All of the following are limitations of direct consumer surveys except:
A) the possibility that consumers’ responses may not reflect their actual behavior in the
market place.
B) the possibility of response biases because survey respondents may not want to reveal
their true preferences.
C) the likelihood that respondents will deliberately and systematically mislead
interviewers.
D) the possibility that the type of questions asked may unintentionally bias the
respondent’s answers.
Marginal product equals 0 when:
A) average product equals zero.
B) total product equals average product.
C) average product reached its minimum value.
D) total product reaches its maximum value.
It is frequently observed that when a city is located next to a major highway, gas
stations located close to the highway charge higher prices than gas stations located
farther away. This is an example of:
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) illegal price discrimination.
Referring to the previous question, what will happen to the equilibrium price and
quantity of cars?
A) They will stay the same as domestic producers replace the cars once imported.
B) The shortage will cause the equilibrium price to increase and equilibrium quantity
will decrease.
C) The surplus will cause equilibrium price to decrease and equilibrium quantity to
increase.
D) The shift in the demand curve will cause equilibrium price to increase and quantity
to increase.
The opportunity costs of the firm using its own funds are measured by the:
A) market interest rate.
B) inflation rate.
C) price level.
D) menu costs.
Assume the costs of production in the U.S. auto industry are rising and, at the same
time, the prices of Japanese-made autos are decreasing. What would reasonably be
expected to happen to the equilibrium price and quantity of U.S.-made autos?
A) Price will increase; quantity cannot be determined.
B) Price will decrease; quantity cannot be determined.
C) Quantity will increase; price cannot be determined.
D) Quantity will decrease; price cannot be determined.
Refer to Scenario 1. What is the total sum of squares?
A) 3860.8
B) 3718.9
C) 141.9
D) None of the above.
Regarding the production of health care, more recent studies suggest that:
A) economies of scale exist up to a hospital size of approximately 500 beds.
B) hospitals of many different sizes can compete effectively with each other on the
basis of cost.
C) the LRAC curve exhibits significant diseconomies of scale beginning with a hospital
size of approximately 100 beds.
D) the LRAC for hospitals exhibits a very distinct U shape.
As a currency appreciates:
A) exports increase and imports decrease.
B) exports decrease and imports increase.
C) exports increase and imports increase.
D) exports decrease and imports decrease.
The labor force is 100 million and the unemployment rate is 5 percent. One million
people quit looking for a job. What is it called when an individual leaves the labor
force, and in this case what is the new unemployment rate?
A) Encouraged worker, 5 percent.
B) Discouraged worker, 5.05 percent.
C) Discouraged worker, 3 percent.
D) Discouraged worker, 4.04 percent.
Increase in consumer confidence will ________ the expenditure curve:
A) decrease.
B) increase.
C) down.
D) none of the above.
The range of values in which we can be confident that the true regression coefficient
lies within a given degree of probability is called a:
A) prediction interval.
B) confidence interval.
C) logistic regression.
D) none of the above.
Price leadership:
A) has rarely occurred in U.S. history.
B) is always illegal in the United States.
C) is usually the result of a dominant firm in the industry.
D) usually results in the smaller firms in the industry incurring economic losses.
A car dealer wants to get rid of the stock of last year’s model. Assume that the dealer
knows from past experience that the price elasticity of demand for cars is unitary (= 1).
If the price of the cars is currently $20,000 and the dealer wants to increase the quantity
demanded from 30 units to 50 units, what must the new price be if the dealer is to sell
the 20 additional cars?
A) $10,000
B) $12,000
C) $16,000
D) $18,000
Referring to the previous question, all else constant, a one unit increase in the price of
good Y would cause the quantity demanded of good X to:
A) decrease by 2 units.
B) increase by 2 units.
C) decrease by 1 unit.
D) decrease by 5 units.
In its effort to maximize economic profit, a firm characterized as a price setter must
determine:
A) only the price it should charge.
B) only the quantity it should produce.
C) both the price it should charge and the quantity it should produce.
D) neither the price it should charge and the quantity it should produce as these are both
determined by forces beyond the firm’s control.
Assume the income of consumers of good X (a normal good) increases. What occurs at
the initial equilibrium price for X that signals market participants that the equilibrium
price must change?
A) A surplus is created by an increase in supply.
B) A surplus is created by a decrease in demand.
C) A shortage is created by an increase in demand.
D) A shortage is created by a decrease in supply.
Which of the following is an example of strategic entry deterrence?
A) Marginal cost pricing.
B) Limit pricing.
C) Price leadership.
D) Mark-up pricing.
At the profit-maximizing level of output, the amount by which the firm can mark up
price is:
A) inversely related to the price elasticity of demand for item in question.
B) directly related to the price elasticity of demand for item in question.
C) totally unrelated to the price elasticity of demand for item in question.
