Question Bank 逐题对照

In which of the following situations is a good NOT scarce?
A. Consumer give up nothing to obtain more of the good.
B. Consumer can purchase as much of the good as they want at its current market price.
C. Large quantities of the good are available in the marketplace.
D. There is a surplus of the good at some positive price.
E. There is a shortage of the good at some positive price.

In which of the following situations is a good NOT scarce?
A. Consumer give up nothing to obtain more of the good.
B. Consumer can purchase as much of the good as they want at its current market price.
C. Large quantities of the good are available in the marketplace.
D. There is a surplus of the good at some positive price.
E. There is a shortage of the good at some positive price.

As a factor of production, capital refers to the
A. money available to start a business
B. stocks and bonds issued by businesses to raise funds
C. financial investment of businesses
D. currency in circulation and deposits in financial institutions
E. tools and machinery used to produce goods and services

As a factor of production, capital refers to the
A. money available to start a business
B. stocks and bonds issued by businesses to raise funds
C. financial investment of businesses
D. currency in circulation and deposits in financial institutions
E. tools and machinery used to produce goods and services

Which of the following is necessary in a well-functioning capitalist economy but not in a command economy?
A. Centralized decision making
B. Scarcity of resources
C. Monopolies
D. Protection of property rights
E. Positive externalities

Which of the following is necessary in a well-functioning capitalist economy but not in a command economy?
A. Centralized decision making
B. Scarcity of resources
C. Monopolies
D. Protection of property rights
E. Positive externalities

Which of the following is associated with a command economy?
A. Competitive product markets
B. Use of resources for private gain
C. Use of available resources to meet all the needs and wants of its citizens
D. Entry of firms into industries with economic profit
E. Public ownership of the means of production

Which of the following is associated with a command economy?
A. Competitive product markets
B. Use of resources for private gain
C. Use of available resources to meet all the needs and wants of its citizens
D. Entry of firms into industries with economic profit
E. Public ownership of the means of production

Assume there are two goods in a market economy. The amount of each good produced is determined by
A. buyers and sellers’ interactions in the market for each good
B. a central planning agency
C. the desires of households only
D. each citizen's minimum needs for survival
E. popular voting with one vote per citizen

Assume there are two goods in a market economy. The amount of each good produced is determined by
A. buyers and sellers’ interactions in the market for each good
B. a central planning agency
C. the desires of households only
D. each citizen's minimum needs for survival
E. popular voting with one vote per citizen

Command economies differ from capitalist economies mainly because of which of the following?
A. Command economies have higher prices for oil.
B. Capitalist economies have higher prices for oil.
C. Command economies have higher degree of government ownership of resources.
D. Capitalist economies have higher degree of government ownership of resources.
E. Command economies rely on prices to allocate resources.

Command economies differ from capitalist economies mainly because of which of the following?
A. Command economies have higher prices for oil.
B. Capitalist economies have higher prices for oil.
C. Command economies have higher degree of government ownership of resources.
D. Capitalist economies have higher degree of government ownership of resources.
E. Command economies rely on prices to allocate resources.

In contrast to a market economy, a command economy relies on which of the following?
A. The private sector in deciding what goods will be produced
B. Private ownership of resources
C. Profits as incentives to make choices
D. The government to allocate resources
E. Supply and demand to determine prices

In contrast to a market economy, a command economy relies on which of the following?
A. The private sector in deciding what goods will be produced
B. Private ownership of resources
C. Profits as incentives to make choices
D. The government to allocate resources
E. Supply and demand to determine prices

In a command economy, the quantity of computers produced would be determined by
A. factory owners
B. the government
C. consumers and producers
D. international trade
E. the wealthy

In a command economy, the quantity of computers produced would be determined by
A. factory owners
B. the government
C. consumers and producers
D. international trade
E. the wealthy

The study of economics is primarily concerned with which of the following?
A. The testing of hypotheses under controlled conditions
B. The allocation of scarce resources, given unlimited wants
C. The fair and equal treatment of all households
D. The provision of conclusive answers to public policy issues
E. The development of the dynamics of group behavior

The study of economics is primarily concerned with which of the following?
A. The testing of hypotheses under controlled conditions
B. The allocation of scarce resources, given unlimited wants
C. The fair and equal treatment of all households
D. The provision of conclusive answers to public policy issues
E. The development of the dynamics of group behavior

Scarcity is correctly described by which of the following statements? I. Scarcity exists if there are more uses for resources than can be satisfied at one time. II. Scarcity exists if decisions must be made about alternative uses for resources. III. Scarcity would not exist in a society in which people wanted to help others instead of themselves.
A. I only
B. II only
C. III only
D. I and II only
E. I, II, and III

Scarcity is correctly described by which of the following statements?
I. Scarcity exists if there are more uses for resources than can be satisfied at one time.
II. Scarcity exists if decisions must be made about alternative uses for resources.
III. Scarcity would not exist in a society in which people wanted to help others instead of themselves.
A. I only
B. II only
C. III only
D. I and II only
E. I, II, and III

The study of economics exists because people are confronted with the basic problem of
A. elasticity
B. negative externality
C. scarcity
D. overabundance
E. monopoly

The study of economics exists because people are confronted with the basic problem of
A. elasticity
B. negative externality
C. scarcity
D. overabundance
E. monopoly

The basic economic problem of all countries is the existence of
A. tax increases and budget deficits
B. limited resources and unlimited wants
C. unemployment and inflation
D. government and private industry
E. unions and monopoly firms

The basic economic problem of all countries is the existence of
A. tax increases and budget deficits
B. limited resources and unlimited wants
C. unemployment and inflation
D. government and private industry
E. unions and monopoly firms

The fundamental difference between a market economy and a command economy lies in which of the following?
A. Property rights and protection of private property
B. Absolute and comparative advantages
C. Specialization and trade
D. Taxes and subsidies
E. Positive and negative externalities

The fundamental difference between a market economy and a command economy lies in which of the following?
A. Property rights and protection of private property
B. Absolute and comparative advantages
C. Specialization and trade
D. Taxes and subsidies
E. Positive and negative externalities

Which of the following describes a factor of production that is not fully scarce and that can be used simultaneously in the production of more than one good?
A. Machines that can produce both clothing and bedsheets
B. Unskilled labor needed to produce all goods
C. Basic knowledge that enhances the organization of all manufacturing assembly lines
D. Land that is cultivated for two crops by more than one farmer
E. Labor that has received enhanced training in assembly-line work

Which of the following describes a factor of production that is not fully scarce and that can be used simultaneously
in the production of more than one good?
A. Machines that can produce both clothing and bedsheets
B. Unskilled labor needed to produce all goods
C. Basic knowledge that enhances the organization of all manufacturing assembly lines
D. Land that is cultivated for two crops by more than one farmer
E. Labor that has received enhanced training in assembly-line work

Which of the following is NOT an example of physical capital?
A. A delivery truck
B. A warehouse
C. Office furniture
D. Machinery
E. Land

Which of the following is NOT an example of physical capital?
A. A delivery truck
B. A warehouse
C. Office furniture
D. Machinery
E. Land

Which of the following is true in a capitalist economy?
A. The factors of production are collectively owned.
B. The factors of production are distributed according to needs.
C. The prices of goods and services are usually determined by the government.
D. The prices of goods and services are set so that an equitable distribution of private property is achieved.
E. Prices serve as incentives for factors of production to move to the markets where they are most valued.

Which of the following is true in a capitalist economy?
A. The factors of production are collectively owned.
B. The factors of production are distributed according to needs.
C. The prices of goods and services are usually determined by the government.
D. The prices of goods and services are set so that an equitable distribution of private property is achieved.
E. Prices serve as incentives for factors of production to move to the markets where they are most valued.

Relative to a command economy, resources in a market economy are more commonly allocated by
A. democratic elections
B. government planning
C. the price system
D. established traditions
E. a system of checks and balances

Relative to a command economy, resources in a market economy are more commonly allocated by
A. democratic elections
B. government planning
C. the price system
D. established traditions
E. a system of checks and balances

Which of the following is the defining characteristic of a capitalistic economy?
A. Well-functioning capital markets
B. Private ownership and protection of property rights
C. Fair distribution of income and low income taxes
D. Equality of opportunity
E. Efficient allocation of resources

Which of the following is the defining characteristic of a capitalistic economy?
A. Well-functioning capital markets
B. Private ownership and protection of property rights
C. Fair distribution of income and low income taxes
D. Equality of opportunity
E. Efficient allocation of resources

Which of the following is a defining characteristic of a market economy?
A. Private ownership of resources
B. Equitable distribution of income
C. Taxation of personal income
D. Reliance on public goods
E. Government-guided resource allocation

Which of the following is a defining characteristic of a market economy?
A. Private ownership of resources
B. Equitable distribution of income
C. Taxation of personal income
D. Reliance on public goods
E. Government-guided resource allocation

The basic economic problem of all economies is essentially one of deciding how to make the best use of
A. unlimited resources to satisfy unlimited wants
B. limited resources to satisfy unlimited wants
C. unlimited resources to satisfy limited wants
D. limited resources to satisfy limited wants
E. limited resources to provide public goods

The basic economic problem of all economies is essentially one of deciding how to make the best use of
A. unlimited resources to satisfy unlimited wants
B. limited resources to satisfy unlimited wants
C. unlimited resources to satisfy limited wants
D. limited resources to satisfy limited wants
E. limited resources to provide public goods

Individual private property rights provide people incentives to
A. meet societal goals rather than pursue their own self-interest
B. produce goods and services regardless of market demand
C. achieve equitable distribution of goods and services through competitive markets
D. focus only on benefits without regard to costs
E. produce goods and services that are valued in markets

Individual private property rights provide people incentives to
A. meet societal goals rather than pursue their own self-interest
B. produce goods and services regardless of market demand
C. achieve equitable distribution of goods and services through competitive markets
D. focus only on benefits without regard to costs
E. produce goods and services that are valued in markets

Which of the following statements describes an economy confronting scarcity?
A. If more of one good is produced, less of another good must be produced.
B. An economy can produce a limitless amount of all goods.
C. All individuals are able to satisfy their consumption desires.
D. Scarcity is eliminated by government provision of goods.
E. Scarcity only exists as a problem when there is more than one good to produce.

Which of the following statements describes an economy confronting scarcity?
A. If more of one good is produced, less of another good must be produced.
B. An economy can produce a limitless amount of all goods.
C. All individuals are able to satisfy their consumption desires.
D. Scarcity is eliminated by government provision of goods.
E. Scarcity only exists as a problem when there is more than one good to produce.

Individuals and societies must make choices regarding which goods and services will be produced and consumed because
A. unlimited wants can only be satisfied by allocating resources efficiently
B. resources are insufficient to satisfy the unlimited wants of people
C. allocating scarce resources efficiently reduces the equitable distribution of goods
D. income is not equally distributed to ensure that everyone can participate in the market
E. a country cannot have a comparative advantage in the production of all goods

Individuals and societies must make choices regarding which goods and services will be produced and consumed
because
A. unlimited wants can only be satisfied by allocating resources efficiently
B. resources are insufficient to satisfy the unlimited wants of people
C. allocating scarce resources efficiently reduces the equitable distribution of goods
D. income is not equally distributed to ensure that everyone can participate in the market
E. a country cannot have a comparative advantage in the production of all goods

People must make choices among available options because people
A. are irrational
B. have limited wants
C. have limited resources
D. are not provided goods by the government
E. do not receive positive benefits from consuming certain goods

People must make choices among available options because people
A. are irrational
B. have limited wants
C. have limited resources
D. are not provided goods by the government
E. do not receive positive benefits from consuming certain goods

Individuals in any society must make choices regarding the types of goods and services to be produced because
A. free markets do not always allocate resources efficiently
B. free markets only satisfy the demands of paying consumers
C. opportunity costs increase as more of a good or service is produced
D. resources are scarce and human wants are unlimited
E. resources must be allocated for the benefit of the entire society

Individuals in any society must make choices regarding the types of goods and services to be produced because
A. free markets do not always allocate resources efficiently
B. free markets only satisfy the demands of paying consumers
C. opportunity costs increase as more of a good or service is produced
D. resources are scarce and human wants are unlimited
E. resources must be allocated for the benefit of the entire society

The allocation of resources in a market economy is described by which of the following statements? I. The government decides which goods will be produced and which consumers will receive them. II. Buyers and sellers exchange goods and services on a voluntary basis. III. Prices and costs help producers decide whether they are producing too little or too much of a good.
A. I only.
B. II only.
C. III only.
D. I and III only.
E. II and III only.

The allocation of resources in a market economy is described by which of the following statements?
I. The government decides which goods will be produced and which consumers will receive them.
II. Buyers and sellers exchange goods and services on a voluntary basis.
III. Prices and costs help producers decide whether they are producing too little or too much of a good.
A. I only.
B. II only.
C. III only.
D. I and III only.
E. II and III only.

Assume an economy is using all its available resources efficiently to produce only two goods, X and Y. As more of good X is produced, what happens to the production of good Y?
A. The production of good Y also increases.
B. More resources will need to be devoted to producing good Y.
C. Less of good Y is produced as resources move from producing good Y to producing good X.
D. The economy can only produce more of good X if there is more labor available.
E. There will be no loss of good Y produced.

Assume an economy is using all its available resources efficiently to produce only two goods, X and Y. As more of
good X is produced, what happens to the production of good Y?
A. The production of good Y also increases.
B. More resources will need to be devoted to producing good Y.
C. Less of good Y is produced as resources move from producing good Y to producing good X.
D. The economy can only produce more of good X if there is more labor available.
E. There will be no loss of good Y produced.

A country produces computers and rice. If resources are fully employed and there is technological progress only in the production of rice, the opportunity costs of producing computers and rice will change in which of the following ways?
A. Opportunity Cost of Computers Opportunity Cost of Rice Increase Increase
B. Opportunity Cost of Computers Opportunity Cost of Rice Increase Decrease
C. Opportunity Cost of Computers Opportunity Cost of Rice No change Decrease
D. Opportunity Cost of Computers Opportunity Cost of Rice Decrease Increase
E. Opportunity Cost of Computers Opportunity Cost of Rice Decrease Decrease

A country produces computers and rice. If resources are fully employed and there is technological progress only in
the production of rice, the opportunity costs of producing computers and rice will change in which of the following
ways?
A. Opportunity Cost of Computers
Opportunity Cost of Rice
Increase
Increase
B. Opportunity Cost of Computers
Opportunity Cost of Rice
Increase
Decrease
C. Opportunity Cost of Computers
Opportunity Cost of Rice
No change
Decrease
D. Opportunity Cost of Computers
Opportunity Cost of Rice
Decrease
Increase
E. Opportunity Cost of Computers
Opportunity Cost of Rice
Decrease
Decrease

Cindy and Martin both sew t-shirts in a small factory. Using the same resources, Martin can sew twelve t-shirts and Cindy can sew nine t-shirts in one day. Which of the following can be concluded from the given information?
A. Martin has a higher opportunity cost of sewing t-shirts than Cindy does.
B. Cindy has a comparative advantage in sewing t-shirts.
C. Martin has a comparative advantage in sewing t-shirts.
D. Martin has an absolute advantage in sewing t-shirts.
E. Cindy has an absolute advantage in sewing t-shirts.

Cindy and Martin both sew t-shirts in a small factory. Using the same resources, Martin can sew twelve t-shirts and
Cindy can sew nine t-shirts in one day. Which of the following can be concluded from the given information?
A. Martin has a higher opportunity cost of sewing t-shirts than Cindy does.
B. Cindy has a comparative advantage in sewing t-shirts.
C. Martin has a comparative advantage in sewing t-shirts.
D. Martin has an absolute advantage in sewing t-shirts.
E. Cindy has an absolute advantage in sewing t-shirts.

Both Amy and Brad produce and consume apple pie and ice cream. In one hour, Brad makes five apple pies or ten gallons of ice cream while Amy makes fifteen apple pies or fifteen gallons of ice cream. Based on the above information, one can correctly conclude that
A. Brad has an absolute advantage in making ice cream and will sell ice cream to Amy
B. Brad has a comparative advantage in making ice cream and will sell ice cream to Amy
C. Brad does not have a comparative advantage in making either good and will not trade with Amy
D. Brad has an absolute advantage in making apple pies but a comparative advantage in making ice cream
E. Brad’s opportunity cost of making ice cream is higher than Amy’s

Both Amy and Brad produce and consume apple pie and ice cream. In one hour, Brad makes five apple pies or ten
gallons of ice cream while Amy makes fifteen apple pies or fifteen gallons of ice cream. Based on the above
information, one can correctly conclude that
A. Brad has an absolute advantage in making ice cream and will sell ice cream to Amy
B. Brad has a comparative advantage in making ice cream and will sell ice cream to Amy
C. Brad does not have a comparative advantage in making either good and will not trade with Amy
D. Brad has an absolute advantage in making apple pies but a comparative advantage in making ice cream
E. Brad’s opportunity cost of making ice cream is higher than Amy’s

The table above shows the amount of labor required to produce a unit of corn and a unit of shoes in Brazil and Spain. If both countries have equal numbers of workers, what pattern of international trade between Brazil and Spain is most likely to emerge?
A. Brazil will export both corn and shoes.
B. Spain will export both corn and shoes.
C. No mutually beneficial trade can occur.
D. Brazil will export corn and import shoes.
E. Brazil will import corn and export shoes.

The table above shows the amount of labor required to produce a unit of corn and a unit of shoes in Brazil and
Spain. If both countries have equal numbers of workers, what pattern of international trade between Brazil and
Spain is most likely to emerge?
A. Brazil will export both corn and shoes.
B. Spain will export both corn and shoes.
C. No mutually beneficial trade can occur.
D. Brazil will export corn and import shoes.
E. Brazil will import corn and export shoes.

The table provided shows the number of labor hours required to produce a cell phone or a unit of lumber in Estonia and in Finland. Based on the information in the table, which of the following is true?
A. Estonia has a comparative advantage in producing lumber.
B. Finland has a comparative advantage in producing cell phones.
C. Finland has an absolute advantage in producing lumber.
D. Estonia has both the absolute and comparative advantages in producing lumber.
E. Neither country has a comparative advantage in producing cell phones.

The table provided shows the number of labor hours required to produce a cell phone or a unit of
lumber in Estonia and in Finland.
Cell Phone
Unit of Lumber
Estonia
hours
hours
Finland
hours
hours
Based on the information in the table, which of the following is true?
A. Estonia has a comparative advantage in producing lumber.
B. Finland has a comparative advantage in producing cell phones.
C. Finland has an absolute advantage in producing lumber.
D. Estonia has both the absolute and comparative advantages in producing lumber.
E. Neither country has a comparative advantage in producing cell phones.

A professor hires two aides, assigning them the tasks of reading student papers and of typing lecture notes on a computer. One of the aides, Ben, can read 1 page of a student paper per minute or type 50 words of lecture notes per minute, and the other aide, Ann, can read 3 pages of a student paper per minute or type 60 words of lecture notes per minute. Which of the following statements is true?
A. Ann has a comparative advantage in reading student papers, and Ben has a comparative advantage in
B. typing lecture notes.
C. Ann has an absolute advantage in reading student papers, and Ben has an absolute advantage in typing
D. lecture notes.
E. Ben has a comparative advantage in reading student papers, and Ann has a comparative advantage in

A professor hires two aides, assigning them the tasks of reading student papers and of typing lecture notes on a
computer. One of the aides, Ben, can read 1 page of a student paper per minute or type 50 words of lecture notes per
minute, and the other aide, Ann, can read 3 pages of a student paper per minute or type 60 words of lecture notes
per minute.
Which of the following statements is true?
A. Ann has a comparative advantage in reading student papers, and Ben has a comparative advantage in typing
lecture notes.
B. Ann has an absolute advantage in reading student papers, and Ben has an absolute advantage in typing
lecture notes.
C. Ben has a comparative advantage in reading student papers, and Ann has a comparative advantage in typing
lecture notes.
D. Ben has a comparative advantage in both reading student papers and typing lecture notes.
E. Ben has an absolute advantage in both reading student papers and typing lecture notes.

A linear production possibilities curve indicates which of the following?
A. Constant opportunity costs
B. Decreasing opportunity costs
C. Increasing opportunity costs
D. Diminishing marginal returns
E. Labor-intensive production

A linear production possibilities curve indicates which of the following?
A. Constant opportunity costs
B. Decreasing opportunity costs
C. Increasing opportunity costs
D. Diminishing marginal returns
E. Labor-intensive production

A farmer in Country A can harvest 20 bushels of wheat or 10 bushels of corn in a day, while a farmer in Country B can harvest 8 bushels of wheat or 8 bushels of corn in a day. If Country A and Country B specialize and trade, Country A will
A. export wheat and import corn
B. export corn and import wheat
C. export both wheat and corn
D. import both wheat and corn
E. benefit more from trade than will Country B

A farmer in Country A can harvest 20 bushels of wheat or 10 bushels of corn in a day, while a farmer in Country B
can harvest 8 bushels of wheat or 8 bushels of corn in a day. If Country A and Country B specialize and trade,
Country A will
A. export wheat and import corn
B. export corn and import wheat
C. export both wheat and corn
D. import both wheat and corn
E. benefit more from trade than will Country B

Country Opportunity Cost of 1 Ton of Apples Opportunity Cost of 1 Ton of Oranges X 1 ton of oranges 1 ton of apples Y 2 tons of oranges 0.5 ton of apples The table above shows the opportunity costs of producing apples and oranges in Countries X and Y. Which of the following can be concluded based on the data given in the table?
A. Country Y has an absolute advantage in producing both goods.
B. Country Y has a comparative advantage in producing both goods.
C. Country X has an absolute advantage in producing both goods.
D. Country X has a comparative advantage in producing oranges.
E. Country X has a comparative advantage in producing apples.

Country
Opportunity Cost of 1 Ton of Apples
Opportunity Cost of 1 Ton of Oranges
X
1 ton of oranges
1 ton of apples
Y
2 tons of oranges
0.5 ton of apples
The table above shows the opportunity costs of producing apples and oranges in Countries X and Y. Which of the
following can be concluded based on the data given in the table?
A. Country Y has an absolute advantage in producing both goods.
B. Country Y has a comparative advantage in producing both goods.
C. Country X has an absolute advantage in producing both goods.
D. Country X has a comparative advantage in producing oranges.
E. Country X has a comparative advantage in producing apples.

According to the information in the table above, which of the following statements is true if both countries have the same number of workers?
A. Country A has both an absolute and a comparative advantage in manufactured goods.
B. Country A has an absolute advantage in manufactured goods but a comparative advantage in service goods.
C. Country B has a comparative advantage in service goods but no absolute advantage in either good.
D. Country A has an absolute advantage in service goods but a comparative advantage in manufactured goods.
E. Country B has an absolute advantage in manufactured goods, but without more information, it is not possible to tell in which product it has a comparative advantage.

According to the information in the table above, which of the following statements is true if both countries have the
same number of workers?
A. Country A has both an absolute and a comparative advantage in manufactured goods.
B. Country A has an absolute advantage in manufactured goods but a comparative advantage in service goods.
C. Country B has a comparative advantage in service goods but no absolute advantage in either good.
D. Country A has an absolute advantage in service goods but a comparative advantage in manufactured goods.
E. Country B has an absolute advantage in manufactured goods, but without more information, it is not possible
to tell in which product it has a comparative advantage.

Dana and Robin produce smoothies and pizza. In one hour Dana can make 20 smoothies or 10 pizzas. In one hour Robin can make 18 smoothies or 6 pizzas. Which of the following statements is true?
A. Robin has an absolute advantage in making smoothies and a comparative advantage in making pizzas.
B. Robin has both an absolute advantage and a comparative advantage in making pizzas.
C. Dana has a comparative advantage in making both smoothies and pizzas.
D. Dana has a comparative advantage in making pizzas, and Robin has a comparative advantage in making smoothies.
E. Dana has a comparative advantage in making smoothies, and Robin has a comparative advantage in making pizzas.

Dana and Robin produce smoothies and pizza. In one hour Dana can make 20 smoothies or 10 pizzas. In one hour
Robin can make 18 smoothies or 6 pizzas. Which of the following statements is true?
A. Robin has an absolute advantage in making smoothies and a comparative advantage in making pizzas.
B. Robin has both an absolute advantage and a comparative advantage in making pizzas.
C. Dana has a comparative advantage in making both smoothies and pizzas.
D. Dana has a comparative advantage in making pizzas, and Robin has a comparative advantage in making
smoothies.
E. Dana has a comparative advantage in making smoothies, and Robin has a comparative advantage in making
pizzas.

Of the feasible and efficient points on the production possibilities curve ( PPC )above, producing at which point will lead to the most economic growth in the future?
A. Point M
B. Point N
C. Point R
D. Point J
E. Point S

Of the feasible and efficient points on the production possibilities curve
above, producing at which point
will lead to the most economic growth in the future?
A. Point M
B. Point N
C. Point R
D. Point J
E. Point S

Where on a graph of a production possibilities curve would a point showing that an economy is using its resources efficiently be located?
A. On the production possibilities curve
B. Inside the production possibilities curve
C. Beyond the production possibilities curve
D. On the y -axis and below the production possibilities curve
E. On the x -axis and below the production possibilities curve

Where on a graph of a production possibilities curve would a point showing that an economy is using its resources
efficiently be located?
A. On the production possibilities curve
B. Inside the production possibilities curve
C. Beyond the production possibilities curve
D. On the
-axis and below the production possibilities curve
E. On the
-axis and below the production possibilities curve

The diagram above shows an economy's current production possibilities curve for capital goods and consumer goods. If society chooses point B over point A, society is choosing
A. more future consumption in exchange for less current consumption
B. more current capital goods in exchange for less future consumption
C. more future and current consumption
D. less future consumption in exchange for more current consumption
E. less current capital goods in exchange for greater future consumption

The diagram above shows an economy's current production possibilities curve for capital goods and consumer
goods. If society chooses point B over point A, society is choosing
A. more future consumption in exchange for less current consumption
B. more current capital goods in exchange for less future consumption
C. more future and current consumption
D. less future consumption in exchange for more current consumption
E. less current capital goods in exchange for greater future consumption

The chart below shows the number of resource units the countries Gamma and Omega must use to produce one unit of food or one unit of clothing. Which of the following statements is true according to the chart above?
A. Trade should take place, with Gamma specializing in clothing production and Omega specializing in food production.
B. Trade should take place, with Gamma specializing in food production and Omega specializing in clothing production.
C. Each country should devote half of its resources to food production and half to clothing production and not trade.
D. Since Omega can produce both food and clothing using fewer resources than Gamma, it cannot benefit from trade with Gamma
E. Since Gamma can produce both food and clothing using fewer resources than Omega, it cannot benefit trade with Omega.

The chart below shows the number of resource units the countries Gamma and Omega must use to produce one unit
of food or one unit of clothing.
Which of the following statements is true according to the chart above?
A. Trade should take place, with Gamma specializing in clothing production and Omega specializing in food
production.
B. Trade should take place, with Gamma specializing in food production and Omega specializing in clothing
production.
C. Each country should devote half of its resources to food production and half to clothing production and not
trade.
D. Since Omega can produce both food and clothing using fewer resources than Gamma, it cannot benefit from
trade with Gamma
E. Since Gamma can produce both food and clothing using fewer resources than Omega, it cannot benefit trade
with Omega.

The graph above shows an economy's production possibilities frontier for the production of two goods, X and Y. Assume that the economy is currently at point B. The opportunity cost of moving from point B to point C is
A. AH units of good Y
B. HG units of good Y
C. OG units of good Y
D. EF units of good X
E. OF units good X

The graph above shows an economy's production possibilities frontier for the production of two goods, X and Y.
Assume that the economy is currently at point B. The opportunity cost of moving from point B to point C is
A. AH units of good Y
B. HG units of good Y
C. OG units of good Y
D. EF units of good X
E. OF units good X

Improvements in technology for producing all goods must result in
A. an inward shift in the production possibilities curve
B. an outward shift in the production possibilities curve
C. a flatter production possibilities curve
D. a steeper production possibilities curve
E. greater unemployment of labor

Improvements in technology for producing all goods must result in
A. an inward shift in the production possibilities curve
B. an outward shift in the production possibilities curve
C. a flatter production possibilities curve
D. a steeper production possibilities curve
E. greater unemployment of labor

Which of the following statements regarding specialization and trade is true?
A. With specialization and trade, a country’s production possibilities curve shifts out, showing an increase in productive capacity.
B. With specialization and trade, a country will produce a combination of goods beyond its production possibilities curve.
C. To gain from trade, countries specialize in producing goods and services in which they have an absolute advantage.
D. With specialization and trade, a country can consume beyond its production possibilities curve.
E. A country must have both the comparative and the absolute advantage in a product to specialize and gain from trade.

Which of the following statements regarding specialization and trade is true?
A. With specialization and trade, a country’s production possibilities curve shifts out, showing an increase in
productive capacity.
B. With specialization and trade, a country will produce a combination of goods beyond its production
possibilities curve.
C. To gain from trade, countries specialize in producing goods and services in which they have an absolute
advantage.
D. With specialization and trade, a country can consume beyond its production possibilities curve.
E. A country must have both the comparative and the absolute advantage in a product to specialize and gain
from trade.

An outward shift in the production possibilities curve of an economy can be caused be an increase in
A. unemployment
B. the labor force
C. inflation
D. output
E. demand

An outward shift in the production possibilities curve of an economy can be caused be an increase in
A. unemployment
B. the labor force
C. inflation
D. output
E. demand

Which of the following explains why a production possibilities curve is often represented as concave (bowed out) from the origin?
A. The law of demand
B. The law of supply
C. Constant returns to scale
D. Decreasing opportunity cost
E. Increasing opportunity cost

Which of the following explains why a production possibilities curve is often represented as concave (bowed out)
from the origin?
A. The law of demand
B. The law of supply
C. Constant returns to scale
D. Decreasing opportunity cost
E. Increasing opportunity cost

Assume both Italy and Greece produce only two goods: wine and olive oil. If Italy holds a comparative advantage in the production of wine, then which of the following statements is NOT true?
A. Italy must hold an absolute advantage in the production of wine.
B. Greece holds a comparative advantage in the production of olive oil.
C. Italy's opportunity cost of producing one additional unit of wine is lower than Greece's.
D. Greece's opportunity cost of producing one additional unit of olive oil is lower than Italy's.
E. If trade is open between them, these countries have an incentive to trade.

Assume both Italy and Greece produce only two goods: wine and olive oil. If Italy holds a comparative advantage in
the production of wine, then which of the following statements is NOT true?
A. Italy must hold an absolute advantage in the production of wine.
B. Greece holds a comparative advantage in the production of olive oil.
C. Italy's opportunity cost of producing one additional unit of wine is lower than Greece's.
D. Greece's opportunity cost of producing one additional unit of olive oil is lower than Italy's.
E. If trade is open between them, these countries have an incentive to trade.

Using the same amount of time and resources, Jack can assemble either 10 bikes or 5 computers, whereas Sam can assemble either 5 bikes or 5 computers. Based on the data, which of the following statements is correct?
A. Sam has an absolute advantage in assembling bikes.
B. Sam has an absolute advantage in assembling computers.
C. Sam has a comparative advantage in assembling bikes.
D. Jack has a comparative advantage in assembling bikes.
E. Jack has a comparative advantage in assembling both bikes and computers.

Using the same amount of time and resources, Jack can assemble either 10 bikes or 5 computers, whereas Sam can
assemble either 5 bikes or 5 computers. Based on the data, which of the following statements is correct?
A. Sam has an absolute advantage in assembling bikes.
B. Sam has an absolute advantage in assembling computers.
C. Sam has a comparative advantage in assembling bikes.
D. Jack has a comparative advantage in assembling bikes.
E. Jack has a comparative advantage in assembling both bikes and computers.

The table below shows the number of hours it takes for Kim to install a computer or to paint a garage and for Maria to install a computer or to paint a garage. If tasks are assigned according to comparative advantage, which of the following is true?
A. Kim should perform both tasks.
B. Maria should perform both tasks.
C. Kim should install computers and Maria should paint garages.
D. Kim should paint garages and Maria should install computers.
E. Kim and Maria should both install computers.

The table below shows the number of hours it takes for Kim to install a computer or to paint a garage and for Maria
to install a computer or to paint a garage.
If tasks are assigned according to comparative advantage, which of the following is true?
A. Kim should perform both tasks.
B. Maria should perform both tasks.
C. Kim should install computers and Maria should paint garages.
D. Kim should paint garages and Maria should install computers.
E. Kim and Maria should both install computers.

Assume that an economy produces televisions and shoes. Which of the following would cause the production possibilities curve for this economy to shift outward?
A. An increase in the labor force
B. An increase in the prices of both goods
C. An increase in the prices of resources used to produce both goods
D. A decrease in the demand for shoes
E. A change in consumers’ tastes in favor of televisions

Assume that an economy produces televisions and shoes. Which of the following would cause the production
possibilities curve for this economy to shift outward?
A. An increase in the labor force
B. An increase in the prices of both goods
C. An increase in the prices of resources used to produce both goods
D. A decrease in the demand for shoes
E. A change in consumers’ tastes in favor of televisions

An economy produces two goods: X and Y. Its production possibilities curve is linear with the intercept on the Y axis at 1,000 units and the intercept on the X axis at 100 units. Which of the following statements is correct?
A. There is an increasing opportunity cost of producing good X, beginning with 1 unit of X costing 0.1 unit of Y.
B. There is an increasing opportunity cost of producing good Y but not of producing good X, which has a constant opportunity cost.
C. There is a constant opportunity cost with each unit of good X costing 10 units of good Y.
D. There is a constant opportunity cost with 10 units of good X costing 1 unit of good Y.
E. With a linear production possibilities curve, total production of goods X and Y will be the same at each point on the curve.

An economy produces two goods: X and Y. Its production possibilities curve is linear with the intercept on the Y
axis at 1,000 units and the intercept on the X axis at 100 units. Which of the following statements is correct?
A. There is an increasing opportunity cost of producing good X, beginning with 1 unit of X costing 0.1 unit of
Y.
B. There is an increasing opportunity cost of producing good Y but not of producing good X, which has a
constant opportunity cost.
C. There is a constant opportunity cost with each unit of good X costing 10 units of good Y.
D. There is a constant opportunity cost with 10 units of good X costing 1 unit of good Y.
E. With a linear production possibilities curve, total production of goods X and Y will be the same at each point
on the curve.

Good X (units) Good Y (units) 0 100 20 95 40 85 60 65 80 35 100 0 The table above shows the maximum possible output combinations of good X and good Y that Microland can produce by using all of its available resources and technology. As the production of good X increases, what happens to the opportunity cost of producing good X?
A. It decreases, because the production of good Y decreases by greater amounts.
B. It decreases, because the production of good Y increases by smaller amounts.
C. It remains constant, because the production of good X increases by the same amount.
D. It increases, because the production of good Y decreases by greater amounts.
E. It increases, because the production of good Y increases by smaller amounts.

Good X (units)
Good Y (units)
0
100
20
95
40
85
60
65
80
35
100
0
The table above shows the maximum possible output combinations of good X and good Y that Microland can
produce by using all of its available resources and technology. As the production of good X increases, what happens
to the opportunity cost of producing good X?
A. It decreases, because the production of good Y decreases by greater amounts.
B. It decreases, because the production of good Y increases by smaller amounts.
C. It remains constant, because the production of good X increases by the same amount.
D. It increases, because the production of good Y decreases by greater amounts.
E. It increases, because the production of good Y increases by smaller amounts.

Movement along a production possibilities curve shows which of the following?
A. The trade-offs society faces
B. The total amount of available resources
C. The combination of inputs required for a given output
D. The relationship between the price of an input and the quantity demanded
E. The decrease in efficiency

Movement along a production possibilities curve shows which of the following?
A. The trade-offs society faces
B. The total amount of available resources
C. The combination of inputs required for a given output
D. The relationship between the price of an input and the quantity demanded
E. The decrease in efficiency

According to the data above, if Mr. X and Ms. Y have the opportunity to trade, which of the following will be mutually beneficial?
A. Ms. Y sells shoes to and buys bread from Mr. X.
B. Ms. Y sells bread to and buys shoes from Mr. X.
C. Ms. Y sells both bread and shoes to Mr. X.
D. Ms. Y buys both bread and shoes from Mr. X.
E. Ms. Y and Mr. X do not trade with each other.

According to the data above, if Mr. X and Ms. Y have the opportunity to trade, which of the following will be
mutually beneficial?
A. Ms. Y sells shoes to and buys bread from Mr. X.
B. Ms. Y sells bread to and buys shoes from Mr. X.
C. Ms. Y sells both bread and shoes to Mr. X.
D. Ms. Y buys both bread and shoes from Mr. X.
E. Ms. Y and Mr. X do not trade with each other.

A production possibilities curve can shift inward if there is
A. an increase in productivity
B. an increase in unemployment
C. an increase in the price of raw materials
D. a misallocation of resources
E. a natural disaster

A production possibilities curve can shift inward if there is
A. an increase in productivity
B. an increase in unemployment
C. an increase in the price of raw materials
D. a misallocation of resources
E. a natural disaster

Based on the production possibilities curve for books and pencils shown above, what is the opportunity cost of producing a book?
A. 30 pencils
B. 10 pencils
C. 3 pencils
D. 1/3 of a pencil
E. 1/10 of a pencil

Based on the production possibilities curve for books and pencils shown above, what is the opportunity cost of
producing a book?
A. 30 pencils
B. 10 pencils
C. 3 pencils
D. 1/3 of a pencil
E. 1/10 of a pencil

The table above shows six possible combinations of houses and grain that a country can produce in a year using all currently available resources and technology. The opportunity cost of changing production from combination B to combination C is
A. 1 house
B. 2 houses
C. 100,000 bushels of grain
D. 850,000 bushels of grain
E. 950,000 bushels of grain

Combination
Houses
Grain (in bushels)
The table above shows six possible combinations of houses and grain that a country can produce in a year using all
currently available resources and technology. The opportunity cost of changing production from combination
to
combination
is
A. house
B. houses
C. bushels of grain
D. bushels of grain
E. bushels of grain

Two alternative production possibility frontiers for apples and wheat are shown in the figures below. As more wheat is produced, how will the opportunity cost of producing wheat, as represented in Figures 1 and 2, be affected?
A. Figure 1 Figure 2 Decrease Increase
B. Figure 1 Figure 2 Increase Decrease
C. Figure 1 Figure 2 No change Increase
D. Figure 1 Figure 2 No change Decrease
E. Figure 1 Figure 2 Increase No change

Two alternative production possibility frontiers for apples and wheat are shown in the figures below.
As more wheat is produced, how will the opportunity cost of producing wheat, as represented in Figures 1 and 2, be
affected?
A. Figure 1
Figure 2
Decrease
Increase
B. Figure 1
Figure 2
Increase
Decrease
C. Figure 1
Figure 2
No change
Increase
D. Figure 1
Figure 2
No change
Decrease
E. Figure 1
Figure 2
Increase
No change

The table below represents points on an economy's current production possibilities curve. The opportunity cost of increasing the production of good Y from 0 to 200 is
A. 1,000 units of X
B. 980 units of X
C. 200 units of X
D. 20 units of X
E. 5 units of X

The table below represents points on an economy's current production possibilities curve.
The opportunity cost of increasing the production of good Y from 0 to 200 is
A. 1,000 units of X
B. 980 units of X
C. 200 units of X
D. 20 units of X
E. 5 units of X

An outward shift of a production possibilities curve can be caused by
A. planting a more profitable farm crop
B. improving technology
C. using idle resources
D. changing consumer preferences
E. increasing the minimum wage

An outward shift of a production possibilities curve can be caused by
A. planting a more profitable farm crop
B. improving technology
C. using idle resources
D. changing consumer preferences
E. increasing the minimum wage
The table below shows the total labor hours required to produce a unit of gold and the total labor hours required to
produce a unit of sugar in Portugal and Spain, respectively.

Which country has an absolute advantage in sugar production?
A. Neither Spain nor Portugal, because both require fewer labor hours to produce a unit of gold than to produce a unit of sugar.
B. Spain, because the opportunity cost of sugar in terms of gold is lower.
C. Spain, because it requires fewer total labor hours than Portugal to produce a unit of sugar.
D. Portugal, because it requires more total labor hours than Spain to produce a unit of sugar.
E. Portugal, because it takes only a quarter of an hour to produce a unit of sugar.

Which country has an absolute advantage in sugar production?
A. Neither Spain nor Portugal, because both require fewer labor hours to produce a unit of gold than to produce
a unit of sugar.
B. Spain, because the opportunity cost of sugar in terms of gold is lower.
C. Spain, because it requires fewer total labor hours than Portugal to produce a unit of sugar.
D. Portugal, because it requires more total labor hours than Spain to produce a unit of sugar.
E. Portugal, because it takes only a quarter of an hour to produce a unit of sugar.

According to the graph above, if a country is currently producing at point X, the opportunity cost of producing another consumer good is
A. 20 capital goods
B. more than 20 capital goods
C. fewer than 20 capital goods
D. 20 consumer goods
E. fewer than 20 consumer goods

According to the graph above, if a country is currently producing at point X, the opportunity cost of producing
another consumer good is
A. 20 capital goods
B. more than 20 capital goods
C. fewer than 20 capital goods
D. 20 consumer goods
E. fewer than 20 consumer goods
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,”
you must show how you arrived at your final answer.
Assume both Atlantis and Zanadu produce helmets and baseballs. Using equal amounts of resources, Atlantis can produce
100 helmets or 200 baseballs, whereas Zanadu can produce 100 helmets or 400 baseballs.
(a) Assume both Atlantis and Zanadu experience constant opportunity costs in producing helmets and baseballs. Draw a
correctly labeled graph illustrating the production possibilities curves
for Atlantis and Zanadu, showing helmets
on the horizontal axis and baseballs on the vertical axis. Plot the numerical values provided above on your graph.
(b) Calculate the opportunity cost of one helmet for Atlantis. Show your work.
(c) Which country has an absolute advantage in the production of baseballs?
(d) Which country has a comparative advantage in the production of baseballs? Explain.
(e) If Atlantis and Zanadu specialize based on comparative advantage and trade, would they be able to gain from trade if
the terms of trade are 1 helmet for 3 baseballs? Explain.

The diagram above shows the production possibilities curve for Country Y. Which of the following statements is true?
A. If Country Y is producing at point C, it is using all its resources efficiently.
B. The opportunity cost of producing more machines is constant.
C. Producing at point C is the most preferable, because butter is a nondurable good.
D. Country Y cannot produce at point E.
E. The economy is not producing at its potential, since it is not producing at point D.

The diagram above shows the production possibilities curve for Country Y. Which of the following statements is
true?
A. If Country Y is producing at point C, it is using all its resources efficiently.
B. The opportunity cost of producing more machines is constant.
C. Producing at point C is the most preferable, because butter is a nondurable good.
D. Country Y cannot produce at point E.
E. The economy is not producing at its potential, since it is not producing at point D.
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,”
you must show how you arrived at your final answer.
The data provided below describe an ice-cream store’s daily production possibilities for milkshakes and sundaes.
Milkshakes
0
20
40
60
80
100 120
Sundaes
210 200 180 150 110 60
0
(a) Draw a correctly labeled graph of the store’s production possibilities curve
with milkshakes on the horizontal
axis and sundaes on the vertical axis and label the endpoints using the numbers provided above.
(b) Is the opportunity cost of producing milkshakes increasing, decreasing, or constant? Explain using numbers in the
table.
(c) The store is currently producing 80 milkshakes and 110 sundaes. Calculate the opportunity cost of increasing
milkshake production from 80 to 100 milkshakes. Show your work.
(d) Would it be efficient for the store to produce 80 milkshakes and 150 sundaes? Explain using numbers in the table.
(e) Suppose the ice-cream store purchases a new machine that increases the output of milkshakes and sundaes. Show the
effect of the change on the store’s
on your graph in part (a).

According to the production possibilities curve above, which of the following is true?
A. The opportunity cost of producing another unit of good Y in terms of good X increases as more of good Y is produced.
B. The opportunity cost of producing another unit of good Y in terms of good X decreases as more of good Y is produced.
C. The opportunity cost of producing another unit of good X in terms of good Y increases as more of good X is produced.
D. The opportunity cost of producing another unit of good X in terms of good Y decreases as more of good X is produced.
E. The opportunity cost of producing another unit of either good remains constant as the production of the other good increases.

According to the production possibilities curve above, which of the following is true?
A. The opportunity cost of producing another unit of good Y in terms of good X increases as more of good Y is
produced.
B. The opportunity cost of producing another unit of good Y in terms of good X decreases as more of good Y is
produced.
C. The opportunity cost of producing another unit of good X in terms of good Y increases as more of good X is
produced.
D. The opportunity cost of producing another unit of good X in terms of good Y decreases as more of good X is
produced.
E. The opportunity cost of producing another unit of either good remains constant as the production of the other
good increases.
The following questions are based on the production possibilities curve depicted below.

Based on a comparison of points X, Y, and Z, the opportunity cost of an additional consumer good is
A. highest at point X
B. highest at point Y
C. highest at point Z
D. lowest at point Y
E. the same at points X, Y, and Z

Based on a comparison of points X, Y, and Z, the opportunity cost of an additional consumer good is
A. highest at point X
B. highest at point Y
C. highest at point Z
D. lowest at point Y
E. the same at points X, Y, and Z

Given the production possibilities curve above, which of the following represents a movement from efficiency to inefficiency?
A. Point X to point W
B. Point X to point Z
C. Point Y to point Z
D. Point W to point Z
E. Point V to point Y

Given the production possibilities curve above, which of the following represents a movement from efficiency to
inefficiency?
A. Point X to point W
B. Point X to point Z
C. Point Y to point Z
D. Point W to point Z
E. Point V to point Y

Economic growth can be depicted using a production possibilities curve by which of the following?
A. A rightward shift of the curve
B. A movement upward on an existing curve
C. A movement downward on an existing curve
D. A movement from a point outside the curve to a point on the curve
E. A movement from a point on the curve to a point inside the curve

Economic growth can be depicted using a production possibilities curve by which of the following?
A. A rightward shift of the curve
B. A movement upward on an existing curve
C. A movement downward on an existing curve
D. A movement from a point outside the curve to a point on the curve
E. A movement from a point on the curve to a point inside the curve

Which of the following is true of an economy’s production possibilities curve?
A. It shows the combinations of any two resources that can be used to produce an efficient level of output.
B. It shows the alternative combinations of goods that can be produced by fully employing scarce resources.
C. It must be a straight line when all resources are fully employed.
D. It is bowed in (convex to the origin) because of changing levels of technology.
E. It is bowed out (concave to the origin) when marginal opportunity costs are constant.

Which of the following is true of an economy’s production possibilities curve?
A. It shows the combinations of any two resources that can be used to produce an efficient level of output.
B. It shows the alternative combinations of goods that can be produced by fully employing scarce resources.
C. It must be a straight line when all resources are fully employed.
D. It is bowed in (convex to the origin) because of changing levels of technology.
E. It is bowed out (concave to the origin) when marginal opportunity costs are constant.

A production possibilities curve is bowed out, indicating increasing opportunity cost because of
A. the law of demand
B. the law of diminishing marginal utility
C. the existence of unemployment
D. differences in consumer tastes
E. imperfect adaptability of resources to alternative uses

A production possibilities curve is bowed out, indicating increasing opportunity cost because of
A. the law of demand
B. the law of diminishing marginal utility
C. the existence of unemployment
D. differences in consumer tastes
E. imperfect adaptability of resources to alternative uses

If resources were perfectly substitutable in all activities, which of the following would be true?
A. Output of all goods could be increased at zero opportunity cost.
B. The production possibilities curve would be a straight line.
C. Specialization and mutually beneficial trade would be impossible.
D. No country or individual would have a comparative advantage in any activity.
E. Scarcity of resources would be eliminated.

If resources were perfectly substitutable in all activities, which of the following would be true?
A. Output of all goods could be increased at zero opportunity cost.
B. The production possibilities curve would be a straight line.
C. Specialization and mutually beneficial trade would be impossible.
D. No country or individual would have a comparative advantage in any activity.
E. Scarcity of resources would be eliminated.
Assume that Countries A and B have equal amounts of resources and identical technologies. Country A can produce 100
bushels of wheat or 100 yards of cloth or any combination, as shown by the line XZ in the figure above. Country B can
produce 100 bushels of wheat or 300 yards of cloth or any combination, as shown by the line XY in the figure above.
a. Which country has an absolute advantage in the production of wheat and which has an absolute advantage in the
production of cloth? Explain how you determined your answer.
b. Which country has a comparative advantage in the production of wheat and which has a comparative advantage
in the production of cloth? Explain how you determined your answer.
c. With specialization and trade, which country will import wheat? Explain why.
d. Assume that the two countries trade, and that one bushel of wheat is exchanged for two yards of cloth. Explain
why the country that imports wheat will gain from trade.

The table above shows the maximum number of palm leaves or coconuts that Robert and Frank can pick respectively in a single day. Which of the following is true?
A. Robert has a comparative advantage in picking coconuts.
B. Frank has a comparative advantage in picking palm leaves.
C. Robert and Frank can both benefit from trade with each other if 1 coconut is traded for 1 palm leaf.
D. Robert and Frank can both benefit from trade with each other if 1 coconut is traded for 3 palm leaves.
E. Robert and Frank can both benefit from trade with each other if 1 coconut is traded for 5 palm leaves.

The table above shows the maximum number of palm leaves or coconuts that Robert and Frank can pick
respectively in a single day. Which of the following is true?
A. Robert has a comparative advantage in picking coconuts.
B. Frank has a comparative advantage in picking palm leaves.
C. Robert and Frank can both benefit from trade with each other if 1 coconut is traded for 1 palm leaf.
D. Robert and Frank can both benefit from trade with each other if 1 coconut is traded for 3 palm leaves.
E. Robert and Frank can both benefit from trade with each other if 1 coconut is traded for 5 palm leaves.

Suppose that in one week Sam can knit 5 sweaters or make 4 blankets and Rob can knit 10 sweaters or make 6 blankets. Which of the following is true?
A. Sam has an absolute advantage in making blankets.
B. Sam has an absolute advantage in knitting sweaters.
C. Sam has a comparative advantage in making blankets.
D. Sam has a comparative advantage in knitting sweaters.
E. Sam has neither a comparative nor an absolute advantage in knitting sweaters or making blankets.

Suppose that in one week Sam can knit 5 sweaters or make 4 blankets and Rob can knit 10 sweaters or make 6
blankets. Which of the following is true?
A. Sam has an absolute advantage in making blankets.
B. Sam has an absolute advantage in knitting sweaters.
C. Sam has a comparative advantage in making blankets.
D. Sam has a comparative advantage in knitting sweaters.
E. Sam has neither a comparative nor an absolute advantage in knitting sweaters or making blankets.

Assume an economy uses one input, labor, to produce two goods, X and Y, with constant opportunity cost. Which of the following would cause a parallel shift to the right of the production possibilities curve ?
A. An increase in the productivity of labor with respect to producing good X
B. An increase in the amount of labor available for production
C. A reduction in the unemployment of labor
D. An increase in the demand for good X and good Y
E. A change in consumer tastes from good Y to good X

Assume an economy uses one input, labor, to produce two goods, X and Y, with constant opportunity cost. Which
of the following would cause a parallel shift to the right of the production possibilities curve
?
A. An increase in the productivity of labor with respect to producing good X
B. An increase in the amount of labor available for production
C. A reduction in the unemployment of labor
D. An increase in the demand for good X and good Y
E. A change in consumer tastes from good Y to good X

If nations specialize according to their comparative advantage and engage in international trade with each other, each nation can
A. produce outside its production possibilities curve
B. consume outside its production possibilities curve
C. shift its production possibilities curve to the right
D. become more self-sufficient
E. produce more of all goods

If nations specialize according to their comparative advantage and engage in international trade with each other,
each nation can
A. produce outside its production possibilities curve
B. consume outside its production possibilities curve
C. shift its production possibilities curve to the right
D. become more self-sufficient
E. produce more of all goods

A country can consume beyond its present production possibilities curve when it
A. trades with other countries, thus taking advantages of different opportunity costs
B. reduces unemployment, thus increasing output
C. experiences decreasing opportunity costs.
D. faces an upward-sloping production possibilities curve
E. faces a downward-sloping production possibilities curve

A country can consume beyond its present production possibilities curve when it
A. trades with other countries, thus taking advantages of different opportunity costs
B. reduces unemployment, thus increasing output
C. experiences decreasing opportunity costs.
D. faces an upward-sloping production possibilities curve
E. faces a downward-sloping production possibilities curve

For an economy with a straight-line production possibilities curve, which of the following must be true? I. The opportunity cost of producing another unit is constant. II. Resources are completely adaptable to alternative uses. III. Resources are used efficiently.
A. I only
B. II only
C. III only
D. I and II
E. II and III

For an economy with a straight-line production possibilities curve, which of the following must be true?
I. The opportunity cost of producing another unit is constant.
II. Resources are completely adaptable to alternative uses.
III. Resources are used efficiently.
A. I only
B. II only
C. III only
D. I and II
E. II and III

In the country Beta it takes two hours of labor to produce a unit of tea and four hours of labor to produce a unit of bread. In the country Zeta it takes three hours of labor to produce a unit of tea and nine hours of labor to produce a unit of bread. Which of the following is true?
A. Country Zeta has an absolute advantage in producing both tea and bread.
B. Country Zeta has an absolute advantage and a comparative advantage in producing tea.
C. Country Beta has an absolute advantage and a comparative advantage in producing tea.
D. Country Beta has the lower opportunity cost in producing bread and therefore a comparative advantage in producing bread.
E. Country Beta, with trade, will export both tea and bread to country Zeta.

In the country Beta it takes two hours of labor to produce a unit of tea and four hours of labor to produce a unit of
bread. In the country Zeta it takes three hours of labor to produce a unit of tea and nine hours of labor to produce a
unit of bread. Which of the following is true?
A. Country Zeta has an absolute advantage in producing both tea and bread.
B. Country Zeta has an absolute advantage and a comparative advantage in producing tea.
C. Country Beta has an absolute advantage and a comparative advantage in producing tea.
D. Country Beta has the lower opportunity cost in producing bread and therefore a comparative advantage in
producing bread.
E. Country Beta, with trade, will export both tea and bread to country Zeta.

The diagram above shows the production possibilities curves for two countries, Country X and Country Y. Assume that both countries use equal amounts of resources in production. If the two countries engage in trade, both would be better off under which of the following conditions?
A. Country X produced both cars and planes, because it has an absolute advantage in the production of both goods.
B. Country Y produced both cars and planes, because it has a comparative advantage in the production of both goods.
C. Country X specialized in the production of cars, because it has an absolute advantage in the production of cars.
D. Country X specialized in the production of cars, because it has a comparative advantage in the production of cars.
E. Country Y specialized in the production of cars, because it has a comparative advantage in the production of cars.

The diagram above shows the production possibilities curves for two countries, Country X and Country Y. Assume
that both countries use equal amounts of resources in production. If the two countries engage in trade, both would
be better off under which of the following conditions?
A. Country X produced both cars and planes, because it has an absolute advantage in the production of both
goods.
B. Country Y produced both cars and planes, because it has a comparative advantage in the production of both
goods.
C. Country X specialized in the production of cars, because it has an absolute advantage in the production of
cars.
D. Country X specialized in the production of cars, because it has a comparative advantage in the production of
cars.
E. Country Y specialized in the production of cars, because it has a comparative advantage in the production of
cars.

The demand curve for a normal good slopes down for which of the following reasons? I. An increase in the price of the good induces consumers to purchase substitute products. II. An increase in the price of the goods reduces consumers' purchasing power. III. An increase in the price of the good increases consumers' utility from consuming that good.
A. I only
B. II only
C. III only
D. I and II only
E. I and III only

The demand curve for a normal good slopes down for which of the following reasons?
I. An increase in the price of the good induces consumers to purchase substitute products.
II. An increase in the price of the goods reduces consumers' purchasing power.
III. An increase in the price of the good increases consumers' utility from consuming that good.
A. I only
B. II only
C. III only
D. I and II only
E. I and III only

After the government imposed a $0.20 per gallon tax on gasoline, the price of a gallon of gasoline increased from $1.00 to $1.15. Which of the following statements is true?
A. Consumers bear the entire burden of the tax, since producers can pass the tax along to consumers.
B. Consumers and producers share the tax burden equally.
C. Consumers bear most, but not all, of the tax burden.
D. Producers bear the entire burden of the tax, since the tax was levied on producers, not consumers.
E. There is no tax burden, since gasoline is a normal good.

After the government imposed a $0.20 per gallon tax on gasoline, the price of a gallon of gasoline increased from
$1.00 to $1.15. Which of the following statements is true?
A. Consumers bear the entire burden of the tax, since producers can pass the tax along to consumers.
B. Consumers and producers share the tax burden equally.
C. Consumers bear most, but not all, of the tax burden.
D. Producers bear the entire burden of the tax, since the tax was levied on producers, not consumers.
E. There is no tax burden, since gasoline is a normal good.

Following a prolonged power outage, the price of flashlights normally increases significantly. If cities had passed laws prohibiting price increases for flashlights, during power outages such laws would most likely
A. make flashlights more available
B. create a shortage of flashlights
C. shift the demand curve for flashlights to the right
D. shift the supply curve for flashlights to the left
E. have no effect on the availability of flashlights

Following a prolonged power outage, the price of flashlights normally increases significantly. If cities had passed
laws prohibiting price increases for flashlights, during power outages such laws would most likely
A. make flashlights more available
B. create a shortage of flashlights
C. shift the demand curve for flashlights to the right
D. shift the supply curve for flashlights to the left
E. have no effect on the availability of flashlights

Assume that the government imposes a binding price ceiling on a market for an inferior good. Which of the following is most likely to occur in the market if consumers’ incomes increase?
A. The market demand will shift to the right.
B. The market supply will shift to the right.
C. The shortage in the market will decrease.
D. The surplus in the market will increase.
E. The market price will increase.

Assume that the government imposes a binding price ceiling on a market for an inferior good. Which of the
following is most likely to occur in the market if consumers’ incomes increase?
A. The market demand will shift to the right.
B. The market supply will shift to the right.
C. The shortage in the market will decrease.
D. The surplus in the market will increase.
E. The market price will increase.

Assume that demand for bottled water is relatively price elastic. An increase in supply of bottled water will result in which of the following?
A. A decrease in price, leading to an increase in total revenue
B. A decrease in price, leading to a decrease in total revenue
C. An excess supply of bottled water
D. An excess demand for bottled water
E. A relatively small decrease in price and no change in equilibrium quantity

Assume that demand for bottled water is relatively price elastic. An increase in supply of bottled water will result in
which of the following?
A. A decrease in price, leading to an increase in total revenue
B. A decrease in price, leading to a decrease in total revenue
C. An excess supply of bottled water
D. An excess demand for bottled water
E. A relatively small decrease in price and no change in equilibrium quantity

The equilibrium price for a good with a vertical supply curve and a downward-sloping demand curve is . If a binding price floor is set, which of the following will occur?
A. There will be a shortage of the good.
B. The sum of consumer and producer surpluses will decrease.
C. The equilibrium price of the good will decrease.
D. The quantity sold of the good will remain unchanged.
E. Demand for substitutes for the good will decrease.

The equilibrium price for a good with a vertical supply curve and a downward-sloping demand curve is
. If a
binding price floor is set, which of the following will occur?
A. There will be a shortage of the good.
B. The sum of consumer and producer surpluses will decrease.
C. The equilibrium price of the good will decrease.
D. The quantity sold of the good will remain unchanged.
E. Demand for substitutes for the good will decrease.

If the price elasticity of supply for pickles is 2 and the price of pickles increases by 10 percent, then the quantity supplied of pickles will increase by
A. 0.2%
B. 5%
C. 8%
D. 12%
E. 20%

If the price elasticity of supply for pickles is
and the price of pickles increases by
percent, then the quantity
supplied of pickles will increase by
A. 
B. 
C. 
D. 
E. 

If a 10 percent increase in the price of good X results in a 20 percent decrease in the quantity of good Y demanded, which of the following is true?
A. Good X and good Y are complementary goods, and the cross-price elasticity is -0.5.
B. Good X and good Y are substitute goods, and the income elasticity is +2.
C. Good X and good Y are complementary goods, and the cross-price elasticity is -2.
D. Good X and good Y are normal goods, and the income elasticity is +2.
E. Good X and good Y are substitute goods, and the cross-price elasticity is -2.

If a
percent increase in the price of good X results in a
percent decrease in the quantity of good Y demanded,
which of the following is true?
A. Good X and good Y are complementary goods, and the cross-price elasticity is
.
B. Good X and good Y are substitute goods, and the income elasticity is
.
C. Good X and good Y are complementary goods, and the cross-price elasticity is
.
D. Good X and good Y are normal goods, and the income elasticity is
.
E. Good X and good Y are substitute goods, and the cross-price elasticity is
.

Assume that the government imposes a $4 per-unit tax on sellers of a good in the market described by the graph above. What are the price paid by buyers, the after-tax price received by sellers, and the deadweight loss?
A. 
B. 
C. 
D. 
E. 

Assume that the government imposes a
per-unit tax on sellers of a good in the market described by the graph
above. What are the price paid by buyers, the after-tax price received by sellers, and the deadweight loss?
A. Price Paid by Buyers
Price Received by Sellers
Deadweight Loss
B. Price Paid by Buyers
Price Received by Sellers
Deadweight Loss
C. Price Paid by Buyers
Price Received by Sellers
Deadweight Loss
D. Price Paid by Buyers
Price Received by Sellers
Deadweight Loss
E. Price Paid by Buyers
Price Received by Sellers
Deadweight Loss

If a 10 percent increase in the price of a good leads to a 25 percent decrease in the quantity demanded of the good, demand is
A. relatively inelastic
B. relatively elastic
C. unit elastic
D. perfectly elastic
E. perfectly inelastic

If a 10 percent increase in the price of a good leads to a 25 percent decrease in the quantity demanded of the good,
demand is
A. relatively inelastic
B. relatively elastic
C. unit elastic
D. perfectly elastic
E. perfectly inelastic

A change in which of the following will cause a change in the supply of personal computers (PC’s) in the short run?
A. Technology
B. Demand for PC’s
C. Price of disks, which are a complement to PC’s
D. Price of PC’s
E. Consumers’ incomes

A change in which of the following will cause a change in the supply of personal computers (PC’s) in the short run?
A. Technology
B. Demand for PC’s
C. Price of disks, which are a complement to PC’s
D. Price of PC’s
E. Consumers’ incomes

Which of the following changes in the demand for and the supply of a good will necessarily result in an increase in both the equilibrium price and quantity of the good in a market?
A. Demand Supply Increase Increase
B. Demand Supply Increase No change
C. Demand Supply No change Increase
D. Demand Supply Decrease Increase
E. Demand Supply No change Decrease

Which of the following changes in the demand for and the supply of a good will necessarily result in an increase in
both the equilibrium price and quantity of the good in a market?
A. Demand
Supply
Increase
Increase
B. Demand
Supply
Increase
No change
C. Demand
Supply
No change
Increase
D. Demand
Supply
Decrease
Increase
E. Demand
Supply
No change
Decrease

Which of the following situations best illustrates the law of demand?
A. As real incomes of United States citizens have decreased over the past year, the demand for housing has also decreased.
B. Recent decreases in the price of imported wine have led to an increase in the consumption of domestic wine.
C. In the past several months, as the price of compact disc players has decreased, the quantity of compact disc players sold has increased
D. The increase in the price of quality health foods has increased the revenues of firms producing these goods.
E. As the demand for computers has increased, the number of workers in the computer industry has increased.

Which of the following situations best illustrates the law of demand?
A. As real incomes of United States citizens have decreased over the past year, the demand for housing has also
decreased.
B. Recent decreases in the price of imported wine have led to an increase in the consumption of domestic wine.
C. In the past several months, as the price of compact disc players has decreased, the quantity of compact disc
players sold has increased
D. The increase in the price of quality health foods has increased the revenues of firms producing these goods.
E. As the demand for computers has increased, the number of workers in the computer industry has increased.

The graph above shows the market demand for good X. A movement from point A to point B would most likely be caused by
A. an increase in the price of good Z, a substitute
B. an increase in consumers' income
C. a decrease in consumers' income
D. a decrease in production costs for good X
E. a decrease in the supply of good X

The graph above shows the market demand for good X. A movement from point A to point B would most likely be
caused by
A. an increase in the price of good Z, a substitute
B. an increase in consumers' income
C. a decrease in consumers' income
D. a decrease in production costs for good X
E. a decrease in the supply of good X

Which of the following will cause the demand for a normal good to increase?
A. A decrease in consumers’ income
B. A decrease in the price of a complementary good
C. A decrease in the price of a substitute good
D. A decrease in the price of the good
E. A decrease in the number of consumers

Which of the following will cause the demand for a normal good to increase?
A. A decrease in consumers’ income
B. A decrease in the price of a complementary good
C. A decrease in the price of a substitute good
D. A decrease in the price of the good
E. A decrease in the number of consumers

In a perfectly competitive market, a change in which of the following could cause a shift in the supply curve?
A. The incomes of consumers
B. The number of buyers
C. Technology
D. The price of the product
E. Tastes and preferences

In a perfectly competitive market, a change in which of the following could cause a shift in the supply curve?
A. The incomes of consumers
B. The number of buyers
C. Technology
D. The price of the product
E. Tastes and preferences

Moving from left to right along a downward- sloping linear demand curve, price elasticity varies in which of the following ways?
A. First unit elastic, then inelastic throughout
B. First unit elastic, then elastic throughout
C. First inelastic, then unit elastic throughout
D. First elastic, then unit elastic, and finally inelastic
E. First inelastic, then unit elastic, and finally elastic

Moving from left to right along a downward- sloping linear demand curve, price elasticity varies in which of the
following ways?
A. First unit elastic, then inelastic throughout
B. First unit elastic, then elastic throughout
C. First inelastic, then unit elastic throughout
D. First elastic, then unit elastic, and finally inelastic
E. First inelastic, then unit elastic, and finally elastic

Which of the following is most likely to occur when a competitive market adjusts from one equilibrium to another?
A. A decrease in demand will cause the equilibrium price, equilibrium quantity, and total surplus to increase.
B. An increase in demand will cause the equilibrium price, equilibrium quantity, and producer surplus to increase.
C. A decrease in supply will cause the equilibrium price to decrease, the equilibrium quantity to increase, and consumer surplus to decrease.
D. An increase in supply will cause the equilibrium price to increase, the equilibrium quantity to decrease, and consumer surplus to increase.
E. A decrease in supply and increase in demand will cause the equilibrium quantity to decrease but the equilibrium price to be indeterminate.

Which of the following is most likely to occur when a competitive market adjusts from one equilibrium to another?
A. A decrease in demand will cause the equilibrium price, equilibrium quantity, and total surplus to increase.
B. An increase in demand will cause the equilibrium price, equilibrium quantity, and producer surplus to
increase.
C. A decrease in supply will cause the equilibrium price to decrease, the equilibrium quantity to increase, and
consumer surplus to decrease.
D. An increase in supply will cause the equilibrium price to increase, the equilibrium quantity to decrease, and
consumer surplus to increase.
E. A decrease in supply and increase in demand will cause the equilibrium quantity to decrease but the
equilibrium price to be indeterminate.

If the supply of fish increases, there will be
A. an increase in the demand for chicken, a substitute good
B. an increase in the demand for fish
C. an increase in the price of fish tacos
D. a decrease in the price of fish
E. a decrease in the supply of potatoes, a complementary good

If the supply of fish increases, there will be
A. an increase in the demand for chicken, a substitute good
B. an increase in the demand for fish
C. an increase in the price of fish tacos
D. a decrease in the price of fish
E. a decrease in the supply of potatoes, a complementary good

What will happen to the price and quantity of footballs as a result of an increase in the price of leather used to make footballs?
A. Price will increase, and quantity will increase.
B. Price will increase, and quantity will decrease.
C. Price will decrease, and quantity will increase.
D. Price will decrease, and quantity will decrease.
E. Price will not change, and quantity will not change.

What will happen to the price and quantity of footballs as a result of an increase in the price of leather used to make
footballs?
A. Price will increase, and quantity will increase.
B. Price will increase, and quantity will decrease.
C. Price will decrease, and quantity will increase.
D. Price will decrease, and quantity will decrease.
E. Price will not change, and quantity will not change.

Suppose hot dogs and hamburgers are substitutes in consumption. If the supply of hot dogs decreases, which of the following will happen in the market for hamburgers?
A. The supply curve for hamburgers will shift to the right.
B. The supply curve for hamburgers will shift to the left.
C. The demand curve for hamburgers will shift to the right.
D. The demand curve for hamburgers will shift to the left.
E. Both the demand curve and supply curve for hamburgers will shift to the left.

Suppose hot dogs and hamburgers are substitutes in consumption. If the supply of hot dogs decreases, which of the
following will happen in the market for hamburgers?
A. The supply curve for hamburgers will shift to the right.
B. The supply curve for hamburgers will shift to the left.
C. The demand curve for hamburgers will shift to the right.
D. The demand curve for hamburgers will shift to the left.
E. Both the demand curve and supply curve for hamburgers will shift to the left.

Which of the following will shift the supply curve for apples to the right?
A. An increase in consumers’ income
B. An increase in the price of apples
C. An increase in the wages of apple pickers
D. A decrease in the rental price for apple harvesting equipment
E. A decrease in the demand for oranges, a substitute in consumption

Which of the following will shift the supply curve for apples to the right?
A. An increase in consumers’ income
B. An increase in the price of apples
C. An increase in the wages of apple pickers
D. A decrease in the rental price for apple harvesting equipment
E. A decrease in the demand for oranges, a substitute in consumption

If an unusually cold summer destroyed a large portion of the bee population, the equilibrium price and quantity of honey produced by bees will most likely change in which of the following ways?
A. Price Quantity Increase Increase
B. Price Quantity Increase Decrease
C. Price Quantity Increase No change
D. Price Quantity Decrease Decrease
E. Price Quantity No change Decrease

If an unusually cold summer destroyed a large portion of the bee population, the equilibrium price and quantity of
honey produced by bees will most likely change in which of the following ways?
A. Price
Quantity
Increase
Increase
B. Price
Quantity
Increase
Decrease
C. Price
Quantity
Increase
No change
D. Price
Quantity
Decrease
Decrease
E. Price
Quantity
No change
Decrease

The demand curves X and Y are shown in the graph above. Which of the following offers the most accurate comparison of the price elasticities of demand curves X and Y at a price of $4?
A. Demand Curve X Demand Curve Y Perfectly elastic Perfectly inelastic
B. Demand Curve X Demand Curve Y Perfectly inelastic Perfectly elastic
C. Demand Curve X Demand Curve Y Perfectly inelastic Relatively elastic
D. Demand Curve X Demand Curve Y Relatively inelastic Perfectly elastic
E. Demand Curve X Demand Curve Y Relatively elastic Relatively inelastic

The demand curves X and Y are shown in the graph above. Which of the following offers the most accurate
comparison of the price elasticities of demand curves X and Y at a price of $4?
A. Demand Curve X
Demand Curve Y
Perfectly elastic
Perfectly inelastic
B. Demand Curve X
Demand Curve Y
Perfectly inelastic
Perfectly elastic
C. Demand Curve X
Demand Curve Y
Perfectly inelastic
Relatively elastic
D. Demand Curve X
Demand Curve Y
Relatively inelastic
Perfectly elastic
E. Demand Curve X
Demand Curve Y
Relatively elastic
Relatively inelastic

Based on the graph above, the consumer surplus at the market equilibrium price and quantity is shown by which area?
A. GMK
B. GMN
C. GZN
D. ZMN
E. MNK

Based on the graph above, the consumer surplus at the market equilibrium price and quantity is shown by which
area?
A. 
B. 
C. 
D. 
E. 

The difference between the price a consumer would be willing to pay for a cone of ice cream and the actual market price that she pays gives a measure of her
A. consumer surplus
B. producer surplus
C. marginal utility
D. marginal cost
E. ability to pay

The difference between the price a consumer would be willing to pay for a cone of ice cream and the actual market
price that she pays gives a measure of her
A. consumer surplus
B. producer surplus
C. marginal utility
D. marginal cost
E. ability to pay

The graphs above show Mary’s demand for hamburgers and Mark’s demand for hamburgers. Suppose Mary and Mark are the only two consumers in the market. Which of the following is a point on the market demand curve for hamburgers?
A. Price Quantity $2 12
B. Price Quantity $4 7
C. Price Quantity $6 6
D. Price Quantity $8 4
E. Price Quantity $10 8

The graphs above show Mary’s demand for hamburgers and Mark’s demand for hamburgers. Suppose Mary and
Mark are the only two consumers in the market. Which of the following is a point on the market demand curve for
hamburgers?
A. Price
Quantity
$2
12
B. Price
Quantity
$4
7
C. Price
Quantity
$6
6
D. Price
Quantity
$8
4
E. Price
Quantity
$10
8
The following questions refer to the graph below. The market is currently in equilibrium

In a competition equilibrium consumer surplus is the area of
A. UVZ
B. WYZ
C. RVUT
D. XVZY
E. 0YZS

In a competition equilibrium consumer surplus is the area of
A. UVZ
B. WYZ
C. RVUT
D. XVZY
E. 0YZS

If a price floor is set at X, the quantity demanded will
A. increase from 0R to 0S
B. increase from 0R to 0T
C. decrease from 0S to 0R
D. decrease from 0T to 0R
E. not change

If a price floor is set at X, the quantity demanded will
A. increase from 0R to 0S
B. increase from 0R to 0T
C. decrease from 0S to 0R
D. decrease from 0T to 0R
E. not change

If growing corn becomes more profitable than growing wheat, which of the following will occur?
A. The supply of corn will decrease.
B. The price of wheat will decrease.
C. The price of corn will decrease.
D. The demand for wheat will increase.
E. The demand for corn will increase.

If growing corn becomes more profitable than growing wheat, which of the following will occur?
A. The supply of corn will decrease.
B. The price of wheat will decrease.
C. The price of corn will decrease.
D. The demand for wheat will increase.
E. The demand for corn will increase.

Assume that a 2 percent increase in the price of bologna causes a 5 percent decrease in the demand for cheese. What is the cross-price elasticity of demand between the two goods, and how are these goods related?
A. Cross-price elasticity of demand equals -0.4, and these goods are complements.
B. Cross-price elasticity of demand equals +0.4, and these goods are substitutes.
C. Cross-price elasticity of demand equals -2.5, and these goods are complements.
D. Cross-price elasticity of demand equals +2.5, and these goods are substitutes.
E. Cross-price elasticity of demand equals -0.4, and these goods are substitutes.

Assume that a 2 percent increase in the price of bologna causes a 5 percent decrease in the demand for cheese. What
is the cross-price elasticity of demand between the two goods, and how are these goods related?
A. Cross-price elasticity of demand equals
, and these goods are complements.
B. Cross-price elasticity of demand equals
, and these goods are substitutes.
C. Cross-price elasticity of demand equals
, and these goods are complements.
D. Cross-price elasticity of demand equals
, and these goods are substitutes.
E. Cross-price elasticity of demand equals
, and these goods are substitutes.

The cross-price elasticity of demand between goods J and K is -3. A 20 percent decrease in the price of good K will result in a
A. 3 percent decrease in the quantity demanded of good K
B. 15 percent decrease in the quantity demanded of good K
C. 6 percent increase in the quantity demanded of good J
D. 12 percent increase in the quantity demanded of good J
E. 60 percent increase in the quantity demanded of good J

The cross-price elasticity of demand between goods J and K is
. A 20 percent decrease in the price of good K
will result in a
A. 3 percent decrease in the quantity demanded of good K
B. 15 percent decrease in the quantity demanded of good K
C. 6 percent increase in the quantity demanded of good J
D. 12 percent increase in the quantity demanded of good J
E. 60 percent increase in the quantity demanded of good J

Which of the following is true of the cross-price elasticity of demand?
A. It can indicate if a good is a necessity or a luxury.
B. It is greater than zero for two goods that are substitutes.
C. It is close to zero if the two goods are closely related.
D. It is always negative because demand curves are downward sloping.
E. It increases as income increases.

Which of the following is true of the cross-price elasticity of demand?
A. It can indicate if a good is a necessity or a luxury.
B. It is greater than zero for two goods that are substitutes.
C. It is close to zero if the two goods are closely related.
D. It is always negative because demand curves are downward sloping.
E. It increases as income increases.

To determine whether two goods are complements, one would calculate the
A. price elasticity of demand
B. price elasticity of supply
C. income elasticity of demand
D. cross-price elasticity of demand
E. input-price elasticity of supply

To determine whether two goods are complements, one would calculate the
A. price elasticity of demand
B. price elasticity of supply
C. income elasticity of demand
D. cross-price elasticity of demand
E. input-price elasticity of supply

All of the following cause a rightward shift in the demand schedule for a normal good EXCEPT
A. a decrease in the price of the good
B. a decrease in the price of a complementary good
C. an increase in the price of a substitute good
D. an increase in consumers’ income
E. an increase in consumers’ preference for the good

All of the following cause a rightward shift in the demand schedule for a normal good EXCEPT
A. a decrease in the price of the good
B. a decrease in the price of a complementary good
C. an increase in the price of a substitute good
D. an increase in consumers’ income
E. an increase in consumers’ preference for the good

A decrease in raw material prices will change the equilibrium price and quantity in a market in which of the following ways?
A. Price Quantity Increase Increase
B. Price Quantity Increase Decrease
C. Price Quantity Decrease Increase
D. Price Quantity Decrease Decrease
E. Price Quantity No change Increase

A decrease in raw material prices will change the equilibrium price and quantity in a market in which of the
following ways?
A. Price
Quantity
Increase
Increase
B. Price
Quantity
Increase
Decrease
C. Price
Quantity
Decrease
Increase
D. Price
Quantity
Decrease
Decrease
E. Price
Quantity
No change
Increase

In the short run, a decrease in production costs of a product will shift
A. both the demand curve and the supply curve to the right
B. the demand curve to the left and the supply curve to the right
C. only the supply curve to the right
D. only the supply curve to the left
E. only the demand curve to the left

In the short run, a decrease in production costs of a product will shift
A. both the demand curve and the supply curve to the right
B. the demand curve to the left and the supply curve to the right
C. only the supply curve to the right
D. only the supply curve to the left
E. only the demand curve to the left

Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by
A. increasing the demand for pretzels and therefore the supply of pretzels
B. increasing the demand for pretzels and therefore the price of pretzels
C. decreasing the demand for pretzels and therefore the price of pretzels
D. increasing the supply of pretzels and therefore the price of pretzels
E. decreasing the supply of pretzels and therefore the price of pretzels

Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of
popcorn will affect the pretzel market by
A. increasing the demand for pretzels and therefore the supply of pretzels
B. increasing the demand for pretzels and therefore the price of pretzels
C. decreasing the demand for pretzels and therefore the price of pretzels
D. increasing the supply of pretzels and therefore the price of pretzels
E. decreasing the supply of pretzels and therefore the price of pretzels

The cross-price elasticity of demand between good X and good Z measures the percentage change in the quantity demanded of good X in response to a percentage change in
A. the price of good X
B. income
C. the price of good Z
D. the supply of good Z
E. total expenditures on good Z

The cross-price elasticity of demand between good X and good Z measures the percentage change in the quantity
demanded of good X in response to a percentage change in
A. the price of good X
B. income
C. the price of good Z
D. the supply of good Z
E. total expenditures on good Z

If the increase in the price of one good decreases the demand for another, then the two goods are
A. inferior goods
B. luxury goods
C. normal goods
D. substitute goods
E. complementary goods

If the increase in the price of one good decreases the demand for another, then the two goods are
A. inferior goods
B. luxury goods
C. normal goods
D. substitute goods
E. complementary goods

Consumer surplus exists because of the
A. surplus of money that wealthy consumers hold
B. surplus in marginal product that firms get when they hire an additional worker
C. willingness of some consumers to pay a price higher than the market price for some units of a good
D. additional utility that households obtain when the prices of substitutes fall
E. increase in the availability of goods when income rises

Consumer surplus exists because of the
A. surplus of money that wealthy consumers hold
B. surplus in marginal product that firms get when they hire an additional worker
C. willingness of some consumers to pay a price higher than the market price for some units of a good
D. additional utility that households obtain when the prices of substitutes fall
E. increase in the availability of goods when income rises

If the market demand for a good is inelastic and the supply is elastic, which of the following is true when there is an increase in sales tax?
A. Consumers will bear most of the burden of the tax.
B. Producers will bear all of the burden of the tax.
C. Producers will bear most of the burden of the tax or risk losing sales.
D. Both consumers and producers will share the burden of the tax equally.
E. The price of the good will not change.

If the market demand for a good is inelastic and the supply is elastic, which of the following is true when there is an
increase in sales tax?
A. Consumers will bear most of the burden of the tax.
B. Producers will bear all of the burden of the tax.
C. Producers will bear most of the burden of the tax or risk losing sales.
D. Both consumers and producers will share the burden of the tax equally.
E. The price of the good will not change.

In relation to tacos, the cross-price elasticity of demand for Good X is negative. What would be the result if the price of tacos increases?
A. There will be a movement up the demand curve for Good X because it is a complement to tacos.
B. There will be a movement down the demand curve for Good X because it is a complement to tacos.
C. The demand for Good X will increase because it is a substitute for tacos.
D. The demand for Good X will decrease because it is a complement to tacos.
E. The demand for Good X will increase because tacos and Good X are normal goods.

In relation to tacos, the cross-price elasticity of demand for Good
is negative. What would be the result if the
price of tacos increases?
A. There will be a movement up the demand curve for Good
because it is a complement to tacos.
B. There will be a movement down the demand curve for Good
because it is a complement to tacos.
C. The demand for Good
will increase because it is a substitute for tacos.
D. The demand for Good
will decrease because it is a complement to tacos.
E. The demand for Good
will increase because tacos and Good X are normal goods.

Which of the following statements about the price elasticity of demand is true?
A. When demand is price inelastic, total revenue will decrease as price increases.
B. When demand is price elastic, an increase in price will increase total revenue.
C. Demand tends to be more elastic in the short run compared to the long run.
D. As more close substitutes become available, demand tends to be more price elastic.
E. As a good becomes viewed as a necessity, demand becomes more price elastic.

Which of the following statements about the price elasticity of demand is true?
A. When demand is price inelastic, total revenue will decrease as price increases.
B. When demand is price elastic, an increase in price will increase total revenue.
C. Demand tends to be more elastic in the short run compared to the long run.
D. As more close substitutes become available, demand tends to be more price elastic.
E. As a good becomes viewed as a necessity, demand becomes more price elastic.
The following questions are based on the diagram below, which shows the effect of a unit tax placed on a good.

According to the diagram, what is the dollar amount of the unit tax?
A. $0.00
B. $0.45
C. $0.55
D. $1.00
E. $1.45

According to the diagram, what is the dollar amount of the unit tax?
A. $0.00
B. $0.45
C. $0.55
D. $1.00
E. $1.45

What is the price paid by consumers and the net price received by producers after the tax is paid?
A. Paid by Consumers Received by Producers $11.00 $10.45
B. Paid by Consumers Received by Producers $11.00 $10.00
C. Paid by Consumers Received by Producers $10.45 $10.00
D. Paid by Consumers Received by Producers $10.45 $9.45
E. Paid by Consumers Received by Producers $10.00 $9.45

What is the price paid by consumers and the net price received by producers after the tax is paid?
A. Paid by Consumers
Received by Producers
$11.00
$10.45
B. Paid by Consumers
Received by Producers
$11.00
$10.00
C. Paid by Consumers
Received by Producers
$10.45
$10.00
D. Paid by Consumers
Received by Producers
$10.45
$9.45
E. Paid by Consumers
Received by Producers
$10.00
$9.45

The difference between what consumers are willing to pay for units of a good and the price consumers actually pay for units of the good is called
A. marginal utility
B. producer surplus
C. consumer surplus
D. economic rent
E. a positive externality

The difference between what consumers are willing to pay for units of a good and the price consumers actually pay
for units of the good is called
A. marginal utility
B. producer surplus
C. consumer surplus
D. economic rent
E. a positive externality

Assume that the government increases the unit excise tax on gasoline suppliers and also that people commute longer distances to work as more houses are built in city suburbs. As a result, the equilibrium price and quantity of gasoline will most likely change in which of the following ways?
A. Price Quantity Decrease Decrease
B. Price Quantity Increase Decrease
C. Price Quantity Increase Increase
D. Price Quantity Increase Indeterminate
E. Price Quantity Indeterminate Increase

Assume that the government increases the unit excise tax on gasoline suppliers and also that people commute longer
distances to work as more houses are built in city suburbs. As a result, the equilibrium price and quantity of gasoline
will most likely change in which of the following ways?
A. Price
Quantity
Decrease
Decrease
B. Price
Quantity
Increase
Decrease
C. Price
Quantity
Increase
Increase
D. Price
Quantity
Increase
Indeterminate
E. Price
Quantity
Indeterminate
Increase

If a severe drought destroys a significant portion of the peanut crop and peanut farmers' revenues increase, which of the following is true over the observed range of prices?
A. The demand for peanuts must be unit price elastic.
B. The demand for peanuts must be price elastic.
C. The demand for peanuts must be unit price inelastic.
D. The supply ofpeanuts must be price inelastic.
E. The supply ofpeanuts must be price elastic.

If a severe drought destroys a significant portion of the peanut crop and peanut farmers' revenues increase, which of
the following is true over the observed range of prices?
A. The demand for peanuts must be unit price elastic.
B. The demand for peanuts must be price elastic.
C. The demand for peanuts must be unit price inelastic.
D. The supply of peanuts must be price inelastic.
E. The supply of peanuts must be price elastic.

If the government eliminates an effective minimum wage in a competitive labor market, which of the following is true?
A. Minimum wage workers will experience no change in hourly pay.
B. Minimum wage workers will experience a decrease in hourly pay.
C. The number of people employed will decrease because people do not want to work for low wages.
D. There will be an excess demand for workers.
E. There will be an increase in the supply of workers.

If the government eliminates an effective minimum wage in a competitive labor market, which of the following is
true?
A. Minimum wage workers will experience no change in hourly pay.
B. Minimum wage workers will experience a decrease in hourly pay.
C. The number of people employed will decrease because people do not want to work for low wages.
D. There will be an excess demand for workers.
E. There will be an increase in the supply of workers.

In the absence of market failures, a perfectly competitive market equilibrium is efficient for which of the following reasons?
A. Consumer surplus is maximized and consumers are better off relative to producers.
B. Producer surplus is maximized and producers are better off relative to consumers.
C. Total economic surplus is maximized and all mutually beneficial transactions are exhausted.
D. Total economic surplus is distributed equally between producers and consumers.
E. The quantity of output is produced at a constant cost so that every consumer pays the same price.

In the absence of market failures, a perfectly competitive market equilibrium is efficient for which of the following
reasons?
A. Consumer surplus is maximized and consumers are better off relative to producers.
B. Producer surplus is maximized and producers are better off relative to consumers.
C. Total economic surplus is maximized and all mutually beneficial transactions are exhausted.
D. Total economic surplus is distributed equally between producers and consumers.
E. The quantity of output is produced at a constant cost so that every consumer pays the same price.

Assume that the market demand for a good is perfectly inelastic, the market supply for the good is perfectly elastic, and the market is in equilibrium. If there is a decrease in the price of a key input used in the production of the good, which of the following will occur?
A. There will be a decrease in the equilibrium quantity.
B. There will be no change in the producer surplus.
C. There will be a decrease in the producer surplus.
D. There will be a decrease in the consumer surplus.
E. There will be an increase in the equilibrium price.

Assume that the market demand for a good is perfectly inelastic, the market supply for the good is perfectly elastic,
and the market is in equilibrium. If there is a decrease in the price of a key input used in the production of the good,
which of the following will occur?
A. There will be a decrease in the equilibrium quantity.
B. There will be no change in the producer surplus.
C. There will be a decrease in the producer surplus.
D. There will be a decrease in the consumer surplus.
E. There will be an increase in the equilibrium price.

Assume that the price elasticity of demand for good X is constant and equal to -0.5 and the price elasticity of demand for good Y is constant and equal to -2. Assume that goods X and Y have identical upward-sloping elastic supply curves. If a per-unit excise tax of the same amount is levied on good X and on good Y, which of the following would be true?
A. The percentage decrease in the quantity of good X demanded would be greater than the percentage decrease in the quantity of good Y demanded.
B. The tax share paid by consumers of good X would be relatively higher than that paid by consumers of good Y.
C. The tax share paid by consumers of good Y would be relatively higher than that paid by consumers of good X.
D. The tax share paid by sellers of good Y would be relatively lower than that paid by sellers of good X.
E. The tax share paid by sellers of goods X and Y would be the same.

Assume that the price elasticity of demand for good X is constant and equal to -0.5 and the price elasticity of
demand for good Y is constant and equal to -2. Assume that goods X and Y have identical upward-sloping
elastic supply curves. If a per-unit excise tax of the same amount is levied on good X and on good Y, which of the
following would be true?
A. The percentage decrease in the quantity of good X demanded would be greater than the percentage decrease
in the quantity of good Y demanded.
B. The tax share paid by consumers of good X would be relatively higher than that paid by consumers of good
Y.
C. The tax share paid by consumers of good Y would be relatively higher than that paid by consumers of good
X.
D. The tax share paid by sellers of good Y would be relatively lower than that paid by sellers of good X.
E. The tax share paid by sellers of goods X and Y would be the same.

Assume that the supply of corn is relatively price inelastic, while the demand for corn is relatively price elastic. If the government imposes a per-unit excise tax on the production of corn, the incidence of the tax will fall
A. entirely on buyers
B. more on buyers than on sellers
C. entirely on sellers
D. more on sellers than on buyers
E. equally on both buyers and sellers

Assume that the supply of corn is relatively price inelastic, while the demand for corn is relatively price elastic. If
the government imposes a per-unit excise tax on the production of corn, the incidence of the tax will fall
A. entirely on buyers
B. more on buyers than on sellers
C. entirely on sellers
D. more on sellers than on buyers
E. equally on both buyers and sellers

Assume that the price of orange juice increases by 40 percent following a crop failure. If the quantity demanded falls by 10 percent, which of the following is true?
A. The demand for orange juice is elastic.
B. The price of grapefruit juice, a substitute good, will fall.
C. The absolute value of the price elasticity of demand for orange juice is 4.
D. The absolute value of the price elasticity of demand for orange juice is 0.25.
E. The absolute value of the price elasticity of demand for orange juice is 10.

Assume that the price of orange juice increases by 40 percent following a crop failure. If the quantity demanded
falls by 10 percent, which of the following is true?
A. The demand for orange juice is elastic.
B. The price of grapefruit juice, a substitute good, will fall.
C. The absolute value of the price elasticity of demand for orange juice is 4.
D. The absolute value of the price elasticity of demand for orange juice is 0.25.
E. The absolute value of the price elasticity of demand for orange juice is 10.

The price elasticity of demand for a product is 0.5. If the price of the product increases by 20 percent, which of the following will occur?
A. The quantity demanded of the good will increase by 10%.
B. The quantity demanded of the good will increase by 20%.
C. The quantity demanded of the good will increase by 40%.
D. The quantity demanded of the good will decrease by 10%.
E. The quantity demanded of the good will decrease by 40%.

The price elasticity of demand for a product is 0.5. If the price of the product increases by 20 percent, which of the
following will occur?
A. The quantity demanded of the good will increase by 10%.
B. The quantity demanded of the good will increase by 20%.
C. The quantity demanded of the good will increase by 40%.
D. The quantity demanded of the good will decrease by 10%.
E. The quantity demanded of the good will decrease by 40%.

Assume that the price elasticity of supply for good Y is 0.5. If the price of good Y decreases by 30 percent, the quantity supplied of good Y will
A. decrease by 60 percent
B. decrease by 30 percent
C. decrease by 15 percent
D. increase by 0.5 percent
E. increase by 0.15 percent

Assume that the price elasticity of supply for good Y is 0.5. If the price of good Y decreases by 30 percent, the
quantity supplied of good Y will
A. decrease by 60 percent
B. decrease by 30 percent
C. decrease by 15 percent
D. increase by 0.5 percent
E. increase by 0.15 percent

Assume a 10 percent increase in price increased the market quantity supplied by 20 percent. Which of the following is true?
A. The value of the price elasticity of supply is 2.
B. The value of the price elasticity of supply is 0.5.
C. Supply is price inelastic.
D. Demand is price elastic.
E. This price-quantity combination violates the law of supply.

Assume a 10 percent increase in price increased the market quantity supplied by 20 percent. Which of the following
is true?
A. The value of the price elasticity of supply is 2.
B. The value of the price elasticity of supply is 0.5.
C. Supply is price inelastic.
D. Demand is price elastic.
E. This price-quantity combination violates the law of supply.

Assume that more corn is used to produce ethanol. Simultaneously, more effective control of pests and weeds occurs in farming. Which of the following will definitely occur in the corn market?
A. The price of corn will increase.
B. The quantity of corn will decrease.
C. The price of corn will decrease.
D. The quantity of corn will increase.
E. The supply of corn will decrease.

Assume that more corn is used to produce ethanol. Simultaneously, more effective control of pests and weeds
occurs in farming. Which of the following will definitely occur in the corn market?
A. The price of corn will increase.
B. The quantity of corn will decrease.
C. The price of corn will decrease.
D. The quantity of corn will increase.
E. The supply of corn will decrease.

If the value of the price elasticity of supply is 3, which of the following is true?
A. Supply is inelastic.
B. A percentage increase in price will lead to a relatively smaller percentage increase in quantity supplied.
C. The supply curve is downward sloping with respect to the price of output.
D. A 10 percent decrease in price will decrease the quantity supplied by 30 percent.
E. A 3 percent increase in price will decrease the quantity supplied by 10 percent.

If the value of the price elasticity of supply is 3, which of the following is true?
A. Supply is inelastic.
B. A percentage increase in price will lead to a relatively smaller percentage increase in quantity supplied.
C. The supply curve is downward sloping with respect to the price of output.
D. A 10 percent decrease in price will decrease the quantity supplied by 30 percent.
E. A 3 percent increase in price will decrease the quantity supplied by 10 percent.

Which of the following would shift the short-run supply curve for strawberries?
A. A decrease in the consumption of strawberries
B. An increase in the price of strawberries
C. A strike by all farmworkers
D. An increase in household incomes
E. An announcement of a study that shows the health benefits of eating strawberries

Which of the following would shift the short-run supply curve for strawberries?
A. A decrease in the consumption of strawberries
B. An increase in the price of strawberries
C. A strike by all farmworkers
D. An increase in household incomes
E. An announcement of a study that shows the health benefits of eating strawberries

If the minimum wage for teenagers increased to a rate higher than their market equilibrium wage, what would be the effect on their wage and employment?
A. Wage Employment Increase No effect
B. Wage Employment Increase Increase
C. Wage Employment Increase Decrease
D. Wage Employment Decrease Increase
E. Wage Employment Decrease Decrease

If the minimum wage for teenagers increased to a rate higher than their market equilibrium wage, what would be the
effect on their wage and employment?
A. Wage
Employment
Increase
No effect
B. Wage
Employment
Increase
Increase
C. Wage
Employment
Increase
Decrease
D. Wage
Employment
Decrease
Increase
E. Wage
Employment
Decrease
Decrease

Assume that people like onions on their hamburgers. If the supply of hamburgers decreases,the demand for onions will most likely
A. remain unchanged because hamburgers and onions are different goods
B. increase because hamburgers and onions are substitutes
C. increase because hamburgers and onions are complements
D. decrease because hamburgers and onions are complements
E. decrease because hamburgers and onions are substitutes

Assume that people like onions on their hamburgers. If the supply of hamburgers decreases, the demand for onions
will most likely
A. remain unchanged because hamburgers and onions are different goods
B. increase because hamburgers and onions are substitutes
C. increase because hamburgers and onions are complements
D. decrease because hamburgers and onions are complements
E. decrease because hamburgers and onions are substitutes

Which of the following describes how a market will respond when the scarcity of a good increases?
A. Consumers will increase their demand for the good
B. Consumers will decrease their demand for the good.
C. The price of the good will increase.
D. The price of the good will decrease.
E. Producers will increase the supply of the good.

Which of the following describes how a market will respond when the scarcity of a good increases?
A. Consumers will increase their demand for the good
B. Consumers will decrease their demand for the good.
C. The price of the good will increase.
D. The price of the good will decrease.
E. Producers will increase the supply of the good.

For consumers, assume that fish sticks and tacos are substitutes. Which of the following graphs illustrates the effect on the taco market if the price of fish sticks increases?
A. 
B. 
C. 
D. 
E. 

For consumers, assume that fish sticks and tacos are substitutes. Which of the following graphs illustrates the effect
on the taco market if the price of fish sticks increases?
A. 
B. 
C. 
D. 
E. 

The diagram above shows the demand curve for a good. If the price increases from P 1 to P 2 , and quantity consumed decreases from Q 2 to Q 1 , consumer surplus decreases by the area
A. BDC
B. P 1 P 2 BC
C. P 1 P 2 BD
D. Q 1 DCQ 2
E. P 2 P 3 B

The diagram above shows the demand curve for a good. If the price increases from P1 to P2, and quantity consumed
decreases from Q2 to Q1 , consumer surplus decreases by the area
A. BDC
B. P1P2BC
C. P1P2BD
D. Q1DCQ2
E. P2P3B

If the imposition of a per-unit tax on a good reduces the total consumer surplus by more than the reduction of total producer surplus in a competitive market, then which of the following must be true?
A. The price sellers receive decreases by more than the amount of the tax.
B. The price buyers pay increases by more than the amount of the tax.
C. Demand is less elastic than supply.
D. Demand is more elastic than supply.
E. Demand and supply are both unit elastic.

If the imposition of a per-unit tax on a good reduces the total consumer surplus by more than the reduction of total
producer surplus in a competitive market, then which of the following must be true?
A. The price sellers receive decreases by more than the amount of the tax.
B. The price buyers pay increases by more than the amount of the tax.
C. Demand is less elastic than supply.
D. Demand is more elastic than supply.
E. Demand and supply are both unit elastic.

In the figure above, at which of the given points is demand most elastic?
A. X
B. Y
C. Z
D. The elasticity is the same for all points.
E. The relative elasticity cannot be determined with the given information.

In the figure above, at which of the given points is demand most elastic?
A. X
B. Y
C. Z
D. The elasticity is the same for all points.
E. The relative elasticity cannot be determined with the given information.

The supply curve for automobiles will shift to the left in response to
A. an increase in the efficiency of robot technology
B. an increse in wages in the automobile industry
C. a decrease in the number of consumers purchasing automobiles
D. a decrease in the interest rates for automobile loans
E. a decrease in consumers' income

The supply curve for automobiles will shift to the left in response to
A. an increase in the efficiency of robot technology
B. an increse in wages in the automobile industry
C. a decrease in the number of consumers purchasing automobiles
D. a decrease in the interest rates for automobile loans
E. a decrease in consumers' income

If a normal good is produced in a competitive market, which of the following combination of events could cause the price of the good to increase and the quantity to decrease?
A. An increase in the average income of consumers and an increase in the number of producing firms
B. An increase in the average income of consumers and an increase in the price of a variable input
C. An increase in the price of a substitute good an an increase in the number of producing firms
D. A decrease in the number of consumers and a decrease in the price of a variable input
E. A decrease in the average income of consumers and an increase in the number of producing firms

If a normal good is produced in a competitive market, which of the following combination of events could cause the
price of the good to increase and the quantity to decrease?
A. An increase in the average income of consumers and an increase in the number of producing firms
B. An increase in the average income of consumers and an increase in the price of a variable input
C. An increase in the price of a substitute good an an increase in the number of producing firms
D. A decrease in the number of consumers and a decrease in the price of a variable input
E. A decrease in the average income of consumers and an increase in the number of producing firms

The graph above shows the market for good X The letters in the graph denote the enclosed areas If the government imposes an excise tax of t dollars on each unit of good X, which of the following represents the consumer surplus, producer surplus, and deadweight loss after the imposition of the tax?
A. Consumer Surplus: A Producer Surplus: G Deadweight Loss: D+E
B. Consumer Surplus: A Producer Surplus: F+E Deadweight Loss: D+E
C. Consumer Surplus: A+B Producer Surplus: G+F+E Deadweight Loss: C+D
D. Consumer Surplus: A+B+H Producer Surplus: G+F Deadweight Loss: D+E
E. Consumer Surplus: A+B+H Producer Surplus: G+F+C Deadweight Loss: E

The graph above shows the market for good X The letters in the graph denote the enclosed areas If the government
imposes an excise tax of t dollars on each unit of good X, which of the following represents the consumer surplus,
producer surplus, and deadweight loss after the imposition of the tax?
A. Consumer Surplus: A
Producer Surplus: G
Deadweight Loss: D+E
B. Consumer Surplus: A
Producer Surplus: F+E
Deadweight Loss: D+E
C. Consumer Surplus: A+B
Producer Surplus: G+F+E
Deadweight Loss: C+D
D. Consumer Surplus: A+B+H
Producer Surplus: G+F
Deadweight Loss: D+E
E. Consumer Surplus: A+B+H
Producer Surplus: G+F+C
Deadweight Loss: E

If a hurricane reduced the crab population, the price of crabs and quantity sold would change in which of the following ways?
A. Price Quantity Increase Increase
B. Price Quantity Increase Decrease
C. Price Quantity Decrease Increase
D. Price Quantity Decrease Decrease
E. Price Quantity No change Decrease

If a hurricane reduced the crab population, the price of crabs and quantity sold would change in which of the
following ways?
A. Price
Quantity
Increase
Increase
B. Price
Quantity
Increase
Decrease
C. Price
Quantity
Decrease
Increase
D. Price
Quantity
Decrease
Decrease
E. Price
Quantity
No change
Decrease

In the diagram above, if there is a price ceiling set at P 1 , consumer surplus will be represented by the area
A. ABC
B. P 2 BP 0
C. P 3 BP 2
D. P 3 ACP 1
E. P 3 BCP 1

In the diagram above, if there is a price ceiling set at P1, consumer surplus will be represented by the area
A. ABC
B. P2BP0
C. P3BP2
D. P3ACP1
E. P3BCP1
Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the
government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1.

The deadweight loss created by the tax is equal to
A. P 1 GHP 0
B. P 1 GKP 0
C. GHK
D. GKI
E. zero

The deadweight loss created by the tax is equal to
A. P1GHP0
B. P1GKP0
C. GHK
D. GKI
E. zero

Which of the following bears the total tax burden?
A. The consumers bear it.
B. The producers bear it.
C. The consumers and the producers each bear a part of it.
D. The group that legally pays the tax bears it.
E. The government bears it.

Which of the following bears the total tax burden?
A. The consumers bear it.
B. The producers bear it.
C. The consumers and the producers each bear a part of it.
D. The group that legally pays the tax bears it.
E. The government bears it.

The total amount of tax collected by the government is equal to
A. P 1 GQ 1 0
B. P 1 GIP 2
C. P 0 P 1 JK
D. P 0 P 1 GH
E. P 0 P 2 IH

The total amount of tax collected by the government is equal to
A. P1GQ10
B. P1GIP2
C. P0P1JK
D. P0P1GH
E. P0P2IH

The diagram above depicts the demand and supply curves for good Y. The perfectly competitive market is initially in equilibrium, but the government decides to institute a price floor program by setting the price of good Y at P F and agrees to purchase all unsold units of good Y from the producers. The cost of this program to the government is represented by which of the following areas?
A. 0P F JQ 2
B. 0P F KQ 3
C. GIKH
D. Q 1 IJQ 2
E. Q 1 IKQ 3

The diagram above depicts the demand and supply curves for good Y. The perfectly competitive market is initially
in equilibrium, but the government decides to institute a price floor program by setting the price of good Y at PF and
agrees to purchase all unsold units of good Y from the producers. The cost of this program to the government is
represented by which of the following areas?
A. 0PFJQ2
B. 0PFKQ3
C. GIKH
D. Q1IJQ2
E. Q1IKQ3

Consumer surplus in a market for a good exists because
A. binding price floors encourage producers to increase the supply of the good
B. some consumers would be willing to pay more than the equilibrium price of the good
C. when the price of the good decreases, most consumers increase their demand for the good
D. producers do not have market power to set their own price
E. some producers charge different prices for the good in different markets

Consumer surplus in a market for a good exists because
A. binding price floors encourage producers to increase the supply of the good
B. some consumers would be willing to pay more than the equilibrium price of the good
C. when the price of the good decreases, most consumers increase their demand for the good
D. producers do not have market power to set their own price
E. some producers charge different prices for the good in different markets

In the graph above, S is the original supply curve, and S 1 is the supply curve including an excise tax. The area representing the tax revenue to the government is
A. P 1 P 3 V T
B. P 2 P 4 RZ
C. P 2 P 4 XU
D. P 2 UQ 3 0
E. P 3 VQ 2 0

In the graph above, S is the original supply curve, and S1 is the supply curve including an excise tax. The area
representing the tax revenue to the government is
A. P1P3VT
B. P2P4RZ
C. P2P4XU
D. P2UQ30
E. P3VQ20

The table above shows the quantity of gasoline supplied and demanded at various prices in a country. If the government sets a price floor of $2.75 on a gallon of gasoline, what is the price per gallon?
A. $2.75
B. $3.00
C. $3.25
D. $3.50
E. $3.75

The table above shows the quantity of gasoline supplied and demanded at various prices in a country. If the
government sets a price floor of $2.75 on a gallon of gasoline, what is the price per gallon?
A. $2.75
B. $3.00
C. $3.25
D. $3.50
E. $3.75

Suppose the government sets a price floor at $9 in the market. The resulting consumer surplus, producer surplus, and deadweight loss will be which of the following?
A. 
B. 
C. 
D. 
E. 

Suppose the government sets a price floor at $9 in the market. The resulting consumer surplus, producer surplus,
and deadweight loss will be which of the following?
A. Consumer SurplusProducer SurplusDeadweight Loss
B + E
C + F
A + B
B. Consumer SurplusProducer SurplusDeadweight Loss
A + B
C + D
E + F
C. Consumer SurplusProducer SurplusDeadweight Loss
A
C + D + F
E
D. Consumer SurplusProducer SurplusDeadweight Loss
A + B + E
C + D + F
0
E. Consumer SurplusProducer SurplusDeadweight Loss
A
B + C + D
E + F

Total economic surplus will be maximized at which of the following price and quantity combinations?
A. P 3 and Q 3
B. P 3 and  Q 1
C. P 2 and Q 2
D. P 1 and Q 1
E. P 1 and Q 3

Total economic surplus will be maximized at which of the following price and quantity combinations?
A. and
B. and
C. and
D. and
E. and

The graph above illustrates the labor market for teenage workers. The current minimum wage for all workers is W 1 . If Congress introduces a sub-minimum wage, W 2 that applies only to teenagers, what is the most likely effect on teenage employment?
A. Teenage employment will increase because firms will want to hire more teenagers at W 2 than at W 1 .
B. Teenage employment will increase because more teenagers will want to work at W 2 than at W 1 .
C. Teenage employment will decrease because fewer teenagers will want to work at W 2 than at W 1 .
D. Teenage employment will decrease because firms will want to hire fewer teenagers at W 2 than at W 1 .
E. Teenage employment will stay the same because the market-clearing wage is lower than W 1 and W 2 .

The graph above illustrates the labor market for teenage workers. The current minimum wage for all workers is W1.
If Congress introduces a sub-minimum wage, W2 that applies only to teenagers, what is the most likely effect on
teenage employment?
A. Teenage employment will increase because firms will want to hire more teenagers at W2 than at W1.
B. Teenage employment will increase because more teenagers will want to work at W2 than at W1.
C. Teenage employment will decrease because fewer teenagers will want to work at W2 than at W1.
D. Teenage employment will decrease because firms will want to hire fewer teenagers at W2 than at W1.
E. Teenage employment will stay the same because the market-clearing wage is lower than W1 and W2.

Given an increase in the price of material K— which is an input used to produce good X— and an increase in the price of good Y— which is a substitute for good X— which of the following will definitely occur?
A. The equilibrium price of good X will decrease.
B. The equilibrium price of good X will increase.
C. The equilibrium quantity of good X will be unaffected.
D. The equilibrium quantity of good X will increase.
E. The equilibrium quantity of good X will decrease.

Given an increase in the price of material K— which is an input used to produce good X— and an increase in the
price of good Y— which is a substitute for good X— which of the following will definitely occur?
A. The equilibrium price of good X will decrease.
B. The equilibrium price of good X will increase.
C. The equilibrium quantity of good X will be unaffected.
D. The equilibrium quantity of good X will increase.
E. The equilibrium quantity of good X will decrease.

If cotton is used to produce towels, an increase in the price of cotton will result in which of the following changes in the towel market?
A. A decrease in the demand for towels, which leads to a shortage of towels followed by upward pressure on the price of towels
B. A decrease in the demand for towels, which leads to a surplus of towels followed by downward pressure on the price of towels
C. A decrease in the supply of towels, which leads to a shortage of towels followed by upward pressure on the price of towels
D. An increase in the supply of towels, which leads to a surplus of towels followed by downward pressure on the price of towels
E. An increase in both the demand and supply of towels, which leads to a surplus of towels followed by upward pressure on the price of towels

If cotton is used to produce towels, an increase in the price of cotton will result in which of the following changes in
the towel market?
A. A decrease in the demand for towels, which leads to a shortage of towels followed by upward pressure on the
price of towels
B. A decrease in the demand for towels, which leads to a surplus of towels followed by downward pressure on
the price of towels
C. A decrease in the supply of towels, which leads to a shortage of towels followed by upward pressure on the
price of towels
D. An increase in the supply of towels, which leads to a surplus of towels followed by downward pressure on
the price of towels
E. An increase in both the demand and supply of towels, which leads to a surplus of towels followed by upward
pressure on the price of towels

The graph above shows the supply and demand curves for artichokes. The surgeon general announces that eating an artichoke a day dramatically reduces one’s likelihood of developing cancer. Simultaneously an infestation of the artichoke weevil severely damages the crop. Which of the following will definitely occur as a result?
A. The supply of artichokes will increase.
B. The price of artichokes will increase.
C. The demand for artichokes will decrease.
D. The quantity of artichokes grown will decrease.
E. The profits of farmers who specialize in growing artichokes will decrease.

The graph above shows the supply and demand curves for artichokes. The surgeon general announces that eating an
artichoke a day dramatically reduces one’s likelihood of developing cancer. Simultaneously an infestation of the
artichoke weevil severely damages the crop. Which of the following will definitely occur as a result?
A. The supply of artichokes will increase.
B. The price of artichokes will increase.
C. The demand for artichokes will decrease.
D. The quantity of artichokes grown will decrease.
E. The profits of farmers who specialize in growing artichokes will decrease.

Suppose that the demand for vegetables is price elastic. If the price of vegetables increases by 5 percent, the quantity of vegetables demanded would
A. increase by 5 percent
B. increase by more than 5 percent
C. increase by less than 5 percent
D. decrease by more than 5 percent
E. decrease by less than 5 percent

Suppose that the demand for vegetables is price elastic. If the price of vegetables increases by 5 percent, the
quantity of vegetables demanded would
A. increase by 5 percent
B. increase by more than 5 percent
C. increase by less than 5 percent
D. decrease by more than 5 percent
E. decrease by less than 5 percent

If the demand for insulin is price inelastic, a 5 percent increase in the price of insulin will
A. have no effect on the total revenue of insulin producers
B. increase the total revenue of insulin producers
C. decrease the total revenue of insulin producers
D. decrease the total spending on insulin by consumers
E. cause the demand for insulin to be less elastic

If the demand for insulin is price inelastic, a 5 percent increase in the price of insulin will
A. have no effect on the total revenue of insulin producers
B. increase the total revenue of insulin producers
C. decrease the total revenue of insulin producers
D. decrease the total spending on insulin by consumers
E. cause the demand for insulin to be less elastic

If the demand for product X is perfectly elastic and the supply of product X decreases, which of the following will occur in the market for X ?
A. Total revenue will increase.
B. Total revenue will decrease.
C. Total revenue will remain the same.
D. Quantity demanded will exceed quantity supplied.
E. Quantity supplied will exceed quantity demanded.

If the demand for product X is perfectly elastic and the supply of product X decreases, which of the following will
occur in the market for X ?
A. Total revenue will increase.
B. Total revenue will decrease.
C. Total revenue will remain the same.
D. Quantity demanded will exceed quantity supplied.
E. Quantity supplied will exceed quantity demanded.

Which of the following statements relating to income elasticity is true?
A. A positive value for the income elasticity coefficient indicates an inferior good.
B. If good X and good Y have negative income elasticities, then both goods are substitutes.
C. With an income elasticity coefficient of 0.6, the demand is inelastic and the good is an inferior good.
D. With an income elasticity coefficient of 5, a 10 percent increase in income will lead to a 50 percent increase in the quantity demanded of the good.
E. With an income elasticity coefficient of -1.2, a 10 percent increase in income will lead to a 12 percent decrease in the price of the good.

Which of the following statements relating to income elasticity is true?
A. A positive value for the income elasticity coefficient indicates an inferior good.
B. If good X and good Y have negative income elasticities, then both goods are substitutes.
C. With an income elasticity coefficient of 0.6, the demand is inelastic and the good is an inferior good.
D. With an income elasticity coefficient of 5, a 10 percent increase in income will lead to a 50 percent increase
in the quantity demanded of the good.
E. With an income elasticity coefficient of
, a 10 percent increase in income will lead to a 12 percent
decrease in the price of the good.

Which of the following provides a possible explanation for a simultaneous increase in the equilibrium price and the quantity of blueberries in a market?
A. An increase in the price of strawberries, a substitute
B. An increase in the supply of strawberries, a substitute
C. An increase in the price of farmland used to grow blueberries
D. A decrease in the price of blueberry harvesting equipment
E. Imposition of a price floor in the market for blueberries

Which of the following provides a possible explanation for a simultaneous increase in the equilibrium price and the
quantity of blueberries in a market?
A. An increase in the price of strawberries, a substitute
B. An increase in the supply of strawberries, a substitute
C. An increase in the price of farmland used to grow blueberries
D. A decrease in the price of blueberry harvesting equipment
E. Imposition of a price floor in the market for blueberries

For a normal good, the income effect of a price change refers to the change in the consumption of the good that occurs because of the change in
A. consumers’ purchasing power
B. the demand for a substitute good
C. the supply of the good
D. relative price
E. marginal utility

For a normal good, the income effect of a price change refers to the change in the consumption of the good that
occurs because of the change in
A. consumers’ purchasing power
B. the demand for a substitute good
C. the supply of the good
D. relative price
E. marginal utility

Assume the income elasticity of demand for good Z equals . Which of the following is true?
A. Good Z is a normal good.
B. Good Z must have an inelastic demand.
C. An increase in income will lead to a decrease in demand.
D. An increase in income will lead to an increase in demand.
E. The income effect of a price increase will be a decrease in quantity demanded at every price.

Assume the income elasticity of demand for good Z equals
. Which of the following is true?
A. Good Z is a normal good.
B. Good Z must have an inelastic demand.
C. An increase in income will lead to a decrease in demand.
D. An increase in income will lead to an increase in demand.
E. The income effect of a price increase will be a decrease in quantity demanded at every price.

Which of the following helps explain why the demand curve for a normal good is downward sloping?
A. The income and substitution effects move the quantity demanded in the same direction.
B. The income effect moves the quantity demanded in the opposite direction of the substitution effect.
C. The income effect dominates the substitution effect.
D. The substitution effect dominates the income effect.
E. With an increase in income, the consumer decreases consumption of the good.

Which of the following helps explain why the demand curve for a normal good is downward sloping?
A. The income and substitution effects move the quantity demanded in the same direction.
B. The income effect moves the quantity demanded in the opposite direction of the substitution effect.
C. The income effect dominates the substitution effect.
D. The substitution effect dominates the income effect.
E. With an increase in income, the consumer decreases consumption of the good.

A 10 percent increase in Sandra’s income causes Sandra’s consumption of milk to decrease from 10 cartons to 6 cartons. Sandra’s income elasticity of demand for milk is
A. greater than zero and therefore milk is a necessity
B. greater than zero and therefore milk is a normal good
C. less than zero and therefore milk is a normal good
D. less than zero and therefore milk is an inferior good
E. greater than one and therefore milk is a necessity

A
percent increase in Sandra’s income causes Sandra’s consumption of milk to decrease from
cartons to
cartons. Sandra’s income elasticity of demand for milk is
A. greater than zero and therefore milk is a necessity
B. greater than zero and therefore milk is a normal good
C. less than zero and therefore milk is a normal good
D. less than zero and therefore milk is an inferior good
E. greater than one and therefore milk is a necessity

Which of the following changes will lead to an increase in the supply of good X?
A. An increase in the price of good X
B. An increase in the wages of labor used to produce good X
C. A decrease in the price of energy, a key input to the production of good X
D. An increase in the demand for good X
E. A decrease in the number of sellers of good X

Which of the following changes will lead to an increase in the supply of good X?
A. An increase in the price of good X
B. An increase in the wages of labor used to produce good X
C. A decrease in the price of energy, a key input to the production of good X
D. An increase in the demand for good X
E. A decrease in the number of sellers of good X

The market for goldfish is perfectly competitive. From year 1 to year 2, both the price and the quantity of goldfish sold increase. This is most likely caused by
A. an increase in the supply
B. a decrease in the supply
C. an increase in the demand
D. a decrease in the demand
E. a decrease in both the demand and the supply

The market for goldfish is perfectly competitive. From year 1 to year 2, both the price and the quantity of goldfish
sold increase. This is most likely caused by
A. an increase in the supply
B. a decrease in the supply
C. an increase in the demand
D. a decrease in the demand
E. a decrease in both the demand and the supply

Carmen consumes both entertainment and medical care. For Carmen, entertainment is a normal good, and the income elasticity of her demand for medical care is zero. If Carmen’s income increases, which of the following will be the immediate impact on her consumption? Entertainment: Increase; Medical care: Increase
A. Entertainment Medical care Increase Increase
B. Entertainment Medical care Increase No change
C. Entertainment Medical care No change Increase
D. Entertainment Medical care Increase Decrease
E. Entertainment Medical care Decrease Increase

Carmen consumes both entertainment and medical care. For Carmen, entertainment is a normal good, and the
income elasticity of her demand for medical care is zero. If Carmen’s income increases, which of the following will
be the immediate impact on her consumption?
A. Entertainment: Increase; Medical care: Increase
Entertainment
Medical care
Increase
Increase
B. Entertainment
Medical care
Increase
No change
C. Entertainment
Medical care
No change
Increase
D. Entertainment
Medical care
Increase
Decrease
E. Entertainment
Medical care
Decrease
Increase

For an inferior good, an increase in consumer income will cause
A. the demand curve to shift to the left
B. the demand curve to shift to the right
C. the short-run supply curve to shift to the right
D. the long-run supply curve to shift to the right
E. new firms to enter the market in the long run

For an inferior good, an increase in consumer income will cause
A. the demand curve to shift to the left
B. the demand curve to shift to the right
C. the short-run supply curve to shift to the right
D. the long-run supply curve to shift to the right
E. new firms to enter the market in the long run

If bologna is an inferior good, which of the following must be true?
A. The demand curve for bologna is vertical.
B. The demand curve for bologna is horizontal.
C. An increase in the price of bologna will decrease the supply of bologna.
D. An increase in consumer income will decrease the demand of bologna.
E. A decrease in consumer income will decrease the supply of bologna.

If bologna is an inferior good, which of the following must be true?
A. The demand curve for bologna is vertical.
B. The demand curve for bologna is horizontal.
C. An increase in the price of bologna will decrease the supply of bologna.
D. An increase in consumer income will decrease the demand of bologna.
E. A decrease in consumer income will decrease the supply of bologna.

The diagram above shows the demand and supply curves for a normal good. The equilibrium price could rise from P 1 to P 2 if
A. consumers’ incomes increased
B. P 2 were set as a legal maximum
C. subsidies on the product increased
D. the price of a complementary product increased
E. costs of production were substantially lowered

The diagram above shows the demand and supply curves for a normal good. The equilibrium price could rise from
P1 to P2 if
A. consumers’ incomes increased
B. P2 were set as a legal maximum
C. subsidies on the product increased
D. the price of a complementary product increased
E. costs of production were substantially lowered

Which of the following will increase the demand for pizza, a normal good?
A. An increase in the cost of producing pizza
B. A decrease in the price of pizza
C. An increase in the price of a complementary product
D. An increase in consumers’ income
E. An increase in the number of restaurants selling pizza

Which of the following will increase the demand for pizza, a normal good?
A. An increase in the cost of producing pizza
B. A decrease in the price of pizza
C. An increase in the price of a complementary product
D. An increase in consumers’ income
E. An increase in the number of restaurants selling pizza

Which of the following will decrease the demand for beef?
A. An increase in the price of pork, if pork and beef are substitute goods
B. An increase in the price of potatoes, if potatoes and beef are complementary goods
C. A decrease in the cost of transporting beef to consumers
D. An increase in the income levels of most consumers, if beef is a normal good
E. Research showing beef is better for your health than chicken

Which of the following will decrease the demand for beef?
A. An increase in the price of pork, if pork and beef are substitute goods
B. An increase in the price of potatoes, if potatoes and beef are complementary goods
C. A decrease in the cost of transporting beef to consumers
D. An increase in the income levels of most consumers, if beef is a normal good
E. Research showing beef is better for your health than chicken

Which of the following will cause the supply curve for shoes to shift to the right?
A. An increase in the price of socks, assuming that shoes and socks are complements
B. A decrease in the price of sandals, assuming that shoes and sandals are substitutes
C. An increase in the wages of shoe workers
D. An increase in the number of firms producing shoes
E. A decrease in the income of consumers, assuming that shoes are normal goods

Which of the following will cause the supply curve for shoes to shift to the right?
A. An increase in the price of socks, assuming that shoes and socks are complements
B. A decrease in the price of sandals, assuming that shoes and sandals are substitutes
C. An increase in the wages of shoe workers
D. An increase in the number of firms producing shoes
E. A decrease in the income of consumers, assuming that shoes are normal goods

Assume that mustard and ketchup are considered substitutes by consumers. If the price of mustard increases, which of the following graphs represents the most likely response in the ketchup market?
A. 
B. 
C. 
D. 
E. 

Assume that mustard and ketchup are considered substitutes by consumers. If the price of mustard increases, which
of the following graphs represents the most likely response in the ketchup market?
A. 
B. 
C. 
D. 
E. 

Which of the following will cause the demand curve for good X to shift to the right?
A. An increase in the price of good Z, a complement to good X
B. An increase in the price of good Y, a substitute for good X
C. An increase in the consumer’s income, if good X is an inferior good
D. A decrease in the price of good X
E. An increase in the supply of good X

Which of the following will cause the demand curve for good X to shift to the right?
A. An increase in the price of good Z, a complement to good X
B. An increase in the price of good Y, a substitute for good X
C. An increase in the consumer’s income, if good X is an inferior good
D. A decrease in the price of good X
E. An increase in the supply of good X

Assuming a downward-sloping demand curve and an upward-sloping supply curve, which of the following will occur as a result of an increase in the sales tax on a good?
A. Supply will increase.
B. Demand will increase.
C. Quantity supplied will increase.
D. Quantity demanded will decrease.
E. The price paid by consumers will decrease

Assuming a downward-sloping demand curve and an upward-sloping supply curve, which of the following will
occur as a result of an increase in the sales tax on a good?
A. Supply will increase.
B. Demand will increase.
C. Quantity supplied will increase.
D. Quantity demanded will decrease.
E. The price paid by consumers will decrease.

Which of the following would cause the equilibrium price of good X to increase?
A. Producers of good X find a new technology that reduces the cost of producing X.
B. The price of an essential input in the production of good X increases.
C. Goods X and Y are complements, and the government imposes a tax on good Y.
D. Good X is a normal good, and the government increases income taxes by 3%.
E. Good X is an inferior good, and the government decreases income taxes by 10%.

Which of the following would cause the equilibrium price of good X to increase?
A. Producers of good X find a new technology that reduces the cost of producing X.
B. The price of an essential input in the production of good X increases.
C. Goods X and Y are complements, and the government imposes a tax on good Y.
D. Good X is a normal good, and the government increases income taxes by 3%.
E. Good X is an inferior good, and the government decreases income taxes by 10%.

To alleviate a financial crisis, a university increases student fees. This action will increase university revenues if the price elasticity of demand for university education is
A. inelastic
B. unit elastic
C. elastic
D. equal to the price elasticity of supply
E. equal to one

To alleviate a financial crisis, a university increases student fees. This action will increase university revenues if the
price elasticity of demand for university education is
A. inelastic
B. unit elastic
C. elastic
D. equal to the price elasticity of supply
E. equal to one

Assume that the demand for a certain good is perfectly inelastic and the supply curve of the good is upward sloping. Which of the following occurs in the market for the good if the price of an input used to produce the good increases?
A. A decrease in both the quantity supplied and the equilibrium amount consumed
B. A decrease in the quantity supplied and an increase in the equilibrium price
C. A decrease in the supply and an increase in the equilibrium price
D. A decrease in both the demand and the equilibrium amount consumed
E. A decrease in both the quantity demanded and the equilibrium price

Assume that the demand for a certain good is perfectly inelastic and the supply curve of the good is upward sloping.
Which of the following occurs in the market for the good if the price of an input used to produce the good
increases?
A. A decrease in both the quantity supplied and the equilibrium amount consumed
B. A decrease in the quantity supplied and an increase in the equilibrium price
C. A decrease in the supply and an increase in the equilibrium price
D. A decrease in both the demand and the equilibrium amount consumed
E. A decrease in both the quantity demanded and the equilibrium price

An effective minimum wage policy in a competitive market will increase unemployment and increase the total earnings of labor only if the demand for labor is
A. relatively inelastic
B. relatively elastic
C. unit elastic
D. greater than the supply
E. positively related to the wage rate

An effective minimum wage policy in a competitive market will increase unemployment and increase the total
earnings of labor only if the demand for labor is
A. relatively inelastic
B. relatively elastic
C. unit elastic
D. greater than the supply
E. positively related to the wage rate

Which of the following best describes the law of demand?
A. When income increases, the demand for goods increases.
B. When the price of a good decreases, the demand for the good increases.
C. When the price of a good decreases, the quantity demanded of the good decreases.
D. When the price of a good increases, the quantity demanded of the good decreases.
E. When the demand for a good increases, consumers’ willingness and ability to buy the good increases.

Which of the following best describes the law of demand?
A. When income increases, the demand for goods increases.
B. When the price of a good decreases, the demand for the good increases.
C. When the price of a good decreases, the quantity demanded of the good decreases.
D. When the price of a good increases, the quantity demanded of the good decreases.
E. When the demand for a good increases, consumers’ willingness and ability to buy the good increases.

Which of the following best describes the law of demand?
A. The price of a good increases when the demand for the good increases.
B. The price of a good decreases when the supply of the good decreases.
C. When the price of a good increases, its demand decreases.
D. When the price of a good decreases, its quantity demanded increases.
E. Demand creates its own supply.

Which of the following best describes the law of demand?
A. The price of a good increases when the demand for the good increases.
B. The price of a good decreases when the supply of the good decreases.
C. When the price of a good increases, its demand decreases.
D. When the price of a good decreases, its quantity demanded increases.
E. Demand creates its own supply.

Leather and beef are jointly produced such that an increase in the production of one results in an equal increase in the production of the other. An increase in the demand for leather will most likely cause
A. a decrease in the price of leather
B. a decrease in the price of beef
C. a decrease in the equilibrium quantity of beef sold
D. an increase in the demand for beef in the short run
E. an increase in the supply of leather

Leather and beef are jointly produced such that an increase in the production of one results in an equal increase in
the production of the other. An increase in the demand for leather will most likely cause
A. a decrease in the price of leather
B. a decrease in the price of beef
C. a decrease in the equilibrium quantity of beef sold
D. an increase in the demand for beef in the short run
E. an increase in the supply of leather

Assume that the market for lemonade is perfectly competitive and currently in equilibrium. Lemons are key ingredients in lemonade. If the price of lemons decreases, how will the lemonade market be affected?
A. Supply will shift leftward, increasing the equilibrium price and decreasing the equilibrium quantity of lemonade.
B. Supply will shift rightward, increasing the equilibrium price and increasing the equilibrium quantity of lemonade.
C. Supply will shift rightward, decreasing the equilibrium price and increasing the equilibrium quantity of lemonade.
D. Demand will shift leftward, decreasing the equilibrium price and decreasing the equilibrium quantity of lemonade.
E. Demand will shift rightward, increasing the equilibrium price and increasing the equilibrium quantity of lemonade.

Assume that the market for lemonade is perfectly competitive and currently in equilibrium. Lemons are key
ingredients in lemonade. If the price of lemons decreases, how will the lemonade market be affected?
A. Supply will shift leftward, increasing the equilibrium price and decreasing the equilibrium quantity of
lemonade.
B. Supply will shift rightward, increasing the equilibrium price and increasing the equilibrium quantity of
lemonade.
C. Supply will shift rightward, decreasing the equilibrium price and increasing the equilibrium quantity of
lemonade.
D. Demand will shift leftward, decreasing the equilibrium price and decreasing the equilibrium quantity of
lemonade.
E. Demand will shift rightward, increasing the equilibrium price and increasing the equilibrium quantity of
lemonade.

The table above shows the demand schedules for Jill and for all other consumers, as well as the market supply schedule for the same good. The equilibrium price in this market is
A. $8
B. $7
C. $6
D. $5
E. $4

The table above shows the demand schedules for Jill and for all other consumers, as well as the market supply
schedule for the same good. The equilibrium price in this market is
A. $8
B. $7
C. $6
D. $5
E. $4

An increase in the supply of coffee could be caused by
A. a decrease in the price of cream, which is a complement to coffee
B. a decrease in the cost of labor used to produce coffee
C. an increase in consumer income
D. an increase in the demand for coffee
E. an increase in the price of coffee

An increase in the supply of coffee could be caused by
A. a decrease in the price of cream, which is a complement to coffee
B. a decrease in the cost of labor used to produce coffee
C. an increase in consumer income
D. an increase in the demand for coffee
E. an increase in the price of coffee

Which of the following explains why a decrease in the price of a normal good will lead to an increase in the quantity demanded of the good?
A. A lower price will increase consumers’ purchasing power.
B. A lower price will increase consumers’ marginal utility.
C. A lower price will increase demand for the good.
D. A lower price will increase demand for substitute goods.
E. A lower price will decrease demand for complementary goods.

Which of the following explains why a decrease in the price of a normal good will lead to an increase in the
quantity demanded of the good?
A. A lower price will increase consumers’ purchasing power.
B. A lower price will increase consumers’ marginal utility.
C. A lower price will increase demand for the good.
D. A lower price will increase demand for substitute goods.
E. A lower price will decrease demand for complementary goods.

Which of the following is true in the elastic range of a firm's demand curve?
A. The firm should expand output to increase economic profits.
B. An increase in price will also lead to an increase in total cost.
C. A decrease in price will likely lead to an increase in total revenue.
D. Marginal revenue is negative.
E. The firm is maximizing total revenue.

Which of the following is true in the elastic range of a firm's demand curve?
A. The firm should expand output to increase economic profits.
B. An increase in price will also lead to an increase in total cost.
C. A decrease in price will likely lead to an increase in total revenue.
D. Marginal revenue is negative.
E. The firm is maximizing total revenue.

The table provided shows the market demand and supply schedules for wheat. Which of the following is true?
A. At a price of 1$, there is excess supply of wheat and the price will decrease.
B. At a price of 2$, there is excess demand for wheat and the price will decrease.
C. At a price of 3$, there is excess demand for wheat and the price will increase.
D. At a price of 4$, there is excess supply of wheat and the price will decrease.
E. At a price of $5, there is excess demand for wheat and the price will increase.

Price
Quantity
Demanded
(units)
Quantity
Supplied
(units)
The table provided shows the market demand and supply schedules for wheat. Which of the following is true?
A. At a price of
, there is excess supply of wheat and the price will decrease.
B. At a price of
, there is excess demand for wheat and the price will decrease.
C. At a price of
, there is excess demand for wheat and the price will increase.
D. At a price of
, there is excess supply of wheat and the price will decrease.
E. At a price of
, there is excess demand for wheat and the price will increase.

Assume that the government imposes an excise tax on the consumption of a good. The tax will have the least impact on the market equilibrium quantity for which of the following combinations of the price elasticities of demand and supply?
A. Absolute Value of Elasticity of Demand Elasticity of Supply 4 4
B. Absolute Value of Elasticity of Demand Elasticity of Supply 4 0.50
C. Absolute Value of Elasticity of Demand Elasticity of Supply 1 1
D. Absolute Value of Elasticity of Demand Elasticity of Supply 0.50 4
E. Absolute Value of Elasticity of Demand Elasticity of Supply 0.50 0.50

Assume that the government imposes an excise tax on the consumption of a good. The tax will have the least impact
on the market equilibrium quantity for which of the following combinations of the price elasticities of demand and
supply?
A. Absolute Value of Elasticity of Demand
Elasticity of Supply
4
4
B. Absolute Value of Elasticity of Demand
Elasticity of Supply
4
0.50
C. Absolute Value of Elasticity of Demand
Elasticity of Supply
1
1
D. Absolute Value of Elasticity of Demand
Elasticity of Supply
0.50
4
E. Absolute Value of Elasticity of Demand
Elasticity of Supply
0.50
0.50

Assume the market for a good is in equilibrium. An increase in the market supply of the good will result in
A. a shortage at the original price of the good, which causes the market price to decrease
B. a shortage at the original price of the good, which causes the market price to increase
C. a surplus at the original price of the good, which causes the market price to decrease
D. a surplus at the original price of the good, which causes the market price to increase
E. neither a surplus nor a shortage

Assume the market for a good is in equilibrium. An increase in the market supply of the good will result in
A. a shortage at the original price of the good, which causes the market price to decrease
B. a shortage at the original price of the good, which causes the market price to increase
C. a surplus at the original price of the good, which causes the market price to decrease
D. a surplus at the original price of the good, which causes the market price to increase
E. neither a surplus nor a shortage

Which of the following occurs if the price of oranges is below the equilibrium price?
A. There is a surplus of oranges.
B. The quantity supplied of oranges is greater than the quantity demanded.
C. The quantity supplied of oranges is greater than the quantity sold.
D. The quantity purchased of oranges is greater than the quantity sold.
E. The quantity demanded of oranges is greater than the quantity supplied.

Which of the following occurs if the price of oranges is below the equilibrium price?
A. There is a surplus of oranges.
B. The quantity supplied of oranges is greater than the quantity demanded.
C. The quantity supplied of oranges is greater than the quantity sold.
D. The quantity purchased of oranges is greater than the quantity sold.
E. The quantity demanded of oranges is greater than the quantity supplied.

Given the demand curve above, if price decreases from $8 to $4 per unit, total consumer surplus will
A. increase by $4
B. increase by $8
C. increase by $12
D. increase by $18
E. remain constant at $24

Given the demand curve above, if price decreases from $8 to $4 per unit, total consumer surplus will
A. increase by $4
B. increase by $8
C. increase by $12
D. increase by $18
E. remain constant at $24

A monopolist produces two unrelated goods, X and Y. The demand for X is currently price elastic and the demand for Y is currently price inelastic. To increase its total revenue, the firm should change the price of X and Y in which of the following ways?
A. Price of X Price of Y Increase No change
B. Price of X Price of Y Increase Decrease
C. Price of X Price of Y Increase Increase
D. Price of X Price of Y Decrease Increase
E. Price of X Price of Y Decrease Decrease

A monopolist produces two unrelated goods, X and Y. The demand for X is currently price elastic and the demand
for Y is currently price inelastic. To increase its total revenue, the firm should change the price of X and Y in which
of the following ways?
A. Price of X
Price of Y
Increase
No change
B. Price of X
Price of Y
Increase
Decrease
C. Price of X
Price of Y
Increase
Increase
D. Price of X
Price of Y
Decrease
Increase
E. Price of X
Price of Y
Decrease
Decrease

Which of the following would cause the supply curve for notebook computers to shift to the right?
A. An increase in the price of notebook computers
B. An increase in the number of firms producing notebook computers
C. An increase in the wages of workers in the notebook-computer industry
D. A decrease in the price of notebook computers
E. A decrease in the supply of notebook computers

Which of the following would cause the supply curve for notebook computers to shift to the right?
A. An increase in the price of notebook computers
B. An increase in the number of firms producing notebook computers
C. An increase in the wages of workers in the notebook-computer industry
D. A decrease in the price of notebook computers
E. A decrease in the supply of notebook computers

Which of the following will tend to make the demand for a product more elastic?
A. New firms which produce similar products enter the industry.
B. A change in taste and preferences makes the product more desirable.
C. The product is necessary for use with a complement.
D. Production of the product is protected by a patent.
E. Production cost of the product decreases.

Which of the following will tend to make the demand for a product more elastic?
A. New firms which produce similar products enter the industry.
B. A change in taste and preferences makes the product more desirable.
C. The product is necessary for use with a complement.
D. Production of the product is protected by a patent.
E. Production cost of the product decreases.

If a 5 percent wage increase in a particular labor market results in a 10 percent decrease in employment, the demand for labor is
A. perfectly elastic
B. relatively elastic
C. unit elastic
D. relatively inelastic
E. perfectly inelastic

If a 5 percent wage increase in a particular labor market results in a 10 percent decrease in employment, the demand
for labor is
A. perfectly elastic
B. relatively elastic
C. unit elastic
D. relatively inelastic
E. perfectly inelastic

Which of the following statements about the market supply curve is true?
A. An increase in input prices will shift the market supply curve to the right.
B. At each price, a horizontal summation of the quantity supplied by each firm will yield the market supply curve.
C. At each quantity supplied, a vertical summation of the price set by each firm will yield the market supply curve.
D. A decrease in the price will shift the market supply curve to the left.
E. The law of supply states that the market supply curve may shift right, shift left, or remain the same as the price increases.

Which of the following statements about the market supply curve is true?
A. An increase in input prices will shift the market supply curve to the right.
B. At each price, a horizontal summation of the quantity supplied by each firm will yield the market supply
curve.
C. At each quantity supplied, a vertical summation of the price set by each firm will yield the market supply
curve.
D. A decrease in the price will shift the market supply curve to the left.
E. The law of supply states that the market supply curve may shift right, shift left, or remain the same as the
price increases.

Suppose that the market for low-wage labor is perfectly competitive and initially in equilibrium. If the government establishes an effective minimum wage, which of the following will occur?
A. Employment of low-wage workers will decrease and unemployment will increase.
B. The quantity of low-wage workers supplied will be less than the quantity demanded.
C. The total wage payment received by all low-wage workers will increase.
D. Economic efficiency will increase, since firms were paying workers less than the value of their marginal revenue product.
E. Low-wage workers will be motivated to form a union.

Suppose that the market for low-wage labor is perfectly competitive and initially in equilibrium. If the government
establishes an effective minimum wage, which of the following will occur?
A. Employment of low-wage workers will decrease and unemployment will increase.
B. The quantity of low-wage workers supplied will be less than the quantity demanded.
C. The total wage payment received by all low-wage workers will increase.
D. Economic efficiency will increase, since firms were paying workers less than the value of their marginal
revenue product.
E. Low-wage workers will be motivated to form a union.

Assume that a monopolist is producing in the inelastic portion of its demand curve. Which of the following will occur if the monopolist decreases its price?
A. Marginal revenue will decrease, but profits will increase.
B. Marginal revenue will increase, but profits will decrease.
C. Total revenue will decrease, but profits will increase.
D. Both total revenue and profits will decrease.
E. Both total revenue and profits will increase.

Assume that a monopolist is producing in the inelastic portion of its demand curve. Which of the following will
occur if the monopolist decreases its price?
A. Marginal revenue will decrease, but profits will increase.
B. Marginal revenue will increase, but profits will decrease.
C. Total revenue will decrease, but profits will increase.
D. Both total revenue and profits will decrease.
E. Both total revenue and profits will increase.

Which of the following would most likely result in a decrease in the equilibrium price of oranges?
A. The weather during this orange-growing season is not as good as it was last year.
B. The price of apples, a substitute for oranges, is higher this year than last year.
C. New studies suggest that oranges contain traces of cancer-causing substances due to pesticide residue.
D. A tree-killing fungus spreads through orange orchards across the country.
E. Firms in the orange industry launch an effective advertising campaign.

Which of the following would most likely result in a decrease in the equilibrium price of oranges?
A. The weather during this orange-growing season is not as good as it was last year.
B. The price of apples, a substitute for oranges, is higher this year than last year.
C. New studies suggest that oranges contain traces of cancer-causing substances due to pesticide residue.
D. A tree-killing fungus spreads through orange orchards across the country.
E. Firms in the orange industry launch an effective advertising campaign.

Following a decrease in the supply of oranges, the price of orange juice increased by 20 percent, which resulted in a 10 percent increase in the quantity of apple juice consumed. This implies that the cross elasticity of demand between orange juice and apple juice is
A. 0
B. 0.5
C. 1
D. 2
E. indeterminate

Following a decrease in the supply of oranges, the price of orange juice increased by 20 percent, which resulted in a
10 percent increase in the quantity of apple juice consumed. This implies that the cross elasticity of demand
between orange juice and apple juice is
A. 0
B. 0.5
C. 1
D. 2
E. indeterminate

A decrease in the supply of oranges raised the price of oranges in the market. The substitution effect of the price increase will motivate consumers to
A. raise their real income to offset the price effect
B. decrease their demand for oranges
C. demand that the government set a price ceiling for oranges
D. increase the quantity of other fruits demanded and decrease the quantity of oranges demanded
E. decrease the quantity of other fruits demanded and increase the quantity of oranges demanded

A decrease in the supply of oranges raised the price of oranges in the market. The substitution effect of the price
increase will motivate consumers to
A. raise their real income to offset the price effect
B. decrease their demand for oranges
C. demand that the government set a price ceiling for oranges
D. increase the quantity of other fruits demanded and decrease the quantity of oranges demanded
E. decrease the quantity of other fruits demanded and increase the quantity of oranges demanded

Which of the following events will cause the demand curve for hamburgers to shift to the right?
A. An increase in the price of pizza, a substitute for hamburgers
B. An increase in the price of a french fries, a complement to hamburgers
C. An increase in the price of hamburgers
D. A decrease in the price of hamburgers
E. A decrease in the cost of producing hamburgers

Which of the following events will cause the demand curve for hamburgers to shift to the right?
A. An increase in the price of pizza, a substitute for hamburgers
B. An increase in the price of a french fries, a complement to hamburgers
C. An increase in the price of hamburgers
D. A decrease in the price of hamburgers
E. A decrease in the cost of producing hamburgers

Assume that both the supply of and the demand for a good are relatively price elastic. The imposition of a per-unit excise tax on the sale of the good would cause the equilibrium price and quantity to change in which of the following ways?
A. Price Quantity Increase Increase
B. Price Quantity Increase No change
C. Price Quantity Increase Decrease
D. Price Quantity Decrease No change
E. Price Quantity Decrease Decrease

Assume that both the supply of and the demand for a good are relatively price elastic. The imposition of a per-unit
excise tax on the sale of the good would cause the equilibrium price and quantity to change in which of the
following ways?
A. Price
Quantity
Increase
Increase
B. Price
Quantity
Increase
No change
C. Price
Quantity
Increase
Decrease
D. Price
Quantity
Decrease
No change
E. Price
Quantity
Decrease
Decrease

At a price of $10, the quantity demanded of pizzas is 100 and the quantity supplied is 150. Which of the following statements must be true?
A. There is a shortage of pizza at a price of $10.
B. The equilibrium price of pizza is below $10.
C. The quantity of pizzas sold will be 150.
D. At equilibrium, fewer than 100 pizzas will be sold.
E. The pizza market is in equilibrium.

At a price of $10, the quantity demanded of pizzas is 100 and the quantity supplied is 150. Which of the following
statements must be true?
A. There is a shortage of pizza at a price of $10.
B. The equilibrium price of pizza is below $10.
C. The quantity of pizzas sold will be 150.
D. At equilibrium, fewer than 100 pizzas will be sold.
E. The pizza market is in equilibrium.

The absolute value of the price elasticity of demand for a good increases when
A. the good has fewer substitutes
B. the good becomes a necessity
C. consumers spend greater portion of their budget on the good
D. the price of an input used to produce the good increases
E. the good must be purchased immediately

The absolute value of the price elasticity of demand for a good increases when
A. the good has fewer substitutes
B. the good becomes a necessity
C. consumers spend greater portion of their budget on the good
D. the price of an input used to produce the good increases
E. the good must be purchased immediately

If the demand for potatoes increases whenever a person's income increases, then potatoes are an example of
A. an inferior good
B. a free good
C. a Giffen good
D. a normal good
E. a public good

If the demand for potatoes increases whenever a person's income increases, then potatoes are an example of
A. an inferior good
B. a free good
C. a Giffen good
D. a normal good
E. a public good

Assume that consumers consider potatoes to be an inferior good, but consider rice to be a normal good. An increase in consumers’ incomes will most likely affect the equilibrium price and quantity of potatoes and rice in which of the following ways?
A. 
B. 
C. 
D. 
E. 

Assume that consumers consider potatoes to be an inferior good, but consider rice to be a normal good. An increase
in consumers’ incomes will most likely affect the equilibrium price and quantity of potatoes and rice in which of the
following ways?
A. Potatoes
Rice
Price
Quantity
Price
Quantity
Decrease
Decrease
Increase
Increase
B. Potatoes
Rice
Price
Quantity
Price
Quantity
Decrease
Increase
Increase
Decrease
C. Potatoes
Rice
Price
Quantity
Price
Quantity
Decrease
Decrease
Decrease
Decrease
D. Potatoes
Rice
Price
Quantity
Price
Quantity
Increase
Increase
Decrease
Decrease
E. Potatoes
Rice
Price
Quantity
Price
Quantity
Increase
Decrease
Increase
Decrease

In the rental housing market, what would be the effect of a rent control that was set at the market equilibrium rental price?
A. It would increase the number of housing units available, creating a surplus.
B. It would decrease the number of housing units available, creating a shortage.
C. It would have no impact on the number of housing units available.
D. It would increase the consumer surplus and decrease the producer surplus.
E. It would decrease the consumer surplus and increase the producer surplus.

In the rental housing market, what would be the effect of a rent control that was set at the market equilibrium rental
price?
A. It would increase the number of housing units available, creating a surplus.
B. It would decrease the number of housing units available, creating a shortage.
C. It would have no impact on the number of housing units available.
D. It would increase the consumer surplus and decrease the producer surplus.
E. It would decrease the consumer surplus and increase the producer surplus.

In the market shown in the graph above, at a price of $5, there will be
A. a surplus and the price will eventually fall
B. a surplus generating a decrease in demand
C. a shortage and the price will eventually rise
D. a shortage generating an increase in supply
E. an increase in supply and a decrease in demand

In the market shown in the graph above, at a price of $5, there will be
A. a surplus and the price will eventually fall
B. a surplus generating a decrease in demand
C. a shortage and the price will eventually rise
D. a shortage generating an increase in supply
E. an increase in supply and a decrease in demand

If the market depicted in the diagram above is initially in equilibrium, which of the following will result from the government’s setting a price ceiling at P3?
A. Quantity demanded will exceed quantity supplied.
B. Quantity supplied will exceed quantity demanded.
C. Market price will increase.
D. Market price will be unaffected.
E. Market price will decrease.

If the market depicted in the diagram above is initially in equilibrium, which of the following will result from the
government’s setting a price ceiling at P3?
A. Quantity demanded will exceed quantity supplied.
B. Quantity supplied will exceed quantity demanded.
C. Market price will increase.
D. Market price will be unaffected.
E. Market price will decrease.

The graph above shows the supply and demand curves for gasoline. Which of the following will occur if the government establishes a price ceiling of $1.20 per gallon?
A. A shortage of 900 million gallons
B. A shortage of 200 million gallons
C. A shortage of 100 million gallons
D. A surplus of 100 million gallons
E. Neither a surplus nor a shortage

The graph above shows the supply and demand curves for gasoline. Which of the following will occur if the
government establishes a price ceiling of $1.20 per gallon?
A. A shortage of 900 million gallons
B. A shortage of 200 million gallons
C. A shortage of 100 million gallons
D. A surplus of 100 million gallons
E. Neither a surplus nor a shortage

In the market depicted in the diagram above, if the government imposes a price ceiling of $1.00 per gallon on gasoline, which of the following will result?
A. A surplus of 6 billion gallons
B. A shortage of 6 billion gallons
C. A surplus of 12 billion gallons
D. A shortage of 12 billion gallons
E. Neither a surplus nor a shortage, because the price ceiling would not be effective

In the market depicted in the diagram above, if the government imposes a price ceiling of $1.00 per gallon on
gasoline, which of the following will result?
A. A surplus of 6 billion gallons
B. A shortage of 6 billion gallons
C. A surplus of 12 billion gallons
D. A shortage of 12 billion gallons
E. Neither a surplus nor a shortage, because the price ceiling would not be effective
The following questions refer to the diagram below.The letters on the graph represent enclosed areas.

If a price ceiling is set at P 1 , which of the following areas represent the resulting consumer surplus, producer surplus, and deadweight loss?
A. 
B. 
C. 
D. 
E. 

If a price ceiling is set at P1, which of the following areas represent the resulting consumer surplus, producer
surplus, and deadweight loss?
A. Consumer Surplus
Producer Surplus
Deadweight Loss
f
k
l + m
B. Consumer Surplus
Producer Surplus
Deadweight Loss
f + g + h
k + l
h + j
C. Consumer Surplus
Producer Surplus
Deadweight Loss
f + g + h
i + j + k
l + m
D. Consumer Surplus
Producer Surplus
Deadweight Loss
f + g + i
k
h + j
E. Consumer Surplus
Producer Surplus
Deadweight Loss
f + g + i
h + j
l + m

When the market is in equilibrium, the total economic surplus is equal to area
A. f + k
B. f + g + i + k
C. g + h + i + j
D. f + g + h + i + j + k
E. f + g + h + i + j + k + l + m

When the market is in equilibrium, the total economic surplus is equal to area
A. f + k
B. f + g + i + k
C. g + h + i + j
D. f + g + h + i + j + k
E. f + g + h + i + j + k + l + m

Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good?
A. The quantity sold will exceed the equilibrium quantity.
B. Firms’ total revenues will increase if demand is price elastic.
C. There will be a shortage in the market.
D. All firms will shut down, since price is below the equilibrium price.
E. Price will exceed the marginal cost of producing the last unit sold.

Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good?
A. The quantity sold will exceed the equilibrium quantity.
B. Firms’ total revenues will increase if demand is price elastic.
C. There will be a shortage in the market.
D. All firms will shut down, since price is below the equilibrium price.
E. Price will exceed the marginal cost of producing the last unit sold.

The diagram above depicts demand and supply curves in a city’s rental housing market. If a price ceiling of $1,000 is imposed on the market, which of the following will occur?
A. There will be a surplus of rental housing in the city.
B. The demand curve for housing will shift to the right.
C. The supply curve for housing will shift to the right.
D. The quantity of rental housing supplied will decrease.
E. The quantity of rental housing demanded will increase.

The diagram above depicts demand and supply curves in a city’s rental housing market. If a price ceiling of $1,000
is imposed on the market, which of the following will occur?
A. There will be a surplus of rental housing in the city.
B. The demand curve for housing will shift to the right.
C. The supply curve for housing will shift to the right.
D. The quantity of rental housing supplied will decrease.
E. The quantity of rental housing demanded will increase.

Assume that the current market equilibrium price for milk is $2.80 per gallon and that 5 million gallons are sold per day. If the government sets a price ceiling of $2.00 per gallon, which of the following is true?
A. The demand for milk will increase.
B. The supply of milk will decrease.
C. There will be an excess supply of milk in the market.
D. More than 5 million gallons of milk will be sold.
E. Less than 5 million gallons of milk will be sold.

Assume that the current market equilibrium price for milk is $2.80 per gallon and that 5 million gallons are sold per
day. If the government sets a price ceiling of $2.00 per gallon, which of the following is true?
A. The demand for milk will increase.
B. The supply of milk will decrease.
C. There will be an excess supply of milk in the market.
D. More than 5 million gallons of milk will be sold.
E. Less than 5 million gallons of milk will be sold.

One reason consumers typically increase the quantity of a good they purchase when the price of the good decreases is that
A. the marginal utility of the good increases
B. consumers’ purchasing power increases
C. consumers increase their purchases of substitute items
D. consumers increase their purchases of complementary items
E. the demand for the good increases

One reason consumers typically increase the quantity of a good they purchase when the price of the good decreases
is that
A. the marginal utility of the good increases
B. consumers’ purchasing power increases
C. consumers increase their purchases of substitute items
D. consumers increase their purchases of complementary items
E. the demand for the good increases

If a government eliminated an effective price floor in a market, all of the following would occur EXCEPT:
A. The surplus would be eliminated.
B. The price would decrease.
C. The quantity supplied would decrease.
D. The quantity demanded would increase.
E. The supply of the good would increase.

If a government eliminated an effective price floor in a market, all of the following would occur EXCEPT:
A. The surplus would be eliminated.
B. The price would decrease.
C. The quantity supplied would decrease.
D. The quantity demanded would increase.
E. The supply of the good would increase.

If the absolute value of the price elasticity of demand for Good X is 0.5, then a 10 percent decrease in the price of Good X will result in which of the following?
A. A 5% decrease in the quantity demanded of Good X
B. A 5% increase in the quantity demanded of Good X
C. A 5% increase in revenues from the sale of Good X
D. A 10% decrease in revenues from the sale of Good X
E. A 10% increase in revenues from the sale of Good X

If the absolute value of the price elasticity of demand for Good
is
, then a
percent decrease in the price of
Good
will result in which of the following?
A. A
decrease in the quantity demanded of Good
B. A
increase in the quantity demanded of Good
C. A
increase in revenues from the sale of Good
D. A
decrease in revenues from the sale of Good
E. A
increase in revenues from the sale of Good

The quantity of peanuts supplied increased from 40 tons per week to 60 tons per week when the price of peanuts increased from $4 per ton to $5 per ton. The price elasticity of supply for peanuts over this price range is
A. elastic
B. inelastic
C. unit elastic
D. perfectly elastic
E. perfectly inelastic

The quantity of peanuts supplied increased from 40 tons per week to 60 tons per week when the price of peanuts
increased from $4 per ton to $5 per ton. The price elasticity of supply for peanuts over this price range is
A. elastic
B. inelastic
C. unit elastic
D. perfectly elastic
E. perfectly inelastic

What is the price elasticity of supply between $3 and $4 in the graph above?
A. It is greater than 1, and the supply is relatively inelastic.
B. It is greater than 1, and the supply is relatively elastic.
C. It is equal to 1, and the supply is unit elastic.
D. It is less than 1, and the supply is relatively elastic.
E. It is less than 1, and the supply is relatively inelastic.

What is the price elasticity of supply between
and
in the graph above?
A. It is greater than
, and the supply is relatively inelastic.
B. It is greater than
, and the supply is relatively elastic.
C. It is equal to
, and the supply is unit elastic.
D. It is less than
, and the supply is relatively elastic.
E. It is less than
, and the supply is relatively inelastic.

Which of the following relationships among the price elasticity of demand, change in price, and change in total revenue is consistent?
A. 
B. 
C. 
D. 
E. 

Which of the following relationships among the price elasticity of demand, change in price, and change in total
revenue is consistent?
A. Price Elasticity
of Demand
Change
in Price
Change in
Total Revenue
Elastic
Increase
Increase
B. Price Elasticity
of Demand
Change
in Price
Change in
Total Revenue
Elastic
Decrease
Decrease
C. Price Elasticity
of Demand
Change
in Price
Change in
Total Revenue
Unit Elastic
Decrease
Decrease
D. Price Elasticity
of Demand
Change
in Price
Change in
Total Revenue
Inelastic
Decrease
Increase
E. Price Elasticity
of Demand
Change
in Price
Change in
Total Revenue
Inelastic
Decrease
Decrease

Assume a consumer finds that his total expenditure on compact discs stays the same after the price of compact discs declines. Which of the following is true for this price change?
A. Compact discs are inferior goods to this consumer.
B. The consumer’s demand for compact discs increased in response to the price change.
C. The consumer’s demand for compact discs is perfectly price elastic.
D. The consumer’s demand for compact discs is perfectly price inelastic.
E. The consumer’s demand for compact discs is unit price elastic.

Assume a consumer finds that his total expenditure on compact discs stays the same after the price of compact discs
declines. Which of the following is true for this price change?
A. Compact discs are inferior goods to this consumer.
B. The consumer’s demand for compact discs increased in response to the price change.
C. The consumer’s demand for compact discs is perfectly price elastic.
D. The consumer’s demand for compact discs is perfectly price inelastic.
E. The consumer’s demand for compact discs is unit price elastic.

Assume the government imposes a price floor above the current equilibrium price in the market for a good. Which of the following will occur?
A. Since the price floor is set above the equilibrium price, nothing will change because the price floor is not binding.
B. There will be a shortage of the good.
C. Compared to the equilibrium price, there will be an increase in the quantity exchanged.
D. There will be an excess supply of the good.
E. At the quantity sold, the marginal cost of production will exceed the marginal benefit to consumers.

Assume the government imposes a price floor above the current equilibrium price in the market for a good. Which
of the following will occur?
A. Since the price floor is set above the equilibrium price, nothing will change because the price floor is not
binding.
B. There will be a shortage of the good.
C. Compared to the equilibrium price, there will be an increase in the quantity exchanged.
D. There will be an excess supply of the good.
E. At the quantity sold, the marginal cost of production will exceed the marginal benefit to consumers.

Which of the following is true in the market for a certain product if producers consistently are willing to sell more at the going price than consumers are willing to buy?
A. Demand is highly inelastic
B. Supply is highly elastic.
C. The product is inferior.
D. There is a price ceiling on the product.
E. There is a price floor on the product.

Which of the following is true in the market for a certain product if producers consistently are willing to sell more at
the going price than consumers are willing to buy?
A. Demand is highly inelastic
B. Supply is highly elastic.
C. The product is inferior.
D. There is a price ceiling on the product.
E. There is a price floor on the product.

An increase in which of the following will most likely result in a long-run surplus of a product?
A. The number of suppliers of the product
B. A price is set by law above the equilibrium price
C. The demand for the product
D. The costs of resources used to produce the product
E. The future expected price of the product

An increase in which of the following will most likely result in a long-run surplus of a product?
A. The number of suppliers of the product
B. A price is set by law above the equilibrium price
C. The demand for the product
D. The costs of resources used to produce the product
E. The future expected price of the product

Which of the following is true of a price floor?
A. The intention of the government in creating the price floor is to assist the producers of the good.
B. To have an impact in the market for the good, the price floor should be set below the existing market price of the good.
C. An effective price floor will increase the quantity demanded of the good.
D. The price floor would tend to create a shortage of the good in the market.
E. The creation of the price floor would not change the quantity supplied of the good if the supply curve were upward-sloping to the right.

Which of the following is true of a price floor?
A. The intention of the government in creating the price floor is to assist the producers of the good.
B. To have an impact in the market for the good, the price floor should be set below the existing market price of
the good.
C. An effective price floor will increase the quantity demanded of the good.
D. The price floor would tend to create a shortage of the good in the market.
E. The creation of the price floor would not change the quantity supplied of the good if the supply curve were
upward-sloping to the right.

According to the law of demand, an increase in the price of grape juice will result in
A. a rightward shift in the demand curve for grape juice
B. a leftward shift in the demand curve for grape juice
C. a decrease in the demand for orange juice, a substitute
D. a decrease in the quantity of grape juice demanded
E. an increase in the quantity of grape juice supplied

According to the law of demand, an increase in the price of grape juice will result in
A. a rightward shift in the demand curve for grape juice
B. a leftward shift in the demand curve for grape juice
C. a decrease in the demand for orange juice, a substitute
D. a decrease in the quantity of grape juice demanded
E. an increase in the quantity of grape juice supplied

If a store raises its prices by 20 percent and its total revenue increases by 10 percent, the demand it faces in this price range must be
A. inelastic
B. elastic
C. unit elastic
D. perfectly elastic
E. perfectly inelastic

If a store raises its prices by 20 percent and its total revenue increases by 10 percent, the demand it faces in this
price range must be
A. inelastic
B. elastic
C. unit elastic
D. perfectly elastic
E. perfectly inelastic

A city transit authority increases the price of sub- way and bus tickets from $1.25 to $1.50. If the demand for these tickets is price inelastic, the number of people riding buses and subways and the city’s revenues will most likely change in which of the following ways?
A. Number of People Riding City's Revenues Increase Increase
B. Number of People Riding City's Revenues Decrease Increase
C. Number of People Riding City's Revenues Decrease Decrease
D. Number of People Riding City's Revenues Decrease Remain constant
E. Number of People Riding City's Revenues Remain constant Increase

A city transit authority increases the price of sub- way and bus tickets from $1.25 to $1.50. If the demand for these
tickets is price inelastic, the number of people riding buses and subways and the city’s revenues will most likely
change in which of the following ways?
A. Number of People Riding
City's Revenues
Increase
Increase
B. Number of People Riding
City's Revenues
Decrease
Increase
C. Number of People Riding
City's Revenues
Decrease
Decrease
D. Number of People Riding
City's Revenues
Decrease
Remain constant
E. Number of People Riding
City's Revenues
Remain constant
Increase

Which of the following must be true if the revenues of wheat farmers increase when the price of wheat increase?
A. The supply of wheat is price elastic.
B. The supply of wheat is income elastic.
C. The supply of wheat is income inelastic.
D. The demand for wheat is price elastic.
E. The demand for wheat is price inelastic.

Which of the following must be true if the revenues of wheat farmers increase when the price of wheat increase?
A. The supply of wheat is price elastic.
B. The supply of wheat is income elastic.
C. The supply of wheat is income inelastic.
D. The demand for wheat is price elastic.
E. The demand for wheat is price inelastic.

Based on the graph above, the producer surplus at the market equilibrium price and quantity is shown by which area?
A. GMK
B. GMN
C. GZN
D. ZMN
E. MNK

Based on the graph above, the producer surplus at the market equilibrium price and quantity is shown by which
area?
A. 
B. 
C. 
D. 
E. 

Assume that popcorn and movie attendance are complements and that Salty Concession grows corn suitable for popping. Mr Concession will most likely sell a greater quantity of popping corn at a higher price if which of the following occurs?
A. The wages of farm workers and movie theater employees increase.
B. A technological improvement results in less expensive and more efficient harvesting of corn.
C. The introduction of new fat-free potato chips provides new competition in the snack-food market.
D. The release of three summer movies sets records for movie attendance
E. New government regulations force movie theaters to hire more security guards at each theater.

Assume that popcorn and movie attendance are complements and that Salty Concession grows corn suitable for
popping. Mr Concession will most likely sell a greater quantity of popping corn at a higher price if which of the
following occurs?
A. The wages of farm workers and movie theater employees increase.
B. A technological improvement results in less expensive and more efficient harvesting of corn.
C. The introduction of new fat-free potato chips provides new competition in the snack-food market.
D. The release of three summer movies sets records for movie attendance
E. New government regulations force movie theaters to hire more security guards at each theater.

If the demand for good Y increases as the price of good X decreases, it can be concluded that
A. X and Y are substitute goods
B. X and Y are complementary goods
C. X is an inferior good and Y is a superior good
D. X is a superior good and Y is an inferior good
E. both X and Y are inferior goods

If the demand for good Y increases as the price of good X decreases, it can be concluded that
A. X and Y are substitute goods
B. X and Y are complementary goods
C. X is an inferior good and Y is a superior good
D. X is a superior good and Y is an inferior good
E. both X and Y are inferior goods

Which of the following will result in the short run if the government imposes a binding quota?
A. A decrease in the price paid by consumers
B. A rightward shift in the supply curve
C. A leftward shift in the demand curve
D. An increase in consumer surplus
E. A deadweight loss

Which of the following will result in the short run if the government imposes a binding quota?
A. A decrease in the price paid by consumers
B. A rightward shift in the supply curve
C. A leftward shift in the demand curve
D. An increase in consumer surplus
E. A deadweight loss

Which of the following will most likely happen in the market for good X if the price of good X decreases?
A. The supply of good X will decrease.
B. The demand for good X will increase.
C. The quantity demanded for good X will increase.
D. The demand will decrease and the supply will increase.
E. The quantity supplied for good X will increase.

Which of the following will most likely happen in the market for good X if the price of good X decreases?
A. The supply of good X will decrease.
B. The demand for good X will increase.
C. The quantity demanded for good X will increase.
D. The demand will decrease and the supply will increase.
E. The quantity supplied for good X will increase.

If an effective rent ceiling is eliminated, which of the following is most likely to occur in the rental housing market?
A. An increase in the demand for housing, resulting in a decrease in the quantity of housing supplied
B. An increase in rents, resulting in an increase in the quantity of housing supplied
C. An increase in the demand for housing, resulting in an increase in the quantity of housing demanded
D. A decrease in rents, resulting in an increase in the quantity of housing supplied
E. A decrease in the demand for housing, resulting in an increase in the quantity of housing supplied

If an effective rent ceiling is eliminated, which of the following is most likely to occur in the rental housing market?
A. An increase in the demand for housing, resulting in a decrease in the quantity of housing supplied
B. An increase in rents, resulting in an increase in the quantity of housing supplied
C. An increase in the demand for housing, resulting in an increase in the quantity of housing demanded
D. A decrease in rents, resulting in an increase in the quantity of housing supplied
E. A decrease in the demand for housing, resulting in an increase in the quantity of housing supplied

Suppose that the market supply curve for shoes is upward sloping and the market demand curve is downward sloping. How will the imposition of a sales tax on shoes affect the consumer surplus, the producer surplus, and the total surplus?
A. 
B. 
C. 
D. 
E. 

Suppose that the market supply curve for shoes is upward sloping and the market demand curve is downward
sloping. How will the imposition of a sales tax on shoes affect the consumer surplus, the producer surplus, and the
total surplus?
A. Consumer Surplus
Producer Surplus
Total Surplus
Decrease
Decrease
Decrease
B. Consumer Surplus
Producer Surplus
Total Surplus
Decrease
Increase
Increase
C. Consumer Surplus
Producer Surplus
Total Surplus
Decrease
Increase
Decrease
D. Consumer Surplus
Producer Surplus
Total Surplus
Increase
Decrease
Decrease
E. Consumer Surplus
Producer Surplus
Total Surplus
Increase
Increase
Increase

An increase in the supply of good X resulted in an increase in the price and quantity of good Y. It can be concluded that good Y is
A. an inferior good
B. a luxury good
C. a normal good
D. a substitute for good X
E. a complement for good X

An increase in the supply of good X resulted in an increase in the price and quantity of good Y. It can be concluded
that good Y is
A. an inferior good
B. a luxury good
C. a normal good
D. a substitute for good X
E. a complement for good X

If the demand for a good is perfectly price inelastic in the short run and the supply curve is upward sloping, imposing a sales tax on the good will
A. leave the price paid by consumers unchanged
B. decrease the after-tax revenues received by suppliers
C. increase the after-tax revenues received by suppliers
D. not change the after-tax revenues received by suppliers
E. not change the total expenditures by consumers on the good

If the demand for a good is perfectly price inelastic in the short run and the supply curve is upward sloping,
imposing a sales tax on the good will
A. leave the price paid by consumers unchanged
B. decrease the after-tax revenues received by suppliers
C. increase the after-tax revenues received by suppliers
D. not change the after-tax revenues received by suppliers
E. not change the total expenditures by consumers on the good

If both supply and demand for wheat increase, the equilibrium price and quantity of wheat will most likely change in which of the following ways?
A. Price Quantity Decrease Decrease
B. Price Quantity Decrease Increase
C. Price Quantity Indeterminate Increase
D. Price Quantity Increase Decrease
E. Price Quantity Increase Indeterminate

If both supply and demand for wheat increase, the equilibrium price and quantity of wheat will most likely change
in which of the following ways?
A. Price
Quantity
Decrease
Decrease
B. Price
Quantity
Decrease
Increase
C. Price
Quantity
Indeterminate
Increase
D. Price
Quantity
Increase
Decrease
E. Price
Quantity
Increase
Indeterminate

If shirts and ties are complements and if the price of shirts increases due to an increase in the price of cotton, which of the following is most likely to occur in the market for ties in the short run?
A. The equilibrium price and quantity of ties will increase.
B. The equilibrium price and quantity of ties will decrease.
C. The equilibrium price of ties will increase and the equilibrium quantity will decrease
D. The supply of ties will increase.
E. The demand for ties will increase.

If shirts and ties are complements and if the price of shirts increases due to an increase in the price of cotton, which
of the following is most likely to occur in the market for ties in the short run?
A. The equilibrium price and quantity of ties will increase.
B. The equilibrium price and quantity of ties will decrease.
C. The equilibrium price of ties will increase and the equilibrium quantity will decrease
D. The supply of ties will increase.
E. The demand for ties will increase.

Assume that good X is a normal good. If the price of good X increases, what will happen?
A. The substitution and income effects will both lead to more of good X being purchased.
B. The substitution and income effects will both lead to less of good X being purchased.
C. The substitution effect will lead to more of good X being purchased, while the income effect will lead to less of good X being purchased.
D. The substitution effect will lead to less of good X being purchased, while the income effect will lead to more of good X being purchased.
E. There will be no income effect because only the price of good X has changed.

Assume that good X is a normal good. If the price of good X increases, what will happen?
A. The substitution and income effects will both lead to more of good X being purchased.
B. The substitution and income effects will both lead to less of good X being purchased.
C. The substitution effect will lead to more of good X being purchased, while the income effect will lead to less
of good X being purchased.
D. The substitution effect will lead to less of good X being purchased, while the income effect will lead to more
of good X being purchased.
E. There will be no income effect because only the price of good X has changed.

Which of the following occurs as a result of the substitution effect of an increase in the price of a normal good?
A. The demand for the good decreases.
B. The demand for the complementary good increases.
C. The demand for the good becomes more elastic.
D. The quantity demanded of the substitute good decreases.
E. The quantity demanded of the good decreases.

Which of the following occurs as a result of the substitution effect of an increase in the price of a normal good?
A. The demand for the good decreases.
B. The demand for the complementary good increases.
C. The demand for the good becomes more elastic.
D. The quantity demanded of the substitute good decreases.
E. The quantity demanded of the good decreases.

Assume that good X is a normal good. Which of the following helps to explain why a decrease in the price of good X increases the quantity demanded of good X?
A. Good X becomes relatively less expensive than its substitutes, so consumers buy more of good X and fewer of the substitutes
B. The marginal utility of consuming good X increases as more of good X is consumed.
C. The lower price of good X decreases the marginal utility per dollar; therefore, consumers buy more of good X.
D. The demand curve for good X shifts to the left.
E. The supply curve for good X shifts to the right.

Assume that good X is a normal good. Which of the following helps to explain why a decrease in the price of good
X increases the quantity demanded of good X?
A. Good X becomes relatively less expensive than its substitutes, so consumers buy more of good X and fewer
of the substitutes
B. The marginal utility of consuming good X increases as more of good X is consumed.
C. The lower price of good X decreases the marginal utility per dollar; therefore, consumers buy more of good
X.
D. The demand curve for good X shifts to the left.
E. The supply curve for good X shifts to the right.

Which of the following is true of the substitution effect of an increase in the price of a normal good?
A. It works to offset the income effect.
B. It works to reinforce the income effect.
C. It is less than the income effect.
D. It causes an increase in the quantity demanded of the good.
E. It causes an increase in the demand for the good.

Which of the following is true of the substitution effect of an increase in the price of a normal good?
A. It works to offset the income effect.
B. It works to reinforce the income effect.
C. It is less than the income effect.
D. It causes an increase in the quantity demanded of the good.
E. It causes an increase in the demand for the good.

Assume that ice cream is a normal good. If the price of ice cream decreases, the substitution effect and the income effect will lead to which of the following changes in ice cream consumption?
A. Substitution Effect Income Effect Increase Decrease
B. Substitution Effect Income Effect Increase Increase
C. Substitution Effect Income Effect Increase No change
D. Substitution Effect Income Effect Decrease Increase
E. Substitution Effect Income Effect Decrease No change

Assume that ice cream is a normal good. If the price of ice cream decreases, the substitution effect and the income
effect will lead to which of the following changes in ice cream consumption?
A. Substitution Effect
Income Effect
Increase
Decrease
B. Substitution Effect
Income Effect
Increase
Increase
C. Substitution Effect
Income Effect
Increase
No change
D. Substitution Effect
Income Effect
Decrease
Increase
E. Substitution Effect
Income Effect
Decrease
No change

The graphs above show the individual demand curves for the only two consumers, Adey and Sarah, in the market for popcorn. As the price of popcorn decreases from $12 to $6, how does the quantity demanded change along the market demand curve?
A. It increases from 2 to 4 units.
B. It increases from 2 to 5 units.
C. It increases from 2 to 8 units.
D. It increases from 0 to 14 units.
E. It increases from 8 to 14 units.

The graphs above show the individual demand curves for the only two consumers, Adey and Sarah, in the market
for popcorn. As the price of popcorn decreases from
to
, how does the quantity demanded change along the
market demand curve?
A. It increases from
to
units.
B. It increases from
to
units.
C. It increases from
to
units.
D. It increases from
to
units.
E. It increases from
to
units.

Which of the following statements relating to supply is true?
A. An increase in an input price will lead to an increase in supply.
B. An increase in the price of a good will lead to an increase in the supply of the good.
C. A decrease in consumers’ income will lead to a decrease in the supply of the good.
D. A decrease in the price of a good will lead to a decrease in the quantity supplied of the good.
E. A decrease in the price of a substitute good in production will lead to a decrease in the supply of another substitute good.

Which of the following statements relating to supply is true?
A. An increase in an input price will lead to an increase in supply.
B. An increase in the price of a good will lead to an increase in the supply of the good.
C. A decrease in consumers’ income will lead to a decrease in the supply of the good.
D. A decrease in the price of a good will lead to a decrease in the quantity supplied of the good.
E. A decrease in the price of a substitute good in production will lead to a decrease in the supply of another
substitute good.

Last year 17 million tons of beans were sold for $300 per ton. This year 17 million tons of beans were sold for $285 per ton. Which of the following changes in demand and supply could have caused this outcome?
A. Demand Supply Increase Increase
B. Demand Supply Increase Decrease
C. Demand Supply Decrease Increase
D. Demand Supply Decrease Decrease
E. Demand Supply Increase No change

Last year 17 million tons of beans were sold for $300 per ton. This year 17 million tons of beans were sold for $285
per ton. Which of the following changes in demand and supply could have caused this outcome?
A. Demand
Supply
Increase
Increase
B. Demand
Supply
Increase
Decrease
C. Demand
Supply
Decrease
Increase
D. Demand
Supply
Decrease
Decrease
E. Demand
Supply
Increase
No change

On the basis of the graph above, which of the following statements concerning changes in the demand for and supply of tomatoes is correct?
A. If both the demand and supply increase, the price of tomatoes will definitely increase.
B. If both the demand and supply decrease, the quantity of tomatoes sold will definitely increase.
C. If the demand decreases while the supply increases, the price of tomatoes sold will definiftely increase
D. If the demand decreases while the supply increases, the quantity of tomatoes sold will definitely decrease.
E. If the demand increases while the supply decreases, the price of tomatoes will definitely increase.

On the basis of the graph above, which of the following statements concerning changes in the demand for and
supply of tomatoes is correct?
A. If both the demand and supply increase, the price of tomatoes will definitely increase.
B. If both the demand and supply decrease, the quantity of tomatoes sold will definitely increase.
C. If the demand decreases while the supply increases, the price of tomatoes sold will definiftely increase
D. If the demand decreases while the supply increases, the quantity of tomatoes sold will definitely decrease.
E. If the demand increases while the supply decreases, the price of tomatoes will definitely increase.

Country Z is both a producer and an importer of cloth. Which of the following will happen if the government of Country Z imposes a tariff on cloth and the country continues to import some cloth from abroad?
A. There will be a decrease in domestic producer surplus.
B. There will be an increase in the quantity demanded for cloth.
C. As the country produces more cloth, there will be an efficiency gain for the economy.
D. There will be a decrease in consumer surplus for domestic consumers.
E. The domestic consumption of cloth will increase.

Country Z is both a producer and an importer of cloth. Which of the following will happen if the government of
Country Z imposes a tariff on cloth and the country continues to import some cloth from abroad?
A. There will be a decrease in domestic producer surplus.
B. There will be an increase in the quantity demanded for cloth.
C. As the country produces more cloth, there will be an efficiency gain for the economy.
D. There will be a decrease in consumer surplus for domestic consumers.
E. The domestic consumption of cloth will increase.

Suppose that the government imposes a per-unit tax on the producers of a good that has a perfectly inelastic demand. After the tax, the price and quantity of the good sold would change in which of the following ways?
A. Price Quantity Increase Increase
B. Price Quantity Increase Decrease
C. Price Quantity Increase Not change
D. Price Quantity Not change Increase
E. Price Quantity Decrease Not change

Suppose that the government imposes a per-unit tax on the producers of a good that has a perfectly inelastic
demand. After the tax, the price and quantity of the good sold would change in which of the following ways?
A. Price
Quantity
Increase
Increase
B. Price
Quantity
Increase
Decrease
C. Price
Quantity
Increase
Not change
D. Price
Quantity
Not change
Increase
E. Price
Quantity
Decrease
Not change

If the government imposes a per-unit tax on personal computers, consumer surplus in the personal computer market will
A. decrease, because the price paid by consumers for personal computers will have increased
B. decrease, because there will be more personal computers on the market
C. increase, because personal computer manufacturers will pass the tax on to consumers
D. increase, because consumers will buy more imported personal computers
E. not change because the demand is unit elastic

If the government imposes a per-unit tax on personal computers, consumer surplus in the personal computer market
will
A. decrease, because the price paid by consumers for personal computers will have increased
B. decrease, because there will be more personal computers on the market
C. increase, because personal computer manufacturers will pass the tax on to consumers
D. increase, because consumers will buy more imported personal computers
E. not change because the demand is unit elastic

According to the law of demand, which of the following occurs when the price of a good increases?
A. The demand for the good decreases.
B. The quantity demanded of a substitute good decreases.
C. The quantity demanded of a complementary good increases.
D. The quantity demanded of the good increases.
E. The quantity demanded of the good decreases.

According to the law of demand, which of the following occurs when the price of a good increases?
A. The demand for the good decreases.
B. The quantity demanded of a substitute good decreases.
C. The quantity demanded of a complementary good increases.
D. The quantity demanded of the good increases.
E. The quantity demanded of the good decreases.

If the government imposes a tax on the production of cars, which of the following will occur in the market for cars?
A. There will be a movement to the right along the supply curve.
B. There will be a movement to the right along the demand curve.
C. The supply curve will shift to the right.
D. The supply curve will shift to the left.
E. The demand curve will shift to the right.

If the government imposes a tax on the production of cars, which of the following will occur in the market for cars?
A. There will be a movement to the right along the supply curve.
B. There will be a movement to the right along the demand curve.
C. The supply curve will shift to the right.
D. The supply curve will shift to the left.
E. The demand curve will shift to the right.

Following the imposition of a $4 per-unit tax in a competitive market, the seller’s after-tax price falls from the original equilibrium price of $12 to $11. Which of the following statements relating to the imposition of the tax is true?
A. The seller bears 75 percent of the tax burden.
B. The new after-tax equilibrium price is $16.
C. There is no deadweight loss from this tax.
D. The new after-tax equilibrium price is $15.
E. The buyer bears 25 percent of the tax burden.

Following the imposition of a $4 per-unit tax in a competitive market, the seller’s after-tax price falls from the
original equilibrium price of $12 to $11. Which of the following statements relating to the imposition of the tax is
true?
A. The seller bears 75 percent of the tax burden.
B. The new after-tax equilibrium price is $16.
C. There is no deadweight loss from this tax.
D. The new after-tax equilibrium price is $15.
E. The buyer bears 25 percent of the tax burden.

Assume that in a competitive equilibrium, 1,000 units are sold at $20 per unit. Following the imposition of a $4.00 per unit tax, the new consumer price is $23, and the new equilibrium quantity is 950 units. What are the values of the tax revenue collected and the deadweight loss?
A. Tax revenue $4,000; Deadweight loss $3,000
B. Tax revenue $3,800; Deadweight loss $200
C. Tax revenue $3,800; Deadweight loss $100
D. Tax revenue $3,000; Deadweight loss $100
E. Tax revenue $200; Deadweight loss $200

Assume that in a competitive equilibrium, 1,000 units are sold at $20 per unit. Following the imposition of a $4.00
per unit tax, the new consumer price is $23, and the new equilibrium quantity is 950 units. What are the values of
the tax revenue collected and the deadweight loss?
A. Tax revenue $4,000; Deadweight loss $3,000
B. Tax revenue $3,800; Deadweight loss $200
C. Tax revenue $3,800; Deadweight loss $100
D. Tax revenue $3,000; Deadweight loss $100
E. Tax revenue $200; Deadweight loss $200

A market supply curve is more elastic in the long run than in the short run because
A. producers’ marginal costs are increasing
B. the quantity demanded increases at a steady rate
C. there are no fixed inputs in the long run
D. of constant returns to scale in production
E. of diseconomies of scale in production

A market supply curve is more elastic in the long run than in the short run because
A. producers’ marginal costs are increasing
B. the quantity demanded increases at a steady rate
C. there are no fixed inputs in the long run
D. of constant returns to scale in production
E. of diseconomies of scale in production

The table below lists the monthly individual demand schedules for text messages for the only three buyers in the market: Allison, Bill, and Chang. Which of the following combinations of price and quantity lies on the market demand curve?
A. 
B. 
C. 
D. 
E. 

The table below lists the monthly individual demand schedules for text messages for the only three buyers in the
market: Allison, Bill, and Chang.
Which of the following combinations of price and quantity lies on the market demand curve?
A. Price
Quantity
4¢
1,000
B. Price
Quantity
8¢
350
C. Price
Quantity
12¢
200
D. Price
Quantity
16¢
270
E. Price
Quantity
20¢
0

The economic concept of total consumer surplus refers to which of the following?
A. The difference between the quantity of a good or service that people purchase and the amount that they actually consume
B. The overproduction of goods and services relative to the socially optimal level of output
C. The sum of the differences between the prices that consumers are willing to pay for a good or service and the price they actually pay
D. The sum of the differences between the prices that consumers are willing to pay for a good or service and the minimum prices that sellers must receive to offer that quantity
E. The difference between the quantity demanded and the quantity supplied of a product at a given price

The economic concept of total consumer surplus refers to which of the following?
A. The difference between the quantity of a good or service that people purchase and the amount that they
actually consume
B. The overproduction of goods and services relative to the socially optimal level of output
C. The sum of the differences between the prices that consumers are willing to pay for a good or service and the
price they actually pay
D. The sum of the differences between the prices that consumers are willing to pay for a good or service and the
minimum prices that sellers must receive to offer that quantity
E. The difference between the quantity demanded and the quantity supplied of a product at a given price

Which of the following best illustrates the concept of consumer surplus?
A. A thirsty athlete pays $0.85 for a cold drink when she would have gladly paid $1.50 for the drink.
B. An individual who is willing to accept a job at $7.50 per hour is offered $7.00 per hour.
C. An individual pays the sale price of $15.00 for the same shirt that the individual refused to purchase earlier at $18.00.
D. An individual finds that the price of artichokes, a food she dislikes, has been reduced by 50 percent.
E. A wood-carver has a marginal cost of $5.00 for a unit of output, but sells that unit at $6.00.

Which of the following best illustrates the concept of consumer surplus?
A. A thirsty athlete pays $0.85 for a cold drink when she would have gladly paid $1.50 for the drink.
B. An individual who is willing to accept a job at $7.50 per hour is offered $7.00 per hour.
C. An individual pays the sale price of $15.00 for the same shirt that the individual refused to purchase earlier at
$18.00.
D. An individual finds that the price of artichokes, a food she dislikes, has been reduced by 50 percent.
E. A wood-carver has a marginal cost of $5.00 for a unit of output, but sells that unit at $6.00.

Assume that the market for tomatoes is in equilibrium at a price of $35 per bushel. If the demand for tomatoes decreases, which of the following will occur?
A. A shortage at $35, creating an increase in price, leading to an increase in quantity supplied
B. A shortage at $35, leading to an increase in supply and a decrease in price
C. A surplus at $35, leading to a decrease in price and in quantity supplied
D. A surplus at $35, leading to a decrease in supply and an increase in price
E. A surplus at $35, leading to an increase in price and a decrease in quantity demanded

Assume that the market for tomatoes is in equilibrium at a price of $35 per bushel. If the demand for tomatoes
decreases, which of the following will occur?
A. A shortage at $35, creating an increase in price, leading to an increase in quantity supplied
B. A shortage at $35, leading to an increase in supply and a decrease in price
C. A surplus at $35, leading to a decrease in price and in quantity supplied
D. A surplus at $35, leading to a decrease in supply and an increase in price
E. A surplus at $35, leading to an increase in price and a decrease in quantity demanded

Assume that the government imposes an effective minimum wage in a perfectly competitive labor market. What will happen to employment and total wage payments?
A. Employment Total Wage Payments Decrease Increase
B. Employment Total Wage Payments Decrease Decrease
C. Employment Total Wage Payments Decrease Indeterminate
D. Employment Total Wage Payments Increase Increase
E. Employment Total Wage Payments Increase Indeterminate

Assume that the government imposes an effective minimum wage in a perfectly competitive labor market. What
will happen to employment and total wage payments?
A. Employment
Total Wage Payments
Decrease
Increase
B. Employment
Total Wage Payments
Decrease
Decrease
C. Employment
Total Wage Payments
Decrease
Indeterminate
D. Employment
Total Wage Payments
Increase
Increase
E. Employment
Total Wage Payments
Increase
Indeterminate

Assume that the price of good X decreases from $10 to $9 per unit and that the quantity demanded of good X increases from 25 to 30 units. In this price range,the demand for good X is
A. inelastic
B. elastic
C. unit elastic
D. perfectly inelastic
E. perfectly elastic

Assume that the price of good X decreases from $10 to $9 per unit and that the quantity demanded of good X
increases from 25 to 30 units. In this price range, the demand for good X is
A. inelastic
B. elastic
C. unit elastic
D. perfectly inelastic
E. perfectly elastic

Which of the following situations would necessarily lead to an increase in the price of peaches?
A. The wage paid to peach farm workers rises at the same time that medical researchers find that eating peaches reduces the chances of a person’s developing cancer.
B. While the wages of peach farm workers fall drastically, the peach industry launches a highly successful advertising campaign for peaches.
C. A breakthrough in technology enables peach farmers to use the same amount of resources as before to produce more peaches per acre.
D. The prices of apples and oranges fall.
E. Weather during the growing season is ideal for peach production.

Which of the following situations would necessarily lead to an increase in the price of peaches?
A. The wage paid to peach farm workers rises at the same time that medical researchers find that eating peaches
reduces the chances of a person’s developing cancer.
B. While the wages of peach farm workers fall drastically, the peach industry launches a highly successful
advertising campaign for peaches.
C. A breakthrough in technology enables peach farmers to use the same amount of resources as before to
produce more peaches per acre.
D. The prices of apples and oranges fall.
E. Weather during the growing season is ideal for peach production.

If the income elasticity of demand for good X is negative and the cross-price elasticity of demand between good X and good Y is negative, which of the following must be true of good X?
A. X is a normal good and is a substitute for Y.
B. X is a normal good and is a complement to Y.
C. X is an inferior good and is a substitute for Y.
D. X is an inferior good and is a complement to Y.
E. X is a normal good and Y is an inferior good.

If the income elasticity of demand for good X is negative and the cross-price elasticity of demand between good X
and good Y is negative, which of the following must be true of good X?
A. X is a normal good and is a substitute for Y.
B. X is a normal good and is a complement to Y.
C. X is an inferior good and is a substitute for Y.
D. X is an inferior good and is a complement to Y.
E. X is a normal good and Y is an inferior good.

In which of the following cases would a firm’s total revenue increase?
A. Price increases and demand is elastic.
B. Price decreases and supply is inelastic.
C. Price decreases and demand is elastic.
D. Price decreases and supply is elastic.
E. Price decreases and demand is inelastic.

In which of the following cases would a firm’s total revenue increase?
A. Price increases and demand is elastic.
B. Price decreases and supply is inelastic.
C. Price decreases and demand is elastic.
D. Price decreases and supply is elastic.
E. Price decreases and demand is inelastic.

Which of the following changes in the demand for and the supply of a good would necessarily lead to a decrease in the equilibrium quantity of the good in the market in the short run?
A. Demand Supply Increase Decrease
B. Demand Supply Increase No change
C. Demand Supply Decrease Increase
D. Demand Supply Decrease Decrease
E. Demand Supply No change Increase

Which of the following changes in the demand for and the supply of a good would necessarily lead to a decrease in
the equilibrium quantity of the good in the market in the short run?
A. Demand
Supply
Increase
Decrease
B. Demand
Supply
Increase
No change
C. Demand
Supply
Decrease
Increase
D. Demand
Supply
Decrease
Decrease
E. Demand
Supply
No change
Increase

If the government imposes a tariff on imports of cheese, the price and quantity of imported cheese will most likely change in which of the following ways?
A. Price Quantity Decrease Decrease
B. Price Quantity Decrease Increase
C. Price Quantity Increase Not change
D. Price Quantity Increase Decrease
E. Price Quantity Increase Increase

If the government imposes a tariff on imports of cheese, the price and quantity of imported cheese will most likely
change in which of the following ways?
A. Price
Quantity
Decrease
Decrease
B. Price
Quantity
Decrease
Increase
C. Price
Quantity
Increase
Not change
D. Price
Quantity
Increase
Decrease
E. Price
Quantity
Increase
Increase

If a one-of-a-kind Etruscan vase is offered for sale at an auction, which, if any, of the following correctly shows the supply curve for the vase?
A. 
B. 
C. 
D. 
E. It is impossible to determine the shape of the supply curve from the given information.

If a one-of-a-kind Etruscan vase is offered for sale at an auction, which, if any, of the following correctly shows the
supply curve for the vase?
A. 
B. 
C. 
D. 
E. It is impossible to determine the shape of the supply curve from the given information.

Country Z is both a producer and an importer of green tea. If country Z imposes a tariff on imports of green tea, which of the following will occur in the domestic market of green tea?
A. Consumer surplus will increase.
B. Domestic production will increase.
C. Total consumption of green tea will increase.
D. Producer surplus will decrease.
E. The price paid by domestic consumers will decrease.

Country Z is both a producer and an importer of green tea. If country Z imposes a tariff on imports of green tea,
which of the following will occur in the domestic market of green tea?
A. Consumer surplus will increase.
B. Domestic production will increase.
C. Total consumption of green tea will increase.
D. Producer surplus will decrease.
E. The price paid by domestic consumers will decrease.

Consumer surplus is defined as
A. opportunity cost minus total revenue
B. total revenue minus opportunity cost
C. the difference between the resource costs and the price that consumers pay
D. the difference between the value that consumers place on a good and the price they pay
E. the sum of external costs and benefits

Consumer surplus is defined as
A. opportunity cost minus total revenue
B. total revenue minus opportunity cost
C. the difference between the resource costs and the price that consumers pay
D. the difference between the value that consumers place on a good and the price they pay
E. the sum of external costs and benefits

The American Heart Association has just issued a report warning consumers about the negative health effects of eating beef. Which of the following changes in the beef market is most likely to occur as a result?
A. The supply curve will shift to the left, increasing the price of beef.
B. The demand curve will shift to the left, decreasing the price of beef.
C. The demand curve will shift to the right, increasing the price of beef.
D. Neither the supply nor demand curve will shift; only quantity will increase as price decreases.
E. Neither the supply nor demand curve will shift; only quantity will decrease as prices increases.

The American Heart Association has just issued a report warning consumers about the negative health effects of
eating beef. Which of the following changes in the beef market is most likely to occur as a result?
A. The supply curve will shift to the left, increasing the price of beef.
B. The demand curve will shift to the left, decreasing the price of beef.
C. The demand curve will shift to the right, increasing the price of beef.
D. Neither the supply nor demand curve will shift; only quantity will increase as price decreases.
E. Neither the supply nor demand curve will shift; only quantity will decrease as prices increases.

A leftward shift in the supply curve of watches could be caused by
A. an increase in the price of watches
B. an increase in wages paid to workers who produce watches
C. an improvement in the technology associated with watchmaking
D. a decrease in the price of parts used in the production of watches
E. an increase in population

A leftward shift in the supply curve of watches could be caused by
A. an increase in the price of watches
B. an increase in wages paid to workers who produce watches
C. an improvement in the technology associated with watchmaking
D. a decrease in the price of parts used in the production of watches
E. an increase in population

Assume that apple juice and grape juice are substitutes. Which of the following will cause an increase in the quantity of apple juice supplied?
A. A decrease in subsidies to apple juice producers
B. A decrease in the price of grape juice
C. An increase in the price of apple juice
D. An increase in the price of insecticides used on apple trees
E. The imposition of a price ceiling in the market for apple juice

Assume that apple juice and grape juice are substitutes. Which of the following will cause an increase in the
quantity of apple juice supplied?
A. A decrease in subsidies to apple juice producers
B. A decrease in the price of grape juice
C. An increase in the price of apple juice
D. An increase in the price of insecticides used on apple trees
E. The imposition of a price ceiling in the market for apple juice

Assume that the market for beef is perfectly competitive and in equilibrium. Which of the following would most likely result in an increase in both the equilibrium price and the equilibrium quantity of beef?
A. An increase in the supply of chicken, a substitute good
B. A decrease in consumers’ income, assuming that beef is a normal good
C. An increase in the supply of potatoes, a complementary good
D. An increase in the price of corn, an input in the production of beef
E. An announcement by the medical community that consumption of beef increases the risk of heart disease

Assume that the market for beef is perfectly competitive and in equilibrium. Which of the following would most
likely result in an increase in both the equilibrium price and the equilibrium quantity of beef?
A. An increase in the supply of chicken, a substitute good
B. A decrease in consumers’ income, assuming that beef is a normal good
C. An increase in the supply of potatoes, a complementary good
D. An increase in the price of corn, an input in the production of beef
E. An announcement by the medical community that consumption of beef increases the risk of heart disease

In a perfectly competitive market, which of the following shifts in the supply and demand curves will definitely cause both equilibrium price and quantity to decrease?
A. Supply Curve Demand Curve Shifts to the left Shifts to the left
B. Supply Curve Demand Curve Shifts to the left No shift
C. Supply Curve Demand Curve Shifts to the right Shifts to the right
D. Supply Curve Demand Curve No shift Shifts to the right
E. Supply Curve Demand Curve No shift Shifts to the left

In a perfectly competitive market, which of the following shifts in the supply and demand curves will definitely
cause both equilibrium price and quantity to decrease?
A. Supply Curve
Demand Curve
Shifts to the left
Shifts to the left
B. Supply Curve
Demand Curve
Shifts to the left
No shift
C. Supply Curve
Demand Curve
Shifts to the right
Shifts to the right
D. Supply Curve
Demand Curve
No shift
Shifts to the right
E. Supply Curve
Demand Curve
No shift
Shifts to the left

The graph above shows the supply and demand curves for a particular brand of computers. In 1988, 10,000 computers were sold for $1,000 each, but in 1989, 9,000 computers were sold for $1,000 each. Which of the following changes in the supply and demand curves could most likely have caused this change?
A. Demand Curve Supply Curve Shift right Shift right
B. Demand Curve Supply Curve Shift right Shift left
C. Demand Curve Supply Curve No change Shift left
D. Demand Curve Supply Curve Shift left Shift left
E. Demand Curve Supply Curve Shift left No change

The graph above shows the supply and demand curves for a particular brand of computers. In 1988, 10,000
computers were sold for $1,000 each, but in 1989, 9,000 computers were sold for $1,000 each. Which of the
following changes in the supply and demand curves could most likely have caused this change?
A. Demand Curve
Supply Curve
Shift right
Shift right
B. Demand Curve
Supply Curve
Shift right
Shift left
C. Demand Curve
Supply Curve
No change
Shift left
D. Demand Curve
Supply Curve
Shift left
Shift left
E. Demand Curve
Supply Curve
Shift left
No change

Suppose that the demand for soft drinks is price elastic and the supply is price inelastic. If the government imposes a sales tax on soft drinks, which of the following will occur in the short run?
A. The tax burden will fall equally on both consumers and producers.
B. The tax burden will fall more on producers.
C. The tax burden will fall more on consumers.
D. The percentage increase in the price of soft drinks will be greater than the percentage increase in the quantity demanded.
E. The percentage decrease in total revenue will be greater than the percentage decrease in the quantity demanded.

Suppose that the demand for soft drinks is price elastic and the supply is price inelastic. If the government imposes
a sales tax on soft drinks, which of the following will occur in the short run?
A. The tax burden will fall equally on both consumers and producers.
B. The tax burden will fall more on producers.
C. The tax burden will fall more on consumers.
D. The percentage increase in the price of soft drinks will be greater than the percentage increase in the quantity
demanded.
E. The percentage decrease in total revenue will be greater than the percentage decrease in the quantity
demanded.

Country Z has a downward sloping domestic demand curve and an upward sloping domestic supply curve for widgets. In the absence of trade, the domestic price of widgets is P 0 . Now the country engages in trade, and the price for widgets, P w , is below the domestic price, P 0 . Which of the following will occur?
A. Country Z will begin exporting widgets.
B. Consumer surplus will decrease in Country Z.
C. Domestic producer surplus will decrease in country Z.
D. Domestic production of widgets in Country Z will increase.
E. The price of widgets received by domestic producers will increase.

Country Z has a downward sloping domestic demand curve and an upward sloping domestic supply curve for
widgets. In the absence of trade, the domestic price of widgets is
. Now the country engages in trade, and the
price for widgets,
, is below the domestic price,
. Which of the following will occur?
A. Country Z will begin exporting widgets.
B. Consumer surplus will decrease in Country Z.
C. Domestic producer surplus will decrease in country Z.
D. Domestic production of widgets in Country Z will increase.
E. The price of widgets received by domestic producers will increase.

The table above shows the total cost and the total benefit of cleaning up pollution in a community. Which of the following cleanup levels is socially optimal?
A. 1
B. 2
C. 3
D. 4
E. 5

Levels of Cleanup
Total Cost of Cleanup ( )
Total Benefit of Cleanup ( )
The table above shows the total cost and the total benefit of cleaning up pollution in a community. Which of the
following cleanup levels is socially optimal?
A. 
B. 
C. 
D. 
E. 

Assume the following utility schedule for Aaliyah’s ice cream consumption. If she consumes 6 units, what is the value of her total utility from consuming ice cream?
A. 22
B. 20
C. 18
D. 0
E. -2

Assume the following utility schedule for Aaliyah’s ice cream consumption. If she consumes 6 units, what is the
value of her total utility from consuming ice cream?
Quantity Consumed
Marginal Utility
1
8
2
6
3
4
4
2
5
0
6
-2
A. 22
B. 20
C. 18
D. 0
E. -2

The additional satisfaction received from consuming an additional unit of a good is called the
A. marginal utility
B. marginal product
C. average product
D. average utility
E. total utility

The additional satisfaction received from consuming an additional unit of a good is called the
A. marginal utility
B. marginal product
C. average product
D. average utility
E. total utility
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the marginal benefit, in dollars, that Ahmet derives from consuming two goods, books and Good
D.
Quantity of Books
Marginal Benefit of Books
Quantity of Good D
Marginal Benefit of Good D
1
$28
1
$32
2
$16
2
$16
3
$4
3
$8
4
$2
4
$4
5
$1
5
$2
6
$0
6
$1
Ahmet has a limited weekly income of $18, and he spends it all on books and Good D. Assume the price of each book is
$4 and the price of Good D is $1 per unit.
(a) Calculate the total consumer surplus from books if Ahmet buys 5 books. Show your work.
(b) Given his weekly income, would Ahmet be able to buy 3 books and 2 units of Good D? Explain using numbers.
(c) Identify the quantity of books and the quantity of Good D that will maximize Ahmet’s total benefit given his weekly
income. Explain using marginal analysis.
(d) Assume books are is produced in a perfectly competitive market and that there is an increase in the number of buyers
in the market for books.
(i) Would Ahmet’s total consumer surplus from books if he buys 5 books increase, decrease, or stay the same compared to
your answer in part (a) ? Explain.
(ii) Will the quantity of books that will maximize Ahmet’s total benefit increase, decrease, or stay the same? Explain.

Which of the following is true if consuming one unit of a good yields 100 utils and consuming the second unit of the good increases satisfaction by 20 utils?
A. The marginal utility of the first unit is 20.
B. The marginal utility of the second unit is 80.
C. The marginal utility of the second unit is 120.
D. The total utility of consuming two units is 120.
E. The total utility of consuming one unit is greater than the total utility of consuming two units.

Which of the following is true if consuming one unit of a good yields 100 utils and consuming the second unit of
the good increases satisfaction by 20 utils?
A. The marginal utility of the first unit is 20.
B. The marginal utility of the second unit is 80.
C. The marginal utility of the second unit is 120.
D. The total utility of consuming two units is 120.
E. The total utility of consuming one unit is greater than the total utility of consuming two units.

Carlos has a van with 20 seats and charges $10 per person per ride to the airport from downtown. Carlos’ cost of the trip is $140 for any number of passengers. On one trip, Carlos has 19 seats filled when a person offers him $5 for the last seat. Should Carlos accept the offer?
A. No, since the $5 fare offered is below his average cost of $7.
B. No, since the average variable cost is greater than $5.
C. No, since it is illegal to charge different prices for the same service.
D. Yes, since the marginal benefit exceeds the marginal cost.
E. Yes, since his total revenue exceeds his total cost by $5.

Carlos has a van with 20 seats and charges $10 per person per ride to the airport from downtown. Carlos’ cost of the
trip is $140 for any number of passengers. On one trip, Carlos has 19 seats filled when a person offers him $5 for
the last seat. Should Carlos accept the offer?
A. No, since the $5 fare offered is below his average cost of $7.
B. No, since the average variable cost is greater than $5.
C. No, since it is illegal to charge different prices for the same service.
D. Yes, since the marginal benefit exceeds the marginal cost.
E. Yes, since his total revenue exceeds his total cost by $5.

All of the following are included in computing the opportunity cost of attending college EXCEPT
A. interest paid on student loans
B. wages the student gave up to attend college
C. money spent on college tuition
D. money spent on clothing expenses
E. money spent on books and supplies

All of the following are included in computing the opportunity cost of attending college EXCEPT
A. interest paid on student loans
B. wages the student gave up to attend college
C. money spent on college tuition
D. money spent on clothing expenses
E. money spent on books and supplies

If a good is available free of charge, an individual will consume it until
A. marginal utility is zero
B. average utility is zero
C. total utility is zero
D. marginal utility equals average utility
E. marginal utility equals total utility

If a good is available free of charge, an individual will consume it until
A. marginal utility is zero
B. average utility is zero
C. total utility is zero
D. marginal utility equals average utility
E. marginal utility equals total utility

Marginal analysis suggests that an individual will consume one additional unit of a good if the
A. sunk cost can be recovered
B. total benefit is less than the total cost
C. total benefit is greater than the total cost
D. additional benefit is less than the additional cost
E. additional benefit is greater than the additional cost

Marginal analysis suggests that an individual will consume one additional unit of a good if the
A. sunk cost can be recovered
B. total benefit is less than the total cost
C. total benefit is greater than the total cost
D. additional benefit is less than the additional cost
E. additional benefit is greater than the additional cost
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate,"
you must show how you arrived at your final answer.
The following is a table showing Dana’s marginal benefit from purchasing bottles of water and good X from a grocery
store.
Quantity of
Water(in bottles)
Marginal Benefit of
Water(in dollars)
Quantity of Good
X(in units)
Marginal Benefit of Good
X(in dollars)
1
24
1
24
2
18
2
18
3
12
3
12
4
6
4
6
5
3
5
3
(a) What is Dana’s total benefit from purchasing 2 bottles of water and 1 unit of good X? Show your work.
(b) Assume the price of a unit of good X is $5. Calculate the total consumer surplus if Dana purchases 3 units of good X.
Show your work.
(c) Now assume the price of a bottle of water is $3 and the price of a unit of good X is $6. Dana spends her entire budget
of $30 on bottles of water and good X.
(i) Explain why Dana does not maximize her benefit when she purchases 2 bottles of water and 4 units of good X. Use
marginal analysis to explain your answer.
(ii) What are the optimal quantities of good X and bottles of water at these prices?
(iii) Suppose the price of a unit of good X drops to $3. Calculate Dana’s cross-price elasticity of demand for bottles of
water with respect to the price of good X, and state whether the two goods are substitutes or complements. Show your
work.

To maximize utility, a consumer with a fixed budget will purchase quantites of goods so that the ratios of the marginal utility of each good to its
A. total utility are the greatest
B. total utility are the same
C. price are the greatest
D. price are equal to one
E. price are equal

To maximize utility, a consumer with a fixed budget will purchase quantites of goods so that the ratios of the
marginal utility of each good to its
A. total utility are the greatest
B. total utility are the same
C. price are the greatest
D. price are equal to one
E. price are equal

According to the law of diminishing marginal utility, which of the following is true?
A. Total satisfaction decreases as more units of a good are consumed.
B. The additional satisfaction received from consuming extra units of a good decreases as consumption of the good increases.
C. The additional satisfaction received from consuming extra units of a good decreases as consumption of the good decreases.
D. The additional satisfaction received from consuming extra units of a good increases as consumption of the good increases.
E. When marginal utility is decreasing, total utility is decreasing.

According to the law of diminishing marginal utility, which of the following is true?
A. Total satisfaction decreases as more units of a good are consumed.
B. The additional satisfaction received from consuming extra units of a good decreases as consumption of the
good increases.
C. The additional satisfaction received from consuming extra units of a good decreases as consumption of the
good decreases.
D. The additional satisfaction received from consuming extra units of a good increases as consumption of the
good increases.
E. When marginal utility is decreasing, total utility is decreasing.

Using cost-benefit analysis, a local government would decide to build a new bridge if
A. The additional tax paid by an individual resident is greater than the additional benefit of building the bridge for all residents.
B. The toll paid by an individual resident crossing the bridge is less than the resident’s benefit from crossing the bridge.
C. The total costs of building the bridge are less than the total benefits from building the bridge.
D. The total costs of building the bridge are greater than the total benefits from building the bridge.
E. Total costs are at a minimum and total benefits are at a maximum.

Using cost-benefit analysis, a local government would decide to build a new bridge if
A. The additional tax paid by an individual resident is greater than the additional benefit of building the bridge
for all residents.
B. The toll paid by an individual resident crossing the bridge is less than the resident’s benefit from crossing the
bridge.
C. The total costs of building the bridge are less than the total benefits from building the bridge.
D. The total costs of building the bridge are greater than the total benefits from building the bridge.
E. Total costs are at a minimum and total benefits are at a maximum.

The table provided shows the total benefits and costs of studying at the library. If the student is rational, the optimal number of hours to spend at the library is
A. 2
B. 3
C. 4
D. 5
E. 6

Hours at the Library
Total Benefit
Total Cost
The table provided shows the total benefits and costs of studying at the library. If the student is rational, the optimal
number of hours to spend at the library is
A. 
B. 
C. 
D. 
E. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total benefit, in dollars, that Courtney derives from consuming two goods, Good F and candy
bars.
Quantity of Good F
Total Benefit of Good F
Quantity of Candy Bars
Total Benefit of Candy Bars
0
$0
0
$0
1
$40
1
$80
2
$70
2
$120
3
$90
3
$140
4
$100
4
$152
5
$103
5
$156
6
$105
6
$156
Courtney has a limited weekly income of $20, and she spends it all on Good F and candy bars. Assume the price of Good
F is $2 per unit and the price of a candy bar is $4.
(a) Identify the quantity of Good F and the quantity of candy bars that will maximize Courtney’s total benefit given her
weekly income. Explain using marginal analysis.
(b) Calculate Courtney’s consumer surplus from the fourth candy bar. Show your work.
(c) If Courtney’s weekly income decreases from $20 to $18, would Courtney be able to buy 5 units of Good F and 2
candy bars? Explain using numbers.
(d) Suppose that candy bars are produced in a perfectly competitive market and the price of sugar, an input to the
production of candy bars, increases. If candy bars are a normal good, will the quantity of candy bars that will maximize
Courtney’s total benefit increase, decrease, or stay the same? Explain.
(e) Suppose instead that the price of Good F increases by 9% and Courtney buys 6% less of Good F and 3% less of Good
W. Based on this change, identify whether Good F and Good W are substitutes, complements, or not related. Explain
using numbers.

Suppose that a consumer purchases two goods X and Y and that the marginal utility of X is MU x , the total utility of X is TU x , the marginal utility of Y is MU y , and the total utility of Y is TU y . If the prices of X and Y are P x and P y , respectively, which of the following expressions defines consumer equilibrium?
A. TU x = TU y
B. MU x = MU y
C. TU x /P x = TU y /P y
D. MU x /P x = MU y /P y
E. (MU x )(P x ) + (MU y )(P y ) = 1

Suppose that a consumer purchases two goods X and Y and that the marginal utility of X is MUx, the total utility of
X is TUx, the marginal utility of Y is MUy, and the total utility of Y is TUy. If the prices of X and Y are Px and Py,
respectively, which of the following expressions defines consumer equilibrium?
A. TUx = TUy
B. MUx = MUy
C. TUx/Px = TUy/Py
D. MUx/Px = MUy/Py
E. (MUx)(Px) + (MUy)(Py) = 1

The opportunity cost of owning a business is equal to which of the following? I. The economic profits earned in the business II. The accounting profits earned in the business III. The profits that could be earned in another business using the same amount of resources
A. I only
B. II only
C. III only
D. I and III only
E. I, II, and III

The opportunity cost of owning a business is equal to which of the following?
I. The economic profits earned in the business
II. The accounting profits earned in the business
III. The profits that could be earned in another business using the same amount of resources
A. I only
B. II only
C. III only
D. I and III only
E. I, II, and III

Which of the following best describes how a consumer maximizes total utility from the consumption of a bundle of goods and services?
A. By choosing the quantity of each good such that the quantity demanded of each good is equal to the quantity supplied
B. By choosing the quantity of each good such that the marginal utility from each good is equal to zero
C. By choosing the quantity of each good such that the price is equal to the marginal revenue
D. By choosing the level of output where marginal revenue is equal to marginal cost
E. By choosing the combination of goods such that the marginal utility per dollar spent on the last unit of each good is equal

Which of the following best describes how a consumer maximizes total utility from the consumption of a bundle of
goods and services?
A. By choosing the quantity of each good such that the quantity demanded of each good is equal to the quantity
supplied
B. By choosing the quantity of each good such that the marginal utility from each good is equal to zero
C. By choosing the quantity of each good such that the price is equal to the marginal revenue
D. By choosing the level of output where marginal revenue is equal to marginal cost
E. By choosing the combination of goods such that the marginal utility per dollar spent on the last unit of each
good is equal

Which of the following best defines opportunity cost?
A. It is the cost of producing those goods most desired by a given economy.
B. It is the cost of the input mix that will lead to the greatest rate of growth for a given company.
C. It is the amount of one product that must be given up in order to produce an additional unit of another product.
D. It is the use of the least-cost method of production.
E. It is the cost of labor used in the production process.

Which of the following best defines opportunity cost?
A. It is the cost of producing those goods most desired by a given economy.
B. It is the cost of the input mix that will lead to the greatest rate of growth for a given company.
C. It is the amount of one product that must be given up in order to produce an additional unit of another
product.
D. It is the use of the least-cost method of production.
E. It is the cost of labor used in the production process.

At her current level of consumption, a consumer is willing to pay up to $1.50 for a bottle of water and up to $1,500 for a diamond ring because the
A. total utility of diamond rings is greater than the total utility of water
B. total utility of water is less than the marginal utility of a diamond ring
C. marginal utility of a bottle of water is less than the marginal utility of a diamond ring
D. marginal utility of a bottle of water is greater than the marginal utility of a diamond ring
E. consumer is irrational and does not understand that water is more important than a diamond

At her current level of consumption, a consumer is willing to pay up to $1.50 for a bottle of water and up to $1,500
for a diamond ring because the
A. total utility of diamond rings is greater than the total utility of water
B. total utility of water is less than the marginal utility of a diamond ring
C. marginal utility of a bottle of water is less than the marginal utility of a diamond ring
D. marginal utility of a bottle of water is greater than the marginal utility of a diamond ring
E. consumer is irrational and does not understand that water is more important than a diamond

In a given time period, a person consumes more and more of a good or service and, as a result, enjoys each additional unit less and is willing to pay less for each additional unit. This behavior is consistent with the law of
A. diminishing returns
B. diminishing marginal product
C. diminishing marginal utility
D. increasing costs
E. scarce resources

In a given time period, a person consumes more and more of a good or service and, as a result, enjoys each
additional unit less and is willing to pay less for each additional unit. This behavior is consistent with the law of
A. diminishing returns
B. diminishing marginal product
C. diminishing marginal utility
D. increasing costs
E. scarce resources

Garcia is currently spending his entire lunch budget on 3 sodas and 4 hot dogs. At his current level of consumption, Garcia’s marginal utility for sodas is 5 utils and his marginal utility for hot dogs is 10 utils. In order to maximize his total utility, Garcia should
A. consume more sodas and fewer hot dogs regardless of the prices
B. consume more hot dogs and fewer sodas regardless of the prices
C. maintain his current level of consumption of sodas and hot dogs regardless of the prices
D. maintain his current level of consumption if the price of a soda is $1 and the price of a hot dog is $2
E. maintain his current level of consumption if the price of a soda is $2 and the price of a hot dog is $1

Garcia is currently spending his entire lunch budget on 3 sodas and 4 hot dogs. At his current level of consumption,
Garcia’s marginal utility for sodas is 5 utils and his marginal utility for hot dogs is 10 utils. In order to maximize his
total utility, Garcia should
A. consume more sodas and fewer hot dogs regardless of the prices
B. consume more hot dogs and fewer sodas regardless of the prices
C. maintain his current level of consumption of sodas and hot dogs regardless of the prices
D. maintain his current level of consumption if the price of a soda is $1 and the price of a hot dog is $2
E. maintain his current level of consumption if the price of a soda is $2 and the price of a hot dog is $1

Assume a consumer is spending all her income on two goods: X and Y. At the current consumption combination of the two goods, if the marginal utility per dollar spent on the last unit of good X exceeds that of the marginal utility per dollar spent on the last unit of good Y, what should the consumer do to maximize utility?
A. Purchase more units of X and more units of Y.
B. Decrease the price of good X.
C. Purchase more units of X and less units of Y.
D. Increase income to buy more of both good Y and good X.
E. Nothing; utility is maximized at current consumption bundles.

Assume a consumer is spending all her income on two goods: X and Y. At the current consumption combination of
the two goods, if the marginal utility per dollar spent on the last unit of good X exceeds that of the marginal utility
per dollar spent on the last unit of good Y, what should the consumer do to maximize utility?
A. Purchase more units of X and more units of Y.
B. Decrease the price of good X.
C. Purchase more units of X and less units of Y.
D. Increase income to buy more of both good Y and good X.
E. Nothing; utility is maximized at current consumption bundles.

An opportunity cost is entailed in which of the following situations? I. A student decides to attend college full-time. II. A family uses its $20,000 savings to purchase an automobile. III. A farmer decides to grow more wheat and less corn.
A. I only
B. II only
C. III only
D. I and III only
E. I, II, and III

An opportunity cost is entailed in which of the following situations?
I. A student decides to attend college full-time.
II. A family uses its $20,000 savings to purchase an automobile.
III. A farmer decides to grow more wheat and less corn.
A. I only
B. II only
C. III only
D. I and III only
E. I, II, and III

Assume that a consumer spends all her income on the purchase of two goods. If the consumer’s income doubles and the prices of the two goods also double, the quantity of the two goods purchased will
A. also double
B. more than double
C. increase, but it will be less than double
D. not change
E. depend on the slope of the demand curve

Assume that a consumer spends all her income on the purchase of two goods. If the consumer’s income doubles and
the prices of the two goods also double, the quantity of the two goods purchased will
A. also double
B. more than double
C. increase, but it will be less than double
D. not change
E. depend on the slope of the demand curve

Jane spends all her weekly allowance to buy only two goods: soda and apples. According to the table above, if her preferences are characterized by the law of diminishing marginal utility, then which of the following statements is correct?
A. Jane is maximizing her utility.
B. Jane can buy more apples and less soda to maximize her utility.
C. Jane can buy more soda and fewer apples to maximize her utility.
D. Jane can buy more apples and the same amount of soda to maximize her utility.
E. Jane can buy more soda and the same amount of apples to maximize her utility.

Jane spends all her weekly allowance to buy only two goods: soda and apples. According to the table above, if her
preferences are characterized by the law of diminishing marginal utility, then which of the following statements is
correct?
A. Jane is maximizing her utility.
B. Jane can buy more apples and less soda to maximize her utility.
C. Jane can buy more soda and fewer apples to maximize her utility.
D. Jane can buy more apples and the same amount of soda to maximize her utility.
E. Jane can buy more soda and the same amount of apples to maximize her utility.

Assume that Clark spends his entire income on the purchase of two goods, X and Y. If his income and the prices of good X and Y all double, Clark will
A. double the purchase of goods X and Y
B. buy more of good X and less of good Y
C. buy less of good X and more of good Y
D. buy less of both goods X and Y
E. buy the same amounts of goods X and Y

Assume that Clark spends his entire income on the purchase of two goods, X and Y. If his income and the prices of
good X and Y all double, Clark will
A. double the purchase of goods X and Y
B. buy more of good X and less of good Y
C. buy less of good X and more of good Y
D. buy less of both goods X and Y
E. buy the same amounts of goods X and Y

The following chart shows the total utility that Juan receives from consuming various amounts of chocolate candy bars each day. Which of the following statements about Juan's marginal utility is correct?
A. His marginal utility from the first candy bar is greater than his marginal utility from the second candy bar.
B. His marginal utility from the fourth candy bar is greater than his marginal utility from the third candy bar.
C. His marginal utility increases at a constant rate.
D. He first experiences diminishing marginal utility with the consumption of the fifth candy bar.
E. His greatest marginal utility comes from his consumption of the fourth candy bar.

The following chart shows the total utility that Juan receives from consuming various amounts of chocolate candy
bars each day.
Which of the following statements about Juan's marginal utility is correct?
A. His marginal utility from the first candy bar is greater than his marginal utility from the second candy bar.
B. His marginal utility from the fourth candy bar is greater than his marginal utility from the third candy bar.
C. His marginal utility increases at a constant rate.
D. He first experiences diminishing marginal utility with the consumption of the fifth candy bar.
E. His greatest marginal utility comes from his consumption of the fourth candy bar.
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the marginal benefit, in dollars, that Kareem derives from consuming two goods, Good X and
cereal.
Quantity of Good X
Marginal Benefit of Good X
Quantity of Cereal
Marginal Benefit of Cereal
1
$18
1
$32
2
$16
2
$28
3
$12
3
$24
4
$6
4
$20
5
$2
5
$16
6
$0
6
$12
Kareem has a limited weekly income of $18, and he spends it all on Good X and cereal. Assume the price of Good X is $2
per unit and the price of cereal is $4 per unit.
(a) Given his weekly income, would Kareem be able to buy 3 units of Good X and 5 units of cereal? Explain using
numbers.
(b) Calculate the total consumer surplus from Good X if Kareem consumes 4 units of Good X. Show your work.
(c) Identify the quantity of Good X and the quantity of cereal that will maximize Kareem’s total benefit given his weekly
income. Explain using marginal analysis.
(d) Assume Good X is produced in a perfectly competitive market and that there is a decrease in the number of consumers
in the market for Good X.
(i) Will the quantity of Good X that will maximize Kareem’s total benefit increase, decrease, or stay the same? Explain.
(ii) Would Kareem’s total consumer surplus from Good X if he consumes 4 units of Good X increase, decrease, or stay
the same compared to your answer in part (b) ? Explain.

The table below shows the per-unit prices and marginal utility for the last unit of video games and comic books that Kyle purchased. Kyle spent all of his allocated budget on video games and comic books. To maximize his utility, Kyle should have purchased
A. more video games and fewer comic books
B. fewer video games and more comic books
C. fewer of both goods
D. equal amounts of both goods
E. more of both goods

The table below shows the per-unit prices and marginal utility for the last unit of video games and comic books that
Kyle purchased.
Video Games
Comic Books
Price per unit
Marginal utility
Kyle spent all of his allocated budget on video games and comic books. To maximize his utility, Kyle should have
purchased
A. more video games and fewer comic books
B. fewer video games and more comic books
C. fewer of both goods
D. equal amounts of both goods
E. more of both goods

The graph above shows the marginal benefit that a student receives from additional hours of study, and the marginal cost the student will incur from additional hours of study. Which of the following is true?
A. Beyond S 0 hours of study, there is no further benefit from devoting additional hours to study.
B. At S 1 hours of study, the extra cost of study time exceeds the extra benefit of study time.
C. The optimal number of hours that the student should study is S 0 hours.
D. The rational individual should study more than S 0 hours.
E. The marginal cost of studying decreases as more time is spent studying.

The graph above shows the marginal benefit that a student receives from additional hours of study, and the marginal
cost the student will incur from additional hours of study. Which of the following is true?
A. Beyond
hours of study, there is no further benefit from devoting additional hours to study.
B. At
hours of study, the extra cost of study time exceeds the extra benefit of study time.
C. The optimal number of hours that the student should study is
hours.
D. The rational individual should study more than
hours.
E. The marginal cost of studying decreases as more time is spent studying.
Marginal analysis is essential to microeconomics decision making. Discuss how marginal analysis is used in each of the
following cases.
a. To derive the supply curve for a perfectly competitive firm
b. To identify the least-cost combination of capital and labor used to produce a given level of output.
c. To regulate an industry that produces a product that generates negative externalities

An art student spends all of her income on pencils and drawing pads. The student currently buys 30 pencils at $1 each and 10 pads at $5 each. If the marginal utility of the 30th pencil is 100 utils and the marginal utility of the 10th pad is 400 utils, to maximize utility the student should change her purchases of pencils and pads in which of the following ways?
A. Pencils Pads Not change Buy more
B. Pencils Pads Buy more Buy more
C. Pencils Pads Buy more Buy less
D. Pencils Pads Buy less Buy more
E. Pencils Pads Buy less Buy less

An art student spends all of her income on pencils and drawing pads. The student currently buys 30 pencils at $1
each and 10 pads at $5 each. If the marginal utility of the 30th pencil is 100 utils and the marginal utility of the 10th
pad is 400 utils, to maximize utility the student should change her purchases of pencils and pads in which of the
following ways?
A. Pencils
Pads
Not change
Buy more
B. Pencils
Pads
Buy more
Buy more
C. Pencils
Pads
Buy more
Buy less
D. Pencils
Pads
Buy less
Buy more
E. Pencils
Pads
Buy less
Buy less

Assume that Larry spends his entire allowance on the purchase of pretzels and ice-cream cones. The price of a bag of pretzels is $1, and the price of an ice-cream cone is $2. At his current consumption combination, the marginal utility of pretzels is 20 and of ice-cream cones is 60. To maximize his utility, Larry should
A. buy more of both goods
B. buy less of both goods
C. buy more pretzels and fewer ice-cream cones
D. buy fewer pretzels and more ice-cream cones
E. maintain his current consumption level

Assume that Larry spends his entire allowance on the purchase of pretzels and ice-cream cones. The price of a bag
of pretzels is
, and the price of an ice-cream cone is
. At his current consumption combination, the marginal
utility of pretzels is
and of ice-cream cones is
. To maximize his utility, Larry should
A. buy more of both goods
B. buy less of both goods
C. buy more pretzels and fewer ice-cream cones
D. buy fewer pretzels and more ice-cream cones
E. maintain his current consumption level

Mickey has a $20 gift card that she is planning to use to download 10 songs and 5 games. The download price for each song is $1 and the download price for each game is $2. Her marginal utility from the tenth song is 30, and her marginal utility from the fifth game is 70. Based on this information, which of the following statements is true?
A. Mickey’s plan will maximize her utility.
B. Mickey can increase utility by buying more songs and fewer games.
C. Mickey can increase utility by buying more games and fewer songs.
D. Since games are twice as expensive as songs, Mickey should buy twice as many songs.
E. Since games are twice as expensive as songs, Mickey should buy twice as many games.

Mickey has a $20 gift card that she is planning to use to download 10 songs and 5 games. The download price for
each song is $1 and the download price for each game is $2. Her marginal utility from the tenth song is 30, and her
marginal utility from the fifth game is 70. Based on this information, which of the following statements is true?
A. Mickey’s plan will maximize her utility.
B. Mickey can increase utility by buying more songs and fewer games.
C. Mickey can increase utility by buying more games and fewer songs.
D. Since games are twice as expensive as songs, Mickey should buy twice as many songs.
E. Since games are twice as expensive as songs, Mickey should buy twice as many games.

Mr. Carpenter devotes his working time to producing tables and chairs. An increase in the demand for chairs will result in
A. an increase in the amount of time he devotes to producing tables
B. an increase in his opportunity cost of producing tables
C. a decrease in the price of lumber
D. a decrease in the price of chairs
E. a decrease in his total revenue

Mr. Carpenter devotes his working time to producing tables and chairs. An increase in the demand for chairs will
result in
A. an increase in the amount of time he devotes to producing tables
B. an increase in his opportunity cost of producing tables
C. a decrease in the price of lumber
D. a decrease in the price of chairs
E. a decrease in his total revenue

When marginal utility is falling but positive, total utility will
A. decrease at an increasing rate
B. decrease at a decreasing rate
C. remain constant
D. increase at an increasing rate
E. increase at a decreasing rate

When marginal utility is falling but positive, total utility will
A. decrease at an increasing rate
B. decrease at a decreasing rate
C. remain constant
D. increase at an increasing rate
E. increase at a decreasing rate

According to the theory of consumer behavior, which of the following decreases first as additional units of a product are consumed?
A. Total utility
B. Average utility
C. Marginal utility
D. Marginal physical product
E. Total physical product

According to the theory of consumer behavior, which of the following decreases first as additional units of a
product are consumed?
A. Total utility
B. Average utility
C. Marginal utility
D. Marginal physical product
E. Total physical product

The information below shows the marginal utilities a student receives from the consumption of pizza and pens. Assume that the marginal utility of each good is independent of the quantity of the other good consumed. If the student purchases 2 units of pizza and 2 units of pens, the student’s total utility will be
A. 4 utils
B. 25 utils
C. 28 utils
D. 50 utils
E. 53 utils

The information below shows the marginal utilities a student receives from the consumption of pizza and
pens. Assume that the marginal utility of each good is independent of the quantity of the other good
consumed.
If the student purchases 2 units of pizza and 2 units of pens, the student’s total utility will be
A. 4 utils
B. 25 utils
C. 28 utils
D. 50 utils
E. 53 utils
Nirali is a student at the University of Ainsley. She has 5 hours to study for two exams today. The tables below show
Nirali’s expected scores given the amount of time she studies for each exam.
a. Nirali spends 3 hours studying microeconomics and 2 hours studying history. Calculate her gain from the second
hour spent studying history.
b. Calculate Nirali’s opportunity cost of the second hour spent studying history.
c. Assume Nirali increases the time she allocates to studying history. What happens to the opportunity cost of
studying history? Explain.
d. Assume that Nirali has a goal of maximizing the sum of her test scores (the score on microeconomics plus the
score on history). How many hours should she study for each exam?
e. Nirali learns that her tennis practice has been canceled, freeing up an additional hour for studying. Given your
answer to part (d), will Nirali allocate the additional hour to studying microeconomics or to studying history to
maximize the sum of her test scores? Explain using marginal analysis.

Opportunity cost is defined as
A. excess demand for a good
B. unlimited resources and unlimited wants
C. a comparative advantage in the production of a good
D. the value of the next best alternative that is forgone when an activity is pursued
E. the value of all other possible alternatives that are forgone when an activity is pursued

Opportunity cost is defined as
A. excess demand for a good
B. unlimited resources and unlimited wants
C. a comparative advantage in the production of a good
D. the value of the next best alternative that is forgone when an activity is pursued
E. the value of all other possible alternatives that are forgone when an activity is pursued

After graduating from high school, Maria chose to go to college, while Omar chose to work full- time. Which of the following best describes the opportunity costs for these decisions?
A. Maria’s opportunity cost includes the salary she could have earned if she had gone to work.
B. Maria’s opportunity cost is her living expenses while attending college.
C. Omar’s opportunity cost is the salary he will earn from working.
D. Omar’s opportunity cost is the tuition and expenses he would have paid for college.
E. Omar’s opportunity cost is definitely greater than Maria’s.

After graduating from high school, Maria chose to go to college, while Omar chose to work full- time. Which of the
following best describes the opportunity costs for these decisions?
A. Maria’s opportunity cost includes the salary she could have earned if she had gone to work.
B. Maria’s opportunity cost is her living expenses while attending college.
C. Omar’s opportunity cost is the salary he will earn from working.
D. Omar’s opportunity cost is the tuition and expenses he would have paid for college.
E. Omar’s opportunity cost is definitely greater than Maria’s.

Oscar spent his entire income on only two goods: good X and good Y. At his current consumption of the two goods, the marginal utility of X is 8 and the marginal utility of Y is 2. If the price of X is $4.00 and the price of Y is $0.50, then to maximize his total utility, Oscar should have
A. bought more X and more Y
B. bought more X and less Y
C. bought less X and more Y
D. bought less X and less Y
E. maintained his current consumption

Oscar spent his entire income on only two goods: good X and good Y. At his current consumption of the two goods,
the marginal utility of X is 8 and the marginal utility of Y is 2. If the price of X is $4.00 and the price of Y is $0.50,
then to maximize his total utility, Oscar should have
A. bought more X and more Y
B. bought more X and less Y
C. bought less X and more Y
D. bought less X and less Y
E. maintained his current consumption

Assume Pat spends all of her allowance to purchase 4 apples and 4 candy bars. Pat’s marginal utility of the fourth apple is 20 utils, and her marginal utility of the fourth candy bar is 40 utils. If an apple costs $1.00 and a candy bar $0.50, to maximize utility Pat should
A. purchase more apples and more candy bars
B. maintain the current purchase of 4 apples and 4 candy bars
C. purchase more apples and fewer candy bars
D. purchase fewer apples and more candy bars
E. purchase fewer apples and fewer candy bars

Assume Pat spends all of her allowance to purchase 4 apples and 4 candy bars. Pat’s marginal utility of the fourth
apple is 20 utils, and her marginal utility of the fourth candy bar is 40 utils. If an apple costs $1.00 and a candy bar
$0.50, to maximize utility Pat should
A. purchase more apples and more candy bars
B. maintain the current purchase of 4 apples and 4 candy bars
C. purchase more apples and fewer candy bars
D. purchase fewer apples and more candy bars
E. purchase fewer apples and fewer candy bars
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the marginal benefit, in dollars, that Patrick derives from consuming two goods, apples and Good
B.
Quantity of Apples
Marginal Benefit of Apples
Quantity of Good B
Marginal Benefit of Good B
1
$14
1
$36
2
$6
2
$28
3
$4
3
$20
4
$3
4
$12
5
$1
5
$2
6
$0
6
$0
Patrick has a limited weekly income of $30, and he spends it all on apples and Good B. Assume the price of each apple is
$2 and the price of Good B is $4 per unit.
(a) Calculate the total consumer surplus from Good B if Patrick consumes 2 units of Good B. Show your work.
(b) Given his weekly income, would Patrick be able to buy 2 apples and 3 units of Good B? Explain using numbers.
(c) Identify the quantity of apples and the quantity of Good B that will maximize Patrick’s total benefit given his weekly
income. Explain using marginal analysis.
(d) Assume Good B is produced in a perfectly competitive market and that there is a decrease in the number of consumers
in the market for Good B.
(i) Would Patrick’s total consumer surplus from Good B if he consumes 2 units of Good B increase, decrease, or stay the
same compared to your answer in part (a) ? Explain.
(ii) Will the quantity of Good B that will maximize Patrick’s total benefit increase, decrease, or stay the same? Explain.

After graduating from high school, Peggy Smith decided to enroll in a two-year program at the local community college rather than to accept a job that offered a salary of $12,000 per year. If the annual tuition and fees are $4,600, the annual opportunity cost of attending the community college is
A. $4,600
B. $7,400
C. $12,000
D. $16,600
E. $24,000

After graduating from high school, Peggy Smith decided to enroll in a two-year program at the local community
college rather than to accept a job that offered a salary of $12,000 per year. If the annual tuition and fees are $4,600,
the annual opportunity cost of attending the community college is
A. $4,600
B. $7,400
C. $12,000
D. $16,600
E. $24,000

The diagram above shows Sally’s utility function for chocolate. Her utility function illustrates the principle of
A. trade-offs when making choices
B. diminishing marginal utility
C. income and substitution effects
D. increasing opportunity cost
E. constrained utility maximization

The diagram above shows Sally’s utility function for chocolate. Her utility function illustrates the principle of
A. trade-offs when making choices
B. diminishing marginal utility
C. income and substitution effects
D. increasing opportunity cost
E. constrained utility maximization
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the marginal benefit, in dollars, that Sam derives from consuming two goods, Good C and candles.
Quantity of Good C
Marginal Benefit of Good C
Quantity of Candles
Marginal Benefit of Candles
1
$20
1
$30
2
$16
2
$27
3
$12
3
$24
4
$8
4
$21
5
$6
5
$18
6
$4
6
$12
Sam has a limited weekly income of $21, and he spends it all on Good C and candles. Assume the price of Good C is $2
per unit and the price of each candle is $3.
(a) Given his weekly income, would Sam be able to buy 3 units of Good C and 3 candles? Explain using numbers.
(b) Calculate the total consumer surplus from Good C if Sam consumes 6 units of Good C. Show your work.
(c) Identify the quantity of Good C and the quantity of candles that will maximize Sam’s total benefit given his weekly
income. Explain using marginal analysis.
(d) Assume Good C is produced in a perfectly competitive market and that there is a decrease in the number of consumers
in the market for Good C.
(i) Will the quantity of Good C that will maximize Sam’s total benefit increase, decrease, or stay the same? Explain.
(ii) Would Sam’s total consumer surplus from Good C if he consumes 6 units of Good C increase, decrease, or stay the
same compared to your answer in part (b) ? Explain.

Assume a worker can either cut grass or wash windows in a given day. It takes 5 hours to mow a one-acre lawn and 2.5 hours to wash all the windows in a house. When a worker chooses to wash the windows of four houses in a neighborhood, what is the opportunity cost of this decision?
A. The pay the worker receives for washing the windows in the four houses
B. The pay the worker would receive for cutting one lawn
C. Cutting the grass at the same four houses
D. The pay the worker would have received from cutting the grass at two houses
E. The pay the worker would receive for cutting .25 lawns

Assume a worker can either cut grass or wash windows in a given day. It takes 5 hours to mow a one-acre lawn and
2.5 hours to wash all the windows in a house. When a worker chooses to wash the windows of four houses in a
neighborhood, what is the opportunity cost of this decision?
A. The pay the worker receives for washing the windows in the four houses
B. The pay the worker would receive for cutting one lawn
C. Cutting the grass at the same four houses
D. The pay the worker would have received from cutting the grass at two houses
E. The pay the worker would receive for cutting .25 lawns

The amount of product Z that must be forgone in order to obtain some amount of product Y is called
A. factor payments
B. opportunity cost
C. marginal product
D. income effect
E. substitution effect

The amount of product Z that must be forgone in order to obtain some amount of product Y is called
A. factor payments
B. opportunity cost
C. marginal product
D. income effect
E. substitution effect
Theresa consumes both bagels and toy cars.
a. The table above shows Theresa's marginal utility from bagels and toy cars.
i. What is her total utility from purchasing three toy cars?
ii. Theresa's weekly income is $11, price of a bagel is $2, and the price of a toy car is $1. What quantity of
bagels and toy cars will maximize Theresa's utility if she spends her entire weekly income on bagels and
toy cars? Explain your answer using marginal analysis.
b. Assume that the price of wheat, an input for the production of bagels, increases. Will Theresa's demand for
bagels increase, decrease, or not change? Explain.
c. Suppose that Theresa's income elasticity for bagels is -0.2.Does the value of Theresa's income elasticity indicate
that bagels are normal goods, inferior goods, substitutes, or complements?
d. Suppose that when the price of toy cars increases by 10 percent, Theresa buys 5 percent fewer toy cars and 4
percent less of a different toy, blocks. Calculate the cross-price elasticity for toy cars and blocks and indicate if it
is positive or negative.

The table above shows the costs and benefits for new construction projects the government is considering. Based on these costs and benefits, which of the construction projects should the government undertake?
A. Widening existing highways
B. Building new highways
C. Building a new bridge
D. Building a new tunnel
E. Expanding an existing airport

Project
Total Costs(in millions)
Total Benefits(in millions)
Widening existing highways
$100
$80
Building new highways
$100
$90
Building a new bridge
$100
$140
Building a new tunnel
$100
$115
Expanding an existing airport
$100
$130
The table above shows the costs and benefits for new construction projects the government is considering. Based on
these costs and benefits, which of the construction projects should the government undertake?
A. Widening existing highways
B. Building new highways
C. Building a new bridge
D. Building a new tunnel
E. Expanding an existing airport
The table below shows total utility in utils that a utility-maximizing consumer receives from consuming two goods: apples
and oranges.
Assume that apples cost $1 each, oranges cost $2 each, and the consumer spends the entire income of $7 on apples and
oranges.
a. Using the concept of marginal utility per dollar spent, identify the combination of apples and oranges the
consumer will purchase. Explain your reasoning.
b. With the prices of apples and oranges remaining constant, assume that the consumer’s income increases to $12.
Identify each of the following.
i. The combination of apples and oranges the consumer will now purchase
ii. The total utility the consumer will receive from consuming the combination in (i)
c. With income remaining at $12, assume the price of oranges increases to $4 each. Identify each of the following.
i. The combination of apples and oranges the consumer will now purchase
ii. The total utility the consumer will receive from consuming the combination in (i)

When total utility is at its maximum, marginal utility is
A. increasing
B. negative
C. equal to zero
D. at a maximum
E. at minimum

When total utility is at its maximum, marginal utility is
A. increasing
B. negative
C. equal to zero
D. at a maximum
E. at minimum

Which of the following is a key assumption of consumer choice theory?
A. Consumers buy goods as long as implicit costs are greater than explicit costs.
B. Consumers maximize their utility.
C. As income rises, consumers buy more of all goods.
D. Marginal utility is always increasing.
E. As more inputs are used, consumers get less and less additional output.

Which of the following is a key assumption of consumer choice theory?
A. Consumers buy goods as long as implicit costs are greater than explicit costs.
B. Consumers maximize their utility.
C. As income rises, consumers buy more of all goods.
D. Marginal utility is always increasing.
E. As more inputs are used, consumers get less and less additional output.

Josephine is buying candy and gum. If she is maximizing her utility for the combination of candy and gum she buys, which of the following must hold?
A. Marginal utility of candy ÷ price of candy = marginal utility of gum ÷ price of gum
B. Total utility of candy price ÷ of candy = total utility of gum ÷ price of gum
C. Marginal utility of candy ÷ total utility of candy = marginal utility of gum ÷ total utility of gum
D. Marginal utility of candy × price of candy = marginal utility of gum × price of gum
E. Total utility of candy × price of candy = total utility of gum × price of gum

Josephine is buying candy and gum. If she is maximizing her utility for the combination of candy and gum she
buys, which of the following must hold?
A. Marginal utility of candy
price of candy
marginal utility of gum
price of gum
B. Total utility of candy
price of candy
total utility of gum
price of gum
C. Marginal utility of candy
total utility of candy
marginal utility of gum
total utility of gum
D. Marginal utility of candy
price of candy
marginal utility of gum
price of gum
E. Total utility of candy
price of candy
total utility of gum
price of gum
Utility maximization is a fundamental assumption in consumer theory.
a. Explain what is meant by diminishing marginal utility.
b. Assume that a consumer buys only two goods:X and Y. What is the utility-maximizing decision rule for the
consumer in allocating total income to good X and good Y?
c. Assume that a utility- maximizing consumer is spending all of her income on the two goods, X and Y. The price
per unit of good X is $2, and the price per unit of good Y is $3. The marginal utility of the last unit of good Y
consumed is 15. What is the marginal utility of the last unit of good X consumed?
d. Assume that good X is a normal good and good Y is an inferior good. Assume that the consumer's income does
not change. Assume that the price of good X increases.
i. Indicate how the substitution effect of the increase in the price of good X will affect purchases of
1. good X
2. good Y
ii. Indicate how the income effect of the increase in the price of good X will affect purchases of
1. good X
2. good Y

The table above shows the total benefit Tony gets from eating different quantities of apples. If apples cost $3 each, how many should he buy to maximize his consumer surplus?
A. 1
B. 2
C. 3
D. 4
E. 5

The table above shows the total benefit Tony gets from eating different quantities of apples. If apples cost $3 each,
how many should he buy to maximize his consumer surplus?
A. 1
B. 2
C. 3
D. 4
E. 5

Assume the price of a candy bar is $2 and the price of a bag of chips is $3. Assume Lilly’s marginal utility from consuming an additional candy bar is 10 utils and her marginal utility from consuming an additional bag of chips is 12 utils. If Lilly is spending her fixed weekly allowance on candy bars and bags of chips, which of the following actions will maximize Lilly’s total utility?
A. Buying more candy bars and bags of chips
B. Buying more candy bars and fewer bags of chips
C. Buying fewer candy bars and more bags of chips
D. Buying fewer candy bars and bags of chips
E. Buying the same number of candy bars and bags of chips

Assume the price of a candy bar is $2 and the price of a bag of chips is $3. Assume Lilly’s marginal utility from
consuming an additional candy bar is 10 utils and her marginal utility from consuming an additional bag of chips is
12 utils. If Lilly is spending her fixed weekly allowance on candy bars and bags of chips, which of the following
actions will maximize Lilly’s total utility?
A. Buying more candy bars and bags of chips
B. Buying more candy bars and fewer bags of chips
C. Buying fewer candy bars and more bags of chips
D. Buying fewer candy bars and bags of chips
E. Buying the same number of candy bars and bags of chips

Let MU s be the marginal utility of a sandwich, MU h be the marginal utility of a hot dog, P s be the price of a sandwich, and P h be the price of a hot dog. When the price of the goods is zero, Pat eats a sandwich. When Pat has to pay, she eats a hot dog. When Pat has to pay, which of the following is necessarily true?
A. MU s = MU h = P s = P h
B. (MU s / P s ) > (MU h / P h )
C. P s < P h
D. P s > P h
E. MU s = 0

Let MUs be the marginal utility of a sandwich, MUh be the marginal utility of a hot dog, Ps be the price of a
sandwich, and Ph be the price of a hot dog. When the price of the goods is zero, Pat eats a sandwich. When Pat has
to pay, she eats a hot dog. When Pat has to pay, which of the following is necessarily true?
A. MUs = MUh = Ps = Ph
B. (MUs / Ps ) > (MUh / Ph)
C. Ps < Ph
D. Ps > Ph
E. MUs = 0
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the marginal benefit, in dollars, that Yanick derives from consuming two goods, Good A and
shirts.
Quantity of Good A
Marginal Benefit of Good A
Quantity of Shirts
Marginal Benefit of Shirts
1
$64
1
$48
2
$40
2
$40
3
$24
3
$32
4
$12
4
$24
5
$4
5
$16
6
$0
6
$8
Yanick has a limited weekly income of $10, and he spends it all on Good A and shirts. Assume the price of Good A is $2
per unit and the price of each shirt is $4.
(a) Given his weekly income, would Yanick be able to buy 2 units of Good A and 2 shirts? Explain using numbers.
(b) Calculate the total consumer surplus from Good A if Yanick consumes 3 units of Good A. Show your work.
(c) Identify the quantity of Good A and the quantity of shirts that will maximize Yanick’s total benefit given his weekly
income. Explain using marginal analysis.
(d) Assume Good A is produced in a perfectly competitive market and that there is an increase in the number of
consumers in the market for Good A.
(i) Will the quantity of Good A that will maximize Yanick’s total benefit increase, decrease, or stay the same? Explain.
(ii) Would Yanick’s total consumer surplus from Good A if he consumes 3 units of Good A increase, decrease, or stay the
same compared to your answer in part (b) ? Explain.

According to the table above, which shows the costs of production for a firm, the average total cost of producing 3 units of output is
A. 5.00
B. 11.67
C. 13.33
D. 15.00
E. 20.00

According to the table above, which shows the costs of production for a firm, the average total cost of producing 3
units of output is
A. 5.00
B. 11.67
C. 13.33
D. 15.00
E. 20.00

As output of a firm increases, the difference between the firm’s average total cost and its average variable cost gets smaller because the firm’s
A. total cost is increasing
B. marginal cost is increasing
C. average fixed cost is decreasing
D. marginal product of labor is decreasing
E. long-run average total cost is decreasing

As output of a firm increases, the difference between the firm’s average total cost and its average variable cost gets
smaller because the firm’s
A. total cost is increasing
B. marginal cost is increasing
C. average fixed cost is decreasing
D. marginal product of labor is decreasing
E. long-run average total cost is decreasing

Which of the following MUST be true of the long run?
A. It is at least one year in duration.
B. All factors of production are variable.
C. At least one factor of production is fixed.
D. Marginal costs are constant.
E. Average total costs are constant.

Which of the following MUST be true of the long run?
A. It is at least one year in duration.
B. All factors of production are variable.
C. At least one factor of production is fixed.
D. Marginal costs are constant.
E. Average total costs are constant.

Suppose a firm’s production process exhibits diseconomies of scale. How and why will costs change if the firm reduces its output?
A. Long-run average total cost will increase because it becomes more difficult for the firm to manage its workforce.
B. Long-run average total cost will increase because it becomes more difficult for the firm to manage its workforce.
C. Long-run average total cost will decrease because it becomes easier for the firm to manage its workforce.
D. Long-run average fixed costs will decrease because the firm produces fewer units of output.
E. Long-run average total cost will decrease because it becomes more difficult for the firm to manage its workforce.

Suppose a firm’s production process exhibits diseconomies of scale. How and why will costs change if the firm
reduces its output?
A. Long-run average total cost will increase because it becomes more difficult for the firm to manage its
workforce.
B. Long-run average fixed costs will increase because the firm produces fewer units of output.
C. Long-run average total cost will decrease because it becomes easier for the firm to manage its workforce.
D. Long-run average fixed costs will decrease because the firm produces fewer units of output.
E. Long-run average total cost will decrease because it becomes more difficult for the firm to manage its
workforce.

Which of the following is true for a firm that uses labor as a variable input and capital as a fixed input in the short run?
A. If the marginal product of labor is negative, the average product of labor must also be negative.
B. If the marginal product of labor is rising, the average product of labor must be greater than the marginal product of labor.
C. If the average product of labor is rising, the marginal product of labor must be rising.
D. If the average product of labor is falling, the marginal product of labor must be less than the average product of labor.
E. The average product of labor can never be equal to the marginal product of labor.

Which of the following is true for a firm that uses labor as a variable input and capital as a fixed input in the short
run?
A. If the marginal product of labor is negative, the average product of labor must also be negative.
B. If the marginal product of labor is rising, the average product of labor must be greater than the marginal
product of labor.
C. If the average product of labor is rising, the marginal product of labor must be rising.
D. If the average product of labor is falling, the marginal product of labor must be less than the average product
of labor.
E. The average product of labor can never be equal to the marginal product of labor.

What does the minimum efficient scale measure?
A. The smallest output level at which short-run average total cost is minimized.
B. The smallest output level at which short-run total cost is minimized.
C. The smallest output level at which long-run average total cost is minimized.
D. The largest output level at which long-run average total cost is minimized.
E. The largest output level at which long-run total cost is minimized.

What does the minimum efficient scale measure?
A. The smallest output level at which short-run average total cost is minimized.
B. The smallest output level at which short-run total cost is minimized.
C. The smallest output level at which long-run average total cost is minimized.
D. The largest output level at which long-run average total cost is minimized.
E. The largest output level at which long-run total cost is minimized.

In the short run, which of the following is true of a firm's average total cost of production?
A. It is equal to marginal cost plus average variable cost.
B. It is equal to marginal cost plus average fixed cost.
C. It is equal to average fixed cost plus average variable cost.
D. It always increases when a firm increases production.
E. It is zero if the firm shuts down.

In the short run, which of the following is true of a firm's average total cost of production?
A. It is equal to marginal cost plus average variable cost.
B. It is equal to marginal cost plus average fixed cost.
C. It is equal to average fixed cost plus average variable cost.
D. It always increases when a firm increases production.
E. It is zero if the firm shuts down.

Which of the following must be true if at the tenth unit of output, marginal cost (MC) is $130 and average total cost ( ATC) is $150?
A. ATC of producing the ninth unit is higher than $150.
B. ATC of producing the ninth unit is less than $150.
C. MC of producing the ninth unit is higher than $130.
D. The average variable cost of producing the tenth unit is higher than $150.
E. The average variable cost of producing the tenth unit is equal to $20.

Which of the following must be true if at the tenth unit of output, marginal cost (
) is
and average total
cost (
) is
?
A. of producing the ninth unit is higher than
.
B. of producing the ninth unit is less than
.
C. of producing the ninth unit is higher than
.
D. The average variable cost of producing the tenth unit is higher than
.
E. The average variable cost of producing the tenth unit is equal to
.

Which of the following is true about a firm's average variable cost?
A. It will rise if marginal cost is less than average variable cost.
B. It will never equal the firm's marginal cost.
C. It will decline when the firm's marginal product declines.
D. It will be negative if marginal revenue declines.
E. It will equal average total cost when fixed costs are zero.

Which of the following is true about a firm's average variable cost?
A. It will rise if marginal cost is less than average variable cost.
B. It will never equal the firm's marginal cost.
C. It will decline when the firm's marginal product declines.
D. It will be negative if marginal revenue declines.
E. It will equal average total cost when fixed costs are zero.

Which of the following is always true of the relationship between average and marginal costs?
A. Average total costs are increasing when marginal costs are increasing.
B. Marginal costs are increasing when average variable costs are higher than marginal costs.
C. Average variable costs are increasing when marginal costs are increasing.
D. Average variable costs are increasing when marginal costs are higher than average variable costs.
E. Average total costs are constant when marginal costs are constant.

Which of the following is always true of the relationship between average and marginal costs?
A. Average total costs are increasing when marginal costs are increasing.
B. Marginal costs are increasing when average variable costs are higher than marginal costs.
C. Average variable costs are increasing when marginal costs are increasing.
D. Average variable costs are increasing when marginal costs are higher than average variable costs.
E. Average total costs are constant when marginal costs are constant.
The following questions are based on the table below, which shows a firm’s average variable cost and average total
cost.

The average fixed cost of producing four units of output is equal to
A. $120
B. $95
C. $75
D. $50
E. $30

The average fixed cost of producing four units of output is equal to
A. $120
B. $95
C. $75
D. $50
E. $30

The table above shows the amount of labor inputs necessary to produce given levels of output. If the cost of a unit of labor is $20 and total fixed cost is $100, the average total cost of producing 20 units of output is
A. $1
B. $2
C. $7
D. $40
E. $120

The table above shows the amount of labor inputs necessary to produce given levels of output. If the cost of a unit
of labor is $20 and total fixed cost is $100, the average total cost of producing 20 units of output is
A. $1
B. $2
C. $7
D. $40
E. $120

Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output?
A. $2
B. $5
C. $7
D. $9
E. $12

Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are
produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of
producing 10 units of output?
A. $2
B. $5
C. $7
D. $9
E. $12
The following questions are based on the table below, which gives cost information for a perfectly competitive firm.

The average total cost to the firm of producing 2 units of output is
A. $35.00
B. $85.00
C. $95.00
D. $100.00
E. $130.00

The average total cost to the firm of producing 2 units of output is
A. $35.00
B. $85.00
C. $95.00
D. $100.00
E. $130.00

Given the information above, the average variable cost of 25 units of output is
A. $2
B. $6
C. $25
D. $50
E. $75

Given the information above, the average variable cost of 25 units of output is
A. $2
B. $6
C. $25
D. $50
E. $75

At 100 units of output, a firm’s total cost is $10,000. If the firm’s total fixed cost is $4,000, its average variable cost is equal to
A. $140
B. $100
C. $60
D. $40
E. $0

At 100 units of output, a firm’s total cost is $10,000. If the firm’s total fixed cost is $4,000, its average variable cost
is equal to
A. $140
B. $100
C. $60
D. $40
E. $0

If the marginal cost of producing the first unit of some good is $20 and the marginal cost of producing the second unit is $30, the average variable cost of producing 2 units is
A. $5
B. $10
C. $20
D. $25
E. $50

If the marginal cost of producing the first unit of some good is $20 and the marginal cost of producing the second
unit is $30, the average variable cost of producing 2 units is
A. $5
B. $10
C. $20
D. $25
E. $50

The table above shows a firm’s total cost of producing various units of output. What is the average variable cost of producing three units?
A. $4
B. $7
C. $10
D. $17
E. Cannot be determined from the given information

The table above shows a firm’s total cost of producing various units of output. What is the average variable cost of
producing three units?
A. $4
B. $7
C. $10
D. $17
E. Cannot be determined from the given information

The table below shows a competitive firm’s total variable cost (TVC) and total fixed cost (TFC) at various units of output. When output is 3 units, which of the following is correct?
A. Average Variable Cost Marginal Cost 5 6
B. Average Variable Cost Marginal Cost 5 7
C. Average Variable Cost Marginal Cost 6 5
D. Average Variable Cost Marginal Cost 7 7
E. Average Variable Cost Marginal Cost 7 6

The table below shows a competitive firm’s total variable cost (TVC) and total fixed cost (TFC) at various units of
output.
When output is 3 units, which of the following is correct?
A. Average Variable Cost
Marginal Cost
5
6
B. Average Variable Cost
Marginal Cost
5
7
C. Average Variable Cost
Marginal Cost
6
5
D. Average Variable Cost
Marginal Cost
7
7
E. Average Variable Cost
Marginal Cost
7
6

A firm is producing 100 units of output at a total cost of $400. The firm’s average variable cost is $3 per unit. What is the firm’s total fixed cost?
A. $1
B. $50
C. $100
D. $300
E. $400

A firm is producing 100 units of output at a total cost of $400. The firm’s average variable cost is $3 per unit. What
is the firm’s total fixed cost?
A. $1
B. $50
C. $100
D. $300
E. $400
The following question is based on the output and cost data in the table below.

According to the cost schedule in the table above, the firm’s total fixed cost is
A. increasing
B. decreasing
C. $90
D. $100
E. impossible to determine

According to the cost schedule in the table above, the firm’s total fixed cost is
A. increasing
B. decreasing
C. $90
D. $100
E. impossible to determine

If there is only one variable input, diminishing marginal returns first occur with the production of which unit of output?
A. 7th
B. 6th
C. 5th
D. 4th
E. 3rd

If there is only one variable input, diminishing marginal returns first occur with the production of which unit of
output?
A. 7th
B. 6th
C. 5th
D. 4th
E. 3rd

Assume that the fixed cost is $50. Based on the cost and output data in the table above, what is the marginal cost when the firm increases its output from three to four units and the average total cost of producing 4 units?
A. Marginal Cost Average Total Cost $35 $45
B. Marginal Cost Average Total Cost $35 $35
C. Marginal Cost Average Total Cost $25 $35
D. Marginal Cost Average Total Cost $25 $25
E. Marginal Cost Average Total Cost $10 $25

Assume that the fixed cost is $50. Based on the cost and output data in the table above, what is the marginal cost
when the firm increases its output from three to four units and the average total cost of producing 4 units?
A. Marginal Cost
Average Total Cost
$35
$40
B. Marginal Cost
Average Total Cost
$35
$35
C. Marginal Cost
Average Total Cost
$25
$35
D. Marginal Cost
Average Total Cost
$25
$25
E. Marginal Cost
Average Total Cost
$10
$25

Assume that a profit-maximizing firm is perfectly competitive in both the output and the factor markets and is at its long-run equilibrium. The firm's output is 100 units, its total revenue is $600.00, and the fixed cost of production is $50.00. Based on this information, which of the following is true for the firm?
A. Its marginal cost is $5.50, and its average total cost is $5.50.
B. Its marginal cost is $5.50, and its average variable cost is $5.50.
C. Its marginal cost is $6.00, and its average total cost is $5.50.
D. Its marginal cost is $6.00, and its average fixed cost is $5.50.
E. Its marginal cost is $6.00, and its average variable cost is $5.50.

Assume that a profit-maximizing firm is perfectly competitive in both the output and the factor markets and is at its
long-run equilibrium. The firm's output is 100 units, its total revenue is $600.00, and the fixed cost of production is
$50.00. Based on this information, which of the following is true for the firm?
A. Its marginal cost is $5.50, and its average total cost is $5.50.
B. Its marginal cost is $5.50, and its average variable cost is $5.50.
C. Its marginal cost is $6.00, and its average total cost is $5.50.
D. Its marginal cost is $6.00, and its average fixed cost is $5.50.
E. Its marginal cost is $6.00, and its average variable cost is $5.50.

If labor is the only variable input and it costs $15 per hour and if the marginal product of labor is 3 units per hour, the short-run marginal cost of 1 unit of output is approximately
A. $0.20
B. $3.00
C. $5.00
D. $15.00
E. $45.00

If labor is the only variable input and it costs $15 per hour and if the marginal product of labor is 3 units per hour,
the short-run marginal cost of 1 unit of output is approximately
A. $0.20
B. $3.00
C. $5.00
D. $15.00
E. $45.00

The table below shows a production function for a firm. All of the following can be concluded from the information in the table EXCEPT:
A. Diminishing marginal returns set in after the fourth unit of the variable input.
B. Marginal product is positive if total product is increasing.
C. This is a production function for a perfectly competitive firm.
D. A profit-maximizing firm would never voluntarily employ the eighth unit of the variable input.
E. Total product starts to decrease when marginal product changes from positive to negative.

The table below shows a production function for a firm.
All of the following can be concluded from the information in the table EXCEPT:
A. Diminishing marginal returns set in after the fourth unit of the variable input.
B. Marginal product is positive if total product is increasing.
C. This is a production function for a perfectly competitive firm.
D. A profit-maximizing firm would never voluntarily employ the eighth unit of the variable input.
E. Total product starts to decrease when marginal product changes from positive to negative.

If the output of a firm doubles when the firm doubles all of its inputs, the firm must be experiencing
A. economies of scale
B. increasing returns to scale
C. constant returns to scale
D. decreasing returns to scale
E. diseconomies of scale

If the output of a firm doubles when the firm doubles all of its inputs, the firm must be experiencing
A. economies of scale
B. increasing returns to scale
C. constant returns to scale
D. decreasing returns to scale
E. diseconomies of scale

A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur?
A. The demand curve for the product will shift to the left.
B. The firm's demand curve for plastic will shift to the left.
C. The firm will increase the number of units offered for sale.
D. The firm will definitely go out of business, since competitive firms earn zero economic profits in equilibrium.
E. The firm's marginal costs will increase at each level of output.

A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of
plastic suddenly increases, which of the following will occur?
A. The demand curve for the product will shift to the left.
B. The firm's demand curve for plastic will shift to the left.
C. The firm will increase the number of units offered for sale.
D. The firm will definitely go out of business, since competitive firms earn zero economic profits in
equilibrium.
E. The firm's marginal costs will increase at each level of output.

With capital held constant, when Zane employs one additional worker, the marginal product of labor decreases by units. Which economic concept best characterizes Zane’s production process?
A. Diminishing marginal returns
B. Increasing marginal returns
C. Constant returns to scale
D. Economies of scale
E. Diseconomies of scale

With capital held constant, when Zane employs one additional worker, the marginal product of labor decreases by
units. Which economic concept best characterizes Zane’s production process?
A. Diminishing marginal returns
B. Increasing marginal returns
C. Constant returns to scale
D. Economies of scale
E. Diseconomies of scale

The table below shows the long-run total cost function of a firm. The firm’s cost function exhibits
A. diseconomies of scale
B. constant returns to scale
C. economies of scale
D. decreasing marginal cost
E. increasing marginal cost

The table below shows the long-run total cost function of a firm.
The firm’s cost function exhibits
A. diseconomies of scale
B. constant returns to scale
C. economies of scale
D. decreasing marginal cost
E. increasing marginal cost

Economies of scale can be illustrated by
A. an increasing short-run marginal cost curve as a firm produces more output
B. a decreasing short-run average total cost curve as a firm produces more output
C. a downward-sloping long-run supply curve for an industry
D. a decreasing long-run average total cost curve as a firm produces more output
E. an increasing long-run average total cost curve as a firm produces more output

Economies of scale can be illustrated by
A. an increasing short-run marginal cost curve as a firm produces more output
B. a decreasing short-run average total cost curve as a firm produces more output
C. a downward-sloping long-run supply curve for an industry
D. a decreasing long-run average total cost curve as a firm produces more output
E. an increasing long-run average total cost curve as a firm produces more output

The relationship in the graph above best illustrates the economic concept of
A. opportunity cost
B. diminishing marginal utility in consumption
C. diminishing marginal returns in production
D. production possibilities
E. comparative advantage

The relationship in the graph above best illustrates the economic concept of
A. opportunity cost
B. diminishing marginal utility in consumption
C. diminishing marginal returns in production
D. production possibilities
E. comparative advantage

If a firm’s production function exhibits diminishing marginal product of the variable input in the short run, which of the following about the firm’s short-run marginal cost (MC) curve must be true?
A. As output increases, the MC curve slopes upward.
B. As output increases, the MC curve slopes downward and becomes flatter.
C. As output increases, the MC curve slopes downward and becomes steeper.
D. The MC curve is horizontal.
E. The MC curve is vertical.

If a firm’s production function exhibits diminishing marginal product of the variable input in the short run, which of
the following about the firm’s short-run marginal cost (MC) curve must be true?
A. As output increases, the MC curve slopes upward.
B. As output increases, the MC curve slopes downward and becomes flatter.
C. As output increases, the MC curve slopes downward and becomes steeper.
D. The MC curve is horizontal.
E. The MC curve is vertical.

Short-run marginal costs eventually increase because of the effects of
A. increasing marginal product
B. diminishing marginal product
C. diseconomies of scale
D. economies of scale
E. increasing fixed costs

Short-run marginal costs eventually increase because of the effects of
A. increasing marginal product
B. diminishing marginal product
C. diseconomies of scale
D. economies of scale
E. increasing fixed costs

For a firm where labor is the only variable input, which of the following happens when diminishing returns set in?
A. Average variable cost begins to increase.
B. Average product of labor begins to decline.
C. Total product begins to decline.
D. Marginal cost begins to increase.
E. Average total cost begins to increase.

For a firm where labor is the only variable input, which of the following happens when diminishing returns set in?
A. Average variable cost begins to increase.
B. Average product of labor begins to decline.
C. Total product begins to decline.
D. Marginal cost begins to increase.
E. Average total cost begins to increase.

Assume that a firm uses only one variable input. If a firm is experiencing diminishing returns, which of the following is true as more of the variable input is used?
A. Marginal cost will decrease at a constant rate.
B. Marginal cost will decrease at a diminishing rate.
C. Marginal cost will increase.
D. Marginal product will increase at a constant rate.
E. Marginal product will increase at a diminishing rate.

Assume that a firm uses only one variable input. If a firm is experiencing diminishing returns, which of the
following is true as more of the variable input is used?
A. Marginal cost will decrease at a constant rate.
B. Marginal cost will decrease at a diminishing rate.
C. Marginal cost will increase.
D. Marginal product will increase at a constant rate.
E. Marginal product will increase at a diminishing rate.

Which of the following indicates the presence of economies of scale as the quantity of output increases?
A. Average variable cost decreases.
B. Long-run average total cost decreases.
C. Marginal cost decreases.
D. Average fixed cost decreases.
E. Marginal cost exceeds average total cost.

Which of the following indicates the presence of economies of scale as the quantity of output increases?
A. Average variable cost decreases.
B. Long-run average total cost decreases.
C. Marginal cost decreases.
D. Average fixed cost decreases.
E. Marginal cost exceeds average total cost.

Which of the following must be true if a firm is experiencing economies of scale?
A. All costs are explicit.
B. Long-run average total cost decreases as the firm’s output increases.
C. Economic profits decrease as the firm’s output increases.
D. Long-run average total cost remains constant as the firm’s output decreases.
E. Proportionate increases in inputs result in less-than-proportionate increases in output.

Which of the following must be true if a firm is experiencing economies of scale?
A. All costs are explicit.
B. Long-run average total cost decreases as the firm’s output increases.
C. Economic profits decrease as the firm’s output increases.
D. Long-run average total cost remains constant as the firm’s output decreases.
E. Proportionate increases in inputs result in less-than-proportionate increases in output.

Economies of scale exist when
A. the doubling of all inputs doubles the output produced
B. short-run average total cost decreases as output increases
C. short-run average total cost remains constant as output increases
D. long-run average total cost increases as output increases
E. long-run average total cost decreases as output increases

Economies of scale exist when
A. the doubling of all inputs doubles the output produced
B. short-run average total cost decreases as output increases
C. short-run average total cost remains constant as output increases
D. long-run average total cost increases as output increases
E. long-run average total cost decreases as output increases

If a firm experiences economies of scale over the entire range of output, the long-run average cost curve will be
A. U-shaped
B. upward sloping
C. downward sloping
D. horizontal
E. below the marginal cost curve

If a firm experiences economies of scale over the entire range of output, the long-run average cost curve will be
A. U-shaped
B. upward sloping
C. downward sloping
D. horizontal
E. below the marginal cost curve

If a firm is experiencing economies of scale, which of the following will decrease as output increases?
A. Fixed cost
B. Long-run total cost
C. Long-run average total cost
D. Marginal cost
E. Marginal revenue

If a firm is experiencing economies of scale, which of the following will decrease as output increases?
A. Fixed cost
B. Long-run total cost
C. Long-run average total cost
D. Marginal cost
E. Marginal revenue

F&D Manufacturing Company increases all its inputs by 50 percent each. If F&D’s output increases by 100 percent, then F&D is experiencing
A. increasing returns to scale
B. constant returns to scale
C. diseconomies of scale
D. increasing marginal cost
E. decreasing profits

F&D Manufacturing Company increases all its inputs by 50 percent each. If F&D’s output increases by 100 percent,
then F&D is experiencing
A. increasing returns to scale
B. constant returns to scale
C. diseconomies of scale
D. increasing marginal cost
E. decreasing profits

The table above shows the short-run production function for picking apples. Based on the production data, which of the following statements about the marginal product of the fifth worker is true?
A. It is the maximum that can be attained.
B. It is greater than the marginal product of the first worker due to increasing returns.
C. It is greater than the combined marginal products of all the other workers.
D. It is less than the marginal product of the third worker due to diminishing returns.
E. It is rising due to increasing marginal returns.

The table above shows the short-run production function for picking apples. Based on the production data, which of
the following statements about the marginal product of the fifth worker is true?
A. It is the maximum that can be attained.
B. It is greater than the marginal product of the first worker due to increasing returns.
C. It is greater than the combined marginal products of all the other workers.
D. It is less than the marginal product of the third worker due to diminishing returns.
E. It is rising due to increasing marginal returns.

Suppose that a firm begins to hire workers for a newly completed plant with a fixed amount of machinery. As the firm hires additional workers, one would expect the marginal product to
A. fall initially, but eventually rise
B. rise initially, but eventually fall
C. rise consistently due to diminishing return
D. rise consistently due to the advantages of specialization
E. rise consistently due to economies of scale

Suppose that a firm begins to hire workers for a newly completed plant with a fixed amount of machinery. As the
firm hires additional workers, one would expect the marginal product to
A. fall initially, but eventually rise
B. rise initially, but eventually fall
C. rise consistently due to diminishing return
D. rise consistently due to the advantages of specialization
E. rise consistently due to economies of scale

Currently, Corporation can produce 50 units of output using 20 workers and 8 units of capital. Which of the following changes in the number of workers, units of capital, and quantity of output are consistent with constant returns to scale?
A. Workers Capital Output 40 8 100
B. Workers Capital Output 40 16 90
C. Workers Capital Output 20 4 25
D. Workers Capital Output 10 4 25
E. Workers Capital Output 10 8 25

Currently,
Corporation can produce 50 units of output using 20 workers and 8 units of capital. Which of the
following changes in the number of workers, units of capital, and quantity of output are consistent with constant
returns to scale?
A. Workers
Capital
Output
40
8
100
B. Workers
Capital
Output
40
16
90
C. Workers
Capital
Output
20
4
25
D. Workers
Capital
Output
10
4
25
E. Workers
Capital
Output
10
8
25
The following questions refer to the graph below, which shows the cost curves for a profit maximizing, perfectly
competitive firm.

The vertical distance CF represents the
A. total cost of producing Q 1 units of output
B. average total cost of producing Q 1 units of output
C. average fixed cost of producing Q 1 units of output
D. average variable cost of producing Q 1 units of output
E. amount of the firm's loss resulting from producing Q 1 units of output

The vertical distance CF represents the
A. total cost of producing Q1 units of output
B. average total cost of producing Q1 units of output
C. average fixed cost of producing Q1 units of output
D. average variable cost of producing Q1 units of output
E. amount of the firm's loss resulting from producing Q1 units of output

If a firm's average total cost decreases as the firm increases its output, the firm's marginal cost must be
A. greater than the average variable cost
B. less than the average fixed cost
C. less than the average total cost
D. decreasing
E. negative

If a firm's average total cost decreases as the firm increases its output, the firm's marginal cost must be
A. greater than the average variable cost
B. less than the average fixed cost
C. less than the average total cost
D. decreasing
E. negative

Which of the following factors can cause a firm's cost curves to shift upward?
A. An increase in wages
B. An increase in the firm's output
C. An increase in the output price
D. A decrease in the firm's output
E. A decrease in the price of energy

Which of the following factors can cause a firm's cost curves to shift upward?
A. An increase in wages
B. An increase in the firm's output
C. An increase in the output price
D. A decrease in the firm's output
E. A decrease in the price of energy

Which of the following provides an example of the law of diminishing returns?
A. A farm doubles all its inputs and observes that output less than doubles.
B. A textile producer’s output increases by 5 units when adding a fourth worker and by 7 units when adding a fifth worker.
C. If a fixed input increases, fewer additional units of a variable input will be needed to increase output by one unit.
D. As more of a variable input—for example, labor is used with a fixed number of machines— output increases but at a diminishing rate.
E. More cooks in a single kitchen will increase the number of meals produced by increasing amounts.

Which of the following provides an example of the law of diminishing returns?
A. A farm doubles all its inputs and observes that output less than doubles.
B. A textile producer’s output increases by 5 units when adding a fourth worker and by 7 units when adding a
fifth worker.
C. If a fixed input increases, fewer additional units of a variable input will be needed to increase output by one
unit.
D. As more of a variable input—for example, labor is used with a fixed number of machines— output increases
but at a diminishing rate.
E. More cooks in a single kitchen will increase the number of meals produced by increasing amounts.

In the short run, assume diminishing marginal product of labor sets in with the hiring of the second worker. Which of the following will remain constant as a firm produces more output?
A. Average product of labor
B. Total cost
C. Total fixed cost
D. Total variable cost
E. Marginal cost

In the short run, assume diminishing marginal product of labor sets in with the hiring of the second worker. Which
of the following will remain constant as a firm produces more output?
A. Average product of labor
B. Total cost
C. Total fixed cost
D. Total variable cost
E. Marginal cost

At 100 units of a firm’s output, average total cost is $10, average variable cost is $8, average fixed cost is $2, and marginal cost is $12. How will each of the following change as the firm's output further increases?
A. Average Total Cost Average Variable Cost Average Fixed Cost Increase Increase Increase
B. Average Total Cost Average Variable Cost Average Fixed Cost Increase Increase Decrease
C. Average Total Cost Average Variable Cost Average Fixed Cost Increase Decrease Decrease
D. Average Total Cost Average Variable Cost Average Fixed Cost Decrease Increase Increase
E. Average Total Cost Average Variable Cost Average Fixed Cost Decrease Decrease Decrease

At 100 units of a firm’s output, average total cost is $10, average variable cost is $8, average fixed cost is $2, and
marginal cost is $12. How will each of the following change as the firm's output further increases?
A. Average Total Cost
Average Variable Cost
Average Fixed Cost
Increase
Increase
Increase
B. Average Total Cost
Average Variable Cost
Average Fixed Cost
Increase
Increase
Decrease
C. Average Total Cost
Average Variable Cost
Average Fixed Cost
Increase
Decrease
Decrease
D. Average Total Cost
Average Variable Cost
Average Fixed Cost
Decrease
Increase
Increase
E. Average Total Cost
Average Variable Cost
Average Fixed Cost
Decrease
Decrease
Decrease

If a firm's production process exhibits economiesof scale, which of the following will occur when the firm's output increases?
A. Its short-run average total costs will rise.
B. Its long-run average total costs will rise.
C. Its long-run average total costs will fall.
D. Its short-run average total costs will fall.
E. Its long-run total costs will fall.

If a firm's production process exhibits economies of scale, which of the following will occur when the firm's output
increases?
A. Its short-run average total costs will rise.
B. Its long-run average total costs will rise.
C. Its long-run average total costs will fall.
D. Its short-run average total costs will fall.
E. Its long-run total costs will fall.

Which of the following is a result of increasing returns to scale?
A. Upward-sloping short-run marginal cost curve
B. Downward-sloping marginal physical product of labor curve
C. Downward-sloping long-run average total cost curve
D. Diseconomies of scale
E. Diminishing returns

Which of the following is a result of increasing returns to scale?
A. Upward-sloping short-run marginal cost curve
B. Downward-sloping marginal physical product of labor curve
C. Downward-sloping long-run average total cost curve
D. Diseconomies of scale
E. Diminishing returns

A farmer grows wheat using two inputs: labor and land whose prices are constant. If she doubles her inputs, she finds that the quantity of wheat produced more than doubles. Therefore, it must be true that in this output range her long-run average total cost curve is
A. upward sloping
B. downward sloping
C. horizontal
D. vertical
E. U-shaped

A farmer grows wheat using two inputs: labor and land whose prices are constant. If she doubles her inputs, she
finds that the quantity of wheat produced more than doubles. Therefore, it must be true that in this output range her
long-run average total cost curve is
A. upward sloping
B. downward sloping
C. horizontal
D. vertical
E. U-shaped

Locotek produces toy trains and pays each worker $350 per week. Five workers can produce 40 trains per week and six workers can produce 45 trains per week. The marginal product per week of the sixth worker is
A. $70
B. $350
C. 5 trains
D. 7.5 trains
E. 42.5 trains

Locotek produces toy trains and pays each worker $350 per week. Five workers can produce 40 trains per week and
six workers can produce 45 trains per week. The marginal product per week of the sixth worker is
A. $70
B. $350
C. 5 trains
D. 7.5 trains
E. 42.5 trains

Which of the following indicates that a firm is experiencing economies of scale?
A. The firm’s long-run supply curve is horizontal.
B. The firm’s long-run marginal cost increases as output increases.
C. The firm’s long-run average total cost decreases as output increases.
D. The firm’s long-run total cost decreases as output increases.
E. The firm’s total revenues increase as output sold increases.

Which of the following indicates that a firm is experiencing economies of scale?
A. The firm’s long-run supply curve is horizontal.
B. The firm’s long-run marginal cost increases as output increases.
C. The firm’s long-run average total cost decreases as output increases.
D. The firm’s long-run total cost decreases as output increases.
E. The firm’s total revenues increase as output sold increases.

If a firm's long-run average total cost increases as output increases, the firm is experiencing
A. economies of scale
B. diseconomies of scale
C. increasing returns to scale
D. efficiency in plant size
E. maximum economic profit

If a firm's long-run average total cost increases as output increases, the firm is experiencing
A. economies of scale
B. diseconomies of scale
C. increasing returns to scale
D. efficiency in plant size
E. maximum economic profit

The long-run average cost curve will be sloping downward if a firm experiences
A. diminishing marginal returns
B. decreasing returns to scale
C. constant returns to scale
D. diseconomies of scale
E. economies of scale

The long-run average cost curve will be sloping downward if a firm experiences
A. diminishing marginal returns
B. decreasing returns to scale
C. constant returns to scale
D. diseconomies of scale
E. economies of scale

Under which of the following circumstances is a firm experiencing economics of scale?
A. The firm increases only its labor input, and output decreases.
B. The firm doubles its inputs, and output triples.
C. The firm builds a new plant, and the average cost of production increases.
D. The firm hires a new plant manager, and profits increase.
E. The product price increases, and the firm increases its output.

Under which of the following circumstances is a firm experiencing economics of scale?
A. The firm increases only its labor input, and output decreases.
B. The firm doubles its inputs, and output triples.
C. The firm builds a new plant, and the average cost of production increases.
D. The firm hires a new plant manager, and profits increase.
E. The product price increases, and the firm increases its output.

The graph above shows a firm’s long-run average total cost curve (LRATC). Which of the following statements is true as the firm increases its scale of production?
A. From zero output to Q 0 , the firm experiences diseconomies of scale.
B. From Q 0 to Q 1 , the firm experiences increasing returns to scale.
C. For output levels above Q 1 , the firm experiences diseconomies of scale.
D. At all output levels, the firm’s long-run marginal cost must be constant.
E. From Q 0 to Q 1 , LRATC falls because average fixed cost decreases; after Q 1 , LRATC rises due to diminishing returns to labor.

The graph above shows a firm’s long-run average total cost curve
. Which of the following statements
is true as the firm increases its scale of production?
A. From zero output to
, the firm experiences diseconomies of scale.
B. From
to
, the firm experiences increasing returns to scale.
C. For output levels above
, the firm experiences diseconomies of scale.
D. At all output levels, the firm’s long-run marginal cost must be constant.
E. From
to
,
falls because average fixed cost decreases; after
,
rises due to
diminishing returns to labor.

Assume that the short-run marginal cost curve initially falls, and it then rises as quantity of output increases. Which of the following must be true?
A. The marginal product of labor is always falling.
B. At every output level, the short-run marginal cost curve is always above the average variable cost curve.
C. As output increases, the unit price of labor (the wage rate) is first falling and then rising.
D. Initially the marginal product of labor increases but eventually marginal product of labor decreases.
E. The average variable cost curve must always be rising.

Assume that the short-run marginal cost curve initially falls, and it then rises as quantity of output increases. Which
of the following must be true?
A. The marginal product of labor is always falling.
B. At every output level, the short-run marginal cost curve is always above the average variable cost curve.
C. As output increases, the unit price of labor (the wage rate) is first falling and then rising.
D. Initially the marginal product of labor increases but eventually marginal product of labor decreases.
E. The average variable cost curve must always be rising.

Marginal cost is defined as the
A. change in total cost resulting from producing an additional unit of output
B. change in total cost resulting from using an additional unit of input
C. difference between total cost and total variable cost
D. difference between total variable cost and total fixed cost
E. difference between average total cost and average variable cost divided by output

Marginal cost is defined as the
A. change in total cost resulting from producing an additional unit of output
B. change in total cost resulting from using an additional unit of input
C. difference between total cost and total variable cost
D. difference between total variable cost and total fixed cost
E. difference between average total cost and average variable cost divided by output
The chart below gives a firm’s total cost of producing different levels of output.

The marginal cost of producing the fourth unit of output is
A. $ 4
B. $11
C. $19
D. $32
E. impossible to determine from the information given

The marginal cost of producing the fourth unit of output is
A. $ 4
B. $11
C. $19
D. $32
E. impossible to determine from the information given

The total variable cost of producing five units of output is
A. $ 6
B. $11
C. $30
D. $43
E. impossible to determine from the information given

The total variable cost of producing five units of output is
A. $ 6
B. $11
C. $30
D. $43
E. impossible to determine from the information given

Assume that labor is the only variable input. If a firm’s short-run marginal cost is increasing as output rises, which of the following must be true?
A. Average product of labor is constant.
B. Average product of labor is increasing.
C. Marginal product of labor is greater than average product of labor.
D. Marginal product of labor is decreasing.
E. Total product of labor is decreasing.

Assume that labor is the only variable input. If a firm’s short-run marginal cost is increasing as output rises, which
of the following must be true?
A. Average product of labor is constant.
B. Average product of labor is increasing.
C. Marginal product of labor is greater than average product of labor.
D. Marginal product of labor is decreasing.
E. Total product of labor is decreasing.

The table below is partially filled in with the different types of costs for a firm. Based on the information in the table, what is the marginal cost of producing the second unit?
A. $50
B. $60
C. $70
D. $90
E. $180

The table below is partially filled in with the different types of costs for a firm. Based on the information in the
table, what is the marginal cost of producing the second unit?
Quality
Variable Cost
Fixed Cost
Total Cost
Average Total Cost
A. 
B. 
C. 
D. 
E. 

If the average variable cost of producing 5 units of a good is $100 and the average variable cost of producing 6 units is $150, then the marginal cost of increasing output from 5 to 6 units is
A. $50
B. $250
C. $300
D. $400
E. $500

If the average variable cost of producing 5 units of a good is $100 and the average variable cost of producing 6 units
is $150, then the marginal cost of increasing output from 5 to 6 units is
A. $50
B. $250
C. $300
D. $400
E. $500

A firm’s short-run production function uses capital and labor as inputs. Assume the quantity of capital is fixed in the short run. The marginal product of labor will decrease as more labor is used in the short run because each unit of labor will have
A. zero units of capital to work with
B. fewer units of capital to work with
C. an increase in the capital-to-labor ratio
D. more units of capital to work with
E. an infinite number of units of capital to work with

A firm’s short-run production function uses capital and labor as inputs. Assume the quantity of capital is fixed in the
short run. The marginal product of labor will decrease as more labor is used in the short run because each unit of
labor will have
A. zero units of capital to work with
B. fewer units of capital to work with
C. an increase in the capital-to-labor ratio
D. more units of capital to work with
E. an infinite number of units of capital to work with

The table above shows the various units of output that can be produced with different combinations of capital and labor. Which of the following statements is correct according to the information in the table?
A. In the long run, there are constant returns to scale.
B. In the long run, there are increasing returns to scale.
C. In the short run, the marginal product of capital is constant.
D. In the short run, the marginal product of labor is constant.
E. In the short run, the law of diminishing marginal returns does not hold.

The table above shows the various units of output that can be produced with different combinations of capital and
labor. Which of the following statements is correct according to the information in the table?
A. In the long run, there are constant returns to scale.
B. In the long run, there are increasing returns to scale.
C. In the short run, the marginal product of capital is constant.
D. In the short run, the marginal product of labor is constant.
E. In the short run, the law of diminishing marginal returns does not hold.

Assume the marginal product of labor first rises, reaches a maximum, and then falls. If the average product of labor is falling, which of the following is true?
A. The marginal product of labor is greater than the average product of labor.
B. The level of output produced must be at its maximum.
C. The marginal product of labor must be falling.
D. The marginal product of labor must be negative.
E. The average product of labor has not yet reached its maximum.

Assume the marginal product of labor first rises, reaches a maximum, and then falls. If the average product of labor
is falling, which of the following is true?
A. The marginal product of labor is greater than the average product of labor.
B. The level of output produced must be at its maximum.
C. The marginal product of labor must be falling.
D. The marginal product of labor must be negative.
E. The average product of labor has not yet reached its maximum.
The following two questions refer to the data in the table below.
A perfectly competitive firm operates with a fixed amount of capital that costs
per day. Labor is the only variable
input. The firm hires labor in a perfectly competitive labor market at
per day per worker. The table below shows the
firm’s production function.
Number of Workers Hired
Quantity of Output (units)

What is the marginal product of the third worker?
A. 5
B. 10
C. 20
D. 24
E. It cannot be determined from the information given.

What is the marginal product of the third worker?
A. 
B. 
C. 
D. 
E. It cannot be determined from the information given.

The graph above shows the marginal product (MP) and the average product (AP) of labor for a firm that uses labor as the only variable input and hires its labor in a perfectly competitive market. At which quantity of labor does marginal cost change from decreasing to increasing?
A. L 1
B. L 2
C. L 3
D. L 4
E. L 5

The graph above shows the marginal product (MP) and the average product (AP) of labor for a firm that uses labor
as the only variable input and hires its labor in a perfectly competitive market. At which quantity of labor does
marginal cost change from decreasing to increasing?
A. L1
B. L2
C. L3
D. L4
E. L5

When the marginal cost curve lies below the average total cost curve, it is true that as output increases
A. marginal cost is decreasing
B. marginal cost is increasing
C. average total cost is decreasing
D. average total cost is increasing
E. average variable cost is decreasing

When the marginal cost curve lies below the average total cost curve, it is true that as output increases
A. marginal cost is decreasing
B. marginal cost is increasing
C. average total cost is decreasing
D. average total cost is increasing
E. average variable cost is decreasing

Which of the following statements about cost is always true for both monopolies and perfectly competitive firms?
A. Average total cost equals marginal cost when average total cost is a minimum.
B. Marginal cost decreases as production increases.
C. Average fixed cost is equal to marginal cost when average fixed cost is a minimum.
D. Average variable cost is equal to marginal cost when marginal cost is a minimum.
E. Average variable cost decreases as production increases.

Which of the following statements about cost is always true for both monopolies and perfectly competitive firms?
A. Average total cost equals marginal cost when average total cost is a minimum.
B. Marginal cost decreases as production increases.
C. Average fixed cost is equal to marginal cost when average fixed cost is a minimum.
D. Average variable cost is equal to marginal cost when marginal cost is a minimum.
E. Average variable cost decreases as production increases.

Beyond a certain level of output, the short-run marginal cost will rise because
A. there is no fixed input and costs will increase
B. at least one input is fixed and eventually diminishing returns will occur
C. the cost of the variable input increases when marginal product increases
D. the demand for the good decreases when production is limited
E. input prices increase when production increases and consumption is limited

Beyond a certain level of output, the short-run marginal cost will rise because
A. there is no fixed input and costs will increase
B. at least one input is fixed and eventually diminishing returns will occur
C. the cost of the variable input increases when marginal product increases
D. the demand for the good decreases when production is limited
E. input prices increase when production increases and consumption is limited

A merger of two firms may increase economic efficiency by
A. decreasing average total cost through an increase in economies of scale
B. decreasing output to reduce marginal cost and equalize price
C. increasing economic profits but decreasing consumer surplus
D. increasing consumer surplus by decreasing economic profits
E. increasing consumer surplus by shifting the demand curve for the product to the right

A merger of two firms may increase economic efficiency by
A. decreasing average total cost through an increase in economies of scale
B. decreasing output to reduce marginal cost and equalize price
C. increasing economic profits but decreasing consumer surplus
D. increasing consumer surplus by decreasing economic profits
E. increasing consumer surplus by shifting the demand curve for the product to the right

In the short run, a profit-maximizing firm, faced with U-shaped average cost curves, is producing a level of output at which the average total cost of production is minimized. At this level of output, which of the following is true for the firm?
A. Marginal cost equals average fixed cost.
B. Marginal cost equals average variable cost.
C. Marginal cost equals average total cost.
D. Profit per unit equals average total cost.
E. Profit per unit equals marginal cost.

In the short run, a profit-maximizing firm, faced with U-shaped average cost curves, is producing a level of output
at which the average total cost of production is minimized. At this level of output, which of the following is true for
the firm?
A. Marginal cost equals average fixed cost.
B. Marginal cost equals average variable cost.
C. Marginal cost equals average total cost.
D. Profit per unit equals average total cost.
E. Profit per unit equals marginal cost.

If labor is the only variable input in the production process, the short-run marginal cost curve is upward sloping because which of the following occurs as more and more labor is added?
A. Output decreases, and thus marginal cost increases.
B. Output increases, and thus marginal cost increases.
C. Output increases at an increasing rate, and thus the cost of producing each additional unit of output increases.
D. Output increases at a decreasing rate, and thus the cost of producing each additional unit of output increases.
E. Output increases at a decreasing rate, and thus the cost of producing each additional unit of output decreases.

If labor is the only variable input in the production process, the short-run marginal cost curve is upward sloping
because which of the following occurs as more and more labor is added?
A. Output decreases, and thus marginal cost increases.
B. Output increases, and thus marginal cost increases.
C. Output increases at an increasing rate, and thus the cost of producing each additional unit of output increases.
D. Output increases at a decreasing rate, and thus the cost of producing each additional unit of output increases.
E. Output increases at a decreasing rate, and thus the cost of producing each additional unit of output decreases.

Which of the following is true of the marginal cost curve?
A. It intersects the average variable cost curve and the average total cost curve at each curve’s minimum point.
B. It intersects the average variable cost curve and the average fixed cost curve at each curve’s minimum point.
C. It lies between the total cost curve and the total variable cost curve.
D. It increases initially, for a time, but begins to decline when the point of diminishing returns is reached.
E. It decreases, because average variable cost is less than marginal cost.

Which of the following is true of the marginal cost curve?
A. It intersects the average variable cost curve and the average total cost curve at each curve’s minimum point.
B. It intersects the average variable cost curve and the average fixed cost curve at each curve’s minimum point.
C. It lies between the total cost curve and the total variable cost curve.
D. It increases initially, for a time, but begins to decline when the point of diminishing returns is reached.
E. It decreases, because average variable cost is less than marginal cost.

In microeconomics, the short run is defined as which of the following?
A. A period that is less than one year
B. A period that is between one year and four years
C. A period that is too short for a firm to be able to change its level of output
D. A period during which some inputs in a firm’s production process cannot be changed
E. A period during which a firm’s fixed costs exceed its variable costs

In microeconomics, the short run is defined as which of the following?
A. A period that is less than one year
B. A period that is between one year and four years
C. A period that is too short for a firm to be able to change its level of output
D. A period during which some inputs in a firm’s production process cannot be changed
E. A period during which a firm’s fixed costs exceed its variable costs

Which of the following best explains why a firm’s short-run marginal cost curve shifts down when it purchases new, more efficient equipment and experiences an increase in its total cost?
A. The situation represents an exception to the law of diminishing returns.
B. The average total cost curve shifts upward as a result of the equipment purchase, and there is a movement up along the marginal cost curve.
C. The equipment purchase is a fixed cost, and the new equipment will cause a reduction in the cost of producing each additional unit.
D. The average variable cost curve shifts upward as a result of the equipment purchase, and the marginal cost curve shifts downward.
E. The marginal cost curve shifts downward because of the law of diminishing returns.

Which of the following best explains why a firm’s short-run marginal cost curve shifts down when it purchases
new, more efficient equipment and experiences an increase in its total cost?
A. The situation represents an exception to the law of diminishing returns.
B. The average total cost curve shifts upward as a result of the equipment purchase, and there is a movement up
along the marginal cost curve.
C. The equipment purchase is a fixed cost, and the new equipment will cause a reduction in the cost of
producing each additional unit.
D. The average variable cost curve shifts upward as a result of the equipment purchase, and the marginal cost
curve shifts downward.
E. The marginal cost curve shifts downward because of the law of diminishing returns.

In the short run, which of the following costs must continuously decrease as output produced increases?
A. Total variable cost
B. Total fixed cost
C. Average variable cost
D. Average fixed cost
E. Average total cost

In the short run, which of the following costs must continuously decrease as output produced increases?
A. Total variable cost
B. Total fixed cost
C. Average variable cost
D. Average fixed cost
E. Average total cost

In most cases the supply curve for a perfectly competitive industry can be described as which of the following?
A. More elastic in the short run than in the long run
B. More elastic in the long run than in the short run
C. Downward sloping in the short run
D. Perfectly inelastic in the long run
E. Perfectly elastic in the short run

In most cases the supply curve for a perfectly competitive industry can be described as which of the following?
A. More elastic in the short run than in the long run
B. More elastic in the long run than in the short run
C. Downward sloping in the short run
D. Perfectly inelastic in the long run
E. Perfectly elastic in the short run

Based on the short-run production function graph above showing the relationship between the quantity of labor and total product, which of the following statements is true?
A. The marginal product of labor is always increasing.
B. At L 0 the marginal product of labor is at its maximum.
C. Total product is maximized when marginal product is zero.
D. At L 0 the marginal product of labor exceeds the average product of labor.
E. The marginal product of labor is always positive.

Based on the short-run production function graph above showing the relationship between the quantity of labor and
total product, which of the following statements is true?
A. The marginal product of labor is always increasing.
B. At
the marginal product of labor is at its maximum.
C. Total product is maximized when marginal product is zero.
D. At
the marginal product of labor exceeds the average product of labor.
E. The marginal product of labor is always positive.
The following questions refer to the diagram below, which shows the short-run production function of a perfectly
competitive firm that produces potatoes using one variable input, labor.

After which worker does diminishing marginal product first occur?
A. Second worker
B. Third worker
C. Fourth worker
D. Fifth worker
E. Sixth worker

After which worker does diminishing marginal product first occur?
A. Second worker
B. Third worker
C. Fourth worker
D. Fifth worker
E. Sixth worker

As its output increases, a firm’s short-run marginal cost will eventually increase because of
A. diseconomies of scale
B. a lower product price
C. inefficient production
D. the firm's need to break even
E. diminishing returns

As its output increases, a firm’s short-run marginal cost will eventually increase because of
A. diseconomies of scale
B. a lower product price
C. inefficient production
D. the firm's need to break even
E. diminishing returns
The following questions refer to the graph below, which shows the cost curves of a firm.

If the firm produces Q 1 units of output with two inputs, the firm will be experiencing which of the following in the short run and in the long run?
A. Short Run Long Run Increasing marginal returns Economies of scale
B. Short Run Long Run Increasing marginal returns Diseconomies of scale
C. Short Run Long Run Diminishing marginal returns Economies of scale
D. Short Run Long Run Diminishing marginal returns Diseconomies of scale
E. Short Run Long Run Constant marginal returns Diseconomies of scale

If the firm produces Q1 units of output with two inputs, the firm will be experiencing which of the following in the
short run and in the long run?
A. Short Run
Long Run
Increasing marginal returns
Economies of scale
B. Short Run
Long Run
Increasing marginal returns
Diseconomies of scale
C. Short Run
Long Run
Diminishing marginal returns
Economies of scale
D. Short Run
Long Run
Diminishing marginal returns
Diseconomies of scale
E. Short Run
Long Run
Constant marginal returns
Diseconomies of scale

Which of the following best describes the relationship between the average total cost curve and the marginal cost curve in the short run?
A. If the average total cost curve is rising, the marginal cost curve is above the average total cost curve.
B. If the average total cost curve is rising, the marginal cost curve is below the average total cost curve.
C. If the average total cost curve is above the marginal cost curve, the marginal cost curve is rising.
D. If the average total cost curve is below the marginal cost curve, the marginal cost curve is falling.
E. If the average and marginal cost curves intersect, the marginal cost curve is at a minimum.

Which of the following best describes the relationship between the average total cost curve and the marginal cost
curve in the short run?
A. If the average total cost curve is rising, the marginal cost curve is above the average total cost curve.
B. If the average total cost curve is rising, the marginal cost curve is below the average total cost curve.
C. If the average total cost curve is above the marginal cost curve, the marginal cost curve is rising.
D. If the average total cost curve is below the marginal cost curve, the marginal cost curve is falling.
E. If the average and marginal cost curves intersect, the marginal cost curve is at a minimum.

Which of the following statements about short-run costs is true?
A. Average fixed cost plus variable cost equals total cost.
B. Average total cost plus average fixed cost equals average variable cost.
C. Total fixed cost increases in constant increments as output produced increases.
D. Total fixed cost plus total variable cost equals total cost.
E. At low output levels, as output increases, total fixed cost and total variable cost decrease, reducing average total cost.

Which of the following statements about short-run costs is true?
A. Average fixed cost plus variable cost equals total cost.
B. Average total cost plus average fixed cost equals average variable cost.
C. Total fixed cost increases in constant increments as output produced increases.
D. Total fixed cost plus total variable cost equals total cost.
E. At low output levels, as output increases, total fixed cost and total variable cost decrease, reducing average
total cost.

Assume a firm doubles its usage of each input, resulting in a doubling of the firm’s output. Which of the following describes this result?
A. Increasing total cost
B. Diminishing marginal returns
C. Decreasing returns to scale
D. Constant returns to scale
E. Increasing returns to scale

Assume a firm doubles its usage of each input, resulting in a doubling of the firm’s output. Which of the following
describes this result?
A. Increasing total cost
B. Diminishing marginal returns
C. Decreasing returns to scale
D. Constant returns to scale
E. Increasing returns to scale

Suppose labor and capital can be hired in a competitive market. The wage is $15 per worker and the rental rate of capital is $10 per unit. Based on the table, what are the average variable cost ( AVC) and average total cost (ATC ) of producing 10 units of output?
A. AVC is $5 and ATC is $12
B. AVC is $6 and ATC is $11
C. AVC is $15 and ATC is $25
D. AVC is $60 and ATC is $110
E. AVC is $105 and ATC is $175

Number of Workers
Number of Units of Capital
Total Product (Quantity)
Suppose labor and capital can be hired in a competitive market. The wage is
per worker and the rental rate of capital
is
per unit. Based on the table, what are the average variable cost (
) and average total cost (
) of producing
units of output?
A. is
and
is
B. is
and
is
C. is
and
is
D. is
and
is
E. is
and
is

Which of the following explains the difference between short-run and long-run costs?
A. All costs are variable in the short run but not in the long run.
B. All costs are fixed in the long run but not in the short run.
C. All costs are variable in the long run but not in the short run.
D. All costs are fixed in the short run but not in the long run.
E. All costs are variable in the short run and fixed in the long run.

Which of the following explains the difference between short-run and long-run costs?
A. All costs are variable in the short run but not in the long run.
B. All costs are fixed in the long run but not in the short run.
C. All costs are variable in the long run but not in the short run.
D. All costs are fixed in the short run but not in the long run.
E. All costs are variable in the short run and fixed in the long run.

If a new tax on capital increases a firm’s fixed cost of production, which of the following will occur in the short run?
A. Marginal cost will increase.
B. Average variable cost will increase.
C. Average total cost will increase.
D. The profit-maximizing level of output will increase.
E. The profit-maximizing level of output will decrease.

If a new tax on capital increases a firm’s fixed cost of production, which of the following will occur in the short
run?
A. Marginal cost will increase.
B. Average variable cost will increase.
C. Average total cost will increase.
D. The profit-maximizing level of output will increase.
E. The profit-maximizing level of output will decrease.

A short-run production function shows the relationship between a firm’s inputs and the output it produces when the firm
A. does not vary any of its inputs
B. has at least one fixed input
C. varies all of its inputs
D. has constant marginal cost
E. has no fixed costs

A short-run production function shows the relationship between a firm’s inputs and the output it produces when the
firm
A. does not vary any of its inputs
B. has at least one fixed input
C. varies all of its inputs
D. has constant marginal cost
E. has no fixed costs

When total physical product is at its maximum, marginal physical product must be
A. greater than one
B. equal to one
C. equal to zero
D. less than zero
E. constant

When total physical product is at its maximum, marginal physical product must be
A. greater than one
B. equal to one
C. equal to zero
D. less than zero
E. constant

If the price of a firm’s variable input increases, which of the following will occur?
A. The firm will decrease its level of production.
B. The price of the good will decrease in the short run.
C. The firm’s marginal costs will decrease at every level of output.
D. The firm’s average fixed cost will decrease.
E. More firms will enter the industry in the long run.

If the price of a firm’s variable input increases, which of the following will occur?
A. The firm will decrease its level of production.
B. The price of the good will decrease in the short run.
C. The firm’s marginal costs will decrease at every level of output.
D. The firm’s average fixed cost will decrease.
E. More firms will enter the industry in the long run.

If a single firm can produce and supply an entire market at a lower unit cost than many small firms can, the long-run average total cost must be
A. increasing as firm size increases
B. remaining constant as firm size increases
C. decreasing as the firm’s output increases
D. inelastic due to specialization
E. constant and equal to marginal cost

If a single firm can produce and supply an entire market at a lower unit cost than many small firms can, the long-run
average total cost must be
A. increasing as firm size increases
B. remaining constant as firm size increases
C. decreasing as the firm’s output increases
D. inelastic due to specialization
E. constant and equal to marginal cost

An increase in which of the following will cause a firm’s marginal cost curve to shift upward?
A. The price of a variable input
B. The price of a fixed input
C. The level of output
D. Labor productivity
E. The demand for the firm’s product

An increase in which of the following will cause a firm’s marginal cost curve to shift upward?
A. The price of a variable input
B. The price of a fixed input
C. The level of output
D. Labor productivity
E. The demand for the firm’s product

When marginal product exceeds average product, which of the following must be true?
A. Average product is increasing.
B. Average product is decreasing.
C. Marginal product is increasing.
D. Total product is decreasing.
E. Total product is at its maximum.

When marginal product exceeds average product, which of the following must be true?
A. Average product is increasing.
B. Average product is decreasing.
C. Marginal product is increasing.
D. Total product is decreasing.
E. Total product is at its maximum.

Which of the following best explains why the short-run average total cost curve is U-shaped?
A. Spreading total fixed costs over a larger output, and constant returns
B. Spreading total fixed costs over a larger output, and eventually diminishing returns
C. Increasing total fixed costs and increasing returns
D. Increasing average variable costs and decreasing returns
E. Decreasing average variable costs and increasing returns

Which of the following best explains why the short-run average total cost curve is U-shaped?
A. Spreading total fixed costs over a larger output, and constant returns
B. Spreading total fixed costs over a larger output, and eventually diminishing returns
C. Increasing total fixed costs and increasing returns
D. Increasing average variable costs and decreasing returns
E. Decreasing average variable costs and increasing returns

Technological advances will lead to
A. an increase in marginal utility
B. a decrease in average total costs
C. a decrease in net exports
D. an increase in marginal costs
E. diseconomies of scale

Technological advances will lead to
A. an increase in marginal utility
B. a decrease in average total costs
C. a decrease in net exports
D. an increase in marginal costs
E. diseconomies of scale

The graph above shows the cost curves for a competitive firm that produces 20 units of output. What are the total cost and the total fixed cost of producing 20 units of output?
A. Total Cost Total Fixed Cost $10 $0
B. Total Cost Total Fixed Cost $120 100
C. Total Cost Total Fixed Cost $120 $20
D. Total Cost Total Fixed Cost $200 $100
E. Total Cost Total Fixed Cost $200 $20

The graph above shows the cost curves for a competitive firm that produces 20 units of output. What are the total
cost and the total fixed cost of producing 20 units of output?
A. Total Cost
Total Fixed Cost
$10
$0
B. Total Cost
Total Fixed Cost
$120
100
C. Total Cost
Total Fixed Cost
$120
$20
D. Total Cost
Total Fixed Cost
$200
$100
E. Total Cost
Total Fixed Cost
$200
$20

Given the production schedule above, what is the maximum number of workers the firm can hire before the effects of diminishing marginal returns set in?
A. 1
B. 2
C. 3
D. 4
E. 5

Number of Workers
Quantity of Output
0
0
1
10
2
25
3
35
4
40
5
42
Given the production schedule above, what is the maximum number of workers the firm can hire before the effects
of diminishing marginal returns set in?
A. 1
B. 2
C. 3
D. 4
E. 5

Part A Calculate the average fixed cost of producing 2 units. Show your work. Part B Identify the profit-maximizing quantity. Explain using marginal analysis. Part C Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work. Part D Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good S is -0.5, and the cross-price elasticity of demand for toy robots with respect to the price of Good S is 0.8. Based on your answer to part (e), what will happen to the demand for toy robots? Explain. Part G Now assume that the market in which Allura’s Little Robotics Company operates is in long-run equilibrium at a price $65 of per unit. (i) Suppose shipping costs per order for Allura’s Little Robotics Company decrease. Will the profit maximizing quantity of Good S for Allura’s Little Robotics Company increase, decrease, or stay the same in the short run? Explain. (ii) Instead suppose the government imposes a price ceiling of $60 on the market for Good S. Will total economic surplus in the market for Good S increase, decrease, or stay the same in the short run as a result of the price ceiling? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total costs faced by Allura’s Little Robotics Company for different quantities of Good S sold.
Quantity
Total Cost
Allura’s Little Robotics Company sells Good S in a perfectly competitive market with a downward-sloping demand curve
and an upward-sloping supply curve. The market price is
per unit.
(a) Calculate the average fixed cost of producing
units. Show your work.
(b) Identify the profit-maximizing quantity. Explain using marginal analysis.
(c) Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work.
(d) Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good S is
, and the cross-price elasticity of demand for toy robots with
respect to the price of Good S is
. Based on your answer to part (e), what will happen to the demand for toy robots?
Explain.
(g) Now assume that the market in which Allura’s Little Robotics Company operates is in long-run equilibrium at a price
of
per unit.
(i) Suppose shipping costs per order for Allura’s Little Robotics Company decrease. Will the profit-maximizing quantity
of Good S for Allura’s Little Robotics Company increase, decrease, or stay the same in the short run? Explain.
(ii) Instead suppose the government imposes a price ceiling of
on the market for Good S. Will total economic surplus
in the market for Good S increase, decrease, or stay the same in the short run as a result of the price ceiling? Explain.

Part A How will this firm determine the profit maximizing level of output? Part B What price will this firm charge? Explain how the firm determined this price. Part C Should this firm produce in the short run? Why or why not? Part D Will this firm earn a profit or incur a loss? Why?

Assume that in a perfectly competitive market, a firm's costs and revenues are
marginal cost = average variable cost at $20
marginal cost = average total cost at $30
marginal cost = average revenue at $25
a. How will this firm determine the profit maximizing level of output?
b. What price will this firm charge? Explain how the firm determined this price.
c. Should this firm produce in the short run? Why or why not?
d. Will this firm earn a profit or incur a loss? Why?

Part A Draw correctly labeled side-by -side graphs for the dairy market and for Bestmilk and show each of the following. i. Price and output for the industry ii. Price and output for Bestmilk Part B Assume that milk is a normal good and that consumer income falls. Assume that Bestmilk continues to produce. On your graphs in part (a), show the effect of the decrease in income on each of the following in the short run. i. Price and output for the industry ii. Price and output for Bestmilk iii. Area of loss or profit for Bestmilk Part C Following the decrease in consumer income, what must be true for Bestmilk to continue to produce in the short run? Part D Assume that the industry adjusts to a new long-run equilibrium. Compare the following between the initial and the new long-run equilibrium. i. Price in the industry ii. Output of a typical firm iii. The number of firms in the dairy industry

In answering the question, you should emphasize the line of reasoning that generated your results; it is not enough to list
the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answers. A
correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes.
Bestmilk, a typical profit-maximizing dairy firm, is operating in a constant-cost, perfectly competitive industry that is in
long-run equilibrium.
a. Draw correctly labeled side-by-side graphs for the dairy market and for Bestmilk and show each of the
following.
i. Price and output for the industry
ii. Price and output for Bestmilk
b. Assume that milk is a normal good and that consumer income falls. Assume that Bestmilk continues to produce.
On your graphs in part (a), show the effect of the decrease in income on each of the following in the short run.
i. Price and output for the industry
ii. Price and output for Bestmilk
iii. Area of loss or profit for Bestmilk
c. Following the decrease in consumer income, what must be true for Bestmilk to continue to produce in the short
run?
d. Assume that the industry adjusts to a new long-run equilibrium. Compare the following between the initial and
the new long-run equilibrium.
i. Price in the industry
ii. Output of a typical firm
iii. The number of firms in the dairy industry

Part A Calculate the average total cost of producing 6 trumpets. Show your work. Part B Calculate the marginal cost of producing the 11th trumpet. Part C What is Brody’s profit-maximizing quantity? Use marginal analysis to explain your answer. Part D At the profit-maximizing quantity you determined in part (c), calculate Brody’s profit or loss. Show your work. Part E Brody also produces saxophones at a loss in a perfectly competitive market. Draw a correctly labeled graph for Brody’s firm showing the following at a market price of $200. i. Brody’s profit-maximizing quantity of saxophones ii. Brody’s loss, completely shaded

Brody’s firm produces trumpets in a perfectly competitive market. The table below shows Brody’s total variable cost. He
has a fixed cost of $240, and the price per trumpet is $60.
a. Calculate the average total cost of producing 6 trumpets. Show your work.
b. Calculate the marginal cost of producing the 11th trumpet.
c. What is Brody’s profit-maximizing quantity? Use marginal analysis to explain your answer.
d. At the profit-maximizing quantity you determined in part (c), calculate Brody’s profit or loss. Show your work.
e. Brody also produces saxophones at a loss in a perfectly competitive market. Draw a correctly labeled graph for
Brody’s firm showing the following at a market price of $200.
i. Brody’s profit-maximizing quantity of saxophones
ii. Brody’s loss, completely shaded

Part A Calculate the average fixed cost of producing 5 units. Show your work. Part B Identify the profit-maximizing quantity. Explain using marginal analysis. Part C Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work. Part D Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good X is 2.5, and the cross-price elasticity of demand for shoes with respect to the price of Good X is -0.4. Based on your answer to part (e), what will happen to the demand for shoes? Explain. Part G Now assume that the market in which Dave’s General Store operates is in long-run equilibrium. (i) Suppose the rent paid by Dave’s General Store decreases. Will Dave’s General Store’s profit-maximizing quantity of Good X increase, decrease, or stay the same in the short run? Explain. (ii) Instead suppose Dave’s General Store hires labor in a perfectly competitive market and the market wage increases.  Will Dave’s General Store’s profit-maximizing quantity of Good X increase, decrease, or stay the same in the short run? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total costs faced by Dave’s General Store for different quantities of Good X sold.
Quantity
Total Cost
Dave’s General Store sells Good X in a perfectly competitive market with a downward-sloping demand curve and an
upward-sloping supply curve. The market price is
per unit.
(a) Calculate the average fixed cost of producing
units. Show your work.
(b) Identify the profit-maximizing quantity. Explain using marginal analysis.
(c) Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work.
(d) Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good X is
, and the cross-price elasticity of demand for shoes with respect to
the price of Good X is
. Based on your answer to part (e), what will happen to the demand for shoes? Explain.
(g) Now assume that the market in which Dave’s General Store operates is in long-run equilibrium.
(i) Suppose the rent paid by Dave’s General Store decreases. Will Dave’s General Store’s profit-maximizing quantity of
Good X increase, decrease, or stay the same in the short run? Explain.
(ii) Instead suppose Dave’s General Store hires labor in a perfectly competitive market and the market wage increases.
Will Dave’s General Store’s profit-maximizing quantity of Good X increase, decrease, or stay the same in the short run?
Explain.

Assume that a firm uses capital as a fixed factor of production and uses labor as a variable factor. The marginal product of labor at first increases and then decreases with the amount of labor. Part A Using a correctly labeled graph, draw and identify the firm's average total cost curve (ATC), average variable cost curve (AVC), and marginal cost curve (MC). Part B Given your graph in part (a), answer each of the following. i. Why is the MC shaped as it is? ii. What does the difference between the AVC and the ATC represent? Part C Define economies of scale. Part D Draw a long-run average total cost curve that has a region of economies of scale followed by a region of diseconomies of scale, as output increases.

Assume that a firm uses capital as a fixed factor of production and uses labor as a variable factor. The marginal product of
labor at first increases and then decreases with the amount of labor.
a. Using a correctly labeled graph, draw and identify the firm's average total cost curve (ATC), average variable
cost curve (AVC), and marginal cost curve (MC).
b. Given your graph in part (a), answer each of the following.
i. Why is the MC shaped as it is?
ii. What does the difference between the AVC and the ATC represent?
c. Define economies of scale.
d. Draw a long-run average total cost curve that has a region of economies of scale followed by a region of
diseconomies of scale, as output increases.

Part A Identify the profit-maximizing quantity. Explain using marginal analysis. Part B Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work. Part C Calculate the average fixed cost of producing 6 units. Show your work. Part D Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good M is 1.4, and the cross-price elasticity of demand for eyeglasses with respect to the price of Good M is -0.75. Based on your answer to part (e), what will happen to the demand for eyeglasses? Explain. Part G Now assume that the market in which Emily’s Eye Care Store operates is in long-run equilibrium at a price of $30 per unit. (i) Suppose annual property taxes for Emily’s Eye Care Store increase by $2,000. Will the profit-maximizing quantity of Good M for Emily’s Eye Care Store increase, decrease, or stay the same in the short run? Explain. (ii) Instead suppose the government imposes a price floor at $35 on the market for Good M. Will deadweight loss in the market for Good M increase, decrease, or stay the same in the short run as a result of the price floor? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total variable costs faced by Emily’s Eye Care Store for different quantities of Good M sold.
Quantity
Total Variable Cost
Emily’s Eye Care Store sells Good M in a perfectly competitive market with a downward-sloping demand curve and an
upward-sloping supply curve. The market price is
per unit, and the total fixed cost is
.
(a) Identify the profit-maximizing quantity. Explain using marginal analysis.
(b) Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work.
(c) Calculate the average fixed cost of producing
units. Show your work.
(d) Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good M is
, and the cross-price elasticity of demand for eyeglasses with
respect to the price of Good M is
. Based on your answer to part (e), what will happen to the demand for
eyeglasses? Explain.
(g) Now assume that the market in which Emily’s Eye Care Store operates is in long-run equilibrium at a price of
per
unit.
(i) Suppose annual property taxes for Emily’s Eye Care Store increase by
. Will the profit-maximizing quantity of
Good M for Emily’s Eye Care Store increase, decrease, or stay the same in the short run? Explain.
(ii) Instead suppose the government imposes a price floor at
on the market for Good M. Will deadweight loss in the
market for Good M increase, decrease, or stay the same in the short run as a result of the price floor? Explain.

Part A Calculate the average fixed cost of producing 8 units. Show your work. Part B Identify the profit-maximizing quantity. Explain using marginal analysis. Part C Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work. Part D Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good G is -3, and the cross-price elasticity of demand for gizmos with respect to the price of Good G is 0.1. Based on your answer to part (e), what will happen to the demand for gizmos? Explain. Part G Now assume that the market in which Faizah’s Manufacturing Firm operates is in long-run equilibrium at a price of $35 per unit. (i) Suppose the government imposes a price floor at $30 per unit on the market for Good G. Will consumer surplus in the market for Good G increase, decrease, or stay the same in the short run as a result of the price floor? Explain. (ii) Suppose instead the cost of energy, a variable cost for Faizah’s Manufacturing Firm, decreases. Will the profit maximizing quantity of Good G for Faizah’s Manufacturing Firm increase, decrease, or stay the same in the short run? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total costs faced by Faizah’s Manufacturing Firm for different quantities of Good G sold.
Quantity
Total Cost
Faizah’s Manufacturing Firm sells Good G in a perfectly competitive market with a downward-sloping demand curve and
an upward-sloping supply curve. The market price is
per unit.
(a) Calculate the average fixed cost of producing
units. Show your work.
(b) Identify the profit-maximizing quantity. Explain using marginal analysis.
(c) Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work.
(d) Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good G is
, and the cross-price elasticity of demand for gizmos with respect to
the price of Good G is
. Based on your answer to part (e), what will happen to the demand for gizmos? Explain.
(g) Now assume that the market in which Faizah’s Manufacturing Firm operates is in long-run equilibrium at a price of
$35 per unit.
(i) Suppose the government imposes a price floor at $30 per unit on the market for Good G. Will consumer surplus in the
market for Good G increase, decrease, or stay the same in the short run as a result of the price floor? Explain.
(ii) Suppose instead the cost of energy, a variable cost for Faizah’s Manufacturing Firm, decreases. Will the profit-
maximizing quantity of Good G for Faizah’s Manufacturing Firm increase, decrease, or stay the same in the short run?
Explain.

Part A Calculate the average fixed cost of producing 5 units. Show your work. Part B Identify the profit-maximizing quantity. Explain using marginal analysis. Part C Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work. Part D Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good A is -2, and the cross-price elasticity of demand for khaki pants with respect to the price of Good A is 0.8. Based on your answer to part (e), what will happen to the demand for khaki pants? Explain. Part G Now assume that the market in which Hank’s Clothing Emporium operates is in long-run equilibrium. (i) Suppose the rent paid by Hank’s Clothing Emporium increases. Will Hank’s Clothing Emporium’s profit-maximizing quantity of Good A increase, decrease, or stay the same in the short run? Explain. (ii) Instead suppose Hank’s Clothing Emporium hires labor in a perfectly competitive market and the market wage decreases. Will Hank’s Clothing Emporium’s profit-maximizing quantity of Good A increase, decrease, or stay the same in the short run? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total costs faced by Hank’s Clothing Emporium for different quantities of Good A sold.
Quantity
Total Cost
Hank’s Clothing Emporium sells Good A in a perfectly competitive market with a downward-sloping demand curve and
an upward-sloping supply curve. The market price is
per unit.
(a) Calculate the average fixed cost of producing
units. Show your work.
(b) Identify the profit-maximizing quantity. Explain using marginal analysis.
(c) Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work.
(d) Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good A is
, and the cross-price elasticity of demand for khaki pants with
respect to the price of Good A is
. Based on your answer to part (e), what will happen to the demand for khaki pants?
Explain.
(g) Now assume that the market in which Hank’s Clothing Emporium operates is in long-run equilibrium.
(i) Suppose the rent paid by Hank’s Clothing Emporium increases. Will Hank’s Clothing Emporium’s profit-maximizing
quantity of Good A increase, decrease, or stay the same in the short run? Explain.
(ii) Instead suppose Hank’s Clothing Emporium hires labor in a perfectly competitive market and the market wage
decreases. Will Hank’s Clothing Emporium’s profit-maximizing quantity of Good A increase, decrease, or stay the same
in the short run? Explain.

Part A Identify the profit-maximizing quantity. Explain using marginal analysis. Part B Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work. Part C Calculate the average fixed cost of producing 8 units. Show your work. Part D Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good E is -1.2, and the cross-price elasticity of demand for bracelets with respect to the price of Good E is 0.6. Based on your answer to part (e), what will happen to the demand for bracelets? Explain. Part G Now assume that the market in which Julia’s Accessories Store operates is in long-run equilibrium. (i) Suppose the market demand for Good E decreases. Will the profit-maximizing quantity of Good E for Julia’s Accessories Store increase, decrease, or stay the same in the short run? Explain. (ii) Suppose instead the wages that Julia’s Accessories Store pays its workers increase. Will the profit-maximizing quantity of Good E for Julia’s Accessories Store increase, decrease, or stay the same in the short run? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total variable costs faced by Julia’s Accessories Store for different quantities of Good E sold.
Quantity
Total Variable Cost
Julia’s Accessories Store sells Good E in a perfectly competitive market with a downward-sloping demand curve and an
upward-sloping supply curve. The market price is
per unit, and the total fixed cost is
.
(a) Identify the profit-maximizing quantity. Explain using marginal analysis.
(b) Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work.
(c) Calculate the average fixed cost of producing
units. Show your work.
(d) Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good E is
, and the cross-price elasticity of demand for bracelets with
respect to the price of Good E is
. Based on your answer to part (e), what will happen to the demand for bracelets?
Explain.
(g) Now assume that the market in which Julia’s Accessories Store operates is in long-run equilibrium.
(i) Suppose the market demand for Good E decreases. Will the profit-maximizing quantity of Good E for Julia’s
Accessories Store increase, decrease, or stay the same in the short run? Explain.
(ii) Suppose instead the wages that Julia’s Accessories Store pays its workers increase. Will the profit-maximizing
quantity of Good E for Julia’s Accessories Store increase, decrease, or stay the same in the short run? Explain.

Part A Identify the profit-maximizing quantity. Explain using marginal analysis. Part B Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work. Part C Calculate the average fixed cost of producing 3 units. Show your work. Part D Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good N is -1.8, and the cross-price elasticity of demand for kaleidoscopes with respect to the price of Good N is -0.5. Based on your answer to part (e), what will happen to the demand for kaleidoscopes? Explain. Part G Now assume that the market in which Karen’s Kaleidoscope Store operates is in long-run equilibrium at a price of $85 per unit. (i) Suppose annual property taxes for Karen’s Kaleidoscope Store decrease by $2,500. Will the profit-maximizing quantity of Good N for Karen’s Kaleidoscope Store increase, decrease, or stay the same in the short run? Explain. (ii) Instead suppose the government imposes a price floor at $75 on the market for Good N. Will deadweight loss in the market for Good N increase, decrease, or stay the same in the short run as a result of the price floor? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total variable costs faced by Karen’s Kaleidoscope Store for different quantities of Good N
sold.
Quantity
Total Variable Cost
Karen’s Kaleidoscope Store sells Good N in a perfectly competitive market with a downward-sloping demand curve and
an upward-sloping supply curve. The market price is
per unit, and the total fixed cost is
.
(a) Identify the profit-maximizing quantity. Explain using marginal analysis.
(b) Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work.
(c) Calculate the average fixed cost of producing
units. Show your work.
(d) Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good N is
, and the cross-price elasticity of demand for kaleidoscopes with
respect to the price of Good N is
.Based on your answer to part (e), what will happen to the demand for
kaleidoscopes? Explain.
(g) Now assume that the market in which Karen’s Kaleidoscope Store operates is in long-run equilibrium at a price of
per unit.
(i) Suppose annual property taxes for Karen’s Kaleidoscope Store decrease by
. Will the profit-maximizing
quantity of Good N for Karen’s Kaleidoscope Store increase, decrease, or stay the same in the short run? Explain.
(ii) Instead suppose the government imposes a price floor at
on the market for Good N. Will deadweight loss in the
market for Good N increase, decrease, or stay the same in the short run as a result of the price floor? Explain.

Part A Calculate the average fixed cost of producing 4 units. Show your work. Part B Identify the profit-maximizing quantity. Explain using marginal analysis. Part C Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work. Part D Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good F is 3, and the cross-price elasticity of demand for gloves with respect to the price of Good F is 0.5. Based on your answer to part (e), what will happen to the demand for gloves? Explain. Part G Now assume that the market in which Kiyoshi’s Clothing Store operates is in long-run equilibrium at a price of $50 per unit. (i) Suppose the government imposes a price floor at $55 per unit on the market for Good F. Will consumer surplus in the market for Good F increase, decrease, or stay the same in the short run as a result of the price floor? Explain. (ii) Suppose instead the cost of energy, a variable cost for Kiyoshi’s Clothing Store, increases. Will the profit-maximizing quantity of Good F for Kiyoshi’s Clothing Store increase, decrease, or stay the same in the short run? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total costs faced by Kiyoshi’s Clothing Store for different quantities of Good F sold.
Quantity
Total Cost
0
$8
1
$18
2
$32
3
$48
4
$72
5
$104
6
$144
7
$192
8
$248
9
$312
10
$384
Kiyoshi’s Clothing Store sells Good F in a perfectly competitive market with a downward-sloping demand curve and an
upward-sloping supply curve. The market price is $60 per unit.
(a) Calculate the average fixed cost of producing 4 units. Show your work.
(b) Identify the profit-maximizing quantity. Explain using marginal analysis.
(c) Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work.
(d) Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good F is 3, and the cross-price elasticity of demand for gloves with respect to the
price of Good F is 0.5. Based on your answer to part (e), what will happen to the demand for gloves? Explain.
(g) Now assume that the market in which Kiyoshi’s Clothing Store operates is in long-run equilibrium at a price of $50
per unit.
(i) Suppose the government imposes a price floor at $55 per unit on the market for Good F. Will consumer surplus in the
market for Good F increase, decrease, or stay the same in the short run as a result of the price floor? Explain.
(ii) Suppose instead the cost of energy, a variable cost for Kiyoshi’s Clothing Store, increases. Will the profit-maximizing
quantity of Good F for Kiyoshi’s Clothing Store increase, decrease, or stay the same in the short run? Explain.

Part A Calculate the average fixed cost of producing 4 units. Show your work. Part B Identify the profit-maximizing quantity. Explain using marginal analysis. Part C Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work. Part D Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good P is 1.8, and the cross-price elasticity of demand for chair mats with respect to the price of Good P is 0.9. Based on your answer to part (e), what will happen to the demand for chair mats? Explain. Part G Now assume that the market in which Lynda’s Office Supply Store operates is in long-run equilibrium at a price of $40 per unit. (i) Suppose shipping costs per order for Lynda’s Office Supply Store increase. Will the profit-maximizing quantity of Good P for Lynda’s Office Supply Store increase, decrease, or stay the same in the short run? Explain. (ii) Instead suppose the government imposes a price ceiling of $50 on the market for Good P. Will total economic surplus in the market for Good P increase, decrease, or stay the same in the short run as a result of the price ceiling? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total costs faced by Lynda’s Office Supply Store for different quantities of Good P sold.
Quantity
Total Cost
0
$12
1
$22
2
$52
3
$102
4
$172
5
$252
6
$342
7
$442
8
$552
9
$672
10
$802
Lynda’s Office Supply Store sells Good P in a perfectly competitive market with a downward-sloping demand curve and
an upward-sloping supply curve. The market price is $45 per unit.
(a) Calculate the average fixed cost of producing 4 units. Show your work.
(b) Identify the profit-maximizing quantity. Explain using marginal analysis.
(c) Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work.
(d) Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good P is 1.8, and the cross-price elasticity of demand for chair mats with respect
to the price of Good P is 0.9. Based on your answer to part (e), what will happen to the demand for chair mats? Explain.
(g) Now assume that the market in which Lynda’s Office Supply Store operates is in long-run equilibrium at a price of
$40 per unit.
(i) Suppose shipping costs per order for Lynda’s Office Supply Store increase. Will the profit-maximizing quantity of
Good P for Lynda’s Office Supply Store increase, decrease, or stay the same in the short run? Explain.
(ii) Instead suppose the government imposes a price ceiling of $50 on the market for Good P. Will total economic surplus
in the market for Good P increase, decrease, or stay the same in the short run as a result of the price ceiling? Explain.

Assume that pencils are manufactured in a perfectly competitive market that is in long-run equilibrium. Part A Draw correctly labeled side-by-side graphs for the pencil market and for a representative firm and show each of the following. i. The market price and quantity, labeled P M and Q M , respectively ii. The firm’s profit-maximizing price and quantity, labeled P F and Q F , respectively Part B What is the relationship between P M and P F ? Explain. Part C Rent on the factory building is an important fixed cost in the production of pencils, and the industry experiences significant increases in rent. i. What will happen to the firm’s profit-maximizing quantity in the short run? Explain. ii. On your graph in part (a), show the impact of the rent increase and completely shade the area representing the firm’s profit or loss in the short run. Part D As a result of the rent increase, what will happen to each of the following in the long run? I. The number of firms in the market. Explain. II. The market equilibrium quantity relative to Q M and the market equilibrium price relative to PM. Explain.

Assume that pencils are manufactured in a perfectly competitive market that is in long-run equilibrium.
a. Draw correctly labeled side-by-side graphs for the pencil market and for a representative firm and show each of
the following.
i. The market price and quantity, labeled PM and QM, respectively
ii. The firm’s profit-maximizing price and quantity, labeled PF and QF, respectively
b. What is the relationship between PM and PF? Explain.
c. Rent on the factory building is an important fixed cost in the production of pencils, and the industry experiences
significant increases in rent.
i. What will happen to the firm’s profit-maximizing quantity in the short run? Explain.
ii. On your graph in part (a), show the impact of the rent increase and completely shade the area
representing the firm’s profit or loss in the short run.
d. As a result of the rent increase, what will happen to each of the following in the long run?
I. The number of firms in the market. Explain.
II. The market equilibrium quantity relative to QM and the market equilibrium price relative to PM.
Explain.

Part A Calculate the marginal product of the sixth worker. Show your work. Part B Does the production function exhibit diminishing returns to labor? Explain. Part C When marginal product is falling, what happens to marginal cost? Part D On a single correctly labeled graph, draw the firm’s short-run average total cost curve (ATC), average variable cost curve (AVC), and marginal cost curve (MC).

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,”
you must show how you arrived at your final answer.
A firm’s short-run production function shows the relationship between the firm’s input and output. Assume the firm uses
one variable input, labor, and one fixed input, capital. The following table shows short-run production function for a firm
that produces widgets.
Quantity of Labor
Total Product
0
0
1
6
2
14
3
24
4
32
5
39
6
42
(a) Calculate the marginal product of the sixth worker. Show your work.
(b) Does the production function exhibit diminishing returns to labor? Explain.
(c) When marginal product is falling, what happens to marginal cost?
(d) On a single correctly labeled graph, draw the firm’s short-run average total cost curve
, average variable cost
curve
, and marginal cost curve
.

Part A What is Jasmine’s profit-maximizing quantity of output? Explain. Part B Draw a correctly labeled graph for Jasmine, and show Jasmine’s total revenue at the profit-maximizing quantity, shaded completely. Part C Now assume consumer demand for T-shirts increases. What will happen to the number of firms in the market in the long run? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,”
you must show how you arrived at your final answer.
Assume that Jasmine is a typical firm that produces and sells T-shirts in a perfectly competitive constant-cost industry.
The market is currently in long-run equilibrium. The market price is $5, and Jasmine’s marginal cost at each level of
output is listed in the table below.
Quantity of Output
Marginal Cost
0
0
1
2
2
3
3
4
4
5
5
6
6
7
(a) What is Jasmine’s profit-maximizing quantity of output? Explain.
(b) Draw a correctly labeled graph for Jasmine, and show Jasmine’s total revenue at the profit-maximizing quantity,
shaded completely.
(c) Now assume consumer demand for T-shirts increases. What will happen to the number of firms in the market in the
long run? Explain.

Part A Identify the profit-maximizing quantity. Explain using marginal analysis. Part B Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work. Part C Calculate the average fixed cost of producing 10 units. Show your work. Part D Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good D is 1.2, and the cross-price elasticity of demand for dresses with respect to the price of Good D is 0.2. Based on your answer to part (e), what will happen to the demand for dresses? Explain. Part G Now assume that the market in which Raskin’s Clothing Store operates is in long-run equilibrium. (i) Suppose the market demand for Good D increases. Will the profit-maximizing quantity of Good D for Raskin’s Clothing Store increase, decrease, or stay the same in the short run? Explain. (ii) Suppose instead the wages that Raskin’s Clothing Store pays its workers decrease. Will the profit-maximizing quantity of Good D for Raskin’s Clothing Store increase, decrease, or stay the same in the short run? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total variable costs faced by Raskin’s Clothing Store for different quantities of Good D sold.
Quantity
Total Variable Cost
1
$50
2
$105
3
$161
4
$218
5
$276
6
$335
7
$410
8
$540
9
$695
10
$875
Raskin’s Clothing Store sells Good D in a perfectly competitive market with a downward-sloping demand curve and an
upward-sloping supply curve. The market price is $150 per unit, and the total fixed cost is $85.
(a) Identify the profit-maximizing quantity. Explain using marginal analysis.
(b) Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work.
(c) Calculate the average fixed cost of producing 10 units. Show your work.
(d) Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good D is 1.2, and the cross-price elasticity of demand for dresses with respect to
the price of Good D is 0.2. Based on your answer to part (e), what will happen to the demand for dresses? Explain.
(g) Now assume that the market in which Raskin’s Clothing Store operates is in long-run equilibrium.
(i) Suppose the market demand for Good D increases. Will the profit-maximizing quantity of Good D for Raskin’s
Clothing Store increase, decrease, or stay the same in the short run? Explain.
(ii) Suppose instead the wages that Raskin’s Clothing Store pays its workers decrease. Will the profit-maximizing quantity
of Good D for Raskin’s Clothing Store increase, decrease, or stay the same in the short run? Explain.

Part A Identify the profit-maximizing quantity. Explain using marginal analysis. Part B Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work. Part C Calculate the average fixed cost of producing units. Show your work. Part D Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good C is -1.5, and the cross-price elasticity of demand for hats with respect to the price of Good C is -0.6. Based on your answer to part (e), what will happen to the demand for hats? Explain. Part G Now assume that the market in which Saif’s General Store operates is in long-run equilibrium. (i) Suppose the market demand for Good C decreases. Will the profit-maximizing quantity of Good C for Saif’s General Store increase, decrease, or stay the same in the short run? Explain. (ii) Suppose instead the wages that Saif’s General Store pays its workers increase. Will the profit-maximizing quantity of Good C for Saif’s General Store increase, decrease, or stay the same in the short run? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total variable costs faced by Saif’s General Store for different quantities of Good C sold.
Quantity
Total Variable Cost
Saif’s General Store sells Good C in a perfectly competitive market with a downward-sloping demand curve and an
upward-sloping supply curve. The market price is
per unit, and the total fixed cost is
.
(a) Identify the profit-maximizing quantity. Explain using marginal analysis.
(b) Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work.
(c) Calculate the average fixed cost of producing
units. Show your work.
(d) Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good C is
, and the cross-price elasticity of demand for hats with respect to
the price of Good C is
. Based on your answer to part (e), what will happen to the demand for hats? Explain.
(g) Now assume that the market in which Saif’s General Store operates is in long-run equilibrium.
(i) Suppose the market demand for Good C decreases. Will the profit-maximizing quantity of Good C for Saif’s General
Store increase, decrease, or stay the same in the short run? Explain.
(ii) Suppose instead the wages that Saif’s General Store pays its workers increase. Will the profit-maximizing quantity of
Good C for Saif’s General Store increase, decrease, or stay the same in the short run? Explain.

Part A Calculate the average fixed cost of producing 5 units. Show your work. Part B Identify the profit-maximizing quantity. Explain using marginal analysis. Part C Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work. Part D Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good J is -1.4, and the cross-price elasticity of demand for widgets with respect to the price of Good J is -0.25. Based on your answer to part (e), what will happen to the demand for widgets? Explain. Part G Now assume that the market in which Sarah’s Tool Store operates is in long-run equilibrium at a price of $45 per unit. (i) Suppose the government imposes a price floor at $40 per unit on the market for Good J. Will consumer surplus in the market for Good J increase, decrease, or stay the same in the short run as a result of the price floor? Explain. (ii) Suppose instead the cost of energy, a variable cost for Sarah’s Tool Store, decreases. Will the profit-maximizing quantity of Good J for Sarah’s Tool Store increase, decrease, or stay the same in the short run? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total costs faced by Sarah’s Tool Store for different quantities of Good J sold.
Quantity
Total Cost
Sarah’s Tool Store sells Good J in a perfectly competitive market with a downward-sloping demand curve and an upward-
sloping supply curve. The market price is
per unit.
(a) Calculate the average fixed cost of producing
units. Show your work.
(b) Identify the profit-maximizing quantity. Explain using marginal analysis.
(c) Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work.
(d) Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good J is
, and the cross-price elasticity of demand for widgets with respect
to the price of Good J is
. Based on your answer to part (e), what will happen to the demand for widgets? Explain.
(g) Now assume that the market in which Sarah’s Tool Store operates is in long-run equilibrium at a price of
per unit.
(i) Suppose the government imposes a price floor at
per unit on the market for Good J. Will consumer surplus in the
market for Good J increase, decrease, or stay the same in the short run as a result of the price floor? Explain.
(ii) Suppose instead the cost of energy, a variable cost for Sarah’s Tool Store, decreases. Will the profit-maximizing
quantity of Good J for Sarah’s Tool Store increase, decrease, or stay the same in the short run? Explain.

Part A Identify the cost curves that are denoted by each of the following labels. i. Curve 1 ii. Curve 2 iii. Curve 3 Part B Explain why curve 1 does each of the following as output increases. i. Initially decreases ii. Finally increases Part C What measure of cost is represented by the vertical distance between curve 2 and curve 3 ? Part D Explain why the vertical distance between curve 2 and curve 3 decreases as output increases. Part E Using the letters on the graph, identify two points on the firm’s short-run supply curve.

The graph above shows the short-run cost structure of a firm in a perfectly competitive industry.
a. Identify the cost curves that are denoted by each of the following labels.
i. Curve 1
ii. Curve 2
iii. Curve 3
b. Explain why curve 1 does each of the following as output increases.
i. Initially decreases
ii. Finally increases
c. What measure of cost is represented by the vertical distance between curve 2 and curve 3 ?
d. Explain why the vertical distance between curve 2 and curve 3 decreases as output increases.
e. Using the letters on the graph, identify two points on the firm’s short-run supply curve.

Part A Calculate the average fixed cost of producing 2 units. Show your work. Part B Identify the profit-maximizing quantity. Explain using marginal analysis. Part C Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work. Part D Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good H is 1.3, and the cross-price elasticity of demand for desk lamps with respect to the price of Good H is -0.9. Based on your answer to part (e), what will happen to the demand for desk lamps? Explain. Part G Now assume that the market in which Sophia’s Lighting Store operates is in long-run equilibrium at a price of $130 per unit. (i) Suppose the government imposes a price floor at $150 per unit on the market for Good H. Will consumer surplus in the market for Good H increase, decrease, or stay the same in the short run as a result of the price floor? Explain. (ii) Suppose instead the cost of energy, a variable cost for Sophia’s Lighting Store, increases. Will the profit-maximizing quantity of Good H for Sophia’s Lighting Store increase, decrease, or stay the same in the short run? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total costs faced by Sophia’s Lighting Store for different quantities of Good H sold.
Quantity
Total Cost
Sophia’s Lighting Store sells Good H in a perfectly competitive market with a downward-sloping demand curve and an
upward-sloping supply curve. The market price is
per unit.
(a) Calculate the average fixed cost of producing
units. Show your work.
(b) Identify the profit-maximizing quantity. Explain using marginal analysis.
(c) Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work.
(d) Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good H is
, and the cross-price elasticity of demand for desk lamps with
respect to the price of Good H is
. Based on your answer to part (e), what will happen to the demand for desk lamps?
Explain.
(g) Now assume that the market in which Sophia’s Lighting Store operates is in long-run equilibrium at a price of
per unit.
(i) Suppose the government imposes a price floor at
per unit on the market for Good H. Will consumer surplus in
the market for Good H increase, decrease, or stay the same in the short run as a result of the price floor? Explain.
(ii) Suppose instead the cost of energy, a variable cost for Sophia’s Lighting Store, increases. Will the profit-maximizing
quantity of Good H for Sophia’s Lighting Store increase, decrease, or stay the same in the short run? Explain.

Part A Calculate the average fixed cost of producing 2 units. Show your work. Part B Identify the profit-maximizing quantity. Explain using marginal analysis. Part C Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work. Part D Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good Y is -2.5, and the cross-price elasticity of demand for basketballs with respect to the price of Good Y is-0.8 . Based on your answer to part (e), what will happen to the demand for basketballs? Explain. Part G Now assume that the market in which Surisitee’s Sporting Goods Store operates is in long-run equilibrium. (i) Suppose the rent paid by Surisitee’s Sporting Goods Store increases. Will Surisitee’s Sporting Goods Store’s profit maximizing quantity of Good Y increase, decrease, or stay the same in the short run? Explain. (ii) Instead suppose Surisitee’s Sporting Goods Store hires labor in a perfectly competitive market and the market wage decreases. Will Surisitee’s Sporting Goods Store’s profit-maximizing quantity of Good Y increase, decrease, or stay the same in the short run? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total costs faced by Surisitee’s Sporting Goods Store for different quantities of Good Y sold.
Quantity
Total Cost
Surisitee’s Sporting Goods Store sells Good Y in a perfectly competitive market with a downward-sloping demand curve
and an upward-sloping supply curve. The market price is
per unit.
(a) Calculate the average fixed cost of producing
units. Show your work.
(b) Identify the profit-maximizing quantity. Explain using marginal analysis.
(c) Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work.
(d) Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good Y is
, and the cross-price elasticity of demand for basketballs with
respect to the price of Good Y is
. Based on your answer to part (e), what will happen to the demand for basketballs?
Explain.
(g) Now assume that the market in which Surisitee’s Sporting Goods Store operates is in long-run equilibrium.
(i) Suppose the rent paid by Surisitee’s Sporting Goods Store increases. Will Surisitee’s Sporting Goods Store’s profit-
maximizing quantity of Good Y increase, decrease, or stay the same in the short run? Explain.
(ii) Instead suppose Surisitee’s Sporting Goods Store hires labor in a perfectly competitive market and the market wage
decreases. Will Surisitee’s Sporting Goods Store’s profit-maximizing quantity of Good Y increase, decrease, or stay the
same in the short run? Explain.

Part A Identify the profit-maximizing quantity. Explain using marginal analysis. Part B Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work. Part C Calculate the average fixed cost of producing 5 units. Show your work. Part D Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good L is -0.8, and the cross-price elasticity of demand for coffee machines with respect to the price of Good L is 0.25. Based on your answer to part (e), what will happen to the demand for coffee machines? Explain. Part G Now assume that the market in which Steve’s Home Appliances Store operates is in long-run equilibrium at a price of $90 per unit. (i) Suppose annual property taxes for Steve’s Home Appliances Store decrease by $7,000. Will the profit-maximizing quantity of Good L for Steve’s Home Appliances Store increase, decrease, or stay the same in the short run? Explain. (ii) Instead suppose the government imposes a price floor at $70 on the market for Good L. Will deadweight loss in the market for Good L increase, decrease, or stay the same in the short run as a result of the price floor? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total variable costs faced by Steve’s Home Appliances Store for different quantities of Good L
sold.
Quantity
Total Variable Cost
Steve’s Home Appliances Store sells Good L in a perfectly competitive market with a downward-sloping demand curve
and an upward-sloping supply curve. The market price is
per unit, and the total fixed cost is
.
(a) Identify the profit-maximizing quantity. Explain using marginal analysis.
(b) Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work.
(c) Calculate the average fixed cost of producing
units. Show your work.
(d) Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good L is
, and the cross-price elasticity of demand for coffee machines
with respect to the price of Good L is
. Based on your answer to part (e), what will happen to the demand for coffee
machines? Explain.
(g) Now assume that the market in which Steve’s Home Appliances Store operates is in long-run equilibrium at a price of
per unit.
(i) Suppose annual property taxes for Steve’s Home Appliances Store decrease by
. Will the profit-maximizing
quantity of Good L for Steve’s Home Appliances Store increase, decrease, or stay the same in the short run? Explain.
(ii) Instead suppose the government imposes a price floor at
on the market for Good L. Will deadweight loss in the
market for Good L increase, decrease, or stay the same in the short run as a result of the price floor? Explain.

Part A Calculate the average fixed cost of producing 2 units. Show your work. Part B Identify the profit-maximizing quantity. Explain using marginal analysis. Part C Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work. Part D Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good Q is -1.3, and the cross-price elasticity of demand for cheeseburgers with respect to the price of Good Q is -0.3. Based on your answer to part (e), what will happen to the demand for cheeseburgers? Explain. Part G Now assume that the market in which Susie’s Diner operates is in long-run equilibrium at a price of $10 per unit. (i) Suppose delivery costs per order for Susie’s Diner decrease. Will the profit-maximizing quantity of Good Q for Susie’s Diner increase, decrease, or stay the same in the short run? Explain. (ii) Instead suppose the government imposes a price ceiling of $6 on the market for Good Q. Will total economic surplus in the market for Good Q increase, decrease, or stay the same in the short run as a result of the price ceiling? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total costs faced by Susie’s Diner for different quantities of Good Q sold.
Quantity
Total Cost
Susie’s Diner sells Good Q in a perfectly competitive market with a downward-sloping demand curve and an upward-
sloping supply curve. The market price is
per unit.
(a) Calculate the average fixed cost of producing
units. Show your work.
(b) Identify the profit-maximizing quantity. Explain using marginal analysis.
(c) Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work.
(d) Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good Q is
, and the cross-price elasticity of demand for cheeseburgers with
respect to the price of Good Q is
. Based on your answer to part (e), what will happen to the demand for
cheeseburgers? Explain.
(g) Now assume that the market in which Susie’s Diner operates is in long-run equilibrium at a price of
per unit.
(i) Suppose delivery costs per order for Susie’s Diner decrease. Will the profit-maximizing quantity of Good Q for Susie’s
Diner increase, decrease, or stay the same in the short run? Explain.
(ii) Instead suppose the government imposes a price ceiling of
on the market for Good Q. Will total economic surplus
in the market for Good Q increase, decrease, or stay the same in the short run as a result of the price ceiling? Explain.

Part A Identify the profit-maximizing quantity. Explain using marginal analysis. Part B Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work. Part C Calculate the average fixed cost of producing 4 units. Show your work. Part D Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good B is 1.5, and the cross-price elasticity of demand for teddy bears with respect to the price of Good B is -0.2. Based on your answer to part (e), what will happen to the demand for teddy bears? Explain. Part G Now assume that the market in which Tom’s Toy Store operates is in long-run equilibrium. (i) Suppose the market demand for Good B increases. Will the profit-maximizing quantity of Good B for Tom’s Toy Store increase, decrease, or stay the same in the short run? Explain. (ii) Suppose instead the wages that Tom’s Toy Store pays its workers decrease. Will the profit-maximizing quantity of Good B for Tom’s Toy Store increase, decrease, or stay the same in the short run? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total variable costs faced by Tom’s Toy Store for different quantities of Good B sold.
Quantity
Total Variable Cost
Tom’s Toy Store sells Good B in a perfectly competitive market with a downward-sloping demand curve and an upward-
sloping supply curve. The market price is
per unit, and the total fixed cost is
.
(a) Identify the profit-maximizing quantity. Explain using marginal analysis.
(b) Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work.
(c) Calculate the average fixed cost of producing
units. Show your work.
(d) Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good B is
, and the cross-price elasticity of demand for teddy bears with
respect to the price of Good B is
. Based on your answer to part (e), what will happen to the demand for teddy bears?
Explain.
(g) Now assume that the market in which Tom’s Toy Store operates is in long-run equilibrium.
(i) Suppose the market demand for Good B increases. Will the profit-maximizing quantity of Good B for Tom’s Toy Store
increase, decrease, or stay the same in the short run? Explain.
(ii) Suppose instead the wages that Tom’s Toy Store pays its workers decrease. Will the profit-maximizing quantity of
Good B for Tom’s Toy Store increase, decrease, or stay the same in the short run? Explain.

Part A Using a correctly labeled graph, draw the demand curve for a typical firm in this industry. Part B Using the data above, determine each of the following for the typical firm. i. Total fixed cost ii. The loss-minimizing level of output iii. The value of losses at the output level you found in part (b)(ii) Part C Explain why the typical firm chooses to operate despite incurring a loss in the short run. Part D If the total cost per day remains unchanged in the long run, what is the long-run equilibrium price for umbrellas?

Umbrellas are produced by a perfectly competitive, constant-cost industry. In the short run, the equilibrium price is $7 per
umbrella and the typical firm is operating with a loss. The typical firm has the total cost function shown in the table
below.
a. Using a correctly labeled graph, draw the demand curve for a typical firm in this industry.
b. Using the data above, determine each of the following for the typical firm.
i. Total fixed cost
ii. The loss-minimizing level of output
iii. The value of losses at the output level you found in part (b)(ii)
c. Explain why the typical firm chooses to operate despite incurring a loss in the short run.
d. If the total cost per day remains unchanged in the long run, what is the long-run equilibrium price for umbrellas?

For each of the following statements, indicate whether it is true, false, or uncertain and explain why. Part A Average total cost is always greater than average variable cost by a constant amount. Part B In the short run, a perfectly competitive firm always maximizes profit when average total cost is at minimum. Part C If a firm shuts down in the short run, its profits will equal zero.

For each of the following statements, indicate whether it is true, false, or uncertain and explain why.
a. Average total cost is always greater than average variable cost by a constant amount.
b. In the short run, a perfectly competitive firm always maximizes profit when average total cost is at minimum.
c. If a firm shuts down in the short run, its profits will equal zero.

Part A Identify the profit-maximizing quantity. Explain using marginal analysis. Part B Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work. Part C Calculate the average fixed cost of producing 7 units. Show your work. Part D Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good K is 0.5, and the cross-price elasticity of demand for televisions with respect to the price of Good K is 0.3. Based on your answer to part (e), what will happen to the demand for televisions? Explain. Part G Now assume that the market in which Waldo’s Electronics Store operates is in long-run equilibrium at a price of $70 per unit. (i) Suppose annual property taxes for Waldo’s Electronics Store increase by $5,000. Will the profit-maximizing quantity of Good K for Waldo’s Electronics Store increase, decrease, or stay the same in the short run? Explain. (ii) Instead suppose the government imposes a price floor at $90 on the market for Good K. Will deadweight loss in the market for Good K increase, decrease, or stay the same in the short run as a result of the price floor? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total variable costs faced by Waldo’s Electronics Store for different quantities of Good K sold.
Quantity
Total Variable Cost
1
$60
2
$123
3
$187
4
$254
5
$323
6
$405
7
$489
8
$579
9
$675
10
$777
Waldo’s Electronics Store sells Good K in a perfectly competitive market with a downward-sloping demand curve and an
upward-sloping supply curve. The market price is $75 per unit, and the total fixed cost is $42.
(a) Identify the profit-maximizing quantity. Explain using marginal analysis.
(b) Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work.
(c) Calculate the average fixed cost of producing 7 units. Show your work.
(d) Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good K is 0.5, and the cross-price elasticity of demand for televisions with
respect to the price of Good K is 0.3. Based on your answer to part (e), what will happen to the demand for televisions?
Explain.
(g) Now assume that the market in which Waldo’s Electronics Store operates is in long-run equilibrium at a price of $70
per unit.
(i) Suppose annual property taxes for Waldo’s Electronics Store increase by $5,000. Will the profit-maximizing quantity
of Good K for Waldo’s Electronics Store increase, decrease, or stay the same in the short run? Explain.
(ii) Instead suppose the government imposes a price floor at $90 on the market for Good K. Will deadweight loss in the
market for Good K increase, decrease, or stay the same in the short run as a result of the price floor? Explain.

Part A Calculate the profit-maximizing number of trips for Wrightway to provide each day. Show your work. Part B What is the allocatively efficient number of trips per day? Part C Suppose the Burginville City Council is considering two proposals to get Wrightway to reduce deadweight loss from the provision of rides. • Proposal I: Grant a $35 daily subsidy to Wrightway • Proposal II: Grant a $5 per trip subsidy to Wrightway (i) How many trips would Wrightway provide each day under Proposal I? (ii) How many trips would Wrightway provide each day under Proposal II? (iii) Which of the two proposals is preferable to the Burginville City Council? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
Number
of
Trips
Price per
Trip
($)
Total
Revenue
($)
Wrightway has a local monopoly on transportation services from Burginville’s city center to its airport. Wrightway’s
average variable cost and marginal cost for each trip are constant at
. Wrightway incurs a
cost each day regardless
of the number of trips it provides. The table above shows the price per trip that Wrightway can charge for different
numbers of trips provided in a day.
(a) Calculate the profit-maximizing number of trips for Wrightway to provide each day. Show your work.
(b) What is the allocatively efficient number of trips per day?
(c) Suppose the Burginville City Council is considering two proposals to get Wrightway to reduce deadweight loss from
the provision of rides.
• Proposal : Grant a
daily subsidy to Wrightway
• Proposal
: Grant a
per trip subsidy to Wrightway
(i) How many trips would Wrightway provide each day under Proposal ?
(ii) How many trips would Wrightway provide each day under Proposal
?
(iii) Which of the two proposals is preferable to the Burginville City Council? Explain.

Part A Calculate the average fixed cost of producing 4 units. Show your work. Part B Identify the profit-maximizing quantity. Explain using marginal analysis. Part C Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work. Part D Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. Part E Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain. Part F The income elasticity of demand for Good R is 0.8, and the cross-price elasticity of demand for balls of yarn with respect to the price of Good R is -0.1. Based on your answer to part (e), what will happen to the demand for balls of yarn? Explain. Part G Now assume that the market in which Yotti’s Craft Store operates is in long-run equilibrium at a price of $10 per unit. (i) Suppose shipping costs per order for Yotti’s Craft Store increase. Will the profit-maximizing quantity of Good R for Yotti’s Craft Store increase, decrease, or stay the same in the short run? Explain. (ii) Instead suppose the government imposes a price ceiling of $15 on the market for Good R. Will total economic surplus in the market for Good R increase, decrease, or stay the same in the short run as a result of the price ceiling? Explain.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total costs faced by Yotti’s Craft Store for different quantities of Good R sold.
Quantity
Total Cost
Yotti’s Craft Store sells Good R in a perfectly competitive market with a downward-sloping demand curve and an
upward-sloping supply curve. The market price is
per unit.
(a) Calculate the average fixed cost of producing
units. Show your work.
(b) Identify the profit-maximizing quantity. Explain using marginal analysis.
(c) Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work.
(d) Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the
long run? Explain.
(e) Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain.
(f) The income elasticity of demand for Good R is
, and the cross-price elasticity of demand for balls of yarn with
respect to the price of Good R is
. Based on your answer to part (e), what will happen to the demand for balls of
yarn? Explain.
(g) Now assume that the market in which Yotti’s Craft Store operates is in long-run equilibrium at a price of
per unit.
(i) Suppose shipping costs per order for Yotti’s Craft Store increase. Will the profit-maximizing quantity of Good R for
Yotti’s Craft Store increase, decrease, or stay the same in the short run? Explain.
(ii) Instead suppose the government imposes a price ceiling of
on the market for Good R. Will total economic surplus
in the market for Good R increase, decrease, or stay the same in the short run as a result of the price ceiling? Explain.

An industry consists of 100 small firms, and the largest firm accounts for only 2 percent of sales. Brand names are considered a signal of quality. The industry described is best classified as
A. monopoly
B. perfectly competitive
C. monopolistically competitive
D. oligopolistic
E. monopsonistic

An industry consists of 100 small firms, and the largest firm accounts for only 2 percent of sales. Brand names are
considered a signal of quality. The industry described is best classified as
A. monopoly
B. perfectly competitive
C. monopolistically competitive
D. oligopolistic
E. monopsonistic

Which of the following is true of both monopolistically competitive and perfectly competitive firms in long-run equilibrium?
A. Marginal revenue equals average total cost.
B. Marginal cost equals average total cost.
C. Price equals average total cost.
D. Price is greater than marginal cost.
E. Production occurs at minimum average total cost.

Which of the following is true of both monopolistically competitive and perfectly competitive firms in long-run
equilibrium?
A. Marginal revenue equals average total cost.
B. Marginal cost equals average total cost.
C. Price equals average total cost.
D. Price is greater than marginal cost.
E. Production occurs at minimum average total cost.

A monopolistically competitive firm advertises in order to
A. shift the demand curve for its product to the left.
B. make the demand for its product less price elastic
C. make its product more similar to its competitors'
D. increase its positive externalities
E. reduce the industry's barriers to entry

A monopolistically competitive firm advertises in order to
A. shift the demand curve for its product to the left.
B. make the demand for its product less price elastic
C. make its product more similar to its competitors'
D. increase its positive externalities
E. reduce the industry's barriers to entry

In monopolistic competition, a goal of advertising is to
A. reduce a firm’s short-run average total cost
B. minimize a firm’s long-run average total cost
C. make a firm’s demand curve more elastic
D. make a firm’s demand curve less elastic
E. shift a firm’s demand curve to the left

In monopolistic competition, a goal of advertising is to
A. reduce a firm’s short-run average total cost
B. minimize a firm’s long-run average total cost
C. make a firm’s demand curve more elastic
D. make a firm’s demand curve less elastic
E. shift a firm’s demand curve to the left

A monopolistically competitive profit-maximizing firm is currently producing and selling 2,000 units of output. At this output level, marginal revenue is $9, average revenue is $10, and the average variable cost is $8. The product price is
A. $8
B. $9
C. $10
D. greater than $10
E. less than $8

A monopolistically competitive profit-maximizing firm is currently producing and selling 2,000 units of output. At
this output level, marginal revenue is $9, average revenue is $10, and the average variable cost is $8. The product
price is
A. $8
B. $9
C. $10
D. greater than $10
E. less than $8

Assume that a monopolistically competitive firm is currently maximizing profit with an output of 100 units and a price of $50. Which of the following is true?
A. Total revenue is maximized when the firm produces 100 units of output.
B. Marginal revenue equals $50 when the firm produces 100 units of output.
C. Marginal cost is greater than marginal revenue when the firm produces 150 units of output.
D. Marginal cost is minimized when the firm produces 100 units of output.
E. Average total cost is minimized when the firm produces 100 units of output.

Assume that a monopolistically competitive firm is currently maximizing profit with an output of 100 units and a
price of $50. Which of the following is true?
A. Total revenue is maximized when the firm produces 100 units of output.
B. Marginal revenue equals $50 when the firm produces 100 units of output.
C. Marginal cost is greater than marginal revenue when the firm produces 150 units of output.
D. Marginal cost is minimized when the firm produces 100 units of output.
E. Average total cost is minimized when the firm produces 100 units of output.

A well-known fast-food franchise substantially increases the price of its hamburgers, and loses only some of its customers. Which of the following best explains why the franchise has not lost all of its customers
A. Its hamburgers are a perfect substitute for other types of fast food.
B. Its hamburgers are differentiated.
C. The demand for its hamburgers is perfectly elastic.
D. The other competitive fast-food restaurants decrease the price for their hamburgers.
E. The barriers to entry are very low for entrepreneurs trying to enter the fast-food business.

A well-known fast-food franchise substantially increases the price of its hamburgers, and loses only some of its
customers. Which of the following best explains why the franchise has not lost all of its customers
A. Its hamburgers are a perfect substitute for other types of fast food.
B. Its hamburgers are differentiated.
C. The demand for its hamburgers is perfectly elastic.
D. The other competitive fast-food restaurants decrease the price for their hamburgers.
E. The barriers to entry are very low for entrepreneurs trying to enter the fast-food business.
The Question refers to the following graph, which shows the cost and revenue curves for a profit-maximizing
monopolistically competitive firm.

What is the profit-maximizing price and quantity?
A. Price Quantity P 1 Q 1
B. Price Quantity P 2 Q 4
C. Price Quantity P 3 Q 3
D. Price Quantity P 4 Q 2
E. Price Quantity P 5 Q 1

What is the profit-maximizing price and quantity?
A. Price
Quantity
P1
Q1
B. Price
Quantity
P2
Q4
C. Price
Quantity
P3
Q3
D. Price
Quantity
P4
Q2
E. Price
Quantity
P5
Q1

Is the firm in short-run or long-run equilibrium?
A. Short run, because price is greater than marginal cost
B. Short run, because the firm is earning a positive economic profit
C. Long run, because price is greater than average total cost
D. Long run, because marginal revenue is not equal to zero
E. Either short run or long run, because the firm is producing where marginal revenue equals marginal cost

Is the firm in short-run or long-run equilibrium?
A. Short run, because price is greater than marginal cost
B. Short run, because the firm is earning a positive economic profit
C. Long run, because price is greater than average total cost
D. Long run, because marginal revenue is not equal to zero
E. Either short run or long run, because the firm is producing where marginal revenue equals marginal cost

The demand curve for a monopolistically competitive firm is downward sloping because
A. there are a large number of firms
B. the product is produced by using scarce resources
C. the products produced by different firms are not identical
D. it is easy for firms to enter or exit the market
E. the marginal cost rises as output produced increases

The demand curve for a monopolistically competitive firm is downward sloping because
A. there are a large number of firms
B. the product is produced by using scarce resources
C. the products produced by different firms are not identical
D. it is easy for firms to enter or exit the market
E. the marginal cost rises as output produced increases

A monopolistically competitive firm is currently producing the profit-maximizing level of output. If the price of a variable input increases, which of the following will occur?
A. The firm will increase its output to increase its revenue.
B. The firm will increase the price of its output by the same amount.
C. The firm’s average total cost and marginal cost curves will shift upward.
D. The firm’s average fixed cost will decrease as it decreases production.
E. The firm’s fixed cost will increase, but its output level will be unaffected.

A monopolistically competitive firm is currently producing the profit-maximizing level of output. If the price of a
variable input increases, which of the following will occur?
A. The firm will increase its output to increase its revenue.
B. The firm will increase the price of its output by the same amount.
C. The firm’s average total cost and marginal cost curves will shift upward.
D. The firm’s average fixed cost will decrease as it decreases production.
E. The firm’s fixed cost will increase, but its output level will be unaffected.

Firms in monopolistic competition do not attain allocative efficiency because at the long-run equilibrium output, which of the following is true?
A. Price is greater than marginal cost.
B. Marginal cost is greater than minimum average total cost.
C. Marginal revenue is greater than marginal cost.
D. There is an overallocation of resources to the market.
E. Products are homogeneous.

Firms in monopolistic competition do not attain allocative efficiency because at the long-run equilibrium output,
which of the following is true?
A. Price is greater than marginal cost.
B. Marginal cost is greater than minimum average total cost.
C. Marginal revenue is greater than marginal cost.
D. There is an overallocation of resources to the market.
E. Products are homogeneous.

Which of the following is true of a monopolistically competitive firm in long-run equilibrium?
A. Price is greater than marginal cost, and marginal revenue is equal to average total cost.
B. Price is greater than marginal revenue, and marginal cost is equal to average total cost.
C. Price is greater than marginal revenue, and marginal cost is greater than average total cost.
D. Marginal revenue is equal to marginal cost, and price is equal to average total cost.
E. Marginal revenue is greater than marginal cost, and price is equal to average total cost.

Which of the following is true of a monopolistically competitive firm in long-run equilibrium?
A. Price is greater than marginal cost, and marginal revenue is equal to average total cost.
B. Price is greater than marginal revenue, and marginal cost is equal to average total cost.
C. Price is greater than marginal revenue, and marginal cost is greater than average total cost.
D. Marginal revenue is equal to marginal cost, and price is equal to average total cost.
E. Marginal revenue is greater than marginal cost, and price is equal to average total cost.

Which of the following statements is true for both a monopolistically competitive firm and a perfectly competitive firm in long-run profit-maximizing equilibrium?
A. Economic profits equal zero, and price equals marginal cost.
B. Economic profits equal zero, and price equals marginal revenue.
C. Marginal revenue equals marginal cost, and profits are positive.
D. Economic profits equal zero, and marginal revenue equals marginal cost.
E. Economic profits equal zero, and price exceeds marginal cost.

Which of the following statements is true for both a monopolistically competitive firm and a perfectly competitive
firm in long-run profit-maximizing equilibrium?
A. Economic profits equal zero, and price equals marginal cost.
B. Economic profits equal zero, and price equals marginal revenue.
C. Marginal revenue equals marginal cost, and profits are positive.
D. Economic profits equal zero, and marginal revenue equals marginal cost.
E. Economic profits equal zero, and price exceeds marginal cost.

Let P = price, MR = marginal revenue, MC = marginal cost, and ATC = average total cost. In monopolistic competition, which of the following most accurately describes the long-run equilibrium conditions for a firm?
A. P > ATC, MR = MC, and P > MC
B. P > ATC, MR > MC, and P = MC
C. P = ATC, MR = MC, and P > MC
D. P = ATC, MR = MC, and P = MC
E. P = ATC, MR > MC, and P > MC

Let P = price, MR = marginal revenue, MC = marginal cost, and ATC = average total cost. In monopolistic
competition, which of the following most accurately describes the long-run equilibrium conditions for a firm?
A. P > ATC, MR = MC, and P > MC
B. P > ATC, MR > MC, and P = MC
C. P = ATC, MR = MC, and P > MC
D. P = ATC, MR = MC, and P = MC
E. P = ATC, MR > MC, and P > MC

Which of the following statements about a monopolistically competitivefirm in long-run equilibrium is true?
A. It has excess capacity, even though its long-run profit is zero and its output prices equals its marginal cost.
B. It has excess capacity, and its long-run profit is positive, even though its marginal revenue equals its marginal cost.
C. It has excess capacity and its output price exceeds its marginal cost, even though its long-run profit is zero.
D. It has no excess capacity and its long-run profit is zero.
E. It has no excess capacity and its marginal revenue equals its marginal cost.

Which of the following statements about a monopolistically competitivefirm in long-run equilibrium is true?
A. It has excess capacity, even though its long-run profit is zero and its output prices equals its marginal cost.
B. It has excess capacity, and its long-run profit is positive, even though its marginal revenue equals its
marginal cost.
C. It has excess capacity and its output price exceeds its marginal cost, even though its long-run profit is zero.
D. It has no excess capacity and its long-run profit is zero.
E. It has no excess capacity and its marginal revenue equals its marginal cost.

Monopolistically competitive firms are considered inefficient in allocating society’s resources for which of the following reasons?
A. In equilibrium, the marginal benefit exceeds the price charged by the firms.
B. In equilibrium, the marginal benefit exceeds the marginal cost of production.
C. In equilibrium, the marginal revenue of the firm is not equal to its marginal cost.
D. In long-run equilibrium, the firm is earning economic profits.
E. Firms exhibit significant market power and therefore the number of firms in the industry is strictly limited.

Monopolistically competitive firms are considered inefficient in allocating society’s resources for which of the
following reasons?
A. In equilibrium, the marginal benefit exceeds the price charged by the firms.
B. In equilibrium, the marginal benefit exceeds the marginal cost of production.
C. In equilibrium, the marginal revenue of the firm is not equal to its marginal cost.
D. In long-run equilibrium, the firm is earning economic profits.
E. Firms exhibit significant market power and therefore the number of firms in the industry is strictly limited.

Which of the following is true for both a monopolistically competitive firm and a perfectly competitive firm in long-run equilibrium?
A. Marginal cost is greater than marginal revenue.
B. Price is greater than marginal cost.
C. Price is equal to average total cost.
D. Price is equal to marginal cost.
E. Marginal revenue is equal to average revenue.

Which of the following is true for both a monopolistically competitive firm and a perfectly competitive firm in
long-run equilibrium?
A. Marginal cost is greater than marginal revenue.
B. Price is greater than marginal cost.
C. Price is equal to average total cost.
D. Price is equal to marginal cost.
E. Marginal revenue is equal to average revenue.

The graph above depicts cost and revenue curves for a typical firm in a monopolistically competitive industry. Suppose that the firm is producing 0M units of output. To maximize profits, it should do which of the following to output and price?
A. Output Price Increase Decrease
B. Output Price Increase Increase
C. Output Price Decrease Increase
D. Output Price Not change Increase
E. Output Price Not change Not change

The graph above depicts cost and revenue curves for a typical firm in a monopolistically competitive industry.
Suppose that the firm is producing 0M units of output. To maximize profits, it should do which of the following to
output and price?
A. Output
Price
Increase
Decrease
B. Output
Price
Increase
Increase
C. Output
Price
Decrease
Increase
D. Output
Price
Not change
Increase
E. Output
Price
Not change
Not change

Monopolistically competitive product markets are inefficient because
A. price equals the marginal value to the buyer of the last item produced
B. price is greater than marginal cost
C. excessive competition prevents other firms from entering the market
D. homogeneous goods are usually overpriced
E. short-run economic profit-making opportunities exist

Monopolistically competitive product markets are inefficient because
A. price equals the marginal value to the buyer of the last item produced
B. price is greater than marginal cost
C. excessive competition prevents other firms from entering the market
D. homogeneous goods are usually overpriced
E. short-run economic profit-making opportunities exist

Which of the following must be true if a profit-maximizing monopolistically competitive firm continues to operate in the short run while incurring a loss?
A. Marginal revenue equals marginal cost and price is greater than average total cost.
B. Marginal revenue equals marginal cost and price is greater than average variable cost.
C. Marginal revenue equals marginal cost and price is less than average variable cost.
D. Price equals both marginal cost and marginal revenue.
E. Price is less than marginal revenue, but greater than average variable cost.

Which of the following must be true if a profit-maximizing monopolistically competitive firm continues to operate
in the short run while incurring a loss?
A. Marginal revenue equals marginal cost and price is greater than average total cost.
B. Marginal revenue equals marginal cost and price is greater than average variable cost.
C. Marginal revenue equals marginal cost and price is less than average variable cost.
D. Price equals both marginal cost and marginal revenue.
E. Price is less than marginal revenue, but greater than average variable cost.

In long-run equilibrium, at which of the following output levels will a monopolistically competitive firm operate?
A. Where long-run average total cost is at a minimum
B. Where price equals marginal revenue
C. Where price equals average total cost
D. Where marginal revenue equals average total cost
E. Where marginal revenue equals average revenue

In long-run equilibrium, at which of the following output levels will a monopolistically competitive firm operate?
A. Where long-run average total cost is at a minimum
B. Where price equals marginal revenue
C. Where price equals average total cost
D. Where marginal revenue equals average total cost
E. Where marginal revenue equals average revenue

Which of the following is true of the marginal revenue curve for a monopolistically competitive firm?
A. It is the same as the demand curve because there are many firms in the market.
B. It is the same as the demand curve because marginal revenue is always equal to price.
C. It is upward sloping because total revenue increases as the quantity sold increases.
D. It lies below the demand curve because the firm must lower its price for all units in order to increase sales.
E. It lies below the demand curve because marginal revenue increases when price decreases.

Which of the following is true of the marginal revenue curve for a monopolistically competitive firm?
A. It is the same as the demand curve because there are many firms in the market.
B. It is the same as the demand curve because marginal revenue is always equal to price.
C. It is upward sloping because total revenue increases as the quantity sold increases.
D. It lies below the demand curve because the firm must lower its price for all units in order to increase sales.
E. It lies below the demand curve because marginal revenue increases when price decreases.

Which of the following is true about price (P), marginal cost (MC), marginal revenue (MR), and economic profit of a monopolistically competitive firm in long-run equilibrium?
A. P > MC; Marginal revenue is below demand; Economic profit is zero
B. P < MC; Marginal revenue is below demand; Economic profit is positive
C. P > MC; Marginal revenue is above demand; Economic profit is positive
D. P = MR = MC; Marginal revenue is equal to demand; Economic profit is zero
E. P = MR = MC; Marginal revenue is above demand; Economic profit is positive

Which of the following is true about price
, marginal cost
, marginal revenue
, and economic profit
of a monopolistically competitive firm in long-run equilibrium?
A. ; Marginal revenue is below demand; Economic profit is zero
B. ; Marginal revenue is below demand; Economic profit is positive
C. ; Marginal revenue is above demand; Economic profit is positive
D. ; Marginal revenue is equal to demand; Economic profit is zero
E. ; Marginal revenue is above demand; Economic profit is positive

Which of the following is true for a firm in long-run equilibrium in monopolistic competition?
A. Given barriers to entry, the firm earns economic profits in long-run equilibrium.
B. The firm is productively efficient, producing at the minimum of long-run average total cost.
C. Price equals marginal revenue and marginal cost.
D. There is neither allocative nor productive efficiency.
E. Price is greater than average total cost in long-run equilibrium.

Which of the following is true for a firm in long-run equilibrium in monopolistic competition?
A. Given barriers to entry, the firm earns economic profits in long-run equilibrium.
B. The firm is productively efficient, producing at the minimum of long-run average total cost.
C. Price equals marginal revenue and marginal cost.
D. There is neither allocative nor productive efficiency.
E. Price is greater than average total cost in long-run equilibrium.

Which of the following is true of a monopolistically competitive firm in long-run equilibrium?
A. It produces where price equals marginal cost, and it earns zero economic profits.
B. It produces where marginal revenue exceeds marginal cost, and it earns positive economic profits.
C. It produces where marginal cost equals marginal revenue, and the price is equal to average total cost.
D. It produces at the minimum average total cost, and it utilizes all excess capacity.
E. It produces more than the allocatively efficient quantity, and the price is greater than marginal cost.

Which of the following is true of a monopolistically competitive firm in long-run equilibrium?
A. It produces where price equals marginal cost, and it earns zero economic profits.
B. It produces where marginal revenue exceeds marginal cost, and it earns positive economic profits.
C. It produces where marginal cost equals marginal revenue, and the price is equal to average total cost.
D. It produces at the minimum average total cost, and it utilizes all excess capacity.
E. It produces more than the allocatively efficient quantity, and the price is greater than marginal cost.

Which of the following is true of monopolistically competitive firms in long-run equilibrium?
A. Firms can earn positive economic profits.
B. Firms face a perfectly elastic demand curve.
C. Price equals marginal cost, which equals marginal revenue.
D. Price will always be above average total cost.
E. Marginal revenue equals marginal cost, and price equals average total cost.

Which of the following is true of monopolistically competitive firms in long-run equilibrium?
A. Firms can earn positive economic profits.
B. Firms face a perfectly elastic demand curve.
C. Price equals marginal cost, which equals marginal revenue.
D. Price will always be above average total cost.
E. Marginal revenue equals marginal cost, and price equals average total cost.

Which of the following is true of a monopolistically competitive firm in long-run equilibrium?
A. Price exceeds marginal revenue, and the firm earns positive economic profits.
B. Price equals marginal revenue, and the firm earns positive economic profits.
C. Price equals marginal cost, and the firm earns zero economic profits.
D. Price exceeds marginal cost, and the firm earns zero economic profits.
E. Price exceeds marginal cost, and the firm earns positive economic profits.

Which of the following is true of a monopolistically competitive firm in long-run equilibrium?
A. Price exceeds marginal revenue, and the firm earns positive economic profits.
B. Price equals marginal revenue, and the firm earns positive economic profits.
C. Price equals marginal cost, and the firm earns zero economic profits.
D. Price exceeds marginal cost, and the firm earns zero economic profits.
E. Price exceeds marginal cost, and the firm earns positive economic profits.

Based on the information in the above graph describing a monopolistically competitive firm, which of the following is true?
A. The firm is productively efficient since marginal cost intersects average cost at the minimum of average cost.
B. When maximizing profits, this firm will have economic losses but will still continue to produce.
C. The firm will produce where marginal revenue equals marginal cost and will set its price to equal average total cost.
D. With the firm making economic profits, it can be expected that new firms will enter this market.
E. The firm will produce where demand is inelastic to capture all economies of scale.

Based on the information in the above graph describing a monopolistically competitive firm, which of the following
is true?
A. The firm is productively efficient since marginal cost intersects average cost at the minimum of average cost.
B. When maximizing profits, this firm will have economic losses but will still continue to produce.
C. The firm will produce where marginal revenue equals marginal cost and will set its price to equal average
total cost.
D. With the firm making economic profits, it can be expected that new firms will enter this market.
E. The firm will produce where demand is inelastic to capture all economies of scale.

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?
A. It earns a normal profit.
B. It sets price equal to marginal cost.
C. It is allocatively efficient.
D. It is a price taker.
E. It produces at minimum average total cost.

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?
A. It earns a normal profit.
B. It sets price equal to marginal cost.
C. It is allocatively efficient.
D. It is a price taker.
E. It produces at minimum average total cost.

In the long run, a monopolistically competitive firm is allocatively inefficient because the firm will
A. produce only when marginal cost is greater than marginal revenue
B. produce only when marginal revenue is greater than marginal cost
C. charge a price greater than the marginal cost
D. earn positive economic profits
E. experience economic losses

In the long run, a monopolistically competitive firm is allocatively inefficient because the firm will
A. produce only when marginal cost is greater than marginal revenue
B. produce only when marginal revenue is greater than marginal cost
C. charge a price greater than the marginal cost
D. earn positive economic profits
E. experience economic losses

Which of the following is NOT a characteristic of monopolistically competitive markets?
A. Relatively easy market entry
B. Differentiated products
C. Substantial product advertising
D. A large number of both buyers and sellers
E. Long-run economic profits

Which of the following is NOT a characteristic of monopolistically competitive markets?
A. Relatively easy market entry
B. Differentiated products
C. Substantial product advertising
D. A large number of both buyers and sellers
E. Long-run economic profits

Which of the following statements correctly identifies a difference between perfect competition and monopolistic competition?
A. In perfect competition there are no barriers to entry, but there are strong barriers in monopolistic competition.
B. In perfect competition there are many firms, but in monopolistic competition there are only a few firms.
C. In perfect competition the firms all sell products that are exactly the same, but in monopolistic competition each firm sells a slightly differentiated product.
D. In perfect competition firms maximize profit by selling the quantity where marginal revenue equals marginal cost, but in monopolistic competition firms maximize profit by selling the quantity where marginal revenue exceeds marginal cost.
E. In perfect competition there are few consumers, but in monopolistic competition there are many consumers.

Which of the following statements correctly identifies a difference between perfect competition and monopolistic
competition?
A. In perfect competition there are no barriers to entry, but there are strong barriers in monopolistic competition.
B. In perfect competition there are many firms, but in monopolistic competition there are only a few firms.
C. In perfect competition the firms all sell products that are exactly the same, but in monopolistic competition
each firm sells a slightly differentiated product.
D. In perfect competition firms maximize profit by selling the quantity where marginal revenue equals marginal
cost, but in monopolistic competition firms maximize profit by selling the quantity where marginal revenue
exceeds marginal cost.
E. In perfect competition there are few consumers, but in monopolistic competition there are many consumers.

All of the following characterize both perfectly competitive and monopolistically competitive markets EXCEPT:
A. Price is equal to average revenue.
B. Individual firms produce output where marginal cost equals marginal revenue.
C. Firms can affect the selling price of their product.
D. The market has a large number of firms.
E. Firms can easily enter or exit the market.

All of the following characterize both perfectly competitive and monopolistically competitive markets EXCEPT:
A. Price is equal to average revenue.
B. Individual firms produce output where marginal cost equals marginal revenue.
C. Firms can affect the selling price of their product.
D. The market has a large number of firms.
E. Firms can easily enter or exit the market.

A monopolistically competitive firm’s demand curve will be highly elastic if which of the following exists?
A. A high degree of product differentiation
B. A highly elastic supply curve for the firm
C. High barriers to entry in this industry
D. A high degree of product substitutability
E. A small number of competitors

A monopolistically competitive firm’s demand curve will be highly elastic if which of the following exists?
A. A high degree of product differentiation
B. A highly elastic supply curve for the firm
C. High barriers to entry in this industry
D. A high degree of product substitutability
E. A small number of competitors

Which of the following about the relationship between marginal revenue (MR) and price (P) under monopolistic competition and perfect competition is correct?
A. Monopolistic Competition Perfect Competition MR>P MR=P
B. Monopolistic Competition Perfect Competition MR<P MR=P
C. Monopolistic Competition Perfect Competition MR decreases when P increases MR increases when P decreases
D. Monopolistic Competition Perfect Competition MR=P MR=P
E. Monopolistic Competition Perfect Competition MR=P MR<P

Which of the following about the relationship between marginal revenue (MR) and price (P) under monopolistic
competition and perfect competition is correct?
A. Monopolistic Competition
Perfect Competition
MR>P
MR=P
B. Monopolistic Competition
Perfect Competition
MR<P
MR=P
C. Monopolistic Competition
Perfect Competition
MR decreases when P increases
MR increases when P decreases
D. Monopolistic Competition
Perfect Competition
MR=P
MR=P
E. Monopolistic Competition
Perfect Competition
MR=P
MR<P

Monopolistically competitive firms are inefficient because they
A. produce a lower level of output at a higher average cost than do perfectly competitive firms
B. use production processes that are more capital-intensive than do perfectly competitive firms
C. face downward-sloping demand curves, ensuring that marginal revenue is greater than average revenue
D. produce at that level of output where price equals marginal cost
E. realize diseconomies of scale

Monopolistically competitive firms are inefficient because they
A. produce a lower level of output at a higher average cost than do perfectly competitive firms
B. use production processes that are more capital-intensive than do perfectly competitive firms
C. face downward-sloping demand curves, ensuring that marginal revenue is greater than average revenue
D. produce at that level of output where price equals marginal cost
E. realize diseconomies of scale

Compared with firms in a perfectly competitive industry, firms in a monopolistically competitive industry are inefficient because they
A. make economic profits in the long run
B. do not lower the product price if input prices fall
C. restrict their output level to maximize profits
D. charge the highest price that consumers will pay
E. waste resources by producing an excess amount of output

Compared with firms in a perfectly competitive industry, firms in a monopolistically competitive industry are
inefficient because they
A. make economic profits in the long run
B. do not lower the product price if input prices fall
C. restrict their output level to maximize profits
D. charge the highest price that consumers will pay
E. waste resources by producing an excess amount of output

Which of the following is true of a monopolistically competitive firm in long-run equilibrium?
A. The firm produces the allocatively efficient level of output.
B. The firm is allocatively inefficient, because it produces an output level at which price is greater than marginal cost.
C. The firm produces an output level that minimizes average total cost.
D. The firm produces in the inelastic range of its demand curve.
E. The firm earns positive economic profits but zero accounting profits.

Which of the following is true of a monopolistically competitive firm in long-run equilibrium?
A. The firm produces the allocatively efficient level of output.
B. The firm is allocatively inefficient, because it produces an output level at which price is greater than marginal
cost.
C. The firm produces an output level that minimizes average total cost.
D. The firm produces in the inelastic range of its demand curve.
E. The firm earns positive economic profits but zero accounting profits.

Which of the following is true of a monopolisti-cally competitive firm in long-run equilibrium?
A. Price equals marginal cost and average total cost.
B. Price equals average total cost but is greater than marginal cost.
C. Price equals marginal cost and is greater than average total cost.
D. The firm makes no attempt to differentiate its products.
E. The firm earns positive economic profits by producing at minimum average cost.

Which of the following is true of a monopolisti-cally competitive firm in long-run equilibrium?
A. Price equals marginal cost and average total cost.
B. Price equals average total cost but is greater than marginal cost.
C. Price equals marginal cost and is greater than average total cost.
D. The firm makes no attempt to differentiate its products.
E. The firm earns positive economic profits by producing at minimum average cost.

In monopolistic competition, an individual firm’s market power stems from which of the following?
A. Economies of scale in production
B. The production of a differentiated product
C. The absence of perfectly competitive firms that produce similar products
D. Barriers to entry allowing firms to earn economic profit
E. The maintenance of excess capacity to meet unexpected increase in demand

In monopolistic competition, an individual firm’s market power stems from which of the following?
A. Economies of scale in production
B. The production of a differentiated product
C. The absence of perfectly competitive firms that produce similar products
D. Barriers to entry allowing firms to earn economic profit
E. The maintenance of excess capacity to meet unexpected increase in demand

Over the past 5 years, 50 new restaurants have opened and 30 have closed in the city of Zuni. Currently there are 110 restaurants operating in the city. Which of the following best represents the market structure, barriers to entry, and economic profits in the long run?
A. Market Structure Barriers to Entry Long-Run Economic Profits Perfect competition Low Negative
B. Market Structure Barriers to Entry Long-Run Economic Profits Perfect competition High Positive
C. Market Structure Barriers to Entry Long-Run Economic Profits Monopolistic competition Low Zero
D. Market Structure Barriers to Entry Long-Run Economic Profits Monopolistic competition High Positive
E. Market Structure Barriers to Entry Long-Run Economic Profits Monopolistic competition High Zero

Over the past 5 years, 50 new restaurants have opened and 30 have closed in the city of Zuni. Currently there are
110 restaurants operating in the city. Which of the following best represents the market structure, barriers to entry,
and economic profits in the long run?
A. Market Structure
Barriers to Entry
Long-Run Economic Profits
Perfect competition
Low
Negative
B. Market Structure
Barriers to Entry
Long-Run Economic Profits
Perfect competition
High
Positive
C. Market Structure
Barriers to Entry
Long-Run Economic Profits
Monopolistic competition
Low
Zero
D. Market Structure
Barriers to Entry
Long-Run Economic Profits
Monopolistic competition
High
Positive
E. Market Structure
Barriers to Entry
Long-Run Economic Profits
Monopolistic competition
High
Zero

Part A What will happen to total revenue if the firm raises the price from $9 to $12? Explain. Part B At 16 units, is the firm producing at the allocatively efficient quantity? Explain. Part C If the firm produces 12 units, will the firm’s economic profit be positive, negative, or zero? Explain. Part D Use the relationship between the marginal cost curve and the average total cost curve to explain why the average total cost curve is increasing at 20 units. Part E Calculate the consumer surplus if the firm charges the profit-maximizing price. Show your work .

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
Use the following graph to answer parts (a)-(e). Prices and costs are in dollars.
The graph above shows the demand (
), marginal revenue (
), marginal cost (
), and average total cost (
)
curves for one of many profit-maximizing firms operating in the short run in an industry in which there are no barriers to
entry. Each firm sells a similar but not identical product.
(a) What will happen to total revenue if the firm raises the price from
to
? Explain.
(b) At
units, is the firm producing at the allocatively efficient quantity? Explain.
(c) If the firm produces
units, will the firm’s economic profit be positive, negative, or zero? Explain.
(d) Use the relationship between the marginal cost curve and the average total cost curve to explain why the average total
cost curve is increasing at
units.
(e) Calculate the consumer surplus if the firm charges the profit-maximizing price. Show your work.

Part A Calculate the total net benefit of placing three advertisements. Show your work. Part B Calculate the marginal net benefit of the third advertisement. Show your work. Part C What is the optimal number of advertisements placed by AZY Foods? Explain using marginal analysis. Part D Suppose over the next year the marginal benefit that AZY Foods receives from each advertisement increases by $300. Identify the optimal number of advertisements. Part E There are many firms in the retail food market. Each firm places its own firm-specific advertisements without considering the actions of its competitors. In what market structure is AZY Foods operating?

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram
must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to
“Calculate,” you must show how you arrived at your final answer.
The table below shows the total cost and total benefit of advertisements placed by
Foods, a firm in the retail food
market.
Number of Advertisements
Total Cost ( )
Total Benefit ( )
(a) Calculate the total net benefit of placing three advertisements. Show your work.
(b) Calculate the marginal net benefit of the third advertisement. Show your work.
(c) What is the optimal number of advertisements placed by
Foods? Explain using marginal analysis.
(d) Suppose over the next year the marginal benefit that
Foods receives from each advertisement increases by
. Identify the optimal number of advertisements.
(e) There are many firms in the retail food market. Each firm places its own firm-specific advertisements without
considering the actions of its competitors. In what market structure is
Foods operating?

Assume that the cellular telephone industry is monopolistically competitive. Part A Assume that cellular telephone manufacturers are earning short-run economic profits. Draw a correctly labeled graph for a typical firm in the industry and show each of the following. i. The profit-maximizing output and price ii. The area representing economic profit Part B At the profit-maximizing price you identified in part (a), would the typical firm’s demand curve be price inelastic? Explain. Part C Given the information in part (a), what happens to the demand curve for the typical firm in the long run? Explain. Part D Using a new correctly labeled graph, show the profit-maximizing output and price for the typical firm in the long run. Part E Does the typical firm produce an output level that minimizes its average total cost in the long run? Part F In long-run equilibrium, does the typical firm produce the allocatively efficient level of output? Explain.

Assume that the cellular telephone industry is monopolistically competitive.
a. Assume that cellular telephone manufacturers are earning short-run economic profits. Draw a correctly labeled
graph for a typical firm in the industry and show each of the following.
i. The profit-maximizing output and price
ii. The area representing economic profit
b. At the profit-maximizing price you identified in part (a), would the typical firm’s demand curve be price
inelastic? Explain.
c. Given the information in part (a), what happens to the demand curve for the typical firm in the long run? Explain.
d. Using a new correctly labeled graph, show the profit-maximizing output and price for the typical firm in the long
run.
e. Does the typical firm produce an output level that minimizes its average total cost in the long run?
f. In long-run equilibrium, does the typical firm produce the allocatively efficient level of output? Explain.

Assume that a profit-maximizing firm in a monopolistically competitive industry is in long-run equilibrium. Part A Draw a correctly labeled graph that shows the profit-maximizing firm’s price and output. Part B Assume that the city in which this industry operates eliminates the business license fee (a fixed cost) for all firms in this industry. How does the elimination of the license fee affect each of the following for the individual firm in the short run? Explain your answers. i. Output ii. Economic profits

Assume that a profit-maximizing firm in a monopolistically competitive industry is in long-run equilibrium.
a. Draw a correctly labeled graph that shows the profit-maximizing firm’s price and output.
b. Assume that the city in which this industry operates eliminates the business license fee (a fixed cost) for all firms
in this industry. How does the elimination of the license fee affect each of the following for the individual firm in
the short run? Explain your answers.
i. Output
ii. Economic profits

Rice is produced in a perfectly competitive industry. Grand Farm is a typical firm in the rice industry earning a positive economic profit. Part A Using correctly labeled side-by-side graphs for the rice industry and Grand Farm, show each of the following in the short run. i. The industry price and quantity, labeled P M and Q M ii. Grand Farm’s demand curve and marginal revenue curve, labeled D F and MR F iii. Grand Farm’s quantity of output, labeled Q F iv. Grand Farm’s profit, shaded completely

Rice is produced in a perfectly competitive industry. Grand Farm is a typical firm in the rice industry earning a positive
economic profit.
a. Using correctly labeled side-by-side graphs for the rice industry and Grand Farm, show each of the following in
the short run.
i. The industry price and quantity, labeled PM and QM
ii. Grand Farm’s demand curve and marginal revenue curve, labeled DF and MRF
iii. Grand Farm’s quantity of output, labeled QF
iv. Grand Farm’s profit, shaded completely
b. In the long run, what happens to each of the following?
i. The number of firms in the industry. Explain.
ii. The equilibrium price; does it increase, decrease, or remain the same relative to PM ?
c. Suppose Lori’s Quick Eats sells fried rice in a monopolistically competitive fast-food industry. Lori’s Quick Eats
is earning positive economic profits in the short run. Using a correctly labeled graph for this monopolistically
competitive firm, show each of the following in the short run.
i. The demand and marginal revenue curves, labeled DL and MRL
ii. The marginal cost and average total cost curves, labeled MC and ATC
iii. The profit-maximizing price and quantity, labeled PL and QL
d. Draw a correctly labeled graph for Lori’s Quick Eats in long-run equilibrium showing the demand curve and the
long-run average total cost curve.

Part B In the long run, what happens to each of the following? i. The number of firms in the industry. Explain. ii. The equilibrium price; does it increase, decrease, or remain the same relative to P M ?

Rice is produced in a perfectly competitive industry. Grand Farm is a typical firm in the rice industry earning a positive
economic profit.
a. Using correctly labeled side-by-side graphs for the rice industry and Grand Farm, show each of the following in
the short run.
i. The industry price and quantity, labeled PM and QM
ii. Grand Farm’s demand curve and marginal revenue curve, labeled DF and MRF
iii. Grand Farm’s quantity of output, labeled QF
iv. Grand Farm’s profit, shaded completely
b. In the long run, what happens to each of the following?
i. The number of firms in the industry. Explain.
ii. The equilibrium price; does it increase, decrease, or remain the same relative to PM ?
c. Suppose Lori’s Quick Eats sells fried rice in a monopolistically competitive fast-food industry. Lori’s Quick Eats
is earning positive economic profits in the short run. Using a correctly labeled graph for this monopolistically
competitive firm, show each of the following in the short run.
i. The demand and marginal revenue curves, labeled DL and MRL
ii. The marginal cost and average total cost curves, labeled MC and ATC
iii. The profit-maximizing price and quantity, labeled PL and QL
d. Draw a correctly labeled graph for Lori’s Quick Eats in long-run equilibrium showing the demand curve and the
long-run average total cost curve.

Part C Suppose Lori’s Quick Eats sells fried rice in a monopolistically competitive fast-food industry. Lori’s Quick Eats is earning positive economic profits in the short run. Using a correctly labeled graph for this monopolistically competitive firm, show each of the following in the short run. i. The demand and marginal revenue curves, labeled D L and MR L ii. The marginal cost and average total cost curves, labeled MC and ATC iii. The profit-maximizing price and quantity, labeled P L and Q L

Rice is produced in a perfectly competitive industry. Grand Farm is a typical firm in the rice industry earning a positive
economic profit.
a. Using correctly labeled side-by-side graphs for the rice industry and Grand Farm, show each of the following in
the short run.
i. The industry price and quantity, labeled PM and QM
ii. Grand Farm’s demand curve and marginal revenue curve, labeled DF and MRF
iii. Grand Farm’s quantity of output, labeled QF
iv. Grand Farm’s profit, shaded completely
b. In the long run, what happens to each of the following?
i. The number of firms in the industry. Explain.
ii. The equilibrium price; does it increase, decrease, or remain the same relative to PM ?
c. Suppose Lori’s Quick Eats sells fried rice in a monopolistically competitive fast-food industry. Lori’s Quick Eats
is earning positive economic profits in the short run. Using a correctly labeled graph for this monopolistically
competitive firm, show each of the following in the short run.
i. The demand and marginal revenue curves, labeled DL and MRL
ii. The marginal cost and average total cost curves, labeled MC and ATC
iii. The profit-maximizing price and quantity, labeled PL and QL
d. Draw a correctly labeled graph for Lori’s Quick Eats in long-run equilibrium showing the demand curve and the
long-run average total cost curve.

Part D Draw a correctly labeled graph for Lori’s Quick Eats in long-run equilibrium showing the demand curve and the long-run average total cost curve.

Rice is produced in a perfectly competitive industry. Grand Farm is a typical firm in the rice industry earning a positive
economic profit.
a. Using correctly labeled side-by-side graphs for the rice industry and Grand Farm, show each of the following in
the short run.
i. The industry price and quantity, labeled PM and QM
ii. Grand Farm’s demand curve and marginal revenue curve, labeled DF and MRF
iii. Grand Farm’s quantity of output, labeled QF
iv. Grand Farm’s profit, shaded completely
b. In the long run, what happens to each of the following?
i. The number of firms in the industry. Explain.
ii. The equilibrium price; does it increase, decrease, or remain the same relative to PM ?
c. Suppose Lori’s Quick Eats sells fried rice in a monopolistically competitive fast-food industry. Lori’s Quick Eats
is earning positive economic profits in the short run. Using a correctly labeled graph for this monopolistically
competitive firm, show each of the following in the short run.
i. The demand and marginal revenue curves, labeled DL and MRL
ii. The marginal cost and average total cost curves, labeled MC and ATC
iii. The profit-maximizing price and quantity, labeled PL and QL
d. Draw a correctly labeled graph for Lori’s Quick Eats in long-run equilibrium showing the demand curve and the
long-run average total cost curve.