In discussing trade, it is ____ that matters rather than ____.
a. absolute advantage: elastic advantage
b. comparative advantage; absolute advantage
c. entire advantage; comparative advantage
d. elastic advantage; entire advantage
e. declarative advantage; absolute advantage
If the production possibilities curve is a straight line,
a. opportunity costs rise as output of either commodity is expanded.
b. resources are not equally productive in the production of both goods.
c. opportunity costs are negative.
d. resources can be moved from the production of one good to production of others with
no loss of productivity.
Figure 10-5
Figure 10-5 shows supply and demand conditions in a perfectly competitive industry
and for a firm in that industry. At point C, the firm would
a. earn zero economic profit.
b. earn negative economic profit.
c. have a zero opportunity cost of capital.
d. have a negative opportunity cost of capital.
If a firm is a natural monopoly, society will benefit if it is broken into several small
companies.
a. True
b. False
Tax loopholes serve to
a. improve the incomes of the poor.
b. erode the progressivity of the income tax.
c. increase the progressivity of the income tax.
d. decrease work incentives for the poor.
Figure 10-2
Figure 10-2 shows demand and short-run cost curves for a perfectly competitive firm.
In the short run, this firm would
a. earn positive economic profits.
b. earn economic losses.
c. go out of business.
d. Cannot be determined with the information given.
The use of chlorofluorocarbons in refrigerators and air conditioners is alleged to cause
the destruction of the ozone layer that surrounds the earth and which protects humans
from ultraviolet radiation. Output of this substance has been restricted by a licensing
system where producers have to bid in the open market for licenses to produce them in
specified quantities. This is an example of dealing with externalities by
a. voluntary compliance.
b. direct controls.
c. taxes.
d. the market mechanism.
All of the following are possible characteristics of oligopoly except
a. free entry into the industry.
b. significant economies of scale.
c. interdependence among sellers.
d. homogeneous product.
Workers earn less than half of the income generated by the production process.
a. True
b. False
Which market is most likely to witness such actions and reactions as frequent
new-product introductions, free samples, and aggressive advertising campaigns?
a. Oligopoly
b. Perfect competition
c. Monopoly
d. Monopolistic competition
Figure 10-4
Figure 10-4 shows the industry’s supply and demand curves in panel (1) and the cost
curves of a firm in the industry in panel (2). At S3, the firm is
a. going to shut down.
b. incurring losses.
c. earning zero economic profits.
d. earning economic profit greater than zero.
“People who make more money should pay higher taxes” is an example of
a. the benefits principle.
b. horizontal equity.
c. vertical efficiency.
d. the ability-to-pay principle.
The law of comparative advantage explains why
a. individuals choose specialized careers.
b. firms specialize in the production of certain goods.
c. nations develop strengths in certain industries.
d. All of the above are correct.
The kinked demand curve is an explanation of sticky prices.
a. True
b. False
Consumer’s surplus
a. is the gap between total willingness to pay and the total market value of a good.
b. guarantees that the market value of a good in money is equal to the total economic
value of the good.
c. is always negative because of diminishing marginal utility.
d. is the total area under a consumer’s demand curve.
In the negative income tax framework, a break-even point of $16,000 and a tax rate of
25 percent imply a guarantee of which of the following figures?
a. $4,000
b. $8,000
c. $12,000
d. $16,000
If England uses one week’s time to produce ten yards of cloth or two barrels of wine
and Portugal uses one week’s time to produce twelve yards of cloth or six barrels of
wine, England has the comparative advantage in both goods.
a. True
b. False
Oligopolists behave independently of each other.
a. True
b. False
Figure 5-5
Figure 5-5 shows a consumer budget line for French fries and hamburgers. The
household allocates a budget for these two goods.. If the price of an order of french
fries is $2, how much income is allocated to fries and burgers combined?
a. $2
b. $4
c. $20
d. $40
Management gets two numbers (price and quantity) from one decision because
a. the marginal utility of goods is fixed.
b. producers use both technical and financial information.
c. the demand curve consists of price and quantity pairs.
d. the average cost curve has only one low point.
A firm’s production process shows constant returns to scale. It can produce 5,000
widgets at a total cost of $2,500 and 10,000 widgets at an average cost of
a. $10,000
b. $5,000
c. $2,000
d. $0.50
The concavity or bowed-out shape of the production possibilities frontier is the result of
a. the law of downward-sloping demand.
b. the law of upward-sloping demand.
c. the principle of increasing cost.
d. complementarity in consumption.
An outward shift in the demand curve for land will
a. make previously zero-rent land profitable.
b. induce people to begin to use land more extensively.
c. force reductions in rents.
d. be accompanied by a shift in the supply of land.
The major objective of the 1986 tax reform was to: (i) enhance efficiency by lowering
marginal tax rates; (ii) enhance equity by closing “loopholes.”
a. i and ii
b. i but not ii
c. ii but not i
d. neither i nor ii
Takeover of one firm by another
a. ties up the nation’s capital wastefully.
b. uses up the economy’s credit supply.
c. reduces the value of the acquired firm.
d. changes ownership of the acquired firm.
The Sandy Deli operates near a college campus. It has been selling 325 sandwiches a
day at $1,75 each and is considering a price cut. It estimates 450 sandwiches would sell
per day at $1,50 each. Calculate the marginal revenue of such a price cut and the
elasticity between the two points.
“The United States has more oil in Alaska than there is oil in Kuwait. Therefore, the
United States should stop importing oil.” Evaluate this statement using economic
analysis.
Explain why government, rather than private firms, is required for efficient mosquito
eradication programs.
Compare and contrast the effects of a quota and a tariff on imports. Be sure to include
both short-run and long-run effects in your answer.
There is concern that CFCs, a chemical by-product of refrigeration, are destroying
Earth’s protective ozone layer, leaving us more vulnerable to cataracts and skin cancer.
Suppose each air conditioner creates 10 pounds of CFCs. The demand and supply of air
conditioners follow:
What will be the free market price and quantity, and what will be the price and quantity
if the government forces suppliers to pay a $100 tax for each air conditioner produced?
Assuming one can derive a correct input-output table, are there still any reasons to
prefer the market to central planning?
Why is plowback the overwhelming favorite among choices of sources of funds for
financing corporate investment?
Discuss the role of trust as a critical piece of any principal-agent situation. In particular,
what role did trust play in the recent stock market scandals?
Explain the following statement: “Good decisions typically require marginal analysis,
which weighs added costs against added benefits.”