Economics is defined as
Select one:
a. the study of business
b. the study of how society controls prices and output
c. the study of how society manages its scarce resources
d. the study of government regulation
C
In the second half of the nineteenth century, grasshoppers caused great destruction to crops in the American Midwest. To rid the area of the insects, states paid large bounties for each bushel of dead grasshoppers. In some cases, farmers began growing and
C
Paul decides to spend an hour playing football rather than studying or working at $6 per hour. His trade off is
Select one:
a. nothing, because he enjoys playing football more than working or studying
b. the benefit to his marks from studying for an hour
B
The opportunity cost of going to university is
Select one:
a. the sum of all the money a student spends on food, clothing, books, transportation, tuition, lodging and other expenses
b. the value of the best opportunity a student gives up to attend univers
B
An effective advertising campaign will result in
Select one:
a. an increase in demand and an increase in supply.
b. an increase in demand and an increase in quantity supplied.
c. an increase in quantity demanded and an increase in supply.
d. an increase i
B
Which of these statements best represents the law of demand?
Select one:
a. When buyers' tastes for a good increase, they purchase more of the good.
b. When income levels increase, buyers respond by purchasing more of most goods.
c. When the price of a go
C
Price elasticity of demand measures
Select one:
a. how much the price of a good changes when there is a change in the quantity demanded
b. how much the quantity demanded responds to a change in the price
c. how much the price of a good changes when there
B
Free markets ration goods with
Select one:
a. prices
b. long lines
c. ration coupons
d. discrimination
A
A shortage in a market is likely over time, to lead to
Select one:
a. an increase in supply
b. a decrease in demand
c. an increase in the quantity demanded and the quantity supplied
d. an increase in the quantity supplied, and a decrease in the quantity d
D
In the market for bananas, favourable health trends towards bananas results in
Select one:
a. an increase in demand, and an increase in supply
b. an increase in the quantity demanded, and an increase in supply
c. an increase in demand, and an increase in
C
Assume that the local pizza shop makes pretty good bread sticks. Consumers do not respond much to a change in the price of bread sticks. If the owner is interested only in increasing revenue, what would you suggest?
Select one:
a. Lower the price of the b
B
Demand is said to be elastic
Select one:
a. if the price of the good responds only slightly to changes in the quantity demanded
b. if the demand shifts only slightly when the price of the good changes
c. if buyers respond substantially to changes in the p
C
Which of the following will not result in a change in the supply of apples?
Select one:
a. An increase in the price of a substitute good
b. An increase in the number of firms in the market
c. The increased use of technology
d. A favourable climatic event
A
A decrease in the price of a good will cause a
Select one:
a. shift left of the demand curve for the good
b. shift right of the demand curve for the good
c. movement up the existing demand curve
d. movement down the existing demand curve
D
In the market for bananas, favourable health trends towards bananas results in
Select one:
a. an increase in demand, and an increase in supply
b. an increase in the quantity demanded, and an increase in supply
c. an increase in demand, and an increase in
C
Disneyland is now charging higher entry fees to their rollercoaster rides. This should result in
Select one:
a. a movement up a downward sloping demand curve for rollercoaster rides
b. a decrease in demand for rollercoaster rides
c. a movement down an upw
A
Suppose that the number of buyers in a market increases and there is technological advancement. What would we expect to happen in the market?
Select one:
a. The equilibrium price would increase, but the impact on the amount sold in the market would be amb
C
Holding all other forces constant, when the price of petrol rises, the number of litres of petrol demanded will fall substantially over a ten year period because
Select one:
a. buyers tend to be much less sensitive to a change in price over a long period
C
If the supply and demand functions for a good are:
Qd = 22 - 2P
Qs = 3P - 18
The equilibrium price and quantity will be
Select one:
a. P = 8, Q = 6.
b. P = 6, Q = 8.
c. P = 2, Q = 40.
d. P = 3, Q = 40.
