A curve that shows all the combinations of two inputs, such as labor and capital, that
will produce the same level of output is called
A) an isoquant.
B) an isocost line
C) a budget line.
D) an optimal input combination curve.
Table 6-4
The publisher of a magazine gives his staff the following information:
He tells the staff, “Our costs are currently $150,000 more than our revenues each
month. I propose to eliminate this problem by raising the price of the magazine to $3.00
per issue. This will result in our revenue being exactly equal to our cost.”
Refer to Table 6-4. Which of the following statements is correct?
A) The publisher’s analysis is correct only if the demand is perfectly elastic.
B) The publisher’s analysis is correct only if the demand is elastic.
C) The publisher’s analysis is correct only if the demand is perfectly inelastic.
D) The publisher’s analysis is correct only if the demand is unit elastic.
Figure 13-3
Refer to Figure 13-3. What is the marginal revenue of the sixth unit of output?
A) $4
B) $5
C) $9
D) $54
Some corporate governance experts believe that serving on a company’s board of
directors for an extended length of time diminishes that member’s independence from
the company’s CEO. If this is true, it would tend to
A) reduce the principal-agent problem.
B) increase the principal-agent problem.
C) be in the best interest of shareholders.
D) have no impact on the company’s performance, since the CEO is only one member
of top management.
If 11 workers can produce 53 units of output while 12 workers can produce 56 units of
output, what is the marginal product of the 12th worker?
A) 16
B) 3
C) 67
D) 36
The River Rouge plant was built by the Ford Motor Company in the 1920s to produce
the company’s Model A car. Which of the following is evidence that the River Rouge
plant suffered from diseconomies of scale?
A) Despite an expensive advertising campaign the Model A did not earn the company a
profit.
B) Model A cars made at the River Rouge plant failed to earn Ford a profit. Ford
eventually constructed smaller plants to make the Model A at a lower average cost.
C) Model A cars made at the River Rouge plant failed to earn a profit. Ford reduced the
average cost of the Model A by cutting its employees’ wages.
D) Model A cars made at the River Rouge plant failed to earn a profit because the price
of steel used to manufacture the Model A rose when workers in the steel industry went
on strike.
In reference to the federal income tax system, a tax bracket is
A) the estimated amount of federal income tax firms withhold from their employees’
paychecks.
B) the formula the federal government uses to determine the dollar amount of the
personal exemption and the amounts taxpayers are allowed for deductions from their
incomes.
C) used to determine the average tax rate.
D) the income range within which a tax rate applies.
Figure 13-4
Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive
firm in the market for designer watches.
Refer to Figure 13-4.What is the area that represents the total variable cost of
production?
A) 0P0aQa
B) 0P1bQa
C) P0abP1
D) P1bdP3
Arnold Marion, a first-year economics student at Fazer College, was given an
assignment to find an example of price discrimination and present it to his class. When
asked for his example Arnold said “I went to a Milwaukee Brewers baseball game with
my cousin last week. We paid $25 each for our seats in left field. My aunt and uncle
paid $50 each for their tickets; they sat five rows behind the first base dugout. This is an
example of price discrimination since we paid different prices for the same product, and
the differences were not due to differences in costs.” How would Arnold’s economics
instructor assess Arnold’s example?
A) He would agree with Arnold that he had found an example of price discrimination,
but would add that arbitrage would occur if ticket scalpers sold Brewers tickets for
more than the prices Arnold and his uncle paid.
B) He would disagree with Arnold’s example because the $25 seats and the $50 seats
were not the same products.
C) He would agree with Arnold that he had found an example of price discrimination
and would explain that the elasticity of demand for Brewers tickets is different for
Arnold and his uncle.
D) He would disagree with Arnold’s example because there were differences in
transactions costs for the $50 tickets and the $25 tickets.
