Part 1

1. What might create a monopoly? (Points : 4)

a.       a key resource is owned by a single firm. 

b.      the government gives  a single firm the exclusive right to produce a good or service. 

c.       a single firm can produce output at a lower cost than a larger number of producers.

d.      all of the above

2. Market power is the ability _____. (Points : 4)

a.       to set prices and quantities sold

b.      of capitalists to exploit the working classes

c.       to set prices

d.      all of the above

3. Which of the items below are examples of monopolistic competition, also known as imperfect competition? (Points : 4)

a.       patent, copyright, and trademark

b.      professional licensing and labor unions

c.       local shops and restaurants

d.      all of the above

e.      none of the above

4. In what kind of market is a firm unable to influence the price of its output? (Points : 4)

a.       price maker

b.      monopoly

c.       imperfect monopoly

d.      perfectly competitive

5. When the quantity sold of a good changes significantly in response to changes in price, its demand is _____. (Points : 4)

a.       identical to his supply curve

b.      identical to marginal cost

c.       highly elastic

d.      highly inelastic

6. When a firm’s marginal revenues are higher than its marginal cost, (Points : 4)

a.       it is operating below its optimal capacity

b.      it is operating above its optimal capacity

c.       it is operating at its optimal capacity

d.      all of the above

7. The primary goal of a firm is to _____. (Points : 4)

a.       minimize cost

b.      maximize revenue

c.       maximize profit

d.      all of the above

8. Which of the following most nearly approximates a perfectly competitive market? (Points : 4)

a.       products with brand names that are sold in many different stores

b.      commodities, like wheat, rice, and gold

c.       products that are very close substitutes for each other, like Coke and Pepsi

d.      all of the above

9. Profit equals _____. (Points : 4)

a.       total revenue minus total cost

b.      total revenue minus marginal cost

c.       marginal revenue minus marginal cost

d.      gross revenue minus depreciation

10. Marginal cost is _____. (Points : 4)

a.       a small cost that does not affect a firm’s profit significantly

b.      the cost of increasing the margin between cost and price

c.       the cost of producing the next unit of output

d.      all of the above

11. A good that is non-excludable and non-rival in consumption is called a(n): (Points : 4)

a.       public good

b.      commodity

c.       oligopoly good

d.      monopoly good

12. The “Prisoner’s Dilemma” illustrates: (Points : 4)

a.       The lack of cooperation among firms in a competitive market

b.      The lack of cooperation among firms in a monopolistic market

c.       The lack of cooperation between a monopoly and its customers

d.      why, in an oligopoly market, cooperation is difficult to achieve even when it is mutually beneficial

13. Advertising is a natural feature of  _____. (Points : 4)

a.       monopolistic competition

b.      perfect competition

c.       public good

d.      monopoly

14. A cartel arrangement is likely to be successful for its members only if it can _____. (Points : 4)

a.       let members produce at full capacity and sell all of their output to the other cartel members

b.      monitor the cartel members and enforce the arrangement

c.       get the government to pass antitrust legislation

d.      do all of the above

15. A single firm that can supply a good or service to an entire market at a smaller cost than two or more firms could is called a: (Points : 4)

a.       Natural monopoly

b.      Competitive monopoly

c.       Cartel

d.      Artificial monopoly

16. The theory of comparative advantage concludes that _____. (Points : 4)

a.       each individual should engage in that activity, in which he or she is more effective than anyone else

b.      each individual should engage in a large number of economic activities, and not ‘put of one’s eggs in one basket’

c.       each individual should pursue a career doing what he or she does best

d.      each individual should strive to be self-reliant

17. Price gouging might be the result of: (Points : 4)

a.       A sudden increase in demand

b.      A sudden decrease in demand

c.       A sudden increase in supply

d.      A surplus

18. A negative externality occurs when _____. (Points : 4)

a.       a person’s action harm others, and that person does not bear the cost that others bear

b.      a person breaches the social contract

c.       a person’s actions create benefits that other persons benefit from, but do not pay for

d.      a person ceases activities that are external to the economic processes, in which that person engages

19. Transaction costs include _____. (Points : 4)

a.       fees charged by brokers

b.      transportation and communication costs

c.       legal, accounting, and regulatory costs

d.      all of the above

20. Legal prohibitions against price gouging _____. (Points : 4)

a.       are necessary for the smooth operation of a market economy

b.      are price floors that lead to surpluses

c.       are price ceilings that lead to shortages

d.      prevent price discrimination

21. OPEC is an example of _____. (Points : 4)

a.       cartel

b.      oligopoly

c.       both of the above

d.      none of the above

22. As you become more educated, you provide your environment with a ________ (Points : 4)

a.       positive externality

b.      negative externality

c.       consumer surplus

d.      producer surplus

23. Which good is considered to have an “inelastic” demand? (Points : 4)

a.       Gasoline at a specific gas station in a populated city

b.      Cocaine or heroin

c.       Rolex watches

d.      Toyota vehicles

24. Fireworks display, national defense, and fire protection most closely fit the definition of what kinds of goods, from the perspective of economics? (Points : 4)

a.       scarce goods

b.      uncertain goods

c.       natural monopoly goods

d.      public goods

25. The tragedy of the commons occurs when _____ (Points : 4)

a.       supply exceeds demand.

b.      property rights to a scarce resource are not assigned or not enforced.

c.       free riders are excluded from consuming a resource.

d.      individuals steal from each other.

Part 2

1. Economics studies _____. (Points : 5)

a.       How society manages its scarce resources

b.      Social Welfare

c.       Ethical use of resources

d.      Protection of workers’ rights

2. All other things being equal, a decrease in supply results in a(n)_____. (Points : 5)

a.       increase in equilibrium price and a decrease in equilibrium quantity

b.      increase in equilibrium quantity and a decrease in equilibrium price

c.       decrease in equilibrium quantity and a decrease in equilibrium price

d.      decrease in demand

3. In one hour, a person can fix 4 flat tires or type 200 words. The opportunity cost of fixing ONE flat tire is _____. (Points : 5)

a.       200 words

b.      4 flat tires

c.       1 word

d.      50 words

4. The amount of a good or service that buyers would be willing and able to purchase at a specific price is known as _____. (Points : 5)

a.       quantity demanded

b.      demand

c.       supply

d.      quantity supplied

5. Public goods are _____. (Points : 5)

a.       excludable but not rival in consumption

b.      rival in consumption but not excludable

c.       excludable and rival in consumption

d.      neither excludable nor rival in consumption

6. In a free market economy, government is needed when _____. (Points : 5)

a.       property right are not assigned to individuals

b.      the market fails to allocate resources efficiently

c.       a single supplier has a substantial influence on the market price.

d.      all of the above apply

7. All other things being equal, an increase in demand results in a(n) ______. (Points : 5)

a.       increase in equilibrium price and a decrease in equilibrium quantity

b.      increase in equilibrium quantity and a decrease in equilibrium price

c.       decrease in equilibrium quantity and a decrease in equilibrium price

d.      increase in equilibrium price and an increase in equilibrium quantity

8. In a free market, a shortage of a product always leads to: (Points : 5)

a.       Increases in price

b.      Decreases in price

c.       No change in price

d.      Any of the above

9. Price discrimination is most likely practiced by a(n) _____. (Points : 5)

a.       monopoly

b.      oligopoly

c.       monopolistic firm

d.      perfectly competitive firm

10. Rival pricing strategies and collisions are typically found in a(n) _____. (Points : 5)

a.       monopoly

b.      oligopoly

c.       monopolistic competition

d.      perfectly competition

11. Most products purchased in our daily lives are found in this market: (Points : 5)

a.       monopoly

b.      oligopoly

c.       monopolistic competition

d.      perfect competition

12. When the government is involved in regulating the prices sellers are allowed to charge, this often leads to_____. (Points : 5)

a.       unemployment, inflation, and recession

b.      deceptive advertising

c.       price gouging

d.      the quantity of goods available being less than the equilibrium quantity

13. A price imposed by the government below an equilibrium price is called a ____ . (Points : 5)

a.       price ceiling

b.      price floor

c.       price carpet

d.      price surplus

14. A tax on imports is called a: (Points : 5)

a.       sales tax

b.      corporate tax

c.       trade tax

d.      tariff

15. Profit-maximizing firms produce extra units of output up to the point where: (Points : 5)

a.       marginal revenue equals marginal cost

b.      marginal revenue exceeds marginal cost

c.       marginal revenue is less than marginal cost

d.      any of the above

16. In the United States, anti-trust laws might not allow: (Points : 5)

a.       black markets

b.      underground economy

c.       mergers of big and dominant companies like Coca-Cola and PepsiCo

d.      too much competition in a specific market.

17. Higher oil prices tend to: (Points : 5)

a.       increase the prices of many different products

b.      increase the prices of farm products only

c.       increase prices in the airline industry only

d.      increase the prices of public transportation only

18. When doing research, Economists: (Points : 5)

a.       follow the scientific method: observation, theory, and more observation

b.      cannot use experiments, as they are often done in areas like Physics and Chemistry.

c.       have to use whatever data the world happens to give them

d.      all of the above.

19. Economic models_____. (Points : 5)

a.       must completely describe every aspect of the economy in order to be useful

b.      are simplified abstract representations of reality

c.       avoid the use of assumptions wherever possible

d.      are ideals that economics agents aspire to achieve

20. A few industry-dominating firms acting as a collective monopoly is known as a: (Points : 5)

a.       a trading bloc

b.      a market

c.       a cartel

d.      an industry