Section 1

 People respond to incentives _______.

by ignoring negative incentives and responding to positive

A
incentives only
B only when they are irrational
by calculating their individual costs and benefits and
C
determining which is greater
D when they have low incomes

 Because the resources immediately available for

use are limited ___________.

A only the wealthiest people will get everything they want

B people must make choices about resource use
eventually population growth will exceed resource
C
availability, leading to famine and starvation
markets can become arenas for vicious competition betwee
D
producers and consumers

 An incentive _______.

A is the opposite of a tradeoff

B could be a reward but could not be a punishment
C could be either a reward or a punishment
D could be a punishment but could not be a reward
  In economics, the opportunity cost of doing
something is_______.

A total costs
B the money, out-of-pocket expenditure
C the value of the next best opportunity not taken
D the value that you place on the opportunity taken

 The optimal amount of studying is determined by

comparing the_______.

A marginal benefit and the total cost of studying

B marginal benefit and the total benefit of studying
C marginal benefit and the marginal cost of studying
D total benefit and marginal cost of studying

Section 2

 For any good or service, we can represent the

quantity demanded under various prices by
_________.

A a demand curve
B a point on a demand curve
the value of goods and services purchased and held by
C
consumers
D the intercept on the Y-axis
  Potatoes are used in the production of potato
chips. Suppose the price of potatoes falls. Then,
_______.

A it is likely that the demand for potato chips will fall

it is likely that a movement along the supply curve of potato
B
chips will occur
C it is unlikely that there will be a change in demand or suppl
D it is likely an outward shift in the supply curve of potato chi

 Given that digital music players are used to play

music downloaded from the Internet, a fall in the
price of digital music players will lead to_______.

A an increase in the price of broadband plans

B an increase in the price of personal laptops
C an increase in the demand for downloaded songs
D a decrease in the price of a song download

 Which of the following would necessarily cause a

decrease in the price of a product?

An increase in the number of buyers and a decrease in the

A
price of an input.
An increase in the number of buyers and a decrease in the
B
number of firms producing the product.
A decrease in the price of a substitute product and an
C
improvement in production technology.
An increase in average income and an improvement in
D
production technology.
  Suppose the price of hamburgers rises, and you
observe that as a result, the demand for hotdogs
rises. This makes hotdogs and hamburgers_______.

A normal goods
B complements
C substitutes
D inferior goods

Section 3

 Suppose the demand is perfectly inelastic. The

implication would be that the smallest change in
price would result in ________.

A no change in quantity
B a small change in quantity
C no change in price
D a small change in price

 For goods and services that have an elastic

demand, if price is increased, total revenue_______.

A does not change

B is not a function of price
C decreases
D increases
  Goods and services that are independent of each
other have a cross elasticity of demand that
is________.

A negative
B positive
C 0
D positive infinity

 A perfectly elastic demand is a ___________ curve.

A vertical
B horizontal
C negative
D positive

 Which of the following products is likely to have

the most elastic demand?

A Cigarettes
B Coca Cola
C Life-saving medicine
D Gasoline
Section 4

 What of the following statements best

summarizes the law of diminishing marginal
returns?

As more labor is hired, the length of time that defines the

A
short run diminishes.
B In the short run, as more labor is hired, output diminishes.
In the short run, the amount of labor a firm will hire
C
diminishes as output increases.
In the short run, as more labor is hired, output increases at
D
diminishing rate.

 A legal entity, in its own right, that can be closely

held (with few shareholders) or widely held (with
hundreds of thousands of shareholders is
called________.

A sole proprietorship
B partnership
C cooperative
D corporation

 All other inputs remaining the same, the

additional output that may result from an
additional unit of labor is________.

A marginal cost
B marginal product
C marginal revenue
D marginal utility
  Average total costs are equal to which of the
following?

The sum of average variable costs, average fixed costs, and

A
marginal costs
B The product of average variable costs and quantity produce
C Total variable costs divided by total marginal costs
D The sum of average variable costs and average fixed costs

 Profit maximization occurs when _____________.

firm expands output until marginal revenue is exceeded by

A
marginal cost
a firm expands output until marginal revenue is equal to
B
marginal cost
the price in the market is equal to the firm’s marginal
C
revenue
D total costs equal total revenue