Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5
million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its
accounting:
A. profits were $100,000 and its economic profits were zero.
B. losses were $500,000 and its economic losses were zero.
C. profits were $500,000 and its economic profits were $1 million.
D. profits were zero and its economic losses were $500,000.
The term “dollar votes” means:
A. inflation will occur if consumers do not spend wisely.
B. voters may be offered dollars to help elect certain political candidates.
C. government is responsible for determining what will be considered legal money.
D. consumers “vote” for certain products to be produced by how they spend their
incomes.
If the U.S. dollar appreciates in value relative to foreign currencies, then this will:
A. increase aggregate supply.
B. decrease aggregate supply.
C. increase aggregate demand.
D. cause a movement along the aggregate demand curve.
If the Congress passes legislation to cut taxes to counter the effects of a severe
recession, then this would be an example of a(n):
A. political business cycle.
B. contractionary fiscal policy.
C. expansionary fiscal policy.
D. nondiscretionary fiscal policy.
If all firms in an industry are price takers in the market for resource A, then:
A. the price of resource A will increase if a single firm increases its output.
B. more efficient firms will produce at levels where the marginal revenue product of the
last unit of resource A is higher.
C. less efficient firms will produce where the marginal revenue product of the last unit
of resource A is higher.
D. the marginal product of the last unit of resource A will be the same in all firms in the
industry.
In constructing a stable demand curve for product X:
A. consumer preferences are allowed to vary.
B. the prices of other goods are assumed constant.
C. money incomes are allowed to vary.
D. the supply curve of product X is assumed to be fixed.
Along a linear downward-sloping demand curve, the price elasticity of demand will be:
A. greater than one across each price range.
B. less than one across each price range.
C. equal to zero across each price range.
D. different across each price range.
The failure of the McDonald’s McLean burger was an example of:
A. an increase in demand.
B. consumer sovereignty.
C. technological advances.
D. economic profit.
The fact that expenditures on products and payments to owners of resources used to
produce those products flow in opposite directions is known as:
A. roundabout production.
B. a barter economy.
C. a pure economy.
D. the circular flow of income.
Which of the following is not a central focus of the “economic perspective”?
A. Scarcity and choice
B. The scientific method
C. Purposeful behavior
D. Marginal analysis
Refer to the above graph. Consider a monopolist in short-run equilibrium. This
monopolist:
A. has a loss per unit equal toDE.
B. has total fixed costs equal to area BEFC.
C. earns economic profit equal to area ABED.
D. will cease production since its economic profits are negative.
Which industry would be the best example of an oligopoly?
A. Steel
B. Electricity
C. Fast food
D. Retail clothing
In presenting the model of a demand curve, economists presume the most important
variable in determining the quantity demanded is:
A. the price of the product itself.
B. consumer income.
C. the prices of related goods.
D. consumer tastes.
When an economist says that there is “too much of a good thing,” the economist is
suggesting that:
A. scarcity is not a problem.
B. wants are limited.
C. the marginal cost of the thing is less than the marginal benefit.
D. the marginal benefit of the thing is less than the marginal cost.
One feature of pure monopoly is that the monopolist is:
A. a producer of products with close substitutes.
B. one of several producers of a product.
C. a price taker.
D. a price maker.
The “invisible hand” concept to describe the guiding function of prices was developed
by:
A. Jeremy Bentham.
B. Adam Smith.
C. Milton Friedman.
D. David Ricardo.
With no inflation, a bank would be willing to lend a small business firm $5 million at an
annual interest rate of 3 percent. But, if the rate of inflation was anticipated to be 4
percent, the bank would charge the firm an annual interest rate of:
A. 3 percent.
B. 4 percent.
C. 7 percent.
D. 10 percent.
Suppose two workers can harvest $46 and three workers can harvest $60 worth of
apples per day. On the basis of this information we can say that the:
A. marginal product of each of the first two workers is 23.
B. marginal revenue product of each of the first two workers is $23.
C. marginal revenue product of the third worker is $14.
D. third worker should not be hired.
With a downsloping demand curve and an upsloping supply curve for a product, a
decrease in resource prices will:
A. increase equilibrium price and quantity.
B. decrease equilibrium price and quantity.
C. decrease equilibrium price and increase equilibrium quantity.
D. increase equilibrium price and decrease equilibrium quantity.
At the point where the demand and supply curves for a product intersect:
A. the selling price and the buying price need not be equal.
B. the market may, or may not, be in equilibrium.
C. either a shortage or a surplus of the product might exist, depending on the degree of
competition.
D. the quantity that consumers want to purchase and the amount producers choose to
sell are the same.
Which organization meets regularly to establish rules related to international trade?
A. The United Nations
B. The Bank of America
C. The World Trade Organization
D. The Federal Reserve Board
Which constitutes an obstacle to collusion among oligopolists?
A. A standardized product.
B. A large number of firms.
C. Prosperous economic conditions.
D. Trademarks and copyrights.
The Campus Crustacean Company receives $2 per box for its crawfish and is selling
1600 boxes to maximize its profits. What is the per-unit profit on a box of crawfish at
the profit-maximizing level of output if the variable cost is $1 per box and fixed costs
are $1200?
A. $0.25
B. $0.50
C. $1.00
D. $1.25
In the long run, the representative firm in monopolistic competition tends to have:
A. excess capacity.
B. economic profits.
C. limited product differentiation.
D. a perfectly elastic demand curve.
Refer to the above graph. Comparing monopsony with pure competition in the sale of
output and hiring of labor services, the difference in the wage rate will be:
A. W0 – W1.
B. W1 – W2.
C. W2 – W3.
D. W1 – W3.
A group of three plants that is owned and operated by a single firm and that consists of
a farm growing wheat, a flour-milling plant, and a plant that bakes and sells bread
would best be an example of a:
A. multiplant firm.
B. vertically integrated firm.
C. partnership.
D. conglomerate.
The short-run supply curve for a competitive firm is the:
A. entire MC curve.
B. segment of the MC curve lying below the AVC curve.
C. segment of the MC curve lying above the AVC curve.
D. segment of the AVC curve lying to the right of the MC curve.
Which of the following statements concerning the relationships between total product
(TP), average product (AP), and marginal product (MP) is not correct?
A. AP continues to rise so long as TP is rising.
B. AP reaches a maximum before TP reaches a maximum.
C. TP reaches a maximum when the MP of the variable input becomes zero.
D. MP cuts AP at the maximum AP.
Refer to the above graph. Under monopsony in the sale of output and hiring of labor
services, the wage rate will be:
A. W1 and Q1 workers will be hired.
B. W2 and Q2 workers will be hired.
C. W2 and Q1 workers will be hired.
D. W3 and Q1 workers will be hired.
Refer to the above graph. It shows a firm that buys its inputs and sells its output in
competitive markets. If labor productivity decreases, the equilibrium level of
employment for this firm is expected to be:
A. L0.
B. zero.
C. lower than L0.
D. higher than L0.
An example of derived demand is the demand for:
A. housing by consumers.
B. machines by businesses.
C. paper products by households.
D. agricultural products by foreign consumers.
Other things being equal, if a formerly competitive firm attains a high degree of
monopoly power, its resource demand curve will:
A. become perfectly inelastic.
B. remain perfectly elastic.
C. become more elastic.
D. become more inelastic.
Refer to the above graph. Consider a monopolist in short-run equilibrium. This
monopolist has total fixed cost equal to area:
A. BEFC.
B. ABED.
C. ADFC.
D. 0CFQ.
Accounting profits are typically:
A. greater than economic profits because the former do not take explicit costs into
account.
B. equal to economic profits because accounting costs include all opportunity costs.
C. smaller than economic profits because the former do not take implicit costs into
account.
D. greater than economic profits because the former do not take implicit costs into
account.
The infant industry argument for tariffs is criticized:
A. because it is difficult to determine which industries merit protection.
B. because direct subsidies are probably a better means of stimulating such industries.
C. because the tariffs may remain after the industry reaches maturity.
D. for all of these reasons.