MULTIPLE CHOICE QUESTIONS: Note: Price elasticity of demand is given as an absol
ID: 1094270 • Letter: M
Question
MULTIPLE CHOICE QUESTIONS:
Note: Price elasticity of demand is given as an absolute value throughout.
The production possibility frontiers for Arboc and Arbez are shown below. Use this information for the next ninequestions.
1. Which of the following is most likely to shift out the Arbocali production possibility frontier?
A. An increase in the general educational level of the Arbocali labor force.
B. An increase in the income of Arbocali consumers.
C. An increase in the purchase of stocks on the Arbocali Stock Exchange.
D. A reallocation of resources toward consumer goods.
2. If the Arbocali economy moves from Point A to Point B, the opportunity cost would be
A. 30 consumer goods.
B. 20 capital goods.
C. 40 capital goods.
D. 10 consumer goods.
3. If the Arbocali economy moved from Point A to Point B, we would expect
A. a decreased standard of living in the future as consumption has decreased.
B. increased unemployment in the future.
C. decreased unemployment in the future.
D. the economy to grow more rapidly in the future
4. Arbez is currently producing 25 consumer goods and 60 capital goods. If Arbez increases capital good production to 75, the opportunity cost will be
A. 15 consumer goods.
B. 0 consumer goods.
C. 5 consumer goods.
D. 10 consumer goods.
5. Both Arboc and Arbez are producing 30 consumer goods and each is on its production possibility frontier. We can conclude that
A. Both economies will grow equally rapidly.
B. Arboc will grow more rapidly than Arbez.
C. Arbez will grow more rapidly than Arboc.
D. Arboc is currently experiencing a higher rate of unemployment than Arbez.
6. Arbez becomes able to increase its maximum output of consumer goods. This indicates that the opportunity cost of consumer goods in Arbez has
A. decreased and the opportunity cost of capital goods has remained unchanged.
B. increased and the opportunity cost of capital goods has decreased.
C. increased and the opportunity cost of capital goods has remained unchanged.
D. decreased and the opportunity cost of capital goods has increased.
7. Arbezs production possibility frontier is as shown in the diagram. Arboc and Arbez decide to trade, Arboc has a comparative advantage in ___________. Arbez has a comparative advantage in ________
A. consumer goods; neither good.
B. capital goods; consumer goods.
C. capital goods; neither good.
D. consumer goods; capital goods.
8. Arbez becomes able to increase its maximum output of consumer goods. Maximum production of capital goods is unchanged. This might have been caused by
A. a deterioration in the quality of Arbezs resources specifically used in the production of
capital goods.
B. a general improvement in the quality of Arbezs resources.
C. a general improvement in the quality of Arbezs technology.
D. an improvement in the quality of Arbezs resources specifically used in the production of
consumer goods.
9. If the two countries specialize and trade according to the dictates of comparative advantage and if the terms of trade were that 2 capital goods trade for 1 consumer good, then
A. neither country would benefit from trade.
B. both countries would benefit from trade.
C. Arboc would benefit from trade but Arbez would not.
D. Arbez would benefit from trade but Arboc would not.
Use the diagram for the next five questions. It shows the production possibility frontier for Arbez.
