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Because of tax competition, state and local taxes tend to be _____; however, federal
taxes tend to be _____.
A) regressive; regressive
B) progressive; regressive
C) progressive; progressive
D) regressive; progressive
Jacquelyn is a student at a major state university. Which of the following is NOT an
explicit cost of her attending college?
A) tuition
B) textbooks
C) the salary that she could have earned working full-time
D) computer lab fees
The cross-price elasticity of electricity with respect to the price of natural gas has been
estimated as being equal to 0.2. This implies that:
A) natural gas and electricity are both normal goods.
B) electricity and natural gas are complements.
C) electricity and natural gas are substitutes.
D) one of the two goods is inferior and the other is normal, but we need additional
information to determine which of them is normal.
Many customers will walk right past a diner that serves coffee and go to Starbucks,
where they pay more for a cup of java. For these customers, coffee is differentiated by:
A) style.
B) location.
C) quality.
D) type.
Which of the following is NOT an assumption that economists make when using the
model of perfect competition?
A) Firms seek to maximize profits.
B) The products of each firm in a particular market are identical.
C) Each firm sets its price equal to its average total cost.
D) Entry and exit are easy.
The _____ illustrates the trade-offs facing an economy that produces only two goods.
A) production possibility frontier
B) circular-flow diagram
C) all else equal assumption
D) income distribution
Figure: Payoff Matrix II for Blue Spring and Purple Rain
(Figure: Payoff Matrix II for Blue Spring and Purple Rain) Payoff Matrix II for Blue
Spring and Purple Rain describes two producers of bottled water. Suppose Blue Spring
charges a high price and Purple Rain does the same. In the next period, Blue Spring
charges a low price and Purple Rain incurs a loss. If Purple Rain responds with a
tit-for-tat strategy, it will:
A) always charge a low pricethe same as its dominant strategy.
B) make random changes in its price so that Blue Spring is left with no systematic
strategy.
C) charge a low price in the next period and thereafter charge the same price that Blue
Spring charged in the previous period.
D) always charge a high price.
Figure: The Profit-Maximizing Output and Price
(Figure: The Profit-Maximizing Output and Price) Look at the figure The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC =
MC = $200. The monopolist who can use price discrimination perfectly will produce an
output of _____ diamonds.
A) 0
B) 6
C) 16
D) 20
George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and
coffee (C). The price of a doughnut is $1 and the price of coffee is $2.50. Suppose
George's income drops to $25 and the prices of doughnuts and coffee each fall to
one-half their initial prices. One would expect George's budget line to:
A) shift to the right.
B) shift to the left.
C) rotate around one of the axes, but one cannot tell which one.
D) stay the same.
Figure: Market Failure
(Figure: Market Failure) Look at the figure Market Failure. Suppose it represents the
demand for and marginal cost per pound of shrimp in the bay. The additional cost of the
shrimp due to the depletion of the common resource is equal to AC. The output of F is
_____ because the marginal social benefit is _____ the marginal cost.
A) efficient; equal to
B) efficient; greater than
C) inefficient; greater than
D) inefficient; less than
If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when your
income increases from $19,000 to $21,000 a year, other things equal, for you, shoes are
considered:
A) a normal good.
B) an inferior good.
C) a complementary good.
D) a substitute good.
Figure: The Production Possibilities for Two Countries
(Figure: The Production Possibilities for Two Countries) Look at the figure The
Production Possibilities for Two Countries. The opportunity cost of producing 1 tire in
Indonesia is _____ radio(s), while the opportunity cost of producing 1 tire in Malaysia
is _____ radio(s).
A) 0.5; 2
B) 2; 1
C) 600; 800
D) 800; 1,200
Marginal cost is the change in _____ cost resulting from a one-unit change in _____.
A) total; a variable input
B) total; output
C) total; average cost
D) average; output
Figure: Illustrating Slope
(Figure: Illustrating Slope) Look at the figure Illustrating Slope. In the graph, line 3
depicts X and Y to be:
A) positively related.
B) unrelated.
C) negatively related.
D) both constants.
When price controls take the form of maximum prices set below the equilibrium price,
they are:
A) illegal.
B) equal to the demand price.
C) price floors.
D) price ceilings.
Suppose a local community decides to give all of its citizens over age 60 a parking pass
that will enable them to park in the front of parking lots. For people over 60, this policy
is:
A) equitable and efficient, since it applies to all citizens over 60.
B) equitable but not efficient, since it applies to all citizens over 60.
C) efficient but not equitable, since it applies to all citizens over 60.
D) neither equitable nor efficient.
A monopolistically competitive industry, such as corn snack chips, and a perfectly
competitive industry, like wheat farming, are alike in that:
A) firms in both types of industries produce identical products.
B) firms in both types of industries produce similar but not identical products.
C) barriers to entry in both industries are large.
D) there are many firms in each industry.
Table: Utility from Candy Bars and Sodas
(Table: Utility from Candy Bars and Sodas) Look at the table Utility from Candy Bars
and Sodas. Stan's daily income is $11, the price of a candy bar is $2, and the price of a
soda is $1. Given this budget constraint, Stan will receive the most utils from
consuming _____ candy bar(s) and _____ sodas.
A) 3; 5
B) 1; 4
C) 5; 6
D) 2; 7
The market price of airline flights increased recently. Some economists suggest that the
price increased because several airlines went out of business. They believe that in the
market for flights:
A) supply increased.
B) supply decreased.
C) demand increased.
D) demand decreased.
Figure: The Quantity of Pollution
(Figure: The Quantity of Pollution) Look at the table The Quantity of Pollution. The
socially optimal level of pollution emissions for this economy is:
A) 0.
B) 50.
C) 100.
D) 150.
If a consumer derives more utility by spending an additional $1 on good X rather than
on good Y:
A) MUx / Px > MUy / Py.
B) MUx / Px = MUy / Py.
C) MUx / Px < MUy / Py.
D) Px / MUx > Py / MUy.
(Table: Costs of Producing Bagels) Look at the table Cost of Producing Bagels. The
average total cost of producing 2 bagels is:
A) $0.05.
B) $0.10.
C) $0.20.
D) $0.40.
Suppose the production of roses generates a positive externality in that travelers enjoy
the scenic beauty of the garden. An appropriate government policy yielding the efficient
outcome would be a:
A) Pigouvian tax.
B) Pigouvian subsidy.
C) system of rose production permits.
D) reduction in transaction costs.
Which of the following best describes demand?
A) A change in demand is a movement along the demand curve, and a change in
quantity demanded is a shift in the demand curve.
B) A change in quantity demanded is a movement along the demand curve, and a
change in demand is a shift in the demand curve.
C) Both a change in quantity demanded and a change in demand are shifts in the
demand curve, only in different directions.
D) Both a change in quantity demanded and a change in demand are movements along
the demand curve, only in different directions.
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for
Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each
firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these
two producers have formed a cartel, agreed to split production of output evenly, and are
maximizing total industry profits. If Margaret decides to cheat on the agreement and
sell 100 more gadgets, how many gadgets will Margaret sell?
A) 500
B) 200
C) 300
D) 600
Figure: Davina's Labor Supply Choice
(Figure: Davina's Labor Supply Choice) The figure Davina's Labor Supply Choice
shows Davina's time allocation budget line when her hourly wage is $10 or $15 and she
has 80 hours to allocate between labor and leisure; it also shows two of her indifference
curves for income and leisure. As Davina's hourly wage rises from $10 to $15:
A) the income effect is greater than the substitution effect.
B) the substitution effect is greater than the income effect.
C) the substitution effect is equal to the income effect.
D) It is impossible to compare the income and substitution effect.
In the short run:
A) all inputs are fixed.
B) all inputs are variable.
C) some inputs are fixed and some inputs are variable.
D) all costs are variable.
Quota limits cause:
A) the demand price to be above the supply price.
B) the quantity demanded to be more than the quantity supplied.
C) the quantity demanded to be less than the quantity supplied.
D) the demand price to be less than the supply price.
