Economics 1 Multiple Choice Questions PDF

Economics 1: Multiple choice questions Question 1 When the competitive market is using its resources efficiently, the a) Total amount of consumer surplus is maximized. b) Total amount of producer surplus is maximized. c) Sum of the total amount of consumer surplus plus the total amount of...

Economics 1: Multiple choice questions Question 1 When the competitive market is using its resources efficiently, the a) Total amount of consumer surplus is maximized. b) Total amount of producer surplus is maximized. c) Sum of the total amount of consumer surplus plus the total amount of producer surplus are maximized. d) Sum of the total amount of consumer surplus plus the total amount of producer surplus equals zero. e) None of the above are true. Question 2 A pizza you order in a restaurant is a private good that is ____________ in consumption. a) Excludable and rival b) Nonexcludable and nonrival c) Excludable and nonrival d) Nonexcludable and rival Question 3 Which of the following statements describes a market that is monopolistically competitive? a) There is a small number of large firms. b) Many firms compete by making similar but slightly different products. c) The product produced by one firm has no close substitutes. d) The products produced by the firms are identical. e) There are significant barriers to enter. Question 4 The signalling function of education implies that a) education can solve the moral hazard problem on the labor market. b) education helps firms to distinguish low-ability from high-ability workers. c) education can reduce the gap in earnings between high-ability and low-ability workers. d) education increases the human capital of workers. Question 5 A tax on sales levied on the producer will be divided so that: a) the buyers pay the full amount if supply has unitary elasticity. b) the buyers pay the full amount if demand is perfectly elastic. c) the buyers pay the full amount if supply is perfectly inelastic. d) the sellers pay the full amount if demand is perfectly elastic. e) the sellers pay the full amount if supply is perfectly elastic. Question 6 An externality is defined as a) an additional cost imposed by the government on producers b) a cost or benefit that arises from production and falls on someone other than the producer, or a cost or benefit that arises from consumption and falls on someone other than the consumer. c) an additional gain received by consumers from decisions made by the government. d) the additional amount consumers have to pay to consume an additional amount of a good or service. e) a marginal social cost. Question 7 All producers of chocolate have decided to add a costly ingredient to their chocolate. This ingredient gives more taste to chocolate and, as a result, consumers decide that they like chocolate more than before. What happens now if it costs more to produce and consumers like it better? a) The supply curve shifts leftward and the demand curve remains unchanged. b) The supply curve shifts rightward and the demand curve remains unchanged. c) The supply curve shifts leftward and the demand curve shifts rightward. d) The supply and demand curves both shift rightward. e) The equilibrium price of chocolate will decrease. Question 8 A binding minimum wage: a) Is a tax that results in a surplus of low-skilled labor b) Is a price ceiling that results in a surplus of low-skilled labor c) Is a price floor that results in a shortage of low-skilled labor d) Is a price ceiling that results in a surplus of low-skilled labor e) Is a price floor that results in a surplus of low-skilled labor Question 9 Germany and France produce 2 goods (computers and bikes) The following table shows the total production possibilities for both countries. Computers Bikes Germany 5 20 France 10 8 The opportunity cost of computers in terms of bikes is: a) 4 in Germany and 1.25 in France b) 0.25 in Germany and 1.25 in France c) 0.25 in Germany and 0.8 in France d) 4 in Germany and 0.8 in France e) None of the above Question 10 Consider again the total production possibilities for Germany and France from question 9. We can say that: a) Germany has a comparative advantage in computers, France has a comparative in bikes b) France has a comparative advantage in computers, Germany has a comparative advantage in bikes c) Germany has a comparative advantage in both goods d) France has a comparative advantage in both goods e) Neither country has a comparative advantage in any good Question 11 Pizza and hamburgers are substitutes for consumers. A fall in the price of a pizza: a) Raises the price of a hamburger and decreases the quantity of hamburgers b) Lowers the price of a hamburger and decreases