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Table: The Lemonade Market
Price of Lemonade (per cup) Number of Cups Demanded (QD) Number of Cups
Supplied (QS) $0.50 250 25 0.75 200 50 1.00 150 75 1.25 100 100 1.50 50 125 1.75 20
150
(Table: The Lemonade Market) Look at the table The Lemonade Market. If the price of
lemonade is $1.25 per cup, we expect to see:
Price of Lemonade (per cup) Number of Cups Demanded (QD) Number of Cups
Supplied (QS)
$0.50 250 25
0.75 200 50
1.00 150 75
1.25 100 100
1.50 50 125
1.75 20 150
A) a rising price to eliminate the shortage.
B) a rising price to eliminate the surplus.
C) a falling price to eliminate the shortage.
D) a market in equilibrium.
(Table: Demand for Lenny's Coffee) Look at the table Demand for Lenny's Coffee.
Lenny's Café is the only source of coffee for hundreds of miles in any direction. Lenny
is selling two cups of coffee. If he lowers the price and sells three cups of coffee, the
_____ effect will dominate the _____ effect, and total revenue will _____.
A) quantity; price; decrease
B) price; quantity; increase
C) price; quantity; decrease
D) quantity; price; increase
The government increases the sales tax on all goods. The government does not change
the tax on income earned from labor. What happens?
A) The quantity of labor demanded decreases, but the demand for labor does not shift.
B) The demand for labor decreases.
C) The supply of labor increases.
D) There is no change in the labor market.
Figure: Bicycles and Radishes I
(Figure: Bicycles and Radishes I) Look at The figure Bicycles and Radishes I. It shows
the production possibility frontiers for two countries that produce only radishes and
bicycles. The axes of the two graphs are measured in equivalent units. Country A is
operating at point M, and country B is operating at point N. The opportunity cost of
producing an additional ton of radishes would be greater in:
A) country A.
B) country B.
C) neither; the opportunity cost would be the same in both countries.
D) There is not enough information to answer the question.
Scenario: The Decision to Hire Labor
Assume that both the product market and the labor market are perfectly competitive.
The price of this firm's product is $5. The firm's total product with respect to labor is
given in the table that follows.
(Scenario: The Decision to Hire Labor) Look at the scenario The Decision to Hire
Labor. How many workers will this perfectly competitive, profit-maximizing firm
choose to hire if the equilibrium wage is $30?
A) one
B) two
C) three
D) four
If government officials set an emissions tax too high:
A) there will be too little pollution.
B) there will be too much pollution.
C) the marginal social cost of pollution will exceed the marginal social benefit of
pollution.
D) pollution will be unabated.
Figure: A Perfectly Competitive Firm in the Short Run
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. The firm will shut down in the short run if the price
falls below:
A) G.
B) F.
C) E.
D) P.
Scenario: Accounting and Economic Profit
Rather than put the $100,000 that his grandmother left him in a mutual fund that earns
5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started
Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year,
purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and
advertising. Instead of using the capital for his own business, he could rent it to a rival
firm and earn $5,000 a year. In his first year, his revenue was $150,000.
(Scenario: Accounting and Economic Profit) Look at the scenario Accounting and
Economic Profit. What is the implicit cost of Wang's Wicker Furniture Store?
A) $7,000
B) $60,000
C) $65,000
D) $69,000
When Caroline's dress factory hires two workers, the total product is 50 dresses. When
she hires three workers, total product is 48, and when she hires four workers, total
product is 45. The marginal product of the third and fourth workers is:
A) increasing and positive.
B) increasing and negative.
C) decreasing and positive.
D) decreasing and negative.
Figure: Consumer Surplus I
(Figure: Consumer Surplus I) Look at the figure Consumer Surplus I. If the price rises
from P1 to P2, consumer surplus decreases by the area:
A) ABP2.
B) AFP1.
C) BGF.
D) P1P2BF.
Price in a perfectly competitive industry:
A) is determined by each firm, depending on its costs of production.
B) is always equal to marginal revenue for the firm.
C) must be greater than average total cost or the firm will shut down in the short run.
D) is indeterminate in the short run.
(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a
Perfectly Competitive Firm. The firm will produce at a profit in the short run if the
price is at least:
A) $2.07.
B) $2.53.
C) $3.47.
D) $4.26.
When an increase in the firm's output reduces its long-run average total cost, it has
_____ returns to scale.
A) increasing
B) decreasing
C) constant
D) variable
Manufactured resources such as equipment, buildings, and tools are also known as:
A) human capital.
B) labor.
C) physical capital.
D) natural resources.
In a particular insurance market, there is a decrease in the degree of risk aversion
among suppliers. Holding everything else constant, the equilibrium premium will
_____ and the equilibrium quantity of insurance will _____.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
Figure: Payoff Matrix for Jake and Zoe
(Figure: Payoff Matrix for Jake and Zoe) Look at the figure Payoff Matrix for Jake and
Zoe, the only producers of slushies in their tourist town. Every week, each decides
whether to price high or price low for the following week. The figure shows the profit
per week earned by their two firms. Suppose the firms each decide to price high
initially and adopt a tit-for-tat strategy for the following weeks. After a few weeks,
Jakes profit would be _____ and Zoe's profit would be _____.
A) $800; $800
B) $1,000; $1,000
C) $1,500; $200
D) $200; $1,500
The marginal revenue received by a firm in a perfectly competitive market:
A) is greater than the market price.
B) is less than the market price.
C) is equal to its average revenue.
D) increases with the quantity of output sold.
(Table: Total Product of Labor at Debbie's Bakery) Look at the table Total Product of
Labor at Debbie's Bakery. Debbie can sell cakes at $8 each. Debbie must pay each
worker $45 per day. How many workers will she hire to maximize profit?
A) two
B) three
C) four
D) five
If a monopolist knows its price elasticity of demand is greater than one, then a(n) _____
in price will _____ total revenue.
A) increase; increase
B) decrease; increase
C) decrease; decrease
D) increase; not change
Figure: PPV
(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $40. If the cable company is a single-price monopoly and
maximizes profit, deadweight loss will be:
A) $0.
B) $45.
C) $70.
D) $90.
A demand curve that is perfectly inelastic is:
A) horizontal.
B) vertical.
C) downward-sloping.
D) upward-sloping.
Intel finds it difficult to hire enough skilled computer engineers. This statement best
represents this economic concept:
A) Resources are scarce.
B) People usually exploit opportunities to make themselves better off.
C) There are gains from trade.
D) One person's spending is another person's income.
Firm A and firm B both produce a good whose manufacture causes pollution, but the
firms differ in their marginal benefit from pollution. In this case, an emissions standard
would:
A) reduce pollution in the most effective manner.
B) lead to an unequal reduction in pollution for both firms.
C) not be efficient, since it does not take into account differences in marginal benefits.
D) be preferred to an emissions tax, since it takes into account differences in marginal
benefits.
Markets that are characterized by many buyers and many sellers are:
A) inefficient.
B) competitive.
C) foreign.
D) monopolies.
