The market for milk is initially in equilibrium. Milk producers successfully advertise to
encourage milk drinking. At the same time, more milk producers enter the market.
Standard demand and supply analysis tells us that:
A) the equilibrium price and quantity of milk will rise.
B) the equilibrium price and quantity of milk will fall.
C) the equilibrium quantity of milk will rise, but we can’t determine how the
equilibrium price will be affected.
D) the equilibrium price of milk will rise, but we can’t determine how the equilibrium
quantity will be affected.
_____ manifests when the price of a good increases and the quantity demanded
decreases
A) Efficiency
B) The law of demand
C) The supply schedule
D) The production possibilities frontier
The best example of a private good is:
A) an automobile.
B) public education.
C) national defense.
D) law enforcement.
If you want to reduce the inefficiency costs of taxation, you should devise taxes to fall
on goods for which the supply is _____ and the demand is _____.
A) elastic; elastic
B) inelastic; inelastic
C) elastic; inelastic
D) inelastic; elastic
Figure: Shifts in Demand and Supply IV
(Figure: Shifts in Demand and Supply IV) Look at the figure Shifts in Demand and
Supply IV. The figure shows how supply and demand might shift in response to specific
events. Suppose consumer incomes increase. Which panel BEST describes how this
will affect the market for big-screen televisions, a normal good?
A) panel A
B) panel B
C) panel C
D) panel D
In a long-run equilibrium, firms in a monopolistically competitive industry sell at a
price:
A) equal to marginal cost.
B) less than marginal cost.
C) greater than marginal cost.
D) less than marginal revenue.
Which of the following is a positive economic statement?
A) Government has grown too large and should be reduced.
B) There has been an increase in the rate of inflation.
C) Government should be subject to the same rules as all other institutions.
D) Women should be paid as much as men for the same work.
Figure: Payoff Matrix for Gehrig and Gabriel
(Figure: Payoff Matrix for Gehrig and Gabriel) The figure Payoff Matrix for Gehrig and
Gabriel describes two people who sell handmade Davy Crockett figurines in San
Antonio. Both Gehrig and Gabriel have two strategies available to them: to produce
5,000 figurines each month or to produce 7,000 figurines each month. If both follow a
tit-for-tat strategy, equilibrium will be reached when Gehrig produces _____ figurines
and Gabriel produces _____ figurines.
A) 5,000; 5,000
B) 7,000; 7,000
C) 7,000; 5,000
D) 5,000; 7,000
(Table: Natasha’s Total Utility) Look at the table Natasha’s Total Utility. Natasha earns
$50,000 per year but faces losing $20,000 of it if she is late with her work. If there is a
25% probability that Natasha will be late with her work and her income will equal
$30,000, the premium for a fair insurance policy to eliminate the uncertainty in her
income would equal:
A) $4,000.
B) $5,000.
C) $7,500.
D) $9,500.
Figure: Joanna’s Time Allocation Budget Line
(Figure: Joanna’s Time Allocation Budget Line) The figure Joanna’s Time Allocation
Budget Line depicts what happens when she can choose how to spend 40 hours. If
Joanna’s wage increases and as a result she consumes LESS leisure, her supply curve of
labor is:
A) horizontal.
B) upward-sloping.
C) downward-sloping.
D) vertical.
The percentage change in quantity demanded of one good or service divided by the
percentage change in the price of a related good or service is the _____ of demand.
A) price elasticity
B) quantity elasticity
C) income elasticity
D) cross-price elasticity
Which of the following is TRUE?
A) If the price falls below the average total cost, the firm will earn economic profits.
B) Price and marginal revenue are the same in perfect competition.
C) Economic profit per unit is found by subtracting AVC from the price.
D) Economic profit is always positive in the short run.
You go to an all-you-can-eat buffet. If you maximize utility, the marginal utility of the
last bite that you eat will be:
A) equal to the price of the buffet.
B) as high as possible.
C) zero.
D) dependent on how much you like the buffet.
Figure: Guns and Butter
(Figure: Guns and Butter) Look at the figure Guns and Butter. Suppose the economy
produced 8 guns and 12 pounds of butter per period.
A) This is a possible choice but is inefficient.
B) This combination invalidates the notion of increasing opportunity cost.
