Question: Microeconomics Multiple choice questions.

Please answer all the

questions. 1. Scarcity: A. exists...
Economics

Microeconomics Multiple choice questions. Please answer all the questions.

1. Scarcity:
A. exists because resources are limited while human wants are unlimited.
B. means we are unable to have as much as we would like to have.
C. will likely be eliminated as technology continues to expand.
D. is not an issue addressed in economics.

2. People are forced to make choices because of:

A. unlimited wants and unlimited resources.
B. limited wants and unlimited resources.
C. unlimited wants and limited resources.
D. limited wants and limited resources.
E. irrational wants and limited resources.

3. Which of the following is closest to the definition of capital?

A. c and e.
B. c and d.
C. Tools, equipment, means of transportation
D. Factories and machinery.
E. Borrowed money.

4. Which one of the following is the most accurate definition of economics?

A. Economics is the study of stocks and bonds.
B. Economics is the study of how people allocate unlimited resources.
C. Economics is the study of how consumers choose to spend their income.
D. Economics is the study of how society chooses to allocate scarce resources.

5. The basic difference between macroeconomics and microeconomics is:

A. microeconomics concentrates on individual markets while macroeconomics focuses primarily on international trade.
B. microeconomics concentrates on the behavior of individual consumers while macroeconomics focuses on the
behavior of firms.
C. microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on
the performance of the entire economy.
D. microeconomics explores the causes of inflation while macroeconomics focuses on the causes of unemployment.

6. Which of the following is not a resource?

A. Land.
B. Labor.
C. Money.
D. Capital.

7. Which of the following would an economist classify as capital?

A. 100 shares of Microsoft stock.
B. $50 bill.
C. credit card.
D. lawyer's personal computer.

8. Economics, according to its definition, studies how people:

A. earn and spend money.
B. invest in the stock and bond markets.
C. make choices in the face of scarcity.
D. supply goods in response to demand.
9. Which of the following is the best example of a microeconomic topic?
A. The impact that the money supply has on inflation.
B. The reasons for increases in the price of soft drinks.
C. The effect that federal budget deficits have on the interest rate.
D. The tradeoff between inflation and unemployment.

10. Which of the following is a macroeconomics topic?

A. Wages of textile workers in the Northeast.
B. The cost of producing 10,000 bookcases.
C. The economy's annual growth rate.
D. National demand for fish.
E. Effects of farm subsidies on food prices.

11. An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, Ceteris paribus. The
phrase "Ceteris paribus" means that:
A. other relevant factors like consumer incomes must be held constant.
B. the gasoline prices must first be adjusted for inflation.
C. the theory is widely accepted but cannot be accurately tested.
D. consumers' need for gasoline remains the same regardless of the price.

12. An economic model is:

A. a plastic scaled version of the economy.
B. a complete depiction of reality.
C. an abstraction from reality.
D. applicable to consumer behavior but not to producer behavior.
E. not an accepted tool of the economics profession.

13. Which of the following sayings best reflects the concept of opportunity cost?
A. "You can't teach an old dog new tricks."
B. "There is no such thing as a free lunch."
C. "I have a baker's dozen."
D. "There's no business like show business."

14. The opportunity cost of watching television is:

A. all of the alternative programs that appear on other stations.
B. zero because there is no money expenditure involved.
C. the alternative use of the time foregone by watching the program.
D. zero if it benefits you.

15. Which of the following does not illustrate opportunity cost?

A. If I study, I must give up going to the football game.
B. If I buy a computer, I must do without a 35" television.
C. More consumer spending now means more spending in the future.
D. If I spend more on clothes, I must spend less on food.

16. When deciding whether to buy a second car, marginal analysis indicates that the purchaser should compare the:
A. benefits expected from two cars with the cost of both.
B. additional benefits expected from a second car with the cost of the two cars.
C. dollar cost of the two cars with the potential income that the cars will generate.
D. additional benefits of the second car with the additional cost of the second car.

17. According to marginal analysis, you should spend more time studying economics if the extra benefit from an
additional hour of study:
A. is positive.
B. outweighs the extra cost.
C. exceeds the benefits of the previous hour of study.
D. will raise your exam score.
Chapter 10 Microeconomics ECN 2103

True/False
Indicate whether the statement is true or false.

F 1. The only requirement for a market to be perfectly competitive is for the market to
have many buyers and sellers.

