Revision questions

1. With respect to how economists study the economy, which of the following
statements is most accurate?

a. Economists study the past, but they do not try to predict the future.
b. Economists use “rules of thumb” to predict the future.
c. Economists devise theories, collect data, and analyze the data to test the theories.
d. Economists use controlled experiments in much the same way that biologists and
physicists do.
2. For an economist, the idea of making assumptions is regarded generally as a

a. bad idea, since doing so leads to the omission of important ideas and variables from
economic models.
b. bad idea, since doing so invariably leads to data-collection problems.
c. good idea, since doing so helps to simplify the complex world and make it easier to
understand.
d. good idea, since economic analysis without assumptions leads to complicated results
that the general public finds hard to understand.
4. In the circular-flow diagram,

a. factors of production flow from government to firms.

b. goods and services flow from households to firms.
c. income paid to the factors of production flows from firms to households.
d. spending on goods and services flows from firms to households.
5. An economy’s production of two goods is efficient if

a. all members of society consume equal portions of the goods.

b. the goods are produced using only some of society’s available resources.
c. it is impossible to produce more of one good without producing less of the other.
d. the opportunity cost of producing more of one good is zero.
6. Unemployment would cause an economy to

a. produce inside its production possibilities frontier.

b. produce on its production possibilities frontier.
c. produce outside its production possibilities frontier.
d. experience an inward shift of its production possibilities frontier.

• Points that lie on the PPF illustrate combinations of output that are productively
efficient. We cannot determine which points are allocatively efficient without
knowing preferences.
• The slope of the PPF indicates the opportunity cost of producing one good
versus the other good, and the opportunity cost can be compared to the
opportunity costs of another producer to determine comparative advantage.
7. When a production possibilities frontier is bowed outward, the opportunity cost of
producing an additional unit of a good

a. increases as more of the good is produced.

b. decreases as more of the good is produced.
c. does not change as more of the good is produced.
d. may increase, decrease, or not change as more of the good is produced.

The production possibilities frontier with a bowed-out shape implies that the
opportunity cost along the PPF increases as more of a commodity is produced in
exchange for the other.
8. The following table contains some production possibilities for an economy for a
given year:
Cars Newspapers
10 400
12 360
14 ?

If the production possibilities frontier is bowed outward, then "?" could be

a. 340
b. 330
c. 320
d. 310
9. Suppose an economy produces two goods, food and machines. This economy
always operates on its production possibilities frontier. Last year, it produced 50 units
of food and 30 machines. This year, it is producing 55 units of food and 33 machines.
Which of the following events could not explain the increase in output?

a. a reduction in unemployment
b. an increase in available labor
c. an improvement in technology
d. Any of these events could explain the increase in output.
10. The opportunity cost of this economy moving from point A to point B is
toasters
50

45

40

35
C
30

25
A
20

15
D B
10

10 20 30 40 50 60 70 80 tooth-
brushes

a. 0 toasters.
b. 10 toasters.
c. 10 toothbrushes.
d. 20 toasters.
11. Which of the following events would explain the shift of the production
possibilities frontier from A to B?
batteries

bagels

a. The economy’s citizens developed an enhanced taste for batteries.

b. The economy experienced a technological advance in the production of batteries.
c. More capital became available in the economy.
d. More labor became available in the economy.
12. Which of the following is an example of a normative ( chuẩn tắc – đánh giá của cá
nhân ), as opposed to positive ( thực chứng ), statement?

a. Gasoline prices ought to be lower than they are now.

b. The federal government should raise taxes on wealthy people.
c. The social security system is a good system and it deserves to be preserved as it is.
d. All of the above are normative statements.
13. Economists in general

a. do not try to explain people's tastes, but they do try to explain what happens when
tastes change.
b. believe that they must be able to explain people's tastes in order to explain what
happens when tastes change.
c. do not believe that people's tastes determine demand and therefore they ignore the
subject of tastes.
d. incorporate tastes into economic models only to the extent that tastes determine
whether pairs of goods are substitutes or complements.
1. Suppose we are analyzing the market for hot chocolate. Graphically illustrate the
impact each of the following would have on demand or supply. Also show how
equilibrium price and quantity have changed.
a. Winter starts and the weather turns sharply colder.
b. The price of tea, a substitute for hot chocolate, falls.
c. The price of cocoa beans decreases.
d. The price of whipped cream, a complement for hot chocolate, falls.
e. A better method of harvesting cocoa beans is introduced.
f. The Surgeon General of the U.S. announces that hot chocolate cures acne.
g. Protesting farmers dump millions of gallons of milk, causing the price of milk to rise.
h. Consumer income falls because of a recession and hot chocolate is considered a
normal good.
i. Producers expect the price of hot chocolate to increase next month.
j. Currently, the price of hot chocolate is $0.50 per cup above equilibrium.
2. To find the market demand for a product, individual demand curves are summed

a. vertically.
b. diagonally.
c. horizontally.
d. and then averaged.
3. An increase in the price of rubber coincides with an advance in the technology of
tire production. As a result of these two events,

a. the demand for tires increases and the supply of tires decreases.
b. the supply of tires decreases and the demand for tires is unaffected.
c. the supply of tires increases and the demand for tires is unaffected.
d. none of the above is necessarily correct.
4. Suppose the supply curves that are drawn represent supply curves for single-family
residential houses. Then the movement from S to S1 could be caused by

a. an increase in the price of apartments (a substitute for single-family houses for many
people looking for a place to live).
b. a newly-formed expectation by house-builders that prices of houses will increase
significantly in the next six months.
c. a decrease in the price of lumber.
d. All of the above are correct.
5. If price in this market is currently $14, there would be a

a. shortage of 20 units and the law of demand predicts that the price will rise from $14 to a
higher price.
b. excess supply of 20 units and the law of supply and demand predicts that the price will fall
from $14 to a lower price.
c. shortage of 40 units and the law of supply predicts that the price will fall from $14 to a
lower price.
d. surplus of 40 units and the law of supply and demand predicts that the price will fall from
$14 to a lower price.
6. Suppose the number of buyers in a market increases and a technological
advancement occurs also. What would we expect to happen in the market?

a. The equilibrium price would increase, but the impact on the amount sold in the
market would be ambiguous.
b. The equilibrium price would decrease, but the impact on the amount sold in the
market would be ambiguous.
c. Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.
d. Both equilibrium price and equilibrium quantity would increase.
7. Suppose that a decrease in the price of good X results in fewer units of good Y being
sold. This implies that X and Y are

a. complementary goods.
b. normal goods.
c. inferior goods.
d. substitute goods
8. Suppose Alfred, Belinda, and Charissa are the
only demanders of sandwiches. Also suppose:
• x=4;
• the current price of a sandwich is $3.00;
• the market quantity supplied of sandwiches
is 5;
• with each $1 increase in price, quantity
supplied increase by 1

a. there is currently a shortage of 5 sandwiches and the equilibrium price of a sandwich is

between $3.00 and $5.00.
b. there is currently a shortage of 5 sandwiches and the equilibrium price of a sandwich is
$5.00.
c. there is currently a shortage of 7 sandwiches and the equilibrium price of a sandwich is
between $3.00 and $5.00.
d. there is currently a shortage of 7 sandwiches and the equilibrium price of a sandwich is
higher than $5.00.
9. What will happen to the equilibrium price and quantity of traditional camera film if
traditional cameras become more expensive, digital cameras become cheaper, the cost of
the resources needed to manufacture traditional film falls and more firms decide to
manufacture traditional film?

a. Price will fall and the effect on quantity is ambiguous.

b. Price will rise and the effect on quantity is ambiguous.
c. Quantity will fall and the effect on price is ambiguous.
d. The effect on both price and quantity is ambiguous.
10. Which of the following events would cause both the equilibrium price and equilibrium
quantity of number two grade potatoes (an inferior good) to increase?

a. an increase in consumer income

b. a decrease in consumer income
c. greater government restrictions on agricultural chemicals
d. fewer government restrictions on agricultural chemicals
11. Which of the following events would unambiguously cause a decrease in the
equilibrium price of cotton shirts?

