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Fining dairy farmers who cause effluent run off into nearby streams is known as Select one: a. cap and trade. b. internalising an external cost. c. command and control. d. cross subsidisation.

In the long run, a profit maximising perfect competitor produces where Select one: a. MC = MR. b. P = MC. c. AR = AC. d. all of the above apply.

In the prisoners dilemma game, the nash equilibrium Select one: a. is the same as when both prisoners play their dominant strategy. b. is where neither player has an incentive to change given the actions of the other. c. is not the optimal outcome for either party. d. all of the above.

In the short run, a perfect competitor can make Select one: a. positive economic profit. b. negative economic profit. c. zero economic profit. d. all of the above.

Marginal cost equals Select one: a. the variable costs of the current unit produced minus the variable cost of the previous unit produced b. change in total costs divided by change in quantity produced c. change in variable costs divided by change in quantity produced d. all of the above

Over the long term, which of the following is not a variable cost of production? Select one: a. Electricity b. Land and building rents c. Raw materials d. None of the above

A monopolist's average revenue is always Select one: a. greater than the price of its product b. equal to the price of its product c. less than the price of its product d. equal to marginal revenue

A positive consumption externality will cause a market to Select one: a. produce less than is socially desirable b. produce more than is socially desirable c. produce more than is market optimal d. produce less than is market optimal

According to the Coase Theorem, private solutions to externalities can occur when (i) bargaining costs are small (ii)property/ownership rights are clearly defined (iii)the number of parties involved is small Select one: a. all of the above b. (i) and (ii) only c. (iii) only d. (ii) and (iii) only

Common resource goods are Select one: a. Rival and non-excludable b. Rival and excludable c. Non-rival and excludable d. Non-rival and non-excludable

Compared to the private equilibrium in the market for tertiary education, the social equilibrium will have Select one: a. a higher price and a larger quantity. b. a higher price and a smaller quantity. c. a lower price and a larger quantity. d. a lower price and a smaller quantity.

Disneyland is now charging higher entry fees to their rollercoaster rides. This should result in Select one: a. a movement up a downward sloping demand curve for rollercoaster rides b. a decrease in demand for rollercoaster rides c. a movement down an upward sloping supply curve for rollercoaster rides d. more than one of the above answers is correct Feedback

Firms can have (i) accounting profits and economic losses (ii) accounting profits and economic profits (iii) accounting losses and economic losses (iv) accounting losses and economic profits Select one: a. (i), (ii) and (iii) b. Only (i) and (iv) c. Only (ii) and (iii) d. All of the above

Free markets ration goods with Select one: a. prices b. long lines c. ration coupons d. discrimination

If $2,000 will be received in 1 years time, and the real interest rate is 8%, then the present value of the $2,000 is Select one: a. $1,851.85 b. $1,111.11 c. $2,160.00 d. None of the above

If a perfectly competitive firm is operating at a profit maximising quantity where AR is less than AC but above AVC, they will Select one: a. shut down in the long run. b. shut down immediately. c. increase their price. d. stimulate demand through non-price competition.

If an indifference curve is bowed in toward the origin, the marginal rate of substitution Select one: a. is different for each bundle along the indifference curve b. is likely to be constant for all bundles along the indifference curve c. is likely to be identical to the price ratio for each bundle along the indifference curve d. is not likely to reflect relative value of commodities

If one person's use of the good diminishes another person's enjoyment of it, the good is Select one: a. rival b. excludable c. normal d. exhaustible

If the supply and demand functions for a good are: Qd = 22 - 2P Qs = 3P - 18 The equilibrium price and quantity will be Select one: a. P = 8, Q = 6. b. P = 6, Q = 8. c. P = 2, Q = 40. d. P = 3, Q = 40.

In the short run, an increase in variable costs for a profit maximising perfect competitor will result in Select one: a. an upward shift of the MC and AC curves, and a decrease in the quantity produced. b. a downward shift of the MC and AC curves, and an increase in the quantity produced. c. a downward shift of the AC curve, and an increase in the quantity produced. d. an upward shift of the AC curve, and a decrease in the quantity produced.

