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Exam 2

Each question is equally worth 2 points. The exam is worth 100 points.

Question 1

In the widget market, currently 100 widgets are being sold. At this quantity, consumers are willing to pay \$5, and sellers are willing to accept \$2. What must be true in the widget market?

A. There is currently a shortage of widgets, and the price must rise above \$2.
B. There is currently a surplus of widgets, and the price must rise above \$5.
C. There is currently a surplus of widgets, and the price must fall below \$2.
D. The market is in equilibrium.

Answer

A. There is currently a shortage of widgets, and the price must rise above \$2.

Question 2

(Figure: The Market for Sandwiches) Use Figure: The Market for Sandwiches. What happens if a price floor of \$9 is placed on this market?

A. There would be a surplus of nine sandwiches.
B. There would be a shortage of five sandwiches.
C. A total of five sandwiches will be sold.
D. The price floor would not affect this market.

Answer

A. There would be a surplus of nine sandwiches.

Question 3

How do the price and quantity change for a lawn chairs if the price of outdoor sofas, a substitute in consumption to lawn chairs, increases?

A. Price increases, and quantity decreases.
B. Price increases, and quantity increases.
C. Price decreases, and quantity increases.
D. Price decreases, and quantity decreases.

Answer

B. Price increases, and quantity increases.

Question 4

In the widget market, currently 100 widgets are being sold. At this quantity, consumers are willing to pay \$7, and sellers are willing to accept \$7. What must be true in the widget market?

A. There is currently a shortage of widgets, and the price must rise above \$7.
B. There is currently a surplus of widgets, and the price must rise above \$7.
C. There is currently a surplus of widgets, and the price must fall below \$7.
D. The market is in equilibrium.

Answer

D. The market is in equilibrium.

Question 5

How do the price and quantity change for lawn chairs if the price of outdoor grills, a complement in consumption to lawn chairs, increases?

A. Price increases, and quantity increases.
B. Price increases, and quantity decreases.
C. Price decreases, and quantity increases.
D. Price decreases, and quantity decreases.

Answer

D. Price decreases, and quantity decreases.

Question 6

The current price of a flower arrangement is \$40. At the current price, more people want to buy flower arrangements than sellers are willing to sell at that price. What statement about the market for flower arrangements is correct?

A. The market for flower arrangements is in equilibrium.
B. The price of flower arrangements will decrease.
C. The price of flower arrangements will increase.
D. There is a surplus in this market.

Answer

C. The price of flower arrangements will increase.

Question 7

How do the price and quantity change for lawn chairs if the cost of labor used to make lawn chairs decreases?

A. Price increases, and quantity decreases.
B. Price increases, and quantity increases.
C. Price decreases, and quantity increases.
D. Price decreases, and quantity decreases.

Answer

C. Price decreases, and quantity increases.

Question 8

In the widget market, currently 100 widgets are being sold. At this quantity, consumers are willing to pay \$3, and sellers are willing to accept \$6. What must be true in the widget market?

A. The market is in equilibrium.
B. There is currently a surplus of widgets, and the price must rise above \$6.
C. There is currently a shortage of widgets, and the price must rise above \$6.
D. There is currently a surplus of widgets, and the price must fall below \$6.

Answer

D. There is currently a surplus of widgets, and the price must fall below \$6.

Question 9

(Figure: The Market for Aluminum) Use Figure: The Market for Aluminum. What area represents the deadweight loss created by the price floor in this market?

A. A
B. B
C. C
D. D

Answer

B. B

Question 10

What statement about markets is correct?

A. We can expect markets to gravitate toward their equilibrium points.
B. We can expect markets to stay at a price that is higher than the equilibrium price.
C. We can expect persistent shortages in markets.
D. We can expect persistent surpluses in markets.

Answer

A. We can expect markets to gravitate toward their equilibrium points.

Question 11

Black markets tend to emerge when there is:

A. a price floor.
B. an equilibrium.
C. a surplus.
D. a price ceiling.

Answer

D. a price ceiling.

Question 12

(Table: Supply and Demand Schedule for Walking Tours) Use Table: Supply and Demand Schedule for Walking Tours. What are the new equilibrium price and quantity in this market if at every price $30 more walking tours are supplied?