The income effect of an increase in the price of peaches is
A) the change in the quantity of peaches demanded that results from the price increase,
making peaches more expensive than other fruit, holding constant the effect of the price
change on consumer purchasing power.
B) the change in the demand for peaches as a result of the change in the price of
peaches, holding all other factors constant.
C) the change in the quantity of other fruit demanded that results from the impact of the
price change on purchasing power, holding all other factors constant.
D) the change in the quantity of peaches demanded that results from the effect of the
change in price on consumer purchasing power, holding all other factors constant.
A local electricity-generating company has a monopoly that is protected by an entry
barrier that takes the form of
A) control of a key raw material.
B) network externalities.
C) economies of scale.
D) a perfectly inelastic demand curve.
In the real world
A) all sellers charge one price equal to the marginal cost of production.
B) profitable sellers will set one price based on the average elasticity of demand of
buyers.
C) many firms charge different prices based on consumers’ willingness to pay.
D) all sellers charge one price set by the government.
If the price of gasoline was $3.25 a gallon and it is now $3.75 a gallon, what is the
percentage change in price?
A) 1 percent
B) 3 percent
C) 4 percent
D) 3 percent
In general, the supply curve for a natural resource
A) is vertical.
B) is horizontal.
C) slopes downward to reflect decreasing available quantities over time.
D) slopes upward.
Table 4-4
Table 4-4 shows the demand and supply schedules for the labor market in the city of
Pixley.
Refer to Table 4-4. Suppose that the quantity of labor demanded decreases by 80,000 at
each wage level. What are the new free market equilibrium hourly wage and the new
equilibrium quantity of labor?
A) W = $8.50; Q = 550,000
B) W = $12.50; Q = 630,000
C) W = $9.50; Q = 570,000
D) W = $9.50; Q = 590,000
An important difference between the demand for a private good and the demand for a
public good is that
A) individuals reveal their preferences for a public good but they do not have to reveal
their preferences a private good.
B) the resources used to provide public goods are common resources or government
owned; the resources used to produce private goods are all privately owned.
C) individuals reveal their preferences for a private good but they do not have to reveal
their preferences for a public good.
D) the demand for a private good produces consumption externalities; the demand for a
public good produces production externalities.
We should never assume that an inelastic demand curve is a perfectly inelastic demand
curve because
A) there has never been evidence of a perfectly inelastic demand curve.
B) an inelastic demand curve may be perfectly inelastic at some times but not others.
C) perfectly inelastic demand curves are rare.
D) an inelastic demand curve may be elastic at low prices.
If, as your taxable income decreases, you pay a smaller percentage of your taxable
income in taxes, then the tax is
A) regressive.
B) proportional.
C) progressive.
D) unfair.
Consider the following items:
a. the novel “The Girl On The Train” by Paula Hawkins
b. the “The Spirited Shipper,” an innovative wine shipping box
c. a Swiss chef’s award-winning recipe
d. an original fabric design, for example, the fabric used for “Coach” bags and luggage
Which of the items listed is an example of intellectual property?
A) a and b only
B) a, b, and c
C) a and d only
D) all of the items listed
How much is a bond that pays $20 in coupon payments for 4 years and $1,000 at the
end of the fourth year worth if the interest rate is 5%?
A) $822.70
B) $893.62
C) $1,070.92
D) $1,080
If a demand curve shifts to the left, then
A) demand has increased.
B) quantity demanded has increased.
C) demand has decreased.
D) quantity demanded has decreased.
For most low-wage earners
A) the income effect of a wage rate increase is likely to be larger than the substitution
effect.
B) the substitution effect of a wage rate increase is likely to equal the income effect.
C) the opportunity cost of leisure is high.
D) the substitution effect of a wage rate increase is likely to be larger than the income
effect.
Figure 16-2
Plato Playhouse, a theatre company in the university town of Wegg, caters to two
groups of customers: students and the non-student population. Figure 16-2 shows the
demand curves for the two groups of customers.
