Consider the following game. You roll a six-sided die and each time you roll a 1, you
get $50. For all other outcomes you pay $10. The expected value of the game is
________.
A) -$10
B) $0
C) $10
D) $50
Table 16.4 shows the situation facing two firms, both of which are polluting. Assume
that each firm emits 5 units of pollution.
Table 16.4
Refer to Table 16.4. Suppose the government wants to reduce the total amount of
pollution from the current level of 10 to 4. To do this, the government caps each firm’s
emissions at 2 units and issues 2 permits to each firm. If firms are not allowed to trade
permits, what is the total cost of the pollution reduction?
A) $48
B) $92
C) $152
D) $230
Initially the beef and mutton markets are in equilibrium, then preferences shift away
from beef and into mutton. If you are a cattle rancher, the best profit-maximizing
strategy is to
A) shut down.
B) increase output so as to increase your market share.
C) shift some of your ranching capacity into cattle raising.
D) decrease output so as to minimize short run losses.
Suppose that you rent a house next to a dog kennel. The kennel holds up to 200 dogs at
a time, and these dogs bark all day long. You now have to spend $150 more per month
on earplugs and headache medicine because of the noise. You could move to another
house far enough away from the factory, but the rent for that house is $125 more than
you now pay. The efficient solution to this problem is that
A) the kennel owner should compensate you $150 so that you can pay for the additional
expenses you incur.
B) you should move to the new house because the additional rent on that new house is
less than the additional expenses you incur from living next to the kennel.
C) the kennel owner should reimburse you $25, the difference between your expenses
and the higher rent on the new house.
D) the kennel should be able to continue to operate as it is because only one person is
being harmed by the noise.
Figure 3.11
Refer to Figure 3.11. A decrease in the number of cattle ranchers will cause a movement
from
A) Point A to Point B.
B) Point G to Point F.
C) D2 toD1.
D) S1 toS2.
Figure 6.3
Refer to Figure 6.3. Molly’s budget constraint is AB. It would swivel to AD if the price
of
A) cassette tapes increased.
B) cassette tapes decreased.
C) CDs increased.
D) CDs decreased.
________ is the additional harm done by increasing the level of an
externality-producing activity by one unit of a good.
A) Marginal damage cost
B) Marginal social cost
C) Marginal private cost
D) Marginal benefit cost
Figure 6
Refer to Figure 2.6. Which of the following will shift an economy’s production
possibility frontier from ppf1 to ppf2?
A) a decrease in unemployment
B) an increase in production efficiency
C) a change in consumers’ tastes
D) an increase in the economy’s capital stock
When a monopolist sells two units of output, its total revenue is $600. When a
monopolist sells three units of output, its total revenue is $690. In order to sell three
units of output instead of only two, the monopolist must
A) decrease its price by $30 per unit.
B) decrease its price by $70 per unit.
C) make no change in price and increase output by one unit.
D) decrease its price by $90 per unit.
Figure 8.10
Refer to Figure 8.10. Panel ________ represents the demand curve facing a perfectly
competitive producer of wheat.
A) A
B) B
C) C
D) D
All of the following industry types have market power EXCEPT
A) monopolistic competition.
B) perfect competition.
C) monopoly.
D) oligopoly.
Ted has $600 a week to spend on clothing (c) and food (f). The price of clothing is $30
and the price of food is $5. What is the equation for Ted’s budget constraint?
A) $30 × Clothing + $5 × Food < $600
B) $30 × Clothing + $5 × Food ≤ $600
C) $30 × Clothing + $5 × Food > $600
D) $30 × Clothing + $5 × Food = $600
An oligopoly with a dominant price leader will produce a level of output ________ that
which would prevail under competition and that which a monopolist would choose in
the same industry.
A) above
B) between
C) below
D) unrelated to
________ will depreciate because it wears out physically.
A) Intangible capital
B) Human capital
C) A capital asset
D) All of the above are correct.
Diminishing marginal returns implies
A) decreasing average variable costs.
B) decreasing marginal costs.
C) increasing marginal costs.
D) decreasing average fixed costs.
The All Smiles Greeting Card Company wants to increase the quantity of greeting cards
it sells by 10%. If the price elasticity of demand is -2.5, the company must
A) increase price by 4.0%.
B) decrease price by 4.0%.
C) increase price by 0.25%.
D) decrease price by 0.25%.
In 2012 about 25% of personal income in the United States came from
A) wages and salaries.
B) property income.
C) transfer payments.
D) profits.
The law of ________ explains why a marginal revenue product schedule eventually
declines.
A) diminishing marginal opportunity costs
B) increasing marginal returns
C) increasing marginal opportunity costs
D) diminishing marginal returns
There is a possibility that a national sales tax will be implemented. Many economists
argue that items such as food and clothing should be exempt from such a tax because
low-income people spend a greater percentage of their income on these goods than do
high-income individuals. This argument is motivated by concerns over
A) economic growth.
B) economic stability.
C) efficiency.
D) equity.
People scalping tickets for a rock concert can sell their tickets for at least a normal
profit
A) any time the rock group is popular.
B) when the price set by the concert hall is less than the market equilibrium price.
C) when prices are too high.
D) only when there is excess supply.
The quantity of investment demanded by firms
A) is inversely related to the interest rate.
B) is directly related to the interest rate.
C) is unrelated to the interest rate.
D) is positively related to the level of uncertainty.
An example of intangible capital is
A) a vacation house.
B) a flower garden.
C) a book.
D) a trained apprenticeship program.
Related to the Economics in Practice on page 156: For pineapple farmers in Ghana, the
choice of how much fertilizer to use was highly dependent on social learning, where the
farmers based their decisions on
A) the amount of fertilizer they used for their previously-grown maize crops.
B) the amount of fertilizer they were given by the government.
C) how much fertilizer their more successful neighbor farmers used.
D) the expected value of their future pineapple crops.
According to the law of ________, there is a positive relationship between price and
________.
A) supply; the change in supply
B) supply; the quantity supplied
C) demand; quantity demanded
D) demand; change in demand
Free entry implies that
A) a perfectly competitive firm can never earn a profit.
B) if firms in an industry are making excessively high profits, new firms are likely to
enter the industry.
C) the government regulates the number of firms that are allowed in an industry.
D) firms will always earn a profit, as new firms can enter the industry at any time they
like.
Figure 3.7
Refer to Figure 3.7. A movement from Point A to Point B on demand curve D2 would be
caused by a(n)
A) decrease in income, assuming pizza is a normal good.
B) decrease in the price of burritos, assuming that pizza and burritos are substitutes.
C) decrease in the price of pizza.
D) increase in the price of pizza.
If the quantity of bagels demanded increases by 9% when the price of croissants
increases by 18%, the cross-price elasticity of demand between bagels and croissants is
A) -5.
B) -2.
C) 0.5.
D) 2.
All points along the utility possibilities frontier are ________ equally desirable.
A) inefficient but
B) inefficient but may not be
C) efficient and
D) efficient but may not be
________ provides health benefits to people with low incomes, and ________ provides
health benefits to most people over the age of 65.
A) Medicare; Medicaid
B) Medicaid; Medicare
C) Medicare; the Supplemental Security Income program
D) Medicaid; the Supplemental Security Income program
You own The Wedding Crasher on DVD. The opportunity cost of watching this DVD
for the fourth time
A) is zero, since you own it.
B) is one-fourth the cost of the DVD, as this is the fourth time you have watched it.
C) is the value of the alternative use of the time you spend watching the DVD.
D) must be the same as the opportunity cost of watching it the first time.
Figure 15.2
Refer to Figure 15.2. The profit-maximizing number of perms for We Do Hair, a
monopolistically competitive firm, is
A)
B)
C)
D)
Stereo Sound Unlimited has a monopoly over the installation of surround sound
systems. If Stereo Sound Unlimited’s total revenue from installing 10 sound systems is
$20,000 and its total revenue from installing 11 sound systems is $18,000, what is the
marginal revenue of the eleventh sound system?
A) -$2,000
B) -$1,000
C) $2,000
D) $3,800
The philosopher John Rawls argued that if people could make arrangements about how
society would be organized before they were born that one of the principles that we
would agree upon is that social and economic inequalities are to be arranged so that
they are to be of the greatest benefit to the least-advantaged members of society. What
economic strategy sounds akin to this idea? Explain.
In the figure below, which distribution will have the largest Gini coefficient? Explain.
What is unemployment compensation?
Mark’s Fabrics produces fabric for window curtains. The firm’s fixed costs are $500 per
day. The firm’s variable costs vary with the level of output as follows:
Fill in the column for total cost.
What is predatory pricing?
Why might certain industries have a long run and a short run that is not separated by
very much time?
A firm producing hard drives for the Apple IPhone reports the following production
information:
Does this production function exhibit diminishing returns? Explain. If so, at which
worker is this taking place?
XYZ Company has a local monopoly in the sale of water fountains. The table below
shows the demand for water fountains at various prices. The total cost of production of
the various levels of output is also shown. Calculate total revenue and profit for the
firm. What level of output maximizes profit? What price should the firm charge?
Explain the argument that consumption is the best tax base. Explain the argument that
wealth is the best tax base. Explain the argument that income is the best tax base. In
your opinion, which measure is the best tax base – consumption, income, or wealth?
Why?
List the three decisions that households face in the labor market.
Assume that a traffic ticket attorney is no more productive today than he was 10 years
ago but he is now earning 50% more in salary. How do you explain this apparent
paradox?
Explain using price elasticity of demand why air conditioning manufacturers would
actually have sales in the middle of the summer when customers have the most acute
need? Explain this apparent paradox.
What is the one thing that all firms in an imperfectly competitive market have in
common?
What is the marginal technical rate of substitution?
Scenario 1. Suppose your instructor informs the class that the highest grade on each of
his multiple-choice exams will automatically receive a 100. All other grades below this
will be based on this high grade. For example if the highest grade is an 80 this would
receive an automatic 100. If someone scores a 40 then the grade earned would be a 50
[(40 80) * 100%)]. To the instructors surprise all the students earned a 100 on the first
exam even though their grades were all an identical 25%. How could this have
happened?
Using the scenario above why might the results be different for small classes compared
to large classes?
What does it mean for a firm to be breaking even?
Assume that you own a lake house. Unfortunately your job will require that you spend
the summer on the road and you won”t be able to enjoy it. You decide that you will rent
it out for the summer while you are working. The mortgage payment on the lake house
is $1000 per month and the upkeep and maintenance if it is occupied is $200 month but
zero if it is not rented. What is the minimum rent that you would be willing to receive
and why? What information is irrelevant in your decision? Explain.
Why doesn’t a monopoly have a supply curve?
List six factors that influence the quantity of a good or service demanded by a
household.