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Sample Multiple Choice Questions (The Book's Web Site Contains Many More)
Sample Multiple Choice Questions (The Book's Web Site Contains Many More)
1.
a)
b)
c)
d)
6.
a)
b)
c)
d)
Suppose both supply and demand decrease. What effect will this have on price?
it will fall.
it will rise.
it may rise or fall.
it will remain the same.
11. Suppose there is a simultaneous increase in demand and decrease in supply, what
effect will this have on the equilibrium price?
a) it will rise.
b) it will fall.
c) it may rise or fall.
d) it will remain the same.
Answer: A Difficulty: Med
12. The difference between a price decrease and an increase in income is that
a) A price decrease does not affect the consumption of other goods while an increase in
income does.
b) An increase in income does not affect the slope of the budget line while a decrease in
price does change the slope.
c) A price decrease decreases real income while an increase in income increases real
income.
d) A price decrease leaves real income unchanged while an increase in income increases
real income.
e) None of the above.
Answer: B Difficulty: Med
13. Joe prefers a three pack of soda to a six-pack. What properties does this preference
violate?
a) Completeness.
b) Transitivity.
c) More is better.
d) Diminishing MRS.
e) All of the above.
Answer: C Difficulty: Easy
14. A situation where a consumer says he does not know his preference ordering for
bundles X and Y would violate the property of:
a) more is be better.
b) completeness.
c) substitutability.
d) complementarity.
Answer: B Difficulty: Med
15. Given that income is $200 and the price of good Y is $40. What is the vertical
intercept of the budget line?
a) 8,000.
b) 20.
c) 1/5.
d) 5.
Answer: D Difficulty: Easy
16. How does a decrease in the price of good X affect the market rate of substitution
between goods X and Y?
a) it increases.
b) it decreases.
c) remains unchanged.
d) indeterminable without more information.
Answer: B Difficulty: Med
17. Along the same indifference curve, MRS is
a) constant as more of one good is obtained.
b) increasing as more of one good is obtained.
c) decreasing as more of one good is obtained.
d) varying irregularly as more of one good is obtained.
Answer: C Difficulty: Med
18. If income increases, then
a) the budget line rotates counter-clockwise.
b) the budget line rotates clockwise.
c) the budget line shifts to the right.
d) the opportunity set contracts.
Answer: C Difficulty: Easy
19. The substitution effect reflects how a consumer will react to
a) a different marginal rate of substitution.
b) a different market rate of substitution.
c) a different level of real income.
d) a different level of nominal income.
Answer: B Difficulty: Med
25. If the last unit of input increases total product we know that the marginal product is:
a) positive.
b) negative.
c) zero.
d) indeterminate.
Answer: A Difficulty: Med
26. The absolute value of the slope of the isoquant is the:
a) Marginal rate of technical substitution.
b) Marginal product of capital.
c) Marginal rate of substitution.
d) Value marginal product of labor.
Answer: A Difficulty: Easy
27. Changes in the price of an input cause:
a) Isoquants to become steeper.
b) Slope changes in the isocost line.
c) Parallel shifts of the isocost lines.
d) Changes in both the isoquants and isocosts of equal magnitude.
Answer: B Difficulty: Easy
28. A production function
a) defines the minimum amount of output that can be produced with inputs such as
capital and labor.
b) defines the average amount of output that can be produced with inputs such as capital
and labor.
c) represents the technology available for turning inputs into output.
d) is determined only by the expenditures on R&D.
Answer: C Difficulty: Med
29. The short-run is defined as the time-frame
a) in which there are no fixed factors of production.
b) in which there are fixed factors of production.
c) less than one year.
d) less than three years.
Answer: B Difficulty: Easy
40. Which of the following features is common to both perfectly competitive markets
and monopolistically competitive markets?
a) Firms produce homogeneous goods.
b) There is free entry.
c) Long run profits are zero.
d) both b and c.
Answer: D Difficulty: Med
41. The source(s) of monopoly power for a monopoly may be:
a) economies of scale.
b) economies of scope.
c) patents.
d) all of the above.
Answer: D Difficulty: Med
42. Economies of scale exist whenever:
a) average total costs decline as output increases.
b) average total costs increase as output increases.
c) average total costs are stationary as output increases.
d) both b and c.
Answer: A Difficulty: Easy
43. You are a manager for a monopolistically competitive firm. From experience, the
profit-maximizing level of output of your firm is 100 units. However, it is expected that
prices of other close substitutes will fall in the near future. How should you adjust your
level of production in response to this change?
a) Produce more than 100 units.
b) Produce less than 100 units.
c) Produce 100 units.
d) Insufficient information to decide.
Answer: B Difficulty: Med
44. A linear demand function exhibits:
a) constant demand elasticity.
b) more elastic demand as output increases.
c) less elastic demand as output increases.
d) insufficient information to determine.
Answer: C Difficulty: Easy