ECON E 33880

Which type of business is the most difficult to set up?
A) sole proprietorship
B) partnership
C) corporation
D) There is no difference in the difficulty of establishment.

In 18th century Europe, governments gave guilds legal authority to limit production of goods. How did this authority either obstruct or improve the market mechanism?
A) It improved the market mechanism by making it more efficient because the guilds were able to quickly identify and rectify any market shortages and surpluses.
B) It improved the market mechanism because the government’s actions provided the correct set of signals to the market so that producers can adjust their output to better meet the needs of consumers.
C) It obstructed the market mechanism because the guild’s actions prevented the forces of demand and supply from coordinating the self-interested decisions of producers and consumers.
D) It obstructed the market mechanism because with one more party having to coordinate activities (the guilds) there were delays in getting the products to consumers.

Figure 11-2

Refer to Figure 11-2. The average product of labor declines after L₂ because
A) the marginal product of labor is below the average product of labor.
B) the marginal product of labor is falling.
C) the marginal product of labor is negative.
D) the marginal product of labor is positive.

Figure 4-1

Figure 4-1 shows Arnold’s demand curve for burritos.
Refer to Figure 4-1. What is the total amount that Arnold is willing to pay for 3 burritos?
A) $1.50
B) $6.00
C) $7.00
D) $10.00

Frieda is at her local florist to buy a dozen roses. She is willing to pay $75 for the roses, and buys them for $75. Frieda’s consumer surplus from the purchase is
A) $150.
B) $75.
C) $37.50.
D) $0.

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 cost of production

Figure 2-7

Apple recently announced that the company is exploring the electric vehicle market, and is looking to produce vehicles as early as 2020. Assume Apple chooses to produce both traditional electric-engine vehicles and self-driving electric-engine vehicles. Figure 2-7 shows changes to its production possibilities frontier in response to new developments and different strategic production decisions.
Refer to Figure 2-7. Assume a technological advancement greatly reduces the cost to produce self-driving vehicles. This is best represented by the
A) movement from E to F in Graph A.
B) movement from G to H in Graph B.
C) movement from K to L in Graph C.
D) movement from H to J in Graph B.

Figure 5-1

Figure 5-1 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
Refer to Figure 5-1. Suppose the current market equilibrium output of Q₁ is not the economically efficient output because of an externality. The economically efficient output is Q₂. In that case, the diagram shows
A) the effect of a positive externality in the production of a good.
B) the effect of a negative externality in the production of a good.
C) the effect of an external cost imposed on a producer.
D) the effect of an external benefit such as a subsidy granted to consumers of a good.

The difference between technology and technological change is that
A) technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm’s ability to produce a given level of output with a given quantity of inputs.
B) technology is carried out by firms producing physical goods but technological change is an intellectual exercise into seeking ways to improve production.
C) technology is product-centered, that is, developing new products with our limited resources while technological change is process-centered in that it focuses on developing new production techniques.
D) technology involves the use of capital equipment while technological change requires the use of brain power.

Figure 4-5

Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month.
Refer to Figure 4-5. Suppose that instead of a rent ceiling, the government imposed a price floor of $2,000 per month for apartments. What is the value of the portion of consumer surplus transferred to producers as a result of the price floor?
A) $40,000
B) $100,000
C) $125,000
D) $140,000

If firms do not increase their quantity supplied when price changes, then supply is
A) perfectly elastic.
B) perfectly inelastic.
C) relatively inelastic.
D) elastic.

A perfectly competitive firm’s supply curve is its
A) marginal cost curve.
B) marginal cost curve above its minimum average total cost.
C) marginal cost curve above its minimum average variable cost.
D) marginal cost curve above its minimum average fixed cost.

If a typical firm in a perfectly competitive industry is incurring losses, then
A) all firms will continue to lose money.
B) some firms will exit in the long run, causing market supply to decrease and market price to rise increasing profits for the remaining firms.
C) some firms will exit in the long run, causing market supply to decrease and market price to fall increasing losses for the remaining firms.
D) some firms will enter in the long run, causing market supply to increase and market price to rise increasing profit for all firms.

Table 9-6
Production and
Consumption Production
Without Trade With Trade

	Clocks	Hats		Clocks	Hats
Denmark	900	150		1,200	0
Belize	150	100		0	400

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 the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Belize gain compared to the “without trade” numbers?
A) -100
B) 100
C) 120
D) 250

Last year, Joan bought 50 pounds of hamburger when her household income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. Holding everything else constant, Joan’s income elasticity of demand for hamburger is
A) positive, so Joan considers hamburger to be an inferior good.
B) negative, so Joan considers hamburger to be an inferior good.
C) positive, so Joan considers hamburger to be a normal good and a necessity.
D) negative, so Joan considers hamburger to be a normal good.

Economists refer to the conflict between the interests of shareholders and the interests of top management as
A) a stock-equity problem.
B) a liability problem.
C) a principal-agent problem.
D) a financial intermediary problem.

Prices of California Merlot wine (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for French oak barrels used for wine storage have dropped and consumer incomes have risen. Which of the following best explains the rising prices of California Merlots?
A) The supply curve for Merlot has shifted to the right while the demand curve for Merlot has shifted to the left.
B) The demand curve for Merlot has shifted to the right more than the supply curve has shifted to the right.
C) The demand curve and the supply curve for Merlot have both shifted to the left.
D) The supply curve for Merlot has shifted to the right more than the demand curve has shifted to the right.

DeShawn’s Detailing is a service that details cars at the customers’ homes or places of work. DeShawn’s cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car’s engine, a service that adds an additional $20 to the total cost of the package. What is the marginal cost of adding the engine detailing to the basic detailing package?
A) $20
B) $30
C) $60
D) $60 plus the value of his time

Figure 17-6

Figure 17-6 shows two different compensation schemes for the Vortex Vacuum Cleaner Company.
Under Scheme I, the firm pays a consistent wage of $2,500 per month to all its salespeople for sales up to 20 vacuum cleaners. For sales of 21-30 vacuum cleaners, its salespeople earn $125 per vacuum cleaner., with wages capped at $5,625 per month for sales over 30 vacuum cleaners. If a salesperson has three consecutive months of sales below 20 vacuum cleaners, the person loses his or her job.
Scheme II represents a straight commission, with salespeople earning a commission of $125 per vacuum cleaner sold, with no wage cap.
Refer to Figure 17-6. Under Scheme I
A) workers compete with each other to see who can sell more than 20 vacuum cleaners in the shortest possible time.
B) workers have no incentive to sell more than 30 vacuum cleaners.
C) workers signal their productivity to the firm by consistently selling above 30 vacuum cleaners.
D) the incentive to increase productivity only occurs for sales of fewer than 20 vacuum cleaners or more than 30 vacuum cleaners.

Few firms in the United States are monopolies because
A) few firms experience economies of scale.
B) of antitrust laws.
C) when a firm earns profits, other firms will enter its market.
D) most products that firms produce have substitutes.

A decrease in the price of GPS systems will result in
A) a smaller quantity of GPS systems supplied.
B) a larger quantity of GPS systems supplied.
C) a decrease in the demand for GPS systems.
D) an increase in the supply of GPS systems.

In New York City, about 1 million apartments are subject to rent control by the local government. Rent control
A) puts a legal limit on the rent that landlords can charge for an apartment.
B) is a price floor which sets a minimum rent for apartments.
C) only applies to those apartments which are owned and rented out by the local government.
D) is a government policy which limits apartment rental to those people whose incomes are less than $50,000 per year.

The law of diminishing marginal returns
A) sets in because not all workers are equally productive.
B) applies only in the short run.
C) holds even when there are no fixed factors.
D) ultimately explains why production displays diseconomies of scale.

Most supermarkets charge the same price for the majority of goods sold. This suggest that
A) the government regulates prices of most products sold in supermarkets.
B) supermarkets have colluded to fix prices on most of the goods sold.
C) mark-ups reflect the degree of competition in the supermarket industry.
D) the large supermarket chains are price leaders and smaller grocers take these prices as given.

Which of the following factors has significantly increased the supply of labor in the United States since 1950?
A) a large increase in the substitution effect as a result of higher wages
B) a low birth rate and an aging population
C) an increase in the number of people who have received college degrees
D) an increase in the labor force participation rate of women

Gasoline taxes that are typically used for highway construction and maintenance are consistent with which of the following principles of taxation?
A) the ability-to-pay principle
B) the horizontal-equity principle
C) the vertical-equity principle
D) the benefits-received principle

Kenneth Chay and Michael Greenstone examined the impact of reductions in air pollution since the passage of the Clean Air Act of 1970. Which of the following statements summarizes their findings?
A) The marginal benefit of reductions in air pollution was less than the marginal cost.
B) The marginal cost of reducing emissions of sulfur dioxide has increased over time as the marginal benefit of the reductions has increased.
C) The benefits of reducing the six main air pollutants in the two years following the Act greatly exceeded the costs.
D) In the two years following passage of the Act, fewer infants died than would have died if the Act had not been passed.

If the cross-price elasticity of demand between beer and wine is 31, then beer and wine are
A) complements.
B) price-inelastic goods.
C) substitutes.
D) necessities.

Which of the following is true for a monopolist?
A) Being the only seller in the market, the monopolist faces a perfectly inelastic demand curve.
B) Being the only seller in the market, the monopolist faces a perfectly elastic demand curve.
C) Being the only seller in the market, the monopolist faces the market demand curve.
D) Being the only seller in the market, the monopolist faces a downward-sloping demand curve that lies below the marginal revenue curve.

Figure 4-8

Figure 4-8 shows the market for beer. The government plans to impose a unit tax in this market.
Refer to Figure 4-8. What is the size of the unit tax?
A) $2
B) $5
C) $7
D) $12

Consider two single-malt whiskey distillers, Laphroaig and Knockando. If they advertise, they can both sell more whiskey and increase their revenue. However, the cost of advertising more than offsets the increased revenue so that each distiller ends up with a lower profit than if they do not advertise. On the other hand, if only one advertises, that distiller increases its market share and also its profit.
a. Construct a payoff matrix using the following hypothetical information: If neither distiller advertises, each earns a profit of $35 million per year. If both advertise, each earns a profit of $20 million per year. If one advertises and the other does not, the distiller who advertises earns a profit of $50 million and the distiller who does not advertise earns a profit of $9 million.
b. If Laphroaig wants to maximize profit, will it advertise? Briefly explain.
c. If Knockando wants to maximize profit, will it advertise? Briefly explain.
d. Is there a dominant strategy for each distiller? Briefly explain.

Economists refer a to a market where buying and selling take place at prices that violate government price regulations as
A) a black market.
B) an outlaw market.
C) a noncompetitive market.
D) a restricted market.

The French Bakery ran a special which decreased the price of its croissants from $1.50 to $1.00. Although her money income had not changed, Toni decided to buy 2 croissants instead of her usual 1 bagel and 1 croissant. Toni’s actions are explained by which of the following?
A) income effect only or substitution effect only but not both effects
B) income and substitution effects
C) price effect
D) consumption effect

Figure 14-6

Refer to Figure 14-6 Use the decision tree to determine whether Pizza Hut should deter Domino’s from entering the market for pasta salad. Assume that each firm must earn a 25% return on investment to break even. Explain Pizza Hut’s decision process.

What is a Lorenz curve and what is a Gini coefficient?

Music writer Anthony Kuzminski praised rock star Tom Petty in a 2007 article in the online Unrated Magazine. Kuzminski wrote: “Something Petty never can get enough credit for is his fan-friendly attitude. He kept ticket prices for [his concerts] at $50 when other acts this summer are charging upwards of $100 for stadium gigs. Petty could charge more, but he doesn’t see the point. He has stated time and time again he still makes millions when he’s on the road, regardless of his ticket prices. He is the last of the fan friendly rock stars out there.” Use economic reasoning to write a rationale for Tom Petty’s decision to charge prices for his band’s (“Tom Petty and the Heartbreakers”) concerts that are less than market clearing prices.
Source: Anthony Kuzminski, “Tom Petty & The Heartbreakers at the Vic Theater” http://www.unratedmagazine.com/

If a union successfully negotiates for higher wages and benefits for steel workers, what impact would this have on supply and demand in the market for steel, assuming no other changes take place in this market?

Why are many companies concerned about brand management?

What is a compensating differential?

Suppose that if a local McDonald’s restaurant reduces the price of a Big Mac from $4.00 to $3.25, the number of Big Macs it sells per day will increase from 4 to 5. Explain the output effect and the price effect resulting from this change. Using a graph, illustrate both the loss in revenue from selling each of the first 4 Big Macs for $0.75 less and the additional revenue from selling 1 more Big Mac. What is the total change in revenue received which results from this price decrease?

You are the manager of a theater. At present the theater charges the same admission price of $8 to all customers, regardless of age. You propose a two-tier pricing scheme: $5 for children under the age of 12 and $10 for adults. You tell your supervisor that your proposal is likely to increase revenue. What must be true about the price elasticity of demand if your proposal is to achieve its goal of raising revenue? Explain your answer.

Suppose, on average, a family in Church Falls earning $60,000 per year paid 6 percent of its income in state taxes. A family earning $80,000 paid, on average, $4,760 in state income taxes. Are state taxes in Church Falls progressive or regressive? Be sure to explain the difference between a progressive tax and a regressive tax.

Discuss the correct and incorrect economic analysis in the following statement.
“If good weather in Hawaii creates a bumper crop of pineapples, the supply of pineapples will increase. This will result in a price decrease, which will then cause the supply of pineapples to decrease.”

Book publishers use price discrimination routinely, but the form of price discrimination they use is different from the form used by airlines and other industries. Explain.

How can a partnership raise funds needed for firm expansion?

What is meant by the statement that “optimal decisions are made at the margin”?

How would a marketing campaign directed at single women improve the chances of success at a place like a cigar bar?

Table 18-4

	Foreign Aid	Post-Secondary Education	Roads and Bridges
Tom	3rd	1st	2nd
Dick	2nd	3rd	1st
Harriet	1st	2nd	3rd

Refer to Table 18-4. The table above outlines the rankings of three members of the U.S. House of Representatives on three spending alternatives. Assume that Congress can spend additional revenue on only one of the three spending alternatives and that Tom, Dick, and Harriet, all members of the House of Representatives, participate in a series of votes in which they are to determine which of the spending alternatives should receive funding. Three votes will be taken: (1) Foreign Aid and Post-Secondary Education (2) Foreign Aid and Roads and Bridges and (3) Post-Secondary Education and Roads and Bridges.
Determine whether the voting paradox will occur as a result of these votes.

Define microeconomics.