microecon

7. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is ____. A. direct, inverse B. inverse, direct C. inverse, inverse D. direct, direct

A. direct, inverse

14. The price elasticity of demand of a straight-line demand curve is: A. elastic in high-price ranges and inelastic in low-price ranges. B. elastic, but does not change at various points on the curve. C. inelastic, but does not change at various points on the curve. D. 1 at all points on the curve.

A. elastic in high-price ranges and inelastic in low-price ranges.

6. To the economist, total cost includes: A. explicit and implicit costs, including a normal profit. B. neither implicit nor explicit costs. C. implicit, but not explicit, costs. D. explicit, but not implicit, costs.

A. explicit and implicit costs, including a normal profit.

3. Which of the following is most likely to be an implicit cost for Company X? A. forgone rent from the building owned and used by Company X B. rental payments on IBM equipment C. payments for raw materials purchased from Company Y D. transportation costs paid to a nearby trucking firm

A. forgone rent from the building owned and used by Company X

10. Consumer surplus: A. is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price. B. is the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept. C. is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price. D. rises as equilibrium price rises.

A. is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.

17. The price elasticity of demand is generally: A. negative, but the minus sign is ignored. B. positive, but the plus sign is ignored. C. positive for normal goods and negative for inferior goods. D. positive because price and quantity demanded are inversely related.

A. negative, but the minus sign is ignored.

. The law of demand states that, other things equal: A. price and quantity demanded are inversely related. B. the larger the number of buyers in a market, the lower will be product price. C. price and quantity demanded are directly related. D. consumers will buy more of a product at high prices than at low prices.

A. price and quantity demanded are inversely related.

16. The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is: A. price. B. expectations. C. preferences. D. incomes.

A. price.

1. Market failure is said to occur whenever: A. private markets do not allocate resources in the most economically desirable way. B. prices rise. C. some consumers who want a good do not obtain it because the price is higher than they are willing to pay. D. government intervenes in the functioning of private markets.

A. private markets do not allocate resources in the most economically desirable way.

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. 16. Refer to the above information. For a purely competitive firm, total revenue graphs as a: A. straight, upsloping line. B. straight line, parallel to the vertical axis. C. straight line, parallel to the horizontal axis. D. straight, downsloping line.

A. straight, upsloping line.

3. Demand-side market failures occur when: A. the demand and supply curves don't reflect consumers' full willingness to pay for a good or service. B. the demand and supply curves don't reflect the full cost of producing a good or service. C. government imposes a tax on a good or service. D. a good or service is not produced because no one demands it.

A. the demand and supply curves don't reflect consumers' full willingness to pay for a good or service.

18. When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer Adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls? A. the substitution effect B. the income effect C. an increase in the demand for Nike soccer balls D. the price effect

A. the substitution effect

8. Accounting profits equal total revenue minus: A. total explicit costs. B. total implicit costs. C. total economic costs. D. economic profits.

A. total explicit costs.

5. What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common? A. None are either implicit or explicit costs. B. All are opportunity costs. C. All are implicit costs. D. All are explicit costs.

B. All are opportunity costs.

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 17. Refer to the above data. Creamy Crisp's implicit costs, including a normal profit, are: A. $136,000. B. $150,000. C. $94,000. D. $156,000.

A. $136,000.

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 18. Refer to the above data. Creamy Crisp's total economic costs are: A. $286,000. B. $150,000. C. $94,000. D. $156,000.

A. $286,000.

9. Which of the following statements is correct? A. Economic profits induce firms to enter an industry; losses encourage firms to leave. B. Economic profits induce firms to leave an industry; profits encourage firms to leave. C. Economic profits and losses have no significant impact on the growth or decline of an industry. D. Normal profits will cause an industry to expand.

A. Economic profits induce firms to enter an industry; losses encourage firms to leave.

1. Which of the following distinguishes the short run from the long run in pure competition? A. Firms can enter and exit the market in the long run, but not in the short run. B. Firms attempt to maximize profits in the long run, but not in the short run. C. Firms use the MR=MC rule to maximize profits in the short run, but not in the long run. D. The quantity of labor hired can vary in the long run, but not in the short run.

