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3. The figure to below shows the market for T-shirts in a Hamilton neighbourhood. The economic
surplus generated by consuming and producing the 40th T -shirt is
4. The figure below shows the market for one-bedroom apartments in Quebec City. The city
government sets a rent ceiling at $570. In this situation, if all apartments were sold on the black
market, then the rent for a one-bedroom apartment is
7. A binding price floor leads to excess supply. Which of the following is a method by which
government might deal with this excess supply?
A. The government pays firms to not produce beyond the quantity demanded.
B. The government buys the unsold output and stores it.
C. The government buys the unsold output and distributes it to low-income persons.
D. All of the above have been employed by governments from time to time.
8. A government might choose to implement a price floor to
A. keep specific prices up.
B. satisfy notions of equity.
C. kowtow to powerful political groups.
D. All of the above have served as motivations.
9. The market for public is most likely linked to which of the following?
A. Mass transit in Toronto.
B. Fuel prices along the Trans-Canada Highway system.
C. Population growth in Manitoba.
D. The market for foreign cars.
E. Parking costs in downtown Winnipeg.
10. What are the consequence of a binding minimum wage floor?
11. If the price mechanism is allowed to work freely, excess supply is eliminated by
A. price decreases.
B. price controls.
C. government purchases.
D. price increases.
E. black markets.
12. Consider the market for straw hats on a tropical island. The demand and supply schedules are
given below.
a. What is the equilibrium price for straw hats. What is the equilibrium quantity demanded and
quantity supplied of hats?
b. Suppose the government believes that no islander should have to pay more than $4 for a hat.
The government can achieve this by imposing a _________________
c. At the government-controlled price of $4 there will be a shortage of how many hats?
d. Suppose now that the government believes the island's hat makers are not paid enough for
their hats and that islanders should pay no less than $6 for a hat. They can achieve this by
imposing what price?
e. At the new government-controlled price of $6 there will be a ____________ of
________________ hats
13. Consider the market for gyros in a hypothetical Canadian city, blessed with thousands of
students and dozens of small gyro stands. The demand and supply schedules appear in the table
below.
a. Draw the demand and supply lines in the graph at the right. Label the lines properly.
b. What is the free-market equilibrium in this market?
c. What is the total economic surplus in this market in the free-market-equilibrium?
14. When a black market emerges there is
A. a deadweight loss.
B. a deadweight gain for producers.
C. a deadweight gain for consumers.
D. an economic deficit.
E. a maximized economic surplus.
15. Which one of the following is likely to be an outcome of a rent ceiling imposed above the market
rental rate?
A. Rental prices equal to the unregulated market price.
B. A growing surplus of rental units.
C. More families sharing living quarters.
D. A reduction in the construction of new rental housing.
E. Black market prices for rental units above the market equilibrium price.
16. The long-run supply curve for rental housing can be thought of as
A. perfectly inelastic.
B. perfectly elastic.
C. horizontal.
D. neither perfectly elastic nor perfectly inelastic.
E. having a zero slope.
Chapter 6
17. Jeff is willing to pay $8.90 for his fifth pizza slice (market price is $6.30) and the lowest price
the store is willing to accept is $4.40. What is the economic surplus on the fifth pizza slice?
18. If marginal utility is negative, total utility is _____________________
19. Consider the figure below. When the market price is $ 25 and 25 units are purchased, then what
is the consumer surplus?
20. Rupert really loves pizza, but he eventually tires of it. The table on the right shows the highest
price that Rupert is willing to pay for each successive pizza per week.
a. Suppose Rupert were to eat one pizza per week. What is the total value Rupert would place on
his one weekly pizza?
b. If the market price is $13 per pizza, how many pizzas per week will Rupert eat?
How much will the weekly consumer be?
21. Consider the market for sweaters in a Hamilton neighbourhood shown in the figure below. What
is the consumer surplus generated by consuming the 29th sweater?
22. Consider Tom's total utility from drinking cups of coffee shown in the figure below. What is the
marginal utility of the third cup?
23. Sally consumes only two goods, shoes and "everything else." For five different shopping trips
(each with different prices), the prices and Sally's marginal utilities are shown below.
a. Is Sally maximizing her total utility on each shopping trip? Explain why or why not.
A. No, because the price is not equal to the marginal utility for each trip.
B. No, because the marginal utility of shoes is sometimes greater than everything else.
C. Yes, because the price exceeds the marginal utility for each trip.
D. Yes, because utility obtained from the last dollar spent on each product is equal.
b. Explain how the number of shoes consumed is changing as their price changes.
