Assume an economy moves from autarky to free international trade. In the export
sector, consumer surplus _____, producer surplus _____, and the economy as a whole
_____.
A) rises; rises; gains
B) rises; falls; gains
C) falls; rises; gains
D) falls; rises; loses
If at a given quantity MB = MC, the decision maker should do _____ of the activity.
A) less
B) that amount
C) more
D) none
Abe starts exercising regularly, and after a few months he can do twice as much of
everything. In a single day Abe can now make 10 hamburgers or 8 milkshakes rather
than the 5 hamburgers and 4 milkshakes he made in the past. We now know that Abe’s
production possibility frontier has _____, but his opportunity costs of making
milkshakes _____.
A) shifted right; are unchanged
B) shifted right; have decreased
C) not changed; have increased
D) not changed; have decreased
An individual can almost eliminate risk by taking a small share in many independent
events or by taking advantage of the predictability associated with large numbers of
independent events. This is known as:
A) specializing.
B) floating.
C) pooling.
D) insuring.
When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the
quantity demanded decreases from 220 to 160. In this price range, the demand for
chocolate-covered peanuts is _____, and total revenue will _____ when the price
increases.
A) elastic; increase
B) elastic; decrease
C) inelastic; increase
D) inelastic; decrease
(Table: Tutoring) Look at the table Tutoring. If he can charge all students their
willingness to pay, at the optimal hours of tutoring, Sigmund’s total profit is:
A) $60.
B) $50.
C) $30.
D) $15.
(Table: Cost Data) Look at the table Cost Data. The average fixed cost of producing 2
purses is:
A) $0.
B) $50.
C) $25.
D) $2.
France and England both produce wine and clothing with constant opportunity costs.
France will have a comparative advantage in wine production if:
A) it can produce more wine than England.
B) its labor productivity in wine production is greater than England’s.
C) the absolute cost of producing wine is lower in France than in England.
D) the opportunity cost of wine production is lower in France than in England.
Figure: Firms in Monopolistic Competition
(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic
Competition. Zero economic profit will be earned if the profit-maximizing price is
_____ in panel _____.
A) F; (A)
B) G; (A)
C) H; (B)
D) I; (C)
Smedley, a careful utility maximizer, consumes peanut butter and broccoli. Assume that
both peanut butter and broccoli are normal goods. He had just achieved the
utility-maximizing solution in his consumption of the two goods when the price of
broccoli increased. As he adjusted to this event, he consumed _____ peanut butter and
_____ broccoli.
A) more; less
B) less; less
C) more; more
D) less; more
The only producer of chocolate bunnies in the world, Choco’s Bunny Company,
recently expanded its production capacity from 1,000 to 2,000 bunnies per day. If the
price elasticity of demand for bunnies is 3.33, by how much will the company have to
reduce its price to sell the additional 1,000 bunnies (by the midpoint method)?
A) 2.5%
B) 25%
C) 125%
D) 20%
The United States must give up the production of 300 motorcycles to produce 20
additional SUVs with the same resources. In this case, the opportunity cost of
producing 5 SUVs is ________ motorcycles.
A) 5
B) 20
C) 100
D) 75
Figure: Payoff Matrix II for Blue Spring and Purple Rain
(Figure: Payoff Matrix II for Blue Spring and Purple Rain) Payoff Matrix II for Blue
Spring and Purple Rain describes two producers of bottled water. The Nash equilibrium
in the figure is reached when Blue Spring charges a _____ price and Purple Rain
charges a _____ price.
A) high; high
B) low; low
C) high; low
D) low; high
Which of the following transactions is a transfer payment?
A) The government pays an employee by making a direct transfer to the employee’s
bank account.
B) An army officer transfers part of her pay to the government to pay her taxes.
C) A senior citizen receives a Social Security payment.
D) All of these are transfer payments.
Figure: Consumer Equilibrium IV
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.
Assume that you are consuming the combination of goods at point G. Given the budget
constraint FL, utility:
A) can be increased by consuming more train tickets and fewer nights in a hotel room.
B) can be increased by consuming fewer train tickets and more nights in a hotel room.
C) can be increased by consuming more of both goods.
D) cannot be increased.
Which of the following statements is NOT characteristic of perfect competition?
A) All firms produce the same standardized product.
B) There are many producers, and each has only a small market share.
C) There are many producers; one firm has a 25% market share, and all of the
remaining firms have a market share of less than 2% each.
D) There are no obstacles to entry into or exit from the industry.
(Table: Food and Clothing Bundles) Look at the table Food and Clothing Bundles.
Teddy enjoys consuming food and clothing. The table shows five bundles of food and
clothing that all provide Teddy with the same amount of utility. If units of food were put
on a horizontal axis, what would we know about the shape of Teddy’s indifference
curve?
A) It is horizontal.
B) It is upward-sloping, with a declining marginal rate of substitution.
C) It is downward-sloping, with a constant marginal rate of substitution.
D) It is downward-sloping, with a declining marginal rate of substitution.
(Table: Consumer Equilibrium) Look at the table Consumer Equilibrium. Assume that
the price of both goods is $1 per unit, that you consume three units of good X and three
units of good Y, and that you are spending all of your income. To maximize utility,
assuming that the goods are divisible, you would consume _____ of X and _____ of Y.
A) less; less
B) more; more
C) less; more
D) more; less
Scenario: Betty’s Cookie Shop
Betty runs a cookie shop where she sells cookies for $1 each. She employs five people,
each of whom worked a total of 500 hours last year; she paid them $10 per hour. Her
costs of equipment and raw materials add up to $75,000. Her business ability is
legendary, and other companies have offered to pay Betty $100,000 to come to work for
them. She also knows she could sell her cookie shop for $150,000. The bank in town
pays an annual interest rate of 3% on all funds deposited with it.
(Scenario: Betty’s Cookie Shop) Given the information provided, Betty’s implicit costs
are:
A) her salary if she worked elsewhere and interest she forgoes by not selling her shop
and putting the money in the bank.
B) the cost of labor, equipment, and raw materials.
C) the revenue she receives from selling her cookies plus the cost of labor, equipment,
and raw materials.
D) revenue she receives from selling her cookies and her labor costs.
Toyotas are known for their quality and durability. As a result, compared to other used
car markets, adverse selection in the used Toyota market is:
A) equally likely.
B) relatively unlikely.
C) more likely.
D) not expected.
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for
Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each
firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two
producers have formed a cartel, agreed to split production of output evenly and are
maximizing total industry profits. If Margaret decides to cheat on the agreement and
sell 100 more gadgets, Margaret’s profit will be _____ and Ray’s profit will be _____.
A) $1,250; $1,250
B) $500; $500
C) $1,400; $1,000
D) $1,000; $1,400
_____ programs are designed to provide benefits to people whose income falls below
some minimum.
A) Means-tested
B) Relative income
C) Absolute income
D) Nominal income
Suppose that the market for haircuts in a community is perfectly competitive and that
the market is initially in long-run equilibrium. Subsequently, a decrease in population
decreases the demand for haircuts. In the short run, we expect that the market price will
_____ and the output of a typical firm will _____.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
Suppose Governor Meridias decides to initiate a state income tax. The first $50,000 of
household income is tax-free, while any income above $50,000 is taxed at 10%. The
marginal tax rate for a household earning $75,000 is:
A) greater than its average tax rate.
B) less than its average tax rate.
C) equal to its average tax rate.
D) 3.3%.
West African cotton farmers are very upset about the subsidies the U.S. government
pays to American cotton farmers. One reason for this could be that subsidized cotton
from the United States:
A) leads to cotton surpluses in the United States and lower prices for West African
farmers on world markets.
B) raises the world price of cotton.
C) has led to a global shortage of cotton.
D) has led to an increase in the demand for West African cotton.
An individual will allocate time between labor and leisure by finding the point at
which:
A) he or she maximizes utility while remaining beneath the time allocation budget line.
B) the time allocation budget line is just tangent to an indifference curve.
C) he or she reaches the lowest possible indifference curve while still on the time
allocation budget line.
D) he or she is indifferent between work and leisure.
An attempt by a firm to convince buyers that its product is different from the products
of other firms in the industry is:
A) tacit collusion.
B) product differentiation.
C) antitrust policy.
D) price leadership.