Mikail’s perfectly competitive camera memory card”producing factory is making
positive economic profits. If the price of memory cards is $9, if Mikail’s output is 3,000
cards a month, and if his monthly average total cost is $7, what are his monthly profits?
A) $6,000
B) $27,000
C) $21,000
D) $2
Which of the following statements is (are) TRUE about market failures? I. Property
rights are clearly defined. II. Information is available to all decision makers. III.
External costs are not considered in production decisions by producers.
A) I
B) I and II
C) III
D) I, II, and III
Which of the following would NOT cause the supply curve to shift?
A) a change in the technology of production
B) a change in factor costs
C) a change in the price of the good
D) a change in suppliers’ expectations of future prices
Trade takes the form of _____ when people directly exchange goods they have for
goods they want.
A) exploitation
B) benevolence
C) barter
D) the zero-sum game
When a good is nonrival in consumption, its most efficient price is:
A) zero.
B) determined by producers.
C) greater than zero.
D) equal to the market price of a similar rival good.
Because people usually exploit opportunities to make themselves better off, to
encourage young people to go to college in their home state, state universities can:
A) charge higher tuition to in-state students.
B) award special scholarships to out-of-state students.
C) offer high-interest loans to in-state students.
D) offer lower tuition to in-state students.
Figure: Demand for Coconuts
(Figure: Demand for Coconuts) Look at the figure Demand for Coconuts. If fish is a
substitute good for coconuts and the price of fish increases, it will be represented in the
figure as a movement from:
A) A to C.
B) B to A.
C) C to A.
D) B to E.
The U shape of the long-run average total cost curve is primarily due to:
A) technological change.
B) economies and diseconomies of scale.
C) increasing and then diminishing returns.
D) diminishing returns.
Used-car dealers will often advertise how long they have been in business as a means of
_____ their long-term _____.
A) signaling; reputation
B) screening; customers
C) insuring; capital at risk
D) revealing; moral hazard
The period during the 1930s and 1940s when income inequality fell sharply is called
the:
A) Great Compression.
B) Gini coefficient.
C) new Gilded Age.
D) U.S. welfare state.
Figure: Game-Day Shirts
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. If the price of a shirt is $11, the short-run industry supply will be
_____ shirts.
A) 140
B) 200
C) 220
D) 240
LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1
teaspoon of honey for 2 teaspoons of sugar. If the price of honey is half that of sugar,
LaToya will use:
A) only honey.
B) only sugar.
C) a lot of honey and a little sugar.
D) a lot of sugar and a little honey.
The sum of the squared market shares of each firm in an industry is the:
A) concentration ratio.
B) employment rate.
C) Herfindahl”Hirschman index.
D) market number.
Josh has an iPhone, and he frequently downloads songs from the iTunes website. He
pays a small fee for each download, but downloading a song does not remove it from
the iTunes inventory. Other consumers can also pay the fee and download a song that
Josh might have already accessed. The iTunes service is best described as(n):
A) private good.
B) public good.
C) artificially scarce good.
D) common resource.
If a perfectly competitive firm decreases production from 11 units to 10 units and the
market price is $20 per unit, total revenue for 10 units is:
A) $10.
B) $20.
C) $200.
D) $210.
You have rented your first apartment, signing a lease that commits you to pay $500
each month for 12 months. You have an opportunity to take a trip to Europe during the
entire month of June, and you will spend $2,000 traveling. Your apartment will be
vacant, but because of your lease, you must still pay the rent. The cost of taking the trip
to Europe is:
A) $2,000, because the $500 for your June rent is a sunk cost.
B) $2,500, because this is your total spending during the month of June.
C) $1,500, because the June rent is an opportunity cost of traveling that must be
deducted from the explicit cost of the trip.
D) $2,500, because the June rent is an opportunity cost of traveling and must be added
to the explicit cost of the trip.
The Cozy Chair Company believes it can sell 200 chairs at $200 per chair or 300 chairs
at $150 per chair. Using the midpoint formula, what do they think is the price elasticity
of demand?
A) 2.5.
B) 1.4.
C) 0.7.
D) 0.5.
When total utility is at a maximum, marginal utility is:
A) rising.
B) at its average value.
C) at a maximum.
D) zero.
The proposition that if bargaining is costless, the market can achieve an efficient
outcome is the:
A) Coase theorem.
B) property rights paradigm.
C) market rights theorem.
D) efficient environment paradigm.
Pauli’s Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four
slices for $5.00. The marginal cost of the third slice is:
A) $4.50.
B) $10.
C) $1.
D) $2.
According to the profit-maximizing principle of marginal analysis, if the marginal
benefit is _____ the marginal cost, _____.
A) more than; an activity should be reduced
B) less than; an activity should be reduced
C) equal to; an activity should be reduced
D) more than; net benefit is maximized
Table: Pumpkin Market
(Table: Pumpkin Market) There are two consumers, Andy and Ben, in the market for
pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin
Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also
shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5. If
Ben buys one more pumpkin and Diane sells one fewer pumpkin than in equilibrium,
total surplus will _____ by _____.
A) decrease; $3
B) decrease; $13
C) increase; $16
D) increase; $3
Which of the following is an example of a nonexcludable good?
A) health care
B) national defense
C) education
D) ice cream
Figure: The Market for Blue Jeans
(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The
government recently levied a $10 tax on the producers of blue jeans. What area or areas
in the graph identify tax revenue?
A) a + b + c
B) b + d
C) c + e
D) d + e + f
A rent control scheme setting a maximum amount of rent paid below the equilibrium
rental price would most likely be supported by:
A) people who wish to rent such an apartment.
B) people who own rental apartments.
C) both renters and owners.
D) neither renters nor owners.
If the income elasticity of demand for a good is _____, the good is said to be _____.
A) negative; inferior
B) negative; negative
C) positive; positive
D) negative; normal
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $67.50, how much is Sergei’s total cost at the
profit-maximizing output?
A) $270.00
B) $170.00
C) $135.00
D) $67.50
People who have higher levels of human capital will tend to:
A) work only in nonunion jobs.
B) receive higher salaries than those who have lower levels of human capital.
C) earn salaries based on marginal costs of their labor.
D) earn salaries higher than their value of marginal product.
Determining who actually pays the cost imposed by a tax is the study of:
A) public interest theory.
B) rational choice theory.
C) tax incidence.
D) budget analysis.
A monopolistically competitive firm has a downward-sloping demand curve for its
product, primarily because:
A) there are no barriers to entry or exit in the long run.
B) there are many sellers in the industry.
C) its product is differentiated.
D) the price is greater than the marginal revenue.