Version 2

1. Hotdogs and buns are complements. What will happen to the equilibrium price and
quantity in the market for buns if hotdogs become less expensive? The equilibrium
price for buns will
a. Increase and the equilibrium quantity will decrease.
b. Increase and the equilibrium quantity will increase.
c. Decrease and the equilibrium quantity will decrease.
d. Decrease and the equilibrium quantity will increase.

2. Which of the following statements is FALSE?

a. Good A and good B are complements. When the price of good A decreases,
the demand for good B increases.
b. Good A and good B are complements. When the price of good A increases,
the demand for good B decreases.
c. Good A and good B are substitutes. When the price of good A decreases, the
demand for good B increases.
d. Good A and good B are substitutes. When the price of good A increases, the
demand for good B increases.

3. Demand for good Z is given by

QD = 20 – P.
Income falls for individuals in this market, and demand for good Z is now given by
QD = 30 – (½)P.
Holding everything else constant, from this information we know that good Z is
a. A normal good
b. An inferior good
c. A complement
d. A substitute

4. Consider the guitar market. The market demand for guitars is given by P = -2Q + 12.
The market supply of guitars is given by P = Q. P is price and Q is the amount of
guitars. The government mandates a price floor for guitars of $6 each. Holding ev-
erything else constant, which of the following statements is true?
a. There will be a surplus of 3 guitars.
b. There will be a shortage of 3 guitars.
c. 4 guitars are traded in this market.
d. There will be no exchange of guitars in this market when this price floor is imple-
mented.
e. Answers (b) and (c) are both correct.

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 Use the following diagram to answer the next two (2) questions.
P
S

30
C

A B

20
F G

H I
10

50 100 150

5. Suppose that initially the above market is in equilibrium and the government decides
to impose a minimum price of P = $30 (a price floor). The change in consumer sur-
plus induced by this price floor policy can be measured as a(n)
a. Decrease of (area A + area B + area F + area G)
b. Decrease of (area A + area B)
c. Increase of (area F – area B)
d. Decrease of (area B + area C)

6. What is the Deadweight Loss from this new minimum price rule?
a. Area A + Area B + Area F + Area G
b. Area H + Area I
c. Area A + Area B
d. Area B + Area G

7. What is the y-intercept of the line given by the equation 20x + 40y = 10?
a. 10
b. 1/4
c. 40
d. 1

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8. The following two points are on a line: (1,2) and (5,14). If there is a third point on
that line (x,-7), what does x equal?
a. 2
b. -1
c. -2
d. 3

9. You read in the Friday newspaper that consumers have a linear demand for coffee
mugs, wanting 50 coffee mugs at a price of $5/mug and 70 mugs at a price of $3/
mug. On Sunday, however, you read that a change in preferences on Saturday has
made it so consumers still have a linear demand, but want 4 fewer coffee mugs at a
price of $8/mug and 12 fewer mugs at a price of $4/mug than they wanted initially.
What is the new market demand equation for coffee mugs? (Hint: Although both de-
mand curves are linear they are not necessarily parallel to one another.)
a. Q = 100 – 10P
b. Q = 100 – 1/8P
c. P = 10 – 1/10Q
d. P = 10 – 1/8Q

10. You have $2000 you must either spend on chickens ($10 each) or pigs ($60 each). If
the number of chickens you buy is y and the number of pigs you buy is x, which of
the following lines describes the relationship between the money you have to spend
and your purchases of chickens and pigs?
a. y = 200 – 6x
b. x = 300 – 5y
c. y = 100 – 3x
d. x = 200 – 3y

11. The average of 7 numbers is 7. In addition to those 7 numbers, we now add 0, 51,
and 90. What is the new average?
a. 7
b. 19
c. 20
d. 49
12.A competitive firm has ________ power to set the price of its product because
________.
A. no; monopolistically there are no barriers to entry
B. some; there are barriers to entry

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C. some; of product differentiation
D. no; of product differentiation

13.Which of the following is an implicit cost to a business?

A. The costs that are associated with factors of production that can be varied in the short-term
B. The forgone opportunity for the business to engage in the current activity
C. Any and all costs to the firm that are termed accounting costs
D. None of the above

14.Air pollution from automobile exhausts, and water pollution steel plants are examples of
A. external economies.
B. negative externalities.
C. internal spillover.
D. social distortion

15. What are the causes of economies of scale?

A. Ability to use by-products
B. Ability to use specialized management
C. Use of specialized capital goods in production
D. All of the above

16. You are trying to find the percentage of women in your class. You use a class roster
to classify names as male or female. Which of the following is most likely to be a
problem with the data?
a. The sample is not random because the whole class is on the roster.
b. The data is misleading on a graph because there are only two points on the x-axis:
male and female.
c. There will be measurement error because some names may be difficult to classify
as male or female.
d. You cannot find a percentage from the data because you can only divide by num-
bers, not names.

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17. You won a free ticket to see Jay-Z and Kanye West perform in Chicago. The ticket
has a market-value of $200 if you decide to sell it. You value seeing the concert at
$400. The cost of gas and wear and tear on your car to get to and from Chicago is
$50. You’re employed at the Overture Center and you were scheduled to work 6
hours at $10/hour the night of the concert (you can’t work at all if you go to the con-
cert). You’re required to find someone to take your place if you can’t make it to work.
The only person you can find who will take your place at work demands you pay him
$20. What is the opportunity cost of going to the concert?
a. $130
b. $330
c. $530
d. $730

18. Use the production possibility frontier for lemons and haircuts given below to answer
this question.

Which of the following is TRUE?

a. A is an inefficient production point in this economy.
b. The opportunity cost for haircuts is greater at point A than point B.
c. The opportunity cost for haircuts is greater at point B than point A.
d. B is an infeasible production point in this economy.
Use the information below to answer the following two (2) questions.

The price of hot dog buns (a complement to hot dogs) increases from $2 to $3. At the
same time, the wages of the workers at the hot dog production plant decrease from $14
per hour to $10 per hour.

19. What happens to the price of hot dogs?

a. The price of hot dogs decreases.
b. The price of hot dogs increases.
c. The price of hot dogs stays the same.
d. The price of hot dogs is indeterminate.

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20. What happens to the equilibrium quantity of hot dogs?
a. The quantity sold increases.
b. The quantity sold decreases.
c. The quantity sold stays the same.
d. The quantity sold is indeterminate.

21. Supply for Brewer Baseball Hats is given by Q = 10 + P. Demand for Brewer Base-
ball Hats is given by Q = 100 - 2P. The State of Wisconsin wants more people to
sport Brewers hats and decides to offer a subsidy to induce 80 hats to be sold in the
market. What is the cost of this program to the State?
a. $4800
b. $5600
c. $60
d. $1200

22. Which of following would be considered a positive question?

a. Does the university admit the right number of Minnesotans?
b. Do Minnesotans deserve an advantage in the admissions process?
c. Do Minnesotans have a statistical advantage in the admissions process?
d. Should I include State of residence when I am calculating whether or not there is
discrimination in the admissions process?

23. You own a company that produces lasers. The company earns (and pays to you) a
profit of $2 million per year. You are offered $10 million from investors to purchase
your laser company and take over management responsibilities. You would take the
$10 million and invest it in the stock market which would give you an average return
of 5% per year. What is the (yearly) opportunity cost of selling the company?
a. $1,500,000 per year
b. $3,000,000 per year
c. $2,500,000 per year
d. $3,500,000 per year

24. Which of the following factors of production are NOT properly matched with their
factor payments?
A. Capital – interest
B. Land – profits
C. Labor - wages
D. All are properly matched

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25. Which of the following terms means "all other things equal"?
A. Post Hoc, Ergo Propter Hoc
B. Fallacy of Composition
C. Ceteris Paribus
D. None of the above
26. Economic growth can be illustrated with the use of a production possibilities curve:
A. By a shift to the left of the curve
B. By a shift to the right of the curve
C. By a point on the inside of the curve
D. By a point on the outside of the curve
27. A small developing country in Central America has an economy that exhibits the follow-
ing characteristics:
(1) exchange occurs through markets,
(2) private property is permitted, but there is also a large public sector,
(3) what will be produced is decided by the government and the operation of markets, and
(4) there is also a strong social desire to maintain the status quo.
A. This is definitely a capitalist system
B. This is definitely a command system
C. The economy is most likely a mixed system
D. It is impossible to tell what type of economic system this is from the information given

28. Wisconsin farmers lobby for a price support of $9/pumpkin. Supply of pumpkins is
given by Q = 5P - 10. Demand is Q = -6P + 67. The state makes excess pumpkins into
pies to be given away for free to the homeless at a cost to the state of $1/pumpkin. How
much does this price support program cost the State? In your calculation include the cost
to the state of both purchasing the pumpkins as well as making them available as pies to
the homeless.
a. $117
b. $198
c. $220
d. $175

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Use the following diagram to answer the next three (3) questions.

29. What is the consumer surplus in the free-market for peaches?

a. $160
b. $32
c. $128
d. $98

30. Now, if the government institutes a price support equal to $10/peach, what is the con-
sumer surplus in the market for peaches?
a. $49
b. $98
c. $256
d. $48

31. If the government uses a price support program to implement the price floor of $10/
peach, what is the total cost to the government? Assume there is no storage cost to the
government for this program.
a. $60
b. $96
c. $70
d. $100

32. Suppose there are only two customers in the market for Duct Tape and their
individual demand curves are given as follows:
Dexter’s demand for Duct Tape: QD = 5 - PD
Patrick’s demand for Duct Tape: PD = 7 - QD
ShurTech is the only manufacturer of Duct Tape and their supply curve is as follows:
ShurTech’s supply of Duct Tape: QS = 8PS - 8
Given this information, what is the market equilibrium price of Duct Tape?

a. $1.00
b. $2.00
c. $3.00
d. $4.00

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33. A massive tornado tears through southwest Wisconsin destroying 1,500 acres of
farmland used to grow corn. Holding everything else constant, what does this do to the
supply and demand of corn?

a. The demand shifts left which causes a downward movement in the price of
corn.
b. The demand shifts right which causes a downward movement in the price of
corn.
c. The supply shifts right which causes an upward movement in the price of corn.
d. The supply shifts left which causes an upward movement in the price of corn.
Exercise 1
Cost schedule

Labour Output Total Variable cost Total cost

(worker) (unit per day) (dollars) (dollars)
0 0 0 30
1 3 20 50
2 8 40 70
3 12 60 90
4 14 80 110
5 15 100 130

34) In the above table, the average fixed cost of producing 15 units of output is
A. $6.66.
B. $0.50.
C. $2.00.
D. $8.66.
35) In the above table, the average variable cost of producing 14 units of output is
A. $0.175.
B. $7.86.
C. $5.71.
D. $10.00.
36) In the above table, the average total cost of producing 14 units of output is
A. $5.71.
B. $7.00.

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C. $7.86.
D. $6.75.
37) A firm's average total cost is $100, its average variable cost is $90, and its total fixed cost
is $1,000. Its output is
A. between 70 and 120 units.
B. less than 70 units.
C. more than 170 units.
D. between 120 and 170 units.
38) A firm's average total cost is $80, its average variable cost is $75, and its output is 50
units. Its total fixed cost is
A. less than $100.
B. more than $300.
C. between $200 and $300.
D. between $100 and $200.
39) A firm's average variable cost is $60, its total fixed cost is $3,000, and its output is 600
units. Its average total cost is
A. more than $64.
B. between $58 and $62.
C. between $62 and $64.
D. less than $58.
40) A firm's average variable cost is $90, its total fixed cost is $10,000, and its output is
1,000 units. Its total cost is
A. more than $105,000.
B. less than $85,000.
C. between $95,000 and $105,000.
D. between $85,000 and $95,000.
41) A firm's average total cost is $80, its fixed cost is $1000, and its output is 100 units. Its
average variable cost
A. is between $40 and $60.
B. is more than $60.
C. is less than $40.
D. cannot be determined without more information

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42)From the following demand and supply table of product X., the equilibrium price and quantity
transacted of product X are

Unit 1 2 3 4 5 6 7
price
Qd 100 90 80 70 60 50 40

Qs 40 50 60 70 80 90 100

A. $1 and 40 units respectively.

B. $2 and 50 units respectively.
C. $3 and 60 units respectively.
D. $4 and 70 units respectively
Answer the following questions with reference to the following demand and supply table of product
X.

Unit 1 2 3 4 5 6 7
price
Qd 100 90 80 70 60 50 40

Qs 40 50 60 70 80 90 100

43. When the unit price of product X increases from $1 to $2, its price elasticity of demand
is
A. elastic.
B. inelastic.
C. perfectly inelastic
D. perfectly elastic.
44. When the unit price of product X decreases from $6 to $5, its price elasticity of supply is
A. elastic.
B. inelastic.
C. perfectly inelastic.
D. perfectly elastic
45. Suppose the government carries out an effective price ceiling control on product X, the
maximum price per unit is set at $3. Which of the following situations is most likely to oc-
cur?
A. There is an excess supply of 20 units.

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B. There is an excess demand of 20 units.
C. Quantity transacted increases by 10 units.
D. The government has a surplus.
46. If the government sets the minimum unit price of product X at $2,
A. there will be an excess supply of product X by 40 units.
B. the consumer of product X will gain the largest benefit.
C. shortage of product X will occur.
D. the equilibrium price of product X will still be $4
47. Suppose the government imposes $2 per-unit tax to the producer of product X. The total
sales revenue is
A. $280.
B. $300.
C. $320.
D. $360.
48. Suppose the government imposes $2 per-unit tax to the producer of product X. The total
sales tax burden of the sellers is
A. $50.
B. $60.
C. $70.
D. $80.

49. Which of the following statements is correct?

A) Along the budget line, consuming more of one good implies consuming more of the
other.
B) The slope of the budget line shows there is no tradeoff between the two goods because
the consumer can buy each of them.
C) If the consumer's budget increases, the budget line shifts leftward and its slope does
not change.
D) The slope of the budget line shows the opportunity cost of the good measured along
the x-axis.

50. Which of the following does the marginal revenue curve intersect at their minimum?

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A. Short run average total cost
B. Total cost in the short run
C. Long Run Average Total Cost
D. None of the above

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