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In the short run, as output gets larger:
A) fixed cost gets smaller.
B) the average variable cost curve gets closer to the average total cost curve.
C) marginal cost gets smaller.
D) average total cost decreases after the point of diminishing returns.
If minimum wages are set above the equilibrium wage in the market, then the number
of workers hired will be _____ the number of people who are willing to work.
A) less than
B) greater than
C) equal to
D) less than, greater than, or equal to
The demand for agricultural output is price inelastic. This means that if farmers, taken
collectively, have a bumper crop, they will have _____ prices, _____ quantities sold,
and _____ incomes.
A) lower; greater; lower
B) lower; greater; higher
C) lower; lower; lower
D) higher; higher; higher
(Table: Costs of Birthday Cakes) Look at the table Costs of Birthday Cakes. Assume
that fixed costs are $10. What is the average total cost of 2 cakes?
A) $35.00
B) $25.00
C) $17.50
D) $12.50
Scenario: Used Car Market
In the used car market, cars of poor quality are called lemons, while cars of good
quality are plums. Suppose the probability of obtaining a lemon is 60% and the
probability of obtaining a plum is 40%. Also assume a plum is worth $15,000 and a
lemon is worth $3,000.
(Scenario: Used Car Market) Look at the scenario Used Car Market. The expected
value of a used car is:
A) $9,000.
B) $7,800.
C) $18,000.
D) $10,500.
Figure: Consumer Equilibrium II
(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. A level
of total utility NOT attainable is at point:
A) G.
B) K.
C) I.
D) J.
Scenario: E-Books and Sports Tickets
Phillip has an income of $300 per month, which he uses to purchase two goods, e-books
and sports tickets. Each e-book costs $10, and each ticket costs $15.
(Scenario: E-Books and Sports Tickets) Read the scenario E-Books and Sports Tickets.
Phillip gets an increase in the amount of his monthly income allotted for e-books and
sports tickets. Holding everything else constant, Phillip's budget line has:
A) shifted parallel inward to the origin.
B) rotated around the lower-priced good.
C) rotated around the higher-priced good.
D) shifted parallel outward away from the origin.
Darren runs a barbershop with average fixed costs of $60 per day and a total output of
50 haircuts per day. Darren shuts down every year during the last week of July and the
first week of August. What is his annual fixed cost if he is open six days per week?
A) $18,000
B) $3,000
C) $60
D) The answer cannot be determined with the information available.
Table: Pumpkin Market
(Table: Pumpkin Market) There are two consumers, Andy and Ben, in the market for
pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin
Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also
shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5. At
the equilibrium price and quantity, Diane sells _____ pumpkins, and her producer
surplus is_____.
A) four; $11
B) three; $8
C) two; $6
D) one; $4
Suppose Joan buys a new refrigerator to replace her old one that suddenly quit working.
If Joan buys the model on closeout sale and doesn't take time to do research on repair
records and energy efficiency of various other models, she is using:
A) status quo decision making.
B) bounded rationality.
C) marginal analysis.
D) risk aversion.
For which of the following decisions would marginal analysis be most relevant?
A) Should I go to college or work after graduating from high school?
B) Should I eat another doughnut?
C) Should I use $20,000 as a down payment on a house or to buy a car?
D) Should I get married?
Figure: Tom's Production Possibilities
(Figure: Tom's Production Possibilities)
Look at the figure Tom's Production Possibilities. Which point or points represent(s) a
combination of coconuts and fish that is efficient in production?
A) A only
B) A and B
C) B and C
D) D only
In a long-run equilibrium, economic profits in a perfectly competitive industry are:
A) positive.
B) zero.
C) negative.
D) indeterminate.
(Table: Income and Utility for Whitney) Look at the table Income and Utility for
Whitney. Whitney's income next year is uncertain: there is a 40% probability she will
make $40,000 and a 60% probability she will make $80,000. What certain income
leaves Whitney as well off as her uncertain income?
A) $64,000
B) $60,000
C) $54,000
D) $50,000
The total utility of income curve for a risk-averse individual will be _____ with income.
A) decreasing
B) increasing at an increasing rate
C) increasing at a constant rate
D) increasing at a decreasing rate
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for
Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each
firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these
two producers have formed a cartel, agreed to split production of output evenly, and are
maximizing total industry profits. If Margaret decides to cheat on the agreement and
sell 100 more gadgets, the market price of gadgets will be:
A) $4.
B) $5.
C) $6.
D) $7.
Figure: The Profit-Maximizing Firm in the Short Run
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. The MC curve is represented by:
A) none of the curves.
B) curve O.
C) curve M.
D) curve N.
When Joe's income is $100 per week, he spends $20 per week on pizza. When his
income rises to $110 per week, he spends $25 per week on pizza. If the price of pizza
remains constant, this information implies that for Joe:
A) pizza is a normal good and a luxury.
B) pizza is a normal good and a necessity.
C) pizza is an inferior good, since his expenditure rose by less than the increase in
income.
D) demand for pizza is price-elastic.
If marginal costs of production are greater than marginal benefits of production:
A) costs will eventually decrease.
B) too much of the good is being produced.
C) more of the good should be produced.
D) not all costs are being considered.
(Table: Cost Data) Look at the table Cost Data. The marginal cost of producing the
fourth purse is:
A) $60.
B) $50.
C) $40.
D) $20.
Too little spending in an economy often leads to:
A) a recession.
B) inflation.
C) equilibrium.
D) efficiency.
A firm's marginal cost is:
A) the ratio of the change in total cost to the change in the quantity of output.
B) the change in total cost divided by the change in labor input.
C) the slope of the average fixed cost curve.
D) total cost divided by output.
In the case of U.S. trade protection, quota rents for the most important import licenses
are earned by:
A) foreign governments.
B) the U.S. government.
C) U.S. producers of the good.
D) importers who pay the highest price to get the licenses.
In most cases, economic efficiency is achieved through:
A) incentives built into a market economy.
B) regulation.
C) individuals seeking out opportunities that involve no risk.
D) maximizing equity.
Figure: The Market for Tea in Sri Lanka
(Figure: The Market for Tea in Sri Lanka) Look at the figure The Market for Tea in Sri
Lanka. In autarky, the price is P1. When the economy is opened to trade, the price rises
to PW, and producer surplus _____ to _____.
A) falls; J + K
B) falls; G + H + J + K
C) rises; G + H + I + J + K
D) rises; G + H + I
Price controls encourage black markets because:
A) they eliminate opportunity costs.
B) individuals can profit by illegal exchanges.
C) they create too much efficiency.
D) they create too much equity.
Figure: Prisoners' Dilemma for Thelma and Louise
(Figure: Prisoners' Dilemma for Thelma and Louise) Look at the Figure Prisoners'
Dilemma for Thelma and Louise. Thelma and Louise are arrested and jailed for murder.
Given the payoff matrix in the figure, the Nash equilibrium behavior is for Thelma
_____ and Louise _____.
A) to confess; not to confess
B) to confess; to confess
C) not to confess; to confess
D) not to confess; not to confess
