Figure 4-4
Refer to Figure 4-4. The figure above represents the market for pecans. Assume that
this is a competitive market. Which of the following is true?
A) If the price of pecans is $3 the output will be economically efficient but there will be
a deadweight loss.
B) If the price of pecans is $9 consumers will purchase more than the economically
efficient output.
C) Both 4,000 pounds and 12,000 pounds are economically inefficient rates of output.
D) If the price of pecans is $3 producers will sell 12,000 pounds of pecans but this
output will be economically inefficient.
As word processing on personal computers expanded, sales of typewriters began to
disappear. Which of Porter’s competitive forces does this event demonstrate?
A) the threat of competition from new entrants
B) bargaining power of suppliers
C) bargaining power of buyers
D) competition from substitute goods or services
The relationship between the inputs employed by a firm and the maximum output that it
can produce with those inputs is the firm’s
A) production function.
B) supply curve, or supply schedule.
C) marginal product of labor.
D) average product of labor.
The market for smartwatches has begun to grow, due in part to the success of the Apple
Watch. Following the successful launch of the Apple Watch in 2015, companies such as
Samsung, Sony, and LG have all developed products to compete with the Apple Watch.
The smartwatches introduced to compete with the Apple Watch would be considered
A) complements to the Apple Watch.
B) substitutes for the Apple Watch.
C) inferior goods compared to the Apple Watch.
D) normal goods compared to the Apple Watch.
The most important of the factors that make a firm successful and that can be controlled
by the firm’s owners and managers are
A) the establishment of trademarks for its products and the aggressive defense of those
trademarks.
B) lobbying government to erect or enforce entry barriers in its markets and the
marketing of its products as widely as possible.
C) the differentiation of its products and the production of products at a lower average
cost than competing firms.
D) the selection of the prices of its products and the selection of the most productive
and loyal employees.
Which of the following statements about utility and preferences is false?
A) If Sidra prefers tea to coffee and coffee to hot chocolate, then she must prefer tea to
hot chocolate.
B) Preferences can be ranked.
C) If two individuals, Ingrid and Inez, each consume the same bundle of goods, then
both Inez and Ingrid must receive the same utility from the bundle.
D) Utility cannot be compared across consumers.
Buying at a low price in one market and reselling at a higher price in another market
will
A) not generate any profit because of transportation costs.
B) not generate any profit because of transactions costs.
C) eventually eliminate all of the price differences.
D) eventually eliminate most, but not necessarily all, of the price differences.
A marginal tax rate is calculated as
A) total taxable income ÷ by taxes paid.
B) taxes paid ÷ total taxable income.
C) change in taxes paid ÷ the change in total taxable income.
D) change in taxable income ÷ change in taxes paid.
Article Summary
In an effort to raise funds to cut debt, Fiat Chrysler is selling a stake in Ferrari through
an initial public offering (IPO) to be valued at as much as $9.8 billion. 17.2 million
shares of stock in the company are to be sold, and the stock will be traded on the New
York Stock Exchange under the symbol RACE. One analyst speculates that requests for
shares in Ferrari may be ten times less than the number available. Including debt,
Ferrari will have a value of about $12 billion, and chairman Piero Ferrari will keep a 10
percent stake in the new company and receive about €280 million in cash. Before taxes
and interest, Ferrari’s 2014 earnings were €389 million, with revenue of €2.8 billion.
Source: Tommaso Ebhardt, “Ferrari to Be Valued at Up to $9.82 Billion in IPO,”
Bloomberg.com, October 9, 2015.
When Ferrari sells stock to the public in its IPO, it will do so through the New York
Stock Exchange. This is an example of Ferrari raising funds through
A) reinvesting retained earnings.
B) a financial intermediary.
C) dividend reinvestment.
D) a financial market.
Figure 12-2
Refer to Figure 12-2. Suppose the firm is currently producing Q2units. What happens if
it expands output to Q3units?
A) Its profit increases by the size of the vertical distance df.
