Which of the following will likely increase the price elasticity of demand for a good?

A) The good is a necessity.

B) The good has few substitutes.

C) The good constitutes a small portion of the consumer’s budget.

D) The good has many substitutes available.

In the long run, if a perfectly competitive firm is experiencing losses, it will:

A) Continue to produce at a loss in the short run.

B) Shut down temporarily until the market improves.

C) Exit the market if the losses persist.

D) Increase production to cover its fixed costs.

The “substitution effect” occurs when:

A) A consumer changes their demand for a good based on a change in the price of a substitute.

B) A consumer substitutes one good for another in response to a price change, holding real income constant.

C) The price of a good changes, leading to an increase in total income.

D) A change in income results in a change in demand for normal goods.

Which of the following is NOT an example of a price floor?

A) Minimum wage.

B) Agricultural price supports.

C) Rent controls.

D) Minimum price for gasoline.

If a firm is operating in a market where marginal revenue equals marginal cost and is making an economic profit, it is:

A) Operating in perfect competition.

B) Operating under monopolistic competition.

C) A price taker.

D) Likely a monopoly.

If the price of a good decreases and the quantity demanded increases, this illustrates:

A) The law of supply.

B) The law of demand.

C) A shift in the demand curve.

D) A change in consumer preferences.

Which of the following would cause a shift in the supply curve of a good?

A) A change in the price of the good.

B) A change in consumer preferences.

C) A change in the cost of production.

D) A change in the income of consumers.

Which of the following is true for a firm operating under perfect competition in the long run?

A) The firm’s marginal cost is equal to its average total cost.

B) The firm can earn positive economic profits.

C) The firm’s average total cost curve is above its marginal cost curve.

D) The firm produces at a level where average total cost is maximized.

Which of the following is a feature of a perfectly competitive market?

A) Firms can earn supernormal profits in the long run.

B) Firms produce differentiated products.

C) There is free entry and exit of firms.

D) Firms have price-setting power.

A perfectly elastic demand curve means that:

A) Consumers are not sensitive to price changes.

B) Consumers are highly responsive to price changes.

C) The quantity demanded remains the same regardless of price.

D) The price of the good is fixed.

In a monopoly, the price charged by the firm:

A) Is always higher than marginal cost.

B) Is always equal to marginal revenue.

C) Can be equal to marginal cost in the long run.

D) Cannot be reduced without losing customers.

Which of the following is true about the long-run equilibrium in a perfectly competitive market?

A) Firms earn positive economic profits.

B) Firms earn zero economic profits, as price equals average total cost.

C) Firms are forced to exit the market.

D) Barriers to entry prevent new firms from entering..

A firm is producing at the point where marginal cost equals marginal revenue but is still making a loss. This firm should:

A) Increase its price to maximize profits.

B) Continue producing in the short run if it can cover its average variable cost.

C) Shut down immediately to avoid further losses.

D) Reduce output to reduce losses.

The primary characteristic of monopolistic competition is:

A) Firms produce homogeneous products.

B) There are many firms and no barriers to entry.

C) Firms can set prices freely.

D) Firms are price takers.