In the prisoners’ dilemma the prisoners are allowed to communicate.
A change in the price of a product will change the supply of that product.
Governments occasionally get involved in creating a market equilibrium by setting a
maximum price that is less than the equilibrium price, resulting in a permanent excess
demand for the products.
Congestion taxes tend to cause an increase in traffic volume during rush hours.
In the last few decades there has been little progress in lowering the barriers to
international trade.
A supply curve reflects buyers’ willingness to pay.
A patent is a government granted exclusive right to sell a product for a period of time.
In the years since welfare reform took place, the number of people receiving aid has
gone down.
Most of the people living in poverty in the U.S. are elderly.
The duopoly price provides a greater incentive to maintain cartel pricing than does the
grim trigger strategy.
if a product is an inferior product, it is not worthwhile to pay for an advertisement
because the repeat customers will be fewer.
A voluntary export restraint occurs when one country prevents a specific product from
being imported from another country.
A maximum price below the market equilibrium price will lower the total surplus of the
market.
Consumers can reduce their information disadvantage by investigating consumer
satisfaction surveys.
If supply of a product increases and demand for the product decreases, equilibrium
quantity will definitely change.
Since there are diminishing returns in the long run, the market demand curve is
negatively sloped.
Under a traditional pollution regulation, the government tells each firm how much
pollution to abate and what abatement techniques to implement.
The ability of marketable pollution permits to efficiently lower the level of pollution is
dependent on the initial allocation of the permits.
Diminishing marginal returns imply that marginal cost is rising.
The Clayton Act extends antitrust policy to proprietorships and partnerships.
An oligopolistic industry has barriers to entry.
In the United States, the annual cost of property damage, injuries, and deaths from
traffic collisions is about $300 billion.
All else equal, the more elastic the demand for a good, the larger the burden of a tax
borne by consumers.
When price is sufficient to cover average variable cost, firms suffering short-run losses
should shut down.
The dopamine learning system generates gut feelings which are based on experiences
that go back hours, or even years.
Implicit cost is the opportunity cost of the inputs that do not require monetary payment.
The input-substitution effect associated with an increase in the wage implies that as the
wage increases, a firm will substitute other inputs for the relatively expensive labor.
If the price elasticity of demand is exactly 1, then a decrease in the price will result in
an increase in total revenue.
If two firms expect to be in the market together for a long time, the benefit of
underpricing will be large relative to the cost.
Economists assume that individuals make informed decisions and act in their own
self-interest.
Ceteris paribus means “Let the buyer beware.”
If Jaime is willing to pay $8 for a movie ticket and the theater charges her only $4 for 2
movie tickets, her consumer surplus for each movie ticket is equal to $4.
An import quota is the same as an import ban.
Increased international trade results in less imports to the U.S.
Rent control reduces market efficiency if the maximum rents allowable are below the
market equilibrium price.
If few people have the skill required for a job, it will pay less.
Recall the application about the median voter in the NBA. who was benefited from the
1997 agreement that use salary caps and other provisions?
A) the players who had salaries higher than the median players’ salary
B) the players who had salaries below and closest the median players’ salary
C) the voters who were part of the board and were playing the high salaries to all the
players
D) None was benefited from the agreement.
Goods for which the price elasticity of demand is relatively inelastic:
A) have many substitutes.
B) are purchased by low-income households.
C) tend to be luxury items.
D) have few substitutes.
Tradeoff is:
A) allowing the government and other organizations to choose for us.
B) sacrificing one thing for another.
C) deciding who consumes the products produced in an economy.
D) holding other variables fixed.
Figure 10.2 shows a monopolist’s demand curve. The marginal revenue from selling the
third unit is:
A) $6.
B) $8.
C) $10.
D) $44.
Refer to Table 8.5. If Sherry produces zero earrings, her total fixed costs are:
Table 8.5
A) $0.
B) $50.
C) $100.
D) indeterminate from this information.
Figure 14.4 represents the market for used 12 megapixel digital cameras. Suppose
buyers are willing to pay $400 for a plum (high-quality) used digital camera and $200
for a lemon (low-quality) used digital camera. Initially buyers believe that 50% of used
digital cameras in the market are lemons (low quality). Compared to the outcome with
neutral expectations, how many fewer digital cameras are sold in equilibrium?
A) 90
B) 110
C) 140
D) The number of cameras sold in equilibrium is the same as the outcome with neutral
expectations.
Table 2.4
What can be observed about the given resources?
A) Land is variable but fertilizer is fixed.
