Introduction to Economics Exam Prep | Multiple Choice
Questions & Study Guide | 2025/2026 Edition
If the quantity demanded of tea increases by 4 per cent when the price of coffee
increases by 2 per cent, the cross-price elasticity of demand between tea and coffee is:
A) (4/2) = +2.0
B) (-2/4) = -0.5
C) (4 x 2) = +8.0
D) (2/4) = +0.5 correct answers A
If you expect the economy is going to boom and that average income in the economy
will rise in the foreseeable future, the type of firm that would be likely to be able to
increase its sales the most if your expectations are met is one that sells:
A) an elastic good.
B) an inferior good.
C) a luxury good.
D) a necessity good. correct answers C
Which of the following would you expect to occur as the result of a price ceiling in the
apartment rental market?
A) The rental market will gradually move toward equilibrium, as the price falls due to the
surplus.
B) Discrimination as landlords choose their tenants, possibly based on gender, race or
age.
C) A reallocation of resources to the rental market to meet the increased demand for
rental accommodation.
D) The rental market will gradually move toward equilibrium, as the price for rental
apartments will rise due to the shortage. correct answers B
What does tax incidence refer to?
A) Who is responsible for sending the tax money to the government.
B) Which government agency actually receives the tax revenue.
C) Who actually bears the burden of the tax.
D) What commodity is being taxed. correct answers C
The income elasticity for inferior goods is always:
A) equal to one.
B) positive in value.
C) impossible to determine.
,D) negative in value. correct answers D
If the price of petrol increases by 30 per cent and this causes the quantity demanded to
fall by 15 per cent, the elasticity of demand is equal to:
A) minus 450.
B) minus 15.
C) minus 0.5.
D) minus 2 correct answers C
If a firm lowered the price of the product it sells and found that total revenue did not
change, then the demand for its product is:
A) relatively elastic.
B) perfectly elastic.
C) perfectly inelastic.
D) unit-elastic. correct answers D
If the market price is $25 in a perfectly competitive market, the marginal revenue from
selling the fifth unit is:
A) $5
B) $12.50
C) $25
D) $125 correct answers C
A firm would decide to shut down if its production resulted in:
A) AFC > AVC.
B) MR < AVC.
C) MR < ATC.
D) ATC > AVC. correct answers B
If a typical firm in a perfectly competitive industry is incurring losses, then:
A) all firms will continue to lose money.
B) some firms will enter in the long run causing market supply to increase and market
price to rise increasing profit for all firms.
C) some firms will exit in the long run causing market supply to decrease and market
price to fall increasing losses for the remaining firms.
D) some firms will exit in the long run causing market supply to decrease and market
price to rise increasing profits for the remaining firms. correct answers D
An industry's long-run supply curve shows:
A) how the government determines the price of the product.
, B) the relationship in the long run between market price and quantity supplied.
C) greater than normal profit.
D) how average productivity is changing. correct answers B
Assume the market for organically-grown produce is perfectly competitive. All else
equal, as farmers find it less profitable to produce and sell organic produce in this
market:
A) the supply curve will shift to the right, the demand curve will shift to the left, and the
equilibrium price will decrease. Incorrect
B) the supply curve will shift to the left and the equilibrium price will increase.
C) the supply curve will shift to the left, the demand curve will shift to the left, and the
equilibrium price will increase.
D) the demand curve will shift to the left and the equilibrium price will decrease correct
answers B
At the profit-maximizing level of output for a perfectly competitive firm:
A) marginal revenue equals marginal cost and average total cost equals average fixed
cost.
B) price equals average revenue and marginal cost equals average variable cost.
C) price equals marginal cost.
D) average revenue equals average variable cost and price equals marginal cost.
correct answers C
In a perfectly competitive market the term "price taker" applies to:
A) only the smallest sellers and buyers.
B) buyers but not sellers.
C) firms but not buyers.
D) sellers and buyers. correct answers D
Which of the following is not a characteristic of a perfectly competitive market structure?
A) There are no restrictions to entry by new firms.
B) There are a very large number of firms that are small compared to the market.
C) All firms sell identical products.
D) There are restrictions on exit of firms. correct answers D
For a firm in a perfectly competitive market, price is:
A) equal to both average revenue and marginal revenue.
B) greater than marginal revenue but less than average revenue.
C) less than both average revenue and marginal revenue.
