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For information on your local Economics Challenge contact your local Council or contact Irina Piven for general information.

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Take a test : Microeconomics Test

For each of the following questions, select the choice that BEST corresponds with the answer. You will receive 10 points for each correct answer; 5 points will be deducted for each incorrect answer. Points will be neither awarded or taken away if you do not attempt to answer a question.

1. Stephanie's Waterbeds faces the demand shown below for its beds. Each bed costs $300 to produce (no matter how many are made). What price should Stephanie charge to maximize her profits?

Price (per bed) Quantity Demanded (per day)

$1,000 1

$900 2

$800 3

$700 4

$600 5

	$1,000
	$900
	$800
	$700
	$600

2. If the production of a good creates negative externalities, the private market will produce

	too much of the good at too low a price
	too much of the good at too high a price
	too little of the good at too high a price
	too little of the good at too low a price
	the right amount of the good at the correct price

3. Property (or “unearned”) income (that is, profits, interest, and rents) accounts for approximately what percentage of total national income?

	90 percent
	70 percent
	50 percent
	20 percent
	10 percent

4. Which of the following could cause supply to decrease in the short run?

	A labor union representing the workers who produce this good is able to negotiate higher wages for its members.
	More producers enter this industry.
	The price of a close substitute for this good falls.
	A large group of consumers decide to boycott this good due to the political beliefs of some of the producers.
	A technological breakthrough in the production of this good lowers the cost of producing it.

5. Which type of merger creates the greatest threat of increased monopoly power?

	Conglomerate
	Horizontal
	Vertical
	Diagonal
	Multinational

6. Which of the following are capital as defined by economists?

	Stocks and bonds
	Water and air
	Gold and silver
	Computers and wrenches
	Cabins and boats

7. The Toscano Pizza Company faces a demand for its pizzas which obeys the “law of demand.” Thus, if the owner lowers the price she charges per pizza, the number of pizzas sold would

	rise as would her total revenues
	rise, but her total revenues would fall
	rise, while her total revenues could rise, fall, or even stay the same
	fall as would her total revenues
	fall, while her total revenues could rise, fall, or even stay the same

8. A newspaper reports, “Coffee growers in Brazil and Colombia organized to consider world coffee supply levels.” If this group should decide to act in a concerted effort for the benefit of the group as a whole, the likely result is

	increased coffee production and prices
	decreased coffee production and increased prices
	increased prices with no change in coffee production
	increased coffee production and decreased prices
	coffee production and prices at competitive levels

9. Which of the following statements is/are true?

I. A price ceiling causes a shortage if the price ceiling is below the equilibrium price.
II. A price floor causes a surplus if the price floor is above the equilibrium price.
III. A price ceiling causes a shortage if the price ceiling is above the equilibrium price.
IV. A price floor causes a surplus if the price floor is below the equilibrium price.

	I only
	II only
	III only
	I and II only
	III and IV only

10. If one of a firm's fixed costs rises,

	its profit-maximizing output level will increase
	its profit-maximizing output level will decrease
	its profit-maximizing output level will not change
	its profits will remain the same after it adjusts its output level (either up or down)
	it would likely increase its price

11. All of the following are characteristics of oligopolies EXCEPT

	large expenditures on advertising and product development
	the existence of significant barriers to entry
	"price-setting" through informal price leadership arrangements
	considerable concentration of the means of production
	extensive price competition to gain market share

12. A public good is characterized by which of the following?

I. People who do not pay for the good can be excluded from using it.
II. If one person uses the good, it does not reduce its usefulness to others.
III. It is easy to determine who must pay the costs of the good.

	I only
	II only
	III only
	II and III only
	I, II, and III

13. Which of the following is necessary for perfectly competitive markets to exist?

	Economies of scale in production
	Advertising
	Barriers to entry for new entrepreneurs
	Firms with products which are perfect (identical) substitutes for each other
	A few firms each with a large market share

14. Which of the following would most likely result in the market price of a good falling?

	Rising demand with falling supply
	Rising demand with rising supply
	Rising demand with unchanging supply
	Falling demand with falling supply
	Falling demand with rising supply

15. What is the opportunity cost of buying a new car?

	The value of other goods and services you could have purchased with the money you spent on the car
	The price you paid for the car
	The cost of operating and maintaining the car
	The difference between the price of the car and the price of a used car
	The difference between what the car costs now and what a similar car like it will cost a year from now