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Principles of Microeconomics - Practice Exam

1. Microeconomics deals with: A) the working of the entire economy or large sectors of it. B) C) D) economic growth. individual units in the economy. gross domestic product.

2. If resources are “scarce” it means that they: A) cannot provide enough goods or services to satisfy all human material wants and needs. B) C) D) have no opportunity cost. are probably not valued by consumers. have an unlimited supply.

3. The problem of scarcity is confronted by: A) industrialized societies. B) C) D) pre-industrialized societies. societies governed by communist philosophies. all societies.

4. The opportunity cost of something is: A) greater during periods of rising prices. B) C) D) equal to the money cost. less during periods of falling prices. what is given up to acquire it.

5. A choice made ________ is a choice whether to do a little more or a little less of something. A) at the front end B) C) in the beginning at the margin

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D)

ceteris paribus

6. We are forced to make choices because of: A) exploitation. B) C) D) efficiency. scarcity. the margin.

7. A resource is anything that: A) can be used in production. B) C) D) you pay for. is in scarce supply. can be consumed.

8. You can either spend $100 on a new economics textbook or a new CD player. If you choose to buy the new economics textbook, the opportunity cost is: A) $100. B) C) D) the new CD player. both the $100 and the new CD player. impossible to determine.

9. A new fast-food restaurant offered a free meal (valued at $5) a week for a year to its first 100 customers. Ramona camped out for 48 hours before the opening to be one of the first 100 customers. The cost of the free meal a week for a year for Ramona was: A) zero. B) C) D) $260. whatever she would have done with those 48 hours. The cost is impossible to determine.

10. For which of the following decisions would marginal analysis be most relevant? A) Should I go to college or work after graduating from high school?

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B) C) D)

Should I eat another donut? Should I use $20,000 as a down payment on a house or buy a car? Should I get married?

11. Which of the following demonstrates how people respond to incentives to make themselves better off? A) More students major in economics when they hear that salaries for economists are rising. B) C) D) Students are assigned dorm rooms through a lottery system. Students are encouraged to donate blood because it is the “right thing to do.” Students and faculty are encouraged to wear college apparel to support the college athletic teams.

12. Lena and Jess are roommates. Lena hates to clean the bathroom. Jess will only agree to clean the bathroom if Lena vacuums the living room. This statement best represents the economic concept of: A) the real cost of something is what you must give up to get it. B) C) D) “how much?” is a decision at the margin. people usually exploit opportunities to make themselves better off. there are gains from trade.

13. Gains from trade arise because of: A) specialization in production. B) C) D) specialization in consumption. marginal analysis. individual choice.

14. The phrase “gains from trade” refers to the: A) profits obtained from sales of a good or service. B) C) D) increase in total output that is realized when individuals specialize in particular tasks and trade with each other. gains that one obtains by taking advantage of an uninformed buyer and selling at a higher than average price. gains that one obtains by taking advantage of a temporary discount or “sale” price.

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B) C) D) When markets fail to achieve efficiency. 17. B) C) an economy's productive capacity increases proportionally with its population. government intervention can improve society's welfare. 18. When people want more goods and services than are available. Market failure occurs when: A) prices of essential goods such as gas become very high. if all resources of an economy are being used efficiently. B) C) D) individual actions have side effects that are not properly taken into account.15. The government of a small town has decided to ban smoking in all restaurants. 19. and government offices. an assumption. mutually beneficial trades take place. B) C) D) a production possibility frontier. a trade-off. There are gains from trade. government policies can change spending. Page 4 . B) C) D) when markets don't achieve efficiency. government intervention can improve society's welfare. the economy experiences inflation. This statement best represents the economic concept of: A) resources are scarce. overall spending sometimes gets out of line with the economy's productive capacity. more of one good can be produced only if less of another good is produced. A simplified representation that is used to study a real situation is called: A) a model. a business declares bankruptcy. Resources should be used as efficiently as possible to achieve society's goals. This is an example of which principle? A) One person's spending is another person's income. stores. The production possibility frontier illustrates that: A) the economy will automatically end up at full employment. 16.

indicate constant costs for guns and increasing costs for butter. the opportunity cost to society of getting more of one good: A) is constant. (Figure: Guns and Butter) On this figure. E. B) show that the opportunity cost of more guns increases. B) C) is measured in dollar terms.D) economic production possibilities have no limit. 21. linear because of constant costs. but that of more butter decreases. (Figure: Guns and Butter) This production possibility frontier is: A) bowed out from the origin because of increasing opportunity costs. Page 5 . is measured by the amount of the other good that must be given up. B. When moving along a production possibility frontier. B) C) D) bowed in toward the origin because of increasing opportunity costs. bowed in toward the origin because of constant costs of guns and butter. 23. Use the following to answer questions 20-21: Figure: Guns and Butter 20. C) D) indicate that society wants butter more than it wants guns. points A. and F: A) indicate combinations of guns and butter that society can produce using all of its factors efficiently.

