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The demand for Tyson chicken is more elastic than the demand for meat. A U.S. import fee on oil would reduce the domestic quantity demanded of oil. Answer: TRUE Economic growth shifts a society’s production possibility frontier away from the […]

Firms in a monopolistically competitive industry are small relative to the total market. Refer to the Economics in Practice on page 361. Sometimes the lack of information in an advertisement serves as a signal. Answer: TRUE The value of capital […]

Organizations that transform resources into products are known as A) firms. B) entrepreneurs. C) households. D) factors. A non-discriminating monopolist’s price equals its marginal revenue only when A) output is zero. B) total revenue is a maximum. C) marginal revenue […]

In 2009, the lowest incidence of poverty was for A) women living in households with no husband present. B) individuals over 65. C) white (non-Hispanic) people. D) children under 18. As output decreases, average fixed costs A) decrease. B) initially […]

The process by which resources are transformed into useful forms is A) capitalization. B) consumption. C) production. D) allocation. Figure 3.17 Refer to Figure 3.17. The market for sunglasses is in equilibrium at a price of ________ and a quantity […]

Table 14.1 B’s Strategy Refer to Table 14.1. If both firms follow a maximin strategy, the equilibrium in the game is ________. A) (Raise Price, Don’t Raise Price) B) (Raise Price, Raise Price) C) (Don’t Raise Price, Raise Price) D) […]

Human capital is a type of social capital. The more homogeneous are consumers’ preferences, the more product variety will be observed. Answer: FALSE A perfectly competitive system is efficient. Answer: TRUE Assuming a perfectly competitive market implies that households do […]

A firm will undertake an investment if the present value of the A) income stream associated with the investment is greater than the full cost of the investment project. B) income stream associated with the investment is less than the […]

A firm hires labor, capital, and land to produce tomatoes. Currently the marginal product of the last unit of labor input is 20, the marginal product of the last unit of capital input is 30, and the marginal product of […]

When ________ for a monopolistically competitive firm, the firm is in long-run equilibrium. A) MR = MC and P > ATC B) MR > MC and P > ATC C) MR = MC and P = ATC D) MR < […]

Figure 6.2 Refer to Figure 6.2. Assume Mr. Lingle’s budget constraint is AC. He will have leftover income if he purchases the bundle represented by point A) A. B) B. C) E. D) D. You and two friends are going […]

A firm that sells a car for $30,000 gets producer surplus of $30,000. In the short run, nonprice rationing will happen whenever there is excess demand in a market. Answer: TRUE A fair bet is a game whose expected value […]

At a price of $11, quantity demanded is 90; and at a price of $9, quantity demanded is 110. Since total revenue ________ by the price decrease, demand must be ________. A) is increased; elastic B) is decreased; inelastic C) […]

If a monopolistically competitive firm is producing an output level where its marginal cost is equal to its marginal revenue but it still earns a loss, then it should always shutdown in the short run. Efficiency is the condition in […]

Participating in a seminar that helps to improve your performance at work represents an investment in your ________ capital. A) human B) social C) tangible D) financial Related to the Economics in Practice on page 361: Suppose you see the […]

An example of a(n) ________ comparative advantage is that some U.S. consumers prefer German beer over American beer because German beer has a reputation for tasting better. A) unwarranted B) acquired C) natural D) subsidized Table 8.3 Refer to Table […]

The table shows the relationship between income and utility for Sue. Table 17.2 Refer to Table 17.2. Sue earns $40,000 annually. She has the opportunity to bet her entire salary on the upcoming super bowl. If Sue takes the bet, […]

Jane has $500 a week to spend on clothing and food. The price of clothing is $25 and the price of food is $10. The clothing and food pairs in Jane’s choice set include ________ units of clothing and ________ […]

Figure 13.4 Refer to Figure 13.4. This firm’s marginal revenue will be negative at A) $6. B) $14. C) all prices. D) prices between $8 and $12. Quantity demanded will equal quantity supplied if a ________ is set ________ the […]

