A numerical limit imposed by a government on the quantity of a good that can be
imported into the country is called a
A) tariff.
B) quota.
C) quantity floor.
D) barricade.
Congressman Murphy made the following proposal: “We should establish policies that
completely eliminate air pollution. This is the only way to ensure that none of our
citizens suffer the negative effects of air pollution.” If Congressman Murphy’s proposal
was adopted and all forms of air pollution were eliminated, which of the following
would be true?
A) The total cost of pollution reductions would equal the total benefit to society.
B) Economic efficiency would be maximized.
C) The total benefit to society from reductions in air pollution would be maximized.
D) The marginal cost from pollution reductions would exceed the marginal benefit.
Scenario 1-1
Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and
makes a profit of $5,000 per week. A manager at the plant observes, “Although the last
3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs
by $6,700, we are still making an overall profit of $5,000 per week so I think we’re on
the right track. We are producing the optimal number of cell phones.”
Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic
term for the incremental revenue received from the sale of the last 3,000 cell phones?
A) gross earnings
B) marginal revenue
C) sales revenue
D) gross profit
Macroeconomics is the study of
A) how households make choices.
B) how firms make choices.
C) how households and firms make choices.
D) the economy as a whole.
Which of the following would be considered an implicit cost of operating a business?
A) advertising expenses
B) wages paid to workers
C) a normal rate of return for investors
D) any explicit cost
Suppose the price of gasoline is $3.50 per gallon, the quantity of gasoline demanded is
150 billion gallons per year, the price elasticity of demand for gasoline is -0.06, and the
federal government decides to increase the excise tax on gasoline by $1.00 per gallon,
which increases the price of gasoline by $0.75 per gallon. What is the new equilibrium
quantity of gasoline demanded after the tax is imposed?
A) 72 billion gallons per year
B) 25 billion gallons per year
C) 27 billion gallons per year
D) 61 billion gallons per year
Figure 16-5
Refer to Figure 16-5. Consider the following two pricing strategies:
a. a fixed fee and a per-unit price equal to the monopoly price
b. a fixed fee and a per-unit price equal to the competitive price
The firm represented in the diagram earns a higher profit under strategy ________ and
deadweight loss is eliminated under ________.
A) b; b
B) a; b
C) a; neither strategy
D) b; neither strategy
Figure 16-1
Refer to Figure 16-1. What is the economically efficient output level?
A) Q1 units
B) Q2 units
C) Q3 units
D) Q4 units
Table 10-5
Refer to Table 10-5, which lists the values of Harry Taber’s marginal utility and
marginal utility per dollar for Italian submarine (sub) sandwiches and tacos. Assume
that the price of a sub sandwich is $4 and the price of a taco is $2. When Harry’s income
is $14 he buys two Italian sub sandwiches and three tacos. The last column lists the
values of the marginal utility per dollar for tacos when the price of a taco decreases to
$1. Complete this statement: As a result of the change in price, the marginal utility of
each taco Harry consumes increases and
A) the substitution effect of the price change will cause Harry to buy more tacos and
fewer subs.
B) the substitution effect of the price change will cause Harry to buy more tacos if they
are a normal good, and fewer tacos if they are an inferior good.
C) the substitution effect will cause Harry to buy another sub because his purchasing
power has increased.
D) the substitution effect will cause Harry to buy fewer tacos.
When new firms are encouraged to enter a monopolistically competitive market
A) some existing firms must be earning economic profits.
B) they do so because there is insufficient product differentiation.
C) the demand curve facing an existing firm shifts to the right.
D) the marginal cost curve facing an existing firm shifts downwards.
Price discrimination is possible in which of the following market structures?
a. perfect competition
b. monopoly
c. oligopoly
d. monopolistic competition
A) a, b, c, and d
B) c and d only
C) b and c only
D) b, c, and d only
From an economic perspective, price discrimination is desirable because
A) the increase in profits is more than offset by the loss in consumer surplus, resulting
in a net increase in economic surplus.
