Suppose a perfectly competitive increasing-cost industry is in long-run equilibrium
when market demand suddenly decreases. What happens to the industry in the long run?
a. It experiences no change from the original equilibrium
b. It experiences a higher equilibrium price and produces less output
c. It experiences a lower equilibrium price and produces less output
d. It experiences the same equilibrium price but produces more output
e. It experiences the same equilibrium price but produces less output
Price discrimination occurs when a monopolist charges
a. both c and d
b. different prices to different buyers for different products
c. different prices to different groups of buyers, based on differences in the cost of
providing the commodity to the buyer
d. different prices to different groups of buyers for reasons unrelated to the cost of
providing the commodity to the buyer
e. all buyers the same price for the same product
A monopolist that engages in perfect price discrimination
a. divides all buyers into two mutually exclusive groups
b. refuses to sell to consumers of certain races, sexes, or creeds
c. charges the same price for every unit sold
d. charges a different price for every unit sold
e. charges buyers who want a little of the good a low price and charges buyers who
want a lot of the good a high price
Suppose that Hannah spends $3 to buy five biscuits. The marginal utility of the fifth
biscuit is valued at $0.60; total utility of the five biscuits is valued at $4.20. Given this
information, what do we know about consumer surplus?
a. It is impossible to determine consumer surplus without knowing the marginal utility
of the first four biscuits.
b. It is impossible to determine consumer surplus without knowing the price per biscuit.
c. It is impossible to determine consumer surplus without knowing the price Hannah
was willing to pay for the first five biscuits.
d. Consumer surplus is equal to $2.40.
e. Consumer surplus is equal to $1.20.
The optimal level of air quality will increase if
a. the cost of polluting increases
b. pollution is found to be self-absorbing
c. a new process allows pollution to be removed more cheaply
d. the marginal social cost of air quality increases
e. the marginal social benefit of air quality decreases
Exhibit 5-16
Consider Exhibit 5-16. Since the product P x Q remains constant between points a and
b, demand must be
a. relatively inelastic
b. perfectly inelastic
c. unit elastic
d. perfectly elastic
e. relatively elastic
If the price of a good is 0, a consumer will
a. consume all units that have positive total utility
b. consume an infinite quantity
c. consume all units with positive marginal utility
d. consume the entire amount supplied
e. consume until total utility becomes 0
As the use of DVDs becomes more widespread, we would expect all of the following
except one. Which is the exception?
a. The prices of CDs will decrease.
b. The demand curve for CD players will shift leftward.
c. The supply curve of CD players will shift rightward.
d. The demand curve for CDs will shift leftward.
e. Firms will move their resources away from CD production to DVD production.
For most consumers, the process of gathering information can be considered
a. irrational
b. unproductive
c. a vocation
d. nonmarket work
e. costless
When an industry supply curve increases enough to erase economic profits,
a. weaker firms exit the industry
b. quantity demanded decreases, but only slightly
c. all firms in the industry incur economic losses
d. entry of new firms and expansion of existing firms stop
e. marginal revenue increases
Other things constant, the more profitable a corporation is,
a. the lower the value of its shares on the stock market and the lower the interest rate
that would have to be paid on new bond issues
b. the higher the value of its shares on the stock market and the higher the interest rate it
would have to pay on new bond issues
c. the higher the value of its shares on the stock market and the lower the interest rate
that would have to be paid on new bond issues
d. the lower the value of its shares on the stock market and the higher the interest rate
that would have to be paid on new bond issues
e. the lower the interest rate that would have to be paid on new bond issues; the value of
its shares on the stock market does not vary
The Hound Dog Bus Company contemplates expanding its Virginia operations by
offering service from Fairfax to Arlington. The total cost of the trip would be $120, of
which $50 is fixed cost, which it has already paid. The firm expects to earn $60 in
revenue from the trip. The Hound Dog Bus Company should
a. offer this service because it will earn a positive economic profit
b. not offer this service because the marginal revenue is less than the marginal cost
c. offer this service because the revenue exceeds fixed cost
d. not offer this service because the total cost exceeds the total revenue
e. offer this service because the added revenue exceeds the added cost of this service
For a monopolist,
a. P = MR = AR
b. P = MR > AR
c. P > MR = AR
d. P = MR < AR
e. P = AR > MR
The federal agency that regulates the New York Stock Exchange is the
a. Securities and Exchange Commission
b. Department of Justice
c. Department of Commerce
d. Federal Reserve Board
e. Department of the Treasury
Which of the following could shift the demand for a good to the right?
a. a decrease in income, if the good is a normal good
b. an increase in the price of a complementary good
c. a decrease in the good’s price, if the good is normal
d. an increase in the good’s price, if the good is inferior
e. an expectation of a future price increase
Suppose the refrigerator repairman charges you for two hours of labor even though he
could have fixed it in ten minutes. This is an example of
a. natural selection
b. moral hazard
c. hidden actions
d. external costs
e. hidden characteristics
For a perfectly competitive firm,
a. P = MR at all output levels
b. P = MR at the profit-maximizing quantity only
c. P > MR at all output levels
d. P < MR at the profit-maximizing quantity only
e. P < MR at all output levels
When were the first federal antitrust laws enacted in the United States?
a. around the turn of the twentieth century
b. after World War II
c. after World War I
d. during the Great Depression
e. with the U.S. Constitution, in 1787
Which of the following have their profits taxed twice?
a. sole proprietorships
b. partnerships
c. corporations
d. nonprofit institutions
e. S-corporations
Which of the following would cause a fall in the market interest rate?
a. an increase in the risk cost of investment
b. an increase in the inflation rate
c. an increase in the marginal rate of return on investment
d. a decrease in the marginal product of capital
e. none of the above
By saving, households
a. are supplying loanable funds
b. are demanding loanable funds
c. are investing
d. are acting as a financial intermediary
e. must find a borrower
Two heavy equipment manufacturers might collude in an effort to do all of the
following except one. Which is the exception?
a. determine a more advantageous price and quantity
b. prevent new entry into the market
c. take advantage of the legal benefits that U.S. cartels receive
d. increase their combined profits
e. predict the behavior of other competitors in the heavy equipment market with greater
certainty
If the production possibilities frontier is a straight line,
a. its slope will equal -1
b. resources must not be used efficiently
c. resources must be unemployed
d. society must not be using the latest technology
e. resources must be equally adaptable at producing either product
If we assume that a unit of capital will last indefinitely, the marginal rate of return on
investment equals the marginal revenue product of capital divided by its marginal
resource cost.
a. True
b. False
Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found
to cause cancer,
a. the price of aspartame will increase
b. the price of sugar will decrease
c. the price of saccharin will increase
d. the demand curves for aspartame and sugar will shift leftward
e. aspartame and sugar will be complements
A group of farmers in southwestern Pennsylvania selling locally raised natural beef
would be identified as a
a. not-for-profit organization
b. S corporation
c. producer cooperative
d. sole proprietorship
e. cottage industry
If a firm is experiencing diminishing marginal returns, its marginal product is declining.
a. True
b. False
Bart operates a lemonade stand in front of his house. His father works at the Springfield
Nuclear Power Plant. Which of the following is most likely to be true?
a. The long run is the same for the power plant as it is for the lemonade stand.
b. The long run is longer for the power plant than it is for the lemonade stand.
c. The long run is shorter for the power plant than it is for the lemonade stand.
d. We cannot compare the long runs because these are different businesses.
e. It’s impossible for the power plant short run to be shorter than the lemonade stand’s
long run.
Exhibit 6-8
Consider Exhibit 6-8. Which of the following best describes what it reveals about total
and marginal utility for baseball game tickets?
a. Marginal utility is constantly pulling total utility down, until eventually it becomes
negative.
b. Marginal utility is constantly pulling total utility up and will continue to increase
total utility as long as the person consumes more goods.
c. Marginal utility is constantly pulling total utility up, but by less each time.
d. At first marginal utility is positive and pulls total utility up but at a decreasing rate;
then marginal utility becomes negative and pulls total utility down.
e. At first marginal utility is positive and pulls total utility up, but then it becomes
negative and makes total utility become negative as well.
The excise tax on gasoline is based on the ability-to-pay principle of taxation.
a. True
b. False
Welfare recipients as a percentage of the US population have declined after the welfare
reforms in 1996?
a. True
b. False
Exhibit 9-11
Total cost for the profit-maximizing (nondiscriminating) monopoly in Exhibit 9-11 will
be
a. $95,200
b. $84,000
c. $77,000
d. $53,200
e. $42,000
Exhibit 1-8
The slope of the line in Exhibit 1-8 is
a. 0.1
b. 1
c. 10
d. -0.1
e. -10
Demand is inelastic if
a. the percentage change in price is greater than the percentage change in quantity
demanded
b. the percentage change in price is less than the percentage change in quantity
demanded
c. the percentage change in price is equal to the percentage change in quantity
demanded
d. the value of price elasticity is equal to -1
e. the value of price elasticity is less than -1 (e.g., -3)
Exhibit 6-29
Which graph in Exhibit 6-29 shows an increase in the price of food?
a. Graph a
b. Graph b
c. Graph c
d. Graph d
e. Graph e