A policy in which the marginal costs of undertaking the policy equal the marginal
benefits of that policy is best called an:
A. equality policy.
B. incentive policy.
C. optimal policy.
D. opportunity policy.
Answer:
Refer to the table shown that depicts a third-party payer market. What is the price the
supplier will charge for the quantity consumers demand if a $1 co-pay is established?
A. $1
B. $2
C. $4
D. $7
Answer:
The slope of a budget constraint with combinations of cookies that cost $1 a cookie and
milk that costs $0.50 a carton (with cookies on the y-axis and milk on the x-axis) is:
A. ½.
B. 2.
C. -1/2.
D. -2.
Answer:
If an economist observed that higher hot dog prices lead to a decrease in the demand for
chili, she most likely would conclude that:
A. chili and hot dogs are complements.
B. chili and hot dogs are substitutes.
C. chili and hot dogs are both inferior goods.
D. chili and hot dogs are both normal goods.
Answer:
If marginal cost is less than average variable cost, average variable cost will:
A. increase as output rises.
B. decrease as output rises.
C. remain constant as output rises.
D. equal average total cost.
Answer:
Refer to the graph shown. If this monopolist sets the price to maximize profit, it will
earn economic profit of:
A. $1,600 per day.
B. $2,400 per day.
C. $4,800 per day.
D. $7,200 per day.
Answer:
A Lorenz curve is a geometric representation of the:
A. level of income earned by a given family in a given country at a given time.
B. size distribution of income among families in a given country at a given time.
C. behavior of income over time.
D. behavior of income across countries.
Answer:
Whenever the marginal cost curve lies below the average total cost curve, the:
A. average variable cost is increasing.
B. average variable cost is decreasing.
C. average total cost is increasing.
D. average total cost is decreasing.
Answer:
Refer to the graph shown. If a firm operating as if it were faced with a kinked demand
curve believes that if it raises price from P2 to P1, its rival will not go along:
A. the demand curve used by the firm for decision making is highly inelastic.
B. it probably won’t raise price, since doing so would cause sales to drop from Q3 to Q1.
C. it probably will raise price, since lower output means lower costs and greater profit.
D. D2 is the relevant demand curve.
Answer:
Refer to the graph shown. Within which section(s) of the production function is the
marginal product of labor decreasing?
A. A only
B. B only
C. C only
D. B and C
Answer:
Refer to the graph shown. If the seller expects a price of $52, the minimum amount the
firm must produce to be profitable is:
A. 15.
B. 16.
C. 17.
D. 18.
Answer:
The existence of economic losses induces firms to:
A. exit an industry, which shifts the market supply curve to the left and increases
market price.
B. enter an industry, which shifts the market supply curve to the right and decreases
market price.
C. enter an industry, which shifts the market supply curve to the left and decreases
market price.
D. exit an industry, which shifts the market supply curve to the right and decreases
market price.
Answer:
Refer to the graph shown. The line segment that represents average fixed costs of
producing Q * is:
A. AC.
B. CB.
C. AB.
D. cannot be determined.
Answer:
If you have already signed up for a plan with your cell phone company that gives you
4,000 free minutes for $39.99 per month with a cost of $0.35 per minute for any time
exceeding the limit, your marginal cost curve is:
A. horizontal at a marginal cost of zero.
B. horizontal at a marginal cost of zero up to 4,000 minutes.
C. horizontal at a marginal cost of $0.35.
D. upward-sloping.
Answer:
If a policy is Pareto optimal:
A. it will hurt no one.
B. it will hurt less than 50 percent of the population.
C. it will hurt almost no one.
D. some of the losses will exceed the gains.
Answer:
Refer to the table shown. At what level of employment is the marginal product of labor
7?
A. 2
B. 4
C. 5
D. 7
Answer:
Refer to the graph shown. Suppose that the market price is $5. At this price, a perfectly
competitive firm should:
A. continue to produce in the short run but shut down in the long run.
B. continue to produce in both the short run and the long run.
C. shut down in the short run but continue production in the long run.
D. shut down immediately.
Answer:
For necessities, income elasticity is any value:
A. greater than 0.
B. greater than 1.
C. less than 0.
D. between 0 and 1.
Answer:
If the marginal benefit of one more unit of a public good is $500 for Sam and $800 for
Alex, the social benefit of one more unit of a public good is:
A. $500 since the benefit will go to the person who values it least.
B. $800 since the benefit will go to the person who values it most.
C. $1,300 since the benefit of one more unit goes to both individuals.
D. more than $1,300 since the benefits to society exceed the sum of individual benefits.
Answer:
If elasticity of demand is less than 1:
A. a rise in price decreases total revenue.
B. a decline in price increases total revenue.
C. a decline in price will not change total revenue.
D. a rise in price increases total revenue.
Answer:
A decrease in the wages of truck drivers might be explained by which of the following
factors?
