(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special
birthday cakes. She is trying to decide how many mixers to purchase. Her estimated
fixed and average variable costs if she purchases one, two, or three mixers are shown in
the table. Assume that average variable costs do not vary with the quantity of output.
How many mixers should Pat buy to get the lowest average total cost if she plans to
make 400 cakes?
A) one
B) two
C) three
D) Can’t be determined without more information
Figure: Rent Controls
(Figure: Rent Controls) Look at the figure Rent Controls. If rent controls are set at
Rent0:
A) the shortage of rental units is the distance Q1 ” Q3.
B) some renters will be willing to pay a price as high as Rent4 for Q0 units.
C) no one will have to pay a higher actual price than Rent0, nor will anyone be willing
to do so.
D) there will be a surplus of rental units.
When the minimum wage increases:
A) unemployment among skilled workers decreases.
B) fewer workers are willing to work off the books.
C) employment of unskilled workers increases.
D) unemployment among unskilled workers increases.
Monopolistic competition is characterized by:
A) free entry and exit in the long run.
B) each firm producing a standardized product.
C) few producers.
D) barriers to entry.
Figure: An Individual’s Marginal Benefit from a Public Good
(Figure: An Individual’s Marginal Benefit from a Public Good) Look at the figure An
Individual’s Marginal Benefit from a Public Good. Assume that two individuals will
share consumption of a public good; each individual has the marginal benefit curve
shown in the figure. If the marginal cost of the good is $24, how many units of this
public good would maximize society’s welfare?
A) 0
B) 8
C) 12
D) 16
When firms openly agree on price and output and they jointly make other decisions
aimed at achieving monopoly profits, those firms are practicing:
A) overt collusion.
B) tacit collusion.
C) price leadership.
D) competitive game.
(Table: Production Function for Soybeans) Look at the table Production Function for
Soybeans. Assume that the fixed input, capital, is 10 acres of land and a tractor, which
have a combined cost of $150 per day. The cost of labor is $100 per worker per day.
The variable cost of producing 45 bushels of soybeans is:
A) $100.
B) $200.
C) $350.
D) $4,500.
Joseph is consuming three units of pizza and two units of soda. The price of pizza is $5
and the price of soda is $1. If he is consuming the optimal consumption bundle and his
marginal utility of the third unit of pizza is 50, his marginal utility of the second soda is:
A) 50.
B) 10.
C) 5.
D) impossible to determine unless you know Joseph’s income.
Black markets may develop as a result of price controls because:
A) price controls increase efficiency.
B) quantity demanded equals quantity supplied at the mandated price.
C) individuals cannot profit by illegal exchanges.
D) individuals can profit by illegal exchanges.
Figure: An Individual’s Marginal Benefit from a Public Good
(Figure: An Individual’s Marginal Benefit from a Public Good) Look at the figure An
Individual’s Marginal Benefit from a Public Good. Assume that two individuals will
share consumption of a public good; each individual has the marginal benefit curve
shown in the figure. If the marginal cost of the good is $8, how many units of the public
good will be provided by the private market?
A) 0
B) 8
C) 12
D) 16
A Giffen good is one in which the _____ curve is _____ sloped.
A) supply; negatively
B) demand; negatively
C) supply; positively
D) demand; positively
Monopolistic competition describes an industry characterized by:
A) a product with no close substitutes.
B) many firms, each with some market power.
C) a small number of firms.
D) barriers to entry and exit.
(Table: Three Tax Structure Proposals) Look at the table Three Tax Structure Proposals.
What percentage of income does an individual pay in taxes under proposal 3 if that
individual’s pretax income is $100,000?
A) 2%
B) 10%
C) 20%
D) 25%
Figure: The Domestic Market for Digital Cameras
(Figure: Domestic Market for Digital Cameras) Look at the figure The Domestic
Market for Digital Cameras. Assume that PA is the autarky price and PW is the world
price. Consumer surplus after international trade is equal to the area:
A) A.
B) A + B.
C) A + B + D + E.
D) A + B + D + E ” C.
A person who is oversensitive to loss and is unwilling to recognize the loss and move
on has:
A) loss aversion.
B) risk aversion.
C) status quo bias.
D) mental accounting.
Figure: Shifts in Demand and Supply
(Figure: Shifts in Demand and Supply) Look at the figure Shifts in Demand and Supply.
The figure shows how supply and demand might shift in response to specific events.
Suppose consumer incomes increase. Which panel BEST describes how this will affect
the market for used furniture, an inferior good?
A) panel A
B) panel B
C) panel C
D) panel D
Which of the following is NOT a barrier to entry?
A) control of an input essential for production
B) government-set barriers such as patents
C) a ban on certain kinds of advertising
D) the existence of significant economies of scale
Critics of the National Collegiate Athletic Association (NCAA) argue that the NCAA
monopolizes college athletics and prevents student”athletes from earning money while
in college. If this is true, what type of entry barrier does the NCAA have?
A) a patent
B) a copyright
C) control of a scarce resource or input
D) economies of scale
The problem with community rating is that it:
A) causes moral hazard.
B) results in poor-quality health care.
C) is very unpopular with health care providers.
D) may cause adverse selection.
The long run is:
A) long enough to vary the quantities of all factors of production.
B) long enough to vary all factors of production except for the amount of capital
available.
C) more than one month.
D) at least one year.
Figure: Demand and Supply of Shirts
(Figure: Demand and Supply of Shirts)
Look at the figure Demand and Supply of Shirts. In the graph, if the line labeled D
shows how many shirts per week will be demanded at various prices, then it is clear that
as the price of shirts falls:
A) fewer shirts will be demanded.
B) more shirts will be demanded.
C) the same quantity of shirts will be demanded.
D) it is unclear what will happen to the demand for shirts.
If the price is consistently below average total cost, then in the short run a perfectly
competitive firm should:
A) shut down.
B) continue to produce to minimize losses.
C) raise the price.
D) There is not enough information given to answer this question.
If a 20% price increase generates a 20% decrease in quantity demanded, then this is
_____ response.
A) an inelastic
B) an elastic
C) a unit-elastic
D) a perfectly elastic
(Table: Production of Good Z and Good X in Urbanville) Look at the table Production
of Good Z and Good X in Urbanville. If this table shows the production possibility
frontier and if Urbanville is producing 5 of Z and 50 of X, this combination is:
A) feasible but inefficient.
B) feasible and efficient.
C) not feasible but efficient.
D) neither feasible nor efficient.
Rapidly increasing health costs have been a major political concern since at least 1992.
Suppose the government sets the maximum price for a normal doctor visit at $20 to
control rising health costs but the current market price is $40. What will happen?
A) More people will try to visit the doctor, but there will be fewer doctors willing to see
patients at that price.
B) The same number of people will try to visit the doctor, and the same number of
doctors are willing to see patients at that price.
C) More people will be able to see the doctor, since the price is lower.
D) Fewer people will try to see the doctor, and fewer doctors are willing to see patients
at that price.
The marginal social cost of pollution rises as the quantity of pollution emissions:
A) remains constant.
B) falls.
C) rises.
D) rises but subsequently gradually falls.