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The law of diminishing marginal utility implies that marginal utility never becomes
negative.
Adverse selection and moral hazard are problems that arise in the presence of
asymmetric information.
A firm will only invest when the marginal revenue product of capital is less than the
interest rate.
in monopolistically competitive industries, the market sets the price.
According to the Coase theorem, bargaining will bring the contending parties to the
correct solution only if the rights are initially assigned to the party harmed by the
externality.
If a country's exports are greater than its imports, a country has a trade deficit.
In economics, "interest" refers to the creation of new capital.
Comparative advantage refers to the ability to produce at a lower financial cost than a
competitor.
A firm will continue investing up to the point at which the marginal revenue product of
capital is equal to the interest rate.
Deciding to invest in capital is a short-run decision.
A decrease in demand for a product will cause the price of the product to fall and supply
of the product to decrease.
Supply is determined by how much suppliers are willing and able to produce.
In general, the demand curve facing the monopolistically competitive firm is less elastic
than the demand curve facing the perfectly competitive firm.
Acid rain is an example of a negative externality.
Unemployment benefits are paid regardless of a person's assets.
A firm with market power will be able to sell all of their output at any price they desire.
China is politically authoritarian and does not have well-established property rights,
characteristics which were once thought to hinder growth.
Jacinda, a college student, waits tables at a local diner to earn extra cash. In order to
differentiate herself from other wait staff, Jacinda took a life saving course from the
local hospital, where she learned the proper procedures to use in cases of choking. This
is an example of a market signal.
A country's balance of trade must be balanced.
When supply is fixed, price is demand determined.
The product differentiation of firms in an industry is an indicator of the size distribution
of firms.
Producer surplus describes a situation in which there is excess quantity demanded.
Income distributions in developing countries are often so skewed that the richest
households of very poor nations surpass the living standards of many high-income
families in the developed economies.
A surplus exists when there is excess demand in a market.
In economics, the term "investment" refers to the purchase of stocks and bonds.
Teacher absenteeism is a problem facing education in the developing world.
When the slope of a demand curve is constant, price elasticity of demand can vary.
If as the variable on the Y-axis falls the variable on the X-axis rises, the relationship
between X and Y is said to be a negative relationship.
Products produced in oligopoly markets are always differentiated.
The result of market failure is waste or lost surplus.
India is a democratic country with a history of rule-of-law and an English speaking
heritage, all factors thought to give a development advantage.
Human capital shortages are NOT a barrier to economic growth in developing
countries.
Household income comes from two main sources: wages/salaries and property.
Markets in which entry and exit are easy are known as contestable markets.
Monopolistically competitive firms are unable to affect the market price of their output,
but are able to control the price of their own output.
Transition from socialism by shock therapy is a gradual process.
A ________ system is one in which all possible trades that make some societal
members better off without making others worse off have been exhausted.
A) Pareto maximized
B) Pareto optimal
C) market
D) general equilibrium
In the Social Security system, the tax receipts from today's workers are ________.
A) paid into the federal government's general revenue to be used for any government
expenditure
B) paid into an account in the employee's name and saved and invested for that
individual until he or she retires
C) used to pay benefits to retired and disabled workers and their dependents today
D) all paid into Medicare
Table 8.1
Refer to Table 8.1. Assuming the price of labor (L) is $5 per unit and the price of capital
(K) is $10 per unit, what production technique should this firm use to produce 2 units of
output?
A) Production technique A
B) Production technique B
C) The firm is indifferent between production technique A and production technique B.
D) It is impossible to determine if the firm should select production technique A or B
because total fixed costs are not given.
As a holder of ________, you are entitled to a portion of the issuing party's profits.
A) a corporate bond
B) a share of common stock
C) a government bond
D) a bank loan
A tax whose burden, expressed as a percentage of income, increases as income
increases is
A) a regressive tax.
B) a progressive tax.
C) a proportional tax.
D) an ability-to-pay tax.
Under perfect competition, the efficient level of output is produced because
A) government regulates the output level that must be produced.
B) firms earn only a normal profit in the long run.
C) firms can earn an economic profit in the long run.
D) price equals marginal cost.
Lydia was born with an aptitude for composing music. This aptitude is an example of
A) a compensating differential.
B) human capital.
C) property.
D) natural capital.
Figure 7.1
Refer to Figure 7.1. A corn producer's profit is $200 and is producing 100 bushels of
corn. Then he must have a cost per bushel of ________.
A) $1
B) $2
C) $3
D) $4
A point on a total variable cost curve shows the ________ variable cost a firm will bear
to produce a certain output.
A) highest
B) lowest
C) change in
D) average
If the quantity of bagels demanded decreases by 8% when the price of croissants
decreases by 16%, the cross-price elasticity of demand between bagels and croissants is
A)
B) 5.
C) -2.
D) -5.
The cost involved when choosing between alternatives is known as the
A) marginal cost.
B) sunk cost.
C) opportunity cost.
D) normative cost.
In practice, the market outcome is usually ________.
A) equitable but inefficient
B) efficient and equitable
C) inefficient and inequitable
D) unfair but efficient
Table 10.2
Refer to Table 10.2. Diminishing returns to labor start with the ________ worker.
A) second
B) third
C) fourth
D) fifth
Figure 2.6
Refer to Figure 2.6. An improvement in technology may be represented by a
A) shift from ppf2 to ppf1.
B) shift from ppf1 to ppf2.
