Suppose a person rolls a typical six-sided die. What is the probability that the die will
come up with a 1 two times in a row?
A) 1 in 6
B) 1 in 3
C) 1 in 36
D) 1 in 12
Raclette is a popular wintertime dish in Switzerland. It is essentially melted Raclette
cheese over boiled new potatoes. If the price of Raclette cheese decreased, we would
expect to see:
A) an increase in demand for Raclette cheese.
B) an increase in demand for new potatoes.
C) no effect on the demand for either of the Raclette ingredients, since this is a
traditional dish and its consumption does not depend on the prices of the ingredients.
D) an increase in demand for Raclette cheese and for new potatoes.
Scenario: Private and External Benefits
A small community finds that tidy lawns and neighborhoods provide both private and
external benefits. They determine that the marginal private benefit (MPB) of lawns can
be represented by the equation MPB = 50 ” 0.5Q, where Q is the number of hours spent
on keeping lawns tidy. The marginal private cost (MPC) of such lawn upkeep is
represented by the equation MPC = 0.5Q, where Q is again the number of hours
engaged in lawn upkeep.
(Scenario: Private and External Benefits) Look at the scenario Private and External
Benefits. How many hours of lawn upkeep will occur in this community, and what will
be the marginal private benefit of such upkeep?
A) 50 hours; $50
B) 45 hours; $20
C) 50 hours; $25
D) 100 hours; $50
Figure: Revenues, Costs, and Profits for Tomato Producers III
(Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure
Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is
perfectly competitive. The farm’s short-run supply curve is the _____ cost curve above
a price of _____.
A) average total; $14
B) average variable; $10
C) marginal; $10
D) marginal; $14
Tax incidence analysis seeks to determine:
A) who sends the tax payment to the government.
B) who actually pays the tax.
C) who ultimately gets the tax revenue.
D) whether a tax is in the benefits-received category or the ability-to-pay category.
McDonald’s and other fast-food chains rely mainly on franchisees to operate the
restaurants to avoid the problem of:
A) adverse selection.
B) moral hazard.
C) insurance.
D) deductibles.
To maximize total profit from a particular activity, consumers and firms evaluate each
activity at the:
A) average.
B) top.
C) margin.
D) end.
When a person makes a choice that is close to but not exactly the one that leads to the
best possible economic outcome, he or she is:
A) making an irrational decision.
B) usually ignoring opportunity costs.
C) being overconfident.
D) operating with bounded rationality.
A newspaper story recently reported that the price of new cars, a normal good, has
decreased and the quantity of new cars sold has dropped. The new price and quantity
could have been caused by:
A) a decrease in buyers’ incomes.
B) an increase in buyers’ incomes.
C) an increase in production costs.
D) a decrease in production costs.
Figure: Oreos and Apples
(Figure: Oreos and Apples) Look at the figure Oreos and Apples, which provides an
indifference curve map for Diego. Diego prefers:
A) E to F.
B) F to E.
C) A to E.
D) D to C.
Figure: Shifts in Demand and Supply
(Figure: Shifts in Demand and Supply) Look at the figure Shifts in Demand and Supply.
The figure shows how supply and demand might shift in response to specific events.
Suppose a fall frost destroys one-third of the nation’s orange crop. Which panel BEST
describes how this will affect the market for vitamin C tablets, which are a substitute in
consumption for oranges?
A) panel A
B) panel B
C) panel C
D) panel D
In the United States and other wealthy countries, a large part of the welfare state is
devoted to payments for:
A) health care.
B) unemployment insurance.
C) food stamps.
D) Temporary Aid to Needy Families.
Sunk costs:
A) are not considered in marginal analysis.
B) help to determine the optimal quantity of an activity.
C) can dramatically increase marginal costs.
D) are the same as variable costs.
A monopoly is most likely to be temporary if the monopoly power is derived from:
A) high barriers to entry.
B) a lack of substitutes for the monopolist’s product.
C) economies of scale.
D) technological change.
Scenario: The Market for Good X: The market for good X can be depicted with the
following demand and supply equations: Demand: P = 50 ” 0.5Q Supply: P = 0.33Q
where P is price per unit and Q represents quantity in units. Policy makers plan on
imposing a $1 per unit tax on this good.
(Scenario: The Market for Good X) Look at the scenario The Market for Good X. If a
$1 per unit tax is imposed on this good, the new supply curve will be:
A) P = 0.33Q + 1.
B) P = 50 ” 0.5Q
C) P = 0.33Q ” 1.
D) P = 0.33Q + 1 + 50 ” 0.5Q.
The primary difference between a change in supply and a change in the quantity
supplied is that:
A) a change in quantity supplied is a movement along the supply curve, while a change
in supply is a shift in the supply curve.
B) both a change in quantity supplied and a change in supply are movements along the
supply curve, only in different directions.
C) a change in supply is related to the supply curve, while a change in quantity supplied
is related to shifts in the demand curve that elicit a change in supply.
D) a change in supply is a movement along the supply curve, while a change in quantity
supplied is a shift in the supply curve.
Figure: Short-Run Monopoly
(Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly. The
profit-maximizing quantity of output is quantity:
A) Q.
B) R.
C) S.
D) T.
A grocery store benefits when a new furniture factory moves to town and hires workers
because:
A) the new jobs at the factory will increase local incomes, some of which will be spent
at the grocery store.
B) the new factory will eliminate scarcity in the area.
C) the presence of a new factory will guarantee that resources are used efficiently.
D) the local circular flow will be smaller with a new factory in town.
Cookie Monster always consumes cookies and milk in fixed proportions: 4 cookies to 8
ounces of milk. This implies that for Cookie Monster the marginal rate of substitution
of cookies for milk is:
A) 0.5.
B) 2.
C) diminishing but between 8 and 4.
D) undefined.
Which of the following statements is FALSE?
A) A Giffen good must be an inferior good.
B) A Giffen good must be such that the income effect and the substitution effect move
in opposite directions, and the income effect outweighs the substitution effect.
C) A Giffen good must be such that the substitution effect outweighs the income effect
for an inferior good.
D) A Giffen good must have an upward-sloping demand curve.
Figure: Consumer and Capital Goods
(Figure: Consumer and Capital Goods)
Look at the figure Consumer and Capital Goods. Technological improvements will
likely:
A) shift the production possibility frontier inward to curve 1.
B) shift the production possibility frontier outward to curve 2.
C) lead to increased unemployment.
D) leave the production possibility frontier unchanged.
Figure: Long-Run and Short-Run Average Cost Curves
(Figure: Long-Run and Short-Run Average Cost Curves) Look at the figure Long-Run
and Short-Run Average Cost Curves. If a firm faced the long-run average total cost
curve shown in the figure and it expected to produce 100,000 units of the good in the
long run, the firm should build the plant associated with:
A) ATC1.
B) ATC2.
C) ATC3.
D) ATC1 or ATC2.
If a product’s usefulness increases with the number of users, it:
A) has network externalities.
B) is a monopoly.
C) is a conglomerate.
D) has an exclusive franchise.
Figure: Supply Curves
(Figure: Supply
Curves) Look at the figure Supply Curves. Which graph shows a perfectly elastic
supply curve?
A) A
B) B
C) C
D) D
If a monopolistically competitive firm is producing the profit-maximizing level of
output and is earning an economic profit in the short run:
A) price is less than average total costs.
B) price is less than marginal cost.
C) marginal revenue is less than marginal cost.
D) marginal revenue equals marginal cost.
For a good to be efficiently provided by the private market, it must be:
A) rival in consumption.
B) excludable.
C) a common resource.
D) rival in consumption and excludable.
In general, we predict demand for Gala apples to be:
A) price-elastic.
B) price-inelastic.
C) perfectly price-elastic.
D) perfectly price-inelastic.
In practice, insurance companies faced with adverse selection use _____ to deal with it.
A) moral hazard
B) deductibles
C) signals
D) co-pays
A firm that is able to use its inputs more efficiently as it increases production in the long
run best demonstrates:
A) economies of scale.
B) diseconomies of scale.
C) labor-intensive production.
D) capital-intensive production.