Mid trimester exam

Question 1

As more of a good, such as television sets, is produced, the opportunity cost of producing it increases. This probably occurs because:

A. As more of a good is produced, the quality of the technology available to produce additional units of the good declines and therefore the costs of production increase.
B. as more of a good is produced, the inputs used to produce that good will increase in price.
C. resources are not equally well suited to producing all goods, and as more of a good is produced it is necessary to use resources less well suited to the production of the good.
D. consumers would be willing to pay higher prices for the good as more of the good is produced.

Answer 1

C. resources are not equally well suited to producing all goods, and as more of a good is produced it is necessary to use resources less well suited to the production of the good.

Question 2

A society can produce two goods: bread and biscuits. The society’s production curve is negatively sloped and ‘bowed outward’ from the origin. As this society moves down its production possibility frontier, producing more and more units of biscuits, the opportunity cost of producing biscuits:

Select one:
A. decreases
B. increases 
C. could decrease or increase depending on the technology
D. remains constant

Answer 2

B. increases

Question 3

Which of the following would not be called a resource by economists?

Select one:
A. land
B. buildings
C. labour
D. money

Answer 3

D. money

Question 4

A planned freeway connecting two cities was originally budgeted to cost $200 million. After building part of the system at a cost of $150 million, the government realised that the total cost of the system would be $260 million, not $200 million. At this point the marginal cost of completing the freeway is best estimated as:

Select one:
A. $60 million 
B. $50 million
C. $260 million
D. $110 million

Answer 4

A. $60 million

Question 5

Macroeconomics is the branch of economics that examines:

Select one:
A. outcomes of economic behaviour, evaluates them as good or bad, and prescribes preferred courses of action.
B. the functioning of individual industries and the behaviour of individual decision-making units: that is, business firms and households.
C. the economic behaviour of aggregates- income, employment and output- on a national scale.
D. ways to understand behaviour and the operation of systems without making judgements.

Answer 5

C. the economic behaviour of aggregates- income, employment and output- on a national scale.

Question 6

You own a DVD of a recent popular film. The opportunity cost of watching it:

Select one:
A. is zero.
B. is the value of the alternative use of the time you spend watching the DVD.
C. is one half of the cost of the DVD as this is the second time you have watched it.
D. cannot be estimated.

Answer 6

B. is the value of the alternative use of the time you spend watching the DVD.

Question 7

Given the current state of technology it is possible to produce one more unit of food if two fewer units of clothing are produced. In country Z, however, at present to produce one more unit of food the production of clothing has to be reduced by three units. This would be illustrated by country Z ______________its production possibility curve.

Select one:
A. being on
B. being outside 
C. being inside
D. being at the origin of

Answer 7

C. being inside

Question 8

The circular flow of income diagram shows:

Select one:
A. How firms sell goods to households.
B. how households sell productive services to firms.
C. how households produce services for their own use.
D. A and B

Answer 8

D. A and B

Question 9

You own a vacant building and decide to use it to open a restaurant. The opportunity cost of using the building as a restaurant is:

Select one:
A. the cost of the building.
B. the value of the alternative use to which the building could be put. 
C. zero, as you own the building.
D. the taxes paid by the restaurant.

Answer 9

B. the value of the alternative use to which the building could be put.

Question 10

The cost of producing smart phones has fallen. This will initially cause:

Select one:
A. an increase in demand.
B. an increase in the quantity demanded.
C. an increase in supply. 
D. an increase in the quantity supplied.

Answer 10

C. an increase in supply.

Question 11

If the demand curve for potatoes shifts to the right and at the same time the supply curve shifts to the left:

Select one:
A. the price of potatoes will rise and the quantity traded will fall.
B. the price of potatoes and the quantity traded will fall.
C. the price of potatoes will rise.
D. none of the above statements is true.

Answer 11

C. the price of potatoes will rise.

Question 12

Which of the following statements is correct?

