According to this Application, after the government deceased cigarette taxes in several
Canadian provinces in 1994, the decrease in the price of cigarettes in these provinces:
A) more than doubled the smoking rate.
B) created no noticeable change in the smoking rate.
C) increased the smoking rate by roughly 17 percent.
D) was accompanied by a slight decrease in the rate of smoking.
In the Iowa Gambling Task, scientists have found that on average, subjects begin to
have gut feelings about drawing a card from an unfavorable deck after drawing:
A) 5 cards.
B) 10 cards.
C) 50 cards.
D) 60 cards.
Which of the following is a characteristic of monopolistic competition?
A) Many firms compete for essentially the same customers, but each firm produces a
slightly different product.
B) Competitors have some price-setting power but it is limited because of the many
close substitutes available.
C) Entry is relatively inexpensive.
D) all of the above
You rent a DVD of The Dark Knight Rises. The rental is for seven days and you watch
the movie on the first day. You tell a friend about the film and your friend asks to come
over and watch the movie with you before it is due back. What is your opportunity cost
if you decide to watch the movie a second time instead of going to a football game?
A) the entire cost of the movie rental, since you have already watched the movie
B) one half the rental cost, because you have already watched the movie one time
C) The answer depends on how much you liked the movie in the first place.
D) the football game you forego by watching the movie again
Table 15.1 shows the preferred budget in millions for a new sports facility and the
number of thousands of voters in a community who prefer that budget. Tom proposed a
budget of $7 million while Mary proposed a budget of $2 million. This suggests that
Tom will get ________ thousand votes while Mary gets ________ thousand votes.
Table 15.1
A) 7; 36
B) 22; 21
C) 27; 16
D) 31; 12
The federal government receives more money from ________ than from any other
source.
A) individual income taxes
B) corporate income taxes
C) excise taxes
D) sales taxes
According to the infant industry argument for trade protectionism:
A) trade barriers must be used to protect domestic workers.
B) new industries need to be shielded in the early stages of learning by doing.
C) tariffs imposed to aid new industries should never be removed.
D) new industries are capable of competing with established rivals.
A U.S. boycott against Mexican tuna caught in nets was:
A) upheld by the WTO on the grounds that the use of nets to catch tuna also kills
dolphins.
B) upheld by the WTO on the grounds that nations can impose any environmental
standards on other nations.
C) not upheld by the WTO on the grounds that U.S. ships could still use nets to catch
tuna.
D) not upheld by the WTO on the grounds that killing dolphins in tuna nets does not
harm the U.S. directly.
Suppose that your firm’s marginal cost of producing a pencil is 5 cents and the average
cost of producing a pencil is 3 cents. If your firm is interested in minimizing average
total costs, what should your firm do?
A) Increase production.
B) Decrease production.
C) Maintain production at the current level.
D) Look for ways to increase fixed costs.
Refer to Figure 18.1. After trade begins, ________ will specialize in the production of
bicycles and ________ will specialize in the production of hang gliders.
Figure 18.1
A) the United States; the United States
B) the United States; Canada
C) Canada; the United States
D) Canada; Canada
The change in the quantity consumed that is caused by a change in the relative price of
a good, with real income held constant, refers to the:
A) substitution effect.
B) income effect.
C) equimarginal rule.
D) law of diminishing marginal utility.
Where the monopolistically competitive firm in Figure 11.5 produces it will:
Figure 11.5
A) make a positive economic profit.
B) suffer a loss.
C) make a zero economic profit.
D) make a negative economic profit.
Suppose the United States produces only two goods, grapes and tractors. If the United
States has a comparative advantage in tractors, a move toward free trade will:
A) harm tractor workers, benefit grape workers, but benefit the nation as a whole.
B) harm tractor workers, harm grape workers, but benefit the nation as a whole.
C) benefit tractor workers, harm grape workers, but benefit the nation as a whole.
D) benefit tractor workers, harm grape workers, but harm the nation as a whole.
If the percentage change in price is 2 and the percentage change in quantity supplied is
10, supply is:
A) unaffected by price changes.
B) inelastic.
C) unitary elastic.
D) elastic.
Dan owns a factory that manufactures smartphones. He has a lot of costs every month
to keep his factory running. Which of the following is one of Dan’s fixed costs?
A) plastic used to make the smartphones
B) his electricity bill for the factory
C) his mortgage on the factory
D) memory devices used to store music and video on the smartphones
The special-interest groups model of government:
A) is most applicable when benefits apply to few people but costs apply to many
people.
B) suggests that governments often have incentives to produce inefficient outcomes.
C) is based on the idea that small groups manipulate the government.
D) All of the above are correct.
