1) Figure 10-12
Which of the following is an appropriate label for Line 1?
a.social cost minus social value
b.social value minus private cost
c.demand
d.private cost
2) The Surgeon General announces that eating apples promotes healthy teeth. As a
result, the equilibrium price of apples
a.increases, and producer surplus increases.
b.increases, and producer surplus decreases.
c.decreases, and producer surplus increases.
d.decreases, and producer surplus decreases.
3) Critics of advertising argue that advertising
a.creates demand for products that people otherwise do not want or need.
b.lowers barriers to entry into an industry because new firms can more easily establish
themselves as competitors.
c.increases competition by providing information about prices.
d.encourages monopolization of markets by raising entry barriers.
4)
Jenna says she would buy 10 gallons of gas per week regardless of the price. If this is
true, then Jenna’s demand for gas is represented by demand curve
a.A.
b.B.
c.C.
d.D.
5) You own a small town movie theatre. You currently charge $5 per ticket for everyone
who comes to your movies.
Your friend who took an economics course in college tells you that there may be a way
to increase your total revenue. Given the demand curves shown, answer the following
questions.
a.What is your current total revenue for both groups?
b.The elasticity of demand is more elastic in which market?
c.Which market has the more inelastic demand?
d.What is the elasticity of demand between the prices of $5 and $2 in the adult market?
Is this elastic or inelastic?
e.What is the elasticity of demand between $5 and $2 in the children’s market? Is this
elastic or inelastic?
f.Given the graphs and what your friend knows about economics, he recommends you
increase the price of adult tickets to $8 each and lower the price of a child’s ticket to $3.
How much could you increase total revenue if you take his advice?
6) Which of the following is unique to a monopolistically competitive firm when
compared to an oligopoly?
a.The monopolistically competitive firm advertises.
b.The monopolistically competitive firm produces a quantity of output that falls short of
the socially optimal level.
c.Monopolistic competition features many buyers.
d.Monopolistic competition features many sellers.
7) Suppose a consumer has an income of $800 per month and that she spends her entire
income each month on beer and bratwurst. The price of a pint of beer is $5, and the
price of a bratwurst is $4. Which of the following combinations of beers and bratwursts
represents a point that would lie directly on the consumer’s budget constraint?
a.160 beers and 200 bratwursts
b.40 beers and 50 bratwursts
c.80 beers and 100 bratwursts
d.80 beers and 0 bratwursts
8) Because oligopoly markets have only a few sellers, the actions of any one seller
a.do not affect other sellers in the market.
b.can have a large impact on the profits of other sellers in the market.
c.will affect how other firms behave in the market.
d.Both b and c are correct.
9) In many cases the Coase theorem does not work well because
a.there are too few parties at the negotiation table.
b.the government does not know about the Coase theorem.
c.transaction costs are too high.
d.transaction costs are too low.
10) Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm‘s
marginal cost equals $20 and its average total cost equals $25. The firm sells its output
for $30 per unit.
To maximize its profit, the firm should
a.increase its output.
b.continue to produce 1,000 units.
c.decrease its output but continue to produce.
d.shut down.
11) Which type of tax is used to finance the Social Security program in the United
States?
a.consumption tax
b.income tax
c.payroll tax
d.property tax
12) A decrease in input costs to firms in a market will result in a(n)
a.decrease in equilibrium price and an increase in equilibrium quantity.
b.decrease in equilibrium price and a decrease in equilibrium quantity.
c.increase in equilibrium price and a decrease in equilibrium quantity.
d.increase in equilibrium price and an increase in equilibrium quantity.