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In 2009, the lowest incidence of poverty was for
A) women living in households with no husband present.
B) individuals over 65.
C) white (non-Hispanic) people.
D) children under 18.
As output decreases, average fixed costs
A) decrease.
B) initially decrease and then increase.
C) remain constant.
D) increase.
Suppose a policy change generates $90,000 of benefits for low-income families and
$150,000 of costs for high-income families. We can best describe the change as
A) Pareto efficient.
B) inefficient.
C) potentially efficient.
D) equitable.
Related to the Economics in Practice on page 72: One explanation for the increase in
the price of the Baltimore newspaper is the increase in the cost of newsprint. This
would cause the ________ of Baltimore newspapers to ________.
A) supply; increase
B) quantity supplied; increase
C) supply; decrease
D) quantity supplied; decrease
Which agency lends money to countries to promote their economic development?
A) the International Monetary Fund
B) the Federal Reserve
C) the World Bank
D) the League of Nations
If there are external costs of production and firms do not have to account for these
costs, then the firms will ________ and ________ compared with the efficient values.
A) underproduce; underprice
B) underproduce; overprice
C) overproduce; underprice
D) overproduce; overprice
Vaccinations are a ________ good that create a ________ externality.
A) public; positive
B) private; positive
C) public; negative
D) private; negative
Absent market imperfections, when firms ________ profits and households ________
utility, Pareto optimality has been obtained.
A) maximize; maximize
B) maximize; minimize
C) minimize; maximize
D) minimize; minimize
Figure 7.9
Refer to Figure 7.9. The slope of isocost CD is
A) greater than the slope of isocost AB.
B) less than the slope of isocost AB.
C) equal to the slope of isocost AB.
D) indeterminate from this information, as the prices of capital and labor are not given.
Which agency lends money to countries to help them stabilize their exchange rates?
A) the International Monetary Fund
B) the World Bank
C) the Federal Reserve
D) the Bureau de Change
Table 9.1
Refer to Table 9.1. If the market price is $20, then this firm will maximize profits by
producing ________ unit(s) of output.
A) zero
B) one
C) two
D) three
If the product derived from the last dollar spent on labor is less than the product derived
from the last dollar spent on capital, then the firm should ________ costs.
A) make no changes since it is minimizing
B) use more labor and less capital to minimize
C) use less labor and more capital to minimize
D) increase the price paid to labor and decrease the price paid to capital to minimize
Nutritionists claim that drinking 2 glasses of red wine every day will help prolong life.
This leads to a shift in preferences away from white wine and toward red wine. As we
move from one equilibrium to another, we can predict that
A) all related input markets are affected.
B) all related input markets but land are affected because they both use land.
C) labor markets are not affected because both the red wine industry and the white wine
industry use laborers to pick grapes.
D) even if they use different technologies, no input markets are affected because they
use the same inputs.
Figure 8.5
Refer to Figure 8.5. If three ovens are produced, average variable costs are
A) $166.67.
B) $83.33.
C) $500.
D) $1,500.
Figure 2.5
Refer to Figure 2.5. For this economy to move from Point C to Point B, ________ LCD
TVs could be produced when the production of plasma TVs is reduced by 20.
A) exactly 30
B) fewer than 30
C) more than 30
D) exactly 60
Figure 13.7
Refer to Figure 13.7. The ________ for the Memory Company's high school yearbook
is $16.
A) average total cost
B) marginal cost
C) profit-maximizing price
D) marginal revenue
Assume leisure is a normal good. The substitution effect of a wage increase implies a
________ demand for leisure and a ________ labor supply.
A) lower; higher
B) higher; lower
C) higher; higher
D) lower; lower
Table 6.1
Refer to Table 6.1. The total utility of five beers per day is
A) 70.
B) 128.
C) 184.
D) indeterminate from this information.
The Lawn Ranger, a landscaping company, has total costs of $5,000 and total variable
costs of $1,000. The Lawn Ranger's total fixed costs are
A) $0.
B) $4,000.
C) $6,000.
D) indeterminate because the firm's output level is unknown.
Figure 1.5
Refer to Figure 1.5. As firms produce additional units, average costs declines by a
smaller and smaller amount. If output is graphed on the horizontal axis and average
costs are graphed on the vertical axis, the relationship between average costs and output
would be like which of the following panels?
A) A
B) B
C) C
D) D
Dana spends $10,000 on remodeling a storefront that she then opens as a shoe store.
The business has not been very successful, and she needs an additional $3,000 to keep
the shoe store open. Which of the following is true?
A) The $10,000 Dana spent on remodeling represents a part of the total variable cost of
her business.
B) The $3,000 represents her marginal costs of production.
C) The $10,000 Dana spent on remodeling is a fixed cost of her business.
D) The $3,000 Dana needs to keep the deli open represents her total fixed costs.
The demand for ________ is a "derived demand."
A) hot chocolate on a cold day
B) U.S. Treasury bonds
C) a dog groomer by a grooming shop
D) hot dogs on the 4th of July
All of the following statements are true EXCEPT:
A) In the United States, the minimum wage was first nationally adopted in 1932.