A) prices. nonfeasible production points. B) C) D) inefficient production points. The opportunity cost of production: A) is the price of a good. economic growth. 26. produces trade-offs. B) C) D) inefficient production points. sells B) C) D) trade-offs. Page 6 . A production possibility frontier illustrates the ________ facing an economy that ________ only two goods. All points on the production possibility frontier represent: A) efficient production points. economic growth. 27. All points inside the production possibility frontier represent: A) efficient production points. nonfeasible production points. produces 25. 24. economic growth.D) usually decreases. consumes shortages. B) is what you give up to produce the good. 28. B) C) D) inefficient production points. nonfeasible production points. All points outside the production possibility frontier represent: A) efficient production points.

is what you gain by producing the good.25 1 16 30. Suppose this student is studying 4 hours and spending 10 hours doing leisure activities. This point is both efficient and feasible. If a student decides to consume one additional hour of leisure time. If a production possibility frontier is a straight line. it tells us that the opportunity cost of producing one more unit of good X: A) is an increasing amount of good Y. (Table: Trade-off of Study Time and Leisure Time) A student sleeps 8 hours per day and divides the remaining time between study and leisure time. What is true about this allocation of his scarce resources? A) This point is outside the production possibility frontier.C) D) decreases as production increases. B) C) D) This point is inside the production possibility frontier. (Table: Trade-off of Study Time and Leisure Time) A student sleeps 8 hours per day and divides the remaining time between study time and leisure time. Use the following to answer questions 29-30: 29. The table shows the combinations of study and leisure time that can be produced in the 16 waking hours of each day. Page 7 . 31. This point is on the production possibility frontier. how many hours of study time must be given up? A) 4 B) C) D) .

everyone has a comparative advantage in something. B) C) D) can produce less of all goods than another economy. Laurence can make 6 while Carrie Anne can make 4. B) C) D) Laurence has an absolute advantage in both programs and sunglasses. moving beyond its production possibility frontier. operating outside its production possibility frontier. 34. 33. has the lowest cost for producing a particular good. is a constant amount of good Y. Efficient production exists when the economy is: A) operating underneath its production possibility frontier. If they spend all night making sunglasses. Given this information and supposing Laurence and Carrie Anne have constant opportunity costs. has the highest cost for producing a particular good. An economy is said to have a comparative advantage if it: A) can produce more of all goods than another economy. If they spend all night writing computer programs. Carrie Anne has an absolute advantage in programs but not in sunglasses. 32. we know that: A) Laurence has an absolute advantage in programs but not in sunglasses. As long as people have different ________. Page 8 . is equal to the inverse of the amount of good Y. A) direct costs B) C) D) benefits utility opportunity costs 35. Laurence can write 10 programs while Carrie Anne can write 5. Carrie Anne has an absolute advantage in both programs and sunglasses.B) C) D) is a decreasing amount of good Y. B) C) D) operating on its production possibility frontier.

If they spend all night making sunglasses. B) The federal minimum wage is higher today than it was in 1990. sell 39. buy own. sell 40. Carrie Anne's opportunity cost of writing programs and of making sunglasses is less than that of Laurence. Which of the following statements is a normative statement? A) Women's labor force participation rate has increased during the past 100 years. Page 9 . A) buy. A) capital. sell B) C) D) buy. sell B) C) D) buy. Carrie Anne's opportunity cost of writing programs is less than that of Laurence. In the simplest circular-flow model. markets 41. We know that: A) Laurence's opportunity cost of writing programs is less than that of Carrie Anne. A) buy. buy own. barter B) C) D) wages and income. Laurence can make 6 while Carrie Anne can make 4. B) C) D) Laurence's opportunity cost of writing programs and of making sunglasses is less than that of Carrie Anne. The circular-flow diagram illustrates how firms ________ goods and services and ________ factors of production. If they spend all night writing computer programs. buy sell. buy sell. 38. The circular-flow diagram illustrates how households ________ goods and services and ________ factors of production. households supply ________ and demand ________.36. goods and services firms. Laurence can write 10 programs while Carrie Anne can write 5. capital markets factors of production.