19. Which point implies the existence of unemployment?
A. Z.
B. V.
C. U.
D. Y.
20. Of those shown, which combination of goods would make the Arbezani economy grow most rapidly?
A. Z.
B. V.
C. U.
D. Y.
21. Which statement is true?
A. The opportunity cost of capital goods is decreasing.
B. The opportunity cost of consumer goods is constant.
C. Producing at point V can never be economically efficient.
D. The opportunity cost of consumer goods is increasing.
22. Arbez is at point W. The opportunity cost of increasing capital goods production by 10 units is
A. 24 consumer goods.
B. 20 consumer goods.
C. 14 consumer goods.
D. 4 consumer goods.
23. Arbez is at point Z. The opportunity cost of increasing capital goods production by 20 is:
A. 24 consumer goods.
B. 14 consumer goods.
C. 6 consumer goods.
D. 0 consumer goods.
42. The equilibrium price of widgets is $2.40. A price ceiling of $1.44 is imposed. At that ceiling
A. quantity supplied will be less than quantity demanded, causing a shortage of widgets.
B. quantity supplied will be greater than quantity demanded, causing a surplus of widgets.
C. quantity supplied will be greater than quantity demanded, causing a shortage of widgets.
D. quantity supplied will be less than quantity demanded, causing a surplus of widgets.
43. Fully employed, a High Point furniture factory can produce 50 Style A chairs and 50 Style B chairs. It could have produced 60 Style A chairs and 40 Style B chairs. Style B chairs sell for $60 each. For the factory to increase Style A production to 60 chairs, the minimum price it should charge for the 10 Style A chairs together is
A. $600.
B. $1200.
C. $2400.
D. $3000.
44. In a demand curve diagram, __________ is on the vertical axis and __________ is on the horizontal axis.
A. demand/time period; price
B. price; demand/time period
C. quantity demanded/time period; price
D. price; quantity demanded/time period
45. Which of the following will increase the demand for OkraCoke?
A. A decrease in the price of PensaCola (a substitute for OkraCoke).
B. An increase in income (if OkraCoke is an inferior good).
C. A decrease in the price of OkraCoke.
D. An expected increase in the price of OkraCoke.
46. Which of the following will increase the supply of OkraCoke?
A. An increase in the price of OkraCoke.
B. A decrease in the cost of an important resource used in producing OkraCoke.
C. The imposition of a per-unit tax on OkraCoke.
D. An increase in consumers income (if OkraCoke is a normal good).
47. The price of an input used to produce widgets increases while the price of a consumption complement decreases. The supply curve for widgets will shift _______ and the demand curve of widgets will shift _______.
A. right; right
B. right; left
C. left; right
D. left; left
48. The price of flapdoodles increases by 10% and the quantity demanded falls by 4%. The demand for flapdoodles is _________ and total revenue will _________.
A. elastic; increase
B. elastic; decrease
C. inelastic; increase
D. inelastic; decrease
49. A price ceiling is imposed above the equilibrium price. This will
A. cause a surplus.
B. cause a shortage.
C. cause the price level to increase.
D. have no effect on the market.
50. Price is currently below equilibrium. There is a ________. We would expect price to ______
A. surplus; increase.
B. surplus; decrease.
C. shortage; increase.
D. shortage; decrease.
51. A price ceiling is established below the equilibrium price. Relative to the initial situation, we can predict that
A. quantity demanded will decrease.
B. quantity supplied will be greater than quantity demanded.
C. demand will be less than supply.
D. quantity supplied will decrease.
52. A price ceiling is set above the current equilibrium price. If supply decreases, price would
A. decrease.
B. increase.
C. not change.
D. be indeterminate.
53. Total revenue will decrease if price _______ and demand is _______.
A. increases; inelastic
B. decreases; elastic
C. decreases; inelastic
D. decreases; unitary elastic
54. Two goods are consumption complements. The cross-price elasticity of demand coefficient will be
A. a negative number.
B. a positive number.
C. a positive number greater than one.
D. one.
55. Good X has a high positive cross-price elasticity with butter. Good X has a relatively low income elasticity of demand. Of the following, Good X is most likely to be
A. bread.
B. margarine.
C. milk.
D. Beveridges Luxury Butter Spread.
56. The income elasticity coefficient of pork is -0.2. We can conclude that pork
A. is an inferior good.
B. is a normal good.
C. has a demand that is very sensitive to changes in its price.
D. has a demand that is not very sensitive to changes in its price.
57. The price of a frisbee rises from $5 to $6. Total revenue falls from $400 to $360. The price elasticity of demand coefficient is (approximately) _________ which means that demand is ___________.
A. 0.579; inelastic
B. 1.571; elastic
C. 0.579; elastic
D. 1.571; inelastic
58. In the market for labor, a minimum wage rate is established above the equilibrium wage rate. Unemployment will __________ and employment will ___________.
A. increase; increase
B. increase; decrease
C. decrease; increase
D. decrease; decrease
59. Price elasticity of demand is 0.40. Price increases by 20%. We would predict a(n)
A. 20% increase in quantity demanded.
B. 20% decrease in quantity demanded.
C. 8% increase in quantity demanded.
D. 8% decrease in quantity demanded.
60. A 10% increase in the price of video games results in a 20% decrease in the quantity of video games demanded. The price elasticity of demand coefficient is (minus) _______ and demand is ________.
A. 0.5; elastic
B. 2.0; elastic
C. 0.5; inelastic
D. 2.0; inelastic
61. Moo U. radio station reports that, since the college eatery The Five Beans raised the price of hot-dogs, fewer hot-dogs have been bought and The Five Beans total revenue on hot-dogs has been halved. This indicates that
A. the demand schedule for hot-dogs at The Five Beans is horizontal.
B. at present, prices are in the elastic section of the demand schedule.
C. hot-dogs are an inferior good.
D. the price elasticity of demand for hot-dogs is 0.5.
62. A 10% fall in the price of shampoo results in a 5% increase in the quantity of shampoo demanded. Demand is
A. inelastic.
B. elastic.
C. unit elastic.
D. perfectly elastic.
63. A government-imposed ceiling on apartment rents, if set below the equilibrium rent level, would
A. have no effect on the housing market.
B. lead to a persistent shortage of apartments.
C. lead to a persistent surplus of apartments.
D. shift the supply curve for apartments to the right.
64. The price elasticity of demand for widgets will tend to be
A. less elastic, the shorter the time that consumers have to adjust to a price change.
B. more elastic, the smaller the share of consumers income is spent on widgets.
C. less elastic, the greater the availability of close substitutes for widgets.
D. more elastic, the more necessary widgets are felt to be.
65. A price ceiling is set above the current equilibrium price. If supply decreases, price would
A. decrease.
B. increase.
C. not change.
D. be indeterminate.
66. Which of the following is likely to have the greatest price elasticity of demand?
A. A container of salt at the grocery store.
B. The services of a plumber during an emergency.
C. Gasoline.
D. Next-summer vacations in Spain.
67. Two goods are consumption complements. Their cross-price elasticity of demand will be
A. a negative number.
B. zero.
C. a positive number.
D. one.
68. A decrease in the supply of Pan Galactic Gargle Blasters (PGGBs) causes price to rise by 20%. Arthur Dent thereafter buys 10% fewer PGGBs. The price rise has caused Arthur to
A. increase the quantity bought. We cant tell what has happened to the amount that he spends.
B. spend less on Gargle Blasters.
C. spend more on Gargle Blasters.
D. reduce the quantity bought. We cant tell what has happened to the amount that he spends.
69. Martian sellers of PGGBs wish to raise their revenues. They should ________ price by 2 Ningis (their unit of currency) if they believe demand to be ________ in that price range.
A. lower; inelastic
B. raise; elastic
C. raise; inelastic
D. Two of the above are acceptable scenarios.
70. Income elasticity of demand for an inferior good is
A. greater than one.
B. between zero and one.
C. one.
D. less than zero.
Explanation / Answer
The production possibility frontiers for Arboc and Arbez are shown below. Use this information for the next ninequestions.
1. Which of the following is most likely to shift out the Arbocali production possibility frontier?
A. An increase in the general educational level of the Arbocali labor force.
B. An increase in the income of Arbocali consumers.
C. An increase in the purchase of stocks on the Arbocali Stock Exchange.
D. A reallocation of resources toward consumer goods.
2. If the Arbocali economy moves from Point A to Point B, the opportunity cost would be
A. 30 consumer goods.
B. 20 capital goods.
C. 40 capital goods.
D. 10 consumer goods.
3. If the Arbocali economy moved from Point A to Point B, we would expect
A. a decreased standard of living in the future as consumption has decreased.
B. increased unemployment in the future.
C. decreased unemployment in the future.
D. the economy to grow more rapidly in the future
4. Arbez is currently producing 25 consumer goods and 60 capital goods. If Arbez increases capital good production to 75, the opportunity cost will be
A. 15 consumer goods.
B. 0 consumer goods.
C. 5 consumer goods.
D. 10 consumer goods.
5. Both Arboc and Arbez are producing 30 consumer goods and each is on its production possibility frontier. We can conclude that
A. Both economies will grow equally rapidly.
B. Arboc will grow more rapidly than Arbez.
C. Arbez will grow more rapidly than Arboc.
D. Arboc is currently experiencing a higher rate of unemployment than Arbez.
6. Arbez becomes able to increase its maximum output of consumer goods. This indicates that the opportunity cost of consumer goods in Arbez has
A. decreased and the opportunity cost of capital goods has remained unchanged.
B. increased and the opportunity cost of capital goods has decreased.
C. increased and the opportunity cost of capital goods has remained unchanged.
D. decreased and the opportunity cost of capital goods has increased.
7. Arbez
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