Download Principles of Microeconomics, 7e (Case/Fair)

Principles of Economics I
Quiz - 05.01.2009
Prof. Dr. Sedef Akgüngör
Multiple Choice Questions (2 points each)
1) If you own a building and you decide to use that building to open a restaurant,
A) there is no opportunity cost of using this building for a restaurant because you own it.
B) there is an opportunity cost of using this building for a restaurant because it could have
been used in other ways.
C) there are no sunk costs involved in this decision.
D) the only cost relevant to this decision is the price you paid for the building.
Answer: B
2) Positive economics is an approach to economics that
A) seeks to understand behavior and the operation of systems while making judgments
about their usefulness to society.
B) analyzes outcomes of economic behavior, evaluates them as good or bad, and may
prescribe preferred courses of action.
C) describes the economy and how it works.
D) prescribes roles for government in an economy.
Answer: C
3) According to the theory of comparative advantage, specialization and free trade will benefit
A) all trading parties with the same opportunity costs.
B) all trading parties, even when some are absolutely more efficient producers than
others.
C) only the trading party that has an absolute advantage in the production of all goods.
D) only the trading party that has a comparative advantage in the production of all goods.
Answer: B
4) The production possibility frontier is a graph that shows
A) all the combinations of goods and services that are consumed over time if all of
society's resources are used efficiently.
B) the amount of goods and services consumed at various average price levels.
C) the rate at which an economy's output will grow over time if all resources are used
efficiently.
D) all the combinations of goods and services that can be produced if all of society's
resources are used efficiently.
Answer: D
5) The idea that consumers ultimately dictate what will be produced by choosing what to
purchase is known as
A) laissez-faire.
B) the economic problem.
C) centralized decision making.
D) consumer sovereignty.
Answer: D
6) Which of the following is held constant along the demand curve?
A) Price of the good
B) Quantity
C) Income
D) Both A and B
Answer: C
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7) As an individual consumes more of a product within a given period of time, it is likely that
each additional unit consumed will yield
A) successively less satisfaction.
B) successively more satisfaction.
C) the same amount of satisfaction.
D) less satisfaction for a while and then start to add more satisfaction.
Answer: A
Diff: 2
Type: D
8) If a buyer’s demand for chicken thighs decreases as her income increases, chicken thighs for
her are a(n) ______ good.
A) normal
B) inferior
C) substitute
D) complementary
Answer: B
9) Economists usually assume that labor is _______ input in the _______ run.
A) a fixed; short
B) a fixed; long
C) a variable; short
D) part fixed and part variable; long
Answer: C
10) When there is an excess supply of a product in an unregulated market, the tendency is for
A) price to rise.
B) price to fall.
C) quantity supplied to increase.
D) quantity demanded to decrease.
Answer: B
11) A(n) _______ in equilibrium _______ will occur when there is an increase in demand for and
a decrease in supply of milk.
A) increase; price
B) decrease; price
C) increase; quantity
D) decrease; quantity
Answer: A
12) A ________ line is a perfectly price elastic demand curve.
A) horizontal
B) vertical
C) positively sloped
D) negatively sloped
Answer: A
Diff: 1
Type: F
13) The ABC Computer Company wants to increase the quantity of computers it sells by 5%. If
the price elasticity of demand is -2.5, the company must ________ price by _______.
A) increase; 2.0%
B) decrease; 2.0%
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14)
15)
16)
17)
18)
C) increase; 0.5%
D) decrease; 0.5%
Answer: B
The ABC Computer Company spends a lot of money for advertising designed to convince
you that their personal computers are superior to all other personal computers. If the ABC
Company is successful, the demand for ABC personal computers
A) and the demand for other firms' personal computers will become less price elastic.
B) and the demand for other firms' personal computers will become more price elastic.
C) will become more price elastic but the demand for other firms' personal computers will
become less price elastic.
D) will become less price elastic but the demand for other firms' personal computers will
become more price elastic.
