If the product derived from the last dollar spent on labor is greater than the product
derived from the last dollar spent on capital, then the firm
A) is minimizing costs.
B) should use more labor and less capital to minimize costs.
C) should use less labor and more capital to minimize costs.
D) should increase the price paid to labor and decrease the price paid to capital to
minimize costs.
________ states that under certain conditions, private parties can arrive at an efficient
solution without government involvement.
A) The Tiebout hypothesis
B) The Coase theorem
C) The impossibility theorem
D) The free-rider hypothesis
As economists use the term, building a new construction vacation home is an example
of
A) household investment.
B) business depreciation.
C) infrastructure investment.
D) social capital investment.
The idea that individuals who work for companies should receive at least an equitable
hourly income is known as
A) minimum wage.
B) compensating differential.
C) economic income.
D) transfer payment.
Table 8.2
Refer to Table 8.2. If Danica produces zero earrings, her total fixed costs are
A) $0.
B) $25.
C) $50.
D) indeterminate from this information.
Table 7.1
Inputs Required to Produce a Product Using Alternative Technologies
Refer to Table 7.1. If the hourly price of capital is $40 and the hourly wage rate is $10,
which production technology should be selected?
A) A
B) B
C) C
D) D
Figure 8.4
Refer to Figure 8.4. The marginal cost of the sixth microwave oven is
A) $83.33.
B) $116.67.
C) $200.
D) $1200.
Imperfect competition and market power
A) are major sources of inefficiency.
B) result in higher output than in perfect competition.
C) are always the result of product differentiation.
D) result from diseconomies of scale.
In response to news reports that drinking a glass of red wine each day can reduce an
individual’s risk of heart disease, there will most likely be a(n)
A) increase in the demand for red wine.
B) decrease in the supply of red wine.
C) increase in the supply of red wine.
D) increase in the quantity demanded of red wine.
Every tax has two parts: a(n) ________ and a(n) ________.
A) base; rate structure
B) incidence; rate
C) base; incidence
D) rate structure; excess burden
The Ernie Egg Store hires workers to paint eggs. The store sells the eggs for $3. The
marginal revenue product of this store’s fifth worker is $21. The marginal product of the
fifth worker is
A) 14 eggs.
B) 7 eggs.
C) 36 eggs.
D) indeterminate from this information.
Which of the following questions is NOT answered by general equilibrium analysis?
A) Are equilibria in different markets compatible with one another?
B) Can all markets simultaneously be in equilibrium?
C) How will a change in one market affect another market?
D) What outcome is most desirable for the whole society?
All of the following are factors that limit a poor nation’s economic growth EXCEPT
A) insufficient capital formation.
B) insufficient controls on free trade.
C) lack of entrepreneurial ability.
D) lack of human capital.
Figure 13.2
Use Figure 13.2 which depicts a monopolist firm to help with the following question.
Define the area of total costs that this firm will incur if it is maximizing profit. Use the
letters that appear on the graph to identify the area.
________ of a particular good is the marginal private cost.
A) The amount that a consumer pays to consume an additional unit
B) The amount that a consumer pays to consume all units
C) The amount that a producer pays to produce an additional unit
D) The amount that a producer pays to produce all units
Figure 8.3
Refer to Figure 8.3. The marginal cost of the 10th basketball is
A) $2.
B) $3.
C) $3.05.
D) $5.80.
Figure 8.6
Refer to Figure 8.6. Curve 3 is Outdoor Equipment’s
A) marginal cost curve.
B) average variable cost curve.
C) average total cost curve.
D) average fixed cost curve.
Figure 2.6
Refer to Figure 2.6. If the economy is at ppf2, a change in consumer preferences would be shown
by a
A) shift from ppf2 to ppf1.
B) movement along ppf1.
C) movement along ppf2.
D) shift from ppf1 to ppf2.
The study of how benefits are determined for city employees would be considered
A) microeconomics.
B) macroeconomics.
C) descriptive economics.
D) institutional economics.
A scientist wants to understand the relationship between automobile emissions and the
level of global warming. The scientist collects data on the volume of automobile
emissions and the levels of global warming over time. The scientist concludes that a 1%
increase in automobile emissions causes a 0.0003% increase in average global
temperatures. From this information he concludes that the automobile emissions are
harmful to the environment and should be reduced to stop the increase in global
temperatures.
The statement that a 1% increase in the automobile emissions causes a 0003% increase
in average global temperatures is an example of
A) positive economics.
B) marginal economics.
C) normative economics.
D) the fallacy of composition.
Figure 6.2
Refer to Figure 6.2. Assume Mr. Lingle is on budget constraint AC. If the price of a beer
is $5, Mr. Lingle’s monthly income is
A) $40.
B) $80.
C) $100.
D) $200.
Table 3.1
Refer to Table 3.1. If the price per pizza is $6, there is an excess
A) demand of 300 pizzas.
B) demand of 600 pizzas.
C) supply of 700 pizzas.
D) supply of 1,000 pizzas.
Firms may react to a payroll tax by
A) substituting labor for capital.
B) increasing their output.
C) shifting to more capital intensive techniques.
D) increasing workers’ wages.
You use $50,000 of your own money to start a catering business. During the first year
you earn a 5% return on that investment. If the current interest rate is 8%, you earn an
economic profit of
A) -$4,000.
B) -$2,500.
C) -$1,500.
D) $4,000.
Table 20.2
Refer to Table 20.2. ________ has a comparative advantage in motorcycles and
________ has an absolute advantage in motorcycles.
A) China; neither
B) Neither; neither
C) Thailand; neither
D) Thailand; China
Figure 9.1
Refer to Figure 9.1. If this farmer maximizes profits, his average fixed costs will be
A) $2.
B) $7.
C) $11.
D) $24
In well-functioning markets, all of the following reflect the degree of product variety
EXCEPT:
A) differences in consumers’ tastes.
B) cost economies from standardization.
C) gains from network externalities.
D) gains from coordination.
A profit-maximizing firm in a ________ market structure behaves much like a
monopolistic firm in the short run.
A) perfectly competitive
B) monopolistically competitive
C) Cournot duopoly
D) All of the above are correct.
You own an oil painting that increases in value by $12,000 but you do not sell the
painting. The $12,000 is counted as ________ income.
A) part of economic income but not part of taxable
B) both economic and taxable
C) taxable income but not economic
D) neither taxable nor economic
Figure 8.4
Refer to Figure 8.4. Up to Point A,
A) marginal costs are decreasing.
B) marginal costs are increasing.
C) average variable costs are decreasing.
D) average variable costs are increasing.
The marginal products of the first, second, and third workers are 20, 12, and 8,
respectively. If four workers can produce 45 units of output, then the marginal product
of the fourth worker is ________.
A) 4
B) 5
C) 40
D) 45
________ is an example of a public good.
A) An American Airlines jet
B) Police protection
C) A Starbucks grande latte
D) Chemotherapy
The purpose of the ________ was to discourage imports and encourage exports, and
thus keep the price of food high.
A) Banana Tax
B) Soybean Wars
C) Sugar Legislation
D) Corn Laws
If the equilibrium price of gasoline is $3.00 per gallon and the government will not
allow oil companies to charge more than $2.00 per gallon of gasoline, which of the
following will happen?
A) The market will be in equilibrium at a price of $2.00.
B) Supply must eventually increase so that the market will come into equilibrium at a
price of $2.00.
C) Demand must eventually decrease so that the market will come into equilibrium at a
price of $2.00.
D) A nonprice rationing system such as ration coupons must be used to ration the
available supply of gasoline.
A comprehensive tax of 20% on all forms of income with no deductions or exclusions is
an example of a ________ tax.
A) proportional
B) progressive
C) regressive
D) rate
Joseph earns $200 per week and spends his entire income on cheese (which costs $5 per
pound) and crackers (which cost $2 per box). Draw Joseph’s budget constraint. If the
price of cheese increases to $8 per pound, what will happen to Joseph’s budget
constraint?
The figure below represents the demand, average total cost, and marginal cost curves
faced by the Maxit Pizza Palace which sells pizzas in a perfectly competitive market:
If the firm wants to maximize profit, how many pizzas should it produce? What level of
total revenue will the firm earn?
What is the financial capital market? Who are the suppliers in the market? Who are the
demanders?
Bobby’s Barber Shop sells haircuts in a competitive market. The price of a haircut is
$10.00 each. Daily output varies with the amount of labor hired as follows:
Fill in the columns for total revenue and marginal revenue product. If the wage for a
barber is $50 per day, how many barbers should the barbershop employ? Explain.
Suppose your neighbor owns a restaurant and boasts that he is able to turn a handsome
accounting profit because of his low labor costs. He attributes this to the fact that he
uses his sons and daughters as cooks and waiters. His point is that he offers them
below-market wages. How would you respond to your neighbor’s statement? What
would you tell him to expect as his children continue to work for him while they are in
college and beyond?
Suppose that the quantity of staplers demanded falls from 10,000 per week to Use the
midpoint formula to calculate the percentage change in quantity demanded.
What is a patent?
Explain what the free market will do if exchange rates end up in the “right ranges.”
Explain the relationship between the market interest rate and the amount of investment
a firm will undertake.
Rent control is typically imposed ostensibly for the purpose of helping the poor. Why
might you be able to argue that few poor people will actually be the beneficiaries of
such controls?
Label each of the three graphs below X, Y and Z as either the marginal product, average
product or total product of labor and explain the relationship between each of them.
What is a budget constraint?
Table 8.3
Refer to Table 8.3. Assume the price of labor is $5.00 and the price of capital is $10.00
and the firm’s fixed costs are $15. What production technique will be used to produce
the first unit of output? The second? The third? What are the firm’s total variable costs,
total costs, and marginal costs of producing one unit of output? Two units of output?
Three units of output?
An engineer with a major power company decides to leave his job because he believes
he has found a way to deliver Internet service across the electrical grid and he wants to
start up his own business. He doesn”t have very much cash or collateral. Which method
of financing do you believe he will most likely use and why?
Some people argue that protection discourages dependency. Explain this argument.