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1. If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price,
demand is classified as:
a. Unstable.
b. Relatively inelastic.
c. Relatively elastic.
d. Of unitary elasticity.
2.
If a demand curve for a good were completely vertical, it would be considered:
a. Perfectly elastic.
b. Perfectly inelastic.
c. Of unitary elasticity.
d. Relatively inelastic.
3. The price elasticity of demand for gasoline measures the:
a. Responsiveness of gasoline producers to changes in the quality of gasoline.
b. Responsiveness of customers to changes in the price of gasoline.
c. Responsiveness of consumer preferences to changes in the quality of gasoline.
d. Both a and c above.
4. A perfectly elastic demand curve has an elasticity coefficient of:
a. 0.
b. 1.
c. Less than 1.
d. Infinity.
5. If the income elasticity of demand for a good is negative, the good is an inferior good.
a. True
b. False
6. If the supply of a good is inelastic, a decrease in price must increase total revenue.
a. True
b. False
7. If demand for a good is price elastic, it must also be income elastic.
a. True
b. False
8. Goods with few available substitutes tend to have inelastic demand curves.
a. True
b. False
9. A firm that earns zero accounting profit is earning a normal profit.
a. True
b. False
10. Economic profit is the difference between total revenue and implicit costs.
a. True
b. False
11. A cost of resources used in production for which no actual monetary payment is made is a (n) __________ cost.
a. Tacit
b. Implicit
c. Covert
d. Explicit
12. Which of the following statements is true?
a. Costs are always explicit, never implicit.
b. Costs are always implicit, never explicit.
c. George runs a stationery shop; he paid Frank $5,000 for the carpet he installed in the
shop. The $5,000 for carpet is an implicit cost.
d. An implicit cost is a cost that represents the value of resources used in production for
which no actual monetary payment is made.
e. None of the above
13. Economic profit is the difference between total revenue and
a. Explicit costs.
b. Implicit costs.
c. Sunk costs.
d. The sum of explicit and implicit costs.
14. An unrecoverable cost that should be disregarded in any current or future decision is also called a(n) __________ cost.
a. Sunk
b. Explicit
c. Implicit
d. Variable
15. Costs that do not change with output are called __________ costs.
a. Marginal
b. Average
c. Fixed
d. Variable
16. The change in total cost that results from a change in output is __________ cost.
a. Average fixed
b. Average variable
c. Average total
d. Marginal
17. The law of diminishing marginal returns holds for a situation in which
a. All inputs are variable.
b. All inputs are fixed.
c. Some inputs are variable and some inputs are fixed.
d. All inputs are increased in the same proportion.
18. In the long run,
a. All costs are variable costs.
b. All costs are fixed costs.
c. There are no variable costs.
d. b and c
e. All inputs are increased in the same proportion.
19. If the owners of a firm earn accounting profit, it follows that
a. They will earn economic profit, too.
b. Their explicit costs are greater than their implicit costs.
c. Their implicit costs are greater than their explicit costs.
d. They will not earn economic profit.
e. None of the above
20. Total costs are
a. Fixed costs plus average total costs.
b. Average fixed costs plus variable costs.
c. Fixed costs plus variable costs.
d. Fixed costs minus variable costs.
e. Fixed costs divided by total variable costs.
21. Constant returns to scale are said to exist when inputs are increased by some percentage
and output increases by a(n) __________ percentage, causing unit costs to __________.
a. Greater; fall
b. Smaller; fall
c. Greater; rise
d. Smaller; rise
e. Equal; remain constant
22. The change in output that results from changing a variable input by one unit, holding all
other inputs fixed, is called the marginal __________ product of the variable input.
a. Physical
b. Value
c. Average
d. Explicit
23. Economies of scale are relevant to the __________, whereas the law of diminishing
marginal returns is relevant to the __________.
a. Long run; short run
b. Short run; long run
c. Industry; firm
d. Firm; industry
e. Firm in the short run; industry in the long run
24. __________ scale exist when inputs are increased by some percentage and output
increases by a smaller percentage, whereas __________ scale exist when inputs are increased
by some percentage and output increases by the same percentage.
a. Economies of; diseconomies of
b. Constant returns to; economies of
c. Diseconomies of; constant returns to
d. Diseconomies of; economies of
25. The law of diminishing marginal returns
a. Is a short run concept.
b. Is a long run concept.
c. Is both a short run and a long run concept.
d. Does not hold in the real world.