SEMINAR 1

1. The principle without which economics would not exist is:

A) The incentive principle
B) The scarcity principle
C) The cost-benefit principle
D) The principle of comparative advantage

2. Which of the following is a pitfall in reasoning?

A) Measuring costs and benefits in dollar amounts
B) Weighing costs and benefits at the margin
C) Ignoring implicit costs
D) All of the above

3. The cost-benefit problem states that:

A) People should take an action only if the total costs are at least as great as the total benefits
B) People should take an action only if the extra costs are at least as great as the extra benefits
C) People should take an action only if the total benefits are at least as great as the total costs
D) People should take an action only if the extra benefits are at least as great as the extra costs

4. Which of the following is included in the opportunity cost of going to college?

1. Tuition 2. Textbooks 3. The student's time, which can be used to work instead 4. Food expenses
A) 1 and 2
B) 1, 2, and 3
C) 3 only
D) All of the above

5. Economic models help economists because:

A) They help capture the essential elements of a particular situation
B) They help complicate real-life situations
C) They help economists analyze more than one problem at the same time
D) None of the above

6. A market can accurately be described as:

A) a place to buy things
B) a place to sell things
C) the process by which prices adjust to reconcile the allocation of resources
D) a place where buyers and sellers meet

7. In economics, the cost of something is:

a. the dollar amount of obtaining it.
b. always measured in units of time given up to get it.
c. what you give up to get it.
d. often impossible to quantify, even in principle.
e. the dollar cost of producing it.

8. High school athletes who skip college to become highly paid professional athletes:
a. obviously do not understand the value of a college education.
b. usually do so because they cannot get into college.
c. understand that the opportunity cost of attending college is very high.
d. are not making a rational decision because the marginal benefits of college outweigh the marginal costs of
college for high school athletes.
e. understand that the opportunity cost of becoming a professional athlete is very high.

9. A rational decision-maker takes an action only if the:

a. marginal benefit is less than the marginal cost.
b. marginal benefit is greater than the marginal cost.
c. total benefit is maximized.
d. total cost is minimized.
e. the opportunity cost is less than the marginal cost
10. Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800 once the
repairs are complete. Mike discovers that, in addition to the $500 he has already spent, he needs to make one
more repair, which will cost another $400, in order to make the boat worth $800 to potential buyers. What
should he do?
a. He should sell the boat as it is now for $300.
b. He should sell the boat for no less than the $900 he has spent on it.
c. He should complete the repairs and sell the boat for $800.
d. It does not matter which action he takes; the outcome is the same either way.
e. He should sell the boat for the $500 he has already spent.

11. The term used to describe a situation in which markets do not allocate resources efficiently is:
a. economic meltdown.
b. market failure.
c. government failure.
d. equilibrium.
e. disequilibrium.

12. Laws that restrict smoking cigarettes in public places are examples of government intervention that is
intended to reduce:
a. efficiency.
b. equality.
c. externalities.
d. productivity.
e. equity.

13. Which of the following is the most correct statement about the relationship between inflation and
unemployment?
a. In the short run, falling inflation is associated with falling unemployment.
b. In the short run, falling inflation is associated with rising unemployment.
c. In the short run, falling inflation is unrelated to unemployment.
d. In the long run, falling inflation is associated with falling unemployment.
e. In the long run, falling inflation is associated with rising unemployment.
SEMINAR 2

1. Which of the following is an example of movement along a supply curve?

a. The quantity of apples offered for sale increases as the price of apples rises.
b. An apple orchard burns down in an accidental fire, decreasing the number of suppliers on the market.
c. Thanks to good weather conditions, apple growers enjoy a bumper crop this year.
d. The price of pears doubles, increasing demand for apples.
e. The price of fertilizer increases, making it more expensive to produce apples.

2. Samantha runs a small business selling birthday cakes. She gets an order for 10 cakes due next week. She
decides to hire an assistant to help her bake the 10 cakes. Samantha's need for an assistant is an example of
a. derived supply
b. derived demand
c. the law of demand
d. a non-price determinant of demand
e. a non-price determinant of supply

3. A bike shop in a small town has received a shipment of 10 new bicycles. The shop offers the bikes for sale at
a price of $300 each. At this price, however, there are only two people in town who are willing to buy a bicycle.
This situation can be described as
a. disequilibrium
b. shortage
c. surplus
d. equilibrium
e. both a and c are correct

5. Suppose that the local government invests in a new, very efficient fleet of buses. Now, it is easy and
affordable to get from one place to another without having your own car. What change is most likely to result
from the new bus service?
a. The supply curve shifts to the right.
b. The supply curve shifts to the left.
c. The demand curve shifts to the right.
d. The demand curve shifts to the left.
e. None of the above.

