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The long-run average total cost (LRATC) curve
a. indicates the per-unit cost of producing various rates of output with a specific size of
plant but variable levels of labor and technology.
b. indicates the minimum per-unit cost that can be achieved at various output rates
when the firm is free to choose among plant sizes.
c. will be falling when diseconomies of scale are present and rising when economies of
scale are present.
d. is a U-shaped curve.
e. is both a and d above.
Compared to those with less economic freedom, countries with more economic freedom
generally have ____ per capita GDP levels and ____ growth rates.
a. lower; less rapid
b. lower; more rapid
c. higher; less rapid
d. higher; more rapid
If zinc suppliers are successful in forming an international zinc cartel, they will
a. lower output and raise prices, which discourages the entry of new firms into the
industry.
b. lower output, raise prices, and have a need to prevent the entry of new firms into the
industry.
c. raise output and raise prices, which discourages the entry of new firms into the
industry.
d. raise output, raise prices, and have a need to prevent the entry of new firms into the
industry.
When making choices, suppliers should not allow sunk costs to directly affect their
current decisions because
a. sunk costs do not reflect foregone opportunities accompanying current choices.
b. sunk costs will not influence the accounting costs of a firm.
c. sunk costs influence the demand for products, not the supply.
d. past choices fail to provide any information relevant to current decision making.
A subsidy is defined as
a. a payment that must be made to the government whenever a good or service is sold.
b. the number of trades that are eliminated from a market when a tax is imposed.
c. the difference between total revenue and total cost for a business firm.
d. a payment to either the buyer or seller of a good or service, usually on a per-unit
basis, when a good or service is purchased.
Which of the following is the most efficient way to reduce pollution emissions?
a. emission standards that cap allowable pollution
b. government pollution charges or taxes
c. legislated regulations limiting the quantity of emissions allowed by each firm
d. enforcement of property rights, when those rights are well-defined and transaction
costs are low
Sebastian drinks Mountain Dew. He can buy as many cans of Mountain Dew as he
wishes at a price of $0.50 per can. On a particular day, he is willing to pay $0.95 for the
first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can.
Assume Sebastian is rational in deciding how many cans to buy. His consumer surplus
is
a. $0.50.
b. $0.85.
c. $1.05.
d. $1.20.
Which of the following is true of pure monopoly?
a. Monopoly expands the options available to consumers.
b. Monopoly results in allocative inefficiency.
c. Profits and losses induce firms to enter and exit from industries.
d. Monopoly works well when governments regulate prices.
When there is excess supply of a product in a market,
a. price will tend to rise.
b. price must be above the equilibrium price.
c. producers will expand output and sales will rise.
d. price must be below the equilibrium price.
If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of
cigarettes from $1.00 to $1.30 would reduce quantities demanded by about
a. 27 percent.
b. 40 percent.
c. 12 percent.
d. 95 percent.
In competitive price-searcher markets, short-run economic losses will lead to
a. long-run economic losses.
b. the exit of firms from the market and the eventual restoration of zero long-run
economic profits.
c. the entry of new firms into the market as old firms fail.
d. the entry of additional firms into the market, causing each firm to experience an
increase in demand for its product.
Within the Keynesian model, if the marginal propensity to consume is 0.8, which of the
following is true?
a. When consumption increases by $5, income increases by $1.
b. When consumption increases by $1, saving increases by $5.
c. When investment increases by $1, income increases by $5.
d. When investment increases by $1, saving increases by $5.
What percentage of personal income tax revenue was collected from the top 1 percent
of earners in 2010?
a. less than 10 percent
b. approximately 15 percent
c. approximately 20 percent
d. more than 35 percent
Which of the following is true?
a. Real GDP is a measure of income, but not output.
b. Real GDP is a measure of output, but not income.
c. Real GDP is a measure of inflation.
d. Growth of output is necessary for the growth of income.
Senator Dogood is pushing for the construction of a new military base in his state even
though, from the standpoint of national security, it is clear that there are better places to
locate the new military base. Economic theory would suggest that Senator Dogood is
a. acting irrationally; he must not know that the base would be better located in a
different state.
b. acting rationally; he realizes that constructing the base in his state will increase his
chances of getting reelected.
c. acting rationally if the country is currently at war but is acting irrationally if the
country is not at war.
d. trying to do what is best for the country.
(I) Other things constant, countries that invest more will grow more rapidly.
