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level: Level 1

Questions and Answers List

level questions: Level 1

Question	Answer
I. The economic surplus of a particular action is A) the value of the action. B) the cost of the action. C) the difference between the benefit and the cost of the action. D) the average of the benefits and costs. E) the ratio of the benefits to the costs.	C) the difference between the benefit and the cost of the action.
2. Marginal utility is defined as the A) additional utility gained by consuming an extra unit of a good. B) total utility from all units consumed of a good. C) average utility gained by consuming an average amount of the good. D) total utility gained by consuming an extra unit of a good. E) change in quantity divided by the change in utility.	A) additional utility gained by consuming an extra unit of a good.
3. If the price elasticity of demand for a good is greater than one, then the demand for that good, with respect to price, is A) elastic D) perfectly elastic B) inelastic E) perfectly inelastic C) unitary elastic	A) Elastic
4. Which one of the following detenninants will cause movements along the supply curve of goodX? A) the price of good X. B) the price of labor used in the production of good X. C) the amount of technology used in the production good X D) the cost of the plant used to produce good X. E) the price of fuel used in the production of good X.	A) the price of good X.
5.Between USA and Nepal, Nepal invests less in new factories and equipments. This will likely cause A) Nepal's production possibilities curve will shift outward faster than USA B) USA's production possibilities curve will shift inward faster than Nepal C) USA's production possibilities curve will shift outward faster than Nepal D) Nepal's production possibilities curve will shift inward faster than USA E) Nepal is producing inside its production possibilities curve, but USA is producing at a point on its production possibilities curve	D) Nepal's production possibilities curve will shift inward faster than USA
6. lf a nation has the lowest opportunity cost of producing a good, that nation has a(n) A) comparative advantage. B) absolute advantage. C) comparative and absolute advantage. D) absolute advantage and possible a comparative advantage. E) relative advantage.	A) comparative advantage.
7. Deadweight loss is A) present in all markets. B) the difference between consumer surplus and producer surplus. C) positive in markets where equilibrium is distorted by price controls or taxes. D) always larger than consumer surplus. E) always smaller than producer surplus.	C) positive in markets where equilibrium is distorted by price controls or taxes.
8. A profit maximizing perfectly competitive firm must decide A) only on what price to charge, taking output as fixed. B) both what price to charge and how much to produce. C) only on how much to produce, taking price of the good as fixed. D) only on which industry to join, taking price and output as fixed. E) only on how much revenue it wishes to collect.	B) both what price to charge and how much to produce.
9.The reason we observe the law of diminishing marginal returns is that A) as production expands, the firm is forced to hire low quality workers. B) firms become less efficient as they produce more. C) workers become fatigued as they are required to produce more. D) equipment breaks down more frequently as production expands. E) the production facility eventually becomes congested if the fim1 keeps hiring workers.	E) the production facility eventually becomes congested if the fim1 keeps hiring workers.
10. If a monopolist is facing a market demand curve equal to P=70-14 *Q, then the slope of the monopolist's marginal revenue curve is A) -28. B) -14. C) -7. D) -1. E) insufficient infonnation is provided to detem1ine the slope.	A) -28.
11. Which of the following is an example of an activity with an external cost? A) Raising honeybees where neighbors on all sides grow apples. B) Keeping the front yard clean. C) Reading a book. D) Having to buy batteries for the new remote that came with a TV. E) Dumping chemicals in a lake	E) Dumping chemicals in a lake
12. The tragedy of the commons refers to the A) overuse of resources that have no price. B) plight of the common man. C) under production of external benefits. D) pollution of our natural resources. E) overuse of resources that have no cost.	A) overuse of resources that have no price.
13. Suppose, production of a good is accompanied by an external cost= $2/unit, social MC equals A) private MC - $2 D) private demand - $2 B) private MC + $2 E) private demand + $2 C) private MC - $0	B) private MC + $2
14. In the case of either a positive or negative externality, it will always be true that, relative to the social optimum, A) the price will be too low. D) demand curve will be lower. B) the price will be too high. E) supply curve will be higher. C) the quantity will be too large.	A) the price will be too low.
15. Constant returns to scale occur when a doubling of all inputs A) doubles the price of outputs. B) more than doubles output. C) less than doubles the price of the inputs. D) exactly doubles output. E) less than doubles output.	D) exactly doubles output.
16. As the price of gasoline increases, the quantity demanded of gasoline decreases. This is an application of A) the law of supply B) environmental economics C) the law of demand D) how government organizations deal with pollution E) needs versus wants	C) the law of demand
17. Market power measures the film's ability to A) under cut its competitors. B) resist union wage demands. C) raise its price without losing all of its sales. D) influence the price its competitors charge. E) force consumers to pay higher prices.	C) raise its price without losing all of its sales.
18.For two goods, A and B, the rational spending rule is expressed as A) MUA =MUB. B) MUAMUB =PA PB. C) (MUA /PB)= (MUB IP A)- D) (MUA IP A)= (MUB / PB)- E) (MU A I MUB) = (PB IP A)-	C) (MUA /PB)= (MUB IP A)-
19.In a competitive labor market, the equilibrium wage rate is detennined by A) custom and tradition. B) employers. C) the intersection of labor demand and labor supply. D) employees. E) government regulation.	C) the intersection of labor demand and labor supply.
20.The general rule governing the hiring of workers is to A) minimize labor costs. B) minimize labor costs per unit. C) equate total labor costs to total labor benefits. D) maximize marginal product. E) equate marginal labor costs to marginal labor benefits.	E) equate marginal labor costs to marginal labor benefits.