1.
A budget constraint illustrates the
• prices that a consumer chooses to pay for products he consumes.
• purchases made by consumers.
• consumption bundles that a consumer can afford.
• consumption bundles that give a consumer equal satisfaction.
6. A decrease in income will cause a consumer's budget constraint to
• shift outward, parallel to its initial position.
• shift inward, parallel to its initial position.
• pivot along the horizontal axis.
• pivot along the vertical axis.
14. When considering her budget, the highest indifference curve that a
consumer can reach is the
• one that is tangent to the budget constraint.
• indifference curve farthest from the origin
• indifference curve that intersects the budget constraint in at least two places.
• None of the above is correct.
15. An optimizing consumer will select a consumption bundle in which
• income is maximized, and prices are minimized.
• utility is maximized, and prices are minimized.
• utility is maximized, subject to budget constraints.
• utility is maximized, and indifference curves are linear.
20. When a tax is levied on a good, the buyers and sellers of the good
share the burden,
• provided the tax is levied on the sellers.
• provided the tax is levied on the buyers.
• provided a portion of the tax is levied on the buyers, with the remaining
portion levied on the sellers.
• regardless of how the tax is levied.
21. A tax on a good
• raises the price that buyers effectively pay and raises the price that sellers
effectively receive.
• raises the price that buyers effectively pay and lowers the price that sellers
effectively receive.
• lowers the price that buyers effectively pay and raises the price that sellers
effectively receive.
• lowers the price that buyers effectively pay and lowers the price that sellers
effectively receive.
29. The decrease in total surplus that results from a market distortion,
such as a tax, is called a
• wedge loss.
• revenue loss.
• deadweight loss.
• consumer surplus loss.
30. The maximum price that a buyer will pay for a good is called
• consumer surplus.
• willingness to pay.
• equilibrium.
• efficiency.
31. Consumer surplus is
• the amount a buyer is willing to pay for a good minus the amount the buyer
actually pays for it.
• the amount a buyer is willing to pay for a good minus the cost of producing
the good.
• the amount by which the quantity supplied of a good exceeds the quantity
demanded of the good.
• a buyer's willingness to pay for a good plus the price of the good.
39. The opportunity cost of an item is
• the number of hours needed to earn money to buy the item.
• what you give up to get that item.
• usually less than the dollar value of the item.
• the dollar value of the item.
40. The opportunity cost of going to college is
• the total spent on food, clothing, books, transportation, tuition, lodging, and
other expenses.
• the value of the best opportunity a student gives up to attend college.
• zero for students who are fortunate enough to have all of their college
expenses paid by someone else.
• zero, since a college education will allow a student to earn a larger income
after graduation.
42. The "invisible hand" directs economic activity through
• advertising.
• prices.
• central planning.
• government regulations.
45. Economists sometimes give conflicting advice because
• graduate students in economics are encouraged to argue with each other.
• economists have different values and scientific judgment.
• economists acting as scientists do not like to agree with economists acting as
policy advisers.
• economics is more of a belief system than a science.
46. An increase in the price of a good will
• increase demand.
• decrease demand.
• increase quantity demanded.
• decrease quantity demanded.
47. A decrease in quantity demanded
• results in a movement downward and to the right along a demand curve.
• results in a movement upward and to the left along a demand curve.
• shifts the demand curve to the left.
• shifts the demand curve to the right.
50. When the price of peaches changes, the demand curve for peaches
• shifts because the price of peaches is measured on the vertical axis of the
graph.
• shifts because the quantity demanded of peaches is measured on the
horizontal axis of the graph.
• does not shift because the price of peaches is measured on the vertical axis of
the graph.
• does not shift because the price of peaches is measured on the horizontal axis
of the graph.
51. Which of the following changes would not shift the demand curve
for a good or service?
• a change in income
• a change in the price of the good or service
• a change in expectations about the future price of the good or service
• a change in the price of a related good or service
54. What will happen in the gasoline market now if buyers expect
higher gasoline prices in the near future?
• The demand for gasoline will increase.
• The demand for gasoline will decrease.
• The demand for gasoline will be unaffected.
• The supply of gasoline will increase.
57. Which of the following would cause a movement along the supply
curve for cupcakes?
• an improvement in technology for commercial mixers
• a decrease in the price of cupcakes
• an increase in the price of cake flour
• All of the above are correct.
59. A decrease in quantity supplied
• results in a movement downward and to the left along a fixed supply curve.
• results in a movement upward and to the right along a fixed supply curve.
• shifts the supply curve to the left.
• shifts the supply curve to the right.
62. If the supply of a product increases, then we would expect
equilibrium price
• to increase and equilibrium quantity to decrease.
• to decrease and equilibrium quantity to increase.
• and equilibrium quantity to both increase.
• and equilibrium quantity to both decrease.
64. Suppose that demand for a good increases and, at the same time,
supply of the good decreases. What would happen in the market for
the good?
• Equilibrium price would decrease, but the impact on equilibrium quantity
would be ambiguous.
• Equilibrium price would increase, but the impact on equilibrium quantity
would be ambiguous.
• Equilibrium quantity would decrease, but the impact on equilibrium price
would be ambiguous.
• Equilibrium quantity would increase, but the impact on equilibrium price
would be ambiguous.
65. When supply and demand both increase, equilibrium
• price will increase.
• price will decrease.
• quantity may increase, decrease, or remain unchanged.
• price may increase, decrease, or remain unchanged.
66. When the price of a good is higher than the equilibrium price,
• a shortage will exist.
• buyers desire to purchase more than is produced.
• sellers desire to produce and sell more than buyers wish to purchase.
• quantity demanded exceeds quantity supplied.
69. The price elasticity of demand measures how much
• quantity demanded responds to a change in price.
• quantity demanded responds to a change in income.
• price responds to a change in demand.
• demand responds to a change in supply.
70. Demand is said to be inelastic if
• buyers respond substantially to changes in the price of the good.
• demand shifts only slightly when the price of the good changes.
• the quantity demanded changes only slightly when the price of the good
changes.
• the price of the good responds only slightly to changes in demand.
71. When quantity demanded responds strongly to changes in price,
demand is said to be
• fluid.
• elastic.
• dynamic.
• highly variable.
72. Demand is elastic if the price elasticity of demand is
• less than 1.
• equal to 1.
• equal to 0.
• greater than 1.
75. Elasticity of demand is closely related to the slope of the demand
curve. The more responsive buyers are to a change in price, the
• steeper the demand curve will be.
• flatter the demand curve will be.
• further to the right the demand curve will sit.
• closer to the vertical axis the demand curve will sit.
76. The case of perfectly elastic demand is illustrated by a demand
curve that is
• vertical.
• horizontal.
• downward-sloping but relatively steep.
• downward-sloping but relatively flat.
78. Demand is said to be unit elastic if quantity demanded
• changes by the same percent as the price.
• changes by a larger percent than the price.
• changes by a smaller percent than the price.
• does not respond to a change in price.
79. When demand is inelastic, a decrease in price will cause
• an increase in total revenue.
• a decrease in total revenue.
• no change in total revenue but an increase in quantity demanded.
• no change in total revenue but a decrease in quantity demanded.
81. If the cross-price elasticity of two goods is negative, then the two
goods are
• necessities.
• complements.
• normal goods.
• inferior goods.
85. A binding price floor
• causes a surplus.
• causes a shortage.
• is set at a price above the equilibrium price.
• is set at a price below the equilibrium price.
a. (i) only
b. (iii) only
c. (i) and (iii) only
d. (ii) and (iv) only
