The demand for Tyson chicken is more elastic than the demand for meat.
A U.S. import fee on oil would reduce the domestic quantity demanded of oil.
Economic growth shifts a society’s production possibility frontier away from the origin.
Price is the coordinating mechanism in a laissez-faire economy.
Monopolistically competitive firms, like perfectly competitive firms, sell a
differentiated product.
If the expected rate of return on an investment is 7% and the market interest rate is 5%,
then the investment will be undertaken.
A demand curve with constant slope over all quantity values will always have a price
elasticity of demand equal to -1.
A firm with market power has the ability to raise their price to any level they desire.
Game theory was first developed by John Nash.
The property that a person owns at the time of her death is her estate.
When we speak of capital, we refer primarily to money and financial assets such as
bonds and stock.
When demand is elastic, a decrease in price will result in an increase in total revenue.
The slope of a curve is constant.
Monopolistic competition is a common form of market structure in the United States.
In the United States, the distribution of income is more unequal than the distribution of
wealth.
Industries that lobby public officials for favorable treatment, softer regulation, and/or
antitrust exemption are engaged in logrolling.
When marginal cost is between average variable cost and average total cost, marginal
cost is increasing.
A retail sales tax is a regressive tax with respect to income.
Advertising provides consumers with product information and can promote
competition. Thus, it is always welfare enhancing.
Capital stock decreases with investment and increases with depreciation.
Perfectly competitive firms maximize their profit by producing the output level where
P = MR = AVC.
Vertical equity holds that those with greater ability to pay should pay less.
China has developed a pragmatic, gradual approach to development.
If price is below the equilibrium, then quantity supplied will be less than quantity
demanded, putting upward pressure on price.
Even if an aid program is mandated at the federal level, states are not always required to
pay the same amount of benefits.
An injunction is a court order that forbids the continuation of behavior that leads to
benefits.
If the assumptions of competitive market theory hold, the market system would lead to
a point beyond the utility possibilities frontier.
Income distributions in developing countries are relatively equitable.
Opportunity costs arise because resources are limited.
If a country’s imports are less than its exports, a country has a trade surplus.
Evidence generally suggests that oligopolies inhibit technological advances.
In general, risk averse individuals experience diminishing marginal utility from income.
When demand is inelastic, a decrease in price will result in an increase in total revenue.
A graph illustrating how two variables change over time is a Cartesian coordinate
system.
Human capital is basic infrastructure projects such as roads, power generation and
irrigation systems.
Consider an output beyond the minimum point of a firm’s short run average total cost
curve. At this level of output the firm can use its ________ input at a lower average cost
but only by using its ________ input at a higher average cost.
A) fixed capital; variable labor
B) variable labor; fixed capital
C) variable capital; fixed labor
D) fixed labor; variable capital
Related to the Economics in Practice on page 69: Increased preference for coffee in
China would shift the ________ curve for coffee to the right and lead to a(n) ________
in the price of coffee, ceteris paribus.
A) demand; increase
B) demand; decrease
C) supply; increase
D) supply; decrease
________ is an example of intangible capital.
A) Inventory
B) “Goodwill”
C) Computer software
D) A public library
Firms will employ an input up to the point where
A) the wage rate equals the productivity of capital.
B) its marginal cost equals its marginal product.
C) the input’s price equals its marginal revenue product.
D) the input’s price equals its marginal product.
Figure 20.1
Refer to Figure 20.1. The opportunity cost of producing a bushel of alfalfa in Canada is
A) half a bushel of soybeans.
B) 1 bushel of soybeans.
C) 2 bushels of soybeans.
D) zero.
Figure 6.14
Refer to Figure 6.14. Assume Megan has two products available, pizza and hamburgers.
Megan is always willing to trade one hamburger for one pizza regardless of how many
pizzas and hamburgers she has. The curve in Panel ________ represents her
indifference curve.
A) A
B) B
C) C
D) D
Figure 8.3
Refer to Figure 8.3. The marginal cost of the 10th basketball is
A) $2.
B) $3.
C) $3.05.
D) $5.80.
A lawn service company has the following production possibilities. With one, two,
three, and four workers, the company can mow 5, 12, 17, and 20 lawns per day,
respectively.
The average product of labor with three workers is
A) 333
B) 5
C) 67
D) 33
________ curves are derived while holding constant income, tastes, and the prices of
other goods.
A) Distribution
B) Production
C) Demand
D) Supply
At the Larson Bakery the marginal products of the first, second, and third sales clerks
are 30, 27, and 21 customers served, respectively. The total product (number of
customers served) of the three sales clerks is
A) 30.
B) 57.
C) 78.
D) 109.
Sanjay is consuming X and Y so that he is spending his entire income and MUx/Px = 8
and MUy/Py = 14. To maximize utility, he should consume
A) the same amount of X and Y since he is already maximizing utility.
B) less of both X and Y.
C) more X and less Y.
D) less X and more Y.
The table shows the relationship between income and utility for Jane.
Table 17.1
Refer to Table 17.1. From the table, we can see that Jane is ________.
A) risk averse
B) risk loving
C) risk neutral
D) We cannot determine Jane’s attitude toward risk from the table.
Figure 16.2
Refer to Figure 16.2. The efficient amount of cars is
A)25
B)35
C) zero because any production results in an external cost.
D) indeterminate from the information given.
Pappy’s Popcorn Emporium operates in a perfectly competitive industry and hires you
as an economic consultant. Pappy’s is currently producing at a point where market price
equals its marginal cost. Its market price is less than its average variable cost. You
advise Pappy’s to
A) cease production immediately because it is not covering its operating costs.
B) lower its price so that it can sell more units of output.
C) produce in the short run to minimize its loss, but exit the industry in the long run.
D) raise its price until it breaks even.
If an individual perfectly competitive firm charges a price ________ the industry
equilibrium price while competitors charge the equilibrium price, the firm will not sell
any of what it produces.
A) above
B) below
C) equal to
D) More information is needed to answer the question.
The ________ the utilities from each possible outcome of a situation weighted by the
probability of that outcome is called expected utility.
A) sum of
B) difference in
C) change in
D) product of
The formula for ________ is TFC/q.
A) total cost
B) average fixed costs
C) total variable costs
D) average total cost
An decrease in the productivity of a factor of production will
A) shift its marginal revenue product curve to the right.
B) shift its marginal revenue product curve to the left.
C) cause a firm to move down the marginal revenue product curve.
D) cause a firm to move up the marginal revenue product curve.
Figure 12
The market is initially in equilibrium at Point A. If demand shifts from D1 to D2, the
new equilibrium price will be ________ and the new equilibrium quantity will be
________.
A) $3.00; 250
B) $6.00; 250
C) $4.00; 350
D) $4.00; 150
Capital income includes
A) rents.
B) interest.
C) profit.
D) Both B and C are correct.
If the market price of a bowling ball is $125 and the full cost of producing it is $35,
then a bowling ball producing firm gets producer surplus of
A) $35.
B) $90.
C) $125.
D) $160.
As output increases, average fixed costs
A) decrease.
B) initially decrease and then increase.
C) remain constant.
D) increase.
Assume that Down Slope specializes in producing snow boards and Seven Seas
specializes in producing scuba tanks. After trade, Down Slope exports 2,000 snow
boards and imports 500 scuba tanks. The terms of trade
A) are 1/4:1 snow boards to scuba tanks.
B) are 4:1 snow boards to scuba tanks.
C) are 1:4 snow boards to scuba tanks.
D) cannot be determined from this information.
Tom’s Donuts can invest in a new espresso machine that costs $300 and will yield
expected profits of $200 each year for two years. At lower interest rates, the present
discounted value of profits from the investment
A) increases.
B) decreases.
C) is unchanged.
D) is indeterminate from the given information.
Table 20.1
Refer to Table 20.1. In Chile, the opportunity cost of 1 case of wine is
A) 1/2 case of beer.
B) 1 case of beer.
C) 2 cases of beer.
D) 4 cases of beer.
You own and are the only employee of a company that writes computer software that
gamblers use to collect sports data. Last year your total revenue was $90,000. Your
costs for equipment, rent, and supplies were $50,000. To start this business you invested
an amount of your own capital that could pay you a $40,000 a year return.
Refer to Scenario 7.1. Your accounting profit last year was
A) $10,000.
B) $30,000.
C) $40,000.
D) $60,000.
A firm can invest in one of two projectsthe purchase of new delivery vans or the
training of its sales staff in the use of new sales techniques. Both projects cost the same
amount of money. The purchase of new delivery vans is expected to reduce costs by
$5,000 each year for 10 years. The training of the sales staff in the use of a new sales
technique is expected to increase revenues by $5,000 each year for 5 years. Which of
the following is true?
A) Each of these projects would have the same expected rate of return, as they both cost
the same.
B) The training of the sales staff would have the higher expected rate of return, as it
increases revenues whereas the purchase of delivery vans only reduces costs.
C) The purchase of delivery vans would have the higher expected rate of return, as it
will reduce costs for a longer time period than the sales staff training will increase
revenues.
D) The expected rates of return for these two projects cannot be compared, as one
project reduces costs and the other increases revenues.
A technological change in the production of cars will
A) affect only the markets for inputs used to produce cars.
B) affect only the way cars are produced.
C) have no effect on consumers.
D) affect input and output markets in the automobile industry and other related
industries.
In which of the following examples does the firm acquire financial capital from
households through a financial intermediary?
A) A firm sells a bond to John Doe.
B) The firm sells a bond to an employee pension fund.
C) The firm uses retained earnings to purchase shares of its stocks owned by
individuals.
D) The firm uses retained earnings to purchase shares of its stock owned by a mutual
fund company.
Table 16.2
Refer to Table 16.2. To force this glass-recycling firm to produce the efficient level of
output, the government should impose a tax
A) of $5 per ton.
B) of $6.25 per ton.
C) of $10 per ton.
D) that depends on the level of output that the firm produces to maximize profits.
If a monopolist is producing an output at a point where P > ATC > MC, then it is
A) breaking even.
B) earning positive economic profits.
C) covering total variable costs but not total fixed costs.
D) covering total fixed costs but not total variable costs.
Figure 1.4
Refer to Figure 1.4. Which of the curves or lines has a slope that is negative and then
positive?
A) A
B) B
C) C
D) D
If a household’s income doubles, its budget constraint will
A) shift out parallel to the old one.
B) pivot at the Y-intercept.
C) shift in parallel to the old one.
D) be unaffected.
Products may be homogeneous or differentiated in the ________ market structure.
A) perfectly competitive
B) monopolistic
C) monopolistically competitive
D) oligopolistic
Many spokespersons of African countries complain that the U.S. and other developed
countries heavily subsidize cotton. What is the reason for their discontent and what
argument are they making with respect to their own economic development?
Critically evaluate the following statement. “Only if a country enjoys an absolute
advantage in the production of a particular good will that country find it beneficial to
trade it with another country.
Give an example of a public good. Explain what characteristics make this good a public
good.
What are some of the issues that economists have to worry about when studying
developing nations that are very different from those of advanced industrialized
nations?
Table 2
Using Table 10.2 above calculate the unit cost of production for each type of
technology assuming that the price of capital and labor are both $1 each per unit of
input. Which technology would the firm use and why?
Assume an attorney who has worked with a large law firm decides to leave to establish
his own practice. Even though he is not leaving the company with any physical assets
what might be his most important asset? What factors might impede his ability to use
this asset and why?
Which is likely to be more elastic: the demand for orange juice or the demand for a
particular brand of orange juice? Explain.
What is tacit collusion?
Many people are offended when they learn that the CEO of a charitable organization
makes a salary commensurate with a CEO of a private company that is run for profit.
Explain why it would be a mistake for charitable organizations to pay their CEOs less
than companies that are driven by profit?
Create an example of a trade that is not Pareto efficient. Make sure that you explain
why such a trade is not Pareto efficient.
If the marginal rate of transformation is constant what can be said of the shape of the
production possibilities frontier and why?
Consumers are often bewildered by the different array of choices, plans and prices
that are offered by cell phone service companies. Explain in terms of consumer surplus
why this makes sense from both the company’s perspective and that of the consumer.
In the past dating was a fairly simple activity in the United States. If there was someone
you wanted to go out with you would call them or ask them to go out for dinner and a
movie. Nowadays it appears that many people are willing to pay large amounts of
money to professional dating services to find a compatible mate. This idea is not a new
one but it has increased quite dramatically in popularity. What does this suggest about
what kind of good dating services might be and why? Are we likely to find this type of
service be more or less prevalent in poorer countries?
Comment on the following statement and evaluate it. “Differentiating a product
separates you from your competitors so the market will see you as delivering unique
benefits. But you don’t want to be too different.”
Most economists are in agreement that minimum wages cause unemployment and make
some people worse off as a result. However, does that imply that it makes everyone
worse off? Who might benefit?
The following equation describes the relationship between the price of scanners (P) and
the quantity that buyers will purchase each week (Q):
Q = 300 ” 2P.
The following equation describes the relationship between the price of scanners (P) and
the quantity that sellers will sell each week (Q):
Q = 3P.
On a graph (with Q on the horizontal axis and P on the vertical axis), plot the two
equations using the following values for P: $30, $40, $50, $60, and $70. At what price
do the two curves intersect? What is the quantity of scanners at this point?
If a consumer has a choice between only two goods and both of them are perfect
substitutes what would the indifference curve look like and why?