Review Exam 1A

Question 1

1) Which of the following does NOT shift the demand curve?

a) changes in the product’s price
b) changes in income
c) changes in population
d) changes in tastes and preferences

Answer 1

A

Question 2

2) Refer to the figure. At a price of $3, quantity supplied is ______ and quantity demanded is
______, leading to a _______.
a) 6; 2; surplus of 4 units
b) 2; 6; shortage of 8 units
c) 2; 4; surplus of 2 units
d) 4; 2; shortage of 2 units

Answer 2

A

Question 3

3) If the demand curve is elastic a price ________ causes a(n) ________ in revenues.

a) decrease; decrease
b) increase; increase
c) decrease; increase
d) There is not enough information to answer

Answer 3

C

Question 4

4) When the maximum legal price is below the market price we say that there is a price:
a) floor.
b) stabilization.
c) support.
d) ceiling.

Answer 4

D

Question 5

5) Refer to the figure. The equilibrium price (in $) is:

a) 8.
b) 10.
c) 16.
d) 12.

Answer 5

A

Question 6

6) Inflation can be defined as:

a) the general rise in the level of output in an economy.
b) the boom and bust cycles of an economy.
c) the rise and fall of the general level of prices in an economy.
d) the increase in the general level of prices in an economy.

Answer 6

D

Question 7

7) A price ceiling is a(n):
a) legally established minimum price that can be charged for a good.
b) illegally established minimum price that can be charged for a good.
c) legally established maximum price that can be charged for a good.
d) illegally established maximum price that can be charged for a good.

Answer 7

C

Question 8

8) In a market, the equilibrium condition is given by the following:
a) quantity demanded = quantity supplied
b) quantity demanded × quantity supplied
c) quantity demanded/quantity supplied
d) price × quantity demanded = quantity supplied

Answer 8

A

Question 9

9) Producer surplus is:
a) the difference between the market price and the minimum price at which producers are
willing to sell a good.
b) the amount at which producers are willing to sell a good.
c) the amount at which producers sell a good.
d) the amount at which producers are willing to sell a good plus the amount at which they
sell it.

Answer 9

A

Question 10

10) The quantity supplied is the:
a) amount of inputs that a firm earns profit on.
b) change in the sellers’ output multiplied by the change in price.
c) incremental cost of producing one more unit of output, holding all other things constant.
d) amount of a good that firms are willing and able to sell at a particular price during a given
period of time.

Answer 10

D

Question 11

11) According to the figure, what is the amount of the deadweight loss caused by the imposition
of the tax on gadgets?
a) $100
b) $1
c) $0.50
d) $50

Answer 11

D

Question 12

12) According to the figure, what is the tax revenue that the government collects from the tax on
gadgets?
a) $350
b) $450
c) $175
d) $550

Answer 12

A

Question 13

13) According to the figure, what is the amount of the tax that has been imposed on the sale of
gadgets?
a) $0.50
b) $1.00
c) $1.50
d) $5.50

Answer 13

B

Question 14

14) Why is the war on drugs hard to win?
a) It is not a conventional war.
b) The government has not used adequate resources in the war.
c) Drug dealers get stronger following successful government prohibition efforts.
d) The demand for illegal drugs is too elastic.

Answer 14

C

Question 15

15) An increase in supply and a decrease in demand occur in a market. What happens to the
equilibrium price and quantity?
a) The equilibrium price decreases; the change in the equilibrium quantity is ambiguous.
b) The equilibrium price decreases; the equilibrium quantity increases.
c) The equilibrium price increases; the change in the equilibrium quantity is ambiguous.
d) The equilibrium price increases; the equilibrium quantity decreases.

Answer 15

A

Question 16

16) A rent control is a regulation that:
a) ensures apartments being available for rent.
b) controls rents at constant levels.
c) upholds rents to above equilibrium levels.
d) prevents rents from rising to equilibrium levels

Answer 16

D

Question 17

17) Refer to the figure. Calculate the dollar amount of consumer surplus being earned in this
market.
a) $4,500
b) $9,000
c) $18,000
d) $450

Answer 17

A

Question 18

18) Which of the following could explain the figure?
a) Consumer income increases in the market for a normal good.
b) Consumer income falls in the market for a normal good.
c) Consumer income rises in the market for an inferior good.
d) Consumer income falls in the market for a luxury good.

Answer 18

A

Question 19

19) In the oil market, an increase in the wage of oil workers will:
a) shift the supply curve of oil to the right.
b) shift the supply curve of oil to the left.
c) shift the demand curve for oil to the left.
d) shift the demand curve for oil to the right.

Answer 19

B

Question 20

20) If the price of shotguns ______, the demand for shotgun shells will _______.
a) increases; decrease
b) increases; increase
c) decreases; decrease
d) double; double

Answer 20

A

Question 21

21) The opportunity cost of a choice is:
a) the value of the opportunities lost.
b) the net value of the opportunities gained.
c) the difference between the benefits and costs of the choice.
d) sometimes positive or negative.

Answer 21

A

Question 22

22) A shortage results when:
a) a price floor is imposed.
b) a price ceiling is imposed.
c) there is excess supply without any price controls.
d) a price floor is imposed but it is not binding.

Answer 22

B

Question 23

23) The main incentive for business activity is:
a) government subsidies.
b) technological advancement.
c) profit.
d) employment.

Answer 23

C

Question 24

24) If Major League Baseball ticket prices rise by 15 percent, the number of tickets sold falls by
5 percent. The elasticity of demand is:
a) –3.
b) –1/3.
c) –7.5.
d) –0.75.

Answer 24

B

Question 25

25) The difference between the maximum price a consumer is willing to pay for a given quantity
of a good and its market price is:
a) producer shortage.
b) consumer shortage.
c) producer surplus.
d) consumer surplus.

Answer 25

D

Question 26

26) If the cross-price elasticity of demand of two goods is positive, we can conclude that the two
goods are:
a) normal goods.
b) inferior goods.
c) substitutes.
d) complements.

Answer 26

C

Question 27

27) A decrease in income causes demand for a normal good to ________, and an increase in
income causes demand for an inferior good to ________.
a) decrease; decrease
b) increase; increase
c) decrease; increase
d) increase; decrease

Answer 27

A

Question 28

28) Why is the demand curve for oil rather inelastic?
a) There are few widely available good substitutes for oil.
b) To increase the production of oil requires a significant outlay of exploration and drilling
costs.
c) The world supply of oil is low relative to demand.
d) The demand curve for oil is always perfectly inelastic.

Answer 28

A

Question 29

29) The demand curve is inelastic if the absolute value of the elasticity is:
a) greater than 1.
b) greater than 0.
c) less than 1.
d) equal to 1.

Answer 29

C

Question 30

30) Refer to the figure. An increase in price from $40 to $50 would cause the change in quantity
demanded for D1 to be:

a) greater than the change in quantity demanded for D2 so D1 is more elastic than D2.
b) greater than the change in quantity demanded for D2 so D2 is more elastic than D1.
c) less than the change in quantity demanded for D2 so D1 is more inelastic than D2.
d) less than the change in quantity demanded for D2 so D2 is more inelastic than D1.

Answer 30

A

Question 31

31) When the minimum price that can be legally charged is above the market price, we say there
is a price:
a) support.
b) stability.
c) ceiling.
d) floor.

Answer 31

D

Question 32

32) Economics:
a) teaches us how to make the world a better place.
b) increases our understanding of historical events.
c) can help you better manage your finances.
d) All of the answers are correct

Answer 32

D

Question 33

33) Booms and busts refer to the:
a) fluctuations in economic activity over time.
b) theory of the second best.
c) decreases in a nation’s output growth over time.
d) monetary inflation and deflation caused by the central bank.

Answer 33

A

Question 34

34) In several cities around the country, schools are paying cash awards to students who do well
on English and Math tests. This practice highlights the idea of:
a) pedagogical economics—the continuous assessment of student performance in an effort
to maximize student efficiency.
b) hidden costs—the costs borne by taxpayers in the form of wasteful school spending.
c) incentives—the rewards and penalties that motivate behavior.
d) screening theory—the identification of individuals or groups based on various
performance measures.

Answer 34

C

Question 35

35) In the figure, the demand curve shifted from D0 to D1. To describe this movement, we would
say that:
a) demand increased, which caused an increase in supply.
b) quantity demanded increased, which caused an increase in supply.
c) demand increased, which caused an increase in quantity supplied.
d) quantity demanded increased, which caused an increase in quantity supplied.

Answer 35

C

Question 36

36) In free markets, surpluses lead to:
a) lower prices.
b) higher prices.
c) surpluses.
d) unexploited gains from trade

Answer 36

A

Question 37

37) The law of demand states that:
a) the lower the price, the greater the quantity demanded.
b) the higher the price, the higher the quantity demanded.
c) the demand curve is upward sloping.
d) an increase in income increases the quantity demanded.

Answer 37

A

Question 38

38) Whether a buyer or a seller pays more of a commodity tax depends on:
a) their relative price elasticities.
b) the decisions made by Congress.
c) whether the demand curve is negatively or positively sloped.
d) whether the supply curve is negatively or positively sloped.

Answer 38

A

Question 39

39) Refer to the figure. At a minimum wage of $8, firms are willing to hire ________ workers.
a) 45
b) 25
c) 35
d) more than 45

Answer 39

B

Question 40

40) Refer to the figure. How many workers are unemployed at a minimum wage of $8?
a) 10
b) 20
c) 25
d) 35

Answer 40

B

Question 41

41) If the income elasticity of demand of a good is negative, we can conclude that the good is:
a) a normal good.
b) an inferior good.
c) a substitute.
d) a complement.

Answer 41

B

Question 42

42) The elasticity of demand:
a) equals the inverse of price to quantity demanded.
b) measures how far the demand curve shifts from a change in price.
c) tells us how responsive consumer purchases are to price changes.
d) estimates the relationship between quantity demand and production costs.

Answer 42

C

Question 43

43) The central bank of the United States is:
a) the Senate.
b) the Department of Treasury.
c) the Federal Reserve.
d) Wall Street.

Answer 43

C

Question 44

44) When the price of a good increases, demand for the good will:
a) increase.
b) decrease.
c) be unaffected.
d) depend on the corresponding change in supply.

Answer 44

C

Question 45

45) Refer to the figures. If the figures represent the market for a popular soda, which figure
shows the effect of an increase in the price of a competing energy drink?
a) Figure A
b) Figure B
c) Figure C
d) Figure D

Answer 45

C

Question 46

46) Refer to the figure. Consumer surplus before the $4 tax is ________, and consumer surplus
after the $4 tax is ________.

a) abc; a
b) a; c
c) ab; c
d) f; bd

Answer 46

A

Question 47

47) Refer to the figure. After the imposition of a $4 tax, the government collects revenues of:
a) $75.
b) $100.
c) $210.
d) $50.

Answer 47

B

Question 48

48) Refer to the figure. With a $4 tax, the deadweight loss is:
a) $10.
b) $35.
c) $20.
d) $40.

Answer 48

C

Question 49

49) Refer to the figure. A vertical reading of the figure indicates that:
a) at a price higher than $40, the quantity supplied drops to zero.
b) to produce 500 units suppliers must be paid at least $40 per unit.
c) at a price of $40 per unit, suppliers are willing and able to sell 500 units.
d) at a price lower than $40, the quantity supplied drops to zero.

Answer 49

B

Question 50

50) If a tax is imposed on a market with inelastic demand and elastic supply:
a) buyers will bear most of the burden of the tax.
b) sellers will bear most of the burden of the tax.
c) the burden of the tax will be shared equally between buyers and sellers.
d) there is no way to determine how the burden of the tax will be shared.

Answer 50

A