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Izmir University of Economics

Department of Economics
Econ 101 - Principles of Microeconomics

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

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Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics

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

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

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Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics

Refer to the information provided in Table 1 below to answer the questions that
follow.

7. Refer to Table 1. This market will be in equilibrium if the price per pizza is
a. 6 b. 8 c.10 d. 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.

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.

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Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics

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

a. 0.36 b. 333 c. -2.5 d. -3

13. Price and total revenue are inversely related when demand is
a. Elastic
b. Inelastic
c. Unitary elastic
d. Perfectly inelastic

4
Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics

14. The determinants of elasticity include


a. availability of substitutes.
b. price relative to income.
c. time.
d. all of the above

15. When income increases from $20,000 to $30,000 the quantity of inter-city bus trips
taken per year decreases from 10 to 8. Hence
a. inter-city bus trips are a normal good.
b. the income elasticity of demand for inter-city bus trips is -1.8.
c. the income elasticity of demand for inter-city bus trips is 0.56.
d. the income elasticity of demand for inter-city bus trips is -0.4.

16. Cross-price elasticity of demand measures the response in the


a. price of a good to a change in the quantity of another good demanded.
b. income of consumers to the change in the price of goods.
c. quantity of one good demanded when the quantity demanded of another good
changes.
d. quantity of one good demanded to a change in the price of another good.

Essay Questions
1. Answer following questions referring to the table below.

Output per hour


Country/Product Apple Orange
A 5 15
B 12 6

a. Determine which country has absolute advantage for each product.

b. Determine which country has comparative advantage for each product.

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Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics

2. The graph below illustrates the market for shoes.

a. What is the equilibrium price and quantity?


b. Is there excess demand or excess supply when price is 2? How much? Does
price tend to increase or decrease?
c. Is there excess demand or excess supply when price is 0.5? How much? Does
price tend to increase or decrease?

3. Fill in the blanks in the table below. Use the midpoint formula to compute elasticity
values.