As the price of shoes decreases the number of shoes Sally consumes can be expected to
A. decrease since lower prices will justify buying more as the marginal utility rises.
B. increase since lower prices will justify buying more as the marginal utility falls.
C. increase since lower prices will justify buying more as the marginal utility rises.
D. decrease since lower prices will justify buying more as the marginal utility falls.
c. Relying on the data shown in the table above, Sally's demand curve for shoes can be expected
to be negatively sloped because when the price falls, Sally will purchase more shoes as her
marginal utility of
A. shoes falls.
B. shoes rises.
C. everything else falls.
D. shoes is constant.
24. The table below shows how Brett's utility increases as the number of avocados he consumes (per
month) increases. Brett's utility is measured in utils, a name that economists invented to describe
units of utility. What is Brett's marginal utility from consuming the seventh avocado?
25. The consumer surplus that Steve places on his consumption of hotdogs is measured by the area
between the demand curve and the
A. quantity axis.
B. horizontal line at the market price.
C. vertical line at the quantity demanded.
D. supply curve.
E. price axis.
26. Why newspaper publishers are prepared to use vending machines that allow customers to pay for
one newspaper and remove several, whereas candy and soft-drink producers use vending
machines that allow customers to remove only the single product that is purchased?
A. The marginal cost of producing an extra unit of newspaper is very close to zero, so that
publishers don't take into account losses of several units of newspaper.
B. Unlike candies and soft drinks, the marginal value of an extra unit of newspaper is very close
to zero, hence most people will take only one newspaper.
C. The government program against obesity forbids selling several units of candy or soft drink at
a time.
D. People who buy newspapers are considered to be more honest than people who like candies
and soft drinks.
27. In what situation do the substitution effect and the income effect work to produce a downwardsloping demand curve?
A. a Giffen good.
B. a marginal good.
C. an inferior good with a large income effect.
D. an inferior good with a small income effect.
28. At a used appliance store, Kathy purchases a used stove for $130 when she was willing to pay
$160. If the stove costs $400 new, what is Kathy's consumer surplus?
29. If an individual is prepared to pay $3 for the first unit of a commodity, $2 for the second, $1 for
the third, and the market price is $1, then
A. the individual will purchase two units of the commodity.
B. consumer surplus is $4.
C. consumer surplus is $3.
D. consumer surplus is $2.
E. consumer surplus is $5.
30. Identify whether Claudia's expenditure on each product should rise or fall in order to maximize
utility. Assume that Claudia's consumption choices are using up her entire budget.
31. Steve consumes oranges and peanut butter sandwiches and is currently maximizing his utility.
The marginal utility of the last orange is 4 and the marginal utility of the last peanut butter
sandwich is 12. If the price of an orange is $0.50, then what is the price of a peanut butter
sandwich?
32. Refer to the figure below. What is the consumer surplus when this market is in equilibrium?
33. Suppose that a utility-maximizing consumer is usually purchasing two complements, ketchup (a
normal good) and french fries. Suppose that the price of ketchup decreases and as a result the
quantity purchased of french fries decreases, ceteris paribus. We can thus say that french fries
are
(Note that the money income of this consumer stays constant.)
A. normal goods.
B. inferior goods.
C. necessities.
D. luxuries.
Chapter 7
34. The average total cost curve and the average variable cost curve get
A. farther and farther apart as output increases, because the average variable cost is rising.
B. closer and closer as output increases, because the average fixed cost is declining.
C. closer and closer as output increases, because the marginal cost is rising.
D. closer and closer as output increases, because the average variable cost is rising.
E. farther and farther apart as output increases, because the marginal cost is rising.
35. Economists assume that the goal of a firm is to
A. sell as many units as possible.
B. maximize profits.
C. be the largest firm in its industry.
D. max1m1ze gross revenues.
36. If the marginal product is at a maximum, the
A. average variable cost is at a maximum.
B. average fixed cost is at a maximum.
C. total fixed cost is at a maximum.
D. average total cost is at a minimum.
E. marginal cost is at a minimum.
37. More productive resources will tend to flow toward the production of textbooks if
A. economic profits for publishers exceed zero.
B. economic profits for publishers are zero.
C. accounting profits for publishers exceed zero but economic profits are zero.
D. accounting profits for publishers are zero.
E. economic profits for publishers are less than zero.
38. Fixed factors are inputs
A. that the firm cannot change during the short run.
B. that cannot be transported from one place to another.
C. that the firm can change during the short run.
D. whose price remains constant.
39. Bob produces cakes. The quantity of cakes per month at which the variable cost per cake reaches
its minimum is
A. the same as the quantity of cakes at which the total cost per cake is at a minimum.
B. more than the quantity of cakes at which the total cost per cake is at a minimum.
C. the same as the quantity of cakes at which the average fixed cost per cake is at a maximum.
D. the same as the quantity of cakes at which the average fixed cost per cake is at a minimum.
E. less than the quantity of cakes at which the total cost per cake is at a minimum.
40. The output level at which diminishing marginal returns begins occurs where
A. the total product is at a maximum.
B. marginal product is at its maximum.
we can conclude that the firm will minimize the average total cost of production when Q =
__________. (Round your response to the nearest whole number.)
42. If average variable cost is equal to marginal cost,
A. average total cost is at a maximum.
B. total fixed costs are at a maximum.
C. average total cost is decreasing.
D. marginal cost is at a maximum.
E. total costs are at a maximum.
43. Mary is a general partner in a limited partnership. She is
A. responsible for none of the firm's debts if the firm has gone "public".
B. responsible for all of the firm's debt.
C. responsible for the firm's debt, but only up to four times the amount she invested in the firm.
D. responsible for the firm's debt, but only up to the amount she invested in the firm.
E. responsible for none of the firm's debt.
44. Which of the following is not an advantage of sole proprietorships?
A. Has one owner-manager and thus there is no issue of coordinating managerial effort.
B. Easy to form.
C. Unlimited liability.
D. Easy to dissolve.
45. If the marginal product is equal to the average product, the
A. marginal cost is decreasing.
B. average variable cost is at a minimum.
C. average total cost is decreasing.
D. average fixed cost is at a minimum.
E. average total cost is equal to the average fixed cost.
46. If average total cost is equal to marginal cost,
A. average total cost is at a minimum.
49. The variable cost per unit reaches a minimum at the output quantity that is
A. less than the output quantity where the total cost per unit is at a minimum.
B. more than the output quantity where the total cost per unit is at a minimum.
C. the same as the output quantity where the marginal cost per unit is at a minimum.
D. the same as the output quantity where the total cost per unit is at a minimum.
50. A firm can obtain funds for investing by
A. retaining earnings.
B. selling stocks.
C. selling bonds.
D. All of the above.
E. None of the Above
51. Given the information about short-run costs in the table below.
What is the marginal cost when the production changes from 4 to 5 units?
What is the average variable cost of producing 6 units?
What is the average cost of producing 7 units?
52. If the average variable cost is increasing in the short run, then
A. average total cost is decreasing.
B. marginal cost is decreasing.
C. total cost is decreasing.
D. total cost is at a maximum.
E. marginal cost is more than the average variable cost.
53. In the graph below, the average variable cost is curve ____________. The average total cost is
curve ______________. The marginal cost is curve ____________________.
54. The long run is defined as the time period over which
A. all the firm's factors of production are identified.
A. A is the total variable cost, B is the marginal cost, and C is the total cost.
B. A is the total fixed cost, B is the marginal cost, and C is the total cost.
C. A is the average variable cost, B is the average total cost, and C is the marginal cost.
D. A is the average variable cost, B is the total fixed cost, and C is the average total cost.
E. A is the total cost, B is the total variable cost, and C is the total fixed cost.
58. Consider the revenues and costs in 2013 for Spruce Decor Inc., an Alberta-based furniture
company owned by Mr. Harold Buford.
Chapter 8
59. For the firm whose cost curves shown below, the minimum efficient scale is
62. a. In the diagram below, of the three output levels that are highlighted, which one illustrates
economies of scale in the long run but diminishing marginal product for the variable factor in the
short run is units.
b. In the diagram to the right, of the three output levels that are highlighted, which one illustrates
diseconomies of scale in the long run but falling average total costs in the short run is ______
units.
2.
63. A firm seeking to maximize profits must also minimize costs since
A. firms that maximize profits have the power to hold costs to a minimum.
B. profits and costs are related in reciprocal fashion.
C. the failure to do so obviously negates the possibility of maximum profit.
D. cost minimization guarantees maximum profit.
E. None of the above
64. For the firm whose cost curves are shown below, the minimum efficient scale is