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Qd (units)
200
160
120
80
40
0
Qs (units)
0
0
40
80
120
160
8. This question is based on Table 1 above. At Qs of 120 units, the highest price
consumers are willing to pay is
(a) $0.20 per unit.
(b) $0.40 per unit.
(c) $0.30 per unit.
(d) $0.5 per unit.
9. Use the data in Table 1 above to answer this question. The equilibrium quantity is
(a) 40 units.
(b) 60 units.
(c) 80 units.
(d) 100 units.
10. In Figure 1 below, a price ceiling at P0 means that
(a) the market is in equilibrium because quantity demanded equals quantity supplied.
(b) there is a surplus in the market equal to the distance AB.
(c) there is a shortage in the market equal to the distance 0Q1.
(d) there is a shortage in the market equal to the distance Q1Q0.
11. In Figure 1 below, excess demand at the _________ of P1 is represented by the
distance AB. The missing words are
(a) price ceiling
(b) price floor
(c) minimum price
(d) consumer surplus
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FIGURE 1
12. If South Carolina experiences a late frost that damages the state's peach crop,
then we would expect
(a) the demand curve for peaches to shift downward and to the left.
(b) the supply curve for peaches to shift outward and to the right.
(c) the demand curve for peaches to shift upward and to the right.
(d) the price of nectarines, a substitute fruit, to rise.
13. One example of a centrally planned market is
(a) the toothbrush market.
(b) the market for Toyota cars.
(c) many self-interested agents making decisions.
(d) a law requiring flour to be sold at $3 per kg.
14. Gina, a photographer, decides to go to the movies with her friends on Saturday
instead of photographing a wedding for $1000. The opportunity cost she places on
photographing the wedding is
(a) the $1000 she would earn.
(b) the enjoyment of spending the day with her friends at the movies.
(c) the $1000 minus the enjoyment she would have received from being at the
movies with her friends.
(d) nothing, as she was not going to earn any money at the movies.
15. Suppose that an increase in the price of garden sheds from $650 to $850
prompts gardening shops to increase the quantity of the garden sheds that they offer
from 80 to 320. Using the midpoint method, what would be the elasticity of supply?
(a) 0.50.
(b) 4.5.
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(c) 0.34.
(d) 1.08.
16. Income elasticity of demand allows us to distinguish between different kinds of
goods since
(a) inferior goods have a negative income elasticity.
(b) luxury goods have an income elasticity greater than 1.
(c) necessities have an income elasticity between 0 and 1.
(d) All of the above.
17. A recent government survey shows that when the price of cigarettes rises by
10%, the quantity demanded falls by 17%. The price elasticity of demand for
cigarettes is
(a) elastic.
(b) inelastic.
(c) unit elastic.
(d) There is not enough information to answer the question.
18. In comparison to the price a perfectly competitive firm charges, monopoly pricing
has the effect of causing
(a) the level of output to be higher.
(b) the price of output to be higher.
(c) consumer surplus to be larger.
(d) All of the above are correct.
19. Coordination of economic activity in a market economy is achieved by
(a) government regulations.
(b) banks and other financial intermediaries.
(c) planning agencies within government.
(d) prices.
20. The concept of opportunity cost is best represented by the
(a) shift of a production possibilities curve frontier.
(b) shift of a production possibilities frontier inwards.
(c) movement along a production possibilities frontier from one point to another.
(d) movement from point on a production possibilities frontier to a point inside the
same curve.
21. Singapore city council is trying to quantify the social cost of smoking in order to
determine the optimal value of a tax on smoking. What factors should they include
when calculating the social cost of smoking?
(a) The chewing gum costs of the smokers and the price consumers pay for
cigarettes.
(b) The price consumers pay for cigarettes and the costs to the bystanders affected
by the air pollution.
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(c) The costs to the bystanders affected by the air pollution only.
(d) The price consumers pay for the cigarettes.
22. The value of the marginal product of any input is equal to the marginal product of
that input multiplied by the
(a) marginal cost of the output.
(b) change in total profit.
(c) market price of the output.
(d) additional revenue.
23. Which of the following statements about costs is correct?
(a) When marginal cost is less than average total cost, average total cost is rising.
(b) The total cost curve is U-shaped.
(c) As the quantity of output increases, marginal cost eventually rises.
(d) All of the above are correct.
24. Whenever marginal cost is greater than average total cost,
(a) marginal cost is rising.
(b) marginal cost is falling.
(c) average total cost is rising.
(d) average total cost is falling.
25. The firms efficient scale is the quantity of output that minimizes
(a) average total cost.
(b) average fixed cost.
(c) average variable cost.
(d) marginal cost.
26. In a competitive market, the actions of any single buyer or seller will
(a) have a negligible impact on the market price.
(b) have little effect on overall production but will ultimately change final product
price.
(c) cause a noticeable change in overall production and a change in final product
price.
(d) adversely affect the profitability of more than one firm in the market.
27. Which of the following statements is correct?
(a) A competitive firm is a price maker and a monopoly is a price taker.
(b) A competitive firm is a price taker and a monopoly is a price maker.
(c) Both competitive firms and monopolies are price takers.
(d) Both competitive firms and monopolies are price makers.
28. Assuming that James Bicycle Shop operates in a competitive market for bicycles,
which of the following statements is/are true?
(i) He chooses the price at which he sells his bicycles.
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(c) a firm will choose its best pricing strategy, given the strategies that it observes
other firms taking.
(d) a firm will not take into account the strategies of competing firms.
34. The logic of self-interest causes the duopolys output level to be which of the
following?
(i) above the monopoly level
(ii) above the oligopoly level
(iii) below the competitive level
(a) (i) and (ii).
(b) (i) and (iii).
(c) (ii) and (iii).
(d) (i), (ii) and (iii).
35. Reduced competition through merging of companies
(a) may raise social welfare if the benefit from the synergies exceeds the social cost
of increased market power.
(b) may raise social welfare if the cost from the synergies exceeds the benefit of
increased market power.
(c) will always benefit society as a whole.
(d) will never benefit society as a whole.
36. Product differentiation causes the seller of a good to face what type of demand
curve?
(a) Downward sloping.
(b) Upward sloping.
(c) Horizontal.
(d) Vertical.
37. A monopolistically competitive firm chooses
(a) the quantity of output to produce, but the market determines price.
(b) the price, but competition in the market determines the quantity.
(c) price, but output is determined by a cartel production quota.
(d) the quantity of output to produce and the price at which it will sell its output.
38. In the long run, a profit-maximising firm in a monopolistically competitive market
operates at
(a) efficient scale.
(b) a level of output at which average total cost is rising.
(c) a level of output at which average total cost is falling.
(d) the level of output at which total revenue is maximised.
39. Long-run profit earned by a monopolistically competitive firm is driven to the
competitive level due to a
(a) change in the technology that the firm utilises.
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Quantity demanded
1
2
3
4
5
6
7
The monopolist has total fixed costs of $60 and has a constant marginal cost of $18.
What is the profit-maximising level of production?
(a) 2 units.
(b) 3 units.
(c) 4 units.
(d) 5 units.
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Fixed
Costs
Variable
Costs
Total
Cost
0
1
2
3
4
5
6
7
8
9
10
TABLE 2
1,080
1,080
400
1,480
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
965
1,350
1,900
2,500
Marginal
Cost
400
450
2,430
475
216
4,280
4,100
5,400
7,300
700
135
10,880
980
43. What is the marginal cost of creating the 10th instructional module in a given
month?
(a) $900.
(b) $1,250.
(c) $2,500.
(d) $3,060.
44. What is the average variable cost for the month if 6 instructional modules are
produced?
(a) $180.
(b) $533.33.
(c) $700.
(d) $713.33.
45. What is the average fixed cost for the month if 9 instructional modules are
produced?
(a) $108.
(b) $120.
(c) $150.
(d) $811.11.
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46. How many instructional modules are produced when marginal cost is $1,300?
(a) 4.
(b) 5.
(c) 7.
(d) 8.
47. Residents of Hangzhou, China, like seeing fireworks during their Chinese New
Year celebration. Each of the citys one million residents places a value of $1 on the
fireworks experience. The cost of providing the fireworks is $250,000. Which of the
following statements is most correct?
(a) Because the collective benefits exceed the cost, the private market will provide
an efficient number of fireworks.
(b) An entrepreneur in Hangzhou is likely to provide some amount of fireworks for
residents of the city and the provision level is likely to be efficient.
(c) Fireworks are not excludable so private markets will not produce an efficient
outcome.
(d) Because China is a communist country, market incentives are irrelevant to how
people behave.
48. Which of the following is the most accurate statement about economic models?
(a) Economic models attempt to mirror reality exactly.
(b) Economic models are useful, but should not be used for policymaking.
(c) Economic models cannot be used in the real world because they omit details.
(d) Economic models omit many details to allow us to see what is truly important.
49. Suppose supply is perfectly inelastic, while demand is relatively elastic. A tax of
$1 is levied on the buyers of the good. Which of the following statements is correct?
(a) The government will fail to raise any tax revenue.
(b) There will be a positive deadweight loss.
(c) There will be no deadweight loss.
(d) Government revenue will be less than the deadweight loss of the tax.
Use the information in the statement below to answer questions 50 and 51.
Suppose the before-trade domestic price of corn in Australia is $15 per kg. The world
price of corn is $8 per kg. Australia is a price-taker in the corn market.
50. According to this statement, if trade in corn is allowed, the price of corn in Australia
will be
(a) equal to $8 per kg.
(b) equal to $15 per kg.
(c) less than $15 per kg.
(d) greater than $8 per kg.
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USA
Europe
TABLE 3
60. In Table 3, if USA and Europe trade according to the principle of comparative
advantage,
(a) USA will export cars and Europe will export aeroplanes.
(b) USA will export aeroplanes and Europe will export cars.
(c) USA will export cars and Europe will export cars.
(d) USA will export aeroplanes and Europe will export aeroplanes.
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