Firms in a monopolistically competitive industry are small relative to the total market.
Refer to the Economics in Practice on page 361. Sometimes the lack of information in
an advertisement serves as a signal.
The value of capital is as great as the services it produces over time.
The present value of $100 in one year is $82 when the interest rate is 15%.
The International Monetary Fund (IMF) makes loans to encourage economic
development.
Perfectly elastic demand is represented as a vertical line.
Adverse selection is a situation in which asymmetric information results in low-quality
goods or low-quality consumers being squeezed out of transactions because they are
unable to demonstrate their quality.
The government uses the HHI as a guideline to determine which proposed mergers are
acceptable.
Market failures cannot be corrected through government intervention.
Homogeneous products are indistinguishable from each other.
Things that have already been produced that are in turn used to produce other goods and
services over time are called “production possibility frontiers.”
Industries may be oligopolistic due to barriers to entry.
A firm that makes a positive economic profit may not be making a normal rate of
return.
A shift of the supply curve is caused by a change in a good’s own price.
Advertising can serve a productive purpose and can therefore increase welfare.
A frequently cited barrier to economic development is the apparent shortage of
entrepreneurial activity in developing nations.
Firms are less likely to avoid a prisoners’ dilemma when they interact repeatedly than
when they rarely interact.
The United States is the only country to face increasing inequality in their income
distribution in the last several decades.
Demand is more inelastic for an item for which few substitutes are available.
The total of producer and consumer surplus is maximized when there is
underproduction.
If someone is willing to pay $500 to go to the Super Bowl but can buy a ticket for $300,
they will get $200 in consumer surplus.
The primary function of Temporary Assistance for Needy Families has been to provide
funds for low-income families.
Counting the total number of individuals on any assistance program and dividing by the
population determine the poverty line.
Economists would classify the Boston Symphony Orchestra as a firm.
Among the resources used in production are labor and capital.
Society will produce the efficient mix of output if all firms equate price and marginal
cost.
Logrolling is a questionable practice that always leads to decidedly inefficient results
Venture capital funds involve high risk.
Nonprice rationing will happen whenever there is excess supply in a market.
A U.S. import fee on steel would increase the domestic quantity of steel supplied.
A change in the price of a good or service leads to a change in quantity demanded of the
good.
When demand is elastic, an increase in price will result in an increase in total revenue.
Quantity demanded of a product is determined only by how much of that product
consumers desire.
Demand is more elastic for an item which represents a relatively large part of a person’s
total budget.
When some firms exit a monopolistic competitive industry, the demand curves of the
remaining firms in the industry ________.
A) do not change
B) shift to the left
C) shift downward
D) shift to the right
A(n) ________ shows all combinations of capital and labor that yield a given total cost.
A) isocost line
B) isoquant
C) budget constraint
D) expenditure set
Related to the Economics in Practice on page 108: Which of the following, if true,
would most effectively back the argument that raising cigarette taxes reduces the
number of people who smoke cigarettes?
A) The demand for cigarettes is relatively inelastic.
B) The demand for cigarettes is relatively elastic.
C) The supply for cigarettes is relatively inelastic.
D) The supply for cigarettes is relatively elastic.
Figure 5.2
Refer to Figure 5.2. At Point C the price elasticity of demand is -1. Along line segment
EC of the demand curve, the demand is
A) elastic.
B) unit elastic.
C) inelastic.
D) either elastic or inelastic, depending on whether price increases or decreases.
A frozen food manufacturer can produce either pizzas or calzones. As the result of an
increase in the price of calzones, the firm produces more calzones and fewer pizzas. An
economist would explain this by saying
A) the supply of calzones increased and the supply of pizzas decreased.
B) there has been an increase in the quantity supplied of calzones and a decrease in the
quantity supplied of pizzas.
C) there has been an increase in the quantity supplied of calzones and a decrease in the
supply of pizza.
D) the supply of calzones increased and the quantity supplied of pizza decreased.
As interest rates fall, a firm would
A) have higher expected costs of investment.
B) have decreasing present value of expected earning.
C) be willing to pay less now to purchase the same number of future dollars.
D) be willing to pay more now to purchase the same number of future dollars.
The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable
costs of $1,000. The Lawn Ranger’s total fixed costs are
A) $0.
B) $3,000.
C) $5,000.
D) indeterminate because the firm’s output level is not known.
