A firm that sells a car for $30,000 gets producer surplus of $30,000.
In the short run, nonprice rationing will happen whenever there is excess demand in a
market.
A fair bet is a game whose expected value is positive.
Based on a World Bank study, medical treatment in developing countries has an
elasticity value less than 1.
When a firm imposes an external social cost, the government should impose a tax
exactly equal to the marginal damage cost to ensure that the efficient level of output
will be produced.
In a developing economy, scarcity of capital may have more to do with a lack of
incentive for citizens to save and invest productively than with any absolute scarcity of
income available for capital accumulation.
In the short run, firms can enter an industry but not exit an industry.
Resources are limited in both wealthy and poor societies.
Entrepreneurs are necessary in a market economy, and their profit is earned.
The production decision is a short-run decision.
If a game is a fair bet, then people will be willing to play the game regardless of the
payoffs.
As the variable on the Y-axis rises, the variable on the X-axis rises. The relationship
between x and y is said to be positive.
Developing countries are characterized by high population growth rates.
Public goods cannot be a source of market failure.
Marginal social cost is the difference between the marginal cost and the marginal
damage cost.
An injunction is a court order that forbids the continuation of behavior that leads to
damages.
Monopolistically competitive firms experience “excess capacity” in the short run but
not in the long run.
When two people trade, one must lose for the other to win.
If the expected rate of return on an investment is 10% and the market interest rate is
12%, then the investment will be undertaken.
Demand is more inelastic for an item which represents a relatively large part of a
person’s total budget.
Perfectly elastic demand is represented as a horizontal line.
The U.S. beer industry has an HHI of 3525. If two beer producers propose a merger that
would increase the industry HHI by 75 points, then the merger would be challenged.
Not every good that the government provides is an example of a public good.
A considerable amount of uncertainty is involved in making investment decisions.
The used-car market is an example of a market with imperfect information.
Income decreases cause a decrease in a household’s choice set.
A negative cross-price elasticity between two goods implies that the two goods are
compliments.
An efficient economy is one that produces what the government demands and does so at
the least possible cost.
The stock of knowledge, skills, and talents that people possess is called human capital.
Price decreases cause an increase in a household’s choice set.
Labor is a firm’s only variable input. The firm should hire additional units of labor as
long as the wage is less than or equal to the marginal revenue product of that additional
unit of labor.
Oligopolists compete on quality but not price.
Cartels, tacit collusion, and predatory pricing are all illegal under U.S. antitrust laws.
Unemployment benefits are paid only if a person’s income from all sources and assets is
below a certain level.
Adverse selection is a situation in which asymmetric information results in high-quality
goods or high-quality consumers being squeezed out of transactions because they are
unable to demonstrate their quality.
An externality exists when the cost or benefit resulting from some activity or
transaction is experienced by parties external to the activity or transaction.
If a monopolistically competitive firm is producing an output level where its marginal
cost is equal to its marginal revenue but it still earns a loss, then it should never shut
down in the short run.
If a firm makes an economic profit, it is making at least a normal rate of return.
Households are the consuming units of the economy.
Vertical differentiation makes products better for some consumers and worse for others.
Table 16.1
Refer to Table 16.1. This salt processing firm is perfectly competitive and IS forced to
take damage costs into account. If the market price of the product is $60, the firm will
produce ________ tons of salt.
A) 0
B) 2
C) 3
D) 4
If there is no output for which TR > TC, a monopolist
A) will still earn a positive economic profit.
B) will not earn a positive economic profit.
C) will break even.
D) must shut down.
Critics of minimum wage laws argue that such laws will end up hurting people with
________ skill levels because these laws interfere with the smooth functioning of the
labor market and create ________.
A) higher; a shortage of labor
B) higher; unemployment
C) lower; a shortage of labor
D) lower; unemployment
Figure 8.8
Refer to Figure 8.8. If the market price of soybeans falls to $8, then to maximize profits
this farmer should produce
A) 200 bushels of soybeans.
B) 700 bushels of soybeans.
C) 1,000 bushels of soybeans.
D) a level of output that is indeterminate from this information.
Which of the following is a tax based on the benefits-received principle?
A) A property tax, if the revenue is used to finance public education.
B) A tax on imports that is used to finance job retraining for workers who have lost their
jobs because of the competition from imported products.
C) A progressive income tax that is used to finance national defense.
D) A tax added to the camping fee at national parks that is used to maintain and upgrade
camping facilities at national parks.
Evidence suggests that in the last several decades, technology has played a role in
driving inequality. Thus, ________ may be key to reducing inequality in the future.
A) education
B) savings
C) research and development
D) investment
A change in economic output is potentially efficient if the value of the resulting gains
________ the value of the resulting losses.
A) exceeds
B) is less than
C) is equal to
D) is unrelated to
Assume that the current interest rate is 6%. You invest $10,000 of your own money in a
restaurant that you own and operate. The normal return on this investment is
A) $0, as you used your own money.
B) $600, as that is the interest forgone by not lending the money to someone else at a
6% interest rate.
C) $10,000, as that is the amount invested in the restaurant.
D) $10,600, the amount invested plus the interest charge on the investment.
________ U.S. president(s) who has/have held office since GATT was signed has/have
argued for free-trade policies, yet each one has used his powers to protect various
sectors of the economy.
A) Only one
B) No
C) Every
D) Only 3
The slope of a non-linear curve
A) is always positive.
B) must first increase then decrease.
C) is not constant.
D) is constant.
You borrow $20,000 at an interest rate of 6% to open Candy Dan’s, a gourmet sweet
shop. You will earn an economic profit if the return on your investment is
A) between 0 and 6%.
B) 6%.
C) greater than 6%.
D) 10% or greater.
At a political rally, you stand up to see better. Everyone else stands up, as well. This is
an example of
A) ceteris paribus.
B) the post hoc, ergo propter hoc fallacy.
C) the fallacy of composition.
D) Ockham’s razor.
The demand for ________ is a derived demand.ʺ ʺ
A) ice cream cones on a hot day
B) tax-free municipal bonds
C) a hair stylist by a salon owner
D) a birthday cake for your brother
You own and are the only employee of a company that writes computer software that
gamblers use to collect sports data. Last year your total revenue was $90,000. Your
costs for equipment, rent, and supplies were $50,000. To start this business you invested
an amount of your own capital that could pay you a $40,000 a year return.
Refer to Scenario 7.1. Your economic profit last year was
A) -$40,000.
B) -$10,000.
C) $0.
D) $10,000.
Table 9.1
Refer to Table 9.1. If the market price is $42, then for this firm to maximize profits it
should produce ________ units of output and its profits will be ________.
A) five; $70
B) six; $70
C) six; $120
D) seven; $58
If a country has a trade deficit of $30 billion, which of the following can be true?
A) The country’s exports are $150 billion, and its imports are $120 billion.
B) The country’s exports are $110 billion, and its imports are $140 billion.
C) The country’s exports are $120 billion, and its imports are $140 billion.
D) The country’s exports are $140 billion, and its imports are $40 billion.
There are 100 dog kennels in Atlanta. An economist studying the pricing behavior of
dog kennels tells you that she is limiting her analysis to a time period that does not
allow for any new dog kennels to enter the industry or for any established dog kennels
to leave the industry. The time period this economist referred to is the
A) market period.
B) industry run.
C) long run.
D) short run.
Figure 9.1
Refer to Figure 9.1. If this farmer is maximizing profits, his total revenue will be
A) $90.
B) $135.
C) $180.
D) $240.
Assuming demand is linear, the shape of a monopolist’s total revenue schedule is a
A) straight line passing through the origin.
B) straight line with negative slope.
C) curve from the origin with increasing slope.
D) curve from the origin with decreasing slope.
Figure 9.1
Refer to Figure 9.1. For this farmer to maximize profits he should produce ________
bushels of wheat.
A) 6
B) 9
C) 12
D) 16
We assume the marginal benefit of consumption ________ as we consume more units
of a good.
A) remains constant
B) increases
C) decreases
D) could either increase or decrease
Figure 5.4
Refer to Figure 5.4. Along the given demand curve, which of the following is true?
A) Demand is less elastic along the segment AC than the segment CF.
B) Demand is less elastic along the segment CF than the segment AC.
C) Since the demand curve is linear, the price elasticity of demand between each of the
points is the same.
D) All of the above are true.
Which of the following features distinguishes monopolistically competitive firms from
monopolies and oligopolies?