A
The imposition of a tariff in a market will usually result in
Select one:
a. an increase in consumer surplus, an increase in producer surplus, and an increase in total surplus.
b. an increase in consumer surplus, an increase in producer surplus, and a dec
D
Governments are led to control prices through measures such as a minimum price because
Select one:
a. they view the market's outcome as inefficient
b. they view the market's outcome as unfair
c. they are politicians who enjoy exercising their power
d. the
B
Caitlin would be willing to pay $50 to see Les Miserables, but buys a ticket for only $30. Caitlin values the performance at and her consumer surplus is .
Select one:
a. $30, $50
b. $50, $30
c. $50, $20
d. $30, $20
C
Efficiency means that
Select one:
a. society is conserving on resources in order to save them for the future
b. society's goods and services are distributed fairly among society's members
c. society is getting the most it can from its scarce resources
d.
C
In the demand function Qd = 112 - 4P, the number - 4 represents
Select one:
a. the x-axis intercept
b. the y-axis intercept
c. the elasticity of the demand curve
d. the slope of the demand curve
D
When considering what to buy for lunch you consider that the curry will provide you with marginal utility of 5 and the soup with marginal utility of 6. Which of the following is true?
Select one:
a. you will certainly buy the soup as it yields higher util
D
Indifference curves provide a way to graphically represent
Select one:
a. the constraints faced by individuals
b. an individual's preferences
c. the relative price of commodities
d. an income level sufficient to make an individual happy
B
An optimising consumer will select a consumption bundle in which the
Select one:
a. marginal rate of substitution is equal to income
b. marginal rate of substitution is equal to the relative price
c. ratio of expenditure shares equals the marginal rate of
B
When indifference curves are straight lines
Select one:
a. the marginal rate of substitution must be rising
b. the marginal rate of substitution must be falling
c. there is generally no way to choose between bundles
d. the marginal rate of substitution is
D
If an indifference curve is bowed in toward the origin, the marginal rate of substitution
Select one:
a. is different for each bundle along the indifference curve
b. is likely to be constant for all bundles along the indifference curve
c. is likely to be
A
When a change in price results in a consumer moving to a new indifference curve, the consumer has experienced a(n)
Select one:
a. budget effect
b. preference effect
c. income effect
d. substitution effect
Feedback
C
Two consumption bundles lie on the same indifference curve. These two bundles
Select one:
a. represent the same level of utility.
b. cost the same.
c. contain the same amount of at least one of the goods.
d. are not related in any way.
A
A budget constraint shows
Select one:
a. points of equal utility for the consumer.
b. all points of available consumption for the consumer.
c. consumption bundles where all income is spent.
d. points of maximum utility for a consumer.
Feedback
C
In selecting an optimal consumption bundle, the consumer
Select one:
a. takes the relative price of goods as a given
b. matches the slopes of the indifference curve and the budget constraint
c. equates marginal rate of substitution and relative price
d. a
D
If the net present value of a future revenue stream from buying a machine is negative, then
Select one:
a. the present value of the future revenue must also be negative
b. the cost of purchasing the machine must be greater than the revenue generated
c. in
D
With the imposition of a minimum wage for chefs, which of the following are likely to occur in the market for chefs?
Select one:
a. A decrease in the number of hours worked by chefs
b. An increase in the number of hours which chefs are prepared to work
c.
D
A profit maximising firm will hire labour up to the point where
Select one:
a. marginal product is just starting to decline.
b. marginal product of labour is just starting to rise.
c. the value of marginal product is just equal to the wage rate.
d. margin
C
The notion of calling commodities "goods" rather than "bads" is related to the idea that
Select one:
a. higher indifference curves are preferred to lower ones
b. indifference curves have a positive slope
c. indifference curves that cross are helpful in ex
A
If $2,000 will be received in 1 years time, and the real interest rate is 8%, then the present value of the $2,000 is
Select one:
a. $1,851.85
b. $1,111.11
c. $2,160.00
d. None of the above
A
Which of the following is likely to shift the supply curve for chef's right?
Select one:
a. An increase in the productivity of chefs
b. An increase in the wage rate for chefs
c. An decrease in the retiring age
d. A decrease in the school leaving age
D
The reason why the interest rate is used to calculate the present values of some future income generated by an investment made today is that
Select one:
a. it is easy to use.
b. the value of money received in the future is less than money received now.
c.
D
The real interest rate is
Select one:
a. the nominal interest rate plus the inflation rate
b. the inflation rate minus the nominal interest rate
c. the nominal interest rate minus the inflation rate
d. the nominal interest rate multiplied by the inflation
C
At an interest rate of 5%, the present value of $500 earned in 3 years time would be
Select one:
a. $579
b. $500
c. $485
d. $432
D
Diminishing marginal product of labour occurs when
Select one:
a. adding another unit of labour increases output, but not by as large a margin as the previously employed labour
b. adding another unit of labour decreases output
c. adding another unit of la
C
Which of the following factors would lead to an increase in the supply of labour?
Select one:
a. A country tightens border restrictions to limit immigrant labour
b. The price of a firm's final product increases
c. The wage rate increases
d. None of the ab
D
If the value of the marginal product of pie makers increased, a possible explanation could be
Select one:
a. the price of pies must have increased
b. pie makers have become more productive
c. there has been an increase in the demand for pies
d. all of the
D
An increased marginal product of workers will result in
Select one:
a. a shift left of the demand curve for labour.
b. a shift right of the demand curve for labour.
c. a shift left of the supply curve for labour.
d. a shift right of the supply curve for l
B
With the imposition of a minimum wage for chefs, which of the following are likely to occur in the market for chefs?
Select one:
a. A decrease in the number of hours worked by chefs
b. An increase in the number of hours which chefs are prepared to work
c.
D
Now the youth minimum wage has increased to the adult minimum wage for 17 and 18 year olds, there is likely to be
Select one:
a. more involuntary and voluntary unemployment for 17 and 18 year olds.
b. less involuntary and voluntary unemployment for 17 and
C
Suppose that a steel factory emits a certain amount of air pollution and that this pollution constitutes a negative externality. If this market is not required to internalise this externality
Select one:
a. the quantity of steel produced will be the socia
C
A positive consumption externality will cause a market to
Select one:
a. produce less than is socially desirable
b. produce more than is socially desirable
c. produce more than is market optimal
d. produce less than is market optimal
A
When externalities exist, buyers and sellers
Select one:
a. neglect the external effects of their actions and the market equilibrium is efficient
b. do not neglect the external effects of their actions and the market equilibrium is efficient
c. neglect th
C
Which of the following policies would internalise an externality?
Select one:
a. A tax on a negative production externality.
b. A subsidy on a positive production externality.
c. A complete ban on an activity causing a negative externality.
d. Both 1 and
D
Compared to the private equilibrium in the market for tertiary education, the social equilibrium will have
Select one:
a. a higher price and a larger quantity.
b. a higher price and a smaller quantity.
c. a lower price and a larger quantity.
d. a lower pr
A
Fining dairy farmers who cause effluent run off into nearby streams is known as
Select one:
a. cap and trade.
b. internalising an external cost.
c. command and control.
d. cross subsidisation.
B
According to the Coase Theorem, private solutions to externalities can occur when
(i) bargaining costs are small
(ii)property/ownership rights are clearly defined
(iii)the number of parties involved is small
Select one:
a. all of the above
b. (i) and (ii)
A
Suppose that a steel factory emits a certain amount of air pollution and that this pollution constitutes a negative externality. The social cost of producing the steel includes
Select one:
a. the private costs of the steel producers and the price consumer
B
In some cases, pollution permits may be better than a Pigovian tax because
Select one:
a. pollution permits allow for a market solution, while a Pigovian tax does not
b. pollution permits generate more revenue for the government than a pigovian tax
c. pol
D
Which of the following could the government use when faced with a positive externality?
Select one:
a. taxation.
b. permits.
c. subsidies.
d. all of the above.
C
If only a few people are affected by an externality
Select one:
a. then it is likely that Pigovian taxes will provide the most efficient solution to the externality
b. then it is likely that command and control regulation will provide the most efficient s
C
The Coase Theorem states that where externalities exist individuals are able to arrive at efficient solutions
Select one:
a. regardless of how property rights are initially allocated.
b. even when property rights are poorly defined.
c. by agreeing to spli
A
When externalities exist, buyers and sellers
Select one:
a. neglect the external effects of their actions and the market equilibrium is efficient
b. do not neglect the external effects of their actions and the market equilibrium is efficient
c. neglect th
C
The Coase Theorem suggests that the efficient solution to an externality problem
Select one:
a. is conditional on who owns property rights to the resources
b. is enhanced by government involvement in the negotiations
c. can be enhanced through the use of
D
A McDonalds Big Mac currently sells for $4.00. If the government introduced a "fat tax" of $1.00 per Big Mac then the price of a Big Mac would most likely
Select one:
a. not change as McDonalds would be responsible for paying it.
b. rise by $1.00.
c. rise
C
Fining dairy farmers who cause effluent run off into nearby streams is known as
Select one:
a. cap and trade.
b. internalising an external cost.
c. command and control.
d. cross subsidisation.
B
Suppose that a steel factory emits a certain amount of air pollution and that this pollution constitutes a negative externality. If this market is not required to internalise this externality
Select one:
a. the quantity of steel produced will be the socia
C
Compared to the private equilibrium in the market for tertiary education, the social equilibrium will have
Select one:
a. a higher price and a larger quantity.
b. a higher price and a smaller quantity.
c. a lower price and a larger quantity.
d. a lower pr
A
Which of the following could the government use when faced with a positive externality?
Select one:
a. taxation.
b. permits.
c. subsidies.
d. all of the above.
C
Which of the following would be considered a non-rival but excludable good?
Select one:
a. Viewing a movie in a crowded theatre
b. An ice-cream cone
c. Visiting a non-crowded museum
d. Fish in the ocean
C
When the free rider problem exists then
Select one:
a. the market will devote too few resources to the production of a good.
b. the cost of the good will always be more than the benefit of the good.
c. the good will not be produced.
d. entrepreneurs will
A
A good is excludable if
Select one:
a. One person's use of the good diminishes another person's enjoyment of it
b. The government regulates its availability
c. It is not a normal good
d. People can be prevented from using it
D
If an insurance company increases their premiums, they are likely to experience a greater chance of
Select one:
a. reduced adverse selection
b. increased adverse selection
c. unchanged adverse selection
d. none of the above
B
If one person's use of the good diminishes another person's enjoyment of it, the good is
Select one:
a. rival
b. excludable
c. normal
d. exhaustible
A
An example of moral hazard in the insurance industry would be
Select one:
a. two parties colluding to form a cartel
b. insurance companies dealing with the wrong type of people
c. people lying on the policy forms
d. people who have car insurance driving f
D
Which of the following would be considered a common resource good?
Select one:
a. animals at an uncongested zoo
b. a river rafting trip through the grand canyon
c. a visit to an art museum
d. a congested public motorway
A
Which of the following is least likely to result in adverse selection?
Select one:
a. Buying health insurance.
b. Buying bottled water from a supermarket.
c. Buying a used car.
d. Finding a date on an internet dating site.
B
Which of the following is NOT a strategy to reduce the chances of moral hazard occurring in the insurance market?
Select one:
a. A no claims bonus.
b. An excess.
c. Increased premiums.
d. Excluding suicide from life insurance policies.