a. an increase in the price of wool shirts and a decrease in the price of raw cotton
b. a decrease in the price of wool shirts and a decrease in the price of raw cotton
c. an increase in the price of wool shirts and an increase in the price of raw cotton
d. a decrease in the price of wool shirts and an increase in the price of raw cotton
12. What would happen to the equilibrium price and quantity of coffee if the wages of
coffee-bean pickers fell and the price of tea fell?

a. Price will fall and the effect on quantity is ambiguous.

b. Price will rise and the effect on quantity is ambiguous.
c. Quantity will fall and the effect on price is ambiguous.
d. Quantity will rise and the effect on price is ambiguous.
13. What will happen to the equilibrium price and quantity of new cars if the price of
gasoline rises, the price of steel rises, public transportation becomes cheaper and more
comfortable, and auto-workers negotiate higher wages?

a. Price will fall and the effect on quantity is ambiguous.

b. Price will rise and the effect on quantity is ambiguous.
c. Quantity will fall and the effect on price is ambiguous.
d. Quantity will rise and the effect on price is ambiguous.
14. New cars are normal goods. What will happen to the equilibrium price of new cars if
the price of gasoline rises, the price of steel falls, public transportation becomes cheaper
and more comfortable, auto-workers accept lower wages and automobile insurance
becomes more expensive?

a. Price will rise.

b. Price will fall.
c. Price will stay exactly the same.
d. The price change will be ambiguous.
15. Refer to Table 7-3. If the market price of an orange is $0.40,

a. 6 oranges are demanded per day and total consumer surplus amounts to $4.45.
b. 6 oranges are demanded per day and total consumer surplus amounts to $5.10.
c. 7 oranges are demanded per day and total consumer surplus amounts to $5.35.
d. 7 oranges are demanded per day and total consumer surplus amounts to $5.50
16. Refer to Figure 7-9. At the equilibrium price, consumer surplus is
a. $480
b. $640.
c. $1,120.
d. $1,280.
17. Refer to Figure 7-9. At the equilibrium price, producer surplus is
a. $480
b. $640.
c. $1,120.
d. $1,280.
1. For a good that is a necessity,

a. quantity demanded tends to respond substantially to a change in price.

b. demand tends to be inelastic.
c. the law of demand does not apply.
d. All of the above are correct.
2. Which of the following is likely to have the most price inelastic demand?

a. mint-flavored toothpaste
b. toothpaste
c. Colgate mint-flavored toothpaste
d. a generic mint-flavored toothpaste
3. If the price of milk rises, when is the price elasticity of demand likely to be the
lowest?

a. immediately after the price increase

b. one month after the price increase
c. three months after the price increase
d. one year after the price increase
4. A person who takes a prescription drug to control high cholesterol most likely has a
demand for that drug that is

a. inelastic.
b. unit elastic.
c. elastic.
d. highly responsive to changes in income.
7. When the price of a watch was $25 each, the jewelry shop sold 20 per month. When
it raised the price to $35 each, it sold 14 per month. The price elasticity of demand for
watches is about

a. 1.66.
b. 1.06.
c. 0.94.
d. 0.60.
5. If the price elasticity of demand for a good is 1.5, then a 3 percent decrease in price
results in a

a. 0.5 percent increase in the quantity demanded.

b. 2 percent increase in the quantity demanded.
c. 4.5 percent increase in the quantity demanded.
d. 5 percent increase in the quantity demanded.
6. When we move upward and to the left along a linear, downward-sloping demand
curve, price elasticity of demand

a. first becomes smaller, then larger.

b. always becomes larger.
c. always becomes smaller.
d. first becomes larger, then smaller.
8. As price rises from $10 to $12, the price elasticity of demand using the midpoint
method is approximately

Price Total
Revenue
$10 $100
$12 $108
$14 $112
$16 $112

a. 0.08.
b. 0.18.
c. 0.42.
d. 0.58.
10. A perfectly elastic demand implies that

a. buyers will not respond to any change in price.

