Refer to the following graph.
A lazy monopolist is best described by earning area A and B in profits.
Answer:
The goal of socialist economies is to distribute what is produced according to the needs
of individuals. Market economies tend to distribute what is produced according to
ability and inherited wealth.
Answer:
As output increases, average total cost is always falling because average fixed cost
declines.
Answer:
A technically efficient method of production produces a given level of output at the
lowest possible cost.
Answer:
Focal point equilibria definitely violate the principle of rational choice.
Answer:
If an economist wanted to understand why people don’t buy life insurance, he would
want to use the deductive approach.
Answer:
The prisoner’s dilemma provides an explanation of why detectives interview suspects
separately in television crime shows.
Answer:
Smaller countries tend to get a larger share of the gains from trade than do larger
countries.
Answer:
When quantity demanded is greater than quantity supplied, the resulting shortage
causes the price to fall.
Answer:
Limited liability is a key advantage of partnerships and sole proprietorships over
corporations.
Answer:
Refer to the following graph.
Since the supply curve intersects the horizontal axis, all the points along the supply
curve shown are inelastic.
Answer:
When the demand curve is highly inelastic, there is a strong incentive for suppliers to
find a way to collectively reduce the quantity sold in the market and raise the price of
the product.
Answer:
Income is more unequally distributed than wealth in the United States.
Answer:
Traditional models incorporate social and moral incentives into price.
Answer:
Mary is maximizing utility by eating three pancakes and two eggs. The principle of
rational choice says that if there is diminishing marginal utility and the price of eggs
rises, Mary will choose to eat more pancakes and fewer eggs.
Answer:
Behavioral economists believe in modifying the assumption that people are rational and
follow their own self-interest.
Answer:
Income inequality increased in the United States from 1929 to 1970 and decreased
thereafter.
Answer:
Traditional economics argues that people know what they want better than anyone else,
and this justifies the traditionalists’ concentration on maximizing people’s consumption.
Answer:
We can conclude from the table shown that Morocco has a comparative advantage in
the production of tables.
Answer:
An increase in the number of firms causes the price firms are able to charge to fall,
which results in a movement along the market supply curve.
Answer:
If a tax is legally required to be paid by sellers, sellers typically bear the full burden of
the tax.
Answer:
Social and political forces affect the way in which the invisible hand works.
Answer:
Economies of scope exist when the production of one good is less costly because other
related goods already are being produced.
Answer:
Fixed costs remain the same regardless of the level of production.
Answer:
The majority of large corporations are directly controlled by the owners of the
corporation.
Answer:
Modern traditional economics relies on complex models that are easy to test in real life.
Answer:
The monitoring problem exists because employees’ incentives differ from owners’
incentives.
Answer:
The more elastic the demand for the good labor produces, the less elastic the demand
for labor.
Answer:
U.S. poverty figures do not include in-kind transfers or underreporting of income.
Answer:
Economists believe that free riders often can undermine the social commitment of many
in the society, causing voluntary policies to fail.
Answer:
The positive contribution of politics in the determination of economic policy is that it
takes market failures and failures of market outcome into account in formulating policy.
Answer:
The income share of the richest 20 percent of the U.S. population is more than 15 times
the income share of the poorest 20 percent.
Answer:
The “invisible hand” is the price mechanism that guides people’s actions in the market.
Answer:
The United States has the least income inequality of all the nations in the world.
Answer:
Poverty is defined by the U.S. government as having an income equal to or less than
three times an average family’s minimum food expenditure as calculated by the U.S.
Department of Agriculture.
Answer:
Public choice economists use models that focus on economic incentives as applied to
politicians.
Answer:
Robert withdrew $100,000 from an account that paid 10 percent annual interest and
used the funds to purchase real estate. After one year he sold the property for $120,000.
The accounting profit on this deal was:
A. $120,000.
B. $100,000.
C. $20,000.
D. $10,000.
Answer:
People who believe that consumer sovereignty is a reasonable ideal are likely to agree
that:
A. people sometimes need to be protected from themselves.
B. people’s wants are plastic and easily manipulated by advertising.
C. people often have self-control problems that make it difficult to figure out exactly
what they do want and what is best for themselves.
D. people should be allowed to do whatever they want as long as no one else is hurt.
Answer:
Countries restrict international trade for all of the following reasons except:
A. International trade probably will lead to the displacement of workers.
B. The benefits of trade usually are limited to small groups, whereas the costs are
widely scattered across the population.
