If a country has a comparative advantage in the production of a good, its resources are
better suited to the production of that good than are the resources of other countries.
Answer:
In the short run when the number of firms in the market is fixed, the market supply
curve is just the horizontal sum of all the firms’ marginal cost curves.
Answer:
Public choice economists point out that when the government enters into the market,
the incentive is to achieve its goal in the least-cost manner.
Answer:
The supply of labor generally is considered to be downward-sloping because the
opportunity cost of leisure decreases as wages increase.
Answer:
Economic models take into account the effect of trade on the distribution of income.
Answer:
The law of one price means that prices eventually will be the same in all countries and
eventually countries will not have a reason to trade.
Answer:
People with intellectual property rights are on the low end of the income distribution
that is created from globalization.
Answer:
An increase in the marginal income tax rate will increase the quantity of labor supplied.
Answer:
Price elasticity of demand is the percentage change in price divided by the percentage
change in quantity demanded.
Answer:
The marginal income tax rate is a person’s tax burden as a percentage of total income.
Answer:
If a large group of people are willing to enter the labor market when wages rise, the
market labor supply will be highly elastic even if individuals’ supply curves are
inelastic.
Answer:
The cartel model of oligopoly assumes that firms jointly behave as a monopolist in
order to maximize joint profits.
Answer:
If government action is likely to do some good, it is always best for government to
intervene in the marketplace.
Answer:
The existence of positive economic profits in an industry attracts new entrants into the
industry.
Answer:
In the next decade or so, Chinese car companies are not expected to impose voluntary
export restraints.
Answer:
Accounting profit and economic profit differ because economic profit does not take into
account opportunity cost.
Answer:
Economists tend to believe that market incentive plans are generally more efficient than
direct regulation.
Answer:
In a perfectly competitive market:
A. price does more of the adjusting in the long run and quantity does more of the
adjusting in the short run.
B. price does more of the adjusting in the short run and quantity does more of the
adjusting in the long run.
C. only price adjusts in both the short run and the long run.
D. only quantity adjusts in both the short run and the long run.
Answer:
One advantage of the Herfindahl index over the concentration ratio is that the:
A. Herfindahl index ignores the small firms that always exist on the fringes of any
industry.
B. Herfindahl index is easier to compute.
C. Herfindahl index takes into account all firms in an industry.
D. concentration ratio excludes the largest firms in an industry.
Answer:
Which of the following is an accurate statement about the envelope relationship?
A. At the planned output level, short-run average total cost equals long-run average
cost, but at all other output levels, short-run average total cost is lower than long-run
average cost.
B. At the planned output level, short-run average total cost equals long-run average
cost, but at all other output levels, short-run average total cost is higher than long-run
average cost.
C. The long-run average cost curve touches the minimum point of each short-run
average total cost curve.
D. The long-run average cost curve is identical to the lowest short-run average cost
curve.
Answer:
People have become more concerned about the negative health effects of eating
carbohydrates and fat. Considering these effects only, which of the following best
describes the likely effect of this trend on the market for high-carb, high-fat snacks?
A. Demand shifted to the left leading to a decline in equilibrium price and quantity.
B. Quantity demanded fell leading to a decline in equilibrium price and quantity.
C. Supply shifted to the left leading to a rise in equilibrium price and a decline in
equilibrium quantity.
D. Demand and supply both shifted to the left leading to a decline in equilibrium price
and quantity.
Answer:
It is common for fashion trends to follow celebrity fashion choices. This is an example
of:
A. conspicuous consumption.
B. focal point equilibrium.
C. bounded rationality.
D. inferring quality from price.
Answer:
Suppose a monopolist is at the profit-maximizing output level. If the monopolist
reduces output:
A. both producer surplus and consumer surplus increase.
B. producer surplus falls but consumer surplus rises.
C. both producer surplus and consumer surplus decrease.
D. producer surplus rises but consumer surplus falls.
Answer:
The U.S. balance of trade has:
A. shown a surplus since the 1980s.
B. been in deficit since the 1980s.
C. gone from a surplus in the 1980s to a deficit in the 1990s and back to a surplus since
2000.
D. gone from a deficit in the 1980s to a surplus in the 1990s and back to a deficit since
2000.
Answer:
Refer to the graph shown. At the price of $1.60, given market demand for the product:
A. the firm will incur losses.
B. the firm will just cover its opportunity costs.
C. there will be a shortage of the product.
D. the firm will go out of business.
Answer:
Measuring the price of gasoline in dollars per quart, an economist calculates the price
elasticity of demand to be 1. What would the price elasticity of demand be if the
economist had chosen to measure the price in dollars per gallon?
A. 1
B. 4
C. .25
D. .5
Answer:
Refer to the graph shown. The welfare loss of monopoly is:
A. 1,137.5.
B. 1,381.25.
C. 2,112.5.
D. 2,762.5.
Answer:
Refer to the graph below.
If the production possibility curve shifts along the Good Y axis, which point will remain
as a point of efficiency?
