,Name: ___________________________ Class: _________________ Date: __________
Chapter 1
1. A model without any simplifying assumptions
a. is highly complex and likely unworkable.
b. excludes important predictive variables.
c. is very helpful for solving tough, real-world problems.
d. does not look like the real-world problem it is meant to address.
e. provides simplified solutions to complex problems.
2. In the context of economic model building, an exogenous variable is a variable
a. whose value is unknown or not measured.
b. whose value must be determined or explained.
c. governed by factors not included in a model.
d. that is qualitative rather than quantitative.
e. that determines the values of other variables.
3. In an economic model that seeks to explain how the price of gasoline is
established, which variable would be most likely to be endogenous?
a. the current inflation rate
b. the unemployment rate
c. national gross domestic product
d. the average cost of a new car
e. the price of crude oil
4. Which sentence best expresses the optimization principle?
a. An economy naturally tends toward maximum output.
b. People arrange their consumption to maximize their satisfaction.
c. Supply and demand curves both tend to become vertical in the long run.
d. Economic models should be simple while including all important variables.
e. For a firm to remain in business, it must maximize its revenue.
,5. Which sentence best expresses the equilibrium principle?
a. The price of a good may fluctuate up and down but has a natural level.
b. In a good economic model, variables approach constant values in the long
run.
c. Supply and demand curves both tend to become vertical in the long run.
d. The quantity demanded by people tends to equal the quantity supplied.
e. The number of firms in a market tends to remain stable over time.
6. In an online auction of a baseball signed by Roberto Clemente, Milo initially bid
$350. His highest and final bid was $550. The winning bid was $680, but because
of the way the auction was structured, this bidder ended up paying only $630.
Milo had figured that the ball would probably sell for $650. Which price represents
Milo’s reservation price?
a. $350
b. $550
c. $630
d. $650
e. $680
7. What naturally happens in a competitive market?
a. The number of sellers eventually shrinks to one.
b. The number of buyers eventually shrinks to zero.
c. The number of buyers eventually equals the number of sellers.
d. There is one price for everyone.
e. Every buyer pays their reservation price.
8. Under what conditions does it make the most sense that the short-run supply
curve would be vertical?
a. The quantity to be traded is fixed.
b. The price is fixed by government decree.
c. The demand curve is horizontal.
d. There is just one consumer.
, e. There is just one supplier.
9. Consider a farmer’s market where fresh watermelons are being sold. The sellers
come to the market with a fixed number of melons, all of which they want to sell
that day. If the sellers all post a starting price of $9 per watermelon but most
buyers have a reservation price of $7, what will happen?
a. The supply curve will gradually rotate from vertical to horizontal.
b. The supply curve will shift right to achieve equilibrium.
c. The demand curve will shift left as buyers refuse to pay $9 per watermelon.
d. The demand curve will shift right as buyers’ reservation prices rise.
e. The sellers’ posted price will quickly drop to $7 or less.
10.Every morning, a farmer offers 20 dozen fresh eggs for sale. The farmer’s
customers have a range of reservation prices: one is willing to pay up to $10 per
dozen, one is willing to pay $9.75, one is willing to pay $9.50, and so on down in
25-cent increments.
Under ideal market conditions, at what price will the farmer offer the eggs for sale in
order to sell all of them? Assume that the farmer has no nearby competitors.
a. $5.25 per dozen
b. $5.00 per dozen
c. $4.75 per dozen
d. $4.50 per dozen
e. $4.25 per dozen
11.According to a supply and demand model for houses, if the average household
income decreases at the same time that 1,000 new houses are completed, one
would expect the short-run equilibrium
a. quantity of houses in the market to increase. The price might go either up
or down.
b. price of houses in the market to increase and the equilibrium quantity of
houses to decrease.
c. price of houses in the market to decrease and the equilibrium quantity of
houses to increase.
d. price of houses in the market to increase, and the equilibrium quantity of
houses to increase, as well.
Chapter 1
1. A model without any simplifying assumptions
a. is highly complex and likely unworkable.
b. excludes important predictive variables.
c. is very helpful for solving tough, real-world problems.
d. does not look like the real-world problem it is meant to address.
e. provides simplified solutions to complex problems.
2. In the context of economic model building, an exogenous variable is a variable
a. whose value is unknown or not measured.
b. whose value must be determined or explained.
c. governed by factors not included in a model.
d. that is qualitative rather than quantitative.
e. that determines the values of other variables.
3. In an economic model that seeks to explain how the price of gasoline is
established, which variable would be most likely to be endogenous?
a. the current inflation rate
b. the unemployment rate
c. national gross domestic product
d. the average cost of a new car
e. the price of crude oil
4. Which sentence best expresses the optimization principle?
a. An economy naturally tends toward maximum output.
b. People arrange their consumption to maximize their satisfaction.
c. Supply and demand curves both tend to become vertical in the long run.
d. Economic models should be simple while including all important variables.
e. For a firm to remain in business, it must maximize its revenue.
,5. Which sentence best expresses the equilibrium principle?
a. The price of a good may fluctuate up and down but has a natural level.
b. In a good economic model, variables approach constant values in the long
run.
c. Supply and demand curves both tend to become vertical in the long run.
d. The quantity demanded by people tends to equal the quantity supplied.
e. The number of firms in a market tends to remain stable over time.
6. In an online auction of a baseball signed by Roberto Clemente, Milo initially bid
$350. His highest and final bid was $550. The winning bid was $680, but because
of the way the auction was structured, this bidder ended up paying only $630.
Milo had figured that the ball would probably sell for $650. Which price represents
Milo’s reservation price?
a. $350
b. $550
c. $630
d. $650
e. $680
7. What naturally happens in a competitive market?
a. The number of sellers eventually shrinks to one.
b. The number of buyers eventually shrinks to zero.
c. The number of buyers eventually equals the number of sellers.
d. There is one price for everyone.
e. Every buyer pays their reservation price.
8. Under what conditions does it make the most sense that the short-run supply
curve would be vertical?
a. The quantity to be traded is fixed.
b. The price is fixed by government decree.
c. The demand curve is horizontal.
d. There is just one consumer.
, e. There is just one supplier.
9. Consider a farmer’s market where fresh watermelons are being sold. The sellers
come to the market with a fixed number of melons, all of which they want to sell
that day. If the sellers all post a starting price of $9 per watermelon but most
buyers have a reservation price of $7, what will happen?
a. The supply curve will gradually rotate from vertical to horizontal.
b. The supply curve will shift right to achieve equilibrium.
c. The demand curve will shift left as buyers refuse to pay $9 per watermelon.
d. The demand curve will shift right as buyers’ reservation prices rise.
e. The sellers’ posted price will quickly drop to $7 or less.
10.Every morning, a farmer offers 20 dozen fresh eggs for sale. The farmer’s
customers have a range of reservation prices: one is willing to pay up to $10 per
dozen, one is willing to pay $9.75, one is willing to pay $9.50, and so on down in
25-cent increments.
Under ideal market conditions, at what price will the farmer offer the eggs for sale in
order to sell all of them? Assume that the farmer has no nearby competitors.
a. $5.25 per dozen
b. $5.00 per dozen
c. $4.75 per dozen
d. $4.50 per dozen
e. $4.25 per dozen
11.According to a supply and demand model for houses, if the average household
income decreases at the same time that 1,000 new houses are completed, one
would expect the short-run equilibrium
a. quantity of houses in the market to increase. The price might go either up
or down.
b. price of houses in the market to increase and the equilibrium quantity of
houses to decrease.
c. price of houses in the market to decrease and the equilibrium quantity of
houses to increase.
d. price of houses in the market to increase, and the equilibrium quantity of
houses to increase, as well.
