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(Table: The Demand for Chocolate-Covered Peanuts) Look at the table The Demand for
Chocolate-Covered Peanuts. If George, Barbara, and Dan are the only three buyers in
the market and the price of a bag of chocolate-covered peanuts is $0.80, the total market
quantity demanded is _____ bags per month.
A) 70
B) 80
C) 105
D) 280
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) Look at the figure Monopoly Profits in
Duopoly. Each firm faces an identical demand curve, D1, and the market demand curve
is D2. The figure illustrates how firms can reap monopoly profits even in an industry
with:
A) free entry and exit.
B) two firms.
C) monopolistic competition.
D) a four-firm concentration ratio of 50.
Figure: Equilibrium in the Labor Market
(Figure: Equilibrium in the Labor Market) In the figure Equilibrium in the Labor
Market, a decrease in population that decreases the number of workers, when
everything else stays the same, will lead to a(n) _____ in the equilibrium quantity of
labor and a(n) _____ in the equilibrium price of labor.
A) increase; increase
B) decrease; increase
C) increase; decrease
D) decrease; decrease
If they produce only hamburgers, in a single day Sarah can produce 10 hamburgers, and
Abe can produce 5 hamburgers. If they make milkshakes only, in a single day Sarah can
produce 10 milkshakes, and Abe can produce 4 milkshakes. Therefore, _____ has an
absolute advantage and a comparative advantage in making _____.
A) Sarah; hamburgers
B) Sarah; milkshakes
C) Abe; hamburgers
D) Abe; milkshakes
Which of the following are used to provide public goods? I. voluntary contributions II.
taxes III. self-interested business firms
A) I only.
B) I and II.
C) II and III.
D) I, II, and III.
The long-run average total cost curve is tangent to an infinite number of short-run
_____ cost curves.
A) total
B) marginal
C) average variable
D) average total
Table: Pumpkin Market
(Table: Pumpkin Market) There are two consumers, Andy and Ben, in the market for
pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin
Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also
shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5. If
Andy buys one fewer pumpkin and Diane sells one more pumpkin than in equilibrium,
total surplus will _____ by _____.
A) increase; $16
B) increase; $10
C) decrease; $4
D) decrease; $3
When a good is nonexcludable:
A) consumers will pay the market price for it.
B) producers will produce too much of it.
C) a free-rider problem will arise.
D) production will be efficient.
A feature of monopolistic competition that makes it different from monopoly is the:
A) fact that firms in monopolistically competitive industries follow the marginal
decision rule, while monopolies do not.
B) downward-sloping demand curve.
C) downward-sloping marginal revenue curve.
D) number of firms in the industry.
The demand curve for running shoes has shifted to the right. What could have caused
it?
A) a fall in the price of running shoes
B) an increase in the price of running shoes
C) an increase in the supply of running shoes
D) an increase in the income of buyers of running shoes
The proposition that if transaction costs are low enough and property rights are
well-defined, the private market can achieve an efficient outcome regardless of which
of the affected parties hold the property rights is known as the:
A) Coase theorem.
B) property rights paradigm.
C) market rights theorem.
D) green environment paradigm.
The efficient quantity of pollution emissions occurs where:
A) there is absolutely no damage done to a pristine environment.
B) government forces zero pollution to occur, no matter what the cost.
C) the marginal social benefits of pollution exceed the marginal social costs of
pollution.
D) the marginal social benefit of pollution is equal to the marginal social cost of
pollution.
Table: The Production Possibilities for Cars and Leather Boots Country Cars
Leather Boots (in thousands of pairs) United States 80 40 Mexico 60 30
(Table: The Production Possibilities for Cars and Leather Boots) Look at the table The
Production Possibilities for Cars and Leather Boots. Given the opportunity costs of
production:
Country Cars Leather Boots (in thousands of pairs)
United States 80 40
Mexico 60 30
A) there is no basis for trade.
B) Mexico should specialize in boots.
C) the United States should specialize in cars.
D) the United States should specialize in both goods, and Mexico should not produce
either good.
The cost of sensors used in making digital cameras falls, while a successful ad
campaign makes digital cameras more fashionable. As a result, the equilibrium price of
digital cameras _____ and the equilibrium quantity _____.
A) increases; increases
B) increases; may increase, decrease, or stay the same
C) may increase, decrease, or stay the same; increases
D) decreases; increases
Jenny believes that spending one hour studying for economics will increase her grade
by 20 points. Studying for a second hour will increase her grade by 10 points. She also
believes that studying for an hour for history will increase her grade by 15 points, but
spending a second hour will increase her grade by only 5 points. Jenny has two hours to
study. If Jenny wants to maximize her scores, what should she do?
A) study 1 hour for economics and 1 hour for history
B) study 2 hours for economics and not study for history
C) not study for economics and study 2 hours for history
D) study 1 hour for economics and not study for history
It is common in large breweries for the long-run average total cost to decline as output
increases. This indicates that many breweries operate with:
A) diseconomies of scale.
B) diminishing marginal returns.
C) economies of scale.
D) constant returns to scale.
(Table: The Production Possibilities for Tractors and Crude Oil) Look at the table The
Production Possibilities for Tractors and Crude Oil. Both the United States and Mexico
will gain from trade if one tractor trades for _____ barrels of crude oil.
A) 5,000
B) 4,000
C) 1,000
D) 200
(Table: The Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls. Total
utility is maximized at the _____ roll.
A) first
B) second
C) fourth
D) sixth
The failure to produce enough to minimize average total cost is termed:
A) economic profits.
B) excess capacity.
C) advertising.
D) excess production.
A typical indifference curve is _____, and its slope is the _____ of the good on the
horizontal axis divided by the marginal utility of the good on the vertical axis.
A) downward-sloping; negative of the marginal utility
B) upward-sloping; negative of the marginal utility
C) downward-sloping; negative of the total utility
D) downward-sloping; total cost
The price elasticity of demand for a particular cancer drug is zero and the price
elasticity of supply is 0.50. If a $1 excise tax is levied on producers, how much of this
tax will eventually be paid by consumers?
A) $0
B) $1
C) $0.50
D) $1.50
Compared with autarky, international trade leads to _____ domestic production in
exporting industries and _____ domestic production in import-competing industries.
A) higher; lower
B) higher; higher
C) lower; higher
D) lower; lower
Suppose the United States removes sugar quotas and the market price of sugar drops. If
the demand curve for candy bars is downward-sloping, in the candy bar market we
would expect:
A) the consumer surplus to increase.
B) the consumer surplus to decrease.
C) the consumer surplus to be unchanged.
D) the deadweight loss to increase.
(Table: Income and Utility for Rahim) Look at the table Income and Utility for Rahim.
The expected value of Rahim's income is:
A) $221,000.
B) $20,000.
C) $110,000.
D) $70,200.
Figure: The Optimal Quantity of Pollution
(Figure: The Optimal Quantity of Pollution) The figure The Optimal Quantity of
Pollution shows the marginal social cost (MSC) and marginal social benefit (MSB) for
firms that pollute the air with sulfur dioxide. Using the figure, the optimal Pigouvian
tax per unit of pollution is:
A) $500.
B) $250.
C) $167.
D) $83.
Figure: The Perfectly Competitive Firm II
(Figure: The Perfectly Competitive Firm II) Look at the figure The Perfectly
Competitive Firm II. If this firm's MR curve is MR2, then this firm's optimal output is
_____ units of output and its economic profit will be _____.
A) Q1; positive
B) Q2; negative
C) Q3; positive
D) Q4; negative
Marginal revenue is a firm's:
A) ratio of profit to quantity.
B) ratio of average revenue to quantity.
C) price per unit times the number of units sold.
D) increase in total revenue when it sells an additional unit of output.
Figure: The Unknown Curve
(Figure: The Unknown Curve) Look at the figure The Unknown Curve. You are a
cabinetmaker. You employ several workers to produce kitchen and bathroom cabinets.
Your summer intern has drawn a graph showing a relationship between the number of
cabinetmakers you employ and the number of cabinets produced. Unfortunately, your
intern has failed to identify this curve. It is likely to be the _____ curve:
A) total cost
B) total product
C) marginal product
D) total variable cost
Mary spends $5 on food for her cat. This is an example of a:
A) business buying goods and services in the product market.
B) household buying goods and services in the product market.
C) household buying goods and services in the factor market.
D) household selling a resource in the factor market.
The income elasticity of demand for eggs has been estimated to be 0.57. If income
grows by 5% in a period, all other things unchanged, demand will:
A) increase by more than 5.7%.
B) increase by about 2.9%.
C) decrease by more than 5.7%.
D) decrease by less than 5.7%.
(Table: Quantity Supplied and Quantity Demanded) Look at the table Quantity Supplied
and Quantity Demanded. A government-imposed price ceiling equal to $5 would result
in:
A) the equilibrium quantity being bought and sold in this market.
B) excess demand.
C) excess supply.
D) a surplus occurring in this market.
The corn-based ethanol boom has dramatically increased the price of farm acreage.
Using the concept of derived demand, explain how this happened. What is the role of
the elasticity of supply of land in the increased price for land?
When hurricane Katrina devastated the Gulf coast, the businesses in the area, even
those not physically damaged by the storm, had losses. Explain how this illustrates the
principle that "one person's spending is another person's income."
A college student waits in line for hours to purchase a ticket to the Rose Bowl, but an
attorney does not. Rather than spend hours in line, he purchases a much more expensive
ticket through a ticket broker. Why?
Suppose the cross-price elasticity between two goods is zero. What does this tell you
about these two goods?
A college student stays up late writing a history paper and as a result sleeps through her
morning economics class. What is the cost of sleeping through the class?
In the Midwestern United States, the price of an ear of corn is always lowest in the
summer. This seems odd, because consumers really enjoy eating ears of corn in the
summer. Can you explain this?
You have an economics test tomorrow and you think that you might need to stay up all
night to study for it. Your professor argues against pulling this all-nighter because he
thinks there is a point where more studying (and less sleeping) can actually do more
harm than good. Using the concepts of total and marginal utility, explain your
professor's position.
By early 2008 the U.S. economy was in a significant downturn. The unemployment rate
began to increase, and home prices began to fall. Congress passed a stimulus package
that gave tax rebates to virtually every person who paid taxes in 2007. Which of the 12
principles is described by this package?
Figure: Demand for Cincinnati Reds Games Tickets
(Figure: Demand for Cincinnati Reds Games Tickets) The figure Demand for
Cincinnati Red Games Tickets represents Jeff's annual demand for tickets to Cincinnati
Reds baseball games. At $20, Jeff will purchase five tickets. How much consumer
surplus does Jeff receive?
There are only two gas stations, Swifty Gas and Speedy Gas, in a small town. Each firm
can set either a high price or a low price; customers view these two firms as nearly
perfect substitutes. The table shows the payoff matrix. Profits in each cell of the payoff
matrix are given as (Swifty, Speedy). If this game is played only once and each firm
sets the price of gas independently, what is the Nash equilibrium? Is this game an
example of a prisoners' dilemma? Explain your conclusions.
Two consumers, Eric and Eli, have the same preferences for good X, a normal good.
The only difference is that for Eli there would be no income effect if the price of good
X changed. For Eric, there are both income and substitution effects for a price change.
What does this tell you about Eric's and Eli's demand for good X? Explain.
Ladan has $500 each semester to spend on textbooks and sandwiches. Textbooks are
$100 each and sandwiches are $5 each. Assume that diminishing marginal utility
applies to both goods. She has purchased 3 textbooks this semester and 40 sandwiches.
She tells you that her marginal utility from the next textbook is about 100 utils and the
marginal utility from the next sandwich is about 15 utils. Has Ladan successfully
maximized her utility this semester? Should she adjust her spending next semester?
