Principles of Microeconomics 50 question multiple choice test

1.

(Table: Exercise and Utility) Look at the table Exercise and Total Utility. Marginal utility:

A)

initially decreases but eventually increases as more exercise is consumed.

B)

always decreases as more exercise is consumed.

C)

initially increases but eventually decreases as more exercise is consumed.

D)

initially increases but eventually stays constant as more exercise is consumed.

2.

(Table: Exercise and Utility) Look at the table Exercise and Total Utility. The principle of diminishing marginal utility is seen:

A)

nowhere, as marginal utility is always increasing.

B)

immediately, from the first hour and beyond.

C)

between the first and second hours.

D)

after more than two hours of exercise.

3.

For an economist, the cost of something is:

A)

the amount of money you paid for it.

B)

what you gave up to get it.

C)

always equal to its market value.

D)

the quantity of resources used to produce it.

4.

Scarcity in economics means that:

A)

we do not have sufficient resources to produce all of the goods and services we want.

B)

the wants of people are limited.

C)

there must be poor people in rich countries.

D)

economists are clearly not doing their job.

5.

(Table: Marginal Utility per Dollar III) Look at the table Marginal Utility per Dollar III. If Liyun has $20 to spend on potatoes and clams, then the utility-maximizing combination is _____ pounds of clams and _____ pounds of potatoes.

A)

2; 6

B)

3; 4

C)

1; 8

D)

3; 9

6.

(Table: Utility from Milk and Honey) Look at the table Utility from Milk and Honey. The price of milk is $2 and the price of honey is $4. If Max's income is $16, he buys _____ bottle(s) of milk and _____ jar(s) of honey.

A)

1; 1

B)

4; 2

C)

5; 4

D)

6; no

7.

Which of the following statements is TRUE?

A)

A budget constraint limits what a poor consumer can spend, but there is no similar constraint on rich people.

B)

Utility maximization requires seeking the most utility from a given budget.

C)

In consumer choice theory, we assume all goods and services are inferior.

D)

The slope of the budget constraint depends on how much of each good is consumed.

8.

Utility is the:

A)

difference between a firm's total revenue and its total economic cost.

B)

good not adequately provided by a free market and usually provided by the government.

C)

satisfaction consumers derive from their consumption of goods and services.

D)

lowest price that buyers are willing to pay for a given quantity of a good.

9.

Abdul spends all of his income on food (F) and shelter (S). His budget line is given by the equation 5F + 20S = 100. Which of the following consumption bundles is part of his consumption possibilities?

A)

8 units of F and 3 units of S

B)

14 units of F and 2 units of S

C)

0 units of F and 6 units of S

D)

20 units of F and 15 units of S

10.

When total utility is at a maximum, marginal utility is:

A)

rising.

B)

at its average value.

C)

at a maximum.

D)

zero.

11.

The law of diminishing marginal utility indicates that the slope of the marginal utility curve eventually becomes:

A)

negative.

B)

vertical.

C)

horizontal.

D)

positive.

12.

The amount by which total utility changes when an additional unit of a good is consumed is called _____ utility.

A)

average

B)

additional

C)

maximum

D)

marginal

13.

Accountants use only _____ costs in their computations of short-run total cost.

A)

opportunity

B)

implicit

C)

explicit

D)

variable

14.

You decide to quit your $60,000-per-year job as an information technology specialist and illustrate children's books. At the end of the first year of illustrating, you have earned $20,000. You also spent $5,000 for paint and paper. Your economic profit in the first year as an illustrator is:

A)

$15,000.

B)

$20,000.

C)

–$40,000.

D)

–$45,000.

15.

Economic profit is:

A)

less than accounting profit if implicit costs exist.

B)

always equal to accounting profit.

C)

greater than accounting profit if implicit costs exist.

D)

less than accounting profit if implicit costs are zero.

16.

Suppose Eastland College does not have a summer program and could rent out the campus to various summer sports camps for $100,000. The potential revenue of the summer camps represents:

A)

an implicit cost of capital.

B)

an explicit cost.

C)

a total cost.

D)

a sunk cost.

17.

During its only year of operation, a firm collected $175,000 in revenue and spent $50,000 on raw materials, labor, and utilities. The owners of the firm spent $100,000 of their own money to build the firm's factory (instead of buying bonds and earning a 10% annual rate of return), which they sold at the end of the year for $100,000. The firm's economic profit is:

A)

$35,000.

