(Scenario: Linear Production Possibility Frontier) Look at the scenario Linear
Production Possibility Frontier. Largetown CANNOT produce _____ shirts and _____
pairs of socks.
A) 20; 0
B) 40; 40
C) 0; 40
D) 10; 20
The United States must give up the production of 500 bicycles to produce 20 additional
tractors. The opportunity cost of producing 100 bicycles is _____ tractor(s).
A) 1
B) 4
C) 25
D) 100
If personal income up to and including $25,000 is not taxed, income of $25,001 to
$50,000 is taxed at 10%, and income over $50,000 is taxed at 25%, a family earning
$60,000 of income will pay _____ in personal taxes.
A) $5,000
B) $8,000
C) $11,250
D) $16,000
Suppose that some firms in a perfectly competitive industry are earning positive
economic profits. In the long run, the:
A) industry is in equilibrium.
B) industry supply curve will shift to the left.
C) number of firms in the industry will not change.
D) number of firms in the industry will increase.
Figure: The Market for Spanish Textbooks
(Figure: The Market for Spanish Textbooks) Look at the figure The Market for Spanish
Textbooks. Suppose the government believes the producers of Spanish textbooks are
not profitable and it wants to make sure textbook producers are profitable. It could
impose a control called a _____, and for it to be binding, one possible price would be
_____.
A) price floor; $90
B) price floor; $40
C) price ceiling; $40
D) price ceiling; $90
An effective price floor would result in:
A) a surplus of the good.
B) a shortage of the good.
C) a quantity control.
D) an equilibrium price.
To determine the quantity of any activity that will maximize total profit, economists
employ the:
A) average decision rule.
B) total decision rule.
C) principle of marginal analysis.
D) principle of average analysis.
Suppose economic profits exist in perfect competition in the short run. Firms will enter
in the long run because of easy entry, the short-run market _____ curve will shift to the
right, and _____ will _____.
A) supply; output; increase
B) demand; supply; fall
C) supply; demand; also shift to the right
D) demand; price; increase
Market failure refers to a situation in which:
A) markets fail to reach a fair outcome.
B) markets establish a high price for necessities.
C) market-determined wages are not high enough to raise all workers above the poverty
line.
D) markets fail to reach an efficient outcome.
Which of the following is a “how much” decision?
A) Mary is trying to decide whether to go to work or go to college after she graduates
from high school next month.
B) Andrea is trying to decide whether to go to graduate school in economics or go to
law school.
C) Tim is trying to decide the amount of money to save each month to buy a new car
next year.
D) Andy is trying to decide whether to take a prep course for the Law School
Admissions Test.
An extreme case of oligopoly in which firms collude to raise joint profits is known as a:
A) duopoly.
B) cartel.
C) dominant producer.
D) price war.
The best example of a good whose consumption is NOT excludable is:
A) a yard.
B) a house.
C) a bicycle.
D) national defense.
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for
Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each
firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these
two producers have formed a cartel, agreed to split production of output evenly, and are
maximizing total industry profits. If Margaret decides to cheat on the agreement and
sell 100 more gadgets, Margaret’s profit will be _____, and Ray’s profit will be _____.
A) $1500; $1,000
B) $900; $600
C) $1,400; $1,000
D) $1,000; $1,400
In 2012 _____ of the U.S. population was living in poverty.
A) approximately 15%
B) 20% to 24%
C) 25% to 29%
D) more than 30%
Benny spends all of his money buying wine and cheese. Diminishing marginal utility
applies to both goods. The marginal utility of the last bottle of wine he bought is 60,
and the marginal utility of the last block of cheese he bought is 30. The price of wine is
$3, and the price of cheese is $2. Benny:
A) is buying wine and cheese in the utility-maximizing amounts.
B) should buy more wine and less cheese.
C) should buy more cheese and less wine.
D) is spending too much money on wine and cheese.
In perfect competition, the assumption of easy entry and exit implies that in the _____
run all firms in the industry will earn _____ economic profits.
A) long; zero
B) short; positive
C) short; zero
D) long; positive
Figure: The Demand for Bricklayers
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
If the equilibrium market wage for bricklayers is $80 per day, then this masonry firm
will hire _____ bricklayers.
A) four
B) six
C) five
D) eight
One of the controversies surrounding the United States’ energy markets is the trade-off
between energy production and clean air. Assuming clean air has value, the United
States will be on its production possibility frontier if and only if:
A) resources used to produce clean air and energy are not being fully used.
B) pollution is eliminated.
C) the price of energy is relatively low.
D) resources used to produce clean air and energy are being fully used.
(Table: The Production Possibilities for Tractors and Crude Oil) Look at the table The
Production Possibilities for Tractors and Crude Oil. The opportunity cost of _____ is
_____ in the United States as (than) in Mexico.
A) tractors; higher
B) tractors; the same
C) tractors; lower
D) crude oil; lower
For a monopolist with a downward-sloping demand curve, the quantity effect dominates
the price effect at:
A) low levels of production.
B) all levels of production.
C) high levels of production.
D) levels at which elasticity is unit-elastic.
(Table: Workers and Output) Look at the table Workers and Output. After graduation
you achieve your dream of opening an art shop that specializes in selling mud statues.
You pay $10 per day on a loan from your uncle, and regardless of how much you
produce, you pay $10 per day to each of the workers who make the mud statues. The
total cost of producing 48 statues is:
A) $240.
B) $60.
C) $50.
D) $10.
U.S. federal taxes are generally _____, while state and local taxes are generally _____.
A) progressive; progressive
B) progressive; regressive
C) regressive; progressive
D) regressive; regressive
If the marginal cost of producing the seventh sports jersey is $21, then the total cost of
seven sports jerseys is:
A) $21.
B) $60.
C) $147.
D) The answer cannot be determined from the information provided.
Figure: Change in the Total Product
(Figure: Change in the Total Product) Look at the figure Change in the Total Product.
Which of the following choices is a likely cause of the shift in production function from
TP1 to TP2?
A) Workers in the firm are less productive on average.
B) The firm employed more of a variable input in the short run.
C) Available technology has decreased.
D) The firm employed more of a fixed input in the long run.
Consider the market for iPods. What happens if a fantastic new alternative MP3 player
is developed and at the same time a boat carrying a large shipment of iPods is attacked
by pirates and sunk?
A) Price decreases and quantity increases.
B) Price increases and quantity increases.
C) The change in price is indeterminate and quantity decreases.
D) Price increases and the change in quantity is indeterminate.
If an industry initially has an HHI of 1,250, a merger between two of the largest (in
terms of market share) firms in the industry:
A) would be allowed to occur, since it would increase the competitive nature of the
industry.
B) would not likely be allowed, since it most likely would reduce the competitive
nature of the industry.
C) would be allowed, since this HHI represents a strongly competitive industry.
D) is likely to be allowed, since it moves the industry toward a socially optimal level of
output.
Monopolistic competition in an industry will result in _____ because firms produce
_____.
A) overutilization of plants; the minimum-cost output
B) less advertising than in perfect competition; the minimum-cost output
C) lower prices than in perfect competition; more than the minimum-cost output
D) chronic excess capacity; less than the minimum-cost output
Suppose Poland is producing on its production possibilities frontier, and it decides to
increase the production of steel and decrease the production of vodka. The bowed-out
production possibility frontier suggests that there will be a(n) _____ opportunity cost of
producing more steel.
A) increasing
B) decreasing
C) nonexistent
D) unchanged
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $60,
what is Alexa’s profit per unit at the optimal output?
A) $60
B) $42
C) $35
D) $18
A _____ tax takes a fixed percentage of income, regardless of the level of income.
A) proportional
B) benefits
C) progressive
D) regressive
Network externalities exist when a good’s value to the consumer rises as:
A) the number of people who use the good increases.
B) the number of people who use the good decreases.
C) the number of people who use the good remains constant.
D) technology improves.
If the state government gave you the exclusive right to sell cement to municipalities,
your monopoly would result from:
A) sunk costs.
B) government restrictions to entry.
C) economies of scale.
D) location.