# Principles of Microeconomics

Questions

1. A movement along a demand curve from one price-quantity combination to another is called

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A. a change in quantity demanded.

B. a shift in the demand curve.

C. a change in demand.

D. a change in quantity supplied.

2. If the demand for a good decreases as income decreases, it is a(n)

A. complementary good.

B. normal good.

C. inferior good.

D. substitute good.

3. If an increase in the price of computers lead to reduced demand for monitors, then

A. computers and monitors are complements.

B. computers are a normal good and monitors are inferior.

C. computers and monitors are substitutes.

D. computers are an inferior good and monitors are normal.

4. A decrease in the demand for bananas with no concurrent change in the supply of bananas will

result in a ________ equilibrium price and a(n) ________ equilibrium quantity.

A. higher; lower

B. lower; lower

C. higher; unchanged

D. higher; higher

5. An increase in the demand for GM automobiles results in

A. a lower equilibrium price for GM automobiles.

B. an increase in the quantity supplied of GM automobiles.

C. an increase in the supply of GM automobiles.

D. a lower equilibrium quantity of GM automobiles.

6. One observes that the equilibrium price of apples falls and the equilibrium quantity increases.

Which of the following best fits the observed data?

A. An increase in demand with supply constant

B. A decrease in supply with demand constant

C. An increase in demand coupled with an increase in supply

D. Demand constant and an increase in supply

7. Refer to the figure above. What might cause Demand to shift from the Original Demand to the

New Demand?

A. An expectation that coffee prices will fall in the future.

B. An increase in the price of coffee creamer (a complementary good).

C. An decrease in the price of tea (a substitute).

D. An increase in incomes.

8. Refer to the figure above. What might cause Supply to shift from the Original Supply to the

New Supply?

A. A storm in South America wipes out the entire coffee crop.

B. New technology reduces the amount of coffee beans necessary to make a good-tasting pot of

coffee.

C. A news report that coffee consumption greatly increases productivity.

D. An increase in the price of tea.

9. If a market is in equilibrium and demand increases while supply decreases, the change in the

equilibrium price is ________ and the change in the equilibrium quantity is _________.

A. positive; positive

B. positive; negative

C. positive; indeterminate

D. indeterminate; positive

10. If both supply and demand in the market for bagels increase simultaneously, which of the

following outcomes is certain to occur?

A. The equilibrium price of bagels will rise.

B. The equilibrium quantity of bagels will rise.

C. The equilibrium price of bagels will fall.

D. The equilibrium quantity of bagels will fall.

11. If the price of cheese falls by one percent and the quantity demanded rises by 3 percent, then

the price elasticity of demand for cheese has a value of

A. 30.

B. 0.30.

C. 0.333.

D. 3.

12. If the price of a good increases by 20% and that leads to a decrease in quantity demanded by

60%, what is the price elasticity of demand for that good?

A. 30.

B. 3.

C. 1/3.

D. 1/6.

13. When the price of hot dogs is \$1.50 each, 500 hot dogs are sold every day. After lowering the

price to \$1.35 each, 510 hot dogs are sold every day. At the original price, what is the price

elasticity of demand for hot dog?

A. 66.67

B. 5

C. 2

D. 0.2

14. Suppose a 10% increase in the price of pain relievers leads to a 5% decrease in quantity

demanded of pain relievers. The demand for pain relievers, with respect to price, is

A. elastic.

B. inelastic.

C. unitary elastic.

D. perfectly inelastic.

15. Generally speaking, demand for a good will be more inelastic

A. if few substitutes exist.

B. when the good represents a large share of the consumer’s budget.

C. in the long run.

D. when many substitutes exist.

16. Suppose two demand curves have a point in common. With respect to price at that point,

demand shown by the steeper curve will be _______ the less steep (flatter) curve.

A. more elastic than

B. less elastic than

C. as elastic as

D. more likely to be unitary elastic than

17. Refer to the figure above. The price elasticity of demand at point A is

A. 5/2.

B. 5/8.

C. 2/5.

D. 8/5.

18. Refer to the figure above. If the price of a latte increases from \$2.00 to \$2.50,

A. total revenue would increase.

B. total revenue would stay the same.

C. total revenue would decrease.

D. the change in total revenue, if any, would depend on the supply curve.

19. Chris had been charging a dollar a pound for potatoes. When Chris lowered the price to

\$0.90, total revenue fell. When Chris raised the price to \$1.10, total revenue also fell. Why?

A. \$1.00 is the equilibrium price for potatoes.

B. At \$0.90, there is excess demand for potatoes.

C. \$1.10 is more than Chris’s customers’ reservation prices.

D. Price elasticity of demand is unitary at \$1.00.

20. Sven likes to water ski, but can only water ski during the one week that he is on vacation.

Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight

hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours,

which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but

was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then

took a nap. On the fifth day of Sven’s vacation, Sven went blueberry picking all day.

Sven’s vacation convinced him that

A. even for activities he really enjoys, diminishing marginal utility eventually sets in.

B. blueberry picking yields higher total utility than does water skiing.

C. even for activities he really enjoys, total utility declines each time he engages in it.

D. economic theory applies only to things you buy, not recreation

21. Pat’s total utility after eating 99 Reese’s Peanut Butter Cups was greater than his total utility

after eating his hundredth. Therefore, Pat’s marginal utility for the 100th peanut butter cup was

A. positive, but less than one.

B. positive, but less than Pat’s marginal utility for the 99th peanut butter cup.

C. zero

D. negative

22. Laura’s total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45, respectively. Her

marginal utility from the 9th bonbon is

A. 42

B. 77

C. 7

D. 87

23. Refer to the figure above. The marginal utility of the sixth pizza is

A. 95

B. 100

C. 5

D. 15

24. Refer to the figure above. Total utility increases with each additional pizza consumed up to

the _____ and then declines, but marginal utility _______ with each additional pizza consumed

each week.

A. 7th pizza, increases

B. 6th pizza, increases

C. 5th pizza, stays the same

D. 6th pizza, decreases

25. Cory gets 18, 23, and 25 units worth of total utility from consuming 10, 11, and 12 raw

oysters, respectively, and the price per oyster is 25 cents. Thus, one can infer that Cory

A. is not utility maximizing.

B. is experiencing diminishing marginal utility.

C. should NOT consume any more oysters.

D. has consumed too many oysters.

26. Evan gets twice as much marginal utility from an additional bottle of water than from an

additional bottle of soda. If the price of soda is \$1.00 per bottle, then Evan is maximizing utility

if the price of a bottle of water is

A. \$1.00

B. \$1.50

C. \$2.00

D. \$.50

27. At his current consumption level Cameron gets 3 times more marginal utility from an

additional game of pinball than from an additional game of ping pong. If the price of a ping pong

game is \$0.50, than he is maximizing utility if the price of a pinball game is

A. \$1.00

B. \$1.50

C. \$2.00

D. \$3.00

28. Angel’s marginal utility for playing pool is 10 after playing 5 games. Angel’s marginal utility

for bowling is 6 after 3 games. If both pool and bowling cost \$1 a game, to maximize his utility

Angel should

A. bowl more and play pool less

B. just go home

C. bowl only

D. bowl less and play pool more

29. Jamie’s marginal utility for consuming muffins and doughnuts in utils are as follows. Jamie

spends \$4 for breakfast every morning, the price per muffin is \$1.00 and the price per doughnut

is \$0.50.

What is Jamie’s optimal combination of muffins and doughnuts?

A. 1 muffin, 6 doughnuts

B. 2 muffins, 4 doughnuts

C. 3 muffins, 2 doughnuts

D. 4 muffins, zero doughnuts

30. For the two good case, the rational spending rule requires that

A. total expenditures on the two goods be equal.

B. total utility from the two good be equal.

C. average utility from the two goods be equal.

D. the ratio of marginal utility to price be equal for the two goods.

31. You are trying to decide how to spend your last lunch dollar. You should use that dollar to

A. the item that costs the least.

B. the item that you have already consumed the most of.

C. the item that will give you the greatest marginal utility per dollar spent.

D. the item from which you have gained the greatest total utility already.

32. If the marginal utility per dollar is not the same for each good, the consumer could _____ her

utility by spending ______ on goods for which the marginal utility per dollar is lower.

A. decrease, less

B. increase, more

C. maximize, more

D. increase, less

33. Refer to the figure above. At the equilibrium price, consumer surplus is

A. \$7.50/day

B. \$10/day

C. \$15/day

D. \$40/day

34. Refer to the figure above. Suppose the dairy lobby convinces the government to impose price

controls in this market. If the government requires all cheese to be sold for a price of at least \$8,

consumer surplus would _________ and the market would ________________

A. increase; reach a new equilibrium at \$8.00

B. decrease; reach a new equilibrium at \$8.00

C. increase; have excess demand for cheese.

D. decrease; have excess supply of cheese.

35. A rational seller will sell another unit if

A. the profit earned from the sale of the next unit is greater than the profit earned on the sale of

the last unit.

B. the cost of making the next unit is less than the revenue gained by selling the next unit.

C. the quantity demanded of the seller’s output is greater than zero.

D. the price that could be charged is greater than the equilibrium price.

36. Why are you more likely to see a poor person picking up aluminum cans to return for a

deposit than a wealthy person?

A. Wealthy people care less about the environment.

B. Wealthy people have higher opportunity costs for their time.

C. Wealthy people are more concerned about their public image.

D. Wealthy people are more likely to be aware of diseases that are transmitted through litter.

37. John is trying to decide how to divide his time between his job as a stocker in the local

grocery store, which pays \$7/hr for as many hours as he chooses to work, and cleaning windows

for the businesses in downtown. He makes \$2 for every window he cleans. John is indifferent

between the two tasks, and the number of windows he can clean depends on how many hours he

cleans a day, as shown in the table below:

What is John’s reservation price per window for the 4th and 5th hours of cleaning windows?

A. \$7 and \$7.5 respectively

B. \$2 and \$3.5 respectively

C. \$3.5 and \$7 respectively

D. \$11 and \$14 respectively

38. A firm’s total profit equals

A. Marginal Benefit minus Marginal Cost.

B. (Price minus Average Total Cost) times the quantity sold.

C. Price times Quantity Sold

D. Price minus Average Total Cost.

39. Which of the following is NOT true of a perfectly competitive firm?

A. It faces a perfectly elastic demand curve.

B. It is unable to influence the market price of the good it sells.

C. It seeks to maximize revenue.

D. Relative to the size of the market, the firm is small.

40. A price taker confronts a demand curve that is

A. vertical at the market price.

B. upward sloping.

C. downward sloping.

D. horizontal at the market price.

41. Which of the following is most likely to be a fixed factor of production at a university?

A. The number of personal computers.

B. The number of lecture halls.

C. The number of professors and lecturers.

D. The amount of chalk.

42. One reason that variable factors of production tend to show diminishing returns in the short

run is that

A. too much capital equipment is idle.

B. there are too many workers using a fixed amount of productive resources.

C. the firm has become too large to effectively manage workers.

D. the cost of hiring additional workers increases as firms seek to hire more.

43. In general, if the price of a variable factor of production increases,

A. total costs fall.

B. the profit maximizing level of output rises.

C. output prices fall.

D. marginal costs rise.

44. In general, if the price of a fixed factor of production increases,

A. output prices fall.

B. marginal costs are unchanged.

C. marginal costs increase.

D. the profit maximizing level of output falls.

45. Refer to the figure above. When the pizza shop employs 2 workers per day, it will experience

a marginal cost of ______ per pizza.

A. \$15

B. \$25

C. \$6

D. \$3

46. Refer to the figure above. When the market price of a doughnut is 10 cents, this firm will

A. shut down

B. produce 50 doughnuts

C. remain in operation only in the short run and shut down in the long run

D. earn negative profits (losses)

47. Fred runs a fishing lodge, and has a very successful business during the summer. In the fall,

the number of guests at the lodge starts to decline, and by November very few people stay at

Fred’s Lodge. Fred should

A. keep the lodge open all year because his summer profits offset any losses he has in the winter.

B. Keep the lodge open only during those months in which revenues exceed total costs.

C. Keep the lodge open only during those months in which revenues exceed the fixed costs of the

lodge.

D. Keep the lodge open only during those months in which revenues exceed the variable costs of

serving guests.

48. Refer to the figure above. When demand is such that the market price is \$30, what is the

profit maximizing output quantity?

A. 45

B. 60

C. 80

D. 100

49. Refer to the figure above. At the profit maximizing quantity for when the market price is at

\$30, what is the total cost of production?

A. \$ 3000

B. \$ 1200

C. \$ 1600

D. \$ 2400

50. An increase in consumer demand for espresso would lead to a(n) ____, while an increase in

the number of firms producing espresso would lead to a(n) _______.

A. increase in quantity supplied; decrease in supply.

B. increase in supply; increase in quantity supplied.

C. increase in quantity supplied; increase in supply.

D. increase in supply; increase in supply.