C) The economy is still efficient but does not buy as much as it could.
D) Something must be done to reduce the amount of employment.
The economy’s factors of production are not equally suitable for producing different
types of goods. This principle generates:
A) economic growth.
B) technical efficiency.
C) underuse of resources.
D) the law of increasing opportunity cost.
Mr. Freezee operates a fleet of ice cream trucks that drive around neighborhoods selling
ice cream. He is trying to decide whether he should buy another ice cream truck to add
to his fleet. He determines that one more truck will add $750 to his revenue but that the
truck will also increase his costs by $1,000. Based on marginal analysis, Mr. Freezee
decides:
A) that he should not purchase the truck, since the costs outweigh the benefits.
B) that he should purchase the truck, since the benefits outweigh the costs.
C) that he should purchase the truck, since his profits will rise by $250.
D) to purchase several trucks with the same costs and benefits.
(Table: Marginal Utility per Dollar of M&Ms) Look at the table Marginal Utility per
Dollar of M&Ms. The price of M&Ms is $2 per bag. The marginal utility per dollar of
the first bag of M&Ms is:
A) 12.
B) 6.
C) 3.
D) 2.
A monopolist is likely to produce _____ and charge _____ than a comparable perfectly
competitive firm.
A) more; more
B) less; more
C) more; less
D) less; less
Perfect competitors and monopolistic competitors both earn _____ economic profit in
the long run, but perfect competitors produce at the _____ of the ATC curve, while
monopolistic competitors produce _____ of the ATC curve.
A) zero; minimum point; on the downward-sloping portion
B) positive; minimum point; on the upward-sloping portion
C) negative; minimum point; at the minimum point
D) zero; downward-sloping portion; at the minimum point
The government decides to impose a price ceiling on a good because it thinks the
market-determined price is too high. If the government imposes the price ceiling below
the equilibrium price:
A) consumers will respond to the lower price and wish to purchase more of the good
than at the equilibrium price.
B) producers will respond to the lower price and offer more units for sale.
C) consumers will be able to purchase more of the good after the price ceiling is
imposed.
D) it will not be binding.
Encouragement of voluntary contributions to the provision of goods:
A) will always lead to the socially optimal provision of public goods.
B) may lead to the provision of public goods.
C) will result in too much of the public good being provided.
D) is required to provide private goods.
Figure: The Market for Sandwiches
(Figure: The Market for Sandwiches) Look at the figure The Market for Sandwiches.
Suppose a price floor is set at $7. At this price, consumer surplus is equal to _____ and
producer surplus is equal to _____.
A) $64; $40
B) $64; $24
C) $32; $24
D) $32; $40
One of the major differences between a monopolist and a purely competitive firm is that
the monopolist has a _____ demand curve, while the purely competitive firm has a
_____ demand curve.
A) downward-sloping; perfectly elastic
B) perfectly inelastic; perfectly elastic
C) downward-sloping; perfectly inelastic
D) perfectly elastic; downward-sloping
To maximize society’s welfare, the government should produce a public good up to the
point at which the marginal social benefit _____ the marginal social cost.
A) equals
B) exceeds
C) is less than
D) is equal to or greater than
When a monopolist practices price discrimination, compared to a single-price
monopolist, deadweight loss will:
A) remain the same.
B) increase.
C) decrease.
D) increase initially, and then return to its original level.
As a rule, a profit-maximizing restaurant owner employs each factor of production up
to the point at which the value of the marginal product of the _____ unit of the factor
employed is _____ that factor’s price.
A) first; greater than
B) last; equal to
C) first; equal to
D) last; less than
If demand is perfectly inelastic and the supply curve is upward-sloping, then the burden
of an excise tax is:
A) borne entirely by consumers.
B) borne entirely by producers.
C) shared by consumers and producers, with the burden falling mainly on consumers.
D) shared by consumers and producers, with the burden falling mainly on producers.
An increase in the price of sugar (an ingredient for soft drinks) and an increased
concern about tooth decay caused by the consumption of soft drinks will result in which
of the following in the soft drink market?
A) There will be an increase in both the equilibrium price and quantity.
B) Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or
stay the same.
C) There will be a decrease in both equilibrium price and quantity.
D) Equilibrium quantity will increase, but equilibrium price may decrease, increase, or
stay the same.