1. The market demand curve for any good is:
a.
independent of individuals’ demand curves for the good.
b.
the vertical summation of individuals’ demand curves.
c.
the horizontal summation of individuals’ demand curves.
d.
derived from the firm’s marginal cost of production.
2. An increase in the price of good x will be accompanied by:
a.
b.
c.
d.
d
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3. A change in the distribution of income that leaves total income constant will not shift the market demand curve for a
product providing:
a.
everyone has an income elasticity of demand of zero for the product.
b.
everyone has the same income elasticity of demand for the product.
c.
individuals have differing income elasticities for the product, but the average income elasticity for income
gainers is equal to the average income elasticity for income losers.
d.
any of the above conditions occur.
d
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4. In the very short run:
a.
new firms may enter an industry.
b.
existing firms may change the quantity they are supplying.
c.
price and quantity supplied are absolutely fixed.
d.
quantity supplied is absolutely fixed.
d
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5. The short-run market supply curve is:
a.
the horizontal summation of each firm’s short-run supply curve.
b.
the vertical summation of each firm’s short-run supply curve.
c.
the horizontal summation of each firm’s short-run average cost curve.
d.
the vertical summation of each firm’s short-run average cost curve.
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6. A demand curve will shift out for any of the following reasons except that:
a.
preference for a good increases.
b.
price of a substitute falls.
c.
income rises.
d.
price of a complement falls.
b
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7. If a 1 percent increase in price leads to a .7 percent increase in quantity supplied, the short-run supply curve is:
a.
elastic.
b.
inelastic.
c.
unit elastic.
d.
perfectly inelastic.
b
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8. If the market for hula-hoops is characterized by a very inelastic supply curve and a very elastic demand curve, an
inward shift in the supply curve would be reflected primarily in the form of:
a.
higher prices.
b.
higher output.
c.
lower prices.
d.
lower output.
d
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9. If the market for bottled spring water is characterized by a very elastic supply curve and a very inelastic demand curve,
an outward shift in the supply curve would be reflected primarily in the form of:
a.
higher prices.
b.
higher output.
c.
lower prices.
d.
lower output.
c
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10. Suppose that the price elasticity of demand for a product is -1 and that the price elasticity of supply is +1. Assume
also that the income elasticity of demand is +2. Then an increase in income of 10% will raise equilibrium price by:
a.
10%.
b.
5%.
c.
20%.
d.
an annual amount that cannot be determined.
a
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11. Under perfect competition, if an industry is characterized by positive economic profits in the short run:
a.
firms will leave the market in the long run and the short-run supply curve will shift outward.
b.
firms will enter the market in the long run and the short-run supply curve will shift outward.
c.
firms will enter the market in the long run and the short-run supply curve will shift inward.
d.
firms will leave the market in the long run and the short-run supply curve will shift inward.
b
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12. Firms in long-run equilibrium in a perfectly competitive industry will produce at the low points of their average total
cost curves because:
a.
free entry implies that long-run profits will be zero no matter how much each firm produces.
b.
firms seek maximum profits and to do so they must choose to produce where average costs are minimized.
c.
firms maximize profits and free entry implies that maximum profits will be zero.
d.
firms in the industry desire to operate efficiently.
c
13. For an increasing cost industry, the long-run supply curve has a(n) _____ elasticity of supply.
a.
infinite
b.
negative
c.
positive
d.
zero
c
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14. Long-run elasticity of supply is defined as:
a.
percentage change in quantity demanded in the long run divided by percentage change in price.
b.
percentage change in price divided by percentage change in quantity demanded in the long run.
c.
percentage change in quantity supplied in the long run divided by percentage change in price.
d.
percentage change in price divided by percentage change in quantity demanded in the long run.
c
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15. Long-run producer surplus in a perfectly competitive industry accrues mainly to:
a.
suppliers of inputs with inelastic supply curves.
b.
suppliers of inputs with elastic supply curves.
c.
firms’ owners.
d.
marginal consumers.
a
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16. In a competitive market, an efficient allocation of resources is characterized by:
a.
a price greater than the marginal cost of production.
b.
the possibility of further mutually beneficial transactions.
c.
the largest possible sum of consumer and producer surplus.
d.
a value of consumer surplus equal to that of producer surplus.
