Assume that diminishing marginal utility applies to both coffee and football tickets and
that the consumer is spending all of her income. If a consumer purchases a combination
of coffee and football tickets such that MUCoffee / PCoffee = 20 and MUFootballtickets /
PFootballtickets = 10, to maximize utility, the consumer should buy _____ coffee and
_____ football tickets.
A) less; more
B) more; fewer
C) more; more
D) less; fewer
(Table: Coke and Pepsi Advertising Game) Look at the table Coke and Pepsi
Advertising Game. The soft-drink industry is dominated by Coca-Cola and Pepsi, and
each firm spends a lot of money on advertising. Suppose each firm is considering a
costly television commercial during halftime of the Super Bowl. The table shows the
payoff matrix of profits that each firm would receive from their advertising decision,
given the advertising decision of their rival. Profits in each cell of the payoff matrix are
given as (Coke, Pepsi). If both firms expect to play this game every year for the
foreseeable future, in the outcome Coke _____ and Pepsi _____.
A) advertises; does not advertise
B) does not advertise; advertises
C) does not advertise; does not advertise
D) advertises; advertises
If an economy is efficient:
A) all goods are produced at their maximum quantity.
B) all opportunities to make people better off without making other people worse off
have been taken.
C) more resources have been used to produce specific consumer goods than producer
goods.
D) prices are the lowest they can possibly be.
(Table: The Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls. The
marginal utility for the sixth roll is:
A) “5.
B) 0.
C) 5.
D) “10.
For a common resource, the marginal social benefit at the quantity provided by a
private market is _____ the marginal social cost.
A) equal to
B) greater than
C) less than
D) irrelevant to
(Table: Tutoring) Look at the table Tutoring. If he can charge all students their
willingness to pay, Sigmund’s optimal number of tutoring hours is:
A) five.
B) four.
C) three.
D) two.
Figure: Estimating Price Elasticity
(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity.
Between the two prices, P1 and P2, which demand curve has the lowest price elasticity?
A) D1
B) D2
C) D3
D) D4
A monopolistically competitive industry is characterized by a _____ number of firms
producing _____ products; it has _____ entry.
A) small; identical; barriers to
B) small; similar; relatively easy
C) large; similar; relatively easy
D) large; identical; relatively easy
The price elasticity of demand measures the:
A) responsiveness of quantity demanded to a change in price.
B) responsiveness of price to a change in quantity demanded.
C) extent to which prices are flexible and respond to market forces.
D) responsiveness of demand when price is held constant and demand increases or
decreases.
Public goods should be provided to the point at which the marginal cost of production
equals:
A) the maximum price any individual is willing to pay for that unit.
B) the highest marginal benefit from any individual consumer of the good.
C) zero.
D) the sum of the individual marginal benefits from all consumers of that unit.
Political conservatives and liberals:
A) both oppose programs associated with the welfare state.
B) generally agree on their support of programs associated with the welfare state but
disagree on the appropriate extent of these programs.
C) have conflicting views; conservatives support programs associated with the welfare
state, while liberals oppose such programs.
D) have conflicting views; liberals support programs associated with the welfare state,
while conservatives oppose such programs.
(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social
benefit and cost of various amounts of pollution from a coal mine. If 2 tons of pollution
is produced, the outcome is _____ because _____.
A) efficient; MSB = MSC
B) efficient; MSB > MSC
C) inefficient; MSB > MSC
D) inefficient; MSB < MSC
Figure: Joanna’s Time Allocation Budget Line
(Figure: Joanna’s Time Allocation Budget Line) The figure Joanna’s Time Allocation
Budget Line depicts what happens when she can choose how to spend 40 hours. What is
the opportunity cost of an hour of leisure?
A) $10.00
B) $12.50
C) $40.00
D) $15.00
The government of a small town has decided to ban smoking in all restaurants, stores,
and government offices. This is an example of the principle that:
A) one person’s spending is another person’s income.
B) when markets fail to achieve efficiency, government intervention can improve
society’s welfare.
C) there are gains from trade.
D) resources should be used as efficiently as possible to achieve society’s goals.
The principle of _____ marginal rate of substitution states that the more chocolate
Susan consumes in proportion to coffee, the _____ coffee she is willing to substitute for
another piece of chocolate.
A) diminishing; less
B) diminishing; more
C) increasing; less
D) increasing; more
The cross-price elasticity of demand for Coke with respect to the price of Pepsi has
been estimated to be 0.61. If the price of Pepsi falls by 10%, all other things unchanged,
the quantity demanded of Coke will:
A) decrease by less than 6.1%.
B) decrease by 6.1%.
C) not change, because many people prefer Coke to Pepsi.
D) rise.
Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a
$1-per-gallon tax is levied. As a result, the price of gasoline rises to $3.75 per gallon.
The incidence of the $1 tax is _____ paid by consumers and _____ paid by producers.
A) $0.25; $0.75
B) $0.50; $0.50
C) $0; $1.00
D) $0.75; $0.25
If external costs exist, the competitive free market:
A) allocates resources inefficiently.
B) allocates resources efficiently.
C) automatically corrects an overallocation of resources.
D) automatically corrects an underallocation of resources.
All points on the production possibility frontier are:
A) efficient.
B) inefficient.
C) infeasible.
D) economic growth.
The marginal utility of coffee consumption for Steve is the change in _____ generated
by consuming an additional cup of coffee.
A) total utility
B) total consumption
C) total demand
D) price
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. If the price of a power cord is $2 and the market wage rate is $100 per
hour, the profit-maximizing quantity of labor is _____ workers.
A) zero
B) two
C) four
D) six
(Table: Marginal Benefit from Additional Streetlights) Look at the table Marginal
Benefit from Additional Streetlights. Suppose that the marginal cost of installing a
streetlight is $6. What is the maximum that Art would be willing to pay to have one
streetlight installed in the neighborhood?
A) $20
B) $15
C) $35
D) $5
Scenario: A Small-Town Monopolist
A monopolist sells cable subscriptions in a small town and finds that it can sell 100
subscriptions when the price is $15 a week and an additional 75 subscriptions when the
price is $10 a week. The MC for the provision of the cable is $5 a week. There are no
fixed costs.
(Scenario: A Small-Town Monopolist) Look at the scenario A Small-Town Monopolist.
If this monopolist chooses to sell subscriptions at one price, it will sell _____ units at a
price of _____ and earn economic profits equal to _____.
A) 75; $10; $500
B) 100; $15; $1,000
C) 175; $15; $1,000
D) 100; $10; $750
We can measure total consumer surplus for good X as:
A) the sum of the individual consumer surpluses for all buyers of X.
B) the area above the demand curve for X and below the price of X.
C) the area bounded by the demand curve for X and the two axes.
D) the area above the supply curve for X.