B) It makes less profit.
C) It incurs a loss.
D) It will be moving toward its profit maximizing output.
Figure 5-6
Figure 5-6 shows the market for measles vaccinations, a product whose use generates
positive externalities.
Refer to Figure 5-6. What does D2 represent?
A) the social welfare curve
B) the demand curve reflecting social benefits
C) the demand curve reflecting private benefits
D) the positive externalities curve
If the United States placed an embargo on Swedish products, what would happen in the
U.S. market for Swedish furniture?
A) The supply curve would shift to the left.
B) The supply curve would shift to the right.
C) The demand curve would shift to the right.
D) The demand curve would shift to the left.
All games share three characteristics. Two of these characteristics are rule and
strategies. What is the third characteristic called?
A) competition
B) collusion
C) results
D) payoffs
Firms price discriminate
A) to reduce the quantity sold so as to reduce production costs.
B) to increase profits.
C) to take advantage of customers.
D) to increase total economic surplus.
What is regulatory capture?
A) It is a situation in which a policymaker seeks to improve his election prospects by
aligning himself with a powerful special interest group which will finance his political
campaign.
B) It is the exchange of political support between a regulatory agency and the regulated
firm resulting in both parties capturing economic rents.
C) It is a situation in which a firm being regulated successfully influences the
regulatory agency’s actions to benefit the interests of the firm, rather than the public
interest.
D) It is a situation in which a regulatory agency uses its authority to force actions that
are not favored by the regulated firms but are in the public’s interest.
All of the following cost curves are U-shaped except one. Which curve is not
U-shaped?
A) the marginal cost curve
B) the average fixed cost curve
C) the average total cost curve
D) the average variable cost curve
Table 18-9
Table 18-9 shows the income tax brackets and tax rates for single taxpayers in
Monrovia.
Refer to Table 18-9. Calculate the income tax paid by Sylvia, a single taxpayer with an
income of $70,000.
A) $21,000
B) $15,740
C) $15,400
D) $13,475
Suppose a competitive firm pays a wage of $12 an hour and sells its product at $3 per
unit. Assume that labor is the only input. If hiring another worker would increase output
by five units per hour, then to maximize profits the firm should
A) not change the number of workers it currently hires.
B) lay off some of its workers.
C) hire the additional worker.
D) There is not enough information to answer the question.
Which of the following statements is true about advertising by a monopolistically
competitive firm?
A) Since the monopolistic competitor, like the perfect competitor, makes zero profit in
the long run, it is a waste of resources to advertise its products.
B) Advertising could make the monopolistic competitor’s demand more inelastic, but
advertising has no effect on a perfect competitor’s demand.
C) Advertising will be more beneficial if a monopolistic competitor colludes with other
firms to advertise the products of the industry as a whole rather than an individual firm’s
product.
D) Monopolistically competitive firms tend to shun advertising because advertising
draws attention to the variety of differentiated products available in the industry.
In their surveys of consumers, Daniel Kaheman, Jack Knetsch and Richard Thaler
found that
A) most people considered it unfair for firms to raise their prices because of an increase
in their costs, but fair to raise their prices after an increase in demand.
B) most people considered any increase in price to be unfair as it led to an increase in
profits.
C) most people believed that low-income people were hurt most by increases in prices.
D) most people considered an increase in price by firms following an increase in their
costs to be fair but believed it was unfair for firms to raise their prices because of an
increase in demand.
Harvey Morris bought dishes and pitchers made of blue glass during the Great
Depression at a flea market. He later resold these items on eBay. The profits Harvey
earned from these sales are
A) subject to a retail profits tax.
B) not economic profits because Harvey did not add value to the items but took
advantage of the buyers who were not aware of how much Harvey paid for the items.
C) the result of arbitrage.
D) accounting profits but not economic profits.
Why is it necessary for all economic systems to not only provide people with goods and
services, but also restrict them from getting as much of these goods and services as they
wish?
