Joseph Gallo poured two glasses of wine from the same bottle but put a more expensive
price tag on one glass than on the other. He let people test both and asked them which
they wanted, and most wanted the more expensive glass, not knowing that both had
come from the same bottle. This result indicates that firms should:
A. be careful about lowering the price of their product, because consumers may assume
that a lower price means lower quality.
B. be careful about raising the price of their product, because the law of demand is
always valid.
C. never lower the price of their product.
D. always raise the price of their product.
Answer:
Long-run decisions are:
A. constrained because all inputs are variable.
B. constrained because all inputs are fixed.
C. constrained because some inputs are fixed and others are variable.
D. unconstrained since all inputs are variable.
Answer:
Refer to the graph shown. If the firm maximizes profit, the marginal cost of its product
will be:
A. $10.
B. $8.
C. $6.
D. $4.
Answer:
Refer to the graphs shown. If consumers began purchasing more of this product due to a
decrease in price, this would be shown by arrow:
A. A.
B. B.
C. C.
D. D.
Answer:
In a market where there are strong social and political forces:
A. quantity demanded will be expected to equal quantity supplied.
B. quantity demanded might not equal quantity supplied.
C. the market will be in disequilibrium.
D. the invisible hand will overcome all other forces.
Answer:
A resource is said to have a comparative advantage if:
A. it is better suited to the production of one good than to the production of an
alternative good.
B. it is equally suited to the production of all goods.
C. its suitability to the production of one good changes as it produces more of that
good.
D. its suitability to the production of one good does not change as it produces more of
that good.
Answer:
Total producer surplus is measured as the area:
A. between the demand curve and the supply curve.
B. above the supply curve.
C. between the supply curve and the horizontal axis.
D. between the vertical axis, the supply curve, and a horizontal line through the market
price.
Answer:
Which of the following is not one of the three central coordination problems of the
economy given in the book?
A. What
B. Whether
C. For whom
D. How
Answer:
Which of the following statements about urban sprawl and traffic congestion is the best
illustration of a normative statement?
A. Snarled traffic cost motorists in the 85 largest U.S. cities 3.5 billion hours in 2002.
B. The average U.S. urban traveler was stuck in road traffic 46 hours in 2002.
C. Traffic congestion has increased in the last 20 years.
D. Because urban sprawl is the result of individual choice, it is okay.
Answer:
A rational consumer maximizes his or her:
A. marginal utility.
B. wealth.
C. total utility.
D. profit.
Answer:
Income equality increased from 1929 to 1970 because of all of the following except:
A. unemployment insurance.
B. Social Security.
C. business fluctuations.
D. progressive taxation.
Answer:
Suppose an industry has a four-firm concentration ratio of 20 percent and a Herfindahl
index of 600. According to the cartel model, the industry would be more likely to have:
A. a monopolistic price.
B. a competitive price.
C. either a monopolistic or a competitive price, depending on barriers to entry and exit.
D. a price war.
Answer:
Laissez-faire is:
A. an economic theorem.
B. an economic precept.
C. an inductive model of markets.
D. a deductive model of markets.
Answer:
Cannibalism is illegal. What issue in the text does this law best illustrate?
A. The distribution of income issues that cause failure of market outcome
B. The self-control problems that cause failure of market outcome
C. Violations of inalienable rights that cause failure of market outcome
D. Information problems that can lead to market failure
Answer:
What events most likely explain the following Wall Street Journal headline, “Cities
Couldn’t Give Away Their Trash; Now They Get Top Dollar?”
A. Quantity supplied initially exceeded quantity demanded, but a subsequent increase in
the demand for trash not only eliminated the surplus, but led to a rise in the price of
trash.
B. Supply initially exceeded demand, but a subsequent increase in the quantity of trash
demanded not only eliminated the surplus, but led to a rise in the price of trash.
C. Quantity supplied initially exceeded quantity demanded, but a subsequent increase in
the supply of trash not only eliminated the surplus, but led to a rise in the price of trash.
D. Supply initially exceeded demand, but a subsequent increase in the quantity of trash
supplied not only eliminated the surplus, but led to a rise in the price of trash.
