MICROECONOMICS 1010U

Refer to Figure 6.1.1. If the demand for rental housing increases and the demand curve shifts rightward from D0 to D1, and there is a strictly enforced rent ceiling of $150 per room
A) the number of rooms rented will increase to 2,000.
B) the number of rooms rented is 1,500.
C) there is a housing shortage of 500 rooms.
D) the number of rooms rented decreases to 1,000.
E) both B and C

If the government imposes a maximum rent for housing that is above the equilibrium price, then you predict that
A) the demand curve for housing shifts rightward.
B) the law will generate a shortage of housing.
C) the supply curve of housing shifts leftward.
D) the law will create a surplus of housing.
E) the law will have no effect in the market for housing.

Refer to Figure 6.1.2. If a rigorously enforced price ceiling is set at $10, then
A) 150 units will be sold at a price of $15 each.
B) 200 units will be sold at a price of $10 each.
C) 100 units will be sold at a price of $15 each.
D) 100 units will be sold at a price of $20 each.
E) 100 units will be sold at a price of $10 each.

An effective rent ceiling
A) increases producer surplus.
B) increases the supply of housing.
C) increases consumer surplus.
D) creates a deadweight loss.
E) decreases the supply of housing.

Refer to Figure 6.2.1. Suppose a $5 per hour minimum wage is in force. What is the lowest wage per hour an unemployed person would be willing to accept?
A) $3 B) $4 C) $5 D) $2 E) $1

6) Refer to Table 6.2.2. What is the level of unemployment in millions of hours if the minimum wage is set at $3 per hour?

A) 70 B) 20 C) 30 D) 40 E) zero

7) Suppose the equilibrium wage is $10 an hour. A minimum wage is a price ________ that will change the quantity of employment if it is set at ________ an hour.

A) ceiling; $12
B) floor; $10
C) ceiling; $8
D) floor; $8
E) floor; $12

8) Suppose the demand for gasoline is inelastic, but not perfectly inelastic, and the supply is elastic, but not perfectly elastic. A tax on gasoline is paid

A) mostly by buyers.
B) equally by buyers and sellers.
C) totally by sellers.
D) mostly by sellers.
E) totally by buyers.

9) Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed. The tax on each frisbee is

A) $5.60.
B) $0.40.
C) $6.60.
D) $0.60.
E) $1.00.

10) Refer to Figure 6.3.2. The deadweight loss from the sales tax is
A) $1,000.
B) $150.
C) $100.
D) $50.
E) $200.

11) The buyer pays most of a tax if demand is relatively inelastic because
A) the buyer cannot easily substitute to other markets.
B) the seller cannot easily substitute to other goods.
C) there is a black market for this good.
D) the buyer can easily substitute to other markets.
E) the government forces the seller to bear the burden of the tax

12) Refer to Figure 6.3.3. Suppose a tax of $1 is imposed. In which market would the seller pay the highest portion of the tax?

A) (a)
B) (b)
C) (c)
D) (d)
E) all markets equally

13) A subsidy is a
A) payment made by the government to a producer.
B) payment made by foreign governments to domestic farmers.
C) payment made by a consumer to a producer.
D) tax imposed by the government on a producer.
E) tax imposed by the government on imported goods.

14) An effective production quota
A) is inefficient because it results in overproduction.
B) is efficient because it results in overproduction.
C) is efficient because it results in underproduction.
D) is inefficient because it results in underproduction.
E) is efficient for quantities below the equilibrium quantity and is inefficient for quantities above the equilibrium quantity.

15) Suppose the Canadian Dairy Commission sets a production quota for dairy production above the equilibrium quantity. Then,
A) the policy will raise the price of milk in the international market.
B) the policy will increase revenue received by dairy producers.
C) the policy will increase the quantity of milk produced in Canada.
D) the policy will decrease revenue received by dairy producers.
E) the policy will have no impact on the dairy industry.

Utility is
A) equal to the price of a good.
B) the value of a good.
C) the additional satisfaction received from consuming another unit of a good.
D) the practical usefulness of a good.
E) the benefit or satisfaction from consuming goods and services.

The fact that your fourth slice of pizza does not generate as much satisfaction as your third slice is an example of

A) diminishing total utility.
B) the law of demand.
C) the paradox of value.
D) consumer surplus.
E) diminishing marginal utility.

