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The short-run demand curve for labor for a firm in any type of market for its output coincides with a. the upward sloping portion of the marginal revenue product curve. b. the downward sloping portion of the marginal revenue product […]

A market failure occurs when a. shortages or surpluses of some good cannot be eliminated. b. a private market cannot provide a good in socially efficient quantities. c. consumers’ surplus falls to zero. d. property is privately owned and people […]

The marginal rate of technical substitution of labor for capital (MRTSLK) tends to be higher a. the larger the quantity of capital already employed. b. the lower the quantity of capital already employed. c. when a firm is choosing baskets […]

The higher the interest rate, the higher the price of a bond. If the total benefits received from drug enforcement exceed its total costs, then the government should expand its drug enforcement activity. Answer: F If a model is based […]

Mexico and Japan The following questions refer to the following table which shows the abilities of Mexico and Japan to produce food and cloth. Food and cloth are the only two commodities in the world and their production requires only […]

Higher fixed costs may cause a firm to shut down its operations but will not otherwise affect its production and pricing decisions. The term price as used in microeconomics refers to the absolute price of a commodity. Answer: F Assigning […]

Which of the following is not true in the long-run? a. There are no variable costs. b. There are no fixed costs. c. Total costs equal variable costs. d. Identical firms will make zero profits. The term prisoners’ dilemma a. […]

What does it mean to say that a firm has been made liable? a. The firm is legally responsible to compensate other parties for damage. b. The firm has begun to treat any external costs as private costs. c. The […]

When surveyed regarding the potential benefit of a public good, consumers will tend to underestimate their benefit from consumers the good. Cleantown and Grimyville are identical except for the inferior air quality in Grimyville. All potential residents have identical tastes. […]

Tax Problem. Consider a perfectly competitive market were demand is Q = 100 – P and Supply isQ = P – 10. In the absence of any government intervention (e.g. taxes or price controls), the market equilibrium is a. P […]

Budget Lines The following questions refer to the following diagram, which shows the budget lines faced by a consumer last year and this year. The only situation where we can conclude that this consumer’s tastes must have changed is when […]

Expedia.com’s sale of discount airline tickets to those willing to travel any hour of a day on any airline is an example of third degree price discrimination. Common Property II The following questions refer to the accompanying diagram, which shows […]

A firm has passed the point of diminishing marginal returns if and only if additional labor lowers its output. Positive externalities created by human capital provide one explanation of why firms do not move more capital to low-wage areas. Answer: […]

The copycat game does not have a pure strategy Nash Equilibrium. Mike’s Mealbarn is a competitive firm in the hot dog stand business. How will each of the following affect the short-run demand for labor at Mike’s? Answer: What is […]

In the Battle of the Sexes game, a. Fred and Ethel are best off choosing the activity they prefer. b. Fred is better off attending the opera with Ethel than having Ethel attend the boxing match with him. c. Ethel […]

What relationship exists between marginal revenue and the elasticity of demand? Use this relationship to explain how a monopoly can increase its profit if demand is inelastic. If the Open Range Field is currently a common property and the government […]

Game Matrix II The following questions refer to the game matrix below. Player A can play the strategies “High” and “Low,” and Player B can play the strategies “Odd” and “Even.” Which outcomes in this game are Pareto optimal? a. […]

A farmer has a comparative advantage at growing wheat if his cost of growing wheat is smaller than his cost of growing any other crop. Economic models of markets generally treat prices as exogenous variables. Answer: F For a given […]

The term “tragedy of the commons” is used to describe a. overpricing of computer software by Microsoft. b. an increase in rents when air quality in a community improves. c. the difficulty in obtaining honest evaluations of public goods. d. […]

Suppose the marginal value of bread in terms of wine is 1/2 bottle of wine per loaf of bread, while the relative price of bread in terms of wine is 1/4 bottle of wine per loaf of bread. Explain how […]

If the consumer’s income and all prices simultaneously triple, then his optimum will not change. A negligence standard, with the allowance of contributory negligence, always leads to a socially optimal outcome. Answer: F A free-rider problem occurs when people can […]

Variable Cost of Production The following questions refer to the following table which shows a firm’s variable costs of production. If the firm instead has $15 in fixed costs, the average cost of the third unit of output is a. […]

In a competitive labor market, a monopoly will tend to hire less labor than will a competitive firm. The income and substitution effect always go in opposite directions. Answer: F A temporary increase in the supply of current goods will […]

Supply and Demand The following questions refer to the accompanying graph, which shows the supply and demand for military service. Suppose the government drafts Q0 persons into the army and pays them the wage w1. In this situation, the area […]

If a person’s income rises and they do not increase their consumption, we can conclude that a. the good is not inferior. b. their income elasticity of demand is zero. c. the good is not normal. d. no conclusions can […]

A competitive firm will shut down its operations in the short run when the market price falls below its a. marginal revenue. b. marginal cost. c. average cost. d. average variable cost. Which of the following will cause equilibrium output […]

A consumer’s demand curve for pizza is identical to his total value curve for pizza. Current and Future Consumption The following questions refer to the accompanying diagram, which shows a consumer’s choice between current and future consumption. The diagram shows […]

Suppose leisure is on the horizontal axis and dollars are on the vertical axis in the consumer-choice diagram. What happens to the budget line when a head tax is imposed? a. The budget line shifts inward, but it may become […]

The primary criterion used to analyze the desirability of outcomes in Economics is a. sustainability b. equity. c. predictability. d. efficiency. In the indifference curve-budget line model of labor supply, a. labor is measured along the horizontal axis and leisure […]

The price elasticity of demand for potatoes is estimated to be -1.3, and the quantity demanded of potatoes is 3,000 bushels per week. In this situation, a 4% rise in the price of potatoes would reduce the quantity demanded by […]

A common property is a. both nonrivalrous and nonexcludable. b. nonrivalrous, but not nonexcludable. c. nonexcludable, but not nonrivalrous. d. either nonrivalrous or nonexcludable, but not both. When silk is shipped from China to Atlanta, transportation costs will make the […]

If the price of good X goes up and the price of good Y goes down, then it is possible for a. The person is better off than before. b. The person is worse off than before. c. The person […]

Demand and Supply for Grapes The following tables show the demand and supply for grapes. Demand is uncertain, with D1 and D2 each occurring 50% of the time. Suppliers must base their decisions on the expected price and must sell […]

Cap and Trade is a system aimed at correcting for externalities by a. imposing taxes. b. establishing tradable permits. c. placing quotas on specific firm’s output. d. limiting exports. If firms must pay full liability for accidents plus punitive damages, […]

A boss can type 200 words per minute and sell 2000 units of the company’s product in one day. His assistant can type 150 words per minute and sell 1000 units of the company’s product in one day. Discuss who […]

Game Matrix IV The following questions refer to the game matrix below. Player A can play the strategies UP and DOWN and Player B can play the strategies LEFT and RIGHT. The Nash Equilibrium for the game is a. UP, […]