03 Jun Question 1) If the government places a price ceilin
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?)
13) A perfectly inelastic demand would imply what kind of demand curve?
A) Horizontal
B) Vertical
C) Upward sloping
D) Downward sloping
(The answer is B why?)
14) Which of the following would be true if the demand for a good was inelastic?
A) The good is a large share of the consumers budget
B) The shorter the time period
C) The good has many substitutes
D) The good is a luxury
(The answer is B why?)
15) If the slope of a downward sloping linear demand curve is constant, then we know that
A) Elasticity of demand is also elastic everywhere
B) Elasticity of demand is constant and elastic
C) Elasticity of demand is inelastic everywhere
D) Elasticity of demand varies along the demand curve
(The answer is D why?)
16) The price of lawn care service just increased by 10% and suppliers have decided to double the
quantity supplied. Then the elasticity of supply would be
A) 50
B) 100
C) 10
D) It is impossible to tell
(The answer is C why?)
17) The price elasticity of demand for cell phones is -1.45, if the government put an excise tax on cell
phones, who would bear the majority of the tax burden?
A) Consumers
B) Producers
C) Neither consumers or producers
D) It is wrong for the government to place a tax on cell phones
(The answer is B why?)
18) The price elasticity of demand for eggs has been estimated to be -0.57. If price increases from
$1.00 to $1.50 in a period, how will that affect quantity demanded for eggs in that period, all other
things unchanged?
A) Quantity demanded will increase by about 0.23 percent
B) Quantity demanded will increase by about 2.3 percent
C) Quantity demanded will decrease by about 0.23 percent
D) Quantity demanded will decrease by about 2.3 percent
(The answer is C why?)
19) Stay with the above question. Total revenue for the egg producer will —— after the price changes
A) Increase
B) Decrease
C) Stay the same
D) It is impossible to tell
(The answer is A why?)
20) John just drank another Snapple and his total utility decreased. This means that Johns marginal
utility for this additional bottle of Snapple is
A) Positive
B) Negative
C) Zero
D) Not determinable without more information
(The answer is B why?)
21) Which of the following is not consistent with the law of diminishing marginal utility?
A) Newspaper vending machines are not as secure as soft drink machines
B) A student selects to eat at an all-you-can-eat restaurant rather than at a restaurant that charges for
refills
C) A students enjoyment of opera increases the more she listens to it
D) A symphony has free throat lozenges in their lobby
(The answer is C why?)
22) When the Clippers runs its dime-a-dog night, ceteris paribus, my purchasing power increases
giving me the ability to purchase more hotdogs, this is an example of
A) The substitution effect
B) The law of diminishing marginal utility
C) The income effect
D) The law of total utility
(The answer is C why?)
23) John gets 20 utils for the last unit of Good A and for the last unit of Good B consumed he gets 10
utils. The price of Good A is $1. The price of Good B is $10. If john wants to maximize his utility he
should
A) Continue to purchase the same amount of Good A and Good B
B) Increase the consumption of Good A and decrease the consumption of Good B
C) Decrease the consumption of Good A and increase the consumption of Good B
D) Decrease the consumption of Good A and decrease the consumption of Good B
(The answer is B why?)
24) If a consumer buys more of good X and less of good Y, the —– of good X will —–, and the —-of good Y will —–.
A) Marginal utility; fall; marginal utility; rise
B) Marginal utility; rise; marginal utility; fall
C) Total utility; fall; marginal utility; rise
D) Marginal utility; rise; total utility; rise
(The answer is A why?)
25) Implicit costs (opportunity costs) are not excluded from which type of profit?
A) Economic profit
B) Each firms profit
C) Accounting profit
D) All types of profit
(The answer is C why?)
26) Suppose that Eminem decides to perform is Chicagos Grand Park. The concert promoters rightly
believe that the only way the concert can be given in the park is if the concert is free. This conclusion
is based on the assumption that the concert would be
A) Excludable in consumption
B) Nonexcludable in consumption
C) Both excludable and nonexcludable
D) A private good
(The answer is B why?)
27) Market failures
A) Are usually caused by government interference in the economy
B) Prevent the price system from attaining economic efficiency
C) Encourage people to purchase more of a good than they really want
D) Encourage businesses to produce more of a good than they really want
(The answer is B why?)
28) One way to reduce exports is to
A) Base trade on comparative advantage
B) Base trade on opportunity costs
C) Trade with poor countries
D) Restrict imports
(The answer is D why?)
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