The demand for French Roast coffee is likely to be
a. elastic.
b. inelastic.
c. unit elastic.
d. perfectly inelastic.
Government action can usually perfectly correct the market’s shortcomings.
a. True
b. False
“Rent seeking” describes the search and battle for opportunities to collect economic
rents.
a. True
b. False
“Rate averaging” is only possible if
a. the firm is protected from price competition and new entry.
b. the firm is protected from losses resulting from unsuccessful innovation.
c. the firm can choose the level of service it wishes to provide.
d. “cream skimming” is permitted.
Price controls would ordinarily be used to increase rather than decrease prices of
depletable resources.
a. True
b. False
A complicating factor in international trade is that
a. barter is the basis for trade between countries; money is not used.
b. gold is used for payments; there are no international payments without gold.
c. many other countries prefer to use the U.S. dollar as currency, causing monetary
shortage in the United States.
d. trade between countries requires different currencies rather than one currency.
Value judgments are based on people’s tastes, preferences, and ethical opinions.
a. True
b. False
Pollution is an example of a negative externality.
a. True
b. False
Government controls over market prices frequently “backfire.”
a. True
b. False
Figure 9-1
Which of the graphs in Figure 9-1 best illustrates the path of a composite of common
stock prices over the long term?
a. (1)
b. (2)
c. (3)
d. (4)
Foreign competition will always put a domestic industry at a disadvantage. This leads to
massive trade adjustment assistance on the part of each country.
a. True
b. False
The 1981 tax reform act reduced taxes on high-income individuals. Many economists
believed that high tax rates would deter high-income individuals from working and
investing, thus slowing the growth of income. This illustrates the issue of
a. the equality-efficiency trade-off.
b. usury.
c. the effects of budget deficits on future generations.
d. the cost disease of the public sector.
e. the importance of externalities.
A private investment firm that holds a portfolio of securities is called a mutual fund.
a. True
b. False
Figure 11-7
The firm in Figure 11-7 is an unregulated monopolist; it will earn long-run profits of
how much?
a. 500
b. 400
c. 300
d. 200
Which of the following statements is false?
a. In a competitive market, the price mechanism encourages conservation of a
depletable resource.
b. As the price of a depletable resource rises, its known reserves often increase.
c. Prices of depletable resources have risen in the twentieth century primarily because
resource producers have exercised monopoly or oligopoly power.
d. Shortages of depletable resources occur primarily when governments or others
interfere with the price mechanism.
“Fair” outcomes and “efficient” outcomes are always identical.
a. True
b. False
A change in the income of buyers will normally change demand.
a. True
b. False
The external costs of alcohol consumption are related to, among other things, death and
injury related to auto accidents caused by drunk drivers. These costs have been
estimated to be about 47 cents per ounce of alcohol consumed. Taxes on alcohol
amount to 23 cents per ounce. This suggests that alcohol consumption is (i) greater than
the efficient or optimal amount; (ii) should be reduced to zero to eliminate the
externality.
a. i and ii
b. i not ii
c. ii not i
d. neither i nor ii
It is true of externalities that they
a. are always detrimental.
b. are always beneficial.
c. arise when all costs, social and private, are included in production cost.
d. cause the price system to misallocate resources.
The official dividing line between the poor and nonpoor is called the
a. life threshold.
b. life edge.
c. poverty line.
d. beginning line.
Under perfect competition and monopolistic competition, profits are zero in long-run
equilibrium.
a. True
b. False
Draw the point of consumer equilibrium from an indifference map and budget line.
Explain why this is the point of optimization. Be sure your diagram is fully and
correctly labeled.
Distinguish between predatory pricing strategy and bundling strategy.
Some take issue with the human capital argument that employers pay more for college
graduates because firms recognize the value of human capital. What are two alternative
explanations for why college grads receive higher pay?
Explain the concept of efficiency as it relates to taxation.
“Intel Inside” accompanies virtually all IBM-compatible computers. Intel manufactures
the Celeron and Pentium chips that are a key component of personal computers. Does
Intel have a monopoly?
Economists object to monopolies on the grounds of efficiency. Why is this? Explain.
Why has the free market system produced the most rapid rates of growth of any
economic system?
Explain why using leverage to purchase risky securities is so popular.
Explain how to derive the demand for an input.
Distinguish between invention and innovation.