A firm will begin to experience diminishing returns at the output where marginal
A) cost increases.
B) cost decreases.
C) product increases.
D) both B and C
If the price floor is set above the equilibrium price,
A) quantity demanded will equal quantity supplied.
B) there will be a surplus.
C) there will be a shortage.
D) the floor will be ineffective.
Assume you earn $20,000 a year and your favorite sports magazine costs you $100 a
year. Your demand for the sports magazine is likely to be
A) elastic.
B) inelastic.
C) perfectly elastic.
D) perfectly inelastic.
Figure 8.8
Refer to Figure 8.8. If this farmer is producing the profit-maximizing level of output,
her marginal cost is
A) $2.
B) $8.
C) $9.
D) $12.
A family that earns $20,000 a year pays $400 a year in taxes on clothing. A family that
earns $40,000 a year pays $200 a year in taxes on clothing. The tax on clothing is
A) a progressive tax.
B) a regressive tax.
C) a proportional tax.
D) a benefits-received tax.
Table 20.1
Refer to Table 20.1. In Mexico, the opportunity cost of 1 bushel of bananas is
A) 1/2 bushel of oranges.
B) 1 bushels of oranges.
C) 2 bushel of oranges.
D) 5 bushels of oranges.
Isoquants slope downward because as a firm uses more
A) units of an input to produce a product, total cost increases.
B) units of an input to produce a product, the input’s marginal productivity increases.
C) of one input, then to keep output constant it needs less of the other input.
D) both B and C
A surplus will occur if a ________ is set ________ the equilibrium price.
A) price floor; below
B) price floor; above
C) price ceiling; above
D) price ceiling; below
In the United States, in 2006, the top 1 percent of households received the smallest
percentage distribution of income as ________ income
A) property
B) total
C) labor
D) transfer
Market failure occurs when firms ________ resources.
A) have to purchase
B) do not use natural
C) misallocate
D) efficiently use
Related to the Economics in Practice on page 28: One reason for the increase in sales of
frozen foods from $1 billion in 1950 to $44 billion in 2012 is the
A) increased opportunity cost of cooking frozen meals.
B) decrease in the number of women in the labor force.
C) increased opportunity cost of preparing home-cooked meals.
D) decrease in popularity of the microwave oven.
Table 14.1
B’s Strategy
Refer to Table 14.1. Firm A’s optimal strategy is
A) to not raise the price of its product.
B) to raise the price of its product.
C) dependent on what Firm B does.
D) indeterminate from this information, as no information is provided on Firm A’s risk
preference.
When measuring income for the purpose of classifying people as poor, the measurement
of income used is
A) economic income.
B) comprehensive income.
C) cash income and noncash transfer payments.
D) money income.
Which of the following is something that firms with market power do NOT decide?
A) how much to supply in each input market
B) how much to produce
C) how to produce it
D) what price to charge for their output
The government’s role in a developing country is important during the country’s
development process because building social overhead capital
A) cannot be taken on by the private sector.
B) can only be financed by the private sector.
C) requires a joint venture between the public and private sectors.
D) can only be achieved in a developing country.
Economic growth may occur when
A) a society acquires new resources.
B) a society learns to produce more using existing resources.
C) the society begins to produce the combination of goods society wants most.
D) both A and B
Suppose a policy change generates $200,000 of benefits for low-income families and
$175,000 of costs for high-income and middle-class families. We can best describe the
change as
A) inefficient.
B) Pareto efficient.
C) potentially efficient.
D) equitable.
Oligopoly is difficult to analyze because
A) there is no price competition among oligopolistic firms.
B) of the complex interdependence that usually exists among oligopolistic firms.
C) price is NOT a decision variable for oligopolistic firms.
D) there is price competition among oligopolistic firms but no competition on product
quality.
China and India both have rapidly developing economies. What has fueled the growth
in these two countries?
A) China’s growth has been fueled by manufacturing, and India’s growth has been
fueled by services.
B) India’s growth has been fueled by manufacturing, and China’s growth has been
fueled by services.
C) Growth in both countries has been fueled by manufacturing.
D) Growth in both countries has been fueled by services.
Average total cost
A) measures the spread of overhead across output.
B) is the average cost of producing each unit of output.
C) is always increasing.
D) the sum of fixed cost and average variable cost.
The law of diminishing marginal utility implies that
A) demand curves always slope downward and to the right.
B) supply curves always slope upward and to the right.
C) a consumer will always buy positive amounts of all goods.
D) total utility will always increase by an increasing amount as consumption increases.
