PRINCIPLES OF MICROECONOMICS INSTRUCTOR: MSc.

NGUYEN VIET HOA

CHAPTER 2: THE MARKET FORCES OF SUPPLY AND

DEMAND 1. Which of the following statements is correct?
A. If demand increases and supply decreases, equilibrium price will fall.
B. If supply increases and demand decreases, equilibrium price will fall.
C. If demand decreases and supply increases, equilibrium price will rise.
D. If supply declines and demand remains constant, equilibrium price will fall.
2. If an increase in the price of blue jeans leads to an increase in the demand for tennis
shoes, then blue jeans and tennis shoes are
A. complements
B. substitutes
C. inferior goods
D. normal goods
3. The law of demand states that an increase in the price of a good
A. increases the supply of that good.
B. decreases the quantity demanded for that good.
C. decreases the demand for that good.
D. increases the quantity supplied of that good.
4. The law of supply states that an increase in the price of a good
A. increases the quantity supplied for that good.
B. increases the supply of that good.
C. decreases the demand for that good.
D. decreases the quantity demanded for that good.
5. If an increase in consumer income leads to a decrease in the demand for camping
equipment, then camping equipment is
A. a normal good.
B. an inferior good.
C. a substitute good.
D. a complementary good.
6. Which of the following shifts the demand for watches to the
right? A. an increase in the price of watches
B. a decrease in the price of watch batteries if watch batteries and watches are
complements
C. a decrease in consumer incomes if watches are a normal good
D. a decrease in the price of watches
7. Which of the following will cause the demand curve for product A to shift to the left?
 A. population growth that causes an expansion in the number of persons consuming A

B. an increase in money income if A is a normal good

C. a decrease in the price of complementary product C
D. an increase in money income if A is an inferior good
8. All of the following shift the supply of watches to the right
except

A. An advance in the technology used to manufacture watches.

B. an increase in the price of watches.
C. a decrease in the wage of workers employed to manufacture watches.

D. manufacturers' expectation of lower watch prices in the future.

9. If the price of a good is above the equilibrium price,
A. there is a surplus and the price will rise.
B. there is a shortage and the price will fall.
C. there is a shortage and the price will rise.
D. there is a surplus and the price will fall.
10. If the price of a good is below the equilibrium price,
A. there is a shortage and the price will rise.
B. the quantity demanded is equal to the quantity supplied and the price remains
unchanged.
C. there is a shortage and the price will fall.
D. there is a surplus and the price will rise.
11. If the price of a good is equal to the equilibrium price,
A. the quantity demanded is equal to the quantity supplied and the price remains
unchanged.
B. there is a shortage and the price will fall.
C. there is a surplus and the price will rise.
D. there is a shortage and the price will rise.
12. An increase (rightward shift) in the demand for a good will tend to
cause

A. an increase in the equilibrium price and quantity.

B. an increase in the equilibrium price and a decrease in the equilibrium quantity.
C. a decrease in the equilibrium price and an increase in the equilibrium quantity.
D. a decrease in the equilibrium price and quantity.
13. A decrease (leftward shift) in the supply for a good will tend to
cause
A. an increase in the equilibrium price and quantity.
B. a decrease in the equilibrium price and an increase in the equilibrium quantity

C. a decrease in the equilibrium price and quantity.

D. an increase in the equilibrium price and a decrease in the equilibrium quantity.

14. Suppose there is an increase in both the supply and demand for personal
computers. In the market for personal computers, we would expect
A. the equilibrium quantity to rise and the equilibrium price to rise.
B. the equilibrium quantity to rise and the equilibrium price to fall.
C. the change in the equilibrium quantity to be ambiguous and the equilibrium price to
rise.

D. the equilibrium quantity to rise and the change in the equilibrium price to be
ambiguous.

15. Suppose there is an increase in both the supply and demand for personal
computers. Further, suppose the supply of personal computers increases more than
demand for personal computers. In the market for personal computers, we would expect

A. the change in the equilibrium quantity to be ambiguous and the equilibrium price to fall.

B. the equilibrium quantity to rise and the equilibrium price to rise.

C. the equilibrium quantity to rise and the change in the equilibrium price to be
ambiguous.
D. the equilibrium quantity to rise and the equilibrium price to fall.
16. Suppose a frost destroys much of the Florida orange crop. At the same time, suppose
consumer tastes shift toward orange juice. What would we expect to happen to the
equilibrium price and quantity in the market for orange juice?
A. Price will decrease; quantity is ambiguous.
B. Price will increase; quantity will increase.
C. Price will increase; quantity will decrease.
D. Price will increase; quantity is ambiguous.
17. Suppose consumer tastes shift toward the consumption of apples. Which of the
following statements is an accurate description of the impact of this event on the market
for apples?
A. There is an increase in the quantity demanded of apples and in the supply for
apples.
B. There is an increase in the demand and supply of apples.
C. There is an increase in the demand for apples and a decrease in the supply of apples.
D. There is an increase in the demand for apples and an increase in the quantity
 supplied of apples.
18. Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near
future. What would we expect to happen to the equilibrium price and quantity in the
market for wheat today?
A. The impact on both price and quantity is ambiguous.

B. Price will decrease; quantity is ambiguous.

C. Price will increase; quantity is ambiguous.
D. Price will increase; quantity will increase.
19. Which of the following statements is true about the impact of an increase in the price
of lettuce?
A. Both the demand for lettuce will decrease and the equilibrium price and quantity of
salad dressing will fall.
B. The supply of lettuce will decrease.
C. The demand for lettuce will decrease.
D. The equilibrium price and quantity of salad dressing will fall.
E. The equilibrium price and quantity of salad dressing will rise.
20. When the demand and supply curves both shift leftward, which of the following
happens?
A. The equilibrium quantity increases and any change in the equilibrium price cannot be
determined.
B. The equilibrium price falls and any change in the equilibrium quantity cannot be
determined.
C. The equilibrium quantity decreases and any change in the equilibrium price
cannot be determined.
D. The equilibrium price increases and any change in the equilibrium quantity cannot be
determined.
21. An inferior good is one for which an increase in income causes a(n)
A. decrease in supply.
B. increase in demand.
C. increase in supply.
D. decrease in demand.
22. An increase in demand means that
A. when price falls consumers are willing to purchase greater quantities of the good.

B. consumers are willing to purchase greater quantities of the good at any given
price.

C. when the price rises, consumers are willing to purchase greater quantities of the good.
 D. consumers cause the price drop by buying greater quantities of the good.
23. If products C and D are close substitutes, an increase in the price of C will
A. tend to cause the price of D to fall.
B. shift the demand curve of C to the left and the demand curve of D to the right.

C. shift the demand curve of D to the right.

D. shift the demand curves of both products to the right.
24. If good B is a substitute for good A, and the price of good B increases
A. the quantity demanded of good A will decrease.
B. the demand for good A will increase.
C. the price of good A will decrease.
D. the quantity demanded of good B will increase.
25. When the price of good X increases
A. the quantity supplied of good X will increase.
B. the quantity supplied of good X will decrease.
C. the supply curve for good X will shift to the right.
D. the supply curve for good X will shift to the left.
26. A new technology that helps firms reduce production costs will cause a
A. movement down and left along the supply curve.
B. movement up and right along the supply curve.
C. shift to the right of the supply curve.
D. shift to the left of the supply curve.
27. Suppose that a scientific study just published demonstrates that eating apples makes
people much healthier. How will this affect the equilibrium price and quantity in the
market?
A. The equilibrium price will increase and the equilibrium quantity will decrease.
B. The equilibrium price will decrease and the equilibrium quantity will increase.
C. Both the equilibrium quantity and price will increase.
D. Both the equilibrium quantity and price will decrease.
28. If the price in a market happens to be below equilibrium, there will be a ________ in
the market, and the price will tend to ________.
A. surplus, fall
B. surplus, rise
C. shortage, fall
D. shortage, rise
29. If the price in a market happens to be above equilibrium, there will be a ________ in
the market, and the price will tend to ________.
A. surplus, fall
 B. surplus, rise

