Principlesof Economics

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PROBLEM SET - 4

Multiple Choice Questions

1. Scarcity is a situation in which:
a. there are unlimited wants
b. available resources cannot satisfy all potential uses for the resources c. resources outnumber the potential uses for resources in society d. there is a surplus, since buyers cannot obtain all of the goods that they want

2. The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units is a. Positive economics.
b. Normative economics.
c. Macroeconomics
d. Microeconomics

3. Which of the following could lead to a rightward shift of the demand curve for a good? a. a decrease in the price of a substitute good
b. an increase in the price of a complementary good
c. an increase in income assuming that the good is an inferior good d. expectations that the price of the good will rise in the future

4. Suppose that the market for lima beans is in equilibrium. Then, both the supply and demand curves for lima beans shift to the left. As a result, the equilibrium price ___________ and the equilibrium quantity will ___________. a. will fall; fall

b. will fall; rise
c. cannot be determined; fall
d. cannot be determined; rise

[pic]
5. Figure 2-10 shows the production possibilities frontier for food and clothing. A movement from point J to point K could be caused by: a. the development of new and better technology
b. increasing unemployment
c. the law of increasing opportunity costs
d. eliminating productive inefficiency

[pic]
6. Assume that the publishing industry produces novels and textbooks, as shown by the production possibilities frontier in Figure 2-9. Between points F and G, the opportunity cost of one more novel equals __________. Between points G and H, the opportunity cost of one more novel equals __________. a. 0.4 textbooks; 0.5 textbooks

b. 4 textbooks; 5 textbooks
c. 4 million textbooks; 5 million textbooks
d. 2.5 textbooks; 2 textbooks

Refer to the information provided in Table 1 below to answer the questions that follow. [pic]
7. Refer to Table 1. This market will be in equilibrium if the price per pizza is a. 6b. 8c.10d. 12

8. Refer to Table 1. If the price per pizza is $6, there is an excess _________ pizzas. a. demand of 150
b. demand of 50
c. supply of 200
d. supply of 50

Refer to the information provided in Figure 1 below to answer the question that follow. [pic]
9. Refer to Figure 1. Which of the following statements is correct? a. In equilibrium, the value of producer surplus is equal to “A”. b. In equilibrium the value of consumer surplus is equal to “B”. c. The only price where there is no deadweight loss is P*. d. All of the above statements are correct.

10. A value of price elasticity of demand equal to 2 means that:  a. demand is relatively inelastic
b. quantity demanded falls by two times the amount of an increase in price. c. when price increases, quantity demanded increases by twice as much d. the percentage quantity demanded falls by two times the percentage increase in price

11. When the price of fresh fish increases 5%, quantity demanded decreases 10%. The price elasticity of demand for fresh fish is a. Perfectly inelastic
b. elastic
c. inelastic
d. unitary elastic

12. Refer to the graph below. Using the midpoint formula, if the price of a hamburger is increased from $8 to $10, the price elasticity of demand equals

[pic]

a. 0.36b. 333...
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