An economic model is useful only if it:
a. contains no positive statements.
b. captures all the complexities of reality.
c. yields accurate predictions.
d. has both macro- and microeconomic applications.
Under which one of the following market structures are sellers most likely to consider
the reaction of rival sellers when they set the price of their product?
a. Perfectly competition. c. Monopolistic competition.
b. Monopoly. d. Oligopoly.
The first piece of antitrust legislation in the United States to deal with price
discrimination was the:
a. Clayton Act.
b. FTC Act.
c. Celler-Kefauver Act.
d. Robinson-Patman Act.
e. Sherman Antitrust Act.
The marginal cost of labor for a perfectly competitive firm is given by:
a. the change in total revenue that results from employing an additional worker.
b. the market wage rate.
c. its marginal revenue product curve.
d. the demand curve for labor.
e. the marginal product of labor.
The law of diminishing marginal utility indicates that the marginal utility curve is:
a. downward sloping.
b. upward sloping.
c. U-shaped.
d. flat.
e. vertical.
Suppose you have spent your entire budget and for all the goods you purchase the
marginal utilities per dollar spent are identical. Which of the following is true?
a. You are being irrational.
b. You can increase your utility by reallocating your income.
c. You will reduce your utility if you allocate income in any other way.
d. You are minimizing your marginal utility.
e. You can avoid diminishing marginal utility.
Which of the following is the best example of the substitution effect?
a. Joe buys fewer apples and more oranges as the result of an increase in the price of
apples.
b. Joe buys more apples when his income increases.
c. Joe buys an apple slicer when the price of apples decreases.
d. Joe buys less sugar as the result of an increase in price of apples.
For a kinked demand curve, the marginal revenue curve is:
a. positively sloped.
b. a horizontal line.
c. a vertical line.
d. discontinuous.
e. above the demand curve.
Other things being equal, the effects of an increase in the price of orange juice would
best be represented by a(n):
a. upward movement along the demand curve for orange juice.
b. leftward shift in the demand curve for orange juice.
c. downward movement along the demand curve for orange juice.
d. rightward shift in the demand curve for orange juice.
Which of the following statements is true?
a. Income distribution in the United States has gotten progressively more unequal since
1929.
b. The Lorenz curve indicates the degree of discrimination in an economy.
c. The Lorenz curve indicates the degree of income inequality in an economy.
d. The richest 5% of Americans earn approximately half of the nation’s income.
e. All of these.
Marginal utility is the change in:
a. total utility when an extra unit of output is produced.
b. marginal utility when an extra unit of output is consumed.
c. total utility when an extra unit of output is consumed.
d. marginal utility when an extra unit of output is produced.
e. average utility when an extra unit of output is consumed.
Which fundamental economic question is most closely related to the issues of income
distribution and poverty?
a. The What to Produce question. c. The How to Produce question.
b. The Why to Produce question. d. The For Whom to Produce question.
Governments can use price elasticity of demand to estimate how changes in excise tax
rates will affect:
a. income.
b. prices.
c. tax revenues.
d. government spending.
e. profits.
Which of the following would not lead to a shift in an economy’s production
possibilities curve?
a. Change in technology.
b. Change in the number of resources.
c. An earthquake.
d. Improvement in the education level.
e. Change in the composition of current output.
As the electronic components industry expands, the salaries paid to electrical engineers
rise in response to higher demand. We can conclude that the electronic components
industry is:
a. a constant-cost industry.
b. an increasing-cost industry.
c. a decreasing-cost industry.
d. a marginal-cost industry.
The production possibilities curve depicts the various combinations of two goods that
can be:
a. interchanged among two countries.
b. produced with a given technology.
c. consumed with a given quantity of resources.
d. produced with increments in resources and changes in technology.
e. consumed as the resources increase.
Given the prices of two goods, all quantity combinations outside the budget line are:
a. undesirable.
b. inefficient.
c. inferior.
d. unattainable.
Which of the following statements draws a false conclusion?
a. Life expectancy in an average African country is lower than in an average European
country; therefore Europeans can expect to outlive Africans.
b. Nations that currently produce no capital goods, and whose inhabitants are hungry,
risk famine with internally funded capital investments.
c. Some African nations have substantially more food and capital investment than
others; therefore, their standard of living is higher.
d. Population reduction policies, if effective, can improve the nation’s wealth by
increasing real per capita GDP.
e. The vicious circle of poverty argument states that poverty precludes capital
investment and that no capital investment perpetuates poverty.
Which of the following best represents the effects of a decrease in the price of tomato
juice, other things being equal?
a. An upward movement along the demand curve for tomato juice.
b. A downward movement along the demand curve for tomato juice.
c. A rightward shift in the demand curve for tomato juice.
d. A leftward shift in the demand curve for tomato juice.
Marginal cost is best defined as:
a. a cost that does not vary with the rate of output.
b. the difference between fixed and variable cost at any level of output.
c. the amount added to total cost when one more unit of output is produced.
d. the difference between price and average total cost at the profit-maximizing level of
output.
Exhibit 4-2 Supply and demand curves
In Exhibit 4-2 an increase in supply would cause a movement from which equilibrium
point to another, other things being equal?
a. E1 to E2. c. E4 to E1.
b. E1 to E3. d. E3 to E4.
Exhibit 4-4 Supply and demand curves for good X
A decrease in buyers’ income, assuming good X is a normal good, combined with a
decrease in the wage rate paid to workers producing good X would be represented by
which of the following changes in equilibrium shown in Graph C of Exhibit 4-4?
a. E1 to E2. c. E3 to E2.
b. E1 to E3. d. E1 to E4.
Which of the following economic systems answers the basic economic questions by
copying the previous generation?
a. Traditional economy. c. Market economy.
b. Command economy. d. Capitalism.
At the unique point of consumer equilibrium, the:
a. distance between indifference curves is maximum.
b. distance between the budget line and the indifference curve is maximum.
c. marginal utility ratio of the two goods is equal.
d. marginal rate of substitution (MRS) equals the slope of the budget line.
Suppose that a jewelry store found that when it increased prices by 10 percent, sales
revenue increased by 3 percent. Which of the following is true about the price elasticity
of demand for the store’s goods?
a. Demand is perfectly inelastic.
b. Demand is inelastic, but not perfectly.
c. Demand is unitary classic.
d. Demand is elastic, but not perfectly.
e. Demand is perfectly elastic.
A monopoly market is characterized by a single seller of a product which has few, if
any, suitable substitutes.
Factors which determine the price of corn would be studied in macroeconomics.
A totally pollution free environment should not be a primary social goal.
In the short-run, total fixed costs always exceed total variable costs.
For a monopoly, price always equals marginal revenue.
Only socialist economies need to answer the What, How, and For Whom questions.
The Coase Theorem states that there is different ways to assign property rights if the
private sector is to achieve environmental efficiency.