When comparing the characteristics of common resources and artificially scarce goods,
we find that:
A) they are both nonrival in consumption.
B) they are both excludable.
C) common resources are nonrival in consumption (while artificially scarce goods are
not), and artificially scarce goods are nonexcludable (while common resources are not).
D) artificially scarce goods are nonrival in consumption (while common resources are
not), and common resources are nonexcludable (while artificially scarce goods are not).
Figure: Demand and Supply
(Figure: Demand and Supply) Look at the figure Demand and Supply. The curve
labeled S indicates that a price of $2 is related to a quantity of:
A) 0.
B) 1.
C) 2.
D) 3.
The price for a firm under monopolistic competition is _____ revenue.
A) equal to marginal
B) greater than marginal
C) less than marginal
D) greater than total
Suzy knows she has maximized her utility because she is on her budget constraint and:
A) her consumption of cameras equals her consumption of coffee.
B) what she spends on cameras equals what she spends on coffee.
C) MUCameras / PCameras = MUCoffee / PCoffee.
D) MUCameras = MUCoffee.
An inferior good is one for which a(n) _____ in buyers’ income causes a(n) _____.
A) increase; increase in demand
B) increase; increase in quantity demanded
C) increase; decrease in demand
D) decrease; decrease in demand
The individual producer’s labor demand curve is the:
A) marginal product of labor curve.
B) value of the average product of labor curve.
C) average product curve.
D) value of the marginal product of labor curve.
If a country has the comparative advantage in producing wooden furniture, then with
free trade:
A) the country will import wooden furniture.
B) producer surplus in the market for wooden furniture will increase.
C) consumer surplus in the market for wooden furniture will increase.
D) the domestic quantity supplied will be less than the domestic quantity demanded.
The total cost curve gets steeper as output increases because of:
A) increasing returns to the variable input.
B) decreasing returns to the variable input.
C) increases in fixed cost.
D) decreases in overhead costs.
(Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts.
The marginal cost of the fifth sweatshirt is:
A) $17.
B) $15.
C) $13.
D) $11.
Sales taxes are considered to be:
A) an unfair burden on wealthy people, who spend more money on goods subject to
sales tax.
B) progressive.
C) the most important source of revenue for the federal government.
D) regressive.
A men’s tie store sold an average of 30 ties per day at $5 per tie. The same store sold 60
of the same ties per day at $3 per tie. In this case, the price elasticity of demand (by the
midpoint method) is:
A) greater than zero but less than 1.
B) equal to 1.
C) greater than 1 but less than 3.
D) greater than 3.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $60, how much is Alex’s profit at the profit-maximizing output?
A) $10
B) $2,400
C) $300
D) $2,100
Total profit is maximized when marginal benefit _____ marginal cost.
A) is more than
B) is less than
C) is equal to
D) approaches
Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of
$50,000 per year. If the store earned an economic profit of $50,000 last year, the store’s
accounting profit equaled:
A) $10,000.
B) $50,000.
C) $100,000.
D) $200,000.
A person with loss aversion:
A) has a hard time recognizing losing investments and moving on.
B) is likely to maximize total revenue rather than profit.
C) is unlikely to ignore sunk costs.
D) is more likely to use a credit card than to pay cash.
If a nation imports a good when the economy is opened to trade, the domestic price of
the good will _____ and domestic consumption will _____.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
If a production possibility frontier is a straight line, it tells us that the opportunity cost
of producing one more unit of good X:
A) is an increasing amount of good Y.
B) is a decreasing amount of good Y.
C) is equal to the inverse of the amount of good Y.
D) is a constant amount of good Y.
(Table: Amy’s Utility Function) Look at the table Amy’s Utility Function. Amy is an
entrepreneur with current income equal to $40,000. Amy is considering development of
a new product. The probability that her new product earns Amy $30,000 in additional
income is 0.5, and the probability that Amy incurs a reduction of $10,000 from her
current income is also 0.5. Amy’s expected utility after developing her new product is
_____ utils.
A) 1,360
B) 860
C) 500
D) 680
Gillian is consuming her optimal consumption bundle of peanuts and raisins. The
marginal utility associated with the last peanut she consumes is 4 utils, and the marginal
utility associated with the last raisin is 2 utils. What must be the price of peanuts
relative to that of raisins?
A) 0.5
B) 1
C) 2
D) The relative price is undefined.
Marginal cost is the change in:
A) total product resulting from a one-unit change in a variable input.
B) total cost resulting from a one-unit change in quantity of a variable input.
C) total cost divided by the change in output.
D) average cost resulting from a one-unit change in quantity of output.
Figure: Monopoly Model
(Figure: Monopoly Model) Look at the figure Monopoly Model. When the firm is in
equilibrium (that is, maximizing its economic profit), its total revenue is the area of
rectangle:
A) SPDB.
B) IPDH.
C) 0SBJ.
D) 0PDJ.
Rhonda spends all of her income on clothes and CDs. Suppose this situation were
graphed with clothes on the vertical axis and CDs on the horizontal axis. Rhonda
consumes a bundle of the two goods whose indifference curve is flatter than the budget
line. To increase total utility, given her income, Rhonda should:
A) increase her consumption of clothes and decrease her consumption of CDs.
B) increase her consumption of CDs and decrease her consumption of clothes.
C) do nothingshe is consuming a bundle on her budget line.
D) Not enough information is given to answer this question.
The system of taxicab medallions in New York City is an example of a:
A) price ceiling.
B) nonbinding price ceiling.
C) price floor.
D) quantity control.
Table: Market for Apartments
(Table: Market for Apartments) Look at the table Market for Apartments. If a
government price ceiling of $600 is imposed on this market, the result will be an
inefficiency in the form of a _____ million apartments.
A) surplus of 0.6
B) surplus of 0.8
C) shortage of 0.8
D) shortage of 0.6
In the long run:
A) all factors are fixed.
B) all factors are variable.
C) production choices are more limited than in the short run.
D) production is always greater than zero.
In an industry characterized by extensive economies of scale:
A) small companies are more profitable than large companies.
B) large companies are more profitable than small companies.
C) small and large companies are equally profitable.
D) small companies will drive out large companies.
(Table: Two Rival Gas Stations) Look at the table Two Rival Gas Stations, which shows
a payoff matrix for two gas stations in a small town. Each firm can set either a high
price or a low price, and customers view these two firms as nearly perfect substitutes.
Profits in each cell of the payoff matrix are given as (Swifty, Speedy). Which of the
following choices describes a dominant strategy?
A) Swifty will always set a low price, no matter Speedy’s choice.
B) Swifty will always set a high price, no matter Speedy’s choice.
C) Swifty will set a low price when Speedy sets a high price, but Swifty will set a high
price when Speedy sets a low price.
D) Swifty will set a high price when Speedy sets a high price, but Swifty will set a low
price when Speedy sets a low price.
Figure: Comparative Advantage Eastland and Westland produce only two goods,
boxes of peaches and boxes of oranges, and this figure shows each nation’s production
possibility frontier for the two goods.
(Figure: Comparative Advantage) Look at the figure Comparative Advantage. The
opportunity cost of producing 1 box of oranges for Westland is _____ box(es) of
peaches.
A) 1
B) 0.25
C) 4
D) 10
An oligopoly may result from:
A) increasing returns to scale.
B) standardization of a product.
C) low or no barriers to entry.
D) price-taking conditions for both buyers and sellers.
If farmer Sam MacDonald can produce 200 pounds of cabbages and no potatoes or no
cabbages and 100 pounds of potatoes and if he faces a linear production possibility
frontier, the opportunity cost of producing an additional pound of cabbage is _____
pound(s) of potatoes.
A) 0.5
B) 2
C) 100
D) 200
The demand curve for a monopoly is:
A) the sum of the supply curves of all of the firms in the monopoly’s industry.
B) the industry demand curve.
C) horizontal because no one can enter.
D) perfectly elastic.