1) Adibok knows that it produces and sells high quality athletic shoes. Wurkout knows
that it produces and sells low quality athletic shoes. According to the signaling theory of
advertising,
a.both Adibok and Wurkout have incentives to spend large amounts of money on
advertising for their athletic shoes.
b.Adibok has an incentive to spend a large amount of money on advertising for its
athletic shoes, but Wurkout does not.
c.Wurkout has an incentive to spend a large amount of money on advertising for its
athletic shoes, but Adibok does not.
d.neither Adibok nor Wurkout has an incentive to spend a large amount of money on
advertising for their athletic shoes.
2) The concept of external benefit is associated with a negative externality, but not with
a positive externality.
a.True
b.False
3) When price exceeds average variable cost in the short run, a competitive firm‘s
marginal cost curve is regarded as its supply curve because
a.the position of the marginal cost curve determines the price for which the firm should
sell its product.
b.among the various cost curves, the marginal cost curve is the only one that slopes
upward.
c.the marginal cost curve determines the quantity of output the firm is willing to supply
at any price.
d.the firm is aware that marginal revenue must exceed marginal cost in order for profit
to be maximized.
4) Goods that are excludable include both
a.club goods and public goods.
b.public goods and common resources.
c.common resources and private goods.
d.private goods and club goods.
5) In what way do competitive markets have a “natural remedy” for discriminatory
hiring practices?
a.Governments regulate to resolve problems of discrimination.
b.Profit-maximizing firms that do not discriminate tend to replace firms that
discriminate.
c.Wages paid to groups that are victimized by discrimination are eventually bid up to
above-equilibrium levels.
d.Discrimination is usually the outcome of rational decision-making processes, and
competitive markets produce rational outcomes.
6) Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes,
Q denotes the quantity of pollution and P represents the price of pollution.
The line labeled “Corrective
tax” could accurately be relabeled as
a.”Demand for clean air.”
b.”Demand for pollution rights.”
c.”Price of pollution.”
d.”Rate of subsidy.”
7) In the long run, all of a firm‘s costs are variable. In this case the exit criterion for a
profit-maximizing firm is to shut down if
a.price is less than average total cost.
b.price is greater than average total cost.
c.average revenue is greater than average fixed cost.
d.average revenue is greater than marginal cost.
8) Suppose the price of milk is $2.39 per gallon, and the equilibrium quantity of milk is
100 thousand gallons per day with no tax on milk. Starting from this initial situation,
which of the following scenarios would result in the smallest deadweight loss?
a.The price elasticity of demand for milk is 0.3, the price elasticity of supply for milk is
0.7, and the milk tax amounts to $0.40 per gallon.
b.The price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is
0.5, and the milk tax amounts to $0.30 per gallon.
c.The price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is
0.7, and the milk tax amounts to $0.30 per gallon.
d.The price elasticity of demand for milk is 0.1, the price elasticity of supply for milk is
0.5, and the milk tax amounts to $0.20 per gallon.
9) A competitive, profit-maximizing firm hires workers up to the point where the
a.marginal product equals zero.
b.marginal revenue product equals zero.
c.marginal product equals the wage.
d.value of the marginal product equals the wage.
10) Laws that are passed that either require or forbid certain behaviors are examples of
command-and-control policies.
a.True
b.False
11) Assume that a college student purchases only Ramen noodles and textbooks. If
Ramen noodles are an inferior good and textbooks are a normal good, then the
substitution effect associated with a decrease in the price of Ramen noodles, by itself,
will result in
a.a decrease in the consumption of textbooks and a decrease in the consumption of
Ramen noodles.
b.a decrease in the consumption of textbooks and an increase in the consumption of
Ramen noodles.
c.an increase in the consumption of textbooks and an increase in the consumption of
Ramen noodles.
d.an increase in the consumption of textbooks and a decrease in the consumption of
Ramen noodles.
12) Economists are particularly adept at understanding that people respond to
a.laws.
b.incentives.
c.punishments more than rewards.
d.rewards more than punishments.
13) The legislation passed by Congress in 1890 to reduce the market power of large and
powerful “trusts” was the
a.Morgan Act.
b.Sherman Act.
c.Clayton Act.
d.14th Amendment.
14) Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves:
Firms will shut down in the short run if the market price
a.exceeds P3.
b.is less than P1.
c.is greater than P1 but less than P3.
d.exceeds P2.
15)
Efficient production is represented by which point(s)?
a.J
b.J, K
c.J, K, L
d.J, K, M
16) The graph below pertains to the supply of paper to colleges and universities.
All else equal, an increase in the use of laptop
computers for note-taking would cause a move from
a.x to y.
b.y to x.
c.SA to SB.
d.SB to SA.
17) Which of the following can be used to help explain wage differences among
different groups of workers?
a.human capital acquired through education
b.human capital acquired through job experience
c.compensating differentials
d.All of the above can explain wage differences.
18) Scenario 15-4
Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The
monopolist’s marginal revenue curve can be expressed as MR=90-2Q. The monopolist
has constant marginal costs and average total costs of $10.
The profit-maximizing monopolist will produce an output level of
a.80 units.
b.40 units.
c.20 units.
d.10 units.
19) In economics, graphs serve two purposes: they offer a way to visually express ideas,
and they provide a way of finding and interpreting patterns when analyzing economic
data.
a.True
b.False