Jane has $500 a week to spend on clothing and food. The price of clothing is $25 and
the price of food is $10. The clothing and food pairs in Jane’s choice set include
________ units of clothing and ________ units of food.
A) 50; 50
B) 20; 50
C) 15; 25
D) 8; 30
A government wants to reduce electricity consumption by 5%. The price elasticity of
demand for electricity is -0.05. The government must ________ the price of electricity
by ________.
A) raise; 100.0%
B) raise; 10.0%
C) raise; 1.0%
D) lower; 20%
If a perfectly competitive firm’s average total cost curve is above its demand schedule at
every level of output, then the firm will earn ________ profits.
A) positive
B) break-even
C) negative
D) zero
There are 1,000 families in a neighborhood that are affected by noise pollution from a
local factory. The noise could be reduced if the company spent $5,000 on technological
improvements. The company agrees to make these improvements if the affected
families contribute the $5,000. However, because individuals will benefit from the
reduction in noise whether they contribute or not, most people will not contribute and
the firm will not make the improvements. This outcome is an example of the
A) free rider problem.
B) drop-in-the-bucket problem.
C) Coase theorem.
D) collective action problem (that arises when there are too many parties involved).
The ________ that a firm takes in when it increases output by one additional unit is
marginal revenue.
A) total revenue
B) added revenue
C) extra resources
D) additional labor
A Nash equilibrium occurs if all players in a game play their best strategies
A) before their competitors do.
B) given what their competitors do.
C) without knowing what their competitors do.
D) only if their competitors are unaware of their strategies.
The Framing Gallery frames posters and has total fixed costs of $1,000. The Framing
Gallery is currently framing ________ posters if its average variable cost is $20 and its
average total cost is $30.
A) 5
B) 25
C) 100
D) an indeterminate number of
An example of mechanism design is
A) a car dealership owner pays all her sales people a fixed salary.
B) welfare policy that has no limits on the amount of time a person can collect benefits.
C) health insurance with co-pays.
D) reduced prices on bulk consumer purchases.
The market structure in which the behavior of any given firm depends on the behavior
of the other firms in the industry is
A) perfect competition.
B) monopoly.
C) monopolistic competition.
D) oligopoly.
If firms do NOT have to account for external costs in production, then they will produce
an output level that is ________ the efficient level.
A) at
B) below
C) above
D) either above or below
Figure 4.4
Refer to Figure 4.4. If a $25 per barrel tax is levied on imported oil, the United States
will
A) import 2 million barrels of oil per day.
B) import 6 million barrels of oil per day.
C) import 10 million barrels of oil per day.
D) export 10 million barrels of oil per day.
Figure 10.2
Refer to Figure 10.2. This firm’s marginal cost curve has shifted from MC1 to MC0 A
profit-maximizing firm should ________ the amount of output produced and ________
its demand for labor.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) keep constant; increase
Ricardo eats 20 pieces of sushi on a Friday night but admits each piece of sushi doesn’t
taste as good as the previous one. This suggests that for Ricardo, the
A) marginal utility of a piece of sushi is positive but decreasing.
B) marginal utility of a piece of sushi is negative.
C) total utility of pieces of sushi is declining.
D) total utility of pieces of sushi is increasing by larger and larger increments.
Relating to the Economics in Practice on page 257: Subsidies for ethanol, a fuel
produced from corn, have affected the market for
A) corn.
B) wheat.
C) farm land.
D) All of the above are correct.
The case for ________ is based on the theory of ________ advantage.
A) trade barriers; comparative
B) free trade; absolute
C) trade barriers; absolute
D) free trade; comparative
Figure 16.2
Refer to Figure 16.2. The marginal damage cost imposed as a result of producing
automobiles is
A) $5.00 per car.
B) $10.00 per car.
C) $15.00 per car.
D) indeterminate from this information.
When market interest rates ________, ________ investment projects are undertaken.
A) decrease; more
B) increase; more
C) decrease; less
D) increase; no
Table 11.1
Refer to Table 11.1. If the interest rate is 5%, Nashbar Bicycle should
A) fund all of the projects.
B) not fund any of the projects.
C) fund only the employee fitness center.
D) fund all of the projects except for the employee fitness center.
Figure 8.9
Refer to Figure 8.9. This farmer’s profit-maximizing level of output is ________ units
of output.
A) 100
B) 350
C) 500
D) 700
The formula for AVC is
A) q/TVC.
B) TVC/q.
C) ΔTVC/Δq.
D) Δq/ΔTVC.
A monopolist can choose both price and quantity simultaneously. The amount of output
that it supplies depends ________ curve.
A) only on its marginal cost
B) only on its demand
C) on its marginal cost and its demand
D) on its average cost and its demand
Figure 3.8
Refer to Figure 3.8. Assume that there are only two people in the market for baseball
caps: Alex and Ryan. Along the market demand curve for baseball caps, at a price of
________, quantity demanded would be ________.
A) $10; 7
B) $10; 11
C) $8; 12
D) $8; 13
As economists use the term, depreciation is
A) using your savings to take a vacation.
B) A household selling its Treasury bonds.
C) a decrease in sales increasing a firm’s inventories.
D) a computer programmer’s knowledge of software becoming outdated as new
software is introduced.
A monopolist’s price equals its ________ only when output is zero.
A) marginal revenue
B) marginal cost
C) total cost
D) total revenue
Economists use the term ________ to refer to the creation of new capital.
A) investment
B) entrepreneurship
C) depreciation
D) finance
You own and are the only employee of a company that sets odds for sporting events.
Last year your total revenue was $60,000. Your costs for rent and supplies were
$50,000. To start this business you invested an amount of your own capital that could
pay you a $20,000 a year return.
Your accounting profit last year was
A) $10,000.
B) $30,000.
C) $50,000.
D) $60,000.
Figure 9.1
Refer to Figure 9.1. If this farmer maximizes profits, his revenue per bushel will be
A) $7.
B) $9.
C) $11.
D) $15.
San Francisco International Airport (SFO) is located adjacent to the community of San
Bruno. The noise from air traffic negatively affects individuals living in San Bruno,
however, this cost is not considered by airlines or air travelers. The airlines feel they
have a right to use the airspace while the individuals living in San Bruno feel they have
the right to quiet. The following diagram depicts the marginal costs and marginal
benefits associated with air travel.
Figure 16.5
Refer to Figure 16.5. Suppose the government assigns property rights to the airlines. No
negotiations occur between the parties. The ________ associated with the resulting
level of air travel is $120.
A) marginal social cost
B) marginal damage cost
C) average cost
D) marginal benefit
In the Cournot model the final level of output is ________ the output that would be
produced if the industry was a monopoly, and is ________ the output that would be
produced if the industry was perfectly competitive.
A) greater than; less than
B) less than; greater than
C) equal to; less than
D) greater than; equal to
Figure 17.1
Refer to Figure 17.1. Suppose Dmitri’s utility from income is given in the figure. From
this we would say that Dmitri is
A) risk neutral.
B) risk averse.
C) risk loving.
D) a risk taker.
Product differentiation that makes the product better for some consumers and worse for
others is
A) always welfare decreasing.
B) vertical differentiation.
C) horizontal differentiation.
D) never undertaken by firms.
A change in the price of a good or service leads to a ________ that leads to a ________.
A) change in demand; movement along the demand curve
B) change in quantity demanded; movement along the demand curve
C) change in demand; shift in the demand curve
D) change in quantity demanded; shift of the demand curve
Economic costs include
A) both a normal rate of return on investment and the opportunity cost of each factor of
production.
B) the direct costs of hiring all factors of production.
C) the opportunity cost of each factor of production minus any interest charges paid on
borrowed funds.
D) total revenue minus accounting profit.
In perfect competition, a firm’s demand curve
A) and the marginal revenue curve facing the firm are identical.
B) is always above the marginal revenue curve facing the firm.
C) is always below the marginal revenue curve facing the firm.
D) intersects the marginal revenue curve when marginal revenue is minimized.