Answer:
If increasing the hourly wage rate from $10 to $15 causes a worker to work 50 hours
rather than 40, the worker’s elasticity of labor supply is equal to:
A. 0.05.
B. 1.8.
C. 0.50.
D. 2.
Answer:
Production Possibility Schedules for Two South Pacific Island Nations
Refer to the table shown. Which of the following statements is true?
A. Gains from trade are possible for both countries.
B. Only Kiribati will benefit from trade with Tuvalu.
C. Only Tuvalu will benefit from trade with Kiribati.
D. No gains from trade are possible for either Kiribati or Tuvalu.
Answer:
Steve is currently maximizing utility by consuming three fried eggs and four strips of
bacon. From this you can conclude that the:
A. marginal utility of the third fried egg equals the marginal utility of the fourth strip of
bacon.
B. total utility of the three eggs equals the total utility of the four strips of bacon.
C. opportunity cost of not consuming the third fried egg equals the opportunity cost of
not consuming the fourth strip of bacon.
D. price of eggs and bacon are the same.
Answer:
Recently, Wendy’s fast-food restaurants began to offer fruit or salad as a substitute for
French fries in their value meals. It made sense for Wendy’s to advertise this fact as
long as doing so:
A. raised revenue by more than it raised the cost of advertising.
B. raised any revenue at all.
C. did raise costs.
D. raised revenue by less than the cost of advertising.
Answer:
One advantage of a sole proprietorship over a partnership is:
A. direct control by the owner.
B. limited liability.
C. the ability to share the work and risks of business.
D. greater ease of obtaining financing.
Answer:
Average variable cost is total variable cost:
A. divided by output.
B. multiplied by output.
C. divided by input.
D. multiplied by price.
Answer:
If price is increased by law from a market equilibrium value of $5 to a higher value of
$6:
A. both producer surplus and consumer surplus will increase.
B. consumer surplus will decrease and there will be some lost surplus.
C. producer surplus will decrease and there will be some lost surplus.
D. there will be lost surplus, as both producer surplus and consumer surplus decrease.
Answer:
Refer to the graph shown for a small country that is a price taker internationally.
Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. If
government imposes a tariff in the amount of $2 per unit, it will collect revenue in the
amount of:
A. $0.
B. $2,400.
C. $5,000.
D. $10,000.
Answer:
Refer to the table above. If the price per unit of product is $2, the marginal revenue
product of the fourth worker is:
A. 14.
B. 28.
C. 32.
D. 40.
Answer:
Analyzing each action of a firm on a case-by-case basis to determine if it is in violation
of the antitrust laws is generally called judgment by:
A. structure.
B. comparison.
C. case-by-case.
D. performance.
Answer:
Markets coordinate economic activity through:
A. the price mechanism.
B. commanding individuals what to do.
C. asking individuals what to do.
D. the legal mechanism.
Answer:
The principle of increasing marginal opportunity cost does not hold in which of the
following cases?
A. All inputs are equally adaptable to the production of all goods.
B. Some inputs are more adaptable to the production of certain goods.
C. Some inputs are less adaptable to the production of certain goods.
D. Each input is adaptable to the production of a limited number of goods.
Answer:
Which of the following statements is correct?
A. Stockholders are legally liable for all the debt of a corporation.
B. A corporation is a business that is legally owned by its employees.
C. Corporations are legal entities that, in law, are treated as persons.
D. Most large companies and many small companies in the United States are not
corporations.
Answer:
To use cost/benefit analysis to decide whether to attend college, a prospective student
must take into account all of the following except the:
A. income which will have to be forgone during the years when the student is attending
classes rather than working.
B. difference between expected lifetime earnings with a college degree and expected
lifetime earnings without a college degree.
C. basic entertainment expenses during the time spent in college that the student would
have spent even if not attending college.
D. additional expenses incurred while attending college, such as tuition and books.
Answer:
Refer to the table that presents Mike and Janet’s demand for apples by the peck. If they
are the only two in the market, which of the following represents a point on the market
demand curve?
A. price = $1, quantity = 18
B. price = $2, quantity = 21
C. price = $4, quantity = 0
D. price = $4, quantity = 21
Answer:
If MC = Q/15 represents marginal cost for a monopolist and market demand is given by
Qd = 500 – 10P, the monopolist maximizes profit by producing:
A. 187.5 units of output.
B. 250 units of output.
C. 300 units of output.
D. 500 units of output.
Answer: