Figure: Indifference Curves and Consumption Bundles
(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference
Curves and Consumption Bundles. For this consumer pizza is a(n) _____ good and hot
dogs are a(n) _____ good.
A) normal; inferior
B) inferior; normal
C) normal; normal
D) inferior; inferior
Figure: Budget Lines for Oranges and Apples
(Figure: Budget Lines for Oranges and Apples) Look at the figures Budget Lines for
Oranges and Apples. For some time, Antonio has $5 per month to spend on oranges and
apples. The price of an orange is $0.50 and the price of an apple is $0.25. Which of the
charts shows what will happen to his budget line if the price of an apple rises to $0.50?
A) A
B) B
C) C
D) D
In the short run, a firm will produce as long as the price is greater than its:
A) ATC.
B) MC.
C) MR.
D) AVC.
Figure: Strawberries and Submarines II
(Figure: Strawberries and
Submarines II) Look at the figure Strawberries and Submarines II. Assume that the
economy is operating at point A. The opportunity cost of moving to point C is equal to
_____ million tons of strawberries:
A) 800
B) 200
C) 2
D) 50
Ian is such a big Braves fan that his benefit of seeing a Braves game is $200. He pays
$100 for a ticket to see one of their playoff games. Unfortunately, he left the ticket in
his jeans when he laundered them and the ticket was destroyed. According to marginal
analysis, Ian should:
A) not go to the game.
B) buy another ticket for $100 and attend the game.
C) buy another ticket and attend the game only if he can buy the ticket for less than
$100.
D) watch the game on TV.
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Oligopoly) Firms in the duopoly industry illustrated in the
figure Monopoly Profits in Duopoly have zero fixed costs. The market demand curve is
D2. If the two firms colluded to maximize their combined economic profits, they would
set the market price at _____, and combined economic profits of the firms would be
_____.
A) P1; given by the area of the rectangle 0P1CQ4
B) P1; zero
C) P3; given by the area of the rectangle 0P3AQ1
D) P2; given by the area of the rectangle P1P2BG
If the opportunity cost of manufacturing automobiles is higher in the United States than
in Britain and the opportunity cost of manufacturing airplanes is lower in the United
States than in Britain, then the United States will:
A) export both airplanes and automobiles to Britain.
B) import both airplanes and automobiles from Britain.
C) export airplanes to Britain and import automobiles from Britain.
D) import airplanes from Britain and export automobiles to Britain.
A friend of yours owes you $10, and he wants to flip a coin for double or nothing. If the
coin lands heads, he will pay you $20. If the coin lands tails up, he will pay you
nothing. As the coin is in midair, what is your expected value of this wager?
A) $0
B) $10
C) $20
D) $30
A(n) _____ tax tends to encourage consumption and discourage saving and investing.
A) consumption
B) sales
C) poll
D) income
Figure: The Profit-Maximizing Output and Price
(Figure: The Profit-Maximizing Output and Price) Look at the figure The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC =
MC = $200. At the profit-maximizing output and price for competitor perfectly
competitive industry, consumer surplus is:
A) $0.
B) $6,400.
C) $1,600.
D) $3,200.
Children in low-income families that can’t afford insurance but are above the poverty
threshold are covered by:
A) Medicare.
B) Medicaid.
C) SCHIP (State Children’s Insurance Health Program)
D) the Veteran’s Administration.
Economists believe that resources should be used as efficiently as possible to:
A) achieve society’s goals.
B) eliminate scarcity.
C) reduce inequity.
D) maximize profits.
A natural monopoly exists when:
A) a few firms collude to make one large firm.
B) economies of scale provide large cost advantages to having one firm produce the
industry’s output.
C) firms naturally maximize profit regardless of market structure.
D) firms enter the industry as a result of profit incentives.
A backward-bending supply curve of labor shows that at relatively low wages the
_____ effect dominates the _____ effect, and the supply curve has a _____ slope.
A) income; substitution; positive
B) income; substitution; negative
C) substitution; income; positive
D) substitution; income; negative
Luis is consuming his optimal consumption bundle of pizza and tacos. The marginal
utility associated with the last pizza he consumes is 1 util, and the marginal utility
associated with the last taco is 3 utils. What must be the relative price of pizza in terms
of tacos?
A) 0.33
B) 1
C) 3
D) The relative price is undefined.
Sellers of used cars may have private information to which buyers are not privy. This
leads to all of the following EXCEPT:
A) lower prices for the cars.
B) a shortage of used cars on the market.
C) many mutually beneficial transactions not taking place.
D) potential sellers willing to sell only at high prices.
If the price of chocolate-covered peanuts decreases from $1.10 to $0.90 and the
quantity demanded increases from 180 bags to 220 bags, then the price elasticity of
demand (by the midpoint method) is:
A) 0.
B) 0.5.
C) 1.
D) 2.
According to the substitution effect, a decrease in the price of a product leads to an
increase in the quantity of the product demanded because buyers:
A) have more real income.
B) purchase fewer substitute goods.
C) purchase more of the now less expensive good.
D) purchase more complementary goods.
When initially a monopolistically competitive industry earns economic profit, the result
of competition among sellers is usually that:
A) the price of the product increases to monopoly level.
B) the price of the product quickly reaches the perfectly competitive level.
C) firms in the industry gain market share.
D) firms in the industry lose market share.
Medicare is health insurance coverage provided to:
A) all Americans age 65 and older and is means-tested.
B) individuals who fall below the poverty threshold and is means-tested.
C) all Americans age 65 and older and is not means-tested.
D) individuals who fall below the poverty threshold and is not means-tested.
In long-run equilibrium in perfect competition, marginal cost is:
A) greater than price.
B) equal to price.
C) less than price.
D) related to price but not in a predictable way.
Figure: A Market with a Tax
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. Before the tax,
producer surplus is equal to the areas:
A) A + B + C + D.
B) D + E + F + G.
C) A + B + C + D + E + F.
D) A + B + C.
DeVonda owns a music store. One night, vandals broke her store’s front window.
DeVonda called the police, and the police investigated the crime. The police services
that DeVonda used are best described as a(n):
A) private good.
B) public good.
C) artificially scarce good.
D) common resource.
A firm’s demand curve for labor is:
A) its marginal cost curve.
B) its marginal product curve.
C) its value of the marginal product of labor curve.
D) horizontal if it is in perfect competition.
Figure: The Market for Butter
(Figure: The Market for Butter) Look at the figure The Market for Butter. If a
government price floor at $1.30 is imposed on this market, an inefficiency will result in
the form of a _____ of _____ million pounds of butter.
A) surplus; 4.5
B) surplus; 6.0
C) shortage; 6.0
D) shortage; 4.5
The pair of items that is most likely to have a negative cross-price elasticity of demand
is:
A) cashews and peanuts.
B) hamburgers and ketchup.
C) coffee and tea.
D) mustard and aspirin.
Figure: Profit Maximization in Monopolistic Competition
(Figure: Profit Maximization in Monopolistic Competition) In panel (B) of the figure
Profit Maximization in Monopolistic Competition, the long-run equilibrium will result
in:
A) no economic profits.
B) no accounting profits.
C) a tangency of the ATC curve with the MR curve.
D) no economic profits and a tangency of the ATC curve with the MR curve.
The production possibility frontier illustrates:
A) the maximum quantity of one good that can be produced given the quantity of the
other good produced.
B) that when markets don’t achieve efficiency, government intervention can improve
society’s welfare.
C) the inverse relation between price and quantity of a particular good.
D) that people usually exploit opportunities to make themselves better off.
If a monopolist can engage in perfect price discrimination:
A) it produces at the socially efficient level.
B) consumer surplus is maximized.
C) producer surplus is minimized.
D) the government may impose fines on the monopolist.