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MultipleChoiceQuestionsforSelfStudy (GZderVWL/IntroductiontoEconomics) ao.Prof.Dr.B.

Yurtoglu) EconomicModels
1) The purpose of making assumptions in economic model building is to (a) force the model to yield the correct answer. (b) minimize the amount of work an economist must do. (c) simplify the model while keeping important details. (d) express the relationship mathematically.

2) Economists tend to judge a model based upon (a) the reality of its assumptions. (b) the accuracy of its predictions. (c) its simplicity. (d) its complexity.

3) If a models predictions are correct, then (a) its assumptions must have been correct. (b) it is proven to be correct. (c) Both A and B above. (d) None of the above.

4) Most microeconomic models assume that decision makers wish to (a) make themselves as well off as possible. (b) act selfishly. (c) not cooperate with others. (d) None of the above.

5) Which of the following is an example of a normative statement? (a) A higher price for a good causes people to want to buy less of that good. (b) A lower price for a good causes people to want to buy more of that good. (c) To make the good available to more people, a lower price should be set.

(d) If you consume this good, you will be better off.

6) Which of the following is an example of a normative statement? (a) Since this good is bad for you, you should not consume it. (b) This good is bad for you. (c) If you consume this good, you will get sick. (d) People usually get sick after consuming this good.

Answers: 1: c, 2: b, 3: d, 4: a, 5: c, 6: a

Supply-and-Demand Model
1) According to the Law of Demand, the demand curve for a good will (a) shift leftward when the price of the good increases. (b) shift rightward when the price of the good increases. (c) slope downward. (d) slope upward. Answer: C 2) Holding all other factors constant, consumers demand more of a good the (a) higher its price. (b) lower its price. (c) steeper the downward slope of the demand curve. (d) steeper the upward slope of the demand curve. Answer: B 3) As the price of a good increases, the change in the quantity demanded can be shown by (a) shifting the demand curve leftward. (b) shifting the demand curve rightward. (c) moving down along the same demand curve. (d) moving up along the same demand curve. Answer: D 4) If the price of automobiles were to increase substantially, the demand curve for gasoline would most likely (a) shift leftward. (b) shift rightward. (c) become flatter. (d) become steeper. Answer: A

5) If the price of automobiles were to decrease substantially, the demand curve for automobiles would most likely (a) shift rightward. (b) shift leftward. (c) remain unchanged. (d) become steeper. Answer: C 6) If the price of automobiles were to decrease substantially, the demand curve for public transportation would most likely (a) shift rightward. (b) shift leftward. (c) remain unchanged. (d) remain unchanged while quantity demanded would change. Answer: B

7) An increase in the demand curve for orange juice would be illustrated as a (a) leftward shift of the demand curve. (b) rightward shift of the demand curve. (c) movement up along the demand curve. (d) movement down along the demand curve. Answer: B

8) If government regulations prohibit the production of a particular good, the demand curve for that good will most likely (a) shift leftward. (b) shift rightward. (c) remain unchanged. (d) disappear. Answer: C 9) To determine the total demand for all consumers, sum the quantity each consumer demands (a) at a given price. (b) at all prices and then sum this amount across all consumers. (c) both a and b will generate the same total demand. (d) none of the above. Answer: A 10) Suppose the demand curve for a good shifts rightward, causing the equilibrium price to increase. This increase in the price of the good results in (a) a rightward shift of the supply curve. (b) an increase in quantity supplied. (c) a leftward shift of the supply curve. (d) a leftward movement along the supply curve. Answer: B

11) Suppose there are 100 identical firms in the rag industry, and each firm is willing to supply 10 rags at any price. The market supply curve will be a(n) (a) vertical line where Q = 10. (b) vertical line where Q = 100. (c) vertical line where Q = 1000. (d) horizontal line where Q = 1000. Answer: C 12) The expression increase in quantity supplied is illustrated graphically as a (a) leftward shift in the supply curve. (b) rightward shift in the supply curve. (c) movement up along the supply curve. (d) movement down along the supply curve. Answer: C 13) Equilibrium is defined as a situation in which (a) neither buyers nor sellers want to change their behavior. (b) no government regulations exist. (c) demand curves are perfectly horizontal. (d) suppliers will supply any amount that buyers wish to buy. Answer: A 14) If price is initially above the equilibrium level, (a) the supply curve will shift rightward. (b) the supply curve will shift leftward. (c) excess supply exists. (d) all firms can sell as much as they want. Answer: C 15) A competitive equilibrium is described by (a) a price only. (b) a quantity only. (c) the excess supply minus the excess demand. (d) a price and a quantity. Answer: D