C
Insurance companies offering a "no claims bonus" is an example of a strategy to help reduce:
Select one:
a. dishonest claims
b. adverse selection
c. moral hazard
d. moral selection
C
Common resource goods are
Select one:
a. Rival and non-excludable
b. Rival and excludable
c. Non-rival and excludable
d. Non-rival and non-excludable
A
Firms can have
(i) accounting profits and economic losses
(ii) accounting profits and economic profits
(iii) accounting losses and economic losses
(iv) accounting losses and economic profits
Select one:
a. (i), (ii) and (iii)
b. Only (i) and (iv)
c. Only
A
Marginal cost equals
Select one:
a. the variable costs of the current unit produced minus the variable cost of the previous unit produced
b. change in total costs divided by change in quantity produced
c. change in variable costs divided by change in quan
D
The answer to the question, "how much revenue does a perfectly competitive firm receive for the typical unit sold?" is
Select one:
a. price
b. average revenue
c. marginal revenue
d. all of the above
D
When there are many sellers and buyers in a market with identical products
Select one:
a. sellers are usually price takers
b. sellers typically have some market advantage in exchange
c. buyers and sellers typically can't agree on a price for exchange
d. b
A
Where a typical U shaped AC curve is falling, the MC curve
Select one:
a. must be falling
b. must be rising
c. have risen then fallen
d. may be falling or rising
D
One would expect to observe diminishing marginal product of labour when
Select one:
a. workers are discouraged about poor working conditions
b. crowded office space reduces the productivity of new workers
c. union workers are told to reduce their work eff
B
Over the long term, which of the following is not a variable cost of production?
Select one:
a. Electricity
b. Land and building rents
c. Raw materials
d. None of the above
D
If marginal cost exceeds marginal revenue
Select one:
a. the firm must be incurring economic losses
b. the firm may still be generating economic profit
c. the firm may be at the profit maximising level of output
d. a profit maximising firm should always i
B
XYZ Corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. Each of the 275 units sold were sold for a price of $95. Total revenue for the XYZ Corporati
D
With diminishing returns, a perfectly competitive firm that finds that MR exceeds MC would be able to improve its profit by
Select one:
a. decreasing its output.
b. doing nothing.
c. increasing its output.
d. raising its price.
C
Over the long term, which of the following is not a variable cost of production?
Select one:
a. Electricity
b. Land and building rents
c. Raw materials
d. None of the above
D
If marginal cost exceeds marginal revenue
Select one:
a. the firm must be incurring economic losses
b. the firm may still be generating economic profit
c. the firm may be at the profit maximising level of output
d. a profit maximising firm should always i
B
A firm with fixed costs
Select one:
a. always has losses for low levels of output
b. must incur accounting losses if it chooses not to produce output in the short run
c. cannot maximise profit in the short run
d. is always able to sell its product for a p
B
If opportunity costs are ignored,
Select one:
a. all firms would show accounting profits
b. all firms would incur economic losses
c. firms will still make profit maximising production decisions
d. inefficient firms may appear to be profitable
D
For a firm that operates in a perfectly competitive market,
Select one:
a. as quantity produced rises, the price of the final product must also rise
b. the price of the product will decrease as production decreases
c. the price it charges for its product
C
One would expect to observe diminishing marginal product of labour when
Select one:
a. workers are discouraged about poor working conditions
b. crowded office space reduces the productivity of new workers
c. union workers are told to reduce their work eff
B
In the long run, for a competitive firm
Select one:
a. all costs are fixed.
b. all costs are variable.
c. some costs are fixed and some are variable.
d. costs are irrelevant and it is revenue that matters.
B
The supply curve for a firm in a perfectly competitive market
Select one:
a. is determined by forces external to the firm
b. is reflected in its marginal cost curve (above average variable cost)
c. will be influenced by the magnitude of fixed costs
d. is
B
In the short run, an increase in variable costs for a profit maximising perfect competitor will result in
Select one:
a. an upward shift of the MC and AC curves, and a decrease in the quantity produced.
b. a downward shift of the MC and AC curves, and an
A
A perfect competitor's level of profit is determined by
Select one:
a. AR - AC where AR = MR.
b. MR = MC.
c. TR - TC where MR = MC.
d. MR - MC.
C
When demand in a perfectly competitive market falls, then it is likely that
Select one:
a. other firms will enter in a bid to boost demand.
b. those firms that continue in the industry will make positive economic profits.
c. in the long run, the remaining
D
In the long run, a profit maximising perfect competitor produces where
Select one:
a. MC = MR.
b. P = MC.
c. AR = AC.
d. all of the above apply.
D
A competitive firm's short run supply curve is shown by
Select one:
a. the part of the average cost curve that is above marginal cost.
b. the part of the marginal cost curve that is above minimum average variable cost.
c. the part of the marginal cost cur
C
Which of the following is NOT associated with a perfectly competitive market?
Select one:
a. Firms are price takers.
b. Firms have difficulty entering the market.
c. There are many sellers in the market.
d. The goods on offer are largely the same.
B
When firms are neither entering or exiting a perfectly competitive market then
Select one:
a. total cost must exceed total revenue.
b. economic profits must be zero.
c. average revenue must exceed average cost.
d. average revenue must equal average variab
B
In the short run, a perfect competitor can make
Select one:
a. positive economic profit.
b. negative economic profit.
c. zero economic profit.
d. all of the above.
D
Which of the following market structures are least likely to currently use non-price competition?
Select one:
a. A firm in an oligopoly market structure.
b. A firm in a duopoly market structure.
c. A monopolistic competitor.
d. A perfect competitor.
D
In the long run, a profit maximising perfect competitor produces where
Select one:
a. MC = MR.
b. P = MC.
c. AR = AC.
d. all of the above apply.
Feedback
D
When free entry is one of the attributes of a market structure, economic profits are
Select one:
a. eventually driven to zero
b. negative for all firms
c. sacrificed to excess capacity
d. always positive
A
At a quantity when a firm's average revenue (demand) curve is tangent to its average total cost curve
Select one:
a. the firm must be operating in a monopolistically competitive market
b. economic profits are zero
c. the firm must be earning positive econ
B
In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is
Select one:
a. zero
b. equal to the industry's profits.
c. the market supply curve.
d. a horizontal line.
C
The supply curve for a firm in a perfectly competitive market
Select one:
a. is determined by forces external to the firm
b. is reflected in its marginal cost curve (above average variable cost)
c. will be influenced by the magnitude of fixed costs
d. is
B
If a perfectly competitive firm is operating at a profit maximising quantity where AR is less than AC but above AVC, they will
Select one:
a. shut down in the long run.
b. shut down immediately.
c. increase their price.
d. stimulate demand through non-pri
A
A monopolist's average revenue is always
Select one:
a. greater than the price of its product
b. equal to the price of its product
c. less than the price of its product
d. equal to marginal revenue
B
When an oligopoly market is in Nash equilibrium
Select one:
a. market price will be different for each firm
b. firms will not be behaving as profit maximisers
c. firm will choose its best pricing strategy, given the strategies that it observes other firms
C
In the prisoners dilemma game, the nash equilibrium
Select one:
a. is the same as when both prisoners play their dominant strategy.
b. is where neither player has an incentive to change given the actions of the other.
c. is not the optimal outcome for eit
D
Markets which are characterised by a few sellers that sell similar or identical products are typically referred to as
Select one:
a. aggressive markets
b. oligopoly markets
c. monopoly markets
d. competitive markets
B
When the player of a game chooses a dominant strategy,
Select one:
a. it is the best strategy, only if other players are cooperative
b. it always leads to a Nash equilibrium that makes all players equally well off
c. the game can never reach a Nash equili
D