The popularity of digital cameras has enticed large discount stores like Wal-Mart and
Costco to offer digital photo printing services. How does this affect the digital photo
printing market?
A) The demand curve for digital photo printing services shifts to the right.
B) The demand curve for digital photo printing services shifts to the left.
C) The supply curve for digital photo printing services shifts to the right.
D) The supply curve for digital photo printing services shifts to the left.
Figure 17-4
Refer to Figure 17-4. Which of the following is true at W0?
A) The income effect is larger than the substitution effect.
B) The substitution effect is larger than the income effect.
C) The income effect and the substitution effect are equal.
D) The supply curve is positively sloped.
A proportional tax is a tax for which people with lower incomes
A) pay a higher percentage of their incomes in tax than do people with higher incomes.
B) pay a lower percentage of their incomes in tax than do people with higher incomes.
C) pay the same percentage of their incomes in tax as do people with higher incomes.
D) pay the same amount of taxes as people with higher incomes pay.
Figure 16-6
Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity,
assume that consumers have identical demand curves and that Sensei knows what this
demand curve is. Figure 16-6 shows this demand curve.
Refer to Figure 16-6. With this pricing scheme – a competitive price for the classes and
a one-time membership fee – what amount of producer surplus will Sensei earn?
A) the area A + B + C + D + E.
B) the area E + F.
C) the area H + G + F.
D) the area A + B + C + D + E + F + G + H
Figure 4-1
Figure 4-1 shows Arnold’s demand curve for burritos.
Refer to Figure 4-1. Arnold’s marginal benefit from consuming the second burrito is
A) $1.00.
B) $1.50.
C) $2.00.
D) $4.50.
Table 11-5
Refer to Table 11-5. Suzette’s Fancy Packaging subcontracts with Sunshineland Pecans
to box dried fruit and nuts for Suzette’s mail order business. Suzette rents space for her
factory for $400 a week in a nearby strip mall. She can hire temporary workers for $200
a week. Table 11-5 above shows her output and cost data. Use the table to answer
questions a-e.
a. Complete the table.
b. In the last week of summer Suzette closes her business to go on a family vacation.
What are her costs during that week?
c. In one week Suzette exactly breaks even. If her revenue for the week is $1,200, how
many boxes of fruit and nuts did she produce?
d. Judging from the marginal product of labor data, would you say that Suzette had to
settle for increasingly unproductive workers? Explain your answer.
e. Suzette has received an order for 1,500 boxes of nuts per week for the next 3 months.
If she expects the trend in the marginal product of labor will continue in the same
direction, what do you think she should do? Should she not commit until she can move
to a larger space or should she just hire more workers? Explain your answer.
Table 14-1
Godrickporter and Star Connections are the only two airport shuttle and limousine
rental service companies in the mid-sized town of Godrick Hollow. Each firm must
decide on whether to increase its advertising spending to compete for customers. Table
14-1 shows the payoff matrix for this advertising game.
Refer to Table 14-1. Is there a dominant strategy for Star Connections and if so, what is
it?
A) No, its outcome depends on what Godrickporter does.
B) Yes, Star Connections should increase its advertising budget.
C) Yes, Star Connections should not change its advertising budget.
D) Yes, Star Connections’ dominant strategy is to collude with Godrickporter.
Economists argue that the corporate income tax is an example of a tax with a high
deadweight loss because
A) some of the burden of the tax is passed on to consumers in the form of higher prices.
B) it discourages corporations from undertaking capital investments to enhance market
competitiveness.
C) taxing a corporation’s income amounts to double taxing the earnings on individual
shareholders’ investments in corporations.
D) it encourages corporations to seek ways to evade taxes.
In the short run, a firm that is operating at a loss has two options. These options are
A) to reduce output or reduce its variable costs.
B) to go out of business or declare bankruptcy.
C) to shut down temporarily or continue to produce.
D) to adopt new technology or change the size of its physical plant.
Medical research that results in a cure for a serious disease produces positive
externalities. What is the impact of this positive externality on economic efficiency?
