Question

Here are ten multiple-choice questions. Thanks!!!

1. To incentivize young people to go to college within their home state, state universities can:
A) charge higher tuition to in-state students.
B) award special scholarships to out-of-state students.
C) offer high-interest loans to in-state students.
D) offer lower tuition to in-state students.

2.Adam Smith’s concept of the invisible hand refers to his belief that:
A) market failure is a myth.
B) self-interest can lead to a “prisoner’s dilemma” where everyone is worse off than before.
C) the self-interest of individuals is best promoted when governments pursue the public interest.
D) individuals’ pursuit of self-interest leads to market failure.
E) the public interest is best promoted when individuals pursue their own self-interest.

3. Market failure occurs when:
A) prices of essential goods such as gas become very high.
B) mutually beneficial trades take place.
C) individual actions have side effects that are not properly taken into
account.
D) a business declares bankruptcy.

4.Which of the following will NOT cause an increase in demand?
A) An increase in income for a normal good.
B) A decrease in income for an inferior good.
C) An increase in the price of a substitute.
D) A decrease in the price of a complement.
E) A decrease in the good’s own price.

5.Assume the market for unskilled labor (L) is perfectly competitive.
Suppose the minimum wage is set by law above the market-clearing wage
for unskilled labor. How will the minimum wage affect the market for
unskilled labor?
A) Wages will rise, demand will fall, and supply will rise.
B) Wages will rise, demand will rise, and supply will fall.
C) Wages will rise, the quantity demanded will rise, and the quantity
supplied will fall.
D) Wages will rise, the quantity demanded will fall, and the quantity
supplied will rise.

6.If two goods are substitutes and the price of one good decreases, then
the demand for the other will:
A) decrease.
B) increase.
C) not change, but quantity-demanded will fall.
D) not change, but quantity-demanded will rise.
E) not be affected.

7.If the minimum wage rises and the fast food market employs many
minimum-wage workers, how will this affect the price and quantity of fast
food?
A) Price and quantity will both rise.
B) Price will rise and quantity will fall.
C) Price and quantity will both fall.
D) Price will fall and quantity will rise.

8.Which of the following will NOT cause an increase in supply?
A) An improvement in technology.
B) An increase in the good’s own price.
C) An increase in the price of a byproduct.
D) A decrease in the price of a production input.
E) News that the good’s price will fall in the future.

9.How will an increase in consumer incomes affect price and quantity of
fast food, if fast food is an inferior good?
A) Price and quantity will both rise.
B) Price will rise and quantity will fall.
C) Price and quantity will both fall.
D) Price will fall and quantity will rise.
E) Quantity will fall but the price change is ambiguous.

10. Suppose both the minimum wage increase in (question 7) and the rise in consumer income in (question 9) happen at the same time.
How will these two changes affect the price and quantity of fast food, assuming fast food is an inferior good?
A) Price will rise but quantity is ambiguous.
B) Price will fall but quantity is ambiguous.
C) Price and quantity will both fall.
D) Quantity will rise but price is ambiguous.
E) Quantity will fall but price is ambiguous.

Answer 1

1. D) offer lower tuition to in-state students.
(Lower fees to in-state students will lower the cost of school to students in their home state which will promote them to got to college within their home state)

2. C) the self-interest of individuals is best promoted when governments pursue the public interest.
(According to Adam Smith's concept of invisible hand society works best when individuals pursue their own self interest and government pursue the public interest because any disturbance in the market will be corrected by the invisible hand)

3. C) individual actions have side effects that are not properly taken into account.
(When there are side effects of the actions of individuals which are not taken into account then market failure occurs.)

4. E) A decrease in the good’s own price.
(This will lead to an increase in quantity demanded and not the demand)

(Post four MCQs at a time.)