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.

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1 1) perfectly inelastic supply curve represents a ) fixed supply of a good. ) product with a constant price, regardless of the quantity offered for sale. C) product in abundant supply. ) 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 ) carrots and radishes must be substitute goods. ) carrots and radishes must be complementary goods. C) the demand for carrots is more price elastic than that for radishes. ) the demand for radishes is more price elastic than that for carrots. 3) If the cross-price elasticity between goods and is positive then: ) and are substitutes ) and are both inferior goods C) and both have inelastic demands ) and 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 ) price elastic. ) cross elastic. C) price inelastic. ) unit elastic. 5) utoworkers negotiate a wage increase; how does this change affect the supply of cars? ) It increase the supply. ) It has no effect. C) It decreases the supply. ) 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 or good, then and are ) substitutes in production. ) substitutes in consumption. C) complements in consumption. ) complements in production.

2 7) In the above figure, a price of 15 per dozen roses would result in a so that the price of roses will. ) surplus; rise ) shortage; fall C) shortage; rise ) surplus; fall 8) If both the demand and supply increase, the equilibrium quantity ) increases and the effect on price is indeterminate. ) decreases and the effect on price is indeterminate. C) increases and the price falls. ) decreases and the price rises. 9) normal good is a good for which demand ) increases when income increases. ) increases when population increases. C) decreases when population increases. ) decreases when income increases.

3 10) In the above figure, if the price is 8 then there is a ) surplus of 100. ) shortage of 200. C) surplus of 200. ) shortage of 100.

4 11) The above figure shows the market for hamburger. Which figure shows the effect of an announcement that eating hamburger causes early death? ) Figure. ) Figure. C) Figure C. ) Figure. 12) The elasticity of supply is and the elasticity of supply is generally larger in the. ) positive; short run ) negative; short run C) negative; long run ) positive; long run

5 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. ) elastic; inelastic ) inelastic; elastic C) inelastic; inelastic ) elastic; elastic 14) The price elasticity of demand measures ) the slope of a budget curve. ) how sensitive the quantity demanded is to changes in demand. C) how often the price of a good changes. ) 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. s a result, he decides to purchase 9 per cent more steak per week. The income elasticity of Fred's demand for steak is ) ) C) ) 0.75.

6 Price (pence per brownie) Quantity demanded (per day) Quantity supplied (per day) 0 1, , , , , ) In the above table, the efficient quantity of brownies is produced when the price of a brownie is equal to ) 80 pence. ) 40 pence. C) 0 pence. ) 60 pence. 17) In the above figure, if the market price rises from 100 to 125 per tonne of wheat, then producer surplus ) might increase, decrease, or not change depending on how the demand curve for wheat shifts. ) increases. C) does not change. ) decreases.

7 18) The value of a good is the ) maximum price you are willing to pay for it. ) 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. ) 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 ) 1. ) 3. C) 5. ) 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. ) equal to ) less than C) larger than ) 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. ) efficient amount ) efficient price C) marginal benefit ) marginal cost

8 22) firm's market constraints include the conditions under which it can ) produce the inputs to production. ) issue stock. C) convert inputs into outputs. ) 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. ) limited; are ) limited; are not C) unlimited; are ) unlimited; are not 24) market structure in which one firm produces a good or service that has no close substitutes is called ) monopolistic competition. ) oligopoly. C) monopoly. ) 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 ) 28,000. ) 2,000. C) 27,000. ) 3, ) Opportunity costs include ) implicit costs but not explicit costs. ) neither explicit costs nor implicit costs. C) explicit costs but not implicit costs. ) both implicit costs and explicit costs.

9 Total variable cost (pounds) Output (pies) , , ,800 Total cost (pounds) 27) The above table gives some of the costs of the elicious Pie Company. What is the total fixed cost of producing 100 pies? ) 400. ) 300. C) 700. ) More information is needed to calculate the total fixed cost. 28) 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 ) both the marginal benefit and the marginal cost of producing the 101st unit. ) the marginal cost of producing the 101st unit. C) neither the marginal benefit nor the marginal cost of producing the 101st unit. ) the marginal benefit of producing the 101st unit. 29) The average total cost curves for plants,, C and are shown in the above figure. Which plant is best to use to produce 60 units per day? ) Plant. ) Plant. C) Plant C. ) Plant.

