Producers of artificially scarce goods face _____ that are similar to those of natural
monopolists; they decline over the relevant range of output.
A) external benefits
B) external costs
C) total fixed costs
D) average total costs
Which of the following pairs of goods are most likely to have a cross-price elasticity of
demand that is greater than zero?
A) shoes and shoelaces
B) apples and bananas
C) pizza and bread sticks
D) gasoline and cars
Figure: Supply and Demand
(Figure: Supply and Demand) Look at the figure Supply and Demand. A binding price
floor is represented by:
A) P1.
B) P2.
C) P3.
D) point C.
(Table: Price, Quantity Demanded, and Quantity Supplied) Look at the table Price,
Quantity Demanded, and Quantity Supplied. The slope of the line representing the
relationship between price on the vertical axis and quantity demanded on the horizontal
axis is:
A) equal to 1/2.
B) equal to 1.
C) equal to 2.
D) different at different points on the line.
An increase in the wage rate will:
A) normally generate a small income effect.
B) generate a significant decrease in after-tax income.
C) possibly lead people to choose more leisure rather than work more, since leisure is a
normal good.
D) cause businesses to increase the number of employees to reduce costs.
An industry is dominated by a few firms. Each of these firms acknowledges that its own
choices affect the choices of its rivals. Each firm also recognizes that its rivals’ choices
affect the decisions it makes. This industry is an example of:
A) a monopoly.
B) an oligopoly.
C) monopolistic competition.
D) perfect competition.
In a(n) _____ market goods or services are bought and sold illegally.
A) black
B) uncontrolled
C) unregulated
D) unproductive
Figure: The Market for Melons in Russia
(Figure: The Markets for Melons in Russia) Look at the figure The Market for Melons
in Russia. Without trade, the country’s producer surplus will equal area _____, and
consumer surplus will equal area _____.
A) ACJ; ABJ
B) BCJ; ABJ
C) ABJ; BCJ
D) BJDK; ABJ
Which is NOT a correct statement about the undesirable side effects of a quantity
control?
A) Quantity controls do not lead to deadweight loss.
B) Some mutually beneficial transactions do not occur because of quantity controls.
C) Quantity controls provide incentives for illegal activities.
D) Quantity controls cause a wedge between the demand price and supply price.
Uncertainty about monetary outcomes is known as:
A) financial risk.
B) monetary risk.
C) profitability risk.
D) risk aversion.
In a Ricardian model of international trade, the production possibility frontiers are
_____, indicating that the opportunity cost of increasing the production of one item
relative to another _____.
A) convex; is constant
B) concave; increases
C) straight lines; is constant
D) straight lines; decreases
If a good is subject to the free-rider problem and an inefficiently low level of
production when left to the private market, the good must be a(n):
A) private good.
B) public good.
C) common resource.
D) artificially scarce good.
(Table: Labor and Output) Look at the table Labor and Output. The marginal product of
the fourth worker is:
A) 9.
B) 36.
C) 10.
D) 6.
A decreasing marginal rate of substitution indicates that an indifference curve is:
A) a straight line.
B) a vertical line.
C) a horizontal line.
D) bowed in toward the origin.
If the use of a common resource is determined in the private market, the resource will
be _____, since the marginal social benefit will be equal to the marginal private cost of
production, which is _____ than the marginal social cost.
A) underused; greater than
B) overused; less than
C) overused; greater than
D) underused; equal to
When the government attempts to reduce the noise from airplanes by restricting the
noise level from a jet engine to less than 50 decibels, it is using a(n):
A) environmental standard.
B) emissions tax.
C) Pigouvian tax.
D) tradable emissions permit.
Producer surplus is represented by the area _____ the supply curve and _____ the price.
A) above; above
B) above; below
C) below; above
D) below; below
Figure: Water Works
(Figure: Water Works) Look at the figure Water Works, which describes a small town’s
water works, a natural monopoly. If the water works is unregulated and maximizes
profit, what price will it charge to each customer?
A) $21
B) $13
C) $6
D) $5
Gabriella often faces a trade-off between time at the beach and time working as a
model. She earns $40 per hour as a model and values going to the beach at the same
price. When explaining this to her parents, she says, “The marginal utility per hour
working is the same as the marginal utility per hour of going to the beach.” This is an
illustration of:
A) indifference curves.
B) the substitution effect.
C) the income effect.
D) optimal time allocation.
The satisfaction that a consumer gets from the consumption of a bundle of goods and
services is:
A) utility.
B) rationalization.
C) budget constraints.
D) income.
Marginal analysis:
A) refers to decisions about whether to do a bit more or a bit less of an activity.
B) helps when making a “how much” choice.
C) involves trade-offs.
D) refers to decisions about whether to do a bit more or a bit less of an activity, helps
when making a “how much” choice, and involves trade-offs.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. Where does
Sergei’s short-run supply curve begin?
A) P = $0; Q = 0
B) P = $36.67; Q = 3
C) P = $33.33; Q = 3
D) P = $170; Q = 4
Figure: The DVD Rental Market
(Figure: The DVD Rental Market) Look at the figure The DVD Rental Market. At a
rental price of $3, there will be:
A) equilibrium in the rental market for DVDs.
B) an increase in demand.
C) an excess supply of 40 DVD rentals.
D) an excess demand of 40 DVD rentals.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $50, what quantity will Sergei produce to maximize
profit?
A) 2
B) 3
C) 4
D) 5
A Pigouvian subsidy is:
A) designed to discourage activities generating externalities.
B) designed to encourage activities generating external benefits.
C) appropriate when the marginal social cost curve is above the marginal cost of
production curve.
D) appropriate when the marginal social cost curve and the marginal social benefit
curve intersect at an inefficient level.
(Table: Framing Shop Production Function) Shaheer runs a custom picture-framing
shop. The table Framing Shop Production Function shows his daily production
function. He can hire a worker at a daily competitive wage of $70, and he sells a custom
frame at a competitive price of $10. A) Complete the table by calculating the value of
the marginal product of labor (VMPL) for each worker. B) How many workers should
Shaheer hire to maximize his profit?
Figure: The Marginal Analysis of Cell Phones
(Figure: The Marginal Analysis of Cell Phones) Look at the figure The Marginal
Analysis of Cell Phones. You are considering purchasing cell phones. How many cell
phones will you consume?
A) one
B) two
C) three
D) four
The best example of an artificially scarce good is:
A) legal services.
B) national defense.
C) a municipal library.
D) cable television programming.
(Table: Consumer Equilibrium) Look at the table Consumer Equilibrium. Assume that
the price of good X is $2 per unit and the price of good Y is $1 per unit, that you
consume three units of good X and three units of good Y, and that you are spending all
of your income. To maximize utility, assuming that the goods are divisible, you would
consume _____ of X and _____ of Y.
A) less; less
B) more; more
C) less; more
D) more; less