A firm will begin to experience diminishing returns at the output where marginal A) cost increases. B) cost decreases. C) product increases. D) both B and C If the price floor is set above the equilibrium price, A) quantity demanded […]

Suppose there is a permanent shift of consumer preferences toward frozen yogurt and away from ice cream. The most likely result would be in the A) short run, economic losses in the frozen yogurt market. B) long run, a fall […]

Monopolistically competitive firms use product differentiation to A) ensure long-run profits. B) achieve market power. C) block other firms from entering the industry. D) limit the number of firms in the industry. You take a class that improves your critical […]

Consider the following game. You roll a six-sided die and each time you roll a 1, you get $50. For all other outcomes you pay $10. The expected value of the game is ________. A) -$10 B) $0 C) $10 […]

If a tax is imposed on externality-producing activities by perfectly competitive firms so that the market is producing the efficient level of output, then price equals ________ and marginal damage cost is ________. A) marginal social cost; equal to zero […]

Table 20.1 Refer to Table 20.1. Germany has A) a comparative advantage in beer production. B) an absolute advantage in wine production. C) an absolute advantage in beer production. D) all of the above An economy that is producing on […]

Figure 6.15 Refer to Figure 6.15. If the price of an ice cream cone is $3, the price of ice cream sandwiches is A) $3. B) $4.50. C) $33.33. D) $150. A ________ industry has a relatively small number of […]

Table 6.2 Refer to Table 6.2. Diminishing marginal utility sets in after the ________ donut per day. A) first B) second C) third D) fourth You are hired as an economic consultant to The Pampered Pet Shop. The Pampered Pet […]

Figure 1 Refer to Figure 18.1. At Point A the distribution of goods is A) equitable. B) efficient. C) equal. D) just. Figure 13.3 Refer to Figure 13.3. This firm’s marginal revenue will be positive at Answer: B A) prices […]

The number of seats available in a stadium is fixed at 80,000. The equilibrium price for a ticket to a football game at the stadium is $30. The equilibrium price for a ticket to a soccer match at the stadium […]

The law of diminishing marginal utility implies that marginal utility never becomes negative. Adverse selection and moral hazard are problems that arise in the presence of asymmetric information. Answer: TRUE A firm will only invest when the marginal revenue product […]

If the cost of the Department of Agriculture’s minimum food budget for two people is $2,000 per year, the official poverty line for a family of two would be A) $667. B) $2,000. C) $6,000. D) $12,000. The ________ automatically […]

If the product derived from the last dollar spent on labor is greater than the product derived from the last dollar spent on capital, then the firm A) is minimizing costs. B) should use more labor and less capital to […]

Resources are unlimited in a wealthy society. When one market reaches a new equilibrium, the general equilibrium condition has been satisfied. Answer: FALSE Queuing, or waiting in line, is an alternative rationing mechanism to price rationing. Answer: TRUE A movement […]

Table 16.5 Refer to Table 16.5. A point on the market demand curve for this public good would be: at a price of ________ quantity demanded would be ________. A) $15; 5 B) $25; 3 C) $50; 1 D) $55; […]

When an economy is producing inside its production possibility frontier A) production inefficiency occurs. B) only technological advances will allow it to increase production. C) it is efficient so long as it is producing what people want. D) it must […]

Related to the Economics in Practice on page 179: In higher education A) the average total cost of educating students equals the marginal cost of educating an additional student. B) the average total cost of educating students exceeds the marginal […]

The term “Fourth World” is used to describe countries that A) are stagnant and have fallen far behind the economic advances of the rest of the world. B) have experienced rapid economic growth. C) are more developed than “Third World” […]

Figure 5.1 Refer to Figure 6.1. Assume Tom is on budget constraint AC and the price of a hot dog is $2.50. Tom’s monthly income is A) $16. B) $50. C) $80. D) $100. For a monopolist to sell more […]

Normative economics A) is the focus of most modern economic reasoning. B) answers the question “What ought to be?” C) predicts the consequences of alternative actions. D) answers the question “What is?” Economic costs A) include both a normal rate […]

In an oligopolistic industry where the oligopolists collude, the price firms charge would be ________, and the quantity they produce would be ________, if the industry were a monopoly. A) higher than; higher than B) lower than; lower than C) […]

________ is a change that makes some people better off and nobody worse off. A) A government transfer program such as Social Security B) A reduction in interest rates C) A price floor that increases income to suppliers D) Voluntary […]

According to utilitarian justice, the redistribution of income from the rich to the poor causes A) the rich to sacrifice a lot and the poor to gain a little. B) the marginal utility of both the rich and the poor […]

The common way of expressing the efficient market concept is A) “the only true market is a profitable market.” B) “there’s no such thing as a free lunch.” C) “only without government interference can a market survive.” D) “once an […]

Assuming there are no externalities, if a firm produces an output level where the benefits to consumers ________ the cost to suppliers to produce it, then price is ________ marginal cost. A) are less than; greater than B) exceed; less […]

Figure 6.1 Refer to Figure 6.1. Tom’s budget constraint is AC. His choice set includes all points A) to the right of budget constraint AC. B) bounded by the area OAC. C) along budget constraint AC. D) along the vertical […]

Table 7.2 Inputs Required to Produce a Product Using Alternative Technologies Refer to Table 7.2. If the hourly price of labor is $10 and the hourly price of capital is $1, which production technology should be selected? A) A B) […]

A price floor is A) a minimum price set by government that sellers must charge for a good. B) a maximum price set by government that sellers may charge for a good. C) the difference between the initial equilibrium price […]

You always have math problems to work in class whenever you forget to bring your calculator to school. Concluding that forgetting your calculator causes your professor to assign math problems is an example of the A) fallacy of composition. B) […]

Tacit collusion is ________ to be successful in increasing industry profits when there are ________ similar firms in the industry. A) more likely; many B) less likely; a few C) more likely; a few D) always; no If the interest […]

If the slope of a straight line is 4 and if Y (the variable on the vertical axis) decreases by 20, then X (the variable on the horizontal axis) A) increases by 5. B) decreases by 5. C) increases by […]

A tariff imposed on imported wine will cause the domestic ________ of wine to increase and the domestic ________ of wine to increase. A) price; production B) cost; price C) imports; exports D) revenues; imports In 2006, the infant mortality […]

An economist has estimated that the maintenance of a public park costs $25,000 a year and that the public park generates $30,000 a year in revenue for merchants near the park. From society’s point of view, the maintenance of this […]

You and your brother are splitting a piece of cake. You cut it into two pieces and your brother selects his piece first. Thus, you cut it into two equally sized pieces. This is an example of ________. A) utilitarian […]

________ is on the World Bank’s list of low-income countries, yet its capital city is one of the top ten centers of commerce in the world. A) India B) Mexico C) Rwanda D) Thailand Chronic food shortages, explosive population growth, […]

Sponsors invest $250,000 in a new deli on the promise that they will earn a return of 10% per year on their investment. The deli sells 52,000 sandwiches per year. The deli’s fixed costs include the return to investors and […]

The so-called tragedy of commons relates to the idea that A) no one has an incentive to maintain collectively owned property. B) collectively owned resources tend to be underused. C) collective ownership provides the proper private incentives for efficiency because […]

Table 8.5 Refer to Table 8.5. Assume that Polynesian Fruit sells fruit baskets in a perfectly competitive market. The market price of a fruit basket is $44. To maximize profits, Polynesian Fruit should sell ________ fruit baskets and their profit […]

If government officials are mainly interested in generating tax revenue, then they should tax goods for which demand is price inelastic. Capital stock increases with investment and decreases with depreciation. Answer: TRUE When supply is fixed, price is supply determined. […]

