The average total cost curve has a U shape because the ______ effect is dominant at
low levels of output, and the _____ effect is dominant at high levels of output.
A) diminishing returns; spreading
B) spreading; diminishing returns
C) comparative advantage; absolute advantage
D) absolute advantage; comparative advantage
(Table: Production Function for Shaheer’s Framing Shop) Shaheer runs a shop that
custom-frames pictures for his customers. The table shows his daily production
function. He can hire a worker at a daily competitive wage of $60, and he sells a custom
frame at a competitive price of $10. A) Calculate the marginal product of labor for each
worker in the first empty column. B) Calculate the value of the marginal product of
labor for each worker in the second empty column.
Average total cost is:
A) the change in cost divided by the change in output.
B) total cost divided by output.
C) the change in output divided by the change in costs.
D) total cost times output.
The phrase gains from trade refers to the:
A) profits obtained from sales of a good or service.
B) increase in total output that is realized when individuals specialize in particular tasks
and trade with each other.
C) gains that one obtains by taking advantage of an uninformed buyer and selling at a
higher than average price.
D) gains that one obtains by taking advantage of a temporary discount, or sale price.
A perfectly competitive firm will produce:
A) whenever it can.
B) mostly in the long run and only if price is greater than AFC.
C) with a loss in the short run if its price is greater than AVC but less than ATC.
D) only when it earns profits in the short run.
If a perfectly competitive gardening shop sells 30 evergreen bushes at $10 per bush, its
marginal revenue is:
A) $10.
B) more than $10.
C) less than $10.
D) $300.
The price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag. You
have $5 to spend. You decide to purchase 6 boxes of popcorn. The maximum number of
bags of peanuts that you can purchase is:
A) 4.
B) 8.
C) 10.
D) 12.
You run a business producing picture frames. This month your total cost of production
is $10,000, your variable cost of production is $6,000, and you produce 3,000 picture
frames. It follows that average _____ cost is _____.
A) variable; $2
B) total; $3
C) total; $1
D) fixed; $1
Figure: Monthly Supply of Bread
(Figure: Monthly Supply of Bread) The figure Monthly Supply of Bread represents the
monthly supply of bread at a local bakery. At $3 per loaf, the bakery produces 120
loaves per month. The producer surplus received by this bakery is equal to:
A) $120.
B) $60.
C) $360.
D) $180.
With tradable emissions permits, if the demand for goods that produce emissions shifts
to the left, the equilibrium price of permits _____ and the equilibrium quantity _____.
A) increases; stays the same
B) falls; increases
C) falls; stays the same
D) increases; increases
A decrease in the demand for pastry chefs may come about because of an increase in
the:
A) concern for healthy living.
B) market wage rate for pastry chefs.
C) productivity of pastry chefs.
D) supply of other factors that pastry chefs use.
(Table: Supply of Lemonade) Look at the table Supply of Lemonade. If the price of
lemonade is $1 per cup, the total quantity of lemonade supplied will be:
A) 50 cups.
B) 80 cups.
C) 25 cups.
D) 90 cups.
Your elderly grandma tells you: “I haven’t been taking my beloved walks because I’m
concerned about falling and getting hurt. See, there is always a cost to doing something.
But if you don’t do anything, then there is no cost.” Your grandma does not understand
the economic concept of:
A) scarcity.
B) efficiency.
C) opportunity cost.
D) marginal analysis.
(Table: Exercise and Utility) Look at the table Exercise and Total Utility. The principle
of diminishing marginal utility is seen:
A) nowhere, as marginal utility is always increasing.
B) immediately, from the first hour and beyond.
C) between the first and second hours.
D) after more than two hours of exercise.
A life insurance company will often require an applicant to submit to a brief physical
exam to assess that person’s basic level of health. This practice is a form of _____ to
lessen the problem of _____.
A) diversification; moral hazard
B) signaling; deductibles
C) reputation; adverse selection
D) screening; adverse selection
If, because of a price change, both the income and substitution effects are strong for a
normal good, this segment of the demand curve must be:
A) unit-elastic.
B) vertical.
C) relatively price-elastic.
D) horizontal.
Figure: The Market for Melons in Russia
(Figure: The Markets for Melons in Russia) Look at the figure The Market for Melons
in Russia. If the world price of melons is equal to E, Russia will _____ of melons.
A) import I ” H
B) export I ” H
C) import G ” F
D) export G ” F
Which of the following statements is CORRECT?
A) An emissions tax is a more efficient way to reduce pollution than an environmental
standard, because an emissions tax equalizes the marginal benefit of pollution from all
sources.
B) An environmental standard is a more efficient way to reduce pollution than an
emissions tax, because an environmental standard can be structured to equalize the
reduction in pollution from all sources.
C) If an emissions tax and environmental standards lead to the same total reduction in
pollution, then they will also lead to the same reduction in pollution by individual
polluters.
D) It is easy to set emissions taxes at the “correct” level, since the relationship between
emissions taxes and the reduction in emissions that they induce has been extensively
studied and is well known.
One of the consequences of the minimum wage has been:
A) decreased unemployment for low-skill workers.
B) workers offering to work off the books for less than the minimum wage.
C) lower production costs for small businesses.
D) increased employment for high-skill workers.
(Table: Short-Run Supply Curve) Look at the table Short-Run Supply Curve. The table
lists three supply points for a perfectly competitive firm operating in the short run. If
the industry is composed of 120 identical firms, a price of _____ and a quantity of
_____ will be a point on the short-run industry supply curve.
A) $5; 1,650
B) $1,200; 40
C) $960; 3,840
D) $10; 4,800
The costs economists use in the concept of economic profit are:
A) accounting costs.
B) strictly dollar costs, not opportunity costs.
C) only implicit costs.
D) accounting costs and implicit costs (i.e., the value of the best opportunity forgone).
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. Which of the
following is a point on the industry short-run supply curve?
A) P = $5; Q = 100.
B) P = $10; Q = 1,000.
C) P = $40; Q = 1,100.
D) P = $70; Q = 5,000.
Monopolistic competition describes an industry characterized by a _____ number of
firms producing _____ products with _____ entry.
A) small; identical; barriers to
B) small; similar; relatively easy
C) large; similar; relatively easy
D) large; identical; relatively easy
Figure: Tax Incidence
(Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged,
the effect of an excise tax on gasoline in the short run is most likely illustrated by panel
_____, and the greater share of the burden of the excise tax (shown by the tax wedge in
each panel) is borne by _____.
A) C; buyers
B) D; sellers
C) C; sellers
D) D; buyers
A student organization is formed on your college campus to protest against the high rent
for apartments near campus. This organization is planning a meeting with the dean and
president of the college. Which of the following best describes the policy the student
organization will fight for?
A) a laissez faire policy
B) a price floor
C) a price ceiling
D) a quantity control
(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that
the crude oil industry is a duopoly and the marginal and fixed cost of producing crude
oil equals zero. Suppose that the two firms are maximizing industry profit and splitting
the profit evenly. If firm 1 decides to cheat and increase production by 10 more barrels,
it will earn profits of:
A) $6,400.
B) $6,300.
C) $3,500.
D) $2,800.
A business produces 10 pairs of eyeglasses. It incurs $35 in average total cost and $5 in
average fixed cost. The average variable cost of producing 10 pairs of eyeglasses is:
A) $30.
B) $35.
C) $50.
D) $300.
The demand curve facing a monopolist is:
A) downward-sloping.
B) vertical.
C) horizontal.
D) upward-sloping.
When markets fail:
A) government intervention may help.
B) the market realizes the maximum possible gains from trade given the available
resources.
C) there may still be an efficient allocation of resources.
D) no goods and services are produced.
Which of the following is a negative externality?
A) high prices for necessities such as drinking water in the aftermath of a natural
disaster
B) the risks to nonsmokers from second-hand smoke
C) the increased risk of a traffic accident to an individual who uses a cell phone while
driving
D) unemployment in the steel industry caused by low prices of imported (external) steel