D) equal to average revenue but greater than marginal revenue. correct answers A
Questions & Study Guide | 2025/2026 Edition
If the quantity demanded of tea increases by 4 per cent when the price of coffee
increases by 2 per cent, the cross-price elasticity of demand between tea and coffee is:
A) (4/2) = +2.0
B) (-2/4) = -0.5
C) (4 x 2) = +8.0
D) (2/4) = +0.5 correct answers A
If you expect the economy is going to boom and that average income in the economy
will rise in the foreseeable future, the type of firm that would be likely to be able to
increase its sales the most if your expectations are met is one that sells:
A) an elastic good.
B) an inferior good.
C) a luxury good.
D) a necessity good. correct answers C
Which of the following would you expect to occur as the result of a price ceiling in the
apartment rental market?
A) The rental market will gradually move toward equilibrium, as the price falls due to the
surplus.
B) Discrimination as landlords choose their tenants, possibly based on gender, race or
age.
C) A reallocation of resources to the rental market to meet the increased demand for
rental accommodation.
D) The rental market will gradually move toward equilibrium, as the price for rental
apartments will rise due to the shortage. correct answers B
What does tax incidence refer to?
A) Who is responsible for sending the tax money to the government.
B) Which government agency actually receives the tax revenue.
C) Who actually bears the burden of the tax.
D) What commodity is being taxed. correct answers C
The income elasticity for inferior goods is always:
A) equal to one.
B) positive in value.
C) impossible to determine.
,D) negative in value. correct answers D
If the price of petrol increases by 30 per cent and this causes the quantity demanded to
fall by 15 per cent, the elasticity of demand is equal to:
A) minus 450.
B) minus 15.
C) minus 0.5.
D) minus 2 correct answers C
If a firm lowered the price of the product it sells and found that total revenue did not
change, then the demand for its product is:
A) relatively elastic.
B) perfectly elastic.
C) perfectly inelastic.
D) unit-elastic. correct answers D
If the market price is $25 in a perfectly competitive market, the marginal revenue from
selling the fifth unit is:
A) $5
B) $12.50
C) $25
D) $125 correct answers C
A firm would decide to shut down if its production resulted in:
A) AFC > AVC.
B) MR < AVC.
C) MR < ATC.
D) ATC > AVC. correct answers B
If a typical firm in a perfectly competitive industry is incurring losses, then:
A) all firms will continue to lose money.
B) some firms will enter in the long run causing market supply to increase and market
price to rise increasing profit for all firms.
C) some firms will exit in the long run causing market supply to decrease and market
price to fall increasing losses for the remaining firms.
D) some firms will exit in the long run causing market supply to decrease and market
price to rise increasing profits for the remaining firms. correct answers D
An industry's long-run supply curve shows:
A) how the government determines the price of the product.
, B) the relationship in the long run between market price and quantity supplied.
C) greater than normal profit.
D) how average productivity is changing. correct answers B
Assume the market for organically-grown produce is perfectly competitive. All else
equal, as farmers find it less profitable to produce and sell organic produce in this
market:
A) the supply curve will shift to the right, the demand curve will shift to the left, and the
equilibrium price will decrease. Incorrect
B) the supply curve will shift to the left and the equilibrium price will increase.
C) the supply curve will shift to the left, the demand curve will shift to the left, and the
equilibrium price will increase.
D) the demand curve will shift to the left and the equilibrium price will decrease correct
answers B
At the profit-maximizing level of output for a perfectly competitive firm:
A) marginal revenue equals marginal cost and average total cost equals average fixed
cost.
B) price equals average revenue and marginal cost equals average variable cost.
C) price equals marginal cost.
D) average revenue equals average variable cost and price equals marginal cost.
correct answers C
In a perfectly competitive market the term "price taker" applies to:
A) only the smallest sellers and buyers.
B) buyers but not sellers.
C) firms but not buyers.
D) sellers and buyers. correct answers D
Which of the following is not a characteristic of a perfectly competitive market structure?
A) There are no restrictions to entry by new firms.
B) There are a very large number of firms that are small compared to the market.
C) All firms sell identical products.
D) There are restrictions on exit of firms. correct answers D
For a firm in a perfectly competitive market, price is:
A) equal to both average revenue and marginal revenue.
B) greater than marginal revenue but less than average revenue.
C) less than both average revenue and marginal revenue.
D) equal to average revenue but greater than marginal revenue. correct answers A
