In a sequential game, one firm will act first and then other firms will respond.
The marginal product of labor curve is the demand curve for labor.
A public franchise gives the exclusive right to produce a product for 20 years from the
date the product is invented.
An increase in the price of grape juice causes an increase in the marginal revenue
product of labor used to produce grape juice.
One effect of adverse selection in a market is that the equilibrium quantity of the
product may
be smaller than it would have been if there were no information problems.
There is no evidence that odd pricing succeeds in convincing consumers that prices are
lower than they really are.
When Audrina raised the price of her home made cookies, her total revenue increased.
This suggests that the demand for Audrina’s cookies is elastic.
A shortage occurs when the market price is lower than the equilibrium price.
The market demand curve in a perfectly competitive market is downward-sloping.
The substitution effect of a price increase causes a decrease in the quantity demanded of
an inferior good.
Competition from substitute goods is more of a threat when switching costs are high.
According to the U.S. Bureau of Labor Statistics, between 2000 and 2005, real wages in
concrete work fell by 16.5%, despite a soaring demand for workers. This implies that
the supply of workers in this field increased faster than the demand for workers.
Roderick received a $100 savings bond for his graduation. The bond pays $100 at
maturity, which is in five years. If the interest rate is 6%, the bond has a present value
of $90.09.
An external benefit is created when you pursue a college education.
If you purchase a share of stock from your friend who initially purchased the stock
three years ago, your purchase of the stock represents a transaction in the primary
financial market
The demand for most farm products is relatively inelastic. A drought that reduces the
supply of farm products will also cause farm revenues to fall.
According to the benefits-received principle, those who receive the benefits from a
government program should pay the taxes that support the program.
Imports are goods and services purchased abroad and brought into a country.
The law of one price states that identical products should sell for the same price
everywhere as long as transactions costs are zero.
Demand for staples such as dairy products and bread is likely to be both income and
price inelastic.
If the absolute value of the price elasticity of demand for gasoline is 0.5, then a 10
percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity
demanded.
The substitution effect of a change in the price of cauliflower is the portion of the
change in the quantity of cauliflower demanded that can be attributed to the change in
the price of a substitute vegetable such as asparagus.
In economics, the term “free market” refers to a market where products are traded but
not sold.
A college must decide if it wants to offer more adult literacy classes. This decision
involves answering the economic question of “for whom to produce.”
Marginal cost is the additional cost to a firm of producing one more unit of a good or
service.
The act of buying a product at a low price in one market and reselling the product at a
higher price in another market is called arbitrage.
If price is equal to average variable cost, a perfectly competitive firm breaks even.
Most food products have low income and price elasticities of demand.
The substitution effect explains why there is a direct relationship between the price of a
product and the quantity of the product demanded.
After an increase in demand in a constant-cost industry, firms will find themselves with
higher average cost curves.
In the short run, if average product is at its maximum, then average variable cost is at its
minimum.
One possible reason as to why consumers respond to sales is that by displaying a “high”
regular price and a “low” sale price, sales provide consumers with a reference point to
interpret the prices being offered.
In the short run, if price falls below a firm’s minimum average total cost, the firm
should shut down.
Quantity supplied refers to the amount of a good or service that a firm is willing and
able to supply at a given price.
Suppose that to increase sales of hybrid vehicles, auto manufacturers are offering large
cash incentives. This is an example of a macroeconomics topic.
A subgame is a simultaneous game embedded in a sequential game.
In the short run, a firm might choose to produce rather than shut down even if its
market price is less than its average total cost of production.
In a perfectly competitive market, there are ________ buyers and ________ sellers.
A) many; few
B) few; many
C) many; many
D) few; few
A study by Price Fishback and Shawn Kantor of the University of Arizona shows that
after the passage of workers’ compensation laws, wages received by workers in the coal
and lumber industries fell.
Source: Price V. Fishback and Shawn Everett Kantor, “Did Workers Pay for the
Passage of Workers’ Compensation Laws?” Quarterly Journal of Economics, Vol.
100, No. 3, August 1995, pp. 713-742.
Which of the following could explain why passage of workers’ compensation laws led
to a fall in wages in some industries?
A) The passage of the workers’ compensation laws made it more expensive for firms to
employ workers, thus reducing the demand for workers.
B) The passage of the workers’ compensation laws allowed employers in hazardous
industries to reduce compensating differentials which, in turn, reduce wages.
C) Employers reduced wages to partially offset the cost of having to purchase insurance
that would compensate workers for injuries suffered on the job.