The first can of Coke gives 15 units of utility to Witney, while the second can of Coke increases her total utility to 23. What is the marginal utility of the second can of Coke?
A) 11.5 units
B) 38 units
C) 8 units
D) 24 units
E) 7.5 units

Refer to Table 8.2.1. Consider Sam's utility from sailing and skiing. The price of sailing is $10 per hour and the price of skiing is $20 per hour; Sam's income to spend on these activities is $80. In consumer equilibrium, Sam will sail for

A) 4 hours and ski for 2 hours.
B) 3 hours and ski for 2 hours.
C) 2 hours and ski for 4 hours.
D) 4 hours.
E) 8 hours.

If a consumer spends all his income and his marginal utility per dollar is equal for all goods, then
A) he cannot be better off even with more income.
B) marginal utility is maximized.
C) total utility is maximized.
D) the number of units bought of each good must be equal.
E) the proportion of income spent on each good must be equal.

Let MUA and MUB stand for the marginal utility of goods A and B, respectively. Let PA and PB stand for the price of goods A and B, respectively. Which statement must hold for consumer equilibrium?

A) MUA = MUB and PA = PB
B) MUA = MUB
C) MUA/MUB = PA/PB
D) MUA/MUB = PB/PA
E) MUAPA = MUBPB

Refer to Table 8.2.2. What is the total utility if 3 bags of popcorn and 2 bottles of pop are consumed?
A) 310
B) 660
C) 150
D) 100
E) 490

Samir consumes apples and bananas and is in consumer equilibrium. The marginal utility from his last apple is 10 and the marginal utility from his last banana is 5. If the price of an apple is $0.50, then what is the price of a banana?

A) $0.25
B) $0.50
C) $0.10
D) $0.05
E) $1.00

Devon enjoys windsurfing and snorkeling. His total utility from each activity is summarized in Table 8.2.1. Devon has $35 to spend. How long will Devon choose to windsurf and to snorkel?

A) 4 hours windsurfing and no hours snorkeling
B) 1 hour windsurfing and 5 hours snorkeling
C) 2 hour windsurfing and 4 hours snorkeling
D) 2 hours windsurfing and 3 hours snorkeling
E) 3 hours windsurfing and 1 hour snorkeling

Refer to Table 8.2.3. If income is $13, then utility is maximized when consumption is
A) 6 units of X and 1 unit of Y.
B) 2 units of X and 9 units of Y.
C) 4 units of X and 5 units of Y.
D) 3 units of X and 7 units of Y.
E) 5 units of X and 3 units of Y.

Which one of the following does not occur in perfect competition?
A) Sellers and buyers are well informed about prices.
B) There are many buyers.
C) Established firms have no advantage over new ones.
D) There are significant restrictions on entry into the market.
E) No single firm can exert a significant influence on the market price of the good.

A price taker is a firm that
A) cannot influence the market price.
B) is incurring an economic loss.
C) sets the market price.
D) must lower its price if it wants to sell more output.
E) can raise its price if it lowers output.

Refer to Table 12.2.1, which gives the total revenue schedule and total cost schedule of a perfectly competitive firm. If the firm produces 3 units of output, it will

A) make an economic profit of $90.
B) incur an economic loss of $86.
C) make an economic profit of $4.
D) incur an economic loss of $4.
E) break even

A firm shuts down if price is
A) below minimum average variable cost.
B) above minimum average fixed cost.
C) below average total cost.
D) less than marginal cost.
E) above minimum average variable cost.

A firm that temporarily shuts down and produces no output incurs a loss equal to its
A) total fixed cost.
B) average fixed cost.
C) marginal cost.
D) total variable cost.
E) average total cost.

Refer to Figure 12.2.2, which shows a perfectly competitive firm's economic profit and loss. The firm is breaking even at points
A) A and C.
B) A and D.
C) B and C.
D) B and D.
E) C and D.

A firm is producing the profit-maximizing amount of output when it is producing where its ________ curve intersects its ________ curve.

A) marginal cost; average variable cost
B) total cost; total revenue
C) average total cost; average variable cost
D) marginal cost; marginal revenue
E) marginal cost; average total cost

In which one of the following situations will a perfectly competitive firm make an economic profit?
A) MR > AVC
B) ATC > MC
C) MC > AVC
D) MR > ATC
E) ATC > MR

Refer to Figure 12.3.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry. In the short run, the firm will

A) incur an economic loss.
B) exit from the industry.
C) close down.
D) break even.
E) make an economic profit.

Refer to Figure 12.3.2, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry, The firm is

A) not maximizing economic profit.
B) going to close down temporarily.
C) incurring an economic loss.
D) making an economic profit.
E) breaking even.

Refer to Figure 12.4.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run, market

A) demand will increase.
B) supply and market demand will decrease.
C) supply will decrease.
D) demand will decrease.
E) supply will increase.

