MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) A price elasticity of demand of 2 means that a 10 percent increase in price will result in a 1) _______
A) 20 percent increase in quantity demanded.
B) 20 percent decrease in quantity demanded.
C) 5 percent decrease in quantity demanded.
D) 2 percent increase in quantity demanded.
E) 2 percent decrease in quantity demanded.

2) If a large percentage drop in the price level results in a small percentage increase in the quantity demanded, 2) _______

A) the price elasticity of demand is zero.

B) demand is inelastic.
C) the price elasticity of demand is close to infinity.
D) demand is unit elastic.
E) demand is elastic.

3) If a 10 percent rise in the price of goods leads to a 10 percent decrease in quantity demanded, the demand curve for this

good 3) _______

A) has slope equal to 1.

B) is horizontal.
C) is vertical.
D) is a straight line with slope equal to 10.
E) none of the above

4) A fall in the price of a good from $11.50 to $8.50 results in an increase in the quantity demanded from 19,200 to 20,800 units. The

price elasticity of demand is 4) _______

A) 8.0. B) 0.27. C) 3.75. D) 0.08. E) 30.

5) Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5 percent. The price elasticity of demand

for electricity is 0.40. You advise the Nova Scotia government to 5) _______

A) stay away from the market for electricity and let the market mechanism fix the problem.
B) raise the price of electricity by 2 percent.
C) raise the price of electricity by 12.5 percent.
D) lower the price of electricity by 12.5 percent.
E) lower the price of electricity by 2 percent.

6) Factors that influence the price elasticity of demand include 6) _______

A) the closeness of substitutes.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) A price elasticity of demand of 2 means that a 10 percent increase in price will result in a 1) _______
A) 20 percent increase in quantity demanded.
B) 20 percent decrease in quantity demanded.
C) 5 percent decrease in quantity demanded.
D) 2 percent increase in quantity demanded.
E) 2 percent decrease in quantity demanded.

2) If a large percentage drop in the price level results in a small percentage increase in the quantity demanded, 2) _______

A) the price elasticity of demand is zero.

B) demand is inelastic.
C) the price elasticity of demand is close to infinity.
D) demand is unit elastic.
E) demand is elastic.

3) If a 10 percent rise in the price of goods leads to a 10 percent decrease in quantity demanded, the demand curve for this

good 3) _______

A) has slope equal to 1.

B) is horizontal.
C) is vertical.
D) is a straight line with slope equal to 10.
E) none of the above

4) A fall in the price of a good from $11.50 to $8.50 results in an increase in the quantity demanded from 19,200 to 20,800 units. The

price elasticity of demand is 4) _______

A) 8.0. B) 0.27. C) 3.75. D) 0.08. E) 30.

5) Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5 percent. The price elasticity of demand

for electricity is 0.40. You advise the Nova Scotia government to 5) _______

A) stay away from the market for electricity and let the market mechanism fix the problem.
B) raise the price of electricity by 2 percent.
C) raise the price of electricity by 12.5 percent.
D) lower the price of electricity by 12.5 percent.
E) lower the price of electricity by 2 percent.

6) Factors that influence the price elasticity of demand include 6) _______

A) the closeness of substitutes.
B) preferences.
C) the price of complements but not the price of substitutes.
D) income.
E) the price of substitutes and complements.

7) The demand for a good will be more price inelastic, 7) _______

A) the fewer substitutes are available for the good.
B) the higher is its price.
C) the longer is the passage of time since a price change.
D) the larger is the percentage of income spent on it.
E) the smaller the supply of the good.

8) Total revenue is more likely to rise when the price rises if 8) _______
A) some extended period of time passes.
B) there are few substitutes for the good.
C) a high proportion of income is spent on the good.
D) all of the above
E) none of the above

9) The income elasticity of demand equals the percentage change in ________, other things remaining the same. 9) _______

A) quantity demanded divided by the percentage change in income

B) quantity demanded divided by the percentage change in price
C) price divided by the percentage change in quantity demanded
D) income divided by the percentage change in quantity demanded
E) price divided by the percentage change in income

10) Fred's income increases from $1,950 per week to $2,050 per week. As a result, he decides to increase the number of movies he

attends each month by 10 percent. Fred's demand for movies is 10) ______

A) income inelastic.
B) price elastic.
C) price inelastic.
D) income elastic.
E) income inferior.

11) If a 10 percent increase in income results in a 5 percent increase in quantity demanded, what is the income elasticity of

demand? 11) ______

A) -0.5 B) 0.5 C) -2.0 D) 2.0 E) 1.5

12) An economic measure that indicates when the demands for two or more goods are related is 12) ______
A) the price elasticity of demand.
B) the normal elasticity of demand.
C) the substitute elasticity of demand.
D) the cross elasticity of demand.
E) the income elasticity of demand.

13) If a rise in the price of good B increases the demand for good A, then 13) ______
A) A and B are substitutes.
B) A and B are complements.
C) the demand for A is price elastic.
D) the cross elasticity of demand between A and B is negative.
E) A is a resource used in the production of B.

14) When Erika's income increases by 6 percent, her demand for tickets to professional hockey games increases by 3 percent. Erika's

demand for tickets is income ________. For Erika, hockey tickets are ________ good. 14) ______

A) elastic; an inferior
B) elastic; a normal
C) inelastic; a normative
D) inelastic; a normal
E) inelastic; an inferior

15) If a large percentage fall in the price of good A results in a small percentage decrease in the quantity supplied, then 15)
______

A) demand is elastic.
B) supply is elastic.
C) demand is income inelastic.
D) supply is inelastic.
E) demand is inelastic.

16) A vertical supply curve 16) ______

A) is impossible except in the long run.
B) indicates a shortage of the good.
C) implies an elasticity of supply equal to zero.
D) implies an elasticity of supply equal to infinity.
E) indicates that suppliers are unwilling to produce the good.

17) Preferences for brussels sprouts increase. The price of brussels sprouts will not change if the price elasticity of 17)
______

A) supply is 0.
B) supply is infinity.
C) supply is 1.
D) demand is 1.
E) demand is 0.
18) In the market for farm crops momentary supply is ________. In the market for farm crops, short-run supply is

________. 18) ______

A) positive; negative
B) more elastic than short-run supply; more elastic than long-run supply
C) less elastic than short-run supply; less elastic than long-run supply
D) perfectly elastic; perfectly inelastic
E) negative; positive

19) At a price of $15, Jack's quantity demanded of good A is the same as when the price rises to $16. Jack's demand for good A is

19) _______

A) unit elastic.
B) perfectly inelastic.
C) elastic.
D) inelastic.
E) perfectly elastic.

Use the table below to answer the following questions.

Table 4.1.1
Demand schedule for good A.
20) Refer to Table 4.1.1. The price elasticity of demand when the price rises from $6 a unit to $7 a unit is 20) _______

A) 2.0. B) 1.3. C) 0.5. D) 1.0. E) 2.6.

Short Q/A

Chapter 4

1) What are the three cases for the price elasticity of demand? Briefly define each.

2) What does a horizontal demand curve indicate about the price elasticity of demand?

3) If the owner of a local movie theater wanted to increase the theater's total revenue from movie admissions,
what should the owner do with ticket prices?

4) "The fewer the number of substitutes for a good, the more elastic the demand for that good." Is the previous
statement true or false?
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) When a market price allocates a scarce resource, 1) _______

A) ability to pay for the resource is less important than willingness-to-pay.
B) only those who show interest can use the resource.
C) only those who are willing and able to pay get the resource.
D) everyone in the economy can use the resource.
E) willingness-to-pay is not an issue.

2) In the Canadian economy, the command system 2) _______

A) is used extensively in place of markets.
B) is used only by private companies.
C) is used extensively inside firms and government departments.
D) is not used at all.
E) is used occasionally inside firms and government departments.

3) Choose the statement or statements that are correct.

I. The value of one more unit of a good or service is its marginal benefit.

II. Marginal benefit equals the total amount we spend on a good or service.

III. Marginal benefit is the maximum amount willingly paid for another unit of a good or service. 3) _______

A) I only
B) II only
C) I and III
D) III only
E) I, II, and III

4) A new car has a sticker price of $35,000. Fred decided that he would pay no more than $32,000 for this car. He bought the car for

$31,000. Fred obtained a consumer surplus of 4) _______

A) $4,000. B) $1,000. C) $32,000. D) $3,000. E) $35,000.

Use the figure below to answer the following questions.

Figure 5.2.2

5) Refer to Figure 5.2.2. If the price is P0, consumer surplus is 5) _______

A) A.
B) B plus C.
C) D plus E.
D) A plus B plus C.
E) A plus B plus C plus D plus E.

6) The marginal cost of producing an additional basket of tomatoes is $5.00. The consumer is willing to pay a maximum of $9.00 for
an additional basket. A farmer sells a basket of tomatoes for $6.00 each. The farmer receives a producer surplus from selling an

additional basket of tomatoes equal to 6) _______

A) $4.00. B) $5.00. C) $3.00. D) $1.00. E) $9.00.

Use the figure below to answer the following questions.

Figure 5.3.1

7) Refer to Figure 5.3.1. The efficient quantity is 7) _______

A) 200 units. B) 50 units. C) 250 units. D) 150 units. E) 100 units.

8) Consider the market for hot dogs. If this market becomes a monopoly, then there will be 8) _______
A) underproduction of hot dogs.
B) overproduction of hot dogs.
C) a deadweight loss in the market for hot dogs.
D) an efficient quantity of hot dogs.
E) both A and C are correct.

Use the figure below to answer the following questions.

 Figure 5.3.2

9) Refer to Figure 5.3.2. If the level of output is 100 units, the deadweight loss is area 9) _______

A) BCF. B) ACG. C) DCE. D) ACH. E) HCG.

10) Markets may not achieve an efficient allocation of resources when there are 10) ______
A) monopolies.
B) external benefits.
C) subsidies.
D) public goods.
E) all of the above

Use the table below to answer the following questions.

Table 5.2.1
11) Table 5.2.1 gives information on marginal cost for the XYZ firm. If XYZ sells the first unit at a price of $6, what is the producer

surplus on that unit? 11) ______

A) $4 B) $12 C) $9 D) $6 E) $7

Use the figure below to answer the following questions.

Figure 5.2.2

12) Refer to Figure 5.2.2 If the price falls from P1 to P0, then the change in consumer surplus is 12) ______

A) A + B. B) A + B + D. C) B + C. D) A + B + C. E) A.

13) A contest allocates resources to 13) ______

A) a winner or a group of winners.
B) a gambler.
C) private firms.
D) an athlete.
E) the government.

14) Lotteries work best 14) ______

A) when potential users of scarce resources are unknown.
B) under any circumstances.
C) under a command system.
D) under the first-come, first served allocation method.
E) when there is no effective way to distinguish among potential users of a scarce resource.

15) Deadweight loss is 15) ______

A) not a problem with overproduction.
B) eliminated by a monopoly.
C) gained by producers.
D) borne entirely by consumers.
E) the social loss from inefficiency.

Short Q/A

1) "A demand curve is the same as a marginal cost curve." Is this statement correct or incorrect? Explain your
answer.

2) What is consumer surplus?

3) A new car in the dealer's showroom had a sticker price of $35,900. Sally liked the car but decided she would
pay no more than $32,000 for it, otherwise she would do without it. After haggling with the dealer, she
purchased the car for $31,500. Did she gain any consumers surplus? If so, how much? If not, why not?

4) "If the price of a ticket to Sea World exceeds the marginal cost of the ticket by $13, a producer surplus exists
for Sea World." Is this statement true or false?
 MCQ (Chapter#3)

1) Which market is an example of a market for goods? 1) _______

A) haircut market
B) manufactured input market
C) labour market
D) energy market
E) apple market

2) The opportunity cost of a hot dog in terms of hamburgers is 2) _______

A) the money price of a hot dog minus the money price of a hamburger.
B) smaller in the winter than in the summer.
C) the ratio of the slope of the supply curve of hot dogs to the slope of the supply curve of hamburgers.
D) the ratio of the money price of a hot dog to the money price of a hamburger.
E) the ratio of the slope of the demand curve for hot dogs to the slope of the demand curve for hamburgers.

3) Which one of the following events shifts the demand curve for grape jelly to the right? 3) _______
A) an increase in income if grape jelly is a normal good
B) an increase in the price of peanut butter, a complement of grape jelly
C) a decrease in the price of grape jelly
D) a decrease in the population
E) a decrease in the price of strawberry preserves, a substitute for grape jelly
 Figure 3.2.1

4) Which one of the following would result in a movement from point A to point B in Figure 3.2.1? 4)
_______
A) a rise in the price of oranges
B) an increase in population size
C) a rise in the price of bananas
D) public concern about chemicals sprayed on apples
E) a fall in the price of apples
 Figure 3.2.2

5) Which one of the following would result in the demand curve shifting from D1 to D2 in Figure 3.2.2? 5)
_______

A) a rise in the price of pizza

B) a fall in the price of pizza
C) a rise in the price of hamburgers, a substitute for pizza
D) an increase in the supply of pizza
E) a rise in the price of Coke, a complement of pizza

6) The price of good X falls and the demand for good Y decreases. We can conclude that 6) _______
A) X and Y are independent of each other.
B) X and Y are substitutes.
C) X and Y are complements.
D) X is an inferior good.
E) X is a normal good.

7) Some sales managers are talking shop. Which one of the following quotations does not refer to a rightward shift

of the demand curve? 7) _______

A) "It has been an unusually harsh winter; our sales of wool scarves are up from last year."
B) "We decided to cut our prices, and the increase in our sales has been remarkable."
C) "People are expecting a harsh winter next year, so the sales of our winter coats have increased."
D) "The Green movement has sparked an increase in our sales of biodegradable products."
E) "Since our competitors raised their prices, our sales have doubled."
8) An increase in supply is shown by 8) _______
A) a movement down along the supply curve.
B) a leftward shift of the supply curve.
C) a rightward shift of the supply curve.
D) a movement up along the supply curve.
E) an initial movement up and then down along the same supply curve.

9) If goods X and Y are substitutes in production, then a rise in the price of good X 9) _______
A) decreases the demand for good Y.
B) decreases the supply of good Y.
C) increases the supply of good Y.
D) increases the demand for good Y.
E) might change the supply of Y; it depends on whether X and Y are also substitutes.

10) A shift of the supply curve for rutabagas occurs if there is 10) ______
A) a change in preferences for rutabagas.
B) a change in income.
C) a change in the price of a related good that is a substitute for rutabagas.
D) a change in the price of rutabagas.
E) none of the above

11) Which of the following shifts the supply curve for good X leftward? 11) ______
A) a decrease in the wages of workers employed to produce X
B) a situation in which the quantity demanded of X exceeds the quantity supplied of X
C) a situation in which the quantity supplied of X exceeds the quantity demanded of X
D) an increase in the cost of the machinery used to produce X
E) a technological advance in the production of X

12) Which one of the following would not shift the supply curve of good X to the right? 12) ______
A) an increase in the price of Y, a complement in production of X
B) a fall in the price of Y, a substitute in production of X
C) an improvement in technology used in the production of X
D) a fall in the price of the factors of production used in producing X
E) a rise in the price of X

13) If the price is above the equilibrium price, then 13) ______
A) none of the good will be sold.
B) a shortage exists.
C) the price must rise further to reach the new market equilibrium.
D) a surplus exists.
E) price will not change; producers will cut back production until the market is in equilibrium.
14) Since 1980, there has been a dramatic increase in the number of working mothers. Based on this information

alone, we can predict that the market for child care services has experienced 14) ______

A) a decrease in demand.
B) an increase in supply.
C) a decrease in quantity supplied.
D) an increase in quantity demanded.
E) an increase in demand.

15) The price of a good will fall if 15) ______

A) demand for the good remains constant.
B) demand for the good increases.
C) supply of the good remains constant.
D) supply of the good decreases.
E) supply of the good increases.

16) If A is an inferior good and consumer income rises, the demand for A 16) ______
A) increases and the equilibrium price rises, but the equilibrium quantity decreases.
B) decreases and the equilibrium price falls, but the equilibrium quantity increases.
C) increases, and the equilibrium price and the equilibrium quantity increase.
D) decreases, the equilibrium price rises, and the equilibrium quantity decreases.
E) decreases, and the equilibrium price and the equilibrium quantity decrease.

17) Crude oil is a very important factor of production used in the production of gasoline. If the price of crude oil

rises, we would expect the 17) ______

A) price of gasoline to rise due to an increase in demand.

B) equilibrium quantity of gasoline to rise due to an increase in demand.
C) price of gasoline to rise due to a decrease in supply.
D) equilibrium quantity of gasoline to fall due to an increase in supply.
E) price of gasoline to fall due to an increase in demand.

18) The fish stocks in the Atlantic fishing industry have decreased. As a result, we would expect 18)
______
A) a fall in the price of fish, leading to a decrease in the demand for meat, because meat and fish are substitutes.
B) a fall in the price of fish, leading to an increase in the demand for meat, because meat and fish are substitutes.
C) an increase in the demand for meat because meat is a substitute for fish.
D) an increase in the demand for meat (e.g., beef) because meat is a complement of fish.
E) a rise in the price of fish, leading to a decrease in the demand for meat, because meat and fish are complements.
Tim Hortons' Risks
Tim Hortons has exploded to become a dominant player among quick-serve restaurants. In 2001, it took the risk by
switching to centralized production of baked goods, which lowered its labour costs and increased its sales volume.
Source: Financial Post, August 12, 2010

19) Lower labour costs 19) ______

A) increase the quantity supplied of Tim's baked goods.
B) lower the equilibrium price of Tim's baked goods but do not change the equilibrium quantity.
C) increase the supply of Tim's baked goods, increase the demand for Tim's baked goods and increase the
equilibrium quantity.
D) increase the demand for Tim's baked goods and raise the price.
E) increase the supply of Tim's baked goods and lower the equilibrium price.

Use the figure below to answer the following questions.

Figure 3.5.1

20) If the demand curve is D2 in Figure 3.5.1, 20) ______

A) the equilibrium price is P2 and the equilibrium quantity is Q0.
B) the equilibrium price is P2 and the equilibrium quantity is Q2.
C) there is a shortage in the amount of Q2 - Q0.
D) the price will rise.
E) a rise in price will shift the demand curve to D3.

Short Q/A
1) What is the law of demand?

2) Computers are a complement to computer software. Suppose the price of a computer falls.
How does this fall in price affect the demand for computer software and the demand curve for
computer software?

3) What is the difference between a normal good and an inferior good? Give an example of each.

4) What are substitutes in production?

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Use the figure below to answer the following questions.

Figure 6.1.1

1) Refer to Figure 6.1.1. If the demand for rental housing increases and the demand curve shifts rightward from D0

to D1, and there is a strictly enforced rent ceiling of $150 per room, 1) _______

A) the number of rooms rented will increase to 2,000.

B) the number of rooms rented is 1,500.
C) there is a housing shortage of 500 rooms.
D) the number of rooms rented decreases to 1,000.
E) both B and C

2) If the government imposes a maximum rent for housing that is above the equilibrium price, then you predict that

2) _______

A) the demand curve for housing shifts rightward.

B) the law will generate a shortage of housing.
C) the supply curve of housing shifts leftward.
D) the law will create a surplus of housing.
E) the law will have no effect in the market for housing.
Use the figure below to answer the following questions.

Figure 6.1.2

3) Refer to Figure 6.1.2. If a rigorously enforced price ceiling is set at $10, then 3) _______
A) 150 units will be sold at a price of $15 each.
B) 200 units will be sold at a price of $10 each.
C) 100 units will be sold at a price of $15 each.
D) 100 units will be sold at a price of $20 each.
E) 100 units will be sold at a price of $10 each.

4) An effective rent ceiling 4) _______

A) increases producer surplus.
B) increases the supply of housing.
C) increases consumer surplus.
D) creates a deadweight loss.
E) decreases the supply of housing.
 Figure 6.2.1

5) Refer to Figure 6.2.1. Suppose a $5 per hour minimum wage is in force. What is the lowest wage per hour an

unemployed person would be willing to accept? 5) _______

A) $3 B) $4 C) $5 D) $2 E) $1

Use the table below to answer the following questions.

Table 6.2.2

6) Refer to Table 6.2.2. What is the level of unemployment in millions of hours if the minimum wage is set at $3 per

hour? 6) _______

A) 70 B) 20 C) 30 D) 40 E) zero

7) Suppose the equilibrium wage is $10 an hour. A minimum wage is a price ________ that will change the quantity

of employment if it is set at ________ an hour. 7) _______

A) ceiling; $12
B) floor; $10
C) ceiling; $8
D) floor; $8
E) floor; $12

8) Suppose the demand for gasoline is inelastic, but not perfectly inelastic, and the supply is elastic, but not perfectly

elastic. A tax on gasoline is paid 8) _______

A) mostly by buyers.
B) equally by buyers and sellers.
C) totally by sellers.
D) mostly by sellers.
E) totally by buyers.

Use the figure below to answer the following questions.

Figure 6.3.1

9) Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed. The tax on each frisbee is

9) _______

A) $5.60. B) $0.40. C) $6.60. D) $0.60. E) $1.00.

 Figure 6.3.2

10) Refer to Figure 6.3.2. The deadweight loss from the sales tax is 10) ______

A) $1,000. B) $150. C) $100. D) $50. E) $200.

11) The buyer pays most of a tax if demand is relatively inelastic because 11) ______
A) the buyer cannot easily substitute to other markets.
B) the seller cannot easily substitute to other goods.
C) there is a black market for this good.
D) the buyer can easily substitute to other markets.
E) the government forces the seller to bear the burden of the tax.
 Figure 6.3.3

12) Refer to Figure 6.3.3. Suppose a tax of $1 is imposed. In which market would the seller pay the highest portion

of the tax? 12) ______

A) (a)
B) (b)
C) (c)
D) (d)
E) all markets equally

13) A subsidy is a 13) ______

A) payment made by the government to a producer.
B) payment made by foreign governments to domestic farmers.
C) payment made by a consumer to a producer.
D) tax imposed by the government on a producer.
E) tax imposed by the government on imported goods.
14) An effective production quota 14) ______
A) is inefficient because it results in overproduction.
B) is efficient because it results in overproduction.
C) is efficient because it results in underproduction.
D) is inefficient because it results in underproduction.
E) is efficient for quantities below the equilibrium quantity and is inefficient for quantities above the equilibrium
quantity.

15) Suppose the Canadian Dairy Commission sets a production quota for dairy production above the equilibrium

quantity. Then, 15) ______

A) the policy will raise the price of milk in the international market.
B) the policy will increase revenue received by dairy producers.
C) the policy will increase the quantity of milk produced in Canada.
D) the policy will decrease revenue received by dairy producers.
E) the policy will have no impact on the dairy industry.

Short Q/A

1) In the housing market, if a rent ceiling of $600.00 is imposed when the equilibrium rent is
$500.00, why will nothing change?

2) What is the difference between a rent ceiling set below the equilibrium rent and a rent ceiling
set above the equilibrium rent?

3) What is a minimum wage? What are the effects of a minimum wage set below the equilibrium
wage rate?

4) How does a production quota influence farm prices and output?

 Chapter 3,4,5 and 6
1) The "law of demand" refers to the fact that, all other things remaining the same, when the price of a good

rises 1) _______

A) the demand curve shifts leftward.

B) the demand curve shifts rightward.
C) there is a movement down along the demand curve to a larger quantity demanded.
D) there is a movement up along the demand curve to a smaller quantity demanded.

2) When the price of a good falls, the income effect for a normal good implies that people buy 2) _______
A) less of that good because the relative price of the good has fallen.
B) less of that good because they cannot afford to buy all the things they previously bought.
C) more of that good because they can afford to buy more of all the things they previously bought.
D) more of that good because the relative price of the good has risen.