A. Firms can enter and exit the market in the long run, but not in the short run.

13. Which of the following will not hold true for a competitive firm in long-run equilibrium? A. P equals AFC B. P equals minimum ATC C. MC equals minimum ATC D. P equals MC

A. P equals AFC

15. Which of the following is characteristic of a purely competitive seller's demand curve? A. Price and marginal revenue are equal at all levels of output. B. Average revenue is less than price. C. Its elasticity coefficient is 1 at all levels of output. D. It is the same as the market demand curve.

A. Price and marginal revenue are equal at all levels of output.

9. If the demand curve reflects consumers' full willingness to pay, and the supply curve reflects all costs of production, then which of the following is true? A. The benefit surpluses shared between consumers and producers will be maximized. B. The benefit surpluses received by consumers and producers will be equal. C. There will be no consumer or producer surplus. D. Consumer surplus will be maximized, and producer surplus will be minimized.

A. The benefit surpluses shared between consumers and producers will be maximized.

11. Which of the following statements is correct? A. The long-run supply curve for a purely competitive increasing-cost industry will be upsloping. B. The long-run supply curve for a purely competitive increasing-cost industry will be perfectly elastic. C. The long-run supply curve for a purely competitive industry will be less elastic than the industry's short-run supply curve. D. The long-run supply curve for a purely competitive decreasing-cost industry will be upsloping.

A. The long-run supply curve for a purely competitive increasing-cost industry will be upsloping.

13. Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences: A. a consumer surplus of $10 and Tony experiences a producer surplus of $190. B. a producer surplus of $200 and Tony experiences a consumer surplus of $10. C. a consumer surplus of $670 and Tony experiences a producer surplus of $200. D. a producer surplus of $10 and Tony experiences a consumer surplus of $190.

A. a consumer surplus of $10 and Tony experiences a producer surplus of $190.

10. Suppose a purely competitive, increasing-cost industry is in long-run equilibrium. Now assume that a decrease in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price: A. and industry output will be less than the initial price and output. B. will be greater than the initial price, but the new industry output will be less than the original output. C. will be less than the initial price, but the new industry output will be greater than the original output. D. and industry output will be greater than the initial price and output.

A. and industry output will be less than the initial price and output.

2. Markets, viewed from the perspective of the supply and demand model: A. assume many buyers and many sellers of a standardized product. B. assume market power so that buyers and sellers bargain with one another. C. do not exist in the real-world economy. D. are approximated by markets in which a single seller determines price.

A. assume many buyers and many sellers of a standardized product.

1. The price elasticity of demand coefficient measures: A. buyer responsiveness to price changes. B. the extent to which a demand curve shifts as incomes change. C. the slope of the demand curve. D. how far business executives can stretch their fixed costs.

A. buyer responsiveness to price changes

13. Which of the following is not a basic characteristic of pure competition? A. considerable nonprice competition B. no barriers to the entry or exit of firms C. a standardized or homogeneous product D. a large number of buyers and sellers

A. considerable nonprice competition

3. The demand for a product is inelastic with respect to price if: A. consumers are largely unresponsive to a per unit price change. B. the elasticity coefficient is greater than 1. C. a drop in price is accompanied by a decrease in the quantity demanded. D. a drop in price is accompanied by an increase in the quantity demanded.

A. consumers are largely unresponsive to a per unit price change.

2. The primary force encouraging the entry of new firms into a purely competitive industry is: A. normal profits earned by firms already in the industry. B. economic profits earned by firms already in the industry. C. government subsidies for start-up firms. D. a desire to provide goods for the betterment of society.

B. economic profits earned by firms already in the industry.

14. Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed product price will be: A. lower, but total output will be larger than originally. B. higher and total output will be larger than originally. C. lower and total output will be smaller than originally. D. higher, but total output will be smaller than originally.

