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Figure 5-9
Companies producing toilet paper bleach the paper to make it white. The bleach is
discharged into rivers and lakes and causes substantial environmental damage. Figure
5-9 illustrates the situation in the toilet paper market.
Refer to Figure 5-9. The private profit-maximizing output level is
A) Q1.
B) Q2.
C) Q3.
D) Q4.
Which of the following does not hold true for a perfectly competitive firm in long-run
equilibrium?
A) Its economic profit will be zero.
B) It will minimize average total cost.
C) It will charge a price equal to marginal cost.
D) Marginal cost will be minimized.
The most important determinant of the price elasticity of demand for a good is
A) the definition of the market for a good.
B) the availability of substitutes for the good.
C) the share of the good in the consumer's budget.
D) whether the good is a necessity or a luxury.
Along a downward-sloping, linear demand curve, total revenue is the greatest
A) where demand is normal.
B) where demand is the most inelastic.
C) where demand is the most elastic.
D) where demand is unit elastic.
By the 21st century few people purchased printed encyclopedias. Which of the
following competitive forces best explains this?
A) competition from substitutes
B) the bargaining power of buyers
C) the bargaining power of suppliers
D) the threat from potential entrants
Figure 15-8
Figure 15-8 reflects the cost and revenue structure for a monopoly that has been in
business for a very long time.
Refer to Figure 15-8. Use the figure above to answer the following questions.
a. Identify the curves labeled A and B. Identify the curve which contains both point Y
and point Z. Identify the curve which contains both point V and point W.
b. What is the profit-maximizing quantity and what price will the monopolist charge?
c. What area represents total revenue at the profit-maximizing output level?
d. What area represents total cost at the profit-maximizing output level?
e. What area represents profit?
f. What is the profit per unit (average profit) at the profit-maximizing output level?
g. If this industry was organized as a perfectly competitive industry, what would be the
profit-maximizing price and quantity?
h. What area represents the deadweight loss as a result of a monopoly?
For each of the following pairs of products state which are complements, which are
substitutes, and which are unrelated.
a. Blu-ray discs and video-on-demand
b. Fiat 500 and Mini Cooper S
c. Toothpaste and toothbrush
d. Popcorn and snowboards
e. Razors and razor blades
The larger the number of firms in an industry
A) the easier it is to implicitly collude to fix prices.
B) the more intense the rivalry among firms.
C) the greater the need for a price enforcement mechanism.
D) the larger the potential number of market segments.
Article Summary
More than a million Americans are estimated to have gone to other countries in 2014
for medical procedures. Documentary filmmaker Morgan Spurlock was among those
Americans who travelled abroad in 2014 to partake in what is being referred to as
"medical tourism". From his own experience and those of others who had also travelled
for medical procedures, Spurlock found that there can be distinct advantages to medical
tourism for certain patients and procedures. Those advantages include: The level of care
offered in many hospitals, with the best hospitals reportedly meeting or exceeding
Western standards; Significantly lower costs, examples of which include a heart bypass
operation in the United States that typically runs $88,000 can cost as little as $31,500 in
Costa Rica, and hip replacement surgery that averages $33,000 domestically is only
$12,400 in Thailand; The ability to combine medical procedures with vacations to
amazing locations around the globe.
Source: Sean Redlitz, " Surf, sand ... and surgery? Inside the world of medical tourism,"
cnn.com, February 6, 2015
Refer to the Article Summary above. Assume that more foreign governments and
hospitals begin to offer and publicize their medical services to American medical
tourists and, due to the growing number of aging baby boomers, more Americans desire
hip-replacement surgery. All else equal, what will happen in the market for
hip-replacement surgery as a result of these two factors?
A) Demand will increase, but these two factors will not shift the supply curve.
B) Supply will increase, but these two factors will not shift the demand curve.
C) Demand and supply will both increase.
D) Demand will increase and supply will decrease.
Figure 18-2
Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic
than the other.
Refer to Figure 18-2. If the government imposes an excise tax of $1.00 on every unit
sold, the consumer's burden of the tax
A) is greater under the more elastic supply curve S0.
B) is greater under the less elastic supply curve S0.
C) is greater under the less elastic supply curve S1.
D) is the same under either supply curve because there is a single demand curve that
captures buyers' market behavior.
When a negative externality exists, the private market produces
A) more than the economically efficient output level.
B) less than the economically efficient output level.
C) products at a low opportunity cost.
D) products at a high opportunity cost.
The cross-price elasticity between Gillette razors and a related good is -3.4. What
happens to the demand for the related good if the price of Gillette razors falls by 10
percent?
A) The quantity demanded of the related good rises by 3.4 percent.
B) The quantity demanded of the related good falls by 34 percent.
C) The quantity demanded of the related good rises by 34 percent.
D) The quantity demanded of the related good falls by 3.4 percent.
An example of a barrier to entry is
A) product differentiation.
B) high profits.
C) superior technological knowledge.
D) increasing marginal costs.
Figure 5-6
Figure 5-6 shows the market for measles vaccinations, a product whose use generates
positive externalities.
Refer to Figure 5-6. What is the economically efficient output level?
A) Q1
B) Q1 + Q2
C) Q2 - Q1
D) Q2
Figure 4-1
Figure 4-1 shows Arnold's demand curve for burritos.
Refer to Figure 4-1. If the market price is $1.50, what is Arnold's consumer surplus?
A) $1.50
B) $2.25
C) $3.00
D) $4.75
As a business type, corporations ________ in the United States.
A) earn the majority of profits
B) are the most common
C) are the least common
D) are subject to the least amount of taxes
Which of the following statements about a simple circular flow model is false?
A) Producers are buyers in the factor market and sellers in the product market.
B) Households are neither buyers nor sellers in the input market.
C) Producers are buyers in the factor market.
D) Households are buyers in the product market.
The rate at which a firm is able to substitute one input for another while keeping the
level of output constant is called the
A) opportunity cost of inputs.
B) marginal rate of technical substitution.
C) input trade-off rate.
D) isoquant substitution rate.
If the total cost of producing 20 units of output is $1,000 and the average variable cost
is $35, what is the firm's average fixed cost at that level of output?
A) $65
B) $50
C) $15
D) It is impossible to determine without additional information.
Suppose a negative externality exists in a market. If transactions costs are low and
parties are willing to bargain then, according to the Coase theorem
A) an efficient solution can be reached only if property rights are assigned to the
victims of the pollution.
B) an efficient solution can be reached only if property rights are assigned to the
polluters.
C) an efficient solution can be reached regardless of the initial assignment of property
rights.
D) government intervention is critical to reach an efficient solution.
Figure 15-15
Figure 15-15 shows the cost and demand curves for the Erickson Power Company.
Refer to Figure 15-15. What is the economically efficient output level and what is the
price at that level?
A) Q4, P1
B) Q3, P2
C) Q2, P2
D) Q2, P3
NAFTA refers to a 1994 agreement that eliminated most tariffs among which countries?
A) Canada, the United Kingdom, and Mexico
B) the United States, the United Kingdom, and Mexico
C) the United States, Canada, and Mexico
D) the United States, Mexico, and Cuba
Figure 2-6
Refer to Figure 2-6. If the economy is currently producing at point E, what is the
opportunity cost of moving to point D?
A) 13 thousand hammers
B) 10 thousand hammers
C) 8 thousand wrenches
D) 0 wrenches
Bill owns "Bill's Home of Blues" a store that specializes in selling CDs and DVDs of
blues musicians of the 1960s and 1970s. Bill took out a loan from his bank to pay for
his store and its initial inventory. Bill pays the bank $900 per week for his loan. The
$900 bank payment
A) is a long-run implicit cost.
B) is a fixed cost.
C) is a short-run implicit cost.
D) is a variable cost.
Rent control is an example of
A) a subsidy for low-skilled workers.
B) a price floor.
C) a price ceiling.
D) a black market.
As a business type, corporations ________ in the United States.
A) earn the majority of revenues
B) are the most common
C) are the least common
D) are subject to the fewest taxes
Public schools in the United States get most of their operating funds from
A) government production and subsidies.
B) income taxes on corporate profits.
C) local property taxes.
D) tariffs collected on imported goods.
The price elasticity of an upward-sloping supply curve is always
A) positive.
B) negative.
C) greater than one.
D) impossible to determine.
A firm that successfully differentiates its product or lowers its average cost of
production creates
A) value for its customers.
B) entry barriers into its market.
C) a perfectly inelastic demand curve for its product.
D) economies of scale.
Marginal cost is the
A) change in average cost when an additional unit of output is produced.
B) the additional output when total cost is increased by one dollar.
C) additional cost of producing an additional unit of output.
D) change in the price of inputs if a firm buys more inputs to produce an additional unit
of output.
An increase in input costs in the production of electric automobiles caused the price of
electric automobiles to rise. Holding everything else constant, how would this affect the
market for gasoline-powered automobiles (a substitute for electric automobiles)?
A) The supply of gasoline-powered automobiles would increase and the equilibrium
price of gasoline-powered automobiles would decrease.
B) The demand for gasoline-powered automobiles would increase and the equilibrium
price of gasoline-powered automobiles would increase.
C) The demand for gasoline-powered automobiles would decrease because consumers
could afford to buy fewer gasoline-powered automobiles.
D) The demand for gasoline-powered automobiles would increase and the equilibrium
price of gasoline-powered automobiles would decrease.
Table 9-6
Production and
Consumption Production
Without Trade With Trade
Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production
and consumption quantities without trade, and the production numbers with trade.
Refer to Table 9-6. If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are
traded, how many hats will Belize consume?
A) 100
B) 130
C) 250
D) 400
