# 1) A perfectly inelastic supply curve represents a A) by cometjunkie56

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```									1) A perfectly inelastic supply curve represents a
A) fixed supply of a good.
B) product with a constant price, regardless of the quantity offered for sale.
C) product in abundant supply.
D) product supply that is extremely responsive to a price change.

2) If the price elasticity of demand (in absolute value terms) within the price range from
€1 to €1.25 for carrots is 0.79 and for radishes is 1.6, then within that price range
A) carrots and radishes must be substitute goods.
B) carrots and radishes must be complementary goods.
C) the demand for carrots is more price elastic than that for radishes.
D) the demand for radishes is more price elastic than that for carrots.

3) If the cross-price elasticity between goods A and B is positive then:
A) A and B are substitutes
B) A and B are both inferior goods
C) A and B both have inelastic demands
D) A and B are complements

4) If Weiskamp T-Shirt Co. lowers its price from €6 to €5 and finds that students
increase their quantity demanded from 400 to 600 T-shirts, then the demand for
Weiskamp T-shirts within this price range is
A) price elastic.
B) cross elastic.
C) price inelastic.
D) unit elastic.

5) Autoworkers negotiate a wage increase; how does this change affect the supply of
cars?
A) It increase the supply.
B) It has no effect.
C) It decreases the supply.
D) There is not enough information to tell if the change increases, decreases, or
has no effect on the supply of cars

6) If a producer can use resources to produce either good A or good B, then A and B
are
A) substitutes in production.
B) substitutes in consumption.
C) complements in consumption.
D) complements in production.
7) In the above figure, a price of £15 per dozen roses would result in a ________ so
that the price of roses will ________.
A) surplus; rise
B) shortage; fall
C) shortage; rise
D) surplus; fall

8) If both the demand and supply increase, the equilibrium quantity
A) increases and the effect on price is indeterminate.
B) decreases and the effect on price is indeterminate.
C) increases and the price falls.
D) decreases and the price rises.

9) A normal good is a good for which demand
A) increases when income increases.
B) increases when population increases.
C) decreases when population increases.
D) decreases when income increases.
10) In the above figure, if the price is £8 then there is a
A) surplus of 100.
B) shortage of 200.
C) surplus of 200.
D) shortage of 100.
11) The above figure shows the market for hamburger. Which figure shows the effect of
an announcement that eating hamburger causes early death?
A) Figure A.
B) Figure B.
C) Figure C.
D) Figure D.

12) The elasticity of supply is ________ and the elasticity of supply is generally larger in
the ________.
A) positive; short run
B) negative; short run
C) negative; long run
D) positive; long run
13) The figure above illustrates a linear demand curve. If the price rises from £6 to £8
demand is ________ and if the price falls from £8 to £6 demand is ________.
A) elastic; inelastic
B) inelastic; elastic
C) inelastic; inelastic
D) elastic; elastic

14) The price elasticity of demand measures
A) the slope of a budget curve.
B) how sensitive the quantity demanded is to changes in demand.
C) how often the price of a good changes.
D) the responsiveness of the quantity demanded to changes in price.

15) Fred's income has just risen from £940 per week to £1,060 per week. As a result, he
decides to purchase 9 per cent more steak per week. The income elasticity of Fred's
demand for steak is
A) 1.33.
B) 0.90.
C) 1.00.
D) 0.75.
Price         Quantity     Quantity
(pence per    demanded       supplied
brownie)      (per day)     (per day)
0            1,800           0
10           1,600          100
20           1,400          200
30           1,200          300
40           1,000          400
50            800           500
60            600           600
70            400           700
80            200           800
90             0            900

16) In the above table, the efficient quantity of brownies is produced when the price of a
brownie is equal to
A) 80 pence.
B) 40 pence.
C) 0 pence.
D) 60 pence.

17) In the above figure, if the market price rises from £100 to £125 per tonne of wheat,
then producer surplus
A) might increase, decrease, or not change depending on how the demand curve
for wheat shifts.
B) increases.
C) does not change.
D) decreases.
18) The value of a good is the
A) maximum price you are willing to pay for it.
B) price you actually pay for it minus the maximum price you are willing to pay for it.
C) maximum price you are willing to pay for it minus the price you actually pay for it.
D) price that you actually pay for it.

