The income effects of a change in price are most important for goods that:
A) take up a substantial share of a consumer’s spending.
B) are very inexpensive.
C) are imported.
D) are normal.
Figure and Table: The Budget Line
(Figure and Table: The Budget Line) Look at the figure and table The Budget Line.
_____ in the price of potatoes would rotate the budget line along the _____ axis _____
the origin.
A) An increase; horizontal; away from
B) A decrease; horizontal; toward
C) An increase; vertical; away from
D) A decrease; vertical; away from
The total cost curve is:
A) positively sloped.
B) negatively sloped.
C) vertical.
D) horizontal.
(Table: Choice with Uncertainty) Look at the table Choice with Uncertainty. Assume
that the probability that the sitcom does not make it to television is 60%, the probability
that it makes it to television but is not the most viewed show in its time slot is 30%, and
the probability that it makes it to television and is the most viewed show in its time slot
is 10%. Norman’s expected income is:
A) $52,500.
B) $47,500.
C) $40,000.
D) $37,500.
In the circular-flow diagram, the factor market is where:
A) households buy factors of production.
B) households buy goods and services.
C) businesses buy goods and services.
D) businesses buy factors of production.
Emilio finds a new job that doubles his income. He adjusts his consumption. From this
we know that for every normal good Emilio buys, his:
A) marginal utility per dollar will rise.
B) marginal utility per dollar will fall.
C) marginal utility per dollar will stay constant.
D) total utility will fall.
You can spend $100 on either a new economics textbook or a new CD player. If you
choose to buy the new economics textbook, the opportunity cost is:
A) $100.
B) your enjoyment of the new CD player.
C) both the $100 and your enjoyment of the new CD player.
D) impossible to determine.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $20, how much is Sergei’s profit at the optimal short-run
output?
A) $100
B) $0
C) “$5
D) “$10
If the market for concert tickets is in equilibrium and the concert promoter tries to
increase the number of tickets sold, all other things constant, total surplus will increase.
Policies designed to promote efficiency will never decrease equity; however, policies
designed to promote equity will usually decrease efficiency.
Figure: An Individual’s Marginal Benefit from a Public Good
(Figure: An Individual’s Marginal Benefit from a Public Good) Look at the figure An
Individual’s Marginal Benefit from a Public Good. Assume that two individuals will
share consumption of a public good; each individual has the marginal benefit curve
shown in the figure. If the marginal cost of the good is $24, how many units of the
public good will be provided by the private market?
A) 0
B) 8
C) 12
D) 16
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. Each has two
strategies available to it: a high price and a low price. The dominant strategy for Purple
Rain is to:
A) charge a low price.
B) charge a high price.
C) adopt the same strategy as Blue Spring.
D) Purple Rain does not have a dominant strategy.
Steven consumes staples and paper clips. He is maximizing his utility in consumption
of both goods. The price of staples falls. Assuming that diminishing marginal utility
applies to both goods, as he adjusts to this event, the marginal utility of staples will
_____, and the marginal utility of paper clips will _____.
A) rise; fall
B) rise; rise
C) fall; fall
D) fall; rise
Figure: The Production Possibility Frontiers for Jackson and Tahoe
(Figure: The Production Possibility Frontiers for Jackson and Tahoe) Look at the figure
The Production Possibility Frontiers for Jackson and Tahoe. In autarky, Jackson
produces and consumes 30 head of cattle and 80 bushels of wheat, while Tahoe
produces and consumes 80 head of cattle and 60 bushels of wheat. Assume each nation
specializes completely, based on comparative advantage, and the price of 1 head of
cattle equals the price of 2 bushels of wheat. If Jackson exports 120 bushels of wheat to
Tahoe, Tahoe will export _____ head of cattle to Jackson.
A) 120
B) 60
C) 240
D) 200
Janet’s poodle grooming salon has a total cost curve expressed by the equation TC =
100 + 3Q2, where Q is the quantity of dogs groomed. Janet notices that as she grooms
more dogs, her total cost curve:
A) becomes steeper.
B) becomes flatter.
C) stays constant.
D) becomes steeper and then becomes horizontal.
Figure: Equilibrium in the Labor Market
(Figure: Equilibrium in the Labor Market) In the figure Equilibrium in the Labor
Market, an increase in the productivity of labor, when everything else stays the same,
will lead to a(n) _____ in the equilibrium quantity of labor and a(n) _____ in the
equilibrium price of labor.
A) decrease; increase
B) increase; decrease
C) decrease; decrease
D) increase; increase
An effective minimum wage ultimately means that:
A) some unskilled workers have a difficult time finding a job.
B) employers must encourage workers to apply for positions.
C) employers will have difficulty finding enough workers for their positions.
D) employees are generally guaranteed employment.
Equilibrium exists when:
A) output is distributed equitably.
B) scarcity is eliminated.
C) an individual would be better off taking a different action.
D) no individual has an incentive to change his or her behavior.
In the short run, fixed costs:
A) are an important feature in a firm’s decision to produce or not produce.
B) have no impact on a firm’s profit level.
C) do not exist.
D) remain constant.
Suppose the probability of a major theft at a hotel is 1%, while the probability of an
earthquake hitting the hotel is 2.3%. The probability that both would occur on the same
day is therefore:
A) 0.00023%.
B) 0.0023%.
C) 0.023%.
D) 2.3%.
In terms of labor supply, the substitution effect of a higher wage causes a(n):
A) increase in leisure time.
B) decrease in the quantity of labor supplied.
C) substitution of work for leisure.
D) reduction of work time to zero.
A factor demand curve will shift to the left because of a(n) _____ in the price of the
_____.
A) increase; factor
B) increase; good the factor produces
C) decrease; factor
D) decrease; good the factor produces
Consider the marginal utility of income curves of Hank, Babe, Barry, and Willie. Hank’s
is constant; Babe’s is slightly diminishing; Barry’s is strongly diminishing; and Willie’s
is upward-sloping. All else equal, which of these individuals will be most risk-averse?
A) Hank
B) Babe
C) Barry
D) Willie
(Table: Bundles of X and Y) Look at the table Bundles of X and Y. Bundle(s):
A) A and B are on the same indifference curve.
B) A and C are on the same indifference curve.
C) D is on the highest indifference curve.
D) C is on the highest indifference curve, and bundles A and B are on the lowest
indifference curve.
(Table: Producer Surplus) Look at the table Producer Surplus. If the price of a ticket to
see The Nutty Nutcracker is $75, then Caitlin’s producer surplus is:
A) $0.
B) $74.
C) $75.
D) $100.
Figure: Comparative Advantage Eastland and Westland produce only two goods,
boxes of peaches and boxes of oranges, and this figure shows each nation’s production
possibility frontier for the two goods.
(Figure: Comparative Advantage) Look at the figure Comparative Advantage. Eastland
has an absolute advantage in producing:
A) oranges only.
B) peaches only.
C) both oranges and peaches.
D) neither oranges nor peaches.
Vonda and Aleiyah are shopping together at the mall for new jeans. Vonda is willing to
pay $90 and Aleiyah is willing to pay $50 for a pair of jeans. What is the gain in total
consumer surplus when the price decreases from $59 to $40?
A) $10
B) $29
C) $31
D) $60
Figure: The DVD Rental Market
(Figure: The DVD Rental Market) Look at the figure The DVD Rental Market. At a
rental price of $6, there will be:
A) equilibrium in the rental market for DVDs.
B) a decrease in demand.
C) an excess supply of 20 DVD rentals.
D) an excess demand of 20 DVD rentals.
In the short run, a perfectly competitive firm produces output and earns ZERO
economic profit if:
A) P < ATC.
B) P = ATC.
C) P < MC.
D) P > ATC.