When a perfectly competitive market is in long-run equilibrium,
A) all firms make zero economic profit.
B) marginal revenue equals minimum average variable cost.
C) firms exit the market if other firms are incurring an economic loss.
D) firms enter the market if other firms are making an economic profit.
E) at least one firm makes an economic profit.

If firms in a perfectly competitive market are incurring an economic loss, some firms will exit. This exit shifts the market

A) supply curve rightward, and the market price falls.
B) demand curve leftward, and the market price falls.
C) supply curve leftward and the market demand curve rightward.
D) demand curve rightward, and the market price rises.
E) supply curve leftward, and the market price rises.

The market for maple syrup is perfectly competitive. Suppose that the market is in long-run equilibrium when the market demand for maple syrup increases. All of the following occur except

A) the price rises in the short run.
B) in the short run, existing firms make an economic profit.
C) in the long run, firms make an economic profit.
D) the number of firms in the long run is greater than the number of firms in the short run.
E) the equilibrium quantity increases

In a perfectly competitive market, a technological advance brings ________ economic profit for producers and ________ lower prices for consumers.

A) temporary; temporary
B) negative; permanent
C) permanent; temporary
D) temporary; permanent
E) permanent; permanent

In a natural monopoly, the long-run average cost curve
A) may be either upward sloping or downward sloping in the relevant range of output levels.
B) is downward sloping in the relevant range of output levels.
C) is horizontal in the relevant range of output levels.
D) is upward sloping in the relevant range of output levels.
E) lies below the marginal cost curve.

Which of the following is least likely to be a natural monopoly?
A) electric utilities
B) taxicab service
C) subway services
D) cable television services
E) water and sewer services

A monopoly arises for two key reasons, which are
A) barriers to entry and close substitutes.
B) close substitutes and no barriers to entry.
C) franchises and barriers to entry.
D) barriers to entry and no close substitutes.
E) natural and legal

Refer to Figure 13.2.1. This single-price monopoly produces _D_______ units per day and charges a price of $________ per unit. 4) _______

A) 20; 50
B) zero; 0
C) 20; 20
D) 20; 75
E) 40; 50

Refer to Figure 13.2.2. If the single-price monopoly shown in Figure 13.2.2 is maximizing profit, what is total economic profit?

A) $4
B) $7
C) $9
D) $6
E) $3

The pursuit of wealth by capturing economic rent
A) is illegal in Canada.
B) is price discrimination.
C) is rent seeking.
D) creates a legal monopoly.
E) creates a natural monopoly.

Consider Figure 13.3.2. Consider a perfectly competitive market. If the light grey area shows the consumer surplus, and the dark grey area shows the producer surplus, which graph correctly represents this market? 7) __A_____

A) (a)
B) (b)
C) (c)
D) (d)
E) (b) and (d)

Consider the revenue and cost curves in Figure 13.3.3. If this is a single-price monopoly, what is consumer surplus?

A) ACD B) EADH C) EABH D) ABD E) KEA

Which of the following markets will have the largest deadweight loss?
A) a perfectly competitive market
B) a single-price monopoly
C) a perfectly price discriminating monopoly
D) both B and C
E) both A and C

A monopoly can practise price discrimination when it
A) produces a good with close substitutes.
B) has different marginal costs of production for different output levels.
C) has decreasing average variables cost.
D) is a price taker.
E) can segment the market according to the different prices the consumers are willing to pay.

Refer to Figure 13.4.2. Assume this monopolist practises perfect price discrimination. How many tickets are sold?

A) 40 tickets
B) 80 tickets
C) 60 tickets
D) 20 tickets
E) 100 tickets

Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. An inhaler can be produced at a constant marginal cost of $2 per inhaler. The demand curve, marginal revenue curve, and marginal cost curve for this new asthma inhaler are shown in Figure 13.4.6. The patent gives Prime Pharmaceuticals a monopoly for its new inhaler. If Prime Pharmaceuticals can perfectly price discriminate, then it
A) sells 16 million inhalers.
B) charges a price of $2 for each inhaler it sells.
C) makes zero economic profit.
D) sells inhalers for $6 each.
E) Both A and B are correct.

Consider the natural monopoly depicted in Figure 13.5.2. If a regulator uses a marginal cost pricing rule to set price, what is the quantity produced?

A) 0
B) Q2
C) Q1
D) Q3
E) Q0

Consider the natural monopoly depicted in Figure 13.5.2. If a regulatory agency sets a price just sufficient for the firm to make zero economic profit, what output will it produce?

A) Q0
B) Q1
C) Q3
D) Q2
E) Q4

An externality is a cost or benefit arising from an economic activity that falls on
A) someone other than consumers or producers.
B) consumers but not producers.
C) producers but not consumers.
D) consumers or producers.
E) foreigners.

Which of the following illustrates the concept of external cost?
A) Smoking harms the health of the smoker.
B) Bad weather reduces the size of the wheat crop.
C) A reduction in the size of the wheat crop causes income of wheat farmers to fall.
D) Public health services reduce the transmission of disease.
E) Smoking harms the health of nearby nonsmokers.

A well-maintained waterfront property that is enjoyed by other property owners is an example of
A) a negative consumption externality.
B) an inefficient allocation of resources.
C) a negative production externality.
D) a positive consumption externality.
E) a positive production externality.

If the marginal private cost of producing one kilowatt of power in British Columbia equals five cents and the marginal social cost of each kilowatt equals nine cents, then the marginal external cost equals ________ per kilowatt.

A) nine cents
B) fourteen cents
C) five cents
D) forty-five cents
E) four cents

Refer to Figure 16.2.1. The figure shows the marginal private cost curve, the marginal social cost curve and the market demand curve. If the market is unregulated, then the quantity produced is

A) zero.
B) Q1.
C) Q2.
D) Q3.
E) too low.

Refer to Figure 16.2.1. The figure shows the marginal private cost curve, the marginal social cost curve and the market demand curve. To promote an efficient allocation of resources, the government could impose a constant per unit tax equal to

A) P3 - P1.
B) P4 - P1.
C) P1.
D) zero.
E) P3 - P2.

Refer to Table 16.2.1. Given in the table are the marginal private cost and the marginal social cost of the production of chemical fertilizer and the marginal social benefit from the consumption of fertilizer. Under these circumstances, 7) ____C___
A) not enough information is provided to determine whether or not there are externalities.
B) there are positive externalities in this market.
C) there are negative externalities in this market, equal to $20 per unit.
D) there are negative externalities in this market, equal to $10 per unit.
E) there are no externalities in this market

Refer to Table 16.2.1. Given in the table are the marginal private cost and the marginal social cost of the production of chemical fertilizer and the marginal social benefit from the consumption of fertilizer. If the market is unregulated

A) the quantity produced is greater than the efficient quantity.
B) production is technologically inefficient.
C) marginal external cost is maximized.
D) the quantity produced is less than the efficient quantity.
E) the quantity produced is the efficient quantity.

Refer to Figure 16.2.2. This figure shows the demand curve, the marginal private cost curve and the marginal social cost curve of good A. Production of the 6th unit of output generates a marginal external

A) cost of $3.
B) cost of $6.
C) cost of $1.50.
D) benefit of $3.
E) benefit of $6.

Refer to Table 16.2.2. If the fertilizer market is perfectly competitive and unregulated, output (in tonnes) is

A) 1.
B) 2.
C) 3.
D) 4.
E) 5.

Refer to Figure 16.3.1. The figure shows the marginal private benefit curve, the marginal social benefit curve, and the market supply curve. If production is left to the private market, then the quantity produced is

A) zero.
B) Q1.
C) Q2.
D) Q3.
E) between 0 and Q1.

Refer to Figure 16.3.1. The figure shows the marginal private benefit curve, the marginal social benefit curve, and the market supply curve. To promote an efficient quantity the government could grant a subsidy equal to

A) P4 - P1.
B) zero.
C) P1.
D) P3 - P1.
E) P2 - P1.

Refer to Table 16.3.1. The table shows marginal private benefit and the marginal social benefit from the consumption of chemical fertilizer and the marginal social cost of the production of fertilizer. If production is left to the private market, the quantity produced is

A) 1 unit. B) 2 units. C) 3 units. D) 4 units. E) 5 units.

Refer to Figure 16.3.2. The figure shows the market for good B. How many units of good B are produced and consumed in an unregulated market?

A) 9 units B) 3 units C) 5 units D) 6 units E) 0 units

In Figure 16.3.2. The figure shows the market for good B. Which of the following government policies creates an efficient outcome?

A) Provide vouchers for consumption of B of $4 per unit.
B) Provide vouchers for consumption of B of $1 per unit.
C) Provide vouchers for consumption of B of $3 per unit.
D) Tax the production of B by $4 per unit.
E) Tax the production of B by $3 per unit.

Which market is an example of a market for goods?
A) haircut market
B) manufactured input market
C) labour market
D) energy market
E) apple market

The opportunity cost of a hot dog in terms of hamburgers is
A) the money price of a hot dog minus the money price of a hamburger.
B) smaller in the winter than in the summer.
C) the ratio of the slope of the supply curve of hot dogs to the slope of the supply curve of hamburgers.
D) the ratio of the money price of a hot dog to the money price of a hamburger.
E) the ratio of the slope of the demand curve for hot dogs to the slope of the demand curve for hamburgers.

Which one of the following events shifts the demand curve for grape jelly to the right?
A) an increase in income if grape jelly is a normal good
B) an increase in the price of peanut butter, a complement of grape jelly
C) a decrease in the price of grape jelly
D) a decrease in the population
E) a decrease in the price of strawberry preserves, a substitute for grape jelly

Which one of the following would result in a movement from point A to point B in Figure 3.2.1?
A) a rise in the price of oranges
B) an increase in population size
C) a rise in the price of bananas
D) public concern about chemicals sprayed on apples
E) a fall in the price of apples

Which one of the following would result in the demand curve shifting from D1 to D2 in Figure 3.2.2?
A) a rise in the price of pizza
B) a fall in the price of pizza
C) a rise in the price of hamburgers, a substitute for pizza
D) an increase in the supply of pizza
E) a rise in the price of Coke, a complement of pizza

The price of good X falls and the demand for good Y decreases. We can conclude that
A) X and Y are independent of each other.
B) X and Y are substitutes.
C) X and Y are complements.
D) X is an inferior good.
E) X is a normal good.

Some sales managers are talking shop. Which one of the following quotations does not refer to a rightward shift of the demand curve?

A) "It has been an unusually harsh winter; our sales of wool scarves are up from last year."
B) "We decided to cut our prices, and the increase in our sales has been remarkable."
C) "People are expecting a harsh winter next year, so the sales of our winter coats have increased."
D) "The Green movement has sparked an increase in our sales of biodegradable products."
E) "Since our competitors raised their prices, our sales have doubled."

An increase in supply is shown by
A) a movement down along the supply curve.
B) a leftward shift of the supply curve.
C) a rightward shift of the supply curve.
D) a movement up along the supply curve.
E) an initial movement up and then down along the same supply curve.

If goods X and Y are substitutes in production, then a rise in the price of good X
A) decreases the demand for good Y.
B) decreases the supply of good Y.
C) increases the supply of good Y.
D) increases the demand for good Y.
E) might change the supply of Y; it depends on whether X and Y are also substitutes.

A shift of the supply curve for rutabagas occurs if there is
A) a change in preferences for rutabagas.
B) a change in income.
C) a change in the price of a related good that is a substitute for rutabagas.
D) a change in the price of rutabagas.
E) none of the above

Which of the following shifts the supply curve for good X leftward?
A) a decrease in the wages of workers employed to produce X
B) a situation in which the quantity demanded of X exceeds the quantity supplied of X
C) a situation in which the quantity supplied of X exceeds the quantity demanded of X
D) an increase in the cost of the machinery used to produce X
E) a technological advance in the production of X

Which one of the following would not shift the supply curve of good X to the right?
A) an increase in the price of Y, a complement in production of X
B) a fall in the price of Y, a substitute in production of X
C) an improvement in technology used in the production of X
D) a fall in the price of the factors of production used in producing X
E) a rise in the price of X

If the price is above the equilibrium price, then
A) none of the good will be sold.
B) a shortage exists.
C) the price must rise further to reach the new market equilibrium.
D) a surplus exists.
E) price will not change; producers will cut back production until the market is in equilibrium.

Since 1980, there has been a dramatic increase in the number of working mothers. Based on this information alone, we can predict that the market for child care services has experienced

A) a decrease in demand.
B) an increase in supply.
C) a decrease in quantity supplied.
D) an increase in quantity demanded.
E) an increase in demand.

The price of a good will fall if
A) demand for the good remains constant.
B) demand for the good increases.
C) supply of the good remains constant.
D) supply of the good decreases.
E) supply of the good increases.

If A is an inferior good and consumer income rises, the demand for A
A) increases and the equilibrium price rises, but the equilibrium quantity decreases.
B) decreases and the equilibrium price falls, but the equilibrium quantity increases.
C) increases, and the equilibrium price and the equilibrium quantity increase.
D) decreases, the equilibrium price rises, and the equilibrium quantity decreases.
E) decreases, and the equilibrium price and the equilibrium quantity decrease.

Crude oil is a very important factor of production used in the production of gasoline. If the price of crude oil rises, we would expect the

A) price of gasoline to rise due to an increase in demand.
B) equilibrium quantity of gasoline to rise due to an increase in demand.
C) price of gasoline to rise due to a decrease in supply.
D) equilibrium quantity of gasoline to fall due to an increase in supply.
E) price of gasoline to fall due to an increase in demand.

