1) A rational decisionmaker takes an action if and only if
a.the marginal benefit of the action exceeds the marginal cost of the action.
b.the marginal cost of the action exceeds the marginal benefit of the action.
c.the marginal cost of the action is zero.
d.the opportunity cost of the action is zero.
2) Figure 7-15
When the price rises from P1 to P2, which area represents the increase in producer
surplus due to new producers entering the market?
a.A
b.B
c.A+B
d.G
3) Just as the theory of the competitive firm provides a more complete understanding of
supply, the theory of consumer choice provides a more complete understanding of
a.demand.
b.profits.
c.production possibility frontiers.
d.wages.
4) Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her
own catering business. She spent $12,000 of her savings, which had been earning 10
percent interest per year, on equipment for her business. She also borrowed $12,000
from her bank at 10 percent interest, which she also spent on equipment. For the past
several months she has spent $1,000 per month on ingredients and other variable costs.
Also for the past several months she has earned $4,500 in monthly revenue. In the short
run, Susan should
a.shut down her business, and in the long run she should exit the industry.
b.continue to operate her business, but in the long run she should exit the industry.
c.continue to operate her business, but in the long run she will probably face
competition from newly entering firms.
d.continue to operate her business, and she is also in long-run equilibrium.
5) Which of the following could be the for a good for which a decrease in price would
decrease revenue?
a.0.8
b.1
c.1.8
d.2.4
6) Both public goods and common resources are
a.rival in consumption.
b.nonrival in consumption.
c.excludable.
d.nonexcludable.
7) Most economists prefer regulation to taxation because regulation corrects market
inefficiencies at a lower cost than taxation does.
a.True
b.False
8) Figure 7-14
If the government imposes a price ceiling of $50 in this market, then the new producer
surplus will be
a. $200.
b. $100.
c. $125.
d. $250.
9) This table describes the police protection demands for three equal sized groups of
people in Safetyville. The second, third, and fourth columns show the number of
person-hours of police protection per day that a group will demand for a given price
(the first column).
If the marginal cost of police protection is constant at $36 per person-hour, what is the
efficient level of police protection to provide?
a.9 units
b.39 units
c.66 units
d.99 units
10) Scenario 18-2
Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific
salmon off the coast of Alaska. As part of her business she hires a captain and several
crew members for each boat. In the market for fresh Pacific salmon, there are thousands
of firms like Gertrude’s. While Gertrude usually catches a significant number of fish
each year, her contribution to the entire harvest of salmon is negligible relative to the
size of the market.
Refer to Scenario 18-2. If Gertrude is a competitor in both the fresh Pacific salmon
market and in the market for crew members, she is called a price
a.taker in the salmon market and a wage setter in the crew market.
b.taker in the crew market and a price setter in the salmon market.
c.taker in both markets.
d.setter in both markets.
11) Economists define capital as the
a.accumulation of goods produced in the past that are being used in the present to
produce new goods and services.
b.goods and services that are most affected by changes in technology.
c.factors of production that can be rented by firms.
d.factors of production that can be purchased by firms.
12) Because the marginal tax rate rises as income rises,
a.higher income families, in general, pay a larger percentage of their income in taxes.
b.lower income families, in general, pay a larger percentage of their income in taxes.
c.a disproportionately large share of the tax burden falls upon the poor.
d.higher income families pay the same percentage of their income in taxes as
lower-income families.
13) Scenario 14-3
Suppose a certain competitive firm is producing Q=500 units of output. The marginal
cost of the 500th unit is $17, and the average total cost of producing 500 units is $12.
The firm sells its output for $20.
At Q=499, the firm‘s total costs equal
a. $5,983.
b. $5,988.
c. $5,995.
d. $5,999.
14) The University of Iowa was voted the #1 “party school” in 2013. The University of
Iowa is located in Iowa City. At the end of August each year, the market demand for
beer in Iowa City
a.decreases.
b.increases.
c.remains constant, but we observe a movement downward and to the right along the
demand curve.
d.remains constant, but we observe a movement upward and to the left along the
demand curve.
15) Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per
unit.
– When the firm produces and sells 150 units of output, its average total cost is $24.50.
– When the firm produces and sells 151 units of output, its average total cost is $24.55.
Suppose the firm is producing 150 units of output and its fixed cost is $975. Then its
average variable cost amounts to
a. $16.40.
b. $17.00.
c. $18.00.
d. $19.60.
16) Valerie prefers A to B and she prefers B to C. If Valerie’s preferences are transitive,
then she prefers A to C.
a.True
b.False
17) Figure 19-3
The manufacturing labor market.
Refer to Figure 19-3. Suppose the manufacturing labor market, which is
non-unionized, is in equilibrium at a wage equal to $20. Suppose now that the
AFL-CIO (a labor organization) organizes the workers in the manufacturing market and
negotiates a wage of $30 per hour. After the workers become unionized, how many
workers do manufacturing firms collectively hire?
a.160 workers
b.200 workers
c.240 workers
d.There is not enough information to determine the number of workers.
18) Figure 15-3
Which of the following statements is correct?
a.Panel C represents the typical demand curve for a perfectly competitive firm, and
Panel B represents the typical demand curve for a monopoly.
b.Panel B represents the typical demand curve for a perfectly competitive firm, and
Panel A represents the typical demand curve for a monopoly.
c.Panel A represents the typical demand curve for a perfectly competitive firm, and
Panel C represents the typical demand curve for a monopoly.
d.Panel C represents the typical demand curve for a perfectly competitive firm, and
Panel D represents the typical demand curve for a monopoly.
19) If two goods are substitutes, their cross-price elasticity will be
a.positive.
b.negative.
c.zero.
d.equal to the difference between the income elasticities of demand for the two goods.
20) A decrease in the price of sugar will shift the supply curve for cookies to the right.
a.True
b.False