One assumption of the basic model of supply and demand is that:
A) buyers and sellers have enough information to make informed choices.
B) buyers and sellers will benefit equally from a voluntary transaction.
C) sellers will always have more information than buyers.
D) buyers will always have more information than sellers.
In Washington, D.C., there are many coffee shops, each offering nearly identical coffee
but each shop located in a different place around the city. It is likely a coffee shop in
Washington, D.C., operates in a:
A) perfectly competitive market.
B) monopolistically competitive market.
C) monopoly market.
D) oligopoly market.
Refer to Figure 10.2. The marginal revenue of the eighth pound of burritos is:
A) $5.
B) $3.
C) $6.
D) $24.
Figure 18.5
For the good in Figure 18.5, with free trade, the people in the country will produce:
A) Q1.
B) Q3.
C) Q4.
D) Q5.
According to economics, why would a consumer download a song illegally?
A) Most people have a criminal mentality.
B) The expected cost of the act is greater than the expected benefit.
C) There are no other options for most consumers.
D) The expected benefit of the act is greater than the expected cost.
The market supply curve for labor is usually:
A) negatively sloped.
B) horizontal.
C) positively sloped.
D) vertical.
Refer to Figure 6.3. If the price of one hour of tutoring is $20, then producer surplus is:
A) $40.
B) $30.
C) $20.
D) $10.
Recall the Application. According to the FTC, a company pricing below its own cost:
A) is generally a violation of antitrust laws.
B) is generally not a violation of antitrust laws.
C) is always a violation unless it is part of a strategy to eliminate foreign competition.
D) is always a violation unless it is part of a strategy to create a monopoly so it can
recoup its losses.
For a monopolistically competitive firm, the firm’s demand curve is:
A) downward sloping.
B) horizontal.
C) upward sloping.
D) none of the above
Ceteris paribus, if the demand for gasoline is relatively inelastic, and the government
decides to place a tax on it, there should be a relatively ________ price hike to
eliminate the excess ________ caused by the tax.
A) large; supply
B) large; demand
C) small; supply
D) small; demand
Figure 8.3 shows a firm’s marginal cost, average total cost, and average variable cost
curves. At Q=50, the average fixed cost is:
A) $30.
B) $40.
C) $50.
D) $60.
Deadweight loss from monopoly is:
A) the net decrease in the market surplus.
B) the producer surplus loss only.
C) the process of using public policy to reduce losses.
D) the decrease in productivity.
A patent:
A) specifies the term of exchange, facilitating exchange between strangers.
B) increases the profitability of inventions, encouraging firms to develop new products.
C) provides the public with reliable information about the performance of a firm.
D) increases the risk faced by entrepreneurs.
Recall the Application about the group of large restaurant owners in France
requesting that the government lower the VAT on restaurant meals to answer the
following question(s).
Recall the Application. If there is a tax cut on restaurant meals, there should be a
decrease in cost that will be translated into ________ prices for consumers and
________ quantity of meals served.
A) higher; higher.
B) higher; lower
C) lower; lower.
D) lower; higher.
Why can’t the government force a natural monopolist to produce the competitive
output?
What is the income effect for leisure demand?
Suppose that the equilibrium rent for a two-bedroom apartment in downtown Chicago
is $900 per month. The city council decides to place a maximum price on apartment
rents and will not allow landlords to charge more than $700 per month. Draw this
situation using a graph. Make sure that you show the original equilibrium and the effect
of the maximum price on the market. What will happen in this market? What will
happen to total surplus?
Suppose that you own a golf course that is part of a Florida resort. You primarily serve
two groups of people: local residents and tourists. Devise a price discrimination strategy
that will increase your revenues compared to a single-pricing strategy.
What is a natural monopoly? How is it different from other monopolies?
Explain the relationship between price, short-run marginal cost, short-run average cost
and long-run average cost in the final long-run competitive equilibrium condition. What
are economic profits in this long-run equilibrium condition?
The price of cabbage rises from $0.20 per pound to $0.30 per pound. The quantity of
cabbage demanded falls from 800 pounds per week to 600 pounds per week. Use the
initial value formula to calculate the price elasticity of demand for cabbage. Is the
demand elastic, inelastic, or unit elastic?
What is public choice?
Explain why the firm’s short-run marginal cost curve initially decreases and then
increases in most cases.
What is the purpose of advertisements that focus on beer drinkers frolicking on the
beach?
What is a thin market?
Explain what a “perfectly contestable” market means. Explain why the outcome in a
perfectly contestable market is that firms produce efficiently.
What is a long-run supply curve?
Explain what is meant by “internalizing an externality,” and describe three methods by
which this can be done.
List and briefly describe the five factors of production.