(Table: Trade-off of Study Time
and Leisure Time) Look at the table Trade-off of Study Time and Leisure Time. A
student sleeps 8 hours per day and divides the remaining time between study time and
leisure time. The table shows the combinations of study and leisure time that can be
produced in the 16 waking hours of each day. Suppose the student completes a
speed-reading course that allows him to do the same amount of studying in half as
many hours. His opportunity cost:
A) of leisure has increased.
B) of studying has increased.
C) of leisure has decreased.
D) has not changed.
You own a lemonade stand in a competitive market, and as such, you are a price-taking
firm. Which of the following events would most likely increase your market power?
A) The government abolishes the system of patents and copyrights.
B) A booming economy increases the demand for lemonade and attracts entry into the
market.
C) The average total cost curve for firms in the industry is horizontal.
D) You own exclusive rights to harvest lemons from all domestic citrus orchards.
Costs that are included in the economic concept of cost but that are NOT explicit costs
are:
A) outlay costs.
B) accounting profits.
C) implicit costs.
D) economic profits.
Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. A quota of
_____ will bring about the same price and output in the market for yachts as would an
excise tax of $30,000.
A) 2,000
B) 3,000
C) 4,000
D) The answer is impossible to determine.
Which of the following taxes best illustrates the ability-to-pay principle of tax fairness?
A) The local city playground is funded by a tax on all citizens.
B) Roads and highways are built and maintained by revenue from a tax on gasoline.
C) A property tax that is proportional to the value of the home is charged to
homeowners to fund primary and secondary education.
D) A sales tax on food pays for police and fire protection.
Janet’s poodle grooming salon has a total cost curve expressed by the equation TC =
100 + 3Q2, where Q is the quantity of dogs groomed. Given this expression, Janet is
operating in the:
A) long run.
B) short run, and her fixed costs are $100.
C) long run, and her fixed costs are $100.
D) short run, and there are no fixed costs.
A monopolistic competitor is likely to advertise to:
A) increase the perception of product differentiation in the minds of potential
consumers.
B) shift the demand curve for its product rightward.
C) convey information about the product it is offering for sale.
D) increase the perception of product differentiation in the minds of potential
consumers, shift the demand curve for its product rightward, and convey information
about the product it is offering for sale.
Which of the following is TRUE of an inferior good?
A) When income increases, demand remains unchanged.
B) When income increases, demand decreases.
C) When income increases, demand increases.
D) Income and demand are unrelated.
The price elasticity of demand for skiing lessons in New Hampshire is over 1. This
means that the demand is _____ in New Hampshire.
A) price elastic
B) price inelastic
C) price unit-elastic.
D) perfectly price elastic
The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The
price elasticity of demand is equal to _____, and demand is described as _____.
A) 0.2; inelastic
B) 5; inelastic
C) 0.2; elastic
D) 5; elastic
We would consider a tornado and a CEO scandal that hit a construction company on the
same day as _____ events.
A) independent
B) dependent
C) premium
D) probable
When the demand for automobiles is high, the demand for workers who build
automobiles is high. This relation between the market for automobiles and the market
for the labor that builds automobiles is why demand in a factor market is called:
A) the marginal productivity theory of income distribution.
B) a compensating differential.
C) the factor distribution of income.
D) a derived demand.
Consider the time allocation budget line for Priya. Put hours of leisure on the horizontal
axis and income on the vertical axis. If Priya can allocate 100 hours per week to either
leisure or work and her wage per hour is $18, then the vertical intercept is _____ and
the slope of the time allocation budget line is _____.
A) $180; 18
B) $1,800; 18
C) $1,800; “18
D) $720; 18
Figure: The Perfectly Competitive Firm
(Figure: The Perfectly Competitive Firm) Look at the figure The Perfectly Competitive
Firm. The figure shows a perfectly competitive firm that faces demand curve d and
maximizes profit. The firm’s economic profit in the long run will be:
A) $0.
B) $250.
C) $275.
D) $300.
Which of the following methods of encouraging recycling is likely to be MOST
effective because people usually exploit opportunities to make themselves better off?
A) appealing to consumers to be a good citizen
B) publicizing the advantages of recycling
C) imposing a tax per unit of garbage generated
D) All three methods are equally effective.
Which of the following is a positive statement?
A) The rate of unemployment should be 4%.
B) A high rate of economic growth should be a more important economic goal than a
low rate of inflation.
C) The federal government spends half of its budget on national defense.
D) Everyone in the country should be covered by national health insurance.
The wedding dress industry is monopolistically competitive. As a result:
A) thousands of dress suppliers all sell identical products.
B) dresses tend to be differentiated among the many sellers serving this market.
C) it has freedom of entry but not exit.
D) prices tend to be lower than if the dress industry approximated perfect competition.
According to the Heckscher”Ohlin model, Brazil will have a comparative advantage in
oranges if the factors _____ in the production of oranges are _____.
A) intensive; abundant
B) intensive; imported
C) that are scarce; imported
D) intensive; inexpensive
Figure: Monopoly Model
(Figure: Monopoly Model) Look at the figure Monopoly Model. When the firm is in
equilibrium (that is, maximizing its economic profit), its total cost is the area of
rectangle:
A) 0PDJ.
B) 0IHJ.
C) IPDH.
D) 0SBJ.
A sudden loss of income and a significant increase in costly medical expenses are
examples of:
A) economic insecurity.
B) economic inequality.
C) poverty thresholds.
D) the Great Compression.
Monopolistically competitive firms have zero economic profits in the long run because
of:
A) excess capacity.
B) price wars among firms.
C) easy entry and exit.
D) excessive advertising.
(Table: Production of Good Z and Good X in Urbanville) Look at the table Production
of Good Z and Good X in Urbanville. Suppose this table shows the production
possibility frontier and Urbanville is producing 15 of Z and 45 of X. This combination
is:
A) both allocatively and productively efficient.
B) productively efficient.
C) allocatively efficient.
D) neither productively nor allocatively efficient.
Suppose the market for gasoline is in equilibrium. You have heard that the price of
crude oil is falling because of new oil discoveries. You are also aware that the number
of car and truck drivers is steadily rising. Knowing this, you predict that the price of
gasoline will _____ and the quantity of gasoline bought and sold will _____.
A) rise; rise
B) rise; fall
C) rise or fall; rise
D) rise or fall; fall
Figure: Demand for Coconuts
(Figure: Demand for Coconuts) Look at the figure Demand for Coconuts. If coconuts
are a normal good and the price of coconuts increases, it will be represented in the
figure as a movement from:
A) A to B.
B) B to A.
C) C to A.
D) E to B.
Gains from trade exist for:
A) individuals only.
B) states only.
C) countries only.
D) individuals, states, and countries.
For an inferior good, the income elasticity of demand will be:
A) negative.
B) positive.
C) zero.
D) determined by the direction of the change in income.
For most restaurants, the average total cost curve _____ at _____ levels of output, then
_____ at _____ levels.
A) falls; low; rises; high
B) rises; low; falls; high
C) rises; high; rises; low
D) falls; high; falls; low