Suppose a lazy monopolist’s fixed costs are lower than the fixed costs of an inefficient
monopolist. In all other respects, the monopolists are the same. Which of the following
statements about this monopolist is true?
A. It charges a higher price than the monopolist producing efficiently.
B. It charges a lower price than the monopolist producing efficiently.
C. Its total revenue is the same as the monopolist producing inefficiently.
D. It produces less than the monopolist producing efficiently.
Answer:
In feudalism, serfdom was maintained primarily through:
A. market forces.
B. tradition.
C. supply and demand.
D. economic forces.
Answer:
Presenting options in a fashion that makes people more likely to choose what is best for
themselves, their families, and their society is called:
A. the ACE model.
B. natural experiments.
C. choice architecture.
D. traditional economics.
Answer:
A firm will spend money on a program to develop or protect its monopoly position until
the:
A. marginal costs > the marginal benefits.
B. marginal costs < the marginal benefits.
C. marginal benefits = the marginal costs.
D. total costs = the total benefits.
Answer:
Refer to the graph shown. When the market is in equilibrium, consumer surplus is area:
A. A.
B. F.
C. A plus area F.
D. F plus area E.
Answer:
Many call centers that provide telephone customer services for U.S. companies have
been established in India, but few or none have been established in China. Why?
A. China is at a more advanced stage of economic development than India.
B. China lacks the political infrastructure to support call centers.
C. Chinese labor lacks the specific language skills needed to make call centers
profitable in China.
D. Indian labor costs are lower than Chinese labor costs.
Answer:
Refer to the graph shown. The approximate elasticity of segment AC is:
A. 1/3.
B. 1/2.
C. 2/3.
D. 3/2.
Answer:
Game theory:
A. is more restrictive than the standard supply/demand model.
B. is more flexible than the standard supply/demand model.
C. replaces the standard supply/demand model.
D. replaces the monopoly model.
Answer:
Suppose a public good that is worth $1 billion is not produced by the market, and so the
government provides it, but at a cost of $3 billion. This attempt to correct a market
failure has:
A. been successful since the public good is now produced.
B. given rise to the problem of free riders.
C. resulted in a government failure since use of resources is now less efficient.
D. resulted in an information asymmetry for the government.
Answer:
If the Lorenz curve becomes more outwardly bowed, it is also true that the number of
families living in poverty:
A. must have risen.
B. must have fallen.
C. could have risen or fallen.
D. must have remained the same.
Answer:
Suppose that the marginal revenue product of labor is currently 40 and the marginal
revenue product of capital is 30. If both inputs have the same cost, the firm should:
A. increase both labor and capital proportionally to meet the cost minimization
condition.
B. decrease both labor and capital proportionally to meet the cost minimization
condition.
C. increase labor and reduce capital to meet the cost minimization condition.
D. increase capital and reduce labor to meet the cost minimization condition.
Answer:
A firm finds that producing 30,000 vases costs $180,000 and producing 40,000 vases
costs $200,000. This pattern might be explained by:
A. economies of scope.
B. economies of scale.
C. diseconomies of scale.
D. diminishing marginal productivity.
Answer:
The economically efficient method of production:
A. is the same in all countries.
B. is not influenced by the relative scarcity of inputs.
C. is influenced by the relative scarcity of inputs.
D. does not depend on input prices.
Answer:
Economists account for changes in tastes for a good as:
A. movements along the demand curve.
B. shifts in the demand curve.
C. not demonstrable on the demand curve.
D. irrelevant for the demand curve.
Answer:
A monopoly firm selling textbooks to students in a small town is currently maximizing
profits by charging a price of $50 per book. It follows that the marginal cost of
textbooks is:
A. equal to $50.
B. less than $50.
C. greater than $50.
D. greater than the average total cost.
Answer:
Sunk costs:
A. are essential parts of economic decisions.
B. are irrelevant to economic decisions.
C. should be considered, but only when marginal cost is less than marginal benefit.
D. should be considered only when there is no information about marginal cost and
marginal benefit.
Answer:
Perfectly competitive firms:
A. have no incentive to develop new technologies.
B. are constantly trying to develop new technologies.
C. result in large deadweight losses.
D. lead to greater product variety.
Answer:
An economic model:
A. applies economic theory to understand real-world events.
B. is so abstract that it cannot be applied to real-world events.
C. can be used only to understand free markets.
D. is an action taken to influence the course of economic events.
Answer:
Refer to the graph shown. We would expect that if the two countries trade with each
other (and neither trades with the rest of the world):
A. Norstrilia will export manufactured goods and Graustark will export agricultural
goods.