In general, the demand curve facing the monopolistically competitive firm is more elastic than the demand curve facing the perfectly competitive firm. If a group has a negative elasticity of labor supply (above some income level), then continued increases in […]

Only those products in which a country has a comparative advantage will be competitive in world markets. Labor market compensation contracts can be designed to screen out poor quality workers as well as provide employees with incentives to work hard. […]

If the opportunity costs of producing a good increase as more of that good is produced, the economy’s production possibility frontier will be A) negatively sloped and “bowed inward” toward the origin. B) negatively sloped and “bowed outward” from the […]

Jim used to be very careful with his car. However, once he bought full auto insurance on it, he stopped turning on his alarm or even locking it when parking it. This is an example of adverse selection. Marginal social […]

Imperfect information on the part of buyers and sellers A) will not stop the economy from achieving market efficiency, assuming the other conditions for market efficiency hold. B) is no longer a problem because the “truth-in-advertising” regulations have been instituted. […]

If the exchange rate between the United States and Portugal changes from $1 = 1 euro to $1 = 2 euros, then holding everything else constant, the price of U.S. goods in Portugal will decrease. As firms hire additional units […]

The largest portion of federal government revenues comes from ________. A) the individual income tax B) excise taxes C) social insurance payroll taxes D) corporate income taxes If income decreases by 20% and, in response, the quantity of housing demanded […]

Consider two countries, Estonia and Ukraine. Estonia devotes a larger portion of its production to capital. All other things equal which of the following statements is most likely true? A) Estonia is a poorer country than Ukraine. B) Estonia will […]

Related to the Economics in Practice on page 175: When there are a few empty seats in a movie theater, the marginal cost of adding extra customers to occupy those seats A) is probably close to zero. B) will be […]

The U.S. beer industry has an HHI of 3525. If two beer producers propose a merger that would increase the industry HHI by 25 points, then the merger would be challenged based on the change in the HHI. If Holland […]

The main decision for a profit maximizing perfectly competitive firm is not what ________ but what ________. A) level of output to produce; price to charge B) price to charge; level of output to produce C) level of output to […]

Figure 20.2 Refer to Figure 20.2. ________ has a comparative advantage in producing ________. A) England; trucks B) England; cars and trucks C) the United States; trucks D) the United States; cars and trucks In the short run, it is […]

Unemployment benefits are A) paid regardless of a person’s income from other sources and regardless of assets. B) reduced by an amount that is equal to an individual’s income from other sources. C) not paid to individuals with assets valued […]

If the Herfindahl-Hirschman Index of an industry is less than 1,000, then the Antitrust Division of the Justice Department A) will challenge any merger that would increase the index by over 100 points. B) considers the industry unconcentrated. C) considers […]

Both Amy and Tom are trained as nurses. Amy makes $35,000 a year working as a nurse in an emergency room in a New York City hospital. Tom makes $20,000 working as a community health nurse in New York City. […]

Based on a World Bank study, medical treatment in developing countries has an elasticity value greater than 1. Owning a share of stock entitles the shareholder to a portion of the firm’s profits. Answer: TRUE Monopolistically competitive firms are able […]

Table 8.3 Refer to Table 8.3. What is the total cost of producing zero units of output? A) $0 B) $15 C) $30 D) indeterminate from the given information Figure 9 Refer to Figure 6.9. The marginal utility of the […]

Figure 16.3 Refer to Figure 16.3. When Bill plays his saxophone he imposes costs on his wife. If Bill does not take these costs into consideration he will play his saxophone for ________ hours per day. A) zero B) three […]

Assume there are two people in a society. Person A is willing to pay $70 to have one unit of a public good produced and Person B is willing to pay $80 to have one unit of a public good […]

An improvement in technology will cause the A) production possibility frontier to shift outward. B) production possibility frontier to shift inward. C) economy to move down the production possibility frontier. D) economy to move closer to its production possibility frontier. […]

A soybean farmer sells soybeans in a perfectly competitive market and hires labor in a perfectly competitive market. The market price of soybeans is $10 a bushel, the wage rate is $15, the farmer employs eleven workers and the marginal […]

Figure 6.2 Refer to Figure 6.2. Along budget constraint AC, the opportunity cost of one beer is A) 1/4 of a gardenburger. B) 1 gardenburger. C) 2 gardenburgers. D) changing as Mr. Lingle moves down his budget constraint. If the […]

Table 10.2 Refer to Table 10.2. Marginal revenue product of the ________ worker is $1,000. A) second B) third C) fourth D) fifth Figure 5.6 Refer to Figure 5.6. The market is initially in equilibrium at Point A and supply […]

The cross-price elasticity of demand between good X and good Y is 5. Given this information, which of the following statements is true? A) The demand for goods X and Y is inelastic. B) Goods X and Y are substitutes. […]

Behavioral economics goes against the basic teachings of both psychology and economics. The price of any factor of production in a competitive market depends on the value of the final product it is used to produce. Answer: TRUE Performance compensation […]

In the Cournot model, firms take their rivals’ reactions as given. Input and output markets operate independently and thus should be analyzed as separate entities. Answer: FALSE A retail sales tax is a proportional tax with respect to income. Answer: […]

Figure 2.6 Refer to Figure 2.6. Which of the following will NOT cause the production possibility frontier to shift from ppf1 to ppf2? A) a decrease in the unemployment rate, assuming a constant labor force. B) an increase in the […]

The optimal level of provision of public goods is where society’s total willingness to pay per unit is equal to the ________ cost of producing the good. A) total B) average C) variable D) marginal Table 10.1 Refer to Table […]

Some economists advocate government intervention in a market economy A) to produce collective goods and services. B) when resource costs for a private producer do not reflect the full cost to society. C) to stabilize the economy. D) all of […]

Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise from air traffic negatively affects individuals living in Playa Del Rey, however, this cost is not considered by airlines or air travelers. The airlines feel they […]

Figure 13.2 Use Figure 13.2 which depicts a monopolist firm to help with the following question. Define the area of total revenue that this firm will collect if it is maximizing profit. Use the letters that appear on the graph […]

The present discounted value of a stream of future income increases as the interest rate decreases. When wages fall, the employment of capital always decreases. Answer: FALSE Positive economics looks at outcomes of economic behavior and evaluates them as good […]

Figure 5.1 Refer to Figure 6.1. Assume Tom is on budget constraint AC and the price of a hamburger is $5.00. Tom’s monthly income is A) $4. B) $60. C) $80. D) $100. Answer: D Figure 3.19 Refer to Figure […]

Producer surplus is A) the difference between the maximum a person is willing to pay and current market price. B) the difference between current market price and full costs of production for the firm. C) the difference between willingness to […]

Suppose that the demand for good Y and the supply of good Y both increase. (a.) Is it possible to predict whether the equilibrium quantity of good Y will increase, decrease, or remain the same as a result of these […]

When ________ substitutes exist, a monopolist has ________ power to raise price. A) more; more B) more; no C) fewer; no D) fewer; more Speedy Flowers competes in the monopolistically competitive flower delivery industry in a city. The firm raises […]

In output markets, the elasticity of supply tends to be A) negative. B) zero. C) positive. D) decreasing at an increasing rate. Table 11.1 Refer to Table 11.1. If the interest rate is 9%, Nashbar Bicycle’s total investment would be […]

The notion of utilitarian justice is that A) through income redistribution, the rich sacrifice a little and the poor gain a lot. B) any change that makes some people better off without making anyone worse off should be undertaken. C) […]

If an economy is producing on its production possibility frontier but is not producing what people want, the economy A) is experiencing technological advancement. B) is producing at more than one point on the production possibility frontier. C) is not […]

