Subject: <<Basic Microecnomics ECO111>>

Number of question: <<50>>

QN=1 The word that comes from the Greek word for "one who manages a household" is
a. market.
b. consumer.
c. producer.
d. economy.
e.
f.
ANSWER: D
MARK: 0.2
UNIT: CHAPTER 01
LO: The Study of economics, and definitions in economics
MIX CHOICES: no

QN=2 The word “economy” comes from the Greek word oikonomos, which means
a. “environment.”
b. “production.”
c. “one who manages a household.”
d. “one who makes decisions.”
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 01
LO: The Study of economics, and definitions in economics
MIX CHOICES: no

QN=3 Resources are

a. scarce for households but plentiful for economies.
b. plentiful for households but scarce for economies.
c. scarce for households and scarce for economies.
d. plentiful for households and plentiful for economies.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 01
LO: Scarcity, tradeoffs, and opportunity cost
MIX CHOICES: no
QN=4 In considering how to allocate its scarce resources among its various members, a
household considers
a. each member’s abilities.
b. each member’s efforts.
c. each member’s desires.
d. all of the above
e.
f.
ANSWER: D
MARK: 0.2
UNIT: CHAPTER 01
LO: Scarcity, tradeoffs, and opportunity cost
MIX CHOICES: no

QN=5 Economists, like mathematicians, physicists, and biologists,

a. make use of the scientific method.
b. try to address their subject with a scientist’s objectivity.
c. devise theories, collect data, and then analyze these data in an attempt to verify or
refute their theories.
d. All of the above are correct.
e.
f.
ANSWER: D
MARK: 0.2
UNIT: CHAPTER 02
LO: The study of economics and definitions of economics
MIX CHOICES: no

QN=6 The essence of science is

a. the laboratory experiment.
b. the scientific method.
c. the study of nature, but not the study of society.
d. All of the above are correct.
e.
f.
ANSWER: B
MARK: 0.2
UNIT: CHAPTER 02
LO: The study of economics and definitions of economics
MIX CHOICES: no

QN=7 The scientific method is

a. the use of modern technology to understand the way the world works.
b. the use of controlled laboratory experiments to understand the way the world works.
c. the dispassionate development and testing of theories about how the world works.
d. the search for evidence to support preconceived theories about how the world works.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 02
LO: The study of economics and definitions of economics
MIX CHOICES: no

QN=7 The scientific method is applicable to studying

a. natural sciences, but not social sciences.
b. social sciences, but not natural sciences.
c. both natural sciences and social sciences.
d. None of the above is correct.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 02
LO: The study of economics and definitions of economics
MIX CHOICES: no

QN=9 The two words most often used by economists are

a. prices and quantities.
b. resources and allocation.
c. supply and demand.
d. efficiency and equity.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 4
LO: The study of economics and definitions of economics
MIX CHOICES: no

QN=10 The forces that make market economies work are

a. work and leisure.
b. politics and religion.
c. supply and demand.
d. taxes and government spending.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 4
LO: Markets, market failure, and externalities
MIX CHOICES: no

QN=11 In a market economy, supply and demand determine

a. both the quantity of each good produced and the price at which it is sold.
b. the quantity of each good produced, but not the price at which it is sold.
c. the price at which each good is sold, but not the quantity of each good produced.
d. neither the quantity of each good produced nor the price at which it is sold.
e.
f.
ANSWER: A
MARK: 0.2
UNIT: CHAPTER 4
LO: Markets, market failure, and externalities
MIX CHOICES: no

QN=12 In a market economy, supply and demand are important because they
a. play a critical role in the allocation of the economy’s scarce resources.
b. determine how much of each good gets produced.
c. can be used to predict the impact on the economy of various events and policies.
d. All of the above are correct.
e.
f.
ANSWER: D
MARK: 0.2
UNIT: CHAPTER 4
LO: Markets, market failure, and externalities
MIX CHOICES: no

QN=13 In general, elasticity is a measure of

a. the extent to which advances in technology are adopted by producers.
b. the extent to which a market is competitive.
c. how firms’ profits respond to changes in market prices.
d. how much buyers and sellers respond to changes in market conditions.
e.
f.
ANSWER: D
MARK: 0.2
UNIT: CHAPTER 5
LO: Elasticity
MIX CHOICES: no

QN=14 Elasticity is
a. a measure of how much buyers and sellers respond to changes in market conditions.
b. the study of how the allocation of resources affects economic well-being.
c. the maximum amount that a buyer will pay for a good.
d. the value of everything a seller must give up to produce a good.
e.
f.
ANSWER: A
MARK: 0.2
UNIT: CHAPTER 5
LO: Elasticity
MIX CHOICES: no

QN=15 When studying how some event or policy affects a market, elasticity provides
information on the
a. equity effects on the market by identifying the winners and losers.
b. magnitude of the effect on the market.
c. speed of adjustment of the market in response to the event or policy.
d. number of market participants who are directly affected by the event or policy.
e.
f.
ANSWER: B
MARK: 0.2
UNIT: CHAPTER 5
LO: Elasticity
MIX CHOICES: no

QN=16 How does the concept of elasticity allow us to improve upon our understanding of
supply and demand?
a. Elasticity allows us to analyze supply and demand with greater precision than would be
the case in the absence of the elasticity concept.
b. Elasticity provides us with a better rationale for statements such as “an increase in x
will lead to a decrease in y” than we would have in the absence of the elasticity
concept.
c. Without elasticity, we would not be able to address the direction in which price is likely
to move in response to a surplus or a shortage.
d. Without elasticity, it is very difficult to assess the degree of competition within a
market.
e.
f.
ANSWER: A
MARK: 0.2
UNIT: CHAPTER 5
Elasticity
LO:
MIX CHOICES: no

QN=17 Which of the following is not correct?

a. Economists have two roles: scientist and policy adviser.
b. As scientists, economists develop and test theories to explain the world around them.
c. Economic policies rarely have effects that their architects did not intend or anticipate.
d. As policy advisers, economists use their theories to help change the world for the
better.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 6
LO: The study of economics and definitions of economics
MIX CHOICES: no

QN=18 Rent-control laws dictate

a. the exact rent that landlords must charge tenants.
b. a maximum rent that landlords may charge tenants.
c. a minimum rent that landlords may charge tenants.
d. a minimum rent and a maximum rent that landlords may charge tenants.
e.
f.
ANSWER: B
MARK: 0.2
UNIT: CHAPTER 6
LO: Supply and demand
MIX CHOICES: no

QN=19 Minimum-wage laws dictate

a. the exact wage that firms must pay workers.
b. a maximum wage that firms may pay workers.
c. a minimum wage that firms may pay workers.
d. a minimum wage and a maximum wage that firms may pay workers.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 6
LO: Labor markets
MIX CHOICES: no

QN=20 Price controls are usually enacted

a. as a means of raising revenue for public purposes.
b. when policymakers believe that the market price of a good or service is unfair to
buyers or sellers.
c. when policymakers detect inefficiencies in a market.
d. All of the above are correct.
e.
f.
ANSWER: B
MARK: 0.2
UNIT: CHAPTER 6
LO: Supply and demand
MIX CHOICES: no

QN=21 Welfare economics is the study of how

a. the allocation of resources affects economic well-being.
b. a price ceiling compares to a price floor.
c. the government helps poor people.
d. a consumer’s optimal choice affects her demand curve.
e.
f.
ANSWER: A
MARK: 0.2
UNIT: CHAPTER 7
LO: Supply and demand
MIX CHOICES: no

QN=22 Welfare economics is the study of

a. taxes and subsidies.
b. how technology is best put to use in the production of goods and services.
c. government welfare programs for needy people.
d. how the allocation of resources affects economic well-being.
e.
f.
ANSWER: D
MARK: 0.2
UNIT: CHAPTER 7
LO: Supply and demand
MIX CHOICES: no
QN=23 Welfare economics is the study of
a. the well-being of less fortunate people.
b. welfare programs in the United States.
c. how the allocation of resources affects economic well-being.
d. the effect of income redistribution on work effort.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 7
LO: Supply and demand
MIX CHOICES: no

QN=24 The study of how the allocation of resources affects economic well-being is called
a. consumer economics.
b. macroeconomics.
c. willingness-to-pay economics.
d. welfare economics.
e.
f.
ANSWER: D
MARK: 0.2
UNIT: CHAPTER 7
LO: Supply and demand
MIX CHOICES: no

QN=25 Which of the following does not represent a tradeoff facing a consumer?
a. choosing to purchase more of all goods
b. choosing to spend more leisure time and less working time
c. choosing to spend more now and consume less in the future
d. choosing to purchase less of one good in order to purchase more of another good
e.
f.
ANSWER: A
MARK: 0.2
UNIT: CHAPTER 21
LO: Utility and consumer choice
MIX CHOICES: no
QN=26 How are the following three questions related: 1) Do all demand curves slope
downward? 2) How do wages affect labor supply? 3) How do interest rates affect
household saving?
a. They all relate to macroeconomics.
b. They all relate to monetary economics.
c. They all relate to the theory of consumer choice.
d. They are not related to each other in any way.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 21
LO: Utility and consumer choice
MIX CHOICES: no

QN=27 Just as the theory of the competitive firm provides a more complete understanding of
supply, the theory of consumer choice provides a more complete understanding of
a. demand.
b. profits.
c. production possibility frontiers.
d. wages.
e.
f.
ANSWER: A
MARK: 0.2
UNIT: CHAPTER 21
LO: Utility and consumer choice
MIX CHOICES: no

QN=28 Which of the following statements is correct?

a. The theory of consumer choice provides a more complete understanding of supply,
just as the theory of the competitive firm provides a more complete understanding of
demand.
b. The theory of consumer choice provides a more complete understanding of demand,
just as the theory of the competitive firm provides a more complete understanding of
supply.
c. Monetary theory provides a more complete understanding of demand, just as the
theory of the competitive firm provides a more complete understanding of supply.
d. The theory of public choice provides a more complete understanding of supply, just as
the theory of the competitive firm provides a more complete understanding of
demand.
e.
f.
ANSWER: B
MARK: 0.2
UNIT: CHAPTER 21
LO: Utility and consumer choice
MIX CHOICES: no

QN=29 Economists assume that the typical person who starts her own business does so with
the intention of
a. donating the profits from her business to charity.
b. capturing the highest number of sales in her industry.
c. maximizing profits.
d. minimizing costs.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 13
LO: Costs of production
MIX CHOICES: no

QN=30 Economists normally assume that the goal of a firm is to

(i) sell as much of their product as possible.
(ii) set the price of the product as high as possible.
(iii) maximize profit.

a. (i) and (ii) are true.

b. (ii) and (iii) are true.
c. (iii) is true.
d. (i) and (iii) are true.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 13
LO: Costs of production
MIX CHOICES: no

QN=31 Economists normally assume that the goal of a firm is to earn

(i) profits as large as possible, even if it means reducing output.
(ii) profits as large as possible, even if it means incurring a higher total cost.
(iii) revenues as large as possible, even if it reduces profits.

a. (i) and (ii) are true.

b. (i) and (iii) are true.
c. (ii) and (iii) are true.
d. (i), (ii), and (iii) are true.
e.
f.
ANSWER: A
MARK: 0.2
UNIT: CHAPTER 13
LO: Costs of production
MIX CHOICES: no

QN=32 An entrepreneur’s motivation to start a business arises from

a. an innate love for the type of business that he or she starts.
b. a desire to earn a profit.
c. an altruistic desire to provide the world with a good product.
d. All of the above could be correct.
e.
f.
ANSWER: D
MARK: 0.2
UNIT: CHAPTER 13
LO: Costs of production
MIX CHOICES: no

QN=33 A firm has market power if it can

a. maximize profits.
b. minimize costs.
c. influence the market price of the good it sells.
d. hire as many workers as it needs at the prevailing wage rate.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 14
LO: Perfect competition
MIX CHOICES: no

QN=34 The analysis of competitive firms sheds light on the decisions that lie behind the
a. demand curve.
b. supply curve.
c. way firms make pricing decisions in the not-for-profit sector of the economy.
d. way financial markets set interest rates.
e.
f.
ANSWER: B
MARK: 0.2
UNIT: CHAPTER 14
LO: Perfect competition
MIX CHOICES: no

QN=35 For any competitive market, the supply curve is closely related to the
a. preferences of consumers who purchase products in that market.
b. income tax rates of consumers in that market.
c. firms’ costs of production in that market.
d. interest rates on government bonds.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 14
LO: Perfect competition
MIX CHOICES: no

QN=36 Suppose that firms in each of the two markets listed below were to increase their
prices by 20 percent. Which pair represents the example where customers would
decrease their quantity purchased dramatically in one market and only slightly in the
other market due to differences in market structure?
a. corn and soybeans
b. gasoline and restaurants
c. water and cable television
d. spiral notebooks and college textbooks
e.
f.
ANSWER: D
MARK: 0.2
UNIT: CHAPTER 14
LO: Perfect competition
MIX CHOICES: no

QN=37 Which of the following statements is correct?

a. Both a competitive firm and a monopolist are price takers.
b. Both a competitive firm and a monopolist are price makers.
c. A competitive firm is a price taker, whereas a monopolist is a price maker.
d. A competitive firm is a price maker, whereas a monopolist is a price taker.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 15
LO: Monopoly
MIX CHOICES: no

QN=38 One difference between a perfectly competitive firm and a monopoly is that a
perfectly competitive firm produces where
a. marginal cost equals price, while a monopolist produces where price exceeds marginal
cost.
b. marginal cost equals price, while a monopolist produces where marginal cost exceeds
price.
c. price exceeds marginal cost, while a monopolist produces where marginal cost equals
price.
d. marginal cost exceeds price, while a monopolist produces where marginal cost equals
price.
e.
f.
ANSWER: A
MARK: 0.2
UNIT: CHAPTER 15
LO: Monopoly
MIX CHOICES: no

QN=39 A monopoly
a. can set the price it charges for its output and earn unlimited profits.
b. takes the market price as given and earns small but positive profits.
c. can set the price it charges for its output but faces a downward-sloping demand curve
so it cannot earn unlimited profits.
d. can set the price it charges for its output but faces a horizontal demand curve so it can
earn unlimited profits.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 15
LO: Monopoly
MIX CHOICES: no

QN=40 A perfectly competitive market

a. may not be in the best interests of society, whereas a monopoly market promotes
general economic well-being
b. promotes general economic well-being, whereas a monopoly market may not be in the
best interests of society.
c. and a monopoly market are equally likely to promote general economic well-being.
d. is less likely to promote general economic well-being than a monopoly market.
e.
f.
ANSWER: B
MARK: 0.2
UNIT: CHAPTER 15
LO: Monopoly
MIX CHOICES: no

QN=41 Which of the following is a characteristic of monopolistic competition?

a. ownership of a key resource by a single firm
b. free entry
c. identical product
d. patents
e.
f.
ANSWER: B
MARK: 0.2
UNIT: CHAPTER 16
LO: Monopolistic competition
MIX CHOICES: no

QN=42 The market for novels is

a. perfectly competitive.
b. a monopoly.
c. monopolistically competitive.
d. an oligopoly.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 16
LO: Monopolistic competition
MIX CHOICES: no

QN=43 Which of the following statements is not correct?

a. Monopolistic competition is similar to monopoly because in each market structure the
firm can charge a price above marginal costs.
b. Monopolistic competition is similar to perfect competition because both market
structures are characterized by free entry.
c. Monopolistic competition is similar to oligopoly because both market structures are
characterized by barriers to entry.
d. Monopolistic competition is similar to perfect competition because both market
structures are characterized by many sellers.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 16
LO: Monopolistic competition
MIX CHOICES: no

QN=44 Which of the following statements is not correct?

a. Monopolistic competition is different from monopoly because monopolistic
competition is characterized by free entry, whereas monopoly is characterized by
barriers to entry.
b. Both monopolistic competition and oligopoly fall in between the more extreme market
structures of competition and monopoly.
c. Monopolistic competition is different from oligopoly because each seller in
monopolistic competition is small relative to the market, whereas each seller can
affect the actions of other sellers in an oligopoly.
d. Both monopolistic competition and perfect competition are characterized by product
differentiation.
e.
f.
ANSWER: D
MARK: 0.2
UNIT: CHAPTER 16
LO: Monopolistic competition
MIX CHOICES: no

QN=45 Monopolistic competition is a type of

a. oligopoly.
b. market structure.
c. price discrimination.
d. advertising strategy.
e.
f.
ANSWER: B
MARK: 0.2
UNIT: CHAPTER 16
LO: Monopolistic competition
MIX CHOICES: no

QN=46 A distinguishing feature of an oligopolistic industry is the tension between

a. profit maximization and cost minimization.
b. cooperation and self interest.
c. producing a small amount of output and charging a price above marginal cost.
d. short-run decisions and long-run decisions.
e.
f.
ANSWER: B
MARK: 0.2
UNIT: CHAPTER 17
LO: Oligopoly
MIX CHOICES: no

QN=47 In studying oligopolistic markets, economists assume that

a. there is no conflict or tension between cooperation and self-interest.
b. it is easy for a group of firms to cooperate and thereby establish and maintain a
monopoly outcome.
c. each oligopolist cares only about its own profit.
d. strategic decisions do not play a role in such markets.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 17
LO: Oligopoly
MIX CHOICES: no

QN=48 The simplest type of oligopoly is

a. monopoly.
b. duopoly.
c. monopolistic competition.
d. oligopolistic competition.
e.
f.
ANSWER: B
MARK: 0.2
UNIT: CHAPTER 17
LO: Oligopoly
MIX CHOICES: no

QN=49 A special kind of imperfectly competitive market that has only two firms is called
a. a two-tier competitive structure.
b. an incidental monopoly.
c. a doublet.
d. a duopoly.
e.
f.
ANSWER: D
MARK: 0.2
UNIT: CHAPTER 17
LO: Oligopoly
MIX CHOICES: no

QN=50 An agreement between two duopolists to function as a monopolist usually breaks

down because
a. they cannot agree on the price that a monopolist would charge.
b. they cannot agree on the output that a monopolist would produce.
c. each duopolist wants a larger share of the market in order to capture more profit.
d. each duopolist wants to charge a higher price than the monopoly price.
e.
f.
ANSWER: C
MARK: 0.2
UNIT: CHAPTER 17
LO: Oligopoly
MIX CHOICES: no