Price (per tour)	Quantity Supplied	Quantity Demand
$10	30	90
$20	50	80
$30	70	70
$40	90	60
$50	110	50
$60	130	40

A. Price is \$60, and quantity is 40.
B. Price is \$30, and quantity is 80.
C. Price is \$20, and quantity is 80.
D. Price is \$20, and quantity is 50.

Answer

C. Price is \$20, and quantity is 80.

Question 13

How do the price and quantity change for lawn chairs if the cost of wood used to make lawn chairs increases?

A. Price increases, and quantity increases.
B. Price decreases, and quantity decreases.
C. Price increases, and quantity decreases.
D. Price decreases, and quantity increases.

Answer

C. Price increases, and quantity decreases.

Question 14

Which of the following causes a decrease in equilibrium price and quantity in the market for iced tea?

A. higher prices for beignets, which is a complement in consumption for iced tea
B. an increase in the wages at beverage stands
C. an increase in the taxes on iced tea sellers
D. higher temperatures that increase people’s preference for iced tea

Answer

A. higher prices for beignets, which is a complement in consumption for iced tea

Question 15

A decrease in supply causes what changes in a market?

A. Price decreases, and quantity decreases.
B. Price decreases, and quantity increases.
C. Price increases, and quantity increases.
D. Price increases, and quantity decreases.

Answer

D. Price increases, and quantity decreases.

Question 16

Which of the following is NOT a possible consequence of an effective price ceiling?

A. black markets
B. inferior quality
C. queueing costs
D. industrial expansion

Answer

D. industrial expansion

Question 17

A _____ occurs when the price of a good is higher than the equilibrium price, and a _____ occurs when the price of a good is lower than the equilibrium price.

A. surplus; shortage
B. surplus; equilibrium
C. shortage; surplus
D. equilibrium; shortage

Answer

A. surplus; shortage

Question 18

How do the price and quantity change in the market for lawn chairs in July if firms expect the price of lawn chairs to go down in August?

A. Price increases, and quantity decreases.
B. Price increases, and quantity increases.
C. Price decreases, and quantity increases.
D. There is no impact on price, and quantity increases.

Answer

C. Price decreases, and quantity increases.

Question 19

The equilibrium quantity is the quantity that:

A. exists when the price is lower than the equilibrium price.
B. exists when the price is higher than the equilibrium price.
C. exists when supply is greater than demand.
D. is both demanded and supplied at the equilibrium price.

Answer

D. is both demanded and supplied at the equilibrium price.

Question 20

What happens to the price and quantity in the market for iced tea if the price of strawberry lemonade, a substitute in production, increases?

A. No impact on price, and quantity increases.
B. Price decreases, and quantity increases.
C. Price increases, and quantity decreases.
D. Price increases, and quantity increases.

Answer

C. Price increases, and quantity decreases.

Question 21

In which of the following situations would a good NOT have a relatively inelastic demand?

A. You can search for the best price for a good.
B. The price of the good is very low.
C. You are shopping at the last minute.
D. The good is a necessity.

Answer

A. You can search for the best price for a good.

Question 22

A policymaker wants to tax a good but wants the incidence of that tax to fall more heavily on sellers than on buyers. What should be true about the price elasticity of supply and the price elasticity of demand in order to do this?

A. The price elasticity of demand and the price elasticity of supply should be equal.
B. Any value of price elasticity of demand or price elasticity of supply will meet this objective.
C. The price elasticity of demand should be more elastic than the price elasticity of supply.
D. The price elasticity of demand should be less elastic than the price elasticity of supply.

Answer

C. The price elasticity of demand should be more elastic than the price elasticity of supply.

Question 23

(Table: Price Elasticities of Demand for Four Goods I) Use the table Price Elasticities of Demand for Four Goods I. If the price of each of these goods increases, which good will have no change in the amount of total revenue earned from selling it?

Table: Price Elasticities of Demand for Four Goods I

Good	Price Elasticity of Demand
Ice Cream	2
Boba Tea	1.5
Funnel Cake	3
Curly Fries	1

A. funnel cakes
B. ice cream
C. boba tea
D. curly fries

Answer

D. curly fries

Question 24

_____ is the way that the burden of a tax is divided among affected parties.

A. Deadweight loss
B. Tax revenue
C. Tax incidence
D. Profit sharing

Answer

C. Tax incidence

Question 25

What is the correct way to calculate price elasticity of demand?

A. $\frac{\text{percentage change in price}}{\text{demand}}$

B. $\frac{\text{percentage change in price}}{\text{percentage change in income}}$

C. $\frac{\text{percentage change in quantity demanded}}{\text{percentage change in price}}$

D. $\frac{\text{percentage change in quantity demanded}}{\text{percentage change in income}}$

Answer

C. $\frac{\text{percentage change in quantity demanded}}{\text{percentage change in price}}$

Question 26

In which of the following situations would demand NOT be elastic?

A. People have a lot of time to shop around.
B. Consumers have many other options.
C. A good is a luxury.
D. The time frame is very short.

Answer

D. The time frame is very short.

Question 27

When Dave raises the price of smart watches by 10 percent, the quantity demanded decreases by 30 percent. The demand for smart watches is _____, and Dave’s total revenue _____ as a result of the price change.

A. elastic; increases
B. inelastic; increases
C. elastic; decreases
D. inelastic; decreases

Answer

C. elastic; decreases

Question 28

Sinead raises the price of the combo meals that she sells by 30 percent, and as a result the quantity demanded of combo meals decreases by 15 percent. The demand for combo meals is _____, and Sinead’s total revenue _____ as a result of the price change.

A. inelastic; increases
B. elastic; increases
C. inelastic; decreases
D. elastic; decreases

Answer

A. inelastic; increases

Question 29

When the price of flowers decreases by 20 percent, Anarosa buys 10 percent more flowers. Anarosa’s price elasticity of demand is equal to _____, and her demand is:

A. 2; elastic.
B. 0.5; unit elastic.
C. 0.5; inelastic.
D. 2; inelastic.

Answer

C. 0.5; inelastic.

Question 30

The price elasticity of supply depends on:

A. whether goods are normal or inferior.
B. what share of income consumers spend on it.
C. what the cost of supplying additional units of a good is.
D. whether goods are complements or substitutes.

Answer

C. what the cost of supplying additional units of a good is.

Question 31

Mr. Arias’s income elasticity of demand for pawpaw fruit is –1.5. What happens to the quantity of pawpaw fruit that he buys if his income increases by 10 percent?

A. He buys 15 percent more pawpaw fruit.
B. He buys 15 percent less pawpaw fruit.
C. He buys 1.5 percent less pawpaw fruit.
D. He buys 1.5 percent more pawpaw fruit.

Answer

B. He buys 15 percent less pawpaw fruit.

Question 32

(Table: Price Elasticities of Demand for Four Goods II) Use the table Price Elasticities of Demand for Four Goods II. If the price of each of these goods increases by 1 percent, which good will have the largest percentage decrease in quantity demanded?

Table: Price Elasticities of Demand for Four Goods II

Good	Price Elasticity of Demand
Cheeseburgers	0.9
Nachos	0.1
Churros	0.5
Hotdogs	0.2

A. churros
B. nachos
C. cheeseburgers
D. hot dogs

Answer

C. cheeseburgers

Question 33

A year ago, Elizabeth purchased a new computer for \$1,400, but now it needs \$500 in repairs. She will get only \$400 in additional value over the next year. What is Elizabeth’s best course of action, and why it is the best?

A. She should repair the computer because it still can give her additional value and she paid a lot of money to get the computer.
B. She should not repair the computer because the benefit plus the cost of the repair are less than what she paid for the computer.
C. She should not repair the computer because her additional value is less than her additional cost.
D. She should repair the computer because the cost of repairing it is less than what she paid.

Answer

C. She should not repair the computer because her additional value is less than her additional cost.

Question 34

The total cost curve:

A. has a height of the variable cost plus the fixed cost.
B. is always below the fixed cost curve.
C. at first decreases and then increases.
D. is the difference between marginal cost and profit.

Answer

A. has a height of the variable cost plus the fixed cost.

Question 35

(Figure: Short-Run Graph) Use the figure Short-Run Graph. The curve labeled A represents the _____ curve.

Figure: Short-Run Graph

A. fixed cost
B. total cost
C. variable cost
D. total output

Answer

B. total cost

Question 36

(Table: Workers and Croissants Produced) Use the table Workers and Croissants Produced. Which of the following statements is true?

Workers	Croissants Produced
0	0
1	100
2	250
3	340
4	420
5	490

A. The marginal product of the third worker is negative.
B. The marginal product of the third worker is less than the marginal product of the second worker.
C. The total product of the second worker is negative.
D. The marginal product of the second worker is less than the marginal product of the first worker.

Answer

B. The marginal product of the third worker is less than the marginal product of the second worker.

Question 37

The cost minimizing combination of inputs is the combination:

A. where the marginal product of labor is equal to zero.
B. where the marginal product of each input relative to its cost is equal.
C. that produces the highest possible quantity without regard to cost.
D. that minimizes the rental rate and the wage rate.

Answer

B. where the marginal product of each input relative to its cost is equal.

Question 38

(Figure: Long-Run Average Total Cost Curve for Magma Motors) Use the figure Long-Run Average Total Cost Curve for Magma Motors. If this firm is currently producing 10,000 cars per year, what does it experience if it increases output by 500 cars?

Figure: Long-Run Average Total Cost Curve for Magma Motors

A. diseconomies of scale
B. economies of scale
C. minimum efficient scale
D. economies of scope

Answer

B. economies of scale

Question 39

A negative profit is called:

A. a loss.
B. the revenue.
C. negative costs.
D. negative revenue.

Answer

A. a loss.

Question 40

Why does marginal cost increase as more is produced?

A. The marginal product of labor decreases, so more additional labor must be used to increase output, decreasing average cost.
B. The marginal product of labor increases, so more additional labor must be used to increase output, increasing total cost.
C. The marginal product of labor increases, so less additional labor must be used to increase output, increasing total cost.
D. The marginal product of labor decreases, so more additional labor must be used to increase output, increasing total cost.

Answer

D. The marginal product of labor decreases, so more additional labor must be used to increase output, increasing total cost.

Question 41

What best describes the long run?

A. a period of time that labor can change
B. a period of time that all inputs can be changed
C. a period of time that at least one input cannot be changed
D. a period longer than six months

Answer

B. a period of time that all inputs can be changed

Question 42

What cost cannot be changed in the short run?

A. average variable cost
B. fixed cost
C. variable cost
D. marginal cost

Answer

B. fixed cost

Question 43

Which of the following is included in the calculation of economic profit that is NOT included in the calculation of accounting profit?

A. total revenue
B. marginal cost
C. implicit cost
D. explicit cost

Answer

C. implicit cost

Question 44

If total output increases when one more worker is added, then marginal product of labor is:

A. negative.
B. greater than the marginal product of the previous unit.
C. positive.
D. equal to zero.

Answer

C. positive.

Question 45

Roger makes short films. After he rents his film equipment for \$20,000, he cannot change that decision. It costs him \$5,000 per film for editing, location expenses, and other expenses incurred for each film. What is average total cost if he produces 10 films?

A. \$5,000
B. \$7,000
C. \$50,000
D. \$70,000

Answer

B. \$7,000

Question 46

What is the difference between fixed cost and variable cost?

A. Fixed cost can be changed in the short run only, but variable cost can be changed in the short run or the long run.
B. Fixed cost can be changed in the long run only, and variable cost cannot change.
C. Fixed cost can be changed in the short run or the long run, but variable cost can be changed only in the short run.
D. Fixed cost be changed in the long run only, but variable cost can be changed in the short run or the long run.

Answer

D. Fixed cost be changed in the long run only, but variable cost can be changed in the short run or the long run.

Question 47

The total cost curve and variable cost curve are:

A. always increasing at an increasing rate.
B. decreasing at an increasing rate.
C. always separated by the amount of fixed cost.
D. always the same value for every quantity produced.

Answer

C. always separated by the amount of fixed cost.

Question 48

A. \$5,000
B. \$7,000
C. \$50,000
D. \$70,000

Answer

C. \$50,000

Question 49

(Figure: Short-Run Graph) Use the figure Short-Run Graph. The curve labeled C represents the _____ curve.

Figure: Short-Run Graph

A. average total cost
B. marginal product
C. fixed cost
D. variable cost

Answer

C. fixed cost

Question 50

How is profit calculated?

A. Profit = Total revenue – Average costs
B. Profit = Average revenue – Total costs
C. Profit = Average revenue – Average costs
D. Profit = Total revenue – Total costs

Answer

D. Profit = Total revenue – Total costs