Refer to Figure 16-2. What is the price charged in the two markets?
A) price in the student market = price in the non-student market = Pa
B) price in the student market = price in the non-student market = Pb
C) price in the student market = Pd; price in the non-student market = Pe
D) price in the student market = Pc; price in the non-student market = Pe
Governments grant patents to
A) compensate firms for research and development costs.
B) encourage competition.
C) encourage low prices.
D) encourage firms to reveal secret production techniques.
Which of the following is evidence of a surplus of bananas?
A) Firms raise the price of bananas.
B) The price of bananas is lowered in order to increase sales.
C) The equilibrium price of bananas rises due to an increase in demand.
D) The quantity of bananas demanded is greater than the quantity supplied.
Suppose the cross-price elasticity of demand between grapefruit juice and orange juice
is approximately 6. What does this mean?
A) A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in
orange juice consumption.
B) A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in
orange juice consumption.
C) If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be
purchased.
D) The demand for orange juice is 6 times greater than the demand for grapefruit juice.
Economist A.C. Pigou argued that to deal with a negative externality in production, the
government should impose a tax equal to the cost of the externality. What did Pigou
believe should be done in the case of a positive externality in consumption? How would
his recommendation impact the demand and market equilibrium for the product which
is generating the positive externality?
When the government makes a firm the exclusive legal provider of a good or service, it
grants the firm
A) a copyright.
B) a network externality.
C) a quota.
D) a public franchise.
Tony’s Italian Ice is a monopolistically competitive firm. If Tony’s earns a profit in the
short run, which of the following is most likely to occur?
A) New firms that sell Italian ice will enter the market and Tony’s cost curves will shift
to the left.
B) New firms that sell Italian ice will enter the market and Tony’s demand curve will
shift to the left.
C) New firms that sell Italian ice will enter the market and Tony’s demand curve will
shift to the right.
D) New firms that sell Italian ice will enter the market and Tony’s demand curve will
become more inelastic.
The labor market in Major League Baseball features
A) a monopoly by the League in employing professional baseball players that is offset
by the players’ membership in a labor union.
B) a monopsony by the League in employing professional baseball players that is offset
by the players’ membership in a labor union.
C) an oligopoly by the League in employing professional baseball players that is offset
by an oligopsony by the players in the labor market.
D) monopolistic competition between the teams and professional baseball players.
If Molly Bee increases her work hours when her wage increases, then
A) the income effect of the wage increase outweighs the substitution effect.
B) the substitution effect of the wage increase outweighs the income effect.
C) leisure is an inferior good to Molly.
D) Molly is spending beyond her means.
Figure 3-5
Refer to Figure 3-5. At a price of $10, the quantity sold
A) is 2 units.
B) is 4 units.
C) is 6 units.
D) is 8 units.
On a balance sheet
A) total assets must equal total liabilities plus equity.
B) total assets plus equity must equal total liabilities.
C) total assets plus total liabilities must equal zero.
D) total assets plus total liabilities plus equity must equal zero.
Figure 9-4
Suppose the U.S. government imposes a $0.50 per pound tariff on sugar imports. Figure
9-4 shows the demand and supply curves for sugar and the impact of this tariff.
Use Figure 9-4 to answer questions a-i.
a. Following the imposition of the tariff, what is the price that domestic consumers must
now pay and what is the quantity purchased?
b. Calculate the value of consumer surplus with the tariff in place.
c. What is the quantity supplied by domestic sugar producers with the tariff in place?
d. Calculate the value of producer surplus received by U.S. sugar producers with the
tariff in place.
e. What is the quantity of sugar imported with the tariff in place?
f. What is the amount of tariff revenue collected by the government?
g. The tariff has reduced consumer surplus. Calculate the loss in consumer surplus due
to the tariff.
h. What portion of the consumer surplus loss is redistributed to domestic producers? To
the government?
i. Calculate the deadweight loss due to the tariff.