The Coase Theorem states that where externalities exist individuals are able to arrive at efficient solutions Select one: a. regardless of how property rights are initially allocated. b. even when property rights are poorly defined. c. by agreeing to split the cost of implementing the least cost solution. d. by arbitration.

The notion of calling commodities "goods" rather than "bads" is related to the idea that Select one: a. higher indifference curves are preferred to lower ones b. indifference curves have a positive slope c. indifference curves that cross are helpful in explaining differences in consumption choices across individuals d. indifference curves are generally linear

Two consumption bundles lie on the same indifference curve. These two bundles Select one: a. represent the same level of utility. b. cost the same. c. contain the same amount of at least one of the goods. d. are not related in any way.

When free entry is one of the attributes of a market structure, economic profits are Select one: a. eventually driven to zero b. negative for all firms c. sacrificed to excess capacity d. always positive

When the free rider problem exists then Select one: a. the market will devote too few resources to the production of a good. b. the cost of the good will always be more than the benefit of the good. c. the good will not be produced. d. entrepreneurs will eventually find a way to make free riders pay their share.

When there are many sellers and buyers in a market with identical products Select one: a. sellers are usually price takers b. sellers typically have some market advantage in exchange c. buyers and sellers typically can't agree on a price for exchange d. buyers typically have some market power in exchange Feedback

Which of the following will not result in a change in the supply of apples? Select one: a. An increase in the price of a substitute good b. An increase in the number of firms in the market c. The increased use of technology d. A favourable climatic event

Which of the following would be considered a common resource good? Select one: a. animals at an uncongested zoo b. a river rafting trip through the grand canyon c. a visit to an art museum d. a congested public motorway

A firm with fixed costs Select one: a. always has losses for low levels of output b. must incur accounting losses if it chooses not to produce output in the short run c. cannot maximise profit in the short run d. is always able to sell its product for a price that exceeds marginal revenue Feedback

An effective advertising campaign will result in Select one: a. an increase in demand and an increase in supply. b. an increase in demand and an increase in quantity supplied. c. an increase in quantity demanded and an increase in supply. d. an increase in quantity demanded and an increase in quantity supplied.

An increased marginal product of workers will result in Select one: a. a shift left of the demand curve for labour. b. a shift right of the demand curve for labour. c. a shift left of the supply curve for labour. d. a shift right of the supply curve for labour.

An optimising consumer will select a consumption bundle in which the Select one: a. marginal rate of substitution is equal to income b. marginal rate of substitution is equal to the relative price c. ratio of expenditure shares equals the marginal rate of substitution d. utility exceeds price

Assume that the local pizza shop makes pretty good bread sticks. Consumers do not respond much to a change in the price of bread sticks. If the owner is interested only in increasing revenue, what would you suggest? Select one: a. Lower the price of the bread sticks b. Raise the price of the bread sticks c. Leave the price of the bread sticks alone d. Advertise more

At a quantity when a firm's average revenue (demand) curve is tangent to its average total cost curve Select one: a. the firm must be operating in a monopolistically competitive market b. economic profits are zero c. the firm must be earning positive economic profits d. the firm must be incurring economic losses

Governments are led to control prices through measures such as a minimum price because Select one: a. they view the market's outcome as inefficient b. they view the market's outcome as unfair c. they are politicians who enjoy exercising their power d. the policy objective of full employment compels them to do so

If an insurance company increases their premiums, they are likely to experience a greater chance of Select one: a. reduced adverse selection b. increased adverse selection c. unchanged adverse selection d. none of the above

If marginal cost exceeds marginal revenue Select one: a. the firm must be incurring economic losses b. the firm may still be generating economic profit c. the firm may be at the profit maximising level of output d. a profit maximising firm should always increase the level of production

In the long run, for a competitive firm Select one: a. all costs are fixed. b. all costs are variable. c. some costs are fixed and some are variable. d. costs are irrelevant and it is revenue that matters.

Indifference curves provide a way to graphically represent Select one: a. the constraints faced by individuals b. an individual's preferences c. the relative price of commodities d. an income level sufficient to make an individual happy

Markets which are characterised by a few sellers that sell similar or identical products are typically referred to as Select one: a. aggressive markets b. oligopoly markets c. monopoly markets d. competitive markets

One would expect to observe diminishing marginal product of labour when Select one: a. workers are discouraged about poor working conditions b. crowded office space reduces the productivity of new workers c. union workers are told to reduce their work effort in preparation for a new round of collective bargaining talks d. only new workers are trained in using the most productive capital

Paul decides to spend an hour playing football rather than studying or working at $6 per hour. His trade off is Select one: a. nothing, because he enjoys playing football more than working or studying b. the benefit to his marks from studying for an hour or the $6 he could have earned c. the increase in skill he obtains from playing football for that hour d. nothing, because he spent $6 for admission into the sports complex to play football

Price elasticity of demand measures Select one: a. how much the price of a good changes when there is a change in the quantity demanded b. how much the quantity demanded responds to a change in the price c. how much the price of a good changes when there is a change in the number of buyers d. how much the demand shifts for a given change in the price of the good

Suppose that a steel factory emits a certain amount of air pollution and that this pollution constitutes a negative externality. The social cost of producing the steel includes Select one: a. the private costs of the steel producers and the price consumers pay for the steel b. the private costs of the steel producers and the costs to the bystanders affected by the pollution c. the costs to the bystanders affected by the pollution only d. the price consumers pay for the steel and the costs to the bystanders affected by the pollution

The opportunity cost of going to university is Select one: a. the sum of all the money a student spends on food, clothing, books, transportation, tuition, lodging and other expenses b. the value of the best opportunity a student gives up to attend university c. zero for students who are fortunate enough to have all of their university expenses paid by someone else d. zero, since a university education will allow a student to earn a larger income after graduation

The supply curve for a firm in a perfectly competitive market Select one: a. is determined by forces external to the firm b. is reflected in its marginal cost curve (above average variable cost) c. will be influenced by the magnitude of fixed costs d. is likely to slope downward

A decrease in the price of a good will cause a Select one: a. shift left of the demand curve for the good b. shift right of the demand curve for the good c. movement up the existing demand curve d. movement down the existing demand curve

When firms are neither entering or exiting a perfectly competitive market then Select one: a. total cost must exceed total revenue. b. economic profits must be zero. c. average revenue must exceed average cost. d. average revenue must equal average variable cost.

Which of the following is NOT associated with a perfectly competitive market? Select one: a. Firms are price takers. b. Firms have difficulty entering the market. c. There are many sellers in the market. d. The goods on offer are largely the same.

Which of the following is least likely to result in adverse selection? Select one: a. Buying health insurance. b. Buying bottled water from a supermarket. c. Buying a used car. d. Finding a date on an internet dating site.

A McDonalds Big Mac currently sells for $4.00. If the government introduced a "fat tax" of $1.00 per Big Mac then the price of a Big Mac would most likely Select one: a. not change as McDonalds would be responsible for paying it. b. rise by $1.00. c. rise by some amount less than $1.00. d. rise by an amount more than $1.00.

A budget constraint shows Select one: a. points of equal utility for the consumer. b. all points of available consumption for the consumer. c. consumption bundles where all income is spent. d. points of maximum utility for a consumer. Feedback

A competitive firm's short run supply curve is shown by Select one: a. the part of the average cost curve that is above marginal cost. b. the part of the marginal cost curve that is above minimum average variable cost. c. the part of the marginal cost curve that is above minimum average cost. d. the part of the marginal revenue curve that is above marginal cost.

A perfect competitor's level of profit is determined by Select one: a. AR - AC where AR = MR. b. MR = MC. c. TR - TC where MR = MC. d. MR - MC.

A profit maximising firm will hire labour up to the point where Select one: a. marginal product is just starting to decline. b. marginal product of labour is just starting to rise. c. the value of marginal product is just equal to the wage rate. d. marginal value exceeds marginal cost.

Caitlin would be willing to pay $50 to see Les Miserables, but buys a ticket for only $30. Caitlin values the performance at and her consumer surplus is . Select one: a. $30, $50 b. $50, $30 c. $50, $20 d. $30, $20

Demand is said to be elastic Select one: a. if the price of the good responds only slightly to changes in the quantity demanded b. if the demand shifts only slightly when the price of the good changes c. if buyers respond substantially to changes in the price of the good d. if the quantity demanded changes only slightly when the price of the good changes

Diminishing marginal product of labour occurs when Select one: a. adding another unit of labour increases output, but not by as large a margin as the previously employed labour b. adding another unit of labour decreases output c. adding another unit of labour increases output, by more than the margin of previously employed labour d. none of the above

Economics is defined as Select one: a. the study of business b. the study of how society controls prices and output c. the study of how society manages its scarce resources d. the study of government regulation

Efficiency means that Select one: a. society is conserving on resources in order to save them for the future b. society's goods and services are distributed fairly among society's members c. society is getting the most it can from its scarce resources d. society has lessened its dependence on energy sources

For a firm that operates in a perfectly competitive market, Select one: a. as quantity produced rises, the price of the final product must also rise b. the price of the product will decrease as production decreases c. the price it charges for its product is not dependent on the quantity sold d. it is restricted in the amount it can produce, otherwise price would be too low to make a profit

Holding all other forces constant, when the price of petrol rises, the number of litres of petrol demanded will fall substantially over a ten year period because Select one: a. buyers tend to be much less sensitive to a change in price over a long period of time b. buyers will have substantially more income over a ten year period c. buyers tend to be much more sensitive to a change in price over a long time period d. None of these answers is correct

If only a few people are affected by an externality Select one: a. then it is likely that Pigovian taxes will provide the most efficient solution to the externality b. then it is likely that command and control regulation will provide the most efficient solution to the externality c. then it is more likely that a private solution to the inefficiency could occur d. then it is likely that a private solution will be very difficult to negotiate

In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is Select one: a. zero b. equal to the industry's profits. c. the market supply curve. d. a horizontal line.

A good is excludable if Select one: a. One person's use of the good diminishes another person's enjoyment of it b. The government regulates its availability c. It is not a normal good d. People can be prevented from using it

In the market for bananas, favourable health trends towards bananas results in Select one: a. an increase in demand, and an increase in supply b. an increase in the quantity demanded, and an increase in supply c. an increase in demand, and an increase in the quantity supplied d. an increase in demand, and no change in supply or quantity supplied

In the second half of the nineteenth century, grasshoppers caused great destruction to crops in the American Midwest. To rid the area of the insects, states paid large bounties for each bushel of dead grasshoppers. In some cases, farmers began growing and harvesting grasshoppers rather than wheat. This is an example of Select one: a. profit maximisation b. irrational behaviour c. rational response to economic incentives d. the need for a subsidy

Insurance companies offering a "no claims bonus" is an example of a strategy to help reduce: Select one: a. dishonest claims b. adverse selection c. moral hazard d. moral selection

Now the youth minimum wage has increased to the adult minimum wage for 17 and 18 year olds, there is likely to be Select one: a. more involuntary and voluntary unemployment for 17 and 18 year olds. b. less involuntary and voluntary unemployment for 17 and 18 year olds. c. more involuntary and less voluntary unemployment for 17 and 18 year olds. d. less involuntary and more voluntary unemployment for 17 and 18 year olds.

Suppose that a steel factory emits a certain amount of air pollution and that this pollution constitutes a negative externality. If this market is not required to internalise this externality Select one: a. the quantity of steel produced will be the social optimum b. consumers will be required to pay a higher price for steel c. the quantity of steel produced will be the private market optimum d. producers will produce less steel than they otherwise would

Suppose that the number of buyers in a market increases and there is technological advancement. What would we expect to happen in the market? Select one: a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous b. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous c. The equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous d. The equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous

The real interest rate is Select one: a. the nominal interest rate plus the inflation rate b. the inflation rate minus the nominal interest rate c. the nominal interest rate minus the inflation rate d. the nominal interest rate multiplied by the inflation rate

When a change in price results in a consumer moving to a new indifference curve, the consumer has experienced a(n) Select one: a. budget effect b. preference effect c. income effect d. substitution effect Feedback

When an oligopoly market is in Nash equilibrium Select one: a. market price will be different for each firm b. firms will not be behaving as profit maximisers c. firm will choose its best pricing strategy, given the strategies that it observes other firms taking d. a firm will not take into account the strategies of competing firms

When externalities exist, buyers and sellers Select one: a. neglect the external effects of their actions and the market equilibrium is efficient b. do not neglect the external effects of their actions and the market equilibrium is efficient c. neglect the external effects of their actions and the market equilibrium is not efficient d. do not neglect the external effects of their actions and the market equilibrium is not efficient

Which of the following could the government use when faced with a positive externality? Select one: a. taxation. b. permits. c. subsidies. d. all of the above.

Which of the following is NOT a strategy to reduce the chances of moral hazard occurring in the insurance market? Select one: a. A no claims bonus. b. An excess. c. Increased premiums. d. Excluding suicide from life insurance policies.

Which of the following would be considered a non-rival but excludable good? Select one: a. Viewing a movie in a crowded theatre b. An ice-cream cone c. Visiting a non-crowded museum d. Fish in the ocean

Which of these statements best represents the law of demand? Select one: a. When buyers' tastes for a good increase, they purchase more of the good. b. When income levels increase, buyers respond by purchasing more of most goods. c. When the price of a good falls, buyers respond by purchasing more of the good. d. When buyers' demands for a good increase, the price of the good will increase. Feedback

With diminishing returns, a perfectly competitive firm that finds that MR exceeds MC would be able to improve its profit by Select one: a. decreasing its output. b. doing nothing. c. increasing its output. d. raising its price.

A shortage in a market is likely over time, to lead to Select one: a. an increase in supply b. a decrease in demand c. an increase in the quantity demanded and the quantity supplied d. an increase in the quantity supplied, and a decrease in the quantity demanded

An example of moral hazard in the insurance industry would be Select one: a. two parties colluding to form a cartel b. insurance companies dealing with the wrong type of people c. people lying on the policy forms d. people who have car insurance driving faster

At an interest rate of 5%, the present value of $500 earned in 3 years time would be Select one: a. $579 b. $500 c. $485 d. $432

If opportunity costs are ignored, Select one: a. all firms would show accounting profits b. all firms would incur economic losses c. firms will still make profit maximising production decisions d. inefficient firms may appear to be profitable

If the net present value of a future revenue stream from buying a machine is negative, then Select one: a. the present value of the future revenue must also be negative b. the cost of purchasing the machine must be greater than the revenue generated c. interest rates are too high d. the machine should not be purchased

If the value of the marginal product of pie makers increased, a possible explanation could be Select one: a. the price of pies must have increased b. pie makers have become more productive c. there has been an increase in the demand for pies d. all of the above

In selecting an optimal consumption bundle, the consumer Select one: a. takes the relative price of goods as a given b. matches the slopes of the indifference curve and the budget constraint c. equates marginal rate of substitution and relative price d. all of the above

In some cases, pollution permits may be better than a Pigovian tax because Select one: a. pollution permits allow for a market solution, while a Pigovian tax does not b. pollution permits generate more revenue for the government than a pigovian tax c. pollution permits are never preferred over a Pigovian tax d. the government can set a maximum level of pollution using permits

In the demand function Qd = 112 - 4P, the number - 4 represents Select one: a. the x-axis intercept b. the y-axis intercept c. the elasticity of the demand curve d. the slope of the demand curve

In the long run, a profit maximising perfect competitor produces where Select one: a. MC = MR. b. P = MC. c. AR = AC. d. all of the above apply. Feedback

Over the long term, which of the following is not a variable cost of production? Select one: a. Electricity b. Land and building rents c. Raw materials d. None of the above

The Coase Theorem suggests that the efficient solution to an externality problem Select one: a. is conditional on who owns property rights to the resources b. is enhanced by government involvement in the negotiations c. can be enhanced through the use of Pigovian taxes d. does not depend on the distribution of property rights

The answer to the question, "how much revenue does a perfectly competitive firm receive for the typical unit sold?" is Select one: a. price b. average revenue c. marginal revenue d. all of the above

The imposition of a tariff in a market will usually result in Select one: a. an increase in consumer surplus, an increase in producer surplus, and an increase in total surplus. b. an increase in consumer surplus, an increase in producer surplus, and a decrease in total surplus. c. a decrease in consumer surplus, an increase in producer surplus, and an increase in total surplus. d. a decrease in consumer surplus, an increase in producer surplus, and a decrease in total surplus.

The reason why the interest rate is used to calculate the present values of some future income generated by an investment made today is that Select one: a. it is easy to use. b. the value of money received in the future is less than money received now. c. present value calculations make comparing values from two different time periods possible. d. it represents the opportunity cost of using money.

When considering what to buy for lunch you consider that the curry will provide you with marginal utility of 5 and the soup with marginal utility of 6. Which of the following is true? Select one: a. you will certainly buy the soup as it yields higher utility. b. you will buy the curry if it is cheaper than the soup. c. you will buy the curry if it is 50c cheaper than the soup. d. you will buy the soup if it costs $6.00 and the curry costs $5.50.

When demand in a perfectly competitive market falls, then it is likely that Select one: a. other firms will enter in a bid to boost demand. b. those firms that continue in the industry will make positive economic profits. c. in the long run, the remaining firms will make negative economic profits. d. some firms will exit the market.

When indifference curves are straight lines Select one: a. the marginal rate of substitution must be rising b. the marginal rate of substitution must be falling c. there is generally no way to choose between bundles d. the marginal rate of substitution is constant

When the player of a game chooses a dominant strategy, Select one: a. it is the best strategy, only if other players are cooperative b. it always leads to a Nash equilibrium that makes all players equally well off c. the game can never reach a Nash equilibrium d. it is the best strategy, regardless of choices made by other players

Where a typical U shaped AC curve is falling, the MC curve Select one: a. must be falling b. must be rising c. have risen then fallen d. may be falling or rising

Which of the following factors would lead to an increase in the supply of labour? Select one: a. A country tightens border restrictions to limit immigrant labour b. The price of a firm's final product increases c. The wage rate increases d. None of the above

Which of the following is likely to shift the supply curve for chef's right? Select one: a. An increase in the productivity of chefs b. An increase in the wage rate for chefs c. An decrease in the retiring age d. A decrease in the school leaving age

Which of the following market structures are least likely to currently use non-price competition? Select one: a. A firm in an oligopoly market structure. b. A firm in a duopoly market structure. c. A monopolistic competitor. d. A perfect competitor.

Which of the following policies would internalise an externality? Select one: a. A tax on a negative production externality. b. A subsidy on a positive production externality. c. A complete ban on an activity causing a negative externality. d. Both 1 and 2 are correct.

With the imposition of a minimum wage for chefs, which of the following are likely to occur in the market for chefs? Select one: a. A decrease in the number of hours worked by chefs b. An increase in the number of hours which chefs are prepared to work c. A movement up the supply curve for chefs d. All of the above

XYZ Corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. Each of the 275 units sold were sold for a price of $95. Total revenue for the XYZ Corporation would be Select one: a. $30,000 b. $28,500 c. $27,500 d. $26,125

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