19) In the above figure, when the efficient quantity is produced the marginal benefit of the
last magazine is
A) £1.
B) £3.
C) £5.
D) some amount not given in the above three answers.

20) When a market is in equilibrium, the total amount of consumer surplus must be
________ the total amount of producer surplus.
A) equal to
B) less than
C) larger than
D) None of the above answers are correct.

21) Sal likes to eat pizza. The ________ is the maximum amount that Sal is willing to pay
for one piece of pizza.
A) efficient amount
B) efficient price
C) marginal benefit
D) marginal cost
22) A firm's market constraints include the conditions under which it can
A) produce the inputs to production.
B) issue stock.
C) convert inputs into outputs.
D) buy its inputs and sell its outputs.

23) The shareholders of a company have ________ liability and ________ required to
pay all of the firm's losses.
A) limited; are
B) limited; are not
C) unlimited; are
D) unlimited; are not

24) A market structure in which one firm produces a good or service that has no close
substitutes is called
A) monopolistic competition.
B) oligopoly.
C) monopoly.
D) perfect competition.

25) Ed is a freelance writer who could work for a newspaper at £25,000 a year but
instead works for himself for £41,000 a year. His only business expenses are £1,000
for writing materials and £12,000 for rent. Ed's normal profit is £1,000. Ed's economic
profit from working as a freelance writer is
A) £28,000.
B) £2,000.
C) £27,000.
D) £3,000.

26) Opportunity costs include
A) implicit costs but not explicit costs.
B) neither explicit costs nor implicit costs.
C) explicit costs but not implicit costs.
D) both implicit costs and explicit costs.
Total
Output    variable cost   Total cost
(pies)      (pounds)      (pounds)
0             0            300
100           400
200          1,000
300          1,800
400          2,800

27) The above table gives some of the costs of the Delicious Pie Company. What is the
total fixed cost of producing 100 pies?
A) £400.
B) £300.
C) £700.

28) A company could produce 100 units of a good for £320 or produce 101 units of the
same good for £324. The £4 difference in costs is
A) both the marginal benefit and the marginal cost of producing the 101st unit.
B) the marginal cost of producing the 101st unit.
C) neither the marginal benefit nor the marginal cost of producing the 101st unit.
D) the marginal benefit of producing the 101st unit.

29) The average total cost curves for plants A, B, C and D are shown in the above figure.
Which plant is best to use to produce 60 units per day?
A) Plant A.
B) Plant B.
C) Plant C.
D) Plant D.
30) When the total product curve is drawn in a figure that measures employment along
the horizontal axis, it is a graph that shows the
A) maximum output attainable for each quantity of labour employed.
B) minimum output attainable for each quantity of labour employed.
C) minimum cost of producing a given amount of output using different techniques.
D) maximum profit attainable for each unit of output sold per unit of labour
employed.

Total product
Labour      (books sold per
(workers)         hour)
0               0
1              10
2              24
3              40
4              58
5              73
6              83
7              87
8              89
9              90
10              90

31) The above table shows the short-run total product schedule for the campus book
store. What is the average product (AP) of the 4th employee?
A) 58 books sold.
B) 14.5 books sold.
C) 18 books sold.
D) 13.3 books sold.
Total Product, Marginal Product, Average Product
Total
Labour       product
(workers per (units per      Marginal     Average
day)          day)       product      product
0             0           0            0
1             2           2            2
2             8
3            12
4            15
5                         1

32) In the above table, the total product that is produced when the firm employs five
workers is
A) 16.
B) 3.
C) 3.2.
D) 14.

Total fixed     Total
Output         cost     variable cost Total cost
(tents)      (pounds)     (pounds)    (pounds)
0            50            0          50
1            50            25         75
2            50           45          95
3            50           70          120
4            50           115         165

33) The above table shows some cost data for Tracey's Tents. What is the marginal cost
of the 3rd tent?
A) £25.
B) £20.
C) £70.
D) £120.
34) Given the total cost and total revenue curves in the above figure, what are the output
levels at which the perfect competitor will incur economic losses?
A) From 30,000 to 80,000 tonnes.
B) At 30,000 bushels and at 80,000 tonnes.
C) Below 80,000 tonnes.
D) Below 30,000 bushels and over 80,000 tonnes.

35) A perfectly competitive firm's short-run supply curve is the same as
A) its MR curve.
B) its ATC curve.
C) its AVC curve.
D) its MC curve above the minimum of the AVC curve.

36) By producing less, a firm can reduce
A) neither its variable costs nor its fixed costs.
B) its fixed costs and its variable costs.
C) its fixed costs but not its variable costs.
D) its variable costs but not its fixed costs.

37) For a perfectly competitive firm, in a diagram with quantity on the horizontal axis and
both total revenue and total cost on the vertical axis, the firm's ________ is a straight
line ________.
A) total cost curve; with zero slope
B) total revenue curve; through the origin
C) total cost curve; through the origin
D) total revenue curve; with zero slope
38) In the figure above, if the market is a single-price monopoly rather than a perfectly
competitive industry, the transfer of consumer surplus to the producer is the area of
A) rectangle befc.
B) trapezoid beic.
C) rectangle begd.
D) triangle abe.

Quantity
Price    demanded
(pounds per (repairs per     Total cost
repair)     week)         (pounds)
100          0              400
90         10              800
80         20             1400
70         30             2200
60          40            3200

39) Dee's Computer Repair is the only computer repair shop in a small town. Dee is a
single-price monopolist. Based on the demand and cost information in the table
above, what quantity of computer repairs should Dee undertake?
A) 10 per week.
B) 30 per week.
C) 0 per week.
D) 20 per week.
40) In the figure above, the efficient amount of output is
A) 20 units per day.
B) 80 units per day.
C) 60 units per day.
D) 40 units per day.
41) 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/inhaler. The
demand curve, marginal revenue curve, and marginal cost curve for this new asthma
inhaler are in the figure above. With its patent giving it a monopoly for its new inhaler,
if Prime Pharmaceuticals could perfectly price discriminate, then which of the
following is true?
A) Inhalers would sell for £2 each.
B) It would produce and sell 16 million inhalers.
C) Inhalers would sell for £5 each.
D) None of the above answers is correct.
42) The figure above shows a monopoly's total revenue and total cost curves. The
monopoly's economic profit is zero if it produces
A) 15 units of output.
B) 0 units of output.
C) 5 or 20 units of output.
D) None of the above.

43) Libertyville has two optometrists, Dr. Smith and Dr. Jones. Each optometrist can
choose to advertise his service or not. The incomes of each optometrist, in thousands
of pounds, are depicted in the payoff matrix above. Which of the following statements
correctly describes Dr. Jones' strategy given what Dr. Smith may do?
B) Dr. Jones should not advertise no matter what Dr. Smith does.
C) Dr. Jones should advertise no matter what Dr. Smith does.

44) In the long-run, a firm in monopolistic competition has
A) a price that exceeds its average total cost.
B) an average total cost that exceeds its price.
C) a marginal cost that exceeds its price.
D) a price that exceeds its marginal cost.
Supply of      Market
Price       each small     demand
(pounds)     firm (cases)    (cases)
50             100           0
40             80           300
30             60           600
20             40           900
10             20          1200

45) The table above outlines the market demand and small firm supply in the situation of
a dominant firm oligopoly. If there are ten identical small firms, then when the price is
£30 per case, the quantity demanded from the dominant firm at this price is
A) 540 cases.
B) 60 cases.
C) 600 cases.
D) 0 cases.

46) The maximum total economic profit that can be made by colluding duopolists
A) bears no necessary relation to the economic profit made by a monopolist.
B) equals the economic profit made by a monopolist.
C) exceeds the economic profit made by a monopolist.
D) is less than the economic profit made by a monopolist.

47) The figure above shows a monopolistically competitive firm in the short run. During
the transition to the long run, the demand curve will shift ________ and the MR curve
will shift ________.
A) leftward; rightward
B) rightward; rightward
C) rightward; leftward
D) leftward; leftward
48) In the figure above, if the firm's marginal cost is MC0, then the firm will produce
A) 30 units per day.
B) 40 units per day.
C) less than 30 units per day.
D) more than 30 but less than 40 units per day.

49) The practice of the only seller in a market charging a price less than the monopoly
price in order to scare away potential entrants is called
A) trigger pricing.
B) agile pricing.
C) limit pricing.
D) collusive pricing.

50) The prisoners' dilemma describes a single-play game that features
A) a situation in which one player has better odds than the other.
B) a large number of rivals cooperating with each other.
C) two players who are unable to communicate with each other.
D) an outcome in which the participants collude.
51) If average cost pricing is imposed on the natural monopoly shown in the figure above,
then consumer surplus is
A) £8 million.
B) £9 million.
C) £16 million.
D) £0.

52) If marginal cost pricing is imposed on the natural monopoly in the figure above, then
the consumer surplus is
A) £8 million.
B) £16 million.
C) £32 million.
D) £0.

53) Beautification of highways through planting shrubs and wildflowers will
A) provide a flow of services that involve excludable consumption.
B) provide a flow of services that are rival in consumption.
C) be profitable for a private landscaping company because they can charge
passing drivers.
D) benefit even people who do not help pay.
54) From the figure above showing the market for vaccinations, we can infer that there is
an
A) external cost associated with the consumption of vaccinations.
B) external benefit associated with the production of vaccinations.
C) external benefit associated with the consumption of vaccinations.
D) external cost associated with the production of vaccinations.

55) In the above figure, the efficient output level is ________ units.
A) 100
B) 75
C) 50
D) 25
56) In the above figure, in order to promote an efficient allocation of resources, the
government could grant a subsidy equal to
A) zero.
B) £10 per unit.
C) £5 per unit.
D) £15 per unit.

57) In the above figure, if a subsidy is granted to consumers that generates an efficient
allocation of resources, then producers will receive an amount equal to
A) £10 per unit.
B) £15 per unit.
C) £5 per unit.
D) £20 per unit.

58) While a patent is in place, its holder is a
A) monopolist, who sets the price at the marginal cost.
B) monopolist, who sets the price above the marginal cost.
C) perfect competitor, who sets the price at the marginal cost.
D) perfect competitor, who sets the price above the marginal cost.

59) Which of the following is an example of an external cost?
A) The price of a car wash.
B) Pollution.
C) An electricity bill.
D) Taxes.
Marginal
private    Marginal         Marginal
benefit  social benefit   private cost
Quantity      (pounds per (pounds per      (pounds per
(units)          unit)        unit)           unit)
1,000             70           90              30
2,000             60           80              40
3,000             50           70              50
4,000             40           60              60
5,000             30           50              70
6,000             20           40              80

60) In the above table, the efficient level of output is
A) 3,000 units.
B) 4,000 units.
C) 2,000 units.
D) 5,000 units.

61) Which of the following is a stock variable?
A) Saving.
B) Income.
C) Wealth.
D) Investment.

62) GDP equals net domestic product plus
A) retained earnings.
B) depreciation.
C) indirect business taxes and personal taxes.
D) transfer payments and business transfers.

63) In the computation of GDP, transfer payments made by the government are
A) not included in GDP.
B) counted as part of government expenditures on goods and services and are
included in GDP.
C) counted as part of consumption expenditure and are included in GDP.
D) not counted as part of government purchases of goods and services but are
included in GDP.

64) Suppose the country of Tiny Town decided to open its borders to free trade. As a
result, a number of its workers lost their jobs to international competition and can't
find new jobs because their skills don't match what is required for job openings. The
workers who lost their jobs would best be considered part of
A) discouraged workers.
B) structural unemployment
C) frictional unemployment.
D) cyclical unemployment.
65) Over the last 30 years, the economic activity rate of men ________ and the economic
activity rate of women ________.
A) decreased; decreased
B) increased; decreased
C) decreased; increased
D) increased; increased

66) When the economy is at full employment, the
A) natural rate of unemployment is equal to 10 percent.
B) unemployment rate is equal to 0 percent.
C) natural rate of unemployment is equal to 0 percent.
D) natural rate of unemployment equals the unemployment rate.

67) The employment rate is the ratio of the number of
A) unemployed people divided by the total population, then multiplied by 100.
B) employed people divided by the total population, then multiplied by 100.
C) unemployed people divided by the working age population, then multiplied by
100.
D) employed people divided by the working-age population, then multiplied by 100.

68) In the above figure, a recession begins at point ________ and an expansion begins
at point ________.
A) a; b
B) b; a
C) d; c
D) b; c
69) A change in the full-employment quantity of labour ________ the short-run aggregate
supply curve and ________ the long-run aggregate supply curve.
A) shifts; does not shift
B) does not shift; does not shift
C) shifts; shifts
D) does not shift; shifts

70) Lower taxes
A) increase aggregate demand.
B) increase the aggregate quantity demanded.
C) decrease the aggregate quantity demanded.
D) decrease aggregate demand.

Short-run      Long-run
Aggregate      aggregate      aggregate
demand          supply         supply
(billions of   (billions of   (billions of
2001           2001           2001
Price level    pounds)        pounds)        pounds)
130             800         1,200          1,000
120             900         1,100          1,000
110         1,000          1,000          1,000
100          1,100             900         1,000
90          1,200             800         1,000

71) The data in the above table indicate that when the price level is 100,
A) inventories rise and the price level falls.
B) the economy is in a long-run macroeconomic equilibrium.
C) inventories fall and the price level rises.
D) the unemployment rate is at its equilibrium level.
72) In the above figure, which part corresponds to a destruction of part of the nation's
capital stock?
A) Figure A.
B) Figure B.
C) Figure C.
D) Figure D.

73) A desired reserve ratio of 10 per cent yields a deposit multiplier of
A) 1.
B) 1.1.
C) 5.
D) 10.

74) The real-world deposit multiplier will fall in size if
A) people reduce their vacation travel.
B) people spend a smaller fraction of their income on food.
C) people increase their demand for currency.
D) the desired reserve ratio decreases.

75) The functions of money are
A) medium of exchange and the ability to buy goods and services.
B) pricing, contracts, and means of payment.
C) medium of exchange, unit of account, and means of payment.
D) medium of exchange, unit of account, and store of value.
76) The practice of borrowing short and lending long
A) creates liquidity.
B) minimizes the cost of monitoring borrowers.
C) pools risk.
D) All of the above answers are correct.

77) In a persisting demand-pull inflation,
A) aggregate demand and short-run aggregate supply both decrease.
B) short-run aggregate supply decreases and aggregate demand increases.
C) aggregate demand increases and long-run aggregate supply decreases.
D) None of the above answers are correct.

78) A demand-pull inflation occurred in the United Kingdom during the early part of the
A) 1990s.
B) 1970s.
C) 1960s.
D) 1980s.

79) For a cost-push inflation to occur, oil price increases must be accompanied by
A) lower personal tax rates.
B) increases in the quantity of money.
C) increases in government expenditures.
D) decreased investment spending.

80) The quantity theory of money asserts that, in the long run, the percentage change in
money will equal the percentage change in
A) real GDP.
B) the price level.
C) potential GDP.
D) velocity.
Testname: FINAL_EXAM_2007_2008

A
Topic:
Skill:
D
Topic:
Skill:
A
Topic:
Skill:
A
Topic:
Skill:
C
Topic: Change in Supply, Prices of Factors of Production
Skill: Analytical
A
Topic: Change in Supply, Prices of Related Goods Produced
Skill: Recognition
C
Skill: Analytical
A
Topic: Predicting Changes in Price/Quantity; Demand/Supply Increase
Skill: Conceptual
A
Topic: Change in Demand, Income
Skill: Recognition
C
Skill: Conceptual
B
Topic: Predicting Changes in Price and Quantity; Demand Changes
Skill: Recognition
D
Topic: Factors That Influence the Elasticity of Supply
Skill: Recognition
D
Topic: Elasticity Along a Straight-Line Demand Curve
Skill: Analytical
D
Topic: The Price Elasticity of Demand
Skill: Recognition
D
Topic: Income Elasticity of Demand
Skill: Analytical
Testname: FINAL_EXAM_2007_2008

D
Topic: Efficiency of Competitive Markets
Skill: Recognition
B
Topic: Producer Surplus
Skill: Analytical
A
Topic: Value, Willingness to Pay, and Demand
Skill: Recognition
B
Topic: Efficiency and Inefficiency
Skill: Analytical
D
Topic: Efficiency of Competitive Markets
Skill: Analytical
C
Topic: Marginal Benefit
Skill: Recognition
D
Topic: Market Constraints
Skill: Recognition
B
Topic: Company
Skill: Recognition
C
Topic: Market Structure, Monopoly
Skill: Recognition
B
Topic: Economic Profit
Skill: Analytical
D
Topic: Opportunity Cost
Skill: Recognition
B
Topic: Total Fixed Cost
Skill: Analytical
B
Topic: Marginal Cost
Skill: Conceptual
B
Topic: Long-Run Average Cost Curve
Skill: Analytical
A
Topic: Total Product Curve
Skill: Recognition
Testname: FINAL_EXAM_2007_2008

B
Topic: Average Product of Labour
Skill: Analytical
A
Topic: Total Product
Skill: Conceptual
A
Topic: Marginal Cost
Skill: Analytical
D
Topic: Total Revenue, Total Cost, and Economic Profit
Skill: Analytical
D
Topic: The Firm's Short-Run Supply Curve
Skill: Recognition
D
Topic: Shutdown Point
Skill: Conceptual
B
Topic: Total Revenue, Total Cost, and Economic Profit
Skill: Analytical
A
Topic: Redistribution of Surpluses
Skill: Conceptual
D
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
D
Topic: Comparing Output and Price; Output
Skill: Conceptual
B
Topic: Perfect Price Discrimination
Skill: Conceptual
C
Topic: Single-Price Monopoly's Output and Price Decisions
Skill: Analytical
C
Topic: Game Theory
Skill: Analytical
D
Topic: Monopolistic Competition; Long-Run Price
Skill: Conceptual
D
Topic: Dominant Firm Oligopoly Model
Skill: Analytical
Testname: FINAL_EXAM_2007_2008

B
Topic: Colluding to Maximize Profits
Skill: Recognition
D
Topic: Monopolistic Competition; Long-Run Equilibrium
Skill: Analytical
A
Topic: Kinked Demand Curve Model
Skill: Analytical
C
Topic: Limit Pricing
Skill: Recognition
C
Topic: Prisoners' Dilemma
Skill: Recognition
B
Topic: Natural Monopoly, Average Cost Pricing Rule
Skill: Analytical
B
Topic: Natural Monopoly, Marginal Cost Pricing Rule
Skill: Analytical
D
Topic: Externalities
Skill: Conceptual
C
Topic: External Benefits
Skill: Conceptual
B
Topic: Subsidies and External Benefits
Skill: Analytical
B
Topic: Subsidies
Skill: Analytical
B
Topic: Subsidies
Skill: Analytical
B
Topic: Patents
Skill: Conceptual
B
Topic: Marginal External Cost
Skill: Recognition
B
Topic: Efficiency
Skill: Analytical
Testname: FINAL_EXAM_2007_2008

C
Topic: Flows and Stocks
Skill: Conceptual
B
Topic: Net Domestic Product
Skill: Recognition
A
Topic: Expenditure Approach, Government Expenditures
Skill: Recognition
B
Topic: Structural Unemployment
Skill: Conceptual
C
Topic: Economic Activity Rate
Skill: Recognition
D
Topic: Full Employment
Skill: Recognition
D
Topic: Employment Rate
Skill: Recognition
A
Skill: Analytical
C
Topic: Changes in Aggregate Supply; Full Employment
Skill: Conceptual
A
Topic: Changes in Aggregate Demand, Taxes
Skill: Conceptual
C
Topic: Short-Run Macroeconomic Equilibrium
Skill: Analytical
A
Topic: Changes in Aggregate Supply; Capital
Skill: Analytical
D
Topic: The Deposit Multiplier
Skill: Analytical
C
Topic: The Deposit Multiplier in the United Kingdom
Skill: Conceptual
D
Topic: What Is Money?
Skill: Recognition
Testname: FINAL_EXAM_2007_2008

A
Topic: The Economic Functions of Financial Intermediaries
Skill: Recognition
B
Topic: A Demand-Pull Inflation Process
Skill: Conceptual
B
Topic: Demand-Pull Inflation in the United Kingdom
Skill: Recognition
B
Topic: A Cost-Push Inflation Process
Skill: Recognition
B
Topic: Predictions of the Quantity Theory of Money
Skill: Conceptual

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