When OPEC raises the price of petroleum, American expenditures on oil imports
increase, suggesting that
a. the United States’ elasticity of demand for imported oil is greater than one.
b. the United States’ elasticity of demand for imported oil is less than one.
c. imported oil and domestically produced oil are complementary goods.
d. the short-run elasticity of demand for oil is greater than the long-run elasticity.
A monopolist is a price maker.
a. True
b. False
The payroll tax represents
a. the largest source of revenue in the federal budget.
b. the second largest source of revenue in the federal budget.
c. the third largest source of revenue in the federal budget.
d. the largest source of revenue in state government budgets.
What is the nature of the elasticity of the demand curve faced by perfectly competitive
firm?
a. Perfectly inelastic
b. Perfectly elastic
c. Unit elastic
d. Highly elastic
Average cost curves have the same shape as
a. total cost curves.
b. marginal cost curves.
c. total fixed cost curves.
d. average fixed cost curves.
A firm has $200,000 to spend on either direct sales or advertising. Suppose further that
if the $200,000 is spent on direct sales, it will bring in an accounting profit of $40,000
Instead, the (accounting) profit it could obtain from a $200,000 investment in
advertising is $X. Compare the profitability of the two options if (a) X = 50,000, (b) X
= 30,000, or (c) X = 40,000
The price of a ride on the Washington, D.C. metro depends on the time of day you ride.
This is an example of
a. exploitation.
b. inefficiency.
c. political interference with a market.
d. pricing to spread out demand.
In 1980, in order to stimulate agricultural production, Fidel Castro allowed Cuban
farmers to sell their goods directly to consumers and keep whatever profit they made.
Some farmers were earning $50,000 per year, compared with the average worker
income of $2,400 The workers resented this. Castro denounced the farmers as
“capitalist gangsters” and closed the free markets. Cuban cash income declined five
percent and fresh vegetables were in short supply. This illustrates the economic concept
of the
a. law of comparative advantage.
b. equality-efficiency trade-off.
c. cost disease of the service sector.
d. unemployment-inflation trade-off.
e. All of the above are correct.
A main cause of the cost disease of personal services is
a. the change from an agrarian to an industrial society.
b. labor-saving innovations in the service industries.
c. the unevenness in growth of productivity in the economy.
d. massive increases in industrial production at the expense of consumer goods
production.
A demand schedule shows
a. the “market potential” for a product.
b. how much consumers are willing and able to buy at different prices.
c. possible combinations of output under different conditions.
d. how much producers would like to sell at different prices.
e. All of the above are correct.
If the price of one input changes, the firm will change its use of that input only.
a. True
b. False
When a patent is awarded, no one but the patent owner may produce the invention
without his permission.
a. True
b. False
Chronic trade deficits lead to a growing national debt.
a. True
b. False
It required less labor time to buy a college education in 1995 than it did in 1965.
a. True
b. False
The short-run supply curve of the perfectly competitive firm is the firm’s
a. MC curve.
b. AVC curve.
c. MC curve above the minimum point on the AVC curve.
d. MC curve above the minimum point on the ATC curve.
Government plays a role in which type of economy?
a. only free market economies like the United States
b. only socialist economies
c. only mixed economies
d. all economies
Economic rent refers to profit derived from owning an apartment complex.
a. True
b. False
If a person who weighs 100 lbs. is riding in an elevator and is joined by a person
weighing 120 lbs., what happens to the average weight of persons on the elevator?
a. It falls.
b. It rises.
c. It stays the same.
The reason why cleanup costs are lower for a taxes approach than for a direct controls
approach is that
a. all firms reduce pollution equally and fairly.
b. firms that are able to clean up at lowest cost do so; others don’t.
c. large polluters clean up the most, which is always lowest cost.
d. small polluters clean up the most, which is generally the cheapest.
One of the main reasons that people want to limit imports is the
a. fear that imports will decrease the income of Americans.
b. idea that cheap foreign labor destroys American jobs.
c. concept that if trade benefits another country, it must harm the United States.
d. All of the above are correct.
Composites of stock prices
a. are completely random and unpredictable.
b. fluctuate randomly around a rising trend.
c. are destabilized by speculations.
d. show no trend, but fluctuate widely.
In January, 2,500 quarts of ice cream are sold in Boston at $2 a quart. In February,
3,000 quarts are sold at $2,50 a quart. This change in quantity sold and price may have
been caused by
a. a reduction in wages in the Boston area.
b. the introduction of labor-saving automated ice cream-packing machinery.
c. the release of a medical study showing that ice cream consumption improves mental
health.
d. the decision by Boston ice cream sellers to eliminate discount coupons.
If one tracks the prices of critical metals, one sees that
a. they have risen more slowly than the general rate of inflation.
b. they have risen about as rapidly as the general rate of inflation.
c. the prices indicate increasing scarcity of the metals.
d. the prices have fluctuated too wildly to conclude anything.
Unions became much less effective in the 1990s because of
a. greater competition in domestic markets.
b. increased foreign competition.
c. downsizing by American firms.
d. All of the above are correct.
In the negative income tax plan, a guarantee of $5,000 and a tax rate of 50 percent
imply a break-even income of which of the following figures?
a. $1,000
b. $2,500
c. $10,000
d. $12,500
When an airline reduces its fares, other airlines typically match the action. But when an
airline increases its fare, other airlines do not follow suit. Which oligopoly model cartel,
price leadership, or kinked demand best fits the airline industry as described? Justify
your choice and explain why the other models are less appropriate.
What are the main determinants of demand elasticity? Explain their importance.
If a small firm wishes to pay cash in one year for a $10,000 machine, how much must
the firm currently place in savings at 5 percent in order to have the necessary total cash
in one year?
What are the assumptions of the kinked demand curve model? What is its main
conclusion about oligopoly behavior?
Explain how productivity growth has led to labor market realignment in the United
States.
Voluntarism often has proved to be weak and unreliable. Does it still have a place in
controlling activities that damage the environment?
If the income of buyers increases and a company maintains the same price, what is the
most likely impact on quantity sold? Explain. Draw a graphical display of the result.
Jupiter likes moons more than rings and gets marginal utility worth $5 from the last
moon, and $2 from the last ring. Saturn prefers rings, getting MU = $3 from the last
ring and $1 from moons. Describe a trade that would increase efficiency.
If the typical firm’s minimum average variable cost is $10 at an output of 50 units, if
marginal cost is $20 at 70 units, and there are 1,000 firms in the industry, sketch supply
curves for the typical firm and for the industry as a whole.