Which of the following would not occur as a result of a monopolistically competitive
firm suffering a short-run economic loss?
A) The firm could exit the industry in the long run.
B) If the firm does not exit the industry in the long run its demand curve will shift to the
left.
C) If the firm does not exit the industry in the long run its demand curve will shift to the
right.
D) If the firm remains in the industry in the long run it will break even.
Prices of PlayStation 4 game systems are similar at almost every large retailer and little
price competition occurs among these retailers. An explanation for this is
A) retailers are all price takers.
B) retailers have lobbied state governments to allow them to collude legally to set the
prices of certain products.
C) pricing PlayStation 4 game systems is a repeated game. Over a long period of time a
cooperative equilibrium has been reached where retailers charge high prices for these
systems.
D) retailers are in a prisoner’s dilemma which causes them to all charge the same price
for PlayStation 4 game systems.
In the United States, the bulk of health care spending is paid by health insurance
companies. Such a system is also called a third-party payer system where consumers of
health care pay a nominal fee and the rest are paid by the health insurance provider.
Why might such a system lead to an inefficient outcome?
A) Health insurance companies have an incentive to control cost and therefore tend to
deny consumers many cutting edge medical treatments.
B) Consumers have an incentive to over-consume health care services because they pay
prices well below the cost of providing these services.
C) Physicians concerned that insurance companies may not approve payments tend not
to order expensive tests for their patients.
D) Consumers fearing that excessive use of health care services may lead to a rise in
insurance premiums tend to under-consume health care services.
Figure 4-1
Figure 4-1 shows Arnold’s demand curve for burritos.
Refer to Figure 4-1. What is the total amount that Arnold is willing to pay for 4
burritos?
A) $1.00
B) $4.00
C) $7.00
D) $10.00
Suppose Barry is maximizing his utility from consuming used paperback novels and
audio books. The price of a used novel = $4 and the price of an audio book = $8. If the
marginal utility of the last novel was 32 units of utility (utils) what was the marginal
utility of the last audio book purchased?
A) 2 utils
B) 12 utils
C) 16 utils
D) 64 utils
If marginal product is greater than average product, then
A) average product must be decreasing.
B) marginal product must be decreasing.
C) marginal product must be increasing.
D) marginal product could either be increasing or decreasing.
Which of the following terms applies to the sale of a particular brand of jeans
manufactured in the U.S. and sold in Canadian stores?
A) exporting
B) outsourcing
C) insourcing
D) importing
Which of the following items is likely to have the highest income elasticity of demand?
A) a bus ride
B) a meal at Taco Bell
C) a vacation home in the Swiss Alps
D) a tank of gasoline
Which of the following is not an example of a derived demand?
A) Several of the animated films released between 1999 and 2001 failed to earn a
profit, which caused some companies to stop making these films, thereby decreasing
the demand for animators.
B) Seth Bullock, a personal-injury attorney, complains that he is earning far less now
than a few years ago largely because personal injury cases have been undercut by state
laws limiting class-action suits and payouts on damages.
C) Millicent Manning, the owner of a furniture store, is concerned that her sales have
fallen for the past six months. She attributes this to the downturn in the real estate
market.
D) As advancements in medical technology increase the safety and success of laser eye
surgery, the demand for opticians has decreased.
Figure 2-10
Figure 2-10 shows the production possibilities frontiers for Tahiti and Bora Bora. Each
country produces two goods, milk and honey.
Refer to Figure 2-10. Which country has a comparative advantage in the production of
honey?
A) Bora Bora
B) They have equal productive abilities.
C) Tahiti
D) neither country
If tolls on a toll road can be raised significantly before commuters will consider using a
free alternative, then an increase in tolls will result in
A) a decrease in total revenue.
B) a decrease in non-toll road usage.
C) an increase in total revenue.
D) an increase in toll road usage.
Health insurance plans which typically reimburse doctors mainly by paying a flat fee
per patient are known as
A) fee-for-service plans.
B) preferred provider organizations.
C) single-health-payer systems.
D) health maintenance organizations.
Which of the following would result in a higher absolute value of the price elasticity of
demand for a product?
A) A wide variety of substitutes are available for the good.
B) The time period under consideration is short.
C) The good is a necessity.
D) The expenditure on the good is small relative to one’s budget.
Assume that the LCD and plasma television sets industry is perfectly competitive.
Suppose a producer develops a successful innovation that enables it to lower its cost of
production. What happens in the short run and in the long run?
A) Initially, the firm will be able to increase its profit significantly, but in the long run
its profits will still be greater than zero but lower than its short run profits because other
firms would also innovate.
B) The firm will probably incur losses temporarily because of the high cost of the
innovation, but in the long run it will start earning positive profits.
C) This firm will be able to earn above normal profits indefinitely if it obtains a patent
for its innovation.
D) The firm will be able to increase its profits temporarily, but in the long run its profits
will be eliminated as other firms copy the innovation.
If the percentage change in the quantity of teapots demanded is greater than the
percentage change in the price of teapots, then
A) the price elasticity of demand for teapots is greater than 1 in absolute value.
B) the demand for teapots is unit-elastic.
C) the price elasticity of demand for teapots is equal to zero.
D) the price elasticity of demand for teapots is less than 1 in absolute value.
In the United States in 2012, of those companies employing more than 200 workers that
offer health care to those workers, about ________ percent of employees accept the
coverage.
A) 10
B) 36
C) 62
D) 98
Which two factors make regulating mergers complicated?
A) First, firms may lobby government officials to influence their decision to approve
the merger. Second, by the time the government officials reach a decision regarding the
merger, the firms often decide not to merge.
B) First, the time it takes to reach a decision to approve a merger is so long that the
firms often have new owners and mangers. Second, by law, government officials are not
allowed to consider the impact of foreign trade (exports and imports) on the degree of
competition in the markets of the merged firms.
C) First, the Federal Trade Commission and the Antitrust Division of the U.S.
Department of Justice must both approve mergers. Second, the concentration ratios that
are used to evaluate the degree of competition the merged firms face are flawed.
D) First, it is not always clear what market firms are in. Second, the newly merged firm
might be more efficient than the merging firms were individually.
Figure 7-2
Figure 7-2 represents the market for medical services with and without insurance, and
the effect of a third-party payer system on the demand for medical services.
Refer to Figure 7-2. If consumers paid the full price of medical services, the price they
would pay is
A) $25.
B) $40.
C) $55.
D) >$55.
Figure 15-10
Refer to Figure 15-10. What is the area that represents consumer surplus under a
monopoly?
A) the triangle P0P1F
B) the triangle P0P2E
C) the trapezium P1P2EF
D) the rectangle P1P3HF
For productive efficiency to hold
A) price must equal the marginal cost of the last unit produced.
B) price must equal marginal revenue of the last unit sold.
C) average variable cost is minimized in production.
D) average total cost is minimized in production.
Figure 3-4
Refer to Figure 3-4. If the current market price is $10, the market will achieve
equilibrium by
A) a price increase, increasing the supply and decreasing the demand.
B) a price decrease, decreasing the supply and increasing the demand.
C) a price decrease, decreasing the quantity supplied and increasing the quantity
demanded.
D) a price increase, increasing the quantity supplied and decreasing the quantity
demanded.
The law of diminishing marginal utility states that
A) eventually total utility falls as more of a good is consumed, other things constant.
B) the extra satisfaction from consuming a good decreases as more of a good is
consumed, other things constant.
C) the extra satisfaction from consuming a good increases slowly as more of a good is
consumed, other things constant.
D) when the extra satisfaction from consuming a good becomes negative, total utility
starts falling, other things constant.
What are the two types of taxes that working individuals pay on their earnings?
A) individual income tax and sales tax
B) payroll tax and sales tax
C) individual income tax and social insurance taxes
D) property tax and payroll tax
An inward shift of a nation’s production possibilities frontier can occur due to
A) a reduction in unemployment.
B) a natural disaster like a hurricane or bad earthquake.
C) a change in the amounts of one good desired.
D) an increase in the labor force.
Figure 9-3
Since 1953 the United States has imposed a quota to limit the imports of peanuts.
Figure 9-3 illustrates the impact of the quota.
Refer to Figure 9-3. What is the area of domestic producer surplus without a quota?
A) C
B) C + B
C) A + B + C
D) A + B + C + D
The global business environment consists of four distinct elements: the forces of
globalization, national business environments, the international business environment,
and ________.
A) domestic investment opportunities
B) technological innovation
C) international firm management
D) multinational corporations
Figure 4-4
Refer to Figure 4-4. The figure above represents the market for pecans. Assume that
this is a competitive market. If the price of pecans is $9, what changes in the market
would result in an economically efficient output?
A) The price would decrease, the quantity supplied would decrease, and the quantity
demanded would increase.
B) The quantity supplied would increase, the quantity demanded would decrease and
the equilibrium price would decrease.
C) The price would decrease, the demand would increase and the supply would
decrease.
D) The price would increase, the quantity demanded would decrease and the quantity
supplied would increase.
An example of a payroll tax in the United States is
A) Social Security taxes.
B) taxes on corporate profit.
C) excise taxes on gasoline.
D) property taxes on real estate.
Figure 11-2
Refer to Figure 11-2. The curve labeled “F” is
A) the total product curve.
B) the average product curve.
C) the marginal product curve.
D) the output supply curve.
Economies of scale will create a barrier to entry in an oligopoly industry when
A) a firm’s minimum efficient scale occurs where long-run average total costs are
constant.
B) the typical firm’s long-run average total cost curve reaches a minimum at a level of
output that is a large fraction of total industry sales.
C) the typical firm’s long-run average total cost curve reaches a minimum at a level of
output that is a small fraction of total industry sales.
D) the industry’s four-firm concentration ratio is less than 40 percent.
Figure 18-1
Refer to Figure 18-1. Of the tax revenue collected by the government, the portion
borne by producers is represented by the area
A) B+C.
B) F+G.
C) E+H.
D) B+C+F+G.
Game theory was developed in the 1940s by John von Neuman, a mathematician, and
an economist named
A) John Nash.
B) John Maynard Keynes.
C) Oskar Morgenstern.
D) Milton Friedman.
Figure 11-1
Refer to Figure 11-1. The marginal product of the 3rd worker is
A) 57.
B) 19.
C) 15.
D) 11.
Table 4-4
Table 4-4 shows the demand and supply schedules for labor market in the city of Pixley.
Refer to Table 4-4. If a minimum wage of $11.50 an hour is mandated, what is the
quantity of labor demanded?
A) 40,000
B) 570,000
C) 610,000
D) 1,180,000