Microeconomics Online Practice Test No. 1 PDF

Multiple Choice Questions 1. Which of the following statements is true about scarcity? a. Scarcity is not a problem for the wealthy. b. Scarcity is only a problem when a country has too large a population. c. Scarcity arises when there is a wide disparity in income distributio...

Multiple Choice Questions 1. Which of the following statements is true about scarcity? a. Scarcity is not a problem for the wealthy. b. Scarcity is only a problem when a country has too large a population. c. Scarcity arises when there is a wide disparity in income distribution. d. None of the above 2. A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes? a. Marginal Revenue b. Marginal Profit c. Net Profit d. Gross Earnings 3. Refer to the figure below According to the figure above, point A is: a. Technically efficient b. Inefficient in that not all resources are being used c. Unattainable with current resources d. The equilibrium output combination 4. Trina's Tropical Fish Store sells goldfish for $2 each and angelfish for $10 each. What is the opportunity cost of buying a goldfish? a. 5 angelfish b. 1/5 of an angelfish c. $10 d. $2 1|Page  5. Serena Hayley Bracelets Necklaces Bracelets Necklaces 8 0 9 0 0 10 0 12 The table above shows the output per week of two jewellers, Serena and Hayley. They can either devote their time to making bracelets or making necklaces Refer to the table above, which of the following statements is true? a. Hayley has a comparative advantage in making both products. b. Serena has the comparative advantage in making necklaces and Hayley has the comparative advantage in making bracelets. c. Hayley has the comparative advantage in making necklaces and Serena has the comparative advantage in making bracelets. d. None of the above is correct 6. If, in response to an increase in the price of chocolate, the quantity of chocolate demanded decreases, economists would describe this as a. A decrease in demand b. A decrease in quantity demanded c. A decrease in consumers’ taste for chocolate d. All of the above are correct 2|Page 7. Refer to the graph above, if the product in question is an inferior good, an increase in income would be represented by a movement from: a. A to B b. B to A c. D1 to D2 d. D2 to D1 8. Which of the following would cause a decrease in the supply of drinking milk? a. An increase in the price of cookies (assuming that milk and cookies are complements) b. A decrease in the price of milk c. An increase in the price of cheese, which producers make and sell alongside drinking milk d. An increase in the number of firms that produce milk 9. Assume that both the demand curve and the supply curve for MP3 players shift to the right, but the supply curve shifts more than the demand curve. As a result, a. Both the equilibrium price and quantity of MP3 players will decrease. b. The equilibrium price of MP3 players will decrease; the equilibrium quantity will increase. c. The equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will increase. d. The equilibrium price of MP3 players will increase; the equilibrium quantity will decrease. 10. Blu-ray players were introduced to the market in 2006, and new technology has allowed for the cost of manufacturing the players to decline significantly since their initial introduction. How did this change in technology affect the market for Blu-ray players? a. The new technology caused an increase in the supply of Blu-ray players. Price decreased, which would lead to an increase in demand of Blu-ray players. b. The new technology caused an increase in the supply of Blu-ray players. Price decreased, but the demand of Blu-ray players stayed the same. c. The new technology caused an increase in the quantity of Blu-ray players supplied d. None of the above 3|Page 11. Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50, the quantity demanded falls from 800 to 600 reams per day. Using the midpoint formula, what is the price elasticity of demand (in absolute value) over this range? a. 0.003 b. 0.41 c. 2.43 d. 4 12. The first movie in the new reboot of the Twilight series has been released on Blu-ray (Honestly, who on earth ever asks for this???). Swinburne Bookshop owns the exclusive right to sell this movie in Victoria. The table below contains data collected by Swinburne regarding possible prices, quantities and revenue earned. Price Quantity Revenue 10 238 $2,380 20 138 $2,760 30 100 $3,000 Based on the table above, which of the following statements is true? a. The demand for this movie is elastic because when price rises, the quantity demanded falls. b. The demand for this movie is inelastic because when price rises, the total revenue earned rises. c. This movie is a normal good because when price rises, the quantity demanded falls. d. More information must be provided to determine the price elasticity of demand for this movie. 13. If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would a. Also double. b. Decrease by 50 percent. c. Be cut in half. d. Remain constant. 14. The price elasticity of demand for beef is estimated to be -0.60. This means that a 20 percent increase in the price of beef, holding everything else constant, will cause the quantity of beef demanded to a. Decrease by 12 percent b. Decrease by 26 percent c. Decrease by 32 percent d. Decrease by 60 percent 4|Page 15. Seth is a competitive body builder. He says he has to have his 12-gram package of protein powder to 'feed his muscles' every day. On the basis of this information, what can you conclude about his price elasticity of demand for protein powder? a. It is elastic b. It is perfectly elastic c. It is perfectly inelastic d. The price elasticity coefficient is 0. 16. A firm increased its production and sales because the firm's manager rearranged the layout of his factory floor. This is an example of a. Investment in human capital b. Economies of scale c. Positive technological change d. Inspired management 17. Red Stone Creamery currently hires 5 workers. When it added a 6th worker, its output actually fell. Which of the following statements is true? a. The marginal product of the sixth worker must be negative. b. The average product of the sixth worker is negative. c. The sixth worker is not as skilled as the fifth worker. d. The total product becomes negative. 18. When a firm produces 50 000 units of output, its total cost equals $6.5 million. When it increases its production to 70 000 units of output, its total cost increases to $9.4 million. Within this range, the marginal cost of an additional unit of output is a. $41.43 b. $134.29 c. $135 d. $145 19. Suppose you have just opened a store to sell espresso machines. Both you and a competing store buy this machine from a manufacturer for $130 each. Your competitor, who has a store of the same size as yours, is currently selling about 10 machines a month at a price of $200 per machine. You expect to sell about 6 machines a month at a price of $220 per machine. If you lower your price, you expect to incur a loss. Which of the following could explain why your competitor is able to profitably sell the machine at a lower price although the cost of purchasing the machine is the same for the both of you? a. The competing store probably has a lower marginal cost of production. b. The competing store probably has a lower average variable cost of production. c. The competing store probably has a lower average cost because average fixed cost falls as output increases. d. The competing store's goal is to maximise revenue and not profit. 5|Page 20. Ted runs a small manufacturing firm, making footy balls. The table below shows data regarding Ted’s monthly operation. Output Average Total Cost Marginal Cost 0 N/A N/A 100 2.5 2 150 1.8 0.4 200 1.6 1 250 2.8 7.6 Based on the table above, which of the following statements is true? a. Ted will maximise profits by producing 150 footy balls a month since the marginal cost will be at its lowest b. Ted will maximise profits by producing 200 footy balls a month since the average total cost will be at its lowest c. Ted should produce 250 footy balls a month as long as there is enough demand for Ted’s balls. d. More information is needed to determine the level output which would help Ted maximise his profits. 6|Page Multiple Choice Questions 1. D 2. A 3. B 4. B 5. C 6. B 7. D 8. C 9. B 10. B 11. C 12. B 13. D 14. A 15. C 16. C 17. A 18. D 19. C 20. D 7|Page