Suppose the government levies a $4 per month excise tax on cable TV. If the demand
for cable TV is relatively (but not perfectly) inelastic and the supply curve is relatively
(but not perfectly) elastic, then the price of cable TV will:
A) increase by more than $4.
B) increase by exactly $4.
C) increase by less than $4.
D) remain constant.
Rent controls set a price ceiling below the equilibrium price, and therefore:
A) quantity supplied exceeds the quantity demanded.
B) quantity demanded exceeds the quantity supplied.
C) a surplus of rental units will result.
D) all poor people will be helped.
Opportunity cost is:
A) about half of the monetary cost of a product.
B) the dollar payment for a product.
C) the benefit derived from a product.
D) the value of the best alternative forgone in making any choice.
Which of the following principles underlies the economics of individual choices?
A) There are gains from trade.
B) Markets move toward equilibrium.
C) People usually exploit opportunities to make themselves better off.
D) Resources should be used as efficiently as possible to achieve society’s goals.
Amanda recently graduated from college, and she has a job offer with uncertain
income. There is a 70% probability that she will make $10,000 and a 30% probability
that she will make $70,000. Suppose Amanda is offered another job with a certain
income. All else equal, if she has a constant marginal utility of income, she will accept
the second job offer only if it pays more than:
A) $40,000.
B) $28,000.
C) $10,000.
D) $21,000.
(Table: Willingness to Pay for Basketball Sneakers) The table Willingness to Pay for
Basketball Sneakers shows each player’s willingness to pay for basketball sneakers.
Assume that each player wants to buy at most, one pair of sneakers. If the price of
basketball sneakers is $125, which players will purchase sneakers?
A) Jamichael and Javon
B) Jamichael and Corey
C) Jamichael, Corey, and Rudy
D) Jamichael, Corey, Rudy, and Ray
As a big music fan, you want to attend a weekend blues festival in your town. The
purchase of a wristband gives you and thousands of other fans access to the outdoor
concert pavilion. The blues festival is a good that has the characteristics of being:
A) rival and excludable.
B) nonrival and excludable.
C) rival and nonexcludable.
D) nonrival and nonexcludable.
A situation in which one firm sets the price and other firms in the industry match it is
known as:
A) a Nash equilibrium.
B) price leadership.
C) Cournot competition.
D) price competition.
(Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs
a natural monopoly producing electricity for a small mountain village. The table shows
Lenoia’s demand and total cost of producing electricity. The price effect of increasing
production from 3 megawatts to 4 megawatts is:
A) “$150.
B) $500.
C) $450.
D) “$50.
(Table: The Market for Soda) Look at the table The Market for Soda. If the government
imposes a price ceiling of $1 per can of soda, the quantity of soda supplied will be:
A) 7 cans.
B) 8 cans.
C) 9 cans.
D) 10 cans.
Given that the definition of poverty has not been adjusted to reflect the long-term rise in
average incomes, you would expect _____ in the percentage of the population living
below the poverty line.
A) a decrease
B) an increase
C) no change
D) It is impossible to determine how the percentage of the population living in poverty
might change.
Figure: The Demand and Supply of Wheat
(Figure: The Demand and Supply of Wheat) Look at the figure The Demand and
Supply of Wheat. A price of _____ will result in a _____.
A) $6; shortage
B) $8; surplus
C) $8; shortage
D) $4; surplus
Figure: Comparative Advantage Eastland and Westland produce only two goods,
boxes of peaches and boxes of oranges, and this figure shows each nation’s production
possibility frontier for the two goods.
(Figure: Comparative Advantage) Look at the figure Comparative Advantage. The
opportunity cost of producing 1 box of oranges for Eastland is _____ box(es) of
peaches.
A) 1
B) 0.25
C) 4
D) 10
Figure: Three Firms That Pollute
(Figure: Three Firms that Pollute) Look at the figure Three Firms That Pollute. If the
city imposes a tax of $400 per ton of pollution, firm B will produce _____ of mercury,
and firm A will produce _____ mercury than firm C.
A) 600 tons; 200 tons less
B) 700 tons; 200 tons less
C) 300 tons; 500 tons more
D) 300 tons; 200 tons less
If the executives of the U.S. silicon chip industry lobby Congress for protection from
imports on the grounds that the military should have an unrestricted domestic supply of
silicon chips, they are using the _____ argument.
A) infant industry
B) job creation
C) national security
D) model industry
Figure: The Restaurant Market
(Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing
a typical restaurant. Assume that many firms, differentiated products, and easy entry
and exit characterize the restaurant market. For the restaurant shown here, the
profit-maximizing price is:
A) P1.
B) P2.
C) P3.
D) Not enough information is given to answer the question.
Scenario: Diversification
Morris is considering investing $10,000 in a sunglass company or a rain poncho
company. If it is a rainy year and he invests only in the sunglass company, he will lose
$5,000. However, if it is a rainy year and he invests only in the rain poncho company,
he will earn $10,000. If it is a sunny year and he invests only in the sunglass company,
he will earn $10,000; if he invests only in the rain poncho company, he will lose $5,000
in a sunny year. There is a 50% chance of a sunny year and a 50% chance of a rainy
year.
(Scenario: Diversification) Look at the scenario Diversification. If Morris invests half
of his money in the sunglass company and half in the rain poncho company, what is his
expected gain or loss?
A) a loss of $2,500
B) to break even
C) a gain of $2,500
D) a gain of $10,000
Figure: Payoff Matrix for Ajinomoto and ADM
(Figure: Payoff Matrix for Ajinomoto and ADM) Look at the figure Payoff Matrix for
Ajinomoto and ADM. The Nash equilibrium combination occurs when ADM produces
_____ million pounds and Ajinomoto produces _____ million pounds.
A) 30; 30
B) 40; 40
C) 30; 40
D) 40; 30
If a good is subject to the free-rider problem and an inefficiently high level of
consumption, the good must be a(n):
A) private good.
B) public good.
C) common resource.
D) artificially scarce good.
Mexico produces lettuce but can also import it. If Mexico imports some lettuce:
A) Mexico has a comparative advantage in lettuce production.
B) the world price is lower than the domestic price.
C) the price in Mexico will rise to equal the world price.
D) the domestic quantity supplied will increase.
_____ illustrates an inverse relationship between price and quantity.
A) A demand curve
B) A supply curve
C) A production possibility frontier
D) Equilibrium
(Table: Madeline’s Preferences for T-Shirts and Coffee) Look at the table Madeline’s
Preferences for T-Shirts and Coffee. Assume each consumption bundle provides the
same level of utility. As Madeline moves from bundle A to bundle E, her total utility:
A) decreases.
B) increases.
C) stays the same.
D) is zero regardless of which bundle she chooses.
Becky works for a large grocery store that provides a health insurance program to all
workers. This is an example of:
A) Medicaid.
B) employment-based health insurance.
C) government health insurance.
D) a single-payer health care system.
Figure: Payoff Matrix for the United States and the European Union
(Figure: Payoff Matrix for the United States and the European Union) Look at the
figure Payoff Matrix for the United States and the European Union. Suppose that the
United States and the European Union both produce corn, and each region can make
more profit if output is limited and the price of corn is high. The Nash equilibrium
combination is for the United States to produce a _____ output and the European Union
to produce a _____ output.
A) high; high
B) high; low
C) low; low
D) low; high
According to the marginal productivity theory of income distribution, if a unit of labor
is paid more than a unit of capital, it is because at the equilibrium quantity of each
factor, the value of the _____ product of labor is _____ product of capital.
A) marginal; greater than the marginal
B) marginal; less than the marginal
C) average; greater than the average
D) average; less than the average
Figure: The Market for Gas Stations
(Figure: The Market for Gas Stations) The figure Market for Gas Stations shows curves
facing a typical gas station in a large town. The market is characterized by many firms,
differentiated products, easy entry, and easy exit. If the gas station shown here were to
raise its price above the profit-maximizing price, the outcome would be _____ in total
revenue.
A) a reduction
B) an increase
C) no change
D) Not enough information is given to answer the question.
Technological improvements will:
A) leave the production possibility frontier unchanged.
B) shift the production possibility frontier inward.
C) shift the production possibility frontier outward.
D) necessarily lead to increased unemployment.
Derived demand for a factor means that:
A) people demand factors just as they do goods.
B) the demand for factors depends on what the factor can produce.
C) the market derives a demand for factors regardless of what they produce.
D) suppliers determine what will be produced.