When an economy is producing inside its production possibility frontier
A) production inefficiency occurs.
B) only technological advances will allow it to increase production.
C) it is efficient so long as it is producing what people want.
D) it must overcompensate by producing outside the curve to achieve efficiency.
Behavioral economics
A) blends insights from sociology and economics.
B) suggests that too much variety may be welfare enhancing.
C) has contributed to microeconomics but not to macroeconomics.
D) suggests that consumers purchase health club memberships instead of paying per
visit in an attempt to commit themselves to an exercise regime.
Figure 6.13
Refer to Figure 6.13. If Arthur moves from indifference curve 2 to indifference curve 1,
then Arthur’s
A) marginal utility decreases.
B) total utility decreases.
C) total income increases.
D) prices of the goods decrease.
Figure 8.4
Refer to Figure 8.4. Average variable costs are minimized at an output level
A) of 2.
B) of 3.
C) of 6.
D) that is indeterminate from this information.
Figure 5.1
Refer to Figure 5.1. The demand for tickets is
A) perfectly price elastic.
B) perfectly price inelastic.
C) unit price elastic.
D) perfectly income inelastic.
A firm’s ________ is measured as a stock while ________ is measured as a flow.
A) investment in new capital; capital
B) capital; investment in new capital
C) current labor force; current inventory
D) planned inventory; current inventory
Society will produce the efficient mix of output if ________ are equated for all firms.
A) price and marginal cost
B) price and average total cost
C) marginal cost and average total cost
D) price and marginal revenue
A monopolistically competitive firm maximizes profit where
A) MR > MC.
B) MC > MR.
C) MR = MC.
D) P = MC.
The price of mozzarella cheese, which is used in making pizza, increases. In the market
for pizza you would expect that
A) the demand for pizza would increase and the price of pizza would increase.
B) the demand for pizza would decrease and the price of pizza would fall.
C) the supply of pizza would decrease and the price of pizza would increase.
D) the supply of pizza would increase and the price of pizza would decrease.
The marginal benefit for a particular food is described by MB = 60 – q, where q refers to
the quantity of the food. The marginal cost of producing the food is described by MC =
3q. There is a negative externality associated with food production and the marginal
social cost of food production is MSC = 5q.
The competitive output level is ________, and the competitive price is ________.
A) 20 units of food; $40
B) 10 units of food; $50
C) 0 units of food; $0
D) 10 units of food; $20
Figure 7.9
Refer to Figure 7.9. The firm is currently along isocost CE. If the price of capital is $24,
then the price of labor is
A) $16.
B) $24.
C) $80.
D) $120.
Related to the Economics in Practice on page 82: If the supply of generators decreases
and the demand for generators increases, the equilibrium price for generators ________
and the equilibrium quantity of generators ________.
A) will increase; will decrease
B) will increase; may increase, decrease, or stay the same
C) may increase, decrease, or stay the same; will increase
D) may increase, decrease, or stay the same; may increase, decrease, or stay the same
________ occurs when households can alter their behavior and do something to legally
avoid paying a tax.
A) Tax incidence
B) Tax evasion
C) Tax depreciation
D) Tax shifting
Figure 1.5
Refer to Figure 1.5. Panel B shows a curve with a slope that is
A) positive and increasing.
B) positive and decreasing.
C) negative and increasing.
D) negative and decreasing.
Figure 8.5
Refer to Figure 8.5. The marginal cost is ________ average variable cost when six
ovens are produced.
A) greater than
B) less than
C) equal to
D) indeterminate from this information
Economic ________ occurs when two or more nations join to form a free-trade zone.
A) integration
B) correlation
C) conjugation
D) immigration
A firm is operating such that the marginal product of labor is 10 and the marginal
product of capital is 20. The firm is minimizing its costs only if
A) the wage is half the rental rate.
B) the rental rate is half the wage.
C) since capital is more productive than labor, the firm must be minimizing cost.
D) Given this information the firm can’t be minimizing cost under any circumstances.
Table 20.1
Refer to Table 20.1. In Chile, the opportunity cost of 1 case of beer is
A) 1/2 case of wine.
B) 1 case of wine.
C) 2 cases of wine.
D) 4 cases of wine.
During 2012, Tony’s assets equal $200,000 and his liabilities are $250,000. Tony’s net
worth is
A) -$50,000.
B) $50,000.
C) $300,000.
D) $550,000.
Figure 2.1
Refer to Figure 2.1. Macroland’s production possibility frontier is bowed out from the
origin due to
A) decreasing opportunity costs.
B) trade.
C) unemployment.
D) specialized resources.
A change in ________ leads to a change in demand that causes a ________.
A) income or price of other goods; shift in the demand curve
B) income or price of other goods; movement along the demand curve
C) the price of the original product; shift of the demand curve
D) income or price of the original product; movement along the demand curve
When looking at the world population, the poorest one-fifth of families earns about
_________ of total world income.
A) one half of one percent
B) three percent
C) seven percent
D) twelve percent
When a perfectly competitive firm weighs price and marginal cost and no externalities
exist, it is weighing the full benefits to ________ of additional production against the
full costs to ________ of that production.
