If the marginal benefit received from consuming a good is less than the marginal cost of
production:
A) society’s well-being can be improved if production increases.
B) society’s well-being can be improved if production decreases.
C) society’s well-being cannot be improved by changing production.
D) the market is producing too little of the good.
Price controls:
A) always increase economic efficiency.
B) always lead to more equitable results.
C) can result in inequitable outcomes.
D) are always set below the equilibrium price.
Sometimes the government varies its spending, depending on the needs of the country.
This statement best represents economic concept that:
A) resources should be used as efficiently as possible to achieve society’s goals.
B) when markets don’t achieve efficiency, government intervention can improve
society’s welfare.
C) overall spending sometimes gets out of line with the economy’s productive capacity.
D) government policies can change spending.
Insurance premiums often fall substantially if a buyer purchases a policy with a high
deductible, and such a policy is often purchased by individuals who self-identify as:
A) low-risk drivers.
B) high-risk drivers.
C) drivers who do not care what their premium costs are.
D) neither high- nor low-risk drivers.
The cross-price elasticity of demand of substitute goods is:
A) between “1 and 0.
B) less than 0.
C) equal to 0.
D) greater than 0.
The demand for factors of production is called a derived demand because it is:
A) derived from the demand for the outputs that are produced by the factors of
production.
B) derived from the available supply of factors, such as land, that can be overexploited.
C) not easy to determine and must be derived by a technical (and often complicated)
process.
D) derived on the basis of questions posed to residents during the census.
Figure: Demand and Supply of Shirts
(Figure: Demand and Supply of Shirts)
Look at the figure Demand and Supply of Shirts. If the line labeled S shows how many
shirts per week will be offered for sale at various prices, then it is clear that for supply,
quantity and price are:
A) the same.
B) positively related.
C) negatively related.
D) not related.
If a consumer moves upward along an indifference curve, his or her total utility:
A) remains constant.
B) first decreases, then increases.
C) increases.
D) first increases, then decreases.
The _____ benefit is the amount by which an additional unit of an activity increases its
total benefit.
A) average
B) net
C) marginal
D) top
Figure: The Production Possibilities for Two Countries
(Figure: The Production Possibilities for Two Countries) Look at the figure The
Production Possibilities for Two Countries. The opportunity cost of producing 1 radio in
Indonesia is:
A) 0.5 tire.
B) 1 tire.
C) 2 tires.
D) 6 tires.
Figure: The Market for Roses
(Figure: The Market for Roses) Look at the figure The Market for Roses. Assume that
PA is the autarky price and PW is the world price. Consumer surplus with international
trade would be area:
A) W + X + Y.
B) Z.
C) W + X + Z.
D) W.
The production possibility frontier will shift outward for all of the following reasons
EXCEPT:
A) an increase in the unemployment rate.
B) an increase in the labor force.
C) an improvement in technology.
D) an increase in worker productivity.
(Table: Optimal Choice of Milk and Honey) Look at the table Optimal Choice of Milk
and Honey. The price of milk is $2 per gallon, and the price of honey is $4 per jar. Hal’s
income is $16. If he buys 2 jars of honey and 4 gallons of milk, his total utility will be:
A) 8.
B) 84.
C) 104.
D) 188.
Suppose an income tax is levied on none of the first $1,000, 10% of the next $9,000,
and 20% of the remainder of earnings. How much tax would Miranda have to pay if she
earned $20,000?
A) $2,900
B) $5,000
C) $4,900
D) $3,000
Actual wage differentials can be partially explained by:
A) differences in talent.
B) different amounts of human capital.
C) compensating differentials.
D) differences in talent, different amounts of human capital, and compensating
differentials.
In perfect competition:
A) price and average variable cost are the same.
B) price and marginal revenue are the same.
C) price and total revenue are the same.
D) total revenue and total variable cost are the same.
A tariff imposed on U.S. imports into Japan tends to _____ U.S. producers and _____
Japanese producers.
A) penalize; benefit
B) benefit; penalize
C) penalize; penalize
D) benefit; benefit
A higher wage _____ the price of _____ and _____ workers’ incomes. The result pulls
the quantity of labor supplied in _____ direction(s).
A) increases; leisure; increases; opposite
B) increases; leisure; increases; the same
C) reduces; work effort; reduces; opposite
D) reduces; labor; increases; the same
Suppose oranges and clementines are considered to be substitutes. Holding everything
else constant, if the price of oranges increases, then the demand for _____ will _____.
A) clementines; increase
B) clementines; decrease
C) oranges; increase
D) oranges; decrease
Traffic congestion imposes higher costs and discomfort to residents of a city because
the marginal social cost of any one individual’s use of the roads is _____ the individual
marginal cost.
A) less than
B) greater than
C) equal to
D) irrelevant to
As a consumer gives up some of good A, which is on the horizontal axis, to get more of
good B, which is on the vertical axis, his or her marginal rate of substitution of good A
for good B:
A) becomes infinite.
B) goes from negative to positive.
C) increases.
D) decreases.
In perfectly competitive long-run equilibrium:
A) all firms make positive economic profits.
B) all firms produce at the minimum point of their average total cost curves.
C) the industry supply curve must be upward-sloping.
D) all firms face the same price, but the value of marginal cost will vary directly with
firm size.
A consumer’s spending is restricted because of:
A) marginal utility.
B) total utility.
C) a budget constraint.
D) utility maximization.
(Table: Natasha’s Total Utility) Natasha earns $50,000 per year but faces losing $20,000
of it if she is late with her work. If there is a 25% probability that Natasha will be late
with her work and her income will then equal $30,000, her expected total utility is
_____ utils.
A) 4,175
B) 3,700
C) 3,620
D) 3,259
Businesses buy resources used to produce goods and services in the:
A) factor market.
B) product market.
C) market for goods and services.
D) foreign exchange market.
Javon has 80 hours per week to allocate between labor and leisure. Graph hours of
leisure per week on the horizontal axis and income per week on the vertical axis. If
Javon’s hourly wage is $8, then the horizontal intercept of his time allocation budget
line is:
A) $8.
B) $640.
C) 40 hours.
D) 80 hours.
Figure: The Shrimp Market
(Figure: The Shrimp Market) Look at the figure The Shrimp Market. If the government
imposes a quota limiting sales of shrimp to 1,000 pounds, the quota rent per pound is:
A) $15.
B) $10.
C) $5.
D) $0.
Figure: The Optimal Quantity
(Figure: The Optimal Quantity) Look at the figure The Optimal Quantity. If the
marginal benefit of lawn mowing decreased, the _____ curve in the figure would shift
to the _____ and the optimal quantity would be _____ five lawns mowed.
A) marginal benefit; right; more than
B) marginal cost; right; fewer than
C) marginal benefit; left; fewer than
D) marginal cost; left; more than
(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that
the crude oil industry is a duopoly and the marginal cost and fixed cost of producing
crude oil equal zero. Suppose that the two firms are maximizing industry profit and
splitting the profit evenly. If both firms decide to cheat and produce 10 more barrels
each, the price of crude oil will be:
A) $160.
B) $80.
C) $70.
D) $60.
Figure: Short-Run Costs
(Figure: Short-Run Costs) Look at the figure Short-Run Costs. This firm’s short-run
supply curve begins at quantity:
A) Q.
B) R.
C) S.
D) T.
Suppose you manage a convenience mart and are in charge of ordering products, but the
home office sets the prices. In your area, the income elasticity of demand for peanut
butter is “0.5. Because of local factory closings, you expect local incomes to decrease
by 20% on average in the next month. As a result, you should stock _____ peanut
butter.
A) 20% more
B) 5% more
C) 10% more
D) 10% less
Figure: Demand and Supply of Gasoline
(Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of
Gasoline. When the supply curve shifted from the initial equilibrium, the new
intersection of supply and demand has a price of _____ and quantity of 400. This
supply shift could have resulted from _____.
A) $1.50; an increase in consumers’ income
B) $1.50; an improvement in refining technology
C) $2.00; an increase in the number of buyers
D) $2.00; an increase in consumers’ income