What is accounting profit?
A) gross revenue minus explicit costs
B) gross revenue minus implicit costs
C) gross revenue minus explicit and implicit costs
D) the same as economic profit
Figure 18-1
Refer to Figure 18-1. Area E+H represents
A) the portion of sales tax revenue borne by consumers.
B) the portion of sales tax revenue borne by producers.
C) the excess burden of the sales tax.
D) sales tax revenue collected by the government.
Figure 12-12
Refer to Figure 12-12. Consider a typical firm in a perfectly competitive industry that
makes short-run profits. Which of the diagrams in the figure shows the effect on the
industry as it transitions to a long-run equilibrium?
A) Panel A
B) Panel B
C) Panel C
D) Panel D
If demand is perfectly inelastic, the absolute value of the price elasticity coefficient is
A) infinity.
B) zero.
C) more than one.
D) equal to the absolute value of the slope of the demand curve.
Assume that firms in a perfectly competitive market are earning economic profits.
Which of the following statements describes the change in market price and output as a
result of the entry of new firms into this market?
A) The market demand curve shifts to the right, causing price to rise and market output
to increase.
B) The market demand curve shifts to the left, causing price to fall and market output to
decrease.
C) The short-run market supply curve shifts to the right, causing price to fall and total
market output to increase.
D) The short-run market supply curve shifts to the left, causing price to rise and total
market output to decrease.
A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for
both
A) fixed costs are lower than variable costs.
B) there are many other suppliers of similar goods or services.
C) the implicit costs of production exceed the explicit costs of production.
D) average costs of production do not change when their industry expands.
In cities with rent controls, the actual rents paid can be higher than the legal maximum.
One explanation for this is
A) rent control laws are so complicated that landlords and tenants may not be aware of
what the legal price is.
B) landlords are allowed to charge more than the legal maximum on some apartments
so long as they charge less on others.
C) because there is a shortage of apartments, tenants often are willing to pay rents
higher than the law allows.
D) the legal penalty landlords face for charging more than the legal maximum rent is
less than the revenue earned by charging their tenants more than the maximum rent.
Which of the following economists did not help to develop game theory analysis?
A) Adam Smith
B) John Nash
C) John von Neumann
D) Oskar Morgenstern
Assume a hypothetical case where an industry begins as perfectly competitive and then
becomes a monopoly. As a result of this change
A) price will be higher, output will be lower, and the deadweight loss will be
eliminated.
B) consumer surplus will be smaller, producer surplus will be greater, and there will be
a reduction in economic efficiency.
C) price will be higher, consumer surplus will be greater, and output will be greater.
D) consumer surplus will be smaller and producer surplus will be greater. There will be
a net increase in economic surplus.
Table 9-6
Production and
Consumption Production
Without Trade With Trade
Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production
and consumption quantities without trade, and the production numbers with trade.
Refer to Table 9-6. If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are
traded, how many clocks will Denmark gain compared to the “without trade” numbers?
A) 30
B) 100
C) 150
D) 900
To be a natural monopoly a firm must
A) control a key resource input.
B) have economies of scale that are so large that it can supply the entire market at a
lower cost than two or more firms.
C) have significant network externalities.
D) be in a government-regulated market.
In the long run, if the demand curve of a monopolistically competitive firm is tangent to
its average total cost curve then
A) the firm would break even.
B) the firm would shut down temporarily.
C) the firm would earn enough revenue to cover its variable costs, but not its fixed
costs.
D) the firm would earn an economic profit.
Congressman Flack votes for a program that will benefit the constituents of
Congressman Walpole. Which of the following explanations for Flack’s vote is most
consistent with the public choice model?
A) Congressman Flack did not have time to read and understand all of the legislation he
voted on. Members of Congress often depend on their staffs to read proposed legislation
and recommend how they should vote.
B) Legislators such as Congressman Flack are similar to other decision-makers in that
they sometimes make irrational choices.
C) Congressman Flack will support programs of legislators from his own party,
regardless of who benefits from these programs.
D) Congressman Flack expects Congressman Walpole’s support for programs that will
benefit Flack’s constituents.
Table 14-1
Godrickporter and Star Connections are the only two airport shuttle and limousine
rental service companies in the mid-sized town of Godrick Hollow. Each firm must
decide on whether to increase its advertising spending to compete for customers. Table
14-1 shows the payoff matrix for this advertising game.
Refer to Table 14-1. What is the Nash equilibrium in this game?
A) There is no Nash equilibrium.
B) Godrickporter increases its advertising budget, but Star Connections does not.
C) Star Connections increases its advertising budget, but Godrickporter does not.
D) Both Godrickporter and Star Connections increase their advertising budgets.
If price exceeds average variable cost but is less than average total cost, a firm
A) should further differentiate its product.
B) should stay in business for a while longer until its fixed costs expire.
C) is making some profit but less than maximum profit.
D) should shut down.
Table 12-4
Table 12-4 shows the short-run cost data of a perfectly competitive firm. Assume that
output can only be increased in batches of 20 units.
Refer to Table 12-4. If the market price is $45 the firm will produce
A) 60 units.
B) 80 units.
C) 100 units
D) 120 units
The largest percentage of federal income tax revenue in the United States is paid by the
A) lowest income taxpayers.
B) middle income taxpayers.
C) highest income taxpayers.
D) All groups of taxpayerslow income, high income and middle incomepay the same
percent of federal income taxes.
All of the following are examples of public goods except
A) broadcast television with commercials.
B) clean water systems.
C) stock of knowledge in the public domain.
D) crime prevention.
Rational ignorance
A) explains why consumers ignore sunk costs when they vote.
B) explains the Arrow impossibility theorem.
C) refers to attempts by special interests to use government action to make themselves
better off at the expense of others.
D) helps to explain why rent seeking by special interest groups occurs.
A tariff is a tax imposed by a government on
A) exports.
B) services.
C) imports.
D) luxury items.
If the absolute value of the price elasticity of demand for DVD movies is 0.8 then the
elasticity of demand of the DVD for the movie The Hangover should be
A) less then 0.8 in absolute value.
B) greater than 0.8 in absolute value.
C) equal to 1 in absolute value.
D) equal to zero because the DVD of this movie has been out for several years.
A consequence of increasing marginal costs of producing digital music players in Japan
is
A) Japan will not export digital music players.
B) Japan will stop short of complete specialization in the production of digital music
players.
C) Japan will import digital music players from countries that don’t experience
increasing marginal costs.
D) Japan will likely impose trade restrictions on imported digital music players.
Figure 18-5
Figure 18-5 shows the Lorenz curve for a hypothetical country.
Refer to Figure 18-5. The highest 20 percent of households
A) earn 24 percent of the society’s total income.
B) earn 28 percent of the society’s total income.
C) earn 42 percent of the society’s total income.
D) earn 72 percent of the society’s total income.
A study by Price Fishback and Shawn Kantor of the University of Arizona shows that
after the passage of workers’ compensation laws, wages received by workers in the coal
and lumber industries fell.
Source: Price V. Fishback and Shawn Everett Kantor, “Did Workers Pay for the Passage
of Workers’ Compensation Laws?” Quarterly Journal of Economics, Vol. 100, No. 3,
August 1995, pp. 713-742.
Which of the following could explain why passage of workers’ compensation laws led
to a fall in wages in some industries?
A) The passage of the workers’ compensation laws made it more expensive for firms to
employ workers, thus reducing the demand for workers.
B) The passage of the workers’ compensation laws allowed employers in hazardous
industries to reduce compensating differentials which, in turn, reduce wages.
C) Employers reduced wages to partially offset the cost of having to purchase insurance
that would compensate workers for injuries suffered on the job.
D) The supply of labor in these hazardous industries increased following the passage of
the workers’ compensation laws because jobs in these industries now pose less risk.
A perfectly competitive firm’s short-run supply curve is
A) upward sloping and is the portion of the marginal cost curve that lies above the
average total cost curve.
B) upward sloping and is the portion of the marginal cost curve that lies above the
average variable cost curve.
C) perfectly elastic at the market price.
D) horizontal at the minimum average total cost.
Voluntary exchange ________ economic efficiency because neither the buyer nor the
seller would agree to a trade unless ________.
A) increases; they both benefit
B) increases; only one party benefits
C) decreases; neither benefit
D) decreases; they both benefit
The term “property rights” refers to
A) the physical possession of a house or any other property which the owner legally
purchased.
B) the ability to exercise control over one’s own resources within the confines of the
law.
C) the government’s right to appropriate land from wealthy land owners to redistribute
to peasants.
D) the right of a business not to have its assets confiscated by the government in the
event that the business is accused of committing fraud.
If Southwest Airlines borrows $20 million from a bank to finance the renovation of
their corporate offices, this is an example of
A) a bond market transaction.
B) indirect finance.
C) a stock market transaction.
D) direct finance.
A perfectly competitive firm in a constant-cost industry produces 3,000 units of a good
at a total cost of $36,000. The prevailing market price is $15. What will happen to the
number of firms in the industry and to the industry’s output in the long run?
A) The number of firms and the industry’s output increase.
B) The number of firms and the industry’s output decrease.
C) The number of firms remains constant and the industry’s output increases.
D) The number of firms remains constant and the industry’s output decreases.
If the marginal cost curve is below the average variable cost curve, then
A) average variable cost is increasing.
B) average variable cost is decreasing.
C) marginal cost must be decreasing.
D) average variable cost could either be increasing or decreasing.
The Wong family consumes 3 pounds of fish and 5 pounds of chicken per month. The
price of fish is $8 per pound and chicken is $4 per pound.
a. What is the amount of income allocated to fish and chicken consumption?
b. What is the price ratio (the price of fish relative to the price of chicken)?
c. Explain the meaning of the price ratio you computed.
d. If the Wongs maximize utility, what is the ratio of the marginal utility of fish to the
marginal utility of chicken?
e. If the price of chicken rises, will the Wong family consume more chicken, less
chicken, or the same amount of chicken? Explain your answer using the rule of equal
marginal utility per dollar.