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Economics Chapter 1 1 As a new firm in the apple-picking business, Nicolette has considered adding an economist to her management team
CHAPTER 1: Five Foundations of Economics MULTIPLE CHOICE 1. In economics, choices are necessary because of the presence of a. luxuries. d. scarcity. b. inefficiency. e. incentives. c. needs. 2. Economics is the study of a. how to make money. […]
Economics Chapter 1 2 Hassan enjoys lifting weights in his spare time, but his gain in strength has come to a plateau. He is considering giving up weight lifting altogether
93. The allocation of limited resources within an environment of almost unlimited wants is the focus of a. capitalism. d. scarcity. b. fiscal policy. e. altruism. c. economics. ANS: C DIF: Easy REF: What Is Economics? OBJ: 1.1 MSC: Understanding […]
Economics Chapter 1 Homework If an instructor gave daily quizzes, most students would respond by reading the required readings more diligently and carefully
would be incorrect to say that the opportunity cost is 30 minutes of sleep and 30 minutes of exercise. The opportunity cost is just the cost of the next– best option— either sleep or exercise. 4. This is not true. […]
Economics Chapter 10 1 Ash is the preferred wood to be used in the production of baseball bats. If a company was to buy the rights to harvesting the ash trees out of all the forests in North America
CHAPTER 10: Understanding Monopoly MULTIPLE CHOICE 1. A monopoly a. always makes a profit. b. can force consumers to purchase what it is selling. c. is characterized by a single seller who produces a well-defined product for which there are […]
Economics Chapter 10 2 Which areas of the graph represent the consumer surplus transferred to the monopolist as a result of the monopolist taking over the market
b. the provider is betting that customers will buy both rather than neither. c. government regulations limit the range of services a monopolist can offer. d. offering the two separately would be a market inefficiency. e. it is technologically much […]
Economics Chapter 10 3 Some economists argue that a government-created monopoly in the medical field can be good for the overall growth of an economy, even though it does create deadweight loss
5. Some economists argue that a government-created monopoly in the medical field can be good for the overall growth of an economy, even though it does create deadweight loss. Support this argument. ANS: A government-created monopoly gives monopoly power to […]
Economics Chapter 10 Homework A mono poly is a type of market in which there is only a single seller, which produces a well- defined good that has no good substitutes
4. A monopolist faces a trade- off when it sets a price. Because it is the only seller in the market, if the mono poly wants to sell an additional unit, it must lower the price because it has sold […]
Economics Chapter 11 1 Airlines require every passenger with a ticket to have a matching, government-issued photo identification. Price discrimination is made easier because
CHAPTER 11: Price Discrimination MULTIPLE CHOICE 1. Price discrimination exists when a firm sells ________ goods at more than one price to ________ groups of customers. a. different; similar d. identical; different b. existing; distinct e. limited; restricted c. discounted; […]
Economics Chapter 11 2 Because both cities are located quite far from each other, a company can charge different prices in each without fear of reselling
87. If Carnival Cruise Lines moves from a monopolist model that charges a single price to a perfect price-discrimination model, there would be a ________ in total welfare. a. gain of $800,000 d. loss of $1.2 million b. loss of […]
Economics Chapter 11 3 Airlines have first-class or business-class seating, for which customers pay a higher price to receive more room, extra amenities, and more attentive service
c. It connects the bakery with buyers who value day-old products but aren’t willing to pay the full price for a product that isn’t fresh. d. Individuals with an inelastic demand for baked goods will travel to a different bakery […]
Economics Chapter 11 Homework The price is the highest price the customer with the lowest valuation is willing to pay. The total revenue is calculated by multiplying