Related to the Economics in Practice on page 674: When a country opens its markets to
free trade, competition ________ and efficiency ________.
A) grows; improves
B) grows; declines
C) decreases; improves
D) decreases; declines
Table 20.1
Refer to Table 20.1. Chile has
A) a comparative advantage in wine production.
B) an absolute advantage and a comparative advantage in beer production.
C) an absolute advantage and a comparative advantage in wine production.
D) neither a comparative advantage in wine production nor in beer production.
Table 16.6
Refer to Table 16.6. Assume that the marginal cost of hiring a police officer is $120. If
A and B are the only two people in the society, the optimal number of police officers is
A) 1.
B) 2.
C) 3.
D) indeterminate from this information.
Households receive ________ when they lend money directly to firms.
A) shares of stock
B) certificates of investment
C) bonds
D) dividends
Whenever the Democrats gain control of the Congress, spending on social programs
increases; whenever Republicans gain control of the Congress, spending on defense
increases. Hence, we know what the next party in control will do. This statement is an
example of
A) fallacy of inductive reasoning.
B) post hoc, ergo propter hoc fallacy.
C) fallacy of composition.
D) ceteris paribus fallacy.
Figure 16.1
Refer to Figure 16.1. To force this firm to produce the ________ level of output, the
government should ________ of $5.00 per bag of fertilizer.
A) efficient; impose a tax
B) market; issue a subsidy
C) efficient; issue a subsidy
D) market; impose a tax
An example of an effective price ceiling would be the government setting the price of
wheat at ________ per bushel when the market price is at $4.25 per bushel.
A) $3.75
B) $5.00
C) $7.75
D) $12.00
Figure 7.1
Refer to Figure 7.1. A corn producer’s profit is $1,500 and it is producing 500 bushels of
output. Then he must have a cost per bushel of
A) 1
B) 2
C) 3
D) 4
The slope of the ________ is –MPL/MPK.
A) isoquant
B) total utility curve
C) isocost line
D) marginal utility curve
The type of non-price rationing that most closely approaches the market outcome is
A) coupon rationing with coupons that can be resold.
B) coupon rationing with coupons that cannot be resold.
C) first-come, first-served basis or queuing.
D) favored customer rationing.
In terms of the production possibility frontier, an increase in productivity attributable to
new technology would best be shown by
A) a movement along the frontier.
B) the production possibility frontier shifting outward, away from the origin.
C) a movement from a point inside the frontier to a point on it.
D) a movement toward the origin.
A local property tax is a tax on ________, while a tax on your salary is a tax on
________.
A) a flow; a stock
B) a stock; a flow
C) a flow; income
D) a residential holding; a flow
Table 8.2
Refer to Table 8.2. If Danica produces two pairs of earrings, her marginal cost is
A) $20.
B) $22.50.
C) $36.25.
D) $61.25.
Below are drawn cost curves for Clips Ahoy Barber Shop, a monopolistically
competitive firm.
Figure 15.1
Refer to Figure 15.1. The ________ number of haircuts for the Clips Ahoy Barber Shop
is 20.
A) profit-maximizing number
B) loss-minimizing number
C) shutdown quantity
D) breakeven
Assume that an economy producing two products, bicycles and mopeds, is initially in
equilibrium, and that bicycles and mopeds are substitutes. If consumer preferences shift
toward bicycles and away from mopeds, all of the following will occur EXCEPT:
A) In the short run, firms producing mopeds will incur losses.
B) In the short run, firms producing bicycles will earn a profit.
C) Additional capital will begin to flow into bicycle production in the long run.
D) Additional capital will begin to flow into moped production in the long run.
The feature that distinguishes monopolistic competition from perfect competition is that
monopolistically competitive firms are
A) large relative to the market.
B) price takers.
C) able to block the entry of other firms.
D) able to differentiate their products.
According to comparative advantage, trade between two countries allows ________ of
the trading countries to allocate its resources most efficiently.
A) only the smaller
B) only the larger
C) neither
D) each
Table 8.1
Refer to Table 8.1. Assuming the price of capital (K) is $10 per unit and the price of
labor (L) is $5 per unit, the firm will use production technique ________ to produce
________ of output.
A) A; all three units
B) B; all three units
C) B; the first two units of output and production technique A to produce the third unit
D) A; the first unit and production technique B to produce the second and third units
Cashews are measured in bushels and tea is measured in pounds (lbs.)
Table 20.2
Refer to Table 20.2. The most that India will be willing to pay for a lb. of tea is
A) 1/10 of a bushel of cashews.
B) 1/5 of a bushel of cashews.
C) 1/4 of a bushel of cashews.
D) 1/2 of a bushel of cashews.
You use $40,000 of your own money to start a catering business. During the first year
you earn a 5% return on that investment. If the current interest rate on savings is 8%,
you earn an economic profit of
A) -$1,200.
B) $1,200.
C) $2,000.
D) $3,200.
Table 20.2
Refer to Table 20.2. In Thailand, the opportunity cost of
A) a motorcycle is 1/15 of a tractor.
B) a motorcycle is 15 tractors.
C) a motorcycle is 1/30 of a tractor.
D) a tractor is 20 motorcycles.
The bottom fifth of families in the income distribution receive most of their income
from ________ income.
A) labor
B) property
C) transfer
D) gambling
If a subsidy is granted to perfectly competitive firms that provide external benefits to
society, the firm’s marginal cost curve will shift ________ and the industry supply
curve will shift to the ________.
A) down; left
B) down; right
C) up; right
D) up; left
An increase in demand for laptop computers would likely be caused by
A) an increase in the price of a substitute good.
B) an increase in the price of laptop computers.
C) an increase in the price of a complementary good.
D) a decrease in the price of laptop computers.
Figure 3.8
Refer to Figure 3.8. Assume there are only two people in the market for baseball caps:
Alex and Ryan. Along the market demand curve for baseball caps, at a price of
________, quantity demanded would be ________.
A) $10; 6
B) $10; 12
C) $8; 14
D) $8; 25
Relating to the Economics in Practice on page 332: By not factoring in the external
costs on society resulting from an environmental disaster caused by a specific firm, the
firm will most likely ________ its product, and at equilibrium, the marginal social costs
of production will be ________ the price.
A) overproduce; less than
B) overproduce; greater than
C) underproduce; less than
D) underproduce; greater than
How is the average product of labor calculated?
Colin spends his income of $100 per week on two goods: pizzas (which cost $8 each)
and milk (which costs $1 per gallon). At his current level of consumption, the marginal
utility from the last pizza consumed is 32 and the marginal utility from the last gallon of
milk is 4. Is Colin maximizing his utility? Why or why not? If not, what should Colin
do to achieve a higher level of utility?
What is the midpoint formula for calculating a percentage change?
What problems are implicit in the concept of utility?
You attend a rock concert and notice that there are hundreds of empty seats. What
might you conclude about the market price of the concert ticket?
What is the most important dimension of capital and how does that relate to its value?
How are the rich able to shield large amounts of their income from sales tax while the
poor typically cannot?
Assume that two countries are considering trading with each other for the first time.
Also assume that one of the countries has an absolute disadvantage in producing
everything compared to the other country. How would it still be possible for these two
nations to benefit from trade with each other?
What is behavioral economics?
What arguments suggest that an unequal wealth distribution is not a problem? What
arguments suggest that an unequal wealth distribution is a problem?
Observe the difference in vending machines between canned soda and newspapers.
Typically, if you insert coins into a newspaper vending machine and open it you will see
available all of the copies of the newspaper within one’s reach. However, soda machines
are very different. They work such that only one can is dispensed at a time. The rest of
the canned soda is well out of reach. Explain in terms of marginal utility why the
newspaper distributor is relatively unconcerned about the rest of the newspapers being
taken without payment while the soda distributor uses a machine that goes to great
lengths to insure that only one can of soda is dispensed at a time.
The online encyclopedia known as Wikipedia is an example of a public good that
provides information. Explain why this good did not need to be provided by the
government.
Why do poor countries often have lower rates of economic growth than richer
countries?
What happens to a country’s production possibility frontier if it experiences a natural
disaster such as a hurricane or an earthquake? Explain.
Explain what is meant by excess demand or s shortage.
The table below represents five points on the production possibility frontier for the
small country of Bistro, which produces only crackers (measured in thousands of
boxes) and cheese (measured in thousands of pounds):
Does the production possibility frontier demonstrate the law of increasing opportunity
cost? How can you tell?
Show with the use of a graph what a labor supply curve would look like if it had a
positive wage elasticity over most of the supply curve but a negative wage elasticity at
higher wages. Explain why this might be true.
What are the two basic types of economic systems?
What is the basis of the “Cheap Foreign Labor” argument and what are its weaknesses?