I. Multiple Choice. (N X 2) Encircle the letter of your answer.

1. The market price _____________ the equilibrium price.

a. can be higher than, but never lower than
b. can be lower than, but never higher than
c. can be higher than, or lower than
d. is always equal to
2. When the market price is higher than the equilibrium price, there is
a. a surplus
b. a shortage
c. both a shortage and a surplus
d. neither a shortage nor a surplus
3. When the market price is lower than the equilibrium price, there is
a. a surplus
b. a shortage
c. both a shortage and a surplus
d. neither a shortage nor a surplus.
4. At equilibrium price,
a. Quantity demanded is always equal to quantity supplied
b. Quantity demanded may be equal to quantity supplied
c. Quantity demanded is usually equal to quantity supplied
d. Quantity demanded is never equal to quantity supplied.
5. When demand falls and supply remains the same, equilibrium price __________ and equilibrium
quantity ___________.
a. Falls, falls
b. Rises, rises
c. Falls, rises
d. Rises, falls
6. When supply falls and demand remains the same, equilibrium price ___________ and
equilibrium quantity ___________.
a. Rises, rises
b. Falls, falls
c. Falls, rises
d. Rises, falls
7. When a market operates so that there are no shortages and no surpluses, then the market is
a. Free
b. In equilibrium
c. In disequilibrium
d. Subject to non-market intervention
8. Which of the following government programs will create a surplus?
a. Rent control
b. The minimum wage law
c. Usury laws
d. Price controls on oil
9. When elasticity is -0.1, demand is
a. Elastic
b. Inelastic
c. Unit elastic
d. Undefined
10. When the price of CD players increases by 5%, quantity demanded decreases 5%. The price
elasticity for CD players is
a. Inelastic
b. Unit elastic
 c. Elastic
d. Perfectly inelastic
11. An elasticity of -2 would be considered
a. Elastic
b. Inelastic
c. Unit elastic
d. Undefined
12. The most important determinant of the degree of elasticity of demand is
a. Whether or not the item is a big ticket item
b. Whether or not the item is a luxury or not
c. How many uses the product has
d. The availability of substitutes
13. A demand curve that is perfectly horizontal is
a. Perfectly elastic
b. Perfectly inelastic
c. Relatively elastic
d. Relatively inelastic
14. If demand is inelastic and price is raised
a. Quantity demanded will fall and total revenue will fall
b. Quantity demanded will fall and total revenue will rise
c. Quantity demanded will rise and total revenue will rise
d. Quantity demanded will rise and total revenue will fall
15. The advertiser wants to push her product’s demand curve
a. To the right and make it more elastic
b. To the right and make it less elastic
c. To the left and make it more elastic
d. To the left and make it less elastic
16. If demand is inelastic and price is lowered, total revenue will
a. Rise
b. Fall
c. Stay the same
d. Possibly rise or possibly fall
17. If demand is elastic and price is raised, total revenue will
a. Rise
b. Fall
c. Stay the same
d. Possibly rise or possibly fall
18. If demand is inelastic and price is raised, total revenue will
a. Rise
b. Fall
c. Stay the same
d. Possibly rise and possibly fall
19. If demand is elastic and price is lowered, total revenue will
a. Rise
b. Fall
c. Stay the same
d. Possibly rise and possibly fall
20. The price elasticity of demand depends on
a. the units used to measure price but not the units used to measure quantity
b. the units used to measure price and the units used to measure quantity
c. the units used to measure quantity but not the units used to measure price
d. neither the units used to measure price nor the units used to measure quantity.
21. When the quantity of coal supplied is measured in kilograms instead of pounds, the demand for
coal becomes
 a. more elastic
b. neither more nor less elastic
c. less elastic
d. undefined
22. Which is the equation of a budget constraint?
a. PxX + PyY = I
b. MUx/Px=MUy/P
c. Px/X + Py/Y = I
d. MUx/Px + MUy/P = I
23. When the price of a good decreases, the budget constraint swivels to the right, increasing the
opportunities available and expanding choice.

a. True
b. False
24. It is impossible to measure utility and utility may vary from one person to another.

a. True
b. False
25. Who proposed the concept of Law of Diminishing Marginal Utility?
a. Alfred Marshall
b. Helen Keller
c. Collin Powell
d. Adam Smith
26. Statement 1: The concept of diminishing marginal utility offers one reason why people spread
their incomes over a variety of goods and services instead of spending all income on one or
two items.
Statement 2: Every demand curve hits the quantity axis as a result of diminishing marginal
utility.

Which statement is correct?

a. Both statements are true

b. Only statement 1 is true
c. Only statement 2 is true
d. Both statements are false
27. Statement 1: the more of any one good consumed in a given period, the more satisfaction
generated by consuming each additional unit of the same good.
Statement 2: The concept of marginal utility is the only reason why the demand curve is
downward sloping.
Which statement is correct?

a. Both statements are true

b. Only statement 1 is true
c. Only statement 2 is true
d. Both statements are false
28. Statement 1: If we assume that households confine their choices to products that improve their
well being, then a decline in the price of any product, ceteris paribus, will make the
household unequivocally better off.
Statement 2: The concept above is termed as the Income Effect of a Price change.

Which statement is correct?

a. Both statements are true

b. Only statement 1 is true
c. Only statement 2 is true
d. Both statements are false

29. If demand is ____________ then price cuts will _____________ spending.

a. inelastic, increase
b. elastic, increase
c. elastic, decrease
 d. none of the above
30. When a linear demand curve has a price elasticity of infinity it will appear _________
a. horizontal
b. vertical
c. downward sloping to the left
d. as a rectangular hyperbola
31. The supply elasticity measures the responsiveness of quantity supplied to quantity demanded
a. True
b. False
32. If a rightward shift of supply curve leads to a 6 percent decrease in the price and a 5 percent
increase in the quantity demanded, the price elasticity of demand is
a. 0.83
b. 0.30
c. 0.60
d. 1.20
33. If demand is price elastic,
a. a 1 percent decrease in the price leads to an increase in the quantity demanded that
exceeds 1 percent.
b. a 1 percent increase in the price leads to an increase in the quantity demanded that exceeds
1 percent.
c. the price is very sensitive to any shift of the supply curve.
d. a 1 percent decrease in the price leads to a decrease in the quantity demanded that is less
than 1 percent.
34. A product is likely to have a price elasticity of demand that exceeds 1 when
a. its price falls.
b. it is a necessity.
c. it has close substitutes.
d. the percentage of income spent on it decreases.

35. The above figure illustrates the demand curve for a good. The good has
a. many substitutes
b. no substitutes
c. only one substitute
d. only a few substitutes

36. The above figure shows a linear (straight-line) demand curve. Start at point A and then moving
to point B and then point C, the price elasticity of demand

a. increases
b. increases and then decreases
c. decreases and then increases
 d. decreases

37. In the figure above, when the price of a disk is $B, total revenue is shown in the graph by area

a. FCDE b. ADE0 c. AGF0 d. BCF0

38. A rise in the price of a product lowers the total revenue from the product if the
a. good is an inferior product
b. demand for the product is inelastic
c. demand for the product is elastic
d. income elasticity of demand exceeds 1
39. All of the following are reasons why the demand curve slopes downward except,
a. Law of Diminishing Marginal Utility
b. Income Effect of a Price Change
c. Substitution Effect of a Price Change
d. All of the above
e. None of the Above
40. Moving up (to the left) along a linear demand curve, the price elasticity of demand
a. at first increases and then decreases
b. increases
c. decreases
d. does not change
41. If the price elasticity of demand for a product equals 1, as its price rises the
a. total revenue increases
b. quantity demanded does not change
c. total revenue does not change
d. quantity demanded increases
42. If at a given moment, no matter what the price, producers cannot change the quantity supplied,
The momentary supply
a. has infinite elasticity
b. has unit elasticity
c. does not exist
d. has zero elasticity
43. A fall in the price of product X might cause a household to shift its purchasing pattern away from
Substitutes towards X. This is called _______________.
a. Income Effect of a Price Change
b. Substitution Effect of a Price Change
c. Law of Diminishing Marginal Utility
d. None of the above

44. The demand for food is most elastic in countries

a. with low income levels c. that are highly urbanized.
b. with intermediate income levels d. with high income levels.

45. Of the following, demand is likely to be the least elastic for

a. pink grapefruit c. iceberg lettuce
b. insulin for diabetics d. diamonds