Exam Questions Flashcards by S P

The law of demand states that

A) More is preferred to less
B) More of a good will be demanded the lower its price, other things constant
C) You can’t always get what you want at the price you want to pay
D) More of a good will be demanded the higher its price, other things constant

B) More of a good will be demanded the lower its price, other things constant

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Front: (TF) Prices coordinate the needs and desires of the US economy.

True
False

True

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What is a price?
A) A price of a good represents the marginal value of the good to consumers
B) A price of a good represents the total value of the good to consumers
C) None of the options describe a price
D) A price of a good is the ratio at which it can be exchanged with another good

Back: D) A price of a good is the ratio at which it can be exchanged with another good

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Front: (TF) It is impossible to change just one price.

True
False

True

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Front: (MC) The strongest statement in favor of any theory is

A) The theory predicts behavior very poorly
B) The evidence fails to disprove the theory
C) The theory is correct
D) The theory tested is the right theory

Back: B) The evidence fails to disprove the theory

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Front: (MC) The role of an economist is most closely related to

A) Making judgments about how resources should be allocated in an economy
B) Making judgments about how individuals and/or their behavior will be affected by policy
C) Making judgments about what people should do
D) Making judgments as to which waffle house truly is the most prestigious

Back: B) Making judgments about how individuals and/or their behavior will be affected by policy

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Front: (MC) If demand increases,

A) At all prices, there is a higher quantity demanded
B) The supply will increase
C) People are better off
D) The price must have fallen

Back: A) At all prices, there is a higher quantity demanded

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Front: (MC) The price of a six-pack of beer in terms of wine is

A) 15 bottles of wine
B) Cannot be determined without more information
C) Equal to $15 worth of wine
D) 18/15 bottles of wine

Back: D) 18/15 bottles of wine

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Front: (MC) The opportunity cost of reading a single chapter from a textbook

A) Has nothing to do with the price you paid for the book
B) Is equal to the highest price you would have paid for the book
C) Is zero, since you have already paid for the book
D) Must be negative, or you would have purchased a different book

Back: A) Has nothing to do with the price you paid for the book

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Front: (MC) If the dollar-price of wine increases,

A) The price of beer does not change
B) The price of beer implicitly decreases, and we would expect more beer to be sold
C) The price of beer implicitly increases, and we would expect less beer to be sold
D) The price of beer implicitly increases, and we would expect more beer to be sold

Back: B) The price of beer implicitly decreases, and we would expect more beer to be sold

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Front: (MC) “Even if you are used to getting As and only end up with a B in this class, you should still consider an econ major or adding an econ minor” is

A) A normative statement
B) Neither a positive nor a normative statement
C) A positive statement

Back: A) A normative statement

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Front: (MC) A regulation is designed to alter the behavior of individuals by

A) Suppressing their desire for more, as more is assumed to be better
B) Forcing them to cooperate with the regulation
C) Introducing a cost or benefit that encourages them to change their behavior in the intended way
D) Creating externalities that are beneficial to society

Back: C) Introducing a cost or benefit that encourages them to change their behavior in the intended way

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Front: (MC) Which of the following statements about equilibrium price in a market are true?

A) It is the price that all consumers are willing and able to pay
B) It is the price at which there is no excess supply or demand
C) It is the price at which people are “happy” consuming the equilibrium quantity
D) Both ii and iii

Back: B) It is the price at which there is no excess supply or demand

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Front: (TF) Demand curves are generally downward sloping.

True
False

True

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Front: (MC) At an equilibrium price and quantity,

A) There is no pressure for quantity to change
B) There is upward pressure on price
C) There is downward pressure on price
D) There is upward pressure on quantity

Back: A) There is no pressure for quantity to change

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Front: (TF) Where there is currently a shortage in a market, one should expect prices to rise.

True
False

True

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Front: (TF) Where there is currently a surplus in a market, one should expect prices to fall.

True
False

True

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Front: (MC) Where there is currently a shortage in a market, one should expect

A) The quantity demanded to fall
B) The quantity supplied to fall
C) The supply to fall

Back: A) The quantity demanded to fall

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Front: (MC) Where there is currently a surplus in a market, one should expect

A) The quantity demanded to fall
B) Supply to fall
C) The quantity supplied to fall

Back: C) The quantity supplied to fall

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Front: (MC) In terms of predicting behavior, the value of a good is best thought of as

A) What one is willing to give up in order to acquire the good
B) The cost to firms of producing the good
C) The price one is observed paying in order to acquire the good

Back: A) What one is willing to give up in order to acquire the good

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Front: (MC) Why is the demand curve negatively sloped?

A) Because rational people prefer more over less
B) Because prices have to rise if people are not going to purchase as many units
C) Because sellers’ marginal values are increasing
D) Because consumers’ marginal values are decreasing

Back: D) Because consumers’ marginal values are decreasing

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Front: (MC) Which of the following is not included among the four behavioral postulates discussed in class?

A) People are willing to substitute
B) More is preferred to less
C) Marginal values are decreasing
D) Preferences, however defined, do not change over the period of analysis

Back: D) Preferences, however defined, do not change over the period of analysis

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Front: (MC) Opportunity costs can be defined as

A) The value of the next-best alternative forgone
B) The value of goods purchased
C) The price one would have paid for the next-best alternative forgone

Back: A) The value of the next-best alternative forgone

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Front: (TF) Due to scarcity, people must make choices about what and when to consume.

True
False

True

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Front: (MC) When someone is willing to pay more for something just because it saves time, we would predict that A) The time saved, when used in the next-best alternative, is relatively more valuable to him B) More information is needed to answer this question C) The time saved, when used in the next-best alternative, is relatively less valuable to him

Back: A) The time saved, when used in the next-best alternative, is relatively more valuable to him

Front: (TF) From surveys about environmental and social issues, you can confidently conclude the public's willingness to support related tax levies. True False

False

Front: (MC) Fill in the blanks: Every _____ has a _____ associated with it. A) Human action; cost B) Human action; benefit C) Price; demand D) Choice; benefit

Back: A) Human action; cost

Front: (MC) According to the table provided, at a price of $18, what market condition exists? A) There is a surplus of 7 units of the good B) Consumers will react to a decrease in price from $19 to $17 by decreasing the quantity demanded by 3 units C) At a price of $19, there is a shortage of 13 units of the good D) At a price of $18, unsatisfied sellers will put downward pressure on the price

Back: D) At a price of $18, unsatisfied sellers will put downward pressure on the price

Front: (MC) What did the data reveal happened when Ohio toughened their DWI policy? A) People in Ohio were less inclined to drink and drive B) The number of bribable accidents reported as alcohol related increased C) Alcohol-related hit and runs decreased D) None of the other options describe what happened

Back: A) People in Ohio were less inclined to drink and drive

Front: (MC) If the prize for winning a tournament is increased, A) The incentive to sabotage has nothing to do with the prize for winning B) We have also increased the reward associated with sabotaging others C) We have also decreased the reward associated with sabotaging others

Back: B) We have also increased the reward associated with sabotaging others

Front: (MC) The law of diminishing marginal value states that A) The marginal value of consumption decreases as more of a good is consumed B) People purchase goods as long as the marginal value exceeds the price C) The total value of consumption increases as more of a good is consumed D) All of the other options are True

Back: A) The marginal value of consumption decreases as more of a good is consumed

Front: (TF) All else equal, the more elastic is demand for a good, the flatter is that good's demand curve. True False

True

Front: (MC) Suppose the price of coffee was currently $7. At this price, there is A) A shortage of 25 units B) A surplus of 60 units C) No shortage or surplus D) A surplus of 40 units

Back: D) A surplus of 40 units

Front: (MC) Suppose that the price of coffee was currently $3, over time one should expect A) The price will increase, the quantity demanded will decrease, and the quantity supplied will increase B) The price will decrease, the quantity demanded will increase, and the quantity supplied will decrease C) The price will increase, the quantity demanded will increase, and the quantity supplied will decrease

Back: A) The price will increase, the quantity demanded will decrease, and the quantity supplied will increase

Front: (MC) Which of the following is most supportive of the claim that American orchestras have discriminated against women? A) When blind auditions were introduced, women were 50 percent more likely to make it past the first round of auditions B) Women account for less than 50 percent of orchestra musicians C) While 20 percent of applications are from female musicians, 40 percent of hired musicians are female

Back: A) When blind auditions were introduced, women were 50 percent more likely to make it past the first round of auditions

Front: (MC) How is the diamond-water paradox resolved? A) The total value of diamonds exceeds that of water so people are willing to pay more for a diamond B) Prices are determined by marginal values and water's marginal value is lower C) People are greedy, and value things that others can't afford

Back: B) Prices are determined by marginal values and water's marginal value is lower

Front: (TF) The supply curve is generally upward sloping. True False

True

Front: (MC) What policy would you suggest be considered when fines for not wearing a seatbelt are increased? A) Decrease the number of police patrol officers on the highways B) None of these options are likely to change drivers' incentives in a beneficial way C) Increase fines associated with speeding

Back: C) Increase fines associated with speeding

Front: (TF) Scarcity is defined as not having enough of what is desirable. True False

True

Front: (TF) The demand curve is generally downward sloping. True False

Back: True

Front: (MC) If the elasticity of demand is currently -2.5, by decreasing price and selling a higher quantity A) The firm will increase profit B) The firm will make demand more elastic C) The firm will increase revenue D) The firm will decrease revenue

Back: C) The firm will increase revenue

Front: (MC) The marginal value of the 3rd unit is A) 70 B) 40 C) 80 D) 60

Back: D) 60

Front: (MC) The total value of 5 units is A) 230 B) 310 C) 280 D) 300

300

Front: (MC) How many units would this individual optimally purchase? A) 3 B) 4 C) 5 D) 6

Front: (MC) By how much is the individual made better off when purchases are made optimally? A) $280 B) $240 C) $117 D) $300

117

Front: (TF) Are market equilibria, as described in class, attractive? True False

True

Front: (TF) Are market equilibria, as described in class, stable? True False

True

Front: (MC) Given the items below and their associated annual expenses, what is the cost of doing an MBA for one year? A) $37,000 B) $62,000 C) $76,000 D) $113,000

Back: D) $113,000

Front: (MC) According to the optimal purchase rule, a consumer will continue purchasing additional units of a good until A) The total value of the units purchased becomes equal to the price B) The marginal value of the next unit becomes negative C) The total value of the units purchased becomes greater than the price D) The marginal value of the next unit becomes less than the price

Back: D) The marginal value of the next unit becomes less than the price

Front: (MC) When there are more substitutes available, A) We expect demand to be more inelastic B) We expect demand to be steeper C) We expect demand to be less elastic D) We expect demand to be less inelastic

Back: D) We expect demand to be less inelastic

Front: (MC) According to the law of diminishing marginal value, what happens as more of a good is consumed? A) All other options are incorrect. B) People purchase goods as long as the marginal value exceeds the price. C) The total value of consumption increases as more of a good is consumed. D) The marginal value of consumption decreases as more of a good is consumed.

Back: D) The marginal value of consumption decreases as more of a good is consumed.

Front: (MC) According to the optimal-purchase rule, when will a consumer stop purchasing additional units of a good? A) The marginal value of the next unit becomes less than the price. B) She runs out of money. C) The total value of the units purchased becomes greater than the price. D) The total value of the units purchased becomes equal to the price. E) The marginal value of the next unit becomes negative.

Back: A) The marginal value of the next unit becomes less than the price.

Front: All else equal, does a government raise more revenue from a per-unit tax on a good with inelastic demand or a good with elastic demand? A) This question cannot be answered without additional information. B) Tax revenue is higher where price elasticity is higher. C) Tax revenue is higher where price elasticity is lower.

Back: C) Tax revenue is higher where price elasticity is lower.

If exchange is voluntary, there can be mutual gain even if no new goods are produced. A) One party will always be made better off than the other. B) There can be mutual gain even if no new goods are produced. C) None of the other options are true. D) There can be mutual gain only if the government regulates retail trade.

Back: B) There can be mutual gain even if no new goods are produced.

Front: Binding minimum wages are welfare increasing (i.e., when equally weighted, the total benefits to society outweigh the total costs). A) True. B) False.

False

Front: Which of the following has the potential to cause a price ceiling set above the equilibrium price to become binding? A) A decrease in demand. B) An increase in supply. C) Neither of the two other options are true.

Back: C) Neither of the two other options are true.

Front: Imposing a binding price ceiling A) Increases efficiency by increasing the difference between the marginal benefit and the marginal cost of an additional unit. B) Results in a surplus in the market. C) Results in a decrease in the quantity supplied to the market. D) Establishes a price above the equilibrium level. E) None of the other options are true.

Back: C) Results in a decrease in the quantity supplied to the market.

Front: In general, a consumer’s price-elasticity for a product will be higher when A) None of the other options are true. B) The product has few substitutes. C) The product’s price is a large percentage of a consumer’s income. D) The product is generally considered to be a necessity.

Back: C) The product’s price is a large percentage of a consumer’s income.

Front: If demand is relatively inelastic then the burden of a per-unit tax on the good will tend to be A) Borne mostly by the government. B) Shared equally by producers and consumers. C) Borne mostly by producers. D) Borne mostly by consumers. E) Borne mostly by the poor.

Back: D) Borne mostly by consumers.

Front: One can safely conclude that if both demand and supply decrease there will be A) An increase in the equilibrium quantity exchanged. B) A decrease in both price and quantity. C) An increase in both price and quantity. D) A decrease in the equilibrium price. E) A decrease in the equilibrium quantity exchanged.

Back: E) A decrease in the equilibrium quantity exchanged.

Front: Where there is a shortage in a particular market there is also A) Upward pressure on quantity demanded in that market. B) Downward pressure on prices in that market. C) Downward pressure on quantity supplied in that market. D) Upward pressure on prices in that market.

Back: D) Upward pressure on prices in that market.

Front: If only one firm alone faces the entire market demand (instead of many firms sharing in the market demand) A) A per-unit tax will produce less revenue for the government. B) Consumer surplus will be higher. C) The market price will be lower. D) Producer surplus will be lower.

Back: A) A per-unit tax will produce less revenue for the government.

Front: If a ban on exporting oil from a large oil-producing country is allowed to elapse, which of the following would be more likely? A) The price of SUVs would decrease relative to the price of compact, fuel-efficient cars. B) The price of SUVs would increase relative to the price of compact, fuel-efficient cars.

Back: B) The price of SUVs would increase relative to the price of compact, fuel-efficient cars.

Front: If a ban on exporting oil from a large oil-producing country is allowed to elapse, what would you expect to happen to the price of gasoline and the quantity of gasoline sold? A) The equilibrium price of gasoline would increase and the equilibrium quantity would increase. B) The equilibrium price of gasoline would decrease and the equilibrium quantity would decrease. C) The equilibrium price of gasoline would decrease and the equilibrium quantity would increase. D) The equilibrium price of gasoline would increase and the equilibrium quantity would decrease.

Back: C) The equilibrium price of gasoline would decrease and the equilibrium quantity would increase.

Front: If consumers’ marginal values for a particular good increase, then we would expect A) The market price of all other goods to increase. B) The market price of the good to increase. C) Neither of the two other options are true.

Back: B) The market price of the good to increase.

Front: Suppose that a new U.S. federal law lowers the legal drinking age, allowing the selling of alcoholic beverages to anyone over 18 years of age. What changes would you anticipate seeing in the market for beer? A) The quantity of beer will decrease and its price will also decrease. B) The quantity of beer will increase and its price will also increase. C) The quantity of beer will decrease and its price will increase. D) The quantity of beer will increase and its price will decrease.

Back: B) The quantity of beer will increase and its price will also increase.

Front: The subsidy will cost the government A) (A-C) B) B×F C) (A-C)×F D) (B-C)×F E) B×E

Back: C) (A-C)×F

Front: Suppose that a new U.S. federal law lowers the legal drinking age. As a result, what would you expect to see happen in the markets of substitutes for beer? A) The quantity will increase and the price will also increase. B) The quantity will decrease and the price will also decrease. C) The quantity will increase and the price will decrease. D) The quantity will decrease and the price will increase.

Back: A) The quantity will increase and the price will also increase.

Front: Rent-control legislation that sets the rents on apartments below the equilibrium rental rates tends to create A) Rising incomes for landlords. B) No effect, since a price ceiling below equilibrium price is not binding. C) An increase in the construction of new rental units. D) A housing surplus. E) A black market for rental housing.

Back: E) A black market for rental housing.

Front: To answer questions about the subsidy on the supply curve for wholesale coffee, the per-unit subsidy must have been A) A-B B) B-D C) C D) A E) B-C

Back: B) B-D

Front: The benefit of the subsidy to consumers will be A) (B-D)×F + (B-D)(F-E)/2 B) We need more information to answer this question. C) (C-D)×E + (C-D)(F-E)/2 D) (A-C)×F E) (B-C)×E + (B-C)(F-E)/2

Back: E) (B-C)×E + (B-C)(F-E)/2

Front: In the market above, would the price change more or less if consumers had fewer substitutes available? A) More information is needed to answer this question. B) Price would change more. C) Price would change less.

Back: B) Price would change more.

Front: Lead pencils and ink pens are substitutes. When the government bans the use of lead in pencils, which of the following would you expect to happen in the market for pens? A) The equilibrium price of pens will go up. B) The demand curve for pens will shift left. C) People will buy fewer pens. D) The supply curve for pens will shift left.

Back: A) The equilibrium price of pens will go up.

Front: If incomes rise, what happens to the prices of normal goods? A) They rise, because demand increases. B) They rise, because demand decreases. C) They fall, because supply decreases. D) They fall, because demand decreases.

Back: A) They rise, because demand increases.

Front: You see that someone is selling an item she owns for $90. If her true marginal value is less than $90, A) She would be willing to sell it for any offer strictly between her marginal value and $90. B) None of the other options are true. C) She would be willing to sell it for any offer equal to or higher than her marginal value. D) She would be willing to sell it for any offer lower than $90.

Back: C) She would be willing to sell it for any offer equal to or higher than her marginal value.

Front: An increase in a binding minimum wage will A) Increase the number of people looking for work and decreases the number of jobs available. B) Increase the number of jobs available for highly skilled workers and decrease labor market surpluses. C) Increase the number of people looking for work and decreases unemployment.

Back: A) Increase the number of people looking for work and decreases the number of jobs available.

Front: What will happen to the market equilibrium of Shell’s gasoline when the price of Texaco’s gasoline increases? A) The price will go up and the quantity will fall. B) The price will go up and the quantity will rise. C) The price will go down and the quantity will fall. D) The price will go down and the quantity will rise.

Back: B) The price will go up and the quantity will rise.

Front: Consider a market where prices are freely able to adjust (i.e., there are no price controls). The equilibrium price and quantity in this market are such that A) Producer surplus is maximized. B) Total surplus is maximized. C) Consumer surplus is maximized.

Back: B) Total surplus is maximized.

Front: The area under the demand curve and above the equilibrium price is known as A) Consumer surplus. B) Profit. C) Producer surplus. D) Efficiency.

Back: A) Consumer surplus.

Front: Oregon’s minimum wage is an example of a price floor. A) True. B) It depends on whether it is above or below the equilibrium price. C) False.

Back: A) True.

Front: Of the following, which would lead to a transitional gains trap? A) That there is very little turnover in the market for taxi services. B) That property owners will have bought and sold in the Bay Area since restrictive zoning laws were relaxed. C) That farmers will have sold their family farms to others since the advent of farming subsidies. D) That profit can be very high from selling a New York City taxi medallion.

Back: C) That farmers will have sold their family farms to others since the advent of farming subsidies.

Front: If you are told that in the market for a particular good the marginal value currently exceeds the marginal cost, you know that A) Too little of the good is being produced and exchanged. B) Too much of the good is being produced and exchanged. C) The market allocation is efficient. D) None of the other options are true.

Back: A) Too little of the good is being produced and exchanged.

Front: What is likely to be the effect on tuition rates if the federal government increases the amount of financial aid it provides to college students? A) Tuition will increase, as the demand for a college education will have increased. B) Tuition will decrease, as the cost of going to college is now lower. C) Tuition will decrease, as the demand for a college education will have decreased. D) Tuition will increase, as the supply of positions at colleges will increase as new colleges are built and existing colleges expand.

Back: A) Tuition will increase, as the demand for a college education will have increased.

Front: If the cost of producing automobiles increases, A) The supply of automobiles shifts to the right. B) The supply of automobiles shifts to the left. C) The supply of automobiles does not change.

Back: B) The supply of automobiles shifts to the left.

Front: If a price ceiling is imposed above the equilibrium price, is the outcome efficient? A) Yes. B) No.

Yes

Front: If the cost of producing automobiles increases, A) The quantity demanded of automobiles will not change. B) The quantity demanded of automobiles will eventually decrease. C) The quantity demanded of automobiles will eventually increase.

Back: B) The quantity demanded of automobiles will eventually decrease.

Front: If the cost of producing automobiles increases, A) The demand of automobiles shifts to the left. B) The demand of automobiles shifts to the right. C) The demand of automobiles does not change.

Back: C) The demand of automobiles does not change.

Front: If the government removed a $15 per-unit tax on firms selling tires, we would expect the price of tires A) To decrease by more than $15. B) To remain unchanged. C) To decrease by less than $15.

Back: C) To decrease by less than $15.

Front: Where demand is less elastic, the imposition of a binding price ceiling yields a smaller difference between market prices and a consumer’s willingness to pay. Therefore, it is in such markets that we would expect black markets to arise. A) True. B) False.

False

Front: All else equal, are the profits associated with monopolizing a market higher when consumers are less sensitive to market prices? A) Yes. B) No.

Yes

Front: With a price-gouging law in place that limits the extent to which the price of bottled water can increase during times of crisis, a sharp increase in the demand for water would result in A) Prices rising less, and fewer bottles of water exchanging in the legal market. B) Downward pressure on the price of water in the unregulated private market. C) Prices rising more, but also more bottles of water exchanging in the legal market. D) Prices rising less, and as many bottles of water exchanging in the legal market as was needed.

Back: A) Prices rising less, and fewer bottles of water exchanging in the legal market.

Front: An increase in the price of a complementary good leads to A) An increase in equilibrium price; a decrease in equilibrium quantity. B) A decrease in equilibrium price; an increase in equilibrium quantity. C) An increase in equilibrium price; an increase in equilibrium quantity. D) A decrease in equilibrium price; a decrease in equilibrium quantity.

Back: D) A decrease in equilibrium price; a decrease in equilibrium quantity.

Front: Which of the following are true? A) The response to a change in price increases with the passage of time. B) Demand for a good increases when the price of a complementary good increases. C) The availability of close substitutes decreases the responsiveness of individuals to changes in price. D) The demand for a normal good increases as income decreases.

Back: A) The response to a change in price increases with the passage of time.

Front: Scarcity could be reduced if A) The world population grew and world production remained the same. B) Innovation came to a halt. C) Individuals worked less and wanted more consumption goods. D) Individuals worked more and wanted fewer consumption goods.

Back: D) Individuals worked more and wanted fewer consumption goods.

Front: How is it that sports stars are paid more than teachers but society values teachers more than it values sports stars? A) The total value of stars exceeds that of teachers so people are willing to pay more for stars. B) People are greedy. C) None of the above. D) Prices are determined by marginal values and the marginal value of another teacher is lower.

Back: D) Prices are determined by marginal values and the marginal value of another teacher is lower.

Front: Assuming that ticket prices are set to maximize profit, if the State of Oregon levies a $1,000,000 lump sum tax on the University’s football program, by how much will the University increase the price of football tickets? A) By an amount equal to the tax divided by the number of tickets. B) $0. C) By the amount of the tax. D) By an amount less than the tax.

Back: B) $0.

Front: As the product of one firm becomes increasingly different from those of other firms we expect that A) The demand curve facing the firm will be more elastic. B) The demand curve facing the firm will be less elastic.

Back: B) The demand curve facing the firm will be less elastic.

Front: If an increase in supply leads to a decrease in price but the quantity sold does not change, the market demand curve must be A) Inelastic. B) Perfectly inelastic. C) Perfectly elastic. D) Elastic.

Back: B) Perfectly inelastic.

Front: Assuming that ticket prices are set to maximize profit, if the State of Oregon levies a $1 per-spectator tax on the University’s football program, by how much will the University increase the price of football tickets? A) By an amount less than the tax. B) By an amount equal to the tax divided by the number of tickets. C) $0. D) By the amount of the tax.

Back: A) By an amount less than the tax.

Front: All else equal, if two large firms in an industry merge we would expect them to A) Produce more, which would put downward pressure on prices and allow them to increase profit. B) Produce less, which would put downward pressure on prices and allow them to increase profit. C) Produce less, which would put upward pressure on prices and allow them to increase profit. D) Produce more, which would put upward pressure on prices and allow them to increase profit.

Back: C) Produce less, which would put upward pressure on prices and allow them to increase profit.