6. Suppose good X has a negative income elasticity of demand. This implies that good X is
(A) a normal good.
(B) an inferior good.
(C) a necessity.
(D) luxury.

2. A deadweight loss is a consequence of a tax on a good because the tax (A) induces the government to increase its expenditures. (B) induces buyers to consume less, and sellers to produce less. (C) increases the equilibrium price in the market. (D) imposes a loss on buyers that is greater than the loss to sellers.

3. For a monopolist, marginal revenue is (A) equal to price, as it is for a perfectly competitive firm. (B) less than price, as it is for a perfectly competitive firm. (C) equal to price, whereas marginal revenue is less than price for a perfectly competitive firm. (D) less than price, whereas marginal revenue is equal to price for a perfectly competitive firm.

4. If the cross-price elasticity of two goods is negative, then the two goods are (A) normal goods. (B) inferior goods. (C) substitutes. (D) complements.

5. Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should (A) continue to operate in the short run but shut down in the long run. (B) shut down her business in the short run but continue to operate in the long run. (C) continue to operate in both the short run and long run. (D) shut down in both the short run and long run.

7. A price floor will be binding only if it is set  (A) equal to the equilibrium price. (B) above the equilibrium price. (C) below the equilibrium price. (D) either above or below the equilibrium price.

8. The figure above depicts average total cost functions for a firm that produces automobiles. At levels of output between M and N, the firm experiences (A) economies of scale. (B) diseconomies of scale. (C) constant returns to scale. (D) both the benefits of specialization and diminishing marginal productivity.

9. The source of the supply of loanable funds (A) is saving and the source of demand for loanable funds is investment. (B) is investment and the source of demand for loanable funds is saving. (C) and the demand for loanable funds is saving. (D) and the demand for loanable funds is investment.

10. A firm's costs of production are equal to it (A) explicit costs only. (B) implicit costs only. (C) explicit costs + implicit costs. (D) explicit costs + implicit costs + total revenue.

11. When profit-maximizing firms in competitive markets are earning profits (A) market demand must exceed market supply at the market equilibrium price. (B) market supply must exceed market demand at the market equilibrium price. (C) new firms will enter the market. (D) the most inefficient firms will be encouraged to leave the market.

12. When two goods are perfect substitutes, the indifference curve is (A) a horizontal straight line. (B) bowed outward. (C) a downward-sloping straight line. (D) a right angle.