6.
If the marginal benefit exceeds the marginal cost, the
Managerial firm should:
A. Maintain current output
Economics | B. Increase output
Sample Exam
C. Shut down
D. Decrease output
7. Which decision is best described by marginal analysis?
1. Which of the following best differentiates
macroeconomics from microeconomics? A. Whether to expand into a new country
A. Microeconomics analyzes inflation B. Whether to increase production by one unit
B. Macroeconomics studies firm behavior C. Whether to buy a factory
C. Microeconomics focuses on individual markets D. Whether to merge with a competitor
D. Macroeconomics sets product pricing 8. The law of demand states that, ceteris paribus:
2. Economic profit is different from accounting profit in A. As price increases, quantity demanded increases
that it:
B. As price decreases, quantity demanded increases
A. Ignores opportunity cost
C. Demand and price are directly related
B. Includes only explicit costs
D. Supply and demand are unrelated
C. Includes both explicit and implicit costs
9. A demand curve generally slopes:
D. Does not affect firm decisions
A. Upward from left to right
3. Which of Porter’s Five Forces deals with the impact of
substitute goods on industry profitability? B. Downward from left to right
A. Threat of new entrants C. Horizontally
B. Bargaining power of buyers D. Vertically
C. Bargaining power of suppliers 10. What causes a movement along the demand curve?
D. Threat of substitutes A. Change in income
4. Which of the following is not part of Porter’s Five B. Change in preferences
Forces framework?
C. Change in the price of the good
A. Industry rivalry
D. Change in expectations
B. Threat of substitutes
11. The law of supply states that:
C. Technological change
A. Price and quantity supplied are inversely related
D. Buyer power
B. Higher prices decrease supply
5. Marginal analysis is most useful in:
C. Price and quantity supplied are directly related
A. Allocating fixed costs
D. Supply is independent of price
B. Evaluating sunk costs
12. Which of the following shifts the supply curve to the
C. Making decisions at the margin right?
D. Analyzing total cost trends A. An increase in input costs
B. A decrease in technology D. Black markets
C. A government tax on production 19. A price floor above equilibrium leads to:
D. Improvement in technology A. Market efficiency
13. At equilibrium, which condition holds true? B. Shortage
A. Quantity demanded exceeds quantity supplied C. Surplus
B. Price is below market-clearing level D. Higher consumer surplus
C. Quantity demanded equals quantity supplied 20. Government-imposed price controls are likely to:
D. There is a surplus in the market A. Improve allocation of resources
14. Consumer surplus is defined as: B. Eliminate market distortions
A. The total revenue from sales C. Cause inefficiencies
B. The difference between willingness to pay and actual D. Reduce producer and consumer surplus
price
21. If the own price elasticity of demand is -2, the demand
C. Profit earned by producers is:
D. Total utility minus marginal utility A. Perfectly inelastic
15. Producer surplus is: B. Elastic
A. Revenue minus total cost C. Inelastic
B. Price minus marginal cost D. Unitary elastic
C. Price received minus minimum acceptable price 22. A price elasticity less than 1 in absolute value means:
D. The equilibrium price in a market A. Perfectly elastic demand
16. A market equilibrium is efficient if: B. Elastic demand
A. Price is controlled by the government C. Inelastic demand
B. There is no consumer surplus D. Unitary demand
C. Total surplus is maximized 23. If total revenue rises when price falls, demand is:
D. Demand equals zero A. Inelastic
17. When demand increases and supply remains constant, B. Elastic
equilibrium price:
C. Perfectly elastic
A. Falls
D. Unitary
B. Rises
24. Cross price elasticity between two goods is positive.
C. Remains unchanged These goods are:
D. Is eliminated A. Complements
18. A price ceiling typically causes: B. Substitutes
A. Surplus C. Unrelated
B. Equilibrium D. Inferior
C. Shortage 25. When income elasticity is negative, the good is:
A. Inferior A. Shift outward
B. Shift inward
B. Normal C. Rotate downward
D. Remain unchanged
C. Luxury
33. Which of the following would not change a
consumer’s budget constraint?
D. Neutral
A. Change in income
B. Change in prices
26. If the cross-price elasticity of X and Y is -1.5, they are: C. Change in tastes
D. Change in budget
A. Substitutes
34. If the price of one good rises, the slope of the budget
B. Complements line:
A. Increases
C. Unrelated B. Decreases
C. Remains the same
D. Luxury goods D. Becomes zero
35. A budget line shows:
27. A normal good has an income elasticity that is: A. Consumer utility levels
B. Consumer indifference
A. Negative C. All affordable combinations of goods
D. Marginal rate of substitution
B. Zero
36. The law of diminishing marginal utility implies that:
C. Positive A. Consumers always prefer more
B. Marginal utility increases with more consumption
D. Infinite C. Total utility declines with more units
D. Additional units yield less satisfaction
28. Total revenue is maximized when: 37. The law of diminishing marginal utility explains:
A. How prices are determined
A. Marginal revenue equals zero B. Why consumers stop buying more
C. How goods are produced
B. Price equals marginal cost D. Profit maximization
C. Demand is elastic 38. The marginal rate of substitution is:
A. The slope of the budget line
D. Average revenue equals price B. The rate at which a consumer is willing to substitute
one good for another
29. The price elasticity of demand measures: C. Always decreasing
D. Independent of preferences
A. Supply changes 39. An indifference curve represents:
A. Maximum satisfaction
B. Budget constraints B. Combinations of goods providing the same utility
C. Budget limitations
C. Responsiveness of quantity demanded to price D. Price combinations
D. Quantity supplied changes 40. The equilibrium point in consumer choice theory is
where:
A. Indifference curve is tangent to budget line
30. Cross-price elasticity measures how:
B. Total utility is minimized
C. Budget constraint is violated
A. Price of one good affects demand for another
D. Income is maximized
B. Supply changes over time V. Production Process and Costs (Items 41–50)
C. Income affects supply 41. The basic production function relates output to:
A. Price of the product
D. Costs vary in production B. Number of firms
C. Inputs used
31. A consumer’s preference for one good over another is D. Total revenue
called:
A. Utility 42. A production function shows the relationship
B. Budget between:
C. Indifference A. Price and cost
D. Preference ordering B. Inputs and outputs
C. Profits and wages
D. Costs and revenue
32. An increase in a consumer’s income causes the budget
line to:
43. The average product of labor is calculated as: B. Many buyers and sellers
A. Total product divided by labor input C. Few sellers dominating the market
B. Marginal product minus total cost D. No barriers to entry
C. Output per unit of capital
D. Revenue per unit of labor 55. The demand curve for a perfectly competitive firm is:
A. Upward sloping
44. Marginal product refers to: B. Vertical
A. Output per dollar spent C. Horizontal
B. Additional output from one more unit of input D. Downward sloping
C. Total output of all workers
D. Decline in average product 56. A monopoly maximizes profit where:
A. MC = MR
45. The total product increases at a decreasing rate when: B. Price = ATC
A. Marginal product is constant C. TR = TC
B. Marginal product is zero D. AVC = Price
C. Marginal product is decreasing
D. Average product increases 57. A kinked demand curve is associated with:
A. Perfect competition
46. Fixed costs are: B. Monopoly
A. Zero in the long run C. Oligopoly
B. Change with output D. Monopolistic competition
C. Always increasing
D. Equal to variable costs 58. Barriers to entry are most significant in:
A. Perfect competition
47. Variable costs: B. Monopoly
A. Do not change with output C. Monopolistic competition
B. Are fixed in the short run D. All market structures
C. Increase as output increases
D. Are unrelated to production 59. Price discrimination is a feature of:
A. Oligopoly only
48. In the short run, a firm will shut down if: B. Perfect competition
A. Price is greater than ATC C. Monopoly and monopolistic competition
B. Price is less than AVC D. None of the above
C. Price equals MC
D. Price equals fixed cost 60. Collusion among firms is most likely in:
A. Perfect competition
49. Economies of scale refer to: B. Oligopoly
A. Increasing costs with higher output C. Monopoly
B. Constant average costs D. Monopolistic competition
C. Decreasing average costs as output rises
D. Increasing marginal costs VII. The Firm and the Economy (Items 61–70)
50. Diseconomies of scale occur when: 61. GDP stands for:
A. Average cost falls as output rises A. Gross Domestic Product
B. Marginal cost equals average cost B. Government Department of Production
C. Average cost rises as output rises C. General Demand Policy
D. Marginal cost is constant D. Gross Debt Product
VI. Market Structures (Items 51–60) 62. A business cycle includes all except:
A. Expansion
51. A market structure characterized by many sellers of B. Peak
identical products is: C. Recession
A. Monopoly D. Surplus
B. Monopolistic competition
C. Perfect competition 63. Inflation refers to:
D. Oligopoly A. A decrease in money supply
B. A decrease in prices
52. A firm that is a price maker is found in: C. An increase in the general price level
A. Perfect competition D. An increase in employment
B. Monopoly
C. Monopolistic competition 64. Fiscal policy involves:
D. Oligopoly A. Money supply regulation
B. Government spending and taxation
53. In monopolistic competition, firms can differentiate C. Central bank interest rates
products through: D. Trade agreements
A. Government subsidies
B. Advertising and branding 65. Monetary policy is implemented by:
C. Mergers A. The Senate
D. Price controls B. Private firms
C. Central banks
54. An oligopoly is characterized by: D. Congress
A. A single seller
66. The unemployment rate measures:
A. All people without jobs
B. Only people not seeking work
C. The labor force not working but seeking jobs
D. Retired individuals
67. A budget deficit occurs when:
A. Exports exceed imports
B. Government spending exceeds revenue
C. Taxes are increased
D. GDP declines
68. Comparative advantage leads to:
A. Trade restrictions
B. Less specialization
C. Efficient international trade
D. Higher unemployment
69. A positive externality results in:
A. Overproduction
B. Underproduction
C. No effect on society
D. Increased taxation
70. The law of supply states:
A. Price and quantity supplied are inversely related
B. Supply increases as demand decreases
C. As price increases, quantity supplied increases
D. Quantity supplied is unrelated to price