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# Economics Multiple Choice Questions

I.  Master demand, supply, and market equilibrium with evaluation of demand elasticities and its application to the pricing policy.

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1. Campbell’s sells used trailers, U, and new trailers, N. Its profits are given by

p = 100N + 68U – 5N2 – 5U2 – 2NU. The profit maximizing combination of trailers for Campbell’s is

A.  N = 9 and U = 5.

B.  N = 7 and U = 7.

C.  N = 5 and U = 9.

D.  N = 13 and U = 0.

E.  N = 9 and U = 9.

2. The demand and supply functions for good X are as follows:

QDx = 270 – 15 Px

Qsx = -50 + 25 Px,

whereQsxis the quantity supplied of good X, QDx is the quantity demanded of good X, and Px is the price of good X. The equilibrium quantity and price of good X are

A. 160; 8.

B. 175; 7.

C. 150; 8.

D. 150; 7.

E. none of the above.

3. The demand for a product is more elastic the

A.  more broadly defined the product.

B.  higher the price of the product is.

C.  less substitutes available for that product.

D. smaller the share of a consumer’s income the item represents.

E.  none of the above.

4. The demand for fashion watches is Q = 9 – 0.7P + 2I. Assume that per capita income I is \$13. When the price of fashion watches is P = \$30, the price elasticity of demand is

A.  -0.66.

B.  -1.0.

C.  -2.0.

D.  -0.5.

E.  -1.5.

5. Along a linear demand curve, total revenue is maximized

A.  where the slope of a line from the origin to the demand curve is equal to the elasticity.

B.  where the elasticity is -1.

C.  near the quantity axis intercept.

D.  near the price axis intercept.

E.  where the elasticity is 0.

II. Analyze the theories of consumer behavior:

6.Nancy has \$100 to spend on books and compact disks. Books cost \$10 and compact disks cost \$20. The slope of Nancy’s budget constraint (where the quantity of books is on the horizontal axis) is

A.  -0.5.

B.  -2.

C.  -5.

D.  -10.

E.  None of the above

7. Tom spends all his monthly income on pretzels and potato chips. Currently, he is maximizing his utility; the marginal utility of pretzels is 150 and the marginal utility of potato chips is 125. If pretzels cost \$6 per box, how much do potato chips cost?

A.  \$2

B.  \$3

C.  \$4

D.  \$5

E.  \$6

8. Jane spends \$210 per month on wine and beer. Her utility function is given by

TU = 100WB, where W represents the number of bottles of wine that she buys and B represents the number of cases of beer that she buys. If wine costs \$10 per bottle and beer costs \$15 per case, she will maximize utility by buying

A.  10.5 bottles of wine and 7 cases of beer.

B.  2 bottles of wine and 3 cases of beer.

C.  equal amounts of wine and beer.

D.  10 bottles of wine and 13.33 cases of beer.

E.  none of the above.

III. Analyze the production process and the cost of production:

9. Camel Records produces records according to Q = 4L – 0.15L2. If labor costs \$5 and records sell for \$2, the optimal quantity of labor is

A.  0.

B.  2.

C.  10.

D.  5.

E.  17.

10. Economies of scale are said to exist whenever

A. the learning curve is upward sloping.

B. increases in output bring about higher output.

C. increases in output bring about higher input prices.

D. the elasticity of total cost with respect to output is greater than one.

E. the long-run average cost curve is downward sloping.

11. If output is produced according to Q = 5Lk (L is the quantity of labor and k is the quantity of capital), the price of K is \$12, and the price of L is \$6, then the cost minimizing combination of K and L capable of producing 4,000 units of output is

A.  L = 25 and k = 32.

B.  L = 30 and k = 26.67.

C.  L = 10 and k = 80.

D.  L = 20 and k = 40.

E.  L = 40 and k = 20.

12. Hilltop Corporation has the following total function TC= Q2 + 120 Q + 400. The level of output where average cost is minimized for Hilltop Corp. is

A. 40.

B. 20.

C. 30.

D. 10.

E. 15.

13. Brandy’s Restaurant estimates that its total cost of providing Q meals per month is given by TC = 6,000 +2Q. If Brandy charges \$4 per meal, what is its break-even level of output?

