If marginal utility is declining but still positive, total utility is increasing.
Answer:
Deciding what the distribution of income should be is an example of normative
economics.
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The Lorenz curve would be a diagonal line if income were distributed equally.
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Economic reasoning predicts that there will be strong pressures to make real-world
markets perfectly competitive.
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An increase in market price, given a fixed number of firms, causes market supply to
shift to the right.
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Productive efficiency is not achieved at any point inside the production possibility
curve.
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A perfectly competitive market is a market in which economic forces are controlled by
government policy makers.
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eBay is an example of a coordination mechanism.
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A liberal economist would never recommend that policy makers cut union wages.
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Externalities can be either positive or negative.
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A demand curve is downward sloping because as the price of a good falls, demanders
will substitute some other good for that good whose price has fallen.
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According to the contestable market model, if there are no barriers to entry or exit, the
price an oligopolist sets will provide no economic profits in the long run.
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The opportunity cost of undertaking an activity includes any sunk cost.
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Positive economics is concerned with justifying a particular distribution of income.
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The higher the after-tax wage, the greater the quantity of labor supplied.
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Pareto optimal policies are almost nonexistent in the real world.
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The cross-price elasticity of demand is the percentage change in price divided by the
percentage change in the price of another good.
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If cigar prices tripled while sales of cigars rose 30 percent, this would likely be due to a
shift in demand.
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Real-world experience shows that when weather conditions reduce crop yields, the
price of agricultural products will fall.
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The net effect of restricting entry into a market is to decrease the income of the
remaining suppliers.
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Businesses produce goods and services and sell them to households and governments.
The market where this interaction takes place is called the goods market.
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In a market economy, society relies on the self-interest of individuals to determine
what, how, and for whom to produce.
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The smaller the coefficient of determination, the better the chance of every point being
on the “best fit” line.
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The law of diminishing marginal productivity states that as more units of a variable
input are added, holding other inputs constant (ceteris paribus), the additional output
obtained from each new unit of the variable input eventually falls.
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Governments establish the laws that regulate the interaction between businesses and
households but do not serve as actors in the economy themselves.
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Two nations with differing comparative advantages will be able to consume more if
each produces the good for which the opportunity cost is highest and trades for the good
for which opportunity cost is lowest.
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Price ceilings create shortages, but taxes do not.
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If Americans demand goods produced in Mexico, it leads to a demand for Mexican
pesos and a supply of U.S. dollars on the foreign exchange market.
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Discrimination based on characteristics that are related to job performance may be in
the economic best interests of a firm.
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Economic theory tells us that inequality in income is unfair if equal opportunity of
equals leads to inequality of income.
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The marginal cost curve is a competitive firm’s supply curve; it shows how many units
of output a firm will be willing to sell at different prices.
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A price ceiling is in essence an implicit tax on producers and an implicit subsidy to
consumers.
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The answers to an economy’s three central economic problems are determined by the
interaction of three forces: economic forces, political forces, and social forces.
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Adverse selection problems can occur when buyers and sellers have different amounts
of information about a good for sale.
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Game theory tells how to win at games of chance.
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A change in the price of carrots will cause a movement along the demand for carrots
curve and a shift in the demand for substitute vegetables.
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The only way to judge monopoly is to use both structure and performance criterion
simultaneously.
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There is always a single market coordination mechanism in economic models.
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An economy that operates inside its production possibility curve is less efficient than it
would be if it were operating on its production possibility curve.
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The minimum efficient level of production refers to the production level in the long run
that spreads setup costs out just enough to make production profitable.
Answer:
An economist observes that a monopolist does not take full advantage of its market
power. She concludes that the firm may not do so because it might not be fair. This
economist is most likely to be a(n):
A. traditional economist.
B. behavioral economist.
C. irrational economist.
D. engineering economist.
Answer:
Which of the following is not likely to change the supply of personal computers?
