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Figure: Marginal Private Benefits and Marginal Social Benefits
(Figure: Marginal Private Benefits and Marginal Social Benefits) Look at the figure
Marginal Private Benefits and Marginal Social Benefits. One way for the government to
achieve this socially optimal level is by:
A) imposing a per-unit tax equal to P1 " P2.
B) providing a per-unit subsidy of P0 " P2.
C) mandating consumption at output level Q1.
D) leaving the quantity at the initial private market-clearing quantity and price.
Figure: Price Controls
(Figure: Price Controls) Look at the graph Price Controls. The consumer surplus lost to
a price floor at point b is equal to the area:
A) abe.
B) egh.
C) bcge.
D) bcke.
Figure: The Market for Butter
(Figure: The Market for Butter) Look at the figure The Market for Butter. If a
government price floor at $1.20 is imposed on this market, an inefficiency will result in
the form of a _____ of _____ million pounds of butter.
A) surplus; 4.5
B) shortage; 4.5
C) surplus; 1.5
D) shortage; 1.5
(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special
birthday cakes. She is trying to decide how many mixers to purchase. Her estimated
fixed and average variable costs if she purchases one, two, or three mixers are shown in
the table. Assume that average variable costs do not vary with the quantity of output. If
Pat purchases three mixers and bakes 100 cakes per day, what is her average fixed cost?
A) $4
B) $25
C) $2,496
D) $10,000
Which of the following will NOT cause an increase in the supply of good X?
A) an improvement in the technology used to produce good X
B) a decrease in the price of good Y, a substitute in production
C) an increase in the price of inputs used to produce good X
D) a decrease in the price of inputs used to produce good X
The demand for a factor of production is a(n) _____ demand.
A) derived
B) implicit
C) direct
D) distributional
Figure: The Marginal Cost Curve
(Figure: The Marginal Cost Curve) Look at the figure The Marginal Cost Curve. The
total cost of mowing four lawns is approximately:
A) $10.
B) $15.
C) $50.
D) $100.
(Table: Willingness to Pay for Peanuts) Using the table Willingness to Pay for Peanuts,
if the price of a bag of peanuts is $3, the total value of consumer surplus is equal to:
A) $12.
B) $26.
C) $10.
D) $21.
The dormitories of Eastland College are part of its:
A) land.
B) labor.
C) capital.
D) explicit costs.
Figure: Payoff Matrix for Gehrig and Gabriel
(Figure: Payoff Matrix for Gehrig and Gabriel) The figure Payoff Matrix for Gehrig and
Gabriel describes two people who sell handmade Davy Crockett figurines in San
Antonio. Both Gehrig and Gabriel have two strategies available to them: to produce
5,000 figurines each month or to produce 7,000 figurines each month. For Gehrig and
Gabriel, the dominant strategy is to:
A) produce 5,000 figurines.
B) produce 7,000 figurines.
C) produce between 5,000 and 7,000 figurines.
D) collude and increase production to more than 14,000 figurines.
An increase in supply with no change in demand will lead to _____ in equilibrium
quantity and _____ in equilibrium price.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Marge has spent her entire budget on milk and cookies. The last glass of milk provided
Marge with 10 additional utils and the last cookie provided her with 25 additional utils.
The price of a cookie is twice the price of a glass of milk. Assuming that diminishing
marginal utility applies to both goods, Marge should consume _____ milk and _____
cookies.
A) more; fewer
B) less; more
C) more; more
D) less; fewer
A perfectly competitive industry with constant costs initially operates in long-run
equilibrium. When demand increases, in the long run and the short run:
A) positive economic profits will result for all firms.
B) higher prices will result.
C) output will increase.
D) negative economic profits will result for some firms.
A negative externality:
A) is any cost above the economic cost.
B) equals the social cost plus the firm's private cost.
C) is an uncompensated cost imposed by an individual or firm on others.
D) equals the opportunity cost minus the social costs.
The price of an extra hour of leisure is:
A) $1.
B) the hourly wage rate.
C) the same as the price of money.
D) the total utility of labor.
(Table: Comparative Advantage I) Look at the table Comparative Advantage I. Finland
has a comparative advantage in producing:
A) cell phones only.
B) herring only.
C) both cell phones and herring.
D) neither cell phones nor herring.
Large barriers to entry in the gas station business explain why the two only gas stations
in a small town:
A) can earn an economic profit in the long run.
B) must produce at the minimum average total cost in the long run.
C) have no fixed costs in the long run.
D) must produce a level of output such that MR = MC to maximize their profit.
As a consumer moves upward along an indifference curve, giving up some of X (on the
horizontal axis) to get more of Y (on the vertical axis), his or her marginal rate of
substitution of X for Y:
A) becomes infinite.
B) goes from negative to positive.
C) increases.
D) decreases.
(Table: Willingness to Pay for Basketball Sneakers) The table Willingness to Pay for
Basketball Sneakers shows each player's willingness to pay for basketball sneakers.
Assume that each player wants to buy at most, one pair of sneakers. If the price of
basketball sneakers is $60, how many pairs will be purchased?
A) five
B) four
C) three
D) two
(Table: Bongos and Frisbees) Look at the table Bongos and Frisbees. Bill and Mickey
make bongos and Frisbees. Who should specialize in the production of bongos?
A) Bill
B) Mickey
C) both
D) neither
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $70, how much is Alex's profit at the profit-maximizing output?
A) $3,500
B) "$300
C) $700
D) $1,700
When government attempts to reduce climate change by establishing a minimum level
of fuel efficiency on new cars, it is using a(n):
A) environmental standard.
B) emissions tax.
C) Pigouvian tax.
D) tradable emissions permit.