A) Failure to do this could reduce the efficiency of the system by producing some
goods and services that are not as highly valued as others.
B) Failure to do this could lead to an inequitable allocation of goods and services
produced.
C) Failure to do this could lead to drastic shortages of goods and services.
D) Failure to do this could reduce efficiency and lead to an inequitable allocation of
output.
A merger between firms at different stages of production of a good
A) is a vertical merger.
B) was made illegal by the Sherman Act.
C) was made legal by the Clayton Act.
D) is a horizontal merger.
A monopolistically competitive firm maximizes profit in the short run by producing
where
A) price is less than marginal cost.
B) price is less than marginal revenue.
C) price is less than average revenue.
D) price is greater than marginal cost.
The actual division of the burden of a tax is called
A) tax credit.
B) tax incidence.
C) excess burden.
D) tax dispersion.
Which of the following is an example of an activity undertaken by an entrepreneur?
A) deciding whether to purchase a gasoline-powered automobile or an electric vehicle
B) being appointed as the head of a charitable organization
C) running for a seat on the city council
D) starting your own cigar manufacturing business
If in a perfectly competitive industry, the market price facing a firm is below its average
total cost but above average variable cost at the output where marginal cost equals
marginal revenue
A) the industry supply will not change.
B) new firms are attracted to the industry.
C) some existing firms will exit the industry.
D) firms are breaking even.
Figure 18-4
Refer to Figure 18-4. Rank the above panels in terms of most unequal income
distribution to least unequal income distribution.
A) Panel A, Panel B, Panel C
B) Panel B, Panel C, Panel A
C) Panel A, Panel C, Panel B
D) Panel C, Panel B, Panel A
The value of the four-firm concentration ratio that many economists consider indicative
of the existence of an oligopoly in a particular industry is
A) anything greater than 10 percent.
B) anything greater than 20 percent.
C) anything greater than 30 percent.
D) anything greater than 40 percent.
Figure 5-9
Companies producing toilet paper bleach the paper to make it white. The bleach is
discharged into rivers and lakes and causes substantial environmental damage. Figure
5-9 illustrates the situation in the toilet paper market.
Refer to Figure 5-9. The efficient output is
A) Q1.
B) Q2.
C) Q3.
D) Q4.
Table 1-2
Thuy Anh runs a small flower shop in the town of Florabunda. She is debating whether
she should extend her hours of operation. Thuy Anh figures that her sales revenue will
depend on the number of extra hours the flower shop is open as shown in the table
above. She would have to hire a worker for those extra hours at a wage rate of $16 per
hour.
Refer to Table 1-2. Using marginal analysis, by how many hours should Thuy Anh
extend her flower shop’s hours of operations?
A) 2 hours
B) 3 hours
C) 4 hours
D) 5 hours
E) 6 hours
The Great Depression of the 1930s with a large number of workers and factories
unemployed would be represented in a production possibilities frontier graph by
A) a point inside the frontier.
B) a point outside the frontier.
C) a point on the frontier.
D) an intercept on either the vertical or the horizontal axis.
Which of the following is not held constant along a firm’s demand curve for labor?
A) the quantity of other inputs used by the firm
B) the wage rate
C) changes in technology
D) the price of the product produced by the firm
Which of the following explains why two firms, Apex and Bongo, would engage in
implicit collusion, rather than explicit collusion?
A) Implicit collusion allows Apex to increase its profits at the expense of Bongo
without Bongo knowing that collusion has occurred; if Apex engages in explicit
collusion, Bongo will realize collusion has taken place and retaliate against Apex.
B) Implicit collusion is less costly to both firms than explicit collusion; therefore,
profits will be greater for both firms if they engage in implicit collusion.
C) explicit collusion is illegal; if the managers of Apex and Bongo engage in implicit
collusion they may be within the law.
D) Implicit collusion always has an enforcement mechanism that forces both firms to
collude; explicit collusion does not have an enforcement mechanism.