D) The supply of labor in these hazardous industries increased following the passage of
the workers’ compensation laws because jobs in these industries now pose less risk.
Figure 6-8
Refer to Figure 6-8. Identify the two goods which are substitutes.
A) Good X and Good Y
B) Good Y and Good Z
C) Good X and Good Z
D) It is not possible to distinguish any relationship among the goods.
Figure 15-4
Figure 15-4 shows the demand and cost curves for a monopolist.
Refer to Figure 15-4. What is the amount of the monopoly’s profit?
A) $2,700
B) $4,200
C) $10,400
D) $12,600
Which of the following is the best example of a short run adjustment?
A) A local bakery purchases another commercial oven as part of its capacity expansion.
B) Your local Wal-Mart hires two more associates.
C) Smith University completed negotiations to acquire a large piece of land to build its
new library.
D) Toyota builds a new assembly plant in Texas.
Figure 16-3
Chantal owns a hairdressing salon which caters to two main groups of customers:
residents of “The Chateau,” a retirement community, and other residents in the
neighborhood. Figure 16-3 shows the demand curves for the residents of the retirement
community, labeled Market A, and other residents in the neighborhood, labeled Market
B. The demand curves are not identical.
Refer to Figure 16-3. Suppose Chantal charges all her customers a uniform price of
$10 for a haircut. Which of the following statements is true?
A) Chantal is selling more than the profit-maximizing quantity of haircuts in market B.
B) Chantal is selling less than the profit-maximizing quantity of haircuts in market B.
C) Chantal is maximizing revenue in market B.
D) Chantal will earn a greater profit through uniform pricing than if she practices price
discriminates.
An explicit cost is defined as
A) a cost that does not change as output changes.
B) a nonmonetary opportunity cost.
C) a cost that involves spending money.
D) a nonmonetary accounting cost.
In the United States, out-of-pocket spending on health care was ________ percent of all
health care spending in 2011.
A) 2
B) 11
C) 33
D) 51
Figure 11-11
Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture
frames. The graph also includes short-run average cost curves for three firm sizes:
ATCa, ATCb and ATCc.
Refer to Figure 11-11. The minimum efficient scale of output is reached at what rate of
output?
A) 10,000 workers
B) 5,000 picture frames
C) 20,000 picture frames
D) 10,000 picture frames
Which of the following is an example of implicit collusion?
A) product differentiation
B) a retaliation strategy
C) a second-price auction
D) price leadership
Professor Parallax chooses two students in his economics class, Jasmine and Cassandra,
to participate in the ultimatum game. He chooses Jasmine to be the allocator and
Cassandra to be the recipient. He gives Jasmine $50 and as the allocator, she gets to
decide how to split the money with Cassandra. If Cassandra decides to accept the
amount allocated to her by Jasmine, both students get to keep the money. If Cassandra
decides to reject her allocation, neither student gets to keep the money. How much will
each student end up with if each student acts as if fairness is important? How much will
each student end up with if only Cassandra acts as if fairness is important? How much
will each student end up with if neither student cares about fairness?
Which of the following explains why two firms, Apex and Bongo, would engage in
implicit collusion, rather than explicit collusion?
A) Implicit collusion allows Apex to increase its profits at the expense of Bongo
without Bongo knowing that collusion has occurred; if Apex engages in explicit
collusion, Bongo will realize collusion has taken place and retaliate against Apex.
B) Implicit collusion is less costly to both firms than explicit collusion; therefore,
profits will be greater for both firms if they engage in implicit collusion.
C) explicit collusion is illegal; if the managers of Apex and Bongo engage in implicit
collusion they may be within the law.
D) Implicit collusion always has an enforcement mechanism that forces both firms to
collude; explicit collusion does not have an enforcement mechanism.
Table 9-6
Production and
Consumption Production
Without Trade With Trade
Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production
and consumption quantities without trade, and the production numbers with trade.
Refer to Table 9-6. If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are
traded, how many clocks will Belize gain compared to the “without trade” numbers?
A) -100
B) 100
C) 120
D) 250
Which of the following statements best describes the concept of consumer surplus?
A) “Safeway was having a sale on Dreyer’s ice cream so I bought 3 quarts.”
B) “I was all ready to pay $300 for a new leather jacket that I had seen in Macy’s but I
ended up paying only $180 for the same jacket.”
C) “I paid $130 for a printer last week. This week the same store is selling the same
printer for $110.”
D) “I sold my Blu-ray copy of Ben-Hur for $18 at a garage sale even though I was
willing to sell it for $10.”
Assume a firm is able to use an optimal two-part tariff.
a. Is the outcome economically efficient? Why or why not?
b. What happens to consumer surplus?
c. Does this represent perfect price discrimination? Why or why not?
Consider the following statements:
a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower
price than other rival gas stations in the area.
b. Banks do not take steps to increase security since they believe it is less costly to
allow some bank robberies than to install expensive security monitoring equipment.
c. Firms produce more of a particular DVD when its selling price rises.
Which of the above statements demonstrates that economic agents respond to
incentives?
A) a only.
B) b only.
C) c only.
D) a and b.
E) a, b, and c.
If the price of chewing gum is represented by equation P = 25 – 0.5 QD, then the
corresponding quantity of chewing gum demanded is represented by the equation
A) QD = 2P – 0.5.
B) QD = 0.5P + 25.
C) QD = 50 -2P.
D) QD = -5 + 10P.
Table 10-2
Table 10-2 above shows Keira’s utility from soup and sandwiches. The price of soup is
$2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two
goods.
Refer to Table 10-2. Holding prices constant, when Keira’s income changed from $18
to $23, her utility maximizing bundle changed. Based on your answers to her optimal
choices at the two income levels, what type of goods are soup and sandwiches?
A) Soup is an inferior good and sandwiches are a normal good.
B) Soup is a normal good and sandwiches are an inferior good.
C) Both soup and sandwiches are normal goods.
D) Both soup and sandwiches are inferior goods.
Table 9-6
Production and
Consumption Production
Without Trade With Trade
Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production
and consumption quantities without trade, and the production numbers with trade.
Refer to Table 9-6. If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are
traded, how many clocks will Denmark gain compared to the “without trade” numbers?
A) 30
B) 100
C) 150
D) 900
Stockholders
A) are liable for the debts of a corporation.
B) are the owners of a corporation.
C) control a corporation’s day-to-day activities.
D) hire the managers of a corporation.
What happens to the equilibrium wage and quantity of labor if output price rises?
A) The equilibrium wage and the equilibrium quantity of labor rise.
B) The equilibrium wage and the equilibrium quantity of labor fall.
C) The equilibrium wage falls and the equilibrium quantity of labor rises.
D) The equilibrium wage rises and the equilibrium quantity of labor falls.
Which of the following is an implicit cost of production?
A) interest paid on a loan to a bank
B) wages paid to labor plus the cost of carrying benefits for workers
C) the utility bill paid to water, electricity, and natural gas companies
D) rent that could have been earned on a building owned and used by the firm
Scenario: Donna Bader, Globalization opponent
Donna Bader spent her final year at college studying the effect of various economic
factors on the economy of developing nations. Based on the results of her study, she
concluded that globalization does these countries more harm than good.Which of the
following statements, if true, strengthens Donna’s argument?
A) People in low-wage nations have a high mortality rate and no access to healthcare
facilities.
B) Because of the increase in employment opportunities, workers from developing
countries flock to developed countries.
C) Low-wage nations tend to have poorly developed transport and communication
systems.
D) Many companies take advantage of lenient labor laws by setting up facilities in
low-income countries.
Economists are reluctant to state that price controls are desirable or undesirable because
A) it is impossible to evaluate the impact on quantity demanded and quantity supplied
as a result of price controls.
B) whether the gains from the winners exceed the losses from the losers is not strictly
an economic question.
C) sometimes price controls result in increases in economic efficiency and sometimes
they result in decreases in economic efficiency.
D) economists are reluctant to conduct positive analysis of price controls.
Both presidents Kennedy and Reagan proposed significant cuts in income taxes.
Opponents of these tax cut proposals argued that
A) the tax cuts would benefit high-income taxpayers.
B) cutting state sales taxes, rather than federal income taxes, would result in greater
economic efficiency.
C) while the tax cuts would result in greater economic efficiency, there was too much
opposition to the tax cuts in Congress. As it turned out, Congress ultimately approved
both tax cut proposals.
D) it would be better to cut taxes on corporate profits.
Figure 11-9
Refer to Figure 11-9 above to solve the following problems.
a. Calculate the fixed cost of production.
b. Calculate the average total cost of production when the firm produces 20 units of
output.
c. Calculate the average variable cost of production when the firm produces 20 units of
output.
d. Calculate the average fixed cost of production when the firm produces 20 units of
output.
e. Calculate the average fixed cost of production when the firm produces 15 units of
output.
f. If the firm increases output from 15 to 20 units what is the marginal cost of output?
