Question1. The law of demand tells us that

1. The law of demand tells us that

a. the lower the price of a good, the lower will be the demand for that good.

b. the higher the price of a good, the lower will be the quantity demanded of that good.

c. the lower the price of a good, the higher will be the quantity demanded of that good.

d. both b. and c.

e. none of the above

1. If you are currently answering questions at a speed such that the marginal benefits of speed are equal to the marginal costs of speed, then

1. 1. You should speed up, because otherwise you might run out of time
   2. You should slow down because otherwise you might get tired before the end of the exam
   3. No other speed will yield higher net benefits
   4. You should go faster because you have nothing to lose by doing so
   5. Both (b) and (d) are correct

1. Ceteris paribus, an decrease in the your income will cause

a. Demand for a normal good to fall

b. Demand for a normal good to rise

c. Demand for an inferior good to rise

d. The price of a good to rise

e. Both a. and c. are correct

1. The area under an individual consumer’s demand curve, from Q = 0 to Q = Q* = the last unit being consumed, measures

a. marginal cost of the last unit being consumed

b. marginal benefit of the last unit being consumed

c. total cost of consuming Q* units

d. total benefits of consuming Q* units

e. net benefits of consuming Q* units

Questions 5 – 8 are based on the following graph:

1. Assume this graph shows a market equilibrium that maximizes gains from trade. What is the price and quantity if this is true?

a. P3, Q1

b. P2, Q2

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