D) equal to the ratio of the marginal and average costs of production.
An index of the weighted exchange value of the U.S. dollar versus the currencies of a
broad group of major U.S. trading partners is called:
A) trade-weighted dollar.
B) exchange-weighted dollar.
C) dollarization.
D) bilateral dollar.
Assume the Congress approves increased drilling for oil in the U.S. to address the
current energy shortage. People who are in favor of this policy argue that, ceteris
paribus, this would cause:
A) an increase in the equilibrium price and quantity of oil.
B) a decrease in the equilibrium price and quantity of oil.
C) a decrease in equilibrium price and increase in the equilibrium quantity of oil.
D) an increase in equilibrium price and a decrease in the equilibrium quantity of oil.
In order to use lock-in as a competitive strategy, firm managers should be prepared to
do all of the following except:
A) invest in a given base of customers by giving concessions initially.
B) avoid selling complementary products and access to the customer base.
C) be the first to bring a new type of product to market.
D) use loyalty programs as part of an entrenchment strategy.
Assume a perfectly competitive firm is producing a level of output at which MR < MC.
What will happen as the firm moves to its profit-maximizing equilibrium?
A) Marginal revenue will rise.
B) Marginal revenue will fall.
C) Marginal cost will rise.
D) Marginal cost will fall.
Fred is considering opening a ski shop in Colorado. Assume Fred will incur the
following costs: building rent = $100,000/year, inventory = $250,000/year, energy =
$50,000/year, and labor (one clerk) = $10,000/year. In addition, Fred’s current income
as a computer programmer is $40,000 per year. Assuming Fred would earn $460,000 in
revenues, he could expect to earn:
A) an accounting profit of $10,000 per year.
B) an accounting profit of $60,000 per year.
C) an economic profit of $10,000 per year.
D) an economic profit of $50,000 per year.
Comparing the situation of a nominal interest rate of 10 percent and an inflation rate of
9 percent with a nominal interest rate of 6 percent and inflation rate of 2 percent,
consumers would borrow more in which situation?
A) Nominal interest rate of 10 percent since real interest rate is 1 percent.
B) Nominal interest rate of 6 percent since the real interest rate is 4 percent.
C) Nominal interest rate of 10 percent since the real interest rate is 9 percent.
D) Nominal interest rate of 6 percent since the real interest rate is 2 percent.
Assume that when price is $20, quantity demanded is 9 units, and when price is $19,
quantity demanded is 10 units. Based on this information, what is the marginal revenue
resulting from an increase in output from 9 units to 10 units?
A) $20
B) $19
C) $10
D) $1
Commodities that typically last three years or more are called:
A) durable goods.
B) nondurable goods.
C) services.
D) none of the above.
In January 2001, the euro/dollar exchange rate was 1.10, and in January 2002, the
euro/dollar exchange rate was 1.120 What happened to the exchange rate during this
period?
A) Euro appreciated against the dollar.
B) Euro depreciated against the dollar.
C) Dollar appreciated against the euro.
D) Both B and C.
The role of the currency exchange rate is embedded in the import expenditure equation
as:
A) autonomous import spending.
B) marginal propensity to import.
C) autonomous export spending.
D) none of the above.
According to the case for analysis (Demand and Supply in the Copper Industry) in the
text, all of the following can lead to a decline in the price of copper except:
A) steady production uninterrupted by labor strikes or natural disasters.
B) substitution away from copper to other materials such as aluminum and plastic.
C) an increase in mining of higher grade materials.
D) a surge in demand from foreign importers.
Which of the following statements regarding the creation of brand loyalty to create and
maintain market power is false?
A) Brand loyalty efforts often focus on creating perceived, as opposed to real,
differences among products.
B) Brand loyalty can be enhanced by improving the level of service associated with a
particular product.
C) One study showed that, in the case of competing beers, brand loyalty has relatively
little to do with price.
D) Brand loyalty is determined primarily by real differences in competing products.
A goal of contractionary monetary policy is to:
A) decrease the rate of growth of real GDP.
B) increase the rate of growth of real GDP.
C) increase inflation.
D) none of the above.
The requirement that certain professionals possess a license in order to work in a
particular market has the effect of reducing the supply of those services, which in turn
causes:
A) price and the profits of firms in the market to increase.
B) price and the profits of firms in the market to decrease.
C) price to increase and the profits of firms in the market to decrease.
D) price to decrease and the profits of firms in the market to increase.
When a demand curve is perfectly elastic:
A) marginal revenue = average revenue = price.
B) marginal revenue > average revenue = price.
C) marginal revenue < average revenue = price.
D) marginal revenue > average revenue > price.
The decrease in consumption and investment interest-related spending that occurs when
the interest rate rises as government spending increases is called:
A) crowding in.
B) crowding out.
C) neutral.
D) none of the above.