6. At the end of a hot day, ten people want to buy a glass of lemonade. However, the local lemonade stand only
has five glasses of lemonade left. The lemonade stand operator sells the remaining five glasses to the five people
who are willing and able to pay the most. This is an example of
a. surplus
b. rationing by price
c. the signaling function of markets
d. a shift in the demand curve
e. a lottery

7. The price of milk doubles, but the quantity demanded changes very little. Which of the following would not
be a likely explanation for this phenomenon?
a. There isn't a good substitute for milk.
b. People feel they need milk, rather than just wanting it.
c. Demand for milk is highly price elastic.
d. Milk is not a very big part of most people's budget.
e. All of the above are likely explanations for this phenomenon.

8. Suppose a study finds that as people's incomes rise, they tend to buy fewer subway tokens because they are
more likely to have a car. This would mean that subway tokens are
a. normal goods
b. inferior goods
c. price elastic goods
d. price taker goods
e. supply elastic goods
9. The more money people make, the more pairs of shoes they buy. We can conclude that
a. Shoes are a normal good.
b. Shoes are an inferior good.
c. Demand for shoes is highly price elastic.
d. Demand for shoes has an elasticity between 0 and 1.
e. All of the above.

10. The government of the major oil-producing country is overthrown in a coup. In the confusion created by the
coup, the country stops producing oil for two months. Which of the following effects would you expect to see as
a result of this sequence of events?
a. The oil supply decreases.
b. the supply curve shifts to the left.
c. the supply curve shifts to the right.
d. Both a and b would be expected.
e. Both a and c would be expected.

11. Which of the following situations cannot exist at market equilibrium?

a. scarcity
b. shortage
c. inadequacy
d. rationing
e. signaling

12. Which of the following income elasticity’s could correspond to a normal good that is income inelastic?
a. 0.5
b. 1.5
c. – 1.5
d. 2.0
e. -0.5

13. Every week you buy rice, wheat, and oatmeal. Suddenly the price of rice rises. You decide to cut down on
your rice purchases and get more wheat and oatmeal instead. This is an illustration of
a. an income effect
b. a substitution effect
c. a normal good effect
d. a Giffen good
e. a price inelastic good

14. A population subsists largely on potatoes, plus small amounts of dairy products and vegetables. The price of
potatoes rises, driving many poor families deeper into poverty. As a result, these families are forced to eliminate
dairy products and vegetables from their daily diet and start eating even more potatoes than they did before. In
this example potatoes are
a. normal goods
b. inferior goods
c. giffen goods
d. both a and c are correct.
e. both b and c are correct.

15. You get a notice in the middle of the semester stating that your monthly dorm fee is being doubled, effective
immediately. You don't want to pay the higher fee, but it's not practical for you to move out of the dorm mid-
semester. You decide to pay the extra charge now, and look for new housing option after exams are over. Which
of the following statements best describes your situation?
a. The dorm room is a Giffen good.
b. The dorm room is an inferior good.
c. Your short run demand for dorm housing is relatively inelastic.
d. Your long run demand for dorm housing is less elastic than your short run demand.
e. None of the above.
16. Which of the following goods is most likely to have high price elasticity of demand?
a. A staple food.
b. A good that forms a very small part of a person’s total budget.
c. A good for which there are many close substitutes.
d. A vital medicine.
e. None of the above.

17. Jake sells hot dogs at an outdoor stand. There are several other hot dog stands in the vicinity. All the hot dog
sellers are price takers. Which of the following statements is true about the demand for Jake’s hot dogs?
a. Demand for Jake’s hot dogs is perfectly inelastic.
b. Demand for Jake’s hot dogs is perfectly elastic.
c. Demand for Jake’s hot dogs can be represented as a vertical line.
d. Demand for Jake’s hot dogs can be represented as a downward sloping line.
e. None of the above.

18. Suppose that the price elasticity of supply for toothpaste is 0.2. If the price of
toothpaste increases by 30%, what would we expect to happen to the quantity of
toothpaste supplied?
a. increase by 3%
b. decrease by 5%
c. increase by 60%
d. decrease by 15%
e. increase by 6%

19. Suppose a grocery store normally sells 100 cartons of milk per day and the price elasticity of demand for
milk is 1.7. If the store lowers the price of milk by 10%, about how many cartons of milk will it then sell per
day?
a. 117
b. 83
c. 85
d. 100
e. 101.7

20. Which of the following is most likely to be an inferior good?

a. eyeglasses
b. airplane tickets
c. caviar
d. opera tickets
e. discount bus tickets

21. Jessica experienced an increase in her income by 10% this year. In the same year, Jessica's quantity
demanded of milk increased by 10% and her quantity demanded for bread increased by 5%. This means that for
Jessica:
A) both milk and bread are normal goods.
B) milk is a normal good, but bread is an inferior good.
C) both milk and bread are inferior goods.
D) milk is an inferior good, but bread is a normal good.