C. It is sometimes difficult to decide where a country’s comparative advantage lies
when “learning by doing” effects are important.
D. Economies of scale can mean that a country is able to develop a comparative
advantage by protecting infant industries.
Answer:
Often, gas stations only a few miles apart differ in price by as much as $0.10 per gallon.
The most likely explanation for this kind of price discrimination is that:
A. consumers in some communities have a more elastic demand for gasoline than do
consumers in nearby communities.
B. gasoline purchased at one station is a perfect substitute for gasoline purchased at a
station a few miles away.
C. the elasticity of demand is the same in each community.
D. the cost of providing gasoline is the same in each community.
Answer:
A business is most likely to be characterized as a corporation if:
A. it has two or more owners, with each owner liable for every other owner’s actions.
B. it has only one owner.
C. it is legally treated as a person and owned by stockholders who are liable for the
actions of the corporate “person” regardless of their investment
D. each owner is liable only to the extent of his or her own investment.
Answer:
Refer to the graph shown. The most economically efficient way to produce 1,000 units
of output is to use:
A. 5 units of machines and 7.5 units of labor.
B. 6 and 2/3 units of machines and 5 units of labor.
C. 10 units of machines and 15 units of labor.
D. 5 units of machines and 25 units of labor.
Answer:
Economist Robert J. Samuelson argues that Americans are not upset by rising income
inequality because they don’t feel that it applies to them. This belief suggests that
people care most about:
A. other people than themselves.
B. the plight of the poor than their own situations.
C. their own ability to enjoy an improved lifestyle.
D. whether other people have more than they do.
Answer:
Refer to the graph shown. A firm planning to produce 1,500 units of output would
choose the scale of operation represented by:
A. SATC1.
B. SATC2.
C. SATC3.
D. SATC4.
Answer:
Which two sources of revenue comprise most of federal government revenue?
A. Corporate income taxes and social security taxes and contributions
B. Corporate income taxes and excise taxes
C. Individual income tax and corporate income taxes
D. Individual income tax and social security taxes and contributions
Answer:
With the long-run average cost curve above, a seller must produce 18 units just to break
even if the price the seller expects is roughly:
A. $50.
B. $52.
C. $54.
D. $58.
Answer:
Refer to the table shown, which shows the demand schedule for a product sold by a
monopolist. Marginal revenue is closest to zero:
A. when price is $10.
B. when price is above $10.
C. when price is below $10.
D. for every price.
Answer:
Refer to the following graph.
Assuming a marginal cost external to the trade equals the tax shown in the graph, the
market price necessary to induce consumers to purchase the efficient quantity each year
is:
A. P1.
B. P2.
C. P3.
D. P4.
Answer:
The labor market is:
A. the market in which labor supply and labor demand alone determine wages and
employment.
B. a market in which social and political pressures are particularly strong.
C. a market in which the invisible hand operates unimpeded by other forces.
D. the market in which firms determine the supply of labor.
Answer:
Refer to the graph shown. The market represented here is in equilibrium when the price
is:
A. $5.00 per unit and 220 units are bought and sold.
B. $8.15 per unit and 220 units are bought and sold.
C. $5.00 per unit and 400 units are bought and sold.
D. $3.65 per unit and 400 units are bought and sold.
Answer:
Refer to the graph shown. When price rises by 20 percent, quantity supplied rises by 25
percent. Which curve best demonstrates elasticity in this example?
A. A
B. B
C. C
D. None of the curves
Answer:
Refer to the graph shown. The most economically efficient way to produce 500 units of
output is to use:
A. 5 units of machines and 7.5 units of labor.
B. 6 and 2/3 units of machines and 5 units of labor.
C. 10 units of machines and 15 units of labor.
D. 5 units of machines and 25 units of labor.
Answer:
Suppose a perfectly competitive firm can increase its profits by increasing its output.
Then it must true that the firm’s:
A. marginal revenue is less than its marginal cost.
B. price exceeds its marginal revenue.
C. price exceeds its marginal cost.
D. marginal cost exceeds its marginal revenue.
Answer:
Strategic decision making is most likely to occur in which market structure?
A. Monopolistic competition
B. Oligopoly
C. Perfect competition
D. All firms engage in strategic decision making.
Answer:
A government policy maker is trying to decide which of four methods of reducing
highway noise in a residential area should be implemented. She is looking at these four
options:
If she uses the cost/benefit logic of economics, which plan will she propose?
