Prices above equilibrium on agricultural products like milk exist to maximize the
consumer surplus.
Figure: Market I
(Figure: Market I) Look at the figure Market I. A price floor at $15 would result in
deadweight loss of:
A) $9.
B) $10.
C) $20.
D) $40.50.
Average total cost is the ratio of _____ cost to _____.
A) total; marginal cost
B) total; quantity of output
C) total; amount of variable input
D) marginal; amount of variable input
“All other relevant factors remain unchanged” is another way of saying:
A) all other things equal.
B) allow several variables to change to understand how those variables affect one
variable held constant.
C) allow all variables to change and attempt to understand how the variables interact
with each other.
D) no variables change.
(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that
the crude oil industry is a duopoly and the marginal cost of producing crude oil is zero.
If the two firms collude to share the market equally, the price of crude oil will be _____,
firm 1 will produce _____ barrels, firm 2 will produce _____ barrels, and each firm will
earn revenue equal to _____.
A) $80; 80; 80; $6,400
B) $80; 40; 40; $3,200
C) $60; 50; 50; $3,000
D) $40; 60; 60; $2,400
Faruq spends all of his income on tacos and milkshakes. His income is $100, the price
of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and
milkshakes on the vertical axis. The horizontal intercept for Faruq’s budget line is
_____ tacos.
A) 50
B) 10
C) 5
D) 100
Figure: Comparing Long-Run Equilibriums
(Figure: Comparing Long-Run Equilibriums) Look at the figure Comparing Long-Run
Equilibriums. Which of the following statements is FALSE?
A) Firms in panel (A) cannot have excess profits in the long run, but those in panel (B)
can.
B) Both panels show markets in which firms are covering all of their implicit and
explicit costs.
C) Firms in the market shown in panel (A) produce identical products, whereas those in
panel (B) produce similar but differentiated products.
D) Both firms show markets that have many firms.
As measured by a percentage of the entire economic output of the United States,
imports have been _____ and exports have been _____.
A) increasing; increasing
B) decreasing; decreasing
C) increasing; decreasing
D) decreasing; increasing
A perfectly price-inelastic demand curve is:
A) horizontal.
B) downward-sloping.
C) upward-sloping.
D) vertical.
In movement along a production possibility frontier, the opportunity cost to society of
getting more of one good:
A) is always constant.
B) is measured in dollar terms.
C) is measured by the amount of the other good that must be given up.
D) usually decreases.
George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and
coffee (C). The price of a doughnut is $1 and the price of coffee is $2.50. Suppose
George’s income increases to $100 and the prices of both doughnuts and coffee remain
unchanged. Given this income change, one would expect George’s budget line:
A) to shift to the right.
B) to shift to the left.
C) to rotate around the coffee axis point.
D) not to be affected.
If the supply and demand curves intersect at $47, then any price above that would result
in:
A) a shortage.
B) a surplus.
C) equilibrium.
D) an increase in demand.
Oligopoly is a market structure that is characterized by a _____ number of _____ firms
producing _____ products.
A) small; interdependent; identical or differentiated
B) small; independent; identical or differentiated
C) large; relatively small independent; differentiated
D) large; relatively small independent; identical
In terms of labor supply, the income effect of a higher wage causes a(n):
A) decrease in leisure time.
B) increase in the quantity of labor supplied.
C) decrease in the quantity of labor supplied.
D) reduction of leisure time to zero.
The marginal product times product price equals the:
A) marginal revenue.
B) value of the marginal product.
C) additional revenue product.
D) marginal cost.
(Table: TC’s Pizza Parlor) Look at the table TC’s Pizza Parlor. What is the optimal level
of production?
A) 5 slices
B) 10 slices
C) 15 slices
D) 20 slices
After three years at an expensive college, Pierre realizes that he doesn’t want to finish
school but really wants to be a chef. When Pierre suggests that he leave college for
culinary school, his parents insist that he stay for one more year to get his degree.
Which of the following is TRUE?
A) Pierre’s parents are correct: if he leaves college, it is as though he has wasted three
years of tuition.
B) Pierre’s parents are wrong: the marginal benefit to Pierre of another year of college is
less than the marginal cost of college.
C) Pierre’s parents are wrong: the marginal benefit to Pierre of another year of college is
greater than the marginal cost of college.
D) It is impossible to tell who is correct.
Figure: The Domestic Market for Digital Cameras
(Figure: Domestic Market for Digital Cameras) Look at the figure The Domestic
Market for Digital Cameras. Assume that PA is the autarky price and PW is the world
price. Total surplus before international trade is equal to the area:
A) A + B + C.
B) A + B.
C) A + B ” D ” E.
D) A.
Lilly is the price-taking owner of an apple orchard. The price of apples is high enough
that Lilly is earning positive economic profits. In the long run, Lilly should expect
_____ apple prices due to the _____ firms.
A) lower; entry of new
B) higher; exit of existing
C) lower; exit of existing
D) higher; entry of new
Suppose that you build a high-speed, magnetically powered transportation system from
New York to Los Angeles, and you are the only firm providing this service. High fixed
costs resulting from the enormous quantity of capital used in this system enable
decreasing average cost for any conceivable level of demand. Your monopoly would
result from:
A) control of a scarce resource or input.
B) technological superiority.
C) increasing returns to scale.
D) government-set barriers.
Tomas produces 100 cartons of free range eggs when the price is $5 and 150 cartons of
free range eggs when the price is $7. What is the value of Tomas’s price elasticity of
supply?
A) 1.2
B) 2.0
C) 1.0
D) 3.2
On a linear demand curve:
A) demand is elastic at high prices.
B) demand is inelastic at high prices.
C) elasticity is the same at all points on the demand curve.
D) demand is elastic at low prices.
(Table: Choice with Uncertainty) Look at the table Choice with Uncertainty. Suppose
the probability that the sitcom does not make it to television is 60%, that it makes it to
television but is not the most viewed show in its time slot is 30%, and that it makes it to
television and is the most viewed show in its time slot is 10%. As a utility maximizer,
Norman:
A) should keep his teaching job.
B) should quit his teaching job and go to Hollywood.
C) will be indifferent between leaving and staying, because his expected income is the
same whether he stays a teacher or moves to Hollywood.
D) will be indifferent between leaving and staying, because his expected total utility is
the same whether he stays a teacher or moves to Hollywood.
If two variables are negatively related:
A) as one goes up in value, the other must go up in value, too.
B) as one goes up in value, the other must go down in value.
C) there can never be a trade-off between the two.
D) one variable is always the reciprocal of the other.
Scenario: Buying Shares
Geordie is considering buying shares in two companies, Apple and Microsoft. If he
invests $1,000 in Apple, there is a 40% probability that his investment will be worth
only $800 and a 60% probability that it will be worth $1,200 at the end of a year. If he
invests $500 in Apple, there is a 40% probability that his investment will be worth $400
and a 60% probability that it will be worth $600 at the end of a year. The corresponding
numbers for investment in Microsoft are identical.
(Scenario: Buying Shares) Look at the scenario Buying Shares. The probability that
Geordie will make a gain is _____ if he invests $1,000 in either Apple or Microsoft.
The probability that he will make a gain is _____ if he invests $500 apiece in Apple and
in Microsoft.
A) 60%; 60%
B) 60%; 84%
C) 76%; 24%
D) 60%; 36%
The percentage of an INCREASE in a taxpayer’s income that is taxed away is the _____
tax rate.
A) marginal
B) average
C) total
D) lower
Suppose the U.S. government imposes a binding quota on the number of
Japanese-made cars allowed into the United States. Assuming that Japanese-made cars
and U.S.-made cars are substitutes in consumption, we would expect the price of
Japanese cars to _____ and the price of U.S.-made cars to _____.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Mountain River Adventures offers whitewater rafting trips down the Colorado River. It
costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third,
and $160 for the fourth. If the market price for a raft trip was $120 but has now
increased to $150, the gain in producer surplus is equal to:
A) $20.
B) $70.
C) $80.
D) $90.
Figure: Efficiency and Pollution
(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution. In the
absence of government intervention, the marginal social cost of pollution will exceed
the marginal benefit of pollution by:
A) $25.00.
B) $16.67.
C) $15.00.
D) $0.00.