Answer :B

15. Suppose that a consumer purchases two goods X and Y and that the marginal utility of X is MUx, the total utility of X is TUx, the marginal utility of Y is Muy, and the total utility of Y is TUy. If the prices of X and Y are Px and Py, respectively, which of the following expressions defines consumer equilibrium?

(A) TUx=TUy

(B) MUx=Muy

(C) TUx/Px=TUy/Py

(D) MUx/Px=MUy/Py

(E) (MUx)(Px)+ (MUy)(Py)=1

Answer: D

16. Economies of scale exist when

(A) the doubling of all inputs doubles the output produced

(B) short-run average total cost decreases as output increase

(C) short-run average total cost remains constant as output increases

(D) long-run average total cost increases as output increases

(E) long-run average total cost decreases as output increases

Answer: E

17.           Marginal     Fixed

Quantity      Cost        Cost

  0          __           20

  1          15           __

  2          10           __

  3          15           __

According to the table above, which shows the costs of production for a firm, the average total cost of producing 3 units of output is

(A) 5  (B) 11.67  (C) 13.33  (D) 15  (E) 20

Answer: E

18. If the price of a firm’s variable input increases, which of the following will occur?

(A) The firm will decrease its level of production

(B) The price of the good will decrease in the short run

(C) The firm’s marginal costs will decrease at every level of output

(D) The firm’s average fixed cost will decrease

(E) More firms will enter the industry in the long run

Answer: A

19. Which of the following best describes a perfectly competitive market?

(A)    Many small firms producing differentiated products and facing significant barrier to entry

(B)     Many small firms producing homegeneous products and facing significant barrier to entry

(C)     Many small firms producing homegeneous products and facing no significant barrier to entry

(D)    A single large firm producing a unique product and facing significant barriers to entry

(E)     A few large firms producing a differentiated product and facing no significant barrier to entry

Answer: C

4.     20. When a perfectly competitive firm sells additional units of output, its total revenue will

(A) remain constant

(B) increase rapidly at first, then decline

(C) increase at a decreasing rate

(D) increase at an increasing rate

(E) increase at a constant rate

Answer: A