B) The first minimum wage law was adopted in New Zealand.
C) The minimum wage is one strategy used to reduce wage inequality.
D) The minimum wage is the lowest wage firms can legally pay their workers.
Which choice below is an argument that more technological change occurs in more
competitive market structures?
A) Most large, oligopolistic firms such as AT&T have done a great deal of research.
B) Oligopolistic firms earn the profits to pay for research; competitive firms do not.
C) Small firms are too "lean and mean" to support any research and development.
D) The "high-tech revolution" grew out of many tiny start-up operations.
If the marginal cost curve is below the average variable cost curve, then
A) average variable costs are increasing.
B) average variable costs are decreasing.
C) marginal cost must be decreasing.
D) average variable costs could either be increasing or decreasing.
Your upstairs neighbor has a noisy dog that she keeps on her balcony. Because you are
very sensitive to loud noises, the barking prevents you from using your own balcony. In
this case, the barking dog is an example of a
A) public good.
B) good that imposes an external cost.
C) good that provides an external benefit.
D) Pareto good.
The vicious-circle-of-poverty hypothesis states that poor countries
A) are unable to save and invest enough to accumulate capital stock that would help
them grow.
B) cannot develop because they lack the ability to educate their workers.
C) cannot develop because their economic policies are ineffective.
D) cannot develop because people don't consume due to lack of goods and services.
Figure 15.4
Refer to Figure 15.4. Assume The Hand Made Shirt Shop has fixed costs of $150 and is
a monopolistically competitive firm. If this firm is producing the profit-maximizing
level of output and selling it at the profit-maximizing price, the firm's profit is
A) -$250.
B) -$150.
C) -$100.
D) -$50.
Demand for the services of Derek Jeter is
A) horizontal.
B) unrelated to his true productivity.
C) an output demand.
D) derived from the demand for Yankees tickets when Jeter plays.
You are the owner and only employee of a company that writes computer software that
is used by gamblers to collect sports data. Last year you earned a total revenue of
$90,000. Your costs for equipment, rent, and supplies were $60,000. To start this
business you invested an amount of your own capital that could pay you a return of
$40,000 a year.
Your economic profit last year was
A) -$40,000.
B) -$10,000.
C) $10,000.
D) $30,000.
Figure 15.4
Refer to Figure 15.4. Assume The Hand Made Shirt Shop has fixed costs of $150 and is
a monopolistically competitive firm. To maximize profits in the short run, this firm
should set a price of
A) $18.
B) $22.
C) $23.
D) $25.
Figure 2.2
Refer to Figure 2.2. You correctly deduce that all resources are fully employed and
there are no production inefficiencies if this economy is currently operating at a point
A) inside the production curve.
B) along the production curve.
C) outside the production curve.
D) either inside or along the production curve.
What does a production possibility frontier represent?
Assume the government is concerned about the high price of Atlantic Red Crab and
announces that it is going to shorten the fishing season to one week. What impact will
this have on the quantity of crab caught and the price of crab? Will this actually result in
greater protection of the Atlantic Red Crab?
Use the graph above to answer the following question. What can we conclude about the
attitude towards risk this individual is portraying given this utility function?
What might the World Bank actually be a less efficient means of financial
intermediatinon than private international banks?
Assume the government was to levy a tax of $100 per person on every individual in the
country. Would this tax be characterized as proportional, progressive or regressive?
Make sure to explain your reasoning.
In the case of unemployment compensation why would the benefits received principle
of taxation not be entirely practical? Explain.
Explain what is meant by allocative efficiency.
What is meant by product differentiation?
In the graph below, which Lorenz curve represents a more equal income distribution?
Explain.
If a dot com start-up company hires a Web designer at a salary of $100,000 per year,
and the company sells no additional Web designs during the year and does not increase
the price it charges for its Web designs, what is the marginal revenue product of this
Web designer? What type of returns to scale does this example illustrate?
Private insurance companies have been out of the flood insurance business for decades.
After their departure the government has gone into the business by granting coverage
with below-market premiums. Why might this be in inefficient outcome? Comment on
the amount of housing that we should expect to see along our nation's coastlines. Also,
discuss the degree of danger that this poses for both property and lives when hurricanes
strike.
Using the diagram below describe the current condition of the market if the price is
currently at $3.00 and what will be necessary for the market to return to equilibrium.
The table above represents five points on the production possibility frontier for the
small country of Baca, which produces only rugs (measured in thousands) and wheat
(measured in thousands of bushels):
Suppose the widget industry is perfectly competitive and faces constant returns to scale.
A monopoly purchases all widget producers in the market. List four ways in which the
market outcome under monopoly will differ from the market outcome under perfect
competition.
Define the term economics.
Why is marginal revenue less than price for a monopolist?
What is meant by constantreturns to scale?
Comment on the following statement: "When a negative externality is present, and a
firm does not factor the additional social cost into its decisions, the firm is likely to
produce a level of output that is lower than the efficient level."
