1. Name (Print): ______________________ Student ID No.: ________________ Gade: ______________ Form A
ECO 201 Principles of Microeconomics Practice Questions for Topics 6-11
Multiple Choice
Identify the choice that best completes the statement or answers the question.
1) Which of the following will most likely result from rent controls that reduce monthly rental rates below market
equilibrium?
a. Shortages and black markets for rental housing will develop.
b. Discrimination against minorities and persons with unconventional lifestyles will decline in
the rental housing market.
c. The quality of rental housing will improve.
d. The future supply of rental housing will increase rapidly.
Figure 6
2) Refer to Figure 6. Suppose a price floor of $7.00 is imposed. Which of the following is not correct?
a. Consumer surplus decreases by $45.
b. The supply curve will shift to the left so as to now pass through the point (Q = 40, P =
$7.00).
c. The quantity demanded decreases by 10 units.
d. Price as the invisible hand fails to serve as the rationing mechanism.
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2. Name: ________________________ Form A
3) When economists say the demand for a good is highly inelastic, they mean that
a. even if the price rose substantially, suppliers would be unwilling to offer much more of the
good.
b. a large (percentage) change in the price of a good will result in only a small (percentage)
change in the quantity demanded.
c. consumers will respond to a change in the price of the good by purchasing substantially
more of it.
d. the facilities utilized by producers of the good are inflexible; producers cannot easily
expand their facilities, even in the long run.
4) If the price elasticity of demand for football tickets is estimated to be -2.5, then a 10 percent increase in football
ticket prices would be expected to cause a
a. 0.25 percent decrease in quantity demanded.
b. 25 percent decrease in quantity demanded.
c. 0.25 percent increase in quantity demanded.
d. 25 percent increase in quantity demanded.
5) The demand for a product is likely to be more elastic
a. the smaller the share of the total budget spent on the product.
b. when more complementary products are available.
c. in the short run than in the long run.
d. when more good substitutes for the product are available.
6) Suppose the athletic department wanted to increase revenues by decreasing ticket prices to football games. This
would make sense only if the price elasticity of demand for football games was (in absolute value)
a. less than 1.
b. perfectly inelastic.
c. equal to 1.
d. greater than 1.
7) Goods that consumers regard as luxuries generally have
a. an income elasticity greater than 1.
b. an income elasticity equal to 1.
c. a negative income elasticity.
d. an income elasticity less than 1.
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3. Name: ________________________ Form A
Figure 7
8) Figure 7 depicts a demand curve with a price elasticity that is
a. unitary, implying that a percent change in price leads to an equal percent change in
quantity demanded.
b. perfectly inelastic, implying that the same amount will be purchased regardless of the price
of the good.
c. perfectly elastic, implying that consumers will purchase as much as can be supplied at the
market price.
d. relatively inelastic, implying that a percent increase in price results in a smaller percent
reduction in sales.
9) Diminishing marginal utility means that
a. as you consume more of a good, other things constant, the total satisfaction you obtain
from consuming this good tends to fall.
b. as you consume more of a good, other things constant, the extra satisfaction you obtain
from each additional unit becomes negative.
c. as you hire more labor, other things constant, the total amount produced begins to fall.
d. as you consume more of a good, other things constant, the additional satisfaction you
obtain from each additional unit of the good tends to fall.
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4. Name: ________________________ Form A
Table 8
Price of the Good Aaron Angela Austin Alyssa
$0.00 20 16 8 8
0.50 18 12 6 6
1.00 14 10 2 5
1.50 12 8 0 4
2.00 6 6 0 2
2.50 0 4 0 0
10) Refer to Table 8. When the price of the good is $2.00, the quantity demanded in this market would be
a. 24 units.
b. 42 units.
c. 31 units.
d. 14 units.
11) If Heather's tax liability increases from $10,000 to $13,500 when her income increases from $30,000 to $40,000,
her marginal tax rate is
a. 50 percent.
b. 35 percent.
c. 60 percent.
d. 33 percent.
12) Which of the following examples illustrates a progressive income tax?
a. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $125 in taxes.
b. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $50 in taxes.
c. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $100 in taxes.
d. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $80 in taxes.
