# Multiple Choice

Multiple Choice

Identify the choice that best completes the statement or answers the question.If the question requires calculation you need to show your work.

____ 1. Suppose the price elasticity of supply for how-to books is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for how-to books causes the price of how-to books to increase by 36%, then the quantity supplied of how-to books will increase by
a. 0.8% in the short run and 3.3% in the long run.
b. 1.2% in the short run and 0.3% in the long run.
c. 10.8% in the short run and 43.2% in the long run.
d. 120% in the short run and 30% in the long run.
____ 2. If the government removes a tax on sellers of a good and imposes the same tax on buyers of the good, then the price paid by buyers will
a. increase and the price received by sellers will increase.
b. increase and the price received by sellers will decrease.
c. increase and the price received by sellers will not change.
d. not change and the price received by sellers will not change.
____ 3. Which of the following statements is correct?
a. Assuming that explicit costs are positive, economic profit is greater than accounting profit.
b. Assuming that explicit costs are positive, accounting profit is greater than economic profit.
c. Assuming that explicit costs are positive, accounting profit is equal to economic profit.
d. Assuming that implicit costs are positive, economic profit is positive.
Table 7-1
The only four consumers in a market have the following willingness to pay for a good:
BUYER WILLINGNESS TO PAY
Carlos \$15
Quilana \$25
Wilbur \$35
Ming-la \$45
____ 4. Refer to Table 7-1. If the buyers bid against each other for the right to purchase the good, then the consumer surplus will be
a. \$0 or slightly more.
b. \$10 or slightly less.
c. \$30 or slightly more.
d. \$45 or slightly less.
Table 13-2
The Flying Elvis Copter Rides
Quantity Total Cost Fixed Cost Variable Cost Marginal Cost Average Fixed Cost Average Variable Cost Average Total Cost
0 \$50 \$50 \$0 — – — –
1 \$150 A B C D E F
2 G H I \$120 J K L
3 M N O P Q \$120 R
____ 5. Refer to Table 13-2. What is the value of O?
a. \$40
b. \$140
c. \$360
d. \$410
____ 6. Refer to Table 13-2. What is the value of G?
a. \$30
b. \$120
c. \$220
d. \$270
____ 7. Which of the following will cause an increase in consumer surplus?
a. an increase in the production cost of the good
b. a technological improvement in the production of the good
c. a decrease in the number of sellers of the good
d. the imposition of a binding price floor in the market
____ 8. Alyson is a self-employed pet sitter. She can make 20 “housecalls” per day. She is considering hiring her sister Sarah to work for her. Both she and Sarah can visit 35 houses per day. What is Sarah’s marginal product?
a. 55
b. 35
c. 22.5
d. 15
____ 9. Bev is opening her own court-reporting business. She spent \$5,000 to purchase her steno machine, \$2,000 on a new computer, and \$500 on miscellaneous office supplies. She financed these purchases by withdrawing \$7,500 from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned 4% interest next year. If Bev hadn’t opened her own business, she would have earned a salary of \$25,000. In her first year, Bev’s revenues were \$30,000. Which of the following statements is correct?
a. Bev’s explicit costs are \$7,800.
b. Bev’s implicit costs are \$7,500.
c. Bev’s accounting profits exceed her economic profits by \$300.
d. Bev’s implicit costs are \$25,300.

____ 10. Which of the following is correct?
a. Consumer surplus refers to a situation in which there are more buyers than sellers in a market.
b. Producer surplus refers to a situation in which there are more sellers than buyers in a market.
c. Total surplus is measured as the area below the demand curve and above the supply curve.
d. All of the above are correct.
____ 11. If the government removes a binding price ceiling from a market, then the price paid by buyers will
a. increase and the quantity sold in the market will increase.
b. increase and the quantity sold in the market will decrease.
c. decrease and the quantity sold in the market will increase.
d. decrease and the quantity sold in the market will decrease.
____ 12. Which of the following will cause a decrease in producer surplus?
a. the imposition of a binding price ceiling in the market
b. an increase in the number of buyers of the good
c. income increases and buyers consider the good to be normal
d. the price of a complement decreases
____ 13. Suppose the government has imposed a price ceiling on cellular phones. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?
a. Cellular phones become more popular.
b. Traditional land line phones become more expensive.
c. The components used to produce cellular phones become more expensive.
d. A technological advance makes cellular phone production less expensive.
____ 14. If the government wants to reduce smoking, it should impose a tax on
a. buyers of cigarettes.
b. sellers of cigarettes.
c. either buyers or sellers of cigarettes.
d. whichever side of the market is more elastic.
____ 15. Which of the following could be the cross-price elasticity of demand for two goods that are complements?
a. -1.3
b. 0
c. 0.2
d. 1.4
____ 16. When a firm experiences constant returns to scale,
a. long-run average total cost is unchanged, even when output increases.
b. long-run marginal cost is greater than long-run average total cost.
c. long-run marginal cost is less than long-run average total cost.
d. the firm is likely to experience coordination problems.

____ 17. Analyzing the behavior of the firm enhances our understanding of
a. what decisions lie behind the market supply curve.
b. how consumers allocate their income to purchase scarce resources.
c. how financial institutions set interest rates.
d. whether resources are allocated fairly.
Table 5-1
P TR
\$10 \$100
\$12 \$108
\$14 \$112
\$16 \$112
____ 18. Refer to Table 5-1. Demand is unit elastic when quantity demanded changes from
a. 10 to 9.
b. 9 to 8.
c. 8 to 7.
d. There is not enough information given to determine the correct answer.
____ 19. The quantity sold in a market will increase if the government
a. decreases a binding price floor in that market.
b. decreases a binding price ceiling in that market.
c. increases a tax on the good sold in that market.
d. More than one of the above is correct.
____ 20. Total surplus in a market will increase when
a. the government imposes a tax on that market.
b. the government imposes a binding price floor on that market.
c. the government removes a binding price ceiling from that market.
d. More than one of the above is correct.
____ 21. Which of the following causes the price paid by buyers to be different than the price received by sellers?
a. a binding price floor
b. a binding price ceiling
c. a tax on the good
d. More than one of the above is correct.
____ 22. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from \$2 to \$6. According to the midpoint method, the government policy should have reduced smoking by
a. 30%.
b. 40%.
c. 80%.
d. 250%.

23.. If the income elasticity for lobster is 0.4, a 40% increase in income will lead to a:
a. 10% drop in demand for lobster
b. 16% increase in demand for lobster
c. 20% increase in demand for lobster
d. 4% increase in demand for lobster1
24. Comparing marginal revenue to marginal cost
(i) reveals the contribution of the last unit of production to total profit.
(ii) is helpful in making profit-maximizing production decisions.
(iii) tells a firm whether its fixed costs are too high.

a. (i) only
b. (i) and (ii) only
c. (ii) and (iii) only
d. (i) and (iii) only