42. The best way to encourage growth in the economy is through government spending. Economists may disagree about policies because: A) they may approach the issue using different sets of values. Use the following to answer question 44: Scenario: Linear PPF Largetown has a linear production possibility frontier and produces socks and shirts. Government should be subject to the same rules as all other institutions. The table below shows the number of units of labor necessary to produce one sock or one shirt. they enjoy disagreeing with each other. B) C) D) they may be using different economic models.C) D) Children in the United States are required to go to school until they reach a certain age. Which of the following would be a positive economic statement? A) Government has grown too large and should be reduced. 43. they may approach the issue using different sets of values and because they may be using different economic models. (Scenario: Linear PPF) If Largetown has 80 hours of labor. what is the maximum number of socks it can produce? A) 40 socks B) C) D) 20 socks 2 socks 4 socks Page 10 . B) C) D) There has been an increase in the rate of inflation. Women should be paid as much as men for the same work. 44.

The Kansas market for corn is considered a competitive market. If goods A and Z are complements. a decrease in the price of good B will: A) increase the demand for good A. increase the demand for good B and decrease the demand for good A. 49. B) C) D) price of Luis's Pizza. A shift of the demand curve for Luis's Pizza would not be caused by a change in the: A) buyers' incomes. popularity of Luis's Pizza. B) C) D) decrease the demand for good A. many few. many many. decrease the demand for good A. If goods A and B are substitutes. decrease the demand for good A and decrease the demand for good Z. decrease the demand for good Z. 48. This means there are ________ buyers and ________ sellers of corn in Kansas.46. few B) C) D) few. B) C) D) increase the demand for good B. Page 11 . price of Humberto's Pizza. an increase in the price of good Z will: A) increase the demand for good A. A) many. few 47.

C to A. then the movement that would take place in the model could be: A) A to C. greater amount of eggs demanded. Page 12 . 52. greater amount of eggs supplied.Use the following to answer question 50: Figure: Demand for Coconuts 50. (Figure: Demand for Coconuts) If there is an overall increase in taste and preference for coconuts. 51. The law of demand is illustrated when: A) an increase in tuition encourages more students to enroll in college because the quality of education has risen. B) C) D) increase in the supply of eggs. B) an increase in the purchases of personal computers results from lower prices. C) D) higher oil prices causes oil companies to drill for new sources of oil. higher incomes cause more people to adopt golf as a sport. A decrease in the price of eggs will result in a(n): A) increase in the demand for eggs. B) C) D) B to A. B to E.

only in different directions. B) a change in quantity demanded is a movement along the demand curve and a change in demand is a shift in the demand curve. decrease the demand for automobiles. 56. upward-sloping.53. Page 13 . B) C) D) downward-sloping. decrease the supply of automobiles. The primary difference between a change in demand and a change in the quantity demanded is: A) a change in demand is a movement along the demand curve and a change in quantity demanded is a shift in the demand curve. D) both a change in quantity demanded and a change in demand are movements along the demand curve. B) C) D) increase the supply of automobiles. The law of demand is illustrated by a demand curve that is: A) horizontal. Which of the following would shift the demand curve for new textbooks to the right? A) a decrease in the price of paper B) C) D) a fall in the price of used textbooks an increase in college enrollments a fall in the price of new textbooks 55. only in different directions. 54. vertical. C) both a change in quantity demanded and a change in demand are shifts in the demand curve. Which of the following is not a determinant of supply? A) expectations regarding future prices B) C) D) the technology of production the cost of production consumer tastes 57. A technological advance in the production of automobiles will: A) increase the demand for automobiles.

(Figure: Supply of Coconuts) If the price of coconuts decreases. B) C) D) B to A. E to B.g. The primary difference between a change in supply and a change in the quantity supplied is that: A) a change in quantity supplied is a movement along the supply curve. (Figure: Supply of Coconuts) If there is an improvement in the technology used to harvest coconuts (e. a faster. then the movement in the model could be: A) A to C.. 59. only in different directions. then the movement that would take place in the model could be: A) A to B. C to A. B to E. less expensive coconut picker). B) C) D) B to A. 60. Page 14 . B) both a change in quantity supplied and a change in supply are movements along the supply curve.Use the following to answer questions 58-59: Figure: Supply of Coconuts 58. C to A. while a change in supply is a shift in the supply curve.

B) C) D) quantity demanded equals quantity supplied. an increase in the price of the good. there is no incentive for prices to change in the market. and the market clears. while a change in quantity supplied is related to shifts in the demand curve that elicit a change in supply. Market equilibrium occurs when: A) there is no incentive for prices to change in the market. Page 15 . a decrease in prices of goods that are substitutes in production. Which would not cause the supply curve to shift? A) a change in technology B) C) D) a change in factor costs a change in the price of the good a change in suppliers' expectations of prices 63. B) C) D) suppliers' expectations of higher prices in the future. the market clears.C) D) a change in supply is related to the supply curve. 62. 61. An increase in supply is caused by: A) an increase in input prices. quantity demanded equals quantity supplied. a change in supply is a movement along the supply curve. while a change in quantity supplied is a shift in the supply curve.

an excess supply of 40 DVD rentals. A) $5. 30 $9. The equilibrium price for DVD rentals is ________ and the equilibrium quantity is ________. 50 B) C) D) $3. 90 $6. B) C) D) a decrease in demand. an excess demand of 40 DVD rentals. an excess supply of 20 DVD rentals. 40 65. (Figure: DVD Market) At a rental price of $6. B) C) D) an increase in demand. there will be A) equilibrium in the rental market for DVDs. an excess demand of 20 DVD rentals. 66. (Figure: DVD Market) The figure shows the weekend rental market for DVDs in Collegetown. Page 16 .Use the following to answer questions 64-66: Figure: DVD Market 64. there will be: A) equilibrium in the rental market for DVDs. (Figure: DVD Market) At a rental price of $3.

what will exist in the market? A) equilibrium Page 17 . B) Scarcity is a result of two or more alternative uses and will always exist. reach an equilibrium. (Table: The Lemonade Market) If the price of a cup of lemonade is $1. 69.00. B) C) D) eliminate shortages. They are the same thing. and quantities of supply and demand adjusting to flexible prices will create shortages. but a shortage will only exist if the price is kept below the equilibrium level. C) A shortage will exist when a good is scarce. What is the difference between a shortage and scarcity? A) Scarcity will always exist because choices must be made. 68. A competitive market with flexible prices and many buyers and sellers will: A) eliminate surpluses.67. D) There is no distinction between the two. eliminate surpluses and shortages and reach an equilibrium. Which of the following always results in an increase in price and quantity? A) an increase in supply and a decrease in demand B) C) D) an increase in demand with no change in supply an increase in supply with no change in demand a decrease in demand and supply Use the following to answer questions 70-71: 70.

an increase a decrease. a decrease a decrease. with no change in supply. An increase in demand. a falling price to eliminate the shortage. A) an increase. an increase a decrease. B) C) D) a rising price to eliminate the surplus. An increase in supply. we would expect to see: A) a rising price to eliminate the shortage. increase in demand. If the supply and demand curves intersect at a price of $47.25 per cup. a market in equilibrium. 73. 72. (Table: The Lemonade Market) If the price of lemonade were $1. an increase B) C) D) an increase. with no change in demand. A) an increase. will lead to ________ in equilibrium quantity and ________ in equilibrium price.B) C) D) a shortage of 150 cups a shortage of 75 cups a surplus of 75 cups 71. B) C) D) surplus. a decrease a decrease. will lead to ________ in equilibrium quantity and ________ in equilibrium price. a decrease 74. equilibrium. an increase B) C) D) an increase. then any price above that would result in a(n): A) shortage. a decrease Page 18 .

an inferior good? A) Panel A B) C) D) Panel B Panel C Panel D 76. (Figure: Shifts in Demand and Supply II) The graph shows how supply and demand might shift in response to specific events. Suppose consumer incomes decrease. Which panel best describes how this will affect the market for pomegranates? A) Panel A B) Panel B Page 19 . Suppose scientists discover that eating pomegranates causes aging. (Figure: Shifts in Demand and Supply II) The graph shows how supply and demand might shift in response to specific events.Use the following to answer questions 75-76: Figure: Shifts in Demand and Supply II 75. Which panel best describes how this will affect the market for used clothing.

C) D) Panel C Panel D 77. B) C) D) decrease consumer surplus. $240. $240. (Table: Consumer Surplus and Phantom Tickets) Using the information in the table. and there is no other market for tickets. Along a given demand curve. Use the following to answer questions 78-79: 78. then Robert's consumer surplus is: A) $60. (Table: Consumer Surplus and Phantom Tickets) If the box-office price of a ticket to see Phantom of the Opera is $50. decrease producer surplus. have no effect on consumer surplus. B) C) D) $50. $230. $10. 79. B) C) D) $175. Page 20 . an increase in the price of a good will: A) increase consumer surplus. then total consumer surplus for the five students is: A) $100. if the price of a ticket to see Phantom of the Opera is $50.

We can measure total consumer surplus for Good X as: A) the sum of the individual consumer surpluses for all buyers of X. $450. Page 21 . 83. 82. the area bounded by the demand curve for X and the two axes. B) C) under the supply curve and above the price.Use the following to answer question 80: Figure: Market for Hamburgers 80. (Figure: Market for Hamburgers) The figure shows the weekly market for hamburgers at the Tasty Burger Palace. consumer surplus will equal: A) $650. Consumer surplus can be found by computing the area: A) above the supply curve and below the price. If the Palace sells 400 burgers. the area above the supply curve for X. under the demand curve and above the price. $225. B) C) D) the area above the demand curve for X and below the price of X. B) C) D) $400.

the sum of consumer surplus and producer surplus. below 86. above B) C) D) above. defined as the total amount (if any) by which quantity supplied exceeds quantity demanded at a zero price.D) under the demand curve and below the price. the area between the demand curve for X and the supply curve for X. Page 22 . A) above. The total surplus generated in a market is: A) the excess supply due to the imposition of a price floor. above below. defined as the excess of consumer surplus over producer surplus. Producer surplus is represented by the area ________ the supply curve and ________ the price. B) C) D) the surplus that exists when a good is not scarce. below below. 84. the net benefit to consumers. the area bounded by the supply curve for X and the two axes. 85. We can measure total producer surplus for Good X as: A) the sum of the individual producer surpluses for all buyers of X. B) C) D) the area below the supply curve for X and above the price of X.

050. since the maximum total surplus could occur at a price that is not marked in the figure. $2 Not enough information is provided to answer this question. $1. A) $550. (Figure: Market for Hamburgers) The figure shows the weekly market for hamburgers at the Tasty Burger Palace.50 B) C) D) $640.60 $1. The maximum total surplus for the market for the Palace burgers is ________ and it occurs at a price equal to ________.Use the following to answer question 87: Figure: Market for Hamburgers 87. $1. Page 23 .

if an effective price floor exists in this market. A) increases. then producer surplus ________ and total surplus ________. (Figure: Consumer and Producer Surplus) In the figure. stays the same increases.Use the following to answer questions 88-89: Figure: Consumer and Producer Surplus 88. decreases 89. stays the same increases. A price control is: A) when a firm controls the price of the good it produces. B) C) D) a legal restriction on how high or low a price in a market may go. a tax placed on the sale of a good which controls the market price. stays the same decreases. decreases B) C) D) increases. Page 24 . (Figure: Consumer and Producer Surplus) In the figure. then consumer surplus ________ and total surplus ________. decreases 91. stays the same decreases. an upper limit on the quantity of some good that can be bought or sold. decreases B) C) D) decreases. A) decreases. if an effective price ceiling exists in this market.

they create too much equity. B) C) D) individuals can profit by illegal exchanges. A) black B) C) D) uncontrolled unregulated unproductive 93. they create too much efficiency. Price controls encourage black markets because: A) they eliminate opportunity costs. A(n) ________ market is a market in which goods or services are bought and sold illegally.92. Page 25 .

then an inefficiency will result in the form of a: A) surplus of 0.6 million apartments.Use the following to answer questions 94-95: Figure and Table: Market for Apartments 94. Page 26 . (Figure and Table: Market for Apartments) This figure represents a competitive market for apartments. B) C) D) shortage of 0.2 million apartments. surplus of 0.2 million apartments.6 million apartments. If a government price ceiling at $700 is now imposed on this market (in the name of fairness). shortage of 0.