b. any rise in price above that represented by the demand curve will result in a
quantity demanded of zero.
c. quantity demanded and price change by the same percent as we move along the
demand curve.
d. price will rise by an infinite amount when there is a change in quantity demanded.
11. An advance in farm technology that results in an increased market supply is

a. good for farmers because it raises prices for their products but bad for consumers
because it raises prices consumers pay for food.
b. bad for farmers because total revenue will fall but good for consumers because
prices for food will fall.
c. good for farmers because it raises prices for their products and also good for
consumers because more output is available for consumption.
d. bad for farmers because total revenue will fall and bad for consumers because
farmers will raise the price of food to increase their total revenue.
12. If sellers do not adjust their quantities supplied at all in response to a change in
price,

a. advances in technology must be prevalent.

b. the time period under consideration must be very long.
c. supply is perfectly elastic.
d. supply is perfectly inelastic.
1. If a price ceiling is not binding, then

a. there will be a surplus in the market.

b. there will be a shortage in the market.
c. the market will be less efficient than it would be without the price ceiling.
d. there will be no effect on the market price or quantity sold.
2. Suppose the government has imposed a price ceiling on televisions. Which of the
following events could transform the price ceiling from one that is not binding into one
that is binding?

a. Firms expect the price of televisions to fall in the future.

b. The number of firms selling televisions decreases.
c. Consumers' income decreases, and televisions are a normal good.
d. The number of consumers buying televisions decreases.
3. If the government removes a binding price ceiling from a market, then the price
received by sellers will

a. decrease and the quantity sold in the market will decrease.

b. decrease and the quantity sold in the market will increase.
c. increase and the quantity sold in the market will decrease.
d. increase and the quantity sold in the market will increase.
4. The term tax incidence refers to

a. whether buyers or sellers of a good are required to send tax payments to the
government.
b. whether the demand curve or the supply curve shifts when the tax is imposed.
c. the distribution of the tax burden between buyers and sellers.
d. widespread view that taxes always will be a fact of life.
5. When a tax is placed on the sellers of cell phones,

a. the size of the cell phone market and the effective price received by sellers both
increase.
b. the size of the cell phone market increases, but the effective price received by
sellers decreases.
c. the size of the cell phone market decreases, but the effective price received by
sellers increases.
d. the size of the cell phone market and the effective price received by sellers both
decrease.
5. If the government passes a law requiring sellers of motorcycles to send $500 to the
government for every motorcycle they sell, then

a. the supply curve for motorcycles shifts downward by $500.

b. sellers of motorcycles receive $500 less per motorcycle than they were receiving
before the tax.
c. buyers of motorcycles are unaffected by the tax.
d. None of the above is correct.
6. A $2.00 tax levied on the buyers of lawnmowers will shift the demand curve

a. upward by exactly $2.00.

b. upward by less than $2.00.
c. downward by exactly $2.00.
d. downward by less than $2.00.
8. The price received by sellers 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. decreases a tax on the good sold in that market.
d. None of the above is correct.
7. If the government removes a tax on buyers of a good and imposes the same tax on
sellers of the good, then the price paid by buyers will

a. not change and the price received by sellers will not change.
b. not change and the price received by sellers will decrease.
c. decrease and the price received by sellers will not change.
d. decrease and the price received by sellers will decrease.
 9. As the figure is drawn, who sends the tax payment to the government?
price
10

9
S
8

2
D
1
D after tax

10 20 30 40 50 60 70 80 quantity

a. the buyers
b. the sellers
c. A portion of the tax payment is sent by the buyers and the remaining portion is
sent by the sellers.
d. The question of who sends the tax payment cannot be determined from the figure.
10. How much tax revenue does this tax produce for the government?
price
20
S
18

16

14

12

10

8
D
6

2
D after tax

10 20 30 40 50 60 70 80 90 100 110 120 130 quantity

a. $480
b. $600
c. $800
d. $1120
11. Suppose that in a particular market, the supply curve is highly elastic and the
demand curve is highly inelastic. If a tax is imposed in this market, then

a. the buyers will bear a greater burden of the tax than the sellers.
b. the sellers will bear a greater burden of the tax than the buyers.
c. the buyers and sellers are likely to share the burden of the tax equally.
d. the buyers and sellers will not share the burden equally, but it is impossible to
determine who will bear the greater burden of the tax without more information.
12. Suppose that a tax is placed on books. If the buyers pay the majority of the tax,
then we know that the

a. demand is more inelastic than the supply.

b. supply is more inelastic than the demand.
c. government has required that buyers remit the tax payments.
d. government has required that sellers remit the tax payments.
1. The nation of Pineland forbids international trade. In Pineland, you can buy 1 pound
of fish for 2 pounds of beef. In other countries, you can buy 1 pound of fish for 1.5
pounds of beef. These facts indicate that

a. Pineland has a comparative advantage, relative to other countries, in producing

fish.
b. other countries have a comparative advantage, relative to Pineland, in producing
beef.
c. the price of beef in Pineland exceeds the world price of beef.
d. if Pineland were to allow trade, it would import fish.
2. For any country, if the world price of zinc is higher than the domestic price of zinc
without trade, that country should

a. export zinc, since that country has a comparative advantage in zinc.

b. import zinc, since that country has a comparative advantage in zinc.
c. neither export nor import zinc, since that country cannot gain from trade.
d. neither export nor import zinc, since that country already produces zinc at a low
cost compared to other countries.
3. When the nation of Worldova allows trade and becomes an exporter of silk,

a. residents of Worldova who produce silk become worse off; residents of Worldova
who buy silk become better off; and the economic well-being of Worldova rises.
b. residents of Worldova who produce silk become worse off; residents of Worldova
who buy silk become better off; and the economic well-being of Worldova falls.
c. residents of Worldova who produce silk become better off; residents of Worldova
who buy silk become worse off; and the economic well-being of Worldova rises.
d. residents of Worldova who produce silk become better off; residents of Worldova
who buy silk become worse off; and the economic well-being of Worldova falls.
4. Trade raises the economic well-being of a nation in the sense that

a. the gains of the winners exceed the losses of the losers.

b. everyone in an economy gains from trade.
c. since countries can choose what products to trade, they will pick those products
that are most beneficial to society.
d. the nation joins the international community when it begins to engage in trade.
52. From the figure it is apparent that
Price
75
70

65
Domestic supply
60 A
55 World
price
50 B G
D
45 H
40 F

35 C
Domestic demand
30
25
20
15
10
5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Quantity

a. New Zealand will experience a shortage of wool if trade is not allowed.

b. New Zealand will experience a surplus of wool if trade is not allowed.
c. New Zealand has a comparative advantage in producing wool, relative to the rest of the world.
d. foreign countries have a comparative advantage in producing wool, relative to New Zealand.
53. From the figure it is apparent that
Price
75
70

65
Domestic supply
60 A
55 World
price
50 B G
D
45 H
40 F

35 C
Domestic demand
30
25
20
15
10
5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Quantity

a. New Zealand will export wool if trade is allowed.

b. New Zealand will import wool if trade is allowed.
c. New Zealand has nothing to gain either by importing or exporting wool.
d. the world price will fall if New Zealand begins to allow its citizens to trade with other countries.
54. Relative to the no-trade situation, trade with the rest of the world results in
Price
75
70

65
Domestic supply
60 A
55 World
price
50 B G
D
45 H
40 F

35 C
Domestic demand
30
25
20
15
10
5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Quantity

a. New Zealand consumers paying a higher price for wool.

b. a decrease in producer surplus in New Zealand.
c. a decrease in total surplus in New Zealand.
d. All of the above are correct.
55. With trade and without a tariff,

a. the domestic price is equal to the world price.

b. carnations are sold at $8 in this market.
c. there is a shortage of 400 carnations in this market.
d. this country imports 200 carnations.
56. When a tariff is imposed in the market, domestic producers

a. gain by $100.
b. gain by $200.
c. gain by $300.
d. lose by $100.
57. The amount of deadweight loss caused by the tariff equals

a. $100.
b. $200.
c. $400.
d. $500.
58. A major difference between tariffs and import quotas is that

a. tariffs create deadweight losses, but import quotas do not.

b. tariffs help domestic consumers, and import quotas help
domestic producers.
c. tariffs raise revenue for the government, but import quotas
create surplus for those who get the licenses to import.
d. All of the above are correct.
59. Both tariffs and import quotas

a. increase the quantity of imports and raise the domestic price of the good.
b. increase the quantity of imports and lower the domestic price of the good.

c. decrease the quantity of imports and raise the domestic price of the good.
d. decrease the quantity of imports and lower the domestic price of the good.
60. The nation of Aquilonia has decided to end its policy of not trading with the rest of the
world. When it ends its trade restrictions, it discovers that it is importing rice, exporting
steel, and neither importing nor exporting TVs. We can conclude that producer surplus in
Aquilonia is now

a. higher in the steel market, lower in the rice market, and unchanged in the TV
market.
b. higher in the rice and steel markets, and unchanged in the TV market.
c. lower in the rice and TV markets, and higher in the steel market.
d. lower in the rice and steel markets, and the same in the TV market.
2. Suppose a consumer has an income of $800 per month and that she spends her
entire income each month on beer and bratwurst. The price of a pint of beer is $5, and
the price of a bratwurst is $4. Which of the following combinations of beers and
bratwursts represents a point that would lie to the interior of the consumer’s budget
constraint?

a. 160 beers and 200 bratwursts

b. 40 beers and 50 bratwursts
c. 80 beers and 100 bratwursts
d. 160 beers and 0 bratwursts
3. Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot
summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each.
Karen has a budget of $80, Tara has a budget of $60, and Chelsea has a budget of $40
to spend on ice cream and paperback novels. Who can afford to purchase 4 gallons of
ice cream and 5 paperback novels?

a. Karen, Tara, and Chelsea

b. Karen only
c. Karen and Tara but not Chelsea
d. none of the women
4. Consider two goods, books and hamburgers. The slope of the consumer's budget
constraint is measured by the

a. consumer's income divided by the price of hamburgers.

b. relative price of books and hamburgers.
c. consumer's marginal rate of substitution.
d. number of books purchased divided by the number of hamburgers purchased.
5. Suppose a consumer spends his income on CDs and DVDs. If his income decreases,
the budget constraint for CDs and DVDs will

a. shift outward, parallel to the original budget constraint.

b. shift inward, parallel to the original budget constraint.
c. rotate outward along the CD axis because he can afford more CDs.
d. rotate outward along the DVD axis because he can afford more DVDs.
6. Which of the following statements is not correct?
a. Points W, X, and Y all cost the consumer the same amount of money.
b. Point Z is unaffordable for the consumer given his budget constraint.
c. Point V costs less than point Z.
d. Points W, X, and Y give the consumer the same level of satisfaction.
7. The following diagram shows two budget lines: A and B. Which of the following
could explain the change in the budget line from A to B?
a. a decrease in income and a decrease in the price of X
b. a decrease in income and an increase in the price of X
c. an increase in income and a decrease in the price of X
d. an increase in income and an increase in the price of X
8. Suppose a consumer spends her income on two goods: music CDs and DVDs. The price of
a CD is $8, and the price of a DVD is $20. If we graph the budget constraint by placing the
quantity of CDs purchased on the horizontal axis, what is the slope of the budget
constraint?

a. -5.0
b. -2.5
c. -0.4
d. The slope of the budget constraint cannot be determined without knowing the income
the consumer has available to spend on the two goods.
9. A consumer is currently spending all of her available income on two goods: music CDs
and DVDs. At her current consumption bundle she is spending twice as much on CDs as
she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs,
what is the price of a CD?

a. $4
b. $8
c. $12
d. $20
10. Mark spends his weekly income on gin and cocktail olives. The price of gin has risen
from $7 to $9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and
Mark's income has stayed fixed at $46 per week. If you illustrate gin on the vertical axis
and cocktail olives on the horizontal axis, then the budget constraint

a. is steeper after the price changes.

b. is flatter after the price changes.
c. is the same after the price changes.
d. shifts in a parallel fashion to the old budget constraint after the price changes.
11. A consumer has preferences over two goods: books and movies. The two bundles
shown in the table below lie on the same indifference curve for the consumer. Which of
the following bundles could not lie on the same indifference curve with A and B and
satisfy the four properties of indifference curves?