16) Figure 2.1 shows a graph of the market for pizzas in a large town. No pizzas will be supplied unless the price is above (a) $0. (b) $5. (c) $12. (d) $14. Answer: B

17) Figure 2.1 shows a graph of the market for pizzas in a large town. No pizzas will be demanded unless price is less than (a) $0. (b) $5. (c) $12. (d) $14. Answer: D

18) Figure 2.1 shows a graph of the market for pizzas in a large town. At a price of $14, there will be (a) no pizzas supplied. (b) equilibrium. (c) excess supply. (d) excess demand. Answer: C 19) Figure 2.1 shows a graph of the market for pizzas in a large town. At a price of $5, there will be (a) excess demand. (b) excess supply. (c) equilibrium. (d) zero demand. Answer: A

20) Figure 2.1 shows a graph of the market for pizzas in a large town. What are the equilibrium price and quantity? (a) p = 8, Q = 60 (b) p = 60, Q = 8 (c) p = 14, Q = 140 (d) p = 5, Q = 60 Answer: A 21) Figure 2.1 shows a graph of a market for pizzas in a large town. At a price of $7, what is the amount of excess demand? (a) 0; there is excess supply at $7. (b) 20 units (c) 30 units (d) 10 units Answer: C 22) Figure 2.1 shows a graph of a market for pizzas in a large town. At a price of $10, the market (a) is not in equilibrium. (b) has excess supply. (c) does not have excess demand. (d) All of the above. Answer: D 23) If pizza and tacos are substitutes, a decrease in the price of tacos would lead to a (a) decrease in the demand curve for pizza. (b) decrease in the quantity demanded of pizza. (c) decrease in the price of pizza. (d) All of the above. Answer: D

24) Figure 2.2 shows three different supply-and-demand graphs. Which graph best represents the market for vacations on Mars? (a) graph A (b) graph B (c) graph C (d) None of the above. Answer: A 25) Figure 2.2 shows three different supply-and-demand graphs. Which graph best represents the market for workers at your nearest fast-food restaurant? (a) graph A (b) graph B (c) graph C (d) None of the above. Answer: C 26) Figure 2.2 shows three different supply-and-demand graphs. Which graph best represents the market for the air we are currently breathing? (a) graph A (b) graph B (c) graph C (d) None of the above. Answer: B

27) Government prohibition of advertising liquor on television would most likely result in (a) a rightward shift in the demand curve for liquor. (b) a leftward shift in the demand curve for liquor. (c) a rightward shift in the demand curve for television advertising time. (d) no change in the market for either liquor or television advertising. Answer: B

28) Figure 2.3 shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for coffee after severe weather destroys a large portion of the coffee crop? (a) graph A (b) graph B (c) graph C (d) graph D Answer: C 29) Figure 2.3 shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for tea after severe weather destroys a large portion of the coffee crop? (a) graph A (b) graph B (c) graph C (d) graph D Answer: A

30) Figure 2.3 shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for non-dairy coffee creamer after severe weather destroys a large portion of the coffee crop? (a) graph A (b) graph B (c) graph C (d) graph D Answer: D

31) When two goods are substitutes, a shock that raises the price of one good causes the price of the other good to (a) remain unchanged. (b) decrease. (c) increase. (d) change in an unpredictable manner. Answer: C 32) A restriction on the number of people allowed to be medical doctors in the United States would most likely (a) increase doctors fees. (b) decrease the demand for doctors. (c) decrease the demand for nurses. (d) decrease the number of people who get sick. Answer: A

33) Figure 2.4 shows the market for crude oil. If a consumer group convinces the government to set a maximum price of $2 per barrel, then (a) 300 barrels of crude oil will be sold at $2. (b) zero barrels of crude oil will be sold. (c) zero barrels of crude oil will be demanded.