One reason for selecting a section of microeconomics for which attendance is part of the grade (as opposed to one where it is not) is that it serves as a commitment device that will get you to attend class. Schumpeter […]

________ reflects household willingness to pay, and ________ reflects the opportunity cost of the resources needed to produce a good. A) Marginal utility; price B) Price; marginal cost C) Price; average total cost D) Demand; price Suppose that an international […]

Figure 7.4 Refer to Figure 7.4. The marginal product of the third worker is A) 10. B) 28.67. C) 32. D) 42. An example of an ineffective price ceiling would be the government setting the price of wheat at ________ […]

Because they produce where P > MC, we know that monopolistically competitive firms A) always make a profit in the short run. B) prevent the efficient use of resources. C) always make a profit in the long run. D) produce […]

XYZ Computer Company has a monopoly on the sale of a specialized color printer. If it sells two of these printers, its total revenue is $1,000, and if it sells three, its total revenue is $1,300. The marginal revenue of […]

The price of a good will be demand determined if A) the demand for the good is unit elastic. B) the demand for the good is perfectly inelastic. C) the supply of the good is perfectly elastic. D) the supply […]

Figure 2.4 Refer to Figure 2.4. The economy moves from Point A to Point D. This could be explained by A) a reduction in unemployment. B) an improvement in technology. C) an increase in economic growth. D) a change in […]

Markets in which entry and exit are difficult are known as contestable markets. Economic income is measured “after-tax.” Answer: FALSE The existence of public goods can be a source of market failure. Answer: TRUE A U.S. import fee on oil […]

Favored customers receive special treatment from dealers during periods of excess demand. A decrease in demand for a product will cause the price of the product to rise and supply of the product to increase. Answer: FALSE Table 14.2 B’s […]

If the interest rate is 10%, the current market value of $1 to be delivered in one year is A) $0.91. B) $0.99. C) $1.00. D) $1.10. In some nations, the government pays parents to send their children to school. […]

The biggest single transfer program at the federal level is Social Security. The total of consumer plus producer surplus is at a minimum at the market equilibrium. Answer: FALSE Disaggregating the distribution of income by race shows that the mean […]

Ceteris paribus, when market interest rates ________, firms undertake ________ investment projects. A) decrease; no B) increase; more C) decrease; less D) increase; fewer The marginal cost of producing 25 units of a public good is $100. There are two […]

A person who chooses ________ the labor force reveals that either leisure or the value of nonpaid labor is worth ________ to him or her than the value that society places on his or her potential product in the market. […]

As a result, of adverse selection problems in the fire insurance market, it is likely that over time ________. A) fewer low-risk people will be insured B) fewer high-risk people will be insured C) fewer low-risk and high-risk people will […]

When the increase in the price of one good causes the demand for another good to decrease, the goods are A) normal. B) inferior. C) substitutes. D) complements. Table 16.5 Refer to Table 16.5. A point on the market demand […]

A monopolistically competitive firm produces where A) MR > MC. B) MC > MR. C) MR = MC. D) P = MC. Studying how the management of Hewlett Packard decides how many computers to produce and the price to charge […]

The airline industry is an example of a(n) ________ industry. A) perfectly competitive B) monopolistic C) monopolistically competitive D) oligopolistic Figure 6.5 Refer to Figure 6.5. Molly’s budget constraint is EF. If her income decreases and the price of CDs […]

A firm can invest in one of two projects: the purchase of new delivery vans or the training of its sales staff in the use of new sales techniques. Both projects cost the same amount of money. The purchase of […]

Figure 13 The market is initially in equilibrium at Point A. If supply shifts from S1 to S2 and the price of cheeseburgers remains constant at $5.00, there will be A) an excess supply of 6 cheeseburgers. B) an excess […]

Acid rain is an example of a positive externality. Average total cost and average variable cost are minimized at the same level of output. Answer: FALSE Capital stock is the current market value of all of the shares of stock […]