In the case of Matsushita v. Zenith, the fact that the foreign television manufacturers
were able to charge lower prices than their domestic competitors in the U.S. market for
televisions was sufficient evidence to conclude that the Japanese firms were engaged in
predatory pricing.
When the macroeconomy is doing poorly (as it was in 2009), profits of existing firms
decrease, creating an incentive for existing firms to exit unprofitable markets. This in
turn makes it more difficult for the remaining firms to mark up price over average or
marginal cost.
A perfectly competitive market is characterized by a large number of small firms that
produce a differentiated product.
The multiple changes in income and output that results from a change in autonomous
expenditure is called the multiplier.
A change in technology or the relative prices of the inputs used in a production process
would cause a manager’s choice of inputs to use in the production process to change as
well.
An increased supply of U.S. dollars on the foreign exchange market, all else equal, will
result in an appreciation of the U.S. dollar.
U.S. GDP excludes underground activities.
Conjoint analysis employs an approach to consumer behavior that is similar to the
economic indifference curve model.
The simple deposit multiplier is larger than the money multiplier.
A decrease in the currency exchange rate would shift the aggregate demand curve
rightward, resulting in a higher equilibrium income and price level in the long-run.
Assume goods X and Y are complements. A decrease in the price of X would cause the
demand for Y to increase.
Reliance on expert opinion to predict consumer behavior has the advantage of being a
relatively low cost approach to gathering information. In many situations, however, it is
subject to several sources of bias that can undermine its reliability.
BOGOs, i.e., buy-one, get-one-free offers, are an example of third-degree price
discrimination.
Excess supply of dollars in the foreign exchange market represents a balance of
payments deficit in the U.S.
The aggregate production function shows the quantity and quality of resources used in
production given the efficiency with which resources are utilized and the prevailing
technology.
An improvement in technology would cause each of the isoquants in a firm’s isoquant
map to shift out away from the origin.
Multinational companies can easily apply identical production methods in different
countries and obtain the same results.
For a monopolist to earn a positive economic profit, price has to exceed average total
cost at the level of output at which marginal revenue equals marginal cost.
In the short run, a firm can minimize its total costs of production by operating at the
minimum of its average total cost curve.
The rate of inflation measures the change in the relative prices of the goods and services
produced in the macroeconomy over a specified period of time.
The “minimum efficient scale” of operation in an industry is defined as the scale of
operation in an industry that is least efficient.
The balance of payments accounts are divided into two sections: the current account
and the financial account.
An open market purchase of government securities by the Fed would shift the aggregate
demand curve leftward.
An increase in the availability of health insurance could be expected to cause the
average price of health care to increase.
Because it is more extensive, first-degree price discrimination is more profitable for the
firm than is third-degree price discrimination.
In deciding which model of a car to buy, microeconomic theory maintains that
consumers are concerned about the absolute price of a particular car, rather than its
relative price.
Although monopoly and perfect competition result in different market outcomes, the
fact that firms in both market structures work to maximize their profits ensures that
resources are allocated efficiently in both situations.
In the model of the perfectly competitive firm, the firm’s fixed costs are equal to its
implicit costs of production.
The ability to make a credible commitment is necessary for the first mover to gain an
advantage in a sequential game.
Manufacturing, employment, monetary, and consumer expectations statistics are
examples of lagging indicators.
Assume a cartel that consists of two firms has determined its profit-maximizing level of
output and must now decide how to allocate total output between the two firms.
Assuming firm A’s marginal costs are less than firm B’s marginal costs, firm A should
produce a smaller share of total output than firm B.
An increase in consumer wealth would shift the aggregate demand curve rightward.
Starting in 2008 and continuing into 2012, the Japanese yen kept appreciating against
the U.S. dollar, hurting Japanese exports to the U.S.
Assume that at the current level of output a firm’s marginal cost and average variable
cost of production are both decreasing. Based on this, we can conclude that the
marginal product and average product of the firm’s variable input(s) are both increasing.
In the case of a perfectly competitive firm, the optimal markup over marginal cost is 0
percent.
Consumers lose when a market is served by a monopolist to the extent that units of
output for which the price consumers are willing to pay exceeds the marginal costs of
production are not produced.
The term “price setter” refers to a firm that faces a downward-sloping demand curve
and must therefore set the combination of output and price that will maximize the firm’s
profits.
Assume that in an effort to help consumers, the government decides to reduce the
amount of taxes it imposes on sellers of gasoline, that is, sellers are required to pay the
government a smaller fee for each gallon of gas they sell. In the market for gas, this
would have the effect of causing an increase in the supply of gas and a decrease in
equilibrium price.
The individual firm maximizes its total profit by producing the level of output at which
the difference between marginal revenue and marginal cost is as large as possible.
Refer to Scenario 2. Diminishing marginal returns starts to occur between units:
A) 2 and 3.
B) 3 and 4.
C) 4 and 5.
D) 5 and 6.
In the case of a short-run production function:
A) all of the inputs are variable.
B) the amount of labor employed is held constant.
C) at least one of the inputs is fixed.
D) all of the inputs are fixed.
A home theater system and an HD television would be considered an example of:
A) substitute goods.
B) giffen goods.
C) inferior goods.
D) complementary goods.
Consider an indifference curve drawn for movies and pizzas. Which of the following
statements about this indifference curve is false?
A) As an individual consumes more pizzas, the amount of movies the consumer is
willing to give up for an additional pizza increases.
B) If the individual consumes more pizzas, the amount of movies consumed must fall if
the consumer is to stay on the same indifference curve.
C) The indifference curve will be convex to the origin, that is, bowed in toward the
origin.
D) If the consumer purchases more of movies and pizzas, total utility will increase, but
the consumer will be on a new indifference curve that is farther from the origin than the
original indifference curve.
In a closed economy the marginal propensity to consume is 0.60 and the marginal
propensity to invest is 0.10. What is the size of the multiplier?
A) 1.33
B) 2.33
C) 3.33
D) 0.70
The least squares regression is based on:
A) maximizing the absolute sum of squares errors.
B) minimizing the absolute sum of squares errors.
C) maximizing the sum of squared errors.
D) minimizing the sum of squared errors.
Appreciation of the U.S. dollar will ________ exports and ________ imports, other
things equal.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
As the price of milk increases, what happens at the original equilibrium in the market
for cereal that signals market participants that the original equilibrium must change?
(Milk and cereal are complements.)
A) A surplus is created by an increase in supply.
B) A surplus is created by a decrease in demand.
C) A shortage is created by an increase in demand.
D) A shortage is created by a decrease in supply.
The amount of output produced with an additional unit of variable input is referred to
as:
A) total product.
B) average variable product.
C) marginal product.
D) average fixed product.
The demand and supply functions for sweatshirts (the basic grey kind) are as follows:
Demand Supply
Quantity Quantity
Demanded Supplied
Price (per period) Price (per period)
$10 15,000 $10 22,000
9 15,500 9 19,000
8 16,000 8 16,000
7 16,500 7 13,000
6 17,000 6 10,000
5 17,500 5 7,000
4 18,000 4 4,000
3 18,500 3 1,000
2 19,000 2 0
The equations for the demand and supply functions above are as follows:
Qd = 20,000 – 500P
Qs = -8,000 + 3000P
a. Solve for the equilibrium price and quantity. (Hint: at equilibrium, quantity supplied
equals quantity demanded.)
b. Assume the supply function changes to:
Qs = -5,000 + 3000P
Does supply increase or decrease? What is the new equilibrium price and quantity?
When entering the Chinese market, McDonalds had to confront:
A) mainly technical issues.
B) mainly political issues.
C) mainly cultural issues.
D) all of the above.
Greater consumer confidence, wealth, available consumer credit, and disposable
income ________ personal consumption expenditures.
A) increase
B) decrease
C) have no effect on
D) none of the above
The test statistic used to test the hypothesis of whether a regression coefficient is
significantly different from zero, holding all other independent variables constant, is
called a(n):
A) F-test.
B) autocorrelation test.
C) multicollinearity test.
D) t-test.
All else constant, as the price of petroleum increases relative to the prices of other
inputs to the production process, in their effort to minimize their total costs of
production, we can expect to see firms employ:
A) less of each of the inputs of production.
B) more petroleum and less of the other inputs to production.
C) less petroleum and more of the other inputs to production.
D) the same amount of petroleum since there are no substitutes for petroleum.
An estimated regression coefficient is 10 with a standard error of 5. The null hypothesis
is that the partial regression coefficient equals one. What is the value of the t-statistic
for testing the null hypothesis of the regression coefficient?
A) 1
B) 2
C) 1.8
D) 0.5
If desired spending is less than output, then firms:
A) accumulate their inventories and cut production.
B) deplete their inventories and cut production.
C) deplete their inventories and increase production.
D) accumulate their inventories and increase production.
Contractionary monetary policy should be used if:
A) aggregate demand-aggregate supply equilibrium is below potential output.
B) aggregate demand-aggregate supply equilibrium is above potential output.
C) aggregate demand-aggregate supply equilibrium is equal to potential output.
D) none of the above.
For a particular production function, over the range of output where marginal product
rises as units of the variable input are added to the fixed input, marginal cost will be:
A) increasing.
B) constant.
C) decreasing.
D) cannot be determined without additional information.
In the context of a production function, the remote order takers in the fast food industry
would be classified as:
A) a fixed input.
B) a marginal input.
C) a variable input.
D) an inframarginal input.
Which of the following statements is not correct?
A) First-degree and third-degree price discrimination work to increase a firm’s profits
by converting consumer surplus into revenue for the firm.
B) First-degree and third-degree price discrimination work to increase a firm’s profits
by more accurately matching willingness to pay to the marginal costs of production.
C) First-degree price discrimination works to increase a firm’s profits by converting
consumer surplus into revenue for the firm, while third-degree price discrimination
increases a firm’s profits by more accurately assessing the willingness to pay of
different groups of consumers.
D) Because it focuses on more accurately assessing the willingness to pay of different
groups of consumers, third-degree price discrimination will increase a firm’s profits
more than will first-degree price discrimination.
Which of the following statements is correct?
A) A firm with high fixed costs tends to decrease prices more and output less in the face
of declining demand than a firm with relatively low fixed costs.
B) A firm with high fixed costs tends to decrease prices less and output more in the face
of declining demand than a firm with relatively low fixed costs.
C) A firm with high fixed costs tends to decrease prices and output more in the face of
declining demand than a firm with relatively low fixed costs.
D) A firm with high fixed costs tends to decrease prices and output less in the face of
declining demand than a firm with relatively low fixed costs.
Assume the firms firms operating in an oligopolistic market experience a relatively
small change in marginal costs. According to the kinked demand curve model this
would:
A) cause a large change in the profit-maximizing level of output.
B) leave the equilibrium price unchanged.
C) cause the profit-maximizing level of output to change by the same amount and in the
same direction.
D) cause the profit-maximizing price to change by the same amount but in the opposite
direction.
When the cross price elasticity between good X and other related goods is positive and
very low, firm X can be assumed to have:
A) minimal market power.
B) moderate market power.
C) a significant amount of market power.
D) virtually no market power.
For a particular product, a demand elasticity is a quantitative measure that shows:
A) the percentage change in quantity demanded relative to the absolute change in any
of the other variables included in the demand function for that product.
B) the absolute change in quantity demanded relative to the percentage change in any of
the other variables included in the demand function for that product.
C) the percentage change in quantity demanded relative to the percentage change in any
of the other variables included in the demand function for that product.
D) the absolute change in quantity demanded relative to the absolute change in any of
the other variables included in the demand function for that product.
Business cycles are officially dated by:
A) National Bureau of Economic Research, NBER.
B) Bureau of Economic Analysis, BEA.
C) Bureau of Labor Statistics, BLS.
D) none of the above.
The perfectly competitive firm:
A) makes its profit-maximizing decision only on the basis of output.
B) faces a downward-sloping demand function.
C) can influence market price only in a downward direction.
D) cannot earn any economic profits because it faces a horizontal demand curve.
Which of the following is not a basic assumption underlying the theory of consumer
behavior?
A) Consumers prefer more to less.
B) Consumer preferences depend on the amounts of goods they consume as well as the
amounts being consumed by other consumers.
C) Goods are continuously divisible, that is, consumers can always purchase one more
or one less unit of a good.
D) Consumers have well-behaved preferences, that is, preference orderings are
complete.
Policies adopted by a country’s central bank that influence interest rates and credit
conditions, which in turn influence consumer and business spending are called:
A) monetary policy.
B) fiscal policy.
C) foreign policy.
D) exchange rate policy.
If the price of salmon increases relative to the price of cod, the demand for:
A) cod will decrease.
B) cod will increase.
C) salmon will decrease.
D) salmon will increase.
An increase in the discount rate will result in:
A) increase in bank reserves and a decrease in the federal funds rate.
B) increase in bank reserves and an increase in the federal funds rate.
C) decrease in bank reserves and a decrease in the federal funds rate.
D) decrease in bank reserves and an increase in the federal funds rate.
To compute GDP:
A) simply sum the number of final goods and services.
B) sum the cost of producing final goods and services.
C) use a weighted average by a survey regarding how much people value different
goods and services.
D) sum the market values of final goods and services.
Third-degree price discrimination refers to situation in which:
A) a firm charges different prices for different blocks of output.
B) a firm separates markets according to the price elasticity of demand.
C) a firm is able to charge the maximum price consumers are willing to pay for each
unit of output.
D) a firm divides a market into thirds and charges each segment a different price.