Multiple Choice
Identify the choice that best completes the
statement or answers the question.
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1.
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When shoes at a local shoe store went on sale at 50 percent off the regular
price, the store sold almost every pair of shoes it had in less than a day. By the time the stock was
replenished, the sale was over and very few shoes were purchased. Which of the following does this
illustrate?
a. | the income effect | c. | the law of demand | b. | the law of discounts | d. | the substitution
effect |
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2.
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Which of the following explains the relationship between income effect and
consumption?
a. | When the price of goods goes up, people get less for their money, and consumption
goes down. | b. | As incomes rise, consumption of lower-priced goods falls. | c. | When the price of
goods goes up, people buy more, but consumption of the same amount of goods
rises. | d. | As incomes fall, consumption of products and services stays the same, but people get
less for their money. |
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Market Demand
Schedule | Price of
a
slice of pizza | Quantity
demanded per day | $.50 | 300 | $1.00 | 250 | $1.50 | 200 | $2.00 | 150 | $2.50 | 100 | $3.00 | 50 | | |
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3.
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Franco’s Pizzeria sells slices of pizza for $2.00. According to the market
demand schedule and assuming ceteris paribus, what happens when Franco’s raises the
price to $2.50 a slice?
a. | The quantity demanded per day stays the same. | b. | The quantity
demanded falls from 100 slices a day to 50 slices a day. | c. | The quantity
demanded falls from 150 a day to 100 a day. | d. | The quantity demanded increases to 250 a
day. |
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4.
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Mariah is buying fewer boxes of macaroni and cheese, used cars, fast-food
dinners, and generic products because her income rose. This shift in the demand curve caused by
Mariah’s income has resulted in
a. | a decreased demand for inferior goods. | b. | a decreased demand for tangible
goods. | c. | an increased demand for normal goods. | d. | a decreased demand for expendable
goods. |
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5.
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Which of the following is NOT a factor affecting elasticity?
a. | availability of substitutes | b. | the good’s relative
importance | c. | whether the good is a necessity or a luxury | d. | the good’s
price range |
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6.
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According to the law of supply, the higher the price,
a. | the more consumers are willing to pay. | b. | the larger the quantity
produced. | c. | the smaller the quantity produced. | d. | the more the availability of a good is
reduced. |
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7.
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Lily is opening a new coffee shop and is having trouble deciding on the price to
charge for a cup of cappuccino. How will determining all the supply schedules of coffee shops in her
market help Lily?
a. | The market supply schedule would help Lily determine the total supply of cappuccino
at a certain price, based on relationships between prices and the total quantity supplied by all
coffee shops in her market. | b. | The sales supply schedule would help Lily
determine the minimum and maximum prices she should charge for cappuccino, based on comparisons
between larger and smaller coffee shops in her market. | c. | The sales supply schedule would help Lily
determine the maximum price for cappuccino in her market, based on relationships between
consumers’ spending habits and current cappuccino prices. | d. | The market supply
schedule would help Lily determine the lowest possible price she should ask for a cappuccino, based
on the current year-end sales at the top-selling coffee shops in her
area. |
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Marginal Product of
Labor | Labor
(number of
workers) | Output
(beanbags
per
hour) | Marginal
product
of
labor | 0 | 0 | — | 1 | 4 | 4 | 2 | 10 | 6 | 3 | 17 | 7 | 4 | 23 | 6 | 5 | 28 | 5 | 6 | 31 | 3 | 7 | 32 | 1 | 8 | 31 | –1 | | | |
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8.
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According to the graph of marginal product of labor for a company that makes
beanbags, which of the following situations is created when the fourth through seventh workers are
hired?
a. | increasing marginal returns | b. | marginal product of labor
specialization | c. | negative marginal returns | d. | diminishing marginal
returns |
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9.
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According to the graph, which of the following happens when an eighth person is
hired at the beanbag company?
a. | A positive marginal product of labor is created. | b. | A negative marginal
return is created. | c. | The output of beanbags is 28 per
hour. | d. | The output of beanbags stays the same. |
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10.
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In which category do subsidies, excise taxes, and regulation belong?
a. | effects of rising costs | b. | limitations on imports | c. | government’s
influence on supply | d. | benefits of marginal
costs |
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11.
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Study the graph showing the equilibrium point for a pizzeria. Which of the
following can be said about the equilibrium price and the equilibrium quantity?
a. | The quantity supplied and the quantity demanded are equal at 200 slices per
day. | b. | The quantity demanded and the quantity supplied are equal at $2.00 per
slice. | c. | The quantity supplied is not equal to the quantity demanded in this market, which
should be at 200 per day. | d. | The maximum quantity demanded, 350 per day, is
more than the quantity supplied. |
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12.
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Which of the following government actions is an attempt to control the high cost
of rent for lower-income families, and what has been the result of this action?
a. | Rent controls; high-income families are denied rental housing. | b. | Price ceilings; few
renters with the greatest need benefit from the program. | c. | Rent ceilings;
landlords can no longer discriminate. | d. | Price floors; the supply of apartments
rose. |
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13.
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Which word can be used twice to BEST complete this sentence? When supply _____,
prices fall, and quantity demanded _____ to reach a new equilibrium.
a. | increases | c. | levels | b. | decreases | d. | reverses |
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14.
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The economic impact of a holiday fad is illustrated by
a. | a negative result on the change in demand graph. | b. | a flattening of the
demand curve. | c. | a sharp drop in the marginal product demand ratio. | d. | a rapid shift to the
right in a market demand curve. |
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15.
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Which of the following BEST explains why rationing, not a price-based system,
was used during World War II?
a. | Rationing restricted production to a few products during World War II so that
suppliers and manufacturers could concentrate on supporting the war effort. | b. | With rationing,
consumers were able to control the distribution of food and goods while the government determined
which products would be sold. | c. | Unlike a price-based system, the temporary
price controls of World War II rationing helped ease shortages and guaranteed every American a
minimum standard of living. | d. | Unlike price-based systems, rationing more
severely restricted consumers’ buying habits, and it temporarily shifted distribution of food
and goods to the military. |
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16.
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Factors that make it difficult for new firms to enter a market are called
a. | start-up costs. | c. | perfect competition. | b. | barriers to entry. | d. | commodities. |
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17.
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Why can an industry that enjoys economies of scale easily become a natural
monopoly?
a. | because average costs drop as production rises | b. | because the market
taxes less as production rises | c. | because consumers tend to appreciate
monopolies | d. | because our government traditionally supports
monopolies |
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18.
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A firm sells natural gas to a city for one price and sells the same gas to an
outlying village at another price. What is this practice called?
a. | oligopoly | c. | differentiation | b. | monopoly | d. | price
discrimination |
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19.
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What is an oligopoly?
a. | an agreement by a formal organization of producers to coordinate prices and
production | b. | a market structure in which a few large firms dominate the market | c. | a market structure
in which two firms have a price war | d. | a market structure in which a single firm
dominates the market |
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20.
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Which of the following is one market trend that results when a monopolistically
competitive firm starts earning profits well above its costs?
a. | The firm would become an oligopolistic firm because it has effectively eliminated the
competition and now dominates the market alone. | b. | The firm would try to lure 100 percent of
customers by flooding the market with defective products. | c. | Fierce competition
would encourage rivals to create new ways to differentiate their products and lure customers to
them. | d. | The firm would eventually go out of business because demand would
decrease. |
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