1. If market failures exist, which of the following is true?
A. Government intervention in economic activities will not improve on market
outcomes.
B. Markets fail to produce any goods and services, so communism is necessary.
C. The marginal benefits of production are greater than marginal costs, regardless of
price.
D. The equilibrium price and quantity determined by markets are not socially optimal.
E. More public goods are produced than private goods.
2. How do industries under monopolistic competition resemble those in pure
competition?
A. In both market structures, barriers to entry are weak or do not exist.
B. Differentiated products are produced in both market structures.
C. Industries in both market structures consist of only a few firms.
D. Industries in both market structures are price searchers as opposed to price takers.
E. In the long run, industries in both market structures earn high economic profits.
3. Assume that peanut butter is an inferior good. Which of the following statements
describes what is meant by an "inferior good" in economics?
A. Because peanut butter is a low-quality food, consumers will not buy it.
B. When the supply of peanut butter falls, its price falls.
C. When consumer incomes increase, the demand for peanut butter decreases.
D. Producers of peanut butter will switch to producing jelly, a complement, to
increase profits.
E. If the price of almond butter, a substitute, rises, the demand for peanut butter will
fall.
4. When the price of cheddar cheese increased by 14 percent, the quantity demanded for
cheddar cheese decreased by 22 percent. Therefore, we can conclude that
A. cheddar cheese has no good substitutes.
B. cheddar cheese has many complements.
C. the price elasticity of demand for cheddar cheese is about .64.
D. the income elasticity of demand for cheddar cheese is about 1.6.
E. the demand for cheddar cheese is elastic with respect to price.