13) A tax on the buyers of coffee will
a. increase the price of coffee paid by buyers, decrease the net price of coffee received by
sellers, and increase the equilibrium quantity of coffee.
b. decrease the price of coffee paid by buyers, increase the net price of coffee received by
sellers, and decrease the equilibrium quantity of coffee.
c. increase the price of coffee paid by buyers, increase the net price of coffee received by
sellers, and increase the equilibrium quantity of coffee.
d. increase the price of coffee paid by buyers, decrease the net price of coffee received by
sellers, and decrease the equilibrium quantity of coffee.
14) Which of the following generalizations about the burden of an excise tax is correct?
a. The more inelastic the supply of a product, the larger the portion of an excise tax will be
borne by buyers.
b. The more elastic the supply of a product, the smaller the portion of an excise tax will be
borne by buyers.
c. The more inelastic the demand for a product, the larger the portion of an excise tax will be
borne by buyers.
d. The burden of an excise tax on a product is independent of the elasticity of the supply and
demand for the product on which the tax is levied.
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5. Name: ________________________ Form A
15) Suppose external benefits are present in a market which results in the actual market price of $34 and market output
of 126 units. How does this outcome compare to the efficient, ideal equilibrium?
a. The efficient outcome would be less than 126 units.
b. The efficient outcome would also be 126 units.
c. The efficient outcome would be greater than 126 units.
d. The efficient price would be less than $34.
Figure 9
16) Figure 9 illustrates the market for a product that generates an external cost. S is the private market supply curve,
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while S2 is the supply curve including the external cost. Which of the following is true?
a. Relative to economic efficiency, output of the good will be too small and the price too low.
b. Relative to economic efficiency, output of the good will be too large and the price too low.
c. Relative to economic efficiency, output of the good will be too large and the price too high.
d. Relative to economic efficiency, output of the good will be too small and the price too
high.
17) Since it is costly for stockholders to monitor corporate managers, managers may be able to achieve personal perks
and pursue other policies that conflict with profit maximization. This is an example of
a. the free-rider problem.
b. externalities.
c. the lack of competition.
d. the principal-agent problem.
18) When total revenue minus total cost is greater than zero, the firm is
a. making economic losses.
b. earning economic profit but accounting losses.
c. earning the normal profit rate.
d. earning higher than normal profits.
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19) In order for the law of diminishing returns to be present, we must have
a. at least one factor of production to be fixed.
b. output decreasing as more laborers are hired.
c. the price of labor increasing as more workers are hired.
d. double the output when labor input is doubled.
20) Which of the following is an implication of the law of diminishing returns?
a. In the long run, average total cost will eventually decline as output is expanded.
b. Total output will decline as more workers are hired.
c. A doubling of all inputs will lead to more than a doubling of output.
d. In the short run, expansion of output will eventually lead to increases in marginal cost and
average total cost.
21) If fixed costs are $200,000 and variable costs are $30 per unit over the relevant range of output, when 10,000 units
are produced, the average total cost will be
a. $50.
b. $70.
c. $20.
d. $30.
22)
Units Average Fixed Cost Average Variable Cost Total Cost
of Output (dollars) (dollars) (dollars)
2 25.00 12.50 75
3 16.67 11.33 84
4 12.50 10.50 92
5 10.00 10.40 102
6 8.33 10.67 114
7 7.14 11.29 129
8 6.25 12.25 148
Average total cost is at a minimum when the output level is
a. 7.
b. 8.
c. 5.
d. 3.
23) Which of the following must be true if average variable costs are decreasing?
a. Marginal cost exceeds average variable cost.
b. Marginal cost is less than average variable cost.
c. Average fixed cost exceeds average total cost.
d. Marginal cost is less than average total cost.
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7. Name: ________________________ Form A
Figure 11
24) What is the firm's total cost in Figure 11 when it produces four units?
a. 15
b. 11
c. 60
d. 75
25) If a firm doubles all of its inputs and its output triples, it is said to be experiencing
a. diminishing marginal returns.
b. increasing returns to scale as a special case of economies of scale.
c. decreasing returns to scale as a special case of diseconomies of scale.
d. increasing marginal returns.
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