(d) None of the above. Answer: B 34) Figure 2.4 shows the market for crude oil. If the oil exploration firms convince the government to set a minimum price of $4 per barrel, then (a) 100 barrels of crude oil will be sold at $4. (b) zero barrels of crude oil will be sold. (c) zero barrels of crude oil will be demanded. (d) None of the above. Answer: A 35) Figure 2.4 shows the market for crude oil. If the government restricts output to no more than 300 barrels, then (a) 300 barrels of crude oil will be sold at $3. (b) 200 barrels of crude oil will be sold at $3. (c) zero barrels of crude oil will be sold. (d) None of the above. Answer: B 36) If a government-imposed price ceiling causes the observed price in a market to be below the equilibrium price, (a) there will be excess demand. (b) there will be excess supply. (c) the curves will shift to make a new equilibrium at the regulated price. (d) None of the above. Answer: A 37) In the labor market, if the government imposes a minimum wage that is below the equilibrium wage, then (a) workers who wish to work at the minimum wage will have a difficult time finding jobs. (b) firms will hire fewer workers than without the minimum wage law. (c) some workers may lose their jobs as a result. (d) nothing will happen to the wage rate or employment. Answer: D 38) It is appropriate to use the supply and demand model if, in a market, (a) everyone is a price taker with full information about the price and quality of the good. (b) firms sell identical products. (c) costs of trading are low. (d) All of the above. Answer: D 39) Consumers and firms are known as price takers only if (a) no market exists to determine the equilibrium price. (b) they can set the market price. (c) they cannot affect the market price. (d) excess demand exists. Answer: C

Applying the Supply-and-Demand Model


1) The change in price that results from a leftward shift of the supply curve will be greater if (a) the demand curve is relatively steep than if the demand curve is relatively flat. (b) the demand curve is relatively flat than if the demand curve is relatively steep. (c) the demand curve is horizontal than if the demand curve is vertical. (d) the demand curve is horizontal than if the demand curve is downward sloping. Answer: A 2) The change in price that results from a rightward shift in demand will be greater if (a) the supply curve is horizontal than if the supply curve is upward sloping. (b) the supply curve is relatively steep than if the supply curve is relatively flat. (c) the supply curve is upward sloping than if the supply curve is vertical. (d) the supply curve is horizontal than if the supply curve is vertical. Answer: B 3) If the demand curve for a good is horizontal and the price is positive, then a leftward shift of the supply curve results in (a) a price of zero. (b) an increase in price. (c) a decrease in price. (d) no change in price. Answer: D 4) A vertical demand curve results in (a) no change in quantity when the supply curve shifts. (b) no change in price when the supply curve shifts. (c) no change in the supply curve being possible. (d) no change in quantity when the demand curve shifts. Answer: A 5) A vertical demand curve for a particular good implies that consumers are (a) sensitive to changes in the price of that good. (b) not sensitive to changes in the price of that good. (c) irrational. (d) not interested in that good. Answer: B 6) The percentage change in the quantity demanded in response to a percentage change in the price is known as the (a) slope of the demand curve. (b) excess demand. (c) price elasticity of demand. (d) all of the above. Answer: C

7) If the price elasticity of demand for a good is less than one in absolute terms, we say consumers of this good (a) are not very sensitive to price. (b) are not very sensitive to the quantity they demand. (c) are very sensitive to price. (d) are elastic. Answer: A 8) If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the price elasticity of demand for orange juice is (a) 1.25. (b) inelastic. (c) Both A and B above. (d) Neither A nor B above. Answer: B 9) A horizontal demand curve for a good could arise because consumers (a) are irrational. (b) are not sensitive to price changes. (c) view this good as identical to another good. (d) have no equivalent substitutes for this good. Answer: C 10) If a consumer doubles her quantity of ice cream consumed when her income rises by 25%, then her income elasticity of demand for ice cream is (a) 8.0. (b) 4.0. (c) .25. (d) .08. Answer: B 11) For a given positively sloped supply curve, the price increase to consumers resulting from a specific tax imposed on sellers will be (a) greater the more price elastic demand is. (b) greater the less price elastic demand is. (c) equal to the entire tax when demand is perfectly elastic. (d) equal to half of the tax whenever demand is unit elastic. Answer: B 12) A specific tax on sellers will (a) shift the demand curve to the right. (b) shift the demand curve to the left. (c) shift the supply curve to the right. (d) shift the supply curve to the left. Answer: D