B. Norstrilia will export agricultural goods and Graustark will export manufactured
goods.
C. Norstrilia will export both goods to Graustark, which will have a permanent trade
deficit.
D. Graustark will export both goods to Norstrilia, which will have a permanent trade
deficit.
Answer:
An entrepreneur probably will start a business if she sees an opportunity to sell an item
at a price:
A. higher than the average total cost of producing it.
B. equal to the competitors’ price.
C. less than the competitors’ price.
D. equal to the average total cost of producing it.
Answer:
If the quantity of Big Macs demanded falls from 2.0 million to 1.6 million as the price
of Whoppers falls from $1.40 to $.80, the cross-price elasticity of demand for Big Macs
is:
A. -2.5.
B. -0.4.
C. 2.5
D. 0.4.
Answer:
Diamonds cost more than water because:
A. the total utility of diamonds is greater than the total utility of water.
B. the marginal utility of diamonds is greater than the marginal utility of water.
C. the opportunity cost of diamonds is greater than the opportunity cost of water.
D. diamonds have more substitutes than water.
Answer:
Refer to the graph shown. If this monopolistically competitive firm maximizes profit, it
will:
A. charge $45 per dress.
B. charge $78 per dress.
C. charge $85 per dress.
D. shut down because it cannot cover its opportunity costs.
Answer:
If a firm’s total revenue is $10,000 and its total costs are $9,000, then its profits are:
A. -$1,000.
B. $1,000.
C. $10,000.
D. $19,000.
Answer:
If milk and cookies are complements and the price of cookies rises, we would expect to
see:
A. an increase in the demand for milk.
B. a decrease in the demand for milk.
C. an increase in the quantity demanded for milk but no change in demand.
D. a decrease in the quantity demanded for milk but no change in demand.
Answer:
Refer to the graph shown. The marginal rate of substitution at point B is:
A. the same as the marginal rate of substitution at point A.
B. the same as the marginal rate of substitution at point C.
C. the same as the marginal rate of substitution at point D.
D. impossible to determine with the information given.
Answer:
Refer to the graph shown. Suppose the industry is currently perfectly competitive but
then is taken over by a monopolist. Assuming that the monopolist maximizes profit:
A. the price of computers will increase from $400 to $600 but there will be no change
in quantity demanded.
B. the price of computers will increase from $400 to $600 and the quantity demanded
will fall from 400 to 200.
C. the price of computers will be set equal to the marginal cost of computers.
D. there will be no effect on the price of computers.
Answer:
Mary buys cell-phone services from a company that charges $30 per month. For that
$30 she is allowed 600 minutes of free calls and then pays 25 cents per minute for any
calls above 600 minutes. Mary has used 600 minutes this month so far. What is her
marginal cost per minute of making additional calls?
A. 25 cents
B. 10 cents
C. 5 cents
D. Zero
Answer:
If an increase in the hourly wage rate from $5 to $6 causes a worker to work 5 hours
rather than 4, the worker’s elasticity of labor supply is equal to:
A. 0.8.
B. 1.25.
C. 0.833.
D. 2.
Answer:
Refer to the graph shown. The welfare cost of monopoly is given by:
A. area A.
B. area B.
C. areas A and B.
D. areas C and D.
Answer:
Politics enters into the determination of economic policy in a positive way because:
A. it does not take market failures or failures of market outcome into account when
formulating policy.
B. political decisions always reflect the will of society.
C. it takes market failures and failures of market outcome into account in formulating
policy.
D. political decisions do not always reflect the will of society.
Answer:
The analysis of international trade suggests that trading companies earn higher than
normal profits in:
A. the long run but not in the short run.
B. the short run but not in the long run.
C. both the short run and the long run.
D. neither the short run nor the long run.
Answer:
A new fertilizer has been discovered that significantly increases the corn crop yield per
acre. As a result, the farmers’:
A. average total cost curves become downward-sloping.
B. long-run average total cost curve becomes flatter.
C. average total cost curve shifts downward.
D. cost curves do not change their shape or position.
Answer:
If the world supply curve is SW1,
A. there is a trade surplus of Q2 – Q1.
B. there is a trade deficit of Q2 – Q1.
C. there is a trade deficit of Q1 – Q2.
D. there is a trade surplus of Q1 – Q2.
Answer:
The demand for clothing increases. As a result, the price of clothing increases above the
minimum average cost of producing it. In the long run, if the clothing industry is
perfectly competitive and is a constant-cost industry:
A. the supply of clothing and the price of clothing will increase.
B. the supply of clothing will increase but the price will not.
C. the price of clothing will increase but the supply will not.
D. neither the price nor the supply of clothing will increase.
Answer: