ECO 2023 Chapters 5-8 Example Questions

A vertical demand curve represents demand that is: A. inelastic. B. perfectly inelastic. C. unitary elastic. D. elastic.

B. perfectly inelastic.

In general, the flatter the supply curve is, the: a. less elastic is supply. b. fewer the adjustments to price changes that firms can make. c. more elastic is supply d. Shorter the period.

C. more elastic is supply

If demand is inelastic, the tax burden falls primarily on the _____ and deadweight loss is _____. a. buyer; small b. seller; large c. buyer; large d. seller; small

a. buyer; small

A local business earned total revenue of $100,000 against economic costs of $85,000, with the difference going to investors. If investors put in $200,000 and expect a 5% return on their investment, this business is: a. earning a positive economic profit. b. earning a positive accounting profit but negative economic profit. c. earning a normal economic profit. d. earning a negative economic profit.

a. earning a positive economic profit.

The main characteristic of the perfectly competitive market that causes economic profits and losses to go to zero in the long run is: a. free entry and exit. b. many buyers and sellers. c. known prices. d. homogeneous products.

a. free entry and exit

Assume a good is considered elastic. If the price of the good decreases, then total revenue: a. increases. b. decreases. c. is negative. d. remains constant.

a. increases

When the price of hamburgers increased from $1.50 to $2.75, the quantity demanded decreased from 375 units sold to 250 units sold. Using the midpoint method, hamburgers are said to be: a. inelastic. b. unitary elastic. c. elastic. d. monetary elastic.

a. inelastic

If hot dogs and relish are complements, their cross elasticity of demand is: a. less than 0 b. 0 c. greater than 0 d. greater than 0, but less than 1

a. less than 0

The slope of the budget line is: a. negative, since to purchase more of one good means giving up some of the other good. b. negative, because of the marginal rate of substitution. c. zero, since both prices and income are assumed to be constant. d. positive, since income and prices are positively related.

a. negative, since to purchase more of one good means giving up some of the other good.

If the demand for Quilted Northern bath tissue is elastic, then the: a. percentage change in quantity demanded is greater than the percentage change in price. b. percentage change in quantity demanded equals the percentage change in price. c. percentage change in quantity demanded is less than the percentage change in price. d. elasticity coefficient is less than 1.

a. percentage change in quantity demanded is greater than the percentage change in price.

The primary determinant of the elasticity of supply is: a. time. b. the prices of substitutes. c. income. d. the availability of substitutes.

a. time

Price per unit times the total quantity sold is: a. total revenue. b. marginal revenue. c. average total revenue. d. price per unit

a. total revenue.

Rodrigo wanted to buy his wife a pearl necklace for her birthday. Murphy's Jewelry had a necklace he liked for $139, but he bought the same necklace at Pearls for Her. This pearl necklace was originally $173.75, but was on sale for 20% off, which reduced the price to $139. He was very pleased with his bargain. Rodrigo is subject to: a. overconfidence. b. a framing bias. c. overvaluing the present relative to the future. d. a sunk cost fallacy

b. a framing bias.

The greater the percentage of the budget spent on a good, the: a. greater is the inelasticity of demand. b. higher is the elasticity of demand. c. less responsive is quantity demanded to a change in price. d. lower is the elasticity of demand.

b. higher is the elasticity of demand.

A normal profit is equal to: a. explicit cost minus implicit cost. b. zero economic profit. c. revenue minus explicit cost. d. revenue minus opportunity cost.

b. zero economic profit

Which of the following is a possible measurement of inelastic demand? a. 2.3 b. 1.5 c. 0.7 d. 1.0

c. 0.7

The perfectly competitive firm's short-run supply curve is the: a. MC curve above the TC curve. b. AVC curve. c. MC curve above the AVC curve. d. MC curve above the ATC curve.

c. MC curve above the AVC curve.

Suppose the marginal utility for the last pencil you buy is 36 and each costs $1, whereas the marginal utility of the last pad of paper you buy is 300 and costs $2. Are you maximizing utility? a. Yes. b. No. You need to buy less paper and fewer pencils. c. No. You need to buy more paper and fewer pencils. d. No. You need to buy more pencils and less paper.

c. No. You need to buy more paper and fewer pencils.

Marginal cost (MC) will equal average total cost (ATC) at the point where the: a. average variable cost is the lowest. b. fixed cost is the lowest. c. average total cost is the lowest. d. marginal cost is the lowest.

c. average total cost is the lowest.

Most income taxes are: a. flat. b. lump sum. c. progressive. d. regressive.

c. progressive.

Jordan brought $20 to the movie theater to spend on popcorn and candy bars. Popcorn costs $5 a bucket and a candy bar costs $3. If he buys two buckets of popcorn, what would be the largest number of candy bars that he can purchase? a. four b. two c. three d. five

c. three

Profits are equal to the difference between _____ and _____. a. total revenue; explicit costs b. marginal revenue; marginal costs c. total revenue; total costs d. total revenue; marginal costs

c. total revenue; total costs

Using the midpoint method, what is the price elasticity of demand for a product whose price increased from $2 to $4 and whose quantity demanded decreased from 10 units to 5 units? a. 0.5 b. 0.4 c. -0.5 d. 1.0

d. 1.0

Which event would cause the budget line to shift outward? a. A decrease in income. b. An increase in the price of one of the goods. c. A decrease in the price of one of the goods. d. An increase in income.

d. An increase in income.

The _____ graphically illustrates the possible combinations of two goods a consumer can purchase with a given income, given the prices of both products. a. demand curve b. production possibilities frontier c. supply curve d. budget line

d. budget line

Profits in excess of both explicit and implicit costs are: a. zero economic profits. b. accounting profits. c. normal profits. d. economic profits.

d. economic profits.

If the marginal revenue for the next unit being produced is $50, but the marginal cost is $45, the firm should: a. hold production constant. b. consider stopping production before more losses are incurred. c. decrease production. d. increase production.

d. increase production.

Knowing a product's price elasticity allows economists to: a. predict how changes in consumers' income will affect sales. b. predict the amount by which quantity supplied will change in response to a change in price. c. respond quickly to tariff changes. d. predict the amount by which quantity demanded will change in response to a change in price.

d. predict the amount by which quantity demanded will change in response to a change in price.

The perfectly competitive firm will: a. produce in the long run if the price is below the minimum of the AVC. b. not produce if the price is between the minimum of the AVC and the minimum of the ATC. c. produce in the short run if the price is below the minimum of the AVC. d. produce in the short run if the price is above the minimum of the AVC.

d. produce in the short run if the price is above the minimum of the AVC.