firms to sell to at the higher price. This would be detrimental for the firm, so a successful price- discriminating firm must be able to prevent resale. 4. In economics, the most socially desirable level of output is producing where […]
Economics Chapter 12 1 If a monopoly firm suddenly lost its barriers to entry and faced new competition, yet consumers thought that the former monopoly’s products were somewhat
CHAPTER 12: Monopolistic Competition and Advertising MULTIPLE CHOICE 1. Monopolistic competition means that a. firms are in a monopoly, but they compete. b. firms are in perfect competition, but they collude similar to monopolies. c. firms differentiate their output, which […]
Economics Chapter 12 2 Both perfectly competitive and monopolistically competitive industries have many firms, in fact so many that, in the long run
89. Both perfectly competitive and monopolistically competitive industries have many firms, in fact so many that, in the long run a. only one firm can survive in the industry, leading to monopoly. b. costs must increase due to diseconomies of […]
Economics Chapter 12 Homework Product differentiation is necessary for monopolistic competition in order for each firm to have some market power
where MR “ MC and charges the highest price on the demand curve at that quantity. So, the firm can earn profits in the short run, like a mono poly. However, because there are no barriers to entry (as in […]
Economics Chapter 13 1 Being part of a cartel is generally good for a firm because it can reduce output while increasing prices and profits. Yet most cartels have failed
CHAPTER 13: Oligopoly and Strategic Behavior MULTIPLE CHOICE 1. Like a pure monopoly, an oligopoly is characterized by a. free entry and exit in the long run. b. free entry and exit in the short run. c. significant barriers to […]
Economics Chapter 13 2 Jaheim and Suzanna are playing a game involving repeated iterations of a simultaneous-move prisoner’s dilemma. In each round, both players choose either
c. cooperate in the first round and defect in all subsequent rounds. d. cooperate in the first round and cooperate in all subsequent rounds. e. cooperate in the first round and, in any subsequent round, do what his or her […]
Economics Chapter 13 3 There are four ice cream shops on a small tourist island. The following table shows the quantity of ice cream cones that each firm produces in a typical year ice cream cones that each firm produces in a typical year
a. network d. staying b. bandwagon e. marginal c. switching 134. The presence of significant positive ________ externalities can drive small firms out of business or force them to merge with larger competitors. a. network d. public b. negative e. […]
Economics Chapter 13 Homework Oligopoly is a type of market that shares key characteristics with both a mono poly and monopolistic competition
profit only depends on its own output and pricing decisions and not on the pricing and output decisions of other firms. 5. The prisoner’s dilemma implies that it is very dif- ficult to sustain collusion in a short- term agree– […]
Economics Chapter 14 1 The area underneath a firm’s labor demand curve and above the market wage is the graphical representation of the firm’s
CHAPTER 14: The Demand and Supply of Resources MULTIPLE CHOICE 1. Derived demand is a. consumer demand for goods and services. b. based on the prices of factors of production. c. the demand for factors of production directly by business. […]
Economics Chapter 14 2 Assume that the Welter Company is renting capital and hiring labor such that the bang per buck from each resource is the same. If wages of labor increase
93. A company that produces simple textiles outsources its operations to Indonesia. Wages for Indonesian workers will ________ and their employment will ________. a. rise; rise d. fall; stay the same b. fall; rise e. fall; fall c. stay the […]
Economics Chapter 14 3 You and your friend get into an argument when she finds out that you earn more than she does. She says it isn’t fair, but you argue that there are many reasons
DIF: Moderate REF: Changes in the Demand for Labor OBJ: 14.2 MSC: Analyzing 8. You and your friend get into an argument when she finds out that you earn more than she does. She says it isn’t fair, but you […]
Economics Chapter 14 Homework Changes in workers’ marginal products shift the demand for labor because the productivity changes affect the cost of producing the product
shortage of workers. In order to attract more workers (i.e., increase the quantity supplied of labor), firms will offer higher wages. The higher wages will also reduce the quantity of labor that firms want to hire, and these two effects, […]
Economics Chapter 14 Homework Sunk costs are costs that have already been paid and cannot be recouped. They are costs that should not matter
Study Prob lems 1. a . Almost every one has a favorite pizza place, and the range of quality varies dramatically in most markets. This gives each pizza place some market power, whether based on the quality of the pizza […]
Economics Chapter 15 1 Late-night employees working in a 24-hour store often earn more than similar employees who work the day shift. What explains this difference in pay
CHAPTER 15: Income, Inequality, and Poverty MULTIPLE CHOICE 1. What theory might partially explain why a person perceived as unattractive might earn less than a person seen as attractive? a. winner-take-all d. occupational crowding b. compensating differential e. efficiency wage […]
Economics Chapter 15 2 At several local supermarkets, employees are dissatisfied with wages and working conditions. Individual negotiations with managers have produced no changes
b. hiatus e. cessation c. binding arbitration 98. At several local supermarkets, employees are dissatisfied with wages and working conditions. Individual negotiations with managers have produced no changes. These workers may decide to form a(n) a. collateral. d. union. b. […]
Economics Chapter 15 Homework Wage discrimination can be difficult to observe and quantify because discrimination can be con-founded with other explanations for differences in wages
periods of time is going to look more equal than income as mea sured at any one specific point in time. 7. The Earned Income Tax Credit creates the stron- gest incentives to work because it is the only one […]
Economics Chapter 16 1 A measure of the relative levels of satisfaction that consumers enjoy from the consumption of goods and services is called
CHAPTER 16: Consumer Choice MULTIPLE CHOICE 1. A measure of the relative levels of satisfaction that consumers enjoy from the consumption of goods and services is called a. consumer optimum. d. the substitution effect. b. the real-income effect. e. the […]
Economics Chapter 16 2 Freda and Stefano are presented with two dessert options: ice cream or cookies. Freda values ice cream at 5 utils and cookies at 10 utils
92. The product’s total utility in dollars is equal to a. $250. d. $15. b. $500. e. $20. c. $150. ANS: A DIF: Moderate REF: What Is the Diamond–Water Paradox? OBJ: 16.3 MSC: Analyzing 93. The product’s marginal utility in […]
Economics Chapter 16 3 Most newspaper companies allow consumers to purchase copies of the day’s paper by putting money into a machine and taking out a paper
a. What is the marginal utility of the third and eighth tacos? b. Does this consumer experience diminishing marginal utility? If so, after which taco does he or she experience it? c. Does this consumer experience negative marginal utility? If […]
Economics Chapter 16 Homework The principle of diminishing marginal utility suggests that the consumer will get a lower marginal utility from the second pizza
Study Prob lems 1. The princi ple of diminishing marginal utility suggests that the consumer will get a lower mar– ginal utility from the second pizza than from the first. It follows that the consumer wouldn’t be willing to pay […]
Economics Chapter 17 1 Most economic theory proceeds as though economic actors are all rational, self-interested decision-makers. Economists refer to this hypothetical rational
CHAPTER 17: Behavioral Economics and Risk Taking MULTIPLE CHOICE 1. The hypothetical species Homo economicus is acutely aware of opportunities in the environment and a. strives to maximize the benefits received from each course of action while minimizing the costs. […]
Economics Chapter 17 2 Reese and Rebecca are playing an ultimatum game where Reese is given $100 and asked to propose a way of splitting it with Rebecca
e. the player who proposes the split is fully rational and wishes to maximize his or her own playoff, whereas the player who chooses to accept or reject the split is irrational and wishes to maximize the other player’s payoff. […]
Economics Chapter 17 3 People notice that when they shop online, they see a box checked that tells them to uncheck the box if they don’t want to receive news of new products.
c. are rational, but the assumption rarely fits reality. d. are irrational, although general correlations exist in behavioral patterns. e. are rational, but their behavior doesn’t always follow this assumption. 139. Behavioral economics a. is the least controversial field of […]
Economics Chapter 17 Homework Economic theory predicts that the second player in the ultimatum game would accept any positive offer, as a positive amount of money is better than nothing
Study Prob lems 2. This is evidence that Danny is a risk taker. Despite the fact that the house advantage is small, the house still has an advantage, which means Danny is happily taking a bet that has a negative […]
Economics Chapter 18 1 Which point on the graph best represents the United States, where a great deal of health care is delivered but there are few additional health gains
CHAPTER 18: Health Insurance and Health Care MULTIPLE CHOICE 1. What is a central healthcare question that society must find an answer for? a. Should health care insurance companies be involved in the health care market? b. Is the marginal […]
Economics Chapter 18 2 Health insurance companies routinely hold patients partially responsible for medical costs. One decides to increase the amount that patients have to pay
D. B. C. 83. Health insurance companies routinely hold patients partially responsible for medical costs. One decides to increase the amount that patients have to pay. Which graph best represents this change? a. Graph A d. Graph D b. Graph […]
Economics Chapter 18 3 Even after reaching an insurance policy’s deductible, some plans require the insured to pay a percentage of costs up to the policy’s contribution limit
127. What are fixed amounts that the insured must pay when receiving a medical service or filling a prescription? a. copayments d. coinsurance b. deductibles e. premiums c. negotiated fees ANS: A DIF: Easy REF: Who’s Who in Health Care, […]
Economics Chapter 19 1 If Smith and Ricardo each spent half of his time producing computers and the other half producing smartphones, what would be the total output per day
CHAPTER 19: International Trade MULTIPLE CHOICE 1. For country A, an export is a good produced in a. country B and purchased by residents of country A. b. country A and purchased by residents of country A. c. country A […]
Economics Chapter 19 2 The United States feels that it has become too dependent on oil from Saudi Arabia, so it places a limit on the amount of oil that is imported from Saudi Arabia
a. Canada and Russia d. Brazil and Panama b. Brazil and Mexico e. Mexico and Canada c. Canada, Brazil, and Mexico 108. The World Trade Organization (WTO): a. is an ecoterrorist group. b. advocates for protection of domestic industries against […]
Economics Chapter 19 Homework Asymmetric information is an information imbalance in which one party in an economic transaction knows more about product cost
4. The marginal product of medical care declines as medical expenditures rise because the improve- ment in health outcomes is very large when med- ical care goes from non ex is tent to basic (i.e., when medical expenditures are low), […]
Economics Chapter 2 1 Think of the production possibilities frontier (PPF) model. When society is producing the largest possible output from its resources, it is operating
CHAPTER 2: Model Building and Gains from Trade MULTIPLE CHOICE 1. An economist’s use of experiments and real-world data to test a theory is an example of a. the scientific method in economics. d. normative analysis. b. macroeconomics. e. comparative […]
Economics Chapter 2 2 Suppose a great plague wipes out half of the society’s population. Which of the following graphs best depicts how this would affect the PPF
83. Suppose a great plague wipes out half of the society’s population. Which of the following graphs best depicts how this would affect the PPF? a. Graph A d. Graph D b. Graph B e. Graph E c. Graph C […]
Economics Chapter 2 3 When an economy shifts away from production of consumer goods and toward production of capital goods, for the average worker this trade-off means
142. Which point represents an efficient level of output both before and after the shift? a. point A d. point D b. point B e. point E c. point C ANS: C DIF: Moderate REF: The Production Possibilities Frontier and […]
Economics Chapter 2 Homework A positive economic statement is one that can be tested and validated; a positive economic statement is based on fact and tells “what is.”
3. There are dif fer ent ways to draw production pos- sibilities frontier curves. Yours should look some- thing like the following: PPF The efficient points are along the frontier. The inefficient points are inside the frontier (the gray- shaded […]
Economics Chapter 20 Homework When a country places tariffs on imported goods, they are not only harming domestic consumers but also lowering welfare for foreign producers
5. When a country places tariffs on imported goods, they are not only harming domestic consumers but also lowering welfare for foreign producers. Therefore, it’s entirely likely that other countries will put tariffs of their own in place, either as […]
Economics Chapter 3 1 If someone searches for a flight between Los Angeles and Chicago, he or she will find different airlines offering flights at similar prices
CHAPTER 3: The Market at Work: Supply and Demand MULTIPLE CHOICE 1. For a market to be competitive a. each buyer and seller is small, relative to the whole market; no single decision maker has any influence over the market […]
Economics Chapter 3 2 Some studies have shown that eating chocolate before a test can increase brain activity, thereby causing students to score higher on exams
a. shift from S1 to S3. d. shift from S2 to S1. b. remain at S1. e. shift from S2 to S3. c. shift from S1 to S2. 87. If the price of Gatorade increases, the equilibrium price of Powerade, […]
Economics Chapter 3 3 Using a supply and demand model, show what happens to the equilibrium price and equilibrium quantity in the market for bananas if
c. What happened to the demand curve? d. List five things that could make the demand curve reflect your answer in part c. 5. During a national recession, we see the income in the economy decrease and the majority of […]
Economics Chapter 3 Homework A competitive market is a market that has many small buyers and sellers and where products are reasonably similar from one supplier to the next.
regarding future prices, and changes in the num- ber of buyers. Hints and Common Errors: Demand is technically a function of a bunch of dif fer ent factors, and we can think of the demand curve as quantity demanded as […]
Economics Chapter 4 1 To keep the percentage change in quantity demanded equally proportional to the percentage change in price when the prices rise by 5 percent
CHAPTER 4: Elasticity MULTIPLE CHOICE 1. Price elasticity of demand measures the change in a. quantity demanded due to the change in price. b. demand due to the change in price. c. quantity demanded due to the change in price […]
Economics Chapter 4 2 The introduction of new gaming systems that can compete effectively with the Nintendo console will make the demand for the Nintendo console become
(income = $20,000/year) $1 5 9 $2 4 8 $3 3 7 $4 2 6 $5 1 5 a. 0.67. d. 0.83. b. 1.20. e. 0.50. c. 1.33. 106. The introduction of new gaming systems that can compete effectively with […]
Economics Chapter 4 3 Toyota uses a just-in-time production method to respond to consumer demand for its vehicles. In essence, it relies on various cues to signal
11. Refer to the accompanying table. Price Quantity of Televisions (Y = 20,000) Quantity of Televisions (Y = 30,000) $350 250 375 $450 200 325 $550 150 275 $650 100 225 $750 50 175 a. Calculate the price elasticity of […]
Economics Chapter 4 Homework Price elasticity of demand, conceptually speaking, measures the responsiveness of quantity demanded to changes in price
is inelastic, the price elasticity of demand is between 0 and –1. Hints and Common Errors: It’s impor tant to keep in mind that a number that is less than –1 is going to be larger than 1in absolute value […]
Economics Chapter 5 1 102 The price-quantity combination found where the supply and demand curves intersect is a unique combination that is efficient because
CHAPTER 5: Market Outcomes and Tax Incidence MULTIPLE CHOICE 1. Consumer surplus is defined as the a. difference between the willingness to pay for a good and the willingness to sell it. b. total revenue earned from producing and selling […]
Economics Chapter 5 2 If a tax is imposed on a good where both supply and demand are somewhat elastic, but supply is more elastic than demand, the burden of the tax will be borne
c. increase; increase in the price of ethanol d. decrease; increase in demand for ethanol e. increase; decrease in the price of ethanol 103. Butter and margarine are substitute goods. A tax on butter will have what effect on the […]
Economics Chapter 5 Homework If the goal is to minimize deadweight loss, taxes should be levied on markets that have either very inelastic demand or very inelastic supply
(If a transaction doesn’t happen, consumer sur– plus and producer surplus from that transaction are zero by default, and zero surplus is better than a negative surplus.) The areas of positive surplus and negative surplus are indicated on the graph […]
Economics Chapter 6 1 Many states have laws that limit the maximum amount of interest that a lender can charge a borrower. Such a law is an example of
CHAPTER 6: Price Controls MULTIPLE CHOICE 1. Why do government leaders impose price controls? a. They are trying to promote the formation of black markets. b. They are trying to ensure that the market reaches equilibrium. c. They are trying […]
Economics Chapter 6 2 The town of Fairness has a law stating that wages should be high enough to ensure that all people can afford to buy enough food for their families
c. They cause producers to overproduce products during a time of disaster. d. They act as a binding price floor in a time of disaster. e. They cause a surplus in the product during a time of disaster. 89. If […]
Economics Chapter 6 3 Some states and localities have laws that make it illegal to resell event tickets at prices higher than the original, legal market price
b. potential workers seeking employment. c. only those workers in jobs that would normally pay less than minimum wage. d. only those workers in jobs that would normally pay more than minimum wage. e. no workers. 137. Which of the […]
Economics Chapter 6 Homework A binding price ceiling causes a shortage in a market because the mandated below- equilibrium price generally reduces the quantity