the quantity of hamburgers c) Raises the price of a hamburger and increases the quantity of hamburgers d) Lowers the price of a hamburger and increases the quantity of hamburgers e) Does not affect the price of a hamburger and does not affect the quantity of hamburgers Question 12 The supply and demand curves for a good in a perfectly competitive market are 𝑆! and 𝐷!. This good generates a negative externality in production and a positive externality in consumption. Which intersection A, B, C, D or E could represent the socially optimal equilibrium? a) Intersection A b) Intersection B c) Intersection C d) Intersection D e) Intersection E Question 13 A price-discriminating firm will adjust prices so that customers with more _______ demand pay ______ customers with ________ elastic demand. a) elastic; less than; less b) inelastic; less than; less c) elastic; the same as; more d) elastic; more than; less Question 14 Because of large R&D costs, pharmaceutical companies typically face high fixed costs when developing new drugs. The marginal cost of producing a drug after development is very low, often close to zero. When these companies set their price and output to maximize profit, patients pay a ___________ price for a _________ quantity of the drug than in socially optimal. a) lower; smaller b) higher; larger c) lower; larger d) higher; smaller Question 15 When the marginal benefit of an activity is equal to the marginal cost of the activity, the decision maker should do _________ of the activity. a) less b) that exact amount c) more d) none Question 16 Instant noodles are an inferior good. Hence, a decrease in people's incomes a) shifts the supply curve of instant noodles leftward. b) shifts the demand curve for instant noodles rightward. c) shifts the demand curve for instant noodles leftward. d) decreases the quantity of instant noodles supplied. e) does not affect the supply or demand curve Question 17 Which of the following is an example of a positive statement? a) The government should not redistribute income. b) A 10% increase in income leads to a 5% increase in the consumption of pizza. c) Taxes on wages should be lower because then people get to keep more of what they earn, so they will work more. d) We should cut back on our use of carbon-based fuels such as coal and oil. e) The government should eliminate labor unions given their negative impact on productivity. Question 18 A society consists of only two people: Bert and Ernie. Bert has an income of €10000 and Ernie has an income of €30000. What is the Gini index in this society? a) 0 b) 1 c) 0.5 d) 0.25 Question 19 A teacher decides to stop working and focus full-time on household production (raising his children, cleaning the house, cooking,…). The opportunity cost of this decision depends on: a) the cost of his studies to become a teacher b) the wage of this teacher on the labor market c) the satisfaction this person obtains from doing household work d) the time the individual needs to invest in household work e) the wage that his wife earns on the labor market Question 20 Because of excellent weather conditions, the supply of cacao beans on the world market has increased. Cacao beans are used as an input in the production of chocolate. At the same time, a new study shows that chocolate has positive effects on the development of the brain of young children. What happens now on the market for chocolate? a) The supply curve shifts leftward and the demand curve remains unchanged. b) The supply curve shifts rightward and the demand curve remains unchanged. c) The supply curve shifts leftward and the demand curve shifts rightward. d) The supply and demand curves both shift rightward. e) The equilibrium price of chocolate will decrease. Question 21 If marginal costs of production are less than marginal benefits of production, a) costs will eventually decrease. b) too much of the good is being produced. c) more of the good should be produced. d) not all costs are being considered. Question 22 Suppose the price elasticity of supply for a product is zero. This means that: a) There is a shortage. b) The firm makes the same amount of the product even if the price changes. c) The firm makes the same amount of revenue even if the price changes. d) No one wants to buy the good. e) The supply curve is horizontal. Question 23 The supply and demand curves for a good in a perfectly competitive market are 𝑆! and 𝐷!. This good generates a negative externality in production and a negative externality in consumption. Which intersection A, B, C, D or E could represent the socially optimal equilibrium? a) Intersection A b) Intersection B c) Intersection C d) Intersection D e) Intersection E Question 24 Suppose that the demand for train tickets is given by P=100-2Q. Then demand is unitary elastic at the point a) Q=0 b) Q=5 c) Q=10 d) Q=25 e) Q=50 f) Q=100 Question 25 Consider the market for bananas. The original equilibrium quantity of bananas is 300. The government then imposes a tax on banana suppliers. At the new equilibrium, the price paid by buyers has risen by €3 and the price received by sellers fell by €2 (compared to the original equilibrium price). The government collects €1000 as revenue from the tax. What is the deadweight loss of this tax? a) Not enough information is given b) €100 c) €125 d) €250 e) €500 Question 26 An industry that is dominated by a few firms that recognize their interdependence is a) a monopoly. b) an oligopoly. c) characterized by monopolistic competition. d) characterized by perfect competition. Question 27 Firm A and firm B are the only two firms in the market. Both firms can decide to market or not market their new product. The following pay-off matrix shows the profits of both firms in this simultaneous game. What is the Nash Equilibrium in the previous game? a) Firm A markets its new product and firm B markets its new product. b) Firm A markets its new product and firm B does not market its new product. c) Firm A does not market its new a product and firm B markets its new product. d) Firm A does not market its new a product and firm B does not market its new product. e) There is no Nash Equilibrium. f) There are multiple Nash equilibria. Question 28 Long run equilibrium under monopolistic competition requires that a) the demand curve intersects the average cost curve. b) the demand curve be tangent to the average cost curve. c) price be equal to marginal cost. d) price be less than marginal cost. e) quantity produced be at the point where average cost is at a minimum. Question 29 If the marginal social benefit received from a good is less than the marginal social cost of production, a) an increase in production will improve society’s well-being. b) a decrease in production will improve society’s well-being. c) no change in production can improve society’s well-being. d) the market is producing too little of the good. e) the good should not be produced. Question 30 Homer likes to eat donuts. Each month he spends $40 on donuts, regardless of the price. His price elasticity of demand for donuts is: a) zero b) one c) greater than one. d) between zero and one. e) not enough information is given. Question 31 Suppose that the demand curve is : 𝑄" = 50 − 2𝑃 and the supply curve is 𝑄# = 3𝑃. Suppose that the government imposes a price floor of €12 a unit. Which of the following statements is true? a) There is a shortage of 22 units. b) There is a surplus of 22 units. c) There is a surplus of 10 units. d) There is a shortage of 10 units. e) There is no surplus or shortage. Question 32 Bart purchased a second hand bike for €25. One month later, someone offered him €100 for the bike. Bart refused. One can conclude that Bart’s consumer’s surplus from the bike is: a) Less than €25 b) Exactly €25 c) Between €25 and €75 d) At least €75 e) At least €100 Question 33 Suppose that the average product of labor is greater than the marginal product of labor. Which of the following statements is true? a) The marginal product of labor must be increasing as labor increases. b) There must be increasing marginal returns. c) The average product of labor is decreasing as labor increases. d) None of these statements are true e) Statement a,b and c are all true. Question 34 Suppose that a company doubles the quantity of all inputs in the production process. This leads to an increase in output from 5000 to 10000. This is an example of a) Increasing returns to scale b) Constant returns to scale c) Decreasing returns to scale d) Zero returns to scale e) Increasing marginal product of labor Question 35 If a good is a public good, a) anyone can be excluded from enjoying its benefits. b) consumers pay a low price. c) no one can be excluded from enjoying its benefits. d) economies of scale exist over the entire range of output for which there is a demand. e) consumers must pay a high price to enjoy its benefits. Question 36 Germany and France produce 2 goods (computers and bikes) The following table shows the total production possibilities for both countries. Computers Bikes Germany 5 40 France 10 16 The opportunity cost of computers in terms of bikes is: a) 8 in Germany and 2.5 in France b) 0.5 in Germany and 2.5 in France c) 0.5 in Germany and 1.6 in France d) 8 in Germany and 1.6 in France e) None of the above Question 37 Germany and France produce 2 goods (computers and bikes) The following table shows the total production possibilities for both countries. Computers Bikes Germany 5 40 France 10 16 We can say that: a) Germany has a comparative advantage in computers, France has a comparative in bikes b) France has a comparative advantage in computers, Germany has a comparative advantage in bikes c) Germany has a comparative advantage in both goods d) France has a comparative advantage in both goods e) Neither country has a comparative advantage in any good Question 38 In general, the marginal revenue a monopolist receives from selling one more unit of a good is less than the price of that unit because a) of the law of diminishing returns. b) of increasing opportunity costs. c) of constant returns to scale. d) the demand curve slopes downward. e) average total cost declines. Question 39 Instant noodles are an inferior good. Hence, an increase in people's incomes a) shifts the supply curve of instant noodles leftward. b) shifts the demand curve for instant noodles rightward. c) shifts the demand curve for instant noodles leftward. d) decreases the quantity of instant noodles supplied. e) does not affect the supply or demand curve Question 40 Which of the following statements is correct? a) The Gini index will increase when a progressive income tax system is introduced. b) Introducing more selectivity in social insurance goes against the insurance principle of social security. c) The Lorenz curve will shift further off the diagonal when a progressive income tax system is introduced. d) The higher the poverty level in a society, the higher the Gini index. e) The number of people living in extreme poverty has increased between 1990 and 2020. Question 41 Which of the following statements is correct for a price increase? a) When demand is inelastic, total revenue will decrease. b) When demand is elastic, total revenue will decrease. c) When demand is unitary elastic, total revenue will increase. d) When demand is unitary elastic, total revenue will decrease. e) When demand is elastic, total revenue will increase f) None of the above statements is correct. Question 42 The optimal level of pollution is the quantity at which a) the total benefit of pollution exceeds its total cost by the greatest possible amount. b) the total benefit of pollution equals its total cost. c) the marginal social benefit of an additional unit of pollution is greater than the marginal social cost of the additional unit. d) the marginal social benefit of an additional unit of pollution is less than the marginal social cost of the additional unit. e) the total benefit of pollution is maximized. Question 43 Assume that a monopoly firm is currently earning economic profits. If a permanent change in fixed costs raises average total cost above the demand curve, a) price will fall and output will rise. b) more firms will enter the industry. c) the monopoly will go out of business in the absence of government intervention. d) marginal cost will be greater than marginal revenue. Question 44 If consumers think that there are very few substitutes for a good, then a) supply would tend to be price elastic b) supply would tend to be price inelastic c) demand would tend to be price elastic d) demand would tend to be price inelastic e) none of these answers Question 45 Which of the following statements is true? a) For a price ceiling to be a binding constraint on the market, the government must set it above the equilibrium price. b) A binding price ceiling creates a shortage. c) A price floor always determines the price at which a good must be sold. d) Restricting petrol prices to €1 per liter when the equilibrium price is €1.5 per liter is an example of a price floor. e) A price floor sets a maximum on the price at which a good can be sold. Question 46 Three identical vases are available for purchase. Suppose that buyer 1 is willing to pay €30 for one, buyer 2 is willing to pay €25 for one, and buyer 3 is willing to pay €20 for one. If the price is €25, how many vases will be sold and what is the value of consumer surplus in this market? a) One vase will be sold and consumer surplus is €5. b) One vase will be sold and consumer surplus is €30. c) Two vases will be sold and consumer surplus is €5 d) Two vases will be sold and consumer surplus is €55. e) Three vases will be sold and consumer surplus is €0. f) Three vases will be sold and consumer surplus is €75. Question 47 A monopolist’s profit maximizing output occurs where marginal revenue __________ marginal cost. The monopolist’s supply curve ______________. a) equals; does not exist b) exceeds; does not exist c) equals; is upward sloping d) exceeds; is upward sloping e) equals; is perfectly elastic f) exceeds; is perfectly elastic Question 48 If a monopolist is producing a quantity where MC