If an increase in the price of cotton increases total revenue, then the price effect is
_____ the quantity effect.
A) equal to
B) stronger than
C) weaker than
D) not comparable to
(Table: Producer Surplus and Phantom Tickets) The table Producer Surplus and
Phantom Tickets shows the minimum price at which each of the students is willing to
sell a ticket to Phantom of the Opera. Assume that each student has only one ticket to
sell. If the price for Phantom tickets is $140 and there is no other market for tickets,
total producer surplus for these five students is:
A) $139.
B) $110.
C) $40.
D) $379.
Table: Price Elasticity
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of
demand between $1.00 and $0.75?
A) 0.54
B) 0.66
C) 0.75
D) 1.00
At the optimal consumption bundle, which of the following conditions does NOT hold?
A) The ratio of marginal utility of any two goods is equal to the ratio of their prices.
B) The indifference curve is tangent to the budget line.
C) The marginal utility per dollar spent is equal for all goods consumed.
D) The prices of the goods in the optimal bundle are equal.
The horizontal summation of individual demand curves for a particular product, holding
the quantity demanded constant, is:
A) market demand.
B) market supply.
C) complements in production.
D) substitutes in production.
In 2000, the market for mortgage-backed securities:
A) grew rapidly because economists had developed a model that seemed capable of
predicting the risk associated with owning mortgage-backed securities.
B) closed down because Congress outlawed mortgage-backed securities.
C) took tremendous losses because the price of energy reached record highs.
D) was developed only in Europe.
Figure: Pricing Strategy in Cable TV Market II
(Figure: Pricing Strategy in Cable TV Market II) Look at the figure Pricing Strategy in
Cable TV Market II. The noncooperative equilibrium in the cable TV market occurs
when:
A) CableNorth sets a high price and earns $80,000 per month and CableSouth sets a
low price and earns $130,000 per month.
B) CableNorth sets a low price and earns $130,000 per month and CableSouth sets a
high price and earns $80,000 per month.
C) both firms set a low price and each earns $90,000 per month.
D) both firms set a high price and each earns $100,000 per month.
According to the substitution effect, which of the following best describes why a
decrease in the price of LED light bulbs leads to an increase in the quantity of LED
light bulbs demanded?
A) Buyers have more real income.
B) Buyers always purchase fewer substitute goods for LED light bulbs.
C) Buyers tend to purchase more of the now less expensive LED light bulbs.
D) Buyers tend to purchase more complementary goods to LED light bulbs.
(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. Suppose that these two
producers have formed a cartel and are maximizing total industry profits and splitting
the production of output evenly between themselves. If Margaret decides to cheat on the
agreement and sell 100 more gadgets, how many gadgets will she sell?
A) 0
B) 250
C) 350
D) 600
Which of the following best describes tradable emissions permits?
A) tax system for internalizing emission costs to the market
B) subsidy system for encouraging production of goods with positive externalities
C) system of voluntary negotiations between polluters and damaged parties
D) licenses that can be bought and sold and that enable the holder to pollute up to a
specified amount during a given period
_____ firms have the most market power.
A) Monopoly
B) Duopoly
C) Oligopoly
D) Monopolistic competition
If a university decreases the price of tickets to football games to collect more revenue, it
is assuming that the demand for tickets is:
A) unstable.
B) price-inelastic.
C) price-elastic.
D) price unit-elastic.
Scenario: Monopolistically Competitive Firm
For a monopolistically competitive firm, Q = 160 ” P; MC = 20 + 2Q; and TC = 20Q +
Q2 + 20.
(Scenario: Monopolistically Competitive Firm) Given the information in the scenario
Monopolistically Competitive Firm, in the long run, this firm can expect that:
A) its demand curve will become more elastic as it dominates the market more.
B) its economic profits will decrease to zero.
C) its losses will fall and eventually become a positive economic profit.
D) other firms will not enter or exit the industry.
When the price of armchairs increases, the:
A) quantity supplied increases.
B) supply increases.
C) quantity supplied decreases.
D) supply decreases.
In the short run, a monopolistically competitive firm produces at the optimal level of
output and is earning positive economic profits. Which of the following must be TRUE
for this firm?
A) MR = MC and P = ATC.
B) MR = MC and P > ATC.
C) MR > MC and P = ATC.
D) P = MR = MC > ATC.
The demand curve for a perfectly competitive firm is:
A) perfectly inelastic.
B) perfectly elastic.
C) downward-sloping.
D) relatively but not perfectly elastic.
Figure: Shifts in Demand and Supply IV
(Figure: Shifts in Demand and Supply IV) Look at the figure Shifts in Demand and
Supply IV. The figure shows how supply and demand might shift in response to specific
events. Suppose the price of lumber falls dramatically. Which panel BEST describes
how this will affect the market for new houses?
A) panel A
B) panel B
C) panel C
D) panel D
Suppose the government imposes a $10 per month tax on cell phone service. If the
demand curve for cell phone service is perfectly inelastic and the supply curve is
upward-sloping, the monthly price for cell phone service will increase by:
A) $5.
B) less than $10.
C) $10.
D) $0.
Figure: The Marginal Decision Rule
(Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule.
Economic profit:
A) is earned between q1 and q2.
B) is earned between the origin and q1.
C) is earned as a maximum at q1.
D) cannot be determined from the information provided.
The price elasticity of demand for lettuce has been estimated to be 2.58. If an insect
infestation destroys 10% of the nation’s lettuce crop, how will that affect total revenue
from lettuce, all other things unchanged?
A) Total revenue will remain unchanged.
B) Total revenue will fall.
C) Total revenue will rise.
D) The information is insufficient to answer the question.
France and England both produce wine and cloth with constant opportunity costs.
France can produce 150 barrels of wine if it produces no cloth or 100 bolts of cloth if it
produces no wine. England can produce 50 barrels of wine if it produces no cloth or
100 bolts of cloth if it produces no wine. Using this information, we can conclude that:
A) France has a comparative advantage in cloth production.
B) England has a comparative advantage in cloth production.
C) France has a comparative advantage in both goods.
D) mutually beneficial international trade is not possible.
Which of the following statements about unions is TRUE?
A) Laws allow unions to discriminate on the basis of gender and ethnicity.
B) Unions bargain for better working conditions at the cost of higher wages.
C) Unions cause a surplus of labor by bargaining for wages that are higher than the
value of the marginal product of labor.
D) Unions cause compensating differentials.
Although freshwater is very abundant in most places, it is scarce because:
A) it has no alternative uses.
B) there is not enough of it to meet all needs.
C) it is a free good.
D) scarce goods in general are not all that costly.
(Table: The Market for Chocolate-Covered Peanuts) Look at the table The Market for
Chocolate-Covered Peanuts. If the price of chocolate-covered peanuts is $0.60, the
price will:
A) not change.
B) fall to $0.30.
C) fall to $0.50.
D) rise to $0.70.
The Herfindahl”Hirschman index equals _____ when _____ have (has) _____ of the
market.
A) 10,000; four firms each; 25%
B) 5,000; three firms each; 33%
C) 5,000; two firms each; 50%
D) 100,000; one firm; 100%
Large disparities in wages are often used as:
A) evidence of the importance of profit maximization.
B) a means to question the validity of the marginal productivity theory of income
distribution.
C) evidence of diminishing returns.
D) evidence to illustrate the absence of market failures in factor markets.
If a country imposes a tariff on imported shoes, we expect the domestic price of shoes
to _____, domestic consumption to _____, and domestic production to _____.
A) fall; fall; fall
B) fall; rise; fall
C) rise; fall; rise
D) rise; rise; fall
Tacit collusion in an industry is limited by:
A) a large number of firms.
B) simple products and pricing.
C) the bargaining power of buyers.
D) a large number of firms and the bargaining power of buyers.
The larger the output, the more output over which fixed cost is distributed. Called the
_____ effect, this leads to a ______ average _____ cost.
A) spreading; lower; fixed
B) spreading; higher; fixed
C) diminishing returns; lower; variable
D) diminishing returns; higher; variable