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Which of the following scenarios is likely to provide the LEAST amount of economic
usefulness?
A) NFL player Peyton Manning is shown throwing a football in a toothpaste
commercial.
B) An online advertisement is posted at Cars.com for a 2005 Volvo S60 with 60,000
miles, a sunroof, and heated leather seats.
C) An actor in a television commercial is describing the benefits and side effects of a
new arthritis medication.
D) A radio commercial for a local restaurant is announcing special prices during any
college football broadcast.
Television programs are nonrival because:
A) the supplier cannot prevent consumption by people who do not pay for it.
B) more than one person can consume the same unit of the good at the same time.
C) individuals ignore the effect of their use on the amount of the resource remaining for
others.
D) the market suffers from inefficiently low consumption.
At various times, the nations that constitute the Organization of Petroleum Exporting
Countries (OPEC) have restricted the supply of oil to increase their profits. This is an
example of:
A) individual actions whose side effects are not properly taken into account by the
market.
B) one party preventing mutually beneficial trades in an attempt to capture a greater
share of resources for itself.
C) the unsuitability of some goods for efficient management by markets.
D) regulating self-interest.
Moral hazard can be reduced by:
A) the use of 100% insurance coverage.
B) imposing a deductible on insurance coverage.
C) taking away personal stakes for people with private information.
D) offering fewer incentives to people with private information to act in a less risky
manner.
(Table: Consumer Surplus and Phantom Tickets) The table shows Consumer Surplus
and Phantom Tickets each student's willingness to pay for a Phantom of the Opera
ticket. Assume that each student wants to buy one ticket. If the box office price of a
ticket to see Phantom of the Opera is $50 and there is no other market for tickets, the
total consumer surplus for the five students is:
A) $100.
B) $175.
C) $230.
D) $240.
Figure: Marginal Private Benefits and Marginal Social Benefits
(Figure: Marginal Private Benefits and Marginal Social Benefits) Look at the figure
Marginal Private Benefits and Marginal Social Benefits. Without government
intervention, this market will produce _____ units at a price of _____.
A) Q0; P0
B) Q1; P0
C) Q1; P2
D) Q2; P1
National defense and e-books are similar in that both are _____, but they differ in that
national defense is _____, while e-books are not.
A) rival in consumption; excludable
B) nonrival in consumption; nonexcludable
C) excludable; rival in consumption
D) nonexcludable; nonrival in consumption
Figure: The Market for Hamburgers
(Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. If
the market is originally in equilibrium and the government imposes an excise tax of
$0.80 per unit of the good sold, the deadweight loss associated with the tax will be:
A) $40.
B) $240.
C) $105.
D) $90.
(Table: Optimal Choice of Milk and Honey) Look at the table Optimal Choice of Milk
and Honey. The price of milk is $2 per gallon, and the price of honey is $4 per jar. Hal's
income is $16. If he spends all of his income on honey, the most he can buy is _____
jars, and his total utility will be _____.
A) 4; 152
B) 4; 22
C) 6; 204
D) 8; 240
When a person receives a wage increase, changes in his or her labor supply depend on:
A) a substitution effect and an income effect.
B) a substitution effect only.
C) an income effect only.
D) diminishing marginal product.
The average total cost of producing cell phones in a factory is $20 at the current output
level of 100 units per week. If fixed cost is $1,200 per week:
A) average fixed cost is $20.
B) total cost is $3,200.
C) variable cost is $2,000.
D) average variable cost is $8.
In the short run, if P > ATC, a perfectly competitive firm:
A) produces output and earns zero economic profit.
B) produces output and earns an economic profit.
C) produces output and incurs an economic loss.
D) does not produce output and earns economic profit.
(Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is one of many firms in a competitive industry, how
many lunches will he produce in the long run?
A) 0
B) 20
C) 40
D) 60
The percentage of an increase in income that is taxed is:
A) the marginal rate.
B) a regressive tax.