3) Which of the following shifts the supply curve for gasoline rightward? 3) _______
A) an increase in the price of gasoline
B) a decrease in the price of a resource used to produce gasoline, such as crude oil
C) an increase in the demand for gas-guzzling, sport utility vehicles
D) a situation in which the quantity demanded exceeds the quantity supplied

4) Which of the following statements is TRUE? 4) _______

A) An increase in the price of gasoline will increase the supply of gasoline.
B) An increase in the price of gasoline will increase the quantity supplied of gasoline.
C) An increase in the price of gasoline will increase the quantity demanded of gasoline.
D) An increase in the price of gasoline will decrease the demand for gasoline.

5) Which of the following always raises the equilibrium price? 5) _______

A) an increase in both demand and supply
B) a decrease in demand combined with an increase in supply
C) a decrease in both demand and supply
D) an increase in demand combined with a decrease in supply

6) A decrease in the price of eggs from $1.50 to $1.30 per dozen resulted in an increase in egg purchases in two
cities. In Philadelphia, daily egg purchases increased from 6000 to 8000 dozens; in nearby Dover, Delaware, daily

egg purchases increased from 300 to 400 dozens. The price elasticity of demand is therefore 6) _______

A) lower in the smaller city as would be expected.

B) the same in Philadelphia as in Dover.
C) greater in the smaller city as would be expected.
D) certainly affected by population differences in different markets.
7) The marketing people for AT&T believe that if they lower the price of long-distance phone calls by 5 percent,

their quantity demanded will increase by 15 percent. If they are correct in their belief, then C
7) _______

A) the demand for long-distance phone calls is price inelastic.

B) the total revenue from long-distance phone calls will decrease if they lower the price.
C) the total revenue from long-distance phone calls will increase if they lower the price.
D) the demand for long-distance phone calls is income elastic.

8) Toothpaste and toothbrushes are complements, so the ________ elasticity of demand is ________. 8)
2
_______

A) cross; positive B) income; positive

C) cross; negative D) income; negative

9) If a rise in the price of oranges from $7 to $9 a bushel increases the quantity of bushels supplied from 4,500 to

5,500 bushels, the C

9) _______

A) demand for oranges is elastic. B) supply of oranges is elastic.

C) supply of oranges is inelastic. D) demand for oranges is inelastic.

10) The supply of lettuce in the short run will be ________ than the supply in the long run and ________ than the

supply today. A
10) ______

A) less elastic; more elastic B) less elastic; less elastic

C) more elastic; less elastic D) more elastic; more elastic

11) The resource allocation method that is used to allocate scarce resources between private use and government use

is B
11) ______

A) personal characteristics. B) majority rule.

C) first-come, first-served. D) lottery.

12) Nick can purchase each milkshake for $2. For the first milkshake purchased Nick is willing to pay $4, for the
second milkshake $3, for the third milkshake $2 and for the fourth milkshake $1. What is the value of Nick's

consumer surplus for the milkshakes he buys? A

12) ______
A) $3 B) $10 C) $9 D) $2

13) The figure tells us about the market for red roses. The consumer surplus is ________ a day. 13) ______

A) $1,000 B) $20 C) $800 D) $200

14) The figure above shows the market for coffee. Coffee is a normal good. If consumers' incomes fall, the efficient

quantity of coffee will ________ and the producer surplus will ________. 14) ______
A) increase; decrease B) decrease; decrease

C) decrease; increase D) increase; increase

15) In the above figure, if output is 30 units, then the total deadweight loss is 15) ______

A) $5. B) $60. C) $20. D) $10.

16) In the figure above, originally the apartment rental market is in short-run and long-run equilibrium with a rent of
$600 per month. Then the government imposes a rent ceiling of $500 per month. The loss of producer surplus as a

result of the price ceiling is 16) ______

A) $500,000 per month. B) $250,000 per month.

C) $50,000 per month. D) more than $500,000 per month.

17) The figure above shows the housing market in the city of Appleville. A rent ceiling of $650 per month is

imposed. With the rent ceiling, the deadweight loss in the Appleville housing market is 17) ______

A) 300 units per month. B) at most $7,500 per month.

C) zero. D) at least $15,000 per month.

18) A minimum wage set above the equilibrium wage

I. increases the supply of labor.

II. increases the quantity of labor supplied.

III. decreases the demand for labor. 18) ______

A) I and II only B) I only C) I, II, and III D) II only

19) The figure shows the market for books before and after a sales tax is introduced. The tax on books is ________ a

book, buyers pay ________ of tax per book, and the government's tax revenue is ________ a week. 19)
______

A) $0.80; $1.20; $12 B) $0.40; $0.40; $4

C) $1.20; $0.80; $128 D) $1.20; $0.80; $12

20) The figure above shows the market for cotton in Georgestan. The government regulates the market with a

production quota set at 8 million pounds per year. The price of cotton in Georgestan is 20) ______

A) 30 cents per pound. B) 50 cents per pound.

C) 60 cents per pound. D) 40 cents per pound.

21) Between 2000 and 2010, the price of a PC fell and the quantity of PCs sold increased. Which of the explanations

below is consistent with these facts? B

21) ______

A) The demand for PCs increased by more than the supply of PCs increased.
B) The supply of PCs increased by more than the demand for PCs increased.
C) Both the supply of PCs and the demand for PCs decreased.
D) The demand for PCs decreased by more than the supply of PCs increased.

22) When the price of milk goes up as a result of a rightward shift of the demand curve for milk, the total revenue

collected by milk producers will D

22) ______

A) increase only if milk is inelastic in supply.

B) remain constant only if milk has a unitary price elasticity of supply.
C) decrease only if milk is elastic in supply.
D) none of the above

23) In the figure above, when production is 3 units with a price of $3, the producer surplus in this market

equals C
23) ______

A) a + b + f + g. B) b + g.

C) f + g. D) a + b + f + g + h + i.
24) In the figure above, originally the apartment rental market is in short-run and long-run equilibrium with a rent of
$600 per month. Then the government imposes a rent ceiling of $500 per month, which causes a shortage. Suppose

that apartments are a normal good and incomes rise. The increase in income A
24) ______

A) increases the shortage. B) raises the rent.

C) decreases the shortage. D) has no effect on the shortage.

25) The figure above shows the market for milk in Cowland. If a subsidy paid to producers of $1 per gallon of milk

is introduced, what is the price that consumers pay? A

25) ______

A) between $3.00 and $4.00 per gallon B) $4.00 a gallon

C) $3.00 a gallon D) between $4.00 and $5.00 per gallon

26) What happens to the demand for Xbox games if the price of an Xbox falls? D
26) ______
A) The demand for Xboxes remains unchanged.
B) The demand for Xboxes decreases because the price of a complement falls.
C) The demand for Xboxes decreases because the price of a substitute falls.
D) The demand for Xboxes increases because the price of a complement falls.

27) Oatmeal is a normal good and cold cereal is a substitute for oatmeal. Raisins are a complement for oatmeal.

Which of the following increases the demand for oatmeal? A

27) ______

A) an increase in the price of cold cereal B) a decrease in population

C) an increase in the price of raisins D) a decrease in income

28) Which of the following leads to a movement along the supply curve for shredded wheat but does not shift the

supply curve for shredded wheat? C

28) ______

A) an increase in the cost of machinery used to shred wheat

B) perfect weather conditions that resulted in a large wheat crop
C) a fall in the price of shredded wheat
D) a decrease in the number of shredded wheat producers

29) If the quantity of textbooks supplied is 10,000 per year and the quantity of textbooks demanded is 8,000 per

year, there is a ________ in the market and the price will ________. C
29) ______

A) shortage; rise B) shortage; fall C) surplus; fall D) surplus; rise

30) Bicycles are made out of steel. If the price of steel increases, there is a shift in the supply curve of bicycles that

leads to C
30) ______

A) a permanent surplus of bicycles. B) a shift in the demand curve for bicycles.

C) an increase in the price of a bicycle. D) a temporary surplus of bicycles.

31) If Pepsi decided to raise its price, you would expect the price of Coca Cola 31) ______ B
A) to fall.
B) to raise.
C) Their prices should have no relationship because Pepsi and Coca Cola are not related.
D) None of the above answers are correct.

32) If a price hike of 5 percent increases the quantity demanded of another good by 2 percent, the goods must be

________ and the cross elasticity of demand equals ________. 32) ______

A) substitutes; 2.5 B) complements; 0.40

C) complements; 2.5 D) substitutes; 0.40

33) Which of the following goods has a perfectly inelastic supply? 33) ______
A) Diet Pepsi
B) insulin
C) compact discs by Bush
D) the original portrait of "Whistler's Mother"

34) Suppose that the price elasticity of supply for oil is 0.1. Then, if the price of oil rises by 20 percent, the quantity

of oil supplied will increase 34) ______

A) by 0.2 percent. B) by 20 percent. C) by 200 percent. D) by 2 percent.

35) A decrease in the supply of sugar increases the price of sugar from $1.00 a packet to $1.25 a packet. The
quantity decreases from 100 packets a day to 80 packets a day. The price elasticity of demand of sugar is

________. 35) ______

A) 0.75 B) 0.5 C) 1.0 D) 1.25

36) In the above figure, the lowest price for which the firm will sell its second ton of wheat is 36) ______

A) $100. B) $25. C) $50. D) $75.

37) In the figure above, when the price of a CD is $8.00, total producer surplus from all the CDs will be 37)
______

A) $10 million. B) $20 million.

C) greater than at $10.00 per CD. D) zero.

38) The reduction in consumer and producer surplus that results from underproduction is called 38) ______

A) an internal cost. B) a quantity loss.

C) a deadweight loss. D) None of the above answers is correct.

39) American Idol is a popular television program where contestants compete to win a $1 million record deal. To
determine the winner, fans either dial the number or send a text message indicating their favorite contestant. The
contestant with the highest number of texts and phone calls wins. How is the scarce resource in this example

allocated? 39) ______

A) command B) contest

C) majority rule D) personal characteristics

40) In the figure above, when the market is in equilibrium, total consumer surplus on all the CDs bought will

be 40) ______

A) $20 million. B) less than $15 million.

C) less than at any other price. D) greater than $30 million.

41) Assume that your state government has placed a price ceiling of $.20 per kilowatt hour on electricity. The

equilibrium price per kilowatt hour for electricity is $.25. The government's action will result in 41) ______

A) an increase in the price of electricity to $.25 per kilowatt hour.

B) an increase in producer surplus.
C) a deadweight loss.
D) a surplus of electricity in the electricity market.
42) The above figure shows the apartment market in Big City. What could the Big City Housing Authority do if it

wants to reduce the rents paid by its citizens? 42) ______

A) impose a rent floor above $1350 B) impose a rent ceiling below $1350

C) impose a rent ceiling above $1350 D) impose a rent floor below $1350

43) In the figure above, if a minimum wage of $6 per hour has been imposed and the labor demand curve then shifts

from D0 to D1 the wage rate ________ and the amount of employment ________. 43) ______

A) falls; decreases B) does not change; increases

C) falls; increases D) does not change; decreases

44) In the above figure, if the minimum wage is equal to ________, there would be ________ hours of labor

employed. 44) ______

A) $4 per hour; 2,000 B) $8 per hour; 2,000

C) $6 per hour; 3,000 D) $8 per hour; 4,000

45) In the figure above, if a tax of $2 per widget is imposed on sellers, then the price of widgets paid by the buyer

will be 45) ______

A) $6. B) between $8 and $6.

C) more than or equal to $8. D) less than $6.

46) In the above figure, the imposition of a $0.25 sales tax on sellers will 46) ______
A) raise the market price paid by buyers of hotdogs by $0.125.
B) raise the market price paid by buyers of hotdogs by $0.25.
C) lower the market price paid by buyers of hotdogs by $0.25.
D) have no effect on the market price of hot dogs.

47) Of the $3 per pizza tax illustrated in the above figure, the 47) ______
A) government collects $120 thousand in revenue from the pizza tax.
B) consumers pay $2 of the $3 per pizza tax.
C) sellers pay $1 of the $3 per pizza tax.
D) All of the above answers are correct.

48) When a government fines and/or imprisons convicted drug dealers, it is attempting to reduce the illegal drug

trade by shifting the ________ curve for illegal drugs ________. 48) ______

A) demand; leftward B) supply; rightward

C) demand; rightward D) supply; leftward

49) In general, a fine on buying a product leads to the 49) ______

A) supply curve shifting rightward. B) demand curve shifting leftward.

C) demand curve shifting rightward. D) supply curve shifting leftward.

50) A sales tax is imposed on the sellers of gasoline. This tax shifts 50) ______
A) the supply of gasoline curve leftward.
B) both the supply curve of gasoline and demand curve for gasoline leftward.
C) the demand for gasoline curve leftward.
D) the supply of gasoline curve rightward.

1) D
2) C
3) B
4) B
5) D
6) B
7) C
8) C
9) C
10) A
11) B
12) A
13) D
14) B
15) D
16) B
17) D
18) D
19) D
20) C
21) B
22) D
23) C
24) A
25) A
26) D
27) A
28) C
29) C
30) C
31) B
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Utility is 1) _______
A) equal to the price of a good.
B) the value of a good.
C) the additional satisfaction received from consuming another unit of a good.
D) the practical usefulness of a good.
E) the benefit or satisfaction from consuming goods and services.

2) The fact that your fourth slice of pizza does not generate as much satisfaction as your third slice is an example of

2) _______

A) diminishing total utility.

B) the law of demand.
C) the paradox of value.
D) consumer surplus.
E) diminishing marginal utility.

3) The first can of Coke gives 15 units of utility to Witney, while the second can of Coke increases her total utility to

23. What is the marginal utility of the second can of Coke? 3) _______

A) 11.5 units B) 38 units C) 8 units D) 24 units E) 7.5 units

Use the table below to answer the following questions.

Table 8.2.1

4) Refer to Table 8.2.1. Consider Sam's utility from sailing and skiing. The price of sailing is $10 per hour and the
price of skiing is $20 per hour; Sam's income to spend on these activities is $80. In consumer equilibrium, Sam will

sail for 4) _______

A) 4 hours and ski for 2 hours.

B) 3 hours and ski for 2 hours.
C) 2 hours and ski for 4 hours.
D) 4 hours.
E) 8 hours.
5) If a consumer spends all his income and his marginal utility per dollar is equal for all goods, then 5)
_______
A) he cannot be better off even with more income.
B) marginal utility is maximized.
C) total utility is maximized.
D) the number of units bought of each good must be equal.
E) the proportion of income spent on each good must be equal.

6) Let MUA and MUB stand for the marginal utility of goods A and B, respectively. Let PA and PB stand for the

price of goods A and B, respectively. Which statement must hold for consumer equilibrium? 6) _______

A) MUA = MUB and PA = PB

B) MUA = MUB
C) MUA/MUB = PA/PB
D) MUA/MUB = PB/PA
E) MUAPA = MUBPB

Use the table below to answer the following questions.

Table 8.2.2

7) Refer to Table 8.2.2. What is the total utility if 3 bags of popcorn and 2 bottles of pop are consumed? 7)
_______

A) 310 B) 660 C) 150 D) 100 E) 490

8) Samir consumes apples and bananas and is in consumer equilibrium. The marginal utility from his last apple is 10
and the marginal utility from his last banana is 5. If the price of an apple is $0.50, then what is the price of a

banana? 8) _______

A) $0.25 B) $0.50 C) $0.10 D) $0.05 E) $1.00

Use the table below to answer the following questions.

Windsurfing equipment rents for $10 per hour and snorkeling equipment rents for $5 per hour.

Table 8.3.1

9) Devon enjoys windsurfing and snorkeling. His total utility from each activity is summarized in Table 8.2.1.

Devon has $35 to spend. How long will Devon choose to windsurf and to snorkel? 9) _______

A) 4 hours windsurfing and no hours snorkeling

B) 1 hour windsurfing and 5 hours snorkeling
C) 2 hour windsurfing and 4 hours snorkeling
D) 2 hours windsurfing and 3 hours snorkeling
E) 3 hours windsurfing and 1 hour snorkeling

Use the table below to answer the following questions.

Table 8.2.3

10) Refer to Table 8.2.3. If income is $13, then utility is maximized when consumption is 10) _______
A) 6 units of X and 1 unit of Y.
B) 2 units of X and 9 units of Y.
C) 4 units of X and 5 units of Y.
D) 3 units of X and 7 units of Y.
E) 5 units of X and 3 units of Y.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The short run is a time frame in which 1) _______

A) the firm is not able to hire more workers.
B) the amount of output produced is fixed.
C) at least one factor of production is fixed.
D) there is not enough time to make all of the decisions necessary to maximize profit.
E) there is a shortage of most factors of production.

2) The long run refers to a time period 2) _______

A) in which labour is variable, but plant is fixed.
B) when there is at least one variable factor of production.
C) in which all factors of production are variable.
D) of one year or less.
E) of at least 5 years.

3) The total product curve is a graph that shows the 3) _______

A) maximum output that can be produced as technology advances.
B) minimum cost of producing a given amount of output using a given technology.
C) change in total product for a given change in marginal product.
D) maximum profit from each unit of output sold.
E) maximum output that a given quantity of labour can produce.
 Figure 11.2.1

4) Refer to Figure 11.2.1 which illustrates Tania's total product curve. Which one of the following statements is

false? 4) _______

A) All the points below the curve are attainable.

B) All the points on the curve are attainable.
C) The cost of producing at point B equals the cost of producing at point C.
D) All the points below the curve are inefficient.
E) All the points above the curve are unattainable.

5) Refer to Figure 11.2.1 which illustrates Tania's total product curve. Which one of the following statements is true?

5) _______

A) The points below the curve are attainable and inefficient.

B) The points below the curve are inefficient and unattainable.
C) The points above the curve are attainable and inefficient.
D) The points on the curve are efficient and unattainable.
E) Marginal product is equal at every point on the total product curve.

6) Refer to Figure 11.2.1 which illustrates Tania's total product curve. Marginal product of labour reaches its

maximum when the number of workers increases from 6) _______

A) zero to 1. B) 1 to 2. C) 2 to 3. D) 3 to 4. E) 4 to 5.
Refer to the table below to answer the following questions.

Table 11.2.1

Labour Output
(workers per day) (teapots per day)
0 0
1 3
2 12
3 19
4 23
5 25

7) Refer to Table 11.2.1 which gives Tania's total product schedule. The average product when the firm hires two

workers is 7) _______

A) 9 teapots per worker.

B) 3 teapots per worker.
C) 6 teapots per worker.
D) 7 teapots per worker.
E) 12 teapots per worker.

8) Which of the following are correct? According to the law of diminishing returns,
(1) marginal product eventually rises.
(2) marginal product eventually falls.
(3) marginal cost eventually rises.

(4) marginal cost eventually falls. 8) _______

A) (1) and (3) B) (1) and (4) C) (2) and (3) D) (2) and (4) E) (4)
Use the figure below to answer the following questions.

Figure 11.3.2

9) Refer to Figure 11.3.2, which illustrates short-run average and marginal cost curves. Which one of the following

statements is false? 9) _______

A) The vertical gap between curves B and C is equal to average fixed cost.
B) The vertical gap between curves B and C is equal to average variable cost.
C) Line B comes closer to line C as output increases because of a decrease in average fixed cost.
D) Curve D is the marginal cost curve.
E) Average fixed cost decreases with output.

10) Marginal cost equals 10) ______

A) (TC - TVC)/Q.
B) ΔTC/ΔQ.
C) ΔQ/ΔTVC.
D) ΔTFC/ΔTC.
E) Q/TVC.

11) A firm's total fixed cost is $100. If total cost is $200 for one unit of output and $310 for two units, what is the

marginal cost of the second unit? 11) ______

A) $200 B) $310 C) $110 D) $100 E) $210

12) A technological advance will shift
(1) TP, AP, and MP curves up.
(2) TP, AP, and MP down.
(3) TC, ATC, and MC curves up.

(4) TC, ATC, and MC curves down. 12) ______

A) (1) and (3)

B) (1) and (4)
C) (2) and (3)
D) (2) and (4)
E) none of the above

Use the figure below to answer the following questions.

Figure 11.4.2

13) Refer to Figure 11.4.2, which illustrates the short-run average total cost curves for four different plant sizes.

Which plant has the lowest average total cost for an output rate of 5 sweaters a day? 13) ______

A) Plant A
B) Plant B
C) Plant C
D) Plant D
E) none of the above

Use the figure below to answer the following questions.

Figure 11.4.4

14) Refer to Figure 11.4.4, which illustrates the long-run average total cost curve. Which one of the following

statements is false? 14) ______

A) Diseconomies of scale exist at quantities greater than Q2 units of output.

B) Constant returns to scale exist between Q0 and Q1 units of output.
O
C) Economies of scale exist between 0 and Q0 units of output.
D) Diseconomies of scale exist between 0 and Q1 units of output.
E) Constant returns to scale exist between Q1 and Q2 units of output.

Total product
Labor (workers) Marginal product Average product
(units)
0 0
1 3
2 4.5
3 14
4 3
5 19
6 1

15) The above (incomplete) table provides information about the relationships between labor and various product

measures. The total product that can be produced with 6 units of labor is 7) _______
A) 19.
⑧
B) 20.
C) 22
D) More information is needed to answer the question.
E) None of the above answers is correct.
Short Q/A

1) What factors of production can a firm change in the short run? In the long run?

2) "In the short run, even when output is zero, the firm still has some variable costs it must pay." Is the statement
correct or incorrect? Briefly explain your answer.

3) What does a firm's short-run total product curve show and what is its significance?
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Which one of the following does not occur in perfect competition? 1) _______
A) Sellers and buyers are well informed about prices.
B) There are many buyers.
C) Established firms have no advantage over new ones.
D) There are significant restrictions on entry into the market.
E) No single firm can exert a significant influence on the market price of the good.

2) A price taker is a firm that 2) _______

A) cannot influence the market price.
B) is incurring an economic loss.
C) sets the market price.
D) must lower its price if it wants to sell more output.
E) can raise its price if it lowers output.

Use the table below to answer the following questions.

Table 12.2.1

3) Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive

firm. If the firm produces 3 units of output, it will 3) _______

A) make an economic profit of $90.

B) incur an economic loss of $86.
C) make an economic profit of $4.
D) incur an economic loss of $4.
E) break even.

4) A firm shuts down if price is 4) _______

A) below minimum average variable cost.
B) above minimum average fixed cost.
C) below average total cost.
D) less than marginal cost.
E) above minimum average variable cost.
5) A firm that temporarily shuts down and produces no output incurs a loss equal to its 5) _______
A) total fixed cost.
B) average fixed cost.
C) marginal cost.
D) total variable cost.
E) average total cost.

Use the figure below to answer the following questions.

Figure 12.2.2

6) Refer to Figure 12.2.2, which shows a perfectly competitive firm's economic profit and loss. The firm is breaking

even at points 6) _______

A) A and C. B) A and D. C) B and C. D) B and D. E) C and D.

7) A firm is producing the profit-maximizing amount of output when it is producing where its ________ curve

intersects its ________ curve. 7) _______

A) marginal cost; average variable cost

B) total cost; total revenue
C) average total cost; average variable cost
D) marginal cost; marginal revenue
E) marginal cost; average total cost

8) In which one of the following situations will a perfectly competitive firm make an economic profit? 8)
_______

A) MR > AVC B) ATC > MC C) MC > AVC D) MR > ATC E) ATC > MR
Use the figure below to answer the following questions.

Figure 12.3.1

9) Refer to Figure 12.3.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly

competitive industry. In the short run, the firm will 9) _______

A) incur an economic loss.

B) exit from the industry.
C) close down.
D) break even.
E) make an economic profit.

Use the figure below to answer the following question.

 Figure 12.3.2

10) Refer to Figure 12.3.2, which shows the cost curves and marginal revenue curve of a firm in a perfectly

competitive industry, The firm is 10) ______

A) not maximizing economic profit.

B) going to close down temporarily.
C) incurring an economic loss.
D) making an economic profit.
E) breaking even.

Use the figure below to answer the following questions.

Figure 12.4.1

11) Refer to Figure 12.4.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly

competitive market. In the long run, market 11) ______

A) demand will increase.