C. shortage, fall
D. shortage, rise
30. Suppose the price of corn syrup increases. Given that corn syrup is a major
ingredient in the production of soft drinks, how will this affect the equilibrium price and
quantity in the soft drink market?
A. The equilibrium price will increase and the equilibrium quantity will
decrease.
B. The equilibrium price will decrease and the equilibrium quantity will increase.
C. Both the equilibrium quantity and price will increase.
D. Both the equilibrium quantity and price will decrease.
31. If price is above the equilibrium level, competition among sellers will result in
A. surplus will increase quantity demanded and decrease quantity supplied.

B. shortage will decrease quantity demanded and increase quantity supplied.

C. surplus will decrease quantity demanded and increase quantity supplied.

D. shortage will increase quantity demanded and decrease quantity supplied.

32. An increase in demand will increase equilibrium price to a greater
extent A. if the product is a normal good.
B. if the product is an inferior good.
C. the less elastic the supply curve.
D. the more elastic the supply curve.
33. At the current price there is a shortage of a product. We would expect price to
A. increase, quantity demanded to increase, and quantity supplied to decrease.

B. increase, quantity demanded to decrease, and quantity supplied to increase.

C. increase, quantity demanded to increase, and quantity supplied to increase.

D. decrease, quantity demanded to increase, and quantity supplied to decrease.

34. For a price ceiling to be binding on the market, the government must set it
A. above the equilibrium price.
B. below the equilibrium price.
C. precisely at the equilibrium price.
D. at any price because all price ceilings are binding constraints.
35. If a price ceiling is in place and it is binding, the market will
A. remain in equilibrium, unaffected by the price floor.
B. experience a shortage.
C. experience a surplus.
 D. adjust the equilibrium price until it is equal to the price ceiling.

36. A price floor

A. always determines the price at which a good must be sold.
B. sets a legal maximum on the price at which a good can be sold.
C. is not a binding constraint if it is set above the equilibrium price.
D. sets a legal minimum on the price at which a good can be sold.
37. If a price floor is in place and it is not binding, the market will
A. remain in equilibrium, unaffected by the price floor.
B. experience a shortage.
C. experience a surplus.
D. adjust the equilibrium price until it is equal to the price floor.
38. If a price floor is in place and it is binding, the market will
A. remain in equilibrium, unaffected by the price floor.
B. experience a shortage.
C. experience a surplus.
D. adjust the equilibrium price until it is equal to the price floor.
39. Suppose that a regulation is in place that does not allow the price of a good to exceed
$5. If this price is above the equilibrium point in the market, this is an example of a

A. binding price ceiling.

B. non-binding price ceiling.
C. binding price floor.
D. non-binding price floor.
40. Suppose the equilibrium price for apartments is €500 per month and the government
imposes rent controls of €250. Which of the following is unlikely to occur as a result of
the rent controls?
A. There may be long lines of buyers waiting for apartments.
B. Landlords may discriminate among apartment renters.
C. There will be a shortage of housing.
D. The quality of apartments will improve.
41. Which of the following workers would be most likely to find it more difficult to get a
job after a rise in the minimum wage rate?
A. A teenage worker with few qualifications.
B. A manual worker with fifteen years of work experience.
C. A professional worker with a university degree.
D. All three are equally likely to find it difficult to get a job.