B) Land and fertilizer are both fixed.
C) Land and fertilizer are both variable.
D) Land is fixed but fertilizer is variable.
Additional Application
Late in the day on August 7, 2006 numerous U.S. airlines cut their fares on leisure
travelers. These included American Airlines, Delta, Continental, and Southwest. This
fare cut, which was approximately 4 to 8 percent, occurred during a period of rising fuel
costs and a record number of seats being filled. If costs are up and demand is strong,
why did these airlines reduce their prices on this class of passengers? The explanation is
that they were following the lead of United. United Airlines is the implicit price leader
in this industry and many other carriers watch closely what the leader does and base
their decisions on the leader’s actions. Such behavior is not uncommon in an industry
dominated by a few large firms.
“United Airlines sparks fare war,” August 9, 2006, retrieved November 3, 2006 from
http://money.cnn.com/2006/08/09/news/companies/airfares/index.htm.
In the U.S., price leadership, as in the article above, is ________.
A) illegal
B) unprofitable
C) seldom used
D) legal
In Table 14.2, Market 3 would be in equilibrium if buyers believed plums account for:
Table 14.2
A) 30% of the market.
B) 40% of the market.
C) 50% of the market.
D) 60% of the market.
Recall the Application. Suppose a low demander is willing to pay $8 for a movie, while
a high demander is willing to pay $12 for a movie and popcorn. If the theater charged
$7 for admission and $4 for popcorn, the low demander would receive a consumer
surplus of ________, and the high demander would receive a consumer surplus of
________.
A) $1; $1
B) $5; $6
C) $3; $9
D) $15; $21
Figure 14.1 represents the market for used bikes. Suppose buyers are willing to pay
$200 for a plum (high-quality) used bike and $50 for a lemon (low-quality) used bike.
If buyers believe that 50% of used bikes are lemons (low quality), how many plums
(high quality) will be supplied by sellers?
A) 8
B) 12
C) 16
D) 22
When the price of hamburger went from $3 to $4 a pound, the quantity demanded of
buns changed from 30 to 25 packages a day. The cross-price elasticity of demand for
buns (using the initial value formula) is:
A) 1.4.
B) 0.5.
C) -0.5.
D) -1.4.
A straight line graph shows:
A) one variable.
B) the constant relationship between two variable.
C) the relationships among any number of variables.
D) none of the above.
Figure 18.2
Refer to Figure 18.2. The opportunity cost of producing cheese in Pizzaland is:
A) 0.4 tomato.
B) 0.6 tomatoes.
C) 1.67 tomatoes.
D) 2.5 tomatoes.
Assume that production costs rise and demand remains constant. The equilibrium price
will ________ and the producer surplus will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Recall Application 1, “Law of Demand and Cigarettes,” to answer the following
questions:
In the application, what was the reason why the government decreased the tax rates of
cigarettes?
A) to discourage smuggling of cigarettes from the United States
B) to encourage smoking
C) to discourage smoking
D) to give in to consumer demands of lower taxes in the country.
What is the highest price that a firm would be willing to pay for one marketable
pollution permit?
A) an amount equal to the purchasing firm’s marginal abatement cost
B) an amount equal to the social benefit of pollution reduction
C) an amount determined by supply and demand in the market
D) an amount equal to the selling firm’s marginal abatement cost
Suppose that the supply of gasoline increases. Price will ________ and consumer
surplus will ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
You are the owner and only employee of a company that repairs computers. Last year,
you earned total revenues of $75,000. Your costs for equipment, rent, and supplies were
$10,000. To start this business you quit a job at another computer software firm that
paid $40,000 a year. Last year, your economic profits were:
A) $100,000.
B) $75,000.
C) $50,000.
D) $25,000.
You borrow money to buy a house in 2009 at a fixed interest rate of 5.5 percent. By
2012, the inflation rate has steadily fallen to 1.5 percent from the recent high of 3.0
percent in 2009. Considering only your mortgage, is inflation good news or bad news
for you?
A) bad news, because inflation hurts everyone
B) bad news, because it makes the real value of your mortgage payments increase
C) good news, because it makes the real value of your mortgage payments decrease
D) bad news, because it makes the nominal value of your mortgage payments increase
Suppose Japan produces only two goods, rice and electronics. If Japan has a
comparative advantage in electronics, a move toward free trade will:
A) harm electronics workers, benefit rice workers, but benefit the nation as a whole.
B) benefit electronics workers, harm rice workers, but benefit the nation as a whole.