A) society; society
B) buyers; sellers
C) sellers; buyers
D) government; government
Private goods are
A) rival in consumption, and their benefits are excludable.
B) nonrival in consumption, and their benefits are excludable.
C) nonrival in consumption, and their benefits are nonexcludable.
D) rival in consumption, and their benefits are nonexcludable.
The quantity demanded of Coca Cola has increased. The best explanation for this is that
A) the price of Pepsi has decreased.
B) Coca Cola has instituted a new, successful advertising campaign.
C) the price of Coca Cola has decreased.
D) Coca Cola consumers had an increase in income.
Figure 13.4
Refer to Figure 13.4. The marginal revenue of the 12th pound of burritos is
A) -$4.
B) -$3.
C) $2.
D) $8.
Table 3.2
Refer to Table 3.2. In this market there will be an excess supply of 500 cheeseburgers at
a price of
A) $5.
B) $6.
C) $8.
D) $9.
Figure 15.4
Refer to Figure 15.4. In the long run, in this monopolistically competitive industry,
A) some firms will leave the industry until the remaining firms earn a normal profit.
B) some firms will leave the industry until the remaining firms earn positive economic
profits.
C) some firms will enter the industry and will increase the demand for the product.
D) the government will subsidize the firms to eliminate any losses the firms incur.
In the area of market signaling, education is a strong signal in the job market because
A) it tells employers that you have gained skills that will be useful in the work place.
B) education is costly to obtain.
C) education is less costly to obtain for highly productive individuals who are also
likely to be highly productive in the work place.
D) firms can easily verify your level of education.
Relating to the Economics in Practice on page 360: Huntington’s disease is an
inheritable disorder which affects 1 in 10,000 individuals, and since 1993 there has
been a test that perfectly predicts the disease. Presently, insurance companies are not
legally allowed to inquire about the results of genetic tests. This has led to ________
favoring potential insurance buyers.
A) moral hazard
B) asymmetric information
C) market signaling
D) adverse selection
Health insurance should be provided to every citizen in a wealthy nation such as the
United States. This statement is best described as
A) a positive statement.
B) a normative statement.
C) a marginal statement.
D) an implication of an efficient market.
A distribution of goods between person A and person B is efficient if ________.
A) it is possible to make both person A and person B better off
B) person A can be made better off only if person B is also made better off
C) person A can be made better off only if person B is made worse off
D) any change in the distribution would make both person A and person B worse off
Entry to and exit from ________ market are easy.
A) an oligopolistic
B) a monopoly
C) a contestable
D) All of the above are correct.
When monopolistically competitive firms earn ________ economic profits, other firms
________ an industry in the long run.
A) positive; enter
B) zero; enter
C) negative; enter
D) zero; exit
Opportunity cost is
A) what we give up to get something else.
B) marginal cost divided by total cost.
C) the same as real cost.
D) all of the above
Define what is meant by the period known as the short run.
Your company (Click.com) has low fixed costs but high variable costs. Your
competitor’s company (Brick & Mortar) has high fixed costs but low variable costs.
Currently both companies are producing 50 units at the same total cost. How will
profits for each company be affected as more units are produced?
What is a demand schedule? Provide an example and explain it.
What is meant by “tax shifting”?
Do the assumptions of the perfectly competitive model describe all real-world markets?
Explain.
Given the marginal product curve depicted below draw a marginal cost curve that
would likely be the result. Explain why it looks this way.
Explain what the fallacy of composition is and give an example.
Scenario 1
Two men live alone on an isolated island. To survive they must undertake a few basic
economic activities like water carrying, fishing, cooking and shelter construction and
maintenance. The first man is young, strong, and educated. He is also faster, better, and
more productive at everything. He has an absolute advantage in all activities. The
second man is old, weak, and uneducated. He has an absolute disadvantage in all
economic activities. In some activities the difference between the two is great; in others
it is small.
Based on Scenario 1 above critically evaluate the following statement. “Because of
the disparities in skills between these two men it will not be beneficial for them to trade
with one another.”
What is human capital?
What are the assumptions of a pure monopoly?
Comment on the following statement: “When firms are earning positive profits, the
industry supply curve will shift to the right.”
What does the income elasticity of demand measure? How is it calculated?
Explain the output and factor substitution effects of an increase in the price of capital on
the Demand for labor by a firm that produces output using both capital and labor.
Identify two kinds of circumstances which may favor nonneutral taxes.
Comment on the following statement: “The shape of the long-run average cost curve is
determined by diminishing returns.”
Explain the “Unfair Trade Practices” argument as a case against free trade.
A firm is employing capital and labor such that the marginal product of capital is 80 and
the marginal product of labor is 20. If the price of a unit of capital is $30 and the price
of a unit of labor is $15, is the firm minimizing its costs? If not, can you recommend a
change for the firm to make in its relative amounts of labor and capital used? Explain.