A) Monopolistically competitive firms cannot influence market price by virtue of their
size alone while monopolies and oligopolies can.
B) Monopolistically competitive firms are not constrained by market demand while
monopolies and oligopolies are.
C) Monopolistically competitive firms are price takers while monopolies and
oligopolies are not.
D) Monopolistically competitive firms sell a homogeneous product while monopolies
and oligopolies sell a differentiated product.
The right answer to the debate regarding the welfare effects of advertising is that
A) advertising always leads to concentration in an industry.
B) advertising always leads to positive economic profits in an industry.
C) advertising always improves the functioning of the market.
D) there is no right answer.
Related to the Economics in Practice on page 235: India’s plan to spend more than 8
billion dollars U.S. to improve its road network is best described as an example of
investment in
A) intangible capital.
B) human capital.
C) infrastructure.
D) tangible capital.
Figure 6.6
Refer to Figure 6.6. Bill’s budget constraint is BD. Bill’s income is $600, the price of a
bell pepper is $1, and the price of a bag of black beans is $2. At point B Bill is buying
________ bell peppers and ________ bags of black beans.
A) 0; 300
B) 600; 0
C) 300; 150
D) 600; 300
Table 16.2
Refer to Table 16.2. The marginal damage costs imposed on society from processing 4
tons of glass are
A) $1.25 per ton of glass.
B) $5 per ton of glass.
C) $10 per ton of glass.
D) indeterminate from this output.
The law of diminishing marginal returns explains why a marginal revenue product
schedule
A) first declines and then increases.
B) is always negative.
C) eventually increases.
D) eventually declines.
Suppose an increase of 7% in the price of lobster reduces the consumption of lobster by
18%. Such a price rise will induce households to spend
A) less of their income on lobster.
B) more of their income on lobster.
C) the same amount on lobster as before.
D) more on products that are complementary with lobster.
Figure 7.10
Refer to Figure 7.10. The firm is currently along isocost CD. If the price of capital is
$40, then the price of labor is
A) $6.
B) $40.
C) $240.
D) indeterminate from this information.
If MUx/Px > MUy/Py, then
A) spending a dollar less on Y and a dollar more on X increases utility.
B) spending a dollar less on X and a dollar more on Y increases utility.
C) X is more expensive than Y.
D) Y is more expensive than X.
What are the three basic economic decisions each household must make?
Explain how price expectations can affect the supply of a product.
Give an example of a positive externality.
What is an externality?
The table below represents the demand for Widgets, Inc., which has a monopoly in the
sale of widgets. Calculate total revenue and marginal revenue for the levels of output
given.
When XYZ Corporation produces 35 units of output its average variable cost is $5. The
marginal cost of the 36th unit of output is $7. If the firm chooses to produce the 36th
unit of output, what will happen to average variable cost? Explain.
Historically, why did the import-substitution strategy become popular among
developing nations?
Define capital. Explain the relationship between investment and capital.
What is the Antitrust Division of the Department of Justice?
Assume that we are concerned about the existence of one firm (monopoly) in a market
because of the potential for economic profits. If, however, there is free entry and exit,
should our concerns change? Why or why not?
What are the implications for economic growth for countries specializing in capital
goods rather than consumer goods? What is the opportunity cost of this decision?
Events prior to the 1995 baseball season, including a threatened “lockout” by owners if
the players decided to end their strike, likely had a great effect on attendance at baseball
games. Consider in this scenario market attendance as a measure of quantity and ticket
prices as the measure of price.
Graphically illustrate the effect of a shortened season.
What effect will this have on the price and quantity of tickets sold?
When total utility is rising but at a decreasing rate what must be happening to marginal
utility? When will total utility stop rising?
A railroad company lays a line of track between Houston and Dallas. It provides daily
service for industrial customers and ships 5,000 ton-miles per day with a single train
and only one departure and arrival at each end. It has an opportunity to purchase a
second train that would allow it to ship twice the amount of ton-miles per day. Does this
firm face increasing, constant or decreasing returns to scale? Explain.
What is meant by market failure?
Explain how the availability of substitutes affects demand elasticity.
Why does the absence of well-defined property rights serve as a stumbling block for the
application of the Coase theorem?
What is protection as it refers to international trade?