B) it enables firms to increase profits with no loss in economic surplus, and in turn, this
could provide firms with incentives to engage in beneficial product innovation.
C) the increase in profits results in higher corporate tax revenues received by the
government which could be used to subsidize consumption for low-income individuals.
D) it redistributes wealth from wealthy consumers to highly innovative firms.
________ raised average tariff rates by over 50 percent in the United States in 1930.
A) The GATT
B) The WTO
C) NAFTA
D) The Smoot-Hawley Tariff
Figure 10-5
Refer to Figure 10-5. Suppose the price of pizza increases while the price of hamburger
remains constant. Then, the consumer’s
A) indifference curve becomes more concave away from the origin.
B) indifference curve becomes straighter.
C) budget constraint moves inward toward the origin on the pizza axis while the
hamburger intercept remains the same.
D) budget constraint moves outward away from the origin on the pizza axis while the
hamburger intercept remains the same.
Figure 10-8
Refer to Figure 10-8. Given the budget constraint in the diagram, which of the
following statements is false?
A) The consumer receives the same level of utility from consumption bundles d, e, and
f.
B) Consumption bundles b and c yield the same level of utility, which is higher than the
utility represented by bundle a.
C) Although the consumer receives the same level of utility from bundles d and e, she
cannot afford to purchase bundle d.
D) The consumer’s optimal bundle could be bundle d, e, or f.
If firms in a monopolistically competitive market are earning economic profits, which
of the following scenarios best reflects the change a representative firm experiences as
the market adjusts to its long-run equilibrium?
A) Demand decreases and becomes less elastic.
B) Demand decreases and becomes more elastic.
C) Demand increases and becomes less elastic.
D) Demand increases and becomes more elastic.
Which of the following describes two-part tariff pricing?
A) A firm charges two different prices for the same good.
B) An importer has to pay a tax at the nation’s borders, and a sales tax when the good is
sold.
C) A buyer pays an initial price for entrance to the market and an additional fee for each
unit of the product purchased.
D) A buyer must pay a down payment and monthly payments to buy big-ticket items
such as a car, a plasma television, or a suite of furniture.
Consumers maximize total utility within their budget constraint by
A) buying the cheapest goods they can find.
B) buying whatever they like the best.
C) buying the goods with the largest marginal utility per dollar spent.
D) spending the same dollar amount for each good.
Figure 10-9
Refer to Figure 10-9. Consider the budget constraint BC1. If the price of DVDs is $20
and the price of CDs is $10, what is the consumer’s income?
A) $120
B) $240
C) $360
D) $480
Economists played a key role in the development of merger guidelines by the
Department of Justice and the Federal Trade Commission in These guidelines have
three main parts. What are these parts?
A) concentration ratios; the Herfindahl-Hirschman Index; market standards
B) concentration standards; concentration ratios; competitive analysis
C) economic analysis; political analysis; dynamic analysis
D) market definition; measure of concentration; merger standards
In a survey of consumers, Daniel Kaheman, Jack Knetsch and Richard Thaler asked
their opinion of a hardware store’s decision to
A) go out of business because a larger hardware store opened in the same city; 82
percent of those surveyed believed it was unfair for the larger store to compete with the
smaller store.
B) raise the price of snow shovels the day following a snowstorm; 82 percent of those
surveyed believed this was unfair.
C) sell tickets to sporting and cultural events at prices higher than prices paid at the
ticket windows for the same events; 82 percent of those surveyed believed this was
unfair.
D) remain in business even though the store was not making an economic profit; 82
percent of those surveyed believed it would be unfair for the store to go out of business
if there were no other hardware stores in the same area.
In 2015, Smileytown consumed 12,000 gallons of mouthwash. In 2016, mouthwash
consumption rose to 17,000 gallons. Calculate the percentage change in mouthwash
consumption.
A) 2%
B) 4%
C) 7%
D) 6%
Marginal cost is equal to the
A) change in total cost divided by the change in output.
B) change in average total costs divided by the change in output.
C) change in total product divided by the change in output.
D) change in average product divided by the change in output.
When considering changes in tax policy, economists usually focus on
A) the average tax rate.
B) the marginal tax rate.
C) people’s willingness to pay taxes.
D) people’s ability to pay taxes.
Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo
parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and
requires a monthly payment of $4,000. Max’s explicit cost amounts to $3,000 per month
more than his revenue. Should Max continue operating his business?
A) Max’s explicit cost exceeds his total revenue. He should shut down his tattoo parlor.
B) Max should continue to run the tattoo parlor until his lease runs out.
C) If Max’s marginal revenue is greater than or equal to his marginal cost, then he
should stay in business.
D) This cannot be determined without information on his revenue.
In many corporations, there is ‘separation of ownership from control.” What does this
mean?
A) The shareholders control the corporation, although the board of directors owns the
corporation.
B) The managers of the corporation run the corporation, although the shareholders own
the corporation.
C) The board of directors controls corporate operations, although the managers of the
corporation own the corporation.
D) Top corporate managers only make decisions that have been approved unanimously
by shareholders.
In the United States, the largest source of funds for public schools is
A) the federal income tax.
B) the property tax.
C) the consumption tax.
D) sales taxes.
Table 3-2
Refer to Table 3-2. The table above shows the demand schedules for caviar of two
individuals (Ari and Sonia) and the rest of the market. At a price of $75, the quantity
demanded in the market would be
A) 6 oz.
B) 46 oz.
C) 52 oz.
D) 127 oz.
Table 2-1
Production choices for Tomaso’s Trattoria
Refer to Table 2-1. Assume Tomaso’s Trattoria only produces pizzas and calzones. A
combination of 36 pizzas and 30 calzones would appear
A) along Tomaso’s production possibilities frontier.
B) inside Tomaso’s production possibilities frontier.
C) outside Tomaso’s production possibilities frontier.
D) at the horizontal intercept of Tomaso’s production possibilities frontier.
The owners of a ________ have a separate legal distinction from the business.
A) corporation
B) partnership
C) sole proprietorship
D) All of the above are correct.
The demand for labor is different from the demand for final goods and services because
A) the demand for labor is derived from the demand for the good or service the labor is
used to produce.
B) it is a demand for people, not inanimate objects.
C) the demand for labor is more inelastic than the demand for the goods and services
produced with this labor.
D) the law of demand does not apply to the demand for labor.
Figure 5-7
Refer to Figure 5-7. The marginal cost of reducing pollution curve is the same curve as
A) the supply of pollution reduction curve.
B) the demand for pollution reduction curve.
C) the negative externality curve.
D) the value of pollution reduction curve.
Table 16-3
Julie plans to start a pet-sitting service. She surveyed her neighborhood to determine the
demand for this service. Assume that each person surveyed demands only one hour of
pet sitting services per period. Table 16-3 above shows a portion of her survey results.
Refer to Table 16-3. Suppose Julie’s marginal cost of providing this service is constant
at $7 and she charges $7 per hour. What is her marginal revenue?
A) It is $7 for the first hour and starts declining thereafter.
B) It is $7 for the first hour and starts increasing thereafter.
C) It is constant at $7.
D) It coincides with the figures in the table; $12 for the first hour, $10 for the second,
$9 for the third, and $8 for the fourth.
All of the following are disadvantages of cost-plus pricing except which one?
A) It ignores the price elasticity of demand: for example, it may be possible to increase
profits by raising or lowering price.
B) If the industry comprises identical firms (with identical costs), markups could be
consistent among firms leading to no one firm having a competitive edge in terms of
price.
C) Allocating and apportioning business overheads to individual products could be
somewhat arbitrary.
D) The business has less incentive to cut or control costs: if costs increase, then selling
prices increase. Consequently, this might further erode a firm’s competitiveness.