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Figure 11-13 Refer to Figure 11-13. The lines shown in the diagram are isocost lines. If the price of labor is $50 per unit, then along the isocost AF, the total cost A) is $500. B) is $750. C) is […]

In the market for factors of production, firms earn income by selling factors of production to households. In economics, technology only refers to the development of new products. Answer: FALSE Those who favor changes in the market for health care […]

Firms in perfect competition produce the productively efficient output level in the short run and in the long run. Holding everything else constant, government approval of horizontal mergers is more likely to be granted if the “market” that firms are […]

A merger between firms at different stages of production of a good A) is a vertical merger. B) was made illegal by the Sherman Act. C) was made legal by the Clayton Act. D) is a horizontal merger. The rules […]

The basis for trade is comparative advantage, not absolute advantage. Even if the population declines, scarcity will still exist. Answer: TRUE Higher wages that compensate workers for unpleasant aspects of a job are called compensating differentials. Answer: TRUE An economic […]

Figure 1-4 Refer to Figure 1-4. Which of the following statements is false? A) The slope of the tangent at E is positive. B) The slope of the tangent at F is negative. C) The slope of the tangent at […]

Damian shares a small food truck with his sister. His share of the expenses is $500 per month. He has decided to get his own, newer food truck which he will not have to share with anyone. His expenses for […]

Table 17-5 Refer to Table 17-5. Oil Can Harry’s, a new automobile service shop, is ready to start hiring. The table above shows the relationship between the number of mechanics the firm hires and the quantity of oil changes it […]

Who controls a sole proprietorship? A) owner B) stockholders C) bondholders D) employees Figure 11-10 Refer to Figure 11-10. Identify the minimum efficient scale of production. A) Qa B) Qb C) Qc D) Qd Answer: A Which of the following […]

Because leisure is a normal good, an increase in the wage rate will result in A) an increase in the quantity of labor supplied because of both the substitution effect and the income effect. B) a decrease in the quantity […]

Figure 6-4 Refer to Figure 6-4. Which of the following statements is true about the price elasticity of demand? A) The elasticity coefficient is constant along the demand curve. B) The elastic portion of a straight-line downward sloping demand curve […]

Figure 4-6 Figure 4-6 shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. Refer to Figure […]

Which of the following are separate flows in the circular flow model? A) the flow of goods and the flow of services B) the flow of costs and the flow of revenue C) the flow of income earned from the […]

Compensating differentials are associated most closely with which of the following? A) hazardous jobs B) comparable worth C) economic discrimination D) differences in education Assume that Bulgaria has a comparative advantage in producing sandals and Finland imports sandals from Bulgaria. […]

Consider the market for pilots. What is likely to happen to the equilibrium wage and quantity of pilots if the government enforces a lower mandatory retirement age, say from age 65 to age 62? A) The equilibrium wage and the […]

Holding the price of a firm’s output constant, if the marginal product of labor increases A) the marginal revenue product of labor decreases. B) the marginal revenue product of labor also increases. C) the marginal products of other inputs also […]

The law of one price holds exactly only if A) antitrust laws are being enforced. B) buyers have complete information. C) transactions costs are zero. D) it is impossible for buyers to resell the good. Figure 12-18 Use the figure […]

If, as your taxable income decreases, you pay a smaller percentage of your taxable income in taxes, then the tax is A) regressive. B) proportional. C) progressive. D) unfair. Figure 15-2 Figure 15-2 above shows the demand and cost curves […]

A profit-maximizing firm should hire workers up to the point where labor’s marginal revenue product equals the wage rate. Maximizing average profit is equivalent to maximizing total profit. Answer: FALSE Merger guidelines developed by the Antitrust Division of the U.S. […]

International firms tend to support reasonable labor and environmental laws to expand future local markets for their businesses. Due to adverse selection,very few lemons will be sold in the market for used cars. Answer: FALSE Research shows that pollution-intensive U.S. […]

Which of the following would not occur as a result of a monopolistically competitive firm suffering a short-run economic loss? A) The firm could exit the industry in the long run. B) If the firm does not exit the industry […]

Economists have used the ultimatum game and the dictator game in experiments designed to determine A) whether consumers care about fairness when they make decisions. B) whether consumers believe it is fair for producers to raise the price of a […]

Health insurance companies impose deductibles on policies and co-payments on claims to reduce the problem of adverse selection. An increase in the supply of capital, which is a substitute to labor, will lead to a decrease in the demand for […]

In a sequential game, one firm will act first and then other firms will respond. The marginal product of labor curve is the demand curve for labor. Answer: FALSE A public franchise gives the exclusive right to produce a product […]

BHP Billiton is a Canadian company that owns mines in Canada that A) produce nickel. After World War II, BHP Billiton began to compete with another Canadian firm, the International Nickel Company. This competition eventually ended International Nickel’s monopoly in […]

Of the following high-income countries, which has the lowest mortality ratio for cancer? A) Canada B) Japan C) the United Kingdom D) the United States The paradox of American farming is A) the demand for imported luxury food products has […]

Because consumers who have insurance provided by their employers usually only pay a deductible for a visit to the doctor’s office A) they demand a larger quantity of health care services than they would if they paid a price that […]

A firm that is the only seller of a good or service that does not have a close substitute is called A) a monopoly. B) an oligopolist. C) a market maker. D) a price maker. Consumers have to make tradeoffs […]

Crystal inc. is a multifaceted company that deals with the mining, cutting, and selling of diamonds. It gives distributors and suppliers access to its database to place orders or restock inventories electronically and automatically. Which of the following is the […]

Tax laws affect A) economic efficiency but not equity. B) equity but not economic efficiency. C) consumption and production, not efficiency and equity. D) both efficiency and equity. Figure 4-1 Figure 4-1 shows Arnold’s demand curve for burritos. Refer to […]

Table 9-1 Linda and Sandy own The Preppy Puppy, a dog grooming business. Table 9-1 lists the number of dogs Linda and Sandy can each bathe and groom in one week. Refer to Table 9-1. Select the statement that accurately […]

If a natural monopoly regulatory commission sets a price where marginal cost is equal to demand A) the firm would earn monopoly profits. B) economic efficiency would not be achieved. C) the firm would incur a loss. D) the firm […]

Peet’s Coffee and Teas produces some flavorful varieties of Peet’s brand coffee. Is Peet’s a monopoly? A) Yes, there are no substitutes to Peet’s coffee. B) No, although Peet’s coffee is a unique product, there are many different brands of […]

Figure 10-4 Refer to Figure 10-4. What is the marginal rate of substitution between h and j? A) cookie. B) cookie. C) 2 cookies. D) 4 cookies. At low wages, the labor supply curve for most people slopes upward because […]

Figure 3-4 Refer to Figure 3-4. If the current market price is $15, the market will achieve equilibrium by A) a price increase, increasing the supply and decreasing the demand. B) a price decrease, decreasing the supply and increasing the […]

Table 4-1 Refer to Table 4-1. The table above lists the highest prices three consumers, Tom, Dick and Harriet, are willing to pay for a short-sleeved polo shirt. If the price of one of the shirts is $28 dollars A) […]

Anything of value owned by a person or a firm is A) an asset. B) a liability. C) wealth. D) owner’s yield. Which of the following is true for a monopolist? A) Being the only seller in the market, the […]

If price exceeds average variable cost but is less than average total cost, a firm A) should further differentiate its product. B) should stay in business for a while longer until its fixed costs expire. C) is making some profit […]

If production displays increasing marginal returns, then A) total product rises by a constant amount throughout. B) each new worker hired adds more to output than previous hires. C) the firm must be adding new capital to keep boosting productivity. […]

Figure 15-9 Figure 15-9 shows the demand and cost curves for a monopolist. Refer to Figure 15-9. At the profit-maximizing quantity, what is the difference between the monopoly’s price and the marginal cost of production? A) $8 B) $11.50 C) […]

Figure 3-8 Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for apples at the intersection of D2 and S1 (point C). Which of the following changes would cause the equilibrium to […]

An increase in income results in an outward shift of an indifference curve. Network externalities refer to the situation where the usefulness of a product increases with the number of consumers who use it. Answer: TRUE A market failure arises […]

Many economists believe that when the federal government establishes an agency to regulate a particular industry, the regulated firms try to influence the agency even if these actions do not benefit the public. Economists refer to this result of government […]

The marginal productivity theory of income distribution states that A) as more and more units of labor are added to a fixed quantity of capital, eventually labor’s contribution to a firm’s income will decrease. B) income distribution is determined by […]

When a firm produces 50,000 units of output, its total cost equals $6.5 million. When it increases its production to 70,000 units of output, its total cost increases to $9.4 million. Within this range, the marginal cost of an additional […]

In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant? A) The supply curve shifts to the right. B) The demand curve shifts […]

Table 2-1 Production choices for Tomaso’s Trattoria Refer to Table 2-1. Assume Tomaso’s Trattoria only produces pizzas and calzones. A combination of 36 pizzas and 30 calzones would appear A) along Tomaso’s production possibilities frontier. B) inside Tomaso’s production possibilities […]

According to the law of one price, identical products should sell for the same price everywhere if A) consumers have knowledge of the prices charged for products in different markets. B) transactions costs are zero. C) firms can prevent consumers […]

Price discrimination A) is the practice of charging different prices to different customers based on a seller’s personal preferences and prejudices. B) is the practice of charging different prices to different customers based on the different costs of supplying the […]

Scenario 1-2 Suppose a hat manufacturer currently sells 2,000 hats per week and makes a profit of $5,000 per week. The plant owner observes, “Although the last 300 hats we produced and sold increased our revenue by $1,000 and our […]

Table 17-3 Hotspur Incorporated, a manufacturer of microwave ovens, is a price taker in its input and output markets. The firm hires labor at a constant wage rate of $800 per week and sells microwave ovens at a constant price […]

Total revenue is equal to A) the amount of funds earned by a firm minus its costs of production. B) the total quantity sold of a product over a given period of time. C) the price of a product multiplied […]

Psychologists Daniel Kahneman and Amos Tversky conducted the following experiments by asking a sample of people the following questions: Scenario A: “Imagine that you have decided to see a play and paid the admission price of $10 per ticket. As […]

The rules of the international monetary system are enforced by the World Bank. The substitution effect of a wage decrease examines the effect of the decrease in wage income on a worker’s ability to consume goods and services. Answer: FALSE […]

Seth’s grandmother gave him a $50 savings bond for his birthday. The bond pays $50 at maturity, which is in five years. If the interest rate is 5%, the bond has a present value of $43.19. Suppose the supply curve […]

All Gini coefficients must lie between 0 and 1. The lower the value A) the more unequal the income distribution. B) the closer the income distribution is to being equal. C) the greater the degree of poverty. D) the lower […]

What is the dominant strategy in a second-price auction? A) bidding below one’s true value B) bidding above one’s true value C) bidding one’s true value D) There is no dominant strategy. Figure 15-9 Figure 15-9 shows the demand and […]

Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. Max’s explicit cost amounts to $3,000 per […]

Reporters from the Wall Street Journal found that the office supply store Staples charged different prices for the same product to different online customers based primarily on A) the age of the customer. B) how close the customer’s zip code […]

Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit maximizing outputs? A) Marginal revenue is less than price. B) Marginal revenue equals marginal cost. C) Price equals marginal cost. D) […]

Consider a downward-sloping demand curve. When the price of a normal good increases, the income and substitution effects A) work in the same direction to increase quantity demanded. B) work in the same direction to decrease quantity demanded. C) work […]

A public franchise A) is a corporation that is owned by stockholders. B) results from ownership of a key raw material. C) is a government designation that a private firm is the only legal producer of a good or service. […]

Briefly describe are the 6 main provisions of the Patient Protection and Affordable Care Act (ACA)? Arnold Harberger was the first economist to estimate the loss of economic efficiency due to market power. Harberger found that A) the loss of […]

Assuming zero transaction cost, if your local grocer buys oranges at a low price from an orchard and resells them to you at a higher price, then the grocer’s revenue minus costs is known as A) arbitrage profits. B) transactions […]

Table 10-6 Table 10-6 lists Jay’s marginal utilities for burgers and Pepsi. Jay has $7 to spend on these two goods. The price of a burger is $2 and the price of a can of Pepsi is $1. Refer to […]

