Figure 7

Assume that the following information is for Good A.

Price of Good A Income of Good A Quantity demanded

Consumers of Good A

$5.00 $200 20

$4.00 $175 40

$3.00 $150 60

$2.00 $125 90

$1.00 $100 100

16. What would be the effect on total revenue of changing the price from $5.00 to $4.00, based on the information in Figure 7?

1. Increase by $160

2. Increase by $100

3. Increase by $60

4. Decrease by $700

5. Decrease by $300

17. Based on the information in Figure 7 it can be correctly concluded that good A is

1. A normal good

2. An inferior good

3. A Giffen good

4. A good with a positive externality

5. A good with a negative externality

18. In order for resources to be efficiently allocated, what rule must be satisfied?

1. MR=MC

2. P=AC

3. P=MR

4. P=MC

5. P=AR

Figure 8

19. Given that MSC is marginal social cost and MPC is marginal private cost, based on the two graphs in Figure 8, it can be correctly concluded that

1. Both graphs demonstrate the existence of externalities

2. Both graphs demonstrate the existence of negative externalities

3. Both graphs demonstrate the existence of positive externalities

4. Graph A demonstrates inefficiency through underproduction

5. Graph B demonstrates inefficiency through overproduction

20. If a natural disaster occurs that adversely affects production and shipping,

1. the firm’s supply curve will shift to the right

2. the firm’s demand curve will shift to the right

3. the firm’s demand curve will shift to the left

4. the firm’s supply curve will shift to the left

5. Neither curve will shift, but instead movement will be along each curve

21. If supply and demand both increase, we can correctly conclude that

1. Equilibrium price will rise

2. Equilibrium price is indeterminate

3. Equilibrium quantity will rise

4. Equilibrium quantity is indeterminate

1. I only

2. I and III only

3. II and IV only

4. II and III only

5. I and IV only

22. Market based economies allocate resources in which of the following ways?

1. Established customs and traditions decide which goods and services will be produced

2. Voluntary exchange determines which goods and services get produced

3. Government determined prices help producers allocate scarce resources

1. I only

2. II only

3. III only

4. I and II only

5. II and III only

23. If an increase in the price of one good increases the demand for another good, then these two goods are

1. regular goods

2. substitute goods

3. public goods

4. complementary goods

5. independent goods

24. Which of the following is true about the distances between average variable cost and average total cost when graphed?

1. As output increases the difference between them gets smaller

2. As output increases the difference between them gets larger

3. Is equal to average fixed cost at all levels of output

4. Is zero at all levels of output

5. A and C are both correct

25. Game theory, and price leadership are explanations for the profit-maximizing behavior of a firm under which of the following market structures?

1. Pure monopoly

2. Oligopoly

3. Monopolistic competition

4. Perfect competition

5. All of the above market structures

26. If your insurance company informed you that your insurance premium had been increased, what effect would this have on your business?

Average Variable Cost Average Fixed Cost Marginal Cost

1. No Change No Change No Change

2. No Change Increase No Change

3. Increase Increase No Change

4. Increase Increase Increase

5. No Change Increase Increase