Answer: D
If the quantity demanded of tea increases by 2% when the price of coffee increases by 8%,
the cross-price elasticity of demand between tea and coffee is
A) -0.25.
B) 0.25.
C) -4.
D) 4.
Answer: B
Ted has $600 a week to spend on food (f) and clothing (c). The price of food is $5 and the
price of clothing is $30. What is the equation for Ted's budget constraint?
A) Food + Clothing < $600
B) $5 × Food + $30 × Clothing ≤ $600
C) $5 × Food + $30 × Clothing > $600
D) $5 × Food + $30 × Clothing = $600
Answer: D
Marginal utility is the
A) total satisfaction gained by consuming all units of a good.
B) total satisfaction gained by consuming the last unit of the good.
C) additional satisfaction gained by the consumption of one more unit of a good.
D) additional consumption divided by the additional satisfaction gained by the additional
consumption.
Answer: C
Richard is consuming X and Y so that MUx/Px = 6 and MUy/Py = 10. To maximize utility,
Richard should
A) continue to consume the same amount of X and Y, as the consumer is already
maximizing utility.
B) consume less of both X and Y.
C) consume more X and less Y.
D) consume less X and more Y.
Answer: D
19) Assume leisure is a normal good. The substitution effect of a wage decrease implies a
__________ demand for leisure and a __________ labor supply.
A) lower; higher
B) higher; lower
C) higher; higher
D) lower; lower
Answer: B
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20) As you move down an indifference curve, the absolute value of the slope
A) increases.
B) decreases.
C) remains constant.
D) initially increases and then decreases.
Answer: B
21) A firm in a perfectly competitive market has no control over price because
A) the government imposes price ceilings on the products produced in perfectly
competitive industries.
B) there is free entry and exit from the industry.
C) every firm's product is a perfect substitute for every other firm's product.
D) the market demand for products produced in perfectly competitive industries is
perfectly elastic.
Answer: C
22) If economic profit is zero, a firm
A) earns a negative rate of return.
B) will leave the industry.
C) earns a positive but below normal rate of return.
D) earns exactly a normal rate of return.
Answer: D
23) Free entry implies that
A) a perfectly competitive firm can never earn a profit.
B) if firms in an industry are making excessively high profits, new firms are likely to enter
the industry.
C) the government regulates the number of firms that are allowed in an industry.
D) firms will always earn a profit, as new firms can enter the industry at any time they
like.
Answer: B
24) The optimal method of production is the one that
A) maximizes output regardless of cost.
B) maximizes inputs.
C) minimizes cost.
D) minimizes the normal rate of return.
Answer: C
25) If diminishing marginal returns have already set in for The Picture Perfect Framing Store
and the marginal product of the fifth picture framer is 20, then the marginal product of the
sixth picture framer must be
A) negative.
B) zero.
C) less than 20.
D) greater than 20.
Answer: C
26) Operating profit is
A) TR - TC.
B) TR - TFC.
C) TR - TVC.
D) TVC - TFC.
Answer: C
27) A firm will choose to operate rather than shut down as long as
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A) price is greater than or equal to AFC.
B) AFC is greater than AVC.
C) price is greater than or equal to AVC.
D) AVC is greater than MC.
Answer: C
28) A firm stands to gain by operating instead of shutting down as long as ________ sufficiently
covers ___________.
A) price; average variable cost
B) price; average fixed cost
C) total revenue; total fixed costs
D) operating profit; economic profit
Answer: A
29) The short-run supply curve of a competitive firm is the portion of
A) the average variable cost curve that lies above its marginal cost curve.
B) its marginal cost curve that lies above its average variable cost curve.
C) its marginal cost curve that lies above its average total cost curve.
D) its average total cost curve that lies above its marginal cost curve.
Answer: B
30) For economies of scale, a(n) _________ in a firm’s scale of production leads to _______
average total cost.
A) increase; lower
B) increase; higher
C) decrease; lower
D) decrease; no change in
Answer: A
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