22. Which of the following best describes price elasticity of demand?

A) Price elasticity of demand measures the change in price versus a change in quantity demanded.
B) Price elasticity of demand measures the responsiveness of the change in slope of the demand curve to a
change in price.
C) Price elasticity of demand measures the change in slope of the demand curve versus a change in quantity
demanded.
D) Price elasticity of demand measures the responsiveness of the change in the quantity demanded to a change
in price.
23.The price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $5 to spend on
both goods. The maximum quantity of popcorn that you can purchase is ________ boxes.
A) 40
B) 20
C) 5
D) 10

24.If a change in price causes total revenue to change in the same direction, we can conclude that the demand is:
A) normal.
B) price-inelastic.
C) price-elastic.
D) price unit-elastic.

25. The price elasticity of demand for skiing lessons in New Hampshire is over 1.00. This means that the
demand is ________ in New Hampshire.
A) price inelastic
B) perfectly price elastic
C) price elastic
D) price unit-elastic.

26. If an increase in income leads to a decrease in the demand for a good, then the good is said to be:
A) a luxury.
B) a staple or necessity.
C) normal.
D) inferior.

27. Which of the following is likely to make supply more inelastic?

A) The time period under consideration is very short and the inputs necessary for production cannot readily be
increased.
B) The time period under consideration is very short.
C) The inputs necessary for production cannot readily be increased.
D) The good is necessary for survival (e.g., a life-saving drug).

28. If the price of a good is increased by 15% and the quantity demanded falls by 20%, the price elasticity of
demand is:
A) price unit-elastic.
B)normal.
C) price-inelastic.
D)price-elastic.

29.An individual's long-run price elasticity of demand for gasoline is likely to be greater, in absolute terms, than
her short-run price elasticity of demand for gasoline because (choose the best answer).
A) the government will require that cars in the future are more fuel efficient.
B) more time gives her more time to adjust to the price change
C) her indifference curves become flatter over time
D) her preferences will change over time.

30.Which of the following goods is likely to have the most inelastic price elasticity.
A) Heineken
B) Coors
C) Beer, in general
D) All three are likely to have the same price elasticity of demand
31. For each of the following pairs of goods, which good would you expect to have more elastic demand and
why?
a. required textbooks or mystery novels
b. Beethoven recordings or classical music recordings in general
c. heating oil during the next six months or heating oil during the next five years
d. root beer or water

32. Two drivers—Tom and Jerry—each drive up to a gas station. Before looking at the price, each places an
order.
Tom says, “I’d like 10 gallons of gas.” Jerry says, “I’d like $10 worth of gas.” What is each driver’s price
elasticity of demand?

33.Leather and beef are jointly produced such that an increase in the production of one results in an equal
increase in the production of the other. An increase in the demand for leather will most likely cause
(A) a decrease in the price of leather
(B) a decrease in the price of beef
(C) a decrease in the equilibrium quantity of beef sold
(D) an increase in the demand for beef in the short run
(E) an increase in the supply of leather

34.If steak and potatoes are complements, when the price of steak goes up, the demand
curve for potatoes:
A) shifts to the right.
B) shifts to the left.
C) stays the same.
D)shifts to the right and then moves back

35.A simultaneous increase in demand and supply will always result in:
a) a change in equilibrium price
b) a decrease in equilibrium price
c) an increase in equilibrium price

36. If two goods are substitutes for each other, an increase in the price of one will necessarily:
a)decrease the demand for the other
b) increase the demand for the other

37.The law of demand implies that( other things remaining the same),
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.

38. The law of demand states that the quantity of a good demanded varies
A) inversely with its price.
B) directly with population.
C) directly with income.
D) inversely with the price of substitute goods.

39.Which of the following is consistent with the law of demand?

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.

40.Each point on the demand curve reflects

A) the highest price consumers are willing and able to pay for that particular unit of a good.
B) the highest price sellers will accept for all units they are producing.
C) the lowest-cost technology available to produce a good.
D) all the wants of a given household.
41. A drop in the price of a compact disc shifts the demand curve for prerecorded tapes leftward. From that you
know compact discs and prerecorded tapes are
A) normal goods. B) substitutes. C) inferior goods. D) complements.

42. A substitute is a good

A) of higher quality than another good.
B) that is not used in place of another good.
C) that can be used in place of another good.
D) of lower quality than another good.

43. People buy more of good 1 when the price of good 2 rises. These goods are
A) normal goods. B) complements. C) substitutes. D) inferior goods.

