Refer to Exhibit 4-1. Suppose the good shown is being sold at the $6 price ceiling. At a
quantity of 75 units, what is the maximum per-unit price buyers would be willing to pay
for a good “tied” to the good shown in the exhibit?
Exhibit 4-1
a. $10
b. $8
c. $6
d. $4
e. none of the above
Cross elasticity of demand measures the responsiveness of changes in the quantity
__________ of one good to changes in __________.
a. demanded; the price of the same good
b. demanded; income
c. demanded; the price of another good
d. supplied; the price of the same good
e. none of the above
Which of the following exchange rates between the dollar and the peso would a
Mexican buyer of American goods most prefer?
a. $0.10 = 1 peso
b. $0.08 = 1 peso
c. $0.06 = 1 peso
d. $0.04 = 1 peso
In a very popular movie, the principal character wore aviator sunglasses that were given
to the movie studio by the producer of the sunglasses. The sunglasses suddenly became
very popular, and the sunglasses producer earned significant profits. Which of the
following theories on the source of profits discussed in the textbook best describes the
reason behind this success?
a. Uncertainty is a source of profits.
b. Profit is a reward for alertness to arbitrage opportunities.
c. Profit is the return to the entrepreneur as innovator.
d. Profit is a reward for waiting long enough for consumers to respond to your product.
Which of the following statements is false?
a. Firms calculate present values when they make investment decisions because
investment decisions yield benefits in the future and firms want some idea of the value
of these benefits.
b. The present value of $100 a year from today at a 10 percent interest rate is
approximately $91.
c. The present value of $100 two years from today at a 10 percent interest rate is
approximately $83.
d. A firm will not undertake an investment if the present value of the future income
resulting from the investment is greater than the cost of the investment.
The demand to attend a certain college is represented by a downward-sloping demand
curve. The supply of spots at the college is represented by a vertical supply curve. At
the tuition that students are charged, there is a shortage of spots at the college. If the
demand to attend the college rises, but the tuition stays constant, it follows that the
a. GPA required to attend the college will probably rise.
b. GPA required to attend the college will probably fall.
c. SAT score required to attend the college will probably not change.
d. a and c
e. There is not enough information to answer this question.
A graph showing the relationship between the ____________________ and the
________________________ is called the ______________ curve.
a. cumulative percentage of households; cumulative percentage of income; Lorenz
b. cumulative percentage of households; cumulative percentage of income; Gini
c. cumulative percentage of households; cumulative percentage of income; Laffer
d. percentage of households living in poverty; percentage of households living above
the poverty line; Lorenz
e. none of the above
The value of marginal product (VMP) is
a. equal to the product price multiplied by the marginal physical product of the factor.
b. equal to marginal revenue product for a product price taker.
c. the firm’s factor demand curve if the firm is a product price taker.
d. a measure of the value that each factor unit adds to the firm’s product.
e. all of the above
Cross elasticity of demand measures the responsiveness of the
a. demand for one good to changes in the demand for another good.
b. demand for one good to changes in the price of another good.
c. quantity demanded of one good to changes in the quantity demanded of another
good.
d. quantity demanded of one good to changes in the price of another good.
e. b and d
If more people join carpools and travel to work together
a. the demand curve for freeway space shifts leftward.
b. the supply curve for freeway space shifts rightward.
c. the supply curve for freeway space shifts leftward.
d. a and b
e. none of the above
Suppose the production of a good results in negative externalities. If society produces
the output consistent with the intersection of the demand curve and the marginal private
cost curve, then
a. the socially optimal level of output will be produced.
b. society will incur a net social cost.
c. society will want more output produced, and producers will be willing to satisfy this
desire at a price that society deems acceptable.
d. all of the above
e. There is not enough information to answer this question.
Refer to Exhibit 3-4. A price of $2 in the market will result in a
Exhibit 3-4
a. shortage of 10 units.
b. surplus of 10 units.
c. surplus of 5 units.
d. shortage of 5 units.
Which of the following statements is false?
a. The Wilshire 5000 is a stock index that consists of the stocks of about 6,500 firms.
b. Instead of buying a mutual fund that consists of various stocks picked by a fund
manager you can buy a mutual fund that consists of the stocks that make up a particular
stock index.
c. The term Sypders stands for “Standard& Poors Direct Receipts.”
d. When an investor buys Spyders they are said to “buy the market.”
Refer to Exhibit 39-4. At a target price of $4 per bushel, how much does the private
sector spend on wheat?
Exhibit 39-4
a. $2,400
b. $1,800
c. $2,800
d. $3,600
A perfectly competitive market is initially in long-run competitive equilibrium. Then,
market demand increases. As a result,
a. the marginal revenue curve for each firm shifts upward.
b. the demand curve for each firm shifts upward.
c. marginal cost for each firm falls.
d. average total cost for each firm rises.
e. a and b
Political candidates in a two-person race prefer to be viewed as occupying the center of
the political distribution because
a. occupying the center is a sign of being a leader.
b. political candidates usually prefer to maintain the status quo and the center is the
status quo.
c. the electorate is largely in the “wings” (extreme ends) of the political distribution.
d. whoever comes closer to the center usually wins the election.
The Justice Department began using the Herfindahl index (rather than the four- and
eight-firm concentration ratios) in 1982.
a. True
b. False
Describe the similarities between why sellers want to price discriminate and why
district attorneys want to plea-bargain.In addition, discuss the conditions that must be
satisfied before district attorneys (DAs) can plea-bargain successfully and how they
relate to the three conditions necessary for successful price discrimination.
Discuss three possible solutions for reducing traffic congestion on freeways. Be sure to
explain what effect each would have on the supply and/or demand for freeway space.
Compare and contrast the following market structures: monopolistic competition and
monopoly.
What condition is necessary for a price floor to have an impact on a market? Describe
twoeffects that a price floor can have on a market.
Using the concept of marginal cost, explain how a parent could structure a teenager’s
punishment for misbehavior so as to achieve the parent’s goal (for example, having the
teen home by a certain time).
Describe some of the findings of behavioral economists presented in the text and
explain how these findings differ from the traditional economic framework.
Describe the Alchian and Demsetz theory of why firms exist.How does this differ from
the Coase theory of why firms exist?
Why do many prospective voters choose to watch sports on television rather than
watching the news or political roundtables?In your answer, be sure to mention the role
played by rational ignorance.
What is the shape of the demand curve faced by the perfectly competitive firm?Why
does it have this shape?
Explain the difference between the law of diminishing marginal returns and
diseconomies of scale.