Tony runs Read Economic Reports. If Tony finds that the cost of completing an
additional report is $100 and someone offers him $125 to complete this additional
report, Tony should:
A) not complete the additional report, since he will incur a loss.
B) complete the additional report but make the person buy two reports.
C) complete the additional report.
D) not complete the additional report, since his additional cost is more than his
additional revenue.
Figure: The Consumption of Video Games and E-Books
(Figure: The Consumption of Video Games and E-Books) Look at the figure The
Consumption of Video Games and E-Books. Which chart in the figure shows the effects
of an increase in the price of video games when video games and e-books are
complements but not perfect complements?
A) A
B) B
C) C
D) D
In the United States, income inequality fell:
A) during the 1930s and 1940s.
B) after 1980.
C) during the years following World War II.
D) after 1917 and has remained consistent since then.
Higher total utility is represented by _____ indifference curve.
A) a higher
B) a lower
C) movement leftward along an
D) movement rightward along an
Figure: The Linear Demand Curve II
(Figure: The Linear Demand Curve II) Look at the figure Linear Demand Curve II. At
prices greater than $7, demand is _____; at prices below $7 demand is _____; and at $7
demand is _____.
A) elastic; inelastic; unit-elastic
B) inelastic; elastic; unit-elastic
C) unit-elastic; inelastic; elastic
D) equal to 0; elastic; inelastic
(Table: Costs of Birthday Cakes) Look at the table Costs of Birthday Cakes. Assume
that fixed costs are $10. What is the average total cost of 4 cakes?
A) $35.00
B) $25.00
C) $9.50
D) $12.00
Economists tend to believe that to change people’s behavior you must:
A) appeal to their concern for society.
B) change their incentives.
C) legislate the change.
D) appeal to their religious values.
You have $1 to spend on a vending machine snack. A bag of chips will cost you $1 and
a candy bar will also cost you $1. If you choose the bag of chips, the opportunity cost of
buying the chips is:
A) $1 plus the enjoyment you would have received from the candy bar.
B) $2 minus the enjoyment you received from the bag of chips.
C) $1.
D) the enjoyment you would have received from the candy bar.
If an increase in income leads to an increase in the demand for a good, then the good is
said to be:
A) normal.
B) a luxury.
C) inferior.
D) a staple.
Cartels made up of a large number of firms are unstable because each firm in the cartel:
A) has an incentive to cheat.
B) is producing a relatively homogeneous product in which entry barriers are low.
C) does not have to worry about losses.
D) recognizes that the market size is relatively stable.
Figure: The Market for Oranges in South Africa
(Figure: The Market for Oranges in South Africa) Look at the figure The Market for
Oranges in South Africa. In autarky, the price of oranges in South Africa is P1. When
the economy is opened to trade, the price falls to PW and consumer surplus will _____
to area _____.
A) fall; M
B) fall; M + N
C) rise; M + N + O
D) rise; M + N + O + P
(Table: Marginal Analysis of Sweatshirt Production I) Look at the table Marginal
Analysis of Sweatshirt Production I. The profit at the optimal quantity of sweatshirts is:
A) $8.
B) $12.
C) $45.
D) $70.
When innovations by one firm are quickly emulated and improved on by rival firms in
the same industry or in other industries, this is:
A) industrial espionage.
B) illegal under most patents.
C) technology spillover.
D) technology takeover.
Gains from trade arise because of:
A) specialization in production.
B) specialization in consumption.
C) marginal analysis.
D) individual choice.
Figure: Market Failure
(Figure: Market Failure) In the figure Market Failure, where is the equilibrium for a
competitive market?
A) H
B) I
C) J
D) K
The structure of the U.S. federal income tax system reflects the _____ principle.
A) efficiency
B) ability-to-pay
C) benefits
D) lump-sum
If ATC is equal to MC, then the firm is operating:
A) at the minimum point of ATC.
B) on the downward-sloping portion of ATC.
C) on the upward-sloping portion of ATC.
D) at an increasing returns to scale.
If a person engages in mental accounting, he or she:
A) is unwilling to recognize a loss and move on.
B) values some dollars more than others.
C) tends to avoid making decisions.
D) tries to balance his or her bank account mentally, without writing anything down.
In the circular-flow diagram, a firm is:
A) an organization that produces goods or services for sale.
B) an individual or a group of people who share their income.
C) an organization that sells factors of production.
D) an organization that purchases goods and services.’
(Table: The Market for Fried Twinkies) Look at the table The Market for Fried
Twinkies. The government decides to tax fried Twinkies at a rate of $0.30 per Twinkie
and collect that tax from the producers. According to the table, consumers will pay
_____ per Twinkie and buy _____ Twinkies after the tax.
A) $1.20; 8,000
B) $1.30; 7,000
C) $1.40; 6,000
D) $1.50; 5,000
If the government wants to minimize the deadweight loss from taxes, it should tax
goods for which:
A) the price elasticity of demand is high.
B) the price elasticity of demand is low.
C) the price elasticity of supply is high.
D) the demand is high.
The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook
industry. Our firm produces 10,000 guidebooks for an average total cost of $38,
marginal cost of $30, and average variable cost of $30. Our firm should:
A) raise the price of guidebooks, because the firm is losing money.
B) keep output the same, because the firm is producing at minimum average variable
cost.
C) produce more guidebooks, because the next guidebook produced increases profit by
$5.
D) shut down, because the firm is losing money.
Which of the following is likely to cause a rightward shift in the demand for
home-delivered pizza?
A) a lower price of pizza
B) a lower price of fast-food hamburgers
C) a higher price of pepperoni
D) a larger population
The rising income gap among highly educated workers in the United States:
A) is an important feature of the increase in income inequality.
B) has not been a cause of concern for income inequality policy makers.
C) is less of a concern than the effect of increased immigration on income inequality.
D) has been present for the past 80 years.
The assumptions of perfect competition imply that:
A) individuals in the market accept the market price as given.
B) individuals can influence the market price.
C) the price will be fair.
D) the price will be high.
Figure: The Demand for Notebook Computers
(Figure: Demand for Notebook Computers) Look at the figure The Demand for
Notebook Computers. Total revenue at point S equals the:
A) distance 0P.
B) distance MS.
C) area 0TUM.
D) area 0PSM.
Figure: Income and Leisure Opportunities
(Figure: Income and Leisure Opportunities) The figure Income and Leisure
Opportunities refers to Keisha when she has 100 hours per week for working or leisure.
There are two time allocation lines, one for a $10 hourly wage rate and one for a $20
hourly wage rate. Keisha’s optimal choice is point A when the wage is $10, and her
optimal choice is point C when the wage is $20. As the amount she earns increases from
$10 to $20 per hour, Keisha will work _____ hours because of the substitution effect.
A) 10 fewer
B) 15 more
C) 25 fewer
D) 50 more
The circular-flow diagram represents the market for _____ and the market for _____.
A) goods and services; factors
B) households; firms
C) money; goods and services
D) factors; money