The incentives built into the market economy ensure that resources are put to good use
and that opportunities to make people better off are not wasted. This means that:
A) people usually are not selfish enough to exploit opportunities to make themselves
better off.
B) markets move toward equilibrium.
C) resources should be used as efficiently as possible to achieve society’s goals.
D) markets usually lead to efficiency.
Which of the following is a compensating differential?
A) Tiger Woods gets paid more than a college professor.
B) A window washer working in a suburban residential subdivision gets paid less than
one who is washing windows on the outside of a skyscraper.
C) A nuclear scientist gets paid more than a janitor working in the same building.
D) On average, White men get paid more than women of all ethnicities.
The amount that an additional unit of a factor adds to a firm’s total revenue is called the:
A) marginal revenue.
B) marginal cost.
C) additional revenue product.
D) value of the marginal product.
(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. If
Pat purchases three mixers and bakes 200 cakes per day, what is her average total cost?
A) $50.00
B) $12.50
C) $16.50
D) $800.00
“The current rate of unemployment of 9% is too high” is a _____ statement.
A) normative
B) ceteris paribus
C) positive
D) marginal
Suppose for the coming year a family has calculated its expected value for car repairs to
be $3,000. The family decides to buy a car insurance policy that would cover such
claims. This insurance policy would cost a total of $3,000 for the household. This
insurance policy is:
A) overcharging the family and is not fair.
B) an example of a fair insurance policy.
C) undercharging the family.
D) not appropriate for the family, and they should not buy it.
A price ceiling results in:
A) inefficiency resulting from overproduction of the good.
B) inefficiency because transactions are held below the equilibrium quantity.
C) a decrease in wasted resources, as consumers find such goods more easily.
D) surpluses in the market, which eventually lead to inefficient production costs.
In the United States, individuals pay directly (out of pocket) _____ of medical costs.
A) 100%
B) between 70% and 80%
C) 50%
D) less than 15%
Scenario: Payoff Matrix for Firms X and Y
The following payoff matrix depicts the profits for the only two firms in this
oligopolistic industry.
(Scenario: Payoff Matrix for Firms X and Y) In the scenario Payoff Matrix for Firms X
and Y, if firm X and firm Y wish to maximize joint profits:
A) each firm should choose its dominant strategy.
B) Firm Y should choose a dominant strategy and Firm X, a nondominant strategy.
C) each should consider its specific situation before choosing a strategy, since strategies
also entail costs.
D) each should choose a nondominant strategy.
An input whose quantity can be changed in the short run is a(n) _____ input.
A) marginal
B) fixed
C) incremental
D) variable
In the local market for coffee, a normal good, the price will _____ and the quantity will
_____ if new coffee shops open and consumers’ incomes decrease because of a
recession.
A) increase; be indeterminate
B) decrease; be indeterminate
C) be indeterminate; increase
D) be indeterminate; decrease
Figure: Environmental Standards versus Emissions Taxes
(Figure: Environmental Standards versus Emissions Taxes) In the figure Environmental
Standards versus Emissions Taxes, if the goal is to limit the total emissions of the two
firms, A and B, to 600 tons, the most efficient solution is an _____, and total pollution
would be _____ tons.
A) environmental standard; 300
B) emissions tax; 600
C) environmental standard; 600
D) emissions tax; 200
When Henry Ford produced his cars, he _____, while GM produced its cars _____.
A) maximized economies of scale; by also maximizing economies of scale
B) maximized economies of scale; with an emphasis on product differentiation
C) produced with excess capacity; maximized economies of scale
D) produced with excess capacity; also with excess capacity
A private good is _____ in consumption.
A) excludable and rival
B) nonexcludable and nonrival
C) excludable and nonrival
D) nonexcludable and rival
Because most communities have a large number of similar but not identical substitutes,
the market for florists is best considered:
A) a monopoly.
B) an oligopoly.
C) monopolistically competitive.
D) perfectly competitive.
A persistent shortage may occur if:
A) the government imposes a price ceiling.
B) the government imposes a price floor.
C) demand keeps falling.
D) supply shifts rightward.
If at a given quantity _____, the decision maker should do _____ of the activity.
A) MB < MC; that amount
B) MB < MC; more
C) MB > MC; more
D) MB > MC; none
Figure: The Market for English Textbooks
(Figure: The Market for English Textbooks) Look at the figure The Market for English
Textbooks. With a binding price floor at $90, the market outcome would be a _____ of
_____ textbooks.
A) surplus; 45
B) surplus; 30
C) shortage; 45
D) shortage; 30
Figure: Production Possibility Frontier Curve for Tealand
(Figure: Production Possibility Frontier
for Tealand) Look at the figure Production Possibility Frontier for Tealand. If Tealand is
producing 10 million scones and 10 million cups of tea (point A), we know that the
economy:
A) is using its resources efficiently.
B) is using its resources inefficiently.
C) is fully employing its resources.
D) has found new resources.
An industry with a large number of relatively small firms producing differentiated
products in a market with easy entry and exit of firms is:
A) a monopoly.
B) a duopoly.
C) an oligopoly.
D) monopolistically competitive.
Suppose that a binding price floor is in place in a particular market. If the market is
deregulated and the price floor is removed:
A) the quantity demanded will decrease and the quantity supplied will increase.
B) excess demand will develop.
C) the quality of the good supplied will decrease.
D) the quality of the good supplied will improve.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. If the price of a power cord is $2 and the market wage rate is $60 per hour,
the profit-maximizing quantity of labor is _____ workers.
A) zero
B) two
C) four
D) six
If a perfectly competitive firm is producing a quantity where MC = MR, then profit:
A) is maximized.
B) can be increased by increasing production.
C) can be increased by decreasing production.
D) can be increased by decreasing the price.
The study of behavior in situations of interdependence is known as:
A) dominant strategies.
B) game theory.
C) Nash equilibrium.
D) tacit collusion.
A binding price floor is a _____ set _____ the equilibrium price.
A) minimum price; at
B) maximum price; below
C) minimum price; above
D) maximum price; above
If the opportunity cost of producing either of two goods in question is constant, the
production possibility frontier is:
A) linear.
B) concave to the origin.
C) convex to the origin.
D) upward-sloping.
Frances has a linear production possibility frontier when she produces tomatoes and
green beans. If she uses all of her resources, she can produce 400 bushels of tomatoes
or 800 bushels of green beans. Frances CANNOT efficiently produce _____ bushels of
tomatoes and _____ bushels of green beans.
A) 400; 0
B) 200; 400
C) 200; 200
D) 0; 800