Which of the following statements is true?
A) Opportunity cost = explicit cost – implicit cost.
B) Total cost = fixed cost + implicit cost.
C) Total cost = fixed cost + variable cost.
D) Variable cost = wages + salaries + benefits.
All centrally planned economies
A) have been political dictatorships.
B) started out as market economies.
C) began as mixed economies.
D) have become mixed economies.
Uber has come under criticism for its surge pricing because consumers see it as
A) more fair for firms to raise prices after an increase in demand than as a result of an
increase in costs.
B) equally fair for firms to raise prices after an increase in costs and as a result of an
increase in demand.
C) completely unfair for firms to raise prices after an increase in costs or as a result of
an increase in demand.
D) more fair for firms to raise prices after an increase in costs than as a result of an
increase in demand.
BHP Billiton is a Canadian company that owns mines in Canada that
A) produce nickel. After World War II, BHP Billiton began to compete with another
Canadian firm, the International Nickel Company. This competition eventually ended
International Nickel’s monopoly in this market.
B) produce bauxite, the mineral needed to produce aluminum. BHP Billiton began to
mine bauxite after World War II. This competition eventually ended the Aluminum
Company of America (ALCOA)’s monopoly in this market.
C) produce coal. Until World War II, BHP Billiton had a monopoly on coal in Canada.
D) produce diamonds.
An oligopoly between two firms is called
A) a biopoly.
B) an oligopoly; there are no special terms used for oligopolies with different numbers
of firms.
C) a dual-firm oligopoly.
D) a duopoly.
Suppose a restaurant is trying to determine how much to charge for a bowl of chili, and
decides to run an experiment to see how much its customers are willing to pay by
allowing them to set their own price for this menu item.
a. Is charging a customer the price he or she is willing to pay for the bowl of chili an
example of price discrimination? Briefly explain.
b. What is it called when a firm knows every consumer’s willingness to pay, and can
charge every consumer a different price? What happens to consumer surplus in this
situation?
The key characteristics of a monopolistically competitive market structure include
A) many small (relative to the total market) sellers acting independently.
B) all sellers sell a homogeneous product.
C) barriers to entry are strong.
D) sellers have no incentive to advertise their products.
The U.S. government’s focus on supply reduction efforts in its “war on drugs” has been
relatively unsuccessful at addressing illegal drug use. Some economists believe that a
successful anti-drug program must concentrate on reducing demand; for example,
through drug education and voluntary treatment programs for addicts.
a. Suppose the price elasticity of demand for cocaine is -0.5. What will happen to the
equilibrium price, quantity, and total revenue from cocaine sales if the government
succeeds in its efforts to reduce demand? What is likely to happen to the incentive to
sell cocaine?
b. Suppose the government continues to concentrate its efforts on supply reduction and
is able to reduce the supply of cocaine. As a result of the reduction in supply the price
of cocaine increases by 25 percent. If the price elasticity of demand is -0.5, what is
likely to happen to the incentive to sell cocaine?
c. Based on your answers, explain why one approach might be preferred over the other.
Table 9-2
Sarita and Gabriel own S&G Bakery. Table 9-2 lists the number of pies and cakes Sarita
and Gabriel can each bake in one day.
Refer to Table 9-2. Select the statement that accurately interprets the data in the table.
A) Sarita has a comparative advantage in baking pies.
B) Gabriel has an absolute advantage in baking cakes.
C) Gabriel has a comparative advantage in baking pies.
D) Gabriel has a comparative advantage in baking pies and baking cakes.
If you want to know the present value of $10,000 received in one year, and the interest
rate is 4 percent, what formula can you use?
A) Present value equals $10,000 times 0.04.
B) Present value equals $10,000 divided by 1.04
C) Present value equals 1.04 divided by $10,000.
D) Present value equals $10,000 times 1.04.
The marginal productivity theory of income states that a person’s total income is
determined by
A) the amount and productivity of factors of production the individual owns.
B) how much the individual works.
C) how profitable the firm the individual works for is.
D) how much the individual has inherited.
When a credit card company offers different services with its card, like travel insurance
for air travel tickets purchased with the credit card or product insurance for items
purchased with the card, the credit card company is trying to
A) create a barrier to entry for competing firms.
B) create a perfectly competitive market in which to sell its credit card.
C) convince customers that its card has greater value than those offered by rival firms.
D) shift the demand curve for competing firms to the right.
Figure 11-15
Refer to Figure 11-15. Suppose Hilda produces 100 gooseberry pies. What is the
marginal rate of technical substitution of labor for capital when labor is increased from
10 to 20 hours?
A) 1 unit of capital
B) 10 units of capital
C) 14 units of capital
D) 24 units of capital
Which of the following could be evidence of a market failure?
A) Resources in an economy are not fully utilized.
B) The market price of a product is above the average cost of production.
C) There are only a handful of firms competing against each other in an industry.
D) Market prices do not reflect true production costs.
If a monopolistically competitive firm has excess capacity
A) it has exhausted all economies of scale.
B) it is producing beyond the minimum efficient scale.
C) it is experiencing diseconomies of scale.
D) it produces an output rate that places it on the negatively sloped portion of its
average total cost curve.
What is a ‘social cost” of production?
A) the cost of the natural resources used up in production
B) the total costs of producing a product, both implicit and explicit costs
C) the sum of all costs to individuals in society, regardless of whether the costs are
borne by those who produce the products or consume the product
D) the cost of the environmental damage created by production
If the price of chewing gum is represented by equation P = 25 – 0.5 QD, then the
corresponding quantity of chewing gum demanded is represented by the equation
A) QD = 2P – 0.5.
B) QD = 0.5P + 25.
C) QD = 50 -2P.
D) QD = -5 + 10P.
Costs that have already been incurred, and which cannot be recovered, are known as
A) short-run fixed costs.
B) implicit costs.
C) unavoidable costs.
D) sunk costs.
If a typical firm in a perfectly competitive industry is earning profits, then
A) all firms will continue to earn profits.
B) new firms will enter in the long run causing market supply to decrease, market price
to rise, and profits to increase.
C) new firms will enter in the long run causing market supply to increase, market price
to fall, and profits to decrease.
D) the number of firms in the industry will remain constant in the long run.
Figure 3-1
Refer to Figure 3-1. A decrease in taste or preference would be represented by a
movement from
A) A to B.
B) B to A.
C) D1 to D2.
D) D2 to D1.
The midpoint formula is used to measure the elasticity of demand between two points
on a demand curve
A) when demand is elastic.
B) in special cases when the percentage change in the quantity demanded is equal to the
percentage change in price.
C) to ensure that the elasticity has a negative value.
D) to ensure that we have only one value of the price elasticity of demand between two
points on a demand curve.
Suppose your expenses for this term are as follows: tuition: $28,000, room and board:
$9,000, books and other educational supplies: $2,500. Further, during the term, you can
only work part-time and earn $16,000 instead of your full-time salary of $42,000. What
is the opportunity cost of going to college this term, assuming that your room and board
expenses would be the same even if you did not go to college?
A) $36,500
B) $56,500
C) $65,500
D) $72,500
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent
increase in quantity demanded for organic produce.
A) -0.66
B) 5
C) 5
D) 2
If a corporate bond with face value of $1,000 has an interest rate of eight percent paid
once a year for a term of 30 years, what is the size of the coupon payment?
A) $1,000
B) $300
C) $80
D) $8
Figure 2-10
Figure 2-10 shows the production possibilities frontiers for Tahiti and Bora Bora. Each
country produces two goods, milk and honey.
Refer to Figure 2-10. Which country has a comparative advantage in the production of
honey?
A) Bora Bora
B) They have equal productive abilities.
C) Tahiti
D) neither country
Behavioral economics refers to the study of situations
A) where consumers and firms appear to make choices that are appropriate to reach
their goals.
B) where consumers and firms appear to value fairness when they make choices.
C) where consumers and firms disobey the laws of demand and supply.
D) where consumers and firms do not appear to be making choices that are
economically rational.
A minimum wage law dictates
A) the minimum quantity of labor that a firm must employ.
B) the lowest wage that firms may pay for labor.
C) the highest wage that firms must pay for labor.
D) the minimum qualifications for labor.
Table 2-9
Table 2-9 shows the number of labor hours required to produce a canoe and a sailboat in
Guatemala and Honduras.
Refer to Table 2-9. If the two countries specialize and trade, who should export
sailboats?
A) There is no basis for trade between the two countries.
B) Guatemala
C) Honduras
D) They should both be importing sailboats.
If the marginal cost for Dinky’s Donuts to advertise one additional day each week in the
local newspaper is $200, then Dinky’s Donuts should advertize that additional day
A) only if the marginal benefit the company receives each week is greater than $200
plus an acceptable profit margin.
B) as long as the marginal benefit the company receives each week is just equal to or
greater than $200.
C) as long as the weekly marginal cost does not rise.
D) until the marginal benefit the company receives reaches zero.
Table 1-3
Santiago runs a comic book store in the town of East Arbor. He is debating whether he
should extend his hours of operation. Santiago figures that his sales revenue will
depend on the number of extra hours the store is open as shown in the table above. He
would have to hire a worker for those extra hours at a wage rate of $18 per hour.
Refer to Table 1-3. What is Santiago’s marginal cost if he decides to stay open for an
extra two hours instead of one hour?
A) $18
B) $36
C) $38
D) $102
If a firm has an incentive to increase supply now and decrease supply in the future, the
firm expects that the
A) price of its product will be lower in the future than it is today.
B) price of its product will be higher in the future than it is today.
C) price of inputs will be lower in the future than they are today.
D) demand for the product will be lower in the future than it is today.
Table 2-3
Production Choices for Dina’s Diner
Refer to Table 2-3. Assume Dina’s Diner only produces sliders and hot wings. A
combination of 120 sliders and 100 hot wings would appear
A) along Dina’s production possibilities frontier.
B) inside Dina’s production possibilities frontier.
C) outside Dina’s production possibilities frontier.
D) at the vertical intercept of Dina’s production possibilities frontier.