T 2. For a competitive firm, marginal revenue equals the price of the good it sells.

T 3. If a competitive firm sells three times the amount of output, its total revenue also
increases by a factor of three.

T 4. A firm maximizes profit when it produces output up to the point where marginal
cost equals marginal revenue.

F 5. If marginal cost exceeds marginal revenue at a firm's current level of output, the
firm can increase profit if it increases its level of output.

T 6. In a competitive market, both buyers and sellers are price takers.

T 7. In the short run, the market supply curve for a good is the sum of the quantities
supplied by each firm at each price.

T 8. In the long run, perfectly competitive firms earn small but positive economic
profits.

T 9. In the long run, if firms are identical and there is free entry and exit in the market,
all firms in the market operate at their efficient scale.

T 10. If the price of a good rises above the minimum average total cost of production,
positive economic profits will cause new firms to enter the market, which drives
the price back down to the minimum average total cost of production.
Multiple Choice
Identify the choice that best completes the statement or answers the question.

D 11. Which of the following is not a characteristic of a competitive market?

a. All of these answers are characteristics of a competitive market.
b. There are many buyers and sellers in the market.
c. The goods offered for sale are largely the same.
d. Firms generate small but positive economic profits in the long run.
e. Firms can freely enter or exit the market.

D 12. Which of the following markets would most closely satisfy the requirements for a
competitive market?
a. electricity
b. cable television
c. cola
d. milk
e. economics textbooks.

A 13. If a competitive firm doubles its output, its total revenue

a. doubles.
b. more than doubles.
c. less than doubles.
d. cannot be determined because the price of the good may rise or fall.

D 14. For a competitive firm, marginal revenue is

a. total revenue divided by the quantity sold.
b. equal to the quantity of the good sold.
c. average revenue divided by the quantity sold.
d. equal to the price of the good sold.

D 15. The competitive firm maximizes profit when it produces output up to the point
where
a. price equals average variable cost.
b. marginal revenue equals average revenue.
c. marginal cost equals total revenue.
d. marginal cost equals marginal revenue.

C 16. A grocery store should close at night if the

a. variable costs of staying open are less than the total revenue due to staying
open.
b. total costs of staying open are less than the total revenue due to staying
open.
c. variable costs of staying open are greater than the total revenue due to
staying open.
d. total costs of staying open are greater than the total revenue due to staying
open.
C 17. If an input necessary for production is in limited supply so that an expansion of
the industry raises costs for all existing firms in the market, then the long-run
market supply curve for a good could be
a. perfectly inelastic. c. upward sloping.
b. perfectly elastic. d. downward sloping.

B 18. In long-run equilibrium in a competitive market, firms are operating at

a. the minimum of their average-total-cost curves.
b. all of these answers are correct.
c. their efficient scale.
d. zero economic profit.
e. the intersection of marginal cost and marginal revenue.
True/False
Indicate whether the sentence or statement is true or false.

F 1. A perfectly competitive market consists of products that are all slightly different
from one another.

T 2. In a perfectly competitive market, each seller has a negligible impact on the

market price.

F 3. The law of demand states that an increase in the price of a good decreases the
demand for that good.

F 4. If apples and oranges are substitutes, an increase in the price of apples will
decrease the demand for oranges.

T 5. If golf clubs and golf balls are complements, an increase in the price of golf clubs
will decrease the demand for golf balls.

T 6. If consumers expect the price of shoes to rise, there will be an increase in the
demand for shoes today.

T 7. The law of supply states that an increase in the price of a good increases the
quantity supplied of that good along its supply curve.

F 8. An increase in the price of steel will shift the supply of cars to the right.

F 9. When the price of a good is below the equilibrium price, it causes a surplus (i.e.
an excess supply) of this good.

T 10. The market supply curve is the horizontal summation of the individual supply
curves.

F 11. If there is a shortage (i.e. an excess demand) of a good, then the price of that good
tends to fall.

T 12. If pencils and paper are complements, an increase in the price of pencils causes
the demand for paper to decrease or shift to the left.

T 13. If Coke and Pepsi are substitutes, an increase in the price of Coke will cause an
increase in the equilibrium price and quantity in the market for Pepsi.

T 14. An advance in the technology employed to manufacture roller blades will result
in a decrease in the equilibrium price and an increase in the equilibrium quantity
in the market for roller blades.
 F 15. If there is an increase in supply accompanied by a decrease in demand for coffee,
then there will be a decrease in both the equilibrium price and quantity in the
market for coffee.

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

D 16. A perfectly competitive market has

a. firms that set their own prices.
b. only one seller.
c. at least a few sellers.
d. many buyers and sellers.
e. none of these answers.

A 17. 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. inferior goods.
c. normal goods.
d. none of these answers.
e. substitutes.

B 18. 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 along its demand curve.
c. decreases the demand for that good.
d. increases the quantity supplied of that good along its supply curve.
e. none of these answers.

B 19. The law of supply states that an increase in the price of a good
a. none of these answers.
b. increases the quantity supplied of that good along its supply curve.
c. increases the supply of that good.
d. decreases the demand for that good.
e. decreases the quantity demanded for that good along its demand curve.

C 20. If an increase in consumer incomes leads to a decrease in the demand for

camping equipment, then camping equipment is
a. a normal good.
b. none of these answers.
c. an inferior good.
d. a substitute good.
e. a complementary good.

A 21. That the supply curve of ice cream cones is upward sloping indicates that
 a. the marginal cost of providing ice cream cones increasesas more cones are
produced.
b. as the price of ice cream cones increases, the production technology is
upgraded.
c. as the price increases, the opportunity cost of making icecream cones
decreases.
d. all of the above.
e. none of the above.

C 22. Which of the following shifts the demand for watches to the right?
a. an increase in the price of watches
b. none of these answers
c. a decrease in the price of watch batteries if watch batteries and watches
are complements
d. a decrease in consumer incomes if watches are a normal good
e. a decrease in the price of watches

B 23. 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. All of these answers cause an increase in the supply of watches.
d. a decrease in the wage of workers employed to manufacture watches.
e. manufacturers' expectation of lower watch prices in the future.

E 24. If the price of a good is above the equilibrium price,

a. there is a surplus (i.e. an excess supply) and the price will rise.
b. there is a shortage (i.e. an excess demand) and the price will fall.
c. there is a shortage (i.e. an excess demand) and the price will rise.
d. the quantity demanded is equal to the quantity supplied and the price
remains unchanged.
e. there is a surplus (i.e. an excess supply) and the price will fall.

A 25. If the price of a good is below the equilibrium price,

a. there is a shortage (i.e. an excess demand) 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 (i.e. an excess demand) and the price will fall.
d. there is a surplus (i.e. an excess supply) and the price will rise.
e. there is a surplus (i.e. an excess supply) and the price will fall.

B 26. If the price of a good is equal to the equilibrium price,

a. there is a shortage (i.e. an excess demand) and the price will fall.
b. the quantity demanded is equal to the quantity supplied and the price
remains unchanged.
c. there is a surplus (i.e. an excess supply) and the price will rise.
d. there is a shortage (i.e. an excess demand) and the price will rise.
 e. there is a surplus (i.e. an excess supply) and the price will fall.

A 27. An increase (rightward shift) in the demand for a good will tend to cause
a. an increase in the equilibrium price and quantity.
b. none of these answers.
c. an increase in the equilibrium price and a decrease in the equilibrium
quantity.
d. a decrease in the equilibrium price and an increase in the equilibrium
quantity.
e. a decrease in the equilibrium price and quantity.

E 28. 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. none of these answers.
d. a decrease in the equilibrium price and quantity.
e. an increase in the equilibrium price and a decrease in the equilibrium
quantity.

E 29. 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 equilibrium quantity to rise and the equilibrium price to remain
constant.
d. the change in the equilibrium quantity to be ambiguous and the
equilibrium price to rise.
e. the equilibrium quantity to rise and the change in the equilibrium price to
be ambiguous.

D 30. 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.
e. the equilibrium quantity to rise and the equilibrium price to remain
constant.
D 31. 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.

E 32. 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. The impact on both price and quantity is ambiguous.
c. Price will increase; quantity will increase.
d. Price will increase; quantity will decrease.
e. Price will increase; quantity is ambiguous.

E 33. 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 along the demand
curve 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 a decrease in the quantity demanded of apples along the demand
curve and an increase in the supply for apples.
e. There is an increase in the demand for apples and an increase in the
quantity supplied of apples along the supply curve.

D 34. 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 will decrease.
d. Price will increase; quantity is ambiguous.
e. Price will increase; quantity will increase.

D 35. 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.
True/False
Indicate whether the sentence or statement is true or false.

1. Monopolists are price takers.

2. A monopoly is the sole seller of a product with no close substitutes.

4. A natural monopoly is a monopoly that uses its ownership of natural resources as

a barrier to entry into its market.

5. The demand curve facing a monopolist is the market demand curve for its
product.

6. For the monopolist, marginal revenue is always less than the price of the good.

7. The monopolist chooses the quantity of output at which marginal revenue equals
marginal cost and then uses the demand curve to find the price that will induce
consumers to buy that quantity.

9. A monopolist produces an efficient quantity of output but it is still inefficient

because it charges a price that exceeds marginal cost and the resulting profit is a
social cost.

10. Using regulations to force a natural monopoly to charge a price equal to its
marginal cost of production will cause the monopoly to lose money and exit the
industry.

12. Price discrimination is only possible if there is no arbitrage.

13. Price discrimination can raise economic welfare because output increases beyond
that which would result under monopoly pricing.

14. Perfect price discrimination is efficient but all of the surplus is received by the
consumer.

16. Which of the following is not a barrier to entry in a monopolized market?

a. A single firm is very large.
b. The government gives a single firm the exclusive right to produce some
good.
c. The costs of production make a single producer more efficient than a large
number of producers.
d. A key resource is owned by a single firm.

17. A firm whose average total cost continually declines at least to the quantity that
could supply the entire market is known as a
a. natural monopoly.
 b. perfect competitor.
c. government monopoly.
d. regulated monopoly.

19. A monopolist maximizes profit by producing the quantity at which

a. marginal revenue equals marginal cost.
b. marginal revenue equals price.
c. marginal cost equals price.
d. marginal cost equals demand.
e. none of these answers.

20. Which of the following statements about price and marginal cost in competitive
and monopolized markets is true?
a. In competitive markets, price equals marginal cost; in monopolized
markets, price exceeds marginal cost.
b. In competitive markets, price equals marginal cost; in monopolized
markets, price equals marginal cost.
c. In competitive markets, price exceeds marginal cost; in monopolized
markets, price exceeds marginal cost.
d. In competitive markets, price exceeds marginal cost; in monopolized
markets, price equals marginal cost.

21. Thomson is a monopolist in the production of your textbook because

a. Thomson has a legally protected exclusive right to produce this textbook.
b. Thomson owns a key resource in the production of textbooks.
c. Thomson is a natural monopoly.
d. Thomson is a very large company.

22. Refer to Exhibit 4. The profit-maximizing monopolist will choose the price and
quantity represented by point
 a. A.
b. B.
c. C.
d. D.
e. none of these answers.

23. Refer to Exhibit 4. The efficient price and quantity are represented by point

a. D.
b. A.
c. B.
d. C.
e. none of these answers.

24. The inefficiency associated with monopoly is due to

a. underproduction of the good.
b. the monopoly's profits.
c. the monopoly's losses.
d. overproduction of the good.

25. Compared to a perfectly competitive market, a monopoly market will usually

generate
a. higher prices and lower output.
b. higher prices and higher output.
c. lower prices and lower output.
d. lower prices and higher output.

29. Public ownership of natural monopolies

a. tends to be inefficient.
b. usually lowers the cost of production dramatically.
 c. creates synergies between the newly acquired firm and other government-
owned companies.
d. does none of the things described in these answers.

30. Which of the follow statements about price discrimination is not true?
a. Perfect price discrimination generates a deadweight loss.
b. Price discrimination can raise economic welfare.
c. Price discrimination requires that the seller be able to separate buyers
according to their willingness to pay.
d. Price discrimination increases a monopolist's profits.
e. For a monopolist to engage in price discrimination, buyers must be unable
to engage in arbitrage.

32. A monopoly is able to continue to generate economic profits in the long run
because
a. there is some barrier to entry to that market.
b. potential competitors sometimes don't notice the profits.
c. the monopolist is financially powerful.
d. antitrust laws eliminate competitors for a specified number of years.
e. of all of the things described in these answers

33. If marginal revenue exceeds marginal cost, a monopolists should

a. increase output.
b. decrease output.
c. keep output the same because profits are maximized when marginal
revenue exceeds marginal cost.
d. raise the price.