Bundle Books Movies

A 2 3
B 3 2

a. 1 movie and 5 books

b. 3 movies and 3 books
c. 5 movies and 1 book
d. 1 movie and 7 books
12. All of the following are properties of indifference curves except

a. higher indifference curves are preferred to lower ones.

b. indifference curves are downward sloping.
c. indifference curves do not cross.
d. indifference curves are bowed outward.
13. Bundle L contains 10 units of good X and 20 units of good Y. Bundle M contains 8 units
of good X and 21 units of good Y. The consumer is indifferent between bundle L and
bundle M. Assume that the consumer’s preferences satisfy the four properties of
indifference curves. Which of the following correctly expresses the marginal rate of
substitution of good X for good Y between these two points?

a. The consumer will give up 1 unit of good X to gain 2 units of good Y.

b. The consumer will give up 2 units of good X to gain 1 unit of good Y.
c. The price of good X is twice as large as the price of good Y.
d. The price of good X is half as large as the price of good Y.
14. The following diagram shows one indifference curve representing the preferences for
goods X and Y for one consumer. What is the marginal rate of substitution between points
A and B?

a. 1/2
b. 4/3
c. 2
d. 3
15. When a consumer is purchasing the best combination of two goods, X and Y, subject to
a budget constraint, we say that the consumer is at an optimal choice point. A graph of an
optimal choice point shows that it occurs

a. along the highest attainable indifference curve.

b. where the indifference curve is tangent to the budget constraint.
c. where the marginal utility per dollar spent is the same for both X and Y.
d. All of the above are correct.
16. Bundle J contains 10 units of good X and 5 units of good Y. Bundle K contains 5 units of
good X and 10 units of good Y. Bundle L contains 10 units of good X and 10 units of good Y.
Assume that the consumer’s preferences satisfy the four properties of indifference curves.
The price of X is $1, the price of Y is $2, and the consumer has an income of $20. Which
bundle will the consumer choose?

a. bundle J
b. bundle K
c. bundle L
d. either bundle J or bundle K
17. The relationship between the marginal utility that Wendy gets from eating hamburgers
and the number of hamburgers she eats per month is as follows: Wendy receives 3 units of
utility from the last dollar spent on each of the other goods she consumes. If hamburgers
cost $4 each, how many hamburgers will she consume per month if she maximizes utility?

Hamburgers 1 2 3 4 5 6
Marginal Utility 20 16 12 8 4 0

a. 2
b. 3
c. 4
d. 5
18. If the consumer's income and all prices simultaneously decrease by one-half, then the
optimum consumption will

a. shift outward relative to the old optimum.

b. move leftward along the old budget constraint.
c. shift inward relative to the old optimum.
d. not change.
19. Bundle B represents a point where

a. MRSxy > Py/Px.

b. MRSxy = Px/Py.
c. MRSxy < Px/Py.
d. MRSxy > Px/Py.
 1. Using the graph, assume that the government imposes a $1 tariff on hammers.
Answer the following questions given this information.
A

B
D E

F G

• What is the domestic price and quantity demanded of hammers before after the tariff is imposed?
• What is the quantity of hammers imported before and after the tariff?
• What would be the amount of consumer surplus and producer surplus before and after the tariff?
• What would be the amount of government revenue because of the tariff?
• What would be the total amount of deadweight loss due to the tariff?
 Exercises
23. (D): P = 48 – 3QD (S): P = 16 + QS

a) PE ? QE ?

b) Draw demand and supply curves

c) EDP =?; ESP =? at equilibrium price

d) CS and PS =? at equilibrium price

e) TU =? for consumer at equilibrium price

f) Price ceiling = 21$, what happen in the market?

g) CS =? at P = 21$
 Exercises
24. Demand and supply function of bread as below:

QS = 12 + 2P và QD = 40– 5P

a. PE ? QE ?

b. EDP =?; ESP =? at equilibrium price

c. To increase revenue, we should increase or decrease the price if current price = 6?

d. P = ? to maximise total revenue

 Exercises
25. The following table shows different observations of number of products A that a consumer buys when
income, product A’s price and price of related good B change:

a) Calculate EDP

b) Calculate EDI

c) Calculate ED;AB. A
and B are
substitutes or
complements?
 Exercises
26. In a market has 100 sellers and 80 buyers. All sellers have the same individual supply function: 𝑃 = 𝑞2 and
all buyers have the same individual demand function: 𝑃 =6400/𝑞2

a. Identify market supply and demand function.

b. Identify equilibrium price and quantity