1. Price elasticity of demand is calculated as:
a. the percentage change in quantity demanded divided by the percentage change in price
b. the percentage change in price divided by the percentage change in quantity demanded
c. the absolute change in quantity demanded divided by the absolute change in price.
d. the absolute change in price divided by the absolute change in quantity demanded
2. The price elasticity of demand:
a. is of no use to producers
b. tells producers what will happen to total profit if they change product price
c. tells producers what will happen to quantity supplied if they change product priced.
d. tells producers what will happen to total revenue if they change the product price
3. Along a linear demand curve,
a. both the slope and price elasticity are constant
b. the price elasticity is constant, but the slope varies
c. total revenues are constant
d. the slope is constant, but the price elasticity varies
4. Demand is more elastic:
a. in the short run than in the long run
b. for necessities than for luxuries
c. for food than for hamburgers
d. for goods with many substitutes than for goods with only a few
5. Demand for a necessity, such as food, is:
a. both income and price inelastic
b. income inelastic and price elastic
c. income elastic and price inelastic
d. both income and price elastic
6. The reason economists assume that firms try to maximize economic profit is:
a. over time, firms that don't earn profits will have difficulty securing financing to survive
b. firms in the real world always maximize profit
c. profit is easier to calculate than revenues
d. if a firm fails to earn a profit in its first year, it will go out of business
7. Which of the following is a short-run adjustment?
a. Toyota builds an automobile plant in Kentucky.
b. Faced with increasing enrollment, a private college builds a new school of Business building.
c. Because of staggering losses, three insurance companies exit the industry.
d. People's Bank hires two new tellers to meet the increased demand for customer services.
8. At the point where diminishing marginal returns set in, the slope of the total product curve is:
a. positive and increasing
b. positive and decreasing
c. negative and increasing
d. negative and decreasing
9. Which of the following correctly describes the relationship between the marginal cost and average variable cost curves?:
a. MC is everywhere above AVC
b. AVC is everywhere above MC
c. MC crosses AVC at AVC's minimum point
d. MC crosses AVC at MC's minimum point
10. The shape of the long-run average cost curve reflects
a. market demand
b. economies and diseconomies of scale
c. increasing and diminishing marginal returns
d. the productivity of fixed inputs