10 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 ) maximum output attainable for each quantity of labour employed. ) minimum output attainable for each quantity of labour employed. C) minimum cost of producing a given amount of output using different techniques. ) maximum profit attainable for each unit of output sold per unit of labour employed. Labour (workers) Total product (books sold per hour) ) The above table shows the short-run total product schedule for the campus book store. What is the average product (P) of the 4th employee? ) 58 books sold. ) 14.5 books sold. C) 18 books sold. ) 13.3 books sold.

11 Total Product, Marginal Product, verage Product Total Labour (workers per day) product (units per day) Marginal product verage product ) In the above table, the total product that is produced when the firm employs five workers is ) 16. ) 3. C) 3.2. ) 14. Output (tents) Total fixed cost (pounds) Total variable cost (pounds) Total cost (pounds) ) The above table shows some cost data for Tracey's Tents. What is the marginal cost of the 3rd tent? ) 25. ) 20. C) 70. ) 120.

12 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? ) From 30,000 to 80,000 tonnes. ) t 30,000 bushels and at 80,000 tonnes. C) elow 80,000 tonnes. ) elow 30,000 bushels and over 80,000 tonnes. 35) perfectly competitive firm's short-run supply curve is the same as ) its MR curve. ) its TC curve. C) its VC curve. ) its MC curve above the minimum of the VC curve. 36) y producing less, a firm can reduce ) neither its variable costs nor its fixed costs. ) its fixed costs and its variable costs. C) its fixed costs but not its variable costs. ) 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. ) total cost curve; with zero slope ) total revenue curve; through the origin C) total cost curve; through the origin ) total revenue curve; with zero slope

13 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 ) rectangle befc. ) trapezoid beic. C) rectangle begd. ) triangle abe. Price (pounds per repair) Quantity demanded (repairs per week) Total cost (pounds) ) ee's Computer Repair is the only computer repair shop in a small town. ee is a single-price monopolist. ased on the demand and cost information in the table above, what quantity of computer repairs should ee undertake? ) 10 per week. ) 30 per week. C) 0 per week. ) 20 per week.

14 40) In the figure above, the efficient amount of output is ) 20 units per day. ) 80 units per day. C) 60 units per day. ) 40 units per day.

15 41) Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. n 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? ) Inhalers would sell for 2 each. ) It would produce and sell 16 million inhalers. C) Inhalers would sell for 5 each. ) None of the above answers is correct.

16 42) The figure above shows a monopoly's total revenue and total cost curves. The monopoly's economic profit is zero if it produces ) 15 units of output. ) 0 units of output. C) 5 or 20 units of output. ) None of the above. 43) Libertyville has two optometrists, r. Smith and r. 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 r. Jones' strategy given what r. Smith may do? ) r. Jones should advertise only if r. Smith doesn't advertise. ) r. Jones should not advertise no matter what r. Smith does. C) r. Jones should advertise no matter what r. Smith does. ) r. Jones should advertise only if r. Smith advertises. 44) In the long-run, a firm in monopolistic competition has ) a price that exceeds its average total cost. ) an average total cost that exceeds its price. C) a marginal cost that exceeds its price. ) a price that exceeds its marginal cost.

17 Price (pounds) Supply of each small firm (cases) Market demand (cases) ) 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 ) 540 cases. ) 60 cases. C) 600 cases. ) 0 cases. 46) The maximum total economic profit that can be made by colluding duopolists ) bears no necessary relation to the economic profit made by a monopolist. ) equals the economic profit made by a monopolist. C) exceeds the economic profit made by a monopolist. ) is less than the economic profit made by a monopolist. 47) The figure above shows a monopolistically competitive firm in the short run. uring the transition to the long run, the demand curve will shift and the MR curve will shift. ) leftward; rightward ) rightward; rightward C) rightward; leftward ) leftward; leftward

18 48) In the figure above, if the firm's marginal cost is MC0, then the firm will produce ) 30 units per day. ) 40 units per day. C) less than 30 units per day. ) 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 ) trigger pricing. ) agile pricing. C) limit pricing. ) collusive pricing. 50) The prisoners' dilemma describes a single-play game that features ) a situation in which one player has better odds than the other. ) a large number of rivals cooperating with each other. C) two players who are unable to communicate with each other. ) an outcome in which the participants collude.