Select one:
A. If a demand curve moves to the right, this will lead to a surplus.
B. If a demand curve moves to the left, this will lead to a surplus.
C. If a demand curve moves to the left, the new equilibrium price will be higher.
D. If a supply curve moves to the left, the new equilibrium price will be lower.

Answer 12

B. If a demand curve moves to the left, this will lead to a surplus.

Question 13

A demand curve for a good is constructed by holding constant:

Select one:
A. tastes and the price of other goods.
B. income, tastes and the price of other goods.
C. income and tastes.
D. income, tastes and the price of the good.

Answer 13

B. income, tastes and the price of other goods.

Question 14

When a decrease in the price of one good causes the demand for another good to decrease, the goods are:

Select one:
A. complements. 
B. inferior.
C. normal.
D. substitutes.

Answer 14

D. substitutes

Question 15

Assuming that all other factors remain the same, an increase in the cost of fertiliser- an input into lettuce production- would result in:

Select one:
A. an increase in the demand for lettuces.
B. a decrease in the demand for lettuces.
C. an increase in the supply of lettuces.
D. a decrease in the supply of lettuces.

Answer 15

D. a decrease in the supply of lettuces.

Question 16

If the demand for coffee decreases as income falls, coffee is a/an___________good.

Select one:
A. complementary
B. inferior
C. normal
D. superior

Answer 16

C. normal

Question 17

Which of the following would cause an outward shift in the supply curve for steel?

Select one:
A. an increase in the demand for steel
B. a fall in the price of iron ore
C. an increase in the wages of steel workers
D. a rise in the price of steel

Answer 17

B. a fall in the price of iron ore

Question 18

When excess supply occurs in a free market, there is a tendency for:

Select one:
A. quantity demanded to rise.
B. quantity supplied to fall.
C. price to fall. 
D. price to rise.

Answer 18

C. price to fall.

Question 19

Which of the following would cause a movement down in the demand curve for beef?

Select one:
A. an increase in consumer income
B. a rise in the price of lamb
C. a decrease in the price of beef 
D. a shift to the left of the supply curve for beef

Answer 19

C. a decrease in the price of beef

Question 20

The price of wheat rises by 10% and the quantity supplied rises by 5%. The elasticity of supply is:

Select one:
A. -5. 
B. -2.
C. 2.
D. 0.5.

Answer 20

D. 0.5.

Question 21

The price of bananas rises from $4 a kilo to $6 a kilo. In response the quantity demanded falls by 10%.

Select one:
A. -2. 
B. -1.
C. -0.5.
D. -0.25.

Answer 21

D. -0.25.

Question 22

The tax on alcopops is doubled. Other taxes remain unaltered.

Select one:
A. The price of alcopops will fall.
B. The consumption of spirits will increase.
C. The tax revenue from alcopops will necessarily fall.
D. The demand curve for alcopops will shift to the left.

Answer 22

B. The consumption of spirits will increase.

Question 23

Price elasticity of supply will be greater when:

Select one:
A. firms have spare capacity.
B. price changes are small.
C. demand is stable.
D. firms hold small stocks of finished goods.

Answer 23

A. firms have spare capacity.

Question 24

A restaurant owner knows that the demand for hamburgers is elastic. If she wants to increase total revenue from hamburger sales, she should:

Select one:
A. decrease the supply of hamburgers
B. keep the price of hamburgers constant.
C. decrease the price of hamburgers.
D. increase the price of hamburgers

Answer 24

C. decrease the price of hamburgers.

Question 25

If the quantity bought of good x falls when the supply curve of good y shifts to the left:

Select one:
A. x and y are complements. 
B. the demand for x is elastic.
C. x and y are substitutes.
D. x is an inferior good.

Answer 25

A. x and y are complements.

Question 26

If the quantity bought of good x increases when the supply curve of good y shifts to the left:

Select one:
A. x and y are complements.
B. the demand for x is elastic.
C. x and y are substitutes. 
D. x is an inferior good.

Answer 26

C. x and y are substitutes.

Question 27

Consumer x says that she will spend the same amount on a certain good whatever its price. Her demand curve will be:

Select one:
A. of unit elasticity.
B. infinitely elastic. 
C. infinitely inelastic.
D. of varying elasticity.

Answer 27

A. of unit elasticity.

Question 28

Effective price ceilings are likely to:

Select one:
A. lead to surpluses.
B. be effective only if they are set at levels above the market equilibrium price.
C. lead to a decrease in sales, as there is a movement down along the supply curve, below equilibrium price, to the lower price level.
D. result in increased sales, as suppliers react to higher price levels.

Answer 28

C. lead to a decrease in sales, as there is a movement down along the supply curve, below equilibrium price, to the lower price level.

Question 29

In which of the following situations will the demand curve for a good shift to the right?

Select one:
A. The government fixes a price below the equilibrium price.
B. There is an increase in the supply of a substitute good.
C. There is an increase in the production subsidy paid on the good.
D. There is an increase in the supply of a complementary good.

Answer 29

D. There is an increase in the supply of a complementary good.

Question 30

The cost of producing smart phones has fallen. This will initially cause:

Select one:
A. an increase in demand. 
B. an increase in the quantity demanded.
C. an increase in supply.
D. an increase in the quantity supplied.

Answer 30

C. an increase in supply.

Question 31

If the demand curve for potatoes shifts to the right and at the same time the supply curve shifts to the left:

Select one:
A. the price of potatoes will rise and the quantity traded will fall.
B. the price of potatoes and the quantity traded will fall.
C. the price of potatoes will rise.
D. none of the above statements is true.

Answer 31

C. the price of potatoes will rise.

Question 32

Which of the following statements is correct?

Select one:
A. If a demand curve moves to the right, this will lead to a surplus.
B. If a demand curve moves to the left, this will lead to a surplus.
C. If a demand curve moves to the left, the new equilibrium price will be higher.
D. If a supply curve moves to the left, the new equilibrium price will be lower.

Answer 32

B. If a demand curve moves to the left, this will lead to a surplus.

Question 33

A demand curve for a good is constructed by holding constant:

Select one:
A. tastes and the price of other goods.
B. income, tastes and the price of other goods.
C. income and tastes.
D. income, tastes and the price of the good.
Feedback
The correct answer is: income, tastes and the price of other goods.

Answer 33

A. tastes and the price of other goods.

Question 34

When a decrease in the price of one good causes the demand for another good to decrease, the goods are:

Select one:
A. complements.
B. inferior.
C. normal.
D. substitutes.

Answer 34

D. substitutes.

Question 35

Assuming that all other factors remain the same, an increase in the cost of fertiliser- an input into lettuce production- would result in:

Select one:
A. an increase in the demand for lettuces.
B. a decrease in the demand for lettuces.
C. an increase in the supply of lettuces.
D. a decrease in the supply of lettuces.

Answer 35

D. a decrease in the supply of lettuces.

Question 36

If the demand for coffee decreases as income falls, coffee is a/an___________good.

Select one:
A. complementary
B. inferior
C. normal
D. superior

Answer 36

C. normal

Question 37

Which of the following would cause an outward shift in the supply curve for steel?

Select one:
A. an increase in the demand for steel 
B. a fall in the price of iron ore
C. an increase in the wages of steel workers
D. a rise in the price of steel

Answer 37

B. a fall in the price of iron ore

Question 38

When excess supply occurs in a free market, there is a tendency for:

Select one:
A. quantity demanded to rise.
B. quantity supplied to fall. 
C. price to fall.
D. price to rise.

Answer 38

D. price to rise.

Question 39

A firm increases its price and finds that total revenue decreases.

Select one:
A. Demand is inelastic.
B. Demand is elastic.
C. Demand is of unit elasticity. 
D. Average revenue falls.

Answer 39

B. Demand is elastic.

Question 40

Marginal revenue is:

Select one:
A. the difference between total revenue and total costs.
B. the ratio of total revenue to quantity.
C. the added revenue that a firm takes in when it increases output by one additional unit.
D. the additional profit the firm earns when it sells an additional unit of output.

Answer 40

C. the added revenue that a firm takes in when it increases output by one additional unit.

Question 41

A firm is producing at the profit-maximising output. Its fixed costs increase. It should:

Select one:
A. increase price and output.
B. increase price and reduce output.
C. leave price and output unaltered.
D. shut down.

Answer 41

C. leave price and output unaltered.

Question 42

Paul’s Bakery is incurring a loss. The firm will continue to produce as long as:

Select one:
A. price is greater than or equal to average variable cost.
B. marginal revenue is greater than or equal to marginal cost.
C. marginal revenue is greater than or equal to average variable cost.
D. price is greater than or equal to average fixed cost.

Answer 42

A. price is greater than or equal to average variable cost.

Question 43

A profit-maximising firm will produce that output level where:

Select one:
A. marginal revenue is zero. 
B. marginal revenue equals marginal cost.
C. marginal cost is minimised.
D. price equals marginal cost.

Answer 43

B. marginal revenue equals marginal cost.

Question 44

A firm in a perfectly competitive industry is producing 50 units, its profit-maximising quantity. The price is $2, the total fixed costs are $25 and the average variable cost is $0.8. The firm’s economic profit is:

Select one:
A. $25
B. $35
C. $45
D. $55

Answer 44

B. $35

Question 45

The marginal costs of a price-taking firm fall. The firm should:

Select one:
A. increase output.
B. reduce price.
C. hold output constant.
D. increase price.

Answer 45

A. increase output.

Question 46

At the output level at which profits are at their maximum level:

Select one:
A. marginal revenue is positive and increasing.
B. marginal cost is positive and decreasing.
C. average revenue is positive and increasing.
D. marginal cost is positive and increasing.

Answer 46

D. marginal cost is positive and increasing.

Question 47

If a firm is making no economic profit:

Select one:
A. It is wasting its funds by investing in a new plant and equipment.
B. it should exit the industry and reinvest its assets elsewhere.
C. it will not be able to sell the company for as much as it paid for it.
D. it is doing as well as it would do in any other industry.

Answer 47

D. it is doing as well as it would do in any other industry.

Question 48

The normal profit rate in an industry is 12%. One of the firms earns an accounting profit of 10%. Economic profit is:

Select one:
A. minus 2%. 
B. zero.
C. 2%.
D. 22%.

Answer 48

A. minus 2%.

Question 49

A firm has fixed costs of $2000. When it increases output by 50 units its variable costs of production increase by $1000. Its marginal costs of production are:

Select one:
A. $20
B. $40
C. $60
D. $80

Answer 49

A. $20

Question 50

If marginal cost is above average cost, then:

Select one:
A. average cost is increasing.
B. average variable cost is decreasing.
C. average variable cost is constant.
D. average cost is decreasing.

Answer 50

A. average cost is increasing.

Question 51

A firm produces 10 units at a total cost of $200 and 11 units for $220.

Select one:
A. Marginal cost is below average cost.
B. Marginal cost is equal to average cost.
C. Marginal cost is above average cost.
D. There is inadequate information to provide an answer.

Answer 51

B. Marginal cost is equal to average cost.

Question 52

In the short run a firm increases its output by 20%. As a result, its total costs of production increase by 15%. Assuming the prices of its inputs remain the same:

Select one:
A. it experiences economies of scale.
B. average fixed costs will increase. 
C. marginal costs will increase.
D. average variable costs will fall.

Answer 52

D. average variable costs will fall.

Question 53

A firm has fixed costs of $400. It produces two units. The marginal cost of the first unit is $200 and the marginal cost of the second unit is $120. The average cost of producing two units is:

Select one:
A. $160
B. $180
C. $260
D. $360

Answer 53

D. $360

Question 54

Which statement is FALSE?

Select one:
A. There are no fixed costs in the long run.
B. Fixed costs do not depend on the firm’s level of output.
C. Fixed costs are the difference between total costs and total variable costs.
D. Fixed costs are zero if the firm is producing nothing.

Answer 54

D. Fixed costs are zero if the firm is producing nothing.

Question 55

The marginal cost curve intersects the average total cost (AC) curve at the:

Select one:
A. decreasing part of the AC curve.
B. minimum point of the AC curve. 
C. increasing point of the AC curve.
D. the highest part of the AC curve.

Answer 55

B. minimum point of the AC curve.

Question 56

In which of the following industries are economies of scale likely to be greatest?

Select one:
A. printing
B. shoe manufacture
C. banking 
D. plumbing

Answer 56

C. banking

Question 57

When plotted with output on the horizontal axis, the average fixed-cost curve:

Select one:
A. is a downward-sloping straight line.
B. falls slowly at first then becomes a horizontal line.
C. falls rapidly at first then falls more slowly.
D. falls at first then rises.

Answer 57

C. falls rapidly at first then falls more slowly.

Question 58

In the short run:

Select one:
A. the law of diminishing returns does not hold.
B. all inputs are variable.
C. all inputs are fixed.
D. at least one input cannot be increased.

Answer 58

D. at least one input cannot be increased.

Question 59

A market in which there are several firms, freedom of entry is unrestricted and products are differentiated:

Select one:
A. is perfect competition. 
B. is monopolistic competition.
C. is oligopoly.
D. is monopoly.

Answer 59

B. is monopolistic competition.

Question 60

The fast food industry is not considered perfectly competitive because:

Select one:
A. there are restrictions on entry.
B. the firms’ products are differentiated.
C. the industry is regulated by the government.
D. there are a large number of firms.

Answer 60

B. the firms’ products are differentiated.

Question 61

In perfectly competitive industries:

Select one:
A. profits will always be normal.
B. output will always be at the point where average costs are at their minimum level.
C. profits will always be maximised where price equals marginal cost.
D. the number of firms will vary with the short-run level if profits.

Answer 61

C. profits will always be maximised where price equals marginal cost.

Question 62

There is an increase in the demand for tomatoes. Which of the following statements is FALSE?

Select one:
A. Tomato producers will grow more tomatoes.
B. In the short run, tomato growers will earn supernormal profits.
C. There will be a move down the supply curve of tomatoes.
D. Tomato growers will face increasing marginal costs.

Answer 62

C. There will be a move down the supply curve of tomatoes.

Question 63

A perfectly elastic demand curve implies that:

Select one:
A. a firm can raise its price and not lose all its customers.
B. a firm can sell more through price reductions.
C. the price a firm charges is irrelevant since it will sell the same amount whatever the price charged.
D. If a firm raises its price above the market price it will sell for nothing.

Answer 63

D. If a firm raises its price above the market price it will sell for nothing.

Question 64

In a competitive market:

Select one:
A. a single firm perceive its demand curve as the market demand curve.
B. a single firm perceives its demand curve as a flat line, even though the market demand curve is downward sloping.
C. a single firm perceives market demand to be perfectly inelastic.
D. a single firm perceives market demand to be unit elastic

Answer 64

B. a single firm perceives its demand curve as a flat line, even though the market demand curve is downward sloping.

Question 65

Normal profits:

Select one:
A. are equal to zero in the short-run equilibrium.
B. are equal to zero in the long-run equilibrium.
C. are an implicit opportunity cost to the business.
D. must be greater than zero in the long-run.

Answer 65

B. are equal to zero in the long-run equilibrium.

Question 66

In the long-run competitive equilibrium:

Select one:
A. economic profits are positive.
B. implicit opportunity cost for a firm is zero.
C. firms do not have an incentive to enter or exit the industry.
D. P > ATC.

Answer 66

C. firms do not have an incentive to enter or exit the industry.

Question 67

Relative to a competitively organised industry, a monopoly:

Select one:
A. produces less output, charges higher prices and earns economic profit.
B. produces less output, charges lower prices and earns economic profit.
C. produces more output, charges higher prices and earns economic profit.
D. produces less output, charges lower prices and earns only a normal profit.

Answer 67

B. produces less output, charges lower prices and earns economic profit.

Question 68

In perfectly competitive industries, in long-run equilibrium:

Select one:
A. marginal cost and average cost are equal.
B. firms earn supernormal profits.
C. each firm has a downward-sloping demand curve.
D. firms produce on the downward-sloping segment of their average cost curves.

Answer 68

A. marginal cost and average cost are equal.

Question 69

Assume that price underestimates the value that society places on flu vaccine. If firms produce where P = MC, firms will be producing:

Select one:
A. the efficient amount of flu vaccine.
B. so that consumer surplus is zero.
C. less than the efficient amount of flu vaccine.
D. more than the efficient amount of flu vaccine.

Answer 69

C. less than the efficient amount of flu vaccine.

Question 70

When output of a good or service is at its socially efficient level:

Select one:
A. marginal cost equals marginal revenue.
B. marginal cost equals marginal social benefit.
C. marginal private cost is less than marginal social cost.
D. marginal social benefit equals marginal social cost.

Answer 70

D. marginal social benefit equals marginal social cost.

Question 71

Under a system of tradable permits for polluting, which type of firm will pay most for the permits?

Select one:
A. those who find it expensive to reduce pollution
B. the most profitable firms
C. monopoly firms
D. those who pollute most

Answer 71

A. those who find it expensive to reduce pollution

Question 72

To correct for an external cost arising from production, the government should:

Select one:
A. set a tax equal to the amount by which marginal social cost exceeds the marginal private cost.
B. set a tax equal to the amount by which marginal private cost exceeds the marginal social cost.
C. provide firms with a subsidy for the amount by which marginal social cost exceeds the marginal private cost. Incorrect
D. provide firms with a subsidy for the amount by which marginal private cost exceeds the marginal social cost.

Answer 72

A. set a tax equal to the amount by which marginal social cost exceeds the marginal private cost.

Question 73

The assumptions that factor markets are competitive and open, all firms pay the same prices for inputs and all firms maximise profits lead to the conclusion that:

Select one:
A. the allocation of resources among firms is efficient.
B. general equilibrium will always be achieved.
C. no consumer surplus will exist.
D. the distribution of income will be equitable.

Answer 73

A. the allocation of resources among firms is efficient.

Question 74

Which of the following is the best example of a public good?

Select one:
A. education
B. the legal system
C. urban freeways
D. health

Answer 74

B. the legal system

Question 75

Which of the following would be classified as an external cost?

Select one:
A. You purchase a medicine, but you are not made fully aware of all the side effects that may result from taking the drug.
B. You are not able to study at night because there is so much noise coming from the room next to yours.
C. As more firms began hiring computer programmers, the salaries of computer programmers increased and therefore the firm’s cost of production increased.
D. A private firm will not provide national defence since it is impossible to confine the benefits to only those individuals who have paid for it.

Answer 75

B. You are not able to study at night because there is so much noise coming from the room next to yours.

Question 76

Market failure occurs when:

Select one:
A. perfectly competitive firms produce where marginal revenue equals marginal cost.
B. firms that are incurring losses continue to produce.
C. resources are misallocated or allocated inefficiently.
D. firms are only able to earn a normal profit.

Answer 76

C. resources are misallocated or allocated inefficiently.

Question 77

Which of the following are likely to be, overall, quantitatively the largest?

Select one:
A. positive externalities arising from consumption
B. positive externalities arising from production
C. negative externalities arising from consumption
D. negative externalities arising from production

Answer 77

D. negative externalities arising from production

Question 78

You decide to purchase a broadband connection. This will:

Select one:
A. cause an external benefit.
B. lead to a negative externality. 
C. have no external effects.
D. mean that broadband is a merit good.

Answer 78

C. have no external effects.

Question 79

Which of the following correctly describes how price adjustments eliminate a shortage?
Select one:
a. As the price rises, the quantity demanded will increase while the quantity supplied will decrease.
b. As the price falls, the quantity demanded will increase while the quantity supplied will increase.
c. As the price rises, the quantity demanded will decrease while the quantity supplied will increase.
d. As the price falls, the quantity demanded will decrease while the quantity supplied will increase.

Answer 79

c. As the price rises, the quantity demanded will decrease while the quantity supplied will increase.

Question 80

The ‘law of demand’ states that, other things being equal:
Select one:
a. As prices fall, demand decreases.
b. As prices rise, demand increases.
c. As prices fall, quantity demanded increases.
d. As prices rise, quantity demanded increases.

Answer 80

c. As prices fall, quantity demanded increases.

Question 81

Opportunity cost is:
Select one:
a. The additional cost of producing an additional unit of output.
b. A cost that cannot be avoided, regardless of what is done in the future.
c. That which we forgo, or give up, when we make a choice or a decision.
d. The additional cost of buying an additional unit of a product.

Answer 81

c. That which we forgo, or give up, when we make a choice or a decision.

Question 82

If a minimum price is set above the equilibrium price:
Select one:
a. Quantity demanded will equal quantity supplied.
b. Quantity demanded will be less than quantity supplied.
c. Quantity supplied will be less than quantity demanded.
d. Quantity demanded will be greater than quantity supplied.

Answer 82

b. Quantity demanded will be less than quantity supplied.

Question 83

If marginal cost is increasing and is below marginal revenue, a profit-maximising firm should:
Select one:
a. Increase output.
b. Decrease output. 
c. Increase price.
d. Shut down.

Answer 83

a. Increase output.

Question 84

Which of the following is true of a completely free-market economy?
Select one:
a. Production and consumption depend on demand and supply.
b. People are paid fair wages.
c. There will be full employment.
d. The government could set a minimum wage.

Answer 84

a. Production and consumption depend on demand and supply.

Question 85

The negative relationship between the price of a good and the quantity demanded is known as:
Select one:
a. The law of quantity demanded.
b. The law of demand.
c. The law of supply. 
d. The law of quantity supplied.

Answer 85

b. The law of demand.

Question 86

Consider the supply curve of organically grown tomatoes. What will be the effect of a government subsidy granted to farmers using organic methods?
Select one:
a. Leftward shift.
b. Movement down along the curve.
c. Rightward shift. 
d. Movement up along the curve.

Answer 86

c. Rightward shift.

Question 87

Which of the following is NOT a characteristic of a tradable permit system of pollution control?
Select one:
a. The permit allows firms to emit pollution up to a pre-determined level.
b. Firms can emit pollution above their permitted level if they are able to buy a permit from another firm.
c. Firms are not permitted to sell their pollution permits to other firms.
d. It combines both regulations and market-based systems.

Answer 87

c. Firms are not permitted to sell their pollution permits to other firms.

Question 88

Market failure is used to describe:
Select one:
a. The failure of the market economy to provide an equal distribution of income to all citizens.
b. The failure of the market to provide an efficient quantity of a good and service.
c. Firms which go bankrupt.
d. An economic crisis.

Answer 88

b. The failure of the market to provide an efficient quantity of a good and service.

Question 89

If a firm is making economic profit:
Select one:
a. Marginal revenue is equal to average variable cost.
b. Marginal revenue is greater or equal to marginal cost.
c. Marginal cost is greater than marginal revenue.
d. Marginal revenue is equal to average fixed cost.

Answer 89

b. Marginal revenue is greater or equal to marginal cost.

Question 90

Which of the following is true about the monopoly but false about perfect competition?
Select one:
a. Firms can earn economic profit in the long run.
b. Firms compete on their product’s price as well as its quality and marketing.
c. There are no barriers to entry.
d. Firms can earn economic profit in short run.

Answer 90

a. Firms can earn economic profit in the long run.

Question 91

A firm’s total profit is equal to:
Select one:
a. TR - TC
b. TR - MC
c. P x Q
d. P x AR

Answer 91

a. TR - TC

Question 92

With constant returns to scale, long-run average total cost:
Select one:
a. Is constant.
b. Is increasing.
c. Equals long-run marginal cost.
d. Any of the above conditions presented in A, B or C.

Answer 92

a. Is constant.