44. Which of the following pairs of goods are most likely substitutes?
A) compact discs and compact disc players
B) lettuce and salad dressing
C) cola and lemon lime soda
D) peanut butter and gasoline

45.A complement is a good

A) used in conjunction with another good.
B) used instead of another good.
C) of lower quality than another good.
D) of higher quality than another good.
SEMINAR 3
1. If there is a price ceiling, there will be:
a. shortages b. surpluses c. equilibrium

2. If there is a price ceiling, which of the following is NOT likely to occur?

a. rationing by first-come, first-served b. black markets c. gray markets d. sellers providing goods for free that
were formerly not free

3. Consumer surplus refers to

a. The area below the demand curve and above the supply curve.
b. The area between the supply curve and the equilibrium price.
c. The area between the demand curve and the equilibrium price, to the left of the equilibrium point.
d. The excess of the amounts sellers actually receive, beyond the amount that would make them just willing to
supply the good or service.
e. The excess number of consumers who want to buy a product and cannot do so.

4. The agricultural price support program is an example of

a. a price ceiling b. a price floor c. equilibrium pricing

5. If there is a price floor, there will be

a. shortages b. surpluses c. equilibrium

6. If the minimum wage is increased,

a. the number of workers hired will fall
b. those still working will have higher incomes
c. the overall wage cost of employers will increase
d. all of the above

6.Price ceilings are primarily targeted to help _______, while price floors generally benefit _________.
a. producers; no one
b. increase tax revenue for governments; producers
c. increase tax revenue for governments; consumers
d. producers; consumers
e. consumers; producers

7.In Figure -6, if the government imposes a price ceiling of $2, the result will be

a. equilibrium
b. excess supply
c. no different than before the price ceiling is imposed
d. excess demand e. demand will shift leftward and supply will shift rightward
8.When the minimum wage is set above the equilibrium market wage,
a. there will be an excess demand for labor at the minimum wage
b. it will have no effect on the quantity of labor employed
c. the unemployment rate will rise
d. the quality of the labor force will rise
e. the unemployment rate will fall

9.Use the following to answer question Look at the table The Market for Soda.

If the government imposes a price ceiling of $0.50 per can of soda, there will be: A) a shortage of 2 cans. B) a
shortage of 3 cans. C) a surplus of 3 cans. D) equilibrium in the market for soda

10. Price controls encourage black markets because: A) they eliminate opportunity costs. B) individuals can
profit by illegal exchanges. C) they create too much efficiency. D) they create too much equity.

11. One of the ways rent control is inefficient is that it leads to: A) higher-quality apartments. B) high
opportunity costs associated with wasted time searching for apartments. C) markets that maximize total surplus.
D) the construction of more apartments.

12.Deadweight loss refers to

a. An increase in consumer surplus.

b. An inefficiency that arises when people are prevented from making certain mutually beneficial trades.
c. The difference between consumer and producer surplus.
d. The sum of consumer and producer surplus.
e. The excess of the amounts that buyers would be willing to pay, over the amount they actually pay.

13.Suppose the market for cigarettes is at competitive equilibrium. The government decides to impose a tax on
cigarettes. Which of the following does not occur?

a. Deadweight loss is created.

b. The price faced by buyers is greater than the price received by sellers.
c. Tax revenue is equal to quantity sold multiplied by the difference between pbuyer and pseller.
d. Consumer and producer surplus are both reduced.
e. The demand curve shifts to the left.

14.When demand for a good is very price elastic, which of the following statements is false?

a. Addition of a tax will cause buyers to reduce their purchases significantly.

b. Addition of a tax will raise relatively little revenue compared with a tax on a less elastically demanded good.
c. Addition of a tax will generally cause more efficiency loss than addition of a tax on a less elastically
demanded good.
d. Addition of a tax will cause producer surplus to increase.
e. All of the above are true.
Questions 15and 16 refer to the following graph, which shows a housing market in which a price ceiling has
been imposed on rentals:

15.Producer surplus is represented by area(s)

a. A
b. A and B
c. B
d. C
e. E and F

16.Area B represents

a. Consumer surplus.
b. Tax revenue.
c. Producer surplus.
d. A transfer from building owners to renters.
e. The number of apartments supplied at pceiling.
Questions 17 and 18 refer to the following graph:

18.The graph shown above represents, once again, a housing market in which a price ceiling has been
established for rents. Which of the following statements is true regarding the market as it is depicted in this
graph?

a. Supply of apartments is perfectly elastic.

b. Demand for apartments is perfectly inelastic.
c. Decreasing prices below pceiling will lead building owners to withdraw apartments from the rental market.
d. The stock of apartments for rent is variable.
e. Increasing rents above pceiling would not increase the number of apartments available for rent.

19.Deadweight loss resulting from the rent ceiling is represented as

a. Area A.
b. Area B.
c. Area C.
d. Area D.
e. There is no deadweight loss