19 51) If average cost pricing is imposed on the natural monopoly shown in the figure above, then consumer surplus is ) 8 million. ) 9 million. C) 16 million. ) 0. 52) If marginal cost pricing is imposed on the natural monopoly in the figure above, then the consumer surplus is ) 8 million. ) 16 million. C) 32 million. ) 0. 53) eautification of highways through planting shrubs and wildflowers will ) provide a flow of services that involve excludable consumption. ) provide a flow of services that are rival in consumption. C) be profitable for a private landscaping company because they can charge passing drivers. ) benefit even people who do not help pay.

20 54) From the figure above showing the market for vaccinations, we can infer that there is an ) external cost associated with the consumption of vaccinations. ) external benefit associated with the production of vaccinations. C) external benefit associated with the consumption of vaccinations. ) external cost associated with the production of vaccinations. 55) In the above figure, the efficient output level is units. ) 100 ) 75 C) 50 ) 25

21 56) In the above figure, in order to promote an efficient allocation of resources, the government could grant a subsidy equal to ) zero. ) 10 per unit. C) 5 per unit. ) 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 ) 10 per unit. ) 15 per unit. C) 5 per unit. ) 20 per unit. 58) While a patent is in place, its holder is a ) monopolist, who sets the price at the marginal cost. ) monopolist, who sets the price above the marginal cost. C) perfect competitor, who sets the price at the marginal cost. ) perfect competitor, who sets the price above the marginal cost. 59) Which of the following is an example of an external cost? ) The price of a car wash. ) Pollution. C) n electricity bill. ) Taxes.

22 Marginal private benefit (pounds per unit) Marginal social benefit (pounds per unit) Marginal private cost (pounds per unit) Quantity (units) 1, , , , , , ) In the above table, the efficient level of output is ) 3,000 units. ) 4,000 units. C) 2,000 units. ) 5,000 units. 61) Which of the following is a stock variable? ) Saving. ) Income. C) Wealth. ) Investment. 62) GP equals net domestic product plus ) retained earnings. ) depreciation. C) indirect business taxes and personal taxes. ) transfer payments and business transfers. 63) In the computation of GP, transfer payments made by the government are ) not included in GP. ) counted as part of government expenditures on goods and services and are included in GP. C) counted as part of consumption expenditure and are included in GP. ) not counted as part of government purchases of goods and services but are included in GP. 64) Suppose the country of Tiny Town decided to open its borders to free trade. s 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 ) discouraged workers. ) structural unemployment C) frictional unemployment. ) cyclical unemployment.

23 65) Over the last 30 years, the economic activity rate of men and the economic activity rate of women. ) decreased; decreased ) increased; decreased C) decreased; increased ) increased; increased 66) When the economy is at full employment, the ) natural rate of unemployment is equal to 10 percent. ) unemployment rate is equal to 0 percent. C) natural rate of unemployment is equal to 0 percent. ) natural rate of unemployment equals the unemployment rate. 67) The employment rate is the ratio of the number of ) unemployed people divided by the total population, then multiplied by 100. ) employed people divided by the total population, then multiplied by 100. C) unemployed people divided by the working age population, then multiplied by 100. ) employed people divided by the working-age population, then multiplied by ) In the above figure, a recession begins at point and an expansion begins at point. ) a; b ) b; a C) d; c ) b; c

24 69) change in the full-employment quantity of labour the short-run aggregate supply curve and the long-run aggregate supply curve. ) shifts; does not shift ) does not shift; does not shift C) shifts; shifts ) does not shift; shifts 70) Lower taxes ) increase aggregate demand. ) increase the aggregate quantity demanded. C) decrease the aggregate quantity demanded. ) decrease aggregate demand. Price level ggregate demand (billions of 2001 pounds) Short-run aggregate supply (billions of 2001 pounds) Long-run aggregate supply (billions of 2001 pounds) ,200 1, ,100 1, ,000 1,000 1, , , , ,000 71) The data in the above table indicate that when the price level is 100, ) inventories rise and the price level falls. ) the economy is in a long-run macroeconomic equilibrium. C) inventories fall and the price level rises. ) the unemployment rate is at its equilibrium level.

25 72) In the above figure, which part corresponds to a destruction of part of the nation's capital stock? ) Figure. ) Figure. C) Figure C. ) Figure. 73) desired reserve ratio of 10 per cent yields a deposit multiplier of ) 1. ) 1.1. C) 5. ) ) The real-world deposit multiplier will fall in size if ) people reduce their vacation travel. ) people spend a smaller fraction of their income on food. C) people increase their demand for currency. ) the desired reserve ratio decreases. 75) The functions of money are ) medium of exchange and the ability to buy goods and services. ) pricing, contracts, and means of payment. C) medium of exchange, unit of account, and means of payment. ) medium of exchange, unit of account, and store of value.

26 76) The practice of borrowing short and lending long ) creates liquidity. ) minimizes the cost of monitoring borrowers. C) pools risk. ) ll of the above answers are correct. 77) In a persisting demand-pull inflation, ) aggregate demand and short-run aggregate supply both decrease. ) short-run aggregate supply decreases and aggregate demand increases. C) aggregate demand increases and long-run aggregate supply decreases. ) None of the above answers are correct. 78) demand-pull inflation occurred in the United Kingdom during the early part of the ) 1990s. ) 1970s. C) 1960s. ) 1980s. 79) For a cost-push inflation to occur, oil price increases must be accompanied by ) lower personal tax rates. ) increases in the quantity of money. C) increases in government expenditures. ) 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 ) real GP. ) the price level. C) potential GP. ) velocity.

27 nswer Key Testname: FINL_EXM_2007_2008 Topic: Skill: Topic: Skill: Topic: Skill: Topic: Skill: C Topic: Change in Supply, Prices of Factors of Production Topic: Change in Supply, Prices of Related Goods Produced C Topic: Price djustments Topic: Predicting Changes in Price/Quantity; emand/supply Increase Topic: Change in emand, Income C Topic: Price djustments Topic: Predicting Changes in Price and Quantity; emand Changes Topic: Factors That Influence the Elasticity of Supply Topic: Elasticity long a Straight-Line emand Curve Topic: The Price Elasticity of emand Topic: Income Elasticity of emand

28 nswer Key Testname: FINL_EXM_2007_2008 Topic: Efficiency of Competitive Markets Topic: Producer Surplus Topic: Value, Willingness to Pay, and emand Topic: Efficiency and Inefficiency Topic: Efficiency of Competitive Markets C Topic: Marginal enefit Topic: Market Constraints Topic: Company C Topic: Market Structure, Monopoly Topic: Economic Profit Topic: Opportunity Cost Topic: Total Fixed Cost Topic: Marginal Cost Topic: Long-Run verage Cost Curve Topic: Total Product Curve

29 nswer Key Testname: FINL_EXM_2007_2008 Topic: verage Product of Labour Topic: Total Product Topic: Marginal Cost Topic: Total Revenue, Total Cost, and Economic Profit Topic: The Firm's Short-Run Supply Curve Topic: Shutdown Point Topic: Total Revenue, Total Cost, and Economic Profit Topic: Redistribution of Surpluses Topic: Single-Price Monopoly's Output and Price ecisions Topic: Comparing Output and Price; Output Topic: Perfect Price iscrimination C Topic: Single-Price Monopoly's Output and Price ecisions C Topic: Game Theory Topic: Monopolistic Competition; Long-Run Price Topic: ominant Firm Oligopoly Model

30 nswer Key Testname: FINL_EXM_2007_2008 Topic: Colluding to Maximize Profits Topic: Monopolistic Competition; Long-Run Equilibrium Topic: Kinked emand Curve Model C Topic: Limit Pricing C Topic: Prisoners' ilemma Topic: Natural Monopoly, verage Cost Pricing Rule Topic: Natural Monopoly, Marginal Cost Pricing Rule Topic: Externalities C Topic: External enefits Topic: Subsidies and External enefits Topic: Subsidies Topic: Subsidies Topic: Patents Topic: Marginal External Cost Topic: Efficiency

31 nswer Key Testname: FINL_EXM_2007_2008 C Topic: Flows and Stocks Topic: Net omestic Product Topic: Expenditure pproach, Government Expenditures Topic: Structural Unemployment C Topic: Economic ctivity Rate Topic: Full Employment Topic: Employment Rate Topic: usiness Cycle C Topic: Changes in ggregate Supply; Full Employment Topic: Changes in ggregate emand, Taxes C Topic: Short-Run Macroeconomic Equilibrium Topic: Changes in ggregate Supply; Capital Topic: The eposit Multiplier C Topic: The eposit Multiplier in the United Kingdom Topic: What Is Money?

32 nswer Key Testname: FINL_EXM_2007_2008 Topic: The Economic Functions of Financial Intermediaries Topic: emand-pull Inflation Process Topic: emand-pull Inflation in the United Kingdom Topic: Cost-Push Inflation Process Topic: Predictions of the Quantity Theory of Money