B. higher and total output will be larger than originally.

12. A constant-cost industry is one in which: A. a higher price per unit will not result in an increased output. B. if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth. C. the demand curve and therefore the unit price and quantity sold seldom change. D. the total cost of producing 200 or 300 units is no greater than the cost of producing 100 units.

B. if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.

16. If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will: A. decrease the amount demanded by more than 10 percent. B. increase the amount demanded by more than 10 percent. C. decrease the amount demanded by less than 10 percent. D. increase the amount demanded by less than 10 percent.

B. increase the amount demanded by more than 10 percent.

6. If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then: A. the selling price for this firm is above the market equilibrium price. B. new firms will enter this market. C. some existing firms in this market will leave. D. there must be price fixing by the industry's firms.

B. new firms will enter this market.

7. An industry comprised of four firms, each with about 25 percent of the total market for a product is an example of: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition.

B. oligopoly.

2. The basic formula for the price elasticity of demand coefficient is: A. absolute decline in quantity demanded/absolute increase in price. B. percentage change in quantity demanded/percentage change in price. C. absolute decline in price/absolute increase in quantity demanded. D. percentage change in price/percentage change in quantity demanded.

B. percentage change in quantity demanded/percentage change in price.

2. Marginal utility can be: A. positive, but not negative. B. positive or negative, but not zero. C. positive, negative, or zero. D. decreasing, but not negative.

B. positive or negative, but not zero.

16. When a purely competitive firm is in long-run equilibrium: A. marginal revenue exceeds marginal cost. B. price equals marginal cost. C. total revenue exceeds total cost. D. minimum average total cost is less than the product price.

B. price equals marginal cost.

4. Production costs to an economist: A. consist only of explicit costs. B. reflect opportunity costs. C. never reflect monetary outlays. D. always reflect monetary outlays.

B. reflect opportunity costs..

17. Total utility may be determined by: A. multiplying the marginal utility of the last unit consumed by the number of units consumed. B. summing the marginal utilities of each unit consumed. C. multiplying the marginal utility of the last unit consumed by product price. D. multiplying the marginal utility of the first unit consumed by the number of units consumed.

B. summing the marginal utilities of each unit consumed.

14. Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle: A. under the demand curve and below the actual price. B. under the demand curve and above the actual price. C. above the supply curve and above the actual price. D. above the supply curve and below the actual price.

B. under the demand curve and above the actual price.

9. An explicit cost is: A. omitted when accounting profits are calculated. B. a money payment made for resources not owned by the firm itself. C. an implicit cost to the resource owner who receives that payment. D. always in excess of a resource's opportunity cost.

B. a money payment made for resources not owned by the firm itself.

1. Economists would describe the U.S. automobile industry as: A. purely competitive. B. an oligopoly. C. monopolistically competitive. D. a pure monopoly.

B. an oligopoly.

19. An increasing-cost industry is associated with: A. a perfectly elastic long-run supply curve. B. an upsloping long-run supply curve. C. a perfectly inelastic long-run supply curve. D. an upsloping long-run demand curve.

B. an upsloping long-run supply curve.

12. The law of diminishing marginal utility states that: A. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer. C. price must be lowered to induce firms to supply more of a product. D. it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.

17. A purely competitive firm: A. must earn a normal profit in the short run. B. cannot earn economic profit in the long run. C. may realize either economic profit or losses in the long run. D. cannot earn economic profit in the short run.

B. cannot earn economic profit in the long run.

15. Marginal utility is the: A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility obtained by consuming one more unit of a good. C. change in total utility obtained by consuming another unit of a good divided by the change in the price of that good. D. total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

B. change in total utility obtained by consuming one more unit of a good.

13. Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week: A. demand will become more price elastic. B. price elasticity of demand will not change as price is lowered. C. demand will become less price elastic. D. the elasticity of supply will increase.

C. demand will become less price elastic.

20. Price is constant or given to the individual firm selling in a purely competitive market because: A. the firm's demand curve is downsloping. B. of product differentiation reinforced by extensive advertising. C. each seller supplies a negligible fraction of total supply. D. there are no good substitutes for its product.

