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Unformatted text preview: EC301 Practice Questions #1 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If the price of automobiles were to increase substantially, the demand curve for gasoline would 1) _______ most likely A) hift leftward. s B) ecome steeper. b C) ecome flatter. b D) hift rightward. s 2) If the price of orange juice rises 10%, and as a result the quantity demanded falls by 20%, the 2) _______ price elasticity of demand for orange juice is A) . 2 B) lastic. e C) oth A and B above. B D) either A nor B above. N 3) Technological innovation in the production of computers has led to 3) _______ A) rightward shift of the supply curve for computers. a B) decrease in the quantity demanded for computers. a C) decrease in the quantity supplied of computers. a D) one of the above. N 4) The market supply curve is found by 4) _______ A) orizontally summing all individual supply curves. h B) ertically summing all individual supply curves. v C) ither A or B above since they both give the same answer. E D) one of the above. N 5) A restriction on the number of people allowed to be medical doctors in the United States would most likely A) ncrease doctorsʹ fees. i B) ecrease the number of people who get sick. d C) ecrease the demand for doctors. d D) ecrease the demand for nurses. d 6) According to the Law of Demand, the demand curve for a good will A) hift leftward when the price of the good increases. s B) hift rightward when the price of the good increases. s C) lope upward. s D) lope downward. s 7) With respect to consuming food and shelter, two consumers face the same prices and both claim to be in equilibrium. We therefore know that A) hey both have the same marginal utility for shelter. t B) hey both have the same MRS of food for shelter. t C) hey both have the same marginal utility for food. t D) ll of the above. A 8) Society faces trade-offs because of A) overnment regulations. g B) aceless bureaucrats. f C) reedy corporations. g D) carcity. s 9) The change in price that results from a leftward shift of the supply curve will be greater if A) he demand curve is relatively steep than if the demand curve is relatively flat. t B) he demand curve is horizontal than if the demand curve is vertical. t C) he demand curve is relatively flat than if the demand curve is relatively steep. t D) he demand curve is horizontal than if the demand curve is downward sloping. t 10) The duration of the ʺlong-runʺ A) epends on the relative long-run elasticity of demand and supply for the good. d B) s the same for all goods. i C) s 20 years. i D) epends on how long it takes consumers or firms to adjust for a particular good. d 11) Lisa maximizes her utility by eating both pizzas and burritos. The price of a pizza is $10 and the price of a burrito is $5. When Lisaʹs utility is maximized, A) he good with a larger marginal utility cannot be determined without more information. t B) he marginal utility of pizza is larger than the marginal utility of burritos. t C) he marginal utility of both goods is the same. t D) he marginal utility of a burrito is larger than the marginal utility of a pizza. t 12) If a consumer doubles her quantity of ice cream consumed when her income rises by 25%, then her income elasticity of demand for ice cream is A) 25. . B) .0. 4 C) .0. 8 D) 08. . 6) _______ 7) _______ 8) _______ 9) _______ 10) ______ 11) ______ 12) ______ 13) Suppose the demand curve for a good is downward sloping and the supply curve is upward sloping. At the market equilibrium, if demand is more elastic than supply, a $1 specific tax will A) aise the price to consumers by $1. r B) aise the price to consumers by less than 50 cents. r C) aise the price to consumers by more than 50 cents. r D) aise the price to consumers by 50 cents. r 14) Municipalities that have adopted the policy of ʺrent controlʺ typically set the rentals on certain apartments well below equilibrium. As a result, A) rospective tenants have a difficult time finding available apartments. p B) here is a surplus of apartments. t C) andlords have a difficult time finding tenants. l D) ll of the above. A 15) Johnny has allocated $30 toward coffee and tea and feels that coffee and tea are perfect substitutes. Due to differences in caffeine levels, his MRS of tea for coffee equals 2 (that is, MU of coffee/MU of tea = 2). If coffee and tea sell for the same price, Johnny will A) e indifferent between any bundle of coffee and tea costing $30. b B) pend all $30 on coffee. s C) pend all $30 on tea. s D) pend $20 on coffee and $10 on tea. s 13) ______ 14) ______ 15) ______ 16) If the price elasticity of demand for a good is less than one, we say that the demand for this good 16) ______ A) re vertical. a B) re elastic. a C) re inelastic. a D) re horizontal. a 17) By selecting a bundle where MRS = MRT, the consumer is A) ot behaving in an optimal way. n B) eaching the highest possible indifference curve she can afford. r C) chieving a corner solution. a D) ll of the above. A 18) Relative to the short-run demand for gasoline, the long-run demand for gasoline is A) robably more elastic because people can hoard this good. p B) robably more elastic since people need time to change automobiles and driving habits. p C) robably less elastic since people need time to change automobiles and driving habits. p D) robably less elastic because people cannot store this good. p 19) In the mid 1980s, the salaries of accounting professors with Ph.D.s increased dramatically. This resulted in an increase in enrollments in Ph.D. accounting programs. Since a Ph.D. degree in accounting may take at least four years to complete, the short-run elasticity of supply of accounting professors is A) qual to the short-run elasticity of demand. e B) qual to the long-run elasticity of supply. e C) ess than the long-run elasticity of supply. l D) reater than the long-run-elasticity of supply. g 19) ______ 18) ______ 17) ______ Figure 2.1 20) Figure 2.1 shows a graph of a market for pizzas in a large town. At a price of $10, the market A) oes not have excess demand. d B) s not in equilibrium. i C) as excess supply. h D) ll of the above. A 20) ______ 21) Figure 2.1 shows a graph of the market for pizzas in a large town. As a result of concern over the affordability of pizza, the government restricts sellers from charging a price over $7. As a result, the quantity of pizzas consumed will A) e indeterminable. b B) ncrease. i C) ecrease. d D) emain unchanged. r 22) Joeʹs income is $500, the price of food (F) is $2, and the price of shelter (S) is $100. Which of the following bundles is within Joeʹs opportunity set? A) 00 units of food, 2 units of shelter 2 B) 50 units of food, 3 units of shelter 1 C) 00 units of food, 1 unit of shelter 1 D) 0 units of food, 5 units of shelter 5 23) An indifference curve represents bundles of goods that a consumer A) anks from most preferred to least preferred. r B) efers to any other bundle of goods. r C) iews as equally desirable. v D) ll of the above. A 24) If the consumerʹs income increases while the prices of both goods remain unchanged, what will happen to the budget line? A) he budget line rotates outward from the intercept on the vertical axis. T B) he budget line shifts inward without a change in slope. T C) he budget line rotates inward from the intercept on the horizontal axis. T D) he budget line shifts outward without a change in slope. T 25) If Fredʹs marginal utility of pizza equals 10 and his marginal utility of salad equals 2, then A) e will eat five times as much salad as pizza. h B) e will eat five times as much pizza as salad. h C) e is willing to give up 5 pizzas to get the next salad. h D) e is willing to give up 5 salads to get the next pizza. h 25) ______ 24) ______ 23) ______ 22) ______ 21) ______ Figure 2.1 26) Figure 2.1 shows a graph of the market for pizzas in a large town. At a price of $14, there will be A) o pizzas supplied. n B) xcess supply. e C) quilibrium. e D) xcess demand. e 26) ______ 27) A specific tax on sellers will A) hift the supply curve to the right. s C) hift the demand curve to the right. s 28) The indifference curves for left shoes and right shoes would most likely be A) ownward sloping and convex to the origin. d B) -shaped. L C) ownward sloping and straight lines. d D) pward sloping and concave to the origin. u 28) ______ 27) ______ B) hift the supply curve to the left. s D) hift the demand curve to the left. s Figure 2.1 29) Figure 2.1 shows a graph of the market for pizzas in a large town. No pizzas will be supplied unless the price is above A) 5. $ B) 0. $ C) 12. $ D) 14. $ 29) ______ Figure 3.2 30) Figure 3.2 shows the demand curve for crude oil. If the market price is $10 a barrel, what is the price elasticity of demand? A) .02 0 B) 1 C) 00 5 D) 0 1 31) Suppose the demand curve for a good shifts rightward, causing the equilibrium price to increase. This increase in the price of the good results in A) n increase in quantity supplied. a B) leftward shift of the supply curve. a C) leftward movement along the supply curve. a D) rightward shift of the supply curve. a 32) To determine the total demand for all consumers, sum the quantity each consumer demands A) t a given price. a B) t all prices and then sum this amountacross all consumers. a C) oth A and B will generate the same total demand. B D) one of the above. N 33) If the supply curve of a product changes so that sellers are now willing to sell 2 additional units at any given price, the supply curve will A) hift leftward by 2 units. s B) hift rightward by 2 units. s C) hift vertically down by 2 units. s D) hift vertically up by 2 units. s 30) ______ 31) _______ 32) _______ 33) _______ 34) Equilibrium is defined as a situation in which A) emand curves are perfectly horizontal. d B) uppliers will supply any amount that buyers wish to buy. s C) either buyers nor sellers want to change their behavior. n D) o government regulations exist. n 35) The change in price that results from a rightward shift in demand will be greater if A) he supply curve is upward sloping than if the supply curve is vertical. t B) he supply curve is horizontal than if the supply curve is vertical. t C) he supply curve is horizontal than if the supply curve is upward sloping. t D) he supply curve is relatively steep than if the supply curve is relatively flat. t 36) Which of the following is most likely to be true? A) t is not possible to make any prediction about relative income elasticities. I B) ncome elasticity of demand for fur coats exceeds that of oatmeal. I C) ncome elasticity of demand for oatmeal exceeds that of fur coats. I D) ncome elasticity of demand for fur coats equals that of oatmeal. I 37) The short-run elasticity of supply is less than the long-run elasticity of supply A) nly for non-durable goods. o B) ecause producers can adjust the amount of machinery in the long run but not in the short b run. C) ecause consumersʹ tastes and preferences change in the long run but not in the short run. b D) nly for durable goods. o 38) If two bundles are on the same indifference curve, then A) he consumer derives the same level of marginal utility from each. t B) o comparison can be made between the two bundles since utility cannot really be n measured. C) he MRS between the two bundles equals one. t D) he consumer derives the same level of total utility from each. t 39) Joeʹs income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of the following represents his budget constraint? A) 00 = 2F + 100S 5 B) 00 = 100F + 2S 5 C) = 500 - 2F S D) ll of the above. A 34) _______ 35) ______ 36) ______ 37) ______ 38) ______ 39) ______ Figure 4.1 40) Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in Figure 4.1. Which of the following best describes Maxʹs preferences? A) > b > e d B) = b > e a C) = b = e d D) = b > c a 40) ______ ...
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