C) a flat tax.
D) after tax.
Figure: Change in the Total Surplus
(Figure: Change in Total Surplus) Look at the figure Change in Total Surplus. Which of
the following areas represent the change in total surplus when the price falls from P2 to
P3?
A) A, B, and C
B) B and C
C) B, C, D, and E
D) C and E
A perfectly competitive industry is in a state of long-run equilibrium. Which of the
following must be TRUE?
A) P = MR = MC > ATC.
B) P = MR = MC < AVC.
C) P = MR = MC = ATC.
D) P > MR = MC = AVC.
A shirt manufacturer sold 10 dozen shirts per day at $4 per shirt but sold 15 dozen shirts
per day at $3 per shirt. The price elasticity of demand (by the midpoint method) is:
A) greater than zero but less than 1.
B) equal to 1.
C) greater than 1 but less than 3.
D) greater than 3.
(Table: Externalities from Parks) The table Externalities from Parks shows the marginal
social benefit and the marginal social cost of preserving various amounts of land in a
city for a public park. If 5 acres is dedicated to the park, this outcome is _____ because
_____.
A) efficient; MSB = MSC
B) efficient; MSB > MSC
C) inefficient; MSB > MSC
D) inefficient; MSB < MSC
To find her optimal consumption bundle, Vanessa would have to:
A) calculate the numerical value of the utility she receives from each specific
consumption bundle.
B) rank-order consumption bundles based on the level of utility she receives from each
one.
C) calculate her budget for each consumption bundle and identify the substitution and
income effects of each bundle.
D) choose her bundles in an irrational manner.
Figure: Monthly Demand for Ice Cream Cones
(Figure: Monthly Demand for Ice Cream Cones) The graph Monthly Demand for Ice
Cream Cones shows one individual's monthly demand for ice cream cones. At $5 per
cone, this individual will consume 10 cones in a month. How much consumer surplus
does this consumer receive?
A) $100
B) $50
C) $150
D) $500
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 short run, this firm:
A) earns profits of $2,430.
B) incurs losses of $2,450.
C) earns no profit.
D) incurs losses of $20.
In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium
is for:
A) neither to confess.
B) both to confess.
C) one to confess and the other not to confess.
D) This game does not have a Nash equilibrium.
If your purchases of shoes remain constant at 9 pairs per year when the price of shirts
increases from $8 to $12, for you, shoes and shirts are considered:
A) inferior goods.
B) unrelated goods.
C) substitute goods.
D) complementary goods.
Table: Lindsay's Farm
(Table: Bonnie's Production Function for Good Z) Look at the table Bonnie's
Production Function for Good Z. The costs that vary with Bonnie's level of production
are her:
A) fixed costs.
B) variable costs.
C) rent and insurance.
D) costs that remain the same regardless of what she produces.
Werner installs custom sound systems in cars. If he installs seven systems per day, his
total costs are $300. If he installs eight systems per day, his total costs are $400. Werner
will install eight sound systems per day only if the eighth customer is willing to pay at
least:
A) $300.
B) $400.
C) $100.
D) $50.
Figure: The Optimal Quantity
(Figure: The Optimal Quantity) Look at the figure The Optimal Quantity. If the cost of
lawn mowing decreased for all quantities of lawns mowed, the _____ curve in the
figure would shift to the _____ and the total profit would _____.
A) marginal benefit; right; increase
B) marginal cost; right; increase
C) marginal benefit; left; decrease
D) marginal cost; left; decrease
The broccoli market is perfectly competitive. This means that the price of broccoli is
_____ than if the market were monopolistically competitive, and broccoli output is
_____ than if it were monopolistically competitive.
A) lower; higher
B) lower; lower
C) higher; lower
D) higher; higher
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. Which of the
following is a point on Alex's short-run supply curve?
A) P = $5; Q = 10.
B) P = $10; Q = 100.
C) P = $60; Q = 40.
D) P = $20; Q = 300.