A) At equilibrium, less than the economically efficient quantity of medical research is
produced.
B) A deadweight loss occurs because at equilibrium the marginal social cost of medical
research is greater than the marginal social benefit.
C) At equilibrium, more than the economically efficient quantity of medical research is
produced.
D) A deadweight loss occurs because at equilibrium the marginal social cost equals the
marginal social benefit.
Explain whether each of the following is a fixed cost or a variable cost for Damian
Dandridge’s tattoo parlor.
a. The payment he makes to buy tattoo ink.
b. The wages he pays his employees.
c. The $500-per-month payment he makes to advertise his shop on highway billboards.
d. The lease payment he makes to the landlord who owns the building where his shop is
located.
e. The payment he makes on his liability insurance policy.
Which of the following describes the infant industry argument for protectionism?
A) An industry must be protected in its early stages of development so that firms can
compete with government-subsidized foreign competition.
B) Some strategic industries must be protected to ensure adequate supplies of resources
needed for national defense in emergencies.
C) Domestic producers in high-wage countries must be protected from foreign
producers in low-wage countries to produce a level playing field.
D) Domestic producers require time to gain experience and lower their unit costs; this
will allow these producers to compete successfully in international markets.
With perfect price discrimination, the marginal revenue curve
A) is below the demand curve.
B) is above the demand curve.
C) is equal to the demand curve.
D) is horizontal.
Table 15-1
A monopoly producer of foreign language translation software faces a demand and cost
structure as given in Table 15-1.
Refer to Table 15-1. When producing the profit-maximizing output, what is the amount
of the firm’s profit?
A) $335
B) $350
C) $880
D) $910
Figure 1-2
Refer to Figure 1-2. Calculate the area of the triangle A.
A) $1.3 million
B) $2.6 million
C) $3.4 million
D) $5.2 million
Consider a downward-sloping demand curve. When the price of an inferior good
increases, the income and substitution effects
A) work in the same direction to increase quantity demanded.
B) work in the same direction to decrease quantity demanded.
C) work in opposite directions and quantity demanded increases.
D) work in opposite directions and quantity demanded decreases.
In response to accounting scandals in 2002, the federal government passed legislation
requiring that corporate directors have a certain level of expertise with financial
information and mandating that chief executive officers personally certify the accuracy
of financial statements. What is the name of this legislation?
A) the Accountant Reliability Act
B) the 24th amendment to the Constitution
C) the Kennedy-Lott Act
D) the Sarbanes-Oxley Act
Figure 3-8
Refer to Figure 3-8. The graph in this figure illustrates an initial competitive
equilibrium in the market for apples at the intersection of D1 and S2 (point B). Which of
the following changes would cause the equilibrium to change to point C?
A) A positive change in the technology used to produce apples and decrease in the price
of oranges, a substitute for apples.
B) An increase in the wages of apple workers and an increase in the price of oranges, a
substitute for apples.
C) An increase in the number of apple producers and a decrease in the number of apple
trees as a result of disease.
D) A decrease in the wages of apple workers and an increase in the price of oranges, a
substitute for apples.
An increase in the wage rate causes
A) a rightward shift of the firm’s labor demand curve.
B) a leftward shift of the firm’s labor demand curve.
C) a decrease in the quantity of labor demanded.
D) an increase in labor’s marginal productivity.
Table 2-7
Table 2-7 shows the output per month of two people, Fred and Barney. They can either
devote their time to making pogo sticks or making unicycles.
Refer to Table 2-7. What is Fred’s opportunity cost of making a unicycle?
A) 1/3 of a pogo stick
B) 3 pogo sticks
C) 1/2 of a unicycle
D) 3 pogo sticks
Personnel economics is
A) the study of the factors that determine wage rates.
B) the study of how workers are affected by tax law changes.
C) the application of economic analyses to human resource issues.
D) the application of economic analysis to the hiring decision.
One of the most widely followed stock indexes in the United States is the Dow Jones
Industrial Average. This index represents
A) the stock prices of 500 large U.S. firms.
B) an over-the-counter market.
C) the stock prices of more than 4,000 U.S. firms.
D) the stock prices of 30 large U.S. corporations.
Figure 18-7
Figure 18-7 shows the Lorenz curve for a hypothetical country.
Refer to Figure 18-7. The second lowest 20 percent of households
A) earn 12 percent of the society’s total income.
B) earn 16 percent of the society’s total income.
C) earn 28 percent of the society’s total income.
D) earn 40 percent of the society’s total income.
Which of the following are primarily macroeconomic topics and which are primarily
microeconomic topics?
a. gasoline prices
b. unemployment
c. inflation
d. health care costs
e. air pollution
f. economic growth
Table 6-1
Refer to Table 6-1. Suppose you own a bookstore. You believe that you can sell 40
copies per day of the latest John Grisham novel when the price is $35. You consider
lowering the price to $25 and believe this will increase the quantity sold to 50 books per
day. Compute the price elasticity of demand using the midpoint formula and these data.
Select the correct implication from your work.
A) The demand for the John Grisham book is inelastic. Revenue will fall if the price is
lowered.
B) The demand for the John Grisham book is elastic. Revenue will rise if the price is
lowered.
C) The demand for the John Grisham book is inelastic. Revenue will rise if the price is
lowered.
D) The demand for the John Grisham book is elastic. Revenue will fall if the price is
lowered.
Figure 17-4
Refer to Figure 17-4. Which of the following is true at W2?
A) The income effect is larger than the substitution effect.
B) The substitution effect is larger than the income effect.
C) The income effect and the substitution effect are equal.
D) The supply curve is positively sloped.
U.S. taxpayers spend many hours during the year maintaining records for tax purposes
and preparing their income tax returns. This administrative cost
A) is part of the deadweight loss of taxation.
B) is equal to the value of consumer surplus associated with the income tax system.
C) can be claimed as a deduction on income tax returns.
D) is larger for individuals in the lowest income quintile than for individuals in the
highest income quintile.
Suppose the U.S. government encouraged new medical school graduates to take over
existing practices from doctors wishing to retire by paying both the new and retiring
doctors $100,000. These doctors would be exemplifying the economic idea that
A) people are rational.
B) people respond to economic incentives.
C) optimal decisions are made at the margin.
D) equity is more important than efficiency.
Compared to a competitive market, a firm that has a monopsony in a labor market
would
A) hire fewer workers and pay higher wages.
B) hire more workers and pay lower wages.
C) hire fewer workers and pay lower wages.
D) hire more workers and pay higher wages.
According to the law of one price, identical products should sell for the same price
everywhere if
A) consumers have knowledge of the prices charged for products in different markets.
B) transactions costs are zero.
C) firms can prevent consumers from engaging in arbitrage.
D) there are no tariffs or other restrictions on imports or exports.
Figure 14-7
Refer to Figure 14-7. Uniguest, Inc. is a company that provides PCs with internet
access and touch-sensitive screens to hotels. Suppose the Hard Rock Hotel and Casino
in Las Vegas informs Uniguest that it is considering installing these systems in its hotel
rooms. The Hard Rock expects to be able to charge higher prices for these rooms if it
installs Uniguest’s systems in its rooms. The two companies begin bargaining over what
price the Hard Rock will pay Uniguest for its systems, and the decision tree shown
above illustrates this bargaining game. Note that the profit figures listed in the decision
tree are additional profits for the Hard Rock and total profits for Uniguest.
a. Suppose the Hard Rock offers Uniguest $1,200 per system. Will Uniguest accept or
reject this offer? Why?
b. Suppose the Hard Rock offers Uniguest $800 per system. Will Uniguest accept or
reject this offer? Why?
c. Suppose Uniguest attempts to obtain a favorable outcome from the bargaining by
telling the Hard Rock it will reject an $800-per-system offer. If the Hard Rock does not
believe the threat is credible, what will it do? Why? What will Uniguest do? Why?
d. Is there a subgame-perfect equilibrium in this situation? Explain.