3. From society’s point of view the economic function of profits and losses is to: A) promote the equal distribution of real assets and wealth.

3. From society’s point of view the economic function of profits and losses is to:
A) promote the equal distribution of real assets and wealth.
B) achieve full employment and price level stability.
C) contribute to a more equal distribution of income.
D) reallocate resources from less desired to more desired uses.

Answer the next question(s) using the following data which show all available techniques for producing 20 units of a particular commodity:

4. Refer to the above data. In view of the indicated resource prices, the economically most efficient production technique(s) is (are) technique(s):
A) #1. B) #2 and #4. C) #3. D) #1 and #3.

5. Refer to the above data. Assuming that the firm is motivated by self-interest and that the 20 units which can be produced with each technique can be sold for $3 per unit, the firm will:
A) realize an economic profit of $10.
B) realize an economic profit of $30.
C) not earn any economic profit.
D) close down rather than incur a loss by producing.

6. The market system’s answer to the fundamental question “Who will get the goods and services?” is essentially:
A) “Those willing and able to pay for them.” C) “Those who most need them.”
B) “Those who physically produced them.” D) “Those who get utility from them.”

7. An increase in the price of a product will reduce the amount of it purchased because:
A) supply curves are upsloping.
B) the higher price means that real incomes have risen.
C) consumers will substitute other products for the one whose price has risen.
D) consumers substitute relatively high-priced for relatively low-priced products.

8. If two goods are complements:
A) they are consumed independently.
B) an increase in the price of one will increase the demand for the other.
C) a decrease in the price of one will increase the demand for the other.
D) they are necessarily inferior goods.

Use the following to answer questions 9-10:

9. A decrease in demand is depicted by a:
A) move from point x to point y. C) shift from D2 to D1.
B) shift from D1 to D2. D) move from point y to point x.

10. A decrease in quantity demanded (as distinct from a decrease in demand) is depicted by a:
A) move from point x to point y. C) shift from D2 to D1.
B) shift from D1 to D2. D) move from point y to point x.

11. The term quantity demanded:
A) refers to the entire series of prices and quantities that comprise the demand schedule.
B) refers to a situation in which the income and substitution effects do not apply.
C) refers to the amount of a product that will be purchased at some specific price.
D) means the same thing as demand.

12. If consumers are willing to pay a higher price than previously for each level of output, we can say that that following has occurred:
A) a decrease in demand. C) a decrease in supply.
B) an increase in demand. D) an increase in supply.

13. Refer to the above diagram. A decrease in supply is depicted by a:
A) move from point x to point y. C) shift from S2 to S1.
B) shift from S1 to S2. D) move from point y to point x.

14. Refer to the above diagram. An increase in quantity supplied (as distinct from an increase in supply) is depicted by a:
A) move from point y to point x. C) shift from S2 to S1.
B) shift from S1 to S2. D) move from point x to point y.

Use the following to answer questions 15-18:

15. Refer to the above table. If demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5), equilibrium price and quantity will be:
A) $10 and 60 units. B) $9 and 50 units. C) $8 and 60 units. D) $7 and 50 units.

16. Refer to the above table. If demand is represented by columns (3) and (1) and supply is represented by columns (3) and (4), equilibrium price and quantity will be:
A) $10 and 60 units. B) $9 and 60 units. C) $8 and 80 units. D) $7 and 30 units.

17. Refer to the above table. In relation to column (3), a change from column (5) to column (4) would indicate a(n):
A) increase in demand. B) decrease in demand. C) increase in supply. D) decrease in supply.

18. Refer to the above table. Suppose that demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5). If the price were artificially set at $9, a:
A) the market would clear.
B) a surplus of 20 units would occur.
C) a shortage of 20 units would occur.
D) demand would change from columns (3) and (2) to columns (3 and (1).

19. Other things equal, an excise tax on a product will:
A) increase its supply. C) increase the quantity sold.
B) increase its price. D) increase its demand.

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