C. each seller supplies a negligible fraction of total supply.

8. When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the: A. cost effect. B. inflationary effect. C. income effect. D. substitution effect.

C. income effect.

4. If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will: A. increase the quantity demanded by about 2.5 percent. B. decrease the quantity demanded by about 2.5 percent. C. increase the quantity demanded by about 25 percent. D. increase the quantity demanded by about 250 percent.

C. increase the quantity demanded by about 25 percent.

1. A market: A. reflects upsloping demand and downsloping supply curves. B. entails the exchange of goods, but not services. C. is an institution that brings together buyers and sellers. D. always requires face-to-face contact between buyer and seller.

C. is an institution that brings together buyers and sellers.

13. Which of the following definitions is correct? A. Accounting profit + economic profit = normal profit. B. Economic profit - accounting profit = explicit costs. C. Economic profit = accounting profit - implicit costs. D. Economic profit - implicit costs = accounting profits.

C. Economic profit = accounting profit - implicit costs.

5. Which of the following is true concerning purely competitive industries? A. There will be economic losses in the long run because of cut-throat competition. B. Economic profits will persist in the long run if consumer demand is strong and stable. C. In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits. D. There are economic profits in the long run, but not in the short run.

C. In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.

18. A constant-cost industry is one in which: A. resource prices fall as output is increased. B. resource prices rise as output is increased. C. resource prices remain unchanged as output is increased. D. small and large levels of output entail the same total costs.

C. resource prices remain unchanged as output is increased.

4. Graphically, the market demand curve is: A. steeper than any individual demand curve that is part of it. B. greater than the sum of the individual demand curves. C. the horizontal sum of individual demand curves. D. the vertical sum of individual demand curves.

C. the horizontal sum of individual demand curves.

12. Normal profit is: A. determined by subtracting implicit costs from total revenue. B. determined by subtracting explicit costs from total revenue. C. the return to the entrepreneur when economic profits are zero. D. the average profitability of an industry over the preceding 10 years.

C. the return to the entrepreneur when economic profits are zero.

3. In a purely competitive industry: A. there will be no economic profits in either the short run or the long run. B. economic profits may persist in the long run if consumer demand is strong and stable. C. there may be economic profits in the short run, but not in the long run. D. there may be economic profits in the long run, but not in the short run.

C. there may be economic profits in the short run, but not in the long run.

2. Which of the following constitutes an implicit cost to the Johnston Manufacturing Company? A. payments of wages to its office workers B. rent paid for the use of equipment owned by the Schultz Machinery Company C. use of savings to pay operating expenses instead of generating interest income D. economic profits resulting from current production

C. use of savings to pay operating expenses instead of generating interest income

15. Graphically, producer surplus is measured as the area: A. under the demand curve and below the actual price. B. under the demand curve and above the actual price. C. above the supply curve and above the actual price. D. above the supply curve and below the actual price.

D. above the supply curve and below the actual price.

2. Which of the following is an example of market failure? A. negative externalities B. positive externalities C. public goods D. all of these

D. all of these

6. From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically: A. generates more of a benefit than it costs to produce. B. produces a benefit exactly equal to the cost of producing the last unit. C. maximizes the net benefit to society. D. costs more to produce than it provides in benefits.

D. costs more to produce than it provides in benefits.

18. For a linear demand curve: A. elasticity is constant along the curve. B. elasticity is unity at every point on the curve. C. demand is elastic at low prices. D. demand is elastic at high prices.

D. demand is elastic at high prices.

11. Most demand curves are relatively elastic in the upper-left portion because the original price: A. and quantity from which the percentage changes in price and quantity are calculated are both large. B. and quantity from which the percentage changes in price and quantity are calculated are both small. C. from which the percentage price change is calculated is small and the original quantity from which the percentage change in quantity is calculated is large. D. from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

D. from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

19. The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range: A. has declined. B. is of unit elasticity. C. is inelastic. D. is elastic.

D. is elastic.

15. Assume a purely competitive, increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will: A. leave the industry, price will decrease, and quantity produced will increase. B. enter the industry and price and quantity will both increase. C. leave the industry and price and output will both increase. D. leave the industry and price and output will both decline.