A. 1,000 meals

B. 1,500 meals

C. 2,000 meals

D. 2,500 meals

E. 3,000 meals

IV. Analyze the behavior of a profit-maximizing firm in different market structures:

14. A representative firm with short-run total cost given by TC = 50 + 2q + 2q2 operates in a competitive industry where the short-run market demand and supply curves are given by          QD = 1,410 – 40P and QS = -390 + 20P. Its short-run profit maximizing level of output is

A.  0 units.

B.  1 unit.

C.  2 units.

D.  5 units.

E.  7 units.

15. Henry’s Hosiery has exclusive rights to sell Yves Chevrier lingerie in the United States. The demand for Yves underwear faced by Henry is given by Q = 250 – 0.5P. Henry’s costs are given by TC = 50Q + 5.5Q2. Its maximum monopoly profits are

A.  \$6,750.

B.  \$7,050.

C.  \$7,500.

D.  \$7,750.

E.  \$8,750.

16. If a cartel is working properly, its firms will likely be producing where (MCi is each firm i’s marginal cost, MR is market marginal revenue, and P is price)

A.  MCi = MR.

B.  MCi> MR.

C.  MCi< MR.

D.  P = MR.

E.  P < MR.

17. In 2011, the box industry was perfectly competitive. The lowest point on the long-run average cost curve of each of the identical box producers is \$4, and this minimum point occurs at an output of 1,000 boxes per month. The market demand curve for boxes is

Q= 140,000 – 10,000 P,

where P is the price of a box (in dollars per box), and Qis the quantity of boxes demanded per month. The market supply curve for boxes is

QS = 80,000 + 5,000 P,

where QS is the quantity of boxes supplied per month. The equilibrium quantity of boxes in the market is  …and the number of firms in this industry when it is in long-run equilibrium is …..

A.  100,000 units and 1,000 firms.

B.  200,000 units and 200 firms.

C.  100,000 units and 100 firms.

D.  200,000 units and 100 firms.

E.  none of the above.

V. Evaluate and compare different pricing techniques:

18. If elasticity of demand is -2, marginal cost is 4, and average cost is 6, a profit maximizing markup price is

A.  4.

B.  6.

C.  8.

D.  10.

E.  12.

19. A chemical company can produce Q units of a chemical H, with marginal costs of MC = 9 + Q, and can distribute the chemical at marketing marginal costs of MC = 1. The demand for H is given by P = 30 – 1.5Q. If an external market exists where H can be bought or sold without marketing expenses for \$13, how much H should the firm produce?

A.  0 units

B.  4 units

C.  5 units

D.  7 units

E.  10 units

20. Gliberace’s Fashion Accessories of Las Vegas produces gem-stone encrusted formal wear for sale in Los Angeles and San Francisco subject to total cost

TC = 100 + 5(QLA + QSF). Demand for Gliberace’s stones in the two cities is given by QLA = 70 – 2PLA and QSF = 55 – PSF. If Gliberace price discriminates between the two cities, what will its maximum profits be?

A.  \$750

B.  \$825

C.  \$1,075

D.  \$975

E.  \$1,175

21. A firm has a division which produces chemical Y, whose average total costs are

ATC = 50 + 2Q (where Q is the quantity of Y), and a marketing division which adds its own average total costs of ATC = 20 + 3Q. There is no external market price of Y. The transfer price of Y should be

A.  \$50.

B.  \$4Q.

C.  \$50 + 4Q.

D.  \$2Q.

E.  \$5Q.

VI. Analyze the effect of government intervention in business:

22. The antitrust law that made “every contract, combination . . . or conspiracy, in restraint of trade” illegal was the

A.  Sherman Act.

B.  Clayton Act.

D.  Robinson-Patman Act.

E.  Celler-Kefauver Act.

23. If there are two large firms, each with one-quarter of the market, and ten firms, each with one-twentieth of the market, in an industry, the market concentration ratio will be

A.  40.

B.  50.

C.  60.

D.  10.

E.  12.

24. For economists, the word “utility” means:

 A. versatility and flexibility.

 B. rationality.

 C. pleasure or satisfaction.

 D. purposefulness.

25. In economics, the pleasure, happiness, or satisfaction received from a product is called:

 A. marginal cost.

 B. rational outcome.

 C. status fulfillment.

 D. utility.

26. When economists say that people act rationally in their self-interest, they mean that individuals:

 A. look for and pursue opportunities to increase their utility.

 B. generally disregard the interests of others.

 C. are mainly creatures of habit.

 D. are usually impulsive and unpredictable.

27. According to Emerson: “Want is a growing giant whom the coat of Have was never large enough to cover.” According to economists, “Want” exceeds “Have” because:

 A. people are greedy.

 B. productive resources are limited.

 C. human beings are inherently insecure.

 D. people are irrational.

28. According to economists, economic self-interest:

 A. is a reality that underlies economic behavior.

 B. has the same meaning as selfishness.

 C. means that people never make wrong decisions.

 D. is usually self-defeating.

29. Joe sold gold coins for \$1,000 that he bought a year ago for \$1,000. He says, “At least I didn’t lose any money on my financial investment.” His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the \$1,000 if he had bought a bank certificate of deposit instead of the coins. The economist’s analysis in this case incorporates the idea of:

 A. opportunity costs.

 B. marginal benefits that exceed marginal costs.

 C. imperfect information.

 D. normative economics.

30. A person should consume more of something when its marginal:

 A. benefit exceeds its marginal cost.

 B. cost exceeds its marginal benefit.

 C. cost equals its marginal benefit.

 D. benefit is still better.

31.

Refer to the budget line shown in the diagram. If the consumer’s money income is \$20, which of the following combinations of goods is unattainable?

 A. 4 units of C and 6 units of D.

 B. 5 units of C and no units of D.

 C. 1 unit of C and 8 units of D.

 D. 2 units of C and 6 units of D.

32.

Examples of command economies are:

 A. the United States and Japan.

 B. Sweden and Norway.

 C. Mexico and Brazil.

 D. Cuba and North Korea.

33.

Economic systems differ according to which two main characteristics?

 A. Who owns the factors of production and the methods used to coordinate economic activity.

 B. The technology used in production and the quantity and quality of natural resources.

 C. How goods are produced and who gets them.

 D. The political system in place and the degree of scarcity facing the economy.

34.

Property rights are important because they:

 A. ensure an equal distribution of income.

 B. encourage cooperation by improving the chances of mutually agreeable transactions.

 C. guarantee that any exchange will make all parties better off than prior to the exchange.

 D. allow the government to control how resources are allocated.

35.

 A. capital goods.

 B. human capital.

 C. property rights.

 D. public goods.

36

On the basis of the information, it can be said that:

 A. no coincidence of wants exists between any two states.

 B. a coincidence of wants exists between Michigan and Washington.

 C. a coincidence of wants exists between Texas and Washington.

 D. a coincidence of wants exists between Michigan and Texas.

37

The use of money contributes to economic efficiency because:

 A. governmental direction of the production and distribution of output can be avoided by using money.

 B. roundabout production could not occur without the availability of money.

 C. it is necessary for the creation of capital goods.

 D. it promotes specialization by overcoming the problems with barter.

38

If consumer desire for product X increases, all of the following will occur except:

 A. an increase in the profits of industry X.

 B. an increase in the quantity of resources employed by industry X.

 C. an increase in the output of industry X.

 D. a decrease in the quantity of resources employed in industry X.

39

Answer the question using the following data, which show all available techniques for producing 20 units of a particular commodity:

Refer to the data. In view of the indicated resource prices, the economically most efficient production technique(s) is (are) technique(s):

 A. #1.

 B. #2 and #4.

 C. #3.

 D. #1 and #3.

40

Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to:

 A. reduce the demand for tacos and increase the demand for soda.

 B. reduce the demand for soda and increase the demand for tacos.

 C. increase the demand for both soda and tacos.

 D. reduce the demand for both soda and tacos.

41

Refer to the diagram. A decrease in demand is depicted by a:

 A. move from point x to point y.

 B. shift from D1 to D2.

 C. shift from D2 to D1.

 D. move from point y to point x.

42

When an economist says that the demand for a product has increased, this means that:

 A. consumers are now willing to purchase more of this product at each possible price.

 B. the product has become particularly scarce for some reason.

 C. product price has fallen and, as a consequence, consumers are buying a larger quantity of the product.

 D. the demand curve has shifted to the left.

43

“In the corn market, demand often exceeds supply and supply sometimes exceeds demand.” “The price of corn rises and falls in response to changes in supply and demand.” In which of these two statements are the terms demand and supply being used correctly?

 A. In neither statement.

 B. In the second statement.

 C. In the first statement.

 D. In both statements.

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