A. A
B. B
C. C
D. D
Answer:
Economists’ attitude toward voluntary programs causes them to:
A. actively oppose them on the grounds that they will do more harm than good.
B. actively oppose them on the grounds that they are unfair.
C. be skeptical of the potential success of such programs
D. favor these programs over alternative solutions.
Answer:
If P = Q/15 represents market supply for a competitive industry and market demand is
given by Qd = 500 – 10P, the equilibrium price is:
A. $12.50.
B. $20.00.
C. $31.25.
D. $50.00.
Answer:
George Davis and Michael Wohlgenant estimate that for every 1 percent increase in the
price of Christmas trees, quantity demanded falls by 0.6 percent. The demand for
Christmas trees is:
A. inelastic.
B. elastic.
C. perfectly inelastic.
D. unit elastic.
Answer:
Refer to the graph shown. The supply curve for the perfectly competitive firm is best
represented by the segment:
A. AB.
B. BD.
C. CE.
D. DE.
Answer:
The long-run average cost curve is horizontal when production exhibits:
A. diminishing marginal returns.
B. diseconomies of scale.
C. economies of scale.
D. constant returns to scale.
Answer:
Other things equal, tax cuts favoring the rich and reductions in funding for government
programs favoring the poor would be expected to:
A. increase income inequality, causing the Lorenz curve to shift toward the diagonal
line.
B. decrease income inequality, causing the Lorenz curve to shift toward the diagonal
line.
C. increase income inequality, causing the Lorenz curve to shift away from the diagonal
line.
D. decrease income inequality, causing the Lorenz curve to shift away from the
diagonal line.
Answer:
Suppose a radar-activated braking system that can help prevent crashes is an option on a
new car. It costs $600 and reduces the chance of dying in an auto accident by 1/700.
The implicit value placed on life by a person who has the system installed is therefore:
A. exactly $600.
B. less than $420,000.
C. at least $420,000.
D. at least $432,000.
Answer:
The invisible hand theorem comes from:
A. microeconomics.
B. macroeconomics.
C. sociology.
D. political science.
Answer:
Once a public good is provided, those who do not pay cannot be denied the benefits.
For this reason, public goods are said to be:
A. nonexclusive.
B. nonrival.
C. exclusive.
D. rival.
Answer:
Price ceilings and price floors:
A. cause surpluses and shortages in markets respectively.
B. interfere with the allocation function of prices.
C. make the rationing function of markets more efficient.
D. cause demand and supply curves to shift thus having no effect on the rationing
function of prices.
Answer:
Suppose the government passes laws that require restaurants to disclose the nutritional
content of their menu items. This would be an example of a:
A. push.
B. nudge.
C. shadow price.
D. flawed assumption.
Answer:
As the manager of a ski resort, you want to increase the number of lift tickets sold by 8
percent. Your staff economist has determined that the price elasticity of demand for lift
tickets is 2. To increase sales by the desired amount, you should decrease the price of a
lift ticket by:
A. 2 percent.
B. 4 percent.
C. 8 percent.
D. 16 percent.
Answer:
The invention of a machine that increases milk production is discovered. If farmers
were to decry the effect of this new technology on the price of milk and lobby
government to set the price of milk at the price before the invention, what would be the
result?
A. Excess demand for milk
B. Excess supply of milk
C. Neither a shortage nor a surplus of milk
D. A decline in the price of milk
Answer:
Refer to the graphs shown. The effect of an increase in price is best shown by which
arrow?
A. A
B. B
C. C
D. D
Answer:
Refer to the table shown, which shows the demand schedule for a firm that has a
monopoly on the sale of personal computers in the country of Oz. If the firm were to set
the price of computers at $2,000:
A. it would maximize profits.
B. marginal revenue would be negative.
C. the demand for computers would be elastic.
D. marginal revenue would be positive.
Answer:
If the world supply curve is SW1,
A. there is a trade deficit.
B. there is a trade surplus.
C. trade is in balance.
D. there is no trade.
Answer:
Suppose an oligopolistic firm assumes that its rivals will ignore a price increase but
match a price cut. In this case, the firm perceives its demand curve to be:
A. kinked, being steeper above the going price than below.
B. kinked, being steeper below the going price than above.
C. linear, being less elastic at lower prices.
D. linear, being more elastic at higher prices.
Answer:
If a system has multiple defects but those defects in effect offset each other, curing one
defect may make the system perform more poorly. This possibility is known as:
A. the Hume dictum.
B. the normative criticism of Pareto optimality.
C. the second best criticism of Pareto optimality.
D. the nirvana criticism of Pareto optimality.
Answer:
The three problems with determining whether an equal income distribution is fair
include all of the following except:
A. people don’t start from equivalent positions.
B. people’s needs differ.
C. income differences and wealth differences are not the same.
D. people’s efforts differ.
Answer:
Two countries that specialize their production along the lines of comparative advantage
and then trade with each other will be able to:
A. both produce and consume more.
B. produce more and consume less.
C. produce less and consume more.
D. both produce and consume less.
Answer:
The best strategy for each player if this game is repeated is:
A. his or her dominant strategy.
B. a mixed strategy.
C. to cheat.
D. to collaborate.
Answer:
All markets:
A. distribute according to need.
B. have money prices.
C. are a type of coordination mechanism.
D. are laissez-faire.
Answer:
Refer to the graph shown. The shift from SATC3 to SATC4 reflects:
A. economies of scale.
B. diseconomies of scale.
C. diminishing marginal productivity.
D. increasing marginal productivity.
Answer:
The production possibility curves of two countries are given below:
Refer to the production possibility curves of the two countries. Without trade, the most
each country could produce would be:
A. 15 chocolate and 15 textiles.
B. 20 chocolate and 20 textiles.
C. 30 chocolate and 30 textiles.
D. 60 chocolate and 60 textiles.
Answer: