ECO 561 WEEK 1 KNOWLEDGE CHECK

1 . Revenue increases when
•	A. producer surplus increases
•	B. producer surplus decreases
•	C. consumer surplus increases
•	D. consumer surplus decreases
2 . An increase in the price of an inelastic good
•	A. decreases revenues
•	B. decreases the percentage change in quantity less than the percentage change in price
•	C. increases revenues
•	D. increases the percentage change in quantity more than the percentage change in price
3 . Price elasticity of Demand increases when
•	A. the number of complementary goods decreases
•	B. the number of substitute goods decreases
•	C. people become more price sensitive over time
•	D. people become less price sensitive over time
4 . The purpose of a market in a market system is to
•	A. allow government to control what is sold
•	B. set constraints between buyers and sellers
•	C. bring buyers and sellers into contact
•	D. allow an organization to set prices in relation to their products
5 . By specializing in the production of one good, a company is able to benefit from economies of scale which increases its revenue. Which of the following is an attribute of specialization?
•	A. Reducing costs by creating a surplus
•	B. Saving time by allowing a worker to focus on one task
•	C. Encouraging workers to learn new skills
•	D. Encouraging workers to learn a number of different skills
6 . The market system promotes progress by
•	A. creating incentive to continue to do things in the same way
•	B. restricting the amount of capital directed to specific goods
•	C. slowly adjusting to changes in the prices of resources
•	D. providing incentive for technological advances
7 . Productive efficiency is achieved when
•	A. the most valued combination of resources is used
•	B. the best technology is used
•	C. when production occurs at a fair cost per unit
•	D. fewer resources are left for production of other goods
8 . The market is said to be in equilibrium when
•	A. there is potential for a shortage but not a surplus
•	B. there is potential for a surplus but not a shortage
•	C. neither a shortage nor a surplus exists
•	D. the quantity sold equals the quantity purchased
9 . The market will move to a higher equilibrium price if
•	A. the decrease in supply is equal to the decrease in demand
•	B. the increase in supply is greater than the increase in demand
•	C. the decrease in demand is greater than the decrease in supply
•	D. the increase in demand is greater than the increase in supply
10 . The intersection of supply and demand will be at a lower equilibrium price but a higher equilibrium quantity if
•	A. supply is constant and demand increases
•	B. supply is constant and demand decreases
•	C. demand is constant and supply decreases
•	D. demand is constant and supply increases
11 . When a price ceiling occurs
•	A. the market price will be lower than the equilibrium price
•	B. the market price will be higher than the equilibrium price
•	C. the supply will exceed the demand
•	D. buyers will not be willing to pay more than the ceiling price
12 . Because the goals of firms, entrepreneurs, and workers have different incentives, which of the following principles applies?
•	A. Self-interest
•	B. Invisible hand
•	C. Moral hazard
•	D. Free enterprise