There are several close substitutes for Quaker State oil but fewer substitutes for a
complete checkup of your car’s engine. We can expect the demand for:
A) Quaker State oil to be more price-inelastic.
B) the two to be equally price-elastic.
C) car checkups to be more price-elastic.
D) Quaker State oil to be more price-elastic.
Figure: The Market for MP3 Players
(Figure: The Market for MP3 Players) Look at the figure The Market for MP3 Players.
Assume that Sd represents the domestic supply curve and Dd represents the domestic
demand curve. In the market for MP3 players, the autarky price equals:
A) $140.
B) $120.
C) $110.
D) $100.
At the end of the 1980s, Lloyd’s of London was in severe financial trouble because of:
A) a major recession in Western Europe and the United States.
B) terror attacks by the IRA.
C) asbestos claims.
D) the war in Iraq.
A binding price floor causes:
A) a shortage in the market.
B) a surplus in the market.
C) wasted resources.
D) a surplus in the market and wasted resources.
(Table: Choice with Uncertainty) Look at the table Choice with Uncertainty. Suppose
the probability that the sitcom does not make it to television is 50%, that it makes it to
television but is not the most viewed show in its time slot is 30%, and that it makes it to
television and is the most viewed show in its time slot is 20%. Given this information,
Norman’s expected income is:
A) $52,500.
B) $47,500.
C) $40,000.
D) $37,500.
André has asked his boss for a pay raise. His boss is concerned that if he increases
André’s salary, André might work less. In other words, André’s boss is concerned that
leisure is a normal good for André and that his:
A) income and substitution effects might move in the same direction.
B) income effect might be greater than his substitution effect.
C) substitution effect might be greater than his income effect.
D) income and substitution effects might cancel out to zero.
What is the difference between a shortage and scarcity?
A) Scarcity will almost always exist, but a shortage will exist only if the price is kept
below the equilibrium level.
B) Scarcity is a result of two or more alternative uses, and quantities of supply and
demand adjusting to flexible prices will create shortages.
C) A shortage will exist when a good is scarce.
D) There is no distinction between the two. They are the same thing.
Figure: Consumer Surplus II
(Figure: Consumer Surplus II) Look at the figure Consumer Surplus II. If the price of
the good is $2, consumer surplus will equal:
A) $30.
B) $45.
C) $60.
D) $90.
If a perfectly competitive firm sells 300 units of output at $1 per unit, its marginal
revenue is:
A) less than $1.
B) $1.
C) more than $1 but less than $300.
D) $300.
An input whose quantity CANNOT be changed in the short run is:
A) marginal.
B) fixed.
C) incremental.
D) variable.
Suppose an income tax is levied on none of the first $1,000, 10% of the next $10,000,
and 20% of the remainder of earnings. This type of tax can be defined as:
A) progressive.
B) proportional.
C) regressive.
D) equitable.
Figure: Efficiency and Pollution
(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution. If this
market produced _____ tons of pollution, then _____.
A) 30; it would be efficient
B) 45; marginal social cost would be less than marginal social benefit
C) 20; marginal social benefit would be less than marginal social cost
D) 20; the marginal social benefit would be $7.
If in Equitania, 20% of the population receive 80% of the income and the remaining
80% of the population receive 20% of the income, Equitania’s economy:
A) is efficient.
B) cannot be efficient, since efficiency requires a more nearly equal distribution of
income.
C) may be efficient.
D) is neither efficient nor equitable.
The United States can produce wine domestically, but it can also import wine if the
world price is lower than the domestic price. If the United States imports wine,
consumer surplus will _____ by _____ the _____ in producer surplus; total surplus will
_____.
A) increase; less than; decrease; decrease
B) increase; the same amount as; decrease; stay constant
C) decrease; less than; increase; increase
D) increase; more than; decrease; increase
Consumers’ differing tastes are one reason monopolistic:
A) firms encounter large barriers to entry.
B) competitors earn a positive economic profit in the long run.
C) competitors set price at MC.
D) competitors are similar to monopolists.
(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 with no marginal cost or fixed cost. If these two producers
formed a cartel and acted to maximize total industry profits, total industry profit would
be:
A) $10,000.
B) $5,000.
C) $2,500.
D) $1,250.
Mary and Bob are trying to decide how much auto insurance to buy. They share the
same expectations of an accident, with the same dollar loss. They also have the same
income levels. However, Mary would rather buy very little insurance, while Bob would
rather buy much more insurance. This suggests that:
A) Bob is more risk-averse than Mary.
B) Mary is more risk-averse than Bob.
C) Bob is risk-averse and Mary is risk-loving.
D) Mary is risk-averse and Bob is risk-loving.
(Table: Wheat and Aluminum) Look at the table Wheat and Aluminum. The United
States and Germany can produce both wheat and aluminum. The table shows the
maximum annual output combinations of wheat and aluminum that can be produced.
Based on the table:
A) the United States has a comparative advantage in wheat and an absolute advantage
in wheat.
B) Germany has an absolute advantage in aluminum and a comparative advantage in
wheat.
C) the United States has a comparative advantage in both aluminum and wheat.
D) Germany has a comparative advantage in aluminum and an absolute advantage in
aluminum.
Which of the following is an example of an artificially scarce good?
A) a candy bar
B) a free art exhibit in a city park
C) a pay-per-view boxing match on cable television
D) an interstate highway without tolls
Figure: The Demand for Bricklayers
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
If the equilibrium market wage for bricklayers falls from $110 to $100, the _____
bricklayers will _____.
A) demand for; rise
B) quantity demanded of; rise
C) demand for; fall
D) quantity demanded of; fall
Taylor sees a bar graph showing the average weight of adult males over the past 200
years and concludes that men get more obese over time. Taylor’s conclusion may be
wrong, since she did not consider:
A) the features of construction.
B) omitted variables.
C) reverse causality.
D) tangent lines.
(Figure: Marginal Product of Labor) Look at the figure The Marginal Product of Labor.
The total product of labor for five workers is _____ bushels.
A) 11
B) 45
C) 55
D) 75
Figure: Long-Run and Short-Run Average Cost Curves
(Figure: Long-Run and Short-Run Average Cost Curves) Look at the figure Long-Run
and Short-Run Average Cost Curves. If a firm is producing at point C on the ATC2 but
anticipates increasing output to 225,000 units in the long run, the firm will build a
_____ plant and have _____ of scale.
A) smaller; economies
B) smaller; diseconomies
C) bigger; economies
D) bigger; diseconomies
(Table: Natasha’s Total Utility) Look at the table Natasha’s Total Utility. Natasha earns
$50,000 per year but faces losing $20,000 of it if she is late with her work. If there is a
25% probability that Natasha will be late with her work and her income will equal
$30,000, what certain income leaves Natasha just as well off as her uncertain income?
A) $37,500
B) $38,200
C) $40,500
D) $42,500
Figure: Production Possibilities and Circular-Flow Diagram
(Figure: Production Possibilities and Circular-Flow Diagram) Look at the figure
Production Possibilities and Circular-Flow Diagram. Assume the two figures represent
the same economy. Suppose that in the circular-flow diagram there is a significant
increase in the amount of human capital flowing to both coconut producers and fish
producers. If all other variables remain unchanged, then the adjustment in this economy
would be best represented in the production possibilities figure by a movement from
point A toward:
A) point A (no movement).
B) point B (a decrease in coconut production and an increase in fish production).
C) point C (a decrease in coconut production).
D) point D (an outward shift of the entire curve).
If Paloma is consuming the utility-maximizing quantities of pizza and soda pop:
A) the price of pizza equals the price of soda pop.
B) the marginal utility of pizza is equal to the marginal utility of soda pop.
C) the ratio of the marginal utility to price is the same for pizza and for soda pop.
D) the total utility of pizza is equal to the total utility of soda pop.
Figure: Demand for Coconuts
(Figure: Demand for Coconuts) Look at the figure Demand for Coconuts. If coconuts
are a normal good and consumers believe that the price of coconuts will rise
significantly in the near future, it will be represented in the figure as a movement from:
A) C to A.
B) A to B.
C) B to E.
D) E to B.