IB Economics Unit 2: Microeconomics test Day 1 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Mark your answer on the answer sheet. 1 point each. 1) Which of the following statements is true about a competitive market? A competitive market A) includes markets for goods and services but not for inputs. B) has one seller competing to sell his or her product. C) must have a physical location. D) has a handful of sellers but always has many buyers. E) has so many buyers and sellers that no one can influence the price. 2) One reason why the demand for gasoline is inelastic is because A) gasoline is a luxury item. B) substitutes for gas are hard to find. C) people have a long time to shop around for automobiles that use less gas. D) buses run on diesel fuel rather than gasoline. E) substitutes for gas abound. 3) The longer the time that has elapsed since the price of a good changed, the A) smaller the amount of that good bought. B) less elastic the demand for that good. C) fewer substitutes available for the good. D) steeper the demand curve. E) more elastic the demand for that good. 4) What is the formula for the price elasticity of demand? The percentage change in the A) quantity demanded divided by the percentage change in income. B) equilibrium quantity demanded divided by the equilibrium price. C) quantity demanded divided by the percentage change in price. D) quantity demanded divided by the percentage change in the price of a substitute or complement. E) quantity supplied divided by the percentage change in price. Name 5) Total revenue increases if the price of the good A) rises and demand is elastic. B) falls and supply is inelastic. C) rises and demand is unit elastic. D) rises and demand is inelastic. E) falls and demand is unit elastic. 6) If the price of a scooter increases by 20 percent and the quantity supplied of scooters increases by 30 percent, then supply is A) inelastic and the elasticity of supply equals 1.5. B) elastic and the elasticity of supply equals 1.5. C) inelastic and the elasticity of supply equals 0.66. D) elastic and the elasticity of supply equals 0.66. E) either elastic or inelastic but more information about the elasticity of demand is needed to determine which. 7) The cross elasticity of demand for butter and margarine is likely to be A) negative because they are complements. B) positive because they are substitutes. C) negative because they are substitutes. D) positive because they are complements. E) positive because they are normal goods. 8) If a 5 percent increase in income brings about a 10 percent decrease in the demand for a good, then the A) income elasticity of demand is 0.5. B) income elasticity of demand is 2.0. C) good is an inferior good. D) income elasticity of demand is 5.0. E) good is a normal good. 1
9) National defense is a because. A) public good; it is nonrival and B) common resource; it suffers from the tragedy of the commons C) common resource; no one has the incentive to pay for his or her share D) private good; no one has an incentive to conserve the good E) public good; it can be an overused resource 10) Fish in the ocean are an example of because they are. A) public good; rival and excludable B) common resource; rival and C) public good; and nonrival D) private good; caught by private fishermen E) common resource; nonrival and 11) The tragedy of the commons occurs with A) excludable resources. B) nonrival resources. C) rival goods. D) public goods. E) common resources. 12) A mother notices that when she divides brownies equally between her two children and gives each child her share on a separate plate, the brownies last a long time. But when she gives her children a plate to share, the brownies are gone pretty quickly. The mother concludes from this that brownies given on a single plate are A) excludable and rival. B) excludable and nonrival. C) and nonrival. D) and rival. E) excludable but they might either be rival or nonrival. 13) An externality can be a cost or benefit arising from the production of a good that falls upon A) no one so it goes unpaid. B) producers but not consumers. C) consumers but not producers. D) both the consumer and the producer. E) someone other than the consumer or producer. 14) A homeowner decides to buy three large dogs that sleep outdoors and howl at the moon. An externality associated with this decision is A) the cost of purchasing the dogs. B) the increased work for the homeowner in yard cleanup. C) the veterinary costs of keeping the dogs healthy. D) the homeowner's lost sleep. E) the neighbors' lost sleep. 15) A flu vaccine has an associated externality. In the absence of government intervention, the quantity of flu vaccines purchased will be the socially optimal quantity. A) negative; the same as B) positive; the same as C) positive; less than D) negative; less than E) positive; more than 16) Which of the following is true? A) MSB = Marginal external cost - marginal external benefit. B) MSB = MB + Marginal external benefit - Marginal external cost. C) MB = Marginal external benefit + MSC. D) MSB = MB + Marginal external benefit. E) MB = Marginal external benefit - MSB. 2
FIGURE 3-1 17) Refer to Figure 3-1. If demand is given by the curve D, the energy-efficient light bulbs is 200,000 at a price of $9. A) demand schedule for B) demand for C) quantity demanded of D) quantity purchased of E) quantity sold of FIGURE 3-2 18) Refer to Figure 3-2. A shift of the supply curve from S to S1 could be caused by A) a change in consumers' preferences away from ordinary light bulbs toward energy-efficient B) an increase in the price of energy-efficient C) an expectation that new government regulations will ban the use of energy-efficient D) a decrease in the price of glass, a major input in the production of energy-efficient E) a decrease in the price of energy-efficient 3
21) In the figure above, if point "a" represents the original equilibrium and point "b" the new equilibrium, then A) there has been a change in the quantity supplied and no change in supply. B) there has been an increase in demand. C) there has been an increase in supply. D) Both answers B and C are correct. E) Both answers A and B are correct. 19) The above figure illustrates the market for corn. If point "a" represents the original equilibrium and point "b" the new equilibrium, which of the following could have caused the change? A) an increase in consumers' income if corn is a normal good B) an improvement in the technology of producing corn C) an increase in consumers' income if corn is an inferior good D) an increase in consumers' preferences for corn E) an increase in labor costs of producing corn 20) The above figure illustrates the market for corn. If point "a" represents the original equilibrium and point "b" the new equilibrium, which of the following could have caused the change? A) a decrease the price of wheat, a substitute in production for corn B) an increase in the cost of the seed used to grow the corn C) an decrease in buyers' incomes if corn is an inferior good D) a decrease in the number of corn growers E) an increased belief among buyers that corn is healthy. 22) In the figure above, suppose that the government imposes a tax of $4 per pizza. Then, the A) buyers and sellers equally share the incidence of the tax. B) shaded area is the deadweight loss from the tax. C) shaded area is the tax revenue from the tax. D) Both answers A and B are correct. E) Both answers A and C are correct. 4
23) The figure above shows the market for college education. The efficient quantity of education is A) 0 students. B) 6 million students. C) more than 4 million students and less than 6 million students. D) more than 6 million students. E) 4 million students. 24) The figure above shows the market for college education. Left to itself without any government intervention, a competitive market would create a deadweight loss equal to A) zero. B) the area d. C) the area a + c. D) the area b + d. E) the area b + c. 5