42. Which side of the market is more likely to lobby the government for a price
 floor? A. The buyers
B. The sellers
C. Both buyers and sellers desire a price floor.
D. Neither buyers nor sellers desire a price floor.
43. Within the supply-demand model, a tax imposed on the sellers of a good shifts the
A. demand curve downward by the size of the tax per unit.
B. supply curve downward by the size of the tax per unit.
C. demand curve upward by the size of the tax per unit.
D. supply curve upward by the size of the tax per unit.
44. Within the supply-demand model, a tax imposed on the buyers of a good shifts the
A. demand curve downward by the size of the tax per unit.
B. supply curve downward by the size of the tax per unit.
C. demand curve upward by the size of the tax per unit.
D. supply curve upward by the size of the tax per unit.
45. Which of the following takes place when a tax is placed on a good?
A. a decrease in the price buyers pay, an increase in the price sellers receive, and a
decrease in the quantity sold
B. an increase in the price buyers pay, a decrease in the price sellers receive, and an
increase in the quantity sold
C. a decrease in the price buyers pay, an increase in the price sellers receive, and an
increase in the quantity sold
D. an increase in the price buyers pay, a decrease in the price sellers receive, and a
decrease in the quantity sold
46. A tax of €1.00 per litre on petrol
A. places a tax wedge of €1.00 between the price the buyers pay and the price the
sellers receive.
B. decreases the price the sellers receive by €1.00 per litre.
C. increases the price the buyers pay by €1.00 per litre.
D. increases the price the buyers pay by precisely €0.50 and reduces the price received by
sellers by precisely €0.50.
47. Suppose that the demand function of good X is QDx = n.PX + m.PY + k. If X and Y are
substitutes then
A. n.m = 0

B. n.m > 0
C. n.m < 0
D. Not enough information to conclude
48. Engel curve reflects the relationship between
 A. Price and quantity demanded
B. Price and quantity supplied
C. Income and quantity demanded
D. Income and quantity supplied
49. Engel curve is
A. Upward sloping
B. Downward sloping
C. U-shaped
D. Backward bending
50. If A and B are complementary goods, what will happen to the price of good B when
the price of good A increases?
A. Price of good B will increase
B. Price of good B will decrease
C. Price of good B will stay the same
D. Cannot conclude about price of good B
51. Which of the following would not shift the demand curve for beef?

A. a widely publicized study that indicates beef increases one's cholesterol

B. a reduction in the price of cattle feed

C. an effective advertising campaign by pork producers
D. a change in the incomes of beef consumers
52. Setting a binding price floor will
A. increase consumer surplus and increase producer surplus
B. increase consumer surplus and decrease producer surplus
C. decrease consumer surplus and decrease producer surplus
D. decrease consumer surplus and increase producer surplus
53. Setting a binding price ceiling will
A. increase consumer surplus and increase producer surplus
B. increase consumer surplus and decrease producer surplus
C. decrease consumer surplus and decrease producer surplus
D. decrease consumer surplus and increase producer surplus

CHAPTER 3: ELASTICITIES
1. The price elasticity of demand is defined as
A. the percentage change in the quantity demanded divided by the percentage change in
income.
B. the percentage change in income divided by the percentage change in the quantity
demanded.
 C. the percentage change in the quantity demanded of a good divided by the
percentage change in the price of that good.
D. the percentage change in price of a good divided by the percentage change in the
quantity demanded of that good.
2. If a small percentage increase in the price of a good greatly reduces the quantity
demanded for that good, the demand for that good is
A. income inelastic. C. price elastic. B. price inelastic. D. unit price elastic.
3. In general, a flat demand curve is more likely to be
A. price elastic. C. price inelastic. B. unit price elastic. D. none of the above.
4. Which of the following would cause a demand curve for a good to be price
inelastic?
A. The good is a luxury.
B. There are a great number of substitutes for the good.
C. The good is a necessity.
D. The good is an inferior good.
5. The demand for which of the following is likely to be the most price inelastic?

