Economics Quiz

When the price of a normal good decreases, the substitution effect causes:

• The quantity demanded to increase as consumers switch from other goods.

• The quantity demanded to increase due to higher real income.

• No change in quantity demanded because preferences remain constant.

• The demand curve to shift to the right.

Suppose the government imposes a price floor above the equilibrium price in a competitive market. What is the likely outcome?

• A shortage of goods.

• A surplus of goods.

• Equilibrium quantity will increase.

• There will be no effect on the market.

If the cross-price elasticity of demand between two goods is negative, these goods are:

• Substitutes

• Complements

• Normal goods

• Inferior goods

The concept of diminishing marginal utility implies that:

• Consumers will continue to increase consumption of a good indefinitely.

• Consumers will experience less additional satisfaction from consuming additional units of a good.

• Consumers will stop consuming a good after a certain point.

• Consumers will experience increasing satisfaction from consuming additional units of a good.

The additional satisfaction from consuming an additional unit of a good decreases as more of the good is consumed. This statement is an example of which economic principle?

• The law of increasing marginal utility.

• The law of diminishing marginal utility.

• Total utility decreases as more of a good is consumed.

• The first unit of consumption provides the lowest utility.

Consider a consumer with the following marginal utility schedule for oranges: 1st orange: 20 utils, 2nd orange: 15 utils, 3rd orange: 10 utils. If the price of an orange is $2, and the consumer's marginal utility of money is 5 utils per dollar, how many oranges should the consumer purchase to maximize utility?

• 0

• 1

• 2

• 3

If two goods are perfect substitutes, the consumer’s indifference curve will be:

• L-shaped

• Downward sloping and convex to the origin

• Downward sloping and linear

• Horizontal

The principle of opportunity cost is best illustrated by which of the following statements?

• The cost of going to college is the tuition plus the cost of books.

• The cost of going to college is the tuition, the cost of books, and the foregone income from not working.

• The cost of a good is the price paid in the market.

• Opportunity costs are only incurred when monetary transactions take place.

Which of the following best describes the law of diminishing marginal returns?

• Adding more of one factor of production while holding others constant will eventually lead to smaller increases in output.

• Increasing all factors of production in equal proportion increases output at an increasing rate.

• Marginal cost increases as production expands due to increasing returns to scale.

• Total production decreases as more of a variable input is added.

The Pareto efficiency criterion implies that:

• Any change that makes one individual better off without making another worse off is an improvement.

• Any change that increases total surplus is Pareto efficient.

• All individuals must have the same level of utility for an outcome to be Pareto efficient.

• A competitive market always achieves a Pareto efficient allocation.