Figure: The Linear Demand Curve
(Figure: The Linear Demand Curve) Look at the figure The Linear Demand Curve. If
you increase the price of your scarves from $7 to $8, your total revenue will _____, and
you notice that your price elasticity of demand is _____.
A) increase; elastic
B) decrease; elastic
C) increase; inelastic
D) decrease; inelastic
A business produces 10 pairs of eyeglasses. It incurs $30 in average variable cost and
$35 in average total cost. The total fixed cost of producing 10 pairs of eyeglasses is:
A) $3.
B) $35.
C) $50.
D) $300.
Figure: Demand, Revenue, and Cost Curves
(Figure: Demand, Revenue, and Cost Curves) Look at the figure Demand, Revenue,
and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If the
government regulated the figglenut market by setting a price ceiling of $40,
Figglenuts-R-Us might:
A) produce 60 figglenuts to maximize profit.
B) produce 120 figglenuts to maximize profit.
C) shut down in the long run.
D) increase the price to $60.
After many years, a small community builds a toll road but discovers it is little used. If
it wishes the road to be used at the socially optimal level, the community should:
A) set the toll higher.
B) set the toll equal to $1.
C) set the toll lower.
D) build another toll road.
(Table: Market for Fried Twinkies) Look at the table The Market for Fried Twinkies. In
response to popular anger over the high price of fried Twinkies and the extreme wealth
of fried Twinkie producers, the government imposes a price ceiling of $1.20 per fried
Twinkie. From this table, the price ceiling causes a _____ fried Twinkies.
A) shortage of 3,000
B) shortage of 5,000
C) surplus of 8,000
D) surplus of 3,000
(Table: The Market for Soda) Look at the table The Market for Soda. If the government
does not impose a price control, the price of a can of soda will equal:
A) $0.50.
B) $0.75.
C) $1.00.
D) $1.25.
Marginal revenue for a monopolist is:
A) equal to price.
B) greater than price.
C) less than price.
D) equal to average revenue.
Manny consumes only bananas and DVDs, and he is on his highest possible
indifference curve. Two bundles on this indifference curve are bundle A (5 bananas and
2 DVDs), and bundle B (3 bananas and 3 DVDs). Between points A and B, what is
Manny’s marginal rate of substitution of bananas for DVDs?
A) 1
B) 2
C) 0.5
D) 1.33
Maximizing profits also means that a firm is attempting to:
A) make as much output as possible.
B) change the market price.
C) produce at the output level where the difference between total revenue and total cost
is the greatest.
D) produce below its break-even price.
John is an entrepreneur who owns an auto body repair shop. John’s business is
booming, and his salary is rising. John’s labor supply curve will be _____ if the
substitution effect is _____ the income effect.
A) upward-sloping; smaller than
B) downward-sloping; smaller than
C) horizontal; equal to
D) vertical; greater than
An individual finds that as his income increases, his total utility also increases but at a
decreasing rate. This can be attributed to:
A) diminishing marginal utility.
B) being risk-neutral.
C) expected values.
D) efficient allocation of risk.
Firms will make a profit in the long run or short run if the price is:
A) equal to marginal revenue.
B) greater than ATC.
C) less than MC.
D) greater than AVC.
Figure: Revenues, Costs, and Profits for Tomato Producers II
(Figure: Revenues, Costs, and Profits for Tomato Producers II) Look at the figure
Revenues, Costs, and Profits for Tomato Producers II. The market for tomatoes is
perfectly competitive. The market price of a bushel of tomatoes is $10. At the farmer’s
profit-maximizing output, total revenue is _____, total cost is _____, and profit is
_____.
A) $90; $72; $18
B) $56; $56; $0
C) $30; $48; “$18
D) $48; $56; “$8
Unemployment decreased to its lowest level in 10 years last month. This statement is:
A) an example of an opportunity cost.
B) a positive economic statement.
C) a normative economic statement.
D) a value judgment.
(Table: Demand for Solar Water Heaters) Look at the table Demand for Solar Water
Heaters. The marginal cost of producing solar water heaters is zero, and only two firms,
Rheem and Calefi, produce them. If they agree to collude, what price will the cartel
charge and how many water heaters will the cartel sell?
A) $1,000; 50
B) $1,100; 45
C) $900; 55
D) $800; 60
The demand curve for a firm in monopolistic competition is _____ facing a perfectly
competitive firm.
A) downward-sloping, unlike the horizontal demand curve
B) horizontal, unlike the downward-sloping demand curve
C) horizontal, the same as that
D) downward-sloping, the same as that
An indifference curve shows combinations of two goods that yield:
A) equal prices.
B) equal money income.
C) equal satisfaction.
D) increasing prices.
A random variable:
A) has an uncertain future value.
B) has a constant value.
C) doesn’t exist in economics.
D) is useless in economic decision making.
Studies of family income over time reveal that:
A) most people in the highest quintile tend to fall to the lowest quintile during their
lifetime.
B) income mobility is rare for all quintiles of the income distribution.
C) many people who move down the income ladder are young.
D) many people who start out at the bottom of the income ladder when they are young
move up the income ladder as they age and move down again when they retire.
Amtrak charges lower fares to students than to its other passengers. This pricing
strategy increases Amtrak’s profits. From this information, we can conclude that
students must have a _____ demand for Amtrak train service than other passengers.
A) more price-elastic
B) lower
C) greater
D) less price-elastic
The price elasticity of demand for a good such as water is likely to be very low because:
A) the price is a small percentage of most budgets.
B) water has some good substitutes.
C) water is considered a luxury.
D) the share of income spent on water is large.
A production possibility frontier that is a straight line sloping down from left to right
suggests that:
A) more of both goods could be produced moving along the frontier.
B) the two products must have the same price.
C) the opportunity costs of the products are constant.
D) there are no opportunity costs.
(Table: Security in a Residential Community) Look at the table Security in a Residential
Community. The marginal cost of hiring the third security guard is _____, and the
marginal social benefit is _____.
A) $150; $200
B) $450; $1,800
C) $150; $600
D) $450; $600
A common resource is a good or service for which exclusion is _____ and which is
_____ in consumption.
A) possible; rival
B) possible; nonrival
C) not possible; rival
D) not possible; nonrival
The poverty threshold depends upon:
A) only the major wage earner’s annual income.
B) the size and composition of a family.
C) only the size of the family.
D) only the composition of the family.
Laws that require vehicles to have catalytic converters or that restrict or prohibit leaf
burning are:
A) Pigouvian taxes.
B) internalization of externalities.
C) transaction costs.
D) environmental standards.