A. Transportation C. bus tickets B. taxi rides D. airline tickets

6. If demand curve is linear (a straight line), then price elasticity of demand is
A. elastic in the upper portion and inelastic in the lower portion.
B. inelastic in the upper portion and elastic in the lower portion.
C. inelastic throughout.
D. constant along the demand curve.
7. If the slope of a demand curve is constant, then the price elasticity of demand for the
good will
A. be constant.
B. become more elastic as price increases.
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PRINCIPLES OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

C. become more elastic as price decreases.

D. There is not enough information to conclude.
8. If demand for a good is perfectly inelastic, then the demand curve will
be A. a horizontal line.
B. a vertical line.
C. a straight line with a constant negative slope.
D. flatter and flatter as the price of the good falls.
9. A perfectly elastic demand is represented graphically by a
 A. relatively steep demand curve.
B. relatively flat demand curve.
C. vertical demand curve.
D. horizontal demand curve.
10. Supply curve determines price entirely when
A. demand is perfectly inelastic.
B. demand is perfectly elastic.
C. supply is perfectly inelastic.
D. supply is perfectly elastic.
11. For perfectly price inelastic supply
A. supply determines price solely.
B. demand determines price solely.
C. only a government can set the price.
D. either supply or demand may set the price.
12. Demand is said to be inelastic if the
A. Quantity demanded changes proportionately more than the price.
B. Quantity demanded changes proportionately less than the price.
C. Price changes proportionately more than income.
D. Quantity demanded changes proportionately the same as the price.
13. A decrease in supply (shift to the left) will increase total revenue in that market if
A. demand is price inelastic
B. supply is price elastic.
C. supply is price inelastic.
D. demand is price elastic.
14. If an increase in the price of a good has no impact on the total revenue in that
market, demand must be
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PRINCIPLES OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

A. price inelastic.
B. unit price elastic
C. price elastic.
D. All of the above.
15. In which of the following instances will total revenue decline?
A. price rises and supply is elastic
B. price falls and demand is elastic
C. price rises and demand is inelastic
 D. price rises and demand is elastic
16. Technological improvements in agriculture that shift the supply of agricultural
commodities to the right tend to
A. increase total revenue to farmers as a whole because the demand for food is elastic.
B. increase total revenue to farmers as a whole because the demand for food is
inelastic. C. reduce total revenue to farmers as a whole because the demand for food is
elastic.
D. reduce total revenue to farmers as a whole because the demand for food is inelastic.
17. If the demand for farm products is price inelastic, a good harvest will cause farm
revenues to
A. increase.
B. decrease.
C. be unchanged.
D. either increase or decrease, depending on what happens to supply.
18. Assume that the demand for wheat is inelastic and that the supply of wheat is
perfectly inelastic. Then, a poor harvest will result in which of the following?

A. an increase in wheat farmers' revenue

B. an increase in the demand for wheat because it is in short supply
C. a fall in the price of wheat
D. an increase in the momentary supply of wheat
19. When the supply curve of corn shifts leftward, farmers' revenue ____because
_____. A. decreases; supply is elastic
B. increases; supply is inelastic
C. decreases; demand is elastic
D. increases; demand is inelastic
20. What effect will an increase in the price have on total revenue if demand is elastic?
A. Total revenue will increase.

B. Total revenue will decrease.

C. Total revenue will first decrease and then increase.
D. Total revenue will remain unchanged.
21. When the percentage change in price is greater than the resulting percentage change
in quantity demanded
A. a decrease in price will increase total revenue
B. demand may be either elastic or inelastic
C. an increase in price will increase total revenue
D. demand is elastic
22. The price elasticity of demand tends to be more elastic
A. at points further up and to the left along the demand curve.
B. at points further down and to the right along the demand curve.
C. when the demand curve becomes steeper.
D. when the demand curve is vertical.
23. If consumers think that there are very few substitutes for a good, then
A. supply would tend to be price elastic.
B. demand would tend to be price inelastic.
C. demand would tend to be price elastic.
D. supply would tend to be price inelastic.
24. A good will tend to have an inelastic demand if
A. the good has many close substitutes.
B. the good is a luxury.
C. the market is defined very broadly.
D. the time horizon is long.
25. The elasticity of demand for a product is likely to be greater
A. if the product is a necessity, rather than a luxury good
B. the greater the amount of time over which buyers adjust to a price change
C. the smaller the proportion of one's income spent on the product
D. the smaller the number of substitute products available
26. A firm can sell more or less output at a constant price. Demand is thus
A. perfectly inelastic
B. perfectly elastic
C. relatively inelastic
D. relatively elastic
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PRINCIPLES OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

27. Ceteris paribus, the fewer substitutes there are for a good the more ________ the
demand for the good, and the longer period of time people have to adjust to a price
change of a non-durable good, the more __________ the demand is.
A. elastic; elastic
B. elastic; inelastic
C. inelastic; elastic
D. inelastic; inelastic
28. The Illinois Central Railroad once asked the Illinois Commerce Commission for
permission to increase its commuter ticket fares by 20%. The railroad argued that
declining revenues made this rate increase essential. Opponents of the rate increase
contended that the railroad's revenues would fall because of the rate hike. It can be
concluded that
A. both groups felt that the demand was elastic but for different reasons
B. both groups felt that the demand was inelastic but for different reasons
C. the railroad felt that the demand for passenger service was inelastic and opponents of
the rate increase felt it was elastic
D. the railroad felt that the demand for passenger service was elastic and opponents of the
rate increase felt it was inelastic
29. Which of the following statements is not correct?
A. If the relative change in price is greater than the relative change in the quantity
demanded associated with it, demand is inelastic.
B. In the range of prices in which demand is elastic, total revenue will diminish as price
decreases.
C. Total revenue will not change if price varies within a range where the elasticity
coefficient is unity.
D. Demand tends to be elastic at high prices and inelastic at low prices.
30. If the price elasticity of demand for a good is -1.5, then a 5% decrease in the price
of the good will cause a
A. 7.5% increase in the quantity demanded.
B. 7.5% decrease in the quantity demanded.
C. 3.33% increase in the quantity demanded.
D. 3.33% decrease in the quantity demanded.
31. Suppose you produce tie-dyed t-shirts. You notice that when you charge $10 per
shirt, you sell 200 shirts. Also, when you raise the price to $12, you sell 150 shirts. As the
price
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PRINCIPLES OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

goes up from $10 to $12, your total revenue __________, therefore the demand for tie
dyed t-shirts must be
A. increases; elastic. C. decreases; elastic. B. increases; inelastic. D. decreases; inelastic.
32. Suppose that at a price of €30 per month, there are 30,000 subscribers to cable
television in Small Town. If Small Town Cablevision raises its price to €40 per month,
the number of subscribers will fall to 20,000. Using the midpoint method for calculating
the elasticity, what is the price elasticity of demand for cable TV in Small Town? A. -1.4
C. -0.75
 B. -0.66 D. -2.0
33. If a firm needs to decrease its total revenue, the firm should ________ the price if the
demand for its product is ________.
A. raise, inelastic C. drop, elastic B. raise, elastic D. drop, unit elastic 34. Suppose that
General Cars increases the price of its Cadiclap model from $13,500 to $16,500. As a
result of this, the quantity demanded of the Cadiclap model decreases from 600,000 to
400,000 per year. Find the price elasticity of demand of the Cadiclap using the mid-point
method.
A. -3.0 C. -2.0 B. -0.5 D. -0.3 35. A government wants to reduce electricity
consumption by 5%. The price elasticity of demand for electricity is ‐0.5. The
government must ___ the price of electricity by __ A. raise; 10.0% C. raise; 0.1% B. raise;
1.0% D. lower; 0.5% 36. Suppose that consumers' incomes rise by 3% and this causes
demand for a good to increase by 4.5%. What is the income elasticity of demand?
A. 1.50 C. -1.50 B. 0.67 D. -0.67 37. Suppose that a good has an income elasticity of
demand of -2.0. This means that the good is
A. Normal good C. A substitute B. Inferior good D. A complement 38. The income
elasticity of demand
A. measures the change in income necessary for a given change in quantity demanded.
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PRINCIPLES OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