A. An increase in the price of gasoline
B. An increase in competition within the trucking industry
C. An increase in the demand for transportation
D. An increase in the cost of air freight
Answer:
In a standard highest sealed-bid auction, a bidder’s best strategy:
A. is to bid what he or she would be willing to pay.
B. is to bid slightly more than what he or she expects the second highest bidder to bid.
C. always ensures that the person who wants it the most will get the bid.
D. requires the bidder to understand game theory to bid properly.
Answer:
Refer to the graph shown. Assuming that this monopolist maximizes profit, it will
produce:
A. 300 units of output per day.
B. 600 units of output per day.
C. 700 units of output per day.
D. 800 units of output per day.
Answer:
A perfectly price-discriminating monopolist:
A. shifts the demand curve for its product to the right by producing where MC = MR.
B. will cause a greater welfare loss than will a monopolist that is not
price-discriminating.
C. captures some or all of the consumer surplus.
D. increases both consumer surplus and producer surplus.
Answer:
The best example of a public good is:
A. competition.
B. government-subsidized lunches.
C. pollution.
D. national defense.
Answer:
In China many farmers have switched from producing rice to producing vegetables and
fruit because they can earn a great deal more money from these specialty crops. Within
China there are some who applaud this change, but others worry that China soon may
become dependent on rice imports. Even with the low cost of Chinese labor, does the
fact that China is importing rice suggest that other countries now have a comparative
advantage in rice production?
A. No; China must have a comparative advantage in rice if it imports rice.
B. Yes; but only if there are other countries with even cheaper labor.
C. Yes; countries with more expensive labor can offset that cost with abundant land and
farm equipment.
D. Maybe; because rice is a standardized product, the role of innovation and creativity
in its production is important.
Answer:
The Katrina disaster in New Orleans decreased the ability of oil companies to purify
crude oil into gasoline. This caused:
A. the supply curve for gasoline to shift inward.
B. the supply curve for gasoline to shift outward.
C. the quantity of gasoline demanded to move out along the demand curve.
D. the quantity of gasoline supplied to move in along the supply curve.
Answer:
Formal economic reasoning applied to situations in which decisions are interdependent
is called:
A. economic decision making.
B. monopolistic decision making.
C. competitive decision making.
D. game theory.
Answer:
In Massachusetts, the price elasticity of license plates is 3.5 and their price is $50.
Massachusetts is:
A. maximizing revenue since elasticity is greater than 1 and revenue will increase after
a price decrease when demand is elastic.
B. not maximizing revenue since elasticity is greater than 1 and revenue will increase
after a price decrease when demand is elastic.
C. maximizing revenue since elasticity is greater than 1 and revenue will decrease after
a price decrease when demand is elastic.
D. not maximizing revenue since elasticity is greater than 1 and revenue will decrease
after a price decrease when demand is elastic.
Answer:
Which of the following is a disadvantage of setting up a business as a corporation?
A. Limited personal liability
B. Greater ability to get funds
C. More limited control by owners
D. Risk of personal assets not invested in the firm
Answer:
Suppose the market demand curve for a monopolist is given by P = 50 – 10Q. Then the
marginal revenue curve is given by:
A. MR = 25 – 10Q.
B. MR = 25 – 20Q.
C. MR = 50 – 5Q.
D. MR = 50 – 20Q
Answer:
Refer to the table shown. Diminishing marginal productivity begins when the:
A. third worker is hired.
B. fourth worker is hired.
C. fifth worker is hired.
D. sixth worker is hired.
Answer:
Globalization has increased the demand for the logistical support and marketing sectors
but has led to a decline in the manufacturing industry. The effects of this are the same as
those caused by the:
A. renewable curse.
B. depreciation curse.
C. resource curse.
D. common curse
Answer:
An upward sloping supply curve implies that:
A. quantity supplied increases when price decreases.
B. quantity supplied increases when price increases.
C. the law of supply is invalid.
D. there is no relationship between price and quantity supplied.
Answer: