If government decides to control the amount of a good allowed into a market, this will:
A) always result in an increase in efficiency in the market.
B) increase incentives for market participants to engage in black market activities.
C) result in the equilibrium quantity being produced if the quota is binding.
D) lead to more of the good being produced.
Dell and Gateway are close competitors in the personal computer market. Suppose that
each year Dell and Gateway have to decide whether to spend money on costly research
and development (R&D). If both spend money on R&D, each firm will earn $30
million. If neither spends money on R&D, each firm will earn $40 million. If one firm
spends money on R&D and the other does not, the firm that engaged in R&D would
earn $45 million and the firm that did not would earn $25 million. A) Use a payoff
matrix to depict this problem. B) What is the noncooperative solution to this game?
(Table: The Production Possibilities for Tractors and Crude Oil) Look at the table The
Production Possibilities for Tractors and Crude Oil. In Mexico the opportunity cost of
producing 150,000 barrels of crude oil is _____ tractors.
A) 50
B) 70
C) 90
D) 160
Marginal cost _____ over the range of increasing marginal returns and _____ over the
range of diminishing marginal returns.
A) increases; decreases
B) decreases; increases
C) is constant; decreases
D) increases; is constant
If the absolute value of the price elasticity of demand is greater than 1:
A) small percentage changes in the price will lead to much larger percentage changes in
the quantity demanded.
B) small percentage changes in the price will lead to even smaller changes in the
percentage change in the quantity demanded.
C) percentage changes in the price will lead to equal percentage changes in the quantity
demanded.
D) changes in the price will have no impact on changes in the quantity demanded.
Scenario: Payoff Matrix for Two Firms
The following table provides the payoff matrix for two firms, firm A and firm B. They
are the only two firms in the industry and can either compete or cooperate with each
other, with the following profit results reflecting their actions.
(Scenario: Payoff Matrix for Two Firms) In the scenario Payoff Matrix for Two Firms,
firm A:
A) has a dominant strategy to compete.
B) has a dominant strategy to cooperate.
C) has two dominant strategies.
D) has no dominant strategy.
If the elasticity of demand is _____ and the elasticity of supply is _____, tax revenue is
likely to increase.
A) 3.3; 2.1
B) 3.3; 0.5
C) 0.2; 2.1
D) 0.2; 0.5
Some public goods would not be provided without government intervention because:
A) the marginal cost of the good exceeds an individual’s marginal benefit.
B) the marginal cost of the good is less than an individual’s marginal benefit.
C) the socially optimal price of the good would be zero (i.e., there is no chance of
making a profit).
D) the marginal cost of the good exceeds an individual’s marginal benefit and the
socially optimal price of the good would be zero (i.e., there is no chance of making a
profit).
Figure: Market Failure
(Figure: Market Failure) Look at the figure Market Failure. Suppose the supply curve
represents the marginal cost of providing streetlights in a neighborhood that is
composed of two people, Ann and Joe. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe’s marginal benefit from
the streetlights is a constant amount equal to AC. If Ann is the only person to pay for the
streetlights, how many lights will be provided?
A) 0
B) E
C) F
D) G
The marginal utility of income for a risk-averse individual will be:
A) constant.
B) diminishing.
C) increasing.
D) unknown; the answer depends on the value of income.
Mark and Julie are going to sell brownies and cookies for their third annual fundraiser
bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15
brownies or 15 cookies. With specialization, _____ brownies and _____ cookies will be
made in one day.
A) 15; 20
B) 40; 20
C) 40; 15
D) 55; 35
Demand for Gala apples is relatively elastic compared to the supply of Gala apples, so
if a tax is imposed on the consumers of Gala apples, the tax incidence:
A) is typically on consumers more than producers.
B) is typically on producers more than consumers.
C) is typically split equally between consumers and producers.
D) cannot be determined without more information.
Figure: Davina’s Labor Supply Choice
(Figure: Davina’s Labor Supply Choice) The figure Davina’s Labor Supply Choice
shows Davina’s time allocation budget line when her hourly wage is $10 or $15 and she
has 80 hours to allocate between labor and leisure; it also shows two of her indifference
curves for income and leisure. Davina’s labor supply curve is _____ as her hourly wage
rises from $10 to $15.
A) upward-sloping
B) downward-sloping
C) vertical
D) horizontal
The university hopes to raise more revenue by increasing parking fees. This plan will
work only if:
A) the price effect is larger than the quantity effect.
B) the price effect is smaller than the quantity effect.
C) the price effect and quantity effect are the same.
D) there is no price or quantity effect.
A farm can produce 1,000 bushels of wheat per year with two workers or 1,300 bushels
of wheat per year with four workers. The marginal product of the fourth worker is
_____ bushels.
A) 100
B) 300
C) 1,300
D) 150
Each month Jacquelyn spends exactly $50 on ice cream regardless of the price of each
container. Jacquelyn’s price elasticity of demand for ice cream is:
A) 0.
B) 1.
C) greater than 1.
D) less than 1 but greater than 0.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $60, how much is Alex’s total cost at the profit-maximizing output?
A) $60
B) $1,100
C) $2,400
D) $2,100
An increase in the demand for construction workers may come about because of a(n):
A) increase in the demand for new housing.
B) decrease in the market wage rate for construction workers.
C) decrease in the productivity of construction workers.
D) decrease in the supply of other factors that construction workers use.
Figure: The Demand Curve for Crossings
(Figure: The Demand Curve for Bridge Crossings) Look at the figure The Demand
Curve for Bridge Crossings. By the midpoint method, the price elasticity of demand
between $0.90 and $1.10 in the figure is _____, since the price elasticity is _____.
A) price-elastic; less than 1
B) price unit-elastic; equal to 1
C) price-elastic; a negative number
D) price-inelastic; less than 1
A market is composed of three individuals, Nicholas, Benjamin, and Alexander. Their
individual demand schedules are given below and are as follows:
Based on
this information, which of the following market demand schedules accurately portrays
this market?
A)
B)
C)
D)
A perfectly competitive firm will continue producing in the short run as long as it can
cover its _____ cost.
A) total
B) average fixed
C) variable
D) fixed
Which of the following is TRUE concerning the relationship between efficiency and
equity?
A) Policies designed to increase efficiency will also increase equity.
B) Policies designed to increase equity will also increase efficiency.
C) Policies designed to increase efficiency will decrease equity.
D) There is no trade-off between efficiency and equity if policies are fair.
Figure: Comparative Advantage Eastland and Westland produce only two goods,
boxes of peaches and boxes of oranges, and this figure shows each nation’s production
possibility frontier for the two goods.
(Figure: Comparative Advantage) Look at the figure Comparative Advantage. The
opportunity cost of producing 1 box of peaches for Eastland is _____ box(es) of
oranges.
A) 1
B) 0.25
C) 4
D) 10
Which of the following is sold in the product market?
A) land
B) labor
C) cell phones
D) human capital
All of the following are characteristics of a good with elastic demand EXCEPT:
A) a short time to adjust to price changes.
B) a large number of substitutes.
C) luxury.
D) specific brands.