C) harm electronics workers, harm rice workers, but benefit the nation as a whole.
D) benefit electronics workers, harm rice workers, but harm the nation as a whole.
The poverty rate in the United States is lowest for:
A) whites.
B) blacks.
C) Hispanics.
D) Asians.
Table 16.4 shows the production cost for two utilities at different levels of sulfur
dioxide emissions. Assume that the government issued 8 marketable pollution permits
to each firm. If Firm A contemplates selling one permit to Firm B, what is Firm A’s
willingness to accept?
Table 16.4
A) $2,000
B) $3,000
C) $4,000
D) $5,000
A firm suffering economic losses decides whether or not to produce in the short run on
the basis of:
A) whether revenues cover variable costs.
B) whether future profits will allow it to recover fixed costs.
C) whether revenues from operating are sufficient to cover fixed costs.
D) whether revenues from operating are sufficient to cover fixed plus variable costs.
In Figure 6.7 at equilibrium consumer surplus is area:
A) A.
B) A + B + C.
C) E + F + G.
D) G.
If the price of labor falls:
A) we can conclude that the demand for capital will always decrease because only the
input-substitution effect is relevant.
B) we can conclude that the demand for capital will always increase because only the
output effect is relevant.
C) the change in the demand for capital cannot be predicted because the
input-substitution effect and output effect work in opposite directions.
D) the demand for capital will be unaffected, because only a change in the price of
capital would change the demand for capital.
The greater the conjectured satisfaction a person experiences when buying a product,
the:
A) greater the flow of dopamine to the receptors in the brain.
B) greater the number of choices available to the person.
C) greater the activity in the insula.
D) the lower the glucose level in the brain.
Refer to Table 9.1. If the market price is $90, then for this firm to maximize profits it
should produce ________ units of output.
A) four
B) five
C) six
D) three
Asymmetric information exists in the market for used cars because:
A) sellers have better information concerning the quality of used cars than buyers.
B) buyers have better information concerning the quality of used cars than sellers.
C) buyers and sellers have equal information concerning the quality of used cars.
D) it is impossible for buyers or sellers to determine the quality of used cars.
Daily Output of Scotland and Poland
Table 18.1
Refer to Table 18.1. The nation with a comparative advantage in accordions is:
A) both Scotland and Poland.
B) neither Scotland nor Poland.
C) Poland.
D) Scotland.
The key feature of ________ is that firms act strategically.
A) perfectly competition
B) an oligopoly
C) a monopoly
D) a natural monopoly
Figure 2.1
The production possibilities curve in Figure 2.1 illustrates the notion of:
A) increased factory goods production.
B) increased farm produce production.
C) diminishing resources.
D) opportunity cost.
A change in the quantity demanded of a product cannot be the result of a change in:
A) the buyer’s preference.
B) the price of related goods.
C) consumer income.
D) All of the above are correct.
Consider a firm that is trying to determine how many hours to remain open in a day.
How would the firm make this decision?
Put the following products in order from lowest to highest based on their cross-price
elasticity of demand with peanut butter: bread, bologna, floppy disks. Justify your
answer.
Explain why contracts are beneficial to markets.
Name at least three variables that can affect the demand for a product and the market
equilibrium.
What is asymmetric information?
People are interested in how much their money can buy. This is called the ________.
Suppose that the price of apples decreases and the quantity of apples in the market
decreases. Suggest two reasons why this might have happened.
What are the four types of market structure?
Joe and Steve are duopolists who each can follow two strategies: cooperate and jointly
act like a monopolist, or don’t cooperate (cheat) and act like duopolists. Their profits are
as follows:
If both cooperate: both receive $1 million
If one cooperates: cooperator receives $200,000, cheater receives $1.2 million
If both cheat: both receive $500,000
What will they do?
Explain why, for all firms, profits are maximized where marginal revenue equals
marginal cost.
Suppose you earn $50,000 per year in 2009. If your income increases by 8 percent
while inflation increases by 10% in 2010, then calculate how much your real income
has increased between 2009 and 2010.
When a consumer’s income increases, that consumer tends to buy more ________.
Producing more output in an existing production facility by increasing the number of
workers sharing the facility will bring into effect the principle of ________.
The Whatsa Widget Company produces widgets in a perfectly competitive market. The
price of a widget is $9. Whatsa is currently producing at a rate where the marginal cost
of production is $15. Is this company maximizing profit at its current level of output?
Explain.
Explain the relationship between average fixed cost and marginal cost.