Table 9-6 Production and Consumption Production Without Trade With Trade Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production and consumption quantities without trade, and the production numbers with trade. Refer to Table 9-6. If […]

If you purchase a share of stock from your friend who initially purchased the stock three years ago, your purchase of the stock represents a transaction in the secondary financial market When there is a negative externality, the competitive output […]

Two stores – Lazy Guys and Ralph’s Recliners – are located in the same city. Both stores buy recliner chairs from the same manufacturer at the same price and both stores are about the same size, so that the fixed […]

Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas. The marginal cost curve is U-shaped because of the law of increasing opportunity costs. […]

Natural monopolies in the United States are generally regulated by A) the Federal Trade Commission. B) the Department of Justice. C) local or state regulatory commissions. D) the Department of Commerce. All of the following would be considered explicit costs […]

Marginal utility can be A) negative. B) zero. C) positive. D) positive, negative or zero. A perfectly competitive firm in a constant-cost industry produces 3,000 units of a good at a total cost of $36,000. The prevailing market price is […]

All of the following are examples of explicit cost a firm might incur except A) the out-of-pocket expense to hire employees. B) taxes owed to the state government. C) the rental value of the warehouse space the company owns and […]

One reason Starbucks experienced a decline in sales in the late 2000s is because A) the product they offered was becoming less differentiated from their competitors’ products. B) the coffeehouse market transitioned from being monopolistically competitive to perfectly competitive. C) […]

As women’s wages have risen relative to men’s wages, the opportunity cost to women of doing housework has ________ than has the opportunity cost to men. A) increased less B) increased more C) decreased more D) decreased less Which of […]

In what way does long-run equilibrium under monopolistic competition differ from long-run equilibrium under perfect competition? A) Firms in perfect competition achieve productive and allocative efficiency while firms in monopolistic competition achieve neither allocative nor productive efficiency. B) The only […]

In the real world we don’t observe countries completely specializing in the production of goods for which they have a comparative advantage. One reasons for this is A) comparative advantage works better in theory than in practice. B) some countries […]

The costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services are called A) exchange costs. B) implicit costs. C) transactions costs. D) selling costs. Assume […]

If a firm decreases its plant size and finds that its long-run average costs have decreased, then A) its labor is more productive in a smaller plant. B) its diseconomies of scale are less. C) the firm should reduce its […]

Two economists from Northwestern University estimated the benefit households received from subscribing to broadband Internet service. The economists found that A) the consumer surplus from dial-up Internet service exceeded the consumer surplus from broadband Internet service. B) the average consumer […]

The demand for most farm products is relatively inelastic. All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases in productivity? A) Farm revenues increase. B) […]

If the demand for a product decreases and the supply of the same product decreases, the equilibrium price will decrease. One reason why McDonald’s charges a single price for its products is that it is difficult and costly for the […]

Rent seeking behavior, unlike profit maximizing behavior in competitive markets, wastes society’s scarce resources. Market equilibrium occurs where supply equals demand. Answer: FALSE Joe Santos owns the only pizza parlor in a small town that is also home to a […]

Logrolling may result in A) legislation that yields economy-wide benefits, the funding for which is borne primarily by a few of the smallest states. B) a majority of Congress supporting legislation that benefits the economic interests of a few, while […]

Being a price-taker, a perfectly competitive firm cannot receive a producer surplus in the short run. The application of economic analysis to human resources issues is called personnel economics. Answer: TRUE If firms are protected by substantial barriers to entry, […]

At the minimum efficient scale A) all possible economies of scale have not been exhausted. B) the firm has achieved the lowest possible average cost of production. C) any increases in the scale of operation will encounter further economies of […]

The marginal productivity theory of income distribution was developed by A) Edward Lazear. B) George Akerlof. C) William Stanley Jevons. D) John Bates Clark. If Dawson prefers pizza to hamburgers and hamburgers to hot dogs, then if preferences are transitive […]

Figure 1-1 Refer to Figure 1-1. Using the information in the figure above, calculate the percentage change in sales of alcoholic beverages between 2008 and 2011. A) 23.1% B) 23.8% C) 30% D) 42.9% Figure 5-6 Answer: D Figure 5-6 […]

The first important law regulating monopolies in the United States was A) the Grant Act, which was passed in 1890. B) the Clayton Act, which was passed in 1890. C) the Sherman Act, which was passed in 1890. D) the […]

The following equations represent the demand and supply for bottles of nail polish. QD = 25 – P QS = -15 + 3P What is the equilibrium price (P) and quantity (Q – in thousands) of bottles of nail polish? […]

Allocative efficiency best explains ________, and productive efficiency best explains ________. A) how something will be produced; when something will be produced B) when something will be produced; why something will be produced C) why something will be produced; what […]

Figure 14-3 Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its […]

Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner’s dilemma? A) producing more of its product B) advertising that it will match its rival’s price C) reneging on a […]

Demand in factor markets differs from demand in product markets in that A) the demand for a factor of production is difficult to determine. B) the demand for a factor of production is influenced by workers’ productivity and by the […]

Under autarky, consumer surplus is represented by the area A) above the supply curve and below the equilibrium price. B) above the supply curve and below the demand curve. C) below the demand curve and above the equilibrium price. D) […]

According to projections for 2013 by the Tax Policy Center, the 20 percent of U.S. taxpayers who make the highest incomes A) use loopholes and tax exemptions to reduce their share of federal income taxes to less than 20 percent. […]

Assume that two interior design companies, Alistair and Baine, are competing for customers and if they both advertise, they would each earn $30 million in profits. If neither advertises, they each earn $50 million in profits. If one advertises and […]

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent, and the sale of dips (like salsa and bean dip) fell 8 percent. This set of facts indicates that A) the […]

How do the owners of a partnership relate to the business? A) The owners and the business are not separate legal entities. B) The owners and the business are separate legal entities. C) The assets of the owners are considered […]

As former competitors in many industries link up to challenge others on a worldwide basis, ________ occurs. A) segregation B) denationalization C) consolidation D) technological stagnation The town of Saddle Peak has a fixed supply of mountain view lots. In […]

If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as A) a decrease in demand. B) a decrease in quantity demanded. C) a change in consumer income. D) […]

Consider this quote from an article in the Wall Street Journal: “The stock of educated workers isn’t increasing fast enough to keep up with rising demand…. Employers are paying the typical four-year college graduate [without graduate school] 75% more than […]

Which of the following is the best example of a perfectly competitive industry? A) wheat production B) steel production C) electricity production D) airplane production Figure 13-11 Refer to Figure 13-11. What is the monopolistic competitor’s profit maximizing output? A) […]

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities? A) the private cost of production B) the social cost of production C) the external cost of production D) the explicit […]

Consider a good whose consumption takes place publicly. Your decision to buy that good depends A) both on the characteristics of the product and on how many other people are buying the good. B) only on the characteristics of the […]

Which of the following is an advantage of starting a new business as a corporation? A) double taxation B) ease in setting up C) low expenses of legally organizing D) greater ability to raise funds Which of the following will […]

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered A) external costs. B) transaction costs. C) marginal […]

Economist Jerry Hausman estimated the price elasticity of demand for “Post Raisin Bran” and “All types of breakfast cereals.” He found that the price elasticity of demand for Post Raisin Bran was -2.5 and the price elasticity of demand for […]

The U.S. government’s focus on supply reduction efforts in its “war on drugs” has been relatively unsuccessful at addressing illegal drug use. Some economists believe that a successful anti-drug program must concentrate on reducing demand; for example, through drug education […]

Laura’s Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs. The restaurant earns $1.3 million in revenues. Based on this information, what is accounting profit for Laura’s Pizza Place? A) $200,000 B) $400,000 C) $500,000 […]

How do current tax laws in the United States favor employer-based health care insurance? A) Individuals who receive health insurance benefits are allowed to deduct the value of these benefits from their taxable income. B) Employers who provide health insurance […]

Figure 16-5 Refer to Figure 16-5. Suppose the firm represented in the diagram decides to practice perfect price discrimination. What is the total revenue collected by the firm? A) $6,720 B) $7,680 C) $10,240 D) $13,440 Holding everything else constant, […]