QUIZ 1 10.

The Internet is a

 good in which one consumer’s use does not

1. Ceteris paribus mean reduce another’s consumption

 “other things being equal.” 11. Goods that go together

2. The number of personal computers sold annually in  Complementary goods

the United States has increased at a rapid rate. The
price of personal computers has fallen. The rise in sales 12. In virtual markets,
due to the lower price is called
 each buyer has access to the same
 an increase in quantity demanded. information.
3. If the price of cable TV service is set below the
13. If every seller were disreputable and consumers
equilibrium price by government action,
could not determine the quality of good X without using
 there will be a shortage of cable TV service. X, it is likely that

4. This law states that there is as inverse relationship  only the lowest qualities of good X would
between price and quantity demand or vice versa trade.
 Law of Demand
14. Assume that the demand curve for new cars is
5. An increase in supply will typically downward sloping. Which of the following is correct?
An increase in the price of new cars would result in
 lower the price, ceteris paribus.
 a smaller quantity of new cars demanded.
6. When the supply of coffee falls and the demand for 15. A place where buyers and sellers interact
coffee increases due to an increase in the preference for
coffee, the price of coffee will  Market
 Rise
16. Which of the following is correct? Ceteris paribus,
7. One reason quantity demanded increases as the price the demand curve
of a good falls (ceteris paribus) is that
 shows that quantity demanded rises when
 price reductions release income to be spent on price falls
all goods.
17. Two explanations for the law of demand are
8. Bad harvests of corn often cause an increase in the
price of corn because  substitution and income effects.
 the supply curve shifts to the left. 18. When the price of beef falls ceteris paribus, the
9. During a Cubs/Dodgers broadcast from Los Angeles quantity of beef demanded increases because
on Sunday, Vin Scully noted that the day’s attendance of
roughly 35,000 was substantially less than the Dodgers’  people feel richer and buy more of everything.
average of 42,000. Vin commented that Sunday was a
19. When speculation is unprofitable, speculators
popular day to go to the beach and the producer noted
that Hollywood Park has (horse) racing on Sunday
 Stabilize consumption and destabilize prices.
afternoon. A day at the ball park, a day at the beach and
day at the races are 20. Prices would be closer together for similar products
 substitute goods. if

 people shopped rationally.

21. The equilibrium price rises when 6. Which of the following is true? Money

 There is an increase in demand, ceteris  reduces the cost of transacting with others.
paribus.

22. Basic consuming unit in the economy 7. Economic transactions that show up in the circular
flow are
 Household
 All of the above.
23. If people are paid for the scarce information they
have 8. The circular-flow diagram illustrates

 The price system economizes on information  the flows of goods and services between
costs. businesses and households.

24. Factors held constant along the supply curve include 9. The demand curve will shift to the left for most
consumer goods when
 Technology and factor prices.
 Both A & B
25. If the price of crackers goes up when the price of
cheese goes down, crackers and cheese are 10. One reason quantity demanded increases as the
price of a good falls (ceteris paribus) is that
 Complements
 price reductions release income to be spent on
all goods.

QUIZ 2 11. If the price elasticity of supply for milk is 0.7, then

1. If milk costs $4 a gallon (one gallon equals 4 quarts)  the supply curve is inelastic.
and bread costs $1 a loaf, the relative price of 12. A 15 percentage increase in the price of a T-shirt
milk is which leads to a 13 percent decrease in the
quantity demanded for T-shirts means that
 4 loaves of bread.

2. People search out substitutes for a good when its  the demand curve is inelastic.

13. If the percentage increase in the price is greater

 relative price rises.
than the percentage change in the quantity
3. The principle of substitution states that demanded, then

 almost everything has substitutes.  the price elasticity of demand is less than 1 and
demand is inelastic.
4. In 1963, a typical car cost about $2,000 and in 1987, a
similar car cost about $12,000. On average, 14. If the demand curve is relatively inelastic and the
what cost $100 in 1963 could be purchased in 1987 for supply curve is relatively elastic, an increase in
about $375. The relative price of a car income would lead to a

 increased from 1963 to 1987.  smaller increase in the price than in the
quantity.
5. Public goods are characterized by
15. If the price elasticity of supply for roses is 1.7, then
 none of these
 the supply curve is elastic.
16. Assume that the demand curve for new cars is 21. If the cost of oak barrels used to produce wine falls,
downward sloping. Which of the following is correct? the equilibrium price of wine will increase and the
An increase in the price of new cars would result in a equilibrium quantity will  decrease.
smaller quantity of new cars demanded
 FALSE
 TRUE
22. One reason quantity demanded increases as the
price of a good falls (ceteris paribus) is that people
17. Table 2  know that supply will increase
P                        $11.00          10.00           9.00           8.00   
7.00        6.00         5.00      4.00  FALSE
Q                         5000            5750           6500          7250    23. When consumers are at an information
8000      8750        9500     10250 disadvantage compared to the firm that produces a
technically complicated product,brand names and
Table 2 shows a hypothetical demand curve for tickets intermediaries who serve as certifiers of quality can be a
to a basketball game at a small public source of information
university. The field house has a maximum capacity of to consumers.
8300 seats. If the Athletic Department
announces a price of $10.00, the  tickets  that would go  TRUE
unsold will be 2550.
24. If every seller were disreputable and consumers
 TRUE could not determine the quality of good X without
using X, it is likely that only the lowest qualities of good
18. Table 2 shows a hypothetical demand curve for X would trade.
tickets to a basketball game at a small public
university. The field house has a maximum capacity of  TRUE
8300.  the highest price that would ensure a sellout
25. The law of demand states that when price falls,
crowd is $6.00
quantity demanded rises provided prices of related
 TRUE goods, consumer preferences, and consumer incomes
do not change
19. Table 2 shows a hypothetical demand curve for
tickets to a basketball game at a small public  TRUE
university. The field house has a maximum capacity of
8300 seats. Suppose a maximum price of
$8.00 per ticket is established. Tickets can be sold at
prices of $8.00 or less. The Athletic Department could QUIZ 3
still sell all 8300 tickets
1.The average salaries of accounting and law professors
 TRUE are higher than English and foreign language professors
because
20. A labor shortage of qualified fitness instructors that
increases their wage rates will decrease the  English and foreign language professors do not
equilibrium price and decrease the equilibrium quantity work hard as accounting and law professors
of health club memberships.
2. Costs that do not vary with output are called
 FALSE
 Fixed cost
3. A ticket to the World Series is sold to a season-ticket 12. Typically, writing test questions is hard work and my
holder in August for $75. In October the team is in the brain turns to mush after a few hours. If the concept of
World Series, and the ticket can be sold to anyone for diminishing returns is relevant in this case, each
$100. If the season- ticket holder goes to the World additional question I write will
Series game, his or her opportunity cost of going to the
game is  Require more time than previous questions

 $100 13. If the firm’s management finds that an increase in

total cost of 2% yields a 4% rise in output.
4. One characteristics of the short run us that
 The firm may be experiencing diseconomies of
 All of these scale but it depends on what happens to short
–run costs.
5. I made a comment to our attorney, who had put in
quite a bit of time on a case that was settled after 14. If I invest $10,000 of my own money in a business,
fourteen years. My remark was that his firm had not my opportunity cost of inverting in that business is
made a lot of money on the case, and his reply was
that’s was especially true considering all the business  All the alternative uses of the $10,000
they had turn away in the past fourteen years. Our 15. If output increases from 300 to 400 while labor
attorney clearly understands the economic concept of increases from 6 to 8
 Opportunity cost  MP = 50
6. If marginal product is greater than average product. 16. A worker’s marginal product is 1 unit of output and
his or her wage is $25 per hour. The marginal cost of the
 Average product is increasing
unit of output is
7. Which of the following is correct? Opportunity cost
 $25
 None of these
17. Marginal cost is defined as
8. Fixed cost
 Total costs divided by quantity
 Are unaffected by an increase or decrease in
output 18. The law of diminishing returns states that if
increasing quantities of variable factors are applied to a
9. Which of the following correctly completes this given quantity of fixed factors
statement? In the long run
 The marginal product of the variable factor will
 All of these eventually decrease

10. If a business purchases $100,000 worth of materials 19. Accounting Profit is

from its suppliers, this $100,000 is
 Total Revenue – Explicit Cost
 An opportunity cost of running the business
20. Total Revenue is > Total Cost
11. The long-run average cost curve shows the unit cost
when  Profit

 All inputs can be varied

QUIZ 4 10. In the case of price-searching firms, price exceeds
marginal revenue
1.The reason monopolists limit product durability is that  TRUE
it is costly to extend the life of the product
11. If the McDonald’s restaurant on the corner raised
 FALSE process while other fast food stores kept their prices
constant McDonald’s might lose considerable sales but
2. The marginal-revenue-equals-marginal-cost role for
would keep its loyal costumers
maximizing profit is the general rule that all profit-
maximizing firms seek to flow  TRUE
 TRUE 12. A monopolist will produce where MR = MC
3. If a Firm’s demand curve is downward-sloping, its  TRUE
marginal-revenue curve lies below the demand curve.
13. A monopolistic industry contains single producer
 TRUE
 TRUE
4. A monopolistically competitive firm produces that
quantity of output at which MR = MC 14. A Texas firms sells steel pipe in Saudi Arabia and in
Britain. The price elasticity of demand is higher in
 TRUE Britain than in Saudi Arabia. Thus, the price is likely to
be higher in Britain.
5. Pure monopolies can earn economic profits that
persist over time.  TRUE
 TRUE 15. When a firm is making economic profits, P exceeds,
where ATC is measured according to opportunity costs.
6. A patent granting an inventor the sole right to
produce a product creates barriers to entry.  FALSE
 TRUE 16. If a monopolist is producing an output level at which
marginal revenue is greater than marginal costs, the
7. The monopolist’s marginal revenue will be less than
monopolist should lower price.
price
 FALSE
 TRUE
17. If a monopoly is earning an economic profit of $10
8. The main difference between monopolistic
million. In the very long run, these profits will be
competition and perfect competition in the long run is
reduced or even depleted by the development of new
that the competitive firm produce at the minimum
competitive products.
point on the average-cost curve
 TRUE
 TRUE
18. Assume that in order to sell 10 more units of output
9. In the long run, for a monopolistically competitive
a firm must reduce its price from $8 to $6. If previously,
firm the entry of firms will drive economic profits to
the firm had sold 20 units at $8, the firm’s marginal
zero
revenuew is $2/
 TRUE
 TRUE
19. If a profit-maximizing firm selects a price at which
demand is inelastic, it is not maximizing profits.

 TRUE

20. Marginal revenue is less than price for a monopoly

firm because price must be reduced on all units sold to
sell more units

 TRUE

21. A monopolist must raise its price to increase the

quantity sold.

 FALSE

22. Since a monopolist’s demand curve is downward-

sloping, profit is maximized when the highest possible
price is charged.

 FALSE

23. If a monopolist’s demand is inelastic at the current

price, more profit can be obtained by lowering the
quantity produced.

 FALSE

24. If the demand curve is linear for a price-searching

firm, the marginal-revenue curve is twice as steep as a
demand curve.

 TRUE

25. The reason that monopoly profits can persist in the

long run is that barriers to entry prevent new firms from
entering the industry and sharing in the profits.

 TRUE