C) movement along ppf2.
D) movement along ppf1.
A form of oligopoly in which ________ is called the price-leadership model.
A) all firms collude when setting the price
B) price is set by government regulation
C) price is determined by the market
D) a dominant firm sets the price and all smaller firms in the industry follow the
dominant firm's pricing policy
Marginal cost intersects ________ at its minimum.
A) average variable cost
B) average total cost
C) average fixed cost
D) A and B are both correct.
Figure 18.1
Refer to Figure 18.1. Along the utility possibilities curve the distribution of goods is
A) equitable.
B) efficient.
C) equal.
D) just.
When there is an excess demand of a product in an unregulated market, the tendency is
for
A) price to rise.
B) price to decrease.
C) quantity supplied to decrease.
D) quantity demanded to increase.
Table 2.1
Refer to Table 2.1. To maximize total production,
A) Krystal should specialize in writing TV commercials, and Mark should specialize in
writing poems.
B) Mark should specialize in writing TV commercials, and Krystal should specialize in
writing poems.
C) Krystal and Mark should both split their time between writing poems and writing TV
commercials.
D) Krystal should write poems and write TV commercials, but Mark should only write
poems.
In a free market system, the amount of output that any one household gets depends on
its
A) income.
B) wealth.
C) wage and interest income.
D) income and wealth.
Table 20.2
Refer to Table 20.2. The most that Thailand will be willing to pay for a tractor is
A) 5 motorcycles.
B) 10 motorcycles.
C) 15 motorcycles.
D) 20 motorcycles.
The added revenue that a firm takes in when it increases output by one additional unit is
________ revenue.
A) total
B) marginal
C) variable
D) fixed
Figure 13.3
Refer to Figure 13.3. The marginal revenue of the third pound of cheese is
A) -$5.
B) $5.
C) $7.
D) $21.
Table 11.1
Refer to Table 11.1. If the interest rate is 10%, Nashbar Bicycle should
A) fund only the purchase of new computers for its sales staff.
B) fund all of the projects except for the purchase of new computers for its sales staff.
C) fund all of the projects.
D) not fund any of the projects.
Market power refers to a firm's ability to
A) raise price without losing all sales of its product.
B) charge any price it likes.
C) sell any amount of output it desires at the market-determined price.
D) monopolize a market completely.
Figure 2.1
Refer to Figure 2.1. The economy's production possibility frontier ________ due to
specialized resources.
A) is convex to the origin
B) displays constant opportunity costs
C) demonstrates decreasing opportunity costs
D) is bowed out from the origin
There is great concern over the fact that millions of Americans do not have health
insurance. A study of the costs and benefits of implementing a national health-insurance
program is an example of
A) laissez-faire economics.
B) positive economics.
C) labor economics.
D) normative economics.
Table 3.1
Refer to Table 3.1. If the price per pizza is $6, there is a(n)
A) excess supply of 1,000 units.
B) excess demand of 200 units.
C) excess demand of 300 units.
D) excess supply of 700 units.
Statistics show that the ________ a country is, the ________ is the share of agricultural
output in its total output.
A) more developed; larger
B) less developed; larger
C) less populated; smaller
D) more populated; smaller
An example of a public good is
A) an orange grove.
B) a grocery store.
C) a hardwood forest in a national park.
D) a ticket to a baseball game.
List three reasons why oligopolies are considered to be inefficient.
Evaluate the following statement: "Water is plentiful, therefore it can"t be a scarce
resource like oil which is not as plentiful."
What is the shape of the total variable cost curve? Explain.
Comment on the following statement: "When a firm retains earnings for investment
purposes, it is actually saving on behalf of its shareholders."
When parents inoculate their children from communicable diseases prior to sending
them off to school they not only provide their own children a benefit but also bestow a
benefit on every other student at the school. There are now fewer students who can pass
on these types of diseases. However, parents are not likely to take into account the fact
that their actions create this external benefit. Therefore, economists argue that the
market on its own may not provide for the optimal level of inoculations. What methods
might work to get parents to take into account the external benefit when deciding
whether to inoculate their children?
White Paper Company faces the following cost schedule for producing reams of paper:
Fill in the columns for average fixed cost, average variable cost, average total cost, and
marginal cost.
Explain why wage and salary income differs among individuals.
If a consumer has a choice between only two goods and both of them are perfect
complements what would the indifference curve look like and why?
What role do households play in capital markets?
A newspaper article in commenting on the local electric monopoly tells its readers that
the company's dominant economic position as a monopolist allows it to produce
whatever output level it desires and to set whatever price it wishes. Critically evaluate
this position.
Suppose an attorney has hired a very well-educated secretary that is not only more
productive in filing briefs but also more productive at typing than he is. Can you
provide any explanation for why it might still make sense for him to continue filing
briefs while the secretary continues to do the typing?
Explain absolute advantage.
What is efficiency?
Figure 9.1
Using Figure 9.1, explain what a firm would do in the short run if the market price of its
product were at P4 and it produced Q4. Is the firm earning an economic profit? Explain.
Draw two graphs. In the first graph draw a total variable cost curve. In the second
graph, draw the corresponding marginal cost and average variable cost curve.
Figure 16.1
Use Figure 16.1 above to answer the following question. Assume that the representative
firm on the right is operating in a purely competitive market. If MSC is the social cost
of some negative externality and the firm is forced to internalize it show how much
output this firm will produce by drawing a graph.
