Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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If
the price of good X rises and the demand for good X is elastic, then the percentage __________ in
quantity demanded is __________ the percentage rise in price, and total revenue
__________. a. | fall; greater
than; rises | b. | fall; less than; falls | c. | fall; equal to;
remains constant | d. | rise; greater than; falls | e. | fall; greater
than; falls | | |
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2.
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If
the percentage change in quantity demanded is less than the percentage change in price, demand
is a. | inelastic. | b. | unit elastic. | c. | elastic. | d. | perfectly elastic. | e. | perfectly
inelastic. | | |
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3.
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Which
of the following would result in higher price elasticity? a. | more substitutes
for a good | b. | shorter periods of time considered | c. | lower costs of
labor | d. | all of the above | | |
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4.
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The
shorter the period of time consumers have to adjust to price changes, the __________ the __________
elasticity of demand. a. | lower; income | b. | lower;
price | c. | higher; income | d. | higher;
price | | |
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5.
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If
two goods are substitute goods, a. | an increase in the price of one will cause a decrease in the
demand for the other. | b. | an increase in the price of one will cause an increase in the
demand for the other. | c. | the price elasticity of demand for both goods will be greater
than 1. | d. | the price elasticity of demand for both goods will be less than
1. | | |
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6.
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An
inferior good is a. | any good that
consumers think is of low quality. | b. | a good for which the quantity demanded decreases as its price
increases. | c. | a good for which the demand rises as income
falls. | d. | a good for which the demand rises as income
rises. | e. | any good that a producer cannot sell a large quantity of, even
at a low price. | | |
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7.
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Economic theory assumes that a. | people are rational. | d. | everybody is a little crazy. | b. | people are
irrational. | e. | a and
c. | c. | people lookout
for themselves. | | | | |
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8.
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When
it comes to the behavior of business firms, economic theory assumes that businesses a. | just want to get
by. | c. | want to make as
much money as they can. | b. | will sacrifice everything to serve
humanity. | d. | are happy to
just cover their costs. | | | | |
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9.
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When
an economist talks about utility, she is talking about a. | a company that
provides electricity, water, gas, etc. | b. | the satisfaction, in terms of price, that a producer receives
from selling his product. | c. | the satisfaction that results from the consumption of a
good. | d. | the amount of one good that a person is willing to give up in
order to get a unit of another good. | e. | the satisfaction that results from the consumption of a good
minus the price that must be paid to get the good. | | |
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10.
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Suppose you are eating slices of pizza and after consuming the first slice you have 14
utils, after the second you have 22 utils, and after the third 25 utils. Then a. | the law of
diminishing marginal utility is not applicable because your total utility is increasing instead of
diminishing. | b. | your total utility is 61 utils. | c. | your total
utility is 25 utils, and the marginal utility of the first slice is 8 utils (22 -
14). | d. | your total
utility is 25 utils, and the marginal utility of the third slice is 3
utils. | | |
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11.
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The
law of diminishing marginal utility can be stated as follows: a. | As the amount of
a good consumed increases, the sum of satisfaction received tends to
decrease. | b. | As the amount of a good consumed increases, the additional
satisfaction gained from consuming additional units tends to decrease. | c. | As the amount of
a good consumed decreases, the additional satisfaction gained from consuming additional units tends
to increase. | d. | As the amount of a good consumed increases, the sum of
satisfaction received tends to increase but at a diminishing rate. | e. | b and
d | | |
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12.
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We
would expect the total utility of diamonds to be __________ than the total utility of water and the
marginal utility of diamonds to be __________ than the marginal utility of water. a. | higher;
higher | b. | lower; lower | c. | higher;
lower | d. | lower; higher | | |
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13.
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Ashley is currently consuming 10 hot dogs and 8 hamburgers per week. The last hot dog
she consumed yielded 20 utils while the last hamburger she ate gave her 25 utils. If hot dogs cost $2
and hamburgers cost $2.50, is Ashley consuming the correct quantities of these two goods to be in
consumer equilibrium? a. | No, she should consume more hamburgers and fewer hot
dogs. | b. | No, she should consume more hot dogs and fewer
hamburgers. | c. | Yes, so there is no need to change her eating
habits. | d. | There is not enough information to answer the
question. | | |
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14.
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Which
of the following statements is true? a. | If a consumer is in equilibrium, it does not necessarily follow
that he or she is also achieving the greatest total utility. | b. | If a consumer is
in equilibrium, it necessarily follows that he or she is also achieving the greatest total
utility. | c. | If a consumer is attaining the greatest marginal utility, then
it necessarily follows that he or she is also achieving the greatest total
utility. | d. | If a consumer is attaining the greatest total utility, then it
necessarily follows that he or she is also achieving the greatest marginal
utility. | | |
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15.
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Suppose a consumer is purchasing Coke (c) and pretzels (p) in quantities such that he
is achieving consumer equilibrium. Then the price of Coke increases. Which of the following will be
true? a. | MUC/PC = MUP/PP | b. | MUC/PC >
MUP/PP | c. | MUC/PC <
MUP/PP | d. | We cannot say for certain what will happen to the
MUC/PC relative to the MUP/PP. | | |
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16.
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Suppose a consumer is purchasing Coke and pretzels in quantities such that she is
achieving consumer equilibrium. Then the price of Coke decreases. The consumer will likely __________
her consumption of Coke and the marginal utility of Coke will __________ while the total utility from
Coke will __________. a. | increase; increase; increase | b. | increase;
decrease; decrease | c. | increase; decrease; increase | d. | decrease;
increase; increase | e. | decrease; decrease; decrease | | |
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17.
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Economists Alchian and Demsetz suggest that firms are formed when a. | the sum of what
individuals can produce alone is greater than what they can produce as a
team. | b. | someone wants to earn profits. | c. | someone comes up
with the idea that customers will buy a new product. | d. | the sum of what
individuals can produce as a team is greater than the sum of what they can produce
alone. | | |
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18.
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The
more people involved in team production of a given quantity of output, the __________ the cost to any
one person from shirking, and so the __________ the probability of shirking
occurring. a. | higher;
higher | b. | higher; lower | c. | lower;
higher | d. | lower; lower | | |
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19.
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The
sole proprietor of a proprietorship has a. | unlimited liability, which means he or she is responsible for
settling all debts of the firm, but not if it means selling his or her personal property to do
so. | b. | limited
liability, which means he or she is responsible for settling all debts of the firm, even if this
means selling his or her personal property to do so. | c. | limited
liability, which means he or she cannot be sued for the proprietorship's failure to pay its
debts. | d. | unlimited liability, which means he or she is responsible for
settling all debts of the firm, even if this means selling his or her personal property to do
so. | | |
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20.
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Which
of the following business organizations is subject to double taxation of its profit? a. | the
proprietorship | b. | the partnership | c. | the
corporation | d. | the nonprofit firm | | |
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21.
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Joe
is the owner-operator of Joe's Haircuts Unlimited. Last year he earned $100,000 in total revenues and
paid $65,000 to his employees and suppliers. During the course of the year, he received three offers
to work for other barbers, with the highest offer being $40,000 per year. What are Joe's accounting
profits? a. | $0 | b. | $25,000 | c. | -$5,000 | d. | $40,000 | e. | $35,000 | | |
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22.
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Joe
is the owner-operator of Joe's Haircuts Unlimited. Last year he earned $100,000 in total revenues and
paid $65,000 to his employees and suppliers. During the course of the year, he received three offers
to work for other barbers, with the highest offer being $40,000 per year. Is Joe earning a normal
profit? a. | Yes, in fact, an
above-normal profit. | b. | No, but he is earning an accounting profit and that is all that
matters. | c. | Yes, but his economic profit is $0 and that is not
good. | d. | We cannot be sure, because "normal" profit is a
subjective judgment. | e. | No, his economic profit is negative. | | |
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23.
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It
would be possible to produce the world's present supply of wheat in a flowerpot if it were not for
the law of a. | demand. | b. | supply. | c. | comparative
advantage. | d. | diminishing marginal returns. | | |
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Exhibit 21-1
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24.
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Refer
to Exhibit 21- 1. Diminishing marginal returns set in with the addition of which unit of the variable
input? a. | the
fourth | b. | the fifth | c. | the
sixth | d. | the second | | |
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Exhibit 21-4
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25.
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Refer
to Exhibit 21-4. Curve A is a(n) __________ cost curve. a. | marginal | b. | average variable | c. | average
total | d. | average fixed | | |
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26.
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Refer
to Exhibit 21-4. Curve B is a(n) __________ cost curve. a. | marginal | b. | average variable | c. | average
total | d. | average fixed | | |
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27.
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Costs
that do not change with output are called __________ costs. a. | marginal | b. | average | c. | fixed | d. | variable | | |
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28.
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The
change in total cost that results from a change in output is __________ cost. a. | average
fixed | b. | average variable | c. | average
total | d. | marginal | | |
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29.
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A
rising marginal cost curve is a reflection of a a. | rising marginal physical product
curve. | b. | falling marginal physical product
curve. | c. | falling average fixed cost curve. | d. | rising average
variable cost curve. | | |
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30.
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Which
of the following is not consistent with a "layperson's" translation of the law of
diminishing marginal returns? a. | There are too many cooks in the
kitchen. | b. | The end justifies the means. | c. | The faster I go,
the smaller my progress. | d. | Too many waiters and not enough
restaurants. | | |
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