number of undesirable and seemingly unantici- pated consequences. Study Problems 1. At $7.25 per hour, an individual will make $290 per week, or about $15,000 per year. The poverty threshold (in 2015) for an individual under the age of 65 […]
Economics Chapter 7 1 Lila shares a house with two other people. She is a concert pianist and often practices at home. One roommate enjoys listening to her practice
CHAPTER 7: Market Inefficiencies: Externalities and Public Goods MULTIPLE CHOICE 1. The costs or benefits of a market activity that affect a third party are called a. externalities. d. internal costs. b. public goods. e. common-resource goods. c. club goods. […]
Economics Chapter 7 2 To reduce the level of pollution emitted by firms in an industry, the government could use a cap-and-trade policy or a carbon tax
90. Driving in the city is an example of a good that is a. excludable. d. nonrival. b. excludable and rival. e. excludable and nonrival. c. nonexcludable and rival. 91. Visiting the public beach during summer is an example of […]
Economics Chapter 7 Homework While it might be technically possible, it’s very likely that as the number of parties involved in an externality problem increases
and the Coase theorem becomes less applicable as bargaining gets more difficult. 3. Externalities can be internalized in three ways. First, the government can enact specific rules that require producers and consumers to mitigate the effects of their actions (or […]
Economics Chapter 8 1 Economists consider both explicit costs and implicit costs when measuring economic profit. The reason they consider implicit costs is that
CHAPTER 8: Business Costs and Production MULTIPLE CHOICE 1. What needs to be done to ensure that a company is profitable? a. The company needs to maximize revenue. b. The company needs to minimize costs. c. The company needs to […]
Economics Chapter 8 2 Josephina owns a boxing gym. She recently expanded the size of her gym by adding another boxing ring and moving into a larger building
98. If the marginal cost curve is U-shaped a. there are no productivity gains from specialization, only diminishing marginal product. b. average fixed costs are continually decreasing. c. there are productivity gains from specialization before diminishing marginal product sets in. […]
Economics Chapter 8 Homework Comparing the marginal product of labor with the marginal product of capital will determine the ideal mix of labor and capital
sno– cone machine, which also costs $15/hour but makes 15 sno– cones an hour. In this case, it would make sense to hire the college student first. However, if additional workers face diminishing marginal product, then at some point, when […]
Economics Chapter 9 1 The market for hot dogs on the streets of New York City can be considered close to a perfectly competitive market
CHAPTER 9: Firms in a Competitive Market MULTIPLE CHOICE 1. A firm characterized as a price taker a. has control over the price it pays, or receives, in the market. b. sets the price for the market. c. has no […]
Economics Chapter 9 2 The market for candles is perfectly competitive and is currently in equilibrium. What will happen if candles are later linked to more houses catching on fire
OBJ: 9.2 MSC: Remembering 98. A firm will shut down in the long-run if the a. price is above the minimum average total cost (ATC). b. price is equal to the minimum average total cost (ATC). c. price is anywhere […]
Economics Chapter 9 3 Graph a perfectly competitive profit-maximizing firm that is incurring a short-run loss but continues to produce. Be sure to include the marginal revenue curve
7. Graph a perfectly competitive profit-maximizing firm making short-run profits. Be sure to include the marginal revenue curve, the marginal cost curve, the average total cost curve, and the average variable cost curve. 8. Graph a perfectly competitive profit-maximizing firm […]
Economics Chapter 9 Homework In order for a perfectly competitive market to exist, there must be homogenous goods and many participants— both buyers and sellers
produced. These variable costs are avoidable if the firm shuts down. So, when a firm decides whether to shut down, it only considers whether its rev– enues can cover its variable costs. The fixed costs will have to be paid […]