For some people, coffee and milk are perfect complements. Their indifference curves
are:
A) right angles.
B) straight lines between the X and Y axis.
C) straight lines out of the origin.
D) regular downward-sloping indifference curves, but their budget lines are right
angles.
If a person’s marginal utility from an additional hour of leisure is less than the marginal
utility gained from goods bought with the wages earned from an additional hour of
labor, then this person should:
A) continue to work the hours he or she is working.
B) work less, since he or she is working more than the optimal number of hours.
C) work more, since he or she is working less than the optimal number of hours.
D) quit work, since he or she is not earning enough to satisfy his or her time allocation.
In a perfectly competitive labor market, the equilibrium wage:
A) is the same for all firms.
B) is always greater than the value of marginal product.
C) results in diminishing marginal product.
D) causes some people to be unemployed.
If the income elasticity of demand for a good is negative, the good is said to be:
A) inferior.
B) negative.
C) positive.
D) normal.
An indifference curve is a line showing all of the consumption bundles that:
A) an individual can purchase with a given income.
B) yield the same total utility for an individual.
C) yield the same marginal utility.
D) have the same marginal rate of substitution.
(Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts.
The marginal cost of producing sweatshirts is an example of ______ marginal costs.
A) decreasing
B) increasing
C) constant
D) random
Combinations of two goods that yield equal levels of utility are shown on a(n) _____
curve.
A) indifference
B) budget
C) marginal utility
D) utility-maximizing
If a perfectly competitive firm is producing a quantity where P < MC, then profit:
A) is maximized.
B) can be increased by decreasing the price.
C) can be increased by increasing production.
D) can be increased by decreasing production.
(Table: Cherry Farm) Look at the table Cherry Farm. If the price is $4 per pound:
A) firms will enter the industry.
B) firms will exit the industry.
C) the industry is in long-run equilibrium.
D) the industry has maximized average total cost.
The market for grade A large eggs in California is best considered to be an example of:
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
(Table: Consumer Equilibrium) Look again at the table Consumer Equilibrium. Assume
that the price of good X is $1 per unit and the price of good Y is $2 per unit and you
consume 4 units of good X and 2 units of good Y, and you are spending all of your
income. To maximize utility, assuming that the goods are divisible, you would consume
_____ of X and _____ of Y.
A) less; less
B) more; more
C) less; more
D) more; less
If total surplus rises, there may have been a(n) _____ in demand or a(n) _____ in
supply.
A) increase; decrease
B) increase; increase
C) decrease; decrease
D) decrease; increase
Table: The Lemonade Market
Price of Lemonade (per cup) Number of Cups Demanded (QD) Number of Cups
Supplied (QS) $0.50 250 25 0.75 200 50 1.00 150 75 1.25 100 100 1.50 50 125 1.75 20
150
(Table: The Lemonade Market) Look at the table The Lemonade Market. If the price of
a cup of lemonade is $1, there will be _____ in the market.
Price of Lemonade (per cup) Number of Cups Demanded (QD) Number of Cups
Supplied (QS)
$0.50 250 25
0.75 200 50
1.00 150 75
1.25 100 100
1.50 50 125
1.75 20 150
A) equilibrium
B) a shortage of 150 cups
C) a shortage of 75 cups
D) a surplus of 75 cups
Figure: The Profit-Maximizing Firm in the Short Run
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. Curve M must cross curves N and O:
A) at their maximum points.
B) to the left of their minimum points.
C) at their minimum points.
D) to the right of their minimum points.
An important determinant of the price elasticity of demand is:
A) time.
B) the price of related goods.
C) the level of technology.
D) the quantity of the good supplied.
Gary’s Gas and Frank’s Fuel are the only two providers of gasoline in their small town.
Gary and Frank decide to form a cartel to raise the price of gasoline. The total industry
profits are highest when _____ cheat(s) on the agreement, and Gary’s profits are highest
when _____.
A) neither firm; neither firm cheats on the agreement
B) neither firm; Gary cheats but Frank does not
C) both firms; Gary cheats but Frank does not
D) both Gary and Frank; both Gary and Frank cheat
At Hamill Manufacturing of Pennsylvania highly skilled senior machinists are paid
$70,000, excluding benefits, but the average skilled machinist generates approximately
$137,000 in value added. This difference is due to the fact that:
A) the marginal productivity theory of income distribution does not apply in this case.
B) the equilibrium wage rate includes other costs, such as employee benefits, that have
to be subtracted from the $70,000 salary.
C) the equilibrium wage rate includes other costs, such as employee benefits, that have
to be added to the $70,000 salary.
D) the value of the marginal product of the last machinist hired is equal to the average
of all machinists employed.
Which factor is important in determining the price elasticity of supply?
A) the time the producer has to adjust inputs and outputs
B) the number of close substitutes
C) the intensity of the need of consumers
D) the number of alternative uses of the good
Alexander has a straight-line, or linear, production possibility frontier when he produces
soybeans and corn. If he uses all of his resources to grow soybeans, he can produce 200
bushels of soybeans; if he uses all of his resources for corn production, he can produce
400 bushels of corn. Alexander CANNOT produce _____ bushels of soybeans and
_____ bushels of corn.
A) 200; 0
B) 200; 600
C) 0; 400
D) 100; 200
When marginal cost is above average variable cost, average variable cost must be:
A) at its minimum.
B) at its maximum.
C) greater than average total cost.
D) increasing.
(Table: The Utility of Macaroni and Cheese) Look at the table The Utility of Macaroni
and Cheese. Carmen loves macaroni and cheese for Thanksgiving. The marginal utility
she derives from the fifth serving she eats is:
A) 15.
B) 10.
C) 5.
D) 0.
A line representing all possible combinations of two commodities that a consumer can
purchase at a particular time, given the market prices of the commodities and the
consumer’s income, is:
A) a budget line.
B) a consumption line.
C) an income consumption curve.
D) an indifference curve.
If a consumer moves downward along an indifference curve, his or her total utility:
A) remains constant.
B) first decreases, then increases.
C) decreases.
D) first increases, then decreases.
Use of the midpoint method to calculate the price elasticity of demand eliminates the
problem of computing:
A) different elasticities, depending on whether price decreases or increases.
B) different elasticities, because price and quantity are inversely related on the demand
curve.
C) total revenue when price falls and demand is inelastic.
D) total revenue when price falls and demand is elastic.
(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
market-determined quantity of pollution, the marginal social benefit of pollution is:
A) $800.
B) $400.
C) $200.
D) $0.
(Table: The Production Possibilities for Tractors and Crude Oil) Look at the table The
Production Possibilities for Tractors and Crude Oil. The United States has a
comparative advantage in _____ and Mexico has a comparative advantage in _____.
A) both goods; neither good
B) neither good; both goods
C) tractors; crude oil
D) crude oil; tractors
You are about to have a meeting with your manager about a raise in your salary. You are
going to request an increase of $5,000, but you believe the probability of success to be
only 25%. You believe there is a 25% probability your boss will counter with a $3,000
raise and a 25% probability that your boss will offer a $1,000 raise. Finally, there is a
25% probability that you will receive no increase in your salary. What is the expected
value of the outcome of your meeting?
A) $2,250
B) $9,000
C) $6,750
D) $3,000