A. An increase in consumers’ incomes
B. A technological breakthrough that makes it much less costly to produce computer
chips
C. A decrease in the wage paid to electrical engineers
D. An increase in taxes on computer chips paid by producers
Answer:
Refer to the graph shown. If firm A expects firm B to cheat, firm A would be best off:
A. cheating to earn zero profit.
B. not cheating to lose $150,000.
C. cheating to earn $150,000.
D. not cheating to earn zero profit.
Answer:
The last Big Mac that Éva consumes costs $2.00 and gives her 24 units of utility. The
last Whopper she consumes costs $1.50 and gives her 18 units of utility. Éva is
maximizing her utility. If the price of the Whopper falls to $1.30 and given diminishing
marginal utility, Éva should:
A. consume more Big Macs and fewer Whoppers.
B. consume more Whoppers and fewer Big Macs.
C. keep consuming the current amounts of both Big Macs and Whoppers.
D. realize that she doesn’t have enough information to answer the question.
Answer:
Which of the following is an example of a focal point equilibrium?
A. Purchase of an expensive automobile to impress others
B. Avoidance of cheap computers because low price indicates low quality
C. Purchase of hip-hugger pants because pop stars wear them
D. Purchase of fast food because it is cheap and convenient
Answer:
One of the major complaints about state lotteries is that they are played primarily by the
poor. Hence, because lotteries do not pay out in prizes as much as they take in as
revenue, this way of raising state revenue is:
A. progressive.
B. retroactive.
C. reactionary.
D. regressive.
Answer:
If a perfectly competitive firm finds that price is less than average variable cost, it
should:
A. not adjust output if marginal cost equals price.
B. shut down immediately.
C. increase output until price equals marginal cost.
D. decrease output until price equals marginal cost.
Answer:
Which of the following is least likely to be studied in macroeconomics?
A. Inflation
B. Unemployment
C. Business cycles
D. Advertising
Answer:
Refer to the graphs shown. The market is salmon steaks. Which graph best represents
the impact of increased concern that salmon is becoming endangered?
A. a
B. b
C. c
D. d
Answer:
Other things equal, an increase in the number of single-parent families would be
expected to:
A. increase income inequality, causing the Lorenz curve to shift toward the diagonal
line.
B. decrease income inequality, causing the Lorenz curve to shift toward the diagonal
line.
C. increase income inequality, causing the Lorenz curve to shift away from the diagonal
line.
D. decrease income inequality, causing the Lorenz curve to shift away from the
diagonal line.
Answer:
What do economists mean by “reverse engineering”?
A. Taking a product apart in order to copy its design
B. A modification of old technology
C. A decision to adopt an old technology rather than a new one
D. Modification of existing machines so that they can be run by handicapped persons
Answer:
Income elasticity is defined as the:
A. change in demand divided by the change in income.
B. percentage change in demand divided by the percentage change in income.
C. change in income divided by the change in demand.
D. percentage change in income divided by the percentage change in demand.
Answer:
The price at which a monopolistic competitor sells its product in both the long run and
the short run is equal to:
A. marginal revenue.
B. average revenue.
C. average total cost.
D. marginal cost.
Answer:
The country with a comparative advantage in the production of good X is the one that:
A. has the greatest technical efficiency in producing good X.
B. has the greatest supply of the natural resources used in producing good X.
C. can produce good X with the least labor.
D. can produce good X at the lowest opportunity cost.
Answer:
If government undertakes to reduce water usage by using a market incentive plan:
A. each consumer will have to reduce his or her water usage by an equal amount.
B. consumers who reduce water usage by more than the required amount can sell
marketable certificates to consumers who seek to reduce usage by less than the required
amount.
C. consumers who do not reduce usage by the required amount will have to pay taxes
on the extra water usage.
D. consumers will be asked to reduce water usage voluntarily.
Answer:
Refer to the graph shown. The amount of a tax sufficient to reduce quantity supplied to
the level that individuals would have supplied had they included the cost in their
decision on third parties is:
A. $2.50.
B. $1.70.
C. $1.00.
D. $0.80.
Answer:
Oligopolistic firms:
A. may seek to drive competitors out of business for personal reasons, even at great
expense.
B. would not drive competitors out of business to gain control of the market.
C. know that their competitors pay no attention to their pricing decisions and therefore
hope to gain market share by lowering price.
D. do not pay attention to a competitor’s prices because there’s nothing they can do
about them.
Answer:
Monitoring a monopoly to keep it efficient would itself be efficient if the extra profit
achieved by:
A. raising production costs is less than the costs of monitoring.
B. raising production costs exceeds the costs of monitoring.
C. reducing production costs is less than the costs of monitoring.
D. reducing production costs exceeds the costs of monitoring.
Answer:
Mr. Woodard’s cabinet shop is experiencing rapid growth in sales. As sales have
increased, Mr. Woodard has found it necessary to hire more workers. However, he has
observed that doubling the number of workers has less than doubled his output. What is
the likely explanation?
A. The law of diminishing marginal utility
B. The law of diminishing marginal productivity
C. The law of supply
D. The law of demand
Answer:
Suppose you operate a factory that produces 500 lawn mowers a week. If your weekly
variable cost is $40,000 and your weekly total cost is $50,000, the average:
A. fixed cost of production is $80.
B. cost of production is $80.
C. fixed cost of production is $20.
D. variable cost of production is $100.
Answer:
When suspects are interviewed in different rooms, they do not know what the other
suspects are going to do and hence seek the best deal for themselves. This illustrates:
A. that criminals are irrational.
B. the idea of a cooperative game.
C. the idea of a noncooperative game.
D. that the police are not taking into account the suspects’ rights.
Answer:
Rent control makes apartments:
A. hard to find.
B. easy to find.
C. less desirable.
D. be in excess demand.
Answer:
The Apple iPod has been a trendy product. It was designed by Apple in the United
States, manufactured in factories in Asia, and sold throughout the world. Many other
firms, both American and foreign, began to try to develop alternatives to the iPod. The
iPod is an example of American comparative advantage in:
A. innovation.
B. mass production.
C. hand production.
D. consumerism.
Answer:
It has been estimated that the price elasticity for cigarettes is 0.164. Assuming there are
currently no taxes on cigarettes, to reduce cigarette purchases 5 percent, the government
would need to tax cigarettes enough to:
A. raise the price by 0.82 percent.
B. lower the price by 0.82 percent.
C. raise the price by 30.5 percent.
D. lower the price by 30.5 percent.
Answer:
Other things being equal, when average productivity falls:
A. average fixed cost must rise.
B. marginal cost must rise.
C. average total cost must rise.
D. average variable cost must rise.
Answer:
An externality is present in a free market whenever:
A. a monopolist spends funds to keep potential competitors out of the market.
B. an activity generates costs or benefits that are not reflected in market prices.
C. firms hire employees from outside the firm to fill positions normally filled by
promotion from within the firm.
D. a tax is imposed on the supplier of a good.
Answer:
Germany restricts the use of nonrefillable bottles and cans. The European Union argues
that the rules aren’t just protecting the environment; they also are protecting German
beverage makers from competition. The EU sees Germany’s environmentalism as:
A. a tariff.
B. a quota.
C. a regulatory trade restriction.
D. an embargo.
Answer:
Refer to the graph shown. The diagram demonstrates that an increase in the price of
soda will:
A. raise the quantity demanded of soda.
B. reduce the quantity demanded of soda.
C. raise the quantity demanded of chocolate bars.
D. raise the consumer’s available income.
Answer:
If the total utility curve is a straight line, the marginal utility curve would be a:
A. downward-sloping line.
B. a flat line with a slope of zero.
C. an upward-sloping line with a slope of 1.
D. a vertical line.
Answer:
Refer to the graphs shown, which depict a perfectly competitive market and firm. If
market demand increases from D0 to D1, in the short run:
A. market price rises from P0 to P1 and the firm’s output rises from q0 to q1.
B. market price rises from P0 to P1 and the firm’s output rises from Q0 to Q1.
C. market price remains at P0 because perfectly competitive firms can’t earn positive
economic profit.
D. the firm’s output remains at q0 because perfectly competitive firms can’t earn
positive economic profit.
Answer: