Figure 3-2
In Figure 3-2, a point such as E
a. is not obtainable.
b. is an efficient use of resources.
c. represents an inefficient allocation of resources.
d. indicates that the society is a capitalist society.
A firm will shut down in the short run if
a. TR − TC > TFC.
b. TR + TC > TFC.
c. TC − TR > TFC.
d. TFC + TVC > TR.
The goal of the business firm is maximization of ____, and the goal of the consumer is
maximization of ____.
a. total sales; income
b. total profit; utility
c. total output; utility
d. total sales; utility
Which of the following statements is correct?
a. Marginal social cost is the share of marginal cost caused by an activity that is paid for
by the persons who carry out the activity.
b. Marginal private cost is the share of marginal cost caused by an activity that is borne
by persons other than those who carry out the activity.
c. Marginal social cost is the sum of marginal private cost and incidental cost.
d. Marginal private cost and incidental cost are one and the same.
A firm in a perfectly competitive industry
a. is unaffected by the entrance of new firms into the industry, since entering firms
affect only the prices they themselves receive.
b. always produces more output in the long run than in the short run.
c. may choose a different output in the long run than in the short run.
d. earns economic profit in the long run but not in the short run.
An increase in the price of gasoline shifts the demand for tires to the
a. left, because gasoline and tires are substitutes.
b. left, because gasoline and tires are normally used together.
c. right, because gasoline and tires are substitutes.
d. right, because gasoline and tires are normally used together.
The long-run supply curve of an industry equals the industry’s
a. long-run marginal cost curve.
b. the horizontal sum of all firms’ supply curves at any point in time.
c. long-run average cost curve.
d. long-run total variable cost curve.
Figure 7-7
In Figure 7-7 at 100 units, AFC equals
a. 10.
b. 100.
c. 180.
d. 1,000.
Sugar price supports ensure an abundance of sugar, and hence reasonable prices for
consumers.
a. True
b. False
It has been shown that when offered higher wages, women will work more hours. This
is because
a. women tend to work more hours than men at any wage rate.
b. the substitution effect is more dominant for women.
c. the income effect is more dominant for women.
d. women are more productive than men at higher wages.
The law of diminishing marginal returns is the same as increasing returns to scale.
a. True
b. False
One of the major reasons why nations trade is that
a. nations choose to trade for largely unknown reasons.
b. resources are not equally distributed across the planet.
c. nations wish to exert cultural influence abroad.
d. nations wish to copy others, and need imports to study.
Effective methods of dealing with externalities would include
a. taxing firms that generate beneficial externalities.
b. imposing fines equal to the difference between MSC and MPC on firms that generate
beneficial externalities.
c. giving a subsidy per unit equal to the difference between MSC and MPC to firms that
generate beneficial externalities.
d. restricting the output of firms that generate beneficial externalities.
Because smoking causes illness and disability to smokers, society must maintain more
health-service capacity than it would need in the absence of smoking. Since the cost of
maintaining this capacity is covered to a substantial degree by health insurance, even
nonsmokers must pay higher premiums. Also, smokers hurt nonsmokers as a result of
“passive smoke.” The Rand Corporation estimates these costs to be 29 cents per pack of
cigarettes. Cigarette taxes average 37 cents per pack. Based on the economist’s
definition of efficiency, it follows that
a. cigarette taxes are too high, and cigarette production is lower than the efficient
amount.
b. cigarette taxes should be increased until external costs are zero.
c. since the tax exceeds the marginal cost, we have a better than efficient outcome.
d. we are overconsuming cigarettes.
If a ton of steel sells for $15,000 and a car made from a ton of steel sells for $30,000,
then if all markets are perfectly competitive, how many cars can be made from the last
ton of steel used by a profit-maximizing firm?
a. 1/3 car
b. 1/2 car
c. 1 car
d. 1.5 cars