________ argued for a tax on consumption instead of on income because a tax on
income discourages saving by taxing savings twice.
A) John Rawls
B) Thomas Hobbes
C) Irving Fisher
D) Bill Clinton
Vaccinations convey ________ to third parties.
A) positive externalities
B) negative externalities
C) economies of scale
D) public goods
Assume that capital and labor are complementary inputs. If the firm decreases the
amount of capital it employs, this would
A) cause the firm to move down along the MP schedule for labor.
B) cause the firm to move up along its MP schedule for labor.
C) shift the firm’s MP schedule for labor to the left.
D) shift the firm’s MP schedule for labor to the right.
In an imperfectly competitive industry, a single firm ________ the price of its output.
A) always has complete control over
B) has some control over
C) has no control over
D) is unable to establish
Figure 8.4
Refer to Figure 8.4. Average variable costs will equal marginal costs at
A) two microwave ovens.
B) three microwave ovens.
C) six microwave ovens.
D) an indeterminate number of microwave ovens from this information.
Wilbur’s Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5
and its total variable cost is $300. What is the total cost of producing 100 widgets?
A) $300
B) $305
C) $500
D) $800
Figure 9.7
Refer to Figure 9.7. If demand for wheat is D1, then a profit maximizing firm will
produce ________ units and earn ________.
A) 0; negative profits
B) 5; zero profits
C) 10; negative profits
D) 12; positive profits
Figure 7.7
Refer to Figure 7.7 above. If Roller Skates Unlimited moves from isoquant B to
isoquant A, the number of roller skates produced
A) decreases.
B) increases.
C) remains constant, but Roller Skates Unlimited uses more capital and more labor.
D) remains constant, but input prices have risen.
________ write(s) most mortgage loans in the United States.
A) Fannie Mae
B) Banks
C) Savings and loans
D) Mortgage brokers
The American Pencil company produces pencils in a purely competitive market. The
price of pencils is 10 cents. Hourly output varies with the amount of labor hired as
follows:
Fill in the columns for marginal product of labor and marginal revenue product.
What is necessary for a firm to be part of a perfectly contestable market?
What are factor endowments?
If marginal product is a constant what can we conclude about the shape of the average
product function and why?
Use the graph above to answer the following question. Suppose that Jim is in casino in
Las Vegas and wins a $60,000 jackpot. The staff tells him that he can keep it or play
one more game that will allow him to increase his jackpot earnings by an additional
$20,000. The game involves simply flipping a coin. If it turns up heads he earns the
extra $20,000. However, if it turns up tails he loses $20,000 of his $60,000 jackpot.
Given the utility function above what is he likely to do and why?
Suppose an economics forecaster discovers that on days when the sunspot count is high
stock market on the following day is bullish, that is stock market prices edge upwards.
In addition, he also observes that on days with a low sunspot count the following day
the stock market tends to be bearish, that is stock market prices tend to fall. The
forecaster then concludes that there is a positive relationship between the sunspot count
and stock market prices and proceeds to base his investment decisions on this premise.
What kind of an error has this forecaster made?
Critically evaluate the following statement. “If a country can produce a good using
fewer inputs than other country then that means that country enjoys a comparative
advantage.”
In general, what is the final result of trade barriers?
Why do firms in perfectly competitive markets have no control over the price of their
products?
Using the diagram below explain why it the market is in disequilibrium at a price of
$1.75 and the process that will be necessary to restore it.
What is an isoquant?
What is the largest problem associated with using a tax to correct for an externality?
Explain.
Using the graph below explain why a consumer would not wish to consume at either
points A or C even though he could afford to do so.
\
Assume a desert island economy in which labor is the only scarce resource and labor
can be used to gather food (coconuts) or to build huts. There are six equally productive
individuals on the island. Each inhabitant can gather 25 coconuts in one day or build
one hut in one day.
Assume that in one day, two huts were built and 75 coconuts were gathered. What does
this situation depict?
Suppose that the price of capital is $10 per unit and the price of labor is $8 per unit.
Write an equation for an isocost line using this information. What would be the slope of
this isocost line?
HK Sweaters, Incorporated employs labor at a wage rate of $12 per hour and rents
capital for $30 per hour. At its current level of labor and capital, the marginal product of
labor is 24 and the marginal product of capital is 60. Is the firm currently maximizing
profit? Explain.
Over a long period of time, in the absence of any restrictions in the market, would you
expect the price elasticity of demand for crabs to be more elastic or inelastic? Explain.
Explain the “tragedy of commons.”