An individual’s labor supply curve shows
A) the maximum wage rates offered to that individual by various potential employers.
B) the relationship between wages and the quantity of labor that she is willing to
supply.
C) the relationship between wages and the quantity of labor that a firm is willing to
employ.
D) the relationship between the quantity of hours worked and total income earned by
that individual.
Figure 18-1
Refer to Figure 18-1. Area F+G represents
A) the portion of sales tax revenue borne by consumers.
B) the portion of sales tax revenue borne by producers.
C) the excess burden of the sales tax.
D) sales tax revenue collected by the government.
A number of economists have estimated the impact of unionization on workers’ wages.
Which of the following is one conclusion reached by these studies?
A) Union workers earn less than they would if they were not unionized. This is because
of the impact of workers’ strikes, during which union members do not receive wages.
B) Holding constant the impact of other factors that affect wages, being in a union has
no impact on a worker’s wages.
C) Being in a union increases a worker’s wages by about 10 percent, holding constant
other factors that influence wages.
D) The share of national income received by workers has increased significantly over
time; unions have been responsible for about one-half of the increase in workers’ share
of national income from the end of World War II to 2000.
Economies of scale occur when
A) a firm’s long-run average total costs fall as it increases the quantity of output it
produces.
B) the marginal product of labor is greater than the average product of labor.
C) short-run marginal cost falls.
D) the demand for a firm’s output increases.
Table 2-10
Table 2-10 shows the output per day of two pet groomers, Tammi and Horace. They can
either devote their time to grooming dogs or bathing cats.
Refer to Table 2-10. What is Horace’s opportunity cost of bathing a cat?
A) half a groomed dog
B) two groomed dogs
C) two-thirds of a groomed dog
D) one and a half groomed dogs
There are several types of barriers to entry that can create a monopoly. Which of the
following barriers is the result of government action?
A) network externalities
B) public franchise
C) economies of scale
D) control of a key resource
Suppose the total cost of producing 40,000 flash drives is $120,000, and the fixed cost
is $30,000.
a. What is the variable cost?
b. When output is 40,000, what are the average variable cost and the average fixed cost?
c. Assuming the cost curves have the usual shape, is the dollar difference between the
average total cost and the average variable cost greater when the output is 40,000 flash
drives or when the output is 60,000 flash drives? Explain.
Which of the following is not a characteristic of monopolistic competition?
A) Firms are price takers.
B) There are many buyers and sellers.
C) Barriers to entry are low.
D) Firms sell similar, but not identical, products.
Figure 17-3
Refer to Figure 17-3. Which of the panels in the diagram best represents an individual’s
labor supply curve?
A) Panel A
B) Panel B
C) Panel C
D) Panel D
Consider the following methods of pollution reduction:
a. the government sets a target for maximum emissions
b. the government mandates the installation of specific pollution abatement equipment
c. the government imposes a per unit tax on the good that creates pollution
d. the government gives firms a tax rebate for every unit of pollution abated
Which of the above is an example of a command-and-control approach to reducing
pollution?
A) a only
B) b only
C) a and b only
D) a, b, and d only
E) a, b, c, and d
The primary purpose of labor unions is to
A) ensure that workers receive adequate safety training.
B) ensure that all members earn identical incomes.
C) negotiate with employers about wages and working conditions.
D) endorse candidates and donate money to them.
________ increases economic efficiency because it forces firms to produce and sell
goods and services as long as the additional benefit to consumers is greater than the
additional cost of production.
A) Competition
B) Voluntary exchange
C) Equity
D) A centrally planned economy
What can be done to deal with the principal-agent problem?
A) threaten to liquidate the firm
B) link top manager salaries to the profits of the firm or the price of the firm’s stock
C) have the CEO be a rotating position
D) forbid managers from owning any company stock
A monopolistically competitive industry that earns economic profits in the short run
will
A) continue to earn economic profits in the long run.
B) experience the entry of new rival firms into the industry in the long run.
C) experience the exit of existing firms out of the industry in the long run.
D) experience a rise in demand in the long run.
For each of the following pairs of products state which are complements, which are
substitutes, and which are unrelated.
a. Digital camera and memory stick
b. 7Up and Mountain Dew
c. Swimsuits and flip-flops
d. Tylenol and cat food
e. Photocopier and paper
Figure 9-1
Figure 9-1 shows the U.S. demand and supply for leather footwear.
Refer to Figure 9-1. Suppose the government allows imports of leather footwear into
the United States. What will the market price be?
A) $10
B) $18
C) $24
D) >$24
Figure 10-1
Refer to Figure 10-1. Which of the following statements is true?
A) Quantities Q0 and Q1 are the utility-maximizing quantities of hoagies at two
different prices of hoagies.
B) Quantities Q0 and Q1 may not necessarily be the utility-maximizing quantities of
hoagies at two different prices because we have no information on the consumer’s
budget or the price of other goods.
C) Quantity Q0 could be a utility-maximizing choice if the price is $5.75, but quantity
Q1 may not be because we have no information on the marginal utility per dollar when
price changes.
D) Quantities Q0 and Q1 are derived independently of the utility-maximizing model.
Table 13-3
Table 13-3 shows the demand and cost schedules for a monopolistically competitive
firm.
Refer to Table 13-3. What are the profit-maximizing/loss-minimizing output level and
price?
A) Q = 0 (firm should not produce)
B) Q = 3; P = $18
C) Q = 4; P = $17
D) Q = 5; P = $16
Some policymakers have argued that products like cigarettes, alcohol, and sweetened
soda generate negative externalities in consumption. If the government decided to
impose a tax on soda, the government will cause
A) consumers to internalize the externality.
B) producers to internalize the externality.
C) the external cost to drinking soda to become a private cost paid by the government.
D) the external cost to drinking soda to become a private cost paid by producers.
If the demand for a life-saving drug was perfectly inelastic and the price doubled, the
quantity demanded would
A) also double.
B) decrease by 50%.
C) be cut in half.
D) remain constant.
Figure 5-16
Amit and Bree are the only two homeowners on an isolated private road. Both agree
that installing street lights along the road would be beneficial and want to do so. Figure
5-16 shows their willingness to pay for different quantities of street lights, the market
demand for street lights, and the marginal cost of installing the street lights.
Refer to Figure 5-16. Suppose Amit and Bree know each other’s preferences so that it
is not possible for one to deceive the other. Which of the following statements best
describes the circumstances under which the optimal quantity of street lights could be
achieved?
A) The optimal quantity will be installed only if the two parties agree to pay according
to their willingness to pay as indicated by their respective demand curves.
B) Because there are only two consumers, it is likely that private bargaining will result
in the optimal quantity being installed.
C) The optimal quantity will be installed only if the two parties split the cost of
installation equally.
D) The optimal quantity will be installed only if Bree pays for the entire installation
cost.
Today, Walt Disney World charges different customers different prices for admission.
This pricing strategy is called
A) arbitrage.
B) odd pricing.
C) cost-price pricing.
D) price discrimination.
Which of the following are separate flows in the circular flow model?
A) the flow of goods and the flow of services
B) the flow of costs and the flow of revenue
C) the flow of income earned from the sale of resources and the flow of expenditures on
goods and services
D) the flow of income received by households and the flow of tax revenues paid by
households
When the demand for a product is less elastic than the supply
A) consumers pay the majority of the tax on the product.
B) firms pay the majority of the tax on the product.
C) firms pay the entire tax on the product.
D) consumers pay the entire tax on the product.
Figure 5-8
Consider a chemical plant that discharges toxic fumes over a nearby community. To
reduce the emissions of toxic fumes the firm can install pollution abatement devices.
Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic
fumes emissions.
Refer to Figure 5-8. Suppose the emissions reduction target is currently established at 8
million tons. What is the area that represents the cost of eliminating an additional 1
million tons?
A) A
B) B + C
C) A + B
D) A + B + C
Optimal decisions are made
A) in the marketplace.
B) if information about prices and marginal utilities is known.
C) when marginal utility is minimized.
D) at the margin.
A consumer’s budget constraint is
A) the limited income that a consumer has to spend on goods and services.
B) the rate at which the consumer must give up one good to purchase an additional unit
of the other goods in the market.
C) the price ratio a consumer faces in the marketplace.
D) the extent to which one’s preferences are limited by one’s income.
Figure 11-17
Refer to Figure 11-17. Assume that production isoquants are convex. Total cost and
output produced must increase for each of the following movements except one. Which
movement is the exception?
A) point a to point b
B) point a to point c
C) point b to point c
D) point b to point d
Making optimal decisions “at the margin” requires
A) making decisions according to one’s whims and fancies.
B) making consistently irrational decisions.
C) weighing the costs and benefits of a decision before deciding if it should be pursued.
D) making borderline decisions.
Consider the following statements:
a. Consumers buy more MP3 players from an electronics store that sells MP3 players at
a lower price than other rival electronics stores in the area.
b. Schools take steps to increase security since they believe it is more costly to allow
vandalism than to hire additional security guards.
c. Citrus growers produce more oranges when the selling price of oranges falls.
Which of the above statements demonstrates that economic agents respond to
incentives?
A) a only
B) b only
C) c only
D) a and b
E) a, b, and c
When a proposed merger between two companies is reviewed by the government, the
relevant market is defined by
A) whether or not there are close substitutes for the products of the two firms.
B) how elastic the demand is for each firm’s product.
C) counting the number of firms that produce the same product.
D) how much advertising is done in the industry.
Figure 17-6
Figure 17-6 shows two different compensation schemes for the Vortex Vacuum Cleaner
Company.
Under Scheme I, the firm pays a consistent wage of $2,500 per month to all its
salespeople for sales up to 20 vacuum cleaners. For sales of 21-30 vacuum cleaners, its
salespeople earn $125 per vacuum cleaner., with wages capped at $5,625 per month for
sales over 30 vacuum cleaners. If a salesperson has three consecutive months of sales
below 20 vacuum cleaners, the person loses his or her job.
Scheme II represents a straight commission, with salespeople earning a commission of
$125 per vacuum cleaner sold, with no wage cap.
Refer to Figure 17-6. Which of the following statements about Scheme II is false?
A) It is likely to draw highly productive workers who see the opportunity to increase
their wages.
B) It could discourage less productive workers and induce them to leave the firm.
C) It allows workers to increase their monthly wage without penalizing those who are
content with their monthly wage.
D) It is more risky for senior employees.