B. measures the responsiveness of income to changes in quantity demanded. C. measures

the responsiveness of quantity demanded to changes in income. D. is the ratio of the
percentage change in income to the percentage change in quantity demanded.
39. Cross‐price elasticity of demand measures the response in the
A. price of a good to a change in the quantity of another good demanded.
B. income of consumers to the change in the price of goods.
C. quantity of one good demanded when the quantity demanded of another good changes.
D. quantity of one good demanded to a change in the price of another good. 40. The price of
good A increases from $4.50 to $5.50. This causes the quantity demanded of good B to
increase from 900 to 1100 units per month. Find the cross-price elasticity of demand
using the mid-point method.
A. -1.0 C. +1.0 B. +2.0 D. -2.0 41. Suppose that two goods have a cross-price elasticity
of demand of -0.8. This means that these goods are
A. Normal C. substitutes B. Inferior D. complements 42. If the income elasticity of
demand for a good is negative, it must be A. an elastic good. C. a normal good. B. an
inferior good. D. a luxury good. 43. If the cross-price elasticity between two goods is
negative, they are likely to be A. substitutes. C. necessities. B. complements. D. luxuries.
44. The cross-price elasticity of demand between good X and good Y is 0.5. Given this
information, which of the following statements is TRUE?
A. The demand for goods X and Y is inelastic.
B. Goods X and Y are substitutes.
C. Goods X and Y are complements.
D. The demand for goods X and Y is income inelastic.
45. If the income elasticity of demand for cereal is -0.25 and the income elasticity of
demand for peaches is 1.5 then
A. cereal and peaches are substitutes.
B. cereal and peaches are complements.

C. cereal is a normal good and peaches are an inferior good.

D. cereal is an inferior good and peaches are normal goods.
46. If a supply curve for a good is price elastic, then
A. the quantity supplied is sensitive to changes in the price of that good. B.
the quantity demanded is insensitive to changes in the price of that good. C. the
quantity demanded is sensitive to changes in the price of that good. D. the
quantity supplied is insensitive to changes in the price of that good. 47. In
general, a steep supply curve is more likely to be
A. price elastic. C. price inelastic. B. unit price elastic. D. none of the above. 48. If a
fisherman must sell all of his daily catch before it spoils for whatever price he is offered,
once the fish are caught the fisherman's price elasticity of supply for fresh fish is A. zero.
B. infinite.
C. one.
D. unable to be determined from this information.
49. The price elasticity of supply measures how
A. easily labor and capital can be substituted for one another in production.
B. responsive the quantity supplied of X is to changes in the price of X. C.
responsive the quantity supplied of Y is to changes in the price of X. D.
responsive quantity supplied is to a change in incomes.
50. If supply is price inelastic, the value of the price elasticity of supply must be
A. infinite C. less than 1 B. zero D. greater than 1
51. The main determinant of elasticity of supply is the
A. number of close substitutes for the product available to consumers.
B. amount of time the producer has to adjust inputs in response to a price change.
C. urgency of consumer wants for the product.
D. number of users for the product.
52. If the supply of product X is perfectly elastic, an increase in its demand will raise
 A. equilibrium quantity but reduce equilibrium price
B. equilibrium quantity but equilibrium price will be unchanged
C. equilibrium price but reduce equilibrium quantity
D. equilibrium price but equilibrium quantity will be unchanged
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PRINCIPLES OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

53. Suppose that a 20% increase in the price of normal good Y causes a 10% decline in
the quantity demanded of normal good X. The coefficient of cross elasticity of demand is
A. negative and therefore these goods are substitutes.
B. negative and therefore these goods are complements.
C. positive and therefore these goods are substitutes.
D. positive and therefore these goods are complements.
54. The larger the positive cross-price elasticity coefficient of demand between products
X and Y, the
A. stronger their complementariness
B. greater their substitutability
C. smaller the price elasticity of demand for both products
D. the less sensitive purchases of each are to increases in income
55. Which of the following statements is not correct?
A. The larger an item is in one's budget, the greater the price elasticity of demand. B. The
price elasticity of demand is greater for necessities than it is for luxuries. C. The larger the
number of close substitutes available, the greater will be the price elasticity of demand for
a particular product.
D. The price elasticity of demand is greater the longer the time period under consideration
in terms of non-durable goods.
56. Which of the following elasticities represents the movement along demand curve?
A. Cross-price elasticity of demand
B. Income elasticity of demand
C. Price elasticity of demand
D. Price elasticity of supply
57. The surplus caused by a binding price floor will be greatest if
A. demand is inelastic and supply is elastic.
B. supply is inelastic and demand is elastic.
C. both supply and demand are elastic.
D. both supply and demand are inelastic.
58. Assume the demand for a product is perfectly inelastic. If government establishes a
price floor that is $2 above the equilibrium price, the resulting
A. shortage will be greater the more elastic the supply
B. shortage will be greater the less elastic the supply
C. surplus will be greater the more elastic the supply

D. surplus will be greater the less elastic the supply

59. Other things equal, the shortage associated with a price ceiling will be greater the
A. smaller the elasticity of both demand and supply.
B. greater the elasticity of both demand and supply.
C. greater the elasticity of supply and the smaller the elasticity of demand.

D. greater the elasticity of demand and the smaller the elasticity of supply.

60. Which of the following statements about the burden of a tax is correct? A. The tax
burden generated from a tax placed on a good that consumers perceive to be a necessity will
fall most heavily on the sellers of the good.
B. The burden of a tax falls on the side of the market (buyers or sellers) from which it is
collected.
C. The distribution of the burden of a tax is determined by the relative elasticities of supply
and demand and is not determined by legislation.
D. The tax burden falls most heavily on the side of the market (buyers or sellers) that is
most willing to leave the market when price movements are unfavorable to them. 61. A tax is
imposed on the sale of a product. As long as neither the supply nor the demand is
perfectly elastic or inelastic,
A. the price paid by the consumer will increase by more than the amount of the tax
B. the price paid by the consumer will increase by less than the amount of the tax
C. there will be no change in the price paid by the consumer
D. the price paid by the consumer will increase by the full amount of the tax
62. The tax incidence is determined by the
A. federal government in all cases
B. greed of the seller
C. level of government which imposes the tax
D. price elasticities of supply and demand
63. A tax placed on a good that is a necessity will likely generate a tax burden
that A. falls more heavily on sellers.
B. falls entirely on sellers.
C. falls more heavily on buyers.
D. is evenly distributed between buyers and sellers.
64. The burden of a tax falls more heavily on the buyers in a market
 when A. both supply and demand are inelastic.
B. demand is elastic and supply is inelastic.
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PRINCIPLES OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA

C. both supply and demand are elastic.

D. demand is inelastic and supply is elastic.
65. The burden of a tax falls more heavily on the sellers in a market
when A. both supply and demand are elastic.
B. both supply and demand are inelastic.
C. demand is inelastic and supply is elastic.
D. demand is elastic and supply is inelastic.
66. Which of the following leads to the buyers paying all of a tax?
A. The demand is perfectly elastic
B. The supply is unit elastic
C. The demand is perfectly inelastic
D. The supply is perfectly inelastic
67. Which of the following leads to the producers paying all of a tax?
A. The supply is perfectly inelastic
B. The demand is unit elastic
C. The supply is perfectly elastic
D. The demand is perfectly inelastic
68. The amount of a tax paid by the buyer will be larger
A. the more inelastic are both the supply and demand
B. the more elastic are both the supply and demand
C. the more inelastic the demand and the more elastic the supply
D. the more elastic the demand and the more inelastic the supply
69. If a tax is imposed on a good and the incidence of the tax ends up falling more heavily
on the sellers than on the buyers, we can tell that
A. demand is more elastic than supply for that good.
B. demand is less elastic than supply for that good.
C. the tax was imposed on the buyers of the good.
D. the tax was imposed on the sellers of the good.
70. If a tax is imposed on a good and the incidence of the tax ends up falling more heavily
on the buyers than on the sellers, we can tell that
A. demand is more elastic than supply for that good.
B. demand is less elastic than supply for that good.
C. the tax was imposed on the buyers of the good.
D. the tax was imposed on the sellers of the good.
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