(II) The private investment rate of the most economically free countries is nearly twice
as much as that of the least free countries.
a. I is true; II is false.
b. I is false, II is true.
c. Both I and II are true.
d. Both I and II are false.
Which of the following was a key belief of Adam Smith?
a. he felt that human goodness would provide adequate goods and services to everyone.
b. he stressed that limited exchange and command economies would prevent the
exploitation of the poor.
c. he believed that individuals pursuing their own interests would direct economic
activity in the most advantageous way.
d. he lectured about the importance of gold and silver in providing a stable monetary
system.
If indicators like weak demand and falling commodity prices caused concern about
deflation (falling prices), what could the Fed do to head off the deflationary threat?
a. increase the reserve requirements imposed on banks
b. buy bonds in order to expand the money supply
c. increase the discount rate
d. increase the national debt
When is the definition and enforcement of property rights especially difficult?
a. When many polluters harm a large group of people with the same pollutant.
b. When a single polluter is harming a single person or entity.
c. When land is owned by a corporation.
d. When the benefits of prosecution are clear.
If the Fed wanted to institute a more expansionary monetary policy, which of the
following would it be most likely to do?
a. reduce taxes
b. increase government expenditures
c. buy government bonds from the public
d. raise the discount rate
Once decision makers fully adjust to an increase in the general price level,
a. the actual rate of unemployment will exceed the natural rate of unemployment.
b. the actual rate of unemployment will be less than the natural rate of unemployment.
c. the rate of output will exceed the economy's long-run capacity.
d. output will return to the full-employment level.
The chances of successful collusion are greatest when
a. firms are producing a differentiated product.
b. there are many firms in the industry.
c. there are tiny firms and huge firms together in the same industry.
d. demand curves and cost curves are similar among the firms in the industry.
e. demand is falling.
Data on trade barriers and the growth of per capita GDP indicate that
a. there is no link between the degree of a country's trade openness and its economic
growth.
b. more open economies have grown more rapidly than those that have imposed
substantial barriers restricting trade.
c. economies that have imposed high trade barriers have, on average, grown more
rapidly than economies that are more open to international trade.
d. countries with higher trade barriers have been able to achieve higher levels of per
capita GDP than those that are more open to international trade.
e. both c and d are correct.
While the price of a resource may increase sharply during some periods, the structure of
____ accompanying the price increase makes depletion highly unlikely and provides the
seeds for future reversal.
a. government programs
b. foreign competition
c. incentives
d. taxation
Which of the following is true of private ownership?
a. Private ownership links responsibility with the right of control.
b. Private owners have little incentive to conserve natural resources for the future.
c. Private owners have little incentive to develop and use their assets in ways others
value.
d. Private owners can do anything they want with the things they own regardless of the
damage it does to the property of others.
Supply-side economics stresses that high marginal tax rates
a. are the key to maintaining a balanced budget.
b. are an effective short-run countercyclical tool to promote recovery from a recession.
c. discourage people from working harder and using their resources productively.
d. encourage people to work, supply resources, and use them more efficiently.
Which of the following most accurately states the function of middlemen?
a. Middlemen reduce transaction costs.
b. Middlemen add to the expense of buyers and sellers without providing any benefit.
c. Our economy would work just as well without middlemen since they do not expand
the availability of physical goods.
d. Middlemen reduce the number of transactions since they increase the buyer's price
and reduce the seller's net receipts.
Using the resource cost-income approach, indirect business taxes have to be added to
get gross domestic product because the
a. selling price of a product includes these taxes, which are income to the government .
b. selling price of a product includes these taxes, which are resource payments.
c. selling price of a product excludes these taxes and therefore they have to be added.
d. selling price includes these taxes which are actually not income to any sector of the
economy.
Use the figure to answer the following question(s).
Figure 11-1
If a regulatory agency were using the "normal return" (zero economic profit) criteria to
impose a price on a monopolist with the cost and demand conditions depicted in Figure
11-1, what price would the regulators set, and what output would the monopolist
produce?
a. price A and output T
b. price B and output S
c. price B and output R
d. price C and output R
It would be more reasonable to use annual income data as an index of economic
inequality if all of the households
a. filed tax returns and thus all their income were known.
b. were different with regard to their age and size characteristics.
c. were more similar with regard to size, age, education, and other major factors that are
linked to income.
d. were more similar with regard to their hair color, height, and weight.
