1. 1 What is the term that economists use to describe how consumers rank different
goods and services?
A) satisfaction index B) goodness
C) utility D) none of the above
2 Marginal utility refers to:
A) the additional product produced as the firm adds one additional unit of an input.
B) the additional utility that a consumer derives from consuming one additional unit of a
good.
C) the amount of utility divided by the number of units produced. D) all of the above.
3 The law of diminishing marginal utility states:
A) the supply curve slopes upward.
B) your utility grows at a slower and slower rate as you consume more and more units of a
good.
C) the elasticity of demand is infinite. D) none of the above.
4 If you sum all of the marginal utilities for the consumption of units one through five,
you will get:
A) the marginal utility for the consumption of the fifth unit.
B) the marginal utility for the consumption of the sixth unit.
C) the total utility for the consumption of the first five units.
D) the average utility for the consumption of the first five units.
5 Consumers will maximize satisfaction when:
A) the price of each good is exactly equal to the price of every other good consumed.
B) the price of each good is exactly equal to the total utility derived from the
consumption of every other good.
C) the marginal utility of the last dollar spent on each good is exactly equal to the marginal
utility of the last dollar spent on any other good.
D) marginal utility is equal to average utility.
6 The demand curve generally slopes downward because:
A) a higher price increases the consumer's desired level of consumpti n.
o
B) a higher price decreases the consumer's desired level of consumption.
C) that's just the way that it is. D) none of the above.
7 The substitution effect explains that when the price of a good increases, consumers
will consume
A) less of the more expensive good and more of some other good.
B) more of the more expensive good and less of some other good.
C) more of the good because their real incomes are lower after the price increase.
D) less of the good because their real incomes are lower after the price increase.
8 The income effect explains that when the price of a good increases, consumers will
consume
A) less of the more expensive good and more of some other good.
2. B) more of the more expensive good and less of some other good.
C) more of the good because their real incomes are lower after the price increase.
D) less of the good because their real incomes are lower after the price increase.
9 The market demand curve is:
A) a special demand curve that includes the behavior of firms and households.
B) obtained by subtracting the individual demands of different consumers from each other.
C) both a and b D) none of the above.
10 Which of the following groups of goods are complements?
A) steak and steak sauce B) gasoline and cars
C) CD-ROM's and computers D) all of the above
11 If goods X and Y are substitutes, an increase in the price of Y will cause _______ in
the demand for good X.
A) an increase B) a decrease
C) no change D) an inversion
2 Hard-core drug users have an elasticity of demand for illegal drugs that is
relatively more ______ than the elasticity of demand for casual drug users.
A) unit elastic B) inelastic C) elastic D) income elastic
13 ______ is the extra value that consumers receive above what they pay for that
good.
A) producer surplus B) utility
C) marginal utility D) consumer surplus
14 Air is a free good because:
A) nobody wants it. B) nobody can sell it.
C) there is so much of it. D) none of the above.
15 If a price reduction in good X has no impact on the quantity demanded of good Y,
then we call goods X and Y
A) complementary goods. B) substitute goods.
C) independent goods. D) none of the above.
1C 2B 3B 4C 5C 6B 7A
8D 9D 10 D 11 A 12 B 13 D 14 C 15 C
3. 1 The price elasticity of demand measures:
A) the change in quantity demanded of a good given a change in income.
B) the change in quantity demanded of a good given a change in the price of another good.
C) the change in the quantity demanded of a good given a change in the price of the good.
D) the change in the quantity demanded of a good given a change in the price elasticity of
supply.
2 If a good has price-inelastic demand,
A) a 1 percent increase in price produces less than a 1 percent decrease in the quantity
demanded.
B) a 1 percent increase in price produces less than a 1 percent increase in the quantity
demanded.
C) a 1 percent increase in price produces more than a 1 percent increase in the quantity
demanded.
D) a 1 percent increase in price produces more than a 1 percent decrease in the quantity
demanded.
3 When the price is 5, the quantity demanded is 10. When the price is 7, the quantity
demanded is 5. What is the price elasticity of demand?
A) 1 B) 0.5 C) 0.33 D) 2
4 A perfectly inelastic demand curve will be ______ on a graph while a perfectly
elastic demand curve will be ______ on a graph.
A) vertical; horizontal B) horizontal; vertical
C) vertical; vertical D) horizontal; horizontal
5PxQ= A) MC B) TR C) MR D) TC
6 When demand is price-inelastic, a price decrease will result in:
A) an increase in total cost. B) an increase in total revenue.
C) a decrease in total cost. D) a decrease in total revenue.
7 The practice of charging different prices to different buyers is called:
A) total revenue. B) price discrimination.
C) price elasticity. D) an increase in demand.
8 A percentage change in quantity supplied divided by a percentage change in price is
called:
A) income elasticity. B) price elasticity of demand.
C) price elasticity of supply. D) elasticity of substitution.
9 When the price is 5, the quantity supplied is 10. When the price is 10, the quantity
supplied is 20. What is the price elasticity of supply?
A) 1 B) 0.5 C) 0.33 D) 2
10 When governments restrict agricultural production, the supply curve to shifts to
the _______, the equilibrium price ______, and the result is ______ revenue for
farmers.
A) right; decreases; higher B) left; decreases; higher
4. C) left; increases; lower D) left; increases; higher
11 The burden of a gasoline tax will be borne mostly by _______ because the demand
curve is relatively _______.
A) producers; inelastic B) producers; elastic
C) consumers; inelastic D) consumers; elastic
12 In order to show the imposition of a tax on a supply and demand graph, shift the
supply curve ______. In order to show the imposition of a subsidy on a supply and
demand graph, shift the supply curve ______.
A) upward; upward B) downward; upward
C) upward; downward D) downward; upward
13 If demand is inelastic relative to supply, most of the burden of a tax will be borne
by ______. A) consumers B) producers
C) firms D) none of the above
14 When the minimum wage is raised, we would expect that unemployment ______,
but if demand for labor is relatively inelastic, revenues of low-wage workers will
______ after the minimum wage increase.
A) increases; increase B) increases; decrease
C) decreases; increase D) decreases; decrease
15 Price ceilings generally lead to:
A) unemployment. B) shortages.
C) surpluses. D) none of the above.
1C 2A 3D 4A 5B 6D 7B
8C 9A 10 D 11 C 12 C 13 A 14 B 15 B
