1) Economic theory suggests that market failure is a result of: a) the quantity
ID: 1242164 • Letter: 1
Question
1) Economic theory suggests that market failure is a result of:a) the quantity demanded exceeding the quantity supplied
b) the quantity supplied exceeding the quantity demanded
c) prices that are too high or too low
d) markets not reflecting and revealing the full costs and benefitsof choices
2) An industry with external costs produces:
a) a quantity of output that is socially ideal quantity
b) a smaller quantity of output than the socially idealquantity
c) a larger quantity of output than the socially ideal quantity
d) the socially ideal quantity of output if a specific subsidy isgiven to buyers
3) The law of diminishing marginal utility exists for the fistthree units of a good if they have marginal utilities,respectively, of:
a) 8,9,10
b) 9,8,10
c) 9,10,8
d) 10,9,8
4) Utility maximization for all goods requires that:
a) the marginal utilities of all goods consumed divided by theirprices are equal to the budget constraint
b) the marginal utilities of all goods exceed the total utility ofall goods
c) the marginal utilities of all goods divided by their respectiveprices are equal
d) all of the above are true
5) John Smedley, a careful maximizer of utility, consumers only twogoods, peanut butter and ice cream. He had just achieved thatutility-maximizing solution in his consumption of the two goodswhen the price of ice cream fell. As he adjusts to this event, hewill consume:
a)more peanut butter and more ice cream
b) less peanut butter and less ice cream
c) more peanut butter and less ice cream
d) less of peanut butter and more ice cream
6) Market demand curves are found by:
a) determining the quantities demanded by all buyers at eachprice
b) adding the individual supply curves at each price
c) recording the quantities supplied in the market at eachprice
d) doing all of the above
7) The substitution effect of a price change is described by whichof the following statements?
a) when the price of a good falls, consumers have more real incomewith the same nominal income and will now buy more of the good
b) when the price of a good falls, consumers will now substitutethis lower priced good for relatively higher priced goods
c) the substitution effect is the relative change in the amount ofa good consumed when the price of another good changes
d) the substitution effect shows how change in income will affectthe quantity of a good purchases
8)Which of the following is (are) correct?
a) firms are organizations that produce goods and services
b) firms seek to maximize profits
c) firms seek to utilize factors of production in the mostefficient way in order to maximize profits
d) all of the above are correct
9) As compared to consumer choice theory, the marginal decisionrule when applied in the theory of the firm is:
a) more directly applicable
b) less directly applicable
c) equally applicable
d) equally irrelevant
10) The chief difference between the long-run and short-run costsfacing a firm is that:
a) there are no variable factors in the long run
b) there are no fixed factors in the long run
c) there are no fixed costs in the short run
d) the firm can't adjust its factor mix in the long run
11) Whenever supply increases, the resulting market price willalways be lower except:
a) when demand is perfectly price elastic ( when the demand curveis horizontal)
b) when demand curve is completely price inelastic (when the demandcurve is vertical)
c) when supply is perfectly price inelastic (when the supply curveis vertical)
d) in the case of demand having unit price elasticitythroughout
Explanation / Answer
1. D 2. C 3. D 4. C 5. D 6. A 7. B 8. D 9. I think C 10. B 11. A
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