75) Suppose the market-clearing price of wheat is $2.50 per bushel. What would happen if wheat
farmers persuaded the government to set a legally-mandated price support of $3.75 per bushel?
A) The quantity demanded of wheat would fall.
B) The quantity supplied of wheat would rise.
C) A surplus of wheat would occur.
D) All of the above.
76) Suppose the market-clearing price of wheat is $2.50 per bushel. What would happen if wheat
farmers persuaded the government to set a legally-mandated price support of $3.75 per bushel?
A) A shortage of wheat would occur.
B) The demand for wheat would fall.
C) The supply of wheat would rise.
D) The government would have to purchase any surplus wheat to maintain the price support.
77) Suppose the market-clearing price of wheat is $2.50 per bushel. What would happen if wheat
farmers persuaded the government to set a legally-mandated price support of $3.75 per bushel?
A) The price of wheat products would rise.
B) The demand for wheat would fall.
C) The quantity demanded of wheat would rise.
D) A shortage of wheat would occur.
78) Suppose the market-clearing price of milk is $3.00 per gallon, but the dairy industry
persuades the government to establish a legally-mandated price support at $4.00 per gallon. The
newly legislated price tends to
A) increase the supply of milk.
B) reduce the demand for milk.
C) increase the quantity supplied of milk.
D) increase the quantity demanded of milk.
79) Suppose the market-clearing price of milk is $3.00 per gallon, but the diary industry
persuades the government to establish a legally-mandated price support at $4.00 per gallon. The
newly legislated price tends to
A) reduce the demand for milk.
B) increase the production of milk.
C) create a shortage of milk.
D) decrease the price of milk products.
80) Suppose the market-clearing price of milk is $3.00 per gallon, but the diary industry
persuades the government to establish a legally-mandated price support at $4.00 per gallon. The
newly legislated price tends to
A) create a surplus of milk.
B) increase the price of milk products.
C) increase the output of milk.
D) reduce the quantity of milk demanded.
E) do all of the above.
81) Suppose the market-clearing price of milk is $3.00 per gallon, but consumer groups persuade
the government to set and enforce a maximum price cap at $2.00 per gallon. The newly
legislated price tends to
A) create a surplus of milk.
B) increase the demand for milk.
C) reduce the supply of milk.
D) do all of the above.
E) do none of the above.
82) Suppose the government establishes a price support for soybeans. The new government
program will tend to
A) decrease the output of soybeans.
B) increase the quantity demanded of soybeans.
C) decrease the demand for soybeans.
D) increase a farmer’s opportunity cost of producing other commodities (such as corn), which
could be grown on the same land used to grow soybeans.
E) do none of the above.
83) If the production of soybeans is subsidized by the government,
A) the demand for soybeans will increase.
B) the farmer’s cost of producing soybeans will decrease.
C) the supply of soybeans will decrease.
D) all of the above will occur.
E) none of the above will occur.
84) If the production of wheat were subsidized by government,
A) the demand for wheat would increase.
B) the supply of wheat would increase.
C) both A & B would occur.
D) none of the above would occur.
85) Compared to the free-market outcome, if the production of wheat were subsidized by the
government,
A) the supply of wheat would increase.
B) the quantity supplied of wheat would increase.
C) the quantity demanded of wheat would increase.
D) all of the above would occur.
E) none of the above would occur.
86) If a legal ceiling price causes the quantity of a good demanded to be greater than the quantity
supplied
A) competition among both buyers and sellers is prevented.
B) competition among buyers is prevented.
C) competition among sellers is prevented.
D) competition among buyers will raise the nonmonetary costs of obtaining the good.
87) If the price of sandals is fixed by law below the market-clearing price,
A) a surplus of sandals will result.
B) sandal inventories at shoe stores will be smaller.
C) sandal sellers will spend more on advertising.
D) the quantity of sandals demanded will be greater than the quantity supplied.
E) the quantity of sandals demanded will be less than the quantity supplied.
88) When a good becomes more scarce, and the government prevents sellers from raising prices,
A) demanders are prevented from competing against one another to obtain the good.
B) the opportunity cost to purchasers of obtaining the good will nonetheless rise as long as the
quantity demanded is greater than the quantity supplied.
C) the quantity purchased will be greater than the quantity supplied.
D) there will be no rationing system to allocate the good among competing users.
89) Government assistance to farmers, which seeks to maintain a target price by buying surplus
output, results in
A) higher prices and less food for consumers.
B) higher prices and more food for consumers.
C) lower prices and less food for consumers.
D) lower prices and more food for consumers.
90) If skilled and unskilled labor are substitutes, then an increased minimum wage would tend to
A) reduce the demand for both unskilled and skilled workers.
B) reduce the quantity demanded of unskilled workers and increase the demand for skilled
workers.
C) reduce the demand for unskilled workers and increase the quantity demanded of unskilled
workers.
D) reduce the quantity demanded for both unskilled and skilled workers.
91) Professional football players receive, on average, higher wages than professional soccer
players in the United States because
A) football is a more dangerous sport.
B) professional football teams can draw huge crowds and charge high prices for tickets.
C) professional football teams use a draft system.
D) the soccer season is longer and so players will be unemployed for a smaller portion of the
year.
92) A customer at an auction who obtains an antique chair by outbidding several other
prospective purchasers
A) may be paying more than the opportunity cost of obtaining the chair.
B) pays a price other than opportunity cost.
C) pays more than its real cost of his bid exceeds the original cost of the chair plus the cost of
running the auction.
D) pays the opportunity cost of the last disappointed bidder.
93) Using the economic way of thinking, which of the statements listed below best answers the
following question: Why do professional athletes tend to make more money than professional
poets?
A) Americans love sports and hate poetry.
B) Poets are less greedy and materialistic than athletes.
C) More people are willing to pay $50 per ticket to see an athletic competition than they are to
listen to a poet.
D) The supply of poets is too low.
94) There is no reason to think poets can’t someday become as rich as professional basketball
players in the market process. It is most likely to happen if
A) the supply of poets increases substantially.
B) the supply of poets decreases substantially.
C) the cost of writing good poetry decreases substantially.
D) poets are able to consistently sell out twenty-thousand-or-larger seat stadiums at thirty dollars
(or more) per ticket.
95) Why, in the U.S., do professional soccer players command a far lower salary than
professional baseball players?
A) Soccer is in much less demand.
B) Soccer costs less to manage and perform compared to baseball.
C) Soccer has yet to mature.
D) The baseball players prefer lobbied to keep soccer salaries low.
96) Why do prices have to be based on supply and demand, rather than cost?
A) Costs, unlike supply and demand, are based on subjective factors.
B) People cannot be compelled to base prices on costs
C) People should be free to set whatever prices they prefer.
D) Supply and demand determine costs.
E) Because basing prices on costs is less efficient than basing prices on supply and demand.
97) Somebody steals silverware from the dinner table at a nice restaurant. You question them and
they justify their behavior by saying, “The restaurant management knows customers steal–they
raise the price of their meals and drinks to cover the additional costs of stolen items. Since they
pass on the higher costs to all of us who haven’t stolen, I think it is only fair I finally get my
share of the silverware.” The economist would view the above statement as:
A) incorrect, because even though people stole silverware, it doesn’t make it any more profitable
to raise prices.
B) correct, because what’s fair is fair.
C) correct, because economics champions such selfish behavior.
D) an ethical problem, and it has nothing to do with economics.
98) Your friend steals towels from hotels. She then tells you she steals because “many people
steal, so hotels already figure the cost of the stolen towels into the hotel bill of all customers.”
From the economic point of view, your friend’s logic is
A) correct, because what’s fair is fair.
B) correct, because economics champions such selfish behavior.
C) impeccable.
D) incorrect, because it suggests that cost determines price.
E) incorrect, because it suggests that ethical positions can be derived from economic facts.
99) Halibut tends to be much more expensive than cod. According to the economic way of
thinking, relatively high halibut prices can be explained by
A) using the theory of supply and demand.
B) pointing out the cause—Halibut boats are often more expensive than boats used to fish for
cod.
C) acknowledging the price differential is unfair to consumers of halibut.
D) acknowledging the price differential is unfair to cod fishermen.
100) What is the approximate cost to a professional basketball team of giving ten free tickets for
a particular game to children in an orphanage?
A) Probably nothing if the game is not sold out.
B) The face price of the tickets
C) The value of the opportunities forgone by putting on the game, divided by the number of seats
(times ten)
D) We cannot tell unless we know the value the orphans place on attending.
101) It generally costs advertisers more to run a commercial on television in the evening than in
the morning because
A) it costs stations and networks more to broadcast any given commercial in the evening.
B) overtime wage rates must usually be paid in the evening.
C) stations and networks ignore their own costs in setting their prices.
D) the government regulates television content but not prices.
102) According to opportunity-cost theory, if the public lost most of its interest in spectator
sports,
A) athletes would have to charge more for their services in order to survive.
B) the cost of hiring professional athletes would fall.
C) the cost of hiring professional athletes would rise.
D) the cost of hiring professional athletes would remain the same.
103) What effect on the price of hiring a lawyer to draw up a will would the opportunity-cost
theory predict as a consequence of legislation requiring the use of a lawyer in all real estate
transactions?
A) A higher price as the market becomes flooded with lawyers.
B) A higher price as lawyers find it costs them more to draw up wills
C) No effect because prices are determined by demand, not by cost.
D) A lower price as the market becomes flooded with lawyers
E) A lower price as lawyers find they can now obtain their desired income level with lower fees
104) What effect would a simplification of federal tax law have on the cost of hiring a tax
accountant?
A) It would fall because tax accountants would have fewer valuable opportunities.
B) It would rise because tax accountants would have to raise their prices to maintain their
incomes.
C) It would have no effect because only supply affects costs, not demand.
D) It would have very little effect because most of the costs of becoming an accountant are sunk
costs.
105) A good deal of iron ore is mined in Michigan’s Upper Peninsula. What is the relationship
between the demand for iron ore and the cost of mining operations in Michigan?
A) Changes in the demand for iron ore are caused directly by changes in the cost of iron mining.
B) Changes in the costs of iron mining are caused by changes in the demand for iron ore.
C) There is no significant relationship because the demand for iron ore is determined by many
different people, while the cost of mining the ore is determined by business executives.
D) Nobody knows.
106) Fact: Very few skyscrapers are found on rural farmlands, far outside the city. Why?
A) As opposed to city property, farmland cannot support a skyscraper’s tremendous weight per
square foot.
B) Skyscrapers would spoil the view of the rural landscape.
C) The opportunity cost of building skyscrapers in rural areas is too high.
D) There are far too many dangers involved.
107) There’s not a single golf course in downtown Chicago because
A) it would be physically impossible to produce.
B) it would ruin the hustle and bustle of the city.
C) the opportunity cost of creating such a course is too low.
D) the demand for land for non-golf uses is high enough to discourage such an investment.
E) all of the above are true.
108) It’s not unusual for strangers driving through a small town to find a gas station more quickly
than people driving through a major city center. According to the economic way of thinking, gas
stations in city centers appear few and far between because
A) big cities are just plain confusing to out-of-towners.
B) the real estate space available for gas stations has more valuable alternative uses.
C) the opportunity cost of placing additional gas stations in city centers is too low.
D) the owner of gas stations would rather have people drive further distances and thereby use
more gasoline.
109) Typically, in towns and villages across the Midwest, bowling alleys are one-story buildings.
In Manhattan, one is more likely to bowl in alleys found in multi-story high rises. Why?
A) Because Midwesterners live on flat lands, they think flat and build flat.
B) The bowling cultures are different.
C) The cost of building single-story bowling alleys in Manhattan is too high.
D) Midwestern zoning codes must prohibit bowling alleys in multi-story structures.
110) Fill in the blanks: Comparatively speaking, buildings are more likely to be physically
________ in regions where land prices are relatively ________.
A) taller; low
B) shorter; high
C) taller; high
D) shorter; stable
111) There are very few, if any, farms within the city limits of Chicago because
A) zoning laws have always prohibited them.
B) the land under the city of Chicago is unfertile.
C) Chicago is known for its butchers and freighters, not its farmers.
D) the land is in extremely great demand for non-agricultural purposes.
112) What would an economist point to explain why there are no large farms within Detroit city
limits?
A) The cultural characteristics of the typical Detroit citizen
B) The political power of the automobile industry in Detroit
C) The residential and commercial demand for real estate in Detroit
D) None of the above.
113) Fill in the blanks: An increase in ________ tends to increase ________ and therefore
increase ________.
A) cost; price; supply
B) cost; demand; price
C) demand; price; cost
D) supply; cost; price
114) Fill in the blanks: A decrease in ________ tends to decrease ________ and therefore
decrease ________.
A) cost; price; supply
B) cost; demand; price
C) demand; price; cost
D) supply; cost; price
115) Fill in the blanks: A change in ________ causes a change in ________ and therefore a
change in ________.
A) cost; demand; price
B) price; demand; supply
C) supply; price; demand
D) demand; price; cost
116) In the economic way of thinking, which statement makes the most sense?
A) Costs determine prices.
B) Prices determine costs.
C) Costs determine demand.
D) Demand determines supply.
117) An increase in a retailer’s “overhead expenses”
A) compels the retailer to raise prices.
B) enables the retailer to raise prices.