The fish stocks in the Atlantic fishing industry have decreased. As a result, we would expect
A) a fall in the price of fish, leading to a decrease in the demand for meat, because meat and fish are substitutes.
B) a fall in the price of fish, leading to an increase in the demand for meat, because meat and fish are substitutes.
C) an increase in the demand for meat because meat is a substitute for fish.
D) an increase in the demand for meat (e.g., beef) because meat is a complement of fish.
E) a rise in the price of fish, leading to a decrease in the demand for meat, because meat and fish are complements.

Tim Hortons' Risks
Tim Hortons has exploded to become a dominant player among quick-serve restaurants. In 2001, it took the risk by switching to centralized production of baked goods, which lowered its labour costs and increased its sales volume.
Source: Financial Post, August 12, 2010

19) Lower labour costs
A) increase the quantity supplied of Tim's baked goods.
B) lower the equilibrium price of Tim's baked goods but do not change the equilibrium quantity.
C) increase the supply of Tim's baked goods, increase the demand for Tim's baked goods and increase the equilibrium quantity.
D) increase the demand for Tim's baked goods and raise the price.
E) increase the supply of Tim's baked goods and lower the equilibrium price.

If the demand curve is D2 in Figure 3.5.1,
A) the equilibrium price is P2 and the equilibrium quantity is Q0.
B) the equilibrium price is P2 and the equilibrium quantity is Q2.
C) there is a shortage in the amount of Q2 - Q0.
D) the price will rise.
E) a rise in price will shift the demand curve to D3.

A price elasticity of demand of 2 means that a 10 percent increase in price will result in a
A) 20 percent increase in quantity demanded.
B) 20 percent decrease in quantity demanded.
C) 5 percent decrease in quantity demanded.
D) 2 percent increase in quantity demanded.
E) 2 percent decrease in quantity demanded.

If a large percentage drop in the price level results in a small percentage increase in the quantity demanded,

A) the price elasticity of demand is zero.
B) demand is inelastic.
C) the price elasticity of demand is close to infinity.
D) demand is unit elastic.
E) demand is elastic.

If a 10 percent rise in the price of goods leads to a 10 percent decrease in quantity demanded, the demand curve for this good

A) has slope equal to 1.
B) is horizontal.
C) is vertical.
D) is a straight line with slope equal to 10.
E) none of the above

A fall in the price of a good from $11.50 to $8.50 results in an increase in the quantity demanded from 19,200 to 20,800 units. The price elasticity of demand is

A) 8.0.
B) 0.27.
C) 3.75.
D) 0.08.
E) 30.

Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5 percent. The price elasticity of demand for electricity is 0.40. You advise the Nova Scotia government to
A) stay away from the market for electricity and let the market mechanism fix the problem.
B) raise the price of electricity by 2 percent.
C) raise the price of electricity by 12.5 percent.
D) lower the price of electricity by 12.5 percent.
E) lower the price of electricity by 2 percent.

Factors that influence the price elasticity of demand include
A) the closeness of substitutes.
B) preferences.
C) the price of complements but not the price of substitutes.
D) income.
E) the price of substitutes and complements.

The demand for a good will be more price inelastic,
A) the fewer substitutes are available for the good.
B) the higher is its price.
C) the longer is the passage of time since a price change.
D) the larger is the percentage of income spent on it.
E) the smaller the supply of the good.

Total revenue is more likely to rise when the price rises if
A) some extended period of time passes.
B) there are few substitutes for the good.
C) a high proportion of income is spent on the good.
D) all of the above
E) none of the above

The income elasticity of demand equals the percentage change in ________, other things remaining the same.
A) quantity demanded divided by the percentage change in income
B) quantity demanded divided by the percentage change in price
C) price divided by the percentage change in quantity demanded
D) income divided by the percentage change in quantity demanded
E) price divided by the percentage change in income

Fred's income increases from $1,950 per week to $2,050 per week. As a result, he decides to increase the number of movies he attends each month by 10 percent. Fred's demand for movies is
A) income inelastic.
B) price elastic.
C) price inelastic.
D) income elastic.
E) income inferior.

If a 10 percent increase in income results in a 5 percent increase in quantity demanded, what is the income elasticity of demand?

A) -0.5
B) 0.5
C) -2.0
D) 2.0
E) 1.5

An economic measure that indicates when the demands for two or more goods are related is
A) the price elasticity of demand.
B) the normal elasticity of demand.
C) the substitute elasticity of demand.
D) the cross elasticity of demand.
E) the income elasticity of demand.

If a rise in the price of good B increases the demand for good A, then
A) A and B are substitutes.
B) A and B are complements.
C) the demand for A is price elastic.
D) the cross elasticity of demand between A and B is negative.
E) A is a resource used in the production of B.

When Erika's income increases by 6 percent, her demand for tickets to professional hockey games increases by 3 percent. Erika's demand for tickets is income ________. For Erika, hockey tickets are ________ good.
A) elastic; an inferior
B) elastic; a normal
C) inelastic; a normative
D) inelastic; a normal
E) inelastic; an inferior

If a large percentage fall in the price of good A results in a small percentage decrease in the quantity supplied, then
A) demand is elastic.
B) supply is elastic.
C) demand is income inelastic.
D) supply is inelastic.
E) demand is inelastic.

A vertical supply curve
A) is impossible except in the long run.
B) indicates a shortage of the good.
C) implies an elasticity of supply equal to zero.
D) implies an elasticity of supply equal to infinity.
E) indicates that suppliers are unwilling to produce the good.

Preferences for brussels sprouts increase. The price of brussels sprouts will not change if the price elasticity of

A) supply is 0.
B) supply is infinity.
C) supply is 1.
D) demand is 1.
E) demand is 0.

In the market for farm crops momentary supply is ________. In the market for farm crops, short-run supply is __

A) positive; negative
B) more elastic than short-run supply; more elastic than long-run supply
C) less elastic than short-run supply; less elastic than long-run supply
D) perfectly elastic; perfectly inelastic
E) negative; positive

1) When a market price allocates a scarce resource,
A) ability to pay for the resource is less important than willingness-to-pay.
B) only those who show interest can use the resource.
C) only those who are willing and able to pay get the resource.
D) everyone in the economy can use the resource.
E) willingness-to-pay is not an issue.

In the Canadian economy, the command system
A) is used extensively in place of markets.
B) is used only by private companies.
C) is used extensively inside firms and government departments.
D) is not used at all.
E) is used occasionally inside firms and government departments.

Choose the statement or statements that are correct.
I. The value of one more unit of a good or service is its marginal benefit.
II. Marginal benefit equals the total amount we spend on a good or service.
III. Marginal benefit is the maximum amount willingly paid for another unit of a good or service.

A) I only
B) II only
C) I and III
D) III only
E) I, II, and III

A new car has a sticker price of $35,000. Fred decided that he would pay no more than $32,000 for this car. He bought the car for $31,000. Fred obtained a consumer surplus of

A) $4,000. B) $1,000. C) $32,000. D) $3,000. E) $35,000.

Refer to Figure 5.2.2. If the price is P0, consumer surplus is
A) A.
B) B plus C.
C) D plus E.
D) A plus B plus C.
E) A plus B plus C plus D plus E.

The marginal cost of producing an additional basket of tomatoes is $5.00. The consumer is willing to pay a maximum of $9.00 for an additional basket. A farmer sells a basket of tomatoes for $6.00 each. The farmer receives a producer surplus from selling an additional basket of tomatoes equal to

A) $4.00. B) $5.00. C) $3.00. D) $1.00. E) $9.00.

Refer to Figure 5.3.1. The efficient quantity is
A) 200 units. B) 50 units. C) 250 units. D) 150 units. E) 100 units.

Consider the market for hot dogs. If this market becomes a monopoly, then there will be
A) underproduction of hot dogs.
B) overproduction of hot dogs.
C) a deadweight loss in the market for hot dogs.
D) an efficient quantity of hot dogs.
E) both A and C are correct.

Refer to Figure 5.3.2. If the level of output is 100 units, the deadweight loss is area
A) BCF. B) ACG. C) DCE. D) ACH. E)

Markets may not achieve an efficient allocation of resources when there are
A) monopolies.
B) external benefits.
C) subsidies.
D) public goods.
E) all of the above

Table 5.2.1 gives information on marginal cost for the XYZ firm. If XYZ sells the first unit at a price of $6, what is the producer surplus on that unit?

A) $4 B) $12 C) $9 D) $6 E) $7

Refer to Figure 5.2.2 If the price falls from P1 to P0, then the change in consumer surplus is
A) A + B. B) A + B + D. C) B + C. D) A + B + C. E) A.

A contest allocates resources to
A) a winner or a group of winners.
B) a gambler.
C) private firms.
D) an athlete.
E) the government.

Lotteries work best
A) when potential users of scarce resources are unknown.
B) under any circumstances.
C) under a command system.
D) under the first-come, first served allocation method.
E) when there is no effective way to distinguish among potential users of a scarce resource.

Deadweight loss is
A) not a problem with overproduction.
B) eliminated by a monopoly.
C) gained by producers.
D) borne entirely by consumers.
E) the social loss from inefficiency.

A price elasticity of demand of 2 means that a 10 percent increase in price will result in a
A) 20 percent increase in quantity demanded.
B) 20 percent decrease in quantity demanded.
C) 5 percent decrease in quantity demanded.
D) 2 percent increase in quantity demanded.
E) 2 percent decrease in quantity demanded.

If a large percentage drop in the price level results in a small percentage increase in the quantity demanded,

A) the price elasticity of demand is zero.
B) demand is inelastic.
C) the price elasticity of demand is close to infinity.
D) demand is unit elastic.
E) demand is elastic.

If a 10 percent rise in the price of goods leads to a 10 percent decrease in quantity demanded, the demand curve for this good

A) has slope equal to 1.
B) is horizontal.
C) is vertical.
D) is a straight line with slope equal to 10.
E) none of the above

A fall in the price of a good from $11.50 to $8.50 results in an increase in the quantity demanded from 19,200 to 20,800 units. The price elasticity of demand is
A) 8.0. B) 0.27. C) 3.75. D) 0.08. E) 30.

Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5 percent. The price elasticity of demand for electricity is 0.40. You advise the Nova Scotia government to
A) stay away from the market for electricity and let the market mechanism fix the problem.
B) raise the price of electricity by 2 percent.
C) raise the price of electricity by 12.5 percent.
D) lower the price of electricity by 12.5 percent.
E) lower the price of electricity by 2 percent.

Factors that influence the price elasticity of demand include
A) the closeness of substitutes.
B) preferences.
C) the price of complements but not the price of substitutes.
D) income.
E) the price of substitutes and complements.

The demand for a good will be more price inelastic,
A) the fewer substitutes are available for the good.
B) the higher is its price.
C) the longer is the passage of time since a price change.
D) the larger is the percentage of income spent on it.
E) the smaller the supply of the good.

Total revenue is more likely to rise when the price rises if
A) some extended period of time passes.
B) there are few substitutes for the good.
C) a high proportion of income is spent on the good.
D) all of the above
E) none of the above

The income elasticity of demand equals the percentage change in ________, other things remaining the same.
A) quantity demanded divided by the percentage change in income
B) quantity demanded divided by the percentage change in price
C) price divided by the percentage change in quantity demanded
D) income divided by the percentage change in quantity demanded
E) price divided by the percentage change in income

Fred's income increases from $1,950 per week to $2,050 per week. As a result, he decides to increase the number of movies he attends each month by 10 percent. Fred's demand for movies is

A) income inelastic.
B) price elastic.
C) price inelastic.
D) income elastic.
E) income inferior.

If a 10 percent increase in income results in a 5 percent increase in quantity demanded, what is the income elasticity of demand?

A) -0.5 B) 0.5 C) -2.0 D) 2.0 E) 1.5

An economic measure that indicates when the demands for two or more goods are related is
A) the price elasticity of demand.
B) the normal elasticity of demand.
C) the substitute elasticity of demand.
D) the cross elasticity of demand.
E) the income elasticity of demand.

If a rise in the price of good B increases the demand for good A, then
A) A and B are substitutes.
B) A and B are complements.
C) the demand for A is price elastic.
D) the cross elasticity of demand between A and B is negative.
E) A is a resource used in the production of B.

When Erika's income increases by 6 percent, her demand for tickets to professional hockey games increases by 3 percent. Erika's demand for tickets is income ________. For Erika, hockey tickets are ________ good.

A) elastic; an inferior
B) elastic; a normal
C) inelastic; a normative
D) inelastic; a normal
E) inelastic; an inferior

If a large percentage fall in the price of good A results in a small percentage decrease in the quantity supplied, then

A) demand is elastic.
B) supply is elastic.
C) demand is income inelastic.
D) supply is inelastic.
E) demand is inelastic

A vertical supply curve
A) is impossible except in the long run.
B) indicates a shortage of the good.
C) implies an elasticity of supply equal to zero.
D) implies an elasticity of supply equal to infinity.
E) indicates that suppliers are unwilling to produce the good.

Preferences for brussels sprouts increase. The price of brussels sprouts will not change if the price elasticity of

A) supply is 0.
B) supply is infinity.
C) supply is 1.
D) demand is 1.
E) demand is 0.

In the market for farm crops momentary supply is ________. In the market for farm crops, short-run supply is ________.

A) positive; negative
B) more elastic than short-run supply; more elastic than long-run supply
C) less elastic than short-run supply; less elastic than long-run supply
D) perfectly elastic; perfectly inelastic
E) negative; positive