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4. Suppose a firm sells its product at a price lower than the opportunity cost of the inputs
used to produce it. Which is true?
A) The firm will earn accounting and economic profits.
B) The firm will face accounting and economic losses.
C) The firm will face an accounting loss, but earn economic profits.
D) The firm may earn accounting profits, but will face economic losses.
5. Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The
explicit costs of production are $1,500,000 and the implicit costs of production are
$300,000. The firm has an accounting profit of:
A) $500,000 and an economic profit of $200,000.
B) $400,000 and an economic profit of $200,000.
C) $300,000 and an economic profit of $400,000.
D) $200,000 and an economic profit of $500,000.
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the average product of the firm will increase.
B) as a firm uses more of a variable resource, given the quantity of fixed resources,
marginal product of the firm will eventually decrease.
C) in the short run, the average total costs of the firm will eventually diminish.
D) in the long run, the average total costs of the firm will eventually diminish.
9. The marginal product of labor curve shows the change in total product resulting from
a:
A) one-unit increase in the quantity of a particular resource used, letting other
resources vary.
B) one-unit increase in the quantity of a particular resource used, holding constant
other resources.
C) change in the cost of a variable resource.
D) change in the cost of a fixed resource.
11. When marginal product reaches its maximum, what can be said of total product?
A) total product must be at its maximum
B) total product starts to decline even if marginal product is positive
C) total product is increasing if marginal product is still positive
D) total product levels off
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D) a worker's wage of $15 per hour
14. If you know that with 8 units of output, average fixed cost is $12.50 and average
variable cost is $81.25, then total cost at this output level is:
A) $93.75. B) $97.78. C) $750. D) $880.
15. With fixed costs of $400, a firm has average total costs of $3 and average variable
costs of $2.50. Its output is:
A) 200 units. B) 400 units. C) 800 units. D) 1,600 units.
16. The reason the marginal cost curve eventually increases as output increases for the
typical firm is because:
A) of diseconomies of scale.
B) of minimum efficient scale.
C) of the law of diminishing returns.
D) normal profit exceeds economic profit.
17. If the short-run average variable costs of production for a firm are rising, then this
indicates that:
A) average total costs are at a maximum.
B) average fixed costs are constant.
C) marginal costs are above average variable costs.
D) average variable costs are below average fixed costs.
18. If a more efficient technology was discovered by a firm, there would be:
A) an upward shift in the AVC curve. C) a downward shift in the AFC curve.
B) an upward shift in the AFC curve. D) a downward shift in the MC curve.
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20. A firm encountering economies of scale over some range of output will have a:
A) rising long-run average cost curve.
B) falling long-run average cost curve.
C) constant long-run average cost curve.
D) rising, then falling, then rising long-run average cost curve.
21. When a firm doubles its inputs and finds that its output has more than doubled, this is
known as:
A) economies of scale.
B) constant returns to scale.
C) diseconomies of scale.
D) a violation of the law of diminishing returns.
22. The larger the diameter of a natural gas pipeline, the lower is the average total cost of
transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of:
A) economies of scale.
B) normative economies.
C) diminishing marginal returns.
D) an increasing marginal product of labor.
23. If all resources used in the production of a product are increased by 20 percent and
output increases by 20 percent, then there must be:
A) economies of scale. C) constant returns to scale.
B) diseconomies of scale. D) increasing average total costs.
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Use the following to answer question 25:
Unit
Costs
Long Run ATC
Quantity Produced
Q1 Q2 Q3 Q4
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Answer Key -- ch22
1. C
2. D
3. B
4. D
5. A
6. D
7. B
8. C
9. B
10. B
11. C
12. C
13. D
14. C
15. C
16. C
17. C
18. D
19. B
20. B
21. A
22. A
23. C
24. C
25. B
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Chapter 3 - Demand and Supply - Sample Questions
Answers are at the end fo this file
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) A relative price is 1)
A) the ratio of one price to another.
B) the difference between one price and another.
C) the slope of the supply curve.
D) the slope of the demand curve.
2) If the price of a candy bar is $1 and the price of a fast food meal is $5, 2)
A) the money price of a fast food meal is 1/5 of a candy bar.
B) the money price of a candy bar is 1/5 of a fast food meal.
C) the relative price of a fast food meal is 5 candy bars.
D) the relative price of a candy bar is 5 fast food meals.
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7) Demands differ from wants in that 7)
A) wants require a plan to acquire a good but demands require no such plan.
B) demands are unlimited, whereas wants are limited by income.
C) wants imply a decision about which demands to satisfy, while demands involve no specific
plan to acquire the good.
D) demands reflect a decision about which wants to satisfy and a plan to buy the good, while
wants are unlimited and involve no specific plan to acquire the good.
10) The law of demand states that, other things remaining the same, the higher the price of a good, the 10)
A) smaller is the demand for the good.
B) smaller is the quantity of the good demanded.
C) larger is the quantity of the good demanded.
D) larger is the demand for the good.
11) The law of demand implies that, other things remaining the same, 11)
A) as the demand for cheeseburgers increases, the price of a cheeseburger will fall.
B) as the price of a cheeseburger rises, the quantity of cheeseburgers demanded will decrease.
C) as income increases, the quantity of cheeseburgers demanded will increase.
D) as the price of a cheeseburger rises, the quantity of cheeseburgers demanded will increase.
12) The law of demand states that the quantity of a good demanded varies 12)
A) inversely with its price.
B) directly with population.
C) directly with income.
D) inversely with the price of substitute goods.
13) Which of the following is consistent with the law of demand? 13)
A) A decrease in the price of a gallon of milk causes a decrease in the quantity of milk demanded.
B) An increase in the price of a soda causes a decrease in the quantity of soda demanded.
C) An increase in the price of a tape causes an increase in the quantity of tapes demanded.
D) A decrease in the price of juice causes no change in the quantity of juice demanded.
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14) The law of demand implies that if nothing else changes, there is 14)
A) a linear relationship between price of a good and the quantity demanded.
B) a positive relationship between the price of a good and the quantity demanded.
C) a negative relationship between the price of a good and the quantity demanded.
D) an exponential relationship between price of a good and the quantity demanded.
15) Which of the following influences people's buying plans and varies moving along a demand curve? 15)
A) preferences B) the price of the good
C) income D) the prices of related goods
19) A drop in the price of a compact disc shifts the demand curve for prerecorded tapes leftward. From 19)
that you know compact discs and prerecorded tapes are
A) normal goods. B) substitutes. C) inferior goods. D) complements.
21) People buy more of good 1 when the price of good 2 rises. These goods are 21)
A) normal goods. B) complements. C) substitutes. D) inferior goods.
22) Which of the following pairs of goods are most likely substitutes? 22)
A) compact discs and compact disc players B) lettuce and salad dressing
C) cola and lemon lime soda D) peanut butter and gasoline
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23) The demand for a good increases when the price of a substitute ________ and also increases when 23)
the price of a complement ________.
A) falls; falls B) rises; falls C) rises; rises D) falls; rises
25) Suppose people buy more of good 1 when the price of good 2 falls. These goods are 25)
A) substitutes. B) inferior. C) normal. D) complements.
27) People come to expect that the price of a gallon of gasoline will rise next week. As a result, 27)
A) next week's supply of gasoline decreases.
B) the price of a gallon of gasoline falls today.
C) today's supply of gasoline increases.
D) today's demand for gasoline increases.
28) The demand curve for a normal good shifts leftward if income ________ or the expected future 28)
price ________.
A) decreases; falls B) increases; rises C) increases; falls D) decreases; rises
31) Normal goods are those for which demand decreases as 31)
A) the price of a substitute falls. B) the price of a complement falls.
C) the good's own price rises. D) income decreases.
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32) A normal good is a good for which 32)
A) there are very few complements.
B) demand decreases when income increases.
C) demand increases when income increases.
D) there are few substitutes.
35) Inferior goods are those for which demand increases as 35)
A) income decreases. B) income increases.
C) the price of a substitute rises. D) the price of a substitute falls.
37) If a good is an inferior good, then purchases of that good will decrease when 37)
A) the demand for it increases. B) population increases.
C) income increases. D) the price of a substitute rises.
39) When economists speak of preferences as influencing demand, they are referring to 39)
A) the availability of a good to all income classes.
B) directly observable changes in prices and income.
C) the excess of wants over the available supplies.
D) an individual's attitudes toward goods and services.
40) In 2000 there were 200,000 gas grills demanded at a price of $500. In 2001 there were more than 40)
200,000 gas grills demanded at the same price. This increase could be the result any of the
following EXCEPT
A) an increase in the supply of gas grills.
B) an increase in population.
C) an increase in income if gas grills are a normal good.
D) a fall in the price of natural gas, a complement for a gas grill.
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41) A change in the price of a good 41)
A) shifts the good's demand curve but does not cause a movement along it.
B) does not shift the good's demand curve but does cause a movement along it.
C) shifts the good's demand curve and also causes a movement along it.
D) neither shifts the good's demand curve nor causes a movement along it.
44) A change in which of the following alters buying plans for cars but does NOT shift the demand 44)
curve for cars?
A) a 10 percent decrease in the price of car insurance
B) a 20 percent increase in the price of a car
C) a 5 percent increase in people's income
D) an increased preference for walking rather than driving
45) Which of the following would NOT shift the demand curve for turkey? 45)
A) a change in tastes for turkey B) a decrease in the price of ham
C) an increase in income D) a change in the price of a turkey
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47) In the figure above, which movement reflects an increase in demand? 47)
A) from point a to point e B) from point a to point c
C) from point a to point b D) from point a to point d
48) In the figure above, which movement reflects a decrease in demand? 48)
A) from point a to point d B) from point a to point e
C) from point a to point c D) from point a to point b
49) In the figure above, which movement reflects a decrease in quantity demanded but NOT a 49)
decrease in demand?
A) from point a to point c B) from point a to point e
C) from point a to point d D) from point a to point b
50) In the figure above, which movement reflects how consumers would react to an increase in the 50)
price of a non-fruit snack?
A) from point a to point b B) from point a to point d
C) from point a to point c D) from point a to point e
51) In the figure above, which movement reflects an increase in the price of a substitute for fruit 51)
snacks?
A) from point a to point d B) from point a to point e
C) from point a to point b D) from point a to point c
52) In the figure above, which movement reflects an increase in the price of a complement for fruit 52)
snacks?
A) from point a to point b B) from point a to point d
C) from point a to point e D) from point a to point c
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53) In the figure above, which movement reflects how consumers would react to an increase in the 53)
price of a fruit snack that is expected to occur in the future?
A) from point a to point b B) from point a to point e
C) from point a to point c D) from point a to point d
54) In the figure above, which movement reflects an increase in income if fruit snacks are an inferior 54)
good?
A) from point a to point d B) from point a to point c
C) from point a to point b D) from point a to point e
55) In the figure above, which movement reflects an increase in income if fruit snacks are a normal 55)
good?
A) from point a to point d B) from point a to point e
C) from point a to point b D) from point a to point c
56) In the figure above, which movement reflects a decrease in population? 56)
A) from point a to point d B) from point a to point c
C) from point a to point e D) from point a to point b
58) The quantity supplied of a good or service is the quantity that a producer 58)
A) actually sells at a particular price during a given time period.
B) should sell at a particular price during a given time period.
C) is willing to sell at a particular price during a given time period.
D) needs to sell at a particular price during a given time period.
59) A fall in the price of a good causes producers to reduce the quantity of the good they are willing to 59)
produce. This fact illustrates
A) a change in supply. B) the law of demand.
C) the nature of an inferior good. D) the law of supply.
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61) Because of increasing marginal cost, most supply curves 61)
A) are horizontal. B) have a negative slope.
C) are vertical. D) have a positive slope.
62) A supply curve shows the relation between the quantity of a good supplied and 62)
A) the price of the good. Usually a supply curve has negative slope.
B) income. Usually a supply curve has positive slope.
C) income. Usually a supply curve has negative slope.
D) the price of the good. Usually a supply curve has positive slope.
63) A supply curve differs from a supply schedule because a supply curve 63)
A) is a graph and the supply schedule is a table.
B) holds the number of suppliers constant, whereas the supply schedule allows the number to
vary.
C) holds resource prices constant, whereas the supply schedule allows them to vary.
D) represents one firm, whereas the supply schedule represents all firms in the market.
64) Which of the following is NOT held constant while moving along a supply curve? 64)
A) prices of resources used in production B) expected future prices
C) the number of sellers D) the price of the good itself
65) If a producer can use resources to produce either good A or good B, then A and B are 65)
A) substitutes in consumption. B) complements in consumption.
C) complements in production. D) substitutes in production.
66) Good A and good B are substitutes in production. The demand for good A increases so that the 66)
price of good A rises. The increase in the price of good A shifts the
A) demand curve for good B rightward. B) demand curve for good B leftward.
C) supply curve of good B rightward. D) supply curve of good B leftward.
67) Blank tapes and prerecorded tapes are substitutes in production. An increase in the price of a blank 67)
tape will cause
A) a decrease in the supply of prerecorded tapes.
B) an increase in the quantity supplied of prerecorded tapes but not in the supply.
C) a decrease in the quantity supplied of prerecorded tapes but not in the supply.
D) an increase in the supply of prerecorded tapes.
68) Good A and good B are substitutes in production. The demand for good A decreases, which lowers 68)
the price of good A. The decrease in the price of good A
A) increases the demand for good B. B) decreases the demand for good B.
C) increases the supply of good B. D) decreases the supply of good B.
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69) An increase in the number of fast-food restaurants 69)
A) increases the demand for substitutes for fast-food meals.
B) raises the price of fast-food meals.
C) increases the supply of fast-food meals.
D) increases the demand for fast-food meals.
70) Over the past decade technological improvements that have lowered the cost of producing an 70)
automobile have increased
A) the demand but not the supply of automobiles.
B) both the supply and the demand for automobiles.
C) the supply but not the demand for automobiles.
D) neither the supply nor the demand for automobiles.
71) Which of the following will shift the supply curve for good X leftward? 71)
A) a situation in which quantity demanded exceeds quantity supplied
B) an increase in the cost of the machinery used to produce X
C) a decrease in the wages of workers employed to produce X
D) a technological improvement in the production of X
72) Which of the following does NOT shift the supply curve? 72)
A) an increase in the price of the good
B) a fall in the price of a substitute in production
C) a decrease in the wages of labor used in production of the good
D) a technological advance
73) If the price of a good changes but everything else influencing suppliers' planned sales remains 73)
constant, there is a
A) rotation of the initial supply curve around the initial price.
B) new supply curve that is to the right of the initial supply curve.
C) new supply curve that is to the left of the initial supply curve.
D) movement along the supply curve.
75) Which of the following causes an increase in the quantity supplied of good X but NOT in the 75)
supply of good X?
A) an increase in the price of X
B) an increase in the price of good Y, a complement in the production of X
C) an improvement in the technology for producing X
D) a reduction in the price of resources used to produce X
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76) In the figure above, an increase in the supply of oil would result in a movement from 76)
A) point a to point d. B) point a to point e.
C) point a to point b. D) point a to point c.
77) In the figure above, an increase in the quantity of oil supplied but NOT in the supply of oil is 77)
shown by a movement from
A) point a to point c. B) point a to point b.
C) point a to point e. D) point a to point d.
78) In the figure above, a decrease in the quantity of oil supplied but NOT in the supply of oil is shown 78)
by a movement from
A) point a to point e. B) point a to point d.
C) point a to point b. D) point a to point c.
79) In the figure above, which movement could be caused by an increase in the wages of oil workers? 79)
A) point a to point d B) point a to point b
C) point a to point c D) point a to point e
80) In the figure above, which movement could be caused by the development of a new, more efficient 80)
refining technology?
A) point a to point e B) point a to point c
C) point a to point b D) point a to point d
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81) The figure above represents the market for candy. People become more concerned that eating 81)
candy causes them to gain weight, which they do not like. As a result, the
A) demand curve will not shift, and the supply curve shifts from S1 to S2.
B) demand curve shifts from D1 to D2and the supply curve shifts from S1 to S2.
C) demand curve shifts from D2 to D1 and the supply curve shifts from S2 to S1.
D) demand curve shifts from D2 to D1 and the supply curve will not shift.
82) The above figure represents the market for oil. Because of the development of a new deep sea 82)
drilling technology the
A) demand curve shifts from D1 to D2 and the supply curve shifts from S1 to S2.
B) demand curve shifts from D1 to D2 and the supply curve will not shift.
C) demand curve will not shift, and the supply curve shifts from S1 to S2.
D) demand curve will not shift, and the supply curve shifts from S2 to S1.
83) The above figure represents the market for oil. When terrorists blow up a major refinery the 83)
A) demand curve for oil will not shift, and the supply curve for oil shifts from S2 to S1.
B) demand curve for oil shifts from D1 to D2 and the supply curve for oil will not shift.
C) demand curve for oil shifts from D1 to D2 and the supply curve for oil shifts from S2 to S1.
D) demand curve for oil will not shift, and the supply curve for oil shifts from S1 to S2.
84) The above figure represents the market for bicycles. When there is a physical fitness craze the 84)
A) demand curve for bicycles shifts from D1 to D2.
B) demand curve for bicycles shifts from D2 to D1.
C) supply curve of bicycles shifts from S1 to S2.
D) demand curve and the supply curve of bicycles do not shift.
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85) The above figure represents the market for french fries at fast food joints. If the price of potatoes 85)
rises and simultaneously people become concerned that french fries can cause heart attacks
A) the demand curve for french fries will shift from D2 to D1 and the supply curve of french fries
will shift from S2 to S1.
B) the demand curve for french fries will shift from D2 to D1 and the supply curve of french fries
will not shift.
C) the demand curve for french fries will not shift, and the supply curve of french fries will shift
from S1 to S2.
D) the demand curve for french fries will shift from D2 to D1 and the supply curve of french fries
will shift from S1 to S2.
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88) In the above figure, if the demand curve is D2, then 88)
A) an increase in price will cause the demand curve to shift to D3.
B) the equilibrium price will be P1 and the equilibrium quantity will be Q2.
C) the equilibrium price will be P1 and the equilibrium quantity will be Q1.
D) there will be a shortage equal to Q2 - Q1.
89) When the price is below the equilibrium price, the quantity demanded 89)
A) is less than the equilibrium quantity. The quantity supplied exceeds the equilibrium quantity.
B) exceeds the equilibrium quantity. The quantity supplied is less than the equilibrium quantity.
C) exceeds the equilibrium quantity. So does the quantity supplied.
D) is less than the equilibrium quantity. So is the quantity supplied.
91) Which of the following correctly describes how price adjustments eliminate a shortage? 91)
A) As the price falls, the quantity demanded increases while the quantity supplied decreases.
B) As the price rises, the quantity demanded decreases while the quantity supplied increases.
C) As the price falls, the quantity demanded decreases while the quantity supplied increases.
D) As the price rises, the quantity demanded increases while the quantity supplied decreases.
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93) If the quantity demanded exceeds the quantity supplied, then there is 93)
A) a shortage and the price is above the equilibrium price.
B) a surplus and the price is below the equilibrium price.
C) a shortage and the price is below the equilibrium price.
D) a surplus and the price is above the equilibrium price.
95) If the quantity supplied exceeds the quantity demanded, then there is 95)
A) a shortage and the price is below the equilibrium price.
B) a surplus and the price is below the equilibrium price.
C) a surplus and the price is above the equilibrium price.
D) a shortage and the price is above the equilibrium price.
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98) The equilibrium quantity in the above figure is 98)
A) 400 units. B) 300 units. C) 600 units. D) 200 units.
101) If the good in the above figure is a normal good and income rises, then the new equilibrium 101)
quantity
A) is more than 300 units.
B) is less than 300 units.
C) could be less than, equal to, or more than 300 units.
D) is 300 units.
102) The initial supply and demand curves for a good are illustrated in the above figure. If there are 102)
technological advances in the production of the good, then the new price for the good
A) is $6.
B) is more than $6.
C) could be less than, equal to, or more than $6.
D) is less than $6.
103) The initial supply and demand curves for a good are illustrated in the above figure. If there is a rise 103)
in the price of the resources used to produce the good, then the new price
A) is less than $6.
B) is more than $6.
C) could be less than, equal to, or more than $6.
D) is $6.
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The Market for Wapanzo Beans
Quantity Demanded Price Quantity Supplied
(millions of pounds (dollars per (millions of pounds
per year) pound) per year)
Case Case Case Case Case Case
1 2 3 A B C
15 10 5 1 2 3
12 8 4 2 2 4 6
9 6 3 3 3 6 9
6 3 2 4 4 8 12
3 2 1 5 5 10 15
104) Refer to the table above. Suppose that in normal years demand is represented by Case 2 and 104)
supply is represented by Case B. In a normal year the price of wapanzo beans will be
A) $3 per pound. B) $4 per pound. C) $2 per pound. D) $1 per pound.
105) Refer to the table above. Suppose that in normal years demand is represented by Case 2 and 105)
supply is represented by Case B. In a normal year the equilibrium quantity of wapanzo beans will
be
A) 8 million pounds. B) 4 million pounds.
C) 6 million pounds. D) 2 million pounds.
106) Refer to the table above. Suppose that in normal years demand is represented by Case 2 and 106)
supply is represented by Case B. If there is a drought in the wapanzo bean growing region then
supply will ________ and demand will ________.
A) stay at case B; become case 3 B) stay at case B; become case 1
C) become case A; become case 1 D) become case A; stay at case 2
107) Refer to the table above. Suppose that in normal years demand is represented by Case 2 and 107)
supply is represented by Case B. If there is exceptionally good growing weather in the wapanzo
bean growing region then supply will ________ and demand will ________.
A) stay at case B; become case 1 B) become case C; stay at case 2
C) become case C; become case 3 D) become case C; become case 1
108) Refer to the table above. Suppose that in normal years demand is represented by Case 2 and 108)
supply is represented by Case B. If it is discovered that wapanzo beans help prevent cancer then
supply will ________ and demand will ________.
A) stay at case B; become case 1 B) become case C; stay at case 2
C) become case A; become case 1 D) become case C; become case 1
109) When the demand for a good decreases, its equilibrium price ________ and equilibrium quantity 109)
________.
A) rises; decreases B) falls; decreases C) falls; increases D) rises; increases
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110) If good A is a normal good and income increases, the equilibrium price of A 110)
A) and the equilibrium quantity will increase.
B) and the equilibrium quantity will decrease.
C) will rise and the equilibrium quantity will decrease.
D) will fall and the equilibrium quantity will increase.
111) The price of a gallon of milk falls. Which of the following is a possible cause? 111)
A) a discovery that milk cause diabetes
B) a drought that reduces supplies of feed grains fed to cows that produce milk
C) an increase in the income of the average household, with milk being a normal good
D) a decrease in the price of oatmeal, a complement to milk
112) Assume that beef and pork are substitutes for consumers. There is a drought in the cattle grazing 112)
areas. The drought will cause the
A) supply curve for pork to shift rightward. B) supply curve for pork to shift leftward.
C) demand curve for pork to shift leftward. D) demand curve for pork to shift rightward.
114) Goods A and B are complementary goods (in consumption). The cost of a resource used in the 114)
production of A decreases. As a result,
A) the equilibrium price of B will fall and the equilibrium price of A will rise.
B) the equilibrium prices of both A and B will rise.
C) the equilibrium price of B will rise and the equilibrium price of A will fall.
D) the equilibrium prices of both A and B will fall.
115) When demand decreases and supply does not change, the equilibrium price 115)
A) rises and the equilibrium quantity decreases.
B) rises and the equilibrium quantity increases.
C) falls and the equilibrium quantity increases.
D) falls and the equilibrium quantity decreases.
116) When supply decreases and demand does not change, the equilibrium quantity 116)
A) decreases and the price rises. B) increases and the price falls.
C) decreases and the price falls. D) increases and the price rises.
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117) Beef and leather belts are complements in production. If people's concern about health shifts the 117)
demand curve for beef leftward, the result in the market for leather belts will be a
A) lower equilibrium price for a leather belt because there is an increase in the supply of leather
belts.
B) higher equilibrium price for a leather belt because there is a decrease in the supply of leather
belts.
C) lower equilibrium price for a leather belt because there is a decrease in the supply of leather
belts.
D) higher equilibrium price for a leather belt because there is an increase in the supply of leather
belts.
118) You observe that the price of a good rises and the quantity decreases. These observations can be 118)
the result of
A) the supply curve shifting rightward. B) the demand curve shifting rightward.
C) the demand curve shifting leftward. D) the supply curve shifting leftward.
119) Leather belts and leather shoes are substitutes in production. If style changes increase the demand 119)
for leather belts, the supply curve of leather shoes will shift
A) rightward and the equilibrium price of leather shoes will fall.
B) leftward and the equilibrium price of leather shoes will rise.
C) leftward and the equilibrium price of leather shoes will fall.
D) rightward and the equilibrium price of leather shoes will rise.
120) If both demand and supply increase, what will be the effect on the equilibrium price and quantity? 120)
A) The price will rise but the quantity could either increase, decrease, or remain the same.
B) The quantity will increase but the price could either rise, fall, or remain the same.
C) Both the price and the quantity will increase.
D) The price will fall but the quantity will increase.
121) If both the demand and supply increase, the equilibrium quantity 121)
A) decreases and the price rises.
B) increases and the effect on price is indeterminate.
C) decreases and the effect on price is indeterminate.
D) increases and the price falls.
122) The price will rise and the equilibrium quantity might increase, decrease, or stay the same when 122)
the
A) demand and the supply of a good both increase.
B) demand and the supply of a good both decrease.
C) demand for a good decreases and the supply of it increases.
D) demand for a good increases and the supply of it decreases.
19
123) The price will fall and the equilibrium quantity might increase, decrease, or stay the same when the 123)
A) demand for a good increases and the supply of it decreases.
B) demand and the supply of a good both decrease.
C) demand for a good decreases and the supply of it increases.
D) demand and the supply of a good both increase.
124) The equilibrium quantity will decrease and the price might rise, fall, or stay the same when the 124)
A) demand and the supply of a good both decrease.
B) demand for a good increases and the supply of it decreases.
C) demand for a good decreases and the supply of it increases.
D) demand and the supply of a good both increase.
125) The equilibrium quantity of a good will increase and its equilibrium price might rise, fall, or stay 125)
the same when
A) its demand decreases and supply increases.
B) its demand increases and supply decreases.
C) its demand and supply both increase.
D) its demand and supply both decrease.
126) The price of compact disc players fell over the past decade because a combination of improving 126)
technology, rising incomes, and falling prices of compact discs caused the
A) demand curve for compact disc players to shift rightward faster than the supply curve of
compact disc players shifted rightward.
B) supply curve of compact disc players to shift rightward faster than the demand curve for
compact disc players shifted rightward.
C) demand curve for compact disc players to shift leftward and the supply curve of compact disc
players to shift leftward.
D) supply curve of compact disc players to shift rightward and the demand curve for compact
disc players to shift leftward.
127) Which of the following will always raise the equilibrium price? 127)
A) an increase in demand combined with a decrease in supply
B) a decrease in both demand and supply
C) an increase in both demand and supply
D) a decrease in demand combined with an increase in supply
20
128) In the above figure, a change in quantity demanded with unchanged demand is represented by a 128)
movement from
A) point a to point c.
B) point a to point e.
C) point a to point b.
D) None of the above represent a change in the quantity demanded with an unchanged demand.
129) In the above figure, a change in quantity supplied with unchanged supply is represented by a 129)
movement from
A) point b to point e. B) point b to point a.
C) point e to point c. D) point a to point e.
130) In the above figure, if D2 is the demand curve, then a price of P3 would result in 130)
A) a surplus of Q3 - Q1. B) a shortage of Q4 - Q3.
C) a surplus of Q4 - Q0. D) a shortage of Q3 - Q1.
131) In the above figure, if D2 is the original demand curve for a normal good and income decreases, 131)
which price and quantity may result?
A) point c, with price P3 and quantity Q3 B) point a, with price P2 and quantity Q2
C) point b, with price P1 and quantity Q1 D) point d, with price P1 and quantity Q3
132) In the above figure, if D2 is the original demand curve and the price of a substitute in consumption 132)
rises, which price and quantity may result?
A) point c, with price P3 and quantity Q3 B) point d, with price P1 and quantity Q3
C) point a, with price P2 and quantity Q2 D) point b, with price P1 and quantity Q1
21
133) In the above figure, if D2 is the original demand curve and consumers come to expect that the price 133)
of the good will rise in the future, which price and quantity may result?
A) point a, with price P2 and quantity Q2 B) point c, with price P3 and quantity Q3
C) point d, with price P1 and quantityQ3 D) point b, with price P1 and quantity Q1.
134) In the above figure, if D2 is the original demand curve and the population falls, which price and 134)
quantity may result?
A) point d, with price P1 and quantity Q3 B) point c, with price P3 and quantity Q3
C) point b, with price P1 and quantity Q1 D) point a, with price P2 and quantity Q2
135) In the figure, the equilibrium price is initially $3 per bushel of wheat. If suppliers come to expect 135)
that the price of a bushel of wheat will rise in the future, but buyers do not, the current equilibrium
price will
A) not change.
B) fall.
C) rise.
D) perhaps rise, fall, or stay the same, depending on whether there are more demanders or
suppliers in the market.
136) In the figure, the equilibrium price is initially $3 per bushel of wheat. If buyers come to expect that 136)
the price of a bushel of wheat will rise in the future, but sellers do not, the current equilibrium price
will
A) rise.
B) fall.
C) not change.
D) perhaps rise, fall, or stay the same, depending on whether there are more demanders or
suppliers in the market.
22
137) Let Qd stand for the quantity demanded, Qs stand for the quantity supplied, and P stand for price. 137)
If Qd = 20 - 2P and Qs = 5 + 3P, then the equilibrium price is
A) $2. B) $3. C) $4. D) $1.
138) LetQd stand for the quantity demanded, Qs stand for the quantity supplied, and P stand for price. 138)
If Qd = 20 - 2P andQs = 5 + 3P, then the equilibrium quantity is
A) 14. B) 5. C) 20. D) 3.
141) If a decrease in the price of gasoline increases the demand for large cars, then 141)
A) gasoline and large cars are complements in consumption.
B) large cars are an inferior good.
C) gasoline is an inferior good.
D) gasoline and large cars are substitutes in consumption.
144) A rise in the price of a good causes producers to supply more of the good. This statement 144)
illustrates
A) the nature of an inferior good. B) the law of demand.
C) the law of supply. D) a change in supply.
23
145) The price of jet fuel falls. This fall shifts the 145)
A) supply curve of airplane trips rightward.
B) demand curve for airplane trips leftward.
C) demand curve for airplane trips rightward.
D) supply curve of airplane trips leftward.
146) If there is surplus of a good, then the quantity demanded ________ the quantity supplied and the 146)
price will ________.
A) is less than; rise B) is less than; fall
C) is greater than; fall D) is greater than; rise
147) Pizza and hamburgers are substitutes for consumers. A fall in the price of a pizza ________ the 147)
price of a hamburger and ________ the quantity of hamburgers.
A) raises; decreases B) lowers; decreases
C) raises; increases D) lowers; increases
148) How does an unusually warm winter affect the equilibrium price and quantity of gloves? 148)
A) It lowers both the price and the quantity.
B) It raises both the price and the quantity.
C) It raises the price and decreases the quantity.
D) It lowers the price and increases the quantity.
149) You notice that the price and quantity of wheat both decrease. This observation can be the result of 149)
the
A) demand curve for wheat shifting leftward.
B) supply curve of wheat shifting rightward.
C) demand curve for wheat shifting rightward.
D) supply curve of wheat shifting leftward.
150) A technological improvement lowers the cost of producing coffee. At the same time, consumers' 150)
preferences for coffee increase. The equilibrium price of coffee will
A) rise, fall, or stay the same, depending on the relative size of the shifts in the demand and
supply curves.
B) remain the same.
C) fall.
D) rise.
151) Which of the following definitely causes a fall in the equilibrium price? 151)
A) a decrease in both demand and supply
B) an increase in demand combined with a decrease in supply
C) a decrease in demand combined with an increase in supply
D) an increase in both demand and supply
24
152) CD players rise in price while pre-recorded audio tapes fall in price. The combined effect of these 152)
two changes is to create
A) a leftward shift of the demand curve for portable audio tape players, such as a Walkman.
B) a rightward shift of the demand curve for portable audio tape players, such as a Walkman.
C) a rightward shift of the supply curve for portable audio tape players, such as a Walkman.
D) a leftward shift of the supply curve of portable audio tape players, such as a Walkman.
153) Walkman Watch expects a recession to occur. Knowing that a Walkman is a normal good, you 153)
predict that the demand for a Walkman
A) will increase. B) might increase or decrease.
C) will decrease. D) will remain unchanged.
154) Wages for workers producing Walkmans and similar products will rise next year. Walkman Watch 154)
asks you to predict the effect of this change in next year's market for Walkmans. You predict that
the major effect will be that the
A) demand curve for a Walkman will shift leftward.
B) supply curve for a Walkman will shift rightward.
C) supply curve for a Walkman will shift leftward.
D) demand curve for a Walkman will shift rightward.
155) Producers of Walkmans are able to lower the wage rate that they pay to their workers. Walkman 155)
Watch asks you to predict the effect on the Walkmans. You predict that the
A) quantity supplied will decrease. B) price will rise.
C) supply curve will shift leftward. D) supply curve will shift rightward.
156) The wage rate paid by Walkman producers falls and at the same time the price of raw materials 156)
used in the production of Walkmans rises. You predict that the supply curve of Walkmans will
A) surely shift leftward. B) surely become steeper.
C) shift either leftward or rightward. D) surely shift rightward.
157) Walkmans play cassette tapes. Producers of Walkmans expect that a new technology for producing 157)
CD players will be available next year. Walkman Watch asks you to predict the effect of the new
technology on the market for Walkmans. You predict that
A) the demand curve for Walkmans will shift leftward and the price will fall.
B) the price will rise, and so will the quantity demanded.
C) the price will fall, and the quantity demanded will increase.
D) the demand curve for Walkmans will shift rightward and the price will rise.
158) Producers of Walkmans will be able to lower the wage rate that they pay to their workers. 158)
Walkman Watch asks you to predict the effects on the supply of Walkmans, and the price of a
Walkman. You predict that the supply curve shifts
A) leftward, and the price is constant. B) rightward, and the price falls.
C) leftward, and the price rises. D) rightward, and the price is constant.
25
Answer Key
Testname: UNTITLED3.TST
51) A
52) D
53) D
54) B
55) A
56) B
57) C
58) C
59) D
60) C
61) D
62) D
63) A
64) D
65) D
66) D
67) A
68) C
69) C
70) C
71) B
72) A
73) D
74) B
75) A
76) C
77) C
78) D
79) A
80) C
81) D
82) C
83) A
84) A
85) A
86) A
87) D
88) B
89) B
90) B
91) B
92) B
93) C
94) B
95) C
96) B
97) D
98) B
99) A
100) D
2
Answer Key
Testname: UNTITLED3.TST
101) A
102) D
103) B
104) A
105) C
106) D
107) B
108) A
109) B
110) A
111) A
112) D
113) D
114) C
115) D
116) A
117) B
118) D
119) B
120) B
121) B
122) D
123) C
124) A
125) C
126) B
127) A
128) B
129) B
130) A
131) C
132) A
133) B
134) C
135) C
136) A
137) B
138) A
139) D
140) A
141) A
142) B
143) C
144) C
145) A
146) B
147) B
148) A
149) A
150) A
3
Answer Key
Testname: UNTITLED3.TST
151) C
152) B
153) C
154) C
155) D
156) C
157) A
158) B
4
Chapter 4 - Elasticity - Sample Questions
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
4) When the quantity of coal supplied is measured in kilograms instead of pounds, the demand for 4)
coal becomes
A) more elastic. B) neither more nor less elastic.
C) less elastic. D) undefined.
6) If a rightward shift of the supply curve leads to a 6 percent decrease in the price and a 5 percent 6)
increase in the quantity demanded, the price elasticity of demand is
A) 0.83. B) 0.30. C) 0.60. D) 1.20.
7) A 10 percent increase in the quantity of spinach demanded results from a 20 percent decline in its 7)
price. The price elasticity of demand for spinach is
A) 0.5. B) 20.0. C) 2.0. D) 10.0.
8) A 20 percent increase in the quantity of pizza demanded results from a 10 percent decline in its 8)
price. The price elasticity of demand for pizza is
A) 2.0. B) 10.0. C) 0.5. D) 20.0.
1
9) Suppose a rise in the price of peaches from $5.50 to $6.50 per bushel decreases the quantity 9)
demanded from 12,500 to 11,500 bushels. The price elasticity of demand is
A) 0.5. B) 1000.0. C) 2.0. D) 1.0.
10) A fall in the price of lemons from $10.50 to $9.50 per bushel increases the quantity demanded from 10)
19,200 to 20,800 bushels. The price elasticity of demand is
A) 1.25. B) 1.20. C) 8.00. D) 0.80.
11) A fall in the price of cabbage from $10.50 to $9.50 per bushel increases the quantity demanded from 11)
18,800 to 21,200 bushels. The price elasticity of demand is
A) 1.20. B) 0.80. C) 8.00. D) 1.25.
12) Suppose that the quantity of root beer demanded declines from 103,000 gallons per week to 97,000 12)
gallons per week as a consequence of a 10 percent increase in the price of root beer. The price
elasticity of demand is
A) 1.66. B) 6.00. C) 0.60. D) 1.40.
13) The price elasticity of demand is 5.0 if a 10 percent increase in the price results in a ________ 13)
decrease in the quantity demanded.
A) 10 percent B) 50 percent C) 2 percent D) 5 percent
14) A shift of the supply curve of oil raises the price of oil from $9.50 a barrel to $10.50 a barrel and 14)
reduces the quantity demanded from 41 million to 39 million barrels a day. The price elasticity of
demand for oil is
A) 2 million barrels a day per dollar. B) 0.5.
C) $1 per 2 million barrels a day. D) 2.0.
15) The table above gives the demand schedule for snow peas. The price elasticity of demand between 15)
$6.00 and $7.00 per bushel is
A) 1.0. B) 5.0. C) 2.0. D) 2.6.
16) The table above gives the demand schedule for snow peas. If the price of snow peas falls from 16)
$4.00 to $3.00 a bushel, total revenue will
A) increase because demand is elastic in this range.
B) increase because demand is inelastic in this range.
C) decrease because demand is inelastic in this range.
D) decrease because demand is elastic in this range.
2
17) The table above gives the demand schedule for snow peas. The demand curve for snow peas is a 17)
straight line and so the elasticity of demand is
A) lower at higher prices. B) higher at higher prices.
C) 1 at all prices. D) the same at all prices but not 1.
18) The table above gives the demand schedule for peas. As you move from point A to point B, the 18)
price elasticity of demand equals
A) 0.50. B) 0.11. C) 9.09. D) 0.22.
19) The table above gives the demand schedule for peas. As you move from point C to point D, the 19)
price elasticity of demand is
A) 3.00. B) elastic. C) 0.75. D) unit elastic.
20) The table above gives the demand schedule for peas. Which of the following statements correctly 20)
describes the price elasticity of demand?
A) The price elasticity of demand is larger at point A than at point B.
B) The price elasticity of demand is constant because the slope is constant.
C) The price elasticity of demand increases moving from point A to point B to point C to point D
to point E.
D) The price elasticity of demand is larger at point D than at point A.
3
24) If the price elasticity is between 0 and 1, demand is 24)
A) inelastic. B) elastic. C) perfectly elastic. D) unit elastic.
26) A good with a vertical demand curve has a demand with 26)
A) infinite elasticity. B) unit elasticity.
C) zero elasticity. D) varying elasticity.
27) The demand curve in the figure above illustrates the demand for a product with 27)
A) unit price elasticity of demand at all prices.
B) a price elasticity of demand that is different at all prices.
C) infinite price elasticity of demand.
D) zero price elasticity of demand at all prices.
28) When the price elasticity of demand for a good equals 28)
A) 0, the demand curve is horizontal. B) 1, the demand curve is vertical.
C) 1, the demand curve is horizontal. D) 0, the demand curve is vertical.
29) A straight-line demand curve along which the price elasticity of demand equals 0 is one that 29)
A) forms a 45 degree angle with the vertical axis.
B) is horizontal.
C) is vertical.
D) forms a 60 degree angle with the horizontal axis.
4
30) The demand for movies is unit elastic if 30)
A) any increase in the price leads to a 1 percent decrease in the quantity demanded.
B) a 5 percent decrease in the price leads to an infinite increase in the quantity demanded.
C) a 5 percent increase in the price leads to a 5 percent decrease in the quantity demanded.
D) a 5 percent increase in the price leads to a 5 percent increase in total revenue.
33) The demand curve in the figure above illustrates a product whose demand has a price elasticity of 33)
demand equal to
A) infinity. B) zero at all prices.
C) a different amount at different prices. D) one at all prices.
5
34) The demand curve in the figure above illustrates the demand for a product with 34)
A) zero price elasticity of demand at all prices.
B) a price elasticity of demand that is different at all prices.
C) unit price elasticity of demand at all prices.
D) infinite price elasticity of demand.
36) On a straight-line downward-sloping demand curve, the maximum elasticity of demand occurs 36)
A) where it intersects the supply curve. B) at its vertical intercept.
C) at its horizontal intercept. D) at its midpoint.
37) A straight-line demand curve with negative slope intersects the horizontal axis at 100 tons per 37)
week. At the midpoint on the demand curve (corresponding to 50 tons per week) the price
elasticity of demand is
A) greater than 1.0. B) 0.5. C) 1.0. D) 0.
6
38) The figure above illustrates a linear demand curve. By comparing the price elasticity in the $2 to $4 38)
price range with the elasticity in the $8 to $10 range, you can conclude that the elasticity is
A) the same in both price ranges.
B) greater in the $8 to $10 range when the price rises but greater in the $2 to $4 range when the
price falls.
C) greater in the $8 to $10 range.
D) greater in the $2 to $4 range.
39) The figure above illustrates a linear demand curve. If the price falls from $8 to $6, 39)
A) the quantity demanded will increase by less than 20 percent.
B) total revenue will remain unchanged.
C) total revenue will increase.
D) total revenue will decrease.
40) The figure above illustrates a linear demand curve. In the range from $8 to $6, 40)
A) the demand is unit elastic.
B) the demand is price inelastic.
C) the demand is price elastic.
D) more information is needed to determine if the demand is price elastic, unit elastic, or
inelastic.
41) The figure above illustrates a linear demand curve. If the price falls from $6 to $4, 41)
A) total revenue will decrease.
B) total revenue will increase.
C) quantity demanded will increase by more than 100 percent.
D) total revenue will remain unchanged.
7
42) The figure above illustrates a linear demand curve. In the price range from $8 to $6, demand is 42)
________ and in the price range $4 to $2, demand is ________.
A) elastic; inelastic B) inelastic; inelastic
C) elastic; elastic D) inelastic; elastic
43) The figure above illustrates a linear demand curve. If the price rises from $6 to $8 demand is 43)
________ and if the price falls from $8 to $6 demand is ________.
A) inelastic; inelastic B) elastic; inelastic
C) elastic; elastic D) inelastic; elastic
44) The demand curve in the figure above illustrates the demand for a product with 44)
A) zero price elasticity of demand at all prices.
B) a price elasticity of demand that is different at all prices.
C) unit price elasticity of demand at all prices.
D) infinite price elasticity of demand.
45) A straight-line demand curve with negative slope intersects the horizontal axis at 200 tons per 45)
week. The point on the demand curve at which the price elasticity of demand is 1 corresponds to a
quantity demanded
A) that would be negative if a negative quantity demanded were possible.
B) of 100 tons.
C) of 0 tons.
D) of 200 tons.
8
46) Demand is inelastic if 46)
A) a leftward shift of the supply curve raises the total revenue.
B) the good in question has close substitutes.
C) the smaller angle between the vertical axis and the demand curve is less than 45 degrees.
D) large shifts of the supply curve lead to only small changes in price.
51) A shift of the supply curve of oil raises the price from $10 a barrel to $30 a barrel and reduces the 51)
quantity demanded from 40 million to 23 million barrels a day. You can conclude that the
A) supply of oil is elastic. B) supply of oil is inelastic.
C) demand for oil is inelastic. D) demand for oil is elastic.
52) A shift of the supply curve of oil raises the price from $10 a barrel to $15 a barrel and reduces the 52)
quantity demanded from 40 million to 15 million barrels a day. You can conclude that the
A) demand for oil is elastic. B) supply of oil is elastic.
C) supply of oil is inelastic. D) demand for oil is inelastic.
53) A leftward shift of the supply curve of cookies raises the price of a cookie from 10 cents to 20 cents 53)
and decreases the quantity demanded from 700,000 to 500,000. You can conclude that
A) the supply of cookies is elastic. B) the supply of cookies is inelastic.
C) the demand for cookies is elastic. D) the demand for cookies is inelastic.
9
54) The demand for a good is elastic if 54)
A) a decrease in its price results in a decrease in total revenue.
B) the good is a necessity.
C) an increase in its price results in an increase in total revenue.
D) an increase in its price results in a decrease in total revenue.
55) If a price decrease results in your expenditure on a good decreasing, your demand must be 55)
A) unit. B) inelastic. C) linear. D) elastic.
56) An increase in subway fares in New York City will boost your expenditures on subway rides if 56)
A) the supply of subway rides is elastic. B) the supply of subway rides is inelastic.
C) your demand for subway rides is inelastic. D) your demand for subway rides is elastic.
58) Of the following, demand is likely to be the least elastic for 58)
A) Toyota automobiles. B) compact disc players.
C) Ford automobiles. D) toothpicks.
59) Of the following, demand is likely to be the least elastic for 59)
A) pink grapefruit. B) iceberg lettuce.
C) insulin for diabetics. D) diamonds.
62) The route from Dallas to Mexico City is served by more than one airline. The demand for tickets 62)
from American Airlines for that route is probably
A) elastic and more elastic than the demand for all tickets for that route.
B) inelastic and less elastic than the demand for all tickets for that route.
C) elastic but less elastic than the demand for all tickets for that route.
D) inelastic but more elastic than the demand for all tickets for that route.
10
63) The elasticity of demand for Gateway computers is probably 63)
A) elastic and smaller than the elasticity of demand for computers overall.
B) inelastic and smaller than the elasticity of demand for computers overall.
C) inelastic but larger than the elasticity of demand for computers overall.
D) elastic and larger than the elasticity of demand for computers overall.
64) Aglets are the metal or plastic tips on shoelaces that make it easier to lace your shoes. The demand 64)
for aglets is probably
A) perfectly elastic. B) inelastic.
C) elastic but not perfectly elastic. D) unit elastic.
65) The cross elasticity of demand measures the responsiveness of the quantity demanded of a 65)
particular good to changes in the prices of
A) its complements but not its substitutes.
B) its substitutes but not its complements.
C) its substitutes and its complements.
D) neither its substitutes nor its complements.
67) If a rise in the price of good 1 decreases the quantity of good 2 demanded, 67)
A) the cross elasticity of demand is negative. B) good 1 is an inferior good.
C) good 2 is an inferior good. D) the cross elasticity of demand is positive.
68) The cross elasticity of demand between apples and oranges is defined as 68)
A) the price elasticity of demand for apples divided by the price elasticity of demand for oranges.
B) the change in the quantity of apples demanded divided by the change in the quantity of
oranges demanded.
C) the percentage change in the quantity of apples demanded divided by the percentage change
in the price of oranges.
D) the percentage change in the quantity of apples demanded divided by the percentage change
in the quantity of oranges demanded.
69) If the cross elasticity of demand between goods A and B is positive, 69)
A) the demands for A and B are both price elastic.
B) A and B are complements.
C) A and B are substitutes.
D) the demands for A and B are both price inelastic.
11
70) If the cross elasticity of demand between goods A and B is negative, 70)
A) the demands for A and B are both price elastic.
B) A and B are complements.
C) the demands for A and B are both price inelastic.
D) A and B are substitutes.
71) The greater the substitutability between Northwest timber and Southeast timber, the ________ is 71)
the cross elasticity of demand between timber from the two regions and the ________ is the
elasticity of demand for Northwest timber.
A) smaller; smaller B) larger; smaller C) smaller; larger D) larger; larger
73) If a rise in the price of good B increases the quantity demanded of good A, 73)
A) B is a substitute for A, but A is a complement to B.
B) A is a substitute for B, but B is a complement to A.
C) A and B are complements.
D) A and B are substitutes.
74) If a fall in the price of good A increases the quantity demanded of good B, 74)
A) A and B are substitutes.
B) A and B are complements.
C) B is a substitute for A, but A is a complement to B.
D) A is a substitute for B, but B is a complement to A.
75) The cross elasticity of demand between Coca-Cola and Pepsi-Cola is 75)
A) positive, that is, Coke and Pepsi are complements.
B) negative, that is, Coke and Pepsi are complements.
C) positive, that is, Coke and Pepsi are substitutes.
D) negative, that is, Coke and Pepsi are substitutes.
12
77) The income elasticity of demand is the percentage change in 77)
A) income divided by the percentage change in price.
B) the quantity demanded divided by the percentage change in income.
C) the price divided by the percentage change in income.
D) income divided by the percentage change in quantity demanded.
80) To say that turnips are inferior goods means that the income elasticity 80)
A) is definitely greater than 1.
B) is negative.
C) is positive but could be greater than or less then (or equal to) 1.
D) is definitely between 0 and 1.
81) An increase in Abigail's income decreases her demand for cassette tapes. For her, cassette tapes are 81)
A) a complement to any good. B) a normal good.
C) an inferior good. D) a substitute good.
82) Goods whose income elasticities are negative are called 82)
A) superior goods. B) inferior goods. C) normal goods. D) complements.
83) A 10 percent increase in income has caused a 5 percent decrease in the quantity demanded. The 83)
income elasticity is
A) 0.5. B) -2.0. C) 2.0. D) -0.5.
84) Deb's income has just risen from $950 per week to $1,050 per week. As a result, she decides to 84)
increase the number of movies she attends each month by 5 percent. Her demand for movies is
A) income inelastic. B) income elastic.
C) represented by a vertical line. D) represented by a horizontal line.
85) Fred's income has just risen from $940 per week to $1,060 per week. As a result, he decides to 85)
purchase 9 percent more steak per week. The income elasticity of Fred's demand for steak is
A) 0.75. B) 1.33. C) 0.90. D) 1.00.
86) Joan's income has just risen from $940 per week to $1,060 per week. As a result, she decides to 86)
purchase 12 percent more lettuce per week. The income elasticity of Joan's demand for lettuce is
A) 1.33. B) 0.90. C) 1.00. D) 0.75.
13
87) A 10 percent increase in income causes the quantity of orange juice demanded to increase from 87)
19,200 to 20,800 gallons. The income elasticity of demand for orange juice is
A) 0.8. B) 1.2. C) 1.0. D) 0.5.
88) A 10 percent increase in income causes the quantity of apple juice demanded to increase from 88)
18,800 to 21,200 gallons. The income elasticity of demand for apple juice is
A) 0.5. B) 1.0. C) 1.2. D) 0.8.
90) Of the following, which one is most likely to have a negative income elasticity of demand? 90)
A) shoes B) tennis balls
C) inter-city bus travel D) frozen yogurt
14
91) The above figure shows a good 91)
A) whose income elasticity is greater than 0 but less than 1.
B) that is an inferior good over all income ranges.
C) whose income elasticity always exceeds 1.0.
D) that is a normal good over some income ranges and an inferior good over other ranges.
15
93) The increase in the demand for widgets, shown in the figure above, is caused by an increase in the 93)
price of McBoover devices. Therefore,
A) widgets and McBoover devices are substitutes.
B) widgets and McBoover devices are complements.
C) McBoover devices are a normal good.
D) widgets are a normal good.
94) The increase in the demand for widgets, shown in the figure above, is caused by a decrease in the 94)
price of McBoover devices. Therefore,
A) widgets and McBoover devices are substitutes.
B) widgets are a normal good.
C) McBoover devices are a normal good.
D) widgets and McBoover devices are complements.
95) The increase in the demand for widgets, shown in the figure above, is caused by an increase in the 95)
price of McBoover devices from $9 to $11. Therefore, the cross-price elasticity for these two
products is
A) 0.5. B) -2.0. C) 2.0. D) -0.5.
96) The increase in the demand for widgets, shown in the figure above, is caused by a decrease in the 96)
price of McBoover devices from $11 to $9. Therefore, the cross-price elasticity for these two
products is
A) -2.0. B) 2.0. C) -0.5. D) 0.5.
97) The increase in the demand for widgets, shown in the figure above, is caused by an increase in 97)
average incomes. Therefore, widgets
A) are a normal good. B) are elastically demanded.
C) are an inferior good. D) are inelastically demanded.
16
98) The increase in the demand for widgets, shown in the figure above, is caused by an increase in 98)
average incomes from $28,500 per year to $31,500 per year. Therefore, the income elasticity of
demand for widgets is
A) 4. B) 3/4. C) 1/4. D) 4/3.
99) As income rises, the share of income spent on food in the United States 99)
A) rises. B) remains constant at 15 percent.
C) falls. D) remains constant at 33 percent.
102) On most days the price of a rose is $1 and 80 roses are purchased. On Valentine's Day the demand 102)
increases so that the price of a rose rises to $2 and 320 roses are purchased. Therefore, the price
elasticity of
A) demand for roses is about 1.8. B) supply of roses is about 1.8.
C) demand for roses is about 0.55. D) supply of roses is about 0.55.
104) If a 1 percent decrease in the price of a pound of oranges results in a smaller percentage decrease in 104)
the quantity supplied,
A) supply is inelastic. B) demand is inelastic.
C) demand is elastic. D) supply is elastic.
105) If a 1 percent decrease in the price of a pound of squash results in a larger percentage decrease in 105)
the quantity supplied,
A) demand is inelastic. B) demand is elastic.
C) supply is inelastic. D) supply is elastic.
106) If at a given moment, no matter what the price, producers cannot change the quantity supplied, the 106)
momentary supply
A) has infinite elasticity. B) has unit elasticity.
C) does not exist. D) has zero elasticity.
17
107) If a rise in the price of oranges from $7 to $9 a bushel, caused by a shift of the demand curve, 107)
increases the quantity of bushels supplied from 4,500 to 5,500 bushels, the
A) demand for oranges is elastic. B) supply of oranges is elastic.
C) demand for oranges is inelastic. D) supply of oranges is inelastic.
108) If a shift in the demand curve that raises the price of oranges from $7 to $9 a bushel increases the 108)
quantity of oranges supplied from 4,000 bushels to 6,000 bushels, the
A) supply of oranges is elastic. B) supply of oranges is inelastic.
C) demand for oranges is inelastic. D) demand for oranges is elastic.
109) A rise in the price of cabbage from $14 to $18 per bushel, caused by a shift of the demand curve, 109)
increases the quantity supplied from 4,000 to 6,000 bushels. The elasticity of supply is
A) 1.6. B) 1.0. C) 0.6. D) 0.8.
110) If a 5 percent increase in the price results in a 9 percent increase in quantity supplied, the elasticity 110)
of supply is
A) 0.30. B) 0.55. C) 1.80. D) 1.20.
111) If a 5 percent increase in price results in a 3 percent increase in the quantity supplied, the elasticity 111)
of supply is
A) 1.20. B) 0.60. C) 1.66. D) 0.30.
112) A vertical supply curve indicates an elasticity of supply that equals 112)
A) 0. B) infinity. C) 1. D) -1.
113) A horizontal supply curve indicates an elasticity of supply that equals 113)
A) 0. B) infinity. C) 1. D) -1.
114) Suppose a 10 percent increase in the price of textbooks decreases the quantity demanded by 20 114)
percent. The elasticity of demand for textbooks is
A) 0.2. B) 5.0. C) 10.0. D) 2.0.
115) The quantity of new cars increases by 10 percent. If the price elasticity of demand for new cars is 115)
1.25, the price of new cars will fall by
A) 8 percent. B) 10 percent. C) 2.5 percent. D) 12.5 percent.
116) Suppose the price elasticity of demand for oil is 0.1. In order to lower the price of oil by 20 percent, 116)
the quantity of oil supplied must be increased by
A) 20 percent. B) 2 percent. C) 0.2 percent. D) 200 percent.
117) Moving up (to the left) along a linear demand curve, the price elasticity of demand 117)
A) at first increases and then decreases. B) increases.
C) decreases. D) does not change.
118) If the price elasticity of demand for a product equals 1, as its price rises the 118)
A) total revenue increases. B) quantity demanded does not change.
C) total revenue does not change. D) quantity demanded increases.
18
119) A rise in the price of a product lowers the total revenue from the product if the 119)
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.
120) If a 4 percent rise in the price of peanut butter lowers the total revenue received by the producers 120)
of peanut butter by 4 percent, the demand for peanut butter
A) is inelastic. B) is elastic.
C) is unit elastic. D) has an elasticity of 2.0.
121) A product is likely to have a price elasticity of demand that exceeds 1 when 121)
A) its price falls.
B) it is a necessity.
C) it has close substitutes.
D) the percentage of income spent on it decreases.
122) Which of the following is likely to have the smallest price elasticity of demand? 122)
A) a new Ford automobile B) a new automobile
C) a new Ford Mustang D) an automobile
123) A 10 percent decrease in the price of a Pepsi decreases the demand for a Coca-Cola by 50 percent. 123)
The cross elasticity of demand between a Pepsi and Coca-Cola is
A) 5. B) 10. C) 0.20. D) 50.
124) A fall in the price of X from $12 to $8 causes an increase in the quantity of Y demanded from 900 to 124)
1,100 units. What is the cross elasticity of demand between X and Y?
A) 2 B) -0.5 C) -2 D) 0.5
125) A fall in the price of X from $12 to $8 causes an increase in the quantity of Y demanded from 900 to 125)
1,100 units. X and Y are
A) complements. B) normal goods. C) substitutes. D) inferior goods.
126) A 10 percent decrease in income decreases the quantity demanded of compact discs by 3 percent. 126)
The income elasticity of demand for compact discs is
A) 10.0. B) 3.3. C) -0.3. D) 0.3.
19
127) In the figure above, when the price of a disk is $B, total revenue is shown in the graph by area 127)
A) FCDE. B) ADE0. C) AGF0. D) BCF0.
128) The above figure illustrates the demand curve for a good. The good has 128)
A) many substitutes. B) no substitutes.
C) only one substitute. D) only a few substitutes.
20
129) The elasticity of demand along the demand curve shown in the above figure is constant and equal 129)
to 1. Thus,
A) area 0BCF equals area 0AGF. B) area 0BCF equals area 0ADE.
C) area 0BCF equals area FGDE. D) area ABCG equals area 0AGF.
130) The above figure shows a linear (straight-line) demand curve. Start at point A and then moving to 130)
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.
21
Answer Key
Testname: UNTITLED2.TST
1) B
2) D
3) C
4) B
5) A
6) A
7) A
8) A
9) A
10) D
11) A
12) C
13) B
14) B
15) D
16) C
17) B
18) C
19) D
20) A
21) A
22) B
23) C
24) A
25) D
26) C
27) D
28) D
29) C
30) C
31) C
32) B
33) A
34) C
35) A
36) B
37) C
38) C
39) C
40) C
41) D
42) A
43) C
44) B
45) B
46) A
47) C
48) C
49) B
50) D
1
Answer Key
Testname: UNTITLED2.TST
51) C
52) A
53) D
54) D
55) B
56) C
57) D
58) D
59) C
60) A
61) C
62) A
63) D
64) B
65) C
66) D
67) A
68) C
69) C
70) B
71) D
72) A
73) D
74) B
75) C
76) C
77) B
78) B
79) B
80) B
81) C
82) B
83) D
84) A
85) A
86) C
87) A
88) C
89) D
90) C
91) A
92) D
93) A
94) D
95) C
96) A
97) A
98) A
99) C
100) A
2
Answer Key
Testname: UNTITLED2.TST
101) B
102) B
103) A
104) A
105) D
106) D
107) D
108) A
109) A
110) C
111) B
112) A
113) B
114) D
115) A
116) B
117) B
118) C
119) C
120) B
121) C
122) D
123) A
124) B
125) A
126) D
127) D
128) B
129) B
130) D
3
Exam Four - Sample Questions
Chapters 12-14
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
3) Which of the following market types has all firms selling products so identical that buyers do not care from
which firm they buy?
A) perfect competition B) oligopoly
C) monopolistic competition D) monopoly
6) Which of the following market types has the fewest number of firms?
A) perfect competition B) monopoly
C) monopolistic competition D) oligopoly
7) Which of the following market types has a large number of firms that sell similar but slightly different
products?
A) perfect competition B) oligopoly
C) monopolistic competition D) monopoly
8) Which of the following market types has only a few competing firms?
A) perfect competition B) monopolistic competition
C) monopoly D) oligopoly
1
9) In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in
the long run. Which of the following is an example of a perfectly competitive firm's short-run decision?
A) what price to charge buyers for the product
B) whether or not to enter or exit an industry
C) the profit-maximizing level of output
D) how much to spend on advertising and sales promotion
10) In perfect competition, a firm maximizes profit in the short run by deciding
A) how much output to produce. B) whether or not to enter a market.
C) what price to charge. D) how much capital to use.
11) In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in
the long run. Which of the following is an example of a perfectly competitive firm's long-run decision?
A) what price to charge buyers for the product
B) how much to spend on advertising and sales promotion
C) the profit-maximizing level of output
D) whether or not to enter or exit an industry
13) A large number of sellers all selling an identical product implies which of the following?
A) horizontal market supply curves
B) large losses by all sellers
C) the inability of any seller to change the price of the product
D) market chaos
15) If demand for a seller's product is perfectly elastic, which of the following is correct?
A) There is no incentive to sell at a price below the market price.
B) It will not sell any output at all if it tries to price its product above the market price.
C) There are a very large number of perfect substitutes for the seller's product.
D) All of the above answers are correct.
2
16) One of the requirements for a monopoly is that
A) the product cannot be produced by small firms.
B) there are several close substitutes for the product.
C) there is a unique product with no close substitutes.
D) products are high priced.
23) If the technology for producing a good enables one firm to meet the entire market demand at a lower price than
two or more firms could, then that firm has
A) a legal barrier to entry. B) a natural monopoly.
C) increasing average total costs. D) patented the market.
24) Which of the following goods is the best example of a natural monopoly?
A) natural gas B) diamonds C) a patented good D) first-class mail
3
25) Which of the following is the best example of a natural monopoly?
A) owning the only licensed taxicab in town
B) the United States Postal Service
C) ownership of the only ferry across Puget Sound for twenty miles
D) the cable television company in your hometown
26) Which barrier to entry is an exclusive right granted to the author or composer of a literary, musical, dramatic
or artistic work?
A) government license B) patent C) public franchise D) copyright
27) Patents
A) stimulate innovation.
B) encourage the invention of new products and production methods.
C) are exclusive rights granted to the inventor of a product or service.
D) All of the above answers are correct.
29) Recently in a small city, building contractors lobbied the city council to pass a law requiring all people
working on residential dwellings be licensed by the city. Why would the contractors lobby for this
requirement?
A) to reduce the cost of building dwellings
B) There is no good explanation for this type of lobbying.
C) to guarantee that work on dwellings is of high quality
D) to create a legal barrier to entry
31) An industry with a large number of firms, differentiated products, and free entry and exit is called
A) oligopoly. B) monopoly.
C) monopolistic competition. D) perfect competition.
32) In monopolistic competition, each firm supplies a small part of the market. This occurs because
A) there are barriers to entry. B) firms produce differentiated products.
C) there are no barriers to entry. D) there are a large number of firms.
4
34) Which of the following is different about perfect competition and monopolistic competition?
A) Firms in monopolistic competition compete on their product's price as well as its quality and marketing.
B) In monopolistic competition, entry into the industry is unblocked.
C) Perfect competition has a large number of independently acting sellers.
D) Only firms in monopolistic competition can earn an economic profit in the short run.
37) All of the following are examples of product differentiation in monopolistic competition EXCEPT
A) new and improved packaging.
B) lower price.
C) acceptance of more credit cards than the competition.
D) location of the retail store.
39) As the degree of product differentiation increases among the products sold in a monopolistically competitive
industry, which of the following occurs?
A) The cost of production falls.
B) The amount of marketing expenditures decreases for each firm.
C) The demand curve for each seller's product becomes more horizontal.
D) Each seller's demand becomes more inelastic.
5
42) If a monopolistically competitive seller can convince buyers that its product is of better quality and value than
products sold by rival firms,
A) demand increases. B) the firm gains more control over its price.
C) demand becomes more inelastic. D) all of the above occur.
43) If you have found the percentage of the value of sales accounted for by the four largest firms in an industry, you
have found the
A) elasticity of supply value. B) Herfindahl-Hirschman Index.
C) elasticity of demand value. D) four-firm concentration ratio.
44) Which of the following four-firm concentration ratios would be the best indication of a perfectly competitive
industry?
A) 100 percent B) 78 percent C) 0.25 percent D) 31 percent
45) Which of the following four-firm concentration ratios is consistent with monopolistic competition?
A) 0 percent B) 25 percent C) 100 percent D) 75 percent
6
Answer Key
Testname: EXAM FOUR SAMPLE QUESTIONS.TST
1) Answer: B
2) Answer: B
3) Answer: A
4) Answer: D
5) Answer: D
6) Answer: B
7) Answer: C
8) Answer: D
9) Answer: C
10) Answer: A
11) Answer: D
12) Answer: A
13) Answer: C
14) Answer: C
15) Answer: D
16) Answer: C
17) Answer: D
18) Answer: D
19) Answer: A
20) Answer: A
21) Answer: D
22) Answer: B
23) Answer: B
24) Answer: A
25) Answer: D
26) Answer: D
27) Answer: D
28) Answer: C
29) Answer: D
30) Answer: D
31) Answer: C
32) Answer: D
33) Answer: A
34) Answer: A
35) Answer: A
36) Answer: B
37) Answer: B
38) Answer: B
39) Answer: D
40) Answer: C
1
Answer Key
Testname: EXAM FOUR SAMPLE QUESTIONS.TST
41) Answer: D
42) Answer: D
43) Answer: D
44) Answer: C
45) Answer: B
2
National Income
Question 1.
GNP at MP = ______
(A) GDPMP – Depreciation
(B) GDPMP + Depreciation
(C) GDPMP ÷ Depreciation
(D) GDPMP + Net factor income from abroad
Question 2.
NDPMP = ________
(A) GDPMP – Depreciation
(B) GDPFC + Net factor income from abroad
(C) NNPFC + Net indirect taxes
(D) All of these
Question 3.
NNPMP = ________
(A) GNPMP – Depreciation
(B) NDPMP + Net factor income from abroad
(C) NNPFC + Net indirect taxes
(D) All of these
Question 4.
GDPFC =
(A) GDPMP – Net indirect taxes
(B) GDPMP + Net indirect taxes
(C) GDPMP + Subsidies
(D) GDPMP – Indirect taxes
Question 5.
NDPFC =
(A) GDPFC – Indirect taxes
(B) GDPFC – Depreciation
(C) GDPFC + Economic subsidy
(D) All of these
Question 7.
Which of the following is the method of measuring National Income?
(A) Income method
(B) Product method
(C) Expenditure method
(D) All of these
Question 8.
Why are the intermediate goods not included in the National Income while measuring
National Income?
(A) To avoid double accounting
(B) It decreases income
(C) Intermediate goods are not good
(D) All of these
Question 9.
Who had made the first attempt at National Income Accounting?
(A) Prof. D.R.Gadgill
(B) Simon Kuznets
(C) J.M.Keynes
(D) Gregory King
Question 10.
Calculation of National Income at Market Prices is known as _________
(A) Money income
(B) Real income
(C) Non-monetary income
(D) None of these
Question 12.
Which of the following items are excluded from GNP measurement?
(A) Purely financial transactions
(B) Transfer of used goods and non-market goods and services
(C) Illegal activities and the value of leisure
(D) All of these
Question 13.
