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QSMS Questions (Microeconomics)

The following are the QSMS questions posed at both Wednesday’s
and Thursday’s classes.

1. Rent control leads to quantity supplied being _____________quantity

demanded.
A. equal to
B. greater than
C. less than
D. either A or B is correct

2. Suppose that the government imposes a maximum price on rental apartments

and the market price of apartments does not change. The most likely
explanation is that:
A. the law is impossible to enforce.
B. apartment owners are withdrawing rental units from the market and forcing
price up.
C. market forces are pushing rental rates up to avoid a shortage of
apartments.
D. the maximum price set by the government was at or above the
equilibrium price.

3. A minimum price set above the equilibrium price leads to a quantity traded:
A. at the equilibrium quantity.
B. below the equilibrium quantity.
C. above the equilibrium quantity.
D. there is no sufficient information.

4. Suppose that a minimum price is set above the equilibrium price. Which of the
following statements is incorrect?
A. it increases the quantity supplied.
B. it reduces the quantity demanded.
C. producers want to sell more than consumers want to buy.
D. some consumers gain at the expense of producers.

5. The government raises the sales tax on shirts. The tax is imposed on sellers.
As a result, the _______.
A. supply curve of shirts shifts leftward
B. supply curve of shirts shifts rightward
C. demand curve for shirts becomes vertical
D. demand curve for shirts becomes horizontal
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6. A sales tax imposed on sellers shifts the supply curve leftward for the taxed
good because
A. it is paid by the seller to the government and is, therefore, like a cost
of production.
B. it is actually shifted entirely onto the buyer who can afford only a smaller
supply.
C. the higher price causes entry into the market.
D. the tax causes the demand curve to shift leftward.

7. Government subsidies to higher education benefit

A. only the students.
B. only the universities
C. both universities and students.
D. neither universities nor students.

8. A $10,000 government subsidy per student in higher education would benefit

A. a student by exactly $10,000.
B. a university by exactly $10,000.
C. the student and the university in such a way that they would split the
$10,000.
D. the student and the university in such a way that they would each get the
$10,000.

9. A fixed cost can be thought of as

A. a cost that changes as output increases.
B. a cost that must be paid even if output equals zero.
C. a cost that is paid only when output equals zero.
D. total costs ignoring opportunity costs.

10. Total variable cost

A. increases as output increases.
B. is constant as output increases.
C. decreases as output increases.
D. is lowest for labor-intensive technologies.

11. Marginal costs typically

A. increase as output increases.
B. decrease as output increases.
C. first increase then decrease as output increases.
D. first decrease then increase as output increases.

12. A firm will begin to experience diminishing returns at the point where
A. marginal cost increases.
B. marginal cost decreases.
C. marginal product increases.
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D. Both B and C.
13. To develop a useful picture of a firm’s behavior, economists assume that the
A. firm’s goal is to maximize total revenue.
B. firm’s goal is to maximize profit.
C. firm’s goal is to minimize marginal costs.
D. the roles of owner, manager and worker are performed by the same
individuals.

14. In perfect competition, the marginal revenue curve

A. and the demand curve are identical.
B. is always above the demand curve facing the firm.
C. is always below the demand curve facing the firm.
D. intersects the demand curve when marginal revenue is minimized.

15. In short-run equilibrium for a competitive firm economic profits

A. will be positive.
B. will be negative.
C. will be zero.
D. may be positive, negative or zero.

16. Suppose all firms in an industry are earning positive economic profit. We would
expect to find that in the future
A. the market price will fall.
B. the market supply curve will shift to the left.
C. there will no further entry or exit.
D. the market demand curve will shift to the right.

17. As long as economic profits are being earned in an industry, firms will _______
the industry and the industry supply curve will shift to the ______.
A. enter; right
B. enter; left
C. exit; left
D. exit; right

The following questions are NOT applicable to the Mid-Term exam.

18. Which of the following is an example of a barrier to entry?

A. A firm is open for business only at certain hours of the day, and has its
doors
locked at other times.
B. The government grants licenses to taxicab drivers, without which it is
illegal to operate a taxicab.
C. A newspaper sells advertising space to businesses.
D. Taking some risk is a necessity when starting a new business.
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19. The term “rent-seeking” best describes a situation in which

A. individuals expend effort searching for a good price on an apartment.
B. consumers compete for a limited quantity of the good.
C. firms use resources to secure or preserve a monopoly in providing a
good or service.
D. None of the above are good descriptions of rent-seeking behavior.

20. How do monopoly prices and quantities produced differ from perfectly
competitive outcomes?
A. Monopoly prices and quantities are both lower than competitive outcomes.
B. Monopoly prices and quantities are both higher than competitive outcomes.
C. Monopoly prices are lower than competitive prices but monopoly quantities
are higher than competitive quantities
D. Monopoly prices are higher than competitive prices but monopoly
quantities are lower than competitive quantities

21. A minimum price sets above the equilibrium price will

A. cause excess demand and increase total surplus.
B. cause excess supply and increase total surplus.
C. cause excess demand and decrease total surplus.
D. cause excess supply and decrease total surplus.

22. A maximum price sets below the equilibrium price will

A. cause excess demand and increase total surplus.
B. cause excess demand and decrease total surplus.
C. cause excess supply and increase total surplus.
D. cause excess supply and decrease total surplus.

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