All else equal, if a price floor above the equilibrium is imposed on a market and the
government buys the surplus, consumer surplus will _____ and producer surplus will
_____.
A) fall; rise
B) fall; fall
C) rise; fall
D) rise; rise
LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1
teaspoon of honey for 2 teaspoons of sugar. If honey is three times as expensive as
sugar, LaToya will use:
A) only honey.
B) only sugar.
C) some honey and some sugar.
D) a lot of sugar and a little honey.
Consider a perfectly competitive firm in the short run. Assume the firm produces the
profit-maximizing output and earns economic profits. Which statement is FALSE?
A) Price is equal to marginal cost.
B) Price is equal to marginal revenue.
C) Price is equal to average total cost.
D) Marginal cost is greater than average total cost.
(Table: Costs of Birthday Cakes) Look at the table Costs of Birthday Cakes. Assume
that fixed costs are $10. What is the marginal cost of the fourth cake?
A) $8
B) $10
C) $25
D) $35
The factor distribution of income reflects that:
A) land, labor, and capital are equally distributed.
B) most people receive their income based on their labor contribution.
C) most people receive their income based on their capital distribution.
D) land provides most income to the population.
Figure: Pricing Strategy in Cable TV Market I
(Figure: Pricing Strategy in Cable TV Market I) In the figure Pricing Strategy in Cable
TV Market I, the dominant strategy for CableNorth:
A) is to advertise.
B) is not to advertise.
C) is to do whatever CableSouth does.
D) does not exist.
If total utility is at a maximum, marginal utility is:
A) rising.
B) at its average value.
C) at a maximum.
D) zero.
If there is an increase in supply, assuming a positively sloped supply curve and a
negatively sloped demand curve, total surplus:
A) will increase.
B) will decrease.
C) will remain the same.
D) may change, but we can’t tell how.
Smallville has a linear production possibility frontier in the production of good X and
good Y. It can produce 6 of X per hour or 8 of Y per hour. Suppose it has 240 hours of
labor and divides labor hours equally between production of good X and good Y. What
is the MAXIMUM amount of good Y it can produce?
A) 960
B) 30
C) 14
D) 6
A tax that takes a _____ percentage of income as income _____ is a _____ tax.
A) lower; rises; progressive
B) lower; rises; regressive
C) higher; rises; proportional
D) higher; falls; proportional
Figure: The Market for Calculators
(Figure: The Market for Calculators) Look at the figure The Market for Calculators.
Assume that S and D represent the domestic demand and supply of calculators. The
world price, PW, equals $100. The government imposes a quota restricting imports to 25
calculators. The domestic price rises to _____ and the quota rent is equal to area _____.
A) $120; K + L
B) $150; K + H + I + L
C) $120; H + I
D) $150; G + H + I + J
Faruq spends all of his income on tacos and milkshakes. His income is $100, the price
of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and
milkshakes on the vertical axis. The slope of Faruq’s budget line is equal to:
A) “1/5.
B) “5.
C) 1/5.
D) 5.
A bar graph:
A) shows the relative amounts attributable to different categories.
B) may be shown by vertical bars to illustrate the comparative sizes of different
observations.
C) may be shown by horizontal bars to illustrate the comparative sizes of different
observations.
D) A, B, and C.
Ashley Bakery expects its marginal cost curve will eventually slope upward, because as
with most production processes, baking has:
A) constant opportunity costs.
B) a maximum efficient scale.
C) diminishing marginal returns.
D) decreasing opportunity costs.
Figure: Short-Run Monopoly
(Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly. The
profit-maximizing price is price:
A) N.
B) O.
C) P.
D) Q.
The price of coffee increases by 10%, and as a result, Alex purchases fewer doughnuts.
For Alex, coffee and doughnuts are:
A) complements.
B) substitutes.
C) inferior goods.
D) normal goods.
Figure: Water Works
(Figure: Water Works) Look at the figure Water Works, which describes a small town’s
water works, a natural monopoly. If regulators require the water works to charge the
price that eliminates deadweight loss, consumer surplus will be:
A) $1,600.
B) $1,400.
C) $1,000.
D) $800.
In contrast to perfect competition, in monopolistic competition:
A) entry and exit are easy.
B) there are many firms.
C) products are differentiated.
D) to maximize profits, a firm will produce where MR = MC.
The demand curve for a normal good will always slope downward because:
A) the substitution effect and the income effect reinforce each other, and the
substitution effect always displays an inverse relation between price and quantity
demanded.
B) the substitution effect and the income effect reinforce each other, and the income
effect always displays an inverse relation between price and quantity demanded.
C) even though the substitution effect and the income effect move in opposite
directions, the substitution effect dominates, and it always displays an inverse relation
between price and quantity demanded.
D) even though the substitution effect and the income effect move in opposite
directions, the income effect dominates, and it always displays an inverse relation
between price and quantity demanded.
In a perfectly competitive industry, each firm:
A) is a price maker.
B) produces about half of the total industry output.
C) produces a differentiated product.
D) produces a standardized product.
Scenario: Health Costs
Alan is hoping for a healthy year, meaning that he would have zero health costs. Given
his habits, there is a 40% chance that Alan will develop a health issue resulting in
$50,000 in health costs. Assume these are the only two conditions that could exist for
Alan in the coming year.
(Scenario: Health Costs) Look at the scenario Health Costs. Suppose that Alan decides
to change his habits dramatically and as a result decreases the probability of his
developing a health problem such that he now has a 20% chance of becoming ill. What
is the expected value of Alan’s health costs now?
A) $0
B) $10,000
C) $20,000
D) $2,000
The substitution effect of a price change is described by the statement that:
A) when the price of canning jars falls, consumers have more real income with the
same nominal income and will buy more canning jars.
B) when the price of canning jars falls, consumers will substitute these lower-priced
canning jars for higher-priced goods.
C) the substitution effect is the change in the number of canning jars purchased when
the price of spatulas changes.
D) the substitution effect shows how a change in income will affect the quantity of a
good purchased.
When a monopolist practices price discrimination, compared to a single-price
monopolist, monopoly profits will:
A) remain the same.
B) increase.
C) decrease.
D) increase initially, and then return to their original level.
In a single year, Argentina can raise 100 tons of beef or produce 1,000 boxes of tulips.
In the same growing season, Venezuela can raise 50 tons of beef or produce 750 boxes
of tulips. When the two countries begin trading beef for tulips, we expect the price of
beef in Venezuela:
A) to fall.
B) to rise.
C) to remain at the autarky price.
D) to be 15 boxes of tulips.
Excess supply occurs when:
A) the price is above the equilibrium price.
B) the quantity demanded exceeds the quantity supplied.
C) the price is below the equilibrium price.
D) the quantity demanded exceeds the quantity supplied and the price is below the
equilibrium price.