Name: __________________________ Date: _____________1. As more of a good is consumed by an individual,A) marginal utility increases.B) total utility initially increases.C) price falls.D) price increases.E) total utility stays constant.2. The budget constraintA) is the combined price of all goods and services an individual can consume.B) is the total amount of money an individual can spend on goods and services per period of time.C) is the maximum amount of money an individual can gain without earning it.D) applies only to society as a whole, not to individuals.E) is the total amount of utility an individual can receive from goods and services per period of time.3. An individual buys more of a good at lower prices than at higher prices becauseA) at lower prices, total utility is greater than price.B) at lower prices, marginal benefit is greater than price over a greater quantity of the good than at higher prices.C) at lower prices, marginal utility is greater than price over a greater quantity of the good than at higher prices.D) marginal benefit increases.E) marginal benefit falls more slowly than price.4. The three basic types of businesses in the United States areA) enterprises, partnerships, and corporations.B) partnerships, multinationals, and corporations.C) partnerships, firms, and sole proprietorships.D) corporations, households, and sole proprietorships.E) corporations, sole proprietorships, and partnerships.5. A price-taking firm cannot affect its own output price becauseA) price is determined by consumers, not producers.B) market demand is perfectly elastic; that is, even a tiny increase in price results in zero quantity demanded.C) it is only one firm among many, so the price is determined in the market as a whole.D) consumer preferences dictate a single price in a competitive market.E) of government statutes, such as price floors and price ceilings.Page 16. If a competitive firm continues to produce when marginal revenue is less than marginal cost, then each additional unit of outputA) maximizes profits or minimizes losses.B) minimizes losses.C) reduces total profit.D) increases total profit.E) increases both total costs and total revenue.7. A shortageA) occurs when sellers are willing to sell more than consumers are willing to buy.B) can never occur in a market that is functioning properly and without interference.C) occurs when the market price is below the equilibrium price.D) is an example of market failure.E) causes a price decrease in a market.8. Pareto efficiency cannot be achieved whenA) price equals marginal benefit.B) marginal benefit is the same for all consumers.C) marginal cost is the same for all producers.D) price equals marginal cost.E) marginal benefit exceeds marginal cost.9. Which of the following is an example of an ad valorem tax?A) A tax of $.15 per gallon on gasolineB) A 5 percent tax on total purchases by a consumerC) A yearly tax of 1 percent of the value of property owned by a citizenD) A $2 tax on newspaper adsE) A tax of $1,000 on every man, woman, and child in the country10. In the long run,A) most of the firm's resources cannot be varied.B) none of the firm's resources are variable.C) new technology cannot be introduced.D) all of a firm's resources are variable.E) at least one of the firm's resources is fixed.11. Which of the following statements about average costs is false?A) The difference between average total cost and average variable cost does not changeas output increases.Page 2B) Average fixed cost decreases as output increases.C) Average variable cost first decreases and then increases as output increases.D) Average total cost first decreases and then increases as output increases.E) The difference between average total cost and average variable cost is average fixedcost.12. If average variable cost is falling with increasing output, thenA) marginal cost must be less than average variable cost.B) marginal cost must be greater than average variable cost.C) average fixed cost is rising.D) marginal cost must be rising.E) marginal cost must be falling.13. In the long run, if price is greater than average total cost in an industry, thenA) some firms leave the industry.B) some firms are attracted to the industry.C) all firms leave the industry.D) there is no incentive for any firm to enter or leave the industry.E) the industry disappears.14. If higher taxes raise the unit cost of a competitive industry, then in the long run, industrysupplyA) and market price decrease.B) decreases and market price increases.C) increases and market price decreases.D) and market price increase.E) and market price remain constant.15. An industry previously in long-run equilibrium might experience economic profits for any of the following reasons except whenA) new, cost-saving production technology is developed.B) new markets open up as trade barriers are reduced.C) prices of inputs in the production process increase.D) substitutes for the industry's output cease to be produced.E) market demand increases.Page 3Long answer questions: answer 2 of 3.1. Using a graph to illustrate your answer, explain why economists argue that import tariffs help some, hurt others, and lower overall surplus created in the economy.2. Using the supply and demand graph as well as a graph of the costs curves of a representative firm, explain what happens in an industry when demand increases. Start and finish your story in long run equilibrium.3. Using a couple of graphs to illustrate your answer, explain why marginal cost equals average variable cost at the minimum average variable cost.Answer Key1. B2. B3. B4. E5. C6. C7. C8. E9. B10. D11. A12. A13. B14. B15. CPage