You notice that when a new yoga class is offered at the student recreation center at a
highly desirable time, some students from the other yoga classes go to the new class
instead. This statement best represents this economic concept:
A) Resources are scarce.
B) The real cost of something is what you must give up to get it.
C) People usually exploit opportunities to make themselves better off.
D) Marginal analysis.
Adie wants to take some online classes this semester. She is willing to pay $1,000 for
the first class, $800 for the second, $700 for the third, and $500 for the fourth. If online
classes cost $750, Adie will take _____ online classes, and her consumer surplus will
equal _____.
A) three; $350
B) four; $600
C) two; $400
D) two; $300
If Coke and Pepsi are perfect substitutes for Lynn, her indifference curves are:
A) right angles.
B) concave from the origin.
C) downward-sloping straight lines.
D) vertical lines.
(Table: Total Cost and Total Individual Benefit) Look at the table Total Cost and Total
Individual Benefit. If an individual resident were to decide about hiring and paying for
animal control officers on his or her own, how many officers would that resident hire?
A) 0
B) 1
C) 3
D) 5
In long-run equilibrium in perfect competition, price is:
A) greater than average total cost.
B) equal to average total cost at an output below the point where average total cost is
minimized.
C) equal to average total cost at its minimum.
D) equal to average total cost at an output above the point where average total cost is
minimized.
Cartels first became illegal in the United States in:
A) 1776.
B) 1890.
C) 1929.
D) 1982.
During the holiday season some people take a second job or work more hours. From
this we know that:
A) the income effect becomes more powerful than the substitution effect during the
holiday season.
B) the substitution effect becomes more powerful than the income effect during the
holiday season.
C) the income and substitution effects cancel each other out during the holiday season.
D) people want to spend more time with their family during the holiday season.
Sam and Bob have the same educational background. Both have been policemen in
Memphis for 10 years. Sam works from 11 P.M. until 7 A.M., and Bob works from 7
A.M. until 3 P.M. Sam’s salary is $800 per month higher than Bob’s salary. This is an
example of a wage disparity due to:
A) efficiency wages.
B) market power.
C) compensating differentials.
D) discrimination.
(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special
birthday cakes. She is trying to decide how many mixers to purchase. Her estimated
fixed and average variable costs if she purchases one, two, or three mixers are shown in
the table. Assume that average variable costs do not vary with the quantity of output. If
Pat purchases two mixers and bakes 200 cakes per day, what is her average fixed cost?
A) $300,000
B) $1,508
C) $187.50
D) $7.50
As part of an antiobesity program, the government levies an excise tax on high-fat
foods. We expect consumers to pay almost all of this tax if demand is _____ and supply
is _____.
A) inelastic; inelastic
B) inelastic; elastic
C) elastic; elastic
D) elastic; inelastic
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. If the price is $8,
total revenue is _____. If the price is $7, total revenue is _____.
A) $24; $16
B) $14; $21
C) $16; $21
D) $10; $10
Figure: The Domestic Supply and Demand for SUVs in the United States
(Figure: The Domestic Supply and Demand for SUVs in the United States) Look at the
figure The Domestic Supply and Demand for SUVs in the United States. Suppose the
world price equals $50,000 and there is free trade. In the United States, consumer
surplus would _____ and producer surplus would _____.
A) increase; decrease
B) increase; increase
C) decrease; decrease
D) decrease; increase
Maria operates a persimmon orchard in southeastern Oklahoma. She pays her workers
$248 per week to pick and process persimmons, and she sells her persimmons for $6
per bushel. If she adds one more worker and that worker can pick and process 44
bushels per week, what will be the profit for Maria from hiring that worker?
A) $0
B) $16
C) $264
D) $544
(Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts.
The marginal cost of the second sweatshirt is:
A) $9.
B) $20.
C) $11.
D) $29.
(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special
birthday cakes. She is trying to decide how many mixers to purchase. Her estimated
fixed and average variable costs if she purchases one, two, or three mixers are shown in
the table. Assume that average variable costs do not vary with the quantity of output. If
Pat purchases two mixers and bakes 200 cakes per day, what is her average total cost?
A) $8
B) $14.50
C) $1,492
D) $1,508
Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys
one-third of the nation’s orange crop, how will that affect total revenue from oranges,
all other things unchanged?
A) Total revenue will rise.
B) Total revenue will fall.
C) Total revenue will remain unchanged.
D) The information is insufficient to answer the question.
Once diminishing returns have set in, as output increases, the total cost curve:
A) gets steeper.
B) gets flatter.
C) becomes horizontal.
D) increases at first, and then decreases.
Suppose the government imposes a $4 per month excise tax on cable TV. If the demand
for cable TV is perfectly inelastic and the supply curve is elastic (but not perfectly
elastic), then the price of cable TV will:
A) increase by more than $4.
B) increase by exactly $4.
C) increase by less than $4.
D) remain constant.
In the United States since World War II, the distribution of income has:
A) become more nearly equal.
B) become more unequal.
C) stayed about the same.
D) changed first toward equality and then, after 1968, toward greater inequality.
Economists believe that looking at the distribution of income by quintiles at one
moment overstates the true inequality of income because:
A) it ignores the effect of taxes.
B) it ignores the effect of transfer payments.
C) families near the bottom of the distribution in any given year may be having an
unusually bad year, while those at the top may be having an unusually good one.
D) families near the bottom of the distribution in any given year are often having an
unusually good year, while those at the top are often having an unusually bad one.
If an activity generates external costs, the decision makers generating the activity will:
A) be faced with its full costs.
B) be faced with no costs.
C) not be faced with its full costs.
D) be faced with excessive costs.
Individuals in a market who must take the market price as given are:
A) quantity minimizers.
B) quantity takers.
C) price takers.
D) price searchers.
Diminishing marginal returns means that:
A) each additional unit of an input will decrease output.
B) each additional unit of an input will increase output, but by smaller and smaller
amounts.
C) each additional unit of an input will increase output by larger and larger amounts.
D) the firm is maximizing profit.
(Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is a monopolist, what is consumer surplus in the long
run?
A) $45
B) $90
C) $180
D) $360
If left to the private market, the amount of police protection provided in a city would be
_____ than it is now, and free riders would pay _____ for police protection.
A) more; more
B) more; nothing
C) less; nothing
D) less; a higher price
Since indifference curves depend on the _____ for individuals, this means that two
consumers with the same income _____.
A) utility function; must consume different amounts of the two goods
B) utility function; may consume different amounts of the two goods
C) optimal utility rule; must consume different amounts of the two goods
D) marginal utility function; have the same marginal utility for two goods
If Marie Marionettes is operating under conditions of diminishing marginal product, the
marginal costs will be:
A) equal to average total cost.
B) decreasing.
C) increasing.
D) constant.
Suppose the United States auctioned off all import quotas, the auctions were perfectly
competitive, and the government received the revenues from the auction. In this case,
the deadweight loss from a quota would be _____ the deadweight loss from an
equivalent tariff.
A) less than
B) greater than
C) equal to
D) in the case of demand being elastic, greater than
Figure: The Market for Tea in Sri Lanka
(Figure: The Market for Tea in Sri Lanka) Look at the figure The Market for Tea in Sri
Lanka. In autarky, the price is P1, consumer surplus equals _____, and producer surplus
equals _____.
A) F + G + H + I; J + K
B) F; G + H + I + J + K
C) F + I; J + K
D) F + G + H; J + K
Figure: The Market for MP3 Players
(Figure: The Market for MP3 Players) Look at the figure The Market for MP3 Players.
Assume that Sd represents the domestic supply curve and Dd represents the domestic
demand curve. If the world price equals $100 and there is free trade, what is the gain in
consumer surplus?
A) $5 million
B) $2.5 million
C) $2.625 million
D) $750,000
Figure: A Market in Equilibrium
(Figure: A Market in Equilibrium) Look at the figure A Market in Equilibrium. At the
equilibrium price, this market’s total producer and consumer surplus equals the area:
A) BCDG.
B) AIF.
C) DIF.
D) ADI.
Marginal cost is the:
A) increase in total cost when one more unit of output is produced.
B) reduction in cost from economies of scale.
C) ratio of average total cost to total cost.
D) increase in output from the addition of one unit of labor.
Firm A and firm B have identical cost curves. Firm A operates in perfect competition
and firm B operates in monopolistic competition. In the long run, firm A will charge
_____ and produce _____ than firm B.
A) less; less
B) more; more
C) more; less
D) less; more