1. Supply and demand equilibrium shifts and market adjustments
2. Elasticity measures and their revenue implications
3. Consumer and producer surplus, deadweight loss, and welfare analysis
4. Price ceilings, price floors, and government intervention effects
5. Production costs, short-run versus long-run cost curves
6. Perfect competition profit maximization and shutdown decisions
7. Monopoly pricing, output restriction, and inefficiency
8. Monopolistic competition and oligopoly strategic behavior
9. Externalities, public goods, and market failure
10. Factor markets, income distribution, and labor market outcomes
11. A local farmers market experiences a sudden increase in consumer income
while simultaneously a new supplier enters, so which outcome is most likely?
A. Equilibrium price rises unambiguously
B. Equilibrium quantity rises unambiguously
C. Equilibrium price falls unambiguously
D. Equilibrium quantity falls unambiguously
Answer: B
Rationale: Higher income raises demand and a new supplier raises supply, so
quantity clearly rises while price change is ambiguous.
,12. Suppose the government imposes a binding price ceiling below equilibrium in a
competitive rental housing market, which result should an analyst predict?
A. A surplus of rental units and increased construction
B. A shortage of rental units and reduced maintenance quality
C. No change because ceilings are nonbinding
D. An increase in producer surplus for landlords
Answer: B
Rationale: A binding ceiling below equilibrium creates excess demand and often
deteriorates quality as landlords cut costs.
13. When the price of coffee rises and consumers reduce tea purchases despite
tea price being unchanged, this pattern best illustrates which concept?
A. Complementarity between coffee and tea
B. Substitutability between coffee and tea
C. Inferior good behavior for tea
D. Giffen good behavior for coffee
Answer: A
Rationale: Reduced tea demand when coffee becomes expensive indicates the
goods are complements consumed together.
14. A firm observes that total revenue falls when it raises price from ten to twelve
dollars, which conclusion about demand is most accurate?
A. Demand is perfectly inelastic
, B. Demand is unit elastic
C. Demand is elastic in that range
D. Demand is inferior in that range
Answer: C
Rationale: Revenue falls with a price increase only when demand is elastic, so
quantity drops proportionally more than price rises.
15. In a competitive market at equilibrium, total surplus is maximized because
which condition holds at the margin?
A. Marginal benefit exceeds marginal cost for all units
B. Marginal benefit equals marginal cost for the last unit
C. Producer surplus equals zero
D. Consumer surplus equals zero
Answer: B
Rationale: Allocative efficiency occurs where marginal benefit equals marginal
cost, maximizing combined consumer and producer surplus.
16. A per-unit tax is placed on sellers in a market with relatively inelastic demand
and elastic supply, so who bears most of the tax burden?
A. Sellers bear most because supply is elastic
B. Buyers bear most because demand is inelastic
C. Burden is split equally regardless of elasticity
D. Government bears the entire burden
, Answer: B
Rationale: Tax incidence falls more heavily on the less elastic side of the
market, here the buyers.
17. A factory emits pollution affecting nearby residents, and no property rights are
assigned, which outcome is predicted by the Coase theorem if transaction
costs are low?
A. Government must always impose a Pigouvian tax
B. Bargaining can achieve efficiency regardless of initial rights
C. Pollution remains at the inefficient level permanently
D. Residents must relocate to avoid the externality
Answer: B
Rationale: With low transaction costs and clear rights, parties can bargain to an
efficient outcome regardless of initial assignment.
18. In the short run, a perfectly competitive firm should continue producing even at
a loss as long as which condition is satisfied?
A. Price exceeds average total cost
B. Price exceeds average variable cost
C. Total revenue exceeds total fixed cost
D. Marginal cost is falling
Answer: B
2. Elasticity measures and their revenue implications
3. Consumer and producer surplus, deadweight loss, and welfare analysis
4. Price ceilings, price floors, and government intervention effects
5. Production costs, short-run versus long-run cost curves
6. Perfect competition profit maximization and shutdown decisions
7. Monopoly pricing, output restriction, and inefficiency
8. Monopolistic competition and oligopoly strategic behavior
9. Externalities, public goods, and market failure
10. Factor markets, income distribution, and labor market outcomes
11. A local farmers market experiences a sudden increase in consumer income
while simultaneously a new supplier enters, so which outcome is most likely?
A. Equilibrium price rises unambiguously
B. Equilibrium quantity rises unambiguously
C. Equilibrium price falls unambiguously
D. Equilibrium quantity falls unambiguously
Answer: B
Rationale: Higher income raises demand and a new supplier raises supply, so
quantity clearly rises while price change is ambiguous.
,12. Suppose the government imposes a binding price ceiling below equilibrium in a
competitive rental housing market, which result should an analyst predict?
A. A surplus of rental units and increased construction
B. A shortage of rental units and reduced maintenance quality
C. No change because ceilings are nonbinding
D. An increase in producer surplus for landlords
Answer: B
Rationale: A binding ceiling below equilibrium creates excess demand and often
deteriorates quality as landlords cut costs.
13. When the price of coffee rises and consumers reduce tea purchases despite
tea price being unchanged, this pattern best illustrates which concept?
A. Complementarity between coffee and tea
B. Substitutability between coffee and tea
C. Inferior good behavior for tea
D. Giffen good behavior for coffee
Answer: A
Rationale: Reduced tea demand when coffee becomes expensive indicates the
goods are complements consumed together.
14. A firm observes that total revenue falls when it raises price from ten to twelve
dollars, which conclusion about demand is most accurate?
A. Demand is perfectly inelastic
, B. Demand is unit elastic
C. Demand is elastic in that range
D. Demand is inferior in that range
Answer: C
Rationale: Revenue falls with a price increase only when demand is elastic, so
quantity drops proportionally more than price rises.
15. In a competitive market at equilibrium, total surplus is maximized because
which condition holds at the margin?
A. Marginal benefit exceeds marginal cost for all units
B. Marginal benefit equals marginal cost for the last unit
C. Producer surplus equals zero
D. Consumer surplus equals zero
Answer: B
Rationale: Allocative efficiency occurs where marginal benefit equals marginal
cost, maximizing combined consumer and producer surplus.
16. A per-unit tax is placed on sellers in a market with relatively inelastic demand
and elastic supply, so who bears most of the tax burden?
A. Sellers bear most because supply is elastic
B. Buyers bear most because demand is inelastic
C. Burden is split equally regardless of elasticity
D. Government bears the entire burden
, Answer: B
Rationale: Tax incidence falls more heavily on the less elastic side of the
market, here the buyers.
17. A factory emits pollution affecting nearby residents, and no property rights are
assigned, which outcome is predicted by the Coase theorem if transaction
costs are low?
A. Government must always impose a Pigouvian tax
B. Bargaining can achieve efficiency regardless of initial rights
C. Pollution remains at the inefficient level permanently
D. Residents must relocate to avoid the externality
Answer: B
Rationale: With low transaction costs and clear rights, parties can bargain to an
efficient outcome regardless of initial assignment.
18. In the short run, a perfectly competitive firm should continue producing even at
a loss as long as which condition is satisfied?
A. Price exceeds average total cost
B. Price exceeds average variable cost
C. Total revenue exceeds total fixed cost
D. Marginal cost is falling
Answer: B
