g

Multiple Choice
Identify the choice that best completes the statement or answers the question.
____

1. A rationale for government involvement in a market economy is as follows:

a. Markets sometimes fail to produce a fair distribution of economic well-being.
b. Markets sometimes fail to produce an efficient allocation of resources.
c. Property rights have to be enforced.
d. All of the above are correct.

____

2. Assume the market for pork is perfectly competitive. When one pork buyer exits the market,
a. the price of pork increases.
b. the price of pork decreases.
c. the price of pork does not change.
d. there is no longer a market for pork.
Table 4-1
Price
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50

Aarons
Quantity
Demanded
20
18
14
12
6
0

Angelas
Quantity
Demanded
16
12
10
8
6
4

Austins
Quantity
Demanded
4
6
2
0
0
0

Alyssas
Quantity
Demanded
8
6
5
4
2
0

____

3. Refer to Table 4-1. If these are the only four buyers in the market, then the market quantity demanded at a
price of $2 is
a. 0 units.
b. 3.5 units.
c. 6 units.
d. 14 units.

____

4. If a good is inferior, then an increase in income will result in

a. an increase in the demand for the good.
b. a decrease in the demand for the good.
c. a movement down and to the right along the demand curve for the good.
d. a movement up and to the left along the demand curve for the good.

____

5. Suppose the American Medical Association announces that men who shave their heads are less likely to die of
heart failure. We could expect the current demand for
a. hair gel to increase.
b. razors to increase.
c. combs to increase.
d. shampoo to increase.

____

6. Which of the following might cause the supply curve for an inferior good to shift to the right?

a. An increase in input prices.

b. A decrease in consumer income.
c. An improvement in production technology that makes production of the good more
profitable.
d. A decrease in the number of sellers in the market.
____

7. A dress manufacturer recently has come to expect higher prices for dresses in the near future. We would
expect
a. the dress manufacturer to supply more dresses now than it was supplying previously.
b. the dress manufacturer to supply fewer dresses now than it was supplying previously.
c. the demand for this manufacturer's dresses to fall.
d. no change in the dress manufacturer's current supply; instead, future supply will be
affected.

____

8. Which of the following would shift the supply curve for gasoline to the right?
a. An increase in the demand for gasoline.
b. An increase in the price of gasoline.
c. An increase in the number of producers of gasoline
d. An increase in the price of oil, an input into the production of gasoline.

____

9. Buyers are able to buy all they want to buy and sellers are able to sell all they want to sell
a. at prices at and above the equilibrium price.
b. at prices at and below the equilibrium price.
c. at prices above and below the equilibrium price, but not at the equilibrium price.
d. at the equilibrium price, but not above or below the equilibrium price.

____ 10. If there is a shortage of farm laborers, we would expect

a. the wage of farm laborers to increase.
b. the wage of farm laborers to decrease.
c. the price of farm commodities to decrease.
d. a decrease in the demand for substitutes for farm labor.
Table 4-6
A country club usually only allows members to purchase tickets for its celebrity golf tournament, but the club
is considering allowing non-members to purchase tickets this year. The demand and supply schedules are as
follows:
Price
$10
$15
$20
$25
$30

Quantity Demanded
by Members
1000
800
600
400
200

Quantity Demanded
by Non-members
500
400
300
200
100

Quantity Supplied
600
600
600
600
600

____ 11. Refer to Table 4-6. If both members and non-members are allowed to purchase tickets to this year's celebrity
golf tournament, then what will be the equilibrium price?
a. $10
b. $15
c. $20

d. $25
Table 4-8
An Increase in Supply
A
C

An Increase in Demand
A Decrease in Demand

A Decrease in Supply
B
D

____ 12. Refer to Table 4-8. Which space represents an increase in equilibrium quantity and an indeterminate change
in equilibrium price?
a. A
b. B
c. C
d. D
Figure 4-9
20

price

18
16
14
12
10
8
6
4

2
10

20

30

40

50

60

70

80

90

quantity

____ 13. Refer to Figure 4-9. If there is currently a shortage of 20 units of the good, then
a. the law of demand predicts that the price will rise by $2 to eliminate the shortage.
b. the law of supply predicts that the price will rise by $2 to eliminate the shortage.
c. the law of supply and demand predicts that the price will rise by $2 to eliminate the
shortage.
d. the law of supply and demand predicts that the price will fall by $2 to eliminate the
shortage.
____ 14. Which of the following is likely to have the most price inelastic demand?
a. white chocolate chip with macadamia nut cookies
b. Mrs. Fields chocolate chip cookies
c. milk chocolate chip cookies
d. cookies
____ 15. For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which
of the following statements is most likely applicable to this good?
a. There are no close substitutes for this good.
b. The good is a luxury.
c. The market for the good is broadly defined.

d. The relevant time horizon is short.

____ 16. For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which
of the following statements is most likely applicable to this good?
a. The relevant time horizon is short.
b. The good is a necessity.
c. The market for the good is broadly defined.
d. There are many close substitutes for this good.
____ 17. When demand is elastic, a decrease in price will cause
a. an increase in total revenue.
b. a decrease in total revenue.
c. no change in total revenue, but an increase in quantity demanded.
d. no change in total revenue, but a decrease in quantity demanded.
____ 18. Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a
good. The income elasticity of demand for the good is
a. negative and therefore the good is an inferior good.
b. negative and therefore the good is a normal good.
c. positive and therefore the good is an inferior good.
d. positive and therefore the good is a normal good.
Figure 5-15
Price

Supply
C

25

50

75

100

125

150

175

200

225

250

275

300

Quantity

____ 19. Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between point A and
point B?
a. 0.58
b. 0.71
c. 1.06
d. 1.4
____ 20. On a certain supply curve, one point is (quantity supplied = 200, price = $2.00) and another point is (quantity
supplied = 250, price = $2.50). Using the midpoint method, the price elasticity of supply is about
a. 0.2.

b. 0.5.
c. 1.0.
d. 2.5.

g
Answer Section
MULTIPLE CHOICE
1. ANS:
NAT:
MSC:
2. ANS:
NAT:
MSC:
3. ANS:
NAT:
MSC:
4. ANS:
NAT:
MSC:
5. ANS:
NAT:
MSC:
6. ANS:
NAT:
MSC:
7. ANS:
NAT:
MSC:
8. ANS:
NAT:
MSC:
9. ANS:
NAT:
10. ANS:
NAT:
11. ANS:
NAT:
12. ANS:
NAT:
13. ANS:
NAT:
14. ANS:
NAT:
MSC:
15. ANS:
NAT:
MSC:
16. ANS:
NAT:
MSC:

D
Analytic
Interpretive
C
Analytic
Applicative
D
Analytic
Applicative
B
Analytic
Interpretive
B
Analytic
Applicative
C
Analytic
Analytical
B
Analytic
Applicative
C
Analytic
Applicative
D
Analytic
A
Analytic
D
Analytic
A
Analytic
C
Analytic
D
Analytic
Applicative
B
Analytic
Analytical
D
Analytic
Analytical

PTS: 1
DIF: 1
LOC: The role of government

REF: 1-2
TOP: Government | Markets

PTS: 1
DIF: 2
LOC: Perfect competition

REF: 4-1
TOP: Perfect competition

PTS: 1
DIF: 2
LOC: Supply and demand

REF: 4-2
TOP: Market demand

PTS: 1
DIF: 2
LOC: Supply and demand

REF: 4-2
TOP: Inferior goods

PTS: 1
DIF: 2
LOC: Supply and demand

REF: 4-2
TOP: Tastes

PTS: 1
DIF: 3
LOC: Supply and demand

REF: 4-3
TOP: Technology

PTS: 1
DIF: 2
LOC: Supply and demand

REF: 4-3
TOP: Expectations

PTS: 1
DIF: 2
LOC: Supply and demand

REF: 4-3
TOP: Number of sellers

PTS:
LOC:
PTS:
LOC:
PTS:
LOC:
PTS:
LOC:
PTS:
LOC:
PTS:
LOC:

1
Equilibrium
1
Equilibrium
1
Equilibrium
1
Equilibrium
1
Equilibrium
1
Elasticity

DIF:
TOP:
DIF:
TOP:
DIF:
TOP:
DIF:
TOP:
DIF:
TOP:
DIF:
TOP:

2
REF: 4-4
Equilibrium MSC: Interpretive
2
REF: 4-4
Shortages
MSC: Applicative
2
REF: 4-4
Equilibrium MSC: Applicative
2
REF: 4-4
Equilibrium MSC: Interpretive
3
REF: 4-4
Shortages
MSC: Analytical
2
REF: 5-1
Price elasticity of demand

PTS: 1
LOC: Elasticity

DIF: 3
REF: 5-1
TOP: Price elasticity of demand

PTS: 1
LOC: Elasticity

DIF: 3
REF: 5-1
TOP: Price elasticity of demand

17. ANS:
NAT:
MSC:
18. ANS:
NAT:
MSC:
19. ANS:
NAT:
MSC:
20. ANS:
NAT:
MSC:

A
Analytic
Applicative
A
Analytic
Applicative
B
Analytic
Analytical
C
Analytic
Analytical

PTS: 1
LOC: Elasticity

DIF: 2
REF: 5-1
TOP: Total revenue | Price elasticity of demand

PTS: 1
LOC: Elasticity

DIF: 2
REF: 5-1
TOP: Income elasticity of demand

PTS: 1
LOC: Elasticity

DIF: 2
REF: 5-2
TOP: Midpoint method | Price elasticity of supply

PTS: 1
LOC: Elasticity

DIF: 2
REF: 5-2
TOP: Midpoint method | Price elasticity of supply