Assume that Lorex is the only pharmaceutical company that has a patent in producing
Lipitor for cholesterol. Lorex can make a profit by selling Lipitor:
A) in the short run but not in the long run because new firms will enter the industry in
the long run.
B) only in the long run because government regulations prevent monopolists from
earning profits in the short run.
C) in the long run but not the short run because the monopolist will face competition in
the short run.
D) in the long run because entry into the industry by new firms is blocked until the
patent expires.
Consider a labor market in equilibrium. If both demand curve and supply curve of labor
shift to the right, then the number of workers hired in the market will ________.
A) increase
B) decrease
C) remain unchanged
D) either increase or decrease or remain unchanged
The principle that individuals and firms pick the activity level where the incremental
benefit of that activity equals the incremental cost of that activity is known as the:
A) marginal principle.
B) principle of opportunity cost.
C) principle of diminishing returns.
D) spillover principle.
The quantity supplied of hot dogs is 200 at the unit price of $3.50. Suppose the price
elasticity of supply by the initial value method is 2, and you would like to induce sellers
to increase the quantity of hot dogs supplied to 220. Then new price must be:
A) $1.5.
B) $2.
C) $2.5.
D) $3.
Average fixed cost is defined as:
A) total variable cost divided by quantity.
B) quantity divided by total variable cost.
C) the change in total variable cost divided by the change in quantity.
D) total fixed cost divided by quantity.
Refer to Figure 14.1. If the price of insurance is $7500, then:
A) 50% of the consumers will be high-cost.
B) 25% of the consumers will be low-cost.
C) 75% of the consumers will be high-cost.
D) 100% of the consumers will be high-cost.
When a supply curve is drawn, which of the following is NOT held constant?
A) taxes and subsidies
B) the state of production technology
C) prices of inputs
D) the price of the good
Under the conditions of monopolistic competition, if a firm is earning economic profits
in the short run:
A) prices are higher in the long run than in the short run.
B) firm profits are higher in the long run than in the short run.
C) average costs of production are higher in the long run than in the short run.
D) long-run economic profits are positive.
When conjectures about the pleasure from a product are wrong:
A) dopamine levels increase.
B) gut instinct takes over.
C) the prefrontal cortex shuts down.
D) learning happens.
The tendency of firms to substitute away from a factor whose relative price has risen
and toward a factor whose relative price has fallen is called the:
A) input-substitution effect.
B) derived demand effect.
C) diminishing returns effect.
D) output effect.
Suppose that the wage for musicians increases relative to other occupations. We know
that ________ people will work in music, and the total number of hours worked will
________.
A) more; increase
B) more; decrease
C) fewer; increase
D) fewer; decrease
Figure 2.2 presents a production possibilities curve for a country that can either produce
highways or provide people with medical care in a given year. The figure shows that as
more highways are built, the opportunity cost of building each additional highway is:
Figure 2.2
A) decreasing.
B) increasing.
C) constant.
D) decreasing and then increasing.
If the quantity demanded is infinitely responsive to any change in price, the demand
curve is:
A) upward sloping.
B) downward sloping.
C) horizontal.
D) vertical.
You rent a copy of a new action/adventure movie. 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 of watching the movie a second time?
A) zero, because it won’t cost you any money to keep the movie for another day
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 answer depends on what else you could do besides watching the movie.
Assume that the supply of smartphones remains constant, but the price of smartphones
increases. Producer surplus:
A) will decrease.
B) will increase.
C) will remain constant.
D) may increase or decrease depending on the amount of the price increase.
Consider Figure 12.3. Becky chooses to charge a low price:
A) only if David chooses a low price.
B) only if David chooses a high price.
C) regardless of whether David chooses a high or low price.
D) in order to induce David to choose a high price.
Recall the application about major league baseball, how are average salaries of MLB
players determined?
A) based on the MRP of a player that equals his contribution to the firm’s total revenue
from ticket sales and television contracts
B) Firms use a specific formula that is determined by multiplying the total revenue
from the player and the total cost.
C) based on the diminishing return from each player
D) based on the years that players have been with one team
Robert’s demand curve for pizza:
A) shows the quantity of pizza that Robert consumes as his income changes.
B) assumes that the only variables that change are the price of pizza and the quantity of
pizza demanded by Robert.
C) makes no assumptions about Robert’s income.
D) assumes that the only variable that changes is Robert’s preference for pizza.
The idea that voters tell the government what to do:
A) is the basic idea of democracy.
B) is the basis for a command economy.
C) always leads to efficient economic outcomes.
D) all of the above
Refer to Figure 4.1, which shows Molly’s and Ryan’s individual demand curves for
compact discs per month. Assuming Molly and Ryan are the only consumers in the
market, if the market quantity demanded is 5, the price must be:
A) $3.
B) $6.
C) $9.
D) $12.
A sandwich shop observes that when it increases the price of a sandwich, total revenue
from sandwich sales increases, and when they lower the price of a sandwich, total
revenue from taco sales decreases. This suggests:
A) the demand for sandwiches is inelastic.
B) the demand for sandwiches is elastic.
C) there are many good substitutes for sandwiches.
D) the law of demand is being violated.
When a consumer’s income decreases, the consumer:
A) has less to spend.
B) buys a smaller quantity of normal goods.
C) buys more of inferior goods.
D) all of the above
Recall the illustration regarding antidrug policies and property crimes. What is the
connection between antidrug policies and property crimes such as robbery, burglary,
and auto theft?
A) An antidrug policy that increases drug prices will reduce drug consumption, but will
also increase the amount of property crime committed by addicts who continue to abuse
drugs.
B) An antidrug policy that increases drug prices will reduce drug consumption, but will
also decrease the amount of property crime committed by addicts who continue to
abuse drugs.
C) The demand for illegal drugs is elastic, the increase in price will increase total
spending on illegal drugs
D) The demand for illegal drugs is inelastic, the increase in price will decrease total
spending on illegal drugs
________ is another term for “offshoring.”
A) Outsourcing
B) Importing
C) Exporting
D) Insourcing
Figure 4.6 illustrates a set of supply and demand curves for a product. When the
economy moves from point E to point A, there has been:
Figure 4.6
A) an increase in supply and an increase in demand.
B) an increase in supply and an increase in quantity demanded.
C) an increase in quantity supplied and an increase in demand.
D) an increase in quantity supplied and an increase in quantity demanded.
In a monopoly, the firm specific demand curve is the same as:
A) the market supply curve.
B) the market demand curve.
C) the market price.
D) none of the above.
Suppose the price elasticity of supply for rocking chairs is 1.2 and the price increases
by 20%. The quantity supplied will increase by ________ %.
A) 20
B) 24
C) 18
D) 12
The price of iPhones has fallen dramatically. Which of the following is likely to
happen?
A) The quantity of iPhones supplied will decrease.
B) The quantity of iPhones supplied will increase.
C) The supply of iPhones will decrease.
D) The supply of iPhones will increase.
Adam Smith used the metaphor “invisible hand” to explain that:
A) people acting in their own self interest may actually promote the interest of the
society as a whole.
B) people need a push from the government to do what the government thinks is right.
C) people always act with the interest of society in the back of their minds.
D) governments always act in the best interest of its citizenry.
Average total cost is equal to:
A) total cost divided by quantity.
B) variable cost divided by quantity.
C) average fixed cost minus average variable cost.
D) the extra cost of producing one more unit of output.
________ are costs that do not require a monetary payment.
A) Implicit costs
B) Explicit costs
C) Accounting costs
D) All opportunity costs
Refer to Figure 12.5. The model of oligopoly in this diagram is the:
A) price leadership model.
B) kinked demand curve model.
C) cartel model.
D) competitive oligopoly.