A. plan A
B. plan B
C. plan C
D. plan D
Answer:
One study of the distribution of wealth indicates that the bottom 40 percent of
households hold 1 percent or less of total marketable wealth in the United States Which
of the following people is most likely to be in the bottom 40 percent?
A. Ann is 29 years old, earns $120,000 a year, has no financial assets, but still has
student loans of $4,000.
B. Betty is 29 years old, earns $40,000 a year, has $80,000 in a savings account, and
has credit card debt of $4,000.
C. Carol is 69 years old, is disabled, and is living on Social Security and dividends from
her $500,000 of mutual funds. She has no debt.
D. Debra is 45 years old, and the only money she gets is $40,000 of rental payments
from an apartment building she owns that is worth $250,000. She owes the bank
$50,000.
Answer:
Suppose a person can play the lottery for $1.00. His chance of winning $25 million is 1
in 50 million. If there are no other costs or benefits involved, the logic of cost/benefit
analysis says:
A. he should play the lottery.
B. he should not play the lottery.
C. he should play only if he does not have a self-control problem with gambling.
D. there is not enough information to decide whether he should play.
Answer:
The Environment Ministry in Japan proposed a new carbon tax to meet Japan’s
obligations to reduce carbon dioxide emissions under the Kyoto Treaty. The tax would
be levied on producers and importers of fossil fuels, and the expectation is that it would
be largely passed on to consumers. The rationale for this tax is that it will:
A. reduce a negative externality.
B. reduce a positive externality.
C. turn a private good into a public good.
D. turn a public good into a private good.
Answer:
Refer to the following graphs.
A recent report indicates that the device known as the right heart catheter used to
diagnose heart conditions poses more risks than previously thought. The effect of the
report on the market for right heart catheters is best shown by which of the graphs?
A. I
B. II
C. III
D. IV
Answer:
Refer to the graph shown. If a firm operating as if it were faced with a kinked demand
curve believes that if it lowers price from P2 to P4, its rival will match the price cut:
A. the demand curve used by the firm for decision making is highly elastic.
B. it probably will lower price, since doing so will increase sales.
C. it probably won’t lower price, since the percentage decline in price will exceed the
percentage increase in quantity sold.
D. D1 is the relevant demand curve.
Answer:
Supply and demand analysis can explain:
A. how much rent will accrue to a landholder and the initial set of property rights.
B. how much rent will accrue to a landholder but not the initial set of property rights.
C. the initial set of property rights but not how much rent will accrue to a landholder.
D. neither the initial set of property rights nor how much rent will accrue to a
landholder.
Answer:
In the early 2000s, Europeans saw the United States as a big half-off sale. European
visitors to the United States were enjoying shopping for many items that were much
more expensive in Europe. Which of the following could have led to this shopping
spree?
A. Inflation in the United States
B. Low interest rates in the United States
C. A rise in the dollar price of the euro
D. A rise in U.S. GDP
Answer:
Refer to the table shown. Suppose that the government gives each company a pollution
permit equal to 50 percent of its present discharge. However, companies are allowed to
reduce pollution more than 50 percent and sell their permit or reduce less than 50
percent and buy a permit from another company. If firms maximize profits, what would
happen?
A. Each firm would reduce pollution by 50 percent.
B. Firms A and D would eliminate pollution and sell their permits to B and C, which
would continue to pollute as before.
C. Firms B and C would eliminate pollution and sell their permits to A and D, which
would continue to pollute as before.
D. There is not enough information to answer this question.
Answer:
The largest source of household income in the United States is:
A. stock dividends.
B. wages and salaries.
C. interest earnings.
D. rental income.
Answer:
The most likely impact of an effective price floor is:
A. the supply curve will shift to the right.
B. the demand curve will shift to the left.
C. a surplus will develop.
D. a shortage will develop.
Answer:
Which question is typically asked by economic engineers?
A. Can we assume that people always behave rationally?
B. Can we increase the amount of mathematics in the model?
C. Can we design mechanisms to improve the coordination of people’s actions?
D. Can we rely on the markets to distribute income fairly?
Answer:
Refer to the graph shown. If market price increases from $5.00 per unit to $6.00 per
unit, a profit-maximizing perfectly competitive firm will:
A. increase output from 650 to 750.
B. decrease output from 750 to 650.
C. continue to produce 650 units.
D. produce 850 units of output.
Answer:
Economists generally call the effect of an agreement on others that is not taken into
account by the parties making the agreement:
A. excess burden.
B. welfare loss.
C. Pareto optimality.
D. an externality.
Answer: