Question 1. The market for ice cream is

1. The market for ice cream is
a. a monopolistic market.
b. a highly competitive market.
c. a highly organized market.
d. both (b) and (c) are correct.

2. An increase in quantity demanded
a. results in a movement downward and to the right along a fixed demand curve.
b. results in a movement upward and to the left along a fixed demand curve.
c. shifts the demand curve to the left.
d. shifts the demand curve to the right.

Figure 3

3. Refer to Figure 3. At a price of $15,
a. quantity demanded exceeds quantity supplied.
b. there is a shortage.
c. there is an excess demand.
d. All of the above are correct.

Figure 4

The diagram below pertains to the supply of paper in university markets.

4. Refer to Figure 4. All else equal, an increase in the use of laptop computers for note-taking would cause a move
a. from x to y.
b. from y to x.
c. from SA to SB.
d. from SB to SA.

5. When demand is inelastic the price elasticity of demand is
a. less than 1, and price and total revenue will move in the same direction.
b. less than 1, and price and total revenue will move in opposite directions.
c. greater than 1, and price and total revenue will move in the same direction.
d. greater than 1, and price and total revenue will move in opposite directions.

6. A price floor will be binding only if it is set
a. equal to the equilibrium price.
b. above the equilibrium price.
c. below the equilibrium price.
d. either above or below the equilibrium price.

7. When a tax is placed on the buyers of cell phones,
a. the size of the cell phone market and the price paid by buyers both decrease.
b. the size of the cell phone market decreases, but the price paid by buyers increases.
c. the size of the cell phone market increases, but the price paid by buyers decreases.
d. the size of the cell phone market and the price paid by buyers both increase.

8. Which of the following statements is correct?
a. For all firms, marginal revenue equals the price of the good.
b. Only for competitive firms does average revenue equal the price of the good.
c. Marginal revenue can be calculated as total revenue divided by the quantity sold.
d. Only for competitive firms does average revenue equal marginal revenue.

9. When a profit-maximizing firm is earning profits, those profits can be identified by
a. P ? Q.
b. (MC – AVC) ? Q.
c. (P – ATC) ? Q.
d. (P – AVC) ? Q.

Scenario
Consider a transportation corporation named C.R. Evans that has just completed the development of a new subway system in a medium-sized town in the Northwest. Currently, there are plenty of seats on the subway, and it is never crowded. Its capacity far exceeds the needs of the city. After just a few years of operation, the shareholders of C.R. Evans experienced incredible rates of return on their investment, due to the profitability of the corporation.

10. Refer to Scenario above: C.R. Evans will continue to be a monopolist in the subway transportation industry only if
a. population growth leads to an overcrowding of the subway cars.
b. there are no new entrants to the market.
c. demand for transportation services decreases.
d. All of the above are correct.

11. Suppose that over the last twenty-five years a country’s nominal GDP grew to three times its former size. In the meantime, population grew by 40 percent and prices rose by 100 percent. What happened to real GDP per person?
a. It more than doubled.
b. It increased, but it less than doubled.
c. It was unchanged.
d. It decreased.

12. The CPI was 120 in 2000 and 132 in 2001. Dorgan borrowed money in 2000 and repaid the loan in 2001. If the nominal interest rate on the loan was 12 percent, then the real interest rate was closest to:
a. 2 percent.
b. 10 percent.

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