D. leave the industry and price and output will both decline.

17. One reason that the quantity demanded of a good increases when its price falls is that the: A. price decline shifts the supply curve to the left. B. lower price shifts the demand curve to the left. C. lower price shifts the demand curve to the right. D. lower price increases the real incomes of buyers, enabling them to buy more.

D. lower price increases the real incomes of buyers, enabling them to buy more.

15. A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the: A. more elastic the supply curve. B. larger the elasticity of demand coefficient. C. more elastic the demand for the product. D. more inelastic the demand for the product.

D. more inelastic the demand for the product.

15. Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting: A. profits were $100,000 and its economic profits were zero. B. losses were $500,000 and its economic losses were zero. C. profits were $500,000 and its economic profits were $1 million. D. profits were zero and its economic losses were $500,000.

D. profits were zero and its economic losses were $500,000.

7. Long-run competitive equilibrium: A. is realized only in constant-cost industries. B. will never change once it is realized. C. is not economically efficient. D. results in zero economic profits.

D. results in zero economic profits.

4. Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm: A. minimizes losses by producing at the minimum point of its AVC curve. B. maximizes profits by producing where MR = ATC. C. should close down immediately. D. should continue producing in the short run, but leave the industry in the long run if the situation persists.

D. should continue producing in the short run, but leave the industry in the long run if the situation persists.

10. The larger the coefficient of price elasticity of demand for a product, the: A. larger the resulting price change for an increase in supply. B. more rapid the rate at which the marginal utility of that product diminishes. C. less competitive will be the industry supplying that product. D. smaller the resulting price change for an increase in supply.

D. smaller the resulting price change for an increase in supply.

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. 18. Refer to the above information. For a purely competitive firm: A. marginal revenue will graph as an upsloping line. B. the demand curve will lie above the marginal revenue curve. C. the marginal revenue curve will lie above the demand curve. D. the demand and marginal revenue curves will coincide.

D. the demand and marginal revenue curves will coincide.

7. Implicit and explicit costs are different in that: A. explicit costs are opportunity costs; implicit costs are not. B. implicit costs are opportunity costs; explicit costs are not. C. the latter refer to non-expenditure costs and the former to monetary payments. D. the former refer to non-expenditure costs and the latter to monetary payments

D. the former refer to non-expenditure costs and the latter to monetary payments

14. When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes: A. an inferior good. B. the rationing function of prices. C. the substitution effect. D. the income effect.

D. the income effect.

4. Economists use the term imperfect competition to describe: A. all industries which produce standardized products. B. any industry in which there is no nonprice competition. C. a pure monopoly only. D. those markets which are not purely competitive.

D. those markets which are not purely competitive.

11. Economic profits are calculated by subtracting: A. explicit costs from total revenue. B. implicit costs from total revenue. C. implicit costs from normal profits. D. explicit and implicit costs from total revenue.

D. explicit and implicit costs from total revenue.

10. Which of the following statements applies to a purely competitive producer? A. It will not advertise its product. B. In long-run equilibrium it will earn an economic profit. C. Its product will have a brand name. D. Its product is slightly different from those of its competitors.

A. It will not advertise its product.

3. Which of the following industries most closely approximates pure competition? A. agriculture B. farm implements C. clothing D. steel

A. agriculture

6. An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition.

A. monopolistic competition.

12. Which of the following is not a characteristic of pure competition? A. price strategies by firms B. a standardized product C. no barriers to entry D. a larger number of sellers

A. price strategies by firms

5. In which of the following industry structures is the entry of new firms the most difficult? A. pure monopoly B. oligopoly C. monopolistic competition D. pure competition

A. pure monopoly

16. Utility refers to the: A. satisfaction that a consumer derives from a good or service. B. rate of decline in a product demand curve. C. relative scarcity of a product. D. usefulness of a product.

A. satisfaction that a consumer derives from a good or service.

8. What two conditions must hold for a competitive market to produce efficient outcomes? A. Demand curves must reflect all costs of production, and supply curves must reflect consumers' full willingness to pay. B. Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay. C. Firms must minimize production costs, and consumers must minimize total expenditures. D. Firms must maximize profits, and consumers must all pay prices equal to their maximum willingness to pay.

B. Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.

20. A recent study found that an increase in the Federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that: A. beer and marijuana are substitute goods. B. beer and marijuana are complementary goods. C. beer is an inferior good. D. marijuana is an inferior good.

B. beer and marijuana are complementary goods.

9. A perfectly inelastic demand schedule: A. rises upward and to the right, but has a constant slope. B. can be represented by a line parallel to the vertical axis. C. cannot be shown on a two-dimensional graph. D. can be represented by a line parallel to the horizontal axis.

B. can be represented by a line parallel to the vertical axis.

7. If the demand for product X is inelastic, a 4 percent increase in the price of X will: A. decrease the quantity of X demanded by more than 4 percent. B. decrease the quantity of X demanded by less than 4 percent. C. increase the quantity of X demanded by more than 4 percent. D. increase the quantity of X demanded by less than 4 percent.

B. decrease the quantity of X demanded by less than 4 percent.

8. We would expect an industry to expand if firms in that industry are: A. earning normal profits. B. earning economic profits. C. breaking even. D. earning accounting profits.

B. earning economic profits.

14. If the price of product X rises, then the resulting decline in the amount purchased will: A. necessarily increase the consumer's total utility from his total purchases. B. increase the marginal utility of the last unit consumed of this good. C. increase the total utility from purchases of this good. D. reduce the marginal utility of the last unit consumed of this good.

B. increase the marginal utility of the last unit consumed of this good.

1. The utility of a good or service: A. is synonymous with usefulness. B. is the satisfaction or pleasure one gets from consuming it. C. is easy to quantify. D. rarely varies from person to person.

B. is the satisfaction or pleasure one gets from consuming it.

2. In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies? A. pure monopoly B. oligopoly C. monopolistic competition D. pure competition

B. oligopoly

14. The demand schedule or curve confronted by the individual purely competitive firm is: A. relatively elastic, that is, the elasticity coefficient is greater than unity. B. perfectly elastic. C. relatively inelastic, that is, the elasticity coefficient is less than unity. D. perfectly inelastic.

B. perfectly elastic.

5. Supply-side market failures occur when: A. the demand and supply curves don't reflect consumers' full willingness to pay for a good or service. B. the demand and supply curves don't reflect the full cost of producing a good or service. C. government regulates production of a good or service. D. a good or service is not supplied because no one wants it.

B. the demand and supply curves don't reflect the full cost of producing a good or service

19. Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived he discovered that hamburgers were on sale for $1, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by: A. the substitution effect. B. the income effect. C. the price effect. D. a rightward shift in the demand curve for hamburgers.

B. the income effect.

19. If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue: A. may be either greater or less than $5. B. will also be $5. C. will be less than $5. D. will be greater than $5.

B. will also be $5.

5. Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is: A. 4.00. B. 2.09. C. 1.37. D. 3.94.

C. 1.37.

13. The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is: A. 26 units of utility. B. 6 units of utility. C. 8 units of utility. D. 38 units of utility.

C. 8 units of utility.

11. A purely competitive seller is: A. both a "price maker" and a "price taker." B. neither a "price maker" nor a "price taker." C. a "price taker." D. a "price maker."

C. a "price taker."

12. Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences: A. a consumer surplus of $12 and Nathan experiences a producer surplus of $3. B. a producer surplus of $9 and Nathan experiences a consumer surplus of $3. C. a consumer surplus of $9 and Nathan experiences a producer surplus of $3. D. a producer surplus of $9 and Nathan experiences a producer surplus of $12.

