Understanding Scarcity and Economic Concepts

What is the main problem addressed with scarcity?
a. Trying to satisfy the basic needs of everyone to eliminate poverty.
b. Ensuring that an adequate standard of living is achieved.
c. Making sure that critical resources such as oil and forests are not depleted.
d. Determining how to address unlimited wants with limited resources
2. You see a large group of stranded passengers standing next to a disabled bus, and you have only
three seats in your car. You have to decide which three passengers to rescue because of:
a. efficiency.
b. trade.
c. scarcity
d. macroeconomics.
3. The price of gasoline is $2.50 per gallon at the closest gas station but is only $2.30 per gallon at
a gas station two miles away. By driving to the farther gas station, the opportunity cost is:
a. non-existent because gas is cheaper at the farther station.
b. $0.20 per gallon, the difference in price between the two gas stations.
c. the cost of filling one’s tank at the original price of $2.50 per gallon.
d. the value of one’s time and expenses to go to the farther gas station
4. Instead of attending class, one could have worked an extra hour at the café for $10 or watched
a neighbor’s child for $15. The opportunity cost of attending class is:
a. $5.
b. $10.
c. $15.
d. $25.
5. Which explanation below best describes the Circular Flow Model of Economics?
a. The ability of banks to loan money to boost the economy and encourage spending.
b. How resources, money, goods and services flow through an economy.
c. The production of more goods and services in an economy.
d. The ongoing creation of jobs in the economy.

Instructor: Opinder Kaur
University at Buffalo, SUNY
6. Which of the following would most likely lead to a decrease the demand for peanut butter?
a. an increase in the price of jelly, a complement good that is often used with peanut butter
b. the discovery that consumption of peanut butter is good for one’s health since it is full of protein and health fats
c. over production of crops that lowers the price of peanuts used to make peanut butter
d. an increase in the price of almond butter, which many consumers think is a good substitute for peanut butter
7. The law of supply indicates that producers will devote more resources to producing a good when the selling price of that good increases because
a. the benefit of producing and selling these goods is higher, so it is worth the cost of
devoting additional resources toward the production of these goods.
b. the government orders them to do so
c. the higher prices attract potential competitors that will take some of the firms market share.
d. those higher prices make consumers want to buy the good even more
8. Which of the following is most likely to lead to an increase in the rental price of apartments near your campus?
a. lower property taxes on apartment buildings
b. lower prices for the wood used in the construction of apartments
c. an unexpected increase in enrollment at your college which makes more students move
near campus
d. the building of a new large student dormitory on the college campus
9. Which of the following is true regarding the market for steak shown in the figure below?
a. If the price of steak were $2 per pound, producers would want to supply less steak than consumers would want to buy.
b. If the price of steak were $4 per pound, producers would want to supply more steak than consumers would want to buy.

Instructor: Opinder Kaur
University at Buffalo, SUNY
c. If the price of steak were $3 per pound, producers would want to supply the same amount of steak that consumers would want to buy.
d. All of the above are true regarding the market for steak shown in the figure
10. If streaming services and satellite TV services are substitutes,
a. an increase in the price of streaming services will generally have no effect on the demand
for satellite TV.
b. an increase in the price of streaming services will decrease the demand for satellite TV.
c. a decrease in the price of streaming services will decrease the demand for satellite TV.
d. an increase in the price of streaming services will shift the demand curve for satellite TV to the left.
11. The Buffalo Bus Service currently charges $0.67 for an all-day ticket, and has an average of
513 riders a day. The bus company is not earning a profit, but according to their contract with the
city, they cannot cut the number of buses on the road. They must therefore find a way to increase
revenues. The bus company is considering increasing the ticket price to $0.89. The marketing
department’s studies indicate this price increase would reduce usage to 249 riders per day. What is
the price elasticity of demand for bus tickets?
a. 1.2
b. 1.4
c. 1.6
d. 1.8
12. Demand is said to be inelastic when:
a. the percentage change in quantity demanded is greater than the percentage change in price
of a good
b. in a linear demand curve, quantity demanded is close to zero (given the price) so that the
percentage change in quantity demanded will be very high
c. the percentage change in price exceeds the percentage change in quantity demanded of a
good
d. a relatively small change in price results in a relatively big change in quantity demanded
13. Suppose that the Board of Directors of the local symphony proposes that the admission price
to hear the orchestra be raised as a means of raising additional funds to support music programs.
Its members are implicitly assuming that the price elasticity of demand for a ticket is:
a. less than unity
b. greater than unity
c. unity
d. it really says nothing about price elasticity
14. The determinants of the price elasticity of demand of a particular commodity include all of the
following except:
a. the availability of substitutes for the commodity
b. the time period involved

Instructor: Opinder Kaur
University at Buffalo, SUNY
c. the ease with which resources can be shifted to and from the production of this commodity
to other uses
d. the degree of specificity with which the commodity is defined
15. From which of the following data might you estimate a price elasticity of supply?
a. a price hike from $7 to $13 causes sales to fall from 16,000 shirts to 8,000 shirts monthly.
b. farmers increase soybean plantings 15 percent when the price increases 5 percent.
c. Ford’s production increases when Chevy sales fall because GM raises prices.
d. the output of tennis balls slumps 8 percent when the prices of racquets go up 12 percent.
16. You are a supplier of peanuts. Your research department estimates that the price elasticity of
demand for peanuts is 2.5. By what percentage will quantity demanded rise if you lower price from
$4 to $2?
a. 16.67 percent.
b. 167 percent.
c. 50 percent.
d. 125 percent
17. For the demand curve for lattes in the adjacent
figure, if the price is $5, total revenue is:
a. $25.
b. $10.
c. $20.
d. $5.
18. For the demand for digital movies in the adjacent
figure, if the price of online movies increases from $6 to
$8, total revenue _____, which means that demand is
a. decreases; elastic
b. decreases; inelastic
c. remains constant; elastic
d. increases; elastic
19. If the price elasticity of demand for basketball shoes is 4:
a. the demand for shoes is inelastic.
b. a 20% decrease in the price of shoes will increase quantity demanded by 80%.
c. a 10% increase in the price of shoes will increase quantity demanded by 40%.
d. a 20% increase in the price of shoes will increase quantity demanded by 80%.

Instructor: Opinder Kaur
University at Buffalo, SUNY
20. A perfectly elastic supply curve is:
a. downward sloping.
b. upward sloping.
c. vertical.
d. horizontal.
21. Sam is willing to pay $200 for a daylong admission ticket to a Disney Adventure park. The
cost of the ticket is $120. Sam’s consumer surplus is:
a. $0
b. $80
c. $120
d. $320
22. A limited edition of Harry Potter Complete Book Series is sold only to 200 customers for $130
each. The average value of the package for the 200 customers is $280. What is the total consumer
surplus?
a. $150
b. $15,000
c. $30,000
d. $150,000
23. What should we expect to happen to the consumer surplus if price of a product increases?
a. Consumer surplus increases
b. Consumer surplus decreases
c. Consumer surplus remains unchanged
d. Can’t be determined
24. Producer surplus is represented by the area ________ the supply curve and ________ the
price.
a. below; above
b. above; below
c. below; below
d. above; above
25. Consumer surplus is represented by the area ________ the demand curve and ________ the
price.
a. below; above
b. above; below
c. below; below
d. above; above
26. What should we expect to happen to the producer surplus if price of a product decreases?
a. Producer surplus increases
b. Producer surplus decreases
c. Producer surplus remains unchanged
d. Can’t be determined

Instructor: Opinder Kaur
University at Buffalo, SUNY
27. Using the table below, if the price of a bag of cashews is $9, who will purchase a bag?
Table: Willingness to Pay for Cashews
Consumer Willingness to Pay in Dollars
Adam $5
Chloe 3
Angela 6
Donatella 2
Gregory 10
a. Gregory only
b. all of the consumers
c. Donatella only
d. Adam and Chloe only
28. The figure below shows the monthly supply of lattes at a local cafe. At $3 per latte, the cafe
produces 120 lattes per month. The producer surplus received by this bakery is equal to:
a. $180.
b. $60.
c. $360.
d. $120.

Instructor: Opinder Kaur
University at Buffalo, SUNY
29. Consider the accompanying supply and demand graph.
What is the value of consumer surplus?
a. $11.25
b. $8.75
c. $20
d. $12
30. Consider the accompanying supply and demand graph.
What is the value of producer surplus?
a. $11.25
b. $8.75
c. $20
d. $12
31. Consider the accompanying supply and demand graph.
What is the value of total surplus, also known as or social
or economic surplus?
a. $11.25
b. $8.75
c. $20
d. $12
32. The Generator is a popular youth hostel in
London located near Kings Cross. The hostel
provides a bed, showers, and breakfast in their
nightly fee. The graph characterizes the market for
beds at The Generator. In equilibrium, how many
beds are rented? What is the total surplus?
a. 30, $875
b. 40, $4000
c. 50, $2000
d. 60, $1125
33. A price floor or a price ceiling is an example of:
a. a price control.
b. a quantity control.
c. a market equilibrium price.
d. a quota.
34. A price floor often results in:
a. black markets, or underground transactions in the good.
b. a shortage of the product.
c. less communication between buyers and sellers about the appropriate price.
d. a more efficient allocation of the good among sellers.

Instructor: Opinder Kaur
University at Buffalo, SUNY
35. A binding minimum wage will MOST likely lead to a situation where:
a. some unskilled workers have a difficult time finding a job.
b. employers must encourage workers to apply for positions.
c. employers will have difficulty finding enough workers for their positions.
d. workers are generally guaranteed employment.
36. The table shows the quantity demanded (Q d ) and quantity supplied (Q s ) of lemonade at
various prices. If the government imposes a price ceiling of $3 per bottle of lemonade, the
quantity of lemonade supplied will be _____ bottles.
Table: The Market for Lemonade
Price ($/unit) Q d Q s
2.50 10 7
2.75 8 8
3.00 6 9
3.25 4 10
3.50 2 11
a. 8
b. 7
c. 9
d. 10
37. Dramatic increases in the price of gasoline have led the government to impose a price ceiling.
One effective price ceiling would be the price indicated at point _____, creating a _____ equal to
the difference between points _____.
a. d; shortage; i and h
b. b; shortage; f and e
c. b; surplus; f and e
d. d; surplus; e and h

Instructor: Opinder Kaur
University at Buffalo, SUNY
38. If government decides to set a price floor of 15 rigsdaler (currency of Iceland) for an oil
lamp, what will occur?
a. Nothing will change.
b. There will be a shortage of oil lamps.
c. There will be a surplus of oil lamps.
d. The equilibrium price of an oil lamp will change.
39. If government decides to set a price ceiling of 15 rigsdaler (currency of Iceland) for an oil
lamp, what will occur?
a. There will be a shortage of oil lamps.
b. Nothing will change.
c. There will be a surplus of oil lamps.
d. The equilibrium price of an oil lamp will change.

Instructor: Opinder Kaur
University at Buffalo, SUNY
40. If the government imposes a price ceiling of $15, what will be the deadweight loss?
a. 5625
b. 625
c. Zero
d. 525
41. If the government imposes a price floor of $15, what will be the deadweight loss?
a. 5625
b. 625
c. Zero
d. 525