Resources are unlimited in a wealthy society.
When one market reaches a new equilibrium, the general equilibrium condition has
been satisfied.
Queuing, or waiting in line, is an alternative rationing mechanism to price rationing.
A movement along the supply curve is caused by a change in a good’s own price.
When consumers maximize utility, they are equating the ratio of total utility to price
across all goods consumed.
According to the output effect of a labor price decrease, when supply of labor increases,
firms eventually increase output and demand for all inputs.
Countries with the highest level of per-capita GNI tend to generate a large percentage of
GDP from agriculture production.
Remittances can be used as investment capital for small businesses.
When demand is elastic, an increase in price will result in an increase in total revenue.
An individual’s economic income is generally larger than their money income.
The more significant are economies of scale in an industry, the less product variety will
be observed.
Output in a Cournot duopoly is at a level between that in perfect competition and
monopoly.
Human capital can be produced through on-the-job training.
A frequently cited barrier to economic development is the apparent shortage of
entrepreneurial activity in developed nations.
A demand curve with continuously changing slope over all quantity values will always
have a price elasticity of demand equal to infinity.
A firm should invest as long as funds are available and the expected rate of return is less
than the interest rate.
Total variable cost divided by output is average variable cost.
An externality exists when the cost or benefit resulting from some activity or
transaction is imposed or bestowed upon parties directly involved with the activity or
transaction.
When demand is unit elastic, an increase in price will result in no change in total
revenue.
Tariffs, quotas and exports subsidies all decrease imports.
A diagram of an individual’s utility from income will be a line with a constant slope if
the individual is risk neutral.
Inputs are traded in the factor market.
Dividing the change in quantity on the Y axis by the change in quantity on the X axis
calculates the slope of a line.
If Japan has exports of 70 billion yen and imports of 60 billion yen, it is running a trade
surplus.
Firms in a monopolistically competitive industry are large relative to the total market.
If a game is a fair bet, people still may not be willing to play the game, depending of the
payoffs.
Rapid population growth tends to make the population younger in developing
economies.
Export promotion policies try to discourage firms from producing more of products the
country has a comparative advantage in.
If income is equally distributed to the members of society, then there is a fair
distribution.
China has developed a rapid approach to development.
If economic income rather than money income were used to determine whether or not
an individual is poor, the poverty rate would increase.
Venture capital funds involve very low risk.
Transition from socialism by shock therapy is a rapid process.
The insurance industry is susceptible to moral hazard problems, but not problems of
adverse selection.
Deciding to invest in capital is a long-run decision.
The HHI is calculated by summing the square of the percentage shares of the firms in
the market.
In theory, a minimum wage should lead to unemployment, but the evidence of such an
effect is unclear.
A monopolistically competitive firm influences market price because of product
differentiation.
Figure 1.3
Refer to Figure 1.3. The slope of the line between Points D and C is
A) -3.
B) -0.33.
C) 33.
D)3
________ is an example of a public good.
A) An automobile
B) National defense
C) A restaurant meal
D) A medical service
Table 3.2
Refer to Table 3.2. If the price per cheeseburger is $8, there is an excess
A) demand of 600 cheeseburgers.
B) supply of 500 cheeseburgers.
C) demand of 300 cheeseburgers.
D) supply of 1,100 cheeseburgers.
Figure 2.4
According to Figure 2.4, the optimal point for the economy is
A) B.
B) D.
C) F.
D) indeterminate from the information given.
A lawn service company has the following production possibilities. With one, two,
three, and four workers, the company can mow 5, 12, 17, and 20 lawns per day,
respectively.
The average product of labor with four workers is
A) 3
B) 3
C) 5
D) 5
Table 10.2
Refer to Table 10.2. The most firms would be willing to pay per worker and hire three
total workers is
A) $360.
B) $600.
C) $800.
D) $1,000.
The total cost to society of producing an additional unit of a good or service is the
marginal
A) external cost.
B) damage cost.
C) social cost.
D) private cost.
Which of the following is NOT an opportunity cost of attending college?
A) the tuition you pay
B) the income you could have earned if you didn’t attend college
C) the alternative uses of the time you spend studying
D) the cost of the food that you consume while you are attending college
A market in which profit opportunities are eliminated almost instantaneously is
A) a laissez-faire market.
B) a capitalist market.
C) a socialist market.
D) an efficient market.
Figure 4.3
Refer to Figure 4.3. The government setting the price of pencils at $0.40 would be an
example of an effective
A) price floor.
B) price ceiling.
C) market equilibrium.
D) price surplus.
Monopolistic competition differs from perfect competition primarily because in
A) monopolistic competition, firms can differentiate their products.
B) perfect competition, firms can differentiate their products.
C) monopolistic competition, entry into the industry is blocked.
D) monopolistic competition, there are relatively few barriers to entry.
Most of the world’s more than 200 nations
A) are high-income nations.
B) are considered ‘second-world” countries.
C) belong to the developing world.
D) are considered developed countries.
Suppose a U.S. dollar exchanges for 0.8 euros, then each euro is worth
A) $1.25.
B) $1.20.
C) $0.80.
D) $0.20.
Table 19.1
Relating to the Economics in Practice on page 392: Refer to Table 19.1. If income
increases from $30,000 to $40,000, the marginal tax rate is
A) 5%.
B) 20%.
C) 35%.
D) indeterminate from this information.
You are hired as an economic consultant to The Pampered Pet Shop. The Pampered Pet
Shop operates in a perfectly competitive industry. This firm is currently producing at a
point where market price equals its marginal cost. The Shop’s total revenue exceeds its
total variable cost, but is less than its total cost. You should advise the firm to
A) cease production immediately because it is incurring a loss.
B) lower its price so that it can sell more units of output.
C) produce in the short run to minimize its loss, but exit the industry in the long run.
D) raise its price until it breaks even.
Which of the following is NOT an involvement of social choice?
A) deciding what society wants
B) aggregating over individual preferences
C) understanding the incentives facing politicians and public servants
D) consistently efficient decisions through the use of majority rule voting
Mike is a college student who works part time and earns $100 per week. He spends his
entire income on two goods: pepperoni pizzas and bottles of soda. The price of a
pepperoni pizza is $10 and the price of a bottle of soda is $2. What is the opportunity
cost of a pepperoni pizza? What is the opportunity cost of a bottle of soda?
If the government taxes a steel company by an amount equal to the damages of each
marginal ton of steel, then the steel company’s marginal cost curve is the same as the
marginal
A) damage cost curve.
B) social cost curve.
C) private cost curve.
D) benefit cost curve.
All Honolulu law enforcement personnel must go through the same training program,
but law enforcement personnel assigned to guard the capital building earn 15% less
than law enforcement personnel assigned to the homicide division. This 15% difference
in pay is an example of a ________ differential.
A) human capital
B) compensating
C) transfer payment
D) utility
An economy in which individual people and firms pursue their own self-interest
without any central direction or regulation is a(n)
A) command economy.
B) laissez-faire economy.
C) invisible-hand economy.
D) private-sector economy.
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise
from air traffic negatively affects individuals living in Playa Del Rey, however, this cost
is not considered by airlines or air travelers. The airlines feel they have a right to use the
airspace while the individuals living in Playa Del Rey feel they have the right to quiet.
The following diagram depicts the marginal costs and marginal benefits associated with
air travel.
Figure 16.5
Refer to Figure 16.5. Suppose the government assigns property rights to the residents of
Playa Del Rey. No negotiations occur between the parties. The resulting level of air
travel is ________.
A) 0 units
B) 100 units
C) 120 units
D) indeterminate from the given information.
Figure 14.7
Refer to Figure 14.7. Four firms that produce chewing gum form a cartel. The cartel
faces the market demand curve given by D. At the profit-maximizing output, the profit
on each pack of gum is
A) $0.04.
B) $0.09.
C) $0.15.
D) $0.25.
Figure 8.6
Refer to Figure 8.6. Curve 2 is Outdoor Equipment’s
A) marginal cost curve.
B) average variable cost curve.
C) average total cost curve.
D) average fixed cost curve.
If increases in government regulations have increased the cost of producing
gasoline-powered lawnmowers, you accurately predict that in the market for
gasoline-powered lawnmowers, there will be a(n)
A) decrease in the quantity supplied of gasoline-powered lawnmowers, a reduction in
the price, and an increase in the quantity demanded.
B) decrease in the supply of gasoline-powered lawnmowers, an increase in the price,
and a decrease in the quantity demanded.
C) decrease in the supply of gasoline-powered lawnmowers, an increase in the price,
and a decrease in the demand.
D) increase in the supply of gasoline-powered lawnmowers, an increase in the price,
and a decrease in the demand.
When a nation’s exports exceed its imports, it has a(n)
A) trade surplus.
B) trade shortage.
C) trade embargo.
D) exchange rate discrepancy.
Logrolling occurs when
A) congressional representatives trade votes.
B) voters are limited to voting on bundles of goods.
C) voters are uninformed about issues and thus simply vote with a given party.
D) lumberjacks roll logs downhill to their trucks.
A firm’s ________ curve in a perfectly competitive product market is the same as its
supply curve. Similarly, a firm’s ________ curve in a perfectly competitive labor
market is the same as its demand curve.
A) marginal revenue product; marginal cost
B) marginal cost; marginal revenue product
C) total revenue; total cost
D) total cost; total revenue
If the slopes of the production possibility frontiers involving corn and wheat in the
United States and Canada are equal,
A) the opportunity cost of producing corn is less in the United States.
B) the opportunity cost of producing wheat is less in Canada.
C) specialization does not benefit either country.
D) equal amounts of corn and wheat will be produced in both countries.
If the slope of a straight line is 4 and if X (the variable on the horizontal axis) increases
by 12, then Y (the variable on the vertical axis) will
A) decrease by 3.
B) decrease by 0.33.
C) increase by 3.
D) increase by 48.
You work as a forecaster for a luxury automobile manufacturer. You know that there is a
strong positive relationship between the demand for luxury automobiles and income
levels. The government issues a report predicting that it expects income levels to
increase steadily over the next 5 years. All else equal, which of the following courses of
action would you recommend to the firm?
A) Don’t change the amount of investment made, but raise the price of luxury
automobiles in response to the expected increase in the demand.
B) Suggest that the firm make an investment in new capital to produce luxury
automobiles only after it can verify an increase in income levels.
C) Start to increase investment now so that when income levels increases and the
demand for luxury automobiles increases, the firm will be able to meet the new
demand.
D) Suggest that the firm curtail its advertising to avert a substantial increase in demand
for luxury automobiles.
A well-maintained house and yard is an example of
A) a positive externality.
B) a negative externality.
C) a public good.
D) logrolling.
When a firm substitutes away from a factor whose price has risen and toward a factor
whose price has fallen, it is an example of the
A) output effect of a factor price decrease.
B) factor substitution effect.
C) factor complementary effect.
D) output substitution effect.
The purchase of fire extinguishers by apartment dwellers provides benefits to their
neighbors. Explain why this situation leads to an inefficient outcome.
You spend $15,000 to start an Internet company. You spend an additional $60,000 for
raw materials and labor to produce your product. How much is your fixed cost? How
much are your variable costs? What is your total cost for one year?
Use a graph to explain how a tax can provide an incentive for a firm to produce a more
efficient level of output.
What is market power?
SCENARIO 5: In 1999 Disk Monger sold 1,100 digital video disks (DVD) at a price of
$15 each. Across the street, Audio Haven sold 700 DVD players at a price of $500 each.
In 2000, Audio Haven reduced the price of DVD players to $250 each and sold 3,000
players. In the same year, Disk Monger sold 1,300 DVDs at a constant price of $15
each.
Refer to Scenario 5. What will be the effect on total revenue for Audio Haven if it raises
the price for DVD players?
Using the consumer equilibrium condition which is expressed in algebraic form below
prove that this is the same thing as saying that consumer equilibrium occurs when the
ration of the marginal utilities per dollar are equal for both goods.
You start your own business selling boating equipment. To start the business you sell
5,000 shares of stock at $50 each. This year the revenues from the business are
$300,000, and total costs of operating the business are $200,000. All profits are paid out
as dividends to the shareholders. If the current interest rate is 20%, what is the
economic profit being earned by the shareholders? What will happen to the amount of
economic profits earned if the interest rate decreases? Explain your answer.
Why is it true that shortages usually occur mainly when price controls are in effect?
From an economic standpoint, patents reduce efficiency because they serve as a barrier
to entry and thus limit market competition. Are there any positive economic benefits of
patents? Explain.
Why does the presence of imperfect information lead to inefficiency?
When the price of toothpaste increases by 15 percent, the quantity of toothpaste
demanded falls by 30 percent. Calculate the price elasticity of demand. Is the demand
for toothpaste elastic, inelastic, or unit elastic?
What does it mean when an economist says that a firm is buying labor in a competitive
market?
A firm producing compact discs reports the following production information:
The compact discs sell in a competitive market at a price of $0.20 per box. The firm
hires workers in a competitive labor market at a wage of $12 per hour. The firm is
currently hiring four workers and is considering hiring a fifth worker. What would you
recommend the firm do? Why?
Why might it be inefficient for the labor market not to have some form of
unemployment compensation?
What is the “midpoint formula” and why is it used?