Figure: Market Failure
(Figure: Market Failure) In the figure Market Failure, if production in this competitive
market is at quantity E:
A) marginal benefit is equal to marginal cost.
B) marginal benefit is less than marginal cost.
C) marginal benefit is greater than marginal cost.
D) price is equal to marginal cost and greater than marginal benefit.
A common resource is _____ in consumption.
A) excludable and rival
B) nonexcludable and rival
C) excludable and nonrival
D) nonexcludable and nonrival
During its only year of operation, a firm collected $175,000 in revenue and spent
$50,000 on raw materials, labor, and utilities. The owners of the firm spent $100,000 of
their own money to build the firm’s factory (instead of buying bonds and earning a 10%
annual rate of return), which they sold at the end of the year for $100,000. The firm’s
economic profit is:
A) $35,000.
B) $125,000.
C) $115,000.
D) $25,000.
Producers in a particular market will bear the greater burden of an excise tax:
A) the more price-elastic the demand is relative to supply.
B) the less price-elastic demand is relative to supply.
C) if demand has the same price elasticity as supply.
D) regardless of the price elasticity of demand or supply.
Figure: Consumer Surplus I
(Figure: Consumer Surplus I) Look at the figure Consumer Surplus I. At a price of P1,
consumer surplus equals the area:
A) ABP2.
B) AFP1.
C) AQ30.
D) P1P2BF.
A tax that rises less than in proportion to income is described as:
A) progressive.
B) proportional.
C) regressive.
D) structural.
According to the infant industry argument, import protection is needed because:
A) foreign workers are often paid less than U.S. workers.
B) it enables our protected industries to achieve technological efficiency and thus
become competitive with mature foreign industries.
C) the nation’s security depends on a strong industrial base.
D) it provides consumers with more and better goods in the long run.
Joshua is tired of school and his part-time job and decides on the spur of the moment to
take a weekend trip to Cabo San Lucas. He pays for it with his credit card rather than
with money from his checking account. Which type of irrational behavior does this best
represent?
A) status quo bias
B) mental accounting
C) loss aversion
D) risk aversion
In a single year, the Netherlands can raise 100 tons of beef or produce 1,000 boxes of
tulips. In the same growing season, Belgium can raise 50 tons of beef or produce 750
boxes of tulips. In autarky the opportunity cost of beef:
A) is higher in the Netherlands than in Belgium.
B) is lower in the Netherlands than in Belgium.
C) is the same in the Netherlands as in Belgium.
D) cannot be determined in either country.
Which of the following best describes the principle of diminishing marginal utility? As
an individual consumes more of a good:
A) the total utility obtained will eventually fall.
B) the total utility obtained will eventually become negative.
C) the addition to total utility obtained from the nth unit of the good will be less than
that obtained from the immediately preceding unit of the good.
D) the marginal utility will eventually become negative.
If labor is scarce in Sri Lanka but capital is abundant, when Sri Lanka opens to trade,
the price of labor will _____ and the price of capital will _____.
A) rise; rise
B) fall; fall
C) rise; fall
D) fall; rise
Table: Price Elasticity
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of
demand between $1.75 and $1.50?
A) 0.42
B) 1.50
C) 1.86
D) 0.08
Which of the following is a private good?
A) traffic lights
B) mountain bike trails in a national forest
C) a fast-food cheeseburger
D) cell phone service
Every few months, public radio announces a call for pledge support. During this time, it
asks listeners to contribute to their local public radio station. Although they raise money
during this time, it often falls short of the amount they wish to raise because:
A) they do not make the pledge period long enough.
B) listeners know they will be able to hear public radio even if they don’t contribute.
C) public radio free-rides on the listeners.
D) the marginal social cost equals the marginal social benefit of public radio listening.
Economists generally believe that a country should specialize in the production of a
good or service if:
A) the production possibility frontier is further from the origin than that of any other
country.
B) the production possibility frontier is closer to the origin than that of any other
country.
C) the country can produce the product using more resources than any other country.
D) the country can produce the product while forgoing fewer alternative products than
any other country.
If the price of hamburger decreased, it would probably result in _____ in the demand
for hamburger buns.
A) a decrease
B) an increase
C) no change
D) random fluctuations
Figure: Consumer Surplus II
(Figure: Consumer Surplus II) Look at the figure Consumer Surplus II. If the price of
the good is $4, consumer surplus will equal:
A) $5.
B) $10.
C) $20.
D) $40.
A rancher in Oklahoma decides to raise the price of her beef by 19% over the prevailing
market price. If the demand for beef is perfectly elastic, this rancher’s quantity
demanded will:
A) fall to 0.
B) not change.
C) fall slightly.
D) increase slightly.
A(n) _____ is a curve that shows all of the consumption bundles that yield the same
level of total utility for an individual.
A) budget line
B) indifference curve
C) utility function
D) marginal rate of substitution
Suppose small business owners decide to spend less. How will this affect an economy?
A) It will have no impact, since this group makes up a small portion of any economy.
B) It will decrease the level of income of other people, since one person’s spending is
someone else’s income.
C) It will cause prices for many goods to increase.
D) It will increase the level of income in the economy, since other groups will spend
more.
Figure: Game-Day Shirts
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. If the price of a shirt is $11, in the long run:
A) firms will enter the industry.
B) firms will exit the industry.
C) the industry is in equilibrium.
D) the industry has maximized average total cost.
Figure: Illustrating Slope
(Figure: Illustrating Slope) Look at the figure Illustrating Slope. In the graph, line 2 has
a slope of:
A) +1.
B) 0.
C) “1.
D) infinity.
The level of inputs a firm employs will determine a firm’s:
A) ability to produce output.
B) elasticity of demand.
C) stock price.
D) location of production.
If the demand curve for ice cream is downward-sloping and the supply of it decreases,
there is _____ in consumer surplus.
A) an increase
B) a decrease
C) no change
D) It’s impossible to tell what will happen to consumer surplus.
(Table: Tonya’s Production Function for Apples) Look at the table Tonya’s Production
Function for Apples. As she hires more labor, Tonya’s production function shows that
the number of apples picked increases at a decreasing rate because of:
A) diminishing returns.
B) increasing returns.
C) constant returns.
D) workers becoming lazier.
Figure: Consumer Equilibrium III
(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. A
level of total utility NOT attainable is at point:
A) A.
B) F.
C) E.
D) B.
In the short run, if P = ATC, a perfectly competitive firm:
A) produces output and earns zero economic profit.
B) produces output and earns an economic profit.
C) produces output and incurs an economic loss.
D) does not produce output and incurs an economic loss.
Wenqin lives in a city that has a huge public rose garden. Residents can stroll through
the rose garden, enjoy the scenic vistas, or have a picnic, all without paying a fee. The
public rose garden is best described as:
A) rival and excludable.
B) nonrival and excludable.
C) rival and nonexcludable.
D) nonrival and nonexcludable.