An agreement among firms to charge the same price or otherwise not to compete is
called
A) a payoff matrix.
B) a subgame-perfect equilibrium.
C) a Nash equilibrium.
D) collusion.
An expansion path shows
A) the level of sales necessary for a firm if it wants to expand.
B) the level of long-run average cost at different scales of operation.
C) the least-cost combination of inputs for each level of output.
D) the returns to scale at each level of output.
Of the different types of businesses, a corporation has the ________ government rules
and the ________ government regulations affecting it.
A) least; least
B) least; most
C) most; least
D) most; most
Table 14-5
Ming and Henri each run one of the two dry cleaning facilities in the town of Scaraby.
Both consider offering free pickup and delivery services. Table 14-5 shows the payoff
matrix containing the expected quarterly profits for each firm.
Refer to Table 14-5. Does Henri have a dominant strategy? If yes, what is it?
A) Yes, Henri’s dominant strategy is to not offer free pickup and delivery.
B) Yes, Henri’s dominant strategy is to offer free pickup and delivery.
C) No, Henri does not have a dominant strategy – his best outcome depends on what
Ming does.
D) Yes, Henri’s dominant strategy is to wait and see what Ming does first.
Which of the following is not an example of a trade restriction?
A) tariffs
B) quotas and voluntary export restraints
C) legislation requiring that cars sold in a country have a 50 percent domestic content
D) consumer preferences for goods produced domestically
Consider the following methods of taxing a corporation’s income:
a. A flat tax, as opposed to a progressive tax, is levied on corporate profits.
b. A system whereby a corporation calculates its annual profit and notifies each
shareholder of her portion of the profits. The shareholder would then be required to
include this amount as taxable income for her personal income tax. The corporation
does not pay a tax.
c. A system where the federal government continues to tax corporate income through
the corporate income tax but allows individual taxpayers to receive, tax free, corporate
dividends and capital gains.
Which of the methods above would avoid double taxation?
A) a, b, and c
B) a and b only
C) a and c only
D) b and c only
Figure 9-1
Figure 9-1 shows the U.S. demand and supply for leather footwear.
Refer to Figure 9-1. Suppose the government allows imports of leather footwear into
the United States. The market price falls to $18. What is the value of consumer surplus?
A) $0
B) $270
C) $305
D) $320.
How does the owner of a sole proprietorship relate to the business?
A) The owner and the business are separate legal entities.
B) The owner and the business are not separate legal entities.
C) The assets of the owner are considered separate from the assets of the business.
D) None of these describe the legal relationship of the owner to the business.
Holding the price of a firm’s output constant, if the marginal product of labor increases
A) the marginal revenue product of labor decreases.
B) the marginal revenue product of labor also increases.
C) the marginal products of other inputs also increase.
D) the marginal revenue product of labor may increase or decrease.
Suppose $1 billion is available in the budget and Congress is considering allocating the
funds to one of the following three alternatives:
a. subsidies for education
b. research on Alzheimer’s
c. increased border security
If voters prefer a to b and b to c, then if preferences are transitive,
A) they should prefer a to c.
B) they should prefer c to a.
C) they should be indifferent between a and c.
D) it is not always possible to rank voters’ preferences between a and c.
Figure 16-5
Refer to Figure 16-5. Suppose the firm represented in the diagram decides to use a
two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the
monopoly price. What is the quantity it should produce?
A) 240 units
B) 320 units
C) 480 units
D) 560 units
For a natural monopoly to exist
A) a firm must continually buy up its rivals.
B) a firm’s long-run average cost curve must exhibit diseconomies of scale beyond the
economically efficient output level.
C) a firm’s long-run average cost curve must exhibit economies of scale throughout the
relevant range of market demand.
D) a firm must have a government-imposed barrier.
The development of a new good or a new process for making a good is called
A) an innovation.
B) an invention.
C) a factor of production.
D) a service.
Table 11-3
Refer to Table 11-3. The table above refers to the relationship between the quantity of
workers employed and the number of cardboard boxes produced per day by Manny’s
House of Boxes. The capital used to produce the boxes is fixed. The highest value of
the average product is labor is ________ when Manny hires ________ workers.
A) 80; 3
B) 100; 3
C) 100; 2
D) 80; 4
The marginal productivity theory of income distribution states that
A) as more and more units of labor are added to a fixed quantity of capital, eventually
labor’s contribution to a firm’s income will decrease.
B) income distribution is determined by the marginal productivity of the factors of
production that individuals own.
C) factors of production in short supply command higher prices than those available in
abundant quantities.
D) capital owners receive the bulk of a nation’s income because capital-intensive
production generates productivity gains.
Figure 2-6
Refer to Figure 2-6. If the economy is currently producing at point C, what is the
opportunity cost of moving to point B?
A) 10 thousand wrenches
B) 13 thousand hammers
C) 30 thousand wrenches
D) 23 thousand hammers
Figure 4-1
Figure 4-1 shows Arnold’s demand curve for burritos.
Refer to Figure 4-1. If the market price is $1.00, what is the consumer surplus on the
third burrito?
A) $0.50
B) $1.00
C) $1.50
D) $7.50
Figure 10-6
The above panels show various combinations of indifference curves and budget
constraints for two products: Popcorn and Candy.
Refer to Figure 10-6. A change in the price of candy only is shown in
A) Panel A.
B) Panel B.
C) Panel C.
D) none of the above panels.
Table 9-4
Output Per Hour of Work
Table 9-4 shows the output per hour of work for handbags and jackets in Cambodia and
in Thailand.
Refer to Table 9-4.
a. Which country has an absolute advantage in the production of handbags and jackets?
b. Which country has a comparative advantage in the production of handbags?
c. Which country has a comparative advantage in the production of jackets?
The marginal rate of technical substitution is measured by
A) the slope of the isoquant.
B) the relative input prices.
C) the slope of the isocost line.
D) the ratio of the product’s price to the product’s cost of production.
Figure 15-2
Figure 15-2 above shows the demand and cost curves facing a monopolist.
Refer to Figure 15-2. To maximize profit, the firm will produce at output level
A) Q1.
B) Q2.
C) Q3.
D) Q4.
A table that shows the possible payoffs each firm earns from every combination of
strategies by all firms is called
A) an earnings table.
B) a payoff table.
C) a payoff matrix.
D) a strategic matrix.
Table 4-6
Refer to Table 4-6. The equations above describe the demand and supply for Chef
Ernie’s Sushi-on-a-Stick. The equilibrium price and quantity for Chef Ernie’s sushi are
$60 and 20 thousand units. What is the value of producer surplus?
A) $100 thousand
B) $200 thousand
C) $600 thousand
D) $800 thousand
Some policymakers have argued that products like cigarettes, alcohol, and sweetened
soda generate negative externalities in consumption. All else equal, if the government
decided to impose a tax on soda, the equilibrium quantity of soda would ________ and
the equilibrium price of soda would ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
A newspaper story on the effect of higher milk prices on the market for ice cream
contained the following:
“As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent
from last year. . . . And ice cream consumption is down 3 percent.”
Source: John Curran, “Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream
Prices,” Associated Press, July 23, 2001.
Based on the information given, what is the price elasticity of demand for ice cream?
A) 75 (in absolute value)
B) 33 (in absolute value)
C) 12%
D) We do not have enough information to calculate the elasticity.
Collusion makes firms better off because if they act as a single entity (a cartel) they can
reduce output and increase their prices and profits. But some cartels have failed and
others are unstable. Which of the following is a reason why cartels often break down?
A) Most cartels do not have a dominant strategy.
B) When a cartel is profitable the amount of competition it faces increases.
C) Members of a cartel may resent having to share their profits equally.
D) Each member of a cartel has an incentive to “cheat” on the collusive agreement by
producing more than its share when everyone else sticks with the collusive agreement.
Consider a discount retailer such as Costco which uses a two-part tariff pricing strategy.
The Costco membership fee
A) buys the consumer the right to make future purchases at Costco.
B) is a resalable asset to the consumer.
C) is a resalable asset to the producer.
D) is used by Costco to cover its fixed costs of production.
Figure 4-4
Refer to Figure 4-4. The figure above represents the market for pecans. Assume that
this is a competitive market. If 8,000 pounds of pecans are sold
A) the deadweight loss is equal to economic surplus.
B) producer surplus equals consumer surplus.
C) the marginal benefit of each of the 8,000 pounds of pecans equals $9.
D) marginal benefit is equal to marginal cost.
In Porter’s Five Competitive Forces model, “competition from substitute goods or
services” refers to
A) substitute products that come from outside the industry.
B) substitute products that come from domestic competitors in the same industry.
C) substitute products that come from foreign competitors in the same industry.
D) competition from producers of substitutes who outsource their production.
The median voter theorem states that the outcome of a majority vote
A) tends to favor the preferences of high-income individuals and ignore the median
voter.
B) is likely to represent the preferences of society’s middle-income voter.
C) is likely to represent the preferences of the voter who is in the political middle.
D) is determined by the average consumer and producer in an economy.
If marginal cost is zero, with an optimal two-part tariff
A) total revenue is maximized.
B) consumers maximize their surplus
C) the firm does not have to charge a fixed-fee portion.
D) firms may not maximize profit.
Figure 15-4
Figure 15-4 shows the demand and cost curves for a monopolist.
Refer to Figure 15-4. What is the amount of the monopoly’s profit?
A) $2,700
B) $4,200
C) $10,400
D) $12,600
Figure 2-6
Refer to Figure 2-6. If the economy is currently producing at point E, what is the
opportunity cost of moving to point B?
A) 13 thousand hammers
B) 10 thousand hammers
C) 30 thousand wrenches
D) 0 wrenches
Which of the following is motivated by an efficiency concern?
A) In December 2006, the Bush administration restarted a short-term housing assistance
program for victims of Hurricane Katrina.
B) Each year, the University of Notre Dame conducts a lottery to parcel out the 30,000
seats available to contributors, former athletes, and parents in the 80,000-seat stadium.
C) The United Network for Organ Sharing advocates a system of rationing scarce
kidneys that would favor young patients over old in an effort to wring more life out of
donated organs.
D) The federal government’s housing choice voucher program assists very low-income
families, the elderly, and the disabled to afford decent, safe, and sanitary housing in the
private market.
Damian shares a small food truck with his sister. His share of the expenses is $500 per
month. He has decided to get his own, newer food truck which he will not have to share
with anyone. His expenses for the newer truck are $1,400 per month. Damian is as
rational as any other person. As an economics major, you rightly conclude that
A) Damian cannot afford the newer truck and will have to go back to sharing a truck
with his sister.
B) Damian figures that the additional benefit of having his own truck (as opposed to
sharing) is at least $900.
C) Damian figures that the additional benefit of having his own truck (as opposed to
sharing) is at least $1,400.
D) the cost of having one’s own truck outweighs the benefits.