A service like CARFAX, which provides a used car buyer with the complete history of
a used car, is profitable because of the problem of moral hazard.
a. True
b. False
A leftward shift of a supply curve represents a decrease in supply.
a. True
b. False
Households act as demanders when they
a. vote for President
b. recieve dividends from the stocks they hold
c. recieve interest and capital gains from the bonds they hold
d. buy a car from the local car dealer
e. recieve payment for resources they provide to a Fortune 500 company
Exhibit 16-5
Exhibit 16-5 represents the market for leaf tobacco. In the absence of any government
intervention what would the market price for leaf tobacco be?
a. $.50 per pound
b. $.75 per pound
c. $1.00 per pound
d. $1.25 per pound
e. $1.50 per pound
John moved his office from a building he was renting downtown to the carriage house
he owns in back of his house. How will his costs change?
a. explicit and implicit costs rise
b. explicit costs rise; implicit costs fall
c. explicit and implicit costs fall
d. explicit costs fall; implicit costs rise
e. not enough information is given
Exhibit 19-2
In Exhibit 19-2, the United States has a comparative advantage in the production of
rice.
a. True
b. False
If the electric company is allowed by regulators to earn only a normal profit, it will
produce at the point where
a. MR = MC
b. P = MC
c. MC = quantity demanded
d. P = AC
e. MR = AC
The two types of asymmetric information situations are those with
a. hidden costs and hidden actions
b. hidden characteristics and hidden costs
c. hidden actions and hidden selection
d. hidden characteristics and hidden actions
e. moral hazard and natural selection
Chris budgets $30 this week for spending on his two favorite things, pizza and movies.
The price of a movie is $5. Moreover, he could buy 3 pizzas if he doesn’t go to the
movies. If pizza is on the horizontal axis, what is the slope of the budget line?
a. 2
b. -1/2
c. -1/3
d. 1/3
e. -2
A change in income will
a. affect the demand for candy through the income effect of a price change
b. affect the quantity demanded of candy through the income effect of a price change
c. shift the demand curve for candy
d. have no effect on the demand for candy, because income is assumed constant along a
demand curve
e. affect quantity demanded only if candy is a normal good
Exhibit 10-6
In Exhibit 10-6, what is the profit-maximizing price for this monopolistic competitor in
the short run?
a. $7
b. $6
c. $5
d. $4
e. $3
The marginal revenue product curve represents a firm’s demand curve for a resource.
a. True
b. False
Sunk costs
a. can only be measured in monetary terms
b. are opportunity costs
c. should influence a person’s choice if that person is a marginal decision maker
d. lower the efficiency of production
e. should not be considered when making economic decisions
Luis wonders why commercials appear more frequently at the end of a TV movie than
at the beginning. Carol says that this pattern can be explained by the
a. share of the viewer’s budget spent on TV watching
b. length of the adjustment period
c. cost of supplying additional minutes of the movie
d. high elasticity of demand for watching the end of a TV movie
e. availability of substitutes
Which of the following groups has experienced the greatest decrease in poverty rates
since 1959?
a. the elderly
b. children
c. people 18 to 64 years old
d. women
e. none of the above (i.e., all of these groups have had higher poverty rates)
The term productive efficiency refers to
a. any short-run equilibrium position of the competitive firm
b. the production of all goods and services that consumers need
c. the production of a good at the lowest long-run average cost
d. the equality between average total and average variable cost
e. satisfying the condition that MR = MC
Two friends, Diane and Sam, own and run a bar. Diane tends bar on Monday,
Wednesday, and Friday and receives a wage in addition to tips. Sam tends bar on
Tuesday, Thursday, and Saturday and receives only tips. Which of the following
represents an implicit cost of operating the bar?
