Alex is playing his music at full volume in his dorm room. The other people living on
his floor are enjoying his music, but Alex does not know or care. Alex’s music playing
is an example of a:
A. negative externality.
B. positive externality.
C. normative externality.
D. Pareto externality.
Answer:
If Steve willingly consumes another slice of pizza, you can be sure that his marginal
utility is:
A. rising.
B. falling.
C. positive.
D. negative.
Answer:
A reduction in the demand for labor will cause wages to:
A. decrease and employment to increase.
B. decrease and employment to decrease.
C. increase and employment to decrease.
D. increase and employment to increase.
Answer:
Real-world market structures tend to be:
A. perfectly competitive.
B. monopolies.
C. monopolistically competitive and oligopolistic.
D. oligarchies.
Answer:
John and Jack are both trying to sell a used car to Jim. John’s car is a lemon, a car that
has a serious but nonobvious problem. Jack’s car is a cherry, a car that has no problems.
Jim cannot tell the difference between the cars. Economists say this information
problem might be solved with signaling. Who has an incentive to find a way to signal
quality?
A. Both Jack and John
B. Jack but not John
C. John but not Jack
D. Jim
Answer:
John has 10 apples and six bananas. Jane has two bananas and two apples. If this
situation is Pareto optimal, what mutually beneficial exchange could be made?
A. None; there is no exchange that can help one without hurting the other.
B. Fruit should be taken from John and given to Jane to equalize their holdings.
C. Jane should give up apples to get bananas.
D. Jane should give up bananas to get apples.
Answer:
To achieve technical efficiency, managers should:
A. use the highest-quality inputs.
B. use the most sophisticated technology.
C. hire the most highly skilled employees.
D. produce a level of output with the fewest possible inputs.
Answer:
The theory of bounded rationality is consistent with which of the following?
A. None of our decisions are rational.
B. Our rationality depends on principles such as “you get what you pay for.”
C. It is irrational to follow principles such as “follow the leader.”
D. It does not pay to be irrational at times.
Answer:
Can accounting profit be positive while economic profits are negative?
A. No. The two concepts are identical.
B. Yes, if total revenue covers opportunity costs but not explicit costs.
C. Yes, if total revenue covers explicit costs but not opportunity costs.
D. No. Economic profits must always be larger than accounting profits.
Answer:
In behavioral economics people gravitate toward certain points. These points are called:
A. path-dependent points.
B. best fit points.
C. anchor points.
D. feedback points.
Answer:
One reason trade restrictions exist is that:
A. workers can be shifted easily from one industry to another.
B. workers cannot be shifted easily from one industry to another.
C. the long-run gains from free trade are small relative to the short-run costs.
D. the short-run gains from free trade are small relative to the long-run costs.
Answer:
How do the concepts of market failure and failure of market outcome relate to the
concept of economic efficiency?
A. Market failure means the economy is not economically efficient; failure of market
outcome could happen even if the economy is economically efficient.
B. Failure of market outcome means the economy is not economically efficient; market
failure could happen even if the economy is economically efficient.
C. Both market failure and failure of market outcome mean that the economy is not
economically efficient.
D. Both market failure and failure of market outcome could happen even if the
economy is economically efficient.
Answer:
The president of the United States receives an annual salary of $400,000. Derek Jeter,
shortstop for the New York Yankees, receives an annual salary of $23.2 million. Based
on marginal productivity theory and assuming these markets are competitive, this salary
differential indicates that:
A. Derek Jeter contributes much more to society than does the president of the United
States.
B. the president of the United States contributes much more to society than does Derek
Jeter.
C. Derek Jeter and the president of the United States make equal contributions to
society.
D. the salary differential between Derek Jeter and the president of the United States
indicates that their marginal productivities cannot be compared.
Answer:
Country A has most-favored-nation (MFN) trade agreements with countries C and D,
and it has just lowered its tariff on imports of cars from country C. It has violated its
MFN agreement with country D unless it also:
A. allows country D to raise tariffs on country C’s cars.
B. reduces its tariff on country D’s cars by the same amount.
C. raises its tariff on other goods imported from country C.
D. raises its tariff on other goods imported from country D.
Answer:
If P = 3Qs + 3 represents market supply for a competitive industry and market demand
is given by Qd = 31 – 1/3 P, the equilibrium quantity is:
A. 10.
B. 15.
C. 20.
D. 48.
Answer:
Refer to the following graph.
This set of cost curves is:
A. correct.
B. wrong because the average variable and average total cost curves are switched.
C. wrong because the marginal cost curve should go through the minimum points of the
AVC and ATC curves.
D. wrong because the marginal cost curve does not intersect the average total cost
curve.
Answer:
If no resources had a comparative advantage in the production of any good, the
production possibility curve would be:
A. bowed outward.
B. bowed inward.
C. a horizontal line.
D. a downward-sloping straight line.
Answer:
Refer to the graphs shown, which depict a perfectly competitive market and firm. If
market demand is D0, the:
A. firm shown in the graph will produce q0, but all the firms in the market will produce
a total of Q0.
B. firm shown in the graph will produce q1, but all the firms in the market will produce
a total of Q1.
C. output of the firm shown in the graph is the same as quantity supplied in the market.
D. firm is not producing at the output where profit is maximized.
Answer:
Analysts have suggested that the cost of bras is related to trade restrictions on textile
imports. What does the price of bras have to do with tariffs and quotas?
A. Trade restrictions protect consumers by keeping the price of bras low.
B. Trade restrictions in the form of tariffs keep prices of bras high, but replacing them
with quotas will result in lower prices.
C. Trade restrictions keep the prices of bras high, and ending them will result in lower
prices.
D. Trade restrictions do not influence the price of bras; the price is determined by
domestic technology and the overall inflation rate.
Answer:
Refer to the graph shown. If sellers receive a price of $15, quantity supplied will equal:
A. 25.
B. 50.
C. 75.
D. 100.
Answer:
Mexico has a comparative advantage in producing corn:
A. if its opportunity cost of producing corn is higher than the opportunity cost in other
countries.
B. if its opportunity cost of producing corn is the same as the opportunity cost in other
countries.
C. if its opportunity cost of producing corn is lower than the opportunity cost in other
countries.
D. regardless of the opportunity cost in other countries.
Answer:
In economics, the term ‘signaling” refers to a way of lessening the problem of:
A. free riders.
B. negative externalities.
C. bad information by all market participants.
D. unequal information between buyers and sellers.
Answer:
In contrast to the capitalism of the early Industrial Revolution, both feudalism and
mercantilism:
A. had stronger central government intervention in economic life.
B. expected tradition to answer the central coordination problems.
C. relied less on the invisible hand to coordinate economic decisions.
D. relied less on state intervention to promote economic growth.
Answer:
When the average variable cost curve is at its minimum point, average product will be:
A. at its maximum.
B. increasing.
C. decreasing.
D. at its minimum.
Answer:
In a market economy:
A. government owns the means of production so that it can produce what is in society’s
best interest.
B. businesses design their plans to maximize their profit and the market is relied upon
to see that individual self-interest is consistent with society’s interest.
C. workers are directed by government planning boards to produce what is in society’s
best interest.
D. government sets prices to make necessities affordable because it is in society’s best
interest to make necessities affordable.
Answer:
Suppose New Zealand uses one unit of labor to produce a kiwi and two units of labor to
produce an apple. Suppose Australia uses two units of labor to produce a kiwi and one
unit of labor to produce an apple. In this case, New Zealand:
A. has a comparative advantage in producing apples.
B. has a comparative advantage in producing kiwis.
C. has a comparative advantage in producing both goods.
D. does not have a comparative advantage in producing either good.
Answer:
Refer to the table shown. If the output of bicycles is 4 per week, the marginal cost of
producing another bicycle per week is:
A. $110.
B. $120.
C. $130.
D. $140.
Answer:
The decline in the price of American goods is due in part to:
A. agglomeration effects of firms.
B. declines in productivity.
C. trade barriers that allow domestic firms to lower prices.
D. globalization and increased trade.
Answer:
Which of the following does not illustrate the free rider problem?
A. Amy does not contribute to public television, but she watches it every day.
B. Roger refuses to help pay for the private security officer who patrols his
neighborhood.
C. Amanda, a taxpayer, prefers to check out books from her local library rather than
purchasing them herself.
D. Frank enjoys the fireworks from his lawn and does not purchase a ticket to view the
display from the stadium.
Answer:
With the long-run average cost curve above, the minimum efficient scale of production
is:
A. 16.
B. 18 to 21.
C. 21.
D. 23.
Answer: