Common resources tend to be _____ in private markets.
A) priced too high
B) efficiently priced
C) overconsumed
D) underconsumed
The strategy of investing in several assets so that any possible losses are independent
events is:
A) diversification.
B) private information.
C) moral hazard.
D) adverse selection.
If there is an increase in demand, assuming a positively sloped supply curve and a
negatively sloped demand curve, total surplus:
A) will increase.
B) will decrease.
C) will remain the same.
D) may change, but we can’t tell how.
If you decide to go to Cancún with your friends during spring break, you cannot go to
Paris with your sister in the summer. This statement best represents this economic
concept:
A) The real cost of something is what you must give up to get it.
B) “How much” is a decision at the margin.
C) People usually exploit opportunities to make themselves better off.
D) There are gains from trade.
The main characteristic that distinguishes monopolistic competition from perfect
competition is:
A) easy entry and exit.
B) many firms.
C) differentiated products.
D) that in perfect competition, to maximize profits, a firm will produce where MR =
MC.
Which of the following is a question of marginal analysis?
A) What additional output does a family business produce when it hires one more
worker?
B) How do tax cuts change the growth rate of median income?
C) When a large corporation lays off workers, how do profits change if sales remain
constant?
D) Should a commuter take the bus to work rather than driving.
The marginal social benefit from pollution _____ as the quantity of pollution emissions
_____.
A) remains constant; increases
B) decreases; increases
C) increases; increases
D) remains constant; decreases
(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social
benefit and cost of various amounts of pollution from a coal mine. At the efficient
quantity of pollution the marginal social cost of pollution is:
A) $0.
B) $100.
C) $200.
D) $400.
Figure: The Monopolist III
(Figure: The Monopolist III) Look at the figure The Monopolist III. If this monopolist
perfectly price-discriminates, then it will produce _____ units. This will lead to
producer surplus equal to _____, consumer surplus equal to _____, and a deadweight
loss equal to _____.
A) 70; $2,450; $0; $0
B) 50; $1,225; $0; $0
C) 35; $1,225; $612.50; $612.50
D) 100; $1,500; $612.50; $612.50
Figure: City with Two Polluters
(Figure: City with Two Polluters) Look at the figure City with Two Polluters. If the
government imposed an emissions tax of $400, firm A would produce _____ tons of
emissions and firm B would produce _____ tons of emissions.
A) 200; 400
B) 400; 1,200
C) 800; 1,400
D) 1,200; 1,600
If your income increases and your consumption of a good increases, for you that good
is considered:
A) negative.
B) positive.
C) inferior.
D) normal.
If the price of mozzarella cheese (an ingredient in pizza) declines, there will be:
A) a decrease in the supply of pizza.
B) an increase in the supply of pizza.
C) a decrease in the quantity of pizza supplied.
D) no change in the supply of pizza.
(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special
birthday cakes. She is trying to decide how many mixers to purchase. Her estimated
fixed and average variable costs if she purchases one, two, or three mixers are shown in
the table. Assume that average variable costs do not vary with the quantity of output. If
Pat purchases one mixer and bakes 100 cakes per day, what is her average fixed cost?
A) $10,000
B) $1,000
C) $15
D) $10
If a market is in disequilibrium:
A) it will continue unless there is government intervention.
B) no individual will be better off doing something different.
C) there are opportunities for people to make themselves better off.
D) it must be because the government has intervened in the market, resulting in the
market’s failure to reach equilibrium.
(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special
birthday cakes. She is trying to decide how many mixers to purchase. Her estimated
fixed and average variable costs if she purchases one, two, or three mixers are shown in
the table. Assume that average variable costs do not vary with the quantity of output. If
Pat purchases one mixer and bakes 200 cakes per day, what is her average total cost?
A) $5
B) $15
C) $200
D) $1,000
Suppose that when a coal-mining firm hires one, two, three, four, and five workers, the
corresponding total outputs are 10, 15, 19, 22, and 24 tons, respectively. The marginal
product of the third worker is _____ tons.
A) 3
B) 4
C) 15
D) 19
(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a
Perfectly Competitive Firm. If the market price is $4.50, the profit-maximizing output
is _____ units.
A) 5
B) 7
C) 8
D) 9
Figure: An Individual’s Marginal Benefit from a Public Good
(Figure: An Individual’s Marginal Benefit from a Public Good) Look at the figure An
Individual’s Marginal Benefit from a Public Good. Assume that two individuals will
share consumption of a public good; each individual has the marginal benefit curve
shown in the figure. What is the marginal social benefit from four units of the public
good?
A) $0
B) $8
C) $16
D) $32
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) The figure Monopoly Profits in Duopoly shows
how an industry consisting of two firms that face identical demand curves (D1) can
collude to increase profits. Which of the following assumptions is NOT a part of the
analysis illustrated by the model?
A) The two firms are identical.
B) The two firms sell identical products.
C) While the firms face the same MC curves, their respective TC curves have unequal
slopes.
D) Each firm has a horizontal marginal cost curve.
Product differentiation under monopolistic competition means that each firm:
A) charges a slightly different price.
B) has a pure monopoly.
C) maximizes profit where MC = P.
D) faces a horizontal demand curve.
Figure: A Rock Climbing Shoe Monopoly
(Figure: A Rock Climbing Shoe Monopoly) Look at the figure A Rock Climbing Shoe
Monopoly. If the firm acts to maximize profit, the firm will earn profit equal to:
A) (P1 ” P5) × Q2.
B) (P1 ” P4) × Q2.
C) (P4 ” P5) × Q2.
D) (P2 ” P3) × Q3.
Figure: Firms in Monopolistic Competition
(Figure: Firms in Monopolistic Competition) In panel (C) of the figure Firms in
Monopolistic Competition, the profit-maximizing quantity of output is determined by
the intersection at point:
A) U.
B) V.
C) W.
D) X.
The profit-maximizing rule MR = MC is:
A) followed by a monopoly but not by a perfectly competitive firm.
B) followed by a perfectly competitive firm but not by a monopoly.
C) followed by all types of firms.
D) not followed by a monopoly because it would reduce economic profit to zero.
Employment-based insurance:
A) is provided by companies to their employees.
B) is provided only to those who are not working.
C) consistently runs into the problem of adverse selection death spiral.
D) does not receive benefits from the U.S. government.
An industry with production that generates external costs produces a quantity of output
that is:
A) socially optimal.
B) smaller than the socially optimal quantity.
C) larger than the socially optimal quantity.
D) socially optimal if a specific subsidy is given to buyers.
If the market supply and demand curves for a common resource include all costs and
benefits, the common resource will:
A) be underused.
B) be overused.
C) be used at the socially optimal level.
D) impose an external cost on society.
Moral hazard:
A) increases the ability of markets to allocate risk efficiently.
B) decreases the ability of markets to allocate risk efficiently.
C) has no impact on the ability of markets to allocate risk efficiently.
D) encourages the provision of 100% insurance coverage.