The subject of the Study of Macro Economics is:
(a) The Principle of National Income
(b) The Principle of Consumer
(c) The Principle of Producer
(d) None of these
Question 14.
Macro Economics Studies:
(a) Employment opportunities in the economy
(b) Theory of supply of Commodities
(c) Elasticity of demand in Scooter
(d) Price of wheat in the market
Question 15.
General Price Level is studied in:
(a) Micro Economics
(b) Macro Economics
(c) Both (a) and (b)
(d) None of these
Question 18.
Which of the following is sPktock ?
(a) Wealth
(b) Saving
(c) Export
(d) Profit
Question 19.
Which one of the following is included in circular flow?
(a) Real Flow
(b) Money Flow
(c) Both (a) and (b)
(d) None of these
Question 20.
Which one of the following is included in ‘Stock’?
(a) Quantity of Money
(b) Wealth
(c) Quantity of wheat stored in a warehouse
(d) All the above
Question 22.
Which of the following is included in real flow?
(a) Flow of Goods
(b) Flow of Services
(c) Both (a) and (b)
(d) None of these
Question 23.
Which services are provided by families to a firm?
(a) Land
(b) Labour
(c) Capital and Enterprises
(d) All the above
Question 24.
Which one is included in the three-sector model?
(a) Family
(b) Firm
(c) Government
(d) All of these
Question 25.
Which one is included in the four-sector model?
(a) Family, Firm, Industry
(b) Family, Firm, Government
(c) Family, Firm, Government, Foreign Sector
(d) None of the above
Question 27.
The primary sector includes:
(a) Agriculture
(b) Retail trading
(c) Small Industries
(d) All the these
Question 28.
For a four sector or open economy the condition for equilibrium is:
(a) Savings + taxes + Imports = Investment + govt, expenditure + exports
(b) Total Leakages = Total Injections
(c) Aggregate output = Aggregate Expenditure
(d) All of these
Question 29.
Which service is included in Tertiary Sector?
(a) Mining
(b) Construction
(c) Communication
(d) Animal Husbandry
Question 30.
Which of the following is not flow?
(a) Capital
(b) Income
(c) Investment
(d) Depreciation
Question 32.
Which one is true?
(a) GNP = GDP + Depreciation
(b) NNP = GNP + Depreciation
(c) NNP = GNP – Depreciation
(d) GNP = NNP – Depreciation
Question 33.
GNPMp =?
(a) GDPMp – Depreciation
(b) GDPMp + Net Factor Income from Abroad
(c) GNPMp + Subsidy
(d) None of the above
Question 34.
NNPMP = ?
(a) GNPMp – Depreciation
(b) GNPMp + Depreciation
(c) GNPMp + Indirect Tax
(d) None of the above
Question 35.
Depreciation expenses are included in:
(a) GNPMp
(b) NNPMp
(c) NNPFC
(d) None of these
Question 37.
Net National Income at Factor Cost is called?
(a) National Income
(b) Gross Investment
(c) Domestic Income
(d) None of these
Question 38.
Which one is included in National Income?
(a) Rent, Wage, Interest
(b) Rent, Wage, Salary
(c) Rent, Profit, Interest
(d) Rent, Wage, Salary, Interest, Profit
Question 39.
What is the consumption of fixed capital called?
(a) Capital formation
(b) Depreciation
(c) Investment
(d) All of these
Question 40.
Which of the following is correct?
(a) Disposable Income = Personal Income – Direct Taxes
(b) Disposable Income = Private Income – Direct Taxes
(c) Disposable Income = Personal Income – Indirect Taxes
(d) Disposable Income = Private Income – Indirect Taxes
Question 42.
The market value of all final goods and services produced in an economy over a
year is called :
(a) Gross National Product
(b) National Income
(c) Gross Domestic Product
(d) Net National Product
Question 43.
Which method is adopted in measuring National Income?
(a) Production Method
(b) Income Method
(c) Expenditure Method
(d) All of these
Question 44.
Which sector is included in an economy?
(a) Primary
(b) Secondary
(c) Tertiary
(d) All of these
Question 45.
Which of the following is not included in the calculation of Gross National Product?
(a) Purchase and Sale of Old commodities
(b) Intermediate Commodities
(c) (a) and (b) both
(d) None of the above
Question 47.
Which one is included in Primary Sector?
(a) Land
(b) Forest
(c) Mining
(d) All these
Question 48.
To include the value of goods or services more than one time while calculating
National Income is called :
(a) Single Counting
(b) Double Counting
(c) Multiple Counting
(d) None of these
Question 49.
Which one is a component of profit?
(a) Dividend
(b) Undistributed Profit
(c) Corporate Profit Tax
(d) All of these
Question 50.
Which one is included in National Income?
(a) Transfer Earnings
(b) Sale proceeds of Shares and Bonds
(c) Black Money
(d) None of the Above
Question 52.
Which one is the limitation of Macro Economics?
(a) Collective Economic Paradox
(b) Ignores Individual Units
(c) Both (a) and (b)
(d) None of these
Question 53.
Macro-economics is the study of:
(a) Principle or Theories of national income
(b) Consumer’s theory
(c) Production theory
(d) None of these.
Question 54.
Out of the following which is not a flow:
(a) Capital
(b) Income
(c) Investment
(d) Depreciation.
Question 55.
From the following which method is used for measuring national income:
(a) Production method
(b) Income method
(c) Expenditure method
(d) All of the above.
Question 57.
Total national income divided by total population is known as:
(a) Private income
(b) Personal income
(c) Personal spendable income
(d) Per capita income.
Question 58.
Production enterprises are divided in:
(a) Two sectors
(b) Three sectors
(c) Four sectors
(d) Five sectors.
MCQs
1. Short-run production function shows the functional relation between ……….for a short
period.
a. Cost and revenue
b. Materials and matters
c. Inputs and output
d. Functions and equations
2. In the ………all factors or inputs become variable and no input is fixed.
a. Short run
b. long-run
c. law of variable proportions
d. law of diminishing marginal returns
3. The law of variable proportions is also called as………..
a. Law of diminishing marginal returns
b. Law of increasing marginal returns
c. Law of returns
d. Law of proportionate returns
4. The law of variable proportions depends on the assumption …………..
a. Heterogeneity of factor
b. Homogeneity of factor
c. Changing technology
d. Varied types of goods
5. In …….. phase of the laws of returns to scale, TP rises at an increasing rate, also MP and
AP are rising.
a. Increasing
b. Decreasing
c. Constant
d. Returning
6. In ………phase of the laws of returns to scale, TP rises as decreasing rate because MP
starts diminishing, but AP rises.
a. Increasing returns
b. Decreasing returns
c. Constant returns
Prepared by Dr. D P Sawant, Dept of Eco, Sheth NKTT College, Thane 1|P a ge
d. Returning
7. In this phase of the laws of returns to scale, TP and MP are falling. MP is negative
a. Increasing returns
b. Decreasing returns
c. Constant returns
d. Negative returns
8. Iso-quant measures the …………
a. Marginal Rate of Technical Substitution between labour and capital
b. Marginal Rate of Substitution between two goods
c. Marginal utility of money
d. Marginal Efficiency of capital
9. Iso-quant is always ………. Sloping
a. Downward
b. Upward
c. Concave
d. Positive
10. Two iso-quants …….. intersect each other
a. Can
b. Always
c. Do not
d. May
11. Iso-quants are ……… to each other.
a. Opposite
b. Not parallel
c. Parallel
d. Tangent
12. Iso-quant is oval shaped, so the slope of Iso-quant is ……… at its extreme points.
a. Positive
b. Negative
c. Constant
d. Diminishing
13. Marginal rate of Technical Substitution is the ……..of an IQ
a. Slope
b. Function
c. Curve
d. Price
14. …….…are the lines derived by joining the points on the isoquants where marginal product
of factors is zero.
a. Iso cost lines
b. Price lines
c. Ridge line
d. Bridge line
Prepared by Dr. D P Sawant, Dept of Eco, Sheth NKTT College, Thane 2|P a ge
15. …………is defined as the locus or joining of the points of tangency between the isoquants
and the iso cost lines.
a. Expansion path
b. Ridge line
c. Iso cost line
d. Price line
16. Economies of scale are the cost………..
a. Disadvantages
b. Structure
c. Analysis
d. Advantages
17. ……….are the cost advantages enjoyed by the firm which expands its production.
a. Internal economies
b. External economies
c. Internal differences
d. Monopoly and power
18. ……………is called the optimal combination of factor inputs or producer’s equilibrium
a. Least-cost Factor Combination
b. List of cost and factors
c. Linear cost function
d. Law of variable proportions
19. …………IQ assumes zero substitutability of factors of production.
a. Left sided
b. Right angled
c. Downward
d. Concave
20. ……….. isoquant assumes limited substitutability of capital and labor.
a. Kinked isoquant
b. Right angled
c. Downward
d. Convex
21. Economies of scope refers to the lowering of the cost of production of a …………..firm.
a. Single product
b. multi-product
c. microscopic
d. macro
22. Technical economies are the examples of ………… economies of scale.
a. Production
b. Managerial
c. By-product
d. Inventory
23. Development of transportation and marketing facilities are ……….. economies.
a. External
Prepared by Dr. D P Sawant, Dept of Eco, Sheth NKTT College, Thane 3|P a ge
b. Internal
c. Micro
d. Firm’s
24. According to IQ analysis, the firm maximizes its profit, when the…………..is equal to the
price ratio of labor and capital.
a. MRTS of labour and capital
b. MRS of land and labour
c. MRTS of all costs
d. MRS of two goods
25. ……………shows all the possible combinations of labor and capital that can produce
different levels of production
a. Demand schedule
b. Supply schedule
c. Iso-quant map
d. Ridge line
Prepared by Dr. D P Sawant, Dept of Eco, Sheth NKTT College, Thane 4|P a ge