C) makes it profitable for the retailer to raise prices.
D) does not in itself make higher prices necessary, possible, or profitable.
118) A geologist tells the ACME Mining Company she’s certain there is a gold vein one
thousand feet below the surface of its property, but ACME still decides not to mine for that gold.
How would an economist explain their decision?
A) The owners of ACME aren’t as greedy as other mining operations.
B) The owners of ACME probably distrust the geological reports.
C) The owners of ACME feel the additional costs of mining for gold outweigh the additional
benefits.
D) The owners of ACME are ignorant of the basic principles of economics.
119) People debate whether or not the U.S. should allow for greater oil exploration in Northern
Alaska. According to the economic way of thinking, the debate is rooted in
A) different perceptions about the additional benefits and the additional costs of oil exploration
in Northern Alaska.
B) a complete lack of appreciation of the value of wildlife and the ecology of Northern Alaska.
C) a complete lack of appreciation of the value of oil in world affairs.
D) politics rather than economics.
120) Why are people more inclined to pick up a dime off the pavement in a parking lot, but not
so inclined to dig three feet into the earth for a previously-buried dime?
A) The entrepreneurial spirit of Americans is gone.
B) They don’t know the value of the dollar—or dime—anymore.
C) They weigh the expected additional costs and benefits, and choose accordingly.
D) People haven’t taken enough economics in college.
121) The fees physicians charge patients are most closely related to the physicians’ cost of
A) acquiring a medical degree.
B) earning a target income.
C) maintaining their practice.
D) spending time with patients.
122) Hospitals typically include all their sunk costs when deciding how much it costs them to
provide services because
A) each patient benefits from the hospital’s being adequately equipped.
B) hospital administrators have no incentive to be efficient.
C) no hospital could continue operating if it wasn’t able to cover its sunk costs.
D) the payments they receive are largely based on what they say are their costs.
E) they are non-profit institutions and hence are in general poorly managed.
123) Firms are not likely to include their sunk costs when calculating their true cost of supplying
goods if they
A) are calculating their income for tax purposes.
B) have been accused by competitors of “dumping.”
C) have been accused by customers of “price gouging.”
D) must request price increases from a regulatory commission.
E) want subsidies from the government.
124) Which of the statements below best expresses the relationship between the cost of a medical
education and the fees charged by physicians?
A) The greater the average cost of a medical education, the higher will be the fees physicians
charge.
B) The greater the cost of a physician’s education in both money and effort, the higher will be the
fees they can legitimately set for their services.
C) The greater the cost to physicians of a medical education in both money and effort, the higher
will be the fees they will charge in order to recover the costs they incurred.
D) The greater the expected cost of a medical education, the fewer physicians there will be and
the higher their fees will be.
125) The cost to a physician of tending a patient is
A) dependent on the number of years over which the physician practices.
B) higher for a recent medical-school graduate than for a physician with a well-established
practice.
C) the value of the time when spent in its next best use.
D) zero under a system of complete and comprehensive medical insurance.
126) The marginal dollar cost to a patient of visiting a doctor when the patient’s bill will be paid
entirely by insurance is
A) the same as if the patient had no insurance.
B) the value of the care not received by some other patient who couldn’t get an appointment.
C) zero.
D) zero only if the patient does not pay the insurance premiums.
127) An increase in the demand for a good will tend to bid up the cost of acquiring the good
more
A) if suppliers respond by quickly making larger quantities available.
B) if the cost of transferring resources out of other uses into production are low.
C) in the short run than in the long run.
D) if the supply curve is highly elastic.
128) Suppose the relative price of Ford F150 pickup trucks has risen over the past decade. Yet,
even at the higher price, more F150 pickups have been sold. What would an economist
conclude?
A) The supply of F150 pickups is downward-sloping.
B) The demand for F 150 pickups is upward-sloping.
C) Buyers of F150 pickups are acting irrationally.
D) All of the above are true.
E) None of the above is true.
129) During the 1980s both the relative price and the purchases of BMWs increased
dramatically. In the economic way of thinking,
A) the supply curve of BMWs shifted to the right.
B) the demand curve for BMWs shifted to the right.
C) the supply curve of BMWs shifted to the left.
D) the demand curve for BMWs shifted to the left.
130) According to the law of demand, the higher the price, the lower the quantity demanded.
But, five years ago the Dropouts used to sell only 50 tickets for their shows at $5 each. Today
they sell 5000 tickets at $20 each. Does the change described above contradict the law of
demand?
A) Yes, because the price has fallen and the quantity demanded has fallen.
B) Yes, because the price has risen and the quantity demanded has risen.
C) No, because the supply has risen.
D) No, because other things weren’t constant.
131) How can it be that people purchase more of a good while its price is rising?
A) The supply curve must be shifting to the left.
B) The demand curve must be shifting to the right.
C) Supply and demand do not change.
D) It cannot happen, otherwise the law of demand is violated.
132) If the demand for a good is increasing while the supply curve remains unchanged, then we
will observe
A) more purchases at a higher price.
B) more purchases at a lower price.
C) fewer purchases at a higher price.
D) fewer purchases at a lower price.
133) Suppose we observe a substantial increase in the price of a good, and, at the same time, an
increase in the quantity of the good demanded. What can we conclude?
A) The law of supply is untrue.
B) Consumers haven’t followed the law of demand.
C) The demand curve has shifted to the right.
D) The good is a luxury good.
134) “Gasoline purchases were up 10% last week, even though gasoline prices were 6 cents
higher than the week before! You see, the law of demand does not hold for gasoline!” What is
being misunderstood in the above statement?
A) Nothing at all.
B) It implies the demand curve for gasoline is vertical.
C) It fails to recognize that the demand curve has shifted to the right.
D) It fails to hold constant all the other factors that influence demand.
135) How would economists interpret the following facts? Fact: Over the past two decades the
relative price of new textbooks has risen dramatically. Another fact: Record numbers of new
textbooks have been purchased by students over the past two decades.
A) The law of demand has been violated.
B) The law of supply has been violated.
C) The supply and demand process in new textbooks hasn’t worked correctly.
D) The demand for textbooks has increased.
E) The facts aren’t true.
136) Typically, the more time suppliers have to adjust to changing market conditions,
A) the more elastic the supply curve.
B) the more elastic the demand curve.
C) the less elastic the supply curve.
D) the less elastic the demand curve.
137) As people have more time to adjust to changes in a good’s price,
A) the demand curve will become less elastic.
B) the supply curve will become less elastic.
C) both the demand and supply curves will become less elastic.
D) both the demand and supply curves will become more elastic.
138) When we say supply curves become more elastic over time, we mean
A) the quantity supplied becomes independent of demand.
B) any price change has a larger affect on quantity supplied.
C) the supply curve becomes steeper.
D) the supply curve shifts upward.
139) “The Florida freeze has destroyed 40% of the orange crop. The reduction in supply will
increase orange prices, and therefore reduce demand. As demand falls, orange prices will also
fall.” Is there anything wrong with the above statement?
A) Yes. The freeze would not reduce the supply.
B) Yes. The higher price would not reduce the demand.
C) Yes. It assumes the demand curve for oranges is vertical.
D) Yes. It assumes the demand curve for oranges is upward-sloping.
140) Is the following quote correct? “Here’s the law of demand in a nutshell: The higher the
price, the lower the demand.”
A) Yes, it is totally correct.
B) No. It would be correct if it were to also say “other things constant.”
C) No, because it confuses demand and quantity demanded.
D) No, because the law of demand does not apply to nutshells.
141) Is the following quote correct? “Here’s the law of demand in a nutshell. The lower the price,
the higher the quantity demanded, other things constant.”
A) Yes, it is totally correct.
B) No. It would be correct if it didn’t say “other things constant.”
C) No, because it confuses demand and quantity demanded.
D) No, because the law of demand does not apply to nutshells.
142) The board of education of a school district faced with a surplus of teachers, but unable to
lower salaries because of union contracts, will
A) be unable to balance the quantity supplied with the quantity demanded.
B) have to hire fewer teachers than it wants to.
C) have to hire more teachers than it wants to.
D) tend to have relatively few young teachers on its payroll.
143) The prediction by the American Medical Association of a shortage of physicians by the
year 2020 assumes
A) physicians’ fees will not rise to a market clearing level.
B) physicians’ services will be free goods.
C) physicians’ services will no longer be scarce.
D) physicians will be willing to work for less income.
144) Many predict there will be permanent, growing shortages of oil by the year 2025. The
prognosticators are assuming
A) oil prices will fall.
B) oil prices will not adjust appropriately to coordinate the market.
C) oil prices will rise.
D) greed will ruin the supply and demand process in the world oil market.
145) The prediction of permanent, growing shortages of fresh drinking water by the year 2050
assumes
A) water prices will increase.
B) water prices will decrease.
C) water prices will not adjust appropriately to coordinate the market.
D) nobody will be able to collect water from rain and snowstorms.