B)

$125,000.

C)

$115,000.

D)

$25,000.

18.

You can spend $100 on either a new economics textbook or a new CD player. If you choose to buy the new economics textbook, the opportunity cost is:

A)

$100.

B)

your enjoyment of the new CD player.

C)

both the $100 and your enjoyment of the new CD player.

D)

impossible to determine.

19.

(Table: Market for Pizza) Look at the table Market for Pizza and use the midpoint method. The price elasticity of demand for pizza between $14 and $12 per pizza when income is $1,000 per month is:

A)

0.6.

B)

1.

C)

1.6.

D)

2.

20.

(Table: Consumer Surplus) Look at the table Consumer Surplus. Assume that each student wants to buy one ticket. If the price of a ticket to see The Nutty Nutcracker is $50, Lois's consumer surplus is:

A)

$60.

B)

$50.

C)

$15.

D)

$240.

21.

(Table: Consumer Surplus) Look at the table Consumer Surplus. Assume that each student wants to buy one ticket. If the price of a ticket to see The Nutty Nutcracker is $50 and there is no other market for tickets, total consumer surplus for the five students is:

A)

$105.

B)

$130.

C)

$270.

D)

$320.

22.

(Table: Consumer Surplus) Look at the table Consumer Surplus. Assume that each student wants to buy one ticket. If the price of a ticket to see The Nutty Nutcracker is $75 and there is no other market for tickets, the total consumer surplus for the five students is:

A)

$190.

B)

$125.

C)

$40.

D)

$0.

23.

(Table: Consumer Surplus) Look at the table Consumer Surplus. Assume that each student wants to buy one ticket. If the tickets to The Nutty Nutcracker are free and there is no other market for tickets, the total consumer surplus for the five students is:

A)

$0.

B)

$100.

C)

$150.

D)

$320.

24.

We can measure total consumer surplus for good X as:

A)

the sum of the individual consumer surpluses for all buyers of X.

B)

the area above the demand curve for X and below the price of X.

C)

the area bounded by the demand curve for X and the two axes.

D)

the area above the supply curve for X.

25.

Opportunity cost is:

A)

about half of the monetary cost of a product.

B)

the dollar payment for a product.

C)

the benefit derived from a product.

D)

the value of the best alternative forgone in making any choice.

26.

We can measure total producer surplus for good X as:

A)

the sum of the individual producer surpluses for all buyers of X.

B)

the area below the supply curve for X and above the price of X.

C)

the area bounded by the supply curve for X and the two axes.

D)

the area between the demand curve for X and the supply curve for X.

27.

(Figure: Producer Surplus III) Look at the figure Producer Surplus III. If the price of the good is $2, producer surplus will equal:

A)

$20.

B)

$40.

C)

$60.

D)

$80.

28.

(Figure: Producer Surplus III) Look at the figure Producer Surplus III. If the price of the good is $4, producer surplus will equal:

A)

$20.

B)

$40.

C)

$60.

D)

$80.

29.

(Figure: Producer Surplus III) Look at the figure Producer Surplus III. If the price of the good increases from $3 to $4, producer surplus will increase by:

A)

$5.

B)

$15.

C)

$25.

D)

$35.

30.

(Figure: Producer Surplus III) Look at the figure Producer Surplus III. If the price of the good decreases from $2 to $1, producer surplus will decrease by:

A)

$5.

B)

$15.

C)

$25.

D)

$35.

31.

The price elasticity of demand measures the:

A)

responsiveness of quantity demanded to a change in price.

B)

responsiveness of price to a change in quantity demanded.

C)

extent to which prices are flexible and respond to market forces.

D)

responsiveness of demand when price is held constant and demand increases or decreases.

32.

Suppose the price of gasoline increases 10% and quantity of gasoline demanded in Orlando drops 5% per day. Demand for gasoline in Orlando is:

A)

price elastic.

B)

price inelastic.

C)

price unit-elastic.

D)

perfectly price inelastic.

33.

A good is likely to have an inelastic demand curve if:

A)

the consumer has significant time to respond to the price change.

B)

the good has few available substitutes.

C)

the good is a luxury.

D)

the good accounts for a large share of consumer income.

34.

The price elasticity of a good will tend to be larger:

A)

the longer the relevant time.

B)

the fewer number of substitute goods available.

C)

if it is a staple.

D)

if it is relatively inexpensive.

35.

The income elasticity of demand of a normal good is always:

A)

between 1 and 0.

B)

less than 0.

C)

equal to 0.

D)

greater than 0.

36.

The cross-price elasticity of demand of substitute goods is:

A)

between –1 and 0.

B)

less than 0.

C)

equal to 0.

D)

greater than 0.

37.

An important determinant of the price elasticity of demand is the:

A)

proportion of the household budget spent on the good.

B)

level of technology.

C)

quantity of the good supplied.

D)

extent of government regulation.

38.

Which of the following statements is CORRECT?

A)

A change in demand is a movement along the demand curve, and a change in quantity demanded is a shift of the demand curve.

B)

Both a change in quantity demanded and a change in demand are movements along the demand curve, only in different directions.

C)

Both a change in quantity demanded and a change in demand are shifts of the demand curve, only in different directions.

D)

A change in quantity demanded is a movement along the demand curve, and a change in demand is a shift of the demand curve.

39.

The demand for meals at a local Applebee's will shift to the left if:

A)

the Olive Garden offers a 10 percent discount coupon in the local newspaper.

B)

the price of a meal at Applebee's rises.

C)

local incomes increase and Applebee's is a normal good.

D)

the price of gasoline falls in the area.

40.

An increase in supply is caused by:

A)

an increase in input prices.

B)

suppliers' expectations of higher prices in the future.

C)

an increase in the price of the good.

D)

a decrease in the price of resources used in production.

41.

A decrease in supply is caused by:

A)

an increase in the price of goods that are used in production.

B)

suppliers' expectations of lower prices in the future.

C)

an advancement in the technology for producing the good.

D)

an increase in the number of producers.

42.

Market equilibrium occurs when:

A)

there is no incentive for prices to change in the market.

B)

quantity demanded equals quantity supplied.

C)

the market clears.

D)

there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears.

43.

What is the difference between a shortage and scarcity?

A)

Scarcity will almost always exist, but a shortage will exist only if the price is kept below the equilibrium level.

B)

Scarcity is a result of two or more alternative uses, and quantities of supply and demand adjusting to flexible prices will create shortages.

C)

A shortage will exist when a good is scarce.

D)

There is no distinction between the two. They are the same thing.

44.

(Figure: Shifts in Demand and Supply III) Look at the figure Shifts in Demand and Supply III. The figure shows how supply and demand might shift in response to specific events. Suppose consumer incomes increase. Which panel BEST describes how this will affect the market for designer boots, a normal good?

A)

panel A

B)

panel B

C)

panel C

D)

panel D

45.

(Figure: Shifts in Demand and Supply III) Look at the figure Shifts in Demand and Supply III. The figure shows how supply and demand might shift in response to specific events. Suppose scientists discover that eating asparagus slows the aging process. Which panel BEST describes how this will affect the market for asparagus?

A)

panel A

B)

panel B

C)

panel C

D)

panel D

46.

(Figure: Shifts in Demand and Supply) Look at the figure Shifts in Demand and Supply. The figure shows how supply and demand might shift in response to specific events. Suppose consumer incomes increase. Which panel BEST describes how this will affect the market for used furniture, an inferior good?

A)

panel A

B)

panel B

C)

panel C

D)

panel D

47.

Excess supply occurs when:

A)

the price is above the equilibrium price.

B)

the quantity demanded exceeds the quantity supplied.

C)

the price is below the equilibrium price.

D)

the quantity demanded exceeds the quantity supplied and the price is below the equilibrium price.

48.

You have $1 to spend on a vending machine snack. A bag of chips will cost you $1 and a candy bar will also cost you $1. If you choose the bag of chips, the opportunity cost of buying the chips is:

A)

$1 plus the enjoyment you would have received from the candy bar.

B)

$2 minus the enjoyment you received from the bag of chips.

C)

$1.

D)

the enjoyment you would have received from the candy bar.

49.

(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity. Between the two prices, P1 and P2, which demand curve has the lowest price elasticity?

A)

D1

B)

D2

C)

D3

D)

D4

50.

(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity. Between the two prices, P1 and P2, which demand curve has the highest price elasticity?

A)

D1

B)

D2

C)

D3

D)

D4