Suppose there is a permanent shift of consumer preferences toward frozen yogurt and
away from ice cream. The most likely result would be in the
A) short run, economic losses in the frozen yogurt market.
B) long run, a fall in the supply of frozen yogurt.
C) short run, a rise in the price of ice cream.
D) short run, profits in the frozen yogurt market.
The statement “people should pollute as little as possible” is an example of a
A) positive statement.
B) normative statement.
C) factual statement.
D) non-judgmental statement.
Total revenue increases if price ________ and demand is ________.
A) falls; inelastic
B) falls; unit elastic
C) rises; elastic
D) rises; inelastic
In 2012 about 51% of personal income in the United States came from
A) wages and salaries.
B) property income.
C) transfer payments.
D) profits.
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. The marginal damage cost ________ as the quantity of air travel
________.
A) increases; increases
B) decreases; increases
C) remains constant; increases
D) remains constant; decreases
Carlos can buy either sushi or eggrolls. If the prices of sushi and eggrolls triple and
Carlos’s money income doubles, we can deduce that Carlos’s budget constraint will
A) shift in but remain parallel to the old one.
B) shift out but remain parallel to the old one.
C) swivel in so that the slope of the budget constraint is doubled.
D) remain unchanged.
A form of oligopoly in which a dominant firm sets the price and all smaller firms in the
industry follow the dominant firm’s pricing policy is called
A) the Cournot model.
B) the contestable markets model.
C) a cartel.
D) the price-leadership model.
The Framing Gallery frames posters. The Framing Gallery has total fixed costs of $500.
The Framing Gallery’s average variable cost is $20 and its average total cost is $25. The
Framing Gallery is currently framing
A) 5 posters.
B) 25 posters.
C) 100 posters.
D) a number of posters that is indeterminate from this information.
Double taxation of saving may reduce the
A) saving rate.
B) rate of investment.
C) rate of economic growth.
D) all of the above
Figure 6.2
Refer to Figure 6.2. Assume Mr. Lingle’s budget is AC. Given his current monthly
income he does not have enough income to purchase the quantities of the two goods at
point
A) A.
B) B.
C) E.
D) D.
Relating to the Economics in Practice on page 363: The smart phone app which allows
skiers at a slope to report weather conditions to others could be considered a form of
A) moral hazard.
B) market signaling.
C) asymmetric information.
D) risk-loving.
A perfectly competitive firm’s ________ point is the lowest point on its AVC curve.
A) profit maximizing
B) break-even
C) shut down
D) loss maximizing
Table 8.2
Refer to Table 8.2. If Sherry produces five pairs of earrings, her total costs are
A) $320.
B) $360.
C) $370.
D) $400.
When supply is fixed or the product is unique, then price is
A) supply determined.
B) demand determined.
C) government determined.
D) indeterminate.
An economy produces capital goods and consumer goods. This economy is operating at
a point on its production possibility frontier associated with a small amount of capital
goods and a large amount of consumer goods. This is most likely to be a
A) “poor” country because such a nation has difficulty devoting many resources to the
production of capital goods.
B) “rich” country because such a nation can afford to sacrifice.
C) country with a free market.
D) country with a command economy.
Money income ________ noncash transfer payments and capital gains. Economic
income ________ noncash transfer payments and capital gains.
A) excludes; excludes
B) includes; includes
C) excludes; includes
D) includes; excludes
According to the theory of ________, specialization and free trade will benefit all trade
partners, even when some are absolutely more efficient producers than others.
A) comparative advantage
B) absolute advantage
C) social equity
D) laissez-faire
In long run monopolistic competition equilibrium, there can be
A) economic profits, but not losses.
B) economic profits or losses.
C) no economic profits, but losses.
D) neither economic profits nor losses.
TC –TVC =
A) TFC.
B) ATC.
C) AVC.
D) AFC.
If private bargaining to resolve an externality is to result in an efficient outcome,
A) rights must be protected by liability rules.
B) there must be tradable pollution rights.
C) there must be direct regulation of externalities.
D) the initial assignment of rights must be clear to both parties.
A price ceiling is
A) a minimum price set by government that sellers must charge for a good.
B) a maximum price set by government that sellers may charge for a good.
C) the difference between the initial equilibrium price and the equilibrium price after a
decrease in supply.
D) the minimum price that consumers are willing to pay for a good.
Price is a firm decision variable in all of the following industries EXCEPT ________
industries.
A) perfectly competitively
B) monopolistic
C) monopolistically competitive
D) oligopolistic
Figure 6.4
Refer to Figure 6.4. Bill’s budget constraint is AC. If the bell peppers price decreases,
Bill’s budget constraint will be
A) AB.
B) AC.
C) AD.
D) The budget constraint is not depicted on the diagram.
Figure 8.4
Refer to Figure 8.4. Marginal costs will equal average variable costs at
A) two microwave ovens.
B) three microwave ovens.
C) six microwave ovens.
D) an indeterminate level of output from this information.
The market price of a basketball is $35 and the full cost of producing it is $20, then a
basketball producing firm gets producer surplus of
A) 1 basketball.
B) $35.
C) $20.
D) $15.
Related to the Economics in Practice on page 28: How did the introduction of the
microwave in 1960 affect the market for frozen food?
A) It encouraged people to leave the work force by making cooking easier and less
time-consuming.
B) It reduced the opportunity cost of eating frozen food by decreasing the amount of
time required to prepare frozen meals.
C) It increased the financial cost of alternative methods of food preparation, such as
conventional ovens.
D) It made frozen foods more appealing by increasing the variety of meals that could be
frozen and reheated.
Relating to the Economics in Practice on page 386: The Oregon study found that those
persons enrolled in the Medicare expansion program had
A) lower health care utilization.
B) more medical debt.
C) increases in the use of emergency rooms.
D) better self-reported health.
Salary caps are imposed when league officials believe some football team owners are
taking advantage of their deep pockets and buying more quality players than the other
owners can afford to buy. Which of the following criteria are they using to guide their
actions?
A) growth
B) stability
C) efficiency
D) equity
Although the developed nations account for only about one-quarter of the world’s
population, they are estimated to consume what proportion of the world’s output?
A) one-quarter
B) one-half
C) two-thirds
D) three-quarters
Oligopolistic firms are
A) able to influence price only if the oligopolist’s products are standardized.
B) able to influence price only if the oligopolist’s products are differentiated.
C) able to influence price regardless of whether or not the product is differentiated or
standardized by virtue of their size.
D) unable to influence price regardless of whether or not the product is differentiated or
standardized.
A lawn service company has the following production possibilities. With one, two,
three, and four workers, the company can mow 4, 9, 12, and 14 lawns per day,
respectively.
The marginal product of the fourth worker is
A) 2
B) 3
C) 12
D) 14
Karl Marx saw profits as
A) a necessary return to risk taking.
B) necessary for innovation to occur.
C) an expropriation by capitalists of the fruits of labor’s efforts.
D) the difference between what a product sells for and the value of the labor embedded
in the product.
You lend your sister’s daughter $2,000 for a year. If at the end of the year she pays you
$2,180, the interest rate you are charging her is
A) 1%.
B) 9%.
C) 10%.
D) 20%.
A lawn service company has the following production possibilities. With one, two,
three, and four workers, the company can mow 4, 9, 12, and 14 lawns per day,
respectively.
The average product of labor with three workers is
A) 3
B) 5
C) 4
D) 12
According to its advocates, what are four advantages product differentiation and
advertising provide to consumers?
It is well documented that traveling on our nation’s highways at lower speeds saves
money on fuel and reduces accidents. Assume that a driver understands this but is
unwilling to drive slower until he observes everyone else doing it. Can you make a
parallel between this attitude and the case where countries will refuse to lower their
tariffs unless their trading partners do the same?
Suppose that you are the president of a small printing company and you are considering
the purchase of new machinery. What factors must you consider in making this
decision?
Rhonda’s Rug Company can produce 50 rugs using the following five combinations of
labor and capital:
If the price of capital is $2 per unit and the price of labor is $1 per unit, calculate the
total cost of producing 50 rugs under each technology. Which is the cost-minimizing
technology?
List and describe the two areas of positive economics.
Heather earns $100 per week that she uses to purchase two goods: trips to a day spa
(which cost $100 each) and shoes (which cost $50 per pair). Draw Heather’s budget
constraint. Show what would happen if Heather receives a raise and begins earning
$200 per week. If trips to the day spa and shoes are both normal goods, what will
happen to the amount of spa trips and pairs of shoes that Heather buys?
What are the three basic economic questions that must be answered by all societies?
If crime rates in the United States fall, can incumbent lawmakers rightfully claim
credit? Why or why not?
Assume an electric company has spent $3 billion on a nuclear power plant. It’s
producing at a price per kilowatt hour that is above its average variable cost. However,
after 10 years the price remains below average total cost. If there is no expectation that
price will equal or rise above the average total cost what would you expect this
company to do with its nuclear power plant? Why is the $3 billion not part of the
decision? Explain.
What is an isocost line? Write the equation used for an isocost line.
Draw average variable cost, average total cost, and marginal cost on the same set of
axes.
Critically evaluate the following statement. “It’s better to make people wait in line than
it is to make them have to pay more for the product.”
What are the three factors that define a household budget constraint. Explain.
When the price of toilet paper falls by 20 percent, the quantity of toilet paper demanded
rises by 10 percent. Calculate the price elasticity of demand. Is the demand for toilet
paper elastic, inelastic, or unit elastic?
How does double taxation affect consumption, saving and economic growth?