In the short run,
a. all of the firm’s input quantities, including plant size, become adjustable.
b. firms are not constrained by past decisions.
c. firms have relatively little opportunity to change production processes.
d. all of the firm’s current commitments come to an end.
The market system provides a way
a. to allow specialization and exchange to work in tandem.
b. to improve the well-being of mankind.
c. to harness self-interest.
d. to allocate goods and services.
e. All of the above are correct.
Under a system of laissez faire, output selection is determined by consumers’ wants.
a. True
b. False
A less advanced country can improve its productivity by:
a. repurposing
b. imitating
c. reusing
d. redeveloping
A tariff is a tax on imports imposed by the country that is importing the goods.
a. True
b. False
Corporations must always pay dividends to their shareholders.
a. True
b. False
The graphical device that illustrates the concept of scarce resources being efficiently
utilized in the economy is a(n)
a. budget line.
b. indifference curve.
c. production possibilities frontier.
d. marginal cost curve.
The long-run average cost curve
a. is a composite of short-run AC curves.
b. shows the lowest possible short-run AC corresponding to each output level.
c. depends on the firm’s planning horizon.
d. All of the above are correct.
Suppose that many corporations begin issuing new bonds. Everything else being equal,
what is most likely to happen to the interest rate?
a. It will increase.
b. It will decrease.
c. It will not change.
d. It will vary according to a random walk.
Quotas and tariffs provide the same outcome: restriction of international trade and
higher prices for consumers.
a. True
b. False
Define the following terms and explain their importance to the study of economics.
a. common stock
b. corporation
c. limited liability
d. plowback
The price elasticity of demand for an exhaustible natural resource tends to
a. fall over time because extraction costs rise over time.
b. stay constant over time because the resource’s price rises at a constant rate.
c. rise over time because the resource’s rising price stimulates conservation and the
development of substitutes.
d. rise over time because resource extraction tends to become more efficient over time.
Which of the following statements concerning equilibrium in the long run is not true?
a. Most firms earn economic profits in the long run.
b. The firm can vary its plant size in the long run.
c. Economic profits are eliminated as new firms enter the industry in the long run.
d. For firms in long-run equilibrium, P = MC = AC.
The derived demand and, consequently, the demand curve for labor are determined by
a. labor’s wage.
b. labor’s marginal revenue.
c. the marginal cost of the input labor.
d. labor’s marginal revenue product.
The legal system imposes large financial penalties on firms caught violating
Environmental Protection Agency guidelines. The EPA’s standards program is thus an
example of a
a. market-based approach to reducing pollution.
b. system of emissions taxes.
c. system of emissions permits.
d. direct-control system enforced through the courts.
The more inelastic the demand for a product, the larger the share of the tax that will be
paid by consumers.
a. True
b. False
Which term refers to the share of an activity’s marginal cost that is paid for by people
other than those who carry out the activity?
a. Beneficial cost
b. Incidental cost
c. Marginal private cost
d. Marginal social cost
The sale of new stocks by a corporation is one source of investment funds.
a. True
b. False
Assume a new technology further reduces the cost of producing calculators. Also
assume that consumers have cut back on their scheduled purchases in anticipation of
even more cost-saving developments. As a result, we can expect
a. a decrease in price but no predictable change in output.
b. a decrease in output but no predictable change in price.
c. an increase in output but no predictable change in price.
d. a predictable decrease in both output and price.
If output is increased beyond the point where total profit is maximized,
a. marginal profit will be zero.
b. marginal profit will be negative.
c. marginal profit will be positive.
d. MR > MC.
Figure 5-1
Americans choose cola over other flavors 70 percent of the time. Analysts say this is
because cola’s flavor is more robust and durable. Orange soda, for example, suffers
from flavor fatigue faster than cola. Also, because cola contains caffeine, people may be
addicted to the stimulant. Which panel in Figure 5-1 best illustrates these facts?
a. 1
b. 2
c. 3
d. 4