03 Jun Question 1) If the government places a price ceiling a
Question
1) If the government places a price ceiling at $10, the price and quantity sold will be
A) $10, 50
B) $6, 100
C) $2, 150
D) $10, 150
(The answer is B why?)
2) A subsidy is sometimes used by the government to correct the problems associated with
A) Negative externalities
B) Positive externalities
C) Public goods
D) Monopolies
(The answer is B why?)
3) The producer of pork bellies is dumping waste in the river next to the plant. This is an example of
A) A positive externality
B) A negative externality
C) A free rider
D) Good business practice
(The answer is B why?)
4) The Problem associated with this situation is
A) Over-allocation of resources to the production of pork bellies
B) Under-allocation of resources to the production of pork bellies
C) The proper allocation of resources to the production of pork bellies
D) Resource allocation is not involved with this situation
(The answer is A why?)
5) If the government takes action to correct this situation, the correct action leads to
A) An increase in supply, Pe decreases and Qe increases
B) A decrease in supply, Pe increases and Qe decreases
C) An increase in demand, Pe and Qe increase
D) A decrease in demand, Pe and Qe decrease
(The answer is B why?)
6) The distinguishing characteristic of a public good is
A) Noncompetitive production
B) Durability
C) Exclusivity
D) Nonrivalrous consumption
(The answer is D why?)
7) A free-rider is someone who
A) Sneaks into a movie theatre without paying for the ticket
B) Enjoys the flowers I have planted and does not compensate me for them
C) Creates a negative externality
D) Someone who buys a ticket for a movie
(The answer is B why?)
8) In comparing import quotas with import tariffs, which of the following statements is true?
A) Quotas benefit exporters in the same way that tariffs do
B) A quota generates government tax revenue
C) A tariff raises the worldwide price of the good
D) With a quota, both domestic and foreign producers receive the higher price for goods sold in the
domestic market
E) With either quotas or tariffs, domestic consumers pay a higher price but enjoy greater quantities
of the good
(The answer is D why?)
9) Given the statement, If the price of new textbooks increases, more used textbooks will be
purchased, which elasticity would you use to validate the statement?
A) Price elasticity of new textbooks
B) Price elasticity of used textbooks
C) Income elasticity
D) Cross-price elasticity
(The answer is D why?)
10) If the price elasticity of demand is -2, that means
A) If price increases by 20%, sales will fall by 10%
B) If price increases by 20%, sales will fall by 40%
C) If price decreases by 20%, sales will increase 10%
D) Both a and c are correct
(The answer is B why?)
11) I have discovered that when Circuit City increased the price of their laptops by 10 percent, the
quantity demanded of laptops fell by 20 percent. Which of the following statements is accurate
concerning Circuit Citys price elasticity of laptops?
A) Every 1 percent increase in the price of laptops causes the demand for laptops to decrease by 2
percent
B) Every 1 percent increase in the price of laptops causes the supply of laptops to increase by 2
percent
C) Every 2 percent change in the price of laptops causes a 1 percent change in the quantity
demanded for laptops
D) The demand for laptops is elastic
(The answer is D why?)
12) Which of the following goods is likely to have demand that is price-elastic?
A) Cigarettes
B) Insulin
C) Cocaine
D) Kraft macaroni and cheese dinner
(The answer is D why?)
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