Figure 15-10
Refer to Figure 15-10. Compared to a perfectly competitive market, consumer surplus
is lower in a monopoly by an amount equal to the
A) areaFHE.
B) area FGE.
C) area P1P2EF.
D) area P1P2GF.
The interest payment on a bond is called
A) the coupon payment.
B) principal.
C) the interest rate.
D) the face value.
A new area of economics studies situations in which people appear to be making
choices that do not appear to be economically rational. This area is called
A) behavioral economics.
B) irrational economics.
C) social economics.
D) new wave economics.
Measuring the impact of a quota or tariff on the U.S. economy is an example of
________. Stating that a quota or tariff should be eliminated is an example of
________.
A) statistical analysis; economic analysis
B) positive analysis; normative analysis
C) econometric analysis; protectionism
D) trade analysis; an opinion
Table 2-11
Table 2-11 shows the number of labor hours required to produce a motorcycle and a
guitar in Ireland and Scotland.
Refer to Table 2-11. Does either Ireland or Scotland have an absolute advantage and if
so, in what product?
A) Scotland only has an absolute advantage in guitars.
B) Ireland only has an absolute advantage in guitars.
C) Scotland has an absolute advantage in both products.
D) Ireland only has an absolute advantage in motorcycles.
Suppose the price elasticity of demand for methamphetamine is -0.35. If
decriminalization caused the price of methamphetamine to fall by 75 percent, what will
be the percentage increase in the quantity of methamphetamine demanded? If the price
elasticity is -3.5, what will be the percentage increase in quantity demanded?
What is a corporate bond and what does it specify?
Figure 15-13
Refer to Figure 15-13. From the monopoly graph above, identify the area representing
the deadweight loss.
Would the deadweight loss be larger if the demand curve was more elastic or less
elastic?
What is personnel economics?
What is cost-plus pricing? Why do some firms use cost-plus pricing even when the
firms’ managers have the resources to devise a pricing strategy that would result in
greater profits?
U.S. antitrust laws are designed to prohibit monopolization and encourage competition.
Why, then, does the government erect barriers to entry and create monopoly power by
granting firms patents?
The graph below represents the market for walnuts. Identify the values of the marginal
benefit and the marginal cost at the output levels of 2,000 pounds, 4,000 pounds and
6,000 pounds. At each of these output levels, state whether output is inefficiently high,
inefficiently low, or economically efficient.
Article Summary
Due to falling sales and lower profit margins, clothing retailer Aeropostale announced it
would be closing more stores than originally planned. In August, the company
announced it would be closing between 30 and 40 locations in 2013, up from the
previously announced 15 to 20. Compared to the previous year, net sales fell 6 percent
and the company reported a loss of $33.7 million for the second quarter of 2013, and
the trend was expected to continue into the third quarter. Explaining the downturn,
Aeropostale chief executive Thomas P. Johnson stated “Our business was pressured by
a challenging teen retail environment with weak traffic trends and high levels of
promotional activity.”
Source: Andrew Klips, “Aeropostale Losses Accelerate, Closing More Stores,”
equities.com, August 23, 2013.
Refer to the Article Summary. Use a graph to illustrate average total cost curves for
Aeropostale before and after closing the 30 to 40 stores. Assume that after closing the
stores, Aeropostale will be producing at minimum average total cost.
Central Grocery in New Orleans is famous for its muffaletta, a large round sandwich
filled with deli meats and topped with a tangy olive salad. Suppose the following table
represents cost and revenue data for Central Grocery. Fill in the columns for TR, MR,
MC, ATC, and profit. If Central Grocery wants to maximize profits, what price should it
charge for a muffaletta, what quantity should it sell, and what will be the amount of its
total profit?
Summarize each benefit a company might obtain from the globalization of markets.
Is it possible for technological change to be negative? If so, give an example.
State the Coase theorem.
What is economic growth?
What is meant by the statement that “optimal decisions are made at the margin”?
What are the advantages of setting up a corporation as opposed to a proprietorship or
partnership?
Using a supply and demand graph, illustrate the effect of the addition of a $10.00 unit
tax on digital cameras, where the entire tax burden falls on the seller. Assume the
equilibrium price before the tax is $125 and the equilibrium quantity is 50,000. What
happens to the price and quantity after the tax is implemented?
