Figure 6.15
Refer to Figure 6.15. If the price of an ice cream cone is $3, the price of ice cream
sandwiches is
A) $3.
B) $4.50.
C) $33.33.
D) $150.
A ________ industry has a relatively small number of firms that dominate a market.
A) Cournot
B) contestable
C) concentrated
D) monopolistically competitive
The formula for average fixed costs is
A) TFC – q.
B) TFC/q.
C) q/TFC.
D) Δq/ΔTFC.
Relating to the Economics in Practice on page 374: Considerable evidence suggests
that recently in the United States, executive compensation has ________ and the real
wage of the average worker has ________.
A) increased; decreased
B) decreased; increased
C) increased; remained stagnant
D) remained stagnant; decreased
Table 20.1
Refer to Table 20.1. Before specialization, Mexico produces 120 bushels of oranges and
80 bushels of bananas, and Guatemala produces 40 bushels of oranges and 20 bushels
of bananas. After specialization, the increase in orange production is
A) 10 bushels of oranges.
B) 20 bushels of oranges.
C) 25 bushels of oranges.
D) 40 bushels of oranges.
Any point outside the utility possibilities frontier is
A) inefficient because both people could be made better off simultaneously.
B) unattainable because it is only possible to make one person better off by making the
other person worse off.
C) efficient because it is only possible to make one person better off by making the
other person worse off.
D) efficient because both people could be made better off simultaneously.
Figure 20.4
Refer to Figure 20.4. The domestic price of a leather wallet is $20. With free trade the
price of a leather wallet is $10 and after a tariff is imposed the price is $15. If there is
free trade, this country will ________ 200 leather wallets.
A) buy
B) sell
C) import
D) export
If an individual perfectly competitive firm charges a price ________ the industry
equilibrium price while competitors charge the equilibrium price, the firm will sell all
that it produces but forgo revenue that it could have had.
A) above
B) below
C) equal to
D) More information is needed to answer the question.
A family that earns $20,000 a year pays $4,000 a year in payroll taxes. A family that
earns $40,000 a year pays $8,000 a year in payroll taxes. The payroll tax is a ________
tax.
A) progressive
B) regressive
C) proportional
D) benefits-received
One formula for ________ is TVC/q.
A) TFC
B) AVC
C) MC
D) TC
At its current level of production and input employment, a firm’s marginal products of
labor and capital are 5 units of output. The market wage is $10 per unit of labor and the
price per unit of capital is $25. The firm could increase its profits by
A) hiring more labor and less capital.
B) hiring more capital and less labor.
C) hire less capital and less labor.
D) making no changes since it is already employing the profit maximizing combination
of inputs.
If product demand increases and product price increases,
A) the marginal revenue product curve will shift to the right.
B) the marginal revenue product curve will shift to the left.
C) the firm will move up the marginal revenue product curve and hire fewer units of the
input.
D) the firm will move down the marginal revenue product curve and hire more units of
the input.
A change in income, preferences, or prices of other goods or services leads to a
________ that causes a ________.
A) change in demand; movement along the demand curve
B) change in quantity demanded; movement along the demand curve
C) change in demand; shift of the demand curve
D) change in quantity demanded; shift of the demand curve
Figure 17.1
Refer to Figure 17.1. Dmitri has two job offers when he graduates from college. Dmitri
views the offers as identical, except for the salary terms. The first offer is at a fixed
annual salary of $40,000. The second offer is at a fixed salary of $20,000 plus a
possible bonus of $40,000. Dmitri believes that he has a 50-50 chance of earning the
bonus. Dmitri’s expected value from the first job offer is ________ and is ________
from the second job offer.
A) $40,000; $60,000
B) $40,000; $40,000
C) $40,000; $50,000
D) $20,000; $40,000
Tom borrowed $80,000 from his parents to open a donut stand. He agrees to pay his
parents a 5% yearly return on the money they lent him. His other yearly fixed costs
equal $16,000. His variable costs equal $60,000. He sold 50,000 dozen donuts during
the year at a price of $3.00 per dozen.
Tom’s total fixed costs equal
A) $4,000.
B) $16,000.
C) $20,000.
D) $80,000.
Figure 12
The market is initially in equilibrium at Point B. If demand shifts from D2 to D1, the
new equilibrium price will be ________ and the new equilibrium quantity will be
________.
A) $4.00; 350
B) $3.00; 250
C) $3.00; 400
D) $4.00; 150
When Hurricane Andrew passed through Louisiana in the summer of 1992,
approximately a quarter of the sugar cane crop was destroyed. Ceteris paribus,
A) the supply of sugar decreased, and the price of sugar increased.
B) the supply of sugar decreased, and the price of sugar decreased.
C) the demand for sugar increased, and the price of sugar increased.
D) the demand for sugar decreased, and the price of sugar decreased.
The economy was expanding during all of the years that I was a student, but as soon as
I graduated, the economy contracted. Therefore, the labor market was waiting until I
started looking for a job to contract. This statement is an example of
A) ceteris paribus fallacy.
B) post hoc, ergo propter hoc fallacy.
C) fallacy of composition.
D) fallacy of inductive reasoning.
Sources of market failure include
A) private goods.
B) competitive behavior.
C) externalities.
D) unequal income distribution.
If the average tax rate is less than the marginal tax rate, the tax would be
A) proportional.
B) regressive.
C) progressive.
D) uniform.
A lawn service company has the following production possibilities. With one, two,
three, and four workers, the company can mow 5, 12, 17, and 20 lawns per day,
respectively.
Diminishing returns to labor set in with the ________ worker.
A) first
B) second
C) third
D) fourth
A firm’s marginal cost curve in a perfectly competitive product market is the same as its
________ curve. Similarly, a firm’s marginal revenue product curve in a perfectly
competitive labor market is the same as its ________ curve.
A) demand; supply
B) supply; demand
C) demand; demand
D) supply; supply
The average tax rate is
A) total income divided by the total tax rate.
B) the total amount of tax paid divided by total income.
C) the marginal tax rate multiplied by the tax base.
D) taxable income multiplied by the tax rate.
Product differentiation can be used by firms to do all of the following EXCEPT:
A) gain market share.
B) erect barriers to entry for potential firms.
C) provide consumers with commitment devices.
D) gain complete control over the price of their product.
In general, a firm will be likely to invest as long as the
A) interest rate is less than the inflation rate.
B) firm doesn’t have to borrow any money to make the investment.
C) profits realized from the investment are sufficient to cover the interest payments.
D) firm can sell bonds directly to the public instead of borrowing from a bank.
The table shows the relationship between income and utility for Jane.
Table 17.1
Refer to Table 17.1. Suppose Jane has a 1/3 chance of becoming disabled in any given
year. If she does become disabled, she will earn $0. If Jane does not become disabled,
she will earn her usual salary of $60,000. Jane has the opportunity to purchase disability
insurance for $20,000 which will pay her her full salary in the event she becomes
disabled. Jane’s utility per year with the policy is ________ and her expected utility
without the policy is ________.
A) 45; 40
B) 45; 45
C) 60; 40
D) 20; 45
Figure 7.4
Refer to Figure 7.4. Diminishing marginal returns begin when the ________ worker is
hired.
A) first
B) second
C) third
D) fifth
Figure 16.3
Refer to Figure 16.3. Bill and his wife are able to bargain with one another so that Bill
plays his saxophone for the efficient number of hours. This is an example of
A) Arrow’s impossibility theorem.
B) the free-rider problem.
C) the drop-in-the-bucket problem.
D) the Coase theorem.
A television signal sent by cable is ________ in consumption, and viewers are
________.
A) rival; excludable
B) nonrival; excludable
C) nonrival; nonexcludable
D) rival; nonexcludable
When a Democrat is elected as president, business leaders expect that the corporate
profits tax will be increased. Most likely, this will cause business firms, ceteris paribus,
to
A) plan to increase investment in the future to compensate for the higher tax rate.
B) decrease investment because they would expect lower benefits from investment.
C) not change their investment plans because higher corporate profit taxes will not
change the demand for their product.
D) increase investment because the higher corporate profits tax will increase the return
on any investment.
The text asserts that the allocation of resources among firms is efficient. What
assumptions must hold for this to be true?
Fred’s Pizza Palace sells pizzas in a competitive market. The price of the pizzas is $1.25
each. Hourly output varies with the amount of labor hired as follows:
Fill in the columns for marginal product of labor and marginal revenue product.
SCENARIO 3: Assume the following information on the price of small-screen
televisions and quantity demanded.
Refer to Scenario 3. Why are elasticities of demand rather than slopes used to measure
and compare responsiveness?
Define import substitution. Evaluate the success of import substitution strategies in
developing countries.
Figure 2
Using Figure 10.2 determine the number of workers that a representative firm would
wish to hire. Explain your answer.
Susie receives an allowance from her parents of $10 per week. She spends her entire
allowance on two goods: cans of hairspray and bubble gum. The price of a can of
hairspray is $2 and the price of a pack of bubble gum is $1. Draw Susie’s budget
constraint.
Kylie spends her income of $150 per week on two goods: movies (which cost $5 each)
and books (which cost $10 each). At her current level of consumption, the marginal
utility from the last movie consumed is 20 and the marginal utility from the last book
consumed is 30. Is Kylie maximizing her utility? Why or why not? If not, what should
Kylie do to achieve a higher level of utility?
How do increasing returns to scale affect the shape of the long-run average cost curve?
If marginal product is decreasing what can we say about what is happening to average
product? Explain.
In many large American cities it is common to witness private motorists pulling up to
municipal bus stations and allowing perfect strangers to ride into downtown with them
in order to take advantage of the high occupancy vehicle lanes that require two or more
drivers. Using the concept of elasticity of demand and total revenue explain why public
transit authorities might be concerned with this practice.
Assume that an employer discovers that the marginal revenue product of the last two
workers that he has hired is less than the wage rate that he is paying them. He is
operating in a purely competitive market in both the output that he sells and the labor
that he hires. What would you advise this employer to do and why?
In cases where a life insurance policy owner is not the same person as the insured,
insurance companies often require that such purchases be for those with an “insurable
interest”. For life insurance policies, close family members and business partners will
usually be found to meet this test. In this case the purchaser is demonstrating that they
would suffer an economic loss if the insured were to die. What economic argument
could be made for why insurance companies would make such a restriction when it
seems there might be a market for life insurance to people who wish to insure others for
whom there is not such “insurable interest”?
What relationship is shown by a demand curve?
What role do business firms play in output markets and in factor markets?
Define an efficient market.
Draw a graph showing the impact of students returning to campus in August on the
market for pizza in a college town.