B) supply and market demand will decrease.
C) supply will decrease.
D) demand will decrease.
E) supply will increase.

12) When a perfectly competitive market is in long-run equilibrium, 12) ______

A) all firms make zero economic profit.
B) marginal revenue equals minimum average variable cost.
C) firms exit the market if other firms are incurring an economic loss.
D) firms enter the market if other firms are making an economic profit.
E) at least one firm makes an economic profit.

13) If firms in a perfectly competitive market are incurring an economic loss, some firms will exit. This exit shifts

the market 13) ______

A) supply curve rightward, and the market price falls.

B) demand curve leftward, and the market price falls.
C) supply curve leftward and the market demand curve rightward.
D) demand curve rightward, and the market price rises.
E) supply curve leftward, and the market price rises.

14) The market for maple syrup is perfectly competitive. Suppose that the market is in long-run equilibrium when

the market demand for maple syrup increases. All of the following occur except 14) ______

A) the price rises in the short run.

B) in the short run, existing firms make an economic profit.
C) in the long run, firms make an economic profit.
D) the number of firms in the long run is greater than the number of firms in the short run.
E) the equilibrium quantity increases.

15) In a perfectly competitive market, a technological advance brings ________ economic profit for producers and

________ lower prices for consumers. 15) ______

A) temporary; temporary
B) negative; permanent
C) permanent; temporary
D) temporary; permanent
E) permanent; permanent

Short Q/A

1) What are the requirements for perfect competition?

2) "A perfectly competitive firm is called a price maker because all the firms together must make the market price."
Is the previous statement correct or incorrect? Briefly explain your answer.

3) If a perfectly competitive firm manufacturing chairs produces 100 more chairs, what happens to the market price
of a chair?
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) In a natural monopoly, the long-run average cost curve 1) _______

A) may be either upward sloping or downward sloping in the relevant range of output levels.
B) is downward sloping in the relevant range of output levels.
C) is horizontal in the relevant range of output levels.
D) is upward sloping in the relevant range of output levels.
E) lies below the marginal cost curve.

2) Which of the following is least likely to be a natural monopoly? 2) _______

A) electric utilities
B) taxicab service
C) subway services
D) cable television services
E) water and sewer services

3) A monopoly arises for two key reasons, which are 3) _______

A) barriers to entry and close substitutes.
B) close substitutes and no barriers to entry.
C) franchises and barriers to entry.
D) barriers to entry and no close substitutes.
E) natural and legal

Use the figure below to answer the following question.

Figure 13.2.1

4) Refer to Figure 13.2.1. This single-price monopoly produces ________ units per day and charges a price of

$________ per unit. 4) _______

A) 20; 50 B) zero; 0 C) 20; 20 D) 20; 75 E) 40; 50

Use the figure below to answer the following questions.

Figure 13.2.2

5) Refer to Figure 13.2.2. If the single-price monopoly shown in Figure 13.2.2 is maximizing profit, what is total

economic profit? 5) _______

A) $4 B) $7 C) $9 D) $6 E) $3

6) The pursuit of wealth by capturing economic rent 6) _______

A) is illegal in Canada.
B) is price discrimination.
C) is rent seeking.
D) creates a legal monopoly.
E) creates a natural monopoly.
 Figure 13.3.2

7) Consider Figure 13.3.2. Consider a perfectly competitive market. If the light grey area shows the consumer

surplus, and the dark grey area shows the producer surplus, which graph correctly represents this market?
7) _______

A) (a) B) (b) C) (c) D) (d) E) (b) and (d)

 Figure 13.3.3

8) Consider the revenue and cost curves in Figure 13.3.3. If this is a single-price monopoly, what is consumer

surplus? 8) _______

A) ACD B) EADH C) EABH D) ABD E) KEA

9) Which of the following markets will have the largest deadweight loss? 9) _______
A) a perfectly competitive market
B) a single-price monopoly
C) a perfectly price discriminating monopoly
D) both B and C
E) both A and C

10) A monopoly can practise price discrimination when it 10) ______

A) produces a good with close substitutes.
B) has different marginal costs of production for different output levels.
C) has decreasing average variables cost.
D) is a price taker.
E) can segment the market according to the different prices the consumers are willing to pay.
Use the figure below to answer the following questions.

Figure 13.4.2

11) Refer to Figure 13.4.2. Assume this monopolist practises perfect price discrimination. How many tickets are

sold? 11) ______

A) 40 tickets B) 80 tickets C) 60 tickets D) 20 tickets E) 100 tickets

Use the figure below to answer the following questions.

Figure 13.4.6

12) Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. An inhaler can be
produced at a constant marginal cost of $2 per inhaler. The demand curve, marginal revenue curve, and marginal
cost curve for this new asthma inhaler are shown in Figure 13.4.6. The patent gives Prime Pharmaceuticals a

monopoly for its new inhaler. If Prime Pharmaceuticals can perfectly price discriminate, then it 12) ______

A) sells 16 million inhalers.

B) charges a price of $2 for each inhaler it sells.
C) makes zero economic profit.
D) sells inhalers for $6 each.
E) Both A and B are correct.
Use the figure below to answer the following questions.

Figure 13.5.2

13) Consider the natural monopoly depicted in Figure 13.5.2. If a regulator uses a marginal cost pricing rule to set

price, what is the quantity produced? 13) ______

A) 0 B) Q2 C) Q1 D) Q3 E) Q0

14) Consider the natural monopoly depicted in Figure 13.5.2. If a regulatory agency sets a price just sufficient for

the firm to make zero economic profit, what output will it produce? 14) ______

A) Q0 B) Q1 C) Q3 D) Q2 E) Q4
15) Consider the natural monopoly depicted in Figure 13.5.2. What area in the graph represents the deadweight loss

arising from an average cost pricing rule? 15) ______

A) DEF B) ACF C) DGF D) ABD E) CBDE

Short Q/A

1) What are the conditions that define a monopoly?

2) Patents provide a firm with a monopoly on a given product. What is the economic rationale for granting patents?

3) Can an unregulated monopoly make an economic profit in the long run? Explain your answer.
 Chapter 14 MCQ

1) A game includes 1) _______

A) rules. B) a strategy.

C) payoffs. D) All of the above.

2) In a static game, firms 2) _______

A) compete only once.
B) compete multiple times until there is a winner.
C) act sequentially.
D) must have complete information.

3) A strategy is dominant if 3) _______

A) it yields a payoff at least as large as that from any other strategy, regardless of the actions of other players.
B) it yields a greater payoff than any other player receives.
C) the player cannot gain by changing strategy, assuming that no other player changes strategy
D) it is part of a Nash equilibrium.

4) The above figure shows the payoff to two airlines, A and B, of serving a particular route. If the two airlines must decide

simultaneously, which one of the following statements is TRUE? 4) _______

A) Firm A does not have a dominant strategy.

B) Neither firm entering is a Nash equilibrium.
C) Firm B does not have a dominant strategy.
D) The outcome of the game is unpredictable.
5) The above figure shows the payoff to two airlines, A and B, of serving a particular route. If the two airlines must decide

simultaneously, which one of the following statements is TRUE? 5) _______

A) The outcome of the game is unpredictable.
B) Only firm A will enter the market.
C) Only firm B will enter the market.
D) Neither firm entering is a Nash equilibrium.

6) Suppose that industry A consists of four firms who collectively control 96 percent of total sales in the market. We can conclude that

industry A is 6) _______

A) monopolistically competitive.
B) perfectly competitive.
C) a monopoly.
D) an oligopoly.
E) a duopoly.

7) Which one the following industries is the best example of an oligopoly? 7) _______
A) the fast-food industry
B) the market for wheat
C) the automobile industry
D) the restaurant industry
E) the clothing industry

Use the figure below to answer the following question.

Figure 15.1.1
In the figure, D is the demand curve for taxi rides in a town, and ATC is the average total cost curve of a taxi company.

8) Refer to Figure 15.1.1. In the scenario above, the market is 8) _______

A) a natural monopoly.
B) perfectly competitive.
C) a natural duopoly.
D) monopolistically competitive.
E) a natural oligopoly with three firms.

Use the table below to answer the following questions.

