1. Increases in farm productivity have lowered the prices of many agricultural products.

Farm revenues decreased, which implies that the:

A) demand for many agricultural products is inelastic.
B) costs of production increased.
C) demand for many agricultural products is elastic.
D) costs of production stayed the same.

2. Suppose you have ordered a value meal at a local fast-food restaurant. The cashier asks if
you would like to “super-size” your meal. In order to make an efficient decision, you
should compare:
A) the total cost of the larger, “super-sized” meal versus the total benefits received.
B) the additional cost of the larger meal versus the additional benefits received.
C) the total cost of the larger meal versus the additional cost to the restaurant.
D) the benefits of the smaller meal versus the additional benefits obtained from
consuming the “super-sized” meal.

Use the following to answer question 3:

Figure: Demand and Supply

3. (Figure: Demand and Supply) Refer to the figure. Which statement is TRUE?
A) The gains from trade are maximized at 20 units of output.
B) At 16 units of output, there are unexploited gains from trade.
C) Buyers are willing to pay $20 for the 16th unit of output and it costs sellers $60 to
produce that unit.
D) A free market is likely to produce less than 12 units of output.

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 4. Institutions that support economic growth are the ones that:
A) encourage consumption and discourage savings.
B) give the government more control over what is produced and how it is produced.
C) require companies to act in the social interest.
D) provide incentives for entrepreneurs to take risks and innovate.

5. The elasticity of demand measures:

A) the height of the demand curve.
B) how sensitive the quantity demanded is to a change in price.
C) how sensitive the price is to a change in demand.
D) the extent to which demand shifts in response to supply changes.

6. If a 4 percent increase in the price of pepper results in a 1 percent decrease in pepper

sales, what is the absolute value of the price elasticity of demand for pepper? Is it elastic
or inelastic?
A) 4; elastic
B) 0.25; elastic
C) 4; inelastic
D) 0.25; inelastic

Use the following to answer question 7:

Figure: Market Equilibrium

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7. (Figure: Market Equilibrium) Refer to the figure. At a price of $3, quantity supplied is
______ and quantity demanded is ______, leading to a _______.
A) 6; 2; surplus of 4 units
B) 2; 6; shortage of 8 units
C) 2; 4; surplus of 2 units
D) 4; 2; shortage of 2 units

8. During a recession, we expect that the opportunity cost of attending college:

A) rises.
B) falls.
C) remains the same.
D) cannot be determined from the information given.

9. Table: Barrels of Oil

Minimum willingness to sell

Country a single barrel of oil
Country A $32.00
Country B 16.00
Country C 17.25
Country D 56.99

Refer to the table. What is the total amount of producer surplus (per barrel of oil) earned
by all four producers if the market price per barrel of oil is $51?
A) $65.25
B) $81.76
C) $87.75
D) $93.74

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 10. Suppose your teacher finishes class 30 minutes early on the day before an exam. She
indicates that you may leave, or you may stay on for an optional study period that will
last for the remaining 30 minutes of the scheduled class time. You should:
A) always choose to stay for the study period, since you have already paid for the class
time.
B) only choose to stay if you like the instructor, since the value obtained is higher than
if you disliked the instructor.
C) only choose to stay if the benefits gained from the extra study session exceed the
cost of another 30 minutes in class.
D) only choose to stay for the study session if you do not plan to study on your own for
the exam.

11. What is thinking on the margin?

A) Making decisions that are of noneconomic importance.
B) Making choices that are based on historical precedents.
C) Making choices that ignore the marginal benefits, but not the marginal costs, of
some activity.
D) Making choices by comparing the additional benefits and additional costs from
doing a little bit more of some activity.

Use the following to answer question 12:

Table:    Sweetbrand Cheesecakes

Consumer Maximum willingness to pay

for Sweetbrand cheesecakes
Frodo $11.65
Sam 17.99
Mary 12.99
Pippin 16.75

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 12. (Table: Sweetbrand Cheesecakes) The table shows the maximum consumer willingness to
pay for Sweetbrand cheesecakes. Which of the four consumers receives the most
consumer surplus, if the market price of the cheesecakes is $12.50 each?
A) Frodo
B) Sam
C) Mary
D) Pippin

13. A grocery store is running a "buy-one-get-another-at-one-half-off" promotion on a dozen

doughnuts.    So the first dozen is $6 and the second would be $3.    A person would buy
the second dozen if their marginal benefit from the second dozen doughnuts is:
A) greater than $3
B) greater than $6
C) greater than $9
D) less than $3

Use the following to answer question 14:

Figure: Slave Redemption and Elasticity

14. (Figure: Slave Redemption and Elasticity) Refer to the figure.    Assume the graph
illustrates the Sudanese slave trade.    How many slaves remain in the slavery after the
program?
A) 1,000
B) 400
C) 600
D) 1,400

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 15. Figure: Supply Shift

According to the figure, the:

A) costs of producing output have decreased.
B) technology for producing output has improved.
C) costs of producing output have increased.
D) price of the product has decreased.

16. The opportunity cost of a choice is:

A) the opportunity of using the money to buy something else cheaper.
B) the money cost that a person does not have to pay when doing something.
C) the money that a buyer has to pay for an item.
D) the value of the next best opportunity foregone.

Use the following to answer question 17:

Figure: Gains from Trade

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17. (Figure: Gains from Trade) Refer to the figure. What are the total gains from trade at the
free market equilibrium?
A) $1,000
B) $500
C) $0
D) $1,500

18. The elasticity of supply measures:

A) the percent change in quantity demanded divided by the percent change in price.
B) the percent change in quantity supplied.
C) the percent change in price.
D) how responsive the quantity supplied is to a change in price.

19. Figure: Demand Shift

Which of the following factors would cause the change in the figure?
A) an increase in the price of a complement good
B) a decrease in peoples' willingness to pay for the good
C) an increase in the price of a substitute good
D) an increase in income for an inferior good

20. When demand is ______, an increase in price ______ total revenue.

A) inelastic; raises
B) inelastic; lowers
C) unit elastic; raises
D) elastic; raises

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21. Which variable is NOT a demand shifter?
A) price of complements
B) price of substitutes
C) price of raw materials
D) tastes and preferences

22. Figure: Earned Consumer Surplus

Refer to the figure. The market price of the product is $20 per unit. Calculate the dollar
amount of consumer surplus being earned in this market.
A) $120,000
B) $60,000
C) $100,000
D) $80,000

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Answer Key

1. A
2. B
3. C
4. D
5. B
6. D
7. A
8. B
9. C
10. C
11. D
12. B
13. A
14. B
15. C
16. D
17. A
18. D
19. C
20. A
21. C
22. B

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