1. If we wanted to prove that macaroni is an inferior good, we would test the __

Question

1. If we wanted to prove that macaroni is an inferior good, we would test the __________ of macaroni and
get a __________.
a. income elasticity; number less than 1
b. income elasticity; positive number
c. income elasticity; negative number
d. cross-price elasticity; negative number
e. price elasticity of demand; number greater than negative 1


____ 2. Supply curves generally slope upward because of all of the following reasons except one. Which is the
exception?
a. A higher price attracts resources from less-valued uses.
b. Producers have a greater incentive to sell more as the price increases.
c. The price of a good usually must fall to induce an increase in quantity supplied.
d. Producers must be compensated for the rising opportunity cost of additional output.
e. Producers are willing to offer more of a good at higher prices.


____ 3. If the price of potato chips increases, other things constant, demand for potato-chip dip will
a. increase because the goods are substitutes
b. decrease because the goods are complements
c. increase because the goods are complements
d. decrease because the goods are substitutes
e. not change; only quantity demanded will change


____ 4. Which of the following would shift the supply curve for a product to the right?
a. an improvement in the technology for producing the good
b. an increase in the price of a resource used in the good's production
c. an increase in the price of an alternative good
d. an increase in the price of the product
e. the expectation of a higher price in the near future


____ 5. Suppose Ferd truthfully tells the car dealer the maximum amount he's willing to pay for a Ford Mustang:
$20,000. The dealer says, "You're in luck; we have one on the lot for $20,000." Which of the following
statements is true?
a. The car is not worth $20,000.
b. Ferd will not buy the car.
c. Ferd gets $20,000 in consumer surplus.
d. The dealer earns $20,000 in consumer surplus.
e. Ferd gets no consumer surplus.


____ 6. If the administration raises tuition on our campus in order to increase revenue, it will
a. be successful if demand is inelastic
b. be successful if supply is inelastic
c. not be successful if the demand curve slopes downward
d. be successful if demand is elastic
e. be successful if supply is elastic

7. The supply of paintings by Van Gogh is most likely to be
a. unit elastic
b. of high elasticity because supply is limited
c. elastic because the paintings are luxury goods
d. of infinite elasticity because supply is limited
e. inelastic because supply is limited


____ 8. When economic choice involves an adjustment to an existing situation, marginal analysis
a. involves examining only the total costs and total benefits of an activity before deciding
b. has no practical applications or real-world uses
c. eliminates incorrect decisions and bad choices
d. involves comparing the additional costs and additional benefits of an activity before
deciding
e. none of the above


____ 9. The law of comparative advantage states that the person who should produce a good is the person who
a. has produced that good in the past
b. can produce that good using the fewest resources
c. has the lowest opportunity cost of producing that good
d. will produce that good using the most expensive resources
e. has the most desire for that good


____ 10. If people have more time to adjust to a price change,
a. both supply and demand become more elastic
b. demand becomes less elastic, and supply becomes more elastic
c. both supply and demand become less elastic
d. elasticity of both demand and supply tends toward unity
e. demand becomes more elastic, and supply becomes less elastic

12. In the market for chewing gum, the current price is 50 cents per pack and 100,000 packs are sold. Which
of the following events would lead to a new equilibrium price of 60 cents and quantity of 90,000 packs?
a. an increase in the price of the ingredients used to make chewing gum
b. a decrease in the number of young people in the population
c. an increase in the price of other kinds of candy
d. an agreement by workers in the chewing gum industry to work for lower wages
e. an increase in income


____ 13. Scarcity is best defined as
a. the private ownership of society's resources
b. insufficient resources to satisfy unlimited wants
c. unlimited resources
d. a shortage -- when buyers cannot obtain the goods they want
e. a surplus -- when sellers cannot sell the goods they produce


____ 14. Which of the following will increase the supply of vanilla ice cream?
a. a decrease in the sales tax on restaurant bills
b. an increase in the price of hot fudge
c. an increase in the price of chocolate ice cream
d. a decrease in the price of milk (an ingredient in ice cream)
e. an increase in the price of vanilla beans (an ingredient in ice cream)


____ 15. Sugar and honey are viewed as substitutes for each other in many cooking applications. If the price of
sugar rises, we would expect
a. the quantity demanded of honey to decrease
b. the price of honey to decrease
c. the demand for honey to decrease
d. the demand for honey to increase
e. the quantity demanded of honey to increase


____ 16. One group of people uses New York City subways only during rush hour to travel to and from work.
Another group uses them only in midday for leisure activity. If New York City wants to increase transit
fares with the smallest possible reduction in revenue, for which group should it increase the fare?
a. The rush-hour group because its demand for subway service is more elastic than that of the
midday group.
b. The rush-hour group because its demand for subway service is less elastic than that of the
midday group.
c. It doesn't matter because both groups have the same elasticity of demand.
d. The midday group because its demand for subway service is more elastic than that of the
rush-hour group.
e. The midday group because its demand for subway service is less elastic than that of the
rush-hour group.


____ 17. Which of the following is not true regarding a change in quantity demanded?
a. The demand curve shifts whenever the quantity demanded changes.
b. A change in quantity demanded is shown by a movement along a given demand curve.
c. A change in the price of a good, other things constant, will lead to a change in quantity
demanded.
d. The lower the price of a product, other things constant, the higher the quantity demanded.
e. A shift of the supply curve might cause a change in quantity demanded.



____ 18. Along a downward-sloping linear demand curve, total revenue is greatest if demand is
a. inelastic
b. elastic when prices are high
c. unit elastic
d. elastic
e. inelastic when prices are high


____ 19. For which of the following is demand most likely to be perfectly inelastic?
a. hot dogs
b. Tylenol
c. insulin
d. Pepsi Cola
e. BMW automobiles


____ 20. Suppose demand increases and supply increases. Which of the following will happen?
a. equilibrium quantity will increase
b. neither the equilibrium price nor the equilibrium quantity will change
c. equilibrium price will decrease
d. equilibrium price will increase
e. equilibrium quantity will decrease


____ 21. Increasing marginal returns are generally the result of
a. technology
b. specialization and division of labor
c. labor unions
d. increasing costs
e. diseconomies of scale

Explanation / Answer

1-c

2-c

3-b

4-a

5-e

6-a

7-c

8-d

9-c

12-a

13-b

14-d

15-d

16-b

17-a

18-e

19-c

20-a

21-b

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