c
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17. A deadweight loss of consumer and/or producer surplus occurs when:
a.
producers fail to maximize profits.
b.
mutually beneficial transactions cannot be completed.
c.
consumers do not maximize their utility.
d.
the price of inputs increases.
b
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18. One example of Ricardian rent is:
a.
rent paid to landlords under price controls.
b.
the difference between the price of a highly demanded unique piece of artwork and the opportunity cost of
maintaining it.
c.
the amount paid to a seller above the equilibrium price of tourist class tickets in order to receive higher quality
seats in first class.
d.
the price rise of wool from a disease among sheep.
b
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19. Price controls:
a.
are always popular with consumers because they lower prices.
b.
create shortages.
c.
increase producer surplus because firms can now sell a greater quantity of a good at a lower price.
d.
are necessary to preserve equity.
b
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20. A market for a product for which demanders are willing to pay more than costs of production may not arise because
of:
a.
high transactions costs.
b.
strict price controls.
c.
the inability of producers to gain economies of scale.
d.
foreign countries dominating a domestic market for a product.
a
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21. In the short run, a sales tax is:
a.
wholly absorbed by the producer.
b.
shared between the consumer and the producer.
c.
deferred until the market is able to re-establish an equilibrium price.
d.
wholly absorbed by the consumer.
b
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22. In the long run, the greater burden of a specific tax will usually be absorbed by:
a.
consumers.
b.
the party—consumers or producers—with the more elastic demand/supply curve.
c.
the party with the least elastic demand/supply curve.
d.
shareholders and employees of the firm in the form of reduced dividends and wages.
c
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23. In the short run, specific taxes on a firm result in:
a.
price increases which may not persist in the long run.
b.
an increase in consumer surplus because the tax permits spending in additional government services.
c.
shortages of the good being taxed.
d.
an increase in producer surplus because of the rise in price.
a
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24. The excess burden of a tax is:
a.
the amount by which the price of a good increases.
b.
the loss of consumer and producer surplus that is not transferred to the government.
c.
the amount by which a person’s after-tax income decreases as a result of the new tax.
d.
the welfare costs to firms forced to leave the market due to an inward shift of the demand curve.
b
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25. One way to minimize the excess burden resulting from a specific tax is to:
a.
tax only wealthy firms and individuals.
b.
spread the tax over many goods and services.
c.
tax goods for which either supply or demand is inelastic.
d.
tax luxury items such as yachts and sports cars.
c
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26. Per-unit transaction costs:
a.
may cause the demand and supply curves to shift either inward or outward depending on the value obtained
from transaction agents.
b.
refer only to the commission paid to a third-party for each transaction made.
c.
are absorbed by the party seeking the transaction.
d.
have the same effect on behavior as do lump-sum transaction costs; the difference in terminology is purely
definitional.
a
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27. When prices drop in response to a decline in demand for an increasing cost industry:
a.
producer surplus will increase but rents may decrease.
b.
rent earned by elastically supplied inputs will decline by more than rent earned by inelastically supplied
inputs.
c.
rent earned by elastically supplied inputs will decline by less than rent earned by inelastically supplied inputs.
d.
both producer surplus and rents will increase.
c
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28. If quantity supplied is either greater or less than the equilibrium quantity, then all of the following are true except:
a.
total loss of surplus will depend on the shape of the demand and supply curves.
b.
the resulting loss of consumer surplus will depend on the price of the good.
c.
total loss of surplus will depend on the price of the good.
d.
there will be an inefficient allocation of resources.
c
29. In this market, equilibrium price is given by:
a.
.
b.
.
c.
.
d.
.
30. In this market, an increase in the parameter c would:
a.
increase both price and quantity.
b.
increase price and decrease quantity.
c.
decrease both price and quantity.
d.
increase quantity and decrease price.
31. If a small unit tax is imposed on this market, the effect of this tax on the price suppliers receive will be
greatest when:
a.
d is small and b is large.
b.
d and b are both small.
c.
d and b are both large.
d.
d is large and b is small.
32. An increase in the price of an input to a perfectly competitive industry will:
a.
increase price and reduce the number of firms.
b.
increase price and increase the number of firms.
c.
increase price and have an ambiguous effect on the number of firms.
d.
reduce the number of firms and have an ambiguous effect on price.