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Microeconomics Unit
Test #2 (100 points)
Matching (2 points each)
___ 1. The study of economic behavior of individuals
A. Law of Supply
and firms
B. Law of Demand
___ 2. Demand for a product varies inversely with price
C. change in demand
___ 3. Shows the quantity consumers demand at each price
D. demand curve
___ 4. Different quantity demanded at any price
E. substitutes
___ 5. Products used in place of other products
F. Microeconomics
___ 6. Business expenses that change as production changes
G. fixed costs
___ 7. Quantity supplied varies directly with price
H. variable costs
___ 8. Expenses that a business incurs even if the plant is
I. Pure competition
idle and output is zero
J. Nonprice competition
___ 9. The use of product differentiation and advertising to
attract buyers.
___ 10. Includes independent and well-informed buyers and sellers.
Multiple Choice (3 points each)
____ 11. An increase in the price of milk causes a decrease in demand for cereal. The two products are
a. substitutes
c. unrelated
b. complements
d. Demand elastic
____ 12. When a customer’s need for a product is not urgent, demand tends to be
a. inelastic
c. complementary
b. elastic
d. Unit elastic
____ 13. For most products and services, increased price results in:
a. Demand for fewer products
c. Demand for more products
b. Reduced demand for substitutes
d. Increased demand for complements
____ 14. The supply of a product normally decreases if
a. The cost of inputs goes down
c. The price of the product increases
b. More producers enter the market
d. Taxes on the product increase
____ 15. Because a modest price increase has little or no effect, the demand for the product is:
a. complementary
c. elastic
b. inelastic
d. Unit elastic
____ 16. Consumers’ willingness to replace a costly item with a less costly item is an example of:
a. The substitution effect
c. Demand elasticity
b. The income effect
d. complements
____ 17. The study of economic behavior of individuals and firms is called
a. Supply-side economics
b. macroeconomics
c. microeconomics
d. Keynesian economics
____ 18. The demand of a product normally decreases if
a. The cost of inputs goes down
b. More producers enter the market
c. The price of the product increases
d. Taxes on the product increase
____ 19. Rent payments and property taxes of a small business would be counted as
a. Total cost
c. Fixed cost
b. Variable cost
d. Marginal cost
____ 20. The Sherman Antitrust Act
a. Outlawed monopolies that hindered trade
b. Nationalized railroads
c. Established the FDA
d. Regulated the banking industry
____ 21. A negative externality resulting from building a commuter rail system might be
a. Increased business along the route
c. Additional employment opportunities
b. An opportunity cost
d. Noise pollution along the route
____
22 A decrease in competition within an industry can result in
a. More efficient resource allocation
b. Lower prices
c. A firm wielding economic and political power.
d. Increased output
____ 23. Deregulation is most closely associated with
a. Laissez-faire economics
b. Demand-side economics
____
c. Keynesian economics
d. Supply-side economics
24 Why does a government sometimes interfere in a market economy by setting prices?
a. To achieve the goals of equity and security
b. To insure an entrepreneur’s profit
c. To distort market outcomes
d. To allow the price system to transmit accurate information
____ 25. Which of the following is an example of a price ceiling?
a. Minimum wage
c. Rent Control
b. “free lunch” program
d. Government subsidies
Short answer (4 points each)
26. Explain the difference between “change in quantity demanded” and “change in demand.
27. Describe 3 of the 5 conditions necessary for pure competition to exist.
28. Name and describe 3 forms of monopolies
29. Name three determinants that could cause a change in supply.
30. Give an example of a positive and negative externality resulting from the new Wal-Mart center
just built on I-25.
Applying the concepts (15 points)
Create an example/scenario of supply and demand in today’s economy. You may choose any
product or service you would like. Use both demand and supply schedules, and graph your
results. Show the equilibrium price on both the schedule and the graph. Choose one determinant
that will cause a shift in either supply or demand – show the shift on the graph. Be sure to be
thorough in your essay explaining your scenario. (Don’t forget to label everything!)