1) When average costs are increasing, marginal costs are greater than average costs.
2) In the U.S. in 2010, the top 1% of households held 35% of total wealth – leaving 65%
of wealth to the remaining 99% of households.
3) Price discrimination is not viable if consumers can resell the products they purchase.
4)
Refer to the diagram. At output C production will result in an economic profit.
5) A cartel of four firms that controls 100 percent of the output in a market, and faces
the same cost schedules that a monopolist would have, will set a price somewhat lower
than the monopoly price for its product.
6) When an excise tax or sales tax is imposed on a product, the sellers are always able
to shift the burden of the tax on to the buyers.
7) The theory that R&D expenditures as a percentage of firms’ sales first rise, reach a
peak, and then fall with increases in industry concentration is called the inverted-U
theory of R&D.
8) Loan guarantees provided by government will reduce the willingness of investors to
take on the risk in a project.
9) If one player in a game has a dominant strategy, the other player must also have a
dominant strategy.
10) If the price of labor increases relative to the price of capital, and as a result the
quantity of capital hired increases, the output effect of the price increase is greater than
the substitution effect.
11) The demand for a resource is a derived demand based on the demand for the
product it helps to produce.
12) In time-value of money calculations, discounting is the reverse of compounding.
13) The following diagram is a flexible exchange market for foreign currency:
Refer to the diagram. Other things equal, a rightward shift of the demand curve would:
A.depreciate the dollar.
B.appreciate the dollar.
C.reduce the equilibrium quantity of euros.
D.depreciate the euro.
14) Prospect theory in behavioral economics predicts that as the price of flour increases,
bakeries will try to avoid turning off their buyers by:
A.Increasing the unit prices of their products
B.Reducing the unit sizes of their products
C.Producing more units of their products
D.Passively accepting lower profits
15) In response to the financial crisis that began in 2007, the government began to bail
out banks deemed “too big to fail.” Critics of this action argued that this would create
the prospect of future bailouts and encourage banks to be fiscally irresponsible in the
future. This illustrates:
A.the adverse selection problem.
B.the moral hazard problem.
C.the principal-agent problem.
D.logrolling.
16) The efficiency loss of a tax is:
A.the net value of sacrificed output caused by the tax.
B.that portion of the tax paid by producers minus the portion paid by consumers.
C.that portion of the tax paid by consumers minus the portion paid by producers.
D.the total tax revenue minus the output loss caused by the tax.
17)
Refer to the above production possibilities curves. Curve (a) is the initial curve for the
economy. If the economy’s production possibilities then shift to curve (b), then:
A.Point N would still indicate a case of full production and full employment of
resources
B.Point P would still indicate a case of full production and full employment of
resources
C.Point N would indicate some unemployment or underemployment of resources
D.Point L would indicate some unemployment or underemployment of resources
18) The assertion by economists that “there is no free lunch”:
A.is contradicted by the presence of free goods offered by firms.
B.applies to goods that have prices, not to goods given away free by firms.
C.remains true even for goods given away free by firms.
D.applies to agricultural goods but not to manufactured goods.
19) Assume that the quantity of a certain type of farmland is 300,000 acres and the
demand for this land is that given in the table below.
(a)What will be the economic rent and how much land will be rented?
(b)If the productivity of the land decreases such that 200,000 less acres are demanded at
each price, what will the economic rent be and how much land will be supplied?
(c)Given the new demand schedule in (b), if landowners were taxed at a rate of $50 per
acre for their land, what would be the pure rent on this land after taxes and how many
acres would be rented?
20)
Given the diagram above, which level of output should the entrepreneur choose?
A.Either X1 or X3 since the profit level will be the same
B.X3 since any increase in output will reduce profits
C.X1 since any decrease in output will reduce profits
D.X2 since at this level the difference between MR and MC is maximized
21) Which characteristic would best be associated with pure competition?
A.Few sellers
B.Price takers
C.Nonprice competition
D.Product differentiation
22) Critics of the minimum wage argue that an increase in the minimum wage rate
above the equilibrium rate of a purely competitive labor market would:
A.Increase unemployment in the labor market
B.Increase firms’ demand for labor
C.Decrease the supply of labor
D.Cause firms to substitute labor for capital
23)
Refer to the above supply and demand graph for a public good. Which line segment
would indicate the amount by which the marginal benefit of this public good exceeds
the marginal cost at a certain quantity?
A.de
B.da
C.ef
D.ab
24) Suppose there is a decline in the demand for the product labor is producing.
Furthermore, the price of capital, which is complementary to labor, increases. Thus, the
demand for labor:
A.will increase.
B.will decrease.
C.may either increase or decrease.
D.will not change.
25) Answer the question on the basis of the following table showing market shares of
firms in hypothetical industries. Assume these are distinct industries with no
buyer-seller relationships or competition among them.
Refer to the table. The industry with the greatest market power as measured by the
Herfindahl index is:
A.Alpha.
B.Beta.
C.Cappa.
D.Delta.
26) Why has one Presidential administration enforced the antitrust laws more or less
strictly than another?
27) Explain how the relative magnitudes of changes in supply and demand can affect
equilibrium price and quantity, if supply and demand change simultaneously.
28) How do you account for the widespread use of tariffs and import quotas
internationally but the virtual absence of such trade barriers among the 50 states?
29) What is the relationship between marginal cost and marginal product?
30) What are exchange rates? If a product cost 30 euros and the exchange rate was 1
euro = $1.50, then how much would the product cost in terms of U.S. dollars?
31)
32) What conditions must exist in order for a pure monopolist to achieve economic
profits? Is the profitability of a firms operation a good index of the degree of monopoly
power it possesses?
33) How does economic rivalry take place in monopolistic competition? Describe the
different aspects of product differentiation and price competition.
34) (Consider This) Why does price discrimination work in the sale of seats to children
and adults at baseball games, but not to the sale of food at concession stands to children
and adults at baseball games?
35) What is the human resource problem in DVCs?