Table 15.2.1

9) Refer to Table 15.2.1. This table includes the sentences that Bob and Joe will receive if convicted. They have been apprehended by
the police under the suspicion of committing armed robbery. The two are immediately separated and questioned about the case. Which

one of the following observations is correct? 9) _______

A) Both Bob and Joe have a dominant strategy of not confessing.

B) Both Bob and Joe would be better off not confessing if they both do not confess.
C) Both Bob and Joe would be better off "coming clean" and confessing to their crime.
D) Bob would be smart to confess no matter what Joe does.
E) Joe would be smart not to confess no matter what Bob does.
Refer to the table below to answer the following question.

Table 15.2.9

10) Refer to Table 15.2.9. Two students are assigned a group project. Each has the option to work or not work to achieve a high grade.

The payoffs are shown in the above table. Student 1 10) _______

A) works only if student 2 works.

B) works only if student 2 does not work.
C) does not work if student 2 works.
D) does not work regardless of what student 2 decides.
E) works regardless of the decision made by student 2.

11) Two firms, Alpha and Beta, produce identical computer hard drives. They have identical costs, and the hard drives they produce
are identical. The industry is a natural duopoly. Alpha and Beta enter into a collusive agreement, according to which they split the

market equally. If both firms cheat on the agreement so the market is the same as a competitive market, 11) _______

A) each firm makes zero economic profit in the long run.

B) each firm incurs an economic loss and exits the market in the long run.
C) the oligopoly will produce the same number of hard drives as a profit-maximizing monopoly would produce.
D) each firm makes the monopoly profit.
E) the oligopoly will produce fewer hard drives than a profit-maximizing monopoly would produce.

Use the information below to answer the following questions.

Fact 15.2.1

Two firms, FastNet and SmartCast are the only Internet providers in a city. They have identical costs and one firm's service is a perfect
substitute for the other firm's service. The industry is a natural duopoly. FastNet and SmartCast decide to collude and agree to share
the market equally.

12) Refer to Fact 15.2.1. Which of the following actions maximizes the industry's economic profit? 12) _______
A) Both firms charge the price that would exist in a perfectly competitive market.
B) Both firms comply with the agreement.
C) One firm cheats and one firm complies.
D) New firms enter the market.
E) Both firms cheat on the agreement.

13) Anti-combine law attempts to 13) _______

A) establish fair trade laws.
B) support prices.
C) establish Crown corporations.
D) deregulate monopolies.
E) prevent monopoly behaviour.

14) Canada's anti-combine law dates from the 14) _______

A) 1930s. B) 1960s. C) 1980s. D) 1880s. E) 1910s.

15) A merger is unlikely to be approved if 15) ______

A) the good produced in the market has been deemed a necessity.
B) it prevents or substantially lessens competition.
C) the industry is government regulated.
D) there are fewer than 6 firms in a market.
E) all of the above

Short Q/A

1) Describe the characteristics of an oligopoly.

2) "Because firms in an oligopoly are so large, they do not need to consider each other's actions." Is the previous statement correct or
incorrect? Explain your answer.

3) Explain what a cartel is and the difficulties faced in maintaining a cartel.

 CHAPTER 15 MCQ

1) An externality is a cost or benefit arising from an economic activity that falls on 1) _______
A) someone other than consumers or producers.
B) consumers but not producers.
C) producers but not consumers.
D) consumers or producers.
E) foreigners.

2) Which of the following illustrates the concept of external cost? 2) _______

A) Smoking harms the health of the smoker.
B) Bad weather reduces the size of the wheat crop.
C) A reduction in the size of the wheat crop causes income of wheat farmers to fall.
D) Public health services reduce the transmission of disease.
E) Smoking harms the health of nearby nonsmokers.

3) A well-maintained waterfront property that is enjoyed by other property owners is an example of 3)

_______
A) a negative consumption externality.
B) an inefficient allocation of resources.
C) a negative production externality.
D) a positive consumption externality.
E) a positive production externality.

4) If the marginal private cost of producing one kilowatt of power in British Columbia equals five cents and the
marginal social cost of each kilowatt equals nine cents, then the marginal external cost equals ________ per

kilowatt. 4) _______

A) nine cents
B) fourteen cents
C) five cents
D) forty-five cents
E) four cents
 Figure 16.2.1

5) Refer to Figure 16.2.1. The figure shows the marginal private cost curve, the marginal social cost curve and the

market demand curve. If the market is unregulated, then the quantity produced is 5) _______

A) zero. B) Q1. C) Q2. D) Q3. E) too low.

6) Refer to Figure 16.2.1. The figure shows the marginal private cost curve, the marginal social cost curve and the
market demand curve. To promote an efficient allocation of resources, the government could impose a constant per

unit tax equal to 6) _______

A) P3 - P1. B) P4 - P1. C) P1. D) zero. E) P3 - P2.

 Table 16.2.1

7) Refer to Table 16.2.1. Given in the table are the marginal private cost and the marginal social cost of the
production of chemical fertilizer and the marginal social benefit from the consumption of fertilizer. Under these

circumstances, 7) _______

A) not enough information is provided to determine whether or not there are externalities.
B) there are positive externalities in this market.
C) there are negative externalities in this market, equal to $20 per unit.
D) there are negative externalities in this market, equal to $10 per unit.
E) there are no externalities in this market.

8) Refer to Table 16.2.1. Given in the table are the marginal private cost and the marginal social cost of the
production of chemical fertilizer and the marginal social benefit from the consumption of fertilizer. If the market is

unregulated 8) _______

A) the quantity produced is greater than the efficient quantity.

B) production is technologically inefficient.
C) marginal external cost is maximized.
D) the quantity produced is less than the efficient quantity.
E) the quantity produced is the efficient quantity.
 Figure 16.2.2

9) Refer to Figure 16.2.2. This figure shows the demand curve, the marginal private cost curve and the marginal

social cost curve of good A. Production of the 6th unit of output generates a marginal external 9) _______

A) cost of $3.
B) cost of $6.
C) cost of $1.50.
D) benefit of $3.
E) benefit of $6.

Use the table below to answer the following questions.

Table 16.2.2
Chemical Fertilizer Market

10) Refer to Table 16.2.2. If the fertilizer market is perfectly competitive and unregulated, output (in tonnes)

is 10) ______

A) 1. B) 2. C) 3. D) 4. E) 5.
 Figure 16.3.1

11) Refer to Figure 16.3.1. The figure shows the marginal private benefit curve, the marginal social benefit curve,

and the market supply curve. If production is left to the private market, then the quantity produced is 11)
______

A) zero.
B) Q1.
C) Q2.
D) Q3.
E) between 0 and Q1.

12) Refer to Figure 16.3.1. The figure shows the marginal private benefit curve, the marginal social benefit curve,
and the market supply curve. To promote an efficient quantity the government could grant a subsidy equal to

12) ______

A) P4 - P1. B) zero. C) P1. D) P3 - P1. E) P2 - P1.

Use the table below to answer the following questions.

Table 16.3.1

13) Refer to Table 16.3.1. The table shows marginal private benefit and the marginal social benefit from the
consumption of chemical fertilizer and the marginal social cost of the production of fertilizer. If production is left to

the private market, the quantity produced is 13) ______

A) 1 unit. B) 2 units. C) 3 units. D) 4 units. E) 5 units.

Use the figure below to answer the following questions.

 Figure 16.3.2

14) Refer to Figure 16.3.2. The figure shows the market for good B. How many units of good B are produced and

consumed in an unregulated market? 14) ______

A) 9 units B) 3 units C) 5 units D) 6 units E) 0 units

15) In Figure 16.3.2. The figure shows the market for good B. Which of the following government policies creates

an efficient outcome? 15) ______

A) Provide vouchers for consumption of B of $4 per unit.

B) Provide vouchers for consumption of B of $1 per unit.
C) Provide vouchers for consumption of B of $3 per unit.
D) Tax the production of B by $4 per unit.
E) Tax the production of B by $3 per unit.
32) D
33) D
34) D
35) C
36) D
37) A
38) C
39) C
40) A
41) C
42) B
43) D
44) B
45) B
46) D
47) D
48) D
49) B
50) A