B) C) D) quantity supplied will increase.2 million apartments. shortage of 0. The market for apples is in equilibrium at a price of $0. there will be a shortage of the good. the price ceiling will not affect the market price or output. then: A) quantity demanded will decrease.40 per pound. help businesses instead of consumers. which are lower than the market-determined price would be.95. If the government imposes a price ceiling in the market at a price of $0. If a government price ceiling at $900 is now imposed on this market (in the name of fairness).50 per pound. surplus of 0. Price ceilings that lead to shortages will impose costs on society because they: A) will eliminate long waiting lines. Page 27 . (Figure and Table: Market for Apartments) This figure represents a competitive market for apartments. 96. B) C) D) shortage of 0. 97. then an inefficiency will result in the form of a: A) surplus of 0. lead to a smaller quantity offered on the market.2 million apartments. B) C) D) may result in black market prices.6 million apartments.6 million apartments.

Use the following to answer question 98: Figure: Market for Blue Jeans 98. the quantity of butter actually purchased will be: A) 10. A) price floor.90 per pound of butter. (Figure: Market for Blue Jeans) Suppose the government believes blue jeans are too expensive and it wants to make sure blue jeans are affordable to more citizens.5 million pounds. $100 Use the following to answer question 100: 100. This type of price control is called a ________ and the price would be set equal to ________. $55 price ceiling. $100 B) C) D) price floor. $55 price ceiling. Page 28 . (Table: Market for Butter) If the government imposes a price floor of $0.

When the government imposes a limit on sales of a good or service by a quota. some buyers who want to buy at the controlled price are unable to find a seller willing to sell at that price. 1. 10.0 million pounds. surplus shortage. surplus B) C) D) shortage. shortage surplus. A minimum price set above the equilibrium price is a: A) demand price. The market price of the license is equal to: A) the demand price of the good. have no effect on the price of corn. increase the supply of corn. A) surplus. Page 29 .5 million pounds. B) C) D) cause a shortage of corn. shortage 107. price ceiling. a black market emerges where sellers sell the good at prices above the price floor. 104.85 per bushel on corn when the current price is $2. This price floor will: A) cause a surplus of corn.0 million pounds. B) C) D) the quantity of the good being bought and sold is less than the equilibrium quantity. A price floor is likely to cause deadweight loss because: A) buyers incur additional search costs looking for the scarce good. Suppose the government sets a price floor of $2. B) C) D) supply price. 105.B) C) D) 9. 106. price floor. it usually issues a license that gives the owner the right to sell a given quantity of the good. A price ceiling will create a persistent ________ and a price floor will create a persistent ________. 101.55.

B) C) D) the wedge that represents the difference between the demand price and the supply price. the quota rent and the wedge that represents the difference between the demand price and the supply price. Quantity controls set below the equilibrium quantity cause all of the following except: A) incentives for illegal activities. quota rents. Page 30 . 109. we would expect consumer surplus to: A) increase. In the candy bar market. The market for salmon is in equilibrium. 108. Suppose the United States removes the current sugar quotas and the market price of sugar drops. and a quota limit in this market would all have what outcome in common? A) deadweight loss created by a quantity exchanged that is less than the equilibrium quantity B) C) D) a supply price that exceeds a demand price revenue collected by the government on each unit of salmon harvested deadweight loss created by a transfer of surplus from consumers to producers 110. B) C) D) missed opportunities in the form of mutually beneficial transactions that don't occur. a price floor. not change. the quota rent. the supply price of the quantity transacted to exceed the demand price of the quantity transacted. B) C) D) decrease. Consumer surplus cannot be determined without information about the supply curve. A price ceiling.

and spend a total amount of ________ on its purchase. $0. (Figure: Market I) If a price floor of $15 was imposed on this market.Use the following to answer questions 111-113: Figure: Market I 111. B) C) D) $9. government would need to buy ________ units of the good. $6. (Figure: Market I) A surplus of the good would result if the price was equal to: A) $15. $135 9. Page 31 . (Figure: Market I) If a price floor of $6 was imposed on this market. increase consumer spending on this good. 112. A) 5. increase production of this good. $150 9. this would: A) result in a surplus of the good. $81 113. B) C) D) have no effect on this market. $75 B) C) D) 10.

The price elasticity of demand measures the responsiveness of the change in: A) quantity demanded to a change in price. When price goes down. responsive the quantity change is in relation to the price change.Use the following to answer question 114: Figure: Market for Lattes 114. what is the price elasticity of demand between prices of $2 and $2. 116. B) C) D) much the quantity goes up. the slope of the demand curve to a change in price. the slope of the demand curve to a change in quantity demanded. B) C) D) price to a change in quantity demanded.29 2.51 3 115. Page 32 .50 per cup. (Figure: Market for Lattes) In the market for lattes shown in the figure. Price elasticity measures how: A) much the price goes down. responsive the price change is in relation to the quantity change. the quantity demanded goes up. using the midpoint formula? A) 1 B) C) D) 1.

(Scenario: Price Elasticity) What is the price elasticity of demand between $2. The price elasticity of demand between the prices of $10 and $8.5 119. 118. please use the midpoint method and take the absolute value. the quantity demanded increases to 130.33 B) 3. 0.25? A) 9 B) C) D) 19 119 0.00.75? A) 2. Suppose at a price of $10 the quantity demanded is 100.117.00 and $1. 1.17. (Scenario: Price Elasticity) What is the price elasticity of demand between $2.50.85. using the midpoint method. When the price falls to $8. B) C) D) 1.50 and $2. Use the following to answer questions 118-119: Scenario: Price Elasticity When calculating price elasticity with the following data.00 Page 33 . is approximately: A) 1.

the price elasticity of demand for education at this university is: A) 1. Textbook purchases consume a large portion of most students' income.125 120. B) C) D) price-inelastic. B) C) D) Students have a lot of time to adjust to price changes. highly inelastic. Which of the following would explain this? A) Many alternative textbooks can be used as substitutes.C) D) 4.00. 123. it is assuming that the demand for tickets is: A) unstable. If a university decreases the price of tickets to football games to collect more revenue.00 0. An economics professor at this university asked his students. This means that the demand is ________ in New Hampshire. The demand for textbooks is price inelastic. 122. price-elastic. how many of you will transfer to another university?” One student out of about 300 said that he or she would transfer. The good is a necessity. Page 34 . perfectly price elastic 121. price unit-elastic. Based on this information. A) price elastic B) C) D) price inelastic price unit-elastic. The price elasticity of demand for skiing lessons in New Hampshire is over 1. “Due to the increase in tuition. B) C) D) highly elastic. 0. A major state university in the South recently raised tuition by 12%.

there are many close substitutes for strawberry ice cream. the same as that of a luxury good. there are many close substitutes for strawberry ice cream and because it costs so little. B) C) D) it costs so little. then the price elasticity of demand will tend to be: A) more price-elastic. equal to 1. for most people. If a good is a necessity with few substitutes. The demand for strawberry ice cream tends to be relatively price-elastic because: A) for most people. it has to be consumed very quickly. (Figure: Demand Curves) Which graph shows a perfectly inelastic demand curve? A) A B) B Page 35 . B) C) D) less price-elastic. (Figure: Demand Curves) Which graph shows a perfectly elastic demand curve? A) A B) C) D) B C D 127. 125.124. Use the following to answer questions 126-127: Figure: Demand Curves 126.

If an increase in income leads to a decrease in the demand for a good. inferior. B) C) D) positive good. normal good. 130.C) D) C D 128. inferior good. 129. greater than 0. 131. other things equal. equal to 0. B) C) D) level of technology. a staple or necessity. quantity of the good supplied. then the good is said to be: A) normal. B) C) D) a luxury. B) C) D) less than 0. bagels are considered a(n): A) negative good. The income elasticity of demand of a normal good is: A) between 1 and 0. An important determinant of the price elasticity of demand is the: A) price of related goods. Page 36 . availability of substitutes. If your income increases and your consumption of bagels increases.

132. If an increase in income leads to an increase in the demand for a good. inferior. 134. The supply curve for a good will be more elastic if: A) spending on the good accounts for a large share of a consumer's income. production inputs are readily available at a relatively low cost. B) C) D) the good is a luxury item. there is very little time for producers to respond to a price change. B) C) D) downward-sloping. B) C) D) a luxury. vertical. upward-sloping. a staple or necessity. A perfectly elastic supply curve is: A) horizontal. then the good is said to be: A) normal. Page 37 . 135.