1) Profits are the primary ‘success indicator” for firms in a centrally planned economy.
2) In the U.S., the progressive income-tax system substantial redistributes income.
3) Even if a majority of the population wants a law and the law is passed, the outcome
may still be economically inefficient.
4) Adverse selection is when someone with home insurance decides to take the chance
that a dying tree would fall on the garage, rather than spend the money to have the tree
cut down.
5) Removing all illegal immigrants would expand domestic-born employment by an
amount equal to the number of illegal immigrants removed.
6) Market failures refer to those situations where the sellers are not producing as much
as the buyers are wanting to buy.
7) The Freedom to Farm Act of 1996 aimed to eliminate agricultural price supports and
acreage allotments for many crops.
8) Preferred provider organizations (PPOs) are a type of managed-care organization.
9) Tariffs and import quotas meant to increase domestic employment also eliminate
domestic jobs in export industries.
10) The presence of framing effects influences how sellers present their products to
consumers.
11) Pure monopolists always earn economic profits.
12) If resource extraction companies can benefit from both present and future
extraction, they will limit current extraction to only those units which are more
profitable to extract in the present rather than in the future.
13) All inventors are entrepreneurs.
14) Piece-rates may not be appropriate pay in some situations because they might
reduce product quality.
15) The law of diminishing marginal utility suggests that the total utility that a
consumer derives from a product will increase slower and slower as more of the
product is consumed.
16) When diminishing marginal utility starts happening as a person consumes more and
more of a given good:
A.Total utility will diminish
B.Total utility will increase at a diminishing rate
C.Marginal utility will become negative
D.Total utility will become negative
17) The price elasticity of demand for health care is:
A.perfectly inelastic.
B.relatively inelastic.
C.relatively elastic.
D.perfectly elastic.
18) The trade deficit has had the effect of:
A.Decreasing the Federal budget deficit
B.Increasing economic growth in less developed nations
C.Increasing direct foreign investment in the United States
D.Decreasing protectionist pressure among U.S. businesses
19) A merger between a maker of household detergents and a fast-food chain would be
an example of:
A.a horizontal merger.
B.an interlocking directorate.
C.a conglomerate merger.
D.a tying contract.
20) Which of the following is most likely to be an example of monopsony?
A.The market for fast-food workers in a large summer resort town.
B.The market for card dealers in Las Vegas.
C.The market for Major League Baseball umpires.
D.The market for retail sales clerks in a major city.
21) The Campus Crustacean Company receives $2 per box for its crawfish and is
selling 1,600 boxes to maximize its profits. What is the profit per box of crawfish at this
equilibrium level of output if the average variable cost is $1 per box and fixed costs are
$1,200?
A.$.25
B.$.50
C.$1.00
D.$1.25
22) In the short run, a purely competitive seller will shut down if:
A.it cannot produce at an economic profit.
B.price is less than average variable cost at all outputs.
C.price is less than average fixed cost at all outputs.
D.there is no point at which marginal revenue and marginal cost are equal.
23) From society’s perspective, in the presence of a supply-side market failure, the last
unit of a good produced typically:
A.generates more of a benefit than it costs to produce.
B.produces a benefit exactly equal to the cost of producing the last unit.
C.maximizes the net benefit to society.
D.costs more to produce than it provides in benefits.
24) A cartel is:
A.A form of covert collusion
B.Legal in the United States
C.Always successful in raising profits
D.A formal agreement among firms to collude
25) Profit-maximizing businesses will buy more new machinery only if:
A.The interest rate increases
B.Labor costs are low and expected to fall
C.The expected rate of return of the new machinery is greater than the interest rate
D.The present value of the new machinery is lower than its purchase price
26)
Refer to the diagram. By producing at output level Q:
A.neither productive nor allocative efficiency is achieved.
B.both productive and allocative efficiency are achieved.
C.allocative efficiency is achieved, but productive efficiency is not.
D.productive efficiency is achieved, but allocative efficiency is not.
27) Round Things, Inc.’s production process exhibits economies of scale. Currently
their long-run average cost is $1/unit. If Round Things doubles its use of all inputs, its
new long-run average total cost will be:
A.$1/unit
B.Less than $1/unit
C.Greater than $2/unit
D.Greater than $1/unit but less than $2/unit
28)
Refer to the payoff matrix. Suppose that Speedy Bike and Power Bike are the only two
bicycle manufacturing firms serving the market. Both can choose large or small
advertising budgets. Is there a Nash equilibrium solution to this game?
A.There is no possible Nash equilibrium solution.
B.A Nash equilibrium can occur at either cell B or cell C
C.Cell A represents a Nash equilibrium.
D.Cell D represents a Nash equilibrium.
29) Oligopoly is more difficult to analyze than other market models because:
A.the number of firms is so large that market behavior cannot be accurately predicted.
B.the marginal cost and marginal revenue curves of an oligopolist play no part in the
determination of equilibrium price and quantity.
C.of mutual interdependence and the fact that oligopoly outcomes are less certain than
in other market models.
D.unlike the firms of other market models, it cannot be assumed that oligopolists are
profit maximizers.
30) What percentage of their spending do U.S. consumers allocate to food purchases?
A.1 percent.
B.8 percent.
C.13 percent.
D.15 percent.
31) The final settlement of the United States v. Microsoft case, in part:
A.requires that Microsoft provide technical information to competing companies so
they can develop software programs that work as well with Windows as Microsoft’s
own products.
B.broke up Microsoft into two competing firms.
C.found Microsoft not guilty of violating the Sherman Act.
D.forced Microsoft to sell off its major applications programs such as Word and
PowerPoint.
32) Camille’s Creations and Julia’s Jewels both sell beads in a competitive market. If at
the market price of $5 both are running out of beads to sell (they can’t keep up with the
quantity demanded at that price), then we would expect both Camille’s and Julia’s to:
A.raise their price and reduce their quantity supplied.
B.raise their price and increase their quantity supplied.
C.lower their price and reduce their quantity supplied.
33) Explain the concept of statistical discrimination and give an example of it. How can
it lead to discrimination even in the absence of prejudice?
34) Who pays taxes and who receives government spending? Explain.
35) Explain the difference between the economists and the accountants view of profit.
36) Define total fertility rate and replacement rate. Use them to describe the population
prospects for many developed countries.
37) The benefits of unimpeded immigration exceed the costs. Do you agree?
38) What two reminders are needed in the debate over social regulation?