Why does equilibrium in the market for a traded good not occur where that country’s
quantity demanded equals quantity supplied?
a. Because equilibrium occurs where demand equals supply.
b. Because markets are never in equilibrium.
c. Because some of the good is imported or exported.
d. Because there are several demand curves, and the market can’t choose between them.
e. All of the above are correct.
A horizontal demand curve is perfectly elastic because a change in price will induce an
infinite change in quantity demanded.
a. True
b. False
What does the Herfindahl-Hirschman Index value near zero imply about the market?
a. Monopoly
b. Perfect competition
c. Monopolistic competition
d. Oligopoly
AZT is a drug that inhibits the reproduction of the AIDS virus, thus preventing the full
development of the disease. The drug, which is sold in an unregulated market, is very
expensive and many AIDS patients who can’t afford it die from the disease. This case
provides ammunition to critics of the market system on the basis of its
a. fairness.
b. externalities.
c. cost disease in services.
d. inefficiency.
Tax loopholes in the personal income tax benefit only very rich people.
a. True
b. False
Union members earn about the same wage level as nonunion members in the same
industry.
a. True
b. False
Affirmative action laws require employers to hire specified numbers of minorities.
a. True
b. False
Under perfect competition the price of a depletable resource whose cost of extraction is
not changing must rise at
a. the same rate as the increase in GDP.
b. the same rate as the increase in consumer prices.
c. the same rate as the rate of interest.
d. a rate higher than the increase in the rate of interest.
Deregulation of the airline and trucking industries was followed by the creation of
many new firms.
a. True
b. False
Among possible union strategies, the one that can both raise wages and add to
employment is
a. restricting the supply of workers.
b. raising the demand curve for the product or for labor.
c. fixing the wage.
d. striking frequently.
Comparative advantage explains how two nations can benefit from trade.
a. True
b. False
In the United States each year, approximately
a. 50% of all businesses fail.
b. 25% of all businesses fail.
c. 10% of all businesses fail.
d. 5% of all businesses fail.
Explain the effect of the following changes on equilibrium price and quantity of a
commodity:
(a) increase in average incomes.
(b) increase in population.
The actions of speculators in a market tend to shift the ____ when the price of the good
is low and thereby ____ the price.
a. demand curve out; raise
b. demand curve in; lower
c. supply curve out; lower
d. supply curve in; raise
William Safire argues that a unilateral free trade policy is a disaster if
a. the governments of the nations’ trading partners practice “helpfulism.”
b. infant industries are allowed to expire.
c. the national defense is endangered.
d. it hurts the poor.
A major advantage of the corporation is
a. limited taxes.
b. preferential treatment by state governments.
c. limited liability of individual owners.
d. limited numbers of owners and ease of decision making.
When a perfectly competitive industry is in long-run equilibrium, firms maximize
profits, and entry forces the price down
a. until all loss making firms leave the industry.
b. until each firm can earn acceptable level of economic profit.
c. until price becomes tangent to the long run average cost curve.
d. until the long average cost curve rises above the demand curve.
It is true in monopoly pricing that the
a. sky is not the limit.
b. market cannot impose a price on a monopolist.
c. monopolist is a price maker.
d. All of the above are correct.
At his current level of output, a monopolist has an MR of $10, an MC of $6, and an
economic profit of zero. If the market demand curve is downward sloping and his
marginal cost curve upward sloping, the monopolist
a. is producing his profit-maximizing level of output.
b. could increase his profit by increasing his output.
c. could increase his profit by increasing his price.
d. should exit the market if he has positive fixed cost.
The basic idea behind a negative income tax is to
a. help local government agencies deliver more services to the poor.
b. increase the in-kind income of the poor.
c. help the poor get job skills.
d. help the poor without destroying incentives to work.
The reason firms often choose sales maximization as a goal is because
a. that is where profits are maximized.
b. it is impossible to maximize profits.
c. firms are managed and owned by different groups of people with different goals.
d. owners believe setting price/output to maximize profits is unfair to consumers.