1. Which of the following is a characteristic of a perfectly competitive market?
a) Few sellers
b) Differentiated products
c) Barriers to entry
d) Many buyers and sellers
2. In a perfectly competitive market, firms are:
a) Price makers
b) Price takers
c) Quantity setters
d) Demand creators
3. Which market structure is characterized by a single seller?
a) Oligopoly
b) Monopolistic competition
c) Monopoly
d) Perfect competition
4. A market with a few dominant firms is known as:
a) Perfect competition
b) Monopolistic competition
c) Oligopoly
d) Monopoly
5. Products are differentiated in which of the following market structures?
a) Perfect competition
b) Monopoly
c) Oligopoly
d) Monopolistic competition
6. The demand curve faced by a perfectly competitive firm is:
a) Downward sloping
b) Upward sloping
c) Perfectly elastic
d) Perfectly inelastic
7. In a perfectly competitive market, profit maximization occurs where:
a) Price > Marginal Cost
b) Price < Marginal Cost
c) Price = Marginal Cost
d) Price = Average Total Cost
8. In the long run, economic profits in a perfectly competitive market are:
a) Positive
b) Negative
c) Zero
d) Always greater than accounting profits
9. A barrier to entry in a market refers to:
a) Government regulations
b) Obstacles preventing new firms from entering the market
c) Low demand for the product
d) High competition among existing firms
10. Which of the following is an example of a barrier to entry?
a) Low start-up costs
b) Patent protection
c) Easy access to raw materials
d) Low brand loyalty
11. A natural monopoly occurs when:
a) A firm has a government-granted monopoly
b) Economies of scale are so large that a single firm can supply the entire market at a lower cost than multiple firms
c) A firm owns all the essential resources
d) A firm has a very strong brand image
12. A monopolist's demand curve is:
a) Perfectly elastic
b) Perfectly inelastic
c) The same as the market demand curve
d) Horizontal
13. Compared to a perfectly competitive market, a monopolist will typically produce:
a) More output and charge a lower price
b) More output and charge a higher price
c) Less output and charge a higher price
d) Less output and charge a lower price
14. A deadweight loss occurs in a monopoly because:
a) The monopolist charges a price equal to marginal cost
b) The monopolist produces more output than is socially optimal
c) The monopolist restricts output below the socially optimal level
d) The monopolist has high fixed costs
15. Price discrimination occurs when:
a) A firm charges different prices for the same product to different customers
b) A firm charges a price higher than its cost
c) A firm lowers its price to attract more customers
d) A firm offers discounts to senior citizens
16. Which market structure is characterized by many firms selling similar but differentiated products?
a) Perfect competition
b) Monopoly
c) Oligopoly
d) Monopolistic competition
17. In monopolistic competition, firms face a demand curve that is:
a) Perfectly elastic
b) Perfectly inelastic
c) More elastic than a monopolist's demand curve but less elastic than a perfectly competitive firm's
d) The same as the market demand curve
18. Advertising and branding are common strategies in which market structure?
a) Perfect competition
b) Monopoly
c) Oligopoly
d) Monopolistic competition
19. In the long run, economic profits in monopolistic competition are:
a) Positive
b) Negative
c) Zero
d) Always greater than accounting profits
20. Which of the following is a characteristic of an oligopoly?
a) Many small firms
b) Independent decision-making by firms
c) Interdependence among firms
d) Free entry and exit
21. A cartel is an example of:
a) Perfect competition
b) Monopolistic competition
c) Collusion in an oligopoly
d) Price discrimination
22. The kinked demand curve model is used to explain:
a) Price rigidity in oligopolies
b) Price wars in perfectly competitive markets
c) Product differentiation in monopolistic competition
d) Economies of scale in monopolies
23. Game theory is often used to analyze the behavior of firms in:
a) Perfect competition
b) Monopoly
c) Oligopoly
d) Monopolistic competition
24. The prisoner's dilemma illustrates:
a) The benefits of cooperation
b) The difficulty of maintaining cooperation, even when it's mutually beneficial
c) The advantages of being a monopolist
d) The importance of government regulation
25. A dominant strategy is:
a) A strategy that always yields the highest payoff for a player, regardless of the other players' strategies
b) A strategy that is only effective if the other player cooperates
c) A strategy that is used by the dominant firm in an oligopoly
d) A strategy that involves price fixing
26. In a market with positive externalities, the social benefit of consumption or production is:
a) Equal to the private benefit.
b) Less than the private benefit.
c) Greater than the private benefit.
d) Unrelated to the private benefit.
27. Which of the following is an example of a positive externality?
a) Pollution from a factory.
b) Secondhand smoke.
c) A neighbor's beautiful garden.
d) Traffic congestion.
28. Markets tend to ________ goods with positive externalities and ________ goods with negative externalities.
a) Overproduce; underproduce
b) Underproduce; overproduce
c) Efficiently produce; efficiently produce
d) Not produce; not produce
29. A Pigouvian tax is designed to:
a) Correct for positive externalities.
b) Correct for negative externalities.
c) Increase government revenue.
d) Redistribute income.
30. Which of the following is an example of a public good?
a) A slice of pizza.
b) A private swimming pool.
c) National defense.
d) A movie ticket.
31. Public goods are characterized by:
a) Rivalry and excludability.
b) Rivalry and non-excludability.
c) Non-rivalry and excludability.
d) Non-rivalry and non-excludability.
32. The free-rider problem occurs when:
a) People benefit from a good without paying for it.
b) Firms engage in price fixing.
c) Consumers are not informed about the quality of a product.
d) There is a shortage of a good.
33. Government intervention in markets may be justified in the presence of:
a) Externalities.
b) Public goods.
c) Information asymmetry.
d) All of the above.
34. Asymmetric information refers to a situation where:
a) All parties have equal information.
b) One party has more information than another party.
c) Information is irrelevant.
d) Information is publicly available.
35. Adverse selection occurs when:
a) Buyers have more information than sellers.
b) Sellers have more information than buyers.
c) Both buyers and sellers have the same information.
d) Information is irrelevant.
36. Moral hazard occurs when:
a) One party changes their behavior after entering into an agreement.
b) There is a lack of ethics in the market.
c) A firm engages in illegal activities.
d) Consumers are irrational.
37. Which of the following is an example of adverse selection?
a) People with car insurance driving more recklessly.
b) A used car salesman knowing more about the car than the buyer.
c) A company offering bonuses to employees for increased productivity.
d) All of the above.
38. Which of the following is an example of moral hazard?
a) People buying health insurance are more likely to seek medical care.
b) A bank knowing more about a borrower's creditworthiness than the borrower does.
c) A company offering discounts to customers who buy in bulk.
d) All of the above.
39. Licensing requirements for professionals, such as doctors and lawyers, can help address:
a) Adverse selection.
b) Moral hazard.
c) Externalities.
d) Public goods.
40. Which of the following statements about Market failure is correct?
a) It always requires the government to intervene.
b) It occurs when the market fails to allocate resources efficiently.
c) It only affects private goods.
d) It never affects competitive markets.
41. What does consumer surplus represent?
a) The profit earned by producers.
b) The total cost of production.
c) The difference between what consumers are willing to pay and what they actually pay.
d) The tax revenue collected by the government.
42. What does producer surplus represent?
a) The cost of resources used in production.
b) The total revenue earned by producers.
c) The difference between the price producers receive and their minimum willingness to sell.
d) The quantity of goods supplied.
43. In a perfectly competitive market, total surplus is maximized when:
a) The price is above the equilibrium price.
b) The quantity is below the equilibrium quantity.
c) The market is in equilibrium.
d) There are government subsidies.
44. A price ceiling is binding when:
a) It is set above the equilibrium price.
b) It is set below the equilibrium price.
c) It has no effect on the market.
d) It is set at the equilibrium price.
45. A price floor is binding when:
a) It is set above the equilibrium price.
b) It is set below the equilibrium price.
c) It has no effect on the market.
d) It is set at the equilibrium price.
46. Imposing a tax on a good will generally:
a) Increase both consumer and producer surplus.
b) Decrease both consumer and producer surplus.
c) Increase consumer surplus and decrease producer surplus.
d) Decrease consumer surplus and increase producer surplus.
47. The incidence of a tax refers to:
a) The amount of tax revenue collected by the government.
b) The legal obligation to pay the tax.
c) The division of the burden of the tax between buyers and sellers.
d) The economic inefficiency caused by the tax.
48. Rent control is an example of:
a) A price floor.
b) A price ceiling.
c) A subsidy.
d) A tax.
49. A quota is:
a) A tax on imported goods.
b) A limit on the quantity of a good that can be imported.
c) A government subsidy to domestic producers.
d) A price control.
50. Tariffs are:
a) Taxes on imported goods.
b) Limits on the quantity of goods that can be imported.
c) Government subsidies to domestic producers.
d) Price controls.
Answer Key:
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