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

Transcription

1 Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose an increase in demand causes the price to increase from $2 to $4 and the quantity to increase from 1,000 to 1,800. Using the midpoint method, the elasticity of supply equals A) B) C) D) ) 2) The elasticity of demand is used to 2) A) determine if a change in price results in a shortage or a surplus. B) find the market equilibrium. C) measure how responsive consumers are to a change in price. D) determine if consumers will or will not buy a product. E) determine in what direction the demand curve shifts if income changes. 3) The cross elasticity between computers and software is 3) A) negative because they are substitutes. B) positive because they are substitutes. C) positive because they are complements. D) negative because they are complements. E) positive because they are normal goods. Price (dollars per pizza) Quantity demanded (pizzas per day) ) Using the data in the table above, when the price of a pizza falls from $10 to $9, what is the price elasticity of demand? (Use the midpoint method.) A) 0.9 B) 0.5 C) 2.1 D) 8.6 E) 0.6 4) 5) Deadweight loss is created when a market produces 5) A) the efficient quantity. B) more than the efficient quantity but not when less than the efficient quantity is produced. C) less than the efficient quantity but not when more than the efficient quantity is produced. D) either more or less than the efficient quantity. E) None of the above answers is correct because deadweight loss has nothing to do with the efficient quantity. 1

2 6) When efficiency is attained, the sum of the total amount of consumer surplus and producer surplus is A) undefined. B) minimized. C) maximized. D) equal to the deadweight loss. E) equal to zero. 6) 7) The phrase "decreasing marginal benefit" means that 7) A) the marginal cost will be increasing as you consume more of a good. B) each additional unit of a good you consume gives you less additional benefit than the previous unit. C) the more you consume of the product, the less total benefit you derive. D) Both answers A and B are correct. E) Both answers A and C are correct. 8) The figure above shows the market for bell-bottom pants. If the production of the pants caused an external cost from pollution that is the result of the dye used, then A) fewer than 6 million pairs is the efficient quantity. B) more than 6 million pairs is the efficient quantity. C) 6 million pairs is the efficient quantity. D) None of the above answers are necessarily correct because more information is needed about the size of the external cost. E) None of the above answers are correct because it is impossible to tell whether the external cost results in underproduction or overproduction. 8) 2

3 9) A competitive, unregulated market would 9) A) produce too little education because education has an external benefit. B) produce too much pollution because pollution is an external cost. C) fail to achieve equilibrium if there are externalities present. D) Both answers A and B are correct. E) Both answers B and C are correct. 10) The cost of producing an additional unit of a good or service that is borne by the producer of that good or service is the marginal A) public cost. B) private cost. C) external cost. D) social cost. 10) 11) The sum of the marginal private benefit and the marginal external benefit derived from eco-tourism in British Columbia is called the A) net gain. B) marginal social benefit. C) total external benefit. D) total private benefit. E) total Coase benefit. 11) 12) If vouchers for a good or service given to consumers, then the supply curve and the demand curve. A) shifts rightward; shifts rightward B) does not shift; shifts rightward C) shifts leftward; shifts rightward D) shifts rightward; does not shift E) shifts leftward; shifts leftward 12) 13) Fish in the ocean are an example of because they are. 13) A) common resource; nonrival and nonexcludable B) common resource; rival and nonexcludable C) public good; rival and excludable D) public good; nonexcludable and nonrival E) private good; caught by private fishermen 14) Which of the following goods is best described as nonexcludable? 14) A) pay-per-view television B) a cow grazing in a pasture C) a college education D) a lighthouse E) a restaurant meal 3

4 15) Which of the following contributes to increasing marginal returns? 15) A) increasing explicit costs B) specialization of labor C) decreasing implicit costs D) Both answer A and answer B are correct. E) Both answer A and answer C are correct. 16) If a small percentage change in the price brings a very large percentage change in the quantity supplied, then the supply is almost perfectly and the supply curve is almost. A) inelastic; horizontal B) elastic; vertical C) inelastic ; vertical D) elastic; horizontal E) elastic; 45 degrees 16) 17) If the price elasticity of demand for moose hunting lessons is 4.23, then the demand for moose hunting lessons is A) perfectly unit elastic. B) perfectly elastic. C) elastic. D) inelastic. E) unit elastic. 17) 18) Kevin has a decreasing marginal benefit from each piece of sushi he eats. His marginal cost of sushi increases as he eats more sushi. The efficient amount of sushi for Kevin to eat is when A) the marginal benefit of the piece of sushi is greater than the marginal cost by as much as possible. B) the marginal benefit of the piece of sushi is slightly greater than the marginal cost. C) he passes out. D) the marginal benefit of the piece of sushi equals the marginal cost. E) the marginal benefit of the piece of sushi is less than the marginal cost. 18) 19) When logging in the Pacific Northwest destroys forests that hikers would have used for eco-tourism, the destruction of the trails is an example of A) a private cost. B) an external cost. C) a government cost. D) an external benefit. 19) 4

5 20) The above figure shows the sustainable catch of cod, a common resource. A quota to prevent the overuse of the cod equals the catch made by. A) 300 boats B) 200 or fewer boats C) 400 boats D) more than 500 boats E) between 400 boats and 500 boats 20) 21) If the demand for insulin is inelastic, an increase in insulin prices leads to 21) A) less total revenue for insulin makers. B) first a decrease, then an increase in total revenue for insulin makers. C) more total revenue for insulin makers. D) no change in total revenue for insulin makers. E) total revenue probably changes but we need more information about the change in total expenditures on insulin to determine if the total revenue rises, falls, or stays the same. 22) Which of the following is an example of an external benefit? 22) A) the production of a slice of pizza B) the consumption of a can of Mt. Dew C) the cleanup of a large lake D) a car accident that crowds a major Los Angeles freeway E) a ton of coal burned in a power plant to produce electricity 23) One reason why politicians are able to pass laws that often make little economic sense is because voters A) do not accept the principle of minimum differentiation. B) always ignore the costs of a law. C) irrationally avoid information-gathering activities. D) do not consider the costs and benefits of ignorance. E) rationally avoid some information-gathering activities. 23) 5