a. Diane’s wage
b. Sam’s time
c. Diane’s tips
d. Sam’s tips
e. both Diane’s and Sam’s tips
Producers are willing and able to offer greater quantities for sale at higher prices
because
a. they have the incentive to pay the increasing opportunity cost of resources to attract
them from alternative uses
b. they will decrease their profits by expanding production at higher prices
c. the government orders them to do so
d. lower prices attract new firms, which have higher costs of production
e. they hire superior quality, higher-priced resources as production expands
The present value of an annuity that pays $100 each year indefinitely (i.e., a perpetuity)
is $2,000 if the interest rate is 5 percent.
a. True
b. False
Other things equal, the supply of labor will be higher to a job that
a. offers less prestige
b. offers fewer nonmonetary rewards
c. provides little on-the-job training
d. requires advanced education or skills
e. provides a climate-controlled work environment
As the wage rate decreases, the amount of time spent on market work usually
a. increases because the opportunity cost of nonmarket work increases
b. increases because of the substitution effect
c. decreases because of the income effect
d. decreases because the value of leisure time increases
e. decreases because the opportunity cost of leisure declines
The Lorenz curve shows the
a. functional distribution of income
b. personal distribution of income
c. relative percentage of income going to each of the resources
d. demand for unskilled versus unskilled labor
e. cumulative percentage of income received by cumulative percentages of households
People who can earn higher market wages, other things constant, will
a. provide more labor to nonmarket work
b. be more inclined to supply their labor to market work than to nonmarket work
c. be more inclined to supply their labor to nonmarket work than to market work
d. provide more labor to nonmarket work even if the market can provide the services
more cheaply
e. provide less labor to market work and more labor to nonmarket work
The old adage that “a bird in the hand is worth two in the bush” refers to
a. a normal good
b. opportunity cost
c. scarcity
d. a positive rate of time preference
e. a willingness to forgo current consumption in order to achieve increased future
consumption
When an American buys a Swedish financial asset,
a. both c and d
b. the U.S. balance of goods and services worsens
c. the U.S. capital account balance declines
d. the U.S. balance of payments worsens
e. the U.S. trade balance worsens
A reduction in a firm’s operating budget is represented as a shift of its isocost line
inward to a parallel position.
Exhibit 17-3
In Exhibit 17-3, the optimal air quality level is where the MSB=MSC.
a. True
b. False
According to the search model, a computerized used car search service should
a. reduce the amount of search
b. not affect the amount of search
c. increase price dispersion
d. reduce price dispersion
e. lower the marginal benefit of search
The amount of time an individual is willing to offer for a wage depends on the
a. all of the following
b. value of time devoted to leisure activities
c. boredom, discomfort, and aggravation associated with work
d. value of time devoted to nonmarket work
e. satisfaction gained from goods purchased with the wages
Farmer Fanny sells her crops in a perfectly competitive market. If she produces 500
bushels for total revenue of $3,000 and if harvesting the 501st bushel would raise her
total cost from $2,500 to $2,510, her
a. revenue will increase by $4 if she harvests the 501st bushel
b. revenue will fall by $4 if she harvests the 501st bushel
c. average fixed cost will rise if she harvests the 501st bushel
d. profit will fall by $10 if she harvests the 501st bushel
e. profit will fall by $4 if she harvests the 501st bushel
Exhibit 7-12
For the total product curve in Exhibit 7-12, marginal product begins to diminish at
which point?
a. a
b. b
c. c
d. d
e. marginal product does not diminish
John spends exactly the same dollar amount on candy bars each week, regardless of
their price. John’s demand curve for candy bars is
a. upward-sloping
b. backward-bending
c. perfectly inelastic
d. perfectly elastic
e. unit elastic
Jobs in rural areas generally pay lower wages than jobs in urban areas because there are
limits to labor mobility.
a. True
b. False
According to Shepherd, the percentage of industries that were effectively competitive in
1988 is approximately
a. 25 percent
b. 50 percent
c. 64 percent
d. 77 percent
e. 89 percent
Fixed costs in the video rental industry are
a. high because of the extensive advertising in that industry
b. high because of economies of scale
c. low because of economies of scale
d. higher in the long run than in the short run
e. low