C. a consumer surplus of $9 and Nathan experiences a producer surplus of $3.

4. People enjoy outdoor holiday lighting displays, and would be willing to pay to see these displays, but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a: A. negative externality B. supply-side market failure C. demand-side market failure D. government failure

C. demand-side market failure

16. A producer's minimum acceptable price for a particular unit of a good: A. is the same for all units of the good. B. will, for most units produced, equal the maximum that consumers are willing to pay for the good. C. equals the marginal cost of producing that particular unit. D. must cover the wages, rent, and interest payments necessary to produce the good, but need not include profit.

C. equals the marginal cost of producing that particular unit.

11. Producer surplus: A. is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price. B. rises as equilibrium price falls. C. is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price. D. is the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept.

C. is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.

3. Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is: A. zero. B. positive, but declines rapidly. C. negative. D. positive, but less than the ticket price.

C. negative.

11. A product has utility if it: A. takes more and more resources to produce successive units of it. B. violates the law of demand. C. satisfies consumer wants. D. is useful.

C. satisfies consumer wants.

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. 17. Refer to the above information. For a purely competitive firm, marginal revenue graphs as a: A. straight, upsloping line. B. straight line, parallel to the vertical axis. C. straight line, parallel to the horizontal axis. D. straight, downsloping line.

C. straight line, parallel to the horizontal axis.

8. If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then: A. the price elasticity of demand is 0.44. B. A is a complementary good. C. the price elasticity of demand is 2.25. D. A is an inferior good.

C. the price elasticity of demand is 2.25.

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 20. Refer to the above data. Creamy Crisp's economic profit is: A. $150,000. B. $80,000. C. $230,000. D. $94,000.

D. $94,000.

12. The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a: A. 1 percent reduction in price. B. 12 percent reduction in price. C. 40 percent reduction in price. D. 20 percent reduction in price.

D. 20 percent reduction in price.

6. Economists use the term "demand" to refer to: A. a particular price-quantity combination on a stable demand curve. B. the total amount spent on a particular commodity over a fixed time period. C. an upsloping line on a graph that relates consumer purchases and product price. D. a schedule of various combinations of market prices and amounts demanded.

D. a schedule of various combinations of market prices and amounts demanded.

10. Accounting profits are typically: A. greater than economic profits because the former do not take explicit costs into account. B. equal to economic profits because accounting costs include all opportunity costs. C. smaller than economic profits because the former do not take implicit costs into account. D. greater than economic profits because the former do not take implicit costs into account.

D. greater than economic profits because the former do not take implicit costs into account.

8. An industry comprised of a very large number of sellers producing a standardized product is known as: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition.

D. pure competition.

4. The ability of a good or service to satisfy wants is called: A. utility maximization. B. opportunity cost. C. revenue potential. D. utility.

D. utility.

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 16. Refer to the above data. Creamy Crisp's explicit costs are: A. $286,000. B. $150,000. C. $94,000. D. $156,000.

B. $150,000.

14. Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were: A. $100,000 and its economic profits were zero. B. $200,000 and its economic profits were zero. C. $100,000 and its economic profits were $100,000. D. zero and its economic loss was $200,000.

B. $200,000 and its economic profits were zero.

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 19. Refer to the above data. Creamy Crisp's accounting profit is: A. $150,000. B. $380,000. C. $230,000. D. $294,000.

C. $230,000.

7. The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If Transcontinental does not pay for the damage it causes, what has occurred? A. Positive externality B. Demand-side market failure C. Supply-side market failure D. All of these.

C. Supply-side market failure

1. Economic cost can best be defined as: A. any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers. B. any contractual obligation to labor or material suppliers. C. payments that must be received by resource owners to insure the resources' continued supply. D. all costs exclusive of payments to fixed factors of production.

C. payments that must be received by resource owners to insure the resources' continued supply.

5. The demand curve shows the relationship between: A. money income and quantity demanded. B. price and production costs. C. price and quantity demanded. D. consumer tastes and quantity demanded.

C. price and quantity demanded.

6. Which of the following is not characteristic of the demand for a commodity that is elastic? A. The relative change in quantity demanded is greater than the relative change in price. B. Buyers are relatively sensitive to price changes. C. Total revenue declines if price is increased. D. The elasticity coefficient is less than one.

D. The elasticity coefficient is less than one.