Questions from Chapter 2
True-False Questions
1. Costs that can be reduced by altering production are referred to as sunk costs.
2. If the price of a good has increased and the quantity of the good sold has decreased, the demand curve for the good has shifted to the right.
3. With a price inelastic demand curve, price and total revenue move in the same direction as you move along the demand curve.
Multiple Choice Questions
4. Every day at the local fish market, there are 50 demanders who are
willing to pay up to $45 for a fish, 35 demanders who are willing to pay up to
$25 for a fish, and 10 demanders who are willing to pay up to $20 for a fish.
No demander wants more than one fish. There are 20 fishermen who sell fish in
this market. Every day the fishermen arrive with the day's catch. Each
fisherman has spent $10 on fuel for his boat the night before, but they have no
other costs. Fish that are not sold on the same day they are caught will rot
and become worthless. Every day the fish market reaches a competitive
equilibrium price for the day's fish. On Monday each fisherman caught 2 fish,
on Tuesday each fisherman caught 3 fish, on Wednesday each fisherman caught 4
fish, and on Thursday each fisherman caught 5 fish. On which day did the
fishermen make the greatest profit?
(a) Monday
(b) Tuesday
(c) Wednesday
(d) Thursday
5. It is late August. The nation's corn crop is ripe in the fields, but none of it is harvested. It is known that if it is all harvested, the total amount of corn harvested will be 20 million tons. The cost of harvesting the corn and bringing it to market (rather than leaving it in the fields and plowing it down) is $20 per ton. Farmers have spent $30 per ton on preparing, fertilizing, and cultivating the corn fields. On a graph where quantity is on the horizontal axis (measured in millions of tons) and the price is on the vertical axis (measured in dollars per ton), the supply curve in late August for this year's corn delivered at harvest time consists of
(a) a line running from (0,0) to (0,20), a line
from (0,20) to (20,20), and a line running vertically straight up from (20,20).
(b) a line running from (0,0) to (20, 0) and a line
running vertically straight up from (20,0).
(c) a line running from (0,0) to (0,50), a line from
(0,50) to (20,50), and a line running vertically straight up from (20,50).
(d) a horizontal line at the height of 20.
6. The demand curve for this year's corn harvest in the market described in
the previous question is given by the equation P=100-5Q, where Q is the
millions of tons of corn that are sold and P is the price per ton of corn.
Assuming the market reaches a competitive equilibrium, how many million tons of
corn will be brought to market ?
(a) 10
(b) 14
(c) 16
(d) 20
7. A drought in the southwest reduced the supply of watermelons produced in
(a) the price elasticity of supply for watermelon
is between 0 and +1.0.
(b) the price elasticity of demand for watermelon is
between -1.0 and 0.
(c) the price elasticity of supply for watermelon is
greater than +1.0.
(d) the price elasticity of demand for watermelon is
less than -1.0.
8. Every day at the local fish market, there are 100 demanders who are willing to pay up to $30 for a fish, 100 demanders who are willing to pay up to $20 for a fish, and 100 demanders who are willing to pay up to $10 for a fish. No demander wants more than one fish. There are 20 fishermen who sell fish in this market. Every day the fishermen arrive with the day's catch. Each fisherman has spent $100 on fuel for his boat the night before, but they have no other costs. Fish that are not sold on the same day they are caught will rot and become worthless. Every day the fish market reaches a competitive equilibrium price for the day's fish. On Monday each fisherman caught 3 fish. On Tuesday, each fisherman caught 4 fish, on Wednesday, each fisherman caught 8 fish, on Thursday, each fisherman caught 12 fish, and on Friday each fisherman caught 16 fish. What was the price of fish on Thursday?
(a) $35
(b) $30
(c) $20
(d) $15
(e) $10
9. On which day did the fishermen make the greatest profit?
(a) Monday
(b) Tuesday
(c) Wednesday
(d) Thursday
(e) Friday
10. Suppose the cost of fuel for a day's fishing rose from $100 to $150. Assuming
that the fishermen all continue to fish, what would be the effect or this
increase on the price of fish on those days when each fisherman catches 12
fish?
(a) There would be no effect on price.
(b) The price per fish would rise by about $12.50 per fish.
(c) The price of fish would rise by about $6 per fish.
(d) The price of fish would fall. (
(e) The price of fish would rise by about $3 per fish.
11. An improvement in the weather led to an increase of 80% in the size of the
corn crop. The demand curve for corn did not change. The price of corn fell by
20%. From this we can conclude that:
( a) The elasticity of demand for corn is -4.
(b) The elasticity of demand for corn is-1/4.
(c) The elasticity of supply for corn is -4
(d) The elasticity of supply for corn is 1/4.
(e) The elasticity of supply for corn is -1/4
Answers:
1. F
2. F
3. T
4. C
5. A
6. D
7. B
8. E
9. C
10. A
11. A