If a tax is imposed on externality-producing activities by perfectly competitive firms so
that the market is producing the efficient level of output, then price equals ________
and marginal damage cost is ________.
A) marginal social cost; equal to zero
B) marginal cost; equal to zero.
C) marginal benefit; less than zero
D) marginal damage cost; greater than zero
Figure 6.10
Refer to Figure 6.10. Kyle would increase his consumption of turkey sandwiches from
5 to 7 per week if their price fell from $8 to $6. This illustrates the idea of
A) consumer surplus.
B) the law of diminishing marginal utility.
C) cross-price elasticity of demand.
D) technical efficiency.
If the government levies a tax on a chemical company that created an external social
cost, the tax should equal marginal ________ to ensure an efficient correction.
A) private cost
B) social cost
C) benefit
D) damage cost
Cashews are measured in bushels and tea is measured in pounds (lbs.)
Table 20.2
Refer to Table 20.2. If both countries specialize and trade with each other, Vietnam will
export ________ and India will import ________.
A) tea; cashews
B) cashews; tea
C) cashews; cashews
D) tea; tea
Figure 9.7
Refer to Figure 9.7. If MR = $9, then a profit maximizing firm will produce ________
units and earn ________.
A) 15; positive profits
B) 9; positive profits
C) 12; negative profits
D) 13; exactly a normal return
Lettuce and spinach are substitutes. Lettuce and tomatoes are complements. Lettuce is a
normal good. During the winter, about 20% of the lettuce crop was destroyed by
flooding.
The floods that destroyed part of the lettuce crop would have caused
A) an increase in the demand for tomatoes.
B) a decrease in the demand for tomatoes.
C) an increase in the quantity of tomatoes demanded.
D) a decrease in the quantity of tomatoes demanded.
Table 20.2
Refer to Table 20.2. Which terms of trade benefits both countries?
A) 1 tractor for 10 motorcycles
B) 1 tractor for 12.5 motorcycles
C) 1 motorcycle for 10 tractors
D) 1 motorcycle for 1/5 of a tractor
Which of the following is an opportunity cost of attending college?
A) the cost of your apartment or dorm
B) the income you could have earned if you didn’t attend college
C) the cost of the food that you consume while you are attending college
D) the education you gain from attending college
All of the following are fundamental concepts of economics EXCEPT
A) the working of efficient markets.
B) marginalism.
C) opportunity cost.
D) profit maximization.
An individual earning $40,000 pays $3,200 in taxes. The marginal tax rate on any
income earned above $40,000 is 20%.
When this person earns $60,000, her average tax rate is
A) 12%.
B) 14%.
C) 20%.
D) indeterminate from this information.
Preferences have just shifted away from wheat and into corn. If you are a corn farmer,
the best profit-maximizing strategy is to
A) shut down.
B) produce more corn in order to earn profits in the short run.
C) shift some of your farming capacity into wheat production.
D) cut prices to increase market share.
The mistake of inferring causality from two events happening one after the other is
called
A) thepost hoc, ergo propter hoc fallacy.
B) the fallacy of composition.
C) Ockham’s razor.
D) the fallacy of co-dependence.
Figure 18.2
Refer to Figure 18.2. Efficiency is achieved
A) at any point inside the curve.
B) at all points along the curve.
C) at only one point along the curve.
D) at any point beyond the curve.
Among the factors of production are
A) capital.
B) wages.
C) income.
D) all of the above
You value your favorite shirt at $100. Someone else values it at $160, and that person is
willing to pay you $120 for your shirt. Would selling your shirt to this person for $120
be Pareto efficient?
A) No, because you did not receive the maximum amount the other person would have
been willing to pay for the shirt.
B) No, the person paid you $120 for the shirt so his net benefit was $40, while your net
benefit was only $20. For this change to be Pareto efficient, each of you should have the
same net benefit.
C) Yes, because even though you gain from the trade and he loses, there is the potential
for you to compensate him for his loss.
D) Yes, because both of you are better off as a result of the trade.
Perfectly competitive firms must make all of the following decisions EXCEPT
A) how much output to supply.
B) which production technology to use.
C) how much of each input to demand.
D) what price to charge for its output.
Table 19.1
Relating to the Economics in Practice on page 392: Refer to Table 19.1. At an income
level of $40,000, the average tax rate is
A) 2%.
B) 5%.
C) 15%.
D) 20%.
Figure 8.5
Refer to Figure 8.5. Average total cost is ________ if Ollie’s Ovens produces three
ovens.
A) $83.33
B) $166.67
C) $500
D) $1,500
Table 8.2
Refer to Table 8.2. If Sherry produces three pairs of earrings, her total variable costs are
A) $26.67.
B) $140.
C) $175.
D) $225.
The cross-price elasticity of demand between good X and good Y is 75. Given this
information, which of the following statements is true?
A) The demand for goods X and Y is inelastic.
B) Goods X and Y are substitutes.
C) Goods X and Y are complements.
D) The demand for goods X and Y is income inelastic.
Figure 6.1
Refer to Figure 6.1. Along budget constraint AC, the opportunity cost of one hamburger
A) is 1/4 of a hot dog.
B) is 1/2 of a hot dog.
C) is 2 hot dogs.
D) changes as you move down along the budget constraint.
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. Since the expected value of this game is
$0, the game is called a(n)
A) gamble.
B) fair bet.
C) even game.
D) zero sum game.
Which of the following situations is most likely to generate the largest output effect
from a decrease in the price of one of a firm’s inputs?
A) The demand for a firm’s product is inelastic.
B) The demand for a firm’s product is elastic.
C) The inputs used in production are highly substitutable.
D) The inputs used in production are highly complementary.
Refer to the information provided in Figure 16.1 below to answer the questions that
follow.
Figure 16.1
Refer to Figure 16.1. Absent government intervention, how much fertilizer will be
produced?
A) Zero because any level of production involves an external cost.
B) 50 bags
C) 60 bags
D) indeterminate from this information
Related to the Economics in Practice on page 82: If the supply of generators decreased
and the equilibrium price of generators decreases, the demand for generators ________
and total revenue from the sale of generators ________.
A) decreased; will decrease
B) increased; may increase, decrease, or stay the same
C) may have increased, decreased, or stayed the same; will decrease
D) may have increased, decreased, or stayed the same; may increase, decrease, or stay
the same
If a firm in a perfectly competitive industry raises its price above market price,
A) total revenue for the firm will increase.
B) profit will increase.
C) sales will drop to zero.
D) demand curves will become downward sloping.
If ________, a firm would operate in the short run and expand in the long run.
A) TR > TC
B) TC > TR
C) ATC > AVC
D) AVC > AFC
Voting as a mechanism for public choice is associated with which of the following
problems?
A) majority rule voting that can lead to contradictory and inconsistent results
B) logrolling
C) disengaged voters with very little incentive to inform themselves of the issues
D) all of the above
The ________ part of a perfectly competitive firm’s marginal cost curve that is equal to
or above points on its average variable cost curve is the firm’s short-run supply curve.
A) declining
B) horizontal
C) rising
D) backward bending
You own and are the only employee of a company that sets odds for sporting events.
Last year your total revenue was $60,000. Your costs for rent and supplies were
$50,000. To start this business you invested an amount of your own capital that could
pay you a $20,000 a year return.
A yearly normal rate of return for your company is
A) $20,000.
B) $40,000.
C) $60,000.
D) $100,000.
You paid $90 for a psychology textbook at the beginning of the semester. At the end of
the semester you sell the textbook for $75. The textbook has depreciated
A) $1.00.
B) $15.00.
C) $20.00.
D) an indeterminate amount based on this information.
Assume some gain and some lose as the result of a change. If we can demonstrate the
value of the gains exceeds the value of the losses, then we say the change is
A) potentially efficient.
B) inefficient.
C) unequivocally Pareto optimal.
D) technically efficient.
Describe what is meant by the Cartesian coordinate system.
Why does the production possibility frontier have a negative slope?
Why are indifference curves convex to the origin?
Below are the supply curves for cucumbers for two firms: Firm X and Firm Y.
Assume that Firm X and Firm Y are the only two sellers in the market for cucumbers.
Draw the market supply curve.
Explain what is meant by the term opportunity cost.
What is the economic problem?
In the early years of software development the industry had to train its own workers in
developing code to build software applications. It was a very costly undertaking as
software firms had to shoulder most of the training costs. However, over time the
industry began to experience decreasing costs. How and why did this transformation
take place?
The cost of steel used in the production of many of the exercise products
increases.
What is game theory?
According to the text, what economic principle justifies the high salaries of some
Professional athletes?
Explain how the Supplemental Security Income Program works.
The Community Charge was a poll tax to fund local government in the United
Kingdom, instituted in 1989 by the government of Margaret Thatcher. It replaced the
rates that were based on the national rental value of a house. It was a fixed tax per adult
resident. Is this tax a proportional, progressive or regressive tax? Explain your answer.
When is it more expensive for a country to go to war ” during a recession or during an
economic boom? Explain.
A monopolist has the power to set price, but is not entirely free to set the price of its
product. Explain.
Figure 1
Using Figure 10.1 above is it possible to determine the price that this product is selling
for if it is being sold in a competitive market? If so what is that price?
Arguments by regulators are often made that predatory pricing, with its attendant
temporary price-cutting below costs, is an attempt to eliminate rivals with the intent of
raising prices after the competition has left. Critically evaluate this argument.
Suppose that the firms in an oligopolistic industry successfully collude. What will be
the outcome? Explain.
Martin’s Barber